United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 5, 2000 Decided November 21, 2000

No. 98-1266

U.S. AirWaves, Inc.,

Petitioner

v\.

Federal Communications Commission and

United States of America,

Respondents

NextWave Telecom Inc., et al.,

Intervenors

Consolidated with

98-1267

On Petitions for Review of Orders of the

Federal Communications Commission

\-\-\-\-\-\-\-\--

Robert A. Long, Jr. argued the cause for petitioners. With him on the
briefs was Andrew J. Heimert.

Stanley R. Scheiner, Counsel, Federal Communications Commission, argued
the cause for respondents. With him on the brief were Christopher J.
Wright, General Counsel, Daniel M. Armstrong, Associate General Counsel,
Joel I. Klein, Assistant Attorney General, U.S. Department of Justice,
Catherine G. O\'Sullivan, and Andrea Limmer, Attorneys. John E. Ingle,
Deputy Associate General Counsel, and James M. Carr, Counsel, Federal
Communications Commission, entered appearances.

Ian Heath Gershengorn argued the cause for intervenor NextWave Telecom
Inc. With him on the brief was Donald B. Verrilli, Jr. David A. LaFuria
and Thomas Gutierrez entered appearances.

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

Opinion for the court filed by Circuit Judge Ginsburg.

Ginsburg, Circuit Judge: Before us are petitions for review of two
rulemaking orders of the Federal Communications Commission. The orders
changed the financial terms applicable to companies that purchased
licenses to provide personal communications services (PCS) at an auction
in which bidding was limited to small businesses and entrepreneurs. See
Amendment of the Commission\'s Rules Regarding Installment Payment
Financing for \[PCS\] Licensees, Second Report and Order and Further
Notice of Proposed Rule Making, 12 F.C.C.R. 16,436 (1997) (Restructuring
Order); and Amendment of the Commission\'s Rules Regarding Installment
Payment Financing for \[PCS\] Licensees, Order on Reconsideration of the
Second Report and Order, 13 F.C.C.R. 8345 (1998) (Reconsideration
Order). Petitioners U.S. Airwaves, Inc. (hereinafter Airwaves) and
Sprint Spectrum L.P. characterize the rules as a benefit given
retroactively to incumbent licensees, to the detriment of losing bidders
in the spectrum auction and of competitors in the PCS industry, and
therefore as unauthorized, unreasonable, and arbitrary and capricious.
Intervenor NextWave Inc., a successful bidder in the original auction,
supports the new rules; it also maintains that neither petitioner has
standing to challenge them.

We hold that Airwaves, as a disappointed bidder in the original auction,
does have standing to petition for review of the new rules; we therefore
do not reach the question whether Sprint Spectrum L.P. also has
standing. We hold further that, although the changes to the
Commission\'s financing rules are indeed retroactive, the Commission had
adequate reasons for adopting them, and that it reasonably balanced
competing goals and acted within its statutory authority.

I. Background

Broadband PCS are a type of mobile telephone technology. See Omnipoint
Corp. v. FCC, 78 F.3d 620, 626 (D.C. Cir. 1996). In order to provide PCS
a company must get from the Commission a license to use a portion of the
electromagnetic spectrum. In 1994 the Commission decided to distribute
such licenses through a system of competitive bidding, pursuant to 47
U.S.C. s 309(j)(1). See Implementation of Section 309(j) of the
Communications Act\--Competitive Bidding, Second Report and Order, 9
F.C.C.R. 2348, pp 54-58 (1994) (2d R&O). The Commission designated a
portion of the spectrum for the provision of PCS and divided that
portion into six blocks, which it labeled A through F. In keeping with
its statutory mandate to \"ensure that small businesses \... are given
the opportunity to participate\" in spectrum auctions, 47 U.S.C. s
309(j)(4)(D), the Commission limited the bidding for \"C-block\"
spectrum to entrepreneurs and small companies. See Restructuring Order
at p 8; cf. Omnipoint, 78 F.3d at 626 (upholding the limitation). The
Commission offered small businesses bidding for C-block licenses an
\"installment payment plan\" under which they could pay 10% down and the
balance \"over a period of ten years, with interest only paid for the
first six years and interest and principal for the remaining four.\"
Restructuring Order at p 8. (Entrepreneurs who did not qualify as small
businesses were offered less favorable payment terms. See id. at n.10.)

