Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-02-01269/USCOURTS-caDC-02-01269-0/pdf.json

Parties Involved:
Federal Communications Commission
Respondent
Self Communications, Inc.
Petitioner
United States of America
Respondent

Document Text:

Notice: This opinion is subject to formal revision before publication in the

Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify

the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 17, 2003 Decided November 21, 2003

Nos. 02–1208, 02–1269

SIOUX VALLEY RURAL TELEVISION, INC., ET AL.,

PETITIONERS,

v.

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA,

RESPONDENTS.

On Petitions for Review of an Order of the

Federal Communications Commission

Richard S. Myers argued the cause for petitioners.

Stewart A. Block, Counsel, Federal Communications Commission (‘‘FCC’’), argued the cause for respondents. With

him on the brief were Jane E. Mago, General Counsel, FCC,

and John E. Ingle, Deputy Associate General Counsel, FCC,

R. Hewitt Pate, Acting Assistant Attorney General, U.S.

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

USCA Case #02-1269 Document #786629 Filed: 11/21/2003 Page 1 of 20
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Department of Justice, and Robert B. Nicholson and Robert

Wiggers, Attorneys, U.S. Department of Justice.

Before: HENDERSON, TATEL, and ROBERTS, Circuit Judges.

Opinion for the Court filed by Circuit Judge ROBERTS.

ROBERTS, Circuit Judge: On July 28 and 29, 1994, the

Federal Communications Commission auctioned licenses for a

slender band of spectrum known as the Interactive Video and

Data Services (IVDS) spectrum (Auction No. 2). The IVDS

spectrum consists of two 500 kilohertz channels — 218.0–

218.5 MHz and 218.5–219.0 MHz — and Auction No. 2

distributed one license for each channel in 297 Metropolitan

Statistical Areas (MSAs) — a total of 594 licenses. The

petitioners were among Auction No. 2’s 178 winning bidders.

Petitioners seek review of a final order of the FCC that:

(1) eliminated a 25 percent bidding credit for businesses

owned by women or members of racial minorities; (2) established and retroactively applied a substantially similar bidding

credit to licensees that qualified as small businesses; and (3)

offered various options for licensees to restructure their

outstanding financial obligations to the Commission. See In

re Amendment of Part 95 of the Commission’s Rules to

Provide Regulatory Flexibility in the 218–219 MHz Service,

15 F.C.C.R. 1497 (1999) (Restructuring Order). Petitioners

contend that the Restructuring Order unlawfully limited the

bidding credit to small business licensees. Petitioner Celtronix also argues that the Commission arbitrarily rejected

Celtronix’s proposed restructuring options. We conclude that

the Restructuring Order was a lawful and reasonable exercise

of the Commission’s authority over spectrum auctions, and

accordingly deny the petitions for review.

I.

The Omnibus Budget Reconciliation Act of 1993, Pub. L.

No. 103–66, 107 Stat. 312, amended the Communications Act

to require the Commission to distribute spectrum licenses

‘‘through a system of competitive bidding.’’ See id. at

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§ 6002(a), 107 Stat. 388 (codified as amended at 47 U.S.C.

§ 309(j)(1)). Congress further required that the Commission,

in designing competitive bidding processes, ‘‘ensure that small

businesses, rural telephone companies, and businesses owned

by members of minority groups and women are given the

opportunity to participate in the provision of spectrum-based

services, and, for such purposes, consider the use ofTTTbidding preferencesTTTT’’ Id., 107 Stat. 389 (codified at 47

U.S.C. § 309(j)(4)(D)). Responding to this mandate, the

Commission established — for Auction No. 2 — a 25 percent

bidding credit for businesses owned by women or minorities1

that could be applied to one license in each MSA. See In re

Implementation of Section 309(j) of the Communications

Act — Competitive Bidding, 9 F.C.C.R. 2330, 2336 ¶ 36 (1994)

(Auction No. 2 Rules); 47 C.F.R. § 95.816(d)(1) (1994).2

 The

bidding credit operated to reduce the amount a winning

bidder owed the Commission by 25 percent.

The Commission also sought to assist small businesses by

allowing winning small business bidders3

 to make a 20 percent down payment and to pay the remaining 80 percent in

installments over the five-year term of the license. See

Auction No. 2 Rules, 9 F.C.C.R. at 2336 ¶ 36; 47 C.F.R.

§ 95.816(d)(3) (1994). Small businesses owned by women or

1 To qualify, women or minorities had to own and control at least

50.1 percent of outstanding shares and voting rights. See 47 C.F.R.

§ 1.2110(b)(2) (1994).

2 Under the procedures established by the Commission, the two

IVDS licenses in each market were auctioned simultaneously. The

two highest bidders were then awarded the two licenses, with the

high bidder given its choice of channels. See Auction No. 2 Rules,

9 F.C.C.R. at 2332 ¶ 13. Because the minority/female bidding

credit was available only for one license in each MSA, if both

winning bidders were owned by women or minorities, only the high

bidder received the bidding credit. Id. at 2336 ¶ 39 & n.65.

