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Before the
               Federal Communications Commission
                     Washington, D.C. 20554
In the Matter of
Amendment of Part 1 of the Commission's
Rules   Competitive Bidding Procedures
)
)
)
)
WT Docket No. 97-82
    ORDER ON RECONSIDERATION OF THE THIRD REPORT AND ORDER,
                    FIFTH REPORT AND ORDER,
       AND FOURTH FURTHER NOTICE OF PROPOSED RULE MAKING
Adopted:  July 27, 2000                 Released:  August 14, 2000
Comment Date:  45 days after publication in the Federal Register
Reply Comment Date:  66 days after publication in the Federal Register
By the Commission:
                       TABLE OF CONTENTS
                                                      Paragraph
I.   Overview. . . . . . . . . . . . . . . . . . . . . . . . . 1
II.                                                           Executive Summary. 3
III. Order on Reconsideration of the Third Report and Order. . 6
  A.                                                          Introduction . . . 6
  B. Clarification of Prohibition on Collusion . . . . . . . . 7
  C. Clarification of Section 1.2112 . . . . . . . . . . . . . 9
  D.                                                          Computation of Bid Withdrawal Payments Under Section 1.2104 . .13
  E.                                                          Installment Payment Grace Periods and Imposition of Late Payment Fees. . 16
  F.                                                          Installment Payment Restructuring . . . . . . . . . . . . . . .29
  G.                                                          Installment Payment Obligations Under Assignments
     of Licenses and Transfers of Control. . . . . . . . . . .31
  H.                                                          Clarification of Unjust Enrichment Rules. . . . . . . . . . . .34
  I.                                                          Inapplicability of Section 1.2104 to Installment Payment Defaults. . . . 38
  J.                                                          Eligibility for Participation . . . . . . . . . . . . . . . . .40
IV. Fifth Report and Order . . . . . . . . . . . . . . . . . .44
  A.                                                          Introduction . . .44
          . . . . . . . . . . . . . . . . . . . . . . . . . . B.
          . . . . . . . . . . . . . . . . . . . . . . . . . . Rules
          Governing Designated Entities . . . . . . . . . . . 45
               1.                                           Designated Entities
               45
               2.                                           Rural Telephone Company Provisions
               51
               3.                                           Installment Payments
               54
               4.                                           Attribution of Gross Revenues of Investors and Affiliates
               58
          . . . . . . . . . . . . . . . . . . . . . . . . . . C.
          . . . . . . . . . . . . . . . . . . . . . . . . . .
          Default Payments. . . . . . . . . . . . . . . . . . 68
            . . . . . . . . . . . . . . . . . . . . . . . . . D.
          . . . . . . . . . . . . . . . . . . . . . . . . . .
          Administrative Filing Periods for Applications and Petitions to Deny   . . 74
  E.                                                          Conclusion . 78
     V.                                                     Fourth Further Notice of Proposed Rule Making
     79
  A.                                                          Introduction 79
  B.                                                          Rules Governing Designated Entities . 80
               1.                                           Total Assets Test
               80
               . . . . . . . . . . . . . . . . . . . . . . . .
               . . . . . . . . . . . . . . . . . . . . . . . .
               . . . . . . . . . . . . . . . . . . . . . . . .2.
               . . . . . . . . . . . . . . . . . . . . . . . .
               Attribution of Gross Revenues or Total Assets
               . . . . . . . . . . . . . . . . . . . . . . . .
               . . . . . . . . . . . . . . . . . . . . . . . .
               . . . . . . . . . . . . . . . . . . . . . . . .
               . . . . . . . . . . . . . . . . . . . . . . . .of
               Investors and Affiliates. . . . . . . . . . . .82
     VI.  Procedural Matters and Ordering Clauses
     89
APPENDIX A:    Final Rules
APPENDIX B:    List of Parties
APPENDIX C:    Supplemental Final Regulatory Flexibility Analysis
APPENDIX D:    Final Regulatory Flexibility Analysis
APPENDIX E:    Initial Regulatory Flexibility Analysis
     I.   OVERVIEW
     1.   This Order on Reconsideration of the Third Report and Order, Fifth Report and Order, and
Fourth Further Notice of Proposed Rule Making ("Order on Reconsideration," "Fifth Report and Order"
and "Fourth Notice") clarifies and amends our general competitive bidding rules for all auctionable
services.  These modifications are intended to increase the efficiency of the competitive bidding process
and provide more specific guidance to auction participants.  In the past, the Commission adopted separate
competitive bidding rules for each auctionable service.  This rule making is part of our ongoing effort to
establish a uniform and streamlined set of general competitive bidding rules for all auctionable services and
to reduce the burden on both the Commission and the public of conducting service-specific auction rule
makings.
     2.   In 1994, in implementing the Omnibus Budget Reconciliation Act of 1993, the Commission
prescribed certain general competitive bidding rules and procedures, indicating that it would use these
general rules and procedures as a basis for adopting specific competitive bidding rules for each auctionable
service.  In 1997, after completing 15 spectrum auctions and adopting service-specific bidding rules for
each such auction, we initiated a proceeding to expand the general competitive bidding rules, contained in
Part 1, Subpart Q of our rules, and replace any inconsistent or repetitive service-specific auction rules.  The
most recent comprehensive order in this proceeding was the Third Report and Order and Second Further
Notice of Proposed Rule Making ("Part 1 Third Report and Order" and "Second Notice").  In this Order on
Reconsideration, we address petitions for reconsideration and comments filed in response to the Part 1
Third Report and Order.  The Fifth Report and Order addresses comments filed in response to the Second
Notice, and the Fourth Notice adopted herein seeks comment on additional proposals relating to the general
competitive bidding rules.
     II.  EXECUTIVE SUMMARY
     3.   In this Order on Reconsideration we:
       Amend Section 1.2105(c)(1) of our rules to clarify that the prohibition on collusion begins on the
filing deadline for short-form applications and ends on the down payment deadline.
       Clarify and correct the ownership disclosure requirements contained in Section 1.2112 of our
rules.  In particular, with respect to entities not seeking designated entity status, we eliminate the
requirement to include debt and instruments such as warrants, convertible debentures, options and other
debt interests in reporting their ownership interests.
       Amend Section 1.2104(g)(1) of our rules to clarify that in the case of multiple bid withdrawals
on a single license, within the same or subsequent auction(s), the payment for each bid withdrawal will be
calculated based on the sequence of bid withdrawals and the amounts withdrawn.  We further clarify that
no withdrawal payment will be assessed for a withdrawn bid if either the subsequent winning bid or any of
the intervening subsequent withdrawn bids, in either the same or subsequent auction(s), equals or exceeds
that withdrawn bid.  In addition, we amend Section 1.2104(g)(1) of our rules to provide that in instances in
which bids have been withdrawn on a license that is not won in the same auction, the Commission will
assess an interim withdrawal payment equal to 3 percent of the amount of the bid withdrawals.
       Retain, for the most part, the installment payment grace period and late payment fee provisions
adopted in the Part 1 Third Report and Order, but adopt a slight modification to the payment due dates for
late installment payments and associated late fees.
       Clarify that licensees continue to have the opportunity to seek restructuring of installment
payments.  There is, however, no longer a procedure for requesting a grace period to stay installment
payment deadlines pending such restructuring.  Rather, licensees will be subject to the automatic late
payment provisions of Section 1.2110(g) as adopted herein.
       Clarify that the assignee or transferee of a license paid for through installment payments is not
responsible for the license debt until the assignment of license or transfer of control has been consummated.
       Clarify that the unjust enrichment rules for bidding credits (Section 1.2111(d) of the
Commission's rules) do not apply to assignments or transfers of C and F block licenses to non-
entrepreneurs.  We further clarify that pursuant to Sections 1.2111(c) and (d) of our rules, Commission
approval of assignments of licenses and transfers of control that result in unjust enrichment with respect to
bidding credits and installment payments is conditioned upon full payment of the required unjust
enrichment payments on or before the consummation date.
       Clarify that licensees defaulting on installment payments are subject to the default provisions of
Section 1.2110(f)(4) of our rules (redesignated herein as Section 1.2110(g)(4)), and not to Section
1.2104(g).
       Incorporate into the Part 1 general competitive bidding rules the "former defaulter" policies
adopted with respect to C block auction applicants.  Specifically, we: (1) allow "former defaulters," i.e.,
applicants that have defaulted or been delinquent in the past, but have since paid all of their outstanding
non-tax debts and all associated charges or penalties, to certify on FCC Form 175 that they are not in default
and are, therefore, eligible for auction participation; and (2) require "former defaulters" to pay an upfront
payment amount of 1.5 times the normal amount set by the Bureau for any given license in a Commission
auction.
       Clarify that licensees defaulting on installment payments will be permitted to participate in future
Commission spectrum auctions if they have either (1) paid all of their outstanding non-tax debt, along with
all associated charges and penalties; or (2) been relieved of such obligations pursuant to otherwise
applicable law.  In all instances, installment payment defaulters eligible to participate in future auctions will
be required to pay an upfront payment amount of 1.5 times the normal amount set by the Bureau for any
given license in a Commission auction to assure their future financial soundness.
     4.   In this Fifth Report and Order we:
       Decline, at this time, to adopt special provisions for minority- and women-owned businesses
pending completion of a series of market studies to determine whether, and under what circumstances,
targeted preferences for minorities and women are appropriate.  We note, however, that minority- and
women-owned businesses that qualify as small businesses may take advantage of the provisions we have
adopted for small businesses.
       Decline, at this time, to adopt special provisions for rural telephone companies, such as
bidding preferences or an unserved area fill-in policy.  We note, however, that we will continue to
provide rural telephone companies with bidding credits should such entities qualify as small businesses.
       Adhere to our previous decision to suspend the installment payment program.  We will,
however, continue to provide small businesses with bidding credits as we have done in auctions for a
number of services, e.g., the Local Multipoint Distribution Service ("LMDS"), Location and Monitoring
Service ("LMS"), 220 MHz and VHF Public Coast services.
       Adopt as our general attribution rule a controlling interest standard for determining which
applicants qualify as small businesses.  Under this standard, we will attribute to the applicant the gross
revenues of its controlling interests and their affiliates in assessing whether the applicant qualifies for our
small business provisions, such as bidding credits.  We do not adopt a minimum equity threshold.
Rather, applicants will be required to identify controlling interests based on the principles of either de
jure or de facto control.  Current C and F block licensees will continue to be eligible to hold their
licenses regardless of whether or not they would qualify under the newly established attribution rules
adopted herein.  As to future C and F block auctions, however, all applicants, including existing C and F
block licensees, will be subject to the attribution rules in effect at the time of filing their short-form
applications.
       Maintain our rule of calculating default payment amounts on a license-by-license basis and
implement the Balanced Budget Act provisions regarding administrative filing periods as set forth below.
       Delegate to the Wireless Telecommunications Bureau the authority to make any revisions to
the Code of Federal Regulations that are necessary to conform the service-specific auction rules to the
Part 1 general competitive bidding rules.
     5.   In this Fourth Notice we:
       Seek comment on whether to use a total assets test in conjunction with the gross revenues
measure already employed to determine business size.
       Seek comment on proposed exceptions to the requirement in the Part 1 attribution rules that
certain stock interests be calculated on a "fully diluted" basis.
     III. ORDER ON RECONSIDERATION OF THE THIRD REPORT AND ORDER
A.  Introduction
     6.   In response to the Part 1 Third Report and Order, we received seven petitions for
reconsideration and two comments in support of the petitions for reconsideration.  The petitioners raise
various issues regarding installment payments for auction-won licenses.  For the reasons discussed below,
we clarify certain rules at petitioners' request and dismiss or deny these petitions in all other respects.
Further, we address comments filed in response to the ULS Notice that relate to aspects of our auction
rules.  In addition, we take this opportunity to clarify, on our own motion, certain aspects of the Part 1
Third Report and Order.
B.  Clarification of Prohibition on Collusion
     7.   Background.  Section 1.2105(c)(1) of the Commission's rules generally prohibits collusion
between competing bidders from "after the filing of short-form applications . . . until after the high bidder
makes the required down payment . . . ."  Our bidder information packages generally state that "[t]his
prohibition begins with the filing of short-form applications, and ends on the down payment due date."
Our Public Notices specifically provide that the collusion prohibition becomes effective on the "filing
deadline of short-form applications" and ends on the "post-auction down payment due date."  To avoid any
confusion regarding when the prohibition on collusion begins and ends, we believe it is necessary to amend
Section 1.2105(c)(1) of our rules.
     8.   Discussion.  On our own motion, we amend Section 1.2105(c)(1) of our rules to provide
that applicants are prohibited from communicating with each other about bids, bidding strategies, or
settlements from "after the short-form application filing deadline . . . until after the down payment deadline
. . . ."  This rule change makes clear that competing bidders may not engage in communications prohibited
by the rule from the date that short-form applications are due to the Commission until after the down
payment deadline has passed.  The amendment affirms that there is a uniform date for all bidders on which
restrictions on communications begin and end.  Our clarification conforms Section 1.2105(c)(1) to our
practice of applying the collusion prohibition to applicants beginning on the due date for the submission of
short-form applications.  In addition, it is consistent with our policy of not permitting individual bidders to
abbreviate the period during which the collusion prohibition is in effect by submitting down payments prior
to the down payment due date.
C.  Clarification of Section 1.2112
     9.   Background.  In the Part 1 Third Report and Order, we concluded that detailed ownership
information is necessary to ensure that applicants claiming designated entity status qualify for such status
and that all applicants comply with spectrum caps and other ownership limits.  We also stated that
disclosure of ownership information helps bidders identify entities that are subject to our anti-collusion
rules.  To these ends, we promulgated Section 1.2112, based on our broadband PCS rules, to serve as a
uniform ownership disclosure rule for all auctionable services.
     10.  Discussion.  Because a number of applicants in the Phase II 220 MHz auction found
Section 1.2112 confusing, we have decided, on reconsideration, to reorganize the rule in a more logical,
straightforward manner.  We first revise Section 1.2112(b)(1) to use the term "controlling interest" to
describe the parties whose connection or relationship with another FCC-regulated business must be reported
under (b)(1).  Then, because identification of controlling interests is significant only for applicants
claiming designated entity status, we include those reporting requirements related to such status in
paragraph (b), which applies only to applicants claiming eligibility for small business provisions.  We also
correct the rule to indicate that gross revenues must be reported not only on the long-form application, but
also on the short-form application.
     11.  In addition, we correct Section 1.2112(a)(3) in which we used language that was overly
broad.  Section 1.2112(a)(3) states erroneously that an applicant must provide: "[a] list of any party holding
a 10 percent or greater interest in any entity holding or applying for any FCC-regulated business in which
a 10 percent or more interest is held by another party which holds a 10 percent or more interest in the
applicant."  This language has the unintended effect of requiring the reporting of parties with a distant
relationship to the applicant.  Section 1.2112(a)(3), however, also provides the following example: "If
Company A owns 10 percent of Company B (the applicant) and 10 percent of Company C then Companies
A and C must be listed on Company B's application."  The rule's example accurately reflects which parties
we intended the applicant to report.  That is, when a company (Company A) that must be reported under the
rule because of its ownership interest in the applicant (Company B) also owns at least 10 percent of another
company that is an FCC-licensed entity or applicant for an FCC license (Company C), Company C must be
reported.  Our intent was to require that FCC-regulated entities be reported when there is a connection
between such an entity and the applicant at issue through a common owner.  We therefore amend Section
1.2112 to better reflect our intent and comport with the example provided in the rule.  In addition, we
amend Section 1.2112 to require applicants to disclose, in the case of a limited liability company, only those
members that hold a 10 percent or greater interest in the applicant.  Section 1.2112(a)(8), as adopted in the
Part 1 Third Report and Order, required applicants to disclose all members of a limited liability company,
regardless of their ownership interest in the applicant.  We now revise the disclosure requirement pertaining
to limited liability companies to be consistent with those regarding limited partnerships.  Finally, we change
other aspects of the sequencing so that the revised rule begins by seeking general information in Sections
1.2112(a)(1) through (a)(4) and becomes progressively more detailed in (a)(5) and (a)(6).  This "building
block" approach is intended to provide applicants with a clearer understanding regarding the information
that must be disclosed.
     12.  We also take this opportunity to address relevant comments that were filed separately in
response to the ULS Notice.  In their comments on the ULS Notice, AT&T, BAM, and FCBA object to the
breadth of information collected in Section 1.2112.  In particular, they argue that the requirement to
identify direct and indirect owners with an interest of 10 percent or greater is burdensome and overly
broad.  We disagree.  We believe that the 10 percent reporting requirement helps competing bidders
accurately assess the legitimacy of their auction opponents and their respective bids.  As discussed in the
Part 1 Third Report and Order, the collection of detailed ownership information is necessary for ensuring
compliance with ownership limits, such as spectrum caps.  Disclosure of ownership information also aids
bidders by providing them with information about their auction competitors and alerting them to entities
subject to our anti-collusion rules.  We agree with commenters, however, that Section 1.2112 could be less
burdensome in certain regards.  Therefore, except for entities claiming special eligibility or designated
entity status, we will not require applicants to include information regarding warrants, convertible
debentures, stock options, debt securities or other debt interests as part of the 10 percent reporting
requirement unless and until conversion of such interests is effected.  Generally, the Commission has not
included such interests in calculating ownership interests under rules establishing various ownership limits.
We agree with FCBA and AT&T that the current reporting burden imposed on applicants may exceed the
benefit of requiring disclosure of these interests.  We continue to believe, however, that in calculating
ownership interests for the purpose of determining designated entity status and eligibility for bidding
credits, warrants, convertible debentures, options and other debt interests must be treated as having been
exercised and must be reported as part of the applicant's disclosure.  In the case of applicants seeking
special eligibility or designated entity status, the Commission has traditionally treated these interests as
being fully diluted because it is reaching determinations regarding the bona fide nature of the applicant.
Thus, we agree with AT&T that it is reasonable for the Commission to require more ownership information
from these entities where such information is designed to show that the special eligibility and/or bidding
credit is both legitimate and warranted.
D.  Computation of Bid Withdrawal Payments Under Section 1.2104
     13.  Background.  Section 1.2104(g)(1) of the Commission's rules sets forth the payment
obligations of a bidder that withdraws a high bid on a license during the course of an auction.  Specifically,
it provides that a bidder that withdraws a standing high bid is subject to a payment equal to the difference
between the amount of the withdrawn bid and the amount of the subsequent winning bid the next time the
license is offered by the Commission.  As the auctions program has evolved, however, the Commission has
encountered situations involving multiple bid withdrawals on a single license, which are not specifically
addressed by Section 1.2104(g)(1) of the Commission's rules.  We, therefore, believe it is necessary to
broaden our rule to clarify its application to this particular contingency.  In addition, we wish to modify
Section 1.2104(g)(1) to more specifically articulate our policy of assessing interim bid withdrawal
payments.
     14.  Discussion.  On our own motion, we clarify a policy that the Bureau has relied on in the
past.  If a bidder withdraws its bid and there is no higher bid in the same or subsequent auction(s), the
bidder that withdrew its bid is responsible for the difference between its withdrawn bid and the net high bid
in the same or subsequent auction(s).  In the case of multiple bid withdrawals on a single license, within the
same or subsequent auction(s), the payment for each bid withdrawal will be calculated based on the
sequence of bid withdrawals and the amounts withdrawn.  No withdrawal payment will be assessed for a
withdrawn bid if either the subsequent winning bid or any of the intervening subsequent withdrawn bids, in
either the same or subsequent auction(s), equals or exceeds that withdrawn bid.  Thus, a bidder that
withdraws a bid will not be responsible for any withdrawal payments if there is a subsequent higher bid in
the same or subsequent auction(s).  This policy allows bidders to most efficiently allocate their resources as
well as to evaluate their bidding strategies and business plans during an auction while, at the same time,
maintaining the integrity of the auction process.  The Bureau retains the discretion to scrutinize multiple bid
withdrawals on a single license for evidence of anti-competitive strategic behavior and take appropriate
action when deemed necessary.
