[Federal Register Volume 62, Number 55 (Friday, March 21, 1997)]
[Proposed Rules]
[Pages 13570-13582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7233]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 1

[WT Docket No. 97-82; FCC 97-60]


Competitive Bidding Procedures

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this Notice of Proposed Rule Making (``NPRM''), the 
Commission proposes changes to its general competitive bidding rules 
that are intended to simplify regulations and eliminate unnecessary 
rules wherever possible, increase the efficiency of the competitive 
bidding process, and provide more specific guidance to auction 
participants while also giving them more flexibility.

DATES: Comments must be submitted on or before March 27, 1997, and 
reply comments must be submitted on or before April 16, 1997. Written 
comments by the public on the proposed and/or modified information 
collections are due March 27, 1997. Written comments must be submitted 
by the Office of Management and Budget (OMB) on the proposed and/or 
modified information collections on or before May 20, 1997.

ADDRESSES: Office of the Secretary, Federal Communications Commission, 
Washington, DC 20554. In addition to filing comments with the 
Secretary, a copy of any comments on information collections contained 
herein should be submitted to Dorothy Conway, Federal Communications 
Commission, Room 234, 1919 M Street, NW., Washington DC 20554, or via 
the Internet to <a href="/cdn-cgi/l/email-protection#a2c6c1cdccd5c3dbe2c4c1c18cc5cdd4"><span class="__cf_email__" data-cfemail="6e0a0d0100190f172e080d0d40090118">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Mark Bollinger, Wireless 
Telecommunications Bureau, (202) 416-0660. For additional information 
concerning the information collections contained in this NPRM, contact 
Dorothy Conway at (202) 418-0217, or via the Internet at 
<a href="/cdn-cgi/l/email-protection#4f2b2c2021382e360f292c2c61282039"><span class="__cf_email__" data-cfemail="7d191e12130a1c043d1b1e1e531a120b">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: This summarizes the Commission's Notice of 
Proposed Rule Making in FCC Number 97-60; WT Docket No. 97-82, adopted 
on February 20, 1997, and released on February 28, 1997. The complete 
text of this NPRM is available for inspection and copying during normal 
business hours in the FCC Reference Center (Room 239), 1919 M Street, 
NW., Washington, DC, and also may be purchased from the Commission's 
copy contractor, International Transcription Service, (202) 857-3800, 
2100 M Street, NW., Suite 140, Washington, DC 20037. The complete NPRM 
is also available on the Commission's Internet home page (<a href="http://
www.fcc.gov/">http://
www.fcc.gov/</a>).
    The NPRM contains proposed or modified information collections 
subject to the Paperwork Reduction Act of 1995 (PRA). It has been 
submitted to the Office of Management and Budget (OMB) for review under 
the PRA. The Commission, as part of its continuing effort to reduce 
paperwork burdens, invites the general public, the Office of Management 
and Budget (OMB), and other Federal agencies to comment on the 
information collections contained in this NPRM, as required by the 
Paperwork Reduction Act of 1995, Pub. L. 104-13. Public and agency 
comments are due at the same time as other comments on this NPRM; OMB 
notification of action is due 60 days from date of publication of this 
NPRM in the Federal Register. Comments are requested concerning (a) 
whether the proposed collection of information is necessary for the 
proper performance of the functions of the Commission, including 
whether the information shall have practical utility; (b) the accuracy 
of the Commission's burden estimate; (c) ways to enhance the quality, 
utility, and clarity of the information collected; and (d) ways to 
minimize the burden of the collection of information on the 
respondents, including the use of automated collection techniques or 
other forms of information technology.
    OMB Approval Number: N/A.
    Title: In the Matter of Amendment of Part 1 of the Commission's 
Rules--Competitive Bidding Proceeding, WT Docket No. 97-82, FCC Docket 
No. 97-60.
    Type of Review: New collection.
    Respondents: Businesses or other for-profit entities.
    Number of Respondents: 45,000.
    Estimated Time for Response: 13 hours.
    Total Annual Burden: 585,000 hours.
    Estimated Cost to Respondents: 2,848 dollars.
    Needs and Uses: The Commission's general competitive bidding rules 
require applicants for all auctionable services to submit: (1) 
Ownership information, (2) terms of joint bidding agreements, (3) gross 
revenue calculations, and (4) evidence of environmental impact. 
Furthermore, in case a licensee defaults or loses its license, the 
Commission retains the discretion to re-auction such licenses. If 
licenses are re-auctioned, the new license winners would be required at 
the close of the re-auction to comply with the same disclosure 
requirements explained above.
    The information collected will be used by the Commission to 
determine whether the applicant is legally, technically, and 
financially qualified to bid in the spectrum auctions and hold a 
license for spectrum based services. Without such information the 
Commission could not determine whether to issue the license to the 
successful applicant and therefore fulfill its statutory 
responsibilities in accordance with the Communications Act of 1934, as 
amended.

Synopsis of Notice of Proposed Rule Making

    1. The Commission seeks comment on a variety of proposals and 
tentative conclusions set forth below. In addition, it seeks comment on 
whether competitive bidding provisions that have been adopted in 
specific services but not included in the part 1 rules should be 
included in part 1 and, if so, whether any amendments to these 
provisions are needed in light of the proposal, discussed below, to 
apply these general competitive bidding rules to future auctions.
    2. As the Commission has gained experience in conducting auctions, 
it has found that much of the auction process can be standardized and 
that conducting rule makings for each individual service slows down the 
delivery of service to the public because it may result in regulatory 
delays before the licensing process begins. Thus, the Commission 
propose that, to the extent possible, all future auctions be governed 
by the general competitive bidding rules adopted in this proceeding. It 
envisions that only a limited number of competitive bidding regulations 
would need to be adopted on a service-specific basis. The Commission 
seeks comment on whether the rules adopted in this proceeding should 
supersede all existing, service-specific competitive bidding rules for 
future auctions. It proposes that this action would affect all services 
that are subject to pending proceedings and any services that have 
existing competitive bidding rules that might apply to licenses that 
have not yet been auctioned or that must be reauctioned. The Commission 
seeks comment on whether, alternatively, it should phase in the 
applicability of the revised general competitive bidding rules at a 
future date, such that, at a

[[Page 13571]]

minimum, initial auctions may be completed under the existing service-
specific rules. In the event the Commission decides not to apply the 
revised part 1 rules to supersede existing service-specific auction 
rules, should it nonetheless subject licenses that are reauctioned (due 
to defaults or if no winning bidder is otherwise declared) to these 
revised part 1 general competitive bidding rules? To the extent that 
commenters believe that service-specific rules should be maintained, 
they should explain which ones and why.
    3. Section 1.2110(b)(1) of the rules states that the Commission 
``will establish the definition of a small business on a service-
specific basis, taking into consideration the characteristics and 
capital requirements of the particular service.'' The Commission 
proposes to continue the practice of soliciting comment in service-
specific rule making proceedings on the appropriate small business size 
standard, or tiered standards, for each auctionable service. In such 
rule makings, the Commission would, take into consideration the 
characteristics and capital requirements of each service. It would in 
all cases, however, for purposes of future auctions, express the 
definition of small business purely in terms of gross revenues. The 
Commission further proposes that, once the small business definition 
for any particular service is adopted, the special provisions for which 
such businesses qualify would be determined by schedules set forth in 
the general competitive bidding rules. The Commission seeks comment on 
these proposals.
    4. The Commission notes that some of its eligibility requirements 
are defined in terms of gross revenues of ``less than'' a certain 
amount, rather than ``not exceeding'' a certain amount. It tentatively 
concludes that a uniform method of measurement is preferable because it 
is more equitable and administratively simpler. The Commission 
therefore proposes that when it adopts size standards, those standards 
should be expressed so as to require businesses to have gross revenues 
``not to exceed'' particular amounts, and that all standards already 
adopted be modified to conform to this method of defining size. The 
Commission seeks comment on this proposal. It also seeks comment on a 
proposal to base all small business size standards on the applicant's 
average gross revenues over the preceding three years, consistent with 
the Small Business Act, 15 U.S.C. 632(a).
    5. Although the general competitive bidding rules do not define 
``gross revenues,'' the Commission has adopted definitions in various 
services which are generally the same, but contain some distinction 
regarding use of audited and unaudited financial statements. In order 
to promote uniformity of regulations, the Commission proposes to use 
the broadband PCS definition for all size-based determinations for all 
auctionable services, with the modification that unaudited financial 
statements used as a basis for gross revenue calculations must be 
prepared in accordance with Generally Accepted Accounting Principles. 
This modification should ensure that all gross revenues calculations, 
audited and unaudited, are prepared consistently. It should also 
discourage bidders from manipulating unaudited financial statements to 
gain a competitive bidding or payment advantage. The Commission seeks 
comment on this proposal.
    6. The Commission notes that in the D, E, and F Block Report and 
Order, 61 FR 33859 (July 1, 1996), it amended the broadband PCS rules 
to require that an applicant's determination of average gross revenues 
be based on the three most recently completed fiscal or calendar years. 
Should it adopt a similar rule for the general auction rules that would 
extend the same option of using either fiscal or calendar years to 
applicants in all auctionable services? The Commission also notes that 
prior to the D, E, and F Block Report and Order, broadband PCS 
applicants were required to state their average gross revenues as 
supported by audited financial statements or seek a waiver to use 
unaudited financial statements. This requirement was simplified in the 
D, E, and F Block Report and Order to permit the use of unaudited 
financial statements without seeking a waiver. The Commission seeks 
comment on whether the general definition of gross revenue should 
similarly allow the use of unaudited financial statements.
    7. In determining whether an applicant meets certain size-based 
eligibility requirements, many of the Commission's service-specific 
competitive bidding rules require it to consider, inter alia, the gross 
revenues of certain investors in the applicant and the affiliates of 
attributable investors. ``Affiliate'' is defined by the general auction 
rules as an individual or entity that directly or indirectly controls 
or has the power to control the applicant; is directly or indirectly 
controlled by the applicant; is directly or indirectly controlled by a 
third person(s) that also controls or has the power to control the 
applicant; or has an ``identity of interest'' with the applicant. Some 
service-specific rules have adopted alternative definitions of 
``affiliate.''
    8. An ``attributable'' investor for purposes of size determinations 
has been defined differently in the rules for different services; it 
proposes to use a controlling interest threshold to determine whether 
an entity qualifies to bid as a small business. Thus, in calculating 
gross revenues, the Commission would include the gross revenues of the 
controlling principals of the applicants and their affiliates, with the 
term ``control'' including both de jure and de facto control of the 
applicant. The Commission tentatively concludes that this standard, 
which it recently adopted in the IVDS rules, would simplify the size 
attribution rules and still enable small businesses to attract adequate 
financing. It seeks comment on this proposal. The Commission also seeks 
comment on whether it should change its definition of affiliate. Should 
the Commission, for example, amend its definition of affiliate to 
provide an exception for Indian tribes, Alaska Regional or Village 
Corporations, as it did for broadband PCS? Also, the Commission notes 
that, earlier this year, the Small Business Administration amended and 
simplified its regulations governing the small business size standards 
in 13 CFR part 121, including amendment of its definition of 
``affiliate''. The Commission seeks comment on whether it should amend 
its rules to provide a similar ``affiliate'' definition, which would 
include, for example, the following general principles of affiliation: 
(1) Concerns are affiliates of each other when one concern controls or 
has the power to control the other, or a third party or parties 
controls or has power to control both; and (2) factors such as 
ownership, management, previous relationships with or ties to another 
concern, and contractual relationships, will be considered in 
determining whether an affiliation exists.
    9. The current part 1 rules define ``rural telephone company'' (or 
``rural telco'') as any local exchange carrier, including affiliates, 
with 100,000 access lines or fewer. The Commission revised the 
definition of rural telephone company contained in the broadband PCS 
rules upon which the part 1 rule is based, to conform with that 
contained in the Telecommunications Act of 1996 (``1996 Act''). The 
Commission tentatively concludes that the definition of rural telco set 
forth in the 1996 Act should apply to all auctionable services as the 
term is used in section 309(j) of the Communications Act. Thus,

