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FRIDAY - SEPTEMBER 26, 2008 - ISSUE NO. 330

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BLOOSTON LAW

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BloostonLaw Telecom Update

Published by the Law Offices of Blooston, Mordkofsky, Dickens, Duffy & Prendergast, LLP

[Selected portions reproduced here with the firm's permission.]

www.bloostonlaw.com

   Vol. 11, No. 34 September 24, 2008   

Paulson, Dodd Bailout Bills Leave Congress In Turmoil, Market Skittish, Telecom On Hold, & Everyone Guessing

As Congress considers whether to grant U.S. Treasury Secretary Henry Paulson the power to purchase $700 billion worth of bundles of bad mortgage loans, markets are skittish, people are angry, and nobody seems to know what the future holds. So far, this uncertainty has kept the telecommunications sector in a holding pattern. On Monday, some stocks—Nokia, Qwest, and Sprint Nextel—fell sharply; while others—AT&T and Verizon— dropped only 1% each, despite the 372-point decline in the Dow Jones Industrial Average (DJIA). And Motorola actually gained 1.5%. This was followed by a 162 point drop on Tuesday. But it is not clear whether telecom can hold its own and ride out this crisis. Will customers cut back on service? Stop buying products? Only time will tell.

When you throw in Bear Stearns, American International Group (AIG), Freddie Mac, and Fannie Mae, the $700 billion bailout package actually becomes a $1 trillion package. As one pundit put it, if you stretched out a trillion one dollar bills end to end, you could go to the moon and back 198 times. Now that is a lot of tax dollars!

Nevertheless, regarding the Treasury or so-called Paulson draft $700 billion proposal, administrative agencies and the courts, including the U.S. Supreme Court, could end up with no power to review the proposed “bailout,” if it is enacted. The draft bailout plan would make the Treasury Secretary the virtual king of the mortgage market, allowing him to buy and make funding commitments to buy “on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.”

He would have the discretion to consult with the Chairman of the Federal Reserve to buy unspecified “other assets,” and have the power to sell assets to the Treasury beyond U.S. companies—presumably to foreign firms.

And the draft clearly states that “decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

The only oversight appears to be the requirement to report to Congress. Language in Section 4 of the draft states as follows: “Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.” Section 2(a) refers to the authority to purchase mortgage-related assets. Section 3 refers to the designation of financial institutions as financial agents of the government.

The alternative bill proposed by Sen. Christopher Dodd (D-Conn.), however, would provide only limited judicial review. Section 8 of the Dodd bill states only that “Any determination of the Secretary with regard to any particular troubled asset pursuant to this Act shall be final, and shall not be set aside unless such determination is found to be arbitrary, capricious, an abuse of discretion, or not in accordance with the law.” It then provides for the single “Exception—Notwithstanding subsection (a), the terms of a residential mortgage loan that is part of any purchase by the Secretary under this Act shall remain subject to all claims and defenses that would otherwise apply notwithstanding the exercise of authority by the Secretary or the Corporation under this Act.”

In fact, the Dodd bill would establish an Emergency Oversight Board to review the actions of the Secretary and make recommendations. The board would include the Fed Chairman, the Federal Deposit Insurance Corp. (FDIC) Chairman, Securities and Exchange Commission (SEC) Chairman, and a couple of non-government people with financial experience.

From the language of the Dodd bill, however, it does not appear that this Emergency Oversight Board would have much power. Nor does it appear that the bill language gives the courts much leeway for judicial review.

Given that Congressional Democrats and the Bush Administration have been arguing over a provision to limit the executive compensation packages of firms that receive government help and another proposal that would allow bankruptcy judges to modify mortgages of distressed, the Dodd bill addresses these concerns.

For example, it would set limits on executive compensation, and at our deadline, there was growing support for that from both sides of the aisle. Regarding mortgages, the Dodd bill would require Treasury to figure out some way to help homeowners whose property is subject to the securities it obtains, including reducing interest rates and principal. But both bills leave negotiating the price of mortgage-related assets up to Paulson.

Further, the Dodd bill includes several provisions to protect consumers. As one Blogger noted, the Dodd bill “could allow this program to expand to credit card debt, student loan debt, market purchases of equity and even the debt of the big automakers. Basically, the entire financial system.”

