FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
Before the
Federal Communications Commission 
Washington, D.C. 20554
PP Docket No. 93-253
In the Matter of
Implementation of Section 309(j) 
of the Communications Act - 
Competitive Bidding
SECOND REPORT AND ORDER
Adopted: March 8, 1994; Released: April 20, 1994
By the Commission:
TABLE OF CONTENTS
Paragraph
I. INTRODUCTION 1 
A. Policy Objectives 3 
B. Summary 8
II. PRINCIPLES FOR DETERMINING WHETHER 
LICENSES MAY BE AUCTIONED 11
A. General Requirement for Mutual Exclusivity 
Among Applications for Initial Licenses or 
Construction Permits Accepted for Filing 12
1. Shared Spectrum 13
2. Licenses Awarded on a "First-Come. 
First-Served" Basis 15
3. Mutual Exclusivity Unknown 18
B. General Requirement of Subscribers 20
1. Broadcast Services Exclusion 21
2. "Private Services" Exclusion 23
C. Principal Use Requirement 30
D. Initial and Modification Applications 37
E. Intermediate Links 41 
F. Services For Which Competitive Bidding Would
Not Further Section 309(j)(3) Objectives 44
G. Specific Services Subject to Competitive Bidding 48
1. Interactive Video Data Service 49
2. Personal Communications Services 54
3. Common Carrier and Commercial
Mobile Radio Services 59
III. COMPETITIVE BIDDING DESIGN 68 
A. Introduction 68 
B. Effect of Design on Policy Objectives 70
C. Alternative Competitive Bidding Designs
1. Multiple v. Single Round Bidding
2. Sequential v. Simultaneous Bidding
3. Combinatorial Bidding 
D. Preferred Competitive Bidding Designs
1. Primary Method: Simultaneous 
Multiple Round Bidding
2. Alternative Methods 
E. Bidding Procedures
1. Sequencing
2. Duration of Bidding Rounds
3. Bid Increments
4. Stopping Rules for Multiple Round 
Auctions
5. Activity Rules
6. Bid Withdrawal and Default
7. Releasing Bid Information
8. Delay, Suspension or Cancellation of 
Auction
IV. PROCEDURAL, PAYMENT AND PENALTY 
ISSUES
A. Pre-Auction Procedures and Bidder and Licensee
Qualifications
B. Upfront Payment
C. Payment for Licenses Awarded by Competitive
Bidding
D. Default and Disqualification
E. Minimum Bids and Reservation Prices
F. Procedures in Other Auction Designs
V. REGULATORY SAFEGUARDS 
A. Unjust Enrichment and Transfer Disclosure 
Requirements
B. Performance Requirements 
C. Rules Prohibiting Collusion
VI. TREATMENT OF DESIGNATED ENTITIES 
A. Introduction 
B. Overview and Objectives 
C. Specific Preferences
1. Installment Payments
2. Bidding Credits
3. Spectrum Set-asides
4. Tax Certificates
5. Royalty Payments
6. Innovator's Preference
7. Distress Sales to Designated Entities 
D. Preventing Unjust Enrichment
79
80
86
98
106
106
112
116
117
121
124
127
133
146
158
159
160
161
169
189
195
206
208
210
211
216
221
227
227
229
231
231
241
245
249
252
254
257
258
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E. Definitions
1. Small Business
2. Minority- and Female-Owned 
Businesses
3. Rural Telephone Companies
4. Designated Entities and Consortia 
F. Constitutional Issues
266
267
274 
279 
283 
289
VII. CONCLUSION. PROCEDURAL MATTERS AND 
ORDERING CLAUSES 298
A. Final Regulatory Flexibility Analysis 299 
B. Ordering Clauses 303
APPENDIX A - LIST OF COMMENTERS AND REPLY 
COMMENTERS
APPENDIX B - FINAL RULES
I. INTRODUCTION
1. On August 10, 1993, the Omnibus Budget Reconcili 
ation Act of 1993 (the "Budget Act") added Section 309(j) 
to the Communications Act of 1934. as amended, 47 U.S.C. 
 151-713 (the "Communications Act"). Section 309(j) 
gives the Commission express authority to employ competi 
tive bidding procedures to choose among mutually exclu 
sive applications for initial licenses. The Budget Act also 
requires the Commission to prescribe regulations to imple 
ment Section 309(j) within 210 days after enactment 
(March 8. 1994). The Commission adopted its Notice of 
Proposed Rule Making in this proceeding on September 
23, 1993.' This Second Report and Order complies with 
the Budget Act's requirements.2
2. Under Section 309(j)(2)(B) of the Communications 
Act. the Commission must determine that use of a system 
of competitive bidding will promote the objectives de 
scribed in Section 309(j)(3). which, in addition to those in 
Section 1 of the Communications Act. 1 are
(A) the development and rapid deployment of new 
technologies, products, and services for the benefit of 
the public, including those residing in rural areas, 
without administrative or judicial delays;
(B) promoting economic opportunity and competi 
tion and ensuring that new and innovative technol 
ogies are readily accessible to the American people 
by avoiding excessive concentration of licenses and 
by disseminating licenses among a wide variety of 
applicants, including small businesses, rural tele 
phone companies, and businesses owned by members 
of minority groups and women;
(C) recovery for the public of a portion of the value 
of the public spectrum made available for commer 
cial use and avoidance of unjust enrichment through 
the methods employed to award uses of that resource; 
and
(D) efficient and intensive use of the electromagnetic 
spectrum.
A. Policy Objectives
3. Our purpose in this Second Report and Order is to 
promulgate competitive bidding rules that, in conjunction 
with our spectrum allocation rules, promote the public 
policy objectives set forth by Congress. We believe these 
objectives are embodied in two broad, basic Commission 
policy goals: promoting economic growth and enhancing 
access to telecommunications service offerings for consum 
ers, producers, and new entrants. Structuring our rules to 
promote opportunity and competition should result in the 
rapid implementation of new and innovative services and 
encourage efficient spectrum use. thus fostering economic 
growth. We also can help to ensure access to new tele 
communications offerings by ensuring that all customer 
segments are served, that there is not an excessive con 
centration of licenses, and that small businesses, rural tele 
phone companies, and businesses owned by women and 
minorities will have genuine opportunities to participate in 
the provision of service. Providing new and innovative 
services on spectrum acquired via auction will offer li 
censees the opportunity to earn substantial.,revenues. We 
therefore anticipate that our auctions will recover a portion 
of the value of the public spectrum.
4. Promoting Economic Growth. The new wireless ser 
vices that will be licensed by competitive bidding, such as 
Personal Communications Services ("PCS"), have great po 
tential to stimulate economic growth and create thousands 
of jobs for Americans. To advance our statutory goals and 
to realize this potential, we seek to design a competitive 
bidding system that will: 1) award licenses through a pro 
cess that will promote competition among a diverse group 
of service providers: 2) award licenses to the parties who 
will provide service and use spectrum most efficiently; and 
3) award licenses expeditiously. We seek to implement a 
licensing system that maximizes the competitiveness of ser 
vice provision among new licensees and existing providers 
and avoids creating barriers to efficient license aggrega 
tions. Achieving procompetitive economies is particularly 
important where new entrants (such as broadband PCS 
providers) will have to compete with existing services (such 
as cellular telephone providers).
5. Awarding licenses to those who value them most 
highly, while maintaining safeguards against anti 
competitive concentration, will likely encourage growth 
and competition for wireless services and result in the
1 Notice of Proposed Rule Making in PP Docket No. 93-253. 8 
FCC Red 7635 (1993) (hereinafter "NPRM" or "Notice"). The 
Commission received 222 comments, 169 reply comments and 
numerous ex pane presentations relating to this proceeding. A 
list of commenters and reply commenters is attached as Appen 
dix A to this Second Report and Order. Commenters may be 
referred to herein by the abbreviations noted in Appendix A.
2 To comply with the requirements of new Section 3(W(i)(4)(C) 
of the Communications Act, the Commission prescribed trans 
fer disclosure requirements with respect to licenses awarded by
random selection. See First Report and Order in PP Docket No. 
93-253, FCC 94-32, released February 4, 1994 ("First Report and 
Order"), petitions for reconsideration pending. 
s Section 1 of the Communications Act established the Com 
mission, inter alia, "so as to make available, so far as possible, to 
all the people of the United States a rapid, efficient, Nation 
wide, and world-wide wire and radio communications service 
with adequate facilities at reasonable charges . . . ." 47 U.S.C.  
151.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
rapid deployment of new technologies and services. Be 
cause firms have different views of the value of the licenses 
to be awarded, a firm that expects to be able to offer new 
or much lower cost services might be willing to pay more 
for a license than another firm that does not believe it can 
offer services as competitively. Under other licensing 
mechanisms, licenses may be more likely to change hands 
in the post-licensing market (as was true in past cases of 
cellular licenses).4 Such secondary market transactions, 
however, often involve substantial additional costs. In gen 
eral, competitive bidding is a licensing scheme that should 
place licenses in the hands of the parties able to use them 
most efficiently.
6. Enhancing Access. The competitive bidding rules we 
adopt are designed to enhance access to telecommunica 
tions services by encouraging broad participation in the 
provision of spectrum-based services and ensuring that 
spectrum-based services are available to a wide range of 
consumers. In order to encourage participation in the com 
petitive bidding process by all qualified bidders, we have 
adopted a set of open competitive bidding processes and a 
menu of preferences for certain groups who might other 
wise face entry barriers. We will use these preferences to 
promote the participation of small businesses, rural tele 
phone companies and women- and minority-owned firms 
(collectively referred to as "designated entities") when we 
adopt service-specific competitive bidding rules, thereby 
meeting Congress's mandate by ensuring diversity in the 
ownership and management of telecommunications facili 
ties, which in turn will increase the diversity of service 
offerings and better meet the needs of more consumers.
7. By establishing an efficient licensing mechanism that 
will promote the rapid deployment of a wide range of new 
products and services in all areas of the country, we seek to 
increase residential consumer and large user access to new 
technologies and services. Efficient provision of wireless 
service may also create alternatives for those not served by 
traditional wireline providers and should create competi 
tion for existing wireline and wireless services.
B. Summary
8. The following five sections of this Report and Order 
establish general rules and procedures to govern the com 
petitive bidding process. In each of these sections we have 
selected the rules or procedures that should best serve our 
basic policy goals and therefore achieve Congress's objec 
tives. Among other things, we are amending Part 1 of our 
Rules to add a new Subpart Q that would apply to com 
petitive bidding generally. The new rules are set forth in 
Appendix B.
9. Section II of this Report and Order establishes rules 
governing the basic requirements for the types of services 
and licenses that may be subject to auctions. In Section III. 
we establish a range of competitive bidding methods and 
auction procedures from which we will choose for 
auctionable services. Because as yet the Commission has no 
actual experience with auctions, we will retain the ability 
to select among the procedures deemed appropriate for 
each service. This course also complies with the Congres 
sional directive that we "design and test multiple alter 
native methodologies under appropriate circumstances." 
See Section 309(j)(3). In Section IV, we address procedural 
and payment issues regarding announcement of auctions 
and the filing of applications, bidder and licensee qualifica 
tions, pre-auction upfront payment and post-auction down 
payment, and penalties in the event of default or disquali 
fication. These rules are intended to ensure that the com 
petitive bidding process is limited to serious, qualified 
applicants. Section V establishes specific licensing safe 
guards, including anti-collusion and unjust enrichment 
provisions, that will deter possible abuses of the bidding 
and licensing processes. In Section VI, we identify pref 
erences available for small businesses, rural telephone com 
panies and businesses owned by members of minority 
groups and women to enhance their participation in the 
competitive bidding process and in the provision of spec 
trum-based services.
10. The five sections of this Report and Order summa 
rized above establish general rules and regulations for 
competitive bidding that will apply to a variety of spec 
trum-based services licensed by the Commission. In the 
future, specific rules within the scope of these general rules 
will be adopted in a Report and Order for each service 
subject to competitive bidding. These subsequent Reports 
and Orders will set forth specific competitive bidding rules 
for each service that meets the criteria in Section 309(j)(2).
II. PRINCIPLES FOR DETERMINING 
WHETHER LICENSES MAY BE AUCTIONED
11. We discuss below the general statutory criteria that 
must be met before we may use competitive bidding to 
award licenses in a particular service. In particular, we also 
establish the tests we will use to determine whether services 
or classes of services are excluded from competitive bidding 
and make determinations with respect to some of these 
services. Our determinations as to whether specific services 
are subject to competitive bidding may be found in new 
Section 1.2102 of the Commission's Rules (see Appendix 
B).
A. General Requirement for Mutual Exclusivity Among 
Applications for Initial Licenses or Construction Permits 
Accepted for Filing
12. In the Notice, we observed that Section 309(j)(l) only 
permits use of competitive bidding if mutual exclusivity 
exists among applications that have been accepted for fil 
ing. 5 Therefore, we concluded, if mutual exclusivity does 
not exist, a license or class of service would not be subject 
to competitive bidding. In addition, we noted that Section 
309(j)(l) expressly limits our authority to use competitive 
bidding to the award of "initial" licenses or construction 
permits. See also H.R. Rep. No. 111. 103d Cong., 1st Sess. 
253 (1993) ("H.R. Rep. No. 103-111"). Of those 
commenters that address these issues, none expresses sig 
nificant disagreement with these conclusions. See, e.g.,
4 With respect to licenses obtained through random selection 
(lottery) proceedings, the First Report and Order in this docket 
addressed this issue by relying on existing build-out require 
ments and by imposing new transfer disclosure requirements.
5 In general, the Commission considers two or more applica 
tions to be "mutually exclusive" if their conflicts are such that 
the grant of one application would effectively preclude, by 
reason of harmful electrical interference, the grant of one or 
more of the other applications.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
comments of the Utilities Telecommunications Council. 
Accordingly, we incorporate these requirements in our 
rules as follows.
1. Shared Spectrum
13. We will exclude from competitive bidding those 
classes of services where mutual exclusivity between ap 
plications cannot exist because channels must be shared by 
multiple licensees.6 In H H 145-146 and n.3 of the NPRM, 
we proposed to exclude these services from competitive 
bidding because there can be no mutual exclusivity. The 
comments generally agree that shared spectrum is inappro 
priate for competitive bidding for that reason. See, e.g., 
comments of ITA and AAR.
14. For this reason, the General Mobile Radio Service, 
any private land mobile radio service below 470 MHz (with 
the possible exception of the 220 MHz service (see f ^ 
27-29)). the 800 MHz air-ground radiotelephone service, 
and the Amateur Radio services, for example, will not be 
subject to competitive bidding. For the same reason, we 
also exclude several other services from competitive bid 
ding. The comments broadly support our determinations 
with respect to mutual exclusivity. See, e.g., comments of 
UTC.
2. Licenses Awarded on a "First-Come, First-Served" Ba 
sis
15. In some services currently regulated by the Common 
Carrier and Private Radio Bureaus, some licensing occurs 
on a "first-come, first-served" basis. At n.132 of the NPRM, 
we noted that the use of "first-come, first-served" proce 
dures and waiting lists in the 800 MHz Specialized Mobile 
Radio (SMR) service has generally enabled us to avoid 
mutual exclusivity among 800 MHz SMR applications.' In 
addition, we have recently adopted rules for 929-930 MHz 
paging that rely on first-come, first-served procedures for 
licensing of channels on an "earned exclusivity" basis. See 
Report and Order, PR Docket No. 93-35, 8 FCC Red 8318 
(1993) (PCP Exclusivity Report and Order).
16. The Notice tentatively concluded that if mutually 
exclusive applications for SMR8 or Private Carrier Paging 
(PCP) frequencies occurred, they should be resolved by 
competitive bidding. See NPRM at f 138 and at n.152. 
Several commenters favored the auctioning of some or all 
SMR frequencies. See, e.g., comments of Geotek, GTE, E. 
F. Johnson. McCaw and Southwestern Bell. Others cau 
tioned the Commission to not create mutual exclusivity 
inadvertently. See, e.g., comments of NABER. Those 
commenters who argue that frequencies allocated to the 
SMR service should be exempted from competitive bidding 
generally base their arguments on the existing or future 
lack of mutual exclusivity. See, e.g., comments of AMTA 
and Cencall. The comments confirm that under some of 
our existing first-come, first-served procedures for these 
services, mutual exclusivity will generally not occur be 
cause applications are processed in sequence based on fil 
ing date and, in some cases, file number. Commenters 
argue that this process serves the public interest and should 
be retained. See, e.g., comments of NABER. We agree. 
Thus, we will not depart from existing first-come, first- 
served practices which work to avoid mutual exclusivity at 
this time. See Section 309(j)(6)(E) and comments of 
AMTA.
17. With respect to certain services regulated by the 
Common Carrier Bureau, however, "first-come, first- 
served" application procedures can, under the rules for 
those services, still result in mutual exclusivity. See, e.g., 
Section 22.31(b) (filing of application opens up 60-day 
filing window during which competing applications may be 
filed). Mutual exclusivity in common carrier services gen 
erally, and in the Public Mobile Services specifically, will 
be resolved through the use of competitive bidding. See f D 
59-62, infra. We recognize that our existing first-come, 
first-served procedures for certain services currently regu 
lated by the Private Radio Bureau are not necessarily con 
sistent with the way similar services are regulated by the 
Common Carrier Bureau. As we make clear in our de 
cision in GN Docket No. 93-252, see n.15, infra, we intend 
in future proceeding to reconcile the regulatory treatment 
of these services. Such reconciliation may involve modi 
fication of existing SMR wait list procedures, as is currently 
proposed in PR Docket No. 93-144, 8 FCC Red 3950, 3958 
(1993), and the use of auctions to resolve mutual exclusiv 
ity among initial applications for licenses in the Commer 
cial Mobile Radio Services.
18. Similarly, the comments make clear that under our 
rules, mutual exclusivity among Community Antenna Re 
lay Service (CARS) applicants does not arise because of a 
de facto "first-come, first-served" policy and that therefore, 
the CARS should not be subject to competitive bidding. 
See comments of Cablevision, el al. We agree, and will not 
subject CARS spectrum to competitive bidding.
3. Mutual Exclusivity Unknown
19. There are a number of other pending proceedings to 
establish rules for new or recently authorized services in 
which the likelihood of mutually exclusive applications is 
unknown or is debated by the commenters. See, e.g., PR 
Docket No. 92-235. 7 FCC Red 8105 (1992) ("refarming" 
of private radio spectrum below 512 MHz): PR Docket No. 
93-61, 8 FCC Red 2502 (1993) (Automated Vehicle Moni 
toring (AVM) in the 902-928 MHz band). Similarly, we do 
not currently know whether mutual exclusivity will exist in 
the Digital Audio Radio Service (DARS), or in the Low 
Earth Orbiting Satellite (LEOs) and the Mobile Satellite/ 
Radiodetermination Satellite Services (MSS/RDSS). At this 
time it is premature to determine whether mutual exclusiv 
ity will or will not occur in the DARS, the AVM service, 
or the LEO and MSS/RDSS offerings. With respect to 
pending or future services and any others that are either
6 In this context, the term "shared" means a spectrum alloca 
tion scheme where each licensee has equal right to use the 
spectrum and no user has the right to exclusive use of an entire 
spectrum allocation for that service.
 ' "First-come, first-served" and wait list procedures apply only 
to 800 MHz SMRs and have not applied when multiple mutu 
ally exclusive applications were received when the Commission 
opened a filing window inviting the submission of applications 
for licenses to operate on new SMR spectrum. Cf. 1 63. infra.
We do not currently accept new 900 MHz SMR applications and 
we are currently considering proposals to restructure licensing 
of this service.
8 As indicated in the NPRM at 1 138, we mean the 200 channel 
pairs at 900 MHz and the 280 channel pairs at 800 MHz avail 
able to SMRs under Section 90.617(d) of the Commission's 
Rules. We do not include those channels from other frequency 
pools which may be licensed to SMRs through our iruercaiegory 
sharing rules or to General Category channels. Sec H 47. infra.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
experimental or interim in nature, the Commission cannot 
at this time presume that the prerequisites for competitive 
bidding will exist when we award initial licenses. We will, 
however, continue to monitor developments in these areas 
to determine, at a later date, whether competitive bidding 
for such spectrum might ultimately be appropriate.9
B. General Requirement of Subscribers
20. Section 309(j)(2)(A) requires that, to be subject to 
competitive bidding, the licensee must receive compensa 
tion in exchange for providing transmission or reception 
capabilities to subscribers. Thus, we will exclude from 
competitive bidding those services or classes of services in 
which licensees do not receive compensation from sub 
scribers and, hence, are outside the scope of Section 
309(j)(2)(A).
1. Broadcast Services Exclusion
21. Section 309's legislative history makes clear that ap 
plications for licenses to provide traditional over-the-air 
broadcast services should not be subject to competitive 
bidding. See H.R. Rep. No. 103-111 at 253. Consistent with 
the clear legislative intent, we proposed in the NPRM to 
exclude from the competitive bidding process broadcast 
television (VHP, UHF, LPTV) and broadcast radio (AM 
and FM).'  Those commenters who address this issue gen 
erally agree with the Notice. See, e.g., comments of AMTA 
and MSTV/NAB. One commenter, however, argues that 
traditional broadcast spectrum should be auctioned. See 
comments of Brown and Schwaninger.
22. Under the plain language of the statute, traditional 
broadcast services are excluded from competitive bidding 
because licensees do not receive compensation from sub 
scribers. Moreover, the legislative history confirms Con 
gress's clear intent to exclude these licenses and 
construction permits. We therefore exclude from the com 
petitive bidding process the broadcast television (VHP, 
UHF, LPTV) and broadcast radio (AM and FM) as well as 
the ITFS services." The for-profit subsidiary communica 
tions services transmitted by broadcast licensees on 
subcarrier frequencies that are indivisible from the main 
broadcast signal and similar services will also be excluded 
from the competitive bidding process given Congress's ex 
press intent to this effect. See H.R. Rep No. 103-111 at 253.
2. "Private Services" Exclusion
23. As we pointed out in the NPRM, the legislative 
history also refers to "private services" as those that do not 
involve the receipt of compensation from subscribers and 
thus are not to be subject to competitive bidding. In accor 
dance with the plain language of the statute, we exclude 
from competitive bidding those services or classes of ser 
vices in which licensees do not receive compensation from 
subscribers and, hence, are outside the scope of Section 
309(j)(2)(A).
24. The House Report states that the enactment of com 
petitive bidding authority should not affect the manner in 
which the Commission issues licenses for virtually all pri 
vate services, including frequencies utilized by Public Safe 
ty Services, the Broadcast Auxiliary Service, and for 
subcarriers and other services where the signal is indivis 
ible from the main channel signal. H.R. Rep. No. 103-111 
at 253. In the context of determining eligibility for com 
petitive bidding, however, the term "private services" was 
not intended to have the same meaning that the Commis 
sion has ascribed to private services in other contexts. See, 
e.g., comments of AT&T and of NYNEX. 12
25. The comments strongly support our "private ser 
vices" analysis, including our tentative conclusion that the 
term "private services" referred to services that did not 
involve the payment of compensation to the licensee by 
subscribers, i.e., that were for internal use. See, e.g., com 
ments of the American Petroleum Institute. We affirm our 
tentative conclusion. Consistent with the express intent of 
Congress, we also affirm that frequencies allocated to the 
Public Safety Services, or the Broadcast Auxiliary Services 
under Subparts D, E, F and H of Part 74 and shared with 
the Cable Television Relay Service under Part 78 of our 
Rules, will be exempt from competitive bidding. We also 
hold that subcarrier-based and similar services, such as 
those provided via the Vertical Blanking Interval, and for- 
profit subsidiary communications services transmitted on 
subcarriers within the FM baseband signal (see Section 
73.295). will be exempt from competitive bidding where 
the underlying service is exempt. See H.R. Rep. No. 
103-111 at 253. Accord, comments of MSTV/NAB.' 3
26. As we proposed in the NPRM at H ^ 27 and 145-146, 
and at nn. 123, and 157, application of the private services 
test leads us to conclude that certain additional services and 
classes of services should be excluded from competitive 
bidding as well. These include the 220 MHz channels
" We note that a number of commenters advance additional 
reasons why competitive bidding for these services at s time 
appears to be premature. See, e.g., comments of TRW. Further 
more, given the pendency of PR Docket Nos. 92-235 and 93-61, 
it would be speculative for us to decide on the auctionability of 
frequencies that may or may not become available as a result of 
those proceedings. C/. comments of AAA.
10 Although some television licensees may receive compensa 
tion from cable television operators under the "retransmission 
consent" provisions of the Cable Television Consumer Protec 
tion and Competition Act of 1992, these licensees will not be 
subject to competitive bidding. H.R. Rep. No 103-111 at 254. 
Similarly, Instructional Television Fixed Service (ITFS) will not 
be subject to competitive bidding even if ITFS licensees receive 
payments from Multichannel Multipoint Distribution Service 
licensees for use of ITFS spectrum because ITFS licensees do 
not receive compensation from "subscribers" as that term is 
used in Section 309(j)(2). See H.R. Rep. No. 213, 103d Cong., 1st 
Sess. (1993) (Conference Report) at 481-82.
" We defer consideration of whether licenses to provide Direct 
Broadcast Satellite (DBS) service should be subjected to com 
petitive bidding until the nature of that service becomes clearer. 
We thus affirm the difference between the meaning of 
"private service" in the Section 309(j) auction context and 
"private mobile service" as that term has been defined in new 
Section 332(d)(3) as added by Section 6002 of the Budget Act. 
Private mobile radio services are distinguished from commercial 
mobile radio services in Section 332 on the basis of several 
criteria that are not relevant to Section 309(j), e.g., whether 
interconnected mobile service is provided for a profit to the 
public or a substantial portion of the public. See Section 332 
Second Report and Order. Most commenters addressing this 
issue agree with this analysis. See, e.g., comments of AT&T, API 
and AAR.
13 See also subsection B.I., supra (Broadcast Services Exclu 
sion).
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
reserved for private service (including public safety). 800 
MHz trunked systems operated on a not-for-profit, coop 
erative sharing basis, or 800 or 900 MHz systems for inter 
nal use in non-SMR frequency pools. 14 Most of the com 
ments which address this issue support our proposal. See, 
e.g., comments of API.
27. We will also defer a decision on whether to auction 
220 MHz "local" licenses should the Commission need to 
conduct additional licensing in that class of service. As we 
pointed out in the NPRM, the 220 MHz service is a new 
service and. with the exception of those 220 MHz fre 
quencies the Commission reserved for specific purposes 
(e.g., the 220 MHz nationwide "commercial" and 
"noncommercial" channels and the 220 MHz channels re 
served for public safety purposes), the 220 MHz "local" 
channels may be used for private service or for the provi 
sion of service to subscribers. Because the service was new, 
we asked commenters to submit information on the likely 
use of these frequencies.
28. Almost every commenter who addressed this issue 
argued that it is still too early to classify the 220 MHz local 
channels as likely to be used for the provision of service to 
subscribers or for private use. See, e.g., comments of 
AMTA, Roamer One, UTC and E.F. Johnson, reply com 
ments of TDS. Based on the record, we will temporarily 
defer any decision on whether to auction 220 MHz local 
channels, although our observations of the development of 
this service to this point lead us to tentatively conclude that 
it is likely to be a subscriber based service. 15 When the 
nature of this service becomes clearer, as we anticipate, we 
will decide whether future applications for 220 MHz local 
service should be subject to competitive bidding. 16
29. Future initial applications for 220 MHz Commercial 
Nationwide licenses will be auctioned if the Commission 
ever accepts mutually exclusive initial applications again 
for that service, as it is clear that they are within the ambit 
of Section 309(j). As we stated at U 135 of the NPRM. these 
frequencies have been designated for use principally to 
provide for-profit service to subscribers. Accord, comments 
of NABER. Future initial applications for 220 MHz 
Noncommercial Nationwide licenses will not be auctioned: 
as licenses limited to the provision of private service, they 
are outside the ambit of Section 309(j). See comments of 
UTC.
C. Principal Use Requirement
30. Under Section 309(j)(2)(A), for spectrum to be sub 
ject to competitive bidding, the "principal use" of that 
spectrum must involve, or be reasonably likely to involve, 
the transmission or reception of communications signals to 
subscribers for compensation. The Commission has a num 
ber of service classifications where a licensee may provide 
service to itself only, offer communications service to sub 
scribers for compensation, or provide service both to itself 
and to subscribers. 1 ' By directing the Commission to iden 
tify the "principal use" of spectrum, Congress recognized 
the existence of such mixed use services. 18
31. To address these situations and to comply with the 
statutory intent, we proposed that, in order to be subject to 
auctions, at least a majority of the use of a Commission 
regulated service or class of service must be for service to 
subscribers for compensation. NPRM at ^ 31. We asked 
commenters to address the merits of measuring or estimat 
ing the extent of private or internal use by information 
throughput or by the amount of time or spectrum that is 
devoted to private use. Id. at f 32, n.14. We also sought 
comment on an alternative proposal, a so-called "contami 
nated band" proposal, under which a service or class of 
service could be subject to competitive bidding if there 
were any use. no matter how minimal, in which one or 
more licensees within a given service or classification of 
service used that spectrum for the provision of service to
u The fact that SMRs might occasionally be able to access 
these frequencies through our intercategory sharing rules would 
not change this result inasmuch as the principal use of these 
frequencies is clearly for private services. See comments of API. 
It is also clear that the six frequency pairs in the 900 MHz band 
set aside for the Advanced Train Control Service meet the 
private service test and should be excluded from competitive 
bidding. See comments of AAR.
15 This decision is not inconsistent with our decision in GN 
Docket No. 93-252, Implementation of Sections 3(n) and 332 of 
the Communications Act. FCC 94-31, released March 7, 1994, 
("Section 332 Report and Order") that some 220 MHz local 
licensees will be Commercial Mobile Radio Service (CMRS) and 
some will not, depending on whether they meet the statutory 
criteria for Commercial Mobile Radio Service. See Section 332 
Report and Order at 1 95. Unlike the decision on whether 220 
MHz local licensees are CMRS, which is made on a license by 
license basis, the decision on whether 220 MHz local channels 
will be subject to competitive bidding will depend on the prin 
cipal use of that entire class of service. Additional observation of
the manner in which the 220 MHz local service develops will 
provide us with a firmer basis on which to decide whether 
competitive bidding is appropriate for this class of service. 
lh The Commission has already conducted a lottery for 220 
MHz local licenses for the entire United States and granted 
every license it could from among the applications it received. 
Licensees are currently in the process of constructing their 
systems. It is unclear which, if any, of these licensees will have 
their licenses cancelled for failure to construct or for other 
reasons. As such, unlike other services, e.g. the Interactive 
Video Data Service (IVDS). there is no immediate need to 
decide whether future mutually exclusive applications in this 
service should be subject to competitive bidding before service 
can be made available to the public.
1 An example of such a service is the Private Operational 
Fixed Service ("POPS") licensed under Part 94 of the Commis 
sion's Rules.
1S See 47 U.S.C.  309(j)(3) (Commission to identify "classes of 
licenses" to be issued by competitive bidding); H.R. Rep. No. 
103-111 at 254 (Section 309(j)(2) determination to be made 
when a service or class of service is defined by Commission).
2353
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
subscribers for compensation. 19 We received a range of 
suggestions from commenters on this issue. Compare com 
ments of AT&T. ITA and Domestic Automation (favoring 
principal use determinations on a service or class of service 
basis) with comments of AAA (suggesting a license-by- 
license approach) and comments of PacBell (supporting 
the "contaminated band" proposal).
32. As explained below, we will look to classes of li 
censes and permits to determine their "principal use." In 
order to determine the principal use in a service, we will 
compare the amount of non-subscription use made by the 
licensees in a service as a class with the amount of use 
rendered to eligible subscribers for compensation on the 
basis of information throughput, time, or spectrum. We 
also adopt our proposal that at least a majority of the use 
of a Commission regulated service or class of service must 
be for service to subscribers for compensation. We believe 
that the so-called "contaminated band" proposal is at odds 
with the express statutory language requiring that the prin 
cipal use, not any use. of the service or class of service in 
question be for subscription-based purposes before auctions 
are permitted.
33. We also reject the arguments by commenters such as 
AAA that the Commission must examine individual ap 
plications to determine each licensee's principal use of the 
spectrum. We do not agree that the Budget Act mandates 
that the "principal use" determination be made on a li 
cense-by-license basis. Although Section 309(j)(2)(A) of the 
Act does refer to licensees, it requires that the "principal 
use of the spectrum" be for compensation (emphasis 
added). Had Congress intended the principal use deter 
mination to be made on a license by license basis, the 
Budget Act would have specifically stated this requirement. 
Also, Section 309(j)(3) refers to "each class of licenses or 
permits that the Commission grants through the use of a 
competitive bidding system . . ." (emphasis added). More 
over, the House Report states that the principal use deter 
mination should be made when a service or class of service 
is created by the Commission and that the Commission 
should review existing services, not licenses, to see if they 
meet the principal use test. H.R. Rep. No. 103-111 at 8.
34. We therefore believe that the best course is to evalu 
ate classes of licenses and permits, rather than individual 
licenses, to determine the "principal use" of the spectrum, 
and further believe that approach is most consistent with 
Congressional intent.20 In order to determine the principal
use in a service, we proposed to compare the amount of 
non-subscription use made by the licensees in a service as a 
class with the amount of use rendered to eligible subscrib 
ers for compensation on the basis of information through 
put, time, or spectrum. At least a majority of such use 
would have to be for service to subscribers for compensa 
tion in order for a service to be subject to competitive 
bidding. See NPRM at f 32, n.14. This approach found 
support in the comments (see, e.g., comments of AAR), 
and we adopt it.21
35. For existing services, our experience in regulating 
communications services will help us to accurately deter 
mine principal use. For example, in our experience and 
using any of the measurements that we proposed, the vast 
majority of use of the POFS as a class is for private or 
internal use by the licensee or its affiliates for which no 
compensation of any kind is paid. Our interpretation of 
the principal use test led us to propose that applications in 
the 470-512 MHz private land mobile services also should 
not be subject to competitive bidding.22 NPRM at nn.16 
and 154. Most commenters agreed with our view of the 
principal use of these two classes of service. See, e.g., 
comments of APCO, AAR, UTC and API. We therefore 
adopt our proposal to exclude the 470-512 MHz private 
land mobile services and the POPS23 from competitive 
bidding.24 Finally, the few comments we received on the 
subject argue strongly that the MAS is principally used for 
private service and are unrebutted. See, e.g., comments of 
UTC, Fisher Wayland, and Domestic Automation. The 
comments comport with our own experience and the MAS 
will therefore be exempted from competitive bidding.25 We 
will make other determinations on principal use with re 
gard to other specific services in future Reports and Or 
ders.
36. We also decline at this time to adopt APCO's 
proposal to exempt from competitive bidding any radio 
service that has or is likely to have significant use by state 
and local government licensees. We have already exempted 
from competitive bidding the public safety services over 
which APCO expressed the most concern (see f 47, infra), 
and believe it would be premature and speculative to try to 
ascertain what other services are likely to be significantly 
used by state and local government licensees.
19 We noted, however, that such an approach seemed inconsis 
tent with the "principal use" standard. NPRM at H 33.
20 NYNEX's comments suggested three other tests: (1) a service 
would be presumed "private" based on majority use of the 
spectrum but parties would have an opportunity to rebut that 
presumption; (2) any license issued by the Commission in a 
service classified as "private" should be conditioned on the 
licensee's principal use of that spectrum for that purpose: viola 
tion of this condition would result in license forfeiture or a 
penalty; and (3) a service that might be considered private based 
upon majority use should nevertheless be subject to auction if 
more than $100,000 is received as compensation from subscrib 
ers. We reject NYNEX's last suggestion as essentially equivalent 
to the "contaminated band" proposal rejected above. NYNEX's 
first two suggestions appear to be variants of the classification by 
license scheme we have rejected for the reasons previously 
stated.
21 As pointed out by AT&T in its comments, there is no way 
to anticipate today all of the possible uses of the electromagnetic 
spectrum. Thus, with respect to the measures to be used in
making the principal use determination, we will, as AT&T 
suggests, retain the ability to use any of the measurement 
methods described above, as proposed at n.14 of the NPRM.
22 Most of these frequencies are shared, and therefore applica 
tions will not be mutually exclusive with one another. See 
comments of UTC.
23 We do not adopt API's suggestion that the 18 GHz POFS 
Video Entertainment stations be treated separately from the rest 
of the POFS inasmuch as it is speculative whether these stations 
will function as private carriers as API asserts.
24 Because the principal use of these classes of services is for 
private service, in the event that mutual exclusivity should 
occur among applicants for initial licenses, we are permitted to 
use lotteries to resolve that mutual exclusivity. See Section
Since we have found the principal use of MAS to be for 
private service. Section 309(j) does not authorize us to use 
competitive bidding to award licenses for mutually exclusive 
pre-July 26, 1993 MAS applications pending before the Commis 
sion. We will therefore lottery these applications.
2354
9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
D. Initial and Modification Applications
37. As we pointed out in the NPRM, Congress appar 
ently expected that applications to modify existing licenses 
would not be subject to competitive bidding.2" While the 
commenters generally agree that modification applications 
should not be so subject, several commenters ask that the 
Commission clarify that certain types of mutually exclusive 
applications to modify existing licenses (e.g., to add radio 
channels to an existing system), may be so different in kind 
or so large in scope and scale as to warrant competitive 
bidding if mutual exclusivity exists. Cf. comments of RAM 
and NABER.27 Where a modification would be so major as 
to dwarf the licensee's currently authorized facilities and 
the application is mutually exclusive with other major 
modification or initial applications, the Commission will 
consider whether these applications are in substance more 
akin to initial applications and treat them accordingly for 
purposes of competitive bidding.
38. We believe that there is merit in this course. It 
comports with our objectives of increasing competition and 
awarding spectrum to those who value it most highly. 
Accordingly, though as a general rule the Commission will 
regard mutually exclusive applications to modify existing 
licenses as not subject to competitive bidding, we may, on 
our own motion or in response to a petition from an 
interested party, determine that a major modification ap 
plication in a particular service, if it is mutually exclusive 
with other applications, should be treated as an initial 
application and be subject to competitive bidding.
39. Similar questions of auctionability arise when ap 
plicant A files an application to modify its existing license, 
which in turn opens a window for another applicant, B. to 
file a competing initial application which is mutually ex 
clusive with that of A. See, e.g., Maxcell Telecom Plus, Inc. 
v. FCC, 815 F.2d 1551 (D.C. Cir. 1987).28 The statute 
requires the existence of "mutually exclusive applications 
[that are] accepted for filing for any initial license or 
construction permit," 47 C.F.R.  309(j)(l) (emphasis sup 
plied), but the legislative history makes clear that competi 
tive bidding is not permitted "in the case of a renewal or 
modification of the license." H.R. Rep. No. 103-111 at 253 
(emphasis supplied). Were we to read the statute literally, 
since one of the two applications in the example above is
an initial applications, competitive bidding is arguably ap 
plicable. But such a result would also lead to competitive 
bidding by a modification applicant.
40. Given this apparent lack of clarity, we intend to deal 
with these situations on a case-by-case basis as it is impos 
sible to know the factual context within which such mu 
tual exclusivity might occur. We retain the authority to use 
comparative hearings to resolve mutual exclusivity between 
initial and modification applications, but also believe that 
competitive bidding may be appropriate in some of these 
cases as well.29
E. Intermediate Links
41. In the NPRM, we proposed that a license for fre 
quencies used in a service as an "intermediate link" in the 
provision of a continuous, end-to-end service, i.e., one used 
by a licensee as part of a service offering to subscribers, but 
not one on which subscribers directly send or receive 
communications signals, would be subject to competitive 
bidding. NPRM at H 29.30 We believed that such a result 
would be administratively efficient because it would elimi 
nate the necessity of determining the exact nature of the 
use to be made of a particular license by a particular 
applicant.
42. As noted, in order for a license to be subject to 
competitive bidding, Section 309(j)(2)(A) requires that the 
subject spectrum enable subscribers to "receive commu 
nications signals" or to "transmit directly communications 
signals." The comments strenuously and almost unani 
mously opposed the Commission's proposal, in part on the 
basis that by definition, an intermediate link cannot trans 
mit communications signals directly. See, e.g., comments of 
AT&T. Other commenters believe that auctions would not 
promote the objectives of Section 309(j)(3).
43. We have decided not to adopt the NPRM's proposal. 
Before employing competitive bidding for intermediate 
links, we are still required to determine that mutual exclu 
sivity exists and that such bidding would promote the 
objectives of Section 309(j)(3)(A) through (D). As to mu 
tual exclusivity, we note that on those types of frequencies 
most often utilized as intermediate links, mutual exclusivity 
is very rare because of frequency coordination efforts made 
prior to the time an application is filed. See, e.g., reply 
comments of Alcatel. We are also concerned that auction 
ing intermediate links might lead to significant delays in
2(1 See NPRM at 1 22; sec also H. R. Rep. No. 103-111 at 253. 
Cf. Maxcell Telecom Plus, Inc. v. FCC, 815 F.2d 1551 (D.C. Cir. 
1987).
17 The May 14, 1992 Public Notice (Mimeo No. 23115) 
referenced by Alcatel in its reply comments was not issued for 
the purpose of determining what constitutes a "modification" of 
a microwave license. Therefore, its comment is inapposite. Cf. 
47 C.F.R. Sec. 94.45.
2S This scenario was raised by AllCity Paging in Us comments. 
AllCity noted that under Section 22.33(c)(l) of our Rules, when 
a common carrier public mobile service applicant seeks to add 
one or more transmitters and which meets certain criteria is 
faced with a mutually exclusive initial applicant, the first ap 
plicant is entitled to request a comparative hearing to determine 
which application should be granted. AllCity requests the reten 
tion of this procedure notwithstanding that the Commission has 
proposed elimination of this rule in CC Docket No. 92-115, 7 
FCC Red 3658 (1992). Telocator, however, suggested that such 
mutual exclusivity be resolved through competitive bidding. 
2g In the specific hypothetical raised by AllCity Paging, for
example, we are inclined to believe that if the modification 
application that is filed by the first applicant is substantial 
enough to require prior permission from the Commission, see, 
e.g., Section 22.9(d) of our Rules, it is the equivalent of a new 
or initial application and we are thus permitted to use auctions 
to resolve the mutual exclusivity.
 !0 Examples of such intermediate links include cellular car 
riers transmitting subscriber traffic between cell sites and its 
Mobile Telephone Switching Office, or a local exchange tele 
phone company using microwave links as one means of trans 
mitting local exchange telephone service. Similarly, 
point-to-point microwave frequencies in the CARS are often 
used by cable television companies to transmit television pro 
gramming to different points within or among systems although 
not directly to their subscribers. Another type of intermediate 
link is the so-called "MSS feederlink" discussed by several of 
the commenters. See reply comments of Loral Qualcomm.
2355
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
the provision of services thus hindering the development 
and rapid deployment of new technologies, products and 
services for the benefit of the public. See, e.g., comments of 
Southwestern Bell. Further, such auctions would impose 
significant administrative costs on licensees and on the 
Commission, particularly relative to the likely value of 
these licenses. It is thus unclear whether using auctions to 
award licenses for intermediate links would promote the 
objectives in Section 309(j)(3)(C). Therefore, intermediate 
links, including MSS feederlinks, CARS frequencies,31 and 
point-to-point microwave frequencies regulated under Parts 
21 32 and 9433 of the Commission's rules will not be subject 
to competitive bidding. 34
F. Services For Which Competitive Bidding Would Not 
Further Section 309(j)(3) Objectives
44. As exemplified above in our consideration of wheth 
er intermediate links should be auctioned, a system of 
competitive bidding may only be used if it would promote 
the objectives of Section 309(j)(3), even if the principal use 
of the spectrum otherwise satisfies the requirements for 
competitive bidding. Based on the comments, we have 
identified a number of circumstances where auctions do 
not appear to be consistent with these statutory objectives 
or are otherwise inconsistent with Congressional intent.