3 To qualify as a small business, the entity had to have less than

$6 million net worth and $2 million annual net profit each of the

previous two years. See Implementation of Competitive Bidding,

59 Fed. Reg. 22,980–01, 22,989 (May 4, 1994) (amending 47 C.F.R.

§ 1.2110(b)(1)).

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minorities were allowed to take advantage of both the minority/female bidding credit and the installment payment plan.

See Auction No. 2 Rules, 9 F.C.C.R. at 2337–39 ¶¶ 43–47, 53–

54; FCC Auction No. 2 Bidder Information Package —

Procedures, Terms and Conditions 10, available at http:

//wireless.fcc.gov/auctions/02/releases/2 Procedures.pdf (last

visited Nov. 21, 2003).

Of the 178 winning bidders, 164 qualified as small businesses; those small businesses won 557 of the 594 available

licenses. See FCC Auction No. 2 Results, available

at http://wireless.fcc.gov/auctions/02/charts/2market.xls (last

visited Nov. 21, 2003). One hundred and four winning bidders qualified for the minority/female bidding credit and

those businesses accumulated 291 licenses — nearly half of

the available total. Id. Every winning bidder who qualified

for the minority/female bidding credit also qualified for the

small business installment payment option. See Restructuring Order, 15 F.C.C.R. at 1534 ¶ 61. The Auction No. 2

experiences of certain petitioners illustrate the operation of

the different payment options:

1. Sioux Valley Rural Television was the high bidder in

the Rapid City, South Dakota MSA with a bid of $27,000.

See FCC Auction No. 2 Results. Because it was neither a

small business nor owned by women or minorities, Sioux

Valley could not employ either the minority/female bidding

credit or the installment payment option. The next high

bidder in the market, Media Ventures, bid $26,000 and was

awarded the second license. Id. Media Ventures, however,

satisfied the minority/female ownership and small business

requirements, and so the Commission reduced Media Ventures’s obligation by 25 percent — to $19,500 — and allowed

it to pay that amount on a five-year installment plan. Id.

2. Having bid $200,000, Self Communications, Inc. was the

second-highest bidder for the Gary, Indiana MSA. Id. Like

Sioux Valley, Self Communications was not minority- or female-owned and did not qualify as a small business, and

therefore it owed the full amount of its bid upon receipt of the

license. Id. By contrast, the high bidder for the market,

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Skytouch Communications, Inc. ($225,000), received a minority/female bidding credit, and thus owed the Commission only

$168,750 for the license — an amount which Skytouch, as a

small business, was allowed to pay in installments. Id.

3. Celtronix Telemetry (then doing business as Community Teleplay, Inc.) was the second-highest bidder for the

Norfolk, Virginia market, having offered $850,000. Id.

While Celtronix did not receive the benefit of a minority/female bidding credit, as a small business it was permitted to

make a 20 percent down payment ($170,000) and to pay the

remaining 80 percent of its bid ($680,000) in installments over

the five-year term of the license. Id.

* * *

After the results of Auction No. 2 were announced, another

winning bidder, Graceba Total Communications, Inc., petitioned the Commission for reconsideration, arguing that the

Commission’s auction procedures had artificially inflated the

prices of the IVDS licenses. While that petition was pending

before the Commission, the Supreme Court decided Adarand

Constructors, Inc. v. Pena, 515 U.S. 200 (1995), and held that

racial classifications in federal government contracts were

subject to strict scrutiny. Id. at 235. The following term,

the Court held that gender-based classifications in government programs must be justified by an ‘‘exceedingly persuasive justification.’’ United States v. Virginia, 518 U.S. 515,

531 (1996) (VMI). Immediately after Adarand, Graceba filed

a second petition for reconsideration arguing that the Commission’s minority/female bidding credit was unconstitutional

and requesting that the Commission grant it the same 25

percent bidding credit. See Restructuring Order, 15

F.C.C.R. at 1503 ¶ 9.

Finding that Graceba’s constitutional argument had not

been timely raised, the Commission denied both of Graceba’s

petitions. See In re Interactive Video & Data Service (IVDS)

Licenses — Various Requests by Auction Winners, 11

F.C.C.R. 1282, 1285 ¶ 23 (1995). On Graceba’s petition for

review, we vacated that order and remanded for consideration

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of Graceba’s constitutional arguments. Graceba Total Communications, Inc. v. FCC, 115 F.3d 1038, 1041–42 (D.C. Cir.

1997). In so doing, we noted that Graceba’s case raised not

only constitutional arguments, but also ‘‘fact-specific, policyladen concerns’’ such as ‘‘questions about the finality of FCC

licenses, [and] fairness to auction participants,’’ resolution of

which ‘‘would benefit from the agency’s expertise.’’ Id. at

1042.

