The Promise for Minority Businesses to Compete in the Digital TV Spectrum Auction

Next year, the Federal Communication Commission (FCC) will auction off billions of dollars worth of spectrum now used for broadcast television.

As it establishes rules for the auction, the FCC should do more than maximize revenue for the Treasury: it should also maximize opportunities for bona fide small minority businesses that need and deserve to have a fair chance at access to the great publicly-owned resource of wireless spectrum.
Many of the proposals in a recent draft order of the FCC's competitive bidding rules are very promising for small minority businesses.

The rules would allow small, rural, minority-owned businesses ("designated entities" or "DEs") some flexibility to innovate and to work with other bidders when the public would benefit. DE's could enter into arrangements that are operational, such as roaming or leasing agreements, as long as they are disclosed. The rules would also permit small businesses and rural providers to participate in bidding consortia with other DE-eligible parties. In these arrangements, the parties would bid as a single entity.

The proposed rules include provisions to avoid abuse of the designated entity (DE) rules, which are designed to help small, rural and minority businesses have a chance at winning spectrum. In particular, the FCC proposes to ban most joint bidding arrangements that involve multiple entities using a shared strategy for bidding, to prevent entities with bidding agreements from bidding on the same licenses, and to ban multiple applications by one party or by multiple parties that have common controlling interests. These types of anti-fraud protections will help sustain the program. It's very welcome to see the FCC propose to eliminate its "attributable material relationship" ("AMR") rule, under which the gross revenues of an entity that leases more than 25% license capacity from a DE applicant are attributed to that applicant.

Since its adoption in 2006, the AMR rule has brought about a severe reduction in DEs' success in major auctions. The FCC's order does have one major flaw: its $150 million cap for small businesses, which is much too low. $150 million won't buy enough spectrum to compete in even one medium market. It would impair small business' access to capital and, thus, impair the ability of these businesses to grow into large, competitive enterprises.

The order could also be improved by creating a bidding credit for any carrier that engages in extensive procurement with, or secondary market transactions to, small disadvantaged businesses ("SDBs"). Secondary market transactions are sales of non-core asset spectrum from one company to another without the need for FCC management of the transaction. These transactions complement the DE process by harnessing the marketplace to advance minority business.

Finally, the retention of the 30 mHz spectrum reserve", which is available to all bidders except the two largest carriers (AT&T and Verizon) could be further enhanced by implementing a universal compromise that maximizes the potential benefit to underserved communities: the Commission should retain its set aside of 30 MHz of spectrum but reserve this spectrum for DE's, which need it the most for growth and innovation. DE's and civil rights organizations have advocated for a DE set-aside consistently over the past 20 years.

The idea's time has come. DE participation, and especially minority DE participation, has plummeted sharply since the Commission adopted an array of ill-conceived DE rule amendments in 2006. History shows, though, that DE participation, done right, can increase revenues to the Treasury, increase innovation, and promote competition and diversity. I am generally encouraged by Chairman Wheeler's direction in the upcoming auction.

The Commission must adopt rules that will generate revenue for the Treasury while also maximizing the participation of small and minority businesses.