Wireless Spectrum Auctions

Four carriers filed petitions to deny or delay awards of certain FCC C-block licenses won in $17 billion auction of 422 licenses in Jan. Despite some expectation that petitions to deny would focus on financial backing of designated entities by larger carriers, only one challenge centers on these arrangements. Three others urge FCC to first allow courts or agency itself to make final decisions on licenses previously cancelled for non-payment. NextWave filed petition asking agency to delay spectrum awards until U.S. Court of Appeals, D.C., issues opinion on its licenses cancelled for non-payment and subject of lengthy court proceedings. Notable absence among petitioners was Allegheny Communications, which has been vocal critic of arrangements such as Cingular’s 85% stake in designated entity Salmon PCS. Allegheny, which was widely expected to file petition to deny, instead struck $15 million deal with AT&T Wireless Fri. for PCS licenses in Tex., making challenge unnecessary because company will receive spectrum it sought, attorney said. Besides NextWave, carriers that filed petitions were 21st Century Telesis, TPS Utilicom and Southern Communications Systems.

FCC will consider mandatory detariffing of international telecom services at agenda meeting Fri. This would be companion to agency’s order last year requiring detariffing of domestic long distance services. Domestic detariffing for mass markets has been delayed until July while agency considers possible international action. Industry has told FCC it would be administratively difficult and confusing to customers to have detariffed rates domestically but not internationally. Industry source said carriers want July start date for both, but with 9-month implementation to ease transition for residential services. Also on agenda is start of rulemaking on licensing, technical and service rules for new users of 700-MHz band, which FCC plans to auction after broadcasters move out of spectrum. Spectrum is expected to be used for wireless communications. Commission also will consider revisions in technical rules for broadcast auxiliary, CARS, fixed microwave, other spectrum.

In long-form applications for C-block licenses made public last week, financial details emerged on relationships of designated entities with noncontrolling, larger carriers. Black Crow Wireless, designated entity with backing from U.S. Cellular Corp. (USCC), told FCC that Black Crow has right to require USCC to buy its interest. “Significantly, there is no corresponding ‘call’ right on the general partner’s [Black Crow’s] interest,” filing said. Petitions to deny long-form applications are due Fri. for auction of 422 licenses that closed in Jan. and raised $17 billion (CD March 1 p3). Dobson Communications said it reached PCS transfer rights agreement with AT&T Wireless. Dobson subsidiary DCC PCS won 14 licenses at auction for $546 million. Agreement with AT&T Wireless provides that if Dobson wants to sell or transfer its interest in any PCS license it won at auction it will first offer spectrum to AT&T Wireless. If AT&T Wireless declines to buy licenses, Dobson said it could sell them to any other party. Application also describes Dobson-AT&T Wireless joint venture that depends on outcome of auction. Each agreed to contribute at least one 10 MHz license in agreed-upon markets. Dobson would then retain control of venture, which would use AT&T brand. Designated entity Cook Inlet/VS GSM (CIVS), in which VoiceStream has noncontrolling interest, said VoiceStream had “neither de jure nor de facto control.” Cook Inlet won 22 licenses for $506.38 million and VoiceStream PCS was high bidder for 19 licenses for $482.65 million. Cook Inlet Wireless, subsidiary of Alaska Native Regional Corp. Cook Inlet Region, controls CIVS. Filing said VoiceStream will have contributed $149.4 million in venture and Cook Inlet 50.1% ($150 million) pending approval of license applications. If CIVS converts existing $207 million note held by VoiceStream, latter would hold 70% of equity in designated entity. CIVS also can call on VoiceStream for additional cash commitments, bringing its equity interest up to 85% but leaving CIVS in control of management authority, filing said.

White House officials acted to quell criticism on Hill about merits of Administration’s spectrum auction plan and failure to notify Hill staffers that proposal was coming (CD March 2 p1). Administration talked with office of House Commerce Committee Chmn. Tauzin (R-La.) and appeared to soothe situation somewhat, Tauzin spokesman Ken Johnson said. “The idea of spectrum fees [for broadcasters keeping analog spectrum] is probably DOA,” he said, but Tauzin staffers were finding on rest of package that “there appears to be some merit to parts of it… It certainly opens the door to at least some discussion.” Johnson said several Committee staffers were preparing to brief Tauzin fully on issue today (Mon.), at which point he could be ready to take position, “consulting with [Telecom] Subcommittee Chmn. Upton” [R-Mich.]. “The Administration has indeed been in contact with our office,” said spokesman for Senate Communications Subcommittee Chmn. Burns (R-Mont.), who has ambitious spectrum plans of his own. “We're confident that everything is going to be worked out,” he said: “There’s a lot of communication going on right now.” Spokesman said Burns wasn’t ruling out plan to delay spectrum auctions. “We're willing to work with the Administration and see what can be done,” he said, adding that “the devil will be in the details.” It wasn’t clear last week that broadcasters would be able to take unified position. “We're still studying the proposal,” NAB spokesman said. Source said some broadcasters with lower audiences (Paxson was mentioned) might “want to get out early” from analog spectrum and “get their money from the wireless carriers.” On other hand, we're told, for stations whose primary asset is large audience, such as CBS affiliates, it may be attractive to delay loss of analog spectrum as long as possible.