45. In response to n.174 of the NPRM, a number of 
commenters noted that the Basic Exchange Telephone Ra 
dio Service (BETRS) and certain paging services use the 
same spectrum and that mutual exclusivity between them 
was possible. See, e.g., comments of Interdigital. The Rural 
Radio Service, including the BETRS, is a fixed service 
regulated under Subpart H of Part 22 of our Rules. The 
frequencies in these services are most commonly used in 
the provision of telephone service to remote locations 
where it is impractical or uneconomic to provide such 
service via landline. See comments of GTE. Because rural 
radio, including BETRS. frequencies are co-primary with 
certain common carrier mobile services, it is possible that 
mutual exclusivity may occur between BETRS applications 
and other common carrier applications. 35
46. The commenters argue that it would not serve the 
public interest to subject rural radio frequencies to com 
petitive bidding because doing so would frustrate the im 
portant goals of universal service embodied in Section 1 of 
the Communications Act, which are incorporated by refer 
ence in Section 309(j)(3). See comments of NTCA. We 
agree. It would not serve the public interest for the Com 
mission to establish services such as the BETRS as a poten 
tial less costly alternative to landline service36 and then 
require a BETRS applicant to bid against a radio common 
carrier applicant for those frequencies. Accord, reply com 
ments of Southwestern Bell. Therefore, we will not con 
duct auctions to resolve mutual exclusivity between initial 
BETRS or rural radio applications and common carrier 
mobile service applications.3 ' We note that this is consistent 
with our decision on General Category frequencies dis 
cussed below.
47. In the NPRM, we proposed to exclude from competi 
tive bidding procedures certain private radio channels 
known as the General Category38 channels as well as other 
classes of frequencies subject to intercategory sharing. See 
NPRM at H H 139-141. These frequencies can be used by 
both SMRs, who are commercial mobile radio service pro 
viders, as well as for internal private service. Subjecting the 
General Category or non-SMR intercategory shared fre 
quency pools to competitive bidding, however, might force 
police departments, for example, to bid against SMRs for 
spectrum. This would be contrary to Congressional intent 
and disserve the public interest. The comments strongly 
support this conclusion. See comments of APCO, AMTA, 
and AAA. Therefore, we will exclude from competitive 
bidding General Category channels and other intercategory 
classes of frequencies.
G. Specific Services Subject to Competitive Bidding
48. In H H 114-166 of the NPRM, we identified a number 
of services and classes of services that appeared to fall 
within the ambit of the competitive bidding provisions of 
the Budget Act if mutually exclusive initial applications 
were accepted for filing. Most spectrum-based common 
carrier services, some private mobile radio services,4" some
31 As we pointed out earlier at 1 18, CARS applications are not 
subject to mutual exclusivity and are therefore exempt from 
competitive bidding for this reason as well. 
3~ In the event that we receive mutually exclusive applications 
for common carrier point-to-point microwave facilities that 
would provide service to subscribers, we might conduct com 
parative hearings to resolve such mutual exclusivity. See Sec 
tion 309(i)(l)(B). We expect such instances to be rare, however.
33 As noted elsewhere. Part 94 point-to-point microwave users 
are exempt from competitive bidding because the principal use 
of these frequencies is for private service. See, e.g., comments of 
APCO.
34 In view of our intent not to auction any point-to-point 
microwave licenses, whether private or common carrier, our 
proposal to exempt from competitive bidding those entities 
forcibly relocated by our orders in ET Docket No. 92-9 is moot. 
See NPRM at f 128. n.118.
35 Because local exchange carriers generally operate under
exclusive franchises, we do not anticipate mutual exclusivity
between BETRS applications.
3h See Basic Exchange Telecommunications Radio Service, 3
FCC Red 214 (1988).
3 Because the principal use of both of these services is for the
provision of service to subscribers for compensation, the Com 
mission would have to resolve such mutual exclusivity through 
a comparative hearing. See Section 309(i)(l). We are confident, 
however, that applicants can negotiate to resolve such mutual 
exclusivity.
38 General Category channels are frequencies at 800 MHz that 
have been allocated to eligibles for conventional operations. See 
47 C.F.R.  90.615. Some of the General Category channels may 
be licensed for commercial use by Specialized Mobile Radio 
licensees.
Jq In addition, it also appears that General Category channels 
are not subject to competitive bidding because they are not 
principally used for subscriber based services. See comments of 
UTC. Similarly, channels in non-SMR frequency pools may in 
some cases be accessed by SMRs, but only if SMR frequencies 
are unavailable. See, e.g.. Section 90.62l(g) of our rules. The 
principal and primary use of these non-SMR frequencies is for 
the services to which they have been allocated. See, e.g.. Section 
90.617.
40 A licensee could be classified as a provider of private mobile 
radio service for purposes of Section 332 and still be subject to 
competitive bidding under Section 309(j). An SMR that pro 
vides only dispatch service and is not interconnected with the 
public switched network, for example, would be regulated as a 
private mobile radio service under Section 332, yet still be
2356
9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
private fixed services,41 and commercial mobile radio ser 
vices will be subject to competitive bidding, assuming the 
other statutory criteria are met. We have determined that 
several of those services and classes of services should be 
auctioned, and discuss them further below.
1. Interactive Video Data Service
49. In U | 142-144 of the NPRM, we proposed to auction 
any future mutually exclusive applications for the Inter 
active Video Data Service (IVDS) for we believed that this 
new service fulfilled all of the statutory prerequisites for 
competitive bidding. A number of commenters speculate 
that IVDS will have no subscribers on the basis that the 
service will be provided free to consumers and supported 
by advertising revenues or revenues from transactions con 
ducted using the interactive features of IVDS. They there 
fore urge that the Commission not utilize auctions to 
award IVDS licenses in the future. See, e.g., comments of 
Quentin L. Breen. Independent Cellular Consultants, Pro 
fessor Andrea Johnson, and Richard L. Vega Group and 
reply comments of America 52 East, Kingswood Associates 
and Harry Stevens, Jr.42
50. We disagree. While it may be true that the business 
plans of some would-be IVDS applicants contemplate that 
the consumer of the IVDS service will pay nothing for the 
response transmitter units (RTUs). we remain convinced 
that IVDS will primarily "provide information, products, 
or services to individual subscribers."43 We note, for exam 
ple, that Radio Telecom and Technology. Inc. (RTT), a 
developer of IVDS equipment and a longtime participant 
in the Commission's proceedings which created IVDS, ar 
gues that IVDS licenses should be awarded pursuant to 
competitive bidding.44 Moreover, the Commission recently 
received an ex pane presentation from Eon Corporation 
(formerly TV Answer, Inc.). Eon is a developer of IVDS 
equipment and a longtime participant in our proceedings 
creating IVDS, and has obtained FCC certification for its 
equipment. Eon indicates that IVDS will include a substan 
tial number of services that are compensated by subscrib 
ers. Eon further believes that in order to be successful, 
IVDS cannot be supported on a non-subscription, free to 
the consumer basis.
51. Based on the record, we must try to predict whether 
the principal use of IVDS will be "reasonably likely to 
involve" the receipt of compensation from subscribers. The 
record indicates that it will. We accord great weight to the 
views of RTT and Eon because these parties have been 
associated with IVDS since its early days. They have in 
vested substantial amounts of time and money in develop 
ing the service and are in a position to understand the 
likely use of IVDS.
52. We also believe that the use of competitive bidding 
will promote the objectives of Section 309(j)(2)(B) as fol 
lows. First, the use of auctions for IVDS is likely to contri 
bute to the rapid deployment of this new technology and 
will promote the efficient and intensive use of the elec 
tromagnetic spectrum. When we established the IVDS, we 
prescribed an application fee of $1400 and still received 
hundreds of applications for the first nine IVDS markets. 
Since we have lowered the IVDS application fee from 
$1400 to $35,45 we anticipate being inundated with thou 
sands of applications. Given the length and expense of 
comparative hearings, we do not believe that such hearings 
are a realistic alternative means of resolving mutual exclu 
sivity among-IVDS applicants. Without auctions, we fear 
that licenses would not quickly be awarded to parties able 
to efficiently use them, which, combined with the admin 
istrative burdens of processing thousands of applications 
and the associated litigation that is likely to ensue, will 
unreasonably delay deployment of this new service. Sec 
ond, under the rules we shall establish for designated en 
tities, use of auctions to award IVDS licenses should also 
fulfill the Congressional objective of promoting economic 
opportunity and competition as well as dissemination of 
licenses among a wide variety of applicants, including 
small businesses, rural telephone companies, and 
businesses owned by members of minority groups and 
women. Finally, auctions will also recover for the public a 
portion of the value of the public spectrum.
53. We note in addition that the use of auctions for 
IVDS is fully consistent with the intent of Congress. Con 
gress clearly envisioned that the IVDS would be subject to 
competitive bidding, for the Budget Act's legislative history 
states that the exception permitting the Commission to 
conduct lotteries for pre-July 26, 1993 applications would 
"permit the Commission to conduct lotteries for the nine 
Interactive Video Data Service markets for which applica 
tions have already been accepted. . . ."4A Had the Congress 
not expected that the Commission would auction IVDS 
applications generally, it seems that there would have been 
no need for this statement. We therefore hold that auction 
ing of mutually exclusive IVDS applications will further 
the objectives of Section 309(j)(3).47
2. Personal Communications Services
subject to competitive bidding if mutual exclusivity existed 
inasmuch as we have generally classified all frequencies al 
located to SMRs as subject to competitive bidding. Compare H 
63, infra, with Section 332 Report and Order at f 90.
41 See. e.g., the discussion concerning the Interactive Video 
Data Service, infra.
42 Others, however, urge that future mutually exclusive IVDS 
applications be auctioned. See comments of the Chase McNulty 
Group, NYNEX, and Radio Telecom and Technology. Inc. 
4J See Amendment of Parts 0, 1. 2, and 95 of the Commission's 
Rules to Provide Interactive Video Data Service, 7 FCC Red 
(630, 1637 (1992).
44 We discount America 52 East's speculation in its reply 
comments that RTT's comments are unworthy of consideration 
because they are based solely on the latter's pecuniary interest. 
America 52 East's assurances that to receive IVDS service a
customer need only go to any electronics store and purchase the 
necessary equipment and that there will be no subscription fee 
are similarly unconvincing since IVDS is not yet available.
45 See Second Reconsideration in PR Docket No. 91-2, 8 FCC 
Red 2787 (1993).
46 See Conference Report at 498. The Commission held lotter 
ies on September 15, 1993, for licenses in first nine IVDS 
markets, applications for which were filed prior to July 26, 
1993.
47 Because we classify IVDS as a whole as subject to competi 
tive bidding, we disagree with the comment of Professor Andrea 
Johnson, who seems to argue for a license-by-license classifica 
tion of IVDS, an approach we reject.
2357
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
54. We proposed in U 115-130 of the NPRM to award 
both narrowband and broadband PCS licenses by competi 
tive bidding in case of mutual exclusivity and tentatively 
concluded that PCS would meet all of the prerequisites for 
such bidding, including the requirement of subscribers. We 
noted our expectation, judging from the nature of the 
comments and the myriad ex pane presentations that we 
have received in the various PCS proceedings, as well as 
the identity of the commenters, that many PCS licensees 
will operate in the manner contemplated by new Section 
309(j)(2)(A). See NPRM at 1f H 115-119. The vast majority 
of the commenters who addressed this issue either agreed 
that mutually exclusive PCS applications should or must be 
subject to the competitive bidding process, or simply as 
sumed that such applications will be auctioned. See, e.g., 
comments of Arch Communications. BellSouth, Bell At 
lantic, IDS, Time Warner, and UTC, reply comments of 
Telocator.
55. Only one commenter seriously disputed the Commis 
sion's tentative conclusion that PCS licenses should be 
awarded by competitive bidding. Millin Publications, a 
publisher of specialized information services, intends to file 
PCS applications to provide service in a manner akin to 
the broadcast industry, i.e., without subscribers. Millin's 
PCS network would allow purchasers of goods to pay for 
their items electronically using hand-held personal digital 
assistants free of charge except for the cost of hardware. 
Compensation would be paid by the vendor. It argues that, 
given that PCS does not yet exist and the very flexible 
regulations proposed for the service, the Commission 
should not find that PCS is reasonably likely to be a 
primarily subscription service technology.
56. We disagree. An overwhelming number of the 
commenters either actively support or implicitly assume 
that the principal use of licensed PCS spectrum is likely to 
be for the provision of service to subscribers for compensa 
tion.48 Our own experience confirms this: of the scores of 
experimental PCS applications that the Commission has 
granted, a clear majority have proposed some variation of a 
charge on subscribers, whether for airtime or for the lease 
of subscriber equipment or both. Many of these licensees 
have submitted market studies on the effect of various 
pricing schemes on consumer demand.41* In view of this 
evidence, we believe that the principal use of narrowband 
and broadband PCS licenses is "reasonably likely to involve 
the licensee receiving compensation from subscribers."50 
And, even assuming that some PCS licensees may ulti 
mately not provide a subscriber-based service to their cus 
tomers, the Commission must look to the likely principal 
use of spectrum in narrowband and broadband PCS when 
determining whether competitive bidding is applicable.51
57. We also confirm that the use of competitive bidding 
will speed the development and rapid deployment of PCS 
service to the public, including those residing in rural
areas, with minimal administrative or judicial delays, as 
required by Section 309(j)(3)(A). Because we have con 
firmed that PCS would operate in the manner contem 
plated by Section 309(j)(2)(A), new Section 309(i)(l)(B) 
does not permit the Commission to utilize lotteries to 
choose from among mutually exclusive PCS applicants, 
leaving comparative hearings as our sole alternative. As we 
stated in the NPRM. our experience with the comparative 
hearing process has been less than satisfactory in terms of 
both administrative and judicial delay: competitive bidding 
should avoid this time consuming litigation.52 Likewise, in 
contrast with comparative hearings, auctions will promote 
the objectives of Section 309(j)(3)(C) by recovering for the 
public a portion of the value of the spectrum made avail 
able for commercial use. We have also promulgated gen 
eral rules, applicable to PCS, which are designed to avoid 
unjust enrichment as well as rules to ensure the opportu 
nity for participation in auctions by the entities designated 
by Congress.
58. Finally, in accordance with subsection (j)(3)(D), we 
believe competitive bidding will promote efficient and in 
tensive use of the spectrum in the case of PCS. We have 
defined PCS broadly as composed of a "wide array of 
mobile, portable and ancillary communications services to 
individuals and businesses." Narrowband PCS Order, ET 
Docket No. 92-100 and GEN Docket No. 90-314. FCC 
93-329 (released July 23, 1993) at If f 13-14. Auctions are 
therefore likely to reinforce the desire of.licensees to make 
efficient and intensive use of PCS spectrum. Auctions 
make explicit what others are willing to pay to use the 
spectrum, and the licensees' need to recoup the out-of- 
pocket expenditure for a license should provide additional 
motivation to get the most value out of the spectrum.
3. Common Carrier and Commercial Mobile Radio Ser 
vices
59. Common carriers have subscribers; by definition, 
their services are offered indifferently to the public for 
hire53 and therefore satisfy the requirements of Section 
309(j)(2)(A). The new CMRS providers, who are treated as 
common carriers under Section 332(c), also have subscrib 
ers and thus also satisfy SSection 309(j)(2)(A).54 We pro 
posed that spectrum-based common carrier services and 
commercial mobile radio services should be subject to 
auction if they met the other criteria for competitive bid 
ding. See NPRM at 1 26. We discuss below specific com 
mon carrier and commercial mobile radio services that will 
be subject to competitive bidding.
60. Public Mobile Services. The Public Mobile Services 
are regulated under Part 22 of the Commission's Rules and 
include the Public Land Mobile Service (Subpart G). the 
Rural Radio Service (Subpart H). the Domestic Public 
Cellular Radio Telecommunications Service (Subpart K), 
the Offshore Radio Telecommunications Service (Subpart
48 See, e.g., comments of UTC.M
4g See, e.g.. Amendment of the Commission's Rules to Estab 
lish New Personal Communications Services, Third Report and 
Order in GEN Docket No. 90-314, et al.. FCC 93-550. released 
February 3, 1994.
50 We anticipate that this would be the case with both 
"wideband" and "narrowband" PCS services. Our analysis, of 
course, does not apply to unlicensed PCS.
51 For purposes of this discussion, we need not resolve whether 
the service described by Millin is, in fact, a non-subscription 
service within the meaning of Section 30Q(j)(2).
52 See. e.g., Kwerel and Felker. "Using Auctions to Select FCC 
Licensees," OPP Working Paper Series No. 16, May 1985. In our 
experience, most comparative hearings for licenses in rural 
areas do not proceed appreciably faster than comparative hear 
ings for licenses in most urban areas.
53 Section 3(h). Communications Act, 47 U.S.C.  153(h).
54 A commercial mobile radio service is a "for-profit" service 
and is treated as common carriage under Title II of the Act. 47 
U.S.C.  332(c)(l)(A) and (d)(l). The Commission has adopted 
rules governing the regulatory treatment of commercial mobile 
radio services. See Section 332 Second Report and Order, supra.
2358
9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
L) and the 800 MHz Air-Ground Radiotelephone Service 
(Subpart M). In the NPRM, we asked whether each of 
these services should be subject to competitive bidding. The 
comments we received with respect to these services fo- 
cussed almost exclusively on two issues: the applicability of 
competitive bidding to certain cellular radio applications 
pending with the Commission on July 26, 1993," and the 
applicability of competitive bidding to the Basic Exchange 
Telecommunications Radio Service (BETRS) and the Rural 
Radio Service.56
61. Outside of the two issues mentioned above or where 
the statute was unclear,5 ' no commenter seriously disputed 
the applicability of auctions to mutually exclusive initial 
applications in the Public Mobile Services. Neither did any 
commenter seriously dispute our tentative finding in H 147 
of the NPRM that competitive bidding would promote the 
objectives of Section 309(j). Unless specifically excluded,58 
such applications will be subject to competitive bidding.
62. Multipoint Distribution Service (MDS) and the 
Multichannel Multipoint Distribution Service (MMDS). In the 
NPRM, we specifically proposed that future mutually ex 
clusive MDS and MMDS initial applications be subject to 
competitive bidding, believing that doing so would promote 
the objectives of Section 309(j). 59 Although we do not 
address in this Second Report and Order the applicability 
of competitive bidding to MDS and MMDS applications 
which were filed prior to July 26, 1993,"  we believe that 
new initial applications for these common carrier services 
are otherwise eligible for competitive bidding. Very few 
comments were filed on this subject, but those that ad 
dressed it did not oppose competitive bidding. See, e.g., 
comments of Wireless Cable Association International. No 
commenter seriously disputed the applicability of competi 
tive bidding to mutually exclusive initial applications in 
the MDS and MMDS or our tentative finding in ^[ 147 of 
the NPRM that competitive bidding would promote the
objectives of Section 309(j). Therefore, at such time as the 
Commission accepts additional initial applications for MDS 
and MMDS licenses, we will resolve any mutual exclusivity 
between these channels by using competitive bidding. Be 
cause it is unclear when the existing freeze on new applica 
tions will be lifted, however, we defer promulgation of 
specific rules until that time.
63. SMR and Exclusive PCP Services. If multiple SMR 
initial applicants file for the same channels in the same 
location on the same day and if the Commission's existing 
procedures do not avoid mutual exclusivity, or if two or 
more PCP systems in the future file mutually exclusive 
initial applications, we intend to use competitive bidding to 
select from among competing applications.61 Our rules ex 
plicitly contemplate and expect that these licensees will 
provide service to eligible subscribers for compensation.62 
We know from experience that this is the principal use of 
SMR and exclusive PCP spectrum, and the comments sup 
port our determination. See, e.g., comments of GTE and 
McCaw.
64. We also believe that the use of competitive bidding 
will speed the development and rapid deployment of SMR 
service, including those residing in rural areas, with mini 
mal administrative or judicial delays as required by Section 
309(j)(3)(A). Because we have confirmed that SMR provid 
ers operate in the manner contemplated by Section 
309(j)(2)(A), new section 309(i)(l)(B) does not permit the 
Commission to utilize lotteries to choose from among mu 
tually exclusive initial SMR applicants, leaving comparative 
hearings as our sole alternative to resolve such mutual 
exclusivity. Such hearings are likely to be lengthy, conten 
tious, and complex. Given this prospect, we believe that 
competitive bidding is likely to be a faster means of 
delivering service to the public. With respect to promoting 
the objectives of Section 309(j)(3)(C). we also believe that 
competitive bidding will recover for the public a portion of
55 See, e.g.. comments of John G. Andrikopoulos, el al., Abby 
Dilley, various partners in The Quick Call Group, John 
Dudinsky, Jr., M. Kathleen O' Connor, and James F. Stern. As 
noted, we will address the applicability of competitive bidding 
to certain cellular radio applications filed prior to July 26, 1993, 
in a separate order. These applications present unique issues 
because of the special rule that Congress adopted in Section 
A002(e) of the Budget Act that is applicable only to mutually 
exclusive applications filed prior to that date. The status of the 
applications at issue in McElroy Electronics v. FCC, 990 F.2d 
1351 (D.C. Cir. 1993), will likewise be decided at that time since 
they present similar issues.
56 See, e.g.. comments of Interdigital. The applicability of com 
petitive bidding to the BETRS and the Rural Radio Service is 
discussed in subsection F. supra.
57 See, e.g., comments and reply comments of AllCity Paging.
58 See, e.g., the discussion at f t 45-46 excluding the BETRS 
from competitive bidding on grounds that auctioning licenses in 
these services would not further the objectives in Section 
309(j)(3). In some cases. Public Mobile Service licenses are avail 
able to end users as well as common carriers. See, e.g.. Section 
22.100 (Offshore Radio Service may be licensed to end users) 
and Section 22.600 (Rural subscriber stations may be licensed to 
individual users of the service). We defer resolution of the issue 
of mutually exclusive applications between common carriers 
and end users to a later date inasmuch as mutual exclusivity in 
these classes of services is extremely rare; should it occur, we 
will decide the appropriate course at that time. The 800 MHz 
air-ground radiotelephone service (although not the 450 MHz
air-ground radiotelephone service, which has exclusive frequen 
cies) will be excluded from competitive bidding because those 
frequencies are shared. See Section 22.31(h) of our Rules. 
5" See NPRM at 1 1 147-151. No MDS or MMDS applications 
are currently being accepted, due to a freeze which the Com 
mission has placed on the filing of such applications. See Public 
Notice, "MDS/MMDS Applications Filing Freeze," released July 
28, 1993.
1)0 See, e.g., comments of MW TV. We will address this issue in 
a separate order.
fi! In light of our past experiences with the release of new SMR 
spectrum, we believe that mutual exclusivity is highly likely if 
we were to release new SMR spectrum at the conclusion of PR 
Docket Nos. 93-144 and 89-553, the R(M) MHz and 900 MHz SMR 
proceedings. See PR Docket No. 93-144. 8 FCC Red 3950 (1993); 
PR Docket No. 89-553, 8 FCC Red 1469 (1993). Due to the 
uncertainty over the outcome of these proceedings, however, we 
decline to confirm, as requested by AMTA and Cencall, that the 
licenses which may be issued as a result of those proceedings 
will not be the result of "initial" applications. See H 66. infra. If 
at the conclusion of those proceedings we decide that 800 or 900 
MHz SMR applications may fairly be characterized as modifica 
tion applications, then we will not subject them to competitive 
bidding. AMTA's argument that the Congressional objective of 
effective and intensive use of the spectrum is unlikely to be 
satisfied if the Commission employs auctions to award 900 MHz 
licenses outside the Designated Filing Areas (the largest 50 
markets in the U.S.) is speculative.
62 See NPRM at f 136 and n.129; PCP Exclusivity Report and 
Order, supra.
2359
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
the value of SMR and exclusive PCP spectrum made avail 
able for commercial use and avoid unjust enrichment for 
the same reasons explained in conjunction with PCS ser 
vice.
65. In the NPRM, we requested specific comments on 
how we should treat mutually exclusive finder's prefer 
ences which are currently governed by Section 90.611(d) of 
our Rules. Under that rule, members of the public may 
submit to the Commission information that results in the 
takeback of SMR and other categories of channels. Above, 
we have determined generally that frequencies allocated to 
the SMR service should, in the event of mutual exclusivity, 
be awarded pursuant to competitive bidding. We see no 
reason to treat mutually exclusive finder's preference re 
quests for SMR frequencies differently from mutually ex 
clusive applications for SMR frequencies. Therefore, we 
hold that in such event, the licenses should be awarded 
pursuant to competitive bidding. Accord, reply comments 
of Southwestern Bell. Conversely, if mutually exclusive 
finder's preference requests target General Category or 
non-SMR frequencies, they would not be subject to com 
petitive bidding.
66. Although we believe that SMR services should be 
subject to competitive bidding, we note that we currently 
have before us proceedings that propose significant changes 
to our current 800 and 900 MHz SMR licensing policies. 
To attempt to promulgate competitive bidding rules gov 
erning mutually exclusive SMR licensing in the face of 
these licensing uncertainties is likely to be difficult, if not 
impossible.63 As we move closer to resolving these issues, 
however, we intend to promulgate rules detailing how 
competitive bidding would apply in these services.
67. Although we conclude that mutually exclusive 900 
MHz PCP applications should be subject to competitive 
bidding, we recognize that exclusivity in the 900 MHz PCP 
service is a very recent phenomenon and it is not clear 
whether or how frequently mutual exclusivity will arise 
where first-come, first-served licensing is ongoing. In addi 
tion, we believe that alternative measures, such as fre 
quency coordination and private settlement among 
conflicting applicants, can resolve most, and perhaps all. 
potential conflicts among PCP applicants. See Section 
309(j)(6)(E). Because these efforts may obviate the need for 
competitive bidding, we leave the promulgation of specific 
auction rules for this class of service to a time when we 
can be reasonably certain that they will be needed.
III. COMPETITIVE BIDDING DESIGN
A. Introduction
68. In this section, we adopt simultaneous multiple 
round auctions as our primary auction methodology. We 
believe that, for most licenses that the Commission intends 
to auction, this method will best meet the Congressional
goals that we set forth in Section I. However, our analysis 
of the record in this proceeding has convinced us that 
there is no single competitive bidding design that is op 
timal for all auctionable services. Moreover, Congress has 
directed us to "design and test multiple alternative meth 
odologies under appropriate circumstances." See Section 
309(j)(3). For these reasons, we shall not adopt a single 
auction design herein. Instead, we will identify a number 
of auction design options, indicating in general terms the 
service characteristics for which each option is appropriate. 
We will issue further Reports and Orders in this docket to 
adopt auction rules for each auctionable service or class of 
service. When we announce individual auctions to award 
licenses in specific services, a Public Notice will include 
detailed auction procedures. The choice of service specific 
rules and auction procedures will be governed by the cri 
teria set forth in this Report and Order.
69. This section will discuss the impact of bidding design 
on our policy objectives, discuss the choice of design cri 
teria to meet those objectives with respect to varying ser 
vice characteristics, and examine several important bidding 
procedure issues. As discussed in more detail in subsection 
B, we have concluded generally that awarding licenses to 
those parties that value them most highly will foster our 
policy objectives. Subsection C elaborates on our conclu 
sions regarding auction design: (1) licenses with strong 
value interdependencies should be auctioned simultaneous 
ly; (2) multiple round auctions, by providing bidders with 
information regarding other bidders' valuations of licenses, 
yield higher revenues and more efficient allocations of 
licenses, especially where there is substantial uncertainty as 
to value; and (3) because they are relatively expensive to 
implement and time-consuming, simultaneous and/or mul 
tiple round auctions become less cost-effective as the value 
of licenses decreases. Subsection D contains our discussion 
of preferred auction designs, and subsection E discusses 
various bidding procedure issues.
B. Effect of Design on Policy Objectives
70. Awarding Licenses to the Parties that Value Them Most 
Highly. Our auction design choices are calculated to ad 
vance the goals set forth in Section I. Analysis of the 
record in this proceeding leads us to confirm our tentative 
view, advanced at H 34 of the Notice, that auction designs 
that award licenses to the parties that value them most 
highly will best achieve those goals.64 Those parties are 
most likely to deploy new technologies and services rap 
idly, promote the development of competition for the pro 
vision of those and other services (including, but not 
limited to cellular, SMR, paging, and other wireless ser 
vices), and thus foster economic growth. We note that this 
conclusion is subject to the provison that certain safeguards 
to prevent undue market concentration, spectrum 
warehousing, and to promote economic opportunity may 
be needed. In general, however, the market value assigned
63 In PR Docket No. 93-144, for example, we propose a two- 
step method of licensing proposed wide-area 800 MHz SMRs: in 
the first step, applicants would negotiate in the hopes of avoid 
ing mutual exclusivity; if they are unable to do so. we propose 
having lotteries or competitive bidding to resolve the remaining 
instances of mutual exclusivity.: Cencall proposes that if the 
Commission does auction SMR frequencies that will be licensed 
as a result of PR Docket Nos. 89-553 and 93-144, the Commis 
sion should auction those frequencies one by one and only for
individual contested frequencies associated with mutually exclu 
sive applications. See comments of Cencall. This is but one 
example of the complexities that we would face were we to 
attempt to promulgate service-specific auction rules for SMRs at 
this time.
64 To the extent that the initial auction does not award li 
censes to those who value them most highly, after-market trans 
actions will perform this function to some degree, but not 
without delays and additional transaction costs.
2360
9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
to licenses via the auction process can be expected to 
reflect the benefits to both consumers and producers, now 
and in the future.
71. The conclusion that licenses generally should be 
awarded to those who value them most highly received 
substantial support in the comments, particularly by the 
academic commenters. As stated by Professor Milgrom:
Since a bidder's abilities to introduce valuable new 
services and to deploy them quickly, intensively, and 
efficiently increase the value of a license to a bidder, 
an auction design that awards licenses to those bid 
ders with the highest willingness to pay tends to 
promote the development and rapid deployment of 
new services in each area and the efficient and inten 
sive use of the spectrum.65
72. The Association for Independent Designated Entities 
(AIDE), however, disagrees with our presumption that li 
censes should be awarded to those who value them most 
highly.66 It also argues that the Commission cannot law 
fully design its competitive bidding system to maximize 
auction revenue, citing  309(j)(7)(A) and (B) of the Act. 
but should base its decisions in this proceeding upon tradi 
tional public interest factors and the specific statutory ob 
jectives of competitive bidding. Likewise, PageMart argues 
that Congress has affirmatively directed the Commission to 
encourage a diverse and competitive marketplace even if 
the so-called allocative efficiency of the market is "some 
what" disturbed as a result."7 PageMart further argues that 
auction schemes that focus on efficiency alone must be 
rejected.
73. We disagree with AIDE'S implicit assumption that 
our purpose is to maximize auction revenue. While Con 
gress has charged us to recover a portion of the value of 
the public spectrum made available via competitive bid 
ding, this does not amount to maximizing revenue, nor is it 
our sole objective. To the contrary, our goals are to en 
courage the rapid deployment of service, efficient use of 
the spectrum, and the other goals enumerated in Section I. 
Pursuing these objectives is in full accordance with the 
statutory purpose of auctions as set forth in  309(j)(3). 
And, we have concluded, based on our analysis of the 
record, that we can best achieve these objectives by gen 
erally awarding licenses to the parties that value them most 
highly. Moreover, this approach is permitted by  
309(j)(7)(C), which provides that  309(j)(7)(A) and (B) 
do not prevent the Commission from considering "con 
sumer demand." such as by assigning licenses to those who 
would provide services most highly valued by the public.
74. In addition, contrary to PageMarfs contention, the 
development of a diverse and competitive marketplace is 
only one of the several goals that the Congress required the
Commission to consider in designing systems of competi 
tive bidding. That objective must be balanced with other 
objectives of the Act. such as  309(j)(3)(D)'s requirement 
that we promote efficient and intensive use of the spec 
trum.
75. While we believe that the overall presumption should 
be that those who are willing to pay the most for a spec 
trum license should receive it. we have established an 
extensive menu of programs to ensure that the entities 
designated by Congress have an equitable opportunity to 
participate in the competitive bidding process. Because of 
concerns over competition, we havealso created safeguards 
to prevent undue market concentration, such as placing 
limits on the amount of broadband PCS spectrum that 
cellular carriers may acquire and similarly limiting the 
amount of narrowband PCS spectrum that a single entity 
can acquire.6* Given these and other steps we have taken, 
we cannot agree with the proposition that our proposed 
auction designs promote efficiency to the exclusion or sub 
ordination of all other goals.
76. Facilitating Efficient Aggregation. In designing auc 
tions to best meet all our goals, we must take into account 
the value interdependency among many of the licenses that 
we propose to auction. As discussed in more detail below, 
when licenses are highly value-interdependent, i.e., when 
the value of a license to a bidder depends on the other 
licenses that the bidder acquires, it is particularly impor 
tant that we implement auction designs that facilitate effi 
cient (but not anticompetitive) aggregation of such licenses.
77. Awarding Licenses Rapidly. It is also important to 
award licenses to the appropriate parties rapidly, since the 
sooner the licenses are awarded to the parties that value 
them most, the sooner new service is likely to be available, 
and the sooner consumers will benefit from competition 
among new suppliers and between new suppliers and in 
cumbent firms. We therefore seek to employ bidding pro 
cedures that can be implemented efficiently and within a 
reasonable time period.
78. Avoiding Excessive Implementation Costs and Com 
plexity. Finally, in selecting auction methods the Commis 
sion must take into account the costs of implementation 
both for the Commission and potential bidders. We there 
fore intend to select bidding procedures that are not overly 
complex relative to the task that they are meant to accom 
plish and which ensure that the full range of qualied 
bidders have access to the process.
C. Alternative Competitive Bidding Designs
79. There are several auction design elements which, in 
combination, produce many different auction types. The 
two most important design elements are: 1) the number of 
auction rounds (single or multiple); and 2) the order in 
which licenses are auctioned (sequentially or simultaneous-
65 Comments of PacBell, Attachment by Paul R. Milgrom and 
Robert B. Wilson at 7. Professors Harris and Katz agree: "Be 
cause its overall supply is limited, it is important to allocate 
spectrum to those license holders who will use it to generate the 
greatest social benefits. The overall presumption should be that 
those who are willing to pay the most for the spectrum are the 
ones who will put it to the most valuable use." Harris and Katz 
concur with us that safeguards against undue market power and 
measures to ensure appropriate participation of designated en 
tities may be needed. See comments of NYNEX, Attachment by
Robert G. Harris and Michael L. Katz: "A Public Interest As 
sessment of Spectrum Auctions for Wireless Telecommunica 
tions Services" at 1-2. 
66 Comments of AIDE at 4-5. 
6/ Reply comments of PageMart at 4.
6S See, e.g., Second Report and Order in GEN Docket No. 
90-314. 8 FCC Red 7700 (1993), recon. pending; First Report and 
Order in GEN Docket No. 90-314. 8 FCC Red 71(i2 (1993), 
recon. FCC No.  4-30, released March 4. 1994.
2361
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
ly). These two elements can be combined to create four 
basic auction designs: sequential single round, simultaneous 
single round, sequential multiple round, and simultaneous 
multiple round. A third element of auction design is 
whether to permit all or nothing bids for combinations of 
licenses, i.e., combinatorial bidding. Before addressing 
which of these auction designs will be our preferred design, 
it is useful to discuss the basic design elements and describe 
their advantages and disadvantages.
1. Multiple v. Single Round Bidding
80. Auctions may have either a single round or multiple 
rounds. Single round auctions are often referred to as 
sealed bid auctions (see NPRM at f 40). In a single round 
auction, a single bid is submitted and the license awarded 
to the high bidder. In multiple round auctions, bidders 
have the opportunity to top the high bids from the pre 
vious round. Typically such auctions end when no bidders 
are willing to top the bids from the previous round. A 
common form of a multiple round auction is the oral 
auction, also known as an open outcry or English auction 
(see NPRM at t 37) in which bids are submitted orally in 
an auction hall.69
81. Alternative Multiple Round Bidding Designs. Multiple 
round auctions may differ in both the interval between 
bidding rounds and the method of bid submission. In a 
traditional open outcry auction, bids are made continu 
ously, one after another, and items often sell within min 
utes. In other multiple round auctions, there are discrete 
intervals between the periods during which bids are sub 
mitted.70 With discrete rounds, the Commission can control 
the pace at which the auction proceeds. The method of bid 
submission depends in part on whether the auction rounds 
are continuous or discrete. In continuous auctions, bids 
may be submitted orally, by telephone, or computer. Tele 
phone bidding is currently used for auctioning financial 
instruments and the current high bids for these assets are 
made available to bidders on specially designed computer 
bulletin boards. If there are discrete bidding rounds bids 
could also be submitted on paper or computer disks.
82. Advantages of Multiple Round Bidding. The principal 
advantage of a multiple round auction is the information 
that it provides bidders regarding the value other bidders 
place on licenses. This information increases the likelihood 
that licenses are assigned to bidders that value them most 
highly and will generally yield more revenue in auctions 
where there is much uncertainty about common factors
that affect the value of a license to all bidders (common 
value auctions).71 In a single round auction, bidders must 
guess about the value that other bidders place on a license 
in trying to submit a single bid that just exceeds the next 
highest bid. Thus the party who values the license most 
highly may not submit the highest bid. In a multiple round 
auction, bidders need not guess about the value the second 
highest bidder places on the license because bidders have 
the opportunity to raise their bids if they are willing to pay 
more than the current high bidder. Multiple round bidding 
is also more likely than single round bidding to be per 
ceived as open and fair. No bidder can argue that it did not 
have the opportunity to obtain a license if it was willing to 
pay enough.
83. Auction theory shows that multiple round bidding 
tends to increase revenue in common value auctions by 
reducing the incentive of bidders to shade down bids to 
avoid the winner's curse - the tendency for the winner to 
be the bidder who most overestimates the value of the item 
for sale.72 Common value aspects of spectrum licenses arise 
from common technological possibilities, common demand 
for the services, and the presence of a common 
aftermarket. Multiple round bidding provides information 
about other bidders' estimates of common values, allowing 
all bidders to improve their estimates of these common 
values. With better information, sophisticated bidders will 
have less incentive to bid cautiously so as to avoid falling 
victim to the winner's curse.
84. Several commenters stress the importance of provid 
ing bidders with information in common value auctions 
via multiple round bidding.73 For example. Professor 
McAfee states that "ascending bid auctions tend to produce 
more efficient outcomes and higher average prices" than 
first-price, single round sealed bid auctions, and, after 
noting sources of bidder uncertainty about the value of 
PCS licenses, asserts that "the auction should be designed 
to provide bidders with as much information as possible, 
which means providing information about other bidders' 
estimates of the licenses' value in the process of running 
the auction." 74 Multiple round bidding will maximize the 
provision of such information.
85. Advantages of Single Round Bidding. On the other 
hand, multiple round bidding does involve some increased 
administrative cost. Therefore, a single round (i.e., sealed 
bid) procedure may be an appropriate option for relatively 
low value licenses in which the costs of implementing a 
multiple round auction may outweigh the benefits. A sin-
69 Many commenters favored the use of oral auctions exclu^ 
sively. See, e.g., comments of McCaw, Quentin L. Breen, and 
U.S. Intelco Networks. Commenters favoring this method praise 
its openness, ease of administration, familiarity, and high degree 
of information dissemination. See also comments of BellSouth. 
Professor R. Mark Isaac, commenting on behalf of CTIA. as 
serted that auction theory predicts that oral sequential auctions 
for single units will be efficient, approximately demand reveal 
ing, and generate the same revenue as the other methods.
70 An example of such a procedure is the recently completed 
bidding for control of Paramount Communications, which was 
conducted in intervals over a five month period.
71 In a pure common value auction, the item up for auction 
has the same value to everyone, but bidders' valuations at the 
time of the auction differ because they have different estimates 
of that underlying true value.
"  John McMillan, Games, Strategies and Managers. (New York: 
Oxford University Press), at 142-143. When bidders are risk
averse there is another effect on revenue opposite to that of the 
winner's curse -- risk aversion tends to raise bids more in single 
round bidding than multiple round bidding. John Riley and 
William Samuelson. "Optimal Auctions," American Economic 
Review. Vol. 71, No. 3 (June 1981)
73 Only when there are common value elements can bidders 
improve estimates of their own value of an item based on 
observing bids of others on that item.
74 Comments of PacTel Attachment by R. Preston McAfee: 
"Auction Design for Personal Communications Services" at 4-5. 
See also comments of Bell Atlantic, Attachment by Barry J. 
Nalebuff and Jeremy I. Bulow: "Designing the PCS Auction" at 
12, 20-21, and comments of NYNEX, Attachment by Robert G. 
Harris and Michael L. Katz at 7-9. For a more detailed discus 
sion of common value models, see comments of NT1A, staff 
paper by Mark Bykowsky and Robert Cull: "Issues in Im 
plementing a Personal Communications Services Auction" at 
20-28.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
gle round of bidding may also be appropriate in certain 
auctions where eligibility requirements limit participation 
to very few bidders.'5 With a small number of bidders, 
bidding cartels are easier to organize and may reduce auc 
tion revenue below fair market value (although not nec 
essarily result in any efficiency loss). Using a single sealed 
bid could reduce the likelihood of such collusive behavior 
since it provides colluding bidders a greater incentive to 
defect. With a single sealed bid, retaliation must come in 
later auctions, if any, while with multiple round bidding, 
retaliation against a cartel defector can come immediately. 
In opting for single round over multiple round bidding, 
the Commission must weigh the benefits of deterring collu 
sion and lower administrative expenses against the costs of 
a lower likelihood of awarding licenses to the bidders who 
value them most highly and the loss in revenue associated 
with a stronger winner's curse.
2. Sequential v. Simultaneous Bidding
86. Licenses may be auctioned either sequentially or 
simultaneously. In a pure sequential auction, licenses are 
auctioned one at a time. That is, bidding ends on one item 
before bids are accepted for another item, as is typically the 
case in an open outcry auction. In a pure simultaneous 
auction, all licenses are put up for auction at the same 
time. That is, bidding is open on all licenses at once until 
no more bids are received on any license. There are inter 
mediate designs between pure sequential and pure simulta 
neous auctions. Related licenses may be placed into groups 
and all licenses within the group auctioned simultaneously, 
but the groups can be auctioned one after another, i.e., 
sequentially. In this case, a choice must be made as to how 
to group licenses and the sequence in which groups will be 
auctioned.
87. Simultaneous Bidding for Homogeneous Licenses. An 
important special type of simultaneous bidding, which we 
will refer to as a single combined auction (which could 
incorporate either one or multiple rounds of bidding). " 
may be useful when auctioning multiple homogeneous 
licenses." Under this approach, the Commission would 
combine bidding for two or more homogeneous licenses.' 8
Licenses would be awarded to the highest bidders until the 
available licenses are exhausted, e.g., four virtually identical 
licenses would be awarded to the four highest bids. Single 
combined auctions could also be used for licenses that are 
close, but not perfect, substitutes. Small differences among 
licenses could be accounted for by allowing winning bid 
ders to choose among the licenses in descending order of 
their bids, i.e., the party with the highest winning bid 
would pick first. Single combined auctions are used by the 
U.S. Department of the Treasury to sell (perfectly 
homogeneous) U.S. securities (see NPRM at H 43). In such 
Treasury auctions the sales price is generally the bid price. 
However. Treasury has recently experimented with single: 
price auctions in which all successful bidders pay the same 
price   the highest losing bid.
88. Comments. Many of the comments and papers writ 
ten by academic auction theorists strongly favored the use 
of simultaneous multiple round bidding.' 9 Those favoring 
simultaneous multiple round bidding argue that it permits 
bidders to receive greater information during the bidding 
process and allows bidders back up strategies that take 
account of the value of interdependencies among licenses. 
Other academic papers, however, while incorporating a 
certain degree of simultaneity in their auction design, fa 
vored greater reliance on sequential bidding.80
89. Advantages of Simultaneous Multiple Round Bidding. 
Simultaneous multiple round bidding has a number of 
important advantages over sequential auctions for awarding 
interdependent licenses. First, they are more likely to 
award interdependent licenses efficiently   to those who 
value them the most and aggregated in the way that is most 
valuable. This increased efficiency derives from the in 
formation about the value of interdependent licenses pro 
vided to bidders during the bidding process and the 
opportunity to use that information because all such li 
censes are available until the close of the auction. Second, 
simultaneous multiple round auctions are likely to raise 
more revenue than sequential auctions because they miti 
gate the effect of the winner's curse. Third, they avoid the 
need to choose the sequence of bidding.81
 5 A minority of commenters strongly support sealed single 
round bidding. They argue that it is less subject to manipula 
tion than oral bidding and is easier to implement than oral 
bidding. See comments of Richard S. Myers. Others support 
using sealed bids only in limited circumstances, as when there 
are only two or three bidders. See comments of AT&T, Cellular 
Communications, Inc. and Calcell Wireless.
76 This is a special case of a simultaneous auction because bids 
are accepted on multiple (identical) items at the same time.
77 Two or more licenses are perfectly homogeneous if they are 
perfect substitutes, i.e., if bidders are indifferent about which 
one they acquire. Licenses in the same spectrum band, with the 
same amount of spectrum, and in the same geographic license 
area may. however, not be perfectly homogeneous for two rea 
sons. First, there may be differences in the amount and location 
(geographic and frequency) of spectrum occupied by incumbent 
users, as in the case of broadband PCS licenses. Second, a bidder 
seeking to operate in more than one license area may prefer 
that all the spectrum be on the same channel. Acquiring spec 
trum on the same channel tends to simplify coordination of 
interference at boundaries, thus lowering the cost of providing 
service.
78 This approach was proposed by Bell Atlantic, see comments
of Bell Atlantic Personal Communications Inc., Attachment by 
Barry Nalebuff and Jeremy Bulow at 4-5. It can be used in 
conjunction with any auction type.
7<i See comments of PacTel, Attachment by R. Preston McAfee; 
comments of PacBell, Attachment by Paul R. Milgrom and 
Robert B. Wilson: and comments of NYNEX, Attachment by 
Robert G. Harris and Michael L. Katz.
80 See comments of Bell Atlantic, Attachment by Professors 
Barry Nalebuff and Jeremy Bulow: and comments of TDS, 
Attachment by Professor Robert J. Weber: "A Proposed Auction 
Methodology for PCS Licenses." Some of the academicians 
modified their original proposals in response to the comments 
of others. See reply comments of Bell Atlantic and of PacBell.
81 The analysis of simultaneous single round bidding for inter 
dependent licenses is very different from that of simultaneous 
multiple round bidding. Although a single round of sealed bids 
for all licenses would be fast and administratively simple, it is 
the least likely method to achieve our other auction objectives 
for two reasons. First, such an auction generates no information 
about license values until after the auction closes, when the 
information cannot be used by bidders. This factor tends to 
decrease bid levels and to reduce the efficiency of the license 
assignment. Second, the method provides bidders no opportu 
nity to pursue back-up strategies, except in the after-market, 
where transactions costs may be high.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
90. The magnitude of the advantages of simultaneous 
multiple round bidding depends on the degree of inter 
dependence among licenses. Licenses may be interdepen 
dent either because they are substitutes or because they are 
complements. With substitutes, the lower the price of one 
license, the less a bidder would be willing to pay for 
another. Perfect substitutes are highly interdependent be 
cause the price of one puts an absolute cap on the amount 
a bidder is willing to pay for the other. If, for example, 
licenses A and B are perfect substitutes and a bidder knew 
that license A could be purchased for $100. that bidder 
would be willing to pay no more than $100 for license B.
91. With complementary licenses, on the other hand, the 
lower the price of one, the more a bidder would be willing 
to pay for another. One way to think about complementary 
licenses is that they are worth more as part of a package 
than individually. For example, bidders are likely to be 
willing to pay more for two geographically contiguous PCS 
licenses than two equivalent non-contiguous licenses, and a 
single bidder may be willing to pay more for two licenses 
than would two separate bidders. Commenters have iden 
tified several sources of such interdependence among PCS 
licenses. First, common ownership of licenses in adjacent 
areas facilitates roaming by users. Professor Daniel Vincent 
argued that consumer demand for a service that will allow 
them to use their handset across regions is the main source 
of interdependence.8^ NTIA agreed, noting that the value of 
roaming has already been clearly demonstrated in the cel 
lular industry.83 Second, ownership of multiple licenses 
both across geographic areas and within a given area pro 
vides economies of scale arising largely from spreading of 
fixed costs over more units of output.84 Marketing, system 
engineering, switching and standard setting are examples of 
activities with important elements of such fixed costs. 
Third, common ownership of geographically adjacent li 
censes on the same spectrum block reduces problems of 
controlling interference at license boundaries.8 There may 
be additional economies of scope from common ownership 
of contiguous licenses, whether or not they are on the 
same spectrum block.
92. The greater efficiency of simultaneous multiple 
round auctions in awarding interdependent licenses follows 
in part from the fact that they reduce the need for bidders 
to guess about outcomes in later auction rounds. With 
sequential auctions bidders in initial rounds must guess 
about prices in later rounds. A bidder may pay too much 
for a license in an early round on the mistaken expectation 
of a low price for a complementary license (or a high price 
for a substitute license) in a later round. Alternatively, a 
bidder may bid too little for a license in an early round in 
the hope that a close substitute will sell for less in a later 
round. Either situation could result in award of licenses to 
those who do not value them the most, but we will illus 
trate the potential for inefficiency only for the latter case. 
Suppose that there are two licenses that are close sub 
stitutes, for example the A and B PCS licenses in the same 
region. If the two parties that value these licenses most 
highly hold back on bidding when the first license is 
offered in a sequential auction, the first license would be 
awarded to the bidder with the third highest valuation. In 
contrast, with simultaneous auctions, the two bidders with 
the highest valuations would generally win the two li 
censes. A simultaneous auction also allows bidders to pur 
sue backup strategies. With sequential auctions, a bidder 
may learn too late that, given the licenses it has won and 
those it failed to win, it is now willing to pay more than 
the high bids for licenses that were awarded in earlier 
rounds.
93. By providing more information to bidders about the 
value of interdependent licenses, simultaneous auctions are 
also likely to raise more revenues by alleviating the win 
ner's curse. With sequential auctions bidders are likely to 
be especially cautious in their bidding on initial licenses. If 
the largest PCS regions were to be put up for bid first in a 
sequential auction, the revenue loss could be significant.
94. Finally, simultaneous auctions reduce the need to 
choose the sequence in which licenses within a service are 
auctioned. With pure simultaneous auctions, no choice of 
sequence would be necessary since all available licenses 
within a service would be auctioned at the same time. In 
the case of a sequence of simultaneous auctions, the Com 
mission would need to choose which licenses to auction 
together and the sequence in which such groups would be 
auctioned. Within each group, however, no choice of auc 
tion order would be necessary. In contrast, with a pure 
sequential auction, the Commission must decide on the 
order in which to auction every individual license. Dif 
ferent bidders are likely to want licenses auctioned in 
different sequences to favor their particular business plans, 
and there is no agreement among the commenters on the 
appropriate .sequence.
95. Disadvantages of Simultaneous Multiple Round Bid 
ding. On the other hand, simultaneous multiple round 
auctions may have some disadvantages. First, as recognized 
in the Notice, such auctions have only limited precedent 
for use and could be more difficult to implement. Second, 
they may appear more complex to bidders because of the 
number of licenses that must be monitored during the 
bidding process. Third, a bidder interested in only one or a 
few licenses would need to participate over a longer period 
of time in a simultaneous auction than in sequential auc 
tions. Fourth, with all licenses being auctioned simulta 
neously, bidders cannot be absolutely certain which 
licenses they have won until the end of the auction. In 
sequential auctions bidders know which licenses they have 
won in early rounds before having to bid in later rounds.
96. These difficulties are emphasized by those academic 
commenters who favor primary use of sequential bidding.86 
With regard to the problem of added complexity, Nalebuff 
and Bulow, for example, argue that simultaneous auctions
82 Ex pane presentation, February 17. 1994 at 2.
83 Comments of NTIA, Bykowsky-Cull staff paper at 15-16.
84 See ex pane comments of Professor Paul R. Milgrom, Feb 
ruary 14, 1994, at 9. Many of the academic commenters specifi 
cally mentioned the potential benefit of aggregating licenses 
within a given geographic area. See, e.g., commnets of NTIA. 
Bykowsky-Cull staff paper at 16.
See ex pane comments of Professor Paul R. Milgrom. Feb 
ruary 14. 1994, at 9.
8h Even the academics who general favor sequential auctions 
advocate incorporating a limited degree of simultaneity into 
their preferred auction designs. For example. Nalebuff and 
Bulow would "allow some simultaneity into the process by 
combining the bidding across the two 30 MHz licenses within 
an MTA, the three 10 MHz licenses within a BTA, and running 
the two designated license auctions simultaneous with the auc 
tion for the other three BTA license." Reply comments of Bell 
Atlantic, Attachment by Barry J. Nalebuff and Jeremy I. Bulow
2364
9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
present too many decisions to be made at once.8 ' However, 
we believe that by providing adequate time for bidding, 
e.g., one round per day, each bidder will have ample time 
to analyze their options for the subset of licenses in which 
it is interested. Indeed, for those bidders interested in only 
a few licenses, a simultaneous auction would have the 
advantage of providing far more time per license to make 
bidding decisions than in sequential auctions. Moreover, 
most of the time, a bidder in a simultaneous auction 
merely needs to make incremental decisions - whether to 
raise its bids on the properties on which it is already 
bidding. Only occasionally might a bidder have to make a 
major decision   whether to switch to a backup strategy 
and bid for a different group of licenses. Indeed, the strate 
gic decisions in a simultaneous auction may be less com 
plex than in sequential auctions, where a bidder must 
decide in early auctions how much it is willing to pay for a 
license without knowing what it will have to pay in later 
auctions for other licenses that are important to its aggrega 
tion strategy.
97. With regard to a bidder's lack of certainty about 
which licenses it has won until the end of a simultaneous 
auction, those advocating sequential auctions claim that the 
"quality" of information released by sequential auctions is 
higher because actual prices of licenses auctioned earlier 
are available to bidders in later auctions.88 That is, ad 
vocates of sequential auctions appear to be claiming that 
only the final, equilibrium price of a license provides 
useful information about valuation. However, we have con 
cluded that, with appropriate activity and stopping rules 
(see discussion infra), simultaneous auctions provide bid 
ders with significant useful valuation data at a time when 
they can use it.89 In contrast, bidders in the early sessions 
of a sequential auction have little or no information about 
prices of licenses to be auctioned later. In later auctions, 
while they do have good information about prices from the 
earlier auctions, they are unable to go back and change 
their bids in earlier auctions, based on what happens in 
later auctions.
3. Combinatorial Bidding
98. Combinatorial bid techniques permit bidding for 
multiple licenses as all or nothing packages. It could be 
implemented with either simultaneous or sequential auc 
tion designs. If a package bid were to exceed the sum of the 
highest bids for the licenses that comprise the package
(individually or in smaller packages), then the package bid 
wins. The range of packages for which bids are permitted 
could be defined by the Commission (e.g., all PCS licenses 
in band A) or bidders could be allowed to choose their 
own packages."0 NTIA is the primary proponent allowing 
bids on any combination of licenses, i.e., full,combinatorial 
bidding.91
99. Advantages of Combinatorial Bidding. Combinatorial 
bidding may promote efficient aggregation of licenses that 
are worth more as a package than individually. It may also 
simplify bidding strategy since bidders can avoid the prob 
lem of determining how to allocate the added value of a 
package among individual bids. Without combinatorial bid 
ding bidders risk paying too much for part of a desired 
package while losing the rest of the package to other 
bidders. The magnitude of this exposure depends on the 
specifics of the auction design and the value bidders put on 
various packages of licenses. This exposure is greater in a 
sequential auction than a simultaneous auction because 
bidders have less information about the likely prices of 
complementary licenses. It is also greater the more severe 
the consequences of bid withdrawal. Exposure risk is great 
est when the value of a package is severely diminished by 
the absence of a single part. Finally, the risk of exposure is 
greater when bidders do not agree on how licenses should 
be combined. When bidders generally want the same pack 
ages of licenses, if a firm is outbid on part of a package it is 
likely to be outbid on the entire package, and thus not 
likely to be stuck holding a piece of a package that is of 
little value without the rest of the package.
100. There is also some limited experimental support for 
the use of combinatorial bidding. Laboratory experiments 
conducted at Caltech found that full combinatorial bidding 
as proposed by NTIA resulted in more efficient outcomes 
than any of the individual bidding alternatives tested in 
cluding various sequential and simultaneous auction forms. 
The Caltech experiments also found that full combinatorial 
bidding also generally raised more revenue than the si 
multaneous independent auction form tested.92
101. Disadvantages of Combinatorial Bidding. On the oth 
er hand, a simultaneous auction design offers the 
possibility of efficient license aggregation without 
combinatorial bidding and combinatorial bidding appears 
to bias auction results in favor of the combination bid. This 
is due to the "free rider" problem. Bidders for individual 
licenses (or smaller packages) may be reluctant to raise
at 26. Moreover, Nalebuff and Bulow note that "reasonable 
people could hold different opinions" regarding the utility of 
simultaneous auctions. Id. at 10-11.
87 Id. at 11.6
88 See, e.g., reply comments of Bell Atlantic. Attachment by 
Nalebuff and Bulow at 13 ("Although there is a lot of informa 
tion, it can still be hard to interpret. Until the auction is over, 
nothing has been determined.") See also Letter from Robert 
Weber to Professor John McMillan, Jan. 9, 1994 (Simultaneous 
auctions "bring relatively little meaningful information into the 
public domain until near the very end," whereas appropriately 
structured sequential auctions "will bring the most important 
information into the public domain early").
89 See ex pane submission of Paul R. Milgrom, Feb. 14, 1994, at 
12-14. See also reply comments of PacTel, Attachment by R. 
Preston McAfee at 1-2, 7-8.
"  The NPRM proposed a nationwide combinatorial bid for 
broadband PCS licenses. See f f 57-60 and 120 of the NPRM. 
This proposal was criticized by commenters as inequitable as 
well as economically inefficient. See, e.g., comments of NTIA,
Bykowsky-Cell staff paper at 48-49 (combinatorial bidding limit 
ed to a single package would result in some PCS licenses being 
assigned to bidders that do not value them most highly): com 
ment of PacBell. Attachment by Milgrom and Wilson at 8-13 
(proposal would create free rider problems among bidders for 
individual licenses); comments of Arch Communications at 9 
(FCC's proposal too complex).
91 NTIA argues that where licenses exhibit high degrees of 
imerdeperidency, full combinatorial simultaneous multiple 
round bidding is likely to produce more efficient license assign 
ments and more revenues than other auction forms. See com 
ments NTIA. Bykowsky-Cull staff paper, and Letter from Larry 
Irving, Assistant Secretary for Communications and informa 
tion, NTIA, to Reed Hundt, Chairman. Federal Communica 
tions Commission, ex pane submission in PP Docket No. 93-253, 
February 28, 1994.
92 Ex pane submission of NTIA, February 28, 1994.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
their own bids in order to beat a combinatorial bid for a 
larger package because they hope that other bidders for 
other parts of the larger package will raise their bids. Since 
all individual bidders can be expected to reason this way, it 
is likely to be difficult to put together a coalition of bidders 
to raise their bids enough to beat a combinatorial bid for a 
larger package.93
102. Combinatorial bidding would also add one more 
layer of complexity to implementing an auction. Imple 
mentation problems are especially difficult if parties are 
permitted to bid for any combination of licenses as pro 
posed by NTIA. First, there are a huge number of such 
possible combinations. For example, Professor Weber cal 
culated that if there were five licenses available in each of 
six geographic areas there would be over one billion possi 
ble packages of licenses.94 Second, full combinatorial bid 
ding would require computer software that has not yet 
been fully developed for use on a large scale and would 
risk computer or other administrative failure. Third, full 
combinatorial bidding is non-transparent, that is, it would 
be difficult for bidders to determine in advance what con 
stitutes a high bid. This could lead losing bidders to chal 
lenge the procedure in court.
103. Limiting combinations to a small number would 
reduce complexity but require a determination of the most 
valuable packages prior to the auction. There is no simple 
way to make such a determination, and if there is a wide 
diversity of desired, license groupings, offering only a limit 
ed set will not accommodate all preferences and may not 
enhance efficiency.
104. We also note that some of the conditions under 
which the advantages of combinatorial bidding are apt to 
be the greatest are not likely to be present for most FCC 
auctions. First, while certain licenses are likely to be worth 
more as part of packages, there is no evidence of an 
extreme discontinuity in value if one or more licenses in 
the package are not acquired. Certainly there is no reason 
to believe that the entire benefit of aggregation is lost if a 
single license is not included in the package. Second, both 
the existence of an after-market and the proposed bid 
withdrawal penalty (see infra) limit the risk associated with 
failing to acquire all the licenses in a desired package. 
Whether a bid is withdrawn or a license acquired and 
resold in the after-market, the cost is likely to be limited to 
about one bid increment.
105. Although the Caltech experiments suggest empirical 
advantages of full combinatorial bidding it is difficult to 
assess their significance. First, the results are sensitive to 
the assumptions about benefits of aggregation, and we can
not know the extent to which these assumptions reflect 
reality until after the auctions. However, it appears that the 
experimenters generally assumed an unrealistically large 
premium from acquiring an entire package.95 Second, the 
experiments were conducted on a small scale. The com 
plexity of running and participating in a full combinatorial 
auction may be manageable with 10 bidders and 54 li 
censes, but it may not be with hundreds of licenses and 
bidders.
D. Preferred Competitive Bidding Designs
1. Primary Method: Simultaneous Multiple Round Bidding
106. After carefully considering all of the comments 
presented in this proceeding, we conclude that in most 
circumstances the best method to advance the goals for 
competitive bidding expressed in Section I, supra, is a 
sequence of simultaneous multiple round auctions. Com 
pared with other bidding mechanisms, simultaneous mul 
tiple round bidding for interdependent licenses generates 
the most information about license values during the 
course of the auction and provides bidders with the most 
flexibility to pursue back-up strategies. Thus, it is most 
likely to award interdependent licenses to the bidders who 
value them most highly. It will also facilitate efficient 
aggregation across spectrum bands and geographic areas, 
thereby resulting in vigorous competition among several 
strong competitors who will be able to introduce rapidly a 
wide variety of services that will be highly valued by end 
users. Because of the superior information and flexibility it 
provides, this method is also likely to yield more revenue 
than other auction designs. Thus, we find that the use of 
simultaneous multiple round auctions will generally be 
preferred.
107. However, the Commission must balance the in 
formational and bidding flexibility advantages of simulta 
neous multiple round auctions with the greater cost and 
complexity of running such auctions. For example, it is not 
our intention to put all PCS licenses up for bid at the same 
time, even though there is likely to be some degree of 
interdependence. Such a large simultaneous auction would 
most likely be unmanageable. As a result, we expect to 
have a sequence of simultaneous auctions. Licenses that are 
highly interdependent will be grouped together and auc 
tioned simultaneously.
108. We do not now plan to use combinatorial bidding 
in the simultaneous multiple round auction context. We 
reach this conclusion because (1) the simultaneous mul 
tiple round auction design offers many of the aggregation
93 The stand-by queue in the Banks-Ledyard-Porter AUSM 
mechanism proposed by NTIA mitigates the problem of bidders 
for individual licenses or smaller packages coordinating bids 
against bidders for larger packages. J. S. Banks, J. O. Ledyard, 
and D. P. Porter. "Allocating Uncertain and Unresponsive Re 
sources: An Experimental Approach," Rand Journal of Econom 
ics 20, 1989: 1-22. According to NTIA, the stand-by queue 
"allows parties seeking individual licenses to coordinate their 
bids in order to beat the currently prevailing bid for a combina 
tion of licenses. The stand-by queue displays the amount that 
other bidders are willing to pay for the licenses that are part of 
a combination bid. A bidder can determine from the sum of 
these amounts how much to raise his or her own bid in order 
to surpass the current winning bid." Ex pane submission of 
NTIA, February 28. 1994, at 4, n. 6. Although the stand-by 
queue facilitates coordination it does not eliminate the free
rider problem. Moreover, as the information in the stand-by 
queue grows with the number of bidders and licenses, bidders 
will have increasing difficulty efficiently combining contingent 
bids in the queue. Finally, there is the danger that some bidders 
for large combinations of licenses may strategically flood the 
queue with numerous contingent bids in order to prevent it 
from functioning.
94 Robert J. Weber, "A Proposed Auction Methodology for the 
Allocation of PCS Licenses: Simultaneous Ascending-Bid Auc 
tions," September 4, 1993, at 6.
95 See ex pane submission of NTIA, February 28, 1994, At 
tached staff paper by Mark Bykowsky and Robert Cull. See also 
ex pane submission of Paul R. Milgrom, February 14, 1994, at 
10. Professor Milgrom states that the Caltech experiments as 
sumed that all the benefits of aggregating a group of licenses are 
lost if a single license is missing from the package.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
advantages of combinatorial bidding without creating a free 
rider problem that may bias the outcome in favor of 
combinatorial bids, (2) full combinatorial bidding is highly 
complex and we lack a general methodology to simplify 
the full combinatorial procedure by choosing a limited set 
of combinations on which to allow bidding, and (3) the 
software for implementing full combinatorial bidding on a 
large scale does not now exist, and would be difficult to 
develop in a short time frame. In the future, however, we 
may decide to use a combinatorial bidding technique in 
simultaneous multiple round auctions if significant ad 
vances are made in the development of combinatorial pro 
cedures and they have been proven to work on a large 
scale.
109. License Characteristics Leading to Selection of Pre 
ferred Design. The two primary characteristics that will 
determine our choice of auction design are: (1) the degree 
to which licenses are interdependent, and (2) the expected 
value of the licenses being auctioned. Because we expect 
most licenses to be interdependent and of relatively high 
value, we have concluded that simultaneous multiple 
round auctions will generally best achieve the Commis 
sion's goals and therefore should be the Commission's 
preferred auction design.
110. When licenses values are interdependent, simulta 
neous multiple round auctions provide the information 
and flexibility for efficient1 bidding. In such auctions, if two 
licenses are substitutes, bidders will quickly switch from 
bidding on one license to bidding on the other if the price 
disparity does not reflect differences in value. This ensures 
that equivalent licenses will sell for equivalent prices. 
When licenses are complementary, bidders will have full 
flexibility to construct efficient aggregations of licenses 
based on simultaneous information about their prices. 
Thus, we would be inclined to select a simultaneous auc 
tion design when we believe that license values are signifi 
cantly interdependent.
111. The other major factor leading us to select 
simultaneous multiple round auctions as our preferred op 
tion is the expected value of the licenses being auctioned. 
While in some instances, license values may be so low that 
the administrative costs, both to the Commission and to 
bidders, of conducting simultaneous multiple round auc 
tions would exceed the value of the license, we anticipate 
that most licenses can be expected to have a relatively high 
value. However, as the value of licenses falls, the benefits of 
simultaneous multiple round bidding diminish relative to 
the cost and complexity of such auctions.96 In such cases, 
the Commission may choose to employ less complex auc 
tion methods.
2. Alternative Methods
112. Sequential Bidding. We intend to tailor the auction 
design to fit the characteristics of the licenses that are to be 
awarded. Given the diverse characteristics of the various 
services that may be subject to auctions, simultaneous mul 
tiple round auctions may not be appropriate for all li 
censes. The less the interdependence among licenses, the 
less the benefit to auctioning them simultaneously. Because 
simultaneous auctions are more costly and complex to run.
we may to choose a sequential auction design when there is 
little interdependence among individual licenses or groups 
of licenses. Such a design may include sequential oral 
auctions of individual licenses and a sequence of simulta 
neous auctions of multiple licenses.
113. Single Round Bidding. When the values of particular 
licenses to be auctioned are low relative to the cost of 
implementing a simultaneous multiple round auction, we 
will consider auction designs that are relatively simple, 
with low administrative costs and minimal costs to the 
auction participants. For example, with large numbers of 
low value licenses we may decide to implement single 
round sealed bidding to reduce implementation cost and 
expedite the licensing process. Because of the risk of collu 
sion, the Commission may also wish to consider a single 
round of bidding in certain auctions where eligibility re 
quirements limit participation to very few bidders.
114. Combinatorial Bidding. If we should choose a se 
quential auction design or single round bidding for some 
relatively low value licenses, and if we determine that there 
are some benefits of a particular level of aggregation for 
those licenses, we may accept combinatorial bids on a 
limited set of packages. While this does not have the ad 
ministrative complexities or risks of full combinatorial bid 
ding, it does raise the possibility of bias toward the 
combination bid. We therefore may consider instituting a 
premium, i.e., the combinatorial bid would win only if it 
exceeded the sum of the bids for the individual licenses by 
at least a specified amount, in order to offset the free rider 
bias. A premium for combinatorial bids would also in 
crease the incentive of bidders seeking packages of licenses 
to participate actively in the bidding for individual licenses. 
If we do decide to permit combinatorial bids, we would 
also need to specify whether these bids would be accepted 
before, after, or simultaneously with the individual bids, 
and when the combinatorial bids would be announced.
115. Testing Alternative Methods. The Congressional di 
rective to "design and test multiple alternative methodolo 
gies under appropriate circumstances," 47 U.S.C.  
309(j)(3). implies that we should periodically reevaluate the 
efficiency of the auction designs we utilize and, where 
appropriate, test alternative auction design methodologies. 
Accordingly, in future Reports and Orders where we estab 
lish service-specific auction rules we will indicate a pre 
ferred auction design method for each particular service 
and specify any alternative auction design methods that we 
may test in auctioning licenses within that particular ser 
vice. In each case, we will indicate the circumstances under 
which we may test an alternative design methodology and 
the procedures that will be applied when an alternative 
methodology is tested.
E. Bidding Procedures
116. We discuss below certain procedures that may be 
needed to implement the competitive bidding designs de 
scribed in subsection C, supra. We may choose to incor 
porate certain of these procedures into the service-specific 
rules that we will adopt in future Reports and Orders for 
each auctionable service.
9fi The point is that the choice of auction technique should 
take into account the cost of running the auction. In some cases 
the likely benefits of a more complex auction technique may 
not exceed the additional costs of implementing it.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
1. Sequencing
117. Whether we use our preferred approach of a se 
quence of simultaneous auctions or sequential individual 
auctions, the Commission must choose the sequence of 
what is auctioned. The importance of the choice of se 
quence increases with the degree of interdependence 
among the individual items or groups of items auctioned in 
sequence. We intend to minimize the importance of the 
choice of sequence by auctioning licenses sequentially only 
when there is not a high degree of value interdependence 
across the licenses (or groups) that are offered in sequence. 
As noted above, the groupings of the licenses into the 
various simultaneous auctions will be accomplished by 
aggregating together those licenses exhibiting the greatest 
degree of interdependence so that there will be limited 
interdependence across groups. Generally, we will an 
nounce the sequence in which licenses will be auctioned in 
the service-specific rules adopted in future Reports and 
Orders. For some services, the sequence of licenses to be 
auctioned will be announced by Public Notice prior to the 
auction.
118. Even if there is only limited interdependence 
among the licenses (or groups of licenses) to be auctioned 
sequentially, there still may be some tradeoffs in the choice 
of sequence, especially when implementing new auction 
procedures. In general, the highest value licenses or groups 
of licenses should be auctioned first because there is a cost 
to the public of delaying licensing, and the greater the 
value of the licenses the greater that cost. However, when 
implementing novel auction procedures, this general prin 
ciple may not be appropriate. Auctioning groups of lower- 
value licenses first would allow the Commission to use its 
initial auction experience to improve the subsequent auc 
tions for groups of higher-value licenses. Improvements in 
auction design and procedures are likely to have greater 
total value when applied to groups of higher-value licenses 
than lower-value licenses.
119. To the extent that some value interdependence re 
mains among licenses (or groups of licenses) auctioned 
sequentially, there is an additional justification for auction 
ing licenses (or groups) in descending order of value. High 
value licenses or groups of licenses may be linchpins of 
aggregation strategies for certain bidders.' For example, a 
bidder may feel that it is crucial to obtain a license to serve 
the New York City metropolitan area in order to develop a 
service in the Northeastern United States. In a sequential 
auction, such a bidder would prefer the New York licenses 
auctioned before other Northeast markets. Knowing who 
has won such large markets is likely to be more important 
for bidding decisions about small markets than the con 
verse. For this reason, the NPRM proposed that if individ 
ual PCS licenses are auctioned sequentially, regions should 
be offered in descending order of population. See NPRM at 
U H 53 and 125.
120. Auctioning high value licenses first may also in 
crease auction revenue. Auctioning high value license first 
would increase the present value of revenue by tending to 
collect the largest payments first. Furthermore, to the ex 
tent that ordering interdependent licenses (or groups) large 
to small increases efficiency, it increases potential revenue, 
and might increase actual revenue realized by the govern 
ment. On the other hand, selling first the licenses that can 
be expected to have the highest value may reduce overall 
revenues because of the effect of the winner's curse. If 
bidders in later auctions learn about common elements of 
license values from bids in earlier auctions, the incentive 
to shade down bids to avoid the winner's curse will be 
greatest with the first licenses, when the least information 
is available.
2. Duration of Bidding Rounds
121. In simultaneous multiple round auctions, bids can 
be submitted continuously with the high bids announced 
continuously, or bidding can occur in discrete rounds with 
high bids announced at the end of each round. NTIA's 
proposed "electronic iterative combinatorial auction," as 
demonstrated at Caltech on January 27, 1994. operated in 
real time with the high bids reported almost instanta 
neously. w PacBell and PacTel, on the other hand, both 
propose discrete rounds. With discrete rounds, the Com 
mission can more readily control the pace at which the 
auction proceeds.
122. In determining the appropriate pace of the auction, 
we must trade off the benefits of rapidly completing the 
auction -- possibly earlier initiation of service - against the 
benefits of providing bidders time to deliberate. With large 
numbers of high value licenses that may be combined 
across spectrum blocks and regions, bidders may need a 
significant amount of time to evaluate backup strategies 
and consult with their principals. For this reason. PacBell 
and PacTel argue that for broadband PCS, the benefits of 
simultaneous auctions are unlikely to be achieved if the 
auction proceeds too rapidly." Specifically, PacBell pro 
poses one bid per day and PacTel proposes three business 
days per round for broadband PCS. 1 Such a deliberate 
pace may not be appropriate, however, when license values 
are lower and fewer licenses are put up for auction si 
multaneously. In that case it may be appropriate to have 
several bidding rounds per day. The number of anticipated 
bidders may also affect our choice of the length of bidding 
rounds and duration between rounds. With more bidders 
the Commission may need to provide a longer period 
during which to submit bids, and a longer interval between 
rounds in which to process bids.
123. The duration of bidding rounds and the interval 
between rounds in simultaneous multiple round auctions 
will be announced in service-specific Reports and Orders, 
and may be varied by announcement during the course of 
an auction. 101 We generally intend to give bidders a single 
business day to submit bids, and conduct a new bidding
9 ' See, e.g.. comments of Bell Atlantic, Atttachment by Barry 
Nalebuff and Jeremy Bulow at 14.
Q8 Ex pane submission of NTIA, February 28, 1 Q4, Bykowsky- 
Cull staff paper at 5.
99 PacBell reply comments, attachment by Milgrom and Wil 
son at 15-16; PacTel reply comments, attachment by McAfee at
4-6.
")0 Comments of PacBell, Attachment by Milgrom and Wilson 
at 19: comments of PacTel, Attachment by McAfee at 16. 
101 If we find that bidding is proceeding excessively slowly, we 
may decide to shorten the duration of rounds and/or intervals 
between rounds. On [he other hand, we may increase the 
duration of rounds and/or intervals between rounds if an un 
expectedly large number of bidders participate in the auction.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
round each business day. We may, however, choose other 
round lengths and intervals between rounds. To the extent 
that we do, the length of rounds and the interval between 
rounds will generally vary directly with the number of 
licenses put up for bid simultaneously, the anticipated 
value of the licenses, and the number of bidders expected 
by the Commission.
3. Bid Increments
124. In multiple round auctions, whether they be se 
quential or simultaneous, the Commission will generally 
specify minimum bid increments. The bid increment is the 
amount or percentage by which the bid must be raised 
above the previous round's high bid in order to be ac 
cepted as a valid bid in the current round. 102 Imposing a 
minimum bid increment speeds the progress of the auction 
and. along with activity and stopping rules, discussed be 
low, helps to ensure that the auction comes to closure 
within a reasonable period of time. Establishing an appro 
priate minimum bid increment is likely to be especially 
important in a simultaneous auction with a simultaneous 
closing rule. In that case, all markets remain open until 
there is no bidding on any license. A delay in closing one 
market would delay the closing of all markets.
125. For broadband PCS, commenters have suggested a 
minimum bid increment of five percent. PacTel, for exam 
ple, argues that this provides a reasonable compromise 
between the goal of completing the auction quickly and 
that of revealing information about the distribution of valu 
ations among bidders. 103 PacTel also has suggested, in the 
context of simultaneous auctions where markets close one 
by one. that the auctioneer should vary the bid increment, 
reducing it as the number of active bidders declines, in 
order to bring bidding on all licenses in the auction to a 
close at approximately the same time. PacBell. in the con 
text of auctions that stop simultaneously, notes that reduc 
ing the bid increments in later stages of the auction may 
also be beneficial (attachment to reply comments at 25). 
This would move the auction quickly at the beginning 
while still allowing finer price movements when approach 
ing final prices. Such a refinement would reduce chances 
of ties by allowing bidders to express relatively small differ 
ences in valuations. If any ties do occur, however, licenses 
will be awarded in the order the bids were received, start 
ing with the earliest bid. This rule would provide bidders
an incentive to submit bids early, reducing the chance of 
the FCC having to accept a large number of bid submis 
sions just prior to the end of each bidding round.
126. We reserve the right to specify minimum bid incre 
ments in dollar terms as well as in percentage terms. The 
dollar minimum may be needed to ensure that the auction 
moves forward expeditiously if bidding begins at a very low 
dollar level. Based on the comments, our preferred basic 
minimum bid increment is five percent or x dollars, 
whichever is larger, where the dollar amount is set at 
approximately five percent of the expected license value. 
We shall retain discretion in future Reports and Orders 
establishing service specific rules to set and, by Public 
Notice before or announcement during the auction, vary 
the minimum bid increments for individual licenses over 
the course of an auction. We also may wish to vary the 
minimum bid increments with respect to different licenses 
being awarded in one auction. The dollar minimum bid 
increment would likely vary across classes of license, with 
larger bid increments set for more valuable licenses.
4. Stopping Rules for Multiple Round Auctions
127. Prior to each multiple round auction, the Commis 
sion will announce by Public Notice a stopping rule for 
determining when the auction is over. We seek a stopping 
rule that will (1) terminate the auction in a reasonable 
period of time, (2) be simple and clearly understood by 
participating bidders and observers of the auction process, 
and (3) in the case of simultaneous auctions, close all 
markets at approximately the same time. If markets were to 
close at very different times, important back-up bidding 
strategies could be foreclosed as in sequential auctions   
once the auction for a particular license has closed it is too 
late to bid on that license as additional price information 
becomes available during the course of an auction.
128. When licenses are auctioned one at a time, deciding 
when to close a multiple round auction is a largely a 
matter of determining how long to wait after bidding 
ceases. 104 Typically, such auctions close when a brief 
amount of time passes with no one offering to raise the 
current high bid by the minimum bid increment. In oral 
auctions this is generally a matter of seconds. In the case of 
discrete bidding rounds, one must specify the number of 
rounds. For example, we could specify that, if there were 
no valid new bids for one round, the auction would close. 
Such a rule would be simple and help bring the auction to
102 PacTel proposes a "suggested" minimum bid increment 
instead of a required minimum bid increment. Under this 
proposal (described in further detail infra), if two bids were 
submitted and both were below the suggested minimum bid, the 
auction would close with the license awarded to the highest 
bidder. On the other hand, if both bids were above the mini 
mum suggested bid the auction would continue. This mecha 
nism is intended to provide bidders an incentive to increase 
bids by a minimum increment without making it an absolute 
requirement. See comments of PacTel, Attachment by R. Pres 
ton McAfee at 16-17. The Commission retains the discretion to 
use this approach instead of a mandatory minimum bid incre 
ment.
103 Comments of PacTel, Attachment by R. Preston McAfee at 
16.
104 Stopping rules in the context of a single auction (or si 
multaneous auctions with markets closing one at a time) are 
not uniquely defined in terms of the length of time or the 
number of discrete rounds without bids. For example, McAfee,
as noted above, proposes a stopping rule that differs depending 
on whether bids are below or above a "suggested minimum 
bid." Under McAfee's proposal, a market would close if no new 
bids are submitted in a round or if bids are submitted but there 
are fewer than two that exceed the previous round's high bid by 
more than the suggested bid increment. Comments of PacTel, 
Attachment by R. Preston McAfee at 16. The second part of this 
rule would appear to provide bidders an additional incentive to 
participate actively in an auction. Under this provision, a high 
bidder in the previous round would not have the opportunity to 
make a counter offer to the high bidder in the current round if 
there is only a single bid which exceeds the suggested minimum 
bid. This would seem to provide an added incentive for the high 
bidder to continue to raise its bid by the suggested bid incre 
ment in each round. The Commission retains the discretion to 
employ such a stopping rule.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
a close quickly. Allowing more than one round might 
cause bidders to hold back (absent any activity rules) since 
they would not face the risk of losing the license if they 
did not bid in a given round. This same reasoning would 
apply to simultaneous auctions in which markets close one 
at a time and there is no activity rule. However, in a 
simultaneous auction with an activity rule to deter such 
holding back, it may be desirable to allow several rounds to 
pass without bidding before closing the auction. This would 
avoid any surprise endings to an auction, thus minimizing 
the possibility that a bidder is thwarted from exercising a 
back-up bidding strategy. It could also prolong the auction, 
however, and PacBell, the main proponent of simultaneous 
auctions with activity rules, proposes that a such auctions 
close if a single round passes in which no new acceptable 
bids are submitted for any license. 105
129. Stopping a Simultaneous Auction Market-by-Market. 
In simultaneous auctions, the stopping rules must also 
specify whether to close markets individually or simulta 
neously. PacTel proposed allowing markets to close one at 
a time, but also proposed a mechanism to increase the 
likelihood that all markets close at approximately the same 
time. Under PacTel's plan, minimum bid increments 
would be reduced as bidding activity (as measured by the 
number of active bidders) slows down. This would tend to 
result in rapid price movement in markets far away from 
final prices and slow movement in markets close to final 
prices. However, this mechanism may not work well when 
the top few bidders have much higher valuations than the 
other bidders. In this case the presence of only a few 
bidders does not indicate that the current high bid is close 
to the final price. But under their mechanism the bid 
increments would be small and bidding could continue for 
a long time, resulting in that market closing later than 
others. PacTel estimates that an auction conducted under 
its proposal would close after approximately one month 
(assuming its timetable of three days between bids and 
initial bidding increment of five percent).
130. Stopping a Simultaneous Auction at the Same Time in 
all Markets. PacBell, on the other hand, proposed closing 
bidding simultaneously - bidding would remain open on 
all licenses until bidding stops on every license. This ap 
proach has the advantage of providing bidders full flexibil 
ity to bid for any license as more information becomes 
available during the course of the auction, but it may lead 
to very long auctions. Bidders might hold back (absent the 
activity rules proposed by PacBell in its reply comments) 
because there would be a cost of committing oneself early 
to a bid with little offsetting benefit since the chance of the 
entire auction closing before they could bid would be 
slight. Furthermore, such a stopping rule might be vulner 
able to strategic delay. An incumbent wireless provider, for 
example, might prolong the auction by increasing bids on 
low value licenses simply to delay closure on higher value 
licenses. In its reply comments, PacBell addresses these 
concerns about speed of closing. To assure that bidders do 
not hold back, it proposes an activity rule (see discussion 
infra) that requires bidders to be active in each round. 
PacBell estimates that a simultaneous auction of all 
broadband PCS licenses would take 40 to 60 rounds using
their stopping and activity rules. As a fail safe mechanism, 
in part to address the possibility of strategic delay, it pro 
poses that if an auction conducted using its stopping and 
activity rules does not close after 40 rounds, the Commis 
sion could announce that, after one additional round of 
bidding, the auction would close. 106
131. Hybrid Slopping Rules. Hybrid stopping rules are 
also possible. A simultaneous stopping rule, along with a 
relatively complex activity rule, might be used for higher 
value licenses where the magnitude of the benefits of si 
multaneous closing are great. For lower value licenses, 
where the loss from eliminating some back-up strategies is 
less, markets might be allowed to close individually. For 
example, in the broadband PCS context, a simultaneous 
stopping rule might be applied to all Major Trading Area 
(MTA) licenses while a simultaneous auction for Basic 
Trading Area (BTA) licenses might be allowed to close 
market by market. A more complex hybrid would be to 
close the largest 10 or 15 MTAs simultaneously, while 
closing the remaining markets on an individual basis once 
the top markets had closed. That is, when three rounds 
have passed without bids on any of the top licenses, then 
all licenses on which there has been no bidding would 
close. Each remaining market would close when bidding 
stops in that market. Under this approach the outcome of 
large markets would be known before bidding closed on 
smaller properties. This plan would, however, prevent bid 
ders on large MTAs from using information about small 
MTAs that becomes available subsequent to the close of the 
large markets. But, presumably information about prices 
and ownership of large markets is more important in mak 
ing bidding decisions about small markets than vice versa. 
Such hybrid approaches might simplify and speed up the 
auction process without greatly sacrificing efficiency and 
revenue.
132. Preferred Stopping Rules. Based on the foregoing 
analysis we prefer the following stopping rules: (1) when 
auctioning licenses one at a time, or simultaneously and 
closing markets one at a time -- a market closes if a single 
round passes in which no new acceptable bids are submit 
ted for that license: (2) when auctioning licenses simulta 
neously and clos.ing markets 9 simultaneously   all markets 
close if a single round passes in which no new acceptable 
bids are submitted for any license. We favor these rules 
because they are simple and are likely to promote an 
expeditious close to auctions. We are also persuaded, for 
the reasons discussed above, that simultaneously closing 
markets for interdependent license is most likely to award 
licenses to the bidders who value them most highly. We 
recognize, however, that this approach may be more costly 
to implement for both the Commission and bidders, and 
thus may wish to adopt a hybrid approach in which mar 
kets for lower value licenses close one at a time. Moreover, 
we will retain the discretion to declare by announcement 
at any point during a multiple round auction that the 
auction will end after one additional round (or some other 
specified number of additional rounds). This will ensure 
ultimate Commission control over the duration of the auc 
tion. We also reserve the right to vary the interval at which 
bids are accepted by announcement during the course of a
105 Comments of PacBell, Attachment by Paul Milgrom and 
Robert Wilson at 19.
10(1 Reply comments of PacBell, Appendix to attachment by 
Milgrom and Wilson at 5. Professors Milgrom and Wilson pro 
pose that if this procedure is invoked the Commission would 
accept final bids only for licenses on which the highest bid 
increased in one of the last three rounds. No new bids would be 
accepted for other licenses.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
simultaneous auction (e.g., run two rounds per day rather 
than one), in order to move the auction toward closure 
more quickly.
5. Activity Rules
133. In order to ensure that simultaneous auctions with 
our preferred simultaneous stopping rule close within a 
reasonable period of time, an activity rule is likely to be 
necessary to prevent bidders from waiting until the end of 
the auction before participating. Because our preferred 
simultaneous stopping rule generally keeps all markets 
open as long as anyone wishes to bid, it also creates an 
incentive for bidders to hold back until prices approach 
equilibrium before making a bid and risking paying a 
penalty for withdrawing. As noted above, this could lead to 
very long auctions. An activity rule is less important when 
markets close one by one because failure to participate in 
any given round may result in losing the opportunity to 
bid at all if that round turns out to be the last. This Order 
adopts rules which retain the flexibility to decide on an 
auction-by-auction basis whether we will use an activity 
rule, and if so what type. We will announce the activity 
rule, if any, that will be used in each auction by Public 
Notice before the auction.
134. Where we decide to employ an activity rule, we will 
seek one that (1) moves auctions along at an appropriate 
speed, (2) provides bidders with the sufficient flexibility to 
pursue a wide range of alternative bidding strategies, and 
(3) is simple and clearly understood by participating bid 
ders. Designing an effective activity rule involves making 
tradeoffs among these objectives. For example, any incen 
tive to induce bidders to actively participate (beyond a 
single license) in early rounds constrains the flexibility to 
pursue some bidding strategies (e.g., holding back). The 
intention is to design an activity rule which, when used in 
conjunction with a simultaneous stopping rule, forecloses 
fewer important bidding strategies than would auctions in 
which markets close individually.
135. Activity Rules Proposed by Milgrom and Wilson. The 
most detailed discussion in the record on activity rules is in 
the papers prepared by Professors Paul Milgrom and Rob 
ert Wilson and submitted by PacBell. The initial 
Milgrom-Wilson proposal simply required each bidder to 
be active on at least one license in each round of bidding. 
In a particular round of bidding, a bidder is considered 
"active" with respect to a particular license if the bidder 
(1) has the high bid for that license from the previous 
round, or (2) has submitted a bid that exceeds the previous 
round's high bid for that license by at least the minimum 
bidding increment. Requiring each bidder to be active on 
at least one license is simple and does not foreclose any 
back-up bidding strategies of any serious bidder, but may 
not be adequate to ensure that an auction with a simulta 
neous stopping rule closes in a reasonable amount of time. 
Using this rule, we would also run the risk that it may 
become necessary to close an unreasonably long auction in 
a crude fashion, for example by announcing that only one 
more round of bids will be accepted. In such a case, the 
auction may generate little information and important bid 
ding opportunities may be foreclosed.
136. At the cost of some added complexity and some 
limitation on bidding flexibility, we may wish to impose a 
more stringent activity rule in auctions with simultaneous 
closing rules. Professors Milgrom and Wilson, in their at 
tachment to PacBell's reply comments (Milgrom and Wil 
son attachment at 22 and appendix at 7), suggest such a 
stricter activity rule. The rule encourages bidders to partici 
pate in early rounds by limiting their maximum participa 
tion to some multiple of their minimum participation 
level. Milgrom and Wilson propose that bidders be re 
quired to declare their maximum eligibility in terms of 
MHz-pops, and make an upfront payment equal to two 
cents per MHz-pop. (See Section IV.B., infra. ) That is, 
bidders would be limited to bidding on licenses encompass 
ing no more than the number of MHz-pops covered by 
their upfront payment. It is important to note that bidders 
would have the flexibility to shift their bids among any 
licenses for which they have applied so long as the total 
MHz-pops encompassed by those licenses does not exceed 
the number for which they made an upfront payment. 
Moreover, bidders would be able to ensure themselves the 
freedom to participate at whatever level they deemed ap 
propriate by making a sufficient upfront payment. 108 To 
preserve their maximum eligibility, however, bidders 
would be required to maintain some minimum activity 
level during each round of the auction.
137. Under the Milgrom-Wilson proposal, the minimum 
activity level, measured as a fraction of the self declared 
maximum eligibility, would increase during the course of 
the auction. Milgrom and Wilson divide the auction into 
three stages. During the first stage of the auction, a bidder 
would be required to be active on licenses encompassing 
one-third of the MHz-pops for which it is eligible. The 
penalty for falling below that activity level would be a 
reduction in eligibility. At this stage, bidders would lose 
three MHz-pops in maximum eligibility for each MHz-pop 
below the minimum required activity level. Put another 
way. each bidder would retain eligibility for three times the 
MHz-pops for which it is an active bidder, up to the 
MHz-pops specified in the bidder's upfront payment. For 
example, if a bidder made an upfront payment on 600 
million MHz-pops. the minimum activity level would be 
200 million MHz-pops during the first auction stage. If it 
bid on only 150 million MHz-pops, its eligibility would be 
reduced to a total of 450 million MHz-pops.
138. In the second stage, bidders would be required to be 
active on two-thirds of the MHz-pops for which they are 
eligible. The penalty for falling below that activity level 
would be a loss of 1.5 MHz-pops in eligibility for each 
MHz-pop below the minimum required activity level. In 
other words, each bidder would retain eligibility for 1.5 
times the MHz-pops for which it is an active bidder, up to 
the MHz-pops specified in the bidder's upfront payment. 
For example, a bidder who made an upfront payment on 
600 million MHz-pops would have a minimum activity 
level of 400 million MHz-pops during the second stage of 
the auction. If it bid on only 300 million MHz-pops. its 
eligibility would be reduced to a total of 450 million 
MHz-pops.
10 See comments of PacBell, Attachment by Milgrom and 
Wilson at 19; reply comments of PacBell. Attachment by 
Milgrom and Wilson at 21-25. 
108 The cost of buying additional initial eligibility would de 
pend on the difference between a bidder's opportunity cost of 
funds and the rate of interest, if any, paid by the Commission 
on the upfront payments.
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139. In the third stage, bidders would be required to be 
active on licenses encompassing all of the MHz-pops for 
which they are eligible. The penalty for falling below that 
activity level would be a loss of one MHz-pop in eligibility 
for each MHz-pop below the minimum required activity 
level. Each bidder thus would retain eligibility equal to its 
current activity level (1 times the MHz-pops for which it is 
an active bidder).
140. Milgrom and Wilson propose moving from stage 
one to stage two when, over three rounds of bidding, the 
high bid has changed on five percent or fewer of the 
licenses (measured in terms of MHz-pops) being auctioned. 
Stage three would begin when the high bid has changed on 
two percent or fewer licenses over three rounds. 109 Finally, 
to avoid the consequences of clerical errors and to com 
pensate for "unusual circumstances that might delay a 
bidder's bid preparation or submission on a particular 
day," Milgrom and Wilson propose that each bidder could 
request and automatically receive a waiver of the activity 
rule once every three rounds. We believe that some waiver 
procedure is a critical element of the Milgrom-Wilson ac 
tivity rule, since the Commission would not wish to reduce 
a bidder's eligibility due to an accidental act or circum 
stances not under the bidder's control.
141. Other Activity Rules. The Milgrom-Wilson activity 
rule could be modified by adjusting the percentages speci 
fied in the transition rule between auction stages, changing 
the number of stages, adjusting the minimum required 
activity level during each stage, or altering the waiver 
procedure. For example, the first stage could be eliminated 
and the auction could start with the two-thirds minimum 
activity requirement of the second stage. Other activity 
rules may be possible as well. The Commission could, for 
example, require that a bidder's activity level remain with 
in a single range throughout the auction. That is, a bidder's 
eligibility would be reduced to its current activity level 
only if it is active on less than some percent (e.g., 75 
percent) of the MHz-pops it specified in its upfront pay 
ment. This rule would be simpler than the Milgrom-Wil 
son rule, but provide less bidding flexibility. Rules that 
would be more complex but provide greater bidding flexi 
bility are also possible. Instead of a reduction in eligibility 
for bidding at less than the required activity level, the 
activity rule could specify a bid premium for later expand 
ing bidding activity beyond the level that would be allowed 
under the Milgrom-Wilson rule. The premium could be 
directly proportional to the number of MHz-pops in excess 
of that level. Bidders would not. however, be permitted to 
bid on more MHz-pops than covered by their upfront 
payments. The waiver procedure proposed by Milgrom and 
Wilson could be modified as well. A simpler alternative 
would be to allow bidders five automatic waivers during 
the course of an auction (for failure to meet the minimum 
activity requirement) and the discretion to issue additional 
waivers for circumstances beyond a bidder's control, such 
as an earthquake.
142. Choosing Among Alternative Activity Rules. In choos 
ing auction specific activity rules, it is important to keep in 
mind the tradeoffs among simplicity, flexibility, and speed 
of auction completion. For example, eliminating stages one
and two of the Milgrom-Wilson activity rule would 
simplify the procedure at the expense of reduced bidding 
flexibility and could result in an auction that closes too 
quickly to allow adequate time for consideration when 
there are many interdependent high-value licenses. Starting 
an auction with the third stage of the Milgrom-Wilson 
activity rule would prevent a bidder from initially bidding 
on certain core licenses critical to its business plans and 
then expanding its bidding to other licenses if prices turn 
out to be low enough that it can do so within its budget. 
Instead, it would need to bid initially on the largest collec 
tion of licenses it might want. If prices turn out to be 
higher than expected, the bidder would need to scale back, 
but it might get stuck with the wrong properties. That is, it 
might find that it risks being outbid on its core properties 
but not on the less essential ones. It would then need to 
withdraw its high bids on its non-essential properties in 
order to have sufficient capital to ensure that it could pay 
for its core properties. This problem would be less likely to 
occur under the three stage activity rule proposed by 
Milgrom and Wilson, because the bidder would not need to 
commit itself to the additional properties until stages two 
or three, when price information would be relatively reli 
able.
143. We are concerned, however, about the possible 
complexity of a three stage Milgrom-Wilson activity rule. 
One way to reduce this complexity from the perspective of 
bidders, without sacrificing auction flexibility or speed, 
would be to develop appropriate bidding software. It is our 
intention to develop such software and make it available to 
all bidders in auctions in which a Milgrom-Wilson type 
activity rule is used. Such software which would (1) auto 
matically calculate the activity level associated with any 
possible bid on a license or licenses, (2) show the mini 
mum required activity level for the current auction stage. 
(3) automatically alert the bidder, prior to submitting a 
bid. if a bid falls below the bidder's minimum activity 
level, and show the consequences in terms of future eli 
gibility of submitting such a bid, (4) show the bidder's 
eligibility in terms of MHz-pops, (5) automatically inform 
the bidder, prior to bid submission, as to whether a bid is 
valid, and (6) show the number of automatic waivers the 
bidder has used and the number still available.
144. Preferred Activity Rule. In light of the foregoing 
analysis, when the Commission employs a simultaneous 
stopping rule, its preferred activity rule will be a three 
stage Milgrom-Wilson rule. The specific parameters of the 
rule, including the minimum required participation level 
during each stage and the overall activity level specified in 
the transition rule between auction stages will be deter 
mined in subsequent service specific Reports and Orders."0 
However, the Commission retains the flexibility to choose 
among the following other activity rules on a case-by-case 
basis: (1) a Milgrom-Wilson rule with one or two stages. (2) 
the requirement that bidders be active on a single license, 
(3) a rule, as described above, that a bidder's activity level 
remain within a single range throughout the auction, (4) a 
rule, as described above, that replaces the maximum al-
1011 To avoid the risk of an excessively long auction, they also 
propose that the Commission retain the ability to declare at any 
time during an auction that the auction is moving to the next 
stage.
110 The Commission would also retain the ability to speed up 
an auction by announcing, at any time during an auction, that 
the next stage of the auction (with a higher minimum participa 
tion level) will begin in the next bidding round.
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lowed bidding levels in the Milgrom-Wilson rule with a 
bidding premium for exceeding those maximums. or (5) a 
combination of the foregoing rules.
145. We also conclude that while some waiver procedure 
is necessary in conjunction with a Milgrom-Wilson activity 
rule, a rule less complex than the one they proposed is 
likely to be adequate. Our preferred procedure will be to 
allow bidders five automatic waivers during the course of 
an auction (for failure to meet the minimum activity re 
quirement) and the discretion to issue additional waivers 
for circumstances beyond a bidder's control. We retain the 
flexibility, however, to adjust the number of automatic 
waivers, or to institute a rule that allows one free waiver 
during a specified number of bidding rounds.
6. Bid Withdrawal and Default
146. In either sequential or simultaneous auction designs, 
a bidder may wish to withdraw one or more of its high 
bids. As discussed below, if a high bid is withdrawn prior 
to the close of a simultaneous multiple round auction, the 
Commission will impose a penalty equal to the difference 
between the withdrawn bid and the amount of the winning 
bid the next time the license is offered by the 
Commission." 1 No withdrawal penalty will be assessed if 
the subsequent winning bid exceeds the withdrawn bid. If a 
winning bidder defaults after the close of such an auction, 
the defaulting bidder will be required to pay the foregoing 
penalty plus an additional penalty discussed below.
147. Bid Withdrawal Penalty. Allowing bidders to with 
draw bids without ever paying a penalty would encourage 
insincere bidding. Insincere bidding, whether purely frivo 
lous or strategic, distorts the price information generated 
by the auction process and reduces its efficiency. Strategic 
bidding is likely to be the most damaging. For example, a 
strategic bidder might attempt to deter a rival from acquir 
ing a regional collection of licenses (or from entering 
altogether) by bidding up the price of key licenses and 
then withdrawing.
148. An excessive bid withdrawal penalty, on the other 
hand, would tend to discourage the efficient aggregation of 
licenses. Absent full combinatorial bidding, bidders at 
tempting to put together a collection of licenses face the 
risk that they may be left holding licenses they no longer 
want. In either sequential or simultaneous auctions, a bid 
der may bid high on one property in the expectation that it 
will also win a complementary property, only to find that 
it is outbid on the complementary property. If the penalty 
for bid withdrawal is too high, bidders will tend to be too 
cautious in attempting to aggregate licenses.
149. A point to note in considering the appropriate level 
of bid withdrawal penalty is that the existence of an after- 
market generally places an upper limit on the amount that 
bidders will pay to the government for bid withdrawal'. If 
the bid withdrawal penalty is set too high, winning bidders 
who realize that they bid too much will generally pay for 
the license and resell it in the after-market. The cost of 
doing this would be the difference between the bid price 
and the price obtained in the after-market plus any transac 
tion costs (including the cost of financing the initial pur 
chase). Only those bidders who cannot raise sufficient 
capital to acquire the license for later resale, or those who 
are disqualified from acquiring the license would choose to 
withdraw and pay the government significantly more than this. 112
150. Professor R. Preston McAfee, in a January 10, 1994, 
ex pane filing on behalf of PacTel, proposes a bid with 
drawal penalty, in the context of simultaneous multiple 
round auctions, which we believe generally provides an 
appropriate balance between the risks of too high a penalty 
and those of too low a penalty. He proposes that the 
penalty for withdrawing a high bid equal the difference 
between the amount bid and the amount the government 
ultimately receives for the license. If the amount ultimately 
received for the license is greater than the amount of the 
withdrawn bid, no payment would be required." 3
151. We believe, for the following three reasons, that this 
is an appropriate penalty where the high bid is withdrawn 
during the course of a simultaneous multiple round auc 
tion. 1 First, it provides bidders with appropriate incen 
tives to avoid withdrawing bids. It compels bidders who 
may ultimately withdraw to consider the external con 
sequences of both how much they bid and the timing of 
their withdrawal. The more the price is bid up above the 
final sales price the greater the distortion in information 
generated by the auction, and the greater the potential for 
strategically limiting entry of potential competitors. Thus it 
is appropriate that the bid withdrawal penalty should in 
crease with the amount of the withdrawn bid, when that 
amount exceeds the market price. Similarly, the later in
111 If a license is re-offered by auction, the "winning bid" 
refers to the high bid in the auction in which the license is 
re-offered. If a license which is the subject of withdrawal or 
default is instead offered to the highest losing bidders in the 
initial auction, the "winning bid" refers to the bid of the 
highest bidder who accepts the offer. Losing bidders would not 
be required to accept the offer, i.e., they may decline without 
penalty. We wish to encourage losing bidders in simultaneous 
multiple round auctions to bid on other licenses, and therefore 
will not hold them to their losing bids on a license for which a 
bidder has withdrawn a bid or on which a bidder has defaulted.
112 In determining the maximum amount that could be 
charged for a bid withdrawal penalty one must take into ac 
count the fact that the price at which a license can be trans 
ferred in the after-market is uncertain. Risk averse bidders 
would be willing to pay a fixed withdrawal penalty which 
exceeds the expected value of the difference between the bid and 
final sales price plus transaction costs.
113 McAfee also proposes that the license reverts to the second 
highest bidder. who may withdraw without penalty. 
Alternatively, the Commission could restart bidding at some
fraction of the withdrawn bid. say 80 percent, or at a fraction of 
the second highest bid. We generally favor the last approach. 
Using a fraction of the second highest bid instead of a fraction 
of the withdrawn bid would avoid the problem of setting the 
starting price too high in the event that there is a large gap 
between the highest and second highest bids. It would also take 
into account the possibility that the second highest bidder is no 
longer willing to pay as much as it originally bid. Finally, this 
approach would be administratively less burdensome than 
checking whether the second highest bidder wanted the license. 
If no bids are received at the suggested starting price the Com 
mission would retain the right either to lower the price or to 
accept bids that are below the price.
114 In the unlikely event that there is more than one with 
drawal on the same license, we will hold each withdrawing 
bidder responsible only for the difference between its with 
drawn bid and the amount of the winning bid the next time the 
license is offered by the Commission. This procedure ensures 
that each bidder who withdraws is responsible for its bid. In our 
view,  309(j)(3) and (4)(B) afford us ample authority to im 
pose such penalties for bid withdrawal.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
the auction a high bid is withdrawn, the higher the penalty 
should be and the higher it is likely to be. The damage to 
the auction process is greater when bids are withdrawn late 
in the process because other bidders have fewer opportu 
nities to adjust their strategies and thus there is less the 
chance the license will be awarded to the bidder who 
values it most highly. For the same reason, the ultimate 
sales price is likely to be less, and hence the bid with 
drawal penalty likely to be higher. The penalty compels 
bidders to consider the costs imposed on the auction pro 
cess along with the benefits they expect to receive from 
withdrawal.
152. Second, the penalty precisely protects the govern 
ment from loss of revenue associated with bid withdrawal. 
A fixed withdrawal penalty would be too great when the 
gap between the final sales price and bid price is small and 
too little when it is large.
153. Third, the bid withdrawal penalty adopted here is 
likely to be fairer to designated entities, who are less likely 
to have the option of purchasing a license and reselling it 
as an alternative to bid withdrawal. As discussed above, 
most bidders would not pay a fixed bid withdrawal penalty 
if it would be less costly to purchase the license and resell 
it in the after-market. But capital constrained firms, and 
firms subject to strict resale limitations would not have this 
option. In contrast to a fixed bid withdrawal penalty, the 
penalty adopted here would result in equal treatment for 
all firms, since the penalty for bid withdrawal would ap 
proximate the loss incurred by accepting a license and then 
reselling it.
154. Default Penalty. If a bid is withdrawn after a si 
multaneous multiple round auction has closed, i.e., the 
winning bidder "defaults," the winning bidder will be re 
quired to pay the foregoing penalty plus an additional 
penalty equal to three (3) percent of the amount of the 
winning bid the next time the license is offered by the 
Commission, or three percent of the amount of the default 
ing bidder's bid, whichever is less. The additional penalty is 
intended to provide an incentive for bidders wishing to 
withdraw their bids to do so prior to the close of the 
auction. It is appropriate to create such an incentive be 
cause a withdrawal that occurs after an auction closes 
(default) is likely to be more harmful than one that occurs 
before closing. First, default reduces the efficiency of the 
assignment process. If withdrawal occurs before the auction 
closes other bidders will have greater opportunities to re 
vise their bidding strategies to account for the availability 
of the withdrawn license. Once the auction closes, how 
ever, only those licenses on which bidders defaulted (plus 
any licenses not sold during the auction) will be put up for 
re-auction, so other bidders will have little opportunity to 
revise their strategies. Thus, default would reduce the like 
lihood that licenses will be assigned to those who value 
them the most. Second, default imposes extra costs on the 
government. If a bidder defaults, the government must 
generally incur the additional expense of re-auctioning the
license." 5 In contrast, the administrative cost of announc 
ing a bid withdrawal prior to the close of an auction and 
accepting additional bids would be minimal.
155. In setting the additional penalty for default, the 
Commission must take into account the presence of the 
after-market as a limitation on the maximum collectable 
penalty. Based on the fact that brokers of cellular licenses 
typically charge a three percent commission (See Notice of 
Proposed Rulemaking and Tentative Decision in GN Dock 
et No. 90-314 and ET Docket No. 92-100, 7 FCC Red 5676 
(1992), at n.41), we estimate the after-market transaction 
costs to be approximately three percent. We believe that 
this is an appropriate additional penalty for default. If the 
Commission were to charge this additional penalty, we 
would expect most bidders to prefer paying the default 
penalty than purchasing and reselling the licenses in the 
after-market, because the Commission is likely to be able 
to re-auction licenses more quickly and to get higher sales 
prices assuming it puts all defaulted (and otherwise unsold) 
licenses up for bid shortly after the auction closes. If the 
Commission were to set a substantially higher penalty, few 
bidders would default but would instead resell unwanted 
licenses in the after-market. Not only would this be unfair 
to entities unable to rely on the after-market, it would 
likely reduce the efficiency of the auction process, because 
we anticipate that FCC simultaneous auctions of defaulted 
(and otherwise unsold) licenses will generally assign li 
censes more efficiently than license-by-license transactions 
in the after-market. On the other hand, an additional 
penalty of substantially less than three percent would not 
sufficiently discourage default.
156. Penalties in Open Outcry Auctions. In the case of 
open outcry auctions, the Commission may choose not to 
impose any penalty for bid withdrawal during the course of 
an auction and instead rely only on the default penalty 
described above to discourage insincere bidding. The de 
fault penalty will be assessed if a bidder fails to make the 
down payment on a license, fails to pay for a license or is 
disqualified after the close of an auction. There are two 
reasons for this possible modification. First, the damage 
from bid withdrawal is less when only one license is up for 
auction at a time than when multiple licenses are auc 
tioned simultaneously. In a simultaneous auction, bids on 
one license will affect other bidders' decisions about other 
licenses. In an open outcry auction, however, bids during 
the course of the auction will have little or no effect on 
other decisions. Provided that other bidders are also not 
held to their bids (so they are not committed to bids based 
on faulty estimates of common values inferred from the 
withdrawn bid), the only damage from such withdrawal 
would be delay. In an open outcry auction such delay may 
be minimal. Second, in open outcry auctions the possibility 
for mistaken bids is greater than when bids are submitted 
electronically or in writing.
115 In the event that a winning bidder in a simultaneous 
multiple round auction defaults on its down payment 
obligations, the Commission will generally re-auction the li 
cense either to existing or new applicants. If, however, only a 
small number of relatively low value licenses are to be re- 
auctioned, the Commission may choose to offer the license to 
the highest losing bidders (in descending order of their bids) at 
their final bids, since the cost of running an auction may not 
exceed the benefits. If a high bidder defaults or is disqualified
after having made its down payment, the Commission will 
conduct another auction for the license. New applicants will be 
given the opportunity to participate in such an auction, because 
so much time is likely to have passed that different parties may 
be interested in bidding and existing applicants may have dif 
ferent valuations of the license.
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157. Penalties in Single Round Bidding. In the case of 
single round bidding, the foregoing analysis of penalties for 
withdrawal and default must be modified to reflect the fact 
that bids cannot be withdrawn during the course of an 
auction because there is only a single round. If a bid is 
withdrawn before the bids are opened no harm would be 
done and no penalty will be assessed. If a high bid is 
withdrawn after the bids are opened but before the high 
bidder has been notified the harm would also be minimal. 
The Commission can quickly proceed to offer the license 
to the party with the next highest bid and the situation 
would be as if the first high bid had not been made. If. 
however, a high bidder in a single round auction defaults 
after it has been notified, the licensing process is likely to 
be delayed. To provide bidders in single round auctions an 
incentive to avoid default Cand the associated delays, and 
to protect the government against the revenue loss from 
default, we intend to impose a default penalty equal to the 
difference between the high bid and the next highest bid."6 
No additional three percent penalty will be charged be 
cause the two justifications for its imposition in multiple 
round auctions do not apply. In a single round auction, the 
argument about creating an incentive to withdraw during 
the course of an auction does not apply since there would 
be only a single bidding round and the Commission would 
not incur additional costs because it will not generally need 
to run another auction.
7. Releasing Bid Information
158. In multiple round auctions the Commission must 
decide how much bid information to release during the 
auction. One option (proposed by PacBell) would be to 
announce all bids plus the identities of the high bidder in 
each round. 117 Maximizing the information available to 
bidders minimizes bidder uncertainty and thus may in 
crease bids by alleviating the winner's curse. It may also 
increase efficiency of license assignments by providing bid 
ders with useful information about the likely availability of 
complementary services and standards both inside and out 
side the areas they wish to serve. On the other hand, 
releasing the identities of the high bidders may foster stra 
tegic manipulation, e.g., bidding up licenses critical to ri 
vals' business plans. 1 It also facilitates collusion among 
bidders by identifying high bidders to each other and en 
ables parties to enter into bid rigging agreements. We be 
lieve that the risk of collusion and strategic manipulation 
outweighs the benefits of additional information from re 
leasing the identities of the high bidders. We therefore will 
adopt an intermediate option of announcing bidder iden 
tification numbers and bid amounts but not the identities 
of the bidders. This option provides some useful informa 
tion to bidders without significantly increasing the risk of 
anticompetitive behavior.
8. Delay, Suspension or Cancellation of Auction
159. By Public Notice or by announcement during an 
auction, the Commission may delay, suspend or cancel an 
auction in the event of a natural disaster, technical ob 
stacle, evidence of auction security breach, unlawful bid 
ding activity, administrative necessity, or for any other 
reason that affects the fair and competitive conduct of the 
competitive bidding. In such cases, the Commission may, 
at its sole discretion, resume the auction starting from the 
beginning of the current or some previous round or may 
cancel the auction in its entirety.
IV. PROCEDURAL, PAYMENT AND PENALTY ISSUES
160. This section establishes general rules and procedures 
that will govern the competitive bidding process, including 
procedures for the filing of applications and rules concern 
ing bidder and licensee qualifications, upfront and down 
payments, penalties that will be assessed in certain cir 
cumstances, and the use of minimum bid and reservation 
prices. These rules are structured to ensure that bidders 
and licensees are qualified and will be able to construct 
systems quickly and offer service to the public. By ensuring 
that bidders and license winners are serious, qualified ap 
plicants, these rules will minimize the need to re-auction 
licenses and prevent delays in the provision of service to 
the public.
A. Pre-Auction Procedures and Bidder and Licensee 
Qualifications
161. Section 309(j)(5) provides that no party may partici 
pate in an auction "unless such bidder submits such in 
formation and assurances as the Commission may require 
to demonstrate that such bidder's application is acceptable 
for filing." 47 U.S.C.  309(j)(5). Moreover, "[n]o license 
shall be granted to an applicant selected pursuant to this 
subsection unless the Commission determines that the ap 
plicant is qualified pursuant to [Section 309(a)| and Sec 
tions 308(b) and 310" of the Communications Act. Id. As 
we noted in the NPRM, the legislative history explains that 
the Commission may require that bidders' applications 
contain all information and documentation sufficient to 
demonstrate that the application is not in violation of 
Commission rules and that applications not meeting those 
requirements may be dismissed prior to the competitive 
bidding. See NPRM at f 96. citing H.R. Rep. No. 103-111 at 
258.
162. In the NPRM. we made a number of proposals to 
implement this statutory provision that were designed to 
streamline the processing of auction applications. NPRM at 
f f 96-101. We proposed that, in response to a Commission 
Public Notice of a filing window or cut-off date in services 
that are subject to competitive bidding, all applicants inter 
ested in participating would be required to file a short- 
form application (modeled on the Commission's 
"Transmittal Sheet for Cellular Applications"). Id. at ^ 97.
116 If there are multiple defaults each bidder would be respon 
sible for the difference between its bid and the next highest bid. 
Holding each bidder in a single round auction responsible for 
the difference between its bid and the next highest bid would 
discourage cascading defaults. Moreover, the argument made 
above (for the case of simultaneous multiple round auctions) 
that losing bidders should not be held to their bids does not
apply here because single round bidding does not provide losing 
bidders with the opportunity to switch bidding strategies within 
the auction.
117 Comments of PacBell, Attachment by Milgrom and Wilson 
at 19. See also reply comments of PacBell, Attachment by 
Milgrom and Wilson at 26.
118 See comments of NYNEX, Attachment by Harris and Katz 
at Q.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
Submission of a short-form application prior to the auc 
tion, we noted, would reduce the administrative burdens of 
the initial stages of the auction process, avoid unnecessary 
delay in the initiation of service, and encourage applicants 
to participate in the process. We asked whether applicants 
should also be required to submit a long-form application 
and an application fee prior to the auction, or whether the 
long-form application should be submitted subsequent to 
the auction. Id.
163. The comments generally support the Notice's pro 
posals to streamline the processing of auction applications, 
particularly as they would apply to PCS applications." 9 
The majority of commenters addressing this issue agree that 
we should require only a short-form application prior to 
competitive bidding, and that only winning bidders should 
be required to submit a long-form license application after 
the auction.
164. Generally, we intend to adopt the following proce 
dures for conducting auctions. 120 Usually, no less than 75 
days before each scheduled auction the Commission will 
release a Public Notice announcing the auction. This Pub 
lic Notice may be issued either by Commission order or 
Bureau release. The initial Public Notice will normally 
contain the following information: the license(s) to be auc 
tioned and the time, place and method of competitive 
bidding to be used, including applicable bid submission 
procedures, bid withdrawal procedures and penalties, stop 
ping rules and activity rules. This Public Notice will also 
specify the filing window, if any, for short-form applica 
tions and bidder certifications, as well as the amounts and 
deadlines for submitting the applicable filing fee, upfront 
payment and down payment. We will not accept applica 
tions filed before or after the dates specified in Public 
Notices. 121 Applications submitted before release of a Pub 
lic Notice announcing an auction for particular license(s), 
or before the opening date of the filing window specified 
therein, will be returned as premature. Applications sub 
mitted after the deadline specified by Public Notice will be 
dismissed, with prejudice, as untimely. Soon after release of 
the initial Public Notice, an auction information package 
would be made available to prospective bidders.
165. In order to reduce the administrative burdens on 
bidders and the FCC and minimize the potential for delay, 
bidders will be required to submit only short-form applica 
tions and bidder certifications together with any applicable 
filing fee 122 prior to the auction. 123 As indicated above, 
short-form applications will be due on a date to be speci 
fied by Public Notice or Commission rule. If the Commis 
sion receives only one application that is acceptable for 
filing for a particular license, mutual exclusivity would be 
lacking and the Commission would be prohibited from 
using competitive bidding to award the license. Under 
these circumstances, the Commission will issue a Public 
Notice cancelling the auction for this license and establish 
ing a date for the filing of a long-form application, the 
acceptance of which would trigger the relevant procedures 
permitting petitions to deny.
166. The short-form applications and bidder certification 
forms will normally require applicants to provide the fol 
lowing information: 1) the license(s) for which the ap 
plicant wishes to bid: 124 2) the applicant's name: 125 3) the 
identity of the person(s) authorized to make or withdraw a 
bid; 4) certifications that the applicant is legally, techni 
cally, financially and otherwise qualified pursuant to Sec 
tion 308(b) of the Communications Act, and is in 
compliance with the foreign ownership provisions con 
tained in Section 310 of the Communications Act and any 
other service-specific qualification rules applicable to the
119 See, e.g., comments of Cellular Service. Inc. at 15; GCI at 
14; Liberty Cellular at 5: and Pacific Telecom Cellular. Inc. at 
5-6. The Association for Independent Designated Entities 
(AIDE) argues in its comments and again in its reply comments 
that we have not afforded sufficient notice in the NPRM to 
permit us to promulgate rules for the auction of PCS. We 
disagree. The NPRM was sufficiently specific to draw numerous 
and extensive comments from interested parties on the proposed 
procedures. See, e.g., NPRM at U f 120-130. 167-175. The Com 
mission proposed to base its PCS application filing and process 
ing rules on existing rules used for the processing of other 
mobile radio services, such as the cellular radio service and the 
private land mobile radio services, and proposed the use of a 
one-day filing window for PCS applications. We made reference 
to specific rules in the cellular service and in the private land 
mobile radio service. We proposed use of both a short-form and 
a long-form application to speed processing, and asked when we 
should consider petitions to deny. We further asked whether we 
should use combinatorial bidding, proposed to auction the big 
gest markets first in both broadband and narrowband PCS, and 
proposed a specific upfront payment in dollars for nationwide 
narrowband PCS. We proposed that no modifications be allowed 
until after a winning bidder emerged, and proposed which 
forms applicants should use to apply for PCS licenses. Finally, 
we proposed the application fees we proposed to charge and 
advanced numerous other proposals as well. We received vo 
luminous comments from many parties on these issues. In view 
of the extensive and detailed comments we received on all 
aspects of our proposal, we disagree with AIDE'S conclusion 
that we must issue a further notice of proposed rule making 
before adopting specific procedural rules for PCS. We shall 
announce those rules in a subsequent Report and Order in this 
proceeding.
120 We may decide in the future to alter some or all of the 
procedures detailed herein, or to tailor them to specific service 
rules, after we have had an opportunity to assess their effective 
ness.
121 We may decide in some services to accept applications 
before scheduling an auction. This will be the case in services 
where mutually exclusive applications are filed during filing 
windows that open automatically by operation of our Rules. In 
these situations, we will provide through a subsequent Public 
Notice relevant information concerning the auction in which 
these licenses will be awarded.
122 This fee would be based on the applicable processing fee for 
the service in question. See 47 U.S.C.  158(g); 47 C.F.R. Part 1, 
Subpart G. Whenever funds are remitted to the Commission, 
applicants must file-FCC Form 159.
'" Applicants should submit one paper original and one 
microfiche original of their application, as well as two 
microfiche copies.
124 Several commenters suggested that we consider a 
"consolidated" short form -- one form that could be used for 
bidding on multiple licenses. We are currently assessing the 
feasibility of this option.
125 If the applicant is a corporation, then the short-form ap 
plication will require the name and address of the corporate 
office and the name and title of an officer or director. If the 
applicant is a partnership, then the application will require the 
name, citizenship and address of all partners, and, if a partner is 
not a natural person, then the name and title of a responsible 
person should be included as well. If the applicant is a trust, 
then the name and address of the trustee will be required.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
particular service; and 5) certification that the applicant 
satisfies any financial qualifications requirements for the 
service in question. If the applicant seeks to take advantage 
of any special provisions adopted for designated entities 
(see Section VI. infra), the short-form application would 
also contain a statement to that effect and a declaration 
under penalty of perjury that the applicant is qualified as a 
designated entity under the Commission's eligibility rules. 
For the reasons discussed in Section V, infra, the bidder 
certification will also require bidders to identify all parties 
with whom they have entered into partnerships, joint ven 
tures, consortium or other agreements, arrangements or 
understandings of any kind which relate to the licenses 
being auctioned, including any such agreements relating to 
the post-auction market structure. In addition, as discussed 
more fully below, bidders will be required to certify that 
they have not entered into any agreements, arrangements 
or understandings of any kind with other bidders (who are 
not members of identified partnerships, joint ventures or 
other bidding csortia) regarding the amount of their bid, 
bidding strategies or the particular licenses on which they 
will or will not bid. We may also ask applicants to submit 
additional information purely for informational purposes 
so that we can compile the report to Congress required by 
section 309(j)(12)(D)(iv).
167. In the NPRM, we tentatively concluded that short- 
form applications should be judged by a letter-perfect stan 
dard. See NPRM at ^ 100. Several commenters, however, 
opposed subjecting short-form applications to a letter per 
fect standard of review, and proposed that the Commission 
allow a brief period for correcting errors in short-form 
applications. See, e.g., comments of AT&T at 30-31, 
BellSouth at 36-37. But cf. comments of Comcast at 16, 
n.25. We now believe, as a general matter, that the public 
interest would be better served by encouraging maximum 
bidder participation in auctions. Therefore, we have de 
cided to adopt a more liberal standard in most cases. 126 Ap 
plicants whose short-form applications are substantially 
complete, but contain minor errors or defects, will be 
provided an opportunity to correct their applications prior 
to the auction. 1 However, applicants will not be permitted 
to make any major modifications to their applications, 
including ownership changes or changes in the identifica 
tion of parties to bidding consortia. In addition, applica 
tions that are not signed or that fail to make the requisite 
certifications will be dismissed as unacceptable.
168. After reviewing the short-form applications, the 
Commission will issue a second Public Notice listing all 
defective applications and notify applicants of the specific 
defect. Applicants will be given an opportunity to cure 
defective applications and resubmit a corrected version. 1 -8 
After reviewing the corrected applications, the Commission 
will release a third Public Notice announcing the names of 
all applicants whose applications have been accepted for 
filing. Applicants identified in this Public Notice will then
be required to submit the full amount of their upfront 
payment 129 to the Commission's lock-box bank by a date 
certain, which generally will be no later than 14 days 
before the scheduled auction. After the Commission re 
ceives from its lock-box bank the names of all applicants 
who have submitted timely upfront payments, the Commis 
sion will issue a fourth Public Notice announcing the 
names of all applicants that have been determined to be 
qualified to bid. 130 Each applicant listed on this fourth 
Public Notice will be issued a bidder identification number 
and further information and instructions regarding the auc 
tion procedures. During an auction, bidders will be re 
quired to provide their bidder identification numbers when 
submitting bids.
B. Upfront Payment
169. To ensure that only serious, qualified bidders par 
ticipate in our auctions, we proposed that all participants 
in any auction tender in advance to the Commission a 
substantial sum (an "upfront payment") as a condition of 
bidding. NPRM at H 102. We proposed that the upfront 
payment be set using a formula based on the amount of 
spectrum and population (or "pops") covered by the li 
cense or licenses for which parties intend to bid. Id. at U 
103. We proposed to set the upfront payment at $0.02 per 
pop per megahertz. Id. We reasoned that an upfront pay 
ment requirement would ensure the validity of the in 
formation generated during auctions and increase the 
likelihood that licenses are awarded to the qualified bidders 
who value them the most, thus promoting the rapid de 
ployment of new technology.
170. There is substantial support in the comments for 
the Commission's proposal to require prospective bidders 
to make substantial upfront payments prior to auction. See, 
e.g., comments of Comcast at 18. PacBell at 28. Nextel at 
16, and AWCC at 31-32. Though some favor a fixed 
upfront payment set by the Commission prior to the auc 
tion (see, e.g., comments of Edward M. Johnson at 2, and 
LuxCel Group, Inc. at 8), most support the Commission's 
proposed $0.02 per pop per MHz formula, which would 
enable prospective bidders to tailor their upfront payment 
to their bidding strategies (see, e.g., comments of PacBell at 
28, Telocator (now PCIA) at 13, CTIA at 30, and Rochester 
Telephone Corporation at 13). Commenters suggest that 
there should be some fixed minimum on the amount of 
upfront payment made prior to auction (suggestions range 
from $2,500 to $100,000 for different services). See, e.g., 
comments of Telocator at 20-21, Cellular Communications. 
Inc. at 15, AT&T at 34, and BellSouth at 41. Some 
commenters also favor setting a maximum upfront pay 
ment, pointing out that our proposed formula yields very 
high payments Jin the broadband PCS context. See, e.g., 
comments of Southwestern Bell at 38-40 (arguing generally
126 We may, however, on a service-specific basis decide to 
employ a letter-perfect standard in appropriate circumstances; 
any such decision would be noted in the service-specific rules. 
n ' The general rules governing submission of fees would, 
however, apply. See 47 C.F.R.  1.1101 el seq. These rules 
currently provide for dismissal of an application if the applica 
tion fee is not paid, is insufficient, is in improper form, is 
returned for insufficient funds or is otherwise not in compli 
ance with our fee rules. 
128 On the date set for submission of corrected applications,
applicants that on their own discover minor errors in their 
applications (e.g., typographical errors, incorrect license designa 
tions, etc.) also will be permitted to file corrected applications.
129 See subsection B, infra.
130 An applicant who fails to submit a sufficient upfront pay-' 
ment to qualify it to bid on any license being auctioned will not 
be identified on this Public Notice as a qualified bidder.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
for a maximum deposit of $50 million for all markets), and 
AT&T at 34 (supporting a maximum upfront payment of 
$5 million, with a down payment following the auction).
171. We conclude that, in most cases, some form of 
upfront payment is necessary to deter frivolous or insincere 
bidding. In determining the amount of upfront payment 
required, we are balancing the goal of encouraging bidders 
to submit serious, qualified bids with the desire to simplify 
the bidding process and minimize implementation costs 
that will be imposed on bidders. This balancing may yield 
different results depending on the particular licenses being 
auctioned, so we have determined that the best approach is 
to retain the flexibility to determine the amount of upfront 
payment on an auction-by-auction basis. In this way, we 
will be able to tailor the upfront payment requirement to 
the auction design we select and to the characteristics of 
the licenses being auctioned. 1 "
172. As a general rule, however, we will use the formula 
proposed in the Notice for determining upfront payments: 
a bidder must submit an upfront payment equal to $0.02 
per pop per MHz for the largest combination of MHz-pops 
the bidder anticipates bidding on in any single round of 
bidding. 132 Thus, the upfront payment may vary by bidder 
and will reflect the capabilities of each bidder. We believe 
that this approach will, in most circumstances, best achieve 
the Commission's goals in requiring an upfront payment 
while burdening bidders the least. By the time the upfront 
payment is due. bidders already will have applied for the 
licenses on which they may wish to bid. and should know 
approximately the population they ultimately wish to serve. 
The upfront payment will define the upper bound of MHz- 
pops on which a bidder will be permitted to bid in any 
round, and so should be calculated by bidders to reflect the 
maximum MHz-pops from any combination of licenses on 
which they may want to bid in a single round. 133 This 
formula links upfront payment requirements to the total 
number of MHz-pops bidders plan to bid on and poten 
tially to win, and relates closely to the Milgrom-Wilson 
activity rule we described above.
173. Using this formula, bidders will be limited in an 
auction to bidding on licenses encompassing only the num 
ber of pops and MHz that their upfront payment covers. 
However, it provides a bidder with the flexibility to change
its strategy during the auction and to bid on a larger 
number of smaller licenses or a smaller number of larger 
licenses, so long as the total MHz-pops combination does 
not exceed that reflected in the upfront payment. Under 
the formula, bidders will also avoid having to submit an 
upfront payment for each license on which they potentially 
might bid. For example, a bidder wishing to be awarded a 
30 MHz broadband PCS license in the Chicago MTA 
would be required to submit an upfront payment equal to 
the Chicago MTA population of 8.2 million times 30 MHz 
times $0.02, or $4.9 million. This would allow such a 
bidder to bid on either the A or B block license (assuming 
these licenses are sold at the same auction). If both of these 
licenses are found to be too expensive, the bidder could 
alter its strategy and bid on the A or B block licenses in 
smaller MTAs whose total population is less than or equal 
to 8.2 million (assuming it has filed applications for these 
licenses).
