FCC Avoids Shutdown For Now, But Continued Threat Looms Over TMT Sector

by Hogan Lovells
Contact

[co-author:

The federal government is open.  But less than three weeks remain under the current reprieve and another shutdown seems possible.  Although the Federal Communications Commission tapped on-hand fees to support uninterrupted operations earlier this week, the FCC will start to run out of time – and money – if the stalemate over the budget continues and another shutdown occurs.

How would a protracted shutdown affect the technology, media and telecom industries and the billions of dollars of investment that depend on regulatory action by the FCC?  How soon before Samsung and Apple face launch delays for products that need FCC approval to enter the market?  When will GoPro, Nintendo, Tile, Roku and other consumer electronics makers start to see product delays?  Will wireless emergency alerts continue to be available?  And will a shutdown affect the nation’s bid in the global race for leadership in the deployment of advanced, fifth-generation wireless networks?  These are just some of the questions as the technology, media and telecom sectors confront the possibility of an extended period of time without a functioning regulator.

Consumer Electronics Makers May Be the First to See the Effects of a Prolonged Shutdown

Device manufacturers will be among the first to feel the effects of a protracted government shutdown.  In the United States, virtually all electronic devices must receive FCC equipment certification prior to sale.  Every cell phone.  Every television.  Every computer.  Each device emits a unique radio frequency signature, and the FCC reviews this signature to limit the potential for harmful interference to other devices.  All told, the FCC and its third-party contractors process an estimated 16,000 equipment certification applications annually.  But with further processing impossible during a shutdown, electronic devices not already approved by the FCC cannot lawfully be sold in the United States.

The FCC has already approved certain widely anticipated devices, such as the Samsung Galaxy S9 and many wireless charging pads; however, the longer the shutdown continues, the greater the risk that new devices will sit in warehouses and shipping containers unassembled or pending final design approval. Even upon the resumption of operations, moreover, the backlog of equipment certifications has the potential to delay important consumer product launches from manufacturers such as Google, Apple, Samsung, HTC, and LG, as well as from smaller manufacturers who seek to deploy innovative equipment for medical, industrial, and scientific use.

Spectrum Assignment Delays Could Postpone the Deployment of Next-Generation Wireless Services

According to the trade association CTIA, the wireless industry supports more than 4.6 million jobs and contributes roughly $400 billion annually to the US economy — more than the auto manufacturing, agriculture, and oil and gas industries.  But without new spectrum assignments to support additional wireless deployments, the trade association CTIA has said that America’s wireless leadership is at risk.  “We’re at a critical moment,” CTIA has said. “The EU, China, Japan, South Korea and others are doing everything they can to seize our wireless leadership.”

An extended shutdown could postpone a number of pending rulemaking proceedings intended to open vast expanses of radio frequency spectrum for wireless broadband use.  The FCC has identified additional spectrum available in the 24 GHz, 28 GHz, 37 GHz, 39 GHz, and 47 GHz bands.  But more work remains to be done before wireless operators and unlicensed device manufacturers can access these and other bands of spectrum.  In addition, numerous lower-frequency bands, including the 3.5 GHz citizen broadband radio service, remain at critical stages of development where deployment will suffer if FCC oversight remains on hold for an extended period of time.

Telecommunications and Media Companies May Face Merger and Licensing Delays

Sinclair Broadcast Group, the largest owner of local television stations in the country, could face delays in its $3.9 billion acquisition of Tribune Media, another large local TV broadcaster.  The informal 180 day “shot clock” is currently paused at day 167 as the FCC continues to review the transaction.  The public filed more than 3,500 comments with the FCC since August 7, 2017, and any delay could complicate implementation of Sinclair’s acquisition.  While a shutdown should not derail widely anticipated FCC approval of the transaction, a shutdown could delay Sinclair’s ability to fully execute its post-acquisition business strategy.

