Freeman Engineering Associates, Inc. v. F.C.C.

• Decision Date: 07 January 1997
• Docket Number: Nos. 94-1779,95-1055,95-1060,95-1065 and 95-1074,s. 94-1779
• Citation: 103 F.3d 169,322 U.S. App. D.C. 263
• Parties: , 5 Communications Reg. (P&F) 1280 FREEMAN ENGINEERING ASSOCIATES, INC., et al., Appellants/Petitioners v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Appellees/Respondents, US West, Inc., et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 169

103 F.3d 169

322 U.S.App.D.C. 263, 5 Communications Reg.

(P&F) 1280

FREEMAN ENGINEERING ASSOCIATES, INC., et al., Appellants/Petitioners v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Appellees/Respondents US West, Inc., et al., Intervenors.

Nos. 94-1779, 95-1055, 95-1060, 95-1065 and 95-1074.

United States Court of Appeals District of Columbia Circuit.

Argued November 12, 1996.

Decided January 7, 1997.

Appeal and Petitions for Review of Orders of the Federal Communications Commission.

Veronica M. Ahern and Gene A. Bechtel, argued the cause, for appellants/petitioners, with whom Harold Mordkofsky, Robert M. Jackson, Harry F. Cole, George H. Shapiro and Robert B. Kelly, Washington, DC, were on the joint briefs.

James M. Carr, Counsel, Federal Communications Commission, argued the cause, for appellees/respondents, with whom William E. Kennard, General Counsel, Daniel M. Armstrong, Associate General Counsel, John E. Ingle, Deputy Associate General Counsel, Anne K. Bingaman, Assistant Attorney General, United States Department of Justice, and Robert B. Nicholson, Attorney, were on the brief. Robert J. Wiggers, Attorney, Washington, DC, entered an appearance.

Before: GINSBURG, SENTELLE and ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge:

Five appellants/petitioners appeal from and seek review of a Federal Communications Commission ("FCC" or "Commission") order which dismissed their applications for "pioneer's preferences." Appellants/petitioners claim that the dismissal of their applications was not only arbitrary and capricious, but was also influenced by improper ex parte contacts. As an initial matter, we conclude that these claims are properly before us as timely filed petitions for review. Upon considering the petitions, we grant one and deny the rest.

I. Background

Until the early 1990s, the FCC employed only lotteries and comparative hearings to assign licenses for radio communications services. Concerned that innovation was being stifled by the uncertainty of this licensing process, the FCC adopted "pioneer's preference" rules in 1991. Establishment of Procedures to Provide a Preference to Applicants Proposing an Allocation for New Services, 6 F.C.C.R. 3488, 3492 p 32 (1991) [hereinafter Pioneer's Preference Order]. Under these rules, an applicant that demonstrates "that it (or its predecessor-in-interest) has developed an innovative proposal that leads to the establishment of a service not currently provided or a substantial enhancement of an existing service" may receive a pioneer's preference when the Commission adopts rules governing the new or enhanced service. 47 C.F.R. § 1.402(a). A preference "effectively ... guarantee[s] the innovating party a license in the new service (assuming it is otherwise qualified) by permitting the recipient of a pioneer's preference to file a license application without being subject to competing applications." Pioneer's Preference Order, 6 F.C.C.R. at 3492 p 32. A party that does not receive a pioneer's preference may obtain a license for the relevant service only by competing on a separate track with other applicants for the remaining licenses. The Commission expected that this revised licensing process, by giving preferential treatment to telecommunications pioneers, would "help to ensure that innovators have an opportunity to participate either in new services that they take a lead in developing or in existing services to which they wish to apply new technologies." Id. at 3488 p 1.

When the Commission adopted the pioneer's preference rules, it explained that "the key determinant of whether a pioneer's preference would be awarded is the degree to which a proposed service or technology is 'new' or 'novel.' " Id. at 3493 p 43. An applicant "must demonstrate ... that it (or its predecessor-in-interest) has developed the capabilities or possibilities" of a new service or technology "or has brought them to a more advanced or effective state." 47 C.F.R. § 1.402(a). Elaborating on this point, the Commission indicated that it would not award a preference for a new technology that is not "associated with a licensable service." Pioneer's Preference Order, 6 F.C.C.R. at 3492 p 37. In addition, the applicant "must accompany its preference request with either a demonstration of the technical feasibility of the new service or technology or an experimental license application, unless [such an] application has previously been filed for that new service or technology." 47 C.F.R. § 1.402(a). Finally, a pioneer's preference will be granted "only where [FCC] rules, as adopted, are a reasonable outgrowth of the [applicant's] proposal and lend themselves to the grant of a preference." Id.

