Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-95-01391/USCOURTS-caDC-95-01391-0/pdf.json

Parties Involved:
Cook Inlet Region, Inc.
Intervenor
Federal Communications Commission
Respondent
QTEL Wireless, Inc.
Petitioner
United States of America
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 28, 1995 Decided March 8, 1996

No. 95-1374

OMNIPOINT CORPORATION,

PETITIONER

v.

FEDERAL COMMUNICATIONS COMMISSION 

AND THE UNITED STATES OF AMERICA,

RESPONDENTS

GO COMMUNICATIONS CORPORATION, ET AL.,

INTERVENORS

Consolidated with

95-1391, 95-1409, 95-1412

On Petitions for Review of an Order of the

Federal Communications Commission

Mark J. Tauber argued the cause for petitioner Omnipoint Corporation, with whom Emilio W.

Cividanes and Mark J. O'Connor were on the briefs.

Keith J. Harrison argued the cause for petitioner QTEL Wireless, Inc., with whom Jeffrey W. King

was on the briefs.

Eliot J. Greenwald argued the cause for petitioners New Wave LLC, et al., with whom John Q.

Hearne and Mark D. Wilkerson were on the briefs.

Christopher J. Wright, Deputy General Counsel, Federal Communications Commission, argued the

cause for respondents, with whom William E. Kennard, General Counsel, Daniel M. Armstrong,

Associate General Counsel, James M. Carr, Joel Marcus, and John P. Stern, Counsel, Federal

Communications Commission, and Anne K. Bingaman, Assistant Attorney General, and Robert B.

Nicholson, Attorney, U.S. Department ofJustice, were on the brief. John E. Ingle, DeputyAssociate

General Counsel, Federal Communications Commission, and Robert J. Wiggers, Attorney, U.S.

Department of Justice, entered appearances for respondents.

Ashton R. Hardy argued the cause and filed the briefs for intervenor Radiofone, Inc.

Edgar F. Czarra, Jr., argued the cause for intervenors Cook Inlet Region, Inc., et al., with whom

Harris Weinstein, Kurt A. Wimmer, Lawrence R. Sidman, Judith A. Mather, J. Roger Wollenberg,

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William R. Richardson, Jr., Lynn R. Charytan, George Petrutsas, Carl W. Northrop, Emmett A.

Johnston, Shelley L. Spencer, Phyllis A. Whitten, David E. Springer, John C. Spinrad, Stephen G.

Kraskin and Sylvia L. Lesse were on the brief. Jonathan D. Blake entered an appearance for

intervenor American PCS, L.P. Frederick M. Joyce entered an appearance for intervenor Essex

USA, LLC. David Cosson and L. Marie Guillory entered appearances for intervenor National

Telephone Cooperative Association. Jonathan D. Hart entered an appearance for intervenors BET

Holdings, Inc., and Page Call, Inc. James L. Winston and Walter E. Diercks entered appearancesfor

intervenor National Association of Black Owned Broadcasters, Inc. Debra M. Richards, pro se,

entered an appearance. Thomas A. Hart, Jr., entered an appearance for intervenor National Paging

& Personal Communications Association.

Before EDWARDS, Chief Judge, and WALD and SENTELLE, Circuit Judges.

Opinion for the court filed by Circuit Judge SENTELLE.

Opinion dissenting in part filed by Circuit Judge WALD.

SENTELLE, Circuit Judge: In this consolidated proceeding, we consider three separate

petitions for review of a Federal Communication Commission order. All petitioners allege that the

Commission violated the APA and its own regulationsin promulgating itsImplementation of Section

309(j) of the Communications ActCompetitive Bidding, Sixth Report and Order, F.C.C. 95-301

(July 18, 1995) ("Sixth R&O"), which eliminated the gender- and race-based provisions of the

Commission's C block auction rules for broadband PCS, but each petitioner also raises separate

claims. One petitioner claims that the Commission's actions in eliminating the provisions were

arbitrary and capricious under 5 U.S.C. § 706(2)(A); one alleges that the Commission's actions

discriminated against white males; and the third contends that the Sixth Report and Order violated

§ 309(j)(3)(B) of the Communications Act as it undermined the Commission's mandate to aid small

businesses.

After reviewing the claims, we find that the Commission's actions were justified and did not

violate the APA, the Commission's own regulations or its statutory mandate.

I. BACKGROUND

Broadband PCS is a new type of wireless communication technology that will provide a

variety of mobile telephone services in competition with existing cellular services. The FCC

partitioned the broadband spectrum into six blocks, labeled A though F. It opted to allocate the

spectrum in three separate auctions: the first auction was for licenses in blocks A and B; the second,

for licenses in blocks C and F; and the third, for licenses in blocks D and E. We are concerned with

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the second auction here.

Blocks C and F were designated "entrepreneurs' blocks." Eligibility for these blocks was

limited "to entitiesthat, together with their affiliates and certain investors, have grossrevenues ofless

than $125 million in each of the last two years and total assets of less than $500 million."

Implementation of Section 309(j) of the Communications ActCompetitive Bidding, Fifth Report

and Order, 9 F.C.C.R. 5532, 5585 ¶ 121 (1994) ("Fifth R&O"), on recon., Fifth Memorandum

Opinion and Order, 10 F.C.C.R. 403 (1994) ("Fifth M&O"). The rules establishing the

entrepreneurs' blocks were adopted by the Commission in order to satisfy 47 U.S.C. § 309(j)(3)(B),

which mandated that the Commission promulgate rules that would "disseminat[e] licenses among a

wide variety of applicants, including small businesses, rural telephone companies, and businesses

owned by members of minority groups and women."

Broadband PCS is a highly capital intensive business. See Fifth R&O ¶ 174. As such, the

primary impediment to participation by designated entitiesis a lack of accessto capital. Accordingly,

the FCCstructured the auction rulesto allow biddersin the entrepreneurs' blocksto obtain substantial

investment from other companies.

It did this primarily in three ways. First, the FCC structured the attribution rules to allow

those companiesthat were not allowed to bid on blocks C and F to invest in entitiesthat bid on those

blocks. Specifically, as much as 75% of the total equity of C block applicants could be held by as few

as three passive nonvoting investors that would be too large themselves to bid in the entrepreneurs'

blocks. Second, the Commission gave a 10% bidding credit, or discount off the bidding price, to

small businesses. And third, successful bidders were given favorable installment terms.

