**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | *  | WT Docket No. 05-211         |
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**FURTHER NOTICE OF PROPOSED RULE MAKING**

**Adopted: January 27, 2006 Released: February 3, 2006**

**Comment Date: (14 days after publication in the Federal Register)**

**Reply Comment Date: (21 days after publication in the Federal
Register)**

By the Commission: Chairman Martin and Commissioners Copps and Adelstein
issuing separate statements.

Table of Contents

Heading Paragraph \#

I. introduction 1

II\. BACKGROUND 2

III\. DISCUSSION 5

IV\. conclusion 22

V. Procedural matters and ordering clauses 23

A. *Ex Parte* Rules -- Permit-But-Disclose Proceeding 23

B. Paperwork Reduction Act 24

C. Initial Regulatory Flexibility Analysis 25

D. Comment Filing Procedures 26

E. Accessible Formats 29

F. Further Information 30

G. Ordering Clauses 31

APPENDIx -- Initial Regulatory Flexibility Analysis

# introduction 

1.  In this Further Notice of Proposed Rule Making ("*Further*
    *Notice*"), we consider whether we should modify our general
    competitive bidding rules[^1] ("Part 1" rules) governing benefits
    reserved for designated entities (i.e., small businesses, rural
    telephone companies, and businesses owned by women and
    minorities).[^2] Specifically, we seek comment on the elements of a
    proposal raised by Council Tree Communications, Inc. ("Council
    Tree") that seeks to prohibit the award of bidding credits or other
    small business benefits[^3] to entities that have what Council Tree
    refers to as a "material relationship"[^4] with a "large in-region
    incumbent wireless service provider."[^5] Council Tree maintains
    that such a prohibition should apply to "otherwise qualified
    designated entities."[^6] In examining this proposal, we reach a
    tentative conclusion that we should modify our Part 1 rules to
    restrict the award of designated entity benefits to an otherwise
    qualified designated entity where it has a "material relationship"
    with a "large in-region incumbent wireless service provider," and we
    seek comment on how we should define the elements of such a
    restriction. Moreover, as discussed further below, we seek comment
    on whether we should restrict the award of designated entity
    benefits where an otherwise qualified designated entity has a
    "material relationship" with a large entity that has a significant
    interest in communications services. We intend to complete this
    proceeding in time so that any modifications to our rules resulting
    from this proceeding will apply to the upcoming auction of licenses
    for Advanced Wireless Services ("AWS"), which currently is scheduled
    to begin June 29, 2006.[^7] In light of our upcoming auction
    schedule, we seek comment on a proposal to require designated entity
    auction applicants to certify their qualifications subject to the
    changed rules by amending any auction applications that are pending
    on the effective date of any rule changes adopted in this
    proceeding.

# BACKGROUND 

2.  In the Commission's *Declaratory Ruling and Notice of Proposed
    Rulemaking* to implement rules and procedures needed to comply with
    the Commercial Spectrum Enhancement Act ("CSEA"),[^8] the Commission
    proposed a number of changes to its Part 1 competitive bidding rules
    that were necessary, apart from CSEA, to bring them in line with the
    current requirements of its auctions program. With today's *Further*
    *Notice*, we consider further updates to our Part 1 competitive
    bidding rules and procedures.

3.  The questions and tentative conclusion we pose here arise out of a
    proposal made by Council Tree in an *ex parte* filing that in part
    supplemented its petition for reconsideration of the Commission's
    order establishing service rules for Advanced Wireless Services
    ("AWS") in the 1710-1755 and 2110-2155 MHz bands.[^9] In the *AWS-1
    Service Rules Order*, the Commission adopted rules designed to
    ensure that designated entities are given the opportunity to
    participate in an auction of AWS spectrum.[^10] By establishing a
    range of geographic licensing areas including relatively small
    areas, such as Metropolitan Statistical Areas (MSAs) and Rural
    Service Areas (RSAs), and a range of spectrum block sizes, the
    Commission believed that it would encourage participation by smaller
    and rural entities. Accordingly, it concluded that adopting
    set-asides or eligibility restrictions would not be necessary.[^11]
    The Commission also adopted two small business size standards and
    associated bidding credits for small businesses, concluding that
    small business size standards and bidding credit levels that matched
    those offered in auctions of broadband Personal Communications
    Service (PCS) licenses were appropriate because broadband PCS
    presented service opportunities, capital requirements, and entry
    issues comparable to those presented by AWS. [^12]

4.  Council Tree's petition for reconsideration of the *AWS-1 Service
    Rules Order*, urged the Commission to reconsider its position with
    respect to set-asides for designated entities or, in the
    alternative, to add a third small business size standard and offer
    qualifying entities a 35 percent bidding credit.[^13] Council Tree's
    *ex parte* filing sought to supplement its petition for
    reconsideration and proposed, among other things, that the
    Commission prohibit the award of bidding credits or other small
    business benefits to entities that would "otherwise qualify" for
    eligibility but have what it refers to as a "material relationship"
    with a "large in-region incumbent wireless service provider."[^14]
    Council Tree's proposal also suggested standards by which it sought
    to define both "material relationship" and "large in-region
    incumbent wireless service provider."[^15] In its *ex parte* filing,
    Council Tree urged the Commission to add a third small business size
    standard to its AWS-1 service rules and offer such entities a 35
    percent bidding credit, effectively reiterating the alternative
    proposal contained in its petition for reconsideration. It also
    proposed that the Commission should provide an additional 10 percent
    bidding credit (increasing the maximum 35 percent credit to 45
    percent) for those designated entities that provide service to
    underserved segments of the population, namely lower income
    customers and members of minority groups. Council Tree further
    proposed that individuals with a net worth exceeding \$3 million
    (excluding the value of their primary residence) should not be
    permitted to have an actual controlling interest in a designated
    entity.[^16]

5.  In its *Order on Reconsideration*, the Commission rejected Council
    Tree's Petition and the *ex parte* proposals it made in the AWS
    proceeding.[^17] The Commission concluded, however, that Council
    Tree's suggestion to restrict the award of bidding credits or other
    small business benefits where an entity "otherwise qualified" for
    eligibility but has a "material relationship" with a "large
    in-region incumbent wireless service provider" warranted further
    study.[^18] It is this conclusion that forms the basis for this
    *Further Notice* today. In examining our current rules, we
    tentatively conclude that we should modify our requirements
    regarding designated entity eligibility to restrict the award of
    designated entity benefits to an otherwise qualified designated
    entity where it has a "material relationship" with a "large
    in-region incumbent wireless service provider." As noted below, we
    seek comment on the specific elements of Council Tree's proposal.
    Additionally, we seek comment on whether we should restrict the
    availability of designated entity benefits where an otherwise
    qualified designated entity has a "material relationship" with a
    large entity that has a significant interest in the provision of
    communication services, *e.g.*, voice or data providers, content
    providers, equipment manufacturers, other media interests, and/or
    facilities or non-facilities based communications services providers
    (hereinafter collectively referred to as "entity(ies) with
    significant interests in communications services").

#  DISCUSSION

6.  Since the inception of the auctions program, the Commission has
    sought to facilitate the participation of small businesses in the
    competitive bidding process. In the *Competitive Bidding* *Second
    Report and Order*, the Commission established various incentives,
    such as bidding credits and spectrum set-asides, to encourage
    designated entities to participate in future auctions and in the
    provision of service.[^19] The Commission also has made substantial
    efforts to ensure that only legitimate small businesses reap the
    benefits of the Commission's designated entity program. Over the
    last decade, the Commission has engaged in numerous rulemakings and
    adjudicatory investigations to prevent companies from circumventing
    the objectives of the designated entity eligibility rules.[^20] To
    that end, in determining whether to award designated entity
    benefits, the Commission adopted a strict eligibility standard that
    focused on whether the applicant maintained control of the corporate
    entity.[^21] The Commission's objective in employing such a standard
    was "to deter the establishment of sham companies in a manner that
    permits easy resolution of eligibility issues without the delay of
    administrative hearings."[^22]

7.  The Commission intends its small business provisions to be available
    only to bona fide small businesses. In this *Further Notice*, we
    tentatively conclude that modifications to our designated entity
    rules are warranted. In determining whether additional safeguards
    are necessary to ensure that bidding credits and other benefits are
    awarded to the appropriate entities, we recognize that we must
    strike a delicate balance between encouraging the participation of
    small businesses in the provision of spectrum based services, and
    ensuring that those small businesses who do participate in
    competitive bidding have sufficient capital and flexibility to
    structure their businesses to be able to compete at auction, fulfill
    their payment obligations, and ultimately provide service to the
    public.[^23]

