Chairman Wheeler Proposes Changes To Designated Entity Rules

FCC chairman Tom Wheeler Friday has circulated a notice of proposed rulemaking on updating the FCC's policies on designated entities (DEs), those small businesses (or perhaps soon not-so-small), often minority- and women-owned, that can get bidding credits in upcoming spectrum auctions. It also deals with proposed changes to joint bidding.

Among the proposals is not to assume that leases affect control of a small business, which is the reasoning the FCC used in granting the waiver to Grain Management for DE status.

The goal is to encourage more small businesses to participate in the auction. The FCC under Wheeler has made spreading the wireless wealth among more than just the Big Four carriers as a spur to more competition one of its policy goals.

It has been eight years since the FCC last reviewed its bidding rules, which the FCc source called a lifetime in wireless years. The source said the thinking at the FCC is that the existing rules could disadvantage smaller businesses by requiring things not required of the major players and to level that field.

As to preventing joint bidding among major carriers, the source notes that the Big Four combined (AT&T, Verizon. Sprint and T-Mobile) account for 97% of all subs and that joint bidding among any of those has the potential to significantly harm competition in the auctions and the marketplace.

According to a source speaking on background, the item deals with both DE and joint bidding rules.

Specifically the NPRM proposes the following:

Eliminate the rule that requires small businesses to provide facilities-based service, and the rule assuming that leases affect control of a small business. It would retain rules about control of a bidding company and unjust enrichment.

Increase the gross revenue thresholds for designated entity bidding credits (essentially allowing larger small businesses to qualify), taking into account over 15 years of inflation.

Eliminate duplicative reporting requirements.

Limit the timing and amounts of prior debts that trigger a larger (150%) upfront payment, which is required to participate in an auction.

Retain current joint bidding rules as applied to arrangements between non-nationwide providers and, tentatively, conclude that joint bidding among nationwide carriers should be prohibited.

The NPRM tentatively concludes to prohibit joint bidding arrangements among nationwide providers, but asks whether it should revise joint bidding rules for nationwide providers and smaller entities or smaller entities teaming up.

The NPRM also seeks comment, but without tentative conclusions, on modifying bidding credit percentages, adding additional tiers of eligibility, and adopting other bidding credits, such as a credit for businesses owned by individuals who have overcome disadvantages, for businesses that commit serving areas that lack what is described as adequate service, or those in high-poverty areas.

The DE issue has been front of mind this week after the commission granted a waiver to Grain Management so that the minority-run tower company business could get DE status for the upcoming AWS-3 even though it had leases with major carriers that would have otherwise excluded it.

The Minority Media & Telecommunications Council this week pushed the FCC to get moving on the DE changes in time for the AWS-3 auction so more minority businesses than just Grain could be encouraged to go for a piece of that wireless spectrum pie and not have to wait for the broadcast incentive auction in 2015.

Rainbow PUSH founder Rev. Jesse Jackson applauded the chairman's circulation of the item Friday, as he had the Grain waiver as a way to get more minority participation in the auction, particularly given that the FCC has yet to act on DE rule revisions.

Both MMTC and Jackson have pointed out that minorities and women were notably absent when the free TV licenses were handed out, and they don't want the same to be the case for the wireless spectrum fueling the latest communications revolution.

Preston Padden, executive director of the Expanding Opportunities For Broadcasters Coalition, TV stations interested in putting spectrum up for bid at the right valuation, applauded the tentative decision to exclude joint bidding among big carriers given that it is logically more beneficial to broadcasters to have two, big-pocketed companies bidding against each other for spectrum.

"Broadcasters considering participation in the Incentive Auction applaud Chairman Wheeler's leadership against collusion and joint bidding among wireless carriers," he said. "Robust competition in the auction will maximize the amount of revenue raised and the amount of spectrum reallocated."

John Eggerton

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.