Designated Entities Defend DE Program in Wake of AWS-3 Auction

“The history of the DE program illustrates that DE alliances between small businesses and large investors have long played an important role in spectrum auctions,” Council Tree said. “Over the last two decades, there have been numerous such alliances, and the participants comprise a veritable ‘who’s who’ of the wireless industry.” AT&T, Sprint, T-Mobile, U.S. Cellular and Verizon, the nation’s five largest carriers, “have all formed alliances with DEs in the past,” Council Tree said. “Large incumbents’ criticisms of DEs that bid actively in the recent AWS-3 auction and made that auction the most competitive and successful in FCC history conveniently and tellingly ignore not only their past participation in, and their benefit from, the DE program, but also the simple fact that DEs are only able to bid for licenses to serve large, regional or national markets if they have large dollar amounts to bid,” the DE said.

DE participation in the AWS-3 auction drove prices to “surprising record levels” and is expected to have a similar effect on the TV incentive auction, Council Tree said. The more than 30 proposals made by the FCC in the PN would all have the same effect, the DE argued. The proposals would “effectively preclude large dollar DE bids at auction and preserve the status quo in the highly concentrated wireless marketplace. These proposals lack support in data and fact, and their proponents fail to even attempt to harmonize them with the Statutory Mandates, Commission precedent, or the public interest.”

Council Tree fought a long battle to convince the U.S. Court of Appeals for the 3rd Circuit to order changes to the DE rules four years ago, after the FCC tightened restrictions on what DEs could do with the spectrum they bought prior to the 2008 AWS-1 auction (see 1008250077). The rules approved for that auction led to record low bidding by DEs there and in the 700 MHz auction -- only 4 percent of the total value of the licenses sold in the AWS-1 auction and 2.6 percent in the 700 MHz auction went to DEs, Council Tree said. “In essence, the DE PN puts the FCC back on the precipice of a potentially devastating overhaul of the entire DE program within months of a major auction, in this case the Broadcast Incentive Auction,” it said.

Doyon and Chugach, two of the 13 native regional corporations established by Congress under the Alaska Native Claims Settlement Act, said the FCC should preserve rules that allow actual DEs to thrive. Both have participated in FCC auctions, they said. Doyon was one of the partners behind Northstar Wireless, one of the DEs Dish used in the AWS-3 auction. “The Designated Entity program is not intended to be limited to small or rural wireless providers,” the native groups said. “The program has historically encompassed small firms partnering with larger investors with greater access to capital, facilitating Designated Entity competition against large incumbents in large markets and on a nationwide level.” For many DEs access to capital is limited and they need to form partnerships with larger companies, Doyon and Chugach said.

The National Congress of American Indians made a similar argument. “Access to and obtaining spectrum licenses historically and presently eludes tribes due to the immense capital needed to competitively bid in spectrum auctions,” the group said. “The promulgation of rules that [aim] to rescind or increase limitations on certain bidding credits will only further prohibit tribal participation in future auctions, and cripple tribal efforts to deploy wireless services on their lands.”

T-Mobile also argued that DEs should have to provide some evidence of buildout activity after they take possession of a spectrum license. This includes “engaging in due diligence activities, hiring employees or contractors, conducting site acquisition surveys, entering into lease, co-location, or network share agreements, or negotiating with vendors, within one year of acquiring a license,” T-Mobile said.

The Competitive Carriers Association urged the FCC to preserve a strong DE program, with an emphasis on bidding credits for small businesses. CCA urged “modest” reforms to the program, but called for changes that keep the interests of smaller carriers in mind. “Greater participation by DEs through innovative and pro-competitive business arrangements is necessitated in part due to the rising cost of spectrum, both at auction and on the secondary market,” CCA said. For example, the FCC could require that DEs demonstrate in a given time frame that they are using the spectrum they bought, the group said. Noting that T-Mobile has urged that DEs be required to show some evidence of buildout activity within a year of acquiring the license or upon clearing spectrum incumbents CCA said, “While CCA supports such a proposal in concept, the devil is in the details. We caution the Commission not to impose overly burdensome obligations that would hamstring smaller carriers’ ability to compete or raise capital for the auction.”

Sprint said the rules should allow joint bidding by national carriers, provided they don’t hold a dominant position in spectrum below 1-GHz, but prohibit two DEs with ties to a single company bidding in the same market. “This prohibition would eliminate the risk of commonly-controlled entities coordinating bids and gaining an unfair advantage over other bidders,” Sprint said. Reports surfaced last year that Sprint and T-Mobile had discussed jointly raising some $10 billion to spend in the incentive auction (see 1407160032).

Joint bidding should be allowed on a “case-by-case” basis, said T-Mobile, widely expected to be a major bidder in the incentive auction. T-Mobile said 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, should be strengthened rather than eliminated. “The only justification advanced in the record for repealing the AMR rule is an unsupported claim that it excessively interferes with designated entities’ ability to acquire capital,” the carrier said. “The AWS-3 auction confirmed that this concern is illusory at best. A number of designated entities participated and won licenses in the AWS-3 auction; two spent a total of more than $10 billion combined.”