WASHINGTON-The Federal Communications Commission late last week opened a review of a program that gives bidding discounts to small businesses in wireless license auctions, a move that comes only five months before the auction of advanced wireless service licenses and the June trial of Wall Street telecom titan Mario Gabelli. Gabelli is accused in a lawsuit of skirting the very auction rules now under scrutiny by federal regulators.
The FCC tentatively concluded it should restrict auction benefits accorded to a qualified small business, or “designated entity,” applicant that has a material relationship with a large in-region incumbent wireless service provider. The proposed change is subject to public comment.
In addition, the agency is seeking feedback on whether it should also limit small-business benefits-including bidding discounts-in cases where an otherwise qualified DE has a material relationship with a large entity that has a significant interest in providing communications services, such as voice or data providers, content providers, equipment manufacturers, media firms and wireline telecom carriers.
The FCC’s re-examination of DE bidding credits-limited to small businesses after the Supreme Court curbed government affirmative action in 1995-has enormous implications for businesses, venture-capital firms and others interested in participating in the long-awaited auction of AWS licenses on June 29. The FCC plans to auction more than a 1,000 licenses in the 1710-1755 MHz and 2110-2155 MHz bands.
Indeed, the agency’s fast-track re-examination of DE rules and its plans to conduct the AWS auction shortly after the review is completed have the potential to freeze capital and cause a frantic rush to file applications once industry and Wall Street know for sure what the DE rules will be.
Last August, Democratic Commissioners Jonathan Adelstein and Michael Copps urged the FCC to consider tightening DE rules to close loopholes enabling national wireless carriers and others to secure discounted access to spectrum reserved for small businesses.
Adelstein said he supported the direction the FCC is headed on DE reform but criticized the delay in getting the issue addressed.
“I am very disappointed that it has taken so long for this item to be adopted,” Adelstein said. “The commission committed to launch this proceeding at our August 2005 open meeting, yet it took over five months to prepare this relatively brief notice of proposed rule making.”
Adelstein continued: “I am frustrated that the lack of timely action may unnecessarily create challenges and some uncertainty as interested parties both respond to this item and prepare for the upcoming auction. I cannot emphasize enough that this timing was not of my choosing. We should have initiated this proceeding three months ago and allowed interested parties a more rational amount of time to comment on our proposals. Unfortunately, that didn’t happen and now commenters and indeed our own commission staff are forced to work within an incredibly aggressive schedule to try to finalize this proceeding sufficiently in advance of the June 29 AWS auction.”
Copps said the stakes are high for the June auction, small businesses and the U.S. Treasury. “The DE program was intended to create opportunities for smaller carriers to obtain the spectrum resources needed to bring new services to consumers-and has proven to be particularly useful for rural areas,” said Copps. “In the upcoming AWS auction, carriers that qualify as small companies under the DE program can receive up to a 25-percent auction discount. We need to act quickly to close any loopholes to ensure that American taxpayers do not lose millions of dollars in AWS auction revenues.”
FCC Chairman Kevin Martin signaled he is serious about tightening DE rules, saying large wireless carriers should not be the only ones disqualified from benefiting further from DE rules. “We tentatively conclude that we should reform our program by preventing large incumbent wireless carriers from gaining access to bidding credits through partnering with designated entities. While I think that is a good step, I believe we should consider going further, applying the same rule to all large communications service providers,” Martin said. “Why single out large wireless carriers alone for this kind of treatment and allow large wireline carriers, cable companies, satellite providers, and other communications companies to continue to participate in a program for small businesses? A more fair and reasonable way to reform the program would limit all large communications companies from such small-business discounts. I remain hopeful that we will be able to adopt such a consistent approach in our final rules.”
In a strange coincidence of timing, The AWS’ auctions date-which presumably will be subject to revamped DE rules-and the start of the Gabelli trial are both set for June.
Gabelli is accused of defrauding the U.S. government of at least $85 million by hiding his company’s control of winning applicants that qualified as small businesses and received discounts-some 25 percent-in mobile-phone and paging auctions conducted during the 1990s.
U.S. District Judge Paul Crotty, overseeing the Gabelli case in New York City, called for document production by the first week of March; depositions by mid-April; motions by mid-May; and the entire month of June for trial.
Gabelli, who consistently has denied any wrongdoing, said in a phone interview Friday he welcomes the FCC giving designated-entity rules a second look. “We look forward to the new standards,” Gabelli said. He said small businesses-some minority owned-already are approaching him for help in order to participate in the June 29 auction.
Rufus Taylor III, a lawyer who helped prepare applications for wireless auctions in the 1990s, filed the lawsuit against Gabelli and Lynch Interactive Corp. in February 2001 on behalf of the federal government under a law permitting individuals with knowledge of a government fraud to file and prosecute the government’s claims. Taylor has high-powered, politically connected Washington law firms helping to make the case against Gabelli and the firm he chairs and partially owns, Lynch Interactive.
Lynch holds more than a dozen small rural phone companies and has some wireless interests in California.
Gabelli claims Lynch lost millions in the small-business C-block auction in 1996 and the lawsuit amounts to extortion.
Plaintiffs’ lawyers, however, assert Gabelli, through his firm’s alleged control of wireless licenses won at auction and later sold, profited handsomely.
Lynch predicted in 2002 the lawsuit will, like Dracula, not survive the light of day.
