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[Federal Register Volume 65, Number 108 (Monday, June 5, 2000)]
[Notices]
[Pages 35636-35642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13993]

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FEDERAL COMMUNICATIONS COMMISSION

[Report No. AUC-00-31-G (Auction No. 31); DA 00-1075]

Auction of Licenses in the 747-762 and 777-792 MHz Bands 
Scheduled for September 6, 2000; Comment Sought on Modifying the 
Simultaneous Multiple Round Auction Design To Allow Combinatorial 
(Package) Bidding

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: This document seeks comment on proposed procedures for 
modifying the simultaneous multiple round auction design to allow 
combinatorial (``package'') bidding for Auction No. 31 should the 
Commission determine that package bidding may be feasible and 
appropriate for that auction.

DATES: Comments are due on or before June 9, 2000, and reply comments 
are due on or before June 16, 2000.

ADDRESSES: An original and four copies of all pleadings must be filed 
with the Commission's Secretary, Magalie Roman Salas, Office of the 
Secretary, Federal Communications Commission, 445 Twelfth Street, SW, 
TW-A325, Washington, DC 20054, in accordance with Sec. 1.51(c) of the 
Commission's rules. See 47 CFR 1.51(c). In addition, one copy of each 
pleading must be delivered to each of the following locations:
    (1) The Commission's duplicating contractor, International 
Transcription Service, Inc. (ITS), 1231 20th Street, NW, Washington, DC 
20036;
    (2) Office of Media Relations, Public Reference Center, 445 Twelfth 
Street, SW, Suite CY-A257, Washington, DC 20554;
    (3) Rana Shuler, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, 445 Twelfth Street, SW, Suite 4-A628, 
Washington, DC 20554. Comments and reply comments will be available for 
public inspection during regular business hours in the FCC Public 
Reference Room, Room CY-A257, 445 12th Street SW, Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Walter D. Strack, Bureau Chief 
Economist, Wireless Telecommunications Bureau, (202) 418-0600; Evan 
Kwerel, Senior Economist, Office of Plans and Policy, (202) 418-2030; 
Craig Bomberger, Auctions Analyst; Howard Davenport, Auctions Attorney; 
or Joel Rabinovitz, Auctions Attorney, Auctions and Industry Analysis 
Division, Wireless Telecommunications Bureau, (202) 418-0660.

SUPPLEMENTARY INFORMATION: This is a summary of a Public Notice 
released May 18, 2000. The complete text of the public notice, 
including Attachment A, is available for inspection and copying during 
normal business hours in the FCC Reference Center (Room CY-A257), 445 
12th Street, SW, Washington, DC. It may also be purchased from the 
Commission's copy contractor, International Transcription Services, 
Inc. (ITS, Inc.) 1231 20th Street, NW, Washington, DC 20036, (202) 857-
3800. It is also available on the Commission's web site at http://www.fcc.gov.

I. Introduction

    1. In adopting the service rules for the 747-762 and 777-792 MHz 
bands, the Commission determined that combinatorial bidding procedures 
could have significant benefits for the auction of the licenses in 
these bands, but declined to employ this type of auction because the 
statutory deadline did not allow sufficient time to implement such a 
design. See Service Rules for the 746-764 and 776-794 MHz Bands, and 
Revisions to Part 27 of the Commission's Rules (700 MHz First Report & 
Order) 65 FR 3139 (January 20, 2000). However, in light of (a) the 
announced delay of the auction until September 6, 2000; and (b) the 
continued progress in the design and testing of a combinatorial bidding 
system, as directed by Congress, the Wireless Telecommunications Bureau 
(``the Bureau'') now believes that sufficient time may exist to 
implement an auction design that allows for bids on combinations, or 
``packages,'' of licenses. See Auction of Licenses for the 747-762 and 
777-792 MHz Bands Postponed Until September 6, 2000 (Auction Public 
Notice) 65 FR 30598 (May 12, 2000). Therefore, if the Commission, in 
conjunction with other reconsideration issues now before it, determines 
that modifying the simultaneous multiple round auction design to allow 
combinatorial (``package'') bidding is feasible and appropriate for 
Auction No. 31, then the Bureau wants to be prepared to have a system 
and procedures in place to conduct package bidding. In this public 
notice, we seek comment on such procedures consistent with our 
authority under Part 1 of the Commission's rules. Depending on the 
Commission's actions and the comments we receive in response to this 
notice, we will, by a later public notice, either establish procedures 
as discussed here and use package bidding for

[[Page 35637]]

