DA 02-260

February 4, 2002

**AUCTION OF LICENSES IN THE 747-762 AND 777-792 MHz BANDS**

**SCHEDULED FOR JUNE 19, 2002**

**COMMENT SOUGHT ON ADDING TO AUCTION INVENTORY AND FURTHER MODIFYING
PACKAGE BIDDING PROCEDURES**

Report No. AUC-02-31-A (Auction No. 31)

By this Public Notice, the Wireless Telecommunications Bureau ("Bureau")
seeks comment on the potential inclusion of 24 additional licenses in
Auction No. 31 and potential modifications of previously-announced
procedures for Auction No. 31. In the *Auction No. 31 Procedures Public
Notice*, [^1] the Bureau established procedures for the auction of the
twelve licenses in the 747-762 and 777-792 MHz bands (the "Upper 700
MHz" bands). The Bureau later revised its procedures to include package
bidding in *Auction No. 31 Package Bidding Procedures Public
Notice*,[^2] and subsequently modified those procedures in the *Auction
No. 31 Package Bidding Procedures Modification Public Notice*. [^3] In
light of subsequent developments and further analysis, we have
determined that it may be appropriate to make further refinements.
Accordingly, this Public Notice seeks comment on whether to:

1.  include 24 licenses from the 698-746 MHz band (the "Lower 700 MHz"
    band) in Auction No. 31;

2.  increase the number of bidder-defined packages if the Lower 700 MHz
    band licenses are included in Auction No. 31;

3.  change part (iii) of the minimum acceptable bid calculation by
    either substituting a new method of calculating minimum acceptable
    bids (Option 1) or modifying the existing formula for calculating
    minimum acceptable bids for new packages (Option 2) and, if Option 1
    is adopted, consider all bids submitted when determining
    provisionally winning bid sets;[^4] and

4.  establish an aggregate reserve price or increase the
    previously-established minimum opening bids.

# WHETHER TO INCLUDE 24 licenses from the Lower 700 MHz Band IN auction No. 31

The Bureau seeks comment on whether we should include 24 licenses from
the Lower 700 MHz band in Auction No. 31. These 24 licenses consist of
licenses for four blocks of spectrum in each of the six regions known as
the 700 MHz band economic area groupings ("700 MHz band EAGs"). In each
700 MHz band EAG, four Lower 700 MHz band licenses are for the use of
two 12 megahertz blocks (each block consists of paired 6 megahertz
segments) and two 6 megahertz blocks that are unpaired and
contiguous.[^5]

Including these 24 Lower 700 MHz band licenses in Auction No. 31 would
enable bidders to create and bid on packages containing 700 MHz band EAG
licenses from both the Upper and Lower 700 MHz bands. Commenters should
address any potential advantages or disadvantages of permitting package
bidding on such combinations and facilitating the substitution of
spectrum in the Upper and Lower 700 MHz bands. Interested parties are
advised that the Bureau also seeks comment regarding this issue in a
separate Public Notice addressing procedures for the auction of licenses
in the Lower 700 MHz bands (Auction No. 44).[^6]

If these 24 additional licenses are included in Auction No. 31,
operational considerations would require the Bureau also to adopt the
more comprehensive revision to the minimum acceptable bid calculation
described as Option 1 in Section III(B) below.

# WHETHER TO INCREASE the number of BIDDER-DEFINED packages

The Bureau seeks comment on whether to increase the number of
bidder-defined packages if the Bureau includes 24 licenses from the
Lower 700 MHz band in Auction No. 31. Taking into account various
factors, including the available licenses, the Bureau previously
announced that Auction No. 31 bidders would be permitted to create and
bid on up to twelve different packages of their own choosing during
Auction No. 31.[^7] Commenters are asked to address whether the
inclusion of additional licenses in Auction No. 31 would create any need
to increase the number of bidder-defined packages, considering that
bidder-defined packages may contain any number of licenses, up to all
the licenses available in the auction.

# WHETHER TO CHANGE THE Minimum Acceptable Bid CALCULATION

**A. Summary of Existing** **Procedures**

The Bureau established the current three-part formula for calculating
minimum acceptable bids in the *Auction No. 31 Package Bidding
Procedures Modification Public Notice*.[^8] Pursuant to the existing
procedure, the minimum acceptable bid for any particular license or
package would be the greatest of: (i) the applicable minimum opening
bid; (ii) the bidder\'s previous high bid on that license/package plus
x%, where the Bureau would specify the value of x in each round; and
(iii) the bidder\'s previous high bid on that particular license/package
plus an amount based on the increase in the bidder's previous high bid
needed to create a tie with the provisional winners.[^9] If the bidder
has not bid on a license or an already constructed package, the bidder's
previous high bid for purposes of calculating part (iii) would be the
applicable minimum opening bid.

