Wireless Spectrum Auctions

As expected, House Telecom Subcommittee Chmn. Upton (R- Mich.) introduced legislation to create a spectrum reallocation trust fund. His proposed Commercial Spectrum Enhancement Act (HR-1320) would create a fund for agencies that relocated spectrum options to a different band or switch to non-spectrum-dependent facilities to transmit telecommunications. The trust fund would be created from spectrum auctions that must total at least 110% of the total estimated relocation expenses, Upton said: “There is a tremendous need for this bill. We must relocate federal government incumbents to comparable spectrum in order to make way for the commercial wireless industry, but the road to relocating government entities to comparable spectrum is unpaved and filled with potholes.” He said. “This legislation would pave that road, establishing procedures to ensure a timely, certain, and privately -- yet fully -- funded relocation of federal incumbent to comparable spectrum.” The Bush Administration included the trust fund in its FY 2004 budget and Upton introduced similar legislation late last year. Co-sponsors include Commerce Committee Chmn. Tauzin (R-La.), Reps. Towns (D-N.Y.), Boucher (D-Va.), Terry (R-Neb.), Green (D-Tex.). Senate Commerce Committee Chmn. McCain (R-Ariz.) has said he will introduce comparable legislation in the Senate.

Senate Commerce Committee Chmn. McCain (R-Ariz.) said he would introduce spectrum reallocation trust fund legislation “in the near future.” He made the announcement during a hearing Thurs. on the future of spectrum policy. His proposal will be designed to pay relocation costs of federal spectrum users that are forced to move to different spectrum.

Improvement in spectrum allocation process was key point in moderate Republican report on Dept. of Homeland Security (DHS) released Tues. Republican Main St. Partnership report, which makes recommendations for first 100 days of DHS, said Dept. should be given “place at the table” during spectrum negotiations.

Incoming Senate Communications Subcommittee Chmn. Burns (R-Mont.) is considering “hybrid” approach to spectrum auctions that which would require participants to prove effectiveness of their business models before they could enter process, aide said Tues. in audioconference sponsored by Communications Daily’s parent Warren Communications News. Mike Rawson, Burns’ senior policy adviser, likened senator’s tentative approach to way that public lands were allocated in 1800s.

Protection of universal service will be top priority for NTCA in next session of Congress, but bankruptcy and spectrum management also will be on its agenda. In news conference Wed., NTCA officials said Assn. would lobby for “fair and stable contribution methodology” for universal service fund (USF) and modifications of portability and identical support rules to prevent competitive carriers from claiming funds to detriment of local rural incumbents.

While there are “dramatic” differences between outgoing Senate Commerce Committee Chmn. Hollings (D-S.C.) and his likely successor, current ranking Republican McCain (Ariz.), former FCC Comr. Harold Furchtgott-Roth said it was unlikely Senate would pass sweeping legislation on broadband issues. In meeting with reporters Fri., Furchtgott-Roth said controversial bills such as Breaux-Nickles (S-2430) wouldn’t sail through even though Hollings -- legislation’s chief critic -- no longer can block them with power of his chairmanship. FCC is likely to make some of the changes sought in Breaux-Nickles and Tauzin-Dingell (HR-1542), making push for legislation less pertinent, he said. And McCain still is likely to have powerful critics, said Furchtgott- Roth, now fellow with American Enterprise Institute (AEI). Sen. Lott (R-Miss.), who is expected to become Senate majority leader, “has views on communications policy that don’t coincide with McCain’s views,” Furchtgott-Roth said. And “Hollings will have a much smaller platform to speak from, but he won’t go away,” he said. Hollings spokesman told us that online privacy bill would continue to be one of his top priorities in 108th Congress. While there may not be “tangible change” in committee’s agenda, there almost certainly will be “change in tone,” Furchtgott-Roth said. FCC Chmn. Powell doesn’t seem to be driven by signals from Capitol Hill and those signals are likely to get better, he said, as Powell has better relationship with McCain than he did with Hollings. Furchtgott-Roth said he wasn’t sure what type of spectrum policies McCain-controlled Commerce Committee would pursue. He said it’s not likely it would address Sen. Kerry’s (D-Mass.) Nextwave auction opt-out bill (S-2869) because FCC is likely to handle issue administratively. Furchtgott-Roth said FCC has been “suicidal” in administering spectrum auctions. “It’s difficult to understand their reluctance to admit they were wrong about the Nextwave auction,” he said. Furchtgott-Roth said FCC is moving too slowly on many proceedings, mainly because of fears that rules will be overturned in court.

