Concerns about the cost of spectrum auctions, and potential lack of congressional oversight, are what prompted the Senate Appropriations Commerce Justice State (CJS) Subcommittee to cut the FCC’s current source of funding for auctions (CD Sept 11 p1), sources said. The FCC uses an auction fund created from the proceeds of auctions, but S- 1585, the CJS Appropriations bill, would prohibit the Commission from using the fund, which some have said could jeopardize the auction program. A spokesman for Sen. Hollings (D-S.C.), the CJS Subcommittee ranking Democrat, said the measure was pushed by Subcommittee Chmn. Gregg (R- N.H.), but also was supported by Hollings. A Senate source said the auction funding was likely to be returned before Congress finalized its CJS spending measures.
Should Congress approve the so-called Northpoint amendment to the spectrum relocation trust fund legislation (HR-1320), it would “deal an unfortunate blow to the FCC’s efforts to move toward a more market-oriented and flexible spectrum regime that benefits the public at large,” said Randolph May, Progress & Freedom Foundation (PFF) Dir.- Communications Policy. The Senate Commerce Committee added the Northpoint amendment over the objections of Committee Chmn. McCain (R-Ariz.). House Commerce Committee Chmn. Tauzin (R-La.) said he would try to remove the amendment during the conference on the bill, which hasn’t yet been addressed by the full Senate. The amendment would give Northpoint spectrum in the 12.2-12.7 GHz band without going through an FCC auction. In a column for CNET News.com, May said: “Even though spectrum auctions may not always be appropriate… they are useful in moving in a free market direction. The prime reason: They are ways to place spectrum in the hands of those entities that value it most highly.” May said Northpoint was using a “furious lobbying campaign” to overturn the FCC’s decision to auction the spectrum. Part of the problem, May said, rests in Congress’ 1927 decision to bar private ownership of spectrum. “As long as government takes the position that it owns the spectrum and private parties use it only at its sufferance through limited licenses, spectrum allocation and assignment decisions will be subject to a certain degree of political maneuvering,” May said. Northpoint’s effort to obtain a “pioneer exemption” ignores the fact that Congress abolished that standard because of the difficulty of making licensing decisions on “bureaucratic judgments concerning innovativeness,” he said. Also, May said Northpoint shouldn’t be given spectrum that competitors have paid for. However, Northpoint responded that it was arguing for equal, not special, treatment. Antoinette Bush, Northpoint exec. vp, said DBS outlets didn’t have to go through auction.
The Telecommunications Development Fund (TDF), set up by Congress to help small communications firms get started, has spent nearly as much on salaries as it has investing in companies, according to an investigation by the Center for Public Integrity. The study released late Wed. said TDF paid $7.25 million in executive salaries and administrative costs from 1998 through 2001 while investing $9.4 million in 7 companies. The center also questioned why FCC Chmn. Powell appointed himself to the board, saying there could be conflicts in the top regulator’s having involvement in a venture capital fund. An FCC spokesman noted that the Telecom Act, which created TDF, required the FCC to have a representative on the board, along with representatives of the Small Business Administration and the Treasury Dept. and 4 public members. Then-FCC Chmn. William Kennard also was on TDF, the spokesman said. TDF is funded by interest payments on up-front deposits paid by companies participating in spectrum auctions. The study also said TDF CEO Ginger Lew, ex-Small Business Administration, was paid $245,000 in 2001 and said she had connections to John Huang, who was involved in a campaign finance scandal during the Clinton Administration that was known as China-gate. The center’s news release quoted Lew as saying her only connection to Huang was that they worked at the Commerce Dept. at the same time. The center also questioned why the board of directors and its advisory board were almost entirely made up of representatives of large companies, saying there should be input from small business representatives.
The House is scheduled to take up the spectrum trust fund legislation at 10:15 a.m. today (Wed.) The bill, which is on the suspension calendar, is expected to pass. A suspension bill must have no amendments and get 2/3 of House votes. At introduction of the bill, some House Commerce Committee members expressed concerns that appropriators might interpret the bill as usurping spending authority from the Appropriations Committee. The proposed Commercial Spectrum Enhancement Act (HR-1320) by House Telecom Subcommittee Chmn. Upton (R-Mich.) would create a trust fund paid for through spectrum auctions that would help reimburse govt. agencies that relocated to new spectrum bands, thus making more spectrum available for commercial usage. The Commerce Committee passed the bill April 30 on voice vote (CD May 1 p1). House appropriators will pose no objections to the bill, an Appropriations Committee spokesman said. A spokesman for Upton said little opposition to the bill was expected, as did other House sources. However, the timing of the bill could pose problems for the Telecom Subcommittee. It has scheduled a hearing on emergency responder spectrum issues at 11 a.m. in Rm. 2322, Rayburn Bldg. Upton’s spokesman said if the bill was addressed at or around 10:15 a.m., it should be passed by the time the hearing began. A markup of similar legislation in the Senate Commerce Committee is tentatively scheduled for June 19. That bill (S-865) by Senate Commerce Committee Chmn. McCain (R-Ariz.) was taken directly from the House version after it passed the Telecom Subcommittee markup (CD April 10 p1). Commerce Committee spokesman Ken Johnson said that despite the fact that members were upset about the Congressional Budget Office price tag for the bill of $2.5 billion over 10 years, it still fell within budget parameters and avoided potential confrontation with House appropriators. “We've got the votes,” Johnson said. He also said the committee was optimistic about similar legislation in the Senate.
