Financial News: J.P. Morgan Chase upgraded AT&T Corp. to long-term buy… Lehman Bros. predicted Time Warner Telecom, Winstar and XOXO would exceed its expectations in 4th quarter.

FCC turned down Motorola petition for reconsideration in 700 MHz order that modified agency’s service rules. Rule change allowed base station transmitters to operate in both lower and upper commercial 700 MHz band after Commission concluded alteration wouldn’t be likely to cause additional interference for public safety operators. FCC said change would provide for broadest possible spectrum use and expand participation in 700 MHz bidding. Agency rules had required commercial base stations to transmit in lower block frequencies of 747-762 MHz and corresponding mobile stations to transmit in upper block of 777- 792 MHz. Responding to several reconsideration petitions, Commission later altered policy in effort not to limit scope of new offerings in bands. Specifically, FCC said in order released Fri. that modification would let licensees configure systems to avoid potential interference to mobile receivers operating in lower block frequencies from TV stations in Ch. 56-59. Motorola petition cited concerns that change allowing base stations to operate in both upper and lower commercial bands would cause interference. Interference concerns stemmed from base station transmitters in upper block potentially creating problems for public safety base station receivers in nearby 794-806 MHz. Latest order said Commission was “unpersuaded” by new technical analysis submitted by Motorola. Adaptive Broadband Corp., ArrayComm, BellSouth and TRW had all opposed Motorola petition.

FCC’s C- and F-block PCS auction, which appeared to be entering home stretch, reached $15.3 billion in net high bids late Fri. Verizon Wireless and 2 designated entities with backing from Cingular Wireless and AT&T Wireless accounted for nearly 3/4 of all bids, led by Verizon with $6.2 billion. Cingular-backed Salmon PCS bid $3.1 billion and Alaska Native Wireless, which has nearly 39% AT&T investment, $2.6 billion. Other top bidders include Dobson Communications subsidiary DCC PCS with $960.8 million, VoiceStream with $558.3 million and Cook Inlet with $498.1 million. AirGate PCS, Sprint PCS Network partner, withdrew from bidding last week, following Alltel, Sprint PCS and Nextel. “The prices in our territory have increased beyond a reasonable threshold,” AirGate CEO Thomas Dougherty said. “We believe that investing in our network is a better use of corporate funds.” In all, 39 bidders remain of 87 at Dec. 12 start of auction. Only 33 new bids were placed in 51st round Fri. Bidding also has entered 3rd and final stage, meaning that under auction rules, participants must use at least 98% of eligibility credits to retain eligibility level without using waiver. Initial stage of auction requires bidders to remain active in more than 80% of bidding units on which they placed upfront payments, with threshold increasing at later stages to keep pace of bids moving. Competition still remains most fierce for N.Y.C. licenses, with bids of $1.6 billion, $1.3 billion and $1.2 billion from, respectively, Verizon, Alaska Native and Salmon PCS.

FCC asked for comment on Rural Task Force (RTF) proposal for reforming universal service program for rural telcos. Federal- State Joint Board forwarded plan to FCC Dec. 22 (CD Dec 26 p4). In proposed rulemaking issued Jan. 12, FCC said it sought comments on: (1) In general, whether RTF plan should be adopted “as a means of providing stability to rural carriers,” whether it provided “sufficient” universal service support. (2) Effect of plan on competition, how small ILECs and new entrants would be affected. (3) More specific implementation details such as proposed “safety valve mechanism” for providing additional support to rural carriers. For example, agency asked how that support should be distributed if rural carriers were eligible for more than proposed fund cap. (4) Implementation of RTF proposal to fix per-line support at a specific level in competitive study areas. (5) Implementation issues involving “safety net additive support.” Comments will be due 30 days after proposal is published in Federal Register, probably this week.

“Of all the networks, we are situated very nicely… We are in very, very good condition” in case of strike by writers and/or actors, but “I would rather not get into specifics” about steps NBC is taking, Entertainment Co-Chmn. Lloyd Braun told TV critics in Pasadena Fri. “We really don’t want to develop or put on the air any show that we wouldn’t otherwise put on the air if there wasn’t a strike.” Some of that preparation involves reality shows, but fellow Co-Chmn. Stu Blumberg said “it’s not a function of us saying we've got to put so much reality on the air” -- programming staple being used by other networks in strike preparation (CD Jan 11 p3). On sluggish ad environment for all networks, Braun said “we are starting to see signs of improvement, but it has been tough for everybody.” ABC was last of over-air TV networks to appear before critics -- and, unlike others, it didn’t provide any official who could discuss news or other govt. issues under upcoming Bush Administration.

