Editor’s Note: As C-block winner Pocket Communications Inc. goes through its bankruptcy restructuring, RCR takes an in-depth look at how Congress, the FCC and Wall Street are addressing PCS auction issues. Additional stories appear from page 9 through 15.
WASHINGTON-The shakeout emerging in the personal communications services industry has Congress and the White House scrambling into damage control as billions of dollars owed to the federal government from auctioned licenses have been put at risk.
On Capitol Hill, Senate Commerce Committee Chairman John McCain (R-Ariz.) is drafting legislation to get control of the rapid-fire auction program that has produced shaky pledges of $22 billion, mostly from PCS license sales, and at least two bankruptcies in the three-and-a-half years since Congress first authorized the Federal Communications Commission to employ auction licensing.
It is expected the bill, among other things, would force the FCC to take into account economic, market, technological and other factors before holding spectrum auctions.
But it may be too little, too late. More than 2,000 PCS licenses have been sold. And now, signs of trouble are everywhere. Bankruptcies (MobileMedia Corp. and Pocket Communications Inc.). Stalled and/or dead public stock offerings (NextWave Telecom Inc. and General Wireless Inc.) PCS license defaults, government extensions on PCS installment payments, foreign ownership cap leniency and toned-downed fanfare at the FCC on auctions.
Even number crunchers in Congress are getting jittery.
The Congressional Budget Office recently announced that spectrum auction revenue during the next five years could be $12 billion less than the $36 billion projected by the Clinton administration.
“We’re sort of concerned it [auction estimates] might fall short,” said a Senate Budget Committee staffer.
McCain’s auction strategy runs counter to FCC Chairman Reed Hundt’s approach of pouring as much spectrum into the marketplace as soon as possible, a policy apparently intended to buoy Clinton’s chances of erasing the federal deficit as president.
Clinton’s defeat of incumbent President George Bush in 1992 was fueled by his overarching campaign promise to improve the nation’s economy.
The other three FCC commissioners do not share Hundt’s views and have blocked the FCC head from parlaying his flexible spectrum philosophy into commission policy.
Though an auction hawk, McCain believes a steady stream of FCC auctions may be hurting pocket telephone service competition and lowering the value of the public airwaves.
At the same time, McCain advocates setting aside TV spectrum for public safety communications, an initiative also endorsed by the FCC and the White House.
This week, the FCC started a highly controversial auction-mandated by congressional budgeteers last year with Clinton administration backing-that gives winning bidders broad leeway in deciding how they want to exploit frequencies they buy.
The wireless telecommunications industry voiced major misgivings about the Wireless Communications Services auction during the drafting stage of rules when federal regulators proposed spectrum flexibility and a nationwide license option.
The FCC dropped the nationwide license idea but retained liberal spectrum flexibility.
“I think Congress needs to separate budget policy from communications policy,” said Rob Cohen, congressional liaison for the Personal Communications Industry Association.
Indeed, the WCS auction has come to symbolize the growing tension between telecom lawmakers and budgeteers in Congress.
At an appropriations subcommittee hearing on the FCC’s fiscal 1998 budget last week, Sen. Ernest Hollings (D-S.C.) described the increasing reliance on spectrum auctions by budgeteers to pay for government programs as a “disease”.
Thus, a shakeup in the PCS industry could have a ripple effect that complicates the large budget picture and the funding of individual federal programs on a parochial level.
House telecommunications subcommittee Chairman Billy Tauzin (D-La.), following a February spectrum policy hearing, plans shortly to introduce legislation to speed up deployment of PCS and other wireless services facing obstacles such as antenna siting delays, franchise taxation and other regulations imposed by state and local governments.
It’s unclear, however, whether Tauzin will sponsor companion legislation to McCain’s in the House.
Both McCain and Tauzin appear sympathetic to industry fears about Wall Street financing being undermined by the flood of spectrum entering the marketplace via auctions and increased spectrum flexibility given to license winners.
“Ironically … the success of spectrum auctions in raising [$22 billion] for the U.S. treasury now threatens the undoing of this landmark communications policy,” stated Benjamin Scott, president of PrimeCo Personal Communications L.P., in written testimony at Tauzin’s hearing.
Chairman Hundt, meanwhile, is lobbying Congress to shift responsibility for PCS auction debt collection to the Treasury Department, a move designed in part to remove a conflict of interest from the FCC of being both regulator and collection agency.
“Commercial lending institutions routinely engage in these practices, but the FCC does not have the necessary expertise or experience to perform these functions,” said Hundt in written testimony. “Such a function may also conflict with our statutory duty to expeditiously issue licenses for new communications services.”
Some critics claim the FCC compromised itself by conditionally awarding a load of PCS licenses to NextWave despite finding the firm in violation of the 25 percent foreign ownership cap. NextWave owes the government nearly $5 billion for its PCS licenses throughout the country.
Auction debt collection by the Treasury Department could give the government a better chance of retrieving installment payments from bankrupt PCS licensees and spare the administration great embarrassment if promissory notes can be unloaded and picked in the secondary market. But it’s unclear whether there are legal problems associated with the proposal.
