[Federal Register Volume 65, Number 114 (Tuesday, June 13, 2000)]
[Proposed Rules]
[Pages 37092-37102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14881]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 24

[WT Docket No. 97-82; FCC 00-197]


Installment Payment Financing for Personal Communications 
Services (PCS) Licensees

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rule making.

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SUMMARY: In this document the Federal Communications Commission 
(Commission) tentatively concludes that it is in the public interest to 
modify certain aspects of its rules for the upcoming C and F block 
auction. The Commission seeks public comment on various issues, 
including proposals to reconfigure the size of C block spectrum 
licenses; to modify the entrepreneur eligibility restrictions for 
certain licenses in both large and small markets; and to retain the 
spectrum cap.

DATES: Comments are due on or before June 22, 2000 and reply comments 
are due on or before June 30, 2000. Final ex parte presentations are 
due on July 12, 2000.

ADDRESSES: All comments and reply comments should be sent to the Office 
of the Secretary, Federal Communications Commission, 445 12th Street, 
SW, Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT:  Audrey Bashkin, Auctions and Industry 
Analysis Division, Wireless Telecommunications Bureau, at (202) 418-
0660.

SUPPLEMENTARY INFORMATION: This is a summary of a Further Notice of 
Proposed Rule Making (Further Notice) adopted on May 31, 2000, and 
released on June 7, 2000. The complete text of this Further Notice, 
including attachments, 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/wtb/auctions.

Synopsis of the Further Notice of Proposed Rule Making

I. Introduction and Overview

    1. On January 12, 2000, the Wireless Telecommunications Bureau 
(``Bureau'') announced that a broadband Personal Communications 
Services (``PCS'') C and F block auction--Auction No. 35--would begin 
on July 26, 2000. Under the Commission's current rules, applicants for 
C and F block auctions must meet specified financial size requirements 
to qualify as ``entrepreneurs'' and to be eligible to compete in the 
auction. Following the announcement of Auction No. 35, the Commission 
received several formal requests to waive, modify, or eliminate the C 
and F block auction and service rules. These requests seek, among other 
things, modification of the various C and F block eligibility 
requirements for the upcoming auction, reconfiguration of available 30 
MHz C block licenses, and adoption of an alternative bidding plan.
    2. As justification for the proposed changes, the petitioners point 
to the relatively small percentage of C and F block licensees that have 
begun providing service in the years since the initial entrepreneurs' 
block auctions were held. They also note the increasing trend in the 
wireless marketplace toward nationwide service, their need for 
additional spectrum in order to ease spectrum capacity constraints, and 
their financial readiness to construct and

[[Page 37093]]

operate C and F block systems should they win licenses in the upcoming 
auction. Numerous parties have filed opposing and supportive pleadings 
in response to these petitions. Opponents argue that businesses that 
qualify as ``entrepreneurs'' under our rules are more likely than 
larger companies to provide innovative and niche services and to serve 
rural areas; that the Commission's previous C and F block installment 
payment program was largely responsible for the dearth of build-out 
among C and F block licensees; and that changing the eligibility 
criteria at this juncture would be detrimental to the existing business 
plans of current C and F block ``entrepreneur'' licensees developed 
based upon these rules, and to the ability of small businesses to 
secure needed financing to provide valuable wireless services.
    3. Several parties have also asked that we consider whether we 
should revise, waive, or forbear from applying the Commercial Mobile 
Radio Service (``CMRS'') spectrum cap for Auction 35. In support of 
these requests, the petitioners assert that the demand for CMRS 
services has significantly increased and created substantial spectrum 
constraints over the last few years. Further, petitioners contend that 
lifting the spectrum cap would better enable them to roll out Third 
Generation (``3G'') and other advanced services, as well as otherwise 
help ensure the rapid and efficient development of the C and F block 
spectrum. Those opposing these requests claim that the current spectrum 
cap allows sufficient spectrum in local geographic markets to roll out 
3G services in the foreseeable future and that petitioners failed to 
establish any basis for waiving the spectrum cap.
    4. Upon consideration of the petitions and responsive pleadings 
received to date, we have tentatively concluded that it is in the 
public interest to revise certain aspects of the C and F block rules. 
Accordingly, we seek comment in this Further Notice on the following 
specific proposals to:
    <bullet> Reconfigure C Block Spectrum License Size
    We tentatively conclude that we will reconfigure each 30 MHz C 
block license available in future broadband PCS auctions into three 10 
MHz C block licenses.
    <bullet> Apply a Tiered Approach to Basic Trading Areas (BTAs) 
    We tentatively conclude that we will divide BTAs into two tiers 
according to the population size of the BTA. Under this proposal, 
``Tier 1'' would comprise BTAs at and above a 2.5 million population 
threshold; and ``Tier 2'' would comprise BTAs below that population 
threshold.
    <bullet> Eliminate Eligibility Restrictions For Certain Licenses In 
Tiers
    We further propose to remove the auction eligibility restrictions 
for certain of the newly reconfigured 10 MHz C block licenses, thereby 
establishing ``open'' bidding for these licenses. We tentatively 
conclude that we will allow ``open'' bidding (i.e., remove the 
eligibility restrictions) for two of the three 10 MHz C Block licenses 
in Tier 1, and one of the three 10 MHz C Block licenses in Tier 2. We 
also invite comment on whether to allow ``open'' bidding for all three 
of the 10 MHz C Block licenses in Tier 1, and two of the three 10 MHz C 
Block licenses in Tier 2.
    We tentatively conclude that we will allow ``open'' bidding for all 
available 15 MHz C block licenses, which have previously been auctioned 
but not sold.
    We seek comment on whether to allow ``open'' bidding for all 
available F block licenses. We also seek comment on whether, instead, 
to adopt a tiered approach to eligibility for F block licenses or to 
retain existing F block eligibility requirements.
    <bullet> Retain Our Current License Grouping for Bidding in the 
Auction
    We tentatively conclude that we will retain BTA service areas and a 
license-by-license bidding design for Auction No. 35.
    <bullet> Clarify the Grandfather Exception
    We invite comment in this proceeding on a number of issues raised 
by parties seeking reconsideration of the grandfather exception to the 
eligibility rules, which is provided in Sec. 24.709(b)(9)(i) of the 
Commission's rules. On the issue of how the exception applies in a 
merger situation, we tentatively conclude that when each of the merging 
entities is eligible for the ``grandfather'' exception, the exception 
extends to the resulting entity, but that when one (or more) of the 
merging entities is not eligible for the ``grandfather'' exception, the 
exception does not extend to the resulting entity.

<bullet> Revise the Bidding Credits Available for Auction No. 35

    We seek comment on whether to retain existing small and very small 
business bidding credits (15 percent and 25 percent, respectively) for 
licenses subject to ``open'' bidding or whether to increase them to 25 
percent and 40 percent, respectively. We also seek comment on whether 
we should change the bidding credits for licenses subject to ``closed'' 
bidding, i.e., bidding where eligibility restrictions apply.

<bullet> Alter the Transfer Requirements for Certain Licenses

    Licenses Won in ``Open'' Bidding: We tentatively conclude that we 
will eliminate the Sec. 24.839 eligibility requirements for the 
assignment or transfer of control of C and F block licenses won in 
Auction No. 35 ``open'' bidding.
    Licenses Won in ``Closed'' Bidding: We seek comment on allowing a 
licensee to assign or transfer its license to any qualified entity, 
entrepreneur or not, upon the licensee's completion of its first 
construction benchmark, whether or not it takes the full five years 
allowed under our rules.
    Licenses Held by Incumbent Licensees: We seek comment on allowing 
an incumbent licensee to assign or transfer its license to any 
qualified entity, entrepreneur or not, upon the licensee's completion 
of its first construction benchmark, whether or not it takes the full 
five years allowed under our rules. We also seek comment on whether we 
should allow some flexibility for incumbent licensees to transfer 
certain licenses where the carrier can demonstrate ``substantial 
service'' throughout its system, rather than on a market-by-market 
basis.