With respect to part (iii), the Bureau established that it would
determine the amount to add to a given previous high bid in three steps.
First, the Bureau would calculate a shortfall for the given bid, with
the shortfall being the difference between the revenue of the
provisionally winning bid set and the maximum total revenue associated
with a set of bids that includes the given bid and satisfies all other
constraints for determining a provisionally winning set. Second, the
Bureau would determine a deficit for the given bid, or its share of the
shortfall produced by the set, in two stages. Initially, the Bureau
would determine the ratio of bidding units in the given bid's particular
license/package to bidding units for all the non-provisionally winning
bids in the set of bids that produced the shortfall. (If more than one
set of bids yields the same shortfall for a given bid, the Bureau would
use the set that includes the most provisionally winning bidding units.)
The Bureau then would multiply the given bid's shortfall by this ratio
to arrive at the deficit for the given bid. Third, and finally, the
Bureau would determine the amount to be added to the given previous high
bid by multiplying the given bid's deficit by y%. At the beginning of
the auction, the Bureau would set y at 100 but would retain the
discretion to adjust the amount during the course of the auction.

However, part (iii) cannot be used to calculate the minimum acceptable
bid for a package in the same round that the particular package is
created because no shortfall or deficit was calculated with respect to
that particular package at the end of the prior round. For such a new
package, the Bureau established the following procedures. Generally, the
third part of the initial minimum acceptable bid formula would be
calculated for new packages by multiplying the number of bidding units
in the package by the lowest \$/bidding unit of any provisionally
winning bid in the last five rounds. However, in the event the new
package is the global package of all licenses available in the auction,
the minimum acceptable bid would be the revenue generated by the
provisionally winning bid set in the previous round plus w%.[^10] This
assures that no bid for the global package would be accepted that does
not exceed the maximum revenue in the preceding round.

Pursuant to current Auction No. 31 procedures, provisionally winning
bids would be determined by considering: (1) for each bidder, bids from
the most recent two rounds in which the bidder submitted bids or renewed
bids; and (2) all provisionally winning bids from the prior round; and
(3) a set of FCC bids on each license at some small amount less than the
applicable minimum opening bid.[^11] Furthermore, a bidder's bids
submitted in a given round would be treated as mutually exclusive of the
bidder's bids submitted in other rounds.[^12]

## Proposed Procedures \-- Option 1

Option 1 involves two significant changes to current procedures, the
first being a comprehensive revision in calculating part (iii) of the
minimum acceptable bid formula and the second regarding the bids
considered when determining provisionally winning bids. These changes
would be made jointly or not at all. Adopting the first proposed change
would enable the Bureau to include additional licenses in Auction No.
31, as discussed in Section I, above; could improve the pace of the
auction; and would make it feasible to consider all bids submitted
during the auction when determining provisionally winning bids.
Considering all bids submitted during the auction when determining
provisionally winning bids would make bidders responsible for all bids
throughout the auction and may discourage strategic bidding. On the
other hand, considering all bids submitted might make it more complex
for participants and other observers to track the auction.

We seek comment on both aspects of the proposal, as described below.

### Minimum Acceptable Bids

As the first part of Option 1, the Bureau proposes to replace part (iii)
of the minimum acceptable bid formula with a current price estimate of
the license or package plus z%. A current price estimate for each
license would be calculated at the close of each round using the
Smoothed Anchoring Method (see Attachment A). The current price estimate
for a package would be the sum of the current price estimates of the
licenses that comprise the package. Pursuant to this proposal, the
Bureau would set z to be zero at the beginning of the auction but would
retain the discretion to adjust the amount, including setting it at less
than zero, during the course of the auction in order to provide control
over the pace of the auction.

Implementing current price estimates for licenses and packages would
preclude the need for a special version of part (iii) of the minimum
acceptable bid formula for newly-created packages. However, the Bureau
would retain the exception for calculating the minimum acceptable bid
for a newly-created global package. After the first round of the
auction, the minimum acceptable bid for the global package would always
be the revenue generated by the provisionally winning bid set in the
previous round plus w%. The Bureau would make this distinction in order
to retain the ability to ensure that bids for the global package would
continue to increase even if we were to employ a percentage z that would
not guarantee that outcome. That is, we might want to set w higher than
z.

