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M2Z Networks, Inc. v. Federal Communications Commission

March 10, 2009

M2Z NETWORKS, INCORPORATED, APPELLANT
v.
FEDERAL COMMUNICATIONS COMMISSION, APPELLEE NETFREEUS, LLC, ET AL., INTERVENORS



On Appeal and Petition for Review of an Order of the Federal Communications Commission.

The opinion of the court was delivered by: Sentelle, Chief Judge

Argued January 5, 2009

Before: SENTELLE, Chief Judge, and ROGERS and GRIFFITH, Circuit Judges.

In this consolidated proceeding, M2Z Networks, Inc. (M2Z) challenges two related decisions of the Federal Communications Commission (FCC or Commission). First, it appeals the dismissal of its application for a nationwide, 15-year exclusive license to the 2155-2175 megahertz (MHz) spectrum to provide wireless broadband Internet access. Second, it petitions for review of the denial of its petition for forbearance on that application. Despite the ingenious arguments of petitioner, we affirm the order of the FCC in all respects, dismissing M2Z's application without prejudice and denying its expansive petition for forbearance.

I. Background

The FCC has designated 130 MHz of spectrum for advanced wireless services, to provide wireless Internet access and other voice and high-speed data services. In re Service Rules for Advanced Wireless Services in the 2155-2175 MHz Band (NPRM), 22 F.C.C.R. 17,035, 17,039-41 (¶¶ 6-7) (2007). Service rules have been adopted for one 90 MHz range, now called AWS-1. In re Service Rules for Advanced Wireless Services in the 1.7 GHz and 2.1 GHz Bands, 18 F.C.C.R. 25,162, 25,163 (¶ 1) (2003). Service rules for a second, 20 MHz, band called AWS-2 have been proposed but not approved. See In re Service Rules for Advanced Wireless Services in the 1915-1920 MHz, 1995-2000 MHz, 2020-2025 MHz and 2175-2180 MHz Bands, 19 F.C.C.R. 19,263 (2004). In September 2005, the FCC "designat[ed]" the 2155-2175 MHz band "for AWS use," in what came to be called AWS-3. In re Amendment of Part 2 of the Commission's Rules to Allocate Spectrum Below 3 GHz for Mobile and Fixed Services to Support the Introduction of New Advanced Wireless Services, Including Third Generation Wireless Systems, 20 F.C.C.R. 15,866, 15,872 (¶ 9) (2005). Service rules were not proposed for this AWS-3 band until September 2007. See NPRM, at ¶ 1.

On May 2, 2006, M2Z Networks filed an application with the FCC for a license to the entire AWS-3 band. Before us, M2Z claims that the band had lain largely fallow since it was first identified by the Commission in 1992 to provide for emerging telecommunications technologies. See In re Redevelopment of Spectrum to Encourage Innovation in the Use of New Telecommunications Technologies (1992 Notice), 7 F.C.C.R. 1542, ¶ 19 (1992). This characterization may not be entirely accurate, as there were 1800 active licenses in the 2155-2175 MHz band in September 2007. NPRM, at ¶ 9. "These incumbents consist[ed] primarily of Fixed Microwave Service (FS) and Broadband Radio Services (BRS) licensees, who are subject to relocation by emerging technology (ET) licensees (including future AWS-3 licensees)." Id. Though M2Z may imply that the Commission has dragged its feet, the Commission counters that it has long "recognize[d]" the difficulty of replacing old licensees with emerging technology licensees. 1992 Notice, at ¶ 19. Because the incumbents "provide important and essential services," the Commission proposed to "pursue this reallocation in a manner that w[ould] minimize disruption of the existing . . . operations." Id.

M2Z's plan was to deliver basic wireless broadband access to most of the country free of charge, ultimately making money by charging for premium service. According to the petitioner, for the plan to work, it needed an exclusive, nationwide license to the entire segment for 15 years. In September 2006, M2Z amended its application with a petition for forbearance under 47 U.S.C. § 160(c) and 47 C.F.R. § 1.53. M2Z asked the Commission to forbear from applying 47 C.F.R. §§ 1.945(b), (c), and "any other rule, provision of the Act, or Commission policy . . . to the extent such rules, statutory provisions, or policies [would] impede the acceptance and grant" of its application.

In January 2007, the FCC found M2Z's application acceptable for filing, without assessing the merits. Typically, applications for broadcast licenses are processed according to pre-existing service rules. But, because there were no service rules for the proposed AWS-3 band, the Commission accepted the application "pursuant to [its] general statutory authority" under 47 U.S.C. § 309(a). Upon accepting the application for filing, the FCC invited petitions to deny the application, and additional applications for the same band of spectrum. The Commission received voluminous comments, and six new applicants sought licenses for the spectrum.

On August 31, 2007, the Commission dismissed without prejudice all applications for access to the 2155-2175 MHz band, denied M2Z's petition for forbearance, and found "that the public interest is best served by first seeking public comment on how the band should be used and licensed." In re Applications for License and Authority to Operate in the 2155-2175 MHz Band (Order), 22 F.C.C.R. 16,563, 16,564 (¶ 1) (2007).

II. Analysis

In this case, we review the FCC's application of its own procedures when granting licenses and its interpretation of related statutory provisions. In particular, we ask whether the Commission was reasonable in denying M2Z certain procedural advantages in its quest for a bandwidth license.

Before proceeding to the merits, we will briefly address the Commission's contention regarding administrative exhaustion. The FCC claims that we lack jurisdiction over seven distinct arguments advanced by M2Z. The Administrative Procedure Act (APA) does not pose a barrier to jurisdiction because judicial exhaustion requirements under the APA are prudential only. See Darby v. Cisneros, 509 U.S. 137, 146 (1993). But the FCC contends that 47 U.S.C. § 405 bars our consideration of any "question[] of fact or law upon which the Commission . . . has been afforded no opportunity to pass." 47 U.S.C. § 405(a). "Ordinarily," however, "disgruntled parties are not required to seek administrative reconsideration before challenging a Commission order in this court, and exceptions to this general rule are to be construed narrowly." Nat'l Ass'n for Better Broad. v. FCC (NABB), 830 F.2d 270, 274 (D.C. Cir. 1987). Most importantly, governing precedent dictates that section 405(a) constitutes "an exhaustion requirement, rather than . . . a jurisdictional prerequisite." Petroleum Commc'ns, Inc. v. FCC, 22 F.3d 1164, 1170 (D.C. Cir. 1994). Additionally, in Freeman Engineering Associates, Inc. v. FCC, we recognized that section 405 "contains the traditionally recognized exceptions to the exhaustion doctrine," like futility. 103 F.3d 169, 183 (D.C. Cir. 1997) (quoting Omnipoint Corp. v. FCC, 78 F.3d 620, 635 (D.C. Cir. 1996)). The exhaustion requirement ensures that the Commission has the opportunity to pass on all issues in the case before the issues are presented for review by the court. Importantly, we construe each of M2Z's objections to address the substantive content of the FCC's legal conclusions ...


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