Wordperfect Version

September 25, 1997

Separate Statement
Commissioner Susan Ness

Re: Amendment of the Commission's Rules Regarding Installment Payment Financing for C Block Personal Communications Service (PCS) Licensees, WT Docket No. 97-82

A little over a year ago, we conducted an auction for the "C block" PCS licenses. Like our other auctions, this auction was carefully conceived to operate on market-based principles, allowing licenses to be obtained by those who valued them most at prices to be set by free market mechanisms. Unlike prior auctions, this one was also crafted to fulfill a Congressional mandate to bring "designated entities" -- especially small businesses, often owned by women and minorities -- into the marketplace. And it did.

I supported our commitment to market-driven auctions and to designated entities. I reaffirm that commitment today.

The rules of the C block auction were clear for all. Everyone was subject to the same rules. Indeed, it is noteworthy that throughout this proceeding there have been few complaints about the conduct of the auction or the clarity of the rules. It is also noteworthy that the majority of C block licensees were content to live up to their agreements, and did not seek any special breaks.

A handful of the largest bidders sought more favorable terms than the ones they bargained for when they bid barely 16 months ago. Inevitably, other bidders echoed the cry, reflecting a natural desire to pay less -- if they can. This chorus has now transcended the C block and is now affecting other radio services.

I remain unpersuaded that the FCC should provide vastly more favorable terms to the C block bidders than those to which they previously agreed.

Our auction was conducted properly, our rules were clear, and numerous licensees stand ready to meet their payment obligations fully and on time. And it is clearly not our responsibility to prevent any licensee from failing in the marketplace, or from going into bankruptcy. Our primary responsibility is to preserve the integrity and fairness of our spectrum auctions. To grant overly generous accommodations, after the auction, to any C block licensee would be unfair to those C-block licensees that counted on us to enforce our rules, unfair to disappointed C-block bidders who dropped out of the auction when the licenses they desired became too expensive, unfair to licensees in other spectrum blocks who are offering competing services, and unfair to the U.S. taxpayer.

We cannot, however, overlook certain countervailing considerations. I recognize that financial markets have become unsettled subsequent to our suspension of C block installment payments, which could impair future investment. The C block bidders who have not run into trouble are facing unnecessary questions and undue uncertainties about their wherewithal and business plans. It has grown increasingly apparent that the Commission must take action to get the entire C block of licensees back to business. While there have been a wide range of proposals offered and considered, the one thing that all parties have agreed upon is that final resolution is needed immediately to remove the cloud of uncertainty.

Therefore, I am willing to support offering licensees certain options. The package of options we adopt in this Report and Order will help licensees while avoiding excesses that would jeopardize the principles of integrity and fairness that are essential to market-driven auctions. In developing these options, we have discarded proposals that would have fundamentally changed auction outcomes or created incentives for licensees to alter business plans which they possess the financial capability to maintain. In addition, we have endeavored to avoid giving anyone a "thumb on the scales" in a subsequent auction. Reasonable people can differ on the merits of the particular package of options we have agreed upon, but I believe our approach will help C block licensees recover their momentum without subverting the auction process. While it is not without some hesitation that I support this relief, the over-arching public interest is in resolving these issues now, sooner rather than later, to enable rapid build-out and foster competition.

Specifically, we are continuing the deferral of installment payments until March 31, making the total suspension period a full year. This resumption date ensures that all C block licensees will have sufficient time to return to the marketplace with certainty restored. They also may benefit from access to foreign equity that will be permitted under the recent WTO Agreement.

In addition to the deferral of installment payments, which applies to all C block licensees, each successful bidder will be able to choose one of four additional options.

First, they can resume payments under their existing agreements. I hope and expect that the vast majority of successful bidders will proceed in this fashion.

Second, under the amnesty option, licensees may forfeit all their licenses and their downpayments. In return, the Commission will (in coordination with the Department of Justice) approve forgiveness of their outstanding debt and cancellation of the additional penalties that otherwise would be due. The licenses will then be re-auctioned in a timely, efficient, and fair manner.

Under our third option, disaggregation, we are permitting licensees to return half of their spectrum in a given market in exchange for a corresponding reduction of debt. This is consistent with our existing disaggregation rules and will permit new opportunities for spectrum-based competition in the marketplace. We will re-auction licenses for any 15-megahertz spectrum blocks that are returned under the same designated entity terms as apply to all other C-Block licenses. I expect that this option will enable certain licensees to make more efficient use of their spectrum, and to generate a cash flow that will better service their significantly reduced debt.

Fourth, we are making available a "full-price, buy-out" option under which licensees can apply 70 percent of all of their downpayments -- and any new funds they may be able to generate -- to pay for as many licenses as they can manage at the agreed auction price. This last option is structured as a buy-out, not as a bail-out. Again, returned spectrum will be re-auctioned.

The FCC's primary responsibilities are to: write fair rules, run fair auctions, and issue licenses to successful bidders. We functioned not as a lender in the traditional sense. The payment terms were available to all. We made no assessment of credit-worthiness; we did not evaluate the soundness of any bidder's business plans. Rather, we acted as a licensing agency, and, as our rules clearly specify, the licensee won only a conditional interest. Each license is conditioned upon payments and automatically cancels if promised payments are not made. The conditional nature of the interest granted is clear throughout relevant Commission rules and orders. In publicly filed SEC documents, bidders have expressly acknowledged the conditional interest granted to them, and the penalties associated with default.

We have an obligation of fairness and impartiality to those who bid but chose not to overbid or overleverage. And we owe it to the C-block licensees who seek no special treatment but just want to get about their business to avoid changing the rules in any fundamental way that is detrimental to their business plans.

Our dissenting colleague prefers to offer a more lenient approach to the full-price buy-out. One can speculate whether such an approach would increase, marginally, the likelihood that this option would be attractive to one or more of the C block licensees. It would also, by a corresponding margin, decrease the fairness of our decision to disappointed bidders, successful bidders who seek no special relief, and to the American taxpayer. The prospect of windfalls would increase, and the integrity of auctions would be reduced.

I fundamentally disagree with the Chairman's assertion that the buy-out should be at a discounted price rather than the full bid amount (net of bidding credits). The price bid is the price bid. The favorable financing terms offered by the Government were designed, in part, to create an inducement for licensees to hold their licenses for a full 10 years. This was consistent with Congress's stated goals to bring small business, including women and minorities, into the market -- on a sustained basis. To discount the price based on a "net present value" basis would be like paying off the face amount of a zero coupon bond nine years before it matures.

I also disagree with the Chairman that the C block licensees should be permitted to "spend" 100 percent of their deposits, from licenses they no longer want, to pay for licenses they do want. It is important to respect the fact that these down payments belong to the Government, to the American people, not to the bidders -- and can be redeployed only by the grace of the Commission. The approach we are using is based on the 3 percent bidding penalty that is already in our rules (30 percent of the 10 percent deposit represents 3 percent of the bid amount). And our difference with the Chairman on this score, in total, come to a three percent difference in the amounts the C block licensees will have available to buy out the licenses they want -- a difference that for the largest bidders is undoubtedly less than the fees they will pay to their investment bankers.

I believe the approach we adopt today fairly balances the competing interests. Restoring regulatory certainty to the marketplace promotes investment, competition, and service to the American public. Even though the approach we adopt today is the product of negotiation and compromise, and does not reflect the first-choice preferences of any individual Commissioner, I am satisfied that under present circumstances adoption of this order is the course of action that best serves the public interest.