July 27, 2012

FCC Spotlights Online Video Distributors in MVPD Market Report

In its latest report to Congress on the state of the U.S. multichannel video program

distribution (MVPD) sector, the FCC examined the impact of online video distributors

(OVDs) for the first time. The agency declined, however, to draw conclusions about the

extent to which competition exists in the MVPD marketplace. Issued last Friday, the

report is the FCC’s fourteenth on the subject of MVPD industry structure and

performance and covers developments in the video service marketplace between 2006

and 2010. Simultaneously with the release of Friday’s report, the FCC also issued a

notice of inquiry requesting industry input on the fifteenth report, which would be

released next year and would cover the 2011-2012 timeframe. While citing the

emergence of OVDs in recent years as an alternative source of video delivery, the report

notes that cable operators’ collective share of the U.S. MVPD market fell from 65% in

2006 to 60% during 2010. Direct broadcast satellite (DBS) providers experienced a

similar decline in market share from 33% to “just over 29%” during that same period.

Internet protocol-based video offerings such as Verizon’s FiOS service and AT&T’s U-

Verse service were reported to have picked up many of the subscribers who migrated

from cable and DBS platforms during the 2006-2010 timeframe. With respect to OVDs,

the FCC said that Netflix, Hulu and other OVD services “have emerged as significant

providers of video content” and that the list of OVD providers “includes programmers,

content owners/producers, and affiliates of online services, manufacturers, retailers and

other businesses.” The report cautions, however, that OVDs face several key obstacles in

achieving competitive inroads against traditional cable and satellite MVPDs, such as the

high cost of acquiring access to content and ISP data caps. While asserting that MVPDs

that also operate broadband ISP networks “have the ability and incentive to degrade the

broadband service available to unaffiliated OVDs,” the report warns that what ISPs

charge “to deliver online video traffic could have a negative impact on the ability of

OVDs to enter the marketplace and compete.” In a press statement, FCC Commissioner

Robert McDowell affirmed that the report “contains a wealth of information about the

video market revealing just how dynamic and constructively chaotic it is” but remarked:

“I would have preferred for this report to affirmatively conclude that the video

programming market is competitive.” A spokesman for Public Knowledge, meanwhile,

said the report should serve as “a useful resource for the Commission as it considers

important issues like whether online systems can operate as MVPDs and whether ISPs

are using data caps to discriminate against online video.”

Retransmission Consent Debated at Senate Hearing

A hearing on cable industry oversight conducted on Tuesday by the Senate Commerce

Committee focused on retransmission consent issues, as lawmakers and witnesses

discussed proposals to revamp the 1992 Cable Act and to eliminate the cable/broadcast

FCC Spotlights Online Video

Distributors in MVPD Market

Report read more

Retransmission Consent

Debated at Senate Hearing

read more

Broadband Speeds Now Closer

to Advertised Rates, Says

FCC read more

News Corp., AT&T to Join

Forces on Mobile Education

Program read more

UK Unveils Rules for 4G

Wireless Auction read more

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 2

must-carry rules. Tuesday’s hearing came as DirecTV and Viacom reached agreement on a long-term retransmission contract last

Friday that ended a week-long blackout which left DirecTV customers temporarily without access to Nickelodeon, Comedy Central,

MTV and other popular Viacom channels. As American Cable Association Chairwoman Colleen Abdoulah advised Senate panelists

that retransmission disputes had already triggered 69 blackouts during 2012 alone, Senate communications subcommittee chairman

John Kerry (D-MA) called on the industry “to construct an alternative to the disruption of service during negotiations.” However, in

the interest of preserving local broadcasting, Kerry emphasized: “I would not support radical proposals to eliminate retransmission

consent rights or must-carry requirements altogether.” Declaring that broadcasters, cable programmers, and cable operators are entitled

to conduct market-based negotiations without government interference, Senator Jim DeMint (R-SC) argued in favor of his proposed

legislation, the Next Generation Television Marketplace Act, which would repeal the cable compulsory license as well as the FCC’s

must-carry and retransmission consent rules. While acknowledging that many in the cable industry “will argue that the Cable Act has

achieved its goals,” committee chairman Jay Rockefeller (D-WV) cited rising cable rates and the inability of subscribers to select and

pay only for the content they want in asserting: “I highly doubt many consumers would agree.” As Time Warner Cable executive vice

president Melinda Whitmer acknowledged that the DeMint bill “has begun an important dialogue,” National Association of

Broadcasters President Gordon Smith suggested that the FCC should “insist that pay TV providers give viewers ample notice of a

possible disruption in service,” mandate refunds to customers, and “allow customers to easily switch among competing pay TV

providers without incurring financial penalties.”

