[Federal Register Volume 65, Number 216 (Tuesday, November 7, 2000)]
[Notices]
[Pages 66752-66754]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-28608]


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FEDERAL COMMUNICATIONS COMMISSION

[Report No. AUC-00-31-I (Auction No. 31); DA 00-2404]


Auction of Licenses in the 747-762 and 777-792 MHz Bands 
Scheduled for March 6, 2001; Comment Sought on Modifying the 
Calculation for Determining Minimum Accepted Bids and Changing the 
Provisions Concerning ``Last and Best'' Bids

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: This document seeks comment on modifying the calculation for 
determining minimum accepted bids and changing the provisions 
concerning ``last and best'' bids.

DATES: Comments are due on or before November 15, 2000, and reply 
comments are due on or before November 22, 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.

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;
Howard Davenport, Auctions Attorney; Craig Bomberger, Auctions Analyst; 
or Karen Wrege, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, (202) 418-0660.

SUPPLEMENTARY INFORMATION: This is a summary of a Public Notice 
released November 2, 2000. The complete text of the public notice 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. General

    1. On July 3, 2000, the Wireless Telecommunications Bureau 
(``Bureau'') announced the procedures for implementing package bidding 
for Auction No. 31. See Auction No. 31 Package Bidding Procedures 
Public Notice, 65 FR 43361 (July 13, 2000). After further analysis and 
testing, we have determined that it may be appropriate to make further 
refinements: (i) To the calculation for determining minimum accepted 
bids; and (ii) to the provisions that allow a bidder that wishes to 
drop out of the auction to have an opportunity to make ``last and 
best'' bids on licenses and packages.

II. Calculation for Determining Minimum Accepted Bid

    2. With regard to determining minimum accepted bids, we adopted the 
following three-part calculation: The minimum accepted bid for any 
license or package will be the greatest of: (i) The minimum opening 
bid; (ii) the bidder's own previous high bid on that package plus x%, 
where the Bureau will specify the value of x in each round; or (iii) 
the number of bidding units for the license or package multiplied by 
the lowest $/bidding unit on any provisionally winning package in the 
last five rounds.
    3. We initially adopted part (iii) of the formula so that bids have 
a reasonable chance of becoming part of the provisionally winning set 
and because it was simple to implement for the then-scheduled auction 
date of September 6, 2000. Based on our initial experimental testing, 
we are concerned that part (iii) of the minimum accepted bid formula 
may not be sufficiently refined to discourage parking strategies, which 
could excessively delay the completion of the auction.
    4. Several commenters responding to the Auction No. 31 Package 
Bidding Comment Public Notice, 65 FR 35636 (June 5, 2000) suggested an 
alternative approach to determining minimum accepted bid amounts, which 
they claimed would be more likely to ensure serious bids and help 
address the threshold problem. This approach would allocate among non-
provisionally winning bids the total increase in revenue needed to tie 
the provisional winners. One of the commenters, Paul Milgrom, defines 
the ``shortfall'' associated with a license or package as the 
difference between the revenue of the provisionally winning bid set and 
the maximum total revenue associated with the set of bids that includes 
that particular license or package. He defines the ``deficit'' for the 
license or package as the shortfall multiplied by that package or 
license's proportion of the [non-provisionally winning] bidding units. 
In other words, the deficit is an allocation of the shortfall to the 
particular license or package in proportion to its share of bidding 
units relative to those associated with bids that were not part of the 
provisionally winning set, but are part of the set that maximizes 
revenue when including the particular license or package. Milgrom 
suggests that the minimum acceptable bid should be the greater of 50% 
of the deficit or the bidder's own previous high bid on that package 
plus x%. Alternatively, Pekec and Rothkopf propose allocating the 
shortfall in proportion to the bid amounts instead of the bidding 
units. Pekec and Rothkopf would permit bids at less than this amount 
but would only give activity credit for such a bid if it was the 
highest bid for that license or package.
    5. We propose to replace part (iii) of the minimum accepted bid 
formula with a percentage of the deficit as defined by Milgrom because 
it better approximates the amount of a bid that could become part of 
the provisionally winning set. We propose to set the percentage 
initially at 100 percent. We would retain the discretion to adjust the 
percentage of the deficit during the course of the auction to provide 
control over the pace of the auction. We believe that allocating the 
shortfall according to bidding units as opposed to bid amounts reduces 
the risk that bidders might attempt to bid up the prices of licenses or 
packages they do not wish to

[[Page 66753]]

