The FCC's Enforcement Bureau has issued a Forfeiture Order affirming the $75,000 fine it proposed to levy against Cascade Access, LLC in a 2009 Notice of Apparent Liability for Forfeiture (the "NAL") for violating the Commission's anti-collusion rules in Auction No. 73.
In Auction No. 73, the FCC offered licenses to use spectrum in the 700 MHz band. Cascade filed a short-form application for one license on which it wished to bid – located at White Pine, Nevada. Verizon Wireless also applied to bid on that license.
Section 1.2105(c) of the Commission's rules prohibits communications between auction competitors from the closing of the short-form filing window until the deadline for the winning bidder to tender its down payment for the license it purchased. Competitors are precluded from communicating about their bids, bidding strategies or the post-auction structure of the relevant market. If such communications are sent or received, the FCC is to be notified within five days. There is an exception to this strict prohibition for applicants who have bidding agreements with each other, and who disclose on their short-form applications all such agreements. Neither Cascade nor Verizon disclosed on its short-form application that it had an agreement with the other.
Bidding in Auction 73 began on January 24, 2008, and continued until March 18, 2008. During that period, on February 11, a Verizon executive named William Hickey received an email from Bob Milliken, a board member of a parent entity of Cascade. Milliken wrote to Hickey, stating "[w]e have dropped out of the 700 mhz auction" and are "ready to talk/meet" with Verizon Wireless. Cascade explained later to the FCC that Milliken's purpose in sending the email was "to address when a representative of Cascade could communicate with Verizon Wireless regarding Verizon's interest in the acquisition of an ownership in the AZ 1 RSA Mohave Wireless Partnership."
Verizon's counsel promptly reported this communication to the FCC, and responded to Milliken that the parties could not then have communications because they were subject to the Commission's anti-collusion rules. Cascade did not report this incident to the FCC because, in its view, the email did not include any information requiring disclosure.
Cascade maintained that Milliken's contact primarily concerned a business matter completely unrelated to the auction, and that it was therefore not subject to the anti-collusion rules. However, the Commission found that Milliken's opening remark that "[w]e have dropped out of the 700 mhz auction" was the contaminating element. By informing a competing bidder that it was no longer active in the pursuit of a specific license, Milliken undermined the integrity of the auction and potentially jeopardized the formation of a competitive post-auction market structure. The Enforcement Bureau determined that Cascade, through Milliken, committed serious violations of the anti-collusion rules by initiating the email in the manner that it did, and proposed the fine.
Cascade responded to the NAL in March, 2009 and requested cancellation or reduction of the amount of the forfeiture. Cascade said the forfeiture should be cancelled because Milliken's statement did not communicate the "substance" of bids or bidding strategies, as prohibited by the anti-collusion rule; the prohibited conduct is not clearly stated in the rule; the Commission previously disseminated to the public the type of information disclosed by Milliken; and the agency has allowed similar communications between auction applicants in other cases. To support its argument that the fine should be reduced, Cascade said that it had not intended to violate the rule; that its action did not cause Verizon to change its bidding strategy or otherwise compromise the auction process; its offense was less egregious than that of a bidder in another case where a $75,000 fine was imposed; and Cascade has a history of compliance with the Commission's rules.
The Enforcement Bureau found no merit in any of Cascade's arguments. It observed initially, again, that numerous public notices released prior to and during the auction had advised applicants about the prohibition on communications with each other. All participants were well informed about the rule. The Bureau reasoned that disclosing a decision to drop out of bidding is no less significant than disclosing an intention to bid a particular amount or to bid on a particular license in a specific market. The Bureau said that the potential for such a disclosure to compromise the competitive nature of the bidding process and the post-auction market structure is precisely why such communications are prohibited.
As to Cascade's assertion that it did not intend to violate the rule, the Bureau held that a party's volition can be gauged by its primary actions. Certainly, Milliken did not inadvertently contact the Verizon executive and did not inadvertently make the comments that he did. Whether in so doing he actually intended to violate the rule is irrelevant. Cascade's actions were clearly "willful" as defined by the Communications Act.
Cascade asserted that its conduct in this case was less egregious than that of an applicant in another case where a fine of the same amount was imposed. In that case, two bidders were actively communicating with each other. In this case, the other bidder, Verizon, did not respond or participate in the communication. Verizon's failure to respond to Cascade's communication does not provide grounds for mitigating the fine for Cascade.
The Commission's anti-collusion rules apply to all auctions – including those for broadcast permits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
