Wireless Spectrum Auctions

Commerce Secy. Donald Evans told FCC Chmn. Powell that with “additional time” NTIA should work with Commission to develop “a new plan for the selection of 3G spectrum.” Evans wrote: “The aim will be to build upon the good work already done and to develop and execute the new plan as quickly as possible.” Evans said he was asking that the work be done in coordination with other Executive Branch agencies, including National Security Council, National Economic Council (NEC), Office of Management & Budget, Defense Dept. Evans said in letter that he was urging participants to consider ways to “achieve flexibility” on statutory auction dates if flexibility was needed to implement plan. Letter appeared to be response to Powell letter last month outlining Commission’s plans to delay spectrum allocation decision for 3G that had been due this month under timeline set in White House executive memorandum last fall (CD June 28 p4).

Broadband deployment and swift resolution of NextWave spectrum issue were top agenda items Thurs. in discussions between Verizon Co-CEO Ivan Seidenberg and members of Congress, he told us in interview. Seidenberg said he was working Senate side of Hill to drum up support for broadband deregulation, which he said “has got to be the number one issue for our company.” He also said he would urge Congress “to show leadership” in NextWave case: “The government has to settle this thing… Make a business decision, move on and get the spectrum into the hands of the public.” With both Congress and FCC involved, it ought to be possible to “figure out a strategy,” he said.

Citing foreign ownership and designated entity status, Alaska Native Wireless, VoiceStream and Verizon Wireless have challenged eligibility of NextWave to receive PCS licenses returned last month by U.S. Appeals Court, D.C. Carriers filed petition at FCC Thurs. challenging C- and F-block license cancellation that Appeals Court had overturned. Petition said D.C. Circuit addressed only Sec. 525 of U.S. Bankruptcy Code, meaning it covered only FCC’s cancellation of NextWave’s licenses because of failure to make payments on them. “Nothing in the court’s decision precludes the Commission from determining not to reinstate NextWave’s licenses on grounds in combination with, in addition to or unrelated to, its failure to make timely installment payments,” petition said. Carriers challenging eligibility all were successful bidders in Jan. re-auction of C- block licenses, most of which had belonged to NextWave. Largest U.S. carrier Verizon was largest bidder, winning $8.8 billion in spectrum. Carriers called on FCC to “conduct an investigation and audit” on NextWave’s eligibility as part of license remand ordered by D.C. Circuit. They also want public comment on their petition and issues uncovered by audit.

Satellite industry considers itself big winner, for now, in FCC 2 GHz band order that licensed 8 MSS operators in spectrum coveted by cellular industry and New ICO for terrestrial use (CD July 18 p11). However, most agree Commission delay in deciding more-complex issue of how terrestrial and satellite companies might use spectrum still is “battle that must be fought,” satellite attorney said. Each of geostationary and nongeostationary systems will be authorized to operate in equal 3.5 MHz segments in 1990-2025 MHz and 2165-2200 MHz. Bureau said it was delaying full implementation of 2 GHz MSS licensing order with regard to an incremental 0.38 megahertz of spectrum per licensee in each band until it resolved various pending proposals. Remaining spectrum may be auctioned or given to cellular companies in future rulemaking, which industry observers believe could come in companion order with 3G spectrum allocation. Meanwhile, CTIA Pres. Tom Wheeler applauded FCC’s decision to not act, for now, on request by New ICO to develop terrestrial spectrum using bands allocated to MSS.

For 5th time, FCC Wireless Bureau postponed Sept. 12 auction of Ch. 60-69 spectrum in 700 MHz band Wed., but it said wouldn’t set new date until Commission acted on pending petitions for reconsideration. Auction delay covers 747-762 MHz and 777-792 MHz bands now occupied by analog broadcasters that don’t have to vacate band until 2006 or DTV penetration rate reaches 85%. Indefinite postponement marks first such delay under tenure of FCC Chmn. Powell. Way for delay was cleared in congressional budget resolution this year that addressed Bush Administration proposals for auction delays. Action came as industry and FCC officials increasingly acknowledged difficulty of clearing broadcasters from band by 2006.

Bush Administration is expected shortly to put forward delay in auction of 3rd generation wireless spectrum, Rep. Pickering (R- Miss.) told reporters Tues. Delay proposal, which has been backed by CTIA, wouldn’t affect other auction deadlines and would serve as “moratorium” to allow framework to be put in place to tackle issues on advanced wireless allocations, he said after Toffler Assoc. panel on spectrum allocation. FCC faces statutory deadline for putting proceeds from 3G auction into U.S. Treasury by Sept. 30, 2002. In June, FCC Chmn. Powell wrote to Commerce Secy. Donald Evans that more time was needed beyond July target date to make 3G spectrum allocation decision. House Commerce Committee hearing is planned in 2 weeks that will invite govt. policymakers on 3G, including top brass from Commerce, FCC, Defense Dept., NTIA. “We want to have all the stakeholders,” Pickering said. Meanwhile, DoD Acting Dir.-Spectrum Analysis & Management Rebecca Cowen-Hirscht repeated Pentagon’s continued hard line on relocation of military incumbents at 1.7 GHz, telling panel that more than money was needed to solve 3G problem.

