FCC 95-507
                                                               
                           Before the
               FEDERAL COMMUNICATIONS COMMISSION
                    Washington, D.C.  20554
                                
                                
In the Matter of                        )
                                   )    IB Docket No. 95-168
Revision of Rules and Policies for the       )    PP Docket No. 93-253
Direct Broadcast Satellite Service           )


                        REPORT AND ORDER
                                
                                
     Adopted:  December 14, 1995             Released:  December 15, 1995


By the Commission:  Commissioners Quello and Barrett concurring in part and dissenting in
                    part and issuing separate statements.

                       TABLE OF CONTENTS
                                                          Para.
                                                               
I.   INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . .1
II.  ADOPTION OF NEW SERVICE AND ONE-TIME AUCTION RULES. . . . .8
     A.   Performance Objectives . . . . . . . . . . . . . . . .8
     B.   Use of DBS Capacity. . . . . . . . . . . . . . . . . 12
     C.   Rules and Policies Designed to Promote Competition . 23
          1.   The State of Competition Among MVPDs
               and the Role of DBS Rivalry . . . . . . . . . . 32
          2.   Spectrum Aggregation Limitations. . . . . . . . 52
               a.   Intra-DBS Spectrum Limitations . . . . . . 55
               b.   MVPD/DBS Spectrum Limitations. . . . . . . 70
               c.   Orbital Locations Covered by Spectrum Limitations77
               d.   Mechanism for Divestiture. . . . . . . . . 80
               e.   Attribution Rules. . . . . . . . . . . . . 85
          3.   Conduct Rules . . . . . . . . . . . . . . . . . 98
          4.   "Headend in the Sky" Service. . . . . . . . . .110
          5.   Other Concerns About DBS-Related Conduct. . . .119
          6.   East/West Paired Assignments. . . . . . . . . .123
     D.   Service to Alaska and Hawaii . . . . . . . . . . . .125
     E.   License Term . . . . . . . . . . . . . . . . . . . .129
III. ADOPTION OF A NEW METHODOLOGY
     FOR REASSIGNING DBS RESOURCES . . . . . . . . . . . . . .131
IV.  ADOPTION OF RULES FOR AUCTIONING DBS PERMITS. . . . . . .153
     A.   Authority to Conduct Auctions. . . . . . . . . . . .153
     B.   Competitive Bidding Design . . . . . . . . . . . . .166
     C.   Bidding Procedures . . . . . . . . . . . . . . . . .182
     D.   Procedural and Payment Issues. . . . . . . . . . . .191
     E.   Regulatory Safeguards. . . . . . . . . . . . . . . .204
     F.   Designated Entities. . . . . . . . . . . . . . . . .211
V.   CONCLUSION AND ORDERING CLAUSES . . . . . . . . . . . . .218

Appendix A:    List of Parties Filing Comments and Reply Comments
Appendix B:    Final Rules
Appendix C:    One-Time Auction Spectrum Limitations
Appendix D:    Final Regulatory Flexibility Analysis


                        I.  INTRODUCTION
                                
     1.   With this Report and Order, we adopt new rules and policies for the Direct
Broadcast Satellite ("DBS") service that are designed to better reflect the realities of the service
as it has evolved to date than do the existing "interim" rules and policies that were formulated in
a different regulatory environment and without the benefit of experience with actual operation of
a DBS licensee.

     2.   We initiated this proceeding on October 30, 1995, when we issued a Notice of
Proposed Rulemaking ("NPRM") to revise the rules and policies for the DBS service.  Our
action was precipitated by our recent decision to cancel the DBS construction permit of
Advanced Communications Corporation ("ACC") for failure to meet its obligation to proceed
with due diligence toward construction and operation of its DBS system.  We tentatively
concluded that the method we had previously stated would be used to reassign recovered DBS
resources no longer serves the public interest, and accordingly proposed to use competitive
bidding when the Commission has received mutually exclusive applications for reassignment of
such DBS resources.  Specifically, we proposed to auction two large blocks of channels that are
currently available at two orbital locations.

     3.   In addition, the NPRM proposed new service rules that would:  (1) impose
performance criteria intended to ensure that DBS resources are utilized in a timely manner; (2)
guard against potential anticompetitive conduct by DBS providers; and (3) ensure timely DBS
service to Alaska and Hawaii.  We also requested comment on our existing policy governing the
extent to which DBS resources may be put to alternative uses.

     4.   In response to the NPRM, the Commission received 27 initial comments and 24
reply comments from entities representing many sectors of the communications industry.  Many
of our proposed service rules enjoyed broadbased support.  Others, especially those relating to
competition issues, elicited spirited debate.  For example, the comments indicate the large
division between the views of existing DBS permittees and those seeking to enter the service, as
well as between those who own other multichannel video programming distributors ("MVPDs"),
such as cable operators, and those who do not.  

     5.   In light of the comments submitted in this proceeding, we have decided to adopt a
number of the rules we proposed.  After considering the range of suggestions for rules to protect
competition, however, we have decided to adopt a single one-time rule specifically designed to
promote and protect competition:  no person with an attributable interest in channels at a full-CONUS location shall acquire an attributable interest in the channels currently available at the
110 orbital location without divesting its existing interest in full-CONUS channels at another
location within twelve months of such acquisition.  Under this rule, a person currently holding an
attributable interest in channels at one of the three orbital locations capable of full-CONUS
service would be allowed to bid for the channels currently available at 110, but if successful
would have to divest its current full-CONUS channels within one year.  This rule is intended to
ensure that, for the time being, each full-CONUS orbital location will have an operator that is
independent of and competitive with the other full-CONUS operators.  Since this rule expires
upon completion of the auction process, the Commission will be free to reevaluate this "one
location" approach in the course of considering future transactions in the DBS service that are
subject to our approval.

     6.   We have also concluded that the public interest is no longer served by the pro rata
methodology established in Continental for reassigning reclaimed DBS channels.  Although a
number of current permittees object to this change in policy as unjustified, unfair, and even
unconstitutional, we believe that the public interest would be served by adopting rules that will
result in efficient and expedited DBS service from the channels currently available.

     7.   We have concluded that the Commission has the authority to award DBS
construction permits by means of competitive bidding, and that the use of competitive bidding to
assign DBS spectrum will promote the rapid deployment of DBS service and the efficient use of
DBS spectrum more effectively than any other assignment method.  We have decided to award
construction permits for the channels available at 110 and 148 by means of a sequential
multiple round electronic auction, and we adopt rules to implement this auction.  At the same
time, we recognize that other auction designs could be suitable for DBS under certain
circumstances in the future, and we therefore also adopt rules to provide for these auction
designs.

     II.  ADOPTION OF NEW SERVICE AND ONE-TIME AUCTION RULES

A.   Performance Objectives

     8.   The NPRM  tentatively concluded that combining existing due diligence
requirements with additional milestones for construction and operation of DBS systems by new
permittees will prevent unnecessary delays in the commencement of service.  Accordingly, the
NPRM proposed rules to add two additional performance criteria for those receiving DBS
construction permits after the effective date of the proposed rule:  (1) completion of construction
of the first satellite in a DBS system within four years of authorization; and (2) launch and
operation of all satellites in a DBS system within six years of authorization.

     9.   The comments reveal a great deal of support for tightened performance objectives
to ensure the timely development of the DBS service.  A number of commenters support the rule
as proposed, while Primestar and Tempo advocate stronger rules that would apply to existing
permittees as well as new entrants in light of the slow pace of construction in the service to date. 
DBSC opposes as unfair the imposition of additional requirements upon existing permittees. 
Primestar also proposes to shorten the contracting period from one year to six months, require the
first satellite to be built within three and a half years rather than four years, and require all
satellites to be in operation in five rather than six years from authorization.  Tempo supports the
four-year first satellite construction period, but encourages a stronger mechanism for
enforcement than has been implemented to date.

     10.  We will adopt the performance objectives as proposed in the NPRM.  We believe
that these new objectives, combined with existing due diligence requirements, will ensure
consistent and purposeful progress toward construction and operation of DBS systems by those
receiving permits after the effective date of this rule.  These performance requirements will apply
to any person who acquires a permit through the competitive bidding process, and thus further
the congressional goals of preventing warehousing of spectrum and encouraging investment in
and rapid deployment of new services.  We decline to apply the rule to existing permittees,
however.  Of the eight current DBS permittees, two (DIRECTV and USSB) have already built
and launched satellites, and three more (Tempo, EchoStar, and Directsat) have nearly completed
construction of at least one satellite.  Two others (Continental and DBSC) were recently granted
permit extensions based on their demonstrated commitment to and capability of providing DBS
service in an expedited manner.  The remaining permittee (Dominion) was determined to have
met the first prong of our due diligence requirements and granted orbital/channel assignments
only four months ago.  Under these circumstances, we believe it would be inappropriate to
apply the new rules to existing permittees.

     11.  In addition, we decline to accelerate the milestones as proposed by Tempo.  Of the
five new permittees that entered the DBS service as a result of our Continental proceeding, only
one -- EchoStar -- submitted its contractual due diligence showing within six months, although
Tempo Satellite submitted its showing in just over six months.  Although their order in the
assignment queue was to be determined by the speed of their due diligence filings, the other three
permittees took up to the full year allowed in the regulations to make their submissions.  New
entrants, having paid for their channels at auction, would have a demonstrable incentive to
accelerate their progress toward operation in order to recoup their investment as quickly as
possible.  We do not, however, find it necessary to allow them less time to contract for satellite
construction than has been required by prior permittees.  Since the contracting period remains
one year, and even Tempo does not dispute the three year interval between contracting and
completion of the first satellite, we also will not shorten the construction periods.  We will,
however, monitor semi-annual reports more closely in the future to identify any permittee that
appears to be falling behind schedule so that we can address the situation in a timely manner.

B.   Use of DBS Capacity

     12.  As explained in the NPRM, the channels and orbital locations allocated to the
United States under the ITU Radio Regulations, Appendices 30 and 30A, are designated for use
in the Broadcast Satellite Service ("BSS").  This service is defined as a "radiocommunication
service in which signals transmitted or retransmitted by space stations are intended for direct
reception by the general public."  This is also the definition of DBS service adopted in the
Commission's Rules.  Thus, the terms "DBS service" and "BSS service" are interchangeable. 
Under the Region 2 BSS Plan, resources allocated for DBS service "may also be used for
transmission in the fixed-satellite service" so long as certain interference parameters are met, but
those resources must be used "principally" for BSS service.

     13.  The NPRM requested comment on the Commission's existing policy for non-conforming uses of DBS resources.  That policy requires each DBS licensee to begin DBS
operations before the end of its first five-year license term, but allows otherwise unrestricted use
of the spectrum during that term.  After expiration of the first term, a DBS operator may continue
to provide non-DBS service only on those transponders on which it also provides DBS service,
and only up to half of the use of each transponder each day.

     14.  The commenters generally favored making the restrictions on use of DBS
resources a function of capacity instead of time.  DIRECTV argues that the capacity-based
approach will enable licensees to better tailor new program offerings to public demand, while
MCI, DOJ, and USSB see the proposal as promoting efficiency as well as technological
advancement and thus optimizing use of satellite capacity.  Hawaii believes that the greater
flexibility would encourage development of western DBS orbital locations, speeding service to
areas currently unserved or underserved.  

     15.  Only Primestar, Tempo, and GE Americom oppose reformulating the rule in
terms of capacity, arguing that additional flexibility in use of DBS spectrum would undermine
the Commission's commitment to DBS service and in effect work a reallocation of DBS
spectrum to other services.  We believe that this opposition is based on a misapprehension of
the effect that reformulating the rule would have.  Whether stated in temporal or capacity terms,
our restrictions ensure that DBS channels will be used principally for DBS service.  The
capacity-based restrictions maintain all other parameters of the current temporally-based
restrictions, and thus do not decrease the amount of DBS service that licensees must provide in
absolute terms.  Rather, capacity-based restrictions allow licensees more flexibility in how they
will configure their satellites as a matter of technical efficiency in complying with the limitations
we have imposed.  

     16.  We expect that DBS service will be the most economically efficient and profitable
use of DBS resources, and we retain our commitment to promoting this service as an important
competitor in the MVPD market.  Moreover, as the Commission stated when it first adopted its
use restrictions, DBS use will be encouraged by the fact that only those individual channels
providing DBS service for a substantial portion of the day will be entitled to protection from
interference, and then only during the time of DBS operation.  We do not see any reason to
phrase our policies in terms that are more restrictive than necessary to achieve their ends.  

     17.  Accordingly, we will restate our policy restricting the use of DBS resources as a
function of capacity rather than time.  Since we have decided to lengthen the term of a non-broadcast DBS license from five years to ten years, we will require that each licensee initiate
DBS service within five years of licensure, rather than within the term of its first license.  Thus,
the new policy will be that a DBS licensee must begin DBS operations within five years of
receipt of its license, but may otherwise make unrestricted use of the spectrum during that time. 
After that five year period, such a licensee may continue to provide non-DBS service so long as
at least half of its total capacity at a given orbital location is used for DBS service.

     18.  We will not, however, implement MCI's suggestion that this capacity restriction
be assessed over a thirty-day period.  We believe that DBS service should be an important part of
a licensee's operations each and every day, and that such a manner of operation carries out the
spirit of the international allocation of these resources to the United States for DBS use.  As
required under our prior policy, DBS operators must notify the Commission of the initiation of a
non-DBS service and describe the service offering.  We also will retain the requirement that a
DBS operator which provides non-DBS service demonstrate to the Commission the
substantiality of its DBS service -- in terms of hours and specific times devoted to DBS service --
in order to receive protection for its DBS transmissions.

     19.  The NPRM also referred to the possibility that, as a result of a separate
proceeding, operators using DBS channels and orbital locations may be permitted to provide
both domestic and international service.  In light of that possibility, and the discussion of the
permissible non-standard uses of DBS channels, the NPRM requested comment on whether the
U.S. has the authority to auction permits which may include the provision of international
service.  

     20.  While commenters generally support the provision of international DBS service
by United States licensees, some commenters caution against deciding this issue in this
proceeding. Others suggest that allowing international service would make conducting an auction
unwise.  We will not resolve the international service issue in this proceeding.  It is more
properly addressed in the ongoing proceeding reviewing the regulatory distinction we now draw
between domestic and international satellite service generally.  Because this issue may be
resolved before the auction, however, we must address the relationship between auctions and
international service.

     21.  We do not agree that allowing DBS operators the option of providing
international service would make auctions unwarranted or unwise.  Our DBS permits and
licenses authorize the use of orbital locations and frequencies specifically assigned to the United
States.  There is no reason why these limited orbital and spectrum resources cannot be auctioned
for the benefit of the United States.  Moreover, even if we decide to permit international service,
our DBS licenses will constitute final authorization for domestic service only.  Those who wish
to provide international service will still need to request that we notify the ITU, coordinate with
any affected foreign administrations, and comply with any other United States treaty
requirements.

     22.  In addition, we again remind potential DBS permittees of the other use restrictions
that apply to the DBS service.  For example, Section 25 of the 1992 Cable Act mandates that the
Commission adopt rules imposing public interest requirements upon each "provider of DBS
service" including, at a minimum, the political programming requirements set forth in Section
312(a)(7) and 315 of the Communications Act.  In addition, Section 25 also directs the
Commission to require each DBS operator providing video programming to reserve four to seven
percent of its total channel capacity exclusively for noncommercial, educational, or informational
programming and make it available to national educational programming suppliers upon
reasonable prices, terms, and conditions as determined by the Commission.  Pursuant to the
requirements of Section 25, the Commission has commenced a rulemaking proceeding "to
impose, on providers of direct broadcast satellite service, public interest and other requirements
for providing video programming."  After that rulemaking was initiated, a United States
District Court struck down the noncommercial carriage obligations of Section 25, but the
decision has been stayed pending appeal.  The rulemaking proceeding to implement Section 25
also remains pending.  All DBS licensees will be required to comply with these statutory
provisions, and the rules implementing them, if the statute is ultimately upheld on appeal and
following adoption of final rules.

C.   Rules and Policies Designed to Promote Competition

     23.  As we stated in the NPRM, we have consistently sought to promote effective
competition to the services provided by cable systems, and we have encouraged the development
of the DBS spectrum in precisely that context.  In addition, in order to satisfy our obligations
under Title III of the Communications Act, we "seriously consider[] the antitrust consequences
of a proposal and weigh[] those consequences with other public interest factors."  As the
United States Supreme Court has long recognized, "[t]here can be no doubt that competition is a
relevant factor in weighing the public interest."  

     24.  The NPRM proposed certain rules intended to prevent strategic use of DBS
resources for anticompetitive purposes, and also requested comment on whether additional steps
were necessary to achieve the desired goal of fostering competition in markets for the delivery of
video programming.  Two of the rules proposed were structural in that they placed limits on the
number of full-CONUS DBS channels a single entity could use, while the other proposed rules
were aimed at preventing specific types of potentially anticompetitive conduct.  The NPRM also
requested comments upon the sufficiency of existing rules to deal with competition-related
issues.

     25.  As discussed more fully below, a number of commenters assert in response to
these proposals and inquiries that the current record does not support the adoption of additional
pro-competitive rules.  In support of that position, several parties have cited to Cincinnati Bell
Telephone Co. v. FCC, a recent decision in which the United States Court of Appeals for the
Sixth Circuit remanded to the Commission for further consideration an attribution standard
applicable to cellular/PCS cross ownership and the eligibility of cellular licensees to hold PCS
licenses in their service areas.  The court based its remand of the cellular attribution standard on
its conclusion that, in adopting the rule, the Commission had failed to support its predictive
judgment as to the rule's necessity with sufficient statistical data or an economic theory, and had
failed to explain why it had declined to adopt less restrictive measures to achieve the same
ends.  Based upon this decision, these commenters argue that the lack of any demonstrated
anticompetitive behavior of the type identified by the Commission in the NPRM precludes the
promulgation of rules to address competitive concerns.

     26.  We believe these commenters have overread the significance of Cincinnati Bell,
particularly as it would apply in the context of this rulemaking proceeding.  As explained by
DOJ, any rule designed to curtail future industry concentration must be based in part upon a
prediction as to what would occur in the absence of the rule.  Where factual determinations
underlying a rule are "primarily of a judgmental or predictive nature," the Supreme Court
recognizes that "complete factual support in the record for the Commission's judgment or
prediction is not possible or required; a forecast of the direction in which future public interest
lies necessarily involves deductions based on the expert knowledge of the agency."  The Court
has specifically reiterated that predictions as to the probable conduct of licensees and the
functioning of the market are within the institutional competence of the Commission.

     27.  As the evidence discussed extensively below demonstrates, there is more than
ample evidence of concentration in markets for the delivery of video programming, which could
give rise to competitive concerns under a variety of recognized economic theories.  To use DOJ's
characterization, these markets are, at present, essentially a series of local monopolies controlled
by cable television systems.   Congress acted on similar concerns when it adopted program
access and carriage laws to protect potential competitors to incumbent cable operators from
obstacles that interfered with competitors' access to programming needed to provide viable and
competitive multichannel alternatives to the public.  In fact, in 1992, Congress considered a
cable/DBS cross ownership ban, but did not adopt one based upon "the fact that there [were] no
DBS systems operating in the United States at [that] time," and further expressed the expectation
that the Commission would "exercise its existing authority to adopt such limitations should it be
determined that such limitations would serve the public interest."  Moreover, DOJ and forty
state attorneys general were sufficiently concerned about anticompetitive actions by Primestar
and its cable partners that they brought civil antitrust complaints, which resulted in two consent
decrees that constrain the conduct of the country's largest cable operators and Primestar itself. 
Although we have granted a single DBS permit for eleven full-CONUS channels to a wholly-owned subsidiary of Tele-Communications, Inc. ("TCI"), the nation's largest cable system
operator, we did so recognizing "that legitimate competitive concerns do exist regarding the
relationship between TEMPO's proposed DBS service and TCI's cable service," and only after
imposing conditions we deemed necessary to ensure that competition to cable "is fostered, not
hindered."

     28.  As discussed more fully below, there are three orbital locations that we believe to
be capable of full-CONUS service -- 101, 110, and 119.  We believe that the auction rule we
implement today is necessary given the scarcity of full-CONUS DBS spectrum and the impact
that concentration of this spectrum might have on the overall MVPD market.  Under this one-time auction rule, a party currently holding an attributable interest in full-CONUS channels at
one location may bid at auction for channels currently available at the 110 location, but if
successful must divest its existing full-CONUS channels at any other location within twelve
months.  

     29.  Like Congress, we believe that competition should be favored over regulation
wherever possible.  The DBS service is in its early stages, and the ultimate structure of the
industry is presently far from clear.  However, we believe that reducing concentration of full-CONUS DBS resources will promote rivalry among all MVPDs in a way that would benefit
consumer welfare.  This one-time auction rule will essentially ensure that each of the three full-CONUS DBS orbital locations will initially be controlled by entities that do not share interests
with DBS operators at the other two orbital locations.  We believe that this will permit the
development of fully competitive DBS services.  Increased competition among DBS systems is
likely to improve market performance for the nearly four million television households in the
United States that are unable to receive cable services.  In addition, competition involving several
full-CONUS DBS operators should also constrain a cable-affiliated DBS operator from
positioning its services in a manner that avoids competition with cable systems.  Moreover, in
our view, under the current record, the competition among MVPDs resulting from the presence
of an additional full-CONUS DBS system will serve the public interest.  This is a reasonable
response to current market conditions, but does not dictate a particular vision of DBS industry
structure beyond the near term.  

     30.  We acknowledge, however, that many of the comments we address below raise
substantial competitive issues, which we have seriously considered.  At this time, balancing the
competitive concerns against other public interest concerns -- such as expedition of service and
allowing the market to maximize efficient use of public resources -- we believe that the single,
temporary structural rule discussed above should be adequate.  In addition, we believe that this
rule will address most of the concerns that were raised in the NPRM and in the comments that
have been filed in this proceeding.

     31.  In sum, given current market conditions, it would not serve the public interest to
allow an entity to acquire an interest in the full-CONUS 28 channels being auctioned and to
continue to hold an interest in channels at another full-CONUS orbital location.  On the other
hand, we do not believe that the public interest would be furthered by freezing this industry
structure through a rule permanently precluding future channel combinations at multiple full-CONUS locations.  Thus, the rule we adopt leaves us free to evaluate future transactions on a
case-by-case basis under our Title III authority.  In addition, we continue to have rulemaking
authority to remedy anticompetitive conduct and we will consider additional rules if experience
indicates that they are required.

     1.   The State of Competition Among MVPDs and the Role of DBS Rivalry

     32.  Comments.  Many commenters express concerns about concentration in markets
for the delivery of video programming.  DOJ argues that in a concentrated market, firms have an
incentive to engage in a joint profit maximization strategy that may lead to higher profits but
may harm consumer welfare.   DIRECTV and others contend that the these markets are
concentrated, that cable operators have market power, and that the Commission should,
therefore, limit the ability of large cable operators to acquire scarce DBS resources.

     33.  On the other hand, several commenters claim that the markets for the delivery of
video programming are currently competitive.  In particular, Continental Cablevision argues
that there are 5.8 million non-cable MVPD subscribers, and that this figure is projected to expand
300 percent within five years.  Continental and others also claim that entry from other
distribution media, and in particular telephone company entry, into video markets is on the
horizon and promises to provide significant competition to cable systems.  Continental,
Primestar, Tempo, and Time Warner also argue that providers of or applicants for medium-powered or FSS services should be considered potential competitors in the market.

     34.  Based on their perception of competitive markets, several parties contend that any
regulation of competition in the DBS service is inappropriate.  Primestar and others state that
such competition obviates the need for any restriction in the use of full-CONUS channels, and
argues that the Commission recently came to the same conclusion in authorizing the merger of
EchoStar and Directsat.  GE Americom argues that there is no support in the record for the
proposed limitations on DBS spectrum aggregation, that DBS subscribership is growing, and that
existing federal and state antitrust laws and the 1992 Cable Act provide sufficient protection for
competition.  As additional evidence that markets for the delivery of video programming are
competitive and need no further regulation, Time Warner cites the Commission's recent decision
to solicit comments regarding whether the deployment of a video dial tone ("VDT") system in
Dover Township, Delaware was sufficient competition to justify removal of pricing restrictions
on cable operators.

