Wireless Spectrum Auctions

Nextel criticized a waiver request by NextWave and Cingular that it said would enable Cingular to abandon obligations to pay nearly $170 million in interest on C- and F-block PCS licenses. The U.S. Bankruptcy Court, White Plains, N.Y., last month approved a $1.4 billion deal in which Cingular is buying 34 PCS licenses from NextWave. The deal leaves NextWave with a national spectrum footprint and the FCC receives $714 million. But Nextel said in a filing Wed. that under the Commission’s unjust enrichment rules, which set requirements for designated entities (DEs) that sell spectrum, Cingular couldn’t be assigned the licenses until the FCC was paid in full, including unpaid principal and all unpaid accrued interest. Nextel said that would raise the total to $884 million, including $687 million in outstanding principal and $197 million in unpaid accrued interest. “The Commission should deny this waiver request,” Nextel said. “The waiver request also flies in the face of statements by Cingular’s owners -- SBC and BellSouth -- that strenuously opposed proposals in a 1997 Commission proceeding that would have reduced the debt owed on C-block licenses.” Last month, Cingular and NextWave filed applications with the FCC to assign licenses as part of the proposed deal. The applications included a request that the agency waive parts of its unjust enrichment rules, which require DEs to pay penalties if they sell a license to a non-DE during a restricted period to compensate for advantages such as bidding credits or installment payment plans (CD Oct 1 p1). “Granting Cingular -- the second largest wireless carrier and clearly not a small business -- a waiver of these rules would do great harm to the integrity of the FCC’s auction process,” Nextel said. It urged the FCC to turn down the waiver request and condition the license transfers on Cingular’s paying the higher amount that Nextel contends is due. Nextel also said the agency should probe whether Cingular had the “requisite character qualifications” to hold the designated licenses. “As the Commission staff has recognized, in 2001 Cingular failed to cooperate in remediating serious interference caused by its operations to a public safety system,” Nextel said: “This egregious failure to address potentially life-threatening interference raises serious issues that warrant further Commission investigation.” It cited Cingular’s “failure to cooperate” in resolving interference to public safety systems in Anne Arundel County, Md., in 2002. As for what Nextel characterized as interest payments that Cingular would owe, it said rates of 6.25% to 6.5% applied to NextWave’s installment payments for the C- and F-block licenses it acquired in 1996 and 1997. Separately, Eldorado Communications and NY Telecom filed a petition asking the FCC to deny the licenses NextWave is selling to Cingular. It urged the agency to “expand the scope of this proceeding” to allow for public comment. Eldorado and NY Telecom have raised similar concerns in the past at the Commission on the transparency of proceedings involving NextWave’s licenses, including a settlement agreement among large wireless carriers, NextWave and the FCC that ultimately died. If the license transfer applications are granted, the filing said, “NextWave will walk away with more than $700 million as a result of assigning licenses originally set aside for small entities like Eldorado to one of the largest wireless carriers in the country.” A Cingular spokesman said the carrier was reviewing Nextel’s filing late Thurs. “On initial review, however, Nextel’s comments are totally without merit and appear to be motivated by Nextel’s unhappiness with Cingular’s objection to Nextel’s attempt to obtain spectrum for free through its spectrum swap scheme,” he said, citing the “consensus plan” backed by Nextel for alleviating public safety interference at 800 MHz.

Among the issues with which federal spectrum users are grappling as part of an interagency task force is whether there should be some form of Executive Branch oversight when differences arise on thorny policy issues, acting NTIA Dir. Michael Gallagher said Wed. President Bush in June created a task force to recommend how to stimulate more efficient spectrum use by federal customers. The next step the Bush directive set, which involves private sector input, will begin shortly and use the FCC’s Spectrum Policy Task Force report as a starting point, Gallagher told us.

Legg Mason said in a note to investors Mon. that FCC staffers appeared to be studying a compromise in the 800 MHz proceeding that was examining ways to mitigate interference to public safety users in the band. The firm said the plan under consideration at the agency could give Nextel less than the 10 MHz of spectrum at 1.9 GHz it had sought as part of a “consensus plan” devised by Nextel, public safety groups and some private wireless carriers. One possibility is that Nextel would get 4 or 6 MHz instead, perhaps at 1.9 GHz or maybe elsewhere, Legg Mason said. “In addition to giving Nextel less than the 10 MHz of spectrum that it seeks in the 1.9 GHz band, we believe the Commission is likely to require Nextel to increase its commitment to fund the relocation of public safety and private wireless operators in the 800 MHz band, either by placing a larger amount of money in escrow early on or agreeing to fund additional costs if necessary, or both,” it said. While cautioning that the proceeding still was being finalized, Legg Mason said the “latest staff leanings” would be good news for Nextel and the company probably would accept such a compromise. Nextel had said it submitted its plan to the FCC as a whole package, including the funding portion, but officials in recent weeks haven’t said how they would react if the FCC were to give them something less than what they wanted. One complicating factor for the FCC is that if it were to give Nextel up to 6 MHz at 1.9 GHz as part of a swap arrangement, “this may foreclose auctioning off the so-called G-band, which the wireless industry has sought to supplement its PCS services. This may mean that the FCC will look elsewhere for replacement spectrum for Nextel,” Legg Mason said.

