98-823. Competitive Bidding Proceeding  

  • [Federal Register Volume 63, Number 10 (Thursday, January 15, 1998)]
    [Rules and Regulations]
    [Pages 2315-2350]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 98-823]
    
    
    
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    FEDERAL COMMUNICATIONS COMMISSION
    
    47 CFR Parts 1, 21, 24, 26, 27, 90 and 95
    
    [WT Docket No. 97-82, ET Docket No. 94-32; FCC 97-413]
    
    
    Competitive Bidding Proceeding
    
    AGENCY: Federal Communications Commission.
    
    ACTION: Final rule.
    
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    SUMMARY: In this Third Report and Order, the Commission adopts uniform 
    competitive bidding rules for all future auctions. The Commission 
    believes that these rule changes will simplify and streamline its 
    regulations in order to increase the overall efficiency of the 
    competitive bidding process. These rule changes are necessary to 
    further the Commission's goals of simplifying and streamlining its 
    regulations, and to develop uniform auction rules and procedures for 
    all future auctions. The intended effect of this action is to adopt 
    uniform final rules and procedures applicable to the Commission's 
    spectrum auction program.
    
    EFFECTIVE DATE: March 16, 1998.
    
    FOR FURTHER INFORMATION CONTACT: Josh Roland or Mark Bollinger, 
    Auctions and Industry Analysis Division, Wireless Telecommunications 
    Bureau, at (202) 418-0660.
    
    SUPPLEMENTARY INFORMATION: This is a summary of the Third Report and 
    Order in WT Docket No. 97-82, ET Docket No. 94-32, adopted on December 
    18, 1997 and released on December 31, 1997. The complete Third Report 
    and Order is available for inspection and copying during normal 
    business hours in the FCC Reference Center, Room 239, 1919 M Street, 
    NW., Washington, DC 20554. The complete text may be purchased from the 
    Commission's copy contractor, International Transcription Service, 
    Inc., 1231 20th Street, N.W., Washington, D.C. 20036, (202) 857-3800. 
    The complete Third Report and Order also is available on the 
    Commission's Internet home page (http://www.fcc.gov).
    
    SUMMARY OF ACTION:
    
    I. Background
    
        1. On December 18, 1997, the Federal Communications Commission 
    (Commission) adopted a Third Report and Order making substantive 
    amendments and modifications to its general competitive bidding rules 
    for all auctionable services. These changes to the Commission's general 
    competitive bidding rules are intended to streamline the Commission's 
    regulations and eliminate unnecessary rules wherever possible, increase 
    the efficiency of the competitive bidding process, and provide more 
    specific guidance to auction participants. The changes also advance the 
    Commission's auction program by reducing the burden on the Commission 
    and the public of conducting service-by-service auction rule makings. 
    In the Competitive Bidding Second Report and Order in PP Docket No. 93-
    253, the Commission stated that we would ``issue further Reports and 
    Orders * * * to adopt auction rules for each auctionable service or 
    class of service,'' and we identified criteria that would govern our 
    choice of service-specific auction rules and procedures, which may be 
    found in subpart Q of part 1 of our rules. Implementation of Section 
    309(j) of the Communications Act--Competitive Bidding, PP Docket No. 
    93-253, Second Report and Order, 59 FR 22980 (May 4, 1994) 
    (``Competitive Bidding Second Report and Order''), on recon., Second 
    Memorandum Opinion and Order, 59 FR 44272 (August 26, 1994) 
    (``Competitive Bidding Second Memorandum Opinion and Order''). These 
    rule changes result from the Commission's proposals in Amendment of 
    Part 1 of the Commission's Rules--Competitive Bidding Proceeding, 
    Order, Memorandum Opinion and Order, and Notice of Proposed Rule 
    Making, WT Docket No. 97-82, 62 FR 13570 (March 21, 1997) (``Notice'').
        2. The Commission also released a Second Further Notice of Proposed 
    Rule Making in this Docket, in which it sought comment on additional 
    changes to its general competitive bidding rules. The Second Further 
    Notice of Proposed Rule Making was published in the Federal Register on 
    January 7, 1998. See Amendment of Part 1 of the Commission's Rules--
    Competitive Bidding Procedures, Allocation of Spectrum Below 5 GHz 
    Transferred from Federal Government Use, 4660-4685 MHz, Second Further 
    Notice of Proposed Rule Making, WT Docket No. 97-82, ET Docket No. 94-
    32 (rel. January 7, 1998) (``Second Further Notice of Proposed Rule 
    Making'').
    
    II. Applicability of General Competitive Bidding Rules
    
        3. With some exceptions, the Commission adopts its proposal in the 
    Notice to apply the general competitive bidding rules adopted herein to 
    all future auctions, regardless of whether service-specific auction 
    rules have previously been adopted. The Part 1 rules will apply to all 
    auctionable services, unless the Commission determines that with regard 
    to particular matters the adoption of service-specific rules is 
    warranted. As the Commission indicated in the Notice, the Commission 
    has gained significant experience in the course of the 15 auctions 
    conducted to date. In particular, the Commission has found that much of 
    the auction process can be standardized and that adopting service-
    specific rules for many aspects of the competitive bidding process is 
    both unnecessary and confusing. The Commission also finds that 
    conducting separate rule makings for each individual service often 
    slows the delivery of service to the public because it results in 
    regulatory delays before the licensing process begins. The majority of 
    commenters addressing this issue agree, emphasizing that the adoption 
    of uniform auction procedures will (1) shorten the rule making process 
    for future auctions by narrowing the issues on which the Commission 
    must seek comment in service-specific rule makings; (2) decrease 
    uncertainty for auction participants; (3) benefit small businesses 
    because uniform rules are more easily understood and complied with, 
    particularly by those with limited resources and those that participate 
    in different auctions; and (4) enable the Commission to develop a 
    consistent body of law and precedent governing the auction process.
        4. The Balanced Budget Act of 1997, Pub. L. 105-33, 111 Stat. 251 
    (1997), to be codified in relevant part at 47 U.S.C. 309(j)(2)(E) and 
    309(j)(4)(F) (``Balanced Budget Act''), expands the Commission's 
    auction authority. Section 309(j)(2) formerly stated that mutually 
    exclusive applications for initial licenses or construction permits 
    were auctionable if the principal use of the spectrum was for 
    subscription-based services and competitive bidding would promote the 
    expressed objectives. As amended, Section 309(j)(2) provides that, in 
    cases of mutually exclusive applications, all spectrum is auctionable 
    except licenses or construction permits for (1) public safety services; 
    (2) digital television service given to existing broadcasters to 
    replace their analog license; and (3) non-commercial educational or 
    public broadcast stations. In addition, the Balanced Budget Act 
    authorizes the Commission to assign pending broadcast license 
    applications filed before July 1, 1997 by means of competitive bidding 
    pursuant to Section 309(j). Because these legislative changes 
    significantly increase the number of services that will be licensed by 
    competitive bidding, we believe that adopting uniform competitive 
    bidding
    
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    rules for all auctionable services is even more necessary.
        5. With limited exceptions, the rules the Commission adopts today 
    will not apply to the initial auction of licenses in the paging, 220 
    MHz, and Local Multipoint Distribution (``LMDS'') services. The 
    Commission previously adopted service-specific auction rules for the 
    auction of these services, and believes that this decision is in the 
    best interest of prospective applicants for these auctions, who may 
    have relied upon the service-specific rules previously adopted by the 
    Commission in formulating business plans and making early efforts to 
    obtain financing. As discussed below, however, the Commission retains 
    the discretion to use the revised general competitive bidding 
    procedures adopted in this proceeding for any reauction of licenses in 
    these services. The Commission also notes that while service-specific 
    rules exist for the auction of the 220 MHz service, many of these rules 
    are similar, or refer to the Part 1 rules. To apply the existing rules 
    for the most part is also strongly supported by those commenters 
    addressing the issue. For example, AMTA states that the 220 MHz 
    industry has encountered extraordinary delays in achieving regulatory 
    certainty, and that amending or altering the auction rules for this 
    service would create further uncertainty. Consistent with the 
    Commission's discussion below, the Commission's decision regarding the 
    establishment of minimum opening bids will apply to the initial auction 
    of licenses in the paging and 220 MHz services. In addition, the 
    Commission notes that several petitions for reconsideration are pending 
    in these proceedings. In resolving these petitions, the Commission will 
    address installment payment financing for licenses in these services in 
    a manner consistent with our decision herein to temporarily suspend the 
    use of installment payments.
        6. Many of the commenters who support the Commission's proposal to 
    adopt general competitive bidding procedures for all auctionable 
    services argue that the Commission should, in its discretion, adopt or 
    retain service-specific rules in particular instances. Airadigm argues 
    that the Commission should use existing service-specific rules where it 
    would be unfair to allow one group of licensees in the same service to 
    benefit or be disadvantaged by operating under a different set of rules 
    than its competitors in the same service (e.g., in the case of a 
    reauction of licenses following bidder default). Similarly, NextWave 
    contends that the adoption of service-specific rules may be appropriate 
    in some circumstances. In a related argument, some commenters believe 
    that, in certain instances, the rules adopted in this proceeding should 
    not be applied retroactively to supersede previously adopted service-
    specific rules. For example, AirTouch and WWC suggest that when 
    service-specific rules have been adopted after industry participation 
    and based upon particular characteristics of a specific industry or 
    spectrum to be auctioned, those service-specific rules should govern.
        7. With regard to the auction of licenses to provide paging 
    services, AirTouch opposes the Commission's proposal to apply general 
    auction rules to all future auctions, regardless of whether service 
    specific rules have been adopted. AirTouch argues in particular that 
    the Commission should not adopt a general stopping rule for the paging 
    auction which would be contrary to the comments received in that 
    proceeding and the stopping rule that the Commission ultimately 
    adopted. As discussed above, the Commission will use previously-
    adopted, service-specific rules for the paging auction.
        8. The rule changes the Commission adopts today streamline and 
    simplify its general competitive bidding procedures. The majority of 
    the rules the Commission adopts today address aspects of the 
    Commission's spectrum auction program that affect future auction 
    applicants only. These rules include application procedures (e.g., 
    electronic filing, short-form application amendments, ownership 
    disclosure requirements), upfront and down payment issues, issues 
    relating to competitive bidding design, procedure and timing (e.g., 
    alternate bidding methodologies, minimum opening bids, and bid 
    withdrawal), and rules prohibiting collusion during the auction. 
    However, some of the provisions the Commission adopts today address 
    aspects of its rules that govern current licensees as well. 
    Specifically, these minor rule changes affect certain license-related 
    payment terms (e.g., installment payments, grace periods, and unjust 
    enrichment).
        9. Two commenters, AICC and AAA, argue that the general competitive 
    bidding procedures adopted in this proceeding would be wholly 
    inappropriate for auctions of shared frequencies governed by Part 90 of 
    the Commission's rules. In support of this position, these commenters 
    argue that: (1) None of the Commission's auctions have involved shared 
    frequencies; (2) any auction of Part 90 shared spectrum would involve 
    participants ranging in size from very large corporations to very small 
    businesses and individual users, which would require a significant 
    adjustment in the Commission's traditional auction rules; (3) industry 
    participation would be crucial in crafting appropriate auction and 
    service rules; and (4) in light of the public safety services provided 
    using Part 90 spectrum, auctioning such spectrum is not in the public 
    interest. AICC and AAA further suggest that those commenters who favor 
    the adoption of general competitive bidding procedures for all spectrum 
    might not have considered the possibility of auctions for shared 
    channels, since the Commission is not currently authorized to award 
    licenses for such spectrum by means of competitive bidding. The 
    Commission agrees that shared spectrum is, by definition, not 
    auctionable under Section 309(j) due to the lack of mutual exclusivity.
        10. Similarly, Hughes suggests that in the event the Commission 
    decides to auction satellite services, it should conduct a service-
    specific rule making specially tailored to the capital intensive nature 
    of the satellite industry, instead of employing the general competitive 
    bidding procedures adopted in this proceeding. Although the Commission 
    does not decide that issue now, as the Commission suggested in the 
    Notice, the Commission will continue to adopt service-specific auction 
    procedures where it finds that its general competitive bidding 
    procedures are inappropriate.
    
    III. Rules Governing Designated Entities
    
        11. Section 309(j)(4)(D) of the Communications Act of 1934 provides 
    that in prescribing rules for a competitive bidding system, the 
    Commission shall ``ensure that small businesses, rural telephone 
    companies, and businesses owned by members of minority groups and women 
    are given the opportunity to participate in the provision of spectrum-
    based services.'' 47 U.S.C. 309(j)(4)(D). The statute further directs 
    the Commission to consider the use of tax certificates, bidding 
    preferences, alternative payment schedules and methods of calculations 
    and other procedures as means of accomplishing this statutory 
    objective. See 47 U.S.C. 309(j)(3)(B) and (j)(4)(D).
        12. The Commission adopts the rules in this Third Report and Order 
    in order to facilitate broad-based participation in auctions. The 
    Commission believes that standardizing the rules regarding definitions 
    of eligible entities, unjust enrichment and bidding credits will assist 
    small, minority and women-owned businesses because the rules'
    
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    predictability will facilitate the business planning and capital 
    fundraising process. While the Commission suspends the use of 
    installment payments, the Commission seeks comment in the Second 
    Further Notice of Proposed Rule Making in this docket on whether 
    installment payments should be adopted in the future.
        13. The Commission also notes that pursuant to Section 309(j)'s 
    obligations to ensure opportunities for participation by small 
    enterprises, rural telephone companies, and minority- and women-owned 
    businesses, and Section 257 of the Telecommunications Act, requiring 
    that the Commission identify and eliminate market entry barriers for 
    small and entrepreneurial telecommunications businesses, the Commission 
    has commenced a series of studies, and has other studies in the 
    planning process, to examine barriers encountered by minorities and 
    women in the auctions process and the secondary market for licenses. 
    When those studies are completed, the Commission will examine whether 
    additional measures are warranted to promote the objectives of giving 
    small businesses, rural telephone companies, and women- and minority-
    owned businesses the chance to provide spectrum-based services, as 
    required in Section 309(j).
        14. Small Business Size Standards. The Commission adopts its 
    proposal to continue to define small businesses, as it has in the past, 
    based on the characteristics and capital requirements of the specific 
    service. The Commission believes that this approach has given it 
    flexibility that will continue to benefit small businesses in future 
    auctions. The Commission also notes that this approach is consistent 
    with the Small Business Administration's practice of approving small 
    business size standards on a service-by-service basis. Commenters 
    addressing this issue support this conclusion. For example, AMTA and 
    NextWave both believe that the determination of appropriate small 
    business size standards should be made on a case-by-case basis.
        15. No commenters addressed the Commission's proposal in the Notice 
    to create size standards that require small businesses to have gross 
    revenues ``not to exceed,'' as opposed to ``less than'' a certain 
    amount. Nevertheless, the Commission believes that adoption of this 
    proposal is important to further its objective of establishing uniform 
    definitions relating to small business standards for future auctions. 
    From this point forward, the Commission's service-specific small 
    business definitions will be expressed in terms of average gross 
    revenues over the preceding three years ``not to exceed'' particular 
    amounts. The Commission also continues to believe that average gross 
    revenues provide an accurate, equitable, and easily ascertainable 
    measure of business size. As the Commission has discussed in the past, 
    a single gross revenues size standard is an established method for 
    determining size eligibility for various kinds of federal programs that 
    aid smaller businesses. NextWave, in its comments, agrees, stating that 
    gross revenues are a generally reliable measure of whether a company is 
    indeed small. In addition, while the Commission has used a total assets 
    test in determining eligibility for entrepreneur blocks, see, e.g., 47 
    CFR 709(a), the Commission has not used such a test for determining 
    small business eligibility. The Commission also notes that the Small 
    Business Act's statutory definition of small business does not use a 
    total assets test. See 15 U.S.C. 632(c). Thus, the Commission declines 
    to adopt any other measure of business size, such as a total assets 
    test, at this time.
        16. Definition of Gross Revenues. All commenters addressing the 
    issue support the Commission's proposal in the Notice to adopt a 
    uniform definition of gross revenues for all auctionable services. The 
    Commission believes that a uniform definition of gross revenues, as the 
    essential element of our small business definitions, furthers the 
    Commission's goal of establishing uniform definitions and is 
    administratively efficient. Thus, the Commission adopts a uniform 
    definition of gross revenues in the Part 1 rules.
        17. Various commenters addressed specific aspects of the 
    Commission's proposed definition of gross revenues. CII supports the 
    Commission's proposal that applicants be permitted to use either fiscal 
    year or calendar year figures for calculation purposes. No commenters 
    opposed this proposal. The Commission is persuaded that permitting use 
    of either of these figures will assist applicants in providing the most 
    current information available on their applications. The Commission 
    concludes that its general gross revenue definition should permit 
    applicants to support their gross revenue calculations using either 
    fiscal or calendar years.
        18. Several commenters responded to the Commission's tentative 
    conclusion in the Notice to accept the use of unaudited financial 
    statements where audited financial statements are unavailable, if 
    prepared in accordance with Generally Accepted Accounting Principles, 
    for gross revenue calculations by auction applicants seeking to qualify 
    for small business status. A majority of these commenters supported the 
    Commission's tentative conclusion that where audited financial 
    statements are not available, they should not be required. In 
    particular, these commenters argue that any strict requirement that 
    financial statements be audited is unduly burdensome for most small 
    business applicants. In addition, AMTA contends that the certification 
    requirement already present on the short-form (FCC Form 175) 
    application is sufficient to ensure that small business applicants 
    submit only accurate information, both financial and otherwise, as part 
    of their applications. Only two commenters, ISTA and PageNet advocate 
    that applicants use audited financial statements in order to qualify 
    for small business status. After review of the comments on this issue, 
    the Commission concludes that such a requirement would be onerous to 
    small business. The Commission also agrees with AMTA's observation that 
    the certification requirement on the FCC Form 175 acts to ensure that 
    applicants submit accurate information. Furthermore, as discussed 
    below, the Commission also will retain the authority to audit 
    applicants individually if there is any question concerning small 
    business status. The Commission therefore declines to require all 
    applicants to use audited financial statements to support their gross 
    revenue calculations. Audited financial statements, however, are 
    necessary if they exist. The Commission also notes that, consistent 
    with the Small Business Act, 15 U.S.C. 632(c)(ii)(II), where an entity 
    has been in existence for less than three years, the entity's gross 
    revenues should be averaged for the relevant number of years the 
    entity, or its predecessor in interest (affiliate), has been in 
    existence.
        19. Accordingly, as proposed in the Notice, and consistent with the 
    Commission's broadband PCS rules, the Commission will define gross 
    revenues for all auctionable services as:
    
    all income received by an entity, whether earned or passive, before 
    any deductions are made for costs of doing business (e.g., cost of 
    goods sold), as evidenced by audited financial statements for the 
    three (3) most recent calendar years or, if audited financial 
    statements were not prepared on a calendar-year basis, for the most 
    recently completed fiscal years preceding the filing of the 
    applicant's short-form (FCC Form 175). If an entity was not in 
    existence for all or part of the relevant period, gross revenues 
    shall be evidenced by the audited financial statements of the 
    entity's predecessor-in-interest or, if there is no identifiable 
    predecessor-in-interest, unaudited financial statements certified by 
    the applicant as
    
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    accurate. When an applicant does not have audited financial 
    statements, its gross revenues must be certified by its chief 
    financial officer or its equivalent and must be prepared in 
    accordance with Generally Accepted Accounting Principles.
    
        20. Definition of Affiliate. The Commission adopts its proposal to 
    adopt a uniform definition of the term ``affiliate'' for all future 
    auctions. As the Commission discussed in the Notice, the term affiliate 
    is defined by the Commission's Part 1 rules as an individual or entity 
    that directly or indirectly controls or has the power to control the 
    applicant; is directly or indirectly controlled by the applicant; is 
    directly or indirectly controlled by a third person(s) that also 
    controls or has the power to control the applicant; or has an 
    ``identity of interest'' with the applicant. The Commission has found 
    that this definition, which also contains detailed discussion and 
    examples of relevant terms such as ``control'' and ``identity of 
    interest,'' has proven workable and is broad enough to address a wide 
    variety of business structures. In particular, this definition has 
    helped to ensure that businesses seeking small business status are 
    truly small. The Commission also believes that this definition, by 
    focusing on ``indicia of control,'' is consistent with our proposals 
    regarding attribution of gross revenues of investors and affiliates 
    discussed in the Second Further Notice of Proposed Rule Making in this 
    docket.
        21. CIRI requests that the Commission include in its general 
    definition of the term ``affiliate'' an exemption for Indian tribes and 
    Alaska Regional or Village Corporations, as the Commission did for 
    broadband PCS, and more recently, for LMDS. The Commission agrees with 
    CIRI that entities owned and controlled by Indian tribes and Alaska 
    Regional or Village Corporations should be eligible to bid in future 
    auctions as small businesses, notwithstanding their affiliation with 
    other entities owned by tribes or Alaska Native Corporations whose 
    gross revenues cause the combined average gross revenues of the entity 
    and its affiliates to exceed the general limits for eligibility for 
    bidding as such a business. As the Commission stated in support of a 
    similar exemption from the affiliation rules in LMDS, this exception 
    will ensure that these entities will have a meaningful opportunity to 
    participate in spectrum-based services from which they would otherwise 
    be precluded. Furthermore, the Commission does not believe that this 
    exemption for the specified entities will entitle them to an unfair 
    advantage over entities that are otherwise eligible for small business 
    status.
        22. The Commission also takes this opportunity to clarify its Part 
    1 definition of affiliate. The Commission's Part 1 rules provide that 
    parties to a joint venture are considered to be affiliated with each 
    other for purposes of determining the gross revenues of an applicant 
    seeking to qualify for status as a small business. See 47 CFR 
    1.2110(b)(4)(x). In the past, however, the term ``consortium'' has been 
    defined on a service-by-service basis as ``a conglomerate organization 
    formed as a joint venture between or among mutually independent 
    business firms, each of which individually satisfies the definition of 
    a very small business, small business or entrepreneur.'' See, e.g., 47 
    CFR 101.1112(f) (defining the term ``consortium'' for LMDS). This 
    results in each member of a consortium being defined as an affiliate of 
    each other member. The resulting attribution of gross revenues of each 
    member of the consortium is inconsistent with our intention to permit 
    small or very small businesses to form consortia as a means of 
    increasing the capital available to participate in the Commission's 
    auctions, while still being eligible for status as a small business.
        23. The Commission therefore amends Sec. 1.2110(b)(4)(x) to provide 
    that a ``consortium'' as defined on a service-by-service basis for 
    purposes of determining status as a designated entity will not be 
    treated as a ``joint venture'' under our attribution standards. As a 
    result, when two or more entities form an association that meets the 
    service-specific definition of a ``consortium,'' the gross revenues of 
    each entity will not be attributed to each entity in determining 
    eligibility for designated entity status. The Commission believes that 
    this clarification to the general definition of the term ``affiliate'' 
    will enhance the ability of small businesses to form associations that 
    will permit them to bid for licenses that would be too expensive for 
    them individually. Auction winners have successfully used consortium 
    structures to acquire licenses and ``spin-off'' licenses post-auction, 
    and the Commission wishes to continue to make this option available.
        24. Definition of Rural Telephone Company. The National Telephone 
    Cooperative Association (``NTCA'') and the Rural Telecommunications 
    Group (``RTG''), commented in support of the Commission's proposal in 
    the Notice to adopt the definition of a rural telephone company 
    contained in the Telecommunications Act of 1996 as the single 
    definition of the term to be used in all auctionable services. No 
    commenters opposed this proposal. As the Commission noted in the 
    Notice, when the Commission amended the broadband PCS rule, the 
    Commission stated that using the definition contained in the 1996 Act 
    would likely expedite the delivery of advanced services to rural areas. 
    the Commission also noted that adopting the 1996 Act definition would 
    promote uniformity of regulations and is therefore consistent with the 
    mandate of that legislation to ease regulatory burdens and eliminate 
    unnecessary regulation. The Commission believes that the same reasons 
    for amending this definition in the broadband PCS rules justify 
    amending the definition in Part 1 for all services subject to 
    competitive bidding.
        25. Thus, the Commission amends Sec. 1.2110(b)(3) to define the 
    term rural telephone company as a local exchange carrier operating 
    entity to the extent that such entity--(A) provides common carrier 
    service to any local exchange carrier study area that does not include 
    either (i) any incorporated place of 10,000 inhabitants or more, or any 
    part thereof, based on the most recently available population 
    statistics of the Bureau of the Census, or (ii) any territory, 
    incorporated or unincorporated, included in an urbanized area, as 
    defined by the Bureau of the Census as of August 10, 1993; (B) provides 
    telephone exchange service, including exchange access, to fewer than 
    50,000 access lines; (C) provides telephone exchange service to any 
    local exchange carrier study area with fewer than 100,000 access lines; 
    or (D) had less than 15 percent of its access lines in communities of 
    more than 50,000 on the date of enactment of the Telecommunications Act 
    of 1996.
        26. Installment Payments. After careful review of the comments in 
    this docket, and the Commission's recent decisions in the broadband PCS 
    C block, LMDS and 800 MHz SMR services, the Commission has determined 
    that installment payments should not be used in the immediate future as 
    a means of financing small business participation in the Commission's 
    auction program. See also ``FCC Announces Spectrum Auction Schedule for 
    1998,'' Public Notice, DA 97-2497 (rel. November 25, 1997), announcing 
    the following upcoming auctions: LMDS, 220 MHz, broadband C block 
    Reauction, 39 GHz, Paging, 800 MHz SMR (Lower 80 and General Category 
    Channels), Location Monitoring Services (LMS), Public Coast Stations, 
    Pending Analog Broadcast Licenses for Commercial Radio and Television 
    Stations, and ``FCC Announces Auction Schedule for the General Wireless 
    Communications Service,'' Public
    
