Verizon Wireless asked FCC to “promptly” refund its entire deposit from Jan. 2001 NextWave re-auction after U.S. Appeals Court, D.C., threw case into disarray by reversing FCC decision to cancel NextWave licenses for missed payment. D.C. Circuit on March 1 turned down Verizon petition asking that court compel “full compliance” with its June 2001 ruling, meaning that auction was void and all down payments should be returned (CD March 5 p2). Letter was written on same day as U.S. Supreme Court agreed to hear oral argument in FCC’s appeal of D.C. Circuit’s NextWave ruling. Re- auction winners asked FCC earlier this year to return $3.1 billion in down payments that agency has held without interest since Feb. 2001. Verizon Wireless, as largest re- auction winner, has largest deposit at stake, $1.7 billion. Citing D.C. Circuit’s denying Verizon’s petition that it enforce June 2001 ruling, company said in letter to FCC Deputy Gen. Counsel John Rogovin March 5: “We want to make clear that, to the extent the contract is not already void or voided, and to the extent we have the right to void the auction contract as to the NextWave licenses, we elect to void the contract.” Verizon Wireless said it didn’t want Commission to retain 3% or any portion of original bid prices. One expectation earlier this year had been that Commission might hang on to small portion of deposits after completing refunds to make it easier to revive settlement that expired Dec. 31. That proposed agreement by govt., re- auction winners and NextWave lapsed after Congress failed to approve pact. “The fact that we worked with the Commission in making a failed attempt at a legislated settlement plainly does not bar us from asserting the Commission’s breach of the auction contract,” Verizon Wireless Gen. Counsel Mark Tuller told Rogovin. Carrier hasn’t been able to “derive any value” from PCS licenses that were returned to NextWave, he said. Carrier said it had “had to incur costs in making alternative arrangements to satisfy capacity demands.” Saying it had been 13 months since auction and deposits hadn’t been returned, Verizon said that was “well beyond any reasonable time frame in which the government had the obligation to deliver the licenses to the winning bidder.” Meanwhile, status hearing in case was held last week in U.S. Bankruptcy Court, White Plains, N.Y. Judge Adlai Hardin reportedly set next status hearing for Oct. 22. He told participants at brief hearing that he expected that Supreme Court processes would take significant time and he suggested that participants in last round of settlement talks might want to talk again about fate of licenses. Legg Mason issued note to investors Fri. saying “one key question” in light of Supreme Court decision to take case was whether FCC would hold re- auction winners to their bid commitments “if the FCC definitively wins back the licenses, no matter how long it takes.” Legg Mason said: “This is critical because if the FCC does not release the winners from those obligations, the market will assume that almost $16 billion is tied up and cannot be used on other capital expenditures.” Report said that unless something short-circuited litigation, FCC was expected eventually to release re-auction winners from their obligations. “Keeping the winners on the hook to buy spectrum that could be tied up for several years may not be seen as serving the public interest, even if bidders were warned they assumed all litigation risks,” Legg Mason report said.
Wireless Spectrum Auctions
The FCC manages and licenses the electromagnetic spectrum used by wireless, broadcast, satellite and other telecommunications services for government and commercial users. This activity includes organizing specific telecommunications modes to only use specific frequencies and maintaining the licensing systems for each frequency such that communications services and devices using different bands receive as little interference as possible.
What are spectrum auctions?
The FCC will periodically hold auctions of unused or newly available spectrum frequencies, in which potential licensees can bid to acquire the rights to use a specific frequency for a specific purpose. As an example, over the last few years the U.S. government has conducted periodic auctions of different GHz bands to support the growth of 5G services.
