Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
Amendment of the Commission’s Rules
Regarding Installment Payment Financing for
Personal Communications Services (PCS)
Licenses
WT Docket No. 97-82
Petition for Reconsideration
The Office of Advocacy of the United States Small Business Administration (Advocacy) respectfully submits this Petition for Reconsideration, requesting that the Federal Communications Commission (FCC) reverse its recent decision to modify rules governing re-auction of Personal Communications Services (PCS) spectrum licenses on the C and F Blocks.(1) In the past, the FCC has offered C- and F-Block licenses exclusively to small businesses. The FCC has now decided to divide the 30 MHz C-Block licenses into three licenses of 10 MHz each, and has lifted small-business eligibility restrictions on C-Block and F-Block licenses. To date, the FCC has offered no rationale sufficient to alter the well-reasoned and long-standing PCS small business "set-aside". The FCC should reconsider its decision and should re-auction the spectrum according to its prior rules.
1. The FCC should retain C-Block eligibility restrictions and license sizes.
The FCC has offered no reason to depart from its long-standing policies regarding the PCS C Block. The FCC established these policies in response to congressional instruction that the FCC promote the deployment of new services and disseminate licenses among a variety of applicants, including small businesses.(2) As the FCC correctly notes in its Sixth Report and Order, Congress did not require the FCC to specifically set aside spectrum for the exclusive use of small business. However, when crafting its C-Block rules, the FCC interpreted its congressional mandate to require it to take steps "necessary to ensure that designated entities have a realistic opportunity to obtain broadband PCS licenses."(3) The FCC recognized that while "auctions have many beneficial aspects, they threaten to erect another barrier to participation by small businesses and businesses owned by minorities and women by raising the cost of entry into spectrum-based services."(4) The FCC found that small businesses could not reasonably hope to compete for PCS spectrum against large businesses; therefore the FCC set aside the C and F Blocks for exclusive participation by small businesses.(5)
In past auctions, the FCC had used other methods, like bidding credits, to ensure small business participation. But for PCS, the FCC recognized that bidding credits would not be enough to ensure participation by small business, "because broadband PCS licenses in many cases are expected to be auctioned for large sums of money in the competitive bidding process, and because build-out costs are likely to be high."(6) The FCC did "not think bidding credits in an uninsulated block would have a meaningful effect."(7) The FCC found that "small entities stand little chance of acquiring licenses in these broadband auctions if required to bid against existing large companies, particularly large telephone, cellular and cable television companies. If one or more of these big firms targets a market for strategic reasons, there is almost no likelihood that it could be outbid by a small business."(8) In the words of the FCC, permitting large companies to outbid small businesses would "frustrate Congress’s goal of disseminating licenses among a diversity of licenses."(9)
The FCC offers no evidence that these findings are invalid. In fact, the FCC has repeatedly reaffirmed its set-aside policy, and has specifically rejected the very arguments raised by larger businesses in this proceeding.(10) There is no evidence that small business no longer needs exclusive access to PCS C-Block spectrum in order to have a reasonable opportunity to provide services over this spectrum.(11) In the absence of evidence that its previous findings are no longer sound, the FCC should not abandon them.
There also is no evidence that the PCS policies have failed. In fact, the success of the last C-Block re-auction strongly suggests the set aside is beginning to work. The FCC had eliminated installment payments, which many parties argue contributed to the initial financial difficulties of the original C-Block licensees. And since the elimination of installment payments, the FCC has successfully licensed the C-Block to small businesses.(12) There have been no additional defaults or bankruptcies.
The FCC does not address the fact that the C-Block policies are finally beginning to succeed. But it appears to prefer an alternative view, that small business has failed to provide PCS services to the public, and only through licensing this spectrum to large businesses will the public quickly receive service. The FCC does not provide support for this view.
