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19 71

May 14, 2014


The Honorable Thomas E. Wheeler


Federal Communications Commission

445 12111 Street, SW

Washington, DC 20536

Re: Expanding the Economic and Innovation Opportunities of Spectrum Through

Incentive Auctions (GN Docket No. 12-268); Amendment of the Commission's

Rules with Regard to Commercial Operations in the 1695-1710 MHz, 1755-1780

MHz, and 2155-2180 MHz Bands (GN Docket No. 13-185); Wireless Competition

(WT Docket No. 13-135) & Modernization of Competitive Bidding Rules (WT

Docket No. 05-211)

Dear Chairman Wheeler:

On Thursday, the Federal Communications Commission (the Commission) will

adopt spectrum incentive auction rules at its open meeting, and hopefully soon

thereafter will also adopt so-called "Designated Entity" (DE) rules that are the

subject of a separate Commission rulemaking.1

Leading up to this meeting, we remind you and your fellow Commissioners of









competition ... by disseminating licenses among a wide variety of applicants,

including small businesses, rural telephone companies, and businesses owned by

members of minority eroups and women."ii

The Commission's Competitive Biddinl Authority

Congress has routinely reauthorized the Commission to conduct spectrum

auctions since it originally conferred that authority in 1993, as part of the

Omnibus Reconciliation Act of 1993 (P.L. 103-66).1ii Not once in the past 20 years

has Congress altered or weakened its public interest directive to the Commission

to ensure that it avoid excessive concentration of licenses and that it assign a

portion of the licenses sold

at auctions to small businesses, and businesses

owned by minorities and women.

Congress's express intent and objectives were made perfectly clear in Section

309(i)(3)(B) of the Communications Act.1v In

1993, Congress may not have

imagined or predicted the myriad ways in which the Internet renaissance and

convergence in telecommunications and video would transform and grow the US

wireless and mobile broadband industries into the economic workhorses they

are today. Yet Congress had enough foresight at the time as to the force and

potential of these drivers. Accordingly, Congress passed Commission auctions-

legislation which afforded opportunities to small businesses to acquire spectrum

2344 Rayburn House Office Building ·Washington , DC 20515



licenses. Congress envisioned that in competing with incumbent providers, these new, small

business entrants would introduce new and flexible commercial wireless services that

would create scores of new jobs, increase productivity, grow our overall economy and trade

balances, and expand access to Internet service providers and commercial wireless voice

(and later, texting, messaging, multimedia, and video communications) services for high-

cost, remote, and underserved regions and communities.v

In using these license assets to tap into emerging and other hyper-growth sectors, Congress

wanted for small businesses and for businesses

owned by minorities and women to

participate in and not be excluded from these vibrant overall economic, market and societal

effects. vi

Low auction partjcipatjon levels by DE/MWBEs

Over the years, the Commission has utilized a variety of Congressionally-endorsed tools,

such as bidding preferences and other procedures, to promote minority and women-owned

business enterprise (MWBE) participation. While we understand that the Commission

adopted race-neutral measures in order to meet Adarand-related standards and limits, vii use

of these tools resulted in more than 1,400 small businesses, including many MWBEs,

winning spectrum licenses during the Commission's first decade of having competitive

bidding authority.

The succeeding decade, on the other hand, has produced far worse and alarming results.viii

Overall DE participation in auctions after the Commission modified its DE rules in 2006,

sunk to all-time lows. In Auctions 66 (AWS-1) and 73 (700 MHz) -

two of the largest

auctions of prime spectrum -

DEs won licenses that represented only 4.0o/o and 2.6o/o

respectively, of the total revenue raised in the auction.

And, DEs won zero bids in recent

Auction 96 for 176 H-Block licenses, which generated approximately $1.564 billion in

revenue. Of the 23 qualified bidders in Auction 96, it is our understanding that none were

MWBEs. Accordingly, very few DEs that are also MWBEs have become new entrants into the

wireless communications industry or into growing arrays of mobile broadband sectors.

Further Commission action on DE-jnclusionar:y proposals js needed

We have been deeply discouraged by perceptions that the Commission is doing very little to

eliminate or substantially revise its auction rules and designs in a manner that promotes the

discrete statutory goals we previously identified.1x

The Commission's incentive auction and DE rules must not deter, rather they must ensure

appreciable increases in bidding by MWBEs -

bidding either independently or jointly (with

other MWBE or with non-MWBE firms)- on one or a series of licenses among the more than

1600 licenses that will be auctioned in the AWS-111 band, or for licenses to build networks

and to offer wireless communication services in approximately 350 partial economic areas,

or PEAs.