[[Page 13572]]

Sec. 1.2110(b)(3) would be amended so as to define the term ``rural 
telephone company'' as a local exchange carrier operating entity to the 
extent that such entity--(A) provides common carrier service to any 
local exchange carrier study area that does not include either (i) any 
incorporated place of 10,000 inhabitants or more, or any part thereof, 
based on the most recently available population statistics of the 
Bureau of the Census, or (ii) any territory, incorporated or 
unincorporated, included in an urbanized area, as defined by the Bureau 
of the Census as of August 10, 1993; (B) provides telephone exchange 
service, including exchange access, to fewer than 50,000 access lines; 
(C) provides telephone exchange service to any local exchange carrier 
study area with fewer than 100,000 access lines; or (D) has less than 
15 percent of its access lines in communities of more than 50,000 on 
the date of enactment of the Telecommunications Act of 1996. The 
Commission seeks comment on this tentative conclusion.
    10. Since the Commission began conducting spectrum auctions, 
installment payments have been utilized as a means of assisting small 
entities that are likely to have difficulty obtaining adequate private 
financing. Pursuant to the part 1 rules, unless otherwise specified, 
such installment payment plans (1) impose interest based on the rate of 
U.S. Treasury obligations at the time of licensing, plus a possible 
premium (2) allow installment payments for the full license term, (3) 
begin with interest-only payments for the first two years, and (4) 
amortize principal and interest over the remaining term of the license. 
Additionally, winning bidders are required to execute a promissory note 
and security agreement as a condition to participate in the installment 
payment plan.
    11. Changes in the basic framework of the installment payment plans 
have been made in specific services as the Commission has gained 
experience from implementing the rules. In certain services the 
Commission has adopted ``tiered'' installment payment plans, which vary 
in terms of interest rate and payment terms, depending on the size of 
the licensee. While the Commission seeks to continue to offer these 
opportunities to small businesses, and possibly other entities, it 
seeks comment on ways to refine the installment payment plans to 
streamline without reducing their benefit to small businesses. For 
example, it seeks comment on whether the Commission or its designee 
should seek non-resource intensive means to screen applicants applying 
for installment payment plans to determine their credit worthiness, and 
if so, whether all bidders eligible for installment payments should be 
screened before the start of an auction, or only auction winners. If 
the Commission were to adopt such screening, what information or 
standards should serve as criteria for judging a bidder's credit 
worthiness? Further, the Commission seeks comment on whether it should 
offer higher bidding credits in lieu of installment payments for 
winning bidders who qualify. The Commission notes that substituting a 
system of larger bidding credits might eliminate the administrative and 
market concerns associated with installment payments, while nonetheless 
ensuring opportunities for small businesses to participate in auctions. 
On the other hand, however, installment payment plans have been a 
useful tool for small businesses to access capital.
    12. As an alternative to offering higher bidding credits in lieu of 
installment payments, the Commission seeks comment on whether it should 
require larger down payments, such as 30 or 40 percent, to reduce the 
amount of a bidder's high bid that is financed by the federal 
government. Increasing the amount of money a bidder has at stake in the 
event of a default may reduce the likelihood of default and will reduce 
the government's risk in the event of default. The Commission also 
seeks comment on whether it could achieve the same goal of reducing the 
likelihood of default by adopting a requirement that bidders increase 
their upfront payment during the course of the auction once their 
cumulative high bids exceed their upfront payment by some multiple. For 
example, once a bidder's cumulative bids were more than twenty-five 
times its upfront payment, it would be required to deposit additional 
funds with the Commission. The Commission seeks comment on this 
proposal and how it could be implemented, including the appropriate 
multiplier used to trigger the supplemental upfront payment obligation.
    13. In addition, the Commission proposes that the general 
competitive bidding rules be amended to include a schedule of 
installment payment plans for designated entities seeking to 
participate in the provision of spectrum-based services. Defining 
available installment payment plans in the general competitive bidding 
rules would give potential bidders more certainty about the special 
provisions available to small businesses and other entities and promote 
uniformity of regulation. As discussed above, the Commission believes 
that once a small business definition is adopted for a particular 
service, or other entities are identified as qualifying for installment 
payments, eligible businesses should be able to turn to the part 1 
rules to determine the specific terms available to them. The following 
schedule of installment payment plans is a possible approach to 
implementing this concept.

                                                                                                                
----------------------------------------------------------------------------------------------------------------
        Average gross revenues                        Interest rate                        Payment terms        
----------------------------------------------------------------------------------------------------------------
Not to exceed $3 million.............  T-note rate...............................  2 yrs. interest-only         
                                                                                    payments; amortize principal
                                                                                    and interest over remaining 
                                                                                    license term.               
Not to exceed $15 million............  T-note rate + 1.5%........................  2 yrs. interest-only         
                                                                                    payments; amortize principal
                                                                                    and interest over remaining 
                                                                                    license term.               
Not to exceed $40 million............  T-note rate + 2.5%........................  2 yrs. interest-only         
                                                                                    payments; amortize principal
                                                                                    and interest over remaining 
                                                                                    license term.               
Not to exceed $75 million \1\........  T-note rate + 2.5%........................  Amortize principal and       
                                                                                    interest over license term. 
Not to exceed $125 million \1\.......  T-note rate + 3.5%........................  Amortize principal and       
                                                                                    interest over license term. 
----------------------------------------------------------------------------------------------------------------
\1\ These entities have never been defined as small businesses by service-specific rules, but for broadband PCS 
  they may have been eligible for installment payments as entrepreneurs.                                        

    The schedule set forth above is based in general on the plans 
adopted for the most recent auctions and, relying on past auction 
experience, the Commission believes these plans are appropriate. 
However, it recognizes that

[[Page 13573]]

plans with more generous terms were previously adopted for specific 
services. The Commission seeks comment on whether it should incorporate 
a schedule of installment payments into the general auction rules while 
still retaining the authority to modify payment terms on a service-
specific basis. Further, it seeks comment on the appropriate schedule 
of payment terms.
    14. Section 1.2110(e)(3)(i) of the rules indicates that the 
interest rate on installment payments will be the interest rate on 
Treasury obligations with maturities closest to the duration of the 
license term at the time of licensing. More precisely, the interest 
rate is established by using the coupon interest rate for Treasury 
notes with similar maturities, at the most recent preceding Treasury 
auction. The Commission notes that, in the Competitive Bidding Second 
Report and Order, 59 FR 22980 (May 4, 1994), it indicated both that it 
agreed with those commenters that suggested that interest on 
installments should be charged at a rate no higher than the 
government's cost of money and also that the interest rate imposed for 
installment payments should be equal to the rate for U.S. Treasury 
obligations of maturity equal to the license term. The Commission 
recognizes that determining the interest rate for installment payment 
plans pursuant to Sec. 1.2110(e)(3)(i) may not always reflect the 
government's cost of money but it provides an objective benchmark for 
the interest rate determination. The Commission believes that it would 
be beneficial to licensees for it to more clearly identify in the rules 
how the interest rate would be determined for all installment payment 
plans. Therefore, it proposes to codify the existing policy by 
specifying that the interest rate for installment payments will be 
determined by taking the coupon rate of interest offered in the most 
recent Treasury auction preceding the close of the Commission's 
auction. The Commission seeks comment on this proposal. Further, it 
seeks comment on whether it should adopt some other basis for computing 
interest. For example, should the Commission establish more market-
based interest rates with a cost of funds component and a premium for 
credit risk? If so, it asks commenters to discuss how it should 
determine the appropriate interest premium.
    15. Where the Commission uses installment payment plans, it 
proposes to set the interest rate for such payment plans on the date 
that the Public Notice is issued announcing the close of the auction 
and the winning bidders, based on rates established in the most recent 
Treasury auction with obligation of the appropriate term. Currently, 
Sec. 1.2110(e)(3)(i) of the Commission's general competitive bidding 
rules requires that the Commission impose interest based on the rate of 
U.S. Treasury obligations at the time of licensing. The Commission 
tentatively concludes, however, that establishing the interest rate on 
the day that the Public Notice is released announcing the close of the 
auction is the most appropriate time for both licensees and the 
Commission. The close of the auction represents the most clearly 
identifiable time when an obligation to the Commission and the United 
States Treasury is established. Establishing the interest rate in this 
way also provides a uniform date on which the interest rate for all 
prospective licensees within a particular service is established, 
regardless of petitions to deny or other delays that may vary among 
bidders. In addition, the Commission believes that establishing the 
interest rate at a date earlier than the date of licensing would assist 
bidders in efforts to obtain financing, as interest expense would be 
calculable from a specific known date. Furthermore, the Commission 
believes that establishing the interest rate as it proposes would 
reduce the interest rate risk to the bidder and mitigate this risk to 
the capital investor. Establishing the interest rate earlier than the 
point of licensing would also permit the licensee to receive, review, 
and return the necessary note and security agreement earlier, which 
would also speed the licensing process. This, in turn, should hasten 
the development of service to the marketplace. Alternatively, the 
Commission could establish the interest rate for the installment 
payment plan in the Public Notice announcing the start of the auction, 
with the rate based on the most current Treasury rate on that date. 
This would enable both bidders and potential capital investors to 
better assess a bidder's prospective financial obligations during the 
auction. The Commission seeks comment on each of its proposals, 
tentative conclusions, and alternatives.
    16. Under the current general competitive bidding rules, the 
Commission may award bidding credits (i.e., payment discounts) to 
eligible designated entities. These general rules also provide that 
service-specific rules will specify the designated entities eligible 
for bidding credits, the licenses for which bidding credits are 
available, the amounts of bidding credits, and other procedures. 
Accordingly, the Commission has adopted separate rules governing 
bidding credits for various auctionable services.
    17. As with installment payments, the Commission believes that the 
general competitive bidding rules should be amended so that the levels 
of available bidding credits are defined, and are uniform for all 
auctionable services. The Commission believes such an approach will be 
beneficial because potential bidders will have more information well in 
advance of the auction than they currently do about how such levels 
will be set. It believes that, once a small business definition is 
adopted for a particular service, eligible businesses should be able to 
refer to the part 1 rules to determine the level of bidding credit 
available to them. The following schedule is a possible approach to 
implementing this concept.

------------------------------------------------------------------------
                                                                Bidding 
                Average annual gross revenues                   credits 
                                                               (percent)
------------------------------------------------------------------------
Not to exceed $3 million.....................................         25
Not to exceed $15 million....................................         15
Not to exceed $40 million....................................         10
------------------------------------------------------------------------

    The Commission recognizes that these credits may differ from those 
previously adopted for specific services. Based on past auction 
experience, however, the Commission believes that the approach taken 
here would provide adequate opportunities for small businesses of 
varying sizes to participate in spectrum auctions. In addition, the 
Commission believes that providing slightly less generous bidding 
credits for larger businesses (e.g., those businesses with gross 
revenues not exceeding $40 million) would more specifically tailor the 
amount of the credit to the needs of the particular applicant. The 
Commission seeks comment on this schedule, and it also asks interested 
parties to suggest alternatives. For example, does the demand for 
capital to implement certain services justify including businesses with 
average annual gross revenues exceeding $40 million on this schedule? 
The Commission recognizes that it has suggested that it might be 
appropriate in some cases to provide larger bidding credits in lieu of 
installment payments. The Commission is aware that in developing their 
auction strategy, bidders make calculations about the net present value 
of their bids and factor in their ability to obtain financing. 
Therefore, the same net effect can be achieved by giving either higher 
bidding credits or more generous installment payment terms. If the 
Commission limited the use of installment payments,

[[Page 13574]]

how should that action affect levels of bidding credits?
    18. Under the general competitive bidding rules, a licensee seeking 
Commission approval of a transfer of control or an assignment of a 
license acquired through the competitive bidding process utilizing 
installment payments is required to pay the remaining principal balance 
as a condition of the transfer. No payment is required, however, when 
the proposed transferee or assignee is qualified to obtain the same 
installment financing and assumes the applicant's installment payment 
obligations. Many of the service-specific auction rules include similar 
provisions. However, some service-specific unjust enrichment provisions 
for installment payments contain certain variations from the general 
rule set forth in Part 1. The broadband PCS unjust enrichment rule, for 
example, specifies that applicants seeking to assign or transfer 
control of a license to an entity not meeting the eligibility standards 
for installment payments must pay not only unpaid principal as a 
condition of Commission approval but also any unpaid interest accrued 
through the date of assignment or transfer. This rule also provides 
that if a licensee utilizing installment financing seeks to make any 
change in its ownership structure that would result in the loss of 
eligibility for installment payments, it must pay the unpaid principal 
and accrued interest as a condition of Commission approval of the 
change. Finally, in recognition of the tiered installment payment plans 
offered to broadband PCS licensees, the rule provides that if a 
licensee seeks to make any change in ownership that would result in the 
licensee qualifying for a less favorable installment plan, it must seek 
Commission approval and adjust its payment plan to reflect its new 
eligibility status. A licensee, under this rule, may not switch its 
payment plan to a more favorable plan.
    19. Under the Commission's general competitive bidding rules, a 
licensee seeking Commission approval of a transfer of control or an 
assignment of a license acquired through the competitive bidding 
process utilizing bidding credits, or proposing to take any other 
action relating to ownership or control that will result in loss of 
eligibility for such bidding credits, is required to pay the sum of the 
amount of the bidding credit plus interest as a condition of FCC 
approval. Under the broadband PCS rules, if, within the original term, 
a licensee applies to assign or transfer control of a license to an 
entity that is eligible for a lower bidding credit, the difference 
between the bidding credit obtained by the assigning party and the 
bidding credit for which the acquiring party would qualify must be paid 
to the United States Treasury as a condition of approval of the 
assignment or transfer.
    20. The Commission proposes to amend the general unjust enrichment 
rules to conform them to the broadband PCS rules. It believes that 
these rules are preferable to the current general unjust enrichment 
rules because they provide greater specificity about funds due at the 
time of transfer or assignment and specifically address changes in 
ownership that would result in loss of eligibility for installment 
payments, which the current general rules do not address. The broadband 
PCS rules also address assignments and transfers between entities 
qualifying for different tiers of installment payments or bidding 
credits, thus supplying clearer guidance for auctions in which tiered 
installment payment plans or bidding credits are provided. The 
Commission seeks comment on this proposal. Further, it seeks comment on 
whether it should adopt an unjust enrichment provision that provides a 
scale of decreasing payment liability based on the number of years a 
license is held as it has recently done for other services. For 
example, should the Commission adopt a rule that provides that a 
business that holds a license that it obtained with a bidding credit 
must pay back 60 percent of its bidding credit if it transfers the 
license after five years; 50 percent after eight years; 40 percent 
after nine years; and 20 percent after ten years? The Commission also 
solicits comment on unjust enrichment rules as they apply to 
partitioning and disaggregation. If it decides to adopt partitioning 
and disaggregation for various services, how should the unjust 
enrichment rules apply when the partitioner or disaggregator is the 
recipient of a bidding credit or is paying on an installment payment 
plan? Should the Commission adopt for all auctionable services the same 
provisions that it adopted for broadband PCS?
    21. In recent auctions, the Commission has allowed applicants to 
file their applications either manually or electronically. The 
Commission believes that requiring all applications to be filed 
electronically is in the best interest of auction participants as well 
as members of the public interested in monitoring Commission auctions.
    22. The Commission therefore tentatively concludes to amend 
Secs. 1.2105(a) and 1.2107(c) of the rules to require that all short-
form and long-form applications be filed electronically beginning 
January 1, 1998. The Commission recognizes that there is a need for a 
period of time before a comprehensive electronic filing requirement 
becomes effective in order for bidders to prepare and be completely 
comfortable with this process. It believes that the effective date 
proposed here will provide potential bidders with adequate time in 
which to adapt to electronic filing requirements. The Commission seeks 
comment on this tentative conclusion.
    23. Section 1.2105(b) of the Commission's rules addresses 
modifications and amendments to FCC Form 175. Specifically, 
Sec. 1.2105(b)(2) provides that bidders may make minor changes or 
correct minor errors in the FCC Form 175 application, but major 
amendments may not be submitted after the initial application deadline. 
This section further provides that the Commission will classify all 
amendments as major or minor pursuant to service-specific rules. The 
Commission proposes to amend the general auction rules to define major 
amendments to FCC Form 175 uniformly for all auctionable services. It 
proposes at a minimum to consider any change in ownership that 
constitutes a change in control to be a major amendment. It also 
proposes to consider application amendments that show a change in an 
applicant's size which would affect its eligibility for small business 
provisions to be a major amendment. The Commission also seeks comment 
on which other kinds of changes should be deemed major, and which 
should be deemed minor. For example, how should it treat changes to the 
licenses selected in simultaneous multiple round auctions? In previous 
auctions, applicants have claimed that they made mistakes in their 
license selection and have requested that the Commission allow them to 
add or delete license selections during the resubmission period. While 
the Commission has generally refused to grant these requests in order 
to prevent collusive conduct or gaming that would reduce the 
competitiveness of the auction, there may be some circumstances in 
which the competitiveness of the auction might be enhanced by allowing 
applicants to add licenses to their FCC Form 175 applications. The 
Commission therefore ask commenters to consider whether an amendment to 
add licenses should be permissible as a minor amendment. If so, it also 
asks whether such an amendment should be permitted only until the 
deadline for submitting upfront payments, because after that point the 
risks of gaming in the auction