### Bids Considered

As the second part of Option 1, the Bureau would consider all bids
submitted during the auction when determining the provisionally winning
set of bids. It is impractical to consider every bid submitted during
the auction when calculating shortfalls and deficits in each round
pursuant to the existing minimum acceptable bid formula. In the event
that the Bureau calculates minimum acceptable bids using current price
estimates, as described above, it would become feasible to consider
every bid submitted when calculating minimum acceptable bids. As in the
previously-established procedures, bids placed and/or renewed in
different rounds would be considered as mutually exclusive -- a bidder
could be a provisional winner only on bids placed in the same round.

## Proposed Procedures \-- Option 2

Option 2 involves a more modest change to current procedures, limited to
revising the third part of the minimum acceptable bid formula applicable
to newly-created packages. Pursuant to this alternative proposal, for
newly-created packages, the third part of the minimum acceptable bid
formula would be calculated by multiplying the number of bidding units
in the package by the *average* dollar per bidding unit of all
provisionally winning bids in the past five rounds. The average dollar
per bidding unit would be calculated by dividing the sum of gross
revenues from the provisionally winning bids sets[^13] over the last
five rounds by five times the sum of all of bidding units in the
auction. This exception would not apply to bids for the global package,
however, for which the minimum acceptable bid would be the maximum
revenue from the previous round plus w%.

This alternative proposed revision to the calculation of minimum
acceptable bids could improve the pace of the auction. We seek comment
on this proposal.

# WHETHER TO ESTABLISH AN AGGREGATE reserve price or INCREASE PREVIOUSLY-ESTABLISHED minimum opening bidS

The Communications Act calls upon the Commission to prescribe methods by
which a reasonable reserve price will be required, or a minimum opening
bid will be established, when the Commission auctions licenses, unless
the Commission determines that a reserve price or a minimum opening bid
is not in the public interest.[^14] 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 and on the methodology to be
employed in establishing each of these mechanisms prior to the start of
each auction.[^15] After seeking comment on relevant issues, the Bureau
established minimum opening bids for Auction No. 31.[^16] The Bureau
further established that the minimum opening bids for packages would be
the sum of the minimum opening bids for the licenses comprising the
package.[^17]

For Auction No. 31, to supplement the established minimum opening bids,
the Bureau seeks comment on establishing an aggregate reserve price that
exceeds the sum of the minimum opening bids. A reserve price is an
absolute minimum price below which specified goods will not be sold.
Bidders, however, may place bids below reserve prices. Furthermore,
reserve prices can be either public or undisclosed. The spectrum in
Auction No. 31 is subject to a unique statutory clearance process, which
the Commission has created incentives to accelerate.[^18] In light of
these complexities, using an aggregate reserve price in addition to
minimum opening bids may be appropriate to ensure "a recovery for the
public of a portion of the value of the public spectrum resource"[^19]
commensurate with Congressional expectations.[^20]

With respect to the appropriate level of an aggregate reserve price,
Congress has estimated that the Upper 700 MHz band licenses available
for auction will generate \$2.6 billion in revenue.[^21] The
Commission's previous 700 MHz guard bands auctions raised nearly \$541
million.[^22] Therefore, we seek comment on the possibility of an
aggregate reserve in Auction No. 31 equal to \$2.6 billion in gross
bids. This gross bid figure should result in net revenues approximating
the Congressional revenue estimate minus net revenues from the 700 MHz
guard bands auctions.[^23] Under this approach, the Commission only
would accept the provisionally winning set of bids at the close of
Auction No. 31 if the gross amount of the provisionally winning set of
bids equals or exceeds the \$2.6 billion aggregate reserve price.[^24]

Commenters are asked to address how the public interest would or would
not be served by adopting an aggregate reserve price. In particular,
given all the circumstances of this auction, we seek comment on whether
the public interest would be served by establishing an aggregate reserve
price to ensure that the Commission recovers for the public a portion of
the value of the public spectrum resource commensurate with
Congressional expectations. Additionally, we seek comment on whether an
aggregate reserve price would introduce an added threshold problem[^25]
with which bidders would have to contend.

Commenters also should address whether any aggregate reserve price
should be made public or remain undisclosed.[^26] Commenters supporting
disclosure should address when and how any aggregate reserve price would
be made public. For example, should it be disclosed when the Bureau
announces the qualified bidders for the auction? Or when the auction
begins? In addition, commenters should address whether the Bureau should
make periodic announcements during the auction regarding whether bids
meet the aggregate reserve price or postpone any announcements until
after the auction closes. Commenters supporting an undisclosed aggregate
reserve price should comment on whether the Bureau should announce
whether bids meet any aggregate reserve at any time before the auction
closes. For example, should the Bureau announce whether bids meet any
aggregate reserve price if the Bureau keeps the auction open by
exercising its discretion under the stopping rule?[^27]

Commenters addressing the level of the proposed aggregate reserve price
should support their claims with valuation analyses and suggested
reserve prices or formulas.[^28] Any commenters suggesting
license-by-license reserve prices, in place of the proposed aggregate
reserve price, should explain with specificity how reserve prices for
individual licenses would be established. We particularly seek comment
on such factors as, among other things, the amount of spectrum being
auctioned, levels and circumstances of incumbency, the availability of
technology to provide service, the size of the geographic service areas,
issues of interference with other spectrum bands and any other relevant
factors that reasonably could have an impact on valuation of the
747--762 and 777--792 MHz bands.