First, the AWS-111 Report and Order released on March 31, 2014, is of great concern. There

were no identifiable enhancements to the DE program in that Order to promote increased



DE participation. We fear that this will be yet another major auction of prime spectrum that

will not foster the level of diverse participation that the statute demands.

Second, the Commission's notices and orders must also demonstrate that a complete and

comprehensive consideration of the entire record of comments and submissions has been

made. Failing to do so is prone to lead to the same undesirable and unacceptable levels of

auction activity and outcomes. Any such outcomes are sure to exclude ready, willing and

able MWBEs from participating in and reaping the economic benefits and rewards that

could be accruing to their businesses, employees, their communities, and to the larger


Potential and proposed changes that we support would call on the Commission to augment

auction bidding credits for DEs. DEs should also be allowed the flexibility to design their

own business models, including having the choice of using their licenses to operate either as

retail or as wholesale providers to other retailers and resellers.x1

The Commission should also review its attributable material relationship (AM R) rule,x11

which in its current form would seem to act as a barrier to small business and DE

participation.x111 By imposing the AMR rule's 25% limitation on DEs that wish to preserve

their DE status, the Commission is essentially looking over the shoulders of DEs and

inserting its own business judgments into DE business models. Rather, DEs should be

allowed, just like non-DE bidders, to formulate their own risk-reward calculations as to the

lines of business they will pursue once they have conducted their own due diligence and


negotiations with

prospective suppliers and customers. Provided these

calculations and decisions do not compromise a DE's ability to independently control its

license and associated business, the Commission should

refrain from

drawing any

conclusions that could foreclose DEs from entering the wireless marketplace and competing

for customers and subscribers.

At minimum, the Commission must adopt auction policies and rules that signal to MWBEs

that they can win licenses on fair and competitive terms and conditions. Further, to the

extent possible the regulatory structure should be cognizant and tolerant of the particular

barriers to entry and other business and economic challenges that MWBEs have had to


Affording DEs these opportunities is not only consistent with the statute's dictates, but it

would also significantly increase the numbers of MWBEs who enter the auctions as bidders.

These corresponding entries will have the desired effects of raising overall bidding activity

and the amount of revenues generated at auction.xv As importantly, these increases in

MWBE bidders and their bidding levels will raise the statistical probabilities that more

MWBEs will submit winning bids for licenses at auction.


The Commission's DE rules taken together with Thursday's incentive auction rules will

determine largely whether an appreciable number of small businesses and MWBEs will

acquire, invest in, lend to, or locate capital for DEs that may want to bid on AWS-lll and 600



MHz spectrum licenses. Given the low-band 600 MHz spectrum which is being auctioned

has uniquely superior propagation characteristics to other candidate bands for reallocation

and eventual auction, it is fair to presume that minority and women entrepreneurs and

business owners would be every bit as interested in acquiring licenses to use and profitably

operate this spectrum, as any non-minority or male entrepreneur or business owner would


The upcoming AWS-111 and spectrum incentive auctions mark an historic opportunity for

including MWBEs as service providers in the dynamic wireless communications and

broadband sectors. Yet, there is a forlorn skepticism shared among MWBEs and many of the

lawmakers who empathize with them, as to the Commission's willingness to design an

auction framework and accompanying rules that will entice MWBEs to participate in greater

numbers, intensity and frequency than has been the case over the last decade.xvl

With the ensuing auctions of AWS-Ill band and low-band 600 MHz spectrum, which is

probably the most highly coveted radio spectrum to be auctioned off in the foreseeable

future, it is imperative that the Commission adopt rules to ensure that MWBEs participate in

the incentive and AWS-111 auctions as active qualified bidders for spectrum licenses.

We request that you report back to us within two weeks as to what specific measures you

have taken and may be preparing to take that will affect MWBE participation and outcomes

in the upcoming incentive and AWS-111 spectrum auctions. Through our continuing dialogue,

we would like to be made more assured that in executing its competitive bidding authority,

the Commission is operating within Section 309(j)(3)(B)'s defined and proper scope. Lastly,

we hope that you will make it clear during this week's auction rulemaking, that the DE

program is critically essential and that the Commission will have to expend greater efforts

to enhance the DE program so that it benefits all intended classes of statutory beneficiaries.

Please contact CBC Executive Director LaDavia Drane,, at

202-226-9776, if you have any questions or thoughts to offer.






