Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-96-01010/USCOURTS-caDC-96-01010-0/pdf.json

Parties Involved:
Directsat Corporation
Petitioner
EchoStar Satellite Corporation
Petitioner
Federal Communications Commission
Respondent
United States of America
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 1, 1996 Decided April 18, 1997

No. 96-1001

DIRECTV, INC., ET AL.,

PETITIONERS/APPELLANTS

v.

FEDERAL COMMUNICATIONS COMMISSION AND 

UNITED STATES OF AMERICA,

RESPONDENTS

MCI TELECOMMUNICATIONS CORPORATION, ET AL.,

INTERVENORS

Consolidated with

Nos. 96-1005, 96-1010, 96-1011

On Petitions for Review and

Notices of Appeal of Orders of the 

Federal Communications Commission

Lawrence S. Robbins argued the cause for petitioners/ 

appellants EchoStar Satellite Corporation, et al. With him 

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on the briefs were H. Thomas Byron, III, Charles G. Cole

and Philip L. Malet. William L. Fishman entered an appearance.

Maureen E. Mahoney argued the cause for petitioner 

DIRECTV, Inc., with whom James H. Barker, III, and Gary 

M. Epstein were on the briefs.

Daniel M. Armstrong, Associate General Counsel, Federal 

Communications Commission, argued the cause for 

respondents/appellees, with whom William E. Kennard, General Counsel, Roberta L. Cook, Counsel, Stewart A. Block, 

Counsel, Anne K. Bingaman, Assistant Attorney General, 

U.S. Department of Justice, Catherine G. O'Sullivan and 

Nancy C. Garrison, Attorneys, were on the brief.

Bruce J. Ennis, Jr. argued the cause for intervenor MCI 

Telecommunications Corporation, with whom Anthony C. Epstein was on the brief.

Before: GINSBURG, SENTELLE, and RANDOLPH, Circuit 

Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

GINSBURG, Circuit Judge: Before us are four consolidated 

petitions for review of the Federal Communications Commission's rules and regulations governing the distribution of 

Direct Broadcasting Satellite channels reclaimed from Advanced Communications Corporation. See Revision of Rules 

and Policies for the Direct Broadcast Satellite Service, Report and Order, 11 F.C.C.R. 9712 (1995) (DBS Order). Petitioners EchoStar Satellite Corporation, Directsat Corporation, and Direct Broadcasting Satellite Corporation (DBSC) 

challenge the Commission's decision to put up for competitive 

bidding certain DBS channels that the Commission reclaimed 

when it canceled a DBS permit held by Advanced Communications Corporation. The Commission had previously said 

that any reclaimed channels would be distributed pro rata 

among certain preexisting permittees, including the petitioners. The petitioners contend that the new auction rule is 

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impermissibly retroactive, arbitrary and capricious, and without statutory authority. EchoStar, Directsat, and DIRECTV 

also contend that it is arbitrary and capricious for the FCC to 

require that the winning bidder at the auction divest itself of 

its existing DBS channels. DIRECTV also challenges as 

arbitrary and capricious the Commission's decision not to 

adopt a rule restricting the ability of cable system operators 

to participate in the auction. The Commission, in addition to 

opposing the petitioners' contentions on the merits, maintains 

that the petitioners lack standing to challenge the structural 

rules of the auction. MCI Telecommunications Corporation, 

a successful bidder at the auction, has intervened in support 

of the FCC.

We hold that the Commission's decision to adopt an auction 

rule was neither retroactive (let alone impermissibly retroactive), nor arbitrary and capricious, nor without statutory 

authority. In addition we hold that DIRECTV has standing 

to petition for review of the divestiture rule, but we deny its 

petition on the merits.

I. BACKGROUND

DBS is a radio communication service that uses satellites in 

geostationary orbits to transmit multiple channels of video 

programming directly to 18-inch satellite dishes located at 

the premises of subscribers. Pursuant to an agreement 

among the nations of the Western Hemisphere, the United 

States has been allocated eight orbital locations for domestic 

DBS transmission. These are located at 61.5E, 101E, 110E, 

119E, 148E, 157E, 166E, and 175E Western Longitude. Each 

orbital position contains 32 channels, each of which, with 

current technology, is capable of simultaneously transmitting 

from five to seven video programs. See Revision of Rules 

and Policies for the Direct Broadcast Satellite Service, Notice 

of Proposed Rulemaking, 11 F.C.C.R. 1297 ¶ 5 (1995) 

(NPRM). Only the 101E, 110E, and 119E W.L. orbital locations 

are capable of transmitting a "full-CONUS" signal, i.e., one 

that reaches the entire continental United States. The four 

U.S. orbital positions located at 148E, 157E, 166E, and 175E W.L. 

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can be used to transmit to the western United States, and 

signals from the orbital position located at 61.5E W.L. reach 

the eastern United States. Signals from these orbital positions are called "half-CONUS" signals. At present an 18-

inch DBS satellite dish is not capable of receiving transmissions from more than one orbital location.

There are now only a few DBS systems in operation. 

DIRECTV and USSB both offer full-CONUS service from 

their respective channels located on the satellite at 101E W.L. 

Because these two companies offer non-overlapping programming, they are complementary and not competitive services, 

and many customers subscribe to both of them. EchoStar 

and Directsat, subsidiaries of the same parent company, have 

combined their channels on the full-CONUS satellite at 119E

W.L. and together transmit approximately 126 channels of 

video programming. DBSC is constructing a 32-transponder 

satellite from which it expects to begin full-CONUS service 

later this year. In addition, there are two companies that 

offer "DBS-like" programming. PrimeStar Partners, L.P., a 

joint venture of six cable companies and GE American Communications, broadcasts from satellites in the Fixed Satellite 

Service, which requires that a subscriber use a 36-inch or 40-

inch satellite dish. Although PrimeStar offers programming 

that is similar to that of the DIRECTV/USSB combine, it has 

less than half the channel capacity. AlphaStar, a Canadian 

firm, is reportedly scheduled to transmit, using FSS frequencies, roughly 90 channels of programming to U.S. subscribers 

with a 24-inch satellite dish.

Applications for DBS channels are considered mutually 

exclusive when the requests for channels exceeds the available supply. Although an applicant may request a specific 

channel assignment, "[t]he Commission ... generally consider[s] all frequencies and orbital positions to be of equal value, 

and conflicting requests for frequencies and orbital positions 

will not necessarily give rise to comparative hearing rights as 

long as unassigned frequencies and orbital slots remain." 47 

C.F.R. § 100.13(b). Until recently, the only ways in which 

the FCC could assign DBS channels among mutually exclusive applicants was through a comparative hearing or a 

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lottery. Now the Commission may, under certain circumstances, choose to auction DBS channels. See 47 U.S.C. 

§ 309(j). No matter which method the FCC uses to assign 

channels, however, a successful applicant is granted its permit 

subject to due diligence requirements: the permittee must (1) 

"complete contracting for construction of the satellite station(s) within one year of the grant of the construction 

permit," and (2) begin operating its system "within six years 

of the construction permit grant." 47 C.F.R. § 100.19(a). In 

addition, any party that receives a new or additional DBS 

permit after January 19, 1996 must (3) complete construction 

of its satellite within four years of receiving its construction 

permit. § 100.19(b). Once it is determined that a permittee 

has satisfied the first due diligence requirement, the FCC 

assigns specific orbital positions upon a first-come, firstserved basis. See In the Matter of Advanced Communications Corp., 11 F.C.C.R. 3399 ¶ 6 (1995), aff'd, 84 F.3d 1452 

(D.C. Cir. 1996) (per curiam). If a permittee does not timely 

reach the construction and operation milestones, its permit is 

subject to cancellation.

The FCC granted the first permits for the construction of 

DBS satellites in 1982; prior to the auction at issue here, the 

FCC had conducted five processing rounds for DBS applicants. Id. at ¶ 7. In 1988 the fifth processing round began 

when EchoStar applied for 16 orbital channels. Four other 

companiesTEMPO Satellite, Directsat, DBSC, and Dominionthereafter filed competing applications, and three more 

companiesUSSB, Hughes Communications Galaxy (parent 

of DIRECTV), and Advanced Communications Corporation

filed mutually exclusive applications to modify their existing 

permits.

In 1989 the FCC determined that each of the applicants 

except TEMPO was qualified to hold a DBS permit. Continental Satellite Corp., 4 F.C.C.R. 6292 ¶ 54 (1989). The 

Commission withheld consideration of TEMPO's application 

pending further review of its qualifications. Id. at ¶ 53. This 

processing round was the first time that the number of 

channels for which there were requests exceeded the number 

available. See Advanced, 11 F.C.C.R. 3399 ¶ 7. What to do? 

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A comparative hearing "would likely result in considerable 

delay and the expenditure of substantial Commission and 

applicant resources." Continental, 4 F.C.C.R. at ¶ 55. Instead, therefore, the Commission decided to grant each application "to the extent that it is possible to award an equal 

number of general orbital/channel reservations to each applicant." Id. at ¶ 54. The agency held in reserve a sufficient 

number of channels in order to satisfy TEMPO's request prorata, pending the outcome of further inquiry into its qualifications. Id. at ¶ 53. In addition, the agency declared that the 

permittees would "receiv[e] a reservation," id. at ¶ 4, for a 

share of any channels that were surrendered or canceled in 

the future:

[I]n the event the permit of any of these applicants, or 

any of the current permittees, is surrendered or canceled, the remaining permittees from this group will have 

the first right to additional allocations, apportioned 

equally, up to the number requested in their applications. 

Specific allocations will be awarded, as always, on a firstcome, first-served basis, as each applicant demonstrates 

due diligence.

Id. at ¶ 54; see also ¶ 64.

EchoStar, Directsat, DBSC, Hughes, Continental, and Advanced each received a permit to provide service to the 

continental United States on 11 paired half-CONUS channels 

or on 11 full-CONUS channelsfive channels fewer than any 

of them had requestedand USSB received the eight paired 

channels for which it had applied. Id. at WW 64-70. Three 

years later the FCC determined that TEMPO was also 

qualified and issued it a permit for 11 channels. See TEMPO 

Satellite, Inc., 7 F.C.C.R. 2728 (1992).

All of the Continental permittees eventually satisfied the 

first due diligence requirement and were assigned specific 

orbital positions on a first-come, first-served basis. As a 

result of these assignments (and of assignments made in prior 

rounds of distribution) the full-CONUS channels were held as 

follows:

101E W.L.: DIRECTV 27 USSB 5

110E W.L.: ACC 27 USSB 3 Directsat 1 Unassigned 1

119E W.L.: Directsat 10 TEMPO 11 EchoStar 11

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In 1995 the FCC canceled ACC's permit for 27 channels at 

the 110E W.L. full-CONUS orbital location and 24 channels at 

the 148E W.L. half-CONUS orbital location because ACC had 

not constructed and begun operating its satellite within six 

years of receiving its permit, as required by the second due 

diligence requirement. Advanced, 11 F.C.C.R. 3399. In the 

order announcing its decision to reclaim ACC's channels, the 

FCC stated that it would soon

initiate a rulemaking to establish a new methodology for 

reassigning DBS channels and orbital positions that become available as a result of either cancellation by the 

Commission or surrender by permittees. Our thinking 

at this point is that opening a window for new applications for DBS authorizations for these channels (and 

orbital positions), and then deciding among mutually 

exclusive applications by auction, will best serve the 

public interest.

Id. at ¶ 3. Less than two weeks later the Commission 

formally proposed to assign the channels reclaimed from ACC 

through an auction pursuant to 47 U.S.C. § 309(j). NPRM at 

¶ 3.

In the NPRM the Commission explained its concern that 

the pro rata distribution scheme announced in Continental

was out-moded. At the time of its decision in Continental,

"DBS systems were conceived as systems employing fewer 

than ten channels, and were authorized as such." NPRM at 

¶ 13. The Commission was not then authorized to use an 

auction to distribute channels and "had only a limited range 

of options and no operational history upon which to base 

public interest determinations as to the future of DBS service." Id. at ¶ 9. In light of technological improvements in 

cable service and of experience with an operating DBS system, however, the Commission had come to believe that such 

small scale operations were no longer viable. Id. at ¶ 13. 

The Continental policy "would result in too few channels 

divided among six permittees to provide sufficient capacity to 

operate a viable system by any single permittee at either 

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location and thus would not facilitate service to the public as 

we had hoped." Id. at ¶ 12. There would be significant 

delays, the Commission predicted, as the permittees negotiated over the aggregation of channels into blocks large enough 

to be competitive. Id. at ¶ 15.

The Commission's tentative view was that an auction would 

best serve the public interest. The Commission indicated 

that if it did conduct an auction, then it might implement 

certain rules including, in order to promote competition, a 

limit upon the number of full-CONUS channels that a single 

entity could control. NPRM at WW 33-43. The FCC suggested that "any DBS licensee or operator affiliated with another 

[multiple video programming distributor or MVPD] be permitted to control or use DBS channel assignments at only one 

of the orbital locations capable of full-CONUS transmission." 

Id. at ¶ 40. The Commission also requested comments on 

whether to subject cable operators to more stringent restrictions than other MVPDs. Id. In addition, the Commission 

proposed to bar any permittee from aggregating more than 

32 full-CONUS channels. Id. at ¶ 42.

In commenting upon the NPRM five of the six firms 

covered by the Continental orderEchoStar/Directsat, 

TEMPO, Continental, and DBSCopposed abandonment of 

the pro rata assignment scheme adopted in Continental.

TEMPO protested that the Continental policy would have 

worked had the Commission not "frustrated the parties' 

efforts to explore and consummate beneficial arrangements 

through its failure to approve transactions that would expedite service and its protracted delays in processing routine 

applications and due diligence showings." Comments of 

TEMPO DBS, Inc. 5 (Nov. 20, 1995).

EchoStar, Directsat, DBSC, and Continental suggested 

that by reshuffling channel assignments the Commission 

could create viable blocks of channels while adhering to the 

distribution methodology contemplated in the Continental

order. In their joint comments on the NPRM EchoStar and 

Directsat specifically proposed that the Commission permit 

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nels with their existing channel assignments to produce the 

following result:

61.5E W.L.: DBSC 16 Continental 16

101E W.L.: DIRECTV 27 USSB 5

110E W.L.: DIRECTV 5 USSB 3 TEMPO 16 Dominion 8

119E W.L.: Directsat 16 EchoStar 16

EchoStar/Directsat argued that with this distribution all the 

full-CONUS channels would be in use by 1997. In contrast, 

they contended, an auction would delay service from the 110E

W.L. orbital location and would not solve the problem of 

orphaned channel assignments. EchoStar/Directsat suggested that the Commission give the Continental permittees 90 

days to submit joint or separate proposals for reassigning 

channels in keeping with the Continental pro rata methodology. DBSC proposed the same assignments with one minor 

difference: DIRECTV could receive five additional channels 

either at 110E W.L., as EchoStar/Directsat proposed, or at 

61.5E W.L.

