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I wrote a while back about the Downside of Downsizing, in which I noted an increasing number of calls from broadcasters who had trimmed their staffs to the bare minimum, only to belatedly discover that the remaining employees lacked either the experience or the time to ensure the station’s compliance with FCC and other regulations. This afternoon, the FCC released seven Notices of Apparent Liability announcing the financial damage that taking your eye off the regulatory ball can have.

The seven NALs (1, 2, 3, 4, 5, 6, 7) all involved Children’s Television violations, with the proposed fines ranging from $25,000 to $70,000. The FCC’s grand total for the afternoon was $270,000 in proposed Children’s Television fines. While the simultaneous release of the forfeiture orders may be meant to send a message about the seriousness with which the FCC views violations of the Children’s Television rules, the FCC has been working hard on Chairman Genachowski’s watch to clear out backlogs of enforcement proceedings of all types, and it may be that these particular cases are merely the latest result of that effort.

What is certainly not a coincidence, however, is the hefty size of these fines. These NALs appear to confirm a recent FCC trend of imposing heavier fines for a variety of regulatory offenses. While cynics might argue that the government just needs the money at the moment, there does seem to be a concerted effort at the FCC to “update” its fine amounts to make violations sufficiently painful that licensees will not view them as merely a cost of doing business. It is also worth noting that while the seven NALs involve a variety of kidvid violations (exceeding commercial limits, program length commercials, failure to notify program guide publishers of the targeted age range of educational programs, failure to place the appropriate commercial certifications in the public inspection file, failure to publicize the existence and location of the station’s Children’s Television reports), they all have one other feature in common: each of the stations confessed its transgressions in its license renewal application.

In addition to giving no quarter for the licensees having confessed their own sins, the NALs are quite stern in assessing the severity of the violations. Noting that human error, inadvertence, and subsequent efforts to prevent the recurrence of such violations are not grounds for reducing the punishment imposed, the NALs apply a strict liability standard, cutting stations no slack even where the violation was based upon a misapplication of the rule (e.g., assessing compliance with children’s commercial time limits based upon a programming hour (4:30-5:30pm) rather than a clock hour (5:00-6:00pm)), where a program-length commercial was caused by a fleeting and tiny/partial glimpse of a program character during a commercial, or where the program-length commercial was caused by network content.

To be clear, the FCC staked out no new legal ground in these decisions, which for the most part apply existing precedent, and the NALs do indicate that some of the stations involved had over 100 kidvid violations. What catches the eye, however, is not just the size of the fines, but the terse manner in which the violations are listed, the defenses rejected, and the fine imposed, with each NAL noting that the base fine for a kidvid offense is $8,000, but that an upward adjustment is merited in this particular case, with the ultimate amount often appearing to have been plucked out of the air. The impression licensees are left with is that the FCC has lost patience in plowing through the backlog of enforcement cases, and there will be little or no room for error in FCC compliance going forward.

It’s good that the broadcast advertising market has begun to resuscitate, as now would be a good time to rehire those FCC compliance personnel, particularly the ones that prescreen children’s television content.

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There is a growing need for tower space as wireless technologies proliferate, and the potential profits to be made by tower owners leasing space for these new technologies has resulted in the growth of companies whose sole business is to own and manage towers. However, managing towers is not a simple affair, as they are subject to numerous regulations from the Federal Communications Commission and Federal Aviation Administration, not to mention the many other applicable regulations of the Department of Homeland Security, Environmental Protection Agency, Department of Transportation, and Occupational Safety and Health Administration.

The FCC recently released a Notice of Proposed Rulemaking proposing revisions to Part 17, its Antenna Structure Registration rules, with the stated goals of improving compliance and safety and to remove dated and burdensome requirements on tower owners. It also claimed that the proposals will help tower owners, as the FCC puts it, “more efficiently and cost effectively” comply with the FCC’s rules.

