DE Rule Hurts Wholesalers in Open-Access Bidding, Frontline Says
Opening FCC designated entity rules to wholesalers will be Frontline’s “No. 1 priority” on a petition for reconsideration filing due Sept. 24, Frontline attorney Jonathan Blake said in an interview. The filing follows an Aug. 22 meeting between Blake and FCC General Counsel Sam Feder on an FCC rule restricting wholesale businesses from designated entity status. Unless dropped, that rule would “handicap” Frontline and other wholesalers’ ability to take part in the 700 MHz auction, Blake said, suggesting that harm would come to open access if that is the case.
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Congress mandated designated entity rules for spectrum auctions to level the playing field for new entrants, small businesses and minorities seeking to bid. Designated entities get bidding credits worth 15 or 25 percent. To get DE status, a business must meet requirements related to net worth, income and relationships with “deeper pocket investors,” Blake said. In mid-1997, the FCC tightened rules for designated entity applicants’ business arrangements with big carriers, a move to stop small business fronts and other shams, Blake said. One change was to restrict entry into the DE ranks of businesses whose customer base is at least half wholesale, he said.
Last year the 1997 rules last year drew suits by designated entities led by Council Tree after the advanced wireless services auction. A decision by the 3rd U.S. Circuit Court of Appeals in Philadelphia is expected within weeks. At May arguments, judges expressed strong concern about the effects of overturning the auction (CD May 24 p2).
The wholesale rule conflicts with the 700 MHz auction’s open access requirements, Blake said. Frontline and other wholesalers are ideal for open access C-block spectrum because they're less likely to discriminate in favor of themselves and more likely to serve the public interest, he said. But wholesalers won’t get much spectrum if the FCC won’t give them designated-entity credit they need to compete, he said. “If wholesale is a good thing and small businesses are a good thing, then why should [small business wholesalers] be disqualified?”
Blake said recent FCC developments prove it’s possible to get the rule dropped. In its 700 MHz service rules order, the FCC backpedaled from an April 25 statement that “small businesses should not bid on nationwide license because by definition they lack the capital to implement and operate them,” he said. In the July 31 order, FCC said it would provide 15 and 25 percent designated-entity credit “to encourage the widest range of potentially qualified applicants to participate in bidding for the D block license.” The order didn’t address the FCC’s other April 25 argument that wholesaling “would automatically make [a small business] ineligible for bidding credit.”
Frontline opponent CTIA backs current FCC auction rules, a spokesman for the wireless association said. Verizon, another opponent, declined to comment.