Legg Mason said in research note Wed. that while govt. won in 70% of cases before U.S. Supreme Court, there were some vulnerabilities in govt.’s legal argument in NextWave case that “could tip the balance in NextWave’s favor.” Firm also said it appeared unlikely that winners of Jan. 2001 NextWave re-auction ultimately would have to pay for spectrum at total $16 billion set in that bidding. Pending high court review, FCC has refunded all but 15% of deposits paid by winning bidders, who would be required to pay full amount they bid on spectrum if court reversed U.S. Appeals Court, D.C., decision that had ruled against Commission’s cancellation of NextWave licenses for missed payment. Meanwhile, Wall St. Journal editorial Wed. took FCC to task over “ongoing NextWave spectrum fiasco,” arguing Commission decision to not release re-auction winners from their bid obligations “is paying havoc with an industry already in chaos.” Editorial said Verizon Wireless had $8.7 billion liability, “money it can’t effectively touch because of the 10-day future payment obligation.” It said FCC booked $4.8 billion that NextWave bid on those PCS licenses in federal budget in 1997 and then booked $16 billion from 2001 re- auction, as well, minus money lost from NextWave. “Chairman Michael Powell keeps promising a telecom revival, but this FCC money-grubbing doesn’t help,” editorial said. “The re- auction is tying up much-needed investment capital.” Journal referred to recent study by American Enterprise Institute economist Gregory Sidak that concluded that if released, $16 billion in NextWave re-auction overhang would increase gross domestic product by $19-$52 billion. Separately, Legg Mason cited mounting pressure for FCC to remove $16 billion re- auction overhang. CTIA and group of economists have urged FCC to cancel auction or allow winning bidders to opt out of obligations, citing drag on carrier finances. “Although the FCC may not act until after the Supreme Court decision, we believe that the FCC will find it increasingly difficult to stand by an abstract commitment to the integrity of the auction process in the face of mounting claims that such a position stands in the way of contributing to economic recovery,” Legg Mason said. Analyst report said it believed re-auction winners ultimately wouldn’t be compelled to pay prices set in bidding. Among vulnerabilities in arguments in case govt. has laid out to Supreme Court, Legg Mason cited: (1) Congress has carved out exceptions for other govt. actions taken to promote regulatory objectives, but not for spectrum auctions. (2) Justices may follow reasoning of D.C. Circuit, which focused on Sec. 525 of U.S. Bankruptcy Code, which stipulates federal agency can’t cancel license solely for nonpayment of debt dischargeable in bankruptcy. “It’s difficult to argue that the FCC cancelled the license for a reason other than solely because of NextWave’s failure to pay a dischargeable debt.” (3) High court could conclude that FCC created tension between Communications Act and bankruptcy law “by permitting the C-block auction winners to pay off unguaranteed debts in installments over 10 years.” However, report said that among factors that weighed in govt.’s favor in Supreme Court case was strong argument that D.C. Circuit’s decision placed Sec. 525 in conflict with Communications Act provision directing FCC to allocate spectrum by auction. Sidak study, set for Mon. release, is expected to say economic stimulus of releasing carriers from re-auction would free $12-$38 billion by end of 2005, date by which NextWave- related litigation is expected to play out if FCC wins at Supreme Court because of outstanding issues that would be taken up at D.C. Circuit.
NextWave told U.S. Supreme Court in brief filed Fri. that FCC’s revocation of its PCS licenses for missed payment was “obvious violation” of Bankruptcy Code. Friend-of-court briefs included one by 7 members of Congress, including Senate Judiciary Committee Chmn. Leahy (D-Vt.) and ranking Republican member Hatch (R-Utah). In lengthy filing, bankrupt C-block bidder disputed arguments by Commission in its appeal of U.S. Appeals Court, D.C., ruling last year. FCC argued to high court earlier this year that nothing in Bankruptcy Code was at stake in D.C. Circuit’s NextWave ruling that barred agency from enforcing regulatory conditions on disputed wireless licenses. Sec. 525 of Bankruptcy Code bars govt. agencies from revoking licenses of debtor or bankrupt entity solely because they haven’t paid dischargeable debt. “The FCC’s only answer to the plain text of Sec. 525 is to spend page after page restating, in many guises, the single point that Sec. 525 should not apply because NextWave’s licenses were revoked for regulatory rather than pecuniary reasons,” NextWave said. “But Sec. 525 contains no regulatory exception for the FCC, express or implied, and creating one would be at odds with Sec. 525 and the code generally.”