NextWave CEO Allen Salmasi reiterated Fri. company’s plan to build out 3rd generation wireless network that would be carrier’s carrier, catering to mobile virtual network operators (MVNOs). While MVNOs have had success in Europe, with companies such as Virgin Mobile leasing network capacity to sell wireless products under their own brand, they haven’t taken off in U.S. yet. Salmasi said pent-up demand by companies interested in starting virtual wireless networks that hadn’t been able to cut deals with incumbents had generated “huge” interest in NextWave’s network buildout, which he said was expected to complete first phase within ambitious timeline of one year. “I can’t tell you how huge it is,” Salmasi said of interest expressed to NextWave so far from potential MVNO partners. Referring to European MVNOs, “you can assume that we are talking to every one of those brands,” Salmasi told us in interview Fri. These companies are “really trying to find a way to get into the U.S. and are willing to go out of the way to make equity investments,” he said.

Top Senate Democrats, including Majority Leader Daschle (D- N.D.) urged President Bush Mon. not to allow “unnecessary delays” in opening “at least some” of 1755-1850 MHz band for commercial users eager for 3rd generation wireless spectrum. “In recent years, Congress has mandated safeguards to ensure that DoD does not surrender frequencies in such a way as to compromise its mission capabilities,” said letter written by 7 Senate Democrats. “But executive agencies must take the initiative to drive the process forward.” Senators didn’t criticize recent FCC action to delay decision on which spectrum bands should be allocated for advanced wireless uses beyond July 2001 deadline set out in executive order by then President Clinton last Oct. “While this schedule may no longer be realistic, the Administration should move forward as rapidly as possible.”

U.S. Supreme Court Fri. turned down FCC request to review 5th U.S. Appeals Court, New Orleans, decision that sided with C-block bidder General Wireless Inc. (GWI) on $166 million valuation of its licenses, just fraction of its original auction bid. After D.C. Circuit decision overturning $17 billion PCS auction results in NextWave case (CD June 25 p1), industry has been closely watching whether high court would agree to review GWI case because some -- but not all -- of same issues were at stake involving valuation of original C-block licenses by bidder that later entered bankruptcy. Supreme Court’s decision lets stand 5th Circuit ruling that sided with bankruptcy court valuation of GWI’s licenses at $166 million, versus $1.06 billion that carrier had bid in 1996. Unlike NextWave case, GWI’s 14 PCS licenses weren’t part of FCC re-auction late last year of C- and F-block licenses reclaimed from bankrupt bidders. Fifth Circuit ruling in Oct. didn’t come to all of same conclusions as 2nd Circuit in NextWave case. Specifically, 5th Circuit differed from 2nd Circuit conclusion that courts should defer to FCC’s interpretation of its regulations when payment obligations of winning bidders arose. FCC had said that obligation came up on date that auction closed. GWI contended bankruptcy court was correct in fixing later date of Jan. 27, 1997, as point when those obligations kicked in because that was when Commission actually transferred licenses. At point when licenses were transferred, bankruptcy court ruled they had dropped in value to $166 million, versus original bid by Dallas- based GWI, which now does business as Metro PCS. In GWI case, bankruptcy court prevented Commission from cancelling licenses. Brief filed with Supreme Court by U.S. Solicitor Gen. contended 5th Circuit’s ruling, which allowed bankruptcy courts to offer relief that FCC had chosen not to do as regulator, would create incentives that Commission had tried to avoid. Solicitor Gen. argued that reducing payments could foster speculative bidding in future auctions because bidders could hang on to spectrum even if financing didn’t work out. Not surprisingly, Metro PCS contended that FCC was responsible for company’s tough financial straits in first place by delaying issuing licenses. U.S. Supreme Court’s decision to not grant certiorari in GWI case came as FCC was debating options in NextWave case, in which D.C. Circuit said Commission had violated bankruptcy law when cancelling NextWave’s licenses for missed payment -- ruling that reversed agency and returned licenses to NextWave. FCC must decide whether to seek review before full D.C. Circuit or by Supreme Court. “If the High Court had taken the GWI case, that would have increased the FCC’s prospects for gaining a hearing of the D.C. Circuit decision on NextWave,” said research note issued Fri. by Legg Mason. “One of the questions about the NextWave case is whether the Supreme Court would consider the spectrum-bankruptcy issues serious enough to warrant review. The denial hints at, but does not provide, an answer to that question.”

FCC plans to delay decision, due next month, on which spectrum bands should be allocated for 3-G use, FCC Chmn. Powell said in letter sent late Tues. to Commerce Secy. Donald Evans. FCC is working on spectrum allocation effort in coordination with Commerce’s NTIA. Under Executive Order issued last year by President Bill Clinton, FCC was scheduled to identify spectrum by July and auction licenses by Sept. 30, 2002. Powell told Evans that “as July draws near… it is apparent that additional time is necessary to allow the Commission and the Executive Branch to complete a careful and complete evaluation of the various possible options for making additional spectrum available for advanced wireless services.” Powell also made pitch for delaying auction as well, saying “relief from this deadline would allow all of the governmental entities responsible for U.S. spectrum management to have adequate time to develop a plan to make spectrum available for advanced wireless services in the future.” He told Evans that “the Administration’s support for flexibility on the auction dates would be appreciated.” CTIA Pres. Thomas Wheeler said Powell “made the right decision in delaying the allocation of spectrum in the 1710-1755 and 2110-2150 bands.” He said Powell’s “bold leadership will benefit U.S. consumers, the wireless industry and the U.S. economy by allowing those bands to be incorporated into a larger, long-term spectrum management policy.”