[Federal Register Volume 59, Number 204 (Monday, October 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26437]
[[Page Unknown]]
[Federal Register: October 24, 1994]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 24
[PP Docket No. 93-253, FCC 94-264]
Implementation of Section 309(j) of the Communications Act--
Competitive Bidding
AGENCY: Federal Communications Commission.
ACTION: Final rule; petitions for reconsideration.
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SUMMARY: In this Fourth Memorandum Opinion and Order the Commission
resolves petitions for reconsideration or clarification of its rules
governing the methodology and procedure for auctions to provide
Personal Communications Services in the 2 GHz band (called ``broadband
PCS'').
The rules and decisions made in this Fourth Memorandum Opinion and
Order are designed to result in auctions that will award licenses to
those who value them most highly. To achieve this goal, the Commission
adopts auction rules that balance the need to allow bidders the
information necessary to express the interdependency of licenses with
the need to minimize complexity of the auctions. The Commission
believes these rules strike a proper balance between these objectives.
EFFECTIVE DATE: October 24, 1994.
FOR FURTHER INFORMATION CONTACT: Kathleen O'Brien Ham at (202) 634-
2443, or Florence Setzer at (202) 418-2038.
SUPPLEMENTARY INFORMATION: This Fourth Memorandum Opinion and Order in
PP Docket No. 93-253, adopted October 19, 1994, and released October
19, 1994, is available for inspection and copying during normal
business hours in the FCC Dockets Branch, Room 230, 1919 M Street, NW.,
Washington, DC. The complete text may be purchased from the
Commission's copy contractor, International Transcription Service,
Inc., 2100 M Street, NW., Suite 140, Washington, DC 20037, telephone
(202) 857-3800.
Specifically, the Commission re-examines aspects of its rules
concerning: simultaneous multiple-round auction design and procedures;
application, payment and penalty procedures; and regulatory safeguards.
In a future Order, the Commission will consider whether the public
interest would be served by changing its entrepreneurs' block rules, as
well as other provisions established to ensure that small businesses,
rural telephone companies and businesses owned by minorities and women
(collectively termed ``designated entities'') have a meaningful
opportunity to participate in the provision of broadband PCS.
Synopsis of the Fourth Memorandum Opinion and Order
1. On August 10, 1993, the Omnibus Budget Reconciliation Act of
1993 (the Budget Act) added Section 309(j) to the Communications Act of
1934, as amended, 47 U.S.C. Sec. 309(j). This section gives the
Commission express authority to employ competitive bidding procedures
to select among mutually exclusive applications for certain initial
licenses. In the Second Report and Order in this docket, the Commission
exercised its authority by determining that broadband PCS licenses
should be awarded through competitive bidding and prescribing general
rules and procedures and a broad menu of competitive bidding methods to
be used for all auctionable services. The Commission re-examined
certain aspects of these general rules and procedures in the Second
Memorandum Opinion and Order, released August 15, 1994.
2. In the Fifth Report and Order, released July 15, 1994, the
Commission established specific competitive bidding rules for broadband
PCS. As described more fully below, these rules, in part, set forth
auction methodology, procedure, payment and safeguard provisions. The
Commission decided to conduct each auction through simultaneous
multiple-round bidding with simultaneous stopping rules. Under that
approach, bidding will remain open on all licenses until the bidding
closes on all licenses in the auction. It also established a variety of
rules governing bid increments and bidding activity to move the
auctions toward completion in a reasonable period of time. In addition,
the Commission retained the ability to use other approaches, including
sequential auctions for the licenses, and to make other adjustments to
the auction process as necessary. Finally, it established pre- and
post-auction application procedures; payment and default penalties; and
other safeguards to prevent collusion among applicants.
Standby Bidding Queues
3. In the Fifth Report and Order, the Commission determined that
the simultaneous multiple-round auction design would be the preferred
methodology for broadband PCS auctions, primarily because there is
significant interdependency among the licenses to be auctioned, and the
simultaneous multiple-round auction design facilitates more efficient
aggregation and imparts to bidders greater amounts of information
regarding license values than the other auction designs. It reserved
the authority, however, to use combinatorial bidding techniques in
conjunction with simultaneous multiple-round auctions to further
facilitate the efficient aggregation of licenses. On reconsideration of
the general auction rules adopted in this proceeding, the Commission
also noted that we would consider the use of a standby queue mechanism
if it elected to use combinatorial bidding techniques. The standby
queue would allow parties seeking individual licenses to coordinate
their bids in order to beat a prevailing bid for a combination of
licenses.
4. The standby queue is a mechanism that is useful only in the
context of combinatorial bidding, and is inapplicable to simultaneous
multiple-round bidding without combinatorial bidding. As the Commission
noted in the Second Memorandum Opinion and Order, it has no current
plans to use combinatorial bidding. If, however, it does adopt such an
auction methodology in the future, the Commission will consider the use
of a standby queue mechanism at the same time.
Activity Rules
5. In the Fifth Report and Order, the Commission adopted an
activity rule to ensure that the auctions will close within a
reasonable period of time and to increase the information conveyed by
bid prices during each auction. The activity rule requires bidders to
maintain certain minimum levels of bidding activity during each round
of the auction to preserve their maximum bidding eligibility. The rule
provides for three stages with increasing levels of activity required
in each stage. The Commission concluded that in simultaneous auctions
without these requirements, bidders may be inclined to hold back,
causing the auction to progress exceedingly slowly or possibly causing
the auction to close prematurely. Furthermore, bidders would not know
whether a low level of bidding on a license means that the license
price is near its final level or, instead, if many serious bidders are
holding back and may bid up the price later in the auction.
