[Federal Register Volume 59, Number 191 (Tuesday, October 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24404]
[[Page Unknown]]
[Federal Register: October 4, 1994]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 24
[PR Docket 93-253, FCC 94-240]
Implementation of Section 309(j) of the Communications Act--
Competitive Bidding
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Commission, on its own motion, reconsiders and clarifies
various decisions made with regard to designated entities in the Third
Memorandum and Order in this docket. This Order on Reconsideration
adopts installment payments for businesses owned by minorities and/or
women so that these entities have a greater opportunity to participate
successfully in the upcoming auction for licenses for regional
narrowband personal communication services and clarifies its definition
of businesses owned by minorities and/or women.
EFFECTIVE DATE: November 3, 1994.
FOR FURTHER INFORMATION CONTACT:
Peter Tenhula, Office of General Counsel, (202) 418-1720.
SUPPLEMENTARY INFORMATION:
Order on Reconsideration
Adopted: September 22, 1994.
Released: September 22, 1994.
By the Commission: Commissioner Barrett not participating.
1. In this Order, we reconsider on our own motion various decisions
made with regard to designated entities in the Third Memorandum Opinion
and Order in this docket.\1\ In addition, we take this opportunity to
clarify other rules adopted in that Order.
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\1\See Third Memorandum Opinion and Order and Further Notice of
Proposed Rulemaking in PP Docket No. 93-253, FCC 94-219 (released
August 17, 1994), 59 FR 44058 (August 26, 1994) (``Third Memorandum
Opinion and Order'').
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I. Installment Payments for Women and Minority-Owned Businesses
2. In the Third Memorandum Opinion and Order, we adopted certain
provisions to ensure the opportunity for businesses owned by women and
minorities and small businesses to participate in the regional
narrowband PCS auction to be held October 26, 1994. Specifically, we
adopted a 40 percent bidding credit for women and minority-owned firms
and installment payments for small businesses. Small businesses are
defined as businesses with less than $40 million in annual gross
revenues. On further reflection, we believe that to ensure that
designated entities have the opportunity to participate in narrowband
PCS, minority and women-owned companies, as opposed to just small
businesses, should be allowed to pay their winning bids in
installments.
3. As we noted in the Third Memorandum Opinion and Order, the
original provisions adopted for designated entities in the narrowband
PCS service were based on assumed relatively low capital entry costs.
The experience in the nationwide narrowband PCS auction in July led us
to adjust the designated entity provisions for the regional auction to
take into account the much higher than expected prices paid for
narrowband licenses. Specifically, we raised the bidding credit from 25
percent to 40 percent for women and minority-owned businesses and we
raised the financial thresholds for businesses wishing to qualify as
small businesses. We remain concerned, however, that, given these high
costs, businesses owned by women and minorities will be unable to
participate successfully in the upcoming regional auction without
installment payments.
4. In the Fifth Report and Order in this proceeding, we documented
the serious funding problems faced by women and minorities. Indeed, we
noted that Congress had recognized that these problems were even more
severe for minority and women-owned businesses than for small
businesses.\2\ We also referred to a number of studies that supported
the congressional findings regarding the difficulties minorities and
women have accessing capital.\3\
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\2\Fifth Report and Order in PP Docket No. 93-253, FCC 94-178 at
98 (released July 15, 1994), 59 FR 37566 (July 22, 1994).
\3\Id. at 98-103. We incorporate by reference here the
discussion of these issues in the Fifth Report and Order.
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5. In its petition for reconsideration in this proceeding, Cook
Inlet Region, Inc. asked us to reconsider the scope of the installment
payment option for designated entities. It contended that failure to
extend the availability of installment payments to all women and
minority-owned companies, instead of just small businesses, will
exclude a substantial number of designated entities from meaningful
participation in spectrum-based services. Cook Inlet argued that this
result is contrary to the intent of Congress.\4\ In response to this,
we stated with respect to our generic auction rules that, while
installment payments would not generally be available to all designated
entities irrespective of their economic status, we retained the
flexibility to expand or modify the installment payment option on a
service-specific basis where the spectrum costs, capital infrastructure
requirements and other economic barriers necessitate their application
to other entities.\5\ ``[T]his additional flexibility will allow us to
take account of differences in capital requirements across services and
license blocks, and to provide access to capital in ways that will give
various groups of designated entities a realistic chance to participate
in offering service.''\6\
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\4\Petition for Reconsideration of Cook Inlet Region, Inc., PP
Docket No. 93-253, May 20, 1994, at 3-6. See also, Petition for
Reconsideration of the Association of Independent Designated
Entities, PP Docket No. 93-253, June 3, 1994.
\5\See Second Memorandum Opinion and Order in PP Docket No. 93-
253, FCC 94-215 at 114, 128 (released August 15, 1994), 59 FR
44272 (August 26, 1994).
\6\Id. at 128.
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6. In addition, in a recent ex parte filing, Essence
Communications, Inc. further elaborates on the various broad
congressional initiatives that have been aimed at helping minorities
overcome obstacles to financing.\7\ For example, Essence notes that the
Equal Credit Opportunity Act (ECOA) Amendments\8\ impose a federal ban
on race-based denials of extension of credit. The legislative history
to the ECOA Amendments highlights the challenges faced by entrepreneurs
seeking credit to fund their businesses.\9\ In addition, Essence states
that Congress recently amended the Community Reinvestment Act (CRA)\10\
to bolster the evaluations of financial institutions that subsidize
minority banks in predominately minority areas.\11\ According to
Essence, this aspect of the CRA is entirely race-conscious and contains
no financial thresholds.
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\7\Comments and Recommendations of Essence Communications, Inc.
in Response to the Commission's Third Memorandum Opinion and Order
and Further Notice of Proposed Rulemaking, September 14, 1994, at 8-
10.
\8\Pub. L. 94-239, 90 Stat. 251 (1976).
\9\S. Rep. No. 589, 94th Cong., 2d Sess. 3 (1976), reprinted in
1976 U.S.C.C.A.N. 403, 405.
\10\Pub. L. 95-128, 91 Stat. 1147 (1977).
\11\See Resolution Trust Corporation Refinancing, Restructuring
and Improvement Act, Pub. L. No. 102-233, Sec. 302, 105 Stat. 1761
(1991).
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7. Essence further asserts that both these congressional measures
and the steps taken by the Commission to improve minority access to
capital have had limited success in reducing the barriers to entry for
minority entrepreneurs. Therefore, Essence emphasizes that the
Commission must do more to ensure the opportunity for minority
participation in narrowband PCS. It states that the Commission's
conclusion that bidding credits are the most cost effective and
efficient means of achieving this congressional objective was mistaken
and that the July 1994 narrowband auction proved that ``bidding credits
do not and cannot sufficiently address financing obstacles nor provide
a competitive advantage with regard to the national licenses.''\12\
Accordingly, Essence argues that the Commission should either adopt an
``entrepreneur block'' scheme for the upcoming regional narrowband PCS
auction or raise the small business financial threshold for minority-
owned companies.
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\12\Essence ex parte filing at 11-12.
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8. Based on this additional information, our experience from the
recent nationwide narrowband auctions and upon further reflection, we
agree that the funding problems faced by minority and women-owned
companies, combined with the potentially high cost of purchasing a
narrowband PCS license at auction, erect a significant hurdle for these
entrepreneurs. Because of these difficulties, we already have adopted a
40 percent bidding credit for businesses owned by women and
minorities,\13\ regardless of size, on two of the regional narrowband
PCS licenses.\14\ We think that allowing these applicants owned by
women and minorities to pay for their licenses over time will go a long
way toward overcoming this barrier to entry. It will also provide more
meaningful opportunities for designated entities bidding in the
upcoming regional auctions. Accordingly, we adopt an installment
payment plan for women and/or minority-owned businesses that obtain a
regional narrowband PCS license on Channel 13 and Channel 17. Similar
to the installment payments for larger entities in the entrepreneurs'
blocks for broadband PCS auctions, this plan provides for interest
charges to be fixed at the time of licensing at a rate equal to the
rate for ten-year U.S. treasury obligations, plus 2.5 percent.\15\
Payments of interest only will be due for the first two years, with
principal and interest payments amortized over the remaining years of
the license. In addition, as we did for small businesses, we will
permit businesses owned by minorities and women to pay only half of the
down payment (or 10 percent of the bid price) five business days after
close of the auction. The remaining 10 percent payment will be deferred
until five days after grant of the license.
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\13\See 47 CFR 24.320(c). See also infra 9-13.
\14\See 47 CFR 24.129(b), 24.309(b)(2).
\15\Compare 47 CFR 24.711(a)(3). Standard installment payments--
at the 10-year treasury interest rate--remain available to small
businesses, including small businesses owned by minorities and/or
women, on all regional licenses. See Third Report and Order in PP
Docket No. 93-253, FCC 94-98 at 86-89 (released May 10, 1994), 59
FR 26741 (May 24, 1994).
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II. Definition of Businesses Owned by Women and Minorities
9. In the rules adopted pursuant to the Third Memorandum Opinion
and Order, we changed the definition of a business owned by women and
minorities for purposes of the regional narrowband PCS auction. See 47
CFR 24.320(c). In particular, we departed from the definition adopted
in the Second Report and Order, 59 FR 22980 (May 4, 1994) that required
minorities and/or women to have at least 50.1 percent ownership and a
50.1 percent controlling interest in the applicant. 47 CFR
1.2110(b)(2). The new definition requires an applicant owned by women
and/or minorities to establish a ``control group'' consisting entirely
of women or minorities that has both de jure and de facto control of
the applicant. It then gives the applicant two options for taking on
passive investors. Under the first option, a single investor may hold
as much as 49.9 percent of the applicant's passive equity if the
control group holds at least 50.1 percent of the total equity.\16\ The
second option allows the control group to reduce its equity stake to 25
percent provided that no single other investor holds more than 25
percent of the applicant's passive equity. Under either option, the
control group must control the applicant and, in the case of
corporations, hold at least 50.1 percent of the voting stock. For
partnerships, all general partnership interests will be considered to
be part of the control group.
