[Federal Register Volume 59, Number 140 (Friday, July 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17931]
[[Page Unknown]]
[Federal Register: July 22, 1994]
_______________________________________________________________________
Part IV
Federal Communications Commission
_______________________________________________________________________
47 CFR Part 24
Competitive Bidding; Final Rule
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 24
[PP Docket No. 93-253, FCC 94-178]
Implementation of Section 309(j) of the Communications Act--
Competitive Bidding
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In this Fifth Report and Order, the Commission adopts rules
governing competitive bidding to award initial licenses in the Personal
Communications Services in the 2 GHz band (broadband PCS''). This
action is taken to implement Section 309(j) of the Communications Act
of 1934, as amended. The new rules will promote the development and
rapid deployment of new technologies, products, and services for the
benefit of the public, including those residing in rural areas. These
rules also will promote economic opportunity and competition, and
disseminate licenses among a wide variety of applicants, including
small businesses, rural telephone companies, and businesses owned by
members of minority groups and women. This action will result in
recovery for the public of a portion of the value of the public
spectrum made available for commercial use.
EFFECTIVE DATE: August 22, 1994.
FOR FURTHER INFORMATION CONTACT:
Sara Seidman, Office of General Counsel, (202) 418-1700, or Jonathan
Cohen, Office of Plans and Policy, (202) 418-2030.
SUPPLEMENTARY INFORMATION: This Fifth Report and Order in PP Docket No.
93-253, adopted June 29, 1994, and released July 15, 1994, is available
for inspection and copying during normal business hours in the FCC
Dockets Branch, Room 230, 1919 M Street NW., Washington, DC. The
complete text may be purchased from the Commission's copy contractor,
International Transcription Service, Inc., 2100 M Street, NW., Suite
140, Washington, DC 20037, telephone (202) 857-3800.
Paperwork Reduction Act
In the Fifth Report and Order in PP Docket No. 93-253, the
Commission has amended 47 CFR Part 24 to add new Subparts H and I which
contain rules and requirements governing the award of broadband PCS
licenses through a system of competitive bidding. Applicants are
required to file certain information so that the Commission can
determine whether the applicants are legally, technically, and
financially qualified to be licensed. Affected public are any member of
the public who wants to become a licensee. Implementation of the rules
contained in the Fifth Report and Order will impose reporting and
recordkeeping requirements on the public. The Federal Communications
Commission will submit an information collection request to OMB for
review and clearance under the Paperwork Reduction Act of 1980, 44
U.S.C. Section 3507. Persons wishing to comment on this information
collection should contact Timothy Fain, Office of Management and
Budget, Room 3225, New Executive Office Building, Washington, DC 20503,
(202) 395-3561. For further information, contact Judy Boley, Federal
Communications Commission, (202) 418-0210.
Fifth Report and Order
Adopted: June 29, 1994
Released: July 15, 1994
By the Commission: Commissioners Quello, Barrett, Ness and Chong
issuing separate statements.
Table of Contents
I. Introduction
II. Executive Summary
III. Auctionability of Broadband PCS
IV. Competitive Bidding Design
A. General Competitive Bidding Rules
B. Competitive Bidding Design for Broadband PCS Licenses
1. Simultaneous Multiple Round Auctions
2. Sequential Auctions
3. Combinatorial Bidding
C. Bidding Procedures
1. Grouping of Licenses
2. Bid Increments
3. Stopping Rules for Multiple Round Auctions
4. Duration of Bidding Rounds
5. Activity Rules
V. Procedural, Payment and Penalty Issues
A. Pre-Auction Application Procedures
B. Upfront Payment
C. Payment and Procedures for Licenses Awarded by Competitive
Bidding
1. Down Payment
2. Bid Withdrawal and Default Penalties
3. Re-Offering Licenses When Auction Winners Default
4. Long-Form Application
5. Processing and Procedural Rules
D. Procedures in Alternative Auction Design
VI. Regulatory Safeguards
A. Transfer Disclosure Requirements
B. Performance Requirements
C. Rules Prohibiting Collusion
VII. Treatment of Designated Entities
A. Overview and Objectives
B. Summary of Special Provisions for Designated Entities
C. Summary of Eligibility Requirements and Definitions
1. Entrepreneurs' Blocks and Small Business Eligibility
2. Definition of Women and/or Minority-Owned Business
D. The Entrepreneurs' Blocks
E. Bidding Credits
F. Installment Payments
G. Tax Certificates
H. Provisions for Rural Telephone Companies
I. Upfront Payments
J. Definitions and Eligibility
1. Eligibility To Bid in the Entrepreneurs' Blocks
a. Attribution Rules for the Entrepreneurs' Blocks
b. Limit on Licenses Awarded in Entrepreneurs' Blocks
2. Definition of Small Business
3. Definition of Women and Minority-Owned Business
4. Definition of Rural Telephone Company
5. Definition of an Affiliate
VIII. Conclusion, Procedural Matters and Ordering Clauses
A. Conclusion
B. Final Regulatory Flexibility Analysis
C. Ordering Clauses
Final Rules
I. Introduction
1. In this Fifth Report and Order, we adopt rules to conduct
auctions for the award of more than 2,000 licenses to provide personal
communications services in the 2 GHz band, which we call ``broadband
PCS.'' These broadband PCS auctions will constitute the largest auction
of public assets in American history and are expected to recover
billions of dollars for the United States Treasury. More importantly,
the auctions will lead to the introduction of an array of new
telecommunications products and services that are expected to fuel our
nation's economic growth and revolutionize the way in which Americans
communicate.
2. We also adopt in this Order provisions to fulfill Congress's
mandate that we ensure that small businesses, rural telephone companies
and businesses owned by minorities and women are given the opportunity
to participate in the provision of broadband PCS. These rules will
provide unprecedented opportunities for these designated entities to
become meaningfully involved in the provision of a new
telecommunications service. This action seeks to ensure that licenses
for broadband PCS are disseminated to a wide variety of applicants and
to remedy the serious underrepresentation of minorities and women in
the provision of telecommunications services. Further, by the actions
we take today we seek to ensure that PCS is provided to all communities
in this country, including rural areas.
3. Broadband PCS will provide a variety of mobile services that
will compete with existing cellular services. In addition, broadband
PCS is expected to provide new mobile communications capabilities that
are not currently available. These services will be provided by means
of a new generation of communications devices that will include small,
lightweight, multi-function portable phones, portable facsimile and
other imaging devices, new types of multi-channel cordless phones, and
advanced paging devices with two-way data capabilities.\1\ The
introduction of broadband PCS should benefit consumers by raising the
overall level of competition in many already competitive segments of
the telecommunications industry and by providing competition in other
segments for the first time. The broadband PCS industry should also
generate thousands of jobs in this country and improve the
international competitiveness of the American economy.
---------------------------------------------------------------------------
\1\We already have adopted rules for competitive bidding on
licenses to be awarded to provide personal communications services
in the 900 MHz band (narrowband PCS), which will be used primarily
to provide advanced paging services, and for licenses to provide
Interactive Video and Data Service (IVDS), which will be used to
provide services such as home shopping and pay-per-view programming.
See Third Report and Order in PP Docket No. 99-253, FCC 94-98, 59 FR
26741, May 24, 1994 (narrowband PCS); and Fourth Report and Order in
PP Docket No. 93-253, FCC 94-99, 59 FR 24947, May 13, 1994 (IVDS).
---------------------------------------------------------------------------
4. Auctions for broadband PCS licenses will be conducted pursuant
to Section 309(j) of the Communications Act, 47 U.S.C. Sec. 309(j),
which was enacted in August 1993. Section 309(j) granted the Commission
express authority to employ competitive bidding procedures to award
licenses to use the electromagnetic spectrum.\2\ Section 309(j)(1)
permits auctions only where mutually exclusive applications for initial
licenses are accepted for filing by the Commission and where the
principal use of the spectrum is reasonably likely to involve the
receipt by the licensee of compensation from subscribers in return for
enabling those subscribers to receive or transmit communications
signals. In the Second Report and Order in his proceeding, we concluded
that PCS as a class of service satisfies the Section 309(j)(1)
criteria. See Second Report and Order in PP Docket No. 93-253, 9 FCC
Rcd 2348, 59 FR 22980, May 4, 1994 (Second Report and Order), at 54-
58. Accordingly, if mutually exclusive applications for a broadband PCS
license are accepted for filing, we will award that license through
competitive bidding.
---------------------------------------------------------------------------
\2\We adopted a Notice of Proposed Rule Making to implement
Section 309(j) on September 23, 1993. Notice of Proposed Rule Making
in PP Docket No. 93-253, 8 FCC Rcd 7635, 58 FR 53489, Oct. 15, 1993
(hereinafter ``NPRM'' or ``Notice''). The Commission received 222
comments, 169 reply comments and numerous ex parte presentations
relating to this proceeding. Commenters may be referred to herein by
abbreviations.
---------------------------------------------------------------------------
5. We also concluded in the Second Report and Order that we could
design auction procedures to govern the award of broadband PCS licenses
that would promote the objectives listed in Section 309(j)(3). More
specifically, in the Second Report and Order, we determined that the
use of competitive bidding to award broadband PCS licenses, as compared
with other licensing methods, would speed the development and
deployment of new services to the public and would encourage efficient
use of the spectrum, as required by Section 309(j)(3) (A) and (D). In
this regard, we noted that auctions would generally award licenses
quickly to those parties who value them most highly and who are
therefore most likely to introduce service rapidly to the public. Id.
at 57. We also concluded that competitive bidding would recover for
the public a portion of the value of the spectrum, as envisioned in
Section 309(j)(3)(C). Id. We considered a variety of methods to
implement Congress's remaining objectives, set forth in Section
309(j)(3)(B), of ``promoting economic opportunity'' and ``avoiding
excessive concentration of licenses'' by disseminating licenses ``among
a wide variety of applicants.'' In the Second Report and Order, we
adopted rules which provide the Commission with a menu of options to
choose from to promote these objectives with respect to particular
spectrum services to be auctioned, such as broadband PCS, in service-
specific rules.
6. In our Broadband PCS Reconsideration Order, we established
bandwidth assignments and area designations for broadband PCS. See
Memorandum Opinion and Order in GEN Docket No. 90-314, FCC 94-144, 59
FR 32830, June 24, 1994 (``Broadband PCS Reconsideration Order''); see
also Second Report and Order in GEN Docket No. 90-314, FCC 93-451, 8
FCC Rcd 7700, 58 FR 59174, Nov. 8, 1993. In that Order, we allocated
120 MHz of spectrum for licensed broadband PCS. We divided the licensed
broadband PCS spectrum into three 30 MHz blocks (blocks A, B and C) and
three 10 MHz blocks (blocks D, E and F). We also designated two
different service areas: 493 Basic Trading Areas (``BTAs'') and 51
Major Trading Areas (``MTAs'').\3\ The licenses in frequency blocks A
and B will be awarded on an MTA basis, and the licenses on frequency
blocks C, D, E and F will be awarded on a BTA basis. A total of 2,074
broadband PCS licenses will therefore be issued.\4\ The Broadband PCS
Reconsideration Order sets forth eligibility rules for obtaining
broadband PCS licenses, and establishes construction requirements to
facilitate the provision of PCS services. See Broadband PCS
Reconsideration Order at 102-132, 147-158. By these rules, we intend
to promote competition in the wireless telecommunications market by as
many different qualified providers as the spectrum can reasonably
accommodate and to promote the rapid deployment of the infrastructure
required to provide broadband PCS.
---------------------------------------------------------------------------
\3\The 493 BTAs and 51 MTAs used in our broadband PCS licensing
rules have been adapted from the Rand McNally 1992 Commercial Atlas
and Marketing Guide, 123rd Edition, at 38-39.
\4\The Commission has granted pioneer's preference to three
broadband PCS applicants, and stated that the parties awarded
pioneer's preferences may apply for a 30 MHz MTA broadband PCS
license without facing competing applications. See Third Report and
Order in GEN Docket No. 90-314, 9 FCC Rcd 1337, 59 FR 9419, Feb. 28,
1994. If the Commission grants licenses to the three pioneer's
preference grantees, three fewer licenses will be awarded through
competitive bidding.
---------------------------------------------------------------------------
II. Executive Summary
7. In this Fifth Report and Order, we set forth the specific
auction procedures for broadband PCS licenses. We have decided to
conduct three auctions: the first for the 99 available PCS licenses in
MTA blocks A and B, the second for the 986 PCS licenses in BTA blocks C
and F, and the third for the remaining 986 PCS licenses in BTA blocks D
and E. That is, the first auction will award licenses for the 30 MHz
blocks for large geographic areas. The second auction will award
licenses for smaller geographic areas for the two blocks that, as
explained below, we have reserved for bidding by relatively small
companies. In these ``entrepreneurs' blocks,'' we have designed
procedures to ensure that small businesses, rural telephone companies
and businesses owned by women and minorities, which we collectively
refer to as designated entities, have ``the opportunity to participate
in the provision'' of PCS, as Congress directed in Section
309(j)(4)(D). In the third auction we will award licenses for the
remaining 10 MHz blocks.
8. We intend to conduct each auction through simultaneous multiple
round bidding with simultaneous stopping rules. Under that approach, no
license awarded until the bidding closes on all licenses in the
auction. We have determined that simultaneous multiple round bidding is
appropriate where the value of the licenses is high compared to the
cost of conducting the auction and the values of licenses are
interdependent. See Second Report and Order at 106-111. We believe the
former condition is met here because other government agencies project
that the boardband PMS licenses will be auctioned for as much as $10.6
billion. See id. at 177. The latter condition is also satisfied
because the record demonstrates, for example, that a license for the
Philadelphia MTA or the Richmond MTA will likely be valued more highly
if it is held in conjunction with the license for the Washington-
Baltimore MTA. We are adopting a variety of rules governing bid
increments and bidding activity to move the auctions toward completion
in a reasonable period of time. We are also retaining the ability to
use other approaches, including sequential auctions for the licenses,
and to make other adjustments to the auction process as necessary.
9. As mentioned above, we establish by this Order a number of rules
to implement Congress's mandate in Section 309(j)(4)(D) that we ensure
that designated entities are ``given the opportunity to participate in
the provision of spectrum-based services'' such as broadband PCS. To
accomplish this objective, Congress directed us to ``consider the use
of tax certificates, bidding preferences, and other procedures.'' 47
U.S.C. Sec. 309(j)(4)(D). We construe this congressional directive as a
mandate that we take the steps that are necessary to ensure that
designated entities have a realistic opportunity to obtain broadband
PCS licenses. We apply that mandate in light of Metro Broadcasting,
Inc. v. FCC, 497 U.S. 547, 564-565 (1990), which held that ``benign
race-conscious measures mandated by Congress * * * are constitutionally
permissible to the extent that they serve important governmental
objectives within the power of Congress and are substantially related
to achievement of those objectives.'' The rules we adopt also further
Congress's objectives, set forth in Section 309(j)(3)(B), of
``promoting economic opportunity and competition and ensuring that new
and innovative technologies are readily accessible to the American
people by avoiding excessive concentration of licenses and by
disseminating licenses among a wide variety of applicants, including
small business, rural telephone companies, and businesses owned by
members of minority groups and women.'' Each of the steps adopted here
is directly related to carrying out Congress's stated objective of
promoting economic opportunity by disseminating broadband PCS licenses
to a wide variety of applicants, including designated entities.
10. The record clearly demonstrates that the primary impediment to
participation by designated entities is lack of access to capital. This
impediment arises for small businesses from the higher costs they face
in raising capital and for businesses owned by minorities and women
from lending discrimination as well. In this regard, it should be noted
that although auctions have many beneficial aspects, they threaten to
erect another barrier to participation by small businesses and
businesses owned by minorities and women by raising the cost of entry
into spectrum-based services.
11. Congress has recognized that ``small business concerns, which
represent higher degrees of risk in financial markets than do large
businesses, are experiencing increased difficulties in obtaining
credit.''\5\ Congress further found that women and minorities face
particularly severe problems in raising capital.\6\ A study of mortgage
lending conducted by the Federal Reserve Bank of Boston in 1992
illustrates how problems arise. That study showed that in cases in
which lenders exercised discretion in deciding whether to make a loan
to a borrower who presented some problems (which includes most mortgage
applicants), that discretion tended to be exercised in favor of whites.
As a result, a minority applicant for a mortgage who was identical in
all pertinent respects to a white applicant nevertheless was 60 percent
more likely to be denied a mortgage loan.\7\ At the same time,
discrimination was difficult to show in any particular case, although
it emerged clearly when data concerning hundreds of mortgage
applications were reviewed.
---------------------------------------------------------------------------
\5\Small Business Credit and Business Opportunity Enhancement
Act of 1992, Section 331(a)(3), Pub. L. 102-366, Sept. 4, 1992.
\6\Id. Sections 112(4) and 331(a)(4).
\7\Mortgage Lending in Boston: Interpreting HMDA Data, Federal
Reserve Bank of Boston, Working Paper 92-7 (October 1992).
---------------------------------------------------------------------------
12. The first measure we adopt to fulfill Congress's mandate that
we ensure that designated entities have the opportunity to participate
in providing broadband PCS is to reserve the 30 MHz licenses on block C
and the 10 MHz licenses on block F, both of which are to be licensed in
each of the 493 BTAs, for bidding by entities with annual gross
revenues of less than $125 million and total assets of less than $500
million. These limits will exclude many large telecommunications
companies from bidding on these two blocks. We will not allow one
entity to obtain more than 10 percent (i.e., 98) of the licenses on
these two blocks. By excluding large companies from bidding in these
two blocks and by limiting the total number of licenses that one entity
can obtain in these blocks we create numerous opportunities for small
entities to become PCS providers and thereby ensure that broadband PMS
licenses will be disseminated ``among a wide variety of applicants,''
as required by Section 309(j)(3)(B).
13. Reserving blocks C and F for bidding by relatively small
companies will not, by itself, be sufficient to ensure that small
businesses and businesses owned by members of minority groups and women
have the opportunity to obtain broadband PCS licenses. Under the
definition we apply or purposes of this Order, ``small businesses'' are
those with gross revenues not exceeding $40 million, and those
businesses will be at a disadvantage in competing against companies
with gross revenues of as much as $125 million. In addition, businesses
owned by members of minority groups and women face discrimination that
poses additional obstacles for these firms. Accordingly, we take five
related steps within the entrepreneurs' blocks to assist designated
entities in attracting the capital necessary to obtain a broadband PCS
license.
14. First, we will structure our attribution rules to allow those
extremely large companies that may not bid on blocks C and F to invest
in entities that bid on those blocks. More specifically, we will allow
the relatively small companies eligible to bid in these blocks to
obtain investment representing up to 75 percent of their passive equity
from larger companies so long as each investor holds no more than a 25
percent passive equity interest. In addition, eligible businesses owned
by minorities and women may choose to have a single investor, no matter
how large, hold a passive equity interest up to 49.9 percent. These
rules, and others that we establish in this Order, are designed to
enhance access to capital by businesses owned by minorities and women.
15. Second, to encourage large companies to invest in designated
entities and to assist designated entities without large investors to
overcome the additional hurdle presented by auctions, we will make
bidding credits available to designated entities. More specifically,
small businesses will receive a 10 percent bidding credit (or a 10
percent discount on their winning bids). Businesses owned by minorities
and women will receive a 15 percent bidding credit to compensate for
the substantial problems they face in attracting capital. The credits
will be cumulative, so that a business owned by minorities or women
that also qualifies as a small business will receive a 25 percent
bidding credit. Under these rules, it still will be more expensive for
designated entities to participate in the provision of spectrum-based
services than it was before Congress granted us authority to hold
auctions, because they will have to purchase licenses. But by adopting
bidding credits, which are explicitly authorized by Section
309(j)(4)(D), the Commission seeks to promote economic opportunity and
to counterbalance the tendency of auctions to concentrate license
ownership in the hands of several very large companies.
16. Third, we will allow most successful bidders within the
entrepreneurs' blocks to pay for their licenses in installments for
generally the same reasons--encouraging large companies to invest in
designated entities, promoting economic opportunity by assisting
designated entities in overcoming the additional hurdle presented by
auctions, and ensuring that licenses are disseminated widely. In
general, successful bidders will be permitted to defer payments of
principal on their debt to the government for some period. Small
businesses and businesses owned by minorities and women will be
permitted to defer payments of principal for a longer period than other
successful bidders in these blocks. Finally, businesses owned by
minorities and women will be charged a lower interest rate.
17. Fourth, we will extend our tax certificate policies to promote
participation by minorities and women in the provision of broadband
PCS. The holder of a tax certificate is permitted to defer payment of
the capital gains tax that would otherwise be recognized upon the sale
of an investment. Our extension of the tax certificate policy to
broadband PCS will promote involvement by minorities and women in
spectrum-based services in three ways. First, initial investors in such
businesses will be eligible for tax certificates upon the sale of their
investments. We expect that the availability of such favorable tax
treatment will enable minority- and women-owned businesses to attract
investors more easily. Second, holders of broadband PCS licenses will
be able to obtain tax certificates upon the sale of the business to a
company controlled by minorities and women. Third, a cellular operator
that sells its interest in an overlapping cellular system to a
minority- or woman-owned business to come into compliance with our PCS/
cellular cross-ownership rule will be eligible for a tax certificate.
Both the second and third policy will further Congress' objective of
ensuring that spectrum licenses are disseminated widely and, in
particular, to designated entities.
18. Finally, we will reduce the upfront payment for all bidders in
the entrepreneurs' block. Bidders in the other blocks will pay $0.02
per MHz per pop while winners in the entrepreneurs' blocks will receive
a 25 percent discount and pay only $0.015 per MHz per pop as a pre-
auction payment.
19. Congress was also concerned that rural areas not go unserved by
PCS, and therefore directed us to ensure participation in auctions for
spectrum-based services by rural telephone companies who have a history
of service to rural areas and an established infrastructure on which to
build a PCS business effectively. Thus, we establish partitioning rules
in this Order that will allow them to use their existing wireline
network to efficiently and expeditiously provide PCS in rural areas. In
addition, most rural telephone companies will qualify to bid on the
entrepreneurs' blocks, and hence will be eligible for installment
payments. Those rural telephone companies that qualify as small or
minority- or women-owned businesses will also be able to take advantage
of the applicable bidding credits.
20. The rules that we adopt today are designed to ensure that only
bona fide designated entities qualify for the special provisions
established to ensure their participation in broadband PCS. The rules
are designed to enable designated entities to attract passive equity
from non-designated entities, provided that designated entities
maintain control and a substantial entity stake in the ventures at all
times. The Commission will not tolerate ``fronts'' that are controlled
by supposedly passive investors, and we will be vigilant in preventing
abuse of the designated entity provisions. Our rules are also designed
to prevent designated entities from assigning licenses obtained through
the use of these special measures or who otherwise lose their
designated entity status before the end of a required five-year holding
period.
21. The following sections of this Fifth Report and Order discuss
in detail the actions we have outlined above.
III. Auctionability of Broadband PCS
22. Section 309(j)(1) of the Communications Act, as amended, 47
U.S.C. Sec. 309(j)(1), permits auctions only where mutually exclusive
applications for initial licenses or construction permits are accepted
for filing by the Commission and where the principal use of the
spectrum will involve or is reasonably likely to involve the receipt by
the licensee of compensation from subscribers in return for enabling
those subscribers to receive or transmit communications signals. In the
Second Report and Order, we concluded that PCS as a class of service
would satisfy the section 309(j)(1) criteria for auctionability. See
Second Report and Order at 54-58. Specifically, based on the record
in this proceeding and in GEN Docket No. 90-314, we concluded that the
principal use of broadband PCS spectrum satisfied these auction
criteria. Id. at 56. Thus, if mutually exclusive applications for a
broadband PCS license are accepted for filing, we will award that
license through competitive bidding.\8\
---------------------------------------------------------------------------
\8\In the Second Report and Order, we addressed the only
commenter who argued that the Commission should not find that the
principal use of PCS is likely to be for the provision of service to
subscribers for compensation. See Second Report and Order at 55-
56. The Commission rejected the argument of Millin Publications, a
publisher of specialized information services that intends to
utilize PCS frequencies on a non-subscription basis, that the
Commission should refrain from making the principal use finding
because PCS does not yet exist. We concluded that the overwhelming
weight of the comments in this proceeding, as well as our experience
with the PCS experiments that we have licensed, reflect that
licensed PCS spectrum is likely to be used principally for the
provision of service to subscribers for compensation. See id. at
56. We find no basis in the record to depart from this conclusion.
---------------------------------------------------------------------------
23. As noted above, we concluded in the Second Report and Order
that the criteria in Section 309(j)(3) will be satisfied by competitive
bidding for broadband PCS licenses, and thus that broadband PCS should
be subject to our competitive bidding procedures. We determined that
the use of competitive bidding to award broadband PCS licenses, as
compared with other licensing methods, will speed the development and
deployment of new services to the public with minimal administrative or
judicial delay, and will encourage efficient use of the spectrum as
required by Section 309(j)(3) (A) and (D). We also concluded that
competitive bidding would recover for the public a portion of the value
of the spectrum, as envisioned in Section 309(j)(3)(C). Id. Finally, in
accordance with Section 309(j)(3)(B), we adopted a set of open
competitive bidding procedures and a menu of special provisions
designed to increase opportunities for designated entities who might
otherwise face entry barriers. Our views on this matter remain
unchanged since adoption of the Second Report and Order. We therefore
affirm in this Order the use of competitive bidding procedures to award
broadband PCS licenses.
IV. Competitive Bidding Design
A. General Competitive Bidding Rules
24. The Second Report and Order established the criteria to be used
in selecting which auction design method to use for each particular
auctionable service. Generally, we concluded that awarding licenses to
those parties who value them most highly will foster Congress' policy
objectives. In this regard, we noted that since a bidder's ability to
introduce valuable new services and to deploy them quickly,
intensively, and efficiently increases the value of a license to that
bidder, an auction design that awards licenses to those bidders with
the highest willingness to pay tends to promote the development and
rapid deployment of new services and the efficient and intensive use of
the spectrum. In articulating our auction design principles we further
stated that: (1) Licenses with strong value interdependencies should be
auctioned simultaneously; (2) multiple round auctions, by providing
bidders with information regarding other bidders' valuations of
licenses, generally will yield more efficient allocations of licenses
and higher revenues, especially where there is substantial uncertainty
as to value; and (3) because they are relatively expensive to implement
and time-consuming, simultaneous and/or multiple round auctions become
less cost-effective as the value of licenses decreases. See Second
Report and Order at 69.
25. Based on the foregoing, we concluded that where the licenses to
be auctioned are interdependent and their value is expected to be high,
simultaneous multiple round auctions would best achieve the
Commission's goals for competitive bidding. See Second Report and Order
at 109-111. We indicated that compared with other bidding
mechanisms, simultaneous multiple round bidding will generate the most
information about license values during the course of the auction and
provide bidders with the most flexibility to pursue back-up strategies.
Thus, we concluded that simultaneous multiple round bidding is most
likely to award interdependent licenses to the bidders who value them
the most. We also indicated that this method will facilitate efficient
aggregation of licenses across spectrum bands, thereby resulting in
vigorous competition among several strong service providers who will be
able rapidly to introduce a wide variety of services highly valued by
end users. Second Report and Order at 106. In addition, we concluded
that because of the superior information and flexibility it provides,
this method is likely to yield greater revenues than other auction
designs. Thus, we found that the use of simultaneous multiple round
auctions would generally be preferred. Id.
26. However, because simultaneous multiple round bidding is likely
to be more administratively complex and costly both for bidders and for
the FCC than sequential or single round bidding, we indicated that we
would use this auction design only where license values are
interdependent and the expected value of the licenses to be auctioned
is high relative to the costs of conducting a simultaneous multiple
round auction. See Second Report and Order at 110-111.
B. Competitive Bidding Design for Broadband PCS Licenses
27. In the Second Report and Order we considered several auction
methods including simultaneous multiple round bidding, sequential
bidding, and combinatorial bidding. We discuss each of these below. We
have chosen to adopt simultaneous multiple round auctions as our
auction methodology for broadband PCS licenses. We believe that for
broadband licenses this method will best meet Congress' goals in
authorizing competitive bidding in section 309(j) of the Communications
Act.
1. Simultaneous Multiple Round Auctions
28. There is considerable support in the record for the use of
simultaneous multiple round auctions, in which two or more licenses are
put up for bid at the same time, and there are multiple bidding rounds
in which bidders have the opportunity to top the high bids from the
previous round. Several comments and studies in the record by academic
auction experts advocate simultaneous multiple round bidding for
broadband PCS. See comments of PacTel Corporation, Attachment of R.
Preston McAfee; comments of Pacific Bell and Nevada Bell, Attachment of
Paul R. Milgrom and Robert B. Wilson; comments of NYNEX, Attachment by
Robert G. Harris and Michael L. Katz. NTIA also recommends simultaneous
multiple round bidding.\9\ Comments of NTIA at 14-16. Other experts
recommend using some combination of sequential and simultaneous
bidding. See comments of Bell Atlantic Personal Communications, Inc.,
Attachment by Barry Nalebuff and Jeremy Bulow; and comments of
Telephone and Data Systems, Attachment by Robert J. Weber. Some
commenters who originally expressed no opinion on the issue or
supported other methods in their comments supported proposals for
simultaneous bidding in their reply comments. See reply comments of
AT&T, GTE Service Corp. and Community Service Telephone Co.
---------------------------------------------------------------------------
\9\NTIA also supports all-or-nothing bids on groups of licenses,
i.e., combinatorial bidding, in conjunction with simultaneous
multiple round bidding.
---------------------------------------------------------------------------
29. The analysis in the Second Report and Order also supports
simultaneous multiple round bidding for broadband PCS auctions. We
concluded that multiple round bidding is generally superior to single
round bidding, and that when licenses are interdependent, simultaneous
bidding is generally superior to sequential bidding. As we noted in the
Second Report and Order, multiple-round auctions have the advantage
over single-round auctions insofar as they provide more information to
bidders about the value that other bidders place on licenses,
increasing the likelihood that the licenses are acquired by those who
value them most highly and increasing the revenue likely to be gained
from the auction. Multiple-round auctions are also more likely to be
perceived as open and fair. The disadvantage of multiple round auctions
is that they have higher administrative costs than single round
auctions. Second Report and Order at 82-85.
30. As noted in the Second Report and Order, simultaneous auctions
are more likely than sequential auctions to award interdependent
licenses efficiently because they provide more information about the
value of interdependent licenses and allow the use of that information
because all licenses remain available throughout the bidding process.
Simultaneous auctions are also likely to raise more revenue than
sequential auctions for two reasons. First, they increase the value of
the licenses by facilitating efficient aggregation. Second, because
they provide more information about the value of interdependent
licenses they reduce the propensity of sophisticated bidders to bid
cautiously in order to avoid the ``winner's curse''--the tendency for
the winner to be the bidder who most overestimates the value of the
item up for bid. Simultaneous auctions also eliminate the need to
choose the order in which licenses will be auctioned. The advantage
offered by simultaneous auctions depends on how much interdependence
exists among licenses. Second Report and Order at 89-94. The
disadvantages of simultaneous multiple round auctions appear to be that
they may be difficult to implement and there is little experience in
their use. Second Report and Order at 95.
31. We agree with commenters who support simultaneous multiple
round bidding for awarding broadband PCS licenses. Estimates of total
PCS revenues by the Office of Management and Budget and the
Congressional Budget Office indicate that the value of broadband PCS
licenses will likely be sufficiently high to warrant the use of
simultaneous auctions.\10\ We further believe that the values of most
broadband PCS licenses will be significantly interdependent because of
the desirability of aggregation across spectrum blocks and geographic
regions and because there is a high degree of substitutability among
licenses with the same amount of spectrum and covering the same
geographic area. See Second Report and Order at 90-91. Compared with
other bidding mechanisms, simultaneous multiple round bidding generates
the most information about license values during the course of the
auction and provides bidders with the most flexibility to pursue back-
up strategies, and is therefore most likely to award licenses to the
bidders who value them the most. Simultaneous multiple round auctions
will also facilitate efficient aggregation across spectrum bands, where
permitted, thereby enhancing competition among wireless products and
services.
---------------------------------------------------------------------------
\10\A study by the Congressional Budget Office estimated that an
auction for PCS licenses on two 25 MHz nationwide blocks of spectrum
could raise $1.3 billion to $5.7 billion in revenues. Congressional
Budget Office, Auctioning Radio Spectrum Licenses, at 23 (March
1992). The Office of Management and Budget estimated that auctioning
broadband PCS licenses would generate $12.6 billion in revenues.
Budget of the United States Government, Analytical Perspective,
Fiscal Year 1995, at 220 (February 1994).
---------------------------------------------------------------------------
32. We recognize, however, that simultaneous multiple round bidding
may involve a greater degree of complexity than other competitive
bidding methods, and that it may present greater operational
difficulties both for the FCC and for bidders, especially where many
bidders are expected to participate. Therefore, we will use a sequence
of simultaneous auctions. Licenses that are highly interdependent will
be grouped together and auctioned simultaneously.
2. Sequential Auctions
33. In a pure sequential auction, whether oral or electronic,
licenses are put up for bid one at a time, so that bidding ends on one
item before it begins on the next item. Sequential multiple round oral
or electronic auctions generate valuable information about earlier
auctioned licenses, which can assist bidders in valuing later auctioned
licenses. If license values are interdependent, however, sequential
oral or electronic auctions are less likely than simultaneous auctions
to award interdependent licenses to the parties who value them most
highly and to result in the efficient aggregation of licenses, because
bidders for licenses that are auctioned early must bid with less
information about the value of licenses to be auctioned later, and they
will have less opportunity to pursue backup bidding strategies. For
these reasons, we conclude that sequential multiple round auctions are
less preferred in the award of broadband PCS licenses than simultaneous
multiple round auctions. Nevertheless, if, as a result of our auction
experience, we determine that the operational costs or complexities
associated with simultaneous multiple round auctions outweigh their
benefits, we may decide instead to employ pure sequential oral or
electronic (multiple round) auctions or a sequence of single combined
oral auctions in which bidding is combined for all licenses in a given
band with the same bandwidth and the same geographic service area. If
such a change becomes necessary, the auction method will be announced
by Public Notice before each auction.
34. If we should decide in the future to use sequential oral or
sequential electronic bidding for relatively homogeneous licenses, we
will employ a single combined auction design. Under this approach, the
Commission will combine bidding for all licenses in the same band with
the same amount of spectrum and same geographic service area.\11\
Licenses will be awarded market by market to the highest bidders until
all the available licenses are exhausted, e.g., two relatively
homogeneous licenses would be awarded to the two highest bidders.
Because broadband PCS licenses may not be perfectly homogeneous (i.e.,
bidders may prefer one frequency over another within the same
geographic region for purposes of efficient aggregation), winning
bidders will be given the opportunity to choose among licenses for
which bidding is combined in descending order of their bid amounts
(i.e., the highest bidder will pick first).
---------------------------------------------------------------------------
\11\This approach was proposed by Bell Atlantic. See comments of
Bell Atlantic Personal Communications Inc., Attachment by Barry
Nalebuff and Jeremy Bulow at 4-5. Single combined auctions are used
by the U.S. Department of the Treasury to sell U.S. securities.
---------------------------------------------------------------------------
3. Combinatorial Bidding
35. In general terms, combinatorial bidding allows bidders to bid
for multiple licenses as all-or-nothing packages.\12\ Combinatorial
bidding can be implemented with either simultaneous or sequential
auction designs. Although we recognized in the Second Report and Order
that there may be significant benefits associated with combinatorial
bidding, especially in terms of efficient aggregation of licenses, we
concluded that simultaneous multiple round auctions offer many of the
same advantages without the same degree of administrative and
operational complexity and without biasing auction outcomes in favor of
combination bids. See Second Report and Order at 101-105. On
balance, we believe that the advantages of combinatorial bidding appear
unlikely to outweigh the disadvantages. While broadband PCS licenses
are likely to be worth more to some bidders as a part of a package, we
believe that simultaneous multiple round bidding will provide these
bidders with ample opportunity to express the value of interdependent
licenses. Moreover, we conclude that there will not be any extreme
discontinuity in value if some licenses in a package are not obtained.
We believe that the opportunity to acquire licenses in post-auction
transactions and the ability to withdraw bids (upon payment of the bid
withdrawal penalty) will limit the risks associated with failing to
acquire all of the licenses in a desired package. Nevertheless, if,
based on our experience with the initial simultaneous multiple round
auctions and auction experiments, we determine that such auctions do
not result in efficient aggregation of licenses, and if there are
significant advances in the development of combinatorial auctions, we
may, by public notice prior to a specific auction, choose to use
combinatorial bidding techniques in conjunction with simultaneous
multiple round auctions.
---------------------------------------------------------------------------
\12\In combinatorial bidding, if a bid for a group of licenses
exceeds the sum of the highest bids for the individual licenses that
comprise the package, then the package bid would win. In the Second
Report and Order we also indicated that if we were to utilize
combinatorial bidding we might institute a premium so that the
combinatorial bid would win only if it exceeded the sum of the bids
for individual licenses by a set amount. See Second Report and Order
at 114. NTIA is the main advocate of combinatorial bidding. See
comments of NTIA, and ex parte submission of NTIA in PP Docket No.
93-253, February 28, 1994.
---------------------------------------------------------------------------
C. Bidding Procedures
1. Grouping of Licenses
36. In the Second Report and Order, the Commission concluded that
highly interdependent licenses should be grouped together and put up
for bid at the same time in a multiple round auction. See Second Report
and Order at 106-107. This will facilitate awarding licenses to the
bidders who value them most highly because it will provide bidders
information about the prices of complementary and substitutable
licenses while such licenses are still up for bid. The magnitude of the
benefit of auctioning a group of licenses together in a simultaneous
multiple round auction increases with the degree of interdependence
among the licenses. On the other hand, the Second Report and Order also
noted that the cost and complexity, both for the FCC and for bidders,
of auctioning a very large number of interdependent licenses
simultaneously may outweigh the informational and bidding flexibility
advantages. See Second Report and Order at 107. Accordingly, although
we believe that all broadband PCS licenses are interdependent, we will
not auction them all simultaneously. Instead, we will divide the
licenses into three groups by combining those licenses that are most
closely related so that there will be limited interdependence across
groups. Then we will sequentially conduct a separate simultaneous
multiple round auction for each group. We formed the three groups in
two conceptual steps. First, we separated the ``entrepreneurs''' blocks
(C and F) from all other blocks.\13\ Then, we separated the large
unrestricted blocks (A and B, with 30 MHz of spectrum and MTA
geographic scope) from the small ones (D and E, with 10 MHz of spectrum
and BTA geographic scope).
---------------------------------------------------------------------------
\13\As explained in more detail below, we establish economic
eligibility criteria for bidders in blocks C and F.
---------------------------------------------------------------------------
37. In the first auction, the 99 available MTA licenses in blocks A
and B will be put up for bid. In the second auction, the 986 BTA
licenses in blocks C and F will be put up for bid. And in the last
auction, the 986 BTA licenses in blocks D and E will be put up for bid.
