Wireless Spectrum Auctions

CTIA told the FCC last week that the “consensus plan” backed by Nextel and others for fixing public safety interference at 800 MHz “would significantly depart from Commission precedent and is unsupported in law or policy.” The plan backed by Nextel, the Assn. of Public Safety Communications Officials, PCIA and others would involve reconfiguring parts of the 700, 800 and 900 MHz and 1.9 GHz band, including paying public safety and private wireless incumbents up to $850 million to move. CTIA’s filing at the FCC late Thurs. focused on the part of the plan that would give Nextel “an exclusive nationwide license” for 10 MHz at 1.9 GHz as part of spectrum it would receive for giving up bands elsewhere. CTIA said that would: (1) Violate policies underlying Sec. 309(j) of the Communications Act, which outlines the principals for the FCC’s offering spectrum at auction and would “circumvent the Commission’s standard license assignment process.” (2) Not qualify under applicable law as either a channel swap or a license modification. (3) Require the FCC to either “improperly ignore” its statutory obligations or to illegally use Sec. 316 authority to “trump” its Sec. 309(j) obligations. CTIA argued that past channel swaps allowed by the Commission, including those involving FM and broadcast licenses, were different from what Nextel was proposing. In the Rainbow Broadcasting case involving a broadcast spectrum swap, CTIA said the exchange was limited to situations in which a licensee wasn’t seeking to use the process to substantially change its coverage area. It said: “In contrast to that concept, the ‘consensus plan’ proposes a nationwide assignment of 10 MHz of contiguous, comparatively clear spectrum to Nextel in exchange for relinquishment of a patchwork of frequencies that have limited utility.” Rather than making Nextel whole for spectrum it would give up elsewhere, CTIA said the swap would substantially upgrade its spectrum holdings.

Cingular told the FCC Wireless Bureau last week that the Justice Dept.’s approval of a debt compromise agreement involving NextWave licenses was important to a pending waiver request at the Commission involving unjust enrichment rules. Cingular and NextWave filed applications at the FCC in Oct. to assign licenses as part of a $1.4-billion deal in which Cingular was buying PCS spectrum from NextWave in 34 markets. The companies asked that the FCC waive parts of its unjust enrichment rules, which require that designated entities (DEs) pay penalties if selling a license to a non-DE during a restricted period to compensate for advantages such as bidding credits. The filings said DoJ had approved a term sheet allowed by the bankruptcy court under which Cingular would pay the FCC $714 million for the licenses involved. (The companies said the unpaid principal associated with the licenses in the deal was about $687 million). The companies cited unjust enrichment rules that applied to disaggregation of PCS spectrum. Cingular said the term sheet represented a “negotiated arms'-length settlement of litigation.” It said DoJ, on behalf of the FCC, had agreed to accept $714 million to satisfy all govt. claims on the designated licenses, which represent a fraction of NextWave’s spectrum holdings and still would leave it with a national footprint. In response to a Wireless Bureau request for more information, Cingular said DoJ’s approval of the debt compromise was important to the FCC’s consideration of the pending waiver request because: (1) The debt that was the focus of both the DoJ approval and the pending waiver request “results from the same source: the FCC’s auction rules.” (2) DoJ approval was predicated on the Commission’s recommendation on the debt compromise, which examined public interest factors. (3) The FCC’s recommendation that DoJ approve the debt compromise took into consideration the amount owed under the unjust enrichment rules. (4) “DoJ made an independent review of the relevant public interest factors and determined that a compromise of NextWave’s debt would serve the interests of the United States.” Cingular said the term sheet on the licenses was finalized after it and NextWave had reached agreement on the lump-sum purchase price for the spectrum package. It said the $714 million direct payment to the FCC “is more than sufficient” to pay in full the unpaid principal amount attributable to each of the designated licenses. “The total amount of unpaid principal is approximately $687.5 million, leaving approximately $26.5 million remaining from the FCC direct payment to be applied to unpaid accrued interest,” Cingular said.

