NEWS June 5, 1995 FCC CHAIRMAN HUNDT ANNOUNCES UPCOMING WIRELESS AUCTIONS NOTES ENORMOUS SUCCESS OF PREVIOUS AUCTIONS AT FCBA/WARREN COMMUNICATIONS WIRELESS CONFERENCE FCC Chairman Reed E. Hundt announced today the FCC's lineup for wireless telecommunications spectrum auctions this fall. He made this announcement in the keynote address at the Wireless Communications Summit Conference co-sponsored by the Federal Communications Bar Association and Warren Communications. The newly announced auctions are IVDS in October, SMR 900 and MMDS in November and Broadband PCS D, E and F blocks in December. Hundt said the upcoming August 2 PCS auction of almost 500 licenses "will be the biggest single opportunity in the communications sector ever made fairly available for small businesses, including men, women, minorities and nonminorities." He added that in ten days the FCC expects to receive hundreds of applications for the "Entrepreneurs Block" auctions which will "demonstrate a greater diversity of candidates for communications licenses than any previous filing in the FCC's history. He stressed that these new entrants will need "major sources of funds behind them" to participate in PCS. He said, "But if the filing parties have backers, that won't make them fronts or shams. It will make them entrepreneurs who are willing to take on the established behomoths of the communications sector. . . . Any small business . . . that has backers and is willing to put in the time and sweat to compete with those huge entities deserves our respect and encouragement." He noted that there was a long tradition of using government assistance to finance small entrepreneurial companies, including Apple, Intel, Compaq, Nike and FedEx. "They all benefited from Government assisted financing, and then, with hard work and business acumen, became successful businesses providing thousands of jobs." He said, "Instead of using government loans, in PCS auctions we used bidding credits to give small businesses, especially women and minorities, a chance to succeed. Without these credits, the small businesses wouldn't be able to attract backers. And without deep- pocketed backers, they wouldn't have a chance." (over) - 2 - Hundt said that in using bidding credits to attract capital to small businesses "we actually increase, not decrease, auction revenues." He cited a report published in the New York Times reporting that the bidding credits in the narrowband PCS auction last year attracted additional investors who drove up the auction competition so that the yield to taxpayers was increased by $15 million. He closed by noting that government had an obligation to ensure that everyone in America has a fair opportunity to participate in these new businesses. He said the wireless industry had a special responsibility to work with government to take up the challenge of identifying areas where they can work together to accomplish society's goals. - FCC - Remarks of FCC Chairman Reed E. Hundt Warren Publishing/FCBA Wireless Telecommunications Conference June 5, 1995 I'm honored to be here. The wireless communications industry in the United States is probably the most exciting business in the world. It is this industry that has recorded the biggest auction in history. That was our first PCS auction, raising nearly $8 billion. It is in the Guinness Book of Records. It is this industry that is in the middle of the biggest single investment boom ever made in a single technology: PCS. Over the next few years more than $30 billion will be invested. This investment will ultimately create directly and indirectly more than one million new jobs. This investment will ultimately generate in tax revenues far more every year than the auction revenues already earned. That is why when people compliment the FCC on the success of the auction I always say: it's not about the money we raise; it's about the businesses we help get started; it's about the economic growth they generate. You may have read that a group of former FCC employees, along with some new arrivals on the communications scene, gave themselves a press conference last week in which they blithely opined that the FCC should be eliminated. It is fairly obvious that this group has a rhetorical and political mission that pushes their logic beyond the limits of good sense. Still these commentators are honorable men and we owe it to the process of rational debate to ask seriously what is the purpose of the FCC. No one has a better idea of this purpose than someone in the wireless industry. First, the FCC manages the public property of the airwaves to promote the public interest. This means, among other things, that we make sure that new businesses have a chance to get access to spectrum. Without us, the big established companies would be in total control of the communications revolution. These are fine companies but they shouldn't be the only ones involved in the most important industry in this country's future. Second, we do auctions of spectrum, like no one else in the world has done. The most important facts about the auction techniques that we have pioneered are these: auctions are fast; auctions are fair; auctions create efficient markets. In addition, we have demonstrated that you can conduct auctions that guard the rights of incumbents, such as the incumbents in the PCS spectrum. And we have proved that you can conduct auctions that include small businesses as well as big businesses, such as will be amply demonstrated again in the upcoming auction of the third 30 megahertz swatch of PCS spectrum. Third, the FCC stands ready to set fair rules of competition for new wireless businesses. If you can't get access to the local loop; if you aren't treated fairly by long distance companies; if you aren't given your fair chance to compete -- the FCC is there for you. The Department of Justice and the state public utility commissions each have their roles, but only the FCC can and has