[Federal Register Volume 63, Number 160 (Wednesday, August 19, 1998)]
[Notices]
[Pages 44456-44460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22293]
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FEDERAL COMMUNICATIONS COMMISSION
[Report No. AUC-98-21-A (Auction No. 21); DA 98-1616]
Location and Monitoring Service Spectrum Auction Scheduled For
December 15, 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 528 multilateration
Location and Monitoring Service licenses scheduled for December 15,
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 September 2, 1998. Reply comments
are due on or before September 9, 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: Kathy Garland, Bob Reagle or Kenneth
Burnley, Auctions and Industry Analysis Division, Wireless
Telecommunications Bureau, at (202) 418-0660.
SUPPLEMENTARY INFORMATION: This public notice was released on August
13, 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
(``Bureau'') announces the auction of 528
[[Page 44457]]
multilateration Location and Monitoring Service (``LMS'') licenses set
to begin on December 15, 1998. Three blocks of spectrum are allocated
for multilateration LMS systems:
(1) Block A 904.000-909.750 MHz and 927.750-928.000 MHz
(2) Block B 919.750-921.750 MHz and 927.500-927.750 MHz
(3) Block C 921.750-927.250 MHz and 927.250-927.500 MHz
2. One license will be awarded for each of these spectrum blocks in
each of 176 Economic Areas (EAs) designated for LMS. The 176 EAs
designated for the LMS auction comprise the following areas: (1) the
continental United States, Hawaii and Alaska (Alaska to be licensed in
a single area); (2) Guam and the Northern Mariana Islands (to be
licensed in a single area); (3) Puerto Rico and the U.S. Virgin Islands
(to be licensed in a single area); (4) America Samoa; and (5) the Gulf
of Mexico. Thus, there are a total of 528 multilateration LMS licenses
to be auctioned.
3. Future public notices will include further details regarding
application filing and payment deadlines, a seminar, and other
pertinent information. In this Public Notice, the Commission seeks
comment on procedural issues relating to the LMS auction.
I. Reserve Price or Minimum Opening Bid
4. 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.
5. 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.
6. In anticipation of this auction and in light of the Balanced
Budget Act, the Bureau proposes to establish minimum opening bids for
the LMS 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.
7. Specifically, the Commission proposes the following formulas for
calculating minimum opening bids on a license-by-license basis in
Auction No. 21:
(1) Block A $0.004*MHz*Pops (rounded up to the next dollar and no less
than $2,850 per license)
(2) Block B $0.004*MHz*Pops (rounded up to the next dollar and no less
than $2,500 per license)
(3) Block C $0.004*MHz*Pops (rounded up to the next dollar and no less
than $2,800 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 LMS 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
8. 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 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
9. Because it is most administratively appropriate, and allows
bidders to take advantage of any synergies that exist among licenses,
the Commission proposes to award the 528 multilateration LMS 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
10. 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.
11. In order to ensure that the auction closes within a reasonable
period of
[[Page 44458]]
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.
12. For the LMS 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
13. 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 LMS 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
14. 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.
15. 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)
1. 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)
2. Minimum bid increment using the percentage increment (I1
from above)0.2 * $1,000,000=$200,000]
3. Minimum acceptable bid for round 2=1,200,000
Round 2 (3 new bids, high bid=2,000,000)
1. 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)
2. Minimum bid increment using the percentage increment is
(I2 from above)0.2 * $2,000,000=$400,000
3. Minimum acceptable bid for round 3=2,400,000
Round 3 (1 new bid, high bid=2,400,000)
1. 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)
2. Minimum bid increment using the percentage increment (I3
from above)0.175 * $2,400,000=$420,000
3. Minimum acceptable bid for round 4=2,820,000
d. Initial Maximum Eligibility for Each Bidder
16. 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 for the LMS auction the following upfront
payments:
(1) Block A $0.002*MHz*Pops (rounded up to the next dollar and no less
than $2,850 per license)
(2) Block B $0.002*MHz*Pops (rounded up to the next dollar and no less
than $2,500 per license)
(3) Block C $0.002*MHz*Pops (rounded up to the next dollar and no less
than $2,800 per license)
The Commission seeks comment on this proposal. For the LMS auction,
the Commission further proposes that the amount of the upfront payment
submitted by a bidder will determine
[[Page 44459]]
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 LMS auction be
provided with 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 LMS 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, 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 LMS 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. The Commission
seeks comment on this proposal.
g. Stopping Rule
26. For the LMS 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 for the LMS auction an
alternative stopping rule to the simultaneous stopping rule if the
Commission deems it 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
[[Page 44460]]
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 LMS 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.
Mark Bollinger,
Deputy Division Chief, Auctions and Industry Analysis Division,
Wireless Telecommunications Bureau.
[FR Doc. 98-22293 Filed 8-18-98; 8:45 am]
BILLING CODE 6712-01-P
