US Cellular 2015 Annual Report Download - page 56

Changes to FCC’s Designated Entity Rules
U.S. Cellular participated in certain prior FCC spectrum auctions through limited partnerships that qualified as
‘‘designated entities’’ under FCC rules and, as such, were eligible for bid credit discounts of 25% with respect to
licenses won in the auctions. U.S. Cellular participated in Auction 97 indirectly through its interest in Advantage
Spectrum. Advantage Spectrum applied as a ‘‘designated entity’’ and expects to receive bid credits resulting in a 25%
discount with respect to spectrum purchased in Auction 97. In July 2015, the FCC adopted a Report and Order that
amended the FCC’s designated entity rules. The amended rules include caps on bid credits that designated entities
may receive in future auctions and modify the attribution rules. The amended rules also restrict certain joint bidding
agreements but permit certain other arrangements involving more than one party. The FCC also has adopted a rule
which would enable the FCC to recoup some or all of the bidding credits granted to any designated entity, on a license
by license basis, which allowed a 10 percent or greater non-controlling interest holder in the designated entity to use
25 percent or more of its spectrum capacity during the first five years of the license term. Additionally, the amended
rules make certain other changes to the FCC’s competitive bidding rules.
Due to the changes in FCC rules, U.S. Cellular will not be participating in Auction 1000 (discussed below) through a
limited partnership that is a ‘‘designated entity’’ which qualifies for a discount of 25% on any licenses won in the auction,
as U.S. Cellular has done in prior auctions. Instead, U.S. Cellular will be participating in the auction directly and will not
qualify for any discount on licenses that may be won in the auction.
FCC Auction 1000
The FCC has scheduled an auction of 600 MHz spectrum licenses, referred to as Auction 1000. Auction 1000 involves:
(1) a ‘‘reverse auction’’ in which broadcast television licensees submit bids to voluntarily relinquish spectrum usage
rights in exchange for payments; (2) a ‘‘repacking’’ of the broadcast television bands in order to free up certain
broadcast spectrum for other uses; and (3) a ‘‘forward auction’’ of licenses for spectrum cleared through this process to
be used for wireless communications. Interested broadcasters filed their applications by January 12, 2016 and forward
auction bidders, including U.S. Cellular, filed applications prior to February 10, 2016. U.S. Cellular evaluates opportunities
to acquire additional spectrum in FCC auctions and thus plans to participate in the forward auction. Auction 1000 is
expected to commence with the broadcaster initial commitment deadline on March 29, 2016. Forward auction bidding is
likely to begin a couple of months later, and could continue for three months or longer. The FCC anti-collusion rules
place certain restrictions on public disclosures and business communications with other companies relating to U.S.
Cellular’s participation until the down payment deadline for Auction 1000, which will be ten business days after release
of the FCC’s Channel Reassignment Public Notice, following the end of the forward auction. These anti-collusion rules,
which could last six months or more from February 10, 2016, may restrict the conduct of certain U.S. Cellular activities
with other applicants in Auction 1000 as well as with nationwide providers of wireless services which are not applicants
in Auction 1000. The restrictions could have an adverse effect on U.S. Cellular’s business, financial condition or results
of operations.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS