[Federal Register Volume 61, Number 230 (Wednesday, November 27, 1996)]
[Rules and Regulations]
[Pages 60198-60205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30358]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 95
[PP Docket No. 93-253; FCC 96-447]
Interactive Video and Data Service
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: This Tenth Report and Order modifies the competitive bidding
rules for the upcoming auction of Interactive Video and Data Service
(IVDS) licenses as proposed by the Sixth Memorandum Opinion and Order
and Further Notice of Proposed Rule Making, In the Matter of
Implementation of Section 309(j) of the Communications Act--Competitive
Bidding. Specifically, the rule amendments include eliminating the
bidding credits available to women- and minority-owned IVDS applicants
and extending bidding credits to small businesses based upon a revised
two-tiered small business definition, i.e., providing varying bidding
credit amounts to small businesses of different sizes. The Tenth Report
and Order also clarifies the attribution rules for affiliates of IVDS
applicants, and amends the competitive bidding rules to increase the
amount of the upfront payments required to participate in the IVDS
auction. The intended effect of this action is to establish the
competitive bidding rules for the upcoming auction of IVDS licenses.
EFFECTIVE DATE: December 27, 1996.
FOR FURTHER INFORMATION CONTACT: Howard Griboff or Christina Eads
Clearwater, Wireless Telecommunications Bureau, (202) 418-0660.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Tenth
Report and Order in PP Docket No. 93-253; FCC 96-447, adopted November
15, 1996 and released November 21, 1996. The complete text of the Tenth
Report and Order is available for inspection and copying during normal
business hours in the FCC Reference Center (Room 239), 1919 M Street,
N.W., Washington, D.C. and also may be purchased from the Commission's
copy contractor, International Transcription Service, (202) 857-3800,
2100 M Street, N.W., Suite 140, Washington, D.C. 20037.
Title: In the Matter of Implementation of Section 309(j) of the
Communications Act--Competitive Bidding
Tenth Report and Order
I. Introduction and Executive Summary
1. In this Tenth Report and Order, the Commission modifies its
competitive bidding rules for the upcoming auction of Interactive Video
and Data Service (IVDS) licenses.1 Specifically, the Commission
amends certain provisions concerning the treatment of small businesses,
businesses owned by members of minority groups and women, and rural
telephone companies (collectively, ``designated entities''), in order
to address the legal requirements of the Supreme Court's decisions in
Adarand Constructors, Inc. v. Pena (Adarand) 2 and United States
v. Virginia (VMI).3 The Commission also increases the upfront
payment amounts for bidding on IVDS licenses in order to encourage
sincere bidding. By implementing these modifications, the Commission
reiterates that it is committed to fulfilling its statutory obligation
to ensure that designated entities are afforded opportunities to
participate in the provision of spectrum-based services.4
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\1\ IVDS is a point-to-multipoint, multipoint-to-point, short
distance communications service. IVDS licensees may provide
information, products, or services to individual subscribers located
within a service area and subscribers may provide responses. 47 CFR
Section 95.803(a).
\2\ ______ U.S. ______, 115 S. Ct. 2097, 132 L.Ed.2d 158 (1995).
\3\ ______ U.S. ______, 116 S. Ct. 2264, 135 L.Ed.2d 735 (1996).
\4\ 47 U.S.C. Section 309(j)(4)(D).
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2. As it explained in the Sixth Memorandum Opinion and Order and
Further Notice of Proposed Rule Making (FNPRM),5 the Commission
was prompted to reexamine its race- and gender-based IVDS auction rules
by the Supreme Court's decisions in Adarand and VMI. The Commission
initially adopted these race- and gender-based rules in the Fourth
Report and Order in this docket in order to fulfill its mandate under
Section 309(j) of the Communications Act of 1934, as amended
(``Communications Act''), to provide opportunities for businesses owned
by members of minority groups and women to participate in the provision
of spectrum-based services.6 After the Commission adopted these
rules, however, the Supreme Court held in Adarand that any federal
program that makes distinctions on the basis of race must satisfy the
strict scrutiny standard of judicial review.7 More recently, the
Supreme Court held in VMI that a state program that makes distinctions
on the basis of gender must be supported by an ``exceedingly persuasive
justification'' in order to withstand constitutional scrutiny.8
Based on the analysis of VMI in conjunction with Adarand, the
Commission concludes that any gender-based preference maintained in the
IVDS auction rules must meet the VMI intermediate scrutiny standard of
judicial review.
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\5\ Implementation of Section 309(j) of the Communications Act--
Competitive Bidding, Sixth Memorandum Opinion and Order and Further
Notice of Proposed Rule Making, PP Docket No. 93-253, FCC 96-330, 61
FR 49103 (September 18, 1996). In response to the FNPRM, comments
were filed by (1) ITV, Inc. and IVDS Affiliates, LLC (ITV/IALC); (2)
Interactive America Corporation, Inc. (IAC); (3) Loli, Inc., Trans
Pacific Interactive, Wireless Interactive Return Path, L.L.C., and
IVDS On-Line Partnership (collectively, ``IVDS Licensees''); and (4)
Progressive Communications, Inc. (Progressive). Reply comments were
filed by IAC.
\6\ Implementation of Section 309(j) of the Communications Act--
Competitive Bidding, Fourth Report and Order, PP Docket No. 93-253,
59 FR 24947 (May 13, 1994), 9 FCC Rcd 2330, 2336-40 (1994) (Fourth
Report and Order).
\7\ Adarand, 115 S. Ct. at 2113. Adarand explicitly overruled
the intermediate scrutiny standard for racial classifications set by
the Supreme Court in Metro Broadcasting, Inc. v. FCC, 497 U.S. 547,
564-65 (1990), which was the standard of review at the time the IVDS
rules were adopted. See Fourth Report and Order, 9 FCC Rcd at 2338
n.73.
\8\ VMI, 116 S. Ct. at 2274-76.
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3. Based upon review of the comments submitted in response to the
FNPRM, the Commission also concludes that the present record is
insufficient to support either the race-based IVDS auction rules under
the strict scrutiny standard or the gender-based rules under the
``exceedingly persuasive justification'' standard of intermediate
scrutiny. The Commission has considered the need to award the remaining
IVDS licenses expeditiously and to promote the rapid deployment of new
services to the public without judicial delays,9 as well as the
statutory objective of disseminating licenses among a wide variety of
applicants, including designated entities.10 Bearing these factors
in mind, the Commission concluded that in order to avoid uncertainty
and delay that would likely result from legal challenges to the special
provisions for minority- and women-owned businesses in its current
[[Page 60199]]
IVDS rules, it is appropriate to make the IVDS rules race- and gender-
neutral.11 The Commission believes that its action here is
consistent with its obligations under Section 309(j)(3).12
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\9\ 47 U.S.C. Section 309(j)(3)(A).