Auction No. 31, or use the procedures that we already announced. See 
Auction of Licenses in the 747-762 and 777-792 MHz Bands, Auction 
Notice and Filing Requirements for 12 Licenses in the 700 MHz Bands 
(Auction No. 31 Procedures Public Notice) 65 FR 12251 (March 8, 2000).
    2. With package bidding, bidders would not be restricted to placing 
bids on individual licenses, but would also be allowed to place all-or-
nothing bids on packages of licenses. This approach would allow bidders 
to better express the value of any synergies (benefits from combining 
complementary items) that may exist among licenses, and to avoid 
exposure problems--the risks bidders face in trying to acquire 
efficient packages of licenses. For example, with package bidding a 
bidder desiring an aggregation of all six 20 MHz licenses in order to 
inaugurate a nationwide service could bid on the six licenses as a 
package and not face the risk of winning only some of the desired 
licenses and paying more than the bidder values those licenses by 
themselves (without the other licenses needed to provide nationwide 
coverage).
    3. Allowing package bidding does, however, potentially introduce 
what is termed the threshold problem--the difficulty that multiple 
bidders desiring only the single licenses (or smaller packages) that 
constitute a package may have in outbidding a single bidder that is 
bidding for the entire package, even though the multiple bidders may 
value the sum of the parts more than the single bidder values the 
whole. Bidders for parts of a larger package each have an incentive to 
hold back in the hope that a bidder for another piece of the larger 
package will increase its bid sufficiently for the bids on the pieces 
collectively to beat the bid on the larger package. The procedures we 
propose to implement package bidding are designed to facilitate the 
emergence of bids that will overcome this problem.
    4. In general, package bidding should be an improvement over our 
usual auction design when (a) there are strong complementarities among 
licenses for some bidders, and (b) the pattern of those 
complementarities is different for different bidders. Moreover, if some 
licenses are complements for some bidders and substitutes for other 
bidders, it might not be possible to achieve the most efficient 
assignments pricing each license individually, as under our usual 
simultaneous multiple round auction design. The comments we previously 
received suggest this is the case for Auction No. 31, where some 
potential bidders have expressed the importance of acquiring a 
nationwide footprint, and others the importance of acquiring all 30 MHz 
in a region. Therefore, it is appropriate to consider package bidding 
for this auction.
    5. We therefore propose to modify the simultaneous multiple round 
auction design that we previously adopted for Auction No. 31 to allow 
for package bidding. Most of our auction rules and procedures would 
remain the same or be changed only slightly. For example, the 
Commission rules forbidding collusion among bidders would remain in 
full force. The procedures regarding upfront payments, initial maximum 
eligibility, and bid activity would be modified to account for the 
ability of bidders to bid on both individual licenses and packages and 
some of the other intricacies of package bidding design. We propose for 
Auction No. 31 that we would use a two-round stopping rule with no 
proactive activity rule waivers allowed, instead of the one-round 
stopping rule with proactive waivers that we previously adopted. We 
also seek comment on changes to the rules regarding default payments so 
that the default payment owed after default on a package would be 
calculated based on the difference between the defaulted bid on the 
package and the subsequent bid(s) on the package or the licenses that 
make up the package. See Service Rules for the 746-764 and 776-794 MHz 
Bands, and Revisions to Part 27 of the Commission's Rules (New Rules 
NPRM) 64 FR 36686 (July 7, 1999). Finally, we seek comment on some 
additional auction design issues, including a proposal that we permit 
bidders to use certain contingent bids known as ``or'' bids--for 
example, a bid of ``$10 for license A or $20 for license B.''

II. Auction Design and Procedures

A. Simultaneous Multiple Round With Package Bidding

    6. The simultaneous multiple round with package bidding auction 
design would be a modification of the simultaneous multiple round 
auction design that we previously established for Auction No. 31, and 
would be used instead of the simultaneous multiple round auction 
design. Bidders would still be able to submit bids on individual 
licenses, as in our existing simultaneous multiple round auction 
design, but could also submit all-or-nothing bids on packages of 
licenses.
    Specifically, bidders could place bids on nine packages:
     One global package, of all licenses in the auction (i.e., 
30 MHz nationwide),
     Two national packages, of either all six 10 MHz licenses 
or all six 20 MHz licenses, and
     Six regional packages, of both the 10 MHz license and the 
20 MHz license in a region.
    We seek comment on this proposal. Furthermore, examples of these 
packages are illustrated in the following table. The global package 
consists of all twelve cells in the table. The two national packages 
are the two rows in the table. For example, the 10 MHz national package 
consists of all six 10 MHz licenses, as shown by the cells shaded with 
horizontal lines. The six regional packages are the six columns of the 
table. For example, the regional package for region two is shown by the 
cells shaded with vertical lines.

[GRAPHIC] [TIFF OMITTED] TN05JN00.024

[[Page 35638]]

    In addition, we seek comment on whether the Commission should allow 
all possible packages composed of the twelve individual licenses? 
Should only certain additional packages be allowed, and if so, which 
ones?