The wireless lobby is pushing for a Senate amendment that would delay local number portability (LNP) past Christmas, the Consumers Union (CU) charged. It said the wireless industry was trying to include an amendment to the Senate Commerce Justice State (CJS) appropriations bill (S- 1585) that would delay the implementation of LNP for 60 days past the current Nov. 24 deadline. “This move is particularly disingenuous for the companies who have publicly told their customers they are prepared for November 24th while they are privately negotiating eleventh-hour deals to stave off competition,” CU CEO James Guest said: “Our question is simple: What are they afraid of? Competition?” CU said the amendment was an attempt to lock in customers to long-term contracts during the busy holiday season. However, it remained unclear whether the CJS bill would make it to the floor as a stand-alone bill. The Senate has several appropriations bills yet to consider and CJS has several controversial communications amendments already, including the 35% broadcast ownership cap and giving Multichannel Video Distribution & Data Services (MVDDS) access to spectrum without going through the FCC’s auction process (the so- called “Northpoint Amendment"). But Senate Commerce Committee Chmn. McCain (R-Ariz.) has dropped a hold on the bill, clearing it for the floor at any time. It still was unclear whether CJS would have to be wrapped into an omnibus appropriations bill, which sources said could be more difficult to amend. On Tues., several senators wrote the FCC praising the implementation of LNP requirements, but also expressing concern that the Commission hadn’t given proper guidance on wireline-wireless porting issues (CD Oct 29 p8).

The FCC voted at its agenda meeting Thurs. to allow use of spectrum in the 71-76 GHz, 81-86 GHz and 92-95 GHz bands for commercial services such as high-speed, point-to-point wireless local area networks (LANs) and broadband Internet access. Those spectrum blocks, now used mainly for govt. and scientific purposes, are “well-suited for licensees to offer a broad range of innovative products and services,” the agency said.

The FCC issued rules Thurs. for the 1710-1755 MHz and 2110-2155 MHz spectrum bands, which it determined in Nov. 2002 could be used to offer an array of 3G services, including wireless broadband Internet access. The new rules include provisions for application procedures, licensing, technical operations and competitive bidding. “What we have done in the order is build a creative framework, so we will try to maximize the flexibility available to licensees in these bands,” FCC Wireless Bureau Chief John Muleta said. The FCC said the spectrum would be licensed by geographic areas under the Commission’s flexible, market-oriented Part 27 rules, and would be assigned by competitive bidding.

GENEVA -- Although some European wireless carriers still are recovering from the hangover of 3G auctions that cost close to $100 billion, the message of operators and regulators at the ITU Telecom World 2003 show here is that full-blown next-generation services still are coming, just more slowly than expected.

FCC Chmn. Powell told House appropriators the Commission wouldn’t support the so-called “Northpoint” amendment that had been added to 2 separate Senate bills. In an Oct. 7 letter to House Commerce Justice State (CJS) Appropriations Subcommittee Chmn. Wolf (R-Va.), Powell said the amendment wasn’t in the public interest. The amendment to S-1585, the Senate CJS appropriations bill, would allow Multichannel Video Distribution & Data Services (MVDDS) to share a portion of the 12.2-12.7 GHz band without going to auction. It was added by Sen. Landrieu (D-La.) with the support of Sen. Hutchinson (R-Tex.). Northpoint is widely viewed as the MVDDS company that would most benefit from the provision. Another company, MDS America, also could provide service in that portion of the spectrum. The letter doesn’t mention any company by name. Critics of the amendment, which include House Commerce Committee Chmn. Tauzin (R-La.), Senate Commerce Committee Chmn. McCain (R-Ariz.) and Senate Commerce Committee ranking Democrat Hollings (D-S.C.), said it was tantamount to a $100 million “giveaway.” Powell said the amendment would prohibit the Commission from utilizing competitive bidding to assign spectrum and deprive “taxpayers of the revenue they would receive if auctioned instead.” He said auctioning had been a proved method to determine which party would use the spectrum most effectively. Powell said an MVDDS proceeding showed many parties were interested in providing services in the band, particularly video and broadband services. “Instead of securing the maximum value of this spectrum for the American public, Congress would potentially hand over this valuable public resource in what could amount to a potential multimillion-dollar government- created giveaway,” Powell said. “Moreover, it would be a course that is facially and wholly inconsistent with the wireless communications policy that has governed the last decade of unprecedented wireless growth, innovation, and competition for consumers.” Powell said it was not common for the Commission to take a position on legislation, but said Wolf had solicited his opinion in an Oct. 2 letter. Powell also said if Congress adopted the amendment, the FCC would “faithfully implement” it. The House CJS appropriations bill has no such amendment. And while it’s in the Senate CJS bill, that measure isn’t expected to move to the floor until it’s wrapped up into an omnibus appropriations bill, since McCain has a hold on the spending measure. A similar controversial amendment was added to the Spectrum Relocation Trust Fund bill (HR-1320), which has passed the House. The amendment was added by Sen. Sununu (R- N.H.) during the Senate Commerce Committee markup of the House bill. Northpoint Chmn. Sophia Collier said Northpoint would compete with satellite companies that received spectrum without auction. “The Sununu-Landrieu-Hutchinson amendment simply establishes licensing parity between satellite and terrestrial services and gives start-up companies the same benefits the FCC now gives to the satellite industry giants,” Collier said. “Customers are losing hundreds of millions of dollars a month because of lack of competition in cable and DBS services and we believe it is time for the FCC to try the new approach embodied in this legislation.”

