[Federal Register Volume 61, Number 124 (Wednesday, June 26, 1996)]
[Proposed Rules]
[Pages 33066-33074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16259]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Chapter I
[General Docket No 96-113; FCC 96-216]
Identifying and Eliminating Market Entry Barriers for Small
Businesses
AGENCY: Federal Communications Commission.
ACTION: Proposed rule; notice of inquiry.
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SUMMARY: The attached Notice of Inquiry (NOI) commences a proceeding to
examine barriers to small business entry into the telecommunications
marketplace. Section 101 of the Telecommunications Act of 1996 (1996
Telecommunications Act) adds new Section 257 to the Communications Act,
which requires the Commission, within 15 months after enactment, to
complete a proceeding to identify and eliminate market entry barriers
for entrepreneurs and other small businesses in the provision and
ownership of telecommunications services and information services, or
in the provision of parts or services to providers of
telecommunications services and information services. Through this NOI,
the Commission initiates an omnibus Section 257 proceeding and will
undertake specific initiatives that further the objective of reducing
market entry barriers for small businesses. The record developed in
connection with these intiatives also will, assist us in achieving our
mandate under Section 309(j) of the Communications Act of 1934 to
disseminate licenses for auctionable spectrum-based services to small
businesses, rural telephone companies, and businesses owned by women
and minorities, as well as in fulfilling our general obligation to
serve the public interest.
DATES: Comments must be submitted on or before July 24, 1996 and reply
comments are due on or before August 23, 1996.
ADDRESSES: Comments and reply comments may be mailed to the Office of
the Secretary, Federal Communications Commission, Washington, D.C.
20554.
FOR FURTHER INFORMATION CONTACT: Linda L. Haller, Office of General
Counsel, at (202) 418-1720 or S. Jenell Trigg, Office of Communications
Business Opportunities, at (202) 418-0990.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Notice of Inquiry which was adopted on May 10, 1996, and released on
May 21, 1996. The complete text of this NOI 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., on-line at the
Office of Communications Business Opportunities' web site via the FCC's
Internet Home Page at www.fcc.gov., and may also 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.
I. Introduction
1. Section 101 of the Telecommunications Act of 1996 (1996
Telecommunications Act),\1\ adds new Section 257 to the Communications
Act of 1934.\2\ Section 257 requires the Commission, within 15 months
after enactment, to complete a proceeding ``for the purpose of
identifying and eliminating, by regulations pursuant to its authority
under this Act * * * market entry barriers for entrepreneurs and other
small businesses in the provision and ownership of telecommunications
services and information services, or in the provision of parts or
services to providers of telecommunications services and information
services.'' \3\ In implementing Section 257, the Commission must
``promote the policies and purposes of this Act favoring diversity of
media voices, vigorous economic competition, technological advancement,
and promotion of the public interest, convenience and necessity.'' \4\
Every three years following the completion of the market entry barriers
proceeding, the Commission must report to Congress on regulations that
have been issued to eliminate barriers and any statutory barriers that
the Commission recommends be eliminated.\5\
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\1\ Telecommunications Act of 1996, Public Law No. 104-104, 110
Stat. 56 (1996).
\2\ 47 U.S.C. 151 et seq.
\3\ 47 U.S.C. 257(a).
\4\ 47 U.S.C. 257(b).
\5\ 47 U.S.C. 257(c).
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2. This Notice of Inquiry (NOI) commences the Commission's omnibus
Section 257 proceeding. We also will undertake specific initiatives
that further the objective of Section 257 to reduce market entry
barriers for small businesses. The record developed in connection with
these initiatives also will assist us in achieving our mandate under
Section 309(j) of the Act \6\ to disseminate licenses for auctionable
spectrum-based services to small businesses, rural telephone companies,
and businesses owned by women and minorities, as well as in fulfilling
our general obligation to serve the public interest.\7\
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\6\ 47 U.S.C. 309(j).
\7\ See, e.g., 47 U.S.C. Sec. 214 (Commission must certify that
public convenience or necessity requires construction or extension
of lines); 47 CFR Sec. 303 (Commission must regulate radio as public
interest, convenience or necessity requires); 47 U.S.C. 307(a)
(Commission must grant radio licenses that serve the public
convenience, interest, or necessity).
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3. We also inquire whether small businesses owned by minorities or
women face unique entry barriers. We explore this area because the
legislative history of Section 257 suggests that Congress was concerned
about the underrepresentation of minority or women-owned small
businesses in the telecommunications market and sought to increase
competition by diversifying ownership.\8\ In addition, Section 309(j)
specifically requires that we further opportunities for businesses
owned by women and minorities in the provision of spectrum-based
services, because a portion of small telecommunications businesses
under Section 257 are owned by women and minorities, and because
[[Page 33067]]
evidence suggests that these entities encounter unique market barriers.
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\8\ The Congressional Record provides:
[W]hile we should all look forward to the opportunities
presented by new, emerging technologies, we cannot disregard the
lessons of the past and the hurdles we still face in making certain
that everyone in America benefits equally from our country's maiden
voyage into cyberspace. I refer to the well-documented fact that
minority and women-owned small businesses continue to be extremely
under represented in the telecommunications field. * * * Underlying
this amendment [Section 257] is the obvious fact that diversity of
ownership remains a key to the competitiveness of the U.S.
telecommunications marketplace.
142 Cong. Rec. H1141 at H1176-77 (daily ed. Feb. 1, 1996)
(statement of Rep. Collins).
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II. Background
4. The primary purpose of this inquiry is to fulfill our mandate
under Section 257 to identify and eliminate market barriers for small
businesses in the provision and ownership of telecommunications and
information services, and in the provision of parts or services to
providers of telecommunications services and information services. We
interpret ``market entry barriers'' to include obstacles that deter
entrepreneurs from forming small businesses, barriers that impede entry
into the telecommunications market by existing small businesses, and
obstacles that small telecommunications businesses face in providing
service or expanding within the telecommunications industry, e.g.,
those that inhibit a paging company from expanding into a new
geographic area or new service such as cellular.
5. The legislative history of Section 257 essentially parallels the
language of the enacted provision. The Conference Report states: ``The
conference agreement adopts the House provisions with minor
modifications as a new Section 257 of the Communications Act.'' \9\
There was no provision in the Senate bill and the House amendment
stated: ``Section 250 [now Section 257] requires the Commission to
adopt rules that identify and eliminate market entry barriers for
entrepreneurs and small businesses in the provision and ownership of
telecommunications and information services. The Commission must review
these rules and report to Congress every three years on how it might
prescribe or eliminate rules to promote the purposes of this section.''
\10\
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\9\ 142 Cong. Rec. H1078-03, H1113-14, Joint Explanatory
Statement of the Committee of Conference at 23.
\10\ 142 Cong. Rec. H1078-03 at H1113. In debates preceding
passage of the 1996 Telecommunications Act, two members of Congress
expressed the view that Section 257 would cover conduct including
that precluded by new Section 222(e), 47 U.S.C. Sec. 222(e), which
prohibits local telephone service providers from charging
discriminatory or unreasonable rates, or setting discriminatory or
unreasonable terms or conditions, in selling subscriber lists to
independent directory publishers. 142 Cong. Rec. H1145-06 at H1160
(daily ed. Feb. 1, 1996) (statement of Rep. Barton); 142 Cong. Rec.
E184-03 (daily ed. Feb. 6, 1996) (extension of remarks by Rep.
Paxon).
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6. Small businesses play a significant role in the U.S. economy.
