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HUNDT: FCC AUCTION IS STYMIED BY COURT

WASHINGTON-The level of frustration over entrepreneur block auction litigation is running so high at the Federal Communications Commission that Chairman Reed Hundt is willing to lose in court if it means getting bidding for 493 personal communications services licenses back on track before year’s end.

It’s not that he believes the FCC will lose; he just wants direction from the court.

The FCC chief clearly is not interested in assuaging firms that have taken the agency to court, caused him much grief and tainted his prized spectrum auction program, which is the crown jewel of the Hundt regime and responsible for raising more than $8 billion and making the agency a hit with the Clinton administration.

“There are no prospects for a settlement,” Hundt flatly states.

Moreover, Hundt reluctantly has written off female and minority preferences for most, if not all, remaining auctions for next-generation paging and pocket telephone permits.

He’s angry, exasperated and resigned to the fact the entrepreneur block auction is not in his control anymore, if it ever was.

Hundt is left with the hope the U.S. Court of Appeals for the District of Columbia Circuit will affirm the FCC, but more importantly, that even if it doesn’t, the three-judge panel will at least act fast.

Oral argument is set for Sept. 28.

A federal court in July blocked the Aug. 29 auction from going forward. It was the second time this year the court intervened after challenges were lodged against the FCC.

“Whatever you want us to do,” implored Hundt, as if talking to the court, “make a decision explicitly, promptly, quickly.

“Give us a direct mandate and we will fulfill it. But right now, we go one way, we get enjoined; we go the other way, we get enjoined. We’re stymied by the judicial process.”

In a frank and revealing interview with RCR, Hundt was surprisingly open about his disdain for the courts and the firms that have delayed the entrepreneur block auction for months. He also expressed disappointment about no longer being able to promote diversity in cutting-edge wireless telecommunications.

“The motives for the litigators, the people who are suing, are pretty transparent,” said Hundt.

“First of all,” he explained, “they would like to have certain bidding credits for themselves and special opportunities for themselves and, secondly, some of them are just interested in delaying the process.”

Omnipoint Corp., a small Colorado Springs, Colo., firm that holds a pioneer’s preference PCS license in New York, is one of a handful of firms challenging entrepreneur block auction rules that were revised after the Supreme Court in June put the brakes on affirmative action.

The FCC, backed by minorities and small businesses, got rid of every rule with a hint of a race or gender preference. In doing so, female and minority bidding credits were removed and ownership and affiliation guidelines relaxed to comply with the strict scrutiny standard established in Adarand Constructors Inc. v. Pena.

Hundt said second-guessing how the FCC has handled entrepreneur block auction rule changes isn’t worth it.

“You can’t have regrets because we haven’t been able to figure out what to do along either route,” he said. “We tried both. How can you have regrets?”

The auction, limited to firms with $125 million or less in gross annual revenues, was originally tailored to women, minorities, small businesses and rural telephone companies. Congress in 1993 said the four groups warranted preferential treatment in bidding. That has changed.

The FCC planned to hold the auction in late spring, or roughly two months after the end of the first PCS auction (March 13) that was dominated by telecommunications giants like AT&T Corp., Sprint Corp. and the Baby Bells. That has changed.

Telephone Electronics Corp., a rural Mississippi telephone company, took the FCC to court in February over entrepreneur block rules it said discriminated in favor of women and minorities.

The lawsuit was withdrawn and the stay dissolved after PCS PrimeCo L.P.-a partnership of Nynex Corp., Bell Atlantic Corp., U S West Inc. and AirTouch Communications Inc. that won 11 PCS licenses-agreed to let TEC provide pocket telephone service in the New Orleans-Baton Rouge, La., market.

But more lawsuits have followed and the auction is subject once more to a court stay.

As a result, the auction might not take place this year. Hundt, though, believes a December date is possible if all goes well.

The same optimism, which could backfire if the delay is prolonged, prompted Hundt to announce that the 900 MHz specialized mobile radio auction will be held in November and the remaining narrowband and broadband PCS auctions next year.

If that schedule turns out to be anywhere close to accurate, the FCC will not have time to build a record to support reinstating race and gender bidding credits. Hundt said the study, which the FCC is preparing, will take a year to complete.

But it might be a moot point. Legislation has been introduced in the House and Senate, which the GOP controls, to end race and gender preferences. Republicans are expected to wait until next year to pursue the measures, though.

“As a citizen, I’m disappointed that a technique like auctions and bidding credits can’t be used to include minority small businesses and female small businesses in communications,” Hundt stated. “But I’m not going to, in any way, try to give the Adarand case the run-around or fail to implement it honestly and thoroughly.”

Nearly every post-Adarand rule revision is under siege.

Omnipoint argues the entrepreneur block auction will be subverted by big money; small bidders will be fronts for huge corporations.

Hundt concedes as much.

“Getting rid of the bidding credits for women and minorities, without question, limited the entrepreneurial focus of the auction and broadened it,” said Hundt. But he emphasized that regardless of whether money comes from Wall Street, individual investors, institutional investors or somewhere else, bidders cannot compete in the entrepreneur block auction without such backing.

Qtel Wireless Inc., a minority-owned company in Michigan, asserts that eliminating race and gender bidding credits runs counter to auction legislation written by the then-Democratic Congress two years ago.

Another group of appellants including New Wave LLC, Central Alabama Partnership L.P. and Mobile Tri-States L.P. have attacked post-Adarand rules that exclude gross annual revenues of affiliates of small businesses so long as the total doesn’t exceed $125 million.

Small businesses, a category comprising firms with $40 million or less in gross revenues, are eligible for a 25 percent bidding credit in the auction.

“I understand their motives,” said Hundt, referring to the opposition. “But it’s a very frustrating situation to be in because first, we had bidding credits, and then we got enjoined. Then we eliminated the bidding credits and we still got enjoined.”

“At this point,” he stated, “the pressure is on the court to save the value of these licenses by making a very prompt decision. We will give total respect to their decision.” But, “the burden lies with the court to tell us what they want done differently and to do so with speed.”

Hundt said he is less concerned about big firms getting a head start on smaller firms in PCS than about cellular carriers tightening their grip on the wireless telephony market.

He added that smaller firms might benefit from efforts of current PCS licensees to relocate fixed microwave relocation users from the 2 GHz band to higher frequencies. Hundt said a cost-sharing microwave relocation proposal crafted by industry is worth pursuing, but threw cold water on prospects the FCC may revise negotiating timetables for relocating microwave users in light of charges of extortion by PCS licensees against microwave users.

Hundt also said one or mor
e technical standards for PCS might be established by the time entrepreneur block licensees get around to building systems, which he sees as a plus.

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