UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


US AIRWAVES INC

v.

FCC


98-1266a

D.C. Cir. 2000


*	*	*


Ginsburg, Circuit Judge: Before us are petitions for review  of two
rulemaking orders of the Federal Communications  Commission. The
orders changed the financial terms applica- ble to companies that
purchased licenses to provide personal  communications services (PCS)
at an auction in which bidding  was limited to small businesses and
entrepreneurs. See  Amendment of the Commission's Rules Regarding
Install- ment Payment Financing for [PCS] Licensees, Second Re- port
and Order and Further Notice of Proposed Rule Mak- ing, 12 F.C.C.R.
16,436 (1997) (Restructuring Order); and  Amendment of the
Commission's Rules Regarding Install- ment Payment Financing for [PCS]
Licensees, Order on  Reconsideration of the Second Report and Order,
13 F.C.C.R.  8345 (1998) (Reconsideration Order). Petitioners U.S.
Air- waves, Inc. (hereinafter Airwaves) and Sprint Spectrum L.P. 
characterize the rules as a benefit given retroactively to  incumbent
licensees, to the detriment of losing bidders in the 


spectrum auction and of competitors in the PCS industry, and  therefore
as unauthorized, unreasonable, and arbitrary and  capricious.
Intervenor NextWave Inc., a successful bidder in  the original
auction, supports the new rules; it also maintains  that neither
petitioner has standing to challenge them.


We hold that Airwaves, as a disappointed bidder in the  original
auction, does have standing to petition for review of  the new rules;
we therefore do not reach the question  whether Sprint Spectrum L.P.
also has standing. We hold  further that, although the changes to the
Commission's fi- nancing rules are indeed retroactive, the Commission
had  adequate reasons for adopting them, and that it reasonably 
balanced competing goals and acted within its statutory au- thority.


I. Background


Broadband PCS are a type of mobile telephone technology.  See Omnipoint
Corp. v. FCC, 78 F.3d 620, 626 (D.C. Cir.  1996). In order to provide
PCS a company must get from the  Commission a license to use a portion
of the electromagnetic  spectrum. In 1994 the Commission decided to
distribute such  licenses through a system of competitive bidding,
pursuant to  47 U.S.C. s 309(j)(1). See Implementation of Section
309(j)  of the Communications Act--Competitive Bidding, Second  Report
and Order, 9 F.C.C.R. 2348, pp 54-58 (1994) (2d  R&O). The Commission
designated a portion of the spec- trum for the provision of PCS and
divided that portion into  six blocks, which it labeled A through F.
In keeping with its  statutory mandate to "ensure that small
businesses ... are  given the opportunity to participate" in spectrum
auctions, 47  U.S.C. s 309(j)(4)(D), the Commission limited the
bidding for  "C-block" spectrum to entrepreneurs and small companies. 
See Restructuring Order at p 8; cf. Omnipoint, 78 F.3d at  626
(upholding the limitation). The Commission offered small  businesses
bidding for C-block licenses an "installment pay- ment plan" under
which they could pay 10% down and the  balance "over a period of ten
years, with interest only paid for  the first six years and interest
and principal for the remaining  four." Restructuring Order at p 8.


not qualify as small businesses were offered less favorable  payment
terms. See id. at n.10.)


Between May and July 1996 some 90 different bidders  bought at auction
493 licenses--one for each "basic trading  area" (BTA) in the
nation--to use 30 MHz of spectrum for  the provision of PCS. Their
bids totaled $10.2 billion, a  figure some observers attributed to
irrational exuberance; on  average, C-block licensees agreed to pay
nearly three times  per potential customer what the winning bidders in
the A-  and B-block auctions had paid. See Restructuring Order at  p 9
& n.11; Peter Spiegel, Hollow Victory, Forbes, Jan. 27,  1997, at


Within nine months of the C-block auction, it became clear  that a
number of high bidders might not be able to make  their scheduled
payments. See Wireless Telecommunica- tions Bureau Seeks Comment on
Broadband PCS C and F  Block Installment Payment Issues, Public
Notice, 12  F.C.C.R. 21,015, 21,015 & n.4 (1997). In March, 1997 the 
Commission suspended the payment obligations of all C-block  licensees
pending a review of its installment payment terms.  See Installment
Payments for PCS Licenses, Order, 12  F.C.C.R. 17,325, p 2 (1997).


