[Federal Register Volume 60, Number 140 (Friday, July 21, 1995)]
[Rules and Regulations]
[Pages 37786-37801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18116]
[[Page 37785]]
_______________________________________________________________________
Part VIII
Federal Communications Commission
_______________________________________________________________________
47 CFR Parts 20 and 24
_______________________________________________________________________
Race and Gender Based Provisions for Auctioning C Block Broadband
Personal Communications Services Licenses; Final Rule
Federal Register / Vol. 60, No. 140 / Friday, July 21, 1995 / Rules
and Regulations
[[Page 37786]]
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 20 and 24
[PP Docket No. 93-253, GN Docket No. 90-314, GN Docket No. 93-252, FCC
95-301]
Race and Gender Based Provisions for Auctioning C Block Broadband
Personal Communications Services Licenses
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Commission adopts this Sixth Report and Order amending its
competitive bidding rules to eliminate race- and gender-based
provisions for the auctioning of C block broadband Personal
Communications Services licenses. The Commission adopts the rule
changes to prevent potential legal delays in conducting the C block
auction, while minimizing disruptions to existing business
relationships that were formed under the current rules.
EFFECTIVE DATE: July 21, 1995.
FOR FURTHER INFORMATION CONTACT:Kathleen O'Brien Ham, (202) 418-0660
(Wireless Telecommunications Bureau), Peter Tenhula, (202) 418-1720
(Office of General Counsel), or Jackie Chorney, (202) 418-0600
(Wireless Telecommunications Bureau).
SUPPLEMENTARY INFORMATION: This is the Commission's Sixth Report and
Order in PP Docket No. 93-253, GN Docket No. 90-314, GN Docket No. 93-
252, adopted July 18, 1995 and released July 18, 1995. The full text of
Commission decisions are available for inspection and copying during
normal business hours in the FCC Docket Branch (Room 230), 1919 M.
Street, N.W., Washington, DC. The complete text of this decision may
also be purchased from the Commission's copy contractor, International
Transcription Service, Inc., (202) 857-3800, 2100 M Street, NW.,
Washington, DC 20037.
Summary of Sixth Report and Order
Introduction
1. In this Sixth Report and Order, we modify our competitive
bidding rules for the ``C block'' of Personal Communications Services
in the 2 GHz band (broadband PCS) to eliminate race- and gender-based
provisions that we believe raise legal uncertainties in the aftermath
of the Supreme Court's decision in Adarand Constructors, Inc. v. Pena,
115 S.Ct. 2097 (1995). We take this action to accomplish three goals:
(1) promotion of rapid delivery of additional competition to the
wireless marketplace by C block licensees; (2) reduction of the risk of
legal challenge; and (3) minimal disruption to the plans of as many
applicants as possible who were in advanced stages of planning to
participate in the C block auction when Adarand was announced. While
taking action to ensure that the auction commences quickly, we also
want the maximum number of existing business relationships formed under
our prior rules and in anticipation of the C block auction--including
those of women and minority applicants--to remain viable. We emphasize
that our action today does not indicate that race- and gender-based
provisions at issue here could not be sustained without further
development of the record. Nor do we believe that such measures
generally are inappropriate for future auctions of spectrum-based
services. We are considering the means we should take to develop a
supplemental record that will support use of such provisions in other
spectrum auctions held post-Adarand.
Background
2. Legislation and Commission Action. In the Omnibus Budget
Reconciliation Act of 1993, Congress authorized the competitive bidding
of spectrum-based services and mandated that small businesses, rural
telephone companies, and businesses owned by members of minority groups
and women (collectively known as ``designated entities'') be ensured
the opportunity to participate in the provision of such services. In
the Fifth Report and Order, in PP Docket No. 93-253, we adopted
competitive bidding rules designed to encourage designated entity
participation in broadband PCS (59 Fed. Reg. 5532). Specifically, we
established ``entrepreneurs' blocks'' (the C and F frequency blocks
allocated for broadband PCS) for which eligibility is limited to
individuals and entities under a certain financial size. We also
adopted special provisions for businesses owned by members of minority
groups or women and we analyzed their constitutionality utilizing the
``intermediate scrutiny'' standard of review articulated in Metro
Broadcasting, Inc. v. FCC, 497 U.S. 547, 564-565 (1990). We made
subsequent changes to the entrepreneurs' block rules and special
provisions for designated entities in the Fifth MO&O (59 Fed. Reg.
53,364).
3. Litigation and Auction Schedule. On March 15, 1995, in response
to a request filed by Telephone Electronic Corp. (TEC) alleging that
our broadband PCS competitive bidding rules violated equal protection
principles under the Constitution, the U.S. Court of Appeals for the
District of Columbia Circuit issued an Order stating that ``those
portions'' of the Commission's Order ``establishing minority and gender
preferences, the C block auction employing those preferences, and the
application process for that auction shall be stayed pending completion
of judicial review.'' As a result, the C block auction, then scheduled
to commence 75 days after the March 13, 1995 close of the A and B block
auction, was postponed. The court's stay was subsequently lifted on May
1, 1995, pursuant to TEC's motion, after TEC decided to withdraw its
appeal. The Commission established August 2, 1995 as the new auction
date.
4. On June 12, 1995, three days before initial short form
applications (FCC Form 175) for the August 2nd C block auction were
due, the Supreme Court decided Adarand. The Supreme Court decided to
overrule Metro Broadcasting ``to the extent that Metro Broadcasting is
inconsistent with'' Adarand's holding that ``all racial classifications
. . . must be analyzed by a reviewing court under strict scrutiny.'' As
a result of the Adarand decision, the constitutionality of any federal
program that makes distinctions on the basis of race must serve a
compelling governmental interest and must be narrowly tailored to serve
that interest. By Public Notice released June 13, 1995, the Commission
postponed the C block auction again in order to give interested bidders
and the Commission time to evaluate the impact of Adarand. We later
established an August 29, 1995 date for the auction.
5. Further Notice of Proposed Rule Making. On June 23, 1995, we
adopted a Further Notice of Proposed Rule Making, in which we
identified four race- and gender-based measures in our C block auction
rules and two similar provisions in our commercial mobile radio service
(CMRS) and broadband PCS rules that were affected by the Court's ruling
in Adarand (60 Fed. Reg. 34200-34201). In the Further Notice, we
proposed to eliminate these race- and gender-based provisions and
instead modify such measures to be race- and gender-neutral (60 Fed.
Reg. 34202-34203). We, at the same time, stated that we remain
committed to the mandates and objectives of the Budget Act.
6. In the Further Notice, we set forth our specific proposals and
our rationale for these C block auction rule changes. While we stressed
our commitment to the goal of ensuring broad participation in PCS by
designated entities, particularly minority- and women-owned businesses,
we indicated that Adarand required us to reevaluate our
[[Page 37787]]
method for accomplishing this Congressional objective (60 Fed. Reg.
34202). Although we stated in the Further Notice that our current
record concerning adoption of the race- and gender-based measures
contained in our C block auction rules is strong, we tentatively
concluded that additional evidence may be necessary to meet the strict
scrutiny standard of review required by Adarand. We cautioned that
development of such a supplemental record would further delay the C
block auction, putting the C block winners at a greater competitive
disadvantage in the CMRS market vis-a-vis existing wireless carriers
such as the A and B block winners, cellular and Specialized Mobile
Radio (SMR) carriers (60 Fed. Reg. 34202).
7. Additionally, we indicated that without changes to our race- and
gender-based rules, there was a substantial likelihood that the C block
auction would be the subject to legal challenge based on the holding in
Adarand. We stated that a stay would delay both the auctioning and
licensing of the C block, and that such a result might harm competition
overall in the CMRS marketplace. Also, we recognized that even if the C
block auction were not stayed beforehand, there is a high likelihood
that minority applicants and possibly female applicants (who utilize
bidding credits and other provisions available solely to members of
those groups) would be subject to license challenges (i.e., in the form
of petitions to deny and judicial appeals). Such challenges could
potentially delay their entry into the market and postpone competition.
8. In addition, we recognized that many of the C block applicants
have already attracted capital and formed business relationships in
anticipation of the C block auction. We observed that these
relationships are more likely to survive if the auction is not
significantly delayed, and our rule changes are minimally disruptive to
existing business plans. We suggested that by eliminating race- and
gender-based provisions from our C block auction rules, we would not
only reduce the legal uncertainty associated with C block licensing,
but we would also further competition and ownership diversity by
adopting provisions based on economic size only. By virtue of such rule
changes, potential C block bidders, including minority and women
bidders, would have a better chance of becoming successful PCS
providers. We also indicated that elimination of the race- and gender-
based measures from the C block auction rules would be consistent with
our duty to implement the Budget Act, since we believe that many
designated entities would qualify as small businesses under our rules.
Furthermore, as small businesses, such entities would be entitled to a
small business bidding credit and favorable installment payment terms.
9. Accordingly, we sought comment on amending six rule provisions
as follows:
Amend Section 24.709 of the Commission's Rules to make the
50.1/49.9 percent ``control group'' equity structure available to all
entrepreneurs' block applicants.
Amend Section 24.720 of the Commission's Rules to
eliminate the exception to the affiliation rules that excludes the
gross revenues and total assets of affiliates controlled by investors
who are members of a minority-owned applicant's control group.
Amend Section 24.711 of the Commission's Rules to provide
for three installment payment plans for entrepreneurs' block applicants
that are based solely on financial size.
Amend Section 24.712 of the Commission's Rules to provide
for a 25 percent bidding credit for small businesses.
Amend Section 24.204 of the Commission's Rules to make the
40 percent cellular attribution threshold applicable to ownership
interests held by small businesses and rural telephone companies, and
to non-controlling ownership interests held by investors in broadband
PCS applicants/licensees that are small businesses.
Amend Section 20.6 of the Commission's Rules to make the
40 percent attribution threshold for the CMRS ``Spectrum Cap''
applicable to ownership interests held by small businesses and rural
telephone companies.
We received 41 timely-filed comments in response to the Further
Notice. In addition, after announcement of the Adarand decision and
prior to release of the Further Notice, we received 42 informal
comments addressing various issues regarding our C block competitive
bidding rules, the impact of Adarand, and the need for the C block
auctions to proceed expeditiously.
Discussion
A. Rationale for Rule Changes
10. The overwhelming majority of commenters support the proposed
rule changes set forth in the Further Notice. A few commenters,
however, generally oppose our proposals on the basis that Adarand does
not require us to change the race- and gender-based provisions
contained in our C block competitive bidding rules. Specifically, BET
contends that Adarand does not wholly invalidate such provisions but
merely requires that their constitutionality be determined utilizing a
strict scrutiny standard of review. BET and NABOB argue that the race-
and gender-based provisions can and should be retained because they
would survive a strict scrutiny standard of review and comply with the
congressional mandate of the Budget Act. Similarly, Giles contends that
the proposed rule changes contravene the spirit and mandate of the
Budget Act. BET also proposes alternative rule changes that it contends
will satisfy the Congressional goals outlines in the Budget Act, flow
from the Commission's record, and comport with the standards pronounced
in Adarand.
11. Upon careful review we remain concerned that our present record
would not adequately support the race- and gender-based provisions in
our C block competitive bidding rules under a strict scrutiny standard
of review. Significantly, the D.C. Circuit previously stayed the C
block auction in response to a constitutional equal protection
challenge against these provisions when a less strict standard of
review was applicable. As a result, we strongly believe that there is a
substantial likelihood of further legal challenge to the C block
auction in the wake of Adarand if such provisions remain unchanged.
