Opinion ID: 496700
Heading Depth: 2
Heading Rank: 1

Heading: The Phoenix Proceeding

Text: 8 On June 7, 1982, three companies--Metro Mobile, Gencom and Cellular Mobile Systems (CMS)--filed applications for a construction permit to establish a new cellular radio system in Phoenix, Arizona. By order dated January 31, 1983, the FCC found each of the three applicants for the Phoenix market to be legally, technically, and financially qualified to construct and operate its proposed cellular system. See Advanced Mobile Phone Service, Inc., 48 Fed.Reg. 6030 (1983) (hereinafter Phoenix Designation Order ). The Commission, through its Common Carrier Bureau, designated the applications for comparative hearing and ordered that the applicants be compared on the following factors: (a)(1) the geographic and population area that each applicant proposed to serve, (a)(2) the relative demand for cellular service within those areas, (a)(3) the ability of each applicant's proposed system to accommodate the anticipated initial demand; (b) the proposed expansion plans of each applicant to meet future demand; and (c) the rates, maintenance, personnel and facilities proposed. 3
9 At the time the Phoenix cellular applications were filed, FCC rules required applicants to supply evidence that each proposed antenna site was available for use. 4 Pursuant to this requirement, Metro Mobile stated in its application that it had received from the owner or authorized agent of each of the cell sites proposed herein a commitment to lease or to negotiate a lease for the land, building, and/or tower space necessary to construct the facilities proposed at each location. See Metro Mobile Application, FCC Form 401, Exhibit 10 at 4, Joint Appendix (J.A.) at 96. 10 For its proposed cell site No. 5, Metro Mobile submitted a letter, dated May 13, 1982, from Mike and Helene Eslinger, to Jack Brennan, a Vice-President of Metro Mobile. 5 The letter stated that the Eslingers would be willing to enter into a lease with Metro Mobile for space at 5335 E. Hillery, Scottsdale, Arizona. The Eslinger letter went on to state that to the best of their knowledge, Metro Mobile's antenna could be accommodated on their premises without any interference to or from any apparatus presently on the building. J.A. at 101. 11 On February 24, 1983, some three weeks after release of the FCC's designation order framing the issues, Gencom filed a Motion to Enlarge Issues Concerning Site Availability, Site Suitability and Possible Misrepresentation. See J.A. at 269-312. In its motion, Gencom noted that Metro Mobile's proposed site No. 5 was the home of the Eslingers and that Helene Eslinger was a real estate agent retained by Metro Mobile to locate antenna sites for its proposed system. Id. at 274. Gencom asserted that Metro Mobile had no bona fide intention of using proposed site No. 5 and had no reasonable assurance that the site was genuinely available for use. In fact, Gencom alleged, Metro Mobile had already completed negotiations for the use of a site other than the Eslingers' property. 12 In support of these allegations, Gencom submitted the affidavit of Ronald Zemaitis, a real estate broker hired by Gencom to investigate site No. 5. See J.A. at 291. The Zemaitis affidavit, dated October 25, 1982, purported to relate a conversation which occurred between Zemaitis and Mrs. Eslinger on September 9, 1982. Zemaitis stated that Mrs. Eslinger had informed him that the site Metro Mobile had anticipated using for cell No. 5 was not available when its application was filed, and that she had substituted her own home as a cell location until negotiations could be completed regarding the preferred site. Id. at 291-92. 6 Gencom also submitted evidence that the East Hillery location was in the middle of a residential neighborhood and that only limited space was available at the proposed site. 13 In opposition to Gencom's motion, Metro Mobile claimed that it had, and continued to have, a reasonable assurance that the site would be available for its intended use. See J.A. at 315-23. In support of this claim, Metro Mobile submitted two affidavits--one from Mrs. Eslinger--the other from its Vice-President, Jack Brennan. In her affidavit, Mrs. Eslinger confirmed that the East Hillery property was available for use as a tower site when my husband, Michael, and I signed a letter to that effect on May 13, 1982; it has been continually available since that time; and it is still available. J.A. at 333. Mrs. Eslinger also denied ever having spoken to Mr. Zemaitis concerning Metro Mobile and indicated that to the best of her knowledge Metro Mobile had not obtained any alternative site for cell No. 5. Id. The Brennan affidavit affirmed that the Eslinger property remains the intended location for Metro Mobile's site No. 5. It further stated that [n]o alternative location for cell Number 5 has been obtained. Nor is it Metro Mobile's present intention to so obtain an alternate location. Id. at 335. 