By a 3-2 vote, the FCC approved rule amendments at its monthly open meeting yesterday that cap the amount of bid credits qualified small business designated entities (DEs) may receive in spectrum auctions.  In the words of an FCC press release, the revised rules also include other measures to “facilitate small business’ ability to participate in spectrum auctions and the wireless marketplace.” 

The Report and Order (R&O) in the FCC’s competitive bidding proceeding responds, in part, to the actions of DISH Network in the recent Advanced Wireless Service (AWS)-3 auction, during which two DEs affiliated with DISH received $3.25 billion in DE credits on $13 billion in gross winning bids.  AT&T, Verizon Wireless and other AWS-3 auction participants complained to the FCC that coordinated bidding among DISH and its affiliated DEs undercut the integrity of the auction by inflating bid prices and by creating the impression that there was more competition for certain licenses than was actually the case.  Although the FCC has yet to rule on whether the DISH DE bid credits will stand, FCC Commissioner Mignon Clyburn stressed in an accompanying statement that the R&O attempts to strike “the proper balance between allowing small businesses to acquire spectrum through DE credits . . . and preventing parties from circumventing the purpose of those rules and being unjustly enriched.”  DISH, for its part, has maintained that its actions and those of its DE affiliates fully complied with FCC rules. 

The R&O creates a new DE category for rural service providers (RSPs), which may qualify for a 15% bid credit if they serve fewer than 250,000 wireless, wireline, broadband and cable subscribers.  For next year’s incentive auction, the credit cap will be set at $150 million for small business DEs and at $10 million for RSPs.  In addition, there will be a $10 million ceiling on the amount of bidding credits that any entity can use for licenses in smaller markets.  For future FCC auctions, the exact amount of the cap will vary.  In addition to banning joint bidding among the four nationwide wireless carriers, the amended rules also prohibit shared bidding strategies and multiple auction applications by parties with common controlling interests.  Non-nationwide carriers, however, may participate in joint ventures with other non-nationwide carriers, and the rules allow DEs to participate in consortia with other DEs that result in a single bidder. 

To promote flexibility, competitive opportunities, and small business access to capital, the R&O also eliminates the attributable material relationship (AMR), rule which had curtailed the amount of spectrum a small business licensee could lease to other carriers.  In dissenting statements, both FCC Republicans—Commissioners Ajit Pai and Michael O’Rielly—argued that repeal of the AMR rule creates a new loophole that could enable large nationwide carriers to benefit from spectrum intended for small business DEs.  Countering that repeal of the AMR rule fulfills the desires of Congress to promote economic opportunity and “facilitate asset ownership,” Wheeler emphasized:  “the way you make asset ownership feasible in today’s mobile environment is to own that asset and then to work with others so that the asset is used, and not necessarily have to go out and offer Tom and Jane Cellphone Service.”