WASHINGTON-The U.S. Court of Appeals for the District of Columbia Circuit, acting swiftly, lifted the stay of the entrepreneur block auction for personal communications services licenses and opened the way for bidding to begin Dec. 11.
The court’s 2-1 ruling on Sept. 28-issued only hours after a three-judge panel heard arguments for and against auction rules made race- and gender-neutral after the Supreme Court rolled back affirmative action laws in June-represents a huge victory for the Federal Communications Commission.
The full text of the opinion explaining the court’s action will be released at a later date.
“This decision will now allow the commission to proceed expeditiously with the C-block auction and provide opportunities for small businesses to participate in this exciting industry,” said FCC Chairman Reed Hundt.
Moreover, the dark cloud that has hovered for months over the agency’s entire auction program is gone thanks in large part to a masterful performance before a packed courtroom by Christopher Wright, deputy general counsel of the FCC.
Yet, as persuasive as Wright was in arguing for the FCC, it appeared from the start a majority of the judges were skeptical of arguments raised by appellants and instead gave more weight to the agency’s attempt-in the face of harsh legal, political and economic realities-to strike a compromise in restructuring auctions after the high court adopted a “strict scrutiny” standard for federal affirmative action programs in Adarand Constructors Inc. v. Pena. In addition to Adarand, FCC officials have had to be mindful of the GOP-led Congress’ vow to push legislation that ends race and gender preferences in government programs.
Senate Majority Leader Robert Dole, R-Kan., and Rep. Charles Canady, R-Fla., chairman of the House Judiciary subcommittee on the Constitution, have introduced bills that would do more than limit affirmative action-they would kill such programs.
It is not known whether Congress now will keep or drop a provision in House budget reconciliation legislation that would codify entrepreneur auction block rules and require bidding to commence by Dec. 4.
The commission now can move ahead with auctions of broadband PCS, narrowband PCS, 800 MHz and 900 MHz specialized mobile radio and other wireless licenses in coming months on solid legal ground that heretofore was shaky.
That is why the FCC refused to settle with any of the parties that brought suit recently; it wanted direction from the lower court on race and gender preferences in the aftermath of Adarand.
Without that guidance, the commission as well as successful bidders would have been vulnerable to lawsuits in every auction. In addition, continued legal and regulatory uncertainty would have had a chilling effect on bidder financing.
While the court ruling vindicates the FCC, some in the minority community claim the agency has moved too slowly to document whether there is a history of discrimination in the telecommunications industry. Such a study is necessary before the FCC can consider reinstating racial preferences.
Short-form applications for the entrepreneur block auction due Nov. 6 will offer an early glimpse at who will vie for the 493 broadband PCS licenses. It is unclear what impact the six-month delay will have on the number of bidders and the value they attach to next-generation pocket telephone licenses.
Bidding in the PCS entrepreneur block auction is limited to firms with $125 million or less in gross annual revenues. Companies with $40 million or less in gross revenues are eligible for a 25 percent small business bidding credit, a discount previously available to only women and minorities.
The auction, originally crafted to adhere to a mandate of the 1993 Democratic-controlled Congress that women, minorities, small businesses and rural telephone companies get favorable treatment in wireless bidding, was to have been held in late May, about two-and-a-half months after AT&T Corp., Sprint Corp., the Baby Bells, cable TV operators and others spent $7 billion for PCS A- and B-block licenses.
Bidding preferences were not offered in the A- and B-block broadband PCS auction, but a menu of incentives for females, minorities and small businesses originally were woven into entrepreneur block auction rules. The FCC had hoped to build upon the success that preferences had in helping women and minorities win a third of the 30 regional narrowband PCS licenses a year ago.
But legal challenges to both original and modified auction rules led to one delay after another, and forced the FCC to re-schedule C-block bidding several times. In March, the appeals court stayed the entrepreneur block auction after Telephone Electronic Corp., a rural Mississippi telephone company, complained auction guidelines discriminated in favor of women and minorities.
TEC dropped the lawsuit after PCS PrimeCo L.P.-a partnership of Nynex Corp., Bell Atlantic Corp., U S West Inc. and AirTouch Communications Inc. that won 11 licenses in the auction that ended March 13-agreed to let it provide digital pocket phone service in the New Orleans-Baton Rouge market.
Then, in July, the court intervened again and kept the entrepreneur block auction from going forward after Omnipoint Corp., a small Colorado Springs, Colo., firm that holds a pioneer’s preference for a PCS license in New York, filed a lawsuit. Omnipoint claimed new ownership rules that allow single investors to hold up to 49.9 percent in any bidder (an option previously available only to women and minorities) would make it difficult for small firms to compete against bidders set up as fronts by big companies. (Several prospective bidders, alleging Omnipoint purposely delayed the C-block auction for competitive purposes, have asked the FCC to take back the firm’s PCS pioneer’s preference permit in New York.)
Two of the three circuit court judges did not buy Omnipoint’s arguments or those of other appellants who protested the removal of female and minority bidding credits, the relaxation of ownership affiliation rules and PCS- cellular cross-ownership guidelines.
Chief Judge Harry Edwards appeared more concerned with potential harm to all entrepreneur block bidders if protracted litigation further delayed their entry into the increasingly competitive wireless telephony market.
“Do you disagree with the FCC’s suggestion the more we fight about this, the more we fight about nothing?” Edwards asked Keith Harrison, a lawyer for Qtel Wireless Inc., a small minority-owned Detroit firm that lost financing after the FCC said it intended to drop race and gender bidding credits in June.
While questions were raised about the justification for auction rule changes and procedural aspects surrounding those modifications, Edwards seemed to empathize with the FCC insofar as the legal constraints imposed on the agency by the Supreme Court decision and waning confidence of the investment community as a result of repeated delays.
“The FCC had a responsibility to consider that [Adarand ruling],” said Edwards. Judge David Sentelle, meanwhile, pressed Omnipoint’s lawyer repeatedly to tell how new auction rules adversely affected the firm.
“I still don’t understand the injury,” Sentelle stated.
The FCC’s Wright picked up on those points and capitalized on them when it was his turn to be heard. “They [the 16 parties-some prospective bidders-who filed briefs supporting the agency] urged the FCC to act as soon as possible because speed to market is crucial to entrepreneurs,” said Wright, defending the swift elimination of race- and gender-preferences after Adarand came down.
Wright also questioned how Omnipoint was injured, explaining the FCC’s objectives were to keep existing deals of female- and minority-owned bidders intact; to shield auction rules from further lawsuits; and to get the auction back on track as soon as possible.
“We believe delay may be as bad as death,” said Edgar Czarra Jr., an attorney w
ho represented the 16 interveners who backed FCC auction rules.
Opposing lawyers said the delay was overstated, but it turned out to be a persuasive argument. Omnipoint got some support for its grievances, though.
The FCC has not adhered to its original intent that the entrepreneurial auction be limited to small and medium-sized businesses, said Judge Patricia Wald in a dissenting statement. Wald said she would have preferred to remand modified auction rules to the FCC for a better explanation on an expedited basis.
Omnipoint declined to comment on the ruling.
“I think this decision is going to be a big blow to minority involvement in the auction and I will be pleasantly surprised if any minority-owned companies are successful at obtaining licenses in the C-block auction,” said Qtel’s Harrison.
“I’m disappointed,” said Eliot Greenwald, attorney for New Wave LLC, Central Alabama Partnership L.P. and Mobile Tri-States L.P. The three small firms took issue with modified auction rules that exclude gross revenues of affiliates of small business eligibles so long as the total revenue of the applicant and its sister companies don’t exceed the $125 million cap for entrepreneur block auction.
