**DA 00-1075**

May 18, 2000

AUCTION OF LICENSES IN THE 747--762 AND 777--792 MHz BANDS SCHEDULED FOR
SEPTEMBER 6, 2000

**COMMENT SOUGHT**

**ON MODIFYING THE SIMULTANEOUS MULTIPLE ROUND AUCTION DESIGN TO ALLOW
COMBINATORIAL (PACKAGE) BIDDING**

**Report No. AUC-00-31-G (Auction No. 31)**

# Introduction

In adopting the service rules for the 747-762 and 777-792 MHz bands, the
Commission determined that combinatorial bidding procedures could have
significant benefits for the auction of the licenses in these bands, but
declined to employ this type of auction because the statutory deadline
did not allow sufficient time to implement such a design.[^1] However,
in light of (1) the announced delay of the auction until September 6,
2000;[^2] and (2) the continued progress in the design and testing of a
combinatorial bidding system,[^3] as directed by Congress,[^4] the
Wireless Telecommunications Bureau ("the Bureau") now believes that
sufficient time may exist to implement an auction design that allows for
bids on combinations, or "packages," of licenses. Therefore, if the
Commission, in conjunction with other reconsideration issues now before
it,[^5] determines that modifying the simultaneous multiple round
auction design to allow combinatorial ("package") bidding is feasible
and appropriate for Auction No. 31, then the Bureau wants to be prepared
to have a system and procedures in place to conduct package bidding.[^6]
In this public notice, we seek comment on such procedures consistent
with our authority under Part 1 of the Commission's rules.[^7] Depending
on the Commission's actions and the comments we receive in response to
this notice, we will, by a later public notice, either establish
procedures as discussed here and use package bidding for Auction No. 31,
or use the procedures that we already announced.[^8]

With package bidding, bidders would not be restricted to placing bids on
individual licenses, but would also be allowed to place all-or-nothing
bids on packages of licenses. This approach would allow bidders to
better express the value of any synergies (benefits from combining
complementary items) that may exist among licenses, and to avoid
*exposure problems* --- the risks bidders face in trying to acquire
efficient packages of licenses. For example, with package bidding a
bidder desiring an aggregation of all six 20 MHz licenses in order to
inaugurate a nationwide service could bid on the six licenses as a
package and not face the risk of winning only some of the desired
licenses and paying more than the bidder values those licenses by
themselves (without the other licenses needed to provide nationwide
coverage).

Allowing package bidding does, however, potentially introduce what is
termed the *threshold problem* --- the difficulty that multiple bidders
desiring only the single licenses (or smaller packages) that constitute
a package may have in outbidding a single bidder that is bidding for the
entire package, even though the multiple bidders may value the sum of
the parts more than the single bidder values the whole. Bidders for
parts of a larger package each have an incentive to hold back in the
hope that a bidder for another piece of the larger package will increase
its bid sufficiently for the bids on the pieces collectively to beat the
bid on the larger package. The procedures we propose to implement
package bidding are designed to facilitate the emergence of bids that
will overcome this problem.

In general, package bidding should be an improvement over our usual
auction design when (1) there are strong complementarities among
licenses for some bidders, and (2) the pattern of those
complementarities is different for different bidders. Moreover, if some
licenses are complements for some bidders and substitutes for other
bidders, it might not be possible to achieve the most efficient
assignments pricing each license individually, as under our usual
simultaneous multiple round auction design. The comments we previously
received suggest this is the case for Auction No. 31, where some
potential bidders have expressed the importance of acquiring a
nationwide footprint, and others the importance of acquiring all 30 MHz
in a region.[^9] Therefore, it is appropriate to consider package
bidding for this auction.

We therefore propose to modify the simultaneous multiple round auction
design that we previously adopted for Auction No. 31[^10] to allow for
package bidding. Most of our auction rules and procedures would remain
the same or be changed only slightly. For example, the Commission rules
forbidding collusion among bidders would remain in full force.[^11] The
procedures regarding upfront payments, initial maximum eligibility, and
bid activity would be modified to account for the ability of bidders to
bid on both individual licenses and packages and some of the other
intricacies of package bidding design. We propose for Auction No. 31
that we would use a two-round stopping rule with no proactive activity
rule waivers allowed, instead of the one-round stopping rule with
proactive waivers that we previously adopted. We also seek comment on
changes to the rules regarding default payments so that the default
payment owed after default on a package would be calculated based on the
difference between the defaulted bid on the package and the subsequent
bid(s) on the package or the licenses that make up the package.[^12]
Finally, we seek comment on some additional auction design issues,
including a proposal that we permit bidders to use certain contingent
bids known as "or" bids --- for example, a bid of "\$10 for license A or
\$20 for license B."

# auction design and procedures

## Simultaneous Multiple Round with Package Bidding

The simultaneous multiple round with package bidding auction design
would be a modification of the simultaneous multiple round auction
design that we previously established for Auction No. 31,[^13] and would
be used instead of the simultaneous multiple round auction design.[^14]
Bidders would still be able to submit bids on individual licenses, as in
our existing simultaneous multiple round auction design, but could also
submit all-or-nothing bids on packages of licenses.

Specifically, bidders could place bids on nine packages:

-   one *global package*, of all licenses in the auction (*i.e.*, 30 MHz
    nationwide),

-   two *national packages*, of either all six 10 MHz licenses or all
    six 20 MHz licenses, and

-   six *regional packages*, of both the 10 MHz license and the 20 MHz
    license in a region.

We seek comment on this proposal. Furthermore, examples of these
packages are illustrated in the following table. The global package
consists of all twelve cells in the table. The two national packages are
the two rows in the table. For example, the 10 MHz national package
consists of all six 10 MHz licenses, as shown by the cells shaded with
horizontal lines. The six regional packages are the six columns of the
table. For example, the regional package for region two is shown by the
cells shaded with vertical lines.

  ---------- ---------- ---------- ---------- ---------- ---------- ----------
             Regions                                                

             1          2          3          4          5          6

  10 MHz                                                            

  20 MHz                                                            
  ---------- ---------- ---------- ---------- ---------- ---------- ----------

In addition, we seek comment on whether the Commission should allow all
possible packages composed of the twelve individual licenses? Should
only certain additional packages be allowed, and if so, which ones?

## Winning and Retained Bids

Some additional definitions are required to discuss package bidding.
*Winning bids* in a package bidding auction are the set of bids on
individual licenses and packages that maximizes revenue when the auction
closes, assigning each license to only one party (a bidder or, in the
case of unsold licenses, the FCC).[^15] *Provisional winning bids* are
the set of bids that maximize revenue in a particular round (they would
win if the auction were to close in that round), assigning each license
to only one party (a bidder or the FCC).

*Retained bids* are bids kept in the system from one round to the next.
They are used in calculating bidders' bidding activity for purposes of
the activity rule (discussed further in "D. Activity Rules and
Eligibility" below). Retained bids include the provisional winning bids,
plus bids that have the potential to become provisional winning bids
because of changes in other bids in subsequent rounds.[^16] Assuming
that bids in the auction may only rise, bids that could never be winning
bids are not retained.

Specifically, we propose to "retain":

-   a global package bid, if it is the provisional winner;

-   a national package bid, if it would be part of the provisional
    winning set determined by limiting consideration to national
    packages and individual license bids, but excluding global and
    regional packages;

-   a regional package bid, if it would be part of the provisional
    winning set, considering regional packages and individual license
    bids, but excluding global and national packages;

-   an individual license bid, if it is the high bid for that license.

In other words, in a given round we would retain a bid (for the next
round) if it is greater than the best combination of bids (new bids and
bids retained from the previous round) that exactly cover the licenses
in that bid.[^17]

For the purposes of determining retained bids, licenses on which no bids
have been submitted would be treated as if the minimum opening bid had
been submitted. The Commission will resolve tie bids on the basis of the
order in which the Commission receives bids. Bidding credits would be
treated the same as in a simultaneous multiple round auction, where the
gross high bids on licenses determine the winning bids. Thus, retained
bids and winning bids would be determined based on gross bids. We seek
comment on this proposal.

## Upfront Payments and Initial Maximum Eligibility

As we have stated, the Bureau has delegated authority and discretion to
determine an appropriate upfront payment for each license being
auctioned.[^18] Upfront payments related to the specific spectrum
subject to auction protect against frivolous or insincere bidding and
provide the Commission with a source of funds from which to collect
payments owed at the close of the auction.[^19]

We propose no change in the upfront payments from those previously
established for the individual licenses.[^20] For a package, we propose
that we would calculate the bidding units and associated upfront payment
by adding together the bidding units and associated upfront payments of
the individual licenses that make up the package. We list the bidding
units and upfront payments for all licenses in Attachment A. We seek
comment on this proposal.

We also propose no change in our procedure for determining initial
maximum eligibility from the procedure already established for Auction
No. 31. Thus, 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 or packages, but instead will be translated into
bidding units to define a bidder's initial maximum eligibility, which
cannot be increased during the auction. The maximum eligibility will
determine the licenses and packages on which a bidder may bid in each
round of the auction. Thus, in calculating its upfront payment amount,
an applicant must determine its *maximum* desired activity (*see* "E.
Activity Rules and Eligibility" below) in any single round, and submit
an upfront payment covering that number of bidding units.

Bidders might desire sufficient eligibility in order to afford
themselves the flexibility to be active simultaneously on various
packages and subsets thereof. If a bidder submitted an upfront payment
for the total number of bidding units associated with all 12 licenses,
the bidder would not, for example, have enough eligibility to be active
simultaneously on a global package and other licenses. The bidder might
want to do this, for example, if it held a retained bid on some
individual licenses and then decided to bid for the global package. If,
however, as proposed below in "E. Activity Rules and Eligibility," we
modify the activity rule to account for mutually exclusive bids, bidders
would never need to purchase more eligibility than the total bidding
units associated with all licenses.

## Minimum Accepted Bids and Bid Increments

We propose that for a bid to be accepted in any round it must be x%
greater than the minimum amount to have become a retained bid in the
previous round, where the Bureau will specify the value of x. In the
case of an individual license bid the minimum accepted bid is analogous
to that in a simultaneous multiple round auction. It must be x% greater
than the highest bid for that license in previous rounds.[^21] We
propose to set the minimum increment for a license or package initially
at five percent. The Commission retains discretion to vary the minimum
bid increments in each round of the auction by announcement prior to
each round.

To simplify our procedures, we propose to treat minimum opening bids as
retained bids after the first round of the auction. Thus, for example,
after the first round a bid on an individual license with no initial
bids would be required to exceed the minimum opening bid by x percent.

We also seek comment on other methods for calculating the minimum
accepted bid. One possibility is to determine the bid increment as the
maximum of (a) the increment as calculated above and (b) an increment
based on the total revenue (the provisional winning bids) in the
previous round. The total minimum bid increment would be allocated among
individual licenses in proportion to their bidding units. That is, the
*per bidding unit increment* would be determined as a percentage of the
provisional winning total revenue times the share of total bidding units
associated with the licenses contained in the bid.

For example, suppose the provisional winning total revenue in the
previous round is \$1,000 and percentage increment is 5%, so the total
increment to be allocated among individual licenses is \$50. A 20 MHz
EAG license has 28 million bidding units, which is one-ninth of the
total bidding units. Thus, under this approach the increment on such a
license would \$5.56, or the amount calculated in the previous
paragraph, whichever is greater. One potential benefit of this approach
is to help overcome the *threshold problem* --- the difficulty smaller
bidders face coordinating increases in bids on individual licenses or
small packages to beat bids for larger packages of licenses --- by
moving up the prices more quickly for apparently undervalued properties.

Another possibility is to determine the minimum accepted bid by
allocating the total amount needed to beat the provisional winners.[^22]
Under this approach, each license is assigned a price so that the sum of
the prices adds up to the provisional winning total revenue. Package
prices are equal to the sum of the prices of the individual licenses in
the package. The minimum acceptable bid would be a fixed percentage
greater than the assigned price of the license or package.[^23]

As has become standard in our auctions, we also propose that we would
use "click box" bidding. Specifically, for Auction No. 31 we would allow
package bids to increase by one increment in each round, while bids on
individual licenses could increase by one to nine increments. This
limitation is designed to prevent bids on packages from rising too
quickly for bidders on individual licenses to overcome the threshold
problem. We seek comment on this proposal. Should we allow package bids
to increase by greater than one increment in each round?

## Activity Rules and Eligibility

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 of the auction 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

In the context of package bidding, a bid would be considered "active" if
it is either a retained bid from the previous round or is an accepted
bid in the current round. Absent overlapping bids and "or" bids, a
bidder's "activity" is the sum of the bidding units associated with the
licenses on which the bidder is active.[^24] To account for the
possibility of overlapping bids and "or" bids, which can not
simultaneously be part of the winning set, we propose to measure a
bidder's activity in a round as the *maximum* number of bidding units
associated with bids that could simultaneously be in a provisional
winning set. In other words, a bidder's activity in a round is the
number of bidding units associated with the set of the bidder's retained
bids from the previous round and the bidder's acceptable bids in the
current round that maximizes the number bidding units without
provisionally assigning the bidder any bids that cannot simultaneously
be part of a provisional winning set. We seek comment on this proposal.

As we have already established for Auction No. 31 using the simultaneous
multiple round auction design, we propose that no bidder's total
activity in a given round may exceed its current eligibility. Initial
eligibility is determined by upfront payments, as discussed above in "C.
Upfront Payments and Initial Maximum Eligibility." In the context of
package bidding for Auction No. 31, we propose that in each round of the
auction a bidder desiring to maintain its current eligibility would be
required to be active on licenses encompassing at least 50 percent of
its current eligibility. For a bidder that failed to meet the activity
requirement in a given round, we would reduce the bidder's eligibility
for the next round to two times its activity in the current round. Thus,
a bidder's eligibility in the current round is either twice its activity
in the previous round or its eligibility in the previous round,
whichever would be less:[^25]

Eligibility(t) = Min (Eligibility(t-1), 2\*Activity(t-1))

We seek comment on this proposal and on variations. For example, should
we instead adopt multiple stages with increasing activity requirements
as we established for Auction No. 31 using a simultaneous multiple round
auction design? We also seek comment on whether, for greater
transparency and computational simplicity, the Bureau should limit the
total number of bids made by any bidder, and, if so, what limits should
be established.

## Activity Rule Waivers and Reducing Eligibility

We propose to retain the procedures regarding activity rule waivers and
reducing eligibility that we previously established for Auction No.
31[^26] with one exception. As described below, we propose not to allow
bidders to submit proactive waivers.

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 or package.
Activity rule 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.

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 requirement. An automatic
waiver invoked in a round in which there are no new acceptable bids will
not keep the auction open.

A bidder with insufficient activity may wish to reduce its bidding
eligibility rather than use an activity rule waiver. If so, the bidder
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.

We previously concluded that for Auction No. 31 using a simultaneous
multiple round design, a bidder may proactively use an activity rule
waiver as a means to keep the auction open without placing a bid.[^27]
As described in "H. Stopping Rule" below, however, we are proposing to
use a two-round simultaneous stopping rule for Auction No. 31 should we
use package bidding. This means that all licenses remain open until the
second consecutive round in which no new acceptable bids are received.
After the second consecutive such round, bidding closes simultaneously
on all licenses. With this stopping rule the auction could not close by
surprise. Thus, we believe that bidders no longer need proactive
activity rule waivers in order for the auction to reach an economically
efficient outcome. Moreover, there is some concern that allowing
proactive waivers when there is a two-round stopping rule might, in some
circumstances, introduce opportunities for strategic behavior that may
reduce the efficiency of the auction. Accordingly, we now propose not to
allow bidders to submit proactive waivers in the context of package
bidding for Auction No. 31. We seek comment on this proposal.

We further propose that each bidder in Auction No. 31 be provided with
five activity rule waivers (the same number we previously adopted)[^28]
that may be used at the bidder's discretion during the course of the
auction as set forth above. We seek comment on this proposal.

## Bid Removal and Bid Withdrawal

Should we implement package bidding for Auction No. 31, we propose to
retain the bid removal procedures that we previously established.[^29]
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. This is not the same as withdrawing a high bid,
which, in our simultaneous multiple round auction system, can occur in
rounds subsequent to the round in which the high bid was placed. A
bidder removing a bid placed in the same round is not subject to
withdrawal payments.[^30] Once a round closes, a bidder may no longer
remove a bid.

We propose to modify the bid withdrawal rules to not allow bidders to
withdraw provisional winning bids from previous rounds if we use package
bidding for Auction No. 31. Additionally, the previously announced
special 30 MHz nationwide bid withdrawal procedure would no longer
apply.[^31] Thus, bidders will be obligated for all bids they submit. If
a bid is declared the winner and the bidder does not pay the amount due,
it is liable for a default payment as set forth in the Commission's
Rules.[^32] With the implementation of package bidding, bidders should
not face exposure risks as they might in a simultaneous multiple round
auction design. Bid withdrawal was designed to allow bidders to back out
of failed aggregations --- to avoid winning some licenses that are worth
little to them without the others they need to implement their business
plan. Therefore, to the extent that bids are allowed on all packages of
licenses with significant complementarities, the use of withdrawals to
mitigate such risk is no longer necessary. While there is no offsetting
benefit, there is still the potential harm from allowing withdrawals.
Withdrawals may be used strategically to provide incorrect price signals
during the auction and lead other bidders to place inefficient bids.
Also, when withdrawals are permitted, one can not ensure that the
auction will proceed at an acceptable pace. Moreover, the harm
associated with withdrawals is likely to be more severe in auctions with
package bidding since a single withdrawal can affect the entire
provisional winning set. We seek comment on this proposal.

## Stopping Rule

Under a package bidding design, we propose to modify the stopping rule
we previously adopted for Auction No. 31. Instead of a one-round
simultaneous stopping rule with the use of proactive waivers, we now
propose to employ a two-round simultaneous stopping rule 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."[^33] A two-round simultaneous stopping rule means that
all licenses remain open until two consecutive rounds have occurred in
which no new acceptable bids are received. After the second consecutive
such round, bidding closes simultaneously on all licenses. Thus, unless
circumstances dictate otherwise, bidding would remain open on all
licenses until bidding stops on every license. We seek comment on this
proposal.

The Bureau also seeks comment on a modified version of the two-round
simultaneous stopping rule for use if we implement package bidding. The
modified two-round simultaneous stopping rule would close the auction
for all licenses after the second consecutive round in which no bidder
submits a new acceptable bid on any license on which it is not the
provisional winning bidder. Thus, absent any other bidding activity, a
bidder placing a new bid on a license for which it is the provisional
winning bidder would not keep the auction open under this modified rule.

