01-2248. Auction of Licenses in the 747-762 and 777-792 MHz Bands Scheduled for March 6, 2001; Modifications to the Calculation for Determining Minimum Acceptable Bids and the Provisions Concerning “Last and Best Bids” and Other Procedural Issues

AGENCY:

Federal Communications Commission.

ACTION:

Notice.

SUMMARY:

This document announces two refinements to the package bidding procedures for Auction No. 31. We adopt our proposal to change part (iii) of the formula for determining minimum acceptable bids to incorporate a shortfall allocation. This revision will ensure a reasonable auction pace and a timely close of the auction. We also adopt our proposal to change provisions concerning last and best bids to allow a bidder to submit up to two sets of last and best bids. This is likely to produce a more efficient assignment of licenses because it permits bidders to express their valuations more precisely. In addition, the Bureau highlights for prospective bidders the dates already set forth for the conduct of Auction No. 31 and recent changes to the Competitive Bidding Rules. To further facilitate participation in the first auction that will allow package bidding as an option, the Bureau has included, in Attachments A and B to the Public Notice, a summary of the provisions that will govern package bidding in this auction and a chart that summarizes package bidding activity calculations, respectively.

DATES:

Auction No. 31 is scheduled for March 6, 2001.

FOR FURTHER INFORMATION CONTACT:

Walter D. Strack, Bureau Chief Economist, Wireless Telecommunications Bureau, [phone]; Evan Kwerel, Senior Economist, Office of Plans and Policy, [phone]; Howard Davenport, Auctions Attorney; Craig Bomberger, Auctions Analyst; or Karen Wrege, Auctions and Industry Analysis Division, Wireless Telecommunications Bureau, [phone].

SUPPLEMENTARY INFORMATION:

This is a summary of a public notice released January 5, 2001. The complete text of the public notice, including the attachments, is available for inspection and copying during normal business hours in the FCC Reference Center (Room CY-A257), 445 12th Street, SW., Washington, DC 20554. It may also be purchased from the Commission's copy contractor, International Transcription Services, Inc. (ITS, Inc.) 1231 20th Street, NW., Washington, DC 20036, [phone]. It is also available on the Commission's web site at http://www.fcc.gov.

List of Attachments available at the FCC:

ATTACHMENT A—Summary of Package Bidding Rules for 700 MHz Auction

ATTACHMENT B—Package Bidding Activity Calculations

ATTACHMENT C—FCC Auction Seminar Registration Form

ATTACHMENT D—Guidelines for Completion of FCC Form 175 and Exhibits

ATTACHMENT E—Electronic Filing and Review of the FCC Form 175

ATTACHMENT F—Accessing the FCC Network to File FCC Form 175

ATTACHMENT G—FCC Bidding Preference/Remote Security Access Cards Software Order Form

I. General

1. On July 3, 2000, the Wireless Telecommunications Bureau (Bureau) announced the procedures for implementing package bidding for Auction No. 31. After further testing and analysis, the Bureau issued Auction No. 31 Package Bidding Further Comment Public Notice, 65 FR 66752 (November 7, 2000) proposing changes to and seeking comment on the following matters: (i) The calculation for determining minimum acceptable bids; and (ii) the provisions concerning last and best bids. In response to the Auction No. 31 Package Bidding Further Comment Public Notice, three comments were filed and no reply comments were filed.

II. Calculation for Determining Minimum Acceptable Bids

Background

2. In the Auction No. 31 Package Bidding Procedures Public Notice, 65 FR 43361 (July 13, 2000) the Bureau adopted a three-part formula for determining minimum acceptable bids. Specifically, the minimum acceptable bid for any license or package would be the greater of: (i) the minimum opening bid; (ii) the bidder's own previous high bid on that package plus x%, where the Bureau would specify the value of x in each round; and (iii) the number of bidding units for the license or package multiplied by the lowest $/bidding unit on any provisionally winning package in the last 5 rounds.

3. In the Auction No. 31 Package Bidding Further Comment Public Notice, we proposed to replace part (iii) of the minimum acceptable bid formula with the sum of a bidder's previous high bid on a license/package and a share of the increase in revenue needed to tie the provisional winners. We defined the shortfall associated with a license/package as the difference between the revenue of the provisionally winning bid set and the maximum total revenue associated with the set of bids that includes that particular license/package. The deficit was defined as an allocation of the shortfall to the particular license/package in proportion to its share of bidding units relative to those associated with bids that were not part of the provisionally winning set but are part of the set that maximizes revenue when including the particular license/package. (When there is more than one set of bids that yields the same shortfall for a given bid, we proposed to choose the shortfall set that includes the most provisionally winning bidding units.) We proposed to set part (iii) of the minimum acceptable bid formula initially to be a bidder's previous high bid on a license/package plus 100 percent of the deficit, but retain the discretion to adjust the percentage of the deficit during the course of the auction to provide control over the auction's pace.

