[Federal Register Volume 63, Number 147 (Friday, July 31, 1998)]
[Notices]
[Pages 40906-40909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20524]
[[Page 40906]]
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FEDERAL COMMUNICATIONS COMMISSION
[DA 98-1469; Report No. AUC-98-20-A (Auction No. 20)]
156-162 MHz Public Coast Station Spectrum Auction Scheduled for
December 3, 1998; Comment Sought on Reserve Prices or Minimum Opening
Bids and Other Auction Procedural Issues
AGENCY: Federal Communications Commission.
ACTION: Notice seeking comment.
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SUMMARY: The Commission announces the auction of 42 VHF public coast
station licenses scheduled for December 3, 1998, and seeks comment on a
proposed formula for calculating minimum opening bids and other auction
procedural issues.
DATES: Comments are due on or before August 14, 1998. Reply comments
are due on or before August 21, 1998.
ADDRESSES: To file formally, parties must submit an original and four
copies to the Office of the Secretary, Federal Communications
Commission, Room 222, 1919 M Street N.W., Washington, D.C. 20554. In
addition, parties must submit one copy to Amy Zoslov, Chief, Auctions
and Industry Analysis Division, Wireless Telecommunications Bureau,
Federal Communications Commission, Room 5202, 2025 M Street N.W.,
Washington, D.C. 20554. Comments and reply comments will be available
for public inspection during regular business hours in the FCC Public
Reference Room, Room 239, 1919 M Street N.W., Washington, D.C. 20554.
FOR FURTHER INFORMATION CONTACT: Bob Reagle, Jeff Garretson, or Anne
Napoli, Auctions and Industry Analysis Division, Wireless
Telecommunications Bureau, at (202) 418-0660.
SUPPLEMENTARY INFORMATION: This public notice was released on July 23,
1998 and is available in its entirety for inspection and copying during
normal business hours in the FCC Reference Center (Room 239), 1919 M
Street, N.W., Washington, D.C., and also may be purchased from the
Commission's copy contractor, International Transcription Services,
(202) 857-3800, fax (202) 857-3805, 1231 20th Street, N.W., Washington,
D.C. 20036.
Synopsis of the Public Notice
1. By this Public Notice, the Wireless Telecommunications Bureau
(``the Bureau'') announces the auction of 42 VHF public coast station
licenses, to begin on December 3, 1998. These licenses encompass the
United States, the Northern Mariana Islands, Guam, American Samoa, the
United States Virgin Islands and Puerto Rico. Specifically, one license
will be available in each of 42 geographic areas known as VHF Public
Coast Areas (VPCs). There are two categories of VPCs, maritime VPCs and
inland VPCs. Maritime VPCs, of which there are nine, are roughly
equivalent to U.S. Coast Guard Districts, and include geographic areas
any part of which is within 100 miles of a major waterway. Inland VPCs,
of which there are 33, are smaller geographic areas identical to the
Commerce Department's Economic Areas, no part of which is within 100
miles of a major waterway.
2. Future public notices will include further details regarding
application filing and payment deadlines, seminars, and other pertinent
information. In this Public Notice, the Commission seeks comment on
procedural issues relating to the VHF public coast station auction.
I. Reserve Price or Minimum Opening Bid
3. The Balanced Budget Act of 1997 calls upon the Commission to
prescribe methods by which a reasonable reserve price will be required
or a minimum opening bid established when FCC licenses are subject to
auction (i.e., because they are mutually exclusive), unless the
Commission determines that a reserve price or minimum bid is not in the
public interest. Consistent with this mandate, the Commission has
directed the Bureau to seek comment on the use of a minimum opening bid
and/or reserve price prior to the start of each auction. The Bureau was
directed to seek comment on the methodology to be employed in
establishing each of these mechanisms. Among other factors the Bureau
should consider is the amount of spectrum being auctioned, levels of
incumbency, the availability of technology to provide service, the size
of the geographic service areas, issues of interference with other
spectrum bands, and any other relevant factors that reasonably could
have an impact on valuation of the spectrum being auctioned. The
Commission concluded that the Bureau should have the discretion to
employ either or both of these mechanisms for future auctions.