In October, 1997 the Commission issued the first of the two  orders
challenged in this case. That order ended the suspen- sion of payments
announced the previous March and offered a  "menu" of new financing
options to all C-block licensees. See  Restructuring Order at pp 6,
25. Upon reconsideration the  Commission retained the menu approach
but altered several  of the offerings in important particulars. See
Reconsidera- tion Order at pp 8-10. The revised scheme also permitted
a  licensee to select a different option for licenses it held in each 
"Major Trading Area" (MTA)--referring to the 51 geographic  regions
into which the Commission has divided the nation--so  long as it
applied the same option to all its licenses within  each MTA. See
Reconsideration Order at p 17. Upon the  promulgation of the order on
reconsideration, each licensee  was required, in order to avoid
default, to choose a menu  option for each of its MTAs. See id. at p


The menu offered each licensee four choices. First, the  licensee could
continue to make payments under the original  terms of the auction.
See Restructuring Order at p 6.


Second, the licensee could surrender all its licenses for a  particular
MTA and receive a "prepayment credit" in an  amount equal to 70% of
the down payments and 100% of any  installment payments it had made on
those licenses, as well as  forgiveness of its debt on the returned
licenses. The prepay- ment credit would be put toward payment for such
other PCS  licenses as the licensee continued to hold. The licensee
could  either provide additional funds in order to prepay all the 
licenses it retained in a given MTA or, were it to rely solely  upon
its prepayment credits, could prepay as many licenses  as possible in
a given MTA and surrender any remaining  licenses to be auctioned
anew. See Restructuring Order at  p 64; Reconsideration Order at pp


Third, the licensee could elect to "disaggregate" each of its  licenses
within a given MTA, returning 15 MHz of spectrum  to the Commission
and retaining 15 MHz under license. The  licensee's outstanding debt
to the Commission with respect to  returned spectrum would be
forgiven. The licensee would  also receive a credit equal to 40% of
its down payments on the  returned spectrum, which it could apply to
the payments due  on the retained spectrum. A licensee combining
disaggrega- tion and prepayment would receive a credit equal to 70% of
 its down payment for returned spectrum, which it could use  to prepay
the Commission either for the retained 15 MHz of  the disaggregated
licenses or for other PCS licenses it re- tained. See Restructuring
Order at pp 38-39; Reconsidera- tion Order pp 51, 54.


Finally, the licensee could simply surrender its licenses for  a
particular MTA and be forgiven its outstanding debt with  respect to
those licenses. A licensee electing this so-called  "amnesty" option
could either retain the right to rebid when  its licenses were sold at
auction again or forego the opportu- nity to rebid and receive a
credit of 70% of its original down  payment; it could apply that
credit to payments due in  connection with the prepayment or
disaggregation of licenses 


that it retained in other MTAs. See Reconsideration Order  at p 12.


The Commission states that in crafting this menu of options  it
"considered and balanced" several policy goals: maintain- ing the
integrity of spectrum auctions; ensuring fairness to  actual and
prospective licensees; resolving all issues prompt- ly; and complying
with its statutory mandates to "[p]romot[e]  economic opportunity and
competition in the marketplace,"  and to "ensure 'that new and
innovative technologies are  readily accessible to the American people
by avoiding exces- sive concentrations of licenses and by
disseminating licenses  among a wide variety of applicants, including
small busi- nesses.' " See Restructuring Order at p 2 (quoting 47


II. Analysis


Airwaves and Sprint PCS contend that the Commission  changed its
original auction rules arbitrarily and capriciously  and without
statutory authority. After analyzing the petition- ers' standing, we
consider the Commission's claim that the  new rules were foreshadowed
in the original auction rules and  therefore do not represent a
significant change in policy. We  then turn to the questions of
arbitrariness and of statutory  authority.