6. The issues raised by petitioner GTE concerning the three-stage
activity rule, and the alternative activity rule proposed by GTE, were
considered in the reconsideration of the Second Report and Order. The
Commission concluded at that time that no changes in the existing
procedures were needed. The Commission sees no reason to revise that
conclusion.
7. As discussed in the Second Memorandum Opinion and Order, the
Commission does not believe, despite GTE's assertion, that its
preferred three-stage activity rule will excessively restrict bidders'
flexibility to bid for desired combinations of licenses, or cause
licenses to be awarded to bidders who value them less than other
bidders. The rules were expressly designed to counteract the incentive
to delay serious bidding that may occur in simultaneous auctions,
without unduly limiting bidders' flexibility to pursue backup
strategies and to use new information. The requirement in the first
stage that bidders remain active on one-third of the MHz-pops for which
they wish to remain eligible constitutes only a minor restriction. By
the time the auction enters stage III (if it ever does), bidding
strategies should be well-advanced.
8. The Commission notes that, in the Second Report and Order, it
retained the flexibility to decide on an auction-by-auction basis, and
to announce by Public Notice before each auction, whether to use an
activity rule, and if so, what type of rule. This flexibility was
retained for broadband PCS in the Fifth Report and Order. Thus, if
experience shows that the three-stage rule is unduly difficult to
administer or excessively restricts bidders' flexibility, the
Commission will have the option to shift to some other activity rule,
including the one recommended by GTE requiring only that bidders be
active on a single license in each round.
9. The Commission also makes some minor adjustments in the activity
rules on its own motion. First, the Commission concludes, after its
experience in conducting the nationwide narrowband auction, that it may
be important to move the auctions from one stage to the next at a
different pace than would occur under the current activity rule.
Accordingly, it retains the discretion to determine and announce during
the course of an auction when, and if, to move from one auction stage
to the next, based on a variety of measures of bidder activity (e.g.,
the percentage of licenses on which there are new bids, the number of
new bids, and the percentage increase in revenue). Bidders will be
notified of the Commission's intention to move to another stage at
least one round prior to the commencement of the next stage of an
auction.
10. The Commission also stated in the Fifth Report and Order that
in stage III, a bidder would have to be active on 100 percent of the
MHz-pops for which it wishes to retain eligibility. In order to allow
bidders greater flexibility, the Commission thinks that it may be
beneficial in auctions where high bidding is expected to reduce this
figure slightly, but in no case below 95 percent. It will announce the
required activity levels for stage III by Public Notice in advance of
each auction.
11. Finally, in the Fifth Report and Order the Commission permitted
bidders one waiver from the activity rule during each stage of an
auction. The Commission stated that if an activity rule waiver is
entered in a round in which no other bidding activity occurs, the
auction will remain open, but stated that it might announce that
submission of a waiver would not keep an auction open under any
circumstances. The Commission also stated that a waiver may be
submitted either in the round in which bidding falls below the level
required to maintain current eligibility, or prior to submitting a bid
in the next round. The Commission now clarifies that it retains the
discretion to modify the method and timing of submitting waivers and
allows for two types of waivers--``proactive'' waivers and
``automatic'' waivers. Both types of waivers will retain a bidder's
eligibility even though its bidding activity in the current round falls
below the required level. However, a proactive waiver invoked in a
round in which there are no new valid bids will keep an auction open,
while an automatic waiver submitted in a round in which no other
bidding activity occurs will not keep an auction open. Proactive
waivers must be requested by the bidder, but automatic waivers will be
submitted automatically for a bidder whenever a bidder's eligibility
would be reduced because of insufficient bidding activity and a waiver
is available. Bidders will be afforded an opportunity to override the
automatic waiver mechanism when they place a bid if they intentionally
wish to reduce their bidding eligibility and do not want to use a
waiver to retain their eligibility at its current level. The Commission
also retains the discretion to change the number of waivers that will
be permitted and the frequency with which they may be exercised by
Public Notice prior to each auction. A change in the rule for moving
from one stage to another may result in many more rounds being
completed in one stage, and may make a rule allowing one waiver per
stage inappropriate. Airtouch also recommends allowing bidders more
flexibility in choosing when to use waivers.
Stopping Rule
12. In the Fifth Report and Order, the Commission adopted a
simultaneous stopping rule for all licenses in an auction. The
Commission determined that this approach would provide bidders full
flexibility to modify their bidding strategy as more information became
available. The Commission further concluded that the activity rule
would help establish a reasonable pace and minimize the risk that
bidders would hold back their bidding until the final rounds. However,
the Commission retained the discretion to use a hybrid stopping rule or
to allow bidding to close individually for BTA licenses if it
determines that the present rule is too complex. In addition, the
Commission retained discretion to declare at any point after 40 rounds
in a simultaneous multiple round auction that the auction will end
after some specified number (probably three) of additional rounds.
However, if the Commission exercises this authority it will accept bids
in the final round(s) only for licenses on which the highest bid had
increased in at least one of the preceding three rounds.