4. Normally, a reserve price is an absolute minimum price below
which an item will not be sold in a given auction. Reserve prices can
be either published or unpublished. A minimum opening bid, on the other
hand, is the minimum bid price set at the beginning of the auction
below which no bids are accepted. It is generally used to accelerate
the competitive bidding process. Also, in a minimum opening bid
scenario, the auctioneer generally has the discretion to lower the
amount later in the auction.
5, In anticipation of this auction and in light of the Balanced
Budget Act, the Bureau proposes to establish minimum opening bids for
the VHF public coast station auction, and retain discretion to lower
the minimum opening bids. The Bureau believes a minimum opening bid,
which has been utilized in other auctions, is an effective bidding
tool. A minimum opening bid, rather than a reserve price, will help to
regulate the pace of the auction and provides flexibility.
6. Specifically, the Commission proposes the following formula for
calculating minimum opening bids on a license-by-license basis in
Auction No. 20:
a. Maritime VPC Licenses: $.001 * MHz * Pop (rounded up to the
nearest dollar) with a minimum of no less than $2,500 per license.
b. Inland VPC Licenses: $.011 * MHz * Pop (rounded up to the
nearest dollar) with a minimum of no less than $2,500 per license.
Comment is sought on this proposal. If commenters believe that the
formula proposed above for minimum opening bids will result in
substantial numbers of unsold licenses, or is not a reasonable amount,
or should instead operate as a reserve price, they should explain why
this is so, and comment on the desirability of an alternative approach.
Commenters are advised to support their claims with valuation analyses
and suggested reserve prices or minimum opening bid levels or formulas.
In establishing the formula for minimum opening bids, the Commission
particularly seeks comment on such factors as, among other things, the
amount of spectrum being auctioned, levels of incumbency, the
availability of technology to provide service, the size of the
geographic service areas, issues of interference with other spectrum
bands and any other relevant factors that could reasonably have an
impact on valuation of the VHF public coast station spectrum.
Alternatively, comment is sought on whether, consistent with the
Balanced Budget Act, the public interest would be served by having no
minimum opening bid or reserve price.
II. Other Auction Procedural Issues
7. The Balanced Budget Act of 1997 requires the Commission to
``ensure that, in the scheduling of any competitive bidding under this
subsection, an adequate period is allowed * * * before issuance of
bidding rules, to permit notice and
[[Page 40907]]
comment on proposed auction procedures * * *'' Consistent with the
provisions of the Balanced Budget Act and to ensure that potential
bidders have adequate time to familiarize themselves with the specific
provisions that will govern the day-to-day conduct of an auction, the
Commission directed the Bureau, under its existing delegated authority,
to seek comment on a variety of auction-specific issues prior to the
start of each auction. The Commission therefore seeks comment on the
following issues.
A. Auction Sequence and License Groupings
8. Because it is most administratively appropriate, and allows
bidders to take advantage of any synergies that exist among licenses,
we propose to award the 42 VHF public coast station licenses in a
single, simultaneous multiple-round auction. The Commission seeks
comment on this proposal.
B. Structure of Bidding Rounds, Activity Requirements, and Criteria for
Determining Reductions in Eligibility
9. The Commission proposes to divide the auction into three stages:
Stage One, Stage Two and Stage Three. The auction will start in Stage
One. The Commission proposes that the auction will generally advance to
the next stage (i.e., from Stage One to Stage Two, and from Stage Two
to Stage Three) when the auction activity level, as measured by the
percentage of bidding units receiving new high bids, is below ten
percent for three consecutive rounds of bidding in each Stage. However,
the Commission further proposes that the Bureau retain the discretion
to change stages unilaterally by announcement during the auction. In
exercising this discretion, the Bureau will consider a variety of
measures of bidder activity including, but not limited to, the auction
activity level, the percentages of licenses (as measured in bidding
units) on which there are new bids, the number of new bids, and the
percentage increase in revenue. The Commission seeks comment on these
proposals.
10. In order to ensure that the auction closes within a reasonable
period of time, an activity rule requires bidders to bid actively on a
percentage of their maximum bidding eligibility during each round of
the auction rather than waiting until the end to participate. A bidder
that does not satisfy the activity rule will either lose bidding
eligibility in the next round or use an activity rule waiver.