8.  In its *ex parte* filing, Council Tree proposes that the Commission
    prohibit the availability of bidding credits or other small business
    benefits where an "otherwise qualified" entity seeking such
    eligibility has what Council Tree refers to as a "material
    relationship" with a "large, in-region, incumbent wireless service
    provider." Council Tree asserts that if the Commission does not
    limit the availability of bidding credits and other designated
    entity benefits in such instances, spectrum rights will be
    concentrated in the hands of large, incumbent wireless service
    providers.[^24] Council Tree states that "following the consummation
    of announced mergers, the top-5 wireless carriers today will control
    89 percent of United States wireless service subscribers, up from
    just 50 percent in 1995."[^25] It further asserts that in Auction
    58, the Commission's recent broadband PCS auction, the five largest
    wireless carriers won \$367 million of licenses, or 18 percent of
    the auction total. Council Tree maintains that "these same carriers
    also partnered with designated entities in Auction 58 to win an
    additional \$1.03 billion of licenses, representing another 51
    percent of the auction total."[^26] Council Tree concludes that the
    large carriers structured their relationships with designated
    entities as a means to realize for themselves the benefits and
    opportunities that the Commission had intended for small
    businesses.[^27]

9.  CTIA -- The Wireless Association ("CTIA") opposes Council Tree's *ex
    parte* asserting, among other things, that Council Tree's proposed
    constraint on relationships between large wireless carriers and
    those seeking eligibility for small business and entrepreneur
    provisions is contrary to the Commission's goal of providing
    legitimate small businesses maximum flexibility in attracting
    passive financing.[^28] CTIA further states that such a limitation
    on a small business' ability to raise capital would undermine the
    Commission's intention of promoting small business participation in
    the highly competitive telecommunications marketplace.[^29]

10. In our continued effort to preserve for small businesses and
    entrepreneurs the benefits reserved for designated entities, we seek
    comment generally on whether the Commission's existing rules should
    be modified as suggested by our tentative conclusion and Council
    Tree's proposal to address any concerns that our designated entity
    program may be subject to potential abuse from larger corporate
    entities. We also seek comment below on the particular elements of
    Council Tree's proposal. Additionally, we seek comment on whether we
    should restrict the availability of designated entity benefits where
    an otherwise qualified designated entity has a "material
    relationship" with an "entity with significant interests in
    communications services."

11. Our existing Part 1 rules include generally applicable provisions
    regarding the attribution of gross revenues of an entity and its
    controlling interests and affiliates to determine whether that
    entity meets service-specific eligibility standards for designated
    entity benefits, such as bidding credits.[^30] Council Tree proposes
    that even where an entity qualifies for designated entity benefits
    under our existing rules, such benefits should not be available to
    that entity if it has a "material relationship" with a "large,
    in-region, incumbent wireless provider." We tentatively conclude
    that we should modify our rules to restrict the award of designated
    entity benefits where such a relationship exists. We seek comment on
    Council Tree's proposal for defining "material relationship" and on
    the two elements Council Tree proposes to use in defining a "large,
    in-region, incumbent wireless service provider" -- the geographic
    overlap between the incumbent and the designated entity applicant,
    as well as the incumbent's wireless gross revenues. [^31] We also
    seek comment on the factual assertions upon which Council Tree's
    proposals are based and the impact, if any, that the adoption of the
    proposed restriction would have on the ability of small businesses
    to provide spectrum-based services. In addition, we seek comment on
    whether we should extend any rule modifications we adopt to restrict
    the availability of designated entity benefits where an otherwise
    qualified designated entity has a "material relationship" with an
    "entity with significant interests in communications services."

12. *Material Relationship*. As noted above, the Commission currently
    applies a gross revenues test as its general standard for measuring
    the size of an entity for the purposes of awarding small business
    benefits, in part because such a standard provides "an accurate,
    equitable, and easily ascertainable measure of business size."[^32]
    Under this standard, we attribute to an applicant the gross revenues
    of its "controlling interests" and its "affiliates" in assessing
    whether the applicant is qualified to take advantage of our small
    business provisions, such as bidding credits.[^33] A "controlling
    interest" includes individuals or entities, or groups of individuals
    or entities, that have control of the applicant under the principles
    of either *de jure* or *de facto* control and under a totality of
    the circumstances analysis.[^34] Council Tree suggests, however,
    that the Commission's current rules do not adequately prevent large
    corporations from structuring relationships in a manner that allows
    them to gain access to benefits reserved for small businesses.

13. According to Council Tree, the Commission should determine that a
    "material relationship" exists if a "large, in-region, incumbent
    wireless service provider" has provided a material portion of the
    total capitalization of the applicant (*i.e.*, equity plus
    debt),[^35] or has any material operational arrangement with the
    applicant (such as management, joint marketing, trademark, or other
    arrangements) or other material financial arrangement relating to
    the overlap markets. In the event that there is such a "material
    relationship," Council Tree advocates that designated entity
    benefits should be withheld even if the entity would otherwise
    qualify for designated entity eligibility under our existing rules.
    As noted above, we tentatively conclude that a relationship between
    a "large, in-region incumbent wireless service provider" and an
    otherwise qualified designated entity applicant should trigger a
    restriction on the availability of designated entity benefits. We
    therefore seek comment on the specific nature of the relationship
    that should trigger such a restriction. Additionally, we seek
    comment on whether other "material" relationships, such as those
    between an otherwise qualified designated entity and an "entity with
    significant interests in communications services," should trigger a
    restriction on the award of designated entity benefits.

14. With respect to determining what may constitute a "material
    financial" or "material operational" relationship, we also seek
    comment on whether our existing "controlling interest standard" and
    affiliation rules appropriately measure and take into consideration
    the existence of those factors raised by Council Tree.[^36] For
    instance, Council Tree proposes that the material operational
    arrangements that should trigger any proposed restriction should
    include management, joint marketing, and trademark
    arrangements.[^37] Insofar as the Commission already attributes the
    gross revenues of those that have management or marketing agreements
    with an applicant where such agreements grant authority over key
    aspects of the applicant's business, we seek comment on whether a
    different standard should be used where the relationship in question
    is with a "large, in-region incumbent wireless service provider" or
    with an "entity with significant interests in communications
    services." If so, how should that standard differ from the factors
    that the Commission currently considers for determining indicia of
    control? If commenters believe that the Commission's rules do not
    already address these types of arrangements, they should specify how
    we should define these arrangements.

15. We also seek comment on whether a prohibition based on certain
    relationships, such as the one proposed by Council Tree, would be
    too harsh or limit a designated entity's ability to gain access to
    capital or industry expertise. We seek comment on whether there may
    be instances where the existence of either a "material financial
    agreement" or a "material operational agreement," in and of itself,
    may be appropriate between a designated entity and a "large
    incumbent wireless service provider" or an "entity with significant
    interests in communications services," and may not raise issues of
    undue control. Should the Commission allow designated entities to
    obtain a bidding credit if they have only a "material financial
    agreement" or only a "material operational agreement" with a "large
    incumbent wireless service provider," or an "entity with significant
    interests in communications services," but not both? What factors
    should we consider in determining whether either type of agreement
    may be permissible? Would this approach be sufficient to address any
    concerns that our designated entity program may be subject to
    potential abuse from larger corporate entities? Commenters should
    address the appropriate level of financial or operational
    participation of a "large incumbent wireless service provider" or an
    "entity with significant interests in communications services" that
    should trigger any proposed prohibition of the award of designated
    entity benefits to entities that are otherwise qualified. As a
    general matter, should the definition of "material relationship"
    differ if we adopt our tentative conclusion or if we expand the
    restriction to include relationships with "entities with significant
    interests in communications services?"

16. In its Secondary Markets proceeding, the Commission concluded that
    certain spectrum manager leases between a designated entity licensee
    and a non-designated entity lessee would cause the spectrum lessee
    to become an attributable affiliate of the licensee, thus rendering
    the licensee ineligible for designated entity benefits and making
    such a spectrum lease impermissible.[^38] We seek comment on what,
    if any, standard should be used to determine whether a spectrum
    leasing arrangement is a "material relationship" for the purpose of
    any additional restriction on the availability of designated entity
    benefits that we might adopt. We also seek comment on whether other
    arrangements should be taken into account. If so, what arrangements
    should we consider?