Continental's proposal was the same as those of EchoStar/Directsat and DBSC, except that it would not grant 

DIRECTV any of the reclaimed channels. Continental's 

proposal was based upon the assumption that the Commission 

would adopt a rule prohibiting any DBS service provider from 

operating full-CONUS channels from more than one orbital 

location. Continental therefore suggested that the Commission assign the channels at 110E W.L. as follows: Continental 

21, USSB 3, and Dominion 8.

For its part, DIRECTV said that although it was "on 

record with the Commission as opposing the general use of 

competitive bidding with respect to satellite licensing," it 

believed that an auction "may be" the most efficient and rapid 

means of reassigning ACC's channels. Comments of 

DIRECTV, Inc. 2 (Nov. 20, 1995). DIRECTV was more 

concerned about some of the rules the FCC had proposed for 

implementing an auction and for providing service thereafter, 

particularly its proposal to prohibit a DBS service provider 

from aggregating more than 32 full-CONUS channels. That 

rule, DIRECTV claimed, would effectively prevent it from 

participating in the auction because it already controlled 32 

channels. DIRECTV argued that such a limitation would be 

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appropriate "only where the acquisition of such a spectrum 

would lead to or increase a particular MVPD's exercise of 

market power." Id. at 3. DIRECTV asserted that because 

it had only a 1.5% of the MVPD market, it could not exercise 

market power even if it obtained ACC's channels at the 110E

W.L. orbital position, while cable operators, with 94% of the 

MVPD market, already exercise market power.

In the end, the Commission decided that it was in the 

public interest to abandon the pro rata distribution policy of 

Continental and that it had the authority instead to auction 

off the channels sought by mutually exclusive applicants. For 

the auction of the reclaimed ACC channels the Commission 

adopted a rule requiring the successful bidder to divest within 

one year any full-CONUS channels it had prior to the auction. 

DBS Order ¶ 62. The Commission decided not to adopt some 

of the other rules it had proposed in the NPRM, such as one 

placing special limitations upon cable operators entering the 

DBS market. Id. at WW 73-76.

In February 1996 the FCC auctioned off the ACC channels. 

MCI, TCI, and EchoStar each bid on 28 channels in the 110E

W.L. orbital location, and MCI prevailed with a bid of more 

than $682 million. MCI and EchoStar each bid for 24 

channels located in the 148E W.L. orbital location, and EchoStar prevailed with a bid of $52.3 million.

II. ANALYSIS

EchoStar, Directsat, and DBSC challenge the Commission's decision to distribute the reclaimed ACC channels by 

auction on the grounds that it is unlawfully retroactive and 

without statutory authority and that the abandonment of the 

Continental policy in favor of an auction was arbitrary and 

capricious. EchoStar and Directsat also join DIRECTV's 

challenge to the divestiture rule; DIRECTV alone opposes as 

arbitrary and capricious the Commission's decision not to 

adopt a rule restricting the participation of cable operators in 

the auction. We will first consider the Commission's decision 

to distribute channels by auction and then turn to the auction 

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rules, starting with the petitioners' standing to challenge 

them.

A. Is the rule retroactive?

EchoStar, Directsat, and DBSC contend that the Commission's decision to assign DBS channels by auction is "primarily retroactive" and hence unlawful because it divests them 

each of the right to a pro-rata share of the ACC channels, a 

right that they had been given in the Continental order. 

They also charge the new rule with "unreasonable secondary 

retroactivity" because it comes after they invested millions of 

dollars in the construction of satellites with additional capacity in reliance upon the reassignment policy announced in 

Continental. In response the FCC argues that the auction 

rule is not primarily retroactive because the rule applied by 

its terms only prospectively, and not secondarily retroactive 

because the petitioners did not reasonably rely upon the 

Continental policy. Meanwhile, MCI contends that the petitioners' retroactivity argument is not properly before us 

because the petitioners never presented it to the Commission.

Although the petitioners raised only the issue of secondary 

retroactivity in their initial comments before the Commission, 

in its final order the Commission also considered whether the 

auction rule is primarily retroactive. Specifically, the Commission said that the new auction rule is not impermissibly 

retroactive because it

applies to those [channels] currently available and those 

that may become available in the future. While this 

action modifies existing permits in a way that disrupts 

the permittees' expectations, it does not make past behavior unlawful or otherwise impose a penalty for past 

actions and thus does not have an impermissible retroactive effect.

DBS Order at ¶ 143. The petitioners' retroactivity argument 

is not barred by 47 U.S.C. § 405, therefore, on the ground 

that the Commission had no opportunity to address it. Moreover, we have often excused a party's failure to raise an issue 

before an agency if, as here, the agency has in fact considered 

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the issue, see, e.g., Engine Mfrs. Ass n v. EPA, 88 F.3d 1075, 

1084 (D.C. Cir. 1996); Natural Resources Defense Council v. 

EPA, 824 F.2d 1146, 1151 (D.C. Cir. 1987) (citing cases); and 

so to the merits.

