FCC Still Faces Major Legal Hurdle on AWS Auction
Legal uncertainty continues to hang over the advanced wireless services (AWS) auction, scheduled to start in less than a month, with Council Tree’s case still before the 3rd U.S. Appeals Court, Philadelphia. Attorneys who follow DE issues said the court is unlikely to eventually overturn the auction but anxiety remains among the hundreds of potential bidders, especially given the Supreme Court’s 2002 NextWave decision overturning a 1996 auction.
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“The worst case scenario is the court finding that there is indeed a substantive problem with the manner in which the Commission proceeded and as a result invalidating the auction,” one regulatory attorney said Wed.: “That’s a nightmare scenario because people have had money tied up for a long period of time in the auction. Plus, if you're in the auction bidding it may preclude you from buying [other licenses] on the open market.”
On June 29, the 3rd Circuit refused to grant a stay of the auction, which is to begin Aug. 9, acting on an appeal by designated entities Council Tree and Bethel Native Corp. and by the Minority Media & Telecom Council (CD June 30 p1). However, the decision contained a footnote some find troubling. In the footnote, the court noted it shares “petitioners’ concern that the further notice [changing the DE rules] may not have sufficiently apprised interested parties that the Commission was contemplating changes in the DE eligibility and unjust enrichment rules of the sort that it ultimately adopted in the second order… We leave its resolution up to the panel that considers the petition for review, which remains pending.”
“It has created some anxiety for applicants who are going to be in there bidding and the last thing they want is to make upfront payments and have their money tied up for a long time and then find out that something has happened,” the attorney said. “It makes people nervous. Its unfortunate the auction has to go forward under that cloud.”
“You never know,” a 2nd regulatory attorney said. “You have to think the court wouldn’t unwind the auction, but you never know.” A 3rd regulatory attorney said: “Before NextWave, I would have said the court is well aware of how big of deal this is to have an auction. They wouldn’t let one go forward [and then unwind it]… I have to assume they did a thoughtful job on this. I would have to say that [the FCC is] in pretty good shape.”
Other regulatory attorneys told us that while uncertainty is inevitable, they doubt the 3rd Circuit would follow the Supreme Court’s example and overturn the auction. “If the court found the FCC violated their own rules somehow and didn’t follow all of the procedural niceties, they could undo the auction results. That’s what the Supreme Court did with NextWave,” a carrier source said: “The carriers are feeling quite confident about the fact that the 3rd Circuit is not going to intervene or overturn or change the FCC’s rules… The fact that the 3rd Circuit was briefed, had oral argument on the issues and ruled the next day provides a pretty good comfort factor here.”
“If the court felt that there was a likelihood that these guys were going to prevail on the merits they would have granted the stay,” said an attorney who represents bidders in the auction: “I believe that circuit basically issued that ruling on the merits of the case.” The attorney said courts usually give the FCC wide latitude in making the case that the agency provided adequate notice on rule changes: “That’s the law. I hate the law on retroactivity but I lose every time I fight it.”
The attorneys also said there are significant differences between the Council Tree case and the NextWave case. “NextWave was a pretty pure legal issue in which you were stacking up the bankruptcy laws against the Communications Act and figuring out which one trumped the other,” said an attorney who represents DEs: “The decision had consequences that went beyond just the telecom field and went to the core of what the stay of bankruptcy means, etc. The issue that has been flagged by the 3rd Circuit on this one really is an internal, procedural issue.”
“The big question in NextWave was whether the FCC had a right to auction those licenses,” a 2nd attorney said: “The question here is whether the FCC improperly changed its rules.”