**PUBLIC NOTICE**

**FEDERAL COMMUNICATIONS COMMISSION**

**445 12th STREET, SW**

**WASHINGTON, DC 20554**

####### 

####### DA 00-2038

September 6, 2000

C AND F BLOCK BROADBAND PCS SPECTRUM AUCTION

SCHEDULED FOR NOVEMBER 29, 2000,

RESCHEDULED FOR DECEMBER 12, 2000

**REVISED LIST OF AVAILABLE LICENSES**

**COMMENT SOUGHT ON RESERVE PRICES OR MINIMUM OPENING BIDS AND OTHER
PROCEDURAL ISSUES**

**Report No. AUC‑00-35-C (Auction No. 35**)

# I. General Information

## Introduction

By this Public Notice, the Wireless Telecommunications Bureau ("Bureau")
reschedules the next auction (Auction No. 35) of C and F block broadband
Personal Communications Service ("PCS") licenses for December 12, 2000,
provides a revised list of licenses available in Auction No. 35, and
seeks comment on upfront payments, reserve prices or minimum opening
bids, and other auction procedural issues for Auction No. 35. The
revised list of licenses available for auction is included in Attachment
A.

The Communications Act of 1934 as amended by 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 . . . ."[^1] Consistent with the provisions
of the Balanced Budget Act, and to ensure that potential bidders have
adequate time to familiarize themselves with the specific rules that
will govern the day-to-day conduct of an auction, the Commission
directed the Bureau, under its existing delegated authority,[^2] to seek
comment on a variety of auction-specific procedures prior to the start
of each auction.[^3]

## Background of Proceeding

In January 2000, the Bureau announced that the next C and F block
auction was scheduled to begin on July 26, 2000, and provided a
preliminary list of licenses for auction, including 30 MHz and 15 MHz C
block licenses, as well as F block licenses (all 10 MHz each), for
operation on frequencies for which previous licenses had automatically
cancelled or had been returned to the Commission.[^4] On March 3, 2000,
the Bureau released a public notice seeking comment on reserve prices,
minimum opening bids, and other auction procedural issues for the next C
and F block auction, Auction No. 35.[^5]

After release of the *January 2000 PN*, a number of parties filed
petitions asking that the Commission waive, modify, or eliminate the
eligibility requirements for participation in the auction and make other
changes to the C and F block rules.[^6] In past auctions, the
Commission's rules limited eligibility for all C and F block licenses to
"entrepreneurs."[^7] The Commission sought comment on the issues raised
by these petitions in a Further Notice of Proposed Rulemaking ("*Further
Notice*"), released on June 7, 2000.[^8] Also on June 7, 2000, the
Bureau announced that Auction No. 35 would begin on November 29, 2000,
in order to allow resolution of the issues in the *Further Notice* and
implementation of any rule changes prior to the auction.[^9]

On August 14, 2000, the Commission released the *Part 1 Fifth Report and
Order*,[^10] in which the Commission, *inter alia*, adopted a
"controlling interest" standard for attributing to auction applicants
the total assets and/or gross revenues of their investors and affiliates
in determining entrepreneur and small business eligibility for future C
and F block auctions.[^11] The Commission also observed that the rule
modifications adopted in the various Part 1 orders would result in
discrepancies and/or redundancies between certain of the new Part 1
rules and existing service-specific rules, and the Commission delegated
to the Bureau the authority to make conforming edits to the Code of
Federal Regulations consistent with the rules adopted in the Part 1
proceeding.[^12] The Part 1 rules that superseded inconsistent
service-specific rules will control in Auction No. 35.[^13] Accordingly,
the "controlling interest" standard will be in effect for Auction No.
35, even if conforming edits are not made prior to the auction.

On August 29, 2000, the Commission released the *C/F Block Sixth Report
and Order*, in which it resolved the issues raised in the *Further
Notice*. The Commission decided that it would reconfigure each 30 MHz C
block license available in Auction No. 35 and other future broadband PCS
auctions into three 10 MHz C block licenses.[^14] The Commission also
divided Basic Trading Areas ("BTAs") into two tiers according to the
population size, with Tier 1 comprising markets with population at or
above 2.5 million, based on 1990 census figures, and Tier 2 comprising
the remaining markets. The Commission decided that some licenses would
be open to all bidders in "open" bidding, while other licenses would be
available only to entrepreneurs in "closed" bidding. The Commission
established open bidding for the following licenses: two of the three
reconfigured 10 MHz C block licenses in Tier 1; one of the three
reconfigured 10 MHz C block licenses in Tier 2; all 15 MHz C block
licenses in Tier 1; all F block licenses; and all C and F block licenses
available but unsold in Auction No. 22 or any subsequent auction. The
Commission established small and very small business bidding credits of
15 percent and 25 percent, respectively, for licenses won in open
bidding and eliminated bidding credits for licenses won in closed
bidding. Additionally, the Commission removed from its rules the Section
24.710 license cap, which had prohibited an applicant from winning more
than 98 of the licenses available in the C and F blocks. Finally, the
Commission decided that the Commercial Mobile Radio Services spectrum
cap would continue to apply to C and F block licenses, including those
won in Auction No. 35.

