I respectfully dissent from the decision to substantially increase the penalty imposed on a defaulting bidder in this auction. While I wholeheartedly agree that the Commission's rules should deter insincere bids and strategic default, I find that the penalty adopted here extends beyond such goals and is excessively punitive. Our existing policies, moreover, provide authority to address any such nefarious action.

The Commission generally requires that an auction winner who defaults after the close of the auction is required to pay the Commission: a) the difference between its defaulted bid and the winning bid the next time the licensed is auctioned, if the subsequent winning bid is lower; and b) an additional penalty of three percent of the defaulted bid or the winning bid, whichever is lower.⁽¹⁾ The action here increases this additional penalty from three percent to 25 percent because, the majority asserts, in an auction with package bidding "a lesser amount would be inadequate to deter bidders from insincere bidding or strategically defaulting."⁽²⁾

In crafting the original default penalty scheme, the Commission recognized that "a withdrawal that occurs after an auction closes (default) is likely to be more harmful than one that occurs before closing."⁽³⁾ Post-auction default, for instance, reduces the efficiency of the assignment process and imposes extra costs on the government. To deter such incidents, the Commission found that "the penalty for default . . . should be rationally related to the harm caused, yet be set high enough to deter unwanted conduct."⁽⁴⁾ Accordingly, the Commission concluded that in addition to paying the difference between the defaulted bid and the subsequent winning bid, an additional penalty equal to three percent would be appropriate. The three percent penalty was adopted to mirror the after-market transaction costs "that brokers of cellular licenses typically charge . . . for commission."⁽⁵⁾

As the Supreme Court has stated, "a civil sanction that cannot fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving either retributive or deterrent purposes, is punishment, as we have come to understand the term."⁽⁶⁾ While a default in a package bidding auction could significantly affect multiple licenses, I find that a 25 percent penalty - albeit intended to deter such action -- is too strong a punishment. The item offers no basis on which to conclude that the increased penalty is "rationally related" to the potential harm caused. I am concerned, moreover, that interested parties did not have a reasonable opportunity to comment on this matter. In seeking comment on the default rules for this auction last May, slight changes were proposed but the public notice specifically observed that "[t]he additional payment will remain equal to three percent of the subsequent winning bid(s) or the defaulting bidder's bid, whichever is less."⁽⁷⁾ With no notice provided and limited comment offered, there is little basis to conclude that a 25 percent penalty is justified.

Finally, to the extent that bidders could exploit a package bidding auction for anticompetitive reasons, our auction policies already have a significant deterrent. The rules governing this auction expressly state that "if a default . . . involves gross misconduct, misrepresentation or bad faith by an applicant, the Commission may declare the applicant and its principals ineligible to bid in future auctions, and may take any other action that it deems necessary, including institution of proceedings to revoke any existing licenses held by the applicant."⁽⁸⁾ This authority, more than a three percent penalty or a 25 percent penalty, should serve as the ultimate deterrent to protect against insincere bidding or strategic default in the upcoming auction.