[[Page 13575]]

increase due to the availability of information concerning each 
bidder's eligibility. For example, should an applicant be permitted to 
add a license designation to its short-form application only if that 
license already has been designated by two or more applicants? The 
Commission seeks comment on each of these proposals.
    24. Currently, the general competitive bidding rules do not set 
forth any ownership disclosure requirements for auction applicants on 
their short-form applications. Service-specific rules, however, require 
varying degrees of specific ownership information from applicants. For 
example, both the narrowband PCS and broadband PCS rules require 
detailed ownership disclosure from all auction applicants. These rules 
also state additional requirements for applicants claiming designated 
entity status. On both the short-and long-form applications for 
narrowband PCS, applicants must submit a list of (1) any business five 
percent or more whose stock, warrants, options, or debt securities are 
owned by the applicant, (2) any business which holds a five percent or 
more interest in the applicant or any business in which a five percent 
or more interest is held by another company which holds a five percent 
interest in the applicant, (3) entities holding a five percent or more 
interest in the applicant, and (4) partners in a partnership. Short-
form applicants claiming designated entity status also are required to 
list all control group members and provide a calculation of gross 
revenues and personal net worth. Although the broadband PCS 
requirements are very similar to those for narrowband PCS, the 
Commission has recently amended the broadband PCS application 
requirements to make them less burdensome on applicants. Thus, 
broadband PCS applicants are required to disclose on both short-form 
and long-form applications a list of (1) any business, holding or 
applying for CMRS or PMRS licenses, five percent or more of whose 
stock, warrants, options or debt securities are owned by the applicant, 
(2) any party which holds a five percent or more interest in the 
applicant, or any entity holding or applying for CMRS or PMRS licenses 
in which a five percent or more interest is held by another party which 
holds a five percent or more interest in the applicant, (3) any person 
holding five percent or more of each class of stock, warrants, options, 
or debt securities, and (4) in the case of partnerships, the name and 
address of each partner. Broadband PCS applicants that claim designated 
entity status must also identify control group members and provide net 
asset and gross revenues figures. This information was necessary at the 
short-form stage for the C and F blocks because participation in these 
blocks was limited to entities below a net asset and gross revenue 
threshold.
    25. The Commission continues to believe that detailed ownership 
information is necessary to ensure that applicants claiming designated 
entity status in fact qualify for such status, and to ensure compliance 
with spectrum caps and other ownership limits. Disclosure of ownership 
information also aids bidders by providing them with information about 
their auction competitors and alerting them to entities subject to the 
anti-collusion rules. A standard disclosure requirement, however, would 
avoid the variation and possible inconsistency found in the current 
service-specific ownership disclosure requirement. Thus, the Commission 
seeks comment on whether it should adopt standard ownership disclosure 
requirements for all auctionable services that are similar to the 
current rules for broadband PCS. It also seeks comment on what 
ownership information should be required. Finally, the Commission asks 
commenters to address whether ownership disclosure should vary 
depending on whether an applicant is applying for special provisions, 
such as bidding credits or installment payments.
    26. In addition, the Commission also proposes to adopt a uniform 
reporting requirement for all applicants claiming designated entity 
status. Specifically, it proposes to adopt a reporting requirement 
similar to that in the 900 MHz SMR rules. That rule, unlike the 
broadband PCS rule, focuses on affiliates and their gross revenues 
rather than more complex control group equity structures. In keeping 
with its proposal to adopt the simpler controlling principals and 
affiliates test, the Commission proposes an analogous reporting 
requirement. Therefore, it proposes that applicants claiming small 
business status be required to disclose on their short-form application 
the names of each controlling principal and affiliate and gross 
revenues calculations for each. On their long-form applications, they 
would be required to disclose any additional gross revenues 
calculations, any agreements that support small business status, and 
any investor protection agreements. The Commission seeks comment on 
this proposal.
    27. Currently, the Commission's ownership disclosure rules require 
applicants to file specific ownership information, in conjunction with 
their FCC Form 175, prior to each auction. Similarly, at the close of 
each auction, winning bidders are required to file ownership 
information on each long-form application.
    28. The Commission believes that by requiring these ownership 
disclosure filings, it ensures that it receives all the information 
necessary to evaluate an applicant's qualifications. The Commission 
notes, however, that these requirements could result in duplicative 
filings. In order to streamline the application procedure at both the 
short-form and long-form stage, the Commission requests comment on 
whether it should create a central database of licensee and bidder 
data, which would allow bidders to avoid repeating ownership 
information in each application in each auction. The Commission 
tentatively concludes that applicants should be able to file ownership 
information to apply for the first auction in which they participate 
and that this information should then be stored in a central database 
which subsequently would be updated each time applicants participate in 
another auction. After applying for its first auction, an applicant 
filing for a subsequent auction would either update the ownership 
information in the database, or rely on the information in the database 
and certify that there have been no changes. The Commission believes 
this approach would benefit auction applicants by reducing the time 
spent preparing auction applications, and it would benefit the 
Commission by eliminating the need to review and analyze duplicative 
filings. The Commission seeks comment on this approach to ownership 
disclosure.
    29. Under the broadband PCS rules, the Commission has reserved the 
right to conduct random audits of applicants and licensees in order to 
verify information provided regarding their eligibility for certain 
special provisions. Such entities certify their consent to audits on 
their short-form applications. The Commission proposes to explicitly 
reserve this right for all auctionable services and seeks comment on 
this proposal.
    30. Section 309(j)(8)(C) of the Communications Act as amended by 
the Telecommunications Act of 1996, requires that any deposits the 
Commission may require for the qualification of any person to bid in an 
auction shall be deposited into an interest bearing account. The 
Communications Act further requires that within 45 days of the 
auction's conclusion, the deposits of successful bidders shall be paid 
to the Treasury,

[[Page 13576]]

