Teletruth News Alert: May 11, 2006

Contact: Bruce Kushnick, [EMAIL PROTECTED]  
To read the full  complaint:  

Wireless Spectrum Fraud by AT&T, Cingular (SBC & BellSouth), Verizon, T-Mobile and Sprint? Are these "Very Small Businesses"?

Teletruth Estimates Over $8 Billion Was Pocketed through Deceptive Practices in Wireless Spectrum Auctions. FCC, SEC and Other Violations Need Investigation.

Upcoming (June 2006) Wireless Broadband Auctions in Jeopardy:

Small Businesses Screwed.Teletruth today filed an $8 billion complaint alleging that Verizon, AT&T, Cingular (SBC, AT&T and BellSouth), T-Mobile, Sprint and others rigged the FCC wireless auctions by creating false fronts to pose as "very small businesses". This allowed these companies to secure valuable wireless spectrum at discounted prices. This Complaint was filed with the Federal Communications Commission (FCC), the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and various committees in Congress.

Deceptive Practices: Is it legal for America’s "Very Large Businesses" to pose as ‘Very Small Businesses" to win wireless licenses to be used by the very large business? Data from phone company annual reports:

  • Salmon PCS LLC ---In November 2000, Cingular formed Salmon to bid as a "very small business" for certain 1900 MHz band PCS licenses auctioned by the FCC.
  • In November 2004, Cingular and Edge Mobile Wireless formed Edge Mobile, (Edge) to bid as an "entrepreneur" for certain 1900 MHz band PCS licenses auctioned by the FCC.
  • AT&T Wireless’s financial statements include other "variable interest entities" (read very small business), similar to Salmon and Edge Mobile Wireless.
  • Verizon Wireless: On February 15, 2005, the FCC’s auction of broadband personal communications services licenses ended and Verizon Wireless and Vista PCS were the highest bidders for 63 licenses totaling approximately $697 million. --- Vista works for Verizon.

Is it legal to keep the estimated $8 billion that was saved by posing as a "very small business"? Doesn’t this harm competition? Doesn’t this defraud the government out of billions of dollars? Why haven’t the FCC and DOJ stepped in to get the money back?

Designated Entities or "Deceptive Entities"?

The FCC even has a name for these companies: "Designated Entities".

Commissioner Adelstein on April 25, 2006 wrote:

"We missed a real opportunity to shut down what almost everyone recognizes has the potential for the largest abuse of our Designated Entity program: giant wireless companies using false fronts to get spectrum on the cheap."

The story is simple. The FCC auctions off something called "Spectrum", which is used for wireless services, broadband services, television, radio, etc. Also known as the "airwaves", the American people own these airwaves and give licenses for the use of these airwaves. An example: on June 29th, 2006, the FCC is about to have its 66th auction of spectrum for Advanced Wireless Services (AWS).

"Today, the (FCC) adopted a Public Notice that establishes procedures, minimum opening bids, and a reserve price for the FCC’s upcoming first auction of spectrum licenses for Advanced Wireless Services (AWS-1). This auction, Auction No. 66, is scheduled to begin June 29, 2006, and will include 1,122 AWS-1 licenses in the 1710-1755 MHz and 2110-2155 MHz bands."

This current spectrum auction is supposed to yield between $9-$15 billion.

The FCC, in creating this auction, is supposedly "promoting the rapid deployment of broadband, voice, and data services to the public by new AWS licensees". And yet, the FCC’s most recent decision, April 25th, 2006, did not address or fix the fact that these very large companies were able to rig the "small business" wireless auctions.

FCC Commissioner Copps wrote:

"News reports indicate that, in prior auctions, entities with deep pockets helped themselves to discounts they were never meant to enjoy. This unacceptable behavior threatens the integrity of our auctions and, worse, it cheats consumers. It costs taxpayers millions of dollars in foregone revenue. It also means that spectrum goes to those most willing and able to manipulate the rules of the game, rather than to the entities Congress actually intended to benefit… So, our job is to deny wealthy companies or individuals any opportunity to misuse the DE discount to outbid small carriers – the very carriers the DE program is meant to protect."

The phone companies will argue that the are playing by the rules.