As before, we propose that the Bureau retain the discretion to keep an
auction open even if no new acceptable bids are submitted. The activity
rule will apply as usual, and a bidder with insufficient activity will
either lose bidding eligibility or use a remaining activity rule waiver.
We also propose that the Bureau reserve the right to declare that the
auction will end after a specified number of additional rounds ("special
stopping rule"). The Bureau proposes to exercise this option only in
certain circumstances, such as, for example, where the auction is
proceeding very slowly, there is minimal overall bidding activity, or 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, 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. We seek comment on
these proposals.

## Reserve Price or Minimum Opening Bid

We propose no change in the minimum opening bids from those we
previously adopted for the individual licenses.[^34] For a package, we
propose to calculate the minimum opening bid by adding together the
minimum opening bids of the individual licenses that make up the
package. We list the proposed minimum opening bids for all licenses in
Attachment A. We seek comment on this proposal.

The Balanced Budget Act 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 the Commission has accepted mutually exclusive
applications for those licenses), unless the Commission determines that
a reserve price or minimum bid is not in the public interest.[^35]
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.[^36]

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. It is also possible for the minimum opening bid and the
reserve price to be the same amount.

In light of the Balanced Budget Act, the Bureau decided to establish
minimum opening bids for Auction No. 31. The Bureau believes a minimum
opening bid, which has been utilized in other auctions, is an effective
bidding tool.[^37] A minimum opening bid, rather than a reserve price,
will help to regulate the pace of the auction and provides flexibility.

## Round Structure

We propose no changes to the round structure and procedures from those
we have already adopted for Auction No. 31.[^38] The Commission would
use an automated auction system to conduct the package bidding auction
format for Auction No. 31. The initial bidding schedule will be
announced in a public notice to be released at least one week before the
start of the auction, and will be included in the registration mailings.
The package bidding format will consist of sequential bidding rounds,
each followed by the release of round results. Multiple bidding rounds
may be conducted in a single day. Details regarding the location and
format of round results will be included in the same public notice.

The Bureau has discretion to change the bidding schedule in order to
foster an auction pace that reasonably balances speed with the bidders'
need to study round results and adjust their bidding strategies. The
Bureau may increase or decrease the amount of time for the bidding
rounds and review periods, or the number of rounds per day, depending
upon the bidding activity level and other factors.

## Information Relating to Auction Delay, Suspension or Cancellation

We propose no change to the procedures regarding auction delay,
suspension, or cancellation from those we have already adopted for
Auction No. 31. 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.[^39] 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. We emphasize 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.

## Default

Under the Commission's Rules, if a bidder defaults, we may auction a new
license for the spectrum.[^40] The defaulting bidder is also liable for
a payment.[^41] Applying these rules to this auction, if a bidder
defaults on a package bid, we would auction all of the licenses making
up the package on which the party has defaulted. We would do this even
if, under the combinatorial auction rules, a different set of packages
would have won had the defaulting bidder not bid. For example, if the
winning set of bids contains a 20 MHz nationwide package and a 10 MHz
nationwide package, and the 20 MHz winner then defaults, we would
auction only the six licenses making up the nationwide 20 MHz package.
The 10 MHz package would be unaffected. We would take this approach even
if, had the 20 MHz winner not submitted its winning bid, the winning set
of licenses would not have been a nationwide 20 MHz package and a
nationwide 10 MHz package but rather the six 30 MHz regional packages.
We seek comment on this proposal.

To calculate the payment due upon default under package bidding, we seek
comment on modifications to the default rules as follows. For defaulted
package bids, payments will be calculated on a bid-by-bid basis, rather
than on a license-by-license basis. The base payment due will be equal
to the difference between the amount bid for the package and the amount
of the subsequent winning bid for the same package or the aggregate of
the subsequent winning bids for the licenses that make up the package.
As is true for individual licenses, if a bidder defaults on two or more
packages, the default payment due for each defaulted package will be
calculated separately and will not be offset against one another. In
other words, if one package is subsequently auctioned for more than the
original package bid amount and the other package subsequently is
auctioned for less, the excess bid price from the first package can not
be used to reduce the amount owed on the second package. The additional
payment will remain equal to three percent of the subsequent winning
bid(s) or the defaulting bidder's bid, whichever is less. We seek
comment on this proposed change to the Commission's rules.

Two examples will illustrate how this rule would work.

*Example 1: A bidder wins the 10 MHz nationwide package with a bid of
\$500 million and defaults. The Commission offers the six licenses that
make up the 10 MHz package at a new auction, where they are won with
bids of \$70 million, \$70 million, \$80 million, \$80 million, \$90
million and \$90 million. The total amount received in the second
auction is \$480 million. The defaulting bidder is responsible for a
total of \$34.4 million consisting of \$20 million (the difference
between its original bid and the total of the subsequent winning bids)
plus \$14.4 million (3% of the subsequent winning bids).*

*Example 2: A bidder wins two regional packages with bids of \$250
million each and defaults. The Commission offers the four licenses that
make up the two regional packages at a new auction, where they are again
won as packages at bids of \$200 million and \$300 million,
respectively. The defaulting bidder is responsible for separate default
payments for each package. For the first package, the payment equals a
total of \$56 million consisting of \$50 million (the original \$250
million bid less the subsequent winning bid of \$200 million) plus \$6
million (3% of the subsequent winning bid). For the second package, the
subsequent winning bid is higher than the defaulting bidder's original
bid and therefore there is no shortfall; the default payment equals only
\$7.5 million (3% of the original bid). In total, the defaulting bidder
owes a payment equal to \$63.5 million (\$56 million for the first
package plus \$7.5 million for the second package).*

# additional auction design considerations

## "Or" Bids

We propose the use of "or" bids that would allow bidders to specify that
they wish to win one bid or the other, but not both, if we implement
package bidding. Such bids could provide a bidder greater flexibility to
aggressively bid on licenses that it considers substitutes. For example,
suppose a bidder wants a license for one region and only one region.
Without "or" bids a bidder with a retained but non-provisional winning
bid on a license might be reluctant to start bidding on another license
that it considers a good substitute because it could end up winning
both. Allowing "or" bids would overcome this problem.

For computational simplicity and transparency, we propose (1) to allow
only pairs of bids to be linked by the "or" function or operator and (2)
not to allow links between national and regional packages. For example,
we would allow bidders to use the "or" function between the 10 MHz
nationwide package and the 20 MHz nationwide package, but not between
the 10 MHz nationwide package and a 30 MHz region. We would also allow
bidders to use the "or" function to link to their retained bids as long
as the retained bids are not part of the provisional winning set.

In order to implement "or" bids, we would need to modify the method by
which we determine retained bids. Rather than using the method described
in "II. B. Definitions: Winning and Retained Bids," we would determine
retained bids as follows:

-   Retain a global package bid if it is the provisional winner. Do not
    retain attached "or" bids.

-   Retain a national package bid if it would be part of the provisional
    winning set including national packages and individual license bids,
    but excluding global and regional packages. Do not retain attached
    "or" bids.

-   Retain a regional package bid if it would be part of the provisional
    winning set including regional packages and individual license bids,
    but excluding global and national packages. Do not retain attached
    "or" bids.

-   Retain individual license bids if it would be part of the
    provisional winning set including individual license bids, but
    excluding global, national and regional package bids. Do not retain
    attached "or" bids.[^42]

We seek comment on this proposal, including whether the number of "or"
bids per bidder be limited.

[]{.mark}

## Bid Cancellation

Another method that could overcome the reluctance of bidders that have
retained but non-provisional winning bids from bidding on other licenses
that they consider substitutes is to allow bidders to *cancel* their
bids. If we adopted such a procedure, bidders would be permitted to
cancel only non-provisional winning retained bids; provisional winning
bids could not be cancelled. Allowing non-provisional winning retained
bid cancellation could avoid the possible complexity of "or" bids and
provide bidders more flexibility to pursue backup strategies --- and to
explore ways to beat package bids. However, it also could facilitate
adverse strategic bidding, similar to that associated with allowing
withdrawal of provisional winning bids. Allowing cancellation of
retained but non-provisional winning bids could also make it *more*
difficult for bidders for single licenses or smaller packages to beat
package bids. Moreover, if bidders were permitted to freely cancel
non-provisional winning retained bids, the total of retained bids would
not necessarily always increase during the auction and we might be
unable to ensure an acceptable pace of the auction. We therefore
tentatively conclude not to permit bidders to cancel bids*.* We seek
comment, however, on this.

If we permitted cancellation of non-provisional winning bids, we would
also likely adopt the option of retaining all bids. The possibility that
bids may be cancelled means that many, or all, bids are potentially part
of a winning set of bids, and thus it may be appropriate to retain all
bids. Rather than the auction system canceling non-provisional winning
bids automatically, bidders would be required to cancel those bids. If
we were to adopt this approach, it would also be necessary to modify the
activity rules and the procedures for calculating minimum acceptable
bids. The currently proposed activity rule could provide inadequate
incentives to move the auction along if the same activity credit were
given to all bids regardless of their likelihood of winning. We seek
comment on this proposal.

## Bid Composition Restriction

We seek comment on bid composition restrictions. For example, the
Milgrom-McAfee bid composition restriction[^43] would not allow a bidder
that is active in a round on a package, but not on a subset of that
package, to bid subsequently for the subset. Such a restriction could
help mitigate the *threshold problem*.[^44] It would tend to deter
bidders that are interested in multiple license but do not have strong
synergies from strategically making package bids to create a threshold
problem for bidders interested in subsets of the package. Such a rule
would, however, somewhat limit bidders' flexibility. We seek comment on
this device and similar restrictions.

# conclusion

Comments are due on or before June 9, 2000, and reply comments are due
on or before June 16, 2000. Comments should refer to the DA number on
this public notice, DA 00-1075. An original and four copies of all
pleadings must be filed with the Commission's Secretary, Magalie Roman
Salas, Office of the Secretary, Federal Communications Commission, 445
Twelfth Street, S.W., TW-A325, Washington, DC 20054, in accordance with
Section 1.51(c) of the Commission's rules. *See* 47 C.F.R. § 1.51(c). In
addition, one copy of each pleading must be delivered to each of the
following locations: (1) the Commission's duplicating contractor,
International Transcription Service, Inc. (ITS), 1231 20th Street, N.W.,
Washington, DC 20036; (2) Office of Media Relations, Public Reference
Center, 445 Twelfth Street, S.W., Suite CY-A257, Washington, DC 20554;
(3) Rana Shuler, Auctions and Industry Analysis Division, Wireless
Telecommunications Bureau, 445 Twelfth Street, S.W., Suite 4‑A628,
Washington, DC 20554. Comments and reply comments will be available for
public inspection during regular business hours in the FCC Public
Reference Room, Room CY-A257, 445 12th Street S.W., Washington, D.C.
20554.

This proceeding has been designated as a "permit‑but‑disclose"
proceeding in accordance with the Commission\'s *ex parte* rules. 47
C.F.R. §§ 1.1200(a), 1.1206. Persons making oral *ex parte*
presentations are reminded that memoranda summarizing the presentations
must contain summaries of the substance of the presentations and not
merely a listing of the subjects discussed. More than a one or two
sentence description of the views and arguments presented is generally
required. *See* 47 C.F.R. § 1.1206(b). Other rules pertaining to oral
and written *ex parte* presentations in permit-but-disclose proceedings
are set forth in Section 1.1206(b) of the Commission\'s rules, 47 C.F.R.
§ 1.1206(b).

For further information concerning this proceeding, contact Walter D.
Strack, Bureau Chief Economist, Wireless Telecommunications Bureau,
(202) 418-0600; Evan Kwerel, Senior Economist, Office of Plans and
Policy, (202) 418-2030; Craig Bomberger, Auctions Analyst; Howard
Davenport, Auctions Attorney; or Joel Rabinovitz, Auctions Attorney,
Auctions and Industry Analysis Division, Wireless Telecommunications
Bureau, (202) 418-0660.

