United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 5, 2000 Decided November 21, 2000
No. 98-1266
U.S. AirWaves, Inc.,
Petitioner
v.
Federal Communications Commission and
United States of America,
Respondents
NextWave Telecom Inc., et al.,
Intervenors
Consolidated with
98-1267
On Petitions for Review of Orders of the
Federal Communications Commission
---------
Robert A. Long, Jr. argued the cause for petitioners. With
him on the briefs was Andrew J. Heimert.
Stanley R. Scheiner, Counsel, Federal Communications
Commission, argued the cause for respondents. With him on
the brief were Christopher J. Wright, General Counsel, Dan-
iel M. Armstrong, Associate General Counsel, Joel I. Klein,
Assistant Attorney General, U.S. Department of Justice,
Catherine G. O'Sullivan, and Andrea Limmer, Attorneys.
John E. Ingle, Deputy Associate General Counsel, and James
M. Carr, Counsel, Federal Communications Commission, en-
tered appearances.
Ian Heath Gershengorn argued the cause for intervenor
NextWave Telecom Inc. With him on the brief was Donald
B. Verrilli, Jr. David A. LaFuria and Thomas Gutierrez
entered appearances.
Before: Edwards, Chief Judge, Ginsburg and Tatel,
Circuit Judges.
Opinion for the court filed by Circuit Judge Ginsburg.
Ginsburg, Circuit Judge: Before us are petitions for review
of two rulemaking orders of the Federal Communications
Commission. The orders changed the financial terms applica-
ble to companies that purchased licenses to provide personal
communications services (PCS) at an auction in which bidding
was limited to small businesses and entrepreneurs. See
Amendment of the Commission's Rules Regarding Install-
ment Payment Financing for [PCS] Licensees, Second Re-
port and Order and Further Notice of Proposed Rule Mak-
ing, 12 F.C.C.R. 16,436 (1997) (Restructuring Order); and
Amendment of the Commission's Rules Regarding Install-
ment Payment Financing for [PCS] Licensees, Order on
Reconsideration of the Second Report and Order, 13 F.C.C.R.
8345 (1998) (Reconsideration Order). Petitioners U.S. Air-
waves, Inc. (hereinafter Airwaves) and Sprint Spectrum L.P.
characterize the rules as a benefit given retroactively to
incumbent licensees, to the detriment of losing bidders in the
spectrum auction and of competitors in the PCS industry, and
therefore as unauthorized, unreasonable, and arbitrary and
capricious. Intervenor NextWave Inc., a successful bidder in
the original auction, supports the new rules; it also maintains
that neither petitioner has standing to challenge them.
We hold that Airwaves, as a disappointed bidder in the
original auction, does have standing to petition for review of
the new rules; we therefore do not reach the question
whether Sprint Spectrum L.P. also has standing. We hold
further that, although the changes to the Commission's fi-
nancing rules are indeed retroactive, the Commission had
adequate reasons for adopting them, and that it reasonably
balanced competing goals and acted within its statutory au-
thority.
I. Background
Broadband PCS are a type of mobile telephone technology.
See Omnipoint Corp. v. FCC, 78 F.3d 620, 626 (D.C. Cir.
1996). In order to provide PCS a company must get from the
Commission a license to use a portion of the electromagnetic
spectrum. In 1994 the Commission decided to distribute such
licenses through a system of competitive bidding, pursuant to
47 U.S.C. s 309(j)(1). See Implementation of Section 309(j)
of the Communications Act--Competitive Bidding, Second
Report and Order, 9 F.C.C.R. 2348, pp 54-58 (1994) (2d
R&O). The Commission designated a portion of the spec-
trum for the provision of PCS and divided that portion into
six blocks, which it labeled A through F. In keeping with its
statutory mandate to "ensure that small businesses ... are
given the opportunity to participate" in spectrum auctions, 47
U.S.C. s 309(j)(4)(D), the Commission limited the bidding for
"C-block" spectrum to entrepreneurs and small companies.