Additionally, theCommission adopted rules designed to enhance opportunitiesfor businesses

owned by women and members of minority groups in an effort to comply with the directive of 47

U.S.C. § 309(j)(4)(D), which instructed the Commission to ensure that women and minorities have

"the opportunity to participate in the provision of spectrum-based services." These rules provided

the following benefits: (1) a woman- or minority-owned applicant could have a single passive

non-voting investor with an interest as large as 49.9% if the applicant held a 50.1% interest ("49%

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equity option"); Fifth R&O WW 160-62; (2) a special exception to the affiliation rule allowed an

individual member of a minority group to participate as a member of the control group of a

minority-owned C block applicant even though the individual's other business properties would

otherwise make the applicant too large for the entrepreneurs' block; Fifth M&O WW 40-41; and (3)

minority- and women-owned businesses were to receive an additional 15% bidding credit, tax

certificates and more favorable installment payment plans than other small businesses. Fifth R&O

WW 130-47.

The A and B block auctions were held in March, 1995, and theCblock auctionwasscheduled

to take place inMay, 1995. However, in February, Telephone Electronics Corporation (TEC) moved

to stay the auctions, asserting that the FCC'srace- and gender-based rules were unconstitutional. On

March 15, we granted a stay of "[t]hose portions of the [auction rules] establishing minority and

gender preferences, the C block auction employing those preferences, and the application processfor

that auction." Telephone Electronics Corp. v. FCC, No. 95-1015 (D.C. Cir. March 15, 1995). We

found that TEC had "demonstrated the requisite likelihood ofsuccess on the merits." Id. TEC later

withdrew its petition for review, and this Court dissolved the stay on May 1. Telephone Electronics

Corp. v. FCC, No. 95-1015 (D.C. Cir. May 1, 1995) (order granting dismissal of petition for review).

The FCC then rescheduled the C block auction without revising its women-and-minority-based

provisions.

On June 12, three days before the new due date for filing applications to participate in the C

block auction, the Supreme Court announced its decision in Adarand Constructors v. Pena, 115 S.

Ct. 2097 (1995). In that case, the Court ruled that strict scrutiny must be applied to all racially based

government actions, holding that such actions "are constitutional only if they are narrowly tailored

measures that further compelling governmental interests." Id. at 2113.

In light ofthis decision, theCommission suspended the filing deadline for Cblock applications

on June 13. Ten days later, the Commission released a Further Notice of Proposed Rulemaking in

which it suggested modifications to the C block auction rules. Implementation of Section 309(j) of

the Communications ActCompetitive Bidding, Further Notice of Proposed Rulemaking, F.C.C.

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95-263 (released June 23, 1995) ("FNPRM"). Recognizing Adarand had made the C block rules

subject to considerable legaluncertainty, the FCC"propose[d] to eliminate allrace- and gender-based

provisions contained in [its] competitive bidding rules ... in order to avoid delay caused by ... legal

challenges." FNPRM ¶ 2.

Believing it was necessary to hold the C block auction as soon as possible, the Commission

set a two-week deadline for filing comments and did not invite reply comments. On the same day that

it issued the FNPRM, the Commission also scheduled the C block auction for August 29, 1995, with

short-form applications for the auction due July 28.

On July 18, the Commission issued its Sixth R&O. In this R&O, the Commission adopted

most of the rule changes proposed in the FNPRM. It leveled all benefits upward, thereby making

available to all small businesses the favorable terms that previously had been available only to small

businesses owned by women and minorities. See Sixth R&O WW 18, 32, 35-48. The Commission

ordered that the amended rules would take effect immediately upon publication in the Federal

Register. Id. at ¶ 60. This occurred July 21, 1995. 60 Fed. Reg. 37786 (July 21, 1995).

Three days later Omnipoint Corporation, a small business that holds a PCS license for the

New York Major Trading Area, petitioned this Court for review of the Sixth R&O and asked for an

emergency stay. Omnipoint Corp. v. FCC, No. 95-1374 (filed July 24, 1995). Omnipoint contended

that theCommission had committed procedural violations of the Administrative Procedure Act (APA)

and had violated the equal protection rights of white males by extending the 49% equity option to all

bidders. On July 27, this Court issued a stay of this rule and ordered an expedited briefing schedule.

On August 2, QTEL Wireless, Inc., a minority-owned small business that had been prepared

to participate in the PCS auction prior to the Commission'sstay in June, filed a motion to expand this

Court's review of the FCC's eligibility rules and to consolidate its action with the Omnipoint case.

QTEL asked this Court to broaden its review to include the other substantive changes in the rules

regarding women-and-minority-owned businesses, namely the bidding credit provisions, the special

exception to the affiliation rule and the favorable installment plan terms. We granted QTEL's motion

on August 8.

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Shortlythereafter, a group ofjoint petitioners(New Wave LLC, CentralAlabama Partnership

L.P. 132 and Mobile Tri-States L.P. 130), all of which qualified as small businesses under the FCC's

rules, filed two separate petitions for review of the Sixth R&O. The joint petitioners contended that

the changes, particularly the leveling upward of the special exception to the affiliation rule, violated

the Commission's congressional mandate to ensure small businesses were provided an opportunity

to participate in the PCS market. We consolidated these petitions with the Omnipoint case on August

18.

II. STANDING

Before addressing the merits of this claim, we must first determine whether petitioners have

standing to bring this suit. As we have stated previously, a plaintiff may secure constitutional

standing if he can "show injury in fact that is fairly traceable to the defendant's action and is

redressable by the relief requested." Animal Legal Defense Fund, Inc. v. Espy, 23 F.3d 496, 498

(D.C. Cir. 1994); see also Allen v. Wright, 468 U.S. 737, 751 (1984); Valley Forge Christian

College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 474-75 (1982).

A plaintiffmay secure judicialreview under the APA if he can demonstrate that the injuries he asserts

fallwithin the "zone of interests" sought to be protected by a relevant statute. Animal Legal Defense

Fund, Inc., 23 F.3d at 499; see also Clarke v. Securities Industry Ass'n, 479 U.S. 388 (1987).

Omnipoint complains that the 49% equity option, although facially neutral, is racially

discriminatory asthe Commission did not allow non-minority-owned small businesses adequate time

to take advantage of the 49% option. As a result, Omnipoint argues that it cannot compete on an

equal footing with minority- and women-owned businesses in the C block auction.

We hold that Omnipoint does have standing. Contrary to the intervenors' assertions, it is not

necessary that Omnipoint be "able and ready" to utilize the 49% equity option in order to secure

standing. Rather, when a party challenges a government set-aside program, "the "injury in fact' ...

is the denial of equal treatment resulting from the imposition of the barrier." Northeastern Florida

Chapter of the Assoc. Gen. Contractors v. Jacksonville, 113 S.Ct. 2297, 2303 (1993); see also

Adarand, 115 S.Ct. at 2105 (citation omitted). Omnipoint's injury is its inability to compete equally

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in the C block auction if the 49% equity option is indeed racially discriminatory.