Verizon expressed concerns to FCC Chmn. Powell this week about high-powered terrestrial repeaters that satellite digital audio radio service (DARS) providers have sought permission to operate. Wireless Communications Service (WCS) providers have told FCC they were concerned that high-powered repeaters would cause interference to their operations. Verizon Senior Vp-Federal Govt. Relations Edward Young said WCS licenses company purchased at auction in 1997 now represented “an economically viable platform for broadband services.” He said WCS “provides an important complement to our current strategy for delivering broadband via DSL technology.” Young told Powell WCS would facilitate economical deployment of broadband offerings in places where DSL wasn’t available “while providing comparable levels of service to our broadband customers.” Young said Verizon planned “in coming months” to conduct trial of broadband fixed wireless service using WCS band and equipment developed by BeamReach. “Commercial deployment could begin as early as next year, depending on the results of the technical trial and the outcome of the Commission’s proceeding,” Young said. WCS licensees have argued that SDARS licensees should be made to operate terrestrial repeater networks at power levels not greater than 2 kw. But SDARS licensees have said their repeater network design relies on repeaters operating at up to 40 kw to provide proper synchronization. Verizon said it bought WCS licenses at auction under assumption it would have “full use” of its spectrum without harmful interference. “Bidders, and in fact licensees, require certainty about how their spectrum can be used,” Young said. “Changing the rules for a service after the licenses have been sold at auction and after significant investments have been made will have a chilling effect on the development of innovative technologies and services.”
Progeny LMS, which owns Location & Monitoring Service (LMS) licenses at 902-928 MHz, petitioned FCC Tues. to provide flexibility to licensees in that band and to change certain restrictions on that spectrum. Progeny, which won LMS licenses in 1999 FCC auction, asked agency to relax restrictions on type and content of messages and spectrum aggregation. Carrier said it wanted Commission to apply “to the LMS band its market-oriented policy of allowing licensees flexibility to offer whatever services the market can support and demand, so long a those operations do not hinder or interfere with the operations of primary users in the band.” Restrictions represent “outmoded approach” to spectrum management, Progeny said. It said service dated to early 1970s, when Commission adopted order allowing introduction of automatic vehicle monitoring service, later renamed LMS. Service was seen as providing tracking and monitoring of large vehicle fleets and providing information to allow vehicles to be better used through dispatch and routing information. In 1999, of 528 LMS licenses that were auctioned, nearly 250 were unsold, Progeny said. “Attempts at implementing this service demonstrate that some modifications are necessary in order for LMS to succeed,” it said. If LMS operators were given additional flexibility by FCC, they could compete with commercial wireless operators, which “are rolling out enhanced 911 location technologies that will provide similar economic and public safety benefits,” Progeny said. Eliminating certain restrictions would allow LMS licensees to offer voice and data messaging services in addition to advanced location technologies, petition said. Progeny urged FCC to consider eliminating or modifying: (1) LMS spectrum cap so single licensee could hold all of LMS licenses in given economic area. (2) Restriction on real-time interconnection with public switched telephone network. (3) Restriction on types of communications services. (4) Safe harbor provision that creates presumption of non-interference for secondary users. Progeny cited additional regulatory flexibility that commercial wireless operators had been granted, including ability to offer range of services. In period of substantial growth for commercial wireless sector, “the 902-928 MHz LMS industry, unfortunately, languished,” Progeny said. “As a result, LMS remains subject to a regulatory scheme born out of political compromises that more appropriately characterize the stratified wireless industry of 1993 than today’s competitively robust wireless industry,” petition said.
U.S. Supreme Court agreed Mon. to hear oral argument in FCC’s appeal of D.C. Circuit’s NextWave ruling, creating another layer of uncertainty for spectrum on which carriers and govt. had failed to reach settlement late last year. Some industry observers said high court’s grant of certiorari in NextWave case could heighten incentives to reopen settlement talks over licenses that fetched $15.8 billion in Jan. 2001 re-auction. But several analysts and industry sources pointed out that FCC had strong legal interest in having Supreme Court uphold what it viewed as integrity of auction process under Communications Act compared with limitations of U.S. Bankruptcy Code. Valuations of licenses also are widely seen as lower than they were even several months ago as carriers’ stocks have been battered on Wall St. Grant of certiorari marks victory for FCC, which sought review of June decision by U.S. Appeals Court, D.C. D.C. Circuit had reversed agency’s decision to cancel NextWave’s licenses for missed payment, throwing results of $17 billion re-auction of those licenses into disarray. With high court’s decision to review that ruling, “the mess just got messier,” said Legg Mason analyst David Kaut: “There’s a new round of legal uncertainty.”
