AT&T and Verizon Wireless Seek Overturn of FCC Declaratory Ruling on Data Roaming
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January 27, 2015 AT&T and Verizon Wireless Seek Overturn of FCC Declaratory Ruling on Data Roaming Please contact Carri Bennet at cbennet@bennetlaw.com or Daryl Zakov at dzakov@bennetlaw.com for more information. AT&T and Verizon Wireless have each filed an “application for review”[1] with the Federal Communications Commission (FCC or Commission) in an attempt to reverse an earlier Declaratory Ruling[2] issued by the FCC’s Wireless Telecommunications Bureau (WTB or Bureau) which said retail, international roaming, and wholesale rates can be considered as factors in judging the “commercial reasonableness” of domestic, inter-carrier data roaming rates under the FCC’s Second Report and Order[3] released in 2011. Affected parties have 15 days from the filing of the application for review to file oppositions.[4] Bottom Line: After the release of the Declaratory Ruling, both AT&T and Verizon Wireless vowed to fight the action through all legal means available, both administratively and through court proceedings. These Applications for Review represent the first step in their endeavor to repeal the WTB’s clarification of the Data Roaming Order. Rural wireless carriers concerned about a possible FCC backtracking from the Declaratory Ruling should consider filing comments. OVERVIEW AND PROCEDURAL HISTORY Under the Data Roaming Order, the Commission determined that “facilities-based providers of commercial mobile data services” must “offer data roaming agreements to other such providers on commercially reasonable terms and conditions.”[5] In the Data Roaming Order, the FCC provided that “commercial reasonableness will be determined based on the totality of the circumstances, and provide[d] guidance on factors that the Commission may consider in resolving disputes.”[6] Specifically, the Commission ordered that it may consider no less than seventeen individualized factors in addressing disputes over the commercial reasonableness of the terms and conditions of proffered data roaming arrangements.[7] On May 27, 2014, T- Mobile filed a Petition for Expedited Declaratory Ruling[8] urging the FCC to provider further clarity on what exactly constitutes “commercially reasonable” roaming rates and further recommending that the FCC use four benchmarks – specifically, whether the proffered rates substantially exceed the serving carrier’s existing rates offered to (1) retail customers, (2) foreign carriers, and (3) MVNOs, and also (4) whether the proposed rates compare to other
commercially negotiated rates – as guiding principles in making those determinations of commercial reasonableness. Soon afterwards, the Commission put the T-Mobile Petition out on public notice for comment.[9] The Declaratory Ruling sided with T-Mobile and other supporting carriers and associations and determined that “additional guidance will benefit negotiating parties as to the application of the commercial reasonableness standard in the data roaming rule” and that “this guidance is consistent with the Data Roaming Order.”[10] The Applications for Review are similar in structure and contend that the WTB vastly exceeded its legal authority when it released the Declaratory Ruling granting T-Mobile’s petition, that any clarification of this type can only be made by an order voted on by the full five members of the Commission (and not unilaterally by a bureau), and that ultimately the Declaratory Ruling should be fully vacated. AT&T and Verizon Wireless, who are the only mobile wireless operators which aggressively opposed the Commission’s Data Roaming Order and the T- Mobile Petition, filed their respective applications for review on January 16, 2014 and January 20, 2014. AT&T APPLICATION FOR REVIEW The AT&T Application for Review begins with AT&T’s premise that the Data Roaming Order did indeed provide guidance, and more specifically, that this guidance was encapsulated into two “lodestars,” namely (1) “that commercial reasonableness would be determined to a significant degree by the rates and terms that prevail in the existing, negotiated roaming agreements that scores of sophisticated parties rely on today to compete in the marketplace, which would be presumed reasonable,” and (2) that the FCC’s data roaming rules “must be applied to promote broadband investment and facilities-based competition, and that [the FCC] therefore expected roaming rates to substantially exceed retail service rates to maintain appropriate incentives for build-out.”[11] AT&T then argues that not only is this entire re- examination of the matter of data roaming rates nothing more than the Commission “[r]esponding to a nakedly self-interested plea from T-Mobile for additional leverage” in its bilateral rate negotiations with AT&T, but that the Bureau’s attempt “to ‘clarify’ the Commission’s rules, provide ‘additional guidance’ and ‘lessen ambiguity’…has in fact thrown the Commission’s entire data roaming regime into confusion.”