While it may be true that the FCC is proposing to streamline aspects of its rules, for antenna structure owners, the NPRM is a mixed bag at best and includes a number of possible new regulations that could increase regulatory compliance burdens. For example, the FCC is proposing new regulations changing the way it evaluates proper tower painting, adding station record retention requirements, changing the required location of signage, and establishing new tower light failure and tower inspection requirements. Of perhaps the greatest concern, the FCC is asking whether it should adopt a whole new set of rules to be consistent with those to be issued by the FAA which could expand notification requirements for construction of new facilities that operate on specified frequency bands, changes in authorized frequency, addition of new frequencies, and new power and height thresholds.
Among the potentially beneficial changes, the NPRM proposes to replace the current tower inspection and observation requirements with a simple rule mandating only prompt reporting of outages, ease the requirement regarding quarterly inspections of automatic control systems associated with tower lighting, clarify the rules regarding the posting of Antenna Structure Registration numbers, create an objective standard for determining when an antenna structure must be cleaned or repainted, and permit tower owners to notify tenants by email when a tower structure has been registered rather than being required to provide a paper notification.

The FCC set the public comment dates in this proceeding through publication in the Federal Register today. Comments are due July 20, 2010, and reply comments are due August 19, 2010. As will be discussed in greater detail in a Client Advisory regarding the proposed rule revisions, the FCC has requested comment on these and a multitude of other changes. A complete copy of the FCC’s NPRM can be found here. Given the breadth of this proceeding, tower owners and tenants should seriously consider providing their input on the proposed rule changes or be prepared to live with the consequences. In worst case scenarios, tower owners can face fines of more than a million dollars for failing to comply with various federal (as well as state and local) regulations, and it is therefore wise for them to register their input on what those regulations will look like.

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The U.S. Supreme Court today announced that it is declining to hear Cablevision’s challenge to the must-carry rules, letting stand a Second Circuit ruling upholding the validity of the 1992 rules. Approximately 40% of broadcast stations rely on must-carry to ensure carriage on their local cable systems, with the remainder electing to negotiate retransmission terms for carriage. A closely divided Supreme Court affirmed the validity of the must-carry rules over a decade ago, but Cablevision sought to argue that things have changed since the days of cable monopolies, and that the rules can’t be justified in a world where cable now competes with satellite and other providers for subscribers. However, the real change that Cablevision was banking on was the change in the composition of the Court, with two of the five justices that voted to affirm must-carry in 1997 having left the court, and a third affirming vote, Justice Stevens, having now announced his impending retirement.

Cablevision therefore had reason to think that its appeal, which in many regards was just a “do over” of the earlier unsuccessful challenge, had a chance with the Court’s new mix of justices. What is interesting, and reassuring for broadcasters, is that for the Supreme Court to agree to hear an appeal requires the votes of only four justices, rather than a majority of the nine justices. Declining to hear the appeal means that not even four justices, much less a majority of the court, were interested in reviewing the Second Circuit’s affirmation of the must-carry rules.

So what does that mean? Well, a true optimist from the broadcasters’ perspective would hope it means that three or less justices question the validity of the must-carry rules, and that future appeals will have a very uphill battle to claim five votes in favor of overturning the rules. An optimist for the cable industry would argue that a lot of factors go into determining whether the Court should grant certiorari, only one of which is the likelihood of a resulting decision reversing the lower court. The truth, of course, lies somewhere in the middle, and we may never find out whether the Court’s decision to deny certiorari was a hard-fought internal battle over the merits of the appeal, or merely a simple vote where the justices expressed no appetite for revisiting the issue for any number of reasons.

In the meantime, must-carry remains the law of the land, and it will likely be a while before another appeal can work its way up through the system to reach the Supreme Court. As a result, broadcasters relying on must-carry rights can breath a sigh of relief, at least for now.

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Call it just a recessionary recess, but radio stations strapped by the tough (but finally improving) advertising market breathed a sigh of relief today. In a continuing battle between the Radio Music License Committee (RMLC) and ASCAP over the music license fees paid by radio stations to the composers represented by ASCAP, US District Court Judge Denise Cote ruled that while the dispute is being resolved, the interim payments due ASCAP will be reduced by some $40 million dollars compared to the 2009 ASCAP fees.

The seeds of the dispute were first planted years ago, in economic boom days, when ASCAP fees were based upon a percentage of a radio station’s revenues. The radio industry sought to slow the rapid rise in ASCAP fees resulting from economic growth in the radio industry. To accomplish this, the RMLC and ASCAP ultimately agreed on a flat rate fee structure not directly connected to station revenues.

