WASHINGTON-With huge sums of money expected to be bid on broadband personal communications services licenses later this year, the Federal Communications Commission has adopted a get-tough policy on auction fraud.
“It’s really quite simple, we’re going to enforce the rules,” said William Kennard, general counsel for the FCC.
The agency is investigating alleged fraud in auctions in late July for interactive video and data service licenses. At that time, the agency collected $214 million from IVDS bidders, but a number of winners defaulted on making down payments several days after the auction ended.
FCC officials suspect some successful bidders who defaulted misrepresented their financial qualifications, illegally masqueraded as women- and minority-owned businesses for the 25 percent bidding discount, and tried to persuade successful bidders to delay payments.
FCC Chief Administrative Law Judge Joseph Stirmer, a former federal prosecutor who is overseeing the investigation, may subpoena documents and call witnesses to testify under oath in the closed proceeding. No date has been set for what Kennard describes as a grand jury-style hearing.
Stirmer’s findings will be forwarded to the five FCC members, who could impose penalties for violating agency rules and refer evidence of criminal activity to the Justice Department.
The agency’s probe does not encompass the auction for the 10 nationwide narrowband PCS licenses, also held in late July, which brought in $617 million for the U.S. treasury. None of the winning PCS bidders defaulted on down payments.
Nevertheless, the investigation has implications for the regional narrowband PCS auction on Oct. 26 and the broadband PCS auction in early December, when the highest bidding to date is expected for wide-area, cellular-like licenses.
The FCC’s strategy is to make an example of any IVDS auction violators and, thus, dissuade others from attempting the same.
“I would like to think that people who would engage in shams and other abusive processes will be few and that our rules are stringent enough to handle those situations should they arise,” said Commissioner Rachelle Chong.
“We’re sending a clear message to the public that we are very serious about these auctions and don’t get involved unless you’ve done your homework and understand the technology,” explained Kennard.
“Don’t rely on us to tell you what the value of the frequencies are,” he added, “or (what) the marketability of the technology is because that’s not our business. You’re on your own on that.”
Kennard said the Resolution Trust Corp. and the Federal Deposit Insurance Corp., two federal agencies with auction experience, told the FCC the default rate is highest early on in auctions, but subsides later when bidders fail to realize benefits from ploys.
“It’s really vitally important that applicants understand that auctioning of licensing is a serious event,” said Kennard, “and that if you enter the PCS auctions…or any spectrum auctions, that we expect everyone to be a legitimate bidder and not to be cavalier about the process.”
In August, the FCC held broadband PCS seminars in several major U.S. cities to publicize upcoming auctions. A lot of questions, according to the FCC, came from attendees interested in rules that accord favorable treatment to women, minorities, small businesses and rural telephone companies in auctions.
Congress last year mandated special incentives in the auctions for so-called “designated entities” to increase ownership diversity in wireless telecommunications.
Under FCC rules, winning bidders who fail to make down payments lose their licenses and are assessed monetary penalties, depending on the prices subsequently paid for re-auctioned frequencies.