None of the commenters have challenged this belief. Furthermore, as we
indicated in the Further Notice, we would need additional evidence to
sufficiently develop our record to support these race- and gender-based
provisions consistent with the dictates of Adarand (60 Fed. Reg.
34,200). Any efforts to obtain this additional evidence would require
additional time and, therefore, further delay the commencement of the C
block auction. The legal uncertainty associated with the race- and
gender-based provisions, combined with the views of potential C block
bidders that the auction not be subject to any further delay, prompt us
to modify our rules in a fashion which would be minimally disruptive to
as many of the interested parties, potential bidders as well as members
of the financial and investment communities as possible. We also
disagree with the assertion by BET and Giles that today's rule changes
are inconsistent with the Budget Act. As we concluded in the Further
Notice, today's rule changes would allow small businesses to benefit
from the most
[[Page 37788]]
favorable bidding credits and installment payment plans contained in
our rules (60 Fed. Reg. 34200). As a result, because we have evidence
which supports a conclusion that many designated entities, including
minority and women-owned businesses, would qualify as small businesses
and, thus, benefit from such provisions, we believe that our action is
fully consistent with the Budget Act. We further conclude that the
proposals we adopt today are necessary under the circumstances and
indeed will best serve the public interest.
12. With respect to alternative rule change proposals presented by
the commenters, we conclude, as discussed more fully below, that
because they draw distinctions based upon race, most of these proposals
would engender the same danger of constitutional infirmity and would
result in the same legal uncertainties that we week to mitigate by
these decisions. To the extent that the commenters have presented race-
and gender-neutral rule changes, we conclude, as discussed herein, that
the proposals set forth in the Further Notice, which are broadly
supported by numerous commenters, constitute the more prudent and
expedient course of action for proceeding with the auctioning of the C
block licenses post-Adarand.
B. Control Group Equity Structures
13. Background. Our current rules permit broadband PCS applicants
for licenses in the C block to utilize one of two equity ``control
group'' structures, so that the gross revenues and total assets of
persons or entities holding interests in such applicants will not be
considered. These two equity structures are the Control Group Minimum
25 Percent Equity Option (which is available to all applicants) and the
Control Group Minimum 50.1 Percent Equity Option (which is currently
available only to minority or women applicants). In the Further Notice,
we proposed to modify our rules to permit all C block applicants,
including small businesses and entrepreneurs, to avail themselves of
the Control Group Minimum 50.1 Percent Equity Option. When we adopted
the Control Group Minimum 50.1 Percent Equity Option in the Fifth R&O,
we determined that making such a mechanism available to minority- or
women-owned businesses would better enable them to attract adequate
financing (59 Fed. Reg. 5532). We have previously noted that the
primary impediment to participation by businesses owned by women and
minorities in broadband PCS is a lack of access to capital. We
tentatively concluded that such a rule change would cause the least
disruption and open up additional financing options for other
applicants in the C block auction. The Further Notice sought comment on
this proposed rule change and tentative conclusion (60 Fed. Reg.
34,200).
14. Comments. Most commenters agree that the Control Group Minimum
50.1 Percent Equity Option should be made available to all C block
applicants. Several commenters express concerns about further delay of
the auctioning and licensing of the C block and agree that this minimal
rule change would not unduly disrupt existing business relationships.
Other commenters support the proposed rule change on the basis that it
would substantially reduce, if not eliminate, the possibility of legal
challenges to the C block auction based on the Adarand decision. DCR
Communications and Small Business PCS argue that elimination of
minority- and gender-based provisions would provide meaningful
opportunity for small businesses, as well as minority- and women-owned
businesses, to participate in the C block auction.
15. Other commenters, however, oppose extending availability of the
Control Group Minimum 50.1 Percent Equity Option to all entrepreneurs.
K&M proposes that this equity structure only be available to ``very
small businesses,'' defined as businesses with revenues up to $20
million. Omnipoint argues that because the Control Group Minimum 50.1
Percent Equity Option was created to address the problems experienced
by women- and minority-owned companies in accessing capital, the
Commission should either justify the measure under the strict scrutiny
standard of review or eliminate is completely. Omnipoint expresses
concern that extension of the Control Group Minimum 50.1 Percent Equity
Option equity structure to all C block applicants would increase the
number of ``shams'' financed by big companies. Similarly, Silverman and
Century oppose allowing large companies, whether minority- or women-
owned, as a general matter, to own more than 25 percent of a C block
applicant's equity.
16. Decision. We have decided to amend our rules to permit all C
block applicants to avail themselves of the Control Group Minimum 50.1
Percent Equity Option. This amendment enables minority- or women-owned
applicants structured under our prior rule to retain the Control Group
Minimum 50.1 Percent Equity Option, while extending this option to
other applicants in the entrepreneurs' block as well. We recognize that
we originally established the Control Group Minimum 50.1 Percent Equity
Option as a race- and gender-based measure aimed at addressing the
unique financing problems experienced by women- and minority-owned
businesses. All C block applicants, as well as the public, will be
better served if we proceed expeditiously in a manner which both
reduces the likelihood of legal challenges and enhances the
opportunities for a wide variety of applicants, including designated
entities, to obtain licenses and rapidly deploy broadband PCS service.
Thus, we conclude that use of this equity structure should now be
dependent upon economic size, a factor not implicated by the Court's
decision in Adarand. Moreover, retaining the Control Group Minimum 50.1
Percent Equity Option should help to preserve existing business
relationships formed in reliance on our prior rules and encourage
participation in the C block auction.
17. We disagree with Omnipoint's position on the Control Group
Minimum 50.1 Percent Equity Option rule change. In the Fifth R&O and
the Fifth MO&O, we indicated that the equity structure options provided
under our rules are designed to provide qualified bidders with a
reasonable amount of flexibility in attracting needed financing from
other entities, while ensuring that such entities do not acquire
controlling interests in the qualified bidders (59 Fed. Reg. 5532, 59
Fed. Reg. 53,364). With respect to the Control Group Minimum 50.1
Percent Equity Option, we previously explained that in order to guard
against abuses, the control group of applicants choosing this option
must own at least 50.1 percent of the applicant's equity, as well as
retain control and hold at least 50.1 percent of the voting stock. We
have previously concluded that this requirement reduces substantially
the danger that a well-capitalized investor with substantial ownership
stake will be able to assume de facto control of the applicant. In
addition, we previously clarified our rules so that persons or entities
that are affiliates of one another, or that have an ``identity of
interests,'' as well as their other investors pursuant to Sections
24.709(c) and 24.813 will be treated as though they are one person or
entity and their ownership interests aggregated for purposes of
determining compliance with our nonattributable equity limits. This
clarification was aimed at discouraging large investors from
circumventing our equity limitations for nonattributable investors. We
believe that these measures will be effective in deterring the type of
``sham'' deals
[[Page 37789]]
described by Omnipoint. Moreover, we will have the opportunity to
review these structures through the application process when bidders
who elect to utilize such equity structures are required to identify
the members of their control groups. Consequently, we believe that our
rules adequately protect against ``sham'' deals.
18. Accordingly, under Section 24.709 of the rules, all applicants
in the C block auction selecting a ``control group'' structure in order
to exclude the total assets and gross revenues of certain investors
will have two options for raising capital through the distribution of
equity among ``qualifying investors,'' other eligible investors in the
control group (e.g., management and institutional investors) and other
non-attributable ``strategic'' investors. In light of the fact that we
have eliminated the eligibility dichotomy in the two control group
equity options, we specify and clarify here how both options apply to C
block applicants.
19. First, we note that under both options the following control
and voting requirements continue to apply: (1) the control group must
own at least 50.1 percent of the applicant's voting stock, if a
corporation, or all of the applicant's general partnership interests,
if a partnership; (2) qualifying investors, as defined in the rules,
must hold at least 50.1 percent of the voting stock and all general
partnership interests within the control group, and must have de facto
control of the control group and the applicant; and (3) the investor(s)
holding ``nonattributable equity'' (up to 25 percent or 49.9 percent)
are limited to 25 percent of a corporate applicant's voting equity
(including the right to vote such interests through a voting trust or
other arrangement) and may hold only limited partnership interests, if
the applicant is a partnership.
20. Control Group Minimum 25 Percent Equity Option. This equity
structure option requires the control group to hold at least 25 percent
of the applicant's total equity. Of this 25 percent equity, at least 15
percent must be held by ``qualifying investors.'' A ``qualifying
investor'' is generally defined as a member of, or a holder of an
interest in a member of, the applicant's or licensee's control group
whose gross revenues and total assets, when aggregated with those of
all other attributable investors and affiliates, do not exceed the
gross revenues and total assets restrictions specified in our rules
with regard to eligibility for entrepreneurs' block licenses or status
as a small business. With regard to the remaining 10 percent of the
control group's equity, this may be held by four types of
noncontrolling investors without these investors' assets and revenues
being attributed to the applicant, as is the case with other control
group members. These are (1) qualifying investors (small businesses or
entrepreneurs); (2) individuals who are members of the applicant's
management team; (3) existing investors in a preexisting entity that is
a member of the control group; and (4) institutional investors. The
minimum equity amounts within the control group vary slightly three
years after the license is received and for applicants whose sole
control group member is a preexisting entity. As for the remaining 75
percent of the applicant's equity (assuming the control group holds no
more than the minimum 25 percent), the gross revenues and total assets
(and other affiliations) of an investor holding a portion of this
remaining equity are not considered so long as such investor (together
with its affiliates) holds no more than 25 percent of the applicant's
total equity.
21. Control Group Minimum 50.1 Percent Equity Option. This equity
structure option requires the control group to hold at least 50.1
percent of the applicant's total equity. Of this 50.1 percent equity,
at least 30 percent must be held by ``qualifying investors.'' The
remaining 20.1 percent of the control group's equity may be held by the
same four types of investors specified above. As with the Control Group
Minimum 25 Percent Equity Option, the minimum equity amounts within the
control group vary slightly three years after the license is received
and for applicants whose sole control group member is a preexisting
entity. As for the remaining non-control group equity, the gross
revenues and total assets (and affiliates) of the investor(s) holding
this remaining equity is not considered so long as such investor(s)
(together with its affiliates) holds no more than 49.9 percent of the
applicant's total equity. The reasoning behind these two options and
their advantages to applicants for purposes of raising capital are set
forth in our Fifth R&O and Fifth MO&O (59 Fed. Reg. 5532, 59 Fed. Reg.
53,364). We affirm here that this reasoning and the advantages for
maintaining both options remain applicable. We note that, under our
prior rules, businesses owned by minorities and women had the option to
use either equity structure. It is our understanding that such
businesses, depending on their particular circumstances, were forming
applicants based on the option that best met their needs for outside
investment and what the capital markets were seeking from them in the
form of equity interests. We now provide both options to all C block
applicants and we anticipate that each applicant will pursue (or switch
to) the option that best suits its particular capital needs and equity
ownership situation.
22. Qualifying Investors. The modification in the Fifth MO&O and
here of the control group minimum equity requirements to allow certain
other investors to own ``control group equity''--and not have their
assets and revenues attributed to the applicant--may not be clear in
light of the definition of ``qualifying investor'' in section 24.702(n)
of the Commission's rules. Specifically, in the Fifth MO&O, we modified
the rules to allow certain noncontrolling investors who do not qualify
for the entrepreneurs' block or as a small business to be investors in
an applicant's control group (59 Fed. Reg. 53,364). In making these
limited changes to the control group equity requirements, we said that
this added, but limited, flexibility will (1) promote investment in
designated entities generally; (2) attract and promote skilled
management for applicants; and (3) encourage involvement by existing
firms that have valuable management skills and resources to contribute
to the success of applicants.