14 On June 10, 1983, the Administrative Law Judge (ALJ) issued a decision denying Gencom's motion to designate site availability and misrepresentation issues against Metro Mobile. See J.A. at 386-90. The ALJ determined that although the property was in a residential area, Gencom had not shown that the Eslingers were unwilling to permit the necessary changes in the site to accommodate Metro Mobile's equipment, or that the necessary modifications were somehow infeasible. The ALJ found that Gencom's contentions that Metro Mobile had misrepresented the availability of site No. 5 or its intention to use the property were based on pure speculation. Id. at 390. He observed that Metro Mobile continued to represent that it intended to use the Eslinger property for cell No. 5, and that the Eslingers were equally unequivocal in affirming their continued willingness to lease the site to Metro Mobile. Id. The ALJ found that Gencom had failed to come forward with any documentation which refutes either contention. Id. 15 Gencom continued to call for further examination of its claims regarding Metro Mobile's site No. 5 even after the Commission's final decision awarding the Phoenix license to Metro Mobile. In response to a post-grant application by Metro Mobile seeking FCC approval for substantial changes in its cell distribution, Gencom filed a Petition to Remand Proceedings with Instructions to Reopen the Record on the Issue of Possible Misrepresentation by Metro Mobile. See J.A. at 546-83. Gencom claimed that Metro Mobile's decision to redistribute all its cells, including cell No. 5, constituted new evidence supporting its contention that Metro Mobile had never intended to use the Eslingers' home as a cell site. Id. at 558. In response, Metro Mobile argued that its decision to relocate all its cells and to add two additional cells, was a business decision based on Metro Mobile's desire to compete effectively with the other licensed cellular system in the Phoenix market. 7 16 In its reconsideration order, the Commission declined Gencom's suggestion to reopen the record concerning site No. 5. The Commission affirmed the ALJ's conclusion that Gencom's allegations in its Motion to Enlarge were based on pure speculation. See Gencom, Inc., 60 Rad.Reg.2d (P & F) 575, 581 (1986) (hereinafter Phoenix Reconsideration ). As to Gencom's new evidence, the Commission noted that it expected post-grant changes in system design and that such modification could not be taken as tending to show that an applicant never intended to implement the design it originally proposed. Id. at 581. 17
18 Based on the voluminous written record, the ALJ issued his initial decision on December 30, 1983. See Gencom Inc., FCC No. 83D-71, J.A. at 5-34 (hereinafter Phoenix Initial Decision ). Under subissue (a)(1), the ALJ found that Metro Mobile's proposal was superior to both of its competitors' plans in both area and population coverage, and thus awarded Metro Mobile a comparative preference in this category. 8 Specifically, the ALJ found that Metro Mobile planned to cover 17.2% of the Phoenix SMSA, as compared to 17% coverage for CMS, and 11.2% for Gencom. See Phoenix Initial Decision, at p 7, J.A. at 7-8. Moreover, the ALJ explicitly determined that the areas exclusively covered by Metro Mobile's proposed system were areas of anticipated high demand for cellular service. 9 Gencom argued that its failure to provide coverage to certain sparsely populated areas should be considered from the standpoint of whether or not such coverage was economically justified. It produced economic studies which allegedly demonstrated that if unnecessary or uneconomical cells were removed from its competitors' systems, their coverage would closely resemble its own. See Gencom Rebuttal Case, J.A. at 208-11, 212-36. The ALJ did not consider Gencom's economic efficiency evidence in reaching his determination. 19 In its final decision, the Commission affirmed the ALJ's conclusion that Metro Mobile had demonstrated superior area and population coverage. See Gencom, Inc., 56 Rad.Reg.2d (P & F) 1597, 1602 (1984) (hereinafter Phoenix Final Decision ). While it reduced Metro Mobile to a slight preference on this subissue vis-a-vis CMS, the Commission explicitly adopted the ALJ's findings regarding the comparative deficiency of Gencom's coverage in relation to that of both its competitors' systems. Id. at 1603. 20 The Commission also rejected Gencom's argument that the economic efficiency of proposed coverage should play a role in the comparative analysis, stating: 21 We are not persuaded that refraining from providing service to sparsely populated areas, although it may be economically efficient to do so, is always in the public interest, particularly in this case, where it appears from the record that significant future demand is anticipated. We also agree with the STS [Separated Trial Staff] that the introduction of economic efficiency as a basis of comparison would not assist us in making a determination as to whose proposed coverage is superior. The massive filings that would be generated would likely be inconclusive and would add additional delay in bringing cellular service to the public. 