13. The Commission reaffirms that it will in most cases use a
simultaneous stopping rule for simultaneous auctions. The rule has
important efficiency advantages in allowing bidders to pursue backup
strategies and to take advantage of new information from earlier bids.
Further, a simultaneous stopping rule will not prevent the
implementation of regional strategies. The Commission believes bidding
activity in early rounds will provide significant information about the
value of licenses to competing bidders. If bidding takes unexpected
turns, it is precisely the fact that bidding on all licenses remains
open to the end that will give bidders the flexibility to adopt a new
strategy if an original one proves less desirable than anticipated.
Moreover, bidders have the option of withdrawing high bids during an
auction, subject to the applicable penalties, if they find they have
bid too high on one license in the expectation of getting a
complementary license at a low price.
14. The Commission's experience in the nationwide narrowband
auctions bears out this conclusion. Individual licenses often had no
new bids for several rounds, followed by active bidding and steep
increases in bids. Allowing bidding to close on licenses individually,
while bidding remains active on others, creates a risk of closing on
some licenses before the final value has been reached, decreasing the
likelihood that the license will be awarded to the bidder that values
it most and reducing the revenues generated. In addition, individual
closing might encourage strategic bidding that would reduce the
efficiency of the auction. Hence, the Commission declines to adopt
Metrex's recommendation that the Commission adopt and immediately
announce an individual stopping rule. However, the Commission retains
the discretion to use a hybrid or individual stopping rule for BTA
licenses if a simultaneous stopping rule proved too complex to
administer for large numbers of licenses. The Commission will announce
the specific stopping rule to be used for BTA licenses by Public Notice
prior to each auction.
15. As for the option of declaring that the auction will end after
some specified number of additional rounds, the Commission agrees with
GTE that this procedure would likely result in less efficient
allocation of licenses, and lower revenues, than allowing the auction
to remain open as long as new bids are received. Other methods are
available to hasten the end of an auction, including shortening the
bidding rounds, raising the minimum bid increments, and proceeding to a
later auction stage. The Commission retains the option of declaring the
imminent end of the auction, however, as a fallback in case of
extremely dilatory bidding. The Commission does not expect to use this
option except in the unlikely case that other methods fail to bring
about the close of an excessively long auction.
Duration of Bidding Rounds
16. In the Fifth Report and Order, the Commission decided that
bidders would be provided a single business day to submit bids and that
one round of bidding would be conducted each business day. However, the
Commission retained discretion to vary, by Public Notice or
announcement, the duration of bidding rounds or the interval at which
bids are accepted, in order to move the auction toward closure more
quickly.
17. In the Fifth Report and Order, the Commission discussed its
discretion to vary the duration of bidding rounds or the interval at
which bids are accepted as a tool for moving auctions toward closure
more quickly. The Commission anticipated that holding one round of
bidding per day might allow bidders more time than necessary to
formulate their bids and might result in excessively long auctions. The
Commission still believes that its planned one-day bidding rounds are
more likely to be too long than too short, particularly since much of
the work of estimating the values of licenses, developing business
plans, and arranging financing can be done in advance of the auction.
18. The Commission retains the discretion to lengthen as well as
shorten the duration of bidding rounds or the interval at which bids
are accepted, and will lengthen the time allowed for bidding if it sees
evidence during the auctions that bidders are prevented by the bidding
schedule from developing rational, well-informed bids. Nevertheless, it
is more likely that the Commission will shorten bidding rounds because
doing so will expedite provision of PCS service to the public without
reducing the efficiency of the auction. The Commission believes it is
extremely unlikely that it will hold more than two rounds per day,
though it may start with one round per day and move to two rounds per
day after the first week if it appears that this schedule will allow
bidders enough time to formulate their bids.
19. The Commission agrees with Pacific Bell that prospective
bidders may find it important to know the time parameters of bidding
rounds as early as possible. However, the Commission doesn't have
enough information at present to set an appropriate minimum duration
for bidding rounds. The Commission will continue to consider this issue
as the broadband PCS auctions approach in light of the experience
gained in the regional narrowband auctions.
Timing for Auctioning Specific Spectrum Blocks
20. In the Fifth Report and Order, the Commission decided to
auction the broadband PCS spectrum at three separate auctions. The 99
available PCS licenses MTA blocks A and B will be auctioned first,
followed by the 986 PCS licenses in BTA blocks C and F (the
entrepreneurs' blocks). In the last auction, the remaining 986 licenses
in BTA blocks D and E will be put up for bid. The Commission reasoned
that this grouping strikes a proper balance among the competing
concerns of awarding licenses to the parties who value them most
highly, keeping the auction process simple and manageable, minimizing
administrative delay, and fostering designated entity participation.
21. With respect to arguments that we should auction BTA licenses
(or at least entrepreneurs' block licenses) before MTA licenses to
prevent larger firms from getting a head start over designated entities
than the current auction sequence and might reduce the efficiency of
the auctions. Because the large firms that are potential partners for
designated entities probably would prefer to own outright any licenses
they might obtain in an auction, it is less likely, rather than more
likely, that these large firms would form partnership agreements with
designated entities if auctions in the restricted blocks were held
before the MTA auctions. In addition, the information about license
values conveyed in the MTA auctions will reduce the risk of BTA
financing and partnering and so will be valuable to bidders in the
entrepreneurs' block auctions. In addition, it appears that a rational
strategy for bidders in many cases might be to bid on the largest
licenses first and only after the outcome of those auctions is known to
attempt to acquire smaller, complementary licenses or, if unsuccessful
in the auction for larger licenses, to attempt to aggregate smaller
licenses as a backup strategy. In addition, if winners of MTA licenses
were willing to bid more than other applicants for complementary BTA
licenses, that willingness would almost certainly represent true
efficiencies of joint operation and ought to be allowed to affect the
assignment of licenses.