17. *Wireless Gross Revenues*. Council Tree suggests that "large,
    in-region, incumbent wireless providers" should be defined, in part,
    as those having what Council Tree refers to as "average gross
    wireless revenues"[^39] for the preceding three years exceeding \$5
    billion. We seek comment on this proposed benchmark and whether it
    is a useful element for consideration if we adopt our tentative
    conclusion to modify our Part 1 rules to include additional
    restrictions on the availability of designated entity benefits. Is
    \$5 billion an appropriate level at which to set the benchmark to
    define "large, in-region incumbent wireless provider?" In
    contemplating this proposal, we also seek comment on whether we
    should evaluate the service provider's "gross wireless revenues" as
    suggested by Council Tree or instead if we should generally consider
    "gross revenues" as defined in Section 1.2110 (n) of the
    Commission's rules.[^40] Should we consider an alternative
    benchmark? What would be the appropriate benchmark if we extend the
    restriction on designated entity benefits to designated entities
    that have material relationships with "entities with significant
    interests in communications services?" Commenters supporting an
    alternative benchmark should provide specific data to support any
    such alternative. What standard should we use to attribute revenues,
    wireless or otherwise, to the incumbent wireless provider or to an
    "entity with significant interests in communications services", if
    any? Should we use the same "controlling interest" standard and
    affiliation rules currently used to attribute to an applicant the
    gross revenues of its investors and affiliates in determining
    whether the applicant qualifies for small business benefits?

18. *Significant Geographic Overlap*. In addition to a gross revenues
    benchmark, Council Tree proposes that the Commission define a
    "large, in-region, incumbent wireless service provider" as an entity
    (including all parties under common control) that is, or has an
    attributable interest in, a CMRS or AWS licensee whose licensed
    service area has significant overlap in the geographic area to be
    licensed to the designated entity applicant. [^41] As a general
    matter, we seek comment on whether geographic overlap should be an
    element in establishing any additional restriction on the
    availability of designated entity benefits. Council Tree proposes
    that for purposes of determining significant geographic overlap in
    defining an in-region incumbent wireless service provider, the
    Commission should apply the standard set forth in Section 20.6 (c)
    of the Commission's rules.[^42] Although the CMRS spectrum
    aggregation limit sunset on January 1, 2003,[^43] Section 20.6
    defined significant overlap of geographic service areas for the
    purpose of that limit, and provides that significant overlap occurs
    when there is an overlap of at least 10 percent of the population
    within the impacted service areas.[^44] We further seek comment on
    whether we should apply the standard set forth in Section 20.6 (c)
    of the Commission's rules as proposed by Council Tree. If so, what
    factors should the Commission consider in applying this standard to
    all wireless services? Should we apply a different, or any,
    geographic standard if we extend the restriction on designated
    entity benefits to designated entities that have material
    relationships with "entities with significant interests in
    communications services?" If the Commission determines that a
    significant geographic overlap does exist, how should the Commission
    implement such a restriction? Should an incumbent be allowed to
    divest its interest in the subject service area to allow a
    designated entity applicant to maintain eligibility for a bidding
    credit? If so, within what time period should we require the
    divestiture? We seek comment on whether the application of the
    standard set forth in Section 20.6 (c) of the Commission's rules or
    any other geographic overlap restriction would place an undue
    administrative burden on the Commission, making it difficult to
    monitor an applicant's compliance with any adopted geographic
    overlap restriction. Should the Commission consider adopting any
    other geographic overlap standards? In addressing these issues,
    commenters should state with specificity what factors the Commission
    should consider and what mechanisms it should adopt to ensure an
    applicant's continued compliance with any geographic overlap
    restriction.

19. *Entities with Significant Interests in Communications Services*. As
    noted above, we seek comment on whether we should prohibit the award
    of designated entity benefits where an otherwise qualified
    designated entity applicant has a "material relationship" with an
    "entity with significant interests in communications services." If
    we extend the restriction in this manner, should we define "entities
    with significant interests in communications services" to include a
    broad category of businesses such as voice or data providers,
    content providers, equipment manufacturers, other media interests,
    and/or facilities or non-facilities based communications services
    providers? We seek comment on whether all of these entities should
    be included as part of our definition of "entities with significant
    interests in communications services." Should we consider excluding
    some of these entities from our proposed definition? If so, which
    entities should we exclude and why? Are there additional entities
    that we should consider including as part of our proposed
    definition? If so, which entities should we include, and why?
    Moreover, we seek comment on how we should specifically define
    "significant interests in communications services?" Does our
    consideration of the category "communications services" provide
    additional safeguards to ensure the award of our designated entity
    benefits only to legitimate small businesses or does it create too
    many obstacles for designated entities to obtain access to capital?
     

20. *Unjust Enrichment.* The Commission's existing rules require the
    payment of unjust enrichment when an entity that acquires its
    license with small business benefits loses its eligibility for such
    benefits or transfers a license to another entity that is not
    eligible for the same level of benefits.[^45] Council Tree suggests
    that the Commission should also impose a reimbursement obligation on
    a licensee that, in the first five years of its license term,
    acquires a license with a bidding credit and subsequently makes a
    change in its "material relationships" or seeks to assign or
    transfer control of the license to an entity that would result in
    its loss of eligibility for the bidding credit pursuant to any
    eligibility restriction that we adopt.[^46] Council Tree asserts
    that such a requirement is necessary to fulfill the Commission's
    statutory obligation to prevent unjust enrichment[^47] and to ensure
    that the new eligibility requirement for bidding credits has the
    intended effect of helping eligible small businesses to acquire
    spectrum licenses.[^48] Council Tree also proposes, however, that an
    unjust enrichment payment should not be required in the case of
    "natural growth" of the revenues attributed to an incumbent carrier
    above the established benchmark.[^49] Instead, it suggests that the
    reimbursement obligation should apply only where the licensee takes
    on new investment, or enters into any operational agreement, that
    would have disqualified the licensee for the bidding credit at the
    time of the licensee's initial application.[^50] We seek comment on
    whether, if we adopt a new restriction on the award of bidding
    credits to designated entities, we should adopt revisions to our
    unjust enrichment rules such as those proposed by Council Tree, or
    in some other manner. Should any reimbursement obligation we adopt
    apply where the licensee takes on new investment, or also where it
    enters into any new "material financial relationship" or "material
    operational relationship" that would have rendered the licensee
    ineligible for a bidding credit? If we require reimbursement by
    licensees that, either through a change of "material relationships"
    or assignment or transfer of control of the license, lose their
    eligibility for a bidding credit pursuant to any eligibility
    restriction that we might adopt, over what portion of the license
    term should such unjust enrichment provisions apply?

21. *Pending Auction Provisions*. As stated at the outset, we intend any
    changes adopted in this proceeding to apply to AWS licenses
    currently scheduled to be offered in an auction beginning June 29,
    2006.[^51] In light of the current auction schedule, any changes
    that we adopt in this proceeding may become effective after the
    deadline for filing applications to participate in that
    auction.[^52] Under Commission rules, applicants asserting
    designated entity status in a Commission auction are required to
    declare, under penalty of perjury, that they are qualified as a
    designated entity under section 1.2110 of the Commission's
    rules.[^53] In the event that any designated entity applicants have
    filed an application to participate in an auction prior to the
    effective date of any designated entity rule changes adopted in this
    proceeding, we propose to require such applicants to amend their
    applications on or after the effective date of the rule changes with
    a statement declaring, under penalty of perjury, that the applicant
    is qualified as a designated entity pursuant to section 1.2110 of
    the Commission's rules effective as of the date of the
    statement.[^54] In the event applicants fail to file such a
    statement pursuant to procedures announced by public notice, they
    will be ineligible to qualify as a designated entity, *e.g.*,
    receive small business bidding credits, either generally or with
    respect to specific licenses.[^55] We seek comment on this proposal.

# conclusion

22. For the reasons stated above, we seek comment on our competitive
    bidding rules, on the elements of the specific proposal raised by
    Council Tree, and on our tentative conclusion to modify our Part 1
    rules to prohibit the award of designated entity benefits where an
    otherwise qualified designated entity has a "material relationship"
    with a "large, in-region wireless service provider."

