WASHINGTON-The Federal Communications Commission may lack the time to make changes to designated-entity rules before this June’s third-generation wireless auction, a possibility that may upset the agency’s two Democrats at a time when litigation has surfaced alleging Wall Street mogul Mario Gabelli skirted small-business auction guidelines.
Nonetheless, the False Claims Act lawsuit filed by Russell Taylor and the high-profile media attention given to it has put the spotlight on DE rules.
When the FCC revised the band plan for 3G (also called advanced wireless services) licenses in August, the commission rejected requests to amend designated-entity rules geared to small businesses. But the agency vowed to examine the DE issue in a separate action. With only six months before the auction of 3G licenses in the 1710-1755 MHz and 2110-2155 MHz bands, the FCC has yet to initiate a rulemaking on DE regulations.
“The Wireless Telecommunications Bureau is actively working on the matter,” said FCC spokesman David Fiske.
Democratic Commissioners Jonathan Adelstein and Michael Copps have pushed for a wholesale review of DE rules, with the latter forcefully calling for a rulemaking to determine whether the FCC should close “a potentially troubling loophole” in those rules.
“The stakes are simply too high to not allow a further question on whether or not we should allow this potential loophole to apply in the upcoming AWS auction,” said Adelstein recently. “Considering this issue is particularly important given the dramatic scope of consolidation in the wireless industry in just the last 12 months and the ever-increasing market share of the largest carriers (up to 90 percent by some estimates).”
Copps was more direct and vociferous.
“The DE program is designed to create opportunities for smaller carriers to obtain the spectrum resources needed to bring new services to consumers,” said Copps. “The program is often particularly useful in rural areas. In this auction, carriers that qualify under the DE program as small companies will receive a 25-percent auction discount. That discount can add up to millions of dollars.”
Copps added: “I strongly support the DE program and consider it a powerful tool that can create new competition and entry by small businesses. But I also believe that we must be vigilant and guard against misuse of the program. Some entities cast themselves as small companies to qualify for auction discounts, having already entered into agreements to lease the spectrum rights they win to industry giants that themselves do not qualify for the discount. I am glad that we are exploring whether we should limit the ability of companies with billions of dollars in revenues to effectively receive discounts intended for small companies by entering into such arrangements. The DE program was initiated to create new competition and to give small entrepreneurs a chance to bring innovations to consumers. If there is a loophole that could result in millions of dollars less in auction revenues without these goals being served, we should act expeditiously to protect the DE program.”
Gabelli’s Lynch Interactive Corp. has denied allegations that it abused the DE program during the original C-block auction in 1996.
The DE program was created in 1993 budget legislation that first authorized the FCC to conduct auctions instead of scandal-plagued lotteries.
Congress included small businesses, rural telephone companies and businesses owned by minorities and women in the DE classification, hoping to promote diversity and innovation in a cellular industry that was at the time limited to two carriers per market.
The FCC crafted a broad-based DE program, but it was short-lived. The agency was forced to limit DE bidding credits to small businesses after the Supreme Court curbed government affirmative-action programs in 1995. Even then, FCC efforts to put wireless licenses in the hands of small businesses was plagued by bankruptcies and massive litigation that eventually dragged in the U.S. Supreme Court.
“It’s an issue of concern because it [the DE rulemaking] is not out yet,” said an FCC source who declined to be named. The FCC could delay the 3G auction to buy time to complete a DE rulemaking, but such a move likely would draw strong opposition. While it is technically possible to scrutinize and modify DE rules before the 3G auction, “realistically, it is unlikely to happen by June.”