“Spectrum is too important a resource for administrative distribution, all spectrum should be in the market: Privately owned, sold and leased,” Gerald Faulhaber told Technology Advisory Council (TAC) at FCC hq Wed. Faulhaber, prof. of public policy and management at Wharton School of U. of Pa., also was FCC chief economist 2 years ago. He reconciled view of economists and engineers on govt. spectrum policy, saying both groups disliked spectrum allocation by “administrative fiat” but had “diametrically opposed” solutions on policy. Economists view U.S. system of distributing spectrum as analogous to former Soviet Union system of planned economy, Faulhaber said: “Spectrum scarcity is artificial, induced by regulation.” Economists have called for spectrum auctions for decades, he said, citing testimony to FCC by economist Ronald Coase in 1959: “Finally in 1993, Congress decided to experiment with the first auctions.” But to date auctions “have distributed a very small portion of available spectrum, only 120 MHz,” he said. He called for auctions of all spectrum including that used by Dept. of Defense and public safety. “Governments usually buy their own units -- police cars, computers, etc. - - with tax dollars. Why should spectrum be different?” Faulhaber asked. He compared Part 15 unregulated spectrum with public park. “This is a place where anyone can play as long as they follow the rules. Governments build parks by buying land, or in the case of Part 15, they would buy spectrum for public use.” Turning to engineers, he said as group they were as frustrated economists except that “they critique the system based on new radio technologies.” Examples include ultra-wide band, which “trades power for bandwidth,” and software defined radio. “These new technologies suggest many users can use the same bandwidth, a ‘commons’ model vs. the ownership model preferred by economists.” Despite inertia of current system in which license holders have vested interest, Faulhaber proposed 2 models for spectrum in free market: (1) Ownership without interference. Others would be allowed to use spectrum but not interfere with owner’s “absolute use priority.” “This is the spectrum equivalent of an easement on land,” he said. Model would depend on agile radio devices that could check whether spectrum was free and “ask” permission to make transmission. Proposal raised many questions from TAC group on enforcement of noninterference. Disputes would move from FCC to courts, Faulhaber admitted, suggesting that special “spectrum courts” be established. Spectrum “property rights need to be spelled out in great detail,” he said. (2) Ownership with leasing. Owners of spectrum would be allowed to lease under variety of terms -- including in real time, the equivalent of “spot market,” Faulhaber said. In either scenario, moving all spectrum to markets in combination with dynamic allocation “would free up so much spectrum its cost essentially would be zero.” With exception of “prime” spectrum such as cellular-friendly and legacy applications such as broadcast, which still would have value, wide availability of nearly free spectrum “would be a de facto commons model,” he said. Next scheduled meeting of TAC is Sept. 18.
FCC appeared to be weighing at least brief delay for one upcoming 700 MHz auction, although details still were in flux at our deadline and final decision on whether there would be postponement still wasn’t clear. Staffs of Sen. Stevens (R- Alaska), House Commerce Committee Chmn. Tauzin and Senate Commerce Committee Chmn. Hollings (D-S.C.) met late Wed. on potential compromise scenarios, although no progress appeared to have been made, sources said. Several industry observers also said that because FCC decision was coming so close to May 28 deadline for upfront payments in auctions, it could approve short delay in payment deadline. Among possibilities Commission appeared to be mulling Thurs. was holding lower band auction on time for 700 MHz and allowing short delay, possibly of 6 months, for upper band. One source said that several companies as of late Thurs. already had made wire transfer payments to FCC to participate in lower band auction.
Regulators should allow wireless networks to evolve on Internet model of interconnected end-user devices without central network, rather than along model of Bell-based landline phone network, N.Y.U. Prof. Yochai Benkler told conference sponsored by New America Foundation and Public Knowledge (CD May 13 p2) recently. He said spectrum allocation threatened to make wireless communications -- including high-speed data services envisioned by 3G -- tied down to antiquated technologies and gatekeepers. “Wired networks will never be free,” Benkler said: “Wireless could be.” FCC last week liberalized Part 15 rules to allow greater flexibility in use of unlicensed spectrum for such services as 802.11 or Wi-Fi, which is used to extend broadband networks (CD May 17 p4). But Benkler called for more dramatic approach, “open spectrum commons,” where airwaves would be free and end-user devices would determine what was received.