You can guess what happened next. The economy plummeted, radio revenues plummeted, but the ASCAP flat rate fees did not. Suddenly those fees represented an ever larger percentage of station revenue, with the result that playing music was becoming a very pricey part of station operations. There are also additional complications in a digital world. Does your ASCAP license cover your station’s audio stream on the Internet and elsewhere? How about those new HD multicast streams you’re now transmitting?

With the hope of addressing the growing impact of ASCAP fees, as well as these related issues, the RMLC and ASCAP entered negotiations over the fees to be paid by radio stations in 2010 and beyond. When no agreement could be reached, the RMLC commenced a rate proceeding in the US District Court. While it may be years before that proceeding is concluded, the interim rate set by Judge Cote represents the rate that will apply going forward. It supersedes the temporary 7% rate reduction agreed to by the RMLC and ASCAP earlier, but is not retroactive to January 1, 2010. It will continue to apply until the rate proceeding is concluded and a new rate is established, at which point the new rate will be applied retroactive to January 1, 2010, and any upward or downward adjustment for fees already paid will be made.

In the meantime, radio stations should begin seeing reductions in their ASCAP bills in the coming months, which will provide a welcome bit of relief to cash-strapped stations.

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Given that low power television (LPTV) stations have been trying unsuccessfully for many years to obtain must-carry rights comparable to those enjoyed by full-power stations, it is often overlooked that some LPTVs do, in fact, have carriage rights. However, these must-carry rights are available only to a select few LPTV stations.

Specifically, an LPTV station is “qualified” for mandatory carriage only if: 1) it broadcasts at least the minimum number of hours required of full-power stations by the FCC’s rules; 2) it meets all the obligations applicable to full-power television stations including, among other things, with respect to non-entertainment programming, and provides local news, informational and children’s programming that addresses local needs that are not being met by full-power stations; 3) it complies with interference restrictions consistent with its secondary status; 4) it is located no more than 35 miles from the cable system’s principal headend and delivers a good quality signal to that headend; 5) the community of license of the station and the franchise area of the cable system were both located outside the largest 160 markets on June 30, 1990 and the population of the community of license was not larger than 35,000 as of that date; and 6) there is no full power television station licensed to any community within the county served by the cable system.

The last two criteria are typically the most difficult obstacles for LPTV licensees to overcome, as cable systems are only required to carry LPTVs in the smallest of markets and, even in those areas, only when there is a dearth of full-power stations in the area. While the restrictions are difficult for most LPTV stations to meet, a recent FCC decision shows that it is not impossible. In that case (found here), digital LPTV station WRTN-LD, located just outside of Nashville, Tennessee, was able to convince the FCC, over the objections of Comcast, that the station is a “qualified” LPTV station entitled to must-carry rights on Comcast’s cable system. While Comcast argued that the station is part of the Nashville market and therefore ineligible for must-carry rights, the station was able to demonstrate that its service area was outside the Nashville market and that it met the other qualifying criteria.

This case serves as a reminder to all licensees to investigate options and not merely presume that no help is available at the FCC or elsewhere. For LPTV licensees in particular, a quick review of the LPTV carriage criteria above with respect to their own situation is well worth the effort involved.

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While the FCC has traditionally steered clear of copyright issues, that has grown more difficult as the preferred method of content protection shifts from court actions to copyright protection built into the hardware. The FCC therefore found itself in the middle when Hollywood insisted that cable and satellite set-top boxes be designed so that programming could be embedded with code preventing the box from outputting the programming through any output unsecured against copying (principally analog outputs). Consumers and consumer electronics manufacturers fought back, noting that early generation DTV sets only had analog inputs, and that allowing programming to be restricted to the digital outputs of set-top boxes would deprive those early adopters of programming unless they bought new DTV sets.

In balancing the desire of Hollywood for an ironclad grip over its programming, and the adverse impact upon consumers just as the FCC was trying to persuade them to transition to digital television, the FCC prohibited the use of Selectable Output Control (SOC), but did not prohibit set-top boxes from being manufactured with SOC capability. The idea was that the FCC might later be presented with a business model requiring the use of SOC, and the FCC did not rule out the possibility of granting a waiver if the applicant could demonstrate that consumers would not be harmed by the use of SOC.