The petitioners contend that the auction rule is retroactive 

because under Continental they had a right to receive a share 

of any forfeited or surrendered channels, and the Commission's decision to auction those channels impaired, indeed 

deprived them of, this right. Under Landgraf v. USI Film 

Prods., 114 S. Ct. 1483, 1505 (1994), there are three ways in 

which a rule can be retroactive: if it "impair[s] rights a party 

possessed when he acted, increase[s] a party's liability for 

past conduct, or impose[s] new duties with respect to transactions already completed." As we see it, the rule is not 

retroactive in any of these three ways. The Continental

order did not give the petitioners the right to any specific 

channel; it merely set out the Commission's plan for the 

distribution of reclaimed channels, should there ever be any. 

In this regard Continental was itself entirely prospective: it 

set forth what the FCC intended to do if a certain condition 

were to arise, which it later did when the Commission reclaimed ACC's channels. Although the petitioners may reasonably have expected that, under the Continental rule, they

would receive a pro rata portion of any channels the Commission reclaimed, a new rule or law is not retroactive "merely 

because it ... upsets expectations based on prior law." 

Landgraf, 114 S. Ct. at 1499. As the Supreme Court has 

explained: "Even uncontroversially prospective statutes may 

unsettle expectations and impose burdens on past conduct: a 

new property tax or zoning regulation may upset the reasonable expectations that prompted those affected to acquire 

property; a new law banning gambling harms the person who 

had begun to construct a casino before the law's enactment or 

spent his life learning to count cards." Id. at 1499 n.24.

Petitioners contend that even if the rule is not retroactive 

within the meaning of Landgraf it is nonetheless invalid on 

the ground that abandoning the Continental policy in favor of

an auction was "secondarily retroactive." See Bowen v. 

Georgetown Univ. Hosp., 488 U.S. 204, 220 (1988) (Scalia, J., 

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concurring). In particular they claim to have spent millions 

of dollars building satellites with transponders for more channels than they had been assigned, relying upon the pro rata 

distribution policy of Continental. But we have never treated 

that sort of "retroactivity" as necessarily violating a separate 

legal standard. A rule that upsets expectations, as we held in 

Bell Atlantic Telephone Cos. v. FCC, 79 F.3d 1195, 1207 (D.C. 

Cir. 1996), may be sustained "if it is reasonable," i.e., if it is 

not "arbitrary" or "capricious." A change in policy is not 

arbitrary or capricious merely because it alters the current 

state of affairs. The Commission "is entitled to reconsider 

and revise its views as to the public interest and the means 

needed to protect that interest," Black Citizens for a Fair 

Media v. FCC, 719 F.2d 407, 411 (D.C. Cir. 1983), if it gives a 

reasoned explanation for the revision. Whether the Commission's rule is arbitrary and capricious is the issue to which we 

now turn.

B. Is the rule arbitrary and capricious? 

EchoStar, Directsat, and DBSC argue that the FCC's 

decision to reassign the reclaimed DBS channels by auction 

was arbitrary and capricious because the Commission gave 

short shrift to the alternative of retaining the pro rata 

methodology of Continental and because its decision to auction the channels was substantively unreasonable.

Under the arbitrary and capricious standard of review, of 

course, we do not "substitute [our] judgment for that of the 

agency." Motor Vehicle Mfrs. Ass'n of the United States, 

Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). 

Rather, the Commission has wide latitude to change its 

policies through rulemaking "as long as it provides a reasoned 

explanation for doing so." Committee for Effective Cellular 

Rules v. FCC, 53 F.3d 1309, 1317 (D.C. Cir. 1995). We look 

to see only "whether the decision was based on a consideration of the relevant factors and whether there has been a 

clear error of judgment." State Farm, 463 U.S. at 43.

In its final order the FCC concluded that assigning reclaimed DBS channels pro rata would not serve the public 

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interest and that a competitive bidding process would. DBS 

Order at WW 134-36. The Commission reasoned that an auction would place the channels in the hands of the persons who 

value them most highly and are most likely to promote the 

prompt provision of DBS service. Id. at ¶ 136. The Commission explained that the pro rata approach adopted in Continental "was based upon a conception of DBS service that has 

not been put into practice." Id. at ¶ 134. Because cable 

operators are now promising to deliver as many as 500 

channels, the Commission said, "DBS licensees with a small 

number of channels face capacity limitations that may hamper 

their ability to compete effectively in that market." Id.

Under the pro rata approach, the ACC channels would be 

divided among six permittees that, the Commission was concerned, would not be able to use them effectively or efficiently:

In order to aggregate sufficient channels to support a 

viable DBS service, these permittees would have to negotiate some form of agreement for joint operations from 

110E, or else work out a system of channel swaps to 

consolidate assignments. The process necessary in either case is often a time consuming one that is not 

always successful, which is further complicated by the 

time required for Commission consideration and approval 

of the resulting transactions.

Id. at ¶ 135.