A. Do petitioners have standing?


The "irreducible constitutional minimum" for standing in an  Article
III court is that the petitioner was injured in fact, that  its injury
was caused by the challenged conduct, and that its  injury would
likely be redressed by a favorable decision of the  court. Lujan v.
Defenders of Wildlife, 504 U.S. 555, 560-61  (1992). NextWave Inc.,
intervening in defense of the Com- mission, argues that Airwaves lacks
standing because it can  demonstrate neither that it was injured in
fact nor that its  alleged injury is redressable.


A bidder in a government auction has a "right to a legally  valid
procurement process"; a party allegedly deprived of  this right
asserts a cognizable injury. DIRECTV, Inc. v.  FCC, 110 F.3d 816, 829
(D.C. Cir. 1997). A disappointed  bidder "need not ... demonstrate
that it would be successful 


if the contract were let anew" but only that it was " 'able and  ready
to bid ... and that the [rule] prevent[ed] it from doing  so on an
equal basis.' " Id. at 829-30 (quoting Northeastern  Fla. Chapter of
Assoc. Gen. Contractors of America v. City of  Jacksonville, 508 U.S.
656, 666 (1993)). Of course, in order to  show that its injury is
redressable, a disappointed bidder  must demonstrate that it is
"ready, willing, and able" to  participate in a new auction should it
prevail; but it need not  demonstrate that it will participate in such
an auction regard- less of the circumstances then prevailing. See
Orange Park  Florida T.V., Inc. v. FCC, 811 F.2d 664, 672 & n.18 (D.C.


Airwaves meets these requirements. It submitted bids in  the original
C-block auction but dropped out before securing  any licenses. It
claims that it would have bid more had it  known that financial terms
more favorable than those an- nounced at the time of the auction would
later be offered to  winning bidders. Airwaves further affirms, in the
sworn  declaration of its chief executive, that it "intends" to bid in
a  future reauction of PCS spectrum and that it is able to raise  the
capital necessary to do so. That is sufficient.


NextWave also argues that Airwaves cannot base its stand- ing upon its
participation in the original auction because  Airwaves acknowledges
that the original auction was fair;  Airwaves challenges only the way
in which the Commission  treated licensees after the auction was
completed. In this  argument, however, NextWave misapprehends
Airwaves'  claim, which is that post-auction revisions to the
financing  options available to the high bidders constitute
impermissibly  retroactive changes to the initial auction rules. There
is no  basis for suggesting, as NextWave seems to do, that ex post 
changes can never affect the validity of a government auction.


Finally, NextWave argues that Airwaves fails to demon- strate that its
claim is redressable by this court because it  does not allege that
when it petitioned for review of the new  rules it was ready, willing,
and able to bid in a new auction.  NextWave asserts that as of that
date Airwaves had returned  all its investment capital to its
investors and was not in good 


standing in the State of Delaware because of a tax dispute,  for both
of which reasons it would have been unable to bid in  any new auction
that the Commission might have conducted.  NextWave's premise is
correct: Standing is determined as of  the date an action is filed,
see Smith v. Sperling, 354 U.S. 91,  93 n.1 (1957); but NextWave
offers no persuasive reason to  think either that Airwaves lacked
access to capital on that  date or that it would not have resolved its
tax dispute in  Delaware had that been necessary in order to bid in a
new  auction. (In fact, the tax matter was resolved soon after the 
filing.) Absent any evidence to the contrary, Airwaves' asser- tion
that it was ready, willing, and able to participate in a  rerun of the
C-block auction satisfies the redressability re- quirement.


Having determined that Airwaves has standing, we do not  need to reach
the question whether Sprint Spectrum L.P. has  standing as well, for
Sprint presents no arguments beyond  those made by Airwaves. See
Railway Labor Executives'  Ass'n v. United States, 987 F.2d 806, 810
(D.C. Cir. 1993)  ("[I]f one party has standing in an action, a court
need not  reach the issue of the standing of other parties when it
makes  no difference to the merits of the case").