     15.  We also wish to modify Section 1.2104(g)(1) of our rules to state more specifically our
policy of assessing interim bid withdrawal payments.  We amend Section 1.2104(g)(1) to provide that in
instances in which bids have been withdrawn on a license that is not won in the same auction, the
Commission will assess an interim withdrawal payment equal to 3 percent of the amount of the bid
withdrawals.  The 3 percent interim payment will be applied toward any final bid withdrawal payment that
will be assessed at the close of the subsequent auction of the license.  Assessing an interim bid withdrawal
payment ensures that the Commission receives a minimal withdrawal payment pending assessment of any
final withdrawal payment.  Below are some examples showing application of the bid withdrawal payment
rule:
          (1)  Bidder A withdraws a bid of $100.  Subsequently, Bidder B places a bid of $90 and
     withdraws.  In that same auction, Bidder C wins the license at a bid of $95.  Withdrawal
     payments are assessed as follows: Bidder A owes $5 ($100 - $95). Bidder B owes nothing.
          (2)  Bidder A withdraws a bid of $100.  Subsequently, Bidder B places a bid of $95 and
     withdraws.  In that same auction, Bidder C wins the license at a bid of $90.  Withdrawal
     payments are assessed as follows: Bidder A owes $5 ($100 - $95).  Bidder B owes $5 ($95
     - $90).
          (3)  Bidder A withdraws a bid of $100.  Subsequently, in that same auction, Bidder B
     places a bid of $90 and withdraws.  In a subsequent auction, Bidder C places a bid of $95
     and withdraws.  Bidder D wins the license in that auction at a bid of $80.  Withdrawal
     payments are assessed as follows: At the end of the first auction, Bidder A and Bidder B
     are each assessed an interim withdrawal payment equal to 3 percent of their withdrawn bids
     pending Commission assessment of a final withdrawal payment (Bidder A would owe 3%
     of $100, or $3, and Bidder B would owe 3% of $90, or $2.70).  At the end of the second
     auction, Bidder A would owe $5 ($100 - $95) less the $3 interim withdrawal payment for
     a total of $2.  Because Bidder C placed a subsequent bid that was higher than Bidder B's
     $90 bid, Bidder B would owe nothing.  Bidder C would owe $15 ($95 - $80).
 E.  Installment Payment Grace Periods and Imposition of Late Payment Fees
     16.  Background.  The installment payment rules, adopted in the Competitive Bidding Second
Report and Order, permitted a licensee to make an installment payment up to 90 days after the due date
without a late payment charge and without being considered in default.  A licensee whose installment
payment was more than 90 days past due, however, was in default, unless a "grace period" request was filed
prior to the payment due date.  Specifically, in anticipation of default on one or more installment payments,
a licensee could request that the Commission grant a three to six month grace period during which no
installment payments need be made.  The licensee would not be declared in default during the pendency of
such request.  Grant of the request would result in the licensee not being considered in default during the
grace period, and the interest that accrued while no payments were made would be amortized over the
remaining term of the license.  Following the expiration of any grace period without successful resumption
of payment, or upon denial of a grace period request, or default with no such request submitted, the license
would cancel automatically.
     17.  In the Part 1 Third Report and Order, we modified the grace period provisions as applied
to all licensees participating in an installment payment plan at that time.  These provisions took effect on
March 16, 1998, 60 days after their publication in the Federal Register.  Thus, beginning with installment
payments due on or after March 16, 1998, a licensee that did not make an installment payment when due
automatically had an additional 90 days in which to submit its required payment without being considered
delinquent, but was assessed a late payment fee equal to 5 percent of the amount of the past due installment
payment.  If the licensee failed to make the required payment within the first 90-day period, the licensee
was automatically provided a subsequent 90 days to submit its required payment without being considered
delinquent, this time subject to a second, additional late payment fee equal to 10 percent of the amount of
the past due installment payment.  The licensee was not required to submit a request to take advantage of
these provisions.  A licensee that failed to make payment within 180 days after an installment payment due
date sufficient to pay all past due late payment fees, interest, and principal, was deemed to have failed to
make full payment of its obligation and the license was automatically cancelled without further
Commission action.  The late payment fee and automatic cancellation provisions described above did not
apply to licensees with grace period requests that were properly filed prior to the effective date of the Part
1 Third Report and Order until such time as the Commission (or the Bureau upon delegated authority)
addressed these grace period requests.
     18.  Discussion.  All petitioners oppose some aspect of the modified provisions relating to the
submission of late installment payments.  Specifically, Alpine PCS and CONXUS seek repeal of the rules
requiring late payment fees; DiGiPH and Houston 936 object to the imposition of late payment fees and
request that the Commission retain the 90-day non-delinquency period with no late fee imposed;
NextWave proffers a 270-day late payment window consisting of a 90-day non-delinquency period,
followed by two automatic 90-day periods in which a monthly late payment fee would apply; and CTI and
Loli request that the Commission allow licensees in the 218-219 MHz Service (formerly, Interactive Video
and Data Service) to continue submitting grace period requests.  In challenging the modified late payment
provisions, petitioners generally argue that: (1) they are unfair, punitive, and commercially unreasonable;
(2) they constitute impermissible retroactive rulemaking as applied to licensees currently participating in
the installment payment plan; and (3) they violate basic contract principles.  We address each of these
arguments in turn.
     19.  While installment payments must be timely, the Commission's grace period provisions
provide limited relief for entities that find themselves in financial distress.  Petitioners claim that the
revised late payment provisions are unfair because, in determining auction and construction strategies,
petitioners had relied on the availability of a 90-day non-delinquency period and deferral of payment
obligations while grace period requests remained pending.  The Commission's late payment provisions,
however, were not intended to serve as a tool that licensees might use in their normal course of planning
auction strategy and build-out.  These provisions are provided for extraordinary circumstances -- instances
of financial distress -- for which temporary relief is appropriate.  Petitioners' assertions of reliance on such
provisions for any other purpose are misplaced.  Petitioners also claim that it is punitive and commercially
unreasonable to impose the same late payment fee amount whether the payment arrives one day late or
ninety days late.  We disagree.  Our fundamental goal in adopting the late payment provisions is to
encourage payment by the due date.  Achievement of this goal is best attainable by adhering to the 5 percent
and 10 percent late payment fee schedule we have adopted.  A prorated approach towards late fees could
serve as a disincentive to licensees to pay on time and, thereby, undermine achievement of our basic goal.
As we stated in the Part 1 Third Report and Order, our "approach is consistent with the standard
commercial practice of establishing late payment fees and developing financial incentives for licensees to
resolve capital issues before payment due dates."  Further, the approach we have taken is a commercially
reasonable debt management practice used with respect to a variety of debt instruments from credit cards
to mortgages.  Therefore, we disagree with petitioners' claims that the revised late payment provisions are
unfair, punitive, and commercially unreasonable.
     20.  Petitioners also contend that the regulatory changes to the installment payment program
adopted in the Part 1 Third Report and Order are unlawfully retroactive, insofar as they could have an
adverse effect on the previously established installment payment obligations.  For example, CTI claims that
the revised late payment rules unsettle the expectations of licensees that opted to pay for licenses in
installments.  CONXUS argues that a "rule" under the Administrative Procedure Act ("APA") is supposed
to embody "the whole or a part of any agency statement of general or particular applicability and future
effect . . . ."  These arguments do not withstand analysis.
     21.  Our new Part 1 rules do not violate the prohibitions on "primary retroactivity" under the
APA as set forth in Supreme Court cases such as Bowen v. Georgetown Univ. Hospital, 488 U.S. 204
(1988).  We have not, for example, gone back to past transactions and imposed new penalties for conduct
which was previously allowed by our rules.  Rather, the Commission here merely prescribed rules for the
future, i.e., prospective procedures by which licensees remit installment payments after March 16, 1998, the
effective date of the new rules, that deal with past transactions, i.e., the previously established installment
payment obligations.  Such a rule change does not constitute unlawful retroactive rulemaking under the
APA.
     22.  Further, the fact that the new rules may unsettle expectations about the economic benefits
of participating in the installment payment plan does not make the new rules unlawfully retroactive.  In that
regard, the U.S. Court of Appeals for the D.C. Circuit has explained: "[A] new rule or law is not retroactive
'merely because it . . . upsets expectations based on prior law.'"  This type of "secondary" retroactivity is
an entirely lawful consequence of much agency rulemaking and does not by itself render a rule invalid.
Commission licensees, in particular, have no vested right to an unchanged regulatory scheme throughout
their license term.  Therefore, petitioners' claim that the revised late payment provisions are unlawfully
retroactive fails.
     23.  Finally, petitioners contend that contract law precludes application of the new late payment
procedures to licensees paying for their licenses in installments prior to the effective date of the Part 1
Third Report and Order.  Houston 936, for example, challenges the Commission's elimination of the 90-day
non-delinquency period, which was incorporated as a term of the existing promissory notes executed by 900
MHz Specialized Mobile Radio service (900 MHz SMR) licensees.  CONXUS and CTI argue that adoption
of the new late payment procedures constitutes unilateral modification (i.e., breach) of a contract between
the Commission and the licensees for payment of licenses under specified payment terms even without a
signed promissory note.
     24.  Installment payment programs currently exist in the following services: the 218-219 MHz
Service, broadband Personal Communications Services (PCS) frequency block C, broadband PCS
frequency block F, broadband PCS frequency block A (pioneers' preference licensees only), regional
narrowband PCS, 900 MHz SMR, and the Multipoint Distribution Service (MDS).  For some services
in which we have offered installment payments, far from being punitive and unreasonable, we have
afforded extraordinary relief regarding installment payment obligations.  Specifically, we suspended the
effect of the new late payment provisions as applied to any license in the 218-219 MHz Service for which
a properly filed grace period request was pending or for which adequate installment payments were made
as of March 16, 1998, pending Commission resolution of issues raised in the 218-219 MHz Service Order
and NPRM.  Most recently, we offered restructuring to certain 218-219 MHz Service licensees.  Further,
licensees in the broadband PCS frequency blocks C and F that are participating in the installment payment
program have signed note modifications that incorporate the late payment provisions described in 47 C.F.R.
 1.2110(f)(4) (redesignated herein as 47 C.F.R.  1.2110(g)(4)).  Regarding these licensees, therefore,
there is no conflict between the application of the new late payment procedures and contract law.
     25.  Among the remaining licensees that have benefitted from Commission installment payment
plans, licensees in broadband PCS frequency block A and regional narrowband PCS did not sign separate
loan documents.  The payment terms and conditions with respect to these licenses, therefore, have always
been a matter of Commission regulation through the Part 1 rules.  In this regard, the following language
appears on the licenses themselves: "This authorization is subject to the condition that the remaining
balance of the winning bid amount will be paid in accordance with Part 1 of the Commission's rules, 47
C.F.R. Part 1."  These licensees were aware, or should have been aware, that the terms and conditions of
Part 1 or other aspects of the license can be modified by the Commission by rulemaking, and that such
changes have been uniformly upheld by the courts as lawful.   The Part 1 rules at issue in this proceeding
were modified subject to APA-consistent administrative rulemaking procedures and are intended to provide
greater flexibility to licensees in determining their use of grace periods and late payment provisions.  The
application of our modified late payment provisions does not constitute a breach of contract as argued by
these petitioners.
     26.  Some SMR and MDS licensees argue that the Promissory Note and Security Agreements
executed by these licensees bound the Commission to the rules in place at the time of the license grant.
This is demonstrably incorrect.  The Commission did not promise these licensees, or any other licensees,
that the Part 1 rules would remain unchanged during the license term.  Rather, the Note and Security
Agreement provide that the licensee must comply with "all Commission orders and regulations applicable
to the licensee," without regard to the time in which those applicable rules were promulgated or amended.
The SMR and MDS notes emphasized that the Commission's rules, as amended, would take precedence
over the terms of the notes in case of any conflict.  Moreover, when addressing future events, such as the
making of installment payments, applications for grace periods and incidents of default, the Note and
Security Agreement refer to the "then-applicable" rules of the Commission, a clear reference to the rules
that would be applicable at the time of such events.  Specifically with respect to "grace periods" which were
modified by the revision of Part 1, the SMR and MDS Notes are worded conditionally -- "if any such grace
period or extension of payments is provided for in the then-applicable orders and regulations of the
Commission."  This conditional language confirms that the "then-applicable" grace period rules referred
to in the Note are those rules that may exist at the time in the future when a grace period is sought, and not
necessarily the rules that were in place at the time of the license grant; otherwise, the sentence would not
have been phrased as a contingency, but would have cited whatever grace period rules were in effect at the
time of the Note.  Given these provisions, the last paragraph in the Note -- which states that the Note may
not be changed except by an agreement in writing executed by the party against whom enforcement of such
change is sought -- means that individual modifications to any particular agreement must be made in
writing by mutual consent.  Significantly, however, this clause does not preclude service-wide changes of
the governing rules by the agency's public notice and comment rulemaking process. Specifically, the Payee,
by signing such Note, has already agreed to be bound by the Commission's rules as they may be amended
from time to time in the provisions of the Note and Security Agreement referencing the "then-applicable"
rules of Commission.
 We, therefore, retain the modified grace period and late payment fee provisions adopted in the Part 1 Third
Report and Order.
     27.  As discussed above, we conclude that the revised late payment rules are not commercially
unreasonable, do not constitute impermissible retroactive rulemaking, and do not violate basic contract
principles.  We believe, however, that a slight modification to the payment due dates for late installment
payments and associated late fees would benefit licensees.  Under the Part 1 Third Report and Order,
licensees that miss an installment payment are given up to two 90-day periods in which to submit the
installment payment and associated late fee without being considered delinquent.  Regularly scheduled
installment payments, on the other hand, are due quarterly (i.e., every 3 months), which may provide a
licensee with up to 92 calendar days to make timely payment depending upon the month in which the
payment is due.  This discrepancy in payment due dates may cause confusion for licensees.  For example,
a late installment payment and associated late fee may be due a day or two before the next regularly
scheduled quarterly installment payment.  Because these due dates are so proximate, licensees may
mistakenly assume that they can pay their late installment payment and late fee on the due date of the next
regularly scheduled quarterly installment payment without incurring an additional late payment fee or being
considered delinquent.
     28.  In order to avoid any confusion as to when late installment payments and accompanying
late fees are due, we will amend the due dates for late installment payments to comport with quarterly due
dates.  Specifically, rather than providing licensees that fail to make timely installment payments with two
90-day periods in which to satisfy their payment obligations, we will provide such licensees with two
quarters (two 3-month periods) in which to submit their late installment payments and required late fees
without being considered delinquent.  Thus, due dates for late installment payments and associated late fees
will coincide with quarterly due dates for regularly scheduled installment payments.  Although we modify
the due dates for submitting late installment payments, we do not change the associated late fee provisions.
We, therefore, amend Section 1.2110(f)(4) (redesignated herein as Section 1.2110(g)(4)) of our rules to
provide that a licensee that fails to make an installment payment when due will be permitted to make its
required payment by the end of the next quarter (a 3-month period) without being considered delinquent,
but will be assessed a late payment fee equal to 5 percent of the amount of the past due installment
payment.  If the licensee fails to make the required payment within the first quarter after the regularly
scheduled due date, the licensee will be allowed to make its required payment by the end of the subsequent
quarter without being considered delinquent, this time subject to a second, additional late payment fee equal
to 10 percent of the amount of the past due installment payment.  The licensee is not required to submit a
request to take advantage of these provisions.  A licensee that fails to make payment within two quarters (or
6 months) after an installment payment due date sufficient to pay all past due late payment fees, interest,
and principal, will be deemed to have failed to make full payment of its obligation and, as has been the case
since the inception of our competitive bidding and auction specific installment payment rules, the license
will automatically cancel without further Commission action.
F.  Installment Payment Restructuring
     29.  Background.  In the Competitive Bidding Second Report and Order, the Commission stated
that once it granted a grace period request, "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."  Reference to a restructured payment plan also appeared in the former grace period rule,
Section 1.2110(e)(4)(ii), which permitted licensees to temporarily suspend their installment payments
pending the restructuring of such payment obligations.  In amending Section 1.2110 to be consistent with
our decision in the Part 1 Third Report and Order to revise the late payment provisions and eliminate the
grace payment procedure, we removed language that referred to a restructured payment schedule.
     30.  Discussion.  NextWave objects to the elimination of language in Section 1.2110 referring
to a restructuring of installment payments.  NextWave contends that the Commission eliminated the option
to restructure without providing notice and comment or any rationale for the elimination in violation of the
APA.  By removing language in Section 1.2110(e)(4)(ii) that referenced a restructured payment schedule,
we did not intend to eliminate a licensee's option to request restructuring of its installment payment
obligations.  We simply sought to amend the rule to provide for automatic grace periods rather than
requiring a showing of financial need to support a grace period request.  Licensees in the installment
payment program may still submit requests for payment restructuring or workouts.  There is, however, no
longer a procedure for requesting a grace period to stay installment payment deadlines pending such
restructuring.  Rather, licensees will be subject to the automatic late payment provisions of Section
1.2110(g) as adopted herein.  Because licensees continue to have the opportunity to seek restructuring of
installment payments, the Commission was not required under the APA to seek comment on the elimination
of that option.  Moreover, the reference to a "restructured payment schedule" in Section 1.2110(e)(4)(ii) was
part and parcel of our rule section that provided for individual grace period requests and financial distress
showings.  We proposed to amend that rule section in its entirety and adopt automatic grace periods in the
Part 1 Notice of Proposed Rule Making.  Interested parties could reasonably have anticipated that our
proposal to amend the grace period request rule could result in the amendment of language in that rule
referencing restructuring.  Thus, omitting a reference to a restructured payment schedule is within the
specific scope of the Part 1 Notice of Proposed Rule Making to adopt automatic grace periods and
eliminate the requirement to file financial distress showings and, therefore, is not violative of the APA.
G.   Installment Payment Obligations Under Assignments of Licenses and Transfers of Control
     31.  Background.  The Communications Act of 1934 ("Communications Act"), as amended,
requires the Commission to approve assignments of licenses and transfers of control.  Prior to the adoption
of the Universal Licensing System (ULS) Report and Order, upon approval of an assignment or transfer,
the Bureau amended its licensing database for certain private and microwave services.  If an assignment or
transfer was not consummated, we required the filing of a second transfer application that reflected the
"return" of the license from the putative transferee to the original licensee.  The ULS rules, however, now
require parties to assignments of licenses or transfers of control in all wireless services only to file a notice
that they have consummated the underlying transaction, at which point the Bureau amends its licensing
database.
     32.  Discussion.  In-Sync seeks clarification regarding an assignee's or transferee's responsibility
for installment payment debt in the event of default by an assignor or transferor in cases where the Bureau
amended its database simply upon approval of the assignment or transfer.  Specifically, In-Sync believes
that the assignee or transferee should not be responsible for licensee debt until the transaction is
consummated.  As an initial matter, we emphasize that the consummation date of an assignment of license
or transfer of control governs debt obligations irrespective of the post-consummation notification
requirement.  Therefore, regarding an assignment of license, we clarify that the assignee of a license paid
for through installment payments is not responsible for the license debt until the transaction is
consummated.  As a practical matter, for services where licensees have signed promissory notes (i.e., C
block, F block, MDS and 900 MHz SMR) assignees must execute loan documents and consummation does
not occur until the execution of such documents.  In these instances, the assignee will, of course, be aware
that consummation has occurred.  However, for services where licensees did not sign promissory notes (i.e.,
218-219 MHz, regional narrowband PCS and broadband PCS frequency block A (pioneers' preference
licenses)), if a default occurs prior to consummation, and the Commission mistakenly initiates debt
collection procedures against the assignee that is not the actual licensee, that party should notify the
Commission in writing that the underlying transaction was not consummated and the Commission will
initiate debt collection procedures against the assignor that is the licensee.
     33.  In contrast to an assignment of license, with transfers of control the licensee does not
change and, therefore, remains liable for the debt irrespective of consummation.  In such cases, the
Commission generally looks to the licensee for repayment of the debt.  We recognize, however, that there
may be unusual circumstances in which the Commission might look beyond the licensee for repayment of
the debt, e.g., pierce the corporate veil, and a new party to the licensing entity could become subject to debt
collection at consummation.  We reiterate that the consummation date governs the debt obligations
irrespective of the post-notification requirements.  Therefore, if the Commission inadvertently initiates debt
collection procedures against a party that is not part of the licensing entity because the transfer of control
was not consummated, the party should notify the Commission in writing that the underlying transaction
was not consummated and the Commission will stop its debt collection proceedings against the party that
is not part of the licensing entity.
H.  Clarification of Unjust Enrichment Rules
     34.  Background.  In the Part 1 Third Report and Order, the Commission revised the Part 1
unjust enrichment rules as applied to assignments and transfers of control of licenses acquired using bidding
credits and/or installment payments.  Specifically, if a licensee seeks to assign or transfer control of its
license to an entity not meeting the same eligibility standards for installment payments at any time during
the initial license term, the licensee must make full payment of the remaining unpaid principal and any
unpaid interest accrued through the date of assignment or transfer as a condition of Commission approval.