Congressional telecom leaders heavily criticized spectrum policy changes contemplated by President Bush’s budget blueprint (CD March 1 p1), with some saying they seemed motivated more by attempts to free up money for tax cuts than sound telecom policy. They predicted quick defeat in debacle that probably would teach Administration lesson about talking with them before assuming such far-reaching proposal would gain quick acceptance. “Once Congress kills it, they'll remember to call us next time,” said Ken Johnson, spokesman for House Commerce Committee Chmn. Tauzin (R- La.). “They're just looking for extra money to pay for their excessive tax cuts,” said aide to House Telecom Subcommittee ranking Democrat Markey (Mass.): “The job for Telecom Subcommittee members is to make sure these plans make sense for telecom.” Another staffer said chances of plan’s passing Congress were “infinitesimal” and predicted that it would be greatly scaled back when full budget book is released in April.

Wireless industry continued Thurs. to step up calls for policymakers to move quickly to free up spectrum and to examine auction plans that would use part of proceeds from bidding to move incumbents. One theme of wireless panel at Precursor Group conference in Washington was that decisions needed to be made quickly to keep U.S. competitive with wireless data offerings unfolding elsewhere in world. FCC Wireless Bureau Chief Thomas Sugrue told conference that Commission planned to make decision by fall on notice of proposed rulemaking on whether there still is need for spectrum cap.

Large carriers informed FCC and SEC of details of financial arrangements with designated entities in recent C-block re- auction, including $2.6 billion pledged by AT&T Wireless to Alaska Native Wireless (ANW). Cingular Wireless said it has planned $460 million in loans to designated entity Salmon PCS. FCC released public notice late Tues. (CD Feb 28 p5) on long forms filed by successful bidders in PCS auction that raised $17 billion. Relationships between major carriers and designated entities, which qualified to bid on licenses closed to smaller bidders in auction, have been subject of scrutiny by some smaller carriers.

Wireless and broadcasting industries and their regulators were caught offguard Wed. when Bush Administration seemed to propose mysterious multibillion-dollar initiative to hasten broadcasters’ departure from analog spectrum. White House buried section in tables in back of “budget blueprint,” which otherwise didn’t mention FCC or telecom issues even once. By end of day Wed., our sources still were trying to figure out exactly what policy shift was being contemplated. White House and OMB didn’t return calls for explanation. Fuller budget book with line items and explanations isn’t expected until April.

While differing on some details, wireless carriers and equipment makers in comments last week urged FCC to make additional spectrum available for 3rd generation and advanced services. Among most pointed recommendations were those of equipment vendors such as Ericsson, Motorola and Qualcomm, which pointed FCC toward spectrum now occupied by federal govt. users in 1.7 GHz band as ideal for 3G. Motorola urged Commission to alter auction process so that part of proceeds could be used to help pay for relocating incumbents. In move that may require legislative change, Motorola said that would avoid pitfall of current system “where the true costs of relocating incumbents only becomes known to successful bidders after the auction.” Several commenters stressed need for FCC to make more spectrum available on faster timeline than that laid out under several agency proposals.

Dept. of Defense (DoD) and wireless industry remain apart on some technical issues regarding how bands occupied by military users could be altered for 3rd-generation uses. Govt. and industry officials, at meeting hosted by NTIA Thurs., emphasized that analyses of bands that could be used for additional 3G spectrum were continuing, with final FCC and NTIA reports due late next month. “We still have a lot of work to do,” Motorola’s Steve Sharkey said. “We have at least an idea of where the paths to move forward are.” Meanwhile, Congressional Budget Office (CBO) raised budget projections for proceeds from FCC spectrum auctions through 2007, with rosier outlook attributed to interest in 3G.