[Federal Register Volume 62, Number 55 (Friday, March 21, 1997)]
[Rules and Regulations]
[Pages 13540-13544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7232]


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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.


[[Page 13541]]


ACTION: Final rule.

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SUMMARY: On February 20, 1997, the Federal Communications Commission 
adopted an Order amending and clarifying its general competitive rules. 
The Order also clarifies the extent of authority delegated to the Chief 
of the Wireless Telecommunications Bureau to implement regulations 
pertaining to competitive bidding. In addition, the Order modifies the 
short-form application (FCC Form 175) to include a certification 
indicating that an applicant is not in default on any payment for 
Commission licenses or delinquent on any non-tax debt owed to any 
federal agency. The rule changes set forth in the Order are intended to 
streamline the auctions process, and improve competitive bidding 
practices.

DATES: Effective April 21, 1997.

FOR FURTHER INFORMATION CONTACT: Mark Bollinger, Wireless 
Telecommunications Bureau, Federal Communications Commission, (202) 
418-0660.

SUPPLEMENTARY INFORMATION: This summarizes the Commission's Order in 
FCC 97-60; WT Docket No. 97-82, adopted on February 20, 1997, and 
released on February 28, 1997. The complete text of this Order 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 Order is also available 
on the Commission's Internet home page (http://www.fcc.gov/).

Synopsis of the Order

    1. In this Order, the Commission amends subpart Q of part 1 of the 
Commission's rules to reflect procedural changes that we believe will 
benefit bidders and the auction process generally and, in so doing, 
address some issues raised in petitions for reconsideration of our 
Competitive Bidding Fifth Memorandum Opinion and Order, 69 FR 63210 
(December 7, 1994). Because the amendments adopted herein pertain to 
agency procedure and practice the requirement of notice and comment 
rule making contained in 5 U.S.C. 553(b) and the effective date 
provisions of 5 U.S.C. 553(d) do not apply.

Rule Changes

    2. By this Order, the Commission amends the menu of competitive 
bidding designs provided in Sec. 1.2103(a). The rule is revised to 
include: (1) Simultaneous multiple round auctions, using remote and/or 
on-site electronic bidding; (2) sequential multiple round auctions, 
using either oral ascending, remote or on-site electronic bidding; and 
(3) sequential or simultaneous single round auctions, using either 
remote and/or on-site electronic bidding, or sealed bids.
    3. The Commission believes that the public interest would be served 
by establishing regular quarterly auctions for defaulted licenses or 
unsold licenses that were previously auctioned and for which there are 
mutually exclusive applications, services with a small number of 
licenses, and services in which licenses are expected to have low 
values. The Commission therefore will conduct quarterly auctions in the 
future, while retaining the discretion to decide in any quarter that an 
auction will not be held.
    4. Section 1.2105(a) of the Commission's rules is amended to 
indicate that an applicant's signature on FCC Form 175 or its 
electronic submission of this form will serve to certify that the 
applicant is not in default on any payment for Commission licenses 
(including downpayments) and that it is not delinquent on any non-tax 
debt owed to any federal agency. The certification we henceforth will 
require regarding defaulted licenses and delinquent debts to federal 
agencies will afford additional assurance that the applicant will be 
able to meet its future obligations by indicating whether it may later 
be subject to a monetary judgment or collection procedures that may 
impair its ability to provide service. Bidders who cannot make this 
certification may be ineligible for installment payment plans.
    5. The Commission amends Secs. 1.2106(b) and 1.2107(b) to require 
that bidders make their upfront payments and downpayments to the 
Commission by wire transfer, thereby eliminating the option of making 
payments by cashier's check.
    6. The Commission amends Sec. 1.2110(e)(3) to codify the procedure 
under which all applicants eligible to utilize installment payments 
execute a promissory note and security agreement as a condition of 
participating in any installment payment plan that is offered by the 
FCC.
    7. On a related matter, bidders and financial institutions have 
indicated that auction rules may prevent commercial lenders and 
equipment vendors from adequately protecting the loans they make or the 
credit they extend to auction winners who avail themselves of the 
installment payment plans. Specifically, parties have requested the 
Commission provide automatic grace periods in the event of default 
under the installment payment plan; implement installment payment plan 
terms consisting of interest-only payments for the entire term of the 
license, with a balloon payment at the end of the license term; enter 
into intercreditor or collateral sharing agreements with other 
creditors of licensees and/or make the auction payment to the 
Commission subordinate to the debt of the licensee's financial lenders; 
not cancel licenses where the licensees are in default of their 
installment payments and instead allow the license to remain part of 
the assets to be sold as a ``going concern'' in a pre-bankruptcy 
workout; and ease license transfer restrictions to allow for voluntary 
transfer of licenses to non-designated entities in cases of financial 
distress. In the Notice of Proposed Rule Making portion of this 
document, the Commission seeks comment on changes to the part 1 rules 
with regard to grace periods and installment payment plan terms, and 
will incorporate these parties' suggestions into the record generated 
by the NPRM. With regard to the remaining concerns, the Commission 
believes that the auction rules balance in a reasonable, commercial 
fashion the government's interest in protecting the public's rights to 
receive full payment for the spectrum bid upon, while granting 
qualifying entities the ability to pay for licenses through installment 
payments more generous in terms than any type of loan otherwise 
available in the marketplace. Our rules and policies are designed to 
promote private market solutions to capital problems (i.e., licensees 
and lenders working together toward a satisfactory resolution), and 
therefore provide adequate mechanisms for entities to attain sufficient 
debt financing under general market conditions. To the extent that the 
petitioning parties seek relief outside of what is already provided by 
the Commission's rules, these requests are denied for the following 
reasons.
    8. First, under current Commission policy, lenders may not be 
granted direct security interests in FCC licenses. In the auctions 
context, the Commission has established a first security interest in 
licenses being financed by it through installment payment plans. 
Accordingly, Sec. 1.2110(e)(4)(iii) of the Commission's rules provides 
for cancellation of a license upon default of installment payment 
obligations. The Commission understands that it is customary in 
commercial financing to

