Inactive PCS Systems Face Automatic Cancellation – But When?

“Permanent” discontinuation of PCS operation is the trigger – but when is discontinuation “permanent”? 

Late last month the FCC’s Wireless Bureau issued an interesting order which should have sent a chill down the spines of all Personal Communications Service (PCS) licensees who, for whatever reason, have failed to use their spectrum for a significant period of time. The Bureau declared that one poor licensee – who had voluntarily acknowledged to the FCC that it hadn’t operated its system for at least two years – had “permanently discontinued” operation. From that the Bureau concluded that the licenses had been automatically canceled.

Ouch.

The hapless licensee, Northstar Technology, LLC, had defaulted on debts to a number of Federal agencies, including the Commission (for an unpaid auction bid).   Nevertheless, it managed to negotiate a settlement with the Feds pursuant to which it would sell the PCS licenses it held and assign the proceeds over to the US of A.

A swell plan it was, but for one slight snag: because Northstar hadn’t operated its system for more than two years, Northstar’s licenses had cancelled automatically, according to the Bureau. As a result, there was nothing to sell and no proceeds to pay over to the government . . . unless, that is, the Commission was willing to waive its automatic cancellation rule. Since such a waiver would result in a payment of up to $10 million into the Federal coffers, it should surprise nobody that the rule was cheerfully waived in this particular case.

But that waiver is not the real story here. Rather, the real story is the remarkable new standard (and we’re using that term very loosely here) which the Bureau has now established as a trigger for automatic cancellation of PCS licenses.

One of the fundamental presumptions of radio licenseeship is that a licensee must either use its licensed spectrum or lose it. The operative rule codifying this principle provides that if you permanently discontinue service, your license will automatically be cancelled.  In virtually every other radio service that we can think of – with one notable exception – the FCC specifies strict time frames regarding discontinuance, or abandonment, or permanent cessation, of service. A licensee who fails to meet the minimum operational period specified for its particular service will be deemed to have permanently discontinued operation. When that occurs, the licensee must either turn in its license or have it cancelled by operation of law. 

But Northstar’s were PCS licenses. By some odd quirk, the PCS rules do not define  a period of non-operation that leads to a presumption that a PCS operation has been “permanently discontinued”. Because of the rules’ silence on this point, PCS licensees have historically taken the perfectly reasonable position that a licensee has not permanently discontinued operations until it has in fact ceased operations with the intent of never resuming them. In the absence of a legal presumption established by a rule, the actual intent of the licensee to resume operations at a later point would seem to easily and satisfactorily rebut any contention that it had permanently discontinued operations. The situation might be likened to that treadmill down in your basement which has acquired a thick coating of dust since it was last used in 1989.   But if asked, you could and would truthfully insist that you have every intention of getting on that treadmill and getting back into shape. In fact, you seriously think about firing it up every couple of weeks, but some other annoying factor always prevents you from doing so. No way have you “permanently discontinued” use of that treadmill!

But the FCC would take your treadmill away.  The Bureau rather breezily noted that in its other services it deems permanent discontinuance to have occurred if a licensee ceases operations anywhere “from 90 days to up to one year or more.”  Since Northstar had acknowledged in its application that it had not been operating the system for at least two years, the Northstar licenses were deemed to have cancelled automatically. 

This completely unsupported and unprecedented declaration is flabbergasting on several levels.

First and foremost – when did the automatic cancellation occur? There is absolutely no way that any licensee would have known that a secret alarm clock with a silent alarm was ticking.   And if there was such an alarm clock, did it silently go off at 90 days, 180 days, one year, or “more” – all of which would be potential yardsticks to measure PCS against. The Bureau does not say.  All we know is that at some point by the two-year mark, the alarm clock had definitely gone off unbeknownst to anyone, and the license had been cancelled without the FCC, the licensee or anyone else doing or saying anything.  

This is scary, since the law generally demands that people be given notice before the guillotine blade is allowed to fall.

Second, PCS licensees who are planning to sell their silent stations now face a quandary. If the station has been silent for any length of time (we assume you’re safe if you were silent for less than 90 days, but who knows?), neither the buyer nor the seller has assurance that the license has not been automatically cancelled by operation of a law that is unstated.  Communications lawyers called upon to opine to the “good standing” of PCS licenses will be hard put to issue such opinions.   A dark cloud of uncertainty has been cast over a whole service.

Unfortunately, the applicants involved in the Northstar case are unlikely to seek review; the Commission waived the “permanent discontinuance” rule for them in order to facilitate the effectuation of the license sales, so they’d be foolish to challenge the ruling. Under ordinary principles, no other party has standing to seek review of the Bureau’s decision. As a result, even though the decision seems (to this observer, at least) grossly, unequivocally and manifestly erroneous, it will sit there for a while until it can be revisited. (One avenue might be the periodic review of non-controversial rules that the FCC undertakes every few years. Such a proceeding is now open, and the Commission could remedy the effect of this decision by simply adopting a firm standard for measuring permanent discontinuance of service, prospectively applied.) In the meantime, forget about your treadmill and get that PCS system running.