As explained below, we believe that this grouping strikes a proper
balance among the competing concerns of awarding licenses to the
parties who value them most highly, keeping the auction process simple
and manageable, minimizing administrative delay, and fostering
designated entity participation.
38. Separating the entrepreneurs' blocks (C and F) from all other
blocks entails little loss of efficiency because most firms are likely
to be interested in licenses in either the entrepreneurs' blocks or the
non-restricted blocks, but not both. Large firms cannot bid on
entrepreneurs' licenses, although they may partner with firms that can.
Small firms can bid on all blocks, but are likely to be most interested
in the entrepreneurs' blocks because on these blocks they would not be
placed in the position of bidding against large firms.
39. In addition to reducing the complexity of the auctions,
auctioning block C licenses after the block A and B licenses is likely
to further another objective of auction design--fostering designated
entity participation--by enabling designated entities to more easily
attract partners. Many potential partners may be unwilling to commit
themselves to a partnership arrangement with designated entities prior
to the auction of licenses on the A and B blocks. So, designated
entities that are unable to raise independent financing for at least
the required upfront and down payments may have difficulty
participating in an auction in which block C is put up for bid
simultaneously with blocks A and B. If, however, block C is auctioned
after blocks A and B, we expect that non-designated entities who are
unsuccessful in acquiring MTA licenses on blocks A and B will want to
become partners with or make investments in designated entities so as
to gain an interest in 30 MHz licenses on block C. In addition, the
auction on blocks A and B will produce price information that would be
valuable to designated entities in their business planning.
40. The efficiency loss associated with separating the large
unrestricted blocks (A and B) from the small ones (D and E) depends on
the degree of substitutability and complementarity between licenses in
these two groups. Auctioning licenses on the D and E blocks separately
from those on the A and B blocks may make it more difficult for bidders
to pursue a back-up strategy of combining two 10 MHz licenses in the
same geographic areas as an alternative to acquiring 30 MHz licenses in
the A or B blocks. We believe, however, that this is not likely to be a
widely used strategy, because the licenses are defined on a BTA basis
while the licenses on the A and B blocks are defined on a MTA basis. It
is also possible that some bidders may wish to combine a 10 MHz license
with a 30 MHz license in the same geographic area. Although this
approach would be easier to pursue if blocks A, B, D and E were
auctioned together, we believe that in most cases the amount bidders
would be willing to pay for a block A or B license would not be
strongly affected by whether they were able to acquire a complementary
block D or E license. So auctioning blocks D and E after blocks A and B
would not significantly hinder combining 30 MHz and 10 MHz licenses. We
conclude that the benefits of administrative simplicity from auctioning
license on blocks A and B separately from those on blocks D and E are
likely to outweigh the possible loss of efficiency.
2. Bid Increments
41. In using simultaneous multiple round auctions to award
broadband PCS licenses, it is important to specify minimum bid
increments.\14\ The bid increment is the amount or percentage by which
the bid must be raised above the previous round's high bid in order to
be accepted as a valid bid in the current bidding round. The
application of a minimum bid increment speeds the progress of the
auction and, along with activity and stopping rules, helps to ensure
that the auction comes to closure within a reasonable period of time.
Establishing an appropriate minimum bid increment is especially
important in a simultaneous auction with a simultaneous closing rule.
In that case, all markets remain open until there is no bidding on any
license, and a delay in closing one market will delay the closing of
all markets.
---------------------------------------------------------------------------
\14\See Second Report and Order at 124-126. Commenters who
addressed the issue supported minimum bid increments. See comments
of Telephone and Data Systems, Inc. at 24; comments of PacTel
Corporation, Attachment of R. Preston McAfee at 16, 18; comments of
Pacific Bell and Nevada Bell, Attachment of Paul R. Milgrom and
Robert B. Wilson at 19; reply comments of Telephone and Data
Systems, Inc., Attachment of Robert J. Weber at 11; reply comments
of PacTel Corporation, Attachment of R. Preston McAfee at 10; reply
comments of Pacific Bell and Nevada Bell, Attachment of Paul Milgrom
and Robert Wilson, Appendix at 8, 9.
---------------------------------------------------------------------------
42. Because we plan to use simultaneous multiple round auctions to
award broadband PCS licenses, we believe that it is necessary to impose
a minimum bid increment to ensure that the broadband PCS auctions
conclude within a reasonable period of time. Commenters addressing the
issue generally supported a minimum bid increment of 5 percent. PacTel,
for example, argues that this amount will provide a reasonable
compromise between the goal of completing the auction quickly and that
of revealing information about the distribution of valuations among
bidders.\15\ As we recognized in the Second Report and Order, it is
important in establishing the amount of the minimum bid increment to
express such increment as the greater of a percentage and fixed dollar
amount. See Second Report and Order at 126. This will ensure a timely
completion of the auction even if bidding begins at a very low dollar
amount. Accordingly, we will impose a minimum bid increment of some
percentage of the high bid from the previous round or a dollar amount
per MHz per pop, whichever is greater, in broadband PCS auctions where
multiple round bidding is used.\16\
---------------------------------------------------------------------------
\15\See comments of PacTel, Exhibit by R. Preston McAfee,
Auction Design for Personal Communications Services at 16. Milgrom
and Wilson also recommend a minimum bid increment of 5 percent
(subject to a dollar minimum and maximum) for stage I of the
auction, and smaller percentages for stages II and III. Reply
comments of PacBell, Attachment of Paul Milgrom and Robert Wilson,
Appendix at 8, 9.
\16\``Pop'' refers to each member of the population of the
license service area and ``MHz'' refers to the amount of spectrum,
in megahertz, that the licensee is permitted to use. For example,
for a 30 MHz license with a population of 10 million, if the minimum
bid increment were the greater of 5 percent or $0.02 per MHz per
pop, the minimum bid increment would be $6 million ($0.02 x 30
MHz x 10,000,000) when the high bid from the previous round is less
than $120 million. If the high bid from the previous round exceeds
$120 million, the minimum bid would be 5 percent of the value of
that bid (since 5 percent of a bid over $120 million is greater than
$6 million).
---------------------------------------------------------------------------
43. PacTel also suggests, in the context of simultaneous auctions,
that the Commission should vary the bid increment, reducing it as the
number of active bidders declines.\17\ Similarly, PacBell suggests that
the bid increment depend on the stage of the auction, with a 5 percent
increment in stage I, 2 percent in stage II, and 1 percent in stage
III.\18\ This would move the auction quickly at the beginning, when
prices have limited informational content and there is little benefit
to either bidders or the Commission of refined price movements, while
allowing bidders to express small differences in valuations as the
auction nears a close, increasing both efficiency and auction revenues.
Small bid increments also reduce the chances of ties. Where a tie does
occur, the high bidder will be determined by the order in which the
bids were received by the Commission.\19\
---------------------------------------------------------------------------
\17\See comments of PacTel, Exhibit by R. Preston McAfee,
Auction Design for Personal Communications Services, at 18.
\18\See reply comments of PacBell, Appendix to Exhibit by Paul
Milgrom and Robert Wilson, auction Rules and Procedures, at 8-9. For
a discussion of auction stages in simultaneous multiple round
auctions see the section on activity rules infra.
\19\See Second Report and Order at 125.
---------------------------------------------------------------------------
44. Accordingly, we will start the auction with large bid
increments, and reduce the increments as bidding activity falls. The
minimum bid increment in stage I of the auction will be 5 percent of
the high bid in the previous round or $.02 per MHz per pop, whichever
is greater.\20\ We will reduce the minimum bid increment as we move
through the auction stages, with a minimum bid increment of the greater
of 2 percent or $.01 per MHz per pop in stage II, and the greater of 1
percent or $.005 per MHz per pop in stage III.\21\ The Commission,
however, retains the discretion in broadband PCS auctions to set and,
by announcement before or during the auction, vary the minimum bid
increments for individual licenses or groups of licenses over the
course of an auction if the auction is not moving at an appropriate
pace.
---------------------------------------------------------------------------
\20\$0.02 per MHz per pop would represent almost 6 percent of
the value of a license based on an extrapolation from the $10.6
billion estimated value of the 120 MHz of broadband PCS spectrum to
be licensed. See Second Report and Order at 177.
\21\In oral or electronic sequential auctions the auctioneer may
within his or her sole discretion establish and vary the amount of
the minimum bid increment in each round of bidding.
---------------------------------------------------------------------------
45. In addition, the Commission will establish a suggested minimum
bid on each license. Bids below the suggested minimum bid will count as
activity under the activity rule (see infra) only if no bids at or
above the suggested minimum bid are received. Initial bids must be
above the minimum bid increment of $.02 per MHz per pop, but may be
below the suggested minimum bid. Once a bid has been received on a
license, the suggested minimum bid is no longer applicable in
subsequent rounds. The amount of the suggested minimum bid may vary by
market size, with a larger minimum bid in larger markets, and will be
announced by public notice prior to each auction. We will establish
suggested minimum bids at no less than $.05 per MHz per pop and not
more than $.20 per MHz per pop. The suggested minimum bid provides
bidders an incentive to start bidding at a substantial fraction of the
final prices of licenses, thus ensuring a rapid conclusion of the
auction, while still allowing for bidding on licenses whose market
values are below the suggested minimum bids.\22\
---------------------------------------------------------------------------
\22\If the Commission were to preclude bidding below a starting
minimum bid, a bidder who is interested in only a single license for
which the minimum bid is set above the market value would be forced
to use an activity rule waiver or drop out of the auction under the
activity rules adopted infra.
---------------------------------------------------------------------------
3. Stopping Rules for Multiple Round Auctions
46. We also noted in the Second Report and Order that with multiple
round auctions a stopping rule must be established for determining when
the auction is over.\23\ In simultaneous multiple round auctions,
bidding may close separately on individual licenses, simultaneously on
all licenses, or a hybrid approach may be used. Under an individual,
license-by-license approach, bidding closes on each license after one
round passes in which no new acceptable bids are submitted for that
particular license. With a simultaneous stopping rule, bidding remains
open on all licenses until there is no new acceptable bid on any
license. This approach has the advantage of providing bidders full
flexibility to bid for any license as more information becomes
available during the course of the auction, but it may lead to very
long auctions, unless an activity rule (see discussion infra) is
imposed. A hybrid approach combines the first two stopping rules. For
example, we may use a simultaneous stopping rule (along with an
activity rule designed to expedite closure for licenses subject to the
simultaneous stopping rule) for the higher value licenses. For lower
value licenses, where the loss from eliminating some back-up strategies
is less, we may use simpler license-by-license closings. In the Second
Report and Order we recognize that such a hybrid approach might
simplify and speed up the auction process without significantly
sacrificing efficiency or expected revenue. Id.
---------------------------------------------------------------------------
\23\See Second Report and Order at 127. Commenters agreed on
the importance of the appropriate stopping rule. PacTel proposes
that bidding on an individual license close if there are no new bids
on that license within a given round, or if there are fewer than two
bids greater than a ``suggested minimum bid.'' Comments of PacTel,
Attachment of R. Preston McAfee at 16-18. Pacific Bell recommends
simultaneous closing of bidding on all licenses when there are no
new acceptable bids on any license. Comments of PacBell, Attachment
of Paul Milgrom and Robert Wilson at 19; reply comments of PacBell,
Attachment of Paul Milgrom and Robert Wilson, Appendix at 5. Bell
Atlantic Personal Communications, on the other hand, asserts that in
simultaneous auctions, no stopping rule can prevent strategic
delays. They provide no evidence for this, however, and do not
discuss any closing rule in detail. In discussing the Milgrom-Wilson
closing rule they fail to account for the Milgrom-Wilson activity
rule, which will reduce the likelihood of delay, and the fail-safe
closing mechanism proposed by Milgrom and Wilson. Reply comments of
Bell Atlantic Personal Communications, Inc., Attachment of Barry J.
Nalebuff and Jeremy I. Bulow at 12.
---------------------------------------------------------------------------
47. For broadband PCS we believe that a simultaneous stopping rule
is preferable for all MTA licenses. MTA licenses are expected to have
relatively high values and are fewer in number than BTA licenses, which
will reduce the complexity of implementing a simultaneous stopping
rule. Since we intend to impose an activity rule (as discussed below),
we believe that allowing simultaneous closing for all licenses will
afford bidders flexibility to pursue back-up strategies without running
the risk that bidders will hold back their bidding until the final
rounds. We also intend to use a simultaneous stopping rule for BTA
licenses. However, because of the large number of BTA licenses, we
retain the discretion either to use a hybrid stopping rule or to allow
bidding to close individually for these licenses if as we gain
experience with auctions we determine that simultaneous stopping rules
are too complex to implement for very large numbers of licenses. The
specific stopping rule for ending bidding on BTA licenses will be
announced by Public Notice prior to auction.
48. In addition, we will retain the discretion to declare at any
point after 40 rounds in a simultaneous multiple round auction that the
auction will end after some specified number of additional rounds.\24\
This gives the Commission a means to prevent bidders from continuing to
bid on a few low value licenses solely to delay the closing for all
licenses in an auction with a simultaneous closing rule. This will also
ensure that the Commission can end the auction if it determines that
the benefits from ending the auction, and hence issuing licenses more
rapidly, exceeds the possible efficiency loss from cutting off bidding
on a few low value licenses. If we exercise this option, we favor the
use of three final rounds. Allowing more than one additional round
provides some opportunity for counter-offers, thus reducing the risk
that a license will not be awarded to the party that values it most
highly.
---------------------------------------------------------------------------
\24\PacBell proposed that in case of inordinate delays in the
auction the Commission should have the ability to conclude the
auction at any time after 40 rounds by issuing a call for final bids
on the following business day for each of those licenses for which
the highest bid increased in at least 1 of the preceding 3 rounds.
See reply comments of PacBell, Attachment of Paul Milgrom and Robert
Wilson, Appendix at 5.
---------------------------------------------------------------------------
49. Moreover, if this fail-safe mechanism is used, we will accept
bids in the final round(s) only for licenses on which the highest bid
increased in at least one of the preceding three rounds. No new bids
will be accepted for other licenses.\25\ There are two reasons not to
take bids on licenses on which there has been no recent bidding. First,
the fact that bidding on an individual license may close will provide
an additional incentive to bid actively and thus speed the conclusion
of the auction. If bids are accepted on all licenses in the final
round(s) there is less cost to a bidder in holding back. Second,
closing bidding on licenses for which activity has ceased ensures high
bidders for those licenses that they will not lose a license without
having an opportunity to make a counter-offer.\26\ This reduces the
uncertainty associated with aggregating licenses that are worth more as
a package than individually. If final bids are accepted on all
licenses, a high bidder on an aggregation of licenses may unexpectedly
lose a critical part of the aggregation and have no chance to regain it
except in the post-auction market, where bargaining or other
transaction costs may be high.
---------------------------------------------------------------------------
\25\See reply comments of PacBell, Appendix to attachment by
Milgrom and Wilson at 5. See also Second Report and Order at 130,
n. 106.
\26\Either the auction will close only when bidding ceases on
all licenses, so the high bidder will have an opportunity to respond
to any new bids, or the Commission will call for final bids but not
accept new bids on licenses on which there have been no new bids in
the previous three rounds, so no other bidder will have the
opportunity to outbid the high bidder in a final round.
---------------------------------------------------------------------------
4. Duration of Bidding Rounds
50. In simultaneous multiple round auctions for large numbers of
interdependent high-value licenses, bidders may need a significant
amount of time to evaluate back-up strategies and consult with their
principals. For this reason, PacBell proposes one bidding round per day
and PacTel proposes three business days per bidding round for broadband
PCS.\27\ We will provide bidders with a single business day to submit
bids, and conduct one round of bidding each business day.\28\ However,
we reserve the discretion to vary, by public notice or announcement,
the duration of bidding rounds or the interval at which bids are
accepted (e.g., run two or more rounds per day rather than one), in
order to move the auction toward closure more quickly. We are more
likely to conduct more than one round per day early in an auction than
towards the end of an auction. At early stages of an auction prices
will be low and contain relatively little information, so bidders will
need less time to deliberate. It is in the final stages of an auction,
when the consequences of bidding decisions are greatest, that bidders
need the most time to deliberate. We will indicate either by Public
Notice prior to an auction, or by announcement during an auction any
changes to the duration of and intervals between bidding rounds.
---------------------------------------------------------------------------
\27\Comments of PacBell, Attachment by Milgrom and Wilson at 19;
comments of PacTel, Attachment by McAfee at 16.
\28\With one round per day, the auction may take weeks to
complete. This should not impose an excessive burden on bidders,
however, because bids may be submitted by telephone or by a computer
connected to a telephone line, so bidders need not have a
representative in Washington throughout the auction.
---------------------------------------------------------------------------
5. Activity Rules
51. As discussed above, in order to ensure that simultaneous
auctions with simultaneous stopping rules close within a reasonable
period of time and to increase the information conveyed by bid prices
during the auction, we believe that it is necessary to impose an
activity rule to prevent bidders from waiting until the end of the
auction before participating. Because simultaneous stopping rules
generally keep all licenses open for bidding as long as anyone wishes
to bid, they also create an incentive for bidders to hold back until
prices approach equilibrium before making a bid. As noted above, this
could lead to very long auctions. Delaying serious bidding until late
in the auction also reduces the information content of prices during
the course of an auction. Without an activity rule, bidders cannot know
whether a low level of bidding on a license means that the license
price is near its final level or if instead many serious bidders are
holding back and may bid up the price later in the auction.\29\ An
activity rule is less important when licenses close one-by-one because
failure to participate in any given round may result in losing the
opportunity to bid at all, if that round turns out to be the last.
---------------------------------------------------------------------------
\29\See ex parte presentation by Paul Milgrom on behalf of
PacBell, June 21, 1994.
---------------------------------------------------------------------------
52. In the Second Report and Order we adopted the Milgrom-Wilson
activity rule as our preferred activity rule where a simultaneous
stopping rule is used. See Second Report and Order at 144-145. The
Milgrom-Wilson approach encourages bidders to participate in early
rounds by limiting their maximum participation to some multiple of
their minimum participation level. Bidders are required to declare
their maximum eligibility in terms of MHz-pops, and make an upfront
payment equal to $0.02 per MHz-pop.\30\ (See discussion of upfront
payments infra.) That is, in each round bidders will be limited to
bidding on licenses encompassing no more than the number of MHz-pops
covered by their upfront payment. Licenses on which a bidder is the
high bidder from the previous round count against this bidding limit.
Under this approach, bidders will have the flexibility to shift their
bids among any licenses for which they have applied so long as, within
each round, the total MHz-pops encompassed by those licenses does not
exceed the total number of MHz-pops on which they are eligible to bid.
Bidders will be able to secure the option to participate at whatever
maximum level they deem appropriate by making a sufficient upfront
payment. To preserve their maximum eligibility, however, bidders will
be required to maintain activity during each round of the auction. A
bidder is considered active on a license in the current round if the
bidder has submitted an acceptable bid for that license in the current
round, or has the high bid for that license from the previous round, in
which case, the bidder does not need to bid on that license in the
current round to be considered active on that license.
---------------------------------------------------------------------------
\30\The number of ``MHz-pops'' is calculated by multiplying the
population of the license service area by the amount of spectrum
authorized by the license. We use the terms ``per MHz-pop'' and
``per MHz per pop'' interchangeably.
---------------------------------------------------------------------------
53. Under the Milgrom-Wilson proposal, the minimum activity level,
measured as a fraction of the bidder's eligibility in the current
round, will increase during the course of the auction.\31\ Milgrom and
Wilson divide the auction into three stages. During the first stage of
the auction, a bidder is required to be active on licenses encompassing
one-third of the MHz-pops for which it is eligible. The ``penalty'' for
falling below that activity level is a reduction in eligibility. At
this stage, bidders will lose three MHz-pops in eligibility for each
MHz-pop below the minimum required activity level.\32\ In the second
stage, bidders are required to be active on two-thirds of the MHz-pops
for which they are eligible. The penalty for falling below that
activity level is a loss of 1.5 MHz-pops in eligibility for each MHz-
pop below the minimum required activity level. In the third stage,
bidders are required to be active on licenses encompassing all of the
MHz-pops for which they are eligible. The penalty for falling below
that activity level is a loss of one MHz-pop in eligibility for each
MHz-pop below the minimum required activity level. Thus in the final
stage, each bidder retains eligibility (for the next round) equal to
the MHz-pops for which it is an active bidder in the current round.
---------------------------------------------------------------------------
\31\Absent waivers (discussed infra), a bidder's eligibility (in
terms of MHz-pops) in the current round is determined by the
bidder's activity level and eligibility in the previous round. In
the first round, however, eligibility is determined by the bidder's
upfront payment and is equal to the upfront payment divided by $.02
per MHz-pop.
\32\An alternative way to state the rule for determining
eligibility in stage I of an auction is that each bidder will be
eligible to bid in the next round on three times the MHz-pops for
which it is an active bidder in the current round, or the MHz-pops
for which it is eligible in the current round, whichever is less.
---------------------------------------------------------------------------
54. The auction will start in stage I and move from stage I to
stage II when, in each of three consecutive rounds of bidding, the high
bid has increased on 10 percent or less of the spectrum (measured in
terms of MHz-pops) being auctioned.\33\ The auction will move from
stage II to stage III when the high bid has increased on 5 percent or
less of the spectrum being auctioned (measured in terms of MHz-pops),
in each of three consecutive rounds of bidding in stage II.\34\ In
order to speed up an auction, the Commission may also announce, at any
time after the initial 15 rounds, that the next stage of the auction
(with a higher minimum participation level) will begin in the next
bidding round.\35\ Moreover, if as the Commission gains experience with
auctions that use activity rules it determines that such auctions tend
to move too slowly, it may, by public notice prior to a specific
auction, increase the activity levels at which that auction moves
between stages. Conversely, if the Commission determines that auctions
tend to move too quickly, depriving bidders of sufficient time to
deliberate and pursue back-up strategies, it may decrease the activity
levels at which an auction moves between stages.
---------------------------------------------------------------------------
\33\The transition rule may also be defined in terms of the
``auction activity level''--the sum of the MHz-pops of those
licenses whose highest bid increased in the current round, as a
percentage of the total MHz-pops of all licenses in that auction.
(Note that this definition differs slightly from that used by
Milgrom and Wilson. See reply comments by PacBell, Appendix to
attachment by Milgrom and Wilson at 1.) The auction moves from stage
I to stage II when the auction activity level is less than or equal
to 10 percent for three consecutive rounds in stage I. The auction
moves from stage II to stage III when the auction activity level is
less than or equal to 5 percent for three consecutive rounds in
stage II. For example, if two nationwide 30 MHz blocks of spectrum
are put up for bid and the national population is approximately 250
million, a total of approximately 15,000 million MHz-pops would be
available in the auction. If in stage I of the auction, the high bid
increases on licenses encompassing less than 1,500 million MHz-pops
for three consecutive rounds, the auction moves to stage II. This
would be the case, for example, if in three consecutive rounds new
bids were received on only a license for the New York MTA (26
million pops) and a license for the Los Angeles MTA (19 million
pops), since the two licenses encompass a total of 1,350 million
MHz-pops. Once in stage II, if in each of three consecutive rounds
new acceptable bids are received on licenses encompassing less than
750 million MHz-pops, the auction would move to stage III.
\34\Once an auction is in stage II, it cannot revert to stage I.
Once an auction is in stage III, it remains there.
\35\Moving to stage II prematurely might result in an auction
moving too quickly to allow adequate time for consideration and may
excessively limit the ability of bidders to pursue alternative
backup strategies. See Second Report and Order at 142.
---------------------------------------------------------------------------
55. Finally, to avoid the consequences of clerical errors and to
compensate for unusual circumstances that might delay a bidder's bid
preparation or submission on a particular day, Milgrom and Wilson
recommend permitting each bidder to request and automatically receive a
waiver of the activity rule once every three rounds. We believe that
some waiver procedure is a critical element of the Milgrom-Wilson
activity rule, since the Commission would not wish to reduce a bidder's
eligibility due to an accidental act or circumstances not under the
bidder's control.
56. We believe that the Milgrom-Wilson approach will best achieve
the Commission's goals of affording bidders flexibility to pursue
backup strategies, while at the same time ensuring that simultaneous
auctions are concluded within a reasonable period of time. Accordingly,
we plan to impose such an activity rule in conjunction with a
simultaneous stopping rule to award higher value broadband PCS
licenses. We intend, however, to use a simpler waiver procedure than
that proposed by Milgrom and Wilson. We will permit bidders one
automatic waiver from the activity rule during each stage of an
auction. A waiver will permit a bidder to maintain its eligibility at
the same level as in the round for which the waiver is submitted.\36\ A
waiver may be submitted either in the round in which bidding falls
below the minimum required level to maintain (for the next round) the
same eligibility as in that round, or prior to submitting a bid in the
next round. If an activity rule waiver is entered in a round in which
no other bidding activity occurs, the auction will remain open.\37\
However, an activity rule waiver entered after a round in which no
other bidding activity occurs will not reopen the auction. If, as we
gain both experimental and actual auction experience, we determine that
permitting one automatic waiver per auction stage is insufficient to
prevent the inadvertent reduction in eligibility of serious bidders, we
may, by public notice prior to a specific broadband auction, increase
the number of automatic activity rule waivers, or instead allow one
automatic waiver during a specified number of bidding rounds.
---------------------------------------------------------------------------
\36\An activity rule waiver cannot be used to correct an error
in the amount bid.
\37\If, however, we determine, based on evidence from
experimental and actual auctions, that this is likely to excessively
delay the close of an auction or result in other adverse strategic
manipulation of an auction, we any announce by public notice prior
to a specific broadband auction that submission of a waiver will not
keep an auction open under any circumstances.
---------------------------------------------------------------------------
57. Furthermore, if, as we gain experience with auctions, we
determine that the Milgrom-Wilson three stage activity rule is too
complicated or costly to administer, we may alternatively impose a less
complex activity rule. See Second Report and Order at 144. We will
announce by Public Notice before each auction the activity rule that
will be employed in that particular auction.
V. Procedural, Payment, and Penalty Issues
A. Pre-Auction Application Procedures
58. In the Second Report and Order, the Commission established
general competitive bidding rules and procedures which we noted may be
modified on a service-specific basis. See 47 CFR Part 1, subpart Q. As
discussed below, we will generally follow the procedural, payment and
penalty rules established in the Second Report and Order with certain
minor modifications designed to address the particular characteristics
of the broadband PCS service. These rules are structured to ensure that
bidders and licensees are qualified and will be able to construct
systems quickly and other service to the public. By ensuring that
bidders and license winners are serious, qualified applicants, these
rules will minimize the need to re-auction licenses and prevent delays
in the provision of broadband PCS service to the public. In addition,
as we proposed in the Notice at 129, we adopt general procedural and
processing rules based on Part 22 of the Commission's Rules.
59. Section 309(j)(5) provides that no party may participate in an
auction ``unless such bidder submits such information and assurances as
the Commission may require to demonstrate that such bidder's
application is acceptable for filing.'' 47 U.S.C. Sec. 309(j)(5).
Moreover, ``[n]o license shall be granted to an applicant selected
pursuant to this subsection unless the Commission determines that the
applicant is qualified pursuant to [Section 309(a)] and Sections 308(b)
and 310'' of the Communications Act. id. As the legislative history of
Section 309(j) makes clear, the Commission may require that bidders'
applications contain all information and documentation sufficient to
demonstrate that the application is not in violation of Commission
rules, and applications not meeting those requirements may be dismissed
prior to the competitive bidding. See H.R. Rep. No. 111, 103d Cong.,
1st Sess. 258 (1993) (H.R. Rep. No. 103-111).
60. In the MPRM, we proposed that all parties interested in
participating in an auction for spectrum licenses would be required to
file a short-form application (modeled on the Commission's
``Transmittal Sheet for Cellular Applications''), and asked whether
applicants should also be required to submit a long-form application
prior to the auction, or whether the long-form application should be
submitted subsequent to the auction. NPRM at 97. The comments
generally agreed that we should require only a short-form application
prior to competitive bidding, and that only winning bidders should be
required to submit a long-form license application after the auction.
Because we believed that such a procedure would fulfill the statutory
requirements and objectives and adequately protect the public interest,
we incorporated these requirements into the rules adopted in the Second
Report and Order. See 47 CFR Secs. 1.2105 and 1.2107. We will extend
the application of these rules to the competitive bidding process for
broadband PCS.
61. We will be guided by the following procedures in conducting
broadband PCS auctions. The Commission will release an initial Public
Notice announcing that it will accept applications for specific
broadband PCS licenses. This initial Public Notice will specify the
licenses and identify the time and place of an auction in the event
that mutually exclusive applications are filed. The Public Notice also
will specify the method of competitive bidding to be used, including
applicable bid submission procedures, stopping rules and activity
rules, as well as the deadline by which short-form applications must be
filed, and the amounts and deadlines for submitting the upfront
payment. See Second Report and Order at 164. We will not accept
applications filed before or after the dates specified in Public
Notices. Applications submitted before release of a Public Notice
announcing the availability of particular license(s), or before the
opening date of the filing window specified therein, will be returned
as premature. Applications submitted after the deadline specified by
Public Notice will be dismissed, with prejudice, as untimely. Soon
after release of the initial Public Notice, an auction information
package will be made available to prospective bidders.
62. Bidders will be required to submit short-form applications on
FCC Form 175 (and FCC Form 175-S, if applicable), together with any
applicable filing fee\38\ by the date specified in the initial Public
Notice.\39\ The short-form applications will require applicants to
provide the information required by Section 1.2105(a)(2) of the
Commission's Rules, 47 CFR Sec. 1.2105(a)(2). Specifically, each
applicant will be required to specify on its Form 175 applications
certain identifying information, including its status as a designated
entity (if applicable), its classification (i.e., individual,
corporation, partnership, trust or other), the markets and frequently
blocks for which it is applying, and assuming that the licenses will be
auctioned, the names of persons authorized to place or withdraw a bid
on its behalf. In addition, applicants will be required to provide
detailed ownership information (see Section 24.813(a) of the
Commission's Rules) and identify all parties with whom they have
entered into any consortium arrangements, joint ventures, partnerships
or other agreements or understandings which relate to the competitive
bidding process. Applicants will also be required to certify that they
have not entered and will not enter into any explicit or implicit
agreements, arrangements or understandings with any parties, other than
those identified, regarding the amount of their bid, bidding strategies
or the particular properties on which they will or will not bid. In
addition, applicants for licenses in the entrepreneurs' blocks will be
required, as part of their short-form applications, to certify that
they are eligible to bid on and win licenses in those blocks. Among
other things, this means that they are in compliance with our PCS-
cellular and PCS-PCS cross-ownership limitations. As we indicated in
the Second Report and Order, if the Commission receives only one
application that is acceptable for filing for a particular license, and
thus there is no mutual exclusivity, the Commission by Public Notice
will cancel the auction for this license and establish a date for the
filing of a long-form application, the acceptance of which will trigger
the procedures permitting petitions to deny. See Second Report and
Order at 165.
---------------------------------------------------------------------------
\38\Because Section 8 of the Communications Act, 47 U.S.C.
Sec. 158, does not currently afford the Commission authority to
charge an application fee in connection with PCS applications,
broadband PCS applicants will not be required to submit a fee with
their short-form application. However, the Commission has requested
that Congress amend Section 8 of the Communications Act to provide a
specific application fee for PCS services. If the Commission
receives application fee authority, the general rules governing
submission of fees will apply. See 47 CFR Sec. 1.1101 et seq. These
rules currently provide for dismissal of an application if the
application fee is not paid, is insufficient, is in improper form,
is returned for insufficient funds or is otherwise not in compliance
with our fee rules. Whenever funds are remitted to the Commission,
applicants also must file FCC Form 159.
\39\Applicants should submit one paper original and one
microfiche original of their application, as well as two microfiche
copies.
---------------------------------------------------------------------------
63. A number of commenters in this proceeding objected to our
original tentative conclusion that short-form applications should be
judged by a letter-perfect standard. See NPRM at 100. Parties
proposed that the Commission allow a brief period for correcting errors
in short-form applications. See, e.g., comments of AT&T at 30-31,
BellSouth at 36-37. As we stated in the Second Report and Order, we
believe that the public interest would be better served by encouraging
maximum bidder participation in auctions. See Second Report and Order
at 167. Therefore, we will provide applicants with an opportunity to
correct minor defects in their short-form applications (e.g.,
typographical errors, incorrect license designations, etc.) prior to
the auction. Applicants will not be permitted until after the auction,
however, to make any major modifications to their applications,
including cognizable ownership changes or changes in the identification
of parties to bidding consortia. In addition, applications that are not
signed will be dismissed as unacceptable.
64. After reviewing the short-form applications, the Commission
will issue a second Public Notice listing all defective applications,
and applicants whose applications contain minor defects will be given
an opportunity to cure defective applications and resubmit a correction
version.\40\ After reviewing the corrected applications, the Commission
will release a third Public Notice announcing the names of all
applicants whose applications have been accepted for filing. These
applicants will be required to submit an upfront payment to the
Commission, as discussed below.
---------------------------------------------------------------------------
\40\On the date set for submission of corrected applications
that on their won discover minor errors in their applications also
will be permitted to file corrected applications.
---------------------------------------------------------------------------
B. Upfront Payment
65. The comments in this proceeding generally supported the
Commission's proposal to require prospective bidders to make
substantial upfront payments prior to auction. See, e.g., comments of
Comcast at 18, PacBell at 28, Nextel at 16, and AWCC at 31-32.
Consistent with the weight of the comments, we concluded in the Second
Report and Order that a substantial upfront payment prior to the
beginning of an auction is necessary to ensure that only serious and
qualified bidders participate. See Second Report and Order at 171. By
requiring such a payment we also help to ensure that any bid withdrawal
or default penalties are paid. These considerations apply to broadband
PCS auctions. We will therefore require all broadband PCS auction
participants to tender in advance to the Commission a substantial
upfront payment as a condition of bidding.
66. In the Notice, we proposed to require upfront payments based on
a $0.02 per MHz per pop formula. Though some commenters favor a fixed
upfront payment set by the Commission prior to the auction,\41\ most
support the Commission's proposed $0.02 per MHz per pop formula, which
would enable prospective bidders to tailor their upfront payment to
their bidding strategies.\42\ Commenters suggest that there should be
some fixed minimum on the amount of upfront payment made prior to
auction (suggestions range from $2,500 to $100,000 for different
services).\43\ Some commenters also favor setting a maximum upfront
payment, pointing out that our proposed formula yields very high
payments in the broadband PCS context.\44\
---------------------------------------------------------------------------
\41\See, e.g., comments of Edward M. Johnson at 2; and LuxCel
Group, Inc. at 8.
\42\See, e.g., comments of PacBell at 28; Telocator (now PCIA)
at 13; CTIA at 30; and Rochester Telephone Corporation at 13.
\43\See, e.g., comments of Telocator at 20-21; Cellular
Communications, Inc. at 15; AT&T at 34; and BellSouth at 41.
\44\See, e.g., comments of Southwestern Bell at 38-40 (arguing
generally for a maximum deposit of $50 million for all markets) and
AT&T at 34 (supporting a maximum upfront payment of $5 million, with
a down payment following the auction).
---------------------------------------------------------------------------
67. We believe that the standard upfront payment formula of $0.02
per pop per MHz for the largest combination of MHz-pops a bidder
anticipates bidding on in any single round of bidding is appropriate
for broadband PCS services.\45\ Using this formula will provide bidders
with the flexibility to change their strategy during an auction and to
bid on a larger number of smaller licenses or a smaller number of
larger licenses, so long as the total MHz-pops combination does not
exceed that amount covered by the upfront payment. For example, when we
auction licenses covering the nation simultaneously, a bidder would not
be required to file an upfront payment representing national coverage
unless it intended to bid on licenses covering the entire nation in a
single bidding round. The $0.02 per MHz per pop formula also works well
with the Milgrom-Wilson activity rule that we plan to employ in
broadband PCS auctions, as described in Section III above. In the
initial Public Notice issued prior to each auction, we will announce
population information corresponding to each license to enable bidders
to calculate their upfront payments.
---------------------------------------------------------------------------
\45\As discussed in Section VII, infra, designated entities will
be subject to a lesser upfront payment requirement of $0.015 per MHz
per pop. Further, we retain the flexibility to consider using a
simpler payment requirement if circumstances warrant.
---------------------------------------------------------------------------
68. As we indicated in the Second Report and Order, we will not set
a maximum on upfront payments.\46\ We decline to do so because we wish
to ensure that those bidding on large numbers of valuable broadband PCS
licenses are bidding in good faith and are financially capable of
constructing those systems quickly. We recognize that upfront payments
for broadband PCS licenses may amount to millions of dollars, but we do
not believe that it is unreasonable to expect prospective bidders to
tender such sums given the expected overall value of some of these
licenses and the expected financial requirements to construct the
systems. Indeed, such a requirement is necessary to ensure the
seriousness of bidders for these valuable licenses.
---------------------------------------------------------------------------
\46\See Second Report and Order at 179.
---------------------------------------------------------------------------
69. In the Second Report and Order, we accepted commenters'
suggestions and established a general minimum upfront payment of $2,500
to ensure that the use of our preferred formula would result in a
substantial enough payment that bidders would be deterred from making
frivolous bids.\47\ Such a minimum upfront payment is needed in
connection with auctions where the $0.02 per MHz per pop formula would
yield a comparatively small upfront payment (such as those for
narrowband PCS licenses in BTAs). Because of the wider bandwidth of
broadband PCS licenses, however, this minimum upfront payment will not
be relevant in auctions for this service.\48\
---------------------------------------------------------------------------
\47\Id. at 180.
\48\The smallest bandwidth that a broadband PCS licensee will be
authorized to use is 10 MHz, so a $2,500 upfront payment would
result for a license area with a population of only 12,500 persons.
The least populous BTA in the United States (Williston, North
Dakota) has a population of approximately 27,500, and the upfront
payment for a 10 MHz license in that BTA would be approximately
$5,500.
---------------------------------------------------------------------------
70. For broadband PCS auctions, we will follow the procedures for
submission of upfront payments outlined in the Second Report and Order.
Applicants whose short-form applications have been accepted for filing
will be required to submit the full amount of their upfront payment to
the Commission's lock-box bank by a date certain, which will be
announced in a Public Notice and generally will be no later than 14
days before the scheduled auction.\49\ After the Commission receives
from its lock-box bank the names of all applicants who have submitted
timely upfront payments, the Commission will issue a Public Notice
announcing the names of all applicants that have been determined to be
qualified to bid. An applicant who fails to submit a sufficient upfront
payment to qualify it to bid on any license being auctioned will not be
identified on this Public Notice as a qualified bidder, and it will be
prohibited from bidding in the auction. That is, we will require that
applicants for broadband PCS licenses submit a sufficient upfront
payment to reflect the MHz-pops of the smallest license being put up
for bid in a particular auction.\50\
---------------------------------------------------------------------------
\49\Upfront payments must be made by wire transfer or by
cashier's check drawn in U.S. dollars from a financial institution
whose deposits are insured by the Federal Deposit Insurance
Corporation and must be made payable to the Federal Communications
Commission.
