Court Vacates "Designated Entity" Rules
Third Circuit sends 2006 DE rules back to FCC for further consideration; $14B auction results from 2006 left untouched
Back in 2006, with big-ticket wireless auctions fast approaching, the FCC hustled through revisions of a number of rules affecting bidding credits in those auctions. The bad news for the FCC: the U.S. Court of Appeals for the Third Circuit has now sent two of the three rule changes back to the agency for a re-do because of procedural shortcomings in the 2006 rulemaking process. The good news for the FCC: the Court decided that the Commission will not have to re-do the auctions conducted pursuant to those flawed rules and, perhaps more importantly, will not have to give back the $14 billion or so it raked in in the August, 2006 auctions.
The bidding rules at issue involve eligibility for “Designated Entity”, or “DE”, status. Bidders entitled to that status are smaller companies that might otherwise find it hard, if not impossible, to compete with larger, well-established telecom companies in a dollar-for-dollar face-off. Committed to encouraging new entrants into the telecom universe, Congress instructed the Commission (in 47 U.S.C. §307(j)) to ensure opportunities for small businesses by, among other things, making bidding credits available to them. A bidding credit is defined by the FCC as a “percentage discount applied to the high bid amount for a license.” Practical illustration: if a bidder with a 25% bidding credit wins an auction with a bid of, say, $1 million, that bidder would have to pay only $750,000 after the credit is applied.
Credits of 15%, 25% or 35% were available (depending on various factors). With wireless prices hovering in the nine- and ten-figure range (T-Mobile alone bid a total of more than $4 billion-with-a-“b” – in the 2006 auction; four other bidders also tendered aggregate bids topping the $1 billion level), the credits were obviously worth serious money. With an eye toward ensuring that bidding credits were awarded only to companies deserving them, the Commission tried, in the run-up to the August, 2006 auctions, to tighten up the eligibility standards.
That’s where it ran into problems.
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