CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

Not only would the licensee/renewal applicant have to produce its own documents, it would have to track down and turn over a similar universe of documents for each of its “affiliates” – “affiliates” not just in the usual sense of “under common control or management”, but in the very broad sense of sharing facilities, participating in joint venture arrangements, or even just having contractual relationships. (For all the unpleasant details, check out the definition of “affiliate” in Section 1.2110 (c)(5) of the FCC’s rules.) This broad definition normally applies in auctions, to avoid competitive bidding credits going to undeserving entities. It does not fit well in the renewal context, where the point is to assess the qualifications of the licensee, not entities that it can’t control. 

Worse, the proposed document production exercise would repeat each time any license held by the applicant and any of its affiliated entities comes up for renewal. Especially for larger entities, the procedure would result in a cascade of repeated document productions, in some cases involving hundreds of affiliates and thousands of licenses. No wonder AT&T and Sprint are worried. This type of due diligence is no cakewalk for smaller entities either, who will have fewer resources to put towards compiling the required information. 

Expensive, time-consuming – and probably unlawful.   The federal Paperwork Reduction Act (yes, it’s hard to tell, but there really is one) bars governmental agencies from requiring the filing of “unnecessarily duplicative” information otherwise reasonably accessible to the FCC. All of the requested paper is already in the FCC’s own files. If that isn’t unnecessarily duplicative, then nothing is.

After all that, if the Commission finds an applicant’s submission to be “insufficient”, the Commission will deny the application. Don’t ask us what “insufficient” means – the FCC isn’t saying. Apparently, like Justice Stewart in Jacobellis v. Ohio, it will know it when it sees it. Given that people’s livelihoods can be at stake, we expect a better articulation of what the Commission is looking for. We think the Administrative Procedures Act expects the same.

Reply comments about the proposed rule changes are due by August 23. The Commission will accept ex parte communications after that.

“Renewal expectancy” is a concept which arises from tensions inherent in the licensing process. Commercial businesses which depend on FCC-issued licenses need to have some assurance that those essential licenses will be routinely renewed – otherwise, the risk of non-renewal would likely discourage necessary investment and hamstring the business’s commercial operation. That, in turn, would lead to reduced, less-than-optimal service, which the FCC would generally like to avoid. So to encourage commercial stability and investment leading to desirable levels of service, the Commission has created the notion of “renewal expectancy”: if a licensee achieves appropriate levels of service, then the licensee is entitled to “expect” that its license will be renewed.

The problem with any such “expectancy”, though, is that it runs counter to the fundamental concept of a “license”. A license is temporary. As the FCC has reminded everybody ad infinitum, a license is not a property interest and gives the licensee no permanent rights. So even though there may be benefits to be gained from industry stability promoted by “renewal expectancies”, the FCC has to be careful that such expectancies do not convert a mere temporary license into a permanent property right.

The Commission’s track record in this area has been at best spotty. On the broadcast side, the FCC was sharply criticized by the U.S. Court of Appeals for the D.C. Circuit because the renewal expectancy developed there seemed to amount, in practical effect, to an insurmountable barrier to challengers. (Congress stepped in to relieve the FCC of this problem in the 1996 Telecom Act. There Congress explicitly eliminated the comparative renewal process for broadcast licenses.)

In an effort to articulate “renewal expectancy” standards for 700 MHz Commercial Services Band renewal applicants, the Commission has held that such applicants must show “that they have provided substantial service during their past license renewal term, which is defined as service that is sound, favorable, and substantially above a level of mediocre service that just might minimally warrant renewal.” The Commission has not, however, yet attempted to apply those broad, somewhat platitudinous terms to any concrete set of facts in a way that might shed light on what the terms really mean.

And now the Commission has decided that it needs to rethink what warrants renewal expectancy and what constitutes substantial service in the WRS arena.

It’s difficult to quarrel with any effort aimed at reviewing and clarifying such an important concept. However, the current proceeding runs into one big problem: what to do about all the renewal applications that have already been filed for WRS renewals and the 178 applications that have already been filed against 151 pending renewal applications in the Wireless Radio Services. [Full Disclosure: My colleague, Don Evans, represents a number of the applicants challenging those pending renewals.] The Commission’s rules have invited heretofore competing applicants and, as noted, 178 applications have been filed in response. But how can the FCC rationally resolve such comparative renewal situations while it’s hip-deep in reassessing the core renewal expectancy issue?

The quick answer – a freeze on the filing of new applications that are mutually exclusive with a WRS renewal application filed by an incumbent licensee and a hold on the further processing of such mutually exclusive applications that have already been filed. More specifically, the Commission has suspended the filing of applications that are mutually exclusive with the renewal applications of incumbent licensees for all Wireless Radio Services as of May 20, 2010, the adoption date of the Notice of Proposed Rulemaking.

A processing hold has been placed on the 178 competing applications already on file as of May 20, 2010. If the Commission adopts the rules and policies it is now proposing, these pending applications will be dismissed along with all related correspondence. The good news is that these applications, which have heretofore not been viewable on the Commission’s Universal Licensing System, will now be viewable. 

The Commission will also hold in abeyance all pleadings and correspondence regarding the 178 pending mutually exclusive applications, and parties will not be permitted to file anything further regarding those applications or the comparative renewal situations.