CTIA Pres. Steve Largent, who took over the helm of the Assn. this month, said in an interview he would like to focus the group on being “transparent and collaborative and a team player, because that’s a reflection of my personality.” Largent, a pro football Hall of Famer with the Seattle Seahawks, said he would like to see the group get ahead of issues, “as opposed to being just reactionary.” Separately, he praised the removal last week of Northpoint language from the Senate appropriations bill.

The FCC Wireless Bureau unveiled a major restructuring Mon., scaling back the size of larger divisions and doing away with separate branches. The Bureau said the revamping didn’t add or remove functions from its portfolio and all the changes had been carried out by redeploying existing positions. “The overall result is a flatter, more flexible organization that the FCC believes will be more responsive to changes in wireless technology and the telecommunications business environment,” the agency said. Bureau Chief John Muleta said the result was “a mission-driven team that will be innovative in its approach to regulatory policies and customer service.” Under the reorganization, the Bureau now includes: (1) An Auctions & Spectrum Access Div., which covers policy initiatives and legal analysis as well as procedures. Margaret Wiener, chief of the former Auctions & Industry Analysis Div., heads the new group. (2) A Broadband Div., which focuses on deployment of wireless broadband services and consolidates the policy, regulatory and licensing functions for wireless broadband services, excluding public safety and critical infrastructure services. Joel Taubenblatt, deputy chief of the former Policy Div., heads the new unit. (3) A Mobility Div., which consolidates the policy, regulatory and licensing functions for wireless mobile services. Roger Noel, deputy chief of the former Commercial Wireless Div., is chief. (4) A Public Safety & Critical Infrastructure Div., which brings together wireless homeland security and public safety issues, including Enhanced 911 and system interoperability. It covers policy, regulatory and licensing for public safety entities and critical infrastructure industries. D'Wana Terry, chief of the former Public Safety & Private Wireless Div., is chief. (5) A Spectrum & Competition Policy Div., which will focus on new spectrum, competition and infrastructure policies, including Spectrum Policy Task Force issues. William Kunze, chief of the former Commercial Wireless Div., is chief. (6) A Spectrum Management Resources & Technologies Div., which will focus on information technology, licensing support and auctions support, which had been split between 2 divisions. John Chudovan, chief of the former Data Management Div., is chief. The Commission approved the reorganization Nov. 13 but it wasn’t announced until Mon.

Nextel filed 2 studies at the FCC last week defending a “consensus plan” proposed by it, public safety groups, PCIA and some private wireless operators to mitigate public safety interference at 800 MHz. A study conducted by Sun Fire Group founder Kostas Liopiros argued that the “consensus plan” would produce benefits that outweighed potential costs to the govt. in terms of spectrum auction proceeds it would give up. Nextel and other backers of the plan have proposed a spectrum swap in which parts of 700, 800 and 900 MHz would be reconfigured, with Nextel giving up some spectrum in return for bands elsewhere, including at 1.9 GHz. CTIA, Verizon Wireless and other critics of the plan have argued that Nextel would receive a windfall by giving up less attractive spectrum for contiguous bands at 800 MHz and valuable spectrum at 1.9 GHz. The Sun Fire Group study said Nextel “would not receive a net gain in spectrum under the consensus plan. In fact, it would suffer a net loss of 0.5 MHz of spectrum and would make a financial contribution exceeding $1 billion to implement it.” The Liopiros paper said that from a “kHz for kHz” perspective, Nextel wouldn’t receive a spectrum “windfall.” He took issue with part of Verizon Wireless’s analysis that he said was based on an assumption that Nextel’s iDEN wireless technology was inferior to CDMA. “Verizon Wireless’s rationale for heavily discounting the value of Nextel’s spectrum does not withstand scrutiny,” Liopiros said. Nextel also submitted a study by Gregory Rosston, former deputy economist at the FCC and now deputy dir. of the Stanford Institute for Economic Policy Research, who analyzed the plan in the context of the FCC’s Spectrum Policy Task Force report. Nextel said Rosston concluded that the consensus plan was “the proposal most consistent with the FCC’s current spectrum management policies because it corrects 800 MHz interference with a market-based approach.”