FCC continues to receive feedback on Nextel White Paper that would realign frequencies at 700, 800 and 900 MHz and 2.1 GHz to help alleviate interference concerns of public safety users. Writing for clients that use 800 MHz for “commercial and private internal uses,” Washington attorneys John Prendergast and Richard Rubino told FCC in ex parte filing that Nextel’s proposed treatment of industrial/business users at 800 MHz must change. Nextel proposed to offer $500 million to help public safety licenses with costs such as retuning, they said, but didn’t offer private wireless users similar assistance. Attorneys recommended “Commission require that any incumbent licensee who relocates to other spectrum or is ultimately required to relocate to other spectrum at some future time have its relocation expenses reimbursed.” Nextel’s proposed offer of $500 million to help public safety users move is likely to be relatively small part of relocation cost, filing said, and it should bear “primary responsibility” for relocation costs in that band. Attorneys also balked at Nextel proposal that it receive 10 MHz in reserve portion of mobile satellite service band at 2.1 GHz as part of reconfiguration, saying that essentially would give Nextel “free” 3rd generation wireless license. Last month, Pegasus also raised concerns in letter to FCC Chmn. Powell about how 700 MHz guard band spectrum would be handled under Nextel proposal. Noting that Notice of Proposed Rulemaking on potential solutions to interference at 800 MHz is expected shortly, Pegasus said NPRM must weigh impact on guard band spectrum. “Nextel’s proposal has the ability to substantially alter the development of the guard bands in a way never contemplated by the Commission when it allocated the 700 MHz spectrum, promulgated the rules governing the guard bands and auctioned the guard band licenses to the highest bidder,” Pegasus said. It was among auction winners in FCC’s 700 MHz guard band auction. If part of guard band spectrum is reallocated to business radio and industrial/land transportation radio users, that “may fundamentally alter the demand for services from the 700 MHz guard band managers, which would of course affect the business plans of the auction winners,” Pegasus said.
Faced with falling share prices for its PCS and FON tracking stocks in recent weeks, Sprint might pursue asset sales to help near-term funding needs and clear its access to commercial paper market to borrow money, UBS Warburg said Mon. In research note to investors, analysts said company could realize nearly $2.25 billion if it divested its publishing business and holdings in EarthLink. Researchers were bullish on Sprint’s overall ability to resolve its funding issues. UBS Warburg has estimated that Sprint has funding gap of $1.67 billion -- $200 million shortfall on wireline side and $1.47 billion on PCS wireless side. PCS shortfall doesn’t include $225 million of additional payments associated with NextWave spectrum re-auction that U.S. Appeals Court, D.C., overturned last year. Sale of assets to increase Sprint’s equity position is likely to be seen as positive move by credit ratings agencies, UBS Warburg said.
Northpoint-DBS debate continued Mon. with Satellite Bcstg. & Communications Assn. (SBCA) ex parte filing at FCC again claiming terrestrial startup wasn’t entitled to free publicly owned spectrum or pioneer’s preference. Northpoint had argued in earlier filing that SBCA was hypocritical because its members obtained legislation from Congress exempting them from auction. Industry sources continued to predict final Commission decision is weeks away. “A decision isn’t imminent,” source said: “We haven’t heard anything. They seem to be plodding through a proceeding. A lot of people are still on pins and needles.”