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    Notice, DA 97-2634 (rel. December 17, 1997). The Commission must 
    balance competing objectives in Section 309(j) that require, inter 
    alia, that it promote the development and rapid deployment of new 
    spectrum-based services and ensure that designated entities are given 
    the opportunity to participate in the provision of such services. The 
    Commission notes that its experience has demonstrated that installment 
    payments may not be necessary to ensure a meaningful opportunity for 
    small businesses to participate successfully in our auction program. 
    For example, in the cellular auction of licenses for unserved areas, 
    which had no special bidding provisions, 36 percent of the licenses 
    went to small or very small businesses. The Commission also stated that 
    in assessing the public interest, we must try to ensure that all the 
    objectives of Section 309(j) are considered. The Commission has found, 
    for example, that obligating licensees to pay for their licenses as a 
    condition of receipt requires greater financial accountability from 
    applicants.
        27. In addition, questions have been raised in bankruptcy 
    litigation about whether the Commission can quickly reclaim licenses 
    should a licensee declare bankruptcy (even though licenses are 
    expressly conditioned upon payment and cancel automatically in the 
    event of non-payment) resulting in significant delays in the provision 
    of service to the public. While the Commission is confident of 
    prevailing in any litigation, until controlling precedent is 
    established or legislation addressing the conflicting rights is 
    enacted, such delays may occur. In this regard, the Commission has 
    strongly urged Congress to adopt legislation that would clarify that 
    provisions of the Bankruptcy Code (1) are not applicable to any FCC 
    license for which a payment obligation is owed; (2) do not relieve any 
    licensee from payment obligations; and (3) do not affect the 
    Commission's authority to revoke, cancel, transfer or assign such 
    licenses. The Commission also notes that, in order to balance the 
    impact on small businesses of its decision to discontinue the use of 
    installment payments in the near future, the Commission is adopting 
    higher bidding credits than those proposed in the Notice.
        28. Therefore, subject to the Commission's proposals in the Second 
    Further Notice of Proposed Rule Making, the Commission concludes that 
    until further notice, installment payments should not be offered in 
    auctions as a means of financing small businesses and other designated 
    entities seeking to secure spectrum licenses. Consistent with this 
    decision, the Commission hereby eliminates installment payments in the 
    auction of the lower 80 and General Category channels in the 800 MHz 
    SMR service. Although Merlin submits that the elimination of the 
    Commission's installment payment provisions in any service would be 
    contrary to the Commission's conclusions in previous rule makings, the 
    Commission believes that this decision is consistent with suggestions 
    of CIRI, as well as the Commission's general experience in examining 
    the success of the installment payment program to date. As the 
    Commission recently recognized in eliminating installment payments for 
    LMDS licensees, Congress did not require the use of installment 
    payments in all auctions, but rather recognized them as one means of 
    promoting the objectives of Section 309(j)(3) of the Communications 
    Act. The Commission continues to experiment with different means of 
    achieving its obligations under the statute, and has offered 
    installment payments to licensees in several auctioned wireless 
    services. Installment payments are not the only tool available to 
    assist small businesses. Indeed, the Commission have conducted auctions 
    without installment payments. Moreover, Section 3007 of the Balanced 
    Budget Act requires that the Commission conduct certain future auctions 
    in a manner that ensures that all proceeds from such bidding are 
    deposited in the U.S. Treasury not later than September 30, 2002. 
    Although the Commission seeks comment in the Second Further Notice of 
    Proposed Rule Making on offering installment payment plans in the 
    future, the Commission believes that Section 3007 may require that 
    these auctions be conducted without offering long-term installment 
    payments. See Balanced Budget Act of 1997. The Conference Report on the 
    Balanced Budget Act of 1997 indicates that the deadline set forth in 
    Section 3007 ``applies to all competitive bidding provisions in this 
    title of the conference agreement and any amendments to other law made 
    in this title.'' Conference Report on H.R. 2015, Balanced Budget Act of 
    1997, Congressional Record--House, Vol. 143, No. 109--Part II, at 
    H6176.
        29. In this regard, the Commission agrees with commenters such as 
    CIRI, that contend that increased bidding credits will allow 
    responsible small bidders with appropriately tailored business plans to 
    secure adequate private financing to be successful in future auctions. 
    Further, as the Commission has already noted, Section 309(j) requires 
    the Commission to consider alternative methods to allow for 
    dissemination of licenses among designated entities, including small 
    businesses. The Commission believes that the rules it adopts below 
    regarding the use of bidding credits for small business applicants in 
    future auctions will both fulfill the mandate of Section 309(j) to 
    provide small businesses with the opportunity to participate in 
    auctions and ensure that new services are offered to the public without 
    delay.
        30. Merlin contends that while significant bidding credits can be 
    useful in helping smaller entities win licenses when they bid against 
    larger companies, bidding credits alone do not help smaller entities 
    access the capital required to build a spectrum-based service. In 
    addition, Merlin states that eliminating the installment payment plan 
    would raise the cost of capital for small businesses which would be 
    forced to borrow additional funds from commercial lenders at higher 
    interest rates. Merlin also argues that because many small businesses 
    have relied on the current installment plan terms in formulating 
    business plans necessary to bid in upcoming auctions, any decision to 
    eliminate the installment payment program could effectively preclude 
    small business participation in future auctions altogether. The 
    Commission disagrees with Merlin's assertions. As the Commission has 
    discussed, the Commission believes that the increased bidding credits 
    it adopts below will help fulfill the mandate of Section 309(j)(4)(D) 
    of the Communications Act to provide small businesses with the 
    opportunity to participate in spectrum-based services. As noted above, 
    this approach was successful in enabling small businesses to 
    participate in the WCS auction, in which the Commisison was unable to 
    employ installment payments because of the statutory deadline for 
    depositing auction revenues in the U.S. Treasury. The Commission also 
    recently used this approach in establishing rules for the auction of 
    licenses for 800 MHz SMR and LMDS.
        31. The Commission recognizes that it previously adopted rules for 
    both the 220 MHz and paging services that permit eligible small 
    businesses to pay for their licenses in installments. Several petitions 
    for reconsideration have been filed in these proceedings that remain 
    pending before the Commission. The Commission will resolve these 
    petitions separately in a manner consistent with our decision herein to 
    suspend the use of installment payment plans at least until our rights
    
    [[Page 2320]]
    
    to recover and reauction licenses in a timely fashion are established.
        32. Bidding Credits. Although all commenters addressing the issue 
    are largely supportive of the use of bidding credits as a means of 
    ensuring the widest possible participation in future auctions, there is 
    disagreement among commenters as to whether a standard schedule of 
    bidding credits for small businesses is desirable. For example, CII 
    supports our proposal to standardize the sliding scale of bidding 
    credits that is available to an applicant. Specifically, CII believes 
    that granting businesses of different sizes different levels of bidding 
    credits in different services threatens to result in inconsistent 
    participation by small businesses in spectrum auctions. In contrast, 
    some commenters oppose any set schedule of bidding credits, and believe 
    that the Commission should specify appropriate bidding credits for each 
    auctionable service. Among these, PCIA and AMTA believe that the 
    Commission should continue to examine what constitutes an effective 
    bidding credit on a service-by-service basis because the financing 
    requirements of different spectrum-based services may necessitate use 
    of different size bidding credits to provide the proper assurances that 
    small businesses will be able to effectively compete. As the Commission 
    stated in the Notice, the Commission believes that an approach in which 
    the Commission provides certainty for future auctions about the size of 
    available bidding credits will benefit small businesses because 
    potential bidders will have more information well in advance of the 
    auction than previously about how such levels will be set. Once a small 
    business definition is adopted for a particular service, eligible 
    businesses will benefit they are able to refer to a schedule in our 
    Part 1 rules to determine the level of bidding credit available to 
    them. The Commission therefore adopts its proposal to create a standard 
    schedule of bidding credits.
        33. In light of the Commission's decision to suspend installment 
    payment financing for the near future, the Commission has determined 
    that higher bidding credits than those proposed in the Notice would 
    better effectuate our statutory mandate. Airadigm supports larger 
    bidding credits than those proposed by the Commission. Similarly, CIRI 
    contends that unless the Commission is prepared to establish the 
    creditworthiness of installment payment applicants, the Commission 
    should offer substantial bidding credits to small businesses in lieu of 
    government financing. The Commission notes that some commenters argue 
    that, in relation to installment payment provisions, bidding credits 
    are less effective in allowing designated entities to participate in 
    the Commission's auction program. For example, Pocket states that 
    bidders often ``bid through'' bidding credits and that bidding credits 
    tend to result in higher bids and, in general, higher auction prices. 
    The Commission believes that without installment payments, bidding 
    credits, coupled with providing bidders sufficient time to raise 
    financing, will enable small businesses to successfully compete in 
    future auctions. Also, tiered bidding credits have proven to work well 
    and provide for more competition between small business participants of 
    different sizes. The use of tiered bidding credits was successful in 
    enabling small businesses to participate in the WCS auction, in which 
    the Commission was unable to employ installment payments because of the 
    statutory deadline for depositing auction revenues in the U.S. 
    Treasury. Finally, while the Commission recognizes Pocket's concerns 
    about the possibility that bidders ``bid through'' bidding credits, the 
    Commission does not believe that this problem is significant where not 
    all bidders are eligible for bidding credits, and the size of the 
    bidding credit varies among those who are eligible.
        34. Consistent with this reasoning, the Commission adopts the 
    following schedule of bidding credits for use in future auctions in 
    which provisions for designated entities are offered:
    
    ------------------------------------------------------------------------
                                                                    Bidding 
                    Average annual gross revenues                   credits 
                                                                   (percent)
    ------------------------------------------------------------------------
    Not to exceed $3 million.....................................         35
    Not to exceed $15 million....................................         25
    Not to exceed $40 million....................................         15
    ------------------------------------------------------------------------
    
    The Commission recognizes that these credits are higher than some 
    previously adopted for specific services. Based on the Commission's 
    past auction experience and the suspension of installment payments, 
    however, the Commission believes that the approach taken here will 
    provide adequate opportunities for small businesses of varying sizes to 
    participate in spectrum auctions.
        35. The Commission recognizes that Merlin recommends providing 
    higher bidding credits than those which the Commission adopts. 
    Specifically, Merlin suggests that (1) businesses with average gross 
    revenues for the preceding three years not exceeding $3 million be 
    eligible for bidding credits of 40 percent; (2) businesses with average 
    gross revenues for the preceding three years not exceeding $15 million 
    be eligible for bidding credits of 35 percent; and (3) businesses with 
    average gross revenues for the preceding three years not exceeding $40 
    million be eligible for bidding credits of 25 percent. As discussed 
    above, the Commission believes that higher bidding credits than those 
    proposed in the Notice are necessary now that our installment payment 
    program is suspended. The Commission believes that the schedule of 
    bidding credits it adopts is reasonable in light of our decision to 
    suspend installment payments for services auctioned in the immediate 
    future, and expect that it will prove sufficient to enable small 
    businesses to obtain spectrum licenses through our auction program. 
    Thus, the Commission declines to adopt Merlin's proposal. The 
    Commission also notes that it seeks comment in the Second Further 
    Notice of Proposed Rule Making on means other than bidding credits and 
    installment payments by which the Commission might facilitate the 
    participation of small businesses in our spectrum auction program.
        36. Unjust Enrichment. The Commission adopts its proposal to 
    conform the Part 1 unjust enrichment rules to the broadband PCS rules. 
    The Commission believes that effective unjust enrichment rules are 
    necessary to ensure that meaningful small business participation in 
    spectrum-based services is not thwarted by transfers of licenses to 
    non-designated entities. As the Commission stated in the Notice, the 
    broadband PCS unjust enrichment rules are preferable to our current 
    general unjust enrichment rules because they provide greater 
    specificity about funds due at the time of transfer or assignment and 
    specifically address changes in ownership that would result in loss of 
    eligibility for installment payments, which the current general rules 
    do not address. The broadband PCS rules also address assignments and 
    transfers between entities qualifying for different tiers of 
    installment payments or bidding credits, thus supplying clearer 
    guidance for auctions in which tiered installment payment plans or 
    bidding credits are provided. Commenters addressing this issue largely 
    support this decision. For example, Pocket and Ericsson both argue that 
    modified unjust enrichment rules would still deter transfers designed 
    to subvert the Commission's rules, but would provide businesses with 
    more flexibility in situations of financial distress and permit the 
    transfer
    
    [[Page 2321]]
    
    of individual licenses that no longer comport with their business 
    plans.
        37. Current as well as future licensees will be governed by the 
    rules the Commission adopts providing for unjust enrichment payments 
    upon assignment, transfer, partitioning and disaggregation. While the 
    Commission did not receive significant comment on this issue, the 
    Commission notes that in awarding licenses in the past, the Commission 
    has emphasized that the terms associated with the continued grant of a 
    license will be governed by current Commission rules and regulations. 
    For example, in awarding licenses to C block licensees paying for their 
    licenses in installments, the Commission indicated in the associated 
    ``Note'' and ``Security Agreement'' that the terms of the installment 
    plan would be governed by and construed in accordance with then-
    applicable Commission orders and regulations, as amended. Therefore, 
    the Commission concludes that the unjust enrichment rules it adopts 
    apply to existing licensees, and supersede service-specific rules where 
    applicable. Specifically, these rules will supersede existing unjust 
    enrichment provisions in the narrowband and broadband PCS, WCS, 900 
    MHz, and IVDS services. See 47 CFR 24.309(f) (narrowband PCS), 24.711 
    (C block), 24.716(d) (F block), 27.209(d)(1), (2) (WCS), 90.812(b) (900 
    MHz), 95.816(e) (IVDS). As discussed above, the Commission suspends the 
    use of installment payments for the immediate future as a means of 
    financing small business participation in the Commission's auction 
    program. As a result, the Commission's decision with regard to unjust 
    enrichment payments as they relate to licensees paying for their 
    licenses in installment payments will apply only to existing licensees, 
    their transferees and assignees (until the Commission reinstates 
    installment payments).
    
    Unjust Enrichment and Installment Payments
    
        38. For existing licensees who make use of Commission installment 
    payment financing, the Commission amends Sec. 1.2111(c) to conform to 
    the Commission's broadband PCS rules. Specifically, if a licensee seeks 
    to assign or transfer control of its license to an entity not meeting 
    the eligibility standards for installment payments, the licensee must 
    make full payment of the remaining unpaid principal and any unpaid 
    interest accrued through the date of the assignment or transfer as a 
    condition of Commission approval. Similarly, if the licensee seeks to 
    make any change in ownership structure that would result in the 
    licensee losing eligibility for installment payments, the licensee must 
    first seek Commission approval and must make full payment of the 
    remaining unpaid principal and any unpaid interest accrued through the 
    date of such change as a condition of approval. If a licensee seeks to 
    make any change in ownership that would result in the licensee 
    qualifying for a less favorable installment plan, the licensee must 
    seek Commission approval and must adjust its payment plan to reflect 
    its new eligibility status.
    
    Unjust Enrichment and Bidding Credits
    
        39. For existing and future licensees who qualified or qualify in 
    the future for a bidding credit in paying for their winning bid, the 
    Commission also amends Sec. 1.2111(c) to provide for unjust enrichment 
    payments similar to those contained in the Commission's broadband PCS 
    rules. Specifically, during the term of the initial license grant, if a 
    licensee seeks to assign or transfer control of its license to an 
    entity not meeting the eligibility standards for bidding credits, or 
    seeks to make any other change in ownership that would result in the 
    licensee no longer qualifying for a bidding credit, the licensee must 
    seek Commission approval and must reimburse the government for the 
    amount of the bidding credit, plus interest based on the rate for U.S. 
    Treasury obligations applicable on the date the license is granted, as 
    a condition of the approval of such assignment, transfer or other 
    ownership change. Similarly, if the licensee seeks to assign or 
    transfer control of its license to an entity meeting the eligibility 
    standards for lower bidding credits, or seeks to make any other change 
    in ownership that would result in the licensee qualifying for a lower 
    bidding credit under this section, the licensee must seek Commission 
    approval and must pay to the United States Treasury the difference 
    between the amount of the bidding credit obtained by the licensee and 
    the bidding credit for which the assignee, transferee or licensee is 
    eligible as a condition of the approval of such assignment, transfer or 
    other ownership change. These provisions also will apply to licensees 
    who partition or disaggregate their licenses.
        40. The Commission also adopts its proposal in the Notice to 
    provide for decreasing unjust enrichment payments for licensees that 
    utilized a bidding credit when paying for their licenses and that make 
    transfers and assignments occurring later in the license term. This 
    decision also is supported by the commenters. In amending the rule in 
    this manner, the Commission ensures that its general rule resembles 
    those rules the Commission has adopted in specific services (e.g., MDS, 
    narrowband PCS, and 900 MHz SMR ) that reduce the amount of unjust 
    enrichment payments due on transfer based upon the amount of time the 
    initial license has been held. Consistent with the rules that exist in 
    these services, the amount of this payment will be reduced over time as 
    follows: A transfer in the first two years of the license term will 
    result in a forfeiture of 100 percent of the value of the bidding 
    credit (or, in the case of very small businesses transferring to small 
    businesses, 100 percent of the difference between the bidding credit 
    received by the former and the bidding credit for which the latter is 
    eligible); in year three of the license term the payment will be 75 
    percent; in year four the payment will be 50 percent; and in year five 
    the payment will be 25 percent, after which there will be no payment. 
    These assessments will have to be paid to the U.S. Treasury as a 
    condition of approval of the assignment, transfer, or ownership change. 
    All current and future licensees, with the exception of entrepreneur 
    block licensees subject to restrictions on assignments and transfers of 
    licenses, will be governed by this modification to our general rules. 
    The Commission believes that our decision to maintain the original 
    transfer restrictions for such licensees is proper in light of the 
    special provisions which were made available for licensees in the 
    Commission's entrepreneur blocks.
    
    Unjust Enrichment and Partitioning and Disaggregation
    
        41. Also as proposed in the Notice, the Commission will adopt a 
    general rule modeled on the Commission's broadband PCS rules to 
    determine the amount of unjust enrichment payments assessed for all 
    current and future licensees. Thus, the Commission adopts a general 
    unjust enrichment rule that treats partitioning and disaggregation by 
    licensees in the same manner as the broadband PCS rule. Specifically, 
    if the licensee seeks to partition any portion of its geographic 
    service area, the amount of the unjust enrichment payment discussed 
    above will be calculated based upon the ratio of population in the 
    partitioned area to the overall population of the licensed area. 
    Similarly, if a licensee seeks to disaggregate spectrum, the amount of 
    the unjust enrichment payment will be determined based upon the ratio 
    of the amount of spectrum disaggregated to the amount of spectrum held 
    by the disaggregating licensee.
    
    [[Page 2322]]
    
    IV. Application Issues
    
        42. Electronic Filing. The Commission believes that electronic 
    filing of all short-form and long-form applications for auctionable 
    services is in the best interest of auction participants, as well as 
    members of the public monitoring Commission auctions. Therefore, the 
    Commission amends Secs. 1.2105(a) and 1.2107(c) of its rules to require 
    electronic filing of all short-form and long-form applications, 
    beginning January 1, 1999, unless it is not operationally feasible. 
    Although in the Notice the Commission proposed to require electronic 
    filing commencing January 1, 1998, the Commission believes that this 
    additional phase-in period before the requirement becomes effective 
    will benefit potential bidders. The majority of the comments addressing 
    the issue support the decision to require electronic filing. For 
    example, PageNet contends that electronic filing promotes access to 
    applications by competing bidders, as well as the general public, by 
    making it possible to review and download applications without 
    traveling to FCC headquarters or contracting for photocopying of paper 
    applications. To facilitate public access, the Commission has developed 
    user-friendly electronic filing software and Internet World Wide Web 
    forms to give auction applicants the ability to conveniently file and 
    review applications. This software helps applicants ensure the accuracy 
    of their applications as they are filling them out, and enables them to 
    correct errors and omissions prior to submitting their applications. To 
    assist the public, the Commission provides technical support personnel 
    to answer questions and work with callers using the electronic auction 
    system. In addition, the Commission has demonstrated its auction 
    software at conferences organized by potential bidders and members of 
    the industry in order to familiarize interested parties with our recent 
    software enhancements.
        43. AT&T is generally supportive of electronic filing, but proposes 
    that the Commission create a waiver process whereby an applicant that 
    has missed a filing deadline due to technical problems can obtain a 
    waiver quickly or be permitted to submit a paper original of the 
    application by hand or mail the same day. In addition, AT&T requests 
    that a Commission staff member be provided with the authority to grant 
    such a waiver in the event of electronic filing difficulties. The 
    Commission does not believe that a specific waiver provision is 
    necessary. The Commission's existing waiver provisions, which specify 
    the showing required for the grant of a waiver, provide adequate 
    assurance that requests for waiver relating to the electronic filing of 
    applications will receive proper consideration. In addition, the 
    Commission emphasizes that it has typically responded rapidly to time-
    sensitive waiver requests filed by auction applicants, and intends to 
    continue to do so in the future.
        44. Only one commenter, Airadigm, opposes an electronic filing 
    requirement. Airadigm states that the Commission experienced 
    difficulties in processing electronic filings during the IVDS auction 
    and argues that removing the option of manual filing could result in 
    similar problems in future auctions. The Commission believes that the 
    system enhancements discussed above, most of which were not in place 
    during the IVDS auction, adequately respond to Airadigm's concerns. The 
    Commission also notes that its experiences from recent auctions 
    demonstrate that the electronic bidding system is reliable. For 
    example, in the broadband PCS D, E, and F block auction, 94 percent of 
    the qualified bidders filed their short-form applications 
    electronically. In the recently completed 800 MHz SMR auction, 93 
    percent of the qualified bidders filed their short-form applications 
    electronically. The Commission did not experience problems with its 
    electronic filing procedures.
        45. Finally, as the Commission stated in the Notice, the Commission 
    recognizes that there is a need for a period of time before a 
    comprehensive electronic filing requirement becomes effective in order 
    for bidders to prepare and be completely comfortable with this process. 
    The effective date of January 1, 1999, will provide potential bidders 
    with adequate time in which to adapt to electronic filing requirements. 
    Finally, although the Commission concludes that electronic filing is 
    the preferred filing method, the Commission nevertheless reserves the 
    right to provide for manual filing in the event of technical failure or 
    other difficulties.
        46. Short-form Application Amendments. The majority of commenters 
    support the Commission's proposal in the Notice to create a uniform 
    definition of major and minor amendments to applicants' short-form (FCC 
    Form 175) applications for all future auctions. However, commenters' 
    opinions differ on what types of amendments the Commission should 
    categorize as major or minor. For example, AT&T and ISTA argue that 
    major amendments should include all changes in ownership that 
    constitute a change in control, as well as all changes in size that 
    would affect an applicant's eligibility for designated entity 
    provisions. In contrast, Metrocall contends that all changes in 
    ownership incidental to mergers and acquisitions, non-substantial pro 
    forma changes, and involuntary changes in ownership should be 
    categorized as minor. Metrocall also states that an applicant should 
    not be permitted to upgrade its designated entity status after the 
    short form filing deadline (i.e., go from a ``small'' to ``very small'' 
    business), but should be permitted to lose its designated entity status 
    as a result of a minor change in control (i.e., exceed the threshold 
    for eligibility as a small business).
        47. After careful consideration of the comments addressing the 
    issue, the Commission concludes that a definition of major and minor 
    amendments similar to that provided in the Commission's PCS rules, 47 
    CFR 24.822, is appropriate. After the short-form filing deadline, 
    applicants will be permitted to make minor amendments to their short-
    form applications both prior to and during the auction. However, 
    applicants will not be permitted to make major amendments or 
    modifications to their applications after the short-form filing 
    deadline. Major amendments will include, but will not be limited to, 
    changes in license areas designated on the short-form application, 
    changes in ownership of the applicant which would constitute a change 
    in control, and the addition of other applicants to any bidding 
    consortia. Consistent with the weight of the comments addressing the 
    issue, major amendments will also include any change in an applicant's 
    size which would affect an applicant's eligibility for designated 
    entity provisions. For example, if Company A, an applicant that 
    qualified for special provisions as a small business, merges with 
    Company B during the course of an auction, and if, as a result of this 
    merger, the merged company would not qualify as a small business, the 
    amendment reflecting the change in ownership of Company A would be 
    considered a major amendment. Otherwise, the new entity could receive 
    small business bidding credits and installment payments when it does 
    not qualify for them. As is the case in the Commission's PCS rules, 
    however, applicants will be permitted to amend their short-form 
    applications to reflect the formation of bidding consortia or changes 
    in ownership that do not result in a change in control of the 
    applicant, provided that the parties forming consortia or entering into 
    ownership agreements have not applied for licenses
    