[[Page 13542]]

grant lenders security interests in the proceeds of the sale of FCC 
licenses and Sec. 1.2110(e) is not intended to impede or adversely 
affect a licensee's ability to obtain bank or other financing. 
Accordingly, debtors may grant to other parties a subordinated security 
interest in the proceeds of an authorized assignment or transfer of the 
license to a third party, provided however that any such security 
interest shall be subordinated to and in no way inconsistent with the 
Commission's security interest in the license.
    9. The Commission notes, however, that reclaiming a license 
pursuant to Sec. 1.2110(e)(4)(iii) is the Commission's remedy of last 
resort after conclusion of the regulatory processes set forth in 
Sec. 1.2110(e). The Commission firmly believes that ``[m]arket-oriented 
solutions to problems of financial distress will often be preferable to 
the FCC reclaiming and reauctioning licenses.'' Amendment of parts 20 
and 24 of the Commission's rules, Report and Order, 61 FR 33859 (July 
1, 1996) (D, E, F Block Report and Order). This is particularly true 
when reclaiming a license would deprive or interrupt service to ongoing 
end users. Lenders and licensees are free to agree contractually to 
their own terms regarding situations where the licensee fails to make 
timely payments under the Commission's installment payment program. As 
long as there is no transfer of control, the Commission would not 
become involved in the particulars of a voluntary workout arrangement 
between licensees and third-party lenders, including lenders' 
assumption of the licensee's payments to the Commission. Our policies 
also provide that in the event an installment payment licensee is in 
default to a third-party lender such that the lender accelerates its 
loan, the lender can seek a new buyer to replace the defaulted 
licensee, subject to Commission approval of the transfer. While certain 
FCC rules contain restrictions on the transfer of licenses acquired 
through the use of designated entity provisions for the statutory 
purposes of assuring license dissemination among a wide variety of 
applicants including designated entities, licensees may request a 
waiver of such rules. For example, upon a showing, supported by an 
affidavit, that the licensee is in financial distress, the Commission 
will consider granting a waiver of the transfer restrictions provided 
that such transaction is otherwise in the public interest. Under these 
circumstances, if a license is transferred to an entity that would not 
qualify for designated entity provisions, or that would qualify for 
less favorable designated entity provisions, the unjust enrichment 
provisions set forth in Sec. 1.2111 of the Commission's rules or 
service-specific rules would apply. In summary, commercial lenders and 
equipment vendors have adequate assurances from the Commission that in 
most situations of financial distress, licenses can be transferred as a 
``going concern,'' subject, of course, to the rights of the Commission 
to the payments of obligations created under the Commission's rules 
(including unjust enrichment payments), the license conditions, the 
promissory note, and the security agreement.
    10. The Commission changes the applicable downpayment and final 
payment period from five (5) business days to ten (10) business days 
and changes the event triggering the final payment obligation (or in 
the case of entities eligible for installment payments, the second 
downpayment obligation) from the award of the license to the issuance 
of a public notice indicating that the Commission is prepared to award 
the license or authorization. These changes will facilitate a more 
orderly licensing process and ensure that successful bidders have 
adequate time to fulfill their payment obligations. Section 1.2109(b) 
of the Commission's rules, which addresses the circumstances in which a 
bidder will be deemed to have defaulted on its downpayment obligations, 
is also amended to specify ten (10) business days instead of five (5) 
business days.
    11. The Commission amends Sec. 1.2110(b)(2), the definition of 
``minority,'' to include: ``Blacks, Hispanics, American Indians, 
Alaskan Natives, Asians, and Pacific Islanders.'' With regard to the 
meaning of particular categories in the definition, the Commission 
shall use the same category descriptions the Commission has relied on 
in other contexts.
    12. The Commission also clarifies that pursuant to Sec. 0.131 of 
the rules, the Chief, Wireless Telecommunications Bureau, has delegated 
authority to implement all of the Commission's rules pertaining to 
auctions procedures. This includes the authority to choose competitive 
bidding designs and methodologies, such as simultaneous multiple round 
auctions or oral outcry auctions and remote electronic bidding or on-
site bidding; conduct auctions; administer application, payment, 
license grant and denial procedures; and determine upfront and 
downpayment amounts. The Commission notes that the Bureau should, to 
the extent possible, carry out its duties under this authority through 
the use of orders, public notices, bidder packages, notices 
disseminated through the electronic bidding system, and by other 
reasonable means and with the benefit of public comment where 
appropriate. Such Bureau actions are subject to review by the full 
Commission.