     35.  Several commenters make a number of arguments based upon product
differentiation between DBS and cable services.  Dr. Hausman argues that DIRECTV will not
engage in coordinated interaction with cable systems even if it were to expand its service to two
full-CONUS orbital locations because, "[a]s a matter of economics, coordinated interaction is
extremely unlikely in differentiated product markets."  Continental argues that market forces
are driving competitors to price differentiated products in combined packages, and that the
Commission should reject the desire to "compartmentalize and homogenize video services." 
Time Warner makes a similar argument, writing that "homogenization of the MVPD product will
only detract from the programming options which DBS operators and other MVPDs would offer
to the competitive mix."  Indeed, Time Warner attributes the success of DIRECTV and USSB
in part to their ability to offer unique programming such as out-of-market sports, and encourages
the Commission to leave MVPDs free to differentiate based on quality, type, and mix of
services.  Several parties point out that the Commission, in approving USSB's use of exclusive
DBS distribution contracts, approved of product differentiation as an appropriate competitive
strategy in DBS services. 

     36.  Market Structure.  The comments reflect general agreement with our conclusion
that the market for the delivery of video programming -- the market in which MVPDs compete --
is the relevant product market.  Similarly, the commenters appear to agree that the effects of
competition among MVPDs are felt most strongly at the local level -- in local markets for the
delivery of video programming.  Accordingly, we have conducted our analysis based on these
conclusions and will proceed without further discussion of these definitional issues.

     37.  We have recently found that local markets for providing multichannel video
programming remain highly concentrated and that cable systems remain the primary providers of
video programming.  Despite the growth in subscribership to DBS and Multichannel
Multipoint Distribution Service ("MMDS") in the last year, the combined national market share
of non-cable MVPDs at the end of September 1995 was less than nine percent.  In addition, the
average household in the United States today can only choose from among at most a few
MVPDs -- a cable system, DIRECTV/USSB, Primestar, and perhaps an MMDS system.  We
also note that home satellite dish ("HSD") users have been able to receive multiple channels of
video programming for a number of years and yet this option for consumers does not appear to
have constrained cable systems' exercise of market power. 

     38.  Significant barriers delaying entry of new competitors in markets for the delivery
of video programming remain.  With respect to DBS services, the availability of spectrum is
currently greatly limited.  As discussed in the NPRM, under the ITU's BSS Plan, the United
States has been allocated thirty-two channels at each of eight orbital locations in Region 2
(encompassing North and South America) from which to provide domestic DBS service. 
Orbital locations not allocated to the United States are not currently available to provide service
to subscribers in the United States.   Although we agree with Tempo that our analysis of market
participation should be forward looking, we decline to make public interest determinations
based upon speculation that the international plan may be modified to make additional locations
available.

     39.  The Nature of DBS Service and Current DBS Providers.  The most important
limiting factors for a DBS service provider are its orbital location (literally, the longitude in
which its satellites might be positioned), the bandwidth of spectrum it may utilize from that
orbital location, and compression technology (the amount of digital information that may be
carried through that bandwidth).  Based on technology available today and the economics
associated with the operation of a DBS system that appear to prevail in the industry at this time,
we conclude  that there are only three orbital locations -- 101, 110, and 119 --  from which it
is feasible for a DBS operator to offer full-CONUS service.  We tentatively concluded in the
NPRM that full-CONUS service could also be provided from the 61.5 orbital location.  Almost
all of the commenters that addressed the issue, however, disagreed with that tentative
conclusion.  Based on those comments and our reexamination of the facts, we conclude that the
61.5 orbital location should not be deemed to be capable of supporting full-CONUS service at
this time.  An operator serving customers in the western United States from 61.5 would face
interference from tall objects that an operator from the other three locations would not face due
to their better look angles.  Even if much of this interference could be overcome by the use of
larger receiving dishes, an operator at 61.5 would be at a qualitative disadvantage in attracting
customers who could receive service from an operator at one of the three full-CONUS locations
without compromising on the quality of reception or the unobtrusiveness of the satellite dish.

     40.  Several firms currently hold permits or licenses for full-CONUS radio frequency
(RF) channels.  DIRECTV and USSB provide service that together uses all 32 channels at the
101 orbital location.  DIRECTV had approximately 600,000 subscribers by June 1995, and
projects that it will have 1.5 million subscribing households by the end of 1995, and 10 million
by the end of 2000.  USSB supplies services to subscribers using the same 18-inch dishes that
are used to receive DIRECTV's services.  Because these two services offer mutually exclusive
programming, a customer must subscribe to both services in order to receive a full package
similar to that offered by cable systems.  As a result, nearly all subscribers to one service also
subscribe to the other, and they can be viewed as offering complementary as opposed to
competitive services.

     41.  EchoStar and its affiliate, Directsat, plan to offer approximately 126 channels of
programming using 21 channels at the 119 orbital location over the next year.  EchoStar's first
satellite is scheduled to be launched by the end of 1995.   Tempo holds a permit for the other
11 channels at the 119 orbital location.  This Report and Order implements a plan to auction 28
channels at the 110 location.  Directsat has been assigned one channel at 110 and USSB holds
the other three channels at this location.  

     42.  Although not currently using BSS frequencies, Primestar, a joint venture of six of
the largest cable system operators and GE Americom, currently provides DBS-like video
programming using frequencies in the Fixed Satellite Service ("FSS").  Primestar's
programming is similar to the programming of DIRECTV and USSB, but subscribers must use
receiving dishes that are more than twice as large as the DIRECTV/USSB dishes.  Moreover,
Primestar has less than one-half the channel capacity of DIRECTV and USSB combined. 
Primestar reports that it has over 800,000 subscribers.   It has argued, however, that it needs to
migrate to the high-powered DBS spectrum in order to remain competitive, and it projects that its
subscribership will grow to 3-4 million by the year 2000 if it can migrate to high-power DBS
channels.

     43.  AlphaStar, a Canadian firm, is reportedly scheduled to offer service to the
continental United States with approximately 90 channels of digital video programming
services.  AlphaStar reportedly has leased fourteen transponders on an AT&T Telstar Ku-band
satellite that was launched in the fall of 1995, and to begin offering service to subscribers in early
1996.  The company currently owns an uplinking facility in Canada.  The new service would
apparently transmit programming over FSS frequencies to subscribers who purchase or lease
AlphaStar's twenty-four inch dishes.  AlphaStar thus will be using dishes that are larger than
the eighteen inch dishes used by DIRECTV/USSB subscribers.  On the whole, it appears that
AlphaStar's services will share many characteristics with the services currently offered by
Primestar.  We note that Primestar has stated that it needs to migrate to high-power DBS
channels to remain competitive.  Thus, the likely competitive impact of AlphaStar's entry into
markets in the United States is unclear.

     44.  The recent growth of DIRECTV/USSB and Primestar has demonstrated the
viability of DBS or DBS-like technology to distribute strongly competitive video programming
services.  If there is one thing commenters agree upon in this docket, it is that DBS systems have
at least the potential to be formidable competitor in markets for the delivery of video
programming.  As DOJ points out, the potential of DBS as a "tool for competition in the
MVPD market is critically important" -- yet, the number of DBS firms is necessarily limited by
the number of full-CONUS orbital locations.  As a result, we believe that we have the
obligation to prevent the undue accumulation of full-CONUS DBS spectrum by any one firm and
to encourage additional DBS entry by other firms as long as markets for the delivery of video
programming remain highly concentrated.  In the short term, we believe that entry by additional
full-CONUS DBS providers would bring more vigorous competition among MVPDs generally,
and in particular, among DBS and cable providers.  Such increased competition is clearly in the
public interest.

     45.  The Nature of Competition Among MVPDs and The Role of Rivalry Among DBS
Providers.  While the Commission continues to believe that the multichannel video
programming distribution market is the relevant market in which the various services compete,
we recognize that MVPDs use different distribution technologies that can each be described by a
unique set of attributes, which can be similar to or significantly different from the attributes of a
typical cable system.  For example, products within this market can differ from each other in
terms of the number of channels, quality of reception, and types of programming offered. 
Demand for the services of different MVPDs is a function of consumer preferences for the
different attributes of each distribution system.

     46.  All other things being equal, firms that offer services with dissimilar attributes are
likely to attempt to position their services in a manner that will minimize competition between
their services and those offered by rivals.  Such a product differentiation strategy is naturally
substantially more difficult to accomplish in less concentrated markets because there are more
firms.  Markets for the delivery of video programming, however, are highly concentrated and, to
a certain extent, MVPDs can choose the attributes of the services they offer, which may allow
them to decrease the amount of price competition in the industry.  This is especially true to the
extent that the firms can commit to their choice of attributes, since this credibly signals their
willingness to pursue this strategy.  For example, one MVPD may decide to specialize in the
offering of sports programming.  Such a strategy could differentiate its services from those
offered by most cable systems, which typically provide a variety of programming, including
some sports.  By differentiating its services, the MVPD might reduce the extent of competition
between its services and those offered by cable systems and other MVPDs.

     47.  DBS services have attributes that are different from the attributes of other
MVPDs' services, particularly those offered by cable systems.  For example, DBS subscribers
can currently receive substantially more channels than are offered by other MVPDs, can obtain
unique programming not available elsewhere, receive digital as opposed to analog programming,
and receive programming through small satellite dishes instead of wires, or larger receiving
antennas.  Finally, DBS services are, by nature, nationally provided and, therefore, DBS
providers are likely less able than other MVPDs to air local broadcast signals and otherwise
respond to differing local market characteristics.

     48.  It appears that the services offered by DBS providers are currently positioned as
higher-quality, higher-priced options targeted at those consumers that live outside cable markets
or have strong preferences for niche programming, a large number of channels, and/or digital
quality video signals.  This product differentiation appears to be borne out in evidence
submitted by DIRECTV.  Its expert, Dr. Jerry Hausman, cites evidence that sixty percent of
DIRECTV's subscribers that were cable subscribers prior to purchasing a DSS system cancelled
their cable service, twenty percent reduced their cable service, and the remaining twenty percent
kept their service at the same level.  Accordingly, it is reasonable to conclude that
approximately sixty percent of those subscribers essentially view DIRECTV as highly
substitutable for cable (i.e., they cancelled all cable service after subscribing), twenty percent
view DIRECTV's service as a substitute for some, but not all, cable service offerings, and twenty
percent view DIRECTV's service as a complementary or even separate product from cable
service.  While we note Dr. Hausman's statement that "it is quite clear that DBS will be a
substitute, not a complement, for cable television" due to programming overlap, the evidence
of current market performance indicates that DBS and cable are at present differentiated
products.

     49.  Additional full-CONUS DBS service providers, however, will likely find it
difficult to differentiate substantially their services from those of the incumbent DBS operators. 
As a result, competition among DBS operators is likely to be enhanced by the entry of additional
DBS operators that are not connected with current providers, and this price competition will
translate into price competition with cable operators.  Therefore, the apportionment of full-CONUS locations is critical in our efforts to foster a deconcentrated market structure at this time. 


     50.  As additional full-CONUS DBS entry occurs, DBS operators' incentive to
compete with each other and other MVPDs will be reinforced by the cost structure of satellite
technology.  Satellite-based video distribution systems are characterized by substantial setup
costs that are effectively sunk upon entry, and low marginal costs arising from the public-good
nature of the DBS signal.  Where the cost of adding additional subscribers is low and the fixed
costs necessary to enter the market are incurred up front, a firm has an incentive to lower price in
response to competition, expanding output in order to lower unit costs.  To maximize the
output effect of a lower price, the firm might position its services as closer substitutes for its
rivals' services.  As services become more substitutable, the motivation to increase profit by
cutting price becomes stronger.  Through the interaction of these incentives, therefore, DBS
operators that are unable to avoid competition with other MVPDs are likely to enter into
vigorous competition with those MVPDs.

     51.  Not only is it important to promote the entry of an additional DBS provider, it is
also important to prevent each full-CONUS DBS operator from influencing the development of
competitive services at the other full-CONUS orbital locations.  For example, EchoStar and
Directsat argue that their current service plans, which would use only 21 channels on 119
location "will be considerably less competitive" than a 32-channel system.  Therefore, even
holding 11 channels at a location, as Tempo does at 119, can have a significant impact on the
full-CONUS service available from that location.  Operation of each full-CONUS DBS orbital
location by an independent provider will limit the ability of all DBS providers and cable systems
to engage in strategic product differentiation in an attempt to create, maintain, or exercise market
power in markets for the delivery of video programming.

     2.   Spectrum Aggregation Limitations

     52.  In the NPRM, we expressed the concern that allowing an entity to control too
much of the DBS spectrum capable of full-CONUS service could result in a lessening of
competition among DBS providers and in the broader market for the distribution of multichannel
video programming.  We tentatively concluded that: (1) DBS service rules should address
competitive issues relating to the use of DBS spectrum to provide the wholesale distribution of
DBS services to cable operators and other MVPDs; (2) the effect of DBS competition in the
broader MVPD market will principally be felt in essentially local markets; and (3) cross-ownership between DBS operators and other MVPDs may present opportunities for
anticompetitive strategic conduct that potentially has adverse effects at the firm or national
level.

     53.  Accordingly, we proposed in the NPRM two separate limitations on the
aggregation of full-CONUS DBS channels.  One proposal would limit aggregation of channels
by any DBS licensee, permittee, or operator to a total of 32 at any combination of those full-CONUS orbital locations, and further sought comment on whether the Commission should
impose a limitation on ownership or use of a significant number of channels at each of multiple
full-CONUS orbital locations.  The other proposal would provide that any DBS licensee or
operator affiliated with a non-DBS MVPD would be permitted to control or use DBS channel
assignments at only one full-CONUS orbital location, and sought comment on whether the
proposed spectrum limitations should be related to the size of the MVPD involved and whether
such limitations should differentiate between cable operators and other MVPDs.

     54.  As discussed in detail below, we have decided instead to adopt a single spectrum
aggregation rule that prohibits a party from acquiring at the upcoming auction an attributable
interest in channels at a second full-CONUS location.  We believe this one-time auction rule will
encourage the entry of another full-CONUS DBS service, and will essentially ensure that each of
the three full-CONUS DBS orbital locations will initially be controlled by entities that do not
share interests with DBS operators at the other two locations.  We also believe that the likely
increase in rivalry among MVPDs as a result of this additional entry will serve the public interest
while avoiding any unnecessary regulatory intrusion.

          a.   Intra-DBS Spectrum Limitations

     55.  The above discussion demonstrates that MVPD markets are highly concentrated
and that competition among competing distribution media in these markets is likely to involve
product differentiation strategies rather than competition.  Based on this analysis of current
conditions in the MVPD market, the Commission has determined that preventing undue
concentration at the three full-CONUS locations at this time would be an important step in
promoting vigorous competition among MVPDs, and in particular, between DBS and cable
systems.  This section discusses the various proposals in the NPRM concerning aggregation of
full-CONUS RF channels and explains our decision to limit firms operating at one full-CONUS
location from acquiring at auction an interest in RF channels at any other full-CONUS location
without divesting its prior interest.  We believe that by taking this opportunity to encourage entry
by a new full-CONUS operator we will best promote competition among MVPDs, and at the
same time leave licensees and the Commission the flexibility to consider a different
configuration in the future if warranted by then-prevailing market conditions.

     56.  Comments.  Several commenters favor measures to avoid undue concentration of
full-CONUS DBS RF channels such as the one we have adopted.  PanAmSat argues that such
concentration would inhibit the growth of competition in the MVPD market.  MCI contends
that the Commission should not allow as few as two entities to control all three full-CONUS
locations if it expects DBS to provide effective competition to entrenched cable monopolies. 
BellSouth agrees that an intra-DBS cap will allow DBS providers to offer a competitive mix of
services to consumers without risking undue concentration.  DOJ also raises the concern that
an entity with channels at more than one full-CONUS location would be in a position to reach
mutual accommodations with others holding channels at that location, and thus could exert
substantial influence over the use of several otherwise competitive DBS systems.

     57.  Primestar and NCTA argue that if the Commission imposes DBS spectrum
aggregation rules, competitive equity dictates that the same cap apply to all participants. 
Tempo states that it would be "irrational" to apply a rule only to cable-affiliated DBS permittees
and claims that there is no evidence indicating that "control of channels at multiple orbital
locations is a concern unique to MVPD-affiliated DBS operators."

     58.  DIRECTV opposes any structural rule, arguing that structural regulation is
unnecessary because the Commission, in the future, may be able to accommodate more DBS
satellites and providers beyond the current eight locations allocated by international
agreement.  Continental argues that the conduct rules imposed on Primestar in consent decrees
are sufficient to allay competitive concerns should it begin offering service using DBS spectrum,
and that further structural rules are unnecessary, as the DOJ and state attorneys general declined
to impose any.   

     59.  DIRECTV, among others, has raised a number of arguments against the sort of
intra-DBS aggregation limitation we have decided to adopt.  These commenters argue that the
Commission should not be concerned about intra-DBS competition, but rather should focus on
those whose power in the MVPD market make anticompetitive conduct more likely.  In
particular, DIRECTV and Dr. Hausman argue that only firms that have market power should be
excluded from participating in an auction or expanding their DBS capacity.  Dr. Hausman
states that "[u]nder a market-oriented auction framework, the acquisition of the DBS spectrum by
DIRECTV should only be prohibited if DIRECTV could exercise market power arising from the
spectrum acquisition."  Dr. Hausman and DIRECTV argue that DIRECTV, with only a small
share of the MVPD market, cannot engage in the exercise of market power, and that any rule
limiting its expansion is arbitrary and ill-advised.  DIRECTV and Dr. Hausman also argue that
DBS has competitive importance in the MVPD market and has the potential to provide
competition to cable.  EchoStar/Directsat and Time Warner agree that any spectrum
limitations should apply only to firms with market power in the MVPD market.

     60.  DIRECTV also argues that a one-location rule would severely limit its ability to
expand its bandwidth and channel capacity, as it would limit its system to a maximum of 32 RF
channels.  DIRECTV believes that an "integrated DBS service could be provided from two
orbital locations" through the use of a dual-beam customer antenna similar to those already in use
in Japan for simultaneous access to BSS and FSS satellites at different locations.   It states that
DBS faces channel capacity limitations compared to cable, which may soon be able to offer 500
channels, as DBS is limited to a particular portion of the radio frequency spectrum and thus
would be "severely constrained" in competing against cable by a radio spectrum cap. 
EchoStar/Directsat similarly argues that the Commission should refrain from imposing an
artificial cap on independent DBS operators and that the market should be allowed to decide the
most efficient allocation of channels among non-dominant MVPDs, and that any cap would be
second-guessing the market.  PanAmSat notes that Hughes Communications, Inc. -- a
corporate affiliate of DIRECTV -- argued in favor of a cap on orbital locations in the FSS service
when Hughes was a new entrant, rather than the incumbent as it is in DBS.

     61.  Discussion.  In light of our analysis of the MVPD market, we believe that the
spectrum aggregation limitations proposed in the NPRM are not sufficiently focused on
achieving our goal of encouraging the emergence of an additional full-CONUS DBS competitor
unrelated to existing DBS full-CONUS providers.  Limiting DBS ownership to 32 full-CONUS
channels would not prevent a party from acquiring channels at more than one full-CONUS
location and thereby impairing independent development and use of those locations.  Moreover,
such a service rule would in effect dictate the structure of the MVPD marketplace in the future,
even as that marketplace is undergoing dynamic change.  

     62.  On the other hand, the full-CONUS DBS spectrum to be auctioned is currently a
scarce public resource, and markets for the delivery of video programming are likely to remain
concentrated for several years.  As a result, we believe that the public interest is best served by
encouraging the entry of a new full-CONUS DBS service that has the incentive to fully compete
with full-CONUS DBS operators at other orbital locations.  We have, therefore, decided to adopt
a spectrum allocation rule applicable only to the upcoming auction that will prohibit any person
with an attributable interest in DBS channels at one full-CONUS orbital location from acquiring
an attributable interest in the full-CONUS channels now available at 110 without divesting its
prior interest.  This rule will allow a new and viable full-CONUS operator to enter the DBS
market with a robust 28-channel capacity.  In addition, this auction rule will address the concern
we share with DOJ that a single party acquiring channels at more than one full-CONUS orbital
location would be in a position to exert influence over the use of otherwise competitive systems
at multiple locations.

     63.  We are also aware that two existing permittees hold attributable interests in
channels at more than one full-CONUS location:  Directsat has been assigned ten channels at
119 and one channel at 110, while USSB holds five channels at 101 and three channels at
110.  We do not believe that the channels held by USSB and Directsat will unduly restrict
development of the 28 other channels available for auction at 110, since DIRECTV has
demonstrated the viability of a 27-channel system.  However, if either USSB or Directsat
acquires an attributable interest in additional channels at 110 at the upcoming auction, it will be
required to divest its channels at its other full-CONUS location.

     64.  We believe that the auction rule we adopt today, combined with the Commission's
case-by-case authority to review subsequent transfers of DBS channels, is more than sufficient
to foster competitive rivalry between independent DBS operators, cable-affiliated DBS operators,
cable systems, and other MVPDs.  Contrary to the argument presented by Dr. Hausman and
DIRECTV, we believe that this rule limiting for the moment the expansion of current DBS
operators is not arbitrary or ill-advised, but instead serves the public interest.  Our concern is not
that a DBS firm might obtain market power; rather, our goal is to foster rivalry among MVPDs
by promoting rivalry within the DBS service.  The one-time auction rule is designed to ensure
that there is an opportunity for the quickest possible entry by an additional full-CONUS DBS
system in order to increase the possibility of vigorous rivalry among MVPDs.  As a result, we
reject the arguments against placing a restriction on DBS operators that are not affiliated with
cable systems.

     65.  We share many commenters' reluctance for regulation of the DBS service, which
is why we have sought to implement the least intrusive rule possible to further the goals
articulated above of fostering competitive rivalry among MVPDs.  The auction rule is, we
believe, the least intrusive means of achieving these goals.  It is sufficient to provide auction
participants with the necessary certainty concerning outcomes, yet preserves the industry's ability
to respond to change and our ability to review future transactions on a flexible case-by-case
basis.

     66.  We do not believe that DIRECTV, EchoStar, or other DBS providers, limited to
one full-CONUS location in the near term, will be faced with channel capacity problems that
would cause them not to be able to compete effectively with cable.  With digital compression,
even a 21-channel system is able to provide over 120 video programming channels.  As
discussed in the 1995 Competition Report, the vast majority of cable systems have fewer than 54
channels.  Although we recognize that cable systems are likely to deploy digital technology, a
substantial increase in the channel capacity of the average cable system is not imminent.  In
addition, as discussed below, it is not clear that it is currently feasible for DBS operators to
increase capacity by combining channels at two or more orbital locations.  In any case, we
believe that the public interest benefits provided by ensuring at this point in time that there are
separate DBS providers at each of the full-CONUS locations outweigh the temporary restriction
on expansion of DIRECTV's operations.  

     67.  It also appears that DBS systems may be currently unable as a technical matter to
combine signals from more than one orbital location in a single service offering.  The receiving
equipment currently being used by DIRECTV/USSB, and the equipment to be used by
EchoStar/Directsat when it initiates service, cannot be used to receive signals simultaneously
from more than one orbital location.  In its comments, DIRECTV suggested that this problem
could be overcome, and cited the use of satellite dishes in Japan to simultaneously receive signals
sent via BSS and FSS frequencies.  This example does not, however, address the more
fundamental problem that the same frequencies are used to transmit DBS programming at each
and every orbital location.  Therefore, transmitting signals simultaneously from multiple orbital
locations would likely require subscribers to use additional equipment to avoid interference
problems.  DIRECTV has not presented any evidence demonstrating that it would be feasible to
deploy service in such a manner.

