Wireless Spectrum Auctions

Twenty-five prospective bidders for licenses in lower 700 MHz band were found by FCC to be not qualified to take part in auction, in some cases because carriers themselves withdrew. Carriers that didn’t complete final steps to participate in auction that starts June 19 included Pegasus Development, Pappas Telecasting of America, Univision-owned Telefutura and Cybergate, which is owned by e.spire Chmn. George Schmitt, including making down payment on desired licenses. Space Data Spectrum Holdings, which had planned to bid on all licenses in lower band, wasn’t on qualified bidder list, either. It’s deploying national network of balloon- borne wireless repeaters and was high bidder last year on 1.4 MHz of national narrowband PCS spectrum. Leap Wireless had announced earlier that its subsidiary Cricket Licensee III wouldn’t take part in lower 700 MHz bidding, following FCC decision to hold lower band bids on time and delay upper band auction by 7 months. List of 28 nonqualified bidders also included Commonwealth Telephone Enterprises, Preferred Spectrum Acquisitions, Viacel, Alaska Telephone Co., Idaho’s State Board of Education. Commission found 128 applicants to be qualified to bid in auction of 758 licenses in lower band, including Paul Allen’s Vulcan Spectrum, LIN TV, Capitol Bcstg., Arctic Slope Telecommunications, PGTV. Largest upfront payments were made by Council Tree Wireless and Spectrum Holdings, each paying $40 million. Council Tree had been among backers of NextWave re-auction bidder Alaska Native Wireless, which had financing from AT&T Wireless. Omega Communications put up 3rd largest upfront payment -- $18.9 million. Among authorized bidders for Omega is Mario Gabelli, chmn. of Gabelli Asset Management. His media holdings have included stake in Black Entertainment TV and he was backer of Theta Communications, which bid in NextWave re- auction.

Rep. Stearns’ (R-Fla.) “auction 35” opt-out bill (HR- 4738) is top legislative priority for Verizon Wireless, said Howard Woolley, vp-federal relations. Bill would compel FCC to return remaining deposits of bidders in NextWave re- auction. In March, Commission returned 85% of deposits from re-auction but concluded winning bidders, such as Verizon Wireless, should be held to nearly $16 billion on potential auction obligations until pending Supreme Court review."It’s very important to remove this roadblock to effective spectrum policy,” he said. Verizon Wireless is talking with members about bill and is communicating with “key senators” on introduction of Senate version, Woolley said. Verizon Wireless officials said “whole market” was paralyzed by uncertainty of auction 35. Another policy priority for Verizon Wireless is requirements that spectrum be vacated before it is auctioned, Woolley said. “Future auctions should be conducted only after the clearing process,” he said.

Verizon Wireless expressed concerns at FCC on draft merger review guidelines in works at agency for evaluating wireless merger proposals after spectrum cap sunsets Jan. 1. Merger review guidelines, which have been crafted by office of FCC Chief Economist David Sappington and others at agency, are expected out as early as today (Mon.). Commission voted last fall to phase out cap, which had been 45 MHz, except for rural markets where it was 55 MHz, by Jan. 1, 2003. In interim, Commission lifted cap to 55 MHz for all markets. FCC economists have been looking at merger guidelines used by FTC and Justice Dept. to ascertain whether they could any of those provisions for FCC when processing license transfer applications (CD March 19 p6). Verizon Wireless Vp John Scott told press breakfast Fri. that his company was concerned that guidelines that emerged from FCC would be more restrictive than originally thought. “It’s not clear to me why there should be guidelines for this particular industry and not all industries that the Commission regulates,” Verizon Wireless Vp John Scott said. Carrier has met with Wireless Bureau and has urged it to not adopt guidelines for 2 reasons, he said: (1) “Guidelines tend to become requirements,” with concern that guidelines not be adopted that essentially would replace spectrum cap. Otherwise, premise of spectrum cap’s being eliminated to avoid proscriptive ownership requirements “would be undercut,” Scott said. (2) Industry is changing so rapidly that “adopting a set of guidelines based on the way the industry looks today may be the most inappropriate set of guidelines 2 years from now or 5 years from now,” he said. Justice Dept. told FCC in spectrum cap proceeding last fall that “a mandatory, inflexible set of rules” is not way to go, point that Verizon Wireless has reiterated to FCC, Scott said: “We have made that point to the Commission. We hope that the full Commission will agree with it.” Comments are expected to be sought on merger review guidelines that FCC releases, he said. Scott said carrier’s understanding of guidelines was that they would be more substantive than FCC’s simply indicating it would process transaction proposals within certain number of days. “To look at the concept of guidelines that come before the Commission under [Sec.] 310, if they are going to adopt any particular guidelines for when transactions above a particular size are involved and certain carriers or certain markets merit some higher level, that to me seems a concept that should be looked at by the full Commission,” he said. On issue of extent to which large wireless carriers still are beholden to FCC for original bids in re-auction of NextWave spectrum that has been overturned by D.C. Circuit, Scott said those financial obligations were having impact in other spectrum areas. He cited lower 700 MHz band auction June 19: “There were 48 MHz of spectrum at stake in that auction and if you look at who bid for that spectrum, the wireless industry didn’t show up. There’s one very apparent reason why they didn’t show up. From a government fiscal policy, as well, it should be concerning the government that they will not be raising the revenues they otherwise would raise.” Unless NextWave re-auction issue is resolved, upper band auction, which FCC recently delayed by 7 months, is likely to suffer from same lack of interest, Scott said.