See Restructuring Order at p 8; cf. Omnipoint, 78 F.3d at
626 (upholding the limitation). The Commission offered small
businesses bidding for C-block licenses an "installment pay-
ment plan" under which they could pay 10% down and the
balance "over a period of ten years, with interest only paid for
the first six years and interest and principal for the remaining
four." Restructuring Order at p 8. (Entrepreneurs who did
not qualify as small businesses were offered less favorable
payment terms. See id. at n.10.)
Between May and July 1996 some 90 different bidders
bought at auction 493 licenses--one for each "basic trading
area" (BTA) in the nation--to use 30 MHz of spectrum for
the provision of PCS. Their bids totaled $10.2 billion, a
figure some observers attributed to irrational exuberance; on
average, C-block licensees agreed to pay nearly three times
per potential customer what the winning bidders in the A-
and B-block auctions had paid. See Restructuring Order at
p 9 & n.11; Peter Spiegel, Hollow Victory, Forbes, Jan. 27,
1997, at 50.
Within nine months of the C-block auction, it became clear
that a number of high bidders might not be able to make
their scheduled payments. See Wireless Telecommunica-
tions Bureau Seeks Comment on Broadband PCS C and F
Block Installment Payment Issues, Public Notice, 12
F.C.C.R. 21,015, 21,015 & n.4 (1997). In March, 1997 the
Commission suspended the payment obligations of all C-block
licensees pending a review of its installment payment terms.
See Installment Payments for PCS Licenses, Order, 12
F.C.C.R. 17,325, p 2 (1997).
In October, 1997 the Commission issued the first of the two
orders challenged in this case. That order ended the suspen-
sion of payments announced the previous March and offered a
"menu" of new financing options to all C-block licensees. See
Restructuring Order at pp 6, 25. Upon reconsideration the
Commission retained the menu approach but altered several
of the offerings in important particulars. See Reconsidera-
tion Order at pp 8-10. The revised scheme also permitted a
licensee to select a different option for licenses it held in each
"Major Trading Area" (MTA)--referring to the 51 geographic
regions into which the Commission has divided the nation--so
long as it applied the same option to all its licenses within
each MTA. See Reconsideration Order at p 17. Upon the
promulgation of the order on reconsideration, each licensee
was required, in order to avoid default, to choose a menu
option for each of its MTAs. See id. at p 23.
The menu offered each licensee four choices. First, the
licensee could continue to make payments under the original
terms of the auction. See Restructuring Order at p 6.
Second, the licensee could surrender all its licenses for a
particular MTA and receive a "prepayment credit" in an
amount equal to 70% of the down payments and 100% of any
installment payments it had made on those licenses, as well as
forgiveness of its debt on the returned licenses. The prepay-
ment credit would be put toward payment for such other PCS
licenses as the licensee continued to hold. The licensee could
either provide additional funds in order to prepay all the
licenses it retained in a given MTA or, were it to rely solely
upon its prepayment credits, could prepay as many licenses
as possible in a given MTA and surrender any remaining
licenses to be auctioned anew. See Restructuring Order at
p 64; Reconsideration Order at pp 38, 41-43.
Third, the licensee could elect to "disaggregate" each of its
licenses within a given MTA, returning 15 MHz of spectrum
to the Commission and retaining 15 MHz under license. The
licensee's outstanding debt to the Commission with respect to
returned spectrum would be forgiven. The licensee would
also receive a credit equal to 40% of its down payments on the
returned spectrum, which it could apply to the payments due
on the retained spectrum. A licensee combining disaggrega-
tion and prepayment would receive a credit equal to 70% of
its down payment for returned spectrum, which it could use
to prepay the Commission either for the retained 15 MHz of
the disaggregated licenses or for other PCS licenses it re-
tained. See Restructuring Order at pp 38-39; Reconsidera-
tion Order pp 51, 54.
Finally, the licensee could simply surrender its licenses for
a particular MTA and be forgiven its outstanding debt with
respect to those licenses. A licensee electing this so-called
"amnesty" option could either retain the right to rebid when
its licenses were sold at auction again or forego the opportu-
nity to rebid and receive a credit of 70% of its original down
payment; it could apply that credit to payments due in
connection with the prepayment or disaggregation of licenses
that it retained in other MTAs. See Reconsideration Order
at p 12.