\50\For example, in our first broadband PCS auction (the 30 MHz
MTA licenses on blocks A and B), the smallest upfront payment that
may be submitted to qualify an applicant to bid will be calculated
by multiplying the population of the least populous MTA (American
Samoa: population 47,000) times 30 times two cents, or $28,200. It
should be noted, however, that this minimal upfront payment will
entitle the bidder to bid only on a license to serve American Samoa.
---------------------------------------------------------------------------
71. Although it would be simpler to require the submission of
upfront payments at the same time short-form applications are filed, we
agree with those commenters that argued that they should not be
required to commit the large sums that will likely be involved in
broadband PCS upfront payment for longer than is necessary.
Accordingly, applicants will not be required to tender upfront payments
with their short-form applications. Instead, as noted above, upfront
payments will be due by a date specified by Public Notice, but
generally no later than 14 days before a scheduled auction. This period
should be sufficient to allow the Commission adequate time to process
upfront payment data and release a Public Notice listing all qualified
bidders, but not so long as to impose undue burdens upon bidders. The
rules set forth in Section 1.2106 of the Commission's Rules concerning
upfront payments will be applicable in broadband PCS auctions. Each
qualified bidder will be issued a bidder identification number and
further information and instructions regarding the auction procedures.
During an auction, bidders will be required to provide their bidder
identification numbers when submitting bids.
C. Payment and Procedures for Licenses Awarded by Competitive Bidding
1. Down Payment
72. The Second Report and Order established a 20 percent down
payment by winning bidders to discourage default between the auction
and licensing and to ensure payment of the penalty if such default
occurs. We concluded that a 20 percent down payment was appropriate to
ensure that auction winners have the necessary financial capabilities
to complete payment for the license and to pay for the costs of
constructing a system, while at the same time not being so onerous as
to hinder growth or diminish access. Most of the commenters addressing
this issue generally support our proposal that winning bidders increase
their deposits with the Commission up to an amount equalling 20 percent
of their winning bid or bids. See, e.g., comments of BellSouth at 43-
44, PageNet at 35-36, and Telocator at 13. Some commenters feel that a
20 percent down payment requirement would be too high. See comments of
Sprint at 18 (prefers a 10 percent down payment).
73. We believe that the reasoning that led us to conclude that 20
percent is the appropriate down payment applies to broadband PCS
auctions. We therefore will require that, with the exception of bidders
eligible for installment payments in the entrepreneurs' blocks (see
Section VII, infra), winning bidders in broadband PCS auctions
supplement their upfront payments with a down payment sufficient to
bring their total deposits up to 20 percent of their winning
bid(s).\51\ Winning bidders will be required to submit the required
down payment by cashier's check or wire transfer to our lock-box bank
by a date to be specified by Public Notice, generally within five (5)
business days following the close of bidding. All auction winners will
generally be required to make full payment of the balance of their
winning bids within five (5) business days following award of the
license. Grant of the license will be conditioned on this payment.
---------------------------------------------------------------------------
\51\If the upfront payment already tendered by a winning bidder,
after deducting any bid withdrawal and default penalties due,
amounts to 20 percent or more of its winning bids, no additional
deposit will be required. If the upfront payment amount on deposit
is greater than 20 percent of the winning bid amount after deducting
any bid withdrawal and default penalties due, the additional monies
will be refunded. If a bidder has withdrawn a bid or defaulted but
the amount of the penalty cannot yet be determined, the bidder will
be required to make a deposit of 20 percent of the amount bid on
such licenses. When it becomes possible to calculate and assess the
penalty, any excess deposit will be refunded. Upfront payments will
be applied to such deposits and to bid withdrawal and default
penalties due before being applied toward the bidder's down payment
on licenses the bidder has won and seeks to acquire.
---------------------------------------------------------------------------
74. An auction winner that is eligible to make payments through an
installment plan (see Section VII, infra) will be subject to different
payment requirements. Such an entity will be required to bring its
deposits with the Commission up to only 5 percent of its winning bid
after the bidding closes, and will pay an additional 5 percent of its
winning bid to the Commission after a license is granted.
2. Bid Withdrawal and Default Penalties
75. As we discussed in the Second Report and Order, it is
critically important to the success of our system of competitive
bidding that potential bidders understand that there will be a
substantial penalty assessed if they withdraw a high bid, are found not
to be qualified to hold licenses or default on payment of a balance
due. There was substantial support in the comments for the notion that
the Commission is authorized to and should order forfeiture of upfront
and down payments if the auction winner later defaults or is
disqualified. See, e.g., comments of CTIA at 29-30, AT&T at 35, n.43,
PageNet at 35-36, Cook Inlet at 47, and BellSouth at 42-44. We
concluded, however, that forfeiture of all amounts that a bidder may
have on deposit with the Commission may, in some circumstances, be too
severe a penalty and would not necessarily be rationally related to the
harm caused by withdrawal, default or disqualification. See Second
Report and Order at 197.
76. This logic applies to broadband PCS auctions, so for these
auctions we will employ the bid withdrawal, default and
disqualification penalties adopted in the Second Report and Order,
which are reflected in Sections 1.2104(g) and 1.2109 of the
Commission's Rules. Any bidder who withdraws a high bid during an
auction before the Commission declares bidding closed will be required
to reimburse the Commission in the amount of the difference between its
high bid and the amount of the winning bid the next time the license is
offered by the Commission, if this subsequent winning bid is lower than
the withdrawn bid.\52\ No withdrawal penalty will be assessed if the
subsequent winning bid exceeds the withdrawn bid. After bidding closes,
a defaulting auction winner (i.e., a winner who fails to remit the
required down payment within the prescribed time, fails to pay for a
license, or is otherwise disqualified) will be assessed an additional
penalty of three percent of the subsequent winning bid or three percent
of the amount of the defaulting bid, whichever is less. See 47 CFR
Secs. 1.2104(g) and 1.2109. The additional three percent penalty is
designed to encourage bidders who wish to withdraw their bids to do so
before bidding ceases. We will hold deposits made by defaulting or
disqualified auction winners until full payment of the penalty.\53\ We
believe that these penalties will adequately discourage default and
ensure that bidders have adequate financing and that they meet all
eligibility and qualification requirements. As we explained in the
Second Report and Order, we further believe that this approach is well
within our authority under both Section 309(j)(4)(B) and Section 4(i)
of the Communications Act, 47 U.S.C. Sec. 154(i), as it is clearly
necessary to carry out the rapid deployment of new technologies through
the use of auctions.\54\
---------------------------------------------------------------------------
\52\If a license is re-offered by auction, the ``winning bid''
refers to the high bid in the auction in which the license is re-
offered. If a license is re-offered in the same auction, the winning
bid refers to the high bid amount, made subsequent to the
withdrawal, in that auction. If the subsequent high bidder also
withdraws its bid, that bidder will be required to pay a penalty
equal to the difference between its withdrawn bid and the amount of
the subsequent winning bid the next time the license is offered by
the Commission. If a license which is the subject of withdrawal or
default is not re-auctioned, but is instead offered to the highest
losing bidders in the initial auction, the ``winning bid'' refers to
the bid of the highest bidder who accepts the offer. Losing bidders
would not be required to accept the offer, i.e., they may decline
without penalty. We wish to encourage losing bidders in simultaneous
multiple round auctions to bid on other licenses, and therefore we
will not hold them to their losing bids on a license for which a
bidder has withdrawn a bid or on which a bidder has defaulted.
\53\In rare cases in which it would be inequitable to retain a
down payment, we will entertain requests for waiver of this
provision.
\54\See Second Report and Order at 198.
---------------------------------------------------------------------------
77. In addition, if a default or disqualification involves gross
misconduct, misrepresentation or bad faith by an applicant, the
Commission may declare the applicant and its principals ineligible to
bid in future auctions, and may take any other action that it deems
necessary, including institution of proceedings to revoke any existing
licenses held by the applicant. See Second Report and Order at 198.
3. Re-Offering Licenses When Auction Winners Default
78. In the event that an auction winner defaults or is otherwise
disqualified, the Commission must determine whether to hold a new
auction or simply offer the license to the second-highest bidder.
Parties commenting on this issue generally favored re-auctioning the
license, pointing out that changing market and even technological
developments since the initial auction may change the amounts that
bidders are willing to pay for a license, especially if the intervening
period is relatively long. They urge that any re-auction be open to new
bidders, arguing that such a procedure would reduce the incentive of
losing bidders to file unmeritorious petitions to deny against the
auction winner. See, e.g., comments of BellSouth at 37, Utilities
Telecommunications Council at 21.
79. As we stated in the Second Report and Order, we believe that,
as a general rule, when an auction winner defaults or is otherwise
disqualified after having made the required down payment, the best
course of action is to re-auction the license. See Second Report and
Order at 204. Although we recognize that this may cause a brief delay
in the initiation of service to the public, during the time between the
original auction and the disqualification circumstances may have
changed so significantly as to alter the value of the license to
auction participants as well as to parties who did not participate. In
this situation, awarding licenses to the parties that value them most
highly can best be assured through a re-auction. However, if the
default occurs within five (5) business days after the bidding has
closed, the Commission retains the discretion to offer the license to
the second highest bidder at its final bid level, or if that bidder
declines the offer, to offer the license to other bidders (in
descending order of their bid amounts) at the final bid levels.\55\
---------------------------------------------------------------------------
\55\If only a small number of relatively low-value licenses are
to be re-auctioned and only a short time has passed since the
initial auction, the Commission may choose to offer the license to
the highest losing bidders because the cost of running another
auction may exceed the benefits.
---------------------------------------------------------------------------
80. If a new auction becomes necessary because of default or
disqualification more than five (5) business days after bidding has
ended, the Commission will afford new parties an opportunity to file
applications. One of our primary goals in conducting auctions is to
assure that all serious interested bidders are in the pool of qualified
bidders at any re-auction. We believe that allowing new applications
will promote achievement of this goal, which outweighs the short delay
that we recognize may result from allowing new applications in a re-
auction. Indeed, if we were not to allow new applicants in a re-
auction, interested parties might be forced into an after-market
transaction to obtain the license, which would itself delay service to
the public and may prevent the public from recovering a reasonable
portion of the value of the spectrum resource.
4. Long-Form Application
81. If the winning bidder makes the down payment in a timely
manner, a long-form application filed on FCC Form 401 (as modified), or
such other form as may be adopted for Commercial Mobile Radio Service
use in GEN Docket No. 93-252, will be required to be filed by a date
specified by Public Notice, generally within ten (10) business days
after the close of bidding.\56\ After the Commission receives the
winning bidder's down payment and the long-form application, we will
review the long-form application to determine if it is acceptable for
filing. In addition to the information required in the long-form
application of all winning bidders, each winning bidder on licenses in
frequency blocks C and F will be required to submit evidence of its
eligibility to bid on licenses in these blocks, as well as evidence to
support its claim to any special provisions made available to
designated entities. This information may be included in an exhibit to
FCC Form 401, and must include the gross revenues and total assets of
the applicant and all attributable investors in the applicant, and a
certification that the personal net worth of each individual investor
does not exceed the eligibility limitation. This information will
enable the Commission, and other interested parties, to ensure the
validity of the applicant's certification of eligibility to bid in
blocks C and F (submitted as part of its FCC Form 175) and its
eligibility for any bidding credits, installment payment options, or
other special provision. Upon acceptance for filing of the long-form
application, the Commission will issue a Public Notice announcing this
fact, triggering the filing window for petitions to deny. If the
Commission denies all petitions to deny, and is otherwise satisfied
that the applicant is qualified, the license(s) will be granted to the
auction winner.
---------------------------------------------------------------------------
\56\Schedule B to FCC Form 401 will not be required to be
submitted by broadband PCS applicants. However, applicants for
broadband PCS licenses proposing to use any portion of broadband PCS
spectrum to offer service on a private mobile radio service basis
must overcome the presumption that PCS is a commercial mobile radio
service. Regulatory Treatment of Mobile Services, Second Report and
Order in GEN Docket No. 93-252, 9 FCC Rcd 1411, 1460-63, 59 FR
18493, Apr. 19, 1994; 47 CFR Sec. 20.9(a)(11), (b). Applicants (or
licensees) seeking to dedicate a portion of the spectrum for private
mobile radio service will be required to attach as an exhibit to the
Form 401 application a certification that it will offer PCS service
on a private mobile radio basis. The certification must include a
description of the proposed service sufficient to demonstrate that
it is not within the definition of commercial mobile radio service
in Section 20.3 of the Commission's Rules. Id.
---------------------------------------------------------------------------
5. Processing and Procedural Rules
82. In the Notice, we proposed to adopt general processing and
procedural rules for broadband PCS based on Part 22 of the Commission's
Rules. One commenter, AIDE, argues that the Commission's reference to
proposed PCS rules is vague and legally insufficient for a Notice of
Proposed Rule Making. Comments of AIDE at 16-17. AIDE also asserts that
the adoption of PCS processing and procedural rules is beyond the scope
of the Notice in this rule making proceeding. Id. We disagree. The
Notice sought comment on specific rule sections contained in Part 22 of
our Rules and asked commenters to indicate what modifications should be
made to those rules to adapt them for PCS services. See Notice at 128.
In addition, the Notice specifically requested comment on the general
procedural, processing and petition to deny procedures that should be
used for auctionable services. The Notice's proposal to adopt
processing rules based on Part 22 of the Commission's Rules, with any
appropriate modifications for PCS services, clearly indicated to
commenters the terms of the proposed rules, as is required by 5 U.S.C.
Sec. 553 and 47 CFR Sec. 1.413(c). Accordingly, we believe that the
Notice's description of the proposed rules was sufficiently specific to
alert interested parties to the substance of our proposal and to
provide an adequate opportunity for comment on those proposals.
Moreover, we conclude that these issues are well within the scope of
the Notice.
83. As we proposed, we adopt for broadband PCS a modified version
of the application processing rules contained in Part 22 of the
Commission's Rules. These rules, which will comprise Subpart I of Part
24 of our Rules, will govern application filing and content
requirements, waiver procedures for return of defective applications,
regulations regarding modification of applications, and general
application processing rules. We also adopt petition to deny procedures
based on Section 22.30 of the Commission's Rules. In addition, as we
proposed in the Notice, we adopt rules similar to Sections 22.927,
22.928 and 22.929 of our existing rules (47 CFR Secs. 22.927, 22.928,
22.929) to prevent the filing of speculative applications and pleadings
(or threats of the same) designed to extract money from sincere
broadband PCS applicants. In this regard, we limit the consideration
that an applicant or petitioner is permitted to receive for agreeing to
withdraw an application or a petition to deny to the legitimate and
prudent expenses of the withdrawing applicant or petitioner.
84. With regard to petitions to deny, we adopt expedited procedures
consistent with the provisions of Section 309(i)(2) of the
Communications Act to resolve substantial and material issues of fact
concerning qualifications.\57\ This provision requires us to entertain
petitions to deny the application of the auction winner if petitions to
deny are otherwise provided for under the Communications Act or our
Rules.
---------------------------------------------------------------------------
\57\The adoption of such procedures is necessary because Section
309(j)(5) of the Communications Act forbids the granting of licenses
through competitive bidding unless the Commission determines that
the applicant is qualified.
---------------------------------------------------------------------------
85. As we indicated in the Second Report and Order, the Commission
need not conduct a hearing before denying an application if it
determines that an applicant is not qualified and no substantial issue
of fact exists concerning that determination. See Second Report and
Order at 202. In the event that the Commission identifies substantial
and material issues of fact in need of resolution, Section 309(i)(2) of
the Communications Act permits in any hearing the submission of all or
part of evidence in written form and allows employees other than
administrative law judges to preside over the taking of written
evidence. We will incorporate these principles into our broadband PCS
procedural rules.
D. Procedures in Alternative Auction Design
86. If we decide to employ a sequential auction design (using
either oral or electronic bid submission), the same general rules and
procedures described above will be used with certain modifications to
fit the oral or electronic auction format. In the case of oral
auctions, bidders would be required to follow the procedures described
above, including the submission of the standard upfront payment of
$0.02 per MHz-pop prior to the auction. Applicants would submit a
sufficient upfront payment to cover the total number of MHz-pops they
desire to win. Once a bidder has won the maximum number of MHz-pops
covered by its upfront payment, that bidder will be precluded from
further bidding in the auction.\58\ Immediately after bidding closes on
a license, the winning bidder (i.e., the high bidder on a license on
which bidding has closed) will be asked to sign a bid confirmation
form. No other license will be put up for bid until a bid confirmation
form is signed by a high bidder on the previous license.\59\ Because we
recognize that in an oral auction the chances of a bidder accidentally
placing a high bid are greater than in other auction methods, and
because the harm will be limited if the license is immediately re-
offered, we will not impose a penalty on a high bidder who withdraws a
high bid by refusing to sign the bid confirmation form. Thus, in an
sequential oral auction in which a high bidder declines to sign the bid
confirmation form, the license will be immediately put up for bid
again. If, however, a high bidder signs a bid confirmation form but
subsequently fails to submit the 20 percent down payment or otherwise
defaults, the standard default penalties (described supra) will
apply.\60\
---------------------------------------------------------------------------
\58\This is similar to the procedure adopted in the Fourth
Report and Order for the oral auctioning of IVDS licenses. See
Fourth Report and Order in PP Docket No. 93-253, 9 FCC Rcd 2330, 59
FR 24947, May 13, 1994.
\59\If we use single combined bidding, described supra, no other
licenses will be put up for bid until a bid confirmation form is
signed for each license put up for bid together in a combined
auction.
\60\See 47 CFR Secs. 1.2104 and 1.2109.
---------------------------------------------------------------------------
87. If we decide to use sequential electronic bidding, bidders
would again follow the general procedures described above including the
submission of the standard upfront payment amount of $0.02 per MHz per
pop prior to the auction. Applicants would submit a sufficient upfront
payment to cover the total number of MHz-pops they desire to win. An
applicant will not be eligible to bid on a license for which it has not
applied or which contains more MHz-pops than the total MHz-pops covered
by the bidder's upfront payment less any MHz-pops already won by that
bidder. Once a bidder has won licenses representing the maximum number
of MHz-pops reflected in its upfront payment, that bidder will be
precluded from further bidding in the auction. Each bidder's
eligibility will be computed and tracked by the auction software and
bids placed by ineligible bidders will not be accepted. After the
auctioneer declares bidding on a license closed and the high bidder has
been notified, that bidder will be asked to confirm its high bid. If
the high bidder in a sequential electronic auction declines to confirm
its high bid, the license will be immediately re-auctioned and no
penalty will be imposed. No other licenses will be put up for bid until
a bid confirmation form is signed by a high bidder on the previous
license.\61\ As with sequential oral auctions, if a high bidder signs a
bid confirmation form but subsequently fails to submit the 20 percent
down payment or otherwise defaults, the standard default penalties
(described supra) will apply.
---------------------------------------------------------------------------
\61\See also n. 59, supra.
---------------------------------------------------------------------------
VI. Regulatory Safeguards
A. Transfer Disclosure Requirements
88. In Section 309(j), Congress directed the Commission to
``require such transfer disclosures and anti-trafficking restrictions
and payment schedules as may be necessary to prevent unjust enrichment
as a result of the methods employed to issue licenses and permits.'' 47
U.S.C. Sec. 309(j)(4)(E). In the Second Report and Order, the
Commission adopted safeguards designed to ensure that the requirements
of Section 309(j)(4)(E) are satisfied. See Second Report and Order at
210-226 and 258-265.
89. In the Second Report and Order (at 214), we stated our belief
that it is important to monitor transfers of licenses awarded by
competitive bidding in order to accumulate the data necessary to
evaluate our auction designs and to judge whether ``licenses [have
been] issued for bids that fall short of the true market value of the
license.'' H.R. Rep. No. 103-111 at 257. Therefore, we imposed a
transfer disclosure requirement on licenses obtained through the
competitive bidding process, whether by a designated entity or not. See
47 CFR Sec. 1.2111(a). We believe that the transfer disclosure
requirements contained in Section 1.2111(a) of the Commission's Rules
should apply to all broadband PCS licenses obtained through the
competitive bidding process. Generally, licensees transferring their
licenses within three years after the initial license grant will be
required to file, together with their transfer applications, the
associated contracts for sale, option agreements, management
agreements, and all other documents disclosing the total consideration
received in return for the transfer of its license. As we indicated in
the Second Report and Order, we will give particular scrutiny to
auction winners who have not yet begun commercial service and who seek
approval for a transfer of control or assignment of their licenses
within three years after the initial license grant, in order to
determine if any unforeseen problems relating to unjust enrichment have
arisen outside the designated entity context. See Second Report and
Order at 214.\62\
---------------------------------------------------------------------------
\62\We note that these transfer disclosure provisions are in
addition to the limitations on transfers that we have adopted in the
Broadband PCS Reconsideration Order (with respect to spectrum
disaggregation) or elsewhere in this Order (with respect to
transfers of licenses in the entrepreneurs' block).
---------------------------------------------------------------------------
B. Performance Requirements
90. The Budget Act requires the Commission to ``include performance
requirements, such as appropriate deadlines and penalties for
performance failures, to ensure prompt delivery of service to rural
areas, to prevent stockpiling or warehousing of spectrum by licensees
or permittees, and to promote investment in and rapid deployment of new
technologies and services.''\63\ In the Second Report and Order we
decided that it was unnecessary and undesirable to impose additional
performance requirements, beyond those already provided in the service
rules, for all auctionable services. The broadband PCS service rules
already contain specific performance requirements, such as the
requirement to construct within a specified period of time. See, e.g.,
47 CFR Sec. 24.203. Failure to satisfy these construction requirements
will result in forfeiture of the license. Accordingly, we do not see
the need to adopt any additional performance requirements in this
Report and Order.
---------------------------------------------------------------------------
\63\See Section 309(j)(4)(B) of the Communications Act, as
amended.
---------------------------------------------------------------------------
C. Rules Prohibiting Collusion
91. In the Second Report and Order, we adopted a special rule
prohibiting collusive conduct in the context of competitive bidding.
See 47 CFR Sec. 1.2105(c). We referred to the Notice, wherein we
indicated our belief that such a rule would serve the objectives of the
Budget Act by preventing parties, especially the largest firms, from
agreeing in advance to bidding strategies that divide the market
according to their strategic interests and disadvantage other bidders.
See Second Report and Order at 221. We believe that this rule is
nowhere more necessary than with respect to broadband PCS auctions,
where we expect bidder interest to be high and the incentives to
collude to be great. Thus, Section 1.2105(c) will apply to broadband
PCS auctions. This rule provides that from the time the short-form
applications are filed until the winning bidder has made its required
down payment, all bidders will be prohibited from cooperating,
collaborating, discussing or disclosing in any manner the substance of
their bids or bidding strategies with other bidders, unless such
bidders are members of a bidding consortium or other joint bidding
arrangement identified on the bidder's short-form application. In
addition, as discussed in Section IV, supra, bidders will be required
by Section 1.2105(a)(2) of the Commission's Rules to identify on their
Form 175 applications all parties with whom they have entered into any
consortium arrangements, joint ventures, partnerships or other
agreements or understandings which relate to the competitive bidding
process. Bidders will also be required to certify that they have not
entered and will not enter into any explicit or implicit agreements,
arrangements or understandings with any parties, other than those
identified, regarding the amount of their bid, bidding strategies or
the particular properties on which they will or will not bid.
92. Winning bidders in broadband PCS auctions will also be subject
to Section 1.2107 of the Commission's Rules, which among other things
requires each winning bidder to attach as an exhibit to the Form 401
long-form application a detailed explanation of the terms and
conditions and parties involved in any bidding consortium, joint
venture, partnership, or other agreement or arrangement they had
entered into relating to the competitive bidding process prior to the
close of bidding. All such arrangements must have been entered into
prior to the filing of short-form applications. In addition, where
specific instances of collusion in the competitive bidding process are
alleged during the petition to deny process, the Commission may conduct
an investigation or refer such complaints to the United States
Department of Justice for investigation. Bidders who are found to have
violated the antitrust laws or the Commission's rules in connection
with participation in the auction process may be subject to forfeiture
of their down payment or their full bid amount and revocation of their
license(s), and they may be prohibited from participating in future
auctions.
VII. Treatment of Designated Entities
A. Overview and Objectives
93. Congress mandated that the Commission ``ensure that small
businesses, rural telephone companies, and businesses owned by members
of minority groups and women are given the opportunity to participate
in the provision of spectrum-based services.'' 47 U.S.C.
Sec. 309(j)(4)(D). To achieve this goal, the statute requires the
Commission to ``consider the use of tax certificates, bidding
preferences, and other procedures.'' Thus, while providing that we
charge for licenses, Congress has ordered that the Commission design
its auction procedures to ensure that designated entities have
opportunities to obtain licenses and provide service. For that purpose,
the law does not mandate the use of any particular procedure, but it
specifically approves the use of ``tax certificates, bidding
preferences, and other procedures.'' The use of any such procedure is,
in our view, mandated where necessary to achieve Congress's objective
of ensuring that designated entities have the opportunity to
participate in broadband PCS.
94. In addition to this mandate, the statute sets forth various
congressional objectives. For example, it provides that in establishing
eligibility criteria and bidding methodologies the Commission shall
``promot[e] economic opportunity and competition and ensur[e] that new
and innovative technologies are readily accessible to the American
people by avoiding excessive concentration of licenses and by
disseminating licenses among a wide variety of applicants, including
small businesses, rural telephone companies, and businesses owned by
members of minority groups and women.'' 47 U.S.C. Sec. 309(j)(3)(B);
see also id. Sec. 309(j)(4)(C) (requiring the Commission when
prescribing area designations and bandwidth assignments, to promote
``economic opportunity for a wide variety of applicants, including
small businesses, rural telephone companies, and businesses owned by
members of minority groups and women).\64\ Further, Section
309(j)(4)(A) provides that to promote the statute's objectives the
Commission shall ``consider alternative payment schedules and methods
of calculation, including lump sums or guaranteed installment payments,
with or without royalty payments, or other schedules or methods * * *
and combinations of such schedules and methods.''
---------------------------------------------------------------------------
\64\As noted in the Second Report and Order, the statute also
requires the Commission to promote the purposes specified in Section
1 of the Communications Act, which include, among other things, ``to
make available, so far as possible, to all the people of the United
States a rapid, efficient, Nation-wide, and world-wide wire and
radio communication service with adequate facilities at reasonable
charges.'' 47 U.S.C. Sec. 151; Second Report and Order at n. 3.
---------------------------------------------------------------------------
95. To satisfy these statutory mandates and objectives, we
established in the Second Report and Order eligibility criteria and
general rules that would govern the special measures for small
businesses, rural telephone companies, and businesses owned by members
of minority groups and women. We also identified several measures,
including installment payments, spectrum set-asides, bidding credits
and tax certificates, that we could choose from in establishing rules
for auctionable spectrum-based services. We stated that we would decide
whether and how to use these special provisions, or others, when we
developed specific competitive bidding rules for particular services.
In addition, we set forth rules designed to prevent unjust enrichment
by designated entities who transfer ownership in licenses obtained
through the use of these special measures or who otherwise lose their
designated entity status.
96. We intend in the new broadband personal communications service
to meet fully the statutory mandate of Section 309(j)(4)(D), as well as
the objectives of promoting economic opportunity and competition, of
avoiding excessive concentration of licenses, and of ensuring access to
new and innovative technologies by disseminating licenses among a wide
variety of applicants, including small businesses, rural telephone
companies, and businesses owned by members of minority groups and
women. As explained more fully in this Order, in some respects it is
necessary to do more to ensure that businesses owned by members of
minority groups and women have a meaningful opportunity to participate
in the provision of personal communications services than is necessary
to ensure participation by other designated entities. In particular, we
have concluded that steps such as adoption of bidding credits, tax
certificates, alternate payment plans and relaxed attribution rules,
must be taken to encourage investment in minority and women-owned
businesses. These special provisions are tailored to address the major
problem facing minorities and women desiring to offer PCS--lack of
access to capital. Moreover, because broadband PCS licenses in many
cases are expected to be auctioned for large sums of money in the
competitive bidding process, and because buildout costs are likely to
be high, it is necessary to do more to ensure that designated entities
have the opportunity to participate in broadband PCS than is necessary
in other, less costly spectrum-based services. In our view, these steps
and the others we adopt are required to fulfill Congress' mandate that
designated entities have the opportunity to participate in the
provision of PCS. The measures we adopt today will also increase the
likelihood that designated entities who win licenses in the auctions
become strong competitors in the provision of broadband PCS service.
97. In instructing the Commission to ensure the opportunity for
designated entities to participate in auctions and spectrum-based
services, Congress was well aware of the difficulties these groups
encounter in accessing capital. Indeed, less than two years ago,
Congress made specific findings in the Small Business Credit and
Business Opportunity Enhancement Act of 1992, that ``small business
concerns, which represent higher degrees of risk in financial markets
than do large businesses, are experiencing increased difficulties in
obtaining credit.''\65\ Because of these problems, Congress resolved to
consider carefully legislation and regulations ``to ensure that small
business concerns are not negatively impacted'' and to give priority to
passage of ``legislation and regulations that enhance the viability of
small business concerns.''\66\
---------------------------------------------------------------------------
\65\Small Business Credit and Business Opportunity Enhancement
Act of 1992, Section 331(a)(3), Pub. Law 102-366, Sept. 4, 1992.
\66\Id., Section 331(b) (2), (3).
---------------------------------------------------------------------------
98. Congress also recognized that these funding problems are even
more severe for minority and women-owned businesses, who face
discrimination in the private lending market. For example, Congress
explicitly found that businesses owned by minorities and women have
particular difficulties in obtaining capital and that problems
encountered by minorities in this regard are ``extraordinary.''\67\ A
number of studies also amply support the existence of widespread
discrimination against minorities in lending practices. In October
1992, the year prior to passage of the auction law, the Federal Reserve
Bank of Boston released an important and highly-publicized study
demonstrating that a black or Hispanic applicant in the Boston area is
roughly 60 percent more likely to be denied a mortgage loan than a
similarly situated white applicant.\68\ The researchers measured every
variable mentioned as important in numerous conversations with lenders,
underwriters, and examiners and found that minority applicants are more
likely to be denied mortgages even where they have the same obligation
ratios, credit history, loan to value and property characteristics as
white applicants. The lending discrimination that occurs, the study
found, does not involve the application of specific rules, but instead
occurs where discretionary decisions are made. Based on the Boston
study, it is reasonable to expect that race would affect business loans
that are based on more subjective criteria to an even greater extent
than the mortgage loan process, which uses more standard rules.
---------------------------------------------------------------------------
\67\Id., Sections 112(4), 331(a)(4).
\68\Mortgage Lending in Boston: Interpreting HMDA Data, Federal
Reserve Bank of Boston, Working Paper 92-7 (October 1992).
---------------------------------------------------------------------------
99. Importantly, the Boston study also found that, because most
loan applicants have some negative attributes, most loan denials will
appear legitimate by some objective standard. Accordingly, the study
stated, the lending discrimination that occurs is very difficult to
document at the institution level, so legal remedies may be largely
ineffective. Indeed, Congress had already attempted to address
discriminatory lending practices through laws that bar discrimination
in lending, such as the Equal Credit Opportunity Act, enacted in 1974
and amended many times since then. Congress, therefore, could
reasonably assume, based on the Boston study, and its legislative
experience regarding discriminatory lending practices, that minority
applicants for licenses issued in spectrum auctions would face
substantial (albeit subtle) barriers to obtaining financing. Any legal
remedies, even if effective, would, moreover, come too late to ensure
that minorities are able to participate in spectrum auctions and obtain
licenses.
100. Similar evidence presented in testimony before the House
Minority Enterprise Subcommittee on May 20, 1994 indicates that African
American business borrowers have difficulty raising capital mainly
because they have less equity to invest, they receive fewer loan
dollars per dollar of equity investment, and they are less likely to
have alternate loan sources, such as affluent family or friends.
Assuming two hypothetical college educated, similarly-situated male
entrepreneurs, one black, one white, the testimony indicated that the
white candidate would have access to $1.85 in bank loans for each
dollar of owner equity invested, while the black candidate would have
access to only $1.16. According to the testimony, the problems
associated with lower incomes and intergenerational wealth, as well as
the discriminatory treatment minorities receive from financial
institutions, make it much more likely that minorities will be shut out
of capital intensive industries, such as telecommunications. This
testimony also noted that African American representation in
communications is so low that it was not possible to generate
meaningful summary statistics on underrepresentation.\69\
---------------------------------------------------------------------------
\69\Testimony of Dr. Timothy Bates, Visiting Fellow, The Woodrow
Wilson Center, before the U.S. House of Representatives Committee on
Small Business, Subcommittee on Minority Enterprise, Finance, and
Urban Development (House Minority Enterprise Subcommittee), May 20,
1994.
---------------------------------------------------------------------------
101. The inability to access capital is also a major impediment to
the successful participation of women in broadband PCS auctions. In
enacting the Women's Business Ownership Act in 1988, Congress made
findings that women, as a group, are subject to discrimination that
adversely affects their ability to raise or secure capital.\70\ As AWRT
documents, these discriminatory barriers still exist today. Indeed,
AWRT reports that while venture capital is an important source of
funding for telecommunications companies, women-owned companies
received only approximately one percent of the $3 billion invested by
institutional venture capitalists in 1993. Citing a 1992 National
Women's Business Council report, AWRT further argues that even
successful women-owned companies did not overcome these financing
obstacles after they had reached a level of funding and profitability
adequate for most other businesses.\71\
---------------------------------------------------------------------------
\70\Pub. L. 100-533 (1988). In 1991, Congress enacted the
Women's Business Development Act of 1991 to further assist the
development of small businesses owned by women. See Pub. L. 102-191
(1991).
\71\See Letter of AWRT to the Honorable Kweisi Mfume, Chairman,
House Minority Enterprise Subcommittee, June 1, 1994.
---------------------------------------------------------------------------
102. A study prepared in 1993 by the National Foundation for Women
Business Owners (NFWBO) further illustrates the barriers faced by
women-owned businesses. For example, it finds that women-owned firms
are 22 percent more likely to report problems dealing with their banks
than are businesses at large. In addition, the NFWBO study finds that
the largest single type of short-term financing used by women business
owners is credit cards and that over half of women-owned firms use
credit cards for such purposes, as compared to 18 percent of all small
to medium-sized businesses, which generally use bank loans and vendor
credit for short-term credit needs. With regard to long-term financing,
the study states that a greater proportion of women-owned firms are
turning, or are forced to turn, to private sources, and to a wider
variety of sources, to fulfill their needs. Based on these findings,
the NFWBO study concludes that removal of financial barriers would
encourage stronger growth among women-owned businesses, resulting in
much greater growth throughout the economy.\72\
---------------------------------------------------------------------------
\72\See The National Foundation for Women Business Owners,
Financing the Business, A Report on Financial Issues from the 1992
Biennial Membership Survey of Women Business Owners, October 1993.
---------------------------------------------------------------------------
103. If we are to meet the congressional goals of promoting
economic opportunity and competition by disseminating licenses among a
wide variety of providers, we must find ways to counteract these
barriers to entry. Over the years, both Congress and the Commission
have tried various methods to enhance access to the broadcast and cable
industries by minorities and women. For example, in the late 1960s, the
FCC began to promote nondiscriminatory employment policies by broadcast
licensees. These equal employment opportunity efforts have taken the
form of Commission rules and policies that require licensees not to
discriminate, to report hiring and promotion statistics, and to
implement affirmative action programs.\73\ The Commission also has
adopted similar equal employment rules for licensees in the common
carrier, public mobile, and international fixed public radio
communication services,\74\ as well for cable operators.\75\ The cable
EEO rules were recently revised as part of the implementation of the
Cable Act of 1992, and they now apply to cable entities, satellite
master antenna television operators serving 50 or more subscribers and
any multichannel video programming distributor.\76\
---------------------------------------------------------------------------
\73\47 CFR Sec. 73.2080 (broadcasters must ``establish,
maintain, and carry out a positive continuing program of specific
practices designed to ensure equal opportunity in every aspect of
the station's employment policy and practice'').
\74\47 CFR Secs. 21.307, 22.307, 23.55.
\75\47 CFR Secs. 76.71-76.79.
\76\See 47 U.S.C. Sec. 554. In addition, the Commission has
proposed adopting EEO requirements for all CMRS licensees, including
PCS licensees. Regulatory Treatment of Mobile Services, Further
Notice of Proposed Rule Making, GN Docket 93-252, FCC 94-100, 59 FR
28042, May 31, 1994.
---------------------------------------------------------------------------
104. A decade after it first addressed discriminatory hiring
practices, the Commission began to look into the serious
underrepresentation of minorities among owners of broadcast stations.
Recognizing that it could play an important role in alleviating this
problem through the licensing process, the Commission adopted its tax
certificate and distress sale policies in 1978 to encourage minority
ownership of broadcast facilities.\77\ It noted that full minority
participation in the ownership and management of broadcast facilities
would result in a more diverse selection of programming and would
inevitably enhance the diversity of control of a valuable resource, the
electromagnetic spectrum.\78\
---------------------------------------------------------------------------
\77\See Commission Policy Regarding the Advancement of Minority
Ownership in Broadcasting, 92 FCC 2d 849 (1982) (1982 Policy
Statement); see also Statement of Policy on Minority Ownership of
Broadcasting Facilities, 68 FCC 2d 979 (1978) (1978 Policy
Statement).
\78\Because of the role of cable television systems in
retransmitting broadcast signals, the Commission has also issued tax
certificates in connection with sales of cable systems. See
Statement of Policy on Minority Ownership of CATV Systems, FCC 82-
524, released December 22, 1982.
---------------------------------------------------------------------------
105. In implementing these ownership policies, the Commission
identified lack of access to capital as one of the principal barriers
to minority entry. Thus, in 1981, the Commission created the Advisory
Committee on Alternative Financing for Minority Opportunities in
Telecommunications (the ``Rivera Committee'') to investigate financing
methods and to give recommendations to the FCC on ways to encourage
minority ownership of telecommunications facilities.\79\ The Rivera
Committee confirmed that the shortage of capital is a principal problem
facing minorities seeking ownership opportunities and further found
that this shortage was due to minority inexperience in obtaining
financial institution misconceptions about potential minority
borrowers, and marketplace structural problems, such as high interest
rates and low broadcast industry earnings growth. Among other things,
the Rivera Committee suggested educational and outreach programs and
expanding the tax certificate program to nonbroadcast properties such
as common carrier and land mobile. In response to this recommendation,
the FCC submitted draft legislation to Congress proposing to broaden
the scope of the Commission's authority to issue tax certificates in
connection with the sale or exchange of any type of telecommunications
facilities.\80\ On March 24, 1983, The Minority Telecommunications
Ownership Tax Act of 1983, H.R. 2331, which incorporated the
Commission's proposals, was introduced in the House of
Representatives.\81\
---------------------------------------------------------------------------
\79\Strategies for Advancing Minority Ownership Opportunities in
Telecommunications, The Final Report of the Advisory Committee on
Alternative Financing for Minority Opportunities in
Telecommunications to the Federal Communications Commission, May
1982 (Rivera Committee Report).
\80\See Federal Communications Draft Legislation Revising
Section 1071 of the Internal Revenue Code of 1994 (January 17,
1983).