The following table contains the Block/Eligibility Status/Frequency
Cross Reference List for Auction No. 35:

> **C and F Block Allocations**

+---------+----------+----------+---------+--------------------------+
| Channel | Eli      |          | Ba      | Frequencies              |
|         | gibility |          | ndwidth |                          |
| Block   | Status   |          | (MHz)   |                          |
+---------+----------+----------+---------+--------------------------+
|         | Tier 1   | Tier 2   |         |                          |
+---------+----------+----------+---------+--------------------------+
| C1      | \[Open\] | Closed   | 15      | 1902.5-1910, 1982.5-1990 |
+---------+----------+----------+---------+--------------------------+
| C2      | \[Open\] | Closed\* | 15      | 1985-1902.5, 1975-1982.5 |
+---------+----------+----------+---------+--------------------------+
| C3      | Closed\* | Closed\* | 10      | 1895-1900, 1975-1980     |
+---------+----------+----------+---------+--------------------------+
| C4      | Open     | Closed\* | 10      | 1900-1905, 1980-1985     |
+---------+----------+----------+---------+--------------------------+
| C5      | Open     | Open     | 10      | 1905-1910, 1985-1990     |
+---------+----------+----------+---------+--------------------------+
| F       | Open     | Open     | 10      | 1890-1895, 1970-1975     |
+---------+----------+----------+---------+--------------------------+

> Notes: Brackets indicate no available licenses of the particular
> tier/channel block combination in Auction No. 35.
>
> \* The entrepreneur eligibility restriction does not apply to licenses
> that were available but unsold in Auction No. 22. Tier 2 C2 licenses
> are classified as closed, but all of the C2 licenses available in
> Auction No. 35 were available but unsold in Auction No. 22 and are
> therefore open to all bidders. Certain C3, C4, and C5 licenses were
> also available but unsold in Auction No. 22 (as 30 MHz licenses) and
> are therefore open to all bidders.

A complete list of licenses available for Auction No. 35 is included as
Attachment A. The attachment specifies the eligibility status of each
license.

In addition to the license reconfiguration, the revised license
inventory reflects additional licenses, not included in the *Auction No.
35 Public Notice*, for operation on frequencies as to which previous
licenses have cancelled or otherwise have been returned to the
Commission, as well as licenses for operation on frequencies that had
not previously been licensed.

## Change of Auction Date

In order to provide additional time between the effective date of the
new rules and the auction application deadline, Auction No. 35 has been
rescheduled for December 12, 2000. Because the *C/F Block Sixth Report
and Order* reconfigured the licenses available for auction and changed
the eligibility rules for applicants, we seek comment on minimum opening
bids, reserve prices, and other procedural issues for Auction No. 35.

The critical dates and deadlines for Auction No. 35 are as follows:

Seminar Date October 20, 2000

Short-Form Application (FCC Form 175) Filing Deadline November 6, 2000

Upfront Payments Deadline November 27, 2000

Mock Auction December 8, 2000

Auction Start Date December 12, 2000

## Due Diligence Information

**[Bidder Alerts]{.underline}: The FCC makes no representations or
warranties about the use of this spectrum for particular services.
Applicants should be aware that an FCC auction represents an opportunity
to become an FCC licensee in this service, subject to certain conditions
and regulations. An FCC auction does not constitute an endorsement by
the FCC of any particular services, technologies or products, nor does
an FCC license constitute a guarantee of business success. Applicants
and interested parties should perform their own due diligence before
proceeding, as they would with any new business venture.**

As is the case with many business investment opportunities, some
unscrupulous entrepreneurs may attempt to use Auction No. 35 to deceive
and defraud unsuspecting investors. Common warning signals of fraud
include the following:

> • The first contact is a "cold call" from a telemarketer, or is made
> in response to an inquiry prompted by a radio or television
> infomercial.
>
> • The offering materials used to invest in the venture appear to be
> targeted at IRA funds, for example, by including all documents and
> papers needed for the transfer of funds maintained in IRA accounts.
>
> • The amount of investment is less than \$25,000.
>
> • The sales representative makes verbal representations that: (a) the
> Internal Revenue Service ("IRS"), Federal Trade Commission ("FTC"),
> Securities and Exchange Commission ("SEC"), FCC, or other government
> agency has approved the investment; (b) the investment is not subject
> to state or federal securities laws; or (c) the investment will yield
> unrealistically high short-term profits. In addition, the offering
> materials often include copies of actual FCC releases, or quotes from
> FCC personnel, giving the appearance of FCC knowledge or approval of
> the solicitation.

Information about deceptive telemarketing investment schemes is
available from the FTC at (202) 326-2222 and from the SEC at (202)
942-7040. Complaints about specific deceptive telemarketing investment
schemes should be directed to the FTC, the SEC, or the National Fraud
Information Center at (800) 876-7060. Consumers who have concerns about
specific proposals regarding Auction No. 35 may also call the FCC
National Call Center at (888) CALL-FCC or (888) 225-5322.

**[Bidder Responsibility for Due Diligence]{.underline}:** Potential
bidders are reminded that private and common carrier fixed microwave
services ("FMS") operating in the 1850-1990 MHz band (and other bands)
are being relocated to available frequencies in higher bands or to other
media. Bidders should become familiar with the status of FMS operation
and relocation, and applicable Commission rules and orders, in order to
make reasoned, appropriate decisions about their participation in
Auction No. 35 and their bidding strategy.[^15]

Potential bidders and interested parties should be aware that various
proceedings that may relate to the licenses available in Auction No. 35
may be pending or subject to further administrative review before the
Commission, including, for example, waiver requests, petitions for
reconsideration, and applications for review. In addition, certain
judicial proceedings that may relate to the licenses available in
Auction No. 35 are pending or may be subject to further review.
Resolution of these matters could have an effect on the availability of
spectrum included in Auction No. 35 and the auction is subject to such
matters. Some of these matters (whether before the Commission or the
courts) may not be resolved by the time of the auction. The Commission
will continue to act on matters before it, but it makes no
representations as to the resolution of judicial proceedings.
**Potential bidders are solely responsible for identifying associated
risks, and investigating and evaluating the degree to which such matters
may affect their ability to bid on or otherwise acquire licenses in
Auction No. 35.**

Additionally, potential bidders may obtain some information about
licenses available in Auction No. 35 through the Bureau's licensing
databases on the World Wide Web at \<<http://www.fcc.gov/wtb/uls>\>.
Potential bidders should direct questions regarding the search
capabilities to the FCC Technical Support hotline at (202) 414-1250
(voice) or (202) 414-1255 (TTY), or via e-mail at <ulscomm@fcc.gov>. The
hotline is available to assist potential bidders with questions Monday
through Friday, from 8:00 AM to 6:00 PM Eastern Time. In order to
provide better service to the public, *all calls to the hotline are
recorded.* The Commission makes no representations or guarantees
regarding the accuracy or completeness of information in its databases,
nor any third party databases, including, for example, court docketing
systems.

Further, potential bidders are strongly encouraged to physically inspect
any sites located in, or near, the geographic area for which they plan
to bid.

Finally, potential bidders are strongly encouraged to make periodic, and
continuing, inquiries to the Office of the Secretary and other available
sources regarding any proceedings that are, or may be, pending with
respect to the licenses available in Auction No. 35.

## Clarification of Payment Issue Relating to Licenses Subject to Pending Proceedings 

As noted above, potential bidders should be aware that certain of the
licenses included in Auction No. 35 are or may become the subject of
Commission or judicial proceedings initiated by parties claiming to have
continuing interests in the licenses, despite their failure to meet
payment obligations. This Public Notice clarifies that the Commission
will return the payments made by winning bidders of licenses in Auction
No. 35 in the event that such bidders are subsequently required to
surrender licenses won to prior applicants or license holders as a
result of final determinations reached in pending proceedings. [^16] The
Commission, however, will not pay interest on the returned payments as
it lacks legal authority to do so.