<bullet> Eliminate the License Cap

    We tentatively conclude that we will eliminate the Sec. 24.710 cap 
on the number of C and F block licenses a single entity may win at 
auction.

<bullet> Retain the Spectrum Cap

    We tentatively conclude that we will retain the current spectrum 
cap.

II. Background

    5. In the Omnibus Budget Reconciliation Act of 1993, Congress 
authorized the Commission to use systems of competitive bidding to 
award licenses for rights to use the radio spectrum. This authorization 
is codified as section 309(j) of the Communications Act. Section 
309(j)(3) directs the Commission to ``seek to promote'' a number of 
objectives, including:
    <bullet> The development and rapid deployment of new services for 
the benefit of the public, including those residing in rural areas;
    <bullet> Promoting economic opportunity and competition and 
ensuring that new and innovating technologies are readily accessible to 
the public by avoiding excessive concentration of licenses and by 
disseminating licenses among a wide variety of applicants, including 
small businesses, rural telephone companies, and businesses owned by 
members of minority groups and women, i.e., ``designated entities;''

[[Page 37094]]

    <bullet> Recovery for the public of a portion of the value of the 
public spectrum resource made available for commercial use;
    <bullet> Avoidance of unjust enrichment through the methods 
employed to award uses of that resource; and
    <bullet> Efficient and intensive use of the electromagnetic 
spectrum.
    6. Section 309(j)(4) directs the Commission, in prescribing 
regulations to implement the objectives of section 309(j)(3), to, inter 
alia, (i) establish performance requirements to ensure prompt delivery 
of service to rural areas and prevent warehousing of spectrum by 
licensees; (ii) prescribe area designations and bandwidth assignments 
that promote an equitable geographic distribution of licenses and 
services, economic opportunity for a wide variety of applicants, 
including designated entities, and rapid deployment of services; and 
(iii) ensure that designated entities are given the opportunity to 
participate in the provision of spectrum-based services, and, for such 
purposes, consider using bidding preferences and other procedures.
    7. The Commission outlined the original framework for C and F block 
auctions in 1994, establishing the C and F blocks as ``set-aside'' 
blocks for ``entrepreneurs'' in which eligibility would be restricted 
to entities below a specified financial threshold. The Commission 
concluded that if it was to meet the Congressional goals of promoting 
economic opportunity and competition by dissemination of licenses among 
a wide variety of providers, it should take certain affirmative steps 
to mitigate barriers to entry faced by smaller businesses. The 
Commission also stated its intention to take steps to assure that 
designated entities that win licenses have the opportunity to become 
strong competitors in providing service. Thus, in attempting to address 
the imbalance between small businesses' and large businesses' relative 
abilities to access capital, the Commission established two set-aside 
blocks (C and F) in which large companies (those over the financial 
thresholds) would be prohibited from bidding or holding licenses for a 
period of time.
    8. The initial C block licenses were awarded through two auctions, 
Auction No. 5, which ended on May 6, 1996, and Auction No. 10, which 
concluded on July 16, 1996. Auction No. 11, the initial F block 
auction, ended on January 14, 1997, and also included D and E block 
licenses. Auction No. 22, which concluded on April 15, 1999, made 
available C and F block licenses that had been returned to, or 
reclaimed by, the Commission. Since the establishment of C and F block 
rules in 1994, no auctions, other than the C and F block auctions, have 
been conducted on a closed basis due to eligibility restrictions. 
Instead, in the other 23 auctions held by the Commission, we have 
typically provided opportunities for small businesses through bidding 
credits without a set-aside.
    9. Since adoption of the original rules for auctions of C and F 
block licenses, these rules have steadily evolved in response to 
legislative changes, judicial decisions, the needs of licensees 
striving to succeed in a rapidly developing wireless market, and the 
demand of the public for greater access to wireless services. Two-and-
a-half years ago, in this docket, the Commission responded to requests 
from some C block auction winners to revise the auction rules and 
procedures for the C and F blocks. In the 1997 C Block Second Report 
and Order, as modified by the 1998 C Block Reconsideration Order, the 
Commission created a package of financial restructuring options to be 
offered to C block licensees experiencing financial difficulties in the 
wake of Auctions No. 5 and No. 10. See Amendment of the Commission's 
Rules Regarding Installment Payment Financing for Personal 
Communications Services (PCS) Licenses Second Report and Order, (C 
Block Second Report and Order) 62 FR 55348 (October 24, 1997) and (C 
Block Reconsideration Order) 63 FR 17111 (April 8, 1998). The 
Commission also decided in the C Block Second Report and Order, as 
modified by the 1998 C Block Fourth Report and Order, to allow, for a 
period of two years from the beginning of the first post-restructuring 
C block auction (Auction No. 22), participation in bidding for C block 
licenses by entities that had participated in Auctions No. 5 and 10, 
even if such entities had since become too large to qualify as 
entrepreneurs under the Commission's rules. See Amendment of the 
Commission's Rules Regarding Installment Payment Financing for Personal 
Communications Services (PCS) Licenses Fourth Report and Order, (C 
Block Fourth Report and Order), 65 FR 14213 (March 16, 2000).
    10. Prior to the start of Auction No. 22, three C block licensees 
filed for bankruptcy protection. Other C block licensees defaulted on 
payments owed for their licenses. Bankruptcy filings and payment 
defaults by other C block licensees followed the auction; and, to date, 
a total of 232 C and F block licenses, covering a population (``pops'') 
of approximately 191 million, have been involved in bankruptcy 
proceedings and/or defaulted on license payments. It appears that the 
vast majority of the defaulted licenses have never been placed into 
service.
    11. The Bureau, pursuant to its delegated authority, announced that 
we would be holding a C and F block auction on July 26, 2000. The 
current inventory for this auction includes 93 30-MHz C block licenses, 
21 15-MHz C block licenses and 40 10-MHz F block licenses for operation 
on frequencies for which previous licenses have automatically 
cancelled, see 47 CFR 1.2110(f)(4)(iii) and (iv) or have been returned 
to the Commission. The announcement of Auction No. 35 prompted 
petitions from SBC Communications Inc. (``SBC''), Nextel 
Communications, Inc. (``Nextel''), and other parties asking that we 
waive, modify, or eliminate our entrepreneur eligibility requirements 
for participation in the auction. In response to those filings, a 
number of parties also proposed that we make other modifications to our 
C and F block rules. Additionally, US WEST Wireless, LLC (``US West'') 
and Sprint Spectrum L.P. dba Sprint PCS (``Sprint'') filed a joint 
petition for reconsideration of our, Order on Reconsideration of the 
Fourth Report and Order in WT Docket No. 97-82. The C Block Fourth 
Report and Order addressed certain of the rules governing auctions of C 
block licenses. Sprint and US West request that the Commission 
eliminate its eligibility restrictions for participation in the 
upcoming auction as well as modify other C block rules. In addition, 
Verizon Wireless (``Verizon'') petitioned the Commission for 
clarification or reconsideration of our two-year C block auction 
eligibility ``grandfather'' rule, Sec. 24.709(b)(9)(i). The SBC, 
Nextel, and US West/Sprint petitions were placed on public notice, 
prompting more than 210 comments and other pleadings in response. A 
number of parties argue that all, or at least some portion, of the C 
and F block spectrum should be open to all participants in order to 
satisfy the Commission's obligations under section 309(j)(4). Other 
parties oppose these arguments.
    12. We have also received petitions from three parties that, under 
our proposed revisions to the C block rules, would become eligible to 
bid for licenses in the upcoming C and F block auction. These parties 
request that the Commission waive, or forbear from applying, the CMRS 
spectrum cap with regard to the spectrum available in Auction No. 35. 
We placed these petitions on public notice and received comments from 
23 parties and reply comments from 14 parties.