     68.  We also find unpersuasive DIRECTV's other arguments against intra-DBS
spectrum caps.  For example, DIRECTV states that a spectrum cap is not warranted given the
other handicaps DBS faces, such as local zoning, terrestrial interference, restrictive covenants,
and inability to offer local broadcast signals.  In the 1995 Competition Report, we recognized
and discussed these limitations.  However, the existence of these limitations does not justify
Commission action to ensure the success of any particular business venture.  DIRECTV further
argues that a structural rule is not necessary because the Commission may in the future be able to
accommodate more DBS satellites and providers beyond the current eight locations allocated by
international agreement.  It is likely that the international allocation of additional orbital
locations capable of full-CONUS service would obviate the need for the one-location rule. 
Those locations are not now available, however; in the event they do become available, we will
analyze transactions, including those involving the new locations, based on the state of
competition at that time.  In any event, DIRECTV's arguments are largely inapplicable to a rule
of limited duration such as the one we have chosen to adopt.

     69.  A number of commenters support our suggestion in the NPRM for a rule that
would limit concentration of DBS resources by preventing a person with a certain number of
full-CONUS channels -- perhaps more than 16 -- from aggregating any additional channels at
another full-CONUS location.  We choose not to implement this approach because, as
EchoStar points out, the control of even a small number of channels at a full-CONUS location by
a DBS operator that predominately offers service from another full-CONUS location can impact
the development of a full-CONUS location by limiting channel capacity available to other
providers operating there.  While the proposal would to some degree limit channel holdings
across a number of full-CONUS locations, it would not foster the development of another
independent DBS provider as efficiently as does the rule we have adopted.  Allowing a third
entrant into the full-CONUS DBS market, it achieves what we believe to be a desirable pro-competitive result under current market conditions without dictating future DBS market
structure.

          b.   MVPD/DBS Spectrum Limitations

     70.  The NPRM also proposed that the Commission implement a service rule that
would limit non-DBS MVPDs from acquiring DBS channels at more than one full-CONUS
location.  To a certain extent, this proposal is mooted by our decision to limit all firms from
acquiring channels at multiple full-CONUS locations through the auction process.  However,
since a number of parties raised particularized concerns about cable participation in the DBS
industry, we feel it necessary to address those concerns. 

     71.  Comments.  While DIRECTV and others argue that independent DBS providers'
lack of market power makes any intra-DBS spectrum limitations unnecessary, they also assert
that the ability of other MVPDs with market power -- namely, large cable operators -- to use
DBS resources for anticompetitive conduct justifies the imposition or spectrum limitations upon
such MVPDs.  MCI believes that the Commission should limit DBS spectrum aggregation by
large cable companies, defined as those with an aggregate national subscribership of 1,000,000
or more households or a market penetration of 50.1 percent or more of the television households
in any area that it is licensed to serve, because of their power in the MVPD market. 
EchoStar/Directsat asserts that since cable interests dominate the MVPD market, they should
only be allowed to acquire the 16 full-CONUS channels necessary to provide sufficient capacity
to allow Primestar to migrate to high-power DBS service.

     72.  Cox argues that if a one-location cap is placed on all DBS providers, it is hard to
see how limiting cable participation in DBS any further provides any additional pro-competitive
benefits.  Tempo, Cox, Primestar and NCTA argue that as long as there is viable competition
from non-affiliated DBS providers, a cable-affiliated DBS provider would have no incentive or
ability to operate in a non-competitive manner.  Primestar also argues that an MVPD/DBS
limitation would skew the marketplace with an artificial restraint that would decrease the value
of DBS spectrum for non-DBS MVPDs and thereby decrease the value of spectrum to be
auctioned.

     73.  Discussion.  We share the concern that cable-affiliated MVPDs with market
power could use DBS resources, including those soon to be available at auction, for coordinated
conduct that would not maximize competition in the MVPD market and would therefore fail to
give the public the benefits that flow from vigorous competition.  On balance, however, we
believe that the rule we have decided to adopt obviates the need for a separate spectrum
restriction on non-DBS MVPDs.  Even if a cable-affiliated MVPD with market power were to
acquire the permit for the full-CONUS channels available at 110, two other full-CONUS
locations -- largely occupied by independent DBS providers -- would remain.  The presence of
these other providers severely constrains the strategic activities of an MVPD-DBS combination,
since even if it chooses not to make full use of its DBS channels, consumers will have at least
two other competitive sources for DBS service from which to choose.  Moreover, we have
recognized that cable-affiliated MVPDs bring certain positive attributes as DBS permittees.

     74.  Allowing cable participation in DBS is consistent with the policy established in
Tempo II.  We also believe that it is not necessary to reverse Tempo II and exclude a cable-affiliated DBS operator from the opportunity to control or use DBS spectrum at one of the three
full-CONUS orbital locations.  TCI and Tempo have already invested substantial resources in
the creation of a DBS system, which is at least partially attributable to reliance on our decision in
Tempo II not to prohibit cable/DBS cross ownership.  Moreover, a cable/DBS limitation would
be under-inclusive; it is necessary at this time to restrict channels available to each market
participant and not just a cable-affiliated provider because the incentives discussed above are
present without regard to the degree of affiliation with cable system operators.  Therefore, a more
restrictive limitation on cable participation does not appear likely to add significantly to the
promotion of competition.

     75.  DOJ points out that, even under a permanent one-location rule, the three DBS
locations capable of full-CONUS service could be controlled by three large cable-affiliated
operators.  DOJ argues that even if a cable-affiliated DBS provider faced competition from
two independent DBS providers, the incentives of the cable-affiliated DBS provider would be to
restrain output and set higher prices, and that this could well reduce the incentives of the other
two firms to compete vigorously:  "[t]hose [independent DBS] firms would recognize that they
can now set higher prices as well and not lose business to their cable/DBS competitor."  DOJ
also argues that a cable/DBS firm would have an incentive to raise its cable prices because its
DBS system would capture at least some of the cable customers who switched to DBS as a result
of the price increase.  Tempo and its expert, Dr. Bruce Owen, dispute this scenario, arguing
that the two independent DBS firms would be more likely to "free ride" by maintaining or
lowering prices in order to gain market share.  DOJ further contends that a cable-affiliated
DBS operator has an incentive to provide lower-quality programming, to raise the costs of
independent DBS firms by negotiating less aggressively over price with programming suppliers
and thereby creating an unduly high "floor" price, and in any event would be attempting to
"meet, not beat" its competitors.

     76.  At present, four firms unrelated to any cable system operators are either already in
operation, or soon will be, at full-CONUS locations -- DIRECTV and USSB at 101 and
EchoStar and Directsat at 119.  Thus, at present the only full-CONUS channels that appear to be
available for acquisition by an entity that is related to a cable-affiliated MVPD are those to be
auctioned at the 110 orbital location.  We do recognize that, in the future, one or more of the
current unaffiliated full-CONUS DBS operators may seek to assign or transfer control over its
license to a cable-affiliated MVPD.  The Commission has authority under Title III to approve,
reject, or condition the assignment or transfer of DBS channels to other firms and in the event
a cable firm or consortium desires to acquire any additional channels, the competitive effect of
that transfer in the MVPD market will be a significant issue in that transaction, as it was in
approving Tempo's application.  Because such a transaction would require Commission approval,
we would be in a position to assess the competitive landscape if and when such a transaction was
proposed, and to grant, deny, or condition authorization as appropriate under the circumstances at
that time.  Thus, as advocated by EchoStar/Directsat and DBSC among others, we will be able to
monitor DBS channel aggregation on a case-by-case basis and retain the flexibility to take
appropriate action under the circumstances.

          c.   Orbital Locations Covered by Spectrum Limitations.  

     77.  For purposes of implementing the proposed spectrum aggregation limitations, the
NPRM proposed to consider four orbital locations -- 61.5, 101, 110, and 119 -- to be
capable of full-CONUS service.  The NPRM tentatively concluded that applying the spectrum
cap to these four orbital locations will ensure that there is sufficient channel capacity for a
minimum of four full-CONUS DBS providers.  It also concluded that channels at the other four
DBS orbital locations, which are not capable of full-CONUS service, probably cannot match the
economies of scale in domestic service achieved by full-CONUS operators, and thus should be
exempt from the proposed spectrum limitations.

     78.  A clear majority of the parties that commented on this proposal agreed that the
61.5 location should not be considered to be a full-CONUS orbital location.  Continental
Satellite, whose submission on planned service from its channels at 61.5 was part of the basis
for deeming that location to be full-CONUS, states that its submission shows only that its
satellite beam is capable of covering the entire United States, not that it expects to provide full-CONUS service from that location.  In fact, Continental Satellite states that it will not be able to
serve the West Coast from the 61.5 orbital location since the poor look angle from its satellite
into that region allows buildings, trees, and other tall impediments to interfere with the DBS
signal.  EchoStar/Directsat agrees that 61.5 is not suitable for full-CONUS service. 
Primestar argues that the technical issues are at least unsettled, and that further study would be
required before concluding that full-CONUS service is possible from that location.  Tempo
proposes that the Commission reserve the channels currently available at 148 for paired use
with channels at 61.5 to ensure full-CONUS capability for permittees at the latter location. 
Only MCI contends that the 61.5 orbital location should be included in a spectrum limitation
despite the limitations involved in providing service from that location.

     79.  As mentioned above, we agree that the 61.5 orbital location should not be
included with the other three full-CONUS locations.  While it still appears that nationwide
service from that location is a technical possibility, as a practical matter such service would not
be comparable to service from 101, 110, or 119 for the reasons advanced by Continental
Satellite.  Accordingly, for purposes of implementing the spectrum aggregation limitations we
have chosen to adopt, we will only consider three orbital locations -- 101, 110, and 119 -- to
be capable of full-CONUS service.  We have twice previously considered and rejected Tempo's
proposal to reserve channels at the 148 orbital location for use in conjunction with channels at
61.5.  Moreover, as discussed below, we have now decided to eliminate the east/west pairing
scheme for DBS channels.  We see no reason to revisit the issue at this time.

          d.   Mechanism for Divestiture.

     80.  The NPRM proposed that any permittee or licensee that acquires an attributable
interest in channels in excess of the proposed spectrum limitations be given ninety days from the
date of Commission approval of such acquisition in which to either surrender to the Commission
its excess channels, or file with the Commission a transfer or assignment application in order to
divest sufficient channels to bring the applicant into compliance with all applicable spectrum
limitations.

     81.  Primestar and Tempo assert that ninety days is an unreasonable and inadequate
period in which to require divestiture that will force permittees to sell DBS authorizations in a
"fire sale" atmosphere.  They instead propose that we allow 18 months as we have done in the
broadcast context.  DOJ suggests a twelve month period in which to complete divestiture. 
MCI, on the other hand, argues that ninety days is a reasonable divestiture period and that the
apparent interest of prospective investors belies any fear that divestiture would require a "fire
sale" by the permittee, who in any event did not pay for the spectrum it would be divesting. 
EchoStar/Directsat also supports the spirit of the rule, but proposes that a dominant MVPD be
required to return its excess channels to the public rather than assign or transfer them to another
party, since such an MVPD would have an incentive to place those channels with anyone other
than the party who could most efficiently use them to compete.

     82.  We agree with MCI that the number of parties interested in entering the DBS
service or expanding their existing capacity should make for a competitive sales environment,
especially since the only channels subject to divestiture are those capable of full-CONUS service. 
Even those advocating a longer divestiture period recognize that the DBS service is in a stage of
rapid development and evolution.  At this point, the proposed 18 month divestiture period is
longer than any DBS licensee has been in operation.  The divestiture rule must result in timely
movement of channels to those who can use them from those who no longer can.  Allowing more
than a year for such a transition would be inconsistent with the rapid development of the DBS
service.  

     83.  On the other hand, we recognize that building and operating a competitive,
national DBS system requires the commitment of hundreds of millions of dollars.  A transaction
that implicates funding of that magnitude may reasonably be expected to take several months to
negotiate.  Accordingly, we believe it appropriate to allow twelve months for divestiture of DBS
channels if necessary as a result of the auction rule we have adopted.  That period should be
sufficient to allow an orderly divestiture, and strikes a proper balance between the time necessary
for negotiation and the desire to ensure that spectrum not remain idle in this vibrant industry. 
We do not believe that 18 months are necessary for this purpose.  Accordingly, we will require
any party who acquires full-CONUS channels at a second location in the upcoming auction to
come into compliance within twelve months by filing applications necessary to divest excess
channels at one location.

     84.  Although a party may surrender channels to the Commission in order to comply
with the one-location rule, we will not require it do so.  Such an approach would deny permittees
and licensees the opportunity to recoup the investment of time and money that was necessary to
remain in due diligence under our rules.  When we receive an application from the successful
auction bidders, any party will have the opportunity to argue that the proposed transaction should
not be authorized due to its anticompetitive effect, and we will be in a position to assess the issue
and take appropriate action at that time.  We do not believe that a blanket rule would serve the
public interest.

          e.   Attribution Rules

     85.  For purposes of implementing the spectrum aggregation limitations, the NPRM
proposed to attribute both controlling interests and any interest of five percent or more in a DBS
permittee, licensee, or operator.  The NPRM proposed to define a DBS operator as any person or
group of persons who provides services using DBS channels and directly or through one or more
affiliates owns an attributable interest in such satellite system; or who otherwise controls or is
responsible for, through any arrangement, the management and operation of such satellite
system.  The NPRM proposed to rely on existing case law for making control determinations
where such issues arise.  Specifically, the NPRM proposed to adopt rules that attribute to the
holder any interest of five percent or more, whether voting or nonvoting, and all partnership
interests, whether general or limited.  In addition, the NPRM proposed to adopt attribution rules
that:  (1) attribute any interest of ten percent or more held by an institutional investor or
investment company, rather than a five percent interest; (2) employ a multiplier for determining
attribution of interests held through intervening entities; (3) provide for attribution of interests
held in trust; (4) attribute the positional interests of officers and directors; (5) attribute limited
partner interests based not only upon equity but also upon percentages of distributions of profits
and losses; and (6) provide for attribution based upon certain management agreements, joint
marketing agreements, and status as a DBS "operator."

     86.  The NPRM also proposed to identify any individual or entity as an affiliate of a
licensee, permittee, or operator, or of a person holding an attributable interest in a licensee,
permittee, or operator, if such individual or entity:  (1) directly or indirectly controls or has the
power to control the licensee, permittee, or operator; (2) is directly or indirectly controlled by the
licensee, permittee, or operator; or (3) is directly or indirectly controlled by a third party or
parties that also has the power to control the licensee, permittee, or operator.  The NPRM also
sought comment on whether the definition of an affiliate should include individuals or entities
that have an identity of interest with the licensee, permittee, or operator.

     87.  The comments we received generally criticize the proposed rules as unduly
restrictive.  At least one comment urged us to postpone adoption of attribution rules until a fuller
record can be developed.  GE Americom argues that overbroad rules will deprive the DBS
market of capital and satellite operating experience, and as a result will slow the initiation of
service while raising its cost.  Primestar and Tempo argue that the proposed rules are
unreasonably harsh and that the Commission has failed to offer a sufficient justification for their
imposition.  Tempo also expresses a preference for a narrow control test for determining
attributable interests, rather than establishing the threshold at a five percent interest.  Time
Warner questions why the rules for DBS should be more restrictive than those for any other
video delivery media, including broadcast and cable.  Even MCI, which generally supports the
attribution rules, cautions against rules that would unduly restrict joint ventures that might have
beneficial competitive effects.  DIRECTV and Tempo express concern about the impact of the
attribution rules in the context of the proposed cross-ownership limitation.

     88.  We note initially that these comments were submitted in the context of proposed
spectrum aggregation limitations that would have restricted ownership of DBS resources by non-DBS MVPDs, and would have erected a 32-channel cap on intra-DBS ownership applicable to
all future transactions.  In view of our decision not to adopt such rules, our attribution rules will
not restrict the ability of a non-DBS MVPD to invest in a system operating at any one of the full-CONUS locations, and will not rule out investments by existing full-CONUS operators in the
future.  Therefore, concerns raised over the impact of attribution criteria are largely moot. 
However, attribution rules are necessary at this juncture to implement the auction spectrum rule
and ensure that any person that acquires an interest in the full-CONUS channels now available
for auction will be truly independent of all other licensees and permittees holding full-CONUS
channel assignments, and therefore in a position to provide vigorous competition to them.

     89.  The attribution rules proposed in the NPRM were formulated to implement
ongoing service rules, rather than a one-time auction rule.  The proposed rules were designed to
attribute both ownership interests and non-ownership interests that would nonetheless give one
entity significant influence over the operation of another entity's DBS system.  Thus, we included
within the ambit of those rules certain management and joint marketing agreements that confer
operational control, as well as DBS "operators" whose use of or control over DBS channels
warranted attribution.

     90.  The auction rule we adopt is much more limited in scope, and accordingly, we
adopt more limited attribution rules that are better suited to a one-time auction rule.  In adopting
attribution rules to accomplish the goal of facilitating the entry of another full-CONUS DBS
operator, we have drawn almost exclusively from similar rules applicable in the broadcast
service.  We believe these rules will implement the one-time spectrum limitation in the least
intrusive fashion consistent with our underlying concerns, while not unnecessarily disrupting
existing arrangements within the industry.

     91.  Our two primary areas of concern are control and influence.  These two concerns
have long driven attribution policies with regard to ownership restrictions in the mass media
context, and we believe that these concerns are also appropriate in the context of DBS. 
Experience has shown that control can be conferred or exercised over management, operation,
decision making and market conduct in the absence of ownership interests that confer de jure
control.  Accordingly, as with virtually all of the attribution rules in existence throughout our
various telecommunications regulations, and as proposed in the NPRM, "control" will be defined
to include not only majority equity ownership, but also any general partnership interest, or any
means of actual working control over the operation of the licensee or permittee in whatever
manner exercised.  Existing Commission precedent will govern case-by-case "control"
determinations when such issues arise.

     92.  As with other Commission attribution rules, concerns rest not solely with control
but also with an ability to influence.  An entity with a significant interest in two full-CONUS
DBS licensees or permittees operating from different orbital locations could be able to influence
the behavior of one or both of them, and would have an incentive to modify conduct to maximize
joint profits or returns.  We seek in our attribution rules to ensure that no party can hold interests
at more than one full-CONUS location that might provide it the incentive and ability to exercise
such influence.

     93.  Accordingly, we conclude that in applying the auction spectrum rule adopted
herein, interests will be attributed to their holders and deemed cognizable under criteria similar to
those used in the context of the broadcast, newspaper and cable television ownership rules. 
Thus, we will attribute the following interests:  (1) any voting interest of five percent or more; (2)
any general partnership interest and direct ownership interest; (3) any limited partnership
interest, unless the limited partnership agreement provides for insulation of the limited partner's
interest and the limited partner in fact is insulated from and has no material involvement, either
directly or indirectly, in the management or operation of the DBS activities of the partnership;
and (4) officers and directors.  The legal and policy justifications for those rules have been
thoroughly discussed in prior Commission orders, and need not be reiterated here.  As with the
broadcast attribution rules, the attribution threshold for institutional investors is ten percent, and
a multiplier will be used to calculate interests held through successive and multiple layers of
ownership.  

     94.  We do not adopt a single majority shareholder exception to the attribution
standard because we do not believe it is consistent with the underlying purpose of the spectrum
limitation to permit a person with a cognizable interest in one full-CONUS DBS licensee or
permittee to acquire a large minority interest in another full-CONUS DBS licensee or permittee
that has a single majority shareholder.  The rule we have adopted is based on the pro-competitive
effect of encouraging the development of three full-CONUS systems that are truly independent
of and competitive with each other.  Significant shared interests among these entities would
diminish their independence and their incentive to compete rather than coordinate their activities. 
Thus, a single majority shareholder exception would conflict with the underlying rationale of the
rule.

     95.  As noted above, the commenters generally assert that we should not adopt any
attribution rules, or at most that we adopt liberal attribution rules that only attribute controlling
interests.  These commenters assert that more restrictive rules are unwarranted because DBS is
a nascent industry in which the need for capital, financing, experience and expertise is
particularly crucial to success.  These comments suggest that the adoption of rules that attribute
less than controlling interests may impact the ability of a new DBS licensee to obtain financing,
capital, technical experience and expertise from a firm that is already invested or involved in the
DBS industry.  We are not unsympathetic to this argument.  However, the rule we have adopted
will only restrict the sharing of resources among full-CONUS DBS licensees and permittees
operating at different orbital locations.  Our underlying policy goal is to ensure a minimum of
three independent providers of DBS service to the American consumer.  We have long
recognized that non-controlling interests of even as little as five percent can confer an ability to
influence the management, decision-making, control and market conduct of a company.  We
have thoroughly explained in numerous proceedings why we believe that influence, in addition to
actual de jure control, is a critical component to determining attributable interests in media that
involve the dissemination and distribution of ideas, and we herein incorporate by reference our
prior discussions of the justifications for this approach.

     96.  GE Americom asserts that we should confine attribution of non-controlling
interests to those that are directly involved in the video programming distribution business
themselves.  GE Americom contends that our expressed concern is to prevent the concentration
of control of programming distribution, and therefore any rule that limits an entity's ability to
control more than one full-CONUS DBS orbital location is overreaching -- because according to
GE Americom we are not concerned about the carrier, but about programming distributors.  GE
Americom is correct that we are concerned about ensuring competition among programmers. 
However, we are also concerned about ensuring competition in the DBS industry and believe
three independent full-CONUS DBS licensees is the best means of ensuring competition.  We
agree with USSB that even a licensee that simply provides DBS satellite capacity to others has
the power to select the programmers allowed to use that capacity, and therefore should be subject
to spectrum limitations.  The rule GE Americom proposes would undermine our rule by
allowing entities to hold multiple interests inconsistent with the development of truly
independent full-CONUS systems.  Other than merely stating its position, GE Americom does
not provide support for its argument or state why we should depart from our traditional methods
for examining attribution.  Accordingly, absent a compelling supportive argument, and in light
of the reasons delineated above in support of our auction spectrum limitation, we decline to
depart from our traditional attribution approach as GE Americom suggests.

     97.  Ameritech expresses concern that a five percent attribution threshold would be
unduly restrictive if applied in the aggregate -- i.e., if an entity holding a three percent interest in
each of two DBS permittees would exceed the five percent threshold.  As with all of our
attribution rules, each ownership interest stands alone.  Aggregation otherwise exists only in
the case of successive multiplication of interests within a succession of interrelated interests. 
Thus, Ameritech's concerns are unwarranted.

     3.   Conduct Rules

     98.  In addition to the structural solutions designed to promote competition by
preventing the potential for undue concentration of DBS resources, the NPRM also proposed
conduct limitations on the use of DBS channels and orbital locations to encourage, to the
maximum extent possible, rivalry among MVPDs and to protect against the potential for
anticompetitive strategic conduct.  Specifically, we proposed to (1) extend the conditions
imposed on Tempo Satellite, an existing DBS permittee that is wholly owned by a cable
operator, to all MVPD providers that own DBS resources, so that DBS services will not be
offered primarily as ancillary services, or be provided to other MVPDs under different terms than
are being offered to non-subscribers; and (2) prevent a DBS operator from selling, leasing, or
otherwise providing transponder capacity to any entity that enters into an arrangement with an
MVPD granting that MVPD the exclusive right to distribute DBS services within, or adjacent to,
its service area.  The NPRM also requested comment whether our existing program access and
program carriage rules adequately address vertical foreclosure concerns arising from integration
among DBS operators, other MVPDs, and program vendors, especially in connection with
"headend in the sky" distribution from DBS satellites.

     99.  Comments.  The comments address all aspects of the proposed conduct rules --
some favoring the proposed conduct rules, some opposing them, and some proposing their own
conduct rules.  Primestar, Tempo and cable system operators are generally opposed to the
proposed conduct rules.  They contend that additional rules are unnecessary in light of increasing
competition in the DBS service and existing legal safeguards -- the antitrust laws and two
consent decrees under which Primestar and its cable partners operate.  Several parties argue
that there is no reason to extend the Tempo II conditions to all MVPDs, since there is no
indication that Primestar has been marketed as ancillary to cable service or provided to non-cable-subscribers on discriminatory terms, or that its cable owners have in any way engaged in
any anticompetitive conduct aimed at other DBS operators.  These commenters also argue that
the competitive nature of the market for the delivery of video programming will constrain any
potential anticompetitive conduct and that the proposed rules would merely serve to limit
flexibility during the developmental stages of the DBS service when flexibility is most
necessary.  Finally, many parties argue that there is no basis for rewriting the program access
rules, since there is no evidence that vertically integrated programmers have discriminated
against DBS operators or that large MVPDs could prevent unaffiliated programmers from
dealing with competing DBS systems.  