Joint petitioners claim to have standing under 5 U.S.C. § 702, which grantsstanding to those

"aggrieved by agency action within the meaning of a relevant statute." We find that, as small

businesses under the Commission's definition, joint petitioners are within the zone of statutorily

protected interests of § 309(j), whichwas designed to promote opportunitiesforsmall businesses and

prevent anticompetitive concentration ofspectrum licensesin a few large companies. See 47 U.S.C.

§§ 309(j)(3)(B) and 309(j)(4)(D).

Further, joint petitioners adequately allege injury by the affiliation rule adopted in the Sixth

R&O as that rule allows major companies to participate in the C block auction and qualify for small

business advantages, therebyreducing the likelihood thatsmallbusinessessuch asthe joint petitioners

will be able to outbid their competitors at auction.

QTEL also has standing to assert its claim. QTEL's investors allegedly withdrew their

investments due to the Commission's notice of proposed rulemaking eliminating the minority and

gender preferences. See Declaration of Q.T. Kenan, President of QTEL Wireless at ¶ 11. These

changes were implemented in the Sixth R&O. Hence, QTEL suffered injury "traceable to the

[Commission's] action" which is redressable by the relief requested. Animal Legal Defense Fund,

Inc., 23 F.3d at 498.

III. MERITS

Having determined that petitioners have standing to litigate, we now address the merits of

their claims.

A. QTEL's Claims

1. Did the FCC violate the APA?

QTEL first allegesthat the FCCviolated the APA, 5 U.S.C. § 553, and the Commission's own

statutory requirement, 47 C.F.R. § 1.415(c), by providing inadequate time for notice and comment,

by making the final rule effective on the date of its issuance and by dispensing with reply comments

in the rulemaking process. Omnipoint also raises the claim that the FCC violated the APA by making

the finalrule effective immediatelyupon publication, and bothOmnipoint and the joint petitionersjoin

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QTEL in its claim that the Commission violated its own regulations by dispensing with reply

comments.

The Commission published its proposal to eliminate the race- and gender-based provisions

in the Federal Register on June 30, 1995. Further Notice of Proposed Rulemaking, 60 Fed. Reg.

34200 (proposed June 30, 1995). It established July 7, 1995 as the deadline for comments on the

proposed changes. QTEL contends that this action violated the APA as the Commission failed to

provide adequate time for notice and comment.

Reasonable notice of a proposed rulemaking shall be given, Fund for Animals v. Frizzell, 530

F.2d 982, 988 (D.C. Cir. 1975); however, notice is not required "when the agency finds (and

incorporates the finding and a brief statement of the reasons therefor in the rules issued) that notice

and public procedure thereon are impracticable, unnecessary, or contrary to the public interest." 5

U.S.C. § 553(b)(3)(B). Notice is adequate if it provides "interested persons an opportunity to

participate in the rule making through submission of written data, views or arguments." 5 U.S.C. §

553(c).

Here, the Commission "compl[ied] with the strict language of section 553" as it gave

interested parties notice of its proposed rules and provided public procedures for comment in the

FNPRM. Fund for Animals, 530 F.2d at 988. QTEL contends, however, that this "strict

compliance" was inadequate. It asserts that, because of the magnitude of the changes proposed by

the Commission, the time provided here did not allow for meaningful public comment.

We disagree with this proposition, however, and find that the comment period provided by

the FCC was sufficient given the "urgent necessity for rapid administrative action under the

circumstances." Northwest Airlines v. Goldschmidt, 645 F.2d 1309, 1321 (D.C. Cir. 1981). These

circumstances included a congressional mandate to implement the C block auction "without

administrative or judicial delays;" 47 U.S.C. § 309(j)(3)(A); see also Florida Power & Light Co. v.

United States, 846 F.2d 765, 772 (D.C. Cir.), cert. denied, 490 U.S. 1045 (1988) (holding that

fifteen-day comment period was adequate given Congressional deadline imposed on Nuclear

RegulatoryCommission); Petry v. Block, 737 F.2d 1193, 1200-01 (D.C. Cir. 1984) (holding that the

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limited time Congress gave the Department of Agriculture was a "crucialfactor in establishing "good

cause' " under § 553(b)(B)); preservation of the interests of small businesses, minorities and women

that Congress sought to protect through § 309(j); and preservation of a viable market for C block

licenses. In its Sixth R&O, the Commission specifically found that existing business relationships

were more likely to survive if the auction was not significantly delayed. Sixth R&O ¶ 8. Also, it

noted that delay of the C block auction would postpone competition in the wireless marketplace,

thereby harming the ability of latter entrants to compete. Id. at ¶ 7. We find no reason to disagree

with these findings, and hold that they were sufficient to justify the shortened comment period

provided by the Commission in this case.

Additionally, we note that, contraryto QTEL's assertions, interested parties actuallyhad more

than seven days in which to file comments as notice of the proposed agency action was given prior

to July 30. In Fund for Animals, we found that the short comment time provided by the Fish and

Wildlife Service (FWS) was reasonable as the appellants had actually received notice prior to the

August date when the proposed federalregulations were published in the FederalRegister. Fund for

Animals, 530 F.2d at 989-90. We held that public statements issued by the FWS in May and June

had provided notice to appellants of the proposed action of the agency, noting that "[i]t is a vital part

of appellants' business to be knowledgeable in [their] field." Id. at 990.

Here, the Commission published a public notice on June 13 announcing suspension of the

filing deadline for applications to participate in the C block auction. Also, the FNPRM was issued

by the Commission on June 23, seven days before its June 30 publication in the Federal Register.

Hence, like the petitioners in Fund for Animals, the parties in this case received notice of the

proposed agency action prior to June 30 and, therefore, had more than seven days in which to

comment on the proposed rule.

In addition, we find petitioners and intervenors were not harmed bythe short comment period.

See 5 U.S.C. § 706 (providing that reviewing court take "due account ... of the rule of prejudicial

error"). The Commission received 45 comments and 42 letters addressing its proposed rule, the

majority of which supported the FCC's effort to commence the auction quickly and avoid litigation

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by leveling up. It also reviewed the comments received and took them into account in its decision.