Between May and July 1996 some 90 different bidders bought at auction
493 licenses\--one for each \"basic trading area\" (BTA) in the
nation\--to use 30 MHz of spectrum for the provision of PCS. Their bids
totaled \$10.2 billion, a figure some observers attributed to irrational
exuberance; on average, C-block licensees agreed to pay nearly three
times per potential customer what the winning bidders in the A- and
B-block auctions had paid. See Restructuring Order at p 9 & n.11; Peter
Spiegel, Hollow Victory, Forbes, Jan. 27, 1997, at 50.

Within nine months of the C-block auction, it became clear that a number
of high bidders might not be able to make their scheduled payments. See
Wireless Telecommunications Bureau Seeks Comment on Broadband PCS C and
F Block Installment Payment Issues, Public Notice, 12 F.C.C.R. 21,015,
21,015 & n.4 (1997). In March, 1997 the Commission suspended the payment
obligations of all C-block licensees pending a review of its installment
payment terms. See Installment Payments for PCS Licenses, Order, 12
F.C.C.R. 17,325, p 2 (1997).

In October, 1997 the Commission issued the first of the two orders
challenged in this case. That order ended the suspension of payments
announced the previous March and offered a \"menu\" of new financing
options to all C-block licensees. See Restructuring Order at pp 6, 25.
Upon reconsideration the Commission retained the menu approach but
altered several of the offerings in important particulars. See
Reconsideration Order at pp 8-10. The revised scheme also permitted a
licensee to select a different option for licenses it held in each
\"Major Trading Area\" (MTA)\--referring to the 51 geographic regions
into which the Commission has divided the nation\--so long as it applied
the same option to all its licenses within each MTA. See Reconsideration
Order at p 17. Upon the promulgation of the order on reconsideration,
each licensee was required, in order to avoid default, to choose a menu
option for each of its MTAs. See id. at p 23.

The menu offered each licensee four choices. First, the licensee could
continue to make payments under the original terms of the auction. See
Restructuring Order at p 6.

Second, the licensee could surrender all its licenses for a particular
MTA and receive a \"prepayment credit\" in an amount equal to 70% of the
down payments and 100% of any installment payments it had made on those
licenses, as well as forgiveness of its debt on the returned licenses.
The prepayment credit would be put toward payment for such other PCS
licenses as the licensee continued to hold. The licensee could either
provide additional funds in order to prepay all the licenses it retained
in a given MTA or, were it to rely solely upon its prepayment credits,
could prepay as many licenses as possible in a given MTA and surrender
any remaining licenses to be auctioned anew. See Restructuring Order at
p 64; Reconsideration Order at pp 38, 41-43.

Third, the licensee could elect to \"disaggregate\" each of its licenses
within a given MTA, returning 15 MHz of spectrum to the Commission and
retaining 15 MHz under license. The licensee\'s outstanding debt to the
Commission with respect to returned spectrum would be forgiven. The
licensee would also receive a credit equal to 40% of its down payments
on the returned spectrum, which it could apply to the payments due on
the retained spectrum. A licensee combining disaggregation and
prepayment would receive a credit equal to 70% of its down payment for
returned spectrum, which it could use to prepay the Commission either
for the retained 15 MHz of the disaggregated licenses or for other PCS
licenses it retained. See Restructuring Order at pp 38-39;
Reconsideration Order pp 51, 54.

Finally, the licensee could simply surrender its licenses for a
particular MTA and be forgiven its outstanding debt with respect to
those licenses. A licensee electing this so-called \"amnesty\" option
could either retain the right to rebid when its licenses were sold at
auction again or forego the opportunity to rebid and receive a credit of
70% of its original down payment; it could apply that credit to payments
due in connection with the prepayment or disaggregation of licenses that
it retained in other MTAs. See Reconsideration Order at p 12.

