April 6, 2012

Senator Calls on FCC, Wireless Industry to Combat Cramming

In letters delivered to the FCC and to wireless association CTIA last Friday, Senator

Charles Schumer (D-NY) called on both regulators and the industry to address the

growing problem of “cramming,” in which third-party charges are added to monthly bills

without the knowledge or consent of subscribers. Characterizing cramming as

“scamming by another name,” Schumer lamented in a written statement that members of

his New York constituency “have been unknowingly charged up to ten dollars a month

for text messages that contain unwanted offers or services” and that, “much of the time,

the consumer has no idea that this otherwise innocuous text message will later show up

on the bill.” While praising major landline carriers such as Verizon Communications and

AT&T that have “taken positive steps to end the practice,” Schumer proclaimed: “we

must ensure the same protocol for wireless customers.” As such, Schumer advised FCC

Chairman Julius Genachowski that the FCC should consider imposing anti-cramming

rules on wireless carriers if such carriers fail to act voluntarily against cramming and to

“work with my staff to ensure the FCC has the authority in place, possibly through new

legislation, to ensure consumers are not deceptively charged.” Writing to CTIA,

Schumer further urged the industry to work with the FCC “to require that both landline

and wireless telephone services require opt-in protocols for any third party charges on

consumers’ monthly bills.” Responding to Schumer, CTIA vice president John Walls

cited the popularity of third-party apps among U.S. wireless subscribers in emphasizing

that “all major wireless carriers and many others have adopted practices to clearly display

charges for these types of purchases, as well as a convenient means to challenge any

suspect charges.” While sharing Schumer’s concerns, a spokesman for Verizon Wireless

explained that, “in accordance with industry best practices, consumers are directly

involved in the opt-in process for third party services in the wireless context” as he added

that his company “also offers options to manage and block charges for third-party

services.”

Sirius XM Asks FCC to Block Liberty Takeover Move

An ownership dispute pitting Sirius XM Radio against Liberty Media has landed on the

doorstep of the FCC, where Sirius delivered a petition for dismissal of a recent request,

filed by Liberty, seeking approval to acquire de facto control of the nation’s sole satellite

radio firm. Liberty, the largest shareholder of Sirius, currently owns preferred shares of

Sirius stock that are convertible to 40% of the company’s common shares. Liberty

acquired the shares after it agreed to lend Sirius up to $530 million during the height of

the financial crisis of 2008-2009. Since that time, fortunes at Sirius have improved

substantially, with stock prices surging from a mere six cents per share to $2.31 per share

today. Sirius also reported a net profit of $427 million last year that represents a dramatic

improvement from the company’s loss of $538 million in 2009. Liberty controls

Senator Calls on FCC,

Wireless Industry to Combat

Cramming read more

Sirius XM Asks FCC to Block

Liberty Takeover Move

read more

Cable Channel Bundling Not

Anticompetitive, Says

Appeals Court read more

Verizon Plans Mobile Video

Service read more

Motorola Mobility Licensing

Practices Probed by

European Commission

read more

India Supreme Court

Upholds Ruling on Wireless

License Cancellations read more

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 2

only five of the 13 seats on the Sirius board and lacks the right to vote on all board members. Following on the recent expiration of a

three-year-old standstill agreement that precluded Liberty from seeking control of Sirius without bidding for all of Sirius’ shares,

Liberty asked the FCC last month to approve its request for de facto control. As precedent, Liberty cited its earlier request for de facto

control of DirecTV that was granted by the FCC in 2008 and that was based on Liberty’s 40% stake in that company. (Under FCC

rules, a shareholder may be deemed to hold de facto control if it holds fewer than 50.01% of a company’s shares yet controls a large

enough stake to be considered effectively in charge.) Notwithstanding Liberty’s “substantial minority interest,” Sirius emphasized to

the FCC that expiration of the standstill agreement “does not result in a de facto transfer of control” and further observed that, while

Liberty is now free to seek full control, “it has not done so.” Sirius also told the agency that the DirecTV precedent does not apply in

this instance as DirecTV—unlike Sirius—did not dispute Liberty’s move to acquire de facto control. Officials at Liberty and the FCC

offered no comment.

Cable Channel Bundling Not Anticompetitive, Says Appeals Court

Cable programmers and multichannel video program distributors (MVPDs) applauded a ruling, handed down by the Ninth Circuit

Court of Appeals last Friday, that the customary cable industry practice of requiring customers to purchase tiered channel bundles does

not contravene the antitrust provisions of the Sherman Act. The decision addresses a class action lawsuit that was first launched in

2007 by a group of cable subscribers who sought the right to purchase individual cable channels on an à la carte basis. According to

the plaintiffs, cable programmers exploited their market power by forcing MVPDs to “acquire and resell to consumers all of the rest of

the cable channels owned or controlled by each programmer” as a condition “for purchasing each programmers’ broadcast channel and

its ‘must have’ cable channels.” The defendants, charged the plaintiffs, also required MVPDs to agree “they will not offer unbundled

[i.e., individual] cable channels to consumers.” Although the plaintiffs claimed that such policies are detrimental to consumers and are

anticompetitive, a federal district court judge in California disagreed and ruled in favor of the programmers. On appeal, the Ninth

Circuit panel upheld the lower court’s decision that “allegations that an agreement has the effect of reducing consumers’ choices or

increasing prices to consumers do not sufficiently allege an injury to competition.” Describing both effects as “fully consistent with a

free, competitive market,” members of the appellate panel agreed unanimously that “tying arrangements . . . do not necessarily threaten

an injury to competition” and that “businesses may choose the manner in which they do business absent an injury to competition.”

