The FCC has proposed a number of changes to its spectrum auction rules to enhance the ability of small businesses and businesses owned by minorities and/or women to attract financing and meaningfully participate in the upcoming TV spectrum incentive auction.  Eligible businesses, called Designated Entities (DEs), can obtain credits that help them submit competitive bids for new spectrum.  The public can comment on the various proposed rule changes.

Perhaps the most significant proposal is to allow small businesses that use bidding credits to win spectrum to lease most, or all, of that spectrum to third parties.  Currently, if a DE leases more than 25% of the spectrum capacity of any its individual licenses to one entity, the DE cannot obtain future bidding credits and must pay back the value of the credits it received for that spectrum.  The leasing restriction implements the FCC’s policy that DEs should provide facilities-based retail wireless service directly to the public — a policy that it is reconsidering.  The leasing restriction severely hampers small businesses from participating in the market for leasing spectrum, according to the FCC’s rulemaking notice.  If the current restriction is eliminated, small businesses should have expanded revenue opportunities and become more attractive to investors.

Elimination of the leasing restriction, however, is strongly opposed by the two Republican commissioners. Their concern is that small businesses will simply lease their subsidized spectrum to the biggest national carriers, undermining the goal of spurring competition from small enterprises and unjustly enriching large companies at taxpayers’ expense.  Despite this opposition, it is likely that the FCC will adopt this proposal.

The FCC proposes several other changes to its competitive bidding rules, including:

  • Reducing the amount of upfront payments required by entities that have defaulted on previous spectrum awards or on non-tax related payments to agencies (the so-called former defaulter rule), assuming certain criteria are met;
  • Preventing the four largest wireless companies, AT&T, Verizon, T-Mobile and Sprint, from entering into joint bidding arrangements among themselves or potentially with others;
  • Providing bidding credits for spectrum used to serve areas that are currently unserved or underserved; and
  • Barring companies controlled exclusively by a single individual or the same group of individuals from submitting more than one application to bid on licenses.

The FCC intends to adopt final competitive bidding rules before the TV broadcast incentive auction, and has called for public comments within 45 days of the notice of these proposed rules being published in the Federal Register.  Companies considering providing financial backing to small or minority-owned businesses should closely monitor this rulemaking and consider filing comments.