Meanwhile, the IVDS spectrum was turning out to be an

idea whose time had not yet come. The function initially

envisioned for the spectrum — interactive television — was

no longer seen as a commercially viable enterprise. See

Restructuring Order, 15 F.C.C.R. at 1506 ¶ 13. In 1996, less

than two years after Auction No. 2, a coalition of IVDS

licensees sought relief from their financial obligations to the

Commission, including an extension of the license term (and a

concomitant extension of the installment payment amortization schedule) from five to ten years, along with grace periods

from payments. See In re Amendment of Part 95 of the

Commission’s Rules to Provide Regulatory Flexibility in the

218–219 MHz Service, 13 F.C.C.R. 19,064, 19,081 ¶¶ 28–29

(1998). In response, the Commission effectively suspended

payment obligations for licensees not already in default, id. at

19,072–73 ¶¶ 12–13, and issued a notice of proposed rulemaking to examine possibilities for restructuring the licensees’

financial obligations to the Commission, id. at 19,080–96

¶¶ 28–57. At that time, the Commission also dropped the

IVDS moniker and eponymously renamed the sliver of spectrum the ‘‘218–219 MHz Service.’’ Id. at 19,075 ¶ 16. The

name change, however, could not disguise the fact that ‘‘the

deployment of the 218–219 MHz Service had not been successfulTTTT [W]ith a few, limited exceptions, licensees had

still been unable to offer services.’’ Restructuring Order, 15

F.C.C.R. at 1505 ¶ 13.

The Restructuring Order

Responding to both the continuing dormancy of the 218–

219 MHz spectrum and this court’s Graceba remand, the

Commission released its Restructuring Order in September

USCA Case #02-1269 Document #786629 Filed: 11/21/2003 Page 6 of 20
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1999. See 15 F.C.C.R. at 1497. In the Restructuring Order,

the Commission took several steps to mitigate the financial

distress of the 218–219 MHz small business licensees with

outstanding installment payment obligations to the Commission. First, the Commission extended the term of the 218–

219 MHz licenses from five to ten years. See id. at 1517 ¶ 31.

The Commission also provided those small business licensees

not then in default with three options to restructure their

installment payments to the Commission — resumption, amnesty, or prepayment. See id. at 1518–29 ¶¶ 33–54. Under

the ‘‘resumption’’ option, the licensee would resume installment payments, reamortized over the new ten-year license

term. See id. at 1522–25 ¶¶ 40–45. The ‘‘amnesty’’ option

allowed a licensee to return to the Commission one or more of

the licenses it had been awarded. In return, the Commission

would extinguish any debt associated with that license and

refund any installment payments previously made, except for

the 20 percent down payment. See id. at 1525–27 ¶¶ 46–50.

Finally, under the ‘‘prepayment’’ option, a licensee could

retain a license by paying in full the outstanding balance on

that license, using — as part of the prepayment — 85 percent

of the down payments on licenses surrendered under the

amnesty option. See id. at 1528–29 ¶¶ 51–53.

The Commission also restructured its bidding credit system

in response to this court’s remand in Graceba and comments

from numerous licensees arguing that the minority/female

bidding credit ran afoul of the Supreme Court’s recent decisions in Adarand and VMI. See id. at 1531–32 ¶¶ 57, 59.

The commenting licensees — not minority- or femaleowned — argued that they, too, were entitled to a 25 percent

bidding credit, retroactively applied. See id. at 1532 ¶ 59. In

its Restructuring Order, the Commission acknowledged that

the administrative record on ownership of telecommunications

facilities ‘‘would not adequately support the race- and genderbased provisions of the TTT competitive bidding rules under a

strict scrutiny standard.’’ Id. at 1533 ¶ 60. The Commission

thus sought to craft a ‘‘remedy responsive to [the] commenters.’’ Id.

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The Commission decided to ‘‘eliminate from our rules the

minority- and women-owned business bidding credits and TTT

simultaneously grant credits of commensurate size to all

winning small business bidders in [Auction No. 2].’’ Id. This

new 25 percent bidding credit for small businesses was called

the ‘‘Remedial Bidding Credit’’ (RBC). Id. at 1533 ¶ 61. The

Commission noted that while it had revoked the bidding

credit previously given to minority- and female-owned businesses, those businesses would suffer ‘‘no known negative

impactTTTbecause all such bidders also met the small business qualifications,’’ and therefore would be awarded the

substantially identical RBC. Id. at 1534 ¶ 61. The Commission concluded that this course — eliminating the unconstitutional bidding credit, then establishing a similar but race- and

gender-neutral credit — ‘‘strikes a proper balance’’ between

the need to cure the bidding credit system of constitutional

defects, on the one hand, and auction policy concerns such as

‘‘the need to avoid any major disruptions to the operations of

existing 218–219 MHz Service providers,’’ ‘‘the importance of

finality as a principle in the granting of licenses,’’ and ‘‘fairness to auction participants,’’ on the other. Id. at 1534 ¶ 63.

