78 F.3d 620 (D.C. Cir. 1996), 95-1374, Omnipoint Corp. v. F.C.C.

Docket Nº:95-1374, 95-1391, 95-1409 and 95-1412.
Citation:78 F.3d 620
Party Name:OMNIPOINT CORPORATION, Petitioner, v. FEDERAL COMMUNICATIONS COMMISSION and the United States of America, Respondents. GO Communications Corporation, et al., Intervenors.
Case Date:March 08, 1996
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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78 F.3d 620 (D.C. Cir. 1996)

OMNIPOINT CORPORATION, Petitioner,

v.

FEDERAL COMMUNICATIONS COMMISSION and the United States of

America, Respondents.

GO Communications Corporation, et al., Intervenors.

Nos. 95-1374, 95-1391, 95-1409 and 95-1412.

United States Court of Appeals, District of Columbia Circuit

March 8, 1996

Argued Sept. 28, 1995.

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[316 U.S.App.D.C. 264] On Petitions for Review of an Order of the Federal Communications Commission.

Mark J. Tauber, argued the cause, for petitioner Omnipoint Corp., with whom Emilio W. Cividanes and Mark J. O'Connor were on the briefs.

Keith J. Harrison, argued the cause, for petitioner QTEL Wireless, Inc., with whom Jeffrey W. King was on the briefs.

Eliot J. Greenwald, argued the cause, for petitioners New Wave LLC, et al., with whom John Q. Hearne and Mark D. Wilkerson were on the briefs.

Christopher J. Wright, Deputy General Counsel, Federal Communications Commission, argued the cause, for respondents, with whom William E. Kennard, General Counsel, Daniel M. Armstrong, Associate General Counsel, James M. Carr, Joel Marcus, and John P. Stern, Counsel, Federal Communications Com'n, and Anne K. Bingaman, Assistant Attorney General, and Robert B. Nicholson, Attorney, U.S. Department of Justice, were on the brief. John E. Ingle, Deputy Associate General Counsel, Federal Communications Commission, and Robert J. Wiggers, Attorney, U.S. Department of Justice, entered appearances, for respondents.

Ashton R. Hardy, argued the cause and filed the briefs, for intervenor Radiofone, Inc.

Edgar F. Czarra, Jr., argued the cause, for intervenors Cook Inlet Region, Inc., et al., with whom Harris Weinstein, Kurt A. Wimmer, Lawrence R. Sidman, Judith A. Mather, J. Roger Wollenberg, William R. Richardson, Jr., Lynn R. Charytan, George Petrutsas, Carl W. Northrop, Emmett A. Johnston, Shelley L. Spencer, Phyllis A. Whitten, David E. Springer, John C. Spinrad, Stephen G. Kraskin and Sylvia L. Lesse were on the brief. Jonathan D. Blake entered an appearance, for intervenor American PCS, L.P. Frederick M. Joyce entered an appearance, for intervenor Essex USA, LLC. David Cosson and L. Marie Guillory entered appearances, for intervenor Nat. Telephone Co-op. Ass'n. Jonathan D. Hart entered an appearance, for intervenors BET Holdings, Inc., and Page Call, Inc. James L. Winston and Walter E. Diercks entered appearances, for intervenor Nat. Ass'n. of Black Owned Broadcasters, Inc. Debra M. Richards, pro se, entered an appearance. Thomas A. Hart, Jr., entered an appearance, for intervenor Nat. Paging & Personal Communications Ass'n.

Before EDWARDS, Chief Judge, and WALD and SENTELLE, Circuit Judges.

Opinion for the court filed by Circuit Judge SENTELLE.

Opinion dissenting in part filed by Circuit Judge WALD.

SENTELLE, Circuit Judge:

In this consolidated proceeding, we consider three separate petitions for review of a Federal Communication Commission order. All petitioners allege that the Commission violated the APA and its own regulations in promulgating its Implementation of Section 309(j) of the Communications Act--Competitive Bidding, Sixth Report and Order, F.C.C. 95-301 (July 18, 1995) ("Sixth R & O "), which eliminated the gender- and race-based provisions of the Commission's C block auction rules for broadband PCS, but each petitioner also raises separate claims. One petitioner claims that the Commission's actions in eliminating the provisions were arbitrary

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[316 U.S.App.D.C. 265] and capricious under 5 U.S.C. § 706(2)(A); one alleges that the Commission's actions discriminated against white males; and the third contends that the Sixth Report and Order violated § 309(j)(3)(B) of the Communications Act as it undermined the Commission's mandate to aid small businesses.

After reviewing the claims, we find that the Commission's actions were justified and did not violate the APA, the Commission's own regulations or its statutory mandate.

