Wireless Spectrum Auctions

Citing downturn in financial markets, wireless developer ArrayCom asked FCC to postpone auction of one license in 1670-1675 MHz band, now set to start Sept. 25. ArrayCom, in letter to FCC Wireless Bureau Chief Thomas Sugrue Fri., asked for 6-month delay of bidding -- until April 30. Bureau asked for comments Mon. on request, with Sept. 20 deadline. “ArrayCom contends that a postponement is needed because circumstances in the financial markets have made it difficult for telecommunications companies to raise the capital necessary to compete in the auction,” bureau said. ArrayCom said 6-month delay would enable companies wanting to bid for one 5 MHz license in that band to address their capital shortage before auction started. FCC adopted order earlier this year that implemented new service rules covering total of 27 MHz in 7 separate bands that had been reallocated from govt. to nongovt. use, including 5 MHz at 1670 MHz ArrayCom cited. ArrayCom, which develops technology that uses time division duplexing, had expressed interest in spectrum at 1670 MHz for use by TDD.

Citing depressed capital markets for wireless carriers, FCC Thurs. floated alternatives for allowing NextWave re- auction bidders that now face potential payment obligations of $16 billion to opt out of all or part of payment commitments. Public notice said that even since Commission in March issued refund of all but 15% of down payments to Jan. 2001 re-auction winners, economic outlook for sector “has continued to decline rapidly.” Move comes just weeks before U.S. Supreme Court is to hear oral argument in FCC challenge to U.S. Appeals Court, D.C., reversal of agency decision to cancel NextWave’s licenses for missed payment, leading to return of that spectrum to bankrupt C-block bidder.

Despite wide expectation that FCC is about to release item considering scenarios for allowing NextWave re-auction winners to exit their bid obligations, Senate bill that would provide such relief gained momentum Wed. Senate aide confirmed to us that FCC did tell Hill staffers this week that it was considering action to release winners of NextWave re-auction from FCC deposits. However, aide said senators were planning to “stay vigilant” in efforts to gain co- sponsors and push measure through Congress. Despite FCC representations, order hasn’t been released, aide told us: “I haven’t seen it.” Sen. Kerry (D-Mass.) still was gaining co-sponsors on bill he introduced (S-2869), adding 4 in addition to original co-sponsor Sen. Brownback (R-Kan.) since Senate returned -- Sens. Ensign (R-Nev.), Enzi (R-Wyo.), Leahy (D-Vt.), Lincoln (D-Ark.) Bill could have up to 10 co- sponsors by end of Wed., aide said, including Sens. Allen (R- Va.), Cleland (D-Ga.), Murray (D-Was.), Nelson (D-Fla.) Aide said if FCC issued notice of proposed rulemaking (NPRM) on issue, it probably wouldn’t deter Senators from continuing work on legislation due to amount of time it could take to complete rulemaking. House version of bill, HR-4738, introduced by Rep. Stearns (R-Fla.), gained 5 new co-sponsors since Sept. recess -- Reps. Cunningham (R-Cal.), Bryant (R- Tenn.), Stickland (D-O.), Davis (D-Cal.), Wilson (R-S.C.). Bill now has 40 co-sponsors. At our deadline, FCC hadn’t released proposal outlining options to allow NextWave re- auction winners to opt out of their Jan. 2001 bid obligations. Several sources said Commission was expected to issue proposal shortly that would cover scenarios for allowing bidders to opt out of bids and would seek comments. Verizon Wireless and other successful competitors in that re- auction have sought release from auction “overhang” in which they would be obligated to pay full amounts of bids should FCC ultimately prevail in U.S. Supreme Court. Commission is challenging U.S. Appeals Court, D.C., ruling that had disagreed with FCC’s decision to cancel NextWave’s PCS licenses for missed payment, leading agency to return disputed spectrum to NextWave. FCC has returned all but 15% of bidders’ down payments. It was unclear late Wed. whether item would take form of public notice or notice of proposed rulemaking, but either version was seen as likely to ask questions to fill out factual record before FCC. Item would come just weeks before Supreme Court is to hear oral argument in NextWave case Oct. 8. Several industry observers said that although FCC has been reluctant to do anything in short- term to release NextWave auction bidders from “overhang” issue, that economic downturn in telecom sector has stepped up pressure on FCC to take steps in area where carriers have complained that their credit ratings have suffered. “That’s a substantial sum of money being tied up,” one source said, citing nearly $16 billion in bids that NextWave re-auction drew.

