Wireless Spectrum Auctions

FCC voted 3-1 at Thurs. meeting to repeal wireless spectrum cap Jan. 1, 2003, and raise it to 55 MHz in all markets during transition period. Comr. Copps delivered impassioned dissent, arguing that “in almost every market in the country, companies have not reached the cap.” Both Bush Administration and CTIA had urged Commission not to implement transition period but to remove restrictions immediately. But FCC said “orderly” transition is needed to allow it to consider what guidelines are required to move from bright- line approach of cap to case-by-case review of wireless license transfers. To assure FCC that Justice Dept. will continue to review such mergers for anticompetitive behavior on case-by-case basis, Asst. Attorney Gen. for Antitrust Charles James wrote to Chmn. Powell Wed.: “The department will continue to safeguard competition through its enforcement activities in the industry and does not believe removal of the spectrum cap rules will diminish its ability to do so.” FCC also eliminated cellular cross-interest rule in urban markets, but kept restriction in place for rural service areas. Spectrum cap has been 45 MHz, except in rural areas, where FCC raised it to 55 MHz in 1999. Interim period raises it to 55 MHz everywhere.

With FCC vote on wireless spectrum cap set for today (Thurs.), Commission has seen flurry of ex parte filings, including letter from Senate Commerce Committee Chmn. Hollings (D-S.C.) urging that 45 MHz ceiling be retained. “Since none of the current license holders are using all of the spectrum they already possess, we see no pressing need to make changes to the spectrum cap,” said letter to FCC Chmn. Powell Tues. from Hollings, Sen. Inouye (D-Hawaii) and Rep. Markey (D-Mass.). “Relaxation or elimination of the cap is likely to encourage unnecessary consolidation, relieve pressure on companies to innovate and pose a significant risk to consumers in the form of higher prices and fewer choices. This is the very result the cap was put in place to avoid.” Letter from Democrats appeared to be only public dissent from Capitol Hill on issue this year. FCC is expected to approve lifting cap to 55 MHz for 12-18 months, after which it would sunset completely.

FCC Chmn. Powell’s response to criticism of Commission’s Ch. 60-69 spectrum clearing order correctly places problems with DTV transition on shoulders of Congress, said Norman Ornstein and Michael Calabrese, of American Enterprise Institute and New America Foundation, respectively. However, they reiterated their concerns that FCC’s decision (CD Sept 18 p2) to allow “voluntary band-clearing arrangements” between broadcasters and wireless companies “amounts to one of the most expensive and unjustifiable grants of corporate welfare in our nation’s history.” Powell recently sent reply letter to Senate Commerce Committee Chmn. Hollings (D-S.C.), who last month (CD Oct 18 p5) expressed outrage that FCC order would enable private sector to negotiate terms of and profit from spectrum sales. Ornstein and Calabrese said “as Senator Hollings suggests, allowing self-interested private parties to determine the public’s share of the revenue from a public asset appears inconsistent with the FCC’s fiduciary role as the public trustee of the airwaves.” They said Commission’s order “ignores alternatives” such as: (1) Imposition of “squatter’s fee” on broadcasters that failed to return analog spectrum on time, measure that had been recommended by former FCC Chmn. William Kennard. (2) Imposition of “hard deadline” on broadcasters, as suggested by House Commerce Committee Chmn. Tauzin (R-La.). (3) Earmark auction revenue “to subsidize digital tuners or converter boxes for citizens who [in 2006] still rely on over-the-air signals.”

House Speaker Hastert (R-Ill.) expects to move broadband legislation by year-end, but it will remain separate from any economic stimulus package that reaches House floor, aide Timothy Kurth said Tues. at Schwab Capital Markets conference in Washington. Kurth said bill (HR-1542) by House Commerce Committee Chmn. Tauzin (R-La.) and ranking Democrat Dingell (Mich.) was seen by Hastert as legislative vehicle to spur broadband deployment, particularly since it already had been approved at the committee level: “My boss is looking at completing action on this by the end of the year.” He declined to comment on possible movement of Tauzin-Dingell or other deregulatory measures in the Senate, where opponents such as Senate Commerce Chmn. Hollings (D-S.C.) not only have vowed to block such legislation, but have introduced bills that would bolster regulation of Bell companies and increase fines for noncompliance.

