[Federal Register Volume 60, Number 118 (Tuesday, June 20, 1995)]
[Rules and Regulations]
[Pages 32116-32120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14945]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 0 and 1
[ET Docket No. 93-266; FCC 95-218]
Pioneer's Preference Rules
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: By this Third Report and Order, the Commission modifies
certain rules regarding its pioneer's preference program. This action
is intended to address directives of the General Agreement on Tariffs
and Trade (GATT) legislation and make the pioneer's preference rules
better comport with the Commission's experience administering them.
EFFECTIVE DATE: August 21, 1995.
FOR FURTHER INFORMATION CONTACT:
Rodney Small, Office of Engineering and Technology, (202) 776-1622.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Third
Report and Order, adopted June 6, 1995, and released June 8, 1995. The
full text of this Commission decision is available for inspection and
copying during regular business hours in the FCC Reference Center (Room
239), 1919 M Street NW., Washington, DC. The complete text of this
decision also may be purchased from the Commission's duplication
contractor, International Transportation Service, Inc., (202) 857-3800,
2100 M Street NW., Suite 140, Washington, DC 20037.
Summary of Third Report and Order
1. The Third Report and Order (Third R&O) addresses proposals set
forth in the Further Notice of Proposed Rule Making (Further Notice) in
this proceeding, 60 FR 13396 (March 13, 1995), and modifies certain
rules regarding the Commission's pioneer's preference program pursuant
to recent legislation. The pioneer's preference program provides
preferential treatment in the Commission's licensing processes for
parties that make significant contributions to the development of a new
service or to the development of a new technology that substantially
enhances an existing service.
2. The Further Notice proposed rules in response to the pioneer's
preference directives contained in the legislation implementing
domestically the GATT, as well as on the Commission's own motion. The
GATT legislation requires parties to whom any licenses are awarded
pursuant to the pioneer's preference program in services in which
competitive bidding is used to pay 85 percent of the average price paid
for comparable licenses. This payment may be made in a lump sum or in
installment payments over a period of not more than five years. The
GATT legislation, including the payment requirement, applies to any
license issued on or after August 1, 1994 pursuant to a pioneer's
preference award.
3. The legislation also directs the Commission to prescribe
regulations specifying the procedures and criteria to ``evaluate
applications for preferential treatment in its licensing processes (by
precluding the filing of mutually exclusive applications) for persons
who make significant contributions to the development of a new service
or to the development of new technologies that substantially enhance an
existing service.'' The legislation requires the pioneer's preference
regulations to include: (1) Procedures and criteria by which the
significance of a pioneering contribution will be determined, after an
opportunity for review and verification by experts not employed by the
Commission; and (2) such other procedures as may be necessary to
prevent unjust enrichment by ensuring that the value of a pioneering
contribution justifies any reduction in the amounts paid for comparable
licenses. The regulations issued pursuant to this legislation must be
prescribed not later than 6 months after enactment of the GATT
legislation (i.e., by June 8, 1995), shall apply to pioneer's
preference applications accepted for filing after September 1, 1994,
and must cease to be effective on September 30, 1998, when the
pioneer's preference program sunsets.
4. In the Further Notice, the Commission tentatively concluded
that, with the exceptions of the two areas specifically addressed by
the GATT legislation, the existing pioneer's preference rules, as
modified by the Second Report and Order, 60 FR 13636 (March 14, 1995),
comply with the GATT legislation's requirement to specify procedures
and criteria by which to evaluate pioneer's preference applications.
However, the Commission solicited comment regarding any alternatives to
any aspects of these rules that might better achieve the objectives of
the GATT legislation.