23. We stated that the first category for inclusion in this 10
percent or 20.1 percent portion of the control group is ``investors in
the control group that are women, minorities, small businesses or
entrepreneurs.'' The text of the rules adopted in the Fifth MO&O and
the erratum to the Fifth MO&O capsulized this category as ``qualifying
investors,'' but the definition of ``qualifying investors'' in the
rules failed to reflect the broader nature and purpose for allowing
``women, minorities, small businesses or entrepreneurs'' hold shares or
options in the 10 percent or 20.1 percent portion of the control group
even though they--like the other categories--``if attributed, would
cause the applicant to exceed the small business or entrepreneurs'
block financial caps * * *.'' (59 Fed. Reg. 53,364) Consistent with our
intent in the Fifth MO&O, we clarify that, so long as the minimum
equity requirements for ``qualifying investors'' (15 percent or 30
percent) under our new rules are met, the remaining control group
equity (10 percent or 20.1 percent) may be held by investors that meet
either the small business or entrepreneur eligibility requirements. We
continue to believe that such entities, if they wish to provide
financial support to C block applicants, should not be precluded from
doing so because their financial
[[Page 37790]]
status would, if considered with other control group members, make the
applicant ineligible for the C block or small business status.
Accordingly, we clarify our definition of ``qualifying investor'' for
purposes of Section 24.709(b) (5)(i)(C) and (6)(i)(C).
C. Affiliation Rules
24. Background. We adopted affiliation rules for purposes of
identifying all individuals and entities whose gross revenues and
assets must be aggregated with those of the applicant in determining
whether the applicant exceeds the financial caps for the entrepreneurs'
blocks or for small business size status. There are two exceptions to
our broadband PCS affiliation rules. Under one exception, applicants
affiliated with Indian tribes and Alaska Regional or Village
Corporations organized pursuant to the Alaska Native Claims Settlement
Act, 43 U.S.C. 1601 et seq., are generally exempt from the affiliation
rules for purposes of determining eligibility to participate in bidding
on C block licenses. These applicants additionally qualify as a small
business with a rebuttable presumption that revenues derived from
gaming, pursuant to the Indian Gaming Regulatory Act, 25 U.S.C. 2701 et
seq. will be included in the applicant's eligibility determination.
Under the second exception, the gross revenues and assets of affiliates
controlled by minority investors who are members of the applicant's
control group are not attributed to the applicant for purposes of
determining compliance with the eligibility standards for entry into
the entrepreneurs' block.
25. In the Further Notice, we proposed to eliminate the exception
pertaining to minority investors (59 Fed. Reg. 34,204). In crafting
this exception, we anticipated that it would permit minority investors
that control other business entities to be members of an applicant's
control group and to bring their management skills and financial
resources to bear in its operation without the assets and revenues of
those other concerns being counted as part of the applicant's total
assets and revenues. We further anticipated that such an exception
would permit minority applicants to pool their resources with other
minority-owned businesses and draw on the expertise of those who have
faced similar barriers to raising capital in the past. In the Further
Notice, we tentatively concluded that it would be imprudent to respond
to Adarand by extending this exception to all entrepreneurs because to
do so would frustrate the Commission's goals in establishing the
entrepreneurs' block--namely, to ensure that broadband PCS will be
disseminated among a wide variety of applicants including small
businesses and rural telephone companies (60 Fed. Reg. 34,200).
26. The Further Notice proposed to retain the affiliation exception
for Indian tribes and Alaska Regional or Village Corporations (60 Fed.
Reg. 34,204). We tentatively concluded that the ``Indian Commerce
Clause'' of the United States Constitution provides an independent
basis for this exception that is not implicated by the Adarand
decision.
27. Comments. The commenters overwhelmingly support elimination of
the exception to our affiliation rules that excludes the gross revenues
and total assets of affiliates controlled by minority investors who are
members of an applicant's control group. Some commenters agree that
this rule change would reduce the likelihood of a further delay to the
C block auction resulting from legal challenges premised on the Adarand
decision. Other commenters argue that the Court's ruling in Adarand
requires elimination of the affiliation rule exception applicable
solely to investors who are members of minority groups. With respect to
the effect of such rule change, Central Alabama & Mobile Tri-States
argue that by virtue of the current rule, well-financed entities who
might otherwise not qualify as an entrepreneur or as small businesses
are allowed to participate in the C block which is ultimately to the
detriment of those C block applicants who actually experience
difficulties in accessing capital. DCR Communications contends that the
proposed rule change would not deprive women and minority-owned
businesses of investment from other minorities whose affiliates would
exceed the financial size limitations imposed under our rules; rather,
it would limit such investment to 25 percent before it becomes
attributable.
28. BET, NABOB, and O.N.E. oppose elimination of the affiliation
rule exception pertaining to investors who are members of minority
groups. NABOB argues that such elimination will prevent many bidders
from including experienced, successful minority entrepreneurs in their
control groups, which, in turn, may cause them to lose financing
dependent upon such alliances, and, thus, prevent them from
participating in the C block auctions. Similarly, BET argues that this
rule change would not only exclude several minority entrepreneurs, but,
because the A and B blocks already have been licensed, such minorities
would be precluded from any meaningful participation in broadband PCS.
BET further argues that elimination of the affiliation rule exception
would be inconsistent with the congressional mandate given in the
Budget Act and the record established by the Commission regarding those
problems experienced by minority-owned businesses that the exception
was specifically designed to address. Also, BET contends that Adarand
does not require such a rule change.
29. Some commenters generally propose alternative modifications to
the affiliation rule exception for minority investors. NABOB proposes
that the exception be modified so that an entity controlled by a member
of the control group of a small business applicant or licensee would
not be considered an affiliate of the applicant if the entity would
qualify as an entrepreneur. Spectrum Resources proposes that investors
who have affiliates with gross revenues and total assets sufficiently
large to disqualify a small business applicant would still be allowed
to invest in the application if their investment was capped at a
relatively low level, such as $100,000. Spectrum Resources argues that
this modification would increase the pool of investors for small
businesses while ensuring that the applicant remains a small business.
30. BET suggests four alternative affiliation rule exceptions.
Under BET's first alternative exception, it proposes that the exception
be made available only when the revenues and assets of each of the
affiliates of minorities in a control group separately qualify as
entrepreneurs under our rules. If, however, any of the affiliates
exceeded the financial limitations for the C block, then the minority-
owned applicant would not be allowed to participate in the C block
auction. BET argues that this proposal is analogous to the Commission's
treatment of small business consortia in the C Block. Under BET's
second proposal, the revenues and assets of affiliates of minority
members of an applicant's control group would be excluded if the
average revenues of the affiliates over the past two years are less
than the C block financial limits. BET argues that without such
modification, Native Americans are being singled out for special
treatment in violation of the Equal Protection Clause. Under these
proposals, BET suggests that aggregation of the gross revenues and
total assets of these affiliates would not be required in determining
whether the applicant qualifies as an entrepreneur or a small business.
BET's other affiliation rule exception proposals consist of making the
first two proposals described above
[[Page 37791]]
applicable to all members of a control group regardless of race. BET
argues that these proposals would exclude large telecommunications
companies, allow otherwise excluded minority applicants to participate
in the C block auction, and provide for the limited growth of small
companies.
31. With regard to the affiliation rule exception pertaining to
Native Americans, CIRI, the Oneida Tribe, and Prairie Island agree that
such exception should be retained. These commenters also agree that
this exception is authorized by the Indian Commerce Clause of the
Constitution. Furthermore, CIRI and Prairie Island contend that the
affiliation rule exception is not a race-based measure implicated by
Adarand. Prairie Island argues that the exception is an outgrowth of an
accommodation by the federal government of several Indian tribes as
sovereign political entities in a trust relationship with the United
States. CIRI and Prairie Island also argue that this exception is part
of federal Indian law and policy. CIRI also argues that elimination of
the affiliation rule exception pertaining to Indian tribes would be:
(1) inconsistent with the Small Business Administration's treatment of
tribal entities; and (2) without record support since the record
supports the exception's underlying purpose and the essential
circumstances justifying such exception have not changed.
32. Decision. Although we proposed to eliminate the exception to
our affiliation rules pertaining to minority-controlled affiliates, we
now decide to modify it in a manner similar to BET's proposal. When we
originally crafted this exception for minority-owned applicants, we
anticipated that it would permit minority investors who control other
concerns to be members of a minority-owned applicant's control group
and to bring their management skills and financial resources to bear in
its operation without the assets and revenues of those other concerns
being counted as part of the applicant's total assets and revenues. We
further anticipated that such an exception would permit minority-owned
applicants to pool their resources with other minority-owned businesses
and draw on the expertise of those who have faced similar barriers to
raising capital in the past. However, as we recognized in allowing
small business consortia to apply in the C block and in granting small
businesses special measures, all small businesses, including those
owned by minorities and women, should not be precluded from pooling
their resources in this capital intensive service. We believe that to
some extent, these firms face barriers to raising capital not faced by
the larger firms. In addition, small businesses experienced in managing
smaller businesses should not be penalized because they own or are
otherwise affiliated with other businesses whose assets and revenues
must be considered on a cumulative basis and aggregated for purposes of
qualifying for the C block auction.
33. Our modification will benefit small business applicants only
where the financial position of their affiliates or their qualifying
control group member's affiliates, when considered individually and on
a cumulative basis, would not present an unfair competitive advantage
in the auction. Thus, to achieve the objectives outlined above--
including minimizing the adverse impact on existing business
relationships, mitigating the risk of legal challenges, and ensuring
that the auctions are fair and do not present any bidder with an unfair
competitive advantage--we modify this exclusion from affiliation
coverage as follows:
For purposes of the affiliation rules, a small business
applicant can exclude from coverage of the affiliation rules any
affiliate of the small business applicant if the following conditions
are met:
(1) the affiliate would otherwise qualify as an entrepreneur
pursuant to section 24.709(a)(1) ($125 million in gross revenues and
$500 million in total assets); and
(2) the total assets and gross revenues of all such affiliates,
when considered on a cumulative basis and aggregated with each other,
do not exceed these amounts.
This exemption will apply for purposes of qualifying for both the C
block auction and small business status.
34. We will also retain the affiliation exception for Indian tribes
and Alaska Regional or Village Corporations. In the Fifth MO&O, we
stated that our decision to exempt Indian tribes generally from our
affiliation rules was premised on the fact that Congress has imposed
unique legal constraints on the way they can utilize their revenues and
assets (59 Fed. Reg. 53,364). We recognized that as a result of such
constraints imposed by the Alaska Native Claims Settlement Act, 43
U.S.C. Sec. 1601 et seq., Native American corporations are precluded
from utilizing two important means of raising capital: (1) the ability
to pledge the stock of the company against ordinary borrowings, and (2)
the ability to issue new stock or debt securities. We further
recognized that Congress has mandated that the Small Business
Administration determine the size of a business concern owned by a
tribe without regard to the concern's affiliation with the Indian tribe
and determined that the affiliation exception contained in our C block
affiliation rules mirrored this congressional mandate. Although Indian
tribes are minorities under our C block auction rules, we conclude that
their affiliation rule exception is different from the exception
applicable only to minority investors in that it is premised on their
unique legal status as recognized in the ``Indian Commerce Clause'' of
the United States Constitution.