[12] AT&T asserts that for all intents and purposes, the Bureau is now adding retail and other similar rates to the seventeen- factor standard previously adopted by the full Commission. According to the AT&T Application for Review, the Declaratory Ruling “adopts three rulings that are plainly inconsistent with the foundational principles of the Data Roaming Order, and the Bureau provides no guidance how the Commission will apply any of these rulings in individual cases.”[13] The first “ruling” that AT&T attributes to the Declaratory Ruling is that parties in roaming enforcement disputes can “adduce evidence” as to whether the proffered roaming rates are “substantially in excess” of “retail rates, international rates, MVNO/resale rates, as well as a comparison of proffered roaming rates to domestic roaming rates as charged by other providers.”[14] The second ruling put forth by AT&T is that the Commission, through the Declaratory Ruling, has all but eliminated the Data Roaming Order’s existing presumption that terms and conditions of existing roaming agreements between parties meet the commercial reasonableness standard. Finally, AT&T argues that unlike before the Declaratory Ruling, the Commission can now “consider the requesting provider’s potential for build-out in determining
the reasonableness of offered terms.”[15] In summation, AT&T contends that the result of the Bureau’s action “is a completely standardless approach to case-by-case adjudication that eliminates any ability to predict how the Commission might rule in any given complaint proceeding.”[16] Further, AT&T vociferously argues that each of these three new rulings- guised-as-clarifications muddies an already opaque regulatory landscape and that each materialized in a manner that has no legal foundation. AT&T believes that the WTB’s Declaratory Ruling is unlawful on two independent bases: first, the Declaratory Ruling is inconsistent with the Data Roaming Order itself, and second, the formulation of the commercial reasonableness standard “is so hopelessly vague and open- ended that it is unlawful under the Administrative Procedure Act (APA) and unconstitutional under the Due Process Clause.”[17] In short, AT&T believes that only a full notice-and- comment rulemaking proceeding with a final order voted on and approved by the full Commission could generate this level of guidance or clarification. Accordingly, AT&T requests that the Commission grant the AT&T Application for Review and fully vacate the Declaratory Ruling in its entirety. VERIZON WIRELESS APPLICATION FOR REVIEW The Verizon Wireless Application for Review begins with the argument that not only did the Data Roaming Order clearly specify seventeen factors to be considered in determining the commercial reasonableness of proffered data roaming rates and terms, but that it “rejected requests to include non-roaming agreement rates as another factor.”[18] Verizon Wireless argues that by issuing its Declaratory Ruling, the Bureau has detrimentally undermined the Data Roaming Order and done so in a completely illegal manner. Specifically, Verizon Wireless contends that: (1) the Bureau violated the APA; (2) changes to the Data Roaming Order must be made by the full Commission and not unilaterally by the Bureau; (3) important Commission policy objectives will now be undermined by introducing MVNO and retail rates into complaint proceedings; and (4) the Declaratory Ruling “arbitrarily failed to address issues critical to a reasoned decision” and indeed “created new controversies.”[19] Verizon Wireless concludes that for all of these reasons, the Declaratory Ruling conflicts with clearly established statutes, regulations and case precedent previously enacted by Congress and adopted by the Commission and therefore the Commission should vacate it. CONCLUSION The filing of the T-Mobile Petition came nearly three years after the adoption of the Data Roaming Order. Numerous parties, not just T-Mobile, filed comments supporting the T-Mobile Petition because there exists today a widely held belief that commercially reasonable data roaming agreements are very difficult to obtain in the marketplace, despite the existence of the Data Roaming Order. T-Mobile’s recommendation that the Commission adopt the four benchmarks – especially the benchmark trying to tie proffered wholesale data roaming rates with existing (and quantifiable) retail data rates – was seen by many small or rural carriers as a positive step by the Bureau. AT&T and Verizon Wireless both argued that if indeed there has been difficulty by any carrier in obtaining commercially reasonable data roaming, the Data