174. A bidder may file applications for every license 
being auctioned, but its actual bidding in any round of an 
auction will be limited by the amount of its upfront pay 
ment. Thus, if licenses covering the nation in a particular 
service are being auctioned simultaneously, a bidder would 
not be required to file an upfront payment representing 
national coverage unless it intends to bid on or hold li 
censes covering the entire nation. 135 Under this system of 
upfront payments, bidders will retain greater flexibility and 
be able to more easily effectuate alternative bidding strat 
egies. We will announce the population covered by each 
license (which will be based on census figures for the 
licensed service areas) for the purpose of computing the 
upfront payment in a Public Notice issued prior to the 
auction, and bidders will be able to calculate the necessary 
upfront payment for each license on which they wish to 
bid at any one time.
175. We believe that using a formula that bases the size 
of the upfront payment on the amount of spectrum and 
population on which a bidder is interested in bidding at 
any one time is a rational way for the Commission to be 
provided assurance that each bidder is a bona fide ap 
plicant and that each bid is sincere. The size of the upfront 
payment will thus directly relate to the size and capabilities
One commenter. Devsha Corporation, questions the Com 
mission's authority to require upfront payments at all. Com 
ments of Devsha Corporation at 4. However, Devsha provides 
no serious analysis, legal or otherwise, to support its assertion 
that the upfront payment requirement may overstep the Com 
mission's statutory authority. Devsha states only that the Com 
mission's justification for such a payment "appears to be 
premised on revenue maximization, a prohibited concern." Id. 
To the contrary, as we clearly stated in the Notice, the upfront 
payment requirement was proposed "|t|o ensure that only se 
rious, qualified bidders participate in our auctions." NPRM at f 
102. We take this opportunity to reiterate that we will adopt 
upfront payment rules because we believe they will provide the 
necessary "assurances" required by Section 309(j)(5) and deter 
frivolous and insincere bidding by discouraging speculators who 
may otherwise be tempted to "game" our competitive bidding 
process. Upfront payments also give force to the bid withdrawal 
penalty, which also is designed to bolster the integrity of our 
process.
As discussed infra, however, we retain the flexibility to 
consider using a simpler payment requirement when circum 
stances warrant.
133 For example, an entity that is interested in bidding on 
several 30 MHz PCS licenses with a goal of providing service to 
a population of at most 50 million should make an upfront 
payment of $30 million ($.02 x 30 MHz x 50,000.000). That 
bidder will not be permitted to bid (at any time) in the auction, 
or be permitted to win, 30 MHz licenses covering more than 50 
million pops.
134 Using the $0.02 per pop per MHz formula is most appro 
priate when a Milgrom-Wilson type activity rule is employed. A 
preset fixed upfront payment would do little to simplify the 
auction process for bidders in that circumstance because the 
activity rule requires bidders to know the number of MHz-pops 
that correspond to their bids.
135 For example, if we were to hold an auction of all 
broadband PCS licenses simultaneously, a bidder who wishes to 
be licensed only over some regional area (but who is indifferent 
as to which region) may retain flexibility in bidding by filing 
applications for licenses throughout the country but remitting 
an upfront payment reflecting only the maximum number of 
MHz-pops it ultimately wishes to serve.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
of the licensed facilities, the cost to construct a system, the 
value of the licensed spectrum and the potential amounts 
bidders will bid.
176. Upfront payments will also provide the Commission 
with a source of available funds in the event a penalty 
must be assessed for bid withdrawal prior to further pay 
ments. As discussed in Section III.F. above, we have con 
cluded that the appropriate basic penalty for bid 
withdrawal is to require that the withdrawing bidder make 
up any difference between the withdrawn bid and the 
amount of the winning bid the next time the license is 
offered by the Commission. (If the high bid is withdrawn 
after the auction closes, an additional penalty will be as 
sessed.) For such a penalty to ensure sincere bidding, how 
ever, it must be collectable; and the proposed upfront 
payment is one means to this end.
177. Our preferred formula for calculating the upfront 
payment is rationally related to the bid withdrawal penalty. 
In its September 1993 Mid-Session Review of the 1994 
Budget, the Office of Management and Budget estimated 
that spectrum auctions would generate $12.6 billion from 
1994 through 1998. A 1992 report by the Congressional 
Budget Office assumed that $2 billion would be raised 
from competitive bidding in services other than PCS. Thus, 
the approximate value of 120 MHz of PCS spectrum is 
placed at $10.6 billion, or 35 cents per pop per MHz. Our 
$0.02 per pop per MHz formula would yield a deposit for 
such a license that would equal just under six percent of 
the estimated value of a winning bid. It is reasonable to 
assume that if a high bidder withdraws its bid, another 
bidder would be willing to pay approximately the second 
highest bid amount. We expect bid increments to be 
around five percent, so an upfront payment calculated by 
this formula should insure the Commission against non 
payment of the bid withdrawal penalty.
178. In future Reports and Orders establishing service- 
specific auction rules, we may determine that the $0.02 per 
pop per MHz formula is inappropriate because of product 
market or license characteristics or auction design choice. 
In some circumstances, we may decide that it is more 
appropriate instead to set a fixed upfront payment or to 
eliminate the upfront payment entirely. For example, 
where we award licenses using a sequential oral-outcry 
auction design, we may simply require that bidders bring 
to the auction an upfront payment in a specified amount 
for each license that they wish to be awarded. Bidders 
desiring more than one license would be required to bring 
a multiple of the specified sum and once a bidder had won 
the number of licenses that corresponded to its upfront 
payment, it would be precluded from further bidding. In 
deed, where single sealed bids are employed, upfront pay 
ments may be unnecessary.' 36 We therefore reserve the 
option of revising or waiving the upfront payment in ap 
propriate circumstances.13 ' In such cases, we will adopt an 
alternative upfront payment in service-specific auction 
rules or in the Public Notice announcing the auction.
179. As a general rule, we will not cap upfront payments 
because we need to ensure that those bidding on large 
numbers of licenses have the financial capability to build 
out those licenses and are bidding in good faith. While the 
upfront payments for broadband PCS licenses could add up 
to millions of dollars, it would not be unreasonable to 
expect prospective bidders to tender such sums given the 
expected overall value of some of these licenses and the 
expected financial requirements to construct the systems. 
However, we reserve the right to institute caps in specific 
services if we are satisfied that an absolute dollar amount 
will provide sufficient deterrence against frivolous bidding 
and pernicious strategic bidding. 13* Whether or not we 
adhere to our preset formula or institute a cap. it is critical 
that we ensure that those bidding on large numbers of 
valuable broadband PCS licenses are financially capable of 
constructing those systems quickly, less the potential of 
these services to stimulate economic growth and provide 
new services be stymied.
180. As many commenters suggested, we believe that 
setting a minimum upfront payment may be appropriate 
when use of our preferred formula would result in a 
payment that would be too small. For some narrowband 
licenses in sparsely populated areas, for example, the for 
mula could yield a very small upfront payment. Even in a 
market with a population of one million, for some 
narrowband licenses, the upfront payment could be as low 
as $200. We believe that, in most cases, such a low amount 
is not sufficient to deter the filing of speculative applica 
tions which would slow down the provision of service to 
the public. A minimum payment may be needed to dis 
courage frivolous bidding. A general minimum upfront 
payment of $2.500. as suggested in the comments, is rea 
sonable. As noted earlier, however, we will retain the 
flexibility to modify this minimum upfront payment in 
service-specific auction rules if we find that a different 
amount would better deter speculative filings.
181. On the issue of when an upfront payment should be 
tendered, there was substantial support in the comments 
for requiring tender of upfront payments prior to the 
auction and for permitting assurance of the ready availabil 
ity of deposits by bidders. See, e.g., comments of AT&T at 
33, Nextel at 16-17. and Cellular Communications. Inc. at 
14-16. A few commenters. however, argue that, for ap 
plicants with special circumstances (such as designated en 
tities and applicants that are local governmental entities), 
the Commission should permit prospective bidders merely 
to display or exhibit their upfront payments or submit 
"highly confident" letters from financial institutions in lieu 
of tender. See comments of AWCC at 32, Palmer Commu 
nications, Inc. at 8, and Duncan. Weinberg, Miller & Pem 
broke, P.C. at 3. Others favor pre-auction deposits only
13(1 In single round sealed bid auctions, the need for upfront 
payments may be less because there would appear to be little 
incentive for bidders to engage in frivolous bidding. If a high 
bidder fails to tender its down payment within the time period 
allowed, the Commission could simply offer the award to the 
next highest bidder and impose the basic bid withdrawal penalty 
on the withdrawing bidder. On the other hand, a series of 
withdrawals could slow down the process of assigning licenses, 
and bid withdrawal penalties may not be an adequate deterrent 
without an upfront payment to ensure they are collectable.
l3 ' With respect to certain licenses that the Commission may 
set aside for designated entities (see Section VI, infra), we may 
decide that the upfront payment required of applicants should 
be capped, reduced or set according to a different formula. Any 
such decision would be made in a Report and Order adopting 
competitive bidding rules applicable to the specific service. 
138 As discussed at n.137 above, one instance in which we may 
limit upfront payment requirements would be if we set aside 
licenses in certain blocks for bidding by designated entities. See 
Section VI. infra.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
when the Commission cannot verify the amount of liquid 
assets available to a prospective bidder. See comments of 
Unique Communications Concepts at 6.
182. We have considered the suggestions by some 
commenters that designated entities be permitted to use 
letters of credit for upfront payments. See, e.g., comments 
of Minority PCS Coalition Oat 9, Palmer Communications 
at 8, and reply comments of TDS at 16, 17. Similarly, 
Southwestern Bell and US West suggest that bidders be 
permitted to submit their upfront payments in the form of 
Treasury bills with a face amount of the required payment. 
We believe that these methods of submitting upfront pay 
ments would impose too great an administrative burden on 
the Commission, at least until the Commission has more 
experience with the conduct of auctions.
183. The use of unconditional letters of credit, for exam 
ple, would require the Commission to read and evaluate 
each such letter of credit to ensure that it is in fact 
unconditional; different banks often use different language 
in their letters of credit, and the Commission does not 
have the time or the resources to engage in discussions or 
negotiations with applicants and their banks to remove or 
clarify any uncertainties associated with such language. Nor 
do we think it appropriate to prescribe appropriate lan 
guage for an unconditional letter of credit; the use of 
letters of credit was not proposed in the notice of proposed 
rule making, and we are reluctant to prescribe such lan 
guage without the benefit of public comment. Moreover, 
letters of credit commonly have dates of expiry, a com 
plication that we do not face with cashier's checks or wire 
transfers. With letters of credit, an auction that lasts longer 
than either the Commission or the applicant expected may 
cause the applicant to become financially disqualified dur 
ing the course of the auction.
184. Southwestern Bell's proposal to utilize Treasury 
bills to satisfy the upfront payment requirement introduces 
similar complications. Depending on the maturity date of 
the Treasury bill and the state of the market for such 
instruments, the actual value of the bill on any given day 
may be more, less, or the same as the face amount. This 
amount may even change during the conduct of the auc 
tion. We are reluctant to introduce such complications into 
our auction procedures, at least until we have had further 
experience with them. We would, however, be willing to 
consider such an alternative in the future.
185. As set forth in f 171, supra, we conclude as a 
general matter that to protect the integrity of the auction 
process, all applicants should be required to tender their 
upfront payments to the Commission prior to bidding. 139 
We do not believe that allowing auction participants to
tender "highly confident" letters provides the Commission 
with the degree of assurance necessary to ensure that only 
serious bidders participate in auctions. The same can be 
said, at least with respect to our preferred simultaneous 
multiple round auction design, about allowing auction par 
ticipants merely to exhibit, but not tender, the upfront 
payment as a condition of bidding. Such proposals would 
not provide the Commission with a source of funds to 
satisfy bid withdrawal penalties, and thus would engender 
too high a risk that the bidder is financially incapable of 
fulfilling its payment obligations. Furthermore, to require 
the Commission to ascertain that bidders have available 
sufficient liquid assets would impose an excessive admin 
istrative burden on the Commission. We will, however, 
retain the flexibility to alter the timing of the upfront 
payment for specific auctions when appropriate. We may 
determine that an exhibit procedure would function well 
in conjunction with oral outcry auctions, though we do not 
believe that it can be used effectively with other auction 
designs.
186. We choose not to create a general exception to our 
upfront payment requirements for designated entity and 
local government applicants. But see Section VI. infra. The 
danger of insincere bidding, which upfront payments are 
designed to deter, exists to no less a degree with respect to 
these groups.
187. Commenters generally argued that the Commission 
should make prompt refunds of the upfront payments of 
unsuccessful bidders . See, e.g., comments of JMP Telecom 
Systems, Inc. at 6. We agree. We will hold all upfront 
payments until after the auction to which they apply, but 
as soon as possible we will return the upfront payments of 
bidders that are not auction winners, are not subject to 
withdrawal or default penalties, and do not wish to bid for 
licenses that are to be re-auctioned. In some circumstances, 
it may be appropriate to retain upfront payments until 
after the winning bidders have tendered their down pay 
ments because further rounds of competitive bidding may 
be held if down payments are not made. 140 Upfront .pay 
ments made by a winning bidder will be applied to satisfy 
its down payment obligations (see discussion, infra). '41
188. Given the likely magnitude of some upfront pay 
ments and the fact that there will be a significant interval 
between the date that short-form applications are filed and 
the auction date, we will not require the filing of upfront 
payments with short-form applications. To do so would 
place an unreasonable burden upon applicants by requir 
ing them to dedicate funds for a long period of time, 
especially if the Commission is unable to pay interest on 
deposits held. 142 Upfront payments therefore will be
139 Upfront payments must be made to the Commission's 
lock-box bank. Upfront payments may be made by wire transfer 
or by cashier's check drawn in U.S. dollars from a financial 
institution whose deposits are insured by the Federal Deposit 
Insurance Corporation and must be made payable to the Federal 
Communications Commission.
140 We will, however, afford unsuccessful bidders who are not 
subject to bid withdrawal penalties an opportunity to have their 
upfront payments returned if they wish to withdraw from fur 
ther bidding.
141 As explained in subsection C below, a winning bidder will 
be required to bring its deposits with the Commission up to 20 
percent of its winning bids. Thus, a bidder whose upfront 
payments total 15 percent of the sum of its winning bids will be
required to make an additional down payment of only 5 percent 
of that sum. If. however, a bidder who wins some licenses also 
defaults on any other license(s), the bid withdrawal penalty 
discussed below would apply with respect to the defaulted li 
cense^). In such a case, the bidder's upfront payments up to 20 
percent of the defaulted high bid(s) will be retained by the 
Commission, and we will apply to the bidder's down payment 
obligations on non-defaulted license(s) only such upfront pay 
ments that exceed this amount.
142 In the NPRM. we indicated that the Commission is not 
currently authorized to establish interest-bearing accounts. 
NPRM at U 104. n.100. A number of commenters argue that the 
Commission should take whatever steps are needed to allow it 
to pay interest on upfront deposits that ultimately will be
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required to be made to the Commission by a date certain, 
which generally will be no later than 14 days before the 
scheduled auction. This shorter period will allow the Com 
mission sufficient time to process the data concerning the 
upfront payments and release a Public Notice listing all 
qualified bidders. The Commission will set forth specific 
procedures to be followed in the tendering and processing 
of upfront payments in the Public Notice to be issued 
announcing procedures for each auction.
C. Payment for Licenses Awarded by Competitive Bidding
189. In the NPRM, we proposed that, to provide further 
assurance to the Commission that the winning bidder will 
be able to pay the full amount of its winning bid, the 
bidder must tender a significant and non-refundable down 
payment on the license to the Commission over and above 
its upfront payment before the auction is terminated. 
NPRM at U 104. We sought comment on when this addi 
tional down payment should be due to the Commission 
and proposed that, if the winning bidder's upfront pay 
ments totalled less than 20 percent of the high bid, the 
bidder would have to pay the difference promptly. Most of 
the commenters addressing this issue generally support our 
proposal that winning bidders increase their deposits with 
the Commission up to an amount equalling 20 percent of 
their winning bid or bids. See, e.g., comments of BellSouth 
at 43-44, PageNet at 35-36, and Telocator at 13. Some 
commenters feel that a 20 percent down payment require 
ment would be too high. See comments of Sprint at 18 
(prefers a 10 percent down payment).
190. In determining the appropriate level for the down 
payment, we are balancing several factors. First, the down 
payment needs to be sufficiently high to ensure that all 
licensees have the financial capability to attract capital to 
rapidly deploy their systems and operate them in an effi 
cient manner. Second, the down payment has to be suffi 
ciently high to discourage default between the auction and 
licensing and ensure payment of the default penalty if such 
a default occurs. We believe that the upfront payment is 
not sufficient to ensure the payment of such a default 
penalty because the potential penalty is likely to be greater 
during the period between the close of the auction and 
licensing than during the auction because there is a greater 
risk of a drop in license values. It is common practice to 
require a down payment on the order of 20 percent to 
protect against default in auctions and other instances 
where there is the possibility of default. 143 Requiring a 
significant down payment is especially important in spec 
trum auctions in light of our goal of promoting economic 
growth. Default could force re-auctioning of the license 
and might cause significant delays in service provision, and
a significant down payment tends to ensure that winning 
bidders actually qualify as licensees and can build their 
systems expeditiously. We are nonetheless aware that hold 
ing a down payment keeps funds from being available to 
the auction winner for other productive endeavors. In ad 
dition, setting the down payment too high might hamper 
access by potential licensees with limited access to capital 
markets. We conclude that a 20 percent down payment is 
appropriate to ensure that auction winners have the neces 
sary financial capabilities to complete payment for the 
license and to pay for the costs of constructing a system 
and protect against possible default, while at the same time 
not being so onerous as to hinder growth and diminish 
access. We therefore will require that winning bidders sup 
plement their upfront payments with a down payment 
sufficient to bring their total deposits up to 20 percent of 
their winning bid(s). 144
191. With regard to the time for tendering the additional 
deposit, commenters supported everything from immediate 
tender before the auction closes to a substantial "grace 
period." Compare comments of BellSouth at 44 ("|b|idders 
should be prepared to meet deposit obligations as soon as 
they make their bid") and reply comments of PageNet at 
11 ("winning bidders should be required to pay the full 
amount of their bids on auction day") with comments of 
McCaw at 17-18 (payment schedules should include flexi 
bility that "might include an extended but reasonable pe 
riod of time"). It was also suggested that the Commission 
should keep auctions open until full deposits are received, 
whenever that occurs. See comments of AT&T at 35.
192. We have carefully considered the alternative propos 
als regarding timing of the down payment, and have deter 
mined that, to further ensure that bidders are capable of 
constructing their systems, a down payment of 20 percent 
of the winning bid generally will be required within five 
business days after the auction is over. 5 Requiring the 
down payment prior to closing the auction would facilitate 
finding a backup bidder if the winning bidder is unwilling 
or unable to make the down payment. Bidders would be 
on notice that auction results are not yet final and that 
bidding on some or all properties could be reopened if 
some high bidders fail to tender their down payments. We 
conclude, however, that requiring immediate payment of 
remaining deposits by auction winners would place an 
unreasonable burden on the auction process and on bid 
ders, who would not know until the bidding ends exactly 
what down payment amount will be required of them. We 
also reject suggestions that we should allow a "flexible" 
period between auction and payment . Such a procedure 
could give winning bidders the opportunity to "game" our 
processes by making an upfront payment, bidding on a 
license, and then assessing afterwards whether to go for-
returned to unsuccessful bidders. See, e.g., comments of Mer 
cury Communications, L.C. at 2, LuxCel Group, Inc. at 8, 
Pacific Telecom Cellular, Inc. at 6. We are sympathetic to these 
views, and we are attempting to obtain the necessary authoriza 
tion that will permit the payment of interest on upfront pay 
ments and deposits.
143 A 20 percent down payment is required by the U.S. De 
partment of the Interior for bids on offshore oil and gas leases. 
New Zealand requires a 25 percent deposit be submitted with 
bids for spectrum licenses. The RTC required only a 10 percent 
payment within 24 hours of its auction, but required full pay 
ment within 7 days of the auction. Lenders frequently require 
private mortgage insurance when down payments are less than 
20 percent.
144 Thus, if the upfront payment already tendered by a win 
ning bidder, after applying any bid withdrawal penalties, 
amounts to 20 percent or more of its winning bids, no addi 
tional deposit will be required.
145 As discussed in Section VI.C., infra, an auction winner that 
is a designated entity entitled to make payments through an 
installment plan will be required to bring its deposits with the 
Commission up to only 10 percent of its winning bid after the 
bidding closes. Such an entity will pay an additional 10 percent 
of its winning bid to the Commission after a license is granted.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
ward with the award of the license. Furthermore, a sub 
stantial delay between auction and down payment would 
subvert our objective of reducing speculative bidding be 
cause it would provide financially unqualified bidders with 
an opportunity to "shop" a winning bid in an effort to 
obtain financing for a down payment. This would under 
mine the integrity of the auction itself. We therefore will 
require that a high bidder submit the required down pay 
ment by cashier's check or wire transfer to our lock-box 
bank by a specified date, generally within five (5) business 
days following the close of bidding.
193. In the NPRM, we tentatively concluded that the 
Commission should not allow licensees to satisfy their pay 
ment obligations to the Commission through the payment 
of royalties. 145 Nothing in the comments has convinced us 
to change this conclusion. Royalties, if based on a firm's 
revenues, would function as a tax and tend to reduce 
output. Further, a royalty program would require us to 
adopt complex accounting rules for identifying the share of 
a firm's revenues that is attributable to a particular license. 
We continue to believe that this would be extremely intru 
sive and difficult to implement. Indeed, considering the 
degree of regulatory oversight that this agency exercises 
over its licensees, a royalty program that makes govern 
ment revenues dependent on the success of a regulated 
service may give rise to potential conflicts. We therefore 
will not allow licensees to satisfy their auction payment 
obligations through the payment of royalties.
194. In the NPRM. we proposed to require all auction 
winners, except those with respect to which we have given 
special consideration pursuant to Section 309(j)(4), to 
make full payment of their winning bids by a lump sum. 
NPRM at f 68. The comments generally supported this 
proposal. See, e.g., comments of AT&T at 36, Richard L. 
Vega Group at 4. We continue to believe that, except with 
respect to those designated entities to which we decide to 
give special consideration pursuant to Section 309(j)(4) (see 
Section VI. Infra), full payment of the remainder of the 
winning bid in a lump sum is the best course of action. 14 ' 
This will leave financing to the private sector and eliminate 
the need for the Commission to conduct detailed credit 
checks. In addition, it will allow us to confer the benefit of 
paying by installments to eligible designated entities, in 
accordance with the wishes of Congress. Accordingly, un 
less otherwise specified by the Commission, auction win 
ners will be required to make full payment of the balance 
of their winning bids within five (5) business days follow 
ing award of the license. Grant of the license will be 
conditioned on this payment.
D. Default and Disqualification
195. In the Notice, we sought comment on the Commis 
sion's authority to retain upfront payments and down pay 
ments in the event that an auction winner subsequently is 
found ineligible or unqualified or does not pay the balance 
of its bid at the appropriate time. NPRM at f 109. We 
noted that Section 309(j)(4)(B) specifically directs the Com 
mission to "include performance requirements, such as 
appropriate deadlines and penalties for performance fail 
ures ... to promote investment in and rapid deployment of 
new technologies and services." 148 We tentatively concluded 
that some strong incentives must be in place to deter 
frivolous bids or unqualified bidders that could leave the 
Commission without an auction winner that is qualified 
and eligible to receive a license. NPRM at U 109.
196. There was substantial support in the comments for 
the notion that the Commission is authorized to and 
should order forfeiture of upfront and down payments if 
the auction winner later defaults or is disqualified. See, e.g., 
comments of CTIA at 29-30, AT&T at 35, n.43, PageNet at 
35-36, Cook Inlet at 47, and BellSouth at 42-44. A few 
commenters suggested, however, that retention of deposits 
in the event of disqualification would be "draconian." 
Comments of the Association of Independent Designated 
Entities at 7, n.7 . See also comments of Richard L. Vega 
Group at 9-10.
197. As we discussed in Section III.F. above, it is criti 
cally important to the success of our system of competitive 
bidding that potential bidders understand that there will be 
a substantial penalty assessed if they withdraw a high bid. 
are found not to be qualified to hold licenses or default on 
a balance due. We therefore are adopting penalties to be 
assessed in the event of default or disqualification. These 
penalties will provide strong incentives for potential bid 
ders to make certain of their qualifications and financial 
capabilities before the auction so as to avoid delays in the 
deployment of new services to the public that would result 
from litigation, disqualification and re-auction. 149 We be 
lieve, however, that requiring the forfeiture of all funds on 
deposit with the Commission could, in some cases, be too 
severe a penalty. In order to carry out spectrum auctions 
successfully, the penalty for default or disqualification 
should be rationally related to the harm caused, yet be set 
high enough to deter unwanted conduct. Accordingly, we 
will require any auction winner who defaults by failing to 
remit the required down payment within the prescribed 
time to reimburse the Commission in the amount of the 
difference between its high bid and the amount of the 
winning bid the next time the license is offered by the 
Commission. In addition, a defaulting auction winner will
146 The Commission noted that royalties are used by the 
Department of the Interior for outer continental shelf oil and 
gas leases. NPRM at f 70.
' There was some opposition to lump sum payments. See 
comments of Sprint at 16-17. and Rochester Telephone Cor 
poration at 13-14. These commenters would prefer that the 
Commission allow all winning bidders to pay for their licenses 
on an installment schedule, and argue that such a result would 
allow licensees to focus more of their resources on deploying 
new services. While we are sensitive to these considerations, we 
believe that a lump sum payment requirement is necessary to 
avoid speculative bidding. Furthermore, affording installment 
payment schedules to all winning bidders would tend to under 
cut our policies with respect to eligible designated entities. See 
Section VI.C., infra.
148 See also H. R. Rep. No. 103-111 at 257 (Commission au 
thorized to impose payments to prevent unjust enrichment 
from trafficking; House Committee on the Budget anticipates 
Commission will use this authority to deter participation in 
licensing process by those who have no intention of offering 
service to the public).
149 In connection with the sale of government property, it is 
customary for the government to provide such incentives by 
retaining down payment monies rendered. Both the Federal 
Deposit Insurance Corporation and the Resolution Trust Com 
pany retain a bidder's down payment if a bidder is unable to 
close on a property it ostensibly purchased at auction.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
be assessed a penalty of three percent of the subsequent 
winning bid. If the subsequent winning bid exceeds the 
defaulting bidder's bid amount, the three percent penalty 
will be calculated based on the defaulting bidder's bid 
amount. The three percent additional penalty will encour 
age bidders, if they are to withdraw their bids, to do so 
before bidding ceases. This additional penalty will also 
apply if an auction winner is disqualified or fails to remit 
the balance of its winning bid after having made the re 
quired down payment. We will hold deposits made by 
defaulting or disqualified auction winners to help ensure 
that the penalty is paid. (During the period that deposits 
are held pending ultimate award of the license, any interest 
that accrues on deposits will be retained by the govern 
ment.)
198. We believe that these penalties will adequately dis 
courage default and ensure that bidders have adequate 
financing and that they meet all eligibility and qualification 
requirements. We further believe that this approach is well 
within our authority under both Section 309(j)(4)(B) and 
Section 4(i) of the Communications Act. 47 U.S.C.  
154(i), as it is clearly necessary to carry out the rapid 
deployment of new technologies through the use of auc 
tions. In addition, if a default or disqualification involves 
gross misconduct, misrepresentation or bad faith by an 
applicant, the Commission also may declare the applicant 
and its principals ineligible to bid in future auctions, and 
may take any other action that it may deem necessary, 
including institution of proceedings to revoke any existing 
licenses held by the applicant. 130
199. If the high bidder makes the down payment in a 
timely manner, a long-form application 151 will be required 
to be filed by a specified date, generally within ten (10) 
business days after the close of the auction. 152 After the 
Commission receives the high bidder's down payment and 
the long-form application, we will review the long-form 
application to determine if it is acceptable for filing. Upon 
acceptance for filing of the long-form application, the 
Commission will release a Public Notice announcing this 
fact, triggering the filing window for petitions to deny. If, 
pursuant to Section 309(d), the Commission denies or 
dismisses all petitions to deny (if any are filed), and is 
otherwise satisfied that the applicant is qualified, the li- 
cense(s) will be granted to the auction winner.
200. With regard to petitions to deny, we will adopt 
expedited procedures consistent with the provisions of sec 
tion 309(i)(2) to resolve substantial and material issues of 
fact concerning qualifications. 153 This provision requires us 
to entertain petitions to deny the application of the auction 
winner if petitions to deny are otherwise provided for 
under the Communications Act or our Rules. See Section 
309(b). (d)(l). We solicited comment on two possible 
schedules for entertaining petitions to deny in cases where 
such petitions are required: 1) eliciting petitions with re 
spect to all applications prior to the auction; and 2) placing 
only the auction winner's application on Public Notice for 
30 days following the auction.
201. To the extent that they addressed this issue, 
commenters generally agreed that only the auction win 
ner's application should be subject to petitions to deny. See 
comments of AT&T at 40-42, Arch Communications at 
18-19. Cellular Service, Inc. at 16. This is the procedure 
that the Commission has used in connection with lotteries 
among mutually exclusive cellular applications. See Sec 
tions 1.823 and 22.30 of the Commission's Rules. Interested 
parties could then file petitions and the auction winner 
would have an opportunity to reply.
202. We affirm our tentative conclusion that the Com 
mission need not conduct a hearing before denial if it 
determines that an applicant is not qualified and no sub 
stantial issue of fact exists concerning that determination. 
In the event that the Commission identifies substantial and 
material issues of fact in need of resolution, Sections 
309(j)(5) and (i)(2) of the Communications Act permit in 
any hearing the submission of all or part of evidence in 
written form and allows employees other than administra 
tive law judges to preside at the taking of written 
evidence. 154 We will incorporate these principles into our 
general procedural rules with respect to licenses subject to 
competitive bidding.
203. In the event that an auction winner defaults on its 
final payment or is otherwise disqualified, an issue arises as 
to whether the Commission should hold a new auction or 
simply offer the license to the second-highest bidder. Par 
ties commenting on this issue generally favored re-auction 
ing the license, pointing out that changing market and 
even technological developments since the initial auction 
may change the identity of the high bidder and the value 
of the license, especially if the intervening period is rela 
tively long. See, e.g., comments of BellSouth at 37. They 
urge that any re-auction be open to new bidders, arguing 
that such a procedure would reduce the incentive of losing 
bidders to "gang up" on the auction winner. See comments 
of Utilities Telecommunications Council at 21.
204. We believe that, as a general rule, when an auction 
winner defaults on its final payment or is otherwise dis 
qualified after having made the required down payment, 
the best course of action would be to re-auction the license. 
Although this may cause a brief delay in the initiation of 
service to the public, the passage of time between the 
original auction and the disqualification may have seen 
circumstances change so significantly as to alter the value 
of the license and the identity of the high bidder. One of 
our primary concerns is that licenses be awarded to the 
parties that value them most highly, and in this situation 
this can best be assured though a re-auction. Nevertheless, 
if a default occurs within five (5) business days after the 
end of bidding, the Commission retains the right to offer
150 See, e.g., Character Qualifications Policy Statement, 102 FCC 
2d 1179 (1986).
151 The application form to be filed will vary depending on the 
service and would be specified in the rules specifically ap 
plicable to that service.
152 Ordinarily, failure by a high bidder to file the required 
long-form application in a timely manner will be deemed a
default and subject it to default penalties. The Commission may, 
for good cause, determine that a late-filed long-form application 
should be accepted.
153 See 47 U.S.C  309(j)(5).
154 Among the procedural models on which we solicited com 
ment are those for mutually exclusive cellular applications in 
the top 30 markets (see 47 C.F.R.  22.916(b)) and those for 
certain lotteries (see 47 C.F.R.  1.822(b)).
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
the license to the second highest bidder at its final bid 
level, or if that bidder declines the offer, to offer the 
license to other bidders at their final bid levels.
205. If a new auction becomes necessary because of 
disqualification or a default more than 5 business days after 
the end of bidding, we will afford new parties an opportu 
nity to file applications. The passage of time and interven 
ing events between an auction and a disqualification may 
have affected the market for the license to be auctioned 
and created new interest in the license. In addition, the 
applicants in the first auction may. for any number of 
reasons, no longer be interested in obtaining the license. 
One of our primary goals in conducting auctions is to 
assure that serious interested bidders are in the pool of 
qualified bidders at any re-auction. We believe that 
achievement of this goal outweighs the short delay that we 
recognize may result from allowing new applications in a 
re-auction. Indeed, if we were not to allow new applicants 
in a re-auction, interested parties may be forced into an 
after-market transaction to obtain the license, which would 
itself delay service to the public and deny recovery by the 
government of a reasonable portion of the value of the 
spectrum.
E. Minimum Bids and Reservation Prices
206. In the NPRM, we briefly discussed whether to set a 
reservation price below which the license would not be 
awarded. The reservation price could be disclosed, in 
which case it would effectively constitute a minimum bid, 
or it could be undisclosed. In the latter case, if no bidder 
exceeded the reservation price, the license would not be 
awarded. We pointed out that the benefits of a reservation 
price are likely to be greatest when there are few bidders, 
for when competition for licenses is intense the benefits of 
setting a reservation price might not be worth the cost, and 
tentatively concluded that there should be no minimum 
bid. NPRM at H 67.
207. The comments generally oppose minimum bids. 
See, e.g., comments of AT&T at 38-42. Telocator at 4-5. and 
the Alliance for Fair and Viable Opportunity at 10. These 
commenters argued that the ultimate service provider and 
not the Commission should establish the value of a license 
and that minimum bids could artificially limit the partici 
pation of potential service providers by imposing arbitrary 
regulatory requirements. See also comments of U.S. Intelco 
Networks at 12. While we generally agree with these ar 
guments, we have decided that the Commission should 
retain the flexibility to utilize reservation prices if it de 
cides that they are appropriate in a particular auction. 
Without knowing how many bidders are likely to bid in a 
particular auction, the type of license to be auctioned or 
the type of auction to be used, it is impossible to generalize 
about the desirability of using reservation prices. If, for 
example, the Commission had accepted many applications 
to bid on a particular license that was scheduled to be 
auctioned in an oral sequential auction, establishing a res 
ervation price likely would be superfluous. If, however, 
only two or three applicants had applied to bid for a
valuable license, the Commission might set a reservation 
price in order to prevent that license from being sold 
under circumstances where there would be little competi 
tion among bidders and significant incentives to collude. 155 
Accordingly, our rules will permit the Commission to 
adopt a reservation price in such circumstances.
F. Procedures in Other Auction Designs
208. The above described procedures may vary somewhat 
depending upon the auction methods used. For example; 
where sealed bidding is used, in addition to the informa 
tion specified above, the initial Public Notice may specify 
the date on which sealed bids must be submitted. In single 
round sealed bid auctions, we may decide to alter the 
upfront payment schedule or amount or waive the upfront 
payment requirement.156 The need for an upfront payment 
in this auction design setting will be balanced against the 
administrative cost of processing upfront payments and 
returning payments to unsuccessful bidders. There may be 
auctions for licenses wherein the costs of requiring upfront 
payments outweigh the benefits. We may simply require 
bidders to submit the required down payment with its bid. 
In single round sealed bid auctions, we will usually require 
that bids be received on a date specified in the Public 
Notice and that bids clearly indicate the bidder's identifica 
tion number and the auction and license to which it 
relates. After bids are submitted and evaluated, the Com 
mission would issue a second Public Notice indicating all 
bidders who have made timely bid submissions. After re 
lease of the second Public Notice, the Commission would 
notify the high bidder. If the high bidder fails to submit a 
timely down payment, the next highest bidder normally 
would be notified and offered an opportunity to tender the 
down payment.
209. Where oral outcry bidding is employed, the general 
procedures described above will be followed, with one 
possible exception. As discussed above, we may determine 
that an exhibit procedure for upfront payments may be 
suitable for oral outcry auctions. Qualified bidders will be 
required to bring a cashier's check for the full amount of 
their upfront payment to the auction site. Bidders will be 
required to present their upfront payment check as a con 
dition of being issued a bidder identification number and 
admittance to the bidder section of the auction site. After 
bidding closes on a particular license, the high bidder will 
be required to tender its upfront payment and sign a bid 
confirmation form. If the high bidder declines to tender 
the upfront payment and/or refuses to sign the bid con 
firmation form, the license would be immediately re-auc tioned. 157
V. REGULATORY SAFEGUARDS
210. The Budget Act directs the Commission to "require 
such transfer disclosures and anti-trafficking restrictions 
and payment schedules as may be necessary to prevent 
unjust enrichment as a result of the methods employed to 
issue licenses and permits." 47 U.S.C.  309(j)(4)(E). In
155 The employment of a reservation price also might aid in 
reducing unjust enrichment. Thus, in circumstances where un 
just enrichment might be more likely to occur, the Commission 
may determine that a reservation price is necessary.
156 See 1 157, supra, for discussion of the bid withdrawal, 
default and disqualification penalties that would apply in single 
round sealed bidding.
157 See 1 156, supra, for discussion of the bid withdrawal, 
default and disqualification penalties that would apply in oral 
outcry bidding.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
this section of the Second Report and Order, the Commis 
sion adopts safeguards designed to ensure that the require 
ments of Section 309(j)(4)(E) are satisfied. In the Notice, 
we discussed three types of safeguards for the auction pro 
cess. Two of them -- measures to prevent "unjust enrich 
ment" and performance requirements ~ are expressly 
addressed by the statute. The third ~ rules prohibiting 
collusion among bidders -- was one that we raised on our 
own motion. We proposed these safeguards to ensure 
prompt delivery of services (including to rural areas), rapid 
deployment of new services and technonlogies, develop 
ment of competitive markets, and wide access to a variety 
of services.
A. Unjust Enrichment and Transfer Disclosure Require 
ments
211. The House Report suggests that, while the Commis 
sion should keep track of all transfers of licenses issued via 
auctions, unjust enrichment is likely to be a problem only 
in auctions where special accommodations are provided to 
designated entities. In an open bidding process without 
special accommodations, the winner is likely to pay the 
market price for its license. Hence resale would not in 
volve any unjust enrichment. In the Notice, we indicated 
that prohibitions on license transfers, even if for a limited 
period of time, were likely to have the unintended effect of 
delaying service to the public contrary to the purpose of 
the statute. See NPRM at f 84. Therefore, while we sought 
comment on transfer restrictions, we also requested com 
ment on establishing a system of financial discincentives to 
prevent sellers from obtaining any windfall profit from 
premature transfer of a license.
212. The legislative history suggests that in the auction 
context Congress's directive to take steps to prevent unjust 
enrichment was similarly intended to prevent auction win 
ners from acquiring licenses for less than true market value 
at auction"1" and then transferring them for a large profit 
prior to providing service. Such post-auction changes in 
ownership have the potential to delay buildout and thereby 
delay the provision of service to the public. The acquisition 
of a license through an effectively conducted competitive 
bidding process is in itself a strong deterrent to unjust 
enrichment. As we explained in the NPRM at f 83, "in an 
unlimited bidding process, the winner is likely to pay the 
market price for its license. Hence resale would not in 
volve any unjust enrichment." Accord , comments of 
Nextel at 8. Time Warner at 20. We noted Congress's 
observation in the legislative history that unjust enrichment 
was likely to be a problem only where participation is
limited in order to ensure designated entities' opportunity 
to participate. Thus, we proposed transfer restrictions on 
licenses won by designated entities that receive special 
treatment and financial disincentives on the transfer of 
designated entity licenses as possible ways to ensure against 
unjust enrichment.
213. The comments were divided on the subject of im 
posing transfer restrictions to prevent unjust enrichment. 
See, e.g., comments of BellSouth at 30-32, reply comments 
of Nextel at 9, reply comments of American Personal 
Communications at 6, but cf. reply comments of American 
Wireless Communications Corporation at 12. Those sup 
porting transfer restrictions argue that such restrictions are 
particularly appropriate in the context of licenses which 
are won by designated entities, see comments of AT&T at 
27-29, or only appropriate in that context, see comments of 
McCaw at 22 and Palmer Communications at 7-8. Those 
opposing transfer restrictions argue that the auction process 
itself or construction requirements or both will deter spec 
ulation and obviate the need for further safeguards such as 
transfer restrictions. See comments of Arch Communica 
tions at 16-18 and Windsong Communications at 5.
214. As discussed below in Section VI, we have adopted 
specific rules governing unjust enrichment by designated 
entities. In addition, given the lack of previous experience 
with the competitive bidding process, we believe that it is 
important to monitor transfers of licenses awarded by com 
petitive bidding in order to accumulate the data necessary 
to evaluate our auction designs and judge whether "licenses 
|have been] issued for bids that fall short of the true 
market value of the license," H.R. Rep. No. 103-111 at 257. 
Therefore, we will impose a transfer disclosure require 
ment on licenses obtained through the competitive bidding 
process, whether by a designated entity or not. We will give 
particular scrutiny to auction winners who have not yet 
begun commercial service and who seek approval for a 
transfer of control or assignment of their licenses within 
three years after the initial license grant, in order to deter 
mine if any unforseen problems relating to unjust enrich 
ment have arisen outside the designated entity context.
215. As in the First Report and Order, the applicant will 
be required to file, together with its application, the asso 
ciated contracts for sale, option agreements, management 
agreements, or other documents disclosing the total consid 
eration received in return for the transfer of its license. 
The information should include not only a monetary pur 
chase price, but also any future, contingent, in-kind, or 
other consideration (e.g., management or consulting con 
tracts either with or without an option to purchase; below
158 The House Report notes that "|I|n a system of open com 
petitive bidding, trafficking in licenses should be minimal, since 
the winning bidder would have paid a market price for the 
license. Nevertheless, the Committee anticipates that the Com 
mission will monitor trafficking in licenses issued pursuant to 
the provisions of section 3()9(j), and will impose any necessary 
regulations and transfer fees as may be necessary to prevent 
unjust enrichment. In the event that the Commission limits 
participation in any given competitive bidding procedure, how 
ever, there exists a significant possibility that licenses will be 
issued for bids that fall short of the true market value of the 
license. To the extent that the Commission is attempting to 
achieve a justifiable social policy goal--such as the reservation of 
appropriate licenses for small business applicants licensees 
should not be permitted to frustrate that goal by selling their
license in the aftermarket. In these instances, antitrafficking 
restrictions are necessary and appropriate." H. R. Rep. No. 
103-111 at 257.
159 In response to a Congressional directive, our First Report 
and Order in this proceeding addressed the subject of unjust 
enrichment with respect to licenses issued by lottery in the 
future. We observed that Congress's concerns of unjust enrich 
ment appeared to stem from transactions where the licensee 
obtains a license at nominal cost in a lottery and then sells it 
for a large profit prior to providing service to the public. See 
First Report and Order at  4.
160 See H. R. Rep. No. 103-111 at 257, expressing concerns over 
the possibility that "licenses will be issued for bids that fall 
short of the true market value of the license."
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
market financing). 161 We believe that these requirements 
will have minimal negative impact on competition. As we 
noted in the First Report and Order, transfer disclosure 
requirements should not be a burden on licensees 
inasmuch as the documents to be submitted to the Com 
mission will be prepared for other purposes in any event. 