MSTV supports delaying 700-MHz spectrum auctions, saying increased pressure for stations to vacate Ch. 52-69 would hurt public interest by increasing interference on lower channels. “Because we are in the middle of the DTV transition, the core television band is overcrowded with stations operating both analog and digital facilities,” said MSTV Pres. David Donovan in letter to FCC commissioners. He said eventual efficient use of remaining TV channels will require “repacking” stations, and June 19 auctions would make it “extremely difficult to devise a comprehensive, efficient spectrum plan.” He said MSTV, which helped develop DTV channel assignment plan, is working on detailed plan for core spectrum: “The difficulties of this task are enormous.”
Advanced Communications plans long-shot bid to get FCC to reopen case that denied fledgling DBS company extension of time to launch satellite system, CEO Dan Garner told us: “There is a lot of law and no justice.” Advanced filed petition last month to reopen case based on “previously unavailable” evidence. It said it never had opportunity to pursue remedies for order through discovery or depositions or otherwise present evidence on issues advanced in petition. It also asked FCC to stay proceedings on EchoStar takeover of Hughes Electronics and DirecTV until issue was settled because EchoStar and DirecTV ended up with spectrum from auction. Satellite attorney told us lawsuit was “desperate Hail Mary,” saying chances for success “were slim and none and slim had just left town.”
House Telecom Subcommittee ranking Democrat Markey (Mass.) is circulating draft bill that would create trust fund for digital technology grants out of future wireless auction proceeds. Draft bill also would allocate spectrum for advanced wireless services while keeping intact Bush Administration proposal for separate trust fund for govt. relocation proceeds for incumbent users that may be relocated from spectrum. Markey’s proposal, which panel of industry and academic experts at New America conference said Fri. has bipartisan backing, would reserve first $5 billion derived from applicable spectrum auctions to reimburse Dept. of Defense and other govt. agencies for vacating various spectrum bands. Rest of auction proceeds would be deposited into separate trust fund to provide grants for educational broadband technology and deployment projects, making those funds available to entities currently eligible for universal service funding. Up to $300 million from such grants would be made available annually to public TV stations to upgrade analog stations to digital. Markey is expected to introduce bill this week and Sen. Dodd (D-Conn.) is said to be drafting somewhat broader companion bill that also has bipartisan backing.
House Commerce Committee Chmn. Tauzin (R-La.), ranking Democrat Dingell (D-Mich.) and 50 co-sponsors unveiled bill Wed. that would direct FCC to delay upcoming 700 MHz auctions indefinitely, tying future timing to resolution of other thorny spectrum issues. Legislation would delay June 19 auction of upper and lower bands at 700 MHz, requiring FCC within one year to report to Congress on proposed rescheduling. Proposal outlines panoply of other spectrum proceedings that await resolution and would instruct FCC to not hold 700 MHz auction until there was plan to resolve 800 MHz interference issues for public safety. Backed by bipartisan bill, CTIA late Wed. filed application at FCC seeking full Commission review of Wireless Bureau decision earlier this month that kept June 19 date intact. Prospects for companion bill in Senate appeared to be somewhat less clear, although Sen. Brownback (R-Kan.) told reporters Wed. he might support similar bill if administrative actions failed.
FCC Wireless Bureau Wed. turned down CTIA request for delay of 700 MHz auction that’s scheduled for June 19. In denying petition, Wireless Bureau Chief Thomas Sugrue cited steps that agency already had taken to alleviate uncertainties involving that spectrum through policies such as voluntary clearing alternatives. “The current statutory scheme, which directs the Commission to conduct these auctions a number of years in advance of the end of the digital television transition period, ensures that uncertainties about the availability of certain portions of these bands may continue for some time,” Sugrue said. FCC faces statutory deadline of Sept. 30, 2002, for depositing proceeds from Chs. 52-59 auction in U.S. Treasury, and earlier statutory deadline for Chs. 60-69 already has been missed in postponements. “Although Congress is aware of this situation, it has not acted to address it by, for example, moving the auction deadlines back or moving the DTV transition forward,” Sugrue said. Congress also hasn’t acted on Administration budget proposal that would delay auctions, he said.