D. Installment Payments
35. Background. Five different installment payment plans are
available to C block applicants under Section 24.711 of the
Commission's Rules. In the Further Notice, we sought comment on our
proposal to allow all small businesses, regardless of racial or gender
classification, the opportunity to use the most favorable installment
payment plan to pay for their licenses (60 Fed. Reg. 34,200). This
proposal provides for interest-only payments for six years and payments
of principal and interest amortized over the remaining four years of
the license term. We indicated that this approach would allow many
prospective bidders to maintain their pre-Adarand business
arrangements.
36. Comments. A majority of the comments support the elimination of
installment payment plans that are tied to an applicant's status as a
minority- or women-owned business, and to provide for three installment
payment plans that are based solely on financial size. Several
commenters note that our proposal will result in the least amount of
delay to the auction and grant of C block licenses. GO Communications
asserts that delays and threats of delay to the C block auction will
irrevocably damage all entrepreneurs. Airlink expresses a similar
opinion when it notes that there is a direct link between auction
delays, market competitiveness and investor confidence. Airlink further
maintains that auction delays inhibit the ability of applicants to keep
and find sources of investment. Small Business PCS was even more
adamant that any other alternative would result in further delay and no
viable licenses for any small businesses. Although the majority of
commenters favor our proposal, Minority Media et al. also suggests
allowing any applicant who can demonstrate ``good cause'' to request a
waiver under Sections 1.3 and 24.819(a) of our rules to be eligible for
small business preferences and the bidding credit under our proposed
rule. Under Minority Media et al.'s proposed alternative, any waiver
requests by women and minorities would receive a
[[Page 37792]]
``plus'' factor since there is record evidence in this proceeding and
in congressional legislation that establishes compelling governmental
interests in diversity of ownership.
37. Several commenters oppose our proposal to modify our
installment payment plan. InTouch asserts that we are raising barriers
to accessing capital by minority-owned businesses. By eliminating the
race and gender preference, BET argues that we are not assisting
minority-owned small businesses in overcoming obstacles to entry into
the PCS marketplace. BET further maintains that the Further Notice must
still satisfy Congress' directive to disseminate licenses among a wide
variety of applicants and to ensure that minorities are not excluded
from the auction process. O.N.E. charges that we are wrong to eliminate
all race- and gender-based preferences without proposing a race- and
gender-neutral solution. Specifically, O.N.E. argues that our proposals
do not create a size standard that is race and gender neutral yet small
enough to ensure that businesses owned by members of minority groups
and women are given the opportunity to participate in the provision of
PCS. As a result, they assert that our proposals have the effect of
restricting opportunities to only an elite handful of minorities and
women.
38. RTC disagrees with our installment plans as set forth in the
Further Notice and suggests two proposals of its own. First, RTC would
make the same installment payment terms available to all small
businesses that qualify to participate in the C block auction.
Alternatively, RTC would maintain the existing differentials available
to small businesses that meet the $40 million gross revenues test vis-
a-vis other small businesses that qualify as ``entrepreneurs.'' RTC
asserts that the effect of the proposals creates a massive gulf between
small businesses whose control groups can meet the $40 million gross
revenues test versus those whose control group cannot meet that test.
39. Decision. We will amend our rules concerning installment
payments as set forth in the Further Notice (60 Fed. Reg. 34,200). We
have concluded that revision of our installment payment program in this
manner, is minimally disruptive to the established business
arrangements of the applicants. All small businesses, including
minority- or women-owned small businesses, will continue to be eligible
for the most favorable installment plan.
40. We further conclude that our installment payment plan designed
solely for small businesses will give designated entities an
opportunity to participate in the provision of spectrum-based services.
By allowing all small businesses to pay for their licenses in this
manner (i.e., using installments, at a rate equal to ten-year U.S.
Treasury obligations applicable on the date the license is granted and
requiring that payments include interest only for the first six years
with payments of principal and interest amortized over the remaining
four years of the license term), we will provide the most favorable
plan to the smallest companies. We are not, as O.N.E. suggests,
restricting opportunities to a handful of minorities and women. We are
complying with our statutory obligations in a manner that we believe is
necessary under the circumstances. We reject RTC's alternatives to make
the same installment plan available to all applicants. Our record shows
that smaller companies need more assistance accessing capital for
broadband licenses and, therefore, the Commission decided these
businesses should receive more favorable treatment than the medium to
large companies participating in the C block auction.
41. Based on our experience, we conclude that Minority Media et
al.'s waiver proposal as described in its comments is administratively
burdensome, and potentially has its own legal risks since it is based
in part on an applicant's status as a woman or minority. A major
purpose of our proposals is to avert further delays in the auction and
grant of C block licenses. The waivers would give losing applicants a
built-in reason to challenge the auction results with petitions to deny
if a winning applicant utilized the bidding credit solely as a result
of a waiver for ``good cause.'' Therefore, for purposes of the C block
auction, we will not adopt such a waiver proposal.
42. Although the revised rules do not specifically target
minorities and women, we realize that because a large number of
minority- or women-owned businesses are small businesses, our new rules
will nonetheless, afford designated entities opportunities to
participate in the C block auction. We recognize that this amendment to
the installment payment plan will not allow some minority- and women-
owned businesses to elect the most favorable installment payment plan
because these businesses exceed our small business threshold. We
further recognize that these businesses may have to restructure
agreements to obtain additional capital to participate in the C block
auction.
43. We weighed the risks of litigation to the Commission and to
winning bidders, the need to preserve competition, and our commitment
to providing service to the public as expeditiously as possible against
the additional financial burden this rule change will have on minority-
and women-owned businesses that do not qualify as small businesses
under our rules. After carefully considering these issues, we
determined that the need to mitigate litigation risks, enhance market
competition, and encourage prompt service to the public far out-weigh
the additional financial burden this rule change would create for
potential bidders.
E. Bidding Credits
44. Background. Our current rules provide three tiers of bidding
credits ranging between 10 percent and 25 percent. Small businesses are
eligible for a 10 percent bidding credit. Businesses owned by women or
minorities are eligible for a 15 percent bidding credit and small
businesses owned by women or minorities are eligible for a 25 percent
total bidding credit. The bidding credit acts as a discount on the
winning bid amount that a licensee actually pays for the license. In
the Further Notice, we proposed increasing the bidding credit for small
businesses from 10 percent to 25 percent and eliminating the remaining
bidding credits (60 Fed. Reg. 34,200). We recognized that this proposal
would enhance the competitiveness of all small businesses which will
receive a 15 percent increase in their bidding credits. The positions
of minority- or women-owned businesses will remain the same because
they are already eligible for a 25 percent bidding credit.
45. Comments. Commenters generally advocate increasing the small
business bidding credit to 25 percent and the elimination of bidding
credits based upon an applicant's race or gender. Some commenters
supported our proposal to differentiate between applicants on the basis
of size in order to avert any Adarand or TEC legal challenges to our
rules. Minority Media et al. repeated its ``good cause'' waiver
argument under Sections 1.3 and 24.819(a) of our rules.
46. Two commenters oppose the proposed bidding credit modification.
Both BET and InTouch argue that race neutral alternatives serve only to
reinforce the barriers to capital that many minority-owned businesses
face. BET specifically states that the bidding credit is meant to
``address directly the financing obstacles encountered by minorities.''
Two commenters presented alternative proposals for consideration. RTC
wants to either (1) make the same bid credits available to all small
[[Page 37793]]
businesses that qualify to participate in the C block auction or (2)
maintain the existing differentials available to small businesses that
meet the $40 million gross revenues test vis-a-vis other small
businesses that qualify as ``entrepreneurs.'' O.N.E. proposes
increasing the bidding credit for small businesses to 40 percent.
47. Decision. We amend our rules to provide for a 25 percent small
business bidding credit only. Restructuring our biding credits in this
manner is consistent with our post-Adarand concerns about the C block
auction. While small businesses, in general, will benefit with a higher
credit (i.e., from 10 to 25 percent), their rule change will allow the
Commission and prospective bidders to avoid litigation, allow the
auction to proceed as close to its original schedule as possible and
permit prospective bidders to maintain previously negotiated business
arrangements and financial agreements.
48. We understand BET's and InTouch's concerns, but believe our
proposals do not contradict our statutory obligations. Many commenters
have noted that the elimination of minority- and gender-based
preferences is necessary in light of recent court challenges to race-
based statutes if the C block auction is to proceed without significant
delay. Specifically, GO Communications comments that our bidding credit
proposal strikes an appropriate balance by leveling benefits upward in
a manner that mitigates potential harm to all affected parties.
Spectrum Resources contends that the proposal is reasonable and viable
although a slight negative effect will result because of the additional
competition into the bidding process and a diminishing number of
successful minority and women bidders. DCR Communications argues that
the proposal is the most sensible and is necessary to ensure
participation by designated entities in the auction for, and offering
of, PCS. We agree that we are striking an appropriate balance between
varied interests to retain our statutory mandate to provide
opportunities for designated entities.
F. Cellular PCS Cross-Ownership and CMRS Spectrum Aggregation Limit
49. Background. Our cellular-PCS cross-ownership rule prohibits
entities with attributable interests in cellular licenses from holding
more than 10 MHz of PCS spectrum in an overlapping PCS service area.
For purposes of this rule, a 20 percent or greater interest in a
cellular license is considered to be attributable, except in the case
of cellular interests held by designated entities. In the latter case,
we permit small businesses, rural telephone companies, and businesses
owned by minorities or women to hold up to a 40 percent noncontrolling
interest in a cellular licensee without being subject to the cellular-
PCS cross-ownership restriction. We also apply a 40 percent cellular
attribution threshold to any entity with a non-controlling interest in
a PCS license controlled by minorities or women. The same attribution
rules apply to our 45 MHz spectrum cap, which restricts any entities
from holding interests in more than 45 MHz of broadband PCS, cellular,
and SMR spectrum in the same geographic area. Thus, while interests of
20 percent or more in a broadband PCS, cellular, or SMR license are
generally attributable for purposes of the spectrum cap, small
businesses, rural telephone companies, and businesses owned by
minorities or woman are subject to a 40 percent attribution threshold.
50. In the Further Notice, we proposed to modify both the cellular-
PCS cross-ownership and the PCS/cellular/SMR spectrum cap rule with
respect to the C block by eliminating the use of the 40 percent
attribution threshold on the basis of race or gender (60 Fed. Reg.
34,200). Thus, in the cellular-PCS context, we proposed to apply the 40
percent attribution threshold only to cellular interests held by small
businesses and rural telephone companies, but to apply the 20 percent
threshold to all other cellular interests, including those held by
minority and women-controlled entities that are not small business or
rural telephone companies. We further proposed to eliminate the rule
allowing 40 percent cellular attribution for non-controlling investors
in minority- or women-controlled PCS applicants or licensees and
instead proposed to apply the 40 percent threshold to non-controlling
investors in PCS applicants or licensees controlled by small
businesses. In this regard, we noted that the extension of the 40
percent threshold to non-controlling investors in small businesses
might result in additional investment in small business PCS applicants.
Similarly, with respect to the PCS/cellular/SMR spectrum cap, we
proposed to use the 40 percent attribution threshold where PCS/
cellular/SMR interests are held by small businesses and rural telephone
companies, but to use the 20 percent threshold in all other cases.
Although we noted that the cellular-PCS and spectrum cap rules applied
to more than just the C block, we proposed to change the rules with
respect to the C block only.