Any competitive concerns raised by the possible disclosure 
of sensitive information contained in purchase agreements 
or similar documents can be addressed by the provisions in 
Sections 0.457 and 0.459 of our Rules providing for the 
nondisclosure of information. 47 C.F.R.  0.457. 0.459. 
The reporting requirements will also enable us to monitor 
more closely than we now can the degree to which we are 
complying with Congress's directive in Section 309(j)(3)(B) 
to ensure that "new and innovative technologies are readily 
accessible to the American people by avoiding excessive 
concentration of licenses and by avoiding excessive con 
centration of licenses and by disseminating licenses among 
a wide variety of applicants . . . ." See also Section 
309(j)(12) (1997 Report to Congress).
B. Performance Requirements
216. In the NPRM, we noted that the Budget Act re 
quired the Commission to "include performance require 
ments, such as appropriate deadlines and penalties for 
performance failures, to ensure prompt delivery of service 
to rural areas, to prevent stockpiling or warehousing of 
spectrum by licensees or permittees, and to promote invest 
ment in and rapid deployment of new technologies and 
services." 162 The House Report provided a specific example 
of the warehousing concern, suggesting that "an incumbent 
service provider could submit a bid for a license in a 
service that would compete with an existing business, and 
engage in behavior that would prevent competition from 
occurring. This would deny the public both the benefit of 
having access to the new service, and the benefits of com 
petition."1 ' We therefore sought comment on the likely 
extent of warehousing of spectrum, the circumstances, if 
any, in which warehousing was likely to occur, and wheth 
er the Commission must impose performance requirements 
for all licenses awarded by auction.
217. We also asked whether there were circumstances in 
which the likelihood of warehousing was sufficiently low 
that requirements were unnecessary or whether other 
methods, such as restricting ownership of licenses to non- 
incumbents, would ensure performance. Finally, we noted 
that for many services, our rules already include perfor 
mance requirements and asked to what extent existing re 
quirements might or might not be sufficient to ensure 
performance. Finally, we asked whether existing perfor 
mance requirements might be relaxed for licenses to be 
auctioned.
218. The comments were widely divided on the question 
of performance requirements. Some commenters argued 
against performance requirements generally (although not 
auction financial qualification requirements). See com 
ments of PageNet at 28. Other commenters argued that 
existing performance benchmarks should be retained. See 
comments of Quentin L. Breen at 5. Still others argued
that additional and more stringent performance require 
ments were required (see comments of Cellular Service. 
Inc. at 13), that the Commission should place restrictions 
on competing delivery services rather than imposing per 
formance requirements (see comments of Comtech Asso 
ciates, Inc. at 3 and of Suite 12 Group at 13), that 
performance requirements were only necessary in the case 
of licenses for which bidding was restricted (see comments 
of McCaw at 12), or that performance requirements should 
not be applied to rural telephone companies (see com 
ments of the Rocky Mountain Telecommunications Associ 
ation at 23).
219. We believe that it is unnecessary and undesirable to 
impose additional performance requirements on all 
auctionable services. As several commenters recognized (see 
comments of BellSouth at 33-34), the service rules for most 
existing services, including the new broadband and 
narrowband PCS services, already contain performance re 
quirements, such as the requirement to construct within a 
specified period of time. See, e.g. , 47 C.F.R.  99.103 and 
99.206 (Narrowband and Broadband PCS); 47 C.F.R.  
95.833 (IVDS) and 47 C.F.R.  90.155 (Private Land Mo 
bile Radio Service). We do not believe that perfomance 
requirements in addition to those already provided in the 
service rules are necessary to address Congress's concern 
regarding "warehousing" of spectrum. We believe that it is 
more appropriate to address specific warehousing concerns 
on a service specific basis tailoring the requirements to the 
circumstances at issue. For example, in certain private 
radio services, an applicant may not acquire additional 
frequencies within 40 miles of existing frequencies unless 
the existing frequencies are fully utilized. See 47 C.F.R.  
90.623 and 90.627. We believe that existing performance 
requirements, in conjunction with the requirement that 
licensees pay for spectrum use, should be adequate to 
prevent the warehousing of spectrum and ensure fair com 
petition and the prompt delivery of service. 164
220. With respect to the few services where no perfor 
mance requirements currently exist, however, we will 
prescribe such performance rules as are necessary at the 
same time we promulgate competitive bidding rules for 
each of those services in subsequent Reports and Orders. 
This service-specific approach should promote investment 
and economic growth by tailoring performance require 
ments to the specific characteristics of individual services.
C. Rules Prohibiting Collusion
221. The Notice requested comment on whether the 
Commission should adopt special rules prohibiting collu 
sive conduct in the context of competitive bidding. We 
indicated that such rules would serve the objectives of the 
Act by preventing parties, especially the largest firms, from 
agreeing in advance to bidding strategies that divide the 
market according to their strategic interests and disadvan 
tage other bidders. We also noted that such rules could 
strengthen confidence in the oral bidding process and help 
ensure that the government receives a fair market price for 
the use of the spectrum. However, we also recognized that 
if anticollusion rules are too strict or are not sufficiently
161 A requirement of this type was proposed in the comments 
of the California Public Utilities Commission at 4. We imposed 
a similar requirement in the First Report and Order in this 
proceeding with respect to transfers of licenses obtained through
lotteries.
162 See Section 30Q.(j)(4)(B) of the Communications Act, as 
amended.
163 Id. at 256.
164 Accord, comments of Time Warner Telecommunications.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
clear, they could prevent the formation of efficiency en 
hancing bidding consortia that pool capital and expertise 
and reduce entry barriers for small firms and other entities 
who might not otherwise be able to compete in the auction 
process.
222. Many commenters indicated that specific Commis 
sion rules prohibiting collusion were unnecessary because 
existing antitrust laws are sufficient to deter most forms of 
collusive behavior. See, e.g., comments of PacTel at 30, 
PacBell at 29, Sprint at 19, and Telocator at 5. These 
commenters also indicated that collusion was unlikely in 
the context of spectrum auctions because the large number 
of bidders and the use of sealed bidding generally would 
undermine the effectiveness of collusive agreements. See, 
e.g., comments of PacTel at 29, and AT&T at 39. However, 
several commenters argued that the Commission should 
adopt specific rules prohibiting collusion in order to pre 
serve the integrity and competitiveness of the auction pro 
cess. See, e.g., comments of TDS at 18. These commenters 
favored adoption of specific rules prohibiting bidders from 
collaborating or otherwise discussing any information re 
garding the substance of their bids or bidding strategies 
prior to the completion of competitive bidding. In addi 
tion, some commenters recommended requiring successful 
bidders to file disclosure statements indicating all parties 
with whom they have entered into implicit or explicit 
arrangements relating to the competitive bidding process. 
See comments of UTC at 18, and Richard Myers at 7. 
Other commenters recommended that all bidders should 
be required to certify on their short form applications that 
they have not entered into any agreements or engaged in 
any conduct in violation of the Commission's rules or any 
applicable antitrust or criminal laws in preparing their bids 
and bidding strategies. See comments of TDS at 19, PacTel 
Paging at 29, Arch Communications at 18. and Sprint at 
19. 223. Although the statute does not require special rules 
to prohibit collusion, the Commission is concerned that 
collusive conduct by bidders prior to or during the auction 
process could undermine the competitiveness of the bid 
ding process and prevent the formation of a competitive 
post-auction market structure. While we generally agree 
that in most cases the number of bidders and the auction 
design method we select will effectively deter collusion, we 
believe that additional safeguards may still be necessary to 
ensure that collusion does not jeopardize the competitive 
ness of the auction process. At the same time, however, we 
seek to ensure that these additional safeguards do not in 
hibit the formation of legitimate efficiency enhancing bid 
ding consortia, which reduce entry barriers for smaller 
firms, and improve their ability to compete in the auction 
process and in the provision of service.
224. As an initial matter, we believe that certain safe 
guards we have adopted in other sections of this Report 
and Order will reduce the opportunity for collusion. For 
example, we have attempted to design competitive bidding
methodologies that will create an active bidder market by 
reducing entry barriers and encouraging all qualified bid 
ders to participate in the auction process. As we indicated 
supra at K 158, we have also decided to withhold bidder 
identities during the competitive bidding process. This safe 
guard should help to deter anticompetitive conduct by 
impeding bidders' efforts to uncover the bidding strategies 
of their competitors. Moreover, where bidders are unable 
to identify the parties against whom they are bidding, it 
will be more difficult for those attempting to collude to 
ensure that their anticompetitive agreements are honored. 
This is true because the success of most collusive agree 
ments is dependent upon a system of identifying and pun 
ishing defectors. Where bidder identities are withheld 
during the competitive bidding process, the ability of those 
attempting to collude to enforce prior agreements by pun 
ishing defectors will be frustrated. In addition, as discussed 
supra at H 207, the Commission may establish a minimum 
bid or reservation price where appropriate to ensure that a 
fair value is received for a particular license or group of 
licenses or to reduce the likelihood of unjust enrichment. 
While we anticipate that in most cases setting a minimum 
bid price will be unnecessary, where bidding is expected to 
be less intense and thus the opportunity for collusion 
greater, the Commission may wish to establish a minimum 
bid price to ensure that the public receives a fair price for 
the use of the spectrum.
225. While we intend to rely primarily on these safe 
guards and existing antitrust laws"15 to prevent collusion in 
the competitive bidding process, we believe that the com 
petitiveness of the auction process and of the post-auction 
market structure will be enhanced by certain additional 
safeguards designed to reinforce existing laws and facilitate 
detection of collusive conduct. Accordingly, bidders will be 
required to identify on their short-form applications any 
parties with whom they have entered into any consortium 
arrangements, joint ventures, partnerships or other agree 
ments or understandings which relate in any way to the 
competitive bidding process. Bidders will also be required 
to certify on their short-form applications that they have 
not entered into any explicit or implicit agreements, ar 
rangements or understandings of any kind with any parties, 
other than those identified, regarding the amount of their 
bid. bidding strategies or the particular properties on which 
they will or will not bid. Winning bidders will be required 
to attach as an exhibit to the long-form application a 
detailed explanation of the terms and conditions and par 
ties involved in any bidding consortia, joint venture, part 
nership or other agreement or arrangement they have 
entered into relating to the competitive bidding process 
prior to the close of bidding. All such arrangements must 
have been entered into prior to the filing of short-form 
applications. After such applications are filed and prior to 
the time that the winning bidder has made its required 
down payment, all bidders will be prohibited from coop-
165 Agreements between two or more actual or potential com 
petitors to submit collusive, non-competitive or rigged bids are 
per se violations of the Section One of the Sherman Antitrust 
Act, 15 U.S.C.  1 et seq. See, e.g.. United States v. MMR 
Corporation (LA), 907 F.2d 489 (5th Cir. 1990); United Slates v. 
W.F. Brinkley & Sons Construction Co., 783 F.2d 1157 (4th Cir. 
1986): United States v. Finis P. Renest, Inc., 509 F.2d 1256 (7th 
Cir. 1975), cert, denied, 423 U.S. 874. Similarly, agreements 
between actual or potential competitors to divide or allocate 
territories horizontally in order to minimize competition are
per se violations of the Sherman Act (United States v. Topco, 
405 U.S. 596 (1972); Affiliated Capital Corporation v. City of 
Houston. 700 F. 2d 226, 236), and such agreements are 
anticompetitive regardless of whether the parties split a market 
in which they both do business or whether they merely reserve 
one market for one and another for the other. See Palmer v. 
BRG of Georgia, Inc., 498 U.S. 46, 49 (1990).
2387
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
crating, collaborating, discussing or disclosing in any man 
ner the substance of their bids or bidding strategies with 
other bidders, unless such bidders are members of a bid 
ding consortium or other joint bidding arrangement iden 
tified on the bidder's short-form application. We believe 
that these requirements are not unduly burdensome and 
are appropriate to deter bidders from engaging in 
anticompetitive behavior. These measures will also facilitate 
the identification and investigation of any suspect bidding 
behavior.
226. Where specific instances of collusion in the com 
petitive bidding process are alleged during the petition to 
deny process, the Commission may conduct an investiga 
tion or refer such complaints to the United States Depart 
ment of Justice for investigation. Bidders who are found to 
have violated the antitrust laws or the Commission's rules 
in connection with participation in the auction process 
may be subject to forfeiture of their down payment or their 
full bid amount, revocation of their license(s), and may be 
prohibited from participating in future auctions.
VI. TREATMENT OF DESIGNATED ENTITIES
A. Introduction
227. Several provisions of the statute concern participa 
tion in the competitive bidding process and in the provi 
sion of spectrum-based services by small businesses, rural 
telephone companies, and businesses owned by women and 
minorities (sometimes referred to collectively as "desig 
nated entities"). The principal provision at issue, Section 
309(j)(4)(D) of the Act, relates to designated entities' par 
ticipation in the provision of spectrum-based services and 
provides that, in prescribing competitive bidding regula 
tions, the Commission shall, inter alia,
ensure that small businesses, rural telephone com 
panies, and businesses owned by members of 
minority groups and women are given the opportu 
nity to participate in the provision of spectrum-based 
services, and, for such purposes, consider the use of 
tax certificates, bidding preferences, and other proce 
dures . . .
47 U.S.C.  309(j)(4)(D). Another provision, section 
309(j)(3)(B), provides that in establishing eligibility criteria 
and bidding methodologies the Commission shall seek to 
promote the objectives of "economic opportunity and com 
petition and ensurjej that new and innovative technologies 
are readily daccessible to the American people by avoiding 
excessive concentration of licenses and by disseminating 
licenses among a wide variety of applicants, including 
small businesses, rural telephone companies, and
businesses owned by members of minority groups and 
women." To promote these objectives, section 309(j)(4)(A) 
expressly states that the Commission is required "to con 
sider . . . alternative payment schedules and methods of 
calculation, including lump sums or guaranteed install 
ment payments, with or without royalty payments, or other 
schedules or methods." 166
228. In the Notice we requested comment on several 
mechanisms the Commission might employ to implement 
these provisions, particularly section 309(j)(4)(D). NPRM 
at U K 72-81. We asked for specific comment on constitu 
tional issues that may arise when preferential measures are 
limited to minorities and women and whether different 
approaches would be appropriate to address the specific 
concerns applicable to each enumerated entity. We also 
sought comment on how we should define the eligibility 
criteria for entities designated by the statute -- small 
businesses, rural telephone companies, and businesses 
owned by members of minority groups and women. In 
addition, commenters were asked to address several specific 
measures that could apply to designated entities, including 
installment payments, tax certificates, set-aside spectrum for 
PCS, financial certification ^procedures, bidding credits, roy 
alties, and distress sales. 16 ' Finally, the Notice asked for 
comment on how the Commission could achieve the objec 
tives of the other provisions related to small businesses, 
rural telephone companies, and businesses owned by mem 
bers of minority groups and women.
B. Overview and Objectives
229. As discussed in more detail below, we are adopting 
general procedures that are designed to ensure that small 
businesses, rural telephone companies, and businesses 
owned by members of minority groups and women are 
given the opportunity to participate in both the competi 
tive bidding process and in the provision of spectrum-based 
services. Specifically, we may allow small businesses (in 
cluding those owned by women and minorities and rural 
telephone companies) that are winning bidders for certain 
blocks of spectrum to pay in installments over the term of 
their licenses. Rural telephone companies may also be 
eligible for bidding credits for licenses obtained in their 
service areas if they make an additional infrastructure 
build-out commitment beyond any existing performance 
requirements. Bidding credits may be available to other 
designated entities on certain frequency blocks. Finally, we 
may establish set-aside spectrum in certain services, in 
which eligibility to bid may be limited to some or all 
designated entities. Based on the eligibility criteria estab 
lished below, some designated entities may qualify for a 
combination of these available preferences (e.g., eligible 
small entities bidding for set-aside spectrum might also be 
allowed installment payments). We will decide whether and
166 See also 47 U.S.C.  309(j)(4)(C)(ii), requiring the Commis 
sion, when prescribing area designations and bandwidth assign 
ments, to promote "economic opportunity for a wide variety of 
applicants, including small businesses, rural telephone com 
panies, and businesses owned by members of minority groups 
and women; section 309(j)(3)(A), establishing the objective to 
promote "the development and rapid deployment of new tech 
nologies, products, and services for the benefit of the public, 
including those residing in rural areas, without administrative 
or judicial delays": section 309(j)( 12)(D)(iv), requiring that the 
Commission's 1997 report to Congress evaluate, inter alia.
whether and to what extent "small businesses, rural telephone 
companies, and businesses owned by members of minority 
groups and women were able to participate successfully in the 
competitive bidding process."
167 See NPRM at f 1 79-81; id. at nn.60-65, seeking comment 
on proposals in the report: FCC Small Business Advisory Com 
mittee to the Federal Communications Commission Regarding 
Gen. Docket 90-314. September 15, 1993 ("SBAC Report").
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
how to use these preferences, or others, when we develop 
specific competitive bidding rules in particular services in 
subsequent Reports and Orders.
230. These measures will implement the congressional 
mandates that we promote the dissemination of licenses 
among a wide variety of applicants, 47 U.S.C.  
309(j)(3)(B), and that we ensure that small businesses, rural 
-telephone companies and businesses owned by minorities 
and women have the opportunity to participate in spec 
trum-based services, 47 U.S.C.  309(j)(4)(D). Specifically, 
the preferences will allow designated entities to overcome 
barriers that have impeded these groups' participation in 
the telecommunications arena, including barriers related to 
access to capital. They will enable the participation of a 
variety of entrepreneurs in the provision of wireless ser 
vices and the resulting diversity of service offerings will 
increase customer choice and promote competition. These 
procedures will also promote economic opportunity by 
facilitating the licensing of small businesses, rural tele 
phone companies and businesses owned by members of 
minority groups and women. Moreover, this program will 
lead to the development and rapid deployment of new 
services by entrepreneurs who have traditionally lacked 
access to the telecommunicaitons marketplace. This en 
hanced access will benefit the public, including businesses 
and residents in rural areas, and will promote economic 
growth. Finally, as explained below, we institute a set of 
safeguards and eligibility criteria that will prevent abuses of 
the preference system which could undermine the statutory 
objectives.
C. Specific Preferences
1. Installment Payments
231. In the Notice we proposed to require full payment 
in a lump sum for all winning bidders, except designated 
entities. 1   We noted that allowing installment payments is 
equivalent to the government's extending credit to the suc 
cessful bidder. This would reduce the amount of private 
financing needed by a prospective licensee. We requested 
comment on which applicants should be eligible for install 
ment payment plans, the interest rate, if any, that should 
be charged, and what standards the Commission or an 
outside contractor might use to evaluate an applicant's 
creditworthiness. We also requested comment on how the 
Commission should treat licensees who default on pay 
ments owed the government. We asked whether, for exam 
ple, licenses should be conditioned on timely payments so 
that a default would result in immediate license cancella 
tion and whether there should be any grace periods or an 
opportunity for restructuring the payment plan. We in 
dicated that, if we allow a grace period or restructuring of 
the payment plan, we would follow our procedures (in 
cluding the payment of penalties and interest) under the 
Commission's existing debt collection rules and 
procedures. 169
232. Most commenters agree that installment payments 
are an effective means of addressing the inability of des 
ignated entities to obtain financing and will enable them to 
compete more effectively for auctioned spectrum. 170 They 
claim that installment payments will minimize the effect of 
lack of access to capital by small businesses and female and 
minority owned businesses. Some commenters suggest that 
for all bidders who have minorities and women as equity 
participants, the Commission should allow proportionate 
installment payments equal to that amount of women or 
minority ownership (i.e., 25 percent minority owned busi 
ness could pay 25 percent of the bid amount in install 
ments). 171 Other commenters argue that only small 
businesses should be allowed to defer payments. They assert 
that giving deferred payment terms to those entities that are 
large businesses would be unfair to other designated en 
tities. 1 '2 Some commenters also argue for reduced upfront 
payments and/or deposit payments in conjunction with the 
installment preference. 17 If interest is charged, a few 
commenters suggest that designated entities should not be 
charged interest at a rate higher than the government's cost 
of money. 174 Other commenters argue that interest should 
be below the prime rate since large entities are able to 
borrow at short-term rates below the prime rate using debt 
instruments such as commercial paper. 175 Finally, some 
commenters suggest that a designated entity that defaults on 
installment payments should be granted a three to six 
month grace period before the license is cancelled to allow 
an opportunity to cure the default without causing an 
interruption in service. 1 '"
233. We conclude that for some auctions, as discussed 
below, small businesses will be eligible for installment pay 
ments. As we mentioned in the Notice, by allowing install 
ments, the government will be extending credit to an 
eligible winning bidder, thus reducing the amount of pri 
vate financing needed in advance of the auction by a 
prospective licensee. This will assist small entities who are 
likely to have difficulty obtaining adequate private financ 
ing. Moreover, because of the problems associated with 
using a FCC license as collateral for a loan, 1 ' small, 
start-up companies' access to capital markets in order to 
obtain a license and construct their facilities may be even
168 NPRM at 1 68. 
'^ Id.
1/0 See, e.g., comments of SBA at 20-23, Palmer Communica 
tions at 3. Rural Cellular Assoc. at 10, Call-Her at 11, Valley 
Management at 4. NTIA at 27, Windsong at 4. 
171 See, e.g., comments of Venus at 4, System Engineering at 4. 
1/2 See comments of Unique at 4.
1/3 See, e.g., comments of American Wireless at 31, NAMTEC 
at 20-21, BellSouth at 26. Alliance for Fairness at 13. NABOB at 
11, Point at 4, Telephone Assoc. of Michigan at 12, Telepoint at 
3, Tri-State at 15-17. Wireless at 3-4.
174 See. e.g., comments of Cook Inlet at 33-34.
175 See comments of Calcell at 19, Cook Inlet at 33, NAMTEC 
at 15, SBA at 20-23.
176 See, e.g.. comments of American Wireless at 22, NAMTEC 
at 16, Corporate Technology Partners at 5, Venus at 4, Point at 
4.
177 See Radio KDAN, Inc., 11 FCC 2d 434 (1%8), recon. 
denied, 13 RR 2d 100 (1%8), aff'd on other grounds sub nom 
Hansen v. FCC , 413 F.2d 374 (D.C. Cir. 1%9); Kirk v. Merkley, 
94 FCC 2d 829 (1983); but see also Notice of Proposed 
Rulemaking and Notice of Inquiry, MM Docket No. 92-51, 7 FCC 
Red 2654 (1992). In this regard, we do not at this time adopt the 
suggestions of the Small Business PCS Association and 
Telepoint that financing organizations be allowed a security 
interest in a PCS license. See comments of Small Business PCS 
Assoc. at 6-7, Telepoint at 3. The general issue of whether such 
security interests are permitted under the Communications Act 
is at issue in MM Docket No. 92-51 and will be addressed in 
that proceeding.
2389
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
more difficult. As a result, installment payments will be an 
effective way to efficiently promote the participation of 
small businesses in the provision of spectrum-based tele 
communications service and an effective tool for efficiently 
distributing licenses and services among geographic areas. 178
234. We agree with those commenters that argue that 
only small businesses, including small businesses owned by 
minorities and women, should be allowed to defer pay 
ments. As discussed below, this approach to allowing in 
stallment payments best comports with the intent of 
Congress in enacting section 309(j)(4)(A), to avoid a com 
petitive bidding program that has the effect of favoring 
incumbents, with established revenue streams, over new 
companies or start-ups. 179
235. In describing the provisions concerning designated 
entities contained in the House bill, the House Report 
states generally that the Commission's regulations "must 
promote economic opportunity and competition," and 
"[t]he Commission will realize these goals by avoiding ex 
cessive concentration of licenses and by disseminating li 
censes among a wide variety of applicants, including small 
businesses and businesses owned by members of minority 
groups and women." H.R. Rep. 103-111 at 254. The Report 
states that the House Committee was concerned that, "un 
less the Commission is sensitive to the need to maintain 
opportunities for small businesses, competitive bidding 
could result in a significant increase in concentration in 
the telecommunications industries." Id. More specifically, 
the House Committee was concerned that adoption of com 
petitive bidding should not have the effect of "excluding" 
small businesses from the Commission's licensing proce 
dures, and anticipated that the Commission would adopt 
regulations that would ensure that small businesses would 
"continue to have opportunities to become licensees." Id. 
at 255.
236. Consistent with Congress's concern that auctions 
not operate to exclude small businesses, the provisions 
relating to installment payments for minorities and women 
also were intended to assist only minorities and women 
who are small businesses. The House Report states that 
these related provisions were drafted to "ensure that all 
small businesses will be covered by the Commission's regu 
lations, including those owned by members of minority 
groups and women." Id. (emphasis added). It also states that 
the provisions in section 309(j)(4)(A) relating to install 
ment payments were intended to promote economic op 
portunity by ensuring that competitive bidding does not 
inadvertently favor incumbents with "deep pockets" "over 
new companies or start-ups." Id. Because the Congressional 
objective here was to assist "new companies or start-ups," 
we therefore believe the Commission should consider in 
stallment payments only for entities with lesser economic 
status. As indicated by the legislative history, large entities 
with established revenue streams were not intended to be 
beneficiaries of this particular means of financial assistance. 
In short, the statutory language, when read in conjunction 
with the legislative history, does not indicate that Con 
gress's purpose was to accord special financial assistance 
measures under section 3()9(j)(4)(A) to entities other than 
those with small economic status. We thus reject the pro 
posals by some commenters to allow installment payments 
for designated entities irrespective of their size, or to per 
mit proportionate installment payments based simply on 
the degree of non-controlling investment by designated en 
tities in a bidder.
237. In addition, and consistent with our decision to 
limit installment payments to small businesses, we believe 
that installment payments should not be available for all 
spectrum auctions. Rather, in order to match the pref 
erence with eligible recipients of the preference, install 
ment payments will only be available for certain licenses 
that do not involve the largest spectrum blocks and service 
areas. (For example, in the context of narrowband PCS, we 
could adopt installment payments for small businesses in 
the auctions for smaller spectrum blocks.) We will limit 
the auctions in which this preference can be used in order 
to avoid the abuses that will likely result if installment 
payments are available for every auctioned license. Where 
the license being auctioned is for a large, valuable block of 
spectrum, for example, we do not want to create incentives 
for entities to create small business "fronts" enabling large 
businesses to become eligible for low-cost government fi 
nancing. Nor do we desire to delay service to the public by 
encouraging under-capitalized firms to receive licenses for 
facilities which they clearly lack the resources adequately 
to finance. See 47 U.S.C.  309(j)(3)(A). Accordingly, as a 
general matter, we will only allow installment payments for 
licenses in those smaller spectrum blocks that are most 
likely to match the business objectives of bona fide small 
businesses. We stress that this limitation in no way prohib 
its eligible small businesses from bidding on and acquiring 
other licenses; it simply limits the licenses that the govern 
ment will help finance. We shall make determinations 
regarding the use of installment payments when we adopt 
competitive bidding rules for specific services.
238. We agree with commenters that a reduced, post- 
auction down payment for designated entities eligible for 
installment payments is in order. As suggested by some 
commenters, the down payment for such entities, which is 
due five business days after the close of the auction, will be 
10 percent of the winning bid, instead of 20 percent. This 
will provide eligible designated entities with necessary 
funds for additional application, legal and engineering costs 
that will be incurred immediately following the auction. 
Once the license is granted we will require that the re 
maining 10 percent of the down payment be made within 
five days of grant, thereby commencing the eligible entity's 
installment payment plan, which will extend over the pe 
riod of the license.
239. Finally, we also agree with those commenters that 
suggest that interest on installments should be charged at a 
rate no higher than the government's cost of money. We 
recognize that, in addition to providing a source of financ 
ing that might not otherwise be available to small entities, 
we should impose interest in a manner that is designed to 
provide significant financial assistance to small businesses. 
Accordingly, in order to ensure that this government fi 
nancing results in significant capital cost savings to small 
businesses, we will impose interest on installment payments 
equal to the rate for U.S. Treasury obligations of maturity 
equal to the license term. 180 This rate is generally lower
178 See 47 U.S.C.  309(j)(3)(A).L 
1/9 See H.R. Rep. No. 103-111 at 255.
180 We note, for example, that PCS licenses are issued for a 
ten-year term. See 47 C.F.R.  99.15. In other services with
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
than the prime lending rate established by private banks. 
The applicable interest rate will be determined and fixed at 
the time of licensing. We agree with the commenters that 
suggest that, to promote the rapid deployment of service by 
designated entities eligible for installment payments, pay 
ment of principal should not begin until after the start-up 
phase of the business. Therefore, the schedule of install 
ment payments will begin with interest-only payments for 
the first two years. After that, principal and interest will be 
amortized over the remaining term of the license, during 
which the licensees can be expected to be generating in 
come from operations. Further details of the Commission's 
installment payment program for designated entities will be 
established in further Orders involving those auctionable 
services for which installment payments will be available.
240. An eligible designated entity that elects installment 
payments will have its license conditioned upon the full 
and timely performance of its payment obligations under 
the installment plan granted to the licensee. If an eligible 
entity making installment payments is more than ninety 
(90) days delinquent in any payment, it shall be in default. 
Any default in this regard could result in the cancellation 
of the license for failing to meet this condition. However, 
as recommended by commenters, upon request by a des 
ignated entity that has defaulted or that anticipates default 
under an installment payment program, we will consider 
providing for a three to six month grace period before a 
delinquent payer's license cancels. During this grace pe 
riod, a defaulting licensee could maintain its construction 
efforts and/or operations while seeking funds to continue 
payments or seek from the Commission a restructured 
payment plan. We will evaluate requests for a grace period 
on a case-by-case basis. In deciding whether to grant such 
requests or to pursue other measures we may consider, for 
example, the licensee's payment history, including whether 
it has defaulted before and how far into the license term 
the default occurs, the reasons for default, whether the 
licensee has met construction build-out requirements, the 
licensee's financial condition, and whether the licensee is 
seeking a buyer under a distress sale policy. 181 Following a 
grace period without successful resumption of payment or 
upon denial of a grace period request, we will declare the 
license cancelled and take appropriate measures under the 
Commission's debt collection rules and procedures. See 47 
C.F.R. Part 1, Subpart O.
2. Bidding Credits
241. Among the variety of measures discussed in the 
Notice, we also asked for comment on the use of bidding 
credits or bidding preferences for designated entities.' 82 Bid 
ding preferences would allow eligible applicants to receive 
a payment discount (or credit) for their winning bid. Un 
der this approach, if the eligible entity submits the winning 
bid, it would be required to pay only a certain percentage 
of its actual bid. Since the bidding credit is actually a 
payment discount determined at the end of the auction, it 
will not be difficult to compare bids among eligible and 
non-eligible bidders during the auction. Many commenters 
support bidding preferences instead of, or in addition to, 
set-asides. They claim that bidding credits address the in 
ability of designated entities to obtain capital and would 
encourage non-designated entities to enter into joint ven 
tures with designated entities. 183 Some commenters advo 
cate linking the amount of the bidding preference with the 
degree of designated entity participation. 184
242. We believe that it may be necessary to provide 
bidding credits to designated entities to achieve the objec 
tives of Section 309(j)(4)(D). Bidding credits may be neces 
sary to ensure that eligible designated entities have the 
opportunity to participate successfully in auctions for cer 
tain services. Therefore, competitive bidding rules applica 
ble to individual services will specify the designated entities 
eligible for bidding credits, the licenses for which bidding 
credits are available, the amounts of bidding credits and 
other procedures. For example, in service-specific rules, we 
may determine that a bidding credit of up to 25 percent 
would provide the opportunity to bid successfully for a 
license. This determination may rest in whole or in part 
on our assessment of the available opportunities in. and 
characteristics of, a specific spectrum-based service. As de 
scribed above, such bidding credits would operate as pay 
ment discounts for entities that receive the credits. We also 
reserve the option to determine, on a service-specific basis, 
whether certain auctionable services should allow other 
bidding credits to a consortium of companies organized to 
bid for auctionable services. To qualify for a bidding credit 
in this circumstance, the consortium would be required to 
demonstrate that it has significant equity participation by 
one or more designated entities and that designated entities 
will have significant operational roles in the provision of 
service to the public.
243. We will institute a system of bidding credits for 
rural telephone companies that is designed to further pro 
mote the investment in and rapid deployment of new 
technologies and services in rural areas. See 47 U.S.C.  
309(j)(3)(A). At the outset, we generally conclude that any 
preferential measures for rural telephone companies, such 
as bidding credits, should be limited to bidding for licenses 
in their rural service areas. 186 As several commenters point 
out, such an approach satisfies Congress's objectives with 
out unduly favoring rural telephone companies in markets 
where there is no compelling reason to do so. Specifically, 
these commenters note that Congress was concerned with 
assuring rural consumers the benefits of new technologies
shorter license terms, we may base the interest rate applicable 
to installment payments on government instruments of similar 
duration.
181 See 1 257, infra.
182 See NPRM at t 80.
183 See, e.g., comments of Palmer at 4-5, NABOB at 10-11.
184 See, e.g., comments of Cook Inlet at 32, NAMTEC at 15, 
Sprint at 10, AWCC at 20, George E. Murray at 12-13.
185 See, e.g., comments of SBA Associate Administrator for 
Procurement Assistance at 1, citing the Department of Defense 
program granting a 10 percent credit to contract bidders under 
Section 1207 of Pub. L. No. 99-166.
186 Some commenters have suggested the partitioning of PCS
licenses so as to permit rural telephone companies to hold 
licenses to provide service only in their service areas. See, e.g., 
comments of GVNW at 2-4, and NTCA at 13. Partitioning may 
indeed be a means to achieve Congress's goal of ensuring that 
advanced services are provided in rural areas, but this issue is a 
subject of our reconsideration of the broadband PCS allocation 
rules. See generally Second Report and Order in GN Docket No. 
90-314, 8 FCC Red 7700 (1993) (petitions for reconsideration 
and clarification pending). This issue will be addressed in the 
context of the PCS allocation rules.
2391
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
and providing opportunities for participation by rural tele 
phone companies in the provision of wireless services that 
supplement or replace their landline facilities. 187 We agree. 
Rural telephone companies, as defined below, will be eli 
gible for bidding credits for specified licenses only in their 
service areas. This approach is consistent with Congress' 
intent to ensure that rural consumers receive the benefits 
of new technologies and to provide opportunities for par 
ticipation by rural telephone companies in the provision of 
wireless services. Rural telephone companies would still be 
allowed, where eligible, to bid on other licenses outside 
their service areas.
244. The amount of the bidding credit for rural tele 
phone companies will be tied to their commitments to 
achieve certain telecommunications infrastructure build- 
out milestones in their rural service areas. These milestones 
will be greater than those set forth in the particular service 
rules. The amount of the bidding credit will be proportion 
ately linked to the amount by which the rural telephone 
company agrees to expand its build-out commitment. Fail 
ure to meet a build-out commitment will result in liability 
for a penalty in the amount of the bidding credit, plus 
interest at the rate applicable to installment payments. 
Grant of licenses to rural telephone companies utilizing 
bidding credits will be conditioned upon payment of this 
penalty, if and when it becomes applicable. We believe that 
this added requirement best fulfills the congressional objec 
tive of developing and rapidly deploying new services to 
those residing in rural areas.
3. Spectrum Set-asides
245. In the Notice we specifically asked for comments on 
setting aside blocks of spectrum for designated entities. 
NPRM at H 4. Thus, we indicated that specified spectrum 
blocks could be open to bidding only by applicants that fall 
under one of the definitions for the eligible entities. Id. at K 
73. We also noted that measures such as set-asides may be 
better suited for some services than for others. 188
246. Many parties commented on spectrum set-asides as 
they relate to specific services, such as broadband PCS. We 
shall address in subsequent orders those comments that 
relate primarily to set-asides in those services. Many parties 
support set-asides as a general matter and some argue that 
only by using set-asides can the Commission carry out the 
injunction in section 309(j)(4)(D) "to ensure" that des 
ignated entities are given the "opportunity to participate in 
the provision of spectrum based services." 189 Others, such 
as BellSouth and Sprint contend that to set aside spectrum 
blocks for bidding by women- or minority-owned appli 
cants would be unconstitutional and inconsistent with legis 
lative intent and the public interest. 190
247. After consideration of the comments, we believe 
that, to "ensure" the opportunity for designated entities' 
participation in spectrum-based services under section 
309(j)(4)(D), some spectrum may need to be set aside
specifically for bidding by such entities. In this regard, we 
disagree with commenters who contend that Congress's 
rejection of the use of a set-aside for rural telephone com 
panies demonstrates that set-asides were not the intended 
method for effectuating statutory objectives for any of the 
designated groups. Rather, we agree with Iowa Network 
that, although Congress decided not to require the Com 
mission to reserve certain spectrum blocks for rural tele 
phone companies, Congress did not prohibit the use of 
such measures for other classes of designated entities. In 
deed, set-asides may be necessary to accomplish the statu 
tory objectives of section 309(j)(4)(D). In subsection F 
below, we address the constitutionality of set-asides and 
other preferences for minorities and women.
248. We have also decided that, for any auctions of 
set-aside spectrum, a reduction in the upfront payment 
amount may also be appropriate. This lower payment 
would serve to encourage participation by all eligible des 
ignated entities in the auction. We anticipate that we will 
establish lower upfront payments in any particular auctions 
for set-aside spectrum and that such payments will be based 
on the characteristics of the service and the nature of the 
expected pool of bidders.
4. Tax Certificates
249. In the Notice we tentatively concurred with the 
SBAC Report that different approaches may be appropriate 
to address the specific concerns applicable to each enu 
merated entity. We indicated that we could allow deferred 
payment terms for small businesses and tax certificates for 
businesses owned by women and minorities. 1C)1 The SBAC 
Report recommended several ways that the Commission 
could issue tax certificates. For instance, the Commission 
could enable owners and investors of minority owned and 
controlled licenses obtained through competitive bidding to 
obtain tax certificates upon sale of their stock interests, 
provided that the entities remain minority owned and con 
trolled. See NPRM at f 80, n.64. Another example would 
enable licensees that assign or transfer control of their 
license to designated entities to obtain tax certificates.
250. Most commenters who discuss this option advocate 
the use of tax certificates when an auction winner sells a 
license to a designated entity and when a designated entity 
sells a minority interest to a non-controlling investor. 192 
Some commenters believe that tax certificates should be 
available to minority and female owned businesses that are 
not also small businesses. Also, if an entity qualifies for 
both installments and tax certificates, commenters suggest 
that the licensee be required to specify which preference it 
wished to use. 193 One commenter opposed the use of tax 
certificates generally because it believes that tax certificates 
would not sufficiently assist designated entities. 194 Others 
argue that tax certificates should be used to assist des 
ignated entities in acquiring, not disposing of, licenses. 195
187 See, e.g., comments of SBA at 15, BellSouth at 28-29, 
AT&T at 26 n.31. Citizens at 5-6, Telocator at 11.
188 Id. at 175.
189 See, e.g., comments of AWRT at 8. NRTA at 8, Iowa 
Network at 8-11, Iowa Network (Reply) at 4-5, Minority PCS 
Coalition at 5.
190 See comments of BellSouth at 18-23, Sprint at 10-11.
191 See NPRM at H H 79-80.
192 See, e.g., comments of NAMTEC at 16-17. Palmer Commu 
nications at 4, NTIA at 27-28, MCI at 14, Calcell at 26-27. ARAT 
at 5.
m See comments of Unique at 2-4, LuxCel Group, Inc. at 3. 
11M See comments of Brown and Schwaninger at 4. 
195 See, e.g., comments of Quentin L. Breen at 4.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
251. We generally agree with those commenters who 
argue that, for purposes of attracting investment in des 
ignated entities, tax certificates may not be sufficient as a 
principal mechanism to assist designated entities. As de 
scribed above, we have decided to rely primarily on other 
measures to eliminate barriers to entry into the telecom 
munications field by designated entities. Therefore, we will 
not at this time adopt a general tax certificate program for 
services subject to competitive bidding. We believe that the 
other available measures, such as bidding credits, will gen 
erally provide sufficient incentive to attract investors in 
designated entity enterprises. We agree at this time, how 
ever, that tax certificates could be useful as a means of 
creating incentives both for designated entities to attract 
capital from non-controlling investors and to encourage 
licensees to assign licenses to designated entities in post- 
auction transactions. We will examine the feasibility of 
utilizing tax certificates in subsequent competitive bidding 
rules for particular services, especially where the record 
demonstrates a need to further stimulate designated entity 
participation in spectrum auctions and in the after-market 
for auctioned services.
5. Royalty payments
252. In the Notice we indicated that another measure 
that could be made available to designated entities would 
be a combination of an initial payment and royalties. We 
noted that this system is used by the Department of the 
Interior for outer continental shelf oil and gas leases. Firms 
bid on the amount of the initial payment and pay royalties 
at a fixed rate set by the government. If the FCC is licens 
ing a highly risky service and the government (taxpayers) is 
better able to bear risk than the firm (shareholders), there 
may be an advantage to have some part of the payment in 
the form of a royalty. 196 The SBA endorses royalty pay 
ments for designated entities because payment is tied to 
receipt of income as opposed to lump sum and installment 
payments. For these entities, payment prior to receipt of 
income may divert scarce capital from construction re 
quirements. 97 Other commenters claim that royalties are 
not necessarily more burdensome to collect if the Commis 
sion establishes clear guidelines based on an applicant's 
own cash flow analysis.
253. We do not adopt royalties as an alternative payment 
method for designated entities. As we stated in the Notice, 
this approach must be weighed against several difficulties. 
First, if the royalties are based on the output or revenues 
of the winning firm they will act as a tax and tend to 
reduce output. Second, royalties on FCC licenses may be 
very costly to administer. Unlike oil and gas royalties there 
is no easily identifiable output associated with the license. 
To collect royalties on Commission licenses the agency 
must establish accounting rules for identifying the share of 
revenues or profits attributable to such licenses. This is 
likely to prove extremely intrusive and difficult to imple 
ment in practice, especially when a license is used by a 
firm as part of a highly integrated communications service. 
Finally, the Commission may have difficulty determining 
an appropriate royalty rate to apply in all circumstances. 
Accordingly, we adopt our tentative conclusion in the no 
tice not to develop a royalties payment program for des 
ignated entities. However, as noted above, we agree with 
SBA that it would be fair to schedule payment to the 
government after the start-up phase of the business when 
licensees typically begin receiving income from operations, 
as we are doing in the case of installment payments.
6. Innovator's preference
254. In the Notice we requested comment on the SBAC's 
proposal to provide an "innovator's bidding preference," 
which would be designed to encourage participation by 
designated entities, and by strategic small business alliances, 
by awarding credits equal to 10 percent of an applicant's 
bid.200 Under the proposal, alternative bidding calculations 
would allow technical and non-technical innovators to dis 
count, or amortize, the bid the applicant would otherwise 
pay based on a qualitative assessment of the applicant's 
business development proposal. To qualify for the credit, 
the SBAC Report states that the bidder would have to 
qualify as (a) a member of a designated entity, or (b) a 
consortium owned and controlled by firms owned by mem 
bers of the designated entities. We asked for comment on 
the extent to which members of the preferred groups can 
be deemed to be "technical innovators," and the extent to 
which it is feasible to reach such determinations prior to 
conducting individual auctions.
255. In ET Docket No. 93-266, we are currently review 
ing our pioneer's preference rules in light of the Commis 
sion's new competitive bidding authority. See Notice of 
Proposed Rule Making in ET Docket No. 93-266. 8 FCC 
Red 7692 (1993). The pioneer's preference rules currently 
award innovation by providing a means by which an ap 
plicant that demonstrates having developed a new commu 
nications service or technology may obtain a license 
without being subject to mutually exclusive applications. 