Space Data was high bidder on more than 1.4 MHz of national narrowband PCS spectrum in FCC auction of 900 MHz band. Space Data said it would pay $4.2 million for licenses after small business and tribal bidding credits were taken into account. “This is an extraordinary value,” Chmn. Jerry Knoblach said: “In 1994, at the first FCC narrowband PCS auction, this much spectrum would have cost more than $1.1 billion.” Space Data said it planned to use spectrum to deploy technology that used weather balloons combined with communications technology to provide broadband services to rural areas. Company said it planned to operate mostly as carrier’s carrier by serving existing wireless providers, allowing them to extend reach of their networks without cost of building towers or turning to satellites. FCC Wireless Bureau had approved company’s balloon-based technology in Sept. When Commission approves its license applications, Space Data said it will hold licenses that cover 1.5 MHz of nationwide spectrum. It said it had patents pending for its “unique technology.” Company indicated it already had raised private funding to develop its technology and finance its spectrum acquisitions and now planned to arrange institutional financing to roll out its network. Space Data also said that Jicarilla Apache Nation in N.M. had adopted resolution that required that company receive bidding credits under FCC’s auction program.

Administration has ironed out proposed legislation that would reinforce terms of pending NextWave settlement agreement, on PCS licenses expected to be announced in matter of days. Draft of legislative language obtained by Communications Daily outlines proposed terms of pending agreement, including timing in which NextWave would receive $9.55 billion by Dec. 31, 2002. At that time, it immediately would pay $3.05 billion in federal taxes. Draft lays out payment road map in which govt. would be paid before NextWave, although carriers could pay after June 30, 2002, following FCC completion of all regulatory steps needed to award licenses. Draft appears designed to address concerns raised by Sen. McCain (R-Ariz.) last week on risk that settlement funds would be paid out by govt. before full agreement was final. Draft bill describes in detail how federal courts would be directed to handle any legal challenges involving disputed spectrum on expedited basis. Under settlement, govt. would be paid $10 billion and NextWave $6 billion, not counting all of its tax obligations (CD Oct 29 p1).

National Telephone Co-op Assn.’s (NTCA) survey on spectrum problems in rural areas (CD Oct 31 p6) indicates need to reform auction process, Rural Telecom Group (RTG) said. “The Commission needs to create smaller geographic license areas and mandate that carriers actually serve areas that they purchase in a timely manner,” RTG said. “It speaks volumes when 77% of surveyed companies do not plan to participate in upcoming auctions,” it said. Rural telcos’ “reticence to compete for spectrum has nothing to do with the demand for wireless services in these communities or the companies’ willingness to make infrastructure investments,” group said: “It has everything to do with an auction process that favors regional and national bidders at the expense of service to rural communities.”

FCC auction policies deter deployment of wireless service in rural areas, according to survey issued Tues. by National Telephone Co-op Assn. (NTCA). NTCA Regulatory Counsel Jill Canfield said survey “didn’t tell us anything we didn’t expect” and would be used to buttress group’s arguments. “It’s not the Telecom Act, but the implementation of the Act by the FCC,” NTCA Pres. Michael Brunner said. Telecom Act requires FCC to provide rural telcos with “meaningful opportunities” to participate in spectrum auctions and Commission isn’t complying with that mandate, he said. Survey was completed by 49% of NTCA’s members and 77% percent of respondents said they wouldn’t participate in any auctions in future because of high cost of spectrum, inability to compete with large carriers, inability to obtain license for limited geographic areas they wanted to cover. Only 1/3 of those that had tried partitioning were successful, survey said. Partitioning involves splitting off part of one company’s service area or splitting off portion of spectrum for another company’ use. Canfield said several Commission policies hurt rural companies: (1) It auctions large geographic blocks that include rural and urban areas. (2) Such auctions attract large companies with lot of money, so bidding credits do little to soften blow to small telcos. (3) “Lenient build-out rules” enable large carriers to hold onto spectrum in rural areas without using it in hope of seeing its value increase. FCC should consider smaller service areas, possible alternatives to auction process for rural telcos, seeking other incentives specifically for rural America, she said. One example of FCC’s lack of understanding of rural telephony, she said, is treatment of income earned by directors of rural co-ops in determining eligibility for bidding credits. Unlike regular companies, co-op directors have outside jobs, often as farmers. Because owning their own farm can cause directors’ income to be too high under FCC rules, co-ops are disqualified for credits, she said. Spectrum leasing may prove useful although, like partitioning, it involves dealing with larger companies in secondary markets, which adds uncertainty, NTCA officials said.