    [[Page 2323]]
    
    in any of the same geographic license areas. In contrast, minor 
    amendments will include, but will not be limited to, the correction of 
    typographical errors and other minor defects, and any amendment not 
    identified as major.
        48. As noted above, the Commission has generally refused to grant 
    requests to add or delete markets on an applicant's short-form 
    application in order to prevent collusive conduct or gaming that would 
    reduce the competitiveness of the auction. While the Commission 
    recognizes that there may be some circumstances in which the 
    competitiveness of the auction might be enhanced by allowing applicants 
    to add markets to their short-form applications, the Commission 
    concludes that the risks of encouraging or facilitating conduct that 
    negatively affects the competitiveness of the auction and the post-
    auction market structure outweigh the benefits of categorizing such 
    amendments as minor. Several commenters support this conclusion that 
    the addition or deletion of markets on the short-form application 
    should always be deemed a ``major'' amendment. Specifically, PageNet 
    states that because the only new information that an applicant could be 
    deemed to possess at this stage would be licenses on which other 
    applicants intend to bid, amendment of the short-form application in 
    this regard could only lead to auction abuses. Those commenters 
    supporting defining the addition or deletion of markets after the 
    short-form filing deadline as a minor amendment argue that such an 
    amendment should only be permitted prior to the upfront payment 
    deadline or the release of the Public Notice announcing qualified 
    bidders. After this point, the overall competitiveness of the auction 
    may be threatened.
        49. AT&T proposes that the deletion of markets to avoid specifying 
    markets that overlap with another auction applicant (and thus 
    preventing discussion on potentially non-auction-related matters such 
    as interconnection, resale, and equipment orders that do not affect 
    bids or bidding strategies) be deemed a minor amendment. The Commission 
    notes that in previous auctions some applicants have inadvertently 
    placed themselves at risk of violating the Commission's anti-collusion 
    rule by choosing to specify ``all markets'' on their short-form 
    applications when they intended to bid only on a particular license or 
    group of licenses. As a general matter, the anti-collusion rule does 
    not prohibit non-auction-related business negotiations between auction 
    applicants that have applied for the same geographic service areas. 
    AT&T argues that the aspect of the rule prohibiting the addition or 
    deletion of markets often has had the unfortunate result of 
    discouraging non-auction, business-related discussions between auction 
    applicants who are not actually bidding for licenses in the same 
    geographic license areas. Because of the potential anti-competitive 
    results of allowing bidders to delete markets after the short-form 
    filing deadline, however, the Commission believes that this type of 
    error can be more effectively addressed by other means, including 
    increased awareness on the part of prospective auction applicants of 
    the consequences of choosing ``all markets,'' as well as software 
    enhancements that make specifying particular markets on the FCC Form 
    175 less burdensome.
        50. The Commission also emphasizes that, pursuant to Sec. 1.65 of 
    the Commission's rules, each auction applicant is required to assure 
    the continuing accuracy and completeness of information furnished in a 
    pending application. See 47 CFR 1.65. Each applicant is therefore under 
    a continuing obligation to update its short-form and long-form 
    applications as appropriate to reflect any changes that would make a 
    pending application inaccurate or incomplete, or that are necessary to 
    determine that an applicant is in compliance with our rules. As in all 
    prior auctions, an application that is amended by a major amendment 
    will be considered newly filed, and therefore will not be accepted 
    after the short-form filing deadline. The Commission further notes that 
    it has waived its ex parte rules as they apply to the submission of 
    amended short-form applications to maximize applicants' opportunities 
    to seek the advice of Commission staff when making amendments at any 
    time after the short-form filing deadline.
        51. Finally, the Commission notes that in the context of cellular 
    unserved area licensing, WWC contends that the rules adopted in this 
    proceeding addressing major and minor amendments to short-form 
    applications should not apply to cellular unserved area applications 
    filed in 1994 as these applications were to be governed by a ``letter-
    perfect'' standard and applicants were given no opportunity to cure 
    minor defects. While the Commission has considered WWC's argument, the 
    Commission believes that it is inapplicable. WWC addresses the initial 
    application procedures for cellular unserved area licenses, while the 
    Part 1 rules, in contrast, address application procedures for 
    participation in an auction once a finding of mutual exclusivity has 
    been made.
        52. Ownership Disclosure Requirements. As the Commission indicated 
    in the Notice, the Commission continues to believe that detailed 
    ownership information is necessary to ensure that applicants claiming 
    small business status qualify for such status, and to ensure compliance 
    by all applicants with spectrum caps and other ownership limits. 
    Disclosure of ownership information also aids bidders by providing them 
    with information about their auction competitors and alerting them to 
    entities subject to our anti-collusion rules. Therefore, the Commission 
    adopts standard ownership disclosure requirements for all auctionable 
    services that will avoid the variations found in the Commission's 
    current service-specific ownership disclosure requirements.
        53. This decision is widely supported by the majority of comments 
    in this proceeding. Most commenters addressing the issue of ownership 
    disclosure support requiring some level of ownership information at the 
    short-form application stage. For example, PCIA believes that full 
    disclosure of bidder ownership information is necessary if competing 
    bidders are to accurately assess the legitimacy of their auction 
    opponents and their respective bids. PCIA contends that there can be no 
    valid reason for legitimate bidders to hide their ownership. Such 
    information, according to PCIA, is crucial for purposes of the 
    Commission's anti-collusion rules, spectrum caps, and other ownership 
    limits. Similarly, PageNet contends that full ownership disclosure is 
    important to aid bidders in compiling information about their auction 
    competitors and, most importantly, to alert them to any conduct that 
    might be a violation of the Commission's anti-collusion rules. In the 
    satellite context, Hughes argues that the submission of detailed 
    ownership information is essential because of the extreme costs 
    associated with the build-out of a satellite system. In contrast, only 
    CII argues that the Commission's objectives with regard to the rules 
    governing designated entity status, spectrum caps, and other ownership 
    limitations would be fully satisfied by deferring the filing of 
    comprehensive ownership information until the long-form application 
    stage.
        54. For all future auctions, therefore, the Commission will model 
    our reporting requirements on the general application requirements 
    contained in our broadband PCS rules. Under this standard, all auction 
    applicants will be required to disclose the real party or parties in 
    interest by including as an exhibit to their short-form applications
    
    [[Page 2324]]
    
    detailed ownership information. Although the Commission's current Part 
    1 rules require auction applicants to list all owners of a five percent 
    or greater interest in the applicant, the Commission agrees with 
    commenters such as CII that argue that applicants should not be 
    required to list all holders of this small an interest in the 
    applicant, unless they are in a position of control by virtue of other 
    factors (i.e., voting agreements, management structure), or hold a 
    significant passive ownership interest (i.e., 20 percent). Thus, the 
    Commission amends its rules to require that applicants list controlling 
    interests as well as all parties holding a 10 percent or greater 
    interest in the applicant and any affiliates of these interest holders. 
    See 47 CFR 1.2110(b)(4). A 10 percent or greater interest reporting 
    requirement is consistent with the revised definition of the term 
    ``applicant'' we adopt for purposes of the anti-collusion rule. The 
    Commission notes that PageNet contends that the Commission should 
    require disclosure of entities and individuals that own more than five 
    percent of the applicant or who have provided more than five percent of 
    the applicant's equity. However, as suggested above, the Commission 
    believes that the detailed reporting requirement we create today, in 
    combination with our comprehensive affiliation rules, permits us to 
    determine the ``real party or parties in interest'' when parties apply 
    to participate in an auction.
        55. Specifically, all auction applicants will be required to 
    disclose: (1) A list of any FCC-regulated business, 10 percent or more 
    of whose stock, warrants, options or debt securities are owned by the 
    applicant; (2) a list of any party holding a 10 percent or greater 
    interest in the applicant, including the specific amount of the 
    interest; (3) a list of any party holding a 10 percent or greater 
    interest in any entity holding or applying for any FCC-regulated 
    business in which a 10 percent or greater interest is held by another 
    party which holds a 10 percent or greater interest in the applicant 
    (e.g., if company A owns 10% of company B (the applicant) and 10% of 
    company C, a company holding or applying for an FCC-regulated business, 
    the companies A and C must be listed in company B's application); (4) 
    the name, address and citizenship of any party holding 10 percent or 
    more of each class of stock, warrants, options or debt securities, 
    together with the amount and percentage held; (5) the name, address and 
    citizenship of all controlling interests of the applicants, as this 
    term is defined in Sec. 1.2110 of our rules; (6) if the applicant is a 
    general partnership, the name, address and citizenship of each partner, 
    and the share or interest participation in the partnership; (7) if the 
    applicant is a limited partnership, the name, address and citizenship 
    of each general partner and each limited partner whose interest in the 
    applicant is equal to or greater than 10 percent (as calculated 
    according to the percentage of equity paid in and the percentage of 
    distribution of profits and losses); (8) if the applicant is a limited 
    liability corporation, the name, address and citizenship of each of its 
    members; and (9) a list of all parties holding indirect ownership 
    interests in the applicant, as determined by successive multiplication 
    of the ownership percentages for each link in the vertical ownership 
    chain, that equal 10 percent or more of the applicant, except that if 
    the ownership percentage for an interest in any link in the chain 
    exceeds 50 percent or represents actual control, it shall be treated 
    and reported as if it were a 100 percent interest. See, e.g., 47 CFR 
    20.6(d)(8).
        56. In addition, consistent with the reporting requirements set 
    forth in the 900 MHz SMR rules, the Commission will require that 
    applicants claiming small business status disclose on their short-form 
    applications the names of each controlling interest and affiliate, as 
    these terms are defined in this proceeding, and to provide gross 
    revenues calculations for each. On their long-form applications, such 
    applicants will be required to disclose any additional gross revenues 
    calculations, any agreements that support small business status, and 
    any investor protection agreements. The Commission believes that these 
    reporting requirements will help to assure that only qualifying 
    applicants obtain the benefits of our small business provisions, 
    without being unduly burdensome.
        57. Finally, in a related proposal, PageNet states that Commission 
    should expressly prohibit ``blind bidding'' (i.e., bidding in which 
    auction participants do not know the identities or ownership 
    information of the other bidders in the auction) in any pending and 
    future auction because it (1) is unfair to auction participants; (2) 
    encourages auction abuses; and (3) encourages speculation. PageNet 
    contends that these factors can have a significant impact upon the 
    competitiveness of the auction and the post-auction marketplace. In 
    situations in which an incumbent has already met the Commission's 
    build-out requirements and must still bid in an auction in which blind 
    bidding is used, PageNet contends that a competitor is often able to 
    bid up the price of a license that it never intends to win in order to 
    force the incumbent to buy the license at a higher price. PageNet 
    further contends that this higher price is then reflected in higher 
    rates for services, which in turn affect the incumbent's ability to 
    compete. As discussed above, the Commission agrees that it is important 
    that auction applicants disclose certain ownership information prior to 
    the start of an auction. At the same time, however, the Commission 
    believes that in certain circumstances, the competitiveness of an 
    auction may be increased if less bidder information is made available. 
    In the Competitive Bidding Second Memorandum Opinion and Order, the 
    Commission retained the flexibility to conceal bidder identities if 
    further experience showed that it would be desirable to do so. More 
    recently, in the auction rules for geographic area paging licenses, the 
    Commission concluded that the advantages of limiting information 
    disclosed to bidders outweigh the disadvantages of this approach, and 
    reserved the discretion to announce by Public Notice prior to the 
    auction the precise information to be revealed to bidders during that 
    auction. The Commission believes that the uniform rules adopted today 
    provide the Commission with the necessary flexibility to tailor the 
    amount of bidder information made available to applicants to ensure the 
    competitiveness of each auction. The Commission therefore declines to 
    adopt a provision prohibiting non-disclosure of bidder identities in 
    all future auctions.
        58. Ownership Disclosure Filings. The Commission believes that 
    permitting applicants to file ownership information when they apply for 
    their first auction, which would then be stored in a central database 
    and updated each time the information changes during or after the first 
    auction and when applicants participate in a subsequent auction, will 
    streamline our application processes and minimize the burden on auction 
    applicants. This concept is supported by the record. For example, CII 
    and Airadigm argue that this approach will benefit auction applicants 
    by reducing the time spent preparing auction applications, and will 
    benefit the Commission by eliminating the need to review and analyze 
    duplicative filings. The Commission believes that by requiring 
    ownership disclosure filings, we ensure that we receive all the 
    information necessary to evaluate an applicant's qualifications. As the
    
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    Commission indicated in the Notice, however, these requirements could 
    result in duplicative filings. For example, where licenses for a 
    service are offered in a series of blocks, as in the case of broadband 
    PCS, an entity may wish to participate in several auctions, and would 
    be required to disclose the same information a number of times. Under 
    the system the Commission envisions, when applying to participate in 
    subsequent auctions, applicants will be permitted to update the 
    database or certify that there have been no changes in ownership and 
    that the information contained in the database remains correct. The 
    Commission will look to implement this process in the near future as 
    part of our Universal Licensing System.
        59. Audits. The only commenters to address this proposal, PageNet 
    and Airadigm, support this proposal. Airadigm requests that applicants 
    and licensees subject to audit be afforded sufficient time to provide 
    information to the Commission and that the Commission issue written 
    findings following its examination. The Commission therefore adopts its 
    proposal, and will modify our rules governing status as a designated 
    entity to expressly provide that applicants and licensees claiming 
    eligibility for special provisions shall be subject to audits by the 
    Commission. Such audits will be governed by the standards set forth in 
    Sections 403 and 308(b) of the Communications Act. 47 U.S.C. 403, 
    308(b). The Commission believes that these provisions, as well as the 
    general provisions of the Administrative Procedure Act, will adequately 
    address Airadigm's concerns, and the Commission therefore declines at 
    this time to adopt specific rules to govern audits of applicants and 
    licensees conducted in the future.
    
    V. Payment Issues
    
        60. Determination of Upfront Payment Amount. In the Competitive 
    Bidding Second Report and Order, the Commission indicated that the 
    upfront payment should be set using a formula based upon the amount of 
    spectrum and population (or ``pops'') covered by the license or 
    licenses for which parties intend to bid. The Commission reasoned that 
    this method of determining the required upfront payment would enable 
    prospective bidders to tailor their upfront payment to their bidding 
    strategies. At the same time, however, the Commission noted that 
    determining an appropriate upfront payment involved balancing the goal 
    of encouraging bidders to submit serious, qualified bids with the 
    desire to simplify the bidding process and minimize implementation 
    costs imposed on bidders. The Commission concluded that the best 
    approach would be to maintain the flexibility to determine the amount 
    of the upfront payment on an auction-by-auction basis, because this 
    balancing may yield different results depending upon the particular 
    licenses being auctioned.
        61. Many commenters make specific proposals regarding the proper 
    size and terms for assessing upfront payments in future auctions. For 
    example, PageNet and CII suggest that the Commission adopt a standard 
    upfront payment rule requiring separate upfront payments for each 
    license identified in an applicant's short-form application. CII 
    contends that this would reduce the number of ``phantom'' mutual 
    exclusivities (i.e., theoretical frequency conflicts caused by the fact 
    that the current auction rules create no financial disincentive to list 
    licenses in an application on which the applicant has no bona fide 
    intention to bid). In contrast, Airadigm and NPCS argue that the 
    Commission should not require a separate upfront payment for each 
    license on which an entity elects to bid, as this would limit bidders' 
    flexibility to change strategy and force them to reveal their bidding 
    strategy prior to the start of the auction. In an alternate proposal, 
    AirTouch and CII suggest that the Commission require applicants to 
    increase their upfront payments as an auction progresses to equal a 
    percentage of their total bids. AirTouch argues that this requirement 
    would reduce the risk of defaults and discourage parties from 
    submitting ``jump bids'' where they have no intention of actually 
    winning a particular license. Similarly, to reduce the risk of default, 
    CII recommends that when an applicant's upfront payment drops below a 
    specific percentage of its high bid amount, the Commission allow the 
    applicant to increase its deposit to a certain percentage of its high 
    bid total within ten business days. In contrast to these two proposals, 
    Airadigm opposes increasing the upfront payment requirement once a 
    bidder's bid amount exceeds a certain multiple of the original upfront 
    payment amount because this would create a significant barrier to small 
    businesses.
        62. The Commission agrees with Airadigm and NPCS that it is 
    unnecessary to adopt additional rules governing the amount of the 
    upfront payment and the terms under which it is assessed. The 
    Commission believes its reasoning in the Competitive Bidding Second 
    Report and Order remains valid, and that the required upfront payment 
    should be tailored to the particular auction design and to the 
    characteristics of the licenses being auctioned. This determination can 
    be made in a variety of ways and using a variety of techniques to 
    estimate the value of the spectrum being auctioned; however, as a 
    general rule we have required an upfront payment equal to $0.02 per pop 
    per megahertz. As discussed infra, under the current competitive 
    bidding rules the Commission maintains the discretion to alter the 
    amount of the required upfront payment or to modify the terms under 
    which the upfront payment is assessed. The Commission believes that 
    retaining this discretion provides the Commission with the greatest 
    level of flexibility to determine the appropriate upfront payment 
    amount on an auction-by-auction basis.
        63. Refund of Upfront Payments. After considering the issue in 
    light of Congress's 1996 amendment to Section 309(j)(8)(C) and the 
    comments received in this proceeding, the Commission will continue our 
    current practice of returning the upfront payments of bidders who have 
    completely withdrawn from an auction prior to the conclusion of 
    competitive bidding. As the Commission suggested in the Notice, it is 
    unclear whether Congress intended, in amending Section 309(j)(8)(C), to 
    require the Commission to change its practice of refunding upfront 
    payments to bidders who withdraw during the course of an auction. The 
    Commission continues to believe, however, that the prompt return of 
    upfront payments is in the public interest, because it prevents 
    unnecessary encumbrances on the funds of auction bidders, many of whom 
    may be small businesses, after they have withdrawn from the auction. In 
    addition, we believe that this practice minimizes the financial burdens 
    of participating in an auction, because auction participants earn no 
    interest on upfront payment funds on deposit with the Commission. 
    Moreover, all commenters addressing the issue support our proposal to 
    continue this practice. AirTouch proposes that the Commission retain an 
    administrative fee based upon the number of rounds an applicant has 
    remained in the auction when it refunds upfront payments to bidders who 
    have withdrawn. Airadigm and AT&T state that not returning upfront 
    payments in a prompt manner in circumstances where a bidder has 
    withdrawn is akin to a ``fee'' that Congress did not intend to 
    authorize, and that may work to discourage participation in the 
    Commission's auction program. The Commission agrees with Airadigm and 
    AT&T, and conclude that such a fee is
    
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    inappropriate, and therefore, rejects AirTouch's proposal.
    
    64. Down Payment and Full Payment for Licenses
    
    Level of Down Payments
    
        65. The Commission created the down payment requirement in the 
    Competitive Bidding Second Report and Order, in which the Commission 
    concluded that at the conclusion of the auction, a bidder must tender a 
    significant and non-refundable down payment to the Commission over and 
    above its upfront payment in order to provide further assurance that 
    the winning bidder will be able to pay the full amount of its winning 
    bid. The Commission believes that a substantial down payment is 
    required to ensure that licensees have the financial capability to 
    attract the capital necessary to deploy and operate their systems, and 
    to protect against default. Because it is due soon after the close of 
    the auction, the down payment is a valuable indicator of a license 
    applicant's financial viability. In addition, the Commission believes 
    that it is important it learns early on in the licensing process when 
    an applicant might be unable to finance its winning bid or bids.
        66. Several commenters oppose any increase in the down payment 
    beyond 20 percent of the high bid amount. Airadigm opposes granting the 
    Bureau the discretion to establish a down payment amount because it 
    believes that the Bureau could unfairly disadvantage small businesses 
    by requiring disproportionately large down payments for auctions of 
    particularly capital-intensive services. In addition, Airadigm states 
    that granting the Bureau this discretion could complicate applicants' 
    financing arrangements because down payment amounts could vary with 
    each auction. After consideration of these comments, the Commission 
    concludes that a standard down payment amount of 20 percent is 
    appropriate. Finally, if unusual circumstances present themselves in 
    the context of a particular service, the Commission reserves the right 
    to adopt a different amount by rule in that service.
    
    Untimely Second Down Payments and Full Payments
    
        67. The Commission will amend sections 1.2109(a) and 1.2110(e) of 
    its rules to permit auction winners to make their second down payments 
    or final payments within ten business days after the applicable 
    deadline, provided that they also pay an appropriate late fee, without 
    being considered in default. As the Commission recognizes in the 
    Notice, in past auctions there have been cases where a winning bidder 
    missed the applicable second down payment deadline but subsequently 
    made its down payment and filed a request seeking a waiver of the 
    deadline. In some of these cases, the Bureau granted the waivers, 
    subject to payment of a five percent late fee. In granting the waivers, 
    the Bureau recognized the licensee's good faith and ability to pay as 
    evidenced by its timely remittance of all earlier payments and prompt 
    action to cure the delinquency.
        68. The Commission recognizes that applicants may encounter 
    unexpected or unforeseeable difficulties when trying to arrange 
    financing and make substantial payments under strict deadlines. In 
    circumstances that may warrant favorable consideration of a waiver 
    request or an extension of the payment date, the Commission must also 
    evaluate the fairness to other licensees who made their payments in a 
    timely fashion. Two commenters, Mountain Solutions, Ltd. (``Mountain 
    Solutions'') and AirTouch, the only commenters to address this issue in 
    detail, support our proposal to permit late payment subject to a 
    standard late fee for any licensee not able to make a timely payment. 
    The Commission agrees, and amends Sec. 1.2109(a) to permit winning 
    bidders who are required to make final payment on their licenses within 
    a certain period of time as announced by public notice, to submit their 
    payment 10 business days after the payment deadline, provided that they 
    also pay a late fee equal to five percent of the amount due. Although 
    the Commission suspends the use of installment payments for the 
    immediate future, in the event the Commission once again offers 
    installment payments, the Commission will also amend Sec. 1.2110(e) to 
    permit auction winners paying for the licenses in installments to 
    submit their second down payment 10 business days after the payment 
    deadline, provided they also pay a late fee equal to five percent of 
    the amount due.
        69. As discussed above, the Commission's rules provide that winning 
    bidders have ten business days to make timely payment following 
    notification that their licenses are ready to be granted. The 
    Commission believes that in establishing this additional ten business 
    day period, during which winning bidders will not be considered in 
    default, the Commission will provide an adequate amount of time to 
    permit winning bidders to adjust for any last-minute problems. The 
    Commission declines to provide for a lengthier late payment period 
    because we believe that extensive relief from initial payment 
    obligations could threaten the integrity, fairness, and efficiency of 
    the auction process. As observed in the Notice, a late fee of five 
    percent is consistent with general commercial practice and provides 
    some recompense to the federal government for the delay and 
    administrative or other costs incurred. In addition, we believe that a 
    five percent fee is large enough to deter winning bidders from making 
    late payments and yet small enough so as not to be punitive. Therefore, 
    applicants who do not submit the required final payment and five 
    percent late fee within the 10-day late payment period will be declared 
    in default, and will be subject to the default payment specified in 
    Sec. 1.2104(g) of our rules. 47 CFR 1.2104(g).
        70. Finally, the Commission emphasizes that its decision to permit 
    late payments is limited to payments owed by winning bidders who have 
    submitted timely initial down payments. The Commission continues to 
    believe that the strict enforcement of payment deadlines enhances the 
    integrity of the auction and licensing process by ensuring that 
    applicants have the necessary financial qualifications. In this 
    connection, the Commission believes that the bona fide ability to pay 
    demonstrated by a timely initial down payment is essential to a fair 
    and efficient auction process. Thus, the Commission has not proposed to 
    modify its approach of requiring timely submission of initial down 
    payments that immediately follow the close of an auction. The 
    Commission did not propose to adopt a late payment period for down 
    payments that are due soon after the close of the auction as the 
    Commission believes it is reasonable to expect that winning bidders 
    timely remit their down payments, given that it is their first 
    opportunity to demonstrate to the Commission their ability to make 
    payments toward their licenses. Further, if a winning bidder defaults 
    on its down payment on a license, the Commission can take action under 
    Sec. 1.2109(b) relatively soon after the auction has closed, by, for 
    example, re-auctioning the license or offering it to the other highest 
    bidders (in descending order) at their final bids. Similarly, the 
    Commission will not allow for any late submission of upfront payments, 
    as to do so would slow down the licensing process by delaying the start 
    of an auction.
    
    Full Payment and Petitions To Deny
    
        71. The Commission will suspend the use of installment payments as 
    a means
    
    [[Page 2327]]
    
    of financing small business participation in our auction program for 
    the immediate future. As a result, all auction winners, including small 
    businesses, will be required to submit the full payment owed on their 
    winning bids shortly after a license is ready to be granted. The 
    Commission will recognize that in the past the filing of petitions to 
    deny against a winning bidder's application(s) has often had the effect 
    of significantly delaying the grant of the applicant's license(s), and 
    as a result, the deadline for that applicant to submit the balance of 
    its winning bid. However, in the Balanced Budget Act Congress granted 
    the Commission the authority to shorten the petition to deny period, 
    and as a result, to grant licenses much more rapidly. Balanced Budget 
    Act, Sec. 3008. As an initial matter, consistent with this legislation, 
    the Commission amends Secs. 1.2108(b) and (c) of its rules to provide 
    that the Commission shall not grant a license earlier than seven days 
    following issuance of a public notice by the Commission that long-form 
    applications have been accepted for filing. 47 CFR 1.2108(b), (c). Also 
    consistent with the Balanced Budget Act, the Commission amends this 
    section to provide that in all cases the period for filing petitions to 
    deny shall be no shorter than five days. In this regard, the Commission 
    seeks comment in the Second Further Notice of Proposed Rule Making on 
    whether there are instances in which the Commission should provide for 
    a longer period for the filing of petitions to deny or for the grant of 
    initial licenses in auctionable services.
        72. In light of this change in our rules, the Commission believes 
    that the concerns discussed in the Notice regarding delays in the 
    granting of licenses and, as a result, in the deadline for full payment 
    are substantially reduced. While applications that are the subject of 
    petitions to deny ordinarily take longer to resolve than uncontested 
    applications, the Commission believes these changes in procedure will 
    reduce the risk of frivolous petitions being filed solely for purposes 
    of delay, and will enhance our ability to resolve petitions 
    expeditiously. Finally, the Commission believes that concerns regarding 
    delayed payment are outweighed by the risk and uncertainty that would 
    be imposed on an applicant if it were required to make its full auction 
    payment while a petition against its application was still pending and 
    could potentially result in denial of the application. As a result, the 
    Commission declines to amend its rules to require all winning bidders 
    to make their full payments at the same time, regardless of whether 
    petitions to deny their applications have been filed.
        73. Default Payments. The Commission adopts its proposal to delete 
    the words ``simultaneous multiple-round'' from Sec. 1.2104(g), and will 
    apply the default/withdrawal payment procedure to all auction designs. 
    Several commenters support this decision, maintaining that rigorous 
    enforcement of the Commission's payment deadlines is critical to 
    preserving the integrity of the auction and licensing process by 
    ensuring that applicants possess the necessary financial 
    qualifications. These commenters also suggest that default payments are 
    an effective and necessary method of discouraging defaults and 
    encouraging private market solutions to licensee financing 
    difficulties. The Commission believes that this modification to our 
    general rules governing bidder default will help to maintain the 
    integrity of the auction process by discouraging defaults on the part 
    of bidders, encouraging bidders to make secondary or back-up financial 
    arrangements, and ensuring that default payments are made in a timely 
    manner. The Commission also believes this modification will help to 
    discourage insincere bidding and ensure that licenses end up in the 
    hands of those parties that value them the most and have the financial 
    qualifications necessary to construct operational systems and provide 
    service. See 47 U.S.C. 309(j)(5).
        74. Our rules provide that where a winning bidder defaults on a 
    license, the bidder becomes subject to a default payment equal to the 
    difference between the amount bid and the winning bid the next time the 
    license is offered by the Commission, plus a payment equal to three 
    percent of the subsequent winning bid or the amount bid, whichever is 
    lower. See 47 CFR 1.2104(g)(2). In the Competitive Bidding Fifth Report 
    and Order, the Commission stated that where the default payment cannot 
    be determined, the Commission may assess an initial default payment 
    ``of up to 20 percent'' of the defaulting bidder's winning bid. We 
    adopt our proposal in the Notice to employ this practice for all 
    auctionable services. No commenter addressed this issue. Although the 
    Commission provided that this deposit amount will be up to 20 percent 
    of the defaulted bid amount, we note that if a license is reauctioned 
    for an amount greater than the defaulted bid for the license, the 
    default payment due will be only three percent of the defaulted bid. 47 
    CFR 24.704(a)(2). See also 47 CFR 1.2104(g). Thus, in the future we 
    will assess an initial default deposit of between three percent (3%) 
    and twenty percent (20%) of the defaulted bid amount where a winning 
    bidder or licensee defaults and the defaulted license has yet to be 
    reauctioned. Once the license has been reauctioned by the Commission 
    and the total default payment can be determined, the Commission will 
    either assess the balance of the appropriate default payment, or refund 
    any amounts due, as necessary.
    