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\16\As provided in Section 24.320(g) of the Commission's rules,
``passive equity'' means ``(i) for corporations, non-voting stock or
stock that includes no more than fifteen percent of the voting
equity; (ii) for partnerships, joint ventures and other non-
corporate entities, limited partnership interests and similar
interests that do not afford the power to exercise control of the
entity.'' 47 CFR 24.320(g).
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10. In the Third Memorandum Opinion and Order we neglected,
however, to explain this change in course. We take that opportunity
here. We believe that the ``control group'' approach to defining a
woman or minority-owned business provides these designated entities
with greater flexibility to access capital than the rule adopted in the
Second Report and Order. In particular, it allows these companies to
reduce by 25 percent the amount of equity the minority or women
principals must hold. This ability to sell more equity will help
designated entities raise the capital necessary to participate in the
auctions as well as to construct their systems. Moreover, like the
definition set forth in the Second Report and Order, the new rule gives
a minority or women-owned company the option to partner with one large
company instead of seeking multiple investors so long as the control
group retains 50.1 percent of the equity. This option meets the needs
of designated entities that are able to attract investors that desire a
more substantial equity stake in the venture. Thus, we believe that
modification of the definition of minority and/or women-owned
businesses more fully satisfies the congressional mandate that the
Commission provide the opportunity for companies owned by these
designated entities to participate in spectrum-based services.
11. The new rule's requirement that investors take only passive
interest also provides more assurance that the minority and women
principals maintain control of their companies. As a result, we reduce
the opportunity for fronts and help ensure that only bona fide
designated entities will be able to take advantage of the 40 percent
bidding credit and installment payments offered in the regional
narrowband auctions.
12. In addition, we believe that modifying the definition in this
manner provides consistency with the definition of a small business
adopted in the Third Memorandum Opinion and Order, which also uses a
``control group'' approach. Thus, businesses will not have to satisfy
disparate rules regarding levels of equity investment to receive both
bidding credits and the installment payment option available to small
businesses.
13. Although not explicitly stated in the Third Memorandum Opinion
and Order, we also clarify here that we are departing from the
provision in the Second Report and Order that bars publicly traded
companies from qualifying as minority and women-owned businesses. This
prohibition was based on our assumption that companies traded on the
public market would not require government-sponsored measures to
succeed in spectrum auctions. The high prices paid for the nationwide
narrowband PCS licenses in the auction held in July 1994 has led us to
conclude, however, that even publicly traded companies owned by women
and minorities will require bidding credits and installment payments to
participate successfully in the regional auction. We recognized these
increased capital requirements in the Third Memorandum Opinion and
Order by raising significantly the financial thresholds for qualifying
for small business installment payments. The same rationale applies to
our decision here to give publicly traded minority and women-owned
applicants government assistance in the form of bidding credits and
installment payments. We emphasize, however, that these companies must
comply with the control group and equity investment requirements set
out above and in our rules.
14. Finally, we do not intend to suggest that by clarifying this
rule change here we have reached a decision regarding the designated
entity issues raised by petitioners in the broadband PCS auction
proceeding. After further analysis of those petitions, it is possible
that we will make additional adjustments to our rules with regard to
broadband PCS. In addition, if those changes loosen the restrictions on
designated entities, we may decide to apply them to designated entity
licensees in the regional narrowband service.
III. Conclusion
15. Accordingly, it is ordered That Part 24 of the Commission's
Rules is amended as set forth below.
16. It is further ordered That the rules changes made herein will
become effective 30 days after their publication in the Federal
Register. This action is taken pursuant to Sections 4(i), 303(r) and
309(j) of the Communications Act of 1934, as amended, 47 U.S.C.
Secs. 154(i), 303(r) and 309(j).
List of Subjects in 47 CFR Part 24
Communications common carriers, Communications equipment,
Competitive bidding, Radio, Reporting and recordkeeping requirements.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Rule Change
Part 24 of Chapter 1 of Title 47 of the Code of Federal Regulations
is amended as follows:
PART 24--PERSONAL COMMUNICATION 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 24.309 is amended by revising paragraph (b)(1) to read
as follows:
Sec. 24.309 Designated entities.
* * * * *
(b) * * *
(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 Sec. 1.2110(e) 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.
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[FR Doc. 94-24404 Filed 10-3-94; 8:45 am]
BILLING CODE 6712-01-M