General Accounting Office (GAO) report that will help guide Sen. Burns (R-Mont.) in developing spectrum management reform legislation is expected next week, his spokesman told us. At Comcare Conference in Washington, Burns said he was looking toward end of year for introduction of bill. He acknowledged there wouldn’t be time to move bill through Congress this session, but said he wanted to get debate started. He said he was working with Sens. Hollings (D-S.C.) and Inouye (D-Hawaii) to develop effective bipartisan bill addressing many aspects of spectrum management. “We think it should be comprehensive,” Burns said. He requested GAO report on U.S. spectrum management system nearly a year ago and it’s expected to examine system comprehensively, spokesman told us. Spokesman for Hollings told us Senate Commerce Committee chmn. believed FCC’s policy on spectrum had “flipped the law,” allowing companies to act as if they owned spectrum, instead of renting it. Spokesman cited NextWave case, saying company was allowed to treat spectrum allocations as though they were company property instead of property that it rented from govt. “If a company fails to make a payment, the license should go back to the government,” Hollings spokesman said. If NextWave case creates precedent on spectrum policy, FCC wold become “moot” in regard to spectrum, spokesman said.

Spectrum Policy Task Force formed by FCC Chmn. Powell teed up far-reaching questions for comment Thurs. and provoked concerns by Comrs. Copps and Martin that group had drafted public notice “without Commission guidance.” Detailed notice posed spectrum policy questions ranging from Part 15 overcrowding to whether rural spectrum should fall under different policy rubric than urban areas. But Copps and Martin said in statement that those “critically important issues” would have been better addressed in Notice of Inquiry approved by full Commission. “We also fear that without Commission input critical issues may be left out of consideration,” they said, noting rural spectrum issues were given relatively short shrift. Their concerns were raised at time when Powell-led FCC has created several high-level task forces to address issues such as homeland security and DTV transition.

Group of companies that develop devices for Part 15 spectrum, including ultra-wideband developer XtremeSpectrum, opposed petition to FCC for reconsideration by amateur radio group that they said “seems to call into question the lawfulness of unlicensed devices in general.” National Assn. for Amateur Radio (ARRL) filed petition for reconsideration in April concerning order that would allow operation of unlicensed fixed, point-to-point transmitters in 24.0-24.25 GHz band using narrow-beamwidth antennas. ARRL petition raised broad Part 15 issues, asking that Commission reverse part of order that addressed its jurisdiction to authorized unlicensed operation of radio frequency devices “which have significant potential for interference to unlicensed radio services.” ARRL argued that FCC had no jurisdiction under Communications Act to authorize through rulemaking operations unlicensed devices that had “significant potential” to interfere with licensed radio services. ARRL contended: “The Commission has expanded the concept of unlicensed devices far beyond what its original concept allowed and far beyond what is permissible pursuant to Section 301” of Communications Act. ARRL also said certain statutory provisions barred unlicensed operations, with limited exceptions. In opposition filed late Fri. at FCC, group of technology companies said ARRL’s arguments were tantamount to asking FCC to remove computers, cordless phones and “all other radio-based consumer devices” from market. Besides XtremeSpectrum, opposition was filed by Intersil, Symbol Technologies and Wireless Ethernet Compatibility Alliance. “On its face, ARRL’s objection reaches much farther than the 24 GHz rule adopted in this proceeding,” filing said. “Given that nearly all unlicensed operation in non-government spectrum uses the same frequencies as do licensed radio services, ARRL’s petition seems to call into question the lawfulness of unlicensed devices in general.” Companies said FCC had backing to implement Part 15 rules as result of: (1) “Great deference” to which Commission’s statutory interpretation is entitled. (2) Deference given to agency when it acts in line of its technical expertise. (3) Independent authority of FCC to fill in gaps in Communications Act, “particularly in a fast-moving technological environment.” (4) Repeated ratification by Congress of unlicensed operations as evidenced by lawmakers’ leaving rules intact for 60 years “while routinely amending other parts of the statute.” Opposition filing also said Congress included language in 1997 Balanced Budget Act that excluded from auction bands allocated for unlicensed use under Part 15. “ARRL thus has the difficult task of arguing that Part 15 exceeds the Commission’s statutory authority, in the face of a statute that specifically protects Part 15 operations,” filing said.

