Wireless Spectrum Auctions

CTIA Pres. Thomas Wheeler said Tues. that wireless carriers were eyeing 1.7 GHz spectrum occupied by military users as “first choice” for obtaining more spectrum for 3rd-generation services. He and former FCC Chmn. Reed Hundt, now senior adviser with McKinsey & Co., spoke at New America Foundation lunch on wireless spectrum shortage. Turning to 1755-1850 MHz band would add to “global harmonization” of wireless bands used beyond U.S., Wheeler said, and 2500-2690 MHz band occupied by Multichannel Multipoint Distribution Service operators would be “2nd choice.” FCC and NTIA are looking at both bands as potential source of additional spectrum for next-generation services such as 3G.

Several wireless carriers told FCC that any steps to pave way toward development of secondary wireless market should rely on simple leasing rules, not existing limits such as spectrum cap restrictions. They strongly urged agency not to apply spectrum cap or unjust enrichment rules to lease deals. One theme among smaller carriers is that leasing arrangements can give them entree to truly compete in auctions because they could use proceeds from transactions to build out markets while retaining license ownership. Commenters on notice of proposed rulemaking (NPRM) on secondary wireless markets differed on details, including how regulatory requirements of original licensee should apply to lessees.

Mark Crosby, longtime pres. of Industrial Telecom Assn., is stepping down to head Access Spectrum, separate guardband bidding unit set up last year by ITA, Motorola, others. He also will remain senior policy adviser to ITA. ITA spokesman said move was “strategic shift” designed to “make sure Access Spectrum succeeds as a healthy source of frequency coordination for ITA.” ITA “already has been molded,” allowing Crosby to concentrate on unit that as band manager paid $69 million for 19 licenses in guardband auction, spokesman said. Crosby, who joined ITA’s predecessor Special Industrial Radio Service Assn. as intern 31 years ago, has been pres. for 26 years. He will be succeeded by ITA Exec. Dir. Laura Smith, ex-FCC staffer who moved to ITA in 1998. Smith worked at FCC for 8 years in Mass Media and Wireless bureaus.

Deutsche Telekom (DT) disputed reports that timeline of proposed mergers with Powertel and VoiceStream had slipped. Spokesman in Germany said company didn’t set midyear closing target until it filed proxy statement with SEC Fri. Filing said wireless merger wasn’t expected to close until “at least” May 31. Some analysts had expected wireless transaction to close in April or even earlier after remaining regulatory hurdles were cleared, including FCC approval. Germany’s DT made offer somewhat sweeter with new provision that would increase shares VoiceStream stockholders would own by 0.75%, raising number of shares that would be exchanged for DT stock.

In latest round in U.S. Appeals Court, D.C., involving cancelled NextWave C-block licenses, company filed reply brief this week reiterating arguments that FCC’s cancellation of licenses for missed payment wasn’t allowed under law “and is outrageous on the facts of this case.” Oral argument in Appeals Court is set for March 15. Last year, 2nd U.S. Appeals Court, N.Y., granted FCC petition in NextWave case, concluding agency had acted as regulator and not creditor when cancelling company’s licenses. NextWave has argued that 2nd Circuit’s ruling didn’t decide merits of case, which it said was left to D.C. Circuit. “In abruptly and retroactively cancelling NextWave’s licenses, the FCC disregarded its own regulations; ignored controlling provisions of the Bankruptcy Code; and repudiated more than 18 months of its own conduct, including numerous explicit statements and in-court representations that the licenses remained in NextWave’s possession,” NextWave brief said. “The FCC’s litigation position is directly inconsistent with its past statements and conduct, which repeatedly assured NextWave, its investors and creditors that NextWave was protected by the same legal rules that Congress created for everyone,” said Theodore Olson, who will argue for NextWave in oral argument. Opponents, including CTIA, AT&T Wireless, BellSouth, CTIA, Dobson Communications, Sprint PCS, Verizon Wireless and VoiceStream, filed brief Jan. 24 weighing in on side of FCC. They argued that court lacked jurisdiction “because NextWave failed to preserve any challenge at the Commission to the automatic cancellation of its licenses.” They also contended that 2nd Circuit already had concluded that U.S. Bankruptcy Code couldn’t “trump” regulatory purview of FCC to condition licenses on timely payment. “This case is about an entity that entered an FCC auction knowing full well it would have to pay the price if it won and then simply did not pay -- hiding instead behind the bankruptcy laws,” opponents said. Meanwhile, speaking at Comnet Conference & Expo in Washington Thurs., Verizon Wireless CEO Dennis Strigl, said one reason carrier praised FCC decision Wed. to postpone 700 MHz auction until Sept. was that by then court was expected to have ruled on NextWave case. By time Aug. filing date comes around for auction, “we should know the answer to that litigation,” he said. Verizon Wireless was by far largest winner of licenses in just- completed PCS auction, for which most of spectrum up for bid came from cancelled NextWave licenses. Results of auction are conditioned on outcome of litigation, so if NextWave ultimately prevails in court, it would win back licenses that were up for auction.