Roaming Order clearly allows, and even recommends, that such an aggrieved party file a formal complaint with the Commission. However, the filing of a formal complaint under the Commission’s rules is an expensive, time-consuming process that is itself shrouded in confidentiality, and is seen as a decision-of-last-resort by struggling carriers. Furthermore, it should be noted that two carriers have filed complaints against AT&T and Verizon Wireless respectively, and that as of the issuance of the Declaratory Ruling, the Commission’s Enforcement Bureau has yet to take any definitive action on either complaint. As noted above, section 1.511(d) of the Commission’s rules stipulates that parties of interest have 15 calendar days after applications for review are filed to submit oppositions to those applications. Also, replies to those oppositions must be filed within 10 calendar days. Oppositions to the AT&T Application for Review must be filed on or before Monday, February 2, 2015. Oppositions to the Verizon Wireless Application for Review must be filed on or before Wednesday, February 4, 2015. Companies or individuals interested in filing oppositions to the Applications for Review are urged to contact Bennet & Bennet immediately. [1] In the Matter of Reexamination of Roaming Obligations of Commercial Mobile Radio Service Providers and Other Providers of Mobile Data Services, Application for Review of AT&T, WT Docket No. 05-265 (filed January 16, 2015) (“AT&T Application for Review”); Verizon Application for Review, WT Docket No. 05-265 (filed January 20, 2015) (“Verizon Wireless Applications for Review”) (collectively, “Applications for Review”). [2] In the Matter of Reexamination of Roaming Obligations of Commercial Mobile Radio Service Providers and Other Providers of Mobile Data Services, Declaratory Ruling, WT Docket No. 05-265, DA 14-1865 (released December 18, 2014) (“Declaratory Ruling”). [3] In the Matter of Reexamination of Roaming Obligations of Commercial Mobile Radio Service Providers and Other Providers of Mobile Data Services, Second Report and Order, WT Docket No. 05-265, FCC 11-52 (released April 7, 2011) (“Data Roaming Order”). [4] 47 C.F.R.§1.115(d). [5] Data Roaming Order at ¶ 1. [6] Data Roaming Order at ¶ 8. [7] Id. at ¶ 86. [8] In the Matter of Reexamination of Roaming Obligations of Commercial Mobile Radio Service Providers and Other Providers of Mobile Data Services, Petition for Expedited Declaratory Ruling of T-Mobile USA, Inc., WT Docket No. 05-265 (filed May 27, 2014) (“T- Mobile Petition”). [9] “Wireless Telecommunications Bureau Seeks Comment on Petition for Expedited Declaratory Ruling Filed by T-Mobile USA, Inc. Regarding Data Roaming Obligations,” Public Notice, WT Docket No. 05-265, DA 14-798 (released June 10, 2014) (“Public Notice”). [10] Declaratory Ruling at ¶¶ 10, 14. [11] AT&T Application for Review at p. 1. [12] Id.at p. 2. [13] Id. [14] Id. [15] Id. at p. 3. [16] Id. at p.2. [17] Id. at p. 4.
[18] Verizon Wireless Application for Review at p. 1. [19] Id. at pp. 2-3. February 11, 2015 FCC Raises Definition of Broadband to 25 Mbps, Finds U.S. Broadband Deployment Inadequate Please contact Michael Bennet at mbennet@bennetlaw.com or Tony Veach at tveach@bennetlaw.com for more information. The Federal Communications Commission (FCC or Commission) has released its 2015 Broadband Progress Report in which it concludes that broadband is not being deployed to all Americans in a reasonable and timely fashion.[1] In the Report, the FCC has adopted a new definition of broadband: Internet access service at speeds of at least 25 megabits per second (Mbps) for downloads and 3 Mbps for uploads. As part of the Report, the Commission has initiated a notice of inquiry (NOI) seeking comment on ways to accelerate broadband deployment by removing barriers to infrastructure investment and promoting competition. Comments in response to the NOI are due on or before March 6, 2015, and reply comments are due April 6, 2015. Bottom Line: In what should come as no surprise, the FCC has once again concluded that U.S. broadband deployment is insufficient. The decision is significant because it will embolden the Commission to increase its efforts to regulate broadband services. For 2015, the Commission will use its negative conclusion to help justify a number of upcoming regulatory actions, including striking down state laws that limit municipalities’ ability to construct and operate their own broadband networks, regulating broadband Internet access services under Title II of the Communications Act, and fully implementing its Connect America Fund programs. And, by raising the broadband bar to 25 Mbps, it is almost guaranteed that the Commission will conclude U.S. broadband deployment is insufficient for many years to come. ANNUAL INQUIRY INTO U.S. BROADBAND DEPLOYMENT Pursuant to Section 706(b) of the Telecommunications Act of 1996, the FCC must annually make an inquiry to determine whether advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion.[2] In the statute, the term “advanced telecommunications capability” is defined, without regard to any transmission media or technology, as high-speed, switched, broadband telecommunications capability that enables users to originate and receive high-quality voice, data, graphics, and video telecommunications using any technology.[3] If the FCC determines that broadband is not being deployed in a reasonable and timely
