DA 01-437

February 16, 2001

John E. Mason

### Member

Harbor Wireless, LLC

## 2420 Sand Hill Road

Suite 101

Menlo Park, California 94025

Carl W. Northrop

Daniel R. Ball

Paul, Hastings, Janofsky & Walker, LLP

1299 Pennsylvania Avenue, NW

10 Floor

### Washington, DC 20004

> Re: Harbor Wireless LLC Request for Waiver of Section 1.2109(b) of the
> Commission's Rules (Auction No. 33)

Dear Messrs. Mason, Northrop, and Ball:

This letter responds to the Request for Waiver[^1] and Supplement To
Request for Waiver[^2] filed by Harbor Wireless, LLC ("Harbor"). Harbor
seeks a waiver of Section 1.2109(b) of the Commission's rules, which
permits the Commission to offer a license to the next highest bidders
(in descending order) if a winning bidder withdraws its bid after close
of the auction.[^3] Specifically, Harbor argues that the Commission
should offer to Harbor three licenses on which it held the high bid
prior to submission and withdrawal of higher bids by another bidder
prior to close of the

auction.[^4] According to Harbor, it had standing high bids on these
licenses[^5] until Pegasus

Guardband LLC ("Pegasus") outbid Harbor.[^6] Pegasus later withdrew its
standing high

bids, but Harbor, by that time, lacked sufficient unused eligibility to
bid on the Licenses.[^7] No other bidder for the Licenses emerged. The
auction closed with the Licenses unsold.[^8] For the reasons discussed
below, we deny Harbor's Waiver Request.

To obtain a waiver of the Commission's competitive bidding rules,[^9]
Harbor must show: (i) that the underlying purpose of the rule would not
be served, or would be frustrated, by its application in this particular
case, and that grant of the requested waiver would be in the public
interest; or (ii) that the unique facts and circumstances of the
particular case render application of the rule inequitable, unduly
burdensome or otherwise contrary to the public interest, or that the
applicant has no reasonable alternative.[^10] Harbor argues that a
waiver is appropriate in this instance because the facts and
circumstances pertaining to the Licenses and Pegasus' withdrawal are
unique.[^11]

Harbor contends that the public interest would be served by grant of a
waiver to offer Harbor the licenses on which it was the second highest
bidder prior to the bid withdrawals by Pegasus.[^12] Harbor argues that
grant of its request would serve the same purpose that is served by the
rule allowing the Commission to offer licenses to the second highest
bidder where withdrawal or default occurs after the auction.[^13]

In this regard, Harbor claims that the Commission has indicated that it
would exercise its discretion to offer licenses to the previous high
bidders, rather than conduct a re-auction, in circumstances involving a
relatively small number of low value licenses which arise only a short

time after the initial auction.[^14] Harbor also notes that the
Commission considered amending Section 1.2109(b) to revise or eliminate
the next highest bidder option, but declined to do so. Rather, the
Commission reserved the discretion to either award the licenses to the
next highest bidder or re-auction the spectrum thereby ensuring that it
is in the best possible position to determine which option serves the
public interest in each situation.[^15] Harbor cites several public
interest considerations in support of its position.

First, Harbor argues that the small number of licenses involved, eight
out of 104 licenses initially offered, does not justify the expense and
delay associated with a holding a second auction.[^16] Next, Harbor
asserts that the Licenses do not cover major markets, and thus have
relatively low values.[^17] According to Harbor, the fact that the
Licenses are in geographic areas with small populations explains why
other bidders that, unlike Harbor, had sufficient eligibility to bid
after the Pegasus withdrawal, chose not to do so.[^18] Third, Harbor
claims that its Waiver Request is so close in time to when the
withdrawals occurred that the Commission should not be concerned that
changes in market conditions render the market prices established in the
auction invalid.[^19] Fourth, Harbor asserts that its proposal will
expedite service to the public, and prevent the Licenses from lying
fallow until the Commission can conduct an auction.[^20] Fifth, Harbor
argues that it expects the issues of incumbent licensee protection and
band clearing to be addressed on a broad industry-wide basis and
therefore, it will be disadvantaged if it cannot participate in
discussions of these issues from the outset.[^21] Further, Harbor
contends that because

the two Guard Band Managers licensed in each MEA are in competition, if
their licenses are not awarded concurrently, the entity that is granted
its license later will be at a competitive

disadvantage.[^22] Harbor also claims that necessary coordination with
public safety frequency coordinators and adjacent area Guard Band
Managers will be facilitated if all licensees are

identifiable at the outset.[^23] Finally, Harbor asserts that grant of a
waiver entails no risk because Harbor has sufficient funds on deposit
with the Commission to pay for the Licenses.[^24]