\81\The Minority Telecommunications Ownership Tax Act of 1983,
H.R. 2331, 98th Congress, 1st Sess., March 24, 1983.
---------------------------------------------------------------------------
106. Congress also took steps to address the problem of minority
underrepresentation in communications. In 1982, it mandated the grant
of a ``significant preference'' to minority applicants participating in
lotteries for spectrum-based services. 47 U.S.C. Sec. 309(i)(3)(A).
And, in 1988 and each fiscal year thereafter, Congress attached a
provision to the FCC appropriations legislation, which precluded the
Commission from spending any appropriated funds to examine or change
its minority broadcast preference policies.\82\
---------------------------------------------------------------------------
\82\See Continuing Appropriations Act for Fiscal Year 1988, Pub.
L. 100-102, 101 Stat. 1329-31; Departments of Commerce, Justice, and
State, the Judiciary, and Related Agencies Appropriations Act of
1994, Pub. L. 103-121, 107 Stat. 1167.
---------------------------------------------------------------------------
107. These efforts have met with limited success. The record shows
that women and minorities have not gained substantial ownership
representation in either the broadcast or non-broadcast
telecommunications industries. For example, a 1993 report conducted by
the National Telecommunications and Information Administration's (NTIA)
Minority Telecommunications Development Program shows that, as of
August 1993, only 2.7 percent of commercial broadcast stations were
owned by minorities. Another study commissioned by the Commerce
Department's Minority Business Development Agency in 1991 found that
only one half of one percent of the telecommunications firms in the
country were minority owned. The study also identified only 15 minority
cable operators and 11 minority firms engaged in the delivery of
cellular, specialized mobile radio, radio paging or messaging services
in the United States.\83\ And, according to the last available U.S.
Census, only 24 percent of the communications firms in the country were
owned by women, and these women-owned firms generated only
approximately 8.7 percent of the revenues earned by communications
companies.\84\ When companies without paid employees are removed from
the equation, firms with women owners represent only 14.5 percent of
the communications companies in the country.\85\ One result of these
low numbers is that there are very few minority or women-owned
businesses that bring experience or infrastructure to PCS. They thus
face an additional barrier relative to many existing service providers.
---------------------------------------------------------------------------
\83\See Testimony of Larry Irving, Assistant Secretary for
Communications and Information, U.S. Department of Commerce, before
the House Minority Enterprise Subcommittee, May 20, 1994. In his
testimony at this same hearing, FCC Chairman Reed Hundt cited some
of these statistics and noted that in light of this serious
underrepresentation, there remains ``a fundamental obligation for
both Congress and the FCC to examine new and creative ways to ensure
minority opportunity.'' Testimony of Reed E. Hundt, Chairman,
Federal Communications Commission, before the House Minority
Enterprise Subcommittee, May 20, 1994.
\84\See Women-Owned Businesses, 1987 Economic Censuses, U.S.
Department of Commerce, issued August 1990, at 7, 147. The census
data includes partnerships, and subchapter S corporations. We have
no statistics regarding women representation among owners of larger
communications companies.
\85\Id.
---------------------------------------------------------------------------
108. Small businesses also have not become major participants in
the telecommunications industry. For instance, one commenter asserts
that ten large companies--six Regional Bell Operating Companies
(RBOCs), AirTouch (formerly owned by Pacific Telesis), McCaw, GTE and
Sprint--control nearly 86 percent of the cellular industry. This
commenter further contends that nine of these ten companies control 95
percent of the cellular licenses and population in the 50 BTAs that
have one million or more people.\86\
---------------------------------------------------------------------------
\86\Ex parte filing of DCR Communications, May 31, 1994.
---------------------------------------------------------------------------
109. Congress directed the Commission to ensure that, together with
other designated entities, rural telephone companies have the
opportunity to participate in the provision of PCS. Rural areas,
because of their more dispersed populations, tend to be less profitable
to serve than more densely populated urban areas. Therefore, service to
these areas may not be a priority for many PCS licensees. Rural
telephone companies, however, are well positioned because of their
existing infrastructure to serve these areas profitably. We, therefore,
have adopted special provisions to encourage their participation,
increasing the likelihood of rapid introduction of service to rural
areas.
110. In the new auction law, Congress directed the Commission to
remedy this serious imbalance in the participation by certain groups,
especially minorities and women. The record indicates that, in the
absence of meaningful efforts to assist designated entities, there
would be good reason to think that participation by these groups,
particularly businesses owned by women and minorities, would continue
to be severely limited. Indeed, the auction law itself envisions a
process that requires payment of funds to acquire an initial license,
unlike existing licensing methods such as comparative hearings or
lotteries. It is therefore possible that participation by those with
limited access to capital could be further diminished by operation of
the statute, absent affirmative provisions to create competitive
opportunity for designated entities. The measures we adopt in this
Fifth Report and Order thus will carry out Congress's directive to
provide meaningful opportunities for small entities, rural telephone
companies, and businesses owned by women and minorities to provide
broadband PCS services. The rules also are expressly designed to
address the funding problems that face these groups and that are their
principal barriers to entry.
111. We also intend that designated entities who win licenses have
the opportunity to become strong competitors in this service. While the
new broadband PCS service presents tremendous opportunities for
designated entities to participate in the provision of the next
generation of innovative wireless mobile telecommunications services,
it is expected to be a highly competitive service, and the estimated
costs of acquiring a license and constructing facilities are
substantial. In the Broadband PCS Reconsideration Order, which was
adopted June 9, 1994, we took specific steps to assist designated
entities to become viable competitors in the provision of broadband
PCS. For example, we modified the PCS spectrum allocation plan by
shifting all channels blocks to a contiguous lower segment of the
``emerging technologies band'' in part to bolster the ability of
designated entities to obtain more competitively viable licenses. In
addition, we relaxed some of the ownership and attribution rules with
respect to cellular operators' participation in PCS to foster
investment in designated entity ventures,\87\ and we also relaxed the
PCS/cellular cross-ownership rule for designated entities with cellular
holdings to allow them to further expand their opportunities in
broadband PCS.\88\ Further, we took steps that will result in lower
capital costs for designated entities that obtain PCS licenses,
including adoption of a band plan that will reduce the costs of
clearing the PCS spectrum of incumbent microwave users as well as
relaxing the construction requirements.
---------------------------------------------------------------------------
\87\Broadband PCS Reconsideration Order at 127.
\88\Id. at 125.
---------------------------------------------------------------------------
112. The measures we establish today to encourage the entry of
designated entities also are designed to promote strong, long-term bona
fide competitors. For example, we have revised the definition of a
small business set forth in the Second Report and Order to include
entities with up to $40 million in gross revenues, and we will allow
these small businesses to pool their resources and form consortia to
bid in the entrepreneurs' blocks. We also adopt rules that allow
entrepreneurial businesses, small businesses, and businesses owned by
women and minorities to raise capital by attracting passive equity
investors. At the same time, we have designed these rules to ensure
that the special provisions adopted for such businesses accrue to the
intended beneficiaries.
B. Summary of Special Provisions for Designated Entities
113. As discussed more fully below, many commenters in this
proceeding believe that the inability of designated entities to obtain
adequate funding has a profoundly adverse effect on the potential for
these businesses to bid successfully in auctions against very large,
established businesses. Therefore, we take a number of steps in this
Order to help address this imbalance.
We establish two ``entrepreneurs' blocks'' (frequency
blocks C and F) in which large companies (those with $125 million or
more in annual gross revenues or $500 million or more in total assets)
will be prohibited from bidding.
Bidding credits will be granted both to small businesses
and to businesses owned by women and minorities in the entrepreneurs'
blocks to provide them with a better opportunity to compete
successfully in broadband PCS auctions.
Certain winning bidders in frequency blocks C and F will
be permitted to pay the license price in installments, and the interest
rate and moratorium on principal payments will be adjusted to assist
small businesses and women and minority-owned businesses.
We adopt a tax certificate program for minority and women-
owned businesses, which will provide additional assistance in their
efforts to attract equity investors.
Rural telephone companies will be allowed to obtain
broadband PCS licenses that are geographically partitioned from larger
PCS service areas to provide them more flexibility to serve rural
subscribers.\89\
---------------------------------------------------------------------------
\89\In a Further Notice of Proposed Rule Making in this docket,
we will seek comment on whether a partitioning option for small
businesses or businesses owned by women or minorities, as suggested
by some of the commenters, may be appropriate. In that Further
Notice, we also will seek comment or whether the Commission should
impose a restriction on the assignment or transfer of control of
partitioned licenses by rural telephone companies or other
designated entities for some period of time.
---------------------------------------------------------------------------
Bidders in the entrepreneurs' blocks will be required to
pay an upfront payment of only $0.015 per MHz per pop, in contrast to
the $0.02 per MHz per pop required in the other blocks.
114. The following chart highlights the major provisions adopted
for businesses bidding in the entrepreneurs' blocks.\90\
---------------------------------------------------------------------------
\90\This table is not comprehensive and therefore it does not
present all the provisions established for designated entities,
especially those available outside the entrepreneurs' blocks.
----------------------------------------------------------------------------------------------------------------
Bidding
credits Installment payments Tax certificates
(percent) for investors
----------------------------------------------------------------------------------------------------------------
Entrepreneurial Businesses ($40 MM-$125 0 Interest only for 1 year; rate equal to No.
MM in revenue and less than $500 MM in 10-year Treasury note plus 2.5%; (for
total assets). businesses with revenues greater than
$75 MM, available only in top 50
markets).
Small Businesses (less than $40 MM 10 Interest only for 2 years; rate equal No.
revenues). to 10-year Treasury note plus 2.5%.
Businesses Owned by Minorities and/or 15 Interest only for 3 years; rate equal Yes.
Women ($40 MM-$125 MM in revenues). to 10-year Treasury note.
Small Businesses Owned by Minorities and/ 25 Interest only for 5 years; rate equal Yes.
or Women (less than $40 MM revenues). to 10-year Treasury note.
----------------------------------------------------------------------------------------------------------------
C. Summary of Eligibility Requirements and Definitions
1. Entrepreneurs' Blocks and Small Business Eligibility
115. The following points summarize the principal rules regarding
eligibility to bid in the entrepreneurs' blocks and to qualify as a
small business. In addition, they summarize the attribution rules we
will use to assess whether an applicant satisfies the various financial
thresholds. More precise details are discussed in the subsections that
follow.
Financial Caps
Entrepreneurs' Blocks: To bid in the entrepreneurs'
blocks, the applicant, including attributable investors and affiliates,
must cumulatively have less than $125 million in gross revenues and
less than $500 million in total assets. No individual attributable
investor or affiliate may have $100 million or more in personal net
worth.
Small Business: To qualify for special measures accorded a
small business, the applicant, including attributable investors and
affiliates, must cumulatively have less than $40 million in gross
revenues. No individual attributable investor or affiliate may have $40
million or more in personal net worth.
Attribution Rules
Control Group. The gross revenues, total assets and
personal net worth of certain investors are not considered so long as
the applicant has a `'control group'' consisting of one or more
individuals or entities that control the applicant, hold at least 25
percent of the equity and, for corporations, at least 50.1 percent of
the voting stock.
The gross revenues, total assets and personal net worth of
each member of the control group are counted toward the financial caps.
Other Investors. Where the applicant has a control group,
the gross revenues, total assets and personal net worth of any other
investor are not considered unless the investor holds 25 percent or
more of the applicant's passive equity (which, for corporations,
includes as much as 5 percent of the voting stock).
Passive Equity. Passive equity is limited partnership or
non-voting stock interests or voting stock interests of 5 percent or
less of the issued and outstanding voting stock.
Option for Minority or Woman-Owned Applicants. If the
control group (considering entirely of women and/or minorities) owns at
least 50.1 percent of the equity and, for corporations, at least 50.1
percent of the voting stock, then the gross revenues, total assets and
personal net worth of any other investor are not considered unless the
investor holds more than 49.9 percent of the applicant's passive equity
(which, for corporations, includes as much as 5 percent of the voting
stock).
Affiliates. The gross revenues, assets and personal net
worth of outside interests held by the applicant (and the attributable
investors in the applicant) are counted toward the financial caps if
the applicant (or the attributable investors in the applicant) control
or have power to control the outside interests or if the applicant (or
the attributable investors in the applicant) is under the control of
the outside interests. The financial interests of spouses are also
attributed to each other.
2. Definition of Women and/or Minority-Owned Business
116. The points below summarize the two structural options
available to firms that wish to qualify for the special provisions
adopted for businesses owned by minorities and women. These options
will be discussed in more detail in the text that follows.
50.1% Equity Option
If women and/or minority principals control the applicant and own
at least:
50.1 percent of the equity
and 50.1 percent of the voting stock, in the case of
corporations
Then any other investor may hold:
not more than 49.9 percent of the passive equity (which,
for corporations, includes as much as 5 percent of the voting stock).
25% Equity Option
If women and/or minority principals control the applicant and own
at least:
25 percent of the equity
and 50.1 percent of the voting stock, in the case of
corporations
Then any other investor may hold:
less than 25 percent of the passive equity (for
corporations, any other investor also may hold not more than 5 percent
of the voting stock).
117. We also have imposed numerous strict requirements to deter
shams and fronts and to prevent abuse of the incentives for designated
entities. The Commission intends to enforce vigorously each of these
requirements. All licensees in the entrepreneurs' blocks are prohibited
from voluntarily assigning or transferring their licenses for three
years after grant of the application and for the next two years may
assign or transfer licenses only to other entities that satisfy the
financial criteria to bid in the entrepreneurs' blocks. Furthermore, a
business that seeks to acquire a license from an entity paying in
installments during the license period will be required, as a condition
of the grant, to pay according to the installment payment terms for
which it qualifies, unless they are more favorable in which case the
existing terms apply. If the purchaser is not qualified for any
installment payment plan, we will require payment of the unpaid balance
in full before the sale will be approved. We also adopt rules to ensure
that the value of the bidding credit is returned to the government in
the event of a transfer of control or assignment of the license to an
entity not qualifying for bidding credits or not qualifying for as high
a bidding credit as the seller. In addition, we impose a one-year
holding period on licenses received through the benefit of a tax
certificate. We will also random audits to ensure that designated
entities de facto and de jure control. These steps and our eligibility
and affiliation rules will help to ensure that the measures we adopt
are utilized only by bona fide eligible entities and to deter winning
bidders seeking only to make a quick profit on the sale of PCS
licenses. Ultimately, we believe that we will best fulfill our
statutory mandate by creating powerful incentives for bona fide
designated entities to attract the capital necessary to compete both in
auctions for broadband PCS and in the provision of service, and be
requiring a strict holding period to ensure that the public receives
the benefit of this diverse ownership.
D. The Entrepreneurs' Blocks
118. As discussed above, because the auction process itself
requires additional expenditures of capital to acquire licenses, this
new licensing procedure in many respects holds the potential to erect
an additional barrier to entry that had not existed even under the
Act's previous licensing methods, comparative hearings and lotteries.
As reflected in the House Committee Report, Congress was well aware of
that possibility and wanted to ensure that competitive bidding should
not exclude smaller entities from obtaining licenses.\91\ The inability
of small businesses and businesses owned by women and minorities to
obtain adequate private financing creates a serious imbalance between
these companies and large businesses in their prospects for competing
successfully in broadband PCS auctions.
---------------------------------------------------------------------------
\91\See H.R. Rep. No. 103-111 at 255.
---------------------------------------------------------------------------
119. In addition, commenters contend that, at the outset, a small
PCS business and a large local exchange carrier would value a license
very differently. DCR Communications, for example, argues that a local
telephone company would have much lower costs of construction and
operation through equipment volume discounts, existing billing,
accounting, order entry and processing, and customer service systems.
Furthermore, DCR contends, the telephone company might decide to use
its PCS system simply as an adjunct to a cellular system it owns in a
nearby market and market wireless handsets that operate in both
frequencies. DCR concludes that the telephone company could justify
paying the higher value for the license because it has more ready
access to capital.\92\
---------------------------------------------------------------------------
\92\Ex parte filing of DCR Communications, May 31, 1994.
---------------------------------------------------------------------------
120. This concern is echoed by a number of commenters. NTIA agrees
that capital formation is a major barrier to full participation by
small and minority-owned firms, asserting that capital-constrained
firms are likely to assign lower values to PCS licenses than other
bidders and are therefore less likely to obtain licenses in an open
bidding market.\93\ Another party, Impulse Telecommunications
Corporation, states that ``giants'' can justify huge bids because they
have billions of dollars of capital as well as an existing
administrative, billing, operating and marketing infrastructure. In
addition, Impulse asserts that PCS licenses are likely to hold
strategic value for large long distance and local telephone companies,
for such purposes as critical wireless access.\94\ Similarly, Tri-State
Radio Company states that the allocation of substantial amounts of
spectrum to services such as broadband PCS has generated extensive
industry expectation and speculation. With the financial stakes so
high, Tri-State argues that designated entities will have little
ability to bid successfully against ``communications behemoths with
almost unlimited financial resources.''\95\
---------------------------------------------------------------------------
\93\NTIA Comments at 26.
\94\Ex parte filing of Impulse Telecommunications Corporation,
May 27, 1994.
\95\Tri-State Comments at 11. See also comments of NAMTEC
(designated entities should not have to compete against ``more
entrenched parties''), National Rural Telecom Association (the only
way small entities can have real opportunity is if they do not have
to bid against ``extremely `deep pocket' applicants''), The Small
Business PCS Association (it will not be possible for designated
entities ``to compete in an auction against some of the largest
companies and wealthiest individuals in the United States''), JMP
(without preferences for designated entities, large
telecommunications firms will ``monopolize'' the auctions), Minority
PCS Coalition at 6, Telephone Association of Michigan at 9-10, Iowa
Network at 9, AWRT at 8, Telephone Electronics at 7-8, Sloan at 2.
---------------------------------------------------------------------------
121. We agree that small entities stand little chance of acquiring
licenses in these broadband auctions if required to bid against
existing large companies, particularly large telephone, cellular and
cable television companies. If one or more of these big firms targets a
market for strategic reasons, there is almost no likelihood that it
could be outbid by a small business. In the Notice, we proposed that
one means to address such problems would be to set aside specific
spectrum blocks in broadband PCS that would be reserved for bidding
purposes to the designated entities.\96\ In this Order, we have decided
to adopt a modification of this proposal, which should greatly enhance
the ability of all designated entities to enter auctions and bid
successfully for broadband PCS licenses. Specifically, we establish two
entrepreneurs' blocks, C and F, in which eligibility to bid is limited
to entities that, together with their affiliates and certain investors,
have gross revenues of less than $125 million in each of the last two
years and total assets of less than $500 million. In addition, we will
prohibit an applicant from bidding in these blocks if any one
individual investor in the applicant has $100 million or greater in
personal net worth. Together with a reduced upfront payment
requirement, we believe this proposal will encourage smaller entities
to enter the auctions for broadband PCS licenses and will ensure that
``entrepreneurial'' businesses are granted nearly half of all the
broadband PCS licenses being auctioned.
---------------------------------------------------------------------------
\96\Notice at 121.
---------------------------------------------------------------------------
122. NTIA strongly supports this measure, arguing that it ``would
be the most direct mechanism for preserving opportunities for small
companies in an auction environment.'' According to NTIA, reserving two
entrepreneurs' blocks helps significantly in satisfying the
congressional directive that competitive bidding not result in an
increase in concentration in the telecommunications industries.\97\
Similarly, Columbia PCS contends that establishment of entrepreneurs'
blocks ``provides a good balance between Congress's clear mandate to
provide opportunities for designated entities and avoid undue
concentration of PCS licenses on the one hand with the goal of
capturing the value of allocated spectrum for the American public on
the other.''\98\
---------------------------------------------------------------------------
\97\Ex parte filing of NTIA, June 21, 1994.
\98\Ex parte filing of Columbia PCS, June 2, 1994. Columbia PCS
further states that this measure would spur investment in designated
entities and increase their ability to compete against one another
and others. Id.
---------------------------------------------------------------------------
123. The $125 million gross revenue/$500 million asset caps have
the effect of excluding the large companies that would easily be able
to outbid designated entities and frustrate Congress's goal of
disseminating licenses among a diversity of licensees. At the same
time, this restriction does not exclude many firms that, while not
large in comparison with other telecommunications companies,
nevertheless are likely to have the financial ability to provide
sustained competition for the PCS licensees on the MTA blocks. For
example, the $125 million gross revenue figure corresponds roughly to
the Commission's definition of a Tier 2, or medium-sized, local
exchange carrier,\99\ and would include virtually all of the
independently owned rural telephone companies. Limiting the personal
net worth of any individual investor or affiliate of the applicant to
$100 million will prevent a very wealthy individual from leveraging his
or her personal assets to allow the applicant to circumvent the size
limitations of the entrepreneurs' blocks.
---------------------------------------------------------------------------
\99\Local exchange carriers are categorized as Tier 1 and Tier 2
companies by applying the criterion that Sections 32.11(a) and
32.11(e) of the Commission's Rules use to distinguish Class A and
Class B companies, respectively. Class A companies are those
companies having annual revenues from regulated telecommunications
operations of $100 million or more; Class B companies are those
companies having annual revenues from regulated telecommunications
operations of less than $100 million. The initial classification of
a company is determined by its lowest annual operating revenues for
the five immediately preceding years. A company's classification is
changed when its annual operating revenue exceeds or is under the
$100 million mark in each of five consecutive years. The Commission
imposes more relaxed regulatory requirements on Tier 2 LECs than on
Tier 1 LECs. See Automated Reporting Requirements for Certain Class
A and Tier 1 Telephone Companies, 2 FCC Rcd 5770, 5772, 52 FR 35918,
Sept. 24, 1987; Commission Requirements for Cost Support Material to
be Filed with 1994 Annual Access Tariffs and for Other Cost Support
Material, 9 FCC Rcd 1060 n. 3 (Comm. Carr. Bur. 1994); Commission
Requirements for Cost Support Material to be Filed with Access
Tariffs on March 1, 1985, Public Notice, Mimeo No. 2133 (Comm. Carr.
Bur. released Jan. 25, 1985).
---------------------------------------------------------------------------
124. As noted previously, many commenters asked us to reserve
spectrum blocks for bidding only by designated entities. The
entrepreneurs' blocks plan adopted herein is similar in concept to the
set-aside proposals set forth by the commenters. Therefore, in
determining which of the blocks in each market should constitute the
entrepreneurs' blocks, we paid close attention to the concerns of those
who had advocated set-asides in the first instance. Although the
broadband PCS band plan has changed since the Commission first proposed
set-asides in the Notice and parties first submitted their proposals in
this docket, the general concerns of these parties about the amount of
spectrum and geographic territory necessary to compete effectively
remain pertinent. Moreover, we adopted the revised broadband PCS band
plan in advance of this Order, which afforded interested parties the
opportunity to make additional presentations on designated entity
incentives in light of the new band plan.
125. A number of commenters approved of the Notice's proposal to
set aside one 20 MHz BTA block and one 10 MHz BTA block. The Small
Business PCS Association asserted, moreover, that implementation of the
set-aside proposal would offer ``a major opportunity'' for small
businesses, that a 20 MHz block is ``probably ideal'' for development
by small entrepreneurs, and that even a 10 MHz block could sustain a
viable PCS System.\100\ Telepoint makes similar assertions.
---------------------------------------------------------------------------
\100\The Small Business PCS Association stated that a small
business operating in a single BTA service region could effectively
compete with large companies operating in larger service areas. This
is so, it contended, mainly because PCS providers with large service
areas would not realize such great economies of scale as many have
supposed and because small firms could counter such advantages by
forming buying cooperatives. Comments of Small Business PCS
Association at 2-3.
---------------------------------------------------------------------------
126. A considerable number of commenters, however, contended that
the Commission's proposal to set aside a 20 MHz block and a 10 MHz
block would be inadequate. Telephone Electronics and AWCC asserted, for
instance, that a provider operating with only a 10 MHz or 20 MHz
license could not offer a full range of PCS services with quality
equivalent to the like offerings of a provider operating with a 20 MHz
license. Unique and AWCC thus argued that PCS licensees in the set-
aside spectrum would consequently be unable to obtain commercial
funding on terms as favorable to those available to operators with 30
MHz licenses. Independent Cellular Network maintained that the
competitive disadvantages of the proposed set-aside channels, due to
their lesser bandwidth, could not be obviated through aggregation,
because of the greater transaction costs that would be incurred above
those associated with acquisition of a single 30 MHz license.
127. We believe that designating frequency blocks C and F as
entrepreneurs' blocks meets the concerns of most of the designated
entity commenters. Frequency block C provides 30 MHz of spectrum and,
thus, satisfies the concerns of those parties who believe they must
have this amount of bandwidth to compete effectively. The MHz block F
license, on the other hand, fulfills the needs of other designated
entities who argued in favor of small blocks. Moreover, since the C and
F blocks are adjacent, they can be aggregated efficiently by one or
more licensees. This plan also makes available to eligible bidders in
the entrepreneurs' blocks 986 licenses, or slightly under 50 percent of
all broadband PCS licenses. Finally, it does not foreclose
opportunities for other parties. Bidders ineligible for the
entrepreneurs' blocks will have the opportunity to bid on 99 30 MHz MTA
licenses throughout the country, as well as 986 10 MHz BTA licenses
nationwide.
128. Five-Year Holding and Limited Transfer Period. In establishing
the entrepreneurs' blocks, we recognize the congressionally mandated
objective will not be served if parties take advantage of bidding in
these blocks and immediately assign or transfer control of the
authorizations to other entities. Such a practice could unjustly enrich
the auction winners and would undermine the congressional goal of
giving designated entities the opportunity to provide spectrum-based
services. Therefore, we will prohibit licensees in the entrepreneurs'
blocks from voluntarily assigning or transferring control of their
licenses for a period of three years from the date of the license
grant.\101\ And, for the next two years of the license term, we will
permit the licensee to assign or transfer control of its authorization
only to an entity that satisfies the entrepreneurs' blocks entry
criteria.\102\ During this five-year period, licensees will continue to
be bound by the financial eligibility requirements, as set forth
below.\103\ In addition, a transferee or assignee who receives a C or F
block license during the five-year period will remain subject to the
transfer restrictions for the balance of the holding period.\104\ The
Commission will conduct random pre and post-auction audits to ensure
that applicants receiving preferences are in compliance with the FCC's
rules.
---------------------------------------------------------------------------
\101\We will consider exceptions to this three-year holding
period rule on a case-by-case basis in the event of a judicial order
decreeing bankruptcy or a judicial foreclosure if the licensee
proposes to assign or transfer its authorization to an entity that
meets the financial thresholds for bidding in the entrepreneurs'
blocks. In addition, we note that a transfer is considered
``involuntary'' if it is made pursuant to a court decree requiring
the sale or transfer of the licensee's stock or assets. Paramount
Pictures, Inc., 43 FCC 453 (1949); C.f. William Penn Broadcasting,
16 FCC 2d 1050 (1969).
\102\We note that a licensee assigning its authorization
pursuant to this limited transfer period might be subject to the
repayment provisions associated with installment payments and
bidding credits. See infra 134, 141. We also clarify that rural
telephone companies receiving partitioned licenses in the
entrepreneurs' blocks are subject to this five-year holding and
limited transfer period.
\103\See infra 156-168. In addition, for purposes of the
installment payment and bidding credit provisions set forth below,
licensees will continue to be bound by the financial eligibility
requirements throughout the term of the license.
\104\For example, if a C-block authorization is assigned to an
eligible business in year four of the license term, it will be
required to hold that license until the original five-year period
expires, subject to the same exceptions that applied to the original
licensee.
---------------------------------------------------------------------------
129. Our goals are to create significant opportunities for
entrepreneurs, small businesses, and businesses owned by minorities and
women to compete in auctions for licenses and attract sufficient
capital to build-out those licenses and provide service. We recognize
the critical need to attract capital, which requires flexibility. We
are very concerned, however, that such flexibility not undermine our
more fundamental objective, which is to ensure that designated entities
retain de facto and de jure control of their companies at all times. We
believe that the five-year holding and limited transfer period, which
we have adopted in this Order, will help to promote this objective.
Some question remains, however, as to whether a longer holding period
(e.g., seven years) would more fully meet this goal.
E. Bidding Credits
130. In the Notice, we indicated that we might use spectrum set-
asides for designated entities in the broadband PCS service but did not
expressly propose to use bidding credits. For two other services, IVDS
and narrowband PCS, however, we did conclude recently that the use of
bidding credits in auctions would be an effective tool to ensure that
women and minority-owned businesses have opportunities to participate
in the provision of those services.\105\ On further reflection, and
based on the many comments in the record favoring this approach, we
believe that bidding credits are necessary to ensure that women and
minority-owned businesses and small businesses participate in broadband
PCS. Accordingly, we adopt a bidding credit plan for winning bidders in
the entrepreneurs' blocks that gives small businesses a 10 percent
credit, women and minority-owned businesses a 15 percent credit, and
small businesses owned by women and minorities an aggregate credit of
25 percent.
---------------------------------------------------------------------------
\105\See Third Report and Order, FCC 94-98, 59 FR 26741, May 24,
1994; Fourth Report and Order, 9 FCC Rcd 2330, 59 FR 24947, May 13,
1994.
---------------------------------------------------------------------------
131. At the outset, we note that we are confining the bidding
credit option to the entrepreneurs' blocks because, given the extremely
capital intensive nature of broadband PCS, we do not think bidding
credits in an uninsulated block would have a meaningful effect.\106\
Indeed, in ex parte presentations to the Commission, many commenters
have indicated that, without spectrum set-asides for broadband PCS,
bidding credits would not be sufficient to assist designated entities
in outbidding very large entities who are likely to bid for licenses in
this service. DCR Communications states, for example, that all of the
existing large telecommunications carriers can justify must larger
payments for licenses than could an individual entrepreneur, regardless
of a bidder's credit. Therefore, it believes no entrepreneur will win a
bid for any PCS market that is desirable to any of the large
companies.\107\ Many other commenters echo this concern.\108\ Some
state that, if bidding credits alone are used, extraordinarily large
credits, even on the order of 50 percent or more, would be
ineffective.\109\ As described above, in order to afford designated
entities a realistic opportunity to obtain licenses in the broadband
PCS service, we have taken measures to exclude very large businesses
from bidding for licenses in the C and F blocks. These measures will
enhance the value of the bidding credits for small businesses and
businesses owned by minorities and women. In this context, we believe
that bidding credits will have a significant effect on the ability of
small businesses and businesses owned by women and minorities to
participate successfully in auctions for licenses in these blocks.
---------------------------------------------------------------------------
\106\We also are concerned that allowing bidding credits in the
MTA blocks would increase substantially the incentive for businesses
to engage in shams and fronts.
\107\Ex parte filing of DCR, May 31, 1994, at 4-5.
\108\See ex parte filings of DigiVox Corporation, May 31, 1994,
at 3 (the use of bidding credits to the exclusion of frequency set-
asides will not fulfill the objectives of Section 309(j)),
Communications International Wireless Corp., May 27, 1994, at 1
(bidding credits alone cannot level the playing field between
designated entities and members of the Fortune 100 companies), CWCC,
May 27, 1994, at 2 (bidding credits alone cannot level the playing
field for designated entities).
\109\Ex parte filings of AWCC, May 26, 1994 at 2, Columbia PCS,
June 2, 1994 at 2.
---------------------------------------------------------------------------
132. As explained above, the capital access problems faced by small
firms and women and minority-owned firms make special provisions like
bidding credits appropriate for these designated entities in broadband
PCS.\110\ In effect, the bidding credit will function as a discount on
the bid price a firm will actually have to pay to obtain a license and,
thus, will address directly the financing obstacles encountered by
these entities. Moreover, as noted previously, women and minorities
face discrimination in lending and other barriers to entry not
encountered by other firms, including other designated entities.
Therefore, as one of the measures designed to counter these increased
capital formation difficulties, we will provide them with a slightly
higher bidding credit than that granted to small businesses. Thus,
women and minorities will receive a 15 percent payment discount that is
applied against the amounts they bid on licenses. Absent such measures
targeted specifically to women and minorities, it would be virtually
impossible to assure that these groups achieve any meaningful measure
of opportunity for actual participation in the provision of broadband
PCS. Similarly, it is reasonable to assume that small firms owned by
women and minorities suffer the problems endemic to both groups and
that a cumulative bidding credit of 25 percent is therefore
appropriate. We believe that these measures will help women and
minorities to attract the capital necessary for obtaining a license and
constructing and operating a broadband PCS system, consistent with the
intent of Congress.
---------------------------------------------------------------------------
\110\Although we did not grant bidding credits to small
businesses in the narrowband PCS or IVDS services, we believe that,
given the exponentially greater expense likely to be incurred in
acquiring broadband PCS licenses and construct the systems, bidding
credits are a proper means to ensure that these firms have the
opportunity to participate in this service. We note that for
narrowband PCS and IVDS, the cost of license acquisition and
implementation of service is anticipated to be considerably more
modest.
---------------------------------------------------------------------------
133. The definition of a minority or women-owned firm and of a
small business are set forth below.\111\ To receive a 10 percent
bidding credit, a small business must satisfy a gross revenue test. As
explained more fully below in the small business definition section, a
consortium consisting entirely of small businesses also is eligible for
a 10 percent bidding credit even if the combined gross revenues of the
consortium exceed the small business gross revenues threshold. In
addition, a small business that is owned by women and minorities must
satisfy the definition of a business owned by minorities and women as
well as the small business definition to receive a 25 percent bidding
credit. Finally, a consortium of small firms owned by women and/or
minorities is eligible for a 25 percent bidding credit, provided that
each member of the consortium meets the definition of a small business
and a minority and/or women-owned firm.
---------------------------------------------------------------------------
\111\See infra 172-192.
---------------------------------------------------------------------------
134. Unjust Enrichment Applicable to Bidding Credits. To ensure
that bidding credits benefit the parties to whom they are directed, we
adopt strict repayment penalties. If, within the original term, a
licensee applies to assign or transfer control of a license to an
entity that is not eligible for as a high a level of bidding credit,
then the difference between the bidding credit obtained by the
assigning party and the bidding credit for which the acquiring party
would qualify must be paid to the U.S. Treasury as a condition of
approval of the transfer. For example, an assignment of a license from
a small minority-owned firm to a women-owned firm with revenues greater
than $40 million would require repayment of 10 percent of the original
bid price (25 percent less 15 percent) to the Treasury. A sale to an
entity that would not qualify for bidding credits will entail full
payment of the bidding credit as a condition of transfer. Small
businesses also will be bound by the financial eligibility rules during
the entire license term as set forth below. Thus, if after licensing an
investor purchases an ``attributable'' interest in the business and, as
a result, the gross revenues of the firm exceed the $40 million small
business cap, this repayment provision will apply.\112\ These repayment
provisions apply throughout the original term of the license to help
promote the long-term holding of licenses by those parties receiving
bidding credits.
---------------------------------------------------------------------------
\112\See infra 158-168, for a discussion of which investor
interests are ``attributable'' for purposes of calculating the gross
revenues caps.
---------------------------------------------------------------------------
F. Installment Payments
135. A significant barrier for most businesses small enough to
qualify to bid in the entrepreneurs' blocks will be access to adequate
private financing to ensure their ability to compete against larger
firms in the PCS marketplace.\113\ In the Second Report and Order, we
concluded that installment payments are an effective means to address
the inability of small businesses to obtain financing and will enable
these entities to compete more effectively for the auctioned spectrum.
We also determined that small businesses eligible for installment
payments would only be required to pay half of the down payment (10
percent of the winning bid, as opposed to 20 percent) five days after
the auction closes, with the remaining 10 percent payment deferred
until five days after grant of the license. Finally, we indicated that
installment payments should be made available to small businesses at an
interest rate equal to the rate for U.S. Treasury obligations. See
Second Report and Order at 236-240.
---------------------------------------------------------------------------
\113\See e.g., comments of SBA Chief Counsel of Advocacy at 6,
20-21. NTIA at 27; SBAC Report at 2 (September 15, 1993).
---------------------------------------------------------------------------
136. In light of the expected substantial capital required to
acquire and construct broadband PCS licenses, we conclude that
installment payments are an appropriate measure for most businesses
that obtain broadband PCS licenses in the entrepreneurs' blocks. By
allowing payment in installments, the government is in effect extending
credit to licensees, thus reducing the amount of private financing
needed prior to and after the auction. Such low cost government
financing will promote long-term participation by these businesses,
which, because of their smaller size, lack access to sufficient capital
to compete effectively with larger PCS licensees. Under the rules we
adopt today, installment payments are available to small entities that
do not technically qualify as small businesses for purposes of other
measures we have adopted, such as bidding credits. We believe, however,
that, given the enormous costs of broadband PCS and the likelihood of
very large participants in the other blocks, this option is fully
consistent with the congressional intent in enacting Section
309(j)(4)(A) to avoid a competitive bidding program that has the effect
of favoring incumbent providers of other communications services, with
established revenue streams, over smaller entities.\114\
---------------------------------------------------------------------------
\114\See H.R. Rep. No. 103-111 at 255 (Commission has the
authority to design alternative payment schedules in order that the
auction process does not inadvertently favor only those with ``deep
pockets'' over new or small companies).
---------------------------------------------------------------------------
137. Under the plan we adopt here, all licensees that satisfy the
gross revenues, total assets and personal net worth criteria to bid in
the entrepreneurs' blocks will be allowed to pay in installments for
licenses granted in those blocks in the 50 largest BTAs. In the smaller
BTAs, however, only businesses owned by women and minorities and those
licensees with less than $75 million in gross revenues will be able to
use installment payments.\115\ This distinction is based on the
expected lower costs to acquire licenses and construct systems in the
smaller BTAs. Thus, with the exception of companies owned by women or
minorities, which face additional problems accessing capital, we do not
think that a firm with gross revenues exceeding $75 million will
require government financing to be competitive in the small BTAs.\116\
---------------------------------------------------------------------------
\115\We will apply the same $500 million total assets and $100
million personal net worth standards for purposes of determining
eligibility for installment payments in all BTAs. The attribution
rules set forth with regard to eligibility to bid in the
entrepreneurs' blocks also will apply in all BTAs. See infra 158-
168.
\116\We note that a consortium of small businesses is eligible
for installment payments in any market so long as each member of the
consortium satisfies the definition of a small business, as set
forth in Section VII.J.2, infra.
---------------------------------------------------------------------------
138. The installment payment option will enable qualified
businesses to pay their winning bid over time. These businesses must
make the applicable upfront payment in full before the auction, but are
required to make a post-auction down payment equaling only ten percent
of their winning bids, half of which will be due five business days
after the auction closes. Payment of the other half of the down payment
will be deferred until five business days after the license is granted.
In general, the remaining 90 percent of the auction price will be paid
in installments with interest charges to be fixed at the time of
licensing at a rate equal to the rate for ten-year U.S. Treasury
obligations plus 2.5 percent. Under this general rule, only payments of
interest will be due for the first year with principal and interest
payments amortized over the remaining nine years of the license. Timely
payment of all installments will be a condition of the license grant
and failure to make sure timely payment will be grounds for revocation
of the license.\117\
---------------------------------------------------------------------------
\117\As described in the Second Report and Order, the Commission
may, on a case-by-case basis, permit a three to six month grace
period within which a licensee may seek a restructuring of the
payment plan.