Petitions for Reconsideration

Several licensees (including some of the petitioners here) —

calling themselves the Ad Hoc Coalition (the Coalition) —

sought reconsideration of the Restructuring Order, alleging

that the Commission’s expressed desire that the RBC have no

‘‘negative impact’’ on recipients of the earlier minority/female

bidding credit evinced an unconstitutional motive to perpetuate a race- and gender-based preference. The petitioning

licensees demanded that the 25 percent bidding credit be

extended to all 218–219 MHz licensees, regardless of size.

Celtronix filed a separate petition for reconsideration challenging the Restructuring Order’s installment payment restructuring options. Celtronix asked the Commission to add

a fourth restructuring option — disaggregation — whereby a

licensee could divide a 500 kHz license in half, retaining a

license for 250 kHz, while surrendering the other half. Under this proposal, the licensee’s down payment on the surrenUSCA Case #02-1269 Document #786629 Filed: 11/21/2003 Page 8 of 20
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dered portion of the spectrum, rather than being forfeited to

the Commission, would be credited to pay down the obligation

on the retained portion. Celtronix also asked that the Commission refund down payments to licensees who select the

amnesty option, arguing that the Commission’s policy of

retaining the down payments was arbitrarily inconsistent with

the policy of allowing licensees selecting the prepayment

option to allocate 85 percent of the down payments on their

surrendered licenses to outstanding obligations on retained

licenses.

The Commission rejected the arguments of the Coalition

and Celtronix. See In re Amendment of Part 95 of the

Commission’s Rules to Provide Regulatory Flexibility in the

218–219 MHz Service, 15 F.C.C.R. 25,020 (2000) (Second

Order on Reconsideration).4

 The Commission concluded that

the facially neutral RBC did not implicate either Adarand or

VMI, and was not otherwise motivated by unlawful discrimination. Id. at 25,038–42 ¶¶ 40–47. The Commission observed

that petitioners’ constitutional arguments were premised on

the incorrect notion that the RBC was implemented to remedy race and gender discrimination in Auction No. 2. Id. at

25,041 ¶ 44. The Commission emphasized that the restructuring of the bidding credit regime was, in reality, a two-step

process: First, to ameliorate the constitutional concerns

raised in the Graceba remand, the Commission eliminated the

minority/female bidding credit. Then, because the elimination of that bidding credit (the equivalent of an abrupt 33

percent price hike) would cause severe disruption among the

104 licensees who had enjoyed the credit, the Commission

chose to ‘‘afford all small businesses an after the fact bidding

credit.’’ Id. In effect, the Commission ‘‘leveled the [minority/female] bidding credit benefit upward’’ to include all small

businesses. Id. The RBC ‘‘fulfilled [the FCC’s] statutory

4 The Commission had released its First Order on Reconsideration more than a year earlier, sua sponte, in order to correct an

error — not relevant to these proceedings — in the Restructuring

Order’s discussion of the amnesty option. See In re Amendment of

Part 95 of the Commission’s Rules to Provide Regulatory Flexibility in the 218–219 MHz Service, 14 F.C.C.R. 21,078 (1999).

USCA Case #02-1269 Document #786629 Filed: 11/21/2003 Page 9 of 20
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mandate of encouraging participation of entrepreneurs, rural

telephone companies, and businesses owned by members of

minority groups and women,’’ and ‘‘solved a multi-faceted and

complex set of regulatory issues.’’ Id. The Commission thus

rejected the petitioners’ demand that the credit be extended

to cover all winning bidders regardless of size. Id.

The Commission also rejected Celtronix’s ‘‘disaggregation’’

proposal. See id. at 25,028–29 ¶¶ 17–20. While the Commission acknowledged that Celtronix would be able to provide

service on a disaggregated 250 kHz block of spectrum, other

licensees had expressed doubt that ‘‘channel blocks smaller

than 500 kHz are practical for innovative uses.’’ Id. at 25,029

¶ 19. The Commission also took note of the claim of several

licensees that the existing 500 kHz blocks were themselves

too small for commercially viable services. Id. at 25,029 ¶ 18.

These comments led the Commission to doubt ‘‘that service

will be developed in the portion of a channel block that would

remain after a licensee elects disaggregation as a restructuring option,’’ or that the market otherwise ‘‘would support the

auction of disaggregated spectrum blocks in the 218–219 MHz

Service.’’ Id. at 25,029 ¶¶ 19–20.

Finally, the Commission declined to adopt Celtronix’s proposal that licensees selecting the amnesty restructuring option be refunded their down payments. The Commission

noted that allowing down payments on surrendered licenses

to be allocated to retained licenses under the prepayment

option served ‘‘the public interest benefit of speeding service

to the public.’’ Id. at 25,030 ¶ 23. The Commission found no

‘‘adequate counterbalancing public interest benefit’’ to Celtronix’s refund proposal, concluding instead that Celtronix’s

proposal ‘‘would undermine the integrity of the auction process by relieving participants of even the most basic obligation of their participation.’’ Id.