Northpoint decision won’t affect New ICO’s effort to add ancillary terrestrial service (ATC), Senior Vp-External Affairs Gerry Salemme told us Thurs. New ICO filed petition at FCC (CD April 24 p1) to use satellite frequencies for terrestrial service. “Nothing has changed” as result of Northpoint decision, Salemme said. “We're the license holder. Northpoint wasn’t… People understand the differences. You don’t take away our spectrum.” Nevertheless, some believe company now may have difficulty getting Commission approval because of Northpoint decision, which allows terrestrials companies to share satellite spectrum in 12.2-12.7 GHz band for multichannel distributors, but requires auction of spectrum. Despite major investment in New ICO system, company still probably has financial wherewithal to bid in auction, industry source said. Industry attorney said Commission “had another tough call” in deciding fate of New ICO, which said adding ATC was only way satellite service could work.

FCC’s upcoming auction for lower 700 MHz spectrum has attracted broad array of prospective bidders, ranging from Paul Allen’s Vulcan Spectrum to broadcaster Univision to expected contingent of small, rural carriers. While broadcast players such as LIN TV applied to bid for licenses in that band, large national wireless carriers appear to have largely stayed away. Intel and Microsoft, which were subject of speculation in recent months about their possible participation, also didn’t file short forms. FCC late Fri. delayed upper 700 MHz auction until Jan. 14, 2003 (CD May 28 p3), retaining June 19 for lower band in move seen as blow for broadcasters such as Paxson Communications, which had urged Commission to keep date for both bands. Decision was seen as at least partial victory for CTIA, which had asked FCC to delay bidding indefinitely for both Ch. 60-69 and Ch. 52-59. Short-form applications that FCC released Fri. for lower band include 72 that it accepted and 81 that it deemed incomplete. Service rules for 48 MHz of spectrum in lower 700 MHz band were created to allow for new fixed and mobile wireless operations in band, as well as new broadcasting services.

FCC late Fri. postponed upper 700 MHz PCS band auction until Jan. 14, 2003, but kept existing date of June 19 for lower band, leaving open window for congressional action. Move, which elicited partial dissent from FCC Comr. Martin on lower band timing, came days before upfront payments were due May 28 for both bands. Commission turned down CTIA application for review that asked full Commission to overturn Wireless Bureau decision to hold both auctions on time. It also rejected, on procedural grounds, application for review by Paxson Communications and Spectrum Clearing Alliance that asked FCC to clarify that bidding for both bands would move forward June 19. In long separate statement, FCC Chmn. Powell stressed that Commission was aware of “late inning legislative drive” by industry to change statutory deadlines for bidding. “It bears repeating that, with this temporary delay, we are not imposing a deadline on Congress,” he said. “Instead, we are making an affirmative policy judgment to move the auction to a date of our choosing.” He emphasized circumstances that warranted different outcome for 2 bands, including number of bidders teed up to vie for Ch. 52-59 spectrum and pace of digital TV transition that would clear both bands.

Next phase of regulatory battle over NextWave PCS license case at FCC involves construction requirements faced by bankrupt C-block bidder, according to recent filings at Commission. NextWave made initial construction filings for most of its C-block licenses in Jan. after Commission returned its previously cancelled PCS licenses last year. U.S. Appeals Court, D.C., last year reversed FCC ruling that had cancelled NextWave licenses for missed payment, resulting in overturning of $16-billion re-auction of NextWave licenses won by carriers such as Verizon Wireless. One issue at center of pending FCC petitions is whether settlement agreement reached by Commission, NextWave and re-auction winners last year had given NextWave additional time to meet certain construction requirements. But that interpretation of settlement agreement, which had been approved by Justice Dept. but ultimately not ratified by Congress, is being challenged now at FCC Wireless Bureau by N.Y. Telecom. Company, which didn’t fully disclose its ownership interests in its FCC filing, said it was interested in bidding on some NextWave licenses if they ultimately were revoked and subjected to re-auction. N.Y. Telecom contended NextWave had missed its construction deadlines.