In fact, the Commission modified one of the proposed rulesin response to the commentsfiled. Sixth

R&O ¶ 32; see also Florida Power & Light, 846 F.2d at 772 (rejecting claim that a comment period

was inadequate where comments were filed, were considered by the agency, and affected the final

rule). Further, QTEL has since had a considerable period of time to consider the rule, but has failed

to identify any substantive challenges it would have made had it been given additional time. See id.;

Air Transport Ass'n of America v. Civil Aeronautics Board, 732 F.2d 219, 224 n.11 (D.C. Cir. 1984)

(finding harmless error where petitioner "[did] not explain what it would have said had it been given"

an opportunity to respond).

QTEL and Omnipoint also claim that the Commission violated the APA by making the final

rule effective immediately upon publication. A rule is to take effect "not less than 30 days" after its

publication unless good cause is found by the agency and published with the rule. 5 U.S.C. §

553(d)(3). In determining whether good cause exists, an agency should "balance the necessity for

immediate implementation against principles of fundamental fairness which require that all affected

persons be afforded a reasonable amount of time to prepare for the effective date of its ruling."

United States v. Gavriloc, 551 F.2d 1099, 1105 (8th Cir. 1977).

In the Sixth R&O, the Commission stated that good cause existed to have the rulestake effect

immediately as "the C block auction for broadband PCS [wa]s scheduled to commence on August

29, 1995, and initial short-form applications [wer]e due July 28, 1995." Sixth R&O ¶ 60. The

Commission found it was necessary for the revised rules to take effect prior to the due date of the

short-form applications "in order to avoid the delays and litigation risks associated with prior rules."

Id.

Petitioners contend that this tight deadline problem was of the Commission's own making;

hence, any need for expedition was simply "bootstrapping" by the Commission. We disagree,

however, and find that a number of factors justified the need for expedition, not simply the August

29 auction date.

First, as we noted above, the Commission was under a congressional deadline to act quickly.

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Second, the precarious nature of the financial investments of prospective C block bidders, as well as

the headstarts already given to the A and B blocks as a result of the litigation delay, also supported

an expedited proceeding. See Sixth R&O WW 1, 7. And third, a delay in the C block auction would

undermine the public interest by delaying additional competition in the wireless marketplace. Id.;

see also Buckeye Cablevision, Inc. v. FCC, 387 F.2d 220, 228 n.34 (D.C. Cir. 1967) (holding that

Commission's desire to minimize harm to public was sufficient "good cause" to make rule effective

on date of publication in Federal Register).

Additionally, the purpose of the thirty-day waiting period is to give affected parties a

reasonable time to adjust their behavior before the final rule takes effect. See American Federation

of Government Employees v. Block, 655 F.2d 1153, 1156 (D.C. Cir. 1981). In its comments

requesting the stay, Omnipoint argued that it needed at least 60-90 daysto adjust to the rule change.

Comments of Omnipoint Corp., July 7, 1995, at 2. We find that, although the Commission did not

allow much time for affected parties to adjust to the new rules, the stay and the delay caused by this

litigation have afforded partieslike Omnipoint the time they claimed to need to make this adjustment.

2. Did the FCC violate its own regulations?

QTEL, Omnipoint and the joint petitioners also claim the Commission violated its own

regulations because it did not request reply comments. The Commission's regulations provide that

a reasonable time will be provided for filing reply comments. 47 C.F.R. § 1.415(c). The Commission

may waive its own rules, however, "for good cause shown." 47 C.F.R. § 1.3. Good cause exists

where "particularfactswouldmake strict compliance inconsistent withthe public interest." Northeast

Cellular Telephone Co., L.P. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990) (citing WAIT Radio v.

FCC, 418 F.2d 1153, 1159 (D.C. Cir. 1969), cert. denied, 409 U.S. 1027 (1972)). We review an

agency'sinterpretation of its own regulation under a standard "more deferential ... than that afforded

under Chevron." National Medical Enterprises v. Shalala, 43 F.3d 691, 697 (D.C. Cir. 1995).

"[P]rovided an agency's interpretation of its own regulation does not violate the constitution or a

federal statute, it must be given controlling weight unless it is plainly erroneous or inconsistent with

the regulation." Id. (quoting Stinson v. United States, 113 S. Ct. 1913, 1919 (1993) (internal

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quotations and citations omitted)).

In the FNPRM, the Commission stated it was not requesting reply comments in order "to

facilitate swift action on [its] rule changes." FNPRM ¶ 2. The Commission noted that it needed "to

make such changes quickly in order to minimize the effects of the modified rules on existing business

relationships" and to avoid further delaying "the expeditious dissemination of broadband PCS licenses

to entrepreneurs." Id.

We find that the Commission's reasons constitute good cause and, therefore, hold that the

Commission properly waived its reply comment provision. Contrary to petitioners' assertions,

expedition of the rulemaking proceeding was necessary in order to reduce the harm resulting from

delay. In April, potential applicants had informed the FCC that the TEC stay had had an immediately

"chilling effect on potential lenders, investors and strategic partners ... [that was] detrimental to

capitalformation by [would-be C block participants]." Comments on Emergency Petition for Waiver

by Independent Cellular Consultants PCS, Inc. at 7 (April 3, 1995). Additionally, another

commenter noted that, in the wake of that stay, "the uncertainty and delay ... surrounding the

entrepreneur block auctions ... caused potential financing sources to begin actively to considering

other more secure investment opportunities." Comments of DCR Communications, Inc. at 2 (April

3, 1995). And most commenters to the FNPRM urged the Commission to proceed quickly. See

Sixth R&O WW 10, 14, 27, 48.

Petitioners assert, however, that, even if the Commission wasjustified in waiving the right to

reply comments, its actions were still invalid under the APA as a second round of comment is

necessary when an agency alters its course during the rulemaking proceeding. Here, the affiliation

rule the Commission adopted in the Sixth R&O differed from the one it had proposed in the FNPRM.

In deciding whether a second round of comment isrequired, this Court looksto see "whether

the final rule promulgated by the agency is a "logical outgrowth' of the proposed rule." American

Water Works Ass'n. v. EPA, 40 F.3d 1266, 1274 (D.C. Cir. 1994). A final rule is not a logical

outgrowth of a proposed rule "when the changes are so major that the original notice did not

adequately frame the subjects for discussion." Connecticut Light and Power Co. v. Nuclear

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Regulatory Commission, 673 F.2d 525, 533 (D.C. Cir.), cert. denied, 459 U.S. 835 (1982).

