Wireless Spectrum Auctions

AT&T Wireless said Tues. it was departing from fixed wireless business in next few months, saying in earnings conference call that unit didn’t meet its financial targets in 3rd quarter and carrier would take $1.3 billion charge as result. “This decision is as clear-cut as it is bittersweet,” Chmn. John Zeglis told analysts. Move comes in company’s first full quarter as stand-alone independent of AT&T and less than week after Sprint announced that it wouldn’t seek more MMDS customers until 2G technology matured. Zeglis pledged “phased exit” strategy for 47,000 customers now using service, saying they would be returned to ILEC or other offerings as soon as possible. “We can’t abandon customers on 30 to 60 days’ notice,” he said: “That’s not right.” AT&T has been using Wireless Communications Services (WCS) licenses to deploy fixed wireless broadband effort called Project Angel. Project has been marketed as offering from AT&T that used single remote unit to provide wireless local area network, 4 phone lines, high-speed Internet access.

Finding effective stimulus for mass broadband deployment will require “inspiring vision” on level of what was envisioned during U.S. efforts to put first man on moon, 3Com Chmn. Eric Benhamou said. At New America Foundation broadband and spectrum reform discussion Mon., he said creation of “compelling content” and development of technology-neutral govt. policy was needed to “re-energize broadband.” He said more than $100 billion in U.S. fiber deployment investments and “sufficient advances” optical equipment development made it possible to strive for eventual offering of 100 Mbps interactive broadband services. Although he also warned against creation of “artificial competition” as primary policy goal, he said govt. subsidies were required to ensure “sufficient penetration and coverage” throughout country. He acknowledged sympathy for concerns of CLECs, whom he described as “dying breed.” However, he said both CLECs and ILECs had legitimate complaints about impediments to broadband deployment. He said ILECs had “done a good job of stalling” competitors who sought lawfully required access to ILEC facilities in order to provide services. However, he said ILEC argument against investing billions of dollars for infrastructure that would have to be provided below cost to CLECs wasn’t without merit: “There’s not enough incentive to adopt the behavior we would like them to adopt.” NCTA spokesman said in response to Benhamou’s comments on need for govt. subsidies that cable industry was “example of marketplace success” in broadband deployment and delivery: “We share Mr. Benhamou’s enthusiasm, that’s why the cable industry has invested more than $52 billion in private risk capital to bring broadband to more than 60 million households in a few short years. The cable industry has found that private market solutions are not only preferable but are effective.” As for role of spectrum auctions in hastening 3rd generation wireless broadband deployment, Benhamou suggested that U.S. regulators learn from “mistiming of the auctions” in Europe. He said one of drawbacks to “open and democratic” auction process was “incredible levels” of spectrum prices often paid by entities that had significant cash flow but lacked responsible business plans. He said if and when such companies suffered financial problems because of lack of swift return on their investments, European govts. would have to subsidize them to keep them afloat. That will result in “huge loss of credibility of government,” Benhamou said. He also said current economic downturn predated Sept. 11 terrorist attacks: “Frankly speaking, the ‘New Economy’ has been flat on its ass, and has been for months.”