\10\ Id. Section 309(j)(3)(B).
\11\ See Amendment of Parts 20 and 24 of the Commission's Rules,
Report and Order, WT Docket No. 96-59, 61 FR 51233 (October 1,
1996), 11 FCC Rcd 7824 (1996) (DEF Report and Order), which modified
the designated entity provisions of the broadband Personal
Communications Services (PCS) F block rules to make them race- and
gender-neutral; Implementation of Section 309(j) of the
Communications Act--Competitive Bidding, Sixth Report and Order, PP
Docket No. 93-253, 60 FR 37786 (July 21, 1995), 11 FCC Rcd 136
(1995), aff'd sub nom. Omnipoint Corp. v. FCC, 78 F.3d 620 (D.C.
Cir. 1996), which modified the designated entity provisions of the
broadband PCS C block rules to make them race- and gender-neutral.
\12\ 47 U.S.C. Section 309(j)(3).
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4. As explained in the FNPRM, the Commission's experience in
conducting the initial IVDS auction also led it to examine other
aspects of its rules, and the Commission has determined that it should
take certain steps to minimize the possibility of insincere bidding and
bidder default. To achieve these goals, the Commission amends its rules
to raise the initial upfront payment for participation in the IVDS
auction to $9,000 per Metropolitan Statistical Area (MSA) license and
$2,500 per license for Rural Service Area (RSA) markets, for the
maximum number of licenses on which the applicant wishes to bid.
5. Finally, a number of the comments addressed other issues which
are not within the scope of this proceeding. The Commission defers
decisions on those matters until they can be addressed in the
appropriate context.
II. Rules Affecting Designated Entities
A. Meeting the Constitutional Standards
6. Background. In the FNPRM, the Commission explained the history
of its race-and gender-based IVDS rules, the statutory objectives they
were designed to promote, and the impact of the Supreme Court's
decisions in Adarand and VMI. As discussed, an intermediate scrutiny
standard of review was applied to federal race- and gender-based
programs at the time the IVDS rules were adopted.
7. In Adarand, the Supreme Court held that all racial
classifications, whether imposed at the federal, state or local
government level, must be analyzed by a reviewing court under a strict
scrutiny standard of review. This standard requires such
classifications to be narrowly tailored to further a compelling
governmental interest.13 In VMI, the Supreme Court reviewed a
state program containing gender classification and held it was
unconstitutional under an intermediate scrutiny standard of review.
This standard requires that ``[p]arties who seek to defend gender-based
government action must demonstrate an `exceedingly persuasive
justification' for that action.'' 14 Under this test, the
government must show ``at least that the [challenged] classification
serves `important governmental objectives and that the discriminatory
means employed' are `substantially related to the achievement of those
objectives.' '' 15 While the Supreme Court has not directly
addressed constitutional challenges to federal gender-based programs
since Adarand and VMI,16 a review of the relevant broad language
in VMI indicates that the Court does not differentiate between federal
and state official actions in its equal protection analysis.17
Similarly, the Adarand decision definitively eliminated any distinction
between federal and state race-based programs in setting its strict
scrutiny standard of judicial review.18 Therefore, the Commission
concludes that any gender-based preference maintained in the IVDS
auction rules would need to meet the VMI intermediate scrutiny standard
of review.
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\13\ Adarand, 115 S. Ct. at 2113.
\14\ VMI, 116 S. Ct. at 2274 (citing J.E.B. v. Alabama ex rel.
T. B., 511 U.S. 127, 136-37 & n.6 (1994) and Mississippi Univ. for
Women v. Hogan, 458 U.S. 718, 724 (1982)).
\15\ Id. at 2275 (quoting Mississippi Univ. for Women, 458 U.S.
at 724 (quoting Wengler v. Druggists Mutual Ins. Co., 446 U.S. 142,
150 (1980))).
\16\ But see Lamprecht v. FCC, 958 F.2d 382, 391, 393 n.3 (D.C.
Cir. 1992), a pre-Adarand/VMI decision in which Justice Thomas (a
member of the D.C. Circuit panel to which the case was presented)
invokes the ``exceedingly persuasive justification'' standard in
striking down a federal gender-preference policy. As the dissent in
Lamprecht confirmed, Justice Thomas applied ``the more exacting
scrutiny of Justice O'Connor's dissent [in Metro, 497 U.S. at 602-
31],'' id. at 404 (Mikva, C.J., dissenting), which formed the core
of Justice O'Connor's majority opinion in Adarand.
\17\ ``Since [Reed v. Reed, 404 U.S. 71 (1971)], the Court has
repeatedly recognized that neither federal nor state government acts
compatibly with the equal protection principle when a law or
official policy denies * * * equal opportunity * * *.'' VMI, 116 S.
Ct. at 2275 (emphasis added); ``To summarize the Court's current
directions for cases of official classification based on gender: * *
* the reviewing court must determine whether the proffered
justification is `exceedingly persuasive.' '' Id. (emphasis added).
See also Heckler v. Mathews, 465 U.S. 728, 744-45 (1984) (reviewing
a federal statute containing gender classification under the same
standard the Court used to review the state statute in Mississippi
Univ. for Women); Califano v. Westcott, 443 U.S. 76, 85 (1979)
(same).
\18\ Adarand, 115 S. Ct. at 2113.
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8. In the FNPRM, the Commission noted that judicial precedent
indicates that only a record of discrimination against a particular
racial group would support remedial measures designed to benefit that
group and that generalized assertions of discriminations are
inadequate.19 The Commission tentatively concluded that, although
it has some general evidence of discrimination against certain racial
groups, the evidence in the record to date does not appear adequate to
satisfy the strict scrutiny standard of review. The Commission
requested comment on this tentative conclusion. The Commission also
requested comment on a number of questions related to this analysis,
including whether compensating for discrimination in lending practices
in the communications industry constitutes a compelling government
interest. The Commission also asked interested parties to comment on
other objectives that could be furthered by the minority-based
provisions and whether they could be considered compelling governmental
interests, such as increased diversity in ownership and employment in
the communications industry or increased industry competition. The
Commission asked commenters to submit statistical data, personal
accounts, studies, or any other data relevant to the entry of specific
racial groups into the field of telecommunications, and whether its
race-based provisions are narrowly tailored to serve the interests that
commenters assert to be compelling governmental interests. In the
FNPRM, the Commission also tentatively concluded that the present
record in support of its gender-based IVDS rules may be insufficient to
satisfy the intermediate scrutiny standard and asked commenters to
submit evidence relating to the entry of women into the field of
telecommunications. The Commission asked interested parties to comment
on whether there are any other goals that would satisfy the ``important
government objective'' requirement of the intermediate scrutiny
standard, such as increased participation of women in the FCC-licensing
process for auction spectrum, and whether its gender-based IVDS rules
are ``substantially related'' to the achievement of such objectives.
