FCC Seeks to Expand Participation of Small Businesses in Spectrum Auctions

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By Lydia Beyoud

Oct. 10 — The Federal Communications Commission issued a notice of proposed rulemaking (NPRM) that would limit joint bidding efforts in the commission's upcoming spectrum auctions and make it easier for smaller companies to bid for licenses.

The NPRM would revise some of the Part 1 Competitive Bidding Rules (WT Docket No. 14-170) to allow small businesses, rural telephone companies, and minority- and women-owned businesses—collectively known as designated entities (DE's)—to receive up to a 35 percent credit on the purchase of spectrum, in order to encourage greater participation in the auction.

The NPRM would also raise the bidding credit eligibility thresholds for larger DE's, as well as modify the former defaulter rule, eliminate duplicative reporting requirements, eliminate the attributable material relationship rule, and modify certain consortium bidding rules.

The proposed rules would also seek to eliminate the facilities-based requirement for DE businesses to provide primarily retail, facilities-based service directly to the public.

Elimination of the rule would allow DE's to more easily lease their spectrum to other wireless carriers, including the four largest companies, Verizon Wireless, AT&T Inc., Sprint Corp., T-Mobile US Inc., while still maintaining their DE status.

Joint Bidding Rules

The NPRM would also retain current rules allowing joint bidding arrangements among non-nationwide providers and prohibiting joint bidding arrangements among nationwide providers.

FCC Chairman Tom Wheeler first indicated in an Aug. 1 announcement that he was circulating the draft of the new NPRM that he intended to prohibit joint bidding among the four largest providers. Sprint and T-Mobile, the smaller of the nationwide broadband providers, had previously indicated an interest in joining forces during the incentive auction.

The FCC requested comment on whether to extend the unjust enrichment schedule from five to 10 years, which would require DE's to hold on to their spectrum for a longer period or pay a fine if they sold their license before the expiration of the period.

The rules would also seek to promote broadband deployment to under-served regions and “persistent poverty counties,” which comprise about 11 percent of all U.S. counties, according to the Department of Agriculture.

“An evaluation of these rules is particularly important now, in advance of an auction that holds historic potential for interested applicants to acquire licenses for below 1-GHz spectrum in the Broadcast Television Spectrum Incentive Auction,” the FCC said.

Commissioners' Mixed Responses

Democratic Commissioner Mignon Clyburn welcomed the NPRM, saying that the growth of wireless communications and consolidation within the industry require changes to the Attributable Material Relationship (AMR) rule.

The rule requires small businesses to attribute the gross revenues of another entity if that small business planned to apply for DE benefits and entered into an arrangement with that entity to lease, wholesale or resell more than 25 percent of the spectrum capacity to any one of its licenses to that entity.

“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 in her statement.

“The challenge for the Commission has been to find the proper balance between allowing small businesses to acquire spectrum through DE credits, on the one hand, while preventing parties from circumventing the purpose of those rules and being unjustly enriched, on the other,” Clyburn said.

The agency's two Republican commissioners, Mike O'Rielly and Ajit Pai, dissented in part to the NPRM, saying that the proposed changes would loosen restrictions on smaller broadband providers to pass along their licensed spectrum, obtained at a discount, to large, incumbent providers.

Such changes wouldn't serve the public interest, because taxpayers wouldn't receive the full value for the available spectrum, they said. “By failing to recover the full value of spectrum, we are adding to the national debt,” Pai said in his dissent.

Neither Wheeler nor fellow Democratic Commissioner Jessica Rosenworcel issued comment on the NPRM.

Public Policy Goals

The Minority Media Telecommunications Council said the proposed rules would encourage public policy goals of diversifying broadband service ownership.

“We're very excited that the commission has taken this historic step for increased inclusion and engagement,” MMTC Vice-President Nicol Turner-Lee told Bloomberg BNA. “Minority users over- index in the use of wireless services and should have the opportunity to also be owners of the facilities and licenses that power that ecosystem,” she said.

MMTC has previously raised concerns before the FCC that current competitive bidding rules disincentivized the participation of DE's in past spectrum auctions, Turner-Lee said. “We hope that there will not be any significant obstacles to this process being completed” so that DE's will have adequate time to raise the necessary capital to compete in the upcoming incentive auctions, she said.

The nation's growing Latino community could benefit from the NPRM, Latinos in Information Sciences and Technology Association (LISTA) said in a news release.

“Latinos continue to increase in their use of mobile devices and wireless services,” LISTA said. “We see today's release of the NPRM as the next step in ensuring that Latino consumers not only use these services, but also contribute to the production and ownership of wireless assets.”

The Competitive Carriers Association also welcomed the NPRM, saying that if adopted, many of the proposals would provide benefits for small businesses with economic challenges and lead to increased participation in future auctions.

“I'm particularly pleased the FCC proposes to modify the former defaulter rule, as recommended by CCA along with other associations, which will encourage broader participation among a wide range of carriers,” CCA President Steven K. Berry said.

The CCA will take a “close look” at the FCC's prohibition on joint bidding among nationwide providers, Berry said.

“We previously stated that we would oppose Commission action that would harm our carriers' ability to jointly participate in an auction; however, we agree with the FCC that fostering competition in the wireless market will ultimately benefit consumers,” he said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

Text of the NPRM is at https://apps.fcc.gov/edocs_public/attachmatch/FCC-14-146A1.pdf.