the deposits of unsuccessful bidders shall be returned, and all accrued 
interest shall be transferred to the Telecommunications Development 
Fund. Prior to the enactment of this provision, auction deposits were 
submitted to a non-interest bearing account with the Department of 
Treasury. Bidders who completely withdrew prior to the close of the 
auction could, upon written request, receive a refund of their upfront 
payments prior to the close of the auction.
    31. It is unclear whether Congress intended, by enacting this new 
law, to require the Commission to change its practice of refunding 
upfront payments to bidders who withdraw during the course of an 
auction. The Commission believes that its current practice of returning 
the upfront payments of bidders who have completely withdrawn prior to 
the conclusion of competitive bidding is in the public interest as it 
prevents unnecessary encumbrances on the funds of auction bidders, many 
of whom may be small businesses, after they have withdrawn from the 
auction. The Commission seeks comment on this practice and whether it 
is consistent with the Communications Act.
    32. The Commission determined in the Competitive Bidding Second 
Report and Order that, upon the conclusion of the auction, a bidder 
must tender a significant and non-refundable down payment to the 
Commission over and above its upfront payment in order to provide 
further assurance that the winning bidder will be able to pay the full 
amount of its winning bid. The Commission thus required that, within 
five business days after being notified that it is a high bidder on a 
particular license, a high bidder must submit to the Commission 
additional funds as are necessary to bring its total deposits up to 20 
percent of its high bid(s).
    33. In the Order accompanying this NPRM, the Commission modified 
the due date for down payments to ten business days after the issuance 
of a Public Notice announcing winning bidders. In this NPRM, the 
Commission proposes to retain discretion to determine the down payment 
amount required for each service and delegate authority to the Bureau 
to announce this amount in a Public Notice to be issued prior to the 
start of the auction. In exercising this authority, as discussed above, 
the Bureau will seek input from the public. The Commission continues to 
believe that a substantial down payment is needed to ensure that 
licensees have the financial capability to attract the capital 
necessary to deploy and operate their systems, and to protect against 
default. The Commission believes that giving the Bureau the discretion 
to determine the level of down payments for each auction would be the 
best way to ensure that such levels remain appropriate for developing 
and evolving industries. The Commission seeks comment on this proposal. 
It also seeks comment on whether the level of down payments which it 
has used in the past should be raised for some services.
    34. Section 1.2109(a) of the Commission's rules provides that 
auction winners not eligible for installment payments are generally 
required to make final payment on their license(s) within a certain 
time following award of the license(s). Section 1.2110(e) of the 
Commission's rules provides that all winning bidders eligible for 
installment payments are required to submit a second down payment 
within a certain time of the license grant. These payment deadlines are 
announced by public notice when the Commission has granted or is 
prepared to grant the license(s). Where a winning bidder fails to make 
its final auction payment for the balance of its winning bid or fails 
to make the second down payment in a timely manner, it is considered in 
default on its license(s) and subject to the applicable default 
payments.
    35. The Commission continues to believe that the strict enforcement 
of payment deadlines preserves the integrity of the auction and 
licensing process by ensuring that applicants have the necessary 
financial qualifications. In this connection, the Commission believes 
that the bona fide ability to pay demonstrated by a timely first down 
payment is essential to a fair and efficient auction process and, thus, 
it does not propose to modify the approach of requiring timely 
submission of first down payments. The Commission nonetheless 
recognizes that applicants may encounter certain difficulties when 
trying to arrange financing and make substantial payments under strict 
deadlines. In circumstances which may warrant favorable consideration 
of a waiver request or an extension of the payment date, it must also 
evaluate the fairness to other licensees who made their payment in a 
timely fashion. Accordingly, the Commission proposes to allow winning 
bidders to make their final payments or second down payments within a 
short period after the applicable deadline, provided that they also pay 
a late fee. The Commission believes that, by committing substantial 
capital to their license acquisition in the form of an initial down 
payment, winning bidders have demonstrated a bona fide interest in 
becoming a licensee, but have also incurred a substantial debt to the 
federal government. The Commission, therefore, seeks comment on the 
appropriate time period to allow late second down payments and final 
payments. It believes that the late payment period should be short 
(e.g., no longer than 10 business days). The Commission tentatively 
concludes that, if a winning bidder misses the final payment or second 
down payment deadline and also fails to remit the required payment 
(plus the applicable late fee) by the end of the late payment period, 
it would be declared in default and subject to the applicable default 
payments. The Commission seeks comment on this tentative conclusion.
    36. Additionally, the Commission seeks comment on the appropriate 
fee to impose for late payment. Because it believes that the late 
payment fee should be large enough to deter winning bidders from making 
late payments and yet small enough so as not to be punitive, it 
tentatively concludes that a late payment of five percent of the amount 
due is consistent with general commercial practice and provides some 
recompense to the federal government for the delay and administrative 
or other costs incurred. The Commission seeks comment on this proposal 
and asks that commenters proposing alternative late payment fee(s) 
provide a rationale for the alternative fee amount(s).
    37. This proposal to allow late payments is limited to payments 
owed by winning bidders that have had their licenses conditionally 
granted or where the license grant is imminent. As indicated above, the 
Commission does not propose to adopt a late payment period for initial 
down payments that are due soon after the close of the auction. It 
believes it is reasonable to expect that winning bidders timely remit 
their initial down payments, given that is their first opportunity to 
demonstrate to the Commission their ability to make payments towards 
the licenses of interest to them. Further, if a winning bidder defaults 
on its initial down payment on a license, the Commission can take 
action under Sec. 1.2109(b) relatively soon after the auction has 
closed, by, for example, re-auctioning the license or offering it to 
the other highest bidders (in descending order) at their final bids. 
Similarly, the Commission does not propose to allow any late submission 
of upfront payments. Allowing late submission of upfront payments would 
slow down the

[[Page 13577]]

licensing process by delaying the start of an auction.
    38. Under the current rules, winning bidders that are designated 
entities are not required to pay their second down payment until 
petitions to deny filed against them are dismissed or denied. In the 
interim, designated entity winning bidders for the same auction with no 
petitions filed against them are required to submit their second down 
payments earlier because their licenses are ready for grant.
    39. The Commission seeks comment on whether it should require all 
designated entities that win licenses to make their second down 
payments at the same time. If so, one way to implement this would be 
for winning bidders who have petitions to deny pending against them to 
submit their second down payments to the Commission to be deposited 
into an escrow account. If the petitions to deny are granted, the 
bidder would be refunded the amount of the second down payment subject 
to any default payments owed the Commission. If the petitions to deny 
are dismissed or denied, the funds would be transferred from the escrow 
account and applied to the balance owed by the licensee. This procedure 
would have the effect of ensuring that all designated entities pay 
their down payments in a uniform fashion, thus, reducing any potential 
inequities that could result from differing payment dates. It would 
also avoid requiring a bidder with petitioned and non-petitioned 
licenses to make several payments to the Commission. The Commission 
seeks comment, however, on whether this procedure would affect the 
ability of bidders that are subject to petitions to deny to access 
capital to make their down payments. The Commission also seeks comment 
on whether all non-designated entities should be required to make 
payment in full at the same time for the same reasons discussed in 
connection with designated entities.
    40. Section 1.2104(g) of the rules provides that when a bidder 
withdraws, defaults, or is otherwise disqualified from a simultaneous 
multiple round auction, upfront and/or down payment amounts that the 
bidder has on deposit with the Commission will be applied first to the 
bid withdrawal and default payments owed the Commission. This rule has 
been interpreted to encompass upfront and/or down payment funds a 
bidder has on deposit for licenses won at the same auction. The 
Commission proposes to delete the language ``simultaneous multiple 
round'' from Sec. 1.2104(g) because it believes that it should apply to 
other auction designs with equal force as it does to a simultaneous 
multiple round auction. The Commission believes strict rules regarding 
default payments will discourage insincere bidding, maintain the 
integrity of the auction and ensure that licenses end up in the hands 
of those parties that value them the most and have the financial 
capacity to provide service. It seeks comment on this proposal.
    41. In the Competitive Bidding Fifth Report and Order, 59 FR 43062 
(August 22, 1994), the Commission provided that, where the default 
payment cannot be determined at the time of default by a broadband PCS 
licensee (e.g. because the license has not yet been reauctioned), the 
Commission can obtain a deposit on the default payment to be held on 
deposit until such time as the final default obligation can be 
determined. This deposit is held by the Commission until the final 
default payment can be established and is paid. The purpose of this 
provision is to maintain the integrity of the auction by discouraging 
defaults on the part of bidders, encouraging bidders to make secondary 
or back-up financial arrangements, and ensuring that default payments 
are made in a timely manner. The Commission seeks comment on a proposal 
to modify the rules to provide for a similar default deposit for all 
auctionable services of at least three percent (3%) of the defaulted 
bid amount.
    42. For the broadband PCS F block auction, the Commission amended 
the terms of the installment payment plans to provide for late payment 
fees. Thus, when licensees are late in their scheduled installment 
payments, the Commission will charge a late payment fee equal to five 
percent (5%) of the amount of the past due payment. The Commission 
instituted this fee because it concluded that, without it, licensees 
may not have adequate financial incentives to make installment payments 
on time and may attempt to maximize their cash flow at the government's 
expense by paying late.
    43. The Commission seeks comment on whether it should adopt, for 
all auctionable services, a late payment fee on any installment payment 
that is overdue. The late fee could be set, for example, at a rate that 
is equal to five percent (5%) of the overdue payment. Such payment 
would accrue on the next business day following the payment due date 
and would be payable with the next quarterly installment payment 
obligation. This fee would be assessed for each quarterly payment 
submitted late. Payments would be applied in the following order: late 
charges, interest charges, principal payments. Thus, a licensee who 
makes payment after the due date but does not make payment sufficient 
to pay the late fee, interest, and principal, will be deemed to have 
failed to make full payment and will be subject to license cancellation 
pursuant to the Commission's rules. The Commission tentatively 
concludes that such a late payment provision is necessary to ensure 
that licensees have an adequate financial incentive to make installment 
payments on time. It seeks comment on this tentative conclusion and 
notes that licensees would continue to have 90 days before a payment is 
deemed delinquent but a late payment fee would be assessed during this 
period.
    44. Section 1.2110(e)(4)(ii) of the Commission's rules provides 
that interest that accrues during a grace period will be amortized over 
the remaining term of the license. Amortizing interest in this way has 
the effect of changing the amount of all future payments and requiring 
the Commission, or its designee, to generate a new payment schedule for 
the license. Changing the amount of the installment payment has, in 
turn, created uncertainty about the interest schedule, and increased 
the administrative burden by requiring formulation of a new 
amortization schedule.
    45. Section 1.2110(e)(4)(ii) also states that in considering 
whether to grant a request for a grace period, the Commission may 
consider, among other things, the licensee's payment history, including 
whether the licensee has defaulted before, how far into the license 
term the default occurs, the reasons for default, whether the licensee 
has met construction build-out requirements, the licensee's financial 
condition, and whether the licensee is seeking a buyer under an 
authorized distress sale policy. Under this rule, licensees are 
required to come before the Commission with a filing as well as 
financial information such as an income statement or balance sheet, in 
the case of financial distress, to provide the necessary information 
for the Commission to make its ruling. Licensees are then required to 
wait for a ruling by the Commission before knowing whether a grace 
period has been granted or denied. This could place licensees in a 
position of uncertainty if they are seeking to restructure other debt 
contingent upon the results of the Commission's grace period ruling.
    46. In order to avoid the potential problems associated with 
changing the amount of installment payments, the Commission proposes to 
amend