    75. Installment Payments
    
    Late Payments
    
        76. In order to add certainty to the installment payment process, 
    the Commission adopts its proposals from the Notice to modify its grace 
    period provisions. As discussed above, the Commission declines to use 
    installment payments for the immediate future as a means of financing 
    small business participation in our auction program. As a result, the 
    Commission's decision with regard to late payment fees for installment 
    payments effectively will apply only to existing licensees who are 
    currently paying for their licenses in installments. From this point 
    forward, instead of considering individual grace period requests, the 
    following system will apply: A licensee who does not make payment on an 
    installment obligation will automatically have an additional 90 days in 
    which to submit its required payment without being considered 
    delinquent, but will be assessed a five percent late payment fee as 
    discussed above. If the licensee fails to make the required payment at 
    the close of this first 90-day non-delinquency period, the licensee 
    will automatically be provided a subsequent 90-day grace period, this 
    time subject to a second, additional late fee equal to ten percent of 
    the initial required payment.
        77. As proposed in the Notice, under this system, licensees will 
    not be required to submit a filing to take advantage of these 
    provisions. During this 90-to-180-day period, the Commission or its 
    designated collection agent will continue to pursue collection of past-
    due installments and fees. Also during this time, the licensee will 
    have the opportunity to raise necessary capital, continue service and 
    construction efforts, or seek a buyer for its license(s) that will 
    resume payments. These late payment provisions will apply independently 
    to all installment payments. Therefore, the late payment provisions and 
    accompanying late fees will not affect the payment schedule for future 
    payments. Thus, even if a licensee elects to take advantage of the late 
    payment provisions, the licensee
    
    [[Page 2328]]
    
    will still be responsible for remitting all future installment payments 
    in a timely manner, unless the licensee elects to take advantage of the 
    late payment provisions for any future installment payment. The 
    following example illustrates how this system will operate:
    
        ABC Corp. has a $100,000 installment interest payment due on 
    March 1. If ABC Corp. is able to make its payment on March 1, then 
    it must remit $100,000 to the Commission. If ABC Corp. makes its 
    payment anytime from March 2 until May 30 (the end of the non-
    delinquency period), then ABC Corp. must remit $105,000 to the 
    Commission to be considered current on its March 1 installment 
    payment. If ABC Corp. does not make its March 1 payment by May 30, 
    then it must remit $115,000 on or before August 28. If ABC Corp. 
    does not remit the required $115,000 by August 29 (the end of the 
    90-day grace period), then it will be considered in default and its 
    license will automatically cancel on August 30 without further 
    action by the Commission. See 47 CFR 1.2110(e)(4)(iii).
    
        ABC Company's June 1 installment payment of $100,000 remains due on 
    June 1 regardless of the payment status of the March 1 payment. The 
    late payment terms apply to June installment payment independently of 
    the March payment. Thus, if ABC Company does not make its March 1 
    payment until June 1, the total amount due to the Commission on June 1 
    is $215,000 which consists of the March payment, the March 5% non-
    delinquency late fee, the March 10% grace period late fee and the June 
    payment. Assuming the licensee remits the March 1 payment and 
    accompanying March late fees of $115,000 to the Commission by August 
    29, then the total amount due to the Commission on September 1 will be 
    $215,000 which consists of the June installment payment of $100,000, 
    the June 5% non-delinquency late fee, the June 10% grace period late 
    fee and September installment payment of $100,000.
        ABC Company may elect to make late payments and pay the 
    accompanying late fees on the March and June payments. However, ABC 
    Company must remit $115,00 representing the required March payment and 
    accompanying March late fees by August 29 (the end of March's 90-day 
    grace period) or it will be considered in default and its license will 
    automatically cancel on August 30 without further action by the 
    Commission. Furthermore, ABC Company must remit and additional $115,000 
    representing the required June payment and accompanying June late fees 
    by November 29 (the end of June's 90-day grace period) or it will be 
    considered in default and its license will automatically cancel on 
    November 30 without further action by the Commission.
        As proposed in the Notice, the late fees the Commission adopts will 
    accrue on the next business day following the payment due date and will 
    be payable with the next quarterly installment payment obligation. The 
    Commission emphasizes that at the close of non-delinquency or grace 
    period, a licensee must submit the required late fee(s), all interest 
    accrued during the non-delinquency period, and the appropriate 
    scheduled payment with the first payment made following the conclusion 
    of the non-delinquency period or grace period. Payments made at the 
    close of any grace period will first be applied to satisfy any lender 
    advances as required under each licensee's ``Note and Security 
    Agreement.'' Afterwards, payments will be applied in the following 
    order: late charges, interest charges, principal payments. As part of 
    the Commission's spectrum management responsibilities, the Commission 
    wishes to ensure that spectrum is put to use as soon as possible. The 
    Commission also believes that licensees should be working to obtain the 
    funds necessary to meet their payment obligations before they are due 
    and, accordingly, that the non-delinquency and grace periods the 
    Commission adopts should be used only in extraordinary circumstances. 
    Thus, as the Commission emphasized in the Notice, a licensee who fails 
    to make payment within 180 days sufficient to pay the late fees, 
    interest, and principal, will be deemed to have failed to make full 
    payment on its obligation and will be subject to license cancellation 
    pursuant to Sec. 1.2104(g)(2) of the Commission's rules.
        78. Several commenters support the Commission's efforts to provide 
    licensees with predetermined non-delinquency periods without requiring 
    the submission of a formal grace period request. In addition, many of 
    the commenters addressing this issue, including AMTA, Hughes, AirTouch, 
    Mountain Solutions and CII support the imposition of a late payment fee 
    similar to that imposed in the broadband F block auction, in order to 
    create a significant incentive for timely payment of installment 
    obligations. CII believes that modifying our current grace period 
    procedures will provide licensees with knowledge in advance of the 
    extent of any relief that will be forthcoming from the Commission to a 
    licensee who misses an installment payment. AirTouch believes that any 
    licensee who fails to make payment within 180 days should face the 
    automatic cancellation of its license. AirTouch contends that once a 
    certain number of installment payments have been submitted late, the 
    Commission should declare the licensee in default and subject to the 
    default payments proposed in the Notice. In contrast, only CIRI opposes 
    this liberalization of the current grace period rules, requesting 
    instead that grace period relief be made available only when a licensee 
    can demonstrate that such relief is warranted and the public debt will 
    ultimately be satisfied. Although Hughes recommends the imposition of a 
    ``significant'' late fee to the extent that an applicant misses a 
    payment deadline, Hughes believes that a five to ten percent late fee 
    is large enough to discourage late payments and to ensure that the 
    government is compensated for its administrative expenses in recouping 
    the payment. As an alternative to our proposal in the Notice, GWI 
    proposes that any such late payment fee should be pro-rated over the 
    90-day payment period instead of accruing all at once regardless of 
    when the late payment is made, in order to provide an economic 
    incentive for licensees who are overdue in their payment obligations to 
    retire the payment quickly instead of waiting until the end of the 
    payment period. In addition, GWI suggests that such a pro-rated payment 
    is fairer to licensees who inadvertently miss a required payment 
    through administrative error or other unavoidable, unforeseen 
    circumstances.
        79. As an alternative to the Commission's proposals in the Notice, 
    Airadigm contends that following the first 90-day non-delinquency 
    period, licensees should be given a second 90-day period with a five 
    percent late fee, followed by a third 90-day grace period with a 10 
    percent late fee. ISTA believes that a rule whereby any license is 
    cancelled at the close of the second 90-day grace period is draconian, 
    and that such a ``hard-and-fast'' automatic cancellation rule would 
    doom many small businesses. GWI opposes the imposition of an additional 
    10 percent late payment fee where licensees require an additional 90-
    day late payment period. The Commission declines to adopt these 
    alternate proposals. As the Commission indicated in the Notice, the 
    grant of a grace period is an extraordinary remedy and we wish to 
    encourage licensees to seek private market solutions to their capital 
    problems before the payment due date. In this regard, the Commission 
    notes that it has an obligation under the Debt Collection Improvement 
    Act to enforce payment obligations owed to the federal
    
    [[Page 2329]]
    
    government. See Debt Collection Improvement Act, Pub. L. 104-134, 
    Sec. 3100(j)(i), 110 Stat. 1321 (1996), codified at 31 U.S.C. 3711(a) 
    (``DCIA'').
        80. The Commission believes that the automatic grace period 
    provisions we adopt today provide licensees with adequate financial 
    incentives to make installment payments on time, while at the same time 
    creating increased certainty that will help licensees pursue private 
    market solutions to their financing difficulties. These provisions also 
    will discourage licensees from attempting to maximize their cash flow 
    at the government's expense by submitting a required installment 
    payment after it is due. Several commenters agree with this assessment. 
    At the same time, these provisions will eliminate uncertainty for many 
    licensees who are seeking to restructure other debt contingent upon the 
    results of the Commission's installment payment provisions. In 
    addition, this system will ease the burden on the Commission of 
    considering individual grace period requests where Commission or its 
    designee may not have the necessary resources to evaluate a licensee's 
    financial condition, business plans, and capital structure proposals. 
    The Commission recognizes that some commenters oppose the imposition of 
    a late fee on overdue installment payment, and in particular on the 90-
    day non-delinquency period. However, this approach is consistent with 
    the standard commercial practice of establishing late payment fees and 
    developing financial incentives for licensees to resolve capital issues 
    before payment due dates. This approach also is consistent with the 
    provisions of the DCIA, which requires that the Commission notify the 
    Secretary of the Treasury and commence debt collection procedures where 
    a party is more than 180 days past due on any outstanding debt owed to 
    a federal agency. See 31 CFR 3711(g)(1).
        81. The Commission recognizes that a number of commenters oppose 
    the application of these provisions to current licensees. In 
    particular, GWI and IVDS Enterprises argue that to the extent the 
    Commission adopts a late payment fee, it should limit the imposition of 
    such a fee to licenses issued in future auctions. However, the 
    Commission's recent experience with the installment payment program has 
    shown the importance of ensuring that all licensees, including current 
    licensees, have adequate financial incentives to make installment 
    payments on time. The Commission notes that in awarding licenses in the 
    past to entities choosing to pay in installments, the Commission has 
    emphasized that the terms of the installment payment program will be 
    governed by current Commission rules and regulations, as amended. For 
    example, in awarding licenses to C block licensees paying for their 
    licenses in installments, the Commission indicated in the associated 
    ``Note and Security Agreement'' that the terms of the installment plan 
    would be governed by and construed in accordance with then-applicable 
    Commission orders and regulations, as amended. The Commission also 
    believes that these licensees should obtain the benefit of increased 
    certainty that provisions for automatic grace periods provide. This 
    decision is supported by Mountain Solutions, who requests that current 
    licensees obtain the benefits of any loosening of the late payment fee 
    and grace period rules.
        82. As provided in the Second Report and Order and Further Notice 
    of Proposed Rule Making in this docket, installment payments for C and 
    F block licensees will resume effective March 31, 1998. See Amendment 
    of the Commission's Rules Regarding Installment Payment Financing for 
    Personal Communications Services (PCS) Licensees, Second Report and 
    Order and Further Notice of Proposed Rule Making, WT Docket No. 97-82 
    62 FR 55348 (October 24, 1997) (``Second Report and Order and Further 
    Notice of Proposed Rule Making''). Under the Commission's decision to 
    reinstate installment payments for these licensees, the Commission 
    provided them with one automatic 60-day non-delinquency period 
    following the March 31, 1998, deadline, during which time they will not 
    be considered delinquent in their payment obligations. As the 
    Commission indicated in the Second Report and Order and Further Notice 
    of Proposed Rule Making, the Commission will not entertain any requests 
    for extension of the March 31, 1998 deadline beyond an automatic 60-day 
    non-delinquency period, so that for C and F block licensees all 
    required payments must be submitted no later than May 30, 1998. Only 
    those licensees making a timely payment of all amounts due, as set 
    forth in the Second Report and Order will be permitted to take 
    advantage of the late payment provisions the Commission adopts today. 
    See 47 CFR 1.2110.
        83. In commenting on these modifications to the grace period 
    provisions, CIRI also proposes that the Commission make public the 
    terms of any workouts or debt relief provided to licensees. CIRI notes 
    that parties may request confidential treatment of sensitive financial 
    information pursuant to Sec. 0.459 of the Commission's rules, and that 
    such confidential treatment should be sufficient to safeguard the 
    privacy interests of licensees, while still making the terms of any 
    workout available for public scrutiny. As an initial matter, because 
    the Commission adopts its proposals providing for automatic grace 
    periods, the Commission does not envision licensees filing grace period 
    requests under normal circumstances from this point forward. As a 
    result, the Commission believes that CIRI's concerns about the 
    Commission making public a licensee's request for grace period relief 
    are moot. Moreover, because from this point forward a licensee's taking 
    advantage of our late payment provisions will be an administrative 
    matter processed by the Commission's loan servicer, and not a formal 
    waiver request, aside from instances where a licensee is declared in 
    default, there will be no public notice of a licensee's payment status. 
    The license is cancelled automatically under such circumstances. In 
    contrast, for licensees who have previously filed grace period requests 
    consistent with the Commission's current rules and procedures, the 
    Commission will continue its current practice of making the request 
    public when a decision is released granting or denying the request, 
    except to the extent that any request by the licensee for confidential 
    treatment is granted pursuant to Sec. 0.459 of the Commission's rules. 
    See 47 CFR 0.459. The Commission further clarifies that such licensees 
    are not deemed to be in default on these licenses until such time as 
    the Bureau issues a decision on these grace period requests. Licensees 
    whose requests for a grace period are denied will have ten (10) 
    business days to make the required payment or be considered in default.
    
    Defaults on Installment Payments
    
        84. The Commission will not adopt its tentative conclusion to apply 
    the default provisions of Sec. 1.2104(g) to licensees who default on an 
    installment payment. Most commenters addressing the issue oppose this 
    proposal. For example, Pocket submits that default payments assessed 
    later in the license term become highly arbitrary and unduly 
    burdensome. Pocket also contends that such payments are greater than 
    those traditionally required for secured creditors and create 
    substantial disincentives for investors and creditors who might 
    otherwise be interested in providing financing for licensees. Pocket 
    also notes that any default payment assessed disadvantages a licensee's 
    other creditors, which also makes it more difficult for licensees to
    
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    raise capital. Finally, Pocket states that default payments assessed 
    later in the license term have no deterrent effect as there is no basis 
    to believe that licensees that have paid substantial sums to the 
    Treasury will willingly default. In contrast, AirTouch supports our 
    tentative conclusion that licensees that ultimately fail to fulfill 
    their installment payment obligations despite the availability of a 90-
    day non-delinquency period and a subsequent, automatic 90-day grace 
    period, should be declared in default, and in turn be made subject to 
    the default payments proposed in the Notice.
        85. The Commission has considered the comments of those who oppose 
    the proposed assessment, and find that an additional payment 
    requirement for licensees defaulting on installments is not necessary 
    to achieve our stated objectives. The Commission's current rules and 
    installment payment terms are adequate to discourage defaults and 
    encourage licensees to find private market solutions when they face 
    financial difficulties. The Commission also believes that the rules it 
    adopts providing for a 90-day non-delinquency period followed by a 
    subsequent, automatic 90-day grace period, subject to appropriate late 
    fees of five percent for the 90-day non-delinquency period and 10% for 
    automatic 90-day grace period, payable at the conclusion of these 
    periods serve these goals without substantially risking delays or 
    disruption in service to the public. In particular, the Commission 
    believes that this certainty regarding the Commission's treatment of 
    licensees needing extra time to make their installment payments will 
    increase the likelihood that licensees and potential investors will 
    find solutions to capital problems before a default occurs. The risk of 
    losing its license should provide a licensee a strong incentive to 
    avoid default. If, however, a default does occur, the conditions on the 
    face of each license and the terms of the notes and security agreements 
    executed by licensees provide the Commission appropriate remedies that 
    will ensure that defaulted licenses are returned to the Commission for 
    reauction and that all outstanding debts, as well as the Commission's 
    costs, are recoverable.
    
    Cross Default in the Context of Installment Payments
    
        86. After consideration of the comments in this proceeding, The 
    Commission concludes that it will not pursue a policy of cross default 
    (either within or across services) where licensees default on an 
    installment payment. Because the Commission will eliminate the use of 
    installment payments as a means of financing small business 
    participation in its auction program for the foreseeable future, the 
    Commission notes that in practice this decision will apply only to 
    existing licensees who are currently paying for their licenses in 
    installments.
        87. The Commission's decision not to pursue cross default remedies 
    against current licensees who default on an installment payment is 
    supported by the majority of commenters. For example, Airadigm contends 
    that it is unfair to jeopardize an entire business because of a default 
    on one license. Similarly, ISTA argues for separate treatment of 
    separate services, regardless of ownership, lest a failure in one 
    business cause failure in unrelated businesses. IVDS Enterprises 
    proposes that licensees be able to discontinue installment payments on 
    a particular license and allow that license to be cancelled or revoked. 
    IVDS Enterprises believes that such a decision should not affect the 
    licensee's other licenses, whether in the same or other services, where 
    the licensee has made timely installment payments. Alternatively, 
    Pocket believes that the Commission should reserve the authority to 
    impose cross defaults on a case-by-case basis only for licensees that 
    have demonstrated bad faith.
        88. The Commission recognizes that some commenters strongly 
    advocate a policy of cross defaults in this context. These commenters 
    suggest that such a policy (1) prevents speculation during the auction 
    and cherry-picking (e.g., selectively defaulting on some licenses while 
    keeping others) after the auction concludes, (2) encourages auction 
    participants to find private market solutions to financial shortfalls, 
    and (3) is consistent with commercial lending policies. The Commission 
    believes, however, that the default provisions contained in 
    Sec. 1.2104(g)(2) serve as an adequate incentive to discourage 
    speculation and encourage licensees to pursue non-default solutions to 
    financial difficulties. The Commission also emphasizes that our 
    decision on this matter only addresses default in the context of 
    installment payments, and does not affect our policy with regard to 
    defaults on down payments. In addition, by making licensees who default 
    on an installment payment subject to the default payment set forth in 
    Sec. 1.2104(g)(2), the Commission created an additional deterrent to 
    licensees considering default as a solution to financing shortfalls. 
    The Commission believes that this policy will promote the goals of 
    section 309(j) by not punishing otherwise successful licensees for 
    failures in one market, and will strike an appropriate balance between 
    our conflicting roles as both ``lender'' and ``regulator.'' 
    Accordingly, upon default on an installment payment, a license will 
    automatically cancel without further action by the Commission, the 
    licensee will become subject to the default payment set forth in 
    Sec. 1.2104(g) of our rules, and the Commission will initiate debt 
    collection procedures against the licensee and accountable affiliates. 
    47 CFR 1.2104(g), 1.2110(e)(4)(iii). See also 31 U.S.C. Chapter 37; 4 
    CFR Parts 101-105; 47 CFR Part 1, Subpart O.
    
    VI. Competitive Bidding Design, Procedure, and Timing Issues
    
        89. Balanced Budget Act of 1997 Notice and Comment Procedures. The 
    Commission believes that in the past our service-specific rule making 
    process has served the purpose of adequately ensuring that interested 
    parties have sufficient time to familiarize themselves with the rules 
    and procedures to be employed in an auction prior to the application 
    deadlines and start date of that auction. The Commission nevertheless 
    believes that this legislation requires that the Commission provide an 
    additional opportunity for input from potential bidders prior to the 
    issuance of detailed auction-specific information by the Bureau. To 
    date, the Bureau has served as the primary point of contact with 
    potential bidders and other parties interested in issues relating to 
    each upcoming auction, and this has worked well. In light of the 
    typically time-sensitive nature of most issues arising in the weeks 
    prior to the start of an auction, the Bureau has been equipped to make 
    determinations and respond rapidly to potential bidders' concerns. 
    Consistent with the provisions of the Balanced Budget Act, and to 
    ensure that potential bidders have adequate time to familiarize 
    themselves with the specific provisions that will govern the day-to-day 
    conduct of an auction, the Commission directs the Bureau, under its 
    existing delegated authority, see 47 CFR 0.131(c), 0.331, 0.332, to 
    seek comment on a variety of auction-specific issues prior to the start 
    of each auction.
        90. The Commission directs the Bureau to seek comment on specific 
    mechanisms relating to day-to-day auction conduct including, for 
    example, the structure of bidding rounds and stages, establishment of 
    minimum opening bids or reserve prices, minimum acceptable bids, 
    initial maximum eligibility for each bidder, activity requirements for 
    each stage of the auction, activity rule waivers, criteria for 
    determining reductions in
    
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    eligibility, information regarding bid withdrawal and bid removal, 
    stopping rules, and information relating to auction delay, suspension, 
    or cancellation. The Commission directs the Bureau to afford interested 
    parties a reasonable time, in light of the start date of each auction 
    and relevant pre-auction filing deadlines, to comment on auction-
    specific issues. In this regard, the Commission notes that it has been 
    the Bureau's practice to release the public notice providing details 
    concerning each upcoming auction sufficiently in advance of the short-
    form filing deadline (e.g., 30 days prior to the deadline) to provide 
    interested parties with an opportunity to develop business plans, 
    assess market conditions and evaluate the availability of equipment. 
    Also consistent with previous practice, the Commission recognizes that 
    the Bureau needs the flexibility to announce, at any time in the weeks 
    leading up to the start date of each auction, any minor, non-
    substantive amendments or clarifications to the specific mechanisms set 
    forth in auction-related public notices or the Bidder Information 
    Package. The Commission believes that this process is consistent with 
    the requirements of section 3002(a)(1)(B)(iv) of the Balanced Budget 
    Act, and will afford potential bidders adequate notice, as well as an 
    opportunity to comment on the Bureau's intentions regarding issues 
    relating to the day-to-day conduct of each auction.
        91. ``Real time'' Bidding. The Commission will adopt its proposal 
    in the Notice to allow for ``real time'' bidding as an alternate design 
    methodology in our rules. After careful consideration of the comments 
    received in this proceeding, as well as its experience in conducting 15 
    auctions to date, the Commission concludes that ``real time'' bidding 
    will allow auctions to proceed more rapidly because it will allow 
    bidders immediate feedback on new high bids. The Commission also notes 
    that in an effort to simplify the auction process and prevent 
    ``gaming'' of bids, the Commission has recently modified its electronic 
    bidding process by implementing ``click-box bidding.'' This feature, 
    which replaces the field where bidders previously typed their dollar 
    bid amount with a ``click on check box to bid'' field (where the only 
    bid amount allowed is at the minimum acceptable bid) no longer allows 
    bidders to type a bid amount on the Bid Submission screen. As such, 
    ``click-box bidding'' can work well in a ``real-time'' bidding context 
    because bidders can more rapidly respond to the bids of other bidders, 
    permitting an auction to progress more rapidly and efficiently. The 
    Commission has successfully employed click box bidding in the recently 
    completed 800 MHz SMR auction, and plans to employ it in the 
    forthcoming LMDS auction.
        92. The Commission delegates to the Bureau the authority to 
    determine whether the public interest will be served by ``real time'' 
    bidding in a particular auction. Most commenters oppose the use of 
    ``real time'' bidding, arguing it may be difficult for bidders to react 
    quickly enough to ensure that in each bidding round they make new high 
    bids on the necessary percentage of their bidding eligibility to meet 
    their activity requirement. These commenters also believe that the 
    somewhat accelerated pace of ``real time'' bidding may leave less time 
    to craft informed bidding strategies during the auction.
        93. As mentioned above, the ``click-box bidding'' format should 
    significantly improve a bidder's ability to react quickly. Further, 
    should the Commission determine to employ ``real-time'' bidding in the 
    future, the Commission believes that the issues involving meeting 
    activity requirements will be alleviated by our proposal in the Notice 
    to open a discrete closed bidding period after each fixed period of 
    ``real time'' bidding (when only standing high bids from the previous 
    round and new high bids from the current round count in determining the 
    bidder's activity level). During this closed bidding period, bidders 
    will be able to submit valid bids (bids that meet or exceed the minimum 
    accepted bid) to ensure that they have the opportunity to meet their 
    activity requirements for the round. Following the discrete closed 
    bidding period, the Commission will post the final round results for 
    the period and make all bids available to the public. This discrete 
    period should help to eliminate any risks of not meeting eligibility 
    requirements or having time to formulate bidding strategies which 
    commenters suggest may be associated with ``real time'' electronic 
    bidding. In particular, this period will help to provide bidders 
    sufficient time to meet eligibility requirements and will minimize the 
    risks, suggested by some commenters, of the submission of erroneous 
    bids.
        94. One of the greatest advantages to ``real time'' bidding is that 
    it allows bidders to obtain immediate feedback on new high bids, 
    withdrawn high bids and minimum accepted bids, and thereby provides 
    them with the opportunity to immediately respond to this information 
    and move licenses toward their final valuations more quickly. The 
    Commission believes that, particularly in the case of complex auctions 
    of multiple licenses, it is one means of helping auctions to progress 
    more efficiently. Under the current simultaneous multiple-round auction 
    rules, each round of bidding contains a discrete bidding period during 
    which bidders cannot see the actions of other bidders. Bidders must 
    wait until the end of each round to see the bids placed by other 
    bidders and determine their status as high bidder. In contrast, an 
    open, continuous bidding round--in which bidders know when their bid 
    has been exceeded and are free to bid again--can be used to reduce the 
    delay inherent in the current design where a bidder must wait until the 
    next discrete round to react to the actions of other bidders.
        95. The Commission notes that some commenters express concern that 
    the widespread use of ``real time'' bidding would increase the 
    administrative costs of participating in the auction due to the 
    incentive to stay on-line during the continuous bidding period and 
    thereby work to exclude smaller entities that may lack the resources to 
    devote to a concentrated bidding period or to stay on-line during the 
    entire bidding period. The Commission agrees with commenters that under 
    some circumstances the costs of participating in an auction in which 
    bidders are required to be ``on-line'' may discourage the participation 
    of small businesses. The Commission therefore concludes that the per 
    minute charge for bidding ``on-line'' should be reexamined, and 
    delegate to the Bureau that authority to implement such a reduced fee 
    in the future, if appropriate.
        96. No commenters addressed the Commission's tentative conclusion 
    in that Notice that because ``real time'' auctions are a variation of 
    the simultaneous multiple-round auction design established in our 
    rules, many of the same procedures (i.e., upfront payments to determine 
    eligibility, activity requirements that apply to each round, minimum 
    bid increments, and a stopping rule) should apply. These procedures 
    have proven workable and easily understood by bidders in the context of 
    our simultaneous multiple-round auction design, but some modifications 
    to these procedures may be necessary if the Commission employs ``real 
    time'' bidding. The Commission concludes that the Bureau should 
    undertake this task.
        97. Consistent with section 3002 of the Balanced Budget Act, the 
    Commission directs the Bureau to seek comment from the public on 
    auction-specific issues (i.e., duration of bidding rounds and activity 
    requirements) prior to the start of each auction. The
    
    [[Page 2332]]
    
