August 23, 2001

DA 01-1995

Russ Taylor, Esq.

Gardner, Carton & Douglas

1301 K Street, NW

Suite 900, East Tower

Washington, DC 20005

**Re: 220 MHz Auction Group's Request for Refund of Its Interim Bid
Withdrawal Payment**

Dear Mr. Taylor:

This letter sets forth the bid withdrawal payment obligations of 220 MHz
Auction Group ("Auction Group") resulting from its withdrawal of net
high bids on licenses BEA058-B (Northern Michigan, MI) and EAG001-F
(Northeast) in the Phase II 220 MHz Auction ("Auction No. 24").[^1] For
the reasons set forth below, Auction Group is subject to interim bid
withdrawal payments with respect to these licenses. Further, Auction
Group's request for a refund of the two interim bid withdrawal payments
is denied.

[Background]{.underline}. During Auction No. 24, Auction Group withdrew
net high bids on licenses BEA058-B, and EAG001-F.[^2] On June 30, 1999,
the Commission completed Auction No. 24.[^3] At the close of the
auction, licenses BEA058-B and EAG001-F[^4] remained unsold.[^5]
Consequently, the Commission, pursuant to its bid withdrawal rules and
policy,[^6] deducted \$12.00 (three-percent of Auction Group's \$390.00
withdrawn net high bid on license BEA058-B), and \$2,925.00
(three-percent of Auction Group's \$97,500.00 withdrawn net high bid on
license EAG001-F)[^7] from Auction Group's \$150,000.00 upfront
payment.[^8] The Commission has not held a subsequent auction for these
licenses.

On October 7, 1999, Auction Group submitted a letter requesting a refund
of its \$2,937.00 interim bid withdrawal payment.[^9] In its request,
Auction Group contends that the Commission's rules do not permit the
retention of a three-percent interim bid withdrawal payment. Auction
Group argues that Section 1.2104(g),[^10] the bid withdrawal rule,
simply provides that the withdrawing bidder must pay the difference
between the withdrawn bid and the subsequent winning bid and does not
provide for a three-percent interim bid withdrawal payment. Accordingly,
Auction Group requests a refund of its \$2,937.00 interim bid withdrawal
payment.[^11]

[Discussion.]{.underline} Under the Commission's rules, a bidder who
withdraws a high bid during the course of an auction is subject to a bid
withdrawal payment equal to the difference between the amount of the
withdrawn bid and the amount of the subsequent winning bid.[^12] If a
high bid is withdrawn on a license that remains unsold at the close of
the auction, the bidder will be required to make an interim payment
equal to three-percent of the net amount of the withdrawn bid.[^13] This
payment amount is deducted from any upfront payments or down payments
that the withdrawing bidder has deposited with the Commission.[^14] If,
in a subsequent auction, that license receives a winning bid in an
amount equal to or greater than the withdrawn bid amount, then no final
bid withdrawal payment is assessed, and upon appropriate request, the
Commission will refund the interim three-percent payment.[^15] If, in a
subsequent auction, the winning bid for that license is less than the
bidder's withdrawn bid amount, then the bidder will be required to make
a final bid withdrawal payment equal to either the difference between
the net withdrawn bid and the subsequent net winning bid, or the
difference between the gross withdrawn bid and the subsequent gross
winning bid, whichever is less.[^16]

The bid withdrawal payment rules are critically important to the success
of the Commission's competitive bidding system. Allowing bidders to
withdraw bids without any consequences would encourage insincere
bidding, and insincere bidding, whether purely frivolous or strategic,
distorts the auction process and reduces its efficiency.[^17] Thus, the
bid withdrawal rules were adopted to discourage insincere bidding
without causing bidders to be too cautious in attempting to aggregate
licenses.[^18] The Commission has recently explained in the *Part 1
Fifth Report and Order* that the assessment of an interim bid withdrawal
payment not only furthers this policy of discouraging insincere bidding,
but also "ensures that the Commission receives a minimal withdrawal
payment pending assessment of any final withdrawal payment."[^19]

Initially, where the Commission did not have a subsequent winning bid to
use to determine the amount of the bidder's withdrawal payment it
required a 20 percent payment from withdrawing high bidders.[^20]
Subsequently, in the 1996 *CHPCS* *Order,*[^21] which resolved a down
payment default, the Wireless Telecommunications Bureau ("Bureau") noted
that because three percent is the minimum amount that a defaulting
winning bidder could owe even under the most favorable circumstances, a
three-percent interim default payment would be appropriate.[^22] The
policy of assessing a three-percent interim payment was then extended to
bid withdrawal payments[^23] and has since been codified into the
Commission's competitive bidding rules.[^24]