Look for new FCC Chmn. Powell to act fairly early in his tenure to institute measures to improve Commission’s operations, his senior adviser Peter Tenhula said Thurs. at ComNet’s annual “Town Meeting” panel moderated by attorney Richard Wiley. Asked by Wiley what regulatory initiatives Powell would undertake first, Tenhula said question was hard to answer because Powell’s first priority may be to improve agency’s operations. He said some 80% of FCC’s agenda is “reactive instead of proactive,” such as responding to petitions for rulemaking or acts of Congress, and Powell thinks agency “should be prepared to act on those quickly and efficiently.” Nearly everyone who came in to see Powell and his staff in his first week complained about “process,” such as delays in getting action or items becoming “stuck” in pipeline, Tenhula said.

Heeding requests of some wireless carriers, FCC’s Wireless Bureau Wed. pushed back start date of 700 MHz auction to Sept. 12 from March 6. “Under the current circumstances, the bureau believes that a brief delay is warranted to provide additional time for bidder preparation and planning and for reasons of auction administration,” it said. Agency had been working against Feb. 2 filing deadline for bidders to file short-form applications to participate in 700 MHz auction.

Not surprisingly, AT&T posted significant loss Mon. as it continued to face falling prices in long distance business and dealt with expenses in its broadband unit involving acquisition of MediaOne and impact of its investment in Excite@Home. Despite sharp decline, AT&T’s results were within analysts’ expectations for beleaguered company that’s in midst of restructuring itself. Bright spot was 39% revenue growth in company’s wireless unit, which it plans to spin off this year.

Lehman Bros. said Verizon Wireless paid average of $70.09 per pop for 113 licenses it bought in FCC’s C-block auction for $8.8 billion (CD Jan 29 p1). Research note said it was “very interesting” that company with “one of the strongest spectrum positions” before auction was most aggressive bidder. Strong stance Verizon Wireless took to acquire spectrum could be due to “bullishness” of venture partner Vodafone when it came to spectrum acquisitions, analysts said. Lehman said AT&T Wireless, investor in designated entity Alaska Native Wireless, focused on 30 markets where it needed to bolster spectrum position as it looked toward 3rd generation build-out. By adding 10 MHz in N.Y.C. and L.A., Lehman said, AT&T Wireless reached FCC’s 45 MHz spectrum cap in each of those markets through previous holdings of 10 MHz PCS license and 25 MHz cellular block.

FCC’s closely watched C- and F-block auction closed Fri., raising $16.9 billion, of which more than half will be paid by Verizon Wireless. Verizon and designated entities that have ties to Cingular and AT&T Wireless accounted for 83% of net revenue in auction of 422 licenses that started Dec. 12. Verizon filled in spectrum gaps in critical N.Y.C. market. It bid $8.78 billion for 113 licenses, nearly $4.1 billion of that for two 10 MHz licenses in N.Y. Revenue from auction surpassed lower end analyst expectations of $11 billion and surpassed record of $9.6 billion raised in 1996 C-block auction. Industry observers said Fri. they expected some large carriers’ financial arrangements with designated entities would draw challenges after bidders filed more detailed information with FCC on ownership structures. More broadly, several sources said they expected close of auction to refocus attention on wireless spectrum cap.