In the FNPRM, the Commission announced its tentative conclusion that "it would be

imprudent to extend [that affiliation rule] exception to all entrepreneurs" as such a change would

allow large wireless companiesto dominate the C block auction. FNPRM ¶ 19. Several commenters

suggested a solution to this problem, proposing that, in addition to extending the affiliation rule to

all small businesses, the Commission should also require that the affiliates be under the applicable

financial caps. They contended that this proposed rule would prevent the larger companies from

being able to participate in the auction, but at the same time would protect the reliance interests of

those companies currently utilizing the exception.

The Commission agreed with the commenters and adopted this proposal. The Commission

asserts that this final rule was a "logical outgrowth" of the proposed rule as it was "a compromise

between the rule that was tentatively proposed and the rule that was tentatively rejected."

We agree with the Commission that this final rule was a "logical outgrowth" of the issue as

framed in the FNPRM. The Commission acted well within its authority when it chose to modify the

affiliation exception based on comments responding to the FNPRM rather than to eliminate it. See

United Steelworkers of America v. Marshall, 647 F.2d 1189, 1221 (D.C. Cir.), cert. denied, 453 U.S.

913 (1980) ("[A] final rule may properly differ from a proposed rule ... when the record evidence

warrantsthe change."). The commenters' solution to this problem allowed the Commission to adopt

a rule that was actually more consistent with both the Commission's desire to avoid disrupting the

existing plans of prospective auction participants and its overall approach ofleveling benefits upward

in order to remove the rules' race and gender preferences than the Commission's earlier version.

Further, the "public interest in expedition and finality" in this case outweighed the advantages of

additional comment. Action Alliance of Senior Citizens v. Bowen, 846 F.2d 1449, 1455-56 (D.C.

Cir. 1988), cert. denied, 502 U.S. 938 (1991).

3. Were the FCC's actions arbitrary and capricious?

QTEL contends that the Commission's action in eliminating the race- and gender-based

provisions was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the

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law," 5 U.S.C. § 706(2)(A), as these modifications were not supported by evidence in the record.

An agency's decision is arbitrary and capricious if it "entirely failed to consider an important aspect

of the problem." Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins.

Co., 463 U.S. 29, 43 (1983). Under the arbitrary and capricious standard, the scope of review is

narrow, and we are "not to substitute [our] judgment for that of the agency." Id.; see also Atlantic

Tele-Network, Inc. v. FCC, 59 F.3d 1384, 1388 (D.C. Cir. 1995). Our "duty is to ensure that the

Commission has examined the relevant data and articulated a satisfactoryexplanation for its action...."

AtlanticTele-Network,Inc., 59 F.3d at 1389 (quotingFloridaCellularMobil Communications Corp.

v. FCC, 28 F.3d 191, 197 (D.C. Cir. 1994), cert. denied, 115 S. Ct. 1357 (1995) (internal quotation

and citation omitted)). Applying this deferential standard, we conclude that the Commission's action

survives review.

After Adarand, the Commission had three alternatives: (1) it could retain the option and

attempt to justify it under Adarand; (2) it could level the 49% equity option upward; or (3) it could

eliminate the option. Given those alternatives, the Commission decided to level the benefits upward.

QTEL contends that the Commission acted unreasonably when it elected not to attempt to

defend its original rules after Adarand. We disagree. The Commission reasonably believed that

justifying the old rules under "strict scrutiny" would have been difficult and time-consuming. Only

last March, we stayed the C block auction, finding TEC had demonstrated the "requisite likelihood

of success on the merits" in its claim that the Commission's race-and-gender-based rules were

unconstitutional. The possibility of further delay due to additional litigation if the Commission

retained the race-based rules was great. As we have noted previously, an agency may properly

consider the avoidance of litigation-related delay when revising itsrules. See, e.g., Florida Cellular

Mobil Communications Corp., 28 F.3d at 196-98; Office of Communication of United Church of

Christ v. FCC, 707 F.2d 1413, 1435-37 (D.C. Cir. 1983).

Further, the Commission, although not conceding that the rules would not withstand strict

scrutiny, did state that it did not believe the rules would withstand such scrutiny without the taking

of additional evidence. See Sixth R&O ¶ 11. In light of the significant delays this would require, the

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Commission justifiably rejected this option. Hence, we hold that the Commission did not act

unreasonably when it opted not to defend its race- and gender-based rules in light of Adarand, but

rather, sought to commence the auction quickly and avoid litigation by leveling benefits upward.

Also, we find the Commission's decision to level the benefits upward rather than downward

was justified. By selecting this option, the Commission avoided any issue under Adarand, and yet

complied with the congressionaldirective to create opportunitiesforsmallbusinesses and for womenand minority-owned businesses to participate in the PCS market. As the Commission explained,

expanding this option to all applicants would benefit all bidders by giving them added flexibility in

acquiring capital, a factor that would be critical to a potential bidder'ssuccessin the C block auction.

QTEL contends that expansion of the 49% equity option to include all applicants will lead to

de facto transfers of control, thereby allowing large companies to participate in the C block auction.

Significant safeguards exist within the rules, however, to protect against such "shams." For example,

qualifying entities must still maintain de facto and de jure control of the business, and the agency has

an opportunity to review the entity's structure during the application process. See 47 C.F.R. §

24.720(k); Fifth R&O ¶ 117; Fifth M&O WW 128-29; Sixth R&O ¶ 17.

Also, the Commission properly weighed the reliance interests of affected parties when it

extended the 49% equity option to all potential applicants. See National Ass'n of Independent

Television Producers and Distributors v. FCC, 502 F.2d 249, 255 (D.C. Cir. 1974) (holding that the

Commission was required to take into account petitioners' justifiable reliance upon old rule when

enacting new rule). Eliminating the rule would have harmed many of the small, minority- and

female-owned businesses which could not have otherwise attracted capital. QTEL is the only small,

minority-owned businessthat has claimed to have lost investors because ofthe Commission's change

in rules post-Adarand. Nothing in the record, however, suggests that QTEL's experience mirrored

the situation others faced. In fact, intervenors supporting the Commission argued just the opposite.

4. Did the FCC violate its governing statute?

QTEL also complains that the modified C block auction rules conflict with the Commission's

governing statute which instructed the Commission to "ensure that small businesses, rural telephone

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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 of tax certificates, bidding preferences, and other procedures." 47 U.S.C. §

309(j)(4)(D). QTEL asserts that, as the Commission was acting contrary to congressional intent

when it eliminated the race- and gender-based preferences in the Sixth R&O, no deference must be

shown to the Commission's interpretation of the statute. See American Federation of Gov't

Employees, Local No. 214 v. Federal Labor Relations Authority, 798 F.2d 1525, 1528 (D.C. Cir.

1986).