It has been the Commission's policy to impose interim payments on
bidders who withdraw high bids during the course of an auction.[^25]
Consistent with this policy, the *220 MHz Closing PN* stated that
"\[i\]f a high bid is withdrawn on a license that remains unsold at the
close of the auction, \[the bidder\] will be required to make an interim
payment equal to three (3) percent of the net amount of the withdrawn
bid. This payment amount is deducted from any upfront payments or down
payments that \[the bidder\] has deposited with the Commission."[^26]
Auction Group was on notice[^27] prior to the auction that it was the
Commission's policy to impose interim withdrawal payments on bidders
that withdraw high bids during an auction. Accordingly, we reject its
argument for a refund.

For the reasons stated above, Auction Group's request for a refund of
the two interim bid withdrawal payments totaling \$2,937.00 is
**DENIED**. Because licenses BEA058-B and EAG001-F will be included in a
future auction, at this time we cannot determine the full amount of the
bid withdrawal payments owed by Auction Group. Until the Commission has
received a subsequent winning bid for these licenses, we retain the two
interim bid withdrawal payments.

Accordingly, **IT IS ORDERED** that pursuant to section 0.331 and
1.2104(g)(1) of the Commission's rules, 47 C.F.R. §§ 0.331, 1.2104(g),
and the *220 MHz Closing PN*, Auction Group is assessed an interim bid
withdrawal payment for license BEA058-B and for license EAG001-F
totaling \$2,937.00.

It is **FURTHER ORDERED** that Auction Group's interim bid withdrawal
payments totaling \$2,937.00 will be retained by the Commission until
there is a subsequent winning bid for licenses BEA058-B and EAG001-F at
which point the Bureau will issue an order calculating Auction Group's
final bid withdrawal payments, if any.

It is **FURTHER ORDERED** that this letter shall be send to the
applicant by certified mail, return receipt requested. This action is
taken pursuant to delegated authority, 47 C.F.R. § 0.331.

> Sincerely,
>
> Margaret Wiener
>
> Chief
>
> Auctions and Industry Analysis Division
>
> Wireless Telecommunications Bureau

[^1]: During Auction No. 24, Auction Group also withdrew a net high bid
    of \$193,700.00 on license EAG003-F, which subsequently sold to
    Auction Group in the same auction for \$176,150.00. Accordingly, the
    Public Notice issued at the close of Auction No. 24 included a
    calculation of the final bid withdrawal payment for license EAG003-F
    (the difference between Auction Group's withdrawn net high bid and
    its subsequent winning bid, \$193,700.00 -- 176,150.00 =
    \$17,550.00). The Public Notice also indicated that the final bid
    withdrawal payment of \$17,550.00 for license EAG003-F was deducted
    from the upfront payments submitted by Auction Group in Auction No.
    24. Phase II 220 MHz Service Spectrum Auction Closes, *Public
    Notice*, 14 FCC Rcd 11218, 11238-39 (1999) ("*220 MHz Closing PN*")
    at Attachments B and C.

[^2]: *Id*.

[^3]: *Id*. at 11239.

[^4]: *220 MHz Closing PN*, 14 FCC Rcd at 11239.

[^5]: *Id*.