Verizon Plans Mobile Video Service

Speaking to reporters last Friday, Verizon Communications CEO Lowell McAdam disclosed his company’s plan to launch a new

service that would enable cable customers to view films, TV shows and other programs on their wireless devices by the end of this

year. McAdam stipulated, however, that such an offering would be contingent upon receipt of FCC approval for his company’s

proposed $3.9 billion acquisition of wireless spectrum assets held by members of the “SpectrumCo” venture along with a related

agreement that allows Verizon and SpectrumCo to cross-market each others’ services. Building upon Verizon’s recent purchase of the

Redbox video rental service, McAdam predicted that, by this year’s holiday season, Verizon “could have something out there that

would be the beginnings of an integrated offering.” Such a service would be marketed to current Verizon Wireless customers,

subscribers to Verizon’s FiOS TV service, and to customers of the SpectrumCo participants. McAdam also said that discussions have

commenced between his company and content providers on ways that subscribers can be offered greater flexibility in their viewing

choices within the wireless ecosystem. While conceding that “the number of channels and the layout that you have within your home

may not be appropriate for the mobile environment,” McAdam also confirmed that some content providers “have come to us and have

said, ‘we are willing to do an à la carte approach. With respect to the service’s potential impact on wireless data consumption rates and

prices, McAdam admitted that subscriber bills will probably go up “because people are going to be using [premium wireless services] a

lot more.” McAdam also noted that, like AT&T, his company is also considering how it can bill content providers directly for their

data offerings so usage would not be counted against consumers’ monthly data allotments.

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 3

Motorola Mobility Licensing Practices Probed by European Commission

Acting on complaints submitted by Microsoft and Apple, Inc., the European Commission (EC) has launched a probe to determine

whether Motorola Mobility (MM) has “used certain of its standard essential patents to distort competition” in the market for advanced

wireless and video devices. Announced on Tuesday, the EC inquiry could impact plans by Google, Inc. to acquire MM—and its

treasure trove of more than 17,000 wireless technology patents—for $12.5 billion. Although the Google-MM deal received U.S. and

EU approval in February, other regulatory hurdles remain to be cleared before the parties may consummate the transaction. EU

competition commissioner Joaquin Almunia also warned in February that the EU’s decision to approve the Google-MM deal would not

exonerate the parties of any wrongdoing concerning patents “by Motorola in the past or all future action by Google.” At issue are

“standard” patents, held by MM, that MM has committed to license to manufacturers at reasonable rates and under fair and non-

discriminatory terms. Among other things, Apple and Microsoft have charged MM with filing abusive lawsuits that seek injunctions

against the development of wireless and video gaming devices that are based on MM standard patents. Affirming that it has opened

“two formal antitrust investigations” against MM, the EC said it would assess whether MM “has failed to honor its irrevocable

commitments made to standard-setting organizations” with respect to the licensing of standard patents. An adverse finding could leave

MM, its former parent company Motorola, Inc., and/or Google liable for significant EC fines. Proclaiming, “we have longstanding

concerns about patent abuses, including lawsuits and royalty demands targeting the Android ecosystem,” a spokesman for Google

promised that his company “will work with the [EC] to answer any questions they might have.”

India Supreme Court Upholds Ruling on Wireless License Cancellations

To the dismay of domestic and foreign investors in India’s telecommunications sector, the Supreme Court of India on Wednesday

rejected appeals of its previous order canceling 122 second-generation (2G) wireless licenses that were awarded in 2008 to eight

ventures. Domestic joint ventures that include Telenor of Norway, Japan’s NTT DoCoMo, Russia’s AFK Sistema and U.A.E.-based

Emirates Telecommunications had petitioned for review of the high court’s February 2 decision to revoke the licenses on grounds that

the telecom ministry’s first come, first served policy for awarding such licenses was “arbitrary and unconstitutional.” The scandal

ensuing from that licensing process led ultimately to the arrest of former telecom minister Andimuthu Raja and several high-ranking

corporate executives on corruption charges. Sources predict that the court’s decision will result in the loss of billions of dollars in

foreign investment and will impact services currently provided to seven percent of India’s 900 million telecom customers. Rejecting

the petitioners’ pleas, a two-judge panel concluded that the Supreme Court’s previous judgment “does not suffer from any error

warranting reconsideration of the issues decided therein.” As such, the court upheld its related directive that the licenses in question be

re-issued through auctions to take place at a yet-to-be determined date. Voicing disappointment with the court’s decision, a Telenor

spokesman vowed that his company would next pursue a “curative petition” that requests rehearing by the Supreme Court’s top three

judges.

* * * For information about any of these matters, please contact Patrick S. Campbell (e-mail: pcampbell@paulweiss.com) in the Paul, Weiss

Washington office. To request e-mail delivery of this newsletter, please send your name and e-mail address to

telecom@paulweiss.com.

(No. 2012-14)