22. As for auctioning MTA and BTA licenses together in markets with
Pioneer's Preference licenses, the Commission continues to believe that
substituting two 10 MHz BTA licenses for a 30 MHz MTA license is not
likely to be a widely used strategy, so that little loss of efficiency
would result from auctioning MTA and BTA licenses separately. Further,
it believes that bidders will have enough information to make informed
bids in all MTA markets. The Commission sees no reason to believe that
auctioning MTA and BTA licenses separately would have a greater effect
on efficiency in markets where Pioneer's Preference licenses have been
removed from the auction than in other markets, since the same total
amount of spectrum is available for PCS in all markets, and there is
nothing to prevent bidders from negotiating with winners of Pioneer's
Preference licenses. Commenters apparently have no objection to the
plan to separate MTA and BTA auctions in other markets. In addition,
auctioning MTA and BTA licenses together in Pioneer's Preference
markets would remove those BTAs from the BTA auctions and thus may
impede efficient geographic aggregation of licenses. As Omnipoint
points out, the plan would also make it more difficult for
entrepreneurs' block winners in those markets to aggregate their
licenses with other BTA licenses. The auctions might also become
unnecessarily administratively complex and confusing to bidders if BTAs
were auctioned with MTAs in a few but not all markets. Further,
changing the grouping of licenses at this stage in the planning process
might cause the first auctions to be delayed. Consequently the
Commission is unconvinced that any efficiency advantages would accrue
from this strategy, and will continue to auction MTAs separately from
BTAs in all markets.
23. The Commission agrees, however, that auctioning the MTA blocks
far ahead of other blocks would give a head start to the winners in the
MTA blocks that would likely afford them some competitive advantage
over winners in later auctions. Consequently, the Commission intends to
hold the three broadband auctions as close together in time as possible
given its administrative resources. The Commission declines to delay
finalizing the award of A and B block licenses, however, because of an
overriding interest in rapid introduction of PCS to the public.
Authority To Adopt Filing and Processing Rules
24. In the Notice of Proposed Rule Making (Notice) in this
proceeding, the Commission stated:
In order to avoid needless duplication, we propose that the
following general filing and processing rule apply to all PCS:
Sections 22.3-22.45, 22.917(f), and 22.918-22.945. For those PCS
applicants who file on Form 574, we believe that Sections 90.113-
90.159 of our rules, 47 CFR 90.113-90.159, could be used to process
those applications with appropriate modifications.
25. The Commission disagrees with AIDE and will not issue a
supplemental Notice on the PCS application processing rules. Indeed, it
has addressed AIDE's argument that there was inadequate notice of these
rules before in the Fifth Report and Order and on reconsideration of
the Second Report and Order on auctions. The Commission's response,
once again, is that the Notice sought comment on specific rule sections
contained in Parts 22 and 90 of our Rules, and asked commenters to
indicate what modifications should be made to those rules to adapt them
for PCS services. In addition, the Notice specifically requested
comment on the general procedural, processing and petition-to-deny
procedures that should be used for auctionable services. The Notice's
proposal to adopt processing rules based on Parts 22 and 90 of the
Commission's Rules, with any appropriate modifications for PCS
services, clearly indicated to commenters the terms of the proposed
rules, as is required by the Administrative Procedures Act and the
Commission's Rules (see 5 U.S.C. Sec. 553 and 47 CFR 1.413(c)). Thus,
the Commission believes its original description of the proposed rule
was sufficiently specific to alert interested parties to the substance
of our proposal and to provide an adequate opportunity for comment on
those proposals. Several commenters did, in fact, address the proposed
application and processing rules set forth in our Notice, a further
indication that sufficient notice was provided. The Commission also
believes that these issues were within the scope of this proceeding
because as a means of assigning licenses, the competitive bidding
process is integrally related to rules and procedures for processing of
license applications.
26. The broadband PCS rules established in the Fifth Report and
Order, and modified here today, adopt several of the procedures set
forth in Parts 22 and 90 of the Commission's Rules and discussed in the
Notice. The minor modifications to the proposed rules were needed to
reflect specific concerns related to auctioning broadband PCS licenses
and address comments raised by the public. The adopted rules are a
logical outgrowth of the rules proposed in the Notice, applied in the
context of the use of competitive bidding to assign broadband PCS
licenses. Rules adopted as a logical outgrowth comply with all
Administrative Procedure Act requirements.
Disclosure of Bidding Information
27. In the Second Memorandum Opinion and Order in this proceeding,
the Commission announced that it would generally release the identities
of bidders before each auction. The Commission concluded that
disclosure was appropriate because of the advantages of providing more
information to bidders and the difficulties involved in ensuring that
bidder identities remain confidential. The Commission reserved the
option, however, to withhold bidder identities on an auction-by-auction
basis. Bidders will be informed by Public Notice prior to each auction
whether the identities of bidders will be made public in that auction.