fashion, Section 706(b) requires the FCC to take immediate action to accelerate broadband deployment by removing barriers to infrastructure investment and promoting competition. As in previous reports, the Commission considered the availability of mobile and satellite broadband services, but ultimately excluded them from the finding of whether advanced telecommunications capability is being deployed in a reasonable and timely fashion due to concerns over quality, reliability, latency, usage allowances, and other factors. A NEW DEFINITION OF BROADBAND (FOR SECTION 706 REPORTING PURPOSES ONLY) In a departure from the definition that was used in the last three broadband progress reports, the Commission has increased the speed thresholds for its definition of broadband. The previous definition of broadband that was used by the Commission when assessing the state of U.S. broadband deployment was Internet access service providing speeds of at least 4 Mbps downstream and 1 Mbps downstream. The new definition of broadband is Internet access service with actual download speeds of at least 25 Mbps and actual upload speeds of at least 3 Mbps (25 Mbps/3 Mbps). The Commission states that it raised the bar to reflect advances in technology, market offerings by broadband providers, and consumer demand. It is important to note that this “definition” of broadband applies to the findings made in the Report, but does not apply in other FCC matters. In the Report, the FCC sometimes refers to “advanced telecommunications capability” as “broadband,” but it should be noted that “advanced telecommunications capability” has a unique definition in Section 706 that differs from the term “broadband” in other contexts.[4] Thus, the FCC’s discussion of broadband in the Report may not apply equally to discussions of broadband in other circumstances or in other FCC proceedings. For example, recipients of high-cost universal service funding must provide “broadband” service at speeds of 10 Mbps downstream and 1 Mbps upstream.[5] KEY FINDINGS ON U.S. BROADBAND DEPLOYMENT For the fourth year in a row, the Commission has concluded that broadband is not being deployed to all Americans in a reasonable and timely fashion. This conclusion was reached yet again for a number of reasons: 55 million Americans (17 percent of the U.S. population) live in areas unserved by fixed 25 Mbps/3 Mbps broadband or higher service; broadband service is not yet available to the majority of rural and Tribal Americans and is not becoming available quickly enough; and not all U.S. schools have access to broadband fiber networks consistent with goals the Commission set for them in the E-Rate Modernization Order.[6] Key findings on broadband deployment contained in the Report include the following: • 17 percent of all Americans (55 million people) lack access to 25 Mbps/3 Mbps
service.
• 53 percent of rural Americans (22 million people) lack access to 25 Mbps/3 Mbps.
◦ By contrast, only 8 percent of urban Americans lack access to 25 Mbps/3 Mbps
broadband.
◦
◦ Rural America continues to be underserved at all speeds: 20 percent of rural
Americans lack access even to service at 4 Mbps/1 Mbps, down only one percent
from 2011, and 31 percent lack access to 10 Mbps/1 Mbps, down only four percent
from 2011.
• 63 percent of Americans living on Tribal lands (2.5 million people) lack access to 25
Mbps/3 Mbps broadband.
◦ 85 percent of Americans living in rural areas of Tribal lands (1.7 million people) lack
access.
• 63 percent of Americans living in U.S. territories (2.6 million people) lack access to
25 Mbps/3 Mbps broadband.
◦ 79 percent of those living in rural territorial areas (880,000 people) lack access.
• Overall, the gap in availability of broadband at 25/3 closed by only three percentage
points last year, from 20% lacking access in 2012 to 17% lacking access in 2013.
• Overall, the broadband availability gap closed by only three percent last year.
• Americans living in rural and urban areas adopt broadband at similar rates where 25
Mbps/ 3 Mbps service is available - 28 percent in rural areas and 30 percent in
urban areas.
• Approximately 35 percent of schools lack access to fiber, and thus likely lack access
to broadband at the Commission’s shorter term benchmark (adopted in its July 2014
E-rate Modernization Order) of 100 Mbps per 1,000 users, and even fewer have
access at the long term goal of 1 Gbps per 1,000 users.