---------------------------------------------------------------------------
139. Enhanced Installment Payments. As explained previously, small
businesses and businesses owned by minorities and women face capital
access difficulties not encountered by other firms and, thus, require
special measures to ensure their opportunity to participate in
broadband PCS. Accordingly, we will provide an ``enhanced'' installment
payment plan for these entities. Pursuant to this enhanced installment
payment plan, small businesses (as defined below) who win licenses in
the entrepreneurs' blocks will be required to pay interest only for the
first two years of the license term at the same interest rate as set
forth in the general rule. Businesses owned by women and/or minorities
will be able to make interest-only payments for three years. Interest
will accrue at the Treasury note rate without the additional 2.5
percent.\118\ And, finally, businesses that are both small and owned by
women and/or minorities will be required to pay only interest for five
years. Interest will accrue at the Treasury note rate.
---------------------------------------------------------------------------
\118\To be eligible for these ``enhanced'' installment payments,
a firm must satisfy either of the two alternative definitions of a
woman or minority-owned business, as set forth in 181-192, infra,
as well as the applicable financial caps.
---------------------------------------------------------------------------
140. These enhanced installment payments are narrowly tailored to
the needs of the various designated entities, as reflected in the
record in this proceeding. We believe that varying the moratorium on
principal in the early years of the loan and varying the interest rate
based on these needs will allow small businesses and companies owned by
women and/or minorities to bid higher in auctions, thereby increasing
their changes for obtaining licenses. In addition, it will allow them
to concentrate their resources on infrastructure build-out and,
therefore, it will increase the likelihood that they become viable PCS
competitors.
141. Unjust Enrichment Applicable to Installment Payments. To
ensure that large businesses do not become the unintended beneficiaries
of measures meant for smaller firms, we will use the unjust enrichment
provisions adopted in the Second Report and Order applicable to
installment payments. Specifically, if a licensee that was awarded
installment payments seeks to assign or transfer control of its license
to an entity not meeting the applicable eligibility standards set out
above during the term of the license, we will require payment of the
remaining principal and any interest accrued through the date of
assignment as a condition of the license assignment or transfer. See
Second Report and Order at 263; 47 CFR 1.2111(c). Moreover, if an
entity seeks to assign or transfer control of a license to an entity
that does not qualify for as favorable an installment payment plan, the
installment payment plan, if any, for which the acquiring entity
qualifies will become effective immediately upon transfer. Thus, a
higher interest rate and earlier payment of principal may begin to be
applied. For example, a transfer of a license in the fourth year after
license grant from a small minority-owned firm to a small non-minority
owned firm would require that the firm begin principal payments and the
balance would begin accruing interest at a rate 2.5 percent above the
rate that had been in effect.\119\ Finally, if an investor subsequently
purchases an ``attributable'' interest in the businesses and, as a
result, the gross revenues or total assets of the business exceed the
applicable financial caps, this unjust enrichment provision will also
apply.\120\
---------------------------------------------------------------------------
\119\We recognize that because of the five-year holding and
limited transfer requirements in the entrepreneurs' blocks, these
unjust enrichment provisions have limited applicability during the
first five years of the license term. Nevertheless, there are some
situations in which licensees are permitted to assign or transfer
their licenses during this period and the provisions would then
apply if the buyer would not have been qualified for installment
payments or as favorable an installment payment plan. Furthermore,
the unjust enrichment provisions are applicable for the full ten-
year license term.
\120\See infra 158-168, for a discussion of which investor
interests are ``attributable'' for purposes of calculating the gross
revenues and total assets thresholds.
---------------------------------------------------------------------------
G. Tax Certificates
142. Congress instructed the Commission to consider the use of tax
certificates to help ensure designated entity participation in
spectrum-based services. See 47 U.S.C. Sec. 309(j)(4)(D). In the Second
Report and Order we observed that tax certificates could be useful as a
means of attracting investors to designated entity enterprises and to
encourage licensees to assign or transfer control of licenses to
designated entities in post-auction transactions. We stated further
that we would examine the feasibility of using this measure in
subsequent service-specific auction rules. Second Report and Order at
251.
143. We believe that tax certificates, which allow the recipients
to defer capital gains taxes made on sales, are an appropriate tool to
assist women and minority-owned businesses to attract start-up capital
from non-controlling investors in broadband PCS. As explained above,
due to discrimination in private lending markets and other factors,
these designated entities face added obstacles in accessing capital.
Therefore, in order to ensure that such businesses have a meaningful
opportunity to participate in auctions, it is necessary to adopt
measures to encourage investment in minority and woman-owned companies.
Moreover, because of the severe underrepresentation of women and
minorities in telecommunications, we believe that it is appropriate to
give PCS licensees the incentive, through the grant of tax
certificates, to assign or transfer their authorizations to such
entities in post-auction sales. This measure will provide added
assurance that minority and women-owned entities have the opportunity
to participate in broadband PCS services, as mandated by Congress.
Accordingly, we will issue tax certificates to non-controlling initial
investors in minority and women-owned broadband PCS applicants (in any
frequency block), upon the sale of their non-controlling interests. We
will also issue tax certificates to broadband PCS licensees (in any
frequency block) who assign or transfer control of their licenses to
minority and women-owned entities.
144. We have used tax certificates over the years to encourage
broadcast licensees and cable television operators to transfer their
stations and systems to minority buyers.\121\ We also have granted tax
certificates to shareholders in minority-controlled broadcast or cable
entities who sell their shares, when such interests were acquired to
assist in the financing of the acquisition of the facility.\122\ These
broadcast and cable tax certificates are issued pursuant to the
Internal Revenue Code, 26 U.S.C. Sec. 1071. While Congress' goal in
authorizing tax certificates under Section 309(j)(4)(D) of the Act is
somewhat different, and focuses on ensuring the opportunity for
designated entities to participate in auctions and spectrum-based
services, we think that tax certificates will be equally valuable in
the broadband PCS context. Issuance of tax certificates to investors in
minority and women-owned businesses and licensees that sell to
minorities and women will augment the other measures we adopt today to
encourage minorities and women to participate in broadband PCS and will
increase the ability of these entities to access financing for that
purpose.
---------------------------------------------------------------------------
\121\See 1982 Policy Statement; 1978 Policy Statement. We have
also employed tax certificates as a means of encouraging fixed
microwave operators to relocate from spectrum allocated to emerging
technologies. See Third Report and Order and Memorandum Opinion and
Order, ET Docket No. 92-9, 8 FCC Rcd 6589, 58 FR 46547, Sept. 2,
1993.
\122\See 1982 Policy Statement, 92 FCC 2d at 855-58.
---------------------------------------------------------------------------
145. In implementing this program, we will borrow from our existing
tax certificate program and grant tax certificates, upon request, that
will enable the licensees and investors meeting the criteria outlined
here to defer the gain realized upon a sale by: (1) Treating it as an
involuntary conversion under 26 U.S.C. Sec. 1033, with the recognition
of gain avoided by the acquisition of qualified replacement property;
or (2) electing to reduce the basis of certain depreciable property; or
both. Tax certificates will be available to initial investors in
minority and woman-owned businesses who provide ``start-up'' financing,
which allows these businesses to acquire licenses at auction or in the
post-auction market, and those investors who purchase interests within
the first year after license issuance, which allows for the
stabilization of the designated entities' capital base. The definition
of a minority or women-owned entity is set forth below\123\ and, with
regard to our investor tax certificate policy, the entity in which the
investment is made must satisfy that definition at the time of the
original investment as well as after the investor's shares are sold.
For post-auction market sales, tax certificates will be issued only to
licensees who sell to entities that meet that definition. Tax
certificates will be granted only upon completion of the sale, although
parties may request a declaratory ruling from the Commission regarding
the tax certificate consequences of prospective transactions.
---------------------------------------------------------------------------
\123\See infra 181-192.
---------------------------------------------------------------------------
146. One-Year Holding Period. As with our other tax certificate
policies, we are concerned about avoiding ``sham'' arrangements to
obtain tax certificates and, pursuant to Section 309(j)(4)(E), thus
adopt measures to prevent abuses. As in our existing tax certificate
program,\124\ we will impose a one-year holding requirement on the
transfer of control or assignment of broadband PCS licenses by women
and minority-owned businesses who obtained such licenses through the
benefit of tax certificates. We believe that the rapid resale of such
licenses at a profit would subvert our goal of ensuring the opportunity
to participate by minority or woman-owned businesses. If the buyer
itself is a women or minority-owned business, however, our objectives
still will be satisfied. Thus, as an exception to the holding
requirement, we will permit the assignment or transfer of control of
licenses during this period to other qualified minority and women-owned
businesses. We note, however, that the assignee or transferee who
receives this license before the end of the original one-year holding
period will also be subject to a one-year holding requirement, from the
date of consummation of the assignment or transfer.
---------------------------------------------------------------------------
\124\See Amendment of Section 73.3597 of the Commission's Rules,
Memorandum Opinion and Order, 99 FCC 2d 971, 974 (1985).
---------------------------------------------------------------------------
147. Finally, in the Broadband PCS Reconsideration Order, we
indicated that we would address in this proceeding proposals for
issuing tax certificates to cellular operators who divest their
cellular holdings in order to come into compliance with our rules
governing cellular operators' participation in broadband PCS. Several
commenters argued that tax certificates should be issued to all such
companies who divest their holdings.\125\ To accomplish the directive
in Section 309(j)(4)(D) that minority groups and women are given the
opportunity to participate in the provision of spectrum-based services,
we have decided to issue tax certificates to such cellular companies so
long as their cellular interests are divested to businesses owned by
minorities and/or women, as defined in this order. In this manner, we
can further implement Congress's goal to facilitate the participation
of minorities and women in spectrum-based services. We will also impose
a one-year holding period requirement on the assignment or transfer of
control of cellular licenses obtained by women and minority-owned
businesses through the benefit of this tax certificate policy.
---------------------------------------------------------------------------
\125\See, e.g., Petitions for Reconsideration of GTE Service
Corporation and Comcast Corporation of Second Report and Order in
GEN Docket 90-314.
---------------------------------------------------------------------------
H. Provisions for Rural Telephone Companies
148. After the release of the Second Report and Order, rural
telephone companies made numerous ex parte presentations concerning how
we can best ensure that rural areas are provided broadband PCS. In
addition, we have received several petitions for reconsideration of the
Second Report and Order that address our definition of rural telephone
companies in the generic auction rules. In this Order, we address the
treatment of rural telephone companies for purposes of competitive
bidding for broadband PCS licenses and address below some of the issues
raised in petitions for reconsideration of the Second Report and Order
concerning the definition of these entities.
149. In the Broadband PCS Reconsideration Order, we adopted an
important measure that will help rural telephone companies become
viable providers of PCS services. In response to numerous requests from
rural telephone company interests, we increased from 20 percent to 40
percent the cellular attribution threshold for rural telephone
companies with non-controlling cellular interests in their areas. See
Broadband PCS Reconsideration Order at 125. This action increases the
number of rural telephone companies that will be eligible to hold PCS
licenses. In taking this action, we recognized that their existing
infrastructure makes rural telephone companies well suited to introduce
PCS services rapidly into their service areas and adjacent areas. Thus,
this action will help speed service to rural areas, which tend to be
less profitable to serve for companies without existing infrastructure
than more densely populated urban areas.
150. We suggested in the Second Report and Order that allowing
broadband PCS licenses to be geographically partitioned may be a means
to permit rural telephone companies to hold licenses to provide service
in their telephone service areas.\126\ Many rural telephone companies
proposed some form of partitioning in their comments, arguing that if
they were required to bid on entire BTA or MTA licenses to obtain
licenses covering their wireline service areas, they would be
effectively barred from entering the broadband PCS industry. They
contend that under a partitioning plan, they would be able to serve
areas in which they already provide service, while the remainder of the
PCS service area could be served by other providers. Such a plan, they
argue, would encourage rural telephone companies to take advantage of
existing infrastructure in providing PCS services, thereby speeding
service to rural areas.\127\ We believe that these proposals have
merit, and therefore we now adopt a license partitioning system to
provide these designated entities the enhanced opportunity to
participate in the provision of broadband PCS and to deploy broadband
PCS in their rural services areas rapidly.
---------------------------------------------------------------------------
\126\See Second Report and Order at 243, n. 186. We note that
although we stated in n. 186 that we would consider partitioning for
rural telephone companies in the reconsideration of the broadband
PCS service rules, we have concluded that this issue should be
addressed along with other issues concerning designated entities.
See Broadband PCS Reconsideration Order at 83, n. 113. In our
deliberations on this issue, we incorporate into this proceeding the
record developed in GEN Docket No. 90-314.
\127\See, e.g., comments of GVNW at 2-4, Rural Cellular
Association at 16, U.S. Intelco at 16.
---------------------------------------------------------------------------
151. Our partitioning system will allow rural telephone companies
to obtain broadband PCS licenses that are geographically partitioned
from larger PCS service areas. These companies will be permitted to
acquire partitioned broadband PCS licenses in either of two ways in any
frequency blocks: (1) They may form bidding consortia consisting
entirely of rural telephone companies to participate in auctions, and
then partition the licenses won among consortia participants, and (2)
they may acquire partitioned broadband PCS licenses from other
licensees through private negotiation and agreement either before or
after the auction. Each rural telephone company member of a consortium
will, following the auction, be required to file a long-form
application for its respective, mutually agreed-upon geographic area.
If rural telephone company consortia are formed to bid on licenses in
the entrepreneurs' blocks, the eligibility rules for those blocks will
apply (i.e., the cumulative gross revenues and assets of the consortium
members may not exceed the financial caps for eligibility in these
blocks).\128\ We will require that partitioned areas conform to
established geopolitical boundaries (such as county lines) and that
each area include all portions of the wireline service area of the
rural telephone company applicant that lies within the PCS service
area. In addition, if a rural telephone company receives a partitioned
license post-auction from another PCS licensee, the partitioned area
must be reasonably related to the rural telephone company's wireline
service area that lies within the PCS service area.\129\ We recognize
that rural telephone companies will require some flexibility in
fashioning the areas in which they will receive partitioned licenses,
so we do not adopt a strict rule concerning the reasonableness of the
partitioned area. Generally, we will presume as reasonable a
partitioned area that contains no more than twice the population of
that portion of a rural telephone company's wireline service area that
lies within the PCS service area. Each licensee in each partitioned
area will be responsible for meeting the build-out requirements in its
area.
---------------------------------------------------------------------------
\128\As discussed below, we will permit a consortium consisting
entirely of small businesses to exceed the entrepreneurs' blocks
financial thresholds. See infra 179-180. Therefore, if each member
of a consortium of rural telephone companies also satisfies the
definition of a small business, we will allow the consortium to bid
in the entrepreneurs' blocks even if it exceeds the gross revenues
and total assets caps.
\129\This provision will not apply when rural telephone
companies form consortia only among themselves and then partition
the license area. In this circumstance, one or more partitioned
areas may have to be larger in order for the entire PCS service area
to be served.
---------------------------------------------------------------------------
152. Allowing partitioning of rural areas served by rural telephone
companies provides a viable opportunity for many of these designated
entities who desire to offer PCS to their customers as a complement to
their local telephone services. For example, rural telephone companies
who cannot afford or do not desire to bid for or construct PCS systems
for an entire BTA can thus acquire licenses in areas they wish to serve
or form bidding consortia and partition the entire BTA among
themselves. We believe that rural partitioning is an efficient method
of getting a license in the hands of an entity that will provide rapid
service to rural areas.
153. We have decided not to adopt any other auction-related
measures specifically for rural telephone companies in this Order. We
believe that the partitioning plan we are adopting will provide rural
telephone companies with substantial capabilities to acquire licenses
to provide broadband PCS in their rural telephone service areas,
consistent with our statutory mandate. In addition, our eligibility
criteria for bidding in the entrepreneurs' blocks, discussed below,
will permit virtually all telephone companies whose service areas are
predominantly rural to bid on licenses in frequency blocks C and F
without competition from the large telephone companies and other deep-
pocketed bidders. Thus, virtually all rural telephone companies will be
able to bid for broadband PCS licenses and defer payment in accordance
with the installment payment plans we are adopting for the
entrepreneurs' blocks. We also note that if a rural telephone company
meets the definition of a small business or a business owned by
minorities and/or women, it would enjoy a bidding credit and
``enhanced'' installment payments applicable to those groups when
bidding on licenses in these blocks. We do not think that any other
measures are necessary in order to satisfy the statute's directive that
we ensure that rural telephone companies have the opportunity to
participate in the provision of spectrum-based services, and to satisfy
our goals to ensure that PCS is provided to all areas of the country
including rural areas.
I. Upfront Payments
154. Upfront payment requirements are designed to ensure that
bidders are qualified and serious and to provide the Commission with a
source of funds in the event that it becomes necessary to assess
default or bid withdrawal penalties.\130\ The upfront payment ensures
that bids during the course of the auction are bona fide and convey
information about the value of the underlying licenses. Our standard
upfront payment for broadband PCS is $0.02 per MHz per pop, which is
equivalent to roughly six percent of the license value, based on an
estimate in a Congressional Budget Office report of the total value of
the auctionable spectrum.\131\ A number of commenters assert that the
Commission could enhance the opportunity of designated entities to
participate in competitive bidding by reducing the required upfront
payment for those applicants.\132\ We agree that the $0.02 per MHz per
pop upfront payment requirement might impose a barrier for smaller
entities wishing to participate in the auctions. Moreover, we note that
most bidders in the entrepreneurs' blocks will be entitled to pay for
their licenses in installments, which requires a down payment of only
five percent of the winning bid. We are concerned that requiring an
upfront payment that may be larger than the down payment that the
winning bidder is required to tender could discourage auction
participation.
---------------------------------------------------------------------------
\130\Second Report and Order, 169-80.
\131\Id. at 177.
\132\See e.g., comments of AWCC at 31-32, Minnesota Equal Access
at 2, NAMTEC at 20, Rural Cellular Corp. at 2, U.S. Intelco at 22-
23.
---------------------------------------------------------------------------
155. For these reasons, we will reduce the upfront payment
requirement to $0.015 per MHz per pop for bidders in the entrepreneurs'
blocks. This 25 percent discount should facilitate auction
participation by capital-constrained companies and permit them to
conserve resources for infrastructure development after winning a
license. Moreover, since the upfront payment is still substantial,
ranging from slightly below $20,000 for a 30 MHz license in the
smallest BTAs to more than $10 million for the New York BTA, insincere
bidding will be discouraged and the Commission will have access to
funds if it must collect default or bid withdrawal penalty payments.
J. Definitions and Eligibility
1. Eligibility to Bid in the Entrepreneurs' Blocks
156. As noted previously, eligibility to bid in the two
entrepreneurs' blocks, C and F, is limited to companies that, together
with their affiliates and investors, had gross revenues of less than
$125 million in each of the last two years and have total assets of
less than $500 million at the time their short form applications are
filed. In addition, we will prohibit an applicant from bidding in these
blocks if any one individual investor or principal in the applicant has
$100 million or greater in personal net worth at the short form
application filing date.
157. In determining whether an applicant satisfies these financial
thresholds, we will count the gross revenues and total assets of the
applicant as well as those of its investors with ``attributable''
interests. The subsection that follows discusses what interests are
attributable for these purposes. In addition, it sets forth exceptions
to these attribution rules for minority and women-owned applicants and
for publicly-traded companies.
a. Attribution Rules for the Entrepreneurs' Blocks
158. Qualified ``Entrepreneurs''. As a general rule, the gross
revenues and total assets of all investors in, and affiliates of, an
applicant are counted on a cumulative, fully-diluted basis for purposes
of determining whether the $125 million/$500 million thresholds have
been exceeded, and on an individual basis regarding the $100 personal
net worth standard.\133\ There are two exceptions to this rule,
however. First, applicants that meet the definition of a small business
may, as discussed below, form consortia of small businesses that, on an
aggregate basis, exceed the gross revenue/total asset caps. Second, the
gross revenues, total assets, personal net worth, and affiliations of
any investor in the applicant are not considered so long as the
investor holds less than 25 percent of the applicant's passive equity.
For corporations, we shall use the term passive equity investors to
mean investors who hold only non-voting stock or de minimis amounts of
voting stock that include no more than five percent of the voting
interests. Where different classes of stock are held, however, the
total amount of equity must still be less than 25 percent to meet this
requirement. For partnerships, the term means limited partnership
interests that do not have the power to exercise control of the
entity.\134\ The passive investor exception will be available, however,
only so long as the applicant remains under the control of one or more
entities or individuals (defined as the ``control group'') and the
control group holds at least 25 percent of the applicant's equity and,
in the case of corporate applicants, at least 50.1 percent of the
voting stock.\135\ In the case of partnership applicants, the control
group must hold all the general partnership interests. Winning bidders
are required to identify on their long-form applications the identity
of the members of this control group and the means of ensuring control
(such as a voting trust agreement). The gross revenues, total assets
and personal net worth (if applicable) of each member of the control
group and each member's affiliates will be counted toward the $125
million gross revenues/$500 million total assets thresholds or the
individual $100 million personal net worth standard, regardless of the
size of the member's total interest in the applicant.
---------------------------------------------------------------------------
\133\By ``fully-diluted,'' we mean the agreements such as stock
options, warrants and convertible debentures will generally be
considered to have a present effect and will be treated as if the
rights thereunder already have been fully exercised.
\134\Applicants must be prepared to demonstrate that the limited
partners do not have influence over the affairs of the applicant
that is inconsistent with their roles as passive investors. For
purposes of our rules, we presume that any general partner has the
power to control a partnership. Therefore, each general partner in a
partnership will be considered part of the partnership's control
group.
\135\So long as the applicant remains under the de jure and de
facto control of the control group, we shall not bar passive
investors from entering into management agreements with applicants.
---------------------------------------------------------------------------
159. The attribution levels we have selected here are intended to
balance the competing considerations that apply in this particular
context and may differ from those we have used in other circumstances.
As a general matter, the 25 percent limitation on equity investment
interests will serve as a safeguard that the very large entities who
are excluded from bidding in these blocks do not, through their
investments in qualified firms, circumvent the gross revenue/total
asset caps. At the same time, it will afford qualified bidders a
reasonable measure of flexibility in obtaining needed financing from
other entities, while ensuring that such entities do not acquire
controlling interests in the eligible bidders.\136\ Similarly, the five
percent threshold for attributing revenues of investors with voting
stock in corporate applicants is designed to keep ineligible parties
from exerting undue control over eligible firms.\137\ For all of these
reasons, we also will attribute the gross revenues and total assets of
entities, or the personal net worth of individuals, that otherwise
constitute ``affiliates'' of the applicant.\138\
---------------------------------------------------------------------------
\136\Several commenters have suggested that we establish an
attribution threshold for investors in a broadband PCS applicant.
See, e.g., ex parte filings of Columbia PCS, June 2, 1994 (20
percent threshold), and Impulse Telecommunications Corporation, May
27, 1994 (10 percent threshold).
\137\In the event that the five percent voting stock limitation
proves to be overly restrictive, we may consider whether a higher
threshold (e.g., 15 percent) would be sufficient to meet our
concerns about undue control from large investors.
\138\The definition of an ``affiliate'' is set forth in
subsection 5, infra.
---------------------------------------------------------------------------
160. Qualified Woman and Minority-Owned ``Entrepreneurs''. As
discussed above, the record demonstrates that women and minorities have
especially acute problems in obtaining financing, due in part to
discriminatory lending practices by private financial institutions. To
address these special problems and to afford women and minority-owned
businesses more flexibility in attracting financing, it is necessary to
provide these entities with an alternative, somewhat more relaxed
option regarding the attribution of revenues of passive investors.
Under this alternative standard, we will not attribute to the applicant
the gross revenues, assets, or net worth of any single investor in a
minority or woman-owned applicant unless it holds more than 49.9
percent of the passive equity (which is defined to include as much as
five percent of a corporation's voting stock). To guard against abuses,
however, the control group of applicants choosing this option would
have to 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.\139\
As discussed above with regard to general eligibility to bid in the
entrepreneurs' blocks, winning bidders must identify on their long-form
applications a control group (this time consisting entirely of
minorities and/or women or entities 100 percent owned and controlled by
minorities and/or women) and the gross revenues and net worth of each
member of the control group and each member's affiliates will be
counted toward the $125 million gross revenue/$500 million total asset
thresholds or the individual $100 million personal net worth
limitation, regardless of the size of the member's total interest in
the applicant.
---------------------------------------------------------------------------
\139\As noted previously, the control group of a partnership
applicant must hold all of the general partnership interests.
---------------------------------------------------------------------------
161. Relaxing the attribution standard somewhat in determining
eligibility of women and minority-owned companies to bid for licenses
on frequency blocks C and F directly addresses what most commenters
have stated to be the biggest obstacle to entry for these designated
entities: obtaining adequate financing. By this measure, women and
minorities who are eligible to bid in these blocks (i.e., who otherwise
meet the $125 million gross revenues/$500 million total asset standard)
will be required to maintain control of their companies and, at the
same time, will have flexibility to attract significant infusions of
capital from a single investor. The requirement that the minority and
women principals hold 50.1 percent of the company's equity mitigates
substantially the danger that a well-capitalized investor with a
substantial ownership stake will be able to assume de facto control of
the applicant. Because this step gives large companies, who are
otherwise ineligible to bid in the entrepreneurs' blocks, a significant
incentive to ``partner'' with minority and women-owned firms, it will
enhance the likelihood that these designated entities will be both
successful in the auctions and become viable, long-term competitors in
the PCS industry.
162. Of course, women and minority-owned firms, like any other
applicant for a C or F block license, may sell a larger portion of
their companies' equity, provided that they also abide by the general
eligibility requirements to bid in the entrepreneurs' blocks.
Specifically, the gross revenues, total assets and net worth of all
investors holding 25 percent or more of the company's passive equity
(as defined to include 5 percent or more of the voting stock) will be
attributed toward the $125 million/$500 million caps or the $100
million personal net worth standard. In this event, the control group
will be required to hold at least 25 percent of the company's equity
and 50.1 percent of its voting stock.
163. Qualified Publicly-Traded ``Entrepreneurs''. We also believe
that these attribution rules may impose a particular hardship on
publicly traded companies, which have little control over the ownership
of their stock, and whose voting stock typically is widely held.
Therefore, for purposes of determining eligibility to bid in the
entrepreneurs' blocks, we adopt an exception from these rules for
publicly traded companies.\140\ Specifically, we will not attribute the
gross revenues or total assets of a shareholder in a publicly traded
company that owns up to 25 percent of the corporation's equity, even if
that equity is represented by up to 15 percent of the voting stock. To
take advantage of this exception, however, the eligible control group
of the applicant still must control the corporation, hold at least 50.1
percent of the voting stock, and at least 25 percent of the company's
equity.\141\
---------------------------------------------------------------------------
\140\``Publicly-traded company'' shall mean a business entity
organized under the laws of the United States whose shares, debt or
other ownership interests are traded on an organized securities
exchange within the United States.
\141\We note that this exception for publicly held companies is
only applicable for purposes of assessing eligibility to bid in the
entrepreneurs' blocks and for the general installment payment
option. In the event that a publicly traded company can demonstrate
that the 15 percent threshold would impose a serious hardship, the
Commission would entertain a request to raise the threshold in
individual cases. Companies seeking such relief must also
demonstrate that raising the threshold would not contravene the
Commission's control objectives, as described in this Order. We do
not believe, however, that publicly traded corporations with
individual shareholders owning up to 15 percent active equity
require additional special provisions such as bidding credits,
``enhanced'' installment payments, or tax certificates to overcome
capital access problems. Thus, we will not apply this exception with
regard to the small business definition or the definition of a woman
or minority-owned business.
---------------------------------------------------------------------------
164. De Facto Control Issues. We shall codify in our rules a
provision explaining more explicitly the term ``control,'' so that
applicants will have clear guidance concerning the requirement that a
control group maintains de facto as well as de jure control of the
firms that are eligible for special treatment under the rules for
broadband PCS. For this purpose, we shall borrow from certain SBA rules
that are used to determine when a firm should be deemed an affiliate of
a small business.\142\ These SBA rules, which are codified in 13 CFR
121.401, provide several specific examples of instances in which an
entity might have control of a firm even though the entity has less
than 50 percent of the voting stock of a concern, and thus provide a
useful model for our rules. Through reference to circumstances such as
those described in the SBA rules, our rules will expressly alert
designated entities that control of the applicant through ownership of
50.1 percent of the firm's voting interests may be insufficient to
ensure de facto control of the applicant if, for example, the voting
stock of the eligible control group is widely dispersed. In those and
other circumstances, ownership of 50.1 percent of the voting stock may
be insufficient to assure control of the applicant. Of course, apart
from these structural issues relative to control, eligible entities
must not, during the license term, abandon control of their licenses
through any other mechanism. As we stated in the Second Report and
Order, designated entities must be prepared to demonstrate that they
are in control of the enterprise.\143\
---------------------------------------------------------------------------
\142\As discussed below, these SBA affiliation rules also will
be used as a basis for our own rules defining ``affiliates'' for
purposes of determining whether particular entities meet the
financial thresholds for bidding in the entrepreneurs' blocks or for
qualifying as a small business.
\143\Second Report and Order at 278, citing Intermountain
Microwave, 24 Rad. Reg. 983, 984 (1963).
---------------------------------------------------------------------------
165. Financial Benefits. To ensure that the control group has a
substantial financial stake in the venture, we shall adopt certain
additional requirements, also borrowed from SBA rules. As noted
previously, we shall require that at least 50.1 percent of each class
of voting stock and at least 25 percent (or 50.1 percent for the
alternative option for minority and women-owned businesses) of the
aggregate of all outstanding shares of stock to be unconditionally
owned by the control group members. In addition, 50.1 percent of the
annual distribution of dividends paid on the voting stock of a
corporate applicant concern must be paid to these members. Also, in the
event stock is sold, the control group members must be entitled to
receive 100 percent of the value of each share of stock in his or her
possession. Similarly, in the event of dissolution or liquidation of
the corporation, the control group members must be entitled to receive
at least 25 percent (or 50.1 percent, as the case may be) of the
retained earnings of the concern and 100 percent of the value of each
share of the stock in his or her possession, subject, of course, to any
applicable laws requiring that debt be paid before distribution of
equity.
166. Partnerships and other non-corporate entities will be subject
to similar requirements. Indicia of ownership that we will consider in
non-corporate cases include (but are not limited to) (a) the right to
share in the profits and losses, and receive assets or liabilities upon
liquidation, of the enterprise pro rata in relationship to the
designated entity's ownership percentage and (b) the absence of
opportunities to dilute the interest of the designated entity (through
capital calls or otherwise) in the venture. As with corporations, our
concern is ensuring that the economic opportunities and benefits
provided through these rules flow to designated entities, as Congress
directed.
167. Application of the Five-Year Holding Rule. Finally, we explain
how these attribution rules apply with regard to the five-year holding
and limited transfer period for C and F block licensees. During this
five-year period, a C or F block licensee must not sell more than 25
percent of its passive equity to a single investor if the resulting
attribution of that investor's gross revenues or total assets would
bring the company over the $125 million gross revenues/$500 million
total assets thresholds, or if that investor's personal net worth
exceeds the $100 million personal net worth cap. Similarly, while
individual members of the control group may change (if it would not
result in a transfer of control of the company), the control group must
maintain control and at least 25 percent of the equity and 50.1 percent
of the voting stock.\144\ A company will be permitted to grow beyond
these gross revenues/total assets caps, however, through equity
investment by non-attributable (i.e. passive) investors, debt
financing, revenue from operations, business development or expanded
service.\145\
---------------------------------------------------------------------------
\144\A minority or woman-owned company must continue to adhere
to the attribution rules applicable to it, set out above.
\145\These rules will continue to apply in this manner
throughout the license term with regard to a firm's continuing
eligibility for installment payments, ``enhanced'' installment
payments and bidding credits.
---------------------------------------------------------------------------
168. Abuses. As stated above, we intend by these attribution rules
to ensure that bidders and recipients of these licenses in the
entrepreneurs' blocks are bona fide in their eligibility, and we intend
to conduct random audits both before the auctions and during the 10-
year initial license period to ensure that our rules are complied with
in letter and spirit. If we find that large firms or individuals
exceeding our personal net worth caps are able to assume control of
licensees in the entrepreneurs' blocks or otherwise circumvent our
rules, we will not hesitate to force divestiture of such improper
interests or, in appropriate cases, issue forfeitures or revoke
licenses. In this regard, we reiterate that it is our intent, and the
intent of Congress, that women, minorities and small businesses be
given an opportunity to participate in broadband PCS services, not
merely as fronts for other entities, but as active entrepreneurs.
b. Limit on Licenses Awarded in Entrepreneurs' Blocks
169. The special provisions which we adopt for designated entities
are based, in part, on our mandate to fulfill the congressional goal
that we disseminate licenses among a wide variety of applicants. 47
U.S.C. Sec. 309(j)(3)(B). Therefore, in adopting the financial
assistance measures set forth in this Report and Order, we are
concerned about the possibility, even if remote, that a few bidders
will win a very large number of the licenses in the entrepreneurs'
blocks. As a consequence, the benefits that Congress intended for
designated entities would be enjoyed, in disproportionate measure, by
only a few individuals or entities. Congress, in our view, did not
intend that result. We shall therefore take steps to ensure that the
financial assistance provided through our rules is dispersed to a
reasonable number of applicants who win licenses in these blocks.
170. To achieve a fair distribution of the benefits intended by
Congress, we shall impose a reasonable limit on the total number of
licenses within the entrepreneurs' blocks that a single entity may win
at auction. In setting this limit, we shall take care not to impose a
restriction that would prevent applicants from obtaining a sufficient
number of licenses to create large and efficient regional services.
Specifically, we shall impose a limitation that no single entity may
win more than 10 percent of the licenses available in the
entrepreneurs' blocks, or 98 licenses. These licenses may all be in
frequency block C or all in frequency block F, or in some combination
of the two blocks. Such a limit will ensure that at least ten winning
bidders enjoy the benefits of the entrepreneurs' blocks. At the same
time, it will allow bidders to effectuate aggregation strategies that
include large numbers of licenses and extensive geographic coverage.
171. Further, this limitation will apply only to the total number
of licenses that may be won at auctions in these blocks; it is not an
ownership cap that applies to licenses that might be obtained after the
auctions. For purposes of implementing this restriction, we shall
consider licenses to be won by the same entity if an applicant (or
other entity) that controls, or has the power to control licenses won
at the auction, controls or has the power to control another license
won at the auction.
2. Definition of Small Business
172. In the Second Report and Order we adopted a definition for
small businesses based on the standard definition used by the Small
Business Administration (SBA). This definition permits an applicant to
qualify for installment payments based on a net worth not in excess of
$6 million with average net income after Federal income taxes for the
two preceding years not in excess of $2 million. 13 CFR
Sec. 121.601.\146\ In the Second Report and Order, we noted, however,
that, in certain telecommunications industry sectors, this limit may
not be high enough to encompass those entities that, while needing the
assistance provided by installment payments, have the financial
wherewithal to construct and operate the systems. Therefore we
indicated that, on a service specific basis, we might adjust this
definition upward to accommodate capital intensive telecommunications
businesses. See Second Report and Order at 267.
---------------------------------------------------------------------------
\146\The SBA has recently changed its net worth/net income
standard as it applies to its Small Business Investment Company
(SBIC) Program. See 59 Fed. Reg. 16953, 16956 (April 8, 1994). The
new standard for determining eligibility for small business concerns
applying for financial and/or management assistance under the SBIC
program was increased to $18 million net worth and $6 million after-
tax net income. 15 CFR Sec. 121.802(a)(3)(i). The change in this
size standard was attributable to an adjustment for inflation and
changes in the SBIC program ``designed to strengthen and expand the
capabilities of SBICs to finance small businesses so that they can
increase their contribution to economic growth and job creation.''
59 Fed. Reg. at 16955. However, Section 121.601, which was the SBA
size standard cited in the Notice and the Second Report and Order,
has not been modified by the SBA. For purposes of our generic
competitive bidding rules, in consultation with the SBA, we will
reexamine our $6 million net worth/$2 million annual profits
definition in light of the SBA's recent action.
---------------------------------------------------------------------------
173. Many commenters, including the Chief Counsel for Advocacy of
the SBA, argue that the SBA net worth/net revenue definition is too
restrictive and will exclude businesses of sufficient size to survive,
much less succeed, in the competitive broadband PCS marketplace. The
SBA's Chief Counsel for Advocacy and the Suite 12 Group advocate
adoption of a gross revenue test, arguing that a net worth test could
be misleading as some very large companies have low net worth. The
SBA's Chief Counsel for Advocacy recommends that the revenue standard
be raised to include firms that (together with affiliates) have less
than $40 million in gross revenue. Similarly, Suite 12 suggests a $75
million in annual sales threshold.\147\ As another option, the SBA's
Chief Counsel for Advocacy suggests that the Commission consider a
higher revenue ceiling or adopt different size standards for different
telecommunications markets.\148\
---------------------------------------------------------------------------
\147\Many other commenters set forth their recommendations on
the appropriate small business definition for broadband PCS
preferences. See, e.g., comments of Tri-State ($5 million average
annual operating cash flow), Luxcel (net worth not exceeding $20
million), and Iowa Network (less than $40 million in annual
revenues).
\148\Some parties recommend using the SBA's alternative 1500
employee standard. See, e.g., comments of SBA Associate
Administrator for Procurement Assistance at 2, CFW Communications at
2, and Iowa Network at 17. A number of other commenters, including
the SBA's Chief Counsel for Advocacy, argue, however, that adoption
of this alternative SBA definition would open up a huge loophole in
the designated entity eligibility criteria. Specifically, they
contend that telecommunications is a capital, rather than labor,
intensive industry, and that an entity with 1,500 employees is
likely to be extremely well capitalized and have no need for the
special treatment mandated by Congress in the Budget Act. See, e.g.,
comments of SBA Chief Counsel for Advocacy at 8, LuxCel Group, Inc.
at 4, Suite 12 Group at 10-11.
---------------------------------------------------------------------------
174. We expect broadband PCS to be a highly capital intensive
business requiring bidders to expend tens of millions of dollars to
acquire a license and construct a system even in the smaller broadband
PCS markets. Thus, we believe that our current small business
definition is overly restrictive because it would exclude most
businesses possessing the financial resources to compete successfully
in the provision of broadband PCS services. Accordingly, we modify our
small business definition for broadband PCS auctions to ensure the
participation of small businesses with the financial resources to
compete effectively in an auction and in the provision of broadband PCS
services.
175. There is substantial support in the record for a $40 million
gross revenue standard. For example, the SBA recommends that for
broadband PCS, a small business be defined as one whose average annual
gross revenues for its past three years do not exceed $40 million.\149\
It states that this definition isolates those companies that have
significantly greater difficulty in obtaining capital than large
enterprises. At the same time, the SBA contends that a company with $40
million in revenue is sufficiently large that it could survive in a
competitive wireless communications market.\150\ Similarly, the SBA
Chief Counsel for Advocacy asserts that a $40 million threshold will
allow participation by firms ``of sufficient size to meet demands in
almost all small markets and some medium-size markets without
significant outside financial assistance.''\151\ For purposes of
broadband PCS, we shall therefore define a small business as any firm,
together with its attributable investors and affiliates, with average
gross revenues for the three preceding years not in excess of $40
million.\152\ In addition, an applicant will not qualify as a small
business if any one attributable investor in, or affiliate of, the
entity has $40 million or more in personal net worth.\153\
---------------------------------------------------------------------------
\149\Ex parte filing of U.S. Small Business Administration, June
24, 1994.