**ATTACHMENT A**

**Minimum Opening Bids and Upfront Payments for Auction No. 31**

+-----+--------+------+----------+------+-------+--------+---------+
| *   | **Lic  | **L  | **Descr  | **Po | *     | **U    | **      |
| *Ec | ense** | icen | iption** | pula | *Bidd | pfront | Minimum |
| ono |        | se** |          | tion | ing** | Pay    | Opening |
| mic | **Num  |      |          | (199 |       | ment** | Bid**   |
| A   | bers** | *    |          | 0)** | **Un  |        |         |
| rea |        | *Ban |          |      | its** |        |         |
| G   |        | dwid |          |      |       |        |         |
| rou |        | th** |          |      |       |        |         |
| pin |        |      |          |      |       |        |         |
| g** |        | *    |          |      |       |        |         |
|     |        | *(MH |          |      |       |        |         |
|     |        | z)** |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 10   | N        | 41   | 14,00 | \$14,0 | \$40,   |
| 701 | G701-C |      | ortheast | ,567 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,654 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 10   | Mid-     | 42   | 14,00 | \$14,0 | \$40,   |
| 702 | G702-C |      | Atlantic | ,547 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,218 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 10   | S        | 44   | 14,00 | \$14,0 | \$40,   |
| 703 | G703-C |      | outheast | ,516 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,919 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 10   | Great    | 41   | 14,00 | \$14,0 | \$40,   |
| 704 | G704-C |      | Lakes    | ,560 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,906 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 10   | Central  | 40   | 14,00 | \$14,0 | \$40,   |
| 705 | G705-C |      | /        | ,926 | 0,000 | 00,000 | 000,000 |
|     |        |      | Mountain | ,284 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 10   | Pacific  | 41   | 14,00 | \$14,0 | \$40,   |
| 706 | G706-C |      |          | ,427 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,686 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
|     |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
|     |        |      | Subtotal |      | 84,00 | \$84,0 | \$240,  |
|     |        |      |          |      | 0,000 | 00,000 | 000,000 |
+-----+--------+------+----------+------+-------+--------+---------+
|     |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 20   | N        | 41   | 28,00 | \$28,0 | \$80,   |
| 701 | G701-D |      | ortheast | ,567 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,654 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 20   | Mid-     | 42   | 28,00 | \$28,0 | \$80,   |
| 702 | G702-D |      | Atlantic | ,547 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,218 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 20   | S        | 44   | 28,00 | \$28,0 | \$80,   |
| 703 | G703-D |      | outheast | ,516 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,919 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 20   | Great    | 41   | 28,00 | \$28,0 | \$80,   |
| 704 | G704-D |      | Lakes    | ,560 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,906 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 20   | Central  | 40   | 28,00 | \$28,0 | \$80,   |
| 705 | G705-D |      | /        | ,926 | 0,000 | 00,000 | 000,000 |
|     |        |      | Mountain | ,284 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| EAG | WXEA   | 20   | Pacific  | 41   | 28,00 | \$28,0 | \$80,   |
| 706 | G706-D |      |          | ,427 | 0,000 | 00,000 | 000,000 |
|     |        |      |          | ,686 |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
|     |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
|     |        |      | Subtotal |      | 1     | \      | \$480,  |
|     |        |      |          |      | 68,00 | $168,0 | 000,000 |
|     |        |      |          |      | 0,000 | 00,000 |         |
+-----+--------+------+----------+------+-------+--------+---------+
|     |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
|     |        |      | Total    |      | 2     | \      | \$720,  |
|     |        |      |          |      | 52,00 | $252,0 | 000,000 |
|     |        |      |          |      | 0,000 | 00,000 |         |
+-----+--------+------+----------+------+-------+--------+---------+
| *   |        |      |          |      |       |        |         |
| *Pa |        |      |          |      |       |        |         |
| cka |        |      |          |      |       |        |         |
| ges |        |      |          |      |       |        |         |
| :** |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| Glo |        |      |          |      | 2     | \      | \$720,  |
| bal |        |      |          |      | 52,00 | $252,0 | 000,000 |
| p   |        |      |          |      | 0,000 | 00,000 |         |
| ack |        |      |          |      |       |        |         |
| age |        |      |          |      |       |        |         |
| of  |        |      |          |      |       |        |         |
| all |        |      |          |      |       |        |         |
| twe |        |      |          |      |       |        |         |
| lve |        |      |          |      |       |        |         |
| li  |        |      |          |      |       |        |         |
| cen |        |      |          |      |       |        |         |
| ses |        |      |          |      |       |        |         |
| (30 |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| na  |        |      |          |      |       |        |         |
| tio |        |      |          |      |       |        |         |
| nwi |        |      |          |      |       |        |         |
| de) |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| Na  |        |      |          |      | 1     | \      | \$480,  |
| tio |        |      |          |      | 68,00 | $168,0 | 000,000 |
| nal |        |      |          |      | 0,000 | 00,000 |         |
| p   |        |      |          |      |       |        |         |
| ack |        |      |          |      |       |        |         |
| age |        |      |          |      |       |        |         |
| of  |        |      |          |      |       |        |         |
| six |        |      |          |      |       |        |         |
| 20  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| li  |        |      |          |      |       |        |         |
| cen |        |      |          |      |       |        |         |
| ses |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| Na  |        |      |          |      | 84,00 | \$84,0 | \$240,  |
| tio |        |      |          |      | 0,000 | 00,000 | 000,000 |
| nal |        |      |          |      |       |        |         |
| p   |        |      |          |      |       |        |         |
| ack |        |      |          |      |       |        |         |
| age |        |      |          |      |       |        |         |
| of  |        |      |          |      |       |        |         |
| six |        |      |          |      |       |        |         |
| 10  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| li  |        |      |          |      |       |        |         |
| cen |        |      |          |      |       |        |         |
| ses |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| Re  |        |      |          |      | 42,00 | \$42,0 | \$120,  |
| gio |        |      |          |      | 0,000 | 00,000 | 000,000 |
| nal |        |      |          |      |       |        |         |
| p   |        |      |          |      |       |        |         |
| ack |        |      |          |      |       |        |         |
| age |        |      |          |      |       |        |         |
| of  |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 20  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| and |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 10  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| l   |        |      |          |      |       |        |         |
| ice |        |      |          |      |       |        |         |
| nse |        |      |          |      |       |        |         |
| in  |        |      |          |      |       |        |         |
| EAG |        |      |          |      |       |        |         |
| 701 |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| Re  |        |      |          |      | 42,00 | \$42,0 | \$120,  |
| gio |        |      |          |      | 0,000 | 00,000 | 000,000 |
| nal |        |      |          |      |       |        |         |
| p   |        |      |          |      |       |        |         |
| ack |        |      |          |      |       |        |         |
| age |        |      |          |      |       |        |         |
| of  |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 20  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| and |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 10  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| l   |        |      |          |      |       |        |         |
| ice |        |      |          |      |       |        |         |
| nse |        |      |          |      |       |        |         |
| in  |        |      |          |      |       |        |         |
| EAG |        |      |          |      |       |        |         |
| 702 |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| Re  |        |      |          |      | 42,00 | \$42,0 | \$120,  |
| gio |        |      |          |      | 0,000 | 00,000 | 000,000 |
| nal |        |      |          |      |       |        |         |
| p   |        |      |          |      |       |        |         |
| ack |        |      |          |      |       |        |         |
| age |        |      |          |      |       |        |         |
| of  |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 20  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| and |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 10  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| l   |        |      |          |      |       |        |         |
| ice |        |      |          |      |       |        |         |
| nse |        |      |          |      |       |        |         |
| in  |        |      |          |      |       |        |         |
| EAG |        |      |          |      |       |        |         |
| 703 |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| Re  |        |      |          |      | 42,00 | \$42,0 | \$120,  |
| gio |        |      |          |      | 0,000 | 00,000 | 000,000 |
| nal |        |      |          |      |       |        |         |
| p   |        |      |          |      |       |        |         |
| ack |        |      |          |      |       |        |         |
| age |        |      |          |      |       |        |         |
| of  |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 20  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| and |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 10  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| l   |        |      |          |      |       |        |         |
| ice |        |      |          |      |       |        |         |
| nse |        |      |          |      |       |        |         |
| in  |        |      |          |      |       |        |         |
| EAG |        |      |          |      |       |        |         |
| 704 |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| Re  |        |      |          |      | 42,00 | \$42,0 | \$120,  |
| gio |        |      |          |      | 0,000 | 00,000 | 000,000 |
| nal |        |      |          |      |       |        |         |
| p   |        |      |          |      |       |        |         |
| ack |        |      |          |      |       |        |         |
| age |        |      |          |      |       |        |         |
| of  |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 20  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| and |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 10  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| l   |        |      |          |      |       |        |         |
| ice |        |      |          |      |       |        |         |
| nse |        |      |          |      |       |        |         |
| in  |        |      |          |      |       |        |         |
| EAG |        |      |          |      |       |        |         |
| 705 |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+
| Re  |        |      |          |      | 42,00 | \$42,0 | \$120,  |
| gio |        |      |          |      | 0,000 | 00,000 | 000,000 |
| nal |        |      |          |      |       |        |         |
| p   |        |      |          |      |       |        |         |
| ack |        |      |          |      |       |        |         |
| age |        |      |          |      |       |        |         |
| of  |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 20  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| and |        |      |          |      |       |        |         |
| one |        |      |          |      |       |        |         |
| 10  |        |      |          |      |       |        |         |
| MHz |        |      |          |      |       |        |         |
| l   |        |      |          |      |       |        |         |
| ice |        |      |          |      |       |        |         |
| nse |        |      |          |      |       |        |         |
| in  |        |      |          |      |       |        |         |
| EAG |        |      |          |      |       |        |         |
| 706 |        |      |          |      |       |        |         |
+-----+--------+------+----------+------+-------+--------+---------+