The Commission states that in crafting this menu of options
it "considered and balanced" several policy goals: maintain-
ing the integrity of spectrum auctions; ensuring fairness to
actual and prospective licensees; resolving all issues prompt-
ly; and complying with its statutory mandates to "[p]romot[e]
economic opportunity and competition in the marketplace,"
and to "ensure 'that new and innovative technologies are
readily accessible to the American people by avoiding exces-
sive concentrations of licenses and by disseminating licenses
among a wide variety of applicants, including small busi-
nesses.' " See Restructuring Order at p 2 (quoting 47 U.S.C.
s 309(j)).
II. Analysis
Airwaves and Sprint PCS contend that the Commission
changed its original auction rules arbitrarily and capriciously
and without statutory authority. After analyzing the petition-
ers' standing, we consider the Commission's claim that the
new rules were foreshadowed in the original auction rules and
therefore do not represent a significant change in policy. We
then turn to the questions of arbitrariness and of statutory
authority.
A. Do petitioners have standing?
The "irreducible constitutional minimum" for standing in an
Article III court is that the petitioner was injured in fact, that
its injury was caused by the challenged conduct, and that its
injury would likely be redressed by a favorable decision of the
court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61
(1992). NextWave Inc., intervening in defense of the Com-
mission, argues that Airwaves lacks standing because it can
demonstrate neither that it was injured in fact nor that its
alleged injury is redressable.
A bidder in a government auction has a "right to a legally
valid procurement process"; a party allegedly deprived of
this right asserts a cognizable injury. DIRECTV, Inc. v.
FCC, 110 F.3d 816, 829 (D.C. Cir. 1997). A disappointed
bidder "need not ... demonstrate that it would be successful
if the contract were let anew" but only that it was " 'able and
ready to bid ... and that the [rule] prevent[ed] it from doing
so on an equal basis.' " Id. at 829-30 (quoting Northeastern
Fla. Chapter of Assoc. Gen. Contractors of America v. City of
Jacksonville, 508 U.S. 656, 666 (1993)). Of course, in order to
show that its injury is redressable, a disappointed bidder
must demonstrate that it is "ready, willing, and able" to
participate in a new auction should it prevail; but it need not
demonstrate that it will participate in such an auction regard-
less of the circumstances then prevailing. See Orange Park
Florida T.V., Inc. v. FCC, 811 F.2d 664, 672 & n.18 (D.C. Cir.
1987).
Airwaves meets these requirements. It submitted bids in
the original C-block auction but dropped out before securing
any licenses. It claims that it would have bid more had it
known that financial terms more favorable than those an-
nounced at the time of the auction would later be offered to
winning bidders. Airwaves further affirms, in the sworn
declaration of its chief executive, that it "intends" to bid in a
future reauction of PCS spectrum and that it is able to raise
the capital necessary to do so. That is sufficient.
NextWave also argues that Airwaves cannot base its stand-
ing upon its participation in the original auction because
Airwaves acknowledges that the original auction was fair;
Airwaves challenges only the way in which the Commission
treated licensees after the auction was completed. In this
argument, however, NextWave misapprehends Airwaves'
claim, which is that post-auction revisions to the financing
options available to the high bidders constitute impermissibly
retroactive changes to the initial auction rules. There is no
basis for suggesting, as NextWave seems to do, that ex post
changes can never affect the validity of a government auction.
Finally, NextWave argues that Airwaves fails to demon-
strate that its claim is redressable by this court because it
does not allege that when it petitioned for review of the new
rules it was ready, willing, and able to bid in a new auction.
NextWave asserts that as of that date Airwaves had returned
all its investment capital to its investors and was not in good
standing in the State of Delaware because of a tax dispute,
for both of which reasons it would have been unable to bid in
any new auction that the Commission might have conducted.
NextWave's premise is correct: Standing is determined as of
the date an action is filed, see Smith v. Sperling, 354 U.S. 91,
93 n.1 (1957); but NextWave offers no persuasive reason to
think either that Airwaves lacked access to capital on that
date or that it would not have resolved its tax dispute in
Delaware had that been necessary in order to bid in a new
auction. (In fact, the tax matter was resolved soon after the
filing.) Absent any evidence to the contrary, Airwaves' asser-
tion that it was ready, willing, and able to participate in a
rerun of the C-block auction satisfies the redressability re-
quirement.
