Wheeler Circulates Proposal for Revised DE Rules

Wheeler had committed to launching a DE rulemaking as part of the development of incentive auction rules. DEs have been in the news in recent weeks, but in a negative context. Many questions are being raised about the 3-2 FCC vote giving Grain Management and potentially other DEs a waiver of the attributable material relationship (AMR) rule, which otherwise could have barred Grain from bidding in upcoming auctions (CD July 29 p1).

"This is really about empowering small business,” a senior FCC official said Friday. “What we're trying to do is very straightforward and that is provide a path for small business to participate in the wireless economy, what we call the spectrum economy.” Rather than focusing on DEs, the NPRM would look at small businesses and realistic ways that they can play a role in the auction, the official said.

The NPRM would recognize that the wireless world has changed since the early spectrum auctions where DEs played a larger role, agency officials said Friday. It would examine the need to give smaller companies more flexibility to form business relationships and propose eliminating the AMR rule to refocus on whether the small business is independent or a stalking horse for a bigger company, officials said.

The draft NPRM looks at how to decide who should qualify for special treatment and bidder credits and proposes changes, such as raising the threshold for qualifying as a DE from $3 million in average annual revenue over the three years preceding the auction to $4 million, officials said. Without reaching tentative conclusion, the NPRM also would examine such issues as how big the bidding credits should be, whether there should be other tiers of eligibility and whether the FCC should examine bidding credits for specific business types -- such as where the principals overcame major disadvantages or where service is in a high-poverty area.

The NPRM would address ways to clean up auction rules and the need for changes to the former defaulter rule, which requires companies to make larger upfront payments for licenses if they ever defaulted on a license or were delinquent on a debt owed to a federal agency (CD June 3 p1), officials said. The draft also examines the commission’s joint bidding rules, tentatively concluding that joint bidding between nationwide providers should not be permitted, though such practices would be acceptable for smaller carriers.

Preston Padden, executive director of the Expanding Opportunities for Broadcasters Coalition, said the broadcasters he represents are pleased the FCC weighed in against “collusion” and joint bidding by wireless carriers. “Robust competition in the auction will maximize the amount of revenue raised and the amount of spectrum reallocated,” he said.

Jesse Jackson, president of the Rainbow PUSH Coalition, released a statement supporting the release of an NPRM. “The opportunity to compete in upcoming auctions is important to minority businesses -- incumbents and new entrants seeking to expand their spectrum holdings,” Jackson said. “We just hope that this process will generate updated rules that ensure DE participation in next year’s auction.”

Minority Media and Telecommunications Council President David Honig acknowledged in a statement that the wireless market has changed significantly since the rules were last updated. “Over the years, there has been administrative record in numerous auction-related rulemaking proceedings suggesting that several of the DE rules have been unreasonable market entry barriers for small businesses,” Honig said. “We look forward to this process to gathering record on how to remove these barriers and create diverse points of entry for DEs, especially those that are minority- and women-owned.”

The DE rules on the books at the FCC “are a by-product of an earlier time -- before data services became ubiquitous, before Congress instructed us to make more spectrum available to wireless networks, and, equally important, before consolidation in the wireless industry accelerated,” Wireless Bureau Chief Roger Sherman said Friday in an FCC blog post (http://fcc.us/XpHPXD). In the 1990s, the rules were aimed at small companies intent on providing facilities-based competition, he said.

The standard for economic opportunity “should take a broader, and longer, perspective,” Sherman said. It should take into account “significant challenges” competitors face in building wireless networks “and should provide smaller businesses -- including enterprises owned by women and minorities -- a better on-ramp into the wireless business,” he said.