    Commission believes that this practice of seeking comment on such 
    issues prior to the start of each auction will adequately address any 
    additional concerns associated with the use of ``real time'' bidding. 
    The Commission also notes that it seeks, on an ongoing basis, to 
    enhance and improve our bidding processes. The Commission believes that 
    the Bureau should explore ``real time'' bidding consistent with the 
    requirement under section 309(j) that the Commission experiment with 
    different bidding methodologies. See 47 U.S.C. 309(j)(3).
        98. Combinatorial Bidding. The Commission did not specifically seek 
    comment in the Notice on the use of combinatorial bidding as an auction 
    design methodology. The Commission's current Part 1 rules already 
    provide for the use of combinatorial bidding as one of our competitive 
    bidding design options. See 47 CFR 1.2103(b). In addition, the 
    Commission was directed by Congress in the Balanced Budget Act of 1997 
    to consider the use of combinatorial bidding as an alternative auction 
    design that could be used, in certain instances, as a means of speeding 
    the auction process. Specifically, the Balanced Budget Act requires the 
    Commission, for testing purposes, to design and conduct an auction in 
    which a system of combinatorial bidding is used. Balanced Budget Act; 
    47 U.S.C. 309(j)(3)(i).
        99. The Commission has insufficient information to determine how 
    this relatively new bidding methodology might be used to improve our 
    spectrum auction program. The Commission will seek comment on a number 
    of issues relating to combinatorial bidding, and will more thoroughly 
    address this issue once the record is complete. The Commission has also 
    awarded a research and development contract to a private sector 
    consultant to examine theoretical and applied combinatorial bidding 
    approaches where licenses exhibit strong synergies and bidders have 
    overlapping preferences (i.e., prefer different packages of licenses). 
    The contractor will also evaluate the most appropriate of the 
    theoretical and applied approaches to combinatorial bidding for 
    spectrum auctions and address a number of concerns raised by the 
    Commission and other interested parties. The Commission's goal in 
    awarding the contract is to allow private sector and government auction 
    experts to address these concerns and investigate the possible effects 
    of the use of combinatorial bidding on the auction process, including 
    the Commission's fulfillment of the objectives of Section 309(j) of the 
    Communications Act.
        100. Minimum Opening Bids and Reserve Prices. Several commenters 
    oppose the use of minimum opening bids. However, the Balanced Budget 
    Act establishes a presumption in favor of a required minimum opening 
    bid or reserve price. Balanced Budget Act, section 3002(a)(1)(C)(iii). 
    The Commission therefore adopts its proposal in the Notice to delete 
    the term ``suggested'' from Sec. 1.2104(d). The Commission also 
    clarifies that the Bureau has the authority to seek comment on minimum 
    opening bids and reserve prices and to establish such mechanisms for 
    each auction, consistent with its role in managing the auction process 
    and setting valuations for other purposes (e.g., setting upfront 
    payment amounts). The Bureau shall establish a minimum opening bid and/
    or reserve price for each auction, unless, after comment is sought 
    prior to a particular auction, it is determined that a minimum opening 
    bid or reserve price would not be in the public interest.
        101. The terms ``minimum opening bid'' and ``reserve price'' are 
    traditionally different, and are employed for different purposes. A 
    reserve price is defined as an absolute minimum price below which an 
    auctioneer will not sell an object being auctioned. It may be disclosed 
    to bidders before an auction or during an auction, or it may be kept 
    secret, so that a ``winning'' bidder does not actually find out if the 
    object has been won until after the auction has closed. Auctioneers 
    generally employ reserve prices to order to maximize the revenue earned 
    from an auction. A minimum bid is a minimum value below which bids will 
    not be accepted in the first round of an auction. The level of a 
    minimum opening bid is not unchangeable like a reserve price, but may 
    be reduced at the discretion of the auctioneer if no bids are made at 
    the existing level. The primary purpose of a minimum opening bid is to 
    speed up the course of an auction. However, a minimum bid also can 
    serve as a revenue-enhancing function like a reserve price, because if 
    bids will not be accepted below a certain level, they will also not be 
    sold below that level. That is, a minimum opening bid effectively 
    functions as a reserve price unless or until it is reduced. Regarding 
    the level of reserves or minimum bids, the Commission does not believe 
    that the Balanced Budget Act provision means that it should now be 
    attempting to maximize the revenue earned in all future spectrum 
    license auctions. The other auction goals in the Act, such as ensuring 
    the deployment and rapid deployment of new technologies and services 
    and promoting economic opportunity and competition (see 47 U.S.C. 
    309(j)(3)) have not been eliminated, and the Commission must continue 
    to balance and pursue them all. Therefore, the Commission concludes 
    that the new provision does not call for traditional reserve prices. 
    Rather, it calls for an added protection that licenses will not be 
    assigned at unacceptably low prices.
        102. The Commission believes that the Bureau should have the 
    discretion to employ either or both of these mechanisms for future 
    auctions. The Commission directs the Bureau to seek comment on the use 
    of a minimum opening bid and/or reserve price, as it will do for a 
    variety of auction-specific issues, prior to each auction. In addition, 
    the Bureau should seek comment on the methodology to be employed in 
    establishing each of these mechanisms. Among other factors, the Bureau 
    should consider the amount of spectrum being auctioned, levels of 
    incumbency, the availability of technology to provide service, the size 
    of the geographic service areas, issues of interference with other 
    spectrum bands, and any other relevant factors that could reasonably 
    have an impact on valuation of the spectrum being auctioned.
        103. Maximum Bid Increments. Several commenters suggest that jump 
    bidding is not a problem of serious concern. Some theoretical 
    literature, however, suggests that bidders could use jump bidding to 
    manipulate the auction process and potentially reduce efficiency of the 
    auction. For example, a general principle of auction theory is that the 
    auction mechanisms that perform the best are those which are able to 
    induce bidders to reveal the most information. To the extent that jump 
    bids enable bidders to conceal information, the phenomenon moves us 
    away from the informational advantages of an ascending bid (multiple 
    round) auction in the direction of a first-price sealed bid (single 
    round) auction. As ISTA recognizes, jump bidding can complicate bidding 
    strategy and deny bidders information about the number of bidders who 
    would be willing to pay prices between the minimum acceptable bid and 
    the jump bid. In the absence of information about the bidders who would 
    be willing to participate at intermediate bids, other bidders may feel 
    compelled to shade their bids more than they would otherwise. This 
    behavior is an attempt to avoid the ``winner's curse,'' that is, the 
    tendency for the winner to be the bidder who most overestimates the 
    value of the item being auctioned.
    
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        104. As an initial matter, the Commission notes that recent changes 
    designed to improve the Commission's electronic auction bidding process 
    eliminate the dangers that a maximum bid increment is designed to avoid 
    (e.g., jump bidding). In an effort to speed the auction process and 
    eliminate unwarranted ``gaming'' of our processes, the Commission has 
    simplified the electronic auction bidding process by implementing 
    ``click-box bidding.'' As discussed above, this feature permits bidders 
    to enter a bid only at the maximum bid increment as determined by the 
    Commission, and thus makes bidding tactics such as jump bidding 
    impossible. Nevertheless, the Commission will reserve the discretion to 
    employ a maximum bid increment should it return to an auction format in 
    which jump bidding can in any way decrease the competitiveness of an 
    auction. In this regard, the Commission disagrees with NextWave's 
    suggestion that by disallowing jump bids as one method by which bidders 
    may obtain information about each other the Commission risks prolonging 
    an auction. On the contrary, the Commission has alternate methods 
    (e.g., ``click-box bidding,'' employing minimum bid increments and 
    activity rules and increasing the number of rounds per day) to ensure 
    that auctions close within a reasonable time.
        105. Bid Withdrawal Payments. As discussed above, the Commission 
    recently implemented ``click-box bidding'' in an effort to improve the 
    auction process and eliminate erroneous bids. The Commission also 
    recently modified the electronic bidding format to limit withdrawals. 
    As a result of such changes, the types of erroneous bids discussed in 
    the Notice cannot occur under our new bidding format. The Commission 
    therefore concludes that its proposal regarding decreased bid 
    withdrawal payments in cases of erroneous bids is moot.
        106. Misuse of Bid Withdrawals. Several commenters oppose the 
    Commission's proposal to place limits on bid withdrawals in certain 
    circumstances as a means of avoiding strategic withdrawals that are 
    intended for anti-competitive purposes. Both AT&T and Merlin argue that 
    the ability to withdraw bids is critical to a bidder's auction 
    strategy. While they recognize the difficulty in determining the true 
    intent behind a withdrawn bid, these commenters suggest that the 
    Commission continue to monitor each auction carefully, and address 
    abusive behavior on a case-by-case basis. Similarly, PageNet states 
    that the Commission should not limit bid withdrawals as they are 
    critical to providing applicants with the flexibility to correct bids 
    that are placed in error and to quickly change bidding strategy. 
    PageNet contends that concerns about strategic withdrawals intended to 
    produce anti-competitive results are not sufficient to eliminate the 
    bidding flexibility that bid withdrawals provide. Finally, AirTouch 
    suggests that the Commission permit bid withdrawals at any time, 
    subject to certain conditions. In particular, AirTouch recommends that: 
    (1) All bid withdrawals should be subject to applicable bid withdrawal 
    payments; (2) a bidder withdrawing a bid should not be permitted to 
    regain eligibility on any bidding units lost as a result of the 
    withdrawal; and (3) the high bidder in the round prior to the withdrawn 
    bid should be permitted to bid again on the license, and to reacquire 
    eligibility for bidding units necessary to resubmit the new bid.
        107. In contrast, NextWave supports a limitation on bid 
    withdrawals. NextWave states that bid withdrawals are a necessary tool, 
    but in some instances, bid withdrawals are used for insincere bidding 
    designed to ``game'' the auction. To protect against such misuse, 
    NextWave proposes, for example, that the Commission create a fourth 
    stage of the auction, during which a bidder who has withdrawn from a 
    particular market would be prohibited from re-bidding in the same 
    market. In the past, the Commission has recognized that allowing bid 
    withdrawals facilitates efficient aggregation of licenses and pursuit 
    of efficient backup strategies as information becomes available during 
    the course of an auction. Nevertheless, the Commission also has 
    recognized that bidders may, in some instances, seek to remove bids for 
    improper purposes, such as to delay the close of the auction for 
    strategic purposes. For this reason, the Bureau has traditionally 
    retained the discretion to limit withdrawals as part of the management 
    of an auction. To prevent strategic delays to the close of the auction, 
    or other abuses, the Bureau should exercise its discretion assertively. 
    In addition, the Bureau should consider limiting the number of rounds 
    in which bidders may withdraw bids, and to prevent bidders from bidding 
    on a particular market if the Bureau finds that a bidder is abusing the 
    Commission's bid withdrawal procedures. These are among the types of 
    issues on which the Bureau will seek comment prior to the start of each 
    future auction.
        108. Reauction Versus Offering to Second Highest Bidder. The 
    Commission will modify Sec. 1.2109(b) to reserve the discretion to 
    either reauction a defaulted license or offer it to the other highest 
    bidders (in descending order) at their final bids. 47 CFR 1.2109(b). 
    Several commenters support the reauction of defaulted licenses because 
    it helps to ensure that the price paid for a license is the current 
    price, rather than the price that was applicable at the time the 
    original auction occurred. Only two commenters oppose reauction in all 
    circumstances. Airadigm and AMTA oppose providing the Commission with 
    the discretion to reauction defaulted licenses because they believe 
    that awarding licenses to the next highest bidder will be faster than 
    reauctioning. However, as the Commission stated in the Notice, the 
    Commission has developed a computerized auction system and conducted 
    numerous auctions and now believes that the costs of a reauction, even 
    for a small number of relatively low value licenses, is generally 
    minimal. The Commission also believes that the planned use of regularly 
    scheduled quarterly auctions will ensure rapid reauction.
        109. Further, the Commission notes that re-offering a defaulted 
    license to the next highest bidder (in descending order) at their final 
    bids may not ensure that the license will be awarded to the bidder who 
    values it the most highly. In particular, as the license is offered to 
    bidders at the next highest bids, other parties can argue that they 
    would pay more for the license if given the opportunity. In addition, 
    when more than one license is being auctioned, aggregation strategies 
    may shift during the course of the auction, affecting the value placed 
    on any individual license by a particular bidder. As the Commission 
    discussed in the Notice, when it first adopted rules governing the 
    licensing of defaulted licenses, the Commission stated that ``[i]n the 
    event that a winning bidder in a simultaneous multiple-round auction 
    defaults on its down payment obligations, the Commission will generally 
    reauction the license either to existing or new applicants.'' Noting 
    that in some circumstances the costs of conducting a reauction may not 
    always be justified, the Commission reserved the discretion in cases in 
    which the winning bidder defaults on its down payment obligation to 
    offer a defaulted license to the highest losing bidders (in descending 
    order of their bids) at their final bids if ``only a small number of 
    relatively low value licenses are to be reauctioned * * *.''
        110. Nextel and others suggest that the Commission should retain 
    the discretion to award defaulted licenses to
    
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    the next highest bidder only when the default occurs soon after the 
    close of the auction and there has been no opportunity for parties to 
    file petitions to deny. Nextel suggests that in such an instance, there 
    is little risk of a significant change in market price, and no risk of 
    encouraging frivolous petitions to deny. The Commission is aware of the 
    dangers of adopting a rule which could have the unfortunate consequence 
    of encouraging the filing of frivolous petitions to deny. Nevertheless, 
    the Commission believes that by reserving the discretion to either 
    reauction defaulted licenses or award them to the next highest bidder, 
    the Commission will be in the best possible position to determine which 
    option serves the public interest in each particular situation.
    
    VII. Anti-Collusion Rules
    
        111. The Commission has taken this opportunity in revisiting our 
    general competitive bidding procedures to examine the effectiveness of 
    the anti-collusion rule in the 15 auctions the Commission has conducted 
    to date. The Commission continues to believe that its anti-collusion 
    rules are necessary to deter bidders from engaging in anti-competitive 
    behavior. Nevertheless, after careful review of the comments received 
    in this proceeding, the Commission has determined that some 
    modifications to Sec. 1.2105(c) can be made which will benefit bidders 
    in several respects, without jeopardizing the competitiveness and 
    overall integrity of our auction program.
        112. In the Collusion MO&O, the Commission revisited the anti-
    collusion rules prior to the start of the PCS auctions, and concluded 
    that allowing holders of non-controlling attributable interests in an 
    applicant greater flexibility to form agreements with other applicants 
    would help applicants to acquire the additional capital necessary to 
    bid successfully for licenses. See Implementation of Section 309(j) of 
    the Communications Act--Competitive Bidding, WT Docket No. 93-253, 
    Memorandum Opinion and Order, 59 FR 64159 (December 13, 1994) 
    (``Collusion MO&O''). The Commission therefore created an exception to 
    the general rule contained in Sec. 1.2105 to permit a holder of a non-
    controlling attributable interest in one applicant for a particular 
    license or licenses to obtain ownership interests in or enter into 
    consortium arrangements with a second applicant for a license in the 
    same geographic service area. See 47 CFR 1.2105(c)(4). The attributable 
    interest holder must certify to the Commission that it has observed and 
    will observe certain restrictions on communication concerning the 
    applicants in which it holds an attributable interest or with which it 
    has entered into a bidding arrangement.
        113. After considering the comments filed in response to our 
    proposals in the Notice, the Commission has decided to adopt a second 
    exception to our general rules prohibiting collusion. See 47 CFR 
    1.2105(c). Specifically, the Commission will permit a holder of a non-
    controlling attributable interest in an applicant to obtain an 
    ownership interest in or enter into a consortium arrangement with 
    another applicant for a license in the same geographic area provided 
    that the original applicant has withdrawn from the auction, is no 
    longer placing bids, and has no further eligibility. To meet the 
    requirements of this exception, the attributable interest holder will 
    be required to certify to the Commission that it did not communicate 
    with the new applicant prior to the date the original applicant 
    withdrew from the auction, and that it will not convey bidding 
    information, or otherwise serve as a nexus between the previous 
    applicant and the new applicant. As stated in the Notice, this 
    additional exception will further facilitate the flow of capital to 
    auction applicants by encouraging, and providing the flexibility 
    necessary for, non-controlling investors to invest in other auction 
    applicants if their original applicant fails to complete the auction. 
    The majority of commenters addressing this proposal agree that it will 
    encourage investment in auction applicants without threatening the 
    overall competitiveness of the auction process.
        114. Only Nextel and PageNet oppose this exception, citing the 
    potential for collusive activity when an investor in an applicant that 
    has chosen to withdraw from the auction explores possible investments 
    in other applicants, thus learning bidding strategies of multiple 
    auction participants. In addition, PageNet contends that this exception 
    could encourage speculation which would threaten the integrity of the 
    auction process and ultimately result in lower prices paid for the 
    spectrum. However, after balancing these factors, the Commission 
    believes that the benefits of this certification requirement, in 
    particular the likelihood that auction applicants will be able to 
    attract increased investment, exceed any possible disadvantages. The 
    Commission requires that auction applicants certify to the truthfulness 
    and accuracy of a number of issues on their Form 175 applications, and 
    to make minor amendments when necessary. The Commission believes that 
    applicants are no more likely to make false certifications about the 
    exception which the Commission adopts today than about other 
    information on the form. As discussed infra, the Commission also 
    reminds prospective applicants that the Commission will conduct a 
    detailed investigation in the event it becomes aware of a possible 
    violation of the anti-collusion rule, and that violations may result in 
    the loss of the down payment or full bid amount, the cancellation of 
    licenses, and preclusion from participation in future auctions.
        115. Commenters in both the Paging proceeding and in this 
    proceeding support the creation of a safe harbor for discussions of 
    certain non-auction related business matters between applicants for the 
    same license areas. In general, these commenters argue that (1) the 
    Commission's anti-collusion rules cause unnecessary confusion in their 
    current form, (2) the purposes of the anti-collusion rules would not be 
    threatened by such a safe harbor, and (3) existing antitrust laws and 
    policies will adequately accomplish the goal of protecting the 
    competitiveness of the bidding process. As the auction program has 
    evolved, the Commission has continued to refine and clarify for bidders 
    the operation and impact of the anti-collusion rule upon bidder conduct 
    during the course of an auction. Prior to the start of the broadband 
    PCS D, E and F block auction, the Bureau received numerous inquiries 
    concerning the impact of these rules upon business contacts between 
    current broadband PCS licensees and auction winners and eligible 
    participants in the ongoing broadband PCS D, E and F Block auction. In 
    response to these inquiries, the Bureau released a Public Notice 
    providing guidance on these business negotiations in the context of our 
    anti-collusion rules. The Bureau emphasized that Sec. 1.2105(c) may 
    affect the way in which auction applicants conduct their routine 
    business during an auction by placing significant limitations upon 
    their ability to pursue business opportunities involving services in 
    the geographic areas for which they have applied to bid for licenses. 
    These interpretations have provided sufficient guidance concerning the 
    types of non-auction related communications which are permitted under 
    Sec. 1.2105(c), and the Commission therefore declines to create such a 
    safe harbor.
        16. The Commission affirms the Bureau's interpretation of this 
    aspect of the anti-collusion rule. As a general matter, the anti-
    collusion rule does not prohibit non auction-related business
    
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    negotiations between auction applicants who have applied for the same 
    geographic service areas. The Commission cautions auction applicants, 
    however, that discussions concerning, but not limited to, issues such 
    as management, resale, roaming, interconnection, partitioning and 
    disaggregation may all raise impermissible subject matter for 
    discussion because they may convey pricing information and bidding 
    strategy. Because auction applicants should avoid all discussions with 
    each other that will likely affect bids or bidding strategies, the 
    Commission believes that individual applicants, and not the Commission, 
    are in the best position to determine in the first instance which 
    communications are permissible and which are not.
        117. As discussed above, the Notice also invited comment on any 
    other changes to our rules prohibiting collusion that commenters 
    believe are warranted. Section 1.2105(c)(6)(i) of the Commission's 
    rules provide that, for purposes of the anti-collusion rule, an 
    applicant is defined as an entity submitting a short-form application, 
    as well as all holders of partnership, ownership, and any stock 
    interest amounting to five percent or more of the entity. 47 CFR 
    1.2105(c)(6)(i). One commenter, the Coalition of Institutional 
    Investors (``CII''), states that defining any holder of five percent or 
    more of an auction applicant as part of the applicant for purposes of 
    the Commission's anti-collusion rules unnecessarily restricts 
    applicants' abilities to obtain financing from a variety of sources. 
    After careful consideration of the issue, the Commission agrees with 
    CII. Therefore, the Commission will increase the attribution standard 
    contained in Sec. 1.2105(c)(6)(i) to 10 percent, or any holder of a 
    controlling interest in the applicant.
        118. A higher attribution standard will facilitate the flow of 
    capital to applicants by enabling parties to make investments in 
    multiple applicants, including applicants for licenses in the same 
    geographic areas. The Commission's decision to use an attribution 
    threshold of 10 percent is consistent with the change the Commission 
    makes to the general reporting requirement. The Commission recognizes 
    that some potential for collusion exists whenever an entity is 
    permitted to hold an interest in more than one applicant for licenses 
    in the same geographic service area. However, the Commission 
    reemphasizes that auction applicants and their owners continue to be 
    subject to existing antitrust laws, and that conduct that is 
    permissible under the Commission's rules may be prohibited by the 
    antitrust statute. In addition, the Commission reminds prospective 
    auction participants it will continue to scrutinize carefully any 
    instances in which bidding patterns suggest that collusion may be 
    occurring.
        119. Finally, the Commission reemphasizes that the Commission will 
    aggressively investigate any allegations that an auction participant 
    has violated Sec. 1.2105(c). Bidders who are found to have violated the 
    Commission's anti-collusion rules may, among other sanctions, be 
    subject to the loss of their down payment or their full bid amount, 
    face the cancellation of their licenses, and may be prohibited from 
    participating in future auctions. In addition, where allegations appear 
    to give rise to violations of the federal antitrust laws, the 
    Commission may investigate and/or refer such cases to the United States 
    Department of Justice for investigation.
    
    VIII. Pre-grant Construction
    
        120. The Commission will adopt its proposal in the Notice to permit 
    applicants for all licenses awarded by competitive bidding to begin 
    construction of facilities prior to the grant of their applications. 
    All commenters addressing the issue support our proposal to permit 
    license applicants to begin construction of their facilities, at their 
    own risk, upon release of a public notice announcing the acceptance for 
    filing of post-auction long-form applications. These commenters agree 
    that allowing pre-grant construction furthers the statutory objective 
    of rapidly deploying new technologies, products, and services for the 
    benefit of the public. 47 U.S.C. 309(j)(3)(A).
        121. Commenters also support our proposal to permit license 
    applicants with petitions to deny filed against their long-form 
    applications to begin construction of their facilities at the same time 
    as license applicants whose licenses are not the subject of pending 
    petitions to deny. While the Commission's current service-specific 
    rules require as a condition for pre-grant construction no pending 
    petitions to deny, the Commission concludes that the merits of 
    petitions to deny may be judged by an applicant and factored into its 
    assessment of the risk of proceeding with construction before license 
    grant. The Commission therefore adopts a pre-grant construction rule 
    for all services subject to competitive bidding that permits 
    construction by applicants that are subject to petitions to deny. Of 
    course, pre-grant construction will be subject to any service-related 
    restrictions, including but not limited to antenna restrictions, 
    environmental requirements, and international coordination. Any 
    applicant engaging in pre-grant construction activity does so entirely 
    at its own risk, and the Commission will not take such activity into 
    account in ruling on any petition to deny. Finally, the Commission 
    notes that it expects its licensing process to be more rapid generally 
    in light of the shortened petition to deny period permitted by the 
    Balanced Budget Act. Balanced Budget Act, section 3008.
    
    IX. Conclusion
    
        122. Based on the experience the Commission has gained from its 15 
    completed auctions, as well as the feedback it has received from 
    bidders, the Commission believes the time has come to streamline its 
    competitive bidding rules in order to make our licensing process more 
    efficient. In the past, the Commission has adjusted its auction 
    procedures for different services and has gained experience with the 
    process, resulting in the adoption of different procedures for 
    different auctionable services. This Third Report and Order amends 
    subpart Q of part 1 of the Commission's rules to reflect substantive 
    amendments and modifications intended to simplify these regulations, 
    supersede unnecessary rules wherever possible, and eliminate the need 
    to conduct separate, comprehensive rule making proceedings prior to 
    each auction. The Commission believes that the rules it adopts today 
    will benefit bidders and the auction process generally. The Commission 
    also believes these rules will help to provide more specific guidance 
    and flexibility on a number of issues that will increase the overall 
    effectiveness of our auctions.
    
    X. Final Regulatory Flexibility Analysis
    
        123. As required by the Regulatory Flexibility Act (RFA), 5 U.S.C. 
    603, the Commission has prepared a Final Regulatory Flexibility 
    Analysis (FRFA) of the expected impact on small entities of the rules 
    adopted in the Third Report and Order. The Commission will send a copy 
    of the Third Report and Order, including this FRFA, to the Chief 
    Counsel for Advocacy of the Small Business Administration. (In 
    addition, the Third Report and Order and FRFA (or summaries thereof) 
    will be published in the Federal Register.) As required by the 
    Regulatory Flexibility Act (RFA), an Initial Regulatory Flexibility 
    Analysis (IRFA) was incorporated in the Notice of Proposed Rulemaking 
    in WT Docket No. 97-82.
    
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    See 5 U.S.C. 604. The RFA is codified at 5 U.S.C. 601 et seq. See also, 
    Amendment of Part 1 of the Commission's Rules--Competitive Bidding 
    Proceeding, WT Docket No. 97-82, Order, Memorandum Opinion and Order, 
    and Notice of Proposed Rulemaking, 62 FR 13570 (March 21, 1997). The 
    Commission sought written public comment on the proposals in the Notice 
    of Proposed Rulemaking, including comment on the IRFA. This Final 
    Regulatory Flexibility Analysis (FRFA) in this Third Report and Order 
    (Order) conforms to the RFA, as amended by the Contract With America 
    Advancement Act of 1996 (CWAAA), Pub. L. 104-121, 110 Stat. 847 (1996).
    
    A. Need for, and Objectives of, the Order in WT Docket No. 97-82
    
        124. This Order makes substantive amendments and modifications to 
    the Commission's general competitive bidding rules for all auctionable 
    services. These changes to the competitive bidding rules are intended 
    to simplify the Commission's rules and regulations and eliminate 
    unnecessary rules wherever possible, increase the efficiency of the 
    competitive bidding process, and provide more specific guidance to 
    auction participants while also giving them more flexibility.
    
