By 4-1 vote, FCC adopted notice of inquiry (NOI) on interactive TV (ITV) services Thurs., starting formal proceeding that it promised when it approved AOL’s takeover of Time Warner (TW) with additional regulatory conditions late last week. But Commission backed away from weightier, more urgent proposed rulemaking on ITV issue that its Cable Bureau staff had recommended, bowing to strong lobbying from cable, to disappointment of consumer advocates and other cable critics. Move follows regulatory conditions imposed on AOL-TW deal last month by FTC that prohibited merged company from interfering with content supplied by other ISPs and ITV providers or discriminating against such competitors (CD Dec 15 p1).

NTIA reported mixed results Thurs. in first round of ultra- wideband (UWB) tests in non-GPS band, pointing to “potential” to operate that wireless technology in 3-6 GHz range without interference. “The test results today show a great deal of promise between 3 and 6 GHz,” NTIA Dir. Gregory Rohde said at news briefing. But tests also found “difficulties” with interference in bands below 3 GHz, occupied by systems such as airport surveillance radar and federal govt. systems. Rohde said results set stage in coming weeks for negotiations between FCC and NTIA over final rule on UWB operation in GPS and non-GPS bands. Difficulties in bands below 3 GHz at certain distances between UWB devices and other systems could be mitigated through measures such as requiring devices in certain cases to operate indoors, Rohde said. “It’s not that a door has been closed here,” he said.

As FCC Chmn. Kennard departs today, he leaves legacy as extremely decent man who might have been more effective if he were more of a politician, industry officials told us. “He is a prince of a man, honorable, honest,” said one telecom lobbyist. “But I don’t believe he’s a politician at heart and it’s hard for that kind of person to survive the political cauldron in Washington.” No one we talked with disputed Kennard’s honorable nature. Even his ideological opposite, Comr. Furchtgott-Roth, said Thurs. that he viewed Kennard’s departure to make way for Republican as “somewhat bittersweet” because Kennard was “one of the finest, most decent individuals I've ever met.”

Telecom officials didn’t get answer from Bush Administration representatives Wed. to question who would be named FCC chmn., and when, we're told. Industry officials, primarily contributors to campaign, met with Bush transition office Wed. afternoon in what was described as “very generic and nonspecific” meeting. Most of attention focused on FCC reform, expediting agency decision-making and similar broad issues, we're told.

NTIA, in notice of proposed rulemaking (NPRM) Wed., outlined changes for how private sector would carry out mandates for reimbursing govt. agencies that relocate from spectrum after frequency reallocations are made. NTIA Dir. Gregory Rohde outlined details of NPRM at Commerce Dept. meeting with industry on upcoming 3rd-generation wireless decisions. Govt. officials stressed proposed framework for reimbursing federal entities that were relocated to other spectrum berths could play “critical” role in upcoming 3G decisions. FCC and NTIA are examining possibility of 2 bands for additional spectrum for 3G and other advanced services: 1755-1850 MHz now used by military systems and 2500- 2690 MHz used by Multichannel Multipoint Distribution Service and Instructional TV Fixed Service licensees. At meeting, some industry representatives also raised concerns that more information was needed from govt. on issues such as relocation cost estimates for private sector to complete its own analyses of different 3G spectrum scenarios.

CARLSBAD, Cal. -- NAB and MSTV decided there’s “insufficient evidence” to continue DTV transmission tests of 8-VSB and COFDM and said industry should stay with 8-VSB as standard. Action was taken here Mon. at joint meeting of NAB TV board, MSTV board and digital steering committees of both groups and following digital “summit” of TV broadcasters in Washington last week (CD Jan 12 p9). Straw vote of participants at Cal. meeting was 29-3 in favor of 8-VSB with dissents from Pax TV, Sinclair Bcstg., Pappas Telecasting. Only Dean Goodman of Pax TV dissented in following formal vote by NAB TV board.

FCC declined Fri. to preempt Mo. law (HB 620) that prohibits political subdivisions such as municipalities from providing telecom services or facilities, concluding that term “entity” in Sec. 253(a) of Communications Act wasn’t intended to include political subdivisions of state but rather appeared to prohibit restrictions on market entry that apply to independent entities subject to state regulation. Acting on preemption petition filed by Mo. Assn. of Municipal Utilities, City Utilities of Springfield and others, Commission said that if municipally owned utility sought to provide telecom service or facility as independent corporate entity that was separate from state, “we could reach a different result under Section 252(a).” Mo. municipalities argued that even if Commission were correct in concluding that Congress didn’t clearly intend to include municipalities that didn’t own and operate electric utilities within scope of Sec. 253, Congress did clearly intend term “any entity” to apply to power companies owned by municipalities. As it found in Texas Preemption Order, FCC said, “any entity” was not intended to include political subdivisions of state. Commission urged states to refrain from enacting absolute prohibitions on ability of municipal entities to provide telecom service. Municipally owned utilities have potential to become major competitors in telecom industry, it said, and their entry could further goal of Act to bring benefits of competition to all Americans, particularly those living in small or rural communities. As for concerns of taxpayer protection from economic risks of entry and possible regulatory bias that municipalities’ entry raise, Commission said such issues could be dealt with successfully through measures that were much less restrictive than outright ban on entry. For instance, there could be nondiscrimination requirements that require municipal entity to operate in manner that’s separate from municipality, “thereby permitting consumers to reap the benefits of increased competition.” FCC also rejected municipalities’ contention that even if municipally owned utilities were political subdivisions of state, legislative history of Sec. 253 (a) demonstrated that Congress clearly intended “any entity” to cover municipal electric utilities. “Other than indicating that municipal energy utilities may make their facilities available to carriers, the legislative history that the petitioners cite does not distinguish between publicly owned and privately owned utilities,” Commission said. In joint statement, FCC Chmn. Kennard and Comr. Tristani said they voted reluctantly to preempt petition because they believed “HB- 620 effectively eliminates municipally owned utilities as a promising class of local communications competitors in Missouri.” Commission was constrained in authority to preempt by decision by U.S. Appeals Court, D.C., City of Abilene, and U.S. Supreme Court’s decision in Gregory v. Ashcroft, they said. Referring to letters from many members of Congress that said it was intent of Congress when it enacted Sec. 253 to enable any entity, regardless of form of ownership or control, to enter telecom market, they urged Congress to consider amending language in section to clearly address municipally owned entities. In separate statement, Comr. Ness urges states to adopt less restrictive measures, such as separation or nondiscriminatory requirements, to protect utility ratepayers or address any perceived unfair competitive advantage.