NextWave sought approval from a bankruptcy court Fri. for a $150 million partnership agreement with investment firm Clarity Partners to work on new spectrum acquisitions. The proposed acquisition venture, called IPCom, which Clarity would form and fund, came amid continued speculation that NextWave was nearing a deal to sell Cingular Wireless 20% of its PCS licenses for nearly $1.4 billion. Clarity is a Beverly Hills-based private equity firm that focuses on media and telecom investments and has holdings in Oxygen, PrimeCo and MetroPCS.
The FCC said Thurs. it had adopted an exemption for rural telephone cooperatives from a revenue attribution requirement for small business preferences in Commission auctions. Chmn. Powell and Comr. Adelstein said the changes were designed to cure the “mistake” of rural cooperatives’ not being carved out from the auction attribution rules. Those rules were designed to bar large companies from manipulations so they could qualify as small entities for certain benefits, such as bidding credits. The agency said the step was designed to “increase the ability of rural telephone cooperatives to participate in spectrum auctions and provide service in rural areas.” The exemption involves the requirement that the gross revenue of entities controlled by an applicant’s officers and directors be attributed to the applicant when determining eligibility for small business preferences, such as bidding credits. The exemption is available to prospective auction participants under certain conditions: (1) The applicant is “validly organized” as a cooperative under state law. (2) The gross revenue and other financial and management resources of the affiliates of the applicant’s officers and directors aren’t available to the applicant. (3) The applicant is a rural telephone company as defined by the Communications Act. (4) The applicant is eligible for tax-exempt status under the tax code. Powell and Adelstein said: “Unfortunately, our rules have not always appreciated their unique structures and roles.” They said the FCC’s attribution rules, which require that gross revenue of entities controlled by an applicant’s officers and directors be attributed to the applicant, are important. Those rules bar applicants from obtaining bidding credits that are more favorable than justified, they said. “The rule as crafted, however, had the unintended consequence of attributing to rural telephone cooperatives the gross revenues of the outside business interests of its officers and directors even though these officers and directors do not control the cooperatives,” they wrote. Such cooperatives usually are controlled by member-subscribers and are nonprofit entities, Powell and Abernathy said. Comr. Martin in a separate statement said: “I am hopeful that this will enable greater participation in spectrum auctions by rural cooperatives and will provide greater rural deployment of wireless services.”
The Office of Communication of the United Church of Christ (UCC) opposed a recent request to the FCC by WorldCom for a ruling that SkyTel and its other wireless affiliates could participate in May 13 spectrum auctions. At issue is whether SkyTel qualifies to compete in a paging band auction amid questions over the default status of 2 Multipoint Distribution Service licenses held by Wireless One, which is another WorldCom affiliate. FCC rules say that bidders are eligible to take part in an auction only if they have satisfied outstanding installment payment defaults. WorldCom sought a ruling that its wireless subsidiaries were in compliance with the auction eligibility rules or a waiver of those rules. UCC told the FCC Fri. that WorldCom “committed massive fraud resulting in the largest bankruptcy in U.S. history. It would be simply unfair to allow WorldCom, a company known to operate fraudulently, to participate in future FCC auctions without fully complying with the FCC’s auction eligibility rules. To do so would eviscerate the purpose of the FCC’s auction eligibility rules, which in part are to deter speculation and insincere bidding as well as to ensure that a particular authorization goes to the auction participant that values the authorization most.”
The international telecom market will grow at 10.1% this year to $1.4 trillion, reversing declines in 2001-2002, the TIA’s “2003 Telecom Market Review & Forecast” said. It predicted the market would grow at a 10.3% compound average growth rate through 2006, encouraged by increases in wireless and support services. TIA said the underlying demand for telecom remained strong, as Internet traffic and the need at the enterprise level for high-speed data transmission continued to grow rapidly, and the demand for mobile connectivity for both voice and data was expanding. The report said spending on landline transport services was beginning to be cannibalized by wireless services. International spending on communications transport services is expected to reach $788 billion in 2003 (up 10.5% over 2002) accompanied by a 2.7% uptick in international spending on telecom equipment to $247 billion in 2003, TIA said. It said the Asia-Pacific market was the largest regional area outside N. America, with total telecom revenue expected to reach $421.6 billion this year from $380 billion in 2002. TIA predicted that market would increase at a 9.1% clip through 2006. The report said the Japanese market continued its modest gains and China and India were growing rapidly with mobile phones subscribership growth in both countries exceeding 80% in recent years. It said revenue in Western Europe, the 2nd largest regional telecom market outside N. America, was expected to reach $362 billion in 2003, up 5.8%. Despite the difficulties faced by many carriers resulting from the 3G spectrum auctions, European operators are beginning to plan their strategies for rolling out advanced wireless networks encouraged by the decision to allow wireless carriers to share infrastructure, TIA said. It also said broadband rollout was beginning to accelerate in Europe and was expected to reach 10% penetration in 2003. Unlike in N. America, the report said, DSL is the most popular broadband access technology there, surpassing cable modems and accounting for 60% of broadband connections. TIA Pres. Matthew Flanigan said broadband and wireless were “the big drivers for the international market for” this year. He said broadband deployment was approaching critical mass in 2003 in many countries, “putting the market on an accelerated growth curve.” He said 3G and unlicensed wireless networks also were taking off this year and had “the potential to be a driver for the entire global market.”
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.