See 47 C.F.R.  1.402. In the pioneer's preference review 
proceeding, we requested comment on alternatives to a 
dispositive preference in a competitive bidding environ 
ment, including a bid discount for designated innovators. 8 
FCC Red at 7694. We asked for specific comments in that 
proceeding regarding the innovator's preference proposals 
for designated entities set forth in the Notice in this pro 
ceeding. Id. at 7694, n.13.
256. Since the innovator's preference proposal for com 
petitive bidding is inextricably related to our general 
review of the pioneer's preference rules, this issue will be 
resolved in ET Docket No. 93-266.20'
7. Distress Sales to Designated Entities
|g6 Under a royalty program, the Commission could, for exam 
ple, allow the winning bidder to pay for its license from a 
percentage of the revenues it generates from the operation of its 
licensed facilities. To minimize the risk to the Commission, it 
could establish a fixed, minimum royalty payment plus a per 
centage of gross revenues. 
1Q7 See comments of SBA at 24; see also comments of Calcell
at 19-21.
158 See comments of JMP Telecom Systems at 3. 
' gp See comments of BellSouth at 26. 
200 See NPRM at 1U 50 and 80, n.61.
2111 Several commenters suggest that we provide waivers or 
exceptions to our PCS rules concerning spectrum aggregation or 
cellular cross-ownership where an applicant enters into partner 
ships or other joint ventures with designated entities. See, e.g., 
comments of Bell Atlantic at 15, AWCC at 33-34, Cook Inlet at
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
257. In the Notice we requested comment on the SBACs 
distress sale proposal. We indicated that the proposal would 
encourage transfers to designated entities where winning 
bidders are unable to pay, ineligible, or unqualified.2 
Only a few commenters addressed this proposal.203 For 
example, one commenter suggested that distress sales be 
utilized in the event a designated entity defaults on its 
installment payments.204 Since distress sales, if adopted, 
would be a post-auction measure designed to provide addi:. 
tional opportunities to designated entities to participate in 
the provision of spectrum-based services, we have decided 
not to resolve this issue at this time. Rather, we will 
evaluate the success of our other measures adopted herein 
and in our service-specific rules and determine whether 
distress sales should be authorized.
D. Preventing Unjust Enrichment
258. Section 309(j)(3)(B) requires that the Commission 
craft our competitive bidding rules so as to "promotfej 
economic opportunity and competition and ensur(e| that 
new and innovative services are readily available to the 
American people by avoiding excessive concentration of 
licenses and by disseminating licenses among a wide variety 
of applicants, including [designated entities]." To ensure 
that our preference measures are effective, however, we 
must also adopt rules that will prevent abuse of our pref 
erence measures. See Section 309(j)(4)(E). In particular, we 
must adopt rules to ensure that the preferences foster the 
creation of new telecommunications businesses owned by 
designated entities which will continue to provide tele 
communications services. Our rules are intended to pre 
vent designated entities from profiting by the rapid sale of 
licenses acquired through the benefit of our preference 
policies. This goal is wholly consistent with Congressional 
intent: "to the extent that the Commission is attempting to 
achieve a justifiable social policy goal . . . licensees should 
not be permitted to frustrate that goal by selling their 
license in the aftermarket." H.R. Rep. No. 103-111 at 257.
259. We wish to ensure against unjust enrichment in 
those situations where Congress recognized that the likeli 
hood of unjust enrichment was highest, or specifically 
when licenses were obtained under circumstances where 
the government undertook special efforts to limit competi 
tion for licenses to ensure opportunities for certain classes 
of applicants, i.e., the designated entities. We therefore are 
adopting unjust enrichment rules applicable specifically to 
designated entities to deter speculation and participation in 
the licensing process by those who do not intend to offer 
service to the public, or who intend to use our preferences 
to obtain a license at a lower cost than they otherwise 
would have to pay and later to sell it at the market price. 
We have decided that we may rely on three principal 
preferences for designated entities -- installment payments, 
set-asides and bidding credits -- and each leads to a dif 
ferent method to prevent abuse and unjust enrichment.
These methods are discussed below. We may also employ 
other methods, such as random audits, to ensure that en 
tities purporting to be designated entities have retained that 
status after being awarded licenses. Of course, as discussed 
below, in circumstances in which penalties are applicable, 
licensees that wish to take actions relating to ownership or 
control that would result in loss of designated entity status 
must also report those proposed actions to the Commis 
sion.
260. Designated Entity Set-asides. If licenses are set aside 
for application exclusively by designated entities, the con 
cern expressed by Congress over unjust enrichment is 
great. If a tclass of licenses is exclusively assigned for use by 
designated entity applicants, it is reasonable to assume that 
these licenses will be auctioned at a lower price than they 
would bring if they were not set-aside. It would be unjust 
and inconsistent with the will of Congress for such pre 
ferred licensees to obtain a license with the government's 
help, transfer that license after a short period of time to an 
entity that was not entitled to special treatment at the 
auction, and appropriate for themselves the difference be 
tween the full market value of the license and the dis 
counted price which they paid the government for that 
license. Therefore, if we employ set-asides to benefit some 
or all of the designated entities, we will impose a recapture 
provision, applicable in the event of sale to a non-des 
ignated entity, that would be designed to recoup for the 
government a portion of the value of the benefit received 
by the designated entity in the bidding.
261. Such a recapture provision would require that li 
censees seeking to transfer their licenses for profit (or to 
take other actions relating to ownership or control that 
cause them to lose their status as designated entities) must, 
within a specified time remit to the government a penalty 
equal to a portion of the total value of the benefit con 
ferred by the government.205 If similar licenses that are not 
set-aside are auctioned at the same time as set-aside li 
censes, the penalty would be set based on the price at 
which non-set-aside licenses were awarded. In other cases, 
the Commission will calculate the value of the difference 
between the set-aside price and the price that would have 
been obtained at auction without a set-aside. The Commis 
sion will make this initial calculation and the burden will 
be on the applicant to disprove this amount.
262. In order to encourage efficiency and reward entities 
that have provided valuable services, we will generally 
reduce the penalty as time passes or construction bench 
marks are met. However, because license terms and con 
struction requirements vary by service, we will set forth 
any specific recapture provisions in competitive bidding 
rules applicable to any services in which we decide to set 
aside licenses. In no event will recapture provisions apply 
to the transfer or assignment of a license that has been held 
for more than five years. If the transfer is to be made to 
another eligible designated entity, there would be no pen-
28-29, NAMTEC at 22, and Murray at 12. With regard to 
broadband PCS, these and other issues have been raised in 
petitions for reconsideration of those rules. It therefore would 
be better addressed in the context of that proceeding. See gen 
erally Second Report and Order in GN Docket No. 90-314, 8 
FCC Red 7700 (1993) (petitions for reconsideration and clari 
fication pending). In other proceedings, such a determination
will be made in orders addressing each auctionable service.
202 NPRM at f 71, citing SBAC Report at 16.
203 See, e.g., comments of Chickasaw Telephone Company at 6.
204 See comments of Corporate Technology Partners at 5.
205 We might, in appropriate circumstances, waive recapture if 
the licensee had incurred substantial start-up costs or made 
significant capital investments with the intention of starting 
service, but due to circumstances beyond its control, was unable 
to provide service.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
ally. In the event that a penalty is assessed, the penalty will 
not prevent the transferring designated entity from 
recovering the depreciated value of its capital investment. 
Similar approaches found support in the comments of 
Calcell Wireless and Wisconsin Wireless Communications.
263. Designated Entity Installment Payments and Bidding 
Credits. Where other preferential measures are employed 
(i.e., installment financing or bidding credits), the Commis 
sion will impose appropriate unjust enrichment measures. 
For example, if a small business making installment pay 
ments sells its license to an entity that does not qualify 
under the standards we have set for small businesses, we 
will require payment of the full amount of the remaining 
principal balance as a condition of the license transfer. We 
recognize that this remedy may still allow some gains to 
accrue to a small business licensee who makes installment 
payments at a relatively low interest rate and then transfers 
the license, but we expect the number of such instances to 
be small and believe that the magnitude of such gains 
would not warrant the cost of calculating and imposing 
penalties to address this concern.
264. Where bidding credits are used, the Commission 
will require a designated entity seeking approval for a 
transfer of control or an assignment of license to a non- 
designated entity, or who proposes to take any other action 
relating to ownership or control that will result in loss of 
status as an eligible designated entity, to reimburse the 
government for the amount of the bidding credit, plus 
interest at the rate imposed for installment financing at the 
time the license was awarded, before transfer of the license 
will be permitted. This approach was supported in the 
comments as well. See, e.g., comments of BellSouth at 
32-33. The penalty will be equal to the current value of the 
bidding credits. If the bidding credit was related to a des 
ignated entity's commitment to expanded construction re 
quirements, and the construction requirements extend over 
the term of the license, the penalty will not be reduced 
over time.
265. These modest requirements address Congressional 
concerns over unjust enrichment but should not inhibit 
investment or economic growth. Because of our concerns 
on the possible impact of transfer restrictions on willing 
ness to invest in the industries we regulate, we are not 
adopting our proposal to establish a minimum time during 
which transfer of licenses obtained through competitive 
bidding would be prohibited. As we recognized in f 84 of 
the NPRM, such restrictions "may block or delay efficient 
market transactions needed to attract capital, reduce costs, 
or otherwise put in place owners capable of bringing ser 
vice to the public expeditiously."
E. Definitions
266. In the Notice we requested comment on definitions 
to apply to the designated entities enumerated by Congress. 
These definitions are important both to establish eligibility
criteria and to deter the use of sham companies to take 
advantage of the benefits meant for groups truly in need of 
the measures outlined above. See NPRM at H f 77-78.
1. Small Business
267. With regard to small businesses, we asked parties to 
discuss whether we should rely on the definition devised by 
the Small Business Administration (SBA). NPRM at U 77. 
We noted that the SBA definition permits an applicant to 
qualify for financial assistance based on a net worth not in 
excess of $6 million with average net income after Federal 
income taxes for the two preceding years not in excess of 
$2 million. Alternatively, an applicant for SBA assistance 
can qualify by showing that together with affiliates, and 
excluding affiliates, it meets the size standard for the in 
dustry in which it is primarily engaged as set forth in 13 
C.F.R. 121.601. NPRM at f 77, n.51. This size standard 
translates into a business with less than 1500 employees for 
the telecommunications industry. 13 C.F.R. 121.601.
268. Many commenters, including the Chief Counsel for 
Advocacy of the SBA, argue that the SBA net 
worth/revenue definition is too restrictive and will exclude 
businesses of sufficient size to survive, much less succeed, 
in the competitive wireless communications marketplace. 
The SBA's Chief Counsel and Suite 12 Group advocate 
adoption of a revenue test, arguing that a net worth test 
could be misleading as some very large companies have 
low net worth. The SBA's Chief Counsel recommends that 
the revenue standard be raised to include firms that (to 
gether with affiliates) have less than $40 million in rev 
enue. Similarly, Suite 12 suggests a $75 million in annual 
sales threshold.206 As another option, the SBA's Chief 
Counsel suggests that the Commission consider a higher 
revenue ceiling or adopt different size standards for dif 
ferent telecommunications markets.207
269. Other parties worry that the definition used by the 
Commission might impede the ability of small businesses 
to raise capital in anticipation of auctions. They note that 
many small firms are soliciting investors to enable these 
firms to compete better in auctions, and argue that their 
designated entity status should not be jeopardized as a 
result. Thus, these commenters suggest, if the FCC adopts 
the SBA's net worth standard, the net worth valuation 
should relate back to the date of the PCS Final Report and 
Order (September 23, 1993).
270. In contrast, several commenters argue that the small 
business definition must be made more restrictive in order 
to prevent large firms from spinning off companies to 
compete as designated entities. In this regard, some parties 
recommend limiting preferences to those small businesses 
that were in existence for the previous two years.
271. We believe that in most circumstances the existing 
SBA net worth/income size standard is the appropriate 
threshold for small businesses to qualify as designated en 
tities. At this juncture, we are unable to conclude that the
206 Many other commenters set forth their recommendations 
on the appropriate small business definition. See, e.g., comments 
of Tri-State ($5 million average annual operating cash flow), 
Luxcel (net worth not exceeding $20 million), and Iowa Net 
work (less than $40 million in annual revenues and 50,000 or 
fewer access lines).
207 Some parties recommend using the SBA's 1500 employee 
standard. See, e.g., comments of SBA Associate Administrator 
for Procurement Assistance at 2, CFW Communications at 2,
and Iowa Network at 17. A number of other commenters argue, 
however, that adoption of this alternative SBA definition would 
open up a huge loophole in the designated entity eligibility 
criteria. Specifically, they contend that telecommunications is a 
capital, rather than labor, intensive industry, and that an entity 
with 1,500 employees is likely to be extremely well capitalized 
and have no need for the special treatment outlined by Congress 
in the Budget Act. See, e.g., comments of LuxCel Group, Inc. at 
4, Suite 12 Group at 10-11.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
other proposals suggested by commenters are superior to 
this established standard. In this regard, we also note that 
the legislative history indicates that the SBA's Chief Coun 
sel and other commenters are correct that in certain tele 
communications industry sectors this standard may not be 
high enough to encompass those entities that require the 
benefits, but also have the financial wherewithal to con 
struct and operate the systems. Nevertheless, the threshold 
can be adjusted upward on a service-by-service basis to 
accommodate such situations. Thus, in order to qualify as a 
small business eligible to receive designated entity benefits, 
the applicant must show that, together with its affiliates, 
the entity has no more than a $6 million net worth and 
after federal income taxes (excluding any carry over losses), 
does not have in excess of $2 million in annual profits for 
the previous two years. This small business definition may 
be modified, however, if the SBA changes its definition or 
the Commission deems that an alternative definition is 
more appropriate for capital intensive services, for exam- 
pie.
272. The inclusion of all "affiliates" of the entity for 
purposes of the net revenue/net worth calculation should 
alleviate the concerns of some commenters who fear com 
peting with the "designated entity" affiliates of large, well- 
financed corporations. Moreover, we intend to scrutinize 
relationships between parties very carefully to determine if 
they rise to the level of affiliation. As provided in the SBA 
regulations, for example, we will consider entities to be 
affiliates of each other when, either directly or indirectly, 
one entity controls or has the power to control the other, 
or a third party or parties controls or has the power to 
control both. Compare 13 C.F.R.  121.401(a)(2). Thus, 
stock options, convertible debentures, and agreements to 
merge will be treated as if the rights thereunder already 
had been exercised.208 Likewise, financing agreements may 
result in a finding of affiliation if the debt relationship 
essentially gives the creditor the power to control the enter 
prise -- for example, if the size of the debt is particularly 
large, the terms of the loan are not commercially reason 
able, arid the definition of default is unconventional. Affili 
ation may also arise when entities have common officers, 
directors, or key employees, or when they enter into joint 
ventures. See 13 C.F.R. 121.410. Given this close scrutiny 
of business relationships, we do not think it is necessary to 
require small businesses to have been in existence for two 
years to qualify as designated entities. Such a rule would 
unduly restrict the entry of bona fide, newly-formed bid 
ders.
273. Finally, as recommended by a number of parties, 
we reject the SBA's alternative 1.500 employee standard as 
a means to qualify as a designated entity. We agree with 
those commenters that argue that such a definition is too 
inclusive and would allow many large telecommunications 
firms to take advantage of preferences not intended for 
them.
!
2. Minority- and Female-Owned Businesses
274. In the Notice, we proposed to rely on existing 
Commission definitions of minority and female owned 
businesses. We asked for comment, however, on whether
we should require women and minority backed applicants 
to be 50.1 percent owned by members of these groups or 
whether simple control, regardless of equity ownership, 
would be sufficient.
275. Most commenters favor strict eligibility criteria in 
this area in order to prevent abuse. They argue that minor 
ities and women should be required to have both 50.1 
percent voting control and a significant equity interest (at 
least 20 percent) in the applicant to qualify for designated 
entity status. Numerous commenters contend that pref 
erences should be granted only to applicants that are more 
than 50 percent female or minority owned. They assert that 
such a requirement is necessary to fulfill the legislative 
intent of Section 309(j), which explicitly requires the Com 
mission to foster opportunities for "businesses owned by 
members of minority groups and women." In addition, a 
number of parties recommend that minorities and women 
should be required to have control of day-to-day manage 
ment and operations of the entity.
276. Other parties recommend, however, that eligibility 
extend to businesses over which women or minorities have 
actual operating control, even if they do not have a major 
ity share of the equity. They argue that such a standard 
would enhance the ability of female and minority en 
trepreneurs to obtain financing.
277. We are persuaded by the commenters that, to estab 
lish "ownership" by minorities and women, we should 
adopt a strict eligibility standard that requires minorities or 
women to have at least a 50.1 percent equity ownership 
and a 50.1 percent controlling interest in the designated 
entity. In the context of limited partnerships, the general 
partner must be a minority and/or a woman (or an entity 
100 percent owned and controlled by minorities and/or 
women) that owns at least 50.1 percent of the partnership 
equity. The interests of minorities and women in des 
ignated entities will generally be calculated on a fully- 
diluted basis. Thus, agreements such as stock options and 
convertible debentures will generally be considered to have 
a present effect on the power to control the entity and will 
be treated as if the rights thereunder already have been 
fully exercised. We will depart from the requirement that 
the equity of the minority and female principals must be 
calculated on a fully-diluted basis only upon a demonstra 
tion, in individual cases, that options or conversion rights 
held by non-controlling principals will not deprive the 
minority and female principals of a substantial financial 
stake in the venture or impair their rights to control the 
designated entity.
278. We seek to encourage designated entities to raise 
capital by selling less than controlling interests in their 
companies. We recognize that there may be situations in 
which a designated entity may be able to best attract equity 
by offering investors such inducements as preferential divi 
dends, liquidation preferences and other incentives typi 
cally offered to noncontrolling principals. We do not 
intend to restrict the use of such financing mechanisms, 
provided that the minority and female principals continue 
to maintain 50.1 percent of the equity on a fully-diluted 
basis and that their equity interest entitles them to a sub 
stantial stake in the profits and liquidation value of the
208 An affiliate cannot use such options, debentures and agree 
ments, however, to appear to have relinquished control over 
another entity before it actually does so. Compare 13 C.F.R.  
121.401(f).
2396
9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
venture relative to the non-controlling principals. While 
different standards may be appropriate in other contexts, 
our objective here is to deter the establishment of sham 
companies in a manner that permits easy resolution of 
eligibility issues without the delay of administrative hear 
ings, and thereby to achieve one of the primary purposes 
underlying the auction statute.209 Of course, applicants 
must ensure and be prepared to demonstrate that de facto 
control truly resides with the minority or female princi 
pals. While control over daily operation remains one of 
several factors in determining de facto control,210 we will 
not require that the minority and female principals devote 
their full time and attention to the day-to-day management 
and operations to qualify for available preferences, pro 
vided that the designated entity can demonstrate that the 
minority and female principals are in control of the enter 
prise.
3. Rural Telephone Companies
279. We also tentatively decided to base our definition of 
rural telephone companies on existing Commission rules 
and policies and, thus, proposed that they qualify for des 
ignated entity status if they are eligible for exemption from 
the cable television-telephone company cross-ownership 
prohibition contained in Section 63.58 of our Rules (i.e., 
they serve no community with more than 2,500 inhabi 
tants). In addition, we sought comment on whether we 
should impose geographic restrictions on the rural tele 
phone company preference or if such companies should be 
able to obtain a preference in any market licensed by the 
Commission.
280. Most commenters argue that the 2,500 hundred 
resident standard contained in Section 63.58 is too restric 
tive and is not related to Congress's concerns.211 For exam 
ple. Iowa Network and Telephone Electronics assert that 
the 2.500 population limit in the rule was not meant to 
define rural telephone companies, but rather to carve out a 
narrow exception to the telephone-cable cross-ownership 
restriction.212 Likewise, NTCA argues that it is neither 
necessary nor appropriate to use the same criteria top 
define rural telephone companies in rules pertaining to a 
different service, technology, and industry.!t *
281. As an alternative, many commenters support 
OPASTCO's proposal to limit rural telephone eligibility to 
carriers serving communities with no more than 10,000 
inhabitants, asserting that such a standard better comports 
with common notions about which telephone companies 
are "rural."214 A number of other commenters also suggest 
that the definition of rural telephone company should
include a limitation on the size of the company. 
OPASTCO, for example, asserts that such a limitation 
would comport with the statutory mandate to ensure op 
portunity for rural telephone companies because "the 
problem such companies face in the competitive bidding 
arena" is as much a function of their size as of the rural 
character of their service areas."215 NTCA similarly con 
tends that small companies have shown the interest and 
commitment needed to fulfill the explicit statutory goal of 
"rapid deployment of new . . . services for ... those 
residing in rural areas," citing as support a report on the 
deployment of digital switching by small LECs.216 The 
commenters differ on the what the proper measure of a 
company's size should be. McCaw and TDS, for instance, 
recommend that the total number of access lines served by 
a rural telephone company must not exceed 150,000, while 
the SBA advocates a 50,000-line cap. Other parties suggest 
that the Commission adopt a definition similar to the one 
that appeared in the unenacted antecedent of the Budget 
Act, S.I 134: a rural telephone company either (a) "pro 
vides telephone exchange service by wire in a rural area" 
(i.e., a non-urbanized area containing no incorporated 
place with more than 10,000 inhabitants), (b) "provides 
telephone exchange service by wire to less than 10,000 
subscribers," or (c) "is a telephone utility whose income 
accrues to a State or political subdivision thereof."
282. As discussed previously, rural telephone companies 
may be eligible for bidding credits. We agree with many of 
the commenters that the standard contained in Section 
63.58 of our Rules is unnecessarily restrictive for purposes 
of this proceeding. Thus, as recommended by OPASTCO, 
in order to be eligible for a bidding preference on a 
particular license, rural telephone companies must not 
serve communities with more than 10,000 inhabitants in 
the licensed area. On the other hand, we believe that a 
limitation on the size of eligible rural telephone companies 
is appropriate, because we do not believe Congress in 
tended for us to give preferences to large LECs that happen 
to serve small rural communities. Thus, as suggested by 
SBA. in order to be eligible for a preference, a rural 
telephone company must not have more than 50.000 access 
lines, including all affiliates. 21 '
4. Designated Entities and Consortia
283. In the Notice we asked interested parties to com 
ment on how to apply the designated entity eligibility 
criteria to consortia. Specifically, we sought comment on 
whether such consortia must be wholly or predominantly 
comprised of eligible designated entities to qualify for spe 
cial treatment. NPRM at H 78.
2m We see no reason to depart from the Commission's current 
definition of the term minority, which includes "those of Black, 
Hispanic Surnamed. American Eskimo, Aleut, American Indian 
and Asiatic American extraction." See Statement of Policy on 
Minority Ownership of Broadcasting Facilities. 68 FCC 2d 979, 
980 n.8 (1978); Commission Policy Regarding the Advancement 
of Minority Ownership in Broadcasting, 92 FCC 2d 849, 489 n.l 
(1982). We do agree with the comments of some parties, who 
suggested restricting minority preferences to citizens of the 
United States. Thus, minority and female owned businesses will 
be eligible for preferences only if voting control and at least 50.1 
percent of the equity resides with minorities and women who 
are United States citizens.
210 See, e.g., Intermountain Microwave, 24 Rad. Reg. 983, 984 
(1963); Cellular Control Notice, 1 FCC Red 3 (1986).
211 See, e.g., comments of NRTA, NTCA, Rochester Telephone 
Corp., Iowa Network, TAM, SBA, PMN and Small Telephone 
Companies of Louisiana.
212 See Comments of Iowa Network at 13 and Telephone 
Electronics at 11.
213 See comments of NTCA at 4.
214 See, e.g., comments of Iowa Network, Saco River and 
Telephone Electronics.
215 Comments of OPASTCO at 5.
21 * Comments of NTCA at 7-8.
21 ' If a rural telephone company qualifies as a designated entity
on some other basis (e.g., as a small business), it will be eligible
for installment payments in other markets on that ground.
2397
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
284. Commenters present a range of proposals concern 
ing the treatment of consortia in this regard. Some 
commenters believe that the consortium seeking a pref 
erence must itself meet the criteria for designated entity 
eligibility.218 Others suggest that, to qualify as a designated 
entity, at least half of the aggregate equity interest should 
be held by designated entities.2 Still others propose that 
such consortia should only be controlled by designated 
entities, even if designated entities have less than a 50 
percent combined equity stake.220 Finally, some believe a 
qualifying consortium must be controlled by designated 
entities and designated entities must hold a majority of the 
equity in the venture.221
285. Other commenters state that a consortium should 
be deemed eligible for designated entity benefits if all of its 
members qualify as designated entities individually, even if 
the consortium as a whole does not qualify because, for 
example the rural telephone companies in the consortium 
together serve communities with more than 10,000 inhabi tants.222
286. The issue here is whether we should provide an 
exception to the above eligibility criteria for applicants that 
are a consortium of various individual entities, most or all 
of which qualify as designated entities individually. We do 
not believe that such combinations, if they deviate from 
our standard definitions of designated entities, should be 
eligible for preferences expressly designed for designated 
entities. Accordingly, we reject proposals to accord pref 
erences to consortia of otherwise eligible designated entities 
that, when combined, result in a new entity that does not 
meet our definitions.
287. Our policy objective, as noted above, is to provide 
economic opportunity to those entities designated in the 
statute and to ensure such entities the opportunity to pro 
vide spectrum-based services. Establishing exceptions to our 
definitions for consortia (even those wholly composed of 
otherwise qualified designated entities) would undermine 
this objective. If applicants made up of a number of en 
tities were allowed special treatment, the economic op 
portunity for individual qualified designated entities would 
be diluted. Moreover, we believe that allowing applicants 
to be formed from a combination of eligible and ineligible 
entities would invite attempts to abuse the designated entity 
preferences by those not entitled to them. Accordingly, 
every applicant seeking special treatment as a designated 
entity (whether such applicant is an individual person or a 
separate entity, a joint venture or consortium, an 
unincorporated association of entities, or a standard part 
nership or corporation), must certify, and be prepared to 
show, that it meets the definitions established for des 
ignated entities in our rules. As noted above, we may 
determine on a service-specific basis to allow a consortium 
to receive other benefits based on equity and operational 
participation in the consortium by one or more designated
entities, but such a consortium would not be entitled to 
qualify for preferences designed specifically for entities 
meeting the definitions set forth above.
288. The above discussion should not be construed as 
preventing applicants and licensees for individual licenses 
for different spectrum blocks or different markets from 
entering into arms-length agreements concerning the 
cooperation or coordination of separate facilities, so long as 
each applicant or licensee retains control over the license 
and so long as such arrangements are consistent with our 
affiliation rules and other restrictions against collusion and 
agreements in restraint of trade. Since designated entities 
would still retain control of their licensed facilities under 
such arrangements, cross-license, arms-length arrangements 
between or among designated entities, and between des 
ignated entities and non-designated entities are consistent 
with our policies discussed above. Moreover, such arrange 
ments could result in more efficient aggregation of ubiq 
uitous, interoperable service offerings that could not be 
obtained through the auction process.
F. Constitutional Issues
289. If we determine that race or gender-based pref 
erences are necessary to satisfy the statutory command of 
section 309(j)(4)(D), we must also address the constitu 
tionality of such measures. In the Notice, we stated that the 
proper standard of scrutiny to be employed in this context 
is the "intermediate scrutiny" standard used in Metro 
Broadcasting, Inc. v. FCC, 497 U.S. 547 (1990). Virtually all 
of the commenters agree that Metro "s intermediate scru 
tiny standard should be applied in these circumstances, and 
we also note that recent case law fully supports that con 
clusion. See S.J. Groves & Sons Co. v. Fulton County, 920 
F.2d 752. 767 (llth Cir. 1991); Adarand Constructors, Inc. 
v. Skinner, 790 F. Supp. 240 (D. Colo. 1992): see also 
Lamprecht v. FCC, 958 F.2d 382 (D.C. Cir. 1992). Further, 
as the Metro case did not involve federal action vis-a-vis the 
states, it is also clear that the intermediate scrutiny stan 
dard may be applied in circumstances that go beyond those 
in which Congress exercises its powers under section 5 of 
the Fourteenth Amendment.223 Thus, intermediate scrutiny 
is to be applied even if the measures are deemed to relate 
solely to the Federal government's activities.
290. Applying the Metro standard itself. Metro instructs 
that benign race-conscious measures approved by Congress 
do not violate the equal protection clause if they serve 
important governmental objectives within the power of 
Congress and are substantially related to achievement of 
those objectives. 110 S. Ct. at 3008-09. We agree with the 
vast majority of commenters who contend that preferential 
measures afforded under section 309(j)(4)(D) serve impor 
tant governmental objectives sufficient to satisfy Metro. The 
commenters agree with the assertion in the Notice that, 
from the language and history of the section, it is evident
218 See, e.g., comments at McCaw at 21, Meyers at 6, Pacific 
Bell at 21 (regarding preferences for female or minority owner 
ship specifically).
219 See comments of Sprint at 10, and PMN, Inc. at 9.
220 See, e.g., comments of SBA at 15-17, Southwestern Bell at 
41, and Chickasaw Telephone Company at 6-8. 
221 See comments of AT&T at 25-26, United Native American 
Telecommunications, Inc. at 16, TDS at 17, and Telephone 
Association of Michigan at 7.
222 See, e.g., comments of Telephone Electronics at 16, Iowa 
Network at 17-18, SBA at 11-12 (regarding small business 
consortia).
223 In the context of gender preferences, we observe that the 
intermediate scrutiny standard applies whether or not the mea 
sure is used by Congress or the States. See, e.g., Contractors 
Association of Eastern Pennsylvania, Inc. v. Citv of Philadelphia, 
6 F.3d 990, 1009 (3rd Cir. 1993).
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
that Congress enacted the provision in the interest of pro 
moting economic opportunity for minorities and women, 
who are underrepresented in the communications industry. 
The commenters maintain that this is an important and 
legitimate congressional objective, and we agree.
291. Cook Inlet also observes that the congressional es 
pousal of that stated objective in the auction statute is 
implicitly predicated on Congress' well-founded belief that 
minorities and women are underrepresented among busi 
ness owners in the communications industry.224 Similarly, 
UCC asserts that the provisions regarding female and mi 
nority preferences were enacted on the implicit under 
standing that women and minorities have been hindered 
from participation in the communications industry as a 
result of invidious discrimination. UCC notes that there 
are ample grounds for a legislative finding to that effect, 
citing the statement in Metro that Congress has consistently 
recognized the barriers encountered by minorities in enter 
ing the broadcast industry.225 Murray and others also cite 
the SBAC Report as a compilation of evidence of the 
existence of current and historical barriers to minority 
participation in the telecommunications industry.226 Cook 
Inlet, in addition, cites a 1982 House conference report and 
statements in the Congressional Record as grounds for such 
a finding and refers to an appendix listing reports and 
studies concerning minority underrepresentation in busi 
ness and barriers to entry.22 ' The Minority Business Enter 
prise Legal Defense and Education Fund, Inc. has submit 
ted a copy of a massive report on racial discrimination in 
contracting in the telecommunications industry that it had 
previously presented to Congress.22" Finally. Calcell Wire 
less, Inc. refers to information concerning systematic bias 
against African and Hispanic Americans by mortgage lend ers.229
292. Similar arguments and information have been sub 
mitted in this record concerning women. AWRT points out 
that in Califano v. Webster, 430 U.S. 313, 317 (1977), the 
Supreme Court made clear that reduction in the disparity 
in economic condition between men and women caused by 
the long history of discrimination against women is an 
important governmental objective.230 AWRT, Call-Her and 
Palmer Communications, Inc. refer to findings that women 
are statistically underrepresented among business owners in 
the SBAC Report, the 1992 Annual Report of the National 
Women's Business Council, and recent publications of the 
U.S. Department of Commerce.231 Call-Her also notes that 
Congress made conclusive findings in the Women's Busi 
ness Ownership Act of 1988. 15 U.S.C.  631(h). that 
women are hindered in pursuit of entrepreneurial endeav 
ors by sexual discrimination affecting their ability to raise 
capital and acquire managerial skills.232
293. These commenters. we believe, have offered persua 
sive arguments and evidence that any measures we may 
adopt to implement section 309(j)(4)(D) satisfy the "impor 
tant governmental interest" aspect of the Metro intermedi 
ate scrutiny test. In this regard, many commenters point 
out that in Metro the Supreme Court concluded that a full 
appreciation of the legislative process counseled against a 
court limiting its analysis to the legislative history of the 
particular act under review.233 Examined against this com 
plete legislative backdrop, the record compiled herein in 
dicates that Congress had a full understanding of the 
barriers to entry that have led to underrepresentation of 
minorities and women in the communications industry. 
Further, the commenters in this proceeding have submitted 
much additional evidence relating to this 
underrepresentation and the factors causing it.
294. In this regard, we note that, even under a standard 
of "strict scrutiny," it is not necessary to demonstrate gov 
ernment sponsored discrimination. Even where the govern 
ment is only a passive participant in the discrimination to 
be remedied, the government may permissibly use race- 
based measures to redress discrimination committed by 
private parties within the government's jurisdiction. See 
Associated General Contractors of California v. Coalition for 
Economic Equity, 950 F.2d 1401, 1413 (9th Cir. 1991), 
citing Richmond v. Croson, 488 U.S. 467, 491-92; O Donnell 
Construction Co. v. District of Columbia, 963 F.2d 420. 429 
(D.C. Cir. 1992) (Ginsburg, J. concurring). Similarly, un 
der the intermediate scrutiny standard as it has been ap 
plied to sex-based preferences, evidence of governmental 
discrimination against women is not required to establish 
the necessary important government interest. Coral Con 
struction Co. v. King County, 941 F.2d 910, 916 (9th Cir. 
1991). Thus, to justify racial or gender preferences in the 
context of the auction law, it is unnecessary to demonstrate 
that the Federal government or the FCC has engaged in 
discriminatory practices in the allocation of licenses.
295. No commenter has alleged such governmental dis 
crimination. Instead, the sorts of barriers to entry cited by 
commenters include discrimination in commercial lending 
practices that thwart entry by minorities and women into 
capital intensive industries such as communications and 
discriminatory contracting practices by communications 
companies against minority firms providing equipment and 
services in the telecommunications industry. The study 
submitted by the Minority Business Enterprise Legal De 
fense Fund indicates, moreover, that minority firms are 
willing and qualified to provide these services, but that 
discriminatory practices have hindered their opportunities 
for meaningful participation in the communications in 
dustry.
296. The Metro intermediate scrutiny standard also re 
quires a determination that the remedial scheme is 
"substantially related" to the important governmental ob 
jective. For this purpose, the Commission must ensure that 
minority and gender-based preferences are not over-inclu 
sive and are narrowly tailored to fulfill the statutory objec-
224 Comments of Cook Inlet at 15.
225 Reply comments of UCC at 8.
226 See comments of George E. Murray at 7.
227 Comments of Cook Inlet at 11-15, citing H.R. Conf. Rep.
No. 765, 97th Cong., 2d Sess. 43 (1982). 128 Cong. Rec. H8954
(daily ed. December 6, 1982), 131 Cong. Rec. H4981-83 (daily ed.
June 28, 1985); see also comments of American Wireless at
13-15.
228 Comments of MBELDEF at 2, 60 and Appendix (Minority
Business Legal Defense and Education Fund Report to the U.S. 
Congress. Discrimination Practices in the Telecommunications 
Industry (1993)).
229 Comments of CalCell at 23 n.36.
230 See comments of AWRT at 7.
231 See id. at 5-7, comments of Call-Her at 4-8, and Palmer at 5
(Reply).
'32 Comments of Call-Her at 4-5.
233 See comments of Cook Inlet at 13. citing Metro, 497 U.S. at
572.
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
live of ensuring economic opportunity for women and 
minorities. Several commenters maintain that the Commis 
sion can satisfy this standard by adopting eligibility rules 
that would ensure that only legitimate minority-owned 
firms could obtain the preferences and by adopting a waiv 
er rule by which any set-aside spectrum blocks are released 
to general bidding if no qualified minorities apply to bid 
for them.234 In the alternative, Cook Inlet recommends that 
if the Commission has constitutional concerns, it should 
limit preferences to firms that are socially or economically 
disadvantaged, according to definitional standards set forth 
in rules for the SBA's "section 8(a)" program.235 Some 
commenters, such as Iowa Network, contend that set-asides 
for minority or female-owned businesses would be 
overinclusive if they were available to all such businesses 
regardless of their capital resources. Iowa Network argues 
in this regard that it would not serve the justifying purpose 
of promoting economic opportunity for the disadvantaged 
to confer preferential treatment on those who are already 
successful. 36 Similarly, BellSouth argues there is no evi 
dence publicly-held companies controlled by females and 
minorities have suffered lack of economic opportunity and 
they should not be eligible for preferences.23
297. As discussed above in Section VI.E., we have adopt 
ed strict eligibility rules to ensure that only legitimate 
minority-owned and women-owned firms are eligible for 
preferences, and that such preferences are not over-inclu 
sive and are narrowly tailored. For example, as suggested 
by some commenters, minority and women-owned entities 
must be owned and controlled by United States citizens 
since the record contains no evidence of discriminatory 
entry barriers for aliens. If, in the future, we decide that 
race or gender-based preferences are necessary, we shall 
determine then whether additional tailoring mechanisms 
should be adopted, such as those proposed by commenters.
VII. CONCLUSION, PROCEDURAL 
MATTERS AND ORDERING CLAUSES
298. As we stated in the Notice, the Commission is 
entering new and uncharted territory in this proceeding. 
The Commission is poised to unleash great potential to 
stimulate economic growth and create thousands of jobs for 
Americans by awarding thousands of new licenses. We 
believe that the decisions we have made in this Second 
Report and Order will significantly improve the efficiency 
of our licensing processes. We believe that these decisions 
promote the public policy objectives set forth by Congress, 
and that they will serve the Commission's goals of promot 
ing economic growth and enhancing access to telecom 
munications service offerings for consumers, producers, 
and new entrants. Our competitive bidding system is de 
signed to award licenses expeditiously and in a way that 
will encourage efficient spectrum use and promote com 
petition for service provision. Finally, we believe that the 
menu of preferences we have adopted for designated en 
tities will satisfy Congress's objective of ensuring diversity 
in the ownership and management of telecommunications 
facilities.
A. Final Regulatory Flexibility Analysis
299. Pursuant to the Regulatory Flexibility Act of 1980, 
an Initial Regulatory Flexibility Analysis (IRFA) was incor 
porated in the Notice of Proposed Rule Making in PP 
Docket No. 93-253. Written comments on the IRFA were 
requested. The Commission's final analysis is as follows:
300. Need for and purpose of the action. This rulemaking 
proceeding was initiated to implement Section 309(j) of the 
Communications Act, as amended. The rules adopted here 
in will carry out Congress's intent to establish a system of 
competitive bidding for choosing from among mutually 
exclusive applications for initial licenses to use the elec 
tromagnetic spectrum principally for the transmission or 
reception of communications signals to or from subscribers 
for compensation. The rules adopted herein also will carry 
out Congress's intent to ensure that small businesses, rural 
telephone companies, and businesses owned by women and 
minorities are afforded an opportunity to participate in the 
provision of spectrum-based services.
301. Issues raised in response to the IRFA. The IRFA 
noted that the proposals under consideration in the NPRM 
included the possibility of new reporting and 
recordkeeping requirements for a number of small business 
entities. No commenters responded specifically to the issues 
raised in the IRFA. We have made some modifications to 
the proposed requirements as appropriate.
302. Significant alternatives considered and rejected. All 
significant alternatives have been addressed in the Second 
Report and Order.
B. Ordering Clauses
303. Accordingly, IT IS ORDERED that Part 1 of the 
Commission's Rules is amended as set forth in the attached 
Appendix B.
304. IT IS FURTHER ORDERED that the rules adopted 
herein WILL BECOME EFFECTIVE 30 days after pub 
lication in the Federal Register.23* This action is taken 
pursuant to Sections 4(i). 303(r) and 3()9(j) of the Commu 
nications Act of 1934, as amended, 47 U.S.C.  154(i), 
303(r) and 309(j).
FEDERAL COMMUNICATIONS COMMISSION
William F. Caton 
Acting Secretary
234 See, e.g., comments of Cook Inlet at 18-19, American Wire 
less at 18, and NAMTEC at 13.
235 Comments of Cook Inlet at 39-40.
236 See reply comments of Iowa Network at 8.
237 See comments of BellSouth at 29, n.47.
238 The Commission may conclude in subsequent Reports and 
Orders in this docket that specified procedural rules applicable 
to particular services should become effective upon publication 
in the Federal Register.
2400
9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
APPENDIX A
COMMENTS AND REPLY COMMENTS FILED IN 
PP DOCKET NO. 93-253
Comments
Advanced Mobilcomm Technologies, Inc., and Digi 
tal Spread Spectrum Technologies. Inc.
James Aidala
Oye Ajayi-Obe
Alcatel Network Systems, Inc. (Alcatel)
AllCity Paging, Inc. (AllCity)
Alliance for Fairness and Viable Opportunity (Alli 
ance for Fairness)
Alliance of Rural Area Telephone & Cellular Service 
Providers (ARAT)
Alliance Telecom, Inc.
Alpine Electronics and Communication (Alpine) 
American Automobile Association (AAA) 
American Mobile Satellite Corp. (AMSC)
American Mobile Telecommunications Association 
(AMTA)
American Personal Communications (APC) 
The American Petroleum Institute (API)
American Wireless Communication Corporation 
(AWCC or American Wireless)
American Women in Radio and Television. Inc. 
(AWRT)
Ameritech
AMSC Subsidiary Corporation
Anchorage Telephone Utility (Anchorage)
Charles N. Andreae/Andreae & Associates. Inc.
John G. Andrikopoulos. et al.
Arch Communications Group, Inc. (Arch Commu 
nications)
Association for Maximum Service Telecasters & Na 
tional Association of Broadcasters (MSTV/NAB)
Association of American Railroads (AAR)
Association of America's Public Television Stations 
(APTS)
Association of Independent Designated Entities 
(AIDE)
Association of Public-Safety Communications Offi 
cials International, Inc. (APCO)
AT&T
Baraff, Koerner, Olender & Hochberg, P.C.
Bechtel & Cole
Bell Atlantic Personal Communications, Inc. (Bell 
Atlantic)
BellSouth Corp., BellSouth Telecommunications, 
Inc., BellSouth Cellular Corp., and Mobile Commu 
nications Corporation of America (BellSouth)
Jeffrey T. Bergner 
Art Boroughs 
Van R. Boyette 
D.B. Branch 
Quentin L. Breen
Dennis C. Brown and Robert H. Schwaninger 
(Brown and Schwaninger)
Cablevision Industries, Comcast Corp., Cox Cable 
Communications, and Jones Intercable, Inc.
Calcell Wireless, Inc. (Calcell)
California Microwave. Inc. (California Microwave)
California Public Utilities Commission (CPUC)
Call-Her, L.L.C. (Call-Her)
Capitol Hill Management
Catapult Communications (Catapult)
Cellular Communications, Inc. (CCI)
Cellular Service, Inc. (CSI)
Cellular Settlement Groups
Cellular Telecommunications Industry Association 
(CTIA)
Cencall Communications Corp. (Cencall) 
Century Communications Corp. (Century)
CFW Communications Corp., Denver and Ephrata 
Tel. and Tel. Co., and Lexington Tel. Co.