Discussion

4. Pekec and Rothkopf agree that using the shortfall calculation in the determination of the minimum acceptable bid price is a clear improvement to the originally proposed calculation. However, they believe that the allocation of this calculated shortfall should be proportional to bid amounts rather than bidding units.

5. The Bureau acknowledges that if all bidders bid in a straightforward fashion, it is likely that current prices would be the best estimate of the relative values of the licenses/packages. Under these circumstances, the proposal made by Pekec and Rothkopf might be a better approach to allocating the shortfall than that set forth by the Bureau. However, the Bureau is concerned with two potential consequences of implementing a procedure that allocates shortfall based on bid amounts. Such an allocation of the shortfall would (i) provide an incentive for bidders to game the auction by bidding up the price on a license/package that would partner with their own license/package in order to shift the burden of the shortfall to another bidder; and (ii) afford to bidders that have not bid on a license/package for some time the ability to “park” (i.e., make bids that receive eligibility activity credit but have little prospect of winning) on that license/package since potentially small allocations of shortfall will be added to a bid amount that is well below the amount needed to become a provisional winner. Consequently, the Bureau believes that using bidding units to allocate the shortfall provides an efficient mechanism for determining the minimum bid increment added to a bidder's previous high bid. In addition, if the minimum acceptable bid price is too high, bidders will have the opportunity to bid a price less than that amount if they choose to exit the auction via last and best bids.

6. In the Auction No. 31 Package Bidding Further Comment Public Notice, we proposed an exception to the modified minimum acceptable bid formula for new packages. We proposed that part (iii) of the formula for the initial minimum acceptable bid for any package other than a global package created during the auction will continue to be calculated by multiplying the number of bidding units in the package by the lowest $/bidding unit of any provisionally winning bid in the last five rounds.

7. Pekec and Rothkopf argue that we should calculate the minimum acceptable bid for new packages the same way as for all other bids and calculate the minimum acceptable bid prices for all possible packages and licenses regardless of whether the bidder has bid on a license/package. We note that this would require the determination of minimum acceptable bid values equal to the total number of possible combinations of the twelve licenses times the number of bidders, with most of the calculations never being used. Alternatively, we could provide for immediate minimum acceptable bid calculations for any new package, but that could allow individuals to flood the FCC bidding system with requests and possibly disrupt the auction.

8. Balancing operational considerations with the desire to set the minimum acceptable bid at a level that provides a realistic chance of a bid becoming a provisional winner, the Bureau adopts the procedure proposed in the Auction No. 31 Package Bidding Further Comment Public Notice. For a new package created after the close of the prior round, part (iii) of the initial minimum acceptable bid will be calculated by multiplying the number of bidding units in the package by the lowest $/bidding unit of any provisionally winning bid in the last five rounds. This exception will not apply to a global package whose minimum acceptable bid will always be (a percentage of) the maximum revenue from the previous round.

9. After each round, the Bureau will, for every bidder, calculate part (iii) of the minimum acceptable bid price based on shortfall allocation for every license and for every constructed package. When there is no previous high bid because the bidder has not bid on a license or an already created package, we will use the minimum opening bid as the previous high bid to calculate part (iii) of the minimum acceptable bid rule; and part (ii) of the rule does not apply.

III. “Last and Best” Bids

Background

10. In the Auction No. 31 Package Bidding Procedures Public Notice the Bureau adopted a “last and best” bid procedure. Specifically, bidders that wish to drop out of the auction would have the opportunity before they drop out to make a “last and best” bid on any packages for which they remain eligible. Such bids could be of any amount (in thousand dollar increments) between their previous high bid and the minimum acceptable bid. A bidder that submits a last and best bid(s) would not be permitted to make any further bids in the auction.

11. In the Auction No. 31 Package Bidding Further Comment Public Notice, we proposed modifying the last and best bid procedure to allow a bidder to submit two sets of mutually exclusive last and best bids. We proposed that in determining the provisionally winning bid(s), the round solver would consider these two sets of mutually exclusive bids as well as any of the bidder's bids that remain in the provisionally winning set.