[^1]: Service Rules for the 746-764 and 776-794 MHz Bands, and Revisions
    to Part 27 of the Commission's Rules, WT Docket No. 99-168, *First
    Report and Order*, FCC 00-5 (rel. Jan. 7, 2000) at ¶ 124, 15 FCC Rcd
    476, 526-27 (2000) ("*700 MHz First Report & Order*").

[^2]: *See* Auction of Licenses for the 747-762 and 777-792 MHz Bands
    Postponed Until September 6, 2000, *Public Notice*, DA 00-942, (rel.
    May 2, 2000).

[^3]: The progress the Bureau has made in designing and testing a
    combinatorial bidding system has been made possible only by the
    extraordinary work done by a number of people. The procedures we are
    proposing are based largely on a paper presented by Stanford
    University Professor Paul R. Milgrom at the Conference on
    Combinatorial Bidding jointly sponsored by the Federal
    Communications Commission, the Stanford Institute for Economic
    Policy Research and the National Science Foundation, that took place
    on May 5-7, 2000 at the Aspen Institute's Wye River Conference
    Center. Paul R. Milgrom, *FCC-SIEPR-NSF, Wye Woods Conference:
    Lessons plus a Simple Proposal* (May 2000). This paper builds on
    ideas from many of the people who attended the conference. Some of
    the proposals we are considering are also importantly based on the
    reports by Professor Charles R. Plott of the California Institute of
    Technology, Charles River Associates Incorporated, Market Design,
    Inc., and Computerized Market Systems, Inc. that were produced
    pursuant to contract with the FCC, and the Cybernomics, Inc. reports
    by Jeffrey Banks, David Porter, Stephen Rassenti and Vernon Smith
    that were also written pursuant to contract with the FCC. In
    addition, Professor John Ledyard of the California Institute of
    Technology has rendered invaluable assistance. These papers and
    reports, as well as the other papers presented at the conference,
    can be found at the Commission's website on the conference,
    http://combin.fcc.gov.

[^4]: *See* 47 U.S.C. 309(j)(3).

[^5]: *See, e.g.*, Service Rules for the 746-764 and 776-794 MHz Bands,
    and Revisions to Part 27 of the Commission's Rules, WT Docket No.
    99-168, Petition for Expedited Reconsideration of US West Wireless,
    LLC (Feb. 3, 2000) at 4.

[^6]: Furthermore, the Commission's rules generally provide authority to
    use a combinatorial auction design. *See* 47 C.F.R. §1.2103.

[^7]: *See* 47 C.F.R. §§ 0.131, 0.331.

[^8]: *See* Auction of Licenses in the 747-762 and 777-792 MHz Bands,
    Auction Notice and Filing Requirements for 12 Licenses in the 700
    MHz Bands, Auction Scheduled for May 10, 2000, Minimum Opening Bids
    and Other Procedural Issues, *Public Notice*, 15 FCC Rcd 2921 (rel.
    Feb. 18, 2000), 65 Fed. Reg. 12251 (Mar. 8, 2000) ("*Auction No. 31
    Procedures Public Notice*").

[^9]: *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at 2952-56.

[^10]: *Auction No. 31 Procedures Public Notice*.

[^11]: 47 C.F.R. § 1.2105(c).

[^12]: *See* 47 C.F.R. § 1.2104. We note that the Commission sought
    comment on whether to apply or modify the Part 1, Subpart Q general
    competitive bidding procedures for the auction of licenses in these
    bands. *See* Service Rules for the 746-764 and 776-794 MHz Bands,
    and Revisions to Part 27 of the Commission's Rules, WT Docket No.
    99-168, *Notice of Proposed Rulemaking* at ¶ 83, 14 FCC Rcd 11006,
    11047 (1999).

