Court Throws Out FCC Auction Rules

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The Third Circuit Court of Appeals Tuesday threw out two FCC auction rules that required small businesses to hold their winning spectrum for at least 10 years before reselling it and prohibited them from leasing more than 50% to third parties.

The three-judge panel of the court concluded that both rules were imposed without sufficient notice and comment and were thus a violation of the Administrative Procedures Act. But saying it would be "imprudent and unfair" did not invalidate the relevant wireless spectrum auctions conducted under those rules, which were the $14 billion 2006 auction of Advanced Wireless Services (AWS) spectrum in 2006 and the $19 billion 20008 auction of the 700 MHz spectrum block reclaimed from broadcasters in the switch to digital.

The decision means that the designated entities like small and minority businesses who did win spectrum will be able to wholesale or sublease as much of their spectrum as they like, and that the FCC will not be able to impose such rules on future spectrum auctions.

As for unwinding $30 billion worth of auctions, as the petitioners had asked, the court said that it was loath to upset "what are likely billions of dollars of additional investments made in reliance on the results, and seriously disrupting existing or planned wireless service for untold numbers of customers. Moreover, the possibility of such large-scale disruption in wireless communications would have broad negative implications for the public interest in general."

The Minority Media & Telecommunications Council, Council Tree Communications and Bethel Native Corp. had challenged the rules, saying that the rules had reduced competition in the auctions and made it easier for major wireless companies to consolidate their holdings.

They had argued that the FCC should invalidate the auction but permit winning bidders -- like Verizon in the 700 mHZ auction -- to keep their spectrum until it could be re-auctioned, but the court said that would not eliminate the "massive uncertainty, waste, and frozen development that would occur from the time of the rescission until the re-auction which, as the FCC might wish to adopt additional rules before the re-auction to replace the ones at issue here, could be a significant period of time."

Some of the winning bidders had also argued that given the tanking economy and tight credit markets, they might not be able to participate, requiring them to pay money they might not have to protect investments they had already made.

"We are gratified that the Court recognized the merits of this case in vacating the two new rules," said MMTC president David Honig. "This pro-small business, pro-new entrant and pro-diversity ruling will advance wireless industry competition and ultimately benefit consumers and business alike."

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