Discussion

12. In their comments, Pekec and Rothkopf state that the Bureau's proposed modifications, particularly in the case of last and best bid provisions, are of limited importance and are not sufficient to affect the overall quality of the auction.

13. Verizon supports the Bureau's general plan to allow bidders the opportunity to make a last and best bid on any package for which they remain eligible before they drop out of the auction. However, Verizon disagrees with the Bureau's decision to prohibit from further bidding a bidder that chooses to make a last and best bid. Verizon claims that the Bureau's proposal is inconsistent with the public interest because it could prematurely reduce the number of participants in the auction, ultimately resulting in an inefficient assignment of licenses. Verizon urges the Bureau to apply the last and best bid option to licenses and packages, rather than bidders. Verizon further requests that the Bureau clarify or confirm that the second opportunity to place a last and best bid means that a bidder whose last and best bid was bested by another bidder has an opportunity to place an additional last and best bid on another license or package. Verizon also asks that the Bureau provide bidders an example that applies this two-round process to a hypothetical set of last and best bids.

14. The Bureau clarifies the procedure for placing last and best bids as follows. A bidder may make up to two sets of last and best bids. The two sets of last and best bids must be submitted in a single round, but will be treated as mutually exclusive, as are bids placed in two separate rounds. Once last and best bids are placed, the bidder will not be permitted to place new bids or renew previous bids in any subsequent round. If a bidder chooses to submit two sets of last and best bids, then, for the remainder of the auction, the “solver” (computer software) will consider those two sets of bids. If a bidder chooses to submit only one set of last and best bids, then, for the remainder of the auction, the solver will consider this set of bids and the set of bids from the last round in which the bidder placed bids. The only other bids that would be considered in a round for a bidder that places last and best bids are provisionally winning bids from the previous round.

15. Each set of last and best bids may consist of bids on any or all of the licenses and any or all of the packages created by the bidder, consistent with the activity rules and the twelve package limitation. The last and best bid amount for any license or package is any amount, in thousand dollar increments, greater than or equal to the bidder's previous high bid on the license or package and less than or equal to the ninth increment above the minimum acceptable bid for that license or package. Note that placing a last and best bid equal to the bidder's previous high bid will be considered as a renewed bid when applying activity rules. Also, if the bidder has never placed a bid on a package or license, the lower bound on the last and best bid amount is equal to the minimum opening bid for that package or license.

16. The Bureau believes that the procedure for placing last and best bids provides a bidder that is dropping out of the auction with sufficient flexibility to pursue its current business strategies, while maintaining bidding rules consistent with the overall auction structure. Moreover, providing bidders with opportunities in each round to place bids below the minimum acceptable bid amount may significantly slow the pace of the auction. Having a bidder-specific procedure, rather than a bid-specific procedure, is also more straightforward to implement. The Bureau believes that bidders are unlikely to exit the auction prematurely, as Verizon argues, because they may renew their bids and utilize activity rule waivers to prevent eligibility reduction.

The following is a simple example of the procedures for last and best bids. Bidder A desires to win the Great Lakes 10 MHz license and either a package of the two licenses in the Pacific region or a package of the two licenses in the Northeast region. To meet this objective, Bidder A has been bidding on the Great Lakes 10 MHz license and a package consisting of both the 10 MHz and the 20 MHz licenses in the Pacific region in even rounds while bidding on the Great Lakes 10 MHz license and a package consisting of both the 10 MHz and the 20 MHz licenses in the Northeast region in odd rounds. Because of the mutual exclusivity of bids placed in different rounds, this strategy will ensure that Bidder A does not win more than it wants. Suppose that Bidder A has decided to place last and best bids. Bidder A may create a set of last and best bids comprised of a bid on the Great Lakes 10 MHz license and a bid on the Pacific region package. Bidder A may also submit a second set of last and best bids comprised of a bid on the Great Lakes 10 MHz license and a bid on the Northeast region package. In this example, the last and best bid procedure affords the bidder the opportunity to value the Great Lakes 10 MHz license differently in the two sets according to its synergistic relation to the other bids in each set.

IV. Ties With the FCC at the Minimum Opening Bid

17. In the Auction No. 31 Package Bidding Procedures Public Notice, we stated that individual licenses on which no bids are available to be considered when solving for the provisionally winning set will be treated as having a bid by the FCC at the minimum opening bid. We now wish to clarify treatment of FCC bids where there are other bids available to be considered for the provisionally winning set. Implementing the minimum opening bid requirement by treating the FCC as having a bid on each license at the minimum opening bid could result in the FCC retaining a license even though a bidder had an equivalent minimum opening bid on that license. To ensure that a bid on a license or package at the minimum opening bid always beats the FCC bid, the Bureau will treat all licenses as having FCC bids at some small amount less than the minimum opening bid.

