Communication Law Practice Revenue Steady Despite Slump

Bright spots were the DTV transition and the $7.2 billion in broadband stimulus funds, which led to new business at many of the firms. Another bright spot for law firms is wireless carriers with fixed-price, all-you-can-eat service plans, such as MetroPCS and Cricket, said the senior partner for communications at one law firm. The companies are enjoying continued, and in some instances, record subscriber gains despite, or perhaps because of, the economic downturn.

Of the 12 firms that discussed revenue, most said collections or billings this year through May were unchanged or up from 2008. In this recession, flat is good for law firms, with many in other sectors laying off senior lawyers, said those who follow legal business. Three communications law practices said 2009 revenue is on track to decline from 2008.

Among the 14 firms, six reporting less acquisitions work are offsetting that partly by handling more restructurings and bankruptcies. Dickstein Shapiro, with about 15 communications lawyers, started a restructuring practice (CD June 10 p15). Dickstein lawyer Lew Paper envisions more such work, citing Goldman Sachs’ takeover this year of radio station owner Nassau Broadcasting. “It will generate more work for attorneys in the communications bar.” Preparing clients to apply for federal broadband stimulus grants brought in new customers for six firms, most also doing more restructuring work.

Veteran communications lawyers expect large deals to languish until the economy picks up or would-be acquirers find it easier to get loans. “There are not that many transactions -- we are doing some -- but people cannot get money,” said Vince Curtis, co-managing member of 31-lawyer Fletcher Heald. Mergers are “the big area that probably will be lacking this year,” he said.

With multi-billion-dollar transactions scarce, “smaller players are buying things that they wouldn’t be able to do in a stronger economy,” said Davis Wright Tremaine’s Paul Glist, co-chair of the 245-lawyer communications, media & information technology practice. Firms participating in the survey ranged in size from Baller Herbst, with four lawyers, to Wiley Rein, with 280. Ten firms declined to discuss their business, and several of the 14 participants didn’t answer questions or asked that some or all responses be kept anonymous.

Seized-up credit markets have opened up somewhat this year, said several lawyers. Partner Robert Rini of five- lawyer Rini Coran sees “signs of a recovery” after a “thaw” in credit markets that at year-end were “ice cold,” he said. At Akin Gump, also with five communications attorneys, communication and information technology practice head Tom Davidson said he’s “beginning to see a little activity in the acquisition arena but it is too early to determine whether this activity is an exception or the trend.”

‘Fewer Wine and Cheese Parties’

Some clients are slower to pay, said lawyers at communications firms that have either laid off staff or are on track for a 2009 revenue decline. During the recession, billing at Fletcher Heald is “still good,” but “it seems like our clients are getting a little slower in making payments, I think it’s finally hit into them,” Curtis said. If trends persist, the firm may not meet its budget for the year and revenue may fall, he said. “We are making money. It’s just that we're not making as much as we'd like to make.”

Some local government clients of Miller & Van Eaton, whose 10 attorneys represent municipalities, are spending less on legal and other work, said Nicholas Miller. “In November and December, our [billable] hours went flat,” he said. “We've just started cutting back enormously on our cash expenditures” and will spend 30 percent less money this year than last. “We're not seeing a reduction in the demand for our services, we're seeing a reduction in the ability to pay.” Among firms we surveyed, Miller & Van Eaton was the only one to say it let staff go.

Three other firms said they haven’t replaced departed communications lawyers. Another six reported no change in total attorney count in recent months, while four said they've hired. Rini Coran may add a lawyer to replace one who left, but “we're not as quick to rehire as we might have been a year ago,” said Rini. Baller Herbst, with four lawyers -- unchanged from last year -- works with 25 other firms with offices in most states to represent a wider array of municipal clients than it could do on its own, said President Jim Baller. That helps control costs, he said.

Revenue or collections so far this year are little changed over 2008 levels at five of the 12 respondents to questions on their financial health. At four, the rate is up, and it’s down at three. Dickstein Shapiro’s 2009 billings have changed little from last year, which means the firm is “at least holding our own,” said Paper. “Under the circumstances, given the economic meltdown we're in, I am not unhappy with it.”

John Nakahata, managing partner for telecom of Wiltshire & Grannis, said the 27-attorney firm is having a good year and the lawyers there have had plenty of work. “Our clients are extremely cost conscious and we have to work very hard with them to address those concerns,” Nakahata said. “We have been extremely busy this year, notwithstanding the downturn in the economy.” Nakahata expects business to pick up even more in coming months. “There’s no question it’s going to be a very busy second half of 2009 as the new FCC and the new administration really hit the ground running on executing their broadband plan,” he said.

At Wiley Rein, business is up, exceeding expectations, but “you take it month by month,” said partner Richard Wiley. As at other firms surveyed, Wiley Rein is economizing. To guard against unexpected slowdowns, “we're not holding as many firm functions,” with “fewer wine and cheese parties,” Wiley said.