Including contested licenses in the auction helps to fulfill the
Commission's statutory mandate to hasten the development and deployment
of new technologies and services and to promote competition for the
benefit of the public.[^17] Returning payments to winning bidders if
licenses won are later determined to be unavailable due to subsequent
resolution of other proceedings furthers these vital public interest
goals by reducing uncertainty in the licensing process and encouraging
auction participants to bid on licenses regardless of whether they are
subject to pending proceedings. Retaining payments under the
circumstances could have a chilling effect on participation in Auction
No. 35 and would therefore undermine our efforts to encourage more
efficient use of the spectrum. We note that winning bidders of licenses
subject to pending proceedings are still required to meet the normal
payment and construction schedules established by the Commission.[^18]

# II. Auction Structure

## Simultaneous Multiple Round Auction Design

The Commission proposes to conduct the competitive bidding for these
licenses by using a single, simultaneous multiple-round auction. As
described further below, this methodology offers every license for bid
at the same time, with successive bidding rounds in which bidders may
place bids. We seek comment on this proposal.

## Upfront Payments and Initial Maximum Eligibility 

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.[^19] As described further
below, the upfront payment is a refundable deposit made by each bidder
to establish eligibility to bid on licenses. The proposed upfront
payment formulae take into account information gained from previous
auctions of broadband PCS C and F block licenses. Also, as required by
the *Part 1 Fifth Report and Order*, the upfront payment amount for
"former defaulters," *i.e.*, applicants that have ever been in default
on any Commission licenses or have ever been delinquent on any non-tax
debt owed to any Federal agency, will be fifty percent more than the
normal amount required to be paid.[^20]

We proposed and sought comment on upfront payments in the *Auction No.
35 Public Notice*. In light of the comments we received in response and
the rules adopted in the *C/F Block Sixth Report and Order*, we now
propose the following formulae for upfront payments:[^21]

**Tier 1**

\(1\) 15 MHz licenses --- 2.5 % of most recent net high bid for C block
licenses in same BTA

\(2\) 10 MHz licenses --- 1.6 % of most recent net high bid for C block
licenses in same BTA

**Tier 2**

\(1\) 15 MHz licenses --- 1.25 % of most recent net high bid for C block
licenses in same BTA

\(2\) 10 MHz licenses --- 1.0 % of most recent net high bid for C block
licenses in same BTA

A complete list of all licenses, including the related population and
upfront payments, is attached hereto as Attachment A. We seek comment on
this proposal.

For Auction No. 35, we further propose that the amount of the upfront
payment submitted by a bidder will determine the initial maximum
eligibility (as measured in bidding units) for each bidder. Upfront
payments will not be attributed to specific licenses, but instead will
be translated into bidding units to define a bidder's initial maximum
eligibility, which cannot be increased during the auction. Thus, in
calculating the upfront payment amount, an applicant must determine the
*maximum* number of bidding units it may wish to bid on (or hold high
bids on) in any single round, and submit an upfront payment covering
that number of bidding units. We seek comment on this proposal.

## Activity Rules

In order to ensure that the auction closes within a reasonable period of
time, an activity rule requires bidders to bid actively on a percentage
of their maximum bidding eligibility during each round of the auction
rather than waiting until the end to participate. A bidder that does not
satisfy the activity rule will either lose bidding eligibility in the
next round or use an activity rule waiver, if any remain.

We propose to divide the auction into three stages: Stage One, Stage
Two, and Stage Three --- each characterized by an increased activity
requirement. The auction will start in Stage One. We propose 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 approximately ten percent or below for three
consecutive rounds of bidding in each stage. However, we further propose
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
percentage of licenses (as measured in bidding units) on which there are
new bids, the number of new bids, and the percentage increase in
revenue. We seek comment on these proposals.

For Auction No. 35, we propose the following activity requirements:

**Stage One:** In each round of Stage One, a bidder desiring to maintain
its current eligibility is required to be active on licenses
encompassing at least 80 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-fourths (5/4).

**Stage Two:** 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 90 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 ten-ninths (10/9).

**Stage Three:** 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-fortyninths (50/49).

We seek comment on these proposals. If commenters believe that these
activity rules should be changed, they should explain their reasoning
and comment on the desirability of an alternative approach. Commenters
are advised to support their claims with analyses and suggested
alternative activity rules.

## Activity Rule Waivers and Reducing Eligibility

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 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 requirements.

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.

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 or withdrawals 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 or withdrawals will not keep the auction open.

We propose that each bidder in Auction No. 35 be provided with five
activity rule waivers 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.

## Information Relating to Auction Delay, Suspension or Cancellation

For Auction No. 35, we propose 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.[^22] 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. We seek comment on this proposal.

