WIRELESS CARRIERS CHALLENGE RESULTS OF FCC $17 BILLION AUCTION

TPS Utilicom, which had participated in auction as designated entity with 25% bidding credit, petitioned to deny license applications of Alaska Native Wireless (ANW). ANW, designated entity in which AT&T Wireless has 39% noncontrolling stake, made nearly $2.9 billion in winning bids in C-block auction (CD Jan 29 p1). TPS said in filing that ANW failed to: (1) Comply with FCC rules on entrepreneur status and very small bidder status. (2) To complete its license application “with the requisite candor required of an FCC licensee.” In part, TPS notes that ANW told FCC that it had no gross revenue for 1998, 1999 or 2000 and $1,000 in total assets as of Nov. 6. “The applicant fails however to properly advise the Commission of the assets and revenues of certain controlling interests and affiliates, particularly AT&T, which disqualify the applicant for the use of the very small business credit,” TPS said. When factors such as warrants, stock options and convertible debentures are considered on fully diluted basis, AT&T has both “de jure control” and de facto control of ANW, TPS said.

“With nearly 80% of the membership interest in the applicant, AT&T exercises control by virtue of its ownership,” TPS said. “As such, the specific concern could choose to breach agreements entered into by Alaska and further exercise complete control of the applicant. Such control, on a fully diluted basis, is the very abuse which was considered by the FCC in adopting these rules.” TPS also cited 17 controls over ANW that AT&T has, as laid out in filings made by ANW for licenses. TPS said these include requirement for approval of payment of director, officer or employee salaries. TPS also filed petition to deny 14 license applications of DCC PCS. TPS contends in filing that DCC is seeking entrepreneur eligibility under incorrect grandfather exception provided by FCC. TPS cites $200 million deal that Dobson Communications, of which DCC is subsidiary, struck with AT&T Wireless for preferred stock. Referring to pre-auction deadline for filing short form information with FCC, TPS said “DCC is less than forthcoming in disclosing AT&T’s interest at the short form filing deadline.” TPS said that convertible debenture existed at time that short form was filed, meaning de jure control may have existed on filing date.

Source close to ANW said arguments of TPS weren’t valid. On alleged lack of candor, source pointed to 77 pages in ANW’s long- form application, including exhibits on ownership. In other areas, also, source said ANW complied with ownership requirements, noting that agency’s rules made distinction between control and potential equity ownership. Source said that on fully diluted basis, including debt that could be converted to ownership, percentage of ownership was 79.9%, but TPS appeared to be confusing control and potential equity stake.

In case of 21st Century, challenge centers on Syracuse license it won in 1996 for $16.91 million, which DCC PCS won in recent reauction. FCC automatically cancelled all 19 PCS licenses that 21st Century won after it missed Jan. 27, 2000, late payment deadline. On due process grounds, 21st Century sought reconsideration of its license revocation. Commission turned down company’s request, including 5th Amendment challenge to automatic cancellation rule. “Neither the Commission nor any court has ruled on 21st Century’s claim that the automatic cancellation rule is unconstitutional, both on its face and as applied to deprive 21st Century of licenses purchased from the government,” company’s petition said. As result, 21st Century is requesting reinstatement of 19 licenses, including Syracuse spectrum. If FCC grants DCC its application for Syracuse license, 21st Century could ultimately prevail on its constitutional challenge “and be denied ’the fruits of its victory,'” company said.

In case of Southern Communications, which is arm of energy giant Southern Co., firm is asking that FCC deny Cleveland, Tenn., C-block license that Salmon won for Cleveland, Tenn., market. Petition by Southern asks FCC to deny application to Southern until agency makes decision on appeal filed by Southern. Southern is appealing FCC decision that denied its request for waiver of installment payment deadlines and cancellation of Southern’s licenses. Southern sought limited waiver in April 1999 of FCC rules, asking permission to submit its C-block installment payment 2 days late. After Commission denied request, Southern filed for reconsideration in Nov. 1999, which FCC also turned down in Dec. 21, 2000, order. Southern now wants FCC to put off decision on Salmon license award until it addresses petition for further reconsideration that Southern filed in Jan. Southern contends that if FCC doesn’t clear its petition first, Salmon would begin build out of license, including making decision about wireless technology that would used in market. “Thus, Southern would be locked into using the technology to avoid disruption of service to the market if the license is ultimately awarded to Southern,” petition said.

Similarly, NextWave is asking that FCC defer decisions on C- block licenses won at auction until D.C. Circuit rules on its appeal. Court is set to hear oral arguments March 15 in NextWave case, which involves bulk of licenses that were won in FCC auction that ended in Jan. 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 contends were left to D.C. Circuit. Licenses for which NextWave is seeking deferral, or conditional approval, including those won by Alaska Native Wireless, which is designated entity backed by AT&T Wireless, Black Cross Wireless, Verizon Wireless, Cook Inlet/VoiceStream GSM, DCC PCS, Lafayette Communications, LastWave, Leap Wireless, MCG PCS II, Northcoast Communications, Poplar PCS, Salmon PCS and several others.

Prior to start of auction, NextWave unsuccessfully petitioned D.C. Circuit to stay auction, although court said it would expedite its consideration of case. NextWave argued to Commission in Fri.’s filing that it will receive its licenses back if it prevails in court challenge and “the D.C. Circuit is poised to render a decision on the merits of that challenge.” NextWave said: “Under those circumstances, the public interest would be served by deferring a decision… until the D.C. Circuit rules on the merits of NextWave’s pending appeal.” In part, NextWave is arguing that D.C. Circuit is expected to issue ruling shortly after oral arguments and that auction finished in less than 2 months. As result, according to NextWave, “the licensing process is advancing much more quickly than the Commission apparently anticipated” and FCC should defer decision until court rules.

Although Allegheny had been expected to file petition to deny, company finalized transaction with AT&T Wireless Fri. to buy 5 licenses that cover 1 million pops in Tex., said Dana Frix, Washington attorney for Allegheny. Allegheny had sought spectrum in first place to build out fixed wireless system, Frix said. “Over the last few months, we have met with many carriers who might have spectrum seeking to be able to do so in Tex.,” he said. Allegheny is paying for about half of licenses in cash and half in debt. Licenses consist of 10 MHz blocks in Corpus Christi, San Angelos, Big Spring, Eagle Pass and Victoria, Tex., he said. “We were unlucky in the auctions and our only interest was in obtaining the spectrum,” he said. Before auction started in Dec., Allegheny unsuccessfully attempted to put brakes on bidding with request to halt auction that D.C. Circuit turned down. Allegheny questioned whether Commission adequately analyzed what consisted of de facto control of designated entity bidders. Concerns of Allegheny had focused on extend to which designated entities were being edged out of bidding by larger carriers.

AT&T Wireless confirmed terms of deal, saying transfer of licenses were subject to regulatory approvals. AT&T Wireless had adequate spectrum in those markets “so we could give up” those licenses, he said.