Along with FCC filing late Fri. (CD Oct 22 p1), Verizon Wireless, VoiceStream Wireless and designated entity carriers asked U.S. Supreme Court to review NextWave ruling by U.S. Appeals Court, D.C. D.C. Circuit in June had overturned FCC decision to cancel NextWave licenses for missed payment, throwing into disarray $16 billion results of Jan. re-auction of C-block licenses, including 90 PCS licenses owned by NextWave. Commission had asked high court to review that decision, citing tension between agency’s obligations under Communications Act and Sec. 525 of Bankruptcy Code, which bars govt. units from revoking licenses of bankrupt entities solely because they haven’t paid dischargeable debt. As Commission did in its petition for certiorari, Verizon Wireless said case involved $11 billion -- differential between $4.7 billion that NextWave bid for licenses in 1997 and $15.8 billion in bids for those licenses in Jan. re- auction. “More broadly, however, the decision below warrants review because it upsets the longstanding congressional commitment of plenary public interest authority over spectrum allocation to the Commission (as well as any comparable state and local authority) to pursue nonmoney collecting ends,” Verizon Wireless said. It said D.C. Circuit ruling was contrary to conclusions in case by 2nd U.S. Appeals Court, N.Y. “This court should grant certiorari to restore the proper relation between the Bankruptcy Code and independent regulatory regimes like the spectrum-allocation provisions of the Communications Act.” Verizon argued that D.C. Circuit ruling compelled FCC to “leave licenses in the hands of a firm that has proved itself not to be the best user of the public spectrum for public interest reasons.” In addressing extent to which FCC had abandoned installment payment plans for auction winners, carrier said that payment mechanism had been authorized by Congress: “The D.C. Circuit has not deprived the Commission of the practical ability to re-adopt installment payment programs, despite their express contemplation by Congress.” Decision also limits ability of FCC to exercise authority to implement auction policies, it said. Separate writ of certiorari has been filed by designated entities Arctic Slope Regional Corp. and Council Tree Communications, along with VoiceStream Wireless. Like Verizon Wireless, those companies had been intervenors in D.C. Circuit proceedings, so they had standing to ask Supreme Court for review. They wrote: “Under the D.C. Circuit’s decision, a single entity has been permitted to frustrate a regulatory policy and prevent the efficient use of spectrum licenses worth more than $15 billion.” They contended there was conflict between Circuit Courts on interpretation and application of Bankruptcy Code in cases where govt. agency had taken steps against debtor “based on otherwise valid regulatory policies.” Separately, U.S. Bankruptcy Judge Adlai Hardin, White Plains, N.Y., granted continuance of NextWave hearing that had been set for Mon. until Nov. 2. NextWave told that court Mon. that continuance was needed because of continuing settlement negotiations involving PCS licenses.

As expected, FCC asked U.S. Supreme Court late Fri. to review June ruling by U.S. Appeals Court, D.C., that had overturned earlier Commission decision to cancel NextWave licenses for nonpayment. Industry observers had expected Commission to take step, although negotiations among stakeholders on potential $16 billion settlement involving licenses were continuing Fri. FCC filed writ of certiorari asking high court to consider whether Sec. 525 of U.S. Bankruptcy Code “conflicts with and displaces” Commission’s rules for congressionally authorized spectrum auctions. Thirty-five-page document said auctions “provide that wireless telecommunications licenses obtained at auction automatically cancel upon the winning bidder’s failure to make timely payments to fulfill its winning bid.”

Spectrum sought by Northpoint can’t be auctioned because FCC intends to license NGSO applicants, including Skybridge, Hughes Electronics and Boeing without auction, CEO Sophia Collier told us. She said Northpoint wanted 500 MHz of satellite spectrum and another 26,000 MHz would be awarded to satellite applicants in various proceedings. Legislation is restricted to “fixed” services and wouldn’t apply to mobile services. She said opposition of wireless industry was based primarily on desire to stop “spectrum grab” in different band by New ICO, which is seeking to convert satellite spectrum owned by company into terrestrial use through “flexible licensing procedure.” Wireless industry is concerned Northpoint issue may set bad precedent for future proceedings. CTIA spokesman said opposition of organization was not pointed necessarily at Northpoint, but at concept of spectrum award without auction: “The entire concept” of giving away spectrum “is repugnant to the entire industry. We believe Northpoint-DBS issue is competition, not interference, issue but we oppose any kind of spectrum being given to anyone without them paying for it.” Spokesman for Satellite Bcstg. & Communications Assn. (SBCA) said industry had paid for much of spectrum it now holds and wasn’t exempt from auctions as Northpoint claimed. Since auctions started in 1993, EchoStar paid $52.3 million for one of its licenses and acquired another license for which MCI paid $682.5 million in another auction, spokesman said. DirecTV acquired license and 2 satellites that was awarded before Commission was granted auction authority from Tempo Satellite Inc. for $500 million.

