WASHINGTON—The 3rd U.S. Circuit Court of Appeals refused to halt the Aug. 9 start of the advanced wireless services auction, but the Federal Communications Commission likely faces continued litigation over small-business bidding rule changes in light of the court’s discomfort with the process the agency used to arrive at the new guidelines.
The 3rd Circuit Thursday refused to postpone the AWS auction, one day after hearing oral argument in Philadelphia.
The “petitioners have not established that a stay is necessary to prevent irreparable harm and, second, that a stay is decidedly contrary to the public interest,” the court stated in a 7-page order.
The FCC’s disclosure that 166 of the 252 AWS short-form applications claimed small business, or designated entity, status bolstered the agency’s argument that new rules have not chilled financing for DEs. The agency also got a boost from Commissioner Michael Copps’ statement on the importance of the AWS auction—the culmination of an18-month process—staying on track.
“It appears that DEs other than petitioners have adjusted to the new rules and will participate,” the court stated.
Council Tree Communications Inc., Bethel Native Corp. and the Minority Media and Telecommunications Council filed the lawsuit against the FCC in early June, seeking a stay of the auction and a repeal of revised DE eligibility rules. The three groups are challenging the FCC decision to extend DE license sale restrictions from five to 10 years and to deny incentives to DEs that resell or lease more than 50 percent of their spectrum capacity. The lawsuit opposing new DE rules remains alive, giving the FCC legal exposure and throwing into question the legitimacy of the government’s sale of 1,122 licenses in the 1710-1755 MHz band if small-business bidding guidelines are overturned.
That possibility is plausible.
FCC General Counsel Samuel Feder, who argued forcefully against a stay of the AWS auction, found himself on the defensive at times during oral argument over his agency’s handling of the DE rulemaking. Feder told the court the FCC’s rulemaking contemplated a number of options to prevent large telecom companies from exploiting a regulatory loophole enabling them to get access to valuable spectrum at a discount by joining forces with DEs. DEs are entitled to wireless license bidding credits up to 25 percent.
Feder told the three-judge panel the FCC could not reach a consensus on where to draw the line on barring large cellular carriers and telecom firms from DE joint ventures. “The commission’s balancing here was fully reasonable,” stated Feder.
The 3rd Circuit signaled it had doubts.
In its opening footnote of Thursday’s decision, the 3rd Circuit put in writing what it had expressed during oral argument. “We share petitioners’ concern that the Further Notice may not have sufficiently apprised interested parties that the commission was contemplating changes in the DE eligibility and unjust enrichment rules of the sort that it ultimately adopted in the Second Order,” the court stated. “However, this is a complicated question, as to which we form no opinion. We leave its resolution up to the panel that considers the petition for review, which is pending.”
“The court could still overturn the FCC’s new, more restrictive rules governing what small businesses receiving auction credits may do with their spectrum, and this creates some modest, residual overhang on the auction results,” stated Stifel, Nicolaus & Co. Inc. in an investment note.
Council Tree, Bethel Native and MMTC have not given any indication they plan to abandon their legal challenge of new DE rules.
A collective sigh of relief went out from the cell-phone industry immediately following the release of the 3rd Circuit decision.
“We wholeheartedly agree with the 3rd Circuit Court’s ruling, which allows the advanced wireless services auction to proceed as scheduled on Aug. 9. There is no question that American wireless consumers, including those residing in rural areas, will greatly benefit from the rapid deployment of new technologies, products, and services that the soon-to-be available spectrum will support,” said Steve Largent, president of cell-phone association CTIA. “Today’s ruling is consistent with the statutory goals of the Communications Act and we are confident the thorough competitive bidding process designed by the FCC will allow all 252 entrants in the auction, including 166 designated entities, a meaningful opportunity at winning licenses.”
CTIA and T-Mobile USA Inc. supported the FCC as interveners in the case.
“We are pleased the advanced wireless auction will proceed on schedule furthering the goal of providing new and better wireless services to American consumers,” said an FCC spokesman.
Besides the FCC, the other biggest winner was T-Mobile USA, the fourth largest wireless carrier and the one with the most acute need for radio frequencies to support delivery of high-speed multimedia content.
The AWS auction is expected to generate between $8 billion and $15 billion for the U.S. Treasury. Bidding had been set to begin June 29, but the DE controversy pushed the date back to Aug. 9.
On a related front, a federal court in New York rescheduled for July 7 a hearing on a final settlement of the Justice Department-backed auction fraud lawsuit against Wall Street magnate Mario Gabelli and Lynch Interactive Corp. A hearing had been set last for Thursday. Gabelli and Lynch might have to cough up $100 million to settle the case.
