The continuing PCS mess: Supreme Court decision, FCC have minority ownership plans in jeopardy.

The Federal Communications Commission recently startled minority supporters by removing favorable terms reserved for minorities and women from a special auction of PCS licenses for entrepreneurs. The new rules now offer the special provisions to any business that has less than $40 million in revenue. This move essentially eliminates a federal program that was designed to help minorities and women obtain communications properties.

Since Congress gave the FCC authority to auction licenses for personal communications services (PCS) in 1993, those auctions have been shaping up as the gold rush of the nineties. Part of the FCC's mandate included ensuring that minorities, women and small and rural businesses received business opportunities in this latest generation of wireless communications services. Provisions were created for these "designated entities," as they are known, which included a 25% bidding credit, payment plans and a special entrepreneurs block of the spectrum, the C-block.

But these provisions have recently come under blistering attack by a Republican-controlled Congress. The PCS auctions have turned into a battleground over affirmative action.

In June, the United States Supreme Court ruled that federal affirmative action programs must withstand strict scrutiny or be found unconstitutional. The court's decision prompted the FCC's move to make the C-block auction terms neither race nor gender-specific.

The FCC maintains it will seek to restore special provisions for minorities and women at later auctions. And the commission believes its action allows the C-block auctions to go on without further delay or risk of court challenge from disgruntled white males.

The C-block was originally scheduled for auction in May, but was delayed because the A- and B-block auctions took longer than anticipated. Also, Telephone Electronics Corp. (TEC), a Jackson, Miss., holding company for six rural telephone companies, forced another delay by filing a lawsuit in the U.S. Court of Appeals in Washington. The company alleged that the auction rules were unconstitutional because they gave favorable bidding terms to minorities, women and small businesses. In the end, the suit was dropped as TEC teamed up with PCS Primeco, a consortium of three Baby Bells and AirTouch Communications.

A further delay resulted when the National Association of Black-owned Broadcasters (NABOB), the NAACP and Innercity Broadcasting Chairman Percy Sutton filed a petition with the FCC to deny the licenses from the A- and B-block PCS spectrum. Those licenses were won by communications giants such as AT&T, Sprint Corp., Pacific Telesis and PCS Primeco.

According to the attorneys for NABOB, the NAACP and Sutton, the petition alleged that minorities are at a great competitive disadvantage because the A- and B-block spectrums--which netted the federal treasury more than $7 billion--were auctioned off before the C-block. Not only were the A- and B-block licenses won by a handful of companies that already dominate the communications industry, "but each day that these giants get closer to bringing their services to market reduces the value of the C-block," says James Winston, the lawyer for NABOB. The lawyers also believe that there was a collaborative effort by A- and B-block bidders to honor each other's territories--an antitrust violation.

The NABOB-NAACP-Sutton attorneys say their main objective was to level the playing field for designated entities. Lois Wright, the attorney for Sutton, notes, "Your ability to get to market greatly determines your success. We're in a competitive business and can't afford any disadvantage." The FCC denied the petition to stop the A- and B-block licenses in June. This move effectively grants license holders permission to begin building their systems before the C-block is auctioned.

Micheal Walker, executive director of the National Paging and Personal Communications Association, fears that concerns about competing in the PCS business may now be moot. "Once these auctions get under way, we're not going to be doing much winning," he laments. Walker suggests that without the discount advantage that the special C-block provisions offered, many white investors will have no incentive to back a minority bidding for a license. As a result, few minorities will have deep enough pockets to make winning bids.

Winston, however, feels the issue isn't over. "We have options for reconsideration at the FCC, and we also have a right to seek in the courts relief from the FCC decision," he explains.

But the action Winston speaks of still may not be enough to prevent A- and B-block licensees from enjoying a great head start. And accepting the FCC's nonracial and nongender-specific auction solution may mean less minority ownership of PCS technology. It seems to be a catch-22.

"I'm very discouraged," says Washington attorney Thomas Hart Jr., who is representing Essence Communications in the C-block bidding. "It will be difficult for the FCC to hold their proposed schedule because there's likely to be opposition from minorities and women-owned groups who have relied on earlier rules and spent hundreds of thousands of dollars preparing for the auction. Now at the last minute, they change the rules. You can't do that without subjecting yourself to challenges and litigation."

Some industry insiders believe that the minority community should make a stand here. First, the C-block auction is a once in a lifetime opportunity that is too lucrative to pass up. Secondly, many believe that the FCC will never go back to offering special provisions for minorities and women-owned firms if they're allowed to run these auctions without such incentives. At press time, the C-block auction was scheduled to begin August 29.

"It's unfortunate that a governmental body fired the first shot," says Walker. "The FCC went further than the Supreme Court. They totally retreated from their stated position that minorities and women face discriminatory pressures in the telecommunications industry."

RELATED ARTICLE: PCS: What's At Stake

Right now, there are about 20 million active PCS subscribers, but usage will increase to 71.2 million by the year 2004. Within 10 years, this fast-growing $15 billion business is expected to approach the $100 billion mark. Today, the average business user of PCS:

[yen]Makes/receives an average of 19 calls per week

[yen]Average monthly bill = $84

[yen]Amount willing to pay for handset = $167

[yen]48% acquired their first cellular phone in the last 2 years

[yen]34% have handsets supplied by their employer

[yen]46% have cellular bill paid by their employer

[yen]39% personally pay their cellular bill

[yen]Overall, business users currently subscribe to more enhanced cellular services almost 2 to 1 over those who use their cellular service primarily for personal reasons

Source: The Yankee Group. 1995