[[Page 37095]]

    13. Based upon the extensive record before us, and our continuing 
obligation to weigh important spectrum policy management considerations 
in addressing the public interest, we have tentatively concluded that 
we will revise our rules for C and F block spectrum. We set forth our 
proposals and tentative conclusions concerning possible revisions in 
the rules in this Further Notice.

III. Discussion

A. Reconfiguration of C Block Spectrum License Size
    14. Background. In 1994, the Commission established a band plan for 
broadband PCS that provides for 30 MHz ``C block'' licenses and 10 MHz 
``F block'' licenses. Each C and F block license covers a specific 
geographic service area known a Basic Trading Area (``BTA''). BTAs fall 
within still larger geographic service areas known as Major Trading 
Areas (``MTAs''). BTA and MTA service areas are based on the Rand 
McNally 1992 Commercial Atlas Marketing Guide. As noted, in 1997 the 
Commission created a package of financial restructuring options 
designed to provide limited relief to C block licensees experiencing 
financial difficulties in the wake of Auction No. 5. Under one of the 
available options, licensees were allowed to disaggregate 15 MHz of 
each of their 30 MHz C block licenses in an MTA. In disaggregating a 30 
MHz C block license, a licensee would retain a 15 MHz C block license 
and would return the remaining 15 MHz of C block spectrum to the 
Commission for inclusion in the next C block auction, Auction No. 22. 
Because several of the available 15 MHz C block licenses were not won 
in Auction No. 22, the license inventory for Auction No. 35 includes 
both 15 and 30 MHz C block licenses, as well as 10 MHz F block 
licenses.
    15. A number of parties have suggested various proposals to alter 
the Commission's current band plan. Several parties propose that we 
subdivide each available 30 MHz C block license into three 10 MHz 
licenses. Others suggest that we subdivide each available 30 MHz C 
block license into a 20 MHz and a 10 MHz license. Other parties argue 
against subdividing the C block license spectrum size.
    16. Discussion. We tentatively conclude that each 30 MHz C block 
license available in Auction No. 35 should be reconfigured into three 
10 MHz C block licenses. We believe that by increasing the number of 
available licenses through this reconfiguration, taken together with 
our proposals to lift certain of our eligibility requirements, we will 
promote wider auction participation and license distribution in 
accordance with the goals of section 309(j) of the Communications Act. 
Small bidders should find bidding for 10 MHz licenses more affordable, 
while large bidders should enjoy greater flexibility in tailoring their 
bidding to their business plans without running afoul of the spectrum 
cap. We further tentatively conclude that a 10 MHz C block license is a 
viable minimum size for voice and some data services including Internet 
access and provides an appropriate building block for bidders that wish 
to acquire a larger amount of spectrum. Accordingly, we propose to 
permit bidders to aggregate the 10 MHz C block licenses, subject only 
to the overall 45 MHz CMRS spectrum cap, and the relevant remaining 
eligibility restrictions for these licenses. We seek comment on this 
proposal and our tentative conclusions. We also seek comment on whether 
a different configuration, including adoption of blocks of 20 MHz where 
possible, would be more appropriate to provide meaningful opportunities 
for potential bidders, including new entrants into particular 
geographic markets.
    17. Finally, with respect to aggregation of 10 MHz licenses, we 
note that the Wireless Telecommunications Bureau recently sought 
comment on procedures for implementing a combinatorial (``package'') 
bidding design for the auction of licenses in the 700 MHz bands, which 
would facilitate aggregations of complementary licenses into larger 
blocks. See Auction of Licensees 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, 65 FR 35636 (June 5, 2000). While given the much 
larger number of licenses in this auction, true combinatorial bidding 
would be more complex and perhaps impractical to implement in the near 
term, we invite parties to suggest ways in which bidders could 
efficiently aggregate licenses in the auction process.
B. Eliminate Eligibility Restrictions for Certain Licenses Under a 
Tiered Approach
    18. Background. Under the Commission's current rules, only 
qualified ``entrepreneurs'' are permitted to participate in auctions of 
C and F block licenses. To be considered an entrepreneur eligible for C 
and F block auction participation, an applicant (together with its 
affiliates and persons or entities that hold interests in the applicant 
and their affiliates) must have had gross revenues of less than $125 
million in each of the last two years and must have total assets of 
less than $500 million. See 47 CFR 24.709.
    19. We seek comment on proposals to lift the entrepreneur 
eligibility restrictions for some, but not all, licenses available in 
Auction No. 35 and in future C and F block auctions. Our proposals take 
into account the contention of many entrepreneurs and their 
representatives that argue that fairness requires the Commission to 
continue to maintain the present eligibility requirements. These 
parties contend that entrepreneurs developed business plans in the 
expectation that the C and F block licenses would remain set aside for 
them and that any auctions of reclaimed C and F block licenses would be 
subject to the same eligibility restrictions that applied in the 
original auctions of those licenses. These parties also point out that 
successful entrepreneurs have achieved substantial public interest 
benefits by providing types of services and service packages not 
offered by larger providers, and extending service to rural markets. 
These parties also argue that the continuation of the eligibility 
restrictions will better serve their ability to expand their service 
area as a competing carrier and to enter roaming relationships with 
other regional carriers.
    20. Our proposals also take into account some of the arguments of 
several CMRS providers seeking to participate in the upcoming auction 
that currently do not qualify for entrepreneur eligibility. Such 
providers argue that opening up the entire auction to all bidders would 
be pro-competitive because it would allow them to acquire additional 
spectrum to meet capacity concerns, provide advanced services, and 
increase the size of their subscriber ``footprints.'' They contend that 
they, unlike many entrepreneurs, possess the operational expertise and 
substantial resources necessary to construct and successfully operate 
PCS systems in already highly competitive markets. These commenters 
also point to evidence that suggests that the set-aside of C and F 
Block spectrum has not been successful in encouraging entrepreneurs to 
participate in the provision of spectrum-based services, particularly 
in large markets.
    21. We note that, in apparent recognition of the Commission's 
obligation to balance a number of spectrum policy considerations, many 
parties have offered compromise

[[Page 37096]]