We find this argument meritless as the amended rules are entirely consistent with the

Commission's statutory obligations. The Commission complied with § 309(j)(4)(D) by considering

the use of tax certificates, bidding credits and other procedures for the C block auction. See Time

Warner Entertainment Co. v. FCC, 56 F.3d 151, 175 (D.C. Cir. 1995) (holding that when a statute

by its terms requires the Commission to consider certain factors "[t]hat means only that [the FCC]

must "reach an express and considered conclusion' about the bearing of a factor, but is not required

"to give any specific weight' to it." (internal citations omitted)). Additionally, the modified rules will

incidentally benefit businesses owned by women and minorities as many such businesses will qualify

as small businesses. See FNPRM n.39 (according to U.S. Census Data, "approximately 99% of all

women-owned businesses and 99% of all minority-owned businesses generated net receipts of $1

million or less").

B. Omnipoint's Claims

Omnipoint contendsthat the rule would have a racially discriminatory effect asthe time given

non-minority, male-owned businesses to take advantage of the 49% equity option was significantly

less than that provided to women and minority-owned businesses. It asserts that the amount of time

provided was insufficient for businesses owned by white males to utilize the option. It argues that

this regulation, even though facially neutral, must be invalidated as it has a racially discriminatory

intent or purpose. See Arlington Heights v. Metropolitan Housing Development Corp., 429 U.S.

252, 265 (1977). Proof of an agency's intent includes "a clear pattern [of agency action],

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unexplainable on grounds other than race[;] ... [t]he historical background of the decision[;] ... the

specific sequence of events leading up to the challenged decision[; and] ... [d]epartures from the

normal procedural sequence...." Id. at 266-67.

Omnipoint citesseveralfactors as evidence of the Commission's discriminatory intent. First,

the C block auction rules were designed and justified as a measure to aid women and minorities, Fifth

R&O ¶ 110, and in the Sixth R&O the Commission stated it was retaining the 49% equity option in

order to preserve "existing businessrelationshipsformed under [its] prior rules and in anticipation of

the C block auction." Sixth R&O ¶ 1. Second, in adopting this new rule, the Commission departed

from its normal rulemaking procedures as it offered no opportunity for reply comments and

accelerated the time provided for notice and comment. Finally, non-discriminatory options were

available to the Commission that would have achieved the same results as expanding the option to

all businesses. For example, Omnipoint suggests the Commission could have eliminated the 49%

exception and still held the auction as scheduled.

We disagree with Omnipoint's contentions, and find the regulation nondiscriminatory in both

purpose and effect. As we stated above, we believe that the Commission properly took into account

the reliance interests of affected parties when it decided to retain the 49% equity option and expand

it to all potential applicants. Contrary to Omnipoint's contentions, that the Commission considered

the effect a rule change would have on minority-and-women-owned businesses does not evince its

discriminatory intent.

In addition, we find that the rulemaking proceeding was shortened in order to preserve the

business relationships of all potential bidders, not just women and minorities. Indeed, most

commenters urged the Commission to move quickly in order to avoid additional delay in the C block

auction, including many non-minority, male-owned entities. As the Commission noted, opposition

to the race and gender neutralrules came not fromnon-minorities and males, but rather, fromwomen

and minorities.

We also find that the Commission reasonably concluded that the petitioners and others like

them had sufficient time to take advantage of the 49% equity option. As evidence of this, we note

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that at least one white male-owned business adjusted to the rule change in the time provided. In

addition, parties wishing to utilize this option are not required to do so before the auction, but may

convert to this structure at any time. See 47 C.F.R. § 1.2105(c)(4)(i).

C. Joint Petitioners' Claims 

The joint petitioners also assert that the affiliation rule adopted by the Commission violates

§ 309(j)(3)(B) of the Communications Act, which states that, in designing auction procedures, the

Commission shall seek to promote "economic opportunity and competition ... by disseminating

licenses among a wide varietyof applicants, including small businesses." (emphasis added). The joint

petitioners contend that by making the affiliation rule race- and gender-neutral the Commission

undermined its statutory mandate to aid bona fide small businesses as this change allows major

companies to qualify as small businesses by simply forming new commonly owned corporations to

be the applicant. Arguing that this rule is inconsistent with the Commission's governing statute,

petitioners assert that it is beyond the agency's discretion and may be reversed and remanded without

the normal deference accorded to an agency by the reviewing court. See Chevron U.S.A., Inc. v.

Natural Resources Defense Council, 467 U.S. 837 (1984).

We must first determine whether the joint petitioners are barred from raising this issue.

Although they concede that they failed to raise this issue before the Commission, they contend that

theywere barred fromdoing so asthe Commission stated in the FNPRM that it was not inviting reply

comments. They assert that any attempt to raise the issue after issuance of the Sixth R&O would

have been futile as the auction was to commence August 29, a few days after the statutory time

period for filing petitions for reconsideration.

As a general rule, claims not presented to the agency may not be made for the first time to a

reviewing court. See United States v. L.A. Tucker Truck Lines, 344 U.S. 33, 37 (1952). Section 405

codifies this requirement by requiring parties to petition the FCC for rehearing before raising a new

issue on judicial review. 47 U.S.C. § 405(a). This Court has construed § 405 to require that

complainants give the FCC a " "fair opportunity' to pass on a legal or factual argument" before

coming to court. Washington Ass'n for Television and Children (WATCH) v. FCC, 712 F.2d 677,

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680-82 (D.C. Cir. 1983) (citation omitted); see also City of Brookings Mun. Tel. Co. v. FCC, 822

F.2d 1153, 1163 (D.C. Cir. 1987). Because section 405 also contains the "traditionally recognized

exceptions to the exhaustion doctrine," a reviewing court may consider arguments where issues by

their nature could not have been raised, or would have been futile, to raise before the agency.

WATCH, 712 F.2d at 682; accord Office of Communication of the United Church of Christ v. FCC,

779 F.2d 702, 706-07 (D.C. Cir. 1985).

We agree with the joint petitioners that attempting to raise this issue before the Commission

would have been futile as the Commission was rapidly expediting the proceeding and appeared

"wedded to the procedures that it had employed." City of Brookings Mun. Tel. Co., 822 F.2d at

1163. Any changes in the rule after the issuance of the Sixth R&O would have almost certainly

resulted in a delay, inconsistent with the Commission's shortened timeline. Hence, this issue is

properly before us for review. However, on the merits of the issue, we hold for the Commission.

