Bring on Challenges

Federal Government Spectrum auctions can resemble high-profile auctions in the movies: full of intrigue, dirty tricks and revenge. The story of the current auction will likely stretch on long after the last bid is made, as auction losers challenge the legitimacy of some of the participants. The auction ended Friday with net bids of $16.8 billion, with Verizon Communications by far the most prolific bidder, winning 113 licenses with bids of $8.8 billion.

One challenger has already emerged, Allegheny Communications, a start-up run by paging and cellular phone entrepreneur Paul Posner. Allegheny originally sought to postpone the start date, asking the Federal Communications Commission to closely examine some of the participants who qualified to bid on certain licenses only available to entrepreneurs. While it has since dropped out of the auction, Allegheny plans to challenge some of the bidders later.

The FCC loosened its rules for this auction, enabling large incumbent operators to back — but not “control” — entrepreneurs. So, for example, while Cingular Wireless didnt enter the auction at all, it owns 85 percent of its partner, Salmon PCS, the third-highest bidder in the auction.

“It defies common sense that if someone owns 85 percent of a company theyre not in control,” said John Rogovin, counsel to Allegheny and partner at OMelveny and Myers. AT&T Wireless entered the auction itself as well as through a number of entities that it claims it doesnt control, including partner and second-highest bidder Alaska Native Wireless as well as CFW Communications, DCC PCS, Lafeyette Communications and Northcoast Communications.

So far, no other company has emerged publicly with plans to challenge license winners, but the FCC wasnt accepting challenges until the auction finished — and strict rules prohibit participants from talking to each other or discussing the auction. Even an incumbent carrier such as Verizon might have reason to challenge companies like Salmon PCS and Alaska Native. Verizon legitimately entered the auction as an incumbent and has bid only on licenses available to large companies while its peers, Cingular and AT&T Wireless, have been able to bid on any license via their partners. Verizon wouldnt comment on the possibility of a challenge.