Chase Communications Corp. (Chase)
The Chase McNulty Group. Inc. (Chase McNulty)
Chickasaw Telephone Company (Chickasaw)
Citizens Utility Company (Citizens)
Coalition for Equity in Licensing
Cole, Raywid & Braverman
Wendy C. Coleman d/b/a WCC Cellular (WCC Cel 
lular)
Comcast Corporation (Comcast)
Comsat Corporation (Comsat)
ComTech Associates. Inc. (Comtech)
Converging Industries
Cook Inlet Region. Inc. (Cook Inlet)
Corporate Technology Partners (CTP)
Council of 100
Cox Enterprises, Inc. (Cox)
Thomas Crema
Data Link Communications (Data Link)
Devsha Corporation
Dial Page. Inc.
Steven L. Dickerson
Abby Dilley
Diversified Cellular Communications (Diversified)
Domestic Automation Company (Domestic Automa 
tion)
Laura G. Dooley
2401
FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
John Dudinsky
Mark H. Duesenberg
John R. Duesenberg
Duncan, Weinberg, Miller & Pembroke, P.C.
Economics and Technology, Inc.
FiberSouth, Inc. (FiberSouth)
First Cellular of Maryland
Firstcom, Inc.
Fisher, Wayland, Cooper and Leader (Fisher 
Wayland)
David F. Gencarelli, Esq. 
Janet B. Gencarelli
General Communications, Inc. (GCI or General 
Communications)
GEOTEK Industries, Inc. (GEOTEK) 
Debra Gervasini 
Martin Charles Gleyier 
GTE Services Corp. (GTE) 
GVNW, Inc./Management (GVNW) 
John G. Heard
Hughes Communications Galaxy. Inc. & DirecTv, 
Inc. (DirecTv)
Hughes Transportation Management Systems 
(Hughes)
Independent Cellular Consultants 
Independent Cellular Network, Inc. 
Industrial Telecommunications Association, Inc. 
Intelligent Vehicle-Highway Society of America
Interdigital Communications Corporation 
(Interdigital)
Iowa Network Services. Inc. (Iowa Network)
IVHS America
JAJ Cellular
Thomas J. Jasien
JBS & Associates/Shrader Real Estate
JMP Telecom Systems, Inc.
Andrea J. Johnson
Edward M. Johnson
E.F. Johnson Company
Jeff Johnston
Clair Joyce
Abraham Kye, et al.
Ward Leber & Eroca Daniel
Michael Lewis
Liberty Cellular, Inc. d/b/a Kansas Cellular (Liberty 
Cellular)
Lightcom International, Inc. (Lightcom) 
Daniel R. Lindemann
Loral Qualcomm Satellite Services, Inc. (Loral) 
Robert Lutz. et al.
Walter Lowman
LuxCel Group, Inc. (LuxCel)
John J. Mandler
McCaw Cellular Communications, Inc. (McCaw)
MCI Telecommunications Corporation (MCI)
MEBTEL, Inc.
Mercury Communications, L.C. (Mercury)
Millin Publications, Inc. (Millin)
Minnesota Equal Access Network Services, Inc. (Min 
nesota Equal Access)
Minority Business Enterprise Legal Defense and Edu 
cation Fund, Inc. (MBELDEF)
Minority PCS Coalition (Transworld 
Telecommunications Inc., Progressive Communica 
tions. Inc., Carl and Gail Davis and John Washing 
ton)
Motorola, Inc. (Motorola)
Motorola Satellite Communications, Inc. (Motorola 
Satcom)
George E. Murray
MW TV, Inc.
Law Offices of Richard S. Myers (Richard S. Myers)
National Association of Black-Owned Broadcasters, 
Inc. (NABOB)
National Association of Business and Educational Ra 
dio. Inc. (NABER)
National Association of Minority Telecommunica 
tions Executives and Companies (NAMTEC)
National Rural Telecom Association (NRTA)
National Telecommunications and Information 
Administration of the U.S. Department of Commerce 
(NTIA)
National Telephone Cooperative Association (NTCA) 
Nextel Communications. Inc. (Nextel) 
NYNEX Corporation (NYNEX) 
M. Kathleen O Conner
Organization for the Protection and Advancement of 
Small
Telephone Companies (OPASTCO) 
Pacific Bell and Nevada Bell (PacBell)
Pacific Telecom Cellular, Inc. (Pacific Telecom Cel 
lular)
PacTel Corporation (PacTel)
PacTel Paging and MidContinent Media (Joint Com 
ments) (PacTel Paging)
PageMart, Inc. (PageMart) 
Paging Network, Inc. (PageNet) 
Palmer Communications, Inc. (Palmer) 
Michael Pernecke 
Raegene Pernecke
Personal Communications Network Services of New 
York
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
Jeffrey Peterson
Phase One Communications. Inc. (Phase One)
David Pines
PMN, Inc. (PMN)
PNC Cellular, Inc.
Point Communications Company (Point)
Primosphere Limited Partnership (Primosphere)
Quick Call Group (Quick Call)
Radio Telecom and Technology. Inc. (RTT)
RAM Mobile Data USA Limited Partnership (RAM)
RAY Communications, Inc.
Michael R. Rickman
Roamer One. Inc. (Roamer One)
Rochester Telephone Corp.
Rocky Mountain Telecommunications Association 
and Western Rural Telephone Association
Rural Cellular Association 
Rural Cellular Corp.
Rural Electrification Administration, U.S. Depart 
ment of Agriculture (REA)
Rural Telephone Company
Thomas Salmon
Santarelli. Smith & Carroccio
Michael Sauls
Securicor PMR Systems, Ltd. (Securicor)
Stephan C. Sloan
Small Business PCS Association
Small RSA Operators
Small Telephone Companies of Louisiana
Laquita Smallwood
Southwestern Bell Corporation (Southwestern Bell)
Sprint Corporation (Sprint)
Henry J. Staudinger
James F. Stern
Arlene F. Strege
Suite 12 Group
Systems Engineering, Inc.
Taxpayers Assets Project
Telephone and Data Systems, Inc. (TDS)
Telephone Association of Michigan (TAM)
Telephone Electronics Corp. (Telephone Electronics)
Telepoint Personal Communications, Inc (Telepoint).
The Telmarc Group and Telmarc Telecommunica 
tions, Inc. (Telmarc)
Telocator - The Personal Communications Industry 
Association (Telocator)
Thumb Cellular Limited Partnership (Thumb) 
Time Warner Telecommunications (Time Warner) 
Tri-State Radio Company (Tri-State)
TRW, Inc. (TRW)
Unique Communications Concepts (Unique) 
United Native American Telecommunications, Inc. 
U.S. Intelco Networks, Inc.
U.S. Small Business Administration -- Chief Counsel 
for Advocacy (SBA)
U.S. Small Business Administration   Associate Ad 
ministrator for Procurement Assistance
U.S. Telephone Association (USTA)
Utilities Telecommunications Council (UTC)
Valley Management, Inc.
L. Brennan Van Dyke
Vanguard Cellular Systems, Inc. (Vanguard)
Richard L. Vega Group (Vega)
Venus Wireless, Inc. (Venus)
Leslie R. Walls
Western Wireless, Inc.
Windsong Communications, Inc. (Windsong)
Wireless Cable Association International, Inc.
Wireless Services Corporation (Wireless)
Wisconsin Wireless Communications Corporation 
(Wisconsin Wireless)
Ann Bradshaw Woods 
William E. Zimsky
Reply Comments
Marlene Abe
Robert B. Adams (Commissioner, Office of General 
Services, State of New York)
Alcatel Network Systems. Inc.
AllCity Paging. Inc.
American Paging, Inc.
American Personal Communications
American Wireless Communication Corporation. Inc.
American 52 East
AMTECH Corporation (AMTECH)
John G. Andrikopoulos. Bent Elbow Corporation, et 
al.
Apex Welding, Inc. (Apex)
Arch Communications, Inc.
The Association of American Railroads
Association of Independent Designated Entities
AT&T
Bob Atkison
Bell Atlantic Personal Communications, Inc.
BellSouth Corporation
John L. Bergin
Kenneth B. Blair, Robert B. Blow, et al.
Town of Bridgewater, MA
Hayo Broeis
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
Cable & Wireless, Inc.
R. Jeffrey Cale
Robert R. Cale
Call-HerT L.L.C.
Capp Systems (IVDS) Inc.
Cellular Service. Inc.
Cellular Settlement Groups (Joint Comments)
Cellular Telecommunications Industry Association
CFW Communications Co., Denver and Ephrata Tel. 
and Tel. Co., and Lexington Tel. Co.
The Chillicothe Telephone Company
Citizens Utility Company
Edward Cline
Coalition for Equity in Licensing
Columbia Cellular Corporation
Comcast Corporation
Community Service Telephone Company
Cook Inlet Region, Inc.
DeKalb Telephone Cooperative, Inc.
Dell Telephone Cooperative, Inc.
Vernon L. Dennis
Dial Page, Inc.
Diversified Cellular Communications, Inc.
Michael J. Dowling
Ellipsat Corporation (Ellipsat)
Enakee Partnership
Marie S. Essex
Clemente S. Estrera, Jr.
Euro-Tech Enterprises. Inc.
Federal IVD
Fisher. Wayland, Cooper and Leader
Four Color Imports. Ltd. (Four Color)
Orren W. Fricke
Marguerite Geckler
General Communications, Inc. (GCI)
Genesis Investments
George Gower
GTE Service Corp.
Gulf Telephone Company
Mark D. Hafermann
Timothy Hartley
Dr. Renee Harwick
John G. Herd
Nathan D. Hodges
Troy Hodges
Home Box Office (HBO)
Adrian Hubbell
Hughes Communications Galaxy. Inc. and DirecTv, 
Inc.
Hughes Transportation Management Systems
Icon Communications Services
Independent Cellular Consultants (ICC)
Industrial Containers, Inc.
Industrial Telecommunications Association, Inc.
The Institute for Public Representation, Georgetown 
University Law Center, and Office of Communica 
tion of the United Church of Christ (Joint Com 
ments) (UCC)
The Interagency Group
Interior Telephone Co.
International Small Satellite Organization
Iowa Network Services, Inc.
Cecil W. King
Kingswood Associates
Bernd K. L. Klopfer
J. Koyasako
Kuruvilla M. Kurien
Mani A. Kurien
Sosa Kurien
J. Bruce Llwellyn
Local Area Telecommunications, Inc.
Long Lines, Ltd.
Loral Qualcomm Satellite Services, Inc.
Manti Telephone Company
McCaw Cellular Communications, Inc.
McElroy Electronics Corporation
MCI Telecommunications Corporation
Metricom. Inc.
Marshall L. Morgan
William G. Morgan
Motorola, Inc.
Motorola Satellite Communications, Inc.
Mountain Home Publishing
Mukluk Telephone Co.
George E. Murray
National Association of Business and Educational 
Radio. Inc.
National Cable Television Association. Inc.
National Public Radio
National Rural Telephone Association
National Telephone Cooperative Association
Nextel Communications, Inc.
North American Interactive Partners I-IV
NYNEX Corporation
J.W. Oakes
Omnipoint Communications, Inc. (Omnipoint)
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Organization for the Protection and Advancement of 
Small Telephone Companies (OPASTCO)
Joseph A. Orlando
P & P Investments
Pacific Bell and Nevada Bell
Pacific Traders Group
PacTel Corporation
PacTel Paging and Midcontinent Media
PageMart. Inc.
Paging Network, Inc.
Palmer Communications. Inc.
PAN, Inc.
William W. Perry
Personal Network Services Corporation
Sidney E. Pinkston
Emma M. Pinkston
Pinpoint Communications, Inc.
PN Cellular, Inc. and its affiliates
PNM. Inc.
Price Communications Cellular
Denis A. Radefeld
Radiofone, Inc.
RAM Mobile Data USA Limited Partnership
Recourse Spectrum
Roamer One, Inc.
Roberts County Telephone Cooperative Association
Rochester Telephone Corporation
Rural Cellular Association
Ryberg Properties
Saco River Telegraph and Telephone Company
James J. Schneider
H.M. Schwartz
John Sheppard
Crystal Smith
Southwestern Bell
Spacedrive, Inc.
Sprint Corporation
David G. Stanley
Harry Stevens. Jr.
Sonia Stuart
Suite 12 Group
David F. Swain & Co.
Telephone and Data Systems, Inc.
Telephone Electronics Corporation
Telocator -- The Personal Communications Industry 
Association
William W. Thorton 
Randy A. Toyoshima
TRW, Inc. (TRW)
Unique Communications Concepts
U.S. Intelco Networks, Inc.
United States Telephone Association
US West
The University of Texas System
Utilities Telecommunications Council
WCC Cellular
Bob Weber
Greg Winters
Wunschel Law Firm
APPENDIX B
FINAL RULES
Part 1 of Chapter I of Title 47 of the Code of Federal 
Regulations is amended as follows:
1. The authority citation for Part 1 continues to read as 
follows:
AUTHORITY: Sees. 1, 4(i), 303, 48 Stat. 1066, 1082, as 
amended; 47 U.S.C.  151, 154, and 303, unless otherwise 
noted.
2. Part 1 is amended by adding a new subpart (Q) to 
read as follows:
Subpart Q - Competitive Bidding Proceedings
AUTHORITY: 47 U.S.C. 309(j).
GENERAL PROCEDURES 
 1.2101 Purpose
The provisions of this subpart implement Section 309(j) 
of the Communications Act of 1934. as added by the 
Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66). 
authorizing the Commission to employ competitive bidding 
procedures to choose from among two or more mutually 
exclusive applications for certain initial licenses.
 1.2102 Eligibility of Applications for Competitive Bid 
ding
(a) Mutually exclusive initial applications in the follow 
ing services or classes of services are subject to competitive 
bidding:
(1) Interactive Video Data Service (see 47 C.F.R. Part 
95. Subpart F):
(2) Marine Public Coast Stations (see 47 C.F.R. Part 
80, Subpart J);
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
(3) Multipoint Distribution Service and Multichannel 
Multipoint Distribution Service (see 47 C.F.R. Part 
21, Subpart K). This subsection does not apply to 
applications in these services that were filed prior to 
July 26, 1993;
(4) Exclusive Private Carrier Paging above 900 MHz 
(see 47 C.F.R. Part 90, Subpart P and the Private 
Carrier Paging Exclusivity Report and Order. 8 FCC 
Red 8318 (1993));
(5) Public Mobile Services (see 47 C.F.R. Part 22), 
except in the 800 MHz Air-Ground Radiotelephone 
Service, and in the Rural Radio Service. This sub 
section does not apply to certain applications in the 
cellular radio service that were filed prior to July 26, 
1993;
(6) Specialized Mobile Radio Service (SMR) (see 47 
C.F.R. Part 90, Subpart S) including finder's pref 
erence requests for frequencies allocated to the SMR 
service (see 47 C.F.R. Section 90.173); and
(7) Personal Communications Services (PCS) (see 47 
C.F.R. Part 24).
NOTE: To determine the rules that apply to competi 
tive bidding in the foregoing services, specific service 
rules should also be consulted.
(b) The following types of license applications are not 
subject to competitive bidding procedures:
(1) Applications for renewal of licenses:
(2) Applications for modification of license; pro 
vided, however, that the Commission may determine 
in particular instances that applications for modifica 
tion that are mutually exclusive with other applica 
tions should be subject to competitive bidding;
(3) Applications for subsidiary communications 
services. A "subsidiary communications service" is a 
class of service where the signal for that service is 
indivisible from that of the main channel signal and 
that main channel signal is exempt from competitive 
bidding under other provisions of these rules. See, 
e.g.,  1.2102(c) (exempting broadcast services). Ex 
amples of such subsidiary communications services 
are those transmitted on subcarriers within the FM 
baseband signal (see 47 C.F.R.  73.295), and signals 
transmitted within the Vertical Blanking Interval of a 
broadcast television signal; and
(4) Applications for frequencies used as an intermedi 
ate link or links in the provision of a continuous, 
end-to-end service where no service is provided di 
rectly to subscribers over the frequencies. Examples 
of such intermediate links are (i) point-to-point mi 
crowave facilities used to connect a cellular radio 
telephone base station with a cellular radio telephone 
mobile telephone switching office and (ii) point-to- 
point microwave facilities used as part of the service 
offering in the provision of telephone exchange or 
interexchange service.
(c) Applications in the following services or classes of 
services are not subject to competitive bidding:
(1) Alaska-Private Fixed Stations (see 47 C.F.R. Part 
80, Subpart O);
(2) Broadcast radio (AM and FM) and broadcast 
television (VHP, UHF, LPTV) under 47 C.F.R. Part
73;
(3) Broadcast Auxiliary and Cable Television Relay 
Services (see 47 C.F.R. Part 74, Subparts D, E, F, G, 
H and L and Part 78, Subpart B);
(4) Instructional Television Fixed Service (see 47 
C.F.R. Part 74, Subpart I);
(5) Maritime Support Stations (see 47 C.F.R. Part 80, 
Subpart N);
(6) Marine Operational Fixed Stations (see 47 C.F.R. 
Part 80, Subpart L);
(7) Marine Radiodetermination Stations (see 47 
C.F.R. Part 80, Subpart M);
(8) Personal Radio Services (see 47 C.F.R. Part 95), 
except applications filed after July 26, 1993, in the 
Interactive Video Data Service (see 47 C.F.R. Part 95, 
Subpart F);
(9) Public Safety, Industrial/Land Transportation, 
General and Business Radio categories above 800 
MHz, including finder's preference requests for fre 
quencies not allocated to the SMR service (see 47 
C.F.R. Section 90.173), and including, until further 
notice of the Commission, the Automated Vehicle 
Monitoring Service (see 47 C.F.R.  90.239);
(10) Private Land Mobile Radio Services between 
470-512 MHz (see 47 C.F.R. Part 90, Subparts B-F) 
including finder's preference requests, see 47 C.F.R. 
Section 90.173;
(11) Private Land Mobile Radio Services below 470 
MHz (see 47 C.F.R. Part 90. Subparts B-F) except in 
the 220 MHz band (see 47 C.F.R. Part 90, Subpart T), 
including finder's preference requests (see 47 C.F.R. 
Section 90.173); and
(12) Private Operational Fixed Services (see 47 C.F.R. 
Part 94).
 1.2103 Competitive Bidding Design Options
(a) The Commission will select the competitive bidding 
design(s) to be used in auctioning particular licenses or 
classes of licenses on a service-specific basis. The Commis 
sion will choose from one or more of the following types 
of auction designs for services or classes of services subject 
to competitive bidding:
(1) Single round sealed bid auctions (either sequen 
tial or simultaneous)
(2) Sequential oral auctions
(3) Simultaneous multiple round auctions
(b) The Commission may use combinatorial bidding, 
which would allow bidders to submit all or nothing bids 
on combinations of licenses, in addition to bids on individ 
ual licenses. The Commission may require that to be de 
clared the high bid, a combinatorial bid must exceed the 
sum of the individual bids by a specified amount. 
Combinatorial bidding may be used with any type of auc 
tion.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
(c) The Commission may use single combined auctions, 
which combine bidding for two or more substitutable li 
censes and award licenses to the highest bidders until the 
available licenses are exhausted. This technique may be 
used in conjunction with any type of auction.
 1.2104 Competitive Bidding Mechanisms
(a) Sequencing. The Commission will establish the se 
quence in which multiple licenses will be auctioned.
(b) Grouping. In the event the Commission uses either a 
simultaneous multiple round competitive bidding design or 
combinatorial bidding, the Commission will determine 
which licenses will be auctioned simultaneously or in com 
bination.
(c) Reservation Price. The Commission may establish a 
reservation price, either disclosed or undisclosed, below 
which a license subject to auction will not be awarded.
(d) Minimum Bid Increments. The Commission may, by 
announcement before or during an auction, require mini 
mum bid increments in dollar or percentage terms.
(e) Stopping Rules. The Commission may establish stop 
ping rules before or during multiple round auctions in 
order to terminate the auctions within a reasonable time.
(f) Activity Rules. The Commission may establish activity 
rules which require a minimum amount of bidding activ 
ity.
(g) Withdrawal, Default and Disqualification Penalties. As 
specified below, when the Commission conducts a simulta 
neous multiple round auction pursuant to  1.2103, the 
Commission will impose penalties on bidders who with 
draw high bids during the course of an auction, or who 
default on payments due after an auction closes or who are 
disqualified.
(1) Bid withdrawal prior to close of auction. A bid 
der who withdraws a high bid during the course of 
an auction will be subject to a penalty equal to the 
difference between the amount bid and the amount 
of the winning bid the next time the license is offered 
by the Commission. No withdrawal penalty would be 
assessed if the subsequent winning bid exceeds the 
withdrawn bid. This penalty amount will be deducted 
from any upfront payments or down payments that 
the withdrawing bidder has deposited with the Com 
mission.
(2) Default or disqualification after close of auction. 
If a high bidder defaults or is disqualified after the 
close of such an auction, the defaulting bidder will 
be subject to the penalty in subsection (1) plus an 
additional penalty equal to three (3) percent of the 
subsequent winning bid. If the subsequent winning 
bid exceeds the defaulting bidder's bid amount, the 3 
percent penalty will be calculated based on the de 
faulting bidder's bid amount. These amounts will be 
deducted from any upfront payments or down pay 
ments that the defaulting or disqualified bidder has 
deposited with the Commission.
When the Commission conducts single round sealed bid 
auctions or sequential oral auctions, the Commission may 
modify the penalties to be paid in the event of bid with 
drawal, default or disqualification; provided, however, that 
such penalties shall not exceed the penalties specified 
above.
(h) Bidder identification during auctions. During any auc 
tion, the Commission may identify bidders and the bids 
only by bid numbers.
(i) The Commission may delay, suspend, or cancel an 
auction in the event of a natural disaster, technical ob 
stacle, evidence of security breach, unlawful bidding activ 
ity, administrative necessity, or for any other reason that 
affects the fair and efficient conduct of the competitive 
bidding. The Commission also has the authority, at its sole 
discretion, to resume the competitive bidding starting from 
the beginning of the current or some previous round or 
cancel the competitive bidding in its entirety.
 1.2105 Bidding Application and Certification Proce 
dures; "Prohibition of Collusion
(a) Submission of Short Form Application (FCC Form 
175). In order to be eligible to bid, an applicant must 
timely submit a short-form application (FCC Form 175), 
together with any appropriate filing fee set forth by Public 
Notice. Unless otherwise provided by Public Notice, the 
Form 175 need not be accompanied by an upfront pay 
ment (see Section 1.2106 of this (part).
(1) All Form 175s will be due:
(i) on the date(s) specified by Public No 
tice: or
(ii) in the case of application filing dates 
which occur automatically by operation 
of law (see, e.g., 47 C.F.R. Section 
22.902). on a date specified by Public 
Notice after the Commission has re 
viewed the applications that have been 
filed on those dates and determined that 
mutual exclusivity exists.
(2) The Form 175 must contain the following in 
formation:
(i) Identification of each license on 
which the applicant wishes to bid:
(ii) The applicant's name, if the appli 
cant is an individual. If the applicant is a 
corporation, then the short-form applica 
tion will require the name and address of 
the corporate office and the name and 
title of an officer or director. If the ap 
plicant is a partnership, then the applica 
tion will require the name, citizenship 
and address of all partners, and, if a part 
ner is not a natural person, then the 
name and title of a responsible person 
should be included as well. If the ap 
plicant is a trust, then the name and 
address of the trustee will be required. If 
the applicant is none of the above, then 
it must identify and describe itself and its 
principals or other responsible persons:
(iii) The identity of the person(s) autho 
rized to make or withdraw a bid;
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
(iv) If the applicant applies as a des 
ignated entity pursuant to  1.2110 of 
these rules, a statement to that effect and 
a declaration, under penalty of perjury, 
that the applicant is qualified as a des 
ignated entity under  1.2110 of the 
Commission's Rules:
(v) Certification that the applicant is le 
gally, technically, financially and other 
wise qualified pursuant to Section 308(b) 
of the Communications Act of 1934, as 
amended;
(vi) Certification that the applicant is in 
compliance with the foreign ownership 
provisions of Section 310 of the Commu 
nications Act of 1934, as amended;
(vii) Certification that the applicant is 
and will, during the pendency of its ap 
plication^), remain in compliance with 
any service-specific qualifications applica 
ble to the licenses on which the appli 
cant intends to bid including, but not 
limited to, financial qualifications. The 
Commission may require certification in 
certain services that the applicant will, 
following grant of a license, come into 
compliance with certain service-specific 
rules, including, but not limited to, own 
ership eligibility limitations;
(viii) An exhibit, certified as truthful un 
der penalty of perjury, identifying all 
parties with whom the applicant has en 
tered into partnerships, joint ventures, 
consortia or other agreements, arrange 
ments or understandings of any kind re 
lating to the licenses being auctioned, 
including any such agreements relating 
to the post-auction market structure. All 
such arrangements must have been en 
tered into prior to the filing of Form 175 
and no such arrangements may be en 
tered into after the filing of Form 175 
until after the winning bidder has made 
the required down payment:
(ix) Certification under penalty of per 
jury that it has not entered and will not 
enter into any explicit or implicit agree 
ments, arrangements or understandings 
of any kind with any parties other than 
those identified pursuant to subsection 
(viii) regarding the amount of their bids, 
bidding strategies or the particular li 
censes on which they will or will not 
bid:
NOTE: The Commission may also re 
quest applicants to submit additional in 
formation for informational purposes to 
aid in its preparation of required reports 
to Congress.
(b) Modification and Dismissal of Form 175.
(1) Any Form 175 that is not signed or otherwise 
does not contain all of the certifications required 
pursuant to this section is unacceptable for filing and
cannot be corrected subsequent to any applicable 
filing deadline. The application will be dismissed 
with prejudice and the upfront payment, if paid, will 
be returned.
(2) The Commission will provide bidders a limited 
opportunity to cure defects specified herein (except 
for failure to sign the application and to make cer 
tifications) and to resubmit a corrected application. 
Form 175 may be amended or modified to make 
minor changes or correct minor errors in the ap 
plication (such as typographical errors). The Com 
mission will classify all amendments as major or 
minor, pursuant to rules applicable to specific ser 
vices. An application will be considered to be a new 
ly filed application if it is amended by a major 
amendment and may not be resubmitted after ap 
plicable filing deadlines.
(3) Applicants who fail to correct defects in their 
applications in a timely manner as specified by Pub 
lic Notice will have their applications dismissed with 
no opportunity for resubmission.
(c) Prohibition of Collusion. After the filing of short-form 
applications, all bidders are prohibited from cooperating, 
collaborating, discussing or disclosing in any manner the 
substance of their bids or bidding strategies with other 
bidders until after the high bidder makes the required 
down payment, unless such bidders are members of a 
bidding consortium or other joint bidding arrangement 
identified on the bidder's short-form application.
 1.2106 Submission of Upfront Payments
(a) The Commission may require applicants for licenses 
subject to competitive bidding to submit an upfront pay 
ment. In that event, the amount of the upfront payment 
and the procedures for submitting it will be set forth in a 
Public Notice. No interest will be paid on upfront pay 
ments. In auctions for licenses set aside pursuant to  
1.2110(c). the Commission may establish lower upfront 
payments for eligible designated entities.
(b) Upfront payments must be made either by wire 
transfer or by cashier's check drawn in U.S. dollars from a 
financial institution whose deposits are insured by the Fed 
eral Deposit Insurance Corporation and must be made 
payable to the Federal Communications Commission.
(c) If an upfront payment is not in compliance with the 
Commission's Rules, or if insufficient funds are tendered to 
consititute a valid upfront payment, the applicant shall 
have a limited opportunity to correct its submission to 
bring it up to the minimum valid upfront payment prior 
to the auction. If the applicant does not submit at least the 
minimum upfront payment, it will be ineligible to bid, its 
application will be dismissed and any upfront payment it 
has made will be returned.
(d) The upfront payment(s) of a bidder will be credited 
toward any down payment required for licenses on which 
the bidder is the high bidder.
(e) Notwithstanding the provisions of subsection (d), in 
the event a penalty is aessed pursuant to  1.2104 for bid 
withdrawal or default, upfront payments or down payments 
on deposit with the Commission will be used to satisfy the 
bid withdrawal or default penalty before being applied 
toward any additional payment obligations that the high 
bidder may have.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-61
 1.2107 Submission of Down Payment and Filing of 
Long-Form Applications
(a) After bidding has ended, the Commission will iden 
tify and notify the high bidder and declare the bidding 
closed.
(b) Within five (5) business days after being notified that 
it is a high bidder on a particular license(s). a high bidder 
must submit to the Commission's lockbox bank such addi 
tional funds (the "down payment") as are necessary to 
bring its total deposits (not including upfront payments 
applied to satisfy penalties) up to twenty (20) percent of its 
high bid(s). (In single round sealed bid auctions conducted 
under  1.2103, however, bidders may be required to sub 
mit their down payments with their bids.) This down pay 
ment must be made by wire transfer or cashier's check 
drawn in U.S. dollars from a financial institution whose 
deposits are insured by the Federal Deposit Insurance Cor 
poration and must be made payable to the Federal Com 
munications Commission. Winning bidders who are 
qualified designated entities eligible for installment pay 
ments under  1.2110(d) are only required to bring their 
total deposits up to ten (10) percent of their winning 
bid(s). Such designated entities must pay the remainder of 
the twenty (20) percent down payment within five (5) 
business days of grant of their application. See  
1.2110(e)(l) and (2) of this subpart. Down payments will 
be held by the Commission until the high bidder has been 
awarded the license and has paid the remaining balance 
due on the license, in which case it will not be returned, 
or until the winning bidder is found unqualified to be a 
licensee or has defaulted, in which case it will be returned, 
less applicable penalties. No interest will be paid on any 
down payment.
(c) A high bidder that meets its down payment 
obligations in a timely manner must, within ten (10) busi 
ness days after being notified that it is a high bidder, 
submit an additional application (the "long-form applica 
tion") pursuant to the rules governing the service in which 
the applicant is the high bidder (unless it has already 
submitted such an application, as contemplated by  
1.2105(a)(l)(b). For example, if the applicant is a high 
bidder for a license in the Interactive Video Data Service 
(see 47 C.F.R. Part 95, Subpart F). the long form applica 
tion will be submitted on FCC Form 574 in accordance 
with Section 95.815 of the Rules. Notwithstanding any 
other provision in Title 47 of the Code of Federal Regula 
tions to the contrary, high bidders need not submit an 
additional application filing fee with their long-form ap 
plications. Notwithstanding any other provision in Title 47 
of the Code of Federal Regulations to the contrary, the 
high bidder's long-form application must be mailed or 
otherwise delivered to:
Office of the Secretary
Federal Communications Commission
1919 M Street. N.W.. Room 222
Washington, D.C. 20554
Attention: Auction Application Processing Section
An applicant that fails to submit the required long-form 
application as required under this subsection, and fails to 
establish good cause for any late-filed submission, shall be 
deemed to have defaulted and will be subject to the penal 
ties set forth in  1.2104 of the Commission's Rules.
(d) As an exhibit to its long-form application, the ap 
plicant must provide a detailed explanation of the terms 
and conditions and parties involved in any bidding 
consortia, joint venture, partnership or other agreement or 
arrangment it had entered into relating to the competitive 
bidding process prior to the time bidding was completed. 
Such agreements must have been entered into prior to the 
filing of short-form applications pursuant to  1.2105.
 1.2108 Procedures for Filing Petitions To Deny Against 
Long-Form Applications
(a) Where petitions to deny are otherwise provided for 
under the Act or the Commission's Rules, and unless other 
service-specific procedures for the filing of such petitions 
are provided for elsewhere in the Commission's Rules, the 
procedures in this section shall apply to the filing of peti 
tions to deny the long-form applications of winning bid 
ders.
(b) Within thirty (30) days after the Commission gives 
public notice that a long-form application has been ac 
cepted for filing, petitions to deny that application may be 
filed. Any such petitions must contain allegations of fact 
supported by affidavit of a person or persons with personal 
knowledge thereof.
(c) An applicant may file an opposition to any petition 
to deny, and the petitioner a reply to such opposition. 
Allegations of fact or denials thereof must be supported by 
affidavit of a person or persons with personal knowledge 
thereof. The times for filing such opposition and replies 
will be those provided in  1.45 of these Rules.
(d) If the Commission determines that:
(1) an applicant is qualified and there is no substan 
tial and material issue of fact concerning that deter 
mination, it will grant the application.
(2) an applicant is not qualified and that there is no 
substantial issue of fact concerning that determina 
tion, the Commission need not hold an evidentiary 
hearing and will deny the application.
(3) substantial and material issues of fact require a 
hearing, it will conduct a hearing. The Commission 
may permit all or part of the evidence to be submit 
ted in written form and may permit employees other 
than administrative law judges to preside at the tak 
ing of written evidence. Such hearing will be con 
ducted on an expedited basis.
 1.2109 License Grant, Denial, Default, and 
Disqualification
(a) Unless otherwise specified in these rules, auction 
winners are required to pay the balance of their winning 
bids in a lump sum within five (5) business days following 
award of the license. Grant of the license will be con 
ditioned on full and timely payment of the winning bid.
(b) If a winning bidder withdraws its bid after the Com 
mission has declared competitive bidding closed or fails to 
remit the required down payment within five (5) business
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FCC 94-61 Federal Communications Commission Record 9 FCC Red No. 11
days after the Commission has declared competitive bid 
ding closed, the bidder will be deemed to have defaulted, 
its application will be dismissed, and it will be liable for 
the default penalty specified in  1.2104(g)(2). In such 
event, the Commission may either re-auction the license to 
existing or new applicants or offer it to the other highest 
bidders (in descending order) at their final bids. The down 
payment obligations set forth in  1.2107(b) will apply.
(c) A winning bidder who is found unqualified to be a 
licensee, fails to remit the balance of its winning bid in a 
timely manner, or defaults or is disqualified for any reason 
after having made the required down payment, will be 
deemed to have defaulted and will be liable for the penalty 
set forth in  1.2104(g)(2). In such event, the Commission 
will conduct another auction for the license, affording new 
parties an opportunity to file applications for the license.
(d) Bidders who are found to have violated the antitrust 
laws or the Commission's rules in connection with their 
participation in the competitive bidding process may be 
subject, in addition to any other applicable sanctions, to 
forfeiture of their upfront payment, down payment or full 
bid amount, and may be prohibited from participating in 
future auctions.
 1.2110 Designated Entities
(a) Designated entities are small businesses, businesses 
owned by members of minority groups and/or women, and 
rural telephone companies.
(b) Definitions.
(1) Small businesses. Unless otherwise provided in 
rules governing specific services, a small business is 
an entity that, together with its affiliates, has no more 
than a $6 million net worth and, after federal income 
taxes (excluding any carry over losses), has no more 
than $2 million in annual profits each year for the 
previous two years.
(2) Businesses owned by members of minority groups 
and/or women. A business owned by members of 
minority groups and/or women is one in which mi 
norities and/or women who are U.S. citizens have at 
least 50.1 percent equity ownership and 50.1 percent 
controlling interest in the applicant. For applicants 
that are limited partnerships, the general partner 
must be a minority and/or woman who is a U.S. 
citizen (or an entity 100 percent owned by minorities 
and/or women who are U.S. citizens) that owns at 
least 50.1 percent of the partnership equity. The in 
terests of minorities and women are to be calculated 
on a fully-diluted basis: agreements such as stock 
options and convertible debentures shall be consid 
ered to have a present effect on the power to control 
an entity and shall be treated as if the rights there 
under already have been fully exercised. However, 
upon a demonstration that options or conversion 
rights held by non-controlling principals will not 
deprive the minority and female principals of a sub 
stantial financial stake in the venture or impair their 
rights to control the designated entity, a designated 
entity may seek a waiver of the requirement that the 
equity of the minority and female principals must be 
calculated on a fully-diluted basis. The term minority
includes individuals of African American, Hispanic- 
surnamed, American Eskimo, Aleut, American In 
dian and Asian American extraction.
(3) Rural telephone companies. A rural telephone 
company is an independently owned and operated 
local exchange carrier with 50,000 access lines or 
fewer, and serving communities with 10,000 or fewer 
inhabitants.
(c) The Commission may set aside specific licenses for 
which only eligible designated entities, as specified by the 
Commission, may bid.
(d) The Commission may permit small businesses, in 
cluding small businesses owned by women and minorities 
and rural telephone companies that qualify as small 
businesses, that are high bidders for licenses specified by 
the Commission, to pay the full amount of their high bids 
in installments over the term of their licenses pursuant to 
the following:
(1) Unless otherwise specified, each eligible applicant 
paying for its license(s) on an installment basis must 
deposit by wire transfer or cashier's check in the 
manner specified in  1.2107(b) sufficient additional 
funds as are necessary to bring its total deposits to ten 
(10) percent of its winning bid(s) within five (5) 
business days after the Commission has declared it 
the winning bidder and closed the bidding. Failure to 
remit the required payment will make the bidder 
liable to pay penalties pursuant to  1.2104(g)(2).
(2) Within five (5) business days of the grant of the 
license application of a winning bidder eligible for 
installment payments, the licensee shall pay another 
ten (10) percent of the high bid. thereby commenc 
ing the eligible licensee's installment payment plan. 
Failure to remit the required payment will make the 
bidder liable to pay penalties pursuant to  
1.2104(g)(2).
(3) Upon grant of the license, the Commission will 
notify each eligible licensee of the terms of its install 
ment payment plan. Such plans will:
(i) impose interest based on the rate of 
U.S. Treasury obligations (with 
maturities closest to the duration of the 
license term) at the time of licensing;
(ii) allow installment payments for the 
full license term:
(iii) begin with interest-only payments 
for the first two years: and
(iv) amortize principal and interest over 
the remaining term of the license.
(4) A license granted to an eligible entity that elects 
installment payments shall be conditioned upon the 
full and timely performance of the licensee's pay 
ment obligations under the installment plan.
(i) If an eligible entity making install 
ment payments is more than ninety (90) 
days delinquent in any payment, it shall 
be in default.
(ii) Upon default or in anticipation of 
default of one or more installment pay 
ments, a licensee may request that the
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Commission permit a three to six month 
grace period, during which no install 
ment payments need be made. In consid 
ering whether to grant a request for a 
grace period, the Commission may con 
sider, among other things, the licensee's 
payment history, including whether the 
licensee has defaulted before, how far 
into the license term the default occurs, 
the reasons for default, whether the li 
censee has met construction build-out re 
quirements, the licensee's financial 
condition, and whether the licensee is 
seeking a buyer under an authorized dis 
tress sale policy. If the Commission 
grants a request for a grace period, or 
otherwise approves a restructured pay 
ment schedule, interest will continue to 
accrue and will be amortized over the 
remaining term of the license.
(iii) Following expiration of any grace 
period without successful resumption of 
payment or upon denial of a grace pe 
riod request, or upon default with no 
such request submitted, the license will 
automatically cancel and the Commis 
sion will initiate debt collection proce 
dures pursuant to Part 1, Subpart O of 
the Commission's Rules.
(e) The Commission may award bidding credits (i.e., pay 
ment discounts) to eligible designated'entities.
(1) Competitive bidding rules applicable to individual 
services will specify the designated entities eligible for 
bidding credits, the licenses for which bidding credits 
are available, the amounts of bidding credits and 
other procedures.
(2) Any bidding credit for rural telephone companies 
will be available only for licenses in rural telephone 
company service areas and only if eligible rural tele 
phone companies make an infrastructure build-out 
commitment beyond any standard performance re 
quirement. The amount of the bidding credit for 
rural telephone companies will be based on the 
amount by which eligible applicants agree to expand 
or accelerate the build-out commitment. If a rural 
telephone company fails to meet an accelerated or 
expanded build-out commitment, it must make pay 
ment to the Commission within ninety (90) days of a 
penalty equal to the amount of the bidding credit. 
Grant of the license will be conditioned upon pay 
ment of this penalty if and when it becomes ap 
plicable.
(f) The Commission may offer designated entities a 
combination of the available preferences or additional pref 
erences.
 1.2111 Assignment or transfer of control: unjust enrich 
ment
(a) Reporting requirement. An applicant seeking approval 
for a transfer of control or assignment (otherwise permitted 
under the Commission's Rules) of a license within three 
years of receiving a new license through a competitive 
bidding procedure must, together with its application for
transfer of control or assignment, file with the Commission 
a statement indicating that its license was obtained through 
competitive bidding. Such applicant must also file with the 
Commission the associated contracts for sale, option agree 
ments, management agreements, or other documents dis 
closing the total consideration that the applicant would 
receive in return for the transfer or assignment of its 
license. This information should include not only a mone 
tary purchase price, but also any future, contingent, in- 
kind, or other consideration (e.g., management or 
consulting contracts either with or without an option to 
purchase; below market financing).
(b) Unjust enrichment payment: set-asides. As specified in 
this subsection, an applicant seeking approval for a transfer 
of control or assignment (otherwise permitted under the 
Commission's Rules) of a license acquired by the transferor 
or assignor pursuant to a set-aside for eligible designated 
entities under  1.2110(c) of the Commission's Rules, or 
who proposes to take any other action relating to owner 
ship or control that will result in loss of status as an 
eligible designated entity, must seek Commission approval 
and may be required to make an unjust enrichment pay 
ment (Payment) to the Commission by cashier's check or 
wire transfer before consent will be granted. The Payment 
will be based upon a schedule that will take account of the 
term of the license, any applicable construction bench 
marks, and the estimated value of the set-aside benefit, 
which will be calculated as the difference between the 
amount paid by the designated entity for the license and 
the value of a comparable non-set-aside license in the free 
market at the time of the auction. The Commission will 
establish the amount of the Payment and the burden will 
be on the applicants to disprove this amount. No Payment 
will be required if:
(1) the license is transferred or assigned more than 
five years after its initial issuance; or
(2) the proposed transferee or assignee is an eligible 
designated entity under  1.2110(c) of the Commis 
sion's Rules, and so certifies.
(c) Unjust enrichment payment: installment financing. An 
applicant seeking approval for a transfer of control or 
assignment (otherwise permitted under the Commission's 
Rules) of a license acquired by the transferor or assignor 
through a competitive bidding procedure utilizing install 
ment financing available to designated entities under  
1.2110(d) of the Rules will be required to pay the full 
amount of the remaining principal balance as a condition 
of the license transfer. No payment will be required if the 
proposed transferee or assignee assumes the installment 
payment obligations of the transferor or assignor, and if the 
proposed transferee or assignee is itself qualified to obtain 
installment financing under  1.2110(d) of the Rules, and 
so certifies.
(d) Unjust enrichment payment: bidding credits. An ap 
plicant seeking approval for a transfer of control or assign 
ment (otherwise permitted under the Commission's Rules) 
of a license acquired by the transferor or assignor through 
a competitive bidding procedure utilitizing bidding credits 
available to eligible designated entities under  1.2110(e) of 
the Rules, or who proposes to take any other action relat 
ing to ownership or control that will result in loss of status 
as an eligible designated entity, must seek Commission 
approval and will be required to make an unjust enrich-
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FCC 94-61 Federal Communications Commission Record 9 FCC Red NO. n
ment payment (Payment) to the government by wire trans 
fer or cashier's check before consent will be granted. The 
Payment will be the sum of the amount of the bidding 
credit plus interest at the rate applicable for installment 
financing in effect at the time the license was awarded. See 
 1.2110(e). No payment will be required if:
(1) the proposed transferee or assignee is an eligible 
designated entity under  1.2110(e) of the Commis 
sion's Rules, and so certifies; or
(2) the proposed transferor or assignor is a rural 
telephone company as defined in  1.2110(b)(3) of 
the Rules, and the proposed transferee or assignee is 
also a rural telephone company and agrees to meet 
the same construction requirements as the transferor 
or assignor.
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