     100. Others parties see the issues quite differently.  DIRECTV asserts that the
proposed marketing rules are necessary, reasonable, and serve the public interest, but do not go
far enough since they do not expressly prohibit cross-subsidization.  In addition, DIRECTV
proposed that the Commission adopt the conditions it previously proposed in the Advanced
Order proceeding, which include a number of conduct and regulatory measures that have been
applied to common carriers, such as structural separation and review of cost allocation.  MCI
favors the proposed rule that would prohibit exclusive marketing agreements for areas in or
adjacent to an MVPD's service area, but only if it is limited to prohibiting such agreements with
affiliated MVPDs since otherwise the rule would unduly restrain legitimate means for
distribution of service between DBS operators and unaffiliated programmers.  NRTC strongly
supports conduct limitations, but argues that they should apply only to cable operators since
application to other, non-dominant MVPDs would unduly restrict capital available to DBS
systems, and thereby perpetuate cable's dominance. 

     101. Both DIRECTV and EchoStar/Directsat contend that the program access rules are
inadequate in two respects.  First, they assert that existing rules do not prevent programmers
from invoking illusory cost differentials or economies of scale as a basis for price discrimination. 
Second, they argue that the rules should be extended to apply to unaffiliated programmers as well
those that are vertically integrated, a position with which BellSouth and NRTC also agree. 
USSB opposes the latter proposal, arguing that the current rules would be triggered "if a DBS
operator affiliated with a cable operator were to engage in anticompetitive programming
practices" and that these rules are sufficient to remedy such conduct.  DBSC states that the
proposed conduct rules would ensure that no one can dominate the DBS industry through
manipulation of programming availability.  Ameritech favors any rules that remove unfair
obstacles to programming access, and would even apply the proposals to the broadcast service. 
 

     102. DIRECTV argues that a structural rule would be insufficient to ameliorate the
concerns about cable participation in DBS service, and that conduct rules should be imposed
upon cable activities in DBS instead.  In particular, DIRECTV argues that the Commission
should ensure strict conduct rules and ensure that DIRECTV and other current DBS providers be
allowed to participate in the auction of the block of channels at 110 to ensure that the public
realizes the full value of the spectrum.  It also argues that allowing cable-affiliated firms to
participate in the auction would go well beyond the decision in Tempo II and it would essentially
allow the cable-affiliated entities to control three times the current amount of full-CONUS
spectrum assigned to Tempo alone.

     103. Discussion.  We believe that the temporary structural rule we are adopting in this
order will go a long way to promote rivalry among DBS systems and encourage the development
of competition in markets for the delivery of video programming.  Several parties support our
conclusion that a structural approach may better serve the public interest than do conduct rules. 
DOJ makes the case that conduct rules "may actually be more intrusive than is necessary to
achieve the goal of vigorous MVPD competition."  A structural solution is also superior
because any conduct rule "cannot anticipate all forms of economically inefficient behavior by
firms whose returns will be maximized by such behavior."  ASN, an independent satellite
programming vendor, seems to agree with DOJ about the need for structural rules, and argues
that "fair access" and conduct rules, such as those advocated by DIRECTV, EchoStar and others,
are healthy in theory but administratively difficult to enforce because they are subject to
interpretation and bound to contain ambiguities or uncertainties that can only be resolved in
lengthy and costly litigation.  In fact, it is often difficult for anyone to detect a product
differentiation strategy undertaken for the purpose of minimizing competition in this market,
because it is difficult to assess the nature and quality of video programming.  As a result, it
would be even more difficult to fashion an appropriate and minimally restrictive remedy for such
conduct.

     104. Accordingly, we will refrain from adopting conduct rules at this stage in the
development of the DBS industry.  As noted by GE Americom, conduct rules "are not cost free .
. . [and if] unnecessary restrictions are adopted here, they can raise the cost of DBS for
consumers, and chill the full development of this innovative service."  Whether due to the
relative novelty of the service or the existence of two comprehensive consent decrees already in
place, there is little direct evidence of anticompetitive behavior specific to the DBS context.  As
the contours of the service emerge with greater clarity -- and as the consent decrees expire over
the period from 1997 to 1999 -- we intend to remain vigilant against any vertical foreclosure
or other anticompetitive strategies that may arise.  For now, we agree with Tempo that the
Commission need not adopt conduct rules, mindful that we remain free to initiate a later
proceeding if warranted by market conditions.  Indeed, to a large extent, the concerns raised in
the NPRM and addressed in the comments 

     105. With regard to the proposed extension of the Tempo II conduct rules and
marketing restrictions, we believe that more competitive markets and vigorous DBS rivalry that
should be fostered by our temporary structural rule will alleviate the competitive concerns we set
forth in the NPRM.  As discussed above, competitive rivalry among DBS firms, even where one
of those firms is affiliated with a cable operator, will cause pressures for price competition and
should lead to vigorous competition between cable and DBS systems.  Given the market
structure set in motion by our structural rule, we do not believe it necessary to adopt at this time
rules ensuring that DBS services are not offered as "ancillary" to cable services.  Similarly, we
do not find a compelling need at this time for adopting rules designed to ensure that a cable-affiliated DBS operator will compete against other DBS providers for subscribers in cabled areas,
or for determining that all joint marketing arrangements between DBS operators and other
MVPDs will a fortiori reduce competition.  We adopted those rules in Tempo II due to the stated
intentions of Tempo to engage in such activities.  Since we issued that decision, DBS has
become an operational service with a significant subscriber base.  As a result, we do not believe
that the concerns justifying the Tempo II conditions are present, given that the structural rule we
adopt should foster a competitive DBS and MVPD environment, and, therefore, hereby decline
to extend the Tempo II conditions to other DBS operators, and to rescind them with regard to
Tempo.  Should Tempo or any other DBS operator engage in such activities, contrary to our
expectations, we can reimpose such rules.

     106. We also decline to consider at this time the manner in which our program access
rules apply to the conduct of DBS operators affiliated with cable operators or other MVPDs, or
whether the rules should be extended to programmers that are not vertically integrated with a
cable operator.  As we recognized in our 1995 Competition Report, vertical restraints can often
have pro-competitive effects, though they can also be used strategically in a way that can deter
competitive entry.  In the absence of record evidence that shows that protections beyond those
already provided by our program access rules are necessary to protect against anticompetitive
abuses, we hesitate to adopt a rule that may bring within its sweep legitimate and efficient
business relationships.  We do reaffirm the importance of program access to our efforts to create
conditions for MVPD entry, and will continue to monitor this area closely.

     107.  Both USSB and  MCI argue that the existing program access rules are sufficient
to accomplish their purpose.  In addition, as noted by Primestar, there is no evidence in this
record that exclusive agreements or other discriminatory conduct favoring a cable-affiliated DBS
operator currently pose any anticompetitive concern.  Although DIRECTV has been in
operation for over a year, and EchoStar, which is scheduled to launch its first DBS satellite in
late December, presumably has made arrangements for programming to be carried on its system,
neither has filed a complaint under the existing program access rules.  In fact, only twenty
program access cases have been filed with the Commission, none of which allege discriminatory
conduct against a DBS operator.


     108. Additional prudential considerations also counsel against adopting further
program access protections at this time.  First, the extent to which affiliation between DBS
system operators and programmers may develop is unclear.  Second, exclusivity arrangements
favoring Primestar -- currently the only operational DBS-like service that is cable affiliated --
are, in large measure, presently circumscribed by the Primestar consent decrees, and it is unclear
to what extent such arrangements will be of concern after the decrees sunset.  Finally, a DBS
operator who believes it has been injured by an exclusivity arrangement or other discriminatory
conduct that favors a cable-related DBS entity -- including alleged price discrimination based on
illusory cost differentials or scale economies --  may seek appropriate relief before the
Commission, whether by way of a program access complaint or otherwise.

     109.  We also note that several parties argue that the program access rules should be
altered to switch the burden of proof or award damages.    We decline to adopt these proposals
for the foregoing reasons in addition to the fact that these proposals apply to the program access
rules generally and not to DBS service in particular.

     4.   "Headend In The Sky" Service

     110. Comments.  The comments addressing access issues related to service to MVPDs
such as the "Headend in the Sky" ("HITS") service proposed by TCI raise a number of important
issues.  For example, it appears likely that a number of parties may be interested in using DBS
facilities to provide HITS service.  The comments also reflect a concern that a vertically-integrated programmer might discriminate in favor of an affiliated DBS provider, even if other
DBS providers offered more favorable terms and conditions for HITS service.  On the other
hand,  Primestar argues that the Commission should not be concerned about the potential effect
of HITS service on competition among DBS operators and MVPDs because HITS service is not
yet operational, there is no experience or data regarding the service, there are no examples of
anticompetitive activity, and there is no support for concerns that the proposed HITS service
would pose a significant advantage to a DBS operator.
  
     111. DOJ presents a comprehensive analysis of the HITS service and argues for
Commission regulation of that service.  It notes that HITS service may be valuable to MVPDs,
but argues that the potential that it could be used to develop market power exists for several
reasons:  (1) there are barriers to entry in a HITS market due to expensive technology and other
large up-front costs; (2) the number of firms capable of providing the service "is severely limited
by the small number of available DBS satellite slots;" and (3) a substantial first-mover advantage
may be conferred on a small number of DBS operators because of the possibility that deployment
of different encryption technologies would "tend to lock MVPDs into their initial wholesale DBS
provider"; HITS customers may therefore be likely to prefer a more established DBS provider
than an upstart, to avoid stranded costs.   Given the foregoing,  DOJ predicts that there is "a
substantial likelihood that the market for wholesale DBS service will be served by a monopolist
for the immediate future.  Moreover, according to DOJ, even if other firms eventually enter, the
market is likely to be very highly concentrated."  As a result, DOJ argues that a HITS provider
affiliated with a firm with market power in markets for the delivery of video programming may
threaten competition through the use of vertical foreclosure strategies. 

     112. Tempo and Primestar, which have proposed to provide HITS service, contend that
such service is not, as characterized in the NPRM, "wholesale DBS service" and therefore is not
subject to the program access rules.  They base their argument on the fact that, as currently
planned, the DBS operator would only provide authorization and transport service for two parties
(a wholesale programmer and a retail distribution service) that have an agreement to which the
operator is not a party.  In addition, like CATA, Tempo and Primestar assert that the
Commission has no experience with such a service and that there is no indication that any party
would engage in anticompetitive behavior in providing it.  They also join GE Americom in
arguing that attempting to bring HITS service within the ambit of a program access-type regime
would be inappropriate since it would apply to parties other than DBS operators.

     113. Tempo also disputes DOJ's characterization and analysis of HITS, noting that
HITS service need not operate in the DBS band, and that TCI intends to launch HITS service
with a combination of Ka-band and C-band FSS satellites.  Tempo also argues that the
authorization code, a signal that allows the decryption of the scrambled programming feed, can
be transmitted out-of-band by a number of other means.  Tempo points out that a number of
programmers, including HBO, already offer digitally compressed signals, and that many video
programmers will decide to compress signal transmission in their existing satellite
transponders.  Tempo introduced evidence that another satellite provider, TVN Entertainment,
recently announced the launch of a digital delivery system for cable systems.  As a result,
Tempo argues that DBS locations or spectrum cannot be viewed as a scarce resource for
providing HITS services and, therefore, that there are no significant barriers to entry in the
provision of HITS service.  For similar reasons, General Instrument Corporation also urges the
Commission to reject the DOJ analysis, arguing that it is grounded in baseless and theoretical
concerns.

     114. Among independent DBS providers, DIRECTV notes that it has no per se
objection to the development of HITS distribution so long as independent DBS operators have a
"real opportunity" to provide these services and the Commission adopts and implements
"appropriate competitive conditions and cross-subsidization restraints."  EchoStar states that it
is "intensely interested in providing wholesale services" and that the service offers opportunity to
generate two revenue streams from the same facility.  However, EchoStar/Directsat notes
concerns that cable systems might tend to favor receiving HITS service from a cable-affiliated
DBS operator, and therefore urges the Commission to clarify that the program access rules apply
to DBS services and require the disclosure of contracts between cable operators and affiliated
satellite providers.

     115. Programmers generally give mixed reactions to the Commission's proposals and
the HITS service.  Viacom and ASN request that the Commission regulate the HITS service. 
HBO flatly opposes any attempt by the Commission to regulate the provision of HITS service,
arguing that in doing so, "the Commission effectively would regulate the means and technologies
through which programmers digitize, encrypt and distribute their programming to cable
operators" and other MVPDs.

     116. Discussion.  Cable, MMDS, and SMATV systems currently receive their
programming through their own headend facilities, which among other things, consist of several
satellite dishes and receiving equipment.  In addition, they typically negotiate their programming
contracts with individual programmers through buying groups or as multisystem operations.  As
a result, it appears that a service that provided most of the available programming, and provided
it in a digital format that could be passed through to subscribers, could offer substantial
efficiencies for many MVPDs.

     117. The record reflects that one way that a HITS-like service might be deployed by a
DBS operator is through use of its DBS satellite, authorization center, and encryption facility to
transmit to MVPDs the same signals that are received by DBS retail subscribers.  To the extent
that the average cost of using those facilities is likely to decline as greater numbers of subscribers
are served, providing HITS-like services over DBS facilities might provide such an operator with
an important cost advantage over a competing DBS operator who was  unable to provide such
services, if, for example, programmers refuse to authorize MVPDs to receive programming
services from the competing operator's DBS satellites.  If this scenario develops, only the DBS
operator whose programming stream was also serving MVPDs would be able to spread the fixed
costs of its DBS service over a large base of subscribers by recovering a substantial portion of
those costs from the purchasers of the HITS service.  This cost advantage could substantially
reduce rivalry among DBS operators and MVPDs, especially if that cost advantage is the result
of a vertical foreclosure strategy.

     118. However, there is no evidence before us of firms presently supplying HITS-like
service, and the actual characteristics of such a service remain unclear.  Accordingly, we have
never before addressed the vertical foreclosure issues presented by the proposed HITS services. 
As stated in the NPRM, we believe that a HITS-type service can actually promote the
competitive position of DBS providers.  As discussed above, other DBS operators and permittees
have indicated that they too will offer HITS-like service if the DBS channels and orbital
locations at issue here are so used, which should benefit consumers.  We continue to believe,
however, that the benefits of this service cannot materialize if vertical foreclosure strategies are
used to limit the ability of unaffiliated DBS operators to provide programming streams to
MVPDs.  Nonetheless, resolution of these issues is not necessary to the proceeding at hand. 
Accordingly, we agree with those commenters that advise us that it would be imprudent for this
Commission to consider rules governing HITS service absent a better understanding of the nature
of HITS service.

     5.   Other Concerns About DBS-Related Conduct

     119. ASN argues that the Commission need not follow a monolithic DBS model of
vertically-integrated full-service DBS operators at separate orbital locations, and that we should
set aside ten percent of the channels at the auction for independent programmers, because it
would cultivate independent programmers, offer individualized programming choices at the
wholesale level, create programming niches, and foster partnerships, alliances and distribution
models.  MCI, on the other hand, opposes such proposals, arguing that the standards are
unclear, and that any such rules are likely to result in an inefficient allocation of DBS
resources.  

     120. We do not believe it necessary to restrict the participants in the auction as ASN
suggests.  In an environment of competitive rivalry between DBS firms, cable systems, and other
MVPDs, which we believe our structural rule will foster, an independent programmer providing
a programming service or niche programming desired by consumers in the free market will have
ample opportunity to sell its offerings to these competing providers.

     121. The Commission has chosen to adopt a single structural rule that temporarily
limits full-CONUS spectrum aggregation, and to rely upon this limitation and our continuing
authority to review transactions under Title III rather than upon conduct rules to safeguard
competition by ensuring the conditions necessary for development of three separate full-CONUS
DBS services.  The Commission also has the authority under Title III to, in the future, regulate
by rule the use of DBS radio frequencies if that use is inconsistent with the public interest.

     122. However, we emphasize that we remain committed to fostering a vibrant DBS
service in which DBS systems have the opportunity to offer vigorous rivalry to cable systems
and other MVPDs.  While we believe that the auction rule we are adopting today will guard
against diminished rivalry among DBS providers and MVPDs, we recognize that periodic
reviews will be necessary to ensure that the benefits of independent programming sources (i.e.,
those outside the distribution business) are available to the public.  We are statutorily charged
with conducting an annual review of competition in the MVPD market.  We also have
procedures for accepting and investigating complaints of program access and carriage
violations.   We intend to use these and other tools to keep a watchful eye on developments in
this service to ensure that DBS systems have a chance to be competitive MVPDs.

     6.   East/West Paired Assignments

     123. The NPRM tentatively concluded that progress in the DBS service since
Continental was issued has rendered unnecessary the policy, developed in that decision, of
assigning DBS channels only in east/west pairs, with eastern half-CONUS service permitted only
from the four eastern orbital locations and western half-CONUS service permitted only from the
four western orbital locations.  The Commission adopted this pairing scheme in order to assure
service to the entire United States from at least 128 channels at a time when full-CONUS service
was untested.  At the time, however, the Commission noted that the same number of channels
would serve the entire United States if three eastern locations provide full-CONUS service and
the other one (61.5) provides service in tandem with channels at any western location.  

     124. All parties commenting on the proposal agree that the general pairing requirement
is no longer technically required or justified as a matter of policy.  As noted above, however,
Tempo proposes that the Commission facilitate additional DBS service by pairing the channels at
61.5 with those now available at 148, thus combining the half-CONUS channels with the best
technical attributes for service to the United States.  Permittees with channels assignments at
the 61.5 orbital location already have western channels assignments at locations other than
148, and the channels currently available at the latter location are insufficient to pair with all of
those at the former location.  If those permittees wish to provide a full-CONUS service from
two half-CONUS locations, they are therefore already able to do so.  Accordingly, we will not
require permittees and licensees to retain their assigned channels in east/west pairs.

D.   Service to Alaska and Hawaii

     125. In view of the increasing maturation of the DBS industry and the lack of certainty
that DBS service will be provided outside the contiguous United States in the near future, the
NPRM proposed: (1) to require that all new permittees provide service to Alaska and Hawaii if
such service is technically feasible from their orbital locations; and (2) to condition the retention
of channels assigned to current permittees at western orbital locations on provision of such
service, from either or both of their assigned orbital locations.

     126. This proposal also received near unanimous support, although with some
variations.  DIRECTV, MCI, NRTC, and the State of Alaska favor adopting the rule as proposed
in order to achieve the important goal of bringing service to important underserved regions. 
DIRECTV especially supports phrasing the rule in terms of service that is "technically feasible"
rather than "technically possible," since that will allow the Commission to take into account
weight and power resources for such service, the size or receiving dish required, and technical
limitations imposed by the Commission and the ITU.  BellSouth similarly supports application
of the rule in a manner that accounts for practical and economic limitations of satellite
programming delivery.  The State of Hawaii, Primestar, and Tempo support the rule, but
propose that the requirement of service to Alaska and Hawaii be extended to both new and
existing permittees.  USSB asserts that the rule is unnecessary since progress in DBS will soon
bring service to Alaska and Hawaii, but that if a rule is adopted it should apply only to new
entrants and only where feasible.

     127. We will adopt the rule as proposed in the NPRM.  We do not believe that
applying the first prong of this rule to existing permittees would be appropriate.  All permittees
currently have channels assigned at both eastern and western orbital locations.  The rule as
proposed requires that they serve Alaska and Hawaii from either or both of those locations, or
else forfeit their western assignments.  Two licensees (DIRECTV and USSB) are currently
operating from their eastern location, and another (EchoStar/Directsat) will begin operations
from its eastern location next year.  None of these parties has designed satellites capable of
providing full service to Alaska and Hawaii from those eastern orbital locations.  We will not
adopt a rule that would immediately place the only operational systems in violation of our
regulations.  Nor will we exempt them from a rule that would impose significant requirements on
all those who have yet to complete satellite construction.

     128. As to the definition of "technically feasible," we note that Tempo's applications to
modify its satellites have already demonstrated that service to Alaska and Hawaii from both 110
and 119 is technically feasible and economically reasonable.  In addition, it is clear that all four
western locations offer appropriate platforms for such service.  Thus, any party acquiring
channels at any of these six orbital locations should anticipate providing such service.  We have
not yet had occasion to assess the feasibility of such service from the 101 or 61.5 orbital
locations.  Any party acquiring channels at these locations that desires not to provide service to
Alaska or Hawaii will bear the burden of showing that such service is not feasible as a technical
matter, or that while technically feasible such service would require so many compromises in
satellite design and operation as to make it economically unreasonable.

E.   License Term

     129. The NPRM proposed to increase the term of a non-broadcast DBS license from
five years to ten years, the maximum allowed under the Communications Act, which better
reflects the useful life of a DBS satellite and is consistent with the current proposal for extending
the term of satellite licenses in other services.

     130. This proposal received unanimous support from the commenters.  They agreed
that extending the license term will help to reduce the burden of regulation on DBS licensees and
the burden of oversight on the Commission, and will encourage investment and innovation in the
service.  Accordingly we will adopt the rule as proposed.  USSB requests that we clarify the
definition of "non-broadcast" use of DBS as referring to the primary use of the satellite, since a
DBS operator may transmit a limited number of non-scrambled signals, carrying promotional
materials for the operator's services and other such materials, but should not therefore be
rendered a "broadcast" service.  Based on USSB's description, we would not consider such
transmissions, constituting a de minimis portion of an operator's transmissions, to change its
classification.  We are, however, wary of crafting any general rule that allows a non-broadcast
licensee to provide essentially broadcast service.  To the extent any DBS provider has questions
as to the effect of such unscrambled transmissions, it should describe the nature and extent of
those transmissions to the Commission in either a licensing or declaratory ruling context in order
to receive a definitive ruling.

               III.  ADOPTION OF A NEW METHODOLOGY
                  FOR REASSIGNING DBS RESOURCES

     131. Over six years ago, in the Continental decision, the Commission stated that
existing DBS permittees would have first right to additional channel assignments upon surrender
or cancellation of a DBS construction permit.  The NPRM tentatively concluded that this
reassignment policy, adopted in an era before Congress explicitly authorized the Commission's
use of auctions and well before any DBS system actually went into operation, no longer serves
the public interest, and therefore should be abandoned.

     132.  A majority of the commenters agree that the Continental reassignment policy is
outmoded, would cause significant delays in DBS service as permittees sought to reaggregate
and reshuffle channels, and would not serve the public interest, and they therefore support the use
of auctions to reassign DBS channels.  DIRECTV, which stands to receive additional channels
under the Continental approach, nonetheless supports the use of auctions in the special
circumstances of this case as an appropriate means of reassigning channels in the most rapid and
efficient manner, so long as it and other independent DBS operators can participate in the
auction.  

     133. Five current permittees, each of which would receive additional channels free of
charge under Continental, oppose adoption of a new reassignment approach.  They argue that
the Commission's resolution of conflicting applications in Continental gave each of them a legal
and/or equitable right to receive additional channels that become available due to cancellation of
a DBS permit, and that the Commission cannot and should not take away rights upon which
these permittees have relied in making substantial investment in their respective DBS systems. 
They note that five of the eight existing permittees expect to launch satellites -- with capacity
built in for additional channels -- by 1997, and argue that those permittees are therefore in the
best position to put the available channels to use in the most expedited manner. 
EchoStar/Directsat also contends that allowing new entrants to compete at auction for ACC's
channels would reopen the Continental processing round, and thus deprive these permittees of
their protected status as timely applicants.

