[Federal Register Volume 62, Number 55 (Friday, March 21, 1997)]
[Rules and Regulations]
[Pages 13540-13544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7232]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 1
[WT Docket No. 97-82; FCC 97-60]
Competitive Bidding Procedures
AGENCY: Federal Communications Commission.
[[Page 13541]]
ACTION: Final rule.
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SUMMARY: On February 20, 1997, the Federal Communications Commission
adopted an Order amending and clarifying its general competitive rules.
The Order also clarifies the extent of authority delegated to the Chief
of the Wireless Telecommunications Bureau to implement regulations
pertaining to competitive bidding. In addition, the Order modifies the
short-form application (FCC Form 175) to include a certification
indicating that an applicant is not in default on any payment for
Commission licenses or delinquent on any non-tax debt owed to any
federal agency. The rule changes set forth in the Order are intended to
streamline the auctions process, and improve competitive bidding
practices.
DATES: Effective April 21, 1997.
FOR FURTHER INFORMATION CONTACT: Mark Bollinger, Wireless
Telecommunications Bureau, Federal Communications Commission, (202)
418-0660.
SUPPLEMENTARY INFORMATION: This summarizes the Commission's Order in
FCC 97-60; WT Docket No. 97-82, adopted on February 20, 1997, and
released on February 28, 1997. The complete text of this Order is
available for inspection and copying during normal business hours in
the FCC Reference Center (Room 239), 1919 M Street NW., Washington, DC,
and also may be purchased from the Commission's copy contractor,
International Transcription Service, (202) 857-3800, 2100 M Street NW.,
Suite 140, Washington, DC 20037. The complete Order is also available
on the Commission's Internet home page (http://www.fcc.gov/).
Synopsis of the Order
1. In this Order, the Commission amends subpart Q of part 1 of the
Commission's rules to reflect procedural changes that we believe will
benefit bidders and the auction process generally and, in so doing,
address some issues raised in petitions for reconsideration of our
Competitive Bidding Fifth Memorandum Opinion and Order, 69 FR 63210
(December 7, 1994). Because the amendments adopted herein pertain to
agency procedure and practice the requirement of notice and comment
rule making contained in 5 U.S.C. 553(b) and the effective date
provisions of 5 U.S.C. 553(d) do not apply.
Rule Changes
2. By this Order, the Commission amends the menu of competitive
bidding designs provided in Sec. 1.2103(a). The rule is revised to
include: (1) Simultaneous multiple round auctions, using remote and/or
on-site electronic bidding; (2) sequential multiple round auctions,
using either oral ascending, remote or on-site electronic bidding; and
(3) sequential or simultaneous single round auctions, using either
remote and/or on-site electronic bidding, or sealed bids.
3. The Commission believes that the public interest would be served
by establishing regular quarterly auctions for defaulted licenses or
unsold licenses that were previously auctioned and for which there are
mutually exclusive applications, services with a small number of
licenses, and services in which licenses are expected to have low
values. The Commission therefore will conduct quarterly auctions in the
future, while retaining the discretion to decide in any quarter that an
auction will not be held.
4. Section 1.2105(a) of the Commission's rules is amended to
indicate that an applicant's signature on FCC Form 175 or its
electronic submission of this form will serve to certify that the
applicant is not in default on any payment for Commission licenses
(including downpayments) and that it is not delinquent on any non-tax
debt owed to any federal agency. The certification we henceforth will
require regarding defaulted licenses and delinquent debts to federal
agencies will afford additional assurance that the applicant will be
able to meet its future obligations by indicating whether it may later
be subject to a monetary judgment or collection procedures that may
impair its ability to provide service. Bidders who cannot make this
certification may be ineligible for installment payment plans.
5. The Commission amends Secs. 1.2106(b) and 1.2107(b) to require
that bidders make their upfront payments and downpayments to the
Commission by wire transfer, thereby eliminating the option of making
payments by cashier's check.
6. The Commission amends Sec. 1.2110(e)(3) to codify the procedure
under which all applicants eligible to utilize installment payments
execute a promissory note and security agreement as a condition of
participating in any installment payment plan that is offered by the
FCC.