B. Is the rule retroactive?


Airwaves argues that the changes in the Commission's  auction rules
give a windfall to C-block licensees. The  Commission and NextWave
respond that the original auction  rules anticipate the possibility
that the Commission might  revise its financing provisions, making the
adoption of the  new rules foreseeable.* Cf. Small Refiner Lead Phase-
Down Task Force v. EPA, 705 F.2d 506, 547, 549 (D.C. Cir.  1983)
(holding that final administrative rules that depart from  an agency's
initial proposals do not require new notice and  comment if the final
rules are a "logical outgrowth" of the  proposals, such that the
parties "should have anticipated [that  they] might be imposed").




__________

n * The implication of the Commission's account is that the possibil-
ity of new rules is fully reflected in the prices paid; hence there is
 no windfall.


The Commission points out that the original auction rules  provided
that "as a general rule" a defaulting bidder's licens- es would be
deemed forfeit and reauctioned, 2d R&O at p 204,  which reasonably can
be taken to suggest that forfeiture and  reauction were not to be the
inevitable consequence of de- fault. More important, the original
rules specifically allowed  a licensee "that has defaulted or that
anticipates default  under an installment payment program" to obtain a
"three to  six month grace period" during which to "seek from the 
Commission a restructured payment plan." Id. at p 240. In  addition,
the original rules provided that default would occa- sion a
"substantial penalty," Implementation of Section 309(j)  of the
Communications Act--Competitive Bidding, Fifth Re- port and Order, 9
F.C.C.R. 5532, p 75 (1994), and under the  revised rule every licensee
that fails to honor its original  payment obligations forfeits at
least 30% of its down payment  on all spectrum that it returns to the


In some respects, however, the new rules clearly do contra- dict the
Commission's previously stated policies. The initial  auction rules
provided that the Commission would consider  requests for financial
restructuring on a "case-by-case basis."  2d R&O at p 240. This
certainly implied that the Commission  would not proceed by way of a
further rulemaking and a new  rule of general application, see Bowen
v. Georgetown Univ.  Hosp., 488 U.S. 204, 209 (1988). The distinction
is significant,  for the initial auction rules made only those
licensees "that  ha[d] defaulted or that anticipate[d] default"
eligible for a  grace period and financial restructuring. 2d R&O at p
240.  The C-block menu, in contrast, is available to all licensees 
regardless of their financial condition. See Restructuring  Order at p


The new regulations therefore do not merely fill in the  details of a
policy foreseeable at the time of the original  C-block auction;
instead, they constitute a secondarily retro- active change to the
rules governing that auction. See Bow- en, 488 U.S. at 219 (1988)
(Scalia, J., concurring) (defining  "secondary retroactivity" as
describing "rule[s] with exclu- sively future effect [that] ... affect
past transactions") (em- phasis omitted). A secondarily retroactively
rule is valid only 


to the extent that it is reasonable--both in substance and in  being
made retroactive. See id. at 220. It is to reasonable- ness that we
turn next.


C. Are the regulations reasonable?


Airwaves argues that the rule is invalid for two related  reasons.
First, it contends that the Commission failed to  relate its offering
of post-auction refinancing options to its  own stated goals. Second,
it argues that regardless whether  the Commission embraced fairness as
a goal, the rule is  simply so unfair that it must be deemed arbitrary
and capri- cious.


Under the arbitrary and capricious standard, this court  does not
substitute its judgment for that of the administrative  agency. See
Motor Vehicles Mfrs. Ass'n of the United States,  Inc. v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).  A regulatory decision in
which the Commission must balance  competing goals is therefore valid
if the agency can show that  its resolution "reasonably advances at
least one of those  objectives and [that] its decisionmaking process
was regular."  Fresno Mobile Radio, Inc. v. FCC, 165 F.3d 965, 971
(D.C.  Cir. 1999). Because Airwaves does not challenge the regular-
ity of the Commission's decisionmaking process, the issue now  before
us is whether the Commission reasonably justified its  regulations
with reference to at least one of its avowed goals.  See Restructuring