Similarly, if a licensee seeks to assign or transfer control of its license to an entity not meeting the same
eligibility standards for bidding credits, the licensee must reimburse the government for the amount of the
bidding credit, plus interest based on the rate for United States Treasury obligations applicable on the date
the license is granted, as a condition of Commission approval.  Unlike the unjust enrichment payment for
installment payments, however, the unjust enrichment payment for bidding credits decreases based on the
amount of time the initial license has been held, with no unjust enrichment payment due after the fifth year
of initial licensing.  In making these changes to the unjust enrichment rules in the Part 1 Third Report and
Order, we specifically superseded the existing service-specific unjust enrichment provisions, replacing each
of those rules with a cross-reference to the new Part 1 unjust enrichment rule, 47 C.F.R.  1.2111.
     35.  Discussion.  NextWave seeks clarification regarding the application of the revised unjust
enrichment rules for bidding credits (Section 1.2111(d) of the Commission's rules) and the broadband PCS
entrepreneurs' block prohibition on assignments and transfers to non-entrepreneurs during the first five
years of initial licensing (Section 24.839 of the Commission's rules).  As a practical matter, under the Part
1 rules as modified in the Part 1 Third Report and Order, bidding credit unjust enrichment payments are
not required for assignments or transfers of control of C and F block licenses to non-entrepreneurs because,
as NextWave points out, Section 24.839 bars such assignments or transfers until five years after the date of
the initial license grant, at which point the bidding credit unjust enrichment penalties of Section 1.2111
lapse.  The proscription of Section 24.839, however, does not apply if an entrepreneur proposes to assign
or transfer its C or F block license to another qualifying entrepreneur.  In such a case, Section 1.2111
provides for unjust enrichment payments with respect to assignments and transfers between entities
qualifying for different tiers of bidding credits.
     36.  NextWave further argues that the Commission has not adequately explained why PCS
entrepreneur block licensees are subject to a five-year transfer restriction when licensees in other services
are allowed to assign or transfer licenses during the first five years of the license term, subject to the
repayment of bidding credits.  In order to fulfill our statutory duty to give opportunities to small
businesses, we set aside the PCS C and F blocks for participation only by smaller entities, in this case,
entrepreneurs.  To ensure that licenses in these blocks are used exclusively by smaller entities, we adopted
a rule to preclude the trafficking of entrepreneur block licenses to non-entrepreneurs for the first five years
of licensing.  In adopting this transfer restriction, we explained that allowing parties to take advantage of
bidding in the entrepreneurs' blocks and immediately assign or transfer control of the authorizations to non-
entrepreneurs would undermine our goal of giving entrepreneurs the opportunity to provide PCS.  Since
these entrepreneur blocks are the only spectrum set aside specifically for smaller entities, these are the only
licenses subject to the five-year anti-trafficking provision.  In contrast, with respect to services in which all
entities, large and small, are permitted to acquire licenses, our objective is to ensure that, irrespective of
entity size, the license is awarded to the entity that values it most.  In such cases, we may offer bidding
credits or other incentives to afford small entities an opportunity to acquire licenses.  In these instances, we
are not concerned with ensuring that a block of spectrum is used exclusively by smaller entities and,
therefore, permit the transfer of licenses early in the license term subject to repayment under our unjust
enrichment rules for bidding credits and installment payments.
     37.  We further clarify that pursuant to Sections 1.2111(c) and (d) of our rules, Commission
approval of assignments of licenses and transfers of control that result in unjust enrichment with respect to
bidding credits and installment payments is conditioned upon full payment of the required unjust
enrichment payments on or before the consummation date.  In other words, consummation of an
assignment of license or transfer of control will not be valid unless the Commission first receives the
required unjust enrichment payment in full.  We believe that this clarification will ensure efficiency in the
processing and consummation of assignments of licenses and transfers of control.
I.  Inapplicability of Section 1.2104 to Installment Payment Defaults
     38.  Background.  In the Part 1 Third Report and Order, we addressed matters relating to
defaults on payment obligations by winning bidders in spectrum auctions.  Under Section 1.2104(g),
winning bidders that default on a down payment or full payment after the close of an auction are subject to
a payment equal to the difference between the amount of the defaulted bid and the amount of the winning
bid the next time the license is auctioned, plus 3 percent of the lesser of these amounts.  We considered
whether a licensee failing to make a timely installment payment should be subjected to these same
provisions.  In paragraphs 115 and 116 of the Part 1 Third Report and Order, we decided against imposing
the default provisions of Section 1.2104(g) with respect to defaults on installment payments.  We found
that without such additional payments, our other rules and installment payment terms are adequate to
discourage defaults.  Despite the clear statement on this point in paragraphs 115 and 116, we believe that
paragraph 122 of the Part 1 Third Report and Order may still have left some ambiguity in this matter.
Specifically, the latter paragraph may be construed as stating that the additional payment requirements of
Section 1.2104(g)(2) relating to down payment and full payment defaulters are also applicable to
installment payment defaulters.
     39.  Discussion.  We clarify that licensees defaulting on installment payments ("installment
payment defaulters") are not subject to Section 1.2104(g)(2).  The automatic default provisions of Section
1.2110(f)(4) (redesignated herein as 1.2110(g)(4)) are adequate to discourage untimely installment
payments.  We note that while Section 1.2109(c) identifies types of defaulters that are subject to Section
1.2104(g)(2), the rule does not reference installment payment defaulters.  Instead, installment payment
defaults are covered by Section 1.2110(g)(4), as designated herein, which does not incorporate Section
1.2104(g)(2).  As we noted in the Part 1 Third Report and Order, the risk of losing a license should provide
most licensees with a strong incentive to avoid default.  Accordingly, we conclude that Section
1.2104(g)(2) does not apply to installment payment defaulters.  Rather, pursuant to Section
1.2110(g)(4)(iv), as designated herein, licensees that default on installment payment obligations will
automatically lose their licenses and be subject to debt collection procedures.
 J.  Eligibility for Participation
     40.  Background.  The Commission's FCC Form 175 short-form application for all auctions
requires applicants to certify that they are not in default on any Commission licenses and that they are not
delinquent on any non-tax debt owed to any Federal agency.  The purpose of this rule is to preserve the
integrity of the auction process and to ensure that bidders are capable of meeting their financial
commitments to the Commission.  In the C Block Fourth Report and Order, the Commission determined
that "former defaulters," i.e., applicants that have defaulted or been delinquent in the past, but have since
paid all of their outstanding non-Internal Revenue Service Federal debts and all associated charges or
penalties, are eligible to participate in future auctions of C block spectrum, provided that they are otherwise
qualified.  In addition, the Commission adopted a special upfront payment policy for "former defaulters"
seeking to participate in C block auctions.  It required that "former defaulters" make an upfront payment
of 50 percent more than the normal amount set by the Bureau for any given license in a C block auction.
The Commission applied these policies in the broadband PCS auction that concluded on April 15, 1999
(Auction No. 22).
     41.  Discussion.  On our own motion, we hereby incorporate into the Part 1 general competitive
bidding rules the "former defaulter" policies adopted with respect to C block auction applicants.  While we
have determined that it is necessary to limit participation in Commission auctions to entities that can certify
that they are not in default on certain debts, we also believe that past business misfortunes do not inevitably
preclude an entity from being able to meet its present and future responsibilities as a Commission licensee.
Therefore, we will allow "former defaulters," i.e., applicants that have defaulted or been delinquent in the
past, but have since paid all of their outstanding non-tax debts and all associated charges or penalties, to
certify on Form 175 that they are not in default and are, therefore, eligible for auction participation.  Thus,
a bidder that has defaulted on its down or final payment obligation, but has paid, by the short-form
application deadline, any default payments assessed by the Commission (e.g., the initial default payment of
3 percent of the defaulted bid amount pursuant to 47 C.F.R.  1.2104(g)(2)) is qualified to certify on Form
175 that it is not in default and is eligible to participate in Commission auctions.  Such bidder, however,
remains subject to any as yet unassessed payment obligations pursuant to Section 1.2104(g) of our rules,
unless otherwise relieved from such obligations under applicable law.
     42.  In determining the upfront payment amounts required by "former defaulters" seeking to
participate in future C block auctions, the Commission reasoned that "the integrity of the auctions program
and the licensing process dictates requiring a more stringent financial showing from applicants with a poor
Federal financial track record."  We believe that this reasoning applies with equal force to "former
defaulters" seeking to participate in any Commission auction.  Consequently, we will amend Section
1.2106(a) of our general competitive bidding rules to require that "former defaulters" pay an upfront
payment amount of 1.5 times the normal amount set by the Bureau for any given license in a Commission
auction.  So that the Bureau may implement this rule, we will require applicants to make an additional
certification revealing whether they have ever been in default on any Commission license or have ever been
delinquent on any non-tax debt owed to any Federal agency.  If any one of an applicant's controlling
interests or their affiliates as defined by Section 1.2110 of the Commission's rules (as adopted herein) has
ever been in default on Commission licenses or has ever been delinquent on any non-tax debt owed to any
Federal agency, but has made the requisite payment, the applicant will be eligible to participate in
Commission auctions but will be considered a "former defaulter" for purposes of the upfront payment
requirements.  We may use credit information concerning the applicant, its controlling interests and their
affiliates to verify any certified statements regarding the history of payments made to the Federal
government by such entities.
     43.  Under Section 1.2110(g)(4), as designated herein, when a licensee defaults on an
installment payment, its license automatically cancels without any action by the Commission, and the entire
outstanding debt obligation becomes subject to debt collection procedures.  A licensee that has previously
defaulted on an installment payment will be permitted to participate in future Commission spectrum
auctions under certain conditions.  In order to be eligible for participation in a future auction, an installment
payment defaulter must have either (1) paid all of its outstanding non-tax debt, along with all associated
charges and penalties; or (2) been relieved of such obligations pursuant to otherwise applicable law.  In all
instances, installment payment defaulters eligible to participate in future auctions will be required to pay an
upfront payment amount of 1.5 times the normal amount set by the Bureau for any given license in a
Commission auction to assure their future financial soundness.
                 IV.FIFTH REPORT AND ORDER
A.  Introduction
     44.  In the Part 1 Third Report and Order, we established a uniform set of bidding rules for all
auctionable services to increase the efficiency of our licensing process.  In the Second Notice, we sought
comment on a variety of additional proposals relating to the general competitive bidding rules.  In
particular, we sought comment on whether a sufficient evidentiary basis exists for creating bidding
preferences for minority- and women-owned businesses, and whether there are mechanisms we should
employ to further the opportunities for rural telephone companies to participate in the provision of
spectrum-based services.  In addition, we asked whether the Commission should continue its installment
payment program for small businesses and, if not, whether appropriate alternatives exist that would further
the goals of Section 309(j) of the Communications Act.  Next, we requested comment on what uniform
attribution standard we should adopt for determining whether entities seeking bidding credits qualify as
small businesses.  Finally, we sought comment on a number of payment and administrative issues,
including the appropriate formula for calculating default payments.  In response to the Second Notice, we
received six comments and one reply comment.
B.  Rules Governing Designated Entities
     1.  Designated Entities
     45.  Background.  In Adarand Constructors, Inc. v. Pena, the Supreme Court held that "all racial
classifications . . . must be analyzed by a reviewing court under strict scrutiny."  Under the Adarand
decision, any federal program that uses race as a basis for decisionmaking must serve a compelling
governmental interest and must be narrowly tailored to serve that interest in order to pass constitutional
muster.  In United States v. Virginia, et al., the Supreme Court determined that gender-based programs are
subject to intermediate scrutiny.  Under this standard of review, there must be an "exceedingly persuasive
justification" for a program in which gender is a determining factor in decisionmaking.  Further, a gender-
based government action is constitutional only if it serves an important governmental objective and is
substantially related to the achievement of that objective.
     46.  In the Second Notice, the Commission sought comment on whether there is a compelling
governmental interest that would justify the use of preferences for minority-owned businesses or an
exceedingly persuasive justification to support gender-based preferences for women-owned businesses.  In
addition, we asked commenters to provide evidence in support of their positions and to indicate what
measures, if any, could be narrowly tailored to withstand judicial review.  What specifically tailored tools,
we asked, such as bidding credits, might be appropriate or should preferences be given to minority-owned
or women-owned businesses that also qualify as small businesses.
     47.  Finally, we noted that the Office of Management and Budget ("OMB") modified its
standards for the classification of federal data on race and ethnicity.  Specifically, OMB:  (1) separated the
category for Asian and Pacific Islander into two categories -- "Asian" and "Native Hawaiian or Other
Pacific Islander;" and (2) changed the term "Hispanic" to "Hispanic or Latino."  We sought comment on
whether we should amend the designated entity provisions of the Part 1 rules to reflect this change.
     48.  Discussion.  We did not receive any comments on these issues.  Because the record is
sparse, we conclude that it is not appropriate to adopt special provisions for minority-owned and women-
owned businesses at this time.  We have said that minority- and women-owned businesses that qualify as
small businesses may take advantage of the special provisions we have adopted for small businesses.
     49.  We note, too, that the Commission's Office of Communications Business Opportunities
(OCBO) has initiated several studies to gather information regarding barriers to entry faced by minority-
and women-owned firms that wish to participate, or have participated, in Commission auctions.  Further, we
have recently commenced several new studies to explore additional entry barriers and to seek further
evidence of racial and gender discrimination against potential licensees.  In addition, we will continue to
track the rate of participation in our auctions by minority- and women-owned firms and evaluate this
information with other data gathered to determine whether provisions to promote participation by minorities
and women can satisfy judicial scrutiny.  If a sufficient record can be adduced, we will consider race- and
gender-based provisions for future auctions.
     50.  Finally, having received no comments on the issue, we will amend our definition of the
term "minority" in Section 1.2110 of the general competitive bidding rules to reflect the changes identified
above.  This will conform our definition of the term "minority" to that currently used by OMB.
     2.  Rural Telephone Company Provisions
     51.  Background.  In the Second Notice, we noted that auctions have generally provided rural
telephone companies with favorable opportunities.  We have also observed that the percentage of rural
telephone companies that have won rural geographic area licenses in the United States is significant.  We
sought comment on whether there were additional mechanisms that might increase opportunities for rural
telephone companies to provide spectrum-based services to the public.
     52.  Discussion.  Based on the limited record before us, we will not, at this time, adopt
mechanisms, such as bidding preferences or an unserved area fill-in policy, specifically for rural telephone
companies.  We will, however, continue to provide rural telephone companies with bidding credits should
such entities qualify as small businesses.  The Commission has great interest in ensuring that rural and
underserved areas have access to competitive advanced telecommunications services.  Indeed, the
Commission has implemented a number of initiatives toward achieving that goal.  We will address issues
affecting rural communities and underserved areas in other upcoming proceedings and believe a more
extensive record can be developed at that time.  We plan to consider methods for enhancing the delivery of
spectrum-based services in areas that traditionally have been underserved by telecommunications providers.
We encourage commenters to participate in such future proceedings.  The record developed here will be
made part of those proceedings.
     53.  We do, however, want to highlight one issue raised by commenters.  RTG proposes that we
establish geographic area licenses no larger than BTAs in all future auctions.  RTG argues that the use of
small areas facilitates the delivery of service to rural areas by increasing the opportunity for rural small
businesses and rural telephone companies to acquire licenses.  RTG also contends that authorizing smaller
geographic areas increases the number of licenses available and the diversity of licenses, and facilitates the
buildout of networks.  Section 309(j) of the Communications Act requires the Commission to disseminate
licenses to a wide variety of applicants, including small businesses and rural telephone companies, and to
promote the development and rapid deployment of new technologies to the public, including those residing
in rural areas.  The Commission can best satisfy this mandate by establishing license areas that promote
these goals on a service-specific basis.  Although we have used small license areas in several services (e.g.,
broadband PCS D, E and F blocks and LMDS) and may do so in specific services in the future, we are
unwilling to limit our flexibility by adopting an ironclad rule against large service areas.  We anticipate, for
example, that certain satellite-based services may not be particularly suited to small geographic area
licensing, while other services may indeed be more suitable for this type of license category (i.e., the
broadband PCS C block auction).  We always invite comment on these issues so as to tailor our rules for
specific services in ways that afford opportunities to a wide variety of entities.
     3.  Installment Payments
     54.  Background. In the Part 1 Third Report and Order, we suspended the installment payment
program.  Because, however, small businesses have been successful in the auctions in which installment
payment plans were offered, we sought comment on ways the Commission could provide an effective
installment payment program while at the same time minimizing the concerns (e.g., licensee default or
difficulty meeting financial obligations to the Commission) that led to the suspension of installment
payment plans for small businesses.  We also sought comment on how the Commission could create an
installment payment plan that would encourage only serious, financially qualified small business applicants
to apply for licenses while ensuring the rapid provision of service to the public and guaranteeing that the
American public is reasonably compensated for use of the spectrum.  In addition, we sought comment on
how the Commission might fashion an installment payment program that would meet the statutory
requirement that all payments of principal and interest for covered auctions be deposited in the United
States Treasury by the statutory deadline (September 30, 2002) for collection.  We further requested
comment on means other than bidding credits and installment payments by which the Commission might
facilitate the participation of small businesses and other designated entities in our spectrum auction
program.  Finally, we asked whether we should establish the interest rate for installment payments (if the
program is reinstituted) based upon the rate of United States Treasury obligations on the date of the close
of the auction.
     55.  Discussion. Having received no comments regarding reinstitution of our installment
payment program or alternatives thereto, we will adhere to our previous decision to suspend the installment
payment program.  In suspending the installment payment program, we concluded that small businesses
need not receive installment payments to successfully participate in our spectrum auctions.  We noted, for
example, that in the cellular auction for unserved areas, which had no installment payment plans, 36 percent
of the licenses went to small or very small businesses.  In addition, we stated that requiring payment in full
within a short time after the close of the auction ensures greater financial accountability from applicants.
Finally, experience has shown that licensees filing for bankruptcy may impede the Commission's processes,
resulting in delayed deployment of service.
     56.  We believe that Section 309(j) of the Communications Act requires us to explore ways of
responding to the investment capital needs of small, minority-owned and women-owned businesses.
Accordingly, while we believe our decision to offer bidding credits has been extremely helpful in allowing
these designated entities a foothold in many of our auctionable wireless services, we remain open to
proposals that would result in even greater participation by these entities.
     57.  The Commission will, as it has done in the LMDS, LMS, 220 MHz Service, and VHF
Public Coast Service auctions, continue to provide small businesses with bidding credits.  In light of this
decision, we need not address the method of establishing interest rates for such installment payments.  If we
reinstate an installment payment plan in the future, we will revisit this issue.
     4.  Attribution of Gross Revenues of Investors and Affiliates
     58.  Background.  In the Second Notice, we discussed our earlier proposal to adopt a general
attribution rule for determining small business eligibility for all future auctions.  Specifically, we sought
further comment on whether to adopt a "controlling interest" standard for attributing to an applicant the
gross revenues of its investors and affiliates in determining whether the applicant qualifies as a small
business.  We explained that, in the past, the Commission adopted service-specific attribution rules with
varying standards of attribution.  In addition, we asked whether a "controlling interest" standard is
sufficient to calculate size so that only those entities truly meriting small business status qualify for bidding
credits.  We also sought comment on whether alternate standards for attributing the gross revenues of
investors and affiliates in an applicant would better meet our goals.  We further requested comment on
whether or not the controlling interest standard would be strengthened by imposing a minimum equity
requirement (e.g., 15 percent) that any person or entity identified as controlling must hold.
     59.  Discussion.  We will adopt as our general attribution rule a "controlling interest" standard
for determining which applicants qualify as small businesses.  Under this standard, we will attribute to the
applicant the gross revenues of its controlling interests and their affiliates in assessing whether the applicant
is qualified to take advantage of our small business provisions, such as bidding credits.  We note that
operation of our definition of "affiliate" will cause all affiliates of controlling interests to be affiliates of the
applicant.  We believe that this approach is simpler and more flexible than the previously used control
group approach, and thus will be more straightforward to implement.  Moreover, application of the
"controlling interest" standard will ensure that only those entities truly meriting small business status
qualify for our small business provisions.  We used this same approach in the attribution rules for the
LMDS, 800 MHz SMR, 220 MHz, VHF Public Coast and LMS auction proceedings.