At this point, it is not clear how the Paulson and Dodd versions will be compromised, or when a final bill will be passed. But key lawmakers expect the measure to be enacted by the end of this week. And Sen. John McCain (R-Ariz.) has suspended his presidential campaign to return to Washington to help with the negotiations.

BloostonLaw contacts: Hal Mordkofsky, Ben Dickens, Gerry Duffy, John Prendergast, and Bob Jackson.

LAW & REGULATION

FCC UNVEILS AUTOMATED SYSTEM FOR PROPOSED CONSTRUCTION PROJECTS: The FCC’s Wireless Telecommunications Bureau has announced that starting October 6, the new E-Section 106 System will become available on an introductory basis for use in completing the review process for proposed constructions of communications facilities under Section 106 of the National Historic Preservation Act (NHPA). E-Section 106 is a voluntary system designed to save users time and resources by automating and expediting the exchange of information and correspondence in the Section 106 process. This initial deployment of the E-Section 106 System is for an introductory period that the FCC anticipates will run from October 6 to November 7. The FCC intends to issue a subsequent Public Notice announcing the close of the introductory period and the concerning full deployment of the E-Section 106 System. During the introductory period, parties that have pre-registered with the FCC by September 29 may submit FCC Forms 620 and 621 through the E-Section 106 System. The FCC encourages parties during this introductory period to file their submissions manually with the State Historic Preservation Officer (SHPO) as well as electronically. Participating SHPOs, federally-recognized Indian Tribes (Tribes), and Native Hawaiian organizations (NHOs) may then use E-Section 106 to comment on or otherwise respond to the submissions. Notification of the completed FCC Forms 620 and 621 will also be sent to members of the public and other consulting parties that are identified in a particular filing, and they will also have the opportunity to participate in those reviews through the System. Filings made during the introductory period that are pending as of the end of that period will remain active in the System following deployment. The purpose of the introductory period is to give participating parties an opportunity to gain experience with the E-Section 106 System before it becomes generally available. The FCC also invites feedback from participants in the introductory period so as to assist us in further refining our processes. Clients should also be mindful of a number of exceptions to the SHPO process, adopted in a Programmatic Agreement between the FCC and state authorities a few years ago. BloostonLaw contacts: Hal Mordkofsky, John Prendergast, and Richard Rubino.

FCC SEEKS COMMENT ON INDUSTRY PROPOSED NEW WIRELESS E911 RULES: On November 20, 2007, the FCC released its Location Accuracy Order requiring wireless licensees subject to section 20.18(h) of the Commission’s rules, which specifies the standards for wireless Enhanced 911 (E911) Phase II location accuracy and reliability, to satisfy these standards at a geographical level defined by the coverage area of a Public Safety Answering Point (PSAP). On March 25, 2008, the United States Court of Appeals for the District of Columbia Circuit stayed the Location Accuracy Order. On July 14, 2008, APCO and the National Emergency Number Association (NENA) filed an ex parte letter addressing handset-based and network-based location accuracy criteria, stating that they “are now willing to accept compliance measurements at the county level” rather than at the PSAP level, and that “[p]ublic safety and wireless carriers are in current discussions on a number of other issues associated with E9-1-1.” On July 31, 2008, the Commission filed with the Court a Motion for Voluntary Remand and Vacatur, which requested remand based on the proposals contained in the July 14 ex parte letter and “[i]n light of the public safety community’s support for revised rules.” Following this filing with the Court, NENA, APCO, Verizon Wireless, Sprint Nextel, and AT&T submitted written ex parte letters with the Commission with proposed new wireless E911 rules. Taken together, these proposals reflect agreement among those parties for new E911 accuracy requirements for both handset-based and network-based technologies, in order to achieve E911 accuracy compliance at the county-level. The parties also offer plans to convene industry groups to address related E911 issues, and AT&T included a proposal reflecting agreement on carrier provision of confidence and uncertainty data to PSAPs. The FCC therefore seeks comment on the proposed changed accuracy requirements, including the benchmarks, limitations, and exclusions for handset-based and network-based location technologies. The FCC also invites views on the pledges to convene industry groups to explore related issues, and whether it should require the provision of confidence and uncertainty data. In sum, the FCC seeks comment on all of these proposals as well as any alternative modifications to location accuracy requirements. The FCC urges all interested parties to review the entirety of the above-referenced ex parte letters. The FCC also seeks comment on the Initial Regulatory Flexibility Analysis in connection with the proposals described above. Comments in this PS Docket No. 07-114 proceeding will be due 10 days after publication of the item in the Federal Register, and replies will be due 7 days thereafter. BloostonLaw contacts: Hal Mordkofsky, John Prendergast, Cary Mitchell, and Bob Jackson.