V. Comments on Other Package Bid Provisions

18. Comments filed by Paul Milgrom and Charles Plott addressed some matters that are beyond the scope of the Auction No. 31 Package Bidding Further Comment Public Notice and upon which other parties have not had an opportunity to comment. That document sought comment specifically on the calculation for determining minimum acceptable bids and the last and best bid procedures. While we appreciate the input provided by commenters, we cannot at this time make any further changes to our package bidding procedures. The auction is scheduled to begin on March 6, 2001, and short-form applications are due on February 2, 2001. We are confident that the package bidding procedures we have established for Auction No. 31 will work effectively. We will revisit our package bidding procedure whenever we consider the use of package bidding for another auction.

VI. Auction Schedule

19. The Commission set forth the following dates which will govern the conduct of Auction No. 31:

Opening of the Form 175 Filing Window: January 11, 2001

Bidders' Seminar: January 23, 2001

Industry Test: January 24-26, 2001; 9 a.m. to 5 p.m. ET

Filing Deadline for FCC Form 175: February 2, 2001; 6 p.m. ET

Upfront Payment Deadline: February 16, 2001; 6 p.m. ET

Bidding Preference Form Deadline: February 20, 2001; 6 p.m. ET

Mock Auction: March 1-2, 2001

Auction Start Date: March 6, 2001

VII. Industry Test of the Package Bidding System

20. As stated, package bidding is a new concept in our auctions program. To further facilitate understanding and participation, the Bureau has scheduled an industry test that will help potential bidders and other interested parties to become familiar with the system. The industry test will run from 9 a.m. to 5 p.m. Eastern Time on January 24, 25 & 26, 2001. The test software, like the auction software, will run over the Internet. To use this software, your computer must have the minimum hardware and software listed in the attachment titled Electronic Filing and Review of the FCC Form 175.

21. To participate in the test, send an e-mail to [e-mail] by 4 p.m. ET on January 17, 2001. Please include your company name and the name and e-mail address of the person we should contact with any questions. If you want our response sent to a different address than where you sent from, please include that return e-mail address as well. The Bureau will e-mail to that address the URL of our test system, along with a bidder ID and password that you will need to access the system.

VIII. Due Diligence

22. Potential bidders are reminded that there are a number of incumbent broadcast television licensees already licensed and operating in the 746-764 and 776-794 MHz bands (television Channels 60-62 and 65-67) that will be subject to the upcoming auction. Listed in Attachment J to the Auction No. 31 Procedures Public Notice, 65 FR 21196 (April 20, 2000) are facilities of incumbent television permittees and licensees on television Channels 60-62 and 65-67 as well as on adjacent television Channels 59, 63, 64, and 68. However, prospective bidders should not rely solely on this list, but should carefully review the Commission's databases and records before formulating bidding strategies.

23. In addition, there are several pending applications and rule making petitions for new analog and digital television authorizations on channel 59 which, if granted, would become additional incumbents on that channel. Information on pending applications can be found in the Mass Media Bureau's Consolidated Database System on the Commission's website. The Commission makes no representations or guarantees regarding the accuracy or completeness of information that has been incorporated into the databases. Potential bidders are strongly encouraged to physically inspect any sites located in or near the geographic area for which they plan to bid.

24. As more fully discussed in the Auction No. 31 Procedures Public Notice, we remind potential bidders that certain applications (including those for modification), petitions for rulemaking, waiver requests, requests for special temporary authority (“STA”), petitions to deny, petitions for reconsideration, and applications for review may be pending before the Commission that relate to the facilities listed in Attachment J to the Auction No. 31 Procedures Public Notice. We again note that resolution of these pending matters could have an impact on the availability of spectrum for licensees in the 746-764 and 776-794 MHz bands. While the Commission will continue to act on pending matters, some of these matters may not be resolved by the time of Auction No. 31. Potential bidders are strongly encouraged to conduct their own research prior to Auction No. 31 in order to determine the existence of pending proceedings that might affect their decisions regarding participation in the auction. Participants in Auction No. 31 are strongly encouraged to continue such research during the auction.

IX. Other Procedural Issues

25. Since the release of the Auction No. 31 Package Bidding Procedures Public Notice, there have been changes in the Competitive Bidding Rules that will apply to Auction No. 31. The Bureau has set forth significant amendments to the Competitive Bidding Rules, but it is the responsibility of each applicant to carefully review and comply with all applicable rules.

