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3rd Circuit Designated Entity Case is a WIN for Small Wireless companies

I am so happy to report that the case in which I served as amici counsel for 10 small, women- and minority-owned wireless companies and supporting nonprofits, Council Tree, et al. v. FCC, has resulted in a big WIN for the most part!!

In a 53-page ruling, the Third Circuit Court of Appeals struck down two of FCC’s designated entity (DE) rules designed to limit or dissuade small carriers from selling their spectrum capacity, but had the unintended consequence of squeezing out small and very very small businesses from participating in spectrum auctions altogether.

In responding to a petition from Council Tree, the Minority Media & Telecommunications Council and Bethel Native Corporation, the court vacated (or overruled) a decision by the FCC to make two changes to its Designated Entities program.  Before the changes, the rules were tremendously successful in allowing small and very very small businesses able to compete against the larger wireless companies such as Verizon Wireless, T Mobile and AT&T for valuable wireless spectrum.  In sum, the rules give these small entities bidding credits once they met some basic criteria.

Unfortunately, in an 11th hour move, days before a critical auction, the FCC changed two aspects of those rules related to the bidding credits without giving the small businesses notice of the rule change and an opportunity to challenge or comment on them before they went into effect.  One rule change increased the amount of time an investor had to maintain interest in a small business who received bidding credits. The change increased the hold time from 5 years to 10 years which had the effect of discouraging investors.  Many Designated Entities were not able to raise capital to participate because of that change.

Similarly, another change require the winning designated entity to use 100% of the licenses won however, the only way some of these small companies were able to survive in the market was by building out a portion of their spectrum won and leasing the remaining portion for wholesale to other entities. By invalidating that option, several would be DEs opted to not even participate the auction.

As a result the number of minority participants dropped from 35% at one time to 3.5% as a result of the rule change.

According to the appeals court, companies that qualified for credits comprised 113 of the 205 winning bidders, but won only about 3.2 percent of the licenses’ total value.

In contrast, in auctions that preceded adoption of the rules, qualifying bidders had won about 70 percent of the licenses by dollar value, the court said.

The only bad news is that the Court left in place the 25% rule (no single investor can lease or wholesale more than 25% of a DE’s spectrum capacity).  The Court also left the results of Auctions 66 and 73 in place on grounds that it would be inequitable to overturn the results at this point in time.

This was a great day for the little guys because large wireless companies intervened in the case on behalf of the FCC such as  T Mobile.

The decision has been covered by Broadcasting and Cable, The Hill Newspaper and Reuters among other news outlets.

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