5. With respect to the two areas specifically set forth in the GATT
legislation, the Commission noted that the GATT legislation's directive
that the Commission establish a procedure for review and verification
by outside experts was contemplated as an optional measure by the
current pioneer's preference policies, but that such ``peer review''
was not mandatory. It therefore proposed to formalize this policy
pursuant to the GATT legislation to provide an opportunity for review
of potentially pioneering proposals by experts in the radio sciences
who are not Commission employees. It sought comment on whether such
review by outside experts should be required in all cases or whether
pioneer's preference applicants (or other interested parties) should be
given only an opportunity for such review, which may be either accepted
or declined by the applicants. It tentatively concluded that it would
establish a peer review process on a permanent basis. The Commission
therefore proposed to delegate to the Chief of the Office of
Engineering and Technology (``Chief, OET'') the authority to select a
panel of experts consisting of persons who are knowledgeable about the
specific technology set forth in a pioneer's preference request. In
addition, while the Commission sought comment on two possible
interpretations of section 309(j)(13(D)(i) of the GATT legislation,
which concerns possible conflicts of interest of such experts, it
proposed appointing experts who are neither employed by the Commission
nor by any applicant seeking a pioneer's preference in the same or
similar communications service. Based on its experience with the
pioneer's preference program, the Commission tentatively concluded that
the outside expertise required to evaluate the claims made in pioneer's
preference requests will vary greatly. Accordingly, it proposed that
its staff evaluate on a case-by-case basis how much outside assistance
is required and that the Chief, OET select experts from all available
sources after reviewing the proposed new technology or service.
6. The Commission further proposed that the experts generally be
granted a period of up to 180 days to present their findings to the
Commission. It sought comment on whether it should generally seek the
experts' individual opinions or their consensus (as a Federal Advisory
Committee under the Federal Advisory Committee Act). The Commission
[[Page 32117]] tentatively concluded that it should not be bound to
follow the recommendations of the panel, but that it should evaluate
the recommendations in light of all the submissions and comments in the
record. However, it solicited comment on whether the views of the panel
(especially where consensus is reached) should be entitled to greater,
or perhaps controlling, deference. The Commission also sought comment
on what restrictions, if any, the panel members should have vis-a-vis
contact with the applicants; e.g., whether they should have authority
to seek further information pertaining to the preference request or to
perform field evaluations. Finally, the Commission sought comment on
any additional conflict of interest requirements (e.g., related to
financial interests) it should impose upon outside experts.
7. With respect to the second area addressed by the GATT
legislation, the Commission stated in the Further Notice that its
concerns about unjust enrichment are lessened by the statutorily-
mandated payment requirement for prioneer's preference grantees in
auctionable services and the formula for calculating per capita bid
amounts. Nonetheless, it stated that it remained concerned about the
effect of competitive bidding on the pioneer's preference program. It
sought comment on a more stringent showing by a preference applicant in
a service in which licenses are awarded by competitive bidding.
Specifically, the Commission sought comment on whether the applicant
should have to demonstrate that our public rulemaking process inhibits
it from capturing the economic rewards of its innovation unless it is
granted a pioneer's preference license. It also sought comment on
whether in its pioneer's preference request each applicant should make
a demonstration regarding possible loss of intellectual property
protection to ensure that it will retain its eligibility for a
preference.
8. With regard to determining which licenses are most reasonably
comparable under section 309(j)(13)(B)(i) of the GATT legislation, in
the Further Notice the Commission sought comment on any standards for
comparing licenses and for excluding anomalous licenses that it might
codify into its rules along with the statutory formulas for determining
the average per capita bid amount and the payment amount. It also
sought comment on the implementation of the installment payment
provision in section 309(j)(13)(C). It tentatively concluded that it
would not adopt any installment payment scheme that includes royalty
payments. The Commission further sought comment on whether eligibility
for installment payments should be limited to small businesses or other
entities as it has done in its general auction rules. The Commission
proposed that, if an entity receiving a pioneer's preference award and
license in a particular service would be eligible for installment
payments in the auction for that service, that entity would be able to
pay for its pioneer's preference license in installments under similar
terms and conditions. Finally, the Commission proposed to require a
pioneer's preference license that is not eligible for installment
payments to pay in one lump sum within a reasonable time (e.g., 30
days) after the auction for comparable licenses has concluded or after
the license grant becomes final, whichever is later.
