Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01316/USCOURTS-caDC-99-01316-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
Omnipoint Corporation
Petitioner
United States of America
Respondent

Document Text:

<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 13, 2000 Decided June 6, 2000

No. 99-1316

Omnipoint Corporation,

Petitioner

v.

Federal Communications Commission and

United States of America,

Respondents

On Petition for Review of an Order of the

Federal Communications Commission

Mark J. O'Conner argued the cause for the petitioner.

Mark J. Tauber and Donna N. Lampert were on brief.

Stanley R. Scheiner, Counsel, Federal Communications

Commission, argued the cause for the respondents. Christopher J. Wright, General Counsel, Daniel M. Armstrong,

Associate General Counsel, James M. Carr, Counsel, Federal

Communications Commission, and Joel I. Klein, Assistant

USCA Case #99-1316 Document #521434 Filed: 06/06/2000 Page 1 of 8
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

Attorney General, and Andrea Limmer, and Catherine G.

O'Sullivan, Attorneys, United States Department of Justice,

were on brief. John E. Ingle, Deputy Associate General

Counsel, Federal Communications Commission, entered an

appearance.

Before: Edwards, Chief Judge, Henderson and Rogers,

Circuit Judges.

Opinion for the court filed by Circuit Judge Henderson.

Karen LeCraft Henderson, Circuit Judge: On September

17, 1996 the Federal Communications Commission (FCC or

Commission) granted Omnipoint Corporation (Omnipoint)

eighteen broadband personal communications services (PCS)

licenses for C Block spectrum which it won at auction.

Because Omnipoint was a qualifying "small business" the

FCC financed ninety per cent of Omnipoint's auction bid at a

7% interest rate "based on the rate for ten-year U.S. Treasury obligations applicable on the date the license is granted."

47 C.F.R. s 24.711(b)(3). Omnipoint requested a waiver of

the 7% interest rate calculated under section 24.711(b)(3),

arguing that it contravened the FCC's policy of setting interest rates "no higher than the government's cost of money,"

which was then 6.5%. In re Implementation of Section 309(j)

of the Communications Act--Competitive Bidding, Second

Report and Order, 9 F.C.C.R. 2348, 2390 (1994). The FCC's

Bureau of Wireless Communications (Bureau) first denied

Omnipoint's waiver request, a decision the Commission ultimately affirmed, finding that strict adherence to section

24.711(b)(3) did not frustrate its underlying policy or unduly

burden Omnipoint contrary to the public interest. We deny

Omnipoint's petition for review of the FCC's waiver denial.

I.

In 1993 the United States Congress authorized the FCC to

allocate spectrum by auction and directed it to promulgate

rules "to ensure that small businesses ... are given the

opportunity to participate in the provision of spectrum-based

services." 47 U.S.C. s 309(j)(4)(D). In setting up the small

USCA Case #99-1316 Document #521434 Filed: 06/06/2000 Page 2 of 8
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

business preference, the FCC identified "two broad, basic ...

policy goals: promoting economic growth and enhancing access to telecommunications service offerings for consumers,

producers, and new entrants." Second Report and Order, 9

F.C.C.R. at 2349. The FCC intended its rules to foster

economic growth by ensuring "that small businesses ... are

given the opportunity to participate in both the competitive

bidding process and the provision of spectrum-based services." Id. at 2388. It promulgated section 24.711(b)(3),

establishing the interest rate for small business auction winners "based on the rate of the U.S. Treasury obligations (with

maturities closest to the duration of the license term) at the

time of licensing." Id. at 2410 (codified at 47 C.F.R.

s 24.711(b)(3)). In promulgating section 24.711(b)(3) the

FCC stated:

Finally, we also agree with those commenters that suggest that interest on installments should be charged at a

rate no higher than the government's cost of money. We

recognize that, in addition to providing a source of financing that might not otherwise be available to small

entities, we should impose interest in a manner that is

designed to provide significant financial assistance to

small businesses. Accordingly, in order to ensure that

this government financing results in significant capital

cost savings to small businesses, we will impose interest

on installment payments equal to the rate for U.S. Treasury obligations of maturity equal to the license term.

This rate is generally lower than the prime lending rate

established by private banks.

Id. at 2390-91.1 The FCC consistently applied the Treasury

note rate in assigning installment payment interest rates.

