SHUGHART THOMSON & KILROY’S TELECOMMUNICATIONS AND NEWTECHNOLOGIES PRACTICE GROUP TELECOM REPORT

Shughart Thomson & Kilroy, P.C.’s Telecommunications and New Technologies Practice Group has substantial experience in regulatory and enforcement proceedings before the Federal Communications Commission (“FCC”) and state regulatory agencies, and in litigation involving telecommunications matters in the federal and state courts. We present below for your information various recent regulatory and court rulings affecting the telecommunications industry. We are available to assist you in such matters.

What’s in this edition:

FCC Issues Report and Order and Further Notice of Proposed Rule Making in Video Franchising Docket......................................................................................................................................Page 2

United States Court of Appeals for the Eighth Circuit Denies Level 3’s Motion for Summary Judgment Against The City of St. Louis Regarding Fees and Other Obligations For Accessing Streets and Rights-of-Way.......................................................................................................Page 4

FCC Rules that Wholesale Telecommunications Carriers are Entitled to Interconnect and Exchange Traffic with Incumbent Local Exchange Carriers When Providing Services to Other Service Providers, Including Voice-Over-Internet Protocol Service Providers......................Page 6

U.S. Court of Appeals for the First Circuit in Universal Communications Systems, Inc., et al., v. Lycos, Inc., d/b/a Lycos Network, et al., Holds Section 230 of the Communications Decency Act Grants Broad Immunity to Entities Such as Lycos That Facilitate the Speech of Others on the Internet.....................................................................................................................................Page 6

FCC Conditionally Grants Qwest Communications International, Inc.’s(“Qwest”) Forbearance Relief From Dominant Carrier Regulation of In-Region, Intrastate, Inter Lata Communication Services Provided on an Integrated Basis................................................................................Page 8

Copyright © 2007 Shughart Thomson & Kilroy, P.C. 2040064.02

Shughart Thomson & Kilroy, P.C.Telecom Report

Volume IV, Issue 2February/March 2007

FCC Issues Report and Order and Further Notice of Proposed Rule Making in Video Franchising Docket

On March 5, 2007, the FCC issued its Report and Order and Further Notice of Proposed Rule Making (“Order and FNPRM”) in its video franchising docket, MB Docket No. 05-311. You will recall that the FCC took action on December 20, 2006 to adopt the Order and FNPRM, but did not release the Order at that time. We reported the FCC action in our December Telecom Newsletter, (Vol. III, Issue 12).

A. New Rules

As we advised you in our December newsletter, the FCC determined that there were unreasonable barriers to entering into the cable video market and, accordingly, took action to encourage investment in broadband facilities. Thus, the FCC found that (1) the Local Franchising Authority’s (“LFA”) failure to issue a decision on a competitive application for cable services within 90 days to an entity that holds right-of-ways authority and 180 days to an entity that does not hold such authority constitutes an unreasonable refusal to award a competitor franchise within the meaning of Section 621(a)(1) of the Communications Act, 47 U.S.C. § 541(a)(1); (2) the LFA’s refusal to grant a competitor franchise because of an applicant’s unwillingness to agree to an unreasonable buildout schedules constitutes an unreasonable refusal to award a competitor franchise within the meaning of Section 621(a)(1) of the Act; (3) unless certain specified costs, fees, and other compensation required by LFA are counted towards the statutory five percent (5%) cap on franchise fees, demanding these costs, fees and other compensation could result in an unreasonable refusal to award a competitor franchise; (4) it would be an unreasonable refusal to award a competitor franchise if the LFA denied an application based upon a new entrant’s refusal to undertake certain obligations relating to the public, educational and government (“PEG”) and institutional networks (“I-Nets”); and (5) it is unreasonable under Section 621(a)(1) of the Act for an LFA to refuse to grant a franchise based on issues related to non-cable services or facilities.

B. Preemption

Furthermore, the FCC preempted local laws, regulations and requirements, including level playing field provisions, to they extent they permit LFAs to impose greater restrictions on market entry than rules which the FCC adopted in the March 5th Order and FNPRM. The FCC also adopted the FNPRM requesting public comment on how its findings in the Order should affect existing cable franchisees. In addition, the FCC requested comments on local consumer protection and customer service standards as applied to new cable entrants.

