WASHINGTON-Still not satisfied that the Federal Communications Commission went far enough to protect the viability of certain financially disabled C-block personal communications services licensees, three congressmen have asked FCC chairman Bill Kennard to respond by March 30 to two questions regarding last week’s reconsideration order and its relationship to the proposed conclusion of the Pocket Communications Inc. bankruptcy proceeding.
“We are deeply concerned that the commission on reconsideration has issued an order that does not fully correct the defects contained in its September 1997 decision,” wrote Reps. Tom Bliley (R-Va.), Commerce committee chair; John Dingell (D-Mich.); and Billy Tauzin (R-La.), chair of the telecom subcommittee. “Moreover, the commission has inexplicably complicated the situation by its recent action, taken in conjunction with the Department of Justice, to settle in federal bankruptcy court a matter involving a C-block licensee.” The congressmen believe the FCC was more lenient in the tentative deal it struck with Pocket’s creditor group than was in its recon order, even though that action changed C-block financial restructuring options drastically.
In a written statement issued with the C-block recon order last Tuesday, Kennard commented, “Some licensees who otherwise would have gone into bankruptcy will instead be able to revise their plans, access new capital and build profitable businesses … The term sheet which the government recently entered into with DCR Pocket is a good deal for the government and for the American people. It promises reasonable payment for licenses and holds out the prospect of still greater return, all within the framework of the original C-block rules encouraging small business and entrepreneur participation. But for the original Pocket license holders, who are now out of the wireless business, bankruptcy has been a disaster. I hope that today’s order will help others avoid the same experience.”
Despite such assertions by the FCC and attorneys for Pocket’s lenders that their transaction will have no effect on other C-block licensees-whether they are in bankruptcy or not-the House members disagreed.
“Obviously, any plan the commission devises on reconsideration will be reviewed by licensees and their creditors in light of the terms of the proposed bankruptcy settlement,” they wrote. “To the extent the commission’s plan creates incentives for licensees to seek refuge in bankruptcy court, rather than in proceedings governed exclusively by the Communications Act, it will not serve the public interest and will greatly trouble the leadership of this committee.”
The three want Kennard to address the FCC’s plans to resolve several pending C-block matters, including “finalization of attribution and control group rules and restructuring requests,” and “why does the commission’s order on reconsideration fail to extend to all C-block licensees the option it is offering to non-designated entities,” alluding to the Pocket case. “What further steps is the commission contemplating in the rulemaking to ensure that all C-block licensees receive parity of treatment and that they along with their investors and creditors are discouraged from forum shopping?” the congressmen asked.
According to a high-level FCC staffer, Bliley, Tauzin and Dingell along with other C-blockers do not understand that Pocket’s creditors who, with the FCC and the Justice Department, crafted the pending deal for the Chicago and Dallas MTAs will not be the licensees; they only will be the financial backers of those who are chosen to make up the control group, whose members must conform with current C-block designated-entity rules. If the commission receives a better offer for the licenses or if the proposed control group does not pass muster, the deal is off. Attorneys for the creditors believe Kennard will address the issue and have chosen not to come out with a separate statement of their own.
What is amazing about the final outcome of the C-block recon resolution is that it achieved a majority “aye” vote from the panel, with three of the five commissioners expressing strong opinions against changes contained in the order. According to separate written statements submitted after the vote, two commissioners-Michael Powell and Susan Ness-concurred in part with the vote and dissented in part. Gloria Tristani would have gone even further in loosening the restructuring options.
Likening the commission’s C-block recon order to “March Madness” with distinct basketball overtones, Powell agreed with the majority to keep the basic structure of the options the same as it was last August, with some “modest” changes, but that the creation of “substantial modifications” that will benefit only a few causes a problem.
“When the referee (in this case, the commission) starts tinkering with the rules during the game or worse, after the buzzer has sounded, it does two very unfortunate things,” Powell wrote. “First, it undermines the fairness of the contest … Second, and most important in my mind, is that by telegraphing to the world that the game is subject to unpredictable changes in the rules based on the subjective decisions of the tournament organizers, you discourage people from playing the game at all.” Powell even wonders if anything the commission did will help troubled C-blockers, especially in the financial markets where they already are viewed as being extreme risks.