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\19\ FNPRM (citing Richmond v. J.A. Croson Co., 488 U.S. 469,
498 (1989) (quoting Wygant v. Jackson Bd. of Educ., 476 U.S. 267,
275 (1986))).
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9. In the FNPRM, the Commission also tentatively concluded that it
should not delay the IVDS auction for the amount of time it would take
to adduce sufficient evidence to support the race- and gender-based
IVDS provisions. The Commission also concluded that proceeding with the
IVDS auction with these rules intact would not serve the public
interest because it might result in litigation that ultimately would
further
[[Page 60200]]
delay the award of the IVDS licenses and postpone the introduction of
new competition to the marketplace.20 The Commission tentatively
concluded that in order to meet its Congressional mandate and
expeditiously proceed to auction the remaining IVDS licenses, it should
adopt race- and gender-neutral IVDS auction provisions, but continue to
maintain the provisions for small businesses which it believes
adequately benefit most of the businesses owned by minorities and/or
women.
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\20\ Id. The Commission observes that the D.C. Circuit Court of
Appeals stayed the C block auction under an intermediate scrutiny
standard on the basis of race- and gender-based provisions similar
to those adopted in the IVDS rules. Telephone Electronics Corp. v.
FCC, No. 95-1015 (D.C. Cir. Mar. 15, 1995) (order granting stay).
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10. Discussion. Upon review of the record before it, the Commission
revises the IVDS rules to make them race- and gender-neutral,
particularly since most of the commenters support this action.21
The other commenters failed to provide any specific anecdotal or
statistical evidence to supplement the record supporting race-based or
gender-based IVDS auction rules. IAC takes the position that, because
there is a lack of available equipment for constructing IVDS systems,
the Commission is moving too quickly in eliminating minority- and
gender-based preferences.22 IAC proposes that the Commission allow
parties additional time to establish a full record upon which to decide
whether the race- and gender-based preferences should be
eliminated.23 However, IAC does not present any support for the
proposition that a record could be developed in this proceeding if more
time was available, nor do any of the other commenters. Accordingly,
the Commission concludes that making the IVDS auction rules race- and
gender-neutral will serve the public interest by enabling it to
expeditiously auction the remaining IVDS licenses. Other commenters
also requested that the Commission delay the IVDS auction, but not for
the purpose of establishing a record to support race- and gender-based
rules.24 The Commission denies these requests to delay the
auction, and notes that applicants should factor the obligations and
uncertainties attendant to the auction process into their decision to
participate and the amount to bid.25
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\21\ See, e.g., Progressive Comments at 1; ITV/IALC Comments at
4.
\22\ IAC Comments at 5-7.
\23\ Id.; IAC Reply Comments at 1-2.
\24\ IVDS Licensees request that the Commission delay the
auction until certain technical, regulatory, and administrative
issues are resolved. IVDS Licensees Comments at 4-6. ITV/IALC
request that the auction not be held until resolution of all auction
default issues and action has been taken on the petitions for
reconsideration of the Commission's decision in Amendment of Part 95
of the Commission's Rules to Allow Interactive Video and Data
Service Licensees to Provide Mobile Service to Subscribers, Report
and Order, WT Docket No. 95-47, 61 FR 32710-01 (June 25, 1996), 11
FCC Rcd 6610 (1996). ITV/IALC Comments at 7-9. See also IAC Reply
Comments at 4-5 (agreeing with IVDS Licensees and ITV/IALC on these
points).
\25\ See Requests for Waivers in the First Auction of
Interactive Video and Data Service (IVDS) Licenses, Memorandum
Opinion and Order, 11 FCC Rcd 8211, 8213 (1996).
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11. While the Commission eliminates the race- and gender-based
provisions of the IVDS auction rules, it will retain provisions for
small businesses, as agreed to by all commenters.26 The Commission
concludes that nothing in the Adarand or VMI decisions calls its small
business provisions into question. Moreover, by retaining small
business preferences, the Commission believes it will continue to
fulfill the mandate under Section 309(j) to provide increased
opportunities for minority- and women-owned businesses,27 because
many minority- and women-owned entities are small businesses who
therefore will qualify for the same special provisions that would have
applied to them under the previous rules.28
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\26\ IVDS Licensees Comments at 2 (in light of the elimination
of race- and gender-based provisions, the small business preferences
provide ``one of the few avenues remaining for minority- and women-
owned businesses to enter the communications industry''); IAC
Comments at 8 (preferences for small businesses should be retained
to fulfill the Commission's statutory obligations under Section
309(j)); ITV/IALC Comments at 4 (preferences should be based on a
party's lack of economic strength); Progressive Comments at 1 (small
business provisions will give ``equal status to all small business
enterprises'').
\27\ 47 U.S.C. Section 309(j)(3).
\28\ See generally 1992 Survey of Minority-Owned Business
Enterprises, Agriculture and Financial Statistics Division, Bureau
of the Census, U.S. Department of Commerce (December 11, 1995); 1992
Survey of Women-Owned Businesses, Agriculture and Financial
Statistics Division, Bureau of the Census, U.S. Department of
Commerce (January 29, 1996).
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12. The Commission also has initiated a comprehensive rule making
proceeding to gather evidence regarding market barriers to entry faced
by minority- and women-owned firms as well as small businesses.29
If a sufficient record is adduced that will support race- and gender-
based provisions that will satisfy judicial scrutiny, it will consider
race- and gender-based provisions for future auctions. Toward this end,
the Commission will continue to request bidder information on the IVDS
short-form filings as to minority and/or women-owned status. In
analyzing the applicant pool and the auction results, the Commission
will monitor whether it has accomplished substantial participation by
minorities and women through the broad provisions available to small
businesses. This will also assist the Commission in preparing its
report to Congress on the success of designated entities in
auctions.30
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\29\ See Section 257 Proceeding to Identify and Eliminate Market
Entry Barriers for Small Businesses, Notice of Inquiry, GN Docket
No. 96-113, 61 FR 33066 (June 26, 1996), 11 FCC Rcd 6280
(1996)(Section 257 Notice of Inquiry). See also 47 U.S.C. Section
257.
\30\ See 47 U.S.C. Section 309(j)(12)(D).