B. Winning and Retained Bids

    7. Some additional definitions are required to discuss package 
bidding. Winning bids in a package bidding auction are the set of bids 
on individual licenses and packages that maximizes revenue when the 
auction closes, assigning each license to only one party (a bidder or, 
in the case of unsold licenses, the FCC). Provisional winning bids are 
the set of bids that maximize revenue in a particular round (they would 
win if the auction were to close in that round), assigning each license 
to only one party (a bidder or the FCC).
    8. Retained bids are bids kept in the system from one round to the 
next. They are used in calculating bidders' bidding activity for 
purposes of the activity rule (discussed further in ``II.D. Activity 
Rules and Eligibility''). Retained bids include the provisional winning 
bids, plus bids that have the potential to become provisional winning 
bids because of changes in other bids in subsequent rounds. Assuming 
that bids in the auction may only rise, bids that could never be 
winning bids are not retained.
    Specifically, we propose to ``retain'':
     A global package bid, if it is the provisional winner;
     A national package bid, if it would be part of the 
provisional winning set determined by limiting consideration to 
national packages and individual license bids, but excluding global and 
regional packages;
     A regional package bid, if it would be part of the 
provisional winning set, considering regional packages and individual 
license bids, but excluding global and national packages;
     An individual license bid, if it is the high bid for that 
license.
    In other words, in a given round we would retain a bid (for the 
next round) if it is greater than the best combination of bids (new 
bids and bids retained from the previous round) that exactly cover the 
licenses in that bid.
    9. For the purposes of determining retained bids, licenses on which 
no bids have been submitted would be treated as if the minimum opening 
bid had been submitted. The Commission will resolve tie bids on the 
basis of the order in which the Commission receives bids. Bidding 
credits would be treated the same as in a simultaneous multiple round 
auction, where the gross high bids on licenses determine the winning 
bids. Thus, retained bids and winning bids would be determined based on 
gross bids. We seek comment on this proposal.

C. Upfront Payments and Initial Maximum Eligibility

    10. As we have stated, the Bureau has delegated authority and 
discretion to determine an appropriate upfront payment for each license 
being auctioned. See Amendment of Part 1 of the Commission's Rules 
(Part 1 Order, MO&O and NPRM) 62 FR 13540 (March 21, 1997). Upfront 
payments related to the specific spectrum subject to auction protect 
against frivolous or insincere bidding and provide the Commission with 
a source of funds from which to collect payments owed at the close of 
the auction. See Implementation of Section 309(j) of the Communications 
Act (Competitive Bidding Second R&O) 59 FR 22980 (May 4, 1994).
    11. We propose no change in the upfront payments from those 
previously established for the individual licenses. For a package, we 
propose that we would calculate the bidding units and associated 
upfront payment by adding together the bidding units and associated 
upfront payments of the individual licenses that make up the package. 
We list the bidding units and upfront payments for all licenses in 
Attachment A. We seek comment on this proposal.
    12. We also propose no change in our procedure for determining 
initial maximum eligibility from the procedure already established for 
Auction No. 31. Thus, the amount of the upfront payment submitted by a 
bidder will determine the initial maximum eligibility (as measured in 
bidding units) for each bidder. Upfront payments will not be attributed 
to specific licenses or packages, but instead will be translated into 
bidding units to define a bidder's initial maximum eligibility, which 
cannot be increased during the auction. The maximum eligibility will 
determine the licenses and packages on which a bidder may bid in each 
round of the auction. Thus, in calculating its upfront payment amount, 
an applicant must determine its maximum desired activity (see ``II.E. 
Activity Rules and Eligibility'') in any single round, and submit an 
upfront payment covering that number of bidding units.
    13. Bidders might desire sufficient eligibility in order to afford 
themselves the flexibility to be active simultaneously on various 
packages and subsets thereof. If a bidder submitted an upfront payment 
for the total number of bidding units associated with all 12 licenses, 
the bidder would not, for example, have enough eligibility to be active 
simultaneously on a global package and other licenses. The bidder might 
want to do this, for example, if it held a retained bid on some 
individual licenses and then decided to bid for the global package. If, 
however, as proposed in ``II. E. Activity Rules and Eligibility,'' we 
modify the activity rule to account for mutually exclusive bids, 
bidders would never need to purchase more eligibility than the total 
bidding units associated with all licenses.

