- The FCC is reviewing T-Mobile’s proposal to buy UScellular’s wireless operations and about 30% of its spectrum
- Whistleblowers are raising red flags in the FCC proceeding, saying UScellular obtained some of its spectrum through shell companies
- T-Mobile and UScellular say their objections are unrelated to the merits of this transaction and should be disregarded
Analysts expect the U.S. government ultimately will approve T-Mobile’s bid to buy UScellular’s customers and about 30% of its spectrum in a deal valued at $4.4 billion.
But two attorneys are raising red flags about a small portion of the spectrum that’s changing hands, and they’re not going away quietly – even as T-Mobile and UScellular are telling the FCC that the attorneys are out of line and their concerns should be disregarded.
Mark O’Connor and Sara Leibman have been fighting UScellular in court for years over the way UScellular acquired spectrum that is designed for small and minority-owned businesses through the FCC’s designated entity (DE) program. It’s the same program that got Dish Network in hot water when it used affiliated companies Northstar and SNL Wireless to get $3.4 billion in bidding credits in the 2014/2015 AWS-3 auction.
In UScellular’s case, the attorneys are relying on the False Claims Act, which was originally signed into law in 1863 by President Abraham Lincoln. It’s designed to target fraud in government contracting and allows any individual or non-governmental entity to file a lawsuit on behalf of the U.S. government. O’Connor and Leibman are identified by the courts as “whistleblowers” or “relators” for their role in bringing forth allegations against UScellular.
They contend that UScellular used shell companies, including one called Advantage Spectrum, to get access to discounted spectrum. For example, in 2015, Advantage Spectrum paid $338 million for 124 DE licenses in the AWS-3 auction, receiving $112,768,000 in DE bid credits for the licenses. But Advantage Spectrum doesn’t provide wireless services to the public and instead allowed UScellular to use the spectrum.
So far, the whistleblowers have been unsuccessful. Last year, a U.S. District Court for the District of Columbia judge dismissed with prejudice their False Claims Act suit, saying they failed to raise different allegations from those already in the public domain. The court noted that the Department of Justice declined to intervene against UScellular and its affiliates.
O’Connor and Leibman appealed and are awaiting a decision by the D.C. Circuit Court of Appeals, where oral arguments were presented this past spring. That decision is expected anytime now.
What’s at stake
T-Mobile’s deal to acquire UScellular is valued at $4.4 billion, but the whistleblowers are only concerned about $400 million, which equates to the value of the spectrum under question from the DE deals. That’s a tiny amount compared to the entire deal, but it’s not exactly peanuts, especially as secondary market spectrum deals become much more prevalent while the FCC lacks auction authority.
O’Connor and Leibman said they believe UScellular’s customers will be better off with T-Mobile, but they want UScellular to be held accountable for the way in which it acquired the spectrum and for the FCC to hold off on its decision until the court rules.
“UScellular took advantage of an important program, meant for small business, undermining the integrity of the program, as well as the FCC’s spectrum auctions,” Leibman said.
Since they first filed an “informal opposition” statement with the FCC in the T-Mobile proceeding, Verizon announced it wants to pay $1 billion for a portion of UScellular’s spectrum.
"We do not object to T-Mobile or Verizon as purchasers of USCellular’s spectrum, but we oppose USCellular’s attempt to sell off its valuable assets, including spectrum currently held by its designated entities, before it is held accountable,” Leibman said in a statement provided to Fierce.
O’Connor has been practicing communications law since the early 1990s, including a stint at Piper & Marbury, now the well-known D.C.-based firm DLA Piper. Leibman worked as an attorney for the FCC from 1991 through 1995, when the FCC was developing DE and other FCC spectrum auction regulations, so she’s well acquainted with the FCC’s motivation behind DEs. Also of note: She was chief counsel of federal Regulatory Affairs at T-Mobile from June 2006 through September 2010.
Nothing to see here?
In response to Fierce’s questions, UScellular referred to this filing, where UScellular and T-Mobile say the objection filed by O’Connor and Leibman is “wholly unrelated” to the merits of the transfer of control from UScellular to T-Mobile.
Moreover, “Mr. O’Connor’s and Ms. Leibman’s attempt to inject into this proceeding a dispute extraneous to the proposed transaction should be disregarded and the Informal Objection considered, if at all, in the context of the leasing notifications,” T-Mobile and UScellular told the FCC in a joint filing.
T-Mobile didn’t respond to a request for comment. The FCC declined to comment.
All systems ‘go’
Sources who spoke to Fierce don’t think the whistleblowers’ complaints are going to prevent the U.S. government from approving T-Mobile’s purchase of the UScellular assets.
“I don't think the filings will affect the ultimate FCC resolution of the transaction,” said New Street Research analyst and former high-ranking FCC official Blair Levin, noting that whatever the merits of the complaint, they can be addressed outside the context of whether T-Mobile can purchase the assets of UScellular.
“It's not that the DE issues are a thing of the past,” he said. “Rather, I don't think the FCC will view those issues as relevant to larger public interest analysis it will do in reviewing the transaction. And I don't think the FCC will wait for the courts to resolve the specific issues raised in the informal complaints to resolve the transaction.”
For their part, T-Mobile executives have said the process of acquiring the UScellular assets is going well and they expect it to be completed by the middle of next year. During T-Mobile’ Q3 earnings call last week, EVP and General Counsel Mark Nelson said they’re confident that “we’ll get clearance in due course, but we’re working through the process with the various agencies right now.”
T-Mobile CEO Mike Sievert on the same call said that the teams have met and “they’re fired up.” As a result of the deal, both T-Mobile and UScellular customers will have a better network experience.
“We’re very confident, but we have to keep our heads down and go through the process and explain our case to all the parties involved,” he said.