[[Page 13578]]

Sec. 1.2110(e)(4)(ii) to require all current licensees who avail 
themselves of the grace period to pay all fees, all interest accrued 
during the grace period, and the appropriate scheduled payment with the 
first payment made following the conclusion of the grace period. It 
seeks comment on this proposal.
    47. Further, to simplify the grace period procedures, the 
Commission proposes to revise the method by which grace periods are 
provided. The Commission or its designee may not have the necessary 
resources to evaluate a licensee's financial condition, business plans, 
and capital structure proposals. Therefore, instead of considering 
grace period requests, the Commission could institute the following 
system: If a licensee did not make payment on an installment obligation 
within 90 days of its due date, then the licensee would automatically 
receive an additional 90 days to make that payment contingent upon 
receipt of the 5 percent late payment fee proposed above plus an 
additional late payment fee of 10 percent. The late payment fee that 
the Commission proposes here is greater than the 5 percent late payment 
fee that it proposes for non-grace-period late installment payments 
because it envisions the grace period as an extraordinary remedy and 
wish to encourage licensee to seek private market solutions to their 
capital problems before the payment due date or, at a minimum, within 
90 days of the due date. Under this proposal licensees would not be 
required to submit a filing to receive a grace period; however, 
licensees would be expected to resume payments after the 90 day grace 
period is over. This approach would also be consistent with the 
standard commercial practice of establishing late payment fees and 
developing financial incentives for licensees to resolve capital issues 
before payment due dates. Payments from the licensee would be applied 
to late fees, interest, and principal, in that order. Any licensee that 
did not make full payment of all amounts, including a total late 
payment fee of 15 percent, within 180 days of the payment due date 
would have its license automatically canceled as provided in 
Sec. 1.2110(e)(4)(ii). The Commission seeks comment on this method of 
providing for an automatic grace period.
    48. The Commission also seeks comment on whether licensees that 
default on installment payment obligations should be subject to the 
default payment provisions outlined in Sec. 1.2104(g), i.e., the 
difference between the defaulting winner's bid and the subsequent 
winning bid plus 3 percent of the lesser of these amounts. Sections 
1.2110(e)(1) and 1.2110(e)(2) provide that applicants eligible for 
installment payments will be liable for such a payment if they fail to 
remit either their initial or final down payment. Section 
1.2110(e)(4)(iii) provides that following the expiration of any grace 
period without successful resumption of payment, or upon denial of a 
grace period request, or upon default with no such request submitted, 
the license of an entity paying on an installment basis will be 
canceled automatically. This section does not state, however, that 
under these circumstances the licensee will be liable for the default 
payment set forth in Sec. 1.2104(g). Furthermore, the Commission has 
been asked to address the issue of cross default in the context of 
installment payments. A cross-default provision would specify that if a 
licensee defaults on one installment payment loan, it would also 
default on any other installment payment loans it holds. These 
provisions are standard in credit-related agreements.
    49. The Commission tentatively concludes that a licensee that makes 
the necessary down payments but defaults on installment payments should 
not be exempt from the default payment provisions of Sec. 1.2104(g). 
Licensees that default at any point in the auction process, either 
before licenses are issued or during the installment payment period, 
reduce the efficiency of the licensing process. A default, regardless 
of when it occurs, makes it necessary for the Commission to incur the 
costs of reauctioning the license, and the default delays the 
deployment or continuation of service in the affected market. The 
Commission believes that imposing the default payment of Sec. 1.2104(g) 
on all defaulting licensees would serve to discourage defaults and 
encourage licensees to find private market solutions for default 
situations in addition to covering the cost the government must incur 
to reauction the license. The Commission seeks comment on this 
tentative conclusion and on the appropriate method for calculating 
default payments when defaults occur during the license term.
    50. The Commission seeks comment on whether it should cross default 
its installment payment plan loans with other installment payment plan 
loans to the same licensee. If adopted, should a cross default 
provision apply across services? For example, if a licensee, with both 
SMR and broadband PCS licenses, defaults on one of its PCS licenses, 
should the Commission consider pursuing default remedies against all 
PCS and SMR licenses? Instead, should the Commission pursue default 
remedies against the single license only? What factors should influence 
its decision to pursue cross-defaults? Should cross-defaults be applied 
automatically or on a case-by-case basis? The Commission also seeks 
comment, in general, on what remedies are appropriate when licensees 
default.
    51. Congress has directed the Commission to ``design and test 
multiple alternative methodologies for auction designs.'' The 
Commission is interested in reducing the length of the auctions without 
sacrificing the economic efficiency of the assignment process. It seeks 
comment, in general, on how it can speed the auctions (and in 
particular the simultaneous multiple round auctions). For example, how 
could the current procedural rules for simultaneous multiple round 
auctions be modified to meet this objective, or what new designs might 
be used to efficiently allocate numerous licenses?
    52. The Commission believes that one way complex auctions of 
multiple licenses could proceed more quickly would be to modify the 
current simultaneous multiple round auction to allow bidding on a 
continuous basis within a combined bid submission/bid withdrawal 
period. This would give bidders immediate feedback on new high bids, 
withdrawn high bids and minimum accepted bids, and provide them with 
the opportunity to move the auction along more quickly. Under the 
current simultaneous multiple round auction rules, each round of 
bidding contains a discrete bid submission period and a bid withdrawal 
period. The rules permit bidders to place bids once within the 
submission period of the round on licenses that they are eligible to 
bid on, and they may withdraw high bids only during the bid withdrawal 
period. This requires bidders to wait until the end of the round to 
determine their status. An open, continuous bidding round--in which 
bidders would know when their bid has been exceeded and would be free 
to bid again--could reduce the delay inherent in the current design. 
Therefore, the Commission proposes to amend the general rules to 
provide for such ``real time'' bidding as another design feature for 
electronic multiple round auctions.
    53. The Commission recognizes, however, that it may be difficult 
for bidders to react quickly enough to ensure that in each bidding 
round they make new high bids on the necessary percentage of their 
bidding eligibility to meet their activity requirement. Therefore, it 
proposes that after each fixed period of real time bidding (when

[[Page 13579]]