7. On a related matter, bidders and financial institutions have
indicated that auction rules may prevent commercial lenders and
equipment vendors from adequately protecting the loans they make or the
credit they extend to auction winners who avail themselves of the
installment payment plans. Specifically, parties have requested the
Commission provide automatic grace periods in the event of default
under the installment payment plan; implement installment payment plan
terms consisting of interest-only payments for the entire term of the
license, with a balloon payment at the end of the license term; enter
into intercreditor or collateral sharing agreements with other
creditors of licensees and/or make the auction payment to the
Commission subordinate to the debt of the licensee's financial lenders;
not cancel licenses where the licensees are in default of their
installment payments and instead allow the license to remain part of
the assets to be sold as a ``going concern'' in a pre-bankruptcy
workout; and ease license transfer restrictions to allow for voluntary
transfer of licenses to non-designated entities in cases of financial
distress. In the Notice of Proposed Rule Making portion of this
document, the Commission seeks comment on changes to the part 1 rules
with regard to grace periods and installment payment plan terms, and
will incorporate these parties' suggestions into the record generated
by the NPRM. With regard to the remaining concerns, the Commission
believes that the auction rules balance in a reasonable, commercial
fashion the government's interest in protecting the public's rights to
receive full payment for the spectrum bid upon, while granting
qualifying entities the ability to pay for licenses through installment
payments more generous in terms than any type of loan otherwise
available in the marketplace. Our rules and policies are designed to
promote private market solutions to capital problems (i.e., licensees
and lenders working together toward a satisfactory resolution), and
therefore provide adequate mechanisms for entities to attain sufficient
debt financing under general market conditions. To the extent that the
petitioning parties seek relief outside of what is already provided by
the Commission's rules, these requests are denied for the following
reasons.
8. First, under current Commission policy, lenders may not be
granted direct security interests in FCC licenses. In the auctions
context, the Commission has established a first security interest in
licenses being financed by it through installment payment plans.
Accordingly, Sec. 1.2110(e)(4)(iii) of the Commission's rules provides
for cancellation of a license upon default of installment payment
obligations. The Commission understands that it is customary in
commercial financing to
[[Page 13542]]
grant lenders security interests in the proceeds of the sale of FCC
licenses and Sec. 1.2110(e) is not intended to impede or adversely
affect a licensee's ability to obtain bank or other financing.
Accordingly, debtors may grant to other parties a subordinated security
interest in the proceeds of an authorized assignment or transfer of the
license to a third party, provided however that any such security
interest shall be subordinated to and in no way inconsistent with the
Commission's security interest in the license.
9. The Commission notes, however, that reclaiming a license
pursuant to Sec. 1.2110(e)(4)(iii) is the Commission's remedy of last
resort after conclusion of the regulatory processes set forth in
Sec. 1.2110(e). The Commission firmly believes that ``[m]arket-oriented
solutions to problems of financial distress will often be preferable to
the FCC reclaiming and reauctioning licenses.'' Amendment of parts 20
and 24 of the Commission's rules, Report and Order, 61 FR 33859 (July
1, 1996) (D, E, F Block Report and Order). This is particularly true
when reclaiming a license would deprive or interrupt service to ongoing
end users. Lenders and licensees are free to agree contractually to
their own terms regarding situations where the licensee fails to make
timely payments under the Commission's installment payment program. As
long as there is no transfer of control, the Commission would not
become involved in the particulars of a voluntary workout arrangement
between licensees and third-party lenders, including lenders'
assumption of the licensee's payments to the Commission. Our policies
also provide that in the event an installment payment licensee is in
default to a third-party lender such that the lender accelerates its
loan, the lender can seek a new buyer to replace the defaulted
licensee, subject to Commission approval of the transfer. While certain
FCC rules contain restrictions on the transfer of licenses acquired
through the use of designated entity provisions for the statutory
purposes of assuring license dissemination among a wide variety of
applicants including designated entities, licensees may request a
waiver of such rules. For example, upon a showing, supported by an
affidavit, that the licensee is in financial distress, the Commission
will consider granting a waiver of the transfer restrictions provided
that such transaction is otherwise in the public interest. Under these
circumstances, if a license is transferred to an entity that would not
qualify for designated entity provisions, or that would qualify for
less favorable designated entity provisions, the unjust enrichment
provisions set forth in Sec. 1.2111 of the Commission's rules or
service-specific rules would apply. In summary, commercial lenders and
equipment vendors have adequate assurances from the Commission that in
most situations of financial distress, licenses can be transferred as a
``going concern,'' subject, of course, to the rights of the Commission
to the payments of obligations created under the Commission's rules
(including unjust enrichment payments), the license conditions, the
promissory note, and the security agreement.
