"Communications: With New Leadership, the FCC Charts Its Course for 2014"

by Skadden, Arps, Slate, Meagher & Flom LLP

With a new chairman and a full complement of commissioners for the first time in more than six months, the Federal Communications Commission (FCC) is poised to take on a broad set of communications-related issues in 2014 and beyond. Chairman Tom Wheeler, with a background in both media and telecommunications advocacy, has indicated a desire to quickly refocus the FCC into action on a number of significant issues. The chairman’s brief track record in office does not provide a detailed roadmap of his intentions, but the items he has addressed in his first two months in office serve as a harbinger of issues he likely will focus on during his stewardship of the FCC. These include policies that enhance competition in the marketplace and ensure the deployment of advanced networks and services. His background as a lobbyist for the cable industry also may lead Chairman Wheeler to reinvigorate the FCC’s focus on media-related issues.

Spectrum Auctions and IP Transition on the Horizon

One of Chairman Wheeler’s main priorities will be to prepare for a number of spectrum auctions that will help to further expand the availability of advanced wireless networks across the country. The most noteworthy upcoming auction is an extremely complicated undertaking involving the re-auction of existing television broadcast spectrum for mobile wireless services. This auction stems from the Middle Class Tax Relief and Job Creation Action of 2012, which requires the FCC to conduct: (i) a reverse auction in which television broadcast licensees establish prices at which they agree to relinquish some or all of their spectrum rights, and (ii) a traditional forward auction in which wireless carriers (or other participants) bid to acquire the right to use any relinquished spectrum.

The FCC has been conducting a variety of proceedings to establish the rules for the auction, which will be the most challenging ever undertaken by the Commission. While the FCC originally had stated it hoped to begin the auction in 2014, Chairman Wheeler recently pushed back this schedule to 2015. In doing so, he confirmed the beliefs of many industry participants that a 2014 auction was very unlikely to occur. Chairman Wheeler stated that additional time is required to ensure that both the auction process and the underlying technology can be optimized. As a result, auction participants can expect a number of new rulemaking proposals in the coming year requesting participant input on auction procedures. One of the major issues Chairman Wheeler must resolve in establishing these procedures will be whether to impose caps on the amount of spectrum AT&T and Verizon Wireless can procure at auction. Given his recent public statements regarding the need to implement policies that further marketplace competition, it appears that he may favor certain limitations on these carriers’ participation in the auction.

Chairman Wheeler also recently stated that a so-called “network compact” with consumers is a principle that will guide his policymaking at the commission. In the chairman’s view, this compact embodies the FCC’s statutory responsibility to ensure that all Americans have access to wired and wireless networks and services. In recent months, the chairman has made headlines for pushing wireless carriers to allow consumer-to-unlock handsets at the end of a contract term and for considering the elimination of in-flight wireless services. While these issues offer glimpses into this network compact, the chairman’s primary focus is likely to be a commitment to transitioning the U.S. telecommunications systems to IP-based technologies. His most recent private sector experience involved investing in early state IP-based companies, and he clearly is eager to leverage this expertise at the commission. In fact, he recently indicated that the FCC will initiate a process to consider the legal, policy and technical issues that will constitute the commission’s IP transition agenda.

Media Issues Receive New Focus

Chairman Wheeler’s leadership likely will result in a renewed FCC focus on media-related issues, reversing what many view as relative inattention to media issues in recent years. One of the chairman’s first actions was to withdraw the never-released order resulting from the FCC’s 2010 quadrennial review of media ownership. The order reportedly would have relaxed certain regulatory controls on the combined ownership of select media properties, such as a radio station and newspaper in the same market. In withdrawing the order, the chairman suggested an intent to take a look at the upcoming 2014 review with fresh eyes, and to consider a more sweeping set of changes to the media ownership regulations. The chairman has not tipped his hand as to his intentions, but the 2014 review is certain to significantly impact the investment climate in the sector because it will be the first ownership review in more than eight years.

The chairman also appears poised to pursue pro-growth policies in the media sector, including reconsidering restrictions governing investments in media-related properties. For example, the FCC recently signaled a new interest in encouraging foreign investment in broadcast licensees by clarifying how it will review such investment going forward. The Communications Act of 1934 limits foreign ownership of U.S. entities that control broadcast licensees to 25 percent, though it grants the FCC discretion to find that, in certain cases, this limitation is not in the public interest. The FCC previously refused to approve any foreign ownership interest greater than 25 percent in broadcast license holders. Despite this longstanding precedent, the commission issued a declaratory ruling in November lifting the de facto ban on indirect foreign ownership above 25 percent, clarifying that it intends to review applications for such ownership on a case-by-case basis going forward. By allowing broadcasters to attract foreign capital on the same terms as their cable and satellite equivalents, Chairman Wheeler made a decided policy shift that should open investment opportunities greatly benefitting broadcasters.

*This article appeared in the firm's sixth annual edition of Insights on January 16, 2014.

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