Although § 309 does not define "small businesses," the Commission in its original C block

rules defined small businesses as those with "a net worth not in excess of $6 million with average net

income after Federal income taxes for the two preceding years not in excess of $2 million." Fifth

R&O ¶ 172. In 1994, the Commission raised the small business threshold for broadband PCS to the

$40milliongrossrevenuesstandard,recognizing that "incertaintelecommunicationsindustrysectors,

[the prior] limit may not be high enough." Id. The rules contained an exemption for minority-owned

businesses, which were allowed to ignore the grossrevenues of their affiliates. Fifth M&O WW 40-

41. In its Sixth R&O, the Commission expanded this exemption to include all small businesses,

provided the annual gross revenue of such affiliates was below $125 million and the total assets of

all such affiliates was below $500 million. Sixth R&O ¶ 32.

The joint petitioners argue that the Commission did not adequately justify this expansion,

noting that there is no rational connection between the Commission's actions and the purpose of §

309(j), which is to provide opportunities for small businesses to participate in the auction for

spectrum-based services. They disagree with the Commission's proffered justificationthat the

capitalrequirements ofthe PCS business are so large that they required the extension ofthe affiliation

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rule to companies with greater assets and revenuesand contend that the original $40 million

standard was adequate, noting that in the Fifth R&O the Commission found "there [was] substantial

support in the record for [this] standard." Fifth R&O ¶ 175. The joint petitioners allege that this

change will harm small businesses owned by women and minorities as 99% of these businesses have

revenues below $1 million. Sixth R&O at ¶ 8 n.29.

The joint petitioners also contend that no support exists in the record for finding that

elimination of the rule rather than its expansion would have upset established business relationships.

They note that large companies with assets between $40 to $125 million could still have participated

in the C block auction if the exception had been eliminated. The only difference would be that such

firms would not qualify as small businesses and, therefore, would not receive the small business

benefits.

We hold that the Commission did not violate § 309(j) by modifying the affiliation rule.

Nothing in the statute prohibited the Commission from extending additional benefits to companies

whose affiliates have grossrevenues up to $125 million, and the Commission adequately justified the

extension of the rule. Prior to the A and B block auctions, the Commission stated: "We expect

broadband PCS to be a highly capital intensive business requiring bidders to expend tens of millions

of dollars to acquire a license and construct a system even in the smaller broadband PCS markets."

Fifth R&O ¶ 174. The Commission's experience with the A and B block auctions confirmed this

prediction as even large telecommunication companies did not bid on their own but joined together

as partnerships.

By making a limited affiliation exception available to a broader range of businesses, the FCC

created an additional vehicle for small businesses to pool their resources. Recognizing the benefits

of pooling, the FCC determined that

all small businesses, including those owned by minorities and women, should not be

precluded frompooling their resourcesin this capital intensive service.... In addition,

small businesses experienced in managing smaller businessesshould not be penalized

because they own or are otherwise affiliated with other businesses whose assets and

revenues must be considered on a cumulative basis and aggregated for purposes of

qualifying for the C block auction.

Sixth R&O ¶ 32. Thus, modification of the affiliation rule aids participation by small businesses in

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the C block auction by providing an additional means for small businesses to meet their financial

needs. We find it entirely reasonable for the Commission to extend an additional advantage to more

companies that qualified to bid in the entrepreneurs' blocks. We also note that companies with gross

revenues of $40 million or less retain significant advantages, including the ability to form consortia

with other small businesses. 47 C.F.R. § 24.720(b)(3).

In addition, elimination of this provision would have harmed many of the minority-owned

businesses that had been relying upon the rule. See International Union, United Auto., Aerospace

& Agric. Implement Workers of America v. Brock, 783 F.2d 237, 248 (D.C. Cir. 1986) (noting that

the public justifiably relies upon administrative agencies' rules and interpretations). Here, a bidder

who had been relying on the 49% equity option would have an established businessrelationship with

only one investor and would have to find new investors in order to convert to the 25% equity

structure. In contrast, a bidder who had been relying upon the 25% structure would have

relationships with a number ofinvestors, one of whom might be willing to take advantage of the 49%

investment option. Thus, the Commission reasonably decided to "cap" the affiliation exception and

make it race-neutral.

IV. CONCLUSION

We conclude that theCommission did not violate the APAor its own regulations by providing

a shortened period for notice and comment, by making the rule effective immediately and by

dispensing with reply comments in the rulemaking process. In addition, we find the Commission, in

adopting rules that eliminated race- and gender-based preferences by leveling benefits upward, did

not act arbitrarily and capriciously in violation of 5 U.S.C. § 706(2)(A); did not discriminate against

white males; and did not violate its statutory mandate to aid small business under § 309(j)(3)(B).

Hence, we uphold the Commission's Sixth R&O.

WALD, Circuit Judge, dissenting in part: Although I concur with most of the panel's analysis

regarding the Federal Communications Commission's ("FCC") Sixth Report & Order, I believe that

the FCC failed to provide the reasoned explanation for its decision to expand the 49% equity option

to include all C block applicants which is required by § 706(2)(A) of the Administrative Procedure

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1The APA directs a reviewing court to "hold unlawful and set aside agency action, findings,

and conclusions found to be arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law." 5 U.S.C. § 706(2)(A) (1994). 

Act ("APA").1 Accordingly, I would vacate those portions of the Sixth Report & Order which

expand the 49% option and remand to the FCC to provide, if it can, an adequate explanation of why

it abandoned its earlier position that extending the 49% option to all qualifying applicants would

permit larger companies to circumvent the C block financial caps.

In authorizing the auction ofspectrum licenses, the Communications Act directs the FCC to

promulgate regulations which promote the goal of "disseminating licenses among a wide variety of

applicants, including small businesses, ruraltelephone companies, and businesses owned bymembers

of minority groups and women." 47 U.S.C. § 309(j)(3)(B) (1988). As the majority acknowledges,

the Commission also recognized that in order to compete successfully in the broadband personal

communication services ("PCS") market, small businesses would require amounts of capital usually

accessible only to larger companies. See Majority opinion ("Maj. op.") at 4. In the first set of rules

issued by the FCC governing the C block auction, the Commission determined that it could best

achieve a balance between these two objectivespreserving opportunitiesfor small and minority- or

women-owned businessesto participate in the PCS market, and permitting small businessesto obtain

significant investment from larger entitiesby allowing up to three large investors to hold passive,

nonvoting equity blocks of up to 25% each in a qualifying entity (the "25% equity option"). The

Commission explained that

the 25 percent limitation on equity investment interests will serve as a safeguard that

the very large entities who are excluded from bidding in these blocks do not, through

their investmentsin qualified firms, circumvent the grossrevenue/total asset caps. At

the same time, it will afford qualified bidders a reasonable measure of flexibility in

obtaining needed financing from other entities....