D. Minimum Accepted Bids and Bid Increments

    14. We propose that for a bid to be accepted in any round it must 
be x% greater than the minimum amount to have become a retained bid in 
the previous round, where the Bureau will specify the value of x. In 
the case of an individual license bid the minimum accepted bid is 
analogous to that in a simultaneous multiple round auction. It must be 
x% greater than the highest bid for that license in previous rounds. We 
propose to set the minimum increment for a license or package initially 
at five percent. The Commission retains discretion to vary the minimum 
bid increments in each round of the auction by announcement prior to 
each round.
    15. To simplify our procedures, we propose to treat minimum opening 
bids as retained bids after the first round of the auction. Thus, for 
example, after the first round a bid on an individual license with no 
initial bids would be required to exceed the minimum opening bid by x 
percent.
    16. We also seek comment on other methods for calculating the 
minimum accepted bid. One possibility is to determine the bid increment 
as the maximum of (a) the increment as calculated above and (b) an 
increment based on the total revenue (the provisional winning bids) in 
the previous round. The total minimum bid increment would be allocated 
among individual licenses in proportion to their bidding units. That 
is, the per bidding unit increment would be determined as a percentage 
of the provisional winning total revenue times the share of total 
bidding units associated with the licenses contained in the bid.
    17. For example, suppose the provisional winning total revenue in 
the previous round is $1,000 and percentage increment is 5%, so the 
total increment to be allocated among individual licenses is $50. A 20 
MHz EAG license has 28 million bidding units, which is one-ninth of the 
total bidding units. Thus, under this approach the

[[Page 35639]]

increment on such a license would be $5.56, or the amount calculated in 
the previous paragraph, whichever is greater. One potential benefit of 
this approach is to help overcome the threshold problem--the difficulty 
smaller bidders face coordinating increases in bids on individual 
licenses or small packages to beat bids for larger packages of 
licenses--by moving up the prices more quickly for apparently 
undervalued properties.
    18. Another possibility is to determine the minimum accepted bid by 
allocating the total amount needed to beat the provisional winners. 
Under this approach, each license is assigned a price so that the sum 
of the prices adds up to the provisional winning total revenue. Package 
prices are equal to the sum of the prices of the individual licenses in 
the package. The minimum acceptable bid would be a fixed percentage 
greater than the assigned price of the license or package.
    19. As has become standard in our auctions, we also propose that we 
would use ``click box'' bidding. Specifically, for Auction No. 31 we 
would allow package bids to increase by one increment in each round, 
while bids on individual licenses could increase by one to nine 
increments. This limitation is designed to prevent bids on packages 
from rising too quickly for bidders on individual licenses to overcome 
the threshold problem. We seek comment on this proposal. Should we 
allow package bids to increase by greater than one increment in each 
round?

E. Activity Rules and Eligibility

    20. In order to ensure that the auction closes within a reasonable 
period of time, an activity rule requires bidders to bid actively on a 
percentage of their maximum bidding eligibility during each round of 
the auction rather than waiting until the end of the auction to 
participate. A bidder that does not satisfy the activity rule will 
either lose bidding eligibility in the next round or use an activity 
rule waiver
    21. In the context of package bidding, a bid would be considered 
``active'' if it is either a retained bid from the previous round or is 
an accepted bid in the current round. Absent overlapping bids and 
``or'' bids, a bidder's ``activity'' is the sum of the bidding units 
associated with the licenses on which the bidder is active. To account 
for the possibility of overlapping bids and ``or'' bids, which can not 
simultaneously be part of the winning set, we propose to measure a 
bidder's activity in a round as the maximum number of bidding units 
associated with bids that could simultaneously be in a provisional 
winning set. In other words, a bidder's activity in a round is the 
number of bidding units associated with the set of the bidder's 
retained bids from the previous round and the bidder's acceptable bids 
in the current round that maximizes the number bidding units without 
provisionally assigning the bidder any bids that cannot simultaneously 
be part of a provisional winning set. We seek comment on this proposal.
    22. As we have already established for Auction No. 31 using the 
simultaneous multiple round auction design, we propose that no bidder's 
total activity in a given round may exceed its current eligibility. 
Initial eligibility is determined by upfront payments, as discussed in 
``II. C. Upfront Payments and Initial Maximum Eligibility.'' In the 
context of package bidding for Auction No. 31, we propose that in each 
round of the auction a bidder desiring to maintain its current 
eligibility would be required to be active on licenses encompassing at 
least 50 percent of its current eligibility. For a bidder that failed 
to meet the activity requirement in a given round, we would reduce the 
bidder's eligibility for the next round to two times its activity in 
the current round. Thus, a bidder's eligibility in the current round is 
either twice its activity in the previous round or its eligibility in 
the previous round, whichever would be less:

Eligibility(t)=Min (Eligibility(t-1), 2*Activity(t-1))

    We seek comment on this proposal and on variations. For example, 
should we instead adopt multiple stages with increasing activity 
requirements as we established for Auction No. 31 using a simultaneous 
multiple round auction design? We also seek comment on whether, for 
greater transparency and computational simplicity, the Bureau should 
limit the total number of bids made by any bidder, and, if so, what 
limits should be established.

