July 2013

Russian mobile carriers are gearing up for about $13 billion in spending to boost data speeds, creating the next major battleground for network suppliers. Russia is, by land mass, the largest country in the world, making it potentially tremendously lucrative for makers of equipment such as base stations and antennas.

It has trailed the U.S. and Europe in wireless infrastructure, leaving consumers unable to enjoy video streaming and quick browsing. Sweden’s Ericsson AB, the No. 1 maker of wireless networks, and Finland’s Nokia Siemens Networks have won some of the early contracts. They will face challenges from competitors such as China’s Huawei Technologies Co. for the rest of the deals.

House Communications and Technology Subcommittee Chairman Greg Walden (R-OR) sent a letter to Federal Communications Commission (FCC) Acting Chairwoman Mignon Clyburn regarding the Universal Service Fund (USF) and proposals to expand the program.

The USF, funded by a charge on consumers’ phone bills, is currently uncapped, leaving it vulnerable to endless expansion at the expense of ratepayers. In light of the current economic environment, Chairman Walden suggested that instead of expanding the program with a blank check, Acting Chairwoman Clyburn should cap the fund and if expansion is deemed necessary, work with the Federal-State Joint Board on Universal Service to find ways to do so under the funding cap.

After nearly two years of negotiations over how to put in effect a standardized “Do Not Track” mechanism for online users, Apple, Microsoft and Mozilla, along with some consumer and privacy groups, have lined up against the online advertising industry.

The parties have been wrangling over how to provide a uniform option, called Do Not Track, that would allow individuals to opt out of having information about their online actions collected, retained and analyzed for purposes – like ads tailored to user behavior – not directly related to their activities. Browsers including Microsoft’s Internet Explorer and Mozilla’s Firefox already include such Do Not Track options for users. Until the ad industry, technology firms and advocacy groups come to an agreement, however, the don’t-track-me browser settings represent little more than symbolic consumer flags that companies are free to ignore. An international Web standards body called the World Wide Web Consortium, or W3C, is overseeing the working group that has been trying to reach a consensus on the mechanism. But last week, a variety of participants rejected a last-minute proposal spearheaded by the Digital Advertising Alliance (DAA), an industry self-regulatory body, that would have defined the Do Not Track option as prohibiting ad networks from retaining the URLs of the sites a user visited, but permitting the categorization or scoring of users based on their browsing activities.

Buyers almost always protect themselves from material adverse changes in a target’s business by reserving the right to walk away if a “MAC” happens. But in AT&T’s acquisition of Leap Wireless International, the merger agreement also contains what might be referred to as a material favorable change clause.

Although a similar provision has been included in a few previous merger agreements, it is unusual. To protect against a topping bid, buyers usually secure a breakup fee and certain procedural protections before the board can change its recommendation. AT&T negotiated a very favorable—but not particularly unusual– package of protections in this area. But what AT&T also has is a series of unusual protections if developments cause the board to change its mind in the absence of a competing bid. The biggest protection is that if that board announces that it has changed its mind when there is no higher bid and AT&T loses the deal, Leap will owe AT&T $71 million. That represents almost 6% of the reported valuation of the aggregate purchase price of the Leap stock in the AT&T deal. That is a big penalty for the board discovering better news for its shareholders. (It essentially says that the first 6% of any appreciation in the equity in this situation goes to AT&T for its efforts.)

And there is more. The Leap board cannot even change its mind—and is contractually required to recommend in favor of the AT&T deal– if the event that causes the board to want to recommend against the deal was reasonably foreseeable when the agreement was signed, is a development in the cell-phone industry, is a change in market price of the Leap stock, or is the company exceeding its own projections. These sound like they have been taken from the clause that limits a buyer from claiming a MAC—which is why I would call this a material favorable change clause. In my view, there is some question whether this limitation on the board changing its recommendation is enforceable.