11. For the VHF public coast station auction, the Commission
proposes that, in each round of Stage One of the auction, a bidder
desiring to maintain its current eligibility is required to be active
on licenses encompassing at least 60 percent of its current bidding
eligibility. Failure to maintain the requisite activity level will
result in a reduction in the bidder's bidding eligibility in the next
round of bidding (unless an activity rule waiver is used). During Stage
One, reduced eligibility for the next round will be calculated by
multiplying the current round activity by five-thirds (5/3). In each
round of the second stage of the auction, a bidder desiring to maintain
its current eligibility is required to be active on at least 80 percent
of its current bidding eligibility. During Stage Two, reduced
eligibility for the next round will be calculated by multiplying the
current round activity by five-fourths (5/4). In each round of Stage
Three, a bidder desiring to maintain its current eligibility is
required to be active on 98 percent of its current bidding eligibility.
In this final stage, reduced eligibility for the next round will be
calculated by multiplying the current round activity by fifty forty-
ninths (50/49). The Commission seeks comment on these proposals.
C. Minimum Accepted Bids
12. Once there is a standing high bid on a license, a bid increment
will be applied to that license to establish a minimum acceptable bid
for the following round. For the VHF public coast station auction, the
Commission proposes, as described immediately below, to use an
exponential smoothing methodology to calculate minimum bid increments.
The Bureau retains the discretion to change the minimum bid increment
if it determines that circumstances so dictate. The exponential
smoothing methodology has been used in previous auctions, including the
LMDS auction, and will be used in the upcoming 220 MHz auction. The
Commission seeks comment on this proposal.
Exponential Smoothing
13. The exponential smoothing formula calculates the bid increment
based on a weighted average of the activity received on each license in
the current and all previous rounds. This methodology will tailor the
bid increment for each license based on activity, rather than setting a
global increment for all licenses. For every license that receives a
bid, the bid increment for the next round for that license will be
established as a percentage increment that is determined using the
exponential smoothing formula.
14. Using exponential smoothing, the calculation of the percentage
bid increment for each license will be based on an activity index,
which is calculated as the weighted average of the current activity and
the activity index from the previous round. The activity index at the
start of the auction (round 0) will be set at 0. The current activity
index is equal to a weighting factor times the number of new bids
received on the license in the current bidding period plus one minus
the weighting factor times the activity index from the previous round.
The activity index is then used to calculate a percentage increment by
multiplying a minimum percentage increment by one plus the activity
index with that result being subject to a maximum percentage increment.
The Commission will initially set the weighting factor at 0.5, the
minimum percentage increment at 0.1, and the maximum percentage
increment at 0.2.
Equations
Ai = (C * Bi) + ( (1-C) * Ai-1)
Ii = smaller of ( (1 + Ai) * N) and M
Where,
Ai = activity index for the current round (round i)
C = activity weight factor
Bi = number of bids in the current round (round i)
Ai-1 = activity index from previous round (round i-1),
A0 is 0
Ii = percentage bid increment for the current round (round
i)
N = minimum percentage increment
M = maximum percentage increment
Under the exponential smoothing methodology, once a bid has been
received on a license, the minimum acceptable bid for that license in
the following round will be the new high bid plus the dollar amount
associated with the percentage increment (variable Ii from
above times the high bid). This result will be rounded to the nearest
thousand if it is over 10,000 or to the nearest hundred if it is under
10,000.
Examples
License 1
C=0.5, N = 0.1, M = 0.2
Round 1 (2 new bids, high bid = $1,000,000)
a. Calculation of percentage increment using exponential smoothing:
A1 = (0.5 * 2) + (0.5 * 0) = 1
The smaller of I1 = (1 + 1) * 0.1 = 0.2 or 0.2 (the
maximum percentage increment)
b. Minimum bid increment using the percentage increment
(I1 from above)
0.2 * $1,000,000 = $200,000
c. Minimum acceptable bid for round 2 = 1,200,000
[[Page 40908]]
Round 2 (3 new bids, high bid = 2,000,000)
a. Calculation of percentage increment using exponential smoothing:
A2 = (0.5 * 3) + (0.5 * 0) = 1.5
The smaller of I2 = (1 + 1.5) * 0.1 = 0.25 or 0.2
(the maximum percentage increment)
b. Minimum bid increment using the percentage increment is
(I2 from above)
0.2 * $2,000,000 = $400,000
c. Minimum acceptable bid for round 3 = 2,400,000
Round 3 (1 new bid, high bid = 2,400,000)
a. Calculation of percentage increment using exponential smoothing:
A3 = (0.5 * 1) + (0.5 * 0.5) = 0.75
The smaller of I3 = (1 + .75) * 0.1 = 0.175 or 0.2
(the maximum percentage increment)
b. Minimum bid increment using the percentage increment
(I3 from above)
0.175 * $2,400,000 = $420,000
c. Minimum acceptable bid for round 4 = 2,820,000
D. Initial Maximum Eligibility for Each Bidder
15. The Bureau has delegated authority and discretion to determine
an appropriate upfront payment for each license being auctioned, taking
into account such factors as the population in each geographic license
area, and the value of similar spectrum. With these guidelines in mind,
the Commission proposes to calculate upfront payments on a license-by-
license basis for maritime VPC licenses and inland VPC licenses using
the following formulae:
a. Maritime VPC Licenses: $.0007 * MHz * Pop (rounded up to the
nearest dollar) with a minimum upfront payment of $2,500 per license.