__________

1 In 1995 the FCC amended section 24.711(b)(3) to provide for an

interest rate "based on the rate for ten-year U.S. Treasury obligations applicable on the date the license is granted." See Race

and Gender Based Provisions for Auctioning C Block Broadband

Personal Communications Services Licenses, 60 Fed. Reg. 37,786,

37,796 (1995) (codified at 47 C.F.R. s 24.711(b)(3)). The amended

USCA Case #99-1316 Document #521434 Filed: 06/06/2000 Page 3 of 8
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

See In re Implementation of Section 309(j) of the Communications Act--Competitive Bidding, Fifth Report and Order, 9

F.C.C.R. 5532, 5592-93 (1994) ("Interest will accrue at the

Treasury note rate."); In re Implementation of Section 309(j)

of the Communications Act--Competitive Bidding, Sixth Report and Order, 11 F.C.C.R. 136, 156-59 (1995), aff'd, Omnipoint Corp. v. FCC, 78 F.3d 620 (D.C. Cir. 1996) (Interest will

be charged "at a rate equal to ten-year U.S. Treasury obligations applicable on the date the license is granted.").

On September 17, 1996, after auction, the FCC granted

Omnipoint eighteen broadband PCS licenses for C Block

spectrum. As a qualifying small business Omnipoint was

eligible for government-sponsored financing of ninety per

cent of its winning bid obligation and a favorable interest rate

on its debt. See Second Report and Order, 9 F.C.C.R. at

2389-90; 47 C.F.R. s 24.711(b). At the time the "rate for

ten-year U.S. Treasury obligations" was 7%, set by the

August 1996 United States Treasury auction. As both sides

agree, however, the August 1996 Treasury auction was "unusual." In re Requests for Waiver of Section 24.711(b)(3) of

the Comm'n's Rules Establishing the Interest Rate on Installment Payments for C Block PCS Licensees, Memorandum Opinion and Order, 14 F.C.C.R. 9298, 9302 (1999).

Treasury auctions for ten-year notes are typically held in

February, May, August and November of each year using a

competitive bidding methodology.2 In 1996, however, for the

__________

version applies to Omnipoint. After a 1998 amendment not relevant

here, section 24.711(b)(3) now provides for an interest rate based on

the ten-year Treasury note "plus 2.5 percent." Competitive Bidding Process, 63 Fed. Reg. 2315, 2349 (1998) (codified at 47 C.F.R.

s 24.711(b)(3)).

2 The Treasury auctions ten-year notes by accepting investors'

written bids specifying the lowest asking yield and moving upward

until it raises a targeted amount of money. Each auction establishes a yield and a coupon rate. Treasury regulations define

"yield" as the "annualized rate of return to maturity on a note or

bond expressed as a percentage." 31 C.F.R. s 356.2. The coupon

rate, which a ten-year note bears, is "set at a 1/8 of one percent

USCA Case #99-1316 Document #521434 Filed: 06/06/2000 Page 4 of 8
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

first time since 1980, the Treasury Department auctioned tenyear notes in July and then reopened the July auction in

August. As a result, the August notes bore the coupon rate

of 7% from the July auction even though the rate in fact

reflected neither the August auction results, nor August

market conditions nor the government's actual cost of money--a yield of 6.535%. Instead, the bidders in the August

auction paid a premium for the ten-year notes. According to

Omnipoint, had the Treasury Department instead issued a

new security in August, "the average auction yield of 6.535%

would have dictated a coupon rate of 6.5% on the new

security." John Friel Decl. 2 (Dec. 11, 1996). On December

16, 1996 Omnipoint filed a request for waiver of section

24.711(b)(3), claiming that, because of the August auction's

"unusual circumstances," the FCC's use of the 7% coupon

rate contravened both its policy of setting interest rates at no

more than the government's cost of money and the public

interest. Omnipoint requested that the FCC instead apply a

6.5% interest rate based on the August auction's weighted

yield. The Bureau denied Omnipoint's waiver request and

the FCC, on June 2, 1999, affirmed the Bureau's denial.

Omnipoint then timely petitioned for review.

II.

The FCC interpreted "rate" as used in section 24.711(b)(3)

as the coupon rate and therefore applied the August auction's

7% coupon rate for ten-year notes to Omnipoint's installment

payments.3 See Memorandum Opinion and Order, 14

F.C.C.R. at 9303. Omnipoint contends that the FCC arbi-

__________

increment" which is "closest to, but not above, par when evaluated

at the weighted-average yield of awards to successful competitive

bidders." Id. s 356.20(b).

3 Omnipoint contends that the FCC arbitrarily interpreted "rate"

as the coupon rate instead of the yield. Such an argument,

however, is beyond the scope of a waiver request. See WAIT

Radio v. FCC, 418 F.2d 1153, 1158 (D.C. Cir. 1969) ("The very

essence of waiver is the assumed validity of the general rule, and

also the applicant's violation unless waiver is granted.").