# Procedural matters 

## *Ex Parte* Rules -- Permit-But-Disclose Proceeding

23. For purposes of this permit-but-disclose notice and comment
    proceeding, members of the public are advised that *ex parte*
    presentations are permitted, except during the sunshine Agenda
    period, provided that the presentations are disclosed pursuant to
    the Commission's rules.[^56]

## Paperwork Reduction Act

24. This document contains proposed new or modified information
    collection requirements.  The Commission, as part of its continuing
    effort to reduce paperwork burdens, invites the general public and
    the Office of Management and Budget ("OMB") to comment on the
    information collection requirements contained in this document, as
    required by the Paperwork Reduction Act of 1995, Public Law 104-13. 
    Public and agency comments are due 60 days after the date of
    publication in the Federal Register.*** *** Comments should
    address: (a) whether the proposed collection of information is
    necessary for the proper performance of the functions of the
    Commission, including whether the information shall have practical
    utility; (b) the accuracy of the Commission\'s burden estimates; (c)
    ways to enhance the quality, utility, and clarity of the information
    collected; and (d) ways to minimize the burden of the collection of
    information on the respondents, including the use of automated
    collection techniques or other forms of information technology.  In
    addition, pursuant to the Small Business Paperwork Relief Act of
    2002, Public Law 107-198, *see*  44 U.S.C. 3506(c)(4), we seek
    specific comment on how we might "further reduce the information
    collection burden for small business concerns with fewer than 25
    employees.\"

## Initial Regulatory Flexibility Analysis

25. As required by the Regulatory Flexibility Act, see 5 U.S.C. § 603,
    the Commission has prepared an Initial Regulatory Flexibility
    Analysis (\"IRFA\") of the possible significant economic impact on
    small entities of the proposals suggested in the *Further Notice of
    Proposed Rulemaking*. The IRFA is set forth in the Appendix. Written
    public comments are requested on the IRFA. These comments must be
    filed in accordance with the same filing deadlines as comments filed
    in response to the *Further Notice*, and must have a separate and
    distinct heading designating them as responses to the IRFA.

## Comment Filing Procedures

26. Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47
    C.F.R §§ 1.415, 1.419, interested parties may file comments on or
    before **14 days after publication in the Federal Register** and may
    file reply comments on or before **21 days after publication in the
    Federal Register**. **All filings related to this Further Notice of
    Proposed Rule Making should refer to WT Docket No. 05-211**.
    Comments may be filed using: (1) the Commission's Electronic Comment
    Filing System (ECFS), (2) the Federal Government's eRulemaking
    Portal, or (3) by filing paper copies. *See* Electronic Filing of
    Documents in Rulemaking Proceedings, 63 FR 24121 (1998).

27. Electronic Filers: Comments may be filed electronically using the
    Internet by accessing the ECFS: <http://www.fcc.gov/cgb/ecfs/> or
    the Federal eRulemaking Portal:
    [http://www.regulations.gov](http://www.regulations.gov/). Filers
    should follow the instructions provided on the website for
    submitting comments. For ECFS filers, if multiple docket or
    rulemaking numbers appear in the caption of this proceeding, filers
    must transmit one electronic copy of the comments for each docket or
    rulemaking number referenced in the caption. In completing the
    transmittal screen, filers should include their full name, U.S.
    Postal Service mailing address, and the applicable docket or
    rulemaking number. Parties may also submit an electronic comment by
    Internet e-mail. To get filing instructions, filers should send an
    e-mail to <ecfs@fcc.gov>, and include the following words in the
    body of the message, "get form." A sample form and directions will
    be sent in response.

28. Paper Filers: Parties who choose to file by paper must file an
    original and four copies of each filing. Filings can be sent by hand
    or messenger delivery, by commercial overnight courier, or by
    first-class or overnight U.S. Postal Service mail (although we
    continue to experience delays in receiving U.S. Postal Service
    mail). All filings must be addressed to the Commission's Secretary,
    Office of the Secretary, Federal Communications Commission.

-   The Commission's contractor will receive hand-delivered or
    messenger-delivered paper filings for the Commission's Secretary at
    236 Massachusetts Avenue, N.E., Suite 110, Washington, DC 20002. The
    filing hours at this location are 8:00 a.m. to 7:00 p.m. All hand
    deliveries must be held together with rubber bands or fasteners. Any
    envelopes must be disposed of [before]{.underline} entering the
    building.

```{=html}
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```
-   Commercial overnight mail (other than U.S. Postal Service Express
    Mail and Priority Mail) must be sent to 9300 East Hampton Drive,
    Capitol Heights, MD 20743.

```{=html}
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```
-   U.S. Postal Service first-class, Express, and Priority mail should
    be addressed to 445 12^th^ Street, SW, Washington DC 20554.

## Accessible Formats

29. To request copies of this *Further Notice of Proposed Rule Making*
    in accessible formats (Braille, large print, electronic files, audio
    format) for people with disabilities, send an e-mail to
    <fcc504@fcc.gov> or call the Consumer and Governmental Affairs
    Bureau at (202) 418-0531 or (202) 418-7365 (TTY).

## Further Information

30. For further information concerning this *Further Notice of Proposed
    Rule Making*, contact Brian Carter, Auctions and Spectrum Access
    Division, (202) 418-0660, Wireless Telecommunications Bureau,
    Federal Communications Commission, Washington, DC 20554.

## Ordering Clauses

31. Accordingly, IT IS ORDERED THAT, pursuant to Sections 4(i), 303(r),
    and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C.
    Sections 154(i), 303(r), and 309(j), this *Further Notice of
    Proposed Rule Making* is HEREBY ADOPTED.

32. IT IS FURTHER ORDERED that the Commission\'s Consumer and
    Governmental Affairs Bureau, Reference Information Center, SHALL
    SEND a copy of this *Further Notice of Proposed Rule Making*,
    including the Initial Regulatory Flexibility Analysis, to the Chief
    Counsel for Advocacy of the Small Business Administration.

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch

> Secretary

**APPENDIX**

**Initial Regulatory Flexibility Analysis**

As required by the Regulatory Flexibility Act (RFA),[^57] the Commission
has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the
possible significant economic impact on small entities by the policies
and rules proposed in the Further Notice of Proposed Rule Making
("*Further* *Notice*"). Written public comments are requested on this
IRFA. Comments must be identified as responses to the IRFA and must be
filed by the deadlines for comments provided in this *Further* *Notice*.
The Commission will send a copy of the *Further Notice*, including this
IRFA, to the Chief Counsel for Advocacy of the Small Business
Administration (SBA).[^58] In addition, the *Further Notice* and the
IRFA (or summaries thereof) will be published in the Federal
Register.[^59]

**A. Need for, and Objectives of, the Proposed Rules**

The *Further Notice* tentatively concludes that the Commission should
modify its general competitive bidding rules governing benefits reserved
for designated entities (i.e., small businesses, rural telephone
companies, and businesses owned by women and minorities).[^60]
Specifically, the Commission seeks comment on the specific elements of a
proposal raised by Council Tree Communications, Inc. ("Council Tree")
that seeks to prohibit the award of bidding credits or other small
business benefits to entities that have what Council Tree refers to as a
"material relationship" with a "large in-region incumbent wireless
service provider."[^61] Additionally, the Commission seeks comment on
whether there are other entities that might have a significant interest
in the provision of communication services, *e.g.*, voice or data
providers, content providers, equipment manufacturers, other media
interests, and/or facilities or non-facilities based communications
services providers (hereinafter collectively referred to as "entity(ies)
with significant interests in communications services,") whose
relationship with an otherwise qualified designated entity applicant
should trigger a restriction on the availability of designated entity
benefits.

Over the last decade, the Commission has engaged in numerous rulemakings
and adjudicatory investigations to prevent companies from circumventing
the objectives of the designated entity eligibility rules.[^62] To that
end, in determining whether to award designated entity benefits, the
Commission adopted a strict eligibility standard that focused on whether
the applicant maintained control of the corporate entity.[^63] The
Commission's objective in employing such a standard was "to deter the
establishment of sham companies in a manner that permits easy resolution
of eligibility issues without the delay of administrative
hearings."[^64] The Commission intends its small business provisions to
be available only to bona fide small businesses.

By its *Further Notice*, the Commission tentatively concludes that
modifications to its designated entity rules are warranted. In
determining what additional safeguards are necessary to ensure that
bidding credits and other benefits are awarded to the appropriate
entities, the Commission recognizes that it must strike a delicate
balance between encouraging the participation of small businesses in the
provision of spectrum based services, and ensuring that those small
businesses who do participate in competitive bidding, have sufficient
capital to be able to compete at auction, fulfill their payment
obligations, and ultimately provide service to the public.[^65] In its
continued effort to reserve for small businesses and entrepreneurs the
designated entity benefits that the Commission offers, the *Further
Notice* seeks comment on the elements of Council Tree's proposal and the
Commission's tentative conclusion that its existing rules should be
modified.