9. In accord with the GATT legislation, the Commission proposed to
sunset the pioneer's preference program on September 30, 1998. It
requested comment on the utility of the program, particularly in light
of its competitive bidding authority. Additionally, it proposed on its
own motion to modify the pioneer's preference rules by limiting the
award of preferences to services in which a new allocation of spectrum
is required.
10. Finally, the Commission proposed to apply the rules adopted in
response to the Further Notice to any pioneer's preference requests
granted after adoption of those rules, regardless of when the requests
were accepted for filing, except in proceedings in which tentative
pioneer's preference decisions have been made.
11. Only two parties filed comments on the Further Notice, and no
party filed reply comments. Satellite CD Radio, Inc. (CD Radio) states
that the Commission should grant pioneer's preferences for regulatory
as well as technical innovation, and also grant preferences in services
in which no mutually exclusive applications exist. Omnipoint
Communications, Inc. (Omnipoint) addresses payment measures for small
business pioneers in services in which licenses are awarded by
competitive bidding. It argues that the Commission should provide: (1)
Payment terms that are more attractive than the terms offered to
designated entities or entrepreneur-band applicants, so that small
business pioneers have an incentive to take on the risks of innovation;
and (2) the use of an installment plan with principal and accrued-
interest obligations deferred until the end of a five-year period.
12. With respect to CD Radio's statements regarding regulatory
innovation, the Commission finds that its pioneer's preference rules
already incorporate non-technical or regulatory aspects. Accordingly,
it finds no need to amend its pioneer's preference rules in this
regard.
13. With respect to CD Radio's proposals regarding awarding
preferences in services where mutually exclusive situations do not
exist and where competitive bidding is not authorized, the Commission
finds that a preference, beyond a guaranteed license and a 15 percent
discount in auctioned services, would be unnecessary and contrary to
the stated purpose of the pioneer's preference program. In adopting the
pioneer's preference procedures, the Commission sought to foster the
development of new services and to improve existing services by
reducing the delays and risks for innovators associated with the
Commission's licensing processes as they existed at that time.
Applicants facing no mutually exclusive applications run no risk of not
receiving licenses, assuming they are qualified, so the Commission did
not contemplate that any preferences would be needed to serve the
public interest purposes of the pioneer's preference program.
Accordingly, the Commission rejects CD Radio's proposal to award
preferences in services in which mutually exclusive license
applications do not exist.
14. With respect to Omnipoint's proposal for lower payments for
small business pioneers than designated entities in services in which
licenses are awarded by competitive bidding, the Commission noted that
the pioneer's preference and designated entity programs are designed to
meet different goals. The pioneer's preference program is designed to
reward a particular entity for its innovative contributions to a new or
existing service, whereas the designated entity program is designed to
promote economic opportunity and competition by dissemininating
licenses among a wide variety of applicants and to increase
participation in spectrum-based telecommunications services by entities
that lack access to substantial amounts of capital and that face
economic disadvantages in obtaining licenses in a competitive bidding
environment, such as small businesses. Accordingly, the Commission
rejects Omnipoint's proposal to guarantee small business pioneers lower
payments than other designated entities.
15. With respect to Omnipoint's proposal for a deferred payment
plan for small business pioneers in services in which licenses are
awarded by [[Page 32118]] competitive bidding, consistent with the
above discussion, the Commission finds no need to give such pioneers an
advantage over similarly situated small businesses. The Commission
notes that in the Further Notice it proposed that if an entity
receiving a pioneer's preference would be eligible for installment
payments in the auction for that service, the entity could pay for its
pioneer's preference license in installments under comparable terms and
conditions to similarly situated licenses over a period not to exceed
five years. The Commission finds this proposal adequate to address
Omnipoint's concerns and adopts it, while rejecting Omnipoint's
deferred payment proposal.