     60.  A "controlling interest" includes individuals or entities, or groups of individuals or entities,
that have control of the applicant under the principles of either de jure or de facto control.  Thus, there may
be more than one "controlling interest" whose revenues must be counted.  The premise of this rule is that all
parties that control an applicant or have the power to control an applicant, and their affiliates, will have their
gross revenues counted and attributed to the applicant in determining the applicant's eligibility for small
business status or for any other size-based status using a gross revenue threshold.
     61.  De jure control is typically evidenced by the holding of 50.1 percent or more of the voting
stock of a corporation or, in the case of a partnership, general partnership interests.  De facto control is
determined on a case-by-case basis and includes the criteria set forth in Ellis Thompson.  For instance, the
gross revenues of managers may be attributed to the applicant if de facto control standards are met.  We do
not believe it is necessary to presume that equity interests of less than 50.1 percent are attributable to the
applicant because we rely on the concept of de facto control.  An applicant may have interest holders that
do not possess de jure control but have "actual" (i.e., de facto) control.  Therefore, in determining the gross
revenues to be attributed to the applicant, we will include individuals or entities that have either de jure or
de facto control.   Accordingly, we will amend Section 1.2110 to incorporate these principles of control.
     62.  Controlling interests must be identified by the applicant seeking status as a small business.
The "controlling interest" definition provides specific guidance on the calculation of various types of
ownership interests.  For purposes of calculating equity held in an applicant, the definition provides for full
dilution of certain stock interests, warrants and convertible debentures.  In addition, the definition provides
for attribution of partnership and other ownership interests, including stock interests held in trust, non-
voting stock and indirect ownership through intervening corporations.  When an applicant cannot identify
controlling interests under the definition, the revenues of all interest holders in the applicant and their
affiliates will be attributed.  For example, if a company is owned by four entities, each of which has 25
percent voting equity, and no shareholders' agreement or voting trust gives any one of them control of the
company, the revenues of all four entities must be attributed to the applicant.  Treating such a corporation
in this way is similar to our treatment of a general partnership -- all general partners are considered to have
a controlling interest.  This rule, we believe, looks to substance over form in assessing eligibility for small
business status.
     63.  Some commenters have expressed concern over whether the revenues of so called "passive
investors" would be attributed to the applicant.  The controlling interest standard adopted herein will be
applied to all investors in an applicant.  In other words, if any investor has either de jure or de facto control
of the applicant, that investor's gross revenues will be attributed to the applicant for purposes of determining
whether the applicant qualifies as a small business.  Application of the principles of either de jure or de
facto control will accurately identify those investors that are controlling interests and that are not, by
definition, therefore, "passive investors."  We note too that, under the controlling interest standard, the
officers and directors of any applicant will be considered to have a controlling interest in the applicant.
     64.   We believe that the de jure and de facto concepts of control, together with the application
of our affiliation rules, will effectively prevent larger firms from illegitimately seeking status as small
businesses.  For this reason, we disagree with the commenter that urges us not to amend our attribution
rules to include those that have management agreements and joint marketing agreements with the applicant
or licensee.  We will adopt provisions that make attributable the gross revenues of those that have
management or marketing agreements with the applicant or licensee where such agreements grant authority
over key aspects of the applicant's or licensee's business.  Management or joint marketing agreements, for
example, may grant authority to parties other than the applicant or licensee to make decisions concerning
the nature or types of services offered by the applicant or licensee, the terms upon which such services are
offered, or the prices charged for such services.  Such arrangements allow their holders to exercise control
of the applicant or licensee and therefore should be included.
     65.  We decline to adopt a minimum equity requirement for controlling interests because it is
contrary to our goal of providing legitimate small businesses maximum flexibility in attracting passive
financing.  A minimum equity requirement would require any person or entity identified as a controlling
interest to retain some level of equity in the applicant, thereby reducing the amount of equity the applicant
could offer to non-controlling interests in exchange for financing.  This policy would thus limit a small
business' ability to raise capital and undermine our intention of promoting small business participation in
the highly competitive telecommunications marketplace.
     66.  Further, we do not believe that the adoption of a minimum equity requirement is necessary
to ensure appropriate identification of an applicant's controlling interests if the principles of de jure and de
facto control are applied.  These principles are, in effect, broader than the minimum equity requirement
because they look to actual control irrespective of the amount of equity held in an applicant.  While we
agree with commenters that lack of equity may indicate lack of de facto control, we are not persuaded that
this factor alone is dispositive.  Rather than focusing solely on equity holdings, applicants are required to
identify those controlling interests that actually have control through application of the principles of either
de jure or de facto control.  This approach, which has proven successful in the broadcast context, we
conclude, will operate equally well in our calculation of gross revenues for purposes of determining
eligibility for bidding preferences.  By alerting the Commission to all attributable interests, application of
the principles of de jure and de facto control will preclude unqualified applicants from taking advantage of
our small business provisions.  Moreover, as discussed in the Part 1 Third Report and Order, requiring
detailed ownership information under Section 1.2112 will ensure that applicants claiming small business
status qualify for such status and that all applicants comply with spectrum caps and other ownership limits.
     67.  We agree with CIRI that these new rules should not make current C and F block licensees
ineligible to hold their licenses.  The eligibility of current C and F block licensees to continue to hold their
licenses will not be reassessed based on the new attribution rules.  These licensees will remain eligible to
hold their licenses regardless of whether or not they would qualify under the newly established attribution
rules.  Thus far, the Commission has conducted four auctions of C block licenses using the Part 24
attribution rules.  In many instances, entities participating in these auctions restructured their businesses
and formulated business relationships based upon our rules in effect at the time.  In good faith, these entities
now wish to continue operating under the Part 24 attribution rules rather than face the potential disruption
caused by restructuring their organizations and/or altering their business strategies.  We see no reason to
require that existing C and F block licensees restructure to meet new standards in order to remain licensees.
As to future C and F block auctions, however, all applicants, including existing C and F block licensees,
will be subject to the attribution rules in effect at the time of filing their short-form applications.  For
auctions that begin within two years after the start of Auction No. 22, the C, E, and F block auction that
began on March 23, 1999, our new attribution rules will have no effect on the eligibility as an entrepreneur
of any entity that was eligible for, and participated in, Auction No. 5 or Auction No. 10.  Eligibility for
small business preferences, however, will be determined based on the attribution rules in effect at the time
of an applicant's short-form filing.  Similarly, with respect to transfers of control and assignments of
license, existing C and F block licensees may be assignees or transferees within the first five years of
license grant consistent with the anti-trafficking provision contained in Section 24.839(d) of the
Commission's rules.  Non-licensees, however, are precluded from being assignees or transferees within the
first five years of license grant unless they qualify as entrepreneurs based on the attribution rules in effect
at the time of assignment or transfer.
C.  Default Payments
     68.  Background.  In the Second Notice, we sought comment on whether we should modify
Section 1.2104(g) of our rules to provide that, where a winning bidder defaults on multiple licenses, the
default payment will be determined based upon the aggregate winning bid and the aggregate winning bid
the next time the licenses are offered by the Commission.  We sought comment on whether this system
could encourage insincere bidding and defaults since it could greatly reduce the effective penalty for a
default.  We questioned whether, since the potential defaulter would not be facing the full harm caused by
the default on the additional license, the incentive for insincere bidding and default would be too great.
Indeed, we continued, this modification could encourage speculation by encouraging a high bidder on a
relatively high valued license that anticipates default to purposely bid and default on a relatively low valued
license in order to lessen the default payment assessed under our rules.  Finally, we sought comment on
whether such a modification could function without nullifying the provision in Section 1.2104(g) that
assesses an additional default payment equal to three percent of the subsequent winning bid or the amount
bid, whichever is lower.  No comments were received on this issue.
     69.  Discussion.  Section 1.2104(g)(2) of the Commission's rules is central to the integrity of the
Commission's auction process.  The principal function of this rule is to establish that the close of the
auction creates a binding contractual obligation by the high bidder to pay the auction price for the license.
Whether the obligation is thereafter breached by a default of payment or by a failure to qualify to receive
the license for which the bid was placed, the winning bidder's liability remains a function of the high bid
and is based on the obligation that was incurred at auction, plus an additional 3 percent payment as set forth
in the rule.
     70.  Without more comment, we will not amend our rule to adopt an aggregate approach to
calculating default payments.  Rather, we will continue to evaluate each licensee's default payment
obligations on a license-by-license basis.  In other words, we will calculate the default payment owed on
each license separately, even in cases where a single bidder defaults on multiple licenses.  Therefore,
licensees may not use a subsequent auction gain from one defaulted license to reduce default payments on
other licenses that are subsequently auctioned for less than that originally bid by the defaulting licensee.
     71.  When a winning bidder defaults on a license, the bidder becomes subject to a default
payment equal to the difference between the amount bid and the subsequent winning bid, plus an additional
payment equal to 3 percent of the lower of the initial winning bid or the subsequent winning bid.  In the
case of multiple defaults, the Commission has determined that the amount of the default payment is
calculated on a license-by-license basis and then added together to determine the total default payment.
     72.  Our auction rules were designed to encourage bidders wishing to withdraw their bids to do
so prior to the close of the auction, rather than default after the auction.  In the case of withdrawal, the
additional 3 percent payment is not required.  Thus no withdrawal payment is assessed if the subsequent
winning bid exceeds the withdrawn bid.  Encouraging withdrawals over defaults increases auction
efficiency.  If a bidder withdraws its bid during the auction, there is an opportunity for another bidder to win
the license.  However, if the bidder defaults after the auction, a new spectrum license must be auctioned.
A bidder that would have bid to win the license after a withdrawal may not be as willing or able to pay if it
has to wait for another auction before it can obtain the license.  In addition to the time and expense required
to auction the new spectrum license and collect the default payment, a subsequent auction results in a delay
in provision of service to the public.
     73.  Were we to allow a bidder that defaults on multiple licenses to offset subsequent auction
losses with subsequent auction gains, we might encourage insincere bidding and defaults by greatly
reducing the effective penalty for a default.  A budget-constrained winning bidder that anticipates default
on a relatively high valued license would have an incentive to bid and default on a relatively low valued
license that would be likely to bring a higher price at a subsequent auction as a means of lowering its total
default payment under our rules.  Moreover, if the payment for defaults were determined by aggregating
subsequent auction gains and losses, a bidder that would otherwise withdraw a bid during the auction might
have an incentive to default after the auction instead.  If aggregation of subsequent auction gains and
subsequent auction losses would result in a net gain, the defaulting bidder would be required to pay only the
3 percent penalty, an amount that could be lower than the withdrawal payments determined on a license-by-
license basis.
D.  Administrative Filing Periods for Applications and Petitions to Deny
     74.  Background.  In the Part 1 Third Report and Order, we amended Section 1.2108 of our
rules to conform to the provisions in the Balanced Budget Act of 1997 regarding the filing period for
petitions to deny the long-form applications of winning bidders.  The Balanced Budget Act of 1997 gives
the Commission authority to shorten the period in which license applications are granted, notwithstanding
Section 309(b) of the Communications Act which generally prohibits the Commission from granting
applications for licenses prior to 30 days following public notice of their filing.  Section 1.2108, as
amended, provides that the Commission shall not grant a license less than seven days after public notice
that long-form applications have been accepted for filing and that, in all cases, the period for filing petitions
to deny such applications shall be no shorter than five days.
     75.  Although noting our belief that a shortened petition to deny period is appropriate for future
auctions, we sought comment on the appropriate length of a petition to deny period in light of this
legislation.  For example, we sought comment on whether there are instances in which the Commission
should provide for a longer period than the minimums set forth in the statute for the filing of petitions to
deny or for the grant of initial licenses in auctionable services (five days and seven days, respectively).  In
particular, we asked commenters to address whether auctions for specific services (e.g., broadcast licenses)
require longer periods for the filing of petitions to deny and why this may be so.  No comments on these
matters were received.
     76.  Discussion.  We will adopt our proposal to shorten administrative filing periods, when
possible, as directed by the Balanced Budget Act of 1997.  This conclusion is consistent with our mandate
in Section 309(j)(3)(A) of the Communications Act, which obligates us to promote "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."
     77.  In order to have a consistent and general rule for filing petitions to deny, we will establish
a maximum ten-day period for the filing of such petitions.  However, because the provision in the Balanced
Budget Act anticipates -- and we believe -- that the appropriate period for filing petitions to deny may vary
from service to service, we will delegate to the appropriate licensing bureau the discretion, to be exercised
in exigent circumstances, to reduce this period.  This reduced filing period may not be shorter than that
prescribed by the Balanced Budget Act.  We will increase the time period from 5 days (as originally
adopted in the rule) to 10 days in order to afford parties (including small businesses) additional flexibility
in challenging license awards.  This approach, we believe, is consistent with the intent of Congress in the
Balanced Budget Act to more expeditiously resolve these disputes while, at the same time, ensuring that all
parties (particularly small businesses) have a reasonable opportunity to exercise their rights under the
Communications Act.
E.  Conclusion
     78.  In the Part 1 Third Report and Order, we stated that "[t]hese changes to our general
competitive bidding rules are intended to streamline our regulations and eliminate unnecessary rules
wherever possible . . . ."  With the issuance of this Order on Reconsideration of the Third Report and
Order, Fifth Report and Order, and Fourth Further Notice of Proposed Rule Making, we have made a
majority of the Part 1 rule changes contemplated in our efforts to streamline the competitive bidding
regulations.  The next step in this process is to eliminate unnecessary rules to the best of our ability at this
time.  Some service-specific rules repeat portions of our new Part 1 rules almost verbatim; others contain
obvious discrepancies.  In our attempt to provide the most specific guidance possible to future auction
participants, we believe it is in the public interest to conform the service-specific auction rules to the
general competitive bidding rules in cases of obvious repetition and where the Commission specifically
superseded inconsistent rules in the course of the Part 1 proceeding.  We hereby instruct the Wireless
Telecommunications Bureau to make conforming edits to the Code of Federal Regulations consistent with
this decision.
     V.   FOURTH FURTHER NOTICE OF PROPOSED RULE MAKING
A.  Introduction
     79.  In  this Fourth Further Notice of Proposed Rule Making, we seek comments on a total
assets test to determine small business status and propose exceptions to the attribution rule's requirement
that certain stock interests be counted on a "fully diluted" basis.
B.  Rules Governing Designated Entities
        1. Total Assets Test
     80.  Background.  In the first Notice of Proposed Rulemaking in this proceeding, we proposed
to define small businesses, for the purposes of auctions, "purely in terms of gross revenues."  In another
proceeding, we observed that "[a]ssets, being potentially fluid and subject to inconsistent valuation . . . are
generally much less ascertainable than gross revenues . . . ."  In the Part 1 Third Report and Order, we
adopted our proposal to use gross revenues as our general standard for measuring a business' size.  We
indicated at that time that a gross revenues-based standard provides "an accurate, equitable, and easily
ascertainable measure of business size."  Furthermore, we observed that while a total assets test had been
used in the past to determine eligibility for participation in entrepreneur block auctions, it had not been
employed for determining small business eligibility.  We also relied on the Small Business Act, which
controls how agencies may prescribe size standards for categorizing small businesses.  This statute provides
no assets test for categorizing business concerns that provide services.
     81.  Discussion.  The Commission intends its small business provisions to be available only to
bona fide small businesses.  While we have concluded in the past to use gross revenues as the measure of
business size, based on correspondence from the Small Business Administration, we take this opportunity
to revisit the issue of whether to use a total assets test as well.  We seek comment on whether the use of a
total assets test, in conjunction with the gross revenues measure already employed, would enhance the
Commission's determinations of small business status.  For example, commenters may address whether a
gross revenues standard alone allows participation of legitimate start-up companies that are supported only
by assets held by affiliates.  In the alternative, commenters should address whether our comprehensive
affiliation rules counterbalance the effects of a gross revenues standard when applied to such enterprises.
We ask that commenters cite to specific statistical and/or anecdotal evidence when addressing these issues.
If supporting use of an assets test, commenters should address appropriate thresholds for small business
determinations.  For example, commenters may address whether the $500 million total assets test used in
determining eligibility for entrepreneurs' block auctions provides a suitable benchmark.  A more complete
record on this matter will assist the Commission in meeting its goals for small business participation in
future spectrum auctions.
          2.  Attribution of Gross Revenues or Total Assets of Investors and Affiliates
     82.  Background.  In the Second Notice, we sought further comment on whether to adopt a
"controlling interest" standard as our general rule for attributing to an applicant the gross revenues of its
investors and their affiliates in determining whether the applicant is eligible for small business preferences.
In this Fifth Report and Order, we adopt the "controlling interest" standard as our general attribution rule
for all future auctions.  For purposes of calculating equity held in an applicant, the "controlling interest"
definition provides for full dilution of certain stock interests, such as warrants, stock options, and
convertible debentures.  Accordingly, under the rule we adopt today, as well as under our existing rules,
agreements of this type are generally treated as if the rights thereunder have been fully exercised.  In our
Competitive Bidding Fifth Memorandum Opinion and Order ("Fifth M O & O"), we established two
exceptions to the "fully diluted" requirement for the broadband PCS attribution rule.  We decided that two
types of ownership interests, "rights of first refusal" and "put" options, would not be considered on a fully
diluted basis for purposes of calculating ownership levels.
     83.  Discussion.  In this Fourth Notice, we seek comment on whether to incorporate into our
Part 1 general competitive bidding rules the two exceptions we adopted for our broadband PCS attribution
rule.  We also seek comment on a proposed third exception to our general requirement that we treat certain
stock interests as "fully exercised."
     84.  Our attribution rules are designed to preserve control of the applicant by eligible entities
while allowing investment in the applicant by entities that do not meet the size restrictions in our rules.  We
recognize that some forms of stock options and convertible debt instruments are common and often
beneficial to the management of a company.  Convertible debt instruments may also allow designated
entities to obtain debt financing at a lower cost than would otherwise be available, thereby preserving
working capital for such uses as the further construction of facilities.  Because our rules generally require
us to treat stock interests on a fully diluted basis, if an applicant grants its lender stock conversion rights in
several promissory notes, the lender's equity could exceed the applicable limit or threshold, thus requiring
the applicant to include the lender's gross revenues in determining its eligibility as a designated entity.
     85.  Our proposed exception to the general attribution rule is a refinement to the "fully diluted"
requirement that addresses stock conversion rights that are granted on a contingent basis.  An applicant may
grant conversion rights on a contingent basis, such rights vesting only in the event that the lender first
assigns or transfers all interest in one or more other debt instruments to a qualified unaffiliated third party.
Thus, the contingent right of conversion in one debt instrument could only be exercised upon divestiture of
enough equity associated with the other debt instruments to allow the lender to remain below the applicable
equity limit.
     86.  We tentatively conclude that furtherance of the policy underlying Section 1.2110(c)(5)(v)
of our designated entities rule does not require us to consider all existing stock conversion rights as having
been fully exercised simultaneously in a case where exercise of the various conversion rights are mutually
exclusive by their terms.  We therefore propose an exception to the "fully diluted" requirement in Section
1.2110(c)(5)(v) to permit conversion rights or stock options to be considered individually rather than
collectively when they are mutually exclusive.  Under this interpretation, for the purpose of calculating
ownership interests, all stock interests would continue to be calculated on a fully diluted basis, but if a stock
interest by its terms is mutually exclusive of one or more other stock interests, the various ownership
interests would be treated as having been fully exercised only in the possible combinations in which they
can be exercised by their holder.
     87.  We seek comment on whether we should amend the controlling interest standard in our Part
1 general competitive bidding rules to include this exception to our requirement for calculating ownership
interests on a fully diluted basis.  Under the proposed rule, ownership interests that by their terms are
capable of being exercised simultaneously or successively would continue to be treated collectively as if the
rights thereunder have been fully exercised.  Ownership interests that are mutually exclusive would be
considered separately, but each mutually exclusive ownership interest would be considered in combination
with all other ownership interests that are capable of being exercised with it simultaneously or
successively.  Thus, in calculating the equity held in an applicant, we propose to consider the various
combinations of stock options or conversion rights that could possibly be exercised by an investor.  For
each combination, the ownership interests would be considered to have been fully exercised, and each
combination would then be reviewed in the context of the specific equity limit or threshold applicable in a
given case.  We also propose that, for purposes of this rule, we consider one ownership interest to be
mutually exclusive of another only if the agreement that conveys the first interest contains explicit language
making it clear that the rights conveyed by that agreement cannot be exercised unless all ownership rights
associated with the other agreement are either terminated or transferred or assigned to a qualified
unaffiliated third party.