set fair national rules of competition for everyone in our burgeoning national communications businesses. FCC, as you know, stands for Fair Competition in Communications. I don't know how far or how fast this industry is going. No one does. But, when I think of your future I'm reminded of the history of General Motors. In 1908, William Durant, the first CEO of General Motors, met with J.P. Morgan's chief partner George W. Perkins. The House of Morgan was the key source of finance for the industrialization of America. Durant assured Perkins that Perkins ought to loan him money because, he said, "There will come a time when a half million automobiles are built and sold in this country." After Durant left, with no commitment, Perkins said, "If this man has any sense at all, he will keep those observations to himself when he tries to borrow money." Within six years, the U.S. auto industry achieved Durant's prediction. By 1920, another six years later, this country was making two million automobiles a year. You wireless borrowers can use this story when you go to Wall Street. And as you already know, the number of cellular subscribers grew last year by almost 50 percent -- to more than 25 million. Wireless is the fastest growing sector of the U.S. economy in terms of new customers added. Think about AM/FM radios. They are ubiquitous, cheap, in every home, car and workplace; easy to carry, simple to use, always ready to be turned on. Soon, the same thing will be true about interactive radios: also called wireless devices. In order to make our contribution to your future, we created a new Bureau to focus on wireless telecommunications issues -- under the terrific leadership of Gina Keeney, who will be here with you later today. Under her leadership, the new bureau has completed four spectrum auctions and we are moving forward rapidly on more. I am pleased to take this opportunity publicly to announce the lineup of upcoming auctions. The next PCS auctions will be August 2. This is a key auction, because the third 30 megahertz auction is the one that essentially guarantees vigorous competition in all geographic markets. Then we will have an IVDS auction in October. This should complete the IVDS auctions. Then it will be up to the licensees to make Broadcast TV an interactive service. We will do both SMR 900 and MMDS auctions in November. These are both firsts in this country: the first special mobile radio auction and the first auction of spectrum for the purpose of delivering video. Then we will complete the PCS auctions by starting the Broadband PCS D, E and F block auctions in December. These are the ten megahertz licenses that may be combined to form mobile phone businesses in some markets. In others they will be the vanguard of new wireless applications. We don't make predictions but there isn't much doubt that these auctions will total more than a billion extra dollars for the Treasury. More important -- because it's not about the auction revenue -- these auctions will energize brand new competition and brand new wireless industries that will add hundreds of thousands of jobs to the economy. In order to do the SMR 900 and MMDS auctions we need to have the necessary rulemakings concluded by July and September, respectively. This is an aggressive schedule, but we're going to do our best to meet it. So if people ask you what is the purpose of the FCC, tell them that among other things we are working overtime to promote rapid introduction of new wireless services to the American consumer. When I talk about overtime I mean overtime all the time -- and without extra pay. It has been said that "government isn't the solution, it's the problem." I am perfectly willing to admit that government is filled with problems, but that is in part because government takes on hard problems. And having problems is no excuse for abandoning the pursuit of the public interest that is the purpose of government. The FCC has struggled for years to find a fair, fast, and efficient way to mete out licenses to use the public property of the airwaves. Auctions are the best thing we've come up with and they work terrifically well. I call that an example of government finding a solution to a problem. And when I tell you your civil servants at the FCC are working overtime; they are doing this so that others get the chance to build careers. They don't profit for themselves. They are doing this to help you and to have something historic to share with their children. So I think everyone in the Wireless Bureau deserves, for their selfless hard work and the hard work they are committing to do for the rest of this year, a round of applause. Our auctions should continue; let's not threaten their success by attacking the tiny, intrepid, hardworking FCC. The August 2 PCS auction will be of almost 500 licenses. This will be the biggest single opportunity in the communications sector ever made fairly available for small businesses, including men, women, minorities and nonminorities. In ten days we expect to receive hundreds of short-form applications for this "Entrepreneurs Block" auction. The filing will demonstrate a greater diversity of candidates for communications licenses than any previous filing in the FCC's history. But unless I'm pleasantly surprised, some people will criticize the filing parties on the grounds that the small businesses in the auction are backed by big businesses and other major sources of capital. Therefore, it will be said, those small businesses, and especially the women and minorities, somehow don't deserve a chance to participate in the wireless revolution -- even though they will be proposing to pay the government money, instead of the other way around. It is certainly true that if small businesses, including men and women, minorities and non-minorities, want to participate in PCS they better have major sources of funds behind them. But if the filing parties have backers, that won't