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Volume 48; 1995-1996 • Issue 3

Editor’s Note

Report of the Subcommittee on Legal Opinions of the Transactional Practice Committee of the Federal Communications Bar Association

The Federal Communications Bar Association created an Ad Hoc Committee on Opinion Letters to create and develop materials to assist practitioners in drafting and negotiating opinion letters for FCC-related transactions. This Committee Report is intended to facilitate negotiations between opinion givers and recipients, whose respective business operations are at least in part regulated by the FCC. However, the Report is drafted with the assumption that practitioners utilizing it understand the basis for certain opinions are counsel(s examination of records which may be incomplete in the public reference room.

The Report is divided into four parts: (1) the general status of opinion giver(s client’s (company) FCC Licenses; (2) opinions dealing with the actual transaction and the necessary FCC approvals; (3) pending litigation which may affect the status of FCC Licenses owned by the company; and (4) requests for opinions concerning the company(s compliance with communications law and regulation. Recommended language and commentary summarizing the Committee(s reasons for recommending the language are provided after each opinion.


The FCC’s Minority Ownership Policies from Broadcasting to PCS
by Antoinette Cook Bush and Marc S. Martin

The Federal Communication Commission’s (FCC(s) proposed minority preference scheme for broadcast spectrum allocation has been called into question in the wake of the Supreme Court(s recent decision in Adarand Constructors, Inc. v. Pena. The Authors begin by discussing the development of minority preference schemes in the 1970s and 1980s and the changes in the methods through which the FCC has awarded broadcast licenses. In 1993, the FCC was granted the authority to auction spectrum allocation, provided that the FCC ensured the economic opportunity of minority-owned business under such a competitive bidding regulatory regime. However, this grant of authority presented the FCC with a legal concern: ensuring that the a minority preference scheme was not violative of the Equal Protection Clauses of the Fifth and Fourteenth Amendments. To this end, the FCC established “entrepreneurs’ blocks” in which two spectrum blocks were set-aside for applicants meeting certain financial qualifications. These financial-based eligibility restrictions appeared to create a solid legal foundation. However, the Adarand decision has resulted in the FCC postponing the proposed entrepreneurs’ block auction indefinitely.

The remainder of the Article is a discussion of the Adarand decision and its effect on the proposed blocks. In particular, the Authors discuss whether the FCC-proposed scheme will survive the strict scrutiny standard imposed by Adarand.

Common Carrier Regulation of Telecommunications Contracts and the Private Carrier Alternative
by Peter K. Pitsch and Arthur W. Bresnahan

The Communications Act of 1934 requires, among other things, that telephone companies as “common carriers” make their services available to the general public at affordable rates. The Federal Communications Commission (FCC) has the authority to classify telephone services as common carriers as well as the ability to remove common carrier regulation to promote competition, satisfy consumer demand for individually tailored offerings, and avoid unnecessary regulatory costs. The Authors of this Article believe that the FCC should remove the common carrier regulation from certain long-distance service contracts and that such regulation is consistent with the deregulatory aims of the recent Telecommunications Act of 1996.

The Article first reviews the judicial development of the common carrier definition which finds that a communications service is acting as a carrier if it either (1) actually holds out its service indiscriminately to the public or (2) is required to hold itself out because the public interest requires it. The Authors discuss the relatively broad application of this definition to new and existing telephone services in a series of cases. Part I concludes with an examination of recent instances where the FCC has used this definition to reclassify various telecommunications services as private or noncommon carriers/carriage. These instances fall into five categories: (1) satellite transponders, (2) broadcast-related services, (3) private land mobile services, (4) private microwave services, and (5) certain communications services, such as enhanced services and inside wiring.

In Part II the Authors describe the growth and importance of individually negotiated telecommunications service contracts to the business operations of many customers. The Article then discusses the application of the private carrier alternative to these contracts. The Authors argue that there is nothing inherent in these contracts which requires that they be designated as common carrier services. The Authors offer several reasons why the FCC should no longer require that the contract services indiscriminately be held out to the public, including some of the potential benefits of removing this regulation. The Authors feel that classifying the service contracts as private would promote competition and innovation, as well as reduce regulatory costs.