Having determined that Airwaves has standing, we do not
need to reach the question whether Sprint Spectrum L.P. has
standing as well, for Sprint presents no arguments beyond
those made by Airwaves. See Railway Labor Executives'
Ass'n v. United States, 987 F.2d 806, 810 (D.C. Cir. 1993)
("[I]f one party has standing in an action, a court need not
reach the issue of the standing of other parties when it makes
no difference to the merits of the case").
B. Is the rule retroactive?
Airwaves argues that the changes in the Commission's
auction rules give a windfall to C-block licensees. The
Commission and NextWave respond that the original auction
rules anticipate the possibility that the Commission might
revise its financing provisions, making the adoption of the
new rules foreseeable.* Cf. Small Refiner Lead Phase-
Down Task Force v. EPA, 705 F.2d 506, 547, 549 (D.C. Cir.
1983) (holding that final administrative rules that depart from
an agency's initial proposals do not require new notice and
comment if the final rules are a "logical outgrowth" of the
proposals, such that the parties "should have anticipated [that
they] might be imposed").
__________
* The implication of the Commission's account is that the possibil-
ity of new rules is fully reflected in the prices paid; hence there is
no windfall.
The Commission points out that the original auction rules
provided that "as a general rule" a defaulting bidder's licens-
es would be deemed forfeit and reauctioned, 2d R&O at p 204,
which reasonably can be taken to suggest that forfeiture and
reauction were not to be the inevitable consequence of de-
fault. More important, the original rules specifically allowed
a licensee "that has defaulted or that anticipates default
under an installment payment program" to obtain a "three to
six month grace period" during which to "seek from the
Commission a restructured payment plan." Id. at p 240. In
addition, the original rules provided that default would occa-
sion a "substantial penalty," Implementation of Section 309(j)
of the Communications Act--Competitive Bidding, Fifth Re-
port and Order, 9 F.C.C.R. 5532, p 75 (1994), and under the
revised rule every licensee that fails to honor its original
payment obligations forfeits at least 30% of its down payment
on all spectrum that it returns to the Commission.
In some respects, however, the new rules clearly do contra-
dict the Commission's previously stated policies. The initial
auction rules provided that the Commission would consider
requests for financial restructuring on a "case-by-case basis."
2d R&O at p 240. This certainly implied that the Commission
would not proceed by way of a further rulemaking and a new
rule of general application, see Bowen v. Georgetown Univ.
Hosp., 488 U.S. 204, 209 (1988). The distinction is significant,
for the initial auction rules made only those licensees "that
ha[d] defaulted or that anticipate[d] default" eligible for a
grace period and financial restructuring. 2d R&O at p 240.
The C-block menu, in contrast, is available to all licensees
regardless of their financial condition. See Restructuring
Order at p 6.
The new regulations therefore do not merely fill in the
details of a policy foreseeable at the time of the original
C-block auction; instead, they constitute a secondarily retro-
active change to the rules governing that auction. See Bow-
en, 488 U.S. at 219 (1988) (Scalia, J., concurring) (defining
"secondary retroactivity" as describing "rule[s] with exclu-
sively future effect [that] ... affect past transactions") (em-
phasis omitted). A secondarily retroactively rule is valid only
to the extent that it is reasonable--both in substance and in
being made retroactive. See id. at 220. It is to reasonable-
ness that we turn next.
C. Are the regulations reasonable?
Airwaves argues that the rule is invalid for two related
reasons. First, it contends that the Commission failed to
relate its offering of post-auction refinancing options to its
own stated goals. Second, it argues that regardless whether
the Commission embraced fairness as a goal, the rule is
simply so unfair that it must be deemed arbitrary and capri-
cious.
Under the arbitrary and capricious standard, this court
does not substitute its judgment for that of the administrative
agency. See Motor Vehicles Mfrs. Ass'n of the United States,
Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).
A regulatory decision in which the Commission must balance
competing goals is therefore valid if the agency can show that
its resolution "reasonably advances at least one of those
objectives and [that] its decisionmaking process was regular."