**B. Legal Basis**

The proposed actions are authorized under Sections 4(i), 303(r), and
309(j) of the Communications Act of 1934, as amended, 47 U.S.C. Sections
154(i), 303(r), and 309(j).

**C. Description and Estimate of the Number of Small Entities to Which
the Proposed Rules Will Apply**

The RFA directs agencies to provide a description of and, where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted.[^66] The RFA generally
defines the term "small entity" as having the same meaning as the terms
"small organization," "small business," and "small governmental
jurisdiction."[^67] The term "small business" has the same meaning as
the term "small business concern" under the Small Business Act.[^68] A
small business concern is one which: (1) is independently owned and
operated; (2) is not dominant in its field of operation; and (3)
satisfies any additional criteria established by the SBA.

A small organization is generally "any not-for-profit enterprise which
is independently owned and operated and is not dominant in its
field."[^69] Nationwide, as of 2002, there were approximately 1.6
million small organizations.[^70] The term \"small governmental
jurisdiction\" is defined as "governments of cities, towns, townships,
villages, school districts, or special districts, with a population of
less than fifty thousand."[^71] As of 1997, there were approximately
87,453 governmental jurisdictions in the United States.[^72] This number
includes 39,044 county governments, municipalities, and townships, of
which 37,546 (approximately 96.2%) have populations of fewer than
50,000, and of which 1,498 have populations of 50,000 or more. Thus, we
estimate the number of small governmental jurisdictions overall to be
84,098 or fewer. Nationwide, there are a total of approximately 22.4
million small businesses, according to SBA data.[^73]

Any proposed changes or additions to the Commission's Part 1 rules that
may be made as a result of the *Further Notice* would be of general
applicability to all services, applying to all entities of any size that
apply to participate in Commission auctions. Accordingly, this IRFA
provides a general analysis of the impact of the proposals on small
businesses rather than a service by service analysis. The number of
entities that may apply to participate in future Commission auctions is
unknown. The number of small businesses that have participated in prior
auctions has varied. In all of our auctions held to date, 1,973 out of a
total of 3,303 qualified bidders either have claimed eligibility for
small business bidding credits or have self-reported their status as
small businesses as that term has been defined under rules adopted by
the Commission for specific services.[^74] In addition, we note that, as
a general matter, the number of winning bidders that qualify as small
businesses at the close of an auction does not necessarily represent the
number of small businesses currently in service. Also, the Commission
does not generally track subsequent business size unless, in the context
of assignments or transfers, unjust enrichment issues are implicated.

**D. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements**

In the event that the Commission changes its designated entity rules in
this proceeding, designated entity applicants that have filed
applications to participate in an auction before the effective date of
any changes may be required to amend their applications on or after the
effective date of the rule changes with a statement declaring, under
penalty of perjury, that the applicant is qualified as a designated
entity pursuant to the Commission's rules effective as of the date of
the statement.

**E. Steps Taken to Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered**

The RFA requires an agency to describe any significant alternatives that
it has considered in reaching its proposed approach, which may include
the following four alternatives (among others): (1) the establishment of
differing compliance or reporting requirements or timetables that take
into account the resources available to small entities; (2) the
clarification, consolidation, or simplification of compliance or
reporting requirements under the rule for small entities; (3) the use of
performance, rather than design, standards; and (4) an exemption from
coverage of the rule or any part thereof for small entities.[^75]

The *Further Notice* tentatively concludes that the Commission should
modify its general competitive bidding rules regarding designated entity
eligibility. It seeks comment on the specific elements described in a
proposal raised by Council Tree Communications, Inc., which seeks to
prohibit the award of bidding credits or other small business benefits
to entities that have what Council Tree refers to as a "material
relationship" with a "large in-region incumbent wireless service
provider." The *Further Notice* also seeks comment on whether such a
restriction should apply to "entities with significant interests in
communications services." The *Further Notice* seeks guidance from the
industry on how it should define the elements of any restrictions it
might adopt regarding the award of designated entity benefits. Small
entity comments are specifically requested.

**F. Federal Rules that May Duplicate, Overlap, or Conflict with the
Proposed Rule**

None.

**STATEMENT OF**

**CHAIRMAN KEVIN J. MARTIN**

Re: *Implementation of the Commercial Spectrum Enhancement Act and
Modernization of the Commission's Competitive Bidding Rules and
Procedures*, Further Notice of Proposed Rulemaking (WT Docket No.
05-211)

The Commission agreed to initiate this examination to determine whether
we should change the designated entity program. That program was
intended to promote small businesses by providing them with bidding
credits. During our reconsideration of the AWS-1 service rules, Council
Tree Communications expressed concern that these bidding credits were
being used by carriers with billions of dollars in revenues, who partner
with small businesses in order to gain access to the bidding credits.
Today, we initiate a review of the program to consider changing these
kinds of practices. We also make clear our intention that any changes we
make to the program will apply to the AWS auction scheduled for this
summer.

We tentatively conclude that we should reform our program by preventing
large incumbent wireless carriers from gaining access to bidding credits
through partnering with designated entities. While I think that is a
good step, I believe we should consider going further, applying the same
rule to all large communications service providers. Why single out large
wireless carriers alone for this kind of treatment and allow large
wireline carriers, cable companies, satellite providers, and other
communications companies to continue to participate in a program for
small businesses? A more fair and reasonable way to reform the program
would limit all large communications companies from such small business
discounts. I remain hopeful that we will be able to adopt such a
consistent approach in our final rules.

STATEMENT OF

COMMISSIONER MICHAEL J. COPPS

*RE: Implementation of the Commercial Spectrum Enhancement Act and
Modernization of the Commission's Competitive Bidding Rules and
Procedures (Further Notice of Proposed Rulemaking, WT Docket No.
05-211).*

Today, we initiate an examination of a troubling loophole in the
designated entity program.  The DE program was intended to create
opportunities for smaller carriers to obtain the spectrum resources
needed to bring new services to consumers -- and has proven to be
particularly useful for rural areas. In the upcoming AWS auction,
carriers that qualify as small companies under the DE program can
receive up to a 25 percent auction discount.  We need to act quickly to
close any loopholes to ensure that American taxpayers do not lose
millions of dollars in AWS auction revenues.

I strongly support the DE program. It helps foster new competition and
promote entry by small businesses -- which is all the more critical in
this era of increasing market consolidation.  Because of the importance
of the DE program, we must vigilantly guard against its misuse.  In
recent auctions, some entities have put themselves forward as small
companies in order to qualify for auction discounts. They do this having
already entered into agreements to lease the spectrum rights they win to
industry giants that do not qualify for a discount themselves.  This
loophole could result in millions of dollars less in auction revenues
without serving the underlying purposes of the DE program. We
tentatively conclude today that we should close this loophole to ensure
the integrity of the program.

 

I have said before that I am committed to sticking to our schedule for
the AWS auction. When we revised the band plan for the AWS spectrum last
August, I called for the examination we initiate today. I am pleased
that we now signal our intention to complete this examination in advance
of the AWS auction. The AWS auction will be one of our largest in years.
We need not delay this auction -- which holds great promise for bringing
new wireless services to American consumers. At the same time we must
protect taxpayer money.  It is our obligation to achieve both of these
objectives -- which we still can do if we move quickly.

**STATEMENT OF**

**COMMISSIONER JONATHAN S. ADELSTEIN**

*Re: Implementation of the Commercial Spectrum Enhancement Act and
Modernization of the Commission's Competitive Bidding Rules and
Procedures; Further Notice of Proposed Rule Making; WT Docket No.
05-211*

I strongly support this Further Notice and its tentative conclusion that
the Commission should limit the ability of designated entities (DEs) who
have a material relationship with the nation's largest wireless carriers
from having access to bidding credits in future auctions. But I am very
disappointed that it has taken so long for this item to be adopted. The
Commission committed to launch this proceeding at our August 2005 Open
Meeting, yet it took over five months to prepare this relatively brief
notice of proposed rule making.

