Martin Pressed to Revise DE Rules Taking Effect Sat.
Designated entities (DEs), venture capitalists and rural groups are pressing the FCC for substantial changes to coming designated entity rules. Unless the FCC acts the next few days Council Tree, the Minority Media & Telecom Council (MMTC) and Bethel Native Corp. are expected to ask an appeals court to stay the order, set to take effect Sat. If the rules do kick in, they would apply to an advanced wireless services auction that starts Aug. 9. Sources disagree whether Chmn. Martin will yield to the pressure.
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The Sat. effective date for the rules comes 30 days after they were published in the Federal Register. If the FCC wants act “on its own motion” to change them, it would have to do so before then.
“We're trying to read the tea leaves here,” a DE source said. Those in Martin’s office “seem very interested in the real bottom line… It’s one thing to grant a 5-week extension of the auction that addresses a small portion of the legal claims, but granting the stay alone was kind of a wasted bullet.” The DE advocates want changes in unjust enrichment provisions in the DE rules the FCC approved in April and a cap on the percentage of spectrum purchased using credits that can be leased in an MVNO or other arrangement higher than the 25% set in the April rules (CD April 27 p4).
“With so many people looking to get wireless distribution, could you take on Virgin as your major customer?” the source said: “You couldn’t if they're going to use more than 25% of your capacity… It just shows the opportunities going forward. You've got a proven MVNO market. You've got an appetite building. The pressure is really being ratcheted up. There’s more letters coming in everyday.”
“We've heard rumors the Commission is considering doing something on their own motion,” said a 2nd DE source: “As always, the chairman’s office is playing things fairly close to the vest.” Other companies and groups may join Council Tree, MMTC and Bethel Native in seeking legal review, if the FCC doesn’t act, sources said.
The motives behind the new DE rules are murky, DEs and venture capitalists, including Coral Wireless, Columbia Capital and M/C Venture Partners, said in a filing this week. “If, as appears to be the case, the Commission would prefer for DEs to get their financial backing from financial institutions and venture capital firms rather than from large incumbent nationwide wireless carriers, then the Commission must be sensitive to the financial planning horizons of these types of investors,” the companies said: “A business transaction where there is no clear path to liquidity for 10 years is a very unattractive investment for the financial institutions and venture capital firms that traditionally have supported wireless start-up ventures.”
The Rural Telecom Group and NTCA want the FCC to revise the rules. “The broad limitations on leasing, reselling and wholesaling may dramatically impact NTCA’s members’ business plans for the spectrum and opportunities for auction financing,” NTCA said in a filing late last week. Officials with both said they weighed the risks of delaying the auction, but felt they had to respond.
“The DE rules and the unjust enrichment rules are just so awful the FCC needed to be aware that small and very small businesses are harmed by these rules,” said Ken Johnson, counsel to RTG: “We don’t mince words on this. It was basically weighing a delay in the auction versus just awful rules.”