Opinion ID: 496700
Heading Depth: 2
Heading Rank: 3

Heading: The Relative Demand Issue

Text: 62 Gencom faults the Commission's failure to grant it a comparative preference under this subissue for two reasons. First, it argues that it did in fact adequately substantiate the assumption built into its demand survey that businesses would be the primary users of cellular service. Brief for Gencom Inc. at 48-52. It claims that its decision to survey only businesses to assess demand in the Phoenix market was based on its past experience in providing conventional two-way radiotelephone service in Phoenix. Id. at 51. Thus, it contends that the Commission's decision not to award it a preference for its market research is inconsistent with cellular decisions in other markets where applicants have garnered preferences for business-only demand studies. Id. at 55. 63 Second, Gencom argues that the Commission misread the ALJ's initial decision in concluding that its demand assessment was further flawed by its reliance on pager use as an accurate predictor of cellular demand. Brief for Gencom Inc. at 55-58. It maintains that there is no factual support in the record for this conclusion, and that the ALJ's criticism of the pager assumption was directed exclusively at CMS. Id. Gencom concludes that once these two unwarranted demerits are expunged, its otherwise superior demand study must be preferred over those of its two competitors. Id. at 58-59. Since we find that the chain of Gencom's legal reasoning fails to hold at either critical link, we reject its conclusion, and find that the FCC's decision to award no comparative preferences under this criterion was a reasonable one. 64 Gencom is correct in observing that the Commission has in the past awarded preferences to applicants who have conducted market studies designed to measure only business demand. At the same time, it has consistently required that those applicants provide some factual support for their assumption that non-business demand would be inconsequential. See Rogers Radiocall, Inc., 96 F.C.C.2d 1172 (hereinafter Chicago Final Decision ), reconsideration denied, 98 F.C.C.2d 1293 (1984), aff'd sub nom. Cellular Mobile Systems of Illinois, Inc. v. FCC, 782 F.2d 214 (D.C.Cir.1986); Celcom Communications Corp. of Pennsylvania, 58 Rad.Reg.2d (P & F) 1219 (hereinafter Philadelphia Final Decision ), aff'd on reconsideration, 58 Rad.Reg.2d (P & F) 1132 (1985) (hereinafter Philadelphia Reconsideration ), aff'd sub nom. Cellular Mobile Systems v. FCC, 792 F.2d 239 (D.C.Cir.1986) (hereinafter CMS (Philadelphia) ). 65 In the Chicago proceeding, as in Phoenix, all three applicants limited their demand surveys to business users. The winning applicant, Rogers Radiocall, was accorded a moderate preference for its demand survey despite its exclusive focus on commercial use. The ALJ found that Rogers had substantiated its business-only assumption with a study indicating that businesses were the primary users of conventional two-way radio, as well as a showing that cellular service would be overpriced for the residential market. See Rogers Radiocall, Inc., 96 F.C.C.2d 1194, 1198-99 & n. 11 (1983) (Chicago Initial Decision ). The issue was not directly raised before the full Commission on review, and it simply stated that Rogers had made its assumptions explicit and that they appeared reasonable. See Chicago Final Decision, 96 F.C.C.2d at 1180-81. Based on the entire record, including the deficienices of its rivals' demand studies, the Commission affirmed the ALJ's conclusion that Rogers had provided a significantly more reliable analysis of the extent and distribution of demand for cellular service in Chicago. Id. at 1811. 66 In the Philadelphia proceeding, Automatic Wide Area Cellular Systems (AWACS) received a moderate preference for demand protections based only on commercial survey data. See Philadelphia Final Decision, 58 Red.Reg.2d (P & F) at 1224-25. On petition for review, this court explicitly affirmed the Commission's conclusion, stating: 67 AWACS did not merely assume that business users would be the only significant cellular customers. Instead, AWACS conducted a residential survey and, based on the results of this survey, the advice of its consultants, and its own business judgment, AWACS reasonably concluded that nonbusiness use would be insignificant. 68 CMS (Philadelphia), 792 F.2d at 240 (footnote omitted). 69 In contrast to the evidence produced by the Chicago and Philadelphia applicants to justify their exclusion of potential residential users from their demand projections, Gencom provided the Commission with little support for its decision to ignore non-business demand. In its direct case Gencom offered the testimony of Michael Moore, a Vice President of Compucon, Inc., the market research firm which conducted Gencom's demand study. See J.A. at 64-92. He indicated that Gencom's demand projections were based entirely on 300 telephone interviews with randomly selected businesses in the Phoenix area. Id. at 65, 72-73. As to why a business-only universe was selected for the survey, Mr. Moore stated: 70 Business establishments rather than residences were surveyed because of our conclusion that cellular service would be used primarily by business owners and employees in conjunction with their occupations or commuting to their place of work as opposed to personal use by private individuals outside of business hours or drive time. 71 Id. at 75. 72 This is nothing more than a restatement of the assumption itself. While we agree with Gencom that it thus made its underlying assumption explicit, we cannot agree that it provided the Commission with evidence which suggested that its assumption was based on the reasonable exercise of its business judgment. Compare Chicago Final Decision, 96 F.C.C.2d at 1180-81; Philadelphia Reconsideration, 58 Rad.Reg.2d (P & F) at 1135. 73 As we indicated in our review of the Pittsburgh proceeding, [s]ophisticated applicants such as [Gencom] would be rather naive to believe that the FCC would meekly accept [their] demand studies as valid ... the FCC could realistically undertake this entire exercise only by examining assumptions and methodology to determine whether an applicant's demand forecast was likely to be valid. CMS (Pittsburgh), 782 F.2d 182, 206 (D.C.Cir.1985). At the time Gencom filed its direct case, the Commission's regulations specifically required that all statistical studies, including sample surveys, introduced in any common carrier proceeding, be supported by supplementary details ... so as to give a comprehensive delineation of the assumptions made, the study plan utilized and the procedures undertaken. See 47 C.F.R. Sec. 1.363(a) (1981). 