16. No comments were filed with respect to the other proposals in
the Further Notice. Because they are in the public interest and promote
the goals of the pioneer's preference program and the GATT legislation,
the Commission adopts them. Specifically, with respect to peer review,
it provides an opportunity for review and verification of pioneer's
preference requests by experts who are not Commission employees. It
delegates to the Chief, OET the authority to select, in appropriate
cases on his/her own initiative or upon request by a preference
applicant or other interested person, a panel of experts consisting of
persons who are knowledgeable about the specific technology set forth
in a pioneer's preference request and who are neither employed by the
Commission nor by any applicant seeking a pioneer's preference in the
same or similar communications service. It concludes that the best
interpretation of Section 309(j)(13)(D)(i)'s conflict-of-interest
language provides that there must be an opportunity for review and
verification by experts who are neither employees of the Commission nor
employees of any applicant seeking a pioneer's preference. These panels
will generally be granted a period of up to 90 days, but no more than
180 days, to present their findings to the Commission.
17. With respect to implementing the unjust enrichment provisions
in section 309(j)(13)(D)(ii), the Commission is requiring that to
qualify for a pioneer's preference in services in which licenses are
awarded by competitive bidding, an applicant--in addition to meeting
the other pioneer's preference requirements--must demonstrate that the
Commission's public rulemaking process inhibits it from capturing the
economic rewards of its innovation unless it is granted a pioneer's
preference license. The applicant must show that it may lose its
intellectual property protection because of the Commission's public
process; that the damage to its intellectual property is likely to be
more significant than in other contexts, such as the patent process;
and that the guarantee of a license is a significant factor in its
ability to capture the rewards from its innovation. Such a showing must
accompany the pioneer's preference request even if the Commission has
not yet determined that the particular service for which a preference
is sought will be subject to competitive bidding.
18. As proposed in the Further Notice, pioneer's preference awards
will be limited to services that require a spectrum allocation.
However, the Commission notes that an entity that develops a new
technology that may be used in an existing service may be able to reap
significant financial benefits by patenting that technology or by
selling equipment that uses that technology.
19. Pursuant to authority in section 4(i), in conjunction with
sections 1, 303(r), 307, and 309 of the Communications Act, the
Commission finds that it is in the public interest and in furtherance
of its pioneer's preference policy in an auction environment to apply
the rules adopted herein to pending pioneer's prference proceedings
that have not reached the tentative decision stage. Parties with
pending pioneer's preference applications on file with the Commission
will have 30 days from the effective date of the rules adopted herein
to amend their applications to bring them into conformance with these
rules and the rules adopted in the Second Report and Order in this
proceeding. Failure to timely amend a pending pioneer's preference
request will result in the dismissal of the request.
20. In the Second Report and Order, the Commission stated that
while the payment mechanism in the GATT legislation does not apply to
pioneer's preference requests accepted for filing on or before
September 1, 1994, nevertheless--pursuant to section 4(i) and other
provisions of the Communications Act--license charges would be imposed
on any pioneer's preference license granted in proceedings in which no
tentative decision had yet been made, even if the requests in such
proceedings were accepted for filing on or before that date. In
addition, prior to enactment of the GATT legislation, the Commission
amended the rules (also pursuant to Section 4(i)) to impose charges on
any pioneer's preference licenses granted as a result of the three
pioneer's preference proceedings in which only tentative decisions had
been made prior to the initiation of this pioneer's preference review
rulemaking.
21. The Commission now concludes, on further analysis, that the
payment requirements in subsections 309(j)(13)(B), (C) and (E) of the
Communications Act, which were enacted by the GATT legislation, apply
to pioneer's preference requests relatless to any licenses issued on or
after August 1, 1994, regardless of when the pioneer's preference
requests were accepted for filing. The September 1, 1994 date applies
only to the regulations required by subsection 309(j)(13)(D).