     88.  We further propose to codify in our Part 1 general competitive bidding rules the policy
under which we have previously adopted two exceptions to our broadband PCS attribution rule for the same
reasons identified in the Fifth M O & O.  Under these exceptions, we would not treat "rights of first
refusal" and "put" options as having been exercised for purposes of calculating ownership levels.  We seek
comment on this proposal.
     VI.  PROCEDURAL MATTERS AND ORDERING CLAUSES
          A.   Regulatory Flexibility Analyses
     89.  Pursuant to the Regulatory Flexibility Act, a Supplemental Final Regulatory Flexibility
Analysis for the Order on Reconsideration is attached at Appendix C.
     90.  A Final Regulatory Flexibility Analysis for the Fifth Report and Order is contained in
Appendix D.
     91.  An Initial Regulatory Flexibility Analysis ("IRFA") for the Fourth Notice is attached at
Appendix E.  Comments on the IRFA should be labelled as IRFA Comments, and should be submitted
pursuant to the filing dates and procedures set forth in paragraphs 94-97, infra.
          B.   Paperwork Reduction Act Analysis
     92.  This Order on Reconsideration of the Third Report and Order, Fifth Report and Order, and
Fourth Further Notice of Proposed Rule Making contains either a proposed or modified information
collection.  As part of its continuing effort to reduce paperwork burdens, we invite the general public and
the Office of Management and Budget ("OMB") to take this opportunity to comment on the information
collections contained in this Order on Reconsideration of the Third Report and Order, Fifth Report and
Order, and Fourth Further Notice of Proposed Rule Making as required by the Paperwork Reduction Act
of 1995, Pub. L. No. 104-13.  Public and agency comments are due 60 days after publication of the Order
on Reconsideration of the Third Report and Order, Fifth Report and Order, and Fourth Further Notice of
Proposed Rule Making in the Federal Register.  Comments should address:  (a) whether the proposed
collection of information is necessary for the proper performance of the functions of the Commission,
including whether the information shall have practical utility; (b) the accuracy of the Commission's burden
estimates; (c) ways to enhance the quality, utility and clarity of the information collected; and (d) ways to
minimize the burden of the collection of information on the respondents, including the use of automated
collection techniques or other forms of information technology.
     93.  In addition to filing comments on the information collections contained in this Fifth Report
and Order with the Secretary, a copy of any comments on the information collections should be submitted
to Judy Boley, Federal Communications Commission, Room 1-C804, 445 12th Street S.W., Washington, DC
20554, or via the Internet to jboley@fcc.gov and to Edward Springer, OMB Desk Officer, 10236 NEOB, 725
  17th Street, N.W., Washington, DC 20503 or via the Internet to edward.springer@omb.eop.gov."
          C.   Filing Procedures
     94.  Pursuant to Sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R.  1.415, 1.419,
interested parties may file comments on or before 45 days after publication in the Federal Register, and
reply comments on or before 66 days after publication in the Federal Register.  Comments may be filed
using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies.  See
Electronic Filing of Documents in Rulemaking Proceedings, 13 FCC Rcd 11322, 11326 (1998).
     95.  Comments filed through the ECFS can be sent as an electronic file via the Internet to
<http://www.fcc.gov/e-file/ecfs.html>.  Generally, only one copy of an electronic submission must be filed.
If multiple docket or rulemaking numbers appear in the caption of this proceeding, however, commenters
must transmit one electronic copy of the comments to each docket or rulemaking number referenced in the
caption.  In completing the transmittal screen, commenters should include their full name, Postal Service
mailing address, and the applicable docket or rulemaking number.  Parties may also submit an electronic
comment by Internet e-mail.  To obtain filing instructions for e-mail comments, commenters should send
an e-mail to ecfs@fcc.gov, and should include the following words in the body of the message, "get form
<your e-mail address>."  A sample form and directions will be sent in reply.
     96.  Parties that choose to file by paper must file an original and four copies of each filing.  If
participants want each Commissioner to receive a personal copy of their comments, an original plus nine
copies must be filed.  All filings must be sent to the Commission's Secretary, Magalie Roman Salas, Office
of the Secretary, Federal Communications Commission, The Portals, 445 12th Street, S.W., Room TW-
A325, Washington, D.C. 20554.  In addition, a courtesy copy should be delivered to Leora Hochstein,
Auctions and Industry Analysis Division, Wireless Telecommunications Bureau, Federal Communications
Commission, 445 12th Street, S.W., Room #4A633, Washington, D.C. 20554.
     97.  All relevant and timely comments will be considered by the Commission before final action
is taken in this proceeding.  Comments and reply comments will be available for public inspection and
duplication during regular business hours in the FCC Reference Information Center, Room CY-A257, 445
12th Street, S.W., Washington, DC 20554.  Copies also may be obtained from International Transcription
Services, Inc., 445 12th Street, S.W., Room CY-B400, Washington, DC 20554, (202) 314-3070.
          D.   Contacts for Further Information
     98.  For further information concerning this Order on Reconsideration of the Third Report and
Order, Fifth Report and Order, and Fourth Further Notice of Proposed Rule Making, contact Leora
Hochstein at (202) 418-1022 (Auctions and Industry Analysis Division, Wireless Telecommunications
Bureau).  For additional information concerning the information collections contained in this Order on
Reconsideration of the Third Report and Order, Fifth Report and Order, and Fourth Further Notice of
Proposed Rule Making, contact Judy Boley at (202) 418-0214 or via the Internet at jboley@fcc.gov.
          E.   Ordering Clauses
     99.  Accordingly, IT IS ORDERED that, pursuant to the authority granted in Sections 4(i),
303(r) and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 303(r) and 309(j),
the petitions for reconsideration and informal requests for clarification filed in response to the Part 1 Third
Report and Order are GRANTED IN PART and DENIED IN PART, as provided herein.
     100. IT IS FURTHER ORDERED that, pursuant to the authority granted in Sections 4(i), 5(b),
5(c)(1), 303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 155(b)
155(c)(1), 303(r), and 309(j), this Order on Reconsideration of the Third Report and Order, Fifth Report
and Order, and Fourth Further Notice of Proposed Rule Making is hereby ADOPTED and Part 1, Subpart
Q of the Commission's rules are amended as set forth in Appendix A, effective 60 days after publication in
the Federal Register.  The information collection contained in these rules becomes effective 60 days after
publication in the Federal Register, following OMB approval, unless a notice is published in the Federal
Register stating otherwise.
     101. IT IS FURTHER ORDERED that, pursuant to 47 U.S.C.  155(c) and 47 C.F.R. 
0.131(c) and 0.331, the Chief of the Wireless Telecommunications Bureau IS GRANTED DELEGATED
AUTHORITY to prescribe and set forth procedures for the implementation of the provisions adopted
herein, including the authority to seek comment on and set forth mechanisms relating to the day-to-day
conduct of specific auctions.
     102. IT IS FURTHER ORDERED that the Consumer Information Bureau, Reference
Information Center, SHALL SEND a copy of this Order on Reconsideration of the Third Report and Order,
Fifth Report and Order, and Fourth Further Notice of Proposed Rule Making, including the Supplemental
Final Regulatory Flexibility Analysis, the Final Regulatory Flexibility Analysis, and the Initial Regulatory
Flexibility Analysis to the Chief Counsel for Advocacy of the Small Business Administration.
                              FEDERAL COMMUNICATIONS COMMISSION
                         Magalie Roman Salas
                              Secretary
                                                           APPENDIX A
                          Final Rules
Part 1 of title 47 of the Code of Federal Regulations is revised to read as follows:
1.   Section 1.2104 is amended by revising paragraphs (g)(1) and (g)(2) to read as follows:
 1.2104 Competitive bidding mechanisms.
* * * * *
(g) * * *
 (1) Bid withdrawal prior to close of auction.  A bidder that withdraws a high bid during the course of an
auction is subject to a withdrawal payment equal to the difference between the amount of the withdrawn bid
and the amount of the winning bid in the same or subsequent auction(s).  In the event that a bidding credit
applies to any of the bids, the bid withdrawal payment is either the difference between the net withdrawn
bid and the subsequent net winning bid, or the difference between the gross withdrawn bid and the
subsequent gross winning bid, whichever is less.  No withdrawal payment will be assessed for a withdrawn
bid if either the subsequent winning bid or any of the intervening subsequent withdrawn bids equals or
exceeds that withdrawn bid.  The withdrawal payment amount is deducted from any upfront payments or
down payments that the withdrawing bidder has deposited with the Commission.  In the case of multiple bid
withdrawals on a single license, the payment for each bid withdrawal will be calculated based on the
sequence of bid withdrawals and the amounts withdrawn in the same or subsequent auction(s).  In the event
that a license for which there have been withdrawn bids is not won in the same auction, those bidders for
which a final withdrawal payment cannot be calculated will be assessed an interim bid withdrawal payment
equal to 3 percent of the amount of their bid withdrawals.  The 3 percent interim payment will be applied
toward any final bid withdrawal payment that will be assessed at the close of the subsequent auction of the
license.
Example:        (1) Bidder A withdraws a bid of $100.  Subsequently, Bidder B places a bid of $90 and
withdraws.  In that same auction, Bidder C wins the license at a bid of $95.  Withdrawal payments are
assessed as follows:  Bidder A owes $5 ($100 - $95).  Bidder B owes nothing.
Example:  (2) Bidder A withdraws a bid of $100.  Subsequently, Bidder B places a bid of $95 and
withdraws.  In that same auction, Bidder C wins the license at a bid of $90.  Withdrawal payments are
assessed as follows:  Bidder A owes $5 ($100 - $95).   Bidder B owes $5 ($95 - $90).
Example:  (3) Bidder A withdraws a bid of $100.  Subsequently, in that same auction, Bidder B places
a bid of $90 and withdraws.  In a subsequent auction, Bidder C places a bid of $95 and withdraws.  Bidder
D wins the license in that auction at a bid of $80.  Withdrawal payments are assessed as follows:  At the end
of the first auction, Bidder A and Bidder B are each assessed an interim withdrawal payment equal to 3
percent of their withdrawn bids pending Commission assessment of a final withdrawal payment (Bidder A
would owe 3% of $100, or $3, and Bidder B would owe 3% of $90, or $2.70).  At the end of the second
auction, Bidder A would owe $5 ($100 - $95) less the $3 interim withdrawal payment for a total of $2.
Because Bidder C placed a subsequent bid that was higher than Bidder B's $90 bid, Bidder B would owe
nothing.  Bidder C would owe $15 ($95 - $80).
(2) Default or disqualification after close of auction.  A bidder assumes a binding obligation to pay its full
bid amount upon acceptance of the high bid at the close of an auction.  If a high bidder defaults or is
disqualified after the close of such an auction, the defaulting bidder will be subject to the payment in
paragraph (g)(1) of this section plus an additional payment equal to 3 percent of the subsequent winning
bid.  If the subsequent winning bid exceeds the defaulting bidder's bid amount, the 3 percent payment will
be calculated based on the defaulting bidder's bid amount.  If either bid amount is subject to a bidding
credit, the 3 percent credit will be calculated using the same bid amounts and basis (net or gross bids) as in
the calculation of the payment in paragraph (g)(1) of this section.  Thus, for example, if gross bids are used
to calculate the payment in paragraph (g)(1) of this section, the 3 percent will be applied to the gross
amount of the subsequent winning bid, or the gross amount of the defaulting bid, whichever is less.
* * * * *
2.   Section 1.2105 is amended by revising paragraphs (a)(2)(xi) and (c)(1) to read as follows:
 1.2105 Bidding application and certification procedures; prohibition of collusion.
* * * * *
(a)(2) * * *
     (xi) An attached statement made under penalty of perjury indicating whether or not the applicant
has ever been in default on any Commission license or has ever been delinquent on any non-tax debt owed
to any Federal agency.
* * * * *
     (c) Prohibition of collusion. (1) Except as provided in paragraphs (c)(2), (c)(3) and (c)(4) of this
section, after the short-form application filing deadline, all applicants are prohibited from cooperating,
collaborating, discussing or disclosing in any manner the substance of their bids or bidding strategies, or
discussing or negotiating settlement agreements, with other applicants until after the down payment
deadline, unless such applicants are members of a bidding consortium or other joint bidding arrangement
identified on the bidder's short-form application pursuant to  1.2105(a)(2)(viii).
* * * * *
3.   Section 1.2106 is amended by revising paragraph (a) to read as follows:
  1.2106 Submission of upfront payments.
     (a) The Commission may require applicants for licenses subject to competitive bidding to submit
an upfront payment.  In that event, the amount of the upfront payment and the procedures for submitting it
will be set forth in a Public Notice.  Any auction applicant that has previously been in default on any
Commission license or has previously been delinquent on any non-tax debt owed to any Federal agency
must submit an upfront payment equal to 50 percent more than that set for each particular license.  No
interest will be paid on upfront payments.
* * * * *
4.   Section 1.2108 is amended by revising paragraph (b) to read as follows:
  1.2108  Procedures for filing petition to deny against long-form applications.
*  *  *  *  *
     (b) Within a period specified by Public Notice, and after the Commission by Public Notice
announces that long-form applications have been accepted for filing, petitions to deny such applications
may be filed.  The period for filing petitions to deny shall be no more than ten (10) days.  The appropriate
licensing Bureau, within its discretion, may, in exigent circumstances, reduce this period of time to no less
than five (5) days.  Any such petitions must contain allegations of fact supported by affidavit of a person or
persons with personal knowledge thereof.
*  *  *  *  *
5.    Section 1.2110 is amended by redesignating paragraphs (b) through (m) as (c) through (n), adding new
paragraph (b), and revising newly redesignated paragraphs (c), (g)(4), and (j) to read as follows:
 1.2110 Designated entities.
*  *  *  *  *
(b) Eligibility for small business provisions.
(1) Size attribution.  The gross revenues of the applicant (or licensee), its controlling interests and their
affiliates shall be attributed to the applicant and considered on a cumulative basis and aggregated for
purposes of determining whether the applicant (or licensee) is eligible for status as a small business under
this section.  An applicant seeking status as a small business under this section must disclose on its short-
and long-form applications, separately and in the aggregate, the gross revenues of the applicant (or
licensee), its controlling interests and their affiliates for each of the previous three years.
(2) Aggregation of affiliate interests. Persons or entities that hold interests in an applicant (or licensee) that
are affiliates of each other or have an identity of interests identified in  1.2110(c)(5)(iii) will be treated as
though they were one person or entity and their ownership interests aggregated for purposes of determining
an applicant's (or licensee's) compliance with the requirements of this section.
Example 1: ABC Corp. is owned by individuals, A, B  and C, each having an equal one-third voting interest
in ABC Corp. A and B together, with two-thirds of the stock have the power to control ABC Corp. and have
an identity of interest. If A&B invest in DE Corp., a broadband PCS applicant for block C, A and B's
separate interests in DE Corp. must be aggregated because A and B are to be treated as one person or entity.
Example 2: ABC Corp. has subsidiary BC Corp., of which it holds a controlling 51 percent of the stock. If
ABC Corp. and BC Corp., both invest in DE Corp., their separate interests in DE Corp. must be aggregated
because ABC Corp. and BC Corp. are affiliates of each other.
(3) Exceptions. (i) Small business consortia.  Where an applicant (or licensee) is a consortium of small
businesses, the gross revenues of each small business consortium member shall not be aggregated. Each
small business consortium member must constitute a separate and distinct legal entity to qualify.
          (ii) Applicants without identifiable controlling interests.  Where an applicant (or licensee)
cannot identify controlling interests under the standards set forth in this section, the gross revenues of all
interest holders in the applicant, and their affiliates, will be attributable.
(c) Definitions.
(1) Small businesses. The Commission will establish the definition of a small business on a service-specific
basis, taking into consideration the characteristics and capital requirements of the particular service.
(2) Controlling interests. (i) For purposes of this section, controlling interest includes individuals or entities
with either de jure or de facto control of the applicant.  De jure control is evidenced by holdings of greater
than 50 percent of the voting stock of a corporation, or in the case of a partnership, general partnership
interests.  De facto control is determined on a case-by-case basis.  An entity must disclose its equity interest
and demonstrate at least the following indicia of control to establish that it retains de facto control of the
applicant:
     (A) the entity constitutes or appoints more than 50 percent of the board of directors or management
committee;
     (B) the entity has authority to appoint, promote, demote, and fire senior executives that control the
day-to-day activities of the licensee; and
     (C) the entity plays an integral role in management decisions.
(ii) Calculation of certain interests.
     (A) Ownership interests shall be calculated on a fully diluted basis; all agreements such as warrants,
stock options and convertible debentures will generally be treated as if the rights thereunder already have
been fully exercised.
     (B) Partnership and other ownership interests and any stock interest equity, or outstanding stock, or
outstanding voting stock shall be attributed as specified below.
     (C) Stock interests held in trust shall be attributed to any person who holds or shares the power to
vote such stock, to any person who has the sole power to sell such stock, and to any person who has the
right to revoke the trust at will or to replace the trustee at will.  If the trustee has a familial, personal, or
extra-trust business relationship to the grantor or the beneficiary, the grantor or beneficiary, as appropriate,
will be attributed with the stock interests held in trust.
     (D) Non-voting stock shall be attributed as an interest in the issuing entity.
     (E) Limited partnership interests shall be attributed to limited partners and shall be calculated
according to both the percentage of equity paid in and the percentage of distribution of profits and losses.
     (F) Officers and directors of an entity shall be considered to have a controlling interest in the entity.
The officers and directors of an entity that controls a licensee or applicant shall be considered to have a
controlling interest in the licensee or applicant.
     (G) Ownership interests that are held indirectly by any party through one or more intervening
corporations will be determined by successive multiplication of the ownership percentages for each link in
the vertical ownership chain and application of the relevant attribution benchmark to the resulting product,
except that if the ownership percentage for an interest in any link in the chain exceeds 50 percent or
represents actual control, it shall be treated as if it were a 100 percent interest.
     (H) Any person who manages the operations of an applicant or licensee pursuant to a management
agreement shall be considered to have a controlling interest in such applicant or licensee if such person, or
its affiliate, has authority to make decisions or otherwise engage in practices or activities that determine, or
significantly influence:
     (1) The nature or types of services offered by such an applicant or licensee;
     (2) The terms upon which such services are offered; or
     (3) The prices charged for such services.
     (I) Any licensee or its affiliate who enters into a joint marketing arrangement with an applicant or
licensee, or its affiliate, shall be considered to have a controlling interest, if such applicant or licensee, or
its affiliate, has authority to make decisions or otherwise engage in practices or activities that determine, or
significantly influence:
     (1) The nature or types of services offered by such an applicant or licensee;
     (2) The terms upon which such services are offered; or
     (3) The prices charged for such services.
(3) Businesses owned by members of minority groups and/or women.  Unless otherwise provided in rules
governing specific services, a business owned by members of minority groups and/or women is one in
which minorities and/or women who are U.S. citizens control the applicant, have at least greater than 50
percent equity ownership and, in the case of a corporate applicant, have a greater than 50 percent voting
interest. For applicants that are partnerships, every general partner must be either a minority and/or woman
(or minorities and/or women) who are U.S. citizens and who individually or together own at least 50
percent of the partnership equity, or an entity that is 100 percent owned and controlled by minorities and/or
women who are U.S. citizens. The interests of minorities and women are to be calculated on a fully diluted
basis; agreements such as stock options and convertible debentures shall be considered to have a present
effect on the power to control an entity and shall be treated as if the rights thereunder 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 substantial 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 Black or African American, Hispanic or Latino, American Indian
or Alaskan Native, Asian, and Native Hawaiian or Pacific Islander extraction.  See Office of Management
and Budget, Revisions to Standards for the Classification of Federal Data on Race Ethnicity, Notice of
Decision, 62 FR 58782 (October 30, 1997).
*  *  *  *  *
(g) *  *  *
          (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 payment obligations
     under the installment plan.
          (i) Any licensee that fails to submit its quarterly payment on an installment payment obligation (the
     "Required Installment Payment") may submit such payment on or before the last day of the next
     quarter (the "first additional quarter") without being considered delinquent.  Any licensee making
     its Required Installment Payment during this period (the "first additional quarter grace period") will
     be assessed a late payment fee equal to five percent (5%) of the amount of the past due Required
     Installment Payment.  The late payment fee applies to the total Required Installment Payment
     regardless of whether the licensee submitted a portion of its Required Installment Payment in a
     timely manner.