Federal Communications Bar Association social and networking events sponsorship “has been constrained,” said Mark Schneider, whose term as president ended Tuesday. But “support of charitable events, educational events and policy and debate events has not suffered,” and most such gatherings haven’t seen attendance fall, he said. “The economy has obviously affected our members, but it hasn’t affected the association as badly as I might have predicted.”

On Hold for Genachowski

Membership in the FCBA is down slightly more than 5 percent from a year ago at just below 2,500, said Schneider. He predicted FCBA ranks will grow to what they were in 2007 or 2008 as more people join with new incoming FCC members.

FCC rulemakings have generated less work most of this year, with the FCC down two commissioners, said lawyers at three firms. “There really has been a dearth of activity in the policy or rulemaking area in the last six to nine months, and we're hoping that will pick up with the new commission,” said Davidson. Michael Copps, acting chairman mid-January to Monday, spent much time preparing items for incoming chairman Julius Genachowski, so “it has not been as robust an area as when there is a full bench of commissioners with a long-term leader,” said Glist. Copps was “very focused on DTV, he has done very little other stuff,” said Fletcher Heald’s Curtis.

The DTV transition helped offset the drought in traditional work. Full-power broadcasters’ digital TV transition, which ended June 12, increased work at six respondents. At Wiley Rein, DTV led to more work several months ago, when many stations sought to switch off analog service early, said Wiley. Fletcher Heald had a burst of activity after Congress put off the switch from Feb. 17, said Curtis. But “the cable industry has been gearing up for a long time for the DTV transition,” Glist said. “So a lot of the work that’s been required has been spread out over time.”

Flat Revenue is ‘Pretty Good’

Communications practices overall seem to be faring better than other large law firms, where revenue has tended to fall, said those who follow the business. “There is a lot of volatility among the biggest firms that have always relied on perennial rate increases -- they're scared,” said William Henderson, associate law professor at Indiana University. Boutique firms that concentrate on one practice area are benefiting, he added. “If we could find a bright spot in communications, that wouldn’t surprise me one lick.” Still, the communications legal sector isn’t considered “high-end, price insensitive work,” Henderson said.

Small practices focused on communications often have lower costs and more flexibility, giving them an advantage over large firms. That’s “always been a selling point for boutiques, that we're more nimble, have less overhead, can price in creative ways,” an attribute “magnified by the current financial situation,” said Managing Partner Bryan Tramont of Wilkinson Barker and Knauer. The largest communications law firms said they've outdone multi- disciplinary firms. The legal sector diversified and expanded internationally thanks to financial services work -- a business model now in doubt, said Miller. “The era of global law firms is over. I think they are the dinosaurs” and now “we're shifting back toward more moderate-sized law firms.”

David Nace, at 15-attorney Lukas, Nace, Gutierrez & Sachs, said business has been steady for his firm, which represents small wireless carriers and other clients. “Regulatory policy and rulemaking issues continue to be important to our clients and we have not seen our clients change course or commit less to these initiatives during 2009,” Nace said. “The fast pace of change in the wireless telecom industry and need to remain competitive have our clients looking to Washington for change in FCC rules and, if necessary, legislation as a means of survival.”

John Prendergast, managing partner at nine-lawyer Blooston, Mordkofsky, Dickens, Duffy & Prendergast, also said the firm has not seen a significant downturn this year. “Our firm has not been significantly affected by the economy, because we have a stable and well-established base of clients that are still in the business of providing telecom services to their constituents, and therefore need our help. And the Obama administration’s stimulus plan has trickled down to our benefit because a number of our clients are interested in shaping the stimulus grant rules and applying for grants, thereby generating work for our law firm,” Prendergast said. “Certainly we have been careful with our pennies this year, but so far so good.”

Some communications firms are looking to expand by hiring from rivals. Garvey Schubert Barer, with eight communications attorneys, “is actively looking to grow and expand” with “lateral” hires, said Erwin Krasnow, a lawyer there. In the past six months, Wiley Rein has added 10 new partners and attorneys of counsel, said Wiley. To cope with trends, “we move our troops around, a lot of the younger people [go] to the areas that are busiest” so all “have a full plate.” In late 2008 and early 2009, Wilkinson Barker and Knauer hired five lawyers, for a total of 35, said Tramont.

“Firms that are doing mainly regulatory work will probably fare well,” said Vice President Joe Altonji of Hildebrandt, a law firm consultant. “That’s an area where there’s so much activity in government.” Law firm profits likely will fall again in 2009, and demand this year through May is down about 8 percent from a year earlier, said Altonji. “In this particular environment, if a practice is holding its own and [revenue is] flat, that’s pretty good.” - - Jonathan Make, Howard Buskirk

Editor’s Note: A report next week will examine how law firms have benefitted from preparation for broadband stimulus grants.