As an alternative, the Bureau also seeks comment on increasing the
previously-established minimum opening bids in Auction No. 31. The
previously-established minimum opening bids total \$720 million.[^29] If
commenters believe that the public interest would be served by
increasing the current minimum opening bids, they should support their
claims with valuation analyses and suggested minimum opening bid levels
or formulas. With respect to the amounts of 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 reasonably could have an
impact on valuation of the 747--762 and 777--792 MHz bands.

# conclusion {#conclusion .unnumbered}

Comments are due on or before February 19, 2002, and reply comments are
due on or before February 26, 2002. Because of the disruption of regular
mail and other deliveries in Washington, DC, the Bureau requires that
all comments and reply comment be filed electronically. Comments and
reply comments must be sent by electronic mail to the following address:
[auction31@fcc.gov](mailto:auction44@fcc.gov).[^30] The electronic mail
containing the comments or reply comments must include a subject or
caption referring to Auction No. 31 Comments. The Bureau requests that
parties format any attachments to electronic mail as Adobe^®^ Acrobat^®^
(pdf) or Microsoft^®^ Word documents. Copies of 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.

**In addition, the Bureau requests that commenters fax a courtesy copy
of their comments and reply comments to the attention of Kathryn Garland
at (717) 338-2850.**

This proceeding has been designated as a "permit‑but‑disclose"
proceeding in accordance with the Commission's *ex parte* rules.[^31]
Persons making oral *ex parte* presentations are reminded that memoranda
summarizing the presentations must contain summaries of the substance of
the presentations and not merely a listing of the subjects discussed.
More than a one- or two-sentence description of the views and arguments
presented is generally required.[^32] Other rules pertaining to oral and
written *ex parte* presentations in permit-but-disclose proceedings are
set forth in Section 1.1206(b) of the Commission's rules.[^33]

For further information concerning this proceeding, contact the
following employees of Auctions and Industry Analysis Division, Wireless
Telecommunications Bureau, at (202) 418-0660:

For legal questions: Howard Davenport

For general auction questions: Craig Bomberger or Martha Stancill

For software questions: Karen Wrege

**-- FCC --**

[^1]: *See* Auction of Licenses in the 747-762 and 777-792 MHz Bands;
    Auction Notice and Filing Requirements for 12 Licenses in the 700
    MHz Bands Auction Scheduled for May 10, 2000; Minimum Opening Bids
    and Other Auction Procedural Issues, DA 00-292, *Public Notice*, 15
    FCC Rcd 2921 (2000) ("*Auction No. 31 Procedures Public Notice*").

[^2]: *See* Auction of Licenses in the 747-762 and 777-792 MHz Bands
    Scheduled for September 6, 2000, Procedures Implementing Package
    Bidding for Auction No. 31; Bidder Seminar Scheduled for July 24,
    2000, DA 00-1486, *Public Notice*, 15 FCC Rcd 11,526 (2000)
    ("*Auction No. 31 Package Bidding Procedures Public Notice*").

[^3]: *See* Auction of Licenses in the 747-762 and 777-792 MHz Bands
    Scheduled for March 6, 2001; Modifications to the Calculation for
    Determining Minimum Acceptable Bids and the Provisions Concerning
    "Last and Best Bids" and Other Procedural Issues; Bidder Seminar
    Scheduled for January 23, 2001, and Test of Package Bidding System
    Set for January 24, 25, and 26, 2001, DA 01-12, *Public Notice*, 16
    FCC Rcd 217 (2001) ("*Auction No. 31 Package Bidding Procedures
    Modification Public Notice*").

[^4]: The *provisionally winning bid set* at the end of each round
    consists of those non-mutually exclusive considered bids that
    maximize revenue while assigning each license only once.

[^5]: *See* Auction of Licenses in the 698-746 MHz Band Scheduled for
    June 19, 2002, Comment Sought on Reserve Prices or Minimum Opening
    Bids and Other Auction Procedural Issues, *Public Notice*, DA 02-200
    (rel. Jan. 24, 2002) ("*Auction No. 44 Procedures Public Notice*")
    at 1-2.