51. Comments. The comments generally support our proposals for
modifying the cellular-PCS cross-ownership and CMRS spectrum
aggregation limit rules. Most of the comments mirror earlier comments
concerning the commenter's desire to avoid delay; to avoid Adarand and
TEC type legal challenges; and to minimize disruption. DCR
Communications notes that our proposal will promote investment. Only
two commenters object to our proposal. O.N.E. reasserts its argument
that we should not eliminate all race- and gender-based preferences
without proposing a race- and gender-neutral solution. Radiofone
challenges both the 40 percent cellular-PCS cross-ownership rule and
our proposed amendment as unlawful and discriminatory.
52. Decision. We will amend our cellular PCS cross-ownership and
PCS/cellular/SMR spectrum aggregation limit rules with respect to C
block as proposed in the Further Notice (50 Fed. Reg. 34,200). These
changes will help to avoid further delay or legal challenges to the C
block auction and are strongly supported by the comments. We reject
Radiofone's argument that the cellular-PCS cross-ownership rule should
be eliminated. This argument has been fully addressed previously in the
PCS docket and is not an issue raised in this proceeding. Specifically,
we modify Section 24.204(d)(2)(ii) with respect to the C block to
eliminate the provision in the cellular-PCS cross-ownership rule that
increases the attribution threshold to 40 percent on the basis of the
race or gender of the holder of the ownership interest, but we will
continue to apply the 40 percent threshold to cellular interests held
by small businesses and rural telephone companies. We also modify
Section 24.204(d)(2)(ii) to provide that non-controlling investors in C
block PCS applicants or licensees controlled by small businesses may
hold up to a 40 percent interest in a cellular licensee without being
subject to the cellular-PCS cross-ownership restrictions. Finally, we
make the same modification to the attribution provisions in our
spectrum cap rule in Section 20.6(d)(2) that we have made to our
cellular-PCS rule. Thus, small businesses or rural telephone companies
may hold up to a 40 percent interest in broadband PCS, cellular, or SMR
licenses without such interests being attributable under the 45 MHz
spectrum cap, but minority- and women-controlled interest holders who
are not small businesses or rural telephone companies will be subject
to the 20
[[Page 37794]]
percent attribution rule for purposes of determining C block
eligibility under the spectrum cap. To avoid any apparent
inconsistency, Section 206(d)(2) will also reflect the modification
with respect to non-controlling investors in C block PCS applicants and
licensees that are small businesses.
G. Miscellaneous Issues
53. Information Collection. With respect to our proposal to
continue requesting information on the short-form applications (FCC
Form 175) regarding minority- or women-owned status, both Spectrum
Resources and Central Alabama & Mobile Tri-States agree that we should
continue to collect such information. Central Alabama & Mobile Tri-
States believe that collection of the status data will enable the
Commission to analyze the applicant pool and auction results to
determine if small business provisions alone were sufficient to achieve
the participation of all designated entities, including businesses
owned by minorities or women. Central Alabama & Mobile Tri-States
further state that in the event that such participation is not
obtained, then the collected information would be helpful in
establishing a record supporting race- and gender-based preferences for
future auctions. Similarly, Spectrum Resources believes that such
information could prove valuable in supporting the Commission's actions
in any ensuing litigation.
54. We agree that continuing to request information on the short-
form applications (FCC Form 175) concerning the minority- or women-
owned status of applicants will assist us in analyzing the applicant
pool and the auction results to determine whether we have accomplished
substantial participation by minorities and women through provisions
available to small businesses as required by the Budget Act. We
conclude that such information will be helpful and probative in two
respects: (1) our preparation of a report to Congress on the
participation of designated entities in the auctions and in the
provision of spectrum-based services; and, (2) our development of a
supplemental record should we find that special provisions for small
businesses in the C block PCS auctions prove unsuccessful in ensuring
participation by businesses owned by members of minority groups and
women in broadband PCS. In this connection, we emphasize that those
applicants who indicate that they are minority- or women-owned must
meet the applicable definitions as set forth in Section 24.720(c) of
our rules.
55. Other. Several commenters addressed issues regarding the
auctioning and licensing of the C block other than the specific rule
changes proposed in the Further Notice (60 Fed. Reg. 34,200). These
issues included the following: (a) scheduled commencement of the C
block auction; (b) proposals of special provisions for entrepreneurs
with gross revenues between $40 and $75 million; (c) proposals of
circumstances under which upfront payments and down payments can earn
interest and be withdrawn; (d) definition of small businesses; (e)
criteria for determining C block eligibility; (f) the rebuttable
presumption concerning Indian gaming revenues; and (g) effect of
business growth and development on C block small business status. We
have adequately considered these issues previously and we find no basis
to revisit them here in this narrowly-focused rule making. Therefore,
we will not make the rule changes proposed by commenters pertaining to
such issues.
56. On our own motion, however, we clarify the measurement of gross
revenues. Section 24.720 (f) specifies that gross revenues shall be
measured ``for the relevant number of calendar years preceding January
1, 1994, 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).'' For purposes of qualifying for the C block, an entity, together
with its affiliates and persons or entities that hold an attributable
interest in such entity and their affiliates, must have gross revenues
of less than $125 million in each of the last two years. Therefore,
such an entity would measure its annual gross revenues for the calendar
years 1992 and 1993, or for its two most recently completed fiscal
years. For purposes of qualifying as a small business, an entity,
together with its affiliates and persons or entities that hold an
attributable interest in such entity and their affiliates, must have
average annual gross revenues of not more than $40 million for the
preceding three years. Therefore, such an entity would calculate its
average annual gross revenues for the years 1991, 1992, and 1993, or
for its three most recently completed fiscal years.
57. We note that this definition of gross revenues was adopted when
the C block applications were to be filed in early 1995, when audited
calendar year 1994 financial statements for most firms were not yet
available and when it was unlikely that there would be a substantial
difference between calendar and fiscal years for accounting purposes.
If our rule's distinction between calendar years and fiscal years
results in undue hardship due to a company's particular accounting
practices, we will entertain waiver requests to use either a calendar-
year or a fiscal-year measurment of gross revenues to determine
compliance with the financial caps. We did not intend to discriminate
based upon a company's particular accounting practices. We delegate
authority to the Wireless Telecommunications Bureau to decide such
waivers on a case-by-case basis and to grant such upon an affirmative
showing pursuant to Section 24.419 of the Commission's rules.
IV. Procedural Matters and Ordering Clauses
58. The Final Regulatory Flexibility Analysis, as required by
Section 604 of the Regulatory Flexibility Act, is set forth in the
Appendix.
59. It is ordered that the rule changes specified below are
adopted.
60. It is further ordered that the rule changes set forth below
will become effective upon publication in the Federal Register.
Pursuant to 5 U.S.C. Sec. 553(d)(3) we find ``good cause'' exists to
have the rule amendments set forth herein take effect immediately upon
publication in the Federal Register. The C block auction for broadband
PCS is scheduled to commence on August 29, 1995, and initial short-form
applications are due July 28, 1995. Our revised rules need to be
effective prior to receipt of the short-form applications in order to
avoid the delays and litigation risks associated with prior rules.
61. It is further ordered that the Wireless Telecommunications
Bureau has delegated authority to decide waiver requests pertaining to
our C block competitive bidding rules as specified in paragraph 57 of
this Sixth Report and Order.
62. This action is taken pursuant to Sections 4(i), 303(r), and
309(j) of the Communications Act of 1934, as amended, 47 U.S.C.
Secs. 154(i), 303(r) and 309(j).
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Final Rules
Parts 20 and 24 of Chapter I of Title 47 of the Code of Federal
Regulations are amended as follows:
[[Page 37795]]
PART 20--COMMERCIAL MOBILE RADIO SERVICES
1. The authority citation for part 20 continues to read as follows:
Authority: Secs. 4, 303, and 332, 48 Stat. 1066, 1082, as
amended; 47 U.S.C. Secs. 154, 303, and 332, unless otherwise noted.
2. Section 20.6 is amended by revising paragraph (d)(2) to read as
follows:
Sec. 20.6 CMRS spectrum aggregation limit.
* * * * *
(d) * * *
(2) Partnership and other ownership interests and any stock
interest amounting to 20 percent or more of the equity, or outstanding
stock, or outstanding voting stock of a broadband PCS, cellular or SMR
licensee shall be attributed, except that ownership will not be
attributed unless the partnership and other ownership interests and any
stock interest amount to at least 40 percent of the equity, or
outstanding stock, or outstanding voting stock of a broadband PCS,
cellular or SMR licensee if the ownership interest is held by a small
business, a rural telephone company or a business owned by minorities
and/or women, as these terms are defined in Sec. 1.2110 of this chapter
or other related provisions of the Commission's rules, or if the
ownership interest is held by an entity with a non-controlling equity
interest in a broadband PCS licensee or applicant that is a business
owned by minorities and/or women. For purposes of broadband PCS
licenses for frequency block C, the 40 percent attribution levels shall
only apply to interests held by a small business or a rural telephone
company and interests held by an entity with a non-controlling equity
interest in a licensee or applicant that is a small business.
* * * * *
PART 24--PERSONAL COMMUNICATIONS SERVICES
1. The authority citation for part 24 continues to read as follows:
Authority: Secs. 4, 301, 302, 303, 309 and 332, 48 Stat. 1066,
1082, as amended; 47 U.S.C. Secs. 154, 301, 302, 303, 309 and 332,
unless otherwise noted.
2. Section 24.204 is amended by revising paragraph (d)(2)(ii) to
read as follows:
* * * * *
Sec. 24.204 Cellular eligibility.
* * * * *
(d) * * *
(2) * * *
(ii) Partnership and other ownership interests and any stock
interest amounting to 20 percent or more of the equity, or outstanding
stock, or outstanding voting stock of a cellular licensee will be
attributable, except that ownership will not be attributed unless the
partnership and other ownership interests and any stock interest amount
to 40 percent or more of the equity, or outstanding stock, or
outstanding voting stock of a cellular licensee if the ownership
interest is held by a small business, a rural telephone company, or a
business owned by minorities and/or women, as these terms are defined
in Sec. 24.720, or if the ownership interest is held by an entity with
a non-controlling equity interest in a broadband PCS licensee or
applicant that is a business owned by minorities and/or women. For
purposes of broadband PCS licenses for frequency block C, the 40
percent attribution levels shall only apply to interests held by a
small business or rural telephone company and interests held by an
entity with a non-controlling equity interest in a licensee or
applicant that is a small business.
* * * * *
3. Section 24.709 is amended by revising the heading and paragraphs
(a), (b)(5)(i)(C), (b)(6, (c)(1) introductory text, (c)(2) introductory
text, (c)(2)(ii) and (e) to read as follows:
Sec. 24.709 Eligibility for licenses for frequency Block C.
(a) General Rule.
(1) No application is acceptable for filing and no license shall be
granted for frequency block C, unless the applicant, together with its
affiliates and persons or entities that hold interests in the applicant
and their affiliates, have gross revenues of less than $125 million in
each of the last two years and total assets of less than $500 million
at the time the applicant's short-form application (Form 175) is filed.
(2) The gross revenues and total assets of the applicant (or
licensee), and its affiliates, and (except as provided in paragraph (b)
of this section) of persons or entities that hold interests in the
applicant (or licensee), and their affiliates, shall be attributed to
the applicant and considered on a cumulative basis and aggregated for
purposes of determining whether the applicant (or licensee) is eligible
for a license for frequency block C under this section.