28. As noted in the Public Notice announcing the first broadband
PCS auction, Report No. AUC-94-04 (released Sept. 19, 1994), the
Commission has decided to apply the bidder disclosure policy adopted in
the Second Memorandum Opinion and Order to the first broadband PCS
auction. As indicated in the Second Memorandum Opinion and Order, the
Commission will generally identify bidders before each auction. It
reserves the authority, however, to conceal bidder identities if
further experience demonstrates it is desirable to do so. The
Commission will announce its decision of whether to release bidder
identities in a Public Notice released before each auction.
Short and Long Form Applications
29. The Commission adopted a two-part application procedure in the
Fifth Report and Order consistent of short- and long-form application
obligations. The Commission will initiate the application process by
Public Notice, announcing when it will accept short-form applications
to participate in an auction for specific broadband PCS licenses. The
notice, in part, will specify the licenses that will be available,
identify the time and place of an auction in the event that mutually
exclusive applications are filed, and announce a deadline by which
short-form applications must be filed. After an auction, winning
bidders will be required to file a long-form application. The long-form
applications must be submitted by a date specified by Public Notice,
generally within ten business days after the close of bidding. Upon
acceptance for filing of the long-form application, the Commission will
issue a Public Notice, which will open the filing window for petitions
to deny.
30. The Commission will specify by Public Notice prior to each
broadband auction the filing date for short-form applications and the
accepted applications for each auction. Similarly, it plans to specify
by Public Notice after each auction is conducted the long-form filing
dates and accepted long- form applications. The Commission's experience
with the nationwide narrowband PCS auctions to date shows that these
procedures work well to facilitate efficient operation of the
competitive bidding process. It reserves the right, however, to alter
these procedures if there is a need to do so in the future.
Upfront Payments
31. In establishing its auction methodology for PCS, the Commission
set forth several provisions to ensure that winning bidders will have
the resources needed to obtain their licenses and construct their
systems and to discourage insincere bidding. For example, short-form
applicants must certify that they are financially qualified pursuant to
Section 308(b) of the Communications Act, and must disclose certain
information concerning the real party or parties in interest (e.g.,
major stockholders, partners, joint ventures). Additionally, the
Commission requires accepted short-form applicants to make a
substantial upfront payment, and has established significant bid
withdrawal and default penalties.
32. With respect to the concerns raised by Hernandez, the
Commission believes that the existing requirements provide an adequate
measure of a party's ability to pay. As indicated above, short-form
applicants must make a substantial upfront payment and subject
themselves to significant bid withdrawal and default penalties in order
to participate in the auctions. Thus far, the Commission's experience
with the narrowband PCS nationwide license auction suggests that the
requirements are sufficiently stringent to ensure that auction
participants have the financial resources to purchase the spectrum for
which they intent to bid. The Commission will address Hernandez's
concern about the ability of designated entities to make their
installment payments in a separate reconsideration order on designated
entity issues.
33. The Commission has considered GTE's request that applicants
earn interest on their upfront payments in the Second Memorandum
Opinion and Order on auctions. The Commission rejects such a proposal
for now because of the administrative difficulties that are posed by
the need to track and transfer applicant funds, and because it lacks
the legal authority to engage in such financial activity. The
Commission has sought legislative authority in the 1994 House and
Senate FCC authorization bills to establish interest-bearing accounts
so that auction applicants may accrue interest on upfront payments. If
such authority is granted, the Commission may choose to pay interest.
Collusion and Settlement Restrictions
34. In the Fifth Report and Order the Commission prohibited bidders
from discussing the substance of their bids or bidding strategies with
other bidders, unless such bidders are members of a bidding consortium
or other joint bidding arrangement identified on the bidder's (short-
form) application. The Commission further required bidders to identify
on their Form 175 short-form applications all parties with whom they
have entered into any consortium arrangements, joint ventures,
partnerships or other agreements relating to the competitive bidding
process. The Commission also determined that auction applicants would
not be permitted to make any ownership changes or changes in the
identification of parties to bidding consortia once a short-form
application is filed. The Commission recently modified these rules on
reconsideration of the general competitive bidding rules to permit
bidders who have not applied for any of the same licenses to enter into
bidding agreements during the course of an auction. It also decided to
allow applicants to amend their Form 175 applications to make ownership
changes after the filing deadline has passed, provided such changes do
not result in a change of control of the applicant.
35. The Commission declines to liberalize its collusion and
settlement restrictions in the manner requested by either McCaw or
AIDE. The Commission continues to believe that a prohibition against
agreements and alliances concerning bidding between applicants bidding
for the same licenses is a prudent deterrent to collusion that should
have only a minimal and temporary effect on bidders' flexibility. As
stated in the Second Report and Order, rules prohibiting collusion
serve the objectives of the Budget Act by preventing applicants,
especially the largest companies, from entering into agreements to use
bidding strategies that divide the market to the disadvantage of other
bidders. In addition the rules avoid the problem of entities filing
applications solely for the purpose of demanding payment from other
bidders in exchange for settlement or withdrawal. Overall, the
Commission believes that auctions are likely to result in more
efficient assignments than settlements because they reduce the
transaction cost of putting a license in the hands of the applicant
that values it most highly.
