Designated Entity Rules and Secondary Market Transactions Should Be a Top-line Priority...

Designated Entity Rules and Secondary Market Transactions Should Be a Top-line Priority for the FCC

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America’s tech and telecom sectors account for one-sixth of the nation’s GDP, and in an increasingly digital economy, spectrum is a vital resource for economic growth and entrepreneurial opportunity. This is particularly true for minority business owners who have both the expertise and capital necessary to make substantial investments in wireless infrastructure, thereby diversifying the marketplace.

Two major spectrum auctions and several secondary market transactions are expected to occur within the next year.  A recently released report by the Minority Media & Telecommunications Council, Digital Déjà vu: A Road Map for Promoting Minority Ownership in the Wireless Industry, urges the Federal Communications Commission to reinvigorate its Designated Entity (“DE”) rules to increase ownership opportunities for minorities and women in the telecom sector.

According to the report’s co-authors S. Jenell Trigg, Esq. and Jenaba Jalloh Ghatt, Esq., the Federal Communications Commission’s DE program of the past twenty years has been largely ineffective at promoting minority and women owned business enterprise (“MWBE”) engagement, and the primary beneficiaries of the rules have been incumbent rural telephone companies.

“With incentive auctions projected to generate billions in revenue in the near future, the inclusion of MBEs in the communications sector – as licensees and ultimately as facilities-based spectrum owners – is vital to fulfilling the promise of innovation, competition, universal deployment, and other advanced wireless services that are transforming the nation,” states the report.

There is dramatic economic growth potential inherent in the wireless sector. Likewise, minorities over-index in the use of wireless products and services, and represent some of the most avid consumers of advanced communications technologies. Given prospects for growth and heightened engagement, increasing minority ownership in this space could both foster job creation among some of the communities hit hardest by recession (minorities tend to hire minorities more often than their majority counterparts) as well as pave the way for new wealth creation potential for minority businesses.

Of nine recommendations proposed to improve the DE rules, the report prioritizes three in particular to hasten the engagement of minorities and women in wireless space. The recommendations, which have received support from several civil rights organizations, civic associations, and members of Congress, call on the FCC to:

  1. Eliminate the Attributable Material Relationship Rule. DE’s should be able to retain their DE status, including the value of bidding credits, if they enter into leasing, wholesaling, and/or resale arrangements for more than 25% of spectrum capacity to another entity.
  2. Increase bidding credits to at least 40%.  An increase would help compensate for the harms caused by the 2006 DE Rules and facilitate expanded access to capital for MWBEs.
  3. Incorporate diversity and inclusion in the Commission’s public interest analysis of mergers and acquisitions (“M&A”) and secondary market spectrum transactions. Such analysis would ensure that there are compelling factors in the determination of whether any transaction meets the public interest standard, including MWBE participation. Such documentation should also be a part of the agency’s annual Wireless Competition Report to Congress.

“Revitalizing the designated entity rules so that minority- and women-owned and operated businesses are seriously positioned to prevail as winning bidders and beneficiaries in connection with the upcoming spectrum repack and auctions is one of my paramount concerns,” Congressman Bobby Rush (D-IL) told Politic365 following MMTC’s white paper release.

“Prior DE rules adopted by the FCC as part of previous auctions have clearly not met statutory muster on these metrics,” he continued. “Whatever DE rules are ultimately adopted must not only look good on paper or in an FCC press statement, but they have to be sensibly developed to induce those with capital and management experience to align with minority and women communications business owners and entrepreneurs. Time is of the essence given the preparations that must take place in advance of the upcoming auctions. It is incumbent upon the FCC to act swiftly.”

Congresswoman Sheila Jackson-Lee (D-TX) agrees, “wireless spectrum is both a critical infrastructure and currency of our day.  As a public asset, spectrum ownership should not be enjoyed by a select few, and the FCC’s designated entity rules can and should continue to promote minority participation in this space.  I look forward to working with the Commission’s staff and leadership and my colleagues in Congress to ensure first class digital citizenship for all Americans.

The FCC is well positioned to profoundly impact the engagement of minorities and women in the tech and telecom sectors this year based on its decision on a variety of issues. Revisiting and revising designated entity rules and holding diversity and inclusion as top-line priorities – and maintaining accountability to Congress in its annual Wireless Competition Report – are but two ways the Commission can best serve the public interest.

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