(3) Any licensee awarded a license pursuant to this section (or
pursuant to Sec. 24.839(d)(2)) shall maintain its eligibility until at
least five years from the date of initial license grant, except that a
licensee's (or other attributable entity's) increased gross revenues or
increased total assets due to nonattributable equity investments (i.e.,
from sources whose gross revenues and total assets are not considered
under paragraph (b) of this section), debt financing, revenue from
operations or other investments, business development or expanded
service shall not be considered.
(b) * * *
(5) * * *
(i) * * *
(C) The remaining 10 percent of the applicant's (or licensee's)
total equity may be owned, either unconditionally or in the form of
stock options, by any of the following entities, which may not comply
with Sec. 24.720(n)(1):
(1) Institutional Investors;
(2) Noncontrolling existing investors in any preexisting entity
that is a member of the control group;
(3) Individuals that are members of the applicant's (or licensee's)
management; or
(4) Qualifying investors, as specified in Sec. 24.720(n)(4).
(6) Control Group Minimum 50.1 Percent Equity Requirement. In order
to be eligible to exclude gross revenues and total assets of persons or
entities identified in paragraph (b)(4) of this section, an applicant
(or licensee) must comply with the following requirements:
(i) Except for an applicant (or licensee) whose sole control group
member is a preexisting entity, as provided in paragraph (b)(6)(ii) of
this section, at the time the applicant's short-form application (Form
175) is filed and until at least three years following the date of
initial license grant, the applicant's (or licensee's) control group
must own at least 50.1 percent of the applicant's (or licensee's) total
equity as follows:
(A) at least 30 percent of the applicant's (or licensee's)total
equity must be held by qualifying investors, either unconditionally or
in the form of options, exercisable at the option of the holder, at any
time and at any exercise price equal to or less than the market value
at the time the applicant files its short-form application (Form 175);
(B) Such qualifying investors must hold 50.1 percent of the voting
stock and all general partnership interests within the control group
and must have de facto control of the control group and of the
applicant;
(C) The remaining 20.1 percent of the applicant's (or licensee's)
total equity may be owned by qualifying investors, either
unconditionally or in the form of stock options not subject to the
restrictions of paragraph (b)(6)(i)(A) of this section, or by any of
the following
[[Page 37796]]
entities which may not comply with Sec. 24.720(n)(1):
(1) Institutional investors, either unconditionally or in the form
of stock options;
(2) Noncontrolling existing investors in any preexisting entity
that is a member of the control group, either unconditionally or in the
form of stock options;
(3) Individuals that are members of the applicant's (or licensee's)
management, either unconditionally or in the form of stock options; or
(4) Qualifying investors, as specified in 24.720(n)(4).
(D) Following termination of the three-year period specified in
paragraph (b)(6)(i) of this section, qualifying investors must continue
to own at least 20 percent of the applicant's (or licensee's) total
equity unconditionally or in the form of stock options subject to the
restrictions in paragraph (b)(6)(i)(A) of this section. The
restrictions specified in paragraph (b)(6)(i)(C)(1) through (4) of this
section no longer apply to the remaining equity after termination of
such three-year period.
(ii) At the election of an applicant (or licensee) whose control
group's sole member is a preexisting entity, the 50.1 percent minimum
equity requirements set forth in paragraph (b)(6)(i) of this section
shall apply, except that only 20 percent of the applicant's (or
licensee's) total equity must be held by qualifying investors, and that
the remaining 30.1 percent of the applicant's (or licensee's) total
equity may be held by qualifying investors, or noncontrolling existing
investors in such control group member or individuals that are members
of the applicant's (or licensee's) management. These restrictions on
the identity of the holder(s) of the remaining 30.1 percent of the
licensee's total equity no longer apply after termination of the three-
year period specified in paragraph (b)(6)(i) of this section.
* * * * *
(c) * * *
(1) Short-form Application. In addition to certifications and
disclosures required by Part 1, subpart Q of this Chapter and
Sec. 24.813, each applicant for a license for frequency Block C shall
certify on its short-form application (Form 175) that it is eligible to
bid on and obtain such license(s), and (if applicable) that it is
eligible for designated entity status pursuant to this section and
Sec. 24.720, and shall append the following information as an exhibit
to its Form 175:
* * * * *
(2) Long-form Application. In addition to the requirements in
subpart I of this part and other applicable rules (e.g.,
Secs. 24.204(f), 20.6(e) and 20.9(b) of this chapter), each applicant
submitting a long-form application for a license(s) for frequency block
C shall, in an exhibit to its long-form application:
* * * * *
(ii) List and summarize all agreements or other instruments (with
appropriate references to specific provisions in the text of such
agreements and instruments) that support the applicant's eligibility
for a license(s) for frequency Block C and its eligibility under
Secs. 24.711, 24.712, 24.714 and 24.720, including the establishment of
de facto and de jure control; such agreements and instruments include
articles of incorporation and bylaws, shareholder agreements, voting or
other trust agreements, partnership agreements, management agreements,
joint marketing agreements, franchise agreements, and any other
relevant agreements (including letters of intent), oral or written; and
* * * * *
(e) Definitions. The terms affiliate, business owned by members of
minority groups and women, consortium of small businesses, control
group, existing investor, gross revenues, institutional investor,
members of minority groups, nonattributable equity, preexisting entity,
publicly traded corporation with widely dispersed voting power,
qualifying investor, small business and total assets used in this
section are defined in Sec. 24.720.
4. Section 24.711 is amended by revising the heading and paragraphs
(a)(1), (b) introductory text and (b)(3), and removing paragraphs
(b)(4) and (b)(5) to read as follows:
Sec. 24.711 Upfront payments, down payments and installment payments
for licenses for frequency Block C.
(a) * * *
(1) Each eligible bidder for licenses on frequency Block C subject
to auction shall pay an upfront payment of $0.015 per MHz per pop for
the maximum number of licenses (in terms of MHz-pops) on which it
intends to bid pursuant to Sec. 1.2106 of this chapter and procedures
specified by Public Notice.
* * * * *
(b) Installment Payments. Each eligible licensee of frequency Block
C may pay the remaining 90 percent of the net auction price for the
license in installment payments pursuant to Sec. 1.2110(e) of this
chapter and under the following terms:
* * * * *
(3) For an eligible licensee that qualifies as a small business or
as a consortium of small businesses, interest shall be imposed based on
the rate for ten-year U.S. Treasury obligations applicable on the date
the license is granted; payments shall include interest only for the
first six years and payments of interest and principal amortized over
the remaining four years of the license term.
* * * * *
5. Section 24.712 is amended by revising the heading and paragraph
(a) to read as set forth below, removing paragraphs (b) and (c), and
redesignating paragraph (d) as paragraph (b):
Sec. 24.712 Bidding credits for licenses for frequency Block C.
(a) A winning bidder that qualifies as a small business or a
consortium of small businesses may use a bidding credit of twenty-five
percent to lower the cost of its winning bid.
* * * * *
6. Section 24.713 is removed and reserved.
7. A new Section 24.715 is added to Subpart H to read as follows:
Sec. 24.715 Eligibility for licenses for frequency Block F.
(a) General Rule.
(1) No application is acceptable for filing and no license shall be
granted for frequency block F, unless the applicant, together with its
affiliates and persons or entities that hold interests in the applicant
and their affiliates, have gross revenues of less than $125 million in
each of the last two years and total assets of less than $500 million
at the time the applicant's short-form application (Form 175) is filed.
(2) The gross revenues and total assets of the applicant (or
licensee), and its affiliates, and (except as provided in paragraph (b)
of this section) of persons or entities that hold interests in the
applicant (or licensee), and their affiliates, shall be attributed to
the applicant and considered on a cumulative basis and aggregated for
purposes of determining whether the applicant (or licensee) is eligible
for a license for frequency block F under this section.
(3) Any licensee awarded a license pursuant to this section (or
pursuant to Sec. 24.839(d)(2)) shall maintain its eligibility until at
least five years from the date of initial license grant, except that a
licensee's (or other attributable entity's ) increased gross revenues
or increased total assets due to nonattributable equity investments
(i.e., from sources whose gross revenues, and total assets are not
considered under paragraph (b) of this section), debt
[[Page 37797]]
financing, revenue from operations or other investments, business
development or expanded service shall not be considered.
(b) Exceptions to General Rule.
(1) Small Business Consortia. Where an applicant (or licensee) is a
consortium of small businesses, the gross revenues and total assets of
each small business shall not be aggregated.
(2) Publicly-Traded Corporations. Where an applicant (or licensee)
is a publicly traded corporation with widely dispersed voting power,
the gross revenues and total assets of a person or entity that holds an
interest in the applicant (or licensee), and its affiliates, shall not
be considered.
(3) 25 Percent Equity Exception. The gross revenues and total
assets of a person or entity that holds an interest in the applicant
(or licensee), and its affiliates, shall not be considered so long as:
(i) Such person or entity, together with its affiliates, holds only
nonattributable equity equaling no more than 25 percent of the
applicant's (or licensee's) total equity;
(ii) Except as provided in paragraph (b)(5) of this section, such
person or entity is not a member of the applicant's (or licensee's)
control group; and
(iii) The applicant (or licensee) has a control group that complies
with the minimum equity requirements of paragraph (b)(5) of this
section, and, if the applicant (or licensee) is a corporation, owns at
least 50.1 percent of the applicant's (or licensee's) voting interests,
and, if the applicant (or licensee) is a partnership, holds all of its
general partnership interests.
(4) 49.9 Percent Equity Exception. The gross revenues and total
assets of a person or entity that holds an interest in the applicant
(or licensee), and its affiliates, shall not be considered so long as:
(i) Such person or entity, together with its affiliates, holds only
nonattributable equity equaling no more than 49.9 percent of the
applicant's (or licensee's) total equity;
(ii) Except as provided in paragraph (b)(6) of this section, such
person or entity is not a member of the applicant's (or licensee's)
control group; and
(iii) The applicant (or licensee) has a control group that complies
with the minimum equity requirements of paragraph (b)(6) of this
section and, if the applicant (or licensee) is a corporation, owns at
least 50.1 percent of the applicant's (or licensee's) voting interests,
and, if the applicant (or licensee) is a partnership, holds all of its
general partnership interests.
(5) Control Group Minimum 25 Percent Equity Requirement. In order
to be eligible to exclude gross revenues and total assets of persons or
entities identified in paragraph (b)(3) of this section, an applicant
(or licensee) must comply with the following requirements:
(i) Except for an applicant (or licensee) whose sole control group
member is a preexisting entity, as provided in paragraph (b)(5)(ii) of
this section, at the time the applicant's short-form application (Form
175) is filed and until at least three years following the date of
initial license grant, the applicant's (or licensee's) control group
must own at least 25 percent of the applicant's (or licensee's) total
equity as follows:
(A) At least 15 percent of the applicant's (or licensee's) total
equity must be held by qualifying investors, either unconditionally or
in the form of options exercisable, at the option of the holder, at any
time and at any exercise price equal to or less than the market value
at the time the applicant files its short-form application (Form 175);
(B) Such qualifying investors must hold 50.1 percent of the voting
stock and all general partnership interests within the control group,
and must have de facto control of the control group and of the
applicant;
(C) The remaining 10 percent of the applicant's (or licensee's)
total equity may be owned by qualifying investors, either
unconditionally or in the form of stock options not subject to the
restrictions of paragraph (b)(5)(i)(A) of this section, or by any of
the following entities, which may not comply with section 24.720(n)(1):
(1) Institutional investors, either unconditionally or in the form
of stock options;
(2) Noncontrolling existing investors in any preexisting entity
that is a member of the control group, either unconditionally or in the
form of stock options;
(3) Individuals that are members of the applicant's (or licensee's)
management, either unconditionally or in the form of stock options; or
(4) Qualifying investors, as specified in Sec. 24.720(n)(4).
