House Republicans: Something Smells Rotten at FCC

Troubled by story of waiver of auction rules; FCC says decision is consistent with congressional intent
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The leadership of the House Energy & Commerce Committee and Communications Subcommittee said Wednesday that something "smells rotten on the [FCC's] 8th Floor" — where the commissioner offices are located — and that a report about a waiver related to an upcoming auction raises "a cloud of favoritism."

Rep. Fred Upton (R-Mich.) and Greg Walden (R-Ore.), chairman of the full committee and subcommittee, respectively, were responding to a Bloomberg News story that the FCC had granted a waiver to a private equity firm and Obama supporter, Grain Management, and had done so in a nonpublic 3-2 vote.

According to Grain, it invests in media and communications for "leading academic institutions, endowments, and public pension funds," as well as managing wireless infratructure for commercial and government customers.

"The waiver would permit Grain to circumvent commission rules designed to ensure the independence of small businesses that receive bidding credits in FCC auctions," they said.

"Process rules are in place for a reason," they added, "and there is a transparent process available if the commission wants to pursue changes to the rules. Instead, a troubling pattern of process neglect is emerging, leaving a commission that too often shrouds its work in secrecy and takes shortcuts to impose its desired policies. This action raises additional questions about the decision-making process at the FCC and underscores the need for additional transparency and process reform.”

Grain sought the waiver in March, and an FCC source points out it was unopposed when it was put out for public comment. Grain contended that the rule was “overly broad” and could deny DE benefits to entities, like itself, that Congress intended should receive them. The Minority Media & Telecommunications Council supported Grain's petition, though it would ultimately like to see the rule go away, the FCC pointed out in approving the waiver. 

The FCC released its decision late Wednesday. It said the waiver applied only to the specific circumstances presented by Grain, concluding that "Grain’s transaction with AT&T and Verizon Wireless would result in public interest benefits, 'including by promoting spectrum license opportunities for entrepreneurs and other small businesses.'"

"In this Order, we grant a request by Grain Management, LLC (Grain), and waive the bright-line application of one of our attribution rules that would otherwise prevent Grain, and any other similarly situated entity, from qualifying to participate at auction as a designated entity (DE). While the attributable material relationship (AMR) rule establishes a bright-line trigger for the attribution of a lessee’s gross revenues to a DE applicant that has leased more than 25 percent of the capacity of any one of its licenses, we conclude that the underlying purposes of this provision would not be served by applying such a per se rule in these circumstances, and that grant of a limited waiver would serve the public interest in ensuring the appropriate application of the Commission’s DE policies and promoting its goal of disseminating licenses among a wide variety of applicants. Accordingly, we waive the bright-line provision of the AMR rule that would otherwise trigger the automatic attribution of the lessee’s gross revenues to a DE applicant."

As to the suggestion the FCC was playing favorites:

“Treating entrepreneurs and small businesses like multibillion dollar corporations [when competing for spectrum licenses] could deter them from participating in auctions," said an FCC official. "Granting regulatory relief to entrepreneurs and small businesses in the same situation as Grain, Inc. helps them qualify as designated entities so that they can compete for spectrum license opportunities with the benefit of small business bidding credits. The Commission’s action is consistent with Congress’s directive to make sure that we design auctions that avoid concentration of licenses and disseminate licensees among a wide variety of applicants, including small businesses and others. It also helps would-be bidders know the rules of the road for the upcoming AWS-3 auction, which is subject to a statutory deadline. Following a period of public notice and comment, today’s order grants limited waiver relief to entrepreneurs and small businesses in the particular circumstances presented in Grain’s petition. We also plan to take a fresh look at our general designated entity rules and policies in the upcoming designated entity proceeding.”

Without the waiver, Grain's leases to AT&T and Verizon would have meant those companies revenues would have counted toward Grain and could have excluded it from meeting criteria for bidding help in the upcoming AWS-3 auction, Bloomberg reported.

That policy is to insure that small-business bidders aren't fronting for larger ones.

The auction is one of three auctions to raise money for the treasury and emergency communications while freeing up spectrum for wireless broadband, a priority for the president and the FCC.

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