     134. We remain convinced that the pro rata distribution of reclaimed channels to
existing permittees no longer serves the public interest.  We base this conclusion on the history
of the DBS service, especially in the six years since Continental was decided.  Our historic policy
of assigning a relatively small number of channels to each permittee was based upon a
conception of DBS service that has not been put into practice.  There are currently only two DBS
providers in operation:  DIRECTV, with 27 channels, and USSB, whose five-channel system
uses transponders on one of DIRECTV's satellites.  EchoStar/Directsat, which recently combined
to control a total of 21 channels, expects to launch its first satellite by the end of the year.  The
move toward consolidation of channels is understandable, given that DBS systems must compete
in the MVPD market with cable systems that are promising a 500-channel service in the future. 
Even using advanced methods of digital compression, DBS licensees with a small number of
channels face capacity limitations that may hamper their ability to compete effectively in that
market.  In fact, Tempo Satellite has indicated that the eleven channels it has been assigned "are
not sufficient for a competitive system." 

     135. Cancellation of ACC's construction permit reclaimed 27 eastern and 24 western
DBS channels.  Even if we were to combine these reclaimed channels with those channels that
have never been assigned to any permittee -- channels that are not subject to a claim under
Continental --  we would have a total of 30 eastern channels at two orbital locations and 30
western channels at three orbital locations available for assignment.  Under Continental, these
channels would be divided pro rata to assign five pairs of channels at these locations to each of
the six permittees that received fewer channels than requested in Continental.  The result
would be a piecemeal assignment of the 28 full-CONUS channels available at the 110 orbital
location among six permittees.  In order to aggregate sufficient channels to support a viable DBS
service, these permittees would have to negotiate some form of agreement for joint operations
from 110, or else work out a system of channel swaps to consolidate assignments.  The process
necessary in either case is often a time consuming one that is not always successful, which is
further complicated by the time required for Commission consideration and approval of the
resulting transactions.  Moreover, because the number of parties receiving additional channels is
limited, there is no guarantee that those channels would go to the person who values them most
highly and who can put them to the most efficient use to the benefit of American consumers. 
Such a result would conflict with our goals for the DBS service, as they would impede prompt
delivery of service to the public and thwart efficient use of valuable spectrum resources as a
much-needed competitor in the MVPD market.

     136. By contrast, the competitive bidding procedures we adopt today are specifically
designed and intended to assign scarce resources to those who value them most highly and can
make the most efficient use of them.  By offering the available channels in two large blocks, we
obviate the need for reaggregation and allow the auction winners to proceed directly to
acquisition or construction of satellites and operation of their systems without having to negotiate
with other permittees or engage in several rounds of administrative processing.  Since we intend
to hold this auction in January 1996, and to apply performance requirements to ensure due
diligence, we believe that the method we have chosen to replace Continental is better suited to
achieving expedited service from the channels available than is the existing policy.

     137. As a general matter, the arguments against adoption of a new assignment
methodology are based on the misconception that the Commission cannot or should not change
settled rules or policies if doing so would have a detrimental impact on those it regulates.  On the
contrary, the Commission enjoys wide latitude when using rulemaking to change its own policies
and the manner by which those policies are implemented.  If the Commission is to function
effectively, it must have the flexibility to amend its rules and regulations in light of its
experience.  In fact, "the Commission should be alert to the consequences of its policies and
should stand ready to alter its rule if necessary to serve the public interest more fully." 
Otherwise, its policies and regulations would be perpetually dictated by rationales that were
appropriate at the time of adoption but may no longer serve the public interest.  This is especially
true given that technological, commercial, and societal aspects of communications media are in
constant flux.  Accordingly, the Commission  reevaluates its regulatory standards over time,
and such periodic examination of the continued vitality of regulatory approaches should not be
discouraged.

     138. EchoStar/Directsat and DBSC argue that failure to honor the Continental
reassignment methodology would violate their Fifth Amendment rights, both as an arbitrary and
capricious denial of rights to additional channels and as a "taking" without just compensation of
that valuable right.  The first step in both due process and takings analyses is to determine
whether there is a protected property right at issue.  The permittees have cited two such
interests:  (1) the right to distribution pro rata of additional DBS channels recovered by the
Commission; and (2) the right to use additional transponders built at great expense in order to
accommodate the expected distribution of channels.  Neither of these supposed "rights" rises to
the level necessary to support a due process or takings violation.

     139. While existing permittees do have a claim under Continental of first rights to
reclaimed DBS channels, this right (and any related expectation) is not a property right for
constitutional purposes.  Each DBS permittee has a conditional construction permit for a
specified term of years.  Section 301 of the Communications Act clearly states that its purpose is,
among other things, to "maintain the control of the United States over all the channels of radio
transmission" and to provide for licensing the use of such channels, but not the ownership
thereof, "and no such license shall be construed to create any right, beyond the terms, conditions,
and periods of the license."  Section 304 of the Act similarly provides that no station license
may be granted until the licensee has "waived any claim to the use of any particular frequency or
of the electromagnetic spectrum as against the regulatory power of the United States because of
the previous use of the same, whether by license or otherwise."   In addition, the Commission
may modify any station license or construction permit if in its judgment such action will promote
the public interest, convenience, and necessity, and, as noted above, such modification may
appropriately be accomplished through notice and comment rulemaking.  Where, as here, the
government retains at all times the power to alter rights it has created, the exercise of that
retained power is not considered a "taking" for Fifth Amendment purposes.  Enforceable rights
sufficient to support a due process claim cannot arise in an area voluntarily entered into and one
which, from the start, is subject to such pervasive government control.  Accordingly, these
permittees' claims to additional channels does not enjoy constitutional protection.

     140. EchoStar/Directsat and DBSC also cite their investment in additional satellite
transponders as evidence of their investment-backed expectation that rights under Continental
would be honored.  Courts have rejected attempts to support "the curious proposition that
investment-backed expectations can give rise to a constitutionally protected property interest." 
The cases upon which the permittees rely do not support a contrary result.  As explained by
the Court of Appeals for the Ninth Circuit, such cases are

          authority for the proposition that once a constitutionally protected
          property interest is established, then a reasonable investment-backed expectation is one of several factors to be taken into
          account "when determining whether a governmental action has
          gone beyond 'regulation' and effects a 'taking.'"  Whether a
          "taking" has occurred is the second step of the inquiry.  Here we do
          not reach that step because the [appellant has] failed to survive the
          first step, which is establishing that a property right exists.

Here too, these permittee have failed to identify any property right that is entitled to the due
process and takings clause protection they claim.  

     141. EchoStar/Directsat and DBSC have each been authorized to construct satellites
using particular channels.  To the extent they have configured their satellites to use additional
channels, they have exceeded that authorization.  It would be curious indeed if such unauthorized
action could create a constitutionally protected right.  Moreover, given that virtually all available
DBS channels have been either requested or actually assigned for some time, no permittee could
reasonably expect that channels recovered by the Commission would be available for
reassignment at the orbital position of that licensee.  We also reject the argument that
additional transponders that the permittees have built into their satellites will be wasted unless
the Commission assigns additional DBS channels to use them.  Satellite technology allows for
use of those transponders to provide service from the channels already assigned.  For example,
the satellites used by DIRECTV employ switchable transponders, allowing DIRECTV to match
the number of operating transponders with available power.  Thus, it can use more transponders
at lower power (16 channels at 120 watts) or fewer transponders at higher power (8 channels at
240 watts).  The latter configuration provides the operator greater programming capacity, since
the additional power allows greater compression.  DIRECTV currently operates two of its
satellites at the 101 orbital location in this high-power mode.

     142. We recognize that the Commission's action in Continental gave these permittees a
claim to any channels that became available due to cancellation of another's permit, and that from
this claim arose expectations upon which the permittees acted.  We do not lightly disappoint
those permittees' claims and expectations.  It is our judgment, however, that the public interest in
abandoning the Continental reassignment methodology discussed at length above outweighs the
private interests of these parties.  In the circumstances, the Commission may reassign available
channels in a manner that better serves the public interest, convenience, and necessity, even if
doing so has a detrimental impact on some individual parties.

     143. Nor do we believe that the use of a new methodology to reassign DBS channels in
the future constitutes an impermissible retroactive rulemaking.  "It is often the case that a
business will undertake a certain course of conduct based on the current law, and will then find
its expectations frustrated when the law changes.  This has never been thought to constitute
retroactive rulemaking, and indeed most economic regulation would be unworkable if all laws
disrupting prior expectations were deemed suspect."  The use of a new methodology to
reassign reclaimed channels applies to those currently available and those that may become
available in the future.  While this action modifies existing permits in a way that disrupts the
permittees' expectations, it does not make past behavior unlawful or otherwise impose a penalty
for past actions and thus does not have an impermissible retroactive effect.

     144. No more availing is the argument that abandoning Continental impermissibly
reopens the last DBS processing round to new applicants and thereby deprives existing
permittees of their protected status as timely applicants.  Today we adopt a rule that modifies
construction permits awarded in that processing round by removing claims on additional
channels under certain conditions.  We have taken this step because, as discussed in detail above,
such action better serves the public interest.  While this may be analogous to reopening the prior
processing window in that spectrum awarded in that round will now be available to entities that
were previously cut off from applying for it, it is nonetheless distinguishable.

     145. Even assuming, arguendo, that we were reopening the Continental processing
round, the Commission is free to do so where the public interest justifies doing so.  The cases
cited by these commenters stand only for the proposition that the Commission has valid reasons
for strictly enforcing its cut-off rules, and does not abuse its discretion if it chooses not to waive
those rules for a non-complying applicant.  In fact, one of the cited cases states that

          timely applicants have no "vested right against challenge from
          untimely competitors," in the sense of precluding the FCC from
          ever granting a cut-off waiver, but they certainly have an equitable
          interest whose weight it is "manifestly within the Commission's
          discretion to consider."

As discussed above, we have considered those equities, and have determined that the public
interest in expedited and competitive DBS service outweighs them in this instance.  Since the
public's interest in having licenses issued and service provided without undue delay is the basis
for cut-off rules in the first instance, we find our decision all the more appropriate.  We also
note that Ashbacker and its progeny in no way limit our discretion to modify a construction
permit by rule to provide for reassignment of spectrum in the public interest regardless of
whether or not our action is viewed as opening an existing processing window.

     146. In further support of their argument, these commenters cite to a case in which the
Commission chose as a matter of its equitable discretion not to use auctions (as opposed to
lotteries) to award MDS licenses for applications filed before we received auction authority. 
That case is inapposite.  The Commission had not there decided through rulemaking that the
public interest would best be served by making spectrum available for competing applicants. 
Rather, that case presented the question of how to assign spectrum for which applications had
been filed prior to the Commission's receipt of auction authority.  While that case, like this one,
did involve the balancing of various public interest and equitable reliance factors, it does not
stand for the proposition that equitable interests of particular entities outweigh the public interest
in auctions in all contexts.

     147. Section 309(j)(6)(E) of the Communications Act provides that nothing in our
auction authority shall "be construed to relieve the Commission of the obligation in the public
interest to continue to use engineering solutions, negotiation, threshold qualifications, service
regulations, and other means in order to avoid mutual exclusivity in application and licensing
proceedings."  Even if simply reassigning the available channels on a pro rata basis could be
used to avoid mutual exclusivity, doing so would defeat the overall goals of auction statute itself
for the reasons discussed in detail above.  Some existing permittees assert, however, that the
Commission could use the Continental methodology to reassign channels in a way that would
avoid mutual exclusivity while also rearranging channel assignments into a more rational plan. 
They have submitted various ways in which existing channel assignments could be rearranged
and available channels awarded in a consensual process.  Unfortunately, no two permittees
have yet submitted the same proposal, nor does any one proposal appear to enjoy support of all
permittees who would be affected by it.  We do not think that it would serve the public interest to
continue this effort, and see no practical way to force reordering of assignments without
increasing the disturbance of settled expectations that the permittees claim to enjoy.  Moreover, if
in fact these permittees can make the most expeditious and efficient use of the available channels
and can voluntarily agree on a method of reordering assignments, they are free to form a bidding
consortium and then divide up the channels as they see fit, achieving their aims while also
recovering for the public some of the value of the spectrum resource.

     148. Lastly, these permittees argue that litigation over many aspects of the available
DBS channels, including the method of their reassignment, can be expected to delay any auction
and decrease the price received by the public.  While the prospect of litigation may, in
appropriate circumstances, tip the balance between two comparable alternatives, if the
Commission were to base its estimates of likely efficiency and expedition of service upon delays
inherent in litigation, it would give anyone opposed to a rule the incentive to threaten litigation,
and the system would quickly become unmanageable.  We believe that the service and auction
rules we adopt today are within our authority to adopt and are well designed to serve the public
interest.

     149. ACC proposes that it should be able to recoup its DBS expenditures from the
proceeds of any auction of its former channels.  We do not believe that ACC is entitled to any
such compensation, since it could have avoided the loss of its DBS permit had it complied with
applicable due diligence rules.  Even if this were not the case, however, we would be unable to
adopt this proposal since the auction statute specifically provides that, with limited exceptions
not applicable here, all proceeds from the use of a competitive bidding system must be deposited
in the United States Treasury.  

     150. We also reject the proposal that we impose a spectrum fee on existing permittees
to place them in a comparable competitive position with those who must acquire their permits
through auction.  It would be unfair to impose this burden on those permittees who had
sufficient foresight to enter the service and the willingness to make the investment necessary to
comply with the applicable due diligence obligations before others saw DBS's potential.  And, as
USSB notes, auction participants can take into account any competitive advantages or
disadvantages associated with the channels available when formulating their bids at auction.

     151. A number of commenters express concern that an auction in the DBS context
might be seen as precedent for auctions in other satellite services, but would support the auction
proposal so long as it is limited to the unique circumstances presented by the international
allocation of DBS channels and orbital locations.  In the NPRM, we discussed the
characteristics of the DBS service that make it unique, principally the international allocation to
the United States of both orbital locations and channels.  It is those characteristics upon which
we rely in determining that auctions are appropriate for this particular satellite service.  We are
aware that other satellite services, which do not have similar international allocations of
resources, present different and very complex issues with respect to the use of auctions.  The
Commission is in the process of considering those issues, and will be able to address them in
the appropriate context.  Those issues, however, are not now before us.  Thus, our decision to use
auctions in the DBS context is dependent upon the unique nature of the service, and in no way
stands for the proposition that their use in other satellite services would also be appropriate.

     152. Primestar and Tempo request that we make clear to all auction participants that
appeals of our Advanced Order are ongoing and any award of a DBS construction permit through
auction is taken subject to judicial reversal.  This is a familiar aspect of any Commission
action that is currently under appeal.  In the unlikely event that a court either overturns our
Advanced Order and ACC's construction permit with its associated orbital/channel authorizations
is ultimately reinstated, or overturns this rulemaking and the Continental reassignment
methodology is ultimately maintained, we would rescind any permit awarded through the auction
process, and move with all deliberate speed to refund money paid up to that point.  Participants
in the auction are hereby put on notice of this possibility, and should be willing to facilitate that
process if it becomes necessary.

        IV.  ADOPTION OF RULES FOR AUCTIONING DBS PERMITS
A.   Authority to Conduct Auctions

     153. The NPRM.  The Commission has authority under Section 309(j) of the
Communications Act of 1934, as amended (the "Communications Act"), to employ auctions to
choose among mutually exclusive applications for initial licenses or construction permits where
the principal use of the spectrum is likely to involve the licensee receiving compensation from
subscribers.  In the NPRM, we tentatively concluded that the Commission has authority under
Section 309(j) to use competitive bidding to award construction permits for the DBS spectrum
reclaimed from ACC as well as other available DBS spectrum, and that the use of auctions in the
DBS service would be consistent with statutory objectives.  Thus, we tentatively concluded that
construction permits available for reclaimed DBS spectrum are "initial" within the meaning of
Section 309(j); that it is likely that mutual exclusivity will exist among applications for the DBS
channels reclaimed from ACC as well as other DBS channels that may become available in the
future; and that the "principal use" requirement of Section 309(j) is satisfied because DBS is
likely to be primarily a subscription-based service.  We tentatively concluded that using
competitive bidding to award DBS authorizations would promote the objectives of Section 309(j)
because, more than any other method of awarding construction permits, auctions are likely to
foster the rapid deployment of new technologies and products and the efficient use of spectrum
by putting spectrum in the hands of those who value it most highly.  As we also explained,
auctions will serve Congress' goal of bringing new services to rural areas where homes may not
be passed by cable television, and the rapid deployment of DBS service in competition with
cable will further Congress' objective of promoting competition.  Unlike the reassignment policy
set forth in Continental, or other available methods of assigning spectrum, such as
comparative hearings, auctions will promote the statutory goal of recovering for the public a
portion of the value of DBS spectrum.    

     154. With respect to the issue of mutual exclusivity, we explained in the NPRM that,
pursuant to Section 309(j)(6)(E), we had sought means of avoiding mutual exclusivity in the
DBS service and tentatively concluded that there are no means of doing so that are consistent
with the objectives of Section 309(j).  We also proposed to consider mutual exclusivity to occur
only when the number of DBS channels sought at a given orbital location exceeds the number
available there.  

     155. Comments.  The vast majority of commenters do not question the Commission's
authority to use competitive bidding to award DBS authorizations, and commenters such as
Primestar and MCI agree with our tentative conclusion that we do have such authority. 
However, ACC argues that our proposed auction procedures exceed the Commission's statutory
authority because DBS is not by definition a subscription service.  According to ACC,
competitive bidding will force DBS permittees to offer all-subscription service in order to
recover the costs of competitive bidding and the Commission, by proposing to award
construction permits through auctions, has chosen to sacrifice the free educational services that
DBS operators would have otherwise provided.  EchoStar/Directsat argues in its comments
that the Commission lacks authority to reassign ACC's spectrum by competitive bidding because
we have ignored our statutory duty to try to avoid mutual exclusivity, which it asserts could be
accomplished by applying Continental.  DBSC contends that the construction permits to be
issued for the reclaimed ACC channels will not be "initial" under Section 309(j) because DBSC
and others have the right under current Commission policy to acquire these channels through a
modification of their permits.  MCI, on the other hand, argues that the principal use of DBS
spectrum will involve the licensee receiving compensation from subscribers, that no one can
seriously doubt that there will be mutually exclusive applications for the spectrum reclaimed
from ACC, and that the authorizations to be issued for the spectrum reclaimed from ACC are
"initial" under Section 309(j).

     156. ACC, EchoStar/Directsat, Continental Satellite, and DBSC assert that the
objectives of Section 309(j) would not be served by the use of competitive bidding in the DBS
service.  They argue that auctions would not promote the development and rapid deployment of
new technologies, products or services, and would in fact delay the deployment of services. 
ACC states that the auction winner will not be required to complete its first satellite until at least
January 2000, and that further delay is almost certain due to court proceedings, whereas ACC's
plan to assign its construction permit to Tempo would have resulted in a new DBS service
becoming available shortly after the spring of 1996.  ACC also asserts, inter alia, that the
Commission's proposed use of competitive bidding would not promote the statutory objective of
disseminating licenses among a wide variety of applicants, and that the Commission has ignored
Congress' mandate to offer small businesses the opportunity to participate in DBS. 
EchoStar/Directsat contends that it is doubtful that any portion of the value of DBS spectrum
would be recovered for the public through competitive bidding, arguing that there is a real
possibility that the cost of paying for the spectrum would be passed on to the public through
higher rates.   Although it believes the Commission has the authority to conduct DBS
auctions, Primestar questions whether auctioning the channels reclaimed from ACC is consistent
with statutory policies favoring the rapid deployment of services without administrative and
judicial delay.   DBSC, while it disputes that prevention of unjust enrichment is an objective
of Section 309(j), argues that transfer of ACC's channels to eligible DBS operators does not
unjustly enrich them because they have invested in the development of the industry. 
EchoStar/Directsat argues that an auction of channels at 110 will unjustly enrich DBS operators
DIRECTV/USSB because they obtained full-CONUS channels for free.  In contrast, MCI
argues that auctioning the DBS channels at issue here is fully consistent with the statutory goals
of recovering for the public a portion of the value of spectrum, promoting efficient and intensive
use of spectrum, and fostering the rapid development and deployment of services.  

     157. Discussion.  Those parties who argue that the Commission lacks authority to use
auctions to award construction permits for reclaimed DBS spectrum are unpersuasive.  As we
stated in the NPRM with respect to the "principal use" requirement of Section 309(j), auctions
are authorized if at least a majority of the use of the spectrum is likely to be for subscription-based services, and we look to classes of licenses and permits rather than individual licenses in
making this determination.  Given that both DBS licensees now providing service to the
public operate on a subscription basis, and all other permittees planning to initiate service in the
near future also plan to offer subscription-based service, we think it is a reasonable assumption
that a majority of the use of the spectrum is likely to  involve the licensee receiving
compensation from subscribers.  Moreover, given that these operations and plans were in place
before the Commission proposed to use competitive bidding in the DBS service, we do not agree
with ACC's claim that competitive bidding will force DBS permittees to offer all-subscription
service.  Our "principal use" determination does not in any way preclude DBS licensees from
providing any amount of non-subscription service, and they are not precluded from recovering
auction costs, as well as the substantial costs of construction, launch, and operation from sources
other than subscribers, such as advertising.  

     158. We do not accept EchoStar/Directsat's claim that we could have avoided mutual
exclusivity by applying Continental because, as we have explained, we have determined that the
spectrum reassignment policy in Continental would delay the development of DBS service and
would squander valuable spectrum and thus would not be in the public interest.  We also point
out as we did in the NPRM that in any case where we have scheduled an auction and it turns out
that only one application is filed for a particular construction permit, we will cancel the auction
and process that application.  As we proposed in the NPRM, we will consider mutual
exclusivity to exist only when the number of DBS channels sought at a given orbital location
exceeds the number available there.  

     159. We also do not agree with DBSC's contention that existing permittees have the
right to acquire channels reclaimed from ACC by modifying their permits and that the
construction permits to be issued for these channels therefore will not be "initial" under Section
309(j).  As noted in the NPRM, Congress, by specifying that auctionable licenses must be
"initial," intended only to preclude the use of competitive bidding for license renewals and
modifications.  As explained above, we have withdrawn from existing permittees the ability to
modify their permits pursuant to Continental.  Moreover, ACC's permits have been cancelled and
therefore cannot be modified.  Thus, any construction permits awarded for reclaimed channels
will be new permits for the channels in question.   

     160. We turn now to commenters' arguments regarding whether competitive bidding
will promote the objectives of Section 309(j).  ACC's contention that the development of DBS
service would be delayed if we auctioned the reclaimed frequencies at 110 and 148 is entirely
speculative.  There is no reason to assume that it will take the auction winner until at least
January 2000 to complete a first satellite.  The auction winner may be an entity that has already
begun construction or even launched a satellite.  Even if it has not, it may be in a position to do
so expeditiously.  Paying for spectrum provides incentives for permittees to construct quickly in
order to obtain a return on their investment.  Indeed, an auction is likely to promote the rapid
deployment of service because those parties that are in the best position to deploy technologies
and services are also likely to be the highest bidders.  

     161. With respect to the possibility of delay caused by court proceedings, a point raised
by both ACC and Primestar, we do not believe that it would be appropriate to refrain from
conducting auctions where we believe they would serve the public policy objectives of Section
309(j) simply because of the pending appeal of the Advanced Order and other legal challenges
that might be filed and where we also believe those cases will ultimately be resolved in the
Commission's favor.  In addition, the objective of avoiding administrative and judicial delay is
only one factor that must be weighed in light of the statute's other objectives and the other
available alternatives to resolving the mutually exclusive applications we will receive for the
reclaimed channels.  In this regard, the only available alternative for issuing licenses would be
comparative hearings.  Our experience with both auctions and comparative hearings clearly
indicates that auctions will more likely result in less administrative and judicial delay. 

     162. In response to ACC's assertion that our proposed use of competitive bidding in the
DBS service would not promote the statutory objective of disseminating licenses among a wide
variety of applicants, including "designated entities," we observe again that this is one of a
number of objectives Congress wished to promote through spectrum auctions and each objective
must be considered with all others.  As discussed more fully below, we have concluded that,
because of the extremely high implementation costs associated with satellite-based services, no
special provisions should be made for small businesses and other designated entities in an
auction of the spectrum available at 110 and 148.  This does not mean, however, that we
have ignored Congress' mandate to offer designated entities the opportunity to participate in
competitive bidding, nor does it mean that designated entities will be unable to participate in the
DBS industry or that auctions of DBS spectrum will not promote many of the objectives of
Section 309(j).  Indeed, the legislative history of the designated entity provisions shows that
Congress did not necessarily intend for special measures in services such as DBS:  "The
characteristics of some services are inherently national in scope, and are therefore ill-suited for
small businesses."  Moreover, the abandonment of our Continental policy opens the DBS
industry to a wide range of potential new entrants.  Judging by the comments in favor of
auctioning DBS spectrum submitted by such entities as MCI and CTA, a minority-owned
aerospace company, it appears that there will be a "wide variety" of applicants for this spectrum
in the future.  We also anticipate that a wide variety of businesses will be involved in various
sectors of this industry as non-licensed operators, programmers, and equipment suppliers. 

