High Plains Wireless v. Federal Communications Commission

Decision Date11 January 2002
Docket NumberNo. 00-1292,00-1292
Parties(D.C. Cir. 2002) High Plains Wireless, L.P., Appellant v. Federal Communications Commission, Appellee Digital PCS, LLC and Tritel Communications, Inc., Intervenors
CourtU.S. Court of Appeals — District of Columbia Circuit

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Appeal from an Order of the Federal Communications Commission

Eliot J. Greenwald argued the cause and filed the briefs for appellant.

Stanley Scheiner, Counsel, Federal Communications Commission, argued the cause for appellee. With him on the brief were Jane E. Mago, General Counsel, Daniel M. Armstrong, Associate General Counsel, and Thomas Chandler, Counsel.

Thomas Gutierrez argued the cause for intervenors Digital PCS, LLC and Tritel Communications, Inc. With him on the joint brief was Russell D. Lukas.

Before: Ginsburg, Chief Judge, Edwards and Sentelle, Circuit Judges.

Opinion for the Court filed by Chief Judge Ginsburg.

Ginsburg, Chief Judge:

High Plains Wireless, L.P. appeals an order of the Federal Communications Commission awarding 32 licenses to Mercury PCS II, LLC, now called Tritel Communications, Inc. High Plains and Mercury both bid at an auction conducted by the Commission for licenses to provide personal communications services (PCS). See Mercury PCS II, LLC, 15 F.C.C.R. 9654 (2000) (Mercury). High Plains asserts that the Commission unreasonably refused to disqualify Mercury from receiving the licenses even though Mercury concededly violated the Commission's rule against collusion. High Plains also alleges that Mercury orchestrated a slew of unlawful ex parte contacts in an attempt to influence the investigation into its bidding practices. We hold that, insofar as High Plains has standing to appeal, it has not shown that the award to Mercury was arbitrary or irrational, and we therefore affirm the order of the Commission.

I. Background

Broadband PCS is a group of technologies that allow mobile communication using the electromagnetic spectrum. See Amendment of the Comm'n's Rules to Establish New Personal Comms. Servs., 8 F.C.C.R. 7700 at p 24 (1993) (2d R&O). Advanced cellular telephones, portable facsimile machines, and many other methods of wireless communication are based upon broadband PCS. See id. at p 18. Recognizing the commercial and technological potential of broadband PCS, the Commission reserved 120 MHz of spectrum for provision of these services. See 47 C.F.R. 24.200.

Before a party may use the spectrum to provide broadband PCS, it must get a license from the Commission. See 47 U.S.C. 301. In 1993 the Congress directed the Commission to choose between mutually exclusive applications for a license through a system of competitive bidding, see 47 U.S.C. 309(j)(1); 47 C.F.R. 24.701; the Commission has since held several of the highest value auctions in history. See Remarks of then-Chairman Reed Hundt at the Inst. for Int'l Econ., Washington, D.C. (Oct. 23, 1996), at http: //www.fcc.gov/Speeches/Hundt/spreh647.txt (visited Dec. 18, 2001) (comparing himself to Genghis Khan as one of the "most profit-generating" officials ever).

The Commission divided the 120 MHz of spectrum reserved for broadband PCS in two ways. First, it partitioned the spectrum into six blocks: three of 30 MHz each (A, B, and C) and three of 10 MHz each (D, E, and F). See 2d R&O at p 56. Second, it divided the spectrum into geographic service areas. Licenses for the A and B blocks of spectrum were established for each of the 51 Market Trading Areas into which the United States and its territories were divided in the Rand McNally Commercial Atlas & Marketing Guide (1992). See id. at p p 64, 76. Licenses for the C, D, E, and F blocks were established for each of the 493 Basic Trading Areas (BTAs) defined by the same source. See id. Between August 26, 1996 and January 14, 1997 the Commission auctioned off the D, E, and F block licenses in all 493 BTAs. See Mercury, 15 F.C.C.R. 9654 at p 2.

The DEF auction was open, simultaneous, and ascending. That the auction was "open" means that, in contrast to a sealed-bid auction, the participants became aware of each others' bids as they were cast. The auction was "simultaneous" in that the D, E, and F licenses for each of the 493 BTAs were open for bidding at the same time, and the auction was "ascending" in the sense that bidding on the licenses continued through successive rounds until no new high bid was cast. The Commission built these features into the auction to maximize the revenue it would generate and the allocative efficiency it would achieve. See generally Peter Cramton, The Efficiency of the FCC Spectrum Auctions, 41 J.