The Commission states that in crafting this menu of options it
\"considered and balanced\" several policy goals: maintaining the
integrity of spectrum auctions; ensuring fairness to actual and
prospective licensees; resolving all issues promptly; and complying with
its statutory mandates to \"\[p\]romot\[e\] economic opportunity and
competition in the marketplace,\" and to \"ensure \'that new and
innovative technologies are readily accessible to the American people by
avoiding excessive concentrations of licenses and by disseminating
licenses among a wide variety of applicants, including small
businesses.\' \" See Restructuring Order at p 2 (quoting 47 U.S.C. s
309(j)).

II\. Analysis

Airwaves and Sprint PCS contend that the Commission changed its original
auction rules arbitrarily and capriciously and without statutory
authority. After analyzing the petitioners\' standing, we consider the
Commission\'s claim that the new rules were foreshadowed in the original
auction rules and therefore do not represent a significant change in
policy. We then turn to the questions of arbitrariness and of statutory
authority.

*A. Do petitioners have standing?*

The \"irreducible constitutional minimum\" for standing in an Article
III court is that the petitioner was injured in fact, that its injury
was caused by the challenged conduct, and that its injury would likely
be redressed by a favorable decision of the court. Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560-61 (1992). NextWave Inc., intervening in
defense of the Commission, argues that Airwaves lacks standing because
it can demonstrate neither that it was injured in fact nor that its
alleged injury is redressable.

A bidder in a government auction has a \"right to a legally valid
procurement process\"; a party allegedly deprived of this right asserts
a cognizable injury. DIRECTV, Inc. v. FCC, 110 F.3d 816, 829 (D.C. Cir.
1997). A disappointed bidder \"need not \... demonstrate that it would
be successful if the contract were let anew\" but only that it was \"
\'able and ready to bid \... and that the \[rule\] prevent\[ed\] it from
doing so on an equal basis.\' \" Id. at 829-30 (quoting Northeastern
Fla. Chapter of Assoc. Gen. Contractors of America v. City of
Jacksonville, 508 U.S. 656, 666 (1993)). Of course, in order to show
that its injury is redressable, a disappointed bidder must demonstrate
that it is \"ready, willing, and able\" to participate in a new auction
should it prevail; but it need not demonstrate that it will participate
in such an auction regardless of the circumstances then prevailing. See
Orange Park Florida T.V., Inc. v. FCC, 811 F.2d 664, 672 & n.18 (D.C.
Cir. 1987).

Airwaves meets these requirements. It submitted bids in the original
C-block auction but dropped out before securing any licenses. It claims
that it would have bid more had it known that financial terms more
favorable than those announced at the time of the auction would later be
offered to winning bidders. Airwaves further affirms, in the sworn
declaration of its chief executive, that it \"intends\" to bid in a
future reauction of PCS spectrum and that it is able to raise the
capital necessary to do so. That is sufficient.

NextWave also argues that Airwaves cannot base its standing upon its
participation in the original auction because Airwaves acknowledges that
the original auction was fair; Airwaves challenges only the way in which
the Commission treated licensees after the auction was completed. In
this argument, however, NextWave misapprehends Airwaves\' claim, which
is that post-auction revisions to the financing options available to the
high bidders constitute impermissibly retroactive changes to the initial
auction rules. There is no basis for suggesting, as NextWave seems to
do, that ex post changes can never affect the validity of a government
auction.

Finally, NextWave argues that Airwaves fails to demonstrate that its
claim is redressable by this court because it does not allege that when
it petitioned for review of the new rules it was ready, willing, and
able to bid in a new auction. NextWave asserts that as of that date
Airwaves had returned all its investment capital to its investors and
was not in good standing in the State of Delaware because of a tax
dispute, for both of which reasons it would have been unable to bid in
any new auction that the Commission might have conducted. NextWave\'s
premise is correct: Standing is determined as of the date an action is
filed, see Smith v. Sperling, 354 U.S. 91, 93 n.1 (1957); but NextWave
offers no persuasive reason to think either that Airwaves lacked access
to capital on that date or that it would not have resolved its tax
dispute in Delaware had that been necessary in order to bid in a new
auction. (In fact, the tax matter was resolved soon after the filing.)
Absent any evidence to the contrary, Airwaves\' assertion that it was
ready, willing, and able to participate in a rerun of the C-block
auction satisfies the redressability requirement.