Cooperative Standard Setting: The Road to Compatibility or Deadlock? The NAFTA’s Transformation of the Telecommunications Industry
by Karen E. Lee

In an effort to reduce nontariff barriers, the North American Free Trade Agreement (NAFTA) directs its three member nations to utilize product standards set by international standard-setting organizations. What were once considered “permissible standards” are now mandatory standards as Articles 904-906 of the NAFTA mandate the telecommunications industry to adopt cooperative standard-setting by these organizations as the sole method to achieve standardization. Currently, the International Telecommunications Organization and the International Organization for Standardization are the two principal cooperative standardization organizations in the telecommunications industry.

This Note argues that the NAFTA should allow members to “opt out” of the requirement for reliance on the standards developed by international standard-setting organizations. Delays in the standardization process increase costs. In addition, the political battles waged within these organizations do no always create the best standardization result. This Note argues for a two-year reliance period on international standardization organizations to achieve a result. If, at the end of that period, no standard emerges, then the NAFTA members could rely on regional standards. In addition, there must be structural reform within the international standard-setting organizations to reduce the costly delays and political problems.


Spectrum Bids, Bets, and Budgets: Seeking an Optimal Allocation and Assignment for Domestic Commercial Electromagnetic Spectrum Products, Services, and Technology
by William Kummel

This Comment analyzes the Federal Communications Commission’s (FCC’s) allocation and assignment of commercial electromagnetic spectrum licenses through competitive bidding auctions as authorized under Sections 921 to 927 of the National Telecommunications and Information Administration Organization Act (NTIAO Amendment) and Section 309(j) of the Federal Communications Act of 1934.

In five parts, this Comment analyzes (1) the FCC’s statutory mandate, (2) spectrum’s unique physical properties, (3) allocation and assignment methodologies, (4) traditional and nontraditional bidding systems, and (5) the preferred simultaneous multiple round electronic (SMRE) bidding structure. This Comment recommends a policy reorientation to promote spectrum capacity.

To promote efficient use and public benefit of commercially usable spectrum, Congress, through the NTIAO Amendment and Section 309(j), authorized the Commerce Department and the FCC to respectively transfer and auction federal government frequencies for commercial use. The physical properties of spectrum—instantly renewable, nondepletable, degradable, and finite—make auctions an effective assignment method regardless of scarcity.

The FCC selected SMRE bidding as the preferred assignment method. Auctions advance public interest, convenience, and necessity better than other assignment mechanisms with mechanisms such as first-come/first-served, comparative hearings, user fees, and random selection. SMRE bidding is more likely to award licenses to the highest value user than traditional (oral ascending, oral descending, sealed bid and second-price) or other nontraditional (Japanese and sequential sealed bid) auction structures. To further deter opportunistic behavior including overbidding, collusion, and default, the FCC introduced disclosure, deposit, transferability, build-out, aggregation, and bid group requirements.

Book Review

Digital Demons and Lost Lawyers: A Review of Law in a Digital World by M. Ethan Katsh
by Bruce A. Markell

The increase in technology gives rise to an interesting discussion on whether the way lawyers approach the law will change. This question is analyzed with Professor Katsh’s premise that the increase in the use of computers and networks will ultimately change the manner in which lawyers accumulate and use information. The Reviewer defends the role of lawyers as being more than just “information providers;” lawyers are guardians of a distinguished service as well. The Reviewer declares that what lawyers do cannot be oversimplified by computers and networks. Nevertheless, the Reviewer emphasizes that Law in a Digital World does provide insight into the effect new technologies may have on the day-to-day practice of law.


Copyright © 1996 by the Federal Communications Law Journal. Except as otherwise provided, the author of each article in this issue has granted permission for copies of that article to be made for classroom use, provided that (1) copies are distributed at or below cost, (2) the author and the Journal are identified, (3) proper notice of copyright is attached to each copy, and (4) the Federal Communications Law Journal is notified of the use.