suggestions as alternatives to the current C block rules should the 
Commission choose not to adopt their preferred approaches. Some 
commenters, including a number of entrepreneurs, have suggested 
compromise alternatives that would eliminate the set-aside (in whole or 
in part) for markets with populations in excess of certain specified 
amounts ranging from 700,000 to five million. According to these 
commenters, such compromise alternatives to the current C block rules 
would provide companies with greater financial resources access to 
licenses for markets with larger populations, without foreclosing the 
opportunity for entrepreneurs to bid for those licenses. The suggested 
alternatives would also maintain the eligibility restrictions in 
markets where entrepreneurs might have a reasonable chance of success.
    22. Some commenters suggest compromises that would not use tiers, 
but would disaggregate the 30 MHz C block licenses into three 10 MHz 
blocks and would open up the bidding on one or two of the three 10 MHz 
licenses in all markets.
    23. While most of the commenters have focused on the Commission's 
treatment of the C block spectrum, as a general matter, current 
entrepreneurs argue in favor of keeping the 10 MHz F block licenses as 
restricted. On the other hand, companies currently ineligible to 
participate in Auction 35 argue in favor of open eligibility for those 
licenses.
    24. Discussion. As the expert agency charged with the management of 
the nation's radio spectrum, the Commission must continually evaluate 
the provision of service to the American public, weigh a variety of 
public interest considerations, and assess the changing needs of the 
industry. In doing so, we must always remain cognizant of our statutory 
obligations. These obligations often require that we balance a number 
of different, and at times competing, spectrum policy goals. In 
discharging these responsibilities, we seek to provide meaningful 
opportunities to small businesses, to speed the deployment and 
development of new services to the public to encourage the efficient 
use of spectrum, and to recover for the public a portion of the value 
of spectrum.
    25. When we adopted the original rules for C and F block spectrum 
in 1994, PCS was in its infancy. Since 1994, circumstances in the 
industry have changed. In light of significant technology developments 
and increased demand for spectrum, it is appropriate for the Commission 
to consider reassessing the proper balance of its spectrum policies 
including whether its current C and F block rules continue to serve the 
public interest in all respects. In crafting rules for the upcoming 
auction, we recognize that we cannot overlook the difficulties that 
followed the original C block spectrum auction and our commitment, to 
promote opportunities for designated entities. We maintain our 
commitment to provide meaningful opportunities for entrepreneurs, 
including those that participated in our most recent auction of C block 
spectrum. We also recognize that some qualifying entrepreneurs have 
been successful innovators, providing service to rural markets and 
niche services in other markets. Our desire to promote the continued 
success of such entities, as they seek to fill in gaps in their service 
areas or otherwise strive to expand their service offerings, also 
factor into our decision regarding the extent to which we should revise 
our current rules.
    26. Thus, we believe that entrepreneurs raise legitimate issues 
about preserving the eligibility restrictions on at least a portion of 
the spectrum that will be awarded in the upcoming auction. However, 
based on the demand for spectrum to satisfy congestion, new technology 
and competitive needs, we tentatively conclude that it would serve the 
public interest to make some additional spectrum available to all 
interested bidders. In balancing these factors, we believe parties on 
both sides of this debate have suggested a number of possible 
compromises that better advance the public interest than either 
maintaining the status quo or, conversely, eliminating the eligibility 
restrictions entirely. In particular, we think the parties suggesting 
tiering approaches have proposed creative solutions to balancing the 
competing interests by recognizing both that the need for additional 
unrestricted spectrum is greatest in the larger markets and that the 
track record for success for smaller entities is strongest in mid-sized 
and smaller markets.
    27. With these factors in mind, we seek comment on the following 
proposals to lift the entrepreneur eligibility requirements for some of 
the licenses available in Auction No. 35 and future auctions. 
Consistent with several of the recommendations we have received, these 
proposals vary in the amount of spectrum that would remain set-aside 
according to the size of both the available licenses and the markets.
    28. Available 30 MHz C block licenses: For markets with available 
30 MHz C block licenses, we seek comment on a proposal based on our 
tentative conclusion to reconfigure these licenses into three 10 MHz 
licenses. Our proposal is further based on dividing the available BTAs 
into two tiers: ``Tier 1'' would comprise BTAs with populations at or 
above a certain threshold, and ``Tier 2'' would comprise BTAs below 
that population threshold. We tentatively conclude that we should allow 
``open'' bidding (i.e. remove eligibility requirements) for two of the 
three 10 MHz C block licenses in Tier 1, and one of the three 10 MHz C 
block licenses in Tier 2. We seek comment on this tentative conclusion.
    29. We recognize that in balancing the interests served by 
preserving meaningful opportunities for designated entities and those 
served by opening up the spectrum to bidding by all entities, there may 
be other proposals we should consider. Thus, we also seek comment on 
whether we should allow ``open'' bidding for all three of the 10 MHz C 
block licenses in Tier 1, and two of the three 10 MHz C block licenses 
in Tier 2.
    30. Tiers: We also seek comment on what population threshold we 
should use to divide the Tier 1 and Tier 2 BTAs. As discussed, the 
record provides some indication that designated entities have had 
greater success in markets with smaller populations, particularly below 
the top twenty markets. Markets with larger populations inevitably 
require more capital to build out and provide service. Moreover, as 
noted by commenters, there is evidence that spectrum is needed by 
incumbents to provide new generation wireless services and to alleviate 
congestion or by new entrants to fill out service footprints. 
Accordingly, we tentatively conclude that a population of 2.5 million 
or greater is the proper cut-off for Tier 1 BTAs (the 17 largest 
markets); however, we also seek comment on establishing the threshold 
for Tier 1 at those BTAs with populations at or greater than either 2 
million (the 23 largest markets) or 1.5 million (the 32 largest 
markets). We recognize that other alternatives might also make sense. 
For example, we might also create a ``Tier 3'' for BTAs with 
populations below 700,000, the demarcation line that SBC recommends, 
establishing in this tier a larger set-aside for entrepreneurs. We also 
might instead decline to adopt a tiered approach at all, instead 
applying changes in eligibility restrictions to all BTAs, regardless of 
size. We seek comment on these alternatives, as well as on other 
possible tier divisions and other options for opening the bidding for 
some of the available C block licenses.
    31. Available F block licenses: We seek comment on eliminating the

[[Page 37097]]