According to the U.S. Small Business Administration (SBA), in 1992 (the
last year for which information is available), small businesses
constituted the vast majority of all employers, employed 53% of the
private work force, and provided 50% of all receipts. Research also has
shown that small firms innovate at a per person rate twice that of
large firms, spend more money on research and development (R&D), and
more efficiently convert R&D efforts to new products than large
firms.\11\ Furthermore, small businesses are able to serve narrower
niche markets that may not be easily or profitably served by large
corporations, especially as large telecommunications expand globally.
Despite the role of small businesses in the economy, and the growth of
the telecommunications market,\12\ small businesses currently
constitute only a small portion of telecommunications companies.\13\
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\11\ ``Report of the FCC Small Business Advisory Committee to
the Federal Communications Commission Regarding Gen Docket 90-314,''
reprinted at 8 FCC Rcd 7820, 7828 (1993) (SBAC PCS Report) (citing
Joint Petition for Further Rulemaking of Advanced Mobilecomm
Technologies, Inc. and Digital Spread Spectrum Technologies, Inc.,
in Gen Docket 90-314, Exhibit # 3, at 12-13).
\12\ For example, according to Edge Media, worldwide revenues
for Personal Communications Services (PCS) could grow to $31 billion
for equipment and services by the year 2000, The Telecommunications
Industry A Market Opportunity Analysis, Federal Communications
Commission, Office of Communications Business Opportunities (June
1995) (1995 OCBO Analysis) at 17 & n.30 (citing 1995
Telecommunications Market Review and Forecast, North American
Telecommunications Association), and PCS is expected to have 13.5
million subscribers by the year 2000, id. at 1. The cellular market
itself is growing rapidly: subscribership increased from
approximately 5 million in 1990 to over 24 million in 1994. Id. The
cable industry generated nearly $23 billion in 1994 and revenues
will likely continue to climb, given that over 65% of all households
with television sets subscribe to cable for video programming and
over 95% of the country is wired for cable. Id. at 3.
\13\ For example, the SBAC noted that SBA sales and employment
data for the period 1989-1991 indicated that while the total number
of small telecommunications enterprises had increased, cumulative
market share possessed by those businesses decreased significantly.
``Report of the FCC Small Business Advisory Committee to the Federal
Communications Commission Regarding Gen Docket 90-314,'' reprinted
at 8 FCC Rcd 7820, 7826 (1993) (SBAC PCS Report). Stated
differently, bigger businesses were commanding larger portions of
telecommunications revenues. Of a total of 990 firms in Standard
Industrial Code 4812 (radiotelephone industries) in 1989, 971 firms
with 249 employees or less possessed a 35.1% cumulative market share
in 1991, compared to 927 firms in the same employment size range
with a cumulative market share of 52.5% in 1989. Id. In contrast,
there were a total of 19 firms with over 249 employees commanding a
64.9% cumulative market share in 1991, compared to 21 firms of the
same size range with a cumulative market share of 47.5% in 1989.
Id.; see also FCC, ``Telecommunications Industry Revenue: TRS Fund
Worksheet Data'' (February 1996) at Table 21 (of all 1,347 local
exchange carriers (LEC) filing FCC Form 431 Telecommunications Relay
Service (TRS) Fund Worksheets, the top fifth represent 98% of all
LEC revenues; of all 97 interexchange carriers (IXC) filing TRS Fund
Worksheets, the top fifth represent 99% of all IXC revenues);
Implementation of Section 309(j) of the Communications Act--
Competitive Bidding, Fifth Report and Order, 9 FCC Rcd 5532, 5578,
59 Fed. Reg. 37,566 (1994) (Competitive Bidding Fifth Report and
Order) (comments of DCR Communications asserting that ten large
companies--the six RBOCs, AirTouch (formerly owned by Pacific
Telesis), McCaw (now owned by AT&T), GTE and Sprint--control nearly
86 percent of the cellular industry, and that nine of these ten
companies control 95% of the cellular population and licenses in the
50 BTAs that have one million or more people).
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III. Identifying Market Barriers
A. General Market Barriers
7. In this section, we first request commenters to provide profile
data about small telecommunications businesses, including financing
sources and terms, services provided, markets served, geographic areas
of operation, and employee workforce. This information will assist us
in identifying market barriers and designing appropriate measures to
eliminate barriers. Commenters may submit individualized or aggregated
data. We request commenters to provide the following information in as
much detail as possible regarding particular services, including but
not limited to PCS, cellular, paging, SMR, satellite, radio,
television, wired cable, wireless cable, local exchange, long-distance,
access, on-line, messaging, and international services, and resale of
any such service, as well as information regarding businesses that
provide parts or services to providers of telecommunications services
and information services:
(1) Ownership structure, including identity of owner(s) by gender
and racial group,14 as well as percentage of minority or female
control;
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\14\ Consistent with the definition of ``minority'' in our
rules, minority identification should be Black, Hispanic, American
Indian, Alaskan Native, Asian, or Pacific Islander, as appropriate.
See, e.g., 47 CFR Secs. 1.1621(b) and 24.720(i); see also Race and
Ethnic Standards for Federal Statistics and Administration
Reporting, OMB Statistical Policy Directive, No. 15 (1977).
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(2) Communications service(s) provided;
(3) Geographic region(s) served;
(4) Primary markets (e.g., businesses, residences, government);
(5) Number of employees, job categories (i.e., officials and
managers, professionals, technicians, clerical), and employee
composition in job categories by race and gender.
(6) Capital requirements for entry or expansion;
(7) Funding sources and methods of raising capital;
(8) Revenue, income and profit levels.
8. To help fulfill our responsibilities under Sections 257 and
309(j), we request comment on the following questions regarding market
barriers.
[[Page 33068]]
Comments should be as specific as possible and identify with
particularity the types of services and geographic regions covered.
(1) What obstacles do small businesses face in accessing capital
and credit?
(2) Do small businesses obtain capital and credit under terms and
conditions less favorable than those provided large businesses? If so,
why?
(3) What difficulties do small businesses face in their dealings
with suppliers, vendors, contractors, or FCC licensees?
(4) What obstacles do small businesses face in their abilities to
resell, interconnect, or benefit from economies of scale?
(5) Do high deposit requirements deter small business entry into
resale?
(6) Do small businesses have difficulty attracting or retaining
clients?
(7) Do small businesses have difficulty dealing with trade
associations and other private entities?
(8) Do small businesses have particular difficulties in obtaining
government contracts, licenses, franchises, or other government
benefits? Have small businesses faced any such problems regarding FCC
policies or rules?
(9) Do contracts for a single bidder to serve a large volume and
diversity of companies through one contract disadvantage small
businesses?
(10) Do small businesses encounter difficulties attracting
strategic partners?
(11) In forming alliances with other entities, are small businesses
required to do so under unfavorable terms and conditions for the small
business?
(12) Are there unique obstacles that small businesses face in
entering or operating in the telecommunications field that are not
faced by small businesses operating in other sectors (for example, in
the retail or service sectors)?
(13) Do small businesses experience difficulties identifying and
obtaining access to spectrum?
9. We request comment on how these impediments vary depending on
the particular service provided. What particular types of businesses
have difficulty getting started, operating, and expanding? Does the
cost of capital differ for small broadcast stations versus small
wireless providers? Does the cost of capital vary depending on the
particular type of wireless (paging, SMR, PCS, etc.) or broadcast
(television or radio) service offered? Do any other market entry
barriers exist? For what services? Parties should comment on the
geographic scope of any identified barrier, i.e., does the barrier
exist nationwide, or in particular regions or locales? For any barrier,
commenters also should identify whether it is a statutory
requirement,15 government regulation, or external factor, e.g.,
difficulty obtaining loans.
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\15\ Section 257 requires that we report to Congress any
statutory barriers that the Commission recommends be eliminated. 47
U.S.C. 257(c).