F. Activity Rule Waivers and Reducing Eligibility

    23. We propose to retain the procedures regarding activity rule 
waivers and reducing eligibility that we previously established for 
Auction No. 31 with one exception. As described, we propose not to 
allow bidders to submit proactive waivers.
    24. Use of an activity rule waiver preserves the bidder's current 
bidding eligibility despite the bidder's activity in the current round 
being below the required minimum level. An activity rule waiver applies 
to an entire round of bidding and not to a particular license or 
package. Activity rule waivers are principally a mechanism for auction 
participants to avoid the loss of auction eligibility in the event that 
exigent circumstances prevent them from placing a bid in a particular 
round.
    25. The FCC auction system assumes that bidders with insufficient 
activity would prefer to use an activity rule waiver (if available) 
rather than lose bidding eligibility. Therefore, the system will 
automatically apply a waiver (known as an ``automatic waiver'') at the 
end of any bidding period where a bidder's activity level is below the 
minimum required unless: (a) There are no activity rule waivers 
available; or (b) the bidder overrides the automatic application of a 
waiver by reducing eligibility, thereby meeting the minimum 
requirement. An automatic waiver invoked in a round in which there are 
no new acceptable bids will not keep the auction open.
    26. A bidder with insufficient activity may wish to reduce its 
bidding eligibility rather than use an activity rule waiver. If so, the 
bidder must affirmatively override the automatic waiver mechanism 
during the bidding period by using the reduce eligibility function in 
the software. In this case, the bidder's eligibility is permanently 
reduced to bring the bidder into compliance with the activity rules. 
Once eligibility has been reduced, a bidder will not be permitted to 
regain its lost bidding eligibility.
    27. We previously concluded that for Auction No. 31 using a 
simultaneous multiple round design, a bidder may proactively use an 
activity rule waiver as a means to keep the auction open without 
placing a bid. As described in ``H. Stopping Rule'', however, we are 
proposing to use a two-round simultaneous stopping rule for Auction No. 
31 should we use package bidding. This means that all licenses remain 
open until the second consecutive round in which no new acceptable bids 
are received. After the second consecutive such round, bidding closes 
simultaneously on all licenses. With this stopping rule the auction 
could not close by surprise. Thus, we believe that bidders no longer 
need proactive activity rule waivers in order for the auction to reach 
an economically efficient outcome. Moreover, there is some concern that 
allowing proactive waivers when there is a two-round stopping rule 
might, in some circumstances, introduce opportunities for strategic 
behavior that may reduce the efficiency of the auction. Accordingly, we 
now propose not to allow bidders to submit proactive waivers in the 
context of package

[[Page 35640]]

bidding for Auction No. 31. We seek comment on this proposal.
    28. We further propose that each bidder in Auction No. 31 be 
provided with five activity rule waivers (the same number we previously 
adopted) that may be used at the bidder's discretion during the course 
of the auction as set forth. We seek comment on this proposal.

G. Bid Removal and Bid Withdrawal

    29. Should we implement package bidding for Auction No. 31, we 
propose to retain the bid removal procedures that we previously 
established. Before the close of a bidding period, a bidder has the 
option of removing any bids placed in that round. By using the remove 
bid function in the software, a bidder may effectively ``unsubmit'' any 
bid placed within that round. This is not the same as withdrawing a 
high bid, which, in our simultaneous multiple round auction system, can 
occur in rounds subsequent to the round in which the high bid was 
placed. A bidder removing a bid placed in the same round is not subject 
to withdrawal payments. Once a round closes, a bidder may no longer 
remove a bid.
    30. We propose to modify the bid withdrawal rules to not allow 
bidders to withdraw provisional winning bids from previous rounds if we 
use package bidding for Auction No. 31. Additionally, the previously 
announced special 30 MHz nationwide bid withdrawal procedure would no 
longer apply. Thus, bidders will be obligated for all bids they submit. 
If a bid is declared the winner and the bidder does not pay the amount 
due, it is liable for a default payment as set forth in the 
Commission's Rules. With the implementation of package bidding, bidders 
should not face exposure risks as they might in a simultaneous multiple 
round auction design. Bid withdrawal was designed to allow bidders to 
back out of failed aggregations--to avoid winning some licenses that 
are worth little to them without the others they need to implement 
their business plan. Therefore, to the extent that bids are allowed on 
all packages of licenses with significant complementarities, the use of 
withdrawals to mitigate such risk is no longer necessary. While there 
is no offsetting benefit, there is still the potential harm from 
allowing withdrawals. Withdrawals may be used strategically to provide 
incorrect price signals during the auction and lead other bidders to 
place inefficient bids. Also, when withdrawals are permitted, one can 
not ensure that the auction will proceed at an acceptable pace. 
Moreover, the harm associated with withdrawals is likely to be more 
severe in auctions with package bidding since a single withdrawal can 
affect the entire provisional winning set. We seek comment on this 
proposal.