Fresno Mobile Radio, Inc. v. FCC, 165 F.3d 965, 971 (D.C.
Cir. 1999). Because Airwaves does not challenge the regular-
ity of the Commission's decisionmaking process, the issue now
before us is whether the Commission reasonably justified its
regulations with reference to at least one of its avowed goals.
See Restructuring Order at p 2.
The C-block menu withstands review under this standard:
The Commission justified each of the menu options and its
MTA-by-MTA selection principle with reference to one or
more of its stated goals. In particular, the Commission
justified each of its menu options as "enabling C block
licensees to remain participants in the wireless market,"
which it found would hasten "the delivery of new services to
the public" and promote efficient use of the spectrum. Re-
consideration Order at p 10; see Restructuring Order at
pp 43, 45 (disaggregation); id. at p 53 (amnesty); Reconsider-
ation Order at p 40 (prepayment). In addition, the Commis-
sion justified the prepayment option as a way of minimizing
conflicts between the agency's roles as creditor and as regu-
lator. See Reconsideration Order at p 40. The Commission
explained disaggregation, as it did the provision for MTA-by-
MTA election, in part as an effort to help small licensees plan
their businesses rationally. See Restructuring Order at p 45;
Reconsideration Order at p 19.
Airwaves challenges the Commission's rationale in two
respects. Its first point proceeds from the observation that
the Commission deemed "essential" two and only two of its
stated goals, namely, maintaining the integrity of the auction
process and ensuring fairness to all market participants.
Restructuring Order at p 3. Airwaves claims that it is unrea-
sonable for the Commission to adopt any policy that under-
mines a goal that the agency itself has styled "essential."
This is an unduly cramped reading of the orders, however.
The Commission reasonably can treat fairness and integrity
as "essential" goals and yet recognize that they are matters of
degree. Thus, the Commission may choose to sacrifice some
degree of fairness or integrity in order to gain other impor-
tant objectives. Several of the goals that the Commission
lists in addition (and therefore potentially in opposition) to
fairness and integrity--such as competition, speedy deploy-
ment of services to the public, efficient use of the spectrum,
and participation of small businesses in the market--are
mandated by statute. See 47 U.S.C. s 309(j)(3). A more
reasonable construction of the Commission's statement that
fairness and integrity are "essential" goals, therefore, is that
in its view they must be included (along with those specified
in the statute) among the goals to be balanced. This by no
means requires that they trump all other goals in every case
where there is conflict.
Airwaves also argues that, aside from the orders' failure to
advance the Commission's "essential" goals, they also fail to
advance the other goals the Commission invoked as justifica-
tions for the menu options. For example, Airwaves argues
that, contrary to the Commission's claims, the rule will retard
rather than hasten the availability of services to consumers;
instead of forcing a reauction that would transfer spectrum to
competent and solvent firms, the rule allows precisely those
companies that "have demonstrated financial irresponsibility
and undue optimism about their financial capabilities" to
retain their spectrum. New buyers at auction may, as the
petitioner asserts, be more likely to effectuate a rapid build-
out of wireless systems, but the Commission is reasonably of
the view that starting the licensing process all over again
would delay build-out. We defer to the agency regarding a
predictive matter, such as this, within its expertise. See
Fresno Mobile Radio, 165 F.3d at 971.
In a similar vein, Airwaves complains that, contrary to the
Commission's expectation, the rule will not promote the par-
ticipation of small businesses in the wireless industry; that
goal would be better effected by redistributing licenses to
small businesses in a new auction than by reinforcing the
current concentration of C-block licenses in relatively few
hands. The petitioner's position is again plausible, but it is
also reasonable, again, for the Commission to expect that
small businesses generally will be better situated to face their
larger competitors in the wireless industry if those that
already have licenses are able to build their businesses in at
least some markets. Again, we defer to the Commission's
expertise regarding such predictive issues.
