Subject: [NEXTEL-1] Verizon On Nextel's Spectrum Windfall

From: [email-masked]
Date: Sat, 10 Apr 2004 14:05:08 -0400

Verizon On Nextel's Spectrum Windfall

Hellgii C.. Wallker

www.wrf.com

April 8, 2004
Via Electronic Filing
Ms. Marlene H. Dortch
Secretary Federal Communications Commission
445 Twelfth St., S.W.
Washington, DC 20554
Re: WT Docket No. 02-55
Dear Ms. Dortch:

As Verizon Wireless (“Verizon”) explained in its April 1, 2004 filing
entitled “The Federal Communications Commission Has No Authority To
Award Spectrum To Nextel Through A Private Sale,” Section 309(j) of the
Communications Act requires the Commission to award any spectrum in the
1.9 GHz band by holding an auction.  In addition to offending Section
309(j)’s competitive-bidding requirement, a private sale of 1.9 GHz
spectrum to Nextel Communications (“Nextel”) also would violate the
Anti-Deficiency Act and the Miscellaneous Receipts Act.  The
Anti-Deficiency Act prohibits any “officer or employee of the United
States Government or of the District of Columbia government” from
“involv[ing] either government in a contract or obligation for the
payment of money before an appropriation is made unless authorized by
law.” 31 U.S.C. § 1341(a)(1)(B). A private sale at a below-market price,
or at a price that is discounted to compensate Nextel for payments to
third parties, is the functional equivalent of an outright “payment of
money” to Nextel or any third party beneficiaries, and thus would
contravene the Anti-Deficiency Act.

Any private transaction to which Nextel would agree necessarily would
involve a
lower price than the one Nextel anticipates would prevail at auction. As
a profitmaximizing
rational actor, Nextel would never agree to pay more in a private sale
than it calculates it would have to pay in an auction. Independent
industry analysts confirm that a private sale of 1.9 GHz spectrum would
confer a windfall on Nextel.

See Legg Mason, Logjam Breaks on FCC Consideration of Nextel Spectrum
Swap,
Mar. 10, 2004, at 2 (stating that Nextel stands to receive a “$1.5
billion to $3.2
billion net gain”); see also Moody’s Investor Servs., Moody’s Assigns B2
Rating to
Nextel Communications $500 Million 5.95% Senior Notes Due 2014, Mar. 24,
2004
(stressing that the award of 1.9 GHz spectrum to Nextel “would bring
tremendous long term benefits to the company” by allowing it “to more
efficiently utilize its spectrum and also to invest in next generation
technologies”); Bear Stearns, Spectrum Swap Reported in Nextel’s Favor,
Mar. 9, 2004, at exhibit 3 (describing the award of 1.9 GHz spectrum as
“a transforming event for Nextel”); Morningstar Analyst Report, Feb. 25,
2004, at 2 (predicting that by “gain[ing] a chunk of valuable spectrum
in the 1.9-GHz band,” Nextel would “lower its capital spending, reduce
caller interference, and [become] a more attractive acquisition
target”).

Furthermore, we understand from public reports that the Commission is
considering
compensating Nextel for the payment of costs to public safety entities
by
subtracting that amount from Nextel’s tab for the spectrum. See FCC Eyes
Draft
Giving Nextel 1.9 GHz, but at Higher Pricetag, COMMUNICATIONS DAILY,
Mar. 11,
2004.

A private spectrum sale, especially one in which Nextel is expressly
compensated
for funds that it lays out to public safety entities, would deprive the
federal Treasury
of a portion of the proceeds that it would otherwise receive and thus
would be the
functional equivalent of a “contract or obligation” to pay a sum equal
to the
difference in value. From the standpoint of the Treasury, such a private
sale (which
necessarily reduces the Treasury’s take) would have the same economic
effect as a
direct cash outlay (which draws on funds in the Treasury). In other
words, the
private sale contemplated here is an in-kind “payment of money” to
Nextel in
violation of the Anti-Deficiency Act. The Commission cannot evade the
Act’s
demands by seeking to accomplish indirectly what it cannot achieve
directly. See,
e.g., Sunray Mid- Continent Oil Co. v. FPC, 364 U.S. 137, 152 (1960)
(“[O]nce
want of power to do this directly were established, the existence of
power to achieve the same end indirectly through the conditioning power
might well be doubted.”); Time Warner Entm’t Corp., L.P. v. FCC, 56 F.3d
151, 201 (D.C. Cir. 1995)
(emphasizing that the FCC could not “accomplish indirectly what [federal
law] directly proscribes”), cert. denied, 516 U.S. 1112 (1996); Richmond
Power & Light v. FERC, 574 F.2d 610, 620 (D.C. Cir. 1978) (holding that
the agency could not achieve indirectly through conditioning power of
Federal Power Act what it is otherwise prohibited from achieving
directly); cf. Sutton v. United States, 256 U.S.  575, 580 (1921)
(recognizing that, absent an appropriation, the Anti-Deficiency Act
prohibits both implied contracts and express ones).

For similar reasons, a private sale of 1.9 GHz spectrum to Nextel would
offend the
Miscellaneous Receipts Act as well. 31 U.S.C. § 3302(b) provides that
“an official
or agent of the Government receiving money for the Government from any
source
shall deposit the money in the Treasury as soon as practicable without
deduction for
ny charge or claim.” The private sale at issue would be the functional
equivalent of a “deduction” equal in value to the spectrum’s fair market
price (as determined through a competitive auction) and the necessarily
lower rate at which Nextel obtains that spectrum. It is also an express
“credit” for the funds paid by Nextel to third parties. Given these
facts, the Commission would not be depositing in the federal Treasury a
sum equal to the spectrum’s true value, or even its own assessed value
of the spectrum; rather, only a portion of the spectrum’s value would be
deposited, with the remainder going to Nextel as a deduction. The
Miscellaneous Receipts Act therefore mandates that the Commission award
1.9 GHz spectrum through an auction, thereby ensuring that the full
measure of the spectrum’s value is deposited in the federal Treasury.

In conclusion, all parties in this proceeding agree on the singular
importance of protecting critical public-safety communications in the
800 MHz band from the harmful interference caused by Nextel’s operations
in adjacent blocks of spectrum.  The only dispute is how best to do so.
The proposal endorsed by Verizon and countless others – in-band
realignment at 800 MHz – would accomplish the same result as Nextel’s
preferred solution. But it would do so through a legally sustainable
funding mechanism.

Sincerely,
/s/
Helgi C. Walker

http://gullfoss2.fcc.gov/prod/ecfs/retrieve.cgi?native_or_pdf=pdf&id_document=6516087196

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