November 12, 2010
Supreme Court Questions AT&T On Wireless Contract
Arbitration Clause
ƒ Supreme Court Questions
AT&T On Wireless Contract
Arbitration Clause read more
ƒ Industry Warns Against
Application Of Net Neutrality
Rules To Wireless Carriers
read more
ƒ FCC Opens Probe Into
Google Wi-Fi Data Collection
read more
ƒ ACA Report Suggests
Conditions on ComcastNBCU Merger read more
ƒ Vodafone To Sell Back
Japanese Interests To
Softbank read more
ƒ Study Cites Gains Of
Unbranded Chinese Handsets
In Global Device Market
read more
The eyes of the U.S. wireless and cable industries were focused on the U.S. Supreme
Court on Tuesday as the high court heard oral arguments in a closely-watched case that
involves the right of states to invalidate contract clauses that force subscribers to resolve
grievances through binding arbitration. The case at hand pits AT&T against a California
couple that filed a class-action lawsuit in 2006 against the wireless carrier’s practice of
charging a $30 “sales tax” for handsets that were advertised as free. Although AT&T
argued that the class-action claim was barred by subscriber contract provisions that
require aggrieved customers to submit individual complaints to arbitration, a federal
district court in California and the Ninth Circuit Court of Appeals determined that
AT&T’s arbitration provision was “unconscionable” and therefore unenforceable under
California law. Appearing before the Supreme Court, counsel for AT&T explained that
the Federal Arbitration Act (FAA) preempts California legal precedent on the
unenforceability of class action bans in subscriber contracts because the state has
established a “special rule” that applies only to arbitration agreements and that does not
apply to all contracts as required by the FAA. AT&T also said that its arbitration clause
is consumer friendly as the company imposes no fee on subscribers to initiate the process
and because complainants can collect remedies of up to $7,500 plus double
reimbursement of attorney fees. Although Justice Samuel Alito appeared to agree with
AT&T’s own suggestion that arbitration offers fuller and faster compensation of
consumer claims than class-action suits, several other justices cast doubt AT&T’s claim
that California’s “unconscionability” standard does not apply to all contracts. As Justice
Ruth Bader Ginsberg asserted, “there is nothing that indicates that California’s laws are
applying a different concept of unconscionability,” Justice Antonin Scalia questioned,
“are we going to tell the state of California what it has to consider unconscionable?”
Citing California’s contention that its law pertains to all contracts, Justice Elena Kagan
quipped, “who are we to say that the state is wrong about that?”
Industry Warns Against Application Of Net Neutrality
Rules To Wireless Carriers
Responding to an FCC notice of inquiry, three of the four top U.S. mobile phone carriers
joined with wireless association CTIA in arguing against the imposition of net neutrality
rules on wireless broadband providers, as they cited potential economic harms and the
importance of allowing carriers to manage networks in a way that preserves their ability
to offer high-bandwidth applications such as mobile TV. In a public notice issued in
September, the FCC sought comment on the potential application of net neutrality
mandates on wireless carriers as one of two issues (the other pertaining to managed
services) that warranted further development in the agency’s open Internet proceeding.
While cautioning that net neutrality mandates would negatively impact the deployment of
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wireless broadband facilities, which bring “incredible benefit to the U.S. economy,” CTIA pointed to a recent statement by former
FCC Chairman Reed Hundt on C-SPAN in which Hundt proclaimed that, “because wireless is robustly competitive, it is the least
regulated of all communications media in the U.S.” Quoting Senator Evan Bayh’s (D-IN) remark that “every policy must be viewed
through a single prism: does it help the economy grow,” CTIA added: “for a market and ecosystem such as wireless that is driving
investment, innovation and growth, the application of stifling new rules fails that test.” As T-Mobile USA urged the FCC to “recognize
that any decisions shifting away from long-standing deregulatory policies could also have a significant impact on the global Internet
marketplace,” AT&T said that only by preserving the incentive and ability of wireless carriers to offer specialized services “can the
Commission maintain the broadband sector as an outperforming source of jobs and innovation in a still-struggling American
economy.” Rejecting proposals that net neutrality rules should be applied equally to wireless and wireline carriers, Verizon maintained
that wireline broadband operators “do not confront the challenges brought on by mobility, the same form of capacity constraints, or
radiofrequency interference issues.” Public interest group Free Press lamented: “if this proceeding had demonstrated anything
conclusively, it is that further proceedings will offer little, if any, additional clarity.”