(D) Following termination of the three-year period specified in
paragraph (b)(5)(i) of this section, qualifying investors must continue
to own at least 10 percent of the applicant's (or licensee's) total
equity, either unconditionally or in the form of stock options subject
to the restrictions in paragraph (b)(5)(i)(A) of this section. The
restrictions specified in paragraph (b)(5)(i)(C)(1) through (4) of this
section no longer apply to the remaining equity after termination of
such three-year period.
(ii) At the election of an applicant (or licensee) whose control
group's sole member is a preexisting entity, the 25 percent minimum
equity requirements set forth in paragraph (b)(5)(i) of this section
shall apply, except that only 10 percent of the applicant's (or
licensee's) total equity must be held by qualifying investors and that
the remaining 15 percent of the applicant's (or licensee's) total
equity may be held by qualifying investors or noncontrolling existing
investors in such control group member or individuals that are members
of the applicant's (or licensee's) management. These restrictions on
the identity of the holder(s) of the remaining 15 percent of the
licensee's total equity no longer apply after termination of the three-
year period specified in paragraph (b)(5)(i) of this section.
(6) Control Group Minimum 50.1 Percent Equity Requirement. In order
to be eligible to exclude gross revenues and total assets of persons or
entities identified in paragraph (b)(4) of this section, an applicant
(or licensee) must comply with the following requirements:
(i) Except for an applicant (or licensee) whose sole control group
member is a preexisting entity, as provided in paragraph (b)(6)(ii) of
this section, at the time the applicant's short-form application (Form
175) is filed and until at least three years following the date of
initial license grant, the applicant's (or licensee's) control group
must own at least 50.1 percent of the applicant's (or licensee's) total
equity as follows:
(A) At least 30 percent of the applicant's (or licensee's) total
equity must be held by qualifying minority and/or women investors,
either unconditionally or in the form of options exercisable, at the
option of the holder, at any time and at any exercise price equal to or
less than the market value at the time the applicant files its short-
form application (Form 175);
(B) Such qualifying minority and/or women investors must hold 50.1
percent of the voting stock and all general partnership interests
within the control group and must have de facto control of the control
group and of the applicant;
(C) The remaining 20.1 percent of the applicant's (or licensee's)
total equity may be owned by qualifying investors, either
unconditionally or in the form of stock options not subject to the
restrictions of paragraph (b)(5)(i)(A) of this section, or by any of
the following entities, which may not comply with section 24.720(n)(1):
[[Page 37798]]
(1) Institutional investors, either unconditionally or in the form
of stock options;
(2) Noncontrolling existing investors in any preexisting entity
that is a member of the control group, either unconditionally or in the
form of stock options;
(3) Individuals that are members of the applicant's (or licensee's)
management, either unconditionally or in the form of stock options; or
(4) Qualifying investors, as specified in Sec. 24.720(n)(4).
(D) Following termination of the three-year period specified in
paragraph (b)(6)(i) of this section, qualifying minority and/or women
investors must continue to own at least 20 percent of the applicant's
(or licensee's) total equity, either unconditionally or in the form of
stock options subject to the restrictions in paragraph (b)(6)(i)(A) of
this section. The restrictions specified in paragraph (b)(6)(i)(C)(1)
through (4) of this section no longer apply to the remaining equity
after termination of such three-year period.
(ii) At the election of an applicant (or licensee) whose control
group's sole member is a preexisting entity, the 50.1 percent minimum
equity requirements set forth in paragraph (b)(6)(i) of this section
shall apply, except that only 20 percent of the applicant's (or
licensee's) total equity must be held by qualifying minority and/or
women investors, and that the remaining 30.1 percent of the applicant's
(or licensee's) total equity may be held by qualifying minority and/or
women investors, or noncontrolling existing investors in such control
group member or individuals that are members of the applicant's (or
licensee's) management. These restrictions on the identity of the
holder(s) of the remaining 30.1 percent of the licensee's total equity
no longer apply after termination of the three-year period specified in
paragraph (b)(6)(i) of this section.
(7) Calculation of Certain Interests. Except as provided in
paragraphs (b)(5) and (b)(6) of this section, ownership interests shall
be calculated on a fully diluted basis; all agreements such as
warrants, stock options and convertible debentures will generally be
treated as if the rights thereunder already have been fully exercised,
except that such agreements may not be used to appear to terminate or
divest ownership interests before they actually do so, in order to
comply with the nonattributable equity requirements in paragraphs
(b)(3)(i) and (b)(4)(i) of this section.
(8) Aggregation of Affiliate Interests. Persons or entities that
hold interest in an applicant (or licensee) that are affiliates of each
other or have an identity of interests identified in Sec. 24.720(1),
(3) will be treated as though they were one person or entity and their
ownership interests aggregated for purposes of determining an
applicant's (or licensee's) compliance with the nonattributable equity
requirements in paragraphs (b)(3)(i) and (b)(4)(i) of this section.
Example 1 for paragraph (b)(8). ABC Corp. is owned by
individuals, A, B, and C, each having an equal one-third voting
interest in ABC Corp. A and B together, with two-thirds of the stock
have the power to control ABC Corp. and have an identity of
interest. If A & B invest in DE Corp., a broadband PCS applicant for
block C, A and B's separate interests in DE Corp. must be aggregated
because A and B are to be treated as one person.
Example 2 for paragraph (b)(8). ABC Corp. has subsidiary BC
Corp., of which it holds a controlling 51 percent of the stock. If
ABC Corp. and BC Corp., both invest in DE Corp., their separate
interests in DE Corp. must be aggregated because ABC Corp. and BC
Corp. are affiliates of each other.
(c) Short-Form and Long-Form Applications: Certifications and
Disclosure.
(1) Short-form Application. In addition to certifications and
disclosures required by Part 1, subpart Q of this chapter and
Sec. 24.813, each applicant for a license for frequency Block F shall
certify on its short-form application (Form 175) that it is eligible to
bid on and obtain such license(s), and (if applicable) that it is
eligible for designated entity status pursuant to this section and
Sec. 24.720, and shall append the following information as an exhibit
to its Form 175:
(i) For an applicant that is a publicly traded corporation with
widely disbursed voting power:
(A) A certified statement that such applicant complies with the
requirements of the definition of publicly traded corporation with
widely disbursed voting power set forth in Sec. 24.720(m);
(B) The identity of each affiliate of the applicant if not
disclosed pursuant to Sec. 24.813; and
(C) The applicant's gross revenues and total assets, computed in
accordance with paragraphs (a) and (b) of this section.
(ii) For all other applicants;
(A) The identity of each member of the applicant's control group,
regardless of the size of each member's total interest in the
applicant, and the percentage and type of interest held;
(B) The citizenship and the gender or minority group classification
for each member of the applicant's control group if the applicant is
claiming status as a business owned by members of minority groups and/
or women;
(C) The status of each control group member that is an
institutional investor, an existing investor, and/or a member of the
applicant's management;
(D) The identity of each affiliate of the applicant and each
affiliate of individuals or entities identified pursuant to paragraphs
(c)(1)(ii)(A) and (c)(1)(ii)(C) of this section if not disclosed
pursuant to Sec. 24.813;
(E) A certification that the applicant's sole control group member
is a preexiting entity, if the applicant makes the election in either
paragraph (b)(5)(ii) or (b)(6)(ii) of this section; and
(F) The applicant's gross revenues and total assets, computed in
accordance with paragraphs (a) and (b) of this section.
(iii) for each applicant claiming status as a small business
consortium, the information specified in paragraph (c)(1)(ii) of this
section, for each member of such consortium.
(2) Long-form Application. In addition to the requirements in
subpart I of this part and other applicable rules (e.g.,
Secs. 24.204(f), 20.6(e) and 20.9(b) of this chapter), each applicant
submitting a long-form application for license(s) for frequency Block F
shall, in an exhibit to its long-form application:
(i) Disclose separately and in the aggregate the gross revenues and
total assets, computed in accordance with paragraphs (a) and (b) of
this section, for each of the following: the applicant; the applicant's
affiliates, the applicant's control group members; the applicant's
attributable investors; and affiliates of its attributable investors;
(ii) List and summarize all agreements or other instruments (with
appropriate references to specific provisions in the text of such
agreements and instruments) that support the applicant's eligibility
for a license(s) for frequency Block F and its eligibility under
Secs. 24.711 through 24.270, including the establishment of de facto
and de jure control; such agreements and instruments include articles
of incorporation and bylaws, shareholder agreements, voting or other
trust agreements, partnership agreements, management agreements, joint
marketing agreements, franchise agreements, and any other relevant
agreements (including letters of intent), oral or written; and
(iii) List and summarize any investor protection agreements and
identify specifically any such provisions in those agreements
identified pursuant to paragraph (c)(2)(ii) of this section, including
rights of first refusal,
[[Page 37799]]
supermajority clauses, options, veto rights, and rights to hire and
fire employees and to appoint members to boards of directors or
management committees.
(3) Records Maintenance. All applicants, including those that are
winning bidders, shall maintain at their principal place of business an
updated file of ownership, revenue and asset information, including
those documents referenced in paragraphs (c)(2)(ii) and (c)(2)(ii) of
this section and any other documents necessary to establish eligibility
under this section or under the definitions of small business and/or
business owned by members of minority groups and/or women. Licensees
(and their successors in interest) shall maintain such files for the
term of the license. Applicants that do not obtain the license(s) for
which they applied shall maintain such files until the grant of such
license(s) is final, or one year from the date of the filing of their
short-form application (Form 175), whichever is earlier.
(d) Audits.
(1) Applicants and licensees claiming eligibility under this
section or Secs. 24.711 through 24.720 shall be subject to audits by
the Commission, using in-house and contract resources. Selection for
audit may be random, or information, or on the basis of other factors.
(2) Consent to such audits is part of the certification included in
the short-form application (Form 175). Such consent shall include
consent to the audit of the applicant's or licensee's books, documents
and other material (including accounting procedures and practices)
regardless of form or type, sufficient to confirm that such applicant's
or licensee's representations are, and remain, accurate. Such consent
shall include inspection at all reasonable times of the facilities, or
parts thereof, engaged in providing and transacting business, or
keeping records regarding licensed broadband PCS service and shall also
include consent to interview of principals, employees, customers and
suppliers of the applicant or licensee.
(e) Definitions. The terms affiliate, business owned by members of
minority groups and women, consortium of small businesses, control
group, existing investor, gross revenues, institutional investor,
members of minority groups, nonattributable equity, preexisting entity,
publicly traded corporation with widely dispersed voting power,
qualifying investor, qualifying minority and/or woman investor, small
business and total assets used in this section are defined in
Sec. 24.720.
8. A new Section 24.716 is added to Subpart H to read as follows:
Sec. 24.716 Upfront payments, down payments, and installment payments
for licenses for frequency Block F.
(a) Upfront Payments and Down Payments.
(1) Each eligible bidder for licenses on frequency Block F subject
to auction shall pay an upfront payment of $0.015 per MHz per pop for
the maximum number of licenses (in terms of MHz-pops) on which it
intends to bid pursuant to Sec. 1.2106 of this Chapter and procedures
specified by Public Notice.