C. Mixed-Use Networks

As we advised you in our December newsletter, the Order and FNPRM addresses the issue of regulation of “mixed-use networks”. In the Order and FNPRM, the FCC clarified that FLAs’ jurisdiction applies to the provision of “cable services” over “cable systems”. Under the Communications Act, “cable service” is defined as “(A) the one-way transmission to subscribers

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of (i) video programming or (ii) other programming service and (B) subscriber interaction, if any, which required for the selection or use of such video programming or other programming service.” The Act defines a “cable system” as “a facility, consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming and which is provided to multiple subscribers within a community, but such term does not include (A) a facility that serves only to retransmit the television signals of one or more television broadcast stations; (B) a facility that serves subscribers without using any public right-of-way; (C) a facility of a common carrier which is subject, in whole or in part, to the provisions of Title II of the Communications Act, except that such facility shall be considered a cable system (other than for purposes of Section 621(c) to the to the extent such facility is used in the transmission of video programming directly to subscribers, unless the extent of such use is solely to provide interactive-on demand services; (D) an open video system that complies with Section 653 of the Act; or (E) any facilities of any electric utilities used solely for operating its electric utility systems.

The FCC decided that, to the extent a cable operator provides non-cable services and/or operates facilities that do not qualify as a cable system, it is unreasonable for an LFA to refuse to award a franchise based on the issues related to such services or facilities. For example, the FCC may find it unreasonable for LFA to refuse to grant a cable franchise to an applicant for resisting for an LFA’s demands for regulatory control over non-cable services or facilities. Likewise, the FCC ruled that an LFA has no authority to insist on an entity obtaining a separate cable franchise in order to upgrade non-cable facilities. For example, assuming an entity such as local exchange carrier already has authority to access public rights-of-way, an LFA may not require the local exchange carrier to obtain a franchise solely for the purpose of upgrading its network. If there is a non-cable purpose associated with the network upgrade, a local exchange carrier is not required to obtain a franchise until an unless it proposes to offer cable services. If a local exchange carrier deploys fiberoptic cable that can be used for cable and non-cable services, this deployment alone does not trigger the obligation to obtain the cable franchise. The same is true for boxes housing infrastructure to be used for cable and non-cable services.

Furthermore, the FCC clarified that an LFA may not use it video franchising authority to attempt to regulate a local exchange carrier’s entire network beyond the provision of cable services. The entirety of a telecommunication/data network does not automatically convert it to a cable system once subscribers start receiving video programming. Thus, the FCC found that the provision of video services pursuant to a cable franchise does not provide a basis for customer service regulation by local law or franchise agreement of a cable operator’ entire network, or any services beyond cable services. Local regulations that seek to regulate any non-cable services offered by video providers are preempted because such regulation is beyond the scope of local franchising authorities and is not consistent with the definition of cable system in the Act, as set forth above. The definition of a cable system explicitly states that a common carrier facility subject to Title II is considered a cable system “ to the extent such a facility is used in the transmission of video programming . . . .” Moreover, revenues for non-cable services are not included in the basic calculation of franchise fees.

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The FCC’s Order and FNPRM also addresses the LFA’s authority to regulate “interactive on-demand services.” The FCC held that a facility of a common carrier that is used solely to provide interactive on-demand services is excluded from the definition of a cable system under the Act. Interactive, on-demand services are defined as “services providing video programming to subscribers over switched networks on an on-demand point-to-point basis but does not include services provided by video programming prescheduled by the programming provider. Unfortunately, the FCC did not address what particular services may fall within the definition of “interactive on-demand services”, and did not address the regulatory classification of any particular video services being offered. The FCC specifically did not address whether video services provided over Internet Protocol (“IPTV”) are or are not cable services. That issue is currently scheduled for the FCC’s determination its docket captioned IP-Enable Services, 19 FCC Rcd. 4863 (2004).

We also advised you in our December newsletter, this issue is also the subject of two lawsuits filed by franchising authorities against entities that are currently providing IPTV. As we informed you in our January newsletter, the City of Richmond’s action against Cavalier Telephone, LLC and Cavalier Telephone Mid-Atlantic, LLC and Cavalier IPTV, LLC has been referred to the FCC for determination. The second lawsuit, filed by the City of Milwaukee against Wisconsin Telecom, Inc. d/b/a AT&T Wisconsin, AT&T Teleholdings, Inc., is currently pending before the United States District for the Eastern District of Wisconsin. AT&T has filed its Motion to Dismiss. The Court is scheduled to rule on AT&T’s Motion in late March 2007.