The Coalition filed a second petition for reconsideration,

reprising its arguments that the RBC maintained the unconstitutional race and gender preferences animating the earlier

minority/female bidding credit. The Coalition also launched a

new attack on the RBC, arguing that it violated the noticeUSCA Case #02-1269 Document #786629 Filed: 11/21/2003 Page 10 of 20
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and-comment provisions of the Administrative Procedure Act,

5 U.S.C. § 553(b)(3), (c). In its Third Order on Reconsideration, the Commission rejected these arguments. See In re

Amendment of Part 95 of the Commission’s Rules to Provide

Regulatory Flexibility in the 218–219 MHz Service, 17

F.C.C.R. 8520, 8525–28 ¶¶ 14–20 (2002) (Third Order on

Reconsideration). The Commission dismissed as repetitious

the Coalition’s arguments concerning the constitutionality of

the RBC. See id. at 8525–26 ¶¶ 15–17. As for the Coalition’s

notice-and-comment argument, the Commission concluded

that it had not been made with sufficient particularity in the

Coalition’s first petition for reconsideration to merit the Commission’s attention at that time, and was accordingly untimely

when presented in the second petition. Id. at 8526 ¶ 18.

Finding that no public interest would be served by the review

of the Coalition’s untimely argument, the Commission dismissed it as well. Id. at 8527–28 ¶ 20.

Petitioners timely filed petitions for review of the Commission’s Restructuring Order, and they were consolidated for

purposes of appeal.

II.

Under the Administrative Procedure Act, our review of

agency action is highly deferential; we will affirm agency

action unless it is ‘‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’’ 5 U.S.C.

§ 706(2)(A). Under this highly deferential standard, we do

not ‘‘substitute [our] judgment for that of the agency.’’ Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,

463 U.S. 29, 43 (1983). Rather, we will leave an agency

decision undisturbed as long as it ‘‘examine[s] the relevant

data and articulate[s] a satisfactory explanation for its action

including a ‘rational connection between the facts found and

the choice made.’ ’’ Id. (quoting Burlington Truck Lines,

Inc. v. United States, 371 U.S. 156, 168 (1962)).

The arguments raised in the petitions for review fall into

two broad categories: challenges to the lawfulness of the

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RBC and Celtronix’s challenges to the restructuring options

offered by the Commission. We will address each in turn.

A.

Remedial Bidding Credit

Petitioners level two main charges at the RBC: first, that

the RBC’s limitation to small businesses is unconstitutional

and is otherwise arbitrary and capricious; and second, that

the Commission’s adoption of the RBC in the Restructuring

Order violated the notice-and-comment requirements of the

APA. We conclude that both contentions are meritless.

1. Lawfulness of Remedial Bidding Credit

Petitioners claim that the Commission acted unlawfully

when it limited the RBC to small businesses and rejected

petitioners’ proposal that the RBC be extended to all winning

bidders regardless of size. Petitioners make three independent sub-arguments in support of this conclusion.

a. Discriminatory Intent

Petitioners maintain that the RBC, its facial neutrality

notwithstanding, was impermissibly motivated by considerations of race and gender discrimination and thus is unconstitutional. In Hunt v. Cromartie, 526 U.S. 541 (1999), the

Supreme Court held that strict scrutiny could be applied to a

facially neutral law, but ‘‘only if it can be proved that the law

was motivated by a racial purpose or object, or if it is

unexplainable on grounds other than race.’’ Id. at 546 (internal quotation marks and citations omitted). To discern the

intent underlying an agency action, we look to ‘‘the historical

background of the decision,’’ ‘‘the specific sequence of events

leading up to the challenged decision,’’ and any ‘‘departures

from the normal procedural sequence.’’ Omnipoint Corp. v.

FCC, 78 F.3d 620, 634 (D.C. Cir. 1996) (quoting Arlington

Heights v. Metropolitan Hous. Dev. Corp., 429 U.S. 252, 265

(1997) (internal quotation marks and alterations omitted)).

To support their allegation that the RBC is merely a

continuation of the unconstitutional minority/female bidding

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credit, petitioners point to the Commission’s observation that

the RBC would not negatively impact recipients of the minority/female bidding credit, because all of them also qualified as

small businesses. See Restructuring Order, 15 F.C.C.R. at

1534 ¶ 61. Petitioners argue that this statement demonstrates that the Commission was actually concerned with

perpetuating race- and gender-based preferences, rather than

assisting small businesses. We rejected a substantially identical argument in the context of another FCC spectrum

auction, stating that the Commission’s consideration of ‘‘the

effect a rule change would have on minority- and womenowned businesses does not evince its discriminatory intent.’’

Omnipoint, 78 F.3d at 634. That would seem to go some

distance toward foreclosing petitioners’ claim of discriminatory intent here.