The upcoming Advanced Wireless Services (AWS) auction will be a landmark
event for the Commission. It represents the first auction in almost 10
years of a nationwide footprint of spectrum ideal for mobile wireless
services. There is a great deal at stake both for carriers interested in
creating new services or expanding old ones and for the Government,
which has authorized the relocation of federal users to make room for
these commercial services. This also is the first auction subject to the
Commercial Spectrum Enhancement Act, which requires that auction
proceeds must be sufficient (at least 110 percent) of estimated
relocation costs of eligible federal entities.

I have repeatedly stated my commitment to try to avoid unnecessary
delays to the AWS auction. I also believe we should do whatever we can
to conclude this proceeding as quickly as possible. Of course, we have
lost a great deal of time since the Commission first committed to launch
this proceeding. I am frustrated that the lack of timely action may
unnecessarily create challenges and some uncertainty as interested
parties both respond to this item and prepare for the upcoming auction.
I cannot emphasize enough that this timing was not of my choosing. We
should have initiated this proceeding three months ago and allowed
interested parties a more rational amount of time to comment on our
proposals. Unfortunately, that didn't happen and now commenters and
indeed our own Commission staff are forced to work within an incredibly
aggressive schedule to try to finalize this proceeding sufficiently in
advance of the June 29, 2006, AWS auction date.

Whatever the status of this proceeding at the time of the AWS auction, I
want to put all interested parties on notice that I will personally
review any agreements through which one of our nation's largest wireless
companies partners with a DE that is seeking to use bidding credits in
the AWS auction. I am not interested in excluding companies from
participating in the auction, but I am concerned when large wireless
carriers gain indirect access to bidding credits. I will rigorously
enforce whatever rules and policies are on the books at that time.

The issue of DEs partnering with the largest wireless carriers is
particularly important given the dramatic scope of consolidation in the
wireless industry over the last 18 months and the ever-increasing market
share of the largest carriers. It has been reported to us that in 1998
the five largest wireless carriers controlled 48% of the market; in
2005, the top five carriers controlled almost 90% of the market. Also,
the AWS auction could raise \$15 billion dollars by some estimates for
the federal Government at a time our budget is under ever increasing
pressure. Do we really want the nation's largest wireless carriers
partnering with DEs to get a 25% discount so that auction revenues to
the U.S. Treasury could potentially be reduced by billions of dollars?
How is the public interest served in that outcome?

Finally, with respect to the specific proposals in the Further Notice, I
want to let commenters know that I do not necessarily support the
decision to expand the original scope of inquiry from large wireless
carriers partnering with DEs to the broader "entities with significant
interests in communications services" as that term is defined in the
Further Notice. At a time of significant consolidation in the wireless
industry, the DE program indeed may be an appropriate opportunity for
smaller wireless providers, with the backing of non-wireless companies,
to build new networks to compete with large wireless incumbents. While I
look forward to reviewing all of the comments on the Further Notice with
great interest, I will be particularly interested in pleadings that
address this specific aspect of the item.

[^1]: *See* 47 C.F.R. § 1.2101 *et. seq.*

[^2]: *See* 47 C.F.R. § 1.2110. The Commission establishes special small
    business size standards on a service-specific basis, taking into
    consideration the characteristics and capital requirements of the
    particular service. 47 C.F.R. §1.2110(c)(1). In the *Part 1 Fifth
    Report and Order,* the Commission, in light of the *Adarand*
    decision, declined to adopt special provisions for minority- and
    women-owned businesses but noted that minority- and women-owned
    businesses that qualify as small businesses may take advantage of
    the provisions the Commission has adopted for small businesses.
    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*, 15 FCC Rcd 15293, ¶ 48 (2000)
    (*Part 1 Fifth Report and Order*), citing *Adarand Constructors,
    Inc. v. Pena*, 515 U.S. 200, 227 (1995). On several occasions, the
    Commission has declined to adopt bidding credits for large telephone
    companies that serve rural areas. *See, e.g.*, Implementation of
    Section 309(j) of the Communications Act -- Competitive Bidding, PP
    Docket No. 93-253, *Fifth Memorandum Opinion and Order*, 10 FCC Rcd
    403, 457-8 ¶ 100, 462-3 ¶ 111 (1994) (*Competitive Bidding Fifth
    MO&O*); Amendment of Part 1 of the Commission's Rules -- Competitive
    Bidding Procedures, *Order on Reconsideration of the Third Report
    and Order, Fifth Report and Order, and Fourth Notice of Proposed
    Rulemaking,* 15 FCC Rcd 15293, ¶¶51-52 (2000); Reallocation and
    Service Rules for the 698-746 MHz Spectrum Band (Television Channels
    52-59), 17 FCC Rcd 1022, ¶ 176 (2002). The Commission determines
    eligibility for its small business provisions based on an entity's
    size determined pursuant to attribution rules. 47 C.F.R. §
    1.2110(b)(1)-(3). *But see also*, Amendment of Part 1 of the
    Commission's Rules -- Competitive Bidding Procedures, *Second Order
    on Reconsideration of the Third Report and Order and Order on
    Reconsideration of the Fifth Report and Order*, 18 FCC Rcd 10180
    (2003). *See* 47 C.F.R. § 1.2110(b)(3)(iii).

[^3]: In certain instances, the Commission has set aside blocks of
    spectrum reserved in "closed bidding" for "entrepreneurs" that meet
    a specified financial threshold. In order to be eligible to bid on
    such spectrum, an applicant, including attributable investors and
    affiliates, must have had gross revenues of less than \$125 million
    in each of the last two years and must have less than \$500 million
    in total assets. *See* Implementation of Section 309(j) of the
    Communications Act -- Competitive Bidding, PP Docket 93-253, *Fifth
    Report and Order*, 9 FCC Rcd 5532, 5581-82 ¶ 115 (1994). *See also*
    Implementation of Section 309(j) of the Communications Act --
    Competitive Bidding, PP Docket 93-253, *Fifth Memorandum Opinion and
    Order*, 10 FCC Rcd 403, 420-21 ¶¶ 28-30 (1994); Amendment of the
    Commission's Rules Regarding Installment Payment Financing for
    Personal Communication Services (PCS) Licensees, WT Docket No.
    97-82, *Sixth Report and Order and Order on Reconsideration*, 15 FCC
    Rcd 16266 (2000) ("*C/F Block Sixth Report and Order*").

[^4]: Letter from Messrs. Steve C. Hillard and George T. Laub, Council
    Tree Communications, Inc. to Marlene H. Dortch, Secretary, Federal
    Communications Commission, WT Docket Nos. 02-353, 04-356, RM-10956
    (June 13, 2005) (Council Tree *ex parte*).

[^5]: *Id.*

[^6]: Council Tree *ex parte* at 14.

[^7]: Proposals herein arose in connection with service rules for AWS in
    the 1710-1755 and 2110-2155 MHz bands. *See, infra,* ¶ 3. An auction
    for licenses in those bands is currently scheduled to begin June 29,
    2006. Auction of Advanced Wireless Services Licenses Scheduled for
    June 29, 2006, Comment Sought on Reserve Prices or Minimum Opening
    Bids and Other Procedures, *Public Notice*, DA 06-238 (rel. Jan. 31,
    2006). Similarly, an auction for licenses in the 800 MHz Air-Ground
    Radiotelephone Service is currently scheduled to begin May 10, 2006.
    Auction of 800 MHz Air-Ground Radiotelephone Service Licenses
    Scheduled for May 10, 2006, Comment Sought on Reserve Prices of
    Minimum Opening Bids and Other Procedures, *Public Notice*, DA 06-3
    (rel. January 10, 2006), 71 FR 3513 (January 23, 2006).

[^8]: Implementation of the Commercial Spectrum Enhancement Act and
    Modernization of the Commission's Competitive Bidding Rules and
    Procedures, *Declaratory Ruling and Notice of Proposed Rulemaking*,
    20 FCC Rcd 11268 (2005), released June 14, 2005.

[^9]: Service Rules for Advanced Wireless Services in the 1.7 GHz and
    2.1 GHz Bands, WT Docket No. 02-353, 18 FCC Rcd 25162 (2003) (*AWS-1
    Service Rules Order*).

[^10]: *AWS-1 Service Rules Order,* 18 FCC Rcd 25162 (2003).

[^11]: *AWS-1 Service Rules Order,* 18 FCC Rcd at 25189 ¶ 68.