The FCC states, "Section 309(j)(3) does not require the Commission to promote the participation of small businesses in PCS auctions at the expense of other, potentially conflicting, objectives enumerated in the section, such as the promotion of competition and the rapid deployment of new technologies and services."(13) This implies that competition and deployment conflict in this case with small business participation, but the FCC gives no support for this view, nor the view that large business participation is necessary to achieve these goals. In fact, small business participation in any industry, including PCS, is essential to the promotion of competition. Small businesses employ most of the public, provide most new jobs to the U.S. economy, and are the major source of product and service innovation.
Additionally, the major rationale the FCC expresses for permitting large businesses to hold C-Block licenses is to alleviate their spectrum shortage. But it is hard to see how permitting existing companies to supplement their current spectrum holdings will increase competition. It would appear obvious that encouraging new entrants to the market would increase competition, but permitting existing service providers to amass more spectrum would not increase competition. Of course, it is possible that other large businesses might newly enter a market and increase competition, but the FCC gives no reason why competition by a large business is preferable to competition by a small business.(14) By contrast, Congress prefers competition by a wide variety of businesses, including small businesses.(15)
Perhaps the FCC perceives the failure of NextWave Personal Telecommunications, Inc. as indicative of general failure by small businesses to provide PCS services. That certainly would be a reason to abandon current policy, if it were true. But the FCC never states it believes this, and there is no evidence that this is the case. In fact, the evidence strongly shows that the small business set-aside policies are bringing small business participation to PCS, along with competition, deployment of service, and recovery of a portion of the value of the public spectrum.
2. The FCC should not depart from its F-Block policies.
The FCC provides a rationale for abandoning its set-aside policy for the F-Block. Unfortunately, this rationale is illogical and self-contradictory. The FCC indicates that the F-Block has not experienced financial difficulty. Somehow, the FCC appears to conclude from this that small business and large business are on a par financially and that small business could easily compete at auction unaided. Thus, the time has come to open bidding on all F-Block spectrum to big businesses.(16) In reality, the lack of financial difficulty on the F-Block refers to licensees’ ability to pay for their licenses, not a situation in which small business has overcome its general difficulty attracting capital. Small business has faced severe disadvantages vis a vis large business when it comes to attracting capital, and these disadvantages remain. It was this difficulty that formed the basis for the FCC’s establishing the set-aside on the C and F Blocks.(17)
But to follow the FCC’s logic, if lack of financial difficulty on the F-Block is the reason for abandoning the set-aside, then the presence of financial difficulty on the F-Block would be a reason for retaining the set-aside. Applying this consistently to the C-Block, financial difficulty on that band would be a rationale for retaining the set-aside on the C-Block. But the financial difficulty of some C-Block licensees serves as a major factor in the FCC’s decision to abandon the C-Block set-aside. It is inconsistent for the FCC to use lack of financial difficulty to justify abandoning the set-aside on the F Block and the presence of financial difficulty to justify abandoning the set-aside on the C Block. There is no logic to this, and it illustrates the strained reasoning of the FCC’s approach to both bands. Advocacy is left wondering what the FCC’s true motivation might be in altering its C-Block and F-Block spectrum policies.
Conclusion.
The FCC reserved the C and F Blocks for small businesses because it wanted to introduce small business competition to PCS, consistent with Congress’s will. The FCC judged that small business would be unable to compete at auction for such valuable spectrum, even with bidding credits, unless it had exclusive access to a portion of the PCS spectrum. After many false starts, that policy is beginning to succeed. The FCC adjusted its rules to eliminate installment payments and has successfully auctioned C and F Block spectrum to small businesses which have paid for their licenses and which are providing PCS services to the American public.
But now, after understandable frustration with NextWave Personal Telecommunications, Inc. and under intense pressure from industry giants, the FCC will hand the C and F Blocks over to large businesses. The FCC offers no compelling rationale for this policy about-face, and Advocacy urges the FCC to reconsider.
Respectfully submitted,
Jere W. Glover
Chief Counsel for Advocacy
R. Bradley Koerner
Assistant Chief Counsel
for Telecommunications
October 5, 2000
APPENDIX A Comments
filed June 22, 2000
APPENDIX B Letter
comments filed April 10, 2000
APPENDIX C Reply
comments filed March 1, 2000
APPENDIX D Comments
filed February 22, 2000
ENDNOTES
1. Amendment of the Commission’s Rules Regarding Installment Payment Financing for Personal Communications Services (PCS) Licensees, Sixth Report and Order on Reconsideration, WT Docket No. 97-82, released August 29, 2000 ("Sixth Report and Order").