H. Stopping Rule

    31. Under a package bidding design, we propose to modify the 
stopping rule we previously adopted for Auction No. 31. Instead of a 
one-round simultaneous stopping rule with the use of proactive waivers, 
we now propose to employ a two-round simultaneous stopping rule 
approach. The Bureau has discretion ``to establish stopping rules 
before or during multiple round auctions in order to terminate the 
auction within a reasonable time.'' A two-round simultaneous stopping 
rule means that all licenses remain open until two consecutive rounds 
have occurred in which no new acceptable bids are received. After the 
second consecutive such round, bidding closes simultaneously on all 
licenses. Thus, unless circumstances dictate otherwise, bidding would 
remain open on all licenses until bidding stops on every license. We 
seek comment on this proposal.
    32. The Bureau also seeks comment on a modified version of the two-
round simultaneous stopping rule for use if we implement package 
bidding. The modified two-round simultaneous stopping rule would close 
the auction for all licenses after the second consecutive round in 
which no bidder submits a new acceptable bid on any license on which it 
is not the provisional winning bidder. Thus, absent any other bidding 
activity, a bidder placing a new bid on a license for which it is the 
provisional winning bidder would not keep the auction open under this 
modified rule.
    33. As before, we propose that the Bureau retain the discretion to 
keep an auction open even if no new acceptable bids are submitted. The 
activity rule will apply as usual, and a bidder with insufficient 
activity will either lose bidding eligibility or use a remaining 
activity rule waiver. We also propose that the Bureau reserve the right 
to declare that the auction will end after a specified number of 
additional rounds (``special stopping rule''). The Bureau proposes to 
exercise this option only in certain circumstances, such as, for 
example, where the auction is proceeding very slowly, there is minimal 
overall bidding activity, or it appears likely that the auction will 
not close within a reasonable period of time. Before exercising this 
option, the Bureau is likely to attempt to increase the pace of the 
auction by, for example, increasing the number of bidding rounds per 
day, and/or increasing the amount of the minimum bid increments for the 
limited number of licenses where there is still a high level of bidding 
activity. We seek comment on these proposals.

I. Reserve Price or Minimum Opening Bid

    34. We propose no change in the minimum opening bids from those we 
previously adopted for the individual licenses. For a package, we 
propose to calculate the minimum opening bid by adding together the 
minimum opening bids of the individual licenses that make up the 
package. We list the proposed minimum opening bids for all licenses in 
Attachment A. We seek comment on this proposal.
    35. The Balanced Budget Act calls upon the Commission to prescribe 
methods by which a reasonable reserve price will be required or a 
minimum opening bid established when FCC licenses are subject to 
auction (i.e., because the Commission has accepted mutually exclusive 
applications for those licenses), unless the Commission determines that 
a reserve price or minimum bid is not in the public interest. 
Consistent with this mandate, the Commission has directed the Bureau to 
seek comment on the use of a minimum opening bid and/or reserve price 
prior to the start of each auction. See Amendment of Part 1 of the 
Commission's Rules--Competitive Bidding Procedures (Part 1 Third Report 
and Order) 63 FR 770 (January 7, 1998).
    36. Normally, a reserve price is an absolute minimum price below 
which an item will not be sold in a given auction. Reserve prices can 
be either published or unpublished. A minimum opening bid, on the other 
hand, is the minimum bid price set at the beginning of the auction 
below which no bids are accepted. It is generally used to accelerate 
the competitive bidding process. Also, in a minimum opening bid 
scenario, the auctioneer generally has the discretion to lower the 
amount later in the auction. It is also possible for the minimum 
opening bid and the reserve price to be the same amount.
    37. In light of the Balanced Budget Act, the Bureau decided to 
establish minimum opening bids for Auction No. 31. The Bureau believes 
a minimum opening bid, which has been utilized in other auctions, is an 
effective bidding tool. See Auction of 800 MHz SMR Upper 10 MHz Band, 
Minimum Opening Bids or Reserve Prices (800 MHz Public Notice) 62 FR 
55251 (October 23, 1997). A minimum opening

[[Page 35641]]

bid, rather than a reserve price, will help to regulate the pace of the 
auction and provides flexibility.

J. Round Structure

    38. We propose no changes to the round structure and procedures 
from those we have already adopted for Auction No. 31. The Commission 
would use an automated auction system to conduct the package bidding 
auction format for Auction No. 31. The initial bidding schedule will be 
announced in a public notice to be released at least one week before 
the start of the auction, and will be included in the registration 
mailings. The package bidding format will consist of sequential bidding 
rounds, each followed by the release of round results. Multiple bidding 
rounds may be conducted in a single day. Details regarding the location 
and format of round results will be included in the same public notice.
    39. The Bureau has discretion to change the bidding schedule in 
order to foster an auction pace that reasonably balances speed with the 
bidders' need to study round results and adjust their bidding 
strategies. The Bureau may increase or decrease the amount of time for 
the bidding rounds and review periods, or the number of rounds per day, 
depending upon the bidding activity level and other factors.