b. Inland VPC Licenses: $.0075 * MHz * Pop (rounded up to the
nearest dollar) with a minimum upfront payment of $2,500 per license.
The Commission seeks comment on these proposals.
16. The Commission further proposes that the amount of the upfront
payment submitted by a bidder will determine the initial maximum
eligibility (as measured in bidding units) for each bidder. Upfront
payments will not be attributed to specific licenses, but instead will
be translated into bidding units to define a bidder's initial maximum
eligibility, which cannot be increased during the auction. Thus, in
calculating the upfront payment amount, an applicant must determine the
maximum number of bidding units it may wish to bid on (or hold high
bids on) in any single round, and submit an upfront payment covering
that number of bidding units. The Commission seeks comment on this
proposal.
E. Activity Rule Waivers and Reducing Eligibility
17. Use of an activity rule waiver preserves the bidder's current
bidding eligibility despite the bidder's activity in the current round
being below the required minimum level. An activity rule waiver applies
to an entire round of bidding and not to a particular license. Activity
waivers are principally a mechanism for auction participants to avoid
the loss of auction eligibility in the event that exigent circumstances
prevent them from placing a bid in a particular round.
18. The FCC auction system assumes that bidders with insufficient
activity would prefer to use an activity rule waiver (if available)
rather than lose bidding eligibility. Therefore, the system will
automatically apply a waiver (known as an ``automatic waiver'') at the
end of any bidding period where a bidder's activity level is below the
minimum required unless: (1) there are no activity rule waivers
available; or (2) the bidder overrides the automatic application of a
waiver by reducing eligibility thereby meeting the minimum
requirements.
19. A bidder with insufficient activity that wants to reduce its
bidding eligibility rather than use an activity rule waiver must
affirmatively override the automatic waiver mechanism during the
bidding period by using the reduce eligibility function in the
software. In this case, the bidder's eligibility is permanently reduced
to bring the bidder into compliance with the activity rules as
described above. Once eligibility has been reduced, a bidder will not
be permitted to regain its lost bidding eligibility.
20. A bidder may proactively use an activity rule waiver as a means
to keep the auction open without placing a bid. If a bidder submits a
proactive waiver (using the proactive waiver function in the bidding
software) during a bidding period in which no bids are submitted, the
auction will remain open and the bidder's eligibility will be
preserved. An automatic waiver invoked in a round in which there are no
new valid bids will not keep the auction open.
21. The Commission proposes that each bidder in the VHF public
coast station auction will be provided five activity rule waivers that
may be used in any round during the course of the auction as set forth
above. The Commission seeks comment on this proposal.
F. Information Regarding Bid Withdrawal and Bid Removal
22. For the VHF public coast station auction, the Commission
proposes the following bid removal and bid withdrawal procedures.
Before the close of a bidding period, a bidder has the option of
removing any bids placed in that round. By using the remove bid
function in the software, a bidder may effectively ``unsubmit'' any bid
placed within that round. A bidder removing a bid placed in the same
round is not subject to withdrawal payments.
23. Once a round closes, a bidder may no longer remove a bid.
However, in the next round, a bidder may withdraw standing high bids
from previous rounds using the withdraw bid function. A high bidder
that withdraws its standing high bid from a previous round is subject
to the bid withdrawal payment provisions. The Commission seeks comment
on these bid removal and bid withdrawal procedures.