The FCC today released a decision partially granting a waiver request from the MPAA that would allow cable and satellite companies, at the request of the program provider, to use SOC to prevent set-top boxes from outputting recent theatrical HD movies over “unsecured” outputs. The business model proposed in the waiver request is the release of movies through Video on Demand services while those movies are potentially still in theaters, and long before they become available on DVD or Blu-Ray disc. The MPAA persuaded the FCC that studios would never release their content to home viewing this early in a film’s marketing life unless assured that it wouldn’t result in the content immediately being pirated over the analog outputs of set-top boxes.

In addition to the traditional opposition from consumer electronics manufacturers, who will face the wrath of consumers unable to get their components to work with the restricted outputs, the National Association of Theatre Owners (NATO) also objected. They argued that such an early release model would undercut their business, and that “instant availability of films will reduce choice and limit the ability to develop ‘sleeper’ hits in movie theaters.” Similarly, the Independent Film and Television Association (IFTA) asserted that SOC would reduce access to independently produced films.

The FCC chose, however, to grant a waiver, stating its belief that “home viewing will complement the services that NATO and IFTA members offer and provide access to motion pictures to those consumers who cannot or do not want to visit movie theaters.” While the FCC has long claimed not to be in the business of picking winners and losers in its technology decisions, that loud groan you hear is theater owners concerned that they are about to be “complemented” out of business by an ever-improving (and now speedier) home viewing experience.

In an effort to prevent SOC from being abused, however, the FCC did not grant the open-ended waiver sought by the MPAA. For example, the FCC limited the time during which SOC restrictions can be applied to 90 days, or whenever the movie becomes available on prerecorded media, whichever comes first. It also prohibited SOC from being used to promote proprietary connections (by blocking output to acknowledged copyright-secure connections on retail devices in favor of a Hollywood-preferred connection). The FCC also made clear that if “companies taking advantage of this waiver market their offering in a deceptive or unpredictable manner that does not allow consumers to ‘truly understand when, how, and why SOC is employed in a particular case’,” the FCC “will not hesitate to revoke this waiver.”

Finally, to prevent MPAA members from gaining an unfair advantage over other movie producers, the FCC is making the waiver available to any provider of first-run theatrical content that files an “Election to Participate” with the FCC. Such providers will be required to submit a detailed report to the FCC on their use of SOC two years from commencing use of SOC under the waiver so that the FCC can later assess whether the waiver needs to be modified or terminated. Whether the FCC will actually revisit the decision remains to be seen, but keeping its options open is likely a wise idea, as this is a decision that could well have cascading unintended consequences for all involved.

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The press is buzzing with news, leaked late yesterday and announced today in a document entitled The Third Way: A Narrowly Tailored Broadband Framework, that FCC Chairman Genachowski is proposing to reclassify the transmission component of broadband Internet access as a “telecommunications service” subject to FCC regulation. As almost everyone in the telecom world knows, the US Court of Appeals recently found that the FCC does not have direct jurisdiction to impose “network neutrality” rules as long as it classifies broadband as just an “information service.”

With the Chairman’s support, three of the five FCC Commissioners now favor reclassifying broadband as a telecommunications service, a first step towards adopting network neutrality rules.

For broadcasters, the net effect of net neutrality rules isn’t as easy to assess as it may at first seem. As producers and distributors of broadband and mobile services, net neutrality rules should assure broadcasters that their content will not be blocked or unfairly degraded by broadband network operators. Broadcasters that provide mobile news apps and operate rich media web sites have the same general interest in nondiscriminatory network access as do Internet behemoths like Google, Amazon and eBay.

On the other hand, broadband providers have argued convincingly that their networks are extremely expensive to build and that they must have flexibility to manage Internet traffic on their networks to assure a good quality of service to their subscribers. If the FCC limits broadband operators’ ability to manage traffic, those operators may have to upgrade their infrastructure, raising costs to web publishers and end users alike.

Mobile network operators assert that network neutrality rules could have proportionally greater adverse effects on them. Mobile network capacity is generally more costly and less robust than that of copper and fiber networks. If network neutrality rules increase the load on mobile networks and limit the ability of network operators to manage that traffic, their arguments that they need more spectrum to meet growing demand may be more convincing.