          (ii) If any licensee fails to make the Required Installment Payment on or before the last day of the
     first additional quarter set forth in paragraph (i) of this section, the licensee may submit its
     Required Installment Payment on or before the last day of the next quarter (the "second additional
     quarter"), except that no such additional time will be provided for the July 31, 1998 suspension
     interest and installment payments from C or F block licensees that are not made within 90 days of
     the payment resumption date for those licensees, as explained in Amendment of the Commission's
     Rules Regarding Installment Payment Financing for Personal Communications Services (PCS)
     Licensees, Order on Reconsideration of the Second Report and Order, WT Docket No. 97-82, 13
     FCC Rcd 8345 (1998).  Any licensee making the Required Installment Payment during the second
     additional quarter (the "second additional quarter grace period") will be assessed a late payment fee
     equal to ten percent (10%) of the amount of the past due Required Installment Payment.  Licensees
     shall not be required to submit any form of request in order to take advantage of the first and
     second additional quarter grace periods.
          (iii) All licensees that avail themselves of these grace periods must pay the associated late payment
     fee(s) and the Required Installment Payment prior to the conclusion of the applicable additional
     quarter grace period(s).  Payments made at the close of any grace period(s) will first be applied to
     satisfy any lender advances as required under each licensee's "Note and Security Agreement," with
     the remainder of such payments applied in the following order: late payment fees, interest charges,
     installment payments for the most back-due quarterly installment payment.
          (iv) If an eligible entity obligated to make installment payments fails to pay the total Required
     Installment Payment, interest and any late payment fees associated with the Required Installment
     Payment within two quarters (6 months) of the Required Installment Payment due date, it shall be
     in default, its license shall automatically cancel, and it will be subject to debt collection procedures.
     A licensee in the PCS C or F blocks shall be in default, its license shall automatically cancel, and
     it will be subject to debt collection procedures, if the payment due on the payment resumption date,
     referenced in paragraph (g)(4)(ii) of this section, is more than ninety (90) days delinquent.
*  *  *  *  *
(j) Designated entities must describe on their long-form applications how they satisfy the requirements for
eligibility for designated entity status, and must list and summarize on their long-form applications all
agreements that affect designated entity status such as partnership agreements, shareholder agreements,
management agreements and other agreements, including oral agreements, establishing, as applicable, de
facto or de jure control of the entity.  Such information must be maintained at the licensees' facilities or by
their designated agents for the term of the license in order to enable the Commission to audit designated
entity eligibility on an ongoing basis.
* * * * *
6.   Section 1.2112 is revised to read as follows:
 1.2112 Ownership disclosure requirements for short- and long-form applications.
(a) Each application to participate in competitive bidding (i.e., short-form application (see 47 CFR 1.2105)),
or for a license, authorization, assignment, or transfer of control shall disclose fully the real party or parties
in interest and must list the following information:
(1) The name, address, and citizenship of any party holding 10 percent or more of stock in the applicant,
whether voting or nonvoting, common or preferred, including the specific amount of the interest or
percentage held.
(2) In the case of a limited partnership, the name, address and citizenship of each limited partner whose
interest in the applicant is 10 percent or greater (as calculated according to the percentage of equity paid in
or the percentage of distribution of profits and losses);
(3) In the case of a general partnership, the name, address and citizenship of each partner, and the share or
interest participation in the partnership;
(4) In the case of a limited liability company, the name, address and citizenship of each of its members
whose interest in the applicant is 10 percent or greater.
(5) All parties holding indirect ownership interests in the applicant as determined by successive
multiplication of the ownership percentages for each link in the vertical ownership chain, that equals 10
percent or more of the applicant, except that if the ownership percentage for an interest in any link in the
chain exceeds 50 percent or represents actual control, it shall be treated and reported as if it were a 100
percent interest.
(6) Any FCC-licensed entity or applicant for an FCC license, in which the applicant or any of the parties
identified in subparagraphs (1) through (5) of above, owns 10 percent or more of stock, whether voting or
nonvoting, common or preferred.  This list must include a description of each such entity's principal
business and a description of each such entity's relationship to the applicant (e.g., Company A owns 10
percent of Company B (the applicant) and 10 percent of Company C, then Companies A and C must be
listed on Company B's application, where C is an FCC licensee and/or license applicant);
(b) Designated Entity Status: In addition to the information required under paragraph (a) of this section,
each applicant claiming eligibility for small business provisions shall disclose the following:
(1) On its application to participate in competitive bidding (i.e., short-form application (see 47 CFR
1.2105)),
          (i)  List the names, addresses, and citizenship of all officers, directors, and other controlling
          interests of the applicant, as described in 1.2110;
          (ii) List any FCC-licensed entity or applicant for an FCC license, in which any controlling
          interest of the applicant owns a 10 percent or greater interest or a total of 10 percent or
          more of any class of stock, warrants, options or debt securities.  This list must include a
          description of each such entity's principal business and a description of each such entity's
          relationship to the applicant;
           (iii)    List separately and in the aggregate the gross revenues, computed in accordance with 
          1.2110, for each of the following:  the applicant, its affiliates, its controlling interests, and
          affiliates of its controlling interests; and if a consortium of small businesses, the members
          comprising the consortium;
(2) As an exhibit to its long-form application (i.e., see 47 CFR 1.2107):
          (i)  List and summarize all agreements or instruments (with appropriate references to specific
          provisions in the text of such agreements and instruments) that support the applicant's
          eligibility as a small business under the applicable designated entity provisions, including
          the establishment of de facto or de jure control; such agreements and instruments include
          articles of incorporation and bylaws, shareholder agreements, voting or other trust
          agreements, franchise agreements, and any other relevant agreements (including letters of
          intent), oral or written; and
               (ii) List and summarize any investor protection agreements, including rights of first refusal,
          supermajority clauses, options, veto rights, and rights to hire and fire employees and to
          appoint members to boards of directors or management committees.
          (iii)     List separately and in the aggregate the gross revenues, computed in accordance with 
          1.2110, for each of the following: the applicant, its affiliates, its controlling interests, and
          affiliates of its controlling interests; and if a consortium of small businesses, the members
          comprising the consortium.
                                                           APPENDIX B
                        List of Parties
I.  Order on Reconsideration
Petitions for Reconsideration
Alpine PCS, Inc., et al. ("Alpine PCS")
Community Teleplay, Inc. ("CTI")
DiGiPH PCS, Inc. ("DiGiPH")
Loli, Inc. et al. ("Loli")
NextWave Telecom Inc. ("NextWave")
Petition for Limited Reconsideration and Clarification
CONXUS Communications, Inc. ("CONXUS")
Petition for Partial Reconsideration
Houston 936 SMR, Inc. ("Houston 936")
Comments
Bellingham Corporation and Pueblo Communications, Inc. ("Bellingham")
In-Sync Interactive/Akron, Inc. et al. ("In-Sync")
Comments on Section 1.2112 Filed in Universal Licensing System Proceeding
Comments of AT&T Wireless Services, Inc. ("AT&T")
Comments of Bell Atlantic Mobile, Inc. ("BAM")
Comments of The Federal Communications Bar Association ("FCBA")
Reply Comments of The Federal Communications Bar Association
II.   Fifth Report and Order
Comments
AmeriCall International, LLC ("AmeriCall")
Cook Inlet Region, Inc. ("CIRI")
National Telephone Cooperative Association ("NTCA")
NextWave Telecom Inc. ("NextWave")
Rural Telecommunications Group ("RTG")
Western Wireless Corporation ("Western")
Reply Comments
Western Wireless Corporation ("Western")
Ex Parte Filing
Small Business Administration
                           APPENDIX C
       Supplemental Final Regulatory Flexibility Analysis
                   (Order on Reconsideration)
1.As required by the Regulatory Flexibility Act (RFA), an Initial Regulatory Flexibility
Analysis (IRFA) was incorporated in the Notice of Proposed Rulemaking in WT Docket No. 97-82.  The
Commission sought written public comment on the proposals in the Notice of Proposed Rulemaking,
including comment on the IRFA.  A Final Regulatory Flexibility Analysis (FRFA) was incorporated in
the report and order section of the Third Report and Order and Second Further Notice of Proposed Rule
Making ("Part 1 Third Report and Order" and "Second Notice").  The Commission received seven
petitions for reconsideration in response to the Part 1 Third Report and Order and two comments in
support of the petitions for reconsideration.  This supplemental FRFA analyzes the modifications
adopted in response to those petitions and comments, and conforms to the RFA.
A.Need for, and Objectives of, This Order on Reconsideration.
2.This Order on Reconsideration of the Third Report and Order ("Order on Reconsideration")
amends and clarifies the Commission's general competitive bidding rules for all auctionable services.
Specifically, the Commission clarifies that the prohibition on collusion begins on the filing deadline for
short-form applications and ends on the down payment deadline. In addition, the Commission clarifies
and corrects the ownership disclosure requirements.  With respect to entities not seeking designated
entity status, we eliminate the requirement to include debt and instruments such as warrants, convertible
debentures, options and other debt interests in reporting their ownership interests.  The Commission also
amends its rules to clarify that in the case of multiple bid withdrawals on a single license, within the
same or subsequent auction(s), the payment for each bid withdrawal will be calculated based on the
sequence of bid withdrawals and the amounts withdrawn.  The Commission further amends its rules to
provide that in instances in which bids have been withdrawn on a license that is not won in the same
auction, the Commission will assess an interim withdrawal payment equal to 3 percent of the amount of
the bid withdrawals.  In addition, the Commission retains, for the most part, the installment payment
grace period and late payment fee provisions adopted in the Part 1 Third Report and Order, but adopts a
slight modification to the payment due dates for late installment payments and associated late fees.  The
Commission also concludes that licensees defaulting on installment payments are subject to the default
provisions of Section 1.2110(f)(4) of our rules (redesignated herein as  1.2110(g)(4)) and not to Section
1.2104(g).  The Commission incorporates into the Part 1 general competitive bidding rules the "former
defaulter" policies adopted with respect to C block auction applicants.  The Commission clarifies the
circumstances under which installment payment defaulters will be eligible to participate in future
auctions.  Finally, this Order on Reconsideration makes a number of clarifications with respect to the
restructuring of installment payments, the assignment and transfer of licenses paid for through
installment payments, and the unjust enrichment rules for bidding credits.
3.These amendments and clarifications are intended to simplify the Commission's general
competitive bidding rules, increase the efficiency of the competitive bidding process, and provide more
           specific guidance to auction participants.
A.Summary of Significant Issues Raised by Public Comment in Response to the FRFA
   Contained in The Part 1 Third Report and Order.
4.No petitions for reconsideration directly addressed the FRFA contained in the Part 1 Third
Report and Order.  The Commission, however, did receive petitions for reconsideration of the Part 1
Third Report and Order that addressed issues affecting small businesses.  In particular, the Commission
received petitions opposing various aspects of the installment payment grace period and late payment fee
provisions adopted in the Part 1 Third Report and Order.  The Order on Reconsideration addresses
petitioners' arguments and concludes that the revised late payment rules relating to the submission of
installment payments are not commercially unreasonable, do not constitute impermissible retroactive
rulemaking, and do not violate basic contract principles.  The Commission further determines that the
modified grace period and late payment fee provisions apply to 900 MHz SMR and MDS licensees that
have signed Promissory Notes and Security Agreements.  In addition, the Commission adopts a slight
modification to the payment due dates for late installment payments and associated late fees in order to
avoid any confusion as to when such payments are due.  The Commission clarifies that, despite
amendments to the installment payment rules, licensees in the installment payment program continue to
have the opportunity to seek restructuring of installment payments.  The Commission notes, however,
that there is no longer a procedure for requesting a grace period to stay installment payment deadlines
pending such restructuring.  Rather, licensees will be subject to the automatic late payment provisions of
Section 1.2110(g) of the Commission's rules as adopted in this Order on Reconsideration.  The
Commission further clarifies in response to comments that the assignee or transferee of a license paid for
through installment payments is not responsible for the license debt until the assignment of license or
transfer of control has been consummated.  Also in response to requests for clarification, the
Commission clarifies that the unjust enrichment rules for bidding credits do not apply to assignments and
   transfers of C and F block licenses to non-entrepreneurs.
A.Description and Estimate of the Number of Small Entities to Which Rules will Apply.
5.The Commission is required to provide a description of, and, where feasible, an estimate of,
the number of small entities that may be affected by the proposed rules, if adopted.  The RFA generally
defines the term "small entity" as having the same meaning as the terms "small business," "small
organization," and "small governmental jurisdiction."  In addition, the term "small business" has the
same meaning as the term "small business concern", under Section 3 of the Small Business Act, unless
the Commission has developed one or more definitions that are appropriate for its activities.  Under the
Small Business Act, a "small business concern" is one which:  (1) is independently owned and operated;
(2) is not dominant in its field of operation; and (3) meets any additional criteria established by the Small
Business Administration (SBA).  A small organization is generally "any not-for-profit enterprise which
is independently owned and operated and is not dominant in its field."  Nationwide, as of 1992, there
were approximately 275,801 small organizations.  "Small governmental jurisdiction" generally means
"governments of cities, counties, towns, townships, villages, school districts, or special districts, with a
population of less than 50,000."  As of 1992, there were approximately 85,006 such jurisdictions in the
United States.  This number includes 38,978 counties, cities and towns; of these, 37,566, or 96 percent,
have populations of fewer than 50,000.  The Census Bureau estimates that this ratio is approximately
accurate for all governmental entities.  Thus, of the 85,006 governmental entities, we estimate that
81,600 (96 percent) are small entities. Nationwide, there are 4.44 million small business firms, according
                     to SBA reporting data.
6.The rules adopted in this Order on Reconsideration apply to all entities, including small
entities, seeking to obtain licenses in auctionable services through competitive bidding.  These rules
generally apply to future auctions.  In estimating the number of small entities that may participate in
future auctions of radio services, we anticipate that current radio services licensees are representative of
future auction participants. The following is our estimate of the number of small entities that are current
                        radio licensees:
Cellular Licensees.  Neither the Commission nor the SBA has developed a definition of small entities
applicable to cellular licensees.  Therefore, the applicable definition of small entity is the definition under
the SBA rules applicable to radiotelephone (wireless) companies.  This definition provides that a small
entity is a radiotelephone company employing no more than 1,500 persons.  According to the Bureau of
the Census, only 12 radiotelephone firms out of a total of 1,178 such firms that operated during 1992 had
1,000 or more employees.  Therefore, even if all 12 of these firms were cellular telephone companies,
nearly all cellular carriers were small businesses under the SBA's definition.  In addition, we note that there
are 1,758 cellular licenses; however, we do not know the number of cellular licensees, since a cellular
licensee may own several licenses. The most reliable source of information regarding the number of cellular
service providers nationwide appears to be data the Commission publishes annually in its
Telecommunications Industry Revenue report, regarding the Telecommunications Relay Service (TRS).
The report places cellular licensees and Personal Communications Service (PCS) licensees in one group.
According to the most recent Telecommunications Industry Revenue data, 808 carriers reported that they
were engaged in the provision of either cellular service or Personal Communications Service (PCS)
services.  We do not have data specifying the number of these carriers that are not independently owned
and operated or have more than 1,500 employees, and thus are unable at this time to estimate with greater
precision the number of cellular service carriers that would qualify as small business concerns under the
SBA's definition.  Consequently, we estimate that there are no more than 808 small cellular service carriers.
220 MHz Radio Service -- Phase I Licensees.  The 220 MHz service has both Phase I and Phase II licenses.
Phase I licensing was conducted by lotteries in 1992 and 1993.  There are approximately 1,515 such
non-nationwide licensees and four nationwide licensees currently authorized to operate in the 220 MHz
band.  The Commission has not developed a definition of small entities specifically applicable to such
incumbent 220 MHz Phase I licensees.  To estimate the number of such licensees that are small businesses,
we apply the definition under the SBA rules applicable to radiotelephone communications companies.  This
definition provides that a small entity is a radiotelephone company employing no more than 1,500 persons.
According to a 1995 estimate by the Bureau of the Census, only 12 radiotelephone firms out of a total of
1,178 such firms that operated during 1992 had 1,000 or more employees.  Therefore, assuming this
general ratio has not changed significantly in recent years in the context of Phase I 220 MHz licensees, we
estimate that nearly all such licensees are small businesses under the SBA's definition.
220 MHz Radio Service -- Phase II Licensees.  The Phase II 220 MHz service is a new service, and is
subject to spectrum auctions.  In the 220 MHz Third  Report and Order, we adopted criteria for defining
small businesses and very small businesses for purposes of determining their eligibility for special
provisions such as bidding credits and installment payments.  We have defined a small business as an
entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding
$15 million for the preceding three years.  Additionally, a very small business is defined as an entity that,
together with its affiliates and controlling principals, has average gross revenues that are not more than $3
million for the preceding three years.  The SBA has approved these definitions.  An auction of Phase II
licenses commenced on September 15, 1998, and closed on October 22, 1998.  Nine hundred and eight
(908) licenses were auctioned in 3 different-sized geographic areas: three nationwide licenses, 30 Regional
Economic Area Group ("REAG") licenses, and 875 Economic Area (EA) licenses.  Of the 908 licenses
auctioned, 693 were sold.  Companies claiming small business status won: 1 of the Nationwide licenses,
67% of the Regional licenses, 47% of the REAG licenses and 54% of the EA licenses.  As of January 22,
1999, the Commission announced that it was prepared to grant 654 of the Phase II licenses won at auction.
A second 220 MHz Radio Service auction began on June 8, 1999 and closed on June 30, 1999. This auction
offered 225 licenses in 87 EAs and four REAGs. (A total of 9 REAG licenses and 216 EA licenses. No
nationwide licenses were available in this auction.)  Of the 215 EA licenses won, 153 EA licenses (71%)
were won by bidders claiming small business status.  Of the 7 REAG licenses won, 5 REAG licenses (71%)
were won by bidders claiming small business status.
Private and Common Carrier Paging.  The Commission has adopted a two-tier definition of small
businesses in the context of auctioning licenses in the Common Carrier Paging and exclusive Private Carrier
Paging services.  A small business will be defined as either (1) an entity that, together with its affiliates and
controlling principals, has average gross revenues for the three preceding years of not more than $3 million,
or (2) an entity that, together with affiliates and controlling principals, has average gross revenues for the
three preceding calendar years of not more than $15 million.  Because the SBA has not yet approved this
definition for paging services, we will utilize the SBA's definition applicable to radiotelephone companies,
i.e., an entity employing no more than 1,500 persons.  At present, there are approximately 24,000 Private
Paging licenses and 74,000 Common Carrier Paging licenses.  According to the most recent
Telecommunications Industry Revenue data, 172 carriers reported that they were engaged in the provision
of either paging or "other mobile" services, which are placed together in the data.  We do not have data
specifying the number of these carriers that are not independently owned and operated or have more than
1,500 employees, and thus are unable at this time to estimate with greater precision the number of paging
carriers that would qualify as small business concerns under the SBA's definition.  Consequently, we
estimate that there are no more than 172 small paging carriers.  We estimate that the majority of private and
common carrier paging providers would qualify as small entities under the SBA definition.
Mobile Service Carriers.  Neither the Commission nor the SBA has developed a definition of small entities
specifically applicable to mobile service carriers, such as paging companies.  As noted above in the section
concerning paging service carriers, the closest applicable definition under the SBA rules is that for
radiotelephone (wireless) companies, and the most recent Telecommunications Industry Revenue data
shows that 172 carriers reported that they were engaged in the provision of either paging or "other mobile"
services.  Consequently, we estimate that there are no more than 172 small mobile service carriers.
Broadband Personal Communications Service (PCS).  The broadband PCS spectrum is divided into six
frequency blocks designated A through F, and the Commission has held auctions for each block.  The
Commission defined "small entity'' for blocks C and F as an entity that has average gross revenues of less
than $40 million in the three previous calendar years.  For block F, an additional classification for "very
small business" was added and is defined as an entity that, together with their affiliates, has average gross
revenues of not more than $15 million for the preceding three calendar years.  These regulations defining
"small entity'' in the context of broadband PCS auctions have been approved by the SBA.  No small
businesses within the SBA-approved definition bid successfully for licenses in blocks A and B.  There were
90 winning bidders that qualified as small entities in the C block auctions.  A total of 93 small and very
small business bidders won approximately 40% of the 1,479 licenses for blocks D, E, and F.  On March 23,
1999, the Commission held another auction (Auction No. 22) of C, D, E, and F block licenses for PCS
spectrum returned to the Commission by previous license holders.  In that auction, 48 bidders claiming
small business, very small business or entrepreneurial status won 272 of the 341 licenses (80%) offered.