Having determined that Airwaves has standing, we do not need to reach
the question whether Sprint Spectrum L.P. has standing as well, for
Sprint presents no arguments beyond those made by Airwaves. See Railway
Labor Executives\' Ass\'n v. United States, 987 F.2d 806, 810 (D.C. Cir.
1993) (\"\[I\]f one party has standing in an action, a court need not
reach the issue of the standing of other parties when it makes no
difference to the merits of the case\").

*B. Is the rule retroactive?*

Airwaves argues that the changes in the Commission\'s auction rules give
a windfall to C-block licensees. The Commission and NextWave respond
that the original auction rules anticipate the possibility that the
Commission might revise its financing provisions, making the adoption of
the new rules foreseeable.[^1] Cf. Small Refiner Lead Phase-Down Task
Force v. EPA, 705 F.2d 506, 547, 549 (D.C. Cir. 1983) (holding that
final administrative rules that depart from an agency\'s initial
proposals do not require new notice and comment if the final rules are a
\"logical outgrowth\" of the proposals, such that the parties \"should
have anticipated \[that they\] might be imposed\").

The Commission points out that the original auction rules provided that
\"as a general rule\" a defaulting bidder\'s licenses would be deemed
forfeit and reauctioned, 2d R&O at p 204, which reasonably can be taken
to suggest that forfeiture and reauction were not to be the inevitable
consequence of default. More important, the original rules specifically
allowed a licensee \"that has defaulted or that anticipates default
under an installment payment program\" to obtain a \"three to six month
grace period\" during which to \"seek from the Commission a restructured
payment plan.\" Id. at p 240. In addition, the original rules provided
that default would occasion a \"substantial penalty,\" Implementation of
Section 309(j) of the Communications Act\--Competitive Bidding, Fifth
Re-port and Order, 9 F.C.C.R. 5532, p 75 (1994), and under the revised
rule every licensee that fails to honor its original payment obligations
forfeits at least 30% of its down payment on all spectrum that it
returns to the Commission.

In some respects, however, the new rules clearly do contradict the
Commission\'s previously stated policies. The initial auction rules
provided that the Commission would consider requests for financial
restructuring on a \"case-by-case basis.\" 2d R&O at p 240. This
certainly implied that the Commission would not proceed by way of a
further rulemaking and a new rule of general application, see Bowen v.
Georgetown Univ. Hosp., 488 U.S. 204, 209 (1988). The distinction is
significant, for the initial auction rules made only those licensees
\"that ha\[d\] defaulted or that anticipate\[d\] default\" eligible for
a grace period and financial restructuring. 2d R&O at p 240. The C-block
menu, in contrast, is available to all licensees regardless of their
financial condition. See Restructuring Order at p 6.

The new regulations therefore do not merely fill in the details of a
policy foreseeable at the time of the original C-block auction; instead,
they constitute a secondarily retro-active change to the rules governing
that auction. See Bow-en, 488 U.S. at 219 (1988) (Scalia, J.,
concurring) (defining \"secondary retroactivity\" as describing
\"rule\[s\] with exclusively future effect \[that\] \... affect past
transactions\") (emphasis omitted). A secondarily retroactively rule is
valid only to the extent that it is reasonable\--both in substance and
in being made retroactive. See id. at 220. It is to reasonable-ness that
we turn next.

*C. Are the regulations reasonable?*

Airwaves argues that the rule is invalid for two related reasons. First,
it contends that the Commission failed to relate its offering of
post-auction refinancing options to its own stated goals. Second, it
argues that regardless whether the Commission embraced fairness as a
goal, the rule is simply so unfair that it must be deemed arbitrary and
capricious.

Under the arbitrary and capricious standard, this court does not
substitute its judgment for that of the administrative agency. See Motor
Vehicles Mfrs. Ass\'n of the United States, Inc. v. State Farm Mut.
Auto. Ins. Co., 463 U.S. 29, 43 (1983). A regulatory decision in which
the Commission must balance competing goals is therefore valid if the
agency can show that its resolution \"reasonably advances at least one
of those objectives and \[that\] its decisionmaking process was
regular.\" Fresno Mobile Radio, Inc. v. FCC, 165 F.3d 965, 971 (D.C.
Cir. 1999). Because Airwaves does not challenge the regularity of the
Commission\'s decisionmaking process, the issue now before us is whether
the Commission reasonably justified its regulations with reference to at
least one of its avowed goals. See Restructuring Order at p 2.