INDUSTRY

NEW STUDY SUGGESTS LINK BETWEEN CELL PHONES AND LOW SPERM COUNT: A new study shows that cell phones may be harmful to testes, the male reproductive organs in which sperm is made, according to Daily Tech. In the upcoming study, it was shown that when in close range to the testes and in talk mode, cell phones damage sperm. The new study shows (1) damaged sperm can lead to birth defects and higher incidences of various disabilities, as seen among the children of older fathers; and (2) the scenario tested in the study is a common one. Males who chat using hands free headsets often leave their phones resting in their pockets, in perfect range to cause the testes harm. The study was conducted by the Center for Reproductive Medicine at the Cleveland Clinic. The study consisted of semen samples taken from 361 men, which exhibit similar sperm health. The samples were kept at constant temperature and other similar conditions, while being split into a control group and a test group. The test group was placed for an hour within 2.5 cm of a cell phone in talk mode, at 850 MHz, perhaps the most common frequency. Although the study raises some red flags — due to its very controlled nature — one key component was left out and remains to be tested say its creators. There is additional protection against various environmental hazards afforded by the body's skin, bone and tissue. In order to develop a more accurate picture, the effects on sperm or other cells, when passing through such layers would have to be examined. The lead researcher advises men not to feel compelled to move their cell phones from their pockets just yet, explaining, "Our study has not provided proof that you should stop putting cell phones in your pocket. There are many things that need to be proven before we get to that stage."

DEADLINES

NOVEMBER 1: RED FLAG RULES MUST BE IN PLACE: The Federal Trade Commission (FTC) has established “Red Flag” Rules which are designed to prevent identity theft. Under the new rules, all businesses that maintain a creditor-debtor relationship with customers, including virtually all telecommunications carriers, must adopt written procedures designed to detect the relevant warning signs of identify theft, and implement an appropriate response. The Red Flag compliance program must be in place by November 1, 2008. However, the requirements are not just binding on telcos and wireless carriers that are serving the public on a common carrier basis. They also apply to any “creditor” (which includes entities that defer payment for goods or services) that has “covered accounts” (accounts used mostly for personal, family or household purposes). This also may affect private user clients who use radios internally, as well as many telecom carriers’ non-regulated affiliates and subsidiaries. If you have any question about whether the Red Flag Rules apply to you, please contact the firm. BloostonLaw has prepared a Red Flag Compliance Manual to help your company achieve compliance with the Red Flag Rules. The program must be managed by the Board of Directors or senior management employees of the company, and must provide appropriate training and oversight of the company’s staff. These measures are required in addition to those mandated by the FCC’s CPNI rules. The cost of the compliance manual is $400.00. Under the Red Flags Rules, you must develop a written program (i.e., manual) that identifies and detects the relevant warning signs – or “red flags” – of identity theft. These may include, for example, unusual account activity, fraud alerts on a consumer report, or attempted use of suspicious account application documents. The program must also describe appropriate responses that would prevent and mitigate the crime and detail a plan to update the program. The program must be managed by the Board of Directors or senior employees of the financial institution or creditor, include appropriate staff training, and provide for oversight of any service providers. The Red Flags Rules provide all financial institutions and creditors the opportunity to design and implement a program that is appropriate to their size and complexity, as well as the nature of their operations. Guidelines issued by the FTC, the federal banking agencies, and the National Credit Union Administration (NCUA) should be helpful in assisting covered entities in designing their programs. As noted above, BloostonLaw has developed a Compliance Manual for the Red Flag Rules. Please contact Gerry Duffy and Mary Sisak with any questions or to request the manual.

This newsletter is not intended to provide legal advice. Those interested in more information should contact the firm.

Source: Blooston, Mordkofsky, Dickens, Duffy and Prendergast, LLP
For additional information, contact Hal Mordkofsky at 202-828-5520 or halmor@bloostonlaw.com

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