K. Information Relating to Auction Delay, Suspension or Cancellation

    40. We propose no change to the procedures regarding auction delay, 
suspension, or cancellation from those we have already adopted for 
Auction No. 31. By public notice or by announcement during the auction, 
the Bureau may delay, suspend or cancel the auction in the event of 
natural disaster, technical obstacle, evidence of an auction security 
breach, unlawful bidding activity, administrative or weather necessity, 
or for any other reason that affects the fair and competitive conduct 
of competitive bidding. In such cases, the Bureau, in its sole 
discretion, may elect to: Resume the auction starting from the 
beginning of the current round; resume the auction starting from some 
previous round; or cancel the auction in its entirety. Network 
interruption may cause the Bureau to delay or suspend the auction. We 
emphasize that exercise of this authority is solely within the 
discretion of the Bureau, and its use is not intended to be a 
substitute for situations in which bidders may wish to apply their 
activity rule waivers.

L. Default

    41. Under the Commission's Rules, if a bidder defaults, we may 
auction a new license for the spectrum. The defaulting bidder is also 
liable for a payment. Applying these rules to this auction, if a bidder 
defaults on a package bid, we would auction all of the licenses making 
up the package on which the party has defaulted. We would do this even 
if, under the combinatorial auction rules, a different set of packages 
would have won had the defaulting bidder not bid. For example, if the 
winning set of bids contains a 20 MHz nationwide package and a 10 MHz 
nationwide package, and the 20 MHz winner then defaults, we would 
auction only the six licenses making up the nationwide 20 MHz package. 
The 10 MHz package would be unaffected. We would take this approach 
even if, had the 20 MHz winner not submitted its winning bid, the 
winning set of licenses would not have been a nationwide 20 MHz package 
and a nationwide 10 MHz package but rather the six 30 MHz regional 
packages. We seek comment on this proposal.
    42. To calculate the payment due upon default under package 
bidding, we seek comment on modifications to the default rules as 
follows. For defaulted package bids, payments will be calculated on a 
bid-by-bid basis, rather than on a license-by-license basis. The base 
payment due will be equal to the difference between the amount bid for 
the package and the amount of the subsequent winning bid for the same 
package or the aggregate of the subsequent winning bids for the 
licenses that make up the package. As is true for individual licenses, 
if a bidder defaults on two or more packages, the default payment due 
for each defaulted package will be calculated separately and will not 
be offset against one another. In other words, if one package is 
subsequently auctioned for more than the original package bid amount 
and the other package subsequently is auctioned for less, the excess 
bid price from the first package can not be used to reduce the amount 
owed on the second package. The additional payment will remain equal to 
three percent of the subsequent winning bid(s) or the defaulting 
bidder's bid, whichever is less. We seek comment on this proposed 
change to the Commission's rules.
    Two examples will illustrate how this rule would work.

    Example 1: A bidder wins the 10 MHz nationwide package with a 
bid of $500 million and defaults. The Commission offers the six 
licenses that make up the 10 MHz package at a new auction, where 
they are won with bids of $70 million, $70 million, $80 million, $80 
million, $90 million and $90 million. The total amount received in 
the second auction is $480 million. The defaulting bidder is 
responsible for a total of $34.4 million consisting of $20 million 
(the difference between its original bid and the total of the 
subsequent winning bids) plus $14.4 million (3% of the subsequent 
winning bids).
    Example 2: A bidder wins two regional packages with bids of $250 
million each and defaults. The Commission offers the four licenses 
that make up the two regional packages at a new auction, where they 
are again won as packages at bids of $200 million and $300 million, 
respectively. The defaulting bidder is responsible for separate 
default payments for each package. For the first package, the 
payment equals a total of $56 million consisting of $50 million (the 
original $250 million bid less the subsequent winning bid of $200 
million) plus $6 million (3% of the subsequent winning bid). For the 
second package, the subsequent winning bid is higher than the 
defaulting bidder's original bid and therefore there is no 
shortfall; the default payment equals only $7.5 million (3% of the 
original bid). In total, the defaulting bidder owes a payment equal 
to $63.5 million ($56 million for the first package plus $7.5 
million for the second package).