10. The Commission changes the applicable downpayment and final
payment period from five (5) business days to ten (10) business days
and changes the event triggering the final payment obligation (or in
the case of entities eligible for installment payments, the second
downpayment obligation) from the award of the license to the issuance
of a public notice indicating that the Commission is prepared to award
the license or authorization. These changes will facilitate a more
orderly licensing process and ensure that successful bidders have
adequate time to fulfill their payment obligations. Section 1.2109(b)
of the Commission's rules, which addresses the circumstances in which a
bidder will be deemed to have defaulted on its downpayment obligations,
is also amended to specify ten (10) business days instead of five (5)
business days.
11. The Commission amends Sec. 1.2110(b)(2), the definition of
``minority,'' to include: ``Blacks, Hispanics, American Indians,
Alaskan Natives, Asians, and Pacific Islanders.'' With regard to the
meaning of particular categories in the definition, the Commission
shall use the same category descriptions the Commission has relied on
in other contexts.
12. The Commission also clarifies that pursuant to Sec. 0.131 of
the rules, the Chief, Wireless Telecommunications Bureau, has delegated
authority to implement all of the Commission's rules pertaining to
auctions procedures. This includes the authority to choose competitive
bidding designs and methodologies, such as simultaneous multiple round
auctions or oral outcry auctions and remote electronic bidding or on-
site bidding; conduct auctions; administer application, payment,
license grant and denial procedures; and determine upfront and
downpayment amounts. The Commission notes that the Bureau should, to
the extent possible, carry out its duties under this authority through
the use of orders, public notices, bidder packages, notices
disseminated through the electronic bidding system, and by other
reasonable means and with the benefit of public comment where
appropriate. Such Bureau actions are subject to review by the full
Commission.
Procedural Matters and Ordering Clauses
13. It is ordered that the rule changes specified in Appendix B,
attached to the Order, are adopted and are effective April 21, 1997.
14. It is further ordered that the petitions for reconsideration of
the Competitive Bidding Fifth Memorandum Opinion and Order, to the
extent that they are addressed in the Order, are denied.
15. Authority. This action is taken pursuant to sections 4(i),
5(b), 5(c)(1), 303(r), and 309 (j) of the Communications Act of 1934,
as amended, 47 U.S.C. 154(i), 155(b), 156(c)(1), 303(r), and 309(j).
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Rule Changes
Part 1 of Chapter I of Title 47 of the Code of Federal Regulations
is amended as follows:
PART 1--PRACTICE AND PROCEDURE
1. The authority citation for part 1 continues to read as follows:
Authority: 15 U.S.C. 79 et seq., and 47 U.S.C. 151, 154(i),
154(j), and 303(r).
2. Sections 1.2103 (a) and (b) are revised to read as follows:
Sec. 1.2103 Competitive bidding design options.
(a) The Commission will select the competitive bidding design(s) to
be used in auctioning particular licenses or classes of licenses on a
service-specific basis. The choice of competitive bidding design will
generally be made pursuant to the criteria set forth in PP Docket No.
93-253, FCC 94-61, adopted March 8, 1994, available for purchase from
the International Transcription Service, Inc., 2100 M St. NW., suite
140, Washington, DC 20037, telephone (202) 857-3800, but the Commission
may design and test alternative methodologies. The Commission will
choose from one or more of the following types of auction designs for
services or classes of services subject to competitive bidding:
[[Page 13543]]
(1) Simultaneous multiple round auctions (using remote or on-site
electronic bidding);
(2) Sequential multiple round auctions (using either oral ascending
or remote and/or on-site electronic bidding); and/or
(3) Sequential or simultaneous single round auctions (using either
sealed paper or remote and/or on-site electronic bidding).
(b) The Commission may use combinatorial bidding, which would allow
bidders to submit all or nothing bids on combinations of licenses or
authorizations, in addition to bids on individual licenses or
authorizations. The Commission may require that to be declared the high
bid, a combinatorial bid must exceed the sum of the individual bids by
a specified amount. Combinatorial bidding may be used with any type of
auction. The Commission may also allow bidders to submit contingent
bids on individual and/or combinations of licenses.
* * * * *
3. Section 1.2105 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 1.2105 Bidding application and certification procedures;
prohibition of collusion.