\150\Id.
\151\Comments of SBA Office of Advocacy at 10. Cf. comments of
Iowa Network and Telephone Electronics Corporation (advocating a $40
million annual revenue criterion for telephone companies) and reply
comments of North American Interactive Partners and Kingwood
Associates (advocating $40 million gross-revenue criterion for
applicants for the fifty most-populous BTAs, based on estimated
average build-out cost).
\152\The establishment of small business size standards is
generally governed by Section 3 of the Small Business Act of 1953,
as amended, 15 U.S.C. Sec. 642(a). Recent amendments to that statute
provide that small business size standards developed by Federal
agencies must be based on the average gross revenues of such
business over a period of not less than three years. See Pub. L. No.
102-366, Title II, Sec. 222(a), 106 Stat. 999 (1992); 15 U.S.C.
Sec. 632 (a)(2)(B)(ii).
\153\Unlike our eligibility criteria to bid in the
entrepreneurs' blocks, we do not adopt a total assets standard here.
We believe that the $40 million gross revenue cap for small
businesses, together with the $500 million total asset threshold we
set for entry into the entrepreneurs' blocks in the first instance,
should be sufficient to ensure that only bona fide small businesses
are able to take advantage of the measures intended for those
designated entities.
---------------------------------------------------------------------------
176. For purposes of determining whether an entity qualifies as a
small business, we will follow the control group and attribution rules
set forth with regard to eligibility to bid in the entrepreneurs'
blocks. In particular, winning bidders are required to identify on
their long-form applications a control group that holds at least 50.1
percent of the voting interests of the applicant (and otherwise has de
facto control) and owns at least a 25 percent equity stake. The gross
revenues of each member of the control group and each member's
affiliates will be counted toward the $40 million gross revenue
threshold, regardless of the size of the member's total interest in the
applicant. The $40 million personal net worth limitation will also
apply to each member of the control group. We will not consider the
gross revenues or personal net worth of any other investor unless the
investor holds 25 percent or more of the outstanding passive equity in
the applicant, which, as defined above, includes as much as five
percent of the voting stock in a corporate applicant.
177. We also adopt the more relaxed attribution standard set forth
in the entrepreneurs' blocks section with regard to investors in
minority and female-owned applicants. Specifically, we will not
consider the gross revenues or personal net worth of a single passive
investor in a minority or female-owned small business unless the
investor holds in excess of a 49.9 percent passive interest (which
includes as much as five percent of a corporate applicant's voting
stock), provided the women or minority control group maintains at least
50.1 percent of the equity and, in the case of a corporate applicant,
at least 50.1 percent of the voting stock.\154\ We believe that such
revenue attribution will ensure that only bona fide small businesses
are able to take advantage of the special provisions we have adopted,
but will allow those businesses to attract sufficient equity capital to
be truly viable contenders in the PCS industry.
---------------------------------------------------------------------------
\154\See supra 160.
---------------------------------------------------------------------------
178. These financial eligibility rules will continue to apply
throughout the license term. Thus, firms that received bidding credits
and ``enhanced'' installment payments based on their small business
status will be subject to the repayment penalties outlined above, if an
investor subsequently purchases an ``attributable'' interest (e.g. 25
percent or more of the firm's equity) and, as a result, the gross
revenues of the firm exceed the $40 million gross revenues cap, or the
personal net worth of the investor exceeds the $40 million personal net
worth threshold.
179. Finally, we will allow a consortium of small businesses to
qualify for any of the measures adopted in this order applicable to
individual small businesses. As used here, the term ``consortium''
means a conglomerate organization formed as a joint venture among
mutually-independent business firms, each of which individually
satisfies the definition of a small business.
180. Several commenters argue that a consortium should not qualify
for special treatment unless the consortium itself meets the
established definitional criteria.\155\ They contend that the FCC
should not allow consortia to be used as a means of circumventing the
usual prerequisites for these special provisions. In the Second Report
and Order, we concluded that consortia might be permitted to receive
benefits based on participation in the consortium by one or more
designated entities, but believed such a consortium should not be
entitled to qualify for measures designed specifically for designated
entities. As a general matter, we shall continue to adhere to that
principle. We think, however, that in the broadband PCS service,
allowing small businesses to pool their resources in this manner is
necessary to help them overcome capital formation problems and thereby
ensure their opportunity to participate in auctions and to become
strong broadband PCS competitors. Because of the exceptionally large
capital requirements in this service, we agree with the SBA Chief
Counsel for Advocacy that, so long as individual members of the
consortium satisfy the definition of a small business, the
congressional objective of ensuring opportunities for small business
will be fully met. Individual small entities that join to form
consortia, as distinguished from a single entity with gross revenues in
excess of $40 million, still are likely to encounter capital access
problems and, thus, should qualify for members aimed at small
businesses. We do not believe however, that this congressional goal
will be satisfied if special measures are allowed for consortia that
are ``predominantly'' or ``significantly'' owned and/or controlled by
small businesses, as recommended by several commenters.\156\ This would
have the effect of eviscerating our small business definitional
criteria and would not further the ability of bona fide small
businesses to participate in PCS services.
---------------------------------------------------------------------------
\155\See comments of McCaw at 21 and Myers at 6.
\156\See, e.g., comments of Rural Cellular Corp. at 2, Bell
Atlantic at 17, NAMTEC at 19, and AT&T at 25-26.
---------------------------------------------------------------------------
3. Definition of Women and Minority-Owned Business
181. As discussed above, we have taken steps in this order to
address the special funding problems faced by minority and women-owned
firms and thereby to ensure that these groups have the opportunity to
participate and become strong competitors in the broadband PCS
service.\157\ We thus have adopted a tax certificate program for women
and minorities to allow more sources of potential funding, have relaxed
the attribution standard used to determine eligibility to bid for
licenses on frequency blocks C and F, and have adopted special measures
for installment payments and bidding credits.
---------------------------------------------------------------------------
\157\As noted in the Second Report and Order, the members of the
following groups will be considered ``minorities'' for purposes of
our rules: ``[T]hose of Black, Hispanic Surnamed, American Eskimo,
Aleut, American Indian and Asiatic American extraction.'' See
Statement of Policy on Minority Ownership of Broadcasting
Facilities, 68 FCC 2d 979, 980 n.8 (1978); Commission Policy
Regarding the Advancement of Minority Ownership in Broadcasting, 92
FCC 2d 849, 489 n.1 (1982). Moreover, as adopted in the Second
Report and Order, minority and women-owned businesses will be
eligible for special measures only if the minority and women
principals are also United States citizens.
---------------------------------------------------------------------------
182. As also indicated above, for purposes of implementing these
steps, we have departed from the definition of a minority and woman-
owned firm that was adopted in the Second Report and Order. There, we
found generally that to establish ownership by minorities and women, a
strict eligibility standard should be adopted that required minorities
or women to have at least a 50.1 percent equity stake and a 50.1
percent controlling interest in the designated entity. Second Report
and Order at 277; 47 CFR Sec. 1.2110(b)(2). For the broadband PCS
auctions, we retain the requirement that minorities and/or women
control the applicant and hold at least 50.1 percent of a corporate
applicant's voting stock. However, to establish their eligibility for
certain benefits, summarized below, we shall impose an additional
requirement that, even where minorities and women hold at least 50.1
percent of the applicant's equity, other investors in the applicant may
own only passive interests, which, for corporate applicants, is defined
to include as much as five percent of the voting stock. In addition,
provided that certain restrictions are met, we shall also allow women
and minority-owed firms the option to reduce to 25 percent the 50.1
percent minimum equity amount that must be held.
183. We emphasized in the Second Report and Order that we did not
intend to restrict the use of various equity financing mechanisms and
incentives to attract financing, provided that the minority and women
principals continued to own 50.1 percent of the equity, calculated on a
fully-diluted basis, and that their equity interest entitled them to a
substantial stake in the profits and liquidation value of the venture
relative to the non-controlling principals. We noted, however, that
different standards that meet the same objectives may be appropriate in
other contexts. Second Report and Order at 278. In view of the
evidence of discriminatory lending experiences faced by minority and
women entrepreneurs and the exceptional great financial resources
believed to be required by broadband PCS applicants, we conclude that
it is appropriate to allow more flexibility with regard to the 50.1
percent equity requirements for this service in order to open doors to
more sources of equity financing for women and minority-owned firms.
184. We shall therefore allow women and minority-owned firms the
following options. First, they may satisfy the general definition set
forth in the Second Report and Order, which requires the minority and/
or female principles to control the applicant, own at least 50.1
percent of its equity and, in the case of corporate applicants, hold at
least 50.1 percent of the voting stock. Under this option, other
investors may own as much as a 49.9 percent passive equity interest. As
noted above regarding eligibility to bid in the entrepreneurs' blocks,
passive equity in the corporate context means only non-voting stock may
be held, or stock that includes no more than five percent of the voting
interests.\158\ For partnerships, the term means limited partnership
interests that do not have the power to exercise control of the equity.
In addition, as required in the Second Report and Order, all investor
interests will be calculated on a fully-diluted basis, meaning that
agreements such as stock options, warrants and convertible debentures
generally will be considered to have a present effect and will be
treated as if the rights thereunder have been fully exercised.\159\ We
recognize that the requirement that other investors own only passive
interests is a departure from the definition of a minority or women-
owned business adopted in the Second Report and Order, but because of
the very significant financial contribution that may be made by such
other investors in designated entities, we believe that the passive
equity requirement is appropriate as an additional safeguard to ensure
that minorities and/or women retain control of the applicant.
---------------------------------------------------------------------------
\158\For example, under this option, a corporate applicant with
two classes of issued and outstanding stock, 100 shares of voting
stock and 100 shares of non-voting stock, could sell to a single
non-eligible entity 49.9 percent of the applicant's equity,
consisting of 5 shares of the corporate's voting stock and 94 shares
of its non-voting stock. Under this scenario, eligible minorities or
women, in order to retain at least 50.1 percent of the value of all
outstanding shares of the corporation's stock, must own all of the
corporation's remaining shares of stock; that is, 95 shares of
voting stock and six shares of non-voting stock.
\159\As also noted in the Second Report and Order, we will
consider departing from the requirement that the equity of investors
in minority and women-owned businesses must be calculated on a
fully-diluted basis only upon a demonstration, in individual cases,
that options or conversion rights held by non-controlling principals
will not deprive the minority and women principals of a substantial
financial stake in the venture or impair their rights to control the
designated equity. See Second Report and Order at 277.
---------------------------------------------------------------------------
185. As a second option, women and minority-owned firms may sell up
to 75 percent of the company's equity, provided that no single investor
may hold 25 percent or more of the firm's passive equity, which is
defined in the same manner as above. For example, a corporation with
100 shares of voting stock and 100 shares of non-voting stock, with the
200 shares representing the total outstanding shares of the company,
could qualify as a minority or women-owned business under the following
circumstances. The minority or women principals would have to own at
least 51 shares of voting stock, which satisfies the requirement that
they have voting control and, in this case, also meets the requirements
that they hold at least 25 percent of the equity. Two other investors
could each own 44 shares of non-voting stock and five shares of voting
stock, which represents 24.5 percent of the company's equity for each
of the shareholders. A third investor could own the remaining 12 shares
of non-voting stock and five shares of the voting stock, or 8.5 percent
of the equity. The remaining 34 shares of voting stock may be sold to
other investors provided that no single investor owns more than five
shares.
186. Whichever option is chosen, we will require establishment of a
``control group'' in much the same way we did for purposes of
eligibility to bid in the entrepreneurs' blocks. Specifically, winning
bidders, transferees or assignees must identify on their long-form
applications a control group (consisting entirely of minorities and/or
women or entities 100 percent owned and controlled by minorities and
women) that has de jure and de facto control of the applicant and holds
either at least 50.1 or 25 percent of the applicant's equity, depending
upon which option is elected.
187. We believe that a modification of our 50.1 percent equity
requirement will best achieve Congress' objective of providing
effective and long-term economic opportunities for women and minority-
owned firms in broadband PCS. At the same time, we shall maintain
strict enforcement of the requirement that actual control reside with
the qualified designated entities. Thus, to establish their eligibility
for tax certificates, enhanced installment payments, bidding credits
and relaxed cellular attribution rules, women and minority-owned
applicants electing to use the 25 percent equity option may not in any
instance allow an individual investor who is not in the control group
to own more than a 25 percent passive equity interest. This restriction
will apply even in circumstances in which allowing an investor to
exceed these limitations would not result in the applicant's exceeding
the gross revenues and other financial standards that apply to other
bidders in the entrepreneurs' blocks and other situations involving
financial caps. These structural safeguards, as well as the general
requirement that other investors hold only passive interests in women
and minority-owned applicants, will help to ensure that control truly
remains with the women and minority designated entities.
188. For example, a women or minority-owned firm electing to use
the 25 percent option may have a non-eligible investor with more than a
25 percent passive stake and still qualify to bid in the entrepreneurs'
blocks or for benefits that apply to small businesses, as long as the
attributable revenues of the investor do not cause the applicant to
exceed the gross revenues/total assets caps. In these contexts, no
additional restrictions are necessary, because women and minority-owned
applicants, like other applicants, are eligible to bid in these blocks
and to qualify as small businesses so long as they comply with the same
restrictions on financial eligibility that apply to other applicants.
Since the attribution rule itself operates to ensure compliance with
size limitations, it is not necessary to impose additional restrictions
on the size of interests held by investors with attributable interests.
This firm will not qualify, however, for special measures applicable
only to women and minority-owned businesses, such as ``enhanced''
installment payments or the 15 or 25 percent bidding credits, because
it has a single non-eligible investor with more than a 25 percent
passive interest. In circumstances in which women and minorities are
required to retain only 25 percent of the firm's equity, this
additional structural restriction is appropriate because the objective
in this context is to ensure not merely financial eligibility, but that
women and minorities retain control of the license.
189. We set forth previously rules defining more explicitly the
term ``control'' for purposes of determining whether a ``control
group'' maintains de facto as well as de jure control of an
applicant.\160\ Those rules apply equally to the minority and women
principals of minority and women-owned applicants. Consistent with our
general policies with regard to women-owned applicants for purposes of
our multiple ownership and cross-ownership rules in this broadcast
context, we shall not adopt, at this time, any special rules or
presumptions to determine whether women-owned applicants exercise
independent control of their firms. See In the Matter of Clarification
of Commission Policies Regarding Spousal Attribution, 7 FCC Rcd 1920,
57 FR 8845, Mar. 13, 1992.
---------------------------------------------------------------------------
\160\See supra 164.
---------------------------------------------------------------------------
190. Our requirement that control rest with minorities and/or women
and the clarifications above ensure that parties do not attempt to
evade the statutory requirement to provide economic opportunities and
ensure participation by businesses owned by these groups. We reaffirm
our commitment to investigate all allegations of fronts, shams or other
methods used by those who try to obtain a benefit to which they are not
lawfully entitled. In this vein, we again admonish parties that we will
conduct random pre- and post-auction audits to ensure that applicants
receiving these benefits are bona fide designated entities.
191. We also note here that we are departing from the provision in
the Second Report and Order that bars publicly traded companies from
qualifying as minority and woman-owned businesses for purposes of
participating in auctions. Most of the steps taken to assist these
designated entities in this Order (e.g., bidding credits and
installment payments) are confined to winning bidders in the
entrepreneurs' blocks, where there is a financial limit on the size of
participants. Because of the expected large capital entry costs of
broadband PCS, we believe that even publicly traded companies owned by
women and minorities that qualify to bid in blocks C and F require
additional measures, such as bidding credits and installment payments,
to be able to participate successfully. We emphasize, however, that the
exception to the attribution rules for publicly traded companies to be
eligible to bid in the entrepreneurs' blocks does not apply here.\161\
To qualify for measures targeted exclusively to women and minority-
owned businesses, a company must satisfy the definition set forth in
this section.
---------------------------------------------------------------------------
\161\With regard to qualifying to bid in the entrepreneurs'
blocks, we stated that we would not attribute the revenues or assets
of an investor that owns up to 15 percent of a publicly traded
applicant's voting stock. For privately held companies, the voting
stock threshold is five percent. See supra 158, 163.
---------------------------------------------------------------------------
192. As noted above, applicants owned by women and minorities must
meet the limitations on gross revenues, total assets and personal net
worth to qualify for entry into the entrepreneurs' blocks. The size
limitations do not apply, however, to all measures designed to assist
applicants owned by minorities and/or women. The tax certificate policy
applies to all broadband PCS licenses and is not limited to licenses in
the entrepreneurs' blocks. Therefore, businesses owned by minorities
and women need not meet the gross revenue and other financial
restrictions to qualify for tax certificates. Similarly, the relaxed
cellular attribution threshold for minority and women-owned firms
adopted in the Broadband PCS Reconsideration Order is not limited to
the entrepreneurs' blocks. Thus, minority and women-owned firms that do
not meet the gross revenues, total assets and net worth restrictions
may nevertheless qualify for the 40 percent cellular attribution rule.
But minority and women-owned firms must satisfy the Commission's
structural ownership requirements to receive the benefits of tax
certificates and the relaxed cellular attribution rule; that is, they
are subject to the limitation that interests held by investors who are
not women and minorities must be passive.
4. Definition of Rural Telephone Company
193. As discussed above, we have adopted several measures to assist
rural telephone companies in the broadband PCS service. We decide here
the definition of rural telephone companies who are eligible for those
benefits. As explained below, for this service, we shall depart from
the definition adopted in the Second Report and Order and define rural
telephone companies as local exchange carriers having 100,000 or fewer
access lines, including all affiliates.
194. As we pointed out in the Second Report and Order,\162\ most of
those responding to our tentative conclusion in the Notice concerning
the definition of a rural telephone company contended that the proposed
definition, which was based on the standard contained in Section 63.58
of the Commission's Rules, was too restrictive. A variety of more
inclusive definitions were recommended.\163\ Some commenters advocated
a definition in which a company would qualify if it satisfied either of
two alternative criteria based on population of communities served or
number of access lines.\164\ Others advocated adoption of a definition
focusing simply on the number of access lines provided.\165\ One
commenter advocated a definition focusing exclusively on revenues
rather than access lines, with the standard for rural telephone company
status at annual revenues under $100 million.\166\ In addition, some
advocated a somewhat more restrictive definition.\167\
---------------------------------------------------------------------------
\162\Second Report and Order at 279-282.
\163\See, e.g., comments of Saco River, Telephone Electronics,
and Iowa Network (advocating amending the proposed definition merely
by raising the population threshold to 10,000), and comments of
Chickasaw (advocating definition including companies that
predominantly, but not exclusively, serve customers in communities
of less than 10,000 in non-urbanized areas).
\164\See, e.g., comments of Telocator, TDS, NYNEX, NOTA, NTCA
and Saco River (recommending a definition including companies that
either provide service only within communities of 10,000 or less in
non-urbanized areas or provide 10,000 or fewer access lines (and no
more than 150,000 in conjunction with affiliates)); comments of
OPASTCO (recommending defining rural telephone companies as those
that either provide exchange service only within communities of
10,000 or less in non-urbanized areas or that provide 50,000 or
fewer access lines; and comments of SBA Chief Counsel for Advocacy
(recommending a definition including companies serving communities
of 20,000 or less in non-urbanized areas or providing 50,000 or
fewer access lines (including lines provided by affiliates)).
\165\See, e.g., comments of STCL, MEBTEL, CFW, Minnesota Equal
Access Network, Rural Cellular Assn., Rural Cellular Corp.,
Rochester Tel. Corp, McCaw, DialPage, APC, TDS and Gulf Telephone
Co. (suggesting caps between 25,000 and 150,000 access lines).
\166\Comments of PMN.
\167\See, e.g., comments of GTE (definition would apply only to
companies that exclusively serve customers in communities of 10,000
or less in non-urbanized areas and that provide wireline exchange
service to 10,000 or fewer customers).
---------------------------------------------------------------------------
195. Many commenters suggested limiting rural telephone eligibility
to carriers serving communities with no more than 10,000 inhabitants,
asserting that such a standard better comports with common notions
about which telephone companies are ``rural.''\168\ A number of other
commenters supported a definition of rural telephone company that would
include a limitation on the size of the company. OPASTCO, for example,
asserted that such a limitation would comport with the statutory
mandate to ensure opportunity for rural telephone companies because
``the problem such companies face in the competitive bidding arena'' is
as much a function of their size as of the rural character of their
service areas.''\169\ NTCA similarly contended that small companies
have shown the interest and commitment needed to fulfill the explicit
statutory goal of ``rapid deployment of new * * * services for * * *
those residing in rural areas,'' citing as support a report on the
deployment of digital switching by small LECs.\170\ Other parties
suggested that we look to the unenacted antecedent of the Budget Act,
S. 1134, in which a rural company was defined as an entity that either
(a) ``provides telephone exchange service by wire in a rural area''
(i.e., a non-urbanized area containing no incorporated place with more
than 10,000 inhabitants), (b) ``provides telephone exchange service by
wire to less than 10,000 subscribers,'' or (c) ``is a telephone utility
whose income accrues to a State or political subdivision thereof.''
---------------------------------------------------------------------------
\168\See, e.g., comments of OPASTCO, Iowa Network, Saco River
and Telephone Electronics.
\169\Comments of OPASTCO at 5.
\170\Comments of NTCA at 7-8.
---------------------------------------------------------------------------
196. In the Second Report and Order, we adopted a definition of
``rural telephone company'' that includes independently owned and
operated local exchange carriers that (1) do not serve communities with
more than 10,000 inhabitants in the licensed area, and (2) do not have
more than 50,000 access lines, including all affiliates. 47 CFR
Sec. 1.2110(b)(3). We stated our belief that a limitation on the size
of eligible rural telephone companies is appropriate because Congress
did not intend for us to give special treatment to large LECs that
happen to serve small rural communities. See Second Report and Order at
282.
197. Several parties who filed petitions for reconsideration of the
Second Report and Order argue that the definition adopted for rural
telephone companies may be too restrictive given the capital intensive
nature of broadband PCS.\171\ We also note that NTCA argued in its
comments in this proceeding that it is neither necessary nor
appropriate to use the same criteria to define rural telephone
companies in rules pertaining to different services, technologies, and
industries.\172\ Likewise, in an ex parte letter, OPASTCO states that
by defining rural telephone company for purposes of broadband PCS as a
local exchange carrier with less than $100 million in revenue, the
Commission will properly capture in the defined class locally-owned
telephone companies who are truly interested in providing services to
rural areas.\173\ OPASTCO notes that the ``same universe of companies''
that would fall under such a revenue threshold would be captured by a
definition that includes all telephone companies having 100,000 or
fewer access lines.\174\
---------------------------------------------------------------------------
\171\See, e.g., petitions of South Dakota Network (SDN), U.S.
Intelco, NTCA, Rural Cellular Association and TDS. We note that
similar arguments have been made with respect to other services.
\172\See comments of NTCA at 4.
\173\Ex parte filing of filing of OPASTCO, June 2, 1994, at 2;
see also comments of PMN at 7-8.
\174\Id.
---------------------------------------------------------------------------
198. Our challenge in establishing a definition of a rural
telephone company for broadband PCS is to achieve the congressional
goal of promoting the rapid deployment of this new service in rural
areas by targeting only those telephone companies whose service
territories are predominantly rural in nature, and who are thus likely
to be able to use on their existing wireline telephone networks to
build broadband PCS infrastructures to serve rural America. For
purposes of our rules governing broadband PCS licenses, we believe that
this goal can best be achieved if we define rural telephone companies
as those local exchange carriers having 100,000 or fewer access lines,
including all affiliates. We agree with OPASTCO that such a definition
will include virtually all of the telephone companies who genuinely are
interested in providing services to rural areas. This definition will
encourage participation by legitimate rural telephone companies without
providing special treatment to large LECs. Therefore, we will better
achieve the congressional goal of providing service rapidly to rural
areas without giving benefits to large companies that do not require
such assistance. Rural telephone companies that satisfy this definition
thus will be eligible for rural partitioning, as discussed above.\175\
---------------------------------------------------------------------------
\175\Such companies also will be eligible for special treatment
under our cellular attribution rules for broadband PCS. See 47 CFR
Sec. 24.204(d)(2)(ii).
---------------------------------------------------------------------------
199. Anchorage Telephone Company argues in a petition for
reconsideration of the Second Report and Order that our definition of a
rural telephone company should include telephone companies that are
owned by governmental authorities. Anchorage contends that Congress
meant to mandate special consideration not only for telephone carriers
serving rural areas but also for all municipally-owned telcos, even
those with wholly or predominantly urban service areas.\176\ This
argument is based on its interpretation of the Senate bill that was
antecedent to the enacted Budget Act. Anchorage argues that the Senate
bill containing the prototype of a mandate for special consideration
for rural telephone companies directed the FCC to grant ``rural program
licenses'' to ``qualified'' common carriers and explicitly said that
the category of ``qualified'' carriers included all state-owned and
municipally-owned telephone companies. Anchorage further states that
the report of the conference committee that drafted the Budget Act
declares that the Senate's ``findings'' are incorporated by
reference.\177\ Anchorage also asserts that without the aid of special
assistance it and most other state-owned and municipal telcos won't be
able to purchase spectrum licenses at auction because it is politically
infeasible for them to generate and retain enough surplus revenue to
fund such investments, due to popular aversion to increases in taxes or
telephone rates.\178\
---------------------------------------------------------------------------
\176\Anchorage Petition at 2-3.
\177\Id.
\178\Id. at 4-5.
---------------------------------------------------------------------------
200. We find no merit in Anchorage's arguments. There is no
specific evidence that Congress intended the term ``rural telephone
companies'' to include all state or municipally-owned telephone
companies. To the contrary, the fact that an antecedent bill contained
an explicit mandate for preferential treatment of government-owned
telephone companies that was deleted from the enacted bill could just
as easily be interpreted as an indication that Congress rejected such a
rule. Further, we disagree that state and municipal governments lack
the means to participate successfully in auctions. Such governments
have substantial capabilities to raise funds through private financing,
bond offerings and taxation. Therefore, our definition of a rural
telephone company will not encompass telephone companies that are owned
by government authorities.
5. Definition of an Affiliate
201. Many of the eligibility criteria set forth above are based on
the size of the entity applying for a broadband PCS license and/or
seeking special treatment under our designated entity policies. Each of
these size standards ($125 million gross revenues/$500 million total
assets/$100 million personal net worth, $40 million gross revenues/$40
million personal net worth, and 100,000 access lines) requires
applicants to include, among other parties, ``affiliates'' when
calculating their attributable gross revenues, total assets, net worth
or access lines. This affiliation requirement is intended to prevent
entities that, for all practical purposes, do not meet these size
standards from receiving benefits targeted to smaller entities.\179\ We
adopt specific affiliation rules for purposes of applying these
eligibility criteria based in part on the Small Business
Administration's affiliation rules.\180\
---------------------------------------------------------------------------
\179\See, e.g., Second Report and Order at 272.
\180\See 13 CFR Sec. 121.401 (1993) (formerly at 13 CFR
Sec. 121.3 (1989)).
---------------------------------------------------------------------------
202. In the Second Report and Order, we referenced the SBA's
affiliation rules for purposes of defining generally whether an entity
qualifies as a small business and gave examples of how the affiliation
rules would be applied. We continue to believe that the SBA's
affiliation rules provide a solid foundation on which to build our own
affiliation rules for purposes of the small business definition for
broadband PCS and for the other size standards adopted in this
order.\181\ Accordingly, for purposes of these eligibility
restrictions, we will again borrow from the SBA's rules for outside
affiliations. In addition, to ensure that applicants have clear
guidance concerning these matters, we shall include in our rules more
detailed information concerning the circumstances in which an entity
will be deemed an affiliate of the applicant.
---------------------------------------------------------------------------
\181\SBA's affiliation rules were promulgated under the
authority in Section 3 of the Small Business Act of 1953, as
amended, 15 U.S.C. Sec. 632, which provides that, to be eligible for
benefits provided by SBA and other agencies, a ``small-business
concern'' must be ``independently owned and operated.'' See Small
Business Size Standards, 54 FR 52634 (December 21, 1989).
---------------------------------------------------------------------------
203. Like the eligibility rules we have adopted here governing size
limitations for broadband PCS, the SBA's rules provide that size
determinations shall include the applicant and all of its
``affiliates.''\182\ At the outset, before considering in more detail
all the types of affiliations that might exist when guided by the SBA
rules, we review briefly our own rules described above, concerning
attributable interests. Those rules provide that, so long as a control
group is established, the gross revenues, assets or net worth of an
investor in a PCS applicant or licensee will be attributed to the
applicant or licensee only if the investor holds more than 25 percent
of the applicant's passive equity or is part of a control group that
controls the applicant. Therefore, only where an investor has such
attributable interests in the broadband PCS applicant or licensee do we
need to examine whether the investor has a relationship with other
persons or outside entities that rises to the level of an affiliation
with the PCS applicant, and if so, whether the affiliate's revenues or
net worth, when aggregated with the applicant's, exceed our size
eligibility thresholds.
---------------------------------------------------------------------------
\182\See 13 CFR Sec. 121.401(a).
---------------------------------------------------------------------------
204. General Principles of Affiliation. When such an attributable
interest exists, an affiliation under the SBA rules would arise, first,
from ``control'' of an entity or the ``power to control it.'' Thus,
under the SBA rules, entities are affiliates of each other when either
directly or indirectly (i) one concern controls or has the power to
control the other, or (ii) a third party or parties controls or has the
power to control both. 13 CFR Sec. 121.401(a)(2)(i), (ii). In
determining control, the SBA's rules provide generally that every
business concern is considered to have one or more parties who directly
or indirectly control or have the power to control it. The rules, in
addition, provide specific examples of where control resides under
various scenarios, such as through stock ownership or occupancy of
director, officer or management positions. The rules also articulate
general principles of control, and note, for example, that control may
be affirmative or negative and that it is immaterial whether control is
exercised so long as the power to control exists. 13 CFR
Sec. 121.401(c)(1). Second, an affiliation, under SBA rules, may also
arise out of an ``identity of interest'' between or among parties. 13
CFR Sec. 121.401(a)(2)(iii), (d). We shall adopt these same general
provisions in our affiliation rules for broadband PCS.
205. In adopting these affiliation rules, we emphasize that these
rules will not be applied in a manner that defeats the objectives of
our attribution rules. Our attribution rules expressly permit
applicants to disregard the gross revenues, total assets and net worth
of passive investors, provided that an eligible control group has de
facto and de jure control of the applicant. Our attribution rules are
designed to preserve control of the applicant by eligible entities, yet
allow investment in the applicant by entities that do not meet the size
restrictions in our rules. Therefore, so long as the requirements of
our attribution rules are met, the affiliation rules will not be used
to defeat the underlying policy objectives of allowing such passive
investors. More specifically, if a control group has de facto and de
jure control of the applicant, we shall not construe the affiliation
rules in a manner that causes the interests of passive investors to be
attributed to the applicant.
206. Applying these SBA affiliation rules, and affiliation would
arise, for example, where an entity with an attributable interest in a
broadband PCS applicant is under the control of another entity. An
affiliation would also arise where an entity with an attributable
interest in a broadband PCS applicant controls, or has the power to
control, another entity. For example, if a 10 percent voting
shareholder of a PCS applicant is also a shareholder in a large
Corporation X, when should Corporation X be deemed an affiliate of the
PCS applicant as a result of the shareholder's ownership interest in
both entities? Under the SBA rules and the rules we adopt here,
Corporation X would be deemed an affiliate of the applicant if the
shareholder controlled or had the power to control Corporation X, in
which case, Corporation X's gross revenues must be included in
determining the applicant's gross revenues.
207. For purposes of determining control, ownership interests will
be calculated on a fully-diluted basis. Thus, for example, stock
options, convertible debentures, and agreements to merge (including
agreements in principle) will generally be considered to have a present
effect on the power to control or own an interest in either an outside
entity or the PCS applicant or licensee.\183\ We will treat such
options, debentures, and agreements generally as though the rights held
thereunder had been exercised.\184\ However, an affiliate cannot use
such options and debentures to appear to terminate its control over or
relationship with another concern before it actually does so.\185\
---------------------------------------------------------------------------
\183\We recognize that we have adopted a different rule for
purposes of our broadband PCS-cellular ownership rules. See 47
C.F.R. Sec. 24.204(d)(2)(v). In that context, however, our purpose
was not to establish the financial position, or potential financial
position, of applicants bidding in auctions.
\184\See 13 C.F.R. Sec. 121.401(f). SBA's rules provide the
following examples to guide the application of this provision:
Example 1. If company ``A'' holds an option to purchase a
controlling interest in company ``B,'' the situation is treated as
though company ``A'' had exercised its rights and had become owner
of a controlling interest in company ``B.'' The [annual revenues] of
both concerns must be taken into account in determining size.
Example 2. If company ``A'' has entered into an agreement to
merge with company ``B'' in the future, the situation is treated as
though the merger has taken place. [A and B are affiliates of each
other].
\185\Id. SBA's rules provide this example:
If large company ``A'' holds 70% (70 of 100 outstanding shares)
of the voting stock of company ``B'' and gives a third party an
option to purchase 66 of the 70 shares owned by company ``A,''
company ``B'' will be deemed to be an affiliate of company ``A''
until the third party actually exercises its option to purchase such
shares. In order to prevent large company ``A'' from circumventing
the intent of the regulation which [gives] present effect to stock
options, the option is not considered to have present effect in this
case.
---------------------------------------------------------------------------
208. Voting and Other Trusts. In a similar vein, we also borrow
from the SBA's rules and our own rules in other services to find
affiliation under certain voting trusts in order to prevent a
circumvention of eligibility rules. The SBA's rules provide that a
voting trust, or similar agreement, cannot be used to separate voting
power from beneficial ownership of voting stock for the purpose of
shifting control of or the power to control an outside concern, if the
primary purpose of the trust is to meet size eligibility rules.\186\
Similarly, under the Commission's broadcast multiple ownership rules,
stock interests held in trust may be attributed to any person who holds
or shares the power to vote such stock, has the sole power to sell such
stock, has the right to revoke the trust at will or to replace the
trustee at will.\187\ Also, under the broadcast rules, if a trustee has
a familial, personal or extra-trust business relationship to the
grantor or the beneficiary of a trust, the stock interests held in
trust will be considered assets of the grantor or beneficiary, as
appropriate.\188\ Because we believe the broadcast rules provide more
definitive guidance in this particular area, we shall use them as a
model for the affiliation rules adopted here. Thus, for example, if an
investor with an attributable interest in a PCS applicant holds a
beneficial interest in stock of another firm that amounts to a
controlling interest in that other firm, depending on the identity of
the trustee, the other firm may be considered an affiliate and its
assets and gross revenues may be attributed to the PCS applicant.
---------------------------------------------------------------------------
\186\13 CFR Sec. 121.401(g).
\187\See 47 CFR Sec. 73.3555 note 2(e).
\188\Id.
---------------------------------------------------------------------------
209. Officers, Directors and Key Employees. Under the SBA's
affiliation rules, affiliations also generally arise where persons
serve as the officers, directors or key employees of another concern
and they represent a majority or controlling element of that other
concern's board of directors and/or management of the outside
entity.\189\ We shall adopt an identical rule. Thus, if a person with
an attributable interest in a broadband PCS applicant, through his or
her other key employment positions or positions on the board of another
firm, controls that other firm, then the other firm will be considered
an affiliate of the applicant. Such affiliations may or may not result
in the applicant's exceeding our size limitations. As this rule
reflects, for purposes of attributing the financial position of an
outside entity in this context, officers and directors of an outside
concern are not foreclosed entirely from holding attributable or non-
attributable interests in a PCS applicant. Whether or not such persons
control the outside entity, we also do not want to prohibit these
persons, who may be experienced in the telecommunications, finance, or
communications and equipment industries, from assisting start-up
companies in PCS by serving as officers or directors of the applicant.
Thus, under our general attribution rule, if such persons serving as
officers or directors of the applicant do not control the applicant or
otherwise have an attributable interest in the applicant, their outside
affiliations (even if controlling) will not be considered at all for
purposes of determining the applicant's eligibility under our
rules.\190\
---------------------------------------------------------------------------
\189\See 13 CFR Sec. 121.401(h). A key employee is an employee
who, because of his/her position in the concern, has a critical
influence in or substantive control over the operations or
management of the concern. 13 CFR Sec. 121.405.
\190\SBA's size standard affiliation rules also provide that
affiliations can arise in a variety of other scenarios, such as
where one concern is dependent upon another for contracts and
business, where firms share joint facilities, or have joint venture
of franchise license agreements. To the extent we believe these
rules may have general applicability in the context of our policies
for broadband PCS, we shall codify them in our affiliate rules. We
caution parties that issues relating to de facto control of the
applicant (or parties with attributable interests in the applicant)
could also arise under arrangements not expressly codified in the
rules.
---------------------------------------------------------------------------
210. Affiliation Through Identity of Interest: Family and Spousal
Relationships. As expressed in the SBA's rules, an affiliation may
arise not only through control, but out of an ``identity of interest''
between or among parties. See 13 CFR Sec. 121.401(a)(2)(iii). For
example, affiliation can arise between or among members of the same
family or persons with common investments in more than one concern. In
determining who controls or has the power to control an entity, persons
with an identity of interests may be treated as though they were one
person. 13 CFR Sec. 121.401(d). For example, if two shareholders in
Corporation X are both attributable shareholders in the PCS applicant,
to the extent that together they have the power to control Corporation
X, Corporation X may be deemed an affiliate of the applicant.
211. Similarly, as under the SBA rules, we must consider spousal
and other family relationships in determining whether an affiliation
exists. Under the SBA rules for determining small business status, for
example, members of the same family may be treated as though they were
one person because they have an ``identity of interest.'' 13 CFR
Sec. 121.401(d). Likewise, in order to determine whether individuals
are economically disadvantaged, the SBA rules governing eligibility for
participation in the government's ``section 8(a)'' program for socially
and economically disadvantaged small businesses have special provisions
for attributing spousal interests. The latter rules provide generally
that half of the jointly-owned interests of an applicant and his or her
spouse must be attributed to the applicant for purposes of determining
the applicant's net worth. See 13 CFR Sec. 124.106(a)(2)(i)(A)(1).
212. In the context of the auction eligibility rules at issue here,
we begin by clarifying that our reason for considering spousal and
kinship relationships is not to determine whether the spouse or other
kin of a woman-owned applicant actually is controlling the applicant,
thereby violating our eligibility rules for woman-owned businesses. As
discussed above, our rules do not embody any presumptions concerning
spousal control in that context.\191\ Rather, our objective here is to
ensure both that entities permitted to bid in the entrepreneurs' blocks
are actually in need of special financial assistance and that otherwise
ineligible entities do not circumvent the rules prohibiting entry by
funding family members that purport to be eligible applicants.
