DA 03-3263

**[Via Certified Mail, Return Receipt Requested]{.underline}**

Mr. Raymond Quianzon

Fletcher, Heald & Hildreth

11^th^ Floor

1300 North 17^th^ Street

Arlington, Virginia 22209-3801

Re: TPS Utilicom, Inc.

Dear Mr. Quianzon:

This letter responds to your correspondence on behalf of TPS Utilicom,
Inc. ("TPS") requesting that the Federal Communications Commission
refund amounts that TPS has on deposit with the Commission.[^1] As you
know, TPS defaulted on four winning bids totaling a net \$13,817,000 in
Auction No. 35.[^2] Although the full amount of TPS's resulting default
payment obligations cannot yet be determined, the Commission has
assessed TPS an initial default payment of \$414,510.[^3] TPS previously
deposited \$1,036,000 with the Commission in order to participate in
Auction No. 35.[^4] TPS requests a refund of \$621,490.[^5] For reasons
discussed below, we deny the request.

At the close of Auction No. 35, TPS held net winning bids totaling
\$13,817,000 for four broadband PCS C block licenses. Pursuant to its
competitive bidding rules, the Commission required TPS to deposit twenty
percent of its net winning bids, or \$2,763,400, following the close of
the auction.[^6]

Notwithstanding its obligation, TPS did not make any post-auction
payments to the Commission. Instead, TPS requested that its \$1,036,000
pre-auction upfront payment be applied toward its down payment
obligations and requested a waiver of the remainder of its down payment
obligation, which totaled \$1,727,400.[^7] The Wireless
Telecommunications Bureau ("Bureau") denied TPS's request for waiver in
a July 31, 2001 *Order*.[^8] As a result of TPS's failure to pay the
required down payment, it defaulted on its four winning bids.

As explained in the *Order*, TPS's default subjected it to the
Commission's default payment rules.[^9] Our rules governing bidder
defaults are intended to maintain the integrity of the auction process
by discouraging defaults on the part of bidders, encouraging bidders to
make secondary or back-up financial arrangements, and ensuring that
default payments are made in a timely manner.[^10] The default payment
rules help to ensure that licenses end up in the hands of those parties
that value them the most and have the financial qualifications necessary
to construct operational systems and provide service.[^11]

Specifically, those rules require TPS to make a payment equal to the
difference between the amount of its bids and the amount of subsequent
winning bids at a re-auction of the spectrum associated with the
licenses on which TPS defaulted.[^12] TPS also is liable for an
additional payment equal to three percent of each defaulted bid or
subsequent winning bid, whichever is less.[^13] Consequently, TPS will
owe the Commission at least three percent of its defaulted net bids and
may owe much more.[^14] As further explained in the *Order*, because the
Commission could not fully determine the amount of TPS's default payment
prior to a re-auction of the relevant spectrum, the Commission assessed
an initial default deposit of \$414,510, or three percent of the total
amount of TPS's net defaulted bids, toward the default payment.[^15]

TPS sought reconsideration of its waiver request, which the Commission
denied in a February 21, 2003 *Order on Reconsideration*.[^16] Following
the denial of TPS's petition for reconsideration of its waiver request,
TPS asked that the Commission refund amounts on deposit with the
Commission in excess of the initial default payment.[^17]

The Commission retains deposits of defaulting bidders for a simple
reason: "We will hold deposits made by defaulting or disqualified
auction winners to help ensure that the penalty is paid."[^18] However,
the Commission has recognized that it may not be equitable in all
circumstances to retain the total amount on deposit.[^19] Accordingly,
the Commission generally requires "an initial default deposit of between
three percent (3%) and twenty percent (20%) of the defaulted bid amount
where a winning bidder or licensee defaults and the defaulted license
has yet to be reauctioned."[^20]

The Commission frequently has retained more than a three percent
payment, withholding amounts that the defaulter has on deposit in excess
of three percent of the defaulted bid.[^21] A three percent payment is
the minimum amount that the defaulting bidder ultimately will be
obligated to pay, and therefore the Commission will not refund this
amount to the defaulter under any circumstances. [^22] In contrast,
retained deposits may or may not be refunded because they may be applied
against the final default payment which cannot be calculated until after
auction of licenses associated with the relevant spectrum.

As noted in your letter, the Commission on occasion has refunded
deposits in excess of an assessed three percent interim payment.[^23]
The two refunds TPS cites, however, involve circumstances easily
distinguished from the current ones. In the first, the Commission
refunded excess deposits to Progeny LMS, LLC.[^24] Unlike TPS, Progeny
did not fail to pay its initial post-auction down payments. Instead,
Progeny defaulted on two licenses because it was the winning bidder on
more licenses than it was permitted to hold in the relevant
markets.[^25] In fact, Progeny paid its post-auction obligations on more
than 200 licenses and was disqualified from holding only two.[^26] These
circumstances clearly distinguish Progeny from TPS, which made no
post-auction payments at all. In addition, Progeny's two defaulted net
bids totaled \$8,710, several orders of magnitude less than TPS's
\$13,817,000 in defaulted net bids.[^27] Consequently, the Commission
must give greater consideration to actively ensuring that the final
default payment is paid in TPS's case than it did in Progeny's.

