Editor’s note: This article doesn’t represent any official or legal position on U.S. Cellular’s filing – as of Friday, the FCC had not released any statement on the matter or indicated whether it would take any enforcement action against the carrier. Instead, this piece is merely a thought exercise analyzing various aspects of the situation.
U.S. Cellular gave the industry a shock on Thursday when it revealed in a filing with the Securities and Exchange Commission that it is on the hook for at least $327 million in bids in the FCC’s spectrum auction.
One of the major questions around the announcement was whether or not the disclosure came in violation of the FCC’s quiet period rules for the auction. As of Thursday, those rules were still in effect for forward auction bidders, and the Commission said they would remain so through the close of the Assignment Phase at the end of March.
A U.S. Cellular spokeswoman indicated the filing was “required by SEC regulations.” But does it violate the FCC’s quiet period rules?
In the auction rules, the FCC laid out that “all applicants are prohibited from cooperating or collaborating with respect to, communicating with or disclosing … the substance of their own, or each other’s, or any other applicants’ bids or bidding strategies (including post-auction market structure), or discussing or negotiating settlement agreements, until after the down payment deadline.” Further, the Commission also prohibited applicants from “communicating directly or indirectly any incentive auction applicant’s bids or bidding strategies to any full power or Class A broadcast television licensee.”
According to FCC guidance issued in October 2015, the Commission clarified that “bids or bidding strategies” must relate to the licenses being auctioned. Which would make it seem to a non-legal mind (like my own) that U.S. Cellular is in the wrong. But…
The current auction is unique from other auctions in that the end of the Clock Phase doesn’t signal the actual end of the auction – in this case, the end of the auction follows the Assignment Phase. That leaves a gray area where one could argue U.S. Cellular’s disclosure isn’t causing any harm since the major bidding portion of the auction is over, even if block assignments are forthcoming. Additionally, the carrier didn’t disclose any information about what markets its bids were in – only that it bid a certain amount. So there seems to be wiggle room, even if another bidder were to lodge a complaint.
But still – let’s assume a worst case scenario, that U.S. Cellular did violate the FCC’s rules (which don’t make any mention of SEC filing requirements). Then let’s also assume that it the disclosure was in fact required by the SEC since investors are now on the hook for the $327 million. That rather leaves U.S. Cellular between a rock and a hard place, doesn’t it?
In that scenario, what it boils down to is who has the power to punish U.S. Cellular most severely. On one hand, the FCC can of course put the carrier’s licenses in jeopardy, which would be a big hit given the company depends on those airwaves. However, the SEC cannot only seek sanctions through its own administrative proceedings, but can also take civil action in court. While the former can include cease and desist orders, suspension or revocation of broker-dealer and investment advisor registrations, censures, bars from association with the securities industry, civil monetary penalties, and disgorgement, the latter also raises the possibility in extreme cases for “additional fines or imprisonment.” That’s real jail as opposed to FCC “jail.”
In that case, it seems hard to blame U.S. Cellular for making its move, regardless of potential FCC consequences.
And in one sense, we’ve seen something similar before when other carriers like T-Mobile hinted at auction participation by detailing their auction down payments in filings last year.
We’ll have to wait and see whether the FCC decides to take issue with U.S. Cellular’s filing. But whether it does or not, it’ll be interesting to see if other carriers follow suit now that the door has been opened to blast out their auction numbers in subsequent filings.
Keep your eyes open, folks.
Filed Under: Industry regulations