*Pages 1--9 from Microsoft Word - 31183* Federal Communications Commission Washington, D. C. 20554 September 5, 2003 DA 03- 2835 Robert A. Calaff Senior Corporate Counsel T- Mobile USA, Inc. 401 9 th Street, NW Suite 550 Washington, DC 20004 James H. Barker William S. Carnell Latham & Watkins Counsel for Leap Wireless International, Inc. 555 Eleventh Street, N. W. Suite 1000 Washington, DC 20004- 2505 Re: Requests of T- Mobile USA, Inc. and Leap Wireless International, Inc. for Waiver of Bid Withdrawal Payment Obligations Dear Messrs. Calaff, Barker and Carnell: This letter grants the separate requests of T- Mobile USA, Inc. (“ T- Mobile”) and Leap Wireless International, Inc. (“ Leap”) for waiver of the bid withdrawal payment rule and relieves T- Mobile’s subsidiary, VoiceStream PCS BTA I License Corporation (“ VoiceStream”), 1 and Leap of withdrawal payments incurred during Auction No. 35. Background. In Auction No. 35, the Commission made available 422 Personal Communications Services (“ PCS”) licenses in the C and F spectrum blocks. Much of that spectrum had been previously licensed to NextWave Personal Communications Inc., NextWave Power Partners Inc. (collectively “NextWave”) and Urban Comm- North Carolina, Inc. (“ Urban Comm”) and was the subject of the NextWave litigation and Urban Comm proceedings. 2 Thus, prior to the start of Auction No. 35, we 1 VoiceStream is now a wholly- owned subsidiary of T- Mobile. See Petition for A Declaratory Ruling Or, In the Alternative, For A Waiver of the Commission’s Withdrawal Penalty Rules of T- Mobile USA, Inc., at ii (filed Jan. 24, 2003) (“ T- Mobile Bid Withdrawal Waiver Request”). 2 Those proceedings are described in greater detail in the Auction 35 Final Refund Order. See Disposition of Down Payment and Pending Applications By Certain Winning Bidders in Auction No. 35; Requests for Refunds of Down Payments Made In Auction No. 35, 17 FCC Rcd 23, 354, 23,355- 57 ¶¶ 2- 4 (2002) (“ Auction 35 Final Refund Order”). As described in that order, after the conclusion of Auction No. 35, the United States Court of Appeals for the District of Columbia Circuit (“ D. C. Circuit”), in NextWave v. FCC, ruled that Section 525 of the Bankruptcy Code, which provides that a “governmental unit” may not “revoke” a bankrupt’s or debtor’s license “solely because such bankrupt or debtor ... has not paid a debt that is dischargeable ... under this title,” prevented the cancellation of 1 Messrs. Calaff, Barker and Carnell September 5, 2003 Page 2 cautioned prospective bidders that some licenses were, or might become, subject to the final outcome of those proceedings. 3 In addition, we informed bidders that the Commission would return the payments made by winning Auction No. 35 bidders “in the event that such bidders are subsequently required to surrender licenses won to prior applicants or license holders as a result of final determinations reached in pending proceedings,” but that it could not pay interest on any refunded amounts. 4 Both VoiceStream and Leap participated in Auction No. 35. Both placed high bids that they withdrew during the course of the auction. 5 In each case at the close of the auction, the winning bid was lower than the bid that was withdrawn for the license at issue. 6 Pursuant to 1.2104( g)( 1) of the Commission’s rules, 7 both VoiceStream and Leap were subject to bid withdrawal payments equal to the difference between the amount withdrawn and the amount of the subsequent winning bid. 8 Neither entity contested the application of the rule at that time. Both entities paid their respective bid withdrawal payments. 9 licenses held by NextWave. See id., 17 FCC Rcd at 23, 556 ¶ 3. Subsequent to the release of the Auction 35 Final Refund Order, the Supreme Court issued its ruling in the NextWave litigation, affirming the D. C. Circuit’s NextWave decision. See FCC v. Nextwave Personal Communications, Inc., 123 U. S. 832 (2003). 3 See “C and F Block Broadband PCS Spectrum Auction Scheduled for December 12, 2000; Notice and Filing Requirements for 422 Licenses in the C and F Block Broadband PCS Spectrum Auction; Minimum Opening Bids, Upfront Payments and Other Procedural Issues for Final Auction Inventory,” Public Notice, 15 FCC Rcd 19, 485, 19, 493- 4 (2000) (“ Auction No. 35 Procedures Public Notice”). 