WASHINGTON-The Federal Communications Commission’s delay of the advanced wireless services auction from late June to early August has neither stemmed the controversy over small-business bidding changes nor removed the possibility of litigation for the agency.
If anything, the FCC’s problems are worse today than they were May 19 when the agency moved the start of the AWS auction from June 29 to Aug. 9. The FCC bought itself more time but has yet to figure its way out of a dilemma with huge legal and financial implications.
Last week, the drum beat of criticism grew louder. Indeed, opposition is growing over new FCC guidelines designed to prevent designated entities-a regulatory classification encompassing small and very small businesses-from becoming fronts for large wireless carriers and others. Opponents of new DE rules had two key messages for the FCC. One is new DE rules-despite their good intentions-will hurt small players including those with rural and Alaskan native ties, both of which have powerful political champions in Congress. Second, critics said the FCC is legally on thin ice.
While the agency considers views of different stakeholders in the DE dispute, the question of legal exposure arguably weighs heaviest and likely will determine what, if any, additional actions the FCC will take on top of the AWS auction date change. The FCC cannot afford to be wrong about its chances of winning in court. Litigation could be time consuming and otherwise create havoc for the largest spectrum auction to date.
The U.S. Treasury could collect up to $15 billion from the sale of 1,122 AWS licenses in the 1710-1755 MHz and 2110-2155 MHz bands.
The DE program offers national wireless carriers the lure of an indirect route to spectrum access through deals with DEs that qualify for bidding discounts of 15 percent-small businesses with up to $40 million revenue averaged during the past three years-and 25 percent for very small businesses-$15 million or less in revenues.
Instead of writing a new rule to bar national wireless carriers and possibly other large telecom firms from partnering with DEs as originally contemplated, the FCC-unable to decide where to draw the line-decided to extend restrictions on DE license sales from five to 10 years and to deny benefits to DEs that agree to lease, resell or wholesale more than 50 percent of their spectrum capacity to others.The FCC issued the DE ruling two weeks before the original May 10 short-form application filing window closed.
Council Tree Communications Inc., Minority Media and Telecommunications Council and Bethel Native Corp. told the FCC anything short of rescinding new restrictions on DE license sales and DE benefit eligibility would invite a lawsuit.
“Providing additional time for prospective bidders to adapt to rules that are unsupported by the record, unclear in their application and inconsistent with statutory requirements simply defers the problem without resolving it,” the companies told the FCC last Thursday.
Earlier this month, Council Tree, MMTC and Bethel petitioned the FCC to stay the AWS auction pending agency reconsideration or judicial review of new DE rules. The three groups said they want to give the FCC a chance to repeal DE rule changes during the current delay, but noted time is running out and that a decision to go to court is approaching swiftly.
Cellular association CTIA and carrier T-Mobile USA Inc., the national mobile-phone operator seen by most as in the greatest need of additional frequencies, argued the three groups have not met the threshold required to justify a stay of the AWS auction.
Others disagree.
“NCTA agrees with petitioners that some of the changes to the DE rules came without fair notice to the industry and with no opportunity for public comment,” said the National Telecommunications Cooperative Association. “The lack of critical input from legitimate designated entities was a clear violation of the law and may have led the commission to inadvertently adopt rule changes that will ultimately harm the entities the rules were intended to protect.”
NCTA represents 556 rural wireline carriers, many offering wireless service.
The Rural Telecommunications Group, a rural wireless group, urged the FCC to nullify new DE rules and retain previous existing rules for the AWS auction.
“The new DE rules have the effect of rescinding the secondary market rules for all DEs,” RTG told the FCC last Friday. The FCC’s secondary market rule is a key component of its policy to promote efficient spectrum usage.
Cook Inlet Region Inc., an Alaska native company, said wholesale spectrum agreements-like one allowing T-Mobile USA to purchase more than 25 percent of total wireless minutes on Cook Inlet cellular systems-would be prohibited for the AWS auction and future bidding.
“The new restriction unnecessarily limits a DE’s ability to put the spectrum it wins at auction to commercial use,” Cook Inlet said. “By restricting the number and type of commercial alternatives to DEs, the FCC increases risks associated with DE participation in spectrum auctions and ownership of licenses. As a result, fewer DEs will participate in future spectrum auctions.”
Cook Inlet also claimed penalties imposed on DEs that sell licenses within the first 10 years would reduce capital investment in DEs.
Doyon Ltd., another Alaska native corporation, said DE rule changes have impacted its ability to find equity and strategic partners and to secure bank financing.
Doyon executives met earlier this month with FCC Commissioner Deborah Taylor Tate and her staff.
“We explained that the FCC’s new restrictions on spectrum wholesaling killed off one of Doyon’s most promising opportunities,” Doyon stated. “We had worked for over a year on a project to build a new state-of-the-art wireless network, but it was only possible if the designated entity had the ability to wholesale capacity beyond new limits” approved by the FCC’s April 25 ruling.
Salmon PCS L.L.C., an entrepreneurial venture between Crowley Digital Wireless L.L.C. and Cingular Wireless L.L.C., bid $2.3 billion for 45 mobile-phone licenses during the FCC’s Auction 35 in 2001. The company said it would be hurt by new restrictions forcing DEs to repay on a sliding scale a portion of their bidding credit if they sell licenses in the first 10 years.
Under previous rules, Salmon and the other 34 bidders-which cumulatively were high bidders for 422 licenses in Auction 35-would be in position to sell some of their licenses today without incurring a financial penalty.
New DE rules, while grandfathering lease, resale and wholesale agreements, do not apply to license transfers.