36. With regard to McCaw's proposal, the fact that one bidder has
withdrawn its application before entering into a consortium with
another bidder does not reduce the importance of the collusion rules,
even if the Commission forbids bidders from communicating with other
bidders competing for the same license until after a formal withdrawal
has taken place. The Commission is concerned that if such consortium
arrangements were permissible, particularly in an environment where
bidder identities are known, undue pressure may be brought to bear on
smaller bidders to withdraw in exchange for teaming up with other
larger bidders, or sham applications would be filed to demand payment
from other applicants. In general, The Commission is concerned that
McCaw's proposal would create incentives for parties to collude and
behave in an anti-competitive manner. While the Commission recognizes
that allowing consortia to occur could enable many smaller applicants
to pool their resources to win licenses, it believes the risks of
allowing such arrangements between applicants for the same license
(even when one applicant has withdrawn) outweigh the benefits at this
time.
37. The Commission also rejects AIDE's contention that the
Commission lacks the authority under the Communications Act to preclude
settlements between mutually exclusive applicants for auctionable
licenses. While the Commission has an established policy of favoring
settlements in some contexts, it is entirely within our authority to
restrict or prohibit settlements if we find such agreements would not
be in the public interest. At this time, the Commission finds that
post-filing settlements between applicants for the same license in the
broadband PCS competitive bidding process would not serve the public
interest for reasons stated above. The Commission believes that nothing
in the language or legislative history of Section 309(j) contradicts
this view. Consequently, the Commission is amending its rules to
eliminate Section 24.829(b), which is inconsistent with the collusion
rules contained in Section 1.2105 of the Rules.
38. In order to provide bidders sufficient time and greater
flexibility to attract capital, however, the Commission makes several
modifications to its collusion rules and policies adopted in the Fifth
Report and Order and in its reconsideration of the generic auction
rules. First, the Commission recognizes that an entity may hold non-
controlling ownership interests in two or more bidders, and that those
bidders may aggregate more PCS spectrum cumulatively than a single
entity is entitled to hold. In such cases, the Commission will permit
divestiture of non-controlling interests to bring the entities into
compliance with the PCS spectrum aggregation limits provided such
divestiture is completed within 90 days of grant of the license. Such
post-auction divestiture will enable investors to finance more than one
bidder without risking default penalties if both bidders, for example,
win licenses which in combination exceed our aggregation limits.
39. Procedurally, if entities with a common non-controlling
ownership interest aggregate more PCS spectrum among them than a single
entity is entitled to hold, the Commission will require that the long-
form applications for broadband PCS licensing be accompanied by a
signed statement from the applicant that sufficient properties will be
divested within 90 days of the license grant to bring the broadband PCS
licenses held within the permitted aggregation limits. If the applicant
is otherwise qualified, the applications will be granted subject to a
condition that the licensee come into compliance with the PCS spectrum
aggregation limits within 90 days of grant. Within 90 days of license
grant, the licensee must certify to the Commission that the applicant
and all parties to the application have come into compliance with our
PCS spectrum aggregation limits. If the PCS licensee fails to submit
this certification within 90 days, the Commission will invoke the
condition on all broadband PCS licenses won by the applicant in the
auction, cancelling them immediately and imposing the default penalty.
In addition, the Commission may investigate whether the certifications
on divestiture are evidence of misrepresentations that call into
question the party's qualification to hold any PCS licenses. If a buyer
has not been secured in the required period of time, the PCS licensee
may divest the prohibited interest to an interim independent trustee,
as long as the applicant has no interest in or control of the trustee.
The trustee may dispose of the interest as it sees fit. In no event,
however, may the trustee retain the property for longer than six
months.
40. Also, as indicated supra, the Commission's auction collusion
rules have been revised to permit bidders who have not filed Form 175
applications for any of the same licenses to engage in discussions and
enter into bidding consortia or joint bidding arrangements during the
course of an auction. The Commission stated in the Third Memorandum
Opinion and Order on narrowband PCS auctions that where bidders have
not applied for any of the same licenses there is little risk of anti-
competitive conduct with respect to a single license. The Commission
reaches the same conclusion with respect to broadband PCS. The relaxed
collusion rules, which the Commission will apply in the broadband PCS
context, will permit bidders to have greater flexibility to compete in
the auction by combining their resources, provided that no change of
control of any applicant takes place. The Commission wishes to clarify
that it intended these provisions to apply to applicants that have not
applied for licenses in any of the same geographic license areas, i.e.,
the same MTAs for A and B block licenses or the same BTAs for other
broadband PCS licenses.
41. As noted above, the Commission also modified our generic
auction rules to permit applicants to amend their FCC Form 175
applications to reflect ownership changes that do not result in a
change in control of the applicant. The Commission now modifies Section
24.822 (b) to clarify the applicability of this provision to broadband
PCS. Such changes shall not be regarded as major amendments to an
application, provided they do not result in a transfer of control of
the applicant. Amendments to FCC Form 175 must be filed with the
Commission within two business days of any such change. The
Commission's experience in the nationwide narrowband PCS auction
demonstrated that it is necessary to allow applicants to amend their
FCC Form 175 applications to make ownership changes after the filing
deadline has passed, provided such changes do not result in a change of
control or discussions that violate the Commission's anti-collusion
rules. Permitting such amendments will provide bidders with flexibility
to seek additional capital after applications have been filed, while
ensuring that the real party in interest does not change. Again, the
Commission clarifies that this change applies only to applicants that
have not applied for licenses in any of the same geographic license
areas. Of course, formation of consortia, bidding agreements and new
ownership arrangements remains subject to Commission review under the
public interest standard, and we would expect that entities entering
into such agreements would comply with all relevant Commission policies
and other applicable laws, e.g., the antitrust laws.
