Federal Communications Commission
has a full Election Day meeting Tuesday, as Chairman Kevin Martin has loaded the docket with several critical items that could become more difficult to pass after the results are official.
The agenda includes seven items for the commission to consider, including a discussion on
and the transfer of licenses between
for their WiMax joint venture.
With Sen. Barack Obama (D., Ill.) currently favored to beat Sen. John McCain (R., Ariz.) in the election for U.S. president, some analysts believe the FCC is tying up loose ends before control of the White House changes hands. With the presidential power to assign the FCC chairperson, Martin could lose the position if either Obama or McCain wins.
The FCC now has a 3-to-2 Republican majority, with commissioners Deborah Taylor Tate and Robert McDowell often siding with Martin. Commissioners Jonathan Adelstein and Michael Copps are the two Democrats. Commissioners are nominated by the president to serve five-year terms, and no more than three commissioners from the same party can be appointed to the FCC.
Decisions regarding mergers have been frequently decided across party lines, with the deal between
Sirius Satellite Radio
, and the sale of
to investor Sam Zell among the most controversial.
In another instance, Copps publicly feuded with Martin over the latter's unwillingness to review the possible effects of consolidation arising from
acquisition of Dow Jones last year.
Jack Nadler, a partner in the Washington, D.C. office of Squire, Sanders & Dempsey who was actively involved in the legislative proceedings leading to the adoption of the Telecommunications Act of 1996, says that too much is being read into the timing of the FCC's meeting, which coincides with the presidential election.
"The first thing to remember is even if McCain wins, there will be a new FCC chairman. One way or another, Kevin Martin's term as chairman is going to end," says Nadler. "Of course, everyone recognizes there's an extremely strong possibility that the next chairman will be a Democrat with a Democrat majority. It's not surprising to try to wind up business that needs to be wound up. However, I wouldn't overinterpret the significance of that."
The FCC's biggest task on Tuesday will be to rule on Verizon's acquisition of Alltel, a deal that would propel Verizon past
to become the largest wireless carrier in the U.S. In June, Verizon Wireless, the joint venture of Verizon and
, said it would buy privately held Alltel and its 13 million subscribers for about $5.9 billion. Based on Alltel's projected net debt at closing of $22.2 billion, the total value of the transaction is $28.1 billion.
On Thursday, the Department of Justice approved the deal with certain terms, including the shedding of many local markets in 22 states. Analysts expect the FCC to approve the deal on the same conditions, terms that Verizon is more than happy to comply with in order to finalize the transaction. The perception is that under a new Democratic administration, it would be harder for mergers -- and especially one viewed as decreasing competition in rural areas -- to gain regulatory approval.
"Part of the reason Verizon stepped up and made a bid for Alltel was undoubtedly because it anticipated a better deal now than later," says Paul Gallant, analyst with Stanford Washington Research Group. "The Verizon/Alltel would be approved under Bush or Obama, but under Obama the price would be higher. That's why they pushed the government for a quick review."
Sprint and Clearwire are also hoping the FCC will approve their request for a license transfer in order to finalize their WiMax joint venture. The $14.5 billion deal announced in May will see Sprint contribute all of its 2.5-gigahertz spectrum and its WiMax assets into the new Clearwire, a contribution worth about $7.4 billion. The new company will deploy the first nationwide mobile WiMax network, a fourth-generation wireless technology that features fast data transfers over long distances.
The commission also will review applications from Verizon and
as part of the auction of wireless spectrum, as well as a petition filed by
. Both Verizon Wireless and Union Telephone were among the 101 winners in the 700-megahertz auction the FCC conducted earlier this year.
The 700-megahertz spectrum, used for analog television, will become available in February when the government leads the migration to digital television. The spectrum is very attractive for wireless companies as it has the ability to penetrate walls.
The "C-block" was the most sought after of the 700-megahertz spectrum, with Verizon paying the hefty price tag of $4.74 billion for it. The spectrum will be used for Verizon's expansion into 4G high-speed wireless territory. Because the sale price of the C-block topped the $4.6 billion reserve (due largely to Google's high bidding), Verizon must use the spectrum as an open network, allowing any mobile device to run on it.
Google, which took part in the bidding to benefit its Android mobile handset operating system, has filed a petition asking that the FCC ensure that Verizon follows the open platform requirements. The commission is set to offer more clarity on how open Verizon must be, as Google has expressed concern that Verizon "may exclude its handsets from the open access condition."
Because one of the FCC's chief responsibilities is to foster competition in markets, how they enforce the terms of the C-block auction will be key to handset and software makers.
The FCC's agenda had included an item that called for the complete overhaul of the compensation system between carriers involving the transfer of calls, but the commission cut the item after Martin failed to gain support for his plan.
The commission had been asked to consider the reciprocal compensation arrangements for transporting and terminating phone calls, an issue that stems from the increase in Internet usage. Some telephone calls are now placed to Internet service providers as a dial-up Internet connection.
Verizon had argued to a federal appeals court that new competitors have heavily solicited ISP customers by offering free service, or in some cases even paying ISPs to use their services, in order to collect large amounts of compensation for terminating calls.
The FCC faces a court-mandated deadline of Wednesday, when it must justify the portion of the payment rules regarding dial-up Internet traffic.
Martin had sought to lower the compensation rates phone carriers pay each other to nearly nothing. The FCC would then allow carriers that would lose money to raise their monthly subscriber rates by as much as $1.50 for residential phone lines and $2.50 for business lines, according to a report
the Wall Street Journal
Martin's plan provoked anger from smaller phone carriers, state regulators and consumer groups. They argue that the proposal hasn't been made public and they have asked for a delay in the vote. In a rare showing, the four other commissioners jointly constructed a new option. Martin may now instead offer a narrower one that satisfies specific issues raised by the court.
"Intercarrier compensation has been something that the commission has been grappling with for many years," Nadler says. "It wouldn't be right to think of this as something that just came out of the blue. This has been an issue throughout Chairman Martin's tenure. Of course, this has been an issue Martin has cared about and, understandably, he would like to try to move forward a resolution before the end of his term."
In addition to a narrower plan on the compensation program, the FCC also will review items on rules for the unlicensed operation of low-power devices in the broadcast television spectrum known as "white space," rules on the use of distributed transmission system technologies in the digital television service, and rules concerning the application of closed captioning requirements to digital programming.