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10. We also request comment on how these difficulties are
influenced by size. Are impediments to entry and expansion greater for
very small businesses? For example, does the cost of capital increase
as the size of a small business decreases? Do very small businesses
encounter greater difficulties in dealings with suppliers, vendors, or
contractors than larger small businesses?
B. Unique Market Entry Barriers
11. In this section, we seek information to help us identify any
unique obstacles that small telecommunications businesses owned by
women or minorities encounter in forming firms, providing service, or
expanding in the telecommunications market. We explore this area
because first, the legislative history of Section 257 suggests Congress
was concerned about the underrepresentation of minority and women-owned
small businesses in the telecommunications market and sought to
increase competition by diversifying ownership. Second, Section 309(j)
specifically requires that we further opportunities for businesses
owned by women and minorities in the provision of spectrum-based
services. Third, based on our licensing information and other
statistical data, we know that a portion of small communications
businesses are owned by women and minorities and there is evidence that
these entities encounter unique market barriers.
12. Evidence demonstrates that a principal barrier is minority or
female status, rather than race or gender-neutral factors, and that
this barrier contributes directly to low participation rates. For
example, in the 1992 Small Business Act, Congress found that businesses
owned by minorities or women have particular difficulties in obtaining
capital.16 In the Women's Business Ownership Act of 1988,17
Congress found that women as a group are subject to discrimination that
adversely affects their ability to raise or secure capital. In 1993,
the National Foundation for Women Business Owners found that women-
owned firms are 22% more likely to report difficulties with banks than
are businesses at large, and that removal of financial barriers would
encourage stronger growth among women-owned businesses, resulting in
much greater growth throughout the economy.18 Further, in a 1992
Report to the President and Congress, the National Women's Business
Council cited lack of access to capital as the most pervasive barrier
to success for women business owners.19
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\16\ 1992 Small Business Act, sections 112(4) and 33(a)(4).
\17\ Public Law No. 100-533 (1988).
\18\ ``Financing the Business, A Report on Financial Issues from
the 1992 Biennial Membership Survey of Women Business Owners,'' The
National Foundation for Women Business Owners (October 1993).
\19\ ``Annual Report to the President and Congress,'' National
Women's Business Council (1992) at 11.
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13. As to communications businesses specifically, the American
Women in Radio and Television, Inc. asserts that ``[b]ased on their
gender, women today confront significant barriers in raising the amount
of capital necessary to seize the ownership opportunity. This lack of
access to capital has contributed directly to the low level of female
ownership of mass media facilities.'' The Commission has recognized
that ``considerable evidence has been presented showing that the
primary impediment to minorities seeking to enter the communications
industry or to increase their mass media holdings has been lack of
access to capital.'' In April 1995, the National Telecommunications and
Information Administration (NTIA) found that ``there are real barriers
to minority participation in telecommunications, and that minorities
often lack access to the types and amount of capital required to form
and expand telecommunications businesses.'' Congressional testimony
regarding minority discrimination in telecommunications shows that
controlling for education, work experience, age, gender, and other
factors, bank loan dollars, per dollar of owner equity investment, are
160% higher for white firms ($1.85) than black firms ($1.16).20
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\20\ Policies and Rules Regarding Minority and Female Mass Media
Ownership of Mass Media Facilities, Notice of Proposed Rulemaking,
10 FCC Rcd 2788, 2791, 60 Fed. Reg. 6,068 (1995) (Minority/Female
Mass Media Ownership NPRM).
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14. The relatively low representation of women or minority-owned
communications businesses also suggests that these types of businesses
encounter unique obstacles in entering the telecommunications industry.
According to the U.S. Census Bureau, in 1987 women owned and controlled
1.9% (27) of 1,342 commercial television stations and 3.8% (394) of
10,244 commercial radio stations in the
[[Page 33069]]
United States.21 In 1994, minorities owned and controlled 2.7% of
the commercial television stations and 2.9% of the commercial radio
stations in the United States.22 According to the Census Bureau,
in 1992, Blacks owned 3.5% of the entities characterized generally as
communications firms 23 and women owned 31%; and most of these
businesses were solely-owned.24
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\21\ See Comments of American Women in Radio and Television,
Inc. in MM Docket No. 94-149 and MM Docket No. 91-140, at 4 n.4
(filed May 17, 1995), citing 1987 Economic Censuses, ``Women-Owned
Business,'' WB87-1, U.S. Department of Commerce, Bureau of the
Census, August 1990 (based on 1987 Census).
After the 1987 Census report, the Census Bureau did not provide
data by particular communications services (four-digit Standard
Industrial Classification (SIC) Code), but rather by the general
two-digit SIC Code for communications (#48). Consequently, since
1987, the U.S. Census Bureau has not updated data on ownership of
broadcast facilities by women, nor does the FCC collect such data.
However, we sought comment on whether the Annual Ownership Report
Form 323 should be amended to include information on the gender and
race of broadcast license owners. Minority/Female Mass Media
Ownership NPRM, 10 FCC Rcd at 2797.
\22\ ``Analysis and Compilation of Minority-Owned Commercial
Broadcast Stations in the United States,'' U.S. Department of
Commerce, National Telecommunications and Information
Administration, The Minority Telecommunications Development Program
(MTDP) (September 1994). These percentages are based on reported
ownership of 1,155 commercial television stations and 9,973
commercial radio stations. MTDP considers ``minority ownership'' as
ownership of more than 50% of a broadcast corporation's stock, or
have voting control in a broadcast partnership.'' Id. Of the 11,128
combined radio and television stations nationwide, minorities owned
2.9% (323). Id.
\23\ ``Communications'' firms are a subcategory in a larger
grouping called ``transportation and public utilities.''
\24\ ``1992 Survey of Black-Owned Businesses,'' U.S. Department
of Commerce, Economics and Statistics Administration, Bureau of the
Census (``1992 Black-Owned Businesses''); ``1992 Survey of Women-
Owned Businesses,'' U. S. Department of Commerce, Economics and
Statistics Administration, Bureau of the Census (1992 Women-Owned
Businesses''). These figures represent firms classified by the
Census Bureau as Standard Industrial Classification Code (SIC) #48
and 1,517 Black-owned firms out of 43,666 total communications firms
and 13,592 women-owned firms out of 43,665 total communications
firms.
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15. Finally, the participation level of minority or women-owned
businesses in the Commission's spectrum auctions so far suggests that
these entities may face unique obstacles. Because auctions will
continue and various factors influence participation,25 we are not
able to fully assess participation by women and minorities. Figures
preliminarily indicate, however, that participation in auctions without
bidding incentives for minorities and women is lower than participation
in auctions with incentives. For example, in the broadband PCS auction
for A and B blocks, which concluded in March 1995, no minority-owned
businesses won a broadband PCS license and only one license (for one of
the lower-priced markets) was won by a woman-owned business. In the MDS
auction, which concluded on March 28, 1996, 7.7% of the eligible
bidders claimed woman-owned status; 8.4% of the eligible bidders
claimed minority-owned status. Of the 67 winners, 5.9% indicated they
were women-owned; 7.5% indicated they were minority-owned.26 In
the 900 MHz SMR auction, which concluded on April 15, 1996, 7.8% of the
eligible bidders claimed woman-owned status and 3.9% claimed minority-
owned status. Of the 80 successful bidders, 6.3% indicated they were
women-owned; 5% indicated they were minority-owned. Statistics for the
PCS C block auction, which ended May 6, 1996, were higher, even though
no competitive bidding incentives were available for businesses owned
by minorities or women: 27 13.3% of the eligible bidders claimed
woman-owned status, 18.0% claimed minority-owned status; 28 and of
the 89 successful bidders, 16.9% indicated they were woman-owned; 28.1%
indicated they were minority-owned.29
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\25\ Factors that may influence participation, include for
example, the type of service, presence of incumbents, projected cost
of a successful bid, capital requirements for offering service,
access to capital, license coverage area, availability of Commission
bidding incentives, and the extent of Commission outreach to small
minority or women-owned businesses and new entrants.