---------------------------------------------------------------------------
\191\See supra 189.
---------------------------------------------------------------------------
213. In formulating these rules, we need to consider also that, as
a practical matter, it will not be possible for us prior to the
auctions to resolve all questions that pertain to the individual
circumstances of particular applicants. Furthermore, if we determine
subsequent to an auction that a winning bidder in fact was ineligible
to bid because of spousal or kinship relationships, not only will
authorization of service be delayed but, as discussed above,
disqualified applicants may be subject to substantial penalties. In
these circumstances, we think that the public interest requires that we
endeavor, insofar as possible, to establish brightline tests for
determining when the financial interests of spouses and other kin
should be attributed to the applicant.
214. We have decided that, for purposes of determining whether the
financial limitations in our eligibility rules have been met, we will
in every instance attribute the financial interests of an applicant's
spouse to the applicant. This will resolve any concern that an
applicant might transfer his or her assets to a spouse in order to
satisfy the personal net worth or control restrictions that apply to
eligible entities. For example, an applicant could not transfer stock
or other assets to his or her spouse and thereby dispose of interests
that, if held by the applicant, would render the applicant ineligible.
Just as importantly, this approach will resolve any concern that an
applicant might participate in bidding in the entrepreneurs' blocks by
using the personal assets of an ineligible spouse, which would defeat
entirely the objective of excluding very large entities from bidding in
these blocks.
215. In adopting this rule, we fully recognize that instances could
arise in which, if all factors were considered, attributing a spouse's
financial interests to the applicant could lead to harsh results. As a
general matter, however, we think it provides a workable bright-line
standard that resolves fully our policy concerns and avoids undesirable
ambiguity concerning the nature of our requirements. As in the SBA
rules, however, one exception is clearly warranted; this affiliation
standard would not apply if the applicant and his or her spouse are
subject to a legal separation recognized by a court of competent
jurisdiction. In calculating their personal net worth, investors in the
applicant who are legally separated must, of course, still include
their share of interests in community property held with a spouse.
216. As indicated above, circumstances could also arise in which
other kinship relationships are used as a means to evade our
eligibility requirements. Because we believe kinship relationships in
many cases do not present the same potential for abuse that exists with
spousal relationships, particularly in terms of the ``identity of
interests'' that are likely to exist between the persons involved, we
shall adopt a more relaxed standard for determining when kinship
interests must be attributed to applicants. In this area, we shall
follow the same standard that is applied by the SBA when interpreting
its ``identity of interest'' rule described above. Specifically, an
identity of interests between family members and applicants will be
presumed to exist, but the presumption can be rebutted by showing that
the family members are estranged, or that their family ties are remote,
or that the family members are not closely related in business matters.
See generally Texas-Capital Contractors, Inc. v. Abdnor, 933 F.2d 261
(5th Cir. 1990). For purposes of determining who is a family member
under this rule, we shall use a definition that is identical to the
definition of ``immediate family member'' in the SBA's rules, 13 CFR
Sec. 124.100.
217. In appropriate cases, an applicant should be able to rebut the
presumption regarding kinship affiliations with relative ease, simply
by demonstrating that the applicant has no close relationship in
business matters with the relevant family members. Of course, should
such business relationships arise with a winning applicant after the
auction, we might need to consider whether the applicant intended to
circumvent the requirements of our eligibility rules. Our holding
period rule, which, as discussed above, requires that winning bidders
in the entrepreneurs' blocks maintain an ownership structure meeting
our eligibility requirements for five years, will serve as an
additional safeguard against possible abuses arising from kinship
relationships.
VIII. Conclusion, Procedural Matters, and Ordering Clauses
A. Conclusion
218. In fashioning rules for competitive bidding for broadband PCS
licenses, we seek to promote the public policy goals set forth for us
by Congress. We believe that the rules adopted in this Fifth Report and
Order satisfy this objective. These rules should facilitate the rapid
implementation of new broadband communications services through
advanced technologies and efficient spectrum use, thus advancing the
public interest by providing consumers with competitive and innovative
wireless voice and data services and also fostering economic growth.
The rules will allow for the public to recover a portion of the value
of the public spectrum, and will promote access to broadband PCS
services by consumers, producers and new entrants by ensuring that
small businesses, rural telephone companies and businesses owned by
minorities and women will have genuine opportunities to participate in
the auctions and in the provision of service. We expect that the advent
of PCS will benefit consumers by raising the overall level of
competition in many already competitive segments of the
telecommunications industry and providing competition in others for the
first time, promote job creation in the communications and information
sector of the domestic economy, and enhance productivity and efficiency
in industry as a whole.
B. Final Regulatory Flexibility Analysis
219. Pursuant to the Regulatory Flexibility Act of 1980, an Initial
Regulatory Flexibility Analysis (IRFA) was incorporated in the Notice
of Proposed Rule Making in PP Docket No. 93-253. Written comments on
the IRFA were requested. The Commission's final analysis is as follows:
220. Need for and purpose of the action. This rule making
proceeding was initiated to implement Section 309(j) of the
Communications Act, as amended. The rules adopted herein will carry out
Congress's intent to establish a system of competitive bidding for
broadband PCS licenses. The rules adopted herein also will carry out
Congress's intent to ensure that small businesses, rural telephone
companies, and businesses owned by women and minorities are afforded an
opportunity to participate in the provision of spectrum-based services.
221. Issues raised in response to the IRFA. The IRFA noted that the
proposals under consideration in the NPRM included the possibility of
new reporting and recordkeeping requirements for a number of small
business entities. No commenters responded specifically to the issues
raised in the IRFA. We have made some modifications to the proposed
requirements as appropriate.
222. Significant alternatives considered and rejected. All
significant alternatives have been addressed in the Fifth Report and
Order.
C. Ordering Clauses
223. Accordingly, it is ordered that part 24 of the Commission's
Rules is amended as set forth in the attachment hereto.
224. It is further ordered that the rules changes made herein will
become effective 30 days after their publication in the Federal
Register. This action is taken pursuant to Sections 4(i), 303(r) and
309(j) of the Communications Act of 1934, as amended, 47 U.S.C.
Secs. 154(i), 303(r) and 309(j).
List of Subjects in 47 CFR Part 24
Radio.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Final Rules
Part 24 of Chapter I of Title 47 of the Code of Federal Regulations
is amended as follows:
PART 24--PERSONAL COMMUNICATIONS SERVICES
1. The authority citation for Part 24 continues to read as follows:
Authority: Secs. 4, 301, 302, 303, 309 and 332, 48 Stat. 1066,
1082, as amended; 47 U.S.C. 154, 301, 302, 303, 309 and 332, unless
otherwise noted.
Sec. 24.204 [Amended]
2. Section 24.204 is amended by replacing references to ``Section
24.305'' and ``Section 24.307'' in paragraphs (f)(1) and (f)(2),
respectively, with ``Sec. 24.705'' and ``Sec. 24.707''.
3. A new subpart H consisting of Secs. 24.701 through 24.720 is
added to Part 24 to read as follows:
Subpart H--Competitive Bidding Procedures for Broadband PCS
Sec.
24.701 Broadband PCS subject to competitive bidding.
24.702 Competitive bidding design for Broadband PCS licensing.
24.703 Competitive bidding mechanisms.
24.704 Withdrawal, default and disqualification penalties.
24.705 Bidding application (FCC Form 175 and 175-S Short-Form).
24.706 Submission of upfront payments and down payments.
24.707 Long-form applications.
24.708 License grant, denial, default, and disqualification.
24.709 Eligibility for licenses for frequency Blocks C and F.
24.710 Limitation on licenses won at auction for frequency Blocks C
and F.
24.711 Installment payments for licenses for frequency Blocks C and
F.
24.712 Bidding credits for licenses for frequency Blocks C and F.
24.713 Tax certificates.
24.714 Eligibility for partitioned licenses.
24.720 Definitions.
Subpart H--Competitive Bidding Procedures for Broadband PCS
Sec. 24.701 Broadband PCS subject to competitive bidding.
Mutually exclusive initial applications to provide broadband PCS
service are subject to competitive bidding procedures. The general
competitive bidding procedures found in 47 CFR Part 1, Subpart Q will
apply unless otherwise provided in this part.
Sec. 24.702 Competitive bidding design for Broadband PCS licensing.
(a) The Commission will employ the following competitive bidding
designs when choosing from among mutually exclusive initial
applications to provide broadband PCS service:
(1) Simultaneous multiple round auctions.
(2) Sequential auctions.
(b) The Commission may design and test alternative procedures. The
Commission will announce by Public Notice before each auction the
competitive bidding design to be employed in a particular auction.
(c) The Commission may use combinatorial bidding, which would allow
bidders to submit all or nothing bids on combinations of licenses, in
addition to bids on individual licenses. The Commission may require
that to be declared the high bid, a combinatorial bid must exceed the
sum of the individual bids by a specified amount or percentage.
Combinatorial bidding may be used with any type of auction design.
(d) The Commission may use single combined auctions, which combine
bidding for two or more substitutable licenses and award licenses to
the highest bidders until the available licenses are exhausted. This
technique may be used in conjunction with any type of auction.
Sec. 24.703 Competitive bidding mechanisms.
(a) Sequencing. The Commission will establish and may vary the
sequence in which broadband PCS licenses will be auctioned.
(b) Grouping. In the event the Commission uses either a
simultaneous multiple round competitive bidding design or combinatorial
bidding, the Commission will determine which licenses will be auctioned
simultaneously or in combination.
(c) Reservation Price. The Commission may establish a reservation
price, either disclosed or undisclosed, below which a license subject
to auction will not be awarded.
(d) Minimum Bid Increments. The Commission will, by announcement
before or during an auction, require minimum bid increments in dollar
or percentage terms.
(e) Stopping Rules. The Commission will establish stopping rules
before or during multiple round auctions in order to terminate an
auction within a reasonable time.
(f) Activity Rules. The Commission will establish activity rules
which require a minimum amount of bidding activity. In the event that
the Commission establishes an activity rule in connection with a
simultaneous multiple round auction, each bidder will be entitled to
request and will be automatically granted one waiver of such rule
during each auction stage.
(g) Suggested Minimum Bid. The Commission may establish suggested
minimum bids on each license. Bids below the suggested minimum bid
would count as activity under the activity rule only if no bids at or
above the suggested minimum bid are received.
Sec. 24.704 Withdrawal, default and disqualification penalties.
(a) When the Commission conducts a simultaneous multiple round
auction pursuant to Sec. 24.702(a)(1), the Commission will impose
penalties on bidders who withdraw high bids during the course of an
auction, who default on payments due after an auction closes, or who
are disqualified.
(1) Bid withdrawal prior to close of auction. A bidder who
withdraws a high bid during the course of an auction will be subject to
a penalty equal to the difference between the amount bid and the amount
of the winning bid the next time the license is offered by the
Commission. No withdrawal penalty would be assessed if the subsequent
winning bid exceeds the withdrawn bid. This penalty amount will be
deducted from any upfront payments or down payments that the
withdrawing bidder was deposited with the Commission.
(2) Default or disqualification after close of auction. If a high
bidder defaults or is disqualified after the close of such an auction,
the defaulting bidder will be subject to the penalty in paragraph
(a)(1) of this section plus an additional penalty equal to three (3)
percent of the subsequent winning bid. If the subsequent winning bid
exceeds the defaulting bidder's bid amount, the 3 percent penalty will
be calculated based on the defaulting bidder's bid amount. These
amounts will be deducted from any upfront payments or down payments
that the defaulting or disqualified bidder has deposited with the
Commission.
(b) When the Commission conducts sequential oral auctions pursuant
to Sec. 24.702(a)(2), the Commission may modify the penalties set forth
in subsection (a) above to be paid in the event of bid withdrawal,
default or disqualification; provided, however, that such penalties
shall not exceed the penalties specified above.
(1) If a bid is withdrawn before the Commission has declared the
bidding to be closed for the license bid on, no bid withdrawal penalty
will be assessed.
(2) If a bid is withdrawn after the Commission has declared the
bidding to be closed for the license bid on, the penalty specified in
paragraph (a)(2) of this section will apply.
Sec. 24.705 Bidding application (FCC Form 175 and 175-S Short-Form).
All applicants to participate in competitive bidding for broadband
PCS licenses must submit applications on FCC Forms 175 and 175-S
pursuant to the provisions of Secs. 1.2105 of the Chapter and 24.813.
The Commission will issue a Public Notice announcing the availability
of broadband PCS licenses and, in the event that mutually exclusive
applications are filed, the date of the auction for those licenses.
This Public Notice also will specify the date on or before which
applicants intending to participate in a broadband PCS auction must
file their applications in order to be eligible for that auction, and
it will contain information necessary for completion of the application
as well as other important information such as the materials which must
accompany the Forms, any filing fee that must accompany the application
or any upfront payment that will need to be submitted, and the location
where the application must be filed.
Sec. 24.706 Submission of upfront payments and down payments.
(a) Where the Commission uses simultaneous multiple round auctions
or oral sequential auctions, bidders will be required to submit an
upfront payment in accordance with Sec. 1.2106 of this Chapter and
Sec. 24.711(a)(1).
(b) Winning bidders in an auction must submit a down payment to the
Commission in accordance with Sec. 1.2107(b) of this Chapter and
Sec. 24.711(a)(2).
Sec. 24.707 Long-form applications.
Each winning bidder will be required to submit a long-form
application on FCC Form 401, as modified, within ten (10) business days
after being notified that it is the winning bidder. Applications on FCC
Form 401 shall be submitted pursuant to the procedures set forth in
Subpart I of this Part and Sec. 1.2107 (c) and (d) of this Chapter and
any associated Public Notices. Only auction winners (and applicants
seeking partitioned licenses pursuant to agreements with auction
winners under Sec. 24.714) will be eligible to file applications on FCC
Form 401 for initial broadband PCS licenses in the event of mutual
exclusivity between applicants filing Form 175. Winning bidders need
not complete Schedule B to Form 401.
Sec. 24.708 License grant, denial, default, and disqualification.
(a) Except with respect to entities eligible for installment
payments (see Sec. 24.711), each winning bidder will be required to pay
the balance of its winning bid in a lump sum payment within five (5)
business days following the award of the license. Grant of the license
will be conditioned upon full and timely payment of the winning bid
amount.
(b) A bidder who withdraws its bid subsequent to the close of
bidding, defaults on a payment due or is disqualified will be subject
to the penalties specified in Sec. 1.2109 of this Chapter.
Sec. 24.709 Eligibility for licenses for frequency Blocks C and F.
(a) General Rule. (1) No application is acceptable for filing and
no license shall be granted for frequency Block C or frequency Block F,
unless the applicant, together with its affiliates and persons holding
interests in the applicant and their affiliates, have gross revenues of
less than $125 million in each of the last two calender years and total
assets of less than $500 million at the time the applicant's short-form
(Form 175) application is filed.
(2) No application is acceptable for filing and no license shall be
granted for frequency Block C or frequency Block F, if, at the time the
application is filed, the applicant (or person holding an interest in
the applicant) is an individual and he or she (or affiliates) has $100
million or greater in personal net worth at the time the applicant's
short-form (Form 175) application is filed.
(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
increased gross revenues, increased total assets or personal net worth
due to non-attributable equity investments (i.e., from sources whose
revenues, total assets and personal net worth are not considered under
paragraph (b)(4) of this section), debt financing, revenue from
operations, business development or expanded service shall not be
considered.
(b) Attribution and Aggregation of Gross Revenues, Total Assets,
and Personal Net Worth. (1) Except as specified in paragraphs (b)(3)
and (4) of this section, the gross revenues and total assets of the
applicant (or licensee) and its affiliates, and other persons that hold
interests in the applicant (or licensee) and their affiliates shall be
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 or frequency Block F under this section.
(2) the personal net worth of individual applicants (or licensees)
and other persons that hold interests in the applicant (or licensee),
and their affiliates, if under the amount in paragraph (a)(2) of this
section, shall not be considered for purposes of determining whether
the applicant (or licensee) is eligible for a license for frequency
Block C or frequency Block F under this section.
(3) 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.
(4) (i) The gross revenues, total assets and personal net worth of
a person that holds an interest in the applicant (or licensee) shall
not be considered for purposes of determining financial eligibility so
long as:
(A) Such person holds no more than 25 percent of the applicant's
(or licensee's) passive equity and is not a member of the applicant's
(or licensee's) control group; and
(B) The applicant (or licensee) has a control group that owns at
least 25 percent of the applicant's (or licensee's) total equity and,
if a corporation, holds at least 50.1 percent of the applicant's (or
licensee's) voting interests.
(ii) The gross revenues, total assets and personal net worth of a
person that holds an interest in the applicant (or licensee) shall not
be considered for purposes of determining financial eligibility so long
as:
(A) Such person holds no more than 49.9 percent of the applicant's
(or licensee's) passive equity and is not a member of the applicant's
(or licensee's) control group; and
(B) The applicant (or licensee) has a control group that consists
entirely of members of minority groups and/or women and that owns at
least 50.1 percent of the applicant's (or licensee's) total equity and,
if a corporation, at least 50.1 percent of the applicant's (or
licensee's) voting interests.
(iii) The gross revenues, total assets and personal net worth of a
person that holds an interest in the applicant (or licensee) shall not
be considered for purposes of determining financial eligibility so long
as:
(A) Such person owns no more than 25 percent of the applicant's (or
licensee's) total equity, which shall include not more than 15 percent
of the voting stock;
(B) The applicant (or licensee) is a publicly traded corporation;
and
(C) The applicant (or licensee) has an eligible control group that
holds at least 50.1 percent of the voting stock, if a corporation, and
at least 25 percent of the applicant's (or licensee's) equity.
Note: 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 the such
agreements may not be used to appear to terminate or divest
ownership interests before they actually do so.
(c) Short-Form Application Certification; Long-Form Application
Disclosure. (1) All applicants for a license for frequency Block C or
frequency Block F shall certify on its short-form application (Form
175) that they are eligible to bid on and obtain licenses in those
blocks pursuant to this section.
(2) In addition to the requirements in subpart I, all applicants
that are winning bidders on frequency Blocks C and F shall, in an
exhibit to their long-form applications--
(i) Identify each member of the applicant's control group,
regardless of the size of the member's total interest in the applicant,
and each member's minority group or gender classification, if
applicable;
(ii) Disclose the gross revenues and total assets of the applicant
and its affiliates, and other persons that hold interests in the
applicant and their affiliates (including all members of the
applicant's control group), unless exempted under paragraph (b)(4) of
this section; and
(iii) Certify that the personal net worth of the applicant (if an
individual), each affiliates and each person that hold an interest in
the applicant is less than $100 million.
(d) Audits. Applicants and licensees claiming eligibility under
this section shall be subject to random audits by the Commission.
(e) Definitions. The terms affiliate, business owned by members of
minority groups and women, consortium of small businesses, control
group, gross revenues, members of minority groups, passive equity,
personal net worth, publicly traded corporation, and total assets used
in this section are defined in Sec. 24.720.
Sec. 24.710 Limitation on licenses won at auction for frequency Blocks
C and F.
(a) No applicant may be deemed the winning bidder of more than 98
of the licenses available for frequency Blocks C and F. Any applicant
who is the high bidder for more than 98 of the licenses available for
frequency Blocks C and F shall be required to withdraw its bid(s) for a
sufficient number of licenses to achieve compliance with this section
and may be subject to bid withdrawal penalties under Sec. 24.704.
(b) For purposes of paragraph (a) of this section, licenses will be
deemed to be won by the same bidder if an entity that controls or has
the power to control any applicant that wins licenses at the auction,
has the power to control any other applicant that wins licenses at the
auction.
Sec. 24.711 Installment payments for licenses for frequency Blocks C
and F.
(a) Except as provided in paragraphs (b), (c) and (d) of this
section, an applicant that has $75 million or less in gross revenues in
each of the preceding two calendar years and that is a winning bidder
for frequency Blocks C or F in a BTA market other than the fifty
largest markets and any eligible applicant that is a winning bidder for
frequency Blocks C or F in one of the fifty largest BTA markets, may
pay the full amount of its winning bid in installments as follows:
(1) Each eligible bidder 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.
(2) Each winning bidder shall make a down payment equal to ten
percent of their winning bids; a winning bidder shall bring its total
amount on deposit with the Commission (including upfront payment) to
five percent of its winning bids 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.
(3) Each eligible licensee shall pay the remainder of its winning
bids in installment payments with interest imposed based on the rate
for ten-year U.S. Treasury obligations applicable on the date the
license is granted, plus 2.5 percent; interest-only payments for the
first year; and principal and interest payments amortized over the
remaining nine years of the license.
(4) For purposes of determining whether an applicant has $75
million or less in gross revenues, gross revenues shall be attributed
to the applicant and aggregated as provided in Sec. 24.709(b), except
that Sec. 24.709(b)(4)(iii) shall not apply.
(b) An applicant that qualifies as a business owned by members of
minority groups and/or women may pay the full amount of its winning bid
in installments in the same manner as in paragraphs (a)(1) and (a)(2)
of this section, except that interest-only payments may be paid for the
first three years and interest shall be paid at the rate for ten-year
U.S. Treasury obligations applicable on the date the license is
granted.
(c) An applicant that qualifies as a small business or as a
consortium of small businesses may pay the full amount of its winning
bid in installments in the same manner as in paragraphs (a)(1) and
(a)(2) of this section, except that interest-only payments may be paid
for the first two years.
(d) An applicant that qualifies as a small business owned by
members of minority groups and/or women or as a consortium of small
businesses owned by members of minority groups and/or women may pay the
full amount of its winning bid in installments in the same manner as in
paragraphs (a)(1) and (a)(2) of this section, except that interest-only
payments may be paid for the first five years and interest shall be
paid at the rate for ten-year U.S. Treasury obligations applicable on
the date the license is granted.
(e) 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 assignment or transfer as a condition of
approval. Increases in gross revenues or total assets that result from
equity investments that are not attributable to the licensee under
Sec. 24.709(b)(4), revenues from operations, business development or
expanded service shall not be considered changes in ownership structure
under this paragraph.
(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 paragraphs (a), (b) or (c) of this section, the licensee shall
seek Commission approval and must adjust its payment plan to reflect
its new eligibility status under paragraphs (a), (b) or (c) of this
section. A licensee may not switch its payment plan to a more favorable
plan.
Sec. 24.712 Bidding credits for licenses for frequency Blocks C and 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 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 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 credit 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.
Sec. 24.713 Tax certificates.
(a) Any non-controlling initial investor in a business owned by
members of minority groups and/or women and who provides ``start-up''
financing, which allows such business to acquire a broadband PCS
license(s), and any non-controlling investor who purchases an interest
in a broadband PCS license held by a business owned by members of
minority groups and/or women within the first year after license
issuance, may, upon the sale or such investment or interest, request
from the Commission a tax certificate.
Note: For purposes of this subsection, non-controlling investor
means any person who is not part of the control group of a business
owned by members of minority groups and/or women as defined in
Sec. 24.720(k).
(b) Any broadband PCS licensee who assigns or transfer control of
its license to a business owned by members of minority groups and/or
women may request that the Commission issue the licensee a tax
certificate. Any licensee that obtain a broadband PCS license through
the benefit of a tax certificates under this subsection shall not
assign or transfer control of its license within one year of its
license grant date, unless such assignee or transferee qualifies as a
business owned by members of minority groups and/or women, which shall
not assign or transfer control of the license within one year of the
grant date of the assignment or transfer.
(c) Any licensee in the Domestic Public Cellular Radio
Telecommunications Service who assigns or transfer control of its
cellular license(s) to a business owned by members of minority groups
and/or women may request that the Commission issue the licensee a tax
certificate. Such tax certificates will only be issued if the principal
purpose of the assignment or transfer of control is to allow the
cellular licensee to become eligible for a broadband PCS license(s)
beyond the limitations imposed on the cellular licensee by Sec. 24.204.
Any licensee that obtains a cellular license through the benefit of a
tax certificate under this paragraph shall not assign or transfer
control of its license within one year of its license grant date,
unless such assignee or transferee qualifies as a business owned by
members of minority groups and/or women, which shall not assign or
transfer control of the license within one year of the grant date of
the assignment or transfer.
Sec. 24.714 Eligibility for partitioned licenses
(a) Notwithstanding Sec. 24.202, an applicant that is a rural
telephone company, as defined in Sec. 24.720(e), may be granted a
broadband PCS license that is geographically partitioned from a
separately licensed MTA or BTA, so long as the MTA or BTA applicant or
licensee has voluntarily agreed (in writing) to partition a portion of
the license to the rural telephone company.
(b) If partitioned licenses are being applied for in conjunction
with a license(s) to be awarded through competitive bidding
procedures--
(1) The applicable procedures for filing short-form applications
and for submitting upfront payments and down payments contained in this
part and part 1 of this Chapter shall be followed by the applicant, who
must disclose as part of its short-form application all parties to
agreement(s) with or among rural telephone companies to partition the
license pursuant to this section, if won at auction (see 47 CFR
Sec. 1.2105(a)(2)(viii));
(2) Each rural telephone company that is a party to an agreement to
partition the license shall file a long-form application for its
respective, mutually agreed-upon geographic area together with the
application for the remainder of the MTA or BTA filed by the auction
winner.
(c) If the partitioned license is being applied for as a partial
assignment of the MTA or BTA license following grant of the initial
license, request for authorization for partial assignment of a license
shall be made pursuant to Sec. 24.839.
(d) Each application for a partitioned area (long-form initial
application or partial assignment application) shall contain a
partitioning plan that must propose to establish a partitioned area to
be licensed that meets the following criteria:
(1) Conforms to established geopolitical boundaries (such as county
lines);
(2) Includes the wireline service area of the rural telephone
company applicant; and
(3) Is reasonably related to the rural telephone company's wireline
service area.
Note: A partitioned service area will be presumed to be reasonably
related to the rural telephone company's wireline service area if the
partitioned service area contains no more than twice the population
overlap between the rural telephone company's wireline service area and
the partitioned area.
(e) Each licensee in each partitioned area will be responsible for
meeting the construction requirements in its area (see Sec. 24.203).
Sec. 24.720 Definitions.
(a) Scope. The definitions in this section apply to Secs. 24.709-
24.715, unless otherwise specified in those sections.
(b) Small Business; Consortium of Small Businesses.
(1) A small business is an entity that
(i) Together with its affiliates has average annual gross revenues
that are not more than $40 million for the preceding three calendar
years;
(ii) Has no attributable investor or affiliate that has a personal
net worth of $40 million or more;
(iii) Has a control group all of whose members and affiliates are
considered in determining whether the entity meets the $40 million
annual gross revenues and personal net worth standards; and
(iv) Such control group holds 50.1 percent of the entity's voting
interest, if a corporation, and at least 25 percent of the entity's
equity on a fully diluted basis, except that a business owned by
members of minority groups and/or women (as defined in paragraph(c) of
this section) may also qualify as a small business if a control group
that is 100 percent composed of members of minority groups and/or women
holds 50.1 percent of the entity's voting interests, if a corporation,
and 50.1 percent of the entity's total equity on a fully diluted basis
and no single other investor holds more than 49.9 percent of passive
equity in the entity. 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 the such
agreements may not be used to appear to terminate or divest ownership
interests before they actually do so.
(2) For purposes of determining whether an entity meets the $40
million gross revenues and $40 million personal net worth standards in
paragraph (b)(1) of this section, gross revenues and personal net worth
shall be attributed to the entity and aggregated as pro-
vided in Sec. 24.709(b), except that
Sec. 24.709(b)(4)(iii) shall not apply.
(3) A small business consortium is a conglomerate organization
formed as a joint venture between mutually-independent business firms,
each of which individually satisfies the definition of a small business
in paragraph (b)(1) of this section.
(c) Business Owned by Members of Minority Groups and/or Women. A
business owned by members of minority groups and/or women is an entity:
(1) That has a control group composed 100 percent of members of
minority groups and/or women who are United States Citizens, and
(2) Such control group owns and holds 50.1 percent of the voting
interests, if a corporation, and
(i) Owns and holds 50.1 percent of the total equity in the entity,
provided that all other investors hold passive interests; or
(ii) Holds 25 percent of the total equity in the entity, provided
that no single other investor holds more than 25 percent passive equity
interests in the entity. 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.
(d) Small Business Owned by Members of Minority Groups and/or
Women; Consortium of Small Businesses Owned by Members of Minority
Groups and/or Women. A small business owned by members of minority
groups and/or women is an entity that meets the definitions in both
paragraphs (b) and (c) of this section. A consortium of small
businesses owned by members of minority groups and/or women a
conglomerate organization formed as a joint venture between mutually-
independent business firms, each of which individually satisfies the
definition of a small business in paragraphs (b)(1) and (c) of this
section.
(e) Rural Telephone Company. A rural telephone company is a local
exchange carrier having 100,000 or fewer access lines, including all
affiliates.
(f) Gross Revenues. Gross revenues shall mean all income received
by an entity, whether earned or passive, before any deductions are made
for costs of doing business (e.g., cost of goods sold), as evidenced by
audited quarterly financial statements for the relevant period.
(g) Total Assets. Total assets shall mean the book value (except
where generally accepted accounting principles (GAAP) require market
valuation) of all property owned by an entity, whether real or
personal, tangible or intangible, as evidenced by the most recent
audited quarterly financial statements.
(h) Personal Net Worth. Personal net worth shall mean the market
value of all assets (real and personal, tangible and intangible) owned
by an individual, less all liabilities (including personal guarantees)
owned by the individual in his individual capacity or as a joint
obligor.
(i) Members of Minority Groups. Members of minority groups includes
individuals of African American, Hispanic-surnamed, American Eskimo,
Aleut, American Indian and Asian American extraction.
(j) Passive Equity. Passive equity shall mean:
(1) For corporations, non-voting stock or stock that includes no
more than five percent of the voting equity;
(2) For partnerships, joint ventures and other non-corporate
entities, limited partnership interests and similar interests that do
not afford the power to exercise control of the entity.
(k) Control Group. A control group is an entity, or a group of
individuals or entities that possesses de jure control and de facto
control of an applicant or licensee, and as to which the applicant's or
licensee's charters, bylaws, agreements and any other relevant
documents (and amendments thereto) provide:
(1) That the entity and/or its members own unconditionally at least
50.1 percent of the total voting interests of a corporation;
(2) That the entity and/or its members receive at least 50.1
percent of the annual distribution of any dividends paid on the voting
stock of a corporation;
(3) That, in the event of dissolution or liquidation of a
corporation, the entity and/or its members are entitled to receive 100
percent of the value of each share of stock in its possession and a
percentage of the retained earnings of the concern that is equivalent
to the amount of equity held in the corporation; and
(4) That the entity and/or its members have the right to receive
dividends, profits and regular and liquidating distributions from the
business in proportion to its interest in the total equity of the
applicant or licensee.
Note: Voting control does not always assure de facto control,
such as, for example, when the voting stock of the control group is
widely dispersed (see, e.g., Sec. 24.270(l)(2)(iii)).
(l) Affiliate. (1) An individual or entity is an affiliate of:
(i) An applicant; or
(ii) A person holding an attributable interest in an applicant
under Sec. 24.709 (both referred to herein as ``the applicant'') if
such individual or entity--
(A) Directly or indirectly controls or has the power to control the
applicant, or
(B) Is directly or indirectly controlled by the applicant, or
(C) Is directly or indirectly controlled by a third party or
parties that also controls or has the power to control the applicant,
or
(D) Has an ``identity of interest'' with the applicant.
(2) Nature of control in determining affiliation.
(i) Every business concern is considered to have one or more
parties who directly or indirectly control or have the power to control
it. Control may be affirmative or negative and it is immaterial whether
it is exercised so long as the power to control exists.
Example. An applicant owning 50 percent of the voting stock of
another concern would have negative power to control such concern
since such party can block any action of the other stockholders.
Also, the bylaws of a corporation may permit a stockholder with less
than 50 percent of the voting stock to block any actions taken by
the other stockholders in the other entity. Affiliation exists when
the applicant has the power to control a concern while at the same
time another person, or persons, are in control of the concern at
the will of the party or parties with the power to control.
(ii) Control can arise through stock ownership; occupancy of
director, officer or key employee positions; contractual or other
business relations; or combinations of these and other factors. A key
employee is an employee who, because of his/her position in the
concern, has a critical influence in or substantive control over the
operations or management of the concern.
(iii) Control can arise through management positions where a
concern's voting stock is so widely distributed that no effective
control can be established.
Example. In a corporation where the officers and directors own
various size blocks of stock totaling 40 percent of the
corporation's voting stock, but no officer or director has a block
sufficient to give him or her control or the power to control and
the remaining 60 percent is widely distributed with no individual
stockholder having a stock interest greater than 10 percent,
management has the power to control. If persons with such management
control of the other entity are persons with attributable interests
in the applicant, the other entity will be deemed an affiliate of
the applicant.
(3) Identity of interest between and among persons. Affiliation can
arise between or among two or more persons with an identity of
interest, such as members of the same family or persons with common
investments. In determining if the applicant controls or has the power
to control a concern, persons with an identity of interest will be
treated as though they were one person.
Example. Two shareholders in Corporation Y each have
attributable interests in the same PCS applilcation. While neither
shareholder has enough shares to individually control Corporation Y,
together they have the power to control Corporation Y. The two
shareholders with these common investments (or identity in Interest)
are treated as though they are one person and Corporation Y would be
deemed an affiliate of the applicant.
(i) Spousal Affiliation. Both spouses are deemed to own or control
or have the power to control interests owned or controlled by either of
them, unless they are subject to a legal separation recognized by a
court of competent jurisdiction in the United States. In calculating
their net worth, investors who are legally separated must include their
share of interests in property held jointly with a spouse.
(ii) Kinship Affiliation. Immediate family members will be presumed
to own or control or have the power to control interests owned or
controlled by other immediate family members. In this context
``immediate family member'' means father, mother, husband, wife, son,
daughter, brother, sister, father- or mother-in-law, son- or daughter-
in-law, brother- or sister-in-law, step-father or -mother, step-brother
or -sister, step-son or -daughter, half brother or sister. This
presumption may be rebutted by showing that
(A) The family members are estranged,
(B) The family ties are remote, or
(C) The family members are not closely involved with each other in
business matters.
Example. A owns a controlling interest in Corporation X. A's
sister-in-law, B, has an attributable interest in a PCS application.
Because A and B have a presumptive kinship affiliation, A's interest
in Corporation X is attributable to B, and thus to the applicant,
unless B rebuts the presumption with the necessary showing.
(4) Affiliation through stock ownership.
(i) An applicant is presumed to control or have the power to
control a concern if he or she owns or controls or has the power to
control 50 percent or more of its voting stock.
(ii) An applicant is presumed to control or have the power to
control a concern even though he or she owns, controls or has the power
to control less than 50 percent of the concern's voting stock, if the
block of stock he or she owns, controls or has the power to control is
large as compared with any other outstanding block of stock.
(iii) If two or more persons each owns, controls or has the power
to control less than 50 percent of the voting stock of a concern, such
minority holdings are equal or approximately equal in size, and the
aggregate of these minority holdings is large as compared with any
other stock holding, the presumption arises that each one of these
persons individually controls or has the power to control the concern;
however, such presumption may be rebutted by a showing that such
control or power to control, in fact, does not exist.
(5) Affiliation arising under stock options, convertible
debentures, and agreements to merge. Stock options, convertible
debentures, and agreements to merge (including agreements in principle)
are generally considered to have a present effect on the power to
control the concern. Therefore, in making a size determination, such
options, debentures, and agreements are generally treated as though the
rights held thereunder had been exercised. However, an affiliate cannot
use such options and debentures to appear to terminate its control over
another concern before it actually does so.
Example 1. If company B holds an option to purchase a
controlling interest in company A, who holds an attributable
interest in a PCS application, the situation is treated as though
company B had exercised its rights and had become owner of a
controlling interest in company A. The gross revenues of company B
must be taken into account in determining the size of the applicant.
Example 2. If a large company, BigCo, holds 70% (70 of 100
outstanding shares) of the voting stock of company A, who holds an
attributable interest in a PCS application, and gives a third party,
SmallCo, an option to purchase 50 of the 70 shares owned by BigCo,
BigCo will be deemed to be an affiliate of company A, and thus the
applicant, until SmallCo actually exercises its option to purchase
such shares. In order to prevent BigCo from circumventing the intent
of the rule which requires such options to be considered on a fully
diluted basis, the option is not considered to have present effect
in this case.
Example 3. If company A has entered into an agreement to merge
with company B in the future, the situation is treated as though the
merger has taken place.
(6) Affiliation under voting trusts.
(i) Stock interests held in trust shall be deemed controlled by any
person who holds or shares the power to vote such stock, to any person
who has the sole power to sell such stock, and to any person who has
the right to revoke the trust at will or to replace the trustee at
will.
(ii) If a trustee has a familial, personal or extra-trust business
relationship to the grantor or the beneficiary, the stock interests
held in trust will be deemed controlled by the grantor or beneficiary,
as appropriate.
(iii) If the primary purpose of a voting trust, or similar
agreement, is to separate voting power from beneficial ownership of
voting stock for the purpose of shifting control of or the power to
control a concern in order that such concern or another concern may
meet the Commission's size standards, such voting trust shall not be
considered valid for this purpose regardless of whether it is or is not
recognized within the appropriate jurisdiction.
(7) Affiliation through common management. Affiliation generally
arises where officers, directors, or key employees serve as the
majority or otherwise as the controlling element of the board of
directors and/or the management of another entity.
(8) Affiliation through common facilities. Affiliation generally
arises where one concern shares office space and/or employees and/or
other facilities with another concern, particularly where such concerns
are in the same or related industry or field of operations, or where
such concerns were formerly affiliated, and through these sharing
arrangements one concern has control, or potential control, of the
other concern.
(9) Affiliation through contractual relationships. Affiliation
generally arises where one concern is dependent upon another concern
for contracts and business to such a degree that one concern has
control, or potential control, of the other concern.
(10) Affiliation under joint venture arrangements.
(i) A joint venture for size determination purposes is an
association of concerns and/or individuals, with interests in any
degree or proportion, formed by contract, express or implied, to engage
in and carry out a single, specific business venture for joint profit
for which purpose they combine their efforts, property, money, skill
and knowledge, but not on a continuing or permanent basis for
conducting business generally. The determination whether an entity is a
joint venture is based upon the facts of the business operation,
regardless of how the business operation may be designated by the
parties involved. An agreement to share profits/losses proportionate to
each party's contribution to the business operation is a significant
factor in determining whether the business operation is a joint
venture.
(ii) The parties to a joint venture are considered to be affiliated
with each other.
(m) Publicly Traded Corporation. A publicly traded corporation is a
business entity organized under the laws of the United States whose
shares, debt or other ownership interests are traded on an organized
securities exchange within the United States.
4. A new subpart I consisting of Secs. 24.801 through 24.844 is
added to Part 24 to read as follows:
Subpart I--Interim Application, Licensing, and Processing Rules for
Broadband PCS
Sec.
24.801 [Reserved]
24.802 [Reserved]
24.803 Authorization required.
24.804 Eligibility.
24.805 Formal and informal applications.
24.806 Filing of broadband PCS applications; Fees; Number of
copies.