The FCC Wireless Bureau wrapped up its 220 MHz spectrum audit, recovering 32% of 956 audited licenses. The spectrum recovered was from licensees no longer operating in their spectrum. The audit covered Phase 1 licenses in the QT, QD and QO radio services, which were awarded in a lottery before May 25, 2001, and can be used for 2-way voice and data services. The point of the audit was to update the Commission’s licensing database and to promote more efficient spectrum use by taking back spectrum from licensees that no longer were operating in it. The Bureau said the audit concluded last month with a 78% response rate to letters to licensees. The Bureau found: (1) 68% of licensees certified they had kept operations running for a year or more. (2) 10% certified their licenses cancelled automatically for discontinuance of operations. (3) 16% didn’t respond and their licenses expired during the audit and weren’t renewed. (4) 6% were deemed to have cancelled automatically because they failed to respond. The Bureau said it would conduct future audits in other wireless service that it would announce later. Under FCC rules, spectrum recovered from canceled site-based licenses, as well as spectrum from expired licenses, automatically reverts to the geographic licensees who won spectrum in the agency’s auction process.

The Satellite Industry Assn. (SIA), in a letter to Senate Commerce Committee Chmn. McCain (R-Ariz.), disputed Northpoint Technology statements about its treatment by the FCC. SIA disputed Northpoint’s claim that it was at a regulatory disadvantage to satellite providers. In an Oct. letter to McCain, Northpoint said Multichannel Video Distribution & Data Services (MVDDS) should be exempt from spectrum auctions because they would provide a competing service to satellite DBS providers (CD Oct 30 p14). Northpoint is lobbying for amendments that would grant such an auction exception. One such amendment was added to the Senate Commerce Justice State appropriations bill (S-1585). “Northpoint’s assertion contrasts sharply with the position of the Honorable [FCC] Chairman Michael Powell, who indicated in an October 23, 2003, letter to you that the last decade has seen ‘explosive wireless growth, innovation and competition,'” the Nov. 11 letter said. SIA also said that while the FCC hadn’t held an auction for domestic DBS licenses in more than 6 years, the Commission had auctioned satellite licenses in another domestic satellite service, including the Digital Audio Radio Satellite (DARS). The FCC also will auction several DBS orbital positions soon, the letter said. SIA said Northpoint also was wrong when it said the FCC had given Boeing spectrum without auction. The FCC didn’t give Boeing spectrum in the 12.2-12.7 GHz band, as SIA said Northpoint reported, and the spectrum award was analogous to satellite earth stations, which also aren’t auctioned.

The White House warned Congress again Mon. that it would veto legislation that changed the FCC’s newly adopted media ownership provisions. It issued a statement of administration policy (SAP) urging the Senate to remove the provision in the Senate Commerce Justice State (CJS) appropriations bill (S-1585) that would roll the broadcast ownership cap back to 35% from 45%. Although floor debate on S-1585 had been set for Mon. (CD Nov 10 p1), Minority Whip Reid (D-Nev.) delayed proceedings by speaking for hours on unemployment and other issues. The White House in the past has warned that it might veto legislation that changed the media ownership rules. And as it has in the past, the SAP used the “adviser veto theat” by warning that the President’s advisers would recommend that he veto the bill. The White House also urged the Senate to remove the “Northpoint amendment” and restore funding for the FCC’s auction program. The amendment would allow Multivideo Distribution & Data Services (MVDDS) companies -- such as Northpoint Technology - - to have access to the 12.2-12.7 GHz band without going through auction. The SAP said that one company, presumably Northpoint, would receive an “undeserved windfall” that the Congressional Budget Office estimated would be $100 million. It said the Northpoint amendment would deprive other companies that intended to compete in the Jan. auction for access to that spectrum. “Auction-based spectrum policy has been a mainstay of wireless services for a decade,” the SAP said. “Interfering with the efficient allocation of federal spectrum licenses by directing the award of licenses to a particular company would undermine the federal auction system and establish a damaging precedent.” Northpoint has said congressional reports showed that the value of the spectrum could be as low as $60 million. It has argued that auction of the spectrum is inconsistent since satellite companies have received spectrum without going through auction. The SAP also urged that funding for the Commerce Dept.’s Technology Administration be restored. By our deadline, there had been no debate on any CJS issues. It was unclear if or when the CJS bill would be debated. The Senate was scheduled to debate the Veterans Administration-Housing & Urban Development (VA-HUD) bill Tues., although sources said there could be some discussion of CJS as well. Senate Democrats have said they were upset about a 30-hour debate on judicial nominations, which sources suggested was why Reid delayed consideration of CJS.