\26\ ``Multipoint Distribution Service Questions and Answers,''
FCC Auctions, Press Information (released March 29, 1996) at 3.
\27\ In the Competitive Bidding Sixth Report and Order, the
Commission noted that many minority-owned and women-owned applicants
prepared to bid in the C Block auction in reliance on race and
gender-based incentives. Thus, their rate of participation is likely
higher than it would have been in the absence of any pre-auction
incentives. See Amendment of Part 20 and 24 of the Commission's
Rules--Broadband PCS Competitive Bidding and the Commercial Radio
Service Spectrum Cap, Notice of Proposed Rulemaking, WT Docket No.
96-59, GN Docket No. 90-314, 61 Fed. Reg. 13,133 (released March 20,
1996) (D, E & F Block NPRM) at para. 27 (citing Implementation of
Section 309(j) of the Communications Act--Competitive Bidding, Sixth
Report and Order, 11 FCC Rcd 136, 60 Fed. Reg. 37,786 (1996).
\28\ Id.
\29\ ``Distribution of Licenses in PCS C-Block Auction,'' FCC
Auctions, Press Information (released May 6, 1996).
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16. By comparison, auctions that offered incentives for women and
minority-owned businesses yielded higher participation by those
entities (both as bidders and winners).
For example, in the July 1994 IVDS auction, 22.5% of the registered
bidders claimed status as minority-owned, and 33.2% as women-owned; of
the auctioned licenses, 23.6% were awarded to bidders claiming
minority-owned status, and 38.2% to bidders claiming women-owned
status.30 In the nationwide narrowband PCS auction, also held in
July 1994, of the 29 qualified bidders, 20.1% claimed minority-owned
status and 10.3% claimed women-owned status.31 None of the winners
were minority or women-owned businesses. In the Fall 1994 regional
narrowband PCS auction, which offered a larger bidding credit than was
available in the nationwide narrowband PCS auction, of the 28 qualified
bidders, 35.7% claimed minority-owned status, and 28.6 % claimed women-
owned status.32 Of the nine winners, 22.2% claimed minority-owned
status, and 33.3% claimed women-owned status.33
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\30\ ``Visitor's Auction Guide, FCC Auction, Broadband Personal
Communications Services'' (December 5, 1994) (1994 FCC Visitor's
Auction Guide) at Section IX.
\31\ Id. at Section VIII.
\32\ Id. at Section VII.
\33\ Id.
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17. We seek a broad and comprehensive record from which to
determine whether the experiences of women and particular minority
groups in entering and participating in the telecommunications market
warrant adopting more significant gender or race-based incentives for
minority or women-owned small businesses. Parties may submit personal
accounts of individual experiences, studies, reports, statistical data,
or any other relevant information.
18. Commenters should address whether there are particular barriers
to entry and expansion based on a small business owner's race or
gender. If so, for which services? Do barriers differ by service, e.g.,
radio, television, advanced television, DBS, PCS, equipment
manufacturing? What specific obstacles do women and minorities
encounter in trying to start small communications businesses? Are there
problems endemic to small women and minority-owned telecommunications
businesses but not to small businesses owned by women and minorities in
other industries (e.g., retail, real estate), and if so, why? Are any
such difficulties the result of race/gender neutral factors such as
economic status, geographic location, level of experience? Are
differences in capital requirements determinative? What other factors
play a role? Commenters should address to what extent any impediments
are unique to small businesses owned by women or minorities, rather
than small businesses generally.
19. Discrimination can be a market entry barrier. Parties may
submit evidence of past or current discrimination based on race or
gender. Judicial findings of discrimination are
[[Page 33070]]
not required.34 Evidence of discrimination can be derived from a
variety of sources, including academic research studies, adjudications,
legislative findings, statistical data, and personal accounts. To the
extent possible, evidence should relate to a particular racial, ethnic,
or gender group.
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\34\ Parties should be mindful, however, that to the extent it
is applicable to federal action, Croson requires that the government
have a `` `strong basis in evidence for its conclusion that remedial
action was necessary,' '' City of Richmond v. J.A.Croson, 488 U.S.
469, 500 (1989) (quoting Wygant, 476 U.S. at 277); see also
Memorandum Regarding Adarand to General Counsels from Walter
Dellinger, Assistant Attorney General, Office of Legal Counsel, U.S.
Department of Justice (dated June 28, 1995) (DOJ Memorandum) at 11.
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20. Women and minority owned businesses may have experienced
discrimination or difficulty in obtaining government licenses. These
experiences may have impeded the ability of such entities to enter the
communications market, and consequently, impeded subsequent
opportunities. We seek evidence of discrimination or unfavorable
treatment by any governmental or public entity with respect to
communications-related licenses, contracts or other benefits. It has
been argued to the Commission that as a result of our system of
awarding broadcast licenses in the 1940s and 1950s, no minority held a
broadcast license until 1956 or won a comparative hearing until 1975
35 and that special incentives for minority businesses ``are
needed in order to compensate for a very long history of official
actions which deprived minorities of meaningful access to the
radiofrequency spectrum.'' 36 We solicit comment on this
particular argument.
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\35\ See ``Statement of David Honig, Executive Director,
Minority Media and Telecommunications Council,'' En Banc Advanced
Television Hearing, MM Docket No. 87-268 (December 12, 1995) at 2-3
& n.2.
\36\ Id. at n.2 citing Southland Television Co., 10 RR 699, 750,
recon. denied, 20 FCC 159 (1955) (awarding a Shreveport VHF license
to the owner of a segregated movie theaters because such segregation
`would be legal under the laws of [Louisiana]').''
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21. Race or gender discrimination in employment may impede
participation and advancement in the communications industry.
Employment provides business knowledge, judgment, technical expertise,
and entrepreneurial acumen, and other experience that is valuable in
attaining ownership positions. For example, the Commission has found
that employment in the broadcast industry is a valuable stepping stone
to broadcast ownership.37
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\37\ See Streamlining Broadcast EEO Rule and Policies, Vacating
the EEO Forfeiture Policy Statement and Amending Section 1.80 of the
Commission's Rules to Include Forfeiture Guidelines, MM Docket No.
96-16, FCC 96-49, 61 Fed. Reg. 9,964 (released February 16, 1996)
(1996 EEO Order & NPRM) at para. 4 (``employment discrimination in
the broadcast industry . . . imped[es] opportunities for minorities
and women to learn the operating and management skills necessary to
become media owners and entrepreneurs''); see also Policy Statement,
Standards for Assessing Forfeitures for Violations of the Broadcast
EEO Rules, 9 FCC Rcd 929, 930, 59 Fed. Reg. 12,606 (1994) (EEO
Forfeiture Policy Statement), vacated on other grounds, 1996 EEO
Order and NPRM (``increased employment opportunities are the
foundation for increasing opportunities for minorities and women in
all facets of the communications industry, including participation
in ownership'').
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22. We seek any evidence that employment discrimination in the
communications industry has been a barrier to entry in the
telecommunications market by small businesses owned by minorities or
women. Submissions should be detailed and should explain why the
commenter believes the conduct at issue (e.g., failure to hire or
promote) was based on race or gender discrimination, rather than the
result of a race or gender-neutral factor (e.g., no job vacancy, job
applicant not qualified for the position).