Delays are also likely to occur in licensing and spectrum assignments in the 600 MHz band. The FCC, for example, has yet to issue numerous 600 MHz licenses from its recent incentive auction, and several major secondary-market transactions in wireless spectrum, such as AT&T’s transfer of its 600 MHz licenses to LB License Company for nearly $1 billion, may face delays in the event of a continued impasse over the budget.

Wireless Emergency Alert System Will Function, But Face Delayed Improvement

The FCC’s Wireless Emergency Alert (WEA) system provides warnings of “imminent threats to safety or life,” including extreme weather, terror attacks, and natural disasters. WEA will continue to function during a shutdown because wireless carriers and public safety authorities – not the FCC – administer most of the day-to-functions of the WEA system.  Even during a shutdown, authorized national, state or local government authorities may send alerts regarding public safety emergencies – such as evacuation orders or shelter-in-place orders – using WEA.  But a shutdown would postpone long-sought improvements to the WEA system, such as improved support for multimedia, multilingual and geo-targeting alert capabilities.  The FCC has an open proceeding asking for public comment on a variety of reforms to the WEA system.  This effort, which has taken on far greater importance following the accidental ballistic missile alert that consumer cellphones, televisions, and radios in Hawaii received earlier this month, would likely stall during an extended government shutdown.

Subsidies for Rural and High-Cost Areas Will Remain Available – for Now

Disbursements would continue in the near term for Universal Service Fund programs, including the Connect America Fund and the Rural Health Care Program.  But a prolonged shutdown could place continued funding of these important programs into doubt.

The Connect America Fund, for example, provides subsidies to carriers to deliver voice and broadband service to high-cost areas and is authorized to provide more than $2 billion in funding support over the next ten years.  Similarly, the Rural Health Care Program has a budget of more than $400 million and provides support for broadband connectivity for healthcare providers serving rural areas, enabling telemedicine services to underserved populations.  Both programs are administered by the Universal Service Administrative Company (USAC).  USAC is an independent, not-for-profit organization that, unlike federal agencies, is not required to shut down once federal funding has been exhausted.  Nonetheless, disruptions could occur as soon as continued funding for USF requires FCC action.  For example, USAC submits quarterly projections of revenues of telecommunications carriers, which the FCC uses to establish a “contribution factor” for the upcoming quarter, requiring a certain set of proceeds to be set aside by the carriers for USF funding.  The longer a shutdown lasts, the more uncertain funding for USF programs will become.

In the same way, a prolonged shutdown could disrupt long-sought funding to improve availability of mobile broadband services.   The FCC, for example, has started to finalize planning for Mobility Fund Phase II and the Tribal Mobility Fund Phase II, which will be authorized to disburse up to $4.53 billion to promote wireless broadband deployment over the next decade.  But the administration of these funds is complex.

The FCC has said it intends to distribute funds using a market-based, multi-round reverse auction mechanism.  The FCC has also announced its intention to guard against abuse through a complex challenge process, the use of strict compliance milestones and extensive administrative oversight.   But finalizing this proceeding and the administrative safeguards will require support from scores of federal employees who face the prospect of financial furloughs in less than three weeks’ time.

Companies Should Identify Their Exposure and Devise Mechanisms to Maintain Business Operations Amidst Uncertain Government Funding

Companies operating in the TMT sector may not be able to solve the nation’s political gridlock.  But they can take steps now to guard against the most likely forms of delay at the primary regulatory authority for the sector.  Accelerating the filing of equipment authorizations and promoting the timely disposition of transfers of control and assignment applications can help mitigate disruption.  While companies that depend on spectrum assignments or universal service support may have fewer options, these businesses will benefit from conducting a candid assessment of their vulnerabilities and developing contingency plans if the nation’s legislators cannot settle on an annual budget by February 8 when the current temporary funding package expires.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Hogan Lovells | Attorney Advertising

Written by:

Hogan Lovells
Contact
more
less

Hogan Lovells on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.