We still remain of the view that based on our understanding of IPTV that it does not require a franchise under Section 621(a)(1) of the Act. Indeed, we have written an article on this subject which will be published in a trade publication in the March-April timeframe but for your convenience we have also placed it on www.telecommunicationsattorneys.com’s Web site. While the article does not present an opinion based on exhaustive legal research, you may want to refer to this article to gain more insight into the issue of whether IPTV requires a franchise.

We recognize the importance of the Order and FNPRM. Accordingly, don’t hesitate to call us if you have any questions about this FCC Order and FNPRM, or the issue of regulation of IPTV.

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United States Court of Appeals for the Eighth Circuit Denies Level 3’s Motionfor Summary Judgment Against The City of St. Louis Regarding Fees and OtherObligations For Accessing Streets and Rights-of-Way

On February 5, 2007, in Level 3 Communications v. City of St. Louis, Missouri, the U.S. Court of Appeals for the Eighth Circuit (“Eighth Circuit”) reversed a federal District Court’s grant of summary judgment in favor of Level 3 Communications (“Level 3”) that the City of St. Louis (“St. Louis”) charged fees for accessing streets and rights-of-way in violation of Section 253(a) of the Communications Act, 47 U.S.C. §253(a). the Eighth Circuit also and affirmed the

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federal District Court’s denial of summary judgment on Level 3’s claim under Title 42, Section 1983 of the United States Code, 42 U.S.C. §1983, that the St. Louis has a policy of charging fees which violates Level 3’s rights of due process.

In affirming the lower federal court’s denial of Level 3 motion for summary judgment on its claim under Section 253(a) of the Communications Act, the Eighth Circuit construed Section 253 differently from other federal circuit courts. Section 253(a) of the Communications Act (the “Act”) limits the ability of state and local governments to regulate telecommunications providers. Section 253(c) of the Act sets forth various state and local government actions that are not pre-empted under Section 253(a). Thus, Section 253(a) states a general rule of preemption, and provides an exception or a safe harbor as an affirmative defense to a preemption rule. In construing Section 253(a), the Eighth Circuit held that only after a party seeking preemption sustains its burden of showing that a state or local government has violated Section 253(a) by prohibiting or effectively prohibiting entry into the telecommunications services market, does the burden of proving that such regulation comes within the safe harbor in Section 253(c) fall on the state or local government. This construction is a departure from the views of the Sixth, Ninth and Tenth Circuits, which have held that a plaintiff suing a state or local government for preemption under Section 253(a) need not show actual or effective prohibition of entry into the telecommunications market, but only need show the mere possibility of prohibition.

The Eighth Circuit’s departure from the approach taken by the Sixth, Ninth and Tenth Circuits is based upon the Eighth Circuit’s reading of Section 253(a) as requiring preemption where a state or local government action actually bars any regulations which prohibits telecommunications services, or effectively prohibits telecommunications services. The Eighth’s Circuit held that Section 253(a) does not preempt state or local regulations which might, or may at some time in the future, actually or effectively prohibit telecommunications services. Moreover, the Eighth Circuit determined that a plaintiff suing a state or local government for preemption under Section 253 of the Act need not show a complete or insurmountable prohibition, but must show an existing material interference with the ability to compete in a fair and balanced telecommunications market.

In this Level 3’s case, Level 3 failed to meet this burden for preemption under Section 253 of the Act when it claimed that the fees it was required to pay the City of St. Louis for accessing streets and rights of way actually prohibited or had the effect of prohibiting Level 3 from providing telecommunications services. Level 3 had argued that the fees paid were not actually related to the cost incurred by St. Louis, and because the fees charged bore no relation to St. Louis’ costs in managing, inspecting, and maintaining rights of way, they were not reasonable and fair compensation under Section 253(c) of the Act. This is the same argument other litigants have successfully made to the Sixth, Ninth and Tenth Circuits in seeking protection under Section 253. According to the Eight Circuit, the bottom line is a litigant suing a state or city on preemption must prove a violation of Section 253(a), by showing actual or effective prohibition of telecommunications services, before claiming that there is no exception under Section 253(c).