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B. Special Provisions for Designated Entities
1. Small Business Definition
13. Background. In the current IVDS rules, the Commission adopted a
definition of ``small business,'' that requires an entity to
demonstrate that, together with its affiliates, its net worth is not
more than $6 million, and its annual profits are not more than $2
million for the previous two years. In the FNPRM, the Commission stated
its belief that the gross revenues of the applicant and its affiliates
is a more accurate indicator of its size than is its net worth or
annual profits, and the Commission proposed to revise the IVDS
definition of small business to match the three-year gross revenues
test that it has used to define ``small business'' for other
auctions.31 The Commission further stated that, because it expects
that the capital requirements for IVDS will be relatively low (as
compared to, for example, broadband PCS), IVDS may attract greater
participation by smaller businesses who lack access to capital. The
potential in IVDS for greater participation by smaller businesses also
justifies special provisions based on the size of the bidding entity,
such as a tiered bidding credits. Therefore, the Commission proposed to
redefine a ``small business'' as an entity with average gross revenues
not to exceed $15 million for each of the preceding three years. The
Commission also proposed to add a second tier of small businesses,
referred to as ``very small businesses,'' and defined as entities with
average gross revenues of not more than $3 million for each of the
preceding three years. The Commission requested comment on these
revised definitions. It also requested comment on whether to implement
a five percent
[[Page 60201]]
attribution threshold for purposes of determining an entity's
eligibility as a small business. Alternatively, the Commission sought
comment on whether it should only count the gross revenues of the
controlling principals in the applicant and its affiliates for purposes
of determining small business status. Finally, the Commission sought
comment on its tentative conclusion to use a multiplier similar to the
one adopted in the CMRS Third Report and Order for the spectrum
aggregation cap to determine attribution when IVDS licensees are held
indirectly through intervening corporate entities.32
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\31\ FNPRM (citing 47 CFR Sections 24.320, 24.720, 90.912(b),
90.814(b)(1)). See also Implementation of Section 309(j) of the
Communications Act--Competitive Bidding, Second Order on
Reconsideration and Seventh Report and Order, PR Docket No. 89-553,
PP Docket No. 93-253, GN Docket No. 93-252, 60 FR 48913 (September
21, 1996), 11 FCC Rcd 2639, 2700-01 & n.320 (1995) (900 SMR Auction
Report and Order).
\32\ Id. (citing Implementation of Sections 3(n) and 332 of the
Communications Act--Regulatory Treatment of Mobile Services, Third
Report and Order, GN Docket No. 93-252, PR Docket No. 93-144, PR
Docket No. 89-553, 59 FR 59945 (November 21, 1996), 9 FCC Rcd 7988,
8114-15 (1994) (CMRS Third Report and Order)).
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14. Discussion. Based upon its experience with spectrum auctions,
the Commission believes that gross revenues-based definitions are a
more accurate indicator of an entity's size than the net worth/annual
profit definition which was previously used. Therefore, the Commission
will redefine a ``small business'' as an entity with average gross
revenues not exceeding $15 million for each of the preceding three
years, and a ``very small business'' as an entity with average gross
revenues not exceeding $3 million for each of the preceding three
years. IVDS Licensees and ITV/IALC support small business definitions
based upon gross revenues,33 and only Progressive takes the
position that the Commission should retain the previous small business
definition.34 The Commission further notes that the creation of a
subcategory of very small businesses enables it to tailor benefits to
better meet the needs of the smaller business entities likely to
participate in the IVDS auction. As discussed below, the Commission
finds that its goals can best be served by offering varying bidding
credits tailored to the applicant's size. The Commission also believes
that the $15 million/$3 million gross revenue financial thresholds are
appropriate and are consistent with the carefully-analyzed approach it
took in the auction of 900 MHz Specialized Mobile Radio (SMR)
licenses.35 Indeed, in this auction, the Commission expects
participation by a comparable group of smaller businesses that
participated in the 900 MHz SMR auction. Because the Commission
believes these are appropriate thresholds, it declines to adopt the
higher thresholds proposed by ITV/IALC.36
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\33\ See, e.g., IVDS Licensees Comments at 1-2; ITV/IALC
Comments at 4-5.
\34\ Progressive Comments at 1 (contending that differing
categories of small businesses will create problems for the
Commission in the future).
\35\ 900 SMR Auction Report and Order, 11 FCC Rcd at 2700.
\36\ ITV/IALC Comments at 4-5 (proposing small business average
gross revenues eligibility threshold of $18 million and very small
business average gross revenues eligibility threshold of $5 million
because IVDS licensees will more likely be financing their systems
from equity sources rather than debt).
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15. In determining whether an entity qualifies as a small business
at either threshold, the Commission will consider the gross revenues of
the small business applicant, its affiliates, and certain investors in
the applicant. Specifically, the Commission will attribute the gross
revenues of all controlling principals in the small business applicant
as well as the gross revenues of affiliates of the applicant.37 At
ITV/IALC's request,38 the Commission clarifies that personal net
worth is not included in the determination of eligibility for bidding
as a small business.39 In addition, the Commission will use the
multiplier adopted in the CMRS Third Report and Order for the spectrum
aggregation cap to determine when IVDS licensees are indirectly held
through intervening corporate entities.40 The Commission thus
chooses not to impose specific equity requirements on the controlling
principals that meet the small business definition.41 However, the
Commission will still require that, in order for an applicant to
qualify as a small business, qualifying small business principals must
maintain ``control'' of the applicant. The term ``control'' would
include both de jure and de facto control of the applicant.42
While the Commission is not imposing specific equity requirements on
the small business principals, the absence of significant equity could
raise questions about whether the applicant qualifies as a bona fide
small business.
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\37\ Both commenters addressing this issue supported the use of
gross revenues of controlling principals as the determinant of small
business status. See IVDS Licensees Comments at 2; ITV/IALC Comments
at 5 n.5.
\38\ ITV/IALC Comments at 5 n.5.
\39\ See, e.g., Implementation of Section 309(j) of the
Communications Act--Competitive Bidding, Fifth Memorandum Opinion
and Order, PP Docket No. 93-253, 59 FR 63210 (December 7, 1994), 10
FCC Rcd 403, 421 (1994) (Competitive Bidding Fifth Memorandum
Opinion and Order).
\40\ CMRS Third Report and Order, 9 FCC Rcd 7988, 8114-15. IVDS
Licensees supports this proposal. IVDS Licensees Comments at 2.
\41\ IVDS Licensees alternatively proposes a twenty-five percent
equity exception similar to that adopted in the Commission's
broadband PCS rules. 47 CFR Section 24.709(b)(3). IVDS Licensees
Comments at 2.
\42\ Typically, de jure control is evidenced by ownership of
50.1 percent of an entity's voting stock. De facto control is
determined on a case-by-case basis. An entity must demonstrate at
least the following indicia of control to establish that it retains
de facto control of the applicant: (1) the entity constitutes or
appoints more than 50 percent of the board of directors or
partnership management committee; (2) the entity has authority to
appoint, promote, demote and fire senior executives that control the
day-to-day activities of the licensees; and (3) the entity plays an
integral role in all major management decisions. See Competitive
Bidding Fifth Memorandum Opinion and Order, 10 FCC Rcd at 447.