There may be “significant merit” in ALTS compromise proposal to curb high CLEC access charges (CD Jan 12 p8), Assn. of Communications Enterprises (ASCENT) said in comments filed Jan. 11. ALTS proposed setting ceilings for access charges as alternative to more drastic mandatory detariffing. ASCENT said it, too, had recommended rate ceilings and while those proposed by ALTS were lower, “they nonetheless appear to constitute a rational compromise between the conflicting interests of LECs and IXCs.”

Pat Patton, ex-KMBC and KCWE Kansas City, named program dir., KRON San Francisco… Mercedes Walton, ex-AT&T, appointed pres.- COO, Applied Digital Solutions… Alex Best, ex-Cox Communications, joins board of Concurrent Computer… Jeff Rich, pres.-CEO, Affiliated Computer Services, elected to Pegasus Solutions board… Appointments at Pingtel: Dan Petrie, ex- Logica, to chief architect; Jonathan Ross, ex-Artisoft, to vp- sales; Mike Storella, ex-FreightQuest, to vp-customer service… Chris Clough, vp-corporate communications, leaves Network Solutions.

FCC Chmn. Kennard made it official Fri.: He’s leaving Commission Jan. 19 “with great pride in the accomplishments of the Commission” and “deep gratitude” for opportunity to serve, he said in resignation letter sent to President Clinton Fri. Kennard said that for “next few months” he will be senior fellow of Aspen Institute’s Communications and Society Program in Washington. He also will be first chairman of program’s new advisory board. However, his immediate plans are to “get some rest and spend some time with my 10-month-old,” he told reporters after news conference on AOL-Time Warner vote. He said he hadn’t decided what he would do after Aspen Institute. Asked if he wanted to stay in telecom policy, he responded: “Sure, I love it.” Asked to name his top 3 accomplishments, he listed (1) implementation of Telecom Act, (2) e-rate, (3) expanding telecom service to disabled community, native Americans, small and minority businesses. Ex- FCC Chmn. Reed Hundt said Kennard “has done more to include minorities and disadvantaged groups in the communications revolution than all previous FCC chairs combined.” NARUC Gen. Counsel Brad Ramsay said he “will hate to see him go” because Kennard made effort to include state regulators in development of issues. “He always made time to come to NARUC and discuss things one-on-one,” he said. Announcement of new chairman isn’t expected until after President-elect George Bush is sworn in Jan. 20.

House Telecom Subcommittee Democrats still were sorting out changes in their jurisdiction with Republicans’ decision to split consumer protection and telecom (CD Jan 12 p1), but they seemed not displeased when contacted Fri. “It’s a major change,” Rep. Boucher (D-Va.) told us of GOP’s action. “We've always had consumer protection within the Telecom Subcommittee.” He wouldn’t discuss which subcommittee he would gravitate toward, but conceded that he would be watching moves of Telecom Subcommittee ranking Democrat Markey (Mass.) carefully. Markey’s staff didn’t return calls by our deadline. If he leaves Telecom Subcommittee to be ranking Democrat on full Resources Committee, or if he chooses Consumer Protection panel, Boucher would be next in line for Telecom. If Markey stays, Boucher could be candidate to take ranking slot on Consumer Protection. “Markey’s always been interested in consumer protection issues,” one lobbyist said, and heads Congressional Privacy Caucus. Boucher said that even if he and other leaders on privacy chose Telecom panel, they would remain interested in privacy and still could be driving forces on privacy legislation. Democrats probably won’t organize their membership until later this month, perhaps as late as week of Jan. 30, Boucher said.

Justice Dept.’s Telecom Task Force asked for input on how to improve its merger review process. Task force chief Donald Russell sent letter to 50 communications attorneys inviting them to March 1 private meeting to participate in “informal, off-the- record discussion.” Discussion topics listed in Jan. 10 letter: (1) Do initial task force investigations lead to “success in efficiently distinguishing between transactions which raise substantial competitive concerns and those which do not?” (2) How can task force best improve its “understanding of commercial or technological considerations relevant to our competitive analysis.” (3) How would attorneys compare task force merger review and processes with FTC, FCC, other sections of DoJ’s Antitrust Div., foreign antitrust agencies. (4) How could “second-request process be modified to promote the efficient and focused production of relevant information and documents.” Russell’s letter said those were just suggestions, and other issues can be raised at meeting. Russell said 2 moderators would help direct discussion: Verizon attorney John Thorne and Kevin Sullivan of King & Spaulding. Russell also encouraged attorneys to communicate with him directly, if they choose, by phone or e- mail. Letter went to Who’s Who of communications lawyers such as Richard Devlin of Sprint, James Rill of Howrey, Simon, Arnold & White, Mark Rosenblum of AT&T, Charles Rule of Covington & Burling, Michael Salsbury of WorldCom, Philip Verveer of Wilkie, Farr & Gallagher. Letter said all of them had worked for at least one client on important transaction reviewed by task force.