Clyburn, FCC Republicans Clash on Proposed Rules for Designated Entities

As expected, Pai and fellow FCC Republican Mike O'Rielly partially dissented and partially concurred on the NPRM. FCC officials said the rules were approved largely as proposed by Chairman Tom Wheeler, though with some tweaks sought by commissioners from both parties. The NPRM proposes to eliminate the attributable material relationship (AMR) rule, which limits the ability of a DE to lease out spectrum licenses it buys to another carrier rather than build out its own network.

"For over 20 years, the FCC has worked in a bipartisan manner to ensure that discounted spectrum could not just be passed along to large, well-funded corporations,” Pai said. All that would end with the rules proposed by the agency, he said. DEs could become, in effect, “taxpayer-funded middlemen,” he said. The NPRM allows DEs to “obtain taxpayer-funded discounts and then turn around and lease 100 percent of their spectrum to the world’s largest corporations,” Pai said. “It does absolutely nothing good for competition in the wireless marketplace to award bidding credits to entities that flip their spectrum to large incumbent providers.” Taxpayers are the losers when less money is paid for spectrum licenses, he said.

The FCC has always read Section 309(j) of the Omnibus Budget Reconciliation Act of 1993 as requiring DEs to provide facilities-based competition in return for buying spectrum at reduced prices, Pai said. “Given this strikingly consistent approach over many years, the NPRM’s abrupt assertion that the FCC’s facilities-based requirement was grounded in a misreading of legislative history belies credulity.” Pai said to get the results it sought, the FCC majority “engages in some revisionist history.”

Clyburn countered Pai’s arguments. In adopting the AMR rule in 2006, “the Commission moved away from the case-by-case examination of the relationships between DEs and lessees, which it had reaffirmed in the 2004 Secondary Markets Order, to a bright line rule that would require attribution,” said Clyburn, the commission’s longest serving member. Dropping the AMR requirement is especially critical given rising levels of wireless consolidation, she said.

Several commenters argue “the AMR rule is having an adverse effect on small businesses at a time when these entities are facing increasing challenges to compete effectively in the commercial wireless industry,” Clyburn said. “It appears to have prevented some small businesses, which previously qualified as DEs and had entered into spectrum leases before the rule was adopted, from participating as DEs in the auctions for valuable AWS-1 and 700 MHz spectrum.”

The FCC is not bound by earlier decisions, Clyburn said. The starting point should be the law itself, she said. “The term ‘facilities based service’ does not appear anywhere in Section 309(j),” she said. “Nor is there any other language in Section 309(j) which would compel the Commission to decide that entities who acquire licenses with small business bidding credits must use that spectrum to directly provide facilities based service.” The better reading of the statue is that “Congress gave the Commission wide discretion to adopt DE policies that strike an appropriate balance between (1) promoting small business participation in the wireless industry, and (2) deterring unjust enrichment,” she said.

O'Rielly, a former longtime Hill staffer, questioned whether the FCC ignores congressional intent in the NPRM in proposing to drop long-standing requirements that DEs offer facilities-based competition. “To support this about face, the item uses legal somersaults to justify the abandonment of our current precedent and seems to discard the true meaning of the statute and its legislative history in an ends-justify-the-means approach to achieve the desired outcome,” he said. O'Rielly said under the proposal small carriers could buy leases and then immediately integrate the spectrum into the network of a larger carrier. “Given this likelihood, it is hard to see how this wouldn’t sanction middlemen to underpay the American people for their collectively owned scare resource (i.e., spectrum) and pocket the money while doing almost nothing,” he said.

The Minority Media and Telecommunications Council understands that the comments filed on the NPRM will be critical, said Nicol Turner-Lee, MMTC vice president, in an interview. “The challenge is that we hope this comment period will shed light on the changing wireless marketplace and how we have to afford some flexibility to DEs to adopt more reasonable business arrangements and sustain themselves in this rapidly changing environment,” she said. MMTC is “excited” the commission released this NPRM, she said. “We expect [the rulemaking] will be completed in time for the incentive auction.”

The Rainbow PUSH Coalition in a statement called the NPRM “both necessary and timely.” “We, at Rainbow PUSH, feel that DEs can no longer wait to be included in the Commission’s most historic spectrum auctions of our time,” the group said.

The National Organization of Black County Officials praised the FCC for releasing the NPRM. “As legislators continuously seeking opportunities for job creation and wealth creation, we see the NPRM as empowering small businesses, minority- and women-owned businesses, and rural telephone companies to be real competitors in the burgeoning wireless ecosystem,” the group said.

Competitive Carriers Association President Steve Berry is “particularly pleased” the FCC proposes to modify the former defaulter rule, a change recommended by his group and other associations, said an emailed statement. CCA also supports the commission’s proposal to retain joint bidding rules for non-nationwide providers, he said. “With respect to joint bidding arrangements involving nationwide carriers, CCA plans to take a close look at the FCC’s proposals.”