22 Phoenix Final Decision, 56 Rad.Reg.2d (P & F) at 1603-04. 23 In its reconsideration order the Commission again revisited the coverage subissue. The Commission noted that in its final decision it had awarded Metro Mobile a slight preference for coverage with respect to CMS, but had not explicitly ranked Gencom's coverage proposal. Since it had upgraded Gencom's comparative status under another subissue, 10 the Commission found it necessary to compare Gencom directly to Metro Mobile under the coverage rubric. Again the Commission found that Gencom's coverage was distinctly inferior to that of Metro Mobile, and awarded the latter a moderate preference under subissue (a)(1). See Phoenix Reconsideration, 60 Rad.Reg.2d (P & F) at 580. 24
25 Under criterion (a)(2), cellular applicants are required to provide estimates of consumer demand for mobile telephone service in their proposed coverage areas. Each of the Phoenix applicants conducted some form of direct market study to arrive at its demand projections. The ALJ declined to award any applicant a preference under this subissue, finding that [a]ll three applicants have conducted research which is flawed in several respects. See Phoenix Initial Decision, at p 73, J.A. at 28. Specifically the ALJ found that: 26 Although Gencom and CMS conducted extensive market research, both relied on a variety of underlying assumptions which are not documented by the record. For example, both applicants assume that businesses will be the primary users of cellular service. As a result, both excluded from their consideration and research the entire market potential of non-business users. A second assumption is that pager service is the precursor of cellular radio, and CMS's chosen universe for much of its research was limited to previously ascertained pager users because of this assumption. 27 Phoenix Initial Decision, at p 73, J.A. at 28. 28 As to Metro Mobile's market survey, the ALJ found it played no part in projecting demand but was used only to confirm data obtained from demographic, traffic and other research. In fact, the ALJ found that none of the applicants has persuasively demonstrated a relationship or nexus between its demand projections and its market research. Id. The full Commission affirmed the ALJ's refusal to award any applicant a preference for its assessment of demand in the Phoenix market. See Phoenix Final Decision, 56 Rad.Reg.2d (P & F) at 1603. It agreed with the judge that Gencom's research was flawed primarily due to its unsubstantiated assumption that businesses would be the primary users of cellular. Id. at 1604. Additionally, the Commission noted that the ALJ had found that both Gencom and CMS had assumed that the use of paging, a one way radio service, was an accurate proxy for purposes of predicting cellular demand. Id. 29 Gencom did not raise the demand survey issue in its Petition for Limited Reconsideration of the Commission's final decision. Nonetheless, the FCC used its reconsideration in the Phoenix proceeding to clarify the standard we apply under this issue. See Phoenix Reconsideration, 60 Rad.Reg.2d (P & F) at 579. The Commission wished to dispel any impression left by the language of the Phoenix Final Decision that an applicant's failure to assess nonbusiness demand, in itself, precludes the award of a preference under the relative demand issue. Phoenix Reconsideration, 60 Rad.Reg.2d (P & F) at 579 (emphasis added). Rather, the Commission emphasized, its approach was a flexible one, taking into account all the flaws and advantages of the competing applicants' demand assessments, and then compar[ing] the applications to determine if any applicant has provided a 'significantly more reliable analysis of the extent and distribution of demand.'  Id. (quoting Rogers Radiocall, Inc. (Chicago Final Decision), 96 F.C.C.2d 1172, 1219 (1984), aff'd sub nom. Cellular Mobile Systems of Illinois, 782 F.2d 214 (D.C.Cir.1986)). 30 Under this standard the Commission reaffirmed its decision not to award Gencom any preference for its demand study. In addition to its unsubstantiated business-user assumption, the Commission pointed to at least one other significant flaw in its market research, namely, the assumption that pager use was an accurate predictor of future cellular demand. Phoenix Reconsideration, 60 Rad.Reg.2d (P & F) at 579. 31
