FCC Chairman Proposes Auction Designated Entities Rule Revamp

Billed as preventing unjust enrichment, gaming system
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FCC chairman Tom Wheeler has circulated proposed changes to the FCC's auction competitive bidding rules for small business designated entities (DEs), including a first-ever cap on the total value of bidding credits a small business or rural provider can get.

The new rules were last updated in 2006 and if the FCC approves the changes, as is expected, they would apply to the upcoming broadcast incentive auction.

The chairman's office signaled the changes are necessary because "women- and minority-owned small businesses face an uphill battle in competing for spectrum." It also signaled the reforms would "ensure large corporations can’t game the system, bidding credits flow to small businesses and rural carriers – while revamping outdated policies that no longer serve today’s wireless marketplace."

Under these rules, Dish's joint bidding and the multi-billion dollar bidding credits its associated designated entities had applied for in the AWS-3 auction would not be allowed. The FCC has not yet ruled on those bidding credits, but the new rules cap credits at $150 million going forward.

They proposed changes—they must still be voted on—include boosting revenue thresholds for small businesses, remove the requirement that small businesses provide facilities based service to qualify for bidding credits, and "eliminates the assumption that a lease of more than 25% of the spectrum capacity of any one license to a large business requires revenue attribution to a small business."

A vote has been scheduled for the July 16 meeting.

The proposed changes include:

  • "Establishment of the first-ever cap on the total value of bidding credits a small business or rural provider is eligible to receive in any one spectrum auction:
  • "Cap will vary on a service-by-service basis based on the capital requirements of the service and the inventory of licenses to be auctioned.
  • "For the incentive auction, there is a $150 million cap for small businesses; $10 million cap for rural service providers.
  • "In addition, there is a $10 million ceiling on the amount of bidding credits that any entity can use in the smallest markets.
  • "Collectively, these provisions will provide flexibility for small businesses to pursue a variety of business plans, while ensuring that small businesses and rural providers can compete on equal footing in the smallest markets.
  • "The cap will allow bona fide small businesses to compete for spectrum in any given market.
  • "Prevention of unjust enrichment of ineligible entities by strengthening attribution rules:
  • "Retaining the existing 5-year unjust enrichment period and graduated repayment schedule.
  • "Limiting the amount of spectrum that a designated entity may lease to any of its non-controlling disclosable interest holders – such as investors - during the unjust enrichment period.
  • "Putting designated entities on notice regarding the types of investor agreements that raise concerns about who’s “calling the shots”.
  • "Elimination of Joint Bidding Agreements and other reforms:
  • 'Prohibiting joint bidding agreements that involve a shared strategy for bidding at auction, but permitting arrangements that are solely operational (e.g., roaming, leasing, etc.), provided they are disclosed.
  • 'Permitting designated entities – that is, bona fide small businesses and rural service providers eligible to receive bidding credits – to participate in consortia with other designated entities, resulting in a single bidder.
  • 'Permitting non-nationwide providers to participate in joint ventures with other non-nationwide providers, resulting in a single bidder.
  • "Prohibiting multiple applications by one party and by parties with common controlling interests [subject to certain exceptions]."

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