IV. Eliminating Market Barriers
A. Small Businesses Generally
23. Section 257 requires that after identifying market barriers, we
prescribe regulations to eliminate those barriers. In implementing this
mandate, first, how should we define small businesses under Section
257? By number of employees, gross revenue, net revenue, assets, or any
other factor? Should we adopt a general size standard or specific
standards for particular services (e.g., broadcast, PCS)? For example,
the Commission's current Section 309(j) definitions are based on gross
revenues and assets. Are there other factors the Commission should
consider in defining what constitutes a small business? Should the
Commission explore minimum capital requirements, debt/equity ratios,
cash flow, net worth or other indicia of a business' ability to enter
and compete in the marketplace? To formulate a policy using such
indicia, the Commission would need specific financial information for
small businesses generally, and requests that commenters recommending
new approaches indicate the type of information needed by the
Commission.
24. Second, we seek comments and proposals regarding ways to
eliminate market entry barriers and enhance opportunities for small
businesses in communications services, including, e.g., wireline,
wireless, mass media, cable, satellite. What types of incentives or
requirements would be most effective in eliminating market entry
barriers? Commenters may propose new initiatives or suggest changes to
existing rules or make any other recommendation. Proposals may address,
for example, sale of subscriber lists to independent directory
publishers as recognized by Congress in enacting Section 257,38 or
any other area. Commenters should provide data to support their
proposals. Because Section 257 states that in prescribing rules to
eliminate barriers we must rely on our rulemaking authority under
provisions of the Act other than Section 257, we also request that
commenters identify specific rulemaking provisions in the Act, e.g.,
Section 4(i) 39 that would support any such proposals.
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\38\ See supra note 10 (citing legislative history of Section
257).
\39\ 47 U.S.C. 154(i).
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25. Our Section 309(j) competitive bidding incentives for small
businesses are examples of the types of mechanisms we could adopt in
furtherance of our Section 257 mandate. Have bidding credits,
installment payments, and reduced upfront payments enhanced
opportunities for small business participation? Did the Commission's
outreach efforts in providing information to prospective bidders
enhance small business participation in each auction? If commenters
believe the Commission's existing mechanisms could be modified to
enhance opportunities for small businesses, please explain how, or
suggest new approaches. In addition, we seek preliminary views on how
the Section 309(j) incentives have operated in the five completed
auctions employing small business incentives.40 For example, we
are aware of concerns that due to the high level of bidding in the PCS
C Block auction successful bidders may find it difficult later on to
secure the necessary financial resources to build out their systems,
and may ultimately encounter problems in the market against established
competitors like incumbent cellular providers and the generally large,
well-financed winners of PCS A and B block licenses.41 How do we
balance the
[[Page 33071]]
desire to do more with the need to ensure that larger businesses do not
usurp measures designed to aid small businesses? Do we need to do more
to make sure that small businesses have meaningful opportunities to
participate in the provision of spectrum-based services?
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\40\ Bidding ended in the IVDS MSA auction on July 29, 1994,
regional narrowband PCS auction on November 8, 1994, MDS auction on
March 28, 1996, 900 MHz SMR auction on April 15, 1996, and the C
Block auction on May 6, 1996.
\41\ ''$6 Billion Bid so Far in Latest F.C.C. Auction For
Airwaves,'' N.Y. Times, February 14, 1996, at D1 Column 6 (noting
concerns of one industry consultant that the C Block auction was
overvaluing the wireless market by 20%); ``Billions Pledged at
Wireless License Auction,'' Washington Post, February 17, 1996 at B1
Column 1 (noting that even with the Commission's liberal payment
terms for small businesses, which some analysts figure amounts to a
40-60% discount, small businesses may find difficulty surviving if
the market proves soft or glutted with competitors).
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B. Minority or Women-Owned Small Businesses
26. In Part III.B. above, we request data to identify whether small
businesses owned by minorities or women experience unique market
barriers. In this section, we explore whether there is sufficient
evidence of market barriers to justify special incentives to eliminate
those barriers. We do so because governmental action that takes race or
gender into account is subject to particular constitutional standards:
strict scrutiny for race-based incentives; intermediate scrutiny for
gender-based incentives. We discuss these standards below and then seek
comment on possible incentives that would satisfy the standards while
at the same time furthering the mandate of Section 257.
1. Constitutional Standards
27. The Constitution limits the power of government to classify
individuals based on race or gender. Thus, federal incentive programs
that take race or gender into account must satisfy constitutional
standards. Courts reviewing government programs have applied different
standards of review and reached various results depending on whether
the classification covers race or gender and whether the classification
burdens or benefits its subjects. Race-based programs must be narrowly
tailored to further a compelling governmental interest. Gender-based
programs must be substantially related to serve an important
governmental interest.
28. In Adarand Constructors, Inc. v. Pena, 42 the Supreme
Court held that the federal government's use of race-based criteria for
decisionmaking must satisfy the requirements of strict scrutiny.43
The Court wrote:
\42\ 115 S. Ct. 2097 (1995).
\43\ Prior to Adarand, the standard differed for federal and
state programs. Compare Fullilove v. Klutznick, 448 U.S. 448 (1980)
(federal program evaluated under intermediate scrutiny) with City of
Richmond v. J.A. Croson Co., 488 U.S. 469 (1989) (state program
evaluated under strict scrutiny).
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[W]e hold today that all racial classifications, imposed by
whatever federal, state, or local governmental actor, must be
analyzed by a reviewing court under strict scrutiny. In other words,
such classifications are constitutional only if they are narrowly
tailored measures that further compelling governmental
interests.44
\44\ Id. at 2113.
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By this decision, the Court rejected its earlier legal analysis in
Metro Broadcasting, Inc. v. FCC,45 which had applied the
intermediate scrutiny standard of judicial review to the Commission's
broadcasting distress sale and comparative preference policies for
minorities.46
---------------------------------------------------------------------------
\45\ 497 U.S. 547 (1990).
\46\ In Metro Broadcasting, the Court held:
[B]enign race-conscious measures mandated by Congress--even if
those measures are not ``remedial'' in the sense of being designed
to compensate victims of past governmental or societal
discrimination--are constitutionally permissible to the extent that
they serve important governmental objectives within the power of
Congress and are substantially related to achievement of those
objectives.
Id. at 564-65.
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29. Overruling this aspect of Metro Broadcasting, the Court in
Adarand clarified the permissible scope of affirmative action. First,
the Court rejected the notion that the characterization of a racial
classification as ``benign'' should entitle it a lower level of
judicial review. Second, the Court applied to federal minority
preference programs the strict scrutiny standard it had applied to a
local contracting set-aside program in City of Richmond v. J.A. Croson
Co.47 Yet in doing so, the Court emphasized its intention not to
impinge upon the federal government's ability to actively combat both
the practice and the continuing effects of discrimination. A majority
of the Court rejected any notion that strict scrutiny review is
``strict in theory, but fatal in fact.'' As Justice O'Connor stated in
Adarand, ``[t]he unhappy persistence of both the practice and the
lingering effects of racial discrimination against minority groups in
this country is an unfortunate reality, and government is not
disqualified from acting in response to it.'' 48 In rejecting the
Metro Broadcasting standard, the Court nonetheless reasoned that
because the Constitution protects individuals rather than groups, any
governmental action based upon a racial group classification should be
subject to ``detailed judicial inquiry.'' 49
---------------------------------------------------------------------------
\47\ 488 U.S. 469 (1989).
\48\ Adarand, 115 S. Ct. at 2117.
\49\ Id. at 2113.