32 In his initial decision, the ALJ awarded a comparative preference to Metro Mobile on this issue. See Phoenix Initial Decision, at p 80, J.A. at 30. The preference accorded Metro Mobile was based more on the deficiencies in its competitors' plans than on the virtues of its own system. Concerning Gencom's proposed system, the ALJ noted that its thirteen cell-reuse design was unique, and might require difficult and expensive alterations if initial demand proved heavier than Gencom anticipated. Id. at p 78, J.A. at 29-30. He found that neither it nor CMS' proposal, comported with fundamental principles of cellular design. Id. at p 77, J.A. at 29. 33 The full Commission reversed the preference accorded to Metro Mobile, criticizing the ALJ for adhering to one particular model of cellular design. See Phoenix Final Decision, 56 Rad.Reg.2d (P & F) at 1606. While noting that there was evidence in the record to suggest future expansion problems, the Commission found that it does not appear from the record that Gencom's system will be hampered in its ability to accommodate initial demand. Id. (emphasis in original). However, since none of the applicants had demonstrated a nexus between the results of its demand study and the distribution of capacity in its cell structure, no applicant was preferred under this factor. 34 In its Petition for Limited Reconsideration, Gencom argued that it had in fact demonstrated a link between the distribution of demand predicted by its study and the allocation of cells and channels within its system. The Commission agreed. Whatever the flaws in Gencom's demand study itself, the Commission found that Gencom's allocation of cell and channel capacity reflected its predictions of where demand would be concentrated. Accordingly, it granted Gencom a moderate preference under the accommodation of demand heading. See Phoenix Reconsideration, 60 Rad.Reg.2d (P & F) at 578. 35
36 In the Phoenix Initial Decision Metro Mobile garnered a moderate preference for its plans for system expansion. See Phoenix Initial Decision at p 83, J.A. at 31. Again, the relative superiority of Metro Mobile's plan rested almost entirely on the perceived deficiency of its competitors' proposals. The judge noted that Gencom proposed to reuse adjacent channels within individual cells and found that such reuse might lead to intrasystem interference and was not entirely consistent with fundamental principles of cellular design technology.... Id. at p 82, J.A. at 31. In addition, he found that although channel borrowing among cells could accommodate Gencom's early expansion needs, satisfaction of later demand would require the construction of new cells, known as cell-splitting. Once cell splitting is necessary, the judge found, time consuming and inefficient reallocation of the borrowed channels to their initial position must occur. This reallocation will likely result in additional costs, service deterioration while changes are being made, and difficulty in expanding to coordinate with adjacent systems.... Id. at p 82, J.A. at 31. In essence, the ALJ believed that Gencom's plan to reallocate voice channels among its cells to satisfy earlier demand growth would lead to later difficulties when new cells were built. 37 The Commission reversed the preference accorded Metro Mobile on this issue. It rejected the ALJ's categorical approach to system design, and reversed his findings to the extent that a particular set of design principles was used to evaluate the nonconforming CMS's and Gencom's system proposals. Phoenix Final Decision, 56 Rad.Reg.2d (P & F) at 1608. 38 However, the Commission explicitly affirmed the ALJ's finding that cell-splits presented an impediment to the Gencom system's future expansion, even absent any comparison with an idealized system design. See Phoenix Final Decision, 56 Rad.Reg.2d (P & F) at 1609. The Commission then balanced this deficiency against Gencom's proposal to build all new facilities one year ahead of demand requirements. Under this analysis the Commission determined that Gencom should receive neither a preference nor a demerit for its expansion plans. Id. Finding all applicants on the same plane, in regard to their abilities to expand their differing systems, the Commission awarded no preference for expansion capabilities. Id. 39
40 In the final analysis, as reflected in the FCC's reconsideration order, Metro Mobile received a moderate preference under subissue (a)(1) for its more extensive geographic and population coverage, and Gencom was accorded a moderate preference on subissue (a)(3) for superior ability to accommodate demand within its more limited coverage area. The Commission noted that it had consistently held that the area and population each applicant proposes to serve is the most important comparative factor. See Phoenix Reconsideration, 60 Rad.Reg.2d (P & F) at 581 n. 16. Since Metro Mobile's preference on the coverage issue outweighed Gencom's preference on the accommodation of demand issue, the Commission affirmed its grant to Metro Mobile. Id.