PHILADELPHIA-A three-judge appellate panel hinted the Federal Communications Commission’s small-business bidding rules could be on shaky legal ground, but seemed hesitant about throwing out results of last year’s $13.7 billion advanced wireless services auction.
Council Tree Communications Inc., Bethel Native Corp. and the Minority Media and Telecommunications Council sued the FCC last year, hoping the Philadelphia-based appeals court would block the AWS auction and overturn revised eligibility rules for small businesses classified as “designated entities.” Those rules extended DE license sale restrictions from five to 10 years and denied incentives-such as license discounts up to 25%-for DEs that resell or lease more than 50% of their spectrum capacity.
Last Wednesday’s oral argument before the 3rd U.S. Circuit Court of Appeals focused on the regulatory process used to arrive at modified DE guidelines and their impact on the AWS auction.
Several years ago, Council Tree pressed the FCC to keep national mobile-phone carriers out of the AWS auction, an issue that has again arisen as the agency struggles to write rules for the upcoming 700 MHz auction. T-Mobile USA Inc., Verizon Wireless, the Sprint Nextel Corp.-cable TV venture, Metro PCS Communications Inc., AT&T Mobility and Leap Wireless International Inc. dominated the AWS auction. More than half of the 104 winning bidders were DEs, but they accounted for only a small percentage of total auction receipts because the licenses they won were comprised of smaller spectrum slices in sparsely populated areas.
FCC attorney Joseph Palmore said the agency gave adequate notice it was contemplating DE program changes along the lines ultimately adopted and that regulatory actions taken were well within its discretion. “Council Tree’s proposal was the starting point, not the ending point of the process,” Palmore said.
Dennis Corbett, a lawyer representing Council Tree, Bethel and MMTC, asserted the FCC’s newest DE rules came out of the blue very late in the game. “You need to know what the rules of the road are,” Corbett stated.
Corbett said he could not see repealing the 10-year enrichment rule-or even sending it back to the FCC for further justification-without also throwing out auction results. “I think they’re joined at the hip. . You’ve got to vacate. You’ve got to get rid of auction results and re-do it.”
Judges Michael Chagares and A. Wallace Tashima, the latter a senior circuit judge for the 9th Circuit who is sitting by designation, seemed to struggle with how the court might deal with the 10-year DE license hold rule without causing mass disruption of the kind predicted during oral argument by Palmore and industry attorney William Lake.
Judge Thomas Hardman appeared more skeptical about whether the FCC’s DE ruling ran afoul of the law.
It is unclear what a court ruling against the FCC might have on preparations for the 700 MHz auction.
700 MHz affects
Meantime, there are forces in play outside of the 3rd Circuit on DE rules for the auction of highly valuable 60 megahertz spectrum at 700 MHz scheduled for later this year.
The Small Business Administration criticized DE rules changes as overkill, saying the FCC hurt small companies in its attempt to prevent sham DE bidding.
“Given the importance of the 700 MHz auction, the inability of small entities to participate effectively for spectrum is likely to have a serious economic impact on the entire market,” the SBA told the FCC in the 700 MHz proceeding. “Because the spectrum up for auction represents the last ‘beach front property,’ the lack of new entrants will block small-business ownership of these licenses for the foreseeable future, solidifying the position of incumbents.”
The SBA said such a result is contrary to a 1993 law, which created spectrum auctions and encouraged the creation of a competitive wireless landscape with a wide diversity of licensees.
Seven Democratic members of the House Commerce Committee, citing the same law, recently urged the FCC to consider making improvements to DE guidelines before the 700 MHz auction. The lawmakers, noting that DEs accounted for only 4% of the $13.7 billion successfully bid on the 1,087 AWS licenses, voiced concern that the percentage is historically far below that of prior auctions.