    B. Summary of Significant Issues Raised by Public Comments in Response 
    to the IRFA
    
        125. One party, Merlin Telecom, Inc. (Merlin), filed comments 
    directly in response to the IRFA. Merlin raises six arguments:
        (1) Merlin urges the Commission not to impose additional reporting 
    requirements or additional fees on applicants seeking installment 
    payments. In this Order, the Commission concludes that installment 
    payments should not be offered in auctions as a means of financing 
    small businesses and other designated entities seeking to secure 
    spectrum licenses. The Commission eliminates installment payments in 
    the auction of the lower 80 and General Category channels in the 800 
    MHz SMR service. The Commission notes that installment payments are not 
    the only tool available to assist small businesses. Section 3007 of the 
    Balanced Budget Act requires that the Commission conduct certain future 
    auctions in a manner that ensures that all proceeds from such bidding 
    are deposited in the U.S. Treasury not later than September 30, 2002. 
    The Commission seeks comment in the Further Notice on offering 
    installment payments in the future; however, section 3007 of the 
    Balanced Budget Act may require that these auctions be conducted 
    without offering long-term installment payments. Thus, there probably 
    will be no reporting requirements or fees for future installment 
    payments.
        (2) Merlin contends that including past affiliates in the proposed 
    new definition of affiliate would require small businesses to keep more 
    extensive records and would be unduly burdensome. This Order adopts a 
    uniform definition of ``affiliate'' for all future auctions. The term 
    ``affiliate'' is defined in the Part 1 rules as an individual or entity 
    that directly or indirectly controls or has the power to control the 
    applicant; is directly or indirectly controlled by the applicant; is 
    directly or indirectly controlled by a third person(s) that also 
    controls or has the power to control the applicant; or has an 
    ``identity of interest'' with the applicant. The Commission concludes 
    that this definition has helped to ensure that businesses seeking small 
    business status are truly small. In addition, the Commission finds that 
    this definition is consistent with the decision to adopt a controlling 
    interest threshold for purposes of attribution of gross revenues of 
    investors and affiliates of an applicant.
        (3) Merlin argues that the Commission's proposal to lower the 
    financial caps which permit small businesses to take advantage of 
    special benefits would limit the number of small businesses eligible 
    for benefits and thus increase the barriers to entry that small 
    businesses face. This Order adopts the proposal in the Notice to 
    continue to define small businesses based on the characteristics and 
    capital requirements of a specific service, in order to reduce the 
    barriers to entry faced by small businesses.
        (4) Merlin argues that the Commission's proposals to reduce bidding 
    credits, raise the interest rate on installment payments, raise down 
    payments, and eliminate installment payments will have a negative 
    effect on the ability of small businesses to compete effectively in the 
    telecommunications industry. In this Order, the Commission concludes 
    that installment payments should not be offered in auctions as a means 
    of financing small businesses and other designated entities seeking to 
    secure spectrum licenses. In the Further Notice, the Commission seeks 
    comment on offering installment payments in the future; however, 
    section 3007 of the Balanced Budget Act may require that these auctions 
    be conducted without offering long-term installment payments. In light 
    of the decision to suspend installment payment financing for the near 
    future, the Commission determined that higher bidding credits would 
    better fulfill the mandate of section 309(j)(4)(D) of the 
    Communications Act to provide small businesses the opportunity to 
    participate in spectrum-based services. Therefore, the Commission 
    adopts bidding credits of 35 percent for designated entities with 
    average gross revenues not to exceed $3 million, 25 percent for 
    designated entities with average gross revenues not to exceed $15 
    million, and 15 percent for designated entities with average gross 
    revenues not to exceed $40 million. With respect to down payments, the 
    Commission adopts the proposal in the Notice to delegate to the Bureau 
    the discretion to determine the down payment amount on a service-by-
    service basis. The Commission believes that a substantial down payment 
    is required to ensure that licensees have the financial capability to 
    attract the capital necessary to deploy and operate their systems and 
    to protect against default.
        (5) Merlin argues that the proposal to require auction winners to 
    pay their second down payment regardless of a pending petition to deny 
    would increase the defaults by small businesses. In this Order, the 
    Commission is suspending the use of installment payments as a means of 
    financing small business participation in the auction program for the 
    immediate future. As a result, all auction winners, including small 
    businesses, will be required to submit the full payment owed on their 
    winning bids shortly after the license is ready to be granted. The 
    Commission notes that in the Balanced Budget Act Congress granted the 
    Commission authority to shorten the petition to deny period, and as a 
    result, to grant licenses much more rapidly. Sections 1.2108 (b) and 
    (c) of the rules are amended to provide that the Commission shall not 
    grant a license less than seven days after public notice that long-form 
    applications have been accepted for filing. In addition, the Commission 
    amends this section to provide that in all cases the period for filing 
    petitions to deny shall be no shorter than five days. Applications that 
    are the subject of petitions to deny will ordinarily take longer to 
    resolve than uncontested applications, these changes in procedure will 
    reduce the risk of frivolous petitions being filed solely for the 
    purpose of delay and will enhance the Commission's ability to resolve 
    petitions expeditiously. The Commission declines to require all winning 
    bidders to make their full payments at the same time regardless of
    
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    whether petitions to deny their applications have been filed.
        (6) Finally, Merlin contends that the Commission should not adopt a 
    cross-default rule. In this Order, the Commission concludes that it 
    will not pursue a policy of cross-default (either within or across 
    services) where licensees default on an installment payment. The 
    Commission is eliminating the use of installment payments as a means of 
    financing small business participation in the auction program for the 
    foreseeable future. Therefore, in practice this decision will apply 
    only to existing licensees who are currently paying for their licenses 
    in installments.
    
    C. Description and Estimate of the Number of Small Entities to Which 
    Rules Will Apply
    
        126. The RFA directs agencies to provide a description of, and, 
    where feasible, an estimate of the number of small entities that will 
    be affected by our rules. The RFA generally defines the term ``small 
    entity'' as having the same meaning as the terms ``small business,'' 
    ``small organization,'' and ``small governmental jurisdiction.'' A 
    small organization is generally ``any not-for-profit enterprise which 
    is independently owned and operated and is not dominant in its field.'' 
    Nationwide, there are 275,801 small organizations. ``Small governmental 
    jurisdiction'' generally means ``governments of cities, counties, 
    towns, townships, villages, school districts, or special districts, 
    with a population of less than 50,000.'' As of 1992, there were 85,006 
    such jurisdictions in the United States.
        127. In addition, the term ``small business'' has the same meaning 
    as the term ``small business concern'' under Section 3 of the Small 
    Business Act. Under the Small Business Act, a ``small business 
    concern'' is one which: (1) Is independently owned and operated; (2) is 
    not dominant in its field of operation; and (3) meets any additional 
    criteria established by the Small Business Administration (SBA).
        128. The rules adopted in this Order will allow all entities, 
    including existing cellular, PCS, paging, and other small 
    communications entities, to obtain licenses in auctionable services 
    through competitive bidding. These rules generally apply to future 
    auctions, but, with limited exceptions, will not apply to the initial 
    auctions of licenses in the paging, 220 MHz, 800 MHz Specialized Mobile 
    Radio (SMR), and Local Multipoint Distribution (LMDS) services. In 
    estimating the number of small entities who may participate in future 
    auctions of wireless services, the Commission anticipates that current 
    wireless services licensees are representative of future auction 
    participants. The following is our estimate of the number of small 
    entities who are current wireless licensees:
    
    Estimates for Cellular Licensees
    
        The Commission has not developed a definition of small entities 
    applicable to cellular licensees. Therefore, the applicable definition 
    of small entity is the definition under the Small Business 
    Administration (SBA) rules applicable to radiotelephone companies. This 
    definition provides that a small entity is a radiotelephone company 
    employing no more than 1,500 persons. The size data provided by the SBA 
    does not enable us to make a meaningful estimate of the number of 
    cellular providers which are small entities because it combines all 
    radiotelephone companies with 500 or more employees. The 1992 Census of 
    Transportation, Communications, and Utilities, conducted by the Bureau 
    of the Census, is the most recent information available. This document 
    shows that only 12 radiotelephone firms out of a total of 1,178 such 
    firms which operated during 1992 had 1,000 or more employees. 
    Therefore, even if all 12 of these firms were cellular telephone 
    companies, nearly all cellular carriers were small businesses under the 
    SBA's definition. The Commission assumes, for purposes of its 
    evaluations and conclusions in this FRFA, that all of the current 
    cellular licensees are small entities, as that term is defined by the 
    SBA. In addition, the Commission notes that there are 1,758 cellular 
    licenses; however, the Commission does not know the number of cellular 
    licensees, since a cellular licensee may own several licenses. The most 
    reliable source of information regarding the number of cellular service 
    providers nationwide appears to be data the Commission publishes 
    annually in its Telecommunications Industry Revenue report, regarding 
    the Telecommunications Relay Service (TRS). The report places cellular 
    licensees and Personal Communications Service (PCS) licensees in one 
    group. According to the data released in November, 1997, there are 804 
    companies reporting that they engage in cellular or PCS service. 
    Although it seems certain that some of these carriers are not 
    independently owned and operated, or have more than 1,500 employees, 
    the Commission is unable at this time to estimate with greater 
    precision the number of cellular service carriers that would qualify as 
    small business concerns under the SBA's definition. Consequently, the 
    Commission estimates that there are fewer than 804 small cellular 
    service carriers.
    
    Estimates for Broadband and Narrowband PCS Licensees
    
        Broadband PCS. The broadband PCS spectrum is divided into six 
    frequency blocks designated A through F. The Commission has defined 
    ``small entity'' in the auctions for Blocks C and F as a firm that had 
    average gross revenues of less than $40 million in the three previous 
    calendar years. This definition of ``small entity'' in the context of 
    broadband PCS auctions has been approved by the SBA. The Commission has 
    auctioned broadband PCS licenses in Blocks A through F. Of the 
    qualified bidders in the C and F block auctions, all were 
    entrepreneurs--defined for these auctions as entities together with 
    affiliates, having gross revenues of less than $125 million and total 
    assets of less than $500 million at the time the FCC Form 175 
    application was filed. Ninety bidders, including C block reauction 
    winners, won 493 C block licenses and 88 bidders won 491 F block 
    licenses. For purposes of this FRFA, the Commission assumes that all of 
    the 90 C block broadband PCS licensees and 88 F block broadband PCS 
    licensees, a total of 178 licensees, are small entities.
        Narrowband PCS. The Commission has auctioned nationwide and 
    regional licenses for narrowband PCS. There are 11 nationwide and 30 
    regional licensees for narrowband PCS. The Commission does not have 
    sufficient information to determine whether any of these licensees are 
    small businesses within the SBA-approved definition for radiotelephone 
    companies. At present, there have been no auctions held for the major 
    trading area (MTA) and basic trading area (BTA) narrowband PCS 
    licenses. The Commission anticipates a total of 561 MTA licenses and 
    2,958 BTA licenses will be awarded in the auctions. Given that nearly 
    all radiotelephone companies have no more than 1,500 employees, and 
    that no reliable estimate of the number of prospective MTA and BTA 
    narrowband licensees can be made, the Commission assumes, for purposes 
    of this FRFA, that all of the licenses will be awarded to small 
    entities, as that term is defined by the SBA.
    
    Estimates for 220 MHz Radio Services
    
        Since the Commission has not yet defined a small business with 
    respect to 220 MHz radio services, it will utilize the SBA definition 
    applicable to radiotelephone companies--an entity employing no more 
    than 1,500 persons.
    
    [[Page 2338]]
    
    With respect to the 220 MHz services, the Commission has proposed a 
    two-tiered definition of small business for purposes of auctions: (1) 
    For Economic Area (EA) licensees, a firm with average annual gross 
    revenues of not more than $6 million for the preceding three years; and 
    (2) for regional and nationwide licensees, a firm with average annual 
    gross revenues of not more than $15 million for the preceding three 
    years. Since this definition has not yet been approved by the SBA, the 
    Commission will utilize the SBA definition applicable to radiotelephone 
    companies. Given that nearly all radiotelephone companies employ no 
    more than 1,500 employees, the Commission will consider the 
    approximately 3,800 incumbent licensees as small businesses under the 
    SBA definition.
    
    Common Carrier Paging
    
        The Commission has proposed a two-tier definition of small 
    businesses in the context of auctioning geographic area paging licenses 
    in the Common Carrier Paging and exclusive Private Carrier Paging 
    services. Under the proposal, a small business will be defined as 
    either (1) an entity that, together with its affiliates and controlling 
    principals, has average gross revenues for the three preceding years of 
    not more than $3 million; or (2) an entity that, together with 
    affiliates and controlling principals, has average gross revenues for 
    the three preceding calendar years of not more than $15 million. Since 
    the SBA has not yet approved this definition for paging services, the 
    Commission will utilize the SBA definition applicable to radiotelephone 
    companies--an entity employing no more than 1,500 persons. At present, 
    there are approximately 24,000 Private Paging licenses and 74,000 
    Common Carrier Paging licenses. According to Telecommunications 
    Industry Revenue data, there were 172 ``paging and other mobile'' 
    carriers reporting that they engage in these services. See FCC, 
    Telecommunications Industry Revenue: TRS Fund Worksheet Data, Figure 2 
    (Number of Carriers Paying Into the TRS Fund by Type of Carrier) (Nov. 
    1997). Consequently, the Commission estimates that there are fewer than 
    172 small paging carriers. The Commission estimates that the majority 
    of private and common carrier paging providers would qualify as small 
    businesses under the SBA definition.
    
    Air-Ground Radiotelephone Service
    
        The Commission has not adopted a definition of small business 
    specific to the Air-Ground radiotelephone service. Accordingly, the 
    Commission will use the SBA definition applicable to radiotelephone 
    companies, i.e., an entity employing no more than 1,500 persons. There 
    are approximately 100 licensees in the Air-Ground radiotelephone 
    service, and the Commission estimates that almost all of them qualify 
    as small under the SBA definition.
    
    Specialized Mobile Radio Licensees
    
        The Commission awards bidding credits in auctions for geographic 
    area 800 MHz and 900 MHz SMR licenses to two tiers of firms: (1) 
    ``Small entities,'' those with revenues of no more than $15 million in 
    each of the three previous calendar years; and (2) ``very small 
    entities,'' those with revenues of no more than $3 million in each of 
    the three previous calendar years. The regulations defining ``small 
    entity'' and ``very small entity'' in the context of 800 MHz SMR and 
    900 MHz SMR have been approved by the SBA. The Commission does not know 
    how many firms provide 800 MHz or 900 MHz geographic area SMR service 
    pursuant to extended implementation authorizations, nor how many of 
    these providers have annual revenues of no more than $15 million. One 
    firm has over $15 million in revenues. The Commission assumes for 
    purposes of this FRFA that all of the remaining existing extended 
    implementation authorizations are held by small entities, as that term 
    is defined by the SBA. The Commission has held auctions for geographic 
    area licenses in the 900 MHz SMR band, and recently completed an 
    auction for geographic area 800 MHz SMR licenses. There were 60 winning 
    bidders who qualified as small and very small entities in the 900 MHz 
    auction. In the recently concluded 800 MHz SMR auction there were 524 
    licenses won by winning bidders, of which 38 licenses were won by small 
    and very small entities.
    
    Private Land Mobile Radio Licensees (PLMR)
    
        The Commission has not developed a definition of small entities 
    specifically applicable to PLMR licensees. For the purpose of 
    determining whether a licensee is a small business as defined by the 
    SBA, each licensee would need to be evaluated within its own business 
    area. The Commission is unable at this time to estimate the number of 
    small businesses which could be impacted by the rules. However, the 
    Commission's 1994 Annual Report on PLMRs indicates that at the end of 
    fiscal year 1994 there were 1,087,267 licensees operating 12,481,989 
    transmitters in the PLMR bands below 512 MHz. Any entity engaged in a 
    commercial activity is eligible to hold a PLMR license, therefore, 
    these rules could potentially impact every small business in the United 
    States if PLMR licenses are subject to auction under these new auction 
    rules.
    
    Aviation and Marine Radio Service
    
        Small entities in the aviation and marine radio services use a 
    marine very high frequency (VHF) radio, any type of emergency position 
    indicating radio beacon (EPIRB) and/or radar, a VHF aircraft radio, 
    and/or any type of emergency locator transmitter (ELT). The Commission 
    has not developed a definition of small entities specifically 
    applicable to these small businesses. Therefore, the applicable 
    definition of small entity is the definition under the SBA rules 
    applicable to a small organization, generally ``any not-for-profit 
    enterprise which is independently owned and operated and is not 
    dominant in its field.'' Nationwide, there are 275,801 small 
    organizations. ``Small governmental jurisdiction'' generally means 
    ``governments of cities, counties, towns, townships, villages, school 
    districts, or special districts, with a population of less than 
    50,000.'' As of 1992, there were 85,006 such jurisdictions in the 
    United States. The Commission is unable at this time to make a 
    meaningful estimate of the number of potential small businesses under 
    these size standards. Most applicants for individual recreational 
    licenses are individuals. Approximately 581,000 ship station licensees 
    and 131,000 aircraft station licensees operate domestically and are not 
    subject to the radio carriage requirements of any statute or treaty. 
    Therefore, for purposes of the evaluations and conclusions in this 
    FRFA, the Commission estimates that there may be at least 712,000 
    potential licensees which are individuals or are small entities, as 
    that term is defined by the SBA.
    
    Offshore Radiotelephone Service
    
        This service operates on several UHF TV broadcast channels that are 
    not used for TV broadcasting in the coastal area of the states 
    bordering the Gulf of Mexico. At present, there are approximately 55 
    licensees in this service. The Commission is unable at this time to 
    estimate the number of licensees that would qualify as small entities 
    under the SBA definition for radiotelephone communications.
    
    General Wireless Communication Service
    
        This service was created by the Commission on July 31, 1995 by 
    transferring 25 MHz of spectrum in the
    
    [[Page 2339]]
    
    4660-4685 MHz band from the federal government to private sector use. 
    The Commission has announced that an auction of 875 GWCS licenses will 
    begin on May 27, 1998. The Commission is unable at this time to 
    estimate the number of licensees that would qualify as small entities 
    under the SBA definition for radiotelephone communications.
    
    D. Description of the Projected Reporting, Recordkeeping, and Other 
    Compliance Requirements
    
        129. All license applicants will be subject to reporting and 
    recordkeeping requirements to comply with the competitive bidding 
    rules. Specifically, applicants will apply for license auctions by 
    filing a short-form application and will file a long-form application 
    at the conclusion of the auction. Additionally, entities seeking 
    treatment as ``small businesses'' will need to submit information 
    pertaining to the gross revenues of the small business applicant, its 
    affiliates, and certain investors in the applicant.
    
    E. Steps Taken to Minimize the Economic Impact on Small Entities and 
    Significant Alternatives Considered
    
        130. Among other goals, Section 309(j) directs the Commission to 
    disseminate licenses among a wide variety of applicants, including 
    small businesses and other designated entities. At the same time, 
    Section 309(j) requires that the Commission ensure the development and 
    rapid deployment of new technologies, products, and services for the 
    benefit of the public, and recover for the public a portion of the 
    value of the public spectrum resource made available for commercial 
    use.
        131. The Commission received numerous comments addressing the 
    applicability of general competitive bidding rules for future auctions. 
    Many commenters support general competitive bidding rules, but argue 
    that the Commission should adopt service-specific rules in particular 
    instances, such as a reauction. For example, two commenters, AICC and 
    AAA, argue that shared channels should not be auctioned under the 
    general competitive bidding procedures. Hughes contends that if 
    satellite services are auctioned, the Commission must conduct a 
    service-specific rulemaking tailored to the nature of the satellite 
    industry. The Commission does not address the issue of the 
    auctionability of particular services in this proceeding; however, 
    service-specific auction rules will be adopted in the future where the 
    general competitive bidding rules are inappropriate.
        132. The Commission also received numerous comments with respect to 
    the issue of eliminating installment payments. The Commission has 
    reviewed all of the comments in response to the Notice of Proposed 
    Rulemaking in this docket, as well as the comments filed in response to 
    Installment Public Notice (see ``Wireless Telecommunications Bureau 
    Seeks Comment on Broadband PCS C and F Block Installment Payment 
    Issues,'' Public Notice, DA 97-82, 62 FR 31777 (June 11, 1997) 
    (``Installment Public Notice'')) and concludes that installment 
    payments should not be offered in auctions as a means of financing 
    small businesses and other designated entities seeking to secure 
    spectrum licenses. In this Order, Commission eliminates installment 
    payments in the auction of the lower 80 and General Category channels 
    in the 800 MHz SMR service. The Commission notes that installment 
    payments are not the only tool available to assist small businesses, 
    and that section 3007 of the Balanced Budget Act requires that the 
    Commission conduct certain future auctions in a manner that ensures 
    that all proceeds from such bidding are deposited in the U.S. Treasury 
    not later than September 30, 2002. The Commission seeks comment in the 
    Further Notice on offering installment payments in the future; however, 
    section 3007 of the Balanced Budget Act may require that these auctions 
    be conducted without offering long-term installment payments.
        133. In assessing the public interest, the Commission must try to 
    ensure that all the objectives of section 309(j) are considered. In 
    this Order, the Commission continues the practice of defining small 
    business standards on a service-specific basis; adopts uniform 
    definitions of ``gross revenues'' and ``affiliate''; eliminates the use 
    of installment payments for the 800 MHz Lower 80 channels and General 
    Category channels services; suspends the use of installment payments 
    for other services to be auctioned in the immediate future; provides 
    for higher bidding credits, in lieu of installment payments, to 
    encourage and facilitate the participation of designated entities in 
    future auctions; and modifies the unjust enrichment rule.
        134. In addition, this Order requires electronic filing of all 
    short-form and long-form applications, beginning January 1, 1999; 
    adopts a uniform definition of major amendments to the short-form; 
    adopts general ownership disclosure requirements; affirms the policy of 
    refunding upfront payments before the end of an auction to bidders that 
    lose eligibility; adopts uniform default rules to all auctionable 
    services; permits auction winners who have submitted a timely down 
    payment to submit final payments 10 business days after the applicable 
    deadline, provided the appropriate late fee is paid; adopts one 90-day 
    non-delinquency period and one automatic 90-day grace period, and a 
    late payment fee, similar to the rules for broadband PCS F block for 
    licensees currently paying under installments; and clarifies that the 
    Commission will not pursue a policy of cross-default, either within or 
    across services, where licensees default on an installment payment.
        135. Finally, this Order delegates authority to the Wireless 
    Telecommunications Bureau to seek comment on specific mechanisms 
    relating to auction conduct; allows for real-time bidding in 
    simultaneous multiple-round auctions; provides that the Bureau will 
    seek comment on and specify a minimum opening bid and/or reserve price 
    in future auctions; adopts, for all auctionable services, the broadband 
    PCS rules for bid withdrawal payments in the event of erroneous bids; 
    modifies the attributable investor threshold of the anti-collusion rule 
    to include controlling interests and/or holders of a 10 percent or 
    greater interest in the applicant and to permit an entity that has 
    invested in an applicant that withdraws from an auction to invest in 
    other applicants that have applied to bid in the same markets; and 
    permits all auction winners to begin construction at their own risk 
    upon issuance of a public notice announcing the auction winners.
        136. The Commission believes that the objectives of section 309(j) 
    are met by the rule changes in this Order. In addition, this Order 
    serves the public interest by simplifying regulations, eliminating 
    unnecessary rules, increasing the efficiency of the competitive bidding 
    process, and providing more specific guidance to auction participants 
    while also giving them more flexibility.
    
    F. Report to Congress
    
        137. The Commission shall send a copy of this Final Regulatory 
    Flexibility Analysis, along with this Order, in a report to Congress 
    pursuant to the Small Business Regulatory Enforcement Fairness Act of 
    1996, 5 U.S.C. 801(a)(1)(A). A copy of the Order and this FRFA (or a 
    summary thereof) will be published in the Federal Register. See 5 
    U.S.C. 604(b). A copy of the Order and this FRFA will also be sent to 
    the
    
    [[Page 2340]]
    
    Chief Counsel for Advocacy of the Small Business Administration.
    
    XII. Paperwork Reduction Act Analysis
    
    Notice of Public Information Collections Submitted to OMB for Emergency 
    Review and Approval
    
    Paperwork Reduction Act
        The Federal Communications Commission, as part of its continuing 
    effort to reduce paperwork burden, invites the general public and other 
    federal agencies to take this opportunity to comment on the following 
    emergency information collection, as required by the Paperwork 
    Reduction Act of 1995, Pub. L. 104-13. An agency may not conduct or 
    sponsor a collection of information unless it displays a currently 
    valid control number. No person shall be subject to any penalty for 
    failing to comply with a collection of information subject to the 
    Paperwork Reduction Act (PRA) that does not display a valid control 
    number. Comments are requested concerning whether the proposed 
    collection of information is necessary for the proper performance of 
    the functions of the Commission, including whether the information 
    shall have practical utility, the accuracy of the Commission's burden 
    estimate, ways to enhance the quality, utility and clarity of the 
    information collected, and ways to minimize the burden of the 
    collection of information on the respondents, including the use of 
    automated collection techniques or other forms of information 
    technology. The Commission is seeking emergency approval for this 
    information collection by March 2, 1998 under the provisions of 5 CFR 
    1320.13.
    
    DATES: Persons wishing to comment on this information collection should 
    submit comments by February 25, 1998.
    
    ADDRESSES: Direct all comments to Judy Boley, Federal Communications 
    Commission, Room 234, 1919 M St., NW., Washington, DC 20554 or via 
    internet to JBoley@fcc.gov and Timothy Fain, OMB Desk Officer, 10236 
    NEOB 725 17th Street, NW., Washington, DC 20503 or fain__t@a1.eop.gov.
    
    FOR FURTHER INFORMATION CONTACT: for additional information or copies 
    of the information collection contact Judy Boley at (202) 418-0217 or 
    via Internet at jboley@fcc.gov.
    
    SUPPLEMENTARY INFORMATION: OMB approval Number 3060-0767 Title: Auction 
    Forms and License Transfer Disclosures: Supplement For the Second 
    Report and Order, Order on Reconsideration and Fifth Notice of Proposed 
    Rulemaking in CC Docket No. 92-297.
        Type of Review: Revised Collection.
        Respondents: Businesses or Other For-profit entities.
        Number of Respondents: 44,000.
        Total Annual Burden: 773,000 hours.
        Total Cost to Respondents: $46,347,350.
    