Broadband Speeds Now Closer to Advertised Rates, Says FCC

Over the past year, U.S. broadband service providers have made significant strides in closing the gap between actual download speeds

and advertised rates, concludes a report issued by the FCC’s Wireline Competition Bureau last Thursday. Titled Measuring Broadband America 2012, the report is the second on broadband speeds compiled by the FCC and depicts substantial improvement throughout the

industry since the release of the agency’s first report last year. In its initial report last August, the FCC found that U.S. Internet service

providers (ISPs) delivered, on average, 87% of advertised download speeds to users during peak usage periods. However, for the latest

report, data gathered from ISPs that represent more than 80% of U.S. residential broadband subscribers show that average download

speeds have since risen by nine percentage points to 96% of marketed speeds. As in last August’s report, the 2012 report depicted

varying levels of speed reliability according to the type of technology used. For example, providers of broadband services over digital

subscriber lines delivered average actual download speeds at 84% of the advertised rate, while providers of cable-based broadband and

fiber-to-the-home services (such as Verizon FiOS) delivered average speeds at 99% and 117% of advertised rates, respectively. The

FCC also cited a 15% reduction in the standard deviation for download speeds across DSL, cable and fiber platforms, which, according

to the FCC, means ISPs “are doing a better job of delivering what they promise.” While attributing the higher speeds to

“improvements in network performance,” the FCC also claimed, “there is evidence that our August 2011 report helped prompt these

changes.” Despite the improvements cited in the FCC report, a study, issued last week by the New America Foundation, which

compares high-speed Internet offerings in 22 cities across the globe maintains that U.S. providers still have ground to cover in

matching the speeds offered by their foreign counterparts. As the New America report asserted that “the Internet download speed

Washington, D.C. residents can get for roughly $35 would be over 20 times faster in Hong Kong for around the same price,” FCC

Chairman Julius Genachowski admitted that the issue of download speed is one “that we need to continue to make progress on in the

U.S.”

News Corp., AT&T to Join Forces on Mobile Education Program

AT&T and News Corp. set their sights on the wireless education market this week with the formation of a partnership that would

provide mobile tablet PCs and related educational products and services to kindergarten through high school students. Announced on

Monday, the initiative builds upon News Corp.’s 2010 acquisition of a 90% stake in education technology firm Wireless Generation.

In turn, Wireless Generation forms the core of Amplify, a new educational business established by News Corp. As part of the venture

with AT&T, Amplify will design original content, applications and tools for student tablet PCs that will be run on AT&T’s fourth-

PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 3

generation wireless broadband platform. The platform will be introduced through a pilot program during the upcoming 2012-2013

school year and will be accessible to students inside schools via Wi-Fi connections and outside of schools through the AT&T wireless

network. A limited amount of content will be offered to schools free of charge, and AT&T will supply 4G tablets to the program in

addition to technical expertise. Although the U.S. e-learning sector is currently valued at $5.4 billion, analysts say that market is

growing at a robust rate of 20% annually. Competitors of the Amplify/AT&T venture are expected to include Apple, Inc., which

launched an interactive textbook store earlier this year, and digital initiatives launched by Houghton Mifflin, McGraw-Hill and other

established players in the educational publishing field. As a spokesman for Amplify voiced confidence of “enormous global

possibilities,” Dan Walsh, the senior vice president for advanced enterprise solutions for AT&T, told reporters: “we think there’s a real

opportunity to mobilize the learning experience.”

UK Unveils Rules for 4G Wireless Auction

Ofcom, the telecommunications regulatory agency for the United Kingdom (UK), set the stage this week for the launch of fourth-

generation (4G) wireless services in the UK with the adoption of rules that will govern the largest auction of telecommunications

licenses in the nation’s history. The guidelines, unveiled on Tuesday, would cover an auction of wireless broadband spectrum that

would award the equivalent of three-quarters of the 333 MHz of wireless spectrum currently in use throughout the UK. Observers also

say that the amount of 4G spectrum to be offered is 80% more than the 3G frequencies that were allotted in 2000. Although that

auction raised a whopping ₤22 billion (US$34 billion) in winning bids, analysts anticipate that the final bid tally for the upcoming 4G

auction will be much more modest—i.e., an estimated ₤2 billion—despite keen industry interest. During the upcoming sale, spectrum

in the 800 MHz and 2.6 GHz bands will be offered in lots, with four blocks of frequencies to be allotted to providers of nationwide

network services. Out of the four national blocks, one will be set aside for a wholesaler other than the three largest wireless operators

in the UK. One of the 800 MHz blocks will come with a requirement to provide mobile broadband services that are accessible indoors

to at least 98% of the UK population by 2017. Opening bids for license lots with coverage obligations, including the 800 MHz

nationwide block with indoor coverage requirements, will be set at ₤180 million. Minimum bids for blocks with no coverage

obligations will be set at ₤217 million. Comments on a consultation regarding the auction rules will be accepted through September 11.

Ofcom also plans to accept auction applications by year’s end and to launch the bidding process early in 2013.

* * * 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. 2012-30)