Congress passed the 2006 budget resolution late last week. The $2.6 trillion spending outline calls on the House and Senate Commerce committees to produce $4.8 billion more for the federal treasury between now and 2010. Senate Commerce Committee Chmn. Stevens (R-Alaska) has said he sees spectrum auctions as a way to raise that revenue. Since FCC spectrum auction authority expires Sept. 30, 2007, Stevens has said the auction program could be extended and should be reformed, but hasn’t outlined specifics. Medley Global Advisors said Congress would likely focus on 2 revenue sources: (1) Continuing the spectrum auction program, which the Congressional Budget Office has said could produce $1.7 billion revenue. The Office of Management & Budget puts the figure even higher. (2) Setting a hard DTV transition deadline, which would free some 88 MHz of prime spectrum for auction. The spectrum’s value has been estimated at $30-$60 billion.
The FCC revised its auction attribution rules, saying the determination of a bona fide co-op shouldn’t be based on the co-op’s tax exempt status. It also allowed rural telecom co-ops to demonstrate their co-op status either under Sec. 501(c)(12) of the IRS Code or by adhering to the co-op principles enumerated in Puget Sound Plywood v. Comr. of Internal Revenue. The FCC action was in response to an NTCA petition seeking to clarify a rule that determined how co-ops were granted a limited exemption from the auction attribution rules. The FCC had revised its rules so affiliates of a co-op’s officers and directors wouldn’t count against the co-op to determine whether it was eligible for auction bidding credits. But the exemption was only available to co-ops that satisfied all components of a “3-part test,” including procession of tax-exempt status. “The problem with that is that cooperatives can provide service to non-members [and] can also set up subsidiaries,” NTCA Senior Regulatory Counsel Jill Canfield told us: “Those things don’t really affect the cooperative, but… could make the cooperative no longer tax-exempt.” In its Jan. 31 order, the FCC granted a petition for reconsideration filed by NTCA and other rural carriers, admitting that the tax-exempt element of its 3-part test could prevent legitimate telephone co-ops from taking advantage of bidding credits. NTCA applauded the decision, which it said eliminated “an anomaly” in its competitive bidding rules that “threatened the ability of rural telephone cooperatives to provide new and advanced wireless telecommunications services to rural areas.” It said the ruling would help ensure NTCA member co-ops have access to bidding credits at future spectrum auctions. FCC Comr. Adelstein said in a statement he was “very pleased” with the decision, which he said would “promote the interests of cooperatives in expanding the scope of their telecommunications services while still ensuring that the benefits of this important exemption are limited to bona fide cooperatives.”
Another obstacle has emerged for the beleaguered spectrum trust fund legislation. Senate and industry sources told us that Senate Appropriations Committee ranking Democrat Byrd (D-W.Va.) has placed a hold on the bill, which has now been paired with E-911 and universal service fund (USF) legislation (HR-5419). Sources said Byrd’s hold is due to the same concerns that appropriators always had over the bill: The usurping of Appropriations Committee jurisdiction. The bill, which seeks to reimburse Defense Dept. and other govt. users for portions of the 3G spectrum they now occupy, would essentially appropriate money from spectrum auctions in advance. House appropriators had similar concerns over HR-1320, the original spectrum trust fund bill, that were eventually resolved before the House passed the bill in 2003. That bill is now part of HR-5419, a catch-all bill passed by the House 2 weeks ago, and includes state funding for E- 911 deployment and an exemption from Anti-Deficiency Act requirements on USF. The Senate Commerce Committee has passed spectrum trust fund legislation, but it never moved to the Senate floor. During deliberations on the bill, Senate Appropriations Chmn. Stevens (R-Alaska) said he had concerns that the bill would usurp appropriators authority. But sources said Byrd’s hold wasn’t the main obstacle for HR-5419. Senate Commerce Committee Chmn. McCain (R-Ariz.) is also holding up the legislation because House leadership won’t take up his measure to establish a national boxing commission. One industry source said differences with Byrd, which were based on substance, are likely to be easier to resolve than the differences between McCain and House leadership, which sources said appear to be political.
The FCC shouldn’t vote on a DTV transition plan until Congress fully funds a mechanism to ensure universal TV service for all Americans, the Minority Media & Telecom Council (MMTC) said in a letter to the FCC. MMTC supported plans to provide vouchers, funded from spectrum auctions, for low-income consumers to equip sets with down-conversion capability. MMTC also advocated vouchers for DTV-ready sets. The White House announced its opposition to any voucher initiative Oct. 21, MMTC said: “These families, many living paycheck to paycheck, as well as elderly and disabled persons surviving on social security, cannot suddenly yield up the cost of a converter box without forgoing a week of food.”