(2) Each winning bidder shall make a down payment equal to ten
percent of its winning bid (less applicable bidding credits); a winning
bidder shall bring its total amount on deposit with the Commission
(including upfront payment) to five percent of its net winning bid
within five business days after the auction closes, and the remainder
of the down payment (five percent) shall be paid within five business
days after the application required by Sec. 24.809(b) is granted.
(b) Installment Payments. Each eligible licensee of frequency Block
F may pay the remaining 90 percent of the net auction price for the
license in installment payments pursuant to Sec. 1.2110(e) of this
Chapter and under the following terms:
(1) For an eligible licensee with gross revenues exceeding $75
million (calculated in accordance with Sec. 24.715(a)(2) and (b)) in
each of the two preceding years (calculated in accordance with
24.720(f)), interest shall be imposed based on the rate for ten-year
U.S. Treasury obligations applicable on the date the license is
granted, plus 3.5 percent; payments shall include both principal and
interest amortized over the term of the license.
(2) For an eligible licensee with gross revenues not exceeding $75
million (calculated in accordance with Sec. 24.715(a)(2) and (b)) in
each of the two preceding years, interest shall be imposed based on the
rate for ten-year U.S. Treasury obligations applicable on the date the
license is granted, plus 2.5 percent; payments shall include interest
only for the first year and payments of interest and principal
amortized over the remaining nine years of the license term.
(3) For an eligible licensee that qualifies as a Small business or
as a consortium of small businesses, interest shall be imposed based on
the rate for ten-year U.S. Treasury obligations applicable on the date
the license is granted, plus 2.5 percent; payments shall include
interest only for the first two years and payments of interest and
principal amortized over the remaining eight years of the license term.
(4) For an eligible licensee that qualifies as a business owned by
members of minority groups and/or women, interest shall be imposed
based on the rate for ten-year U.S. Treasury obligations applicable on
the date the license is granted; payments shall include interest only
for the first three years and payments of interest and principal
amortized over the remaining seven years of the license term.
(5) For an eligible licensee that qualifies as a small business
owned by members of minority groups and/or women or as a consortium of
small business owned by members of minority groups and/or women,
interest shall be imposed based on the rate for ten-year U.S. Treasury
obligations applicable on the date the license is granted; payments
shall include interest only for the first six years and payments of
interest and principal amortized over the remaining four years of the
license term.
(c) Unjust Enrichment.
(1) If a licensee that utilizes installment financing under this
section seeks to assign or transfer control of its license to an entity
not meeting the eligibility standards for installment payments, the
licensee must make full payment of the remaining unpaid principal and
any unpaid interest accrued through the date of assignment or transfer
as a condition of approval.
(2) If a licensee that utilizes installment financing under this
section seeks to make any change in ownership structure that would
result in the licensee losing eligibility for installment payments, the
licensee shall first seek Commission approval and must make full
payment of the remaining unpaid principal and any unpaid interest
accrued through the date of such change as a condition of approval. A
licensee's (or other attributable entity's) increased gross revenues or
increased total assets due to nonattributable equity investments (i.e.,
from sources whose gross revenues and total assets are not considered
under Sec. 24.715(b)), debt financing, revenue from operations or other
investments, business development or expanded service shall not be
considered to result in the licensee losing edigility for installment
payments.
(3) If a licensee seeks to make any change in ownership that would
result in the licensee qualifying for a less favorable installment plan
under this section, the licensee shall seek Commission approval and
must adjust its payment plan to reflect its new eligibility status. A
licensee may not
[[Page 37800]]
switch its payment plan to a more favorable plan.
9. A new Section 24.717 is added to Subpart H to read as follows:
Sec. 24.717 Bidding credits for licenses for frequency Block F.
(a) A winning bidder that qualifies as a small business or a
consortium of small businesses may use a bidding credit of ten percent
to lower the cost of its winning bid.
(b) A winning bidder that qualifies as a business owned by members
of minority groups and/or women may use a bidding credit of fifteen
percent to lower the cost of its winning bid.
(c) A winning bidder that qualifies as a small business owned by
members of minority groups and/or women or a consortium of small
business owned by members of minority groups and/or women may use a
bidding credit of twenty-five percent to lower the cost of its winning
bid.
(d) Unjust Enrichment.
(1) If during the term of the initial license grant (see
Sec. 24.15), a licensee that utilizes a bidding credit under this
section seeks to assign or transfer control of its license to an entity
not meeting the eligibility standards for bidding credits or seeks to
make any other change in ownership that would result in the licensee no
longer qualifying for bidding credits under this section, the licensee
must seek Commission approval and reimburse the government for the
amount of the bidding credit as a condition of the approval of such
assignment, transfer or other ownership change.
(2) If during the term of the initial license grant (see
Sec. 24.15), a licensee that utilizes a bidding credit under this
section seeks to assign or transfer control of its license to an entity
meeting the eligibility standards for lower bidding credits or seeks to
make any other change in ownership that would result in the licensee
qualifying for a lower bidding credit under this section, the licensee
must seek Commission approval and reimburse the government for the
difference between the amount of the bidding credit obtained by the
licensee and the bidding credit for which the assignee, transferee or
licensee is eligible under this section as a condition of the approval
of such assignment, transfer or other ownership change.
10. Section 24.720 is amended by revising paragraphs (a), (b)(2),
(c)(2), (j)(2), (l)(11)(i), (l)(11)(ii), (n)(1), (n)(3) and adding
paragraph (n)(4) to read as follows:
Sec. 24.720 Definitions.
(a) Scope. The definitions in this section apply to Secs. 24.709
through 24.717, unless otherwise specified in those sections.
(b) * * *
(2) For purposes of determining whether an entity meets the $40
million average annual gross revenues size standard set forth in
paragraph (b)(1) of this section, the gross revenues of the entity, its
affiliates, persons or entities holding interests in the entity and
their affiliates shall be considered on a cumulative basis and
aggregated, subject to the exceptions set forth Secs. 24.709(b) or
24.715(b).
* * * * *
(c) * * *
(2) That complies with the requirements of Sec. 24.715 (b)(3) and
(b)(5) or Sec. 24.715 (b)(4) and (b)(6).
* * * * *
(j) * * *
(2) For purposes of assessing compliance with the equity limits in
Sec. 24.709 (b)(3)(i) and (b)(4)(i) or Sec. 24.715 (b)(3)(i) and
(b)(4)(i), where such interests are not held directly in the applicant,
the total equity held by a person or entity shall be determined by
successive multiplication of the ownership percentages for each link in
the vertical ownership chain.
(1) * * *
(11) * * *
(i) For purposes of Secs. 24.709(a)(2), 24.715(a)(2) and paragraphs
(b)(2) and (d) of this section, Indian tribes or Alaska Regional or
Village Corporations organized pursuant to the Alaska Native Claims
Settlement Act (43 U.S.C. 1601 et seq.), or entities owned and
controlled by such tribes or corporations, are not considered
affiliates of an applicant (or licensee) that is owned and controlled
by such tribes, corporations or entities, and that otherwise complies
with the requirements of Sec. 24.709 (b)(3) and (b)(5) or Sec. 24.709
(b)(4) and (b)(6) or Sec. 24.715 (b)(3) and (b)(5) or Sec. 24.715
(b)(4) and (b)(6), except that gross revenues derived from gaming
activities conducted by affiliated entities pursuant to the Indian
Gaming Regulatory Act (25 U.S.C. 2701 et seq.) will be counted in
determining such applicant's (or licensee's) compliance with the
financial requirements of Sec. 24.709(a) or Sec. 24.715(a) and
paragraphs (b) and (d) of this section, unless such applicant
establishes that it will not receive a substantial unfair competitive
advantage because significant legal constraints restrict the
applicant's ability to access such gross revenues.
(ii) For the C block, for purposes of Sec. 24.709(a)(2) and
paragraph (b)(2) of this section, an affiliate with gross revenues of
less than $125 million in each of the last two years and total assets
of less than $500 million at the time the applicant's short-form
application (Form 175) is filed will not be considered an affiliate of
an applicant (or licensee) that qualifies as a small business under
Sec. 24.720(b)(2) (small business definition) provided the gross
revenues and total assets of all such affiliates, when considered on a
cumulative basis and aggregated with each other do not exceed the
amounts specified in section 24.709(a)(1) (entrepreneurs' block caps).
* * * * *
(n) * * *
(1) A qualifying investor is a person who is (or holds an interest
in) a member of the applicant's (or licensee's) control group and whose
gross revenues and total assets, when aggregated with those of all
other attributable investors and affiliates, do not exceed the gross
revenues and total assets limits specified in Sec. 24.709(a) or
Sec. 24.715(a), or, in the case of an applicant (or licensee) that is a
small business, do not exceed the gross revenues limit specified in
paragraph (b) of this section.
* * * * *
(3) For purposes of assessing compliance with the minimum equity
requirements of Sec. 24.709(b) (5) and (6) or Sec. 24.715(b) (5) and
(6), where such equity interests are not held directly in the
applicant, interests held by qualifying investors or qualifying
minority and/or woman investors shall be determined by successive
multiplication of the ownership percentages for each link in the
vertical ownership chain.
(4) For purposes of Sec. 24.709 (b)(5)(C) and (b)(6)(C) or
Sec. 24.715 (b)(5)(C) and (b)(6)(C), a qualifying investor is a person
who is (or holds an interest in) a member of the applicant's (or
licensee's) control group and whose gross revenues and total assets do
not exceed the gross revenues and total assets limits specified in
Sec. 24.709(a) or Sec. 24.715(a).
* * * * *
Appendix--Final Regulatory Flexibility Analysis
Note: This appendix will not appear in the Code of Federal
Regulations.
Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.
603, the Commission incorporated an Initial Regulatory Flexibility
Analysis (IRFA) into the Further Notice of Proposed Rule Making.
Written public comments on the IRFA were requested. The Commission's
final regulatory flexibility
[[Page 37801]]
analysis for this Sixth Report and Order in GN Docket No. 93-253 is
as follows:
A. Need for and Purpose of Rules
1. This rule making proceeding was initiated to secure comment
on proposals to eliminate all race- and gender-based provisions in
our competitive bidding rules for our C block auction only. The
proposals adopted herein are also designed to implement Congress'
goal of giving small businesses, rural telephone companies, and
businesses owned by members of minority groups and women the
opportunity to participate in the provision of spectrum-based
services in accordance with 47 U.S.C. 309(j)(4)(D).
B. Issues Raised by the Public in Response to the Initial Analysis
2. No comments were submitted specifically in response to the
Initial Regulatory Flexibility Analysis.
C. Significant Alternatives Considered
3. The Further Notice of Proposed Rule Making in this proceeding
offered numerous proposals. All significant alternatives have been
addressed in the Sixth Report and Order. The majority of the
commenters supported the major tenets of the proposed changes and
some commenters suggested changes to some of the Commission's
proposals. The regulatory burdens we have retained for C block
applicants, including small entities, are necessary to carry out our
duties under the Communications Act of 1934, as amended, and the
Omnibus Budget Reconciliation Act of 1993. For example, although we
developed race- and gender-neutral rules, we retained the
requirement for applicants claiming status as a business owned by
members of minority groups and/or women. This requirement will allow
the Commission to submit its report to Congress concerning the
participation of minorities and women in the provision of spectrum.
[FR Doc. 95-18116 Filed 7-20-95; 8:45 am]
BILLING CODE 6712-01-M