In the second refund TPS cites, in 1999, the Commission refunded excess
deposits to Grand Connectivity, LLC.[^28] After Grand Connectivity
defaulted on net bids totaling \$2,674,650, or roughly one-fifth of
TPS's defaulted net bids, the Commission granted Grand Connectivity's
request for a refund of slightly less than \$70,000, or roughly
one-ninth of TPS's request.[^29] As the Commission's frequent retention
of excess deposits demonstrates, the simple fact that it granted a
refund to Grand Connectivity does not compel it to refund TPS's excess
deposits. Moreover, it is not clear that the Commission would exercise
its discretion to grant a refund to Grand Connectivity if presented with
the same facts today. After the Commission issued the refund to Grand
Connectivity, the Departments of Justice and Treasury amended the
Federal Claims Collection Standards ("FCCS").[^30] Last year, the
Commission issued a Notice of Proposed Rulemaking to enhance the
Commission's ability to "aggressively collect all debts" pursuant to the
revised FCCS.[^31] In light of its ongoing efforts to enhance debt
collection, the Commission today might exercise its discretion to retain
Grand Connectivity's excess deposit to help ensure that the final amount
due is paid. Given that intervening developments would make it incorrect
to repeat by rote the analysis in Grand Connectivity's case, the
Commission clearly is not be compelled to repeat its prior decision to
grant a refund in these different circumstances.[^32]

In this instance, we believe that the public interest will be served
best by retaining TPS's deposit pending determination of the final
default payment. TPS's total amount on deposit, \$1,036,000 before
deducting the minimum three percent default payment, is substantially
less than twenty percent, or even ten percent, of its \$13,817,000
defaulted net bids. Given the amount of the defaulted bids at issue and
the absence of any known funds to satisfy any additional final default
payment, prudence counsels that the Commission retain the amounts on
deposit. Finally, we note that the deposit only will be retained until
the Commission conducts an auction that determines the final default
payment.[^33] Taking into account all the statutory objectives of
competitive bidding, such as promoting efficient and intensive use of
electromagnetic spectrum,[^34] we currently expect to announce an
auction of this spectrum in the near future.

This action is taken pursuant to authority delegated by Section 0.331 of
the Commission's rules.[^35]

Sincerely,

Margaret Wiener, Chief

Auctions and Industry Analysis Division

Wireless Telecommunications Bureau

[^1]: Letter dated February 21, 2003, Raymond J. Quianzon, Counsel to
    TPS Utilicom, Inc. to To Whom It May Concern, Office of the Managing
    Director ("TPS Refund Letter").

[^2]: TPS Utilicom, Inc. Request for Waiver of Sections 1.2109 and
    1.2107 of the Commission's Rules Regarding BTA043, BTA127, BTA215,
    and BTA330, DA 01-1833, *Order*, 16 FCC Rcd 14,835, 14,836 (WTB
    2001) ("*Order*").

[^3]: *Order*, 16 FCC Rcd at 14,842*.*

[^4]: *Order*, 16 FCC Rcd at 14,836*.*

[^5]: TPS Refund Letter at 1-2.

[^6]: *Order*, 16 FCC Rcd at 14,835-6.

[^7]: *Order*, 16 FCC Rcd at 14,836-7.

[^8]: *Order*, 16 FCC Rcd 14,835.

[^9]: *Order* 16 FCC Rcd at 14,842.

[^10]: Amendment of Part 1 of the Commission's Rules -- Competitive
    Bidding Procedures, WT Docket No. 97-82, *Third Report and Order*,
    13 FCC Rcd 374, 433-34 (1998) ("*Part 1 Third Report and Order*").

[^11]: *Id.*

[^12]: 47 C.F.R. § 1.2104(g)(2) (incorporating § 1.2104(g)(1)).

[^13]: 47 C.F.R. § 1.2104(g)(2).

[^14]: At an absolute minimum, TPS will owe three percent of its
    aggregate net defaulted bids as a default payment. If a subsequent
    winning bid is greater than the defaulted bid, the default payment
    will be three percent of the defaulted bid. If a subsequent winning
    bid is less than the defaulted bid, the default payment will always
    be greater than three percent of the defaulted bid. In that case,
    the default payment is the defaulted bid minus the lesser subsequent
    winning bid plus three percent of the lesser subsequent winning bid,
    or, in other words, the defaulted bid minus ninety-seven percent of
    the lesser subsequent winning bid. The defaulted bid minus
    ninety-seven percent of the lesser subsequent winning bid always
    will be greater than the defaulted bid minus ninety-seven percent of
    the defaulted bid or, in other words, always will be greater than
    three percent of the defaulted bid.