Petitioners nevertheless attempt to distinguish our Omnipoint decision on the basis that the Restructuring Order

applied the RBC retroactively whereas, in Omnipoint, the

change in bidding credit rules occurred before the auction

had taken place. This, say petitioners, demonstrates that the

RBC — unlike the bidding credit in Omnipoint — could not

have been motivated by the congressional mandate to encourage participation of small businesses in spectrum auctions;

not even the FCC could, in 1999, have encouraged participation in an auction that had occurred in 1994. Supposedly

having put the lie to the Commission’s stated purpose, petitioners maintain that the RBC is unexplainable on any

ground other than race. We disagree.

First, Congress did not require only that the Commission

encourage small business participation in spectrum auctions.

See 47 U.S.C. § 309(j)(4)(D). Congress also charged the

Commission with the mandate of ‘‘disseminating licenses

among a wide variety of applicants, including small businesses.’’ Id. at § 309(j)(3)(B) (emphasis added). While the

petitioners are surely correct that the RBC could not, five

years after the fact, possibly encourage participation in Auction No. 2, it certainly could (and did) encourage the dissemination of licenses to small businesses by lowering the financial burden on those favored licensees. In any event, the

RBC is readily explainable on other race-neutral grounds,

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including ‘‘finality as a principle in the granting of licenses,’’

‘‘fairness to auction participants’’ who had in good faith relied

upon the existence of the bidding credit in constructing their

business models, and the need ‘‘to avoid major disruptions to

the affected service.’’ See Restructuring Order, 15 F.C.C.R.

at 1534–35 ¶ 63. Similarly, the Commission’s decision to limit

the RBC to small businesses is explainable on the raceneutral ground that the Commission (quite naturally) wanted,

consistent with the Commission’s other statutorily defined

objectives, to retain as much of the proceeds from Auction

No. 2 as possible. See 47 U.S.C. § 309(j)(3)(C) (directing the

Commission to ‘‘recover[ ] for the public TTT a portion of the

value of the public spectrum resource’’). By contrast, other

than the Commission’s observation of the effects of the Restructuring Order on recipients of the minority/female bidding credit, petitioners have put forth no evidence to indicate

that the RBC was intended to manifest racial or gender

preferences. Petitioners have thus failed to meet their burden of showing that the RBC was motivated by a racial

purpose or is unexplainable except on the basis of race.

b. Constitutionally Insufficient Remedy

Petitioners next argue that the RBC is a ‘‘Constitutionally

Insufficient Remedy’’ (Pet. Br. 23) for the race and gender

discrimination that infected Auction No. 2. Specifically, petitioners claim that the RBC is inadequate because it fails to

account for the time value of money lost to white-male-owned

small business licensees for the period between Auction No. 2

and the payment of the RBC refunds. Petitioners assert that

to pass constitutional muster, a remedy ‘‘must be designed as

nearly as possible ‘to restore the victims of discriminatory

conduct to the position they would have occupied in the

absence of such conduct.’ ’’ Milliken v. Bradley, 433 U.S.

267, 280 (1977) (quoting Milliken v. Bradley, 418 U.S. 717,

746 (1974)). From that case (which concerned a federal

court’s school desegregation order) petitioners reason that

the Commission must pay interest to those licensees who

benefitted from the RBC but not the original minority/female

bidding credit.

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This argument also fails. First, we are precluded from

reviewing any claim for the payment of interest because

petitioners failed to present this demand to the Commission

in a petition for reconsideration. See 47 U.S.C. § 405; AT&T

Corp. v. FCC, 317 F.3d 227, 235 (D.C. Cir. 2002) (court lacks

jurisdiction to review an argument not previously presented

to Commission).5

Second, petitioners’ focus on the RBC is misplaced; to the

extent that they construe the RBC as a remedy for discrimination in Auction No. 2, they err. The Commission’s remedy

for the unlawful discrimination was simply to ‘‘eliminate from

[its] rules the minority- and women-owned business bidding

credits.’’ Restructuring Order, 15 F.C.C.R. at 1533 ¶ 60. It

was only after the Commission had eliminated those credits

that it established the race- and gender-neutral RBC, crafted

not to remedy discrimination but rather to address the ‘‘multi-faceted and complex set of regulatory issues’’ created by

the elimination of the minority/female bidding credit, Second

Order on Reconsideration, 15 F.C.C.R. at 25,041 ¶ 44. Once

the Commission had eliminated the minority/female bidding

credit, every Auction No. 2 licensee owed the full amount of

its winning bid. At that time, petitioners occupied precisely

the position (relative to favored minority- and female-owned

licensees) they would have occupied absent the discriminatory

5 Petitioners argue that their demand for interest was fairly

presented in the Coalition’s second petition for reconsideration. We

cannot agree. Nowhere in that petition does the Coalition mention

interest, let alone specifically demand that interest be paid. See

Second Petition for Reconsideration of Ad Hoc Coalition, at 9

(‘‘[L]icensees that received the race/gender credit in the 1994

auctionTTTreceived that credit and the benefits thereof over 6 years

before the non-preferred class of winning licensees in the same

auction. The non-preferred class, unlike the preferred class, has

not had the use of the money represented by the RBC for over 6

years. As adopted, the RBC continues to discriminateTTTT’’). Such

an ‘‘incomplete’’ presentation of an issue does not suffice to place a

matter before the Commission such that it has been ‘‘afforded a fair

opportunity’’ to pass on the argument. Time Warner Entm’t Co. v.