Implementation of Section 309(j) of the Communications ActCompetitive Bidding, Fifth Report

and Order, 9 FCC Rcd 5532, 5601-02 ¶ 159 (1994) ("Fifth Report & Order "), on recon., Fifth

Memorandum Opinion and Order, 10 FCC Rcd 403 (1994). To ensure that control over the C block

licensesremained with the actual applicants, rather than with the larger companies who might utilize

the 25% equity option to gain control of a C block license, the FCC stipulated that the control group

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in any small company exercising the 25% option must hold at least 25% of the equity, 50.1% of the

voting stock, and all general partnership interests. Id. ¶ 158. The Commission also prohibited

successful C block bidders from assigning or transferring their license to any other entity for three

years, and from assigning or transferring it to an entity with income and assets over the C block

financial caps for an additional two years. Id. ¶ 128.

For minority- and women-owned businesses, however, the FCC developed an additional

option to help these entities surmount the more severe difficulties the Commission found they faced

in attracting investment capital. Under this alternative, an entity with income and assets over the

eligibility caps could own up to 49.9% of passive, nonvoting equity in a minority- or women-owned

business(the "49% option"). In support of this decision, the Commission explained that "women and

minorities have especially acute problems in obtaining financing.... [T]o afford women and

minority-owned businesses more flexibility in attracting financing, it is necessary to provide these

entities with an alternative, somewhat more relaxed option regarding the attribution of revenues of

passive investors." Id. ¶ 160.

Confronted with the inevitability of new legal challengesto the 49% option in the wake of the

Supreme Court's decision in Adarand, the FCC decided to expand its availability to all eligible C

block applicants, not just minority- and women-owned businesses, rather than delay the auction while

the constitutionality of a restricted option was litigated. As the majority notes, the Commission

explained in its order setting forth this change that expansion of the 49% option was preferable to

either defending the Fifth Report & Order against a legal attack based on Adarand 's strict scrutiny

principle or eliminating the option altogether; this middle course of action, the Commission thought,

would avoid diminishing the value of the licenses through delay of the auction, and it would protect

the deals struck by minority- and women-owned businesses and their investors in reliance on the

original rules. See Maj. op. at 16-18; Implementation of Section 309(j) of the Communications

ActCompetitive Bidding, Further Notice of Proposed Rulemaking, F.C.C. 95-263 (June 23, 1995)

WW 7-10; Implementation of Section 309(j) of the Communications ActCompetitive Bidding,

Sixth Report and Order, F.C.C. 95-301 (July 18, 1995) ("Sixth Report & Order ") ¶ 11. In response

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to concerns expressed by commenters that this expansion might allow large companies to penetrate

a significant proportion of the C block market, in contravention of congressional intent, the

Commission answered:

With respect to the Control Group Minimum 50.1 Percent Equity Option, we

previously explained that in order to guard against abuses, the control group of

applicants choosing this option must own at least 50.1 percent of the applicant's

equity, as well asretain control and hold at least 50.1 percent ofthe voting stock. We

have previously concluded that thisrequirement reducessubstantially the danger that

a well-capitalized investor with substantial ownership stake will be able to assume de

facto control of the applicant.

Sixth Report & Order ¶ 17.

I do not take issue with the Commission's contention that defense of the original scheme or

elimination of the 49% option entirely might have decreased the value of the licenses through delay

or harmed C block applicants who had relied on the original rules. Both of these concerns may

indeed be acceptable grounds for changing the substance of the original agency proposal. See, e.g.,

Florida Cellular Mobil Communications Corp. v. FCC, 28 F.3d 191, 196 (D.C. Cir. 1994), cert.

denied, 115 S. Ct. 1357 (1995) (delay); Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 220

(1988) (Scalia, J., concurring) (reliance on prior rule). My problem with the Commission's

announced rationale for extending the 49% option to all small business applicants is rather this: in

setting forth the initial auction rules, the Commission explicitly declined to extend the 49% equity

option to all C block applicants because of its concern that even with the safeguards outlined above,

the opportunity to make such a substantialinvestment in allC block entities, rather than just minorityand women-owned businesses, would allow large companies to exercise too much control over too

many licensesthat are targeted forsmall businesses. In its post-Adarand version ofthe auction rules,

however, the Commission contends that expansion of the 49% option to include all C block

applicants does not pose any such risk. By way of assurance, it asserts only that existing restrictions

on the 49% optionwhich are identical to those initially imposed on the 25% optionare now

sufficient to protect against the dangers of big company capture they identified previously. I would

like to know why the Commission is suddenly confident that if this expansion does produce a

dramatic increase in penetration of the C block license market by large entities, as some of the

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petitioners claimit will and astheCommission previouslyworried it would, protection for the reliance

interests of minority- and women-owned businesses will not have been secured at the expense of the

FCC's statutory mandate to reserve this block of PCS licenses principally for small businesses.

Because its about-face may have such significant consequences in determining the identity of those

who hold these licenses, I believe the Commission needsto give a more thorough explanation for why

it no longer worries about back-door control by bigger businesses.

I appreciate the concern expressed by my colleagues and the Commission regarding the

potential effects of delay on the value of the C block auctions, and in these circumstances, the FCC

might well have been justified in providing a less thorough rationale than usual for its change in

course. But at a minimum, it should have explained why existing safeguards were sufficient to

protect against excessive penetration by large companies, or it might have acknowledged the

continuing threat ofsuch penetration, but proposed to engage in heightened oversight to prevent this

result. It has done neither. Even in the face of pressure for expeditious action, the APA's

requirement that an agency must provide a "reasoned explanation" for its actions still applies. See,

e.g., Motor Vehicle Mfrs. Ass'n v. State Farm Mut., 463 U.S. 29, 43 (1983) ("an agency rule would

be arbitrary and capricious if the agency has ... entirely failed to consider an important aspect of the

problem, [or] offered an explanation for its decision that runs counter to the evidence before the

agency"); Florida Cellular Mobil Communications, 28 F.3d at 196 ("the fact that an agency rule

represents a change in course simply requires courts to make sure that prior policies are being

deliberately changed, not casuallyignored, and that the agency has articulated permissible reasonsfor

that change" (quoting Clinton Memorial Hosp. v. Shalala, 10 F.3d 854, 859 (D.C. Cir. 1993)). If

this requirement is to have any meaning, I believe we are obliged to remand those portions of the

FCC's Sixth Report &Order which expand the 49% equity option so that the agencymayexplain how

its original fears of big business control have been assuaged or countermanded.

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