L. & Econ. 727, 728-35 (1998). Because the bidding was open, however, any bidder could send all other bidders a message encoded in the digits of its bid. See Peter Cramton & Jesse A. Schwartz, Collusive Bidding: Lessons from FCC Spectrum Auctions, 17 J. Reg. Econ. 229, 237 (2000). In this way, participants could collude through the auction process itself.

Mercury and High Plains both bid on the licenses for the F block of spectrum in Lubbock and for the D and F blocks in Amarillo, Texas. See Mercury, 15 F.C.C.R. 9654 at p 2. High Plains was the successful bidder for the F block license in Amarillo. See id. at p 2 & n.9. Mercury acquired the F block license in Lubbock as well as 31 other licenses for which High Plains did not bid. See id. at p 2 & n.10. Mercury used so-called "reflexive bidding," a tactic for deterring would-be competitors from bidding on a particular license, to dissuade High Plains from bidding on the F block license for Lubbock. See id. at p 5 & n.23. Specifically, Mercury made the last three digits of its bids for the F block licenses in Lubbock and in Amarillo the same as the Commission's numeric designations for the Amarillo and Lubbock BTAs respectively. See Mercury PCS II, LLC, 13 F.C.C.R. 23755 (1998) p 3 (NALF Rescission). In one round of the auction, for example, Mercury bid $1,375,013 on the F block license in Lubbock, "013" being the BTA for Amarillo; after High Plains bid again for the F block license in Lubbock, Mercury bid $1,615,264 on the F block license in Amarillo, "264" being the BTA for Lubbock. See id. By repeatedly thus encoding its bids, Mercury was able to warn High Plains that if High Plains did not stop bidding, then Mercury would drive up the price of the F block license in Amarillo. See id. at p 4.

The message was not lost on High Plains, which stopped bidding for the F block license in Lubbock, see id., and filed with the Commission an emergency motion to disqualify Mercury from the auction. High Plains alleged that Mercury violated the anti-collusion rule, which prohibited bidders "from cooperating, collaborating, discussing or disclosing in any manner the substance of their bids or bidding strategies" during the auction. 47 C.F.R. 1.2105(c) (2000), amended by Competitive Bidding Procedures, 66 Fed. Reg. 54447, 5444748 (Oct. 29, 2001). When the auction ended without the Commission having acted upon the motion, High Plains filed a motion to deny the award to Mercury of any licenses in the DEF auction. During ensuing investigations conducted separately by the Commission and by the Department of Justice, the executive responsible for formulating Mercury's bidding strategy admitted that Mercury had used reflexive bidding to threaten other bidders. See Mercury, 15 F.C.C.R. 9654 at p 16 n.57. Mercury claimed, however, that reflexive bidding was a common practice and did not violate the rule against collusion. See NALF Rescission, 13 F.C.C.R. 23755 at p 4.

While the investigation into Mercury's bidding practices was ongoing, High Plains again complained to the Commission, this time about ex parte contacts between Members of Congress and the staff of the Commission. At least 27 Members inquired of the Commission about Mercury's licenses and the delay in their award. After yet another investigation, the Office of General Counsel (OGC) dismissed the charge, finding that the contacts were all congressional "status inquiries" exempt from the ban on ex parte contacts under the Commission's rules. 47 C.F.R. 1.1202(a).

Also while the investigation into Mercury's bidding practices was ongoing, the Wireless Telecommunications Bureau (WTB) of the Commission awarded Mercury all but nine of the licenses for which the company was the high bidder. See Mercury PCS II, LLC, 13 F.C.C.R. 5756 (1997) p 1. When the investigation was over, the Commission imposed upon Mercury a $650,000 forfeiture, see Notice of Apparent Liability for Forfeiture, 12 F.C.C.R. 17970 (1997) p 1 (NALF Order); the WTB granted Mercury the remaining nine licenses, including the F block license for Lubbock; High Plains filed an application for review of that order; and the Commission rescinded its earlier forfeiture order. See NALF Rescission, 13 F.C.C.R. 23755 at p 1. In the rescission order, the Commission found that Mercury was not on notice that reflexive bidding would violate the rule against collusion, see id. at p 10, and therefore declined to punish the company. See id.

The Commission consolidated High Plains' applications to review (1) the OGC's determination that Mercury had not violated the ban against ex parte contacts and (2) the WTB's award of licenses to Mercury, and affirmed on both counts. See Mercury, 15 F.C.C.R. 9654 at p p 13, 26. It also rejected High Plains' new contention that Mercury had shown a lack of candor during the investigations into its bidding practices so egregious as to disqualify it from holding a Commission license. See id. at p p 14-21. High Plains appealed to this court and Mercury intervened in the case.

II. Analysis

High Plains presents three issues on appeal. First, it challenges the Commission's award of licenses to Mercury on the ground that Mercury violated the rule against collusion and the Commission had so held....

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