III. Additional Auction Design Considerations

A. ``Or'' Bids

    43. We propose the use of ``or'' bids that would allow bidders to 
specify that they wish to win one bid or the other, but not both, if we 
implement package bidding. Such bids could provide a bidder greater 
flexibility to aggressively bid on licenses that it considers 
substitutes. For example, suppose a bidder wants a license for one 
region and only one region. Without ``or'' bids a bidder with a 
retained but non-provisional winning bid on a license might be 
reluctant to start bidding on another license that it considers a good 
substitute because it could end up winning both. Allowing ``or'' bids 
would overcome this problem.
    44. For computational simplicity and transparency, we propose (a) 
to allow only pairs of bids to be linked by the ``or'' function or 
operator and (b) not to allow links between national and regional 
packages. For example, we would allow bidders to use the ``or'' 
function between the 10 MHz nationwide package and the 20 MHz 
nationwide package, but not between the 10 MHz nationwide package and a 
30 MHz region. We would also allow bidders to use the ``or'' function 
to link to their retained bids as long as the retained bids are not 
part of the provisional winning set.

[[Page 35642]]

    45. In order to implement ``or'' bids, we would need to modify the 
method by which we determine retained bids. Rather than using the 
method described in ``II.B. Definitions: Winning and Retained Bids,'' 
we would determine retained bids as follows:
     Retain a global package bid if it is the provisional 
winner. Do not retain attached ``or'' bids.
     Retain a national package bid if it would be part of the 
provisional winning set including national packages and individual 
license bids, but excluding global and regional packages. Do not retain 
attached ``or'' bids.
     Retain a regional package bid if it would be part of the 
provisional winning set including regional packages and individual 
license bids, but excluding global and national packages. Do not retain 
attached ``or'' bids.
     Retain individual license bids if it would be part of the 
provisional winning set including individual license bids, but 
excluding global, national and regional package bids. Do not retain 
attached ``or'' bids.
    We seek comment on this proposal, including whether the number of 
``or'' bids per bidder be limited.

B. Bid Cancellation

    46. Another method that could overcome the reluctance of bidders 
that have retained but non-provisional winning bids from bidding on 
other licenses that they consider substitutes is to allow bidders to 
cancel their bids. If we adopted such a procedure, bidders would be 
permitted to cancel only non-provisional winning retained bids; 
provisional winning bids could not be cancelled. Allowing non-
provisional winning retained bid cancellation could avoid the possible 
complexity of ``or'' bids and provide bidders more flexibility to 
pursue backup strategies--and to explore ways to beat package bids. 
However, it also could facilitate adverse strategic bidding, similar to 
that associated with allowing withdrawal of provisional winning bids. 
Allowing cancellation of retained but non-provisional winning bids 
could also make it more difficult for bidders for single licenses or 
smaller packages to beat package bids. Moreover, if bidders were 
permitted to freely cancel non-provisional winning retained bids, the 
total of retained bids would not necessarily always increase during the 
auction and we might be unable to ensure an acceptable pace of the 
auction. We therefore tentatively conclude not to permit bidders to 
cancel bids. We seek comment, however, on this.
    47. If we permitted cancellation of non-provisional winning bids, 
we would also likely adopt the option of retaining all bids. The 
possibility that bids may be cancelled means that many, or all, bids 
are potentially part of a winning set of bids, and thus it may be 
appropriate to retain all bids. Rather than the auction system 
canceling non-provisional winning bids automatically, bidders would be 
required to cancel those bids. If we were to adopt this approach, it 
would also be necessary to modify the activity rules and the procedures 
for calculating minimum acceptable bids. The currently proposed 
activity rule could provide inadequate incentives to move the auction 
along if the same activity credit were given to all bids regardless of 
their likelihood of winning. We seek comment on this proposal.

C. Bid Composition Restriction

    48. We seek comment on bid composition restrictions. For example, 
the Milgrom-McAfee bid composition restriction would not allow a bidder 
that is active in a round on a package, but not on a subset of that 
package, to bid subsequently for the subset. Such a restriction could 
help mitigate the threshold problem. It would tend to deter bidders 
that are interested in multiple license but do not have strong 
synergies from strategically making package bids to create a threshold 
problem for bidders interested in subsets of the package. Such a rule 
would, however, somewhat limit bidders' flexibility. We seek comment on 
this device and similar restrictions.

IV. Conclusion

    49. This proceeding has been designated as a ``permit-but-
disclose'' proceeding in accordance with the Commission's ex parte 
rules. 47 CFR 1.1200(a), 1.1206. Persons making oral ex parte 
presentations are reminded that memoranda summarizing the presentations 
must contain summaries of the substance of the presentations and not 
merely a listing of the subjects discussed. More than a one or two 
sentence description of the views and arguments presented is generally 
required. See 47 CFR 1.1206(b). Other rules pertaining to oral and 
written ex parte presentations in permit-but-disclose proceedings are 
set forth in Sec. 1.1206(b) of the Commission's rules, 47 CFR 
1.1206(b).

Federal Communications Commission.
Louis J. Sigalos,
Deputy Chief, Auctions and Industry Analysis Division.
[FR Doc. 00-13993 Filed 6-2-00; 8:45 am]
BILLING CODE 6712-01-P
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