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As to Level 3’s Section 1983 claim, the Eighth Circuit held that Level 3 bore the burden of establishing that the claim actually involved a violation of a federal right as opposed to a federal law, and that since Level 3 has not shown any violation of any federal law under Section 253, Level 3 could not claim violation of its due process right.

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FCC Rules that Wholesale Telecommunications Carriers are Entitled to Interconnect and Exchange Traffic with Incumbent Local Exchange Carriers When Providing Services to Other Service Providers, Including Voice-Over-Internet Protocol Service Providers.

On March 1, 2007, the Federal Communication Commission’s Wireless Competition Bureau (“WCB”) granted the petition of Time-Warner Cable (“TWC”) requesting that the FCC affirm that wholesale telecommunication carriers are entitled to obtain interconnection under Section 251 of the Communications Act, 47 U.S.C. § 251, with incumbent local exchange carriers to provide wholesale telecommunication services to other providers, including providers who offer Voice-over-Internet Protocol (“VoIP”).

In granting TWC’s petition, the WCB found that the Communications Act does not differentiate between the provision of telecommunications services on a wholesale or retail basis for purposes of interconnection under Section 251, and confirms that providers of wholesale telecommunication services have the same rights of any telecommunications carrier under Communications Act. The WCB further concluded that the statutory classification of the end user of service, and the classification of VoIP specifically, is not dispositive of a wholesale carrier’s rights under Section 251.

Further, in making this ruling, the WCB made it clear that the classification of the service provided to the ultimate end user has no bearing on the wholesale provider’s rights as a telecommunications carrier to interconnect under Section 251. The classification of whether VoIP is an information service or a telecommunications service is likewise irrelevant to the issue of whether a wholesale provider of telecommunications may request interconnection under Section 251 of the Act. The WCB did not reach the issues in the pending IP Enabled Services Docket, IP Enabled Services NPRM, WC Docket No. 04-36, 19 FCC Rcd. 4683 (2004), including whether VoIP is an information service or a telecommunication service.

This ruling makes it clear that a wholesale telecommunication carrier has the right to interconnect with an incumbent local exchange carrier for the purposes of VoIP services to a third-party provider.

If there are any questions concerning this FCC ruling, please let us know.

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U.S. Court of Appeals for the First Circuit in Universal Communications Systems, Inc., et al., v. Lycos, Inc., d/b/a Lycos Network, et al., Grants Broad Immunity to Entities Such as Lycos That Facilitate the Speech of Others on the Internet.

In a decision issued on February 23, 2007, the U.S. Court of Appeals for the First Circuit (“First Circuit”) held that in Section 230 of the Communications Decency Act (“CDA”), 47 U.S.C. § 230, Congress granted broad immunity to entities such as Lycos that facilitate speech of others on the Internet. In this case, Universal Communication Systems (“UCS”) and its chief executive officer brought suit, objecting to a series of allegedly false and defamatory postings made under false names on the Internet message boards operated by Lycos. UCS identified two of the false names as having been registered to a Roberto Vilasenor, Jr. UCS also sued Vilasenor and other posters of the messages, also Lycos and Terra Networks, S.A., Lycos’ corporate parent at the time of the postings in question. The First Circuit Court determined that Lycos’ activities in allowing the postings to take place on Internet message boards fell squarely within the activities set forth in Section 230 of the Communications Decency Act, which grants statutory immunity to Lycos in operating message boards. UCS’ complaint related to Lycos’ message boards “Quote.com” which provides stock quotation information and financial data for publicly traded companies, and “Ragingbull.com” which hosts financially oriented message boards, including ones designed to allow users to post comments about publicly traded companies. UCS is a publicly traded company with a ticker symbol of “USCSY”. UCS’ stock ticker symbol appears in Lycos’ message boards, and they are linked to each other, so that a user who retrieves stock quote information from Quote.com is also given a link to Ragingbull.com. Individuals who post messages on Ragingbull.com message boards must register with Lycos. As part of the registration process, users are required to agree to enter into a subscriber agreement, which, among other things, requires users to comply federal and state securities laws. Upon registration, the user obtains a screen name, or false name, and posts messages under this name. There is no other identifying information about the person who posts the messages. Lycos allows persons to register under a number of multiple screen names.