# III. Bidding Procedures

## Round Structure

The Commission will use its Automated Auction System to conduct the
electronic simultaneous multiple round auction format for Auction No.
35. 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 auction format will
consist of sequential bidding rounds, each followed by the release of
round results. 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. We seek comment on
this proposal.

## Reserve Price or Minimum Opening Bid

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.[^23]
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.[^24]

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 proposes to establish
minimum opening bids for Auction No. 35. The Bureau believes a minimum
opening bid, which has been utilized in other auctions, is an effective
bidding tool.[^25] A minimum opening bid, rather than a reserve price,
will help to regulate the pace of the auction and provides flexibility.

Because both the C and F spectrum blocks are being auctioned at the same
time, under the same general conditions, the Commission believes that it
is appropriate to use a common baseline to establish the minimum opening
bid formulae for all of the licenses in the auction. The net high bids
from prior C block auctions provide the most comprehensive broadband PCS
baseline. We, therefore, propose to base the minimum opening bids for
each license available in Auction No. 35, including F block licenses, on
the most recent net high bid for the C block license in the same BTA.

We proposed and sought comment on minimum opening bids in the *Auction
No. 35 Public Notice*. In light of the comments received in response and
the rules adopted in the *C/F Block Sixth Report and Order*, we now
propose the following formulae for minimum opening bids:[^26]

**Tier 1**

\(1\) 15 MHz licenses --- 5 % of most recent net high bid for C block
licenses in same BTA

\(2\) 10 MHz licenses --- 3.2 % of most recent net high bid for C block
licenses in same BTA

**Tier 2**

\(1\) 15 MHz licenses --- 2.5 % of most recent net high bid for C block
licenses in same BTA

\(2\) 10 MHz licenses --- 1.6 % of most recent net high bid for C block
licenses in same BTA

The specific minimum opening bid for each license available in Auction
No. 35 is set forth in Attachment A hereto. We believe these minimum
opening bids best meet the objectives of our auction authority in
establishing reasonable minimum opening bids. The Commission believes
these minimum opening bids will speed the course of the auction and
ensure that valuable assets are not sold for nominal prices without
unduly interfering with the efficient assignment of licenses. Minimum
opening bids are reducible at the discretion of the Bureau. This
discretion will allow the Bureau flexibility to adjust the minimum
opening bids if circumstances warrant. We emphasize, however, that such
discretion will be exercised, if at all, sparingly and early in the
auction, *i.e.*, before bidders lose all waivers and begin to lose
substantial eligibility. During the course of the auction, the Bureau
will not entertain any bidder requests to reduce the minimum opening bid
on specific licenses. We seek comment on these proposals.

If commenters believe that these 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 minimum opening bids, we particularly seek 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 C and F block
licenses. 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.

## Minimum Accepted Bids and Bid Increments 

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 Auction No. 35, we propose to use a smoothing
methodology to calculate bid increments, as we have done in several
other auctions. The Bureau retains the discretion to change the minimum
bid increment if it determines that circumstances so dictate. The Bureau
will do so by announcement in the Automated Auction System. We seek
comment on these proposals.

The exponential smoothing formula calculates the bid increment for each
license based on a weighted average of the activity received on each
license in 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 using the exponential smoothing formula.

The calculation of the percentage bid increment for each license in a
given round is made at the end of the previous round. The computation is
based on an activity index, which is calculated as the weighted average
of the activity in that round and the activity index from the prior
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 most recent
bidding round plus one minus the weighting factor times the activity
index from the prior 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 (10%), and the
maximum percentage increment at 0.2 (20%).

######## Equations

A~i~ = (C \* B~i~) + (1-C) \* A~i-1~)

I~i+1~ = smaller of ( (1 + A~i~) \* N) and M

where,

A~i~ = activity index for the current round (round i)

C = activity weight factor

B~i~ = number of bids in the current round (round i)

A~i-1~ = activity index from previous round (round i-1), A~0~ is 0

I~i+1~ = percentage bid increment for the next round (round i+1)

N = minimum percentage increment or bid increment floor

M = maximum percentage increment or bid increment ceiling

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 I~i+1~ from above
times the high bid). This result will be rounded to the nearest thousand
if it is over ten thousand or to the nearest hundred if it is under ten
thousand.[^27]

######## Examples

License 1

C=0.5, N = 0.1, M = 0.2

[Round 1 (2 new bids, high bid = \$1,000,000)]{.underline}

1\. Calculation of percentage increment for round 2 using exponential
smoothing:

A~1~ = (0.5 \* 2) + (0.5 \* 0) = 1

I~2~ = The smaller of ((1 + 1) \* 0.1) = 0.2 or 0.2 (the maximum
percentage increment)

2\. Minimum bid increment for round 2 using the percentage increment
(I~2~ 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)]{.underline}

1\. Calculation of percentage increment for round 3 using exponential
smoothing:

A~2~ = (0.5 \* 3) + (0.5 \* 1) = 2

I~3~ = The smaller of ((1 + 2) \* 0.1) = 0.3 or 0.2 (the maximum
percentage increment)

2\. Minimum bid increment for round 3 using the percentage increment
(I~3~ 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)]{.underline}

1\. Calculation of percentage increment for round 4 using exponential
smoothing:

A~3~ = (0.5 \* 1) + (0.5 \* 2) = 1.5

I~4~ = The smaller of ((1 + 1.5) \* 0.1) = 0.25 or 0.2 (the maximum
percentage increment)

2\. Minimum bid increment for round 4 using the percentage increment
(I~4~ from above)

0.2 \* \$2,400,000 = \$480,000

3\. Minimum acceptable bid for round 4 = \$2,880,000

## Information Regarding Bid Withdrawal and Bid Removal

For Auction No. 35, we propose 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, but will affect a
bidder's activity for the round in which it is removed.

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.[^28] We seek comment on these bid removal and bid
withdrawal procedures.

In the *Part 1 Third Report and Order*, the Commission 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. The Bureau, therefore, has discretion, in managing the
auction, to limit the number of withdrawals to prevent any bidding
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.[^29]

Applying this reasoning, we propose to limit each bidder in Auction No.
35 to withdraw standing high bids 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. We seek comment on this proposal.

## Stopping Rule

For Auction No. 35, the Bureau proposes to employ a 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."[^30] A simultaneous stopping rule
means that all licenses remain open until the first round in which no
new acceptable bids, proactive waivers or withdrawals are received.
After the first 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.

The Bureau seeks comment on a modified version of the simultaneous
stopping rule. The modified stopping rule would close the auction for
all licenses after the first round in which no bidder submits a
proactive waiver, a withdrawal, or a new bid on any license on which it
is not the standing high bidder. Thus, absent any other bidding
activity, a bidder placing a new bid on a license for which it is the
standing high bidder would not keep the auction open under this modified
stopping rule.

The Bureau proposes to 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.

Finally, we propose 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
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, 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. We seek comment on these proposals.

# VI. Conclusion

Comments are due on or before September 18, 2000, and reply comments are
due on or before September 25, 2000. 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, SW, 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, NW,
Washington, DC 20036; (2) Office of Media Relations, Public Reference
Center, 445 Twelfth Street, SW, Suite CY-A257, Washington, DC 20554; (3)
Rana Shuler, Auctions and Industry Analysis Division, Wireless
Telecommunications Bureau, 445 Twelfth Street, SW, 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, SW, Washington, DC 20554.

For further information concerning this proceeding, contact the Auctions
and Industry Analysis Division, Wireless Telecommunications Bureau,
Craig Bomberger, Auctions Analyst, or Audrey Bashkin, Attorney, at (202)
418-0660; or Lisa Stover, Project Manager, at (717) 338-2888.

-- FCC

[^1]: Section 3002(a)(1)(B)(iv), Balanced Budget Act of 1997, Pub. L.
    105-33, 111 Stat. 251 (1997) ("Balanced Budget Act"); 47 U.S.C. §
    309(j)(3)(E).

[^2]: *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 Rule Making*,
    12 FCC Rcd 5686, 5697, ¶ 16 (1997) ("*Part 1 Order*") ("We also
    clarify that pursuant to Section 0.131 of our rules, the Chief,
    Wireless Telecommunications Bureau, has delegated authority to
    implement all of the Commission\'s rules pertaining to auctions
    procedures").

[^3]: *See* Amendment of Part 1 of the Commission\'s Rules ---
    Competitive Bidding Procedures, Allocation of Spectrum Below 5 GHz
    Transferred from Federal Government Use, 4660-4685 MHz, WT Docket
    No. 97-82, ET Docket No. 94-32, *Third Report and Order and Second
    Further Notice of Proposed Rule Making*, 13 FCC Rcd 374, 448, ¶ 124
    (1998) ("*Part 1 Third Report and Order*"). The Commission directed
    the Bureau to seek comment on specific mechanisms related to
    day-to-day auction conduct including, for example, the structure of
    bidding rounds and stages, establishment of minimum opening bids or
    reserve prices, minimum accepted bids, initial maximum eligibility
    for each bidder, activity requirements for each stage of the
    auction, activity rule waivers, criteria for determining reductions
    in eligibility, information regarding bid withdrawal and bid
    removal, stopping rules, and information relating to auction delay,
    suspension or cancellation. *Id.* at ¶ 125.