In view of the agency's discussion of the relative merits of 

the alternatives before it, we cannot say that the Commission's decision to abandon the Continental policy in favor of

an auction was arbitrary and capricious. First, contrary to 

the petitioners' claim, the Commission did seriously consider 

the various proposals for channel reassignments that some of 

the Continental permittees presented to it. The Commission 

reasonably concluded that the process required to get all of 

the Continental permittees, with their divergent interests, to 

agree to any rearrangement of the DBS channel spectrum 

would be "a time-consuming one," id. at ¶ 135, that would be 

"further complicated by the time required for Commission 

consideration and approval of the resulting transactions," id.

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at ¶ 147. At no point during the rulemaking (or indeed to 

date) have the petitioners presented a consensus proposal for 

the reassignment of ACC's reclaimed channels. Although 

EchoStar, Directsat, DBSC, and Continental presented similar proposals for the reassignment of the ACC channels 

among the Continental permittees, DIRECTV and TEMPO 

did not support their proposals. Nor is that surprising: the 

other permittees' proposed reassignments would improve 

EchoStar's competitive position by giving it an entire 32-

channel full-CONUS orbital position, require TEMPO to 

move from the 119E to 110E W.L. orbital position so that 

EchoStar could take over its former slots, and give 

DIRECTV a possibly nonviable allocation of five channels at 

either 110E or 61.5E W.L.

Second, the Commission reasonably concluded that it would 

be in the public interest to award ACC's channels to the 

highest bidder in a block large enough to provide competitive 

DBS service. The Commission noted that auctioning the 

channels in blocks "obviate[s] the need for reaggregation and 

allow[s] the auction winners to proceed directly to acquisition 

or construction of satellites and operation of their systems 

without having to negotiate with other permittees or engage 

in several rounds of administrative processing." DBS Order

at ¶ 136. In addition, the Commission explained, the auction 

rule would promote the rapid development of DBS service:

Paying for spectrum provides incentives for permittees 

to construct quickly in order to obtain a return on their 

investment. Indeed, an auction is likely to promote the 

rapid development of service because those parties that 

are in the best position to deploy technologies and services are also likely to be the highest bidders.

Id. at ¶ 160; see also NPRM at ¶ 16 ("[A]uction procedures 

are designed to assign scarce resources to those who value 

them most highly and can make the most efficient use of 

them.").

In sum, the Commission did not lightly reject the Continental order, nor did it fail to give a reasoned explanation of 

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est in the efficient and prompt usage of the limited DBS 

spectrum. Therefore, we reject the petitioners' claim that 

the Commission acted arbitrarily and capriciously in abandoning the Continental pro rata methodology in favor of competitive bidding.

C. Is there statutory authority for the rule?

The FCC may conduct an auction only "[i]f mutually exclusive applications are accepted for filing for any initial license 

or construction permit which will involve a use of the electromagnetic spectrum," 47 U.S.C. § 309(j)(1), and if the FCC 

finds that an auction would promote the following statutory 

objectives:

(A) the development and rapid deployment of new technologies, products, and services for the benefit of the 

public, including those residing in rural areas, without 

administrative or judicial delays;

(B) promoting economic opportunity and competition and 

ensuring that new and innovative technologies are readily accessible to the American people by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including 

small businesses, rural telephone companies, and businesses owned by minority groups and women;

(C) recovery for the use of the public of a portion of the 

value of the public spectrum resource made available for 

commercial use and avoidance of unjust enrichment 

through the methods employed to award uses of that 

resource; and

(D) efficient and intensive use of the electromagnetic 

spectrum.

47 U.S.C. § 309(j)(3). Subparagraph 309(j)(6)(E) also provides, however, that "[n]othing in this subsection [309(j)], or 

in the use of competitive bidding, shall ... be construed to 

relieve the Commission of the obligation in the public interest 

to continue to use engineering solutions, negotiation, threshold qualifications, service regulations and other means in 

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order to avoid mutual exclusivity in application and licensing 

proceedings."

For openers the petitioners argue that the Commission 

lacked authority to adopt an auction rule under § 309(j) 

because it did not first make sufficient efforts, while still 

using the Continental approach to the assignment of licenses, 

to avoid mutual exclusivity among their applications. The 

problem with the petitioners' argument is that the Commission abrogated the Continental methodology before it 

adopted the auction rule in its stead. Once the Commission 

had abandoned the Continental methodologyfor sufficient 

reasons, as we have seenit was faced with mutually exclusive applications. Nothing in § 309(j)(6)(E) requires the 

FCC to adhere to a policy it deems outmoded "in order to 

avoid mutual exclusivity in ... licensing proceedings"; rather, that provision instructs the agency, in order to avoid 

mutual exclusivity, to take certain steps, such as the use of an 

engineering solution, within the framework of existing policies.

The petitioners also claim that the Commission lacked 

authority to adopt the auction rule because it was not assigning "initial" permits, within the meaning of § 309(j)(i), for the 

former ACC channels. This argument would have merit if, 

but only if, the Commission had improperly abandoned the 

Continental policy. Under that policy the Continental permittees would have had the right to receive a pro rata portion 

of the ACC channels, and the Commission would have had to 

issue them modified permits reflecting the additional channels. As we have seen, however, the Commission did not 

improperly abandon the Continental policy; it was reasonable 

in concluding, therefore, that any permits issued for the 

reclaimed ACC channels would be "initial" permits under 47 

U.S.C. § 309(j)(1). See Chevron USA, Inc. v. Natural Resources Defense Council Inc., 467 U.S. 837 (1984).