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16. On a related matter, ITV/IALC seeks clarification in its
comments that once an entity qualifies as a small business, it would
not lose its status through financial growth in subsequent
years,43 and thereby lose its ability to make installment payments
as a small business under 47 CFR Section 95.816(d)(2). The Commission
addressed this concern in its broadband PCS rules. There it emphasized
its strong interest in seeing small businesses grow and succeed in the
wireless marketplace and stated that growth of the licensee's gross
revenues and assets, or growth as a result of a licensee acquiring
additional licenses, generally would not jeopardize continued
eligibility for designated entity preferences.44 The Commission
believes this policy equally should apply to IVDS licensees and,
therefore, incorporates this concept into its IVDS rules.45
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\43\ ITV/IALC Comments at 5 n.4.
\44\ Competitive Bidding Fifth Memorandum Opinion and Order, 10
FCC Rcd at 420. See also 47 CFR Section 24.711(c)(2) (``A licensee
(or other attributable entity's) increased gross revenues or
increased total assets due to nonattributable equity investments * *
*, debt financing, revenue from operations or other investments ,
business development or expanded service shall not be considered to
result in the licensee losing eligibility for installment
payments.'').
\45\ 47 CFR Section 95.816(e)(2) (as revised).
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2. Bidding Credits
17. Background. Under the current IVDS rules, businesses owned by
members of minority groups or women are granted a 25 percent bidding
credit. In the FNPRM, the Commission proposed to eliminate race-and
gender-based bidding credits in its IVDS rules and sought comment on
whether it should extend a single bidding credit to all small
businesses and, if so, the magnitude of that credit. The Commission
asked whether it should offer tiered bidding credits for small
businesses of different sizes, e.g., a 15 percent bidding credit for
very small businesses and a 10 percent bidding credit for small
businesses. The Commission tentatively concluded that given the
relatively low bids that IVDS garnered in the July 1994 auction, IVDS
may attract smaller businesses, thus justifying tiered bidding credits.
[[Page 60202]]
18. Discussion. The Commission will maintain bidding credits for
small businesses and will adopt a tiered bidding credit approach, as
supported by several commenters.46 The Commission agrees with IVDS
Licensees that preservation of the bidding credit is consistent with
its obligations under Section 309(j) to ``promote economic opportunity
for a wide variety of applicants, including small businesses and
businesses owned by minorities and women.'' 47 Furthermore, the
Commission believes that a tiered approach, which enhances the
discounting effect of bidding credits because not all entities receive
the same benefit, will encourage smaller businesses to participate in
the provision of IVDS services.48 The Commission also believes
that the 15 percent bidding credit for very small businesses and a 10
percent bidding credit for small businesses are appropriate and
consistent with the thresholds used in the 900 MHz SMR auctions.49
As noted above, the Commission expects auction participation by a group
of smaller businesses comparable to those that participated in the 900
MHz SMR auction. Moreover, the Commission does not believe a greater
bidding credit is justified here as it was for certain highly capital
intensive services, like broadband PCS. Therefore, the Commission
declines to adopt the higher bidding credits proposed by IVDS Licensees
and ITV/IALC.50 The two tiered approach and the magnitude of the
bidding credits the Commission adopts here are reasonable and equitable
and meet the concerns of the commenters. These credits are narrowly
tailored to the varying abilities of businesses to access capital and
also take into account that different small businesses will pursue
different strategies.
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\46\ See IVDS Licensees Comments at 2-3; ITV/IALC Comments at 6.
\47\ See IVDS Licensees Comments at 3 (quoting 47 U.S.C. Section
309(j)(4)(C)(ii)).
\48\ See id. (quoting DEF Report and Order, 11 FCC Rcd at 7849).
\49\ 900 SMR Auction Report and Order, 11 FCC Rcd at 2700.
\50\ IVDS Licensees Comments at 3; ITV/IALC Comments at 6
(suggesting a 25 percent bidding credit for very small businesses
and a 15 percent credit for small businesses).
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III. Upfront Payments
19. Background. The Commission recognized in the FNPRM that in
order to deter insincere, speculative bidding and guard against the
substantial number of defaults that occurred after the July 1994
auction, it needs to obtain a higher upfront payment from IVDS bidders
than the upfront payment currently required by the rules (i.e., $2,500
for every five licenses a bidder desires to win). In response to
several ex parte filings from IVDS bidders supporting increased upfront
payments, the Commission proposed to increase the initial upfront
payment to $9,000 per MSA license and $2,500 per RSA license, for the
maximum number of licenses on which the applicant wishes to bid.
20. Discussion. Based upon the record regarding IVDS upfront
payment amounts,51 the Commission adopts the proposed upfront
payment amounts and will amend Section 95.816(c)(3) of the Commission's
Rules. Specifically, the Commission raises the initial upfront payments
for participation in the IVDS auction to $9,000 per MSA license and
$2,500 per RSA license, for the maximum number of licenses on which an
entity wishes to bid. The Commission believes that this action is
consistent with the underlying purpose for upfront payments--to deter
insincere and speculative bidding and to ensure that bidders have the
financial capability to build out their systems.52 The Commission
also believes that the revised upfront payments will continue to
attract as many qualified bidders, while providing an adequate
deterrent against frivolous bidding. Thus, the Commission declines to
adjust the upfront payment amounts as proposed by ITV/IALC.53
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\51\ IVDS Licensees Comments at 3; IAC Comments at 9; ITV/IALC
Comments at 6-7; FNPRM at n.140 (list of ex parte filings supporting
increased upfront payments).
\52\ See, e.g., DEF Report and Order, 11 FCC Rcd at 7860.
\53\ ITV/IALC Comments at 6-7 (proposing that the MSA payment be
an even multiple of the RSA payment, e.g., per-market payments of
$7,500.00 for MSA's and $2,500.00 for RSA's, to reduce computational
complexity in figuring bidding eligibility as the auction proceeds
and to avoid ``stranding'' MSA upfront payments with no ability to
apply the entire amount to an RSA license).
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IV. Other Issues
21. Several commenters raise issues beyond the scope of the FNPRM.
For example, Progressive and IAC request that the Commission revise the
length of the IVDS license terms from 5 to 10 years.54 This
proposal requires formal rule making procedures and is beyond the scope
of this proceeding. Similarly, ITV/IALC seeks an exception to the
cross-ownership rule.55 Again, this type of relief falls outside
the scope of this proceeding. Finally, a number of policy questions
were raised in the comments regarding default issues.56 The
Commission notes that it will be addressing default issues in a future
proceeding regarding the general competitive bidding rules.