[^12]: *AWS-1 Service Rules Order,* 18 FCC Rcd at 25220 ¶ 149. The
    Commission defined a "small business" as an entity with average
    annual gross revenues for the preceding three years not exceeding
    \$40 million, and a "very small business" as an entity with average
    annual gross revenues for the preceding three years not exceeding
    \$15 million. It provided small businesses with a bidding credit of
    15 percent and very small businesses with a bidding credit of 25
    percent. The small business size standards and associated bidding
    credits for licenses in the 1710-1755 MHz and 2110-2155 MHz bands
    are the same as those the Commission adopted for broadband PCS.

[^13]: Council Tree Petition for Reconsideration (filed Mar. 8, 2004)
    (Council Tree Petition) at 4.

[^14]: Council Tree *ex parte* at 1, 13-16. By this *ex parte* filing,
    Council Tree also seeks to supplement its February 8, 2005 reply
    comments in WT Docket No. 04-356 as well as its March 8, 2004
    petition for rulemaking in WT Docket No. 97-82 (RM-10956).

[^15]: Council Tree *ex parte* at 13.

[^16]: Council Tree *ex parte* at 2-3.

[^17]: Service Rules for Advanced Wireless Services in the 1.7 GHz and
    2.1 GHz Bands, *Order on Reconsideration*, WT Docket No. 02-353**,**
    20 FCC Rcd 14058, ¶¶ 37-41 (2005). In particular, with respect to
    the additional 10 percent bidding credit and the individual net
    worth proposals, the Commission found that, in light of other
    Commission decisions and rules, Council Tree had failed to present
    any evidence to justify adoption of either proposal. *Order on
    Reconsideration* at ¶¶ 37-40. Council Tree made the same net worth
    proposal in an earlier petition for rulemaking filed on March 9,
    2004 in WT Docket No. 97-82. Because the *Order on Reconsideration*
    rejected the net worth test also proposed by Council Tree in its
    petition for rulemaking, this action effectively disposed of Council
    Tree's petition for rulemaking. With respect to Council Tree's
    proposal regarding entities having "material relationships" with
    "large in-region incumbent wireless service providers," the
    Commission noted that the record on this issue was undeveloped.
    *Order on Reconsideration* ¶ 41.

[^18]: *Order on Reconsideration* at ¶ 41.

[^19]: Implementation of Section 309(j) of the Communications Act --
    Competitive Bidding, 9 FCC Rcd 2348 (1994) (*Competitive Bidding
    Second Report and Order*).

[^20]: *See, e.g.,* *Competitive Bidding Second Report and Order,* 9 FCC
    Rcd 2348 (1994); *Part 1 Fifth Report and Order*, 15 FCC Rcd 15293
    (2000); Application of ClearComm, L.P., *Memorandum Opinion and
    Order*, 16 FCC Rcd 18627 (2001).

[^21]: *Competitive Bidding Second Report and Order* at 2396, ¶ 277.

[^22]: *Competitive Bidding Second Report and Order* at 2397, ¶ 278.

[^23]: *See* Implementation of Section 309(j) of the Communications
    Act - Competitive Bidding, *Fifth Report and Order*, 9 FCC Rcd 5532
    at ¶159 (1994); Implementation of Section 309(j) of the
    Communications Act - Competitive Bidding, *Fifth Memorandum Opinion
    and Order*, 10 FCC Rcd 403 at ¶¶ 5, 62 (1994); *Part 1 Fifth Report
    and Order* at ¶¶ 64-65 (2000).

[^24]: Council Tree *ex parte* at 2, 13-15.

[^25]: Council Tree *ex parte* at 6. According to Council Tree, the five
    largest wireless carriers are Verizon Wireless, Cingular Wireless,
    Sprint PCS/Nextel, T-Mobile and ALLTEL. Letter and Attachment from
    Messrs. Steve C. Hillard and George T. Laub, Council Tree
    Communications, Inc. to Marlene H. Dortch, Secretary, Federal
    Communications Commission, WT Docket Nos. 02-353, 04-356, RM-10956
    (June 30, 2005), Attachment at 4.

[^26]: Council Tree *ex parte* at 6.

[^27]: Council Tree *ex parte* at 6.

[^28]: Letter from Diane Cornell, Vice President, Regulatory Policy,
    CTIA -- The Wireless Association to Marlene H. Dortch, Secretary,
    Federal Communications Commission, WT Docket No. 02-353 (June 30,
    2005)(CTIA Opposition).

[^29]: CTIA Opposition at 4.

[^30]: 47 C.F.R. § 1.2110(b)(1)(i).

[^31]: Council Tree *ex parte* at 2, 13-16. Council Tree suggests that
    the Commission exclude from its proposed restriction those in-region
    CMRS and AWS licensees that have average gross wireless revenues for
    the preceding three years that do not exceed \$5 billion. It states
    that this exception (effectively for *smaller* in-region incumbents)
    will help true new entrants to attract capital and draw on the
    experience of existing firms and managers as a way to increase their
    odds of success without exacerbating the ownership concentration
    problems associated with turning to large incumbent providers in
    their existing regions for support. It also states that the
    eligibility rules that it proposes should not operate as a license
    eligibility limitation. As such, it asserts that a large incumbent
    CMRS or AWS provider would itself not be prevented under the plan
    from acquiring any AWS license through competitive bidding, and the
    incumbent could invest at a material level in, or enter material
    operating arrangements with, any new entrant applying for AWS
    licenses that have no significant overlap with the incumbent's
    existing CMRS or AWS license service areas. The large incumbent
    simply could not utilize the AWS auction bidding credit itself or
    invest at a material level in, or enter material operating
    arrangements with, an AWS auction applicant "in region."

[^32]: 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, 388-89, ¶ 19 (1997) (*Part
    1 Third Report and Order*).

[^33]: *See* 47 C.F.R. § 1.2110(b)(1).

[^34]: For purposes of calculating equity held in an applicant or
    licensee, the controlling interest standard treats certain ownership
    agreements, such as warrants, stock options, convertible debentures,
    and agreements to merge, as already having been "fully diluted,"
    i.e., fully exercised. 47 C.F.R. § 1.2110(c)(2)(ii)(A). *De jure*
    control is typically evidenced by the holding of 50.1 percent or
    more of the voting stock of a corporation or, in the case of a
    partnership, general partnership interests. This *de jure* control
    standard is also applicable to limited liability companies and
    limited partnerships. *De facto* control is determined on a
    case-by-case basis and includes the criteria set forth in *Ellis
    Thompson*. *See Ellis Thompson Corporation*, 9 FCC Rcd 7138,
    7138-7139 ¶ 9 (1994) (*Ellis Thompson*), in which the Commission
    identified the following factors used to determine control of a
    business: (1) use of facilities and equipment; (2) control of
    day-to-day operations; (3) control of policy decisions; (4)
    personnel responsibilities; (5) control of financial obligations;
    and (6) receipt of monies and profits. *See also* Intermountain
    Microwave, 12 FCC 2d 559, 560 (1963), and Application of Baker Creek
    Communications, L.P., for Authority to Construct and Operate Local
    Multipoint Distribution Services in Multiple Basic Trading Areas,
    *Memorandum Opinion and Order*, 13 FCC Rcd 18709 (1998).

[^35]: Council Tree asserts that this approach is similar to that
    employed by the Commission in providing new entrant bidding credits
    to applicants for construction permits in the broadcast services.
    Council Tree *ex parte* at 14. In determining an applicant's
    eligibility for a new entrant bidding credit, the Commission
    attributes the mass media interests of any individual or entity who
    holds a significant equity interest and/or debt interest in an
    auction applicant claiming new entrant status. See 47 C.F.R. §
    73.5008(c). Council Tree notes that, in the broadcast context, the
    Commission explained that "\[a\]ttributing the interests, whether
    debt or equity, of substantial investors is justified to insure that
    only true new entrants qualify for the bidding credit because
    holders of otherwise nonattributable nonvoting interests may well
    have 'a realistic potential' to influence bidders claiming new
    entrant status." Council Tree *ex parte* at 14.

[^36]: 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*, 15 FCC Rcd 15293 (2000)
    (*Part 1 Fifth Report and Order*). A "controlling interest" includes
    individuals or entities, or groups of individuals or entities, that
    have control of the applicant under the principles of either *de
    jure* or *de facto* control. Under the Commission's attribution
    rules, all parties that control an applicant and their affiliates,
    will have their gross revenues counted and attributed to the
    applicant in determining the applicant's eligibility for small
    business status.

[^37]: Council Tree *ex parte* at 15.