We also reject the petitioners' argument that the Commission violated its own cut-off rules for the processing of license 

applications by reopening the Continental processing round 

without first disposing of the requests of applicants who had 

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filed before the cut-off date. The Continental processing 

round concluded long ago, when the Commission assigned all 

the DBS channels then available and announced the policy of 

pro rata reassignment for any DBS channels that might be 

reclaimed in the future. When it later decided to abandon 

the pro rata policy, the Commission did not reopen a previously closed processing round; the agency merely reconsidered its method of distributing DBS channels in the light of 

later developments.

Finally, the petitioners contend that the auction rule does 

not foster "the development and rapid deployment of new 

technologies, products, and services" and the "efficient and 

intensive use of the electromagnetic spectrum," as required 

by the Communications Act, 47 U.S.C. § 309(j)(3). As we 

stated earlier, howeverin the course of determining that the 

Commission was not arbitrary and capricious in adopting the 

auction rule (see Part II.B, above)the Commission reasonably concluded that a competitive bidding process would in 

fact promote these objectives.

D. Are the structural rules arbitrary and capricious?

Finally we turn to the petitioners' challenges to the structural rules for the auction of the reclaimed ACC channels. 

EchoStar/Directsat and DIRECTV contend that the Commission acted arbitrarily and capriciously in adopting the divestiture rule, while DIRECTV additionally challenges the FCC's 

decision not to restrict the participation of cable companies or 

their affiliates in the auction. The FCC responds first that 

the petitioners lack constitutional standing to bring these 

challenges to the structural rules, and second that the court 

should reject them on their merits.

1. The petitioners' standing

In order to have Article III standing a party must demonstrate three things: injury in fact, a causal relationship 

between that injury and the conduct under challenge, and a 

likelihood that a favorable decision will redress the injury. 

United Food and Commercial Workers Union Local 751 v. 

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Brown Group, Inc., 116 S. Ct. 1529, 1533 (1996). The Commission contends that the petitioners are unable to satisfy any 

of these three requirements.

First, the Commission argues, the petitioners cannot show 

any injury because none of them is required by the rule to 

divest any channels: DIRECTV and Directsat because they 

did not participate in the auction, and EchoStar because it 

was outbid. Second, the FCC claims EchoStar's participation 

in the auction undermines DIRECTV's argument that it 

would have participated but for the deterrent effect of the 

divestiture rule; DIRECTV could have entered the auction 

and, if the high bidder, then challenged the divestiture rule. 

Finally, the FCC argues that re-running the auction sans the 

divestiture rulewhich is the relief the petitioners seek

would not avail them unless they can show that they would 

then submit the highest bid.

EchoStar/Directsat did not respond to the Commission's 

argument against their standing, which we therefore take as 

conceded. Accordingly, we consider only the standing of 

DIRECTV to challenge the divestiture rule and the Commission's decision not to restrict the participation of the cable 

industry.

What is the nature of DIRECTV's injury? As we have 

explained before, the standing of an unsuccessful bidder for a 

government contractwhich is in a position analogous to an 

unsuccessful bidder at a government auctionmay be established by reference either to its lost profits or to its right to a 

legally valid procurement process. See Scheduled Airlines 

Traffic Offices, Inc. v. Department of Defense, 87 F.3d 1356, 

1358 (D.C. Cir. 1996); CC Distributors, Inc. v. United States,

883 F.2d 146, 151 (D.C. Cir. 1989). Here, DIRECTV's claim 

that the divestiture rule was an unlawful barrier to its 

participation in the auction entails the latter type of harm, 

and it "is obviously an injury both traceable to the alleged 

illegality in [the auction] and redressable by any remedy that 

eliminates the alleged illegality." National Maritime Union 

of America, AFL-CIO v. Commander, Military Sealift Com

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mand, 824 F.2d 1228, 1237-38 (D.C. Cir. 1987); see also 

Scheduled Airlines, 87 F.3d at 1359.

When the alleged injury is to the complainants' right to a 

fair procurement process, it need not, in order to show that it 

has been injured in fact, demonstrate that it would be successful if the contract were let anew. As the Supreme Court 

explained in Northeastern Florida Chapter of the Associated 

Gen. Contractors of America v. City of Jacksonville, 508 U.S. 

656, 666 (1993):

When the government erects a barrier that makes it 

more difficult for members of one group to obtain a 

benefit than it is for members of another group, a 

member of the former group seeking to challenge the 

barrier need not allege that he would have obtained the 

benefit in order to establish standing. The "injury in 

fact" ... is the denial of equal treatment from the 

imposition of the barrier, not the ultimate inability to 

obtain the benefit.