74 Based on our review of the record before us, we cannot say that the Commission's conclusion that Gencom had not adequately substantiated its business-only assumption was not supported by substantial evidence or was otherwise arbitrary or capricious. See Greater Boston Television Corp. v. FCC, 444 F.2d 841, 851 (D.C.Cir.1970) (court's role in reviewing comparative licensing proceeding is to assure that the agency has given reasoned consideration to all the material facts and issues), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701 (1971). We thus affirm the Commission's determination that Gencom's exclusion of residential demand from its analysis was inadequately substantiated. 75 Gencom's second attack on the FCC's evaluation of its demand study rests on the Commission's allegedly erroneous finding that Gencom had relied on pager use as a rough analogue for cellular in formulating its demand protections. All three applicants in the Phoenix proceeding conducted primary as well as secondary market research. See Phoenix Initial Decision, at paragraphs 16-30, J.A. at 10-15. Primary research consists of direct contact with potential customers through telephone or mail surveys, while secondary research generally entails computer evaluation of demographic and population statistics, as well as in some cases, analysis of conventional radio-telephone and/or pager use. See generally CMS (Pittsburgh), 782 F.2d at 190-91. As noted above, Gencom's primary research in the Phoenix market consisted of a telephone survey of 300 randomly selected business establishments in the SMSA. Gencom applied the level of interest expressed by its survey sample to the projected number of businesses in the Phoenix area in arriving at a figure for total potential demand in the Phoenix market. See J.A. at 79. Gencom's secondary research consisted in part of an analysis of the historical rate of demand for radiotelephone and paging services in Phoenix as well as other markets. Id. at 84. By projecting the demand rate for conventional radiotelephone and pager use forward Gencom arrived at an acceptance or penetration rate for cellular service, i.e., a prediction of the number of potential customers identified through its primary research who would actually subscribe to cellular service. Id. at 84-86. Gencom acknowledges that it made this limited use of pager data in its secondary research to determine cellular acceptance rates and hence final demand projections. See Brief for Gencom Inc. at 57. However, it argues that it was not this fact that the Commission relied upon in criticizing its demand assessment. In his initial decision the ALJ observed that CMS had limited much of its primary research to previously confirmed pager users. See Phoenix Initial Decision at Sec. 73, J.A. at 28. The reference to CMS' limitation of its survey universe came in a paragraph discussing both CMS' and Gencom's demand studies. See supra p. 13. Gencom maintains that the Commission in both its final decision and reconsideration order erroneously ascribed the ALJ's criticism of CMS' primary research to Gencom. See Brief for Gencom Inc. at 57-58. 76 The language of the FCC's final decision is unclear in this regard. Referring to both Gencom and CMS, the Commission stated, they both assumed that paging, a one-way radio service, is a representative model for cellular and that paging subscribers would be most likely to demand cellular two-way radio. Phoenix Final Decision, 56 Rad.Reg.2d (P & F) at 1604. Gencom did indeed assume that paging was a representative model for cellular in formulating its acceptance rate for potential cellular users, it did not do so in structuring its primary survey universe. 77 We decline to decide this issue, for even if Gencom is correct in its contention that the FCC misread the initial decision, Gencom never raised this issue before the Commission. Gencom's omission deprives us of both an adequate record and the benefit of the FCC's expertise in resolving this issue. 78 The scope of our review of FCC orders is expressly limited by 47 U.S.C. Sec. 405, which provides in pertinent part: 79 The filing of a petition for reconsideration shall not be a condition precedent to judicial review of any such order, decision, report or action, except where the party seeking such review ... relies on questions of fact or law upon which the Commission ... has been afforded no opportunity to pass. 80 47 U.S.C. Sec. 405 (1982). 81 Our cases have construed section 405 to require complainants to give the Commission a fair opportunity to pass on a legal or factual argument before coming to the court. See Washington Ass'n for Television & Children v. FCC, 712 F.2d 677, 681 (D.C.Cir.1983); Alianza Federal de Mercedes v. FCC, 539 F.2d 732, 739 (D.C.Cir.1976). 82 Although not a model of clarity in all respects, the Commission's final decision was crystal clear in one regard--Gencom's demand study was explicitly penalized for assuming that pager use was an adequate basis for predicting cellular demand. Yet Gencom inexplicably limited its Petition for Reconsideration to another aspect of the Commission's decision, by-passing an opportunity to correct what it now asserts is a completely unsupported factual error. Moreover, Gencom had a second opportunity to bring the alleged error to the FCC's attention, after the Commission sua sponte, repeated its findings on the relative demand issue in its Reconsideration Order. See Phoenix Reconsideration, 60 Rad.Reg.2d (P & F) at 579. 83 As we have noted in the past, [o]ne of the purposes of [section] 405 is to afford the Commission the initial opportunity to correct errors in its decision.... Rogers Radio Communications Services v. FCC, 593 F.2d 1225, 1229 (D.C.Cir.1978). In a highly technical area such as this one, meaningful review without a clear statement from the Commission on the disputed issue is well-nigh impossible. Since Gencom twice eschewed opportunities to raise its objections before the Commission, we hold that it is precluded from doing so for the first time before this court. 84 Having rejected both of Gencom's challenges to the Commission's evaluation of its demand analysis, we affirm the FCC's conclusion that Gencom did not merit a preference under this subissue.