I. BACKGROUND

Broadband PCS is a new type of wireless communication technology that will provide a variety of mobile telephone services in competition with existing cellular services. The FCC partitioned the broadband spectrum into six blocks, labeled A though F. It opted to allocate the spectrum in three separate auctions: the first auction was for licenses in blocks A and B; the second, for licenses in blocks C and F; and the third, for licenses in blocks D and E. We are concerned with the second auction here.

Blocks C and F were designated "entrepreneurs' blocks." Eligibility for these blocks was limited "to entities that, together with their affiliates and certain investors, have gross revenues of less than $125 million in each of the last two years and total assets of less than $500 million." Implementation of Section 309(j) of the Communications Act--Competitive Bidding, Fifth Report and Order, 9 F.C.C.R. 5532, 5585 p 121 (1994) ("Fifth R & O "), on recon., Fifth Memorandum Opinion and Order, 10 F.C.C.R. 403 (1994) ("Fifth M & O "). The rules establishing the entrepreneurs' blocks were adopted by the Commission in order to satisfy 47 U.S.C. § 309(j)(3)(B), which mandated that the Commission promulgate rules that would "disseminat[e] licenses among a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by members of minority groups and women."

Broadband PCS is a highly capital intensive business. See Fifth R & O p 174. As such, the primary impediment to participation by designated entities is a lack of access to capital. Accordingly, the FCC structured the auction rules to allow bidders in the entrepreneurs' blocks to obtain substantial investment from other companies.

It did this primarily in three ways. First, the FCC structured the attribution rules to allow those companies that were not allowed to bid on blocks C and F to invest in entities that bid on those blocks. Specifically, as much as 75% of the total equity of C block applicants could be held by as few as three passive nonvoting investors that would be too large themselves to bid in the entrepreneurs' blocks. Second, the Commission gave a 10% bidding credit, or discount off the bidding price, to small businesses. And third, successful bidders were given favorable installment terms.

Additionally, the Commission adopted rules designed to enhance opportunities for businesses owned by women and members of minority groups in an effort to comply with the directive of 47 U.S.C. § 309(j)(4)(D), which instructed the Commission to ensure that women and minorities have "the opportunity to participate in the provision of spectrum-based services." These rules provided the following benefits: (1) a woman- or minority-owned applicant could have a single passive non-voting investor with an interest as large as 49.9% if the applicant held a 50.1% interest ("49% equity option"); Fifth R & O pp 160-62; (2) a special exception to the affiliation rule allowed an individual member of a minority group to participate as a member of the control group of a minority-owned C block applicant even though the individual's other business properties would otherwise make the applicant too large for the entrepreneurs' block; Fifth M & O pp 40-41; and (3) minority- and women-owned businesses were to receive an additional 15% bidding credit, tax certificates and more favorable installment payment plans than other small businesses. Fifth R & O pp 130-47.

The A and B block auctions were held in March, 1995, and the C block auction was scheduled to take place in May, 1995. However, in February, Telephone Electronics Corporation (TEC) moved to stay the auctions, asserting that the FCC's race- and gender-based rules were unconstitutional.

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[316 U.S.App.D.C. 266] On March 15, we granted a stay of "[t]hose portions of the [auction rules] establishing minority and gender preferences, the C block auction employing those preferences, and the application process for that auction." Telephone Electronics Corp. v. FCC, No. 95-1015, 1995 WL 364043 (D.C.Cir. March 15, 1995). We found that TEC had "demonstrated the requisite likelihood of success on the merits." Id. TEC later withdrew its petition for review, and this Court dissolved the stay on May 1. Telephone Electronics Corp. v. FCC, No. 95-1015 (D.C.Cir. May 1, 1995) (order granting dismissal of petition for review). The FCC then rescheduled the C block auction without revising its women-and-minority-based provisions.

On June 12, three days before the new due date for filing applications to participate in the C block auction, the Supreme Court announced its decision in Adarand Constructors v. Pena, --- U.S. ----, 115 S.Ct. 2097, 132 L.Ed.2d 158 (1995). In that case, the Court ruled that strict scrutiny must be applied to all racially based government actions, holding that such actions "are constitutional only if they are narrowly tailored measures that further compelling governmental interests." Id. at ----, 115 S.Ct. at 2113.

In light of this decision, the Commission suspended the filing deadline for C block applications on June 13. Ten days later, the Commission released a Further Notice of Proposed Rulemaking in which it suggested modifications to the C block auction rules. Implementation of Section 309(j) of the Communications Act--Competitive Bidding, Further Notice of Proposed Rulemaking, F.C.C. 95-263 (released June 23, 1995) ("FNPRM"). Recognizing Adarand had made the C block rules subject to considerable legal uncertainty, the FCC "propose[d] to eliminate all race- and gender-based provisions...

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