    Needs and Uses
    
        The Commission is adopting a general rule to determine the amount 
    of unjust enrichment payments to be assessed upon assignment, transfer, 
    partitioning and disaggregation of licenses. The new rule, applicable 
    to all current and future licensees, is based upon the unjust 
    enrichment rule currently applicable to broadband PCS licensees. 
    Therefore, transfer disclosure requirements will apply in all these 
    license transactions.
        Second, the Commission is amending its general anti-collusion 
    rules, permitting the holder of a non-controlling attributable interest 
    in an applicant to obtain an ownership interest in or enter into a 
    consortium arrangement with another applicant for a license in the same 
    geographic area provided that the original applicant has withdrawn from 
    the auction, is no longer placing bids, and has no further eligibility. 
    To meet the requirements of the exception, the attributable interest 
    holder will be required to certify to the Commission that it did not 
    communicate with the new applicant prior to the date the original 
    applicant withdrew from the auction, and that it will not convey 
    bidding information, or otherwise serve as a nexus between the previous 
    and the new applicant.
        These requirements are being added to the existing requirements. 
    The number of respondents will not increase but the annual burden hours 
    and costs will increase by an estimated 8,500 hours and $612,650.
    
    List of Subjects
    
    47 CFR Part 1
    
        Communications common carriers, Reporting and recordkeeping 
    requirements.
    
    47 CFR Part 21
    
        Communications common carriers, Reporting and recordkeeping 
    requirements.
    
    47 CFR Part 90
    
        Reporting and recordkeeping requirements.
    
    47 CFR Part 95
    
        Reporting and recordkeeping requirements.
    
    Federal Communications Commission.
    Magalie Roman Salas,
    Secretary.
    
    Rule Changes
    
        Parts 1, 21, 24, 27, 90 and 95 of Title 47 of the Code of Federal 
    Regulations are amended as follows:
    
    PART 1--PRACTICE AND PROCEDURE
    
        1. The authority citation for part 1 continues to read as follows:
    
        Authority: 47 U.S.C. 151, 154, 207, 303 and 309(j), unless 
    otherwise noted.
    
        2. Section 1.2101 is revised to read as follows:
    
    
    Sec. 1.2101  Purpose.
    
        The provisions of this subpart implement Section 309(j) of the 
    Communications Act of 1934, as added by the Omnibus Budget 
    Reconciliation Act of 1993 (Pub. L. 103-66) and the Balanced Budget Act 
    of 1997 (Pub. L. 105-33), authorizing the Commission to employ 
    competitive bidding procedures to choose from among two or more 
    mutually exclusive applications for certain initial licenses.
        3. Section 1.2102 is amended by revising paragraphs (a) and (b) and 
    adding a note to the section to read as follows:
    
    
    Sec. 1.2102  Eligibility of applications for competitive bidding.
    
        (a) Mutually exclusive initial applications are subject to 
    competitive bidding.
        (b) The following types of license applications are not subject to 
    competitive bidding procedures:
        (1) Public safety radio services, including private internal radio 
    services used by state and local governments and non-government 
    entities and including emergency road services provided by not-for-
    profit organizations, that
        (i) Are used to protect the safety of life, health, or property; 
    and
        (ii) Are not commercially available to the public;
        (2) Initial licenses or construction permits for digital television 
    service given to existing terrestrial broadcast licensees to replace 
    their analog television service licenses; or
        (3) Noncommercial educational and public broadcast stations 
    described under 47 U.S.C. 397(6).
    * * * * *
        Note to Sec. 1.2102: To determine the rules that apply to 
    competitive bidding, specific service rules should also be 
    consulted.
    
        4. Section 1.2103 is amended by revising paragraph (a) and adding 
    paragraph (d) to read as follows:
    
    [[Page 2341]]
    
    Sec. 1.2103  Competitive bidding design options.
    
        (a) 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:
        (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);
        (3) Sequential or simultaneous single-round auctions (using either 
    sealed paper or remote and/or on-site electronic bidding); and
        (4) Combinatorial (package/contingent) bidding auctions.
    * * * * *
        (d) The Commission may use real time bidding in all electronic 
    auction designs.
        5. Section 1.2104 is amended by revising paragraphs (d) and (g) to 
    read as follows:
    
    
    Sec. 1.2104  Competitive bidding mechanisms.
    
    * * * * *
        (d) Minimum Bid Increments, Minimum Opening Bids and Maximum Bid 
    Increments. The Commission may, by announcement before or during an 
    auction, require minimum bid increments in dollar or percentage terms. 
    The Commission also may establish minimum opening bids and maximum bid 
    increments on a service-specific basis.
    * * * * *
        (g) Withdrawal, Default and Disqualification Payment. As specified 
    below, when the Commission conducts an auction pursuant to Sec. 1.2103, 
    the Commission will impose payments on bidders who withdraw high bids 
    during the course of an auction, or who default on payments due after 
    an auction closes or who are disqualified.
        (1) Bid withdrawal prior to close of auction. A bidder who 
    withdraws a high bid during the course of an auction is subject to a 
    payment equal to the difference between the amount bid and the amount 
    of the winning bid the next time the license is offered by the 
    Commission. The bid withdrawal payment is either the difference between 
    the net withdrawn bid and the subsequent net winning bid, or the 
    difference between the gross withdrawn bid and the subsequent gross 
    winning bid, whichever is less. No withdrawal payment is assessed if 
    the subsequent winning bid exceeds the withdrawn bid. This payment 
    amount is deducted from any upfront payments or down payments that the 
    withdrawing bidder has deposited with the Commission.
        (2) Default or disqualification after close of auction. If a high 
    bidder defaults or is disqualified after the close of such an auction, 
    the defaulting bidder will be subject to the payment in paragraph 
    (g)(1) of this section plus an additional payment equal to 3 percent of 
    the subsequent winning bid. If the subsequent winning bid exceeds the 
    defaulting bidder's bid amount, the 3 percent payment will be 
    calculated based on the defaulting bidder's bid amount. If either bid 
    amount is subject to a bidding credit, the 3 percent credit will be 
    calculated using the same bid amounts and basis (net or gross bids) as 
    in the calculation of the payment in paragraph (g)(1) of this section. 
    Thus, for example, if gross bids are used to calculate the payment in 
    paragraph (g)(1) of this section, the 3 percent will be applied to the 
    gross amount of the subsequent winning bid, or the gross amount of the 
    defaulting bid, whichever is less.
    * * * * *
        6. Section 1.2105 is revised to read as follows:
    
    
    Sec. 1.2105  Bidding application and certification procedures; 
    prohibition of collusion.
    
        (a) Submission of Short-Form Application (FCC Form 175). In order 
    to be eligible to bid, an applicant must timely submit a short-form 
    application (FCC Form 175), together with any appropriate upfront 
    payment set forth by Public Notice. Beginning January 1, 1999, all 
    short-form applications must be filed electronically.
        (1) All short-form applications will be due:
        (i) On the date(s) specified by public notice; or
        (ii) In the case of application filing dates which occur 
    automatically by operation of law (see, e.g., 47 CFR 22.902), on a date 
    specified by public notice after the Commission has reviewed the 
    applications that have been filed on those dates and determined that 
    mutual exclusivity exists.
        (2) The short-form application must contain the following 
    information:
        (i) Identification of each license on which the applicant wishes to 
    bid;
        (ii)(A) 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 general 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; and
        (B) Applicant ownership information, as set forth in Sec. 1.2112.
        (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) regarding the 
    amount of their bids, bidding strategies or the particular licenses on 
    which they will or will not bid.
    
        Note to paragraph (a): The Commission may also request 
    applicants to submit
    
    [[Page 2342]]
    
    additional information for informational purposes to aid in its 
    preparation of required reports to Congress.
    
        (b) Modification and Dismissal of Short-Form Application (FCC Form 
    175). (1) Any short-form application (FCC Form 175) that does not 
    contain all of the certifications required pursuant to this section is 
    unacceptable for filing and cannot be corrected subsequent to the 
    applicable filing deadline. The application will be dismissed with 
    prejudice and the upfront payment, if paid, will be returned.
        (2) The Commission will provide bidders a limited opportunity to 
    cure defects specified herein (except for failure to sign the 
    application and to make certifications) and to resubmit a corrected 
    application. During the resubmission period for curing defects, a 
    short-form application may be amended or modified to cure defects 
    identified by the Commission or to make minor amendments or 
    modifications. After the resubmission period has ended, a short-form 
    application may be amended or modified to make minor changes or correct 
    minor errors in the application. Major amendments cannot be made to a 
    short-form application after the initial filing deadline. Major 
    amendments include changes in ownership of the applicant that would 
    constitute an assignment or transfer of control, changes in an 
    applicant's size which would affect eligibility for designated entity 
    provisions, and changes in the license service areas identified on the 
    short-form application on which the applicant intends to bid. Minor 
    amendments include, but are not limited to, the correction of 
    typographical errors and other minor defects not identified as major. 
    An application will be considered to be newly filed if it is amended by 
    a major amendment and may not be resubmitted after applicable filing 
    deadlines.
        (3) Applicants who fail to correct defects in their applications in 
    a timely manner as specified by public notice will have their 
    applications dismissed with no opportunity for resubmission.
        (c) Prohibition of collusion. (1) Except as provided in paragraphs 
    (c)(2), (c)(3) and (c)(4) of this section, after the filing of short-
    form applications, all applicants are prohibited from cooperating, 
    collaborating, discussing or disclosing in any manner the substance of 
    their bids or bidding strategies, or discussing or negotiating 
    settlement agreements, with other applicants until after the high 
    bidder makes the required down payment, unless such applicants are 
    members of a bidding consortium or other joint bidding arrangement 
    identified on the bidder's short-form application pursuant to 
    Sec. 1.2105(a)(2)(viii).
        (2) Applicants may modify their short-form applications to reflect 
    formation of consortia or changes in ownership at any time before or 
    during an auction, provided such changes do not result in a change in 
    control of the applicant, and provided that the parties forming 
    consortia or entering into ownership agreements have not applied for 
    licenses in any of the same geographic license areas. Such changes will 
    not be considered major modifications of the application.
        (3) After the filing of short-form applications, applicants may 
    make agreements to bid jointly for licenses, provided the parties to 
    the agreement have not applied for licenses in any of the same 
    geographic license areas.
        (4) After the filing of short-form applications, a holder of a non-
    controlling attributable interest in an entity submitting a short-form 
    application may acquire an ownership interest in, form a consortium 
    with, or enter into a joint bidding arrangement with, other applicants 
    for licenses in the same geographic license area, provided that:
        (i) The attributable interest holder certifies to the Commission 
    that it has not communicated and will not communicate with any party 
    concerning the bids or bidding strategies of more than one of the 
    applicants in which it holds an attributable interest, or with which it 
    has a consortium or joint bidding arrangement, and which have applied 
    for licenses in the same geographic license area(s); and
        (ii) The arrangements do not result in any change in control of an 
    applicant; or
        (iii) When an applicant has withdrawn from the auction, is no 
    longer placing bids and has no further eligibility, a holder of a non-
    controlling, attributable interest in such an applicant may obtain an 
    ownership interest in or enter into a consortium with another applicant 
    for a license in the same geographic service area, provided that the 
    attributable interest holder certifies to the Commission that it did 
    not communicate with the new applicant prior to the date that the 
    original applicant withdrew from the auction.
        (5) Applicants must modify their short-form applications to reflect 
    any changes in ownership or in membership of consortia or joint bidding 
    arrangements.
        (6) For purposes of this paragraph:
        (i) The term applicant shall include all controlling interests in 
    the entity submitting a short-form application to participate in an 
    auction (FCC Form 175), as well as all holders of partnership and other 
    ownership interests and any stock interest amounting to 10 percent or 
    more of the entity, or outstanding stock, or outstanding voting stock 
    of the entity submitting a short-form application, and all officers and 
    directors of that entity; and
        (ii) The term bids or bidding strategies shall include capital 
    calls or requests for additional funds in support of bids or bidding 
    strategies.
    
        Example: Company A is an applicant in area 1. Company B and 
    Company C each own 10 percent of Company A. Company D is an 
    applicant in area 1, area 2, and area 3. Company C is an applicant 
    in area 3. Without violating the Commission's Rules, Company B can 
    enter into a consortium arrangement with Company D or acquire an 
    ownership interest in Company D if Company B certifies either (1) 
    that it has communicated with and will communicate neither with 
    Company A or anyone else concerning Company A's bids or bidding 
    strategy, nor with Company C or anyone else concerning Company C's 
    bids or bidding strategy, or (2) that it has not communicated with 
    and will not communicate with Company D or anyone else concerning 
    Company D's bids or bidding strategy.
    
        7. 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) Unless otherwise specified by public notice, 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 bid withdrawal or default payments) 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.) Unless otherwise specified by 
    public notice, 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. 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
    
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    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. 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 
    applications will be set out by Public Notice. Beginning January 1, 
    1999, all long-form applications must be filed electronically. 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.
    * * * * *
        8. Section 1.2108 is amended by revising paragraphs (b) and (c) to 
    read as follows:
    
    
    Sec. 1.2108  Procedures for filing petitions to deny against long-form 
    applications.
    
    * * * * *
        (b) Within a period specified by Public Notice, and after the 
    Commission by public notice announces that long-form applications have 
    been accepted for filing, petitions to deny such applications may be 
    filed. In all cases, the period for filing petitions to deny shall be 
    no shorter than five (5) days. Any such petitions must contain 
    allegations of fact supported by affidavit of a person or persons with 
    personal knowledge thereof.
        (c) An applicant may file an opposition to any petition to deny, 
    and the petitioner a reply to such opposition. Allegations of fact or 
    denials thereof must be supported by affidavit of a person or persons 
    with personal knowledge thereof. The time for filing such oppositions 
    shall be at least five (5) days from the filing date for petitions to 
    deny, and the time for filing replies shall be at least five (5) days 
    from the filing date for oppositions. The Commission may grant a 
    license based on any long-form application that has been accepted for 
    filing. The Commission shall in no case grant licenses earlier than 
    seven (7) days following issuance of a public notice announcing long-
    form applications have been accepted for filing.
    * * * * *
        9. Section 1.2109 is amended by revising paragraphs (a), (b) and 
    (c) to read as follows:
    
    
    Sec. 1.2109  License grant, denial, default, and disqualification.
    
        (a) Unless otherwise specified by public notice, auction winners 
    are required to pay the balance of their winning bids in a lump sum 
    within ten (10) business days following the release of a public notice 
    establishing the payment deadline. If a winning bidder fails to pay the 
    balance of its winning bids in a lump sum by the applicable deadline as 
    specified by the Commission, it will be allowed to make payment within 
    ten (10) business days after the payment deadline, provided that it 
    also pays a late fee equal to five percent of the amount due. When a 
    winning bidder fails to pay the balance of its winning bid by the late 
    payment deadline, it is considered to be in default on its license(s) 
    and subject to the applicable default payments. Licenses will be 
    awarded upon the full and timely payment of winning bids and any 
    applicable late fees.
        (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, at its discretion, 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.
        (c) A winning bidder who is found unqualified to be a licensee, 
    fails to remit the balance of its winning bid in a timely manner, or 
    defaults or is disqualified for any reason after having made the 
    required down payment, will be deemed to have defaulted and will be 
    liable for the payment set forth 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.
    * * * * *
        10. Section 1.2110 is revised to read as follows:
    
    
    Sec. 1.2110  Designated entities.
    
        (a) Designated entities are small businesses, businesses owned by 
    members of minority groups and/or women, and rural telephone companies.
        (b) Definitions. (1) Small businesses. The Commission will 
    establish the definition of a small business on a service-specific 
    basis, taking into consideration the characteristics and capital 
    requirements of the particular service.
        (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. The term minority includes 
    individuals of African American, Hispanic-surnamed, American Eskimo, 
    Aleut, American Indian and Asian American extraction.
        (3) Rural telephone companies. A rural telephone company is any 
    local exchange carrier operating entity to the extent that such 
    entity--
        (i) provides common carrier service to any local exchange carrier 
    study area that does not include either
        (A) any incorporated place of 10,000 inhabitants or more, or any 
    part thereof, based on the most recently available population 
    statistics of the Bureau of the Census, or
        (B) any territory, incorporated or unincorporated, included in an 
    urbanized area, as defined by the Bureau of the Census as of August 10, 
    1993;
    
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        (ii) provides telephone exchange service, including exchange 
    access, to fewer than 50,000 access lines;
        (iii) provides telephone exchange service to any local exchange 
    carrier study area with fewer than 100,000 access lines; or
        (iv) has less than 15 percent of its access lines in communities of 
    more than 50,000 on the date of enactment of the Telecommunications Act 
    of 1996.
        (4) Affiliate. (i) An individual or entity is an affiliate of an 
    applicant or of a person holding an attributable interest in an 
    applicant if such individual or entity--
        (A) Directly or indirectly controls or has the power to control the 
    applicant, or
        (B) Is directly or indirectly controlled by the applicant, or
        (C) Is directly or indirectly controlled by a third party or 
    parties that also controls or has the power to control the applicant, 
    or
        (D) Has an ``identity of interest'' with the applicant.
        (ii) Nature of control in determining affiliation.
        (A) Every business concern is considered to have one or more 
    parties who directly or indirectly control or have the power to control 
    it. Control may be affirmative or negative and it is immaterial whether 
    it is exercised so long as the power to control exists.
    
        Example. An applicant owning 50 percent of the voting stock of 
    another concern would have negative power to control such concern 
    since such party can block any action of the other stockholders. 
    Also, the bylaws of a corporation may permit a stockholder with less 
    than 50 percent of the voting stock to block any actions taken by 
    the other stockholders in the other entity. Affiliation exists when 
    the applicant has the power to control a concern while at the same 
    time another person, or persons, are in control of the concern at 
    the will of the party or parties with the power to control.
    
        (B) Control can arise through stock ownership; occupancy of 
    director, officer or key employee positions; contractual or other 
    business relations; or combinations of these and other factors. A key 
    employee is an employee who, because of his/her position in the 
    concern, has a critical influence in or substantive control over the 
    operations or management of the concern.
        (C) Control can arise through management positions where a 
    concern's voting stock is so widely distributed that no effective 
    control can be established.
    
        Example. In a corporation where the officers and directors own 
    various size blocks of stock totaling 40 percent of the 
    corporation's voting stock, but no officer or director has a block 
    sufficient to give him or her control or the power to control and 
    the remaining 60 percent is widely distributed with no individual 
    stockholder having a stock interest greater than 10 percent, 
    management has the power to control. If persons with such management 
    control of the other entity are persons with attributable interests 
    in the applicant, the other entity will be deemed an affiliate of 
    the applicant.
    
        (iii) Identity of interest between and among persons. Affiliation 
    can arise between or among two or more persons with an identity of 
    interest, such as members of the same family or persons with common 
    investments. In determining if the applicant controls or has the power 
    to control a concern, persons with an identity of interest will be 
    treated as though they were one person.
    
        Example. Two shareholders in Corporation Y each have 
    attributable interests in the same PCS application. While neither 
    shareholder has enough shares to individually control Corporation Y, 
    together they have the power to control Corporation Y. The two 
    shareholders with these common investments (or identity in interest) 
    are treated as though they are one person and Corporation Y would be 
    deemed an affiliate of the applicant.
    
        (A) Spousal affiliation. Both spouses are deemed to own or control 
    or have the power to control interests owned or controlled by either of 
    them, unless they are subject to a legal separation recognized by a 
    court of competent jurisdiction in the United States. In calculating 
    their net worth, investors who are legally separated must include their 
    share of interests in property held jointly with a spouse.
        (B) Kinship affiliation. Immediate family members will be presumed 
    to own or control or have the power to control interests owned or 
    controlled by other immediate family members. In this context 
    ``immediate family member'' means father, mother, husband, wife, son, 
    daughter, brother, sister, father- or mother-in-law, son- or daughter-
    in-law, brother- or sister-in-law, step-father or -mother, step-brother 
    or -sister, step-son or -daughter, half brother or sister. This 
    presumption may be rebutted by showing that the family members are 
    estranged, the family ties are remote, or the family members are not 
    closely involved with each other in business matters.
    
        Example. A owns a controlling interest in Corporation X. A's 
    sister-in-law, B, has an attributable interest in a PCS application. 
    Because A and B have a presumptive kinship affiliation, A's interest 
    in Corporation Y is attributable to B, and thus to the applicant, 
    unless B rebuts the presumption with the necessary showing.
    
        (iv) Affiliation through stock ownership. (A) An applicant is 
    presumed to control or have the power to control a concern if he or she 
    owns or controls or has the power to control 50 percent or more of its 
    voting stock.
        (B) An applicant is presumed to control or have the power to 
    control a concern even though he or she owns, controls or has the power 
    to control less than 50 percent of the concern's voting stock, if the 
    block of stock he or she owns, controls or has the power to control is 
    large as compared with any other outstanding block of stock.
        (C) If two or more persons each owns, controls or has the power to 
    control less than 50 percent of the voting stock of a concern, such 
    minority holdings are equal or approximately equal in size, and the 
    aggregate of these minority holdings is large as compared with any 
    other stock holding, the presumption arises that each one of these 
    persons individually controls or has the power to control the concern; 
    however, such presumption may be rebutted by a showing that such 
    control or power to control, in fact, does not exist.
        (v) Affiliation arising under stock options, convertible 
    debentures, and agreements to merge. Stock options, convertible 
    debentures, and agreements to merge (including agreements in principle) 
    are generally considered to have a present effect on the power to 
    control the concern. Therefore, in making a size determination, such 
    options, debentures, and agreements are generally treated as though the 
    rights held thereunder had been exercised. However, an affiliate cannot 
    use such options and debentures to appear to terminate its control over 
    another concern before it actually does so.
    
        Example 1. If company B holds an option to purchase a 
    controlling interest in company A, who holds an attributable 
    interest in a PCS application, the situation is treated as though 
    company B had exercised its rights and had come owner of a 
    controlling interest in company A. The gross revenues of company B 
    must be taken into account in determining the size of the applicant.
        Example 2. If a large company, BigCo, holds 70% (70 of 100 
    outstanding shares) of the voting stock of company A, who holds an 
    attributable interest in a PCS application, and gives a third party, 
    SmallCo, an option to purchase 50 of the 70 shares owned by BigCo, 
    BigCo will be deemed to be an affiliate of company A, and thus the 
    applicant, until SmallCo actually exercises its option to purchase 
    such shares. In order to prevent BigCo from circumventing the intent 
    of the rule which requires such options to be considered on a fully 
    diluted basis, the option is not considered to have present effect 
    in this case.
        Example 3. If company A has entered into an agreement to merge 
    with company B in
    
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    the future, the situation is treated as though the merger has taken 
    place.
    
        (vi) Affiliation under voting trusts. (A) Stock interests held in 
    trust shall be deemed controlled by any person who holds or shares the 
    power to vote such stock, to any person who has the sole power to sell 
    such stock, and to any person who has the right to revoke the trust at 
    will or to replace the trustee at will.
        (B) If a trustee has a familial, personal or extra-trust business 
    relationship to the grantor or the beneficiary, the stock interests 
    held in trust will be deemed controlled by the grantor or beneficiary, 
    as appropriate.
        (C) If the primary purpose of a voting trust, or similar agreement, 
    is to separate voting power from beneficial ownership of voting stock 
    for the purpose of shifting control of or the power to control a 
    concern in order that such concern or another concern may meet the 
    Commission's size standards, such voting trust shall not be considered 
    valid for this purpose regardless of whether it is or is not recognized 
    within the appropriate jurisdiction.
        (vii) Affiliation through common management. Affiliation generally 
    arises where officers, directors, or key employees serve as the 
    majority or otherwise as the controlling element of the board of 
    directors and/or the management of another entity.
        (viii) Affiliation through common facilities. Affiliation generally 
    arises where one concern shares office space and/or employees and/or 
    other facilities with another concern, particularly where such concerns 
    are in the same or related industry or field of operations, or where 
    such concerns were formerly affiliated, and through these sharing 
    arrangements one concern has control, or potential control, of the 
    other concern.
        (ix) Affiliation through contractual relationships. Affiliation 
    generally arises where one concern is dependent upon another concern 
    for contracts and business to such a degree that one concern has 
    control, or potential control, of the other concern.
        (x) Affiliation under joint venture arrangements. (A) A joint 
    venture for size determination purposes is an association of concerns 
    and/or individuals, with interests in any degree or proportion, formed 
    by contract, express or implied, to engage in and carry out a single, 
    specific business venture for joint profit for which purpose they 
    combine their efforts, property, money, skill and knowledge, but not on 
    a continuing or permanent basis for conducting business generally. The 
    determination whether an entity is a joint venture is based upon the 
    facts of the business operation, regardless of how the business 
    operation may be designated by the parties involved. An agreement to 
    share profits/losses proportionate to each party's contribution to the 
    business operation is a significant factor in determining whether the 
    business operation is a joint venture.
        (B) The parties to a joint venture are considered to be affiliated 
    with each other. Nothing in this subsection shall be construed to 
    define a small business consortium, for purposes of determining status 
    as a designated entity, as a joint venture under attribution standards 
    provided in this section.
        (xi) Exclusion from affiliation coverage. For purposes of this 
    section, Indian tribes or Alaska Regional or Village Corporations 
    organized pursuant to the Alaska Native Claims Settlement Act (43 
    U.S.C. 1601 et seq.), or entities owned and controlled by such tribes 
    or corporations, are not considered affiliates of an applicant (or 
    licensee) that is owned and controlled by such tribes, corporations or 
    entities, and that otherwise complies with the requirements of this 
    section, except that gross revenues derived from gaming activities 
    conducted by affiliate entities pursuant to the Indian Gaming 
    Regulatory Act (25 U.S.C. 2701 et seq.) will be counted in determining 
    such applicant's (or licensee's) compliance with the financial 
    requirements of this section, unless such applicant establishes that it 
    will not receive a substantial unfair competitive advantage because 
    significant legal constraints restrict the applicant's ability to 
    access such gross revenues.
        (c) The Commission may set aside specific licenses for which only 
    eligible designated entities, as specified by the Commission, may bid.
        (d) The Commission may permit partitioning of service areas in 
    particular services for eligible designated entities.
        (e) Bidding credits. (1) The Commission may award bidding credits 
    (i.e., payment discounts) to eligible designated entities. Competitive 
    bidding rules applicable to individual services will specify the 
    designated entities eligible for bidding credits, the licenses for 
    which bidding credits are available, the amounts of bidding credits and 
    other procedures.
        (2) Size of bidding credits. A winning bidder that qualifies as a 
    small business or a consortium of small businesses may use the 
    following bidding credits corresponding to their respective average 
    gross revenues for the preceding 3 years:
        (i) Businesses with average gross revenues for the preceding years, 
    3 years not exceeding $3 million are eligible for bidding credits of 35 
    percent;
        (ii) Businesses with average gross revenues for the preceding 
    years, 3 years not exceeding $15 million are eligible for bidding 
    credits of 25 percent; and
        (iii) Businesses with average gross revenues for the preceding 
    years, 3 years not exceeding $40 million are eligible for bidding 
    credits of 15 percent.
        (f) Installment payments. The Commission may permit small 
    businesses (including small businesses owned by women, minorities, or 
    rural telephone companies that qualify as small businesses) and other 
    entities determined to be eligible on a service-specific basis, which 
    are high bidders for licenses specified by the Commission, to pay the 
    full amount of their high bids in installments over the term of their 
    licenses pursuant to the following:
        (1) Unless otherwise specified by public notice, 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) 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 a default payment pursuant to Sec. 1.2104(g)(2).
        (2) Within ten (10) days of the conditional 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:
        (i) Impose interest based on the rate of U.S. Treasury obligations 
    (with maturities closest to the duration of the license term) at the 
    time of licensing;
        (ii) Allow installment payments for the full license term;
    