Sponsors of NextWave bill in Senate and Senate Commerce Committee Chmn. Hollings (D-S.C.) sent letter to FCC Chmn. Powell urging Commission to “immediately complete consideration” of agency’s proposal for opt-out provisions of NextWave auction. Letter urged complete release from auction, return of all deposits and freedom for companies that did opt-out to acquire spectrum in future. Sen. Kerry (D-Mass.), sponsor of S-2869 to allow auction opt-out, signed letter, along with principal co-sponsor Sen. Brownback (R- Kan.). Letter said potential $16 billion liability on companies was damaging wireless industry credit rating and was impeding carriers’ ability to take “interim steps, such as building out their networks further or leasing spectrum from others, that may be urgently needed to improve service for its customers.” It said there was no “sound policy sense” to hold carriers to liability when govt. couldn’t deliver spectrum. U.S. Supreme Court heard NextWave’s objections to FCC’s seizure of licenses after company failed to make payments (CD Oct 9 p1). In comments to FCC on opt- out plan, several carriers recommended that companies that did opt out should be forced to forgo participation in spectrum auctions for period of time (CD Oct 16 p1). Nextel recommended 3 years. Hollings isn’t listed as co-sponsor of legislation, but he has floated alternative language to bill that included longer time for companies to decide whether they want to opt out. Alaska Native Wireless urged FCC to provide 180-day period to allow opt out. Sen. Stevens (R- Alaska) said he had concerns about bill and Senate aides have told us he was seen as obstacle to passage. Senate aide told us bill wasn’t likely to pass with limited time left in Senate session. It has collected 59 co-sponsors. Senate returns Nov. 12, but length of lame-duck session hasn’t been announced. Senate aide also told us Sen. Biden (D-Del.) had placed hold on bill for reasons unrelated to issue. Biden also is listed as co-sponsor.

Bill introduced late Thurs. by House Commerce Committee leaders would establish new mechanism for reimbursing incumbent federal spectrum users for their relocation costs. House Telecom Subcommittee Chmn. Upton (R-Mich.) introduced legislation (Commercial Spectrum Enhancement Act) with Commerce Committee Chmn. Tauzin (R-La.) that would place funds from spectrum auctions into new Spectrum Relocation Fund to cover relocation costs incurred by federal entities, Commerce Committee said. Auction proceeds currently are placed in General Fund. Bill also would guarantee federal incumbents received adequate compensation for expenditures related to relocating to other spectrum bands. Auction proceeds would have to equal 110% of total estimated relocation expenses, Committee said. If agency is required to relocate its spectrum operations, it must be able to achieve comparable telecom capability in new band, Committee said. Office of Management & Budget (OMB) and Congress are assigned oversight authority to ensure that incumbents make accurate estimates of their relocation costs and timelines, CTIA said. “The road to relocating federal government incumbents to comparable spectrum is unpaved and filled with potholes,” Upton said. Bill would “pave that road,” he said, by providing for timely and privately funded relocation plan. Tauzin said: “Earlier this year, we significantly changed spectrum auction policy by eliminating artificial deadlines that dictated when auctions had to occur. Now, with this bill, we are entering the second chapter in our spectrum management efforts.” He said bill would create system that’s more efficient and less expensive. “It is a win-win for the federal government and the wireless industry,” he said. CTIA Pres. Tom Wheeler said: “This proposal delivers exactly what America’s spectrum policy needs: Certainty. It brings certainty to the wireless industry, answering critical questions: What does it cost bidders? How long will it take to access the spectrum? And, most importantly, it provides certainty to American taxpayers -- the certainty that they won’t get stuck with relocation bills.”