Incumbent licensees will be required to file renewal applications during the pendency of the rulemaking, and interested parties may file objections and petitions to deny those renewal applications. Curiously, the Commission has announced that it will grant all such renewal applications, subject to the outcome of the proceeding. This is curious because the Supreme Court’s 1945 decision in Ashbacker – which has long cast a “towering shadow” over FCC jurisprudence – would appear to preclude precisely that “grant now, compare later” approach. Precisely how the Commission may attempt to reconcile its current game plan with Ashbacker remains to be seen.   

As noted, interested parties may file petitions to deny any such renewal applications. If a petition to deny raises issues related only to the rulemaking proceeding, the renewal applications will be granted subject to the outcome of the proceeding. If a petition raises other issues concerning the qualifications of the renewal applicant, the Commission will try to resolve the issues if it can do so, and make conditional renewal grants.

Finally, the Commission has decided to apply treat not only the rulemaking proceeding but also the pending renewal applications and mutually exclusive applications as “permit-but-disclose” proceedings for purposes of the ex parte rules. It appears that many meetings at the Commission are in the offing.

 To its credit, the FCC recognized that its plan had been seriously flawed.   Rather than proceeding with a new auction last summer as originally planned, the FCC opted to go back to the drawing board on the whole thing. After soliciting an original round of comments, it has now proffered yet another Further Notice of Proposed Rulemaking, a 212- page tome that revisits virtually every aspect of the D Block scheme. The result, on which comment is sought on a much abbreviated 30 day schedule, tentatively retains a good deal of the original plan but also proposes some novel new approaches to issuing the licenses. Here are a few of the highlights:

• The Public Private Partnership concept is maintained, but with changes. . The two entities must work together closely on the deployment plan, equipment, sharing protocols, and virtually every other element of sharing a huge nationwide telecommunications network but with radically different incentives and perspectives. Like a marriage counselor always on call, the FCC proposes to hover about resolving arguments and smoothing over differences as they arise. Testing such a novel mode of operation in a system critical to public safety on a nationwide scale using perhaps the most desirable spectrum likely to be available for decades to come is a risky proposition indeed, but the FCC seems committed to going forward.
• To be sure, the FCC has tried to eliminate from the equation some of the uncertainties which doomed the first auction by clarifying the rights and responsibilities of the public safety licensee (PSL) vis a vis the commercial licensee (CL): a Draft Network Sharing Agreement has been prepared which contains the "baseline" elements which the FCC expects the CL and PSL to agree on. The CL will only be liable for a default payment after the auction if it fails to reach agreement with the PSL on the remaining issues and the FCC deems the CL's position to be unreasonable. This still entails some risk to the CL since the default penalty will be between 3% and 20% of the amount bid. The Commission also clarified under what circumstances the PSL would have access to the CL's commercial spectrum, how much spectrum the PSL would be entitled to, and the circumstances in which such priority access would have to be offered. These proposals eliminate a number of the most contentious issues which previously were left open to negotiation.
  
• The FCC provided much clearer guidance on the governing structure of the PSL and its relationship with outside advisors --something which had been a subject of much discord in the first go-round. It also clarified eligible users of the public safety network, allowable fees, and funding possibilities.
  
• The FCC proposed a unique method of auctioning the D Block in which the spectrum will be awarded either on a single-licensee nationwide basis or a multiple-licensee regional basis depending on the auction results. If a nationwide licensee is selected, the 4G protocol is unrestricted, but if multiple licensees are selected, the operating protocol must be either Wi-Max or LTE depending on who bids the most for the licenses overall. This interesting proposal somewhat follows the proposal by NTCH, Inc. to let the governing protocol of the national D Block system be set by auction bidders who essentially "vote" with their dollars. Theproposal makes for an auction with many moving parts and innumerable permutations, but also conceivably has the effect of letting the market decide which configuration for the D block makes the most sense. At the same time, a single, consistent protocol will be established whether the licensee is nationwide or regional. The "regions" for this purpose are "Public Safety Regions" -- the 55 areas (plus three others) into which the US is divided for purposes of public safety planning. The Commission also clarified that the CL and PSL will both have access to the full 20 MHz of spectrum but their rights of priority usage to amounts of the spectrum will be set by the final order. Fifty percent of the capacity of the combined public safety/D Block network is subject to unrestricted public safety use and available for commercial use only on a secondary, preemptible basis. Public safety access to additional capacity on the network would be very limited and subject to narrowly defined “emergency” situations.
  
• The FCC revised its proposed build-out rules. The original rules called for strict build-out of substantial portion of the geographic area of the license within 4 years. Under the new proposal, the license term has been extended to 15 years, with construction benchmarks at the 4th, 10th and 15th years. (40% of the population of each Public Safety Region by the 4th year, 75% by the 10th year, and 90-95% by the15th year, depending on the population density of the Public Safety Region involved. The build-out obligation is therefore not only considerably spread out but also is less restrictive in terms of picking up the miniscule population pockets necessary to achieve 99% coverage.
  
• The FCC significantly lowered the minimum price from $1.33 billion to $750 million.
  
•  The FCC retained the elimination of the prohibition on "impermissible material relationships" between the auction winner and other parties. This means that auction winners who are Designated Entities may freely resell or lease portions of the spectrum to others without the usual restrictions.

The FCC clearly listened to the industry in devising a new structure for the D Block. All parties at the table, including the public safety community, recognized that the Public Private Partnership could not work unless the structure made commercial sense. The resulting proposal does make the spectrum more attractive by significantly clarifying the rights and obligations of the CL, reducing the minimum payment, easing the build-out burdens, and making the spectrum available to regional entities. Whether the complex and untested structure proposed here can work in the real world is something we will have to wait to find out. Comments may be filed on or before November 3.