---------------------------------------------------------------------------
30. Thus, Adarand established a new strict scrutiny standard for
federal minority programs, based upon the two prong analysis of Croson:
(1) the governmental interest underlying the affirmative action measure
be ``compelling;'' and (2) the measure adopted must be ``narrowly
tailored'' to serve that interest. Because a federal minority program
has not yet been subjected to strict scrutiny pursuant to Adarand,
judicial guidance regarding the strict scrutiny standard thus far is
limited to Croson and lower court decisions applying strict scrutiny to
state and local programs.50
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\50\ See Hopwood v. Texas, 78 F.3d 932 (5th Cir. 1996) petition
for cert. filed (holding that the University of Texas School of Law
may not use race as a factor in law school admissions).
---------------------------------------------------------------------------
31. Under these cases, the most clearly permissible compelling
governmental interest is remedying the effects of present or past
discrimination. Thus, federal minority incentive programs that serve a
remedial interest are likely to satisfy the compelling governmental
interest prong. Discrimination can be that committed by the government
itself, or by private actors within the government's jurisdiction (such
that the government was a ``passive participant'' or facilitated the
perpetuation of a system of exclusion). The government must identify
with some precision the discrimination to be redressed,51
including evidence of discrimination against particular minority
groups.52 General, historical discrimination is an insufficient
predicate. ``[A]n amorphous claim that there has been past
discrimination in a particular industry cannot justify the use of an
unyielding racial quota.'' 53 In addition, the government should
have a ``strong basis,'' approaching a ``prima facie case of
constitutional or statutory violation'' 54 of the rights of
minorities. Croson permits remedial relief on the basis of ``evidence
of a pattern of individual discriminatory acts * * * supported by
appropriate statistical proof.'' 55 Post-Croson cases have held
that statistical evidence can be probative of discrimination in the
remedial setting,56 and that anecdotal evidence can buttress
statistical evidence.57
---------------------------------------------------------------------------
\51\ Croson requires that a government ``identif[y]
discrimination with the particularity required by the Fourteenth
Amendment.'' Croson, 488 U.S at 492, 499, 509; see also DOJ
Memorandum at 22.
\52\ Croson 488 U.S. at 506 (``The random inclusion of racial
groups that, as a practical matter, may never have suffered from
discrimination in the construction industry in Richmond suggests
that perhaps the city's purpose was not in fact to remedy past
discrimination.'')
\53\ Id. at 499.
\54\ Id. at 500.
\55\ Id. at 509.
\56\ See, e.g., Peightal v. Metropolitan Dade County, 26 F.3d
1548, 1556 (11th Cir. 1994) (statistical evidence constitutes
``requisite `strong basis in evidence' mandated by Croson'').
\57\ See, e.g., Coral Construction Co., 941 F.2d at 919
(convincing anecdotal and statistical evidence can be ``potent'');
see also DOJ Memorandum at 12-13.
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[[Page 33072]]
32. Courts generally give more deference to Congressional race-
based remedial action than to state action because of Congress' special
remedial powers under the Fourteenth Amendment. Thus, it is possible
that the Croson standards for remedial action, e.g., the degree of
discrimination required to justify remedial action,58 might be
lower where Congressional findings are involved.59
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\58\ Croson, however, involved a race preference program adopted
at the local, rather than federal, level. See Croson, 488 U.S. at
469.
\59\ In the DOJ Memorandum, Justice states that Adarand
``hinted'' that where a federal preference program is
congressionally mandated, the Croson standards may apply more
loosely. DOJ Memorandum at 30. The Adarand majority confronted the
issue of congressional versus state remedial power, noting that
various Members of the Court have taken different views of the
authority that Section 5 of the Fourteenth Amendment confers upon
Congress--power not delegated to the states--and the extent to which
courts should defer to congressional exercise of that authority.
Adarand, 115 S. Ct. at 2114. The Court concluded it did not need to
resolve those differences in Adarand, and rejecting Justice Stevens'
assertion to the contrary, stated that none of the Justices in
Adarand repudiated previously expressed views on this subject.
Croson suggested that Congress has broader authority than the
states--a positive grant of legislative power--and rejected the City
of Richmond's finding that it was remedying the present effects of
past discrimination. Croson, 488 U.S. at 498.
---------------------------------------------------------------------------
33. A government may adopt race or gender based programs for
reasons other than to remedy discrimination. Such objectives are
nonremedial. For example, in Regents of the University of California v.
Bakke,60 the purpose of the state of California's college
admissions program was to diversify the student body. No majority
opinion of the Court has addressed the sufficiency of nonremedial
objectives. Because Croson addressed the authority of a local
government to engage in remedial action, it did not decide the
sufficiency of nonremedial objectives as a compelling interest. In
Croson, Justice O'Connor stated that affirmative action must be
``strictly reserved for the remedial setting.'' 61 In Justice
Stevens' dissent in Adarand, however, he stated that Adarand does not
expressly adopt the view that past discrimination is the only valid
compelling governmental interest; nor does it prohibit nonremedial
objectives.62 In Bakke, Justice Powell found that a university has
a compelling interest in taking the race of applicants into account in
its admission process in order to foster greater diversity among the
student body to enhance the exchange of ideas on campus,63 and in
Wygant v. Jackson Board of Education,64 Justice O'Connor expressed
approval of that view.65
---------------------------------------------------------------------------
\60\ 438 U.S. 265 (1978) (plurality).
\61\ Croson, 488 U.S. at 493.
\62\ Adarand, 115 S. Ct. at 2127-28 (Stevens, J., dissenting).
\63\ 438 U.S. at 311-14.
\64\ 476 U.S. 267 (1986).
\65\ Id. at 286. In Hopwood, a panel of the Fifth Circuit held
that the University of Texas ``law school has presented no
compelling justification, under the Fourteenth Amendment or Supreme
Court precedent, that allows it to continue to elevate some races
over others, even for the wholesome purpose of correcting perceived
racial imbalance in the student body.'' Hopwood, 78 F.3d at 934. A
majority of the Hopwood panel specifically rejected Justice Powell's
opinion in Bakke that diversity can be a compelling interest as
``not binding precedent'' and concluded that ``any consideration of
race or ethnicity by the law school for the purpose of achieving a
diverse student body is not a compelling interest under the
Fourteenth Amendment.'' Id. at 944. In a concurring opinion, Judge
Wiener disagreed with the panel's opinion that diversity can never
be a compelling governmental interest, but concluded that the
program in question was not narrowly tailored because it singled out
only two minority groups--Blacks and Mexican Americans. Id. at 962-
68.
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34. The second prong of strict scrutiny analysis requires that the
use of any racial classification be ``narrowly tailored,'' to ensure
that ``the means chosen `fit' [the] compelling goal so closely that
there is little or no possibility that the motive for the
classification was illegitimate racial prejudice or stereotype.''
66 In Adarand, the Court identified two factors in determining
whether the use of a racial classification is narrowly-tailored: (1)
Whether race-neutral alternatives were considered, and (2) whether the
measure is appropriately limited in duration so that it will not
continue longer than purposes for which it was adopted. Additional
factors, identified in post-Croson cases, are: (3) the flexibility of
the program, e.g., whether it contains a waiver provision that may
narrow its scope; (4) the manner in which race is used, whether as a
determinant, or as one of several factors; (5) whether any numerical
target is compared to the relevant number of qualified minorities or to
the population of minorities as a whole; (6) the extent of the burden
on nonminorities.
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\66\ Croson, 488 U.S. at 493.