     163. The possibility that auction costs will be passed on to consumers does not
necessarily lead to the conclusion that DBS auctions will not serve the statutory objective of
recovering a portion of the value of DBS spectrum for the public.  Auction and other costs may
be passed on to consumers by providers of any service subject to competitive bidding. 
Nonetheless, in giving the Commission auction authority, Congress clearly perceived that
auctions would compensate the public for at least a portion of the spectrum awarded, and this is
just as true of DBS as it is of any auctionable service.  It should also be pointed out that auction
winners will be constrained from charging rates that are higher than those of competitors that
have not paid for the spectrum assigned to them, and that rational operators will charge the
market price for services in any event.  

     164. Another facet of the statutory objective of compensating the public for spectrum
licenses or permits is the avoidance of unjust enrichment to licensees.  DBSC argues that this is
only an objective of auction design and assumes that an auction is to be held.  We disagree. 
Section 309(j)(3) states that "[i]n identifying classes of licenses and permits to be issued by
competitive bidding, in specifying eligibility and other characteristics of such licenses and
permits, and in designing the methodologies for use under this subsection" the Commission shall
promote, among other objectives, "avoidance of unjust enrichment through methods employed to
award uses" of the spectrum.  The statute requires us to consider the avoidance of unjust
enrichment in choosing whether to auction DBS spectrum.  DBSC goes on to argue that an
auction of DBS spectrum does not promote avoidance of unjust enrichment because eligible DBS
operators that would have received channels under Continental have developed the DBS industry
at great cost.  Conversely, EchoStar/Directsat argues that current DBS operators
DIRECTV/USSB will be unjustly enriched because they paid nothing for DBS channels.  These
arguments, however, ignore the fact that DBS channels have significant value to any entity
possessing the right to use them.  Transfer of these channels to operators that have already
developed service using their current channels would be a windfall to those operators. 
Auctioning them would ensure that the ultimate holder of these channels paid their market value
to the U.S. Treasury and was not unjustly enriched.

     165. In sum, we conclude that the Commission has the authority to award DBS
construction permits, for reclaimed or other available spectrum, by means of competitive
bidding.  We further conclude that the use of competitive bidding to assign DBS spectrum will
promote the rapid deployment of DBS service and the efficient use of DBS spectrum more
effectively than any other assignment method.  We will therefore award construction permits for
the channels available at 110 and 148, as well as DBS construction permits that become
available in the future, by means of competitive bidding.  In reaching these conclusions, we
emphasize that we wish to encourage DBS operators to provide free services for schools,
libraries, and other institutions serving the public that may not have the financial resources to pay
for DBS services, and we do not believe that the use of competitive bidding should preclude the
provision of such free services, which can be provided without incurring additional buildout
costs.  As we also noted in the NPRM, subscription-based DBS is subject to a statutory public
interest requirement to reserve capacity for noncommercial, educational, or informational
programming found in Section 335 of the Communications Act.

B.   Competitive Bidding Design

     166. The NPRM.  In the NPRM, we proposed to auction two permits for the
construction of satellites to use the DBS channels currently available at the 110 and 148 orbital
locations.  We tentatively decided not to divide the available blocks of channels into smaller
parcels, or to auction each channel individually, because the configuration of current DBS
systems indicates that channels are most effectively utilized when they are available in a
substantial quantity at a given orbital location.  

     167. We also proposed in the NPRM to award the construction permits for the channels
currently available at 110 and 148 by means of a sequential auction, with the channels at one
orbital location being offered immediately after the other, because we tentatively concluded that
there would be little to gain by conducting simultaneous auctions of the two construction
permits.  We explained that the channels at 110 and at 148 are not likely to be close substitutes
in the near term, nor did we find evidence of synergies between the channels at the two orbital
locations.  We further tentatively concluded that multiple round bidding would be the best
method of auctioning the channels reclaimed from ACC, and that oral outcry would be the best
method of submitting bids.  However, we sought comment on whether an oral outcry auction
could pose problems for bidders that need time between bidding rounds to arrange for additional
financing if bidding goes higher than anticipated.  We also requested comment on whether a
combined sealed bid-oral outcry auction might be appropriate for the channels available at 110
and 148 to help reduce the risk of collusion while retaining the benefits of a multiple round
auction.

     168. Comments.  Most commenters who discuss our proposal to auction one permit for
the DBS channels available at the 110 and one permit for the channels available at 148 support
this proposal.  However, CTA recommends dividing the channels at 110 into two blocks of
14, and the channels at 148 into two blocks of 12.  According to CTA, a ten-channel block is
more than adequate to support a viable DBS system given the development of digital
compression techniques, and vigorous DBS service can also be established using small satellite
technology with fewer than half of the 32 channels allocated to an orbital slot.  CTA also points
out that dividing an orbital slot's channel allocation into thirds or halves would create the
possibility of more competitors at each orbital location.  ASN proposes that the Commission
set aside, at the 110 and 148 locations as well as in any future DBS auction, 10 percent of the
channel capacity at each orbital location for "independents," DBS programmers or distributors
who have no market power through a nationwide cable system or other multichannel video
distribution system.  According to ASN, cable-affiliated DBS distributors have numerous
incentives to restrict the scope of DBS product, program, and service offerings, and exclusive
operation of a full-CONUS orbital location by a cable-affiliated DBS operator would prevent or
at least slow the development of new DBS offerings.  ASN believes that its proposed spectrum
set-aside for independents would have sufficient capacity to support an economically viable
product.

     169. In its reply comments, MCI argues against CTA's suggestion that the channels at
110 and 148 be divided into smaller blocks, stating that CTA's claim that 14 DBS channels
could support "upwards of 280 programming channels" by the end of the decade is based upon
nothing more than its expectation of vast advances in video compression by the year 2000. 
According to MCI, CTA's proposal, if implemented, would place those entering the DBS market
prior to the year 2000 at a tremendous disadvantage because it would effectively preclude
aggregation of more than 14 channels by any bidder.  MCI states that, if it is awarded the
reclaimed DBS channels, it expects to have satellites in operation well before the end of the
decade.  MCI also opposes ASN's proposal to set aside 10 percent of the spectrum for
independent programmers, arguing that it would necessitate delay in the auction and lead to
fragmentation of the spectrum block and that the proposal lacks sufficient details.

     170. Most commenters express no opinion regarding our proposal to use sequential
oral outcry bidding for DBS, although Primestar and DIRECTV voice support for this auction
design.  MCI also generally supports our proposal and recommends a "structured open-outcry
auction."  This auction design is described in a paper submitted by MCI and prepared by
University of Maryland game theorist and economist Lawrence M. Ausubel.  Under this
methodology, oral bidding would be conducted in five-minute increments.  A bidder would place
a bid, which would then be recorded on a board at the front of the bidding room. The bidder
would then have one minute, to be timed by an official timer visible to all bidders, to withdraw
that bid without penalty.  Any bidder withdrawing its bid subsequent to this one-minute grace
period would be subject to the Commission's standard withdrawal payment and would be
disqualified from further bidding on the same construction permit.  At the conclusion of the one-minute withdrawal period, a five-minute time period, signifying the start of the new bid
submission period, would begin.  At any time during this time period, any bidder would be free
to announce a new bid.  New bids would be dictated by predetermined increments.  For example,
incremental bids of $5 million could be required for bids up to $200 million, followed by
increments of $10 million for bids between $200 and $400 million, followed by increments of
$20 million for any bids beyond $400 million.  Once a bid is recorded on the board, any new bid
must follow the required bidding sequence, and no jump bids would be accepted.  The auctioneer
would not retain discretion to change the predetermined bid increment during the course of the
auction.  If a default or a bid withdrawal occurs outside of the one-minute bid withdrawal period,
the Commission would retain the discretion to re-auction the license that same day.   To prevent
a bidder from strategically delaying the close of the auction, the Commission would retain the
discretion to limit the number of times that a bidder may re-bid on a construction permit and then
withdraw the bid during the permitted one-minute withdrawal period.  MCI claims that its
proposed oral-outcry structure would be straightforward to implement, would serve the goal of
maximizing the availability of information to bidders, and would encourage aggressive bidding
by creating a simple and predictable environment for bidders to operate in, thus making higher
revenues likely.  

     171. GE Americom states that our proposed auction procedures appear reasonable for
the unique purpose of auctioning the channels reclaimed from ACC but asserts that other
procedures -- which it does not specify -- would probably achieve a fairer and more efficient
result in future DBS auctions.  GE Americom asks that we limit any auction procedures adopted
here to the auction of the channels available at 110 and 148.  We note also that Continental
Satellite claims that our proposed auction methodology is unworkable, but its only support of
this claim is the fact that we have asked for comment on the various aspects of this
methodology. 

     172. CTA and Kennedy-Wilson, an auction contractor and consultant, recommend that
we use simultaneous multiple round bidding instead of our proposed sequential auction.  CTA
states that bidding on individual channels or small channel blocks in a simultaneous auction
would allow market forces to determine the value of spectrum and the appropriate aggregation of
channels.  According to CTA, DBS channels are highly interdependent within each orbital slot. 
CTA also argues that bidding on individual channels or small parcels in a simultaneous auction
would increase revenues by increasing the number of bidders and forcing up the price to acquire
all channels, and that this auction design would have the advantage of allowing smaller entities
to participate in the auction and still allow larger entities to aggregate all channels available at a
given orbital location.  Kennedy-Wilson recommends a simultaneous oral outcry auction
offering the two channel blocks proposed in the NPRM, stating that this auction design would
allow bidders to adjust their bids as they acquire information regarding the relative value of each
block.  According to Kennedy-Wilson, it is probable that some bidders for one block will also be
interested in bidding for the other block, and a bidder primarily interested in the second block
might prematurely drop out of the bidding for the first block if it lacks information about the
ultimate price of the second block.  Kennedy-Wilson also proposes that bidders be allowed to
submit bids either orally or electronically, suggesting that electronic bids could be displayed
electronically on site and announced orally.  Kennedy-Wilson suggests that we allow both
telephone bids and computer bidding.   

     173. In its reply comments, MCI continues to support sequential auctions with the
higher value block of channels offered first, stating that this is a simpler method than a
simultaneous oral auction.  According to MCI, no telephonic or electronic bidding should be
employed.  In its reply comments, Primestar generally supports MCI's proposal to employ an oral
outcry auction including a one-minute penalty-free withdrawal period following each bid and a
five-minute period to submit new bids.  Primestar suggests that when a bid is withdrawn, the
bidding should revert to the previous high bid and if no new bid is announced, then the auction
would conclude at that bid.
     
     174. In response to our request for comment on whether bidders in an oral outcry
auction would need time between bidding rounds to arrange for additional financing, Primestar
argues that there should be short intervals (Primestar suggests 15 to 30 minutes in its comments
and 30 minutes in its reply comments) at predetermined stages to allow bidders to assess the
bidding and confer with their principals.  Kennedy-Wilson, however, expresses concern about
giving bidders time to react to ascending pricing.  Kennedy-Wilson proposes a closing rule that
would allow each eligible bidder one opportunity to suspend closure of the auction by requesting
a break in lieu of bidding.  Kennedy-Wilson suggests that the duration of such a break should be
one hour.  In its reply comments, MCI contends that, to prevent opportunities for collusion
and to expedite the auction, breaks should be prohibited. MCI states that entities that are serious
about bidding for the permits being offered should be able to send a representative to the auction
site, that there should be no need to consult with principals or to arrange for additional funding,
and that the auction should be conducted and completed in one day.

     175. In response to our request for comment on whether a combined sealed bid-oral
outcry auction would be appropriate for DBS, Primestar and MCI state that this method should
not be used because it limits bidders' access to information and thus is not consistent with
aggressive bidding.  Kennedy-Wilson also recommends against a combined sealed bid-oral
outcry procedure, arguing that nothing would be gained by this auction format, that otherwise
qualified bidders might be disqualified, and that such an auction design might have the effect of
reducing the amount bid.   

     176. Discussion.  Little opposition was expressed with regard to our proposal to
auction the DBS channels available at the 110 and 148 orbital locations in two blocks. 
Moreover, the trend in the industry has been to aggregate large blocks of spectrum, and we
believe that large channel blocks are needed to create a viable service at this time.  As we noted
in the NPRM, Tempo Satellite has indicated that the 11 paired channels it has been assigned at
the 119 orbital location "are not sufficient for a competitive system."  EchoStar has combined
with Directsat to control a total of 21 channels at each of two orbital locations, and USSB has
been able to operate using five channels by striking a deal with DIRECTV, which held the
remaining 27 channels at the same orbital location.  We also note that there is no prohibition
against disaggregating channels in the post-auction aftermarket once they are acquired. 
Moreover, small entities have the option of forming groups to bid for spectrum and then dividing
the channels among themselves after the auction.  Therefore, we will implement our proposal and
will auction one construction permit for a block of 28 channels at 110 -- the 27 channels
reclaimed from ACC and one channel that has never been assigned -- and one construction
permit for the block of 24 channels at 148 that were reclaimed from ACC.  As explained in the
NPRM, a separate ITU feeder link plan allocates frequencies for transmitting radio signals from a
DBS operator's ground facilities to a DBS satellite ("uplink") and from the DBS satellite to the
United States, Puerto Rico and the Virgin Islands ("downlink").  The construction permits
available for auction include authority to transmit pursuant to these allocations in accordance
with the BSS Plan.  

     177. We recognize that there may be legitimate arguments for auctioning spectrum in
smaller blocks, particularly in the future as digital compression technology is further developed. 
There may also be opportunities for niche services to develop once DBS service is generally
established.  Therefore, in the future we may auction DBS spectrum either channel by channel or
in small blocks.  However, for the reasons stated above, we believe that designating two permits
for auction for the channels at 110 and 148 will best serve the public interest and the
objectives of Section 309(j)(4)(B), especially the promotion of investment in and rapid
deployment of this new service.  

     178. We conclude that a sequential multiple round electronic auction would be the best
method of awarding construction permits for the channels available at 110 and 148.  We are
persuaded by the comments of MCI that we should provide the auction with more structure, but
we believe that the best way to provide such structure is through electronic bidding, and not by
imposing restrictions on the auctioneer in an oral auction. The primary benefit of additional
structure is the reduced risk of bidders making errors in submitting bids.  Erroneous bids are
occasionally entered in rapidly moving oral auctions.  Based on our experience with PCS
auctions, we believe that such errors are far less likely with electronic bidding than in a
traditional oral auction.  Given the absence of erroneous bid submissions with electronic bidding,
we believe there is no need to adopt MCI's proposal of providing a one-minute bid withdrawal
period in an oral auction.  

     179. We see three additional benefits to multiple round electronic bidding.  First,
electronic bidding with discrete bidding rounds provides bidders more time to analyze previous
bids, confer with decision makers, and refine their bidding strategy than a continuous oral
auction.  Moreover, time-outs can be better tailored to the needs of individual bidders.  If, as
Kennedy-Wilson proposes, the Commission were to provide each bidder with the right to call a
one hour time-out in an oral auction, the entire auction would be stopped whenever a time-out is
called.  In contrast, with electronic bidding in discrete rounds, bidders can be provided with
waivers that will allow them to sit out rounds without losing eligibility while other bidders
continue to bid, and without the auction closing.  Second, a multiple round electronic auction
with the activity rule discussed below will provide bidders more information about other bidders'
valuations.  The activity rule requires bidders to be active in every round (or use one of a limited
number of waivers) to maintain their bidding eligibility.  Thus, absent the use of waivers, all
bidders willing to acquire a construction permit at each announced price will be observable. 
Providing this information may enable bidders to refine their estimates of the permit value,
thereby reducing the tendency of bidders for permits with uncertain value to shade down their
bids to avoid  the "winner's curse."  Third, given the Commission's experience with electronic
auctions, such an auction is likely to be easier for the FCC to implement than an oral auction
with novel features, such as those proposed by MCI.  Because of the Commission's discretion to
adjust the length of bidding rounds in an electronic auction and the other auction design features
described below, we expect the auction to proceed rapidly.   

     180. We will provide for electronic bidding at an FCC auction site because of the
anticipated rapid auction pace.  We do not anticipate allowing telephone bids and remote
electronic bidding, as suggested by Kennedy-Wilson, but the Wireless Telecommunications
Bureau will announce by Public Notice whether such bidding will be permitted.  In the event
telephone bids and remote electronic bidding are not allowed, all bidders will be required to have
an authorized bidding representative at the auction site.  Because no commenter has made the
case that there is significant interdependence between the channels available at 110 and those
available at 148, we do not believe simultaneous bidding is necessary.  Hence, we shall auction
the channels at 110 and the channels at 148 separately.  We may auction one channel block
immediately after the other, but we also reserve the discretion to hold two separate auctions for
the two blocks.

     181. Although we will not use simultaneous multiple round bidding, oral outcry
bidding, sealed bidding, or a combined sealed bid-oral outcry auction, to reassign the spectrum
reclaimed from ACC, we recognize that such auction designs could be suitable for DBS under
certain circumstances and we reserve discretion to employ such auction designs for DBS in the
future.  We therefore adopt rules to provide for these auction designs, and we retain discretion to
modify by Public Notice the procedures pertaining to these auction methods.  As we have done
in previous auctions, we also delegate to the Wireless Telecommunications Bureau the authority
to implement and modify auction procedures -- including the general design and timing of an
auction, the number of authorizations to be offered in any one auction, the manner of submitting
bids, and procedures such as minimum opening bids and bid increments, activity and stopping
rules, and application and payment requirements -- and to announce such procedures by Public
Notice. 

C.   Bidding Procedures

     182. Sequencing.  We proposed in the NPRM to auction the 28 channels available at
110 first.  As we explained, all of the information available to us indicated that these channels
have the highest value of those currently available, and we thought that bidders would not wish
to bid on the channels available at 148 until they had had the opportunity to bid on the channels
at 110.  We also sought comment on any general principles interested parties might wish to
suggest for determining the sequence of future DBS auctions that may be held.  None of the
commenters suggested that we offer the channels available at 148 before the channels at 110,
and the comments clearly reveal that there is more interest in these channels than in the channels
available at 148.  We will therefore implement our proposal to auction the 28 channels available
at 110 first.  As noted above, we reserve the discretion to hold two separate auctions for the
channels available at 110 and the channels at 148, rather than auctioning the channels at 148
immediately after the channels at 110.  We will determine the sequence of future DBS auctions
in keeping with our general finding that the highest value licenses should be auctioned first
because the greater the value of the license, the greater the cost to the public of delaying
licensing.   In the event that we need to assign separate blocks of channels that we believe to
be interdependent, we may choose to utilize a simultaneous multiple round auction.     

     183. Bid Increments and Tie Bids.  In the NPRM, we tentatively concluded that, if we
employed oral outcry bidding, the auctioneer should have discretion to establish bid increments -- and raise or lower them in the course of an auction -- consistent with directions provided by the
Commission.  We stated our view that such discretion on the part of the auctioneer would
contribute to the efficient conduct of an oral outcry auction.  We also solicited suggestions as to
how bid increments should be determined in the event bids are submitted electronically. 
According to Kennedy-Wilson, bid increments are most crucial at the conclusion of an auction
and must be low enough at that time to withstand a legal challenge from bidders who want to
make bids above the high bid but below the bid increment.  Kennedy-Wilson suggests that the
auctioneer be given the discretion to set the amount of bid increments subject to a minimum
increment of 1 percent rounded down to the nearest $100,000 or $1 million, whichever is less. 
Primestar suggests in its comments that bid increments of $5 million would be sufficient to
ensure that full value of the spectrum is received and that the auction proceeds to an expeditious
conclusion.  In its reply comments, however, Primestar supports Kennedy-Wilson's proposal
of granting the auctioneer the discretion to set bid increments subject to a minimum of 1 percent
rounded down to the nearest $100,000 or $1 million, whichever is less.  Primestar disagrees with
MCI's proposal of having bid increments increase as the bidding amounts increase.  Primestar
believes that this method runs counter to the Commission's goal of maximizing the value of the
spectrum because at higher overall bidding levels, bidders may be willing to pay $1 million more
but not $20 million more.    

     184. We conclude that the Commission should have discretion to establish, raise and
lower minimum bid increments in the course of the auction.  We believe that this discretion over
minimum bid increments is necessary to ensure that the Commission can efficiently control the
pace of the auction.  We anticipate using larger percentage minimum bid increments early in the
auction and reducing the minimum increment percentage as bidding activity falls.  In light of
MCI's comments, we also believe that the efficiency of the auction may be enhanced by limiting
jump bidding, i.e., bidding above the minimum accepted bids.  Therefore, we will also retain the
discretion to establish and change maximum bid increments in the course of the auction.  Where
a tie bid occurs, the high bidder will be determined by the order in which the bids were received
by the Commission.

     185. Minimum Opening Bid.  We proposed in the NPRM to establish a minimum
opening bid for the 28 channels available at 110, both to help ensure that the auction proceeds
quickly and to increase the likelihood that the public receives fair market value for the spectrum. 
We asked interested parties to suggest the appropriate level of a minimum opening bid for the
permit for these channels, and to comment on whether we should have a minimum opening bid
for the 24 channels at 148 and for other DBS construction permits that may become available in
the future.  Primestar states that the minimum opening bid should be the same as the upfront
payment, which should be based on the value of the channels being auctioned.  Primestar
suggests the amount of $10 million for the channels available at 110, stating that this is
approximately 25 percent of the amount ACC would have received for these channels through its
proposed transaction with Tempo and Primestar.  MCI suggests that the minimum opening bid
for the 28 channels available at 110 should be $175 million, and reiterates its commitment to
making this opening bid.  Kennedy-Wilson, on the other hand, states that there is nothing to be
gained by setting a minimum opening bid, unless the Commission is convinced that there is a
high probability of bidder collusion, and it therefore recommends not setting one.  

     186. We continue to believe that it would be useful to have a minimum opening bid for
the channels at 110  to help move the auction along and to increase the likelihood that the
public receives fair market value for the spectrum.  We will therefore establish a minimum
opening bid for this spectrum, the amount of which will be announced by the Wireless
Telecommunications Bureau by Public Notice.  The Wireless Telecommunications Bureau and
the International Bureau will determine the amount of the minimum opening bid using all
available information and taking into consideration the uncertainty as to the value of the
spectrum.  No commenter has suggested a minimum opening bid for the channels available at
148, but it appears that their value is substantially lower than the value of the channels at 110. 
Therefore, we will not set a minimum bid for the channels at 148.  As our PCS auction
experience shows, a minimum opening bid is not an absolute prerequisite for a successful,
efficient auction.  Because no parties have commented on whether we should have minimum
opening bids for future DBS auctions, we reserve discretion to decide this issue with respect to
individual auctions as circumstances warrant. 

     187. Activity Rules.  To maximize the amount of information generated during the
course of an auction and to ensure that the auction closes in a reasonable amount of time, we will
require a bidder to be active in each round of the auction or use an activity rule waiver, as
defined below.  To be active in the current round, a bidder must submit an acceptable bid in the
current round or have the high bid from the previous round.  A bidder who is not active in a
round and has no remaining activity rule waivers will no longer be eligible to bid on the
construction permit being auctioned.  However, as discussed below, in the event of a bid
withdrawal, the eligibility of all bidders who have not withdrawn will be restored.  