FCC, 144 F.3d 75, 79 (D.C. Cir. 1998).

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16

conduct — owing 100% of their winning bids. The Commission thus adequately remedied the unconstitutional discrimination in Auction No. 2.

c. Arbitrary and Capricious Agency Action

Leaving the realm of constitutional law, petitioners argue

that the Commission’s decision to limit the RBC to small

business licensees is arbitrary and capricious. The Commission’s obvious answer to this charge was that ‘‘Congress ha[d]

not directed [the Commission] to take special steps to ensure

the participation of large companies,’’ id.; the relevant portions of the Communications Act express a preference for

small businesses. See id.; 47 U.S.C. § 309(j)(3)(B). Petitioners advance two counter-arguments, each seeking to undermine the notion that the RBC actually is intended to serve

the congressional objective of assisting small business to

obtain spectrum licenses.

First, petitioners argue that the retroactive application of

the RBC could not possibly encourage small businesses to

participate in Auction No. 2, held in 1994. As discussed

above, though, the RBC did encourage the dissemination of

licenses to small businesses by easing the financial burdens

on those entities and this directly serves the objective set out

by Congress. See id.

Petitioners next contend that because the RBC applied to

licensees who surrendered their licenses under the amnesty

option, the RBC could not truly have been concerned with

disseminating spectrum licenses to small businesses. Even

assuming that this lack of narrow tailoring could be sufficient

to strike the RBC, this argument seems to be based on a

mistaken premise. The Commission did not award a bidding

credit to licensees after they had surrendered their licenses.

Licensees were not required to select a restructuring option

until February 29, 2000 — more than five months after the

release of the Restructuring Order. See Restructuring Order, 15 F.C.C.R. at 1529 n.178.6

 Small business licensees

6 The Restructuring Order specifies that the deadline for election

of a restructuring option was the last day of the third month

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17

thus had several months after receipt of their RBC to consider whether to retain a license under the resumption or

prepayment restructuring options or to surrender the license

under the amnesty option. While some RBC recipients did

eventually decide to call it a day and surrender their licenses

under the amnesty option (including petitioner Celtronix),

providing the RBC to all small business licensees gave each

the best opportunity to survive and to provide service to the

public. Because the RBC is thus rationally connected to the

congressional objective of disseminating licenses to small

businesses, we have little difficulty affirming the Commission’s decision to limit the application of the RBC to congressionally favored small business licensees.

2. Notice-and-Comment Challenge

Petitioners next maintain that the Commission failed to

comply with the notice-and-comment requirements of the

APA, 5 U.S.C. §§ 553(b)(3), (c), when it established the RBC

in the Restructuring Order. See Third Order on Reconsideration, 17 F.C.C.R. at 8526–28 ¶¶ 18–20. We conclude that the

Commission did not abuse its discretion in dismissing this

challenge as untimely. See id.

The FCC’s rules require that petitions for reconsideration

be filed within 30 days of public notice of the action to be

reconsidered, and provide that untimely petitions will not be

considered except by leave of the Commission. See 47 C.F.R.

§ 1.429(d) (2000). The rules also require a petitioner to state

with particularity the basis for reconsideration. See id.

§ 1.429(c). Here, the Coalition’s timely first petition for

reconsideration mentioned the notice-and-comment requirements of the APA only in passing. Opening their argument

that the RBC failed to remedy the constitutional problems

with the minority/female bidding credit, the Coalition wrote:

‘‘The FCC’s conversion of the race/gender credit to a small

business credit, aside from its dubious lawfulness under the

following the month in which the Restructuring Order was published in the Federal Register, November 1999. See 64 Fed. Reg.

59656–01 (Nov. 3, 1999) (publishing Restructuring Order).

USCA Case #02-1269 Document #786629 Filed: 11/21/2003 Page 17 of 20
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Administrative Procedure Act (APA), which requires noticeand-comment proceedings for the adoption of new rules, does

not resolve the constitutional issue.’’ First Petition for Reconsideration of Ad Hoc Coalition, at 5. This ambiguous

reference to ‘‘dubious lawfulness’’ does not amount to an

argument stated with the particularity required by the Commission’s rules. Innuendo en passant is not enough to catch

the Commission’s eye. We have held that the Commission

‘‘need not sift pleadings and documents to identify arguments

that are not stated with clarity by a petitioner.’’ Bartholdi

Cable Co. v. FCC, 114 F.3d 274, 279 (D.C. Cir. 1997) (internal

quotation marks and citation omitted). We see no reason to

place a more onerous requirement on the Commission now.