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\54\ Progressive Comments at 1; IAC Reply Comments at 4.
\55\ ITV/IALC Comments at 3-5.
\56\ IAC Comments at 7-8 (request not to reauction defaulted
licenses before the defaulting party's administrative and judicial
remedies are exhausted); id. at 9 (request the Commission clarify
how it evaluates requests for waiver of payment deadlines and other
IVDS auction-related rules); ITV/IALC Comments at 2 (request that
defaulting parties should not be eligible for future IVDS auctions);
IAC Reply Comments at 2-4 (opposition to ITV/IALC's request).
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V. Procedural Matters and Ordering Clauses
22. As required by the Regulatory Flexibility Act of 1980 (RFA), 5
U.S.C. Section 603, an Initial Regulatory Flexibility Analysis (IRFA)
was incorporated in the FNPRM. The Commission sought written public
comments on the expected impact of the rule changes proposed in the
FNPRM on small entities, including on the IRFA. The Commission's Final
Regulatory Flexibility Analysis (FRFA) in this Tenth Report and Order
conforms to the RFA, 5 U.S.C. Section 604, as amended by the Contract
with America Advancement Act of 1996 (CWAAA), Public Law No. 104-121,
110 Stat. 847 (1996).57
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\57\ Subtitle II of the CWAAA is ``The Small Business Regulatory
Enforcement Fairness Act of 1996'' (SBREFA), codified at 5 U.S.C.
Section 601, et seq.
---------------------------------------------------------------------------
A. Need for and Objective of the Rules
23. This Tenth Report and Order adopts rule changes regarding the
Commission's auction of IVDS licenses. The rule changes are appropriate
because laws have changed since the rules were originally adopted. The
Supreme Court's decisions in Adarand 58 and VMI 59 raised
questions about the level of legal scrutiny that must be met by some of
the designated entity provisions in the Commission's rules which take
race and gender into account. The objective of the rule changes in the
Tenth Report and Order primarily is to ensure that the competitive
bidding rules comply with the appropriate legal standards by making the
rules race- and gender-neutral, while at the same time instituting
further rule changes that continue to promote participation of small
businesses in auctions for licenses to provide spectrum services.
Further, a secondary objective of some of the rule changes, such as the
small business definition, availability of bidding credits, and
increased upfront payments, is to apply the benefit of the
[[Page 60203]]
Commission's experience from the first IVDS auction to subsequent IVDS
auctions, and to increase the flexibility and opportunities available
to small businesses to participate in the provision of the services.
---------------------------------------------------------------------------
\58\ 115 S. Ct. 2097.
\59\ 116 S. Ct. 2264.
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B. Summary of Issues Raised by Public Comment on the Initial Regulatory
Flexibility Analysis
24. There were no petitions or comments which solely discussed or
addressed the IRFA. However, a number of commenters raised and
discussed issues effecting small businesses in their comments on the
Tenth Report and Order. Those comments are addressed and discussed,
where applicable, in the detailed sections below.
C. Projected Reporting, Recordkeeping and Other Compliance Requirements
of the Rules
25. The small businesses which choose to participate in these
services will be required to demonstrate that they meet the criteria
set forth to qualify as small businesses (or very small businesses),
just as was required by the prior rules. The changed rules will include
more businesses in the category of small businesses, which will be
eligible for designated entity preferences such as bidding credits and
installment payment plans. Any small business applicant wishing to
avail itself of those provisions will need to make the general
financial disclosures, as well as applicant and affiliate disclosures,
necessary to establish that the small business is in fact small (or
very small). The changed rules have eliminated the requirements that
small businesses owned by women or minorities demonstrate that their
owners are women or minorities. However, the Commission requests
voluntary reporting of minority and women ownership to comply with its
mandate to report its efforts to Congress. Accordingly, there are no
additional reporting or recordkeeping requirements being imposed by
these rules.
D. Description and Estimate of Small Entities Subject to the Rules
26. The Commission is directed by the Communications Act of 1934,
47 U.S.C. section 309(j), to make provisions to ensure that smaller
businesses, and other designated entities, have an opportunity to
participate in the auction process. To fulfill this statutory mandate
and comply with the current legal standards, these rule changes are
designed to ensure compliance with the new legal standards while
promoting participation by small entities, including minorities, women,
and rural telephone companies. The small businesses who will be subject
to the rules would be those which choose to operate IVDS, a class of
wireless communications services with a wide variety of uses. The
services will generally be offered to consumers who wish to subscribe
to those services.
27. IVDS is a communications-based service subject to regulation as
a wireless provider of pay television services under Standard
Industrial Classification 4841 (SIC 4841), which covers subscription
television services.60 The U.S. Small Business Administration
(SBA) defines small businesses in SIC 4841 as businesses with annual
gross revenues of $11 million or less. 13 CFR section 121.201. In this
Tenth Report and Order, the Commission extends special provisions to
small businesses with annual gross revenues of $15 million or less and
additional benefits to very small businesses with annual gross revenues
of $3 million or less. The Commission observes that this rule change is
consistent with its approach in other wireless services, e.g., the 900
MHz specialized mobile radio service, and is narrowly tailored to
address the lower capital requirements for IVDS. SBA approval for the
small business definitions is pending for this and other auctionable
services.
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\60\ Generally, IVDS services will be subscriber-based services
providing video communications which could be described as a form of
subscription television service.
---------------------------------------------------------------------------
28. The Commission's estimate of the number of small business
entities subject to the rules begins with the Bureau of Census report
on businesses listed under SIC 4841, subscription television services.
The total number of entities under this category is 1,788.61 There
are 1,463 companies in the 1992 Census Bureau report which are
categorized as small businesses providing cable and pay TV
services.62 The Commission knows that many of these businesses are
cable and television service businesses, rather than IVDS licensees.
Therefore, the number of small entities currently in this business
which will be subject to the rules will be less than 1,463.
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\61\ U.S. Small Business Administration 1992 Economic Census
Industry and Enterprise Report, Table 2D, SIC Code 4841 (Bureau of
the Census data adapted by the Office of Advocacy of the U.S. Small
Business Administration).
\62\ The Census table divides those companies by the amount of
annual receipts. There is a dividing point at companies with annual
receipts of $10 million. The next increment is annual receipts of
$17 million, a category that greatly exceeds the SBA definition of
small businesses that provide subscription television services.
However, there are 17 firms in this category, with revenues between
$10-$17 million. Approximately 1,480 SIC 4841 category firms have
annual gross receipts of $15 million or less. Only a small fraction
of those 1,480 firms provide interactive video and data services.
