NEWS [internet file name: nrwl4025.txt] Report No. DC-2685 ACTION IN DOCKET CASE November 23, 1994 CELLULAR APPLICATIONS OF ELLIS THOMPSON CORP. SET FOR HEARING (CC DOCKET 94-136) The Commission has designated for hearing the application of Ellis Thompson Corporation to construct and operate a cellular telephone system to serve Atlantic City, NJ. The Commission found that there were substantial and material questions as to whether a third party became a real-party-in-interest in the Thompson application contrary to the Commission's rules. The Commission took this action pursuant to a decision of a federal appellate court reversing and remanding the FCC's prior order upholding the grant of Thompson's application. Thompson was selected by lottery to construct and operate the Atlantic City non-wireline cellular system. Pursuant to the terms of a settlement agreement among applicants for the Atlantic City authorization (the CMS Settlement Agreement), Thompson is entitled to a 50.01 percent ownership interest in the Atlantic City authorization, while other parties are entitled to the remaining 49.99 percent. Questions regarding the control of Thompson arise from agreements entered into by Thompson with two parties, Telephone and Data Systems, Inc. (TDS) and American Cellular Network Corp. (Amcell). Shortly after the lottery in 1986, Thompson entered into a letter agreement giving TDS an option to purchase Thompson's interest after the cellular system was completed. This agreement provided, in paragraph 16, that TDS' approval was required for agreements calling for expenditures by Thompson of $50,000 or more. In 1987, Amcell notified TDS that it had acquired a 36.01 percent interest in the Atlantic City authorization from the original minority parties to the CMS Settlement Agreement. Amcell informed TDS that, under a supermajority provision of the CMS Settlement Agreement, Amcell's consent was required before TDS could buy Thompson's interest. Thompson thereafter entered into an agreement with Amcell under which Amcell would construct the Atlantic City system and operate it for at least ten years. In compliance with its agreement with TDS, Thompson submitted the management agreement for TDS' approval. TDS, however, refused to consent to the agreement. (over) - 2 - Thompson, nevertheless, executed the management agreement with Amcell, and simultaneously entered into two related agreements. Under the first, Thompson granted Amcell a contingent option to purchase its interest in the event that TDS did not exercise its purchase option. Under the second, Amcell agreed to indemnify Thompson if the Commission denied Thompson's application because it found the management agreement objectionable. In pleadings before the Commission's Common Carrier Bureau, Amcell challenged the propriety of paragraph 16 of the TDS agreement, while TDS challenged Amcell's rights under the CMS Settlement Agreement. Each asserted there had been an unauthorized transfer of control. The Bureau upheld the provision of the CMS Settlement Agreement at issue but required the abrogation of paragraph 16. On review before the Commission, TDS supplemented its allegations against Amcell. TDS asserted that the management agreement, contingent option agreement, and indemnification agreement, taken together, indicated that Amcell has acquired control of Thompson. In its first order in this proceeding, the Commission expressed concern that Amcell's undertaking to indemnify Thompson if the license is revoked would encourage a lax attitude on the part of the licensee. Nevertheless, the Commission found that a preponderance of the facts and circumstances indicated that there were no substantial and material questions of fact suggesting that Thompson had relinquished control. On March 25, 1994, the U.S. Court of Appeals for the District of Columbia Circuit reversed and remanded, stating that the Commission's application of the criteria set forth in the Intermountain Microwave case to the facts in this proceeding was inconsistent with precedent and that it had, without explanation, treated these criteria as a test of legal, rather than of de facto control. The Commission said the evidence before it discloses a pattern of circumstances which raises a substantial and material question as to whether Thompson permitted Amcell to become a real-party-in-interest in the application. It further found that its failure adequately to take into account these circumstances in its prior order rendered its analysis incomplete. In its present order, the Commission emphasized that the questions raised by this case do not arise merely because the Atlantic City system is being operated pursuant to a turnkey arrangement. It was not suggesting that it expects cellular systems to be run as "mom-and-pop" operations or necessarily to be managed in the manner of broadcast stations. Rather, it said, when it examines the totality of Amcell's involvement here, it finds a substantial and material question as to whether Amcell's status as a prospective purchaser of the system with an independent interest in it predominates over its ostensible role as turnkey manager answerable to Thompson - 3 - As it has done in prior cellular radio cases remanded by the court, the Commission granted Thompson interim authority to continue operating the system, pending completion of further proceedings. Action by the Commission November 18, 1994, by Memorandum Opinion and Order and Hearing Designation Order (FCC 94-298). Chairman Hundt, Commissioners Quello, Barrett, Ness and Chong. - FCC - News Media contact: Rosemary Kimball at (202) 418-0500.