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NTCH, Inc. v. Federal Communications Commission

United States Court of Appeals, District of Columbia Circuit

November 15, 2016

NTCH, Inc., Appellant
v.
Federal Communications Commission, Appellee Verizon, Intervenor

          Argued September 9, 2016

         On Appeal of Orders of the Federal Communications Commission

          Donald J. Evans argued the cause for appellant. With him on the briefs was Ashley Ludlow.

          Maureen K. Flood, Counsel, Federal Communications Commission, argued the cause for appellee. With her on the brief were Jonathan B. Sallet, General Counsel, David M. Gossett, Deputy General Counsel, and Jacob M. Lewis, Associate General Counsel. Richard K. Welch, Deputy Associate General Counsel, entered an appearance.

          Catherine E. Stetson argued the cause for intervenor. With her on the brief were Mary Helen Wimberly, William H. Johnson, and Katharine R. Saunders.

          Before: Pillard, Circuit Judge, and Edwards and Randolph, Senior Circuit Judges.

          OPINION

          Edwards, Senior Circuit Judge.

         This appeal involves challenges to two orders - referred to herein as the "Memorandum Order" and the "Reconsideration Order" - issued by the Federal Communications Commission ("FCC" or "Commission"). In these orders, the Commission approved the transfer of radio spectrum licenses to Verizon Wireless ("Verizon"), a national telecommunications company, granted Verizon forbearance from a statutory provision, and refused to initiate proceedings to revoke other licenses held by Verizon. Appellant NTCH, Inc., a company that provides wireless phone and internet services, challenges these orders. Verizon has intervened in support of the FCC.

         The FCC administers the Communications Act of 1934 (the "Act"). 47 U.S.C. §§ 151 et. seq. As part of its duties, the Commission oversees the assignment and sale of radio spectrum licenses. 47 U.S.C. § 310(d). "Spectrum" is "[t]he range of electromagnetic radio frequencies used in the transmission of sound, data, and television, " and is crucial to cell phone companies. See Glossary of Telecommunications Terms, https://www.fcc.gov/general/glossary-telecommunications-terms (last visited Oct. 18, 2016). Section 310 of the Act limits who may hold spectrum licenses, and bars or restricts ownership for companies with certain levels of foreign control. In 2012, the Commission issued a "Forbearance Order" detailing when and how it would refrain from applying section 310(b)(3).

         In late 2011, a number of companies seeking to sell spectrum licenses petitioned the FCC to approve the transfer of their licenses to Verizon. The Commission sought public comment on these applications, eventually grouping them together for consideration. In the Memorandum Order, the agency approved a "Spectrum Assignment, " authorizing a series of license assignments between various entities, with the greatest share going to Verizon. The agency found that the Spectrum Assignment promised significant public interest benefits, but also threatened some detriments. However, the Commission determined that the potential harms could be offset, and approved the arrangement subject to several conditions. Because Verizon was then governed by section 310(b)(3), the Commission also granted Verizon prospective forbearance from that subsection.

         NTCH petitioned for reconsideration and claimed, for the first time, that Verizon had illegally obtained hundreds of spectrum licenses between 2000 and 2012 in violation of section 310(b)(3). NTCH argued that the Commission had unlawfully granted retroactive forbearance under section 310(b)(3) to cover this up, and that proceedings to revoke those licenses must be initiated. NTCH also claimed that the FCC had failed to follow its own standards in granting Verizon prospective forbearance. The FCC rejected all of these claims in the Reconsideration Order.

         NTCH now appeals to overturn the FCC's orders. It asserts that the FCC unlawfully granted Verizon retroactive forbearance, that the agency should be required to initiate show cause license revocation proceedings against Verizon, and that the agency's grant of prospective section 310(b)(3) forbearance violated its own procedures. Additionally, NTCH argues that the Commission's approval of the Spectrum Assignment should be overturned because it is not in the public interest.

         We reject NTCH's claims. The FCC's decision not to initiate proceedings to revoke Verizon's licenses is not subject to judicial review. Furthermore, any questions about the licenses Verizon obtained before the Spectrum Assignment are not properly before the court. NTCH's challenge to the FCC's grant of prospective forbearance is moot because no foreign entity now has any ownership of Verizon. Finally, the Commission's determination that the Spectrum Assignment was in the public interest was reasonable and therefore survives arbitrary and capricious review.

         I. Background

         A. Section 310(b) and Verizon's Ownership Structure

         Section 310 places restrictions on who may own radio licenses, including spectrum licenses. At issue in this case are sections 310(b)(3) and (b)(4). These provisions state that

         No broadcast or common carrier . . . license shall be granted to or held by-

(3)any corporation of which more than one-fifth of the capital stock is owned of record or voted by aliens or their representatives or by a foreign government or representative thereof or by any corporation organized under the laws of a foreign country;
(4)any corporation directly or indirectly controlled by any other corporation of which more than one-fourth of the capital stock is owned of record or voted by aliens, their representatives, or by a foreign government or representative thereof, or by any corporation organized under the laws of a foreign country, if the Commission finds that the public interest will be served by the refusal or revocation of such license.

47 U.S.C. § 310(b)(3), (4).

         The Commission has interpreted section 310(b)(3) to bar possession of a radio spectrum license by an entity in which aliens hold more than a twenty-percent interest, including indirectly through an intervening, U.S.-organized entity that itself does not own more than fifty-percent of that licensee. Request for Declaratory Ruling Concerning the Citizenship Requirements of Sections 310(b)(3) and (4) of the Commc'ns Act of 1934, as amended, 103 F.C.C. 2d 511, 520-22 ¶¶ 16-19 (1985). Section 310(b)(4) bars possession of spectrum licenses where aliens hold more than twenty-five percent interest in a U.S.-organized entity that does control a licensee, but only if the Commission determines that refusing ownership would serve the public interest. 47 U.S.C. § 310(b)(4). In 2012, the Commission issued an order detailing the circumstances in which it would forbear from applying section 310(b)(3), and the procedures it would follow in doing so. In the Matter of Review of Foreign Ownership Policies for Common Carrier and Aeronautical Radio Licensees Under Section 310(b)(4) of the Commc'ns Act of 1934, as Amended, 27 FCC Rcd. 9832 (2012).

         In 2000, the FCC granted Bell Atlantic (Verizon's predecessor-in-interest) and Vodafone (a foreign company) permission to jointly assign their wireless licenses to Cellco, a U.S.-organized company that does business under the name "Verizon Wireless." In re Applications of Vodafone AirTouch, PLC and Bell Atlantic Corp., 15 FCC Rcd. 16507 (2000). Vodafone initially owned a controlling share in Verizon. Consequently, the FCC evaluated Verizon's eligibility to hold licenses under § 310(b)(4).

         At some point after this, however, Vodafone's ownership of Ve r i z o n became non-controlling. At that point, Verizon's eligibility to own spectrum licenses should have shifted from being governed by section 310(b)(4) to being controlled by section 310(b)(3)'s absolute prohibition. But between 2000 and 2012, when the Commission granted Verizon forbearance, Verizon obtained a significant number of licenses. In 2014, Verizon bought out Vodafone's interest. As a result, Verizon is now wholly owned by a domestic corporation, and no part of section 310(b) applies to it.

         B. The Spectrum Assignment and ...


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