The C-block menu withstands review under this standard: The Commission
justified each of the menu options and its MTA-by-MTA selection
principle with reference to one or more of its stated goals. In
particular, the Commission justified each of its menu options as
\"enabling C block licensees to remain participants in the wireless
market,\" which it found would hasten \"the delivery of new services to
the public\" and promote efficient use of the spectrum. Re-consideration
Order at p 10; see Restructuring Order at pp 43, 45 (disaggregation);
id. at p 53 (amnesty); Reconsideration Order at p 40 (prepayment). In
addition, the Commission justified the prepayment option as a way of
minimizing conflicts between the agency\'s roles as creditor and as
regulator. See Reconsideration Order at p 40. The Commission explained
disaggregation, as it did the provision for MTA-by-MTA election, in part
as an effort to help small licensees plan their businesses rationally.
See Restructuring Order at p 45; Reconsideration Order at p 19.

Airwaves challenges the Commission\'s rationale in two respects. Its
first point proceeds from the observation that the Commission deemed
\"essential\" two and only two of its stated goals, namely, maintaining
the integrity of the auction process and ensuring fairness to all market
participants. Restructuring Order at p 3. Airwaves claims that it is
unreasonable for the Commission to adopt any policy that under-mines a
goal that the agency itself has styled \"essential.\" This is an unduly
cramped reading of the orders, however. The Commission reasonably can
treat fairness and integrity as \"essential\" goals and yet recognize
that they are matters of degree. Thus, the Commission may choose to
sacrifice some degree of fairness or integrity in order to gain other
important objectives. Several of the goals that the Commission lists in
addition (and therefore potentially in opposition) to fairness and
integrity\--such as competition, speedy deployment of services to the
public, efficient use of the spectrum, and participation of small
businesses in the market\--are mandated by statute. See 47 U.S.C. s
309(j)(3). A more reasonable construction of the Commission\'s statement
that fairness and integrity are \"essential\" goals, therefore, is that
in its view they must be included (along with those specified in the
statute) among the goals to be balanced. This by no means requires that
they trump all other goals in every case where there is conflict.

Airwaves also argues that, aside from the orders\' failure to advance
the Commission\'s \"essential\" goals, they also fail to advance the
other goals the Commission invoked as justifications for the menu
options. For example, Airwaves argues that, contrary to the
Commission\'s claims, the rule will retard rather than hasten the
availability of services to consumers; instead of forcing a reauction
that would transfer spectrum to competent and solvent firms, the rule
allows precisely those companies that \"have demonstrated financial
irresponsibility and undue optimism about their financial capabilities\"
to retain their spectrum. New buyers at auction may, as the petitioner
asserts, be more likely to effectuate a rapid build-out of wireless
systems, but the Commission is reasonably of the view that starting the
licensing process all over again would delay build-out. We defer to the
agency regarding a predictive matter, such as this, within its
expertise. See Fresno Mobile Radio, 165 F.3d at 971.

In a similar vein, Airwaves complains that, contrary to the
Commission\'s expectation, the rule will not promote the participation
of small businesses in the wireless industry; that goal would be better
effected by redistributing licenses to small businesses in a new auction
than by reinforcing the current concentration of C-block licenses in
relatively few hands. The petitioner\'s position is again plausible, but
it is also reasonable, again, for the Commission to expect that small
businesses generally will be better situated to face their larger
competitors in the wireless industry if those that already have licenses
are able to build their businesses in at least some markets. Again, we
defer to the Commission\'s expertise regarding such predictive issues.