eligibility requirements for all of the 10 MHz F block licenses 
available in Auction No. 35. We note that from a historical 
perspective, F block did not face the same types of problems and 
difficulties as C block. This difference is evidenced by the fact that 
the Commission did not see the need to allow F block licensees to 
restructure their spectrum holdings, nor did it provide for the 
grandfathering of eligibility for entrepreneur entities in future F 
block auctions. Thus, we have consistently treated the F block spectrum 
differently than C block in recognition of the fact that the history of 
these spectrum blocks evolved in divergent manners. Accordingly, we may 
not be faced with the same equity considerations in maintaining a set-
aside of F block spectrum as we are for C block. Moreover, we note that 
in virtually all markets where there is an available F block license, 
there is a 30 MHz license held by a current C block entrepreneur. Thus, 
there is already significant set-aside spectrum in each of these 
markets. Further, despite the lack of historical controversy regarding 
the F block spectrum, build out of these licenses has not progressed as 
quickly as we may have anticipated, especially in larger markets. 
Allowing open eligibility for all 10 MHz F block licenses might lead to 
more expeditious provision of service to American consumers. 
Alternatively, we recognize that we could adopt a tiered approach 
similar to the proposals for C block licenses discussed, or we could 
retain the existing F block eligibility requirements. We seek comment 
on these alternatives.
    32. 15 MHz C block licenses: Finally, we propose, and seek comment 
on, eliminating the eligibility requirements for all 15 MHz C block 
licenses that will be available in Auction No. 35 and in future C block 
auctions. As noted previously, all of the 15 MHz licenses available in 
Auction No. 35 were available in restricted Auction No. 22, yet 
remained unsold. Accordingly, we believe that it is appropriate to make 
these licenses, located principally in rural markets, immediately 
available to any interested bidder.
    33. Unsold C and F block licenses: We also seek comment on whether 
we should establish a rule that lifts eligibility restrictions on any C 
or F block licenses that remain unsold after Auction No. 35 or in other 
future auctions. Such licenses could then promptly be put up for 
auction under open bidding.
C. License Grouping for Bids
    34. Background. In past C and F block auctions (as well as D and E 
block auctions), participants have bid separately for each license. 
Nextel proposes that all available 30 MHz licenses be reconfigured into 
20 MHz and 10 MHz licenses and that the newly created 20 MHz C block 
licenses and the available 15 MHz C block licenses be offered together 
on a ``bulk bid'' (i.e., winner take all) basis in an expedited 
auction.
    35. Discussion. We tentatively conclude that we will take bids 
separately on each license in Auction No. 35 on a simultaneous multiple 
round basis as we have done in the past. We are persuaded by commenters 
that the massive scale of Nextel's bulk bid proposal (or something 
similar based upon a 10 MHz C block license configuration) would 
exclude all but a very few competitors. Small entities would be hard 
pressed to obtain the financing necessary to win and pay for the 
licenses and construct the systems included in the bulk bid proposal. 
Many other carriers would be constrained from participating by the CMRS 
spectrum cap. While we agree with Nextel that bidding for individual 
licenses will make it somewhat more challenging for it to win the very 
broad aggregation of licenses it seeks to acquire, we do not think this 
requires us to resort to its bulk bid proposal. Experience in our 
auctions to date demonstrates that significant aggregations of licenses 
through the auction process are feasible. For this reason, we believe 
that bidding for each license separately is unlikely to preclude 
carriers from aggregating licenses on a nationwide or regional basis, 
and at the same time provides carriers who have intense spectrum needs 
in a particular market the opportunity to compete for licenses as well.
D. Grandfather Exception
    36. Background: In the C Block Second Report and Order, the 
Commission established in Sec. 24.709(b)(9)(i) a ``grandfather'' 
exception to the entrepreneur eligibility requirement for participation 
in C block auctions. Under that exception, all entities that had been 
eligible for and had participated in Auction No. 5 or Auction No. 10 
would be eligible to bid on C block licenses in Auction No. 22, 
regardless of their financial size at the time of the auction. We 
declined to apply the ``grandfather'' exception to bidding on F block 
licenses, based on our belief that F block licensees did not have the 
same need for financial relief. In the C Block Fourth Report and Order, 
we decided, in fairness to other future bidders, to limit the 
grandfather exception to a two-year period beginning on the start date 
of Auction No. 22, i.e., through March 23, 2001. In the C Block Fourth 
Report and Order, we denied a petition by Omnipoint asking that we 
extend the grandfather exception indefinitely.
    37. Discussion: In a petition for reconsideration or clarification 
of the C Block Fourth Report and Order, Verizon asks us to reexamine 
the grandfather exception and limit resulting eligibility to those 
Auction No. 5 and 10 participants that won licenses in the auctions and 
then returned spectrum pursuant to the Commission's C block 
restructuring options. We seek comment on the issues raised in the 
Verizon petition and, more generally, on whether the grandfather 
exception should be revised or clarified in light of current 
circumstances.
    38. We note that Nextel makes arguments similar to Verizon's in 
response to the US West/Sprint petition and also objects to the fact 
that the grandfather exception in that it does not extend to Auction 
No. 11 and Auction No. 22 participants. We have received notice that 
currently ``grandfathered'' companies intend to combine with other 
carriers, some of which are also eligible for the grandfather 
exception. We believe that the eligibility of successor entities for 
participation in ``closed'' bidding is a subject that may also be ripe 
for clarification in our upcoming order. Accordingly, we seek comment 
on our tentative conclusion that upon the merger of two entities, each 
of which is eligible for the ``grandfather'' exception, the exception 
extends to the resulting entity, but that, upon the merger of two 
entities, only one of which is eligible for the ``grandfather'' 
exception, the exception does not extend to the resulting entity. We 
recognize that our tentative conclusion is based upon simplified 
examples, and we encourage comment on how to determine C and F block 
eligibility when faced with more complex transactions.
E. Bidding Credits
    39. Under current rules, a winning C or F block bidder that 
qualifies as a small business (i.e., a business that, together with its 
affiliates and persons or entities that hold interests in such entity 
and their affiliates, has had average annual gross revenues that are 
not more than $40 million for the preceding three years) or a small 
business consortium may use a bidding credit of 15 percent. See 47 CFR 
24.712(a); 24.717(a); id., 1.2110(e)(2)(iii). A winning bidder that 
qualifies as a very small business (i.e.,

[[Page 37098]]

a business that, together with its affiliates and persons or entities 
that hold interests in such entity and their affiliates, has had 
average annual gross revenues that are not more than $15 million for 
the preceding three years) or a very small business consortium may use 
a bidding credit of 25 percent. See 47 CFR 24.712(b); 24.717(b); id., 
1.2110(e)(2)(ii).
    40. Since the Commission first established the entrepreneurs' block 
set-aside and C and F block bidding credits, its experience has 
demonstrated that bidding credits without a set-aside enable small 
businesses to compete effectively in open auctions, even auctions of 
broadband PCS licenses.
    41. Discussion. A number of entrepreneurial firms have argued that 
if we open eligibility for some portion of the C block spectrum, we 
should increase the bidding credits applicable to those licenses. We 
seek comment on whether we should retain existing small and very small 
business bidding credits (15 percent and 25 percent, respectively) for 
licenses subject to ``open'' bidding or whether we should increase them 
to 25 percent and 40 percent, respectively.
    42. We also seek comment on whether we should change the bidding 
credits for licenses subject to ``closed'' bidding, i.e., bidding where 
eligibility restrictions apply. For example, we could increase the 
bidding credits for these licenses, or we could keep them at their 
current level since the rationale for increasing the credits in open 
auctions--to provide additional assistance for small companies bidding 
against major wireless providers--does not apply to restricted 
auctions. Finally, we could eliminate bidding credits altogether on the 
ground that they are unnecessary and perhaps even counterproductive in 
ensuring opportunities for small business in the set-aside auctions. In 
this regard, we recognize that among those eligible to participate in 
the closed, entrepreneurs' auctions, some well capitalized new entities 
with small gross revenues qualify for bidding credits, while some older 
companies with small total assets and net revenues but high gross 
revenues do not. We seek comment on these various proposals.
F. Transfer Requirements
    43. To ensure that C and F block licensees did not take advantage 
of the eligibility set-aside by immediately assigning or transferring 
control of their licenses to entities that do not meet the eligibility 
requirements, the Commission established a holding rule for these 
licenses as well as unjust enrichment provisions. Under the current 
holding rule, C and F block licensees may, for the first five years 
from the date of their initial license grant, assign or transfer 
control of their C and F block licenses only to entities that meet the 
eligibility requirements or to other C and F block licensees that 
obtained their licenses while meeting the requirements. See 47 CFR 
24.839. The Commission set the current holding period at five years to 
guarantee that a C or F block licensee would hold and build out the 
license until the first construction benchmark, which currently occurs 
five years after the date of licensing.
    44. Discussion. We propose to modify our transfer requirements to 
correspond to our proposed changes in the eligibility requirements and 
to encourage rapid construction of C and F block systems. Specifically, 
we tentatively conclude that C and F block licenses won pursuant to 
open bidding at Auction No. 35, or any future open auction for such 
spectrum, would not be subject to a transfer holding rule. For licenses 
won in closed bidding in any C or F block auction, past or future, we 
seek comment on tying the holding period to completion of build-out 
requirements. Under this proposal, a licensee would be able to assign 
or transfer its license to any qualified entity, entrepreneur or not, 
upon the licensee's completion of its first construction benchmark, 
whether or not it takes the full five years allowed by our rules. In 
this way, we can continue to minimize the trafficking of C and F block 
licenses won pursuant to closed bidding, while enhancing the likelihood 
of early build-out. We seek comment on these proposals.
    45. Additionally, we seek comment on whether to allow some further 
flexibility for incumbent licensees that may not have fully satisfied 
their construction requirements for all their licenses. We wish to 
examine whether we should, under certain circumstances, evaluate a 
licensee's compliance with construction requirements on a system-wide 
basis. For example, we seek comment on whether we should allow a 
carrier to exchange and transfer licenses if the carrier can 
demonstrate ``substantial service'' throughout its system, rather than 
in that particular market. We also seek comment on any other 
modifications to our transfer restrictions that would provide incumbent 
licensees with the flexibility to restructure their business plans 
without decreasing their incentive to rapidly construct systems and 
place them in operation.
G. License Cap
    46. Background. Section 24.710 of the Commission's rules prohibits 
an auction applicant from winning more than 98 C and F block licenses. 
The rule requires an applicant that is the high bidder for more than 98 
C and F block licenses to withdraw its bids for a sufficient number of 
licenses to comply with the 98-license limit. The limit applies only to 
licenses won at auction, not to the total number of licenses that may 
be obtained post auction. When established in 1994, the license cap was 
intended to facilitate a fair distribution of licenses within the two 
blocks by preventing an entity from winning more than approximately 10 
percent of the then-total of 986 C and F block licenses.
    47. Discussion. We tentatively conclude that we will remove 
Sec. 24.710 from the Commission's rules. In 1994, when the rule was 
implemented, the Commission anticipated holding only one C block and 
one F block auction. To date, however, four C and F block auctions have 
been held, with the fifth, Auction No. 35, scheduled and one or more 
additional auctions anticipated. Many different entrepreneurs have won 
C and F block licenses at auction, and substantial diversity among C 
and F block licensees continues to exist. The Commission has achieved 
its initial objective of a fair distribution C and F block licenses. 
Moreover, our proposal to reconfigure available 30 MHz C block 
licenses, if implemented, would create an additional 186 C block 
licenses, while adoption of our proposal to eliminate the eligibility 
restrictions for many of the available C and F block licenses would 
significantly enhance the likelihood that these licenses would be won 
by a variety of entities. Accordingly, we seek comment on this 
tentative conclusion.
H. Spectrum Cap
    48. Background. The CMRS spectrum cap, set forth in Sec. 20.6 of 
the Commission's rules, limits the amount of cellular, broadband PCS, 
and digital Specialized Mobile Radio (``SMR'') spectrum in which any 
entity may have an attributable interest in any geographic area. As 
discussed, we received petitions from three parties that request that 
the Commission waive, or forbear from applying, the CMRS spectrum cap 
with regard to any spectrum awarded in the upcoming C and F blocks 
auction.
    49. Discussion. We tentatively conclude that we should not grant 
the petitions seeking waiver of or forbearance from, the CMRS spectrum 
cap rules and, accordingly, we will

