WASHINGTON-A trio of designated entities claim the Federal Communications Commission grossly mischaracterized to a federal appeals court the regulatory process leading to controversial changes to spectrum auction rules designed to prevent large mobile phone carriers from gaining benefits meant for small business bidders, but that critics claim will chill financing for startups and entrepreneurs in advance of the largest government sale of wireless licenses in history.
“[T]his rosy storyline does not survive scrutiny,” Council Tree Communications Inc., Bethel Native Corp. and the Minority Media and Telecommunications Council last week told the 3rd U.S. Circuit Court of Appeals in Philadelphia, referring to the FCC’s description of the rulemaking in its brief.
Council Tree, Bethel and MMTC sued the FCC earlier this month asking the 3rd Circuit to stay the Aug. 9 advanced wireless services auction until the agency rescinds new small business-or DE-bidder eligibility guidelines. Though they favor modifications to DE rules, the three groups and venture capital firms favor a return to previous guidelines for the AWS auction. They also argue DE reform should continue to be debated at the FCC, with any subsequent regulatory changes applied to future auctions beyond the upcoming AWS auction, dubbed Auction 66.
The FCC told the 3rd Circuit the harm to the public of further delaying the action outweighs any loss the three parties might sustain if the sale of 1,122 licenses goes forward as scheduled and that Council Tree, Bethel and MMTC fail to meet the legal threshold necessary to justify a stay of the AWS auction. The auction start date already has been pushed back from June 29 to Aug. 9.
“It must be emphasized that there is a sharp disparity in the characterization of this case by the respondents [FCC] before this court and in the way FCC commissioners themselves have described this proceeding in their remarkable separate statements” accompanying the June 2 ruling, stated Council Tree, Bethel and MMTC.
Council Tree, Bethel Native and MMTC challenged new rules extending DE license-sale restrictions from five to 10 years and denying bidding incentives to DEs that resell or lease more than 50 percent of their spectrum capacity. To curb sham DE bidding, the FCC initially proposed banning large in-regional mobile-phone carriers from partnering with small-business applicants.
The cellular industry complained during the debate it would be unfair to bar wireless operators but not others in the telecom sector from joining forces with DEs, which are eligible for bidding discounts of up to 25 percent.
Last year, Council Tree petitioned the FCC to prevent large wireless carriers from entering into joint ventures with DEs.
In the June 2 ruling, FCC Chairman Kevin Martin said he did not believe revisions to DE rules were needed, but was prodded into re-examining regulations. Commissioners Jonathan Adelstein and Michael Copps repeated complaints about Martin dragging his feet on reforming the designated entity program and the consequences of delayed action by the agency chief. Commissioner Deborah Taylor Tate said she was “sympathetic to the concerns of DEs who argue that requiring repayment of license discounts prior to the end of a ten year `hold period’ will discourage investment and potentially limit a significant portion of designated entity participation in future spectrum auctions.”
Council Tree, Bethel and MMTC said the long, convoluted litigation over NextWave Telecom Inc.’s wireless auction licenses “stands as eloquent testimony to the need `to get it right’ at the starting gate. The costs associated with the brief delay necessary to rectify the FCC’s misstep here are dwarfed by those which will be incurred if the stay is denied, Auction 66 proceeds, and a court later finds grounds to order the entire proceeding unwound.
The sale of wireless licenses in the 1710-1755 MHz and 2110-2155 MHz bands is expected to bring in billions of dollars to the U.S. Treasury. Estimated revenue from the AWS auction ranges from $4 billion to $15 billion. The auction is seen as key for T-Mobile USA Inc. The smallest of the four national carriers desperately needs to improve its spectrum posture to support multimedia third-generation wireless applications. Short-form applications for the auction were due last Monday. Applicants must make upfront payments for the AWS auction by July 17.
Controversy is not new to the FCC’s DE program. In 1993, Congress directed the FCC to promote diversity and competition in the wireless industry by making bidding credits and other benefits available to women, minorities, small business and rural telephone companies in spectrum auctions. The FCC reined in the DE program after the Supreme Court curbed government affirmative action programs in 1995.
The DE reform campaign has gained added urgency and notoriety because of a high-profile auction fraud lawsuit against Wall Street money manager Mario Gabelli, Lynch Interactive Corp. and others.
The Justice Department this week plans to file a final settlement of the suit in U.S. District Court in New York. The 2001 suit-filed under the False Claims Act-claims Gabelli defrauded the U.S. government of at least $85 million by hiding Lynch’s control of DEs in spectrum auctions during the 1990s. Lynch is a Gabelli telecom company. Some discounted DE licenses in which Lynch was a partner subsequently sold for more than $200 million. Gabelli continues to deny any wrongdoing.
