Small telecom bidders ask court to void FCC spectrum auction
By Peg Brickley
Last Update: 4:14 PM ET May 23, 2007
http://www.marketwatch.com/news/story/small-telecom-bidders-ask-court/story.aspx?guid=%7B6F2B0C5B-209A-4DC3-87A3-CAB7A02B96B8%7D
http://tinyurl.com/2kdvam
Lawyers for small telecommunications bidders Wednesday asked a federal
appeals court in Philadelphia to throw out a $13.75 billion auction of
wireless spectrum on the grounds that last-minute changes made it
unfair.
Upsetting the August 2006 auction could "turn the industry upside
down," said William Lake, attorney for T-Mobile USA, a subsidiary of
German telecommunications giant Deutsche Telekom AG , and for a trade
association of wireless carriers, Washington, D.C.-based CTIA-The
Wireless Association.
T-Mobile was the largest winner at the big auction under attack,
claiming $4.2 billion worth of the spectrum in a sale of public
airwaves long reserved for government and official uses.
The Third Circuit Court of Appeals must decide whether to overturn the
auction, and what to do about Federal Communications Commission rule
changes that kicked in just before the big sale. The decision could
also have an impact on the next big FCC auction, expected by January
2008, of 700 megahertz band spectrum that is expected to fetch up to
$15 billion.
The FCC defended its auction rule changes as the fair product of a
fair process. If the appeals court voids the rules on technical
grounds, the FCC will likely enact substantially the same rules again,
said Joseph Palmore, deputy general counsel for the FCC.
Dennis Corbett, lawyer for Council Tree Communications Inc. and two
other auction challengers, said the FCC rule changes, almost on the
eve of the auction, put a damper on his clients' chances in the bidding.
In one crucial change, the FCC doubled the length of time winning
bidders must hold their spectrum before selling it, pushing the exit
horizon to 10 years, which is longer than the venture capitalists who
finance small bidders like to hold their investments.
Corbett said the changes frightened off private equity investors.
"What the agency did here, instead of being proactive and helping
small businesses, it dropped those pianos on their heads," Corbett said.
With no one to stake them to a seat at the auction table, small
bidders can't compete with telecommunications giants hungry for
spectrum, Corbett said.
"When you go out to find capital, which is the hardest thing for a
small business, the investors need to know the rules of the road,"
Corbett said. He said the FCC acted with illegal haste last year, and
that the auction should be unwound.
Judges on the three-member panel that will decide whether last year's
auction results stand or fall expressed concern about creating a major
disturbance in the telecommunications industry.
"Nullifying the auction would be very disruptive," U.S. Court of
Appeals Judge Michael A. Chagares said.
However, Chagares suggested, vacating the FCC rule changes that small
bidders blamed for unfairness, a fix for future auctions, might be a
less drastic remedy.
Corbett, lawyer for the small bidders, said the court should get rid
of the new FCC rules in time for the next spectrum auction even if the
court decides there's nothing to be done about last year's auction.
"The 700 megahertz is a huge auction of beachfront spectrum," he said.
"These rules should not infect yet another auction. They're bad rules.
Get rid of them."
FCC attorney Palmore, however, warned that throwing out the rules
would make big trouble. "It would throw into question and create
incredible uncertainty for future auctions," he said.
The appeals court did not say when it will issue a decision. The court
could uphold the rules and last year's auction, vacate either the
rules or the auction, or do nothing, bowing to an FCC argument the
appeal didn't come in time.
In addition to Council Tree Communications, Bethel Native Corp. and
the Minority Media and Telecommunications Council are challenging the
FCC.
As "designated entities" under rules designed to make sure
deep-pocketed telecommunications enterprises don't dominate auctions,
they are entitled to bidding credits to compensate for their financial
disadvantages. Such entities often sell off acquired spectrum rights
to help finance their telecommunications ventures.
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