[[Page 37099]]

apply the cap to licenses of PCS C and F block spectrum to be auctioned 
in Auction No. 35. In September 1999, after extensive analysis of 
spectrum allocation and competitive market conditions, we determined in 
our Biennial CMRS Spectrum Cap Order that the CMRS spectrum cap, with 
some modification, continued to be a necessary and efficient means to 
promote competition and protect the public interest. Specifically, we 
concluded that a cap on this spectrum serves the public interest by 
promoting competition, preventing excessive concentration of licenses, 
providing incentives for licensees to make more efficient use of their 
spectrum, encouraging innovation, and promoting dissemination of 
licenses to a wide variety of applicants. We also concluded that the 
``bright-line'' test afforded by the CMRS spectrum cap rule efficiently 
promoted regulatory certainty and regulatory efficiency. For any 
carrier with a demonstrable need for additional spectrum in a 
particular geographic area, we established and clarified a process by 
which it could obtain a waiver of the spectrum cap rule.
    50. On the basis of the petitions and the record filed in response, 
we propose not to revise the CMRS spectrum cap in light of the upcoming 
auction and our proposed rule changes described herein. Since its 
inception in 1994, the cap on the 180 MHz of CMRS spectrum (i.e., 
cellular A and B blocks, PCS A through F blocks, and digital SMR) has 
limited the amount of spectrum any carrier could aggregate from any 
part of the CMRS spectrum, including spectrum in the PCS C and F 
blocks, so as to ensure the many benefits of competition. The pleadings 
filed in connection with the upcoming auction contain no new material 
information regarding the costs and benefits of the spectrum cap and do 
not purport to make a waiver showing under the standard set forth in 
the Biennial CMRS Spectrum Cap Order. See 1998 Biennial Regulatory 
Review, Report and Order 64 FR 54564 (October 7, 1999). Our proposal to 
revise the rules pertaining to the PCS C and F block spectrum helps 
ease the impact of the cap in this auction, and thereby renders cap 
relief unnecessary. By proposing to divide the 30 MHz blocks of C block 
spectrum into 10 MHz blocks in the upcoming auction, we would better 
enable carriers to obtain additional spectrum without the need to 
exceed the CMRS spectrum cap. Carriers currently have accumulated 
spectrum up to the CMRS spectrum cap limits, either the general 45 MHz 
cap or the 55 MHz cap that applies to rural areas, in only a few 
locations. With regard to the C and F block spectrum to be auctioned, 
in every market almost all carriers could obtain additional spectrum in 
blocks of 10 MHz (or 15 MHz where applicable) and still comply with the 
spectrum cap without any need for disaggregation. As discussed, for 
those carriers that require more than 45 MHz of spectrum in the near 
term, we have established a process for granting waiver of the spectrum 
cap. We stated that we would consider granting a waiver of the spectrum 
cap in a particular geographic area to the extent a carrier could 
credibly demonstrate that the spectrum cap was having a significantly 
adverse effect on its ability to provide 3G or other advanced services. 
We also note that our year 2000 biennial review of the spectrum cap 
rule commences later this year. This proceeding will provide us another 
opportunity to revisit, in a more comprehensive manner than the 
pleadings before us, issues pertaining to the CMRS spectrum cap and 
whether it should be retained, modified, or eliminated. We seek comment 
on our tentative conclusion to retain the CMRS spectrum cap on the PCS 
C and F block spectrum scheduled for auction.

IV. Conclusion

    51. Based on the foregoing, we seek comment on overall changes to 
the C and F block rules that take into account our competing statutory 
objectives to manage spectrum in the public interest. We conclude that 
this Further Notice will provide us with an opportunity to develop a 
record on the specific proposals to open eligibility for this spectrum 
and otherwise revise the C and F block rules for the benefit of 
consumers and the economy.

V. Procedural Matters

A. Ex Parte Rules--Permit-But-Disclose Proceeding
    52. This is a permit-but-disclose notice and comment rulemaking 
proceeding. Ex parte presentations are permitted, except during the 
Sunshine Agenda period, provided they are disclosed pursuant to the 
Commission's rules. See generally 47 CFR 1.1202, 1.1203, and 1.1206.
B. Regulatory Flexibility Act Analysis
    53. As required by the Regulatory Flexibility Act (RFA), the 
Commission has prepared an Initial Regulatory Flexibility Analysis 
(IRFA) of the possible impact on small entities of the proposals and 
tentative conclusions set forth in the Further Notice in WT Docket No. 
97-82. Written public comments are requested on the IRFA. Comments on 
the IRFA must have a separate and distinct heading designating them as 
responses to the IRFA and must be filed by the deadlines for comments 
on the Further Notice. In accordance with the RFA, the Commission will 
send a copy of this Further Notice, including the IRFA, to the Chief 
Counsel for Advocacy of the Small Business Administration.
C. Paperwork Reduction Act Analysis
    54. This Further Notice contains neither a new nor a modified 
information collection.
D. Comment Dates
    55. Pursuant to Secs. 1.415 and 1.419 of the Commission's rules, 
interested parties may file comments on or before June 22, 2000, and 
reply comments on or before June 30, 2000. 47 CFR 1.415, 1.419. 
Comments may be filed using the Commission's Electronic Comment Filing 
System (ECFS) or by filing paper copies. See Electronic Filing of 
Documents in Rulemaking Proceedings, 63 FR 24121 (May 1, 1998).
    56. Comments filed through ECFS may be sent as an electronic file 
via the Internet to http://www.fcc.gov/e-file/ecfs.html. Comments filed 
through the ECFS may be sent as an electronic file via the Internet to 
http://www.fcc.gov/e-file/ecfs.html. Generally, only one copy of an 
electronic submission must be filed; however, if multiple docket or 
rulemaking numbers appear in the caption of this proceeding, commenters 
must transmit one electronic copy of the comments to each docket or 
rulemaking number referenced in the caption. When completing the 
transmittal screen, commenters should include their full name, Postal 
Service mailing address, and the applicable docket or rulemaking 
number. Parties may also submit an electronic comment by Internet e-
mail. To receive filing instructions for e-mail comments, commenters 
should send an e-mail to <a href="/cdn-cgi/l/email-protection#eb8e888d98ab8d8888c58c849d"><span class="__cf_email__" data-cfemail="1b7e787d685b7d7878357c746d">[email protected]</span></a>, and should include the following 
words in the body of the message, ``get form your e-mail address>.'' A 
sample form and directions will be sent in reply.
    57. Parties who choose to file by paper must file an original and 
four copies of each filing. If participants want each Commissioner to 
receive a personal copy of their comments, an original plus nine copies 
must be filed. If more than one docket or rulemaking number appears in 
the caption of this proceeding, commenters must submit two additional 
copies for each additional docket or rulemaking number. All filings 
must be sent to the Commission's Secretary, Magalie Roman Salas, Office 
of the Secretary, Federal

