U.S. appeals court upholds $33 bln wireless auction

* Court backs auction but finds FCC rules invalid

* Judges say would be imprudent, unfair to void auction

* Small providers complained they were disadvantaged

By Jonathan Stempel

NEW YORK, Aug 24 (BestGrowthStock) – An appeals court upheld
federal government auctions of about $33 billion of wireless
spectrum, saying it would be “imprudent and unfair” to undo
them even though some rules governing them were invalid.

Tuesday’s ruling by the U.S. Third Circuit Court of Appeals
in Philadelphia allows Verizon Wireless (VZ.N: ) (VOD.L: ), AT&T
Inc (T.N: ), Deutsche Telekom AG’s (DTEGn.DE: ) T-Mobile unit and
others to keep billions of dollars of licenses they had won in
the auctions, which took place between 2006 and 2008.

The auction process had been challenged by Council Tree
Communications Inc, Bethel Native Corp and the Minority Media
and Telecommunications Council, which contended that Federal
Communications Commission rules for the auctions were unfair to
smaller service providers.

“We are pleased that the Third Circuit Court of Appeals
upheld two important spectrum auctions,” said Ruth Milkman,
chief of the FCC’s wireless telecommunications bureau, in a
statement.

“The Commission remains committed to finding new and
innovative ways to encourage the participation of small
businesses and new entrants in our auction processes.”

Dennis Corbett, a lawyer who argued the case for the
smaller service providers, did not immediately return a call
seeking comment.

The FCC had offered credits to smaller providers of as much
as 35 percent to help them to compete for licenses.

However, it also adopted rules to limit the ability of
these providers to team up with larger rivals, or sell their
credits to those rivals for quick profits.

According to the appeals court, companies that qualified
for credits comprised 113 of the 205 winning bidders, but won
only about 3.2 percent of the licenses’ total value.

In contrast, in auctions that preceded adoption of the
rules, qualifying bidders had won about 70 percent of the
licenses by dollar value, the court said.

In its 53-page ruling, the Third Circuit struck down two
rules designed to limit or dissuade small carriers from selling
their spectrum capacity, and upheld a third.

But it declined to overturn the auctions altogether and punish
license winners it said were “innocent third parties” to the FCC’s
“improper” rulemaking.

“It would involve unwinding transactions worth more than
$30 billion, upsetting what are likely billions of dollars of
additional investments made in reliance on the results, and
seriously disrupting existing or planned wireless service for
untold numbers of customers,” Circuit Judge Thomas Hardiman
wrote for the court.

“Moreover, the possibility of such large-scale disruption
in wireless communications would have broad negative
implications for the public interest in general,” Hardiman went
on. “It would be imprudent and unfair to order rescission of
the auction results.”

The court reinstated the prior version of a rule it held
invalid, and sent the matter to the FCC for more proceedings.

Mike Altschul, general counsel for CTIA-The Wireless
Association, in a statement said the trade group was pleased
with the ruling, and looked forward to working with the FCC on
how best to address the rules that were thrown out.

The case is Council Tree Communications Inc et al v.
Federal Communications Commission, U.S. Third Circuit Court of
Appeals, No. 08-2036.
(Reporting by Jonathan Stempel in New York, and Jeremy Pelofsky
and John Poirier in Washington, D.C.; Editing by Phil Berlowitz)

U.S. appeals court upholds $33 bln wireless auction