---------------------------------------------------------------------------
35. Since Adarand, the Supreme Court has not ruled on the standard
of review for federal gender-based programs, although the issue is
before it in a pending case.67 Prior to Adarand, the Court applied
intermediate scrutiny; that standard currently applies.68 Under
the intermediate scrutiny standard, ``[t]o withstand constitutional
challenge * * * classifications by gender must serve important
governmental objectives and must be substantially related to those
objectives.'' 69
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\67\ United States v. Commonwealth of Virginia, 44 F.3d 1229
(1995), cert. granted 116 S. Ct. 281 (1995) (No. 94-1941) (argued
Jan. 17, 1996). The case presents the question whether the Equal
Protection Clause permits a state to maintain single-sex military-
style educational programs.
\68\ Craig v. Boren, 429 U.S. 190, 197 (1976). Thus far, the
Court has not decided whether gender is a suspect category. See,
e.g., J.E.B. v. Alabama ex rel. T.B., 114 S. Ct. at 1419, 1425 n.6
(1992) (concluding that gender-based peremptory challenges are not
substantially related to an important governmental objective and
finding ``once again'' that the Court need not decide whether gender
classifications are inherently suspect''); Mississippi University
for Women v. Hogan, 458 U.S. 718, 724 n.9 (1982) (finding it
``unnecessary'' to decide whether classifications based upon gender
are inherently suspect).
\69\ Boren, 429 U.S. at 197; see also J.E.B. v. Alabama ex rel.
T.B., 114 S. Ct. 1419, 1425 (1994) (``our Nation has had a long and
unfortunate history of sex discrimination, a history which warrants
the heightened scrutiny we afford all gender-based classifications
today''); City of Cleburne v. Cleburne Living Center, 473 U.S. 432,
440 (1985) (``[l]egislative classifications based on gender * * *
call for a heightened standard of review'').
---------------------------------------------------------------------------
36. In applying intermediate scrutiny to invidious gender-based
classifications, the Court has expressed concern that such
classifications are, in fact ``reflective of `archaic and overbroad'
generalizations about gender'' or are ``based on `outdated
misconceptions concerning the role of females in the home rather than
in the marketplace and world of ideas.' '' 70
---------------------------------------------------------------------------
\70\ J.E.B., 114 S. Ct. at 1424-25 (citations omitted). The
Court has rejected attempts to exclude or protect one gender based
on presumptions. See Hogan, 458 U.S. at 725.
---------------------------------------------------------------------------
37. It is unclear what standard would apply to benign gender
classifications. In Adarand, the Court refused to apply a less strict
standard to benign race-based classifications than the standard applied
to ``invidious'' race-based classifications. Although Adarand did not
address gender, its rejection of a lower standard for benign action in
the race context suggests that the same standard applied to invidious
gender classifications should apply to benign gender classifications.
This conclusion is supported by the Court's analysis in Mississippi
University for Woman v. Hogan,71 which held that a state
university's exclusion of men from its nursing program violated the
Equal Protection Clause under a test of intermediate scrutiny.
---------------------------------------------------------------------------
\71\ 458 U.S. 718 (1982).
---------------------------------------------------------------------------
38. In evaluating the second prong of the intermediate scrutiny
test--whether a gender classification is substantially related to the
government's objective--courts consider several factors, including the
correlation between gender and the actual activity the government seeks
to regulate and the practical effect of the program.72
---------------------------------------------------------------------------
\72\ See, e.g., Boren, 429 U.S. at 200-04 (finding that the low
disparity between drunk driving statistics for men and women
``exemplifies the ultimate unpersuasiveness of this evidentiary
record''); Hogan, 458 U.S. at 730-32 (finding that presence of men
in nursing school would not have negative effect on women students,
and that the record is ``flatly inconsistent'' with the claim that
excluding men is necessary to reach the state's educational goals
and falls ``far short'' of the ``'exceedingly persuasive
justification''' needed to sustain a gender-based classification).
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[[Page 33073]]
2. Possible Incentives
39. As described above, a record of discrimination against a
particular group is necessary to support remedial measures to remedy
such discrimination. We seek comment on whether under the compelling
governmental interest prong, there is sufficient evidence of
discrimination in the communications industry against any particular
minority group to support race-based incentives to eliminate market
entry barriers for such group. As discussed above, minority groups
include African Americans, Hispanics, American Indians, Alaskan
Natives, Asians, and Pacific Islanders.73 We also ask whether
there is sufficient evidence of discrimination against women in
telecommunications to justify remedial-based mechanisms to eliminate
market entry barriers for women, under either the compelling
governmental interest prong (strict scrutiny) or important governmental
interest (intermediate scrutiny). Parties may use any data submitted in
response to Part III above to support their comments.
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\73\ See supra n.14 (definition of minority). When considering
incentives for Native Americans, the Commission looks for guidance
to the Indian Commerce clause, which recognizes the status of tribes
as sovereign nations. See Competitive Bidding Sixth Report and
Order, 11 FCC Rcd at 155-56. See also DOJ Memorandum at 8 (``Adarand
does not require strict scrutiny review for programs benefiting
Native Americans as members of federally recognized Indian
tribes'').
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40. We also seek comment on any nonremedial objectives that would
justify the use of race and gender-based incentives and also serve the
Section 257 mandate of decreasing market entry barriers for small
telecommunications firms owned by minorities and women. Nonremedial
objectives could be in addition to the objective of remedying past
discrimination; thus, they may provide a separate basis for
governmental action that takes race and gender into account. For
example, the Commission has sought to fulfill the nonremedial objective
of increasing diversity of voices and viewpoints over the airwaves
through various minority and women-based programs.74 Those
programs also decrease market entry barriers by providing new
opportunities for women and minorities and by increasing incentives for
other firms to do business with those entities. Other nonremedial
objectives that could justify taking race or gender into account in
Commission programs and also help eliminate market entry barriers might
include favoring diversity of media voices as required by Section
257(b),75 promoting economic opportunity and competition as
encouraged in the legislative history of Section 257 76 and
Section 257(b),77 and as required by Section 309(j),78 or
promoting the public interest.79 We seek comment on these
nonremedial objectives 80 and request commenters to suggest other
nonremedial objectives that would satisfy the governmental interest
prong under strict (race) or intermediate (gender) scrutiny.
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\74\ See, e.g., the broadcast licensing policy which was adopted
following the D.C. Circuit decision in TV 9, Inc. v. FCC, 495 F.2d
929 (D.C. Cir. 1973), cert. denied, 419 U.S. 986 (1974). The
Commission considered a minority applicant's proposed participation
in station operation as one of several factors in comparing
applicants for mutually exclusive broadcast licenses. In Metro
Broadcasting, Inc. v. FCC, 497 U.S. 547, 567 (1990), the Supreme
Court upheld our licensing policy, however, in Lamprecht v. FCC, 958
F.2d 395, 398 (D.C. Cir. 1992), the D.C. Circuit found the policy
for women to be unconstitutional. Thereafter, in Bechtel v. FCC, 10
F.3d 875, 877, 887 (D.C. Cir. 1993), the D.C. Circuit held that the
integration credit, upon which the minority/female licensing policy
is based, was arbitrary and capricious. Following Bechtel, the
Commission suspended comparative hearings altogether.
\75\ 47 U.S.C. 257(b).
\76\ See supra para. 3 and n.8.
\77\ Section 257(b) provides: ``In carrying out subsection (a),
the Commission shall seek to promote the policies and purposes of
this Act favoring * * * vigorous economic competition.'' 47 U.S.C.
Sec. 257(b).
\78\ 47 U.S.C. 309(j).
\79\ See, e.g., 47 U.S.C. 201 (public interest regulation of
common carriers); 47 U.S.C. 257(b) (promotion of public interest,
convenience and necessity in carrying out Section 257(a)); 47 U.S.C.
303 (public interest regulation of radio services).