CTIA and AT&T Wireless have joined Northpoint-DBS spectrum debate. Responding to reports that terrestrial start-up Northpoint was gaining ground in efforts to tack on amendment to Senate appropriations bill that would prohibit FCC from auctioning satellite spectrum in 12.2-12.7 GHz band, CTIA and DBS industry have stepped up lobbying efforts. CTIA sent letter opposing move Mon. to Senate and House leaders, including Senate Appropriations Chmn. Byrd (D-W.Va), ranking Republican Sen. Stevens (Alaska), House Appropriations Chmn. Young (R-Alaska) and ranking Democrat Rep. Obey (Wis). Meanwhile, AT&T, in ex parte at Commission Oct. 11, also opposed effort by Northpoint to gain “free nationwide license” and spectrum allocation.

Motorola and 700 MHz guardband manager Access Spectrum reached agreement for former to design, manufacture and market infrastructure and products for guardband spectrum. Calling itself “strong advocate” for band, Motorola said it would start offering 700 MHz guardband products in 2nd half of 2002. Products developed could target markets that included energy, security, manufacturing, utilities, transportation and service industry, said Motorola Business Development Mgr. David Conalonieri. Access Spectrum is FCC band manager licensee that had won licenses in that spectrum that cover more than 66% of U.S. Entity was created as separate guardband bidding unit by Industrial Telecom Assn., Motorola, others. FCC auction last fall raised $522 million for guardband licenses, with Nextel, Pegasus and Access Spectrum as top 3 winners. Auction marked first time FCC doled out spectrum to guardband managers, which subdivide spectrum for lease to 3rd parties for commercial and private wireless uses.

Negotiators were closing in Thurs. on deal on NextWave’s PCS licenses, with changes in areas such as carrier payment timelines and guarantees of when spectrum tab would be paid in full. Talks continued Thurs. morning at OMB on proposal in which NextWave would be paid $9.55 billion upfront that would be secured through 2002 legislative appropriations package, industry source said. Bankrupt carrier then would net $6.3-$6.5 billion, after first level of taxes were paid. One point of contention in final rounds of talks has been how Verizon Wireless’s request for additional time to make payments would be handled (CD Oct 1 p5), sources said. Under revised terms of deal now under consideration, 2-part payment process to govt. reportedly sought by Verizon would be scaled back to one payment to be made in May, source said. Verizon Wireless would have letter of credit to guarantee its full payment in that time, mechanism that other carriers could sign on to as well. Re-auction winners would agree to keep intact total of $16 billion that was bid for NextWave licenses at auction, including $10 million in new cash for govt. as well as $3 billion on hand from upfront payments required in Jan. re-auction.

FCC will be “bending the law” if it allows broadcasters to take payments from wireless carriers for vacating Ch. 60- 69, Senate Commerce Committee Chmn. Hollings told FCC Chmn. Powell in letter Wed. Hollings warned against allowing private sector to set terms of spectrum transfers, saying that law required FCC to reassign 746-806 MHz band only through auction: “Allowing industry to negotiate private marketplace deals that dictate the governance and the transfer of spectrum and to earn profits on the spectrum through such arrangements is outrageous. Such action clearly violates the standards and mandates to which the FCC is required to adhere.”

Cingular Wireless and VoiceStream Wireless signed first- of-its-kind network-sharing agreement Mon. to let former start service in coveted N.Y.C. market in mid-2002. Joint venture agreement, which carriers said didn’t require FCC approval, in turn gives VoiceStream access to spectrum in Cal. and Nev., including top 10 markets of L.A. and San Francisco. Executives of both carriers predicted venture would save “hundreds of millions of dollars” in capital expenditures and operating expenses on network buildout plans. Similar network-sharing agreements have been reached in Europe, most notably 3G pact between British Telecom and Deutsche Telekom (DT), but Cingular-VoiceStream deal marks first of such scope for U.S. Companies didn’t disclose financial terms or provide more details about capital expenditure plans related to GSM network sharing. Both Cingular CEO Stephen Carter and VoiceStream CEO John Stanton stressed in conference call with analysts that transaction didn’t signal that U.S. carriers still didn’t need spectrum relief. “Both companies were looking for a quicker way to enter more markets,” Stanton said. “Spectrum is still scarce in the U.S. and this agreement does not change our view that additional spectrum needs to be allocated.”