WASHINGTON-The entrepreneur block auction for personal communications services licenses that was to begin next week has been postponed again in what has turned into a legal quagmire and an embarrassing setback for the Federal Communications Commission.
A lawsuit filed last month by Omnipoint Corp., which takes issue with new ownership rules and prompted a July 27 court stay of the auction, has become a magnet for other legal challenges to auction rules that were revised after the Supreme Court ruled in June to curb affirmative action.
The FCC on Aug. 9 put the auction on hold after settlement talks between the agency and Omnipoint stalled. The commission’s strategy now appears to be to battle Omnipoint in court and fend off any attempt to take the case off the fast track. Under an expedited schedule, briefing concludes Sept. 11 and oral argument begins Sept. 28.
“The FCC is going to win and the auction will go forward,” said James Carr, an attorney in the litigation unit of the FCC’s Office of General Counsel.
FCC Chairman Reed Hundt predicted the auction could be delayed at least six months.
The three-judge panel hearing the Omnipoint case is different than the one that granted the stay, a factor that gives the FCC some optimism.
Besides gumming up the FCC’s auction program, which got going full blast last year after Congress authorized competitive bidding licensing in 1993, the latest imbroglio threatens to cut into near-term revenues from spectrum auctions expected by the GOP-led Congress and the White House.
Republican leaders and President Clinton, looking long-term, want to raise an additional $14 billion from expanded auctions during the next seven years. The government plans to sell nearly 2,100 licenses for next-generation digital pocket telephone systems, known as broadband PCS. Paging, specialized mobile radio and other wireless licenses are set to be auctioned, too.
The FCC earlier this year sold 99 broadband PCS licenses for $7 billion to AT&T Corp., Sprint Corp., the Baby Bells, cable-TV operators and others in what was hailed as a huge success by the Clinton administration.
The FCC dropped female and minority bidding credits, revamped ownership guidelines and relaxed affiliation rules after the high court’s ruling in Adarand Constructors Inc. v. Pena.
“I think now is the time for brave men and women to come forward and propose unique and visionary solutions to these intractable problems,” said Jack Robinson, president of National Telecom.
The PCS startup, based in Stamford, Conn., put forth a proposal last week that would replace existing ownership rules with one allowing an entrepreneur to hold 15 percent equity and retain at least 51 percent voting control. The FCC is expected to receive many other suggestions.
“We are trying to show them [the FCC] a way out of the morass they’re now in,” said Robinson.
The entrepreneur block auction, designed to comply with a 1993 congressional mandate that women, minorities, small businesses and rural telephone companies (collectively called designated entities, or DEs) receive preferential treatment in auctions for wireless telecommunications licenses, was supposed to be held much earlier this year.
But the U.S. District Court of Appeals for the District of Columbia Circuit halted the auction in February after a rural Mississippi telephone company complained auction rules favored women and minorities.
Telephone Electronics Corp. withdrew its suit after PCS PrimeCo L.P.-a partnership of Nynex Corp., Bell Atlantic Corp., U S West Inc. and AirTouch Communications Inc. that won 11 licenses in the PCS auction that ended March 13-agreed to let it provide pocket phone service in the New Orleans-Baton Rouge market.
Omnipoint, a Colorado Springs, Colo., firm with a pioneer’s preference PCS license in New York, argues entrepreneur block bidders will become fronts for big corporations as a result of changes allowing investors to hold up to 49.9 percent of applicants. Previously, only women and minorities could have 49.9 percent investors while all others were limited to 25 percent investors.
Omnipoint has come under fire by some who contend the firm is delaying the auction for competitive reasons. Go Communications Corp. asked the court to vacate the Omnipoint stay. Go and Cook Inlet Region Inc., an Alaskan Native American firm, have asked the court to force Omnipoint to post $300 million and $400 million bonds, respectively, to compensate firms harmed by the auction delay if it is subsequently determined that the stay shouldn’t have been granted.
Additional litigation clouds the picture further.
Qtel Wireless Inc., a minority-owned start-up in Michigan fighting the FCC’s removal of race-and gender-based bidding credits, had its appeal consolidated with Omnipoint’s case. Qtel wants the court to enlarge the Omnipoint stay to take its concerns into account.
Radiofone Inc., a New Orleans paging and cellular firm, challenged new cellular-PCS cross ownership rules but the court declined to combine that appeal with Omnipoint’s.
Meanwhile, New Wave LLC, Central Alabama Partnership L.P. and Mobile Tri-States L.P. are in court protesting post-Adarand auction rules that exclude gross receipts of affiliates of small businesses. The parties assert large firms will simply set up small business subsidiaries to take advantage of the 25 percent bidding credit and, thus, undermine the rationale of the entrepreneur block.
The National Association of Black Owned Broadcasters and the National Association for the Advancement of Colored People are attacking the FCC on a different front.
The groups are angry the FCC turned down their request to defer issuing the 99 PCS licenses sold to the nation’s top telecommunications firms until after the entrepreneur block auction is completed. However, the court rejected their petition to move back the effective date of those licenses, which were granted June 23.
Rural interests also are pressing the FCC to prevent large firms from getting a competitively advantageous head start over smaller companies in the PCS business.
Eligibility for the auction is restricted to firms with less than $125 million in gross annual revenues. Companies with less than $40 million in gross annual revenues are considered “small businesses,” and qualify for a 25 percent bidding discount on PCS licenses.
