WASHINGTON-The Justice Department’s Antitrust Division has begun at least two civil investigations into possible “bid rigging and market allocation” that allegedly occurred during the personal communications services auctions. One prong seeks information regarding possible collusion in the D-, E- and F-block auction and the other will scrutinize bidding activity in all six PCS license sales.
An April 25 letter sent out to certain participants in the auction by acting assistant attorney general Joel Klein said that any alleged bid rigging would be a violation of the Sherman Act. Attached to the letter was a requirement that all documents requested by Justice be produced and that all interrogatories needed to be “answered separately and fully in writing, unless they are objected to, in which event the reasons must be stated in lieu of an answer.” Evidence is due May 19.
AT&T Corp. has received the letter, and a spokesman said the company will comply with requests. NextWave Telecom spokeswoman Jennifer Walsh said her company had not been notified to date.
The investigation reportedly centers around a bidding scheme between two D-, E- and F-block participants that allegedly involved a signal contained within the last three digits of a bid. Petitions to deny filed at the Federal Communications Commission by D-, E- and F-block bidders High Plains Wireless L.P. and Mercury PCS II L.L.C. against each other in March resulted in the commission’s turning over the investigation into bid rigging to the Justice Department.
High Plains, which wanted the F-block licenses in Lubbock and Amarillo, Texas, both to fill out its footprint and because of the advantageous entrepreneur-block financial terms, lost Lubbock to Mercury after, it claimed, Mercury “drove” it away from that market. The two fought over the license for several rounds until High Plains quit bidding on Lubbock, at which time Mercury ceased its play for Amarillo. Mercury, according to High Plains, signaled its intentions by ending its bids either with a 264 (Lubbock’s market number) or a 013 (Amarillo’s market number). High Plains was successful, however, in gaining a D-block PCS license in Lubbock, but on less-attractive financial terms.
High Plains had brought these trailers to the FCC’s attention in mid-December, calling them an improper disclosure of bidding strategy and a violation of the anti-collusion rule. In a message sent to bidders during Round 229 of the auction, the commission said it had “reached no determination on the merits of the argument,” and that it urged all bidders to review the current anti-collusion rule to “assess whether they are complying with the letter and spirit of the rule.” Calls made to the Wireless Telecommunications Bureau and its Auction Division were unanswered at press time.
In its petition to deny Mercury’s licenses, High Plains wrote, “Through its first signal, Mercury attempted to warn High Plains to quit bidding for the Lubbock license or else Mercury would start bidding against High Plains for the F-block Amarillo license, a license that Mercury knew was more important to High Plains that the Lubbock F-block license … There was no bluff. Mercury did exactly what its signals communicated that it would.”
High Plains also cited the FCC rules concerning collusion, saying that it was forced to collude with Mercury in order to gain at least one F-block license. The commission’s language says, in part, “After the filing of short-form applications, all applicants are prohibited from cooperating, collaborating, discussing or disclosing in any manner the substance of their bids or bidding strategies.” High Plains contended it paid a higher price for its F-block license because of Mercury’s bidding-up strategy and that it was colluded away from another desirable F-block market. In addition to its FCC action, High Plains is seeking damages in a Texas court.
Calling High Plains’ filing frivolous, Mercury told the commission in its own petition to deny that “trailing numbers” and retaliatory bidding are staples of the FCC’s auction process, and that neither is precluded by commission rules. “From the inception of the broadband auctions, retaliatory bidding practices have transpired in a multitude of forms,” Mercury wrote. “In the auctions involving the A, B and C broadband blocks, there were innumerable instances of responsive retaliatory bidding that included the use of trailing numbers.” Mercury listed itself, Omnipoint PCS Enterprises Inc., North Coast Mobile Communications Inc., PCS 2000 L.P., Aer Force Communications L.P., DCR PCS Inc. and others as participating in such practices. “This phenomena was so widespread in prior auctions that neither alert applicants nor commission personnel overseeing the auctions could have avoided noticing this activity,” Mercury wrote, adding that “there is nothing expressly included in commission rules or policy statements that retaliatory bidding could be deemed to constitute collusion.”
PCS auction analyst Taylor Simmons confirmed that trailers and retaliatory bidding were the norm in past auctions, adding that some three-digit bid enders were not designed to signal a market preference but were lucky charms to some bidders and were included at the end of every bid.
What is unusual in this case is the relationship between High Plains and Mercury in the person of William Mounger II. Mounger holds a 1.001-percent interest in Amarillo CellTelCo, which is the 99-percent limited partner in High Plains. He also a 20.07-percent interest in Mercury along with providing that company with consulting services. In Form 175s submitted to the FCC by both companies prior to the start of the D-, E- and F-block auction, it was emphasized that “Mr. Mounger did not and will not participate in the bidding strategies for High Plains.”
However, according to a footnote in High Plains’ petition to deny, “William M. Mounger II … participated in the formulation of CellTelCo’s plan to bid for the Amarillo and Lubbock F-block licenses. He was aware of CellTelCo’s financial condition, bidding limits and financial resources for its bids as well as its preferences and priorities for choosing among the markets and licenses available.” And in another footnote, High Plains wrote that Mounger “is a member of Mercury’s control group and has been identified as Mercury’s authorized representative with regard to the PCS auction.” Calls to both offices were not returned at press time.
Justice’s antitrust division will be looking at the following items:
Paperwork identifying all personnel employed by each PCS-related company contacted by the Justice Department who had anything to do with bidding strategy and actual bids;
Paperwork identifying each person who formulated answers to Justice’s interrogatories regarding the case;
Paperwork containing the identification of each person whose files were searched for information.
Company organizational charts;
All documents relating to proposed or actual bids, bidding strategies or bidding patterns, including whether to bid or not and for what market;
All direct or indirect correspondence between any company regarding the auctions;
All bids with identifiable trailers; and
All documents discussing bid withdrawals.