Notwithstanding the Commission\'s reasoned justification, the rule might
still be arbitrary and capricious if, as Airwaves claims, it is
sufficiently unfair. We agree with the petitioner that the Commission
systematically downplays the inequity of the rule: it clearly grants a
substantial windfall not only to distressed but also to healthy
companies that bought licenses in the initial auction. Those companies
can now discard the licenses they have found, with the benefit of
hindsight, to be less valuable\--without incurring the ordinary penalty
for default and, indeed, while recouping some of the payments they have
already made. At the same time they can retain the licenses they have
found to be more valuable, subject only to the requirement that they
elect a single menu option within each MTA. Further, the rule allows
them not only to concentrate their resources in the most desirable
markets but to apply to the spectrum they retain some of the payments
they had made on spectrum they returned. Obviously, those who were
outbid in the original auction would have bid more than they actually
did\--and might have bid enough to win licenses\--had they known that
the Commission later would make such options available.

Having established that the Commission changed the rules in a way that
could not be foreseen, the question is whether, under the circumstances,
that was so unfair as to be arbitrary and capricious. We start from the
intuitive premise that an agency cannot, in fairness, radically change
the terms of an auction after the fact. At the same time, an agency must
be allowed to adjust its policies to changing circumstances, within the
framework of rules it established in advance of the auction. In this
case the Commission determined that the statutory goals of speeding the
delivery of service to the public and of facilitating the participation
of small businesses in the wireless market required it to liberalize the
financial terms available to C-block licensees. See Reconsideration
Order at pp 7-8. Competing goals do not absolve the agency of its duty
to losing bidders, of course, but the Commission was careful to temper
its liberalization accordingly. The agency did not simply forgive
agreed-upon payments, much less grant the winning bidders\' more
sweeping requests for relief. Rather, under each of the menu options it
imposed upon every distressed licensee a \"substantial penalty\"\--in
every case at least 30% of the down payment for a returned license, and
up to 60% in the case of a licensee choosing disaggregation without
prepayment.

Considering the dramatic and unexpected business reversals faced by
C-block licensees, and post-auction conditions in the wireless market,
we think the Commission reasonably exercised its discretion to balance
fairness to losing bidders with the needs of the market and with the
public interest. We therefore conclude that the orders under review are
consistent with the Commission\'s stated goals, and that such unfairness
as they worked does not render them arbitrary and capricious.

*D. Did the Commission exceed its statutory authority?*

The Commission conducts spectrum auctions pursuant to its authority to
grant licenses \"through the use of a system of competitive bidding.\"
47 U.S.C. § 309(j)(1). Airwaves argues that post-auction concessions
made to the winning bidders effectively render the auction
noncompetitive and therefore without statutory authorization. Airwaves
argues further that retroactive changes to auction rules violate the
requirement that the Commission \"ensure that \... an adequate period is
allowed \... after issuance of bidding rules\[ \] to ensure that
interested parties have a sufficient time to develop business plans,
assess market conditions, and evaluate the availability of equipment.\"
Id. § 309(j)(3)(E). Airwaves\' argument here is that post-auction rule
changes necessarily leave no time for interested parties to plan,
assess, or evaluate.

These arguments were not put before the Commission and are therefore not
properly before this court. See Washington Ass\'n for Television &
Children v. FCC, 712 F.2d 677, 680 (1983) (\"\[C\]laims not presented to
the agency may not be made for the first time to a reviewing court\").
Airwaves suggests that the issue was adequately raised before the
Commission in the comment of another party, which argued that \"Section
309(j) does not \... contain any provision allowing the Commission to
change the amount owed the government as a result of an auction.\" The
broad and general claim that the Commission lacks statutory authority
\"to change the amount owed\" is materially different, however, from
Airwaves\' specific argument that the Commission violated the statutory
provisions requiring \"a system of competitive bidding\" and \"an
adequate period\" for planning after auction rules are issued.
Confronted only with the former, broad claim, the Commission had no
notice of the specific objections now raised by Airwaves. As we have
said more than once before, a litigant may not \" \'sandbag\' agencies
by withholding legal arguments \... until they reach the courts of
appeal.\" USAir, Inc. v. Department of Transp., 969 F.2d 1256, 1260
(D.C. Cir. 1992).

III\. Conclusion

In summary, we hold that the changes to the Commission\'s C-block
auction rules are neither arbitrary and capricious, nor unreasonable,
nor without statutory authority. Therefore the petitions to review the
rules are

*Denied.*

[^1]: ^\*^ The implication of the Commission\'s account is that the
    possibility of new rules is fully reflected in the prices paid;
    hence there is no windfall.