Accordingly, the Commission determines that, while the new regulations
prescribed here (regarding criteria, peer review and unjust
enrichment), pursuant to subsection 309(j)(13)(D), will not apply in
the proceedings in which tentative decisions have been made, the
payment provisions of the GATT legislation will apply to any and all
licenses ultimately issued in the future resulting from a pioneer's
preference, including any license based on a preference granted in CC
Docket No. 92-297 (28 GHz Local Multipoint Distribution Service
proceeding).
22. Finally, pursuant to the GATT legislation, the Commission will
terminate the pioneer's preference program on September 30, 1998.
23. Accordingly, it is ordered that Parts 0 and 1 of the
Commission's Rules are amended as specified below, effective 60 days
after publication in the Federal Register. This action is taken
pursuant to Sections 4(i), 7(a), 303(c), 303(f), 303(g), 303(r), and
309(j) of the Communications Act of 1934, as amended, 47 U.S.C.
Secs. 154(i), 157(a), 303(c), 303(f), 303(g), 303(r), and 309(j).
List of Subjects
47 CFR Part 0
Organization and functions (Government agencies).
47 CFR Part 1
Administrative practice and procedure.
Federal Communications Commission
William F. Caton,
Acting Secretary.
Amendatory Text
Parts 0 and 1 of chapter I of title 47 of the Code of Federal
Regulations are amended as follows: [[Page 32119]]
PART 0--COMMISSION ORGANIZATION
1. The authority citation for part 0 continues to read as follows:
Authority: Sec. 5, 48 Stat. 1068, as amended; 47 U.S.C. 155,
225, unless otherwise noted.
2. Section 0.241 is amended by adding new paragraph (f) to read as
follows:
Sec. 0.241 Authority delegated.
* * * * *
(f) The Chief, Office of Engineering and Technology (OET) is
authorized to select, in appropriate cases on his/her own initiative or
upon request by a pioneer's preference applicant or other interested
person, a panel of experts consisting of persons who are knowledgeable
about the specific technology set forth in a pioneer's preference
request and who are neither employed by the Commission nor by any
applicant seeking a pioneer's preference in the same or similar
communications service. In consultation with the General Counsel, the
Chief, OET, shall also impose other conflict-of-interest requirements
that are necessary in the interest of attaining impartial, expert
advice regarding the particular pioneer's preference request or
requests.
PART 1--PRACTICE AND PROCEDURE
1. The authority citation for part 1 continues to read as follows:
Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47
U.S.C. 154, 303; Implement, 5 U.S.C. 552 and 21 U.S.C. 853a, unless
otherwise noted.
2. Section 1.402 is amended by revising the first sentence of
paragraph (a); removing paragraph (b); redesignating paragraphs (c),
(e), (f), and (h) as new paragraphs (b), (d), (e), and (j)
respectively; redesignating paragraphs (d) and (g) as new paragraphs
(c) and (f), respectively, and revising them; and adding new paragraphs
(g), (h), (i), and (k) to read as follows:
Sec. 1.402 Pioneer's preference.
(a) When filing a petition for rule making pursuant to Sec. 1.401
that seeks an allocation of spectrum for a new service or that, by use
of innovative technology in a new spectrum allocation, will
substantially enhance an existing service, the petitioner may also
submit a separate request that it be awarded a pioneer's preference in
the licensing process for the service. * * *
* * * * *
(c) Pioneer's preference requests complying with the requirements
and procedures in paragraphs (a) and (b) of this section will be
accepted for filing and listed by file number in a notice of proposed
rule making addressing the new service or technology proposed in the
request, if such a notice of proposed rulemaking is adopted. A final
determination on a request for pioneer's preference and its scope will
normally be made in a report and order adopting new rules for the
service or technology proposed in the request, if such rules are
adopted. If awarded, the pioneer's preference will provide that the
preference applicant's application for a construction permit or license
will not be subject to mutually exclusive applications. If granted, the
construction permit or license will be subject to the conditions in
paragraphs (e) and (f) of this section.
