DoJ Asks FCC to Set Up Complex Test for Examining DE-Carrier Ties
Rather than establish a simple test, the FCC should examine the relationships between designated entities (DEs) and major carriers case-by-case before deciding whether to allow an auction bidder to qualify for DE credits during this summer’s advanced wireless services auction, DoJ said in a filing at the Commission.
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DoJ said in general it supports FCC attempts to “deny DE benefits” to smaller companies that form a “material relationship” to a major carrier. “The department believes this proposal will serve the public interest by ensuring that DEs are in fact small businesses,” DoJ said. But DoJ also said that based on its experience reviewing mergers the FCC should take into account a number of considerations in determining whether a material relationship exists.
The FCC had proposed a simple test. A DE would have to reimburse the govt. for credits if the Commission finds another entity provided a “material portion” of the total capitalization of the applicant or has any material operational arrangement with the applicant -- such as management, joint marketing, trademark, or other arrangements. But DoJ said relationships may be more complicated and the FCC should have flexible rules to address different situations.
“To ensure that DEs are independent small businesses, the FCC should adopt rules that allow for the consideration of a broad range of factors in determining whether a disqualifying material relationship exists,” DoJ said. “These factors include equity investments, debt instruments that provide for managerial, financial or operational control, management agreements and operational agreements that provide the large affiliate significant input into technology and equipment selection as well as other buildout decisions.”
In some cases, DoJ said, a mix of financial and operational relationships should disqualify a company from qualifying as a DE. In other cases, a single material financial or operational relationship “would be enough to deny DE benefits.”
Meanwhile, DE Council Tree met with Comrs. Copps and Adelstein and other FCC officials last week to make the case that the telecom industry supports proposed restrictions for DEs. Council Tree asked the Commission for restrictions. In initial comments, only 5 of 35 opposed restrictions, Council Tree said. Of 60 companies filing 17 replies, 5 were in opposition. Council Tree saw it as “notable” that 2 major wireless carriers, Sprint Nextel and Alltel, declined to file comments.