     188. Activity Rule Waivers.  To make allowance for unusual circumstances that might
delay a bidder's bid preparation or submission in a particular round, we will provide bidders with
a limited number of waivers of the above-described activity rule.  We believe that some waiver
procedure is needed because the Commission does not wish to end a bidder's participation due to
an accidental act or circumstances not under the bidder's control.  We will provide bidders
with five activity rule waivers that may be used in any round during the course of the auction. 
A waiver will preserve eligibility in the next round.  Waivers may be applied automatically by
the Commission or invoked proactively by bidders.  If a bidder is not active in a round, a waiver
will be applied automatically.  An automatic waiver applied in a round in which there are no new
valid bids will not keep the auction open.  A proactive activity rule waiver is a waiver invoked by
a bidder during the bid submission period.  If a bidder submits a proactive waiver in a round in
which no other bidding activity occurs, the auction will remain open.   
  
     189. The Commission will retain the discretion to issue additional waivers during the
course of an auction for circumstances beyond a bidder's control or in the event of a bid
withdrawal, as discussed below.  We will also retain the flexibility to adjust by Public Notice
prior to an auction the number of waivers permitted.

     190. Stopping Rules.  A stopping rule specifies when an auction is over. The auction
will close after one round passes in which no new valid bids or proactive activity rule waivers are
submitted.  The Commission retains the discretion, however, to keep the auction open even if no
new valid bids and no proactive waivers are submitted.  In the event that the Commission
exercises this discretion, the effect will be the same as if a bidder had submitted a proactive
waiver.  This will help ensure that the auction is completed within a reasonable period of time,
because it will enable the Commission to utilize larger bid increments, which speed the pace of
the auction, without risking premature closing of the auction. 

D.   Procedural and Payment Issues

     191. We proposed in the NPRM to apply our general procedural and payment rules for
auctions to the DBS service, along with certain modifications.  In keeping with our previous
practice, we also proposed to retain discretion to implement or modify certain procedures that
would be announced by Public Notice prior to particular DBS auctions, including rules
governing the timing of application and payment requirements as well as any activity rules and
stopping rules that may be appropriate.  We received no comments opposing this general
proposal, nor did we receive any comments disagreeing with our proposed application
procedures or our proposed down payment and final payment requirements.  We therefore adopt
these procedures and requirements as proposed in the NPRM, except that, as explained below,
we will allow more time than was proposed for winning bidders to file information in
conformance with Part 100 of the Commission's Rules.  As indicated above, we also delegate
authority to the Wireless Telecommunications Bureau to implement or modify application and
payment procedures, and to announce such procedures by Public Notice.  We received a
number of comments regarding the issues of upfront payments and procedures dealing with bid
withdrawal, default and disqualification, and these issues are discussed separately below.

     192. Application Procedures, Permittee Qualifications, and Payment for Construction
Permits Awarded by Competitive Bidding. As we proposed in the NPRM, applicants for DBS
auctions will be required to file a short-form application, FCC Form 175, prior to the auction in
which they wish to participate.  Filing deadlines will be announced by Public Notice.  If
administratively feasible, we will allow electronic filing of FCC Form 175 for the auction of
spectrum available at 110 and 148, and will announce filing procedures by Public Notice.  For
subsequent DBS auctions, we will also announce by Public Notice how such forms should be
filed.            

     193. As discussed below, we will require every DBS auction participant to submit to
the Commission an upfront payment prior to commencement of the auction.  In addition, each
auction winner will be required to submit an amount sufficient to bring its total deposit up to 20
percent of its winning bid within 10 business days of the announcement of winning bidders. 
Winning bidders also will be required to file information in conformance with Part 100 of the
Commission's Rules.  This procedure will constitute the "long-form application" process referred
to in our general auction rules.  Although we proposed in the NPRM to require winning bidders
to file this information within 10 business days of the announcement of winning bidders, we
believe that this would not be a reasonable deadline in light of the amount and type of
information that must be submitted.  We will therefore require that winning bidders file this
information with the Commission within 30 days of the announcement of winning bidders. 
Winning bidders must submit, as part of this post-auction application process, a signed statement
describing their efforts to date and future plans to come into compliance with any applicable
spectrum limitations, if they are not already in compliance.   

     194. After reviewing a winning bidder's information supplied in conformance with Part
100 and determining that the bidder is qualified to be a permittee, and after verifying receipt of
the bidder's 20 percent down payment, the Commission will announce the application's
acceptance for filing, thus triggering the filing window for petitions to deny.  If, pursuant to
Section 309(d) of the Communications Act, the Commission dismisses or denies any and all
petitions to deny, the Commission will issue an announcement to this effect, and the winning
bidder will then have five business days to submit the balance of its winning bid.  If the bidder
does so, the permit will be granted subject to a condition, if necessary, that the permittee come
into compliance with any applicable spectrum limitations within 12 months of the final grant. 
The permittee may come into compliance with this spectrum cap by either surrendering to the
Commission its excess channels or filing an application that would result in divestiture of the
excess channels.  If the bidder fails to submit the balance of the winning bid or the permit is
otherwise denied, we will assess a default payment as set forth below and re-auction the permit.
 
     195. Upfront Payment.  In the NPRM we proposed to require an upfront payment in all
DBS auctions to help ensure that only serious, qualified bidders participate.  We sought comment
on how the size of an upfront payment should be determined and asked whether it would be
appropriate to establish an upfront payment of roughly five percent of the spectrum's estimated
value.  In addition, we asked how the value of spectrum should be estimated.  With respect to the
collection of upfront payments, we proposed that prospective bidders deposit their payments in
the Commission's lock-box bank by a date certain that would allow the Commission sufficient
time to verify the availability of the funds before the start of the auction.  Kennedy-Wilson
agrees that there should be a substantial upfront payment for all auctions and recommends that
we set the amount of this payment at $15 million per license.  According to Kennedy-Wilson,
this amount is large enough to ensure that only serious, qualified bidders participate, but not so
onerous as to discourage participation.  Kennedy-Wilson does not recommend establishing an
upfront payment as a percentage of the estimated value of the spectrum being auctioned, stating
that this method of calculation could inadvertently set an upper limit on bidding.  Similarly,
MCI agrees that we must require an upfront payment in order to ensure that only serious,
qualified bidders are allowed to participate in our auctions, but states that we should not base the
amount on the estimated value of the spectrum.  According to MCI, this method of calculation
would not be productive because estimates of the value of the spectrum may vary widely.  MCI
recommends requiring a payment equal to 10 percent of a minimum opening bid.  Using its own
opening bid of $175 million as a basis for this calculation, MCI suggests that the upfront
payment for the 28 channels at 110  should be $17.5 million.  As noted above, Primestar
believes that the upfront payment should be based on the value of the channels being auctioned,
and suggests the amount of $10 million for the channels available at 110, stating that this is
approximately 25 percent of the amount ACC would have received for these channels through its
proposed transaction with Tempo and Primestar.  Kennedy-Wilson agrees with our proposed
procedures for collecting upfront payments and recommends that we require payments to be
deposited no more than five business days prior to the start of an auction.  

     196. Our approach to upfront payments varies from auction to auction depending on a
balancing of the goal of encouraging bidders to submit serious bids with the desire to simplify
the bidding process and minimize implementation costs imposed on bidders.  In the Second
Report and Order in our Competitive Bidding proceeding, we outlined a rationale for setting
upfront payments at roughly five percent of  the estimated value of a winning bid. We note
that, a year ago, Tempo would have paid ACC $45 million for its channels at 110 and 148.  In
view of the proposed $175 million bid for the channels at 110 and in the absence of any specific
expression of interest in bidding on the 148 channels, it seems clear that the channels at 110
are more valuable than those at 148.  Moreover, we strongly believe that the value of the
channels has increased over the past year.  These considerations lead us to set an upfront
payment of $10 million for the channels at 110 and $2 million for the channels at 148. The $10
million figure is well above five percent of $45 million (it is actually 22.2 percent).  This reflects
a balancing of the assumed increase in value of the spectrum with the fact that the channels at
110 and 148 were included in the Tempo-ACC arrangement.  

     197. The magnitude of the upfront payment also reflects our concern that, if we set the
upfront payment too low, there is a risk of encouraging insincere bidding.  Moreover, a $10
million payment should not be an excessive burden for bidders because it will not be held for a
significant amount of time.  Additionally, $10 million is the lowest of the three specific upfront
payment suggestions in the comments.  With respect to procedures for collecting upfront
payments, we specify that we will accept only wire transfers in the case of the auction of the
channels available at 110 and 148.  

     198. Bid Withdrawal, Default and Disqualification.  We stated in the NPRM that, if we
employed open outcry auctions for DBS, we believed it would be unnecessary to impose a
monetary payment for withdrawing a bid during the course of bidding on a particular permit (that
is, immediately after bidding has concluded for an individual permit and before bidding has
begun on any other permit), because such a withdrawal would not affect auction participants'
decisions regarding how much to bid for other permits, as would be the case in simultaneous
auctions, and any delay caused by the withdrawal of a bid in an open outcry auction would be
minimal.  In light of these circumstances, we proposed to rely on default payments to deter
insincere bidding and provide an incentive for bidders wishing to withdraw their bids to do so
before bidding ceases.  Kennedy-Wilson supports our proposal with respect to assessing
payments against defaulting winning bidders.  MCI and Kennedy-Wilson believe, however,
that we should impose a penalty for withdrawing a bid in the course of an auction.  MCI
emphasizes that the lack of any withdrawal penalty invites bidders to engage in predatory
bidding, i.e., bidding up their rival bidders without having to account for the consequences of
placing the winning bid.  Primestar states in its comments that our proposed bid withdrawal
and default payments are adequate, but in its reply comments concurs with MCI and Kennedy-Wilson regarding the importance of providing for substantial penalties for bid withdrawals made
outside of the penalty-free period.  Primestar supports MCI's proposal requiring that a bidder
immediately be disqualified and subject to the standard bid withdrawal monetary payment upon
withdrawing its bid outside of the penalty-free period.

     199. We will adopt a monetary payment for withdrawing a bid during the course of
bidding.  Comments advocating such a payment are primarily concerned with insincere bids.  We
conclude that such insincere bidding could reduce the efficiency of the auction and that the threat
of disqualifying a bidder from further participation in the auction may not be a sufficient
deterrent, especially if a bidder does not sincerely seek a construction permit but is seeking only
to raise its rival's costs.  Pursuant to these rules, any bidder who withdraws a high bid during an
auction before the Commission declares bidding closed will be required to reimburse the
Commission in the amount of the difference between its high bid and the amount of the winning
bid the next time the construction permit is offered by the Commission, if this subsequent
winning bid is lower than the withdrawn bid.  No withdrawal payment will be assessed if the
subsequent winning bid exceeds the withdrawn bid.

     200. To prevent multiple withdrawals by the same party, the Commission will bar a
bidder who withdraws a bid from continued participation in the auction of the withdrawn
construction permit.  Once a bidder has withdrawn, the bid withdrawal payment mechanism no
longer provides a deterrent to subsequent withdrawals at bids below the initially withdrawn bid
because such withdrawals would not increase the total withdrawal payment for which the bidder
is liable.  Moreover, a bidder who has withdrawn would have an incentive to reenter the auction
and strategically bid up the price at which another bidder can acquire the construction permit in
order to reduce its bid withdrawal payment.  Finally, in the case of an auction for a single item,
there is no offsetting efficiency gain to permitting reentry into an auction by a bidder who has
withdrawn, because no new information becomes available during the course of the auction
about prices of other items which may be substitutes for or complements of the withdrawn item.

     201. In the event of a bid withdrawal, the Commission will reoffer the permit in the
next round.  The offer price will be the highest price at or above which bids were made in
previous rounds by three or more bidders.  The Commission may at its discretion reduce this
price in subsequent rounds if it receives no bids at this price.  Prior to restarting the auction, the
Commission will also restore the eligibility of all bidders who have not withdrawn.  If no
eligibility were restored it is possible, given the activity rules, that no bidders would be eligible
to bid when a permit is reoffered after a bid withdrawal.  Restoring eligibility of all but those
who withdrew will ensure the maximum number of sincere bidders for the permit when the
auction is restarted.  After a withdrawal the Commission will also issue each eligible bidder one
activity rule waiver in addition to any remaining waivers to provide additional time for bid
preparation and to avoid accidental disqualification. 

     202. A default payment will be assessed if a winning bidder fails to pay the full amount
of its 20 percent down payment or the balance of its winning bid in a timely manner, or is
disqualified after the close of an auction.  The amount of this default payment will be equal to the
difference between the defaulting auction winner's "winning" bid and the amount of the winning
bid the next time the construction permit is offered for auction by the Commission, if the latter
bid is lower.  In addition, the defaulting auction winner will be required to submit a payment of
three percent of the subsequent winning bid or three percent of its own "winning" bid, whichever
is less. 

     203. If withdrawal, default or disqualification involves gross misconduct,
misrepresentation or bad faith by an applicant, we retain the option to declare the applicant and
its principals ineligible to bid in future auctions, or take any other action we deem necessary,
including institution of proceedings to revoke any existing licenses held by the applicant.  

E.   Regulatory Safeguards

     204. Transfer Disclosure Provisions. In order to accumulate data to evaluate whether
DBS authorizations are being issued for bids that fall short of market value -- a potential problem
of concern to Congress -- we proposed in the NPRM that any entity that acquires a DBS
license through competitive bidding, and seeks to transfer that license within six years of the
initial license grant, should be required to file, together with its application for FCC consent to
the transfer, the associated contracts for sale, option agreements, management agreements, or
other documents disclosing the total consideration received in return for the transfer of its
license.  Having received no comments in opposition, we adopt this requirement as proposed in
the NPRM.  Thus, the information submitted should include not only a monetary purchase price,
but also any future, contingent, in-kind, or other consideration (e.g., management or consulting
contracts either with or without an option to purchase; below market financing).  As we have
previously stated, we believe that such a filing requirement will not be a burden on licensees,
which will have to prepare the documents to be submitted to the Commission in any event,
and any competitive concerns raised by the possible disclosure of sensitive information can be
addressed by the provisions in Sections 0.457 and 0.459 of our Rules, 47 C.F.R.   0.457 &
0.459, providing for the nondisclosure of information.  

     205. Performance Requirements.  In implementing auction procedures, the
Commission is required under Section 309(j) to include performance requirements "to ensure
prompt delivery of service to rural areas, to prevent stockpiling or warehousing of spectrum by
licensees or permittees, and to promote investment in and rapid deployment of new technologies
and services."  We tentatively concluded in the NPRM that the performance requirements
proposed as part of our DBS service rules would be sufficient to achieve these statutory goals,
and that it would be unnecessary to adopt any further performance rules in connection with
auction procedures.  None of the commenters in this proceeding disagree with this assessment,
and we conclude that only those performance requirements adopted as part of our DBS service
rules are needed, particularly since DBS licenses will be conditioned on fulfillment of these
requirements. 

     206. Rules Prohibiting Collusion.   The Commission's rules prohibiting collusive
conduct in connection with competitive bidding are codified at 47 C.F.R.  1.2105.  In the
NPRM we proposed to apply these rules to DBS auctions, modifying them slightly to allow for
the fact that DBS service areas are not precisely defined and are to a large extent overlapping. 
Thus, instead of being designed to prohibit collusion only among bidders wishing to serve the
same geographic areas, our proposed rules also prohibit collusion among bidders wishing to
serve overlapping geographic areas.  We received no comments critical of our proposal, and we
therefore adopt the anti-collusion rules set forth in the NPRM with one modification, as
explained below.    

     207. Under these rules, bidders are required to identify on their short-form applications
any parties with whom they have entered into any consortium arrangements, joint ventures,
partnerships or other agreements or understandings which relate in any way to the competitive
bidding process.  If parties agree in principle on all material terms, those parties must be
identified on the short-form application under Section 1.2105(c), even if the agreement has not
been reduced to writing.  Only at such level of agreement can it be fairly stated that the parties
have entered into a bidding consortium or other joint bidding arrangement.  If the parties have
not agreed in principle by the filing deadline, an applicant would not include the names of those
parties on its application, and may not continue negotiations with those parties.  Bidders are
also required to certify on their short-form applications that they have not entered into any
explicit or implicit agreements, arrangements or understandings of any kind with any parties,
other than those identified, regarding the amount of their bid, bidding strategies or the particular
properties on which they will or will not bid.    

     208. In addition, winning bidders are required to submit a detailed explanation of the
terms and conditions and parties involved in any bidding consortia, joint venture, partnership or
other agreement or arrangement they have entered into relating to the competitive bidding
process prior to the close of bidding.  Such arrangements must have been entered into prior to the
filing of short-form applications as provided herein.  In the NPRM we proposed that after short-form applications are filed, and prior to the time the winning bidder has submitted the balance of
its bid, all applicants should be prohibited from cooperating, collaborating, discussing or
disclosing in any manner the substance of their bids or bidding strategies with other applicants
for construction permits that may be used to serve the same or overlapping geographic areas,
unless such bidders are members of a bidding consortium or other joint bidding arrangement
identified on the bidder's short-form application.  We adopt this prohibition, but extend it only
until the winning bidder has submitted its 20 percent down payment, and not until the winning
bidder has submitted the balance of its bid.  It is consistent with our rules for other services to
extend this prohibition only until submission of the down payment, and we think it is
unnecessary to extend it to submission of the balance of the bid.  Even when an applicant has
withdrawn its application after the short-form filing deadline, the applicant may not enter into a
bidding agreement with another applicant bidding on the same or overlapping geographic areas
from which the first applicant withdrew.  In addition, once the short-form application has been
filed, a party with an attributable interest in one bidder may not acquire a controlling interest in
another bidder bidding for construction permits in any of the same or overlapping geographic
areas.  

     209. DBS applicants may (1) modify their short-form applications to reflect formation
of consortia or changes in ownership at any time before or during an auction, provided that such
changes do not result in a change in control of the applicant, and provided that the parties
forming consortia or entering into ownership agreements have not applied for construction
permits for channels that may be used to cover the same or overlapping geographic areas; and (2)
make agreements to bid jointly for construction permits after the filing of short-form
applications, provided that the parties to the agreement have not applied for construction permits
that may be used to serve the same or overlapping geographic areas.  In addition, the holder of a
non-controlling attributable interest in an entity submitting a short-form application may acquire
an ownership interest in, form a consortium with, or enter into a joint bidding arrangement with
other applicants for construction permits that may be used to serve the same or overlapping
geographic areas after the filing of short-form applications, provided that (1) the attributable
interest holder certifies to the Commission that it has not communicated and will not
communicate with any party concerning the bids or bidding strategies of more than one of the
applicants in which it holds an attributable interest, or with which it has a consortium or joint
bidding arrangement, and which have applied for construction permits that may be used to serve
the same or overlapping geographic areas, and (2) the arrangements do not result in any change
in control of an applicant.  The attribution rules applicable to the auction of the spectrum
available at 110 and 148 are set forth in Appendix C.  If other DBS spectrum is auctioned in
the future, the Commission may adopt different attribution rules for auction applicants.

     210. In adopting these rules, we also remind potential bidders for DBS construction
permits that allegations of collusion in a petition to deny may be investigated by the Commission
or referred to the U.S. Department of Justice for investigation.  Bidders who are found to have
violated the antitrust laws or the Commission's Rules while participating in an auction may be
subject to forfeiture of their down payment or their full bid amount, as well as revocation of their
license, and may be prohibited from participating in future auctions.

F.   Designated Entities

     211. The NPRM.  Because of the extremely high implementation costs associated with
satellite-based services, we tentatively concluded in the NPRM that no special provisions should
be made for designated entities -- i.e., small businesses, rural telephone companies, and
businesses owned by members of minority groups and women -- for the channels currently
available at 110 and 148.   We noted that the expeditious implementation of DBS service at
the two orbital locations in question might indirectly benefit designated entities by providing
new opportunities for them to supply programming and equipment.  We also sought comment on
whether special provisions should be made for designated entities in future DBS auctions, and
requested comment on whether future auctions of smaller blocks of DBS spectrum or
technological advances in the delivery of DBS service might reduce capital requirement barriers
for designated entities.  

     212. Comments.  DBSC argues against auctioning the channels reclaimed from ACC
on the grounds that an auction would deny DBS channels to a small business such as DBSC and
make it more difficult for it to compete with larger entities having access to greater resources. 
DBSC does not argue for designated entity preferences.  As discussed above, ASN, which also
does not frame its recommendations in terms of designated entities, urges us to set aside 10
percent of available DBS spectrum for "independents," programmers or distributors who have no
market power through a nationwide cable system or other multichannel video distribution
system.  ASN cautions the Commission that it should not limit the DBS industry to a
predetermined economic model -- that of a large, monolithic vertically integrated DBS operator,
and suggests that its set-aside proposal will help cultivate independent sources of content, create
programming mixes that may appeal to niche or underserved markets, offer individualized
programming choices at the wholesale level, and encourage entrepreneurial partnerships and
alliances to bring high-powered television and other signals to consumers.   ASN further
argues that because an independent would occupy only 10 percent of the capacity of a DBS
orbital location, the financial criteria that it must meet would be proportionally reduced, thereby
allaying the Commission's concern that acquisition of DBS licenses by undercapitalized firms
could delay DBS service to the public.  At the same time, ASN states in its reply comments
that its proposed set-aside would give independent programmers and distributors secure rights to
channel capacity they need to attract financing.   

     213. CTA urges us to adopt designated entity provisions, citing itself as proof that
designated entities are in a position to develop competitive DBS systems.  CTA specifically
urges us to create a set-aside of one 14-channel block at 110 and one 12-channel block at 148
for designated entities, to give bidding credits to designated entities, and to permit installment
payments for designated entities.  CTA further argues that DBS is a content-based, broadcast-type service, and that the Commission cannot ignore its Congressional mandate to offer
opportunities to minorities to enter broadcasting.  According to CTA, the history of
discrimination against women and minorities in broadcasting make it likely that designated entity
preferences would be upheld under the strict scrutiny standard of judicial review now applicable
to federal race-based preference programs.  CTA states that we should at a minimum adopt a
small business/entrepreneur preference.  Communications Scientific International states that
small and minority-owned businesses are contributing to the DBS industry, not necessarily as
entities with the ability to launch service, but "in many other 'essential' primary and secondary
service provider functions."  It suggests that we provide auction incentives to companies that
elect to team up with small or minority-owned businesses to launch DBS service.  
  
     214. Discussion.  Our assertion that the implementation costs associated with satellite-based services are extremely high was not challenged by the commenters.  These high costs
formed the basis for our tentative conclusion that no designated entity provisions should be made
for auctioning channels at 110 and 148.  CTA's argument in favor of creating provisions for
designated entities flows from its statement that "the Commission needs to balance its goals of
providing rapid service to the public with other public interest goals, including the participation
of Designated Entities in the electronic mass media fields."  CTA does not distinguish
between the expedited auction of the channels at 110 and 148 and future DBS auctions.  We
believe that the public interest goals of an immediate auction of the channels at 110 and 148
versus future auctions differ and may not require the same approach to designated entity
participation.

     215. As we have stated, competition in the delivery of DBS service requires auction
rules that will allow expedient assignment of the channels at 110 and 148.  Given the fact that
these channels offer enough capacity to provide full DBS service in competition with current
video providers, auction rules that put these two construction permits in the hands of entities that
can quickly provide competition are in the public interest.  Moreover, we are not convinced that a
10 percent set-aside for independents would support a viable DBS service, at least at the current
stage of development of the DBS industry.

     216. Commenters that identify themselves as a small or minority-owned business do
not express an interest in obtaining all the channels available at either 110 or 148.  Instead,
they argue for their interest in providing service with no more than half of the channels available
at an orbital location.  No commenters assert that small businesses could attract the capital
necessary to provide service on all the channels available at either 110 or 148.    

     217. Accordingly, we will not adopt special provisions for designated entities in the
DBS auction for the channels at 110 and 148, and we will not set aside spectrum in this
auction for "independents" as suggested by ASN.  Communications Scientific International's
statement that small and minority businesses are developing services for the DBS industry
confirms our belief that a wide variety of businesses will be involved in the DBS industry.  We
do not have a record before us, however, sufficient to support adoption of its suggestion that we
provide incentives to encourage companies to team up with small and minority-owned
businesses.  However, designated entity provisions for future DBS auctions may be appropriate,
particularly if we auction spectrum in small blocks.