Based on this information, we conclude that the number of small broadband PCS licensees includes the 90
winning C block bidders, the 93 qualifying bidders in the D, E, and F blocks, and the 48 winning bidders
from Auction No. 22, for a total of 231 small entity PCS providers as defined by the SBA and the
Commission's auction rules.
Narrowband PCS.  The Commission has auctioned nationwide and regional licenses for narrowband PCS.
There are 11 nationwide and 30 regional licensees for narrowband PCS.  The Commission does not have
sufficient information to determine whether any of these licensees are small businesses within the SBA-
approved definition for radiotelephone companies.  At present, there have been no auctions held for the
major trading area (MTA) and basic trading area (BTA) narrowband PCS licenses.  The Commission
anticipates a total of 561 MTA licenses and 2,958 BTA licenses will be awarded by auction.  Such auctions,
however, have not yet been scheduled.. Given that nearly all radiotelephone companies have no more than
1,500 employees and that no reliable estimate of the number of prospective MTA and BTA narrowband
licensees can be made, we assume, for our purposes here, that all of the licenses will be awarded to small
entities, as that term is defined by the SBA.
Rural Radiotelephone Service.  The Commission has not adopted a definition of small entity specific to the
Rural Radiotelephone Service.  A significant subset of the Rural Radiotelephone Service is the Basic
Exchange Telephone Radio Systems (BETRS).  We will use the SBA's definition applicable to
radiotelephone companies, i.e., an entity employing no more than 1,500 persons.  There are approximately
1,000 licensees in the Rural Radiotelephone Service, and we estimate that almost all of them qualify as
small entities under the SBA's definition.
Air-Ground Radiotelephone Service.  The Commission has not adopted a definition of small entity specific
to the Air-Ground Radiotelephone Service.  Accordingly, we will use the SBA's definition applicable to
radiotelephone companies, i.e., an entity employing no more than 1,500 persons.  There are approximately
100 licensees in the Air-Ground Radiotelephone Service, and we estimate that almost all of them qualify as
small under the SBA definition.
Specialized Mobile Radio (SMR).  The Commission awards bidding credits in auctions for geographic area
800 MHz and 900 MHz SMR licenses to two tiers of firms:  (1) "small entities," those with revenues of no
more than $15 million in each of the three previous calendar years; and (2) "very small entities," those with
revenues of no more than $3 million in each of the three previous calendar years.  The regulations defining
"small entity" and "very small entity" in the context of 800 MHz SMR (upper 10 MHz and lower 230
channels) and 900 MHz SMR have been approved by the SBA.  The Commission does not know how many
firms provide 800 MHz or 900 MHz geographic area SMR service pursuant to extended implementation
authorizations, nor how many of these providers have annual revenues of no more than $15 million.  One
firm has over $15 million in revenues.  We assume, for our purposes here, that all of the remaining existing
extended implementation authorizations are held by small entities, as that term is defined by the SBA.  The
Commission has held auctions for geographic area licenses in the 800 MHz (upper 10 MHz) and 900 MHz
SMR bands.  There were 60 winning bidders that qualified as small and very small entities in the 900 MHz
auction.  Of the 1,020 licenses won in the 900 MHz auction, 263 licenses were won by bidders qualifying
as small and very small entities.  In the 800 MHz SMR auction, 38 of the 524 licenses won were won by
small and very small entities.
Private Land Mobile Radio (PLMR).  PLMR systems serve an essential role in a range of industrial,
business, land transportation, and public safety activities.  These radios are used by companies of all sizes
operating in all U.S. business categories.  The Commission has not developed a definition of small entity
specifically applicable to PLMR licensees due to the vast array of PLMR users.  For the purpose of
determining whether a licensee is a small business as defined by the SBA, each licensee would need to be
evaluated within its own business area.  The Commission is unable at this time to estimate the number of
small businesses that could be affected by the rules.  However, the Commission's 1994 Annual Report on
PLMRs indicates that at the end of fiscal year 1994 there were 1,087,267 licensees operating 12,481,989
transmitters in the PLMR bands below 512 MHz.  Any entity engaged in a commercial activity is eligible
to hold a PLMR license.  Therefore, these rules could potentially affect every small business in the United
States if PLMR licenses are subject to auction.
Amateur Radio Service.  We estimate that 8,000 applicants will apply for vanity call signs in FY 2000.  All
are presumed to be individuals.
Aviation and Marine Radio Service.  Small businesses in the aviation and marine radio services use a
marine very high frequency (VHF) radio, any type of emergency position indicating radio beacon (EPIRB)
and/or radar, a VHF aircraft radio, and/or any type of emergency locator transmitter (ELT).  The
Commission has not developed a definition of small entities specifically applicable to these small
businesses.  Therefore, the applicable definition of small entity is the definition under the SBA rules for
radiotelephone communications.  Most applicants for recreational licenses are individuals. Approximately
581,000 ship station licensees and 131,000 aircraft station licensees operate domestically and are not
subject to the radio carriage requirements of any statute or treaty.  Therefore, for purposes of our
evaluations and conclusions here, we estimate that there may be at least 712,000 potential licensees that are
individuals or small entities, as that term is defined by the SBA.
Marine Coast Service.  Between December 3, 1998 and December 14, 1998, the Commission held an
auction of 42 VHF Public Coast licenses in the 157.1875-157.4500 MHz (ship transmit) and 161.775-
162.0125 MHz (coast transmit) bands.  For purposes of this auction, and for future public coast auctions,
the Commission defines a "small" business as an entity that, together with controlling interests and
affiliates, has average gross revenues for the preceding three years not to exceed $15 million dollars.  A
"very small" business is one that, together with controlling interests and affiliates, has average gross
revenues for the preceding three years not to exceed $3 million dollars.  There are approximately 10,672
licensees in the Marine Coast Service, and the Commission estimates that almost all of them qualify as
"small" businesses under the Commission's definition, which has been approved by the SBA.
Location and Monitoring Service (LMS). The SBA has not developed a definition of small entities
specifically applicable to LMS licensees.  Therefore, the applicable definition under SBA rules of a small
entity is the definition under the rules applicable to radiotelephone (wireless) companies.  This provides that
a small entity is a radiotelephone company employing no more than 1,500 persons.  According to the
Bureau of the Census, only twelve radiotelephone firms out of a total of 1,178 such firms which operated
during 1992 had 1,000 or more employees.  Therefore, using such data, even if all twelve of these firms
were LMS companies, nearly all such carriers were small businesses under the SBA's definition.  As a
practical matter, there are only a handful of existing LMS licensees -- those being those licensed under the
former Automatic Vehicle Monitoring service.
Fixed Microwave Services.  Microwave services include common carrier, private-operational fixed, and
broadcast auxiliary radio services.  At present, there are approximately 22,015 common carrier fixed
licensees and 61,670 private operational-fixed licensees and broadcast auxiliary radio licensees in the
microwave services.  The Commission has not yet defined a small business with respect to microwave
services.  For our purposes here, we will utilize the SBA's definition applicable to radiotelephone
companies -- i.e., an entity with no more than 1,500 persons.   Under this definition, we estimate that all of
the Fixed Microwave licensees (excluding broadcast auxiliary licensees) would qualify as small entities.
Local Multipoint Distribution Service.  The Commission held two auctions for licenses in the Local
Multipoint Distribution Services (LMDS) (Auction No. 17 and Auction No. 23).   For both of these
auctions, the Commission defined a small business as an entity, together with its affiliates and controlling
principals, having average gross revenues for the three preceding years of no more than $15 million but not
more than $40 million.  A very small business was defined as an entity, together with affiliates and
controlling principals, having average gross revenues for the three preceding years of not more than $15
million.  Of the 144 winning bidders in Auction Nos. 17 and 23, 125 bidders (87%) were small or very
small businesses.
24 GHz -- Incumbent 24 GHz Licensees.  The rules we are adopting today may affect incumbent licensees
who were relocated to the 24 GHz band from the 18 GHz band, and applicants who wish to provide services
in the 24 GHz band.  The Commission has not developed a definition of small entities applicable to
licensees in the 24 GHz band.  Therefore, the applicable definition of small entity is the definition under the
SBA rules for the radiotelephone industry that provides that a small entity is a radiotelephone company
employing fewer than 1,500 persons.  The 1992 Census of Transportation, Communications, and Utilities,
conducted by the Bureau of the Census, which is the most recent information available, shows that only 12
radiotelephone firms out of a total of 1,178 such firms that operated during 1992 had 1,000 or more
employees.  This information notwithstanding, we believe that there are only two licensees in the 24 GHz
band that were relocated from the 18 GHz band, Teligent and TRW, Inc.  Both Teligent and TRW appear
to have more than 1,500 employees.  Therefore, it appears that no incumbent licensee in the 24 GHz band
is a small business entity.
Future 24 GHz Licensees.  The proposals also affect potential new licensees on the 24 GHz band.  Pursuant
to 47 C.F.R.  24.720(b), the Commission has defined "small business" for Blocks C and F broadband PCS
licensees as firms that had average gross revenues of less than $40 million in the three previous calendar
years.  This regulation defining "small business" in the context of broadband PCS auctions has been
approved by the SBA.  With respect to new applicants in the 24 GHz band, we shall use this definition of
"small business" and apply it to the 24 GHz band under the name "entrepreneur."  With regard to "small
business," we shall adopt the definition of "very small business" used for 39 GHz licenses and PCS C and
F block licenses:  businesses with average annual gross revenues for the three preceding years not in excess
of $15 million.  Finally, "very small business" in the 24 GHz band shall be defined as an entity with average
gross revenues not to exceed $3 million for the preceding three years.  The Commission will not know how
many licensees will be small or very small businesses until the auction, if required, is held.  Even after that,
the Commission will not know how many licensees will partition their license areas or disaggregate their
spectrum blocks, if partitioning and disaggregation are allowed.
39 GHz.  The Commission held an auction (Auction No. 30) for fixed point-to-point microwave licenses in
the 38.6 to 40.0 GHz band (39 GHz Band).  For this auction, the Commission defined a small business as
an entity, together with affiliates and controlling interests, having average gross revenues for the three
preceding years of not more than $40 million.  A very small business was defined as an entity, together with
affiliates and controlling principals, having average gross revenues for the three preceding years of not
more than $15 million.  The SBA has approved these definitions.  Of the 29 winning bidders in Auction
No. 30, 18 bidders (62%) were small business participants.
Multipoint Distribution Service (MDS). This service involves a variety of transmitters, which are used to
relay data and programming to the home or office, similar to that provided by cable television systems.  In
connection with the 1996 MDS auction, the Commission defined small businesses as entities that had
annual average gross revenues for the three preceding years not in excess of $40 million.  This definition
of a small entity in the context of MDS auctions has been approved by the SBA.  These stations were
licensed prior to implementation of Section 309(j) of the Communications Act of 1934, as amended.
Licenses for new MDS facilities are now awarded to auction winners in Basic Trading Areas (BTAs) and
BTA-like areas.  The MDS auctions resulted in 67 successful bidders obtaining licensing opportunities for
493 BTAs.  Of the 67 auction winners, 61 meet the definition of a small business.
MDS is also heavily encumbered with licensees of stations authorized prior to the MDS auction.  SBA has
developed a definition of small entities for pay television services, which includes all such companies
generating $11 million or less in annual receipts.   This definition includes MDS systems, and thus applies
to incumbent MDS licensees and wireless cable operators which may not have participated or been
successful in the MDS auction.  Information available to us indicates that there are 832 of these licensees
and operators that do not generate revenue in excess of $11 million annually.  Therefore, for purposes of
this analysis, we find there are approximately 892 small MDS providers as defined by the SBA and the
Commission's auction rules.
Public Safety Radio Services.  Public Safety radio services include police, fire, local government, forestry
conservation, highway maintenance, and emergency medical services.   There are a total of approximately
127,540 licensees within these services.  Governmental entities as well as private businesses comprise the
licensees for these services.  As noted above, governmental entities with populations of less than 50,000 fall
within the SBA definition of a small entity.  There are 85,006 governmental entities in the nation, as of the
last census.  This number includes such entities as states, counties, cities, utility districts, and school
districts.  There are no figures available on what portion of this number has populations of fewer than
50,000; however, this number includes 38,978 counties, cities, and towns and of those, 37,566 or 96
percent, have populations of fewer than 50,000.  The Census Bureau estimates that this ratio is
approximately accurate for all governmental entities.  Thus, of the 85,006 governmental entities, the
Commission estimates that 96 percent or 81,600 are small entities that may be affected by our rules.
Offshore Radiotelephone Service.  This service operates on several UHF TV broadcast channels that are not
used for TV broadcasting in the coastal area of the states bordering the Gulf of Mexico.  At present, there
are approximately 55 licensees in this service.  We are unable at this time to estimate the number of
licensees that would qualify as small under the SBA's definition for radiotelephone communications.
Wireless Communications Services.  This service can be used for fixed, mobile, radio-location and digital
audio broadcasting satellite uses.  The Commission defined "small business" for the wireless
communications services (WCS) auction as an entity with average gross revenues of $40 million for each
of the three preceding years, and a "very small business" as an entity with average gross revenues of $15
million for each of the three preceding years.  The Commission auctioned geographic area licenses in the
WCS service.  In the auction, there were seven winning bidders that qualified as very small business entities
and one winning bidder that qualified as a small business entity.  We conclude that the number of
geographic area WCS licensees affected includes these eight entities.
General Wireless Communication Service.  This service was created by the Commission on July 31, 1995
by transferring 25 MHz of spectrum in the 4660-4685 MHz band from the federal government to private
sector use.   The Commission sought and obtained SBA approval of a refined definition of "small business"
for GWCS in this band.  According to this definition, a small business is any entity, together with its
affiliates and entities holding controlling interests in the entity, that has average annual gross revenues over
the three preceding years that are not more than $40 million.  By letter dated March 30, 1999, NTIA
reclaimed the spectrum allocated to GWCS and identified alternative spectrum at 4940-4990 MHz.  On
February 23, 2000, the Commission released its Notice of Proposed Rule Making in WT Docket No. 00-32
proposoing to allocate and establish licensing and service rules for the 4.9 GHz band.
Television Broadcasting Stations.  The SBA defines a television broadcasting station that has no more than
$10.5 million in annual receipts as a small business.  Television broadcasting stations consist of
establishments primarily engaged in broadcasting visual programs by television to the public, except cable and
other pay television services.  Included in this industry are commercial, religious, educational, and other
television stations.  Also included are establishments primarily engaged in television broadcasting and which
produce taped television program materials.  Separate establishments primarily engaged in producing taped
television program materials are classified under another SIC number.
     There were 1,509 television stations operating in the nation in 1992.  That number has remained fairly
steady as indicated by the approximately 1,590 operating television broadcasting stations in the nation as of
January 1999.  For 1992, the number of television stations that produced less than $10.0 million in revenue
was 1,155 establishments. Thus, of the 1,590 television stations approximately 77%, or 1,224, of those
stations are considered small businesses.  As of January 1999, 2136 low power television stations and 4921
television translator stations were also licensed, and we believe the vast majority of these stations are small
businesses.  These estimates may overstate the number of small entities since the revenue figures on which
they are based do not include or aggregate revenues from non-television affiliated companies.
Radio Broadcasting Stations.  The SBA defines a radio broadcasting station that has no more than $5 million
in annual receipts as a small business.  A radio broadcasting station is an establishment primarily engaged in
broadcasting aural programs by radio to the public.  Included in this industry are commercial, religious,
educational and other radio stations.  Radio broadcasting stations that primarily are engaged in radio
broadcasting and that produce radio program materials are similarly included.  However, radio stations that
are separate establishments and are primarily engaged in producing radio program material are classified under
another SIC number.  The 1992 census indicates that 96% (5,861 of 6,127) of radio station establishments
produced less than $5 million in revenue in 1992.  Official Commission records indicate that 11,334
individual radio stations were operating in 1992.  As of January 1999, official Commission records indicate
that 12,496 radio stations were operating.  We conclude that a similarly high percentage (96%) of current
radio broadcasting licensees are small entities.  As of January 1999, there were also 3171 FM
translator/booster stations licensed, and we believe the vast majority of these stations are small businesses.
These estimates may overstate the number of small entities since the revenue figures on which they are based
do not include or aggregate revenues from non-radio affiliated companies.
Instructional Television Fixed Service (ITFS).  In addition, there are presently 2032 ITFS licensees.  All but
100 of these licenses are held by educational institutions.  Educational institutions may be included in the
definition of a small entity.  ITFS is a non-pay, non-commercial educational microwave service that,
depending on SBA categorization, has, as small entities, entities generating either $10.5 million or less, or
$11.0 million or less, in annual receipts.  However, we do not collect, nor are we aware of other collections of,
annual revenue data for ITFS licensees.  Thus, we conclude that up to 1932 of these licensees are small
entities.
Pending and Future Broadcast Applicants.  We have given the SBA broadcast size standards, supra.  The
competitive bidding procedures set forth in the Order on Reconsideration will affect:  (1) any entity with a
pending application for a construction permit for a new full service commercial radio or analog television
broadcast station, if mutually exclusive applications have been filed; (2) any entity that files an application in
the future for a new full service commercial radio or analog television station, if mutually exclusive
applications are filed; (3) any entity with a pending application on file, or filing an application in the future, for
a new low power television station, or a television or FM translator station, if mutually exclusive applications
have been or are filed; (4) any entity that has a pending or future application to make a make a major change
in an existing facility in any commercial broadcast or secondary broadcast service, if mutually exclusive
applications have been or are filed; and (5) any entity that has filed or files in the future an application for a
license for an ITFS station, if mutually exclusive applications have been filed or are filed.
     We estimate that there are currently pending before the Commission the following mutually exclusive
applications:
    approximately 620 mutually exclusive applications for full power commercial radio
     stations, and approximately 165 competing applications for full power
     commercial analog television stations;
    approximately 275 mutually exclusive applications for low power television stations
     and television translator stations, and approximately 20 competing applications for
     FM translator stations; and
    approximately 200 or more mutually exclusive applications for ITFS stations.
     Although applicants for broadcast construction permits have been required to demonstrate sufficient
financing to construct and initially operate the proposed broadcast station, we do not require the filing of
financial information specifically concerning the entity seeking a construction permit, such as the entity's
annual revenues.  Thus, we have no data on file as to whether entities with pending permit applications, which
are subject to the new competitive bidding selection procedures adopted for the broadcast services, meet the
SBA's definition of a small business concern.  However, we conclude that, given the smaller size of the
markets at issue in the pending applications, most of the entities with pending applications for a permit to
construct a new primary or secondary broadcast station are small entities, as defined by the SBA rules.
     In addition to the pending applicants that may be affected by the auction procedures adopted for the
broadcast services, any entity that applies for a construction permit for a new broadcast station in the future
will be subject to these competitive bidding rules if mutually exclusive applications are filed.  It is not possible,
at this time, to estimate the number of markets for which mutually exclusive applications will be received, nor
the number of entities that in the future may seek a construction permit for a new broadcast station.  Given the
fact that fewer new stations (particularly fewer analog television stations) will be licensed in the future and that
these stations generally will be located in smaller, more rural areas, we conclude that most of the entities
applying for these stations will be small entities, as defined by the SBA rules.
Digital Audio Radio Service (DARS). The Commission has not developed its own definition of "small entity"
for purposes of licensing satellite delivered services.  Accordingly, we rely on the definition of "small
entity" provided under the Small Business Administration (SBA) rules applicable to Communications
Services, Not Elsewhere Classified.  A "small entity" under these SBA rules is defined as an entity with
$11.0 million or less in annual receipts.  The two current U.S. satellite DARS licensees, XM Satellite Radio
and Sirius Satellite Radio, are in the midst of deplying their systems, and appear to have no revenues.  Thus,
XM and Sirius are "small entities" under the SBA definition.
Direct-to-Home (DTH) Satellite Service -- Direct Broadcast Satellite (DBS) and Home Satellite Services
(HSD).  Video service is available from high power DBS satellites that transmit signals to small DBS dish
antennas installed at subscribers' premises, and from medium and low power satellites requiring larger
satellite dish antennas.  In the last year, DirecTV merged with United States Satellite Broadcasting Co., Inc.