We decline to grant Harbor's request for waiver of Section 1.2109(b). We
find that the circumstances of Harbor's waiver request fail to meet the
Commission's standard for granting a waiver. Harbor's lack of sufficient
unused eligibility to bid on the Licenses does not rise to the level of
a unique or unusual circumstance, warranting special consideration by
the Commission. We also reject Harbor's argument that the small number
of licenses involved does not justify holding a second auction. When the
Commission first adopted rules governing the default of an auction
winner, it stated, as a general rule, that the best course of action
would be to re-auction the spectrum.[^25] In the *Competitive Bidding
Second Report and Order*, the Commission noted that one of its primary
concerns is that licenses be awarded to the parties that value them most
highly, and in the situation of a winning bidder's withdrawal after the
close of an auction, this can best be assured through a re-auction.[^26]
In the *Part 1 Third Report and Order*, the Commission considered
revisions to Section 1.2109(b) and decided to reserve discretion to
either re-auction the spectrum associated with a defaulted license or
offer it to the other highest bidders (in descending order) at their
final bids.[^27] However, the Commission noted that offering spectrum
associated with a defaulted license to the next highest bidder at its
final bid may not ensure that the license will be awarded to the bidder
who values it most highly.[^28] In particular, as the license is offered
to bidders at the next highest bids, other parties can argue that they
would pay more for the license if given the opportunity.[^29] When more
than one license is being auctioned, aggregation strategies may shift

during the course of the auction, affecting the value placed on any
individual license by a particular bidder.[^30]

[]{.mark}

We have not identified any case where an applicant has made a convincing
showing that the Bureau should, in the context of a withdrawal that
occurred *after* the auction closed, exercise its discretion under
Section 1.2109(b) to offer unsold licenses to the next highest bidder.
Therefore, we are unconvinced that the Bureau should waive Section
1.2109(b) to offer unsold licenses to the next highest bidder when a
bidder withdraws its high bid *before* the close of an auction. We do
not accept Harbor's speculation that there were other bidders that had
eligibility, but chose not to submit a bid at that point in the auction.
Harbor has not adequately addressed the issue of whether other bidders
may have based their bidding strategy on a plain reading of Section
1.2109(b), nor has Harbor addressed whether there are bidders similarly
situated to Harbor, who may have wanted the opportunity to change their
bidding strategy in light of Pegasus' withdrawals. Waiver of Section
1.2109(b) after the auction to offer Harbor licenses on which Harbor
lacked sufficient unused eligibility to bid after Pegasus' withdrawal
would be unfair to other bidders that might otherwise have bid on those
licenses. Such action by the Bureau could undermine the integrity of the
auction process. [^31]

Moreover, we disagree with Harbor's assertion that its proposal will
expedite service to the public, as well as its assertion that it will be
at a disadvantage with respect to participating in negotiation of band
clearing agreements, coordinating frequencies, and competing with other
Guard Band Managers if the Licenses are not awarded concurrently with
those won in Auction No. 33. As the auction of the eight Guard Band
licenses left unsold in Auction No. 33 began on February 13, 2001, the
period between the grant of licenses won in the first and second Guard
Band auctions will not be so significant as to have the deleterious
effects that Harbor suggests. Lastly, Harbor has not shown that it has
no reasonable alternative to the grant of its waiver request. Harbor has
a clear alternative because it is a qualified bidder in the second Guard
Band auction (Auction No. 38), which began on February 13, 2000.[^32]

Accordingly, Harbor's Waiver Request is denied. This action is taken
under delegated authority pursuant to Section 0.331 of the Commission's
Rules.[^33]

Sincerely,

Kathleen O'Brien Ham

Deputy Chief, Wireless Telecommunications Bureau

[^1]: Harbor Wireless LLC Request for Waiver (filed September 26, 2000)
    ("Waiver Request").