[[Page 37100]]

Communications Commission, 445 12th Street, SW, Room TW-A325, 
Washington, DC 20554. A courtesy copy should be delivered to Audrey 
Bashkin, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, Federal Communications Commission, 445 12th 
Street, SW, Room 4A-665, Washington, DC 20554. Parties should reference 
WT Docket No. 97-82 in their comments. Pursuant to Sec. 1.1200(a) of 
the Commission's rules, presentations on issues in this proceeding will 
be prohibited after 7 p.m., July 12, 2000, until release of the 
Commission's order dealing with those issues. 47 CFR 1.1200(a) and 
1.1202(a). All relevant and timely comments will be considered by the 
Commission before final action is taken in this proceeding. Comments 
and reply comments will be available for public inspection during 
regular business hours in the FCC Reference Information Center of the 
Federal Communications Commission, 445 12th Street, SW, Washington, DC 
20554.
E. Ordering Clauses
    58. Authority for issuance of this Further Notice is contained in 
sections 4(i), 309(r), and 309(j) of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 303(r), and 309(j).

Initial Regulatory Flexibility Analysis

    59. As required by the Regulatory Flexibility Act (RFA), the 
Commission has prepared an Initial Regulatory Flexibility Analysis 
(IRFA) of the possible economic impact on small entities of the rules 
proposed in this Further Notice in WT Docket No. 97-82. Written public 
comments are requested on the IRFA. Comments on the IRFA must have a 
separate and distinct heading designating them as responses to the IRFA 
and must be filed by the deadlines for comments on the Notice. The 
Commission will send a copy of the Further Notice, including this IRFA, 
to the Chief Counsel for Advocacy of the Small Business Administration. 
See 5 U.S.C. 603(a).

A. Need for, and Objectives, of the Proposed Rules

    60. Section 309(j) of the Communications Act directs the Commission 
to disseminate licenses among a wide variety of applicants, including 
small businesses and other designated entities. Section 309(j) also 
requires that the Commission ensure the development and rapid 
deployment of new technologies, products, and services for the benefit 
of the public, and recover for the public a portion of the value of the 
public spectrum resource made available for commercial use. To date, 
the Commission has received numerous requests to waive, modify, or 
eliminate certain of the C and F block auction and service rules for C 
and F block broadband Personal Communications Services (``PCS'') 
licenses. As discussed more fully in section E of this IRFA, infra, 
these requests seek, among other things, modification of the C and F 
block entrepreneur eligibility requirements for the upcoming C and F 
block auction, reconfiguration of available 30 MHz C block licenses, 
and adoption of an alternative bidding plan. Upon consideration of 
these numerous requests, the Commission has tentatively concluded that 
it is in the public interest to revise certain aspects of the C and F 
block rules. This Further Notice sets forth the Commission's proposals 
and tentative conclusions concerning possible revisions to the rules 
governing the C and F block spectrum. The Commission believes that this 
Further Notice will provide the Commission with an opportunity to 
develop a record on the specific proposals to open eligibility for this 
spectrum and otherwise revise the C and F block rules for the benefit 
of consumers and the economy. In addition, the Commission believes that 
the tentative conclusions and proposals set forth in this Further 
Notice help meet the goals and objectives of section 309(j), and 
promote competition while maintaining the fair and efficient 
implementation of the auctions program. Accordingly, the Commission 
seeks comment on all proposals, alternatives, tentative conclusions, 
and other issues described in the Further Notice; and the impact that 
such proposals, alternatives, tentative conclusions, and other issues 
may have on small entities.

B. Legal Basis

    61. This action is authorized under sections 4(i), 303(r), and 
309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 
303(r), and 309(j).

C. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply

    62. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that will be 
affected by the proposed rules, if adopted. Generally, the RFA defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' The term ``small business'' has the same meaning as the 
term ``small business concern'' under the Small Business Act, unless 
the Commission has developed one or more definitions that are 
appropriate for its activities. Under the Small Business Act, a ``small 
business concern'' is one which: (i) Is independently owned and 
operated; (ii) is not dominant in its field of operation; and (iii) 
meets any additional criteria established by the Small Business 
Administration (SBA). A small organization is generally ``any not-for-
profit enterprise which is independently owned and operated and is not 
dominant in its field.'' Nationwide, as of 1992, there were 
approximately 275,801 small organizations.'' ``Small governmental 
jurisdiction'' generally means ``governments of cities, counties, 
towns, townships, villages, school districts, or special districts, 
with a population of less than 50,000.'' As of 1992, there were 
approximately 85,006 local governments in the United States. This 
number includes 38,978 counties, cities, and towns; of these, 37,566, 
or 96 percent, have populations of fewer than 50,000. The Census Bureau 
estimates that this ratio is approximately accurate for all 
governmental entities. Thus, of the 85,006 governmental entities, we 
estimate that 81,600 (91 percent) are small entities.
    63. The possible rule changes described in the Further Notice 
affect all small entities that choose to participate in the upcoming 
auction of C and F block spectrum and other future auctions of C and F 
block spectrum, including small businesses currently holding C and F 
block licenses and other small businesses that may acquire licenses 
through the auction. The broadband PCS spectrum is divided into six 
frequency blocks designated A through F, and the Commission has 
auctioned licenses in each block. Frequency blocks C and F have been 
designated by the Commission as ``entrepreneurs' blocks,'' and 
participation in auctions of C and F block licenses is limited to 
entities qualifying under the Commission's rules as entrepreneurs. The 
Commission's rules define an entrepreneur as an entity, together with 
its affiliates, having gross revenues of less than $125 million and 
total assets of less than $500 million at the time the FCC Form 175 
application is filed. For blocks C and F, the Commission has defined 
``small business'' as a firm, together with its affiliates, that had 
average gross revenues of not more than $40 million in the three 
previous calendar years, and ``very small business'' has been

[[Page 37101]]

defined as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding three 
calendar years. These definitions have been approved by the SBA.
    64. On May 6, 1996, the Commission concluded the first broadband 
PCS C block auction. On July 16, 1996, the second C block auction 
closed. On January 14, 1997, the broadband PCS D, E, and F block 
auction closed. Ninety bidders (prior to any defaults by winning 
bidders) won 493 C block licenses and 88 bidders won 491 F block 
licenses. Small businesses, placing high bids in these C and F block 
auctions were eligible for bidding credits and installment payment 
plans. On April 15, 1999, Auction No. 22, which included 347 C and F 
block licenses, closed. On January 12, 2000, the Wireless 
Telecommunications Bureau announced the Commission's intention to 
auction C and F block PCS licenses on July 26, 2000. The auction is 
currently scheduled to include ninety-three 30 MHz C block licenses, 
twenty-one 15 MHz C block licenses, and forty 10 MHz F block licenses. 
For purposes of our evaluations and conclusions in this IRFA, we assume 
that all of the original 90 C block broadband PCS licensees and 88 F 
block broadband PCS licensees, a total of 178 licensees potentially 
affected by this Further Notice, are small entities. In addition to the 
178 original small business licensees that may participate in the 
auction of the C block licenses, a number of additional small business 
entities may seek to acquire licenses through auction; thus, these 
business entities would be affected by these rules.