4 Id., 15 FCC Rcd at 19, 493- 94. 5 In round 31 of the auction, VoiceStream placed a gross high bid of $54,776, 000 on the C5 block license for the Richmond, VA Basic Trading Area (the “Richmond License”). VoiceStream subsequently withdrew its high bid in round 67. In round 38, Leap placed a gross bid of $3,822,000 on the block C3 license for the Melbourne- Titusville, FL BTA (the “Melbourne License”), and withdrew that bid in round 91. Additional information concerning Auction No. 35, including round results and auction outcomes, may be found on the Commission’s web site at: http:// wireless. fcc. gov/ auctions/. The Richmond and Melbourne Licenses covered spectrum that was initially won at auction by NextWave, and was thus directly affected by the NextWave litigation. See “Wireless Telecommunications Bureau Announced the Return to Active Status of Licenses to NextWave Personal Communications Inc. and NextWave Power Partners Inc., Subject to the Outcome of Ongoing Litigation,” Public Notice, DA 01- 2045, Attachment B (rel. Aug. 31, 2001) (listing licenses affected by return to active status of licenses to NextWave pursuant to judicial mandate). 6 Salmon PCS, LLC subsequently bid upon and was declared the winning bidder for the Richmond License at the close of the auction. Leap was the winning bidder for the Melbourne License, having submitted a bid lower than the amount that it had withdrawn earlier in the auction. 7 See 47 C. F. R. § 1.2104( g)( 1). 8 See “C and F Block Broadband PCS Auction Closes; Winning Bidders Announced,” Public Notice, 16 FCC Rcd 2339, Attachment C (2001). 9 VoiceStream’s bid withdrawal payment amounted to $4,639, 000. Leap’s bid withdrawal payment was $268, 000. See id., Attachment B. 2 Messrs. Calaff, Barker and Carnell September 5, 2003 Page 3 On November 14, 2002, the Commission offered relief to all Auction No. 35 bidders that won licenses for spectrum that had previously been licensed to NextWave and Urban Comm. 10 The Commission found that its decision to allow such winning bidders to request dismissal of long- form applications for that spectrum and refund associated down payments was justified by the specific circumstances faced by those auction winners, namely “the concurrence of a unique situation where capital and spectrum were tied up for more than two years by litigation, and the worsening economic conditions in the wireless industry [that] have had a substantial adverse effect on consumers.” 11 The Commission also determined that it would afford such bidders “complete monetary relief,” and would not assess any default payments or impose other restrictions on bidders that elected such relief. 12 In so doing, the Commission observed that it had no evidence that these eligible winning bidders were insincere in their attempts to acquire Auction No. 35 licenses. 13 Eligible winning bidders, including the ultimate high bidders on the licenses at issue here, sought and obtained the dismissals and complete refunds of down payments permitted by the Auction 35 Final Refund Order. 14 Subsequently, on January 27, 2003, the U. S. Supreme Court issued its ruling in the NextWave v. FCC litigation. 15 The Supreme Court affirmed the D. C. Circuit decision holding that section 525 of the Bankruptcy Code prohibited the Commission from canceling licenses issued to NextWave pursuant to a prior auction when NextWave, after filing for bankruptcy, failed to make the required installment payments to which it had agreed. 16 VoiceStream’s parent, T- Mobile, filed a request on January 24, 2003 seeking relief from the bid withdrawal obligation that VoiceStream incurred in Auction No. 35. 17 T- Mobile specifically seeks return of its full bid withdrawal payment. 18 T- Mobile contends that the unique circumstances following Auction 10 See Disposition of Down Payment and Pending Applications By Certain Winning Bidders in Auction No. 35; Requests for Refunds of Down Payments Made In Auction No. 35, 17 FCC Rcd 23, 354 (2002) (“ Auction 35 Final Refund Order”). 11 Id, 17 FCC Rcd at 23, 362 ¶ 10. 12 Id. at 23, 365 ¶ 15. 13 Id. at 23, 366 ¶ 17. 