[^2]: Harbor Wireless, LLC Supplement to Request for Waiver (filed
    September 28, 2000) ("Supplement"). According to Harbor, the chart
    included in this filing identifies the previous high bidder and the
    amount of the prior bid for all eight markets in which the high bids
    were withdrawn and no subsequent bids were received. *See*
    Supplement at 1-2.

[^3]: *See* 47 C.F.R. § 1.2109(b).

[^4]: *See* Waiver Request at 1.

[^5]: The licenses include B Block licenses Major Economic Areas 14
    (Columbus, Ohio), 34 (Omaha, Nebraska), and 48 (Hawaii),
    collectively referred to as the "Licenses."

[^6]: Waiver Request at 2.

[^7]: *Id.*

[^8]: Waiver Request at 2. *See* "700 MHz Guard Bands Auction Closes;
    Winning Bidders Announced," Public Notice, DA 00-2154 (rel.
    September 25, 2000).

[^9]: *See* 47 C.F.R. § 1.2109(b).

[^10]: *See* 47 C.F.R. § 1.925.

[^11]: *See* Waiver Request at 12.

[^12]: *See* Waiver Request at 5-11. With respect the other five
    licenses for which high bids were withdrawn and no subsequent bids
    were received, Harbor suggests, without specifically requesting,
    that the Commission also offer such licenses the to the previous
    high bidders to eliminate the need for a second auction of Guard
    Band licenses. *Id.* at 8.

[^13]: *See* Waiver Request at 3, 5-11.

[^14]: *Id*. at 6. *See* Implementation of Section 309(j) of the
    Communications Act - Competitive Bidding, PP Docket No. 93-253,
    *Second Report and Order*, 9 FCC Rcd 2348, 2374 n.115 (1994)
    (\"*Competitive Bidding Second Report and Order*\"); Implementation
    of Section 309(j) of the Communications Act - Competitive Bidding,
    WT Docket No. 93-253, *Third Report and Order*, 9 FCC Rcd 2941, 2962
    n.30 (1994) (\"*Competitive Bidding Third Report and Order*\").

[^15]: *See* Waiver Request at 7; Amendment of Part 1 of the
    Commission\'s Rules \-- Competitive Bidding Procedures, WT Docket
    No. 97-82, Allocation of Spectrum Below 5 GHz Transferred from
    Federal Government Use, ET Docket No. 94-32, *Third Report and Order
    and Second Further Notice of Proposed Rule Making*, 13 FCC Rcd 374,
    461-62 ¶ 152 (1997) (\"*Part 1 Third Report and Order*\").

[^16]: *Id.* at 8.

[^17]: *Id.*

[^18]: *Id.*

[^19]: *See* Waiver Request at 8-9.

[^20]: *Id.* at 9. Harbor also argues that by awarding it the three
    license, the Commission would avoid any administrative expense
    associated with a second auction. *Id.*

[^21]: Waiver Request at 9-10.

[^22]: Waiver Request at 10.

[^23]: *Id.*

[^24]: *See* Waiver Request at 11.

[^25]: *Competitive Bidding Second Report and Order*, 9 FCC Rcd at 2383
    ¶ 204.

[^26]: *Id*.

[^27]: *Part 1 Third Report and Order*, 13 FCC Rcd at 461-62 ¶ 152.

[^28]: *Id*. at 462 ¶ 153.

[^29]: *Id.*

[^30]: *See id.*

[^31]: *See* In the Matter of Two Way Radio of Carolina, Inc.
    *Memorandum Opinion and Order*, FCC 99-189, 14 FCC Rcd 12035, 12041,
    ¶ 11 (1999).

[^32]: *See* "Auction of Licenses for the 700 MHz Guard Bands; 5
    Qualified Bidders," Public Notice, DA 01-258 (rel. February 2, 2001)
    ("Auction No. 38 Qualified Bidders Public Notice").

[^33]: 47 C.F.R. § 0.331.