At this stage, no one knows how any proposed network neutrality rules would treat mobile broadband operators. However, it is plausible that aggressive network neutrality rules could increase the load on mobile networks, and mobile operators are sure to argue that they will need more spectrum to respond.

With broadcast spectrum already squarely in the sights of the same FCC that is now proposing to impose network neutrality rules, broadcasters should pay close attention to this debate.

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When the U.S. Supreme Court overturned various restrictions on political spending by corporations in the Citizens United decision, it set off a flurry of activity in Washington. Many, including famously the President in his State of the Union address, derided the decision as opening the political process to the corrupting influence of corporate cash. Many in Congress promised a swift legislative response to minimize the impact of the Court’s ruling. Regardless of where you stand on the Court’s decision, I have to say I was disturbed by a number of statements coming out of Capitol Hill afterwards which made clear that the speakers had no understanding of the laws already on the books relating to political advertising on electronic media. Some promised to change the law to what it actually already is (although they apparently didn’t know it), and others pointed out “problems” that would result from the Citizens United ruling that current law already prohibits from occurring.

Grandstanding without basis is, however, a well-established Washington tradition, and I presumed that when legislative staffers got together to draft the legislation, they would quickly figure out that these criticisms and unneeded solutions had been off-base. I apparently was too optimistic. Today, Senator Schumer of New York unveiled the Senate version of the legislation (Senate link not yet available) at a news conference on the steps of the Supreme Court. The President publicly applauded the legislation, and the House has promised hearings within a week on its version of the bill in hopes of enacting it quickly enough to govern this Fall’s elections. The DISCLOSE Act (the acronym for “Democracy Is Strengthened by Casting Light On Spending in Elections”), as its name indicates, requires ample disclosure when corporations or unions spend money on ads relating to a federal political campaign. Unfortunately, it does not stop there, and attempts to then rewrite political advertising laws contained in the Communications Act of 1934 that were not impacted by the Citizens United ruling. These changes appear to be an effort to require broadcasters, as well as cable and satellite operators, to subsidize the ads of not just candidates, but of their national political parties as well, in an effort to make their ad dollars go farther than those of a corporation exercising its rights under Citizens United.

Setting aside the wisdom or constitutionality of that approach, the rub is that the legislation was apparently drafted in such a rush that aspects of it quite literally make no sense. For example, the relevant section of the bill is entitled “TELEVISION MEDIA RATES”, but it then amends the political advertising provisions of the Communications Act that affect both television and radio. Even if the impact on radio was unintended, the matter is further confused by a requirement that the FCC perform random political audits during elections of at least 15 DMAs of various sizes, and that each DMA audit include “each of the 3 largest television broadcast networks, 1 independent television network, 1 cable network, 1 provider of satellite services, and 1 radio network.”

Similarly, the statutory exceptions to the requirement for providing equal time to a candidate’s opponents when the candidate appears on-air would be amended to exclude certain appearances by a candidate’s representative as a triggering event. However, since only the appearance of a candidate can trigger equal time in the first place, creating an exception for appearances by a candidate’s representative serves no purpose.

Further indicating that the bill is premised on a misunderstanding of the current law, the Reasonable Access provisions of the Communications Act would be amended so that instead of FCC licensees being required to provide federal candidates with “reasonable amounts of time,” they would be required to provide “reasonable amounts of time, including reasonable amounts of time purchased at the lowest unit charge ….” The premise of this change appears to be a lack of understanding that all time sold to a candidate in the 45 days before a primary and the 60 days before a general election must be sold at the lowest unit charge for that class of time. The broadcaster has no discretion to charge anything but the lowest unit charge during that time, making this change pointless as well.

A number of other odd provisions in the Senate version of the bill that would significantly impact media companies (and not just broadcasters) is discussed in an Advisory we issued to our clients earlier today. Two of particularly great concern would drastically reduce the lowest unit charge for political advertising while significantly expanding the pool of entities eligible to receive lowest unit charge. It is worth noting that none of these media-oriented provisions appear to be in the House version of the bill, so hopefully they will be excised from the Senate bill before any harm is done. Regardless, broadcasters, as well as cable and satellite providers, need to be vigilant to ensure that these provisions, if not eliminated outright, are at least heavily modified before any final bill emerges.