[^4]: "C and F Block Broadband PCS Spectrum Auction Scheduled for July
    26, 2000," *Public Notice*, 15 FCC Rcd 4702 (2000) ("*January 2000
    PN")*.

[^5]: *See* "C and F Block Broadband PCS Spectrum Auction Scheduled for
    July 26, 2000; Comment Sought on Reserve Prices or Minimum Opening
    Bids and Other Auction Procedural Issues," *Public Notice*, 15 FCC
    Rcd 4702 (2000) ("*Auction No. 35 Public Notice"*).

[^6]: *See e.g.*, "Wireless Telecommunications Bureau Seeks Comment on
    Nextel Communications, Inc.'s Petition Regarding PCS C and F Block
    Spectrum, Extension of Filing Deadline for Comments to SBC
    Communications Inc.'s Request for Waiver,"*Public Notice*, 15 FCC
    Rcd 2104 (2000); "Wireless Telecommunications Bureau Seeks Comment
    on SBC Communications Inc.'s Request for Waiver of the Eligibility
    Requirements for Participation in the Upcoming PCS C and F Block
    Auction," *Public Notice*, 15 FCC Rcd 1953 (2000); "Wireless
    Telecommunications Bureau Sets Comment Schedule for Petitions for
    Reconsideration of the Order on Reconsideration of the Fourth Report
    and Order in WT Docket No. 97-82," *Public Notice*, 15 FCC Rcd 6079
    (2000).

[^7]: For C and F block auction eligibility purposes, "entrepreneurs"
    are applicants that, including attributable investors and
    affiliates, have had gross revenues of less that \$125 million in
    each of the last two years and have total assets of less than \$500
    million at the time of the applicant's short-form auction
    application (FCC Form 175). 47 C.F.R. § 24.709(a). But note that,
    pursuant to 47 C.F.R. § 24.709(b)(9)(i), any entity that was
    eligible for and participated in either of the first two C block
    auctions (Auction No. 5 or Auction No.10), will be eligible to bid
    in C block spectrum auctions that begin within two years of the
    start of Auction No. 22, March 23, 1999.

[^8]: *See* Amendment of the Commission's Rules Regarding Installment
    Payment Financing for Personal Communications Services (PCS)
    Licensees, WT Docket No, 97-82, *Further Notice of Proposed
    Rulemaking*, 15 FCC Rcd 9773 (2000) ("*Further Notice**"***).

[^9]: "Auction of Licenses for C and F Block Broadband PCS Spectrum
    Postponed Until November 29, 2000," *Public Notice*, 15 FCC Rcd 9771
    (2000).

[^10]: Amendment of Part 1 of the Commission's Rules --- Competitive
    Bidding Procedures, WT Docket No. 97-82, *Order on Reconsideration
    of the Third Report and Order, Fifth Report and Order, and Fourth
    Further Notice of Proposed Rule Making*, FCC 00-274 (rel. August 14,
    2000) ("*Part 1 Fifth Report and Order*").

[^11]: The eligibility as an entrepreneur of all applicants for future C
    and F block auctions --- except for those applicants that are
    "grandfathered" under Section 24.709(b)(9)(i) of the Commission
    rules --- as well as the eligibility for small business preferences,
    will be determined based on the attribution rules in effect at the
    time of filing their short-form applications. *Id.* at ¶ 67. *See*
    *Part 1 Fifth Report and Order*, 65 Fed. Reg. 52,323 (August 29,
    2000) (summary).

[^12]: *Part 1 Fifth Report and Order*, ¶ 78. In addition to the
    attribution rule change, compare, *e.g.*, 47 C.F.R. § 24.720(e)
    (definition of "Rural Telephone Company" in the broadband PCS rules)
    with 47 C.F.R. § 1.2110(b)(3) (definition of "Rural Telephone
    Company" in the Part 1 rules). The Bureau notes that time may not
    permit conforming edits to the Part 24 C and F block rules to be
    made in advance of Auction No. 35.

[^13]: *See Part 1 Third Report and Order* at 382, ¶ 5; *Part 1 Fifth
    Report and Order*, ¶ 67.