Procedural Matters and Ordering Clauses

    13. It is ordered that the rule changes specified in Appendix B, 
attached to the Order, are adopted and are effective April 21, 1997.
    14. It is further ordered that the petitions for reconsideration of 
the Competitive Bidding Fifth Memorandum Opinion and Order, to the 
extent that they are addressed in the Order, are denied.
    15. 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).

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

    Part 1 of Chapter I of Title 47 of the Code of Federal Regulations 
is amended as follows:

PART 1--PRACTICE AND PROCEDURE

    1. The authority citation for part 1 continues to read as follows:

    Authority: 15 U.S.C. 79 et seq., and 47 U.S.C. 151, 154(i), 
154(j), and 303(r).

    2. Sections 1.2103 (a) and (b) are revised to read as follows:


Sec. 1.2103  Competitive bidding design options.

    (a) The Commission will select the competitive bidding design(s) to 
be used in auctioning particular licenses or classes of licenses on a 
service-specific basis. The choice of competitive bidding design will 
generally be made pursuant to the criteria set forth in PP Docket No. 
93-253, FCC 94-61, adopted March 8, 1994, available for purchase from 
the International Transcription Service, Inc., 2100 M St. NW., suite 
140, Washington, DC 20037, telephone (202) 857-3800, but the Commission 
may design and test alternative methodologies. The Commission will 
choose from one or more of the following types of auction designs for 
services or classes of services subject to competitive bidding:

[[Page 13543]]

    (1) Simultaneous multiple round auctions (using remote or on-site 
electronic bidding);
    (2) Sequential multiple round auctions (using either oral ascending 
or remote and/or on-site electronic bidding); and/or
    (3) Sequential or simultaneous single round auctions (using either 
sealed paper or remote and/or on-site electronic bidding).
    (b) The Commission may use combinatorial bidding, which would allow 
bidders to submit all or nothing bids on combinations of licenses or 
authorizations, in addition to bids on individual licenses or 
authorizations. The Commission may require that to be declared the high 
bid, a combinatorial bid must exceed the sum of the individual bids by 
a specified amount. Combinatorial bidding may be used with any type of 
auction. The Commission may also allow bidders to submit contingent 
bids on individual and/or combinations of licenses.
* * * * *
    3. Section 1.2105 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 1.2105  Bidding application and certification procedures; 
prohibition of collusion.