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One of the benefits of practicing law in a multifaceted law firm is the opportunity to work with lawyers in every area of law. It is always a good learning experience, as you get to explore the often hazy areas of law that dwell at the nexus of multiple practice areas. For example, many communications facilities, and particularly towers, create both environmental and communications law issues. Over the years, we have worked on numerous matters involving RF radiation and bird strike issues at transmission tower sites. Issues like that involve multiple governmental agencies and protocols, and it is great to have a mix of lawyers with the right experience to address the various aspects of such a problem.

I therefore read with interest an Advisory published today by Pillsbury Intellectual Property lawyers Jim Gatto, Cydney Tune, and Jenna Leavitt. While not directed specifically at communications companies, it discusses an IP matter that is certainly relevant to such companies. Like most businesses, those in the communications sector use a lot of off the shelf software. However, communications companies also license a lot of specialized software (e.g., traffic systems for ad placement), and often have to hire coders to adapt the software to their specific needs or to create entirely new software for highly specialized tasks. Sometimes, such entities have new software created because they are not satisfied with what is commercially available.

As a general rule, when you hire a contractor to produce a “work for hire”, the copyright in that work remains with you rather than the contractor. However, in their Advisory with the catchy title Work Made for Hire Doctrine Does Not Generally Apply to Computer Software, the authors note that software does not fall under the types of works considered work for hire. As a result, the copyright in the software would remain with the contractor (even if the parties had agreed it would be a “work for hire”) unless proper contracts are put in place to alter that result. The Advisory goes into detail on how this works and what the implications are, but suffice it to say that many communications companies may be surprised to learn that they don’t hold the copyright in their own software.

This is not just an issue for large companies with complex computer systems and extensive programming. It applies just as readily to a small market radio station that asks a college student to design its website. Without the proper agreements in place, the copyright would remain with the student rather than the radio station. Now might be a good time to consider what software you have had contractors produce for your operation, and whether you know who actually owns it.

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For those tired of having their dinner conversations interrupted by others’ cell phone calls, or watching movies in a theater by the light coming off the screens of nearby texters, technology has provided a solution. Unfortunately it is illegal.

In a recent decision, the FCC fined a company called Phonejammer.com $25,000 for marketing jamming equipment in the U.S. through its website, www.Phonejammer.com. The FCC discovered the violations when its field agents, responding to complaints from a cellphone service provider in Dallas, and a County’s Sheriff’s office in Florida, traced the interference in each case to a local business, and discovered that the proprietor had purchased and was operating a Phonejammer unit acquired through the website. Unfortunately, the FCC’s decision does not indicate the type of businesses that were using the Phonejammer, so it is not clear if they were restaurants, theaters, or just businesses tired of their employees texting their friends all day.

Under the Communications Act, it is illegal to sell jamming equipment because of the harm done, both intentionally and otherwise, to electronic communications. While putting an end to loud cell phone calls in upscale restaurants, or to students texting in class, might sound appealing to managers of such places, the interference to communications cannot easily be confined to just that location. Of course, the problems with jamming are not limited to just unintentional interference to nearby areas. There are similar issues affecting the business location seeking to jam calls. You can imagine what would happen if a patron had a heart attack on the premises and the emergency response was delayed when other patrons’ cell phone calls to 911 couldn’t get through.

Because of these concerns, the U.S. has always strictly prohibited the marketing of jamming devices, and not even police are permitted to use jammers. To appreciate the extent of the government’s concern with jamming, note that jamming equipment is not permitted even in prisons, where smuggled cellphones have caused unrelenting headaches for prison officials, with some inmates continuing to manage criminal enterprises via cell phone while still in prison.

That may be about to change, however. The Senate last year passed S.251, the Safe Prisons Communications Act of 2009, to permit targeted jamming of cell phone service within prisons. While it has not yet been approved by the House of Representatives, support for the idea has been strong. As with most well-intentioned ideas, however, the question is what unintended consequences will be involved, particularly if the jammers are not carefully monitored and regulated. For example, will a highway that passes a prison inevitably be a cellular dead zone for passing commuters, or will the technology, once permitted, be refined to largely eliminate unintended interference (if that is possible)? Again, it may be a minor annoyance to lose a call when driving by a prison, but a serious traffic accident in that area can make reliable cell phone service a life and death issue.