    [[Page 2346]]
    
        (iii) Begin with interest-only payments for the first two years; 
    and
        (iv) Amortize principal and interest over the remaining term of the 
    license.
        (4) A license granted to an eligible entity that elects installment 
    payments shall be conditioned upon the full and timely performance of 
    the licensee's payment obligations under the installment plan.
        (i) Any licensee that fails to submit payment on an installment 
    obligation will automatically have an additional ninety (90) days in 
    which to submit its required payment without being considered 
    delinquent. Any licensee making its required payment during this period 
    will be assessed a late payment fee equal to five percent (5%) of the 
    amount of the past due payment. Late fees assessed under this paragraph 
    will accrue on the next business day following the payment due date. 
    Payments made at the close of any grace period will first be applied to 
    satisfy any lender advances as required under each licensee's ``Note 
    and Security Agreement.'' Afterwards, payments will be applied in the 
    following order: late charges, interest charges, principal payments.
        (ii) If any licensee fails to make the required payment at the 
    close of the 90-day period set forth in paragraph (i) of this section, 
    the licensee will automatically be provided with a subsequent 90-day 
    grace period. Any licensee making a required payment during this 
    subsequent period will be assessed a late payment fee equal to ten 
    percent (10%) of the amount of the past due payment. Licensees shall 
    not be required to submit any form of request in order to take 
    advantage of the initial 90-day non-delinquency period and subsequent 
    automatic 90-day grace period. All licensees that avail themselves of 
    the automatic grace period must pay the required late fee(s), all 
    interest accrued during the non-delinquency and grace periods, and the 
    appropriate scheduled payment with the first payment made following the 
    conclusion of the grace period.
        (iii) If an eligible entity making installment payments is more 
    than one hundred and eighty (180) days delinquent in any payment, it 
    shall be in default.
        (iv) Any eligible entity that submits an installment payment after 
    the due date but fails to pay any late fee, interest or principal at 
    the close of the 90-day non-delinquency period and subsequent automatic 
    grace period will be declared in default, its license will 
    automatically cancel, and will be subject to debt collection 
    procedures.
        (g) The Commission may establish different upfront payment 
    requirements for categories of designated entities in competitive 
    bidding rules of particular auctionable services.
        (h) The Commission may offer designated entities a combination of 
    the available preferences or additional preferences.
        (i) Designated entities must describe on their long-form 
    applications how they satisfy the requirements for eligibility for 
    designated entity status, and must list and summarize on their long-
    form applications all agreements that effect designated entity status, 
    such as partnership agreements, shareholder agreements, management 
    agreements and other agreements, including oral agreements, which 
    establish that the designated entity will have both de facto and de 
    jure control of the entity. Such information must be maintained at the 
    licensees' facilities or by their designated agents for the term of the 
    license in order to enable the Commission to audit designated entity 
    eligibility on an ongoing basis.
        (j) The Commission may, on a service-specific basis, permit 
    consortia, each member of which individually meets the eligibility 
    requirements, to qualify for any designated entity provisions.
        (k) The Commission may, on a service-specific basis, permit 
    publicly-traded companies that are owned by members of minority groups 
    or women to qualify for any designated entity provisions.
        (l) Audits. (1) Applicants and licensees claiming eligibility under 
    this section shall be subject to audits by the Commission, using in-
    house and contract resources. Selection for audit may be random, on 
    information, or on the basis of other factors.
        (2) Consent to such audits is part of the certification included in 
    the short-form application (FCC Form 175). Such consent shall include 
    consent to the audit of the applicant's or licensee's books, documents 
    and other material (including accounting procedures and practices) 
    regardless of form or type, sufficient to confirm that such applicant's 
    or licensee's representations are, and remain, accurate. Such consent 
    shall include inspection at all reasonable times of the facilities, or 
    parts thereof, engaged in providing and transacting business, or 
    keeping records regarding FCC-licensed service and shall also include 
    consent to the interview of principals, employees, customers and 
    suppliers of the applicant or licensee.
        (m) Gross revenues. Gross revenues shall mean all income received 
    by an entity, whether earned or passive, before any deductions are made 
    for costs of doing business (e.g., cost of goods sold), as evidenced by 
    audited financial statements for the relevant number of most recently 
    completed calendar years or, if audited financial statements were not 
    prepared on a calendar-year basis, for the most recently completed 
    fiscal years preceding the filing of the applicant's short-form (FCC 
    Form 175). If an entity was not in existence for all or part of the 
    relevant period, gross revenues shall be evidenced by the audited 
    financial statements of the entity's predecessor-in-interest or, if 
    there is no identifiable predecessor-in-interest, unaudited financial 
    statements certified by the applicant as accurate. When an applicant 
    does not otherwise use audited financial statements, its gross revenues 
    may be certified by its chief financial officer or its equivalent and 
    must be prepared in accordance with Generally Accepted Accounting 
    Principles.
        11. Section 1.2111 is amended by revising paragraphs (c) and (d) 
    and adding paragraph (e) to read as follows:
    
    
    Sec. 1.2111  Assignment or transfer of control: unjust enrichment.
    
    * * * * *
        (c) Unjust enrichment payment: installment financing. (1) If a 
    licensee that utilizes installment financing under this section seeks 
    to assign or transfer control of its license to an entity not meeting 
    the eligibility standards for installment payments, the licensee must 
    make full payment of the remaining unpaid principal and any unpaid 
    interest accrued through the date of assignment or transfer as a 
    condition of approval.
        (2) If a licensee that utilizes installment financing under this 
    section seeks to make any change in ownership structure that would 
    result in the licensee losing eligibility for installment payments, the 
    licensee shall first seek Commission approval and must make full 
    payment of the remaining unpaid principal and any unpaid interest 
    accrued through the date of such change as a condition of approval. A 
    licensee's (or other attributable entity's) increased gross revenues or 
    increased total assets due to nonattributable equity investments, debt 
    financing, revenue from operations or other investments, business 
    development or expanded service shall not be considered to result in 
    the licensee losing eligibility for installment payments.
        (3) If a licensee seeks to make any change in ownership that would 
    result in the licensee qualifying for a less favorable installment plan 
    under this section, the licensee shall seek
    
    [[Page 2347]]
    
    Commission approval and must adjust its payment plan to reflect its new 
    eligibility status. A licensee may not switch its payment plan to a 
    more favorable plan.
        (d) Unjust enrichment payment: bidding credits. (1) A licensee that 
    utilizes a bidding credit, and that during the initial term seeks to 
    assign or transfer control of a license to an entity that does not meet 
    the eligibility criteria for a bidding credit, will be required to 
    reimburse the U.S. Government for the amount of the bidding credit, 
    plus interest based on the rate for ten year U.S. Treasury obligations 
    applicable on the date the license was granted, as a condition of 
    Commission approval of the assignment or transfer. If, within the 
    initial term of the license, a licensee that utilizes a bidding credit 
    seeks to assign or transfer control of a license to an entity that is 
    eligible for a lower bidding credit, the difference between the bidding 
    credit obtained by the assigning party and the bidding credit for which 
    the acquiring party would qualify, plus interest based on the rate for 
    ten year U.S. treasury obligations applicable on the date the license 
    is granted, must be paid to the U.S. Government as a condition of 
    Commission approval of the assignment or transfer. If, within the 
    initial term of the license, a licensee that utilizes a bidding credit 
    seeks to make any ownership change that would result in the licensee 
    losing eligibility for a bidding credit (or qualifying for a lower 
    bidding credit), the amount of the bidding credit (or the difference 
    between the bidding credit originally obtained and the bidding credit 
    for which the restructured licensee would qualify), plus interest based 
    on the rate for ten year U.S. treasury obligations applicable on the 
    date the license is granted, must be paid to the U.S. Government as a 
    condition of Commission approval of the assignment or transfer.
        (2) Payment schedule. (i) The amount of payments made pursuant to 
    paragraph (d)(1) of this section will be reduced over time as follows:
        (A) A transfer in the first two years of the license term will 
    result in a forfeiture of 100 percent of the value of the bidding 
    credit (or in the case of very small businesses transferring to small 
    businesses, 100 percent of the difference between the bidding credit 
    received by the former and the bidding credit for which the latter is 
    eligible);
        (B) A transfer in year 3 of the license term will result in a 
    forfeiture of 75 percent of the value of the bidding credit;
        (C) A transfer in year 4 of the license term will result in a 
    forfeiture of 50 percent of the value of the bidding credit;
        (D) A transfer in year 5 of the license term will result in a 
    forfeiture of 25 percent of the value of the bidding credit; and
        (E) for a transfer in year 6 or thereafter, there will be no 
    payment.
        (ii) These payments will have to be paid to the United States 
    Treasury as a condition of approval of the assignment, transfer, or 
    ownership change.
        (e) Unjust enrichment: partitioning and disaggregation. (1) 
    Installment payments. Licensees making installment payments, that 
    partition their licenses or disaggregate their spectrum to entities not 
    meeting the eligibility standards for installment payments, will be 
    subject to the provisions concerning unjust enrichment as set forth in 
    this section.
        (2) Bidding credits. Licensees that received a bidding credit that 
    partition their licenses or disaggregate their spectrum to entities not 
    meeting the eligibility standards for such a bidding credit, will be 
    subject to the provisions concerning unjust enrichment as set forth in 
    this section.
        (3) Apportioning unjust enrichment payments. Unjust enrichment 
    payments for partitioned license areas shall be calculated based upon 
    the ratio of the population of the partitioned license area to the 
    overall population of the license area and by utilizing the most recent 
    census data. Unjust enrichment payments for disaggregated spectrum 
    shall be calculated based upon the ratio of the amount of spectrum 
    disaggregated to the amount of spectrum held by the licensee.
        12. Section 1.2112 is added to read as follows:
    
    
    Sec. 1.2112  Ownership disclosure requirements for short- and long-form 
    applications.
    
        (a) Each application for a license or authorization or for consent 
    to assign or transfer control of a license or authorization shall 
    disclose fully the real party or parties in interest and must include 
    in an exhibit the following information:
        (1) A list of any FCC-regulated business 10 percent or more of 
    whose stock, warrants, options or debt securities are owned by the 
    applicant or an officer, director, attributable stockholder or key 
    management personnel of the applicant. This list must include a 
    description of each such business's principal business and a 
    description of each such business's relationship to the applicant;
        (2) A list of any party holding a 10 percent or greater interest in 
    the applicant, including the specific amount of the interest;
        (3) A list of any party holding a 10 percent or greater interest in 
    any entity holding or applying for any FCC-regulated business in which 
    a 10 percent or more interest is held by another party which holds a 10 
    percent or more interest in the applicant (e.g., If company A owns 10 
    percent of Company B (the applicant) and 10 percent of Company C then 
    Companies A and C must be listed on Company B's application;
        (4) A list of the names, addresses, and citizenship of any party 
    holding 10 percent or more of each class of stock, warrants, options or 
    debt securities together with the amount and percentage held;
        (5) A list of the names, addresses, and citizenship of all 
    controlling interests of the applicants, as set forth in Sec. 1.2110;
        (6) In the case of a general partnerships, the name, address and 
    citizenship of each partner, and the share or interest participation in 
    the partnership;
        (7) In the case of a limited partnerships, the name, address and 
    citizenship of each limited partner whose interest in the applicant is 
    equal to or greater than 10 percent (as calculated according to the 
    percentage of equity paid in and the percentage of distribution of 
    profits and losses);
        (8) In the case of a limited liability corporation, the name, 
    address and citizenship of each of its members; and
        (9) A list of all parties holding indirect ownership interests in 
    the applicant, as determined by successive multiplication of the 
    ownership percentages for each link in the vertical ownership chain, 
    that equals 10 percent or more of the applicant, except that if the 
    ownership percentage for an interest in any link in the chain exceeds 
    50 percent or represents actual control, it shall be treated and 
    reported as if it were a 100 percent interest.
        (b) In addition to the information required under paragraph (a) of 
    this section, each applicant for a license or authorization claiming 
    status as a small business shall, as an exhibit to its long-form 
    application:
        (1) Disclose separately and in the aggregate the gross revenues, 
    computed in accordance with Sec. 1.2110, for each of the following: the 
    applicant and its affiliates, the applicant's attributable investors, 
    affiliates of its attributable investors, and, if a consortium of small 
    businesses, the members comprising the consortium;
        (2) List and summarize all agreements or instruments (with 
    appropriate references to specific provisions in the
    
    [[Page 2348]]
    
    text of such agreements and instruments) that support the applicant's 
    eligibility as a small business under the applicable designated entity 
    provisions, including the establishment of de facto and de jure 
    control; such agreements and instruments include articles of 
    incorporation and bylaws, shareholder agreements, voting or other trust 
    agreements, franchise agreements, and any other relevant agreements 
    (including letters of intent), oral or written; and
        (3) List and summarize any investor protection agreements, 
    including rights of first refusal, supermajority clauses, options, veto 
    rights, and rights to hire and fire employees and to appoint members to 
    boards of directors or management committees.
        13. Section 1.2113 is added to read as follows:
    
    
    Sec. 1.2113  Construction prior to grant of application.
    
        Subject to the provisions of this section, applicants for licenses 
    awarded by competitive bidding may construct facilities to provide 
    service prior to grant of their applications, but must not operate such 
    facilities until the FCC grants an authorization. If the conditions 
    stated in this section are not met, applicants must not begin to 
    construct facilities for licenses subject to competitive bidding.
        (a) When applicants may begin construction. An applicant may begin 
    construction of a facility upon release of the Public Notice listing 
    the post-auction long-form application for that facility as acceptable 
    for filing.
        (b) Notification to stop. If the FCC for any reason determines that 
    construction should not be started or should be stopped while an 
    application is pending, and so notifies the applicant, orally (followed 
    by written confirmation) or in writing, the applicant must not begin 
    construction or, if construction has begun, must stop construction 
    immediately.
        (c) Assumption of risk. Applicants that begin construction pursuant 
    to this section before receiving an authorization do so at their own 
    risk and have no recourse against the United States for any losses 
    resulting from:
        (1) Applications that are not granted;
        (2) Errors or delays in issuing public notices;
        (3) Having to alter, relocate or dismantle the facility; or
        (4) Incurring whatever costs may be necessary to bring the facility 
    into compliance with applicable laws, or FCC rules and orders.
        (d) Conditions. Except as indicated, all pre-grant construction is 
    subject to the following conditions:
        (1) The application does not include a request for a waiver of one 
    or more FCC rules;
        (2) For any construction or alteration that would exceed the 
    requirements of Sec. 17.7 of this chapter, the licensee has notified 
    the appropriate Regional Office of the Federal Aviation Administration 
    (FAA Form 7460-1), filed a request for antenna height clearance and 
    obstruction marking and lighting specifications (FCC Form 854) with the 
    FCC, PRB, Support Services Branch, Gettysburg, PA 17325;
        (3) The applicant has indicated in the application that the 
    proposed facility would not have a significant environmental effect, in 
    accordance with Secs. 1.1301 through 1.1319;
        (4) Under applicable international agreements and rules in this 
    part, individual coordination of the proposed channel assignment(s) 
    with a foreign administration is not required; and
        (5) Any service-specific restrictions not listed herein.
    
    PART 21--DOMESTIC PUBLIC FIXED RADIO SERVICES
    
        14. The authority citation for part 21 continues to read as 
    follows:
    
        Authority: Secs. 1, 2, 4, 201-205, 208, 215, 218, 303, 307, 313, 
    403, 404, 410, 602, 48 Stat. as amended, 1064, 1066, 1070-1073, 
    1076, 1077, 1080, 1082, 1083, 1087, 1094, 1098, 1102; 47 U.S.C. 151, 
    154, 201-205, 208, 215, 218, 303, 307, 313, 314, 403, 404, 602; 47 
    U.S.C. 552, 554, unless otherwise noted.
    
        15. Section 21.959 is amended by revising paragraph (a)(2) to read 
    as follows:
    
    
    Sec. 21.959  Withdrawal, default, and disqualification.
    
    * * * * *
        (a) * * *
        (2) Default or disqualification after close of auction. See 
    Sec. 1.2104 (g)(2) of this chapter.
    * * * * *
        16. Section 21.960 is amended by revising paragraphs (b)(4) and 
    (d)(1) to read as follows:
    
    
    Sec. 21.960  Designated entity provisions for MDS.
    
    * * * * *
        (b) * * *
        (4) Conditions and obligations. See Sec. 1.2110(f)(4) of this 
    chapter.
    * * * * *
        (d) * * *
        (1) Unjust enrichment. See Sec. 1.2111 of this chapter.
    * * * * *
    
    PART 24--PERSONAL COMMUNICATIONS SERVICES
    
        17. The authority citation for part 24 continues to read as 
    follows:
    
        Authority: 47 U.S.C. Sections 154, 301, 302, 303, and 332, 
    unless otherwise noted.
    
        18. Section 24.304 is amended by revising paragraph (a)(2) to read 
    as follows:
    
    
    Sec. 24.304  Withdrawal, default and disqualification penalties.
    
        (a) * * *
        (2) Default or disqualification after close of auction. See 
    Sec. 1.2104(g)(2) of this chapter.
    * * * * *
        19. Section 24.309 is amended by revising paragraphs (b) and (f) to 
    read as follows:
    
    
    Sec. 24.309  Designated entities
    
    * * * * *
        (b) Designated entities will be eligible for certain special 
    narrowband PCS provisions as follows:
        (1) Installment payments. (i) Small businesses, including small 
    businesses owned by members of minority groups and women, will be 
    eligible to pay the full amount of their winning bids on any regional, 
    MTA or BTA license in installments over the term of the license 
    pursuant to the terms set forth in Sec. 1.2110(g) of this chapter.
        (ii) Businesses owned by members of minority groups and women that 
    are winning bidders for the regional licenses indicated by an (**) in 
    Sec. 24.129 may pay the full amount of their winning bids (less the 
    applicable bidding credit and down payment) in installments with
        (A) Interest imposed based on the rate for ten-year U.S. Treasury 
    obligations applicable on the date the license is granted, plus 2.5 
    percent;
        (B) Interest-only payments for the first two years; and
        (C) Principal and interest payments amortized over the remaining 
    eight years of the license.
        (2) Bidding credits. Businesses owned by member of minority groups 
    and women, including small businesses owned by members of minority 
    groups and women, will be eligible for a twenty-five (25) percent 
    bidding credit when bidding on the following licenses:
        (i) The nationwide licenses on Channel 5, Channel 8 and Channel 11; 
    and
        (ii) All MTA licenses on Channel 19, Channel 22, Channel 24; and
        (iii) All BTA licenses on Channel 26. This bidding credit will 
    reduce by 25 percent the bid price that businesses owned by members of 
    minority groups
    
    [[Page 2349]]
    
    and women will be required to pay to obtain a license. Businesses owned 
    by women and/or minorities, including small businesses owned by women 
    and/or minorities will be eligible for a forty (40) percent bidding 
    credit when bidding on all regional licenses on Channel 13 and Channel 
    17. In Sec. 24.129, the licenses that will be eligible for 25 percent 
    bidding credits are indicated by an (*); the licenses that will be 
    eligible for 40 percent bidding credits are indicated by an (**).
    * * * * *
        (f) Unjust enrichment. Designated entities using installment 
    payments, bidding credits or tax certificates to obtain a narrowband 
    PCS license will be subject to the unjust enrichment provisions 
    contained in Sec. 1.2111 of this chapter.
        20. Section 24.704 is amended by revising paragraph (a)(2) to read 
    as follows:
    
    
    Sec. 24.704  Withdrawal, default and disqualification penalties.
    
        (a) * * *
        (2) Default or disqualification after close of auction. See 
    Sec. 1.2104(g)(2) of this chapter.
    * * * * *
        21. Section 24.711 is amended by revising paragraphs (b) and (c) to 
    read as follows:
    
    
    Sec. 24.711  Upfront payments, down payments and installment payments 
    for licenses for frequency Block C.
    
    * * * * *
        (b) Installment payments. Each eligible licensee of frequency Block 
    C or F may pay the remaining 90 percent of the net auction price for 
    the license in installment payments pursuant to Sec. 1.2110(g) of this 
    chapter and under the following terms:
        (1) For an eligible licensee with gross revenues exceeding $75 
    million (calculated in accordance with Sec. 24.709(a)(2) and (b)) in 
    each of the two preceding years (calculated in accordance with 
    Sec. 24.720(f)), interest shall be imposed based on the rate for ten-
    year U.S. Treasury obligations applicable on the date the license is 
    granted, plus 3.5 percent; payments shall include both principal and 
    interest amortized over the term of the license.
        (2) For an eligible licensee with gross revenues not exceeding $75 
    million (calculated in accordance with Sec. 24.709(a)(2) and (b)) in 
    each of the two preceding years, interest shall be imposed based on the 
    rate for ten-year U.S. Treasury obligations applicable on the date the 
    license is granted, plus 2.5 percent; payments shall include interest 
    only for the first year and payments of interest and principal 
    amortized over the remaining nine years of the license term.
        (3) For an eligible licensee that qualifies as a Small business or 
    as a consortium of small businesses, interest shall be imposed based on 
    the rate for ten-year U.S. Treasury obligations applicable on the date 
    the license is granted, plus 2.5 percent; payments shall include 
    interest only for the first two years and payments of interest and 
    principal amortized over the remaining eight years of the license term.
        (4) For an eligible licensee that qualifies as a business owned by 
    members of minority groups and/or women, interest shall be imposed 
    based on the rate for ten-year U.S. Treasury obligations applicable on 
    the date the license is granted; payments shall include interest only 
    for the first three years and payments of interest and principal 
    amortized over the remaining seven years of the license term.
        (5) For an eligible licensee that qualifies as a small business 
    owned by members of minority groups and/or women or as a consortium of 
    small business owned by members of minority groups and/or women, 
    interest shall be imposed based on the rate for ten-year U.S. Treasury 
    obligations applicable on the date the license is granted; payments 
    shall include interest only for the first six years and payments of 
    interest and principal amortized over the remaining four years of the 
    license term.
        (c) Unjust enrichment. See Sec. 1.2111 of this chapter.
        22. Section 24.712 is amended by adding paragraph (c) to read as 
    follows:
    
    
    Sec. 24.712  Bidding credits for licenses for frequency Block C.
    
    * * * * *
        (c) Unjust enrichment. See Sec. 1.2111 of this chapter.
        23. Section 24.716 is amended by revising paragraph (c) and (d) to 
    read as follows:
    
    
    Sec. 24.716  Upfront payments, down payments, and installment payments 
    for licenses for frequency Block F.
    
    * * * * *
        (c) Late installment payments. See Sec. 1.2110(f)(4) of this 
    chapter.
        (d) Unjust enrichment. See Sec. 1.2111 of this chapter.
        24. Section 24.717 is amended by revising paragraph (c) to read as 
    follows:
    
    
    Sec. 24. 717  Bidding credits for licenses for frequency Block F.
    
    * * * * *
        (c) Unjust enrichment. See Sec. 1.2111 of this chapter.
    
    PART 27--WIRELESS COMMUNICATIONS SERVICE
    
        25. The authority citation for part 27 continues to read as 
    follows:
    
        Authority: 47 U.S.C. Sections 154, 301, 302, 303, 307, 309 and 
    332, unless otherwise noted.
    
        26. Section 27.203 is amended by revising paragraph (b) to read as 
    follows:
    
    
    Sec. 27.203  Withdrawal, default and disqualification payments.
    
    * * * * *
        (b) Default or disqualification after close of auction. See 
    Sec. 1.2104(g)(2) of this chapter.
        27. Section 27.209 is amended by revising paragraph (d) to read as 
    follows:
    
    
    Sec. 27.209  Designated entities; bidding credits; unjust enrichment.
    
    * * * * *
        (d) Unjust enrichment. See Sec. 1.2111 of this chapter.
    
    PART 90--PRIVATE LAND MOBILE RADIO SERVICES
    
        28. The authority citation for part 90 continues to read as 
    follows:
    
        Authority: Secs. 4, 251-2, 303, 309 and 332, 48 Stat. 1066, 
    1082, as amended; 47 U.S.C. 154, 251-2, 303, 309 and 332, unless 
    otherwise noted.
    
        29. Section 90.805 is amended by revising paragraph (c) to read as 
    follows:
    
    
    Sec. 90.805  Withdrawal, default and disqualification payments.
    
    * * * * *
        (c) Default or disqualification after close of auction. See 
    Sec. 1.2104 (g)(2) of this chapter.
        30. Section 90.812 is amended by revising paragraphs (a) and (b) to 
    read as follows:
    
    
    Sec. 90.812  Installment payments for licensees won by small 
    businesses.
    
        (a) Installment payments. See Sec. 1.2110(f)(4) of this chapter.
        (b) Unjust enrichment. See Sec. 1.2111(c) of this chapter.
    
    PART 95--PERSONAL RADIO SERVICES
    
        31. The authority citation for part 95 continues to read as 
    follows:
    
        Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47 
    U.S.C. 154, 303.
    
        32. Section 95.816 is amended by revising paragraphs (c)(6) and (e) 
    to read as follows:
    
    
    Sec. 95.816  Competitive bidding proceedings.
    
    * * * * *
    
    [[Page 2350]]
    
        (c) * * *
        (6) Default or disqualification. See Sec. 1.2104 (g)(2) of this 
    chapter.
    * * * * *
        (e) Unjust enrichment. See Sec. 1.2111 of this chapter.
    * * * * *
    [FR Doc. 98-823 Filed 1-14-98; 8:45 am]
    BILLING CODE 6712-01-P
    
    
    

Document Information

Effective Date:
3/16/1998
Published:
01/15/1998
Department:
Federal Communications Commission
Entry Type:
Rule
Action:
Final rule.
Document Number:
98-823
Dates:
March 16, 1998.
Pages:
2315-2350 (36 pages)
Docket Numbers:
WT Docket No. 97-82, ET Docket No. 94-32, FCC 97-413
PDF File:
98-823.pdf
CFR: (37)
47 CFR 1.2105(a)(2)(viii)
47 CFR 1.2109(b)
47 CFR 24.720(f))
47 CFR 1.2104(g)(2)
47 CFR 1.2104(g)(2)
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