YOU ARE AT:Archived ArticlesDE AUTCTION BACK ON TRACK AS TEC JOINS PEC PRIMECO

DE AUTCTION BACK ON TRACK AS TEC JOINS PEC PRIMECO

WASHINGTON-Telephone Electronics Corp., prompted by a deal with PCS PrimeCo L.P., last week dropped its legal challenge to auction rules, clearing the way for the sale of digital pocket telephone system licenses to women, minorities, small businesses and rural telephone companies this summer.

The surprising turn of events removes an immediate obstacle to the next broadband personal communications services auction.

“We simply wanted to offer PCS to our rural customers in the areas we serve,” said Joseph Fail, president of TEC, a Jackson, Miss., holding company for six rural telephone companies.

However, other snags could develop for the Federal Communications Commission’s auction program as Congress, the Supreme Court and the Clinton administration scrutinize affirmative action policies.

The new Republican majority in Congress recently killed what amounted to a tax break for firms that sell PCS permits to women and minorities. However, FCC rules are still on the books that make bidding credits and installment payment plans available to women, minorities and small businesses. Moreover, other rural telephone companies may attempt to extract concessions from the FCC and court in view of TEC’s relative success in both venues.

The FCC recently raised $7 billion from the sale of PCS licenses to telecommunications giants like AT&T Corp., Sprint Corp. and the Baby Bells.

PCS bidding geared to women, minorities, small businesses and rural telephone companies-groups designated by Congress as deserving preferential treatment in auctions-was to begin in June but is now slated for July or August.

The FCC will auction half of the nearly 1,000 licenses tailored to designated entities at that time.

In February, TEC sued the FCC in federal court on grounds that auction rules favor women and minorities over rural telephone carriers. The court last month blocked the auction pending the outcome of the lawsuit.

More recently, TEC petitioned federal regulators for a waiver to enable it to bid in the upcoming auction. TEC currently is ineligible to bid in the upcoming auction because the firm’s annual gross revenues exceed the FCC’s $125 million eligibility cap even though its six rural telephone companies individually and combined account for fewer than $40 million in annual revenues. The same rules were relaxed for minorities.

The litigation has created uncertainty for PCS investors and further delayed entry by small- and medium-sized firms into the digital wireless marketplace. The FCC this month rejected a petition by Communications One Inc. to postpone issuing PCS licenses for markets won at the recently completed auction. The FCC is expected to grant those licenses during the next two months.

PCS PrimeCo, a partnership of AirTouch Communications, Bell Atlantic Corp., Nynex Corp. and U S West Inc., will allow TEC to offer wireless telephony service in portions of the New Orleans-Baton Rouge market won by the Bell-led consortium in the auction that ended March 13.

“TEC is a company that has many things to offer us” and “brings a lot of advantages to us and their local service area,” said George Schmitt, president of PrimeCo.

PCS PrimeCo, which spent $1.1 billion on PCS licenses in 11 markets to supplement significant cellular holdings around the country, plans to build a nationwide wireless network under a soon-to-be disclosed brand name.

The wireless alliance plans to strike similar accords with independent telephone companies in other markets where it holds PCS licenses.

In addition, TEC is joining forces with Peterson County Communications L.P., a San Francisco-based designated entity also allied with PrimeCo, in PCS markets where TEC provides landline telephone.

The FCC, whose rules permit PCS operators to sell off sections of their markets to rural telephone companies, approved the partitioning agreement among TEC, PCS PrimeCo and Peterson. Financial terms of the deal were not disclosed.

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