USCA Case #99-1316 Document #521434 Filed: 06/06/2000 Page 5 of 8
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

trarily and capriciously denied its waiver request, ignoring

the required "hard look" standard. BellSouth Corp. v. FCC,

162 F.3d 1215, 1224-25 (D.C. Cir. 1999) (Waiver requests "are

not subject to perfunctory treatment, but must be given a

hard look.") (quotation omitted). According to the FCC

waiver rule:

The Commission may grant a request for waiver if it is

shown that:

(i) The underlying purpose of the rule(s) would not be

served or would be frustrated by application to the

instant case and that a grant of the requested waiver

would be in the public interest; or

(ii) In view of the unique or unusual factual circumstances of the instant case, application of the rule(s)

would be inequitable, unduly burdensome or contrary to

the public interest, or the applicant has no reasonable

alternative.

47 C.F.R. s 1.925(b)(3). Omnipoint assumes a "heavy" burden because "an agency's refusal to grant a waiver will not be

overturned unless the agency's reasons are so insubstantial as

to render that denial an abuse of discretion." Mountain

Solutions, Ltd., Inc. v. FCC, 197 F.3d 512, 517 (D.C. Cir.

1999) (quotations omitted). Furthermore, "the agency's strict

construction of a general rule in the face of waiver requests is

insufficient evidence of an abuse of discretion." Id. (citing

BellSouth, 162 F.3d at 1225).

Omnipoint argues that section 24.711(b)(3)'s underlying

purpose is to provide financing to C Block licensees at a rate

"no higher than the government's cost of money." The

record, however, does not support Omnipoint's "restricted

view of the Commission's goals and purposes." BellSouth,

162 F.3d at 1224. The FCC initially articulated its purpose

as "promoting economic growth and enhancing access to

telecommunications service offerings for consumers, producers, and new entrants." Second Report and Order, 9

F.C.C.R. at 2348. To that end the FCC allowed a small

business licensee to pay for its licenses in installment payments over the license term. See 47 C.F.R. s 24.711(b). The

USCA Case #99-1316 Document #521434 Filed: 06/06/2000 Page 6 of 8
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

FCC also "agree[d] with those commenters that suggest that

interest on installments should be charged at a rate no higher

than the government's cost of money." Second Report and

Order, 9 F.C.C.R. at 2390. But the FCC stopped short of

committing itself and ultimately retreated from the notion

that its purpose was to provide an interest rate no higher

than the government's cost of money. Instead, the FCC

considered section 24.711(b)(3) to represent "an identifiable

benchmark" for interest rates. Memorandum Order and

Opinion, 14 F.C.C.R. at 9303 ("The Commission has recognized that Treasury auctions provide an identifiable benchmark on which to base interest rates for installment payments, but may not always reflect the government's cost of

money.") (citing Amendment of Part 1 of the Comm'n's

Rules--Competitive Bidding Proceeding, Order, Memorandum Opinion and Order and Notice of Proposed Rulemaking,

12 F.C.C.R. 5686, 5709 (1997)). The FCC clarified that "[t]he

policy behind our installment payment plan was to facilitate

small business participation in our auction process by, among

other things, application of the low interest rates used in the

Treasury auctions." Id.; see also Second Report and Order,

9 F.C.C.R. at 2390-91 (FCC intended to provide financing "in

a manner that is designed to provide significant financial

assistance" at rates "generally lower than the prime lending

rate established by private banks."). The 7% interest rate,

while higher than the government's cost of money in August

1996, was nevertheless significantly lower than the 11.625%

interest rate private banks were then charging. See Memorandum Opinion and Order, 14 F.C.C.R. at 9303 n.39. We

conclude that the FCC reasonably determined that strict

adherence to section 24.711(b)(3) did not frustrate its underlying purpose to provide interest rates lower than those of

private banks.

Additionally, Omnipoint failed to show that its "unusual

factual circumstances" made the application of section

24.711(b)(3) to its installment payments inequitable or contrary to the public interest. Although the August 1996

Treasury auction was unusual, Omnipoint claims that its

additional $6 million dollar cost (over ten years) resulting

USCA Case #99-1316 Document #521434 Filed: 06/06/2000 Page 7 of 8
<<The pagination in this PDF may not match the actual pagination in the printed slip opinion>>

from the 0.5% interest rate difference harms the public

interest. Omnipoint cannot satisfy the public interest requirement, however, merely by "equat[ing] its own business

interest with the public interest." BellSouth, 162 F.3d at

1225. We conclude that the FCC did not abuse its discretion

in denying Omnipoint's request for a waiver from section

24.711(b)(3) in that it reasonably determined that "the Bureau

gave [Omnipoint's] waiver request a 'hard look' " and that

Omnipoint did not show how a waiver would serve the public

interest. Id. Accordingly, Omnipoint's petition for review of

the FCC's waiver denial is

Denied.

USCA Case #99-1316 Document #521434 Filed: 06/06/2000 Page 8 of 8