[^14]: *See* Amendment of the Commission's Rules Regarding Installment
    Payment Financing for Personal Communications Services (PCS)
    Licensees, WT Docket No, 97-82, *Sixth Report and Order and Order on
    Reconsideration*, FCC Rcd 00-313 (rel. August 29, 2000) (*"C/F Block
    Sixth Report and Order").*

[^15]: *See, e.g.,* 47 C.F.R. §§ 15.307, 24.5, 24.237--24.253, 101.3,
    101.69--101.81, and 101.147; Amendment to the Commission's Rules
    Regarding a Plan for Sharing the Costs of Microwave Relocation, WT
    Docket No. 95-157, *Memorandum Opinion and Order on
    Reconsideration,* FCC 00-123 (rel. July 19,2000); Amendment to the
    Commission's Rules Regarding a Plan for Sharing the Costs of
    Microwave Relocation, *Second Report and Order,* 12 FCC Rcd 2705
    (1997); Amendment to the Commission's Rules Regarding a Plan for
    Sharing the Costs of Microwave Relocation, *First Report and Order
    and Further Notice of Proposed Rule Making,* 11 FCC Rcd 8825 (1996).

[^16]: *See* Implementation of Section 309(j) of the Communications Act
    --- Competitive Bidding for Commercial Broadcast and Instructional
    Television Fixed Service Licenses, MM Docket No. 97-234,
    Reexamination of the Policy Statement on Comparative Broadcast
    Hearings, GC Docket No. 92-52, Proposals to Reform Comparative
    Hearing Process to Expedite the Resolution of Cases, GEN Docket No.
    90-264, *Order*, FCC 99-157, n.15 (rel. July 2, 1999) (Commission
    order denying petitions for stay of Auction No. 25 pending judicial
    review and noting that the Commission will return payments made by
    winning bidders if licenses bid for are later determined to be
    unavailable due to a subsequent court action). *See also* "Auction
    of C, D, E, and F Block Broadband PCS Licenses; Status of
    Applications to Participate in the Auction; Clarification of Payment
    Issue Relating to Licenses Subject to Pending Proceedings," *Public
    Notice*, 14 FCC Rcd 5467, 5470-71 (1999).

[^17]: ^?^ 47 U.S.C. § 309(j)(3).

[^18]: ^?^ See "Auction of C, D, E, and F Block Broadband PCS Licenses;
    Notice and Filing Requirements for Auction of C, D, E, and F Block
    Broadband Personal Communications Services Licenses Scheduled for
    March 23, 1999; Minimum Opening Bids and Other Procedural Issues,"
    Public Notice, 13 FCC Rcd 24,540, 24,545 (1998).

[^19]: *See Part 1 Order*, 12 FCC Rcd at 5697-98, ¶ 16 (1997); *see also
    Part 1 Third Report and Order*, 13 FCC Rcd at 425, ¶ 86.

[^20]: *Part 1 Fifth Report and Order*, ¶¶40-42; 47 C.F.R. § 1.2106(a);
    s*ee also C Block Fourth Report and Order* at 15761-62, ¶ 34; *see*
    47 C.F.R. §§1.2105(a)(2)(xi) and 24.709(a)(5).

[^21]: Results below \$10,000 are rounded to the nearest hundred;
    results above \$10,000 are rounded to the nearest thousand.

[^22]: See 47 C.F.R. § 1.2104(i).

[^23]: *See* Balanced Budget Act, Section 3002(a). 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).

[^24]: *See* *Part 1 Third Report and Order,* 13 FCC Rcd at 454-455, ¶
    141 (1998).

[^25]: *S*e*e*, *e.g.*, Auction of 800 MHz SMR Upper 10 MHz Band,
    Minimum Opening Bids or Reserve Prices, *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).

[^26]: Results below \$10,000 are rounded to the nearest hundred;
    results above \$10,000 are rounded to the nearest thousand.

[^27]: Multiple increment bids are not rounded according to the
    previously stated rounding rule; they are received, displayed, and
    stored by the Automated Auction System as non-rounded dollar amounts
    resulting from the following formula: Amount Bid = High Bid + (Bid
    Multiplier \* Bid Increment).

[^28]: *See* 47 C.F.R. §§ 1.2104(g); 1.2109.

[^29]: *Part 1 Third Report and Order*, 13 FCC Rcd at 460, ¶ 150.

[^30]: 47 C.F.R. § 1.2104(e).