The Satellite Bcstg. & Communications Assn. (SBCA) told Congress that Northpoint wouldn’t “hesitate to dissemble and twist the facts in order to achieve its real goal of enriching itself by receiving spectrum for free from Congress.” Northpoint in a recent letter to Sen. McCain (R- Ariz.) gave information about who would benefit if Northpoint received spectrum outside of an auction. McCain later said the letter didn’t provide the requested information (CD Oct 30 p13). SBCA said Northpoint had argued repeatedly that it applied for spectrum at the same time as Hughes, but only Hughes would receive the spectrum without auction. SBCA said the statement was false: “The applications mentioned by Northpoint were not for the provision of DBS service and have, in fact, been withdrawn, meaning that Hughes will never ‘receive’ any ‘licenses’.” While certain licenses have been granted without auction, SBCA said the 500-license figure cited by Northpoint was “improperly inflated” because it included FSS applications that Northpoint wouldn’t compete against. Northpoint cited a prohibition on auctions for completely different satellite services to make its point, SBCA said, but didn’t “mention the many examples of terrestrial services like its own planned service, such as the wireless cable providers that already compete in the multichannel video program distributor (MVPD) market.” While Northpoint has cited reports claiming consumer savings of $2.78 billion annually with additional multichannel video distribution and data service (MVDDS) competition, SBCA said, it doesn’t explain why those benefits aren’t already realized through existing wireless cable services such as local multipoint distribution services (LMDS) and multichannel multipoint distribution services (MMDS). “The satellite TV industry has never opposed the emergence of these services for the simple reason that they posed no risk of electrical interference into its DBS service… Nevertheless… wireless cable has not been economically viable.” Separately, a Northpoint said EchoStar was increasing its capacity and avoiding auctions in a “crafty way” by placing programming on SES Americom’s AMC-2, an FSS satellite: “It is particularly curious that SBCA claims we misled you on the grounds that many of the 500 nonauctioned satellite licenses we cite are FSS licenses, when EchoStar is now using an FSS satellite to provide DBS service to consumers today.”

Nucentrix Broadband Networks said Thurs. that Nextel was the winner in a bankruptcy court auction for its Multipoint Distribution Service (MDS) and Multichannel Multipoint Distribution Service (MMDS) licenses and other assets for $51 million. In July, Nextel also had won approval in a separate bankruptcy court for the MMDS and MDS spectrum of WorldCom for $144 million. Nucentrix said Nextel Spectrum Acquisition Corp. emerged the winner after a 2-day auction. The sale also includes certain spectrum and tower leases. The deal is subject to bankruptcy court approval. The proposed acquisition would increase Nextel’s fixed wireless holdings significantly because Nucentrix is the 3rd-largest holder of MMDS and ITFS spectrum in the U.S. Nucentrix said it held the rights to an average of 128 MHz of MDS, MMDS and ITFS spectrum covering 8.2 million households in more than 90 mostly medium and small markets in Tex., Okla. and the Midwest. The company said Nextel agreed to provide financing to fund Nucentrix’s operations as a debtor in possession under the bankruptcy code through the closing of the bankruptcy proceedings, expected in the 2nd or 3rd quarter of 2004.