While the Coalition did make the notice-and-comment argument in its second petition for reconsideration, the argument

had not been raised to the Commission within 30 days of

public notice of the Restructuring Order, and so that argument was untimely. The question thus becomes whether the

Commission abused its discretion in refusing to grant the

Coalition leave to raise the untimely argument.

The Coalition’s second petition for reconsideration suggested no reason why the Commission ought to waive the untimeliness objection, and indeed did not even specifically request

leave to file the untimely argument. On the other hand, the

Restructuring Order plainly indicates that the Commission

did consider comments from licensees (including petitioner

Celtronix) concerning the minority/female bidding credit and

how it ought to respond to this Court’s Graceba remand. See

Restructuring Order, 15 F.C.C.R. at 1532 ¶ 59 (‘‘[T]his Report

and Order addressesTTTcomments and reply comments that

raiseTTTconstitutional issues in this rulemaking.’’). Especially

considering that disfavored licensees evidently had an adequate opportunity to comment on the minority/female bidding

credit, and that the Commission actually responded to their

comments, we can find no abuse of discretion in the Commission’s refusal to grant the Coalition leave to make the untimely notice-and-comment argument. See, e.g., 21st Century

Telesis Joint Venture v. FCC, 318 F.3d 192, 199–200 (D.C.

Cir. 2003) (finding no abuse of discretion in the Commission’s

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decision to not address untimely claims made in a second

petition for reconsideration when petitioner provided no explanation why the argument could not have been timely

made).

B.

Celtronix’s Challenges to the Restructuring Options

Celtronix contends that the Commission arbitrarily refused

(1) to include Celtronix’s disaggregation proposal among the

allowed restructuring options; and (2) to refund any portion

of the down payment on licenses returned under the amnesty

option. These contentions, too, lack merit.

Celtronix argues that the Commission rejected its disaggregation proposal without considering evidence that commercially viable services could be provided on disaggregated

250 kHz blocks of spectrum. This mischaracterizes the Commission’s Second Order on Reconsideration. There, the

Commission acknowledged Celtronix’s claim that it was able

to provide service on just 250 kHz of spectrum. See Second

Order on Reconsideration, 15 F.C.C.R. at 25,028–29 ¶ 17.

The Commission, however, was persuaded by other commenters who stated that even 500 kHz blocks might be too small

to support the development of innovative services. See id. at

25,029 ¶ 18. This led the Commission to doubt whether the

market would support a future auction of disaggregated 250

kHz blocks of spectrum surrendered by licensees. Id. at

25,029 ¶¶ 19–20. The Commission thus concluded that in the

absence of a ‘‘substantial record demonstrating a broad-based

need or desire’’ for 250 kHz blocks — a record Celtronix

never compiled — Celtronix’s proposal would not advance the

public interest. Id. at 25,029 ¶ 19. We can find no fault with

the Commission’s decision; the Commission considered the

relevant evidence and made a policy judgment concerning the

development of a nascent technology. Such decisions are well

within the purview of the responsible agency. See FCC v.

National Citizens Comm. for Broad., 436 U.S. 775, 813 (1978)

(‘‘a forecast of the direction in which future public interest

lies necessarily involves deductions based on the expert

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knowledge of the agency’’ (quoting FPC v. Transcon. Gas

Pipe Line Corp., 365 U.S. 1, 29 (1961))); Time Warner

Entm’t Co. v. FCC, 240 F.3d 1126, 1133 (D.C. Cir. 2001)

(Commission is entitled to ‘‘appropriate deference to predictive judgments that necessarily involve the expertise and

experience of the agency’’).

Celtronix also claims that the Commission’s decision to not

refund down payments on licenses surrendered under the

amnesty option is arbitrary and capricious when considered in

light of its decision to allow, under the prepayment option, a

licensee to apply 85 percent of a down payment on a surrendered license to the outstanding obligation on a retained

license. We disagree. The Commission offered a cogent

rationale for this policy choice. Unlike the prepayment option, the refund of down payments under the amnesty option

would offer no ‘‘adequate counterbalancing public interest

benefit.’’ Second Order on Reconsideration, 15 F.C.C.R. at

25,030 ¶ 23. The Commission essentially would be relieving

amnesty licensees of all of the obligations of auction participation gratis. By contrast, the Commission found that the

refund of down payments under the prepayment option was

justified by its tendency to promote the retention of licenses.

The Commission concluded that license retention would redound to the public benefit because a current licensee could

provide service to the public under the retained license more

quickly than a new licensee who obtained the license at a

future auction. Id. at 25,030–31 ¶ 23. We will not disturb the

agency’s policy judgment. The maxim that we must not

substitute our judgment for that of the agency is ‘‘especially

true when the agency is called upon to weigh the costs and

benefits of alternative policies.’’ Center for Auto Safety v.

Peck, 751 F.2d 1336, 1342 (D.C. Cir. 1985) (Scalia, J.).

The petitions for review are denied.

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