U.S. Appeals Court, D.C., ruling Tues. that rejected SBC’s advanced services subsidiary (CD Jan 10 p1) appeared to have raised more questions than it answered. Observers questioned Wed. whether decision might pressure Congress to revise Telecom Act to account for advanced services, how ruling would affect similar arrangement at Verizon and how it might play out under new Republican FCC. Court overturned trade-off FCC made with SBC: FCC allowed SBC to provide advanced services free of interconnection requirements if company formed separate affiliate to provide those services. In response to appeal filed by Assn. of Communications Enterprises (ASCENT), court ruled FCC didn’t have authority to forgo interconnection requirements of Sec. 251(c) just because SBC was providing advanced, rather than basic, services and using separate subsidiary. ASCENT represents competitive carriers, particularly those that resale ILEC service.

Citing U.S. World Trade Organization (WTO) promises, former Commerce Secy. and U.S. Trade Representative Mickey Kantor urged FCC to approve license transfers for proposed $34-billion VoiceStream-Deutsche Telekom merger. VoiceStream submitted Kantor statement before close of comment period on merger Mon. “This FCC proceeding is about more than the acquisition of a U.S. common carrier by a foreign company,” he said. “It is a test of the United States’ compliance with binding international legal obligations which were negotiated and entered into in good faith.” In acting on VoiceStream-DT application, FCC must move in way that’s consistent with U.S. obligations under WTO Basic Telecom Agreement (BTA), he said. “Failure to do so could invite initiation of a WTO dispute settlement action against the U.S. government and would establish for other WTO members an unwelcome precedent of noncompliance,” Kantor said. He warned that scope of sanctions under General Agreement on Trade in Services (GATS) wasn’t limited to sector in which violation was found. That means, Kantor said, that if U.S. were found to have violated GATS, “it could be liable for trade sanctions in any sector.” Also, if U.S. were to act in way that indicated backtracking on trade commitments, it could damage its negotiating power in current talks, such as GATS services negotiations, he said. FCC shouldn’t restrict access to U.S. telecom market “based on market conditions in other countries that do not affect competition in the United States,” he said. Binding U.S. commitments under BTA don’t hinge on other countries’ implementation of their own duties, he said. In other reply comments, Organization for International Investment rebutted concerns raised by Sen. Hollings (D-S.C.) and DT competitors such as Global TeleSystems and Novaxess. Hollings, ranking Democrat on Senate Commerce Committee, last month had renewed his call to FCC to reject application, underlining his opposition to telecom assets bought by companies with majority foreign govt. investment (CD Dec 18 p6). In other comments, Siemens advocated approval of merger, saying it would increase U.S. telephony competition. Transaction still awaits approvals of Dept. of Justice, FCC and Committee on Foreign Interests in U.S.

AT&T shares closed at $22.50, up 12.15% after news that it’s stock was upgraded to strong buy by Morgan Stanley from neutral in report issued Tues. Morgan Stanley, saying it saw better times ahead for AT&T, established 12-month target price of $35 for company, saying stock now was worth $35-$40 per share after falling 66% in 2000, with AT&T Wireless continuing to show strong growth. AT&T cable prospects also were seen as positive. Morgan Stanley remained cautious on long distance business, figuring valuation at zero at current stock price despite generating estimated $15 billion in earnings before interest, taxes, depreciation and amortization (EBITDA) this year, citing company’s debt load of $60 billion. Brokerage said break-up of company would act as performance catalyst over next several months. It also said plan to distribute rest of AT&T Wireless to shareholders plus aggressive asset disposal program should prove beneficial. While acknowledging AT&T’s “challenging” credit position, Morgan Stanley identified its steps to improve situation such as raising nearly $10 billion from NTT DoCoMo, completing $25 billion debt facility, cutting dividend 83%. It said outlook for 4th quarter foresaw AT&T Wireless “looking good,” adding 850,000 subscribers and generating $2.596 billion in revenue, up 38.2% from a year ago. Beyond 4th quarter, broadband IPO outlook still was seen as problem, with regulatory hurdles to overcome and improvement needed in operating and financial metrics. Cable revenue was expected to grow 9-9.5% on pro forma basis in quarter and 10.5-11% in year, including Comcast swap. By end of year, Morgan Stanley said it expected AT&T Broadband digital penetration of 18.5%, largest digital footprint in U.S., with 1.15 million high-speed data subscribers, 550,000-570,000 residential telephony customers and almost 10% penetration, with revenue of $70 million anticipated. AT&T Broadband capital expenditure this year is expected to be robust. AT&T is to release 4th quarter earnings in week of Jan. 29.