Cingular Wireless urged FCC last week to reallocate 2 GHz mobile satellite services (MSS) spectrum for advanced wireless services. “The 70 MHz of spectrum allocated for 2 GHz MSS should be reallocated because, by an applicant’s own admission, the industry is not economically viable,” Cingular said in comments to FCC on further notice of proposed rulemaking covering additional frequency bands for 3G. Cingular asked that agency “immediately allocate” at least 160 MHz of additional spectrum below 3 GHz to meet broadband spectrum needs for advanced wireless services, in line with recommendations of World Radio Conference (WRC) 2000. Cingular said: “Internationally, the United States has taken the position that large contiguous blocks of spectrum should be considered for advanced wireless services.” Blocks identified at WRC-2000 by U.S. as candidate bands for advanced wireless services “are no longer being considered for these services domestically,” Cingular said. Carrier urged FCC to consider blocks of spectrum that would be harmonized as much as possible with ITU recommendations. It said that at last WRC, U.S. had largely won support for its position on multiband approach for 3G, including 1710-1850 MHz and 2500-2690 MHz. Based on results of WRC, “Cingular expected that a substantial portion of these frequencies would be reallocated for these services.” Since then, Commission has moved 2500-2690 MHz occupied by MMDS and Instructional TV Fixed Service licensees off table for relocation for 3G. NTIA also has announced that 1770-1850 MHz, used mostly by military systems, “would not be used for such services,” Cingular said. That means that out of 365 MHz identified by U.S. for advanced wireless services, all but 60 MHz have been taken out of running for 3G, Cingular said. Carrier noted CTIA has urged Commission to reallocate MSS band for terrestrial wireless use. FCC should adopt core principles, according to Cingular, including: (1) Elimination of spectrum cap. (2) Decision that spectrum should be cleared by “date certain” for advanced wireless services. (3) Extension of relocation procedures adopted in emerging technology docket to all spectrum clearing. (4) Creation of “clear title” before allowing auction of reallocated spectrum. “The Commission should address the apparent inconsistency between the international recognition that at least 200 MHz of spectrum will be necessary to adequately address advanced wireless needs in the United States and its proposals to allocate only slivers of spectrum spread across numerous bands on a piecemeal basis,” Cingular said.

Agreement in principle appeared to have been reached late Fri. on NextWave’s PCS licenses after thorny issues of payment schedules and guarantees to govt. seemed to have been reconciled. Negotiators have been closing in during last several weeks on nearly $16 billion deal over disputed spectrum, although industry observers repeatedly have cautioned that details were complicated and several factors could spoil final accord. Source said agreement in principle was expected to lead to work over last weekend on legal documents setting out terms and draft legislation that would secure deal. Under tentative settlement shaping up late Fri., 2 or more large carriers would provide govt. with bank letters of credit in Jan. for total amount that govt. would be obligated to pay NextWave. At that point, govt. would return to carriers 50% of down payments they made in Jan. re- auction of NextWave’s PCS licenses, source said. Then, in May-June time frame, carriers would pay govt. in full for licenses, minus portion of down payments that govt. already had, source said. NextWave would receive payment shortly thereafter, source said. Condition of settlement would be enactment of legislation that would back up its provisions, source said. As final details were in works, Sen. McCain (R- Ariz.) wrote to Senate leadership to voice concerns about budget implications of potential deal.