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29. The first IVDS auction resulted in 170 entities winning
licenses for 594 MSA licenses. Of the 594 licenses, 557 were won by
entities qualifying as a small business. For that auction, the
Commission defined a small business as an entity, together with its
affiliates, that has no more than a $6 million net worth and, after
federal income taxes (excluding any carry over losses), has no more
than $2 million in annual profits each year for the previous two
years.63 In the upcoming IVDS re-auction of approximately 100
licenses in MSA markets and auction of 856 licenses in RSA markets (two
licenses in each of 428 markets), while the Commission makes the rules
race and gender-neutral, it also modifies its definition of small
business to include a second tier of very small businesses, adopts
tiered bidding credits, and continues to include provisions for
installment payments in its rules to encourage participation by small
and very small businesses. The Commission cannot estimate, however, the
number of licenses that will be won by entities qualifying as small or
very small businesses under the rules. Given the success of small
businesses in past IVDS auctions, and that small businesses comprise
over 80 percent of firms in the subscription television services
industry, the Commission assumes for purposes of this FRFA that all of
the licenses may be awarded to small businesses, which would be
affected by the rule changes it has made. Some companies may win more
than one license, as was the situation in the earlier IVDS auction.
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\63\ Fourth Report and Order, 9 FCC Rcd at 2336.
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30. Applicants seeking to participate in the auction also will be
subject to these rule changes. It is impossible to accurately predict
how many small businesses will apply to participate in the auction. In
the last IVDS auction, there were 289 qualified applicants. The
Commission does not anticipate that there will be significantly more
participants in the subsequent IVDS auction. However, because of the
lower capital requirements for IVDS in general, there may be a greater
number of very small businesses participating.
E. Steps Taken to Minimize the Burdens on Small Entities
31. The changes made in the Tenth Report and Order are designed to
ensure compliance with the current legal standards applicable to
federal programs implemented to benefit minority and women-owned
businesses, while minimizing burdens on small
[[Page 60204]]
businesses and promoting participation of small businesses in spectrum
auctions. The extension of a two-tiered definition for small
businesses, as well as the provision for tiered bidding credits will
assist businesses owned by women and minorities. Based upon experience
to date, most of the businesses owned by women and minorities which
have participated in the Commission's auctions are small businesses or
very small businesses which, in the end, will benefit from these rule
changes. As discussed below, the Commission considered and rejected
alternatives, such as providing parties additional time to supplement
the record or to afford the industry more time to develop technology
and equipment, because there is no evidence that, given additional
time, the record will be sufficiently supplemented or the industry will
develop the technology any faster. While some may argue that the
increase in upfront payments may raise some entry barriers, such
concerns are outweighed by the need to maintain the integrity of the
auction process to ensure sincere bidders and, thus, create increased
opportunities for sincere small business bidders. Furthermore, the rule
change increasing the upfront payment amounts will ultimately benefit
the entities participating in the IVDS auctions, by ensuring that the
participants have the financial ability to pay for the licenses for
which they bid.
F. Significant Alternatives Considered and Rejected
Eliminating the Race and Gender-Based Provisions
32. In the Tenth Report and Order, the Commission concludes that
the possibility of legal challenges to the rules due to the race and
gender-based provisions could cause lengthy delays in issuing licenses
in this service and, therefore, revises those provisions in its
competitive bidding rules to make them race and gender-neutral. The
Commission has not been able to consider other alternatives to the rule
changes given that no alternatives were proposed by any of the
commenters, and the record was not supplemented during this proceeding
with any additional evidence of market entry barriers, anecdotal or
statistical evidence or any other factors which directly adversely
effect small businesses owned by minorities and/or women. Although one
commenter requested that the Commission provide parties with additional
time to supplement the record, and another requested that the
Commission delay any rule making determinations to afford the industry
additional time to develop equipment and technology for implementing
IVDS, the Commission rejected these requests, because there is no
evidence the record will be sufficiently supplemented or the industry
will develop the technology any faster. The Commission notes that it is
currently gathering evidence, through a Notice of Inquiry proceeding
pursuant to the Telecommunications Act of 1996, on barriers to market
entry for small businesses, including those owned by women and
minorities.64 The Commission believes that the rule changes
discussed below (for example, offering bidding credits based upon an
entity's size) will more than adequately benefit small businesses that
are owned by minorities or women.
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\64\ Section 257 Notice of Inquiry.
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Adoption of Two-Tiered Definition for Small Businesses
33. The Tenth Report and Order adopts a two-tiered definition to
define small businesses: (1) a small business is a business with
average gross revenues for each of the preceding three years that do
not exceed $15 million, and (2) a very small business is one which has
less than an average of $3 million in gross revenues in each of the
last three years. The Commission adopts this two-tiered definition
because its ongoing experience with spectrum auctions has affirmed its
belief that gross revenues-based definitions are a more accurate
indicator of size than a net worth/annual profit definition. Also, this
definition is consistent with the carefully-analyzed approach used in
other auctionable mobile radio services such as 900 MHz SMR
services.65 Although one commenter suggested altering the
financial thresholds for determining whether an entity is a ``small
business'' or ``very small business'' under the proposed definition,
the Commission believes that the adopted two-tiered definition is
appropriate given the likely participants in this auction and the
Commission's desire to maintain consistency between auctions. In
determining whether an entity qualifies as a small business under
either tier, the Commission will attribute the gross revenues of all
controlling principals, as well as the gross revenues of affiliates of
the applicant. Also, the Commission will use the multiplier adopted in
the CMRS Third Report and Order for the spectrum aggregation cap to
determine when IVDS licensees are indirectly held through corporate
entities. While the Commission chose not to impose specific equity
requirements on the controlling principals of qualifying small
businesses, it will still require that qualifying small businesses are
actually ``controlled'' by their principals.
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\65\ 900 SMR Auction Report and Order.
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Adoption of Tiered Bidding Credits
34. The Commission adopted tiered small business bidding credits
for the upcoming IVDS auction as follows: (1) 10 percent bidding
credits for small businesses and (2) 15 percent for very small
businesses. Although a few commenters proposed higher percentages for
each tier of bidding credits offered (for example, 15 percent for small
businesses and 25 percent for very small businesses), the Commission
declines to adopt their proposals because it does not believe a greater
bidding credit is justified here as it was for certain highly capital
intensive services, like broadband PCS. The Commission believes the
extent, magnitude and range of the bidding credits adopted meet the
varying needs of small and very small businesses who will participate
in the IVDS auctions.
