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In this edition of Views and News ETI is pleased to discuss AT&T's recent decision to withdraw its FCC application to take over T-Mobile, and the FCC Staff analysis of the proposed merger. We also examine the impact of the FCC's intercarrier compensation reform on Voice over IP services.
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AT&T Withdraws its FCC Application to buy T-Mobile
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On November 22, 2011, FCC Chairman Julius Genachowski announced that he was proposing that the Commission require that AT&T's proposed acquisition of T-Mobile be subject to an administrative hearing before the agency would approve or deny the takeover, and that a proposed Order was being circulated to the other Commissioners for adoption by the full Commission. In the waning hours before Thanksgiving, AT&T quickly withdrew its FCC Application without prejudice. AT&T had the right to withdraw its own application, but it seems clear that it did so in an effort to avoid the FCC publicly expressing its concerns over the potential harms resulting from the proposed transaction. After pulling its petition, AT&T announced that:
- "AT&T Inc. and Deutsche Telekom AG are continuing to pursue the sale of Deutsche Telekom's U.S. wireless assets to AT&T and are taking this step to facilitate the consideration of all options at the FCC and to focus their continuing efforts on obtaining antitrust clearance for the transaction from the Department of Justice either through the litigation pending before the United States District Court for the District of Columbia, Case No. 1:11-cv-01560 (ESH) or alternate means. As soon as practical, AT&T Inc. and Deutsche Telekom AG intend to seek the necessary FCC approval."
While AT&T seems to be carrying on as if this were a minor speed bump in its effort to swallow the nation's fourth largest wireless carrier, this certainly is a major blow to AT&T. In its merger agreement, AT&T assumed an obligation to pay a breakup fee estimated to be worth $6-billion ($3-billion in cash that would be paid over to T-Mobile plus spectrum whose value has been pegged at about $3-billion if AT&T was unable to gain the regulatory approvals necessary to consummate the transaction). In the face of a Justice Department lawsuit, suits brought by competitors, and arbitrations filed by individual consumers seeking to halt the merger, this trouble at the FCC was enough to shake at least AT&T's financial auditors' confidence: AT&T announced on November 25 that it was taking a pretax accounting charge of $4-billion ($3-billion cash and $1-billion book value of spectrum) to reflect the potential break-up fees due Deutsche Telekom in the event the transaction does not receive regulatory approval.
To whatever extent AT&T's withdrawal of its FCC application was aimed at staving off the issuance of an adverse finding by the Commission, it didn't succeed. On November 30, the FCC went ahead and released the staff study of the proposed transaction anyway, including its view of the competitive harms that would likely result from the transaction. After reviewing the FCC's findings, it seems increasingly likely that T-Mobile will be the recipient of much needed capital and advanced spectrum.
Continue reading at econtech.com
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FCC Intercarrier Compensation Order: Boon or Bust for VoIP Providers?
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The long-awaited order ushering in comprehensive reform of Universal Service Funding (USF) and Intercarrier Compensation (ICC) finally hit the presses on November 18, 2011. At 750 pages, the order isn't exactly light reading – the executive summary alone goes through page 16. Of particular interest is the FCC's treatment of intercarrier compensation for so-called "VoIP-PSTN" traffic.
The FCC has promulgated these new rules in an attempt to promote a shift to an all-IP environment, and to clarify widespread uncertainty and disagreement regarding intercarrier compensation for VoIP traffic. But rather than provide clarity and certainty, the Commission has generated additional unknowns, and has force-fit its aging TDM compensation regime onto existing and emerging IP services that are not well suited to traditional distance- and jurisdiction-based access charges.
Most long distance or "interexchange" calls are subject to FCC- or state PUC-regulated "switched access charges" imposed at both the originating and terminating ends of the call by either an incumbent or a competitive local exchange carrier (ILEC or CLEC). However, the requirement that VoIP providers pay access charges when they hand-off a VoIP-originated call to a TDM carrier for termination to the called party has been ambiguous at best, and up to now the FCC has generally not enforced such a requirement. That is about to change. The immediate effect of the newly-adopted rules will almost certainly be negative for VoIP providers, driving up the prices for what are generally referred to as "interconnected VoIP services" – i.e., where one end of a call either originates or terminates in TDM at an ILEC or a CLEC.
Where a call both originates and terminates as VoIP – even where different VoIP providers are involved – there are no access charges to pay, and that will not change under the new ICC rules. The differential treatment of calls that never touch any legacy TDM carrier gives them a significant cost advantage, one that may ultimately be relfected in differentiated pricing for VoIP-VoIP vs. VoIP-TDM traffic. ILECs – which had been pressing the FCC to require that interconnected VoIP calls be subject to access charges – might now experience even faster traffic erosion than in recent years. The old adage, "be careful what you wish for, you might get it" may well be the unintended consequence of the ILECs' push for "parity" treatment of VoIP-TDM and TDM-TDM calls. If VoIP providers translate the cost advantage being afforded VoIP-VoIP traffic into lower prices for such calls, the result could be to accelerate the migration to VoIP, especially among business and enterprise customers.
Continue reading at econtech.com
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About ETI. Founded in 1972, Economics and Technology, Inc. is a leading research and consulting firm specializing in telecommunications regulation and policy, litigation support, taxation, service procurement, and negotiation. ETI serves a wide range of telecom industry stakeholders in the US and abroad, including telecommunications carriers, attorneys and their clients, consumer advocates, state and local governments, regulatory agencies, and large corporate, institutional and government purchasers of telecom services. |
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