42. The Commission will also permit ownership changes in which
consortium investors drop out of bidding consortia, even if control of
the consortium changes as a result. The Commission does not wish to
restrict some members of consortia from continuing to bid even though
other members of the consortia wish to drop out of the bidding. The
Commission emphasizes that members that are removed from a consortium
may not subsequently become involved with another bidder in bidding on
any license for which the consortium had applied. Bidders must submit a
revised Form 175 to reflect the change in ownership.
43. The Commission also wishes to clarify an aspect of its rules
dealing with the information that applicants must provide to the
Commission with their Form 175 and Form 401 applications. Section
24.813(a)(1) of the Commission's Rules, 47 CFR 24.813(a)(1), states
among other things that applicants must provide ``a list of any
business five percent or more of whose stock, warrants, options or debt
securities are owned by the applicant or an officer, director,
stockholder or key management personnel of the applicant.'' (Emphasis
added.) Read literally, this provision would require applicants to
ascertain the holdings in other concerns of every one of their
stockholders, regardless of how small that stockholder's stake in the
applicant may be. This was not the Commission's intent, and it takes
this opportunity to amend this rule to clarify that only holdings in
other concerns that are held by attributable shareholders in the
applicant need be disclosed.
44. Finally, the Commission notes that in the Second Memorandum
Opinion and Order, it clarified the applicability of the collusion
rules to cases where an applicant has a common ownership interest with
another applicant. The Commission stated that, unless the second
applicant is expressly identified as an entity with whom the first
applicant has an agreement concerning bidding, the Commission will
prohibit these parties from communicating concerning their bidding
strategies. As the Commission stated in the Second Memorandum Opinion
and Order, this prohibition will hold even if the other bidder is
identified on the applicant's short-form application as having a common
ownership interest with the applicant. Communication among bidders
concerning matters unrelated to license auctions, however, will be
permitted.
45. Accordingly, to ensure that the bidding process is competitive
and to encourage formation of a competitive post-auction market
structure, the Commission is retaining the collusion rules in the
broadband PCS context with the modifications set forth in the Second
Memorandum Opinion and Order.
Antenna Height Restrictions
46. The Commission established antenna height restrictions in the
Fifth Report and Order which provide, in part, that no antenna
structure, including radiating elements, tower, supports and all
appurtenances, may be higher than 61 meters above ground level unless
prior Commission approval is obtained.
47. The Commission believes that issues relating to antenna height
are best resolved in another proceeding, to afford a greater
opportunity for industry comment. The Commission's primary concern when
it adopted this rule section was to promote the safe location and
identification of PCS antennas, particularly in areas around airports.
There may be less administratively burdensome methods, however, of
obtaining the same result. Moreover, Section 24.816, may be duplicative
since Part 17 of the Commission's rules already provides for similar
antenna height and use safeguards. The Commission therefore rescinds
the antenna height restrictions adopted in the Fifth Report and Order,
but will examine the issue in a future proceeding on revisions to Part
24 of our rules.
Restrictions on Cellular Participation
48. In the Fifth Report and Order, the Commission reserved specific
spectrum blocks in broadband PCS for bidding exclusively by entities
that, together with their affiliates and certain investors, have gross
revenues of less than $125 million in each of the last two years and
total assets of less than $500 million. The Commission determined that
designation of these ``entrepreneurs' blocks'' was needed to ensure
that small entities have a meaningful opportunity to participate in the
acquisition and provision of broadband PCS services.
49. The Commission rejects GTE's proposal to eliminate certain
cellular restrictions, as its request is outside the scope of this
proceeding. Rather, those restrictions were appropriately addressed in
our broadband PCS service rules proceeding, GN Docket No. 90-314. As
Pacific Bell points out in its Opposition, the Commission considered
arguments identical or similar to the ones raised by GTE in that
proceeding and concluded that our restrictions strike an appropriate
balance between fostering broad participation in PCS and ensuring that
cellular operators do not exert undue market power. Accordingly, the
Commission will retain its present restrictions on cellular
participation in the provision of PCS. The Commission will address the
merits of GTE's claim that they will be unfairly disadvantaged by the
creation of entrepreneurs' blocks in our reconsideration order on
designated entity concerns.
Final Regulatory Flexibility Analysis
50. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.
Sec. 604, the Commission's final analysis for the Fourth Memorandum
Opinion and Order is as follows:
Need for, the Purpose of, this Action. As a result of new statutory
authority, the Commission may utilize competitive bidding mechanisms in
the granting of certain initial licenses. The Commission published an
Initial Regulatory Flexibility Analysis, see generally 5 U.S.C.
Sec. 603, within the Notice of Proposed Rule Making in this proceeding
and published Final Regulatory Flexibility Analyses within the Second
Report and Order (at 299-302) and the Fifth Report and Order (at
219-222). As noted in these previous final analyses, this proceeding
will establish a system of competitive bidding for choosing among
certain applications for initial licenses, and will carry out statutory
mandates that certain designated entities, including small entities, be
afforded an opportunity to participate in the competitive bidding
process and in the provision of spectrum-based services.