Accord Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097, 

2105 (1995); Regents of Univ. of California v. Bakke, 438 

U.S. 265 (1978). In the present context, if DIRECTV was 

injured by the denial of an opportunity to compete upon valid 

terms, then it need show only that it was "able and ready to 

bid [on the channels] and that the [rule] prevent[ed] it from 

doing so on an equal basis." Associated Gen. Contractors,

508 U.S. at 666.

According to the Commission, nothing in the rule prevented 

DIRECTV from participating in the auction. But the FCC 

reads the rule as though it operated in a vacuum, without 

touching or being touched by the world around it. If 

DIRECTV had bid and prevailed at the auction, it would have 

been required to divest itself of the substantial block of fullCONUS channels it holds at the 101E W.L. orbital location

unless it could get the rule declared unlawful. Failing that, 

moreover, it would surely have realized less on the sale than 

it had just paid for comparable channels; by hypothesis no 

one else was willing to pay as much at the auction. The rule 

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advantage vis-a-vis other bidders, which did not have to take 

the risk that their successful bid would be but a costly 

misstep.

The Supreme Court confronted a similar situation in Clements v. Fashing, 457 U.S. 957 (1981). Officeholders challenged a provision of the state constitution that required an 

incumbent to resign his present office in order to become a 

candidate for another office. The Court held that although 

none of them had actually announced his candidacy, the 

officeholders' injury was not hypothetical because they "ha[d] 

alleged in a precise manner that, but for the sanctions of the 

constitutional provision they seek to challenge, they would 

engage in the very acts that would trigger the enforcement of 

the provision." Id. at 962. Just as the automatic resignation 

rule in Clements served as a very real "obstacle to [the 

officeholders'] candidacy for higher judicial office," id., the 

divestiture rule here challenged, as a practical matter, precluded DIRECTV from participating in the auction.

Finally, we reject the Commission's argument that the 

redressability of DIRECTV's injury is speculative. As we 

have said, DIRECTV need not prove that it would win a new 

auction conducted without the divestiture rule. An opportunity to bid for the full-CONUS channels reclaimed from ACC 

in a legally valid bidding contest would "afford [DIRECTV] 

just that opportunity the loss of which constitutes [its] injury." CC Distributors, 883 F.2d at 151; see also Scheduled 

Airlines, 87 F.3d at 1359 (provision of a legally valid procurement process would redress alleged injury).

On the other hand, DIRECTV does not have standing to 

challenge the Commission's decision not to restrict the participation of the cable industry in the auction of the DBS 

channels reclaimed from ACC. Only one cable company 

(TCI) bid, and it was not the highest bidder. Therefore, 

DIRECTV has not shown that the Commission's decision 

caused it any injury, and it is merely speculation that, if the 

auction were rerun (because DIRECTV prevailed on its 

objection to the divestiture rule), the petitioner would be 

outbid by a cable operator.

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2. The merits of the petitioners' claims

On the merits DIRECTV contends that the FCC's decision 

to adopt the divestiture rule was unlawful because the rule 

does not further the Commission's stated objectives and is 

based upon a faulty economic analysis. The Commission 

stated that it wants to promote competition in the DBS 

market, but according to DIRECTV it adopted a rule that 

effectively excluded from the auction noncable companies, 

which have virtually no market power, while inviting bids 

from cable companies, which dominate the MVPD market.

The Commission contends that DIRECTV's focus upon 

market power is misguided. As the Commission explained in 

the DBS Order, its "concern is not that a DBS firm might 

obtain market power; rather, [its] goal is to foster rivalry 

among MVPDs by promoting rivalry within the DBS service." 

DBS Order at ¶ 64. In its final order the Commission 

explained that although DBS and other MVPDs may in the 

future compete directly, they do not do so now. DBS services are promoted "as higher-quality, higher-priced options 

targeted at those consumers that live outside cable markets 

or have strong preferences for niche programming, a large 

number of channels, and/or digital quality video signals." Id.

at ¶ 48. Because DBS and cable are not yet in direct 

competition, the Commission thought it important for now to 

promote competition within the DBS service. Id. at WW 48-49. 

The Commission concluded that it could best do this by 

"encouraging the emergence of an additional [i.e. third] fullCONUS DBS competitor unrelated to existing DBS fullCONUS providers." Id. at ¶ 61.

Thus do we see that the Commission did not adopt the 

divestiture rule arbitrarily and capriciously. Rather the 

Commission recognized that DBS operators might compete 

head-to-head with cable systems and other MVPDs but 

thought it more important, for the nonce, to get for consumers the benefit of additional competition among DBS providers. The divestiture rule was reasonably aimed at promoting 

that competition by fostering the development of a third 

independent and competitive provider of DBS service and 

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preventing the concentration of all the full-CONUS channels 

in only two firms.

III. CONCLUSION

In summary, we hold that the Commission's decision to 

assign DBS channels by auction is not retroactive, arbitrary 

and capricious, or without statutory authority; the Commission's one-time divestiture requirement was reasonable; and 

DIRECTV lacks standing to challenge the Commission's decision not to exclude cable operators from the auction of the 

channels reclaimed from ACC. Therefore the petitions to 

review the Commission's new rules and regulations for DBS 

are 

Denied.

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