\80\ Depending on the record of discrimination developed, any
such nonremedial objectives could be remedial in nature. For
example, if there were a strong record of discrimination against
women-owned small businesses in the telecommunications market (which
itself would be an entry barrier), we could adopt a mechanism
intended to increase ownership opportunities for those businesses.
The immediate objective--increasing ownership--would be a means of
achieving the ultimate objective--remedying discrimination.
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41. We also request that parties propose incentives to meet these
remedial or nonremedial objectives. Commenters may address incentives
that the Commission has adopted in the past that eliminated or reduced
barriers to market entry, e.g., designated entity rules for Section
309(j) services, as well as propose new incentives. We also seek
comment on whether incentives that foster ownership or employment of
women or minorities in telecommunications would further these
objectives.81 Parties should explain what objective an incentive
would be intended to achieve and whether it is properly designed to
achieve that objective, i.e., narrowly tailored (strict scrutiny);
substantially related (intermediate scrutiny). Parties may support
their proposals with data and should identify specific provisions of
the Act that would authorize us to implement those proposals.
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\81\ The legislative history of Section 257 indicates that
Congress recognized a nexus between ownership and competition:
``[M]inority and women-owned small businesses continue to be
extremely under represented in the telecommunications field * * *.
Underlying this amendment [Section 257] is the obvious fact that
diversity of ownership remains a key to the competitiveness of the
U.S. telecommunications marketplace.'' 142 Cong. Rec. H1141 at
H1177-78 (daily ed. Feb. 1, 1996) (statement of Rep. Collins).
We note that communications is among a handful of industries
with the highest expected growth between the year 1990 and 2005, and
is predicted to provide women opportunities for advancement into
management and decisionmaking positions. A Solid Investment: Making
Full Use of the Nation's Human Capital, Recommendations of the
Federal Glass Ceiling Commission (November 1995) (Glass Ceiling
Report), Special Supplement at S-9. In addition, facilitating
employment could serve the public interest by enhancing
productivity: the Glass Ceiling Commission found that
``[o]rganizations that excel at leveraging diversity (including
hiring and promoting minorities and women into senior positions) can
experience better financial performance in the long run than those
which are not effective in managing diversity.'' Glass Ceiling
Report, Special Supplement at S-8.
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C. Furthering Section 257(b) Objectives
42. As described in the Introduction to this NOI, in Section
257(b), Congress required that in implementing our market barriers
initiatives, the Commission must ``promote the policies and purposes of
this Act favoring diversity of media voices, vigorous economic
competition, technological advancement, and promotion of the public
interest, convenience, and necessity.'' 82 We ask for comment on
how the Commission should foster these objectives in its efforts to
eliminate market barriers for entrepreneurs and small businesses.
---------------------------------------------------------------------------
\82\ 47 U.S.C. 257(b).
---------------------------------------------------------------------------
V. Administrative Matters
43. Reason for Action: Section 101 of the Telecommunications Act of
1996 (1996 Telecommunications Act),83 adds new Section 257 to the
Communications Act of 1934.84 Section 257 requires the Commission,
within 15 months after enactment, to complete a proceeding ``for the
purpose of identifying and eliminating, by regulations pursuant to its
authority under this Act * * * market entry barriers for entrepreneurs
and other small businesses in the provision and ownership of
telecommunications services and
[[Page 33074]]
information services, or in the provision of parts or services to
providers of telecommunications services and information services.'' In
implementing Section 257, the Commission must ``promote the policies
and purposes of this Act favoring diversity of media voices, vigorous
economic competition, technological advancement, and promotion of the
public interest, convenience and necessity.'' Every three years
following the completion of the market barriers proceeding, the
Commission must report to Congress on regulations that have been issued
to eliminate barriers and any statutory barriers that the Commission
recommends be eliminated. This Notice of Inquiry commences our omnibus
Section 257 proceeding.
---------------------------------------------------------------------------
\83\ Telecommunications Act of 1996, Public Law No. 104-104, 110
Stat. 56 (1996).
\84\ 47 U.S.C. 151 et seq.
---------------------------------------------------------------------------
44. Objectives: The Commission seeks to develop a full record of
profile data on the type and scope of market entry barriers in the
telecommunications industry faced by small businesses. To this end, the
Commission solicits specific information regarding financing sources
and terms, services provided, markets served, geographic areas of
operation, and employee workforce. The Commission also seeks
information concerning obstacles small telecommunications businesses
encounter, as well as any unique obstacles that such businesses owned
by women and minorities encounter. We also will undertake specific
initiatives that further the objective of Section 257 to eliminate
market entry barriers for small businesses. The record developed in
connection with these initiatives also will assist us in achieving our
mandate under Section 309(j) of the Communications Act to disseminate
licenses for auctionable spectrum-based services to small businesses,
rural telephone companies, and businesses owned by women and
minorities, as well as in fulfilling our general obligation to serve
the public interest.
45. Legal Basis: The proposed action is authorized under the
Communications Act of 1934, 47 U.S.C. 257.
46. Reporting, Recordkeeping, and Other Compliance Requirements:
None
47. Description, Potential Impact and Number of Small Entities
Effected: None
48. Federal Rules Which Overlap, Duplicate or Conflict With These
Rules: None
49. Significant Alternatives Minimizing Impact on Small Entities
and Consistent with Stated Objectives: This NOI solicits comment on a
variety of issues and recommendations that impact small businesses. Any
additional significant issues or recommendations related to small
businesses in the telecommunications industry presented in the comments
also will be considered.
50. Paperwork Reduction Act: The requirements proposed herein have
been analyzed with respect to the Paperwork Reduction Act of 1995 and
found to impose no new or modified information collection requirements.
VI. Procedural Matters
51. This proceeding is exempt from ex parte restraints or
disclosure requirements, as provided in Section 1.1204(a)(4) of our
rules.
52. Parties must file initial comments on or before July 24, 1996
and reply comments on or before August 23, 1996. To file formally in
this proceeding, interested parties must file an original and six
copies of all comments. If parties want each Commissioner to receive a
personal copy of their comments, they must file an original plus ten
copies.
53. Parties should send comments to: Office of the Secretary,
Federal Communications Commission, Washington, D.C. 20554. Parties also
should send one copy of any documents filed in this docket with the
Commission's copy contractor, International Transcription Services,
Room 246, 1919 M Street, N.W., Washington, D.C. 20554. Comments will be
available for public inspection during regular business hours in the
FCC Reference Center (Room 239) of the Federal Communications
Commission, 1919 M Street, N.W., Washington, D.C. 20554. For further
information, contact Linda L. Haller in the Office of General Counsel
at (202) 418-1720 or S. Jenell Trigg in the Office of Communications
Business Opportunities at (202) 418-0990.
54. We also ask parties to submit comments and reply comments on
diskette in addition to and not as a substitute for the formal filing
requirements stated above. Parties submitting diskettes should submit
them to S. Jenell Trigg, Office of Communications Business
Opportunities, Federal Communications Commission, Suite 644, 1919 M
Street, N.W., Washington D.C. 20554. Submissions should be on a 3.5
inch diskette formatted in an IBM compatible form using WordPerfect 5.1
for Windows software. The diskette should be submitted in ``read only''
mode. The diskette should be accompanied by a cover letter and clearly
labelled with the party's name, proceeding, type of pleading (comment
or reply comment), and the date of submission.
VII. Ordering Clause
55. Accordingly, IT IS ORDERED that, pursuant to our authority
under the Communications Act of 1934, 47 U.S.C. 4(i) and 403, an
inquiry IS COMMENCED to identify and eliminate market entry barriers
for small businesses in the provision and ownership of
telecommunications and information services in the telecommunications
market.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-16259 Filed 6-25-96; 8:45 am]
BILLING CODE 6712-01-P