The legal squabble over the value-added tax (VAT) rebate for 3G license purchases shows how badly the European spectrum allocation system needs revamping, a spokesman for the GSM Assn. (GSMA) said Fri. Last week, the VAT tribunal -- part of the U.K.’s Dept. for Constitutional Affairs -- referred to the European Court of Justice (ECJ) a claim by several U.K. 3G mobile operators for a refund that could amount to nearly $6 million. The case reportedly may be combined with similar claims filed by operators in Austria, Belgium, Germany and Spain. It could set a precedent on whether VAT must be paid in 3G license auctions. The questions referred to the ECJ “regard matters of European law [that] are relevant to the action being pursued by all 5 successful bidders in the 2000 3G spectrum auction for the recovery of the VAT component of their winning bids,” a Vodafone spokesman said. An ECJ decision isn’t expected for about 2 years, he said. Meantime, the action before the VAT tribunal has been stayed. U.K. and German spectrum auctions accounted for 76% of 3G license fees worldwide 1999-2002, the GSMA spokesman said. Cumulatively the licensing proceeds took more than $100 billion from operators. One consequence was that $700 billion was “wiped off the stock market valuations of European telcos,” he said. The need to rebuild balance sheets caused a “massive downturn” in capital spending, forcing a “significant contraction” of the telecom equipment industry and producing thousands of job losses -- and a slowdown in 3G rollout, he said. The claim raises the question whether auctions are the best way to allocate spectrum, the spokesman said. The issue is moot in some ways because the current licensing round is now finished. However he said that GSMA, which has members in 209 countries and territories, intends to be “more vociferous” than it has about spectrum allocation methods. There are “dozens” of consultations around the world on spectrum, the spokesman said, and GSMA is active in all of them. In its ongoing dialog with regulators, he said, GSMA tries to ensure “that similar situation do not repeat themselves in future by helping regulators look at the bigger picture.”
The Minority Media & Telecom Council said in an FCC filing that while the designated entity (DE) set-aside in spectrum auctions isn’t a perfect mechanism, it mustn’t be scrapped. “Like most federal programs, the DE program is imperfect and can be improved,” the group said in an ex parte filing at the FCC, in a docket exploring a wireless carrier proposal to eliminate such set-asides: “If a ‘compromise’ is to be struck, then, it should be for the Commission to continue the DE program in its present form, while at the same time taking note of legitimate criticisms… raised by both its supporters and opponents.” CTIA and T-Mobile met with Comr. Adelstein last week to lobby him to back an end to set-asides. T- Mobile argued: “An analysis of the top auction winners demonstrates that the DEs overwhelmingly either are in financial distress or have sold their licenses.” T-Mobile said at a minimum the licenses returned by NextWave should be sold without set-asides. “FCC has fiduciary responsibility to ensure that the NextWave licenses are open to all bidders to maximize the benefit to U.S. taxpayers,” T-Mobile said. CouncilTree, a leading DE, met with Chmn. Powell last week to urge the FCC to “stay the course” on the auction. “Any further weakening of the DE rules/closed licenses denies broadband PCS entry opportunities for: small businesses; new entrants; minority and women-owned businesses.”
Auctioning off a nationwide block of spectrum is an “interesting opportunity,” a senior FCC official said Thurs. In a Communications Daily audioconference, Bryan Tramont, chief of staff for Chmn. Powell, said the Commission is considering that in a future auction, which would be welcome news for national carriers and their Wall St. backers. Tramont and 2 former FCC officials also engaged in a debate over the future role of designated entities (DEs) in spectrum auctions. Tramont made clear that the FCC is on schedule with its Auction 58 of 234 10- MHz licenses, many of which are coming from NextWave. The conference took place a week after the FCC dismissed concerns of some carriers about moving forward with its H- block auction (CD Sept 10 p1).
CTIA said in a filing at the FCC it would support the agency making available a single 20 MHz block to be auctioned on a RSA/MSA basis if the Commission moves forward on a long- pending auction for advanced wireless services. CTIA said it can’t support a Rural Cellular Assn. (RCA) proposal to make several blocks available, but could support offering a single block in a form that may be more attractive to small carriers. Sources say the RSA/MSA level is the smallest the FCC appears willing to consider as it takes up an auction of spectrum in the 1.7 GHz and 2.1 GHz bands. CTIA said taking this step “would be an appropriate means of encouraging effective small and rural carrier participation in the AWS auction.” CTIA initially opposed a RCA petition seeking more spectrum for smaller license areas. “RCA has been trying to persuade CTIA to support more spectrum for small license areas,” David Nace, RCA gen. counsel told us Tues. “We think it’s a step in the right direction.” CTIA and RCA have found common areas of agreement on auction issues in recent days. Last week, RCA said, in support of CTIA that while it didn’t necessarily support a complete end to all set-asides for designated entities it views bid credits as a more effective mechanism for making sure small carriers are victorious in spectrum auctions.
Senate Commerce Committee Chmn. McCain (R-Ariz.) will “shortly” introduce a bill to reauthorize the Corp. for Public Bcstg (CPB), an aide told us. The CPB was last reauthorized in 1992. Meanwhile, public broadcasters are bracing for the perennial assaults on issues such as objectivity and balance in their programs and local vs. national programming at a July 13 reauthorization hearing called by McCain, even as they hope that the reauthorization is straightforward. They also expect to be probed on proposals for a trust fund in exchange for early return of their analog spectrum. Differences have cropped up over the voluntary nature of the proposal by the Assn. of Public TV Stations and suggestions from PBS that a $5-$10 billion payment into the trust fund from spectrum auctions replace annual appropriations.
House Budget Committee Chmn. Nussle (R-Ia.) introduced legislation Fri. that would “reaffirm the intent of Congress to use the auction process and competitive bidding for the grant of commercial spectrum,” his office said in a release. The bill would require the FCC to auction its spectrum allocations, including spectrum being sought by Nextel. However, Nussle’s spokesman said the bill isn’t out of concern for the Nextel situation. “The concern is that at the end of the day, the taxpayers should receive the benefit of this public resource,” he said.