[^38]: Promoting Efficient Use of Spectrum Through Elimination of
    Barriers to the Development of Secondary Markets, *Second Report and
    Order,* *Order on Reconsideration, and Second Further Notice of
    Proposed Rulemaking,* 19 FCC Rcd 17503, 17541-17542 ¶ 77 (2004). The
    Commission concluded that a spectrum manager lease between a
    designated entity licensee and a non-designated entity lessee with a
    prior business relationship where substantially all of the spectrum
    capacity of the licensee is to be leased would cause the spectrum
    lessee to become an attributable affiliate of the licensee. Such
    affiliation would render the licensee ineligible for designated
    entity or entrepreneur benefits and, therefore, would make such a
    spectrum lease impermissible. *Id.* On the other hand, a spectrum
    manager lease involving a small portion of the designated entity or
    entrepreneur licensee's spectrum capacity where no relationship
    existed between the licensee and spectrum lessee apart from the
    lease would likely be permissible. *Id.*

[^39]: Council Tree's proposal does not include a definition of "average
    gross wireless revenues."

[^40]: 47 C.F.R. § 1.2110(n).

[^41]: Council Tree suggests that the Commission employ (in part) the
    wireless service overlap and CMRS ownership attribution standards
    established as part of the Commission's CMRS spectrum aggregation
    limit. Council Tree acknowledges that the CMRS spectrum aggregation
    limit has sunset but suggests that this standard should be followed.
    Council Tree *ex parte* at 14.

[^42]: Council Tree *ex parte* at 13.

[^43]: *See* 47 C.F.R. § 20.6(f).

[^44]: 47 C.F.R. § 20.6 (c).

[^45]: 47 C.F.R. §1.2111(d).

[^46]: Council Tree *ex parte* at 15-16.

[^47]: *See* 47 U.S. C. § 309(j)(4)(E). *See* *also*, 47 C.F.R. §
    1.2111(d).

[^48]: Council Tree *ex parte* at 15.

[^49]: Council Tree *ex parte* at 15-16. *See* Applications of TeleCorp
    PCS, Inc., Tritel, Inc., and Indus, Inc. et al, *Memorandum Opinion
    and Order*, 16 FCC Rcd 3716 (2000)*.*

[^50]: Council Tree *ex parte* at 16.

[^51]: Auction of Advanced Wireless Services Licenses Scheduled for June
    29, 2006, Comment Sought on Reserve Prices or Minimum Opening Bids
    and Other Procedures, *Public Notice*, DA 06-238 (rel. Jan. 31,
    2006).

[^52]: Similarly, an auction for licenses in the 800 MHz Air-Ground
    Radiotelephone Service is currently scheduled to begin May 10, 2006.
    Auction of 800 MHz Air-Ground Radiotelephone Service Licenses
    Scheduled for May 10, 2006, Comment Sought on Reserve Prices of
    Minimum Opening Bids and Other Procedures, *Public Notice*, DA 06-3
    (rel. January 10, 2006), 71 FR 3513 (January 23, 2006). In light of
    the current auction schedule, any provisions that we may adopt
    regarding pending auctions may apply in that auction as well.

[^53]: *See* 47 C.F.R. *See* 1.2105(a)(2)(iv).

[^54]: *Cf.* 47 C.F.R. 1.2105(a)(2)(iv) (parallel statement currently
    required as of the date of filing the short-form application).
    Pursuant to its delegated authority to conduct auctions, the
    Wireless Telecommunications Bureau will establish any detailed
    procedures necessary for making required amendments and announce
    such procedures by public notice. *See* 47 C.F.R. §§ 0.131, 0.331.

[^55]: While prior certifications may be a prerequisite to eligibility,
    applicants still must demonstrate compliance with all applicable
    Commission rules, including eligibility for any bidding credits, at
    the time the Commission is ready to grant a license, regardless of
    previously applicable rules. *See* Implementation of the Commercial
    Spectrum Enhancement Act and Modernization of the Commission's
    Competitive Bidding Rules and Procedures, *Report and Order*, FCC
    06-4 (rel. Jan. 24, 2006), at ¶ 45 n.84; *see also* *Celtronix
    Telemetry, Inc. v. FCC*, 272 F.3d 585, 587 (D.C. Cir. 2001), *cert.
    denied*, 536 U.S. 923 (2002) (affirming Commission application of
    installment payment rules that were revised after initial grant of
    license).

[^56]: *See generally* *id.* §§ 1.1202, 1.1203, 1.1206(a).

[^57]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. §§ 601 -- 612, has
    been amended by the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857
    (1996).

[^58]: *See* 5 U.S.C. § 603(a).

[^59]: *See id.*

[^60]: *See* 47 C.F.R. § 1.2110. The Commission establishes the
    definition of a small business on a service-specific basis, taking
    into consideration the characteristics and capital requirements of
    the particular service. 47 C.F.R. §1.2110(c)(1). In the *Part 1
    Fifth Report and Order,* the Commission, in light of the *Adarand*
    decision, declined to adopt special provisions for minority- and
    women-owned businesses but noted that minority- and women-owned
    businesses that qualify as small businesses may take advantage of
    the provisions the Commission has adopted for small businesses.
    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*, 15 FCC Rcd 15293, (2000) (*Part 1
    Fifth Report and Order*) ¶ 48, citing *Adarand Constructors, Inc. v.
    Pena*, 515 U.S. 200, 227 (1995). The Commission determines
    eligibility for its small business provisions based on an entity's
    size determined pursuant to attribution rules. 47 C.F.R. §
    1.2110(b)(1)-(3). *But see also*, Amendment of Part 1 of the
    Commission's Rules -- Competitive Bidding Procedures, Second Order
    on Reconsideration of the Third Report and Order and Order on
    Reconsideration of the Fifth Report and Order, 18 FCC Rcd 10180
    (2003). *See* 47 C.F.R. § 1.2110(b)(3)(iii)(whereby the gross
    revenues of the affiliates of a rural telephone cooperative's
    officers and directors are not attributed to the applicant).

[^61]: Letter from Messrs. Steve C. Hillard and George T. Laub, Council
    Tree Communications, Inc. to Marlene H. Dortch, Secretary, Federal
    Communications Commission, WT Docket Nos. 02-353, 04-356, RM-10956
    (June 13, 2005) (Council Tree *ex parte*).

[^62]: *See, e.g.,* *Competitive Bidding Second Report and Order,* 9 FCC
    Rcd 2348 (1994); *Part 1 Fifth Report and Order*, 15 FCC Rcd 15293
    (2000); Application of ClearComm, L.P., *Memorandum Opinion and
    Order*, 16 FCC Rcd 18627 (2001).

[^63]: *Competitive Bidding Second Report and Order* at 2396, ¶ 277.

[^64]: *Competitive Bidding Second Report and Order* at 2397, ¶ 278.

[^65]: *See* Implementation of Section 309(j) of the Communications
    Act - Competitive Bidding, *Fifth Report and Order*, 9 FCC Rcd 5532
    at ¶159 (1994); Implementation of Section 309(j) of the
    Communications Act - Competitive Bidding, *Fifth Memorandum Opinion
    and Order*, 10 FCC Rcd 403 at ¶¶ 5, 62 (1994); *Part 1 Fifth Report
    and Order* at ¶¶ 64-65 (2000).

[^66]: 5 U.S.C. § 603(b)(3).

[^67]: *Id.* § 601(6).

[^68]: *Id.* § 601(3) (incorporating by reference the definition of
    "small business concern" in the Small Business Act, 15 U.S.C. §
    632). Pursuant to the RFA, the statutory definition of a small
    business applies "unless an agency, after consultation with the
    Office of Advocacy of the Small Business Administration and after
    opportunity for public comment, establishes one or more definitions
    of such term which are appropriate to the activities of the agency
    and publishes such definition(s) in the Federal Register." *Id.* §
    601(3).

[^69]: *Id.* § 601(4).

[^70]: Independent Sector, The New Nonprofit Almanac & Desk Reference
    (2002).

[^71]: 5 U.S.C. § 601(5).

[^72]: U.S. Census Bureau, Statistical Abstract of the United States:
    2000, Section 9, pages 299-300, Tables 490 and 492.

[^73]: *See* SBA, Programs and Services, SBA Pamphlet No. CO-0028, at
    page 40 (July 2002).

[^74]: In auctions for licenses for certain services, including auctions
    of broadcast construction permits, sized-based bidding preferences
    have not been available.

[^75]: *See* 5 U.S.C. § 603.