[^15]: *Order*, 16 FCC Rcd at 14,842.

[^16]: TPS Utilicom, Inc. Request for Waiver of Sections 1.2109 and
    1.2107 of the Commission's Rules Regarding BTA043, BTA127, BTA215,
    and BTA330, DA 03-480, *Order on Reconsideration*, 18 FCC Rcd 2516
    (2003).

[^17]: TPS Refund Letter.

[^18]: Implementation of Section 309(j) of the Communications Act --
    Competitive Bidding, PP Docket No. 93-253, *Second Report and
    Order*, 9 FCC Rcd 2348, 2383 (1994) (*"Competitive Bidding Second
    Report and Order*").

[^19]: *See* Implementation of Section 309(j) of the Communications Act
    -- Competitive Bidding, PP Docket No. 93-253, *Fifth Report and
    Order*, 9 FCC Rcd 5532, 5564, n. 53 ("*Competitive Bidding Fifth
    Report and Order*").

[^20]: *Part 1 Third Report and Order*, 13 FCC Rcd at 434.

[^21]: *See* Letter to John A. Prendergast, Esq., DA 99-690, 14 FCC Rcd
    6323, 6326-27 (1999) ("*New Wave Letter I*") (following deduction of
    the "\$18,068 initial default payment" and other payments due, "the
    Commission will retain the remainder of New Wave's deposit
    (\$31,182) pending assessment of the full default payment at the
    close of the auction"); Letter to Stephen Kaffee, Esq., DA 99-520,
    14 FCC Rcd 4026, 4029-30 (1999) ("*EU Letter*") (following deduction
    of "three percent of EU, Inc.'s net bid on the \[defaulted\]
    license" and other payments due, the Commission will "retain the
    remainder \[over \$100,000\] of EU, Inc.'s deposit pending our
    assessment of its full default payment"); Longstreet Communications
    International, Inc., Market B012C Altoona, PA, DA 00467, *Order,* 15
    FCC Rcd 8562, 8564 (2000) ("*Longstreet Order*") ("Longstreet
    Communications International, Inc.'s remaining balance of
    \$155,295.00 shall be held on deposit until a new bid price for the
    defaulted license is established.").

[^22]: *Longstreet Order*, 15 FCC Rcd at 8563 ("A three-percent payment
    is the minimum amount that Longstreet could owe on the license for
    Market B012C. Accordingly, by this Order, we assess an initial
    default payment of \$66,555.00, three percent of Longstreet's
    winning bid for the Market B012C.")

[^23]: TPS Refund Letter at 1-2.

[^24]: Letter to Erica DeSilva, DA 99-1731, 14 FCC Rcd 13,954, 13,957
    (1999) ("*Progeny Letter*").

[^25]: *Progeny Letter*, 14 FCC Rcd at 13,954.

[^26]: *Id.*

[^27]: *Progeny Letter*, 14 FCC Rcd at 13,958.

[^28]: Request for Waiver of Section 1.2104(g) of the Commission's Rules
    filed by Grand Connectivity L.L.C., DA 99-1726, *Order*, 14 FCC Rcd
    13,943, 13,949 (1999) ("*Grand Connectivity Order*") ("any remaining
    amount after the three percent default payment is assessed will be
    refunded to Grand Connectivity").

[^29]: *Grand Connectivity Order*, 14 FCC Rcd at 13,950.

[^30]: Amendment of Part 1 of the Commission's Rules; Implementation of
    the Debt Collection Improvement Act of 1996 and Adoption of Rules
    Governing Applications or Requests for Benefits by Delinquent
    Debtors, MD Docket No. 02-339, 17 FCC Rcd 23,096, 23,096 (2002)
    ("*DCIA NPRM*").

[^31]: *DCIA NPRM*, 17 FCC Rcd at 23101-102.

[^32]: *Cf. Southeast Telephone, Inc. v. Federal Communications
    Commission*, 1999 WL 1215855 (D.C. Cir. 1999) (unpublished
    decision).

[^33]: *See, e.g.,* Letter to Joseph P. Gebhardt and John A.
    Prendergast, Esq., DA 02-1554, 17 FCC Rcd 16,047 (2002) ("*New Wave
    Letter II*") (following reauction, the Commission determined that
    New Wave did not owe any additional default payments and released
    the excess deposits retained pursuant to *New Wave Letter I* for
    refund).

[^34]: 47 U.S.C. § 309(j)(3)(D).

[^35]: 47 C.F.R. § 0.331.