acquire in order to increase the share of the shortfall allocated to 
those licenses or packages. We seek comment on this proposal.
    6. To account for the possibility that there can be more than one 
set of bids that yields the same shortfall for a given bid, we propose 
to choose the shortfall set that includes the most provisionally 
winning bidding units. Once such a shortfall set is determined, the 
deficit for the bid of interest is determined by multiplying the 
shortfall by the ratio of bidding units associated with the bid to the 
total non-provisionally winning bidding units in the set. This approach 
is likely to produce new bids with a realistic chance of becoming part 
of the provisionally winning set because it does not allocate any of 
the shortfall to provisional winners or to bids that were simple ties 
with provisionally winning bids but not chosen as provisional winners.
    7. To illustrate the proposed new method for calculating part (iii) 
of the minimum accepted bid formula, consider the following example: 
Suppose that in round x the provisionally winning set is a set of two 
packages: one nationwide package of the 10 MHz licenses and another 
nationwide package of the 20 MHz licenses. The revenue for this set is 
$500,000,000.
    Suppose that the last time Bidder A bid on the Northeast 10 MHz 
license was in round y when he made a bid of $30,000,000. To determine 
the minimum accepted bid amount in round x+1 for Bidder A for the 
Northeast 10 MHz license, we begin by calculating the shortfall for 
that license. This is calculated by forcing Bidder A's $30,000,000 bid 
from round y into the solution set for round x, allowing that bid to 
partner with all other bids by Bidder A in the considered bid set from 
round y, and making it mutually exclusive with all of Bidder A's bids 
not in round y. Assume that the maximum revenue obtained by forcing 
this bid into the solution set is $400,000,000. Therefore, the 
shortfall for this bid is $100,000,000 ($500,000,000 - $400,000,000).
    Next, to address the possibility of multiple shortfall sets, we 
solve an optimization problem that maximizes the number of 
provisionally winning bidding units from round x in the shortfall set 
with the added constraints that the maximum revenue equals $400,000,000 
and that Bidder A's bid on the 10 MHz license must be in the solution. 
Suppose that the solution set for this optimization problem includes, 
in addition to Bidder A's 10 MHz Northeast license, the package of 
nationwide 20 MHz licenses that was in the provisionally winning set, 
and one or more other packages making up the remaining five 10 MHz 
licenses. Since provisionally winning bids have no shortfall, we would 
allocate the shortfall only among those bids in the shortfall set that 
are not in the provisionally winning set.
    The total bidding units from non-provisionally winning bids is 6 
x  14,000,000 = 84,000,000 bidding units. Since Bidder A's bid has 
14,000,000 of the 84,000,000 bidding units, 14,000,000/84,000,000, or 
\1/6\, the shortfall would be allocated to Bidder A's bid on the 
Northeast 10 MHz license. Thus, the minimum accepted bid increment for 
Bidder A's bid using this calculation would be $100,000,000/6 = 
$16,667,000 (rounded to the nearest thousand), making part (iii) of the 
new minimum accepted bid for this license $46,667,000 for Bidder A 
($16,667,000 + $30,000,000 (Bidder A's previous bid)).
    Part (i) of the minimum accepted bid formula would be the minimum 
opening bid for this license ($14,000,000), and part (ii) would be x% 
more than this bidder's previous bid amount (assuming x = 10, 
$33,000,000). Part (iii) yields the maximum value among the three 
alternatives; accordingly, Bidder A's minimum accepted bid for this 
license in the next round would be $46,667,000.
    8. We propose an exception to the modified minimum accepted bid 
formula for new packages. For operational considerations (running the 
optimization solver only between rounds), we propose that part (iii) of 
the formula for the initial minimum accepted bid for a new package 
created during the auction will continue to be calculated by 
multiplying the number of bidding units in the package by the lowest $/
bidding unit of any provisionally winning bid in the last five rounds.
    This exception will not apply to bids for the global package, 
however. In that case we will apply the three-part calculation as 
modified herein because the shortfall and deficit are so simple to 
calculate. Because a bid for the global package could never become a 
provisional winner unless it equals the maximum revenue from the 
previous round, we propose that the initial minimum accepted bid of a 
global package will be a percentage of the maximum revenue from the 
previous round. We seek comment on this proposal.

III. ``Last and Best'' Bids

    9. In the Auction No. 31 Package Bidding Procedures Public Notice, 
we adopted a procedure by which bidders that wish to drop out of the 
auction would have the opportunity before they drop out to make a 
``last and best'' bid on any license or package for which they remain 
eligible. We adopted this procedure in part to allow bidders to bid the 
maximum amount they are willing to pay for a package regardless of how 
the Commission sets the minimum accepted bid.
    We propose to modify this procedure to allow bidders to pursue 
contingent bidding strategies. In mock auctions we conducted for 
software testing, there were bidders who wanted to provide a ``last and 
best'' bid on every license or package they wanted but did not have the 
opportunity to do so because some of their bids were mutually 
exclusive. Allowing two rounds of ``last and best'' bids would give 
bidders this flexibility.
    Specifically, we propose to allow bidders to make two sets of 
mutually exclusive last and best bids. In determining the provisionally 
winning bid(s), the round solver would consider these two sets of 
mutually exclusive bids, as well as any of the bidder's bids that 
remain in the provisionally winning set. The bidder who chooses this 
option would not be permitted to make any further bids during the 
auction. We seek comment on this proposal to modify the ``last and 
best'' bid procedures.

IV. Filing Comments

    10. Comments should refer to the DA number on this Public Notice, 
DA 00-2404. See 47 CFR 1.51(c). In addition, one copy of each comment 
must be delivered to each of the following locations:

(1) the Commission's duplicating contractor, International 
Transcription Service, Inc. (ITS), 1231 20th Street, N.W., Washington, 
DC 20036;
(2) Office of Media Relations, Public Reference Center, 445 Twelfth 
Street, S.W., CY-A257, Washington, DC 20554;
(3) Rana Shuler, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, 445 Twelfth Street, S.W., 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, CY-
A257, 445 12th Street, S.W., Washington, DC 20554.
    11. This proceeding has been designated as a ``permit-but-
disclose'' proceeding in accordance with the Commission's ex parte 
rules. See 47

[[Page 66754]]

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.
Margaret Wiener,
Deputy Chief, Auctions and Industry Analysis Division.
[FR Doc. 00-28608 Filed 11-6-00; 8:45 am]
BILLING CODE 6712-01-P