24.807 [Reserved]
24.808 [Reserved]
24.809 Standard application forms and permissive changes or minor
modifications for the broadband Personal Communications Services.
24.810 [Reserved]
24.811 Miscellaneous forms.
24.812 [Reserved]
24.813 General application requirements.
24.814 [Reserved]
24.815 Technical content of applications; maintenance of list of
station locations.
24.816 Station antenna structures.
24.817 [Reserved]
24.818 [Reserved]
24.819 Waiver of rules.
24.820 Defective applications.
24.821 Inconsistent or conflicting applications.
24.822 Amendment of application to participate in auction for
licenses in the broadband Personal Communications Services filed on
FCC Form 175.
24.823 Amendment of applications for licenses in the broadband
Personal Communications Services (other than applications filed on
FCC Form 175).
24.824 [Reserved]
24.825 Application for temporary authorizations.
24.826 Receipt of application; applications in the broadband
Personal Communications Services filed on FCC Form 175 and other
applications in the broadband Personnel Communications Services.
24.827 Public notice period.
24.828 Dismissal and return of applications.
24.829 Ownership changes and agreements to amend or to dismiss
applications or pleadings.
24.830 Opposition to applications.
24.831 Mutually exclusive applications.
24.832 Consideration of applications.
24.833 [Reserved]
24.834 [Reserved]
24.835 [Reserved]
24.836 [Reserved]
24.837 [Reserved]
24.838 [Reserved]
24.839 Transfer of control or assignment of license.
24.840 [Reserved]
24.841 [Reserved]
24.842 [Reserved]
24.843 Extension of time to complete construction.
24.844 Termination of authorization.
Subpart I--Interim Application, Licensing, and Processing Rules for
Broadband PCS
Sec. 24.801 [Reserved]
Sec. 24.802 [Reserved]
Sec. 24.803 Authorization required.
No person shall use or operate any device for the transmission of
energy or communications by radio in the services authorized by this
part except as provided in this part.
Sec. 24.804 Eligibility.
(a) General. Authorizations will be granted upon proper application
if:
(1) The applicant is qualified under all applicable laws and
Commission regulations, policies and decisions;
(2) There are frequencies available to provide satisfactory
service; and
(3) The public interest, convenience or necessity would be served
by a grant.
(b) Alien ownership. A broadband PCS authorization to provide
Commercial Mobile Radio Service may not be granted to or held by:
(1) Any alien or the representative of any alien.
(2) Any corporation organized under the laws of any foreign
government.
(3) Any corporation of which any officer or director is an alien or
of which more than one-fifth of the capital stock is owned of record or
voted by aliens or their representatives or by a foreign government or
representative thereof or any corporation organized under the laws of a
foreign country.
(4) Any corporation directly or indirectly controlled by any other
corporation of which any officer or more than one-fourth of the
directors are aliens, or of which more than one-fourth of the capital
stock is owned of record or voted by aliens, their representatives, or
by a foreign government or representative thereof, or by any
corporation organized under the laws of a foreign country, if the
Commission finds that the public interest will be served by the refusal
or revocation of such license.
(c) A broadband PCS authorization to provide Private Mobile Radio
Service may not be granted to or held by a foreign government or a
representative thereof.
Sec. 24.805 Formal and informal applications.
(a) Except for an authorization under any of the conditions stated
in Section 308(a) of the Communications Act of 1934 (47 U.S.C.
Sec. 308(a)), the Commission may grant the following authorizations
only upon written application received by it: station licenses;
modifications of licenses; renewals of licenses; transfers and
assignments of station licenses, or any right thereunder.
(b) Except as may be otherwise permitted by this part, a separate
written application shall be filed for each instrument of authorization
requested. Applications may be:
(1) ``Formal applications'' where the Commission has prescribed in
this Part a standard form; or
(2) ``Informal applications'' (normally in letter form) where the
Commission has not prescribed a standard form.
(c) An informal application will be accepted for filing only if:
(1) A standard form is not prescribed or clearly applicable to the
authorization requested;
(2) It is a document submitted, in duplicate, with a caption which
indicates clearly the nature of the request, radio service involved,
location of the station, and the application file number (if known);
and
(3) It contains all the technical details and informational
showings required by the rules and states clearly and completely the
facts involved and authorization desired.
Sec. 24.806 Filing of broadband PCS applications; Fees; Numbers of
copies.
(a) As prescribed by Secs. 24.705, 24.707 and 24.809, standard
formal application forms applicable to broadband PCS may be obtained
from either:
(1) Federal Communications Commission, Washington, DC 20554; or
(2) By calling the Commission's Forms Distribution Center, (202)
632-3676.
(b) Applications to participate in competitive bidding for
broadband PCS service must be filed on FCC Form 175 in accordance with
the rules in Sec. 24.705 and Part 1, Subpart Q of this Chapter. In the
event of mutual exclusivity between applicants filing FCC Form 175,
only auction winners will be eligible to file subsequent long-form
applications on FCC Form 401 to provide broadband PCS service. Mutually
exclusive applications filed on FCC Form 175 are subject to competitive
bidding under those rules. Broadband PCS applicants filing FCC Form 401
need not complete Schedule B.
(c) All applications for broadband PCS licenses (other than
applications to participate in competitive bidding filed on FCC Form
175) shall be submitted for filing to: Federal Communications
Commission, Washington, DC 20554, Attention: Broadband PCS Processing
Section.
Applications requiring fees as set forth at Part 1, Subpart G of this
chapter must be filed in accordance with Sec. 0.401(b) of this Chapter.
(d) All correspondence or amendments concerning a submitted
application shall clearly identify the name of the applicant, applicant
identification number or Commission file number (if known) or station
call sign of the application involved, and may be sent directly to the
Common Carrier Bureau, Broadband PCS Processing Section.
(e) Except as otherwise specified, all applications, amendments,
correspondence, pleadings and forms (including FCC Form 175) shall be
submitted on one original paper copy and with three microfiche copies,
including exhibits and attachments thereto, and shall be signed as
prescribed by Sec. 1.743 of this Chapter. Filings of five pages or less
are exempt from the requirement to submit on microfiche, as are
emergency filings such as letters requesting special temporary
authority. Those filing any amendments, correspondence, pleadings and
forms must simultaneously submit the original hard copy which must be
stamped ``original''. Abbreviations may be used if they are easily
understood. In addition to the original hard copy, those filing
pleadings, including pleadings under Sec. 1.2108 of this Chapter, shall
also submit two paper copies as provided in Sec. 1.51 of this Chapter.
(1) Microfiche copies. Each microfiche copy must be a copy of the
signed original. Each microfiche copy shall be a 148mm x 105mm negative
(clear transparent characters appearing on an opaque background) at 24x
to 27x reduction for microfiche or microfiche jackets. One of the
microfiche sets must be a silver halide camera master or a copy made on
silver halide film such as Kodak Direct Duplicatory Film. The
microfiche must be placed in paper microfiche envelopes and submitted
in a B6 (125 mm x 176 mm) or 5 x 7.5 inch envelope. All applicants must
leave Row ``A'' (the first row for page images) of the first fiche
blank for in-house identification purposes. Each microfiche copy of
pleadings shall include:
(i) The month and year of the document;
(ii) The name of the document;
(ii) The name of the filing party;
(iv) The file number, applicant identification number, and call
sign, if assigned;
(v) The identification number and date of the Public Notice
announcing the auction in response to which the application was filed
(if applicable).
(2) All applications and all amendments must have the following
information printed on the mailing envelope, the microfiche envelope,
and on the title area at the top of the microfiche:
(i) The name of the applicant;
(ii) The type of application (e.g., 30 MHz MTA, 30 MHz BTA, 10 MHz
BTA);
(iii) The month and year of the document;
(iv) The name of the document;
(v) The file number, applicant identification number, and call
sign, if assigned; and
(vi) The identification number and date of the Public Notice
announcing the auction in response to which the application was filed
(if applicable).
Sec. 24.807 [Reserved]
Sec. 24.808 [Reserved]
Sec. 24.809 Standard application forms and permissive changes or minor
modifications for the broadband Personal Communications Services.
(a) Applications to participate in competitive bidding for
broadband PCS licenses must be filed on FCC Forms 175 and 175-S.
(b) Subsequent application by auction winners or non-mutually
exclusive applicants for broadband PCS licenses under Part 24. FCC Form
401 (``Application for New or Modified Common Carrier Radio Station
Under Part 22'') shall be submitted by each auction winner for each
broadband PCS license applied for on FCC Form 175. In the event that
mutual exclusivity does not exist with respect to a license identified
on an applicant's FCC Form 175, the Commission will so inform the
applicant and the applicant will also file FCC Form 401. Blanket
licenses are granted for each market frequency block. Applications for
individual sites are not needed and will not be accepted. See
Sec. 24.11. Broadband PCS applicants filing FCC Form 401 need not
complete Schedule B.
(c) Extensions of time and reinstatement. When a licensee cannot
complete construction in accordance with the provisions of Sec. 24.203,
a timely application for extension of time (FCC Form 489) must be
filed.
(d) License for mobile subscriber station--These stations are
considered to be associated with and covered by the authorization
issued to the carrier serving the land mobile station. No additional
authorization is required.
Sec. 24.810 [Reserved]
Sec. 24.811 Miscellaneous forms.
(a) Licensee qualifications. FCC Form 430 (``Common Carrier and
Satellite Radio Licensee Qualifications Report'') shall be filed by
broadband Personal Communications Service licensees only as required by
Form 490 (Application for Assignment or Transfer of Control Under Part
22).
(b) Renewal of station license. Except for renewal of special
temporary authorizations, FCC Form 405 (``Application for Renewal of
Station License'') must be filed in duplicate by the licensee between
thirty (30) and sixty (60) days prior to the expiration date of the
license sought to be renewed.
Sec. 24.812 [Reserved]
Sec. 24.813 General application requirements.
(a) Each application (including applications filed on Forms 175 and
401) for a broadband PCS license or for consent to assign or transfer
control of a broadband PCS license shall disclose fully the real party
or parties in interest and must include in an exhibit the following
information:
(1) A list of any business five percent or more of whose stock,
warrants, options or debt securities are owned by the applicant or an
officer, director, stockholder or key management personnel of the
applicant. This list must include a description of each such business's
principal business and a description of each such business's
relationship to the applicant.
(2) A list of any party which holds a five percent or more interest
in the applicant, or any entity in which a five percent or more
interest is held by another party which holds a five percent or more
interest in the applicant (e.g., if Company A owns 5% of Company B (the
applicant) and 5% of Company C, then Companies A and C must be listed
on Company B's application).
(3) A list of the names, addresses, citizenship and principal
business of any person holding five percent or more of each class of
stock, warrants, options or debt securities together with the amount
and percentage held, and the name, address, citizenship and principal
place of business of any person on whose account, if other than the
holder, such interest is held. If any of these persons are related by
blood or marriage, include such relationship in the statement.
(4) In the case of partnerships, the name and address of each
partner, each partner's citizenship and the share or interest
participation in the partnership. This information must be provided for
all partners, regardless of their respective ownership interests in the
partnership. A signed and dated copy of the partnership agreement must
be included in the application.
(b) Each application for a broadband PCS license must:
(1) Submit the information required by the Commission's Rules,
requests and application forms;
(2) Be maintained by the applicant substantially accurate and
complete in all significant respects in accordance with the provisions
of Sec. 1.65 of this chapter.
(3) Show compliance with and make all special showings that may be
applicable;
(c) Where documents, exhibits, or other lengthy showings already on
file with the Commission contain information which is required by an
application form, the application may specifically refer to such
information, if:
(1) The information previously filed is over one A4 (21 cm x 29.7
cm) or 8.5 x 11 inch (21.6 cm x 27.9 cm) page in length, and all
information referenced therein is current and accurate in all
significant respects under Sec. 1.65 of this chapter; and
(2) The reference states specifically where the previously filed
information can actually be found, including mention of:
(i) The station call sign or application file number whenever the
reference is to station files or previously filed applications; and
(ii) The title of the proceeding, the docket number, and any legal
citations, whenever the reference is to a docketed proceeding.
However, question on an application form which call for specific
technical data, or which can be answered by a ``yes'' or ``no'' or
other short answer shall be answered as appropriate and shall not be
cross-referenced to a previous filing.
(d) In addition to the general application requirements of Subpart
F and Secs. 1.2105 of this Chapter, 24.813 and 24.815, applicants shall
submit any additional documents, exhibits, or signed written statements
of fact:
(1) As may be required by these rules; and
(2) As the Commission, at any time after the filing of an
application and during the term of any authorization, may require from
any applicant, permittee or licensee to enable it to determine whether
a radio authorization should be granted, denied or revoked.
(e) Except when the Commission has declared explicitly to the
contrary, an informational requirement does not in itself imply the
processing treatment of decisional weight to be accorded the response.
(f) All applicants (except applicants filing FCC Form 175) are
required to indicate at the time their application is filed whether or
not a Commission grant of the application may have a significant
environmental impact as defined by Sec. 1.1307 of this Chapter. If
answered affirmatively, the requisite environmental assessment as
prescribed in Sec. 1.1311 of this Chapter must be filed with the
application and Commission environmental review must be completed prior
to construction. See Sec. 1.1312 of this chapter. All broadband PCS
licensees are subject to continuing obligation to determine whether
subsequent construction may have a significant environmental impact
prior to undertaking such construction and to otherwise comply with
Sec. 1.1301 through 1.1319 of this Chapter. See Sec. 1.1312 of this
Chapter.
Sec. 24.814 [Reserved]
Sec. 24.815 Technical content of applications; maintenance of list of
station locations.
(a) All applications required by this part shall contain all
technical information required by the application forms or associated
Public Notice(s). Applications other than initial applications for a
broadband PCS license must also comply with all technical requirements
of the rules governing the broadband PC (see Subparts C and E of this
Part as appropriate). The following paragraphs describe a number of
general technical requirements.
(b) Each application (except applications for initial licenses
filed on Form 175) for a license for broadband PCS must comply with the
provisions of Secs. 24.229-24.238 of the Commission's Rules.
(c)-(i) [Reserved]
(j) The location of the transmitting antenna shall be considered to
be the station location. Broadband PCS licensees must maintain a
current list of all station locations, which must describe the
transmitting antenna site by its geographical coordinates and also by
conventional reference to street number, landmark, or the equivalent.
All such coordinates shall be specified in terms of degrees, minutes,
and seconds to the nearest second of latitude and longitude.
Sec. 24.816 Station antenna structures.
(a) Unless the broadband PCS licensee has received prior approval
from the FCC, no antenna structure, including radiating elements,
tower, supports and all appurtenances, may be higher than 61 m (200
feet) above ground level at its site.
(b) Unless the broadband PCS licensee has received prior approval
from the FCC, no antenna structure that is located either at an airport
or heliport that is available for public use and is listed in the
Airport Directory of the current Airman's Information Manual or in
either the Alaska or Pacific Airman's Guide and Chart Supplement, or at
an airport or heliport under construction that is the subject of a
notice or proposal on file with the FAA and, except for military
airports, it is clearly indicated that the airport will be available
for public use, or at an airport or heliport that is operated by the
armed forces of the United States, or at a place near any of these
airports or heliports, may be higher than:
(1) 1 m above the airport elevation for each 100 m from the airport
runway longer than 1 km within 6.1 km of the antenna structure.
(2) 2 m above the airport elevation for each 100 m from the nearest
runway shorter than 1 km within 3.1 km of the antenna structure.
(3) 4 m above the airport elevation for each 100 m from the nearest
landing pad within 1.5 km of the antenna structure.
(c) A broadband PCS station antenna structure no higher than 6.1 m
(20 feet) above ground level at its site or no higher than 6.1 m above
any natural object or existing manmade structure, other than an antenna
structure, is exempt from the requirements of paragraphs (a) and (b) of
this section.
(d) Further details as to whether an aeronautical study and/or
obstruction marking and lighting may be required, and specifications
for obstruction marking and lighting, are contained in Part 17 of the
FCC Rules, Construction, Marking and Lighting of Antenna Structures. To
request approval to place an antenna structure higher than the limits
specified in paragraph (a), (b), and (c) of this section, the licensee
must notify the Federal Aviation Administration (FAA) on FAA Form 7460-
1 and the FCC on FCC Form 854.
Secs. 24.817-24.818 [Reserved]
24.819 Waiver of rules.
(a) Requests for waiver.
(1) A waiver of these rules may be granted upon application or by
the Commission on its own motion. Requests for waivers shall contain a
statement of reason sufficient to justify a waiver. Waivers will not be
granted except upon an affirmative showing:
(i) That the underlying purpose of the rule will not be served, or
would be frustrated, by its application in a particular case, and that
grant of the waiver is otherwise in the public interest; or
(ii) That the unique facts and circumstances of a particular case
render application of the rule inequitable, unduly burdensome or
otherwise contrary to the public interest. Applicants must also show
the lack of a reasonable alternative.
(2) If the information necessary to support a waiver request is
already on file, the applicant may cross-reference to the specific
filing where it may be found.
(b) Denial of waiver, alternate showing required. If a waiver is
not granted, the application will be dismissed as defective unless the
applicant has also provided an alternative proposal which complies with
the Commission's rules (including any required showings).
Sec. 24.820 Defective applications.
(a) Unless the Commission shall otherwise permit, an application
will be unacceptable for filing and will be returned to the applicant
with a brief statement as to the omissions or discrepancies if:
(1) The application is defective with respect to completeness of
answers to questions, informational showings, execution or other
matters of a formal character; or
(2) The application does not comply with the Commission's rules,
regulations, specific requirements for additional information or other
requirements. See also Sec. 1.2105 of this Chapter.
(b) Some examples of common deficiencies which result in defective
applications under paragraph (a) of this section are:
(1) The application is not filled out completely and signed;
(2)-(4) [Reserved]
(5) The application (other an application filed on FCC Form 175)
does not include an environmental assessment as required for an action
that may have a significant impact upon the environment, as defined in
Sec. 1.1307 of this chapter.
(6) [Reserved]
(7) The application is filed prior to the Public Notice issued
under Sec. 24.705, announcing the application filing date for the
relevant auction or after the cutoff date prescribed in that Public
Notice.
(c) [Reserved]
(d) If an applicant is requested by the Commission to file any
documents or any supplementary or explanatory information not
specifically required in the prescribed application form, a failure to
comply with such request within a specified time period will be deemed
to render the application defective and will subject it to dismissal.
Sec. 24.821 Inconsistent or conflicting applications.
While an application is pending and undecided, no subsequent
inconsistent or conflicting application may be filed by the same
applicant, its successor or assignee, or on behalf or for the benefit
of the same applicant, its successor or assignee.
Sec. 24.822 Amendment of application to participate in auction for
licenses in the broadband Personal Communications Services filed on FCC
Form 175.
(a) The Commission will provide bidders a limited opportunity to
cure defects in FCC Form 175 specified herein except for failure to
sign the application and to make certifications, defects which may not
be cured. See also Sec. 1.2105 of this Chapter.
(b) In the broadband PCS, the only amendments to FCC Form 175 which
will be permitted are minor amendments to correct minor errors or
defects such as typographical errors. All other amendments to FCC Form
175, such as changes in the information supplied pursuant to
Sec. 24.813(a) or changes in the identification of parties to bidding
consortia, will be considered to be major amendments. An FCC Form 175
which is amended by a major amendment will be considered to be newly
filed and cannot be resubmitted after applicable filing deadlines. See
also Sec. 1.2105 of this Chapter.
Sec. 24.823 Amendment of applications for licenses in the broadband
Personal Communications Services (other than applications filed on FCC
Form 175).
(a) Amendments as of right. A pending application may be amended as
a matter of right if the application has not been designated for
hearing.
(1) Amendments shall comply with Sec. 24.829, as applicable; and
(2) Amendments which resolve interference conflicts or amendments
under Sec. 24.829 may be filed at any time.
(b) The Commission or the presiding officer may grant requests to
amend an application designated for hearing only if a written petition
demonstrating good cause is submitted and properly served upon the
parties of record.
(c) Major amendments, minor amendments. The Commission will
classify all amendments as minor except in the cases listed below. An
amendment shall be deemed to be a major amendment subject to
Sec. 24.827 if it proposes a substantial change in ownership or
control.
(d) If a petition to deny (or other formal objection) has been
filed, any amendment, request for waiver or other written communication
shall be served on the petitioner, unless waiver of this requirement is
granted pursuant to paragraph (e) of this section. See also Sec. 1.2108
of this Chapter.
(e) The Commission may waive the service requirements of paragraph
(d) of this section and prescribe such alternative procedures as may be
appropriate under the circumstances to protect petitioners' interests
and to avoid undue delay in a proceeding, if an applicant submits a
request for waiver which demonstrates that the service requirement is
unreasonably burdensome.
(f) Any amendment to an application shall be signed and shall be
submitted in the same manner, and with the same number of copies, as
was the original application. Amendments may be made in letter form if
they comply in all other respects with the requirements of this
chapter.
(g) An application will be considered to be a newly-filed
application if it is amended by a major amendment (as defined in this
section), except in the following circumstances:
(1) [Reserved]
(2) [Reserved]
(3) The amendment reflects only a change in ownership or control
found by the Commission to be in the public interest;
(4) [Reserved]
(5) The amendment corrects typographical transcription or similar
clerical errors which are clearly demonstrated to be mistakes by
reference to other parts of the application, and whose discovery does
not create new or increased frequency conflicts;
Sec. 24.824 [Reserved]
Sec. 24.825 Application for temporary authorizations.
(a) In circumstances requiring immediate or temporary use of
facilities, request may be made for special temporary authority to
install and/or operate new or modified equipment. Any such request may
be submitted as an informal application in the manner set forth in
Sec. 24.805 and must contain full particulars as to the proposed
operation including all facts sufficient to justify the temporary
authority sought and the public interest therein. No such request will
be considered unless the request is received by the Commission at least
10 days prior to the date of proposed construction or operation or,
where an extension is sought, at least 10 days prior to the expiration
date of the existing temporary authorization. The Commission may accept
a late-filed request upon due showing of sufficient reasons for the
delay in submitting such request.
(b) Special temporary authorizations may be granted without regard
to the 30-day public notice requirements of Sec. 24.827(b) when:
(1) The authorization is for a period not to exceed 30 days and no
application for regular operation is contemplated to be filed;
(2) The authorization is for a period not to exceed 60 days pending
the filing of an application for such regular operation;
(3) The authorization is to permit interim operation to facilitate
completion of authorized construction or to provide substantially the
same service as previously authorized; or
(4) The authorization is made upon a finding that there are
extraordinary circumstances requiring operation in the public interest
and that delay in the institution of such service would seriously
prejudice the public interest.
(c) Temporary authorizations of operation not to exceed 180 days
may be granted under the standards of Section 309(f) of the
Communications Act where extraordinary circumstances so require.
Extensions of the temporary authorization for a period of 180 days each
may also be granted, but the applicant bears a heavy burden to show
that extraordinary circumstances warrant such an extension.
(d) In cases of emergency found by the Commission, involving danger
to life or property or due to damage of equipment, or during a national
emergency proclaimed by the president or declared by the Congress or
during the continuance of any war in which the United States is engaged
and when such action is necessary for the national defense or safety or
otherwise in furtherance of the war effort, or in cases of emergency
where the Commission finds that it would not be feasible to secure
renewal applications from existing licensees or otherwise to follow
normal licensing procedure, the Commission will grant radio station
authorizations and station licenses, or modifications or renewals
thereof, during the emergency found by the Commission or during the
continuance of any such national emergency or war, as special temporary
licenses, only for the period of emergency or war requiring such
action, without the filing of formal applications.
Sec. 24.826 Receipt of application; Applications in the broadband
Personal Communications Services filed on FCC Form 175 and other
applications in the broadband Personal Communications Services.
(a) All applications for the initial provision of broadband PCS
must be submitted on FCC Forms 175 and 175-S. Mutually exclusive
initial applications in the broadband Personal Communications Services
are subject to competitive bidding. FCC Form 401 (``Application for New
or Modified Common Carrier Radio Station Under Part 22'') must be
submitted by each winning bidder for each broadband PCS license for
which application was made on FCC Form 175. In the event that mutual
exclusivity does not exist between applicants for a broadband PCS
license that have filed FCC Form 175, the sole applicant will be
required to file FCC Form 401. The aforementioned Forms 175, 175-S, and
401 are subject to the provisions of 47 CFR Part 1, Subpart Q
(``Competitive Bidding Proceedings'') and Subpart H of this Part.
Blanket licenses are granted for each market frequency block.
Applications for individual sites are not needed and will not be
accepted. See Sec. 24.11.
(b) Applications received for filing are given a file number. The
assignment of a file number to an application is merely for
administrative convenience and does not indicate the acceptance of the
application for filing and processing. Such assignment of a file number
will not preclude the subsequent return or dismissal of the application
if it is found to be not in accordance with the Commission's Rules.
(c) Acceptance of an application for filing merely means that it
has been the subject of a preliminary review as to completeness. Such
acceptance will not preclude the subsequent return or dismissal of the
application if it is found to be defective or not in accordance with
the Commission's rules. (See Sec. 24.813 for additional information
concerning the filing of applications.)
Sec. 24.827 Public notice period.
(a) At regular intervals, the Commission will issue a public notice
listing:
(1) The acceptance for filing of all applications and major
amendments thereto;
(2) Significant Commission actions concerning applications listed
as acceptable for filing;
(3) Information which the Commission in its discretion believes of
public significance. Such notices are intended solely for the purpose
of informing the public and do not create any rights in an applicant or
any other person.
(4) Special environmental considerations as required by Part 1 of
this chapter.
(b) The Commission will not grant any application until expiration
of a period of thirty (30) days following the issuance date of a public
notice listing the application, or any major amendments thereto, as
acceptable for filing; provided, however, that the Commission will not
grant an application filed on Form 401 filed either by a winning bidder
or by an applicant whom Form 175 application is not mutually exclusive
with other applicants, until the expiration of a period of forty (40)
days following the issuance of a public notice listing the application,
or any major amendments thereto, as acceptable filing. See also
Sec. 1.2108 of this Chapter.
(c) As an exception to paragraphs (a)(1), (a)(2) and (b) of this
section, the public notice provisions are not applicable to
applications:
(1) For authorization of a minor technical change in the facilities
of an authorized station where such a change would not be classified as
a major amendment (as defined by Sec. 24.823) were such a change to be
submitted as an amendment to a pending application;
(2) For issuance of a license subsequent to a radio station
authorization or, pending application for a grant of such license, any
special or temporary authorization to permit interim operation to
facilitate completion of authorized construction or to provide
substantially the same service as would be authorized by such license;
(3) For extension of time to complete construction of authorized
facilities (see Sec. 24.203;
(4) For temporary authorization pursuant to Sec. 24.825(b);
(5) [Reserved]
(6) For an authorization under any of the proviso clauses of
Section 308(a) of the Communications Act of 1934 (47 U.S.C. 308(a));
(7) For consent to an involuntary assignment or transfer of control
of a radio authorization; or
(8) For consent to a voluntary assignment or transfer of control of
a radio authorization, where the assignment or transfer does not
involve a substantial change in ownership or control.
Sec. 24.828 Dismissal and return of applications.
(a) Except as provided under Sec. 24.829, any application may be
dismissed without prejudice as a matter of right if the applicant
requests its dismissal prior to designation for hearing or, in the case
of applications filed on Forms 175 and 175-S, prior to auction. An
applicant's request for the return of his application after it has been
accepted for filing will be considered to be a request for dismissal
without prejudice. Applicants requesting dismissal of their
applications may be subject to penalties contained in Sec. 1.2104 of
this Chapter. Requests for dismissal shall comply with the provisions
of Sec. 24.829 as appropriate.
(b) A request to dismiss an application without prejudice will be
considered after designation for hearing only if:
(1) A written petition is submitted to the Commission and is
properly served upon all parties of record, and
(2) The petition complies with the provisions of Sec. 24.829
(whenever applicable) and demonstrates good cause.
(c) The Commission will dismiss an application for failure to
prosecute or for failure to respond substantially within a specified
time period to official correspondence or requests for additional
information. Dismissal shall be without prejudice if made prior to
designation for hearing or prior to auction, but dismissal may be made
with prejudice for unsatisfactory compliance with Sec. 24.829 or after
designation for hearing or after the applicant is notified that it is
the winning bidder under the auction process.
Sec. 24.829 Ownership changes and agreements to amend or to dismiss
applications or pleadings.
(a) Applicability. Subject to the provisions of Sec. 1.2105 of this
Chapter (Bidding Application and Certification Procedures; Prohibition
of Collusion), this section applies to applicants and all other parties
interested in pending applications who wish to resolve contested
matters among themselves with a formal or an informal agreement or
understanding. This section applies only when the agreement or
understanding will result in:
(1) A major change in the ownership of an applicant to which
Secs. 24.823(c) and 24.823(g) apply or which would cause the applicant
to lose its status as a designated entity under Sec. 24.709, or
(2) The individual or mutual withdrawal, amendment or dismissal of
any pending application amendment, petition or other pleading.
(b) Policy. Parties to contested proceedings are encouraged to
settle their disputes among themselves. Parties that, under a
settlement agreement, apply to the Commission for ownership changes or
for the amendment or dismissal of either pleadings or applications
shall at the time of filing notify the Commission that such filing is
the result of an agreement or understanding.
(c) The provisions of Sec. 22.927 of the Commission's Rules will
apply in the event of the filing of petitions to deny or other
pleadings or informal objections filed against broadband PCS
applications. The provisions of Sec. 22.928 of the Commission's Rules
will apply in the event of dismissal of broadband PCS applications. The
provisions of Sec. 22.929 of the Commission's Rules will apply in the
event of threats to file petitions to deny or other pleadings or
informal objections against broadband PCS applications.
Sec. 24.830 Opposition to applications.
(a) Petitions to deny (including petitions for other forms of
relief) and responsive pleadings for Commission consideration must
comply with Sec. 1.2108 of this Chapter and must:
(1) Identify the application or applications (including applicant's
name, station location, Commission file numbers and radio service
involved) with which it is concerned;
(2) Be filed in accordance with the pleading limitations, filing
periods, and other applicable provisions of Secs. 1.41 through 1.52 of
this Chapter except where otherwise provided in Sec. 1.2108 of this
Chapter;
(3) Contain specific allegations of fact which, except for facts of
which official notice may be taken, shall be supported by affidavit of
a person or persons with personal knowledge thereof, and which shall be
sufficient to demonstrate that the petitioner (or respondent) is a
party in interest and that a grant of, or other Commission action
regarding, the application would be prima facie inconsistent with the
public interest;
(4) Be filed within thirty (30) days after the date of public
notice announcing the acceptance for filing of any such application or
major amendment thereto (unless the Commission otherwise extends the
filing deadline); and
(5) Contain a certificate of service showing that it has been
mailed to the applicant no later than the date of filing thereof with
the Commission.
(b) A petition to deny a major amendment to a previously-filed
application may only raise matters directly related to the amendment
which could not have been raised in connection with the underlying
previously-filed application. This subsection does not apply, however,
to petitioners who gain standing because of the major amendment.
Sec. 24.831 Mutually exclusive applications.
(a) The Commission will consider applications for broadband PCS
licenses to be mutually exclusive if they relate to the same
geographical boundaries (MTA or BTA) and are timely filed for the same
frequency block.
(b) Mutually exclusive applications filed on Form 175 for the
initial provision of broadband PCS are subject to competitive bidding
in accordance with the procedures in Subpart H of this part and in Part
1, Subpart Q of this Chapter.
(c) An application will be entitled to comparative consideration
with one or more conflicting applications only if the Commission
determines that such comparative consideration will serve the public
interest.
(d)-(j) [Reserved]
Sec. 24.832 Consideration of applications.
(a) Applications for an instrument of authorization will be granted
if, upon examination of the application and upon consideration of such
other matters as it may officially notice, the Commission finds that
the grant will serve the public interest, convenience and necessity.
See also Sec. 1.2108 of this Chapter.
(b) The grant shall be without a formal hearing if, upon
consideration of the application, any pleadings or objections filed, or
other matters which may be officially noticed, the Commission finds
that:
(1) The application is acceptable for filing and is in accordance
with the Commission's rules, regulations and other requirements;
(2) The application is not subject to a post-auction hearing or to
comparative consideration pursuant to Sec. 24.831 with another
application(s);
(3) A grant of the application would not cause harmful electrical
interference to an authorized station;
(4) There are no substantial and material questions of fact
presented; and
(5) The applicant is qualified under current FCC regulations and
policies.
(c) If the Commission should grant without a formal hearing an
application for an instrument of authorization which is subject to a
petition to deny filed in accordance with Sec. 24.830, the Commission
will deny the petition by the issuance of a Memorandum Opinion and
Order which will concisely state the reasons for the denial and dispose
of all substantial issues raised by the petition.
(d) Whenever the Commission, without a formal hearing, grants any
application in part, or subject to any terms or conditions other than
those normally applied to applications of the same type, it shall
inform the applicant of the reasons therefor, and the grant shall be
considered final unless the Commission revises its action (either by
granting the application as originally requested, or by designating the
application for a formal evidentiary hearing) in response to a petition
for reconsideration which:
(1) Is filed by the applicant within thirty (30) days from the date
of the letter or order giving the reasons for the partial or
conditioned grant;
(2) Rejects the grant as made and explains the reasons why the
application should be granted as originally requested; and
(3) Returns the instrument of authorization.
(e) The Commission will designate an application for a formal
hearing, specifying with particularity the matters and things in issue,
if upon consideration of the application, any pleadings or objections
filed or other matters which may be officially noticed, the Commission
determines that:
(1) A substantial and material question of fact is presented (see
also Sec. 1.2108 of this Chapter);
(2) The Commission is unable for any reason to make the findings
specified in paragraph (a) of this section and the application is
acceptable for filing, complete and in accordance with the Commission's
rules, regulations and other requirements; or
(3) The application is entitled to comparative consideration (under
Sec. 24.831) with another application (or applications).
(f) The Commission may grant, deny or take other action with
respect to an application designated for a formal hearing pursuant to
paragraph (e) of this section or Part 1 of this Chapter.
(g) [Reserved]
(h) Reconsideration or review of any final action taken by the
Commission will be in accordance with Subpart A of Part 1 of this
Chapter.
Sec. 24.833-24.838 [Reserved]
Sec. 24.839 Transfer of control or assignment of license.
(a) Approval required. Authorizations shall be transferred or
assigned to another party, voluntarily (for example, by contract) or
involuntarily (for example, by death, bankruptcy or legal disability),
directly or indirectly or by transfer of control of any corporation
holding such authorization, only upon application and approval by the
Commission. A transfer of control or assignment of station
authorization in the broadband Personal Communications Service is also
subject to Secs. 24.711(e), 24.712(d), 24,713(b) (unjust enrichment)
and 1.2111(a) of this Chapter (reporting requirement).
(1) A change from less than 50% ownership to 50% or more ownership
shall always be considered a transfer of control.
(2) In other situations a controlling interest shall be determined
on a case-by-case basis considering the distribution of ownership and
the relationships of the owners, including family relationships.
(b) Forms required.
(1) Assignment.
(i) FCC Form 490 shall be filed to assign a license or permit.
(ii) In the case of involuntary assignment, FCC Form 490 shall be
filed within thirty (30) days following the event giving rise to the
assignment.
(2) Transfer of control.
(i) FCC Form 490 shall be submitted in order to transfer control of
a corporation holding a license or permit.
(ii) In the case of involuntary transfer of control, FCC Form 490
shall be filed within thirty (30) days following the event giving rise
to the transfer.
(3) Form 430. Whenever an application must be filed under
paragraphs (a)(1) or (2) of this section, the assignee or transferee
shall file FCC Form 430 (``Common Carrier Radio License Qualification
Report'') unless an accurate report is on file with the Commission.
(4) Notification of completion. The Commission shall be notified by
letter of the date of completion of the assignment or transfer of
control.
(5) If the transfer of control of a license is approved, the new
licensee is held to the original construction requirement of
Sec. 24.203.
(c) In acting upon applications for transfer of control or
assignment, the Commission will not consider whether the public
interest, convenience and necessity might be served by the transfer or
assignment of the authorization to a person other than the proposed
transferee or assignee.
(d) Restrictions on Assignments and Transfers of Licenses for
Frequency Blocks C and F. No assignment or transfer of control of a
license for frequency Block C or frequency Block F will be granted
unless--
(1) The application for assignment or transfer of control is filed
after five years from the date of the initial license grant;
(2) The application for assignment or transfer of control is filed
after three years from the date of the initial license grant and the
proposed assignee or transferee meets the eligibility criteria set
forth in Sec. 24.709;
(3) The application is for partial assignment of a partitioned
service area to a rural telephone company pursuant to Sec. 24.714 and
the assignee meets the eligibility criteria set forth in Sec. 24.709;
or
(4) The application is for an involuntary assignment or transfer of
control to a bankruptcy trustee appointed under involuntary bankruptcy,
an independent receiver appointed by a court of competent jurisdiction
in a foreclosure action or, in the event of death or disability, to a
person or entity legally qualified to succeed the decrease or disabled
person under the laws of the place having jurisdiction over the estate
involved; provided that, the applicant requests a waiver pursuant to
this paragraph.
(e) If the assignment or transfer of control of a license is
approved, the assignee or transferee is subject to the original
construction requirement of Sec. 24.203.
Secs. 24.840-24.842 [Reserved]
Sec. 24.843 Extension of time to complete construction.
(a) If construction is not completed within the time period set
forth in Sec. 24.203, the authorization will automatically expire.
Before the period for construction expires an application for an
extension of time to complete construction (FCC Form 489) may be filed.
See paragraph (b) of this section. Within 30 days after the
authorization expires an application for reinstatement may be filed on
FCC Form 489.
(b) Extension of Time to Complete Construction. An application for
extension of time to complete construction may be made on FCC Form 489.
Extension of time requests must be filed prior to the expiration of the
construction period. Extensions will be granted only if the licensee
shows that the failure to complete construction is due to causes beyond
its control.
(c) An application for modification of an authorization (under
construction) does not extend the initial construction period. If
additional time to construct is required, an FCC Form 489 must be
submitted.
(d) [Reserved]
Sec. 24.844 Termination of authorization.
(a) Termination of authorization.
(1) All authorizations shall terminate on the date specified on the
authorization or on the date specified by these rules, unless a timely
application for renewal has been filed.
(2) If no application for renewal has been made before the
authorization's expiration date, a late application for renewal will be
considered only if it is filed within thirty (30) days of the
expiration date and shows that the failure to file a timely application
was due to causes beyond the applicant's control. During this 30-day
period, a reinstatement application must be filed on FCC Form 489.
Service to subscribers need not be suspended while a late-filed renewal
application is pending, but such service shall be without prejudice to
Commission action on the renewal application and any related sanctions.
See also Sec. 24.16 (Criteria for Comparative Renewal Proceedings).
(b) Termination of special temporary authorization. A special
temporary authorization shall automatically terminate upon failure to
comply with the conditions in the authorization.
(c) [Reserved]
[FR Doc. 94-17931 Filed 7-21-94; 8:45 am]
BILLING CODE 6712-01-M
