WASHINGTON—Council Tree Communications Inc. and others last week asked the 3rd U.S. Circuit Court of Appeals to overturn results of the advanced wireless services auction, arguing new rules designed to prevent national mobile-phone carriers and others from exploiting bidding benefits for small businesses were haphazardly crafted and violated a congressional mandate to create new wireless opportunities for diverse entrants as evidenced by the poor showing of designated-entities in ongoing bidding dominated by top wireless and cable TV companies.
The brief filed at the 3rd Circuit by Council Tree, Bethel Native Corp. and the Minority Media and Telecommunications Council represents the opening salvo in the latest chapter of a legal challenge in which the Federal Communications Commission may find itself vulnerable. Indeed, despite refusing Council Tree’s request to stay the Aug. 9 start of the AWS auction, the 3rd Circuit in late June signaled the FCC’s handling of DE rule changes may have put the agency on shaky legal ground.
“We share petitioners’ concern that the further notice may not have sufficiently apprised interested parties that the commission was contemplating changes in the DE eligibility and unjust enrichment rules of the sort that it ultimately adopted in the Second Order,” the court stated at the time. “However, this is a complicated question, as to which we form no opinion. We leave its resolution up to the panel that considers the petition for review, which is pending.”
Some FCC members voiced concern about DE rule modifications at the time they approved them in late April. Controversy over new DE rules prompted the agency to reschedule the start of the AWS auction from June 29 to Aug. 9. DEs are eligible for wireless license discounts of 15 or 25 percent depending on revenues.
The AWS auction appears to be winding down, after more than 100 rounds and more than $13 billion in bids. But the legal battle is just beginning.
“Because the FCC failed to inform itself through notice and comment and failed to follow its own precedent and findings related to DE access to capital problems, it made substantial changes in the DE rules while blind, with unfortunate, predictably disastrous results,” the three groups told the 3rd Circuit. “As a result, the FCC entirely failed to consider an important aspect of the problem that it created—the resulting impairment of DEs’ access to capital—which can be seen in the results to date of Auction 66.”
Council Tree, Bethel and MMTC, pointing to auction results through Sept. 1, said DEs had submitted 4 percent of the total winning bids. They said that percentage is historically down, by far the lowest in comparison with the 74 percent of winning net bids DEs made on average in six comparable wireless auctions conducted by the FCC in the past decade. The three parties added that DEs are winning only 8.7 percent of the megahertz/pops, compared with an 80-percent historical average.
The figures could prove persuasive in the 3rd Circuit case. When Council Tree, Bethel and MMTC tried to convince a three-judge appellate panel in late June that new small-business bidding guidelines would hurt DEs, FCC General Counsel Samuel Feder revealed for the first time that 166 of the 252 short-form AWS applications claimed DE status. However, the number of DEs that subsequently qualified for the AWS auction dropped to 100 by the time upfront payments were due.
“With one uninformed stroke of its pen, the FCC converted the robust participation in spectrum auctions envisioned by statute and routinely achieved in past spectrum auctions into what is by far the feeblest DE showing to date, to the immediate benefit of large incumbent wireless companies, whose tendency to amass `excessive concentration’ of licenses the stature is designed to guard against,” stated Council Tree, Bethel and MMTC.
Scrapping an auction is not unprecedented. The parties’ brief noted the U.S. Court of Appeals for the District of Columbia Circuit threw out two auctions, including Auction 35 that involved 1.9 GHz spectrum repossessed by the FCC from NextWave Telecom Inc. and drew high bids of $16.8 billion. The current AWS auction, also known as Auction 66, comprises the sale of 1,122 licenses in the 1710-1755 MHz and 2110-2155 MHz bands.
Council Tree, Bethel and MMTC filed the lawsuit against the FCC in early June, hoping the Philadelphia-based 3rd Circuit would block the AWS auction and then repeal revised DE eligibility rules. Those rules extend DE license sale restrictions from five to 10 years and denied incentives to DEs that resell or lease more than 50 percent of their spectrum capacity.