Ownership Disclosure Requirements (Form 175 Exhibit A)

26. All applicants must comply with the uniform part 1 ownership disclosure standards and provide information required by §§ 1.2105 and 1.2112 of the Commission's rules. Specifically, in completing Form 175, applicants will be required to file an Exhibit A providing a full and complete statement of the ownership of the bidding entity. The ownership disclosure standards for the short-form are set forth in § 1.2112 of the Commission's rules.

Provisions Regarding Defaulters and Former Defaulters (Form 175, Exhibit D)

27. Each applicant must certify on its FCC Form 175 application that it is not in default on any Commission licenses and that it is not delinquent on any non-tax debt owed to any Federal agency. In addition, each applicant must attach to its FCC Form 175 application a statement made under penalty of perjury indicating whether or not the applicant (or any of the applicant's controlling interests or their affiliates, as defined by § 1.2110 of the Commission's rules, as recently amended in the Part 1 Fifth Report and Order) has ever been in default on any Commission licenses or has ever been delinquent on any non-tax debt owed to any federal agency. Applicants must include this statement as Exhibit D of the FCC Form 175. Prospective bidders are reminded that the statement must be made under penalty of perjury and that submission of a false certification to the Commission is a serious matter that may result in severe penalties, including monetary forfeitures, license revocations, exclusion from participation in future auctions, and/or criminal prosecution.

28. “Former defaulters”—i.e., applicants, including their attributable interest holders, that in the past have defaulted on any Commission licenses or been delinquent on any non-tax debt owed to any Federal agency, but that have since remedied all such defaults and cured all of their outstanding non-tax delinquencies—are eligible to bid in Auction No. 31, provided that they are otherwise qualified. However, as discussed, former defaulters are required to pay upfront payments that are fifty percent more than the normal upfront payment amounts.

Amount of Upfront Payment

29. In the Part 1 Order, Memorandum Opinion and Order, and Notice of Proposed Rule Making, 62 13540 (March 21, 1997) the Commission delegated to the Bureau the authority and discretion to determine an appropriate upfront payment for each license being auctioned. The Bureau set forth the amount of the upfront payment associated with each of the 12 licenses available in this auction. Those amounts remain unchanged.

30. The upfront payment amount for “former defaulters,” i.e., applicants that have ever been in default on any Commission license or have ever been delinquent on any non-tax debt owed to any Federal agency, will be fifty percent more than the normal amount required to be paid. Former defaulters should calculate their upfront payment for all licenses by multiplying the number of bidding units they wish to purchase by 1.5. In calculating the number of bidding units to assign to former defaulters, the Commission will divide the upfront payment received by 1.5 and round the result up to the nearest bidding unit.

X. Changes to Post Auction Procedures

Tribal Land Bidding Credit

31. A winning bidder that intends to use its license(s) to deploy facilities and provide services to federally-recognized tribal lands that are unserved by any telecommunications carrier or that have a telephone service penetration rate equal to or below 70 percent is eligible to receive a tribal land bidding credit as set forth in 47 CFR 1.2107 and 1.2110(e). A tribal land bidding credit is in addition to, and separate from, any other bidding credit for which a winning bidder may qualify.

32. Unlike other bidding credits that are requested prior to the auction, a winning bidder applies for the tribal land bidding credit after winning the auction when it files its long-form application (FCC Form 601). In order for a winning bidder to be awarded a tribal land bidding credit, it must provide specific certifications regarding the servicing of tribal lands and is subject to specific performance criteria as set forth in 47 CFR 1.2110(e).

33. For additional information on the tribal land bidding credit, including how to determine the amount of credit available, see Public Notice, DA 00-2219, released September 28, 2000, entitled Wireless Telecommunications Bureau Announces Availability of Bidding Credits for Providing Wireless Services to Qualifying Tribal Lands, 15 FCC Rcd. 18351 (2000).

Auctions Discount Voucher

34. On June 8, 2000, the Commission awarded Qualcomm, Inc. a transferable Auction Discount Voucher in the amount of $125,273,878.00. This, Auction Discount Voucher may be used by Qualcomm or its transferee, in whole or in part, to adjust a winning bid in any spectrum auction prior to June 8, 2003, subject to terms and conditions set forth in the Commission's Order.

Federal Communications Commission.

Margaret Wiener,

Chief, Auctions and Industry Analysis Division, Wireless Telecommunications Bureau.