Grain Order Undermines FCC’s Designated Entity Program, Say Pai, O'Rielly
Republican FCC commissioners Ajit Pai and Mike O'Rielly were sharply critical of a waiver giving Grain Management and similarly situated companies a waiver of parts of the commission’s designated entity (DE) rule. The FCC released the Grain order (CD July 24 p3) and the dissents Wednesday. Both said the order would undermine rather than strengthen the DE rules.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
Grain sought a waiver of the attributable material relationship (AMR) rule, which limits the ability of a company classified as a DE to lease out spectrum licenses it buys to another carrier rather than build out its own network. In 2013, Grain agreed to lease AWS-1 licenses from AT&T and Verizon, which Grain then leased back to them. The FCC said in its order it’s in the public interest to waive the provisions of the AMR rule in this case because Grain leased the spectrum without benefit of bidding credits or its status as a DE (http://bit.ly/1Acw0mF).
Pai said Grain leases “100 percent of the spectrum capacity of all of its licenses” to Verizon and AT&T. Pai’s dissent runs nearly six pages (http://bit.ly/WFBZRI), a page shorter than the order itself. While the order allows Grain “and any other similarly situated parties” to still certify they're qualified to claim DE benefits in any upcoming auction, “they will be required to demonstrate” that “the specific facts and circumstances of their spectrum lease agreements do not require attribution of the lessees’ gross revenues in their respective cases."
Pai said Grain did not meet “even the first element” of the commission’s standard for a waiver, that the rule would not be served or would be frustrated if a waiver weren’t granted. “Why did the Commission adopt the AMR rule?” he asked. “It’s pretty simple: to make sure that those who benefited from the DE program would use their licenses to provide facilities-based services directly to the public.” The commission’s decision that a DE can lease out all the spectrum it owns without violating the AMR is “as unlawful as it is absurd,” Pai said. “This is the very case for which the AMR rule was designed, not one that merits its waiver."
In reaching the conclusions it did, the FCC had to rely on “revisionist history,” Pai said. The order makes much of the fact that the spectrum involved was not bought by Grain using bidding credits. The AMR prohibition “covers all of the applicant’s existing spectrum holdings without any exception for licenses obtained without DE benefits,” he said. “The AMR rule admits of no ambiguity here.” The FCC was concerned with the lease agreement itself in approving the AMR restrictions, he said. “It was wholly irrelevant whether the agreement involved a particular license that had been obtained using DE credits.” Pai also said the waiver was unnecessary in that the commission has already committed to examine more broadly its DE rules, including the AMR restriction. “Regardless of what one thinks about the merits of today’s waiver, the proper way forward would have been to consider these issues in the context of the agency’s industry-wide DE rulemaking,” he said.
O'Rielly, in a one-page dissent (http://bit.ly/1peZeLN), said he’s not convinced the waiver meets the standards of Section 1.925 of the commission’s rules. Section 1.925 allows a waiver only if a petition is able to demonstrate that a rule’s underlying purpose would not be served if the rule were enforced or that it would be unduly burdensome or contrary to the public interest, he noted. “In this case, Grain obtained spectrum licenses on the secondary market,” he said. “It then immediately leased all of this spectrum to AT&T and Verizon, thus making their revenues attributable and rendering Grain ineligible for designated entity status.” The waiver potentially undermines the DE rules, he said. “Let’s be clear: bidding credits should be awarded sparingly to bona fide small businesses after going through a stringent and comprehensive review process,” he said. “Otherwise, we deprive the American people of the opportunity to rightfully maximize revenues for the use of their public resource."
House Commerce Committee Chairman Fred Upton, R-Mich., and Communications Subcommittee Chairman Greg Walden, R-Ore., Thursday raised questions about the Grain order in light of donations Grain founder David Grain had made to the Democratic National Committee and to President Barack Obama’s two presidential election campaigns. Grain has also contributed to Republicans. “The process is clearly broken, and something smells rotten on the 8th floor,” they said. FCC action “at the behest of those with real or perceived political connections, should be done by the book and far above reproach,” they said.