Notwithstanding the Commission's reasoned justification,
the rule might still be arbitrary and capricious if, as Airwaves
claims, it is sufficiently unfair. We agree with the petitioner
that the Commission systematically downplays the inequity of
the rule: it clearly grants a substantial windfall not only to
distressed but also to healthy companies that bought licenses
in the initial auction. Those companies can now discard the
licenses they have found, with the benefit of hindsight, to be
less valuable--without incurring the ordinary penalty for
default and, indeed, while recouping some of the payments
they have already made. At the same time they can retain
the licenses they have found to be more valuable, subject only
to the requirement that they elect a single menu option within
each MTA. Further, the rule allows them not only to concen-
trate their resources in the most desirable markets but to
apply to the spectrum they retain some of the payments they
had made on spectrum they returned. Obviously, those who
were outbid in the original auction would have bid more than
they actually did--and might have bid enough to win licens-
es--had they known that the Commission later would make
such options available.
Having established that the Commission changed the rules
in a way that could not be foreseen, the question is whether,
under the circumstances, that was so unfair as to be arbitrary
and capricious. We start from the intuitive premise that an
agency cannot, in fairness, radically change the terms of an
auction after the fact. At the same time, an agency must be
allowed to adjust its policies to changing circumstances, with-
in the framework of rules it established in advance of the
auction. In this case the Commission determined that the
statutory goals of speeding the delivery of service to the
public and of facilitating the participation of small businesses
in the wireless market required it to liberalize the financial
terms available to C-block licensees. See Reconsideration
Order at pp 7-8. Competing goals do not absolve the agency
of its duty to losing bidders, of course, but the Commission
was careful to temper its liberalization accordingly. The
agency did not simply forgive agreed-upon payments, much
less grant the winning bidders' more sweeping requests for
relief. Rather, under each of the menu options it imposed
upon every distressed licensee a "substantial penalty"--in
every case at least 30% of the down payment for a returned
license, and up to 60% in the case of a licensee choosing
disaggregation without prepayment.
Considering the dramatic and unexpected business rever-
sals faced by C-block licensees, and post-auction conditions in
the wireless market, we think the Commission reasonably
exercised its discretion to balance fairness to losing bidders
with the needs of the market and with the public interest.
We therefore conclude that the orders under review are
consistent with the Commission's stated goals, and that such
unfairness as they worked does not render them arbitrary
and capricious.
D. Did the Commission exceed its statutory authority?
The Commission conducts spectrum auctions pursuant to
its authority to grant licenses "through the use of a system
of competitive bidding." 47 U.S.C. s 309(j)(1). Airwaves
argues that post-auction concessions made to the winning
bidders effectively render the auction noncompetitive and
therefore without statutory authorization. Airwaves argues
further that retroactive changes to auction rules violate the
requirement that the Commission "ensure that ... an ade-
quate period is allowed ... after issuance of bidding rules[ ]
to ensure that interested parties have a sufficient time to
develop business plans, assess market conditions, and evalu-
ate the availability of equipment." Id. s 309(j)(3)(E). Air-
waves' argument here is that post-auction rule changes nec-
essarily leave no time for interested parties to plan, assess,
or evaluate.
These arguments were not put before the Commission and
are therefore not properly before this court. See Washington
Ass'n for Television & Children v. FCC, 712 F.2d 677, 680
(1983) ("[C]laims not presented to the agency may not be
made for the first time to a reviewing court"). Airwaves
suggests that the issue was adequately raised before the
Commission in the comment of another party, which argued
that "Section 309(j) does not ... contain any provision allow-
ing the Commission to change the amount owed the govern-
ment as a result of an auction." The broad and general claim
that the Commission lacks statutory authority "to change the
amount owed" is materially different, however, from Air-
waves' specific argument that the Commission violated the
statutory provisions requiring "a system of competitive bid-
ding" and "an adequate period" for planning after auction
rules are issued. Confronted only with the former, broad
claim, the Commission had no notice of the specific objections
now raised by Airwaves. As we have said more than once
before, a litigant may not " 'sandbag' agencies by withholding
legal arguments ... until they reach the courts of appeal."
USAir, Inc. v. Department of Transp., 969 F.2d 1256, 1260
(D.C. Cir. 1992).
III. Conclusion
In summary, we hold that the changes to the Commission's
C-block auction rules are neither arbitrary and capricious,
nor unreasonable, nor without statutory authority. Therefore
the petitions to review the rules are
Denied.