WASHINGTON-With all its internal struggles regarding the proposed new Federal Communications Commissioners reportedly solved, Congress was poised at press time to vote on the leaders of a new regime at that agency. The Old Guard, however, has remained true to its combative, no-holds-barred self as it begins the final countdown to moving day.
Although collegiality reigned at the last open FCC meeting just a few weeks ago-at which time each outgoing commissioner lauded the others with kudos and kind words-Reed Hundt, Rachelle Chong and James Quello along with Susan Ness (who remains in her position) let all the animosity that had built up during the C-block financial restructuring process spill over in their written statements that accompanied the full text of the decision.
Still steaming over his toppled plan that would have given faltering C-block licensees even more leniency than the four options that were finally adopted by the commission last month, outgoing chairman Hundt assailed his 8th Floor mates for their unwillingness to “make a commercially reasonable restructuring proposal of any kind to any of the financially troubled C-block licensees… Nor have they been willing to promote competition by expediting some solution to the need to structure and finance the C block.”
While admitting that he knew nearly a year ago “that the market was unlikely to finance many of the largest bidders,” Hundt blamed his fellow panelists for questioning whether these companies really were in trouble, for siding with those that dropped out of the bidding when it got out of hand and for being indifferent to threats of mass bankruptcies.
Hundt believes the disaggregation plan is the only one of the four options that has any merit and that will be adopted by C-blockers. Due to “the commission majority’s sanctimonious rigidity,” the bankruptcies that could result will mean lost revenues to the Treasury because a smaller and piecemeal reauction will take several years. The other three fail to meet “the congressional mandate” for a “workable, comprehensive plan for the C block.” Hundt also believes that the tough options also will hurt such going personal communications services concerns as Omnipoint Corp., Cook Inlet and Airadigm because these companies “do not have the same flexibility as other licensees to disaggregate or participate in a `full price buyout,’ which would require a dramatic reduction in the size of their existing service footprints.”
These companies also could be hurt by reauctions, Hundt commented, because “any of the options in our order today `resets’ the market price for spectrum [which would] impair access to capital for those licenses that are significantly built out but which carry artificially higher prices per pop.”
Hundt concluded, “The majority’s unwillingness to adopt a comprehensive plan for addressing the financial situation of the C block is inexcusable and inexplicable.”
In her statement, former banker Ness remained steadfast in her belief that a mass bailout would not solve the C-block problem as a whole and that the options the full commission adopted, while not the first choice of any of the commissioners, was an amalgamation of all. “Our auction was conducted properly, our rules were clear, and numerous licensees stand ready to meet their payment obligations fully and on time,” she wrote. “And while it is truly unfortunate that a handful of bidders overbid and/or overleveraged, it is clearly not our responsibility to prevent them from failing in the marketplace or from going into bankruptcy … To grant overly generous accommodations to certain C-block licensees, after the auction, would be to forsake the marketplace and return to the government picking winners and losers. I do not think that this should be our spectrum policy for the future.”
Ness reiterated her position that spectrum values will not deteriorate over time if they are involved in lengthy bankruptcy proceedings, a view held by Hundt. “With changing technology constantly creating new services, there is every likelihood that demand for this spectrum will be there whenever the licenses are reauctioned,” she wrote. Lack of near-term C-block competition in the marketplace also will not disadvantage customers looking for wireless services alternatives, Ness wrote, because there currently are choices between cellular companies; paging providers; A-, B-, D-, E- and F-block PCS operators; enhanced specialized mobile radio services; and others. “I am confident that wireless telephone competition will not come to a grinding halt if there were a delay in the buildout of some of these licenses,” she surmised.
It was Quello’s first inclination to delay C-block payments for an unspecified time, and he gathered some support in Congress; the FCC, however, was not in favor of such a plan. During the ensuing discussions, which Quello said he entered “with the caveat of doing so only if we could formulate a plan within our existing rules,” he insisted that “disappointed bidders who were unsuccessful in the C-block auction” be taken into consideration.
Quello reminded the public that the FCC did not intervene during the C-block auction when prices started to soar; instead, he “believed that the chairman spoke for us all when he stated that the commission would not interfere with the private-sector decision making regarding the monetary value of spectrum licenses and that all parties were aware of and would be held to the full measure of our rules.”
The options crafted by the commission are just that-options, and Quello admitted that “if any one of the four of us would have had our own way, this item would have been radically different … Is the multi-option plan perfect? No, but it is fair and balanced … Will these options ensure success by any licensee? No, but that is not our role.”
According to Commissioner Chong, who is readying her move back to California, “It does seem fitting somehow that this commission, who cut its first teeth on the PCS auction and service rules back in the summer of 1994, finish its term with yet another major PCS decision.” If she had had her way, Chong would have enforced the FCC rules as they stood at the beginning of the auction, granting no sweeping favors to C-block bidders that made promises that their checkbooks couldn’t keep.
She disputed Hundt’s charge that she, Ness and Quello blocked early resolution of the problem, saying that the first petition for relief was filed in March 1997, the draft public notice was floated in late May 1997, and reply comments were due in July 1997, a far cry from the 10-month delay alleged by the chairman.
“In truth, the only delay in this decision was caused by the chairman who, for about eight weeks, was wedded to an approach not favored by a single other commissioner and who refused to concede defeat,” she wrote in a footnote to her C-block restructuring statement. “It was he who erected a number of procedural roadblocks in the way of a more timely item. Notably, when a majority of the commissioners directed the staff in writing to prepare a draft item disfavored by the chairman, he directed the staff to disregard our instructions, claiming that under Section 5(a) of the Communications Act he is the CEO of the commission and, as such, is the sole person who may `coordinate and organize the work’ of the commission’s staff … Clearly, the prompt and efficient disposition of the C-block matter was not served by a chairman who refused to allow the staff to draft a decision supported by a majority of the commissioners.”
In what could be called congratulations to National Telecom PCS Inc. and market forces in general, Chong mentioned that while there probably are some needy C-block players that still believe the FCC did not go far enough, there are some investors and potential licensees that think the adopted options can further their business plans.
“A third party has petitioned the bankruptcy court i
n the Pocket [Communications Inc.] bankruptcy matter, seeking to p
urchase Pocket’s assets and resume its installment payments. This development generally confirms the wisdom of my initial position that the best thing to do was to simply enforce the rules, and let the market work. In any event, this development supports the majority’s belief that the options we have adopted are sufficiently attractive to encourage parties to invest in even the most troubled of C-block licensees.”
Finally, Chong ennumerated her reasons why she disagreed with Hundt’s belief that the threat of bankruptcy by many of the top C-block bidders should have driven the commission’s ultimate options decision. Bankruptcies are a normal occurance in business life, she wrote, and the FCC contributed to the problem by not, as conventional lenders would have, checking applicants’ financial backgrounds. She also doesn’t think that the delayed entrance of a fifth wireless competitor will stymie competition or that the whole C block will fail because of mistakes made by a few.