Beginning in 2003, a number of postings were made disparaging the financial condition of UCS on Ragingbull’s message board. UCS identified the postings as made by Mr. Vilasenor and/or other persons acting in concert with him. As a result, UCS filed a complaint against Lycos and Terra Networks as well as Vilasenor and others in the federal District Court in the Southern District of Florida. The complaint alleged that Lycos and Terra Networks had engaged in cyber-stalking in violation of Section 223 of the Communications Act, 47 U.S.C. Section 223, had diluted UCS’ trade name under Florida law, and had cyber-stalked under Florida law. In addition, U.C.S. alleged that Lycos and Terra Networks, along with Vilasenor and others named, had engaged in fraudulent securities transactions under Florida law. The federal District Court in Florida transferred the case to the federal District of Massachusetts.

UCS and Terra Networks defended these claims by filing a motion to dismiss and arguing that the claim asserted against them among others, were barred under § 230 of the CDA. Section 230 provides that “[N]o provider or user of interactive computer service shall be treated as the publisher or speaker of any information provided by another information content

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provider,” and that “[N]o cause for action may be brought and no liability may be imposed under any state or local law that is inconsistent with this section,”. The federal District Court in Massachusetts granted Lycos’ Motion to Dismiss the claims on grounds that § 230 immunizes Lycos and Terra Networks. Under § 230, unless an exception applies, Lycos is immunized from a state law claim if (a) Lycos is a provider or user of interactive computer services, (b) the claim is based on information provided by another information content provider, and (c) the claim would treat Lycos as the publisher or speaker of that information.

In this case, there were no exceptions to Section 230 applicable to Lycos. The First Circuit followed the Fourth Circuit, the Ninth Circuit and Tenth Circuit in holding that Section 230 grants broad immunity to providers or users of an interactive computer service. In particular, the First Circuit held that Web site operators such as Lycos are providers of interactive computer services, and their message boards do not cease to be information provided by another information content provider merely because the Web site might have some influence on the content of the postings. Additionally, the First Circuit stated that immunity extends beyond publishable liability and defamation laws to cover any claims that would treat Lycos as a publisher.

If any of you have any questions concerning this decision, please let us know.

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FCC Conditionally Grants Qwest Communications International, Inc.’s(“Qwest”) Forbearance Relief From Dominant Carrier Regulation of In-Region,Intrastate, Inter Lata Communication Services Provided on an Integrated Basis

On February 20, 2007, the Federal Communications Commission (“FCC”) conditionally granted part of a Petition for Forbearance (“Petition”) (filed by Qwest seeking relief from statutory and regulatory obligations that applied to Qwest’s provision of in-region, interstate, interLata telecommunication services on an integrated basis.

Section 272 of the Communications Act of 1934, as amended, 47 U.S.C. § 272, requires Qwest to provide in-region, interstate, interLata telecommunication services through separate affiliates that meet the requirements of that section of the Act, and the FCC’s rules which implement Section 272. The purpose of Section 272 is to prevent dominant local exchange carriers such as Qwest from controlling long distance service because of a monopoly they hold on local exchange services in their operating regions. The FCC’s decision to forbear allows Qwest to provide long distance services through its operating company, Qwest Communications Corporation, or Qwest affiliates that do not comply with Section 272, without those services becoming subject to dominant carrier regulation.

In granting Qwest’s Petition, the FCC found that Qwest generally lacked the classical market power in providing in-region, interstate, interLata telecommunication services. This finding means that Qwest lacks the ability unilaterally to raise and maintain retail prices of in-region, interstate, interLata telecommunication services above competitive levels when Qwest

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provides such serv ices on an integrated basis. The FCC, however, determined that Qwest had not presented persuasive evidence that Qwest no longer possesses exclusory market power — that is — market power that would bottleneck local access facilities, and that Qwest continues to have the ability to raise competitors’ costs by reason of its control such facilities. When Qwest provides long distance services on an integrated basis, it actually provides long-distance and local services and other services bundled together.