only standing high bids from the previous round and new high bids from 
the current round count in determining the bidder's activity level) the 
Commission would open a discrete closed bidding period, when bidders 
would be able to submit valid bids (bids that meet or exceed the 
minimum accepted bid) at the end of the ``real time'' bidding to ensure 
that they have the opportunity to meet their activity requirements for 
the round. Following the discrete closed bidding period, the Commission 
would post the final round results for the period and make all bids 
available to the public. By allowing a discrete period of time for 
bidders to make valid bids at the end of the round, the Commission 
would reduce the risks associated with real time electronic bidding.
    54. Because ``real time'' auctions are a variation of the 
simultaneous multiple round auction design established in the rules, 
the Commission tentatively concludes that many of the same procedures 
should apply. These include: Upfront payments to determine eligibility, 
activity requirements that apply to each round, minimum bid increments, 
and a stopping rule. However, the Commission believes that separate 
rules would be required on certain issues. The Commission seeks comment 
on issues that arise when the bid submission and bid withdrawal periods 
are combined, such as how withdrawn bids should be treated when 
calculating current activity. For example, whether a bid that is placed 
and withdrawn in one round should count as activity, and whether a 
withdrawn bid will negate the status of that bid as activity in the 
current round as well as the status as standing high bid.
    55. In addition, the Commission seeks comment on the appropriate 
length for the real time bidding rounds. It seeks comment on what 
measures it can take to assure bidders that they will have enough time 
to determine their bidding strategies with ``real time'' bidding. In 
particular, the Commission seeks comment on the impact of ``real time'' 
bidding on small businesses, generally, and particularly on their 
ability to process bid information during the course of a single round.
    56. Currently, Sec. 1.2104(d) of the rules states that the 
Commission may establish suggested minimum opening bids. In the 
Competitive Bidding Second Report and Order, the Commission noted that 
if only two or three applicants applied to bid for a valuable license, 
it might set a reservation price. A reservation price is a price below 
which a license subject to auction will not be awarded. The Commission 
provided the option of setting a reservation price in order to prevent 
a license from being awarded under circumstances where there would be 
little competition among bidders and significant incentives to collude.
    57. The Commission proposes to amend Sec. 1.2104 to specify that it 
may establish minimum opening bids, rather than suggested minimum 
opening bids. Such a rule has been adopted in service-specific rules. 
The Commission proposes to amend the general competitive bidding rules 
to allow it to establish a minimum opening bid because it believes that 
a minimum opening bid can serve some of the same purposes as a 
reservation price. A minimum opening bid increases the likelihood that 
the public receives fair market value for the spectrum being auctioned 
and can also help an auction move more swiftly. The Commission seeks 
comment on this proposal.
    58. A bid increment is the amount or percentage by which a bid must 
be raised above the previous round's high bid in order to be accepted 
as a valid bid in the current round. The Commission determined in the 
Competitive Bidding Second Report and Order that it would reserve the 
right to specify minimum bid increments in dollar terms as well as in 
percentage terms. The Commission reasoned that imposing a minimum bid 
increment speeds the progress of the auction and, along with activity 
and stopping rules, helps to ensure that the auction comes to closure 
within a reasonable period of time. It did not reserve the discretion 
to specify maximum bid increments.
    59. Whereas the minimum bid increment speeds the auction process, a 
maximum bid increment could prevent bidders from placing bids that are 
significantly higher than the minimum acceptable bid. This type of 
bidding is known as ``jump bidding.'' Some theoretical literature 
suggests that bidders could use jump bidding to manipulate the auction 
process and potentially reduce efficiency of the auction. Jump bidding 
complicates bidding strategy and denies bidders information about the 
number of bidders who would be willing to pay prices between the 
minimum acceptable bid and the jump bid. In the absence of information 
about the bidders who would be willing to participate at intermediate 
bids, other bidders might feel compelled to shade their bids more than 
they otherwise would. This behavior is an attempt to avoid the 
``winner's curse,''--the phenomenon of a bidder winning only because he 
or she has overestimated the value of the license. A general principle 
of auction theory has it that the auction mechanisms which perform the 
best are those which are able to induce bidders to reveal the most 
information. To the extent that jump bids enable bidders to conceal 
information, the phenomenon moves the process away from the 
informational advantages of an ascending bid (multiple round) auction 
in the direction of a first-price sealed bid (single round) auction. 
The Commission seeks comment on whether it should retain the discretion 
to employ a maximum bid increment if it finds that jump bidding is 
impairing the auction process.
    60. Under the current rules, if a high bid is withdrawn prior to 
the close of a simultaneous multiple round auction, the Commission will 
impose a payment equal to the difference between the withdrawn bid and 
the amount of the winning bid the next time the license is offered by 
the Commission. No withdrawal payment is assessed if the subsequent 
winning bid exceeds the withdrawn bid. If a winning bidder defaults 
after the close of an auction, the defaulting bidder will be required 
to pay the foregoing payment plus an additional payment of 3 percent of 
the subsequent winning bid or its own withdrawn bid, whichever is 
lower.
    61. To help bidders avoid mistaken bids that could expose them to 
liability for bid withdrawal payments, the Commission has enhanced its 
electronic bidding software. The software now displays a warning screen 
to bidders when they try to place a bid that is far in excess of the 
minimum accepted bid. Bidders must affirmatively override this mistaken 
bid warning if they wish to place the bid. For example, if the minimum 
accepted bid for a license is $10,000, an excessive bid warning will 
appear if a bidder attempts to place a bid of $100,000 or more.
    62. The Commission has also recently addressed the issue of how the 
bid withdrawal payment rules apply to bids that are mistakenly placed 
and subsequently withdrawn. In Atlanta Trunking, the Commission stated 
that, while it believes that in some cases full application of the bid 
withdrawal payment provisions could impose an extreme and unnecessary 
hardship on bidders, it may be extremely difficult for the Commission 
to distinguish between ``honest'' erroneous bids and ``strategic'' 
erroneous bids. The Commission held that in cases of erroneous bids, 
some relief from the bid withdrawal payment requirement appears 
necessary. Thus, it waived the bid withdrawal rules as they apply to 
900 MHz SMR and broadband PCS and applied the following

[[Page 13580]]

guidelines: If at any point during an auction a mistaken bid is 
withdrawn in the same round in which it was submitted, the bid 
withdrawal payment should be the greater of (a) the minimum bid 
increment for that license and round, or (b) the standard bid 
withdrawal payment calculated as if the bidder had made a bid at the 
minimum accepted bid. If a mistaken bid is withdrawn in the round 
immediately following the round in which it was submitted, and the 
auction is in Stage I or Stage II, the withdrawal payment should be the 
greater of (a) two times the minimum bid increment during the round in 
which the mistaken bid was submitted or (b) the standard withdrawal 
payment calculated as if the bidder had made a bid at one bid increment 
above the minimum accepted bid. If the mistaken bid is withdrawn two or 
more rounds following the round in which it was submitted, the bidder 
should not be eligible for any reduction in the bid withdrawal payment. 
Similarly, during Stage III of an auction, if a mistaken bid is not 
withdrawn during the round in which it was submitted, the bidder should 
not be eligible for any reduction in the bid withdrawal payment.
    63. In response to a commenter's request, the Commission recently 
modified the broadband PCS rules for the D, E, and F blocks to 
establish provisions governing the withdrawal of erroneous bids. It 
thus incorporated the guidelines fashioned in Atlanta Trunking into 
these rules. The Commission now proposes to change Secs. 1.2104 and 
1.2109 of the rules such that similar provisions adopted for the 
broadband PCS D, E, and F block auction will apply to all auctions. The 
Commission seeks comment on this proposal.
    64. The current auction rules allow a high bidder on a license to 
withdraw its bid at any point during the auction, subject to a bid 
withdrawal payment. The Commission has recognized that allowing bid 
withdrawals facilitates efficient aggregation of licenses and pursuit 
of efficient backup strategies as information becomes available during 
the course of an auction. It also is cognizant that allowing 
withdrawals also risks encouraging insincere bidding and allowing the 
use of withdrawals for anti-competitive strategic purposes, such as 
signaling other bidders. To guard against such abuses, the Commission 
put in place a withdrawal payment equal to the difference between the 
withdrawn bid and the amount of the winning bid the next time the 
license is offered by the Commission. The Commission seeks comment on 
whether it should exercise its authority to limit withdrawals, and if 
so, under what circumstances. Should the Commission consider limiting 
the number of withdrawals that a bidder is permitted to make in an 
auction, the number of rounds in which withdrawals can be made, or the 
number of withdrawals permitted with respect to a particular license? 
Are there other ways to address concern about strategic withdrawals 
without unduly affecting bidders' ability to efficiently aggregate 
licenses? For example, should the Commission consider increasing the 
withdrawal payment or changing its structure?
    65. Under Sec. 1.2109(b) of the rules, if a winning bidder 
withdraws its bid after the auction has closed or fails to remit the 
required down payment within the requisite period after the Commission 
has announced high bidders, the bidder will be deemed to have 
defaulted. This rule also provides that, in such event, the Commission 
may either re-auction the license to existing or new applicants or 
offer it to the other highest bidders (in descending order) at their 
final bids. In the Order accompanying this NPRM, the Commission 
modified the down payment due date to ten business days after the 
Commission has issued a Public Notice announcing winning bidders, and 
accordingly adjusted the period within which the Commission has 
discretion to offer the defaulted license to bidders in the original 
auction to the same ten-day period.
    66. When the Commission first adopted rules governing the licensing 
of defaulted licenses, it stated that ``[i]n the event that a winning 
bidder in a simultaneous multiple round auction defaults on its down 
payment obligations, the Commission will generally re-auction the 
license either to existing or new applicants.'' Noting that in some 
circumstances the costs of conducting a re-auction may not always be 
justified, the Commission reserved the discretion in cases in which the 
winning bidder defaults on its down payment obligation to offer a 
defaulted license to the highest losing bidders (in descending order of 
their bids) at their final bids if ``only a small number of relatively 
low value licenses are to be re-auctioned * * *.''
    67. Having now developed a computerized auction system and 
conducted numerous auctions, the Commission believes that the costs of 
a re-auction, even for a small number of relatively low value licenses, 
would be minimal. Use of regularly scheduled quarterly auctions will 
also ensure rapid reauction. Further, re-offering a defaulted license 
to the next highest bidder (in descending order) at their final bids 
may not ensure that the license will be awarded to the bidder that 
values it the most highly. When more than one license is being 
auctioned, aggregation strategies may shift during the course of the 
auction, affecting interest of individual bidders.
    68. The Commission asks commenters to address whether the 
Commission should (1) retain Sec. 1.2109(b) in its current form, (2) 
modify the rule so that the Commission retains the discretion 
regardless of when a default occurs to offer the license only to the 
second highest bidder at its bid price (3) modify the rule so that the 
Commission retains discretion to offer a license on which the winning 
bidder has defaulted on its down payment obligation only to the second 
highest bidder, (4) modify the rule so that the Commission retains 
discretion to offer a defaulted license to the highest losing bidders 
(in descending order of their bids), but only at the final bid level of 
the second highest bidder, (5) modify the rule to require re-auction of 
defaulted licenses regardless of when a default occurs. Moreover, it 
seeks comment on whether it should modify the rule to codify the 
statement in the Competitive Bidding Fifth Report and Order that where 
there are a relatively small number of low value licenses, and only a 
short time has passed since the initial auction, the Commission may 
choose to offer the license to the highest losing bidder because the 
cost of conducting another auction may exceed the benefits. Commenters 
favoring this should indicate the parameters that the Commission should 
employ in determining which licenses might be re-offered to bidders in 
the original auction.
    69. The Commission adopted rules to prohibit collusion in the 
Competitive Bidding Second Report and Order because it was concerned 
that collusive conduct by bidders prior to or during an auction could 
undermine the competitiveness of the bidding process and prevent the 
formation of a competitive post-auction market structure. In general, 
bidders are required to identify on their short-form applications any 
parties with whom they have entered into any consortium arrangements, 
joint ventures, partnerships or other agreements or understandings 
which relate to the competitive bidding process. With certain 
exceptions, all such arrangements must have been entered into prior to 
the filing of short-form applications. After such applications are 
filed and prior to the time that the winning bidder has made its 
required