MOBILE WIRELESS “BROADBAND” DEPLOYMENT
While the Commission did not consider mobile wireless broadband deployment in its
ultimate conclusion on the overall state of U.S. broadband deployment, the Report
contains “estimated” information on the availability of mobile wireless services. This
information is based on State Broadband Initiative (SBI) data estimating the number of
Americans without access to mobile 10 Mbps/768 kbps service, and Mosaik Data,
estimating the number of Americans living in census blocks without network coverage,
based upon the Centroid Method for WiMAX, HSPA+, and LTE
technologies.[7] Accordingly, the following key findings on mobile wireless deployment
should be viewed with a bit of skepticism:• As of January 2014, over 98 percent of the total U.S. population lived in census blocks that were covered by at least two facilities-based mobile wireless broadband providers, and 93 percent of the population lived in census blocks covered by at least three providers.[8] • As of January 2014, 98 percent of the population lived in census blocks covered by an LTE network, compared to 67 percent of the population in January 2012. • As of December 31, 2013, 11 percent of Americans living in rural areas lived in census blocks without 10 Mbps/768 kbps mobile broadband network coverage. NOTICE OF INQUIRY TO ACCELERATE BROADBAND DEPLOYMENT Upon a finding that broadband is not being deployed in a reasonable and timely fashion, Section 706(b) requires the Commission to take immediate action to accelerate broadband deployment by removing barriers to infrastructure investment and promoting competition. The Commission believes there are a number of actions it has taken or soon will take to accelerate broadband deployment, including the 2011 USF/ICC Transformation Order, the Rural Broadband Experiments Order, the E-Rate Modernization Order, the Second E-Rate Modernization Order, the Open Internet NPRM, which is exploring the best approach to protect and promote an open Internet, and the VoIP Access to Numbering NPRM that may allow interconnected VoIP providers to obtain telephone numbers. Nevertheless, the Commission has initiated an NOI seeking comment on additional ways to remove barriers to infrastructure investment and promote competition. In particular, comment is requested on ways to address the three distinct underpinnings for the negative finding in the 2015 Broadband Progress Report: • What actions will expand broadband availability and increase the rate of broadband deployment? • What actions will reduce the disparity in broadband availability between Americans living in urban and rural and Tribal lands? • What actions will increase broadband deployment to schools and classrooms? Comments in response to the NOI are due on or before March 6, 2015, and reply comments are due April 6, 2015. DISSENTING STATEMENT OF FCC COMMISSIONER AJIT PAI Republican FCC Commissioner Ajit Pai dissented from the Commission’s finding that broadband is not being deployed to all Americans in a reasonable and timely fashion. In his statement, Commissioner Pai makes a solid argument, backed-up by certain data, that the definition of broadband need not be raised to 25 Mbps. He states
that “71% of consumers who can purchase fixed 25 Mbps service—over 70 million households—choose not to.” When considered with other recent policy decisions related to broadband, Commissioner Pai says the new 25 Mbps definition is incoherent. Just last month, the Commission adopted an order finalizing many aspects of its plan for Phase II of the Connect America Fund, which will provide $10.8 billion over the next six years for the deployment of “10 Mbps broadband” so that millions of rural Americans will have access to advanced telecommunications and information services. By making a negative finding on broadband deployment in the report, Commissioner Pai believes the Commission is staying on track with a much bigger agenda: "[T]he ultimate goal is to seize new, virtually limitless authority to regulate the broadband marketplace. Under its interpretation of section 706 of the Telecommunications Act, the FCC can do that only by determining that broadband is not “being deployed to all Americans in a reasonable and timely fashion”—or, more colloquially, by ignoring the consistent progress in Internet connectivity that’s obvious to anyone with a digital connection and an analog pulse. That explains why the FCC rewrote the statutory test the last time it was considering net neutrality rules. That explains why this Administration has studiously excluded satellite and mobile broadband services from its evaluation. And that explains why the FCC is suddenly upping the benchmark by a factor of six. A