Multipoint Distribution Service (MDS) operators told FCC last week that opponents to their compromise plan for relocation spectrum as part of band-clearing options for 3G services had provided “no supporting technical analysis.” MDS operators, including BellSouth, Nucentrix Broadband Networks, Sprint and WorldCom, told Commission recently that if 2150-2162 MHz were reallocated for 3G, those licensees in MDS Ch. 1 and 2/2A could be moved to 1910-1916 and 1990-1996 MHz. Proponents said MDS compromise would pave way for FCC to designate and auction 1710-1755 MHz and at least 45 MHz at 2110-2170 MHz for 3G services. Nextel has opposed MDS plan, saying it would conflict with proposal filed by that carrier and others to mitigate interference to public safety operators at 800 MHz. Under Nextel proposal, some private wireless operators and public safety groups would call on FCC to redesignate 1910-1915/1990-1995 MHz bands to Nextel in exchange for 700 MHz, 800 MHz and 900 MHz spectrum that carrier would return to agency for reassignment to public safety and private wireless operators. ICO Global Communications also opposed MDS compromise, saying it would “wreak havoc” with 2 MHz mobile satellite service systems (MSS). Sept. 5 filing by MDS coalition, including Wireless Communications Assn., said ICO had argued that allocation of 1990-1996 MHz for MDS would leave it with inadequate spectrum in 1990-2025 MSS uplink band. “ICO has unilaterally chosen to construct and has launched a satellite capable of operating domestically only over the 1990-2015 MHz band rather than the entire 1990-2025 MHz band,” filing said. MDS operators disputed ICO contention that FCC was likely to allocate only 2110-2150/2160-2165 MHz for 3G. They said industry had called for contiguous allocation in that band for advanced wireless services. “A guard band will be required to protect MDS from interference by adjacent 3G operations,” filing said: “ICO’s purported wounds plainly are self-inflicted. Notwithstanding the Commission’s prior warning that satellite applicants assume the risk of premature construction, ICO chose to commence construction of its satellites over 18 months before the Commission had even proposed rules for MSS licensing.” Even if FCC adopted MDS compromise, there still would be enough spectrum at 1990-2025 MHz for ICO operations, filing argued. CTIA also opposed MDS compromise in its comments on recent NTIA report on 3G spectrum, saying reallocation would give “windfall” to MDS operators. MDS said: “Only MDS licensees, and certainly not the mobile telephone industry, will suffer any significant dislocation as a result of the joint parties’ proposal.”

House Commerce Consumer Protection Subcommittee Chmn. Stearns (R-Fla.) said he believed his NextWave spectrum auction bill (HR-4738) had achieved “critical mass” and should receive hearing “so that we can move it forward to floor consideration.” Stearns said more than half of Commerce Committee members had co-sponsored bill, which would require FCC to release companies from their bids in NextWave re-auction and return deposits for wireless spectrum licenses. “This is a matter of fairness,” he said. NextWave is challenging FCC in court for right to keep licenses. U.S. Supreme Court arguments are scheduled for Oct. Similar bill has been introduced by Sen. Kerry (D-Mass.).

Comcast, which is seeking to form country’s largest cable MSO through merger with AT&T Broadband, told FCC there was “abundant evidence of the intense competition that cable operators face.” Filing at FCC was in reply comments on state of competition in market for delivery of video programming. Comcast said that in every market it serviced, consumers had choice of at least 3 facilities-based multichannel video programming distributors (MVPDs), including 2 DBS providers. In other markets, it said, consumers can turn to Knology, RCN Inc. and WideOpenWest and non-MVPD mechanisms, including Internet video streaming and delivery of DVDs by mail, are producing even more competition. “In this environment, notions of ‘monopoly’ and ‘market power’ and ‘dominance’ in video distribution are vestiges of a bygone era,” Comcast said. Company said regulation of cable should remain at “the absolute minimum required by law.” AT&T said substantially same thing -- that competition was vibrant and FCC should reject calls to retain or expand cable regulations “made by certain commenters based on wholly unsubstantiated allegations of anticompetitive conduct.” However, EchoStar said cable operators still dominated market with 78% market share and EchoStar acquisition of DirecTV remained industry’s best hope of bolstering competition. Commission need look no further than to continuing above-inflation cable rate increases for “dispositive proof” of cable dominance and DBS’s current inability to discipline cable, EchoStar said in reply comments. Proposed deal is only way to achieve spectrum efficiencies necessary to create competitive pressure on cable, it said. Despite cable claims that DBS providers face no barriers to expansion, very nature of DBS service prevents unlimited growth, Satellite Bcstg. & Communications Assn. said. Each DBS provider has limited amount of spectrum. Recent Northpoint decision that allows DBS spectrum to be used for terrestrial service may cause increased service interruptions and, as result, DBS may become less viable competitor, SBCA said. It also said FCC rules limited placement of satellite dishes. Northpoint, in its comments, said consumers didn’t have choice in video programming or delivery systems and if EchoStar-DirecTV deal were approved consumers would have even less choice. Northpoint said it could provide competition needed, but Commission has placed unnecessary barrier to entry with lack of prompt and nondiscriminatory licensing. Decision to allocate MVDDS licenses through auction process creates substantial, if not insurmountable, barrier to entry that may jeopardize prospect for any genuine party to deploy MVDDS, Northpoint said. Auctions are crippling tax on new providers, it said. Gemstar-TV Guide told FCC that electronic program guide (EPG) market was “under the threat of anticompetitive extinction” by cable MSOs. AOL Time Warner, for example, has “invaded” broadcast signals to strip out EPG data from vertical blanking interval (VBI), Gemstar said. That represents possibility that consumers will be left with only one choice for EPGs -- that offered by their MVPD provider. “The unrestrained threat of such cable operator activity threatens competition not only in the EPG market, but in the program distribution market itself,” Gemstar said. Company said cable MSOs could use EPGs to make their own programs more “accessible and attractive” to subscribers than other programming options. Cablevision said cable faced vigorous broadband competition from telephone companies and wireless technologies and that FCC shouldn’t hobble one industry in favor of another. OPASTCO said many of its members were victims of predatory pricing by large cable companies, and regulatory burdens were among greatest barriers to successful deployment of new video services. OPASTCO said its members, some of which are small, rural LECs, also face unequal treatment by content providers. National Rural Telecom Co-p (NRTC) told FCC that far fewer homes were passed by cable than either cable or DBS industries had led regulators to believe. Inflating those numbers allows EchoStar and DirecTV to hide impact of their combining on rural customers, NRTC said. As many as 25 million households have no access to cable, it said.