While agreeing with the MTA-to-MTA changes, Powell did not want to see any portion of a down payment used to pay off accumulated interest. “There will be absolutely no realizable benefit to the American taxpayers,” he explained. “From a lender’s point of view (which we unfortunately have to take on behalf of the United States), I do not believe this is commercially reasonable. It will more likely just delay the inevitable for some licensees, provide free pocket money for key investors and principals, and not have any positive affect on buildout investment.” As far as keeping existing licensees in the game until they win, Powell believes this goes against what the commission originally told C-block bidders: that if they dropped out of the bidding, they would be eligible to play again for licenses taken back from unsuccessful, defaulting bidders.
Finally, what really bothered Powell was that “many parties invoked the fear of bankruptcy,” thus motivating the commission to move forward on financial restructuring options last year, and that the new tweakings really haven’t “lessen[ed] that troubling possibility for the bulk of the licensees.” On the other hand, he believes that such a threat is no more likely to happen today than it would have last fall.
If she had had her way, Commissioner Tristani would have treated the disposition of down payments differently, taking them back only if the licensee disaggregated spectrum and returned it or if a whole license was relinquished. In addition, Tristani also backed the use of down-payment credits to pay off suspended-payment interest, which she throws in the basket of “past debt.”
Commissioner Ness, the former banker, minced no words in her statement, and one can only wonder why she did not dissent to the amended C-block options in full. Collegiality aside (she praised the group for keeping the framework, at least), Ness began with, “I do not support the revised package of options being afforded to C-block licensees, which I believe is an excessive and potentially counterproductive government intervention in the marketplace. In addition, I am troubled by the majority’s willingness to indefinitely delay reauction of returned licenses.” And it was all downhill from there.
Ness was not in favor of much of the original C-block plan, believing that the playing field was level at the time of the C-block auction and everyone was supposed to be cognizant of the rules. Bidders who ran out of cash or who judged the prices to be too high dropped out, and those who felt they could make a go of it stayed. When fi
nancial troubles set in once it came time to build, the commission acquiesced with a payments stay and with the original financial-restructuring proposal “and the majority has now moved further down the slippery slope.” It is not over yet, Ness believes. Now and future licensees “will seek other accommodations on future occasions.”
Between August 1997 and February 1998, C-blockers prepared themselves for the option election date, even without benefit of disposal of reconsideration petitions. Ness believes that most of them would have chosen one of the original four options at the deadline, but that won’t happen now. “The decision … takes what had been a menu of measured options and turns it into a smorgasbord of hearty choices,” she wrote. “The enriched menu of options … may compel all C-block licensees to stop and reassess their business plans.”
Besides acknowledging that meddling with the marketplace and Wall Street may not reap the results the FCC wants, Ness detailed her dismay with the new changes regarding down-payment returns and usage, and new delays in payment resumptions and in a reauction of returned spectrum. “We must accept the reality that some licensees will fail in the marketplace and that their conditional licenses will need to be canceled and reauctioned, as our rules envisioned,” she wrote. “Such outcomes are painful, but necessary, if the marketplace is to work its magic.”
Finally, Ness wrote, “Judges and legislators, lawyers and economists-all speak to the need to promote and protect competition, not competitors. In my opinion, today’s decision crosses the line to favor specific competitors over others. I cannot support that result.” With the C-block spectrum forever allotted to designated entities as a group, Ness said that protecting small companies is not the issue-“Rather, the issue is whether the FCC should favor one group of designated entities over another.”
Despite all this along with her closing shot that the market now must think the commission will revise its rules whenever enough pressure is applied, Ness still voted the item, and so did her colleagues. If they believed they had to send out strongly worded separate statements clarifying their opposition to the recon order and the damage the new modifications could cause, why did the modifications pass? And even if there were enough votes to move the item, wouldn’t a full dissent have sent a stronger message of disapproval? At least three members of Congress question the commission’s actions along with at least one major C-block player that has chosen to remain virtually silent on the matter thus far, and there are strong indications that the options may end up in court.
In the final analysis, will it matter how generous or stingy the FCC has been during this whole process? The commission cannot regulate Wall Street or the marketplace, and that’s where the final decisions for C-block players will be made.