[^13]: *Auction No. 31 Procedures Public Notice*.

[^14]: To clarify our references, when we refer to "simultaneous
    multiple round" we mean without package bidding; when we refer to
    "package bidding" we mean simultaneous multiple round with package
    bidding.

[^15]: If the auction closes with any license(s) unsold, those
    license(s) remain held by the FCC.

[^16]: Suppose the bid for license A is \$10, the bid for license B bid
    is \$20, and the bid for package AB is \$35. The package bid of \$35
    is greater than the sum of the bids on A and B (\$10+\$20=\$30), so
    the package bid is the provisional winning bid. However, the bids of
    \$10 and \$20 for licenses A and B are retained if they are the
    highest bids received on those licenses because both bids are
    *potential* winners. For example, even if the \$10 bid for license A
    is not increased, if in the next round a bid of \$30 is submitted
    for license B, then the sum of the bids for A and B (\$10+\$30=\$40)
    is greater than the package bid of \$35, and the retained bid of
    \$10 for license A is now a provisional winning bid.

[^17]: If we adopt the proposal for "or" bids discussed below, this
    definition might no longer be equivalent since in determining which
    bids to retain it does not consider "or" links to licenses not
    covered by the bid.

[^18]: *See* Amendment of Part 1 of the Commission's Rules---Competitive
    Bidding Proceeding, WT Docket No. 97-82, *Order, Memorandum Opinion
    and Order and Notice of Proposed Rulemaking*, 12 FCC Rcd at 5697-98,
    ¶ 16 (1997); *see also 700 MHz First Report & Order,* ¶ 149.

[^19]: *See* Implementation of Section 309(j) of the Communications
    Act - Competitive Bidding, PP Docket No. 93-253, *Second Report and
    Order*, 9 FCC Rcd 2348, 2378-79, ¶¶ 171-176 (1994).

[^20]: *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at 2942-43.

[^21]: If the proposal for "or" bids, as discussed below in "III. A.
    "Or" Bids," is adopted, it may not be sufficient to consider only
    bids on that individual license in determining the minimum amount to
    have become a retained bid in the previous round.

[^22]: DeMartini, Christine, Anthony M. Kwasnica, John O. Ledyard, and
    David Porter, "A New and Improved Design for Multi-Object Iterative
    Auctions," Social Science Working Paper No. 1054, November 1998,
    revised March 1999. Available at
    http://masada.hss.caltech.edu/\~jledyard/Ledyard.html.

[^23]: For example, if the provisional winning set consists of bids
    totaling \$100, then each license in the auction would be assigned a
    price so that the prices of all the licenses add up to \$100. If
    these prices are assigned in a manner consistent with the relative
    values of the minimum opening bids, each of the six 10 MHz licenses
    would be assigned one-eighteenth of the total, or \$5.56, and each
    of the six 20 MHz licenses would be assigned one-ninth of the total,
    or \$11.11. Using a five percent increment, the minimum acceptable
    bid in the next round on an individual 10 MHz or 20 MHz license
    would be \$5.84 or \$11.67, respectively.

[^24]: An example of an overlapping bid would be a global package bid
    and any other bid. "Or" bids are discussed below in "III. A. "Or"
    Bids."

[^25]: But see the discussion of activity rule waivers in "F. Activity
    Rule Waivers and Reducing Eligibility."

[^26]: *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at 2943-44.

[^27]: *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at 2943-44.

[^28]: *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at 2943.

[^29]: *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at 4951-52.

[^30]: *See* 47 CFR § 1.2104(g).

[^31]: *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at 2952-56.

[^32]: *See* 47 C.F.R. § 1.2104(g).

[^33]: *See* 47 C.F.R. § 1.2104(e).

[^34]: *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at 2947-49.

[^35]: *See* Balanced Budget Act of 1997, Pub. L. 105-33, 111 Stat. 251,
    Sec. 3002(a) (1997). The Commission's authority to establish a
    reserve price or minimum opening bid is set forth in 47 C.F.R. §
    1.2104(c) and (d).

[^36]: *See* Amendment of Part 1 of the Commission's Rules\--Competitive
    Bidding Procedures, WT Docket No. 97-82, *Third Report and Order and
    Second Further Notice of Proposed Rule Making*, 13 FCC Rcd at
    454-455, ¶ 141 (1998) ("Part 1 Third Report and Order").

[^37]: *S*e*e*, *e.g.*, Auction of 800 MHz SMR Upper 10 MHz Band,
    Minimum Opening Bids or Reserve Prices, DA 97-2147, *Order*, 12 FCC
    Rcd 16354 (1997); Auction of the Phase II 220 MHz Service Licenses,
    Auction Notice and Filing Requirements for 908 Licenses Consisting
    of Economic Area (EA), Economic Area Grouping (EAG), and Nationwide
    Licenses, Scheduled for September 15, 1998, Minimum Opening Bids and
    Other Procedural Issues, *Public Notice*, 13 FCC Rcd 16445 (1998).

[^38]: *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at 2947.

[^39]: *See* 47 C.F.R. § 1.2104(i).

[^40]: *See* 47 C.F.R. § 1.2109(b), (c). Although our presumption is in
    favor of holding a new auction when a bidder defaults, we also have
    the option, in our discretion, to offer the license(s) to the other
    highest bidders (in descending order) at their final bids.

[^41]: *See* 47 C.F.R. § 1.2014(g)(2).

[^42]: Following this four-step approach may result in retaining both
    parts of an "or" bid. Such bids would remain linked with an "or." If
    we wished to avoid retaining any "or" bids the approach proposed by
    Professor Paul Milgrom could be used. He proposed determining
    retained bids in the following sequence: (1) Determine provisional
    winners. Retain these and do not retain attached "or" bids. (2)
    Determine national and regional winners. Retain these and do not
    retain attached "or" bids. (3) Determine individual license winners.
    Retain these and do not retain attached \"or\" bids. *See* Paul R.
    Milgrom, *FCC-SIEPR-NSF, Wye Woods Conference: Lessons plus a Simple
    Proposal* (May 2000).

[^43]: We note that Milgrom and McAfee have a pending patent application
    for this device.

[^44]: *See* *supra* page 2.