24. In the Part 1 Third Report and Order, 63 FR 2315 (January 15,
1998), the Commission recently explained that allowing bid withdrawals
facilitates efficient aggregation of licenses and the pursuit of
efficient backup strategies as information becomes available during the
course of an auction. The Commission noted, however, that in some
instances bidders may seek to withdraw bids for improper reasons,
including to delay the close of the auction for strategic purposes. The
Bureau, therefore, has discretion, in managing the auction, to limit
the number of withdrawals to prevent strategic delay of the close of
the auction or other abuses. The Commission stated that the Bureau
should assertively exercise its discretion, consider limiting the
number of rounds in which bidders may withdraw bids, and prevent
bidders from bidding on a particular market if the Bureau finds that a
bidder is abusing the Commission's bid withdrawal procedures.
25. Applying this reasoning, the Commission proposes to limit each
bidder in the VHF public coast station auction to withdrawals in no
more than two rounds during the course of the auction. To permit a
bidder to withdraw bids in more than two rounds would likely encourage
insincere bidding or the use of withdrawals for anti-competitive
strategic purposes. The two rounds in which withdrawals are utilized
will be at the bidder's discretion; withdrawals otherwise must be in
accordance with the Commission's rules. There is no limit on the number
of standing high bids that may be withdrawn in either of the rounds in
which withdrawals are utilized. Withdrawals will remain subject to the
bid withdrawal payment provisions specified in the Commission's rules.
[[Page 40909]]
The Commission seeks comment on this proposal.
G. Stopping Rule
26. For the VHF public coast station auction, the Bureau proposes
to employ a simultaneous stopping approach. The Bureau has discretion
``to establish stopping rules before or during multiple round auctions
in order to terminate the auction within a reasonable time.'' The
Commission therefore has the discretion to adopt an alternative
stopping rule to the simultaneous stopping rule if we deem appropriate.
Thus, unless circumstances dictate otherwise, bidding would remain open
on all licenses until bidding stops on every license. The auction would
close for all licenses when one round passes during which no bidder
submits a new acceptable bid on any license, applies a proactive
waiver, or withdraws a previous high bid.
27. The Commission proposes that the Bureau retain the discretion
to keep an auction open even if no new acceptable bids or proactive
waivers are submitted and no previous high bids are withdrawn. In this
event, the effect will be the same as if a bidder had submitted a
proactive waiver. The activity rule, therefore, will apply as usual and
a bidder with insufficient activity will either lose bidding
eligibility or use a remaining activity rule waiver.
28. Finally, the Commission proposes that the Bureau, reserve the
right to declare that the auction will end after a specified number of
additional rounds (``special stopping rule''). If the Bureau invokes
this special stopping rule, it will accept bids in the final round(s)
only for licenses on which the high bid increased in at least one of
the preceding specified number of rounds. The Bureau proposes to
exercise this option only in circumstances such as where the auction is
proceeding very slowly, where there is minimal overall bidding
activity, or where it appears likely that the auction will not close
within a reasonable period of time. Before exercising this option, the
Bureau is likely to attempt to increase the pace of the auction by, for
example, moving the auction into the next stage (where bidders would be
required to maintain a higher level of bidding activity), increasing
the number of bidding rounds per day, and/or increasing the amount of
the minimum bid increments for the limited number of licenses where
there is still a high level of bidding activity. The Commission seeks
comment on these proposals.
H. Information Relating to Auction Delay, Suspension or Cancellation
29. For the VHF public coast station auction, the Commission
proposes that, by public notice or by announcement during the auction,
the Bureau may delay, suspend or cancel the auction in the event of
natural disaster, technical obstacle, evidence of an auction security
breach, unlawful bidding activity, administrative or weather necessity,
or for any other reason that affects the fair and competitive conduct
of competitive bidding. In such cases, the Bureau, in its sole
discretion, may elect to: resume the auction starting from the
beginning of the current round; resume the auction starting from some
previous round; or cancel the auction in its entirety. Network
interruption may cause the Bureau to delay or suspend the auction. The
Commission emphasizes that exercise of this authority is solely within
the discretion of the Bureau, and its use is not intended to be a
substitute for situations in which bidders may wish to apply their
activity rule waivers. The Commission seeks comment on this proposal.
Amy Zoslov,
Chief, Auctions and Industry Analysis Division, Wireless
Telecommunications Bureau.
[FR Doc. 98-20524 Filed 7-30-98; 8:45 am]
BILLING CODE 6712-01-P