[[Page 13581]]

down payment, all bidders are prohibited from cooperating, 
collaborating, discussing or disclosing in any manner the substance of 
their bids or bidding strategies with other bidders, unless such 
bidders are members of a bidding consortium or other joint bidding 
arrangement identified on the bidder's short-form application.
    70. As the Commission's auction process has evolved, it has 
clarified the rules prohibiting collusion. Early on in the auction 
process, for example, the Commission established exceptions to the 
anti-collusion rules in an attempt to allow applicants greater 
flexibility to form agreements with other applicants and thereby 
acquire the capital necessary to bid successfully for licenses. 
Specifically, it amended the anti-collusion rules to permit a holder of 
a non-controlling attributable interest in an applicant to obtain an 
ownership interest in or enter into a consortium arrangement with 
another applicant for a license in the same geographic area, provided 
that the attributable interest holder certifies to the Commission that 
it has not communicated and will not communicate with the applicant or 
any one else information concerning the bids or bidding strategies 
(including which licenses an applicant will or will not bid on) of more 
than one applicant for licenses in the same geographic area in which it 
holds an ownership interest or with which it has a consortium 
arrangement. Additionally, Commission staff has issued public notices 
and letters that seek to interpret and clarify these rules.
    71. The exception outlined above was adopted in order to facilitate 
the flow of capital to applicants by enabling parties to make 
investments in multiple applicants for licenses in the same geographic 
license areas. Having gained experience with implementing its anti-
collusion rules, the Commission now believes that this exception is 
difficult to apply in a business setting. Entities are reluctant to 
invest in multiple applicants if they cannot obtain information about 
business plans and strategies, which often necessarily reflect bidding 
strategies or bids.
    72. The Commission therefore proposes to modify this provision of 
the anti-collusion rule to permit entities to invest in multiple 
applicants if the original applicant withdraws from the auction. Under 
this proposal, a holder of a non-controlling attributable interest in 
an applicant would be permitted to obtain an ownership interest in or 
enter into a consortium arrangement with another applicant for a 
license in the same geographic area, provided that the original 
applicant has dropped out of the auction and is no longer placing bids, 
and the attributable interest holder certifies to the Commission that 
it did not communicate with the new applicant prior to the date that 
the original applicant withdrew from the auction. The Commission 
believes that this proposal will encourage entities to invest in 
bidders if their original applicant fails to complete the auction and 
will give such entities the flexibility needed to do so. Furthermore, 
it believes that prohibiting any communication with other applicants 
prior to when the original applicant withdraws from the auction will 
prevent investors from exerting pressure on smaller bidders to withdraw 
in exchange for teaming up with other larger bidders. The Commission 
seeks comment on this proposal.
    73. In the proceeding involving service-specific auction rules for 
paging services, several commenters requested that the Commission 
establish rules that do not have a chilling effect on ongoing business 
acquisitions and transactions. Under the current rules, they contended, 
discussions between bidders for the same license area regarding a 
business merger or acquisition may be construed as discussions of 
bidding or bidding strategy--thus violating the anti-collusion rules. 
They proposed that the Commission grant a ``safe harbor'' for certain 
situations, such as in services where there are incumbent operators, 
permitting ongoing discussions among bidders concerning mergers, 
acquisitions or intercarrier arrangements to proceed during the period 
in which the anti-collusion rules are applicable. Some suggested a 
system in which respective bidder personnel certify that persons 
involved in such discussions are not discussing bidding strategy or 
otherwise divulging bidder information to each other in violation of 
the anti-collusion rules. Absent a showing that a certification is 
false, necessary discussions in the ordinary course of business would 
be permitted during the course of the auction. The Commission seeks 
comment on this proposal concerning a safe harbor for discussions of 
certain non-auction business matters and it seeks comment on any other 
changes to the rules prohibiting collusion they believe are warranted. 
Finally, it seeks comment on the public notices and letters issued by 
Commission staff seeking to interpret and clarify these rules.
    74. In 1989, the Commission adopted rules permitting certain 
license applicants, under prescribed conditions, to construct their 
facilities prior to license grant. It subsequently determined that part 
22 and part 90 commercial mobile radio service applicants should be 
subject to the same rules governing the construction of facilities 
prior to the grant of pending applications. The Commission later 
clarified that such rules would extend to successful broadband PCS 
bidders that had filed a long-form application. Thus, 35 days after the 
date of the Public Notice announcing the broadband PCS A and B Block 
Form 600 applications accepted for filing, the parties has filed those 
applications were permitted, at their own risk, to commence 
construction of facilities, provided that (1) no petitions to deny the 
application had been filed; (2) the application did not contain a 
request for a rule waiver; (3) the applicant complied fully with the 
antenna structure provisions of Secs. 24.416 and 24.816 of the 
Commission's rules, including FAA notification, and Commission filing 
requirements; (4) the application indicated that the facilities would 
not have a significant environmental effect (see 47 CFR 24.413(f) and 
24.813(f)); and (5) international coordination of the facilities was 
not required.
    75. The Commission proposes to extend the pre-grant construction 
rules set forth in 47 CFR 22.143 to all auction winners, regardless of 
whether petitions to deny have been filed against their long-form 
applications. It further proposes to permit each auction winner to 
begin construction of its system, at its own risk, upon release of a 
Public Notice announcing the acceptance for filing of post-auction 
long-form applications. The Commission tentatively concludes that to do 
so would further the public interest by expediting, in most cases, the 
initiation of service to the public. It believes that allowing pre-
grant construction furthers the statutory objective expressed in the 
Communications Act in section 309(j)(3)(A) of the rapid deployment of 
new technologies, products, and services for the benefit of the public. 
Pre-grant construction would be subject to any service-related 
restrictions, including but not limited to antenna restrictions, 
environmental requirements, and international restrictions. Finally, 
the Commission emphasizes that any applicant engaging in pre-grant 
construction activity would do so entirely at its own risk, and the 
Commission would not take such activity into account in ruling on any 
petition to deny although it acknowledges that this could result in 
significant economic loss to applicants. The Commission seeks comment 
on this proposal.

[[Page 13582]]

Procedural Matters and Ordering Clauses

    76. The Initial Regulatory Flexibility Analysis (IRFA), as required 
by section 604 of the Regulatory Flexibility Act, is set forth in 
Appendix C of the NPRM. Pub. L. 96-354, 94 Stat. 1164, 5 U.S.C. 601 et 
seq. (1981). Written public comments are request on the IRFA. These 
comments must be filed in accordance with the same filing deadlines as 
comments on the rest of the NPRM, but they must have a separate and 
distinct heading designating them as responses to the IRFA. The 
Secretary shall send a copy of this NPRM, including the IRFA, to the 
Chief counsel for Advocacy of the Small Business Administration in 
accordance with the paragraph 603(a) of the Regulatory Flexibility Act.
    77. Ex Parte Presentations. This is a non-restricted notice and 
comment rule making proceeding. Ex parte presentations are permitted, 
provided they are disclosed as provided in Commission rules. See 
generally 47 CFR 1.1202, 1.1203, and 1.1206(a).
    78. Authority. This action is taken pursuant to sections 4(i), 
5(b), 5(c)(1), 303(r), and 309 (j) of the Communications Act of 1934, 
as amended, 47 U.S.C. 154(i), 155(b), 156(c)(1), 303(r), and 309(j).
    79. Comment. This NPRM contains either new or modified information 
collections. The Federal Communications Commission, as part of its 
continuing effort to reduce paperwork burden, invites the general 
public and other Federal agencies to take this opportunity to comment 
on the following revised information collection, as required by the 
Paperwork Reduction Act of 1995, Pub. L. 104-13. In addition to filing 
comments on the new or modified collection with the Secretary, a copy 
of any comments on the information collections contained herein should 
be submitted to Dorothy Conway, Federal Communications Commission, Room 
234, 1919 M St., NW., Washington, DC 20554 or via the Internet to 
<a href="/cdn-cgi/l/email-protection#90f4f3fffee7f1e9d0f6f3f3bef7ffe6"><span class="__cf_email__" data-cfemail="f296919d9c85938bb2949191dc959d84">[email protected]</span></a>.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 97-7233 Filed 3-20-97; 8:45 am]
BILLING CODE 6712-01-P


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