Commerce Secy. Donald Evans said NTIA planned spectrum summit April 4-5 to address spectrum allocation and efficiency, spectrum requirements of new technologies, regulatory processes. FCC Chmn. Powell is to take part in meeting along with Deputy Asst. Secy. of State David Gross. First day of summit will focus on industry and govt. spectrum users, economists, analysts, technologists. Second day will include working sessions on commercial, international and federal govt. perspectives. “We must continue to create the right environment for growth in private-sector technologies that use spectrum, while balancing delicate national security and public safety needs,” Evans said: “This summit is a major step forward in our far-reaching effort to deal with the complex issues inherent in spectrum management policy. We owe it to the American people to get the most out of this national resource.” NTIA Dir. Nancy Victory said forum would look for ideas on spectrum policy involving auction process, how to expand secondary markets for spectrum, how to encourage innovation in new wireless technology, how to define spectrum rights without limiting technology use.
To again delay scheduled June 19 auction of Chs. 60-69 would “frustrate over 2 years” of voluntary attempts to clear that band of analog stations, “seriously jeopardizing the long-recognized public interest in introducing critically public service and new wireless services,” Paxson Communications said in comments Wed. at FCC Wireless Bureau. Saying auction already had been postponed 5 times, Paxson said if there were any further delay, voluntary efforts of broadcasters’ Spectrum Clearing Alliance would “go for naught.” Alliance (composed of 80 groups owning 144 TV stations in affected band) “has reached the critical mass necessary to conduct substantial band clearing” voluntarily, Paxson said, and FCC must not combine planned auction for Ch. 52-59 with Ch. 60-69 auction -- option proposed by Commission -- because Paxson was “extremely concerned” coupling them would lead to further delay. Paxson owns 19 TV stations in Ch. 60-69.
House Commerce Committee Chmn. Tauzin (R-La.) told investment community Wed. that he was enthusiastic about ultra-wideband (UWB) wireless technology and hoped FCC would look at it carefully. Proposal to permit UWB products to operate as unlicensed Part 15 devices is expected to be on FCC agenda at Feb. 14 meeting, he said in speech at Precursor Group conference in Washington. Tauzin said he visited UWB company Time Domain and was impressed by its founder Larry Fullerton, “an interesting guy who has been called the new Marconi.” Tauzin told investors UWB was trend to watch, explaining how technology goes through walls, could result in high-tech home security systems, communications devices for military, disaster recovery aids. “My hope, my prayer, to the Commission is to give it a good look,” he said. Tauzin said that taking up “twin issues” of privacy and security were among his Committee’s most important tasks this year. “The first battle line” is copyright, he said, “how to provide a digital product without losing value… coupled with security needs.” He said other “things to watch” were: (1) Efforts to develop privacy policy that would “enhance private efforts to self-regulate. (2) Broadband deployment. (3) Digital TV transition. (4) “Increasing capacity of wireless communications.” He also made pitch for Tauzin- Dingell bill, saying it was “not about pleasing the Bells” but rather was designed to “complete the Telecom Act.” Act didn’t contemplate growth in data communications and Internet, he said. As it is now, Act stymies development of high-speed data transmission because of restrictions on Bells, he said. Act’s mistake was to put FCC in charge of deciding when Bells could provide interLATA communication, which is required to offer broadband effectively, Tauzin said. Decision was left to “these bureaucrats whose raison d'etre is to regulate,” he said. “We left it to them to eliminate regulations, what were we doing? The FCC has become an agent for the past.” He said he thought Tauzin- Dingell would pass House and “then we will go and deal with Mr. Hollings [Sen. Hollings (D-S.C.) and chmn. of Senate Commerce Committee]), who has a different view.” Talking with reporters later, Tauzin said if Committee’s meetings with industry leaders on DTV transition didn’t result in agreement soon (CD Nov 30 p6), legislation to resolve issue probably would be introduced in April-May time frame. He said there had been progress in last 2 meetings and another was planned later this month. Meanwhile, spokesman for House Commerce Committee said it appeared House leadership would schedule vote on Tauzin-Dingell on either Feb. 27 or 28, slightly sooner than March projection given when bill was pulled from floor in Dec.