Increase in Upfront Payment Amounts
35. The Tenth Report and Order adopts increased upfront payment
amounts of $9,000 per MSA license and $2,500 per RSA license for
businesses participating in IVDS auctions. These increased amounts are
designed to maintain the integrity of the auction by minimizing the
adverse impact of participation by speculators and other frivolous
bidders in the IVDS auction. Commenters agree that the previous upfront
payment was too low, and no other alternatives were suggested to deter
speculative or frivolous bidders who do not meet the commitments they
make in bidding in IVDS auctions. Based upon the record regarding IVDS
upfront payment values, the Commission believes that the revised
upfront payment values are set at appropriate levels and provide an
adequate deterrent against frivolous bidding, and therefore, the
Commission declined to adopt the approach of one commenter who
suggested it modify the multiplier for the MSA payment to an even
multiplier of the RSA payment. Moreover, the impact that increased
upfront payments may have on designated entities will be offset by the
fact that eligible entities may elect to make payments for their
licenses via installment payments, which eligibility shall not be
jeopardized due to normal projected growth of gross revenues and
assets.
[[Page 60205]]
G. Commission's Outreach Efforts to Learn of and Respond to the Views
of Small Entities Pursuant to 5 U.S.C. Section 609
36. The Commission sought specific comments regarding the views of
small entities with respect to the changes being made through
solicitation of comments and reply comments to its FNPRM, and the IRFA
that was contained therein. Although there were no comments on the
IRFA, there were a number of comments received in connection with the
FNPRM as noted herein. Further, the Commission's Office of
Communications and Business Opportunities has undertaken additional
outreach efforts through newsletters and other mailings to learn of the
views of, and respond to, small entities.
H. Report to Congress
37. The Commission shall send a copy of this Final Regulatory
Flexibility Analysis, along with this Tenth Report and Order, in a
report to Congress pursuant to the SBREFA, 5 U.S.C. Section
801(a)(1)(A). A copy of this Final Regulatory Flexibility Analysis will
also be published in the Federal Register.
38. Authority for issuance of this Tenth Report and Order is
contained in Sections 4(i), 303(r), and 309(j) of the Communications
Act of 1934, as amended, 47 U.S.C. Sections 154(i), 303(r) and 309(j).
39. Accordingly, IT IS ORDERED that, pursuant to the authority of
Sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, as
amended, 47 U.S.C. Sections 154(i), 303(r), and 309(j), this Tenth
Report and Order is adopted, and Part 95 of the Commission's Rules IS
AMENDED as set forth below.
40. IT IS FURTHER ORDERED that the rule changes made herein WILL
BECOME EFFECTIVE December 27, 1996.
41. For further information concerning this proceeding, contact
Howard Griboff or Christina Eads Clearwater at (202) 418-0660 (Auctions
Division, Wireless Telecommunications Bureau).
List of Subjects in 47 CFR Part 95
Communications equipment, Radio.
Federal Communications Commission
William F. Caton,
Acting Secretary.
Rule Changes
Part 95 of Chapter I of Title 47 of the Code of Federal Regulations
is amended as follows:
PART 95--PERSONAL RADIO SERVICES
1. The authority citation for Part 95 continues to read as follows:
Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47
U.S.C. 154, 303.
2. Section 95.816 is amended by revising paragraphs (c)(3) and
(d)(1), adding new paragraph (d)(4), redesignating paragraph (e) as
paragraph (e)(1) and revising it, and adding new paragraph (e)(2) to
read as follows:
Sec. 95.816 Competitive bidding proceedings.
* * * * *
(c) * * *
(3) Upfront payments. Each eligible bidder in the IVDS auction will
be required to submit an upfront payment of $9,000 per MSA license and
$2,500 per RSA license for the maximum number of licenses on which it
intends to bid pursuant to section 1.2106 of this chapter and
procedures specified by Public Notice.
* * * * *
(d) * * *
(1) Bidding credits.
(i) A winning bidder that qualifies as a small business (as defined
in 95.816(d)(4)(i) of this section) may use a bidding credit of 10
percent to lower the cost of its winning bid.
(ii) A winning bidder that qualifies as a very small business (as
defined in 95.816(d)(4)(ii) of this section) may use a bidding credit
of 15 percent to lower the cost of its winning bid.
* * * * *
(4) Definitions.
(i) Small business. A small business is an entity that, together
with its affiliates and persons or entities that hold interests in such
entity and their affiliates, has average annual gross revenues that are
not more than $15 million for the preceding three years.
(ii) Very small business. A very small business is an entity that,
together with its affiliates and persons or entities that hold
interests in such entity and their affiliates, has average annual gross
revenues that are not more than $3 million for the preceding three
years.
(iii) Gross revenues. Gross revenues shall mean all income received
by an entity, whether earned or passive, before any deductions are made
for costs of doing business (e.g., cost of goods sold), as evidenced by
audited financial statements for the relevant number of most recently
completed calendar years, or, if audited financial statements were not
prepared on a calendar-year basis, for the most recently completed
fiscal years preceding the filing of the applicant's short-form
application (Form 175). If an entity was not in existence for all or
part of the relevant period, gross revenues shall be evidenced by the
audited financial statements of the entity's predecessor-in-interest
or, if there is no identifiable predecessor-in-interest, unaudited
financial statements certified by the applicant as accurate. When an
applicant does not otherwise use audited financial statements, its
gross revenues may be certified by its chief financial officer or its
equivalent.
(iv) Controlling interest shall be attributable. Controlling
interest means majority voting equity ownership, any general
partnership interest, or any means of actual working control (including
negative control) over the operation of the licensee, in whatever
manner exercised.
(v) Multiplier. Ownership interests that are held indirectly by any
party through one or more intervening corporations will be determined
by successive multiplication of the ownership percentages for each link
in the vertical ownership chain and application of the relevant
attribution benchmark to the resulting product, except that if the
ownership percentage for an interest in any link in the chain exceeds
50 percent or represents actual control, it shall be treated as if it
were a 100 percent interest.
(e) Unjust enrichment.
(1) Any business owned by minorities and/or women that has obtained
a IVDS license in the IVDS auction held in July 1994 through the
benefit of tax certificates shall not assign or transfer control of its
license within one year of its license grant date. If the assignee or
transferee is a business owned by minorities and/or women, this
paragraph shall not apply; provided, however, that the assignee or
transferee shall not assign or transfer control of the license within
one year of the grant date of the assignment or transfer.
(2) A licensee's (or other attributable entity's) increased gross
revenues due to nonattributable equity investments (i.e., from sources
whose gross revenues are not considered under 95.816(d)(4)(iv) of this
section), debt financing, revenue from operations or other investments,
business development or expanded service shall not be considered to
result in the licensee losing eligibility for preferences as a small
business or very small business under this section.
[FR Doc. 96-30358 Filed 11-26-96; 8:45 am]
BILLING CODE 6712-01-P
