Verizon Offers to Sell 700 MHz Spectrum in Exchange for ...

April 20, 2012
Verizon Offers to Sell 700 MHz Spectrum in Exchange for Approval of SpectrumCo Deal
To placate regulators and rival carriers who have voiced concern with Verizon Wireless’s
proposed $3.9 billion acquisition of advanced wireless service spectrum held by the
SpectrumCo venture, Verizon said on Wednesday that it would sell its A- and B-block
licenses in the 700 MHz band upon receiving regulatory approval of the SpectrumCo
deal. The spectrum assets being offered for sale were acquired by Verizon in the FCC’s
auction of 700 MHz band licenses in 2008. According to the company, the licenses in
question, which cover dozens of major metropolitan areas as well as “a number of
smaller and rural markets,” will not be used in the ongoing build out of Verizon’s fourth-
generation long term evolution wireless broadband network. Opponents of the
SpectrumCo deal such as Sprint Nextel, T-Mobile USA and MetroPCS fear that the
transaction will put too much spectrum under the control of Verizon, which already ranks
as the nation’s largest wireless carrier. Sources say that Verizon’s plan to sell some of its
wireless licenses in exchange for approval of the SpectrumCo deal is intended to address
these concerns while giving rival carriers an opportunity to snatch up valuable spectrum
that can be used to satisfy exploding consumer demand for wireless broadband services.
While predicting that the SpectrumCo purchase will receive FCC and Justice Department
approval by mid-summer, Molly Feldman, the vice president of business development at
Verizon, told reporters: “since wireless operators, large and small, have expressed
concern about the availability of high-quality spectrum, we believe our 700 MHz licenses
will be attractive to a wide range of buyers.”
T-Mobile USA Cited by FCC for Violations of Hearing Aid Compatibility Rules
T-Mobile USA has been informed by the FCC that it is liable for $819,000 in fines
stemming from violations of rules that require wireless carriers to offer a specified
number of handsets designed for use by hearing impaired subscribers. Carriers may be
held liable for fines of up to $1.5 million for non-compliance with the FCC’s hearing aid
compatibility (HAC) rules, which were first promulgated in 2003. In a notice of apparent
liability for forfeiture issued last Friday, the FCC asserted that T-Mobile had fallen short
of the minimum number of HAC-compliant handsets, rated M-3 or higher and T-3 or
higher, that the company was required to carry during the 2009-2010 calendar years.
Although T-Mobile was required to offer between four and nine M-3-rated handsets
during 2009 that operate on the wideband code division multiple access (WCDMA) air
interface, the FCC noted that T-Mobile repeatedly fell short of that benchmark each
month by one to three handsets. During 2010, T-Mobile fell short of benchmarks
requiring either nine or ten M-3 rated handsets by as many as four handset models each
month. The agency also accused T-Mobile of failing “to offer to consumers during the
2009 and 2010 calendar years the required number of T-3 rated handset models that
Verizon Offers to Sell 700
MHz Spectrum in Exchange
for Approval of SpectrumCo
Compatibility Rules
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PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 2
operate on the WDCMA air interface.” In response to a 2010 letter of inquiry, T-Mobile told the FCC’s Enforcement Bureau that it
had “relied on . . . manufacturers’ reports for several handset models’ [HAC] ratings” that T-Mobile later learned were inaccurate.
Notwithstanding T-Mobile’s explanation, the FCC decided that the proposed fine of $819,000 was appropriate in view of “the
potentially substantial and tangible impact” of T-Mobile’s lack of compliance “on consumers with hearing loss.” T-Mobile will have
30 days in which to pay or contest the proposed fine. Stressing that T-Mobile “takes seriously its obligations to comply with its [HAC]
responsibilities,” a T-Mobile spokeswoman emphasized that her company “is committed to providing high-quality products and
services to all of its customers.”
FCC Fines Google for Impeding Investigation in “Wi-Spy” Case
In a second enforcement action last Friday, the FCC held Google, Inc. liable for $25,000 in fines for impeding or delaying an FCC
investigation into Google’s collection of Wi-Fi “payload” data, consisting of e-mail, Internet passwords, text messages, and web
browsing histories of Internet users, as part of Google’s Street View service. To enhance its online map service, Google uses a fleet of
specially equipped vans to take photos that provide map users with street views of their intended destinations. In what has since been
dubbed as the “Wi-Spy” scandal, Google’s Street View service came under fire two years ago after Google disclosed that it had
inadvertently collected sensitive web user data through Wi-Fi networks in compiling street view data. Google, which has since stopped
using Wi-Fi data as part of the Street View service, has maintained that it neitherused the data in question nor shared that data with
outside parties. In October 2010, the Federal Trade Commission (FTC) closed its investigation into the Street View service practices
after Google promised the FTC that it would improve privacy safeguards and submit to independent privacy audits for the next twenty
years. Citing the absence of legal precedent, the FCC determined that Google’s actions did not violate federal regulations against
electronic eavesdropping. Nevertheless, the FCC determined that a fine was warranted based on Google’s lack of cooperation in
assisting the FCC’s investigation. In assessing the fine, the FCC pointed to Google’s lack of diligence in searching for requested e-
mails, the company’s failure to identify employees and to verify the accuracy of its submissions, and its failure to respond fully to
questions posed by the FCC. Although Google reiterated in a press statement that “we did nothing illegal,” an executive of the
Electronic Privacy Information Center called for a Justice Department probe, arguing that Google’s interception of Wi-Fi data
constitutes a violation of federal wiretap laws.