Congressional Black Caucus

House Subcommittee

Energy & Power I

Communications &

House Subcommittee







Commissioner Mignon Clyburn

Commissioner Michael O'Rielly

Commissioner Ajit Pai

Commissioner jessica Rosenworcel

1 FCC, Implementation of the Commercial Spectrum Enhancement Act and Modernization of the Commission's

Competitive Bidding Rules, WT Docket No. 05-211

u 47 USC §309 (j)(3}(B}(1993}( emphasis added)

;;; 47 USC §308 (j)(3). See. a.Ls..o. The Balanced Budget Act of 1997 (P.L. 105-33)(extending FCC auction authority

until 9/30/2007); The Deficit Reduction Act of 2005 (P.L. 109-171)(extending FCC auction authority through

9/30/2011); DTV Delay Act (extending FCC auction authority through 9/30/2012); The Middle Class Tax Relief

and job Creation Act of 2012 (P.L. 112-96)(extending FCC auction authority through 9/30/2021)

IV lli fn. 2 Sl1j2[a.

m fn. 9 i.nfr.a.


• 1 NPD Group, Mobile Broadband Market Share & Forecast, April 2013 (Americans are projected to have 34

million mobile broadband devices by the end of 2015, which would be an increase of nearly 50% from 2013),

http:/ fwww.connected-intelligence.comfour-researchfconnectfmobile-broadband-market-share-forecast;

Millward Brown, Ad Reaction: Marketing in a Multiscreen World, March 2014 (American consumers on average













http:/ I

vii Adarand Constructors. Inc. y. Pena. 515 U.S. 200, 115 S. Ct. 2097, 132 L. Ed. 2d 158 (1995)(race classification

by the federal government is subject to strict scrutiny)

viii After reviewing available records, we believe that the Commission, for almost a decade, has not fulfilled its

discrete legislative mandate relating to minority and women-owned business enterprises. As a whole, those

Commissions that presided over the agency and made spectrum allocation and assignment decisions pursuant to

their competitive bidding authority, from approximately 2006 until the present, did not perform well in

incentivizing or measuring MWBE auction participation, or in facilitating more successful bidding outcomes.

lx The Commission should also consider the revision, and if necessary, the repeal of rules in the current DE

program that stifle DE engagement in auctions and secondary market spectrum transactions.

x According to a Recon Analytics report, The Wireless Industry: The Essential Engine of US Economic Growth

The US wireless industry is responsible for 3.8 million jobs, directly and indirectly, which is an increase

of over 200,000 jobs over the past six years accounting for 2.6% of all US employment.

At $195.5 billion, the wireless broadband industry would rank as the 46th largest economy in the

world, as measured by GDP.


The wireless industry is now larger than the publishing, agriculture, hotels and lodging, air

transportation, motion picture and recording, and motor vehicle manufacturing industry


The wireless industry and its direct and indirect employees paid $88.6 billion dollars in taxes,

including federal, state and local fees and taxes.

http:/ resource-library /facts-and-i nfographics/archivef economic-value -wire less-indus try

xi See. e.e .. MMTC Notice of Ex Parte Communication, WT Docket No. 05-211 a..aL. filed 4/25/2014; MMTC

Notice of Ex Parte Communication, WT Docket No. 05-211 W1. filed 3/14/2014 (advising FCC officials and staff



of findings and recommendations from MMTC White Paper on Wireless Ownership); MMTC Notice of Ex Parte

Communication, WT Docket No. 05-211 ~

filed 3/7/2014 (letter from 19 signatories, including national civil

rights organizations to Chairman Wheeler and FCC commissioners).

xii Se.e.. 47 C.F.R. §1.2110(b)(3)(iv)(A).

xiii See. e.~ .. MMTC Notice of Ex Parte Communication, WT Docket No. OS-2111tl..AL. filed 4/25/2014.

xiv In reference to the reform of the DE program, former FCC Commissioner Michael Copps openly stated that:

"If the upcoming auction ends up being a transfer of public spectrum from big

broadcasters to big wireless, it will be a colossal flop .. .ifwe're going to do justice

to minorities, women, small business, and competition, we need to be

developing DE or similar rules now, not as a last-minute add-on to the auction

rules, as sometimes happened in the past, but as an integral, meaningful part of

them." Communications Daily. Vol. 34, No. 38 (2/26/2014)(emphasis added).

xv In 2005, pursuant to the Commercial Spectrum Enhancement Act, the Government Accountability Office (GAO}

undertook a review of the Commission's auctions. GAO examined, among other things, what impact Commission

auctions were having on the entry and participation of small businesses. Interestingly, interviewed industry

stakeholders who spoke from personal experience (and policy experts) stated that bidding credits were very

helpful. They also suggested licensing smaller geographic areas, and providing better lease options for small and











(12/20/2005) /products/GA0-06-236.

xvi The Commission's failure to retool its spectrum auctions to improve MWBE outcomes should not be rooted in

a presumption that MWBEs are incapable of raising the large sums of capital needed to acquire highly prized,

low-band spectrum; build, manage a nd lease sizable commercial wireless networks; or lack the acumen and

contacts to hire and manage customer service, operations, and technical talent.


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