But one Commissioner calls decision a missed opportunity
Small businesses that bid for wireless spectrum then license or sell it to some other company must forfeit special discounts set up for them by the FCC, the Commission has ruled.
"This unacceptable behavior threatens the integrity of our auctions and, worse, it cheats consumers," FCC Commissioner Michael Copps said in a statement on the decision. "It costs taxpayers millions of dollars in foregone revenue."
Insiders call the practice "license flipping." FCC sponsored Advanced Wireless Service auctions (AWS) offer 25 percent discounts for qualified small businesses that bid for spectrum. But the process has been plagued by entrepreneurs financed by bigger firms, who take the small business discount, buy the spectrum, then lease it or sell it to their backer or some other big company.
Under the FCC's new rules, released yesterday, if a small business, or "Designated Entity" (DE), leases or resells 50 percent of their new bought spectrum to another company, they will lose their discount and be required to make "unjust enrichment payments" to the FCC, depending on the number of licenses involved.
If a company flips more than 25 percent of their spectrum to others, the FCC will review their case to determine whether to take disciplinary action.
The FCC's guidelines also will require a firm convicted of flipping to pay back their entire discount plus interest if the transfer takes place within five years of the sale.
The new guidelines appear to be less comprehensive than some proposals earlier considered by the Commission.
In early February the FCC announced that it would consider a proposal to ban DE status to AWS bidders who have a "material relationship" with "a large entity that has a significant interest in the provision of communications services" (see LL-FCC, February 6, 2006 [0]).
But considerable debate took place in the FCC's Advisory Committee on Diversity as to how to define a "large entity" in financial terms. On April 4th, the Committee urged the FCC not to enact a proposed limit on material relationships with companies with more than $125 million in revenues.
"The wireless industry is extremely capital-intensive and technically complex," the subcommittee advised. "DEs must have access to sources of capital and expertise to have any chance of acquiring licenses and successfully providing service."
The idea also came under fire from CTIA - The Wireless Association, the trade group for wireless companies. On April 13th representatives of CTIA and T-Mobile met with a legal advisor to FCC Commissioner Deborah Taylor Tate. A summary of the meeting filed by CTIA indicates that the wireless reps opposed the idea.
"The Commission’s DE proposal would unfairly limit the ability of DEs to partner with large, in-region wireless providers, while providing little or no corresponding benefits," the memo says.
But FCC Commissioner Jonathan Adelstein expressed disappointment that yesterday's ruling offers no specific solutions to the material relationship problem.
"It is stunning that we have failed to take any meaningful action to specifically address the single biggest issue facing the DE program given the overwhelming support in the record to do so," Adelstein said in a public statement. "We missed a real opportunity to shut down what almost everyone recognizes has the potential for the largest abuse of our DE program: giant wireless companies using false fronts to get spectrum on the cheap."
See also LL-FCC, April 12, 2006 [0].
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