Industry Urges Congress to Act on Wireless Tax Bills
As millions of Americans put the finishing touches on federal tax returns that were due on Tuesday, executives of wireless association
CTIA and six major wireless carriers wrote to leaders of the Senate Finance Committee to urge passage of separate bills that would
impose a five-year moratorium on new state or local taxation of wireless services and establish a national framework for taxes applied
to digital goods and services. Signed by Steve Largent, the CEO of wireless association CTIA, and by the CEOs of AT&T, Verizon
Wireless, Sprint Nextel, T-Mobile USA, United States Cellular and Cellcom, the letter spotlights the Wireless Tax Fairness Act (S.543)
and the Digital Goods and Services Tax Fairness Act (S.971). Both measures are currently under review by the Senate Finance
Committee under the leadership of chairman Max Baucus (D-MT) and ranking member Orrin Hatch (R-UT). Addressing S. 543, the
executives advised Baucus and Hatch that enactment of the proposed moratorium on state and local wireless taxes “will provide the
states a chance to reform today’s discriminatory tax system, which now applies an average levy of more than 16.3 percent to wireless
services [as] compared to an average rate of 7.4 percent applied to other goods and services.” In calling for quick passage of S. 543,
the executives also noted that “the disparity between the taxes on wireless services and other goods and services imposes an unfair and
regressive burden on low income Americans who disproportionately rely on wireless service for both telephony and Internet access.”
With respect to S. 971, the wireless executives outlined the need for “a national framework for the application of state and local taxes
on digital goods and services downloaded to smart phones and wireless tablets” as “several different jurisdictions may claim they have
the right to tax the same transaction at different tax rates depending on where the consumer lives, where the consumer was when the
digital good was purchased, or where the entity that sold the digital good is domiciled.” The solution to such jurisdictional issues,
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added the executives, lies in the passage of S. 971, which “would impose a clear framework to govern these transactions similar to the
way that Congress dealt with mobile service more than a decade ago when it enacted the Mobile Telecommunications Sourcing Act.”
Honeywell to Supply Equipment for Inmarsat Airborne Wi-Fi Service
Inmarsat took an important step forward in its plan to bring Wi-Fi services to the worldwide airline industry as Honeywell International
committed this week to supply Inmarsat with antennas and other onboard gear that will provide airline passengers with Wi-Fi
connectivity via Inmarsat’s satellite fleet. The 20-year agreement, announced on Wednesday, represents a key milestone for Inmarsat’s
$1.2 billion Global Xpress network, which is slated to provide airline passengers with in-flight broadband connectivity through three
Boeing-built Ka-band satellites to be launched by Inmarsat in 2013 and in 2014. Once moribund, the global market for in-flight
broadband services is resurging thanks to recent advances that have made the concept of in-flight broadband both technically feasible
and financially attractive for airlines, service providers, and equipment manufacturers. Research and consulting firm In-Stat projects
rapid uptake in in-flight Wi-Fi services over the next five years, with more than 6,100 U.S. aircraft expected to offer such services by
2015 as compared to 1,800 such aircraft today. Since the end of 2010, passenger usage of in-flight broadband services has doubled
from four percent to eight percent, and In-Stat anticipates that figure will rise to ten percent by the end of this year. Inmarsat’s Global
Xpress service will make its debut in an airline Wi-Fi market currently dominated by Gogo, Inc., which supplies broadband
connectivity via a network of ground-based antennas to 87% of Internet-enabled aircraft serving the North American market. Gogo—
which has signed on with Inmarsat as one of two ISPs to provide service via Global Xpress—offers peak Internet download speed of
3.1 Mbps, whereas Global Express is expected to support download speeds as fast as 50 Mbps. As for Honeywell, experts predict that
Wednesday’s agreement will reap more than $2.8 billion in revenues for the company over the next two decades. Touting Honeywell
as “the most qualified and credible technology partner in their field,” Global Xpress managing director Leo Mondale proclaimed that
his company’s service “will raise the bar for in-flight connectivity.”
Vodafone to Pursue International Arbitration over India Tax Proposal
On Tuesday, Vodafone warned India’s government that it will initiate international arbitration proceedings if the government refuses to
withdraw pending legislation to impose retroactive taxes on transactions between Indian and foreign companies, charging that the
proposal violates Vodafone’s rights under an investment treaty between the Netherlands and India. The measure—which would apply
taxes retroactively to foreign transactions dating back to 1962—is viewed as the government’s response to a recent ruling by India’s
Supreme Court dismissing a $2 billion tax assessment that the national tax department attempted to collect from Vodafone in the wake
of the British wireless giant’s $11 billion acquisition of Hutchison Essar in 2007. Capping a five-year legal battle, Vodafone convinced
the Supreme Court earlier this year that the company was not liable for capital gains taxes as the Essar transaction took place between
two offshore entities: a Dutch subsidiary of Vodafone and a unit of Hutchison that is based in the Cayman Islands. The tax bill, which
forms part of a budget package that the Indian parliament is expected to vote on next month, has been condemned by Vodafone as “a
denial of justice and a breach of the Indian government’s obligations” under India’s treaty with the Netherlands. In addition to
pursuing international arbitration, Vodafone advised the government that it will also challenge the bill’s constitutionality before the
Supreme Court if the legislation is adopted. Declaring that “Vodafone will take whatever steps are necessary to protect its
shareholders’ interests,” the company said in a written statement that it has called on the Indian government “to abandon or suitably to
amend the retrospective aspects of the proposed legislation as Vodafone would prefer to reach an amicable solution.”
* * * For information about any of these matters, please contact Patrick S. Campbell (e-mail: [email protected]) in the Paul, Weiss
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