14 See “Wireless Telecommunications Bureau Grants Dismissal Requests of Eligible Auction No. 35 Winners and Dismisses Applications for 156 C and F Block Broadband Personal Communications Services (PCS) Licenses,” Public Notice, Attachment A, 17 FCC Rcd 24, 492 (2002) (dismissing VoiceStream and Salmon applications, among others); “Wireless Telecommunications Bureau Grants Dismissal Requests of Eligible Auction No. 35 Winners and Dismisses Applications for 49 C and F Block Broadband Personal Communications Services (PCS) Licenses,” Public Notice, Attachment A, 17 FCC Rcd 25, 263 (2002) (dismissing Leap applications, among others). 15 See FCC v. Nextwave Personal Communications, Inc., 123 U. S. 832 (2003). 16 See id. 17 See T- Mobile Bid Withdrawal Waiver Request. See also Supplement to Petition for A Declaratory Ruling Or, In the Alternative, For A Waiver of the Commission’s Withdrawal Penalty Rules of T- Mobile USA, Inc. (filed Jan. 30, 03) (“ T- Mobile Supplement”). 18 T- Mobile Bid Withdrawal Waiver Request at 1. 3 Messrs. Calaff, Barker and Carnell September 5, 2003 Page 4 No. 35, including the ultimate withdrawal of the winning bid pursuant to the Auction 35 Final Refund Order, “ex post facto nullified the basis for the imposition” of a bid withdrawal payment. 19 Because the winning bids for this license have effectively been erased, T- Mobile argues, there is no longer a basis to calculate and assess any bid withdrawal payment. 20 T- Mobile also contends that grant of a waiver in these circumstances would not compromise the integrity of the Commission’s competitive bidding rules and would have the result of affording VoiceStream similar treatment to those bidders that withdrew bids but were not liable for bid withdrawal payments because higher winning bids were submitted on the withdrawn licenses. 21 On February 26, 2003, Leap filed a similar request. 22 Leap supports T- Mobile’s arguments, and requests a refund of its bid withdrawal payment. Discussion. We waive Section 1.2104( g)( 1) of the Commission’s rules 23 and will refund the withdrawal payments made by VoiceStream and Leap. Section 1. 925( b)( 3)( i) of the Commission’s rules authorizes grant of a rule waiver where the underlying purpose of the rule would not be served by application of the rule in the particular case, and such waiver would promote the public interest. 24 Section 1.2104( g)( 1) imposes on withdrawing bidders an obligation to compensate the government for lost revenue resulting from withdrawn bids where no subsequent winning bid is placed that exceeds the withdrawn bid. 25 In designing this rule, the Commission intended to balance potentially competing objectives: on the one hand, it sought to provide bidders with flexibility to aggregate licenses efficiently in simultaneous multiple round auctions; while on the other hand, the Commission recognized the potential threat to the auction process posed by unconstrained bid withdrawals. 26 The Commission therefore devised a bid withdrawal rule based on a compensation principle. 27 Not only does this rule precisely compensate the government for the loss of revenue that results from bid withdrawals, but it also maintains the integrity of the auction process by deterring strategic or frivolous bidding activity that distorts price information and reduces the efficiency of the auction mechanism. 28 Prior to the start of 19 Id. at ii, 14. 20 Id. at ii, 15; T- Mobile Supplement at 2- 3. 21 T- Mobile Bid Withdrawal Waiver Request at iii, 11- 15. 22 See Petition of Leap Wireless International, Inc. For a Declaratory Ruling or, in the Alternative, For a Waiver of the Commission’s Withdrawal Penalty Rules, and Comments in Support of VoiceStream PCS BTA I License Corporation (filed Feb. 26, 2003). 23 47 C. F. R. § 1.2104( g)( 1). 24 47 C. F. R. § 1. 925( b)( 3)( i). See also 47 C. F. R. § 1.3 (waiver of rules for good cause). 25 47 C. F. R. § 1.2104( g)( 1). 26 See Implementation of Section 309( j) of the Communications Act – Competitive Bidding, Second Report and Order, 9 FCC Rcd 2348, 2373- 74 ¶¶ 150- 153 (1994) (“ Competitive Bidding Second Report and Order”) (establishing bid withdrawal payment requirement). 27 Id. 28 Id. 4 Messrs. Calaff, Barker and Carnell September 5, 2003 Page 5 Auction No. 35, we also announced that bidders would be limited to withdrawing their bids in no more than two rounds of the auction. 