The Commission has applied its pioneer's preference rules to a number of services, including personal communications services ("PCS"). PCS is a family of mobile or portable radio communications services "that free individuals from the constraints of the telephone wire and allow them to send and receive communications while away from their homes or offices." Adams Telcom, Inc. v. FCC, 38 F.3d 576, 579 (D.C.Cir.1994). The Commission has divided the PCS family into two service categories: (1) narrowband (900 MHz) PCS, and (2) broadband (2 GHz) PCS.

The appellants/petitioners in this case--QUALCOMM Incorporated ("QUALCOMM"); Advanced MobilComm Technologies, Inc. jointly with Digital Spread Spectrum Technologies, Inc. ("AMT/DSST"); Freeman Engineering Associates, Inc. ("Freeman"); Viacom International, Inc. ("Viacom"); and Advanced Cordless Technologies, Inc. ("ACT")--filed pioneer's preference applications in the initial PCS rulemaking proceeding, GEN Docket No. 90-314. The Commission received a total of ninety-six preference requests in this proceeding. The GEN Docket proceeding was eventually reserved for broadband PCS preference requests. A separate proceeding, ET Docket No. 92-100, was established for narrowband PCS pioneer's preference applications.

In November 1992, the Commission released its tentative decision concerning the pioneer's preference requests filed in the broadband proceeding. Amendment of the Commission's Rules to Establish New Personal Communications Services: Tentative Decision and Memorandum Opinion and Order, 7 F.C.C.R. 7794 (1992) [hereinafter Tentative Decision]. In the Tentative Decision, the Commission affirmed a decision by the Commission staff to dismiss thirty-nine preference applications for failure to provide the information required by the pioneer's preference rules. Id. at 7809-13 pp 37-49. The Commission also tentatively decided to grant pioneer's preferences to American Personal Communications ("APC"), Cox Enterprises, Inc. ("Cox"), and Omnipoint Communications, Inc. ("Omnipoint"). Id. at 7797-7804 pp 6-23.

The Commission's Tentative Decision also reached tentative conclusions with respect to appellants'/petitioners' pioneer's preference applications. As to ACT's proposal, the Commission first noted that ACT's proposed CT-2 service was a "candidate[ ] for the 900 MHz spectrum proposed in the Notice for narrowband PCS." Id. at 7806 p 27. The Commission then concluded that ACT's proposal was not innovative in that CT-2 service had already been developed and "implemented in various parts of the world." Id. Thus, the Commission tentatively denied ACT's preference request. Id. Freeman's preference request was tentatively denied for failure to "demonstrate the feasibility of the technology." Id. at 7805 p 25. The Commission tentatively rejected Viacom's preference application on the ground that it was not innovative, but rather was merely a "compilation[ ] or aggregation[ ] of existing communications technologies or systems." Id. at 7805 p 26. As for AMT/DSST's proposal, the Commission recognized that it appeared "innovative," but deemed it unworthy of a preference for two reasons. First, AMT/DSST had not developed its technology "to the point of field testing." Id. at 7807 p 30. Further, the spectrum scheme AMT/DSST proposed was "substantially different than that which [the Commission] proposed." Id. Finally, the Commission tentatively rejected QUALCOMM's preference request on the grounds that its proposed technology was "essentially ... identical to that which it already ... developed for use in the 800 MHz cellular bands" and that it had not "developed and tested 2 GHz equipment." Id. at 7807 p 32.

Several months later, on July 23, 1993, the Commission released its order in the narrowband proceeding. Amendment of the Commission's Rules to Establish New Narrowband Personal Communications Services: First Report and Order, 8 F.C.C.R. 7162 (1993) [hereinafter First R&O]. ACT's preference request was denied in this order for the same reasons set forth in the Tentative Decision. First R&O at 7176 p 82. ACT petitioned for reconsideration of this order on November 3, 1993, seventy-three days after the deadline for seeking reconsideration had passed. The Commission rejected the reconsideration petition as untimely. Amendment to the Commission's Rules to Establish New Narrowband Personal Communications Services: Memorandum Opinion and Order, 9 F.C.C.R. 1309, 1317 (1994).

In the meantime, the Commission received numerous comments concerning its Tentative Decision. After receiving these comments, the Commission issued an order granting broadband pioneer's preferences to APC, Cox, and Omnipoint. Amendment of the Commission's Rules to Establish New Personal Communications Services: Third Report and Order, 9 F.C.C.R. 1337, 1339 (1994) [hereinafter Third R&O]. The Commission denied the remaining preference requests in the broadband proceeding. Id. at 1349-73 pp 81-301. Freeman's application was again denied for lack of "feasibility." Id. at 1365 p 221. The Commission denied AMT/DSST's application for "incompatib[ility] with the spectrum scheme adopted" as well as lack of ...