thriving marketplace must be found to have failed so that the agency can regulate it back to health." CONCLUSION In what should come as no surprise, the FCC has once again concluded that U.S. broadband deployment is insufficient. The decision is significant because it may embolden the Commission to increase its efforts to regulate broadband services. A “negative” finding triggers a duty to take immediate action to remove regulatory barriers that may be preventing the deployment of broadband. This is the fourth consecutive year that the Commission has made a negative finding. And with the broadband bar set so high at 25 Mbps, it is almost guaranteed that the Commission will conclude U.S. broadband deployment is insufficient for many years to come. As it has in the past, it will use this year’s negative declaration to justify a number of upcoming and ongoing regulatory actions, such as striking down state laws that limit municipalities’ ability to construct and operate their own broadband networks, regulating broadband Internet access services, and fully implementing its Connect America Fund programs. The Commission’s new definition of broadband immediately raised a number of questions. What does this mean for marketing purposes? Does it mean Internet service providers (ISPs) cannot advertise their service as broadband unless they provide speeds of at least 25/3? Surely not, but the definition is sure to confuse consumers and ISPs alike. What does this mean for universal service? Does it mean that carriers will not receive universal service fund support unless they provide broadband service at speeds of at least 25/3? No. As the Commission explained in
the Report’s first footnote, the new definition of broadband applies to the findings made with respect to the inquiry required by Section 706, and not in other FCC matters (at least for now). If you have any questions or are interested in filing comments on the NOI, please let us know. [1] Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the Telecommunications Act of 1996, as Amended by the Broadband Data Improvement Act, GN Docket No. 14-126, 2015 Broadband Progress Report and Notice of Inquiry on Immediate Action to Accelerate Deployment, FCC 15-10 (rel. Feb. 4, 2015) (Report). [2] 47 U.S.C. § 1302(b). [3] 47 U.S.C. § 1302(d)(1). [4] Report at footnote 1. [5] See Connect America Fund, WC Docket No. 10-90, ETC Annual Reports and Certifications, WC Docket No. 14-58, Petition of USTelecom for Forbearance Pursuant to 47 U.S.C. § 160(c) from Obsolete ILEC Regulatory Obligations that Inhibit Deployment of Next-Generation Networks, WC Docket No. 14-192, Report and Order, FCC 14-190 (rel. Dec. 18, 2014). This 10/1 broadband speed benchmark for high-cost support recipients is primarily focused on new deployments of broadband-capable infrastructure. See Id. at ¶20. [6] See Modernizing the E-rate Program for Schools and Libraries, WC Docket No. 13- 184, Report and Order and Further Notice of Proposed Rulemaking, FCC 14-99 (adopted July 11, 2014 and released July 23, 2014). [7] SBI data is based on maximum advertised speed. Mosaik Data is based on self- reported estimated coverage. [8] Report at ¶109. February 06, 2015 Following Record-Breaking AWS-3 Auction, Spotlight Put on DISH for Big Wins and Big Discounts Please contact Michael Bennet at mbennet@bennetlaw.com or Bob Silverman at bsilverman@bennetlaw.com for more information. After more than two months of bidding in the Federal Communications Commission’s (FCC) AWS-3 spectrum auction (Auction 97), 31 winners emerged with nearly $44.9 billion worth of gross bids. The net bid total comes to just over $41.3 billion with adjustments made for designated entity (DE) discounts. Auction 97 exceeded prior FCC spectrum auction bid totals and shattered predictions that this auction would bring in between $10-20
billion. As expected, three of the four nationwide carriers—AT&T, Verizon and T-Mobile—
walked away with large spectrum hauls. Sprint declined to participate in favor of the 2016
Incentive Auction.
Bottom Line: Auction 97’s historic draws were likely prompted by lingering
questions about Incentive Auction questions and the perception that the AWS-3 sale
would be the last major predictable spectrum auction in the foreseeable future. The
auction also mark’s DISH’s controversial confirmation as a major holder of
terrestrial wireless spectrum.
However, attention has quickly shifted to satellite television provider Dish Network (DISH)
for not only being second highest bidder behind bid leader AT&T, but also for claiming
approximately $3 billion of DE discounts. DISH also participated in last year’s H Block
auction and emerged as the sole winner of that spectrum.
