WASHINGTON—The Federal Communications Commission backed away from making major reforms to a controversial auction program offering bidding discounts to small businesses, rejecting a revenue-only threshold for partnership eligibility in favor of a resale standard to determine whether national mobile-phone carriers and other large telecom firms can join forces with startups and entrepreneurs to pursue marked-down wireless licenses at the June 29 advanced wireless services auction and beyond.
The FCC said a wireless carrier that leases more than 50 percent of its spectrum capacity cannot gain small business—or designated entity—benefits through alliances with DE applicants. Telecom regulators also said they plan to scrutinize any DE partnership that includes a wireless carrier which leases more than 25 percent of its capacity in order to determine eligibility for small business bidding discounts and benefits.
The commission, whose current DE program is seen by some as having a huge loophole benefiting major wireless carries and other large telecom companies, said it will require DEs to reimburse the federal government for 100 percent of the bidding credit plus interest if during the first five years of the license term a DE loses its eligibility, attempts to sell its license or enters into a de facto lease with an entity otherwise not qualified for bidding credits. The amount owed to the FCC under such scenarios would be reduced after five years.
While adopting the new DE rule, the FCC asked for public comment on whether additional safeguards are necessary to curb manipulation of the DE program.
The cellular industry applauded the FCC’s DE decision, but raised concerns about the possibility regulators will impose additional eligibility restrictions at a later date.
“We are particularly pleased that the FCC’s actions will allow the AWS auction to begin on schedule on June 29, 2006,” said CTIA, the national cell phone carrier association. “While we are pleased with the commission’s actions today, we continue to be concerned about proposals in the further notice to limit the ability of DEs to partner with in-region wireless carriers and look forward to working with the FCC as it continues to grapple with these difficult and important issues.”
FCC member Jonathan Adelstein criticized the agency for being too modest in it attempt to prevent abuses.
“In a troubling and curious reversal … I stand alone in dissenting from our decision today to not close this obvious loophole,” said Adelstein in a statement. “It is stunning that we have failed to take any meaningful action to specifically address the single biggest issue facing the DE program given the overwhelming support in the record to do so. We missed a real opportunity to shut down what almost everyone recognizes has the potential for the largest abuse of our DE program: giant wireless companies using false fronts to get spectrum on the cheap.”
Adelstein also took issue with the follow-on proposal, saying it “disproportionally relies on the perceived status of the communications marketplace in assessing changes to the DE program.”
Meanwhile, oral argument on whether the U.S. government can join an auction fraud lawsuit against Wall Street investor Mario Gabelli was postponed. Gabelli’s Lynch Interactive Corp. is a minority partner with some DEs that acquired wireless licenses in FCC auctions during the 1990s. The lawsuit alleges Gabelli and his affiliates defrauded the U.S. government to the tune of at least $85 million by effectively gaining control of DE wireless firms. Gabelli has denied any wrongdoing.