               V.  CONCLUSION AND ORDERING CLAUSES

     218. For the foregoing reasons, we adopt the rules attached hereto as Appendices B and
C.  We believe that these rules will allow the DBS service to proceed from its current nascent
stage to the next level at which it will provide true rivalry in the MVPD market and will achieve
this aim on an expedited basis.

     219. The analysis required pursuant to Section 608 of the Regulatory Flexibility Act, 5
U.S.C.  608, is contained in Appendix D.  This order contains new or modified information
collections subject to the Paperwork Reduction Act of 1995 ("PRA"), Pub. L. No. 104-13, which
were proposed in the NPRM and submitted to the Office of Management and Budget ("OMB")
for approval.  We received no comments on the proposed information collections, and adopt
them as originally proposed.  The effective date of the new and modified rules adopted herein
falls after the deadline for OMB action under the PRA.

     220. Accordingly, IT IS ORDERED that Part 100 of the Commission's Rules IS
AMENDED as specified in Appendix B.

     221. IT IS FURTHER ORDERED that the rules set forth in Appendix C will be
implemented in connection with the auction of the construction permits for the use of 28 DBS
channels at the 110 orbital location and 24 channels at the 148 orbital location.

     222. IT IS FURTHER ORDERED that the amendments to Part 100 adopted herein and
the one-time auction rules set forth in Appendix C WILL BECOME EFFECTIVE thirty (30)
days after publication in the Federal Register.  This action is taken pursuant to Sections 1, 4(i),
4(j), 7, and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C.  151, 154(i),
154(j), 157, and 309(j).

     223. IT IS FURTHER ORDERED that, pursuant to 47 U.S.C.  155(c), the Chief,
Wireless Telecommunications Bureau, IS GRANTED DELEGATED AUTHORITY to
implement and modify auction procedures in the DBS service, including the general design and
timing of an auction, the number of authorizations to be offered in an auction, the manner of
submitting bids, minimum opening bids and bid increments, activity and stopping rules, and
application and payment requirements, and to announce such procedures by Public Notice. 

     224. IT IS FURTHER ORDERED that condition (a) placed on the construction permit
of Tempo Satellite, Inc. in Tempo Satellite, Inc., 7 FCC Rcd 2728, 2732 (1992), which imposed
certain marketing restrictions, IS RESCINDED.

     225. IT IS FURTHER ORDERED that the proceeding in IB Docket No. 95-168 is
hereby TERMINATED.

                     FEDERAL COMMUNICATIONS COMMISSION



                     William F. Caton
                     Acting Secretary                            APPENDIX A

                 List of Parties Filing Comments

Advanced Communications Corporation ("ACC")
American Satellite Network, Inc. ("ASN")
Ameritech Corporation
BellSouth Corporation
Cable Telecommunications Association ("CATA")
Continental Cablevision, Inc.
Continental Satellite Corporation
Cox Enterprises, Inc. ("Cox")
CTA Incorporated
Direct Broadcasting Satellite Corporation ("DBSC")
DIRECTV, Inc.
EchoStar Satellite Corporation/Directsat Corporation ("EchoStar/Directsat")
GE American Communications, Inc. ("GE Americom")
State of Hawaii
Kennedy-Wilson International
Lockheed Martin Corporation
MCI Telecommunications Corporation
National Cable Television Association, Inc. ("NCTA")
National Rural Telecommunications Cooperative ("NRTC")
NYNEX Corporation
PanAmSat Corporation
Primestar Partners L.P.
Tempo DBS, Inc.
Time Warner Entertainment Company, L.P.
United States Department of Justice ("DOJ")
United States Satellite Broadcasting Company, Inc. ("USSB")
Viacom Inc.

              List of Parties Filing Reply Comments

A&E Television Networks
State of Alaska
American Satellite Network, Inc.
Bell Atlantic
BellSouth Corporation
Communications Scientific International
Continental Cablevision, Inc.
Direct Broadcast Satellite Corporation
DIRECTV, Inc.
EchoStar Satellite Corporation/Directsat Corporation
GE American Communications, Inc.
General Instrument Corporation ("GIC")
Home Box Office ("HBO")
Lifetime Entertainment Services
MCI Telecommunications Corporation
National Cable Television Association, Inc.
National Rural Telecommunications Cooperative
NYNEX Corporation
Primestar Partners, L.P.
Tempo DBS, Inc.
Time Warner Entertainment Company, L.P.
United States Department of Justice
United States Satellite Broadcasting Company, Inc.
Viacom Inc.                            APPENDIX B

            Final Rules and Regulations to be Added to
           47 C.F.R. Part 100 of the Commission's Rules

Part 100 of Chapter I of Title 47 of the Code of Federal Regulations is amended as follows:

          PART 100 - DIRECT BROADCAST SATELLITE SERVICE

     1.   The authority citation for Part 100 is revised to read as follows:

Authority:  Sections  4, 303, 309, and 554, 48 Stat. 1066, 1082, as amended; 47 U.S.C. 154,
303, 309, and 554, unless otherwise noted.

     2.   Section 100.17 is amended to read as follows:

 100.17  License term.

  Licenses for non-broadcast facilities governed by this Part will be issued for a period of  ten
(10) years.  Licenses for broadcast facilities governed by this Part will be issued for a period of
five (5) years.


     3.   Section 100.19 is amended to read as follows:

 100.19  Due diligence requirements.

  (a)  All persons granted DBS authorizations shall proceed with diligence in constructing DBS
systems.  Permittees shall be required to complete contracting for construction of the satellite
station(s) within one year of the grant of the construction permit.  The satellite stations shall also
be required to be in operation within six years of the construction permit grant.

  (b)  In addition to the requirements stated in paragraph (a) of this section, all persons who
receive new or additional DBS construction permits after [effective date] shall complete
construction of the first satellite in their respective DBS systems within four years of the grant of
the construction permit.  All satellite stations in such a DBS system shall be in operation within
six years of the grant of the construction permit.

  (c)  DBS permittees and licensees shall be required to proceed consistent with all applicable due
diligence obligations, unless otherwise determined by the Commission upon proper showing in
any particular case.  Transfer of control of the construction permit shall not be considered to
justify extension of these deadlines.


     4.   A new Section 100.53 is added to Subpart D to read as follows:

 100.53  Geographic service requirements.

  (a) Those holding DBS permits or licenses as of [effective date] must either: 
     (1) provide DBS service to Alaska and Hawaii from one or more orbital locations before
the expiration of their current authorizations; or 
     (2) relinquish their western DBS orbital/channel assignments at the following orbital
locations:  148 W.L., 157W.L., 166 W.L., and 175 W.L.

  (b)  Those acquiring DBS authorizations after [effective date] must provide DBS service to
Alaska and Hawaii where such service is technically feasible from the acquired orbital location.

     5.   A new subpart E consisting of  100.71 through 100.80 is added to Part 100 to
read as follows:

Subpart E -- Competitive Bidding Procedures for DBS

Sec.
100.71   DBS subject to competitive bidding.
100.72   Competitive bidding design for DBS construction permits.
100.73   Competitive bidding mechanisms.
100.74   Withdrawal, default and disqualification payments. 
100.75   Bidding application (FCC Form 175 and 175-S Short-form). 
100.76   Submission of upfront payments and down payments.
100.77   Long-form applications.
100.78   Grant of construction permit, denial, default, and disqualification.
100.79   Prohibition of collusion.
100.80   Transfer disclosure. 

 100.71   DBS subject to competitive bidding.

Mutually exclusive initial applications to provide DBS service are subject to competitive bidding
procedures.  The general competitive bidding procedures found in Part 1, Subpart Q, will apply
unless otherwise provided in this part.

 100.72   Competitive bidding design for DBS construction permits. 

(a) The Commission will employ the following competitive bidding designs when choosing from
among mutually exclusive initial applications to provide DBS service:
     (1) Single round sealed bid auctions (either sequential or simultaneous);
     (2) Sequential oral auctions;
     (3) Combined sealed bid-oral auctions; 
     (4) Sequential multiple round electronic auctions; or
     (5) Simultaneous multiple round auctions.

(b) The Wireless Telecommunications Bureau may design and test alternative procedures.  The
Wireless Telecommunications Bureau will announce by Public Notice before each auction the
competitive bidding design to be employed in a particular auction.

(c) The Wireless Telecommunications Bureau may use combinatorial bidding, which would
allow bidders to submit all or nothing bids on combinations of construction permits, in addition
to bids on individual construction permits.  The Commission may require that to be declared the
high bid, a combinatorial bid must exceed the sum of the individual bids by a specified amount. 
Combinatorial bidding may be used with any type of auction design.

(d) The Wireless Telecommunications Bureau may use single combined auctions, which
combine bidding for two or more substitutable construction permits and award construction
permits to the highest bidders until the available construction permits are exhausted.  This
technique may be used in conjunction with any type of auction.

 100.73    Competitive bidding mechanisms.  

(a)  Sequencing.  In sequential auctions, the Wireless Telecommunications Bureau will generally
auction DBS construction permits in order of their estimated value, with the highest value
construction permit being auctioned first.  The Wireless Telecommunications Bureau may vary
the sequence in which DBS construction permits will be auctioned.

(b)  Grouping.  All DBS channels available for a particular orbital location will be auctioned as a
block, unless the Wireless Telecommunications Bureau announces, by Public Notice prior to the
auction, an alternative auction scheme.  In the event the Wireless Telecommunications Bureau
uses either a simultaneous multiple round competitive bidding design or combinatorial bidding,
the Wireless Telecommunications Bureau will determine which construction permits will be
auctioned simultaneously or in combination.  

(c)  Bid Increments and Tie Bids.  The Wireless Telecommunications Bureau may, by
announcement before or during an auction, establish, raise or lower minimum bid increments in
dollar or percentage terms.  The Wireless Telecommunications Bureau may establish and change
maximum bid increments during an auction. The Wireless Telecommunications Bureau may also
establish by Public Notice a suggested opening bid or a minimum opening bid on each
construction permit.  Where a tie bid occurs, the high bidder will be determined by the order in
which the bids were received by the Commission.

(d)  Stopping Rules.  The Wireless Telecommunications Bureau may establish stopping rules
before or during multiple round auctions in order to terminate an auction within a reasonable
time.  

(e)  Activity Rules.  The Wireless Telecommunications Bureau may establish activity rules
which require a minimum amount of bidding activity.  In the event that the Wireless
Telecommunications Bureau establishes an activity rule in connection with a simultaneous
multiple round auction or sequential multiple round electronic auction, each bidder will be
automatically granted a certain number of waivers of such rule during the auction. 


 100.74   Withdrawal, default and disqualification payments. 

(a)  When the Commission conducts a sequential multiple round electronic auction or
simultaneous multiple round auction pursuant to  100.72, the Wireless Telecommunications
Bureau will impose payments on a bidder who withdraws a high bid during the course of the
auction, who defaults on payments due, or who is disqualified.

(b) A bidder who withdraws a high bid during the course of such an auction will be assessed a
payment equal to the difference between the amount bid and the amount of the winning bid the
next time the construction permit is offered for auction by the Commission.  No withdrawal
payment will be assessed if the subsequent winning bid exceeds the withdrawn bid.  This
payment amount will be deducted from any upfront payments or down payments that the
withdrawing bidder has deposited with the Commission.  

(c) 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 (b) of this section plus an additional payment
equal to three (3) percent of the subsequent winning bid. If the subsequent winning bid exceeds
the defaulting bidder's bid amount, the 3 percent payment will be calculated based on the
defaulting bidder's bid amount.  These amounts will be deducted from any upfront payments or
down payments that the defaulting or disqualified bidder has deposited with the Commission.

(d)  When the Commission conducts a sequential multiple round electronic auction, the Wireless
Telecommunications Bureau will bar a bidder who withdraws a bid from continued participation
in the auction of the withdrawn construction permit.  When the Commission conducts any other
type of auction, the Wireless Telecommunications Bureau may bar a bidder who withdraws a bid
from continued participation in the bidding for the same construction permit or other
construction permits offered in the same auction.

(e) When the Commission conducts any type of auction other than those provided for in
paragraphs (a), (b), (c), and (d) of this section, the Wireless Telecommunications Bureau may
modify the payments to be paid in the event of bid withdrawal, default or disqualification;
provided, however, that such payments shall not exceed the payments specified above.


 100.75  Bidding application (FCC Form 175 and 175-S Short-form).

All applicants to participate in competitive bidding for DBS construction permits must submit
applications on FCC Form 175 pursuant to the provisions of  1.2105 of this chapter.  The
Wireless Telecommunications Bureau will issue a Public Notice announcing the availability of
DBS construction permits and the date of the auction for those construction permits.  This Public
Notice also will specify the date on or before which applicants intending to participate in a DBS
auction must file their applications in order to be eligible for that auction, and it will contain
information necessary for completion of the application as well as other important information
such as any upfront payment that must be submitted, and the location where the application must
be filed.    

 100.76  Submission of upfront payments and down payments.

(a)  Bidders in DBS auctions will be required to submit an upfront payment in accordance with 
1.2106 of this chapter, the amount of which will be announced by Public Notice prior to each
auction.  

(b)  Winning bidders in a DBS auction must submit a down payment to the Commission in an
amount sufficient to bring their total deposits up to 20 percent of their winning bids within ten
(10) business days of the announcement of winning bidders.

  100.77  Long-form applications.

Each winning bidder will be required to submit the information described in  100.13, 100.21,
and 100.51 within thirty (30) days after being notified by Public Notice that it is the winning
bidder.  Each winner also will be required to file, by the same deadline, a signed statement
describing its efforts to date and future plans to come into compliance with any applicable
spectrum limitations, if it is not already in compliance.  Such information shall be submitted
pursuant to the procedures set forth in  100.13 and any associated Public Notices.  Only auction
winners will be eligible to file applications for DBS construction permits in the event of mutual
exclusivity between applicants filing a short-form application.  

 100.78  Permit grant, denial, default, and disqualification.  

(a)  Each winning bidder will be required to pay the balance of its winning bid in a lump sum
payment within five (5) business days following Public Notice that the construction permit is
ready for grant.  

(b)  A bidder who withdraws its bid during the course of an auction, defaults on a payment due,
or is disqualified, will be subject to the payments specified in  100.74.

 100.79  Prohibition of collusion. 
 
(a) Bidders are required to identify on their short-form applications any parties with whom they
have entered into any consortium arrangements, joint ventures, partnerships or other agreements
or understandings which relate in any way to the competitive bidding process.  Bidders are also
required to certify on their short-form applications that they have not entered into any explicit or
implicit agreements, arrangements or understandings of any kind with any parties, other than
those identified, regarding the amount of their bid, bidding strategies or the particular properties
on which they will or will not bid.   

(b)(1) Except as provided in paragraphs (b)(2), (b)(3) and (b)(4) of this section, after the filing of
short-form applications, 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 high bidder
submits its down payment, unless such applicants are members of a bidding consortium or other
joint bidding arrangement identified on the bidder's short-form application.

    (2) Applicants may modify their short-form applications to reflect formation of consortia or
changes in ownership at any time before or during an auction, provided that such changes do not
result in a change in control of the applicant, and provided that the parties forming consortia or
entering into ownership agreements have not applied for construction permits that may be used to
serve the same or overlapping geographic areas. Such changes will not be considered major
modifications of the application.

    (3) After the filing of short-form applications, applicants may make agreements to bid jointly
for construction permits, provided that the parties to the agreement have not applied for
construction permits that may be used to serve the same or overlapping geographic areas.

    (4) After the filing of short-form applications, a holder of a non-controlling attributable
interest in an entity submitting a short-form application may acquire an ownership interest in,
form a consortium with, or enter into a joint bidding arrangement with, other applicants for
construction permits that may be used to serve the same or overlapping geographic areas,
provided that:

     (i) The attributable interest holder certifies to the Commission that it has not
communicated and will not communicate with any party concerning the bids or bidding
strategies of more than one of the applicants in which it holds an attributable interest, or with
which it has a consortium or joint bidding arrangement, and which have applied for construction
permits that may be used to serve the same or overlapping geographic areas; and

     (ii) The arrangements do not result in any change in control of an applicant.

    (5) Applicants must modify their short-form applications to reflect any changes in ownership
or in the membership of consortia or joint bidding arrangements.

(c) Winning bidders are required to submit a detailed explanation of the terms and conditions and
parties involved in any bidding consortia, joint venture, partnership or other agreement or
arrangement they have entered into relating to the competitive bidding process prior to the close
of bidding.  Such arrangements must have been entered into prior to the filing of short-form
applications pursuant to paragraphs (a) and (b) of this section.

 100.80  Transfer disclosure. 
  
Any entity that acquires a DBS license through competitive bidding, and seeks to transfer that
license within six years of the initial license grant, must file, together with its application for
FCC consent to the transfer, the associated contracts for sale, option agreements, management
agreements, or other documents disclosing the total consideration received in return for the
transfer of its license.  The information submitted must include not only a monetary purchase
price, but also any future, contingent, in-kind, or other consideration. 
                            APPENDIX C

              One-Time Auction Spectrum Limitations

     For purposes of the auction of construction permits for use of 28 DBS channels at the
110 orbital location and 24 DBS channels at the 148 orbital location, the following provisions
shall apply.

Definitions.

  (a)     "Direct Broadcast Satellite Service" or "DBS."  A radiocommunication service in which
signals transmitted or retransmitted by space stations are intended for direct reception by the
general public.  In the Direct Broadcast Satellite Service, the term "direct reception" shall
encompass both individual reception and community reception.

  (b)     "Person."  Any individual or entity, including but not limited to a corporation,
partnership, association, or joint venture.

  (c)     "Full-CONUS orbital location."  The orbital locations at 101 W.L., 110 W.L., and
119 W.L., which have been assigned for use in the Direct Broadcast Satellite Service.

Spectrum Limitation Rule.

     No person with an attributable interest in channels at a full-CONUS location shall acquire
an attributable interest in the channels currently available at the 110 orbital location without
divesting its existing interest in full-CONUS channels at another location within twelve months
of such acquisition.

Attribution Rules.

  (a)     In applying the above-stated rule, ownership and other interests in DBS licensees and
permittees will be attributed to their holders and deemed cognizable pursuant to the following
criteria:
     (1)  Except as otherwise provided herein, partnership and direct ownership interests and
any voting stock interest amounting to 5% or more of the outstanding voting stock of a corporate
DBS licensee or permittee will be cognizable.
     (2)  Investment companies, as defined in 15 U.S.C.  80a-3, insurance companies and
banks holding stock through their trust departments in trust accounts will be considered to have a
cognizable interest only if they hold 10% or more of the outstanding voting stock of a corporate
DBS licensee or permittee, or if any of the officers or directors of the DBS licensee or permittee
are representatives of the investment company, insurance company, or bank concerned. 
Holdings by a bank or insurance company will be aggregated if the bank or insurance company
has any right to determine how the stock will be voted.  Holdings by investment companies will
be aggregated if under common management.
     (3) Attribution of ownership interests in a DBS licensee or permittee 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
wherever the ownership percentage for any link in the chain exceeds 50%, it shall not be
included for purposes of this multiplication. [For example, if A owns 10% of company X, which
owns 60% of company Y, which owns 25% of "Licensee," then X's interest in "Licensee" would
be 25% (the same as Y's interest since X's interest in Y exceeds 50%), and A's  interest in
"Licensee" would be 2.5% (0.10 x 0.25).  Under the 5% attribution benchmark, X's interest in
"Licensee" would be cognizable, while A's interest  would not be cognizable.]
     (4) Voting 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.  An otherwise qualified trust will be ineffective to insulate the grantor or
beneficiary from attribution with the trust's assets unless all voting stock interests held by the
grantor or beneficiary in the relevant DBS licensee or permittee are subject to said trust.
     (5) Holders of non-voting stock shall not be attributed an interest in the issuing entity. 
Holders of debt and instruments such as warrants, convertible debentures, options or other
non-voting interests with rights of conversion to voting interests shall not be attributed unless
and until conversion is effected.
     (6)(A) A limited partnership interest shall be attributed to a limited partner unless that
partner is not materially involved, directly or indirectly, in the management or operation of the
media-related activities of the partnership and the licensee or system so certifies.
        (B) In order for a licensee or system to make the certification set forth in  paragraph
(6)(A) of this section, it must verify that the partnership agreement or certificate of limited
partnership, with respect to the particular limited partner exempt from attribution, establishes that
the exempt limited partner has no material involvement, directly or indirectly, in the management
or operation of the media activities of the partnership.  The criteria which  would assume
adequate insulation for purposes of this certification are described in the Memorandum Opinion
and Order in MM Docket No. 83-46, FCC 85-252 (released June 24, 1985), as modified on
reconsideration in the Memorandum  Opinion and Order in MM Docket No. 83-46, FCC 86-410
(released November 28, 1986).  Irrespective of the terms of the certificate of limited partnership
or partnership agreement, however, no such certification shall be made if the individual or entity
making the certification has actual knowledge of any  material involvement of the limited
partners in the management or operation of the media-related businesses of the partnership.
     (7) Officers and directors of a direct broadcast satellite licensee or permittee are
considered to have a cognizable interest in the entity with which they are so associated.  If any
such entity engages in businesses in addition to its primary business of direct broadcast satellite
service, it may request the Commission to waive attribution for any officer or director whose
duties and responsibilities are wholly unrelated to its primary business.  The officers and
directors of a parent company of a direct broadcast satellite licensee or permittee, with an
attributable interest in any such subsidiary entity, shall be deemed to have a cognizable interest in
the subsidiary unless the duties and responsibilities of the officer or director involved are wholly
unrelated to the direct broadcast satellite subsidiary, and a statement properly documenting this
fact is submitted to the Commission.  The officers and directors of a sister corporation of a direct
broadcast satellite licensee or permittee shall not be attributed with ownership of the entity by
virtue of such status.
     (8) Discrete ownership interests will be aggregated in determining whether or not an
interest is cognizable under this section.  An individual or entity will be deemed to have a
cognizable investment if:
        (A) The sum of the interests held by or through "passive investors" is equal to or
exceeds 10 percent; or
        (B) The sum of the interests other than those held by or through "passive  investors" is
equal to or exceeds 5 percent; or
        (C) The sum of the interests computed under paragraph (8)(A) of this section plus the
sum of the interests computed under paragraph (8)(B) of this section is equal to or exceeds 10
percent.

  (b)     The word "control" as used herein is not limited to majority stock ownership, but includes
actual working control in whatever manner exercised.

  (c) In cases where record and beneficial ownership of voting stock is not identical (e.g., bank
nominees holding stock as record owners for the benefit of mutual funds, brokerage houses
holding stock in street names for the benefit of customers, investment advisors holding stock in
their own names for the  benefit of clients, and insurance companies holding stock), the party
having the right to determine how the stock will be voted will be considered to own it for
purposes of these rules.
                            APPENDIX D

              Final Regulatory Flexibility Analysis

     Pursuant to Section 603 of the Regulatory Flexibility Act, 5 U.S.C.  603, an initial
Regulatory Flexibility Analysis was incorporated in the Notice of Proposed Rulemaking in IB
Docket No. 95-168/PP Docket No. 93-253.  Written comments on the proposals in the Notice,
including the Regulatory Flexibility Analysis, were requested.

A.   Need and Purpose of Rules

     This rulemaking proceeding modifies the licensing and service rules for the Direct
Broadcast Satellite ("DBS") service.  It also adopts rules for competitive bidding in the DBS
service based on Section 309(j) of the Communications Act, 47 U.S.C.  309(j), which
authorizes the Commission to use auctions to select among mutually exclusive applications for
authorizations under certain circumstances.  Our objectives have been to promote efficiency and
innovation in the licensing and use of the electromagnetic spectrum, to develop competitive and
innovative communications systems, and to promote effective and adaptive regulations.

B.   Issues Raised by the Public in Response to the Initial Analysis

     No comments were received specifically in response to the Initial Regulatory Flexibility
Analysis.  We have, however, taken into account all issues raised by the public in response to the
proposed rules.  In certain instances, we have eliminated or modified rules in response to those
comments. 

C.   Significant Alternatives Considered

     We have attempted to balance all the commenters' concerns with our public interest
mandate under the Communications Act in order to update the existing "interim" rules in the
DBS service.  We will continue to examine these rules in an effort to eliminate unnecessary
regulations and to minimize significant economic impact on small businesses.