51. Summary of the Issues Raised by the Public Comments. No
commenters responded specifically to the issues raised by the Fifth
Report and Order. The Commission has made some modifications to the
proposed requirements as appropriate.
52. Significant Alternatives Considered and Rejected. All
significant alternatives have been addressed in the Fifth Report and
Order and in this Fourth Memorandum Opinion and Order.
Ordering Clauses
53. Accordingly, it is ordered that the petitions for
reconsideration are granted to the extent described above, deferred
with respect to designated entity issues and denied in all other
respects.
54. It is further ordered that Part 24 of the Commission's Rules is
amended.
55. It is further ordered that the rule amendments made herein will
become effective upon publication in the Federal Register.\1\ This
action is taken pursuant to Section 4(i), 303(r) and 309(j) of the
Communication Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 303(r)
and 309(j).
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\1\Pursuant to 5 U.S.C. Sec. 553(d)(3), we conclude that ``good
cause'' exists to have the rule changes take effect October 24,
1994, because a delay would not provide applicants with sufficient
time to finalize their bidding strategies and business plans for the
upcoming broadband PCS auctions. Immediate implementation of the
rule changes set forth herein also provides applicants with the
required certainty to proceed with their bidding and business
strategies, alleviating concerns that last-minute modifications to
our Rules would impede the success of their auction plan. See 5
U.S.C. Sec. 553(d)(1).
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List of Subjects in 47 CFR Part 24
Personal Communications Services.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Amendatory Text
Part 24 of Chapter I of Title 47 of the Code of Federal Regulations
is amended as follows:
PART 24--PERSONAL COMMUNICATIONS SERVICES
1. The authority citation for Part 24 continues to read as follows:
Authority: 47 U.S.C. 154, 301, 302, 303, 309, and 332, unless
otherwise noted.
2. Section 24.703 is amended by revising paragraph (f) and adding
paragraph (h) to read as follows:
Sec. 24.703 Competitive bidding mechanisms.
* * * * *
(f) Activity Rules. The Commission will establish activity rules
which require a minimum amount of bidding activity. In the event that
the Commission establishes an activity rule in connection with a
simultaneous multiple-round auction, bidders will be entitled to
request and be granted waivers of such rule. The Commission will
specify the number of waivers permitted in an auction, the frequency
with which they may be exercised, and the method of operation of
waivers by Public Notice prior to each auction.
* * * * *
(h) Bidder Identification During Auctions. The Commission may
choose, on an auction-by-auction basis, to release the identity of the
bidders associated with bidder identification numbers. The Commission
will announce by Public Notice before each auction whether bidder
identities will be revealed.
3. Section 24.813(a)(1) is revised to read as follows:
Sec. 24.813 General application requirements.
(a) * * *
(1) A list of any business five 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.
* * * * *
Sec. 24.816 [Removed and Reserved]
4. Section 24.816 is removed and reserved.
5. Section 24.822(b) is revised to read as follows:
Sec. 24.822 Amendment of application to participate in auction for
licenses in the broadband Personal Communications Services filed on FCC
Form 175.
* * * * *
(b) In broadband PCS, applicants will be permitted to amend their
Form 175 applications to make minor amendments to correct minor errors
or defects such as typographical errors. Applicants will also be
permitted to amend FCC Form 175 to make changes to the information
required by Sec. 24.813(a) (such as ownership changes or changes in the
identification of parties to bidding consortia), provided such changes
do not result in a change in control of the applicant and do not
involve another applicant (or parties in interest to an applicant) who
has applied for licenses in any of the same geographic license areas as
the applicant. Amendments which change control of the applicant will be
considered major amendments. An FCC Form 175 which is amended by a
major amendment will be considered to be newly filed and cannot be
resubmitted after applicable filing deadlines. See also Sec. 1.2105 of
this chapter.
Sec. 24.829 [Amended]
6. Section 24.829 is amended by removing paragraph (b), and
redesignating paragraph (c) as paragraph (b).
7. Section 24.833 is added to read as follows:
Sec. 24.833 Post-auction divestitures.
Any parties sharing a common non-controlling ownership interest who
aggregate more PCS spectrum among them than a single entity is entitled
to hold (See Secs. 20.6(e), 24.710, 24.204, 24.229(c) of this chapter)
will be permitted to divest sufficient properties within 90 days of the
license grant to come into compliance with the spectrum aggregation
limits as follows:
(a) The broadband PCS applicant shall submit a signed statement
with its long-form application stating that sufficient properties will
be divested within 90 days of the license grant. If the licensee is
otherwise qualified, the Commission will grant the applications subject
to a condition that the licensee come into compliance with the PCS
spectrum aggregation limits within 90 days of grant.
(b) Within 90 days of license grant, the licensee must certify that
the applicant and all parties to the application have come into
compliance with the PCS spectrum aggregation limits. If the licensee
fails to submit the certification within 90 days, the Commission will
immediately cancel all broadband PCS licenses won by the applicant,
impose the default penalty and, based on the facts presented, take any
other action it may deem appropriate. Divestiture may be to an interim
trustee if a buyer has not been secured in the required time frame, as
long as the applicant has no interest in or control of the trustee, and
the trustee may dispose of the property as it sees fit. In no event may
the trustee retain the property for longer than six months from grant
of license.
[FR Doc. 94-26437 Filed 10-21-94; 8:45 am]
BILLING CODE 6712-01-M