(a) * * *
(2) The Form 175 must contain the following information:
(i) Identification of each license on which the applicant wishes to
bid;
(ii) The applicant's name, if the applicant is an individual. If
the applicant is a corporation, then the short-form application will
require the name and address of the corporate office and the name and
title of an officer or director. If the applicant is a partnership,
then the application will require the name, citizenship and address of
all partners, and, if a partner is not a natural person, then the name
and title of a responsible person should be included as well. If the
applicant is a trust, then the name and address of the trustee will be
required. If the applicant is none of the above, then it must identify
and describe itself and its principals or other responsible persons;
(iii) The identity of the person(s) authorized to make or withdraw
a bid;
(iv) If the applicant applies as a designated entity pursuant to
Sec. 1.2110, a statement to that effect and a declaration, under
penalty of perjury, that the applicant is qualified as a designated
entity under Sec. 1.2110.
(v) Certification that the applicant is legally, technically,
financially and otherwise qualified pursuant to section 308(b) of the
Communications Act of 1934, as amended. The Commission will accept
applications certifying that a request for waiver or other relief from
the requirements of section 310 is pending;
(vi) Certification that the applicant is in compliance with the
foreign ownership provisions of section 310 of the Communications Act
of 1934, as amended;
(vii) Certification that the applicant is and will, during the
pendency of its application(s), remain in compliance with any service-
specific qualifications applicable to the licenses on which the
applicant intends to bid including, but not limited to, financial
qualifications. The Commission may require certification in certain
services that the applicant will, following grant of a license, come
into compliance with certain service-specific rules, including, but not
limited to, ownership eligibility limitations;
(viii) An exhibit, certified as truthful under penalty of perjury,
identifying all parties with whom the applicant has entered into
partnerships, joint ventures, consortia or other agreements,
arrangements or understandings of any kind relating to the licenses
being auctioned, including any such agreements relating to the post-
auction market structure.
(ix) Certification under penalty of perjury that it has not entered
and will not enter into any explicit or implicit agreements,
arrangements or understandings of any kind with any parties other than
those identified pursuant to paragraph (a)(2)(viii) of this section
regarding the amount of their bids, bidding strategies or the
particular licenses on which they will or will not bid; and
(x) Certification that the applicant is not in default on any
Commission licenses and that it is not delinquent on any non-tax debt
owed to any Federal agency.
* * * * *
4. Section 1.2106 is amended by revising paragraph (b) to read as
follows:
Sec. 1.2106 Submission of upfront payments.
* * * * *
(b) Upfront payments must be made by wire transfer in U.S. dollars
from a financial institution whose deposits are insured by the Federal
Deposit Insurance Corporation and must be made payable to the Federal
Communications Commission.
* * * * *
5. Section 1.2107 is amended by revising paragraphs (b) and (c) to
read as follows:
Sec. 1.2107 Submission of down payment and filing of long-form
applications.
* * * * *
(b) Within ten (10) business days after being notified that it is a
high bidder on a particular license(s), a high bidder must submit to
the Commission's lockbox bank such additional funds (the ``down
payment'') as are necessary to bring its total deposits (not including
upfront payments applied to satisfy penalties) up to twenty (20)
percent of its high bid(s). (In single round sealed bid auctions
conducted under Sec. 1.2103, however, bidders may be required to submit
their down payments with their bids.) This down payment must be made by
wire transfer in U.S. dollars from a financial institution whose
deposits are insured by the Federal Deposit Insurance Corporation and
must be made payable to the Federal Communications Commission. Winning
bidders who are qualified designated entities eligible for installment
payments under Sec. 1.2110(d) are only required to bring their total
deposits up to ten (10) percent of their winning bid(s). Such
designated entities must pay the remainder of the twenty (20) percent
down payment within ten (10) business days of grant of their
application. See Sec. 1.2110(e) (1) and (2). Down payments will be held
by the Commission until the high bidder has been awarded the license
and has paid the remaining balance due on the license or authorization,
in which case it will not be returned, or until the winning bidder is
found unqualified to be a licensee or has defaulted, in which case it
will be returned, less applicable payments. No interest on any down
payment will be paid to the bidders.
(c) A high bidder that meets its down payment obligations in a
timely manner must, within ten (10) business days after being notified
that it is a high bidder, submit an additional application (the ``long-
form application'') pursuant to the rules governing the service in
which the applicant is the high bidder (unless it has already submitted
such an application, as contemplated by Sec. 1.2105(a)(1)(b).