FCC Opens Probe Into Google Wi-Fi Data Collection
Two weeks after the Federal Trade Commission (FTC) closed its investigation into the collection of Wi-Fi network data by Google
Street View vans, the FCC said it would launch its own probe based on Google’s admission last month that Internet user passwords,
e-mail messages, and web addresses were included in the Wi-Fi data that was intercepted by the company. The FCC’s announcement
on Wednesday represents the latest development in a saga that began in May when Google first disclosed that equipment aboard
Google vans that is used to obtain data for the company’s Street View map service and to track the location of Wi-Fi hot spots had
inadvertently collected unsecured web “payload” data transmitted by web surfers over Wi-Fi connections. Citing Google’s pledge to
delete the inadvertently collected data and to undertake corrective measures aimed at preventing a recurrence, the FTC terminated its
investigation without further action. Various foreign governments are, however, continuing to review the company’s actions. Google’s
admission is also the subject of a multi-state probe led by Connecticut Attorney General and U.S. Senator-elect Richard Blumenthal
(D-CT), who described the data collection incident as a “deeply disturbing invasion of personal privacy.” Pointing to Google’s most
recent disclosure about the collection of complete e-mails and “other personal information wirelessly from unsuspecting people,” FCC
Enforcement Bureau Chief Michele Ellison confirmed that the FCC “is looking into whether these actions violate the Communications
Act.” While again voicing regret, a Google spokesman stressed: “as we assured the FTC, which has closed its inquiry, we did not
want and have never used the payload data in any of our products and services.” Applauding the FCC probe, an official of the
Electronic Privacy Information Center noted that, “while the interception of communications traffic may have been accidental, the
collection of Wi-Fi device name and location information was not.”
ACA Report Suggests Conditions on Comcast-NBCU Merger
A study compiled by a former FCC chief economist and issued Monday by the American Cable Association (ACA) estimates that U.S.
cable consumers could face significant rate increases if the Comcast-NBC Universal (NBCU) merger is approved by the FCC without
conditions. The ACA released the study as the FCC approaches the November 24 expiration of its informal 180-day “shot clock” for
consideration of the $28 billion Comcast-NBCU deal, which was first announced last December. Observers say a draft order
addressing the $28 billion transaction could begin circulating among the agency’s commissioners within a few weeks. Although ACA
is not among the parties that have urged the FCC to reject the Comcast-NBCU deal, the trade group has called for conditions that
would (1) require the merged entity to offer program rights to NBCU broadcast stations or regional sports networks on a stand-alone
basis and (2) provide pay-TV system operators that are involved in retransmission disputes with the merged entity with rights to
binding arbitration. An analysis of the Comcast-NBCU merger conducted by former FCC Chief Economist William Rogerson outlines
potential costs to subscribers arising from both the vertical and horizontal aspects of the deal. Noting that the issues raised by ACA
“have been examined by the Commission in three previous transactions and in each case [the FCC] rejected imposition of a condition
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
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on national cable networks,” a Comcast spokesman proclaimed: “there is no reason for the FCC to treat Comcast and NBCU worse
than it treated Fox, DirecTV and Liberty in those recent deals.”
Vodafone To Sell Back Japanese Interests To Softbank
British wireless giant Vodafone continued its strategy of divesting interests in mature markets to pursue new opportunities in expanding
sectors such as India and Africa as it confirmed its plan to exchange interests accumulated in Japanese provider Softbank for
US$5.1 billion. Vodafone acquired its interests in Softbank four years ago after financing Softbank’s $15 billion purchase of Vodafone
Japan (VJ). Following on the recent $6.9 billion sale of Vodafone’s 3.2% stake in China Mobile, Tuesday’s deal encompasses
Softbank preferred shares, stock acquisition rights, and subordinated loans that came under Vodafone’s control through the VJ
transaction. Softbank is expected to pay for its repurchase in two installments, with $2.57 billion to be remitted in cash next month and
the remaining portion to be paid in April 2012. Vodafone is expected to use proceeds from next month’s payment to offset debt.
Meanwhile, at a strategy review, Vodafone CEO Vittorio Colao reiterated his company’s commitment to emerging markets in Africa,
India and Eastern Europe and his company’s plan to ramp up investment in mobile data services. While maintaining that “the big part
of future growth is in mobile data,” Colao confirmed that Vodafone would move “to a staircase type of pricing that has a lower entry
level to allow customers to adopt mobile data” and that would also be “fairer and better” for subscribers.
Study Cites Gains Of Unbranded Chinese Handsets In Global Device Market
Unbranded “white box” cell phones produced by Chinese manufacturers for sale in emerging markets are the driving force behind a
recent global surge in wireless handset shipments, proclaims a study released this week by research firm Gartner Inc. According to
Gartner vice president Carolina Milanesi, vigorous gains from the sales of low cost, low-end white box phones in India, Russia, the
Middle East, Africa and Latin America have prompted Gartner to revise its full-year industry growth forecast for 2010 upward to 30%
from earlier estimates of 13-to-15 percent. During the third quarter, white box handsets built primarily on chipsets produced by
MediaTek of Taiwan captured a 33% share of the global market as compared to a 16.1% share of that market during the same period
last year. Although total handset shipments worldwide surged by 35% over the third quarter of 2009, global market share held by the
top five handset manufacturers fell from 83% to 67%. Nokia, the world’s top producer of lower-end handsets, saw its share of the
market drop from 36.7% to 28.2%. Asserting that “consumer demand is healthy,” Milanesi explained that “Nokia’s performance didn’t
get worse, it’s that the market is so much larger so the share comes down.”
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For information about any of these matters, please contact Patrick S. Campbell (e-mail: pcampbell@paulweiss.com) in the Paul, Weiss
Washington office.
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telecom@paulweiss.com.
(No. 2010-45)
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