The C-block menu withstands review under this standard:  The Commission
justified each of the menu options and its  MTA-by-MTA selection
principle with reference to one or  more of its stated goals. In
particular, the Commission  justified each of its menu options as
"enabling C block  licensees to remain participants in the wireless
market,"  which it found would hasten "the delivery of new services to
 the public" and promote efficient use of the spectrum. Re-
consideration Order at p 10; see Restructuring Order at  pp 43, 45
(disaggregation); id. at p 53 (amnesty); Reconsider- ation Order at p
40 (prepayment). In addition, the Commis- sion justified the
prepayment option as a way of minimizing  conflicts between the


lator. See Reconsideration Order at p 40. The Commission  explained
disaggregation, as it did the provision for MTA-by- MTA election, in
part as an effort to help small licensees plan  their businesses
rationally. See Restructuring Order at p 45;  Reconsideration Order at


Airwaves challenges the Commission's rationale in two  respects. Its
first point proceeds from the observation that  the Commission deemed
"essential" two and only two of its  stated goals, namely, maintaining
the integrity of the auction  process and ensuring fairness to all
market participants.  Restructuring Order at p 3. Airwaves claims that
it is unrea- sonable for the Commission to adopt any policy that
under- mines a goal that the agency itself has styled "essential." 
This is an unduly cramped reading of the orders, however.  The
Commission reasonably can treat fairness and integrity  as "essential"
goals and yet recognize that they are matters of  degree. Thus, the
Commission may choose to sacrifice some  degree of fairness or
integrity in order to gain other impor- tant objectives. Several of
the goals that the Commission  lists in addition (and therefore
potentially in opposition) to  fairness and integrity--such as
competition, speedy deploy- ment of services to the public, efficient
use of the spectrum,  and participation of small businesses in the
market--are  mandated by statute. See 47 U.S.C. s 309(j)(3). A more 
reasonable construction of the Commission's statement that  fairness
and integrity are "essential" goals, therefore, is that  in its view
they must be included (along with those specified  in the statute)
among the goals to be balanced. This by no  means requires that they
trump all other goals in every case  where there is conflict.


Airwaves also argues that, aside from the orders' failure to  advance
the Commission's "essential" goals, they also fail to  advance the
other goals the Commission invoked as justifica- tions for the menu
options. For example, Airwaves argues  that, contrary to the
Commission's claims, the rule will retard  rather than hasten the
availability of services to consumers;  instead of forcing a reauction
that would transfer spectrum to  competent and solvent firms, the rule
allows precisely those  companies that "have demonstrated financial


and undue optimism about their financial capabilities" to  retain their
spectrum. New buyers at auction may, as the  petitioner asserts, be
more likely to effectuate a rapid build- out of wireless systems, but
the Commission is reasonably of  the view that starting the licensing
process all over again  would delay build-out. We defer to the agency
regarding a  predictive matter, such as this, within its expertise.
See  Fresno Mobile Radio, 165 F.3d at 971.


In a similar vein, Airwaves complains that, contrary to the 
Commission's expectation, the rule will not promote the par-
ticipation of small businesses in the wireless industry; that  goal
would be better effected by redistributing licenses to  small
businesses in a new auction than by reinforcing the  current
concentration of C-block licenses in relatively few  hands. The
petitioner's position is again plausible, but it is  also reasonable,
again, for the Commission to expect that  small businesses generally
will be better situated to face their  larger competitors in the
wireless industry if those that  already have licenses are able to
build their businesses in at  least some markets. Again, we defer to
the Commission's  expertise regarding such predictive issues.


