WASHINGTON-Three groups sued the Federal Communications Commission over changes to small-business bidding rules, asking a federal appeals court in Philadelphia to immediately stay enforcement of new guidelines and delay the scheduled Aug. 9 start of the advanced wireless services auction pending judicial review of the legal challenge.
In an emergency motion filed at the 3rd U.S. Circuit Court of Appeals last Tuesday, Council Tree Communications Inc., Bethel Native Corp. and the Minority Media and Telecommunications Council requested the stay be issued by June 19-the filing deadline for short-form AWS applications.
“On the doorstep of Auction 66, the FCC has gone a long way toward ensuring that this auction-the largest spectrum auction in United States history and one that holds promise of bringing high-speed digital communications to even the most remote parts of this country-will be dominated by the largest of this country’s incumbent wireless telecommunications carriers, to the immediate detriment of small businesses, businesses owned by members of minority groups and women and rural telephone companies,” the organizations stated.
Congress in 1993 directed the FCC to promote diversity and competition in the wireless industry by making bidding credits and other benefits available to “designated entities” in spectrum auctions. The sale of 1,122 licenses in the 1710-1755 MHz and 2110-2155 MHz bands could generate billions of dollars for the U.S. Treasury, though some skeptics doubt receipts will hit the projected $15 billion mark.
Council Tree, Bethel Native and MMTC challenged the notion that the FCC’s ruling earlier this month-which largely upheld April 25 rules extending 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 to others-was a logical outgrowth of the original agency proposal. To curb sham DE bidding, the FCC initially proposed banning large in-regional mobile-phone carriers from partnering with small-business applicants. The mobile-phone industry opposed being singled out in terms of DE partnerships
“Council Tree and Bethel Native would need the powers of the Oracle of Delphi to anticipate that a proceeding Council Tree itself had recommended to address the discrete problem of large, deep-pocketed incumbents’ potential abuse of bidding credits would first earn the FCC’s tentative endorsement but then, in a startling, phantom reversal, result in the demise of their own ability to participate in Auction 66, to the very direct and tangible benefit of the same large incumbents who were the ostensible targets” of the commission’s plan to reform the DE program, the parties told the court.
Council Tree, Bethel Native and MMTC said revised DE rules violate the 1993 wireless diversity statute as well as the Administrative Procedure Act and the Regulatory Flexibility Act.
Clyde Ensslin, an FCC spokesman, said the agency does not comment on pending litigation.
Meantime, in Manhattan last week, lawyers for the Justice Department, Wall Street money manager Mario Gabelli and Lynch Interactive Corp. told a federal judge they have settled a lawsuit over spectrum auctions. The lawsuit accuses Gabelli of defrauding the U.S. government of at least $85 million by hiding his firm’s control of small firms that received bidding discounts for wireless licenses won at spectrum auctions during the 1990s. Some of those licenses were subsequently sold for more than $200 million total.
Assistant U.S. Attorney David Kennedy told U.S. District Judge Paul Crotty the Justice Department has signed off on the proposed settlement of the auction fraud litigation.
Terms of the proposed settlement are expected to be made public June 29 when documents are filed with the U.S. District Court for the Southern District of New York. The settlement will be submitted to Crotty to review several days before that date.
Lawyers for the parties declined to comment on the dollar figure involved in the settlement, though news accounts said Gabelli may have to pay $100 million to put an end to a lawsuit filed in 2001 under the False Claims Act. Gabelli faces $367 million in damages, which could have tripled under the law.
Crotty signaled he was getting impatient with the failure of the parties to reach a deal since settlement talks began in late April.
Gabelli and Lynch steadfastly denied any wrongdoing and predicted the court would vindicate them. The case originally was set to go to trial this month.
According to a Securities and Exchange Commission filing by a company affiliated with Gabelli-led Lynch Interactive, the defendants had concerns about rising legal costs and lack of insurance coverage to pay hefty legal bills already in the millions of dollars.
On a related front, the 2nd U.S. Circuit Court of Appeals rejected a suit that sought to force the FCC to delay the AWS auction so the FCC can conduct an environmental impact statement to assess potential health risks associated with the upcoming sale of wireless licenses.
Last month, the FCC moved back the AWS auction date from June 29 to Aug. 9.