D. Reporting, Recordkeeping, and Other Compliance Requirements

    65. At this time, the Commission does not anticipate the imposition 
of new reporting, recordkeeping, or other compliance requirements as a 
result of this Notice. We seek comment on this tentative conclusion. 
Auction participants will need to follow the standard procedural rules 
used for broadband PCS spectrum auctions, including application and 
payment rules.

E. Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    66. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (i) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (ii) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(iii) the use of performance, rather than design, standards; and (iv) 
an exemption from coverage of the rule, or any part thereof, for small 
entities. 5 U.S.C. 603.
    67. The Commission tentatively concludes that it is in the public 
interest to revise certain aspects of the C and F block rules to 
encourage participation by small businesses while at the same time 
helping to ensure the best use of spectrum through the competitive 
bidding process.
    68. Reconfigure C Block Spectrum Size: The Commission tentatively 
concludes it will reconfigure each 30 MHz C block license available in 
future broadband PCS auctions into three 10 MHz C block licenses. The 
Commission believes that by increasing the number of available licenses 
through this reconfiguration, taken together with the Commission's 
proposals to lift certain of our eligibility requirements, the 
Commission will promote wider auction participation and license 
distribution in accordance with the goals of section 309(j) of the 
Communications Act. Small bidders should find bidding for 10 MHz 
licenses more affordable, while large bidders should enjoy greater 
flexibility in tailoring their bidding to their business plans without 
running afoul of the spectrum cap. The Commission also seeks comment on 
whether a different configuration would be more appropriate to provide 
meaningful opportunities for potential bidders, including new entrants 
into particular markets.
    69. Eliminate Eligibility Restrictions for Certain Licenses in 
Tiers: The Commission proposes to remove the entrepreneur eligibility 
restrictions for some, but not all, licenses available in Auction No. 
35 and in future C and F block auctions. Based on the demand for 
spectrum to satisfy congestion, new technology and competitive needs, 
the Commission tentatively concludes that it would serve the public 
interest to make some additional spectrum available to all interested 
bidders. In light of the Commission's commitment to providing 
meaningful opportunities for entrepreneurs, the Commission seeks 
comment on proposals to lift the entrepreneur eligibility requirements 
for some of the licenses available in Auction No. 35 and future 
auctions, which vary in the amount of spectrum that would remain set-
aside according to the size of both the available licenses and the 
markets. The Commission tentatively concludes that it will divide BTAs 
into two tiers according to population size of the BTA. ``Tier 1'' 
would comprise BTAs at and above a 2.5 million population threshold; 
``Tier 2'' would comprise BTAs below that population threshold. For 
available 30 MHz C block licenses, the Commission tentatively concludes 
to allow ``open'' bidding for two of the three 10 MHz C block licenses 
in Tier 1, and one of the three 10 MHz C block licenses in Tier 2. The 
Commission also seeks comment on whether there should be ``open'' 
bidding for all three of the 10 MHz licenses in Tier 1, and two of the 
three in Tier 2. With respect to available F block licenses, the 
Commission seeks comment on eliminating the eligibility requirements, 
or, alternatively, applying a tiered approach or retaining the existing 
eligibility rules. Finally, the Commission also tentatively concludes 
it will allow ``open'' bidding for all available 15 MHz C block 
licenses, which have previously been auctioned but not sold. These 
alternatives would affect the configuration and set-aside of spectrum. 
We seek comment on the impact of these alternatives on small 
businesses.
    70. Retain Current License Grouping for Bidding in Auction: The 
Commission tentatively concludes to take bids on each license 
separately in Auction No. 35 on a simultaneous multiple round basis as 
the Commission has previously done in the past. The Commission believes 
that bidding for each license separately is unlikely to preclude 
carriers from aggregating licenses on a nationwide or regional basis, 
and at the same time will provide carriers that have intense spectrum 
needs in a particular market the opportunity to compete for licenses as 
well.
    71. Grandfather Exception: The Commission seeks comment on whether 
the grandfather eligibility exception should be revised or clarified. 
The Commission also tentatively concludes that upon the merger of two 
entities, each of which is eligible for the ``grandfather'' exception, 
the exception extends to the resulting entity; but that, upon the 
merger of two entities, only one of which is eligible for the 
``grandfather'' exception, the exception does not extend to the 
resulting entity.
    72. Revise the Bidding Credits Available for Auction No. 35: For 
those licenses that are not subject to eligibility restrictions, the 
Commission seeks comment on whether to increase bidding credits for 
small and very small businesses, and consortia thereof, to 25 and 40 
percent, respectively, or to retain existing bidding credit levels. We 
expect that this departure from previous

[[Page 37102]]

procedure will provide small businesses with a meaningful opportunity 
to compete in an open auction.
    73. Alter the Transfer Requirements for Certain Licenses: The 
Commission proposes to modify the Commission's transfer requirements to 
correspond to the Commission's proposed changes in the eligibility 
requirements, and to encourage rapid construction of C and F block 
systems. Specifically, the Commission tentatively concludes that C and 
F block licenses won pursuant to open bidding at Auction No. 35, or any 
future open auction for such spectrum, would not be subject to a 
transfer holding rule. For licenses won in closed bidding in any C or F 
block auction, the Commission seeks comment on a proposal that will 
allow a licensee to assign or transfer its license to any qualified 
entity, entrepreneur or not, upon the licensee's completion of its 
first construction benchmark, whether or not it takes the full five 
years allowed by the rules. The Commission also seeks comment on 
whether it should evaluate a licensee's compliance with construction 
requirements on a system-wide basis.
    74. Eliminate the License Cap: The Commission proposes to remove 
Sec. 24.710 from the Commission's rules which prohibits an auction 
applicant from winning more than 98 C and F block licenses. When this 
rule was established, the license cap was intended to facilitate a fair 
distribution of licenses within the C and F blocks. The Commission has 
achieved this objective; moreover, the Commission's proposal to 
reconfigure the available 30 MHz C block licenses would create 
additional C block licenses, while the Commission's proposal to 
eliminate the eligibility restrictions would increase the chances of C 
and F block licenses being won by a variety of entities.
    75. Retain the Spectrum Cap: The Commission tentatively concludes 
that it should not grant the petitions seeking waiver of, or 
forbearance from, the CMRS spectrum cap rules and, accordingly, it 
would apply the spectrum cap to licenses of PCS C and F block spectrum 
to be auctioned in Auction 35. The Commission's proposal to revise the 
rules pertaining to the PCS C and F block spectrum helps ease the 
impact of the cap in this auction, and thereby renders cap relief 
unnecessary.
    76. Section 309(j) of the Communications Act directs the Commission 
to disseminate licenses among a wide variety of applicants, including 
small businesses and other designated entities. Section 309(j) also 
requires that the Commission ensure the development and rapid 
deployment of new technologies, products, and services for the benefit 
of the public, and recover for the public a portion of the value of the 
public spectrum resource made available for commercial use. The 
Commission believes that the proposals, alternatives, and tentative 
conclusions described in this Notice promote these goals while 
maintaining the fair and efficient execution of the auctions program. 
The Commission, therefore, seeks comment on all issues, proposals, 
tentative conclusions, and alternatives described in the Notice, and 
the impact they may have on small entities.

F. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    77. None.

List of Subjects in 47 CFR Part 24

    Communications common carriers, Personal communications services, 
Radio.

Federal Communications Commission.
William F. Caton,
Deputy Secretary.
[FR Doc. 00-14881 Filed 6-12-00; 8:45 am]
BILLING CODE 6712-01-P


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