Notwithstanding any other provision in title 47 of the Code of Federal
Regulations to the contrary, high bidders need not submit an additional
application filing fee with their long-form applications. Specific
procedures for filing electronically and manually filed applications
will be set out by Public Notice. While Form 600 may be filed either
electronically or manually, beginning January 1, 1998, all applications
must be filed electronically. Those applicants who file applications
manually must also include a copy of all attachments and
[[Page 13544]]
any other supporting documents on a 3.5 inch diskette in separate ASCII
text (.TXT) file formats. An applicant that fails to submit the
required long-form application under this paragraph and fails to
establish good cause for any late-filed submission, shall be deemed to
have defaulted and will be subject to the payments set forth in
Sec. 1.2104.
* * * * *
6. Section 1.2109 is amended by revising paragraphs (a) and (b) to
read as follows:
Sec. 1.2109 License grant, denial, default, and disqualification.
(a) Unless otherwise specified in these rules, auction winners are
required to pay the balance of their winning bids in a lump sum within
ten (10) business days following award of the license. Grant of the
license will be conditioned on full and timely payment of the winning
bid.
(b) If a winning bidder withdraws its bid after the Commission has
declared competitive bidding closed or fails to remit the required down
payment within ten (10) business days after the Commission has declared
competitive bidding closed, the bidder will be deemed to have
defaulted, its application will be dismissed, and it will be liable for
the default payment specified in Sec. 1.2104(g)(2). In such event, the
Commission may either re-auction the license to existing or new
applicants or offer it to the other highest bidders (in descending
order) at their final bids. The down payment obligations set forth in
Sec. 1.2107(b) will apply.
* * * * *
7. Section 1.2110 is amended by revising paragraphs (b)(2), (e)(1),
(e)(2), and the introductory text of (e)(3) to read as follows:
Sec. 1.2110 Designated entities.
* * * * *
(b) * * *
(2) Businesses owned by members of minority groups and/or women.
Unless otherwise provided in rules governing specific services, a
business owned by members of minority groups and/or women is one in
which minorities and/or women who are U.S. citizens control the
applicant, have at least 50.1 percent equity ownership and, in the case
of a corporate applicant, a 50.1 percent voting interest. For
applicants that are partnerships, every general partner either must be
a minority and/or woman (or minorities and/or women) who are U.S.
citizens and who individually or together own at least 50.1 percent of
the partnership equity, or an entity that is 100 percent owned and
controlled by minorities and/or women who are U.S. citizens. The
interests of minorities and women are to be calculated on a fully-
diluted basis; agreements such as stock options and convertible
debentures shall be considered to have a present effect on the power to
control an entity and shall be treated as if the rights thereunder
already have been fully exercised. However, upon a demonstration that
options or conversion rights held by non-controlling principals will
not deprive the minority and female principals of a substantial
financial stake in the venture or impair their rights to control the
designated entity, a designated entity may seek a waiver of the
requirement that the equity of the minority and female principals must
be calculated on a fully-diluted basis. Members of minority groups
include Blacks, Hispanics, American Indians, Alaskan Natives, Asians,
and Pacific Islanders.
* * * * *
(e) * * *
(1) Unless otherwise specified, each eligible applicant paying for
its license(s) on an installment basis must deposit by wire transfer in
the manner specified in Sec. 1.2107(b) sufficient additional funds as
are necessary to bring its total deposits to ten (10) percent of its
winning bid(s) within ten (10) business days after the Commission has
declared it the winning bidder and closed the bidding. Failure to remit
the required payment will make the bidder liable to pay penalties
pursuant to Sec. 1.2104(g)(2).
(2) Within ten (10) business days of the grant of the license
application of a winning bidder eligible for installment payments, the
licensee shall pay another ten (10) percent of the high bid, thereby
commencing the eligible licensee's installment payment plan. Failure to
remit the required payment will make the bidder liable to pay default
payments pursuant to Sec. 1.2104(g)(2).
(3) Upon grant of the license, the Commission will notify each
eligible licensee of the terms of its installment payment plan and that
it must execute a promissory note and security agreement as a condition
of the installment payment plan. Unless other terms are specified in
the rules of particular services, such plans will:
* * * * *
[FR Doc. 97-7232 Filed 3-20-97; 8:45 am]
BILLING CODE 6712-01-P