The FCC at its agenda meeting Oct. 16 will consider universal service action in response to a remand by the 10th U.S. Appeals Court, Denver. The court had remanded the FCC’s 9th universal service order, which had set the mechanism for determining how much federal universal service support would go to larger ILECs. The court ruled in Qwest v. FCC that the order didn’t adequately define and apply the Telecom Act’s requirements that rates in rural areas be “reasonably comparable” with urban areas and that support should be “sufficient.” It also faulted the FCC for not properly explaining its reasoning for setting funding benchmark at 135% of the national average. The agency also will consider: (1) Allocation, band plan and service rules in the 71-76 GHz, 81-86 GHz and 92-95 GHz bands. (2) Licensing, technical and competitive bidding rules for spectrum at 1710-1755 MHz and 2110-2155 MHz allocated for advanced wireless services. (3) Applications submitted by commercial TV stations seeking extensions of the May 1, 2002 deadline for construction of digital TV facilities. (4) An order on DBS auction issues. It said in June it still was looking at whether DBS spectrum was subject to the ORBIT Act’s auction prohibition and whether eligibility restrictions should be adopted for the licenses (CD June 13 p11).

Cingular and NextWave filed applications with the FCC to assign licenses as part of a $1.4 billion proposed deal in which Cingular is buying spectrum from NextWave in 34 markets. The applications include a request that the FCC waive parts of its “unjust enrichment rules,” which require designated entities (DEs) to pay penalties if they sell a license to a non-DE during a restricted period to compensate for advantages such as bidding credits or installment payment plans. The U.S. Bankruptcy Court last week approved Cingular’s acquisition of 10 MHz of PCS spectrum in 32 markets and 20 MHz licenses in Tampa and El Paso. The companies filed 14 applications Fri. “Due to a complex set of circumstances, spectrum licensed to NextWave has not been used to deliver widespread commercial wireless communications to the public,” the applications said. “The proposed transaction will enable a portion of that spectrum to be put into immediate commercial use to benefit wireless consumers.” The companies said the transaction raised “no competitive concerns” for the FCC. It would cover the assignment by NextWave of all its interests in 10 or 20 MHz of spectrum to be disaggregated from 20 C-block PCS licenses and fourteen 10 MHz F-block licenses. The filings said the Justice Dept. had approved a term sheet allowed by the bankruptcy court, under which Cingular would pay the FCC $714 million for the licenses involved. Repayment terms for the rest of NextWave’s spectrum still must be worked out with the govt. The companies told the FCC the proposed deal would advance the public interest by: (1) Allowing spectrum that had been tied up in litigation for more than 5 years to be put into general commercial use. (2) Expanding the national footprint of Cingular by adding markets in which the carrier currently had no spectrum. (3) Allowing Cingular to expand network capacity in markets where it offered service. The companies’ applications cited unjust enrichment rules that applied to disaggregation of PCS spectrum. The unpaid principal associated with the licenses in this deal is about $687 million, they said. The term sheet spells out that in agreeing to accept the direct payment of $714 million, NextWave and the FCC relinquish all claims on the licenses. The filings said the govt. was agreeing to an amount that might differ from the sum it would otherwise receive under unjust enrichment rules “in less unique circumstances.” The payment to the FCC represents an amount greater than the aggregate unpaid balance of the original amounts NextWave bid for the spectrum, the filings said. The term sheet payment also “avoids the uncertainties” in having the claims related to those portions of the licenses resolved through bankruptcy proceedings, the companies said. As a result, partial waivers of unjust enrichment payment rules are justified, they said. They said “rigid application” of the unjust enrichment rules would prevent “rapid deployment” of services to the public over the spectrum covered by the designated licenses. Bidding credits weren’t an issue for most of the C-block licenses covered under this deal because the FCC hadn’t used bidding credits in the original C-block auctions, which were restricted to DE bidders.