Although federal regulators say they don’t see a problem in letting some small cellular operators bid “at their own risk” for more spectrum in markets where they already hold cellular licenses, insincere bidding can bring stiff financial penalties, warned the Federal Communications Commission.

The FCC recently announced a rule exception for the C-block auction of personal communications services licenses set to begin today that would allow some cellular operators to bid for 30-megahertz PCS licenses in markets in which they already hold cellular spectrum.

That announcement flies in the face of FCC rules, which forbid companies from holding more than 45 megahertz of any commercial radio spectrum. Although the FCC is allowing these entities to bid, it has not guaranteed they will be able to keep a PCS license in their cellular market if they win it.

However, any insincere bidding for the sake of driving up the competitor’s price will be costly, said Kathleen O’Brien Hamm in the auctions division of the FCC’s Wireless Telecommunications Bureau.

FCC rules state that a bidder who withdraws a high bid during the course of the auction will be subject to a penalty equal to the difference between the amount bid and the amount of the winning bid the next time the license is offered. No withdrawal penalty will be assessed if the subsequent winning bid exceeds the withdrawn bid, the FCC said. Penalties will be deducted from any upfront payments the withdrawing bidder has deposited with the commission.

The exception for some cellular operators could end up tickling the current auction on both a bidding and legal front.

Last year’s broadband auction surprise was Craig McCaw, who bid through 100 rounds then dropped out without winning a license. The FCC indicated that McCaw paid several million dollars in withdrawal penalties; however, the result was that McCaw drove up the bidding in the New York and California markets where McCaw’s current company, Nextel Communications Inc., has specialized mobile radio service, according to Richard Siber, director of worldwide wireless consulting for Andersen Consulting of Boston.

“The big surprise in the last auction was McCaw. In this auction, the government was trying to assure competition but wasn’t anticipating the affirmative action [issues] and the lawsuits. We’re still going around the race track to finish this thing, but it could be just the beginning of something very explosive,” Siber said.

The lawsuit that threatens to stop the auction or provide aftershock has been filed by Radiofone Inc. The Louisiana-based company asked the U.S. Court of Appeals for the Sixth Circuit in Cincinnati to consider FCC cross-ownership guidelines prior to the start of the auction. The Court ruled Nov. 9 that the FCC hadn’t justified rules restricting cellular-PCS cross ownership. Radiofone believes the court decision requires the FCC to revisit those rules prior to the auction.

Instead, the FCC announced in a Nov. 18 public notice that entities that had filed cross-ownership waivers could bid for PCS licenses in the Dec. 18 auction “on a conditional basis.” The FCC said about a half dozen such waivers had been filed. When the auction is completed, results will be put out for comment. The FCC said it will consider granting each waiver then, based on what the entity has won.

Radiofone filed a Dec. 8 petition asking the FCC for an emergency rulemaking on the matter, and asked the FCC to determine the rules prior to the auction. Three days later, Radiofone petitioned the Sixth Circuit to hold the FCC in contempt for failing to reconsider cross-ownership rules, as requested by the court. The issue is idling as the auction begins.

“This is a volcanic, dynamic situation. If the rules change and the court upholds some of the requests, it becomes a free-for-all. Consider that Sprint [Telecommunications Venture] could take its 29 [PCS] licenses and sell them to existing cellular carriers for billions of dollars. The value of spectrum would increase exponentially at that point,” Siber said.

What began as a move by the government to create competition in wireless by offering new licenses has led to stronger-than-ever cellular carriers and A- and B-block winners with a nine-month head start over C- or F-block licenses, he said.


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