[^6]: Implementation of Section 309(j) of the Communications Act --
    Competitive Bidding, PP Docket No 93-253, *Fifth Report and Order*,
    9 FCC Rcd 5532, 5563 at n. 51 (1994) ("*Competitive Bidding Fifth
    Report and Order*"); WCS Auction Closes; Winning Bidders in the
    Auction of 128 Wireless Telecommunications Service Licenses, *Public
    Notice*, 12 FCC Rcd 21,653 (1997) ("*WCS Closing PN*"); 800 MHz SMR
    Auction Closes; Winning Bidders in the Auction of 525 Specialized
    Mobile Radio Licenses, 12 FCC Rcd 20417 (1997) ("*800 MHz SMR
    Closing PN*"); LMDS Auction Closes; Winning Bidders in the Auction
    of 986 Local Multipoint Distribution Service (LMDS) Licenses,
    *Public Notice*, 13 FCC Rcd 18217 (1998) ("*LMDS Closing PN*"); VHF
    Public Coast Service Auction Closes; Winning Bidders in the Auction
    of 42 Licenses in the 156-162 MHz VHF Public Coast Service, *Public*
    Notice, 14 FCC Rcd 480 (1998) ("*VHF Public Coast Closing PN*");
    Phase II 220 MHz Service Auction Closes; Winning Bidders in the
    Auction of 908 Phase II 220 MHz, *Public Notice*, 14 FCC Rcd 605
    (1998) ("*908 Phase II 220 MHz Closing PN*"); Location and
    Monitoring Service Auction Closes; Winning Bidders in the Auction of
    528 Multilateration Licenses in the Location and Monitoring Service,
    *Public Notice*, 14 FCC Rcd 3754 (1999) ("*LMS Closing PN*"); C, D,
    E, and F Block Broadband PCS License Auction Closes; Winning Bidders
    of 302 Licenses Auctioned, *Public Notice*, 14 FCC Rcd 6688 (1999)
    ("*C, D, E, and F Block Closing PN*"); Location and Multipoint
    Distribution Service Auction Closes; Winning Bidders in the Auction
    of 161 Licenses in the Local Multipoint Distribution Service (LMDS),
    *Public Notice*, DA 99-927 (rel. May 14, 1999) ("*161 LMDS Closing
    PN*"); 220 *MHz Closing PN*, 14 FCC Rcd 11218; 47 C.F.R. §
    1.2104(g)(1) (1999).

[^7]: *220 MHz Closing PN*, 14 FCC Rcd at 11239.

[^8]: Phase II 220 MHz Service Spectrum Auction: 18 Qualified Bidders,
    *Public Notice,* 14 FCC Rcd 7905, 7912 (1999) ("*220 MHz Qualified
    Bidders Notice*"); *220 MHz Closing PN*, 14 FCC Rcd at 11238.

[^9]: Letter to Amy Zoslov, Chief, Auctions & Industry Analysis
    Division, from Mr. Russ Taylor, Counsel for 220 MHz Auction Group
    (Oct. 7, 1999) ("220 MHz Auction Group Letter"). In his letter, Mr.
    Taylor does not dispute the validity of Auction Group's \$17,550.00
    bid withdrawal payment for license EAG003-F.

[^10]: 47 C.F.R. § 1.2104(g) (1999).

[^11]: 220 MHz Auction Group Letter.

[^12]: 47 C.F.R. § 1.2104(g)(1) (1999).

[^13]: *220 MHz Closing PN*, 14 FCC Rcd at 11221; *see* *908 Phase II
    220 MHz Closing PN,* 14 FCC Rcd at 608 (citing *Competitive Bidding
    Fifth Report and Order*, 9 FCC Rcd, at 5563, n. 51; *CHPCS Order*,
    11 FCC Rcd at 22432-33).

[^14]: 47 C.F.R. § 1.2104(g)(1) (1999); *see 220 MHz Closing PN*, 14 FCC
    Rcd at 11221-22; *908 Phase II 220 MHz Closing PN*, 14 FCC Rcd at
    608; Implementation of Section 309(j) of the Communications Act --
    Competitive Bidding, PP Docket No. 93-253, *Second Report and
    Order*, 9 FCC Rcd 2348, 2379, ¶ 176 (1994) ("*Competitive Bidding
    Second Report and Order*").

[^15]: *220 MHz Closing PN*, 14 FCC Rcd at 11221-22.

[^16]: 47 C.F.R. § 1.2104(g)(1) (1999); *220 MHz Closing PN*, 14 FCC Rcd
    at 11221-22.

[^17]: *Competitive Bidding Second Report and Order*, 9 FCC Rcd at
    2373-74, ¶¶ 146-153; 47 C.F.R. § 1.2104(g)(1) (1999); *220 MHz
    Closing PN*, 14 FCC Rcd at 11221-22.

[^18]: *Competitive Bidding Second Report and Order*, 9 FCC Rcd at
    2373-74, ¶¶ 146-153.

[^19]: Amendment of Part 1 of the Commission's Rules-Competitive Bidding
    Procedures, WT Docket 97-82, *Order on Reconsideration of the Third
    Report and Order, Fifth Report and Order, and Fourth Further Notice
    of Proposed Rule Making*, 15 FCC Rcd 15293, 15302, ¶ 15 (2000)
    ("*Part 1 Fifth Report and Order*").