2. Congress requires the FCC to "promot[e] economic opportunity and competition and ensur[e] that new and innovative technologies are readily accessible to the American people by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including small business, rural telephone companies, and businesses owned by members of minority groups and women." Implementation of Section 309(j) of the Communications Act – Competitive Bidding, Fifth Report and Order, PP Docket No. 93-253 (1994), paragraph 11.
3. Implementation of Section 309(j) of the Communications Act – Competitive Bidding, Fifth Report and Order, PP Docket No. 93-253 (1994), paragraph 9.
4. Id., paragraph 10.
5. Id., paragraph 12.
6. Id., paragraph 96.
7. Implementation of Section 309(j) of the Communications Act – Competitive Bidding, Fifth Report and Order, PP Docket No. 93-253 (1994), paragraph 131.
8. Id., paragraph 121.
9. Id., paragraph 123.
10. See Amendment of the Commission’s Rules Regarding Installment Payment Financing for Personal Communications Services (PCS) Licensees, Fourth Report and Order, WT Docket No. 97-82 (1998), paragraph 16; Installment Payment Financing for Personal Communications Services (PCS) Licensees, Order on Reconsideration of the Second Report and Order, WT Docket No. 97-82 (1998), paragraph 56; Installment Payment Financing for Personal Communications Services (PCS) Licensees, Second Report and Order, WT Docket No. 97-82 (1997); Implementation of Section 309(j) of the Communications Act – Competitive Bidding, Fifth Memorandum Opinion and Order, PP Docket No. 93-253 (1994), paragraph 16.
11. The FCC touts the E-Block auction as proof that small business can successfully bid against large business for PCS. But the FCC does not indicate how many successful small businesses were forced to bid against large businesses for their spectrum licenses.
12. For example, SBC Communications holds this view: "Of course, some designated entities . . . have fared better than NextWave, so [the FCC’s policy of encouraging viable small business participation] has already borne fruit." Petition of SBC Communications Inc. for Waiver of the Eligibility Requirements of 47 C.F. R. § 24.709 for the PCS Frequency Blocks C and F Auction to Begin on July 26, 2000 ("SBC Petition"), DA 00-191, January 21, 2000, p. 5.
13. Sixth Report and Order, 13.
14. Advocacy notes that 10 MHz spectrum blocks are more ideally suited to supplementing existing services than to encouraging new service providers to enter the market. 30 MHz are better suited to full-service new entrants.
15. See supra., footnote 2.
16. The FCC points that that no one suggested breaking the F-Block licenses into smaller licenses, so the FCC must either retain the set-aside entirely, or eliminate it. If the FCC means to suggest that no party supports a compromise, Advocacy notes that the 10 MHz F-Block licenses are hardly large enough to consider dis-aggregating.
17. The FCC has indicated that "Congress has recognized that "small business concerns, which represent higher degrees of risk in financial markets than do large businesses, are experiencing increased difficulties in obtaining credit."" Implementation of Section 309(j) of the Communications Act – Competitive Bidding, Fifth Report and Order, PP Docket No. 93-253 (1994), paragraph 11. Also, in 1994, the Commission stated, "We do not accept . . . that we should do away with the entrepreneurs’ blocks and instead offer bidding credits . . .. [I]n our judgment we do not anticipate designated entities to realize meaningful opportunities for participation in broadband PCS unless we supplement bidding credits and other special provisions with a limitation on the size of the entities designated entities will bid against. Without the insulation of the entrepreneurs’ block, the record strongly supports the conclusion that measures such as bidding credits will prove ineffective for broadband PCS." Implementation of Section 309(j) of the Communications Act – Competitive Bidding, Fifth Memorandum Opinion and Order, PP Docket No. 93-253 (1994), paragraph 16.