29 We find that the purposes of the bid withdrawal payment rule would not be served by holding VoiceStream and Leap to their bid withdrawal payments under these specific circumstances where the licenses at issue were later finally determined to be unavailable to the subsequent winning bidders. 30 Given this unavailability, had VoiceStream and Leap not withdrawn their bids, the government would not have been able to collect the additional value represented by these bids. Thus, the withdrawn bids do not represent any lost revenue opportunity for the government and the compensation principle underlying the bid withdrawal payment rule is not implicated by a return of the bid withdrawal payments. Moreover, neither VoiceStream nor Leap exceeded the two- bid withdrawal limit for Auction No. 35, and they made the required payments without condition, protest, or delay. Thus, in withdrawing the bids, they assumed the risk that they would have to compensate the government pursuant to Section 1.2104( g) in the event that the winning bids on the subject licenses did not exceed the withdrawn bids, 31 and they demonstrated the degree of sincerity required by the rule by making their bid withdrawal payments on a timely basis after the lower winning bids were announced. 32 Accordingly, we do not believe that the rule’s objective of providing bidders with appropriate incentives to avoid withdrawing bids (particularly in the late stages of an auction) will be frustrated by granting a waiver in these circumstances. Since the retention of the bid withdrawal payments would constitute something of a windfall for the government, and since similarly situated parties as VoiceStream and Leap 33 are not liable for any bid withdrawal payments, we find that application of the rule would be inequitable and would therefore not serve the public interest in this case. 29 See Auction No. 35 Procedures Public Notice, 15 FCC Rcd at 19, 520- 21 (bid withdrawal procedures for Auction No. 35) (“[ W] e continue to recognize the important role that bid withdrawals play in an auction, i. e., reducing risk associated with efforts to secure various geographic area licenses in combination…”). 30 Under policy announced prior to the auction, winning bidders for this spectrum would have been entitled to the return of their payments (had they had not done so pursuant to the Auction No. 35 Final Refund Order). See Auction No. 35 Procedures Public Notice, 15 FCC Rcd at 19, 493- 4 (payments to be returned upon final determination of unavailability); Auction 35 Final Refund Order, 17 FCC Rcd 23, 354 (providing certain bidders with opportunity to seek dismissal of long form applications and refund of payments). 31 See T- Mobile Bid Withdrawal Waiver Request at 13. 32 See “C and F Block Broadband PCS Auction Closes; Winning Bidders Announced,” Public Notice, DA 01- 211, Report No. AUC- 35- H (Auction No. 35), Attachment B (rel. Jan. 29, 2001). 33 Given the intended purposes of the rule and its usual operation, we see no significant difference between VoiceStream and Leap, on the one hand, and, on the other hand, those bidders who, within the specified limit for a given auction, have withdrawn bids that do not result in any loss of potential auction revenue. 5 Messrs. Calaff, Barker and Carnell September 5, 2003 Page 6 Conclusion. For the above reasons, the requests of T- Mobile and Leap for waiver of Section 1.2104( g)( 2) are granted. The full bid withdrawal payment in the amount of $4,639,000 will be refunded to the VoiceStream’s payor of record, and an amount of $268,000 will be refunded to Leap’s payor of record, consistent with the attached refund procedures and pursuant to all other applicable federal law. This action is taken pursuant to authority delegated by the Auction 35 Final Refund Order, and Sections 0. 331 and 1.925 of the Commission’s rules, 47 C. F. R. §§ 0. 331, 1.925. Sincerely, Margaret W. Wiener, Chief Auctions and Industry Analysis Division Wireless Telecommunications Bureau Attachment – Refund Procedures cc: Cheryl A. Tritt Counsel for T- Mobile 6 Messrs. Calaff, Barker and Carnell September 5, 2003 Page 8 8 Messrs. Calaff, Barker and Carnell September 5, 2003 Page 9 9