make them fronts or shams. It will make them entrepreneurs who are willing to take on the established behemoths of the communications sector. The Bell companies, the cable industry, AT&T -- these giants are already committed to PCS. Any small business, and especially a small businesswoman or minority, that has backers and is willing to put in the time and sweat to compete with those huge entities deserves our respect and encouragement. Some say that to succeed in business either you can inherit money or you can make it. But everyone knows that the key to success really is the ability to borrow money. Long ago we acted on this principle by using government to finance small, entrepreneurial companies through its SBA programs. Some of these companies are Apple, Intel, Compaq, Nike and FedEx. They all benefited from Government- assisted financing, and then, with hard work and business acumen, became successful businesses, providing thousands of jobs. Instead of using government loans, in PCS auctions we used bidding credits to give small businesses, especially women and minorities, a chance to succeed. Without those credits, the small businesses wouldn't be able to attract backers. And without deep-pocketed backers they wouldn't have a chance. Of course even if they win licenses, their future is up to them. There are no guarantees and no handouts for the small businesses in PCS. Their future is, as they well know, uncertain. But at least they'll have a chance to explore that future. Finding a way to run an auction that includes, instead of excludes, small businesses, including small businesswomen and minorities, in the opportunities of the future is an important purpose of government. As Abraham Lincoln explained, "the legitimate object of government is to do for the people what needs to be done but which they cannot, by individual effort, do at all, or do so well, for themselves." Lincoln therefore thought that government funds should be used to help build infrastructure in the new western state of Illinois. No one in Illinois could build that infrastructure acting alone. By acting together, through government, the country could make sure that the small businesses, entrepreneurs, immigrants, and little people of Illinois would have a fair chance to explore their own future. As it happened, their future became the great united country we are proud to call ours today. We have before us today the same necessity -- but this time we need to build the infrastructure not of the industrial age but the information age. Just as all Americans acting through government had to take special steps to open up the West for everyone in the last century, so at the predawn of the 21st century we need to take special steps to make sure that the communications revolution will include all Americans and benefit all Americans. At the FCC we have already proved that we know how to use auctions to take those special steps. For example, in the regional narrowband auction completed last fall four designated entities with bidding credits won some of the licenses. Two are women-owned businesses and two are minority-owned businesses. These four entrepreneurs know that our rules are what brought them into contact with the backers that they needed to participate in building the new information infrastructure. It's also interesting and important to note that by using bidding credits to attract capital to small businesses we actually increase, not decrease, auction revenues. A pair of professors from Maryland and Yale published an article in the New York Times reporting that the bidding credits in the narrowband PCS auction last year attracted additional investors. These additional investors drove up the auction competition so that the yield to taxpayers was increased by $15 million. In that same auction, the four winners with credits paid for their licenses, net of their credits, as much as, and in some cases slightly more than did, auction winners who had no credits. In extending bidding credits to some, especially women and minorities, we are following the Congressional mandate in the Omnibus Budget Reconciliation Act of 1993 -- the President's first budget bill. Under this mandate, we believe the FCC's PCS auctions will provide a historic opportunity for small business, especially women and minorities, to participate in the communications revolution. And because of that participation, all Americans will benefit from the imagination, competition, and spirit these new entrepreneurs will bring to the auctions and to the country. Advances in communications technologies hold out the promise of vastly increasing our wealth and comfort. They also have the capacity to sow violence and despair by dividing further the gap between the haves and the have-nots. We must understand that the power of communications tests as never before our capacity to act as a wise and caring society. The power of communications tests as never before whether we wish to use that power for better or whether we will stand aside and watch it be used for worse. If we turn over the power of communications solely to the pursuit of commercial success we will not pass that test. Complete, blinkered pursuit of maximum profit has its place in our economy, but will not ensure that every American has a reasonable opportunity to participate in the Information Age. Pure commercialism will not, for example, put modern communications technologies in every classroom in the country. And pure market forces will not give everyone in America a fair chance to participate in the new businesses. We, as a society, have to take special steps to do that. In that regard, a special responsibility rests on those in this room. We are the ones who must take up the challenge of identifying areas where our tool of the common good -- government -- can operate in conjunction with market forces to accomplish society's goals. To this end, I look forward to working with you.