Europe’s 3G sector needs policy support, not restrictions, to recover from current financial crisis, some Europe telecom industry representatives said at one-day workshop organized by European Commission (EC) Tues. in Brussels to examine results of study by McKinsey Consulting Group on 3G licensing regimes. “Where is the policy support for a financially strapped industry to exploit 3G technology? We don’t see this support forthcoming. Instead we see regulation of this emerging market in the making,” said European Telecom Network Operators’ Assn. (ETNO) Dir. Michael Bartholomew.

Legg Mason said in research note Wed. that while govt. won in 70% of cases before U.S. Supreme Court, there were some vulnerabilities in govt.’s legal argument in NextWave case that “could tip the balance in NextWave’s favor.” Firm also said it appeared unlikely that winners of Jan. 2001 NextWave re-auction ultimately would have to pay for spectrum at total $16 billion set in that bidding. Pending high court review, FCC has refunded all but 15% of deposits paid by winning bidders, who would be required to pay full amount they bid on spectrum if court reversed U.S. Appeals Court, D.C., decision that had ruled against Commission’s cancellation of NextWave licenses for missed payment. Meanwhile, Wall St. Journal editorial Wed. took FCC to task over “ongoing NextWave spectrum fiasco,” arguing Commission decision to not release re-auction winners from their bid obligations “is paying havoc with an industry already in chaos.” Editorial said Verizon Wireless had $8.7 billion liability, “money it can’t effectively touch because of the 10-day future payment obligation.” It said FCC booked $4.8 billion that NextWave bid on those PCS licenses in federal budget in 1997 and then booked $16 billion from 2001 re- auction, as well, minus money lost from NextWave. “Chairman Michael Powell keeps promising a telecom revival, but this FCC money-grubbing doesn’t help,” editorial said. “The re- auction is tying up much-needed investment capital.” Journal referred to recent study by American Enterprise Institute economist Gregory Sidak that concluded that if released, $16 billion in NextWave re-auction overhang would increase gross domestic product by $19-$52 billion. Separately, Legg Mason cited mounting pressure for FCC to remove $16 billion re- auction overhang. CTIA and group of economists have urged FCC to cancel auction or allow winning bidders to opt out of obligations, citing drag on carrier finances. “Although the FCC may not act until after the Supreme Court decision, we believe that the FCC will find it increasingly difficult to stand by an abstract commitment to the integrity of the auction process in the face of mounting claims that such a position stands in the way of contributing to economic recovery,” Legg Mason said. Analyst report said it believed re-auction winners ultimately wouldn’t be compelled to pay prices set in bidding. Among vulnerabilities in arguments in case govt. has laid out to Supreme Court, Legg Mason cited: (1) Congress has carved out exceptions for other govt. actions taken to promote regulatory objectives, but not for spectrum auctions. (2) Justices may follow reasoning of D.C. Circuit, which focused on Sec. 525 of U.S. Bankruptcy Code, which stipulates federal agency can’t cancel license solely for nonpayment of debt dischargeable in bankruptcy. “It’s difficult to argue that the FCC cancelled the license for a reason other than solely because of NextWave’s failure to pay a dischargeable debt.” (3) High court could conclude that FCC created tension between Communications Act and bankruptcy law “by permitting the C-block auction winners to pay off unguaranteed debts in installments over 10 years.” However, report said that among factors that weighed in govt.’s favor in Supreme Court case was strong argument that D.C. Circuit’s decision placed Sec. 525 in conflict with Communications Act provision directing FCC to allocate spectrum by auction. Sidak study, set for Mon. release, is expected to say economic stimulus of releasing carriers from re-auction would free $12-$38 billion by end of 2005, date by which NextWave- related litigation is expected to play out if FCC wins at Supreme Court because of outstanding issues that would be taken up at D.C. Circuit.