BACKGROUND
After years of collaboration with the National Telecommunications and Information
Administration (NTIA) and the incumbent federal spectrum users, the FCC last year finally
adopted rules for the auction and use of 65 megahertz of AWS-3 spectrum for commercial
use, reallocating the 1695-1710 MHz and 1755-1780 MHz bands in conjunction with the
2155-2180 MHz band that already was allocated for commercial use. Auction 97 was
announced with a total spectrum inventory of 1614 total licenses, including 734 Cellular
Market Areas (CMA) licenses and 880 Economic Area (EA) licenses. The spectrum was
divided into two sets of unpaired (A1 and B1 Blocks) and paired licenses (G, H, I and J
Blocks):
Block A1: 1695-1700 MHz (5 MHz)
Block B1: 1700-1710 MHz (10 MHz)
Block G: 1755-1760/2155-2160 MHz (10 MHz)
Block H: 1760-1765/2160-2165 MHz (10 MHz)
Block I: 1765-1770/2165-2170 MHz (10 MHz)
Block J: 1770-1780/2170-2180 MHz (20MHz)
Upon authorization, the AWS-3 licenses will generally be subject to certain sharing and
coordination requirements with incumbent government and non-government services that
vary by band. For instance, some licenses in the 1755-1780 MHz band will be licensed on
a shared basis with a limited number of federal incumbents indefinitely while other federal
systems will relocate out of the band over time. NTIA has released a series of federal
agency transition plans, and NTIA and the FCC have jointly released a Coordination Public
Notice detailing required procedures to coordinate spectrum usage with federal incumbents
in the AWS-3 band.[1]
AUCTION 97 RESULTSOf the 1,614 total licenses, 1,611 had winning bids (with three held by the FCC after having their bids withdrawn without a subsequent bid). Unsurprisingly, the top markets were (1) the New York City J Block (won by AT&T at $2.76 billion and $5.18/MHz-POP) and (2) the Los Angeles J Block (won by Verizon at $2.06 billion and $5.21/MHz-POP), followed by other urban markets including Chicago, DC/Baltimore, and Dallas-Fort Worth. Of the 31 winning bidders, which included numerous rural carriers, AT&T was the dominant bid leader at $18.2 billion, followed by DISH (via affiliated bidders), Verizon and T-Mobile, as follows: 1. AT&T - $18.2 billion for 251 licenses 2. DISH (bidding as Northstar Wireless and SNR Wireless LicenseCo) - $13.3 billion total (or $10 billion after 25% DE bidding credit discounts) for 702 total licenses (345 licenses for Northstar and 357 licenses for SNR) 3. Verizon - $10.4 billion for 181 licenses 4. T-Mobile - $1.8 billion for 157 licenses 5. U.S. Cellular - $338.3 million for 124 licenses Auction 97 also set new price records for spectrum above 1 GHz with bidders paying on average $ 2.21/MHz-POP, which is the highest average (paired and unpaired) price of any FCC spectrum auction to date. The 700 MHz auction in 2008 drew an average of $1.28 / MHz-POP and the prior AWS auction in 2006 drew an average of $0.56/MHz-POP. Winning bidders will be submitting their down payments and license applications by 6 PM on Friday, February 13, 2015, which will also mark the end of the prohibited communications period for all Auction 97 applicants. DISH IN HOT WATER? Once the winning bidders were identified by the FCC, it was soon revealed that DISH’s actual participation and winning bids in Auction 97 was by way of its two “small business” bidding partners—Northstar Wireless (Northstar) and SNR Wireless (SNR)—which were deemed DEs and qualified for 25% bidding credits despite DISH having majority ownership in the entities. DISH’s own bidding entity, American AWS-3 Wireless I L.L.C., which qualified for no bidding credits, had no successful bids in the auction. Northstar and SNR successfully bid for and acquired $7.8 billion and $5.5 billion worth of spectrum, respectively, for over 700 total licenses. The $13.3 billion combined bid total amounts to a $3.325 billion total discount between both Northstar and SNR. In light of this information, Commissioner Ajit Pai issued a scathing statement alleging
abuse of the FCC’s DE program, which is intended to facilitate small business participation to participate in and compete with large corporations in spectrum auctions. Commissioner Pai notes that DISH has an 85% ownership stake in Northstar and SNR, and that DISH has annual revenues of almost $14 billion, a market capitalization of over $32 billion and over 14 million customers. Commissioner Pai has requested FCC Chairman Tom Wheeler to launch an investigation to find out whether DISH violated any FCC rules. The FCC is currently considering changes to its competitive bidding rules, including easing restrictions in its DE rules to allow for greater participation by small businesses. This latest development with DISH is certain to influence the proceeding. CONCLUSION The historic numbers and prices generated by Auction 97 has raised the bar and may shift expectations for next year’s 600 MHz Incentive Auction. The heightened interest around DISH’s participation will also cause the FCC to rethink and give greater scrutiny to the proposed relaxing of its DE rules in its competitive bidding proceeding. If you have any questions regarding Auction 97 or require assistance with auction-related applications, please contact us. [1] The Federal Communications Commission and the National Telecommunications and Information Administration: Coordination Procedures in the 1695-1710 MHz and 1755-1780 MHz Bands, Public Notice, GN Docket No. 13-185, DA-14-1023 (July 18, 2014) (Coordination Public Notice).
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