[^6]: *See Auction No. 44 Procedures Public Notice* at 2*.*

[^7]: *Auction No. 31 Package Bidding Procedures Public Notice*, 15 FCC
    Rcd at 11,532.

[^8]: *See* *Auction No. 31 Package Bidding Procedures Modification
    Public Notice*, 16 FCC Rcd at 219-221.

[^9]: *Id.*

[^10]: *Id.*, at 211.

[^11]: *See* *Auction No. 31 Package Bidding Procedures Modification
    Public Notice*, 16 FCC Rcd at 224, 231-32.

[^12]: *See id.* at 231.

[^13]: The provisionally winning bid set would include any license for
    which no bid has been submitted, with any such license treated as
    though a bid had been submitted in the amount of the minimum opening
    bid. *See* *Auction No. 31 Package Bidding Procedures Public
    Notice*, 15 FCC Rcd at 11,550-51. Accordingly, the divisor for
    determining the average dollar per bidding unit includes all the
    bidding units in the auction, as described above.

[^14]: *See* 47 U.S.C. §309(j)(4)(F). 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).

[^15]: *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, 455-456
    ¶141 (1997) ("*Part 1 Third Report and Order*").

[^16]: A minimum opening bid 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 minimum opening bid later in the auction.
    *See* *Auction No. 31 Package Biding Procedures Public Notice*, 15
    FCC Rcd at 11,543 and 11,561.

[^17]: *See* *id.*, at 11,543.

[^18]: *See* Service Rules for the 746-764 and 776-794 MHz Bands, and
    Revisions to Part 27 of the Commission's Rules; Carriage of the
    Transmissions of Digital Television Broadcast Stations; Review of
    the Commission's Rules and Policies Affecting the Conversion to
    Digital Television, WT Docket No. 99-168, CS Docket No. 98-120, MM
    Docket No. 00-39, *Order on Reconsideration of the Third Report and
    Order*, 16 FCC Rcd 21,633 (2001).

[^19]: 47 U.S.C. §309(j)(3)(C)(one Commission statutory objective when
    proceeding to auction is "recovery for the public of a portion of
    the value of the public spectrum resource").

[^20]: *See, generally,* *Part 1 Third Report and Order*, 13 FCC Rcd at
    455 (regarding the use of reserve prices in Commission auctions).

[^21]: *See* 145 Cong. Rec. H9907-04, H9919 (daily ed. October 13,
    1999).

[^22]: *See* 700 MHz Guard Bands Auction Closes, DA 00-2154, *Public
    Notice*, 15 FCC Rcd 18,026 (2000); 700 MHz Guard Bands Auction
    Closes, DA 01-478, *Public Notice*, 16 FCC Rcd 4590 (2001).

[^23]: This gross bid figure should approximate the amount necessary to
    result in \$2.6 billion in net bids when added to the net results
    from the 700 MHz guard bands auctions. Unavoidably, there are
    uncertainties in estimating the gross bids required to meet
    Congressional expectations regarding net revenues.

[^24]: Pursuant to previously established procedures, the winning set of
    bids would value any FCC-held licenses at the close of the auction
    at the minimum opening bid for those licenses. *See* *Auction No. 31
    Package Bidding Procedures Public Notice*, 15 FCC Rcd at 11,550-51.

[^25]: *See* *Auction No. 31 Package Bidding Procedures Public Notice*,
    15 FCC Rcd at 11,529-30(defining and discussing the threshold
    problem for purposes of Auction No. 31).

[^26]: Any commenters suggesting license-by-license reserve prices, in
    place of the proposed aggregate reserve price, should address the
    issue of disclosure as well.

[^27]: *See* *Auction No. 31 Procedures Public Notice*, 15 FCC Rcd at
    2946-47 (discussing stopping rule for Auction No. 31); 47 C.F.R.
    §1.2104(e).

[^28]: In addressing these issues, commenters may also wish to address
    the possibility that 24 Lower 700 MHz bands licenses may be added to
    the inventory of Auction No. 31.

[^29]: *See Auction No. 31 Procedures Public Notice* at 11,561.

[^30]: Comments and reply comments in response to this Public Notice may
    not be filed using the Commission's Electronic Comment Filing
    System, which is used for the Commission's docketed rule making
    proceedings.

[^31]: *See* 47 C.F.R. §§ 1.1200(a), 1.1206.

[^32]: *See* 47 C.F.R. § 1.1206(b).

[^33]: *See* 47 C.F.R. § 1.1206(b).