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Abstract

The Federal Communications Commission's ("FCC") designated entity policy has challenged the efficiency of the use of auctions to allocate spectrum licenses. As an alternative to comparative hearings and lotteries, auctions provide an effective solution to the costs, administrative burdens, and delays associated with apportioning spectrum. Congress required the FCC to allow firms to participate in the auctions even if they had difficulty in obtaining financing. The FCC gave these firms, known as "designated entities," set-asides and other preferences to assist them in the competitive bidding process. In the broadband Personal Communications Services ("PCS") auctions, however, designated entities frequently were unable to pay for their winning bids. Some of these firms took advantage of programs offered by the FCC to help pay for their licenses, while others surrendered their licenses to the Commission. Several firms also sought protection from the courts, which resulted in litigation costs and delays. Most importantly, some licenses sat dormant while these companies struggled to finance their bids, preventing customers from benefiting from their use. These factors combined to undermine the effectiveness of the auction process. Commissioner Harold Furchtgott-Roth claims the government's designated entity policies "doomed these licenses to failure," calling these blocks of licenses set aside for designated entities a "legacy of lost opportunity." This article begins by explaining the history of FCC licensing authority in Part I. Next, Part II reviews the FCC's implementation of auction procedures and policies, including those for designated entities. Part III discusses some of the problems encountered by bidders who failed to pay for their winning bids at auctions, most notably NextWave. Part IV examines attempts by the government and industry to resolve the difficulties faced by these bidders. Lastly, Part V analyzes the FCC's ultimate decision to cancel NextWave's licenses and to include them in a reauction.

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