(USSB) and acquired PrimeStar.  DirecTV and EchoStar are among the ten largest providers of
multichannel video programming service.  DBS represented a 12.5% share of the national MVPD market
in June 1999 and HSD represented another 2.2% of that market.  Thus, it appears that no DBS or HSD
operators meet the SBA's definition of "small entity."
          A.   Description of the Projected Reporting, Record-keeping, and Other Compliance
          Requirements.
2.     One rule amendment adopted in this Order on Reconsideration will decrease the reporting
requirements for entities not seeking designated entity status.  Other rule amendments, however, may
increase the reporting and recordkeeping requirements for all license applicants, including small entities.
3.     Specifically, we amend Section 1.2112 of our rules to reduce the amount of ownership
information that applicants must report on their short- and long-form applications.  Section 1.2112 requires
applicants to identify direct and indirect owners with an interest of 10 percent or greater.  Previously under
Section 1.2112, in calculating the 10 percent interest, we required applicants to include debt and interests
such as warrants and convertible debentures, stock options, debt securities or other debt interests.   In this
Order on Reconsideration, we amend Section 1.2112 to provide that such interests need not be reported
unless the entity is seeking status as a designated entity.  For the purpose of determining designated entity
status and eligibility for bidding credits, we believe that warrants, convertible debentures, options and other
debt interests should be treated as having been exercised.  For the broader purpose of determining all
applicants' ownership interests, we will not require information regarding interests in an applicant that have
not yet vested.
4.     The Commission amends its general competitive bidding rules to permit "former defaulters,"
i.e., applicants that have defaulted or been delinquent in the past, but have since paid all of their outstanding
non-Internal Revenue Service Federal debts and all associated charges or penalties, to certify on FCC Form
175 that they are not in default and are, therefore, eligible for auction participation.  "Former defaulters"
will be required to pay an upfront payment amount of 1.5 times the normal amount set by the Bureau for
any given license in a Commission auction.  So that the Bureau may implement this rule, it will require
applicants to make an additional certification revealing whether they or any of their controlling interests or
affiliates have ever been in default on any Commission license or have ever been delinquent on any non-tax
debt owed to any Federal agency.
5.     The Order on Reconsideration also clarifies that the assignee or transferee of a license paid for
through installment payments is not responsible for the license debt until the assignment or transfer has
been consummated.  There may be cases in which the Commission believes that an assignment or transfer
has been consummated when it has not. In such instances, the Commission may mistakenly initiate debt
collection procedures against the wrong party.  If such action occurs, the affected party should notify the
Commission in writing that the underlying transaction was not consummated and the Commission will stop
its debt collection proceedings against that party.
          A.   Steps Taken to Minimize the Economic Impact on Small Entities, and Significant
          Alternatives Considered.
6.     Incorporation into the Part 1 general competitive bidding rules of the "former defaulter"
policies adopted with respect to C block auction applicants will provide more opportunities for all entities,
including small entities, to participate in spectrum auctions.  The "former defaulter" policies adopted herein
permit all "former defaulters" including small entities, to participate in future spectrum auctions under
certain conditions.
7.     All petitioners in this proceeding oppose some aspect of the Commission's installment payment
grace period and late payment fee provisions adopted in the Part 1 Third Report and Order.  The
Commission has reviewed petitioners' arguments and concludes that it will retain these provisions, but will
adopt a slight modification to the payment due dates for late installment payments and associated late fees.
 Specifically, we amend the due dates for installment payments to comport with quarterly due dates.  An
alternative would be to maintain the current rules, but this modification may avoid confusion as to when
such payments are due. Revisions to the Commission's installment payment rules were first proposed in the
notice section of the Order, Memorandum Opinion and Order and Notice of Proposed Rule Making,
released in 1997.  Comments on installment payment issues were received and addressed in the Part 1
Third Report and Order.  In response to the Part 1 Third Report and Order, the Commission received
petitions for reconsideration of its installment payment grace period and late payment fee provisions.  In
concluding to retain these provisions in this Order on Reconsideration, the Commission has thoroughly
reviewed and carefully evaluated all of the opposing arguments presented. The Commission rejected the
alternative of reinstating the requirement for licensees using installment payments to submit grace period
requests demonstrating financial needs due, in part, to the burdens that procedure imposes on small business
licensees.
8.     The Commission determines that the revised late payment rules relating to the submission of
installment payments are not commercially unreasonable, do not constitute impermissible retroactive
rulemaking, and do not violate basic contract principles.  The late installment payment provisions were not
intended to serve as a tool that licensees might use in their normal course of planning auction strategy and
build-out.  These provisions are provided for extraordinary circumstances -- instances of financial distress --
for which temporary relief is appropriate.  We considered a number of alternatives presented by petitioners,
but found that those proposals were not consistent with the Commissions fundamental goal in adopting the
late payment provisions, which is to encourage payment on the due date.  The Commission has determined
that this goal is best attainable by adhering to the 5 percent and 10 percent late payment fee schedule
adopted in the Part 1 Third Report and Order.  The Commission further determines that the modified grace
period and late payment fee provisions apply to 900 MHz SMR and MDS licensees that have signed
Promissory Notes and Security Agreements.  The SMR and MDS notes emphasized that the Commission's
rules, as amended, would take precedence over the terms of the notes in case of any conflict.  The
Commission clarifies that, despite amendments to the installment payment rules, licensees in the installment
payment program continue to have the opportunity to seek restructuring of installment payments.  The
Commission notes, however, that there is no longer a procedure for requesting a grace period to stay
installment payment deadlines pending such restructuring.  Rather, licensees will be subject to the
automatic late payment provisions of Section 1.2110(g) of the Commission's rules as adopted in this Order
on Reconsideration.
          A.   Report to Congress.
9.     The Commission shall send a copy of this Final Regulatory Flexibility Analysis, along with this
Order on Reconsideration, in a report to Congress pursuant to the Small Business Regulatory Enforcement
Fairness Act of 1996, 5 U.S.C.  801(a)(1)(A).  A copy of the Order and this FRFA (or a summary thereof)
will be published in the Federal Register.  See 5 U.S.C.  604(b).  A copy of the Order and this FRFA will
also be sent to the Chief Counsel for Advocacy of the Small Business Administration.
                           APPENDIX D
             Final Regulatory Flexibility Analysis
                    (Fifth Report and Order)
1As required by the Regulatory Flexibility Act (RFA), an Initial Regulatory Flexibility Analysis (IRFA)
was incorporated in the notice section of the Third Report and Order and Second Further Notice of
Proposed Rule Making ("Part 1 Third Report and Order" and "Second Notice") in WT Docket No. 97-
82.  The Commission sought written public comment on the proposals in the Second Notice, including
comment on the IRFA.  This Final Regulatory Flexibility Analysis (FRFA) in this Fifth Report and
Order conforms to the RFA, as amended by the Contract With America Advancement Act of 1996
      (CWAAA), Pub. L. No. 104-121, 110 Stat. 847 (1996).
   1Need for, and Objectives of, This Fifth Report and Order.
1.This Fifth Report and Order makes substantive amendments to the Commission's general
competitive bidding rules for auctionable services.  Specifically, the Fifth Report and Order adopts a
"controlling interest" standard for the attribution of gross revenues in determining whether a license
applicant qualifies as a small business.  The "controlling interest" standard is intended to prevent larger
firms from illegitimately seeking status as small businesses and ensure that only those entities truly
meriting small business status are eligible for the small business provisions.  In addition, the Order
establishes a maximum 10-day filing period for the submission of petitions to deny the long-form
applications of winning bidders.  The Commission increases the filing period from 5 days (as adopted in
the Part 1 Third Report and Order) to 10 days in order to afford parties (including small businesses)
additional flexibility in challenging license awards.  The Commission also delegates to the Wireless
Telecommunications Bureau the authority to make any revisions to the Code of Federal Regulations that
are necessary to conform the service-specific auction rules to the Part 1 general competitive bidding
rules. Finally, the Commission addresses other issues raised by the Second Notice and affirms its
            existing rules relative to those issues.
A.Summary of Significant Issues Raised by Public Comments in Response to the IRFA.
2.No comments were received directly in response to the IRFA.  The Commission, however, did
receive comments on issues affecting small businesses in response to the Second Notice.  Specifically,
RTG proposed that we establish geographic area licenses no larger than BTAs in all future auctions.
RTG argued that the use of small areas facilitates the delivery of service to rural areas by increasing the
opportunity for rural small businesses and rural telephone companies to acquire licenses.  RTG also
contends that authorizing smaller geographic areas increases the number of licenses available and the
diversity of licenses, and facilitates the buildout of networks.  We reject RTG's proposal.  Section 309(j)
of the Communications Act requires the Commission to disseminate licenses to a wide variety of
applicants, including small businesses and rural telephone companies, and to promote the development
and rapid deployment of new technologies to the public, including those residing in rural areas.  We
believe that we can best satisfy this mandate by establishing license areas that promote these goals on a
service-specific basis.  Although we have used small license areas in several services (e.g., broadband
PCS D, E and F blocks and LMDS) and may do so in specific services in the future, we are unwilling to
limit our flexibility by adopting an ironclad rule against large service areas.  We anticipate, for example,
that certain satellite-based services may not be particularly suited to small geographic area licensing,
while other services may indeed be more suitable for this type of license category (i.e., the broadband
                    PCS C block auction).
3.Comments were also filed in response to the Commission's proposal to adopt a "controlling
interest" standard as its general attribution rule for determining which applicants qualify as small
businesses.  In this Fifth Report and Order, the Commission adopts a "controlling interest" standard and
addresses the related comments.  Under the "controlling interest" standard, the gross revenues of the
applicant, its controlling interests and their affiliates will be aggregated and attributed to the applicant in
determining whether the applicant qualifies as a small business.  A "controlling interest" includes
individuals or entities that have control of the applicant as determined by the principles of de jure or de
                        facto control.
4.Commenters raised various issues regarding the attribution standard.  Some commenters
expressed concern over whether the revenues of so called "passive investors" would be attributed to the
applicant.  The Commission states that the controlling interest standard adopted herein will be applied to
all investors of the applicant.  In other words, if any investor has either de jure or de facto control of the
applicant, that investor's gross revenues will be attributed to the applicant for purposes of determining
whether the applicant qualifies as a small business.  Some commenters suggested that the Commission
adopt a minimum equity requirement for controlling interests.  The Commission concludes that rather
than focusing solely on equity-holdings, applicants will be required to identify those controlling interests
that actually have control through application of the principles of de jure or de facto control.  Western
Wireless Corporation ("Western") urges the Commission not to amend its attribution rules to include
entities that have management and joint marketing agreements with the applicant or licensee.  The
Commission adopts provisions that make attributable the gross revenues of those that have management
or marketing agreements where such agreements grant authority over key aspects of the applicant's or
licensee's business.  Cook Inlet Region, Inc., ("CIRI") urges the Commission not to apply any new
attribution or affiliation rules adopted in this proceeding to current C block licensees that won their
licenses under the control group broadband PCS rules.  The Commission will not reassess the eligibility
of current C and F block licensees to continue to hold their licenses under the new attribution rules
adopted herein.  These licensees will remain eligible to hold their licenses regardless of whether or not
they would qualify under the newly established attribution rules.  As to future C and F block auctions,
however, all applicants, including existing C and F block licensees, will be subject to the attribution rules
in effect at the time of filing their short-form applications.  For auctions that begin within two years
after the start of Auction No. 22 (March 23, 1999), our new attribution rules will have no effect on the
eligibility as an entrepreneur of any entity that was eligible for, and participated in, Auction No.5 or
Auction No.10.  Eligibility for small business preferences, however, will be determined based on the
attribution rules in effect at the time of an applicant's short-form filing.
A.Description and Estimate of the Number of Small Entities to Which Rules Will Apply.
5.The Commission is required to provide a description of, and, where feasible, an estimate of,
the number of small entities that may be affected by the proposed rules, if adopted.  The rules adopted in
this Fifth Report and Order apply to all entities, including small entities, seeking to obtain licenses in
auctionable services through competitive bidding.  These rules generally apply to future auctions.  In
estimating the number of small entities that may participate in future auctions of wireless services, we
anticipate that current wireless services licensees are representative of future auction participants.  The
Commission hereby incorporates into this FRFA section the detailed Supplemental FRFA analysis and
descriptions of potentially affected small entities, supra, including the cellular, broadband and
narrowband PCS, 220 MHz, paging, mobile service, air-ground, SMR, PLMR, aviation and marine,
offshore radiotelephone services, GWCS, fixed microwave, rural, wireless, public safety, governmental
              entities and Marine Coast Services.
A.Description of the Projected Reporting, Record-keeping, and Other Compliance
                    Requirements.
6.All license applicants are subject to the reporting and record-keeping requirements of the
competitive bidding rules.  Specifically, applicants are required to apply for spectrum auctions by filing
a short-form application prior to auction.  Applicants are also required to file a long-form application at
the conclusion of an auction.  Entities seeking treatment as "small businesses" must disclose on their
short- and long-form applications, separately and in the aggregate, the gross revenues of the applicant, its
controlling interests (as that term is defined in this Fifth Report and Order), and their affiliates.
A.Steps Taken to Minimize the Economic Impact on Small Entities, and Significant
               Alternatives Considered.
7.The Commission has considered the economic impact on small entities of the following rules
and modifications adopted in this Order and has taken steps to minimize the burdens on small entities.
     Attribution of Gross Revenues of Investors and Affiliates.  The Commission adopts a "controlling
interest" standard for attributing to an applicant the gross revenues of its investors and affiliates in
determining whether the applicant qualifies as a small business.  Application of the controlling interest
standard protects the interests of small businesses by preventing larger firms from illegitimately seeking
small business status and ensuring that only those entities truly meriting such status are eligible for the
small business provisions.  The Commission further concludes that the eligibility of current C and F block
licensees to continue to hold their licenses will not be reassessed based on the new attribution rules.
Therefore, these licensees will continue to be eligible to hold their licenses regardless of whether or not they
would qualify under the newly established attribution rules.  By applying the current, rather than the new,
rules to existing C and F block licensees, the Commission eliminates the burden on such licensees of having
to restructure to meet new standards in order to remain licensees.
     Administrative Filing Periods for Applications and Petitions to Deny.  The Commission establishes
a maximum 10-day filing period for submitting petitions to deny against long-form applications.  The
Commission increases the filing period from 5 days (as adopted in the Part 1 Third Report and Order) to
10 days in order to afford parties (including small businesses) additional flexibility in challenging license
applications.
8.     In addition to the modifications adopted in this Fifth Report and Order, the Commission
affirms its existing rules with respect to certain other issues affecting small businesses.  Specifically, the
Commission declines, at this time, to adopt special provisions for minority- and women-owned businesses
pending completion of a series of market studies to determine whether, and under what circumstances,
targeted preferences for minorities and women are appropriate.  The Commission notes, however that
minority- and women-owned businesses that qualify as small businesses may take advantage of the
provisions adopted for small businesses.  In addition, the Commission declines, at this time, to adopt special
provisions for rural telephone companies, such as bidding preferences or an unserved area fill-in policy.
The Commission notes, however, that it will continue to provide rural telephone companies with bidding
credits should such entities qualify as small businesses.  The Commission further determines that, for the
time being, it will not offer installment payments for auctionable services.  The Commission notes that
commenters did not offer suggestions as to how to retain the program or alternatives to replace the program.
The Commission states that it will, as it has done in the LMDS, LMS, 220 MHz Service, and VHF Public
Coast Service auctions, continue to provide small businesses with bidding credits.
          A.   Report to Congress.
9.     The Commission shall send a copy of this Final Regulatory Flexibility Analysis, along with this
Order, in a report to Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of
1996, 5 U.S.C.  801(a)(1)(A).  A copy of the Order and this FRFA (or a summary thereof) will be
published in the Federal Register.  See 5 U.S.C.  604(b).  A copy of the Order and this FRFA will also be
sent to the Chief Counsel for Advocacy of the Small Business Administration.
                           APPENDIX E
            Initial Regulatory Flexibility Analysis
                        (Fourth Notice)
1As required by the Regulatory Flexibility Act (RFA), the Commission has prepared this Initial
Regulatory Flexibility Analysis (IRFA) of the expected impact on small entities of the rules proposed in
this Fourth Further Notice of Proposed Rule Making ("Fourth Notice") in WT Docket No. 97-82.
Written public comments are requested on the IRFA.  Comments on the IRFA must have a separate and
distinct heading designating them as responses to the IRFA and must be filed by the deadlines for
comments on the Fourth Notice.  The Commission will send a copy of the Fourth Notice, including this
IRFA, to the Chief Counsel for Advocacy of the Small Business Administration.  In addition, the Fourth
Notice and IRFA (or summaries thereof) will be published in the Federal Register.
       1Need for, and Objectives of, This Fourth Notice.
1.This Fourth Notice is being initiated to secure comment on additional issues relating to the
general competitive bidding rules for all auctionable services.  Specifically, the Fourth Notice seeks
comment on whether the Commission should use a total assets test, in conjunction with the gross
revenues measure already employed, in determining whether auction applicants qualify as small
businesses.  The Commission seeks to ensure that only bona fide small businesses are eligible for the
small business provisions.  It, therefore, solicits comment on whether the application of a total assets test
would enhance its determinations of small business status.  Further, in the Fifth Report and Order, the
Commission adopts as its general attribution rule a "controlling interest" standard, which provides for the
full dilution of certain stock interests for purposes of calculating equity held in an applicant.  In this
Fourth Notice, the Commission proposes to codify in the Part 1 competitive bidding rules the policy
under which it previously adopted two exceptions to the "fully diluted" requirement of its broadband
PCS attribution rule.  Under these exceptions, two types of ownership interests, "rights of first refusal"
and "put" options, would not be considered on a fully diluted basis for purposes of calculating ownership
levels.  The Commission also seeks comment on whether it should adopt a third exception to the "fully
diluted" requirement of Section 1.2110(b)(4)(v) of the Commission's Rules.  The Commission proposes
that, in calculating the equity held in an applicant, the conversion rights or stock options be considered
individually rather than collectively when they are mutually exclusive.  The Commission believes that
these proposals will enhance its assessments of small business eligibility.
                    A.Legal Basis.
2.This action is taken pursuant to Sections 4(i), 5(b), 5(c)(1), 303(r), and 309 (j) of the
Communications Act of 1934, as amended, 47 U.S.C. Sections 154(i), 155(b), 155(c)(1), 303(r), and
                           309(j).
A.Description and Estimate of the Number of Small Entities to Which the Proposed Rules
                     Will Apply.
3.The Commission is required to provide a description of and, where feasible, an estimate of the
number of small entities that may be affected by the proposed rules, if adopted. The rules proposed in
this Fourth Notice would apply to license applicants seeking small business status in all future auctions.
In estimating the number of small entities that may participate in future auctions of wireless services, the
Commission anticipates that the makeup of current wireless services licensees is representative of future
auction participants.  The Commission hereby incorporates into this IRFA section the Supplemental
FRFA analysis and descriptions of potentially affected small entities.
A.Description of Reporting, Recordkeeping, and Other Compliance Requirements.
4.The Fourth Notice proposes the adoption of a total assets test to be used in conjunction with
the gross revenues measure already employed in determining whether auction applicants qualify as small
businesses.  The total assets test would require auction applicants seeking small business status to
                     disclose their assets.
A.Steps Taken to Minimize Significant Economic Impact on Small Entities, and
         Significant Alternatives Considered.
5.The RFA requires an agency to describe any significant alternatives that it has considered in
reaching its proposed approach, which may include the following four alternatives (among others): (1)
the establishment of differing compliance or reporting requirements or timetables that take into account
the resources available to small entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather
than design, standards; and (4) an exemption from coverage of the rule or any part thereof for small
                           entities.
6.The Commission has adopted specific provisions to promote small business participation in
spectrum auctions.  In order to ensure that only those entities truly meriting small business status qualify
for special preferences, such as bidding credits, the Commission must have an accurate and easily
applicable method of calculating business size.  While it has concluded in the past to use gross revenues
as the measure of business size, it now seeks comment on whether to use a total assets test as well.  The
Commission also seeks comment on whether it should adopt exceptions to the general requirement that
certain stock interests are treated as fully diluted in calculating the equity held in an applicant.  These
proposals are intended to help the Commission realize its goal of widening the opportunities for small
          businesses in the spectrum auction program.
          A.   Federal Rules Which Overlap, Duplicate, Or Conflict With These Rules.
7.     None.