* * * * *
(f) In services in which licenses are assigned by competitive
bidding, any parties receiving pioneer's preferences will be required
to pay for their licenses in accord with the payment formula specified
in the General Agreement on Tariffs and Trade legislation, Pub. L. 103-
465. This formula requires that pioneers pay in a lump sum or in
installment payments over a period of not more than five years 85
percent of the average price paid for comparable licenses. Comparable
licenses will be determined by the Commission on a case-by-case basis.
For licenses issued on or after August 1, 1994, the Commission shall
recover for the public a portion of the value of the public spectrum
resource made available to a pioneer's preference recipient by
requiring such person, as a condition for receipt of the license, to
agree to pay a sum determined by--
(1) Identifying the winning bids for the licenses that the
Commission determines are most reasonably comparable in terms of
bandwidth, scope of service area, usage restrictions, and other
technical characteristics to the license awarded to such person, and
excluding licenses that the Commission determines are subject to
bidding anomalies due to the award of preferential treatment;
(2) Dividing each such winning bid by the population of its service
area (hereinafter referred to as the per capita bid amount);
(3) Computing the average of the per capita bid amounts for the
licenses identified under paragraph (f)(1) of this section;
(4) Reducing such average amount by 15 percent; and
(5) Multiplying the amount determined under paragraph (f)(4) of
this section by the population of the service area of the license
obtained by such person.
(g) In services in which licenses are awarded by competitive
bidding, a pioneer that qualifies as a designated entity will be
eligible for installment payments under the same terms and conditions
as other designated entities in that service, except that in all
services the pioneer's payments must be completed within a five year
period that will begin 30 days after the auction for comparable
licenses has concluded or 30 days after the pioneer's license grant
becomes final, whichever is later. A pioneer, like other applicants,
will be required in its license application to certify and make the
requisite demonstration that it is eligible for installments. Pioneers
that are not eligible for installment payments must make the 85 percent
payment specified in Sec. 1.402(f) within 30 days after the auction for
comparable licenses has concluded or within 30 days after the license
grant become final, whichever is later.
(h) An opportunity for review and verification of pioneer's
preference requests by experts who are not Commission employees will be
provided by the Commission. The Chief, Office of Engineering and
Technology (OET) may select a panel of experts consisting of persons
who are knowledgeable about these specific technology set forth in a
pioneer's preference request and who are neither employed by the
Commission nor by any applicant seeking a pioneer's preference in the
same or similar communications service. The panel of experts will
generally be granted a period of up to 90 days, but no more than 180
days, to present their findings to the Commission. The Commission will
generally establish, conduct, and seek the consensus of the panel
pursuant to the Federal Advisory Committee Act, and will evaluate its
recommendations in light of all the submissions and comments in the
record. Panelists will have the authority to seek further information
pertaining to preference requests and to perform field evaluations, as
deemed appropriate by the Chief, OET.
(i) In order to qualify for a pioneer's preference in services in
which licenses are awarded by competitive bidding, an applicant must
demonstrate that the Commission's public rulemaking process inhibits it
from capturing the economic rewards of its innovation unless it is
granted a pioneer's preference license. The applicant must
[[Page 32120]] show that it may lose its intellectual property
protection because of the Commission's public process; that the damage
to its intellectual property is likely to be more significant than in
other contexts, such as the patent process; and that the guarantee of a
license is a significant factor in its ability to capture the rewards
from its innovation. This demonstration will be required even if the
Commission has not determined at the time a pioneer's preference
request is filed whether assignments in the proposed service will be
made by competitive bidding.
* * * * *
(k) This section, along with the other pioneer's preference rules
specified in Sec. Sec. 0.241(f) and 5.207 of this chapter, will cease
to be effective on September 30, 1998.
[FR Doc. 95-14945 Filed 6-19-95; 8:45 am]
BILLING CODE 6712-01-M
