Mad Dash to Defy FCC Auction Winners

Feb 28 2001

Expect a mad rush to the Federal Communications Commission during the next two weeks, as losing bidders in the agency's recently completed auction of wireless telephone licenses challenge the qualifications of the bidders that won.

The agency announced late Tuesday that for the next 10 days it will entertain challenges, formally known as petitions to deny, to the qualifications of winning bidders in the $16.9 billion auction.

The auction, which ended Jan. 26, included 170 licenses that were set aside for new and small carriers - but most of those restricted licenses were won by a few bidders who had close ties to major carriers. For example, ATT Wireless-backed Alaska Native Wireless and Cingular-backed Salmon PCS topped the list of winning bidders.

Smaller carriers that lost out contend that the FCC wrongly allowed such companies to pair with heavyweight telcos, thereby driving up the cost of the restricted licenses. One such smaller carrier, Allegheny Communications, filed a lawsuit before the auction in an effort to block Salmon and Alaska Native from bidding, but the U.S. Appeals Court for the District of Columbia rejected that request.

Lawyers for Allegheny and other small carriers on Wednesday began reviewing the voluminous filings about the ownership structure of winning bidders released by the FCC. Challenges are likely, says John Rogovin, an attorney for Allegheny.

"They've so relaxed the rules that they've really diminished the integrity of the program - at least that appears to be what's going on," Rogovin says.

Under FCC rules, only companies with annual revenues of less than $125 million in each of the two previous years and total assets of less than $500 million were eligible to bid for the restricted licenses. But the agency allowed an eligible bidder to accept investments from ineligible, larger companies - so long as the investors did not have control of the bidder.

Winning bidders have argued that they were not controlled by their larger partners. The FCC will examine those relationships if it receives challenges during the next few weeks.

In 1996 and 1997, the FCC auctioned similarly restricted licenses but imposed tighter limits on investments from ineligible companies. Those auctions were considered a disaster after most of the winning bidders were unable to raise funds to cover their bids and ultimately ended up in bankruptcy. The FCC hoped to avoid those problems this year by relaxing the limits and eliminating installment payment plans that had allowed winning bidders to pay for licenses over 10 years.