FCC is exploring proposal that would provide incentives to mobile satellite service (MSS) operators to return their spectrum so it could be auctioned to bidders that could include MSS licensees and mobile wireless operators, industry sources said last week. Mobile wireless carriers have opposed plan by New ICO to allow certain terrestrial services in MSS spectrum. Several industry observers said potential auction scenario, including possible bidding credits for MSS operators who returned spectrum, could be way to bridge impasse between interest of MSS operators in adding terrestrial component to that spectrum and concerns by wireless carriers that New ICO proposal amounted to “spectrum grab” and that underutilized spectrum in band should be auctioned.

FCC auction of C- and D-block licenses of lower 700 MHz spectrum produced $83.53 million in high bids when 12th round closed Fri. By large margin, high bidder remained Aloha Partners with $31.8 million, followed by Cavalier Group with $9.9 million and Paul Allen-backed Vulcan Spectrum with $5.7 million. License that brought in single highest bid was L.A.-Anaheim market, on which Aloha Partners bid $8.3 million. Second largest was N.Y.-Newark, N.J., license by Cavalier at $6.9 million. Of 125 authorized bidders at start of auction on Aug. 27, 113 remained at close of day Fri. FCC’s Web site didn’t list Omega Communications as among remaining eligible bidders. Authorized bidders for Omega had included Mario Gabelli, chmn. of Gabelli Asset Management, whose media holdings have included stake in Black Entertainment TV. Also no longer listed among eligible bidders is Council Tree Wireless, which had made upfront payment of $40 million to participate in original lower 700 MHz auction, before it was scaled back after congressional action this summer that postponed most of 700 MHz auctions except for remaining spectrum in Aug. bidding. Council Tree subsequently revised its upfront payment to $6.5 million.

Bidding in FCC auction of C- and D-block licenses in lower 700 MHz band continued at relatively subdued pace Wed., with gross bids of $64.4 million after 4 rounds. That was up 5% from $51.7 million in high bids at close of business Tues., which marked start of auction. Aloha Partners kept top spot, with 26 high bids valued at $25.2 million, followed by Cavalier Group with $9.95 million and MilkyWay Broadband with $2.8 million. Largest high bid for single license was by Cavalier for N.Y.C.-Newark market at $6.9 million. Harbor Wireless had high bid of $2.8 million, followed by Paul Allen-backed Vulcan Spectrum with $2.4 million and LIN TV with $2.1 million.

Congressional Budget Office (CBO), in revised economic outlook, said Tues. that recent repeal by Congress of statutory auction deadlines would mean lower revenue projections from proceeds in 2003-2005 but higher in 2006 and 2007. In June, Congress delayed bidding on all but C- and D- block licenses of lower 700 MHz band, postponing indefinitely rest of auction for upper and lowers bands of that spectrum. (Auction for C- and D-block licenses began Tues.) Law, which President Bush signed after quick passage in both chambers (CD June 20 p1), also put off indefinitely auctions for licenses at 1.7 GHz and 2.1 GHz, which had been under consideration for advanced wireless services. “Although the law is expected to have little net effect over the 2003-2012 period (increasing offsetting receipts by less than $1 billion), CBO estimates that it will change the timing and amount of offsetting receipts likely to be collected over the next 5 years,” report said. Compared with March baseline, CBO projected $3 billion less in auction proceeds in 2003 and $1 billion less in 2005, with additional $4 billion combined in 2006 and 2007. CBO said budget deficit expected for this year overall had grown and surpluses that had been anticipated for coming decade have shrunk under new baseline projections.