Under the Order, the FCC has decided that Qwest will not be required to:

Make tariff filings for in-region, interstate and allow telecommunications services;

Establish an inter-exchange basket under the FCC’s Rules for purposes of reviewing costs.

Follow tariff requirements for dominant international carriers to the extent that Qwest would be treated as a dominant carrier under Section 61.28(e) of the FCC’s Rules, 47 C.F.R. Section 61.28, where Qwest offers in-region, international telecommunication services on an integrated basis.

File applications for discontinuance of service and streamline transfers of control requests provides in-region, interstate, interLata and international services on an integrated basis.

Qwest will not have to file contracts and reports to the FCC with respect to in-region, interstate, interLata telecommunications service provided on an integrated basis.

Costs and revenues associated with its provision of in-region, interstate, interLata telecommunication services will be treated as non-regulated for accounting purposes if such services are provided on an integrated basis.

The FCC also applied conditions to Qwest’s provision of the affected services on an integrated basis. The conditions are:

Qwest must comply with its commitment to implement special access performance measurements to make sure that Qwest does not engage in non-price discrimination in its provisions of special access services, and for Qwest’s offering of DS0L, DS1, DS3 and its optical networking services. Qwest must provide the FCC with performance measurements results on a quarterly basis. Qwest’s requirement to provide such metrics will terminate on the earlier of 30 months and 6 days after the beginning of the first quarter upon the effective date of the FCC’s order forbearing, and the effective date of the FCC’s order of forbearance, or the effective date of the FCC’s order adopting performance metrics for interstate special access service;

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Qwest must impute to itself and its tariff rates for access, including access provided for use of joint use of its facilities where it provides comparable access to unaffiliated exchange carriers.

Qwest must comply with its commitment to continue offering, for at least two years effective date of the FCC’s Order Forbearing, two specific residential calling plans tailored to the needs of customers who make relatively few interstate long distance calls. More specifically, Qwest must freeze the permitted charges on its plans, and offer one of these plans with no monthly fee and not raise the monthly fee by more than $1 on either of these two plans; and

Qwest must comply with its commitment in providing certain monthly usage information for at lease two years after the effective date of the FCC’s Order to Forebear, to all residential customers of interstate, inter-exchange services, including those customers who take no bundled offerings. Specifically, Qwest must provide these customers with date of the call, time of the call, the place of the call, the number called, the duration of the call, the amount, if any, for the call. Qwest must provide this information in its billing statements to customers.

The FCC’s Order of forbearance is effective February 20, 2007.

If anyone has any questions about this Qwest order, please let us know.

Shughart Thomson & Kilroy, P.C. provides this report for informational purposes only. Because the material provided herein is general, it is not intended to be legal advice and should not be relied upon or used without consulting a lawyer to consider your specific circumstances, possible changes to applicable laws, rules and regulations and other legal issues. Receipt of this document does not establish an attorney-client relationship.  We may have prior client relationships or other potential conflicts that would prevent us from representing you or from treating your communications as confidential.

For more information about Shughart, Thomson & Kilroy, P.C. and its Telecommunications Practice and New Technologies Practice, please consult our Web sites at www.stklaw.com or www.telecomattorneys.com.

For your convenience, we also have placed our Telecom Reports monthly from 2004 to the present under the “Newsletters” tab on our www.telecomattorneys.com Web site.

If you have any questions about this Report or our prior Reports, or other recent FCC or state regulatory rulings, or federal or state court decisions affecting telecommunications, or any of our services, please don’t hesitate to contact us.

Shughart Thomson & Kilroy, P.C.1050 Seventeenth Street, Suite 2300Denver, Colorado 80265303.572.9300 (telephone)

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Michael L. GlaserDirect: 720.931.8133Email: mglaser@stklaw.com

Michael D. MurphyDirect: 720.931.8137Email: mmurphy@stklaw.com

Phil BledsoeDirect: 720.931.1172Email: pbledsoe@stklaw.com

Howard GeltDirect: 720.931.8143Email: hgelt@stklaw.com

Copyright © 2007 Shughart Thomson & Kilroy, P.C.

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2007 © Shughart Thomson && Kilroy, P.C.

2007 © Shughart Thomson && Kilroy, P.C.

Copyright © 2007 Shughart Thomson & Kilroy, P.C.