[^20]: *Competitive Bidding Fifth Report and Order*, 9 FCC Rcd at 5563,
    n. 51 ("\[i\]f 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"); D, E, and F
    Block Auction Closes Winning Bidders in the Auction of 1,479
    Licenses to Provide Broadband PCS in Basic Trading Areas, *Public
    Notice*, DA 97-81 (rel. Jan. 15, 1997).

[^21]: C.H. PCS, Inc., *Order*, 11 FCC Rcd 22430, 22432-33 (WTB 1996)
    ("*CHPCS Order"*).

[^22]: *Id.* (stating that although the deposit amount is 20 percent of
    the bid price, "if \[the license\] is reauctioned for an amount
    greater than \[the bidder's\] bid for the license, the default
    payment will be only three percent of \[the bidder's\] defaulted
    bid. Consequently, a three-percent payment is the minimum amount
    that \[the bidder\] could owe under even the most favorable
    circumstances."); *see e.g.* In the Matter of Request for Waiver of
    Section 1.2104(g) of the Commission's Rules filed by Grand
    Connectivity L.L.C., 14 FCC Rcd 13943 (1999) ("*Grand Connectivity
    Order"*).

[^23]: *WCS Closing PN*, 12 FCC Rcd 21,653; *800 MHz SMR Closing PN*, 12
    FCC Rcd 20417; *LMDS Closing PN*, 13 FCC Rcd 18217; *VHF Public
    Coast Closing PN*, 14 FCC Rcd 480; *908 Phase II 220 MHz Closing
    PN*, 14 FCC Rcd 605; *LMS Closing PN*, 14 FCC Rcd 3754; *C, D, E,
    and F Block Closing PN*, 14 FCC Rcd 6688; *161 LMDS Closing PN*, DA
    99-927; 220 *MHz Closing PN*, 14 FCC Rcd 11218; 47 C.F.R. §
    1.2104(g)(1) (1999).

[^24]: *Part 1 Fifth Report and Order*, 15 FCC Rcd 15293.

[^25]: *WCS Closing PN*, 12 FCC Rcd 21,653; *800 MHz SMR Closing PN*, 12
    FCC Rcd 20417; *LMDS Closing PN*, 13 FCC Rcd 18217; *VHF Public
    Coast Closing PN*, 14 FCC Rcd 480; *908 Phase II 220 MHz Closing
    PN*, 14 FCC Rcd 605; *LMS Closing PN*, 14 FCC Rcd 3754; *C, D, E,
    and F Block Closing PN,* 14 FCC Rcd 6688; *161 LMDS Closing PN*, DA
    99-927; 220 *MHz Closing PN*, 14 FCC Rcd 11218. *See Grand
    Connectivity Order*, 14 FCC Rcd 13943 (three percent interim bid
    withdrawal payments applied to Auction No. 23). In the context of
    down payment defaults, which are also governed by section 1.2104(g)
    of the Commission's rules, interim default payments are also
    deducted from funds on deposit with the Commission. *CHPCS Order*,
    11 FCC Rcd at 22432-33 (requiring three percent deposits for default
    payments); In the Matter of Metro-Trak, L.L.C. for Multilateration
    Location and Monitoring Service Auction License -- BEA 107C,
    Minneapolis-St. Paul, *Order*, 15 FCC Rcd 13365 (2000).

[^26]: *220 MHz Closing PN*, 14 FCC Rcd at 11221.

[^27]: *Competitive Bidding Fifth Report and Order*, 9 FCC Rcd at 5563,
    n. 51; *WCS Closing PN*, 12 FCC Rcd 21,653; *800 MHz SMR Closing
    PN*, 12 FCC Rcd 20417; *LMDS Closing PN*, 13 FCC Rcd 18217; *VHF
    Public Coast Closing PN*, 14 FCC Rcd 480; *908 Phase II 220 MHz
    Closing PN*, 14 FCC Rcd 605; *LMS Closing PN*, 14 FCC Rcd 3754; *C,
    D, E, and F Block Closing PN*, 14 FCC Rcd 6688; *161 LMDS Closing
    PN*, DA 99-927; 220 *MHz Closing PN*, 14 FCC Rcd 11218; 47 C.F.R. §
    1.2104(g)(1) (1999).