Teletruth believes this is fraud. This is out-and-out-deception. Imagine that your state is building a road and a percentage of contractors must be small businesses. However, on investigation you see contractors larger than Trump and other very large contractors have created shell companies to bid and get the contracts. Wouldn’t those contractors be put in jail?

And these companies know full-well they are doing something wrong. Cingular writes:

"These … entities were formed to enable individuals and businesses with limited assets and revenues to bid on licenses that were otherwise unavailable to large entities."

And it directly impacts the authentic small businesses. Verizon and Vista PCS (Verizon’s front group) were the highest bidders in the 2005 auctions, meaning that Vista PCS won through its ability to outbid every real small business that wanted those licenses.

"On February 15, 2005, the FCC’s auction of broadband personal communications services licenses ended and Verizon Wireless and Vista PCS, LLC were the highest bidders for 63 licenses totaling approximately $697 million."

Verizon, AT&T et al are NOT very small businesses and there is no law that can be cited that will make creating dummy corporations ("false fronts") to win something that is designated for small businesses by large corporations legal. And this problem has been throughout the auction process with different groups acting as shills for the large corporations.

Some of the Designated Entities with National Carriers Relationships

(source: Council Tree, 2006)

  • Alaska Native Wireless, L.L.C. (AT&T Wireless)
  • Salmon PCS, LLC (Cingular)
  • Edge Mobile (Cingular)
  • ABC Wireless, L.L.C. (AT&T Wireless) Nature ---unclear
  • Vista PCS (Verizon Wireless),
  • Cook Inlet/VS GSM VII PCS (T-Mobile)*
  • SVC BidCo, L.P (Sprint).
  • Wirefree Partners III (Sprint)

*We also note that T-Mobile is owned by Deutche Telecom, the German telephone company.

Teletruth supports the original principles of spectrum for entrepreneurs and does not argue that some of these companies are legitimate concerns that have large funding partners. Nor do we claim any knowledge that they, themselves are involved with some form of tomfoolery. This is an industry-wide problem. The system has been abused. While everyone knows and acknowledges that this is wrong, the regulators have decided to ignore it.

How much money is involved? About $8 billion.

Based on just two of the FCC's auctions (35 and 58),  Teletruth believes that the DE status of the large phone companies saved them approximately $8 billion when comparing the discounted prices vs the retail prices they would have paid had they not received the discounts. Obviously, an investigation is needed to determine
the exact amount.

Conclusions:

Our request for legal action is aimed at ending this refusal to enforce the law. America has been robbed. Its treasury has been robbed of billions of dollars, and its market has been robbed of competition.

America is 16th in broadband and needs innovation and competition. Instead, the system designed to bring this needed entrepreneurial expertise, and protect the rights of America’s innovators and small businesses, slaps them in the face. We are 16th in broadband because the large corporations that promised deployments, and that we put our trust in, gamed the regulatory system in multiple ways, and then failed to deliver. This is yet another view of the deceptive practices and should be treated as such. The FCC, DOJ, SEC and Congress should:

  • Revoke the previous licenses that Verizon, AT&T, Cingular (SBC, BellSouth), Sprint and T-Mobile received under false pretenses.
  • The companies should be taken to court over this act of fraud and pay damages for their fraudulent acts.
  • The SEC should examine the lack of disclosure made by these companies about their relationships to fake-groups set up to bid as "small businesses".
  • Congress should commence an investigation into the failure to enforce Section 257 of the Act and the FCC’s failure to protect the rights of small businesses.
  • The wireless companies should be divested from their wireline, broadband and long distance owners. It is clear that these companies are too powerful and have used their wireline services to cross-subsidize their own wireless businesses.
  • Block the proposed AT&T-BellSouth merger. These companies are already too big and can’t be trusted. Previous mergers have proven that these companies, when they get larger, do not compete but reinforce their own market position.
  • ALL of the original Bell grandfathered-in cellular licenses and all other auctions need to be investigated.

Contact: Bruce Kushnick, [EMAIL PROTECTED]

To read the Full Complaint: http://www.teletruth.org/docs/wirelesscomplaintfin.pdf

Teletruth is a nationwide, independent customer alliance and was a member of the FCC Consumer Advisory Committee (2003-2004). http://www.teletruth.org

(FOOTNOTES PROVIDED IN FULL PDF VERSION OF THE COMPLAINT)



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