Notwithstanding the Commission's reasoned justification,  the rule
might still be arbitrary and capricious if, as Airwaves  claims, it is
sufficiently unfair. We agree with the petitioner  that the Commission
systematically downplays the inequity of  the rule: it clearly grants
a substantial windfall not only to  distressed but also to healthy
companies that bought licenses  in the initial auction. Those
companies can now discard the  licenses they have found, with the
benefit of hindsight, to be  less valuable--without incurring the
ordinary penalty for  default and, indeed, while recouping some of the
payments  they have already made. At the same time they can retain 
the licenses they have found to be more valuable, subject only  to the
requirement that they elect a single menu option within  each MTA.
Further, the rule allows them not only to concen- trate their
resources in the most desirable markets but to  apply to the spectrum
they retain some of the payments they  had made on spectrum they
returned. Obviously, those who  were outbid in the original auction


they actually did--and might have bid enough to win licens- es--had
they known that the Commission later would make  such options


Having established that the Commission changed the rules  in a way that
could not be foreseen, the question is whether,  under the
circumstances, that was so unfair as to be arbitrary  and capricious.
We start from the intuitive premise that an  agency cannot, in
fairness, radically change the terms of an  auction after the fact. At
the same time, an agency must be  allowed to adjust its policies to
changing circumstances, with- in the framework of rules it established
in advance of the  auction. In this case the Commission determined
that the  statutory goals of speeding the delivery of service to the 
public and of facilitating the participation of small businesses  in
the wireless market required it to liberalize the financial  terms
available to C-block licensees. See Reconsideration  Order at pp 7-8.
Competing goals do not absolve the agency  of its duty to losing
bidders, of course, but the Commission  was careful to temper its
liberalization accordingly. The  agency did not simply forgive
agreed-upon payments, much  less grant the winning bidders' more
sweeping requests for  relief. Rather, under each of the menu options
it imposed  upon every distressed licensee a "substantial penalty"--in
 every case at least 30% of the down payment for a returned  license,
and up to 60% in the case of a licensee choosing  disaggregation


Considering the dramatic and unexpected business rever- sals faced by
C-block licensees, and post-auction conditions in  the wireless
market, we think the Commission reasonably  exercised its discretion
to balance fairness to losing bidders  with the needs of the market
and with the public interest.  We therefore conclude that the orders
under review are  consistent with the Commission's stated goals, and
that such  unfairness as they worked does not render them arbitrary 
and capricious.


D. Did the Commission exceed its statutory authority?


The Commission conducts spectrum auctions pursuant to  its authority to
grant licenses "through the use of a system  of competitive bidding."
47 U.S.C. s 309(j)(1). Airwaves 


argues that post-auction concessions made to the winning  bidders
effectively render the auction noncompetitive and  therefore without
statutory authorization. Airwaves argues  further that retroactive
changes to auction rules violate the  requirement that the Commission
"ensure that ... an ade- quate period is allowed ... after issuance of
bidding rules[ ]  to ensure that interested parties have a sufficient
time to  develop business plans, assess market conditions, and evalu-
ate the availability of equipment." Id. s 309(j)(3)(E). Air- waves'
argument here is that post-auction rule changes nec- essarily leave no
time for interested parties to plan, assess,  or evaluate.


These arguments were not put before the Commission and  are therefore
not properly before this court. See Washington  Ass'n for Television &
Children v. FCC, 712 F.2d 677, 680  (1983) ("[C]laims not presented to
the agency may not be  made for the first time to a reviewing court").
Airwaves  suggests that the issue was adequately raised before the 
Commission in the comment of another party, which argued  that
"Section 309(j) does not ... contain any provision allow- ing the
Commission to change the amount owed the govern- ment as a result of
an auction." The broad and general claim  that the Commission lacks
statutory authority "to change the  amount owed" is materially
different, however, from Air- waves' specific argument that the
Commission violated the  statutory provisions requiring "a system of
competitive bid- ding" and "an adequate period" for planning after
auction  rules are issued. Confronted only with the former, broad 
claim, the Commission had no notice of the specific objections  now
raised by Airwaves. As we have said more than once  before, a litigant
may not " 'sandbag' agencies by withholding  legal arguments ... until
they reach the courts of appeal."  USAir, Inc. v. Department of
Transp., 969 F.2d 1256, 1260  (D.C. Cir. 1992).


III. Conclusion


In summary, we hold that the changes to the Commission's  C-block
auction rules are neither arbitrary and capricious, 


nor unreasonable, nor without statutory authority. Therefore  the
petitions to review the rules are


Denied.