    (a) * * *
    (2) The Form 175 must contain the following information:
    (i) Identification of each license on which the applicant wishes to 
bid;
    (ii) The applicant's name, if the applicant is an individual. If 
the applicant is a corporation, then the short-form application will 
require the name and address of the corporate office and the name and 
title of an officer or director. If the applicant is a partnership, 
then the application will require the name, citizenship and address of 
all partners, and, if a partner is not a natural person, then the name 
and title of a responsible person should be included as well. If the 
applicant is a trust, then the name and address of the trustee will be 
required. If the applicant is none of the above, then it must identify 
and describe itself and its principals or other responsible persons;
    (iii) The identity of the person(s) authorized to make or withdraw 
a bid;
    (iv) If the applicant applies as a designated entity pursuant to 
Sec. 1.2110, a statement to that effect and a declaration, under 
penalty of perjury, that the applicant is qualified as a designated 
entity under Sec. 1.2110.
    (v) Certification that the applicant is legally, technically, 
financially and otherwise qualified pursuant to section 308(b) of the 
Communications Act of 1934, as amended. The Commission will accept 
applications certifying that a request for waiver or other relief from 
the requirements of section 310 is pending;
    (vi) Certification that the applicant is in compliance with the 
foreign ownership provisions of section 310 of the Communications Act 
of 1934, as amended;
    (vii) Certification that the applicant is and will, during the 
pendency of its application(s), remain in compliance with any service-
specific qualifications applicable to the licenses on which the 
applicant intends to bid including, but not limited to, financial 
qualifications. The Commission may require certification in certain 
services that the applicant will, following grant of a license, come 
into compliance with certain service-specific rules, including, but not 
limited to, ownership eligibility limitations;
    (viii) An exhibit, certified as truthful under penalty of perjury, 
identifying all parties with whom the applicant has entered into 
partnerships, joint ventures, consortia or other agreements, 
arrangements or understandings of any kind relating to the licenses 
being auctioned, including any such agreements relating to the post-
auction market structure.
    (ix) Certification under penalty of perjury that it has not entered 
and will not enter into any explicit or implicit agreements, 
arrangements or understandings of any kind with any parties other than 
those identified pursuant to paragraph (a)(2)(viii) of this section 
regarding the amount of their bids, bidding strategies or the 
particular licenses on which they will or will not bid; and
    (x) Certification that the applicant is not in default on any 
Commission licenses and that it is not delinquent on any non-tax debt 
owed to any Federal agency.
* * * * *
    4. Section 1.2106 is amended by revising paragraph (b) to read as 
follows:


Sec. 1.2106  Submission of upfront payments.

* * * * *
    (b) Upfront payments must be made by wire transfer in U.S. dollars 
from a financial institution whose deposits are insured by the Federal 
Deposit Insurance Corporation and must be made payable to the Federal 
Communications Commission.
* * * * *
    5. Section 1.2107 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec. 1.2107  Submission of down payment and filing of long-form 
applications.

* * * * *
    (b) Within ten (10) business days after being notified that it is a 
high bidder on a particular license(s), a high bidder must submit to 
the Commission's lockbox bank such additional funds (the ``down 
payment'') as are necessary to bring its total deposits (not including 
upfront payments applied to satisfy penalties) up to twenty (20) 
percent of its high bid(s). (In single round sealed bid auctions 
conducted under Sec. 1.2103, however, bidders may be required to submit 
their down payments with their bids.) This down payment must be made by 
wire transfer in U.S. dollars from a financial institution whose 
deposits are insured by the Federal Deposit Insurance Corporation and 
must be made payable to the Federal Communications Commission. Winning 
bidders who are qualified designated entities eligible for installment 
payments under Sec. 1.2110(d) are only required to bring their total 
deposits up to ten (10) percent of their winning bid(s). Such 
designated entities must pay the remainder of the twenty (20) percent 
down payment within ten (10) business days of grant of their 
application. See Sec. 1.2110(e) (1) and (2). Down payments will be held 
by the Commission until the high bidder has been awarded the license 
and has paid the remaining balance due on the license or authorization, 
in which case it will not be returned, or until the winning bidder is 
found unqualified to be a licensee or has defaulted, in which case it 
will be returned, less applicable payments. No interest on any down 
payment will be paid to the bidders.
    (c) A high bidder that meets its down payment obligations in a 
timely manner must, within ten (10) business days after being notified 
that it is a high bidder, submit an additional application (the ``long-
form application'') pursuant to the rules governing the service in 
which the applicant is the high bidder (unless it has already submitted 
such an application, as contemplated by Sec. 1.2105(a)(1)(b). 
Notwithstanding any other provision in title 47 of the Code of Federal 
Regulations to the contrary, high bidders need not submit an additional 
application filing fee with their long-form applications. Specific 
procedures for filing electronically and manually filed applications 
will be set out by Public Notice. While Form 600 may be filed either 
electronically or manually, beginning January 1, 1998, all applications 
must be filed electronically. Those applicants who file applications 
manually must also include a copy of all attachments and

[[Page 13544]]

any other supporting documents on a 3.5 inch diskette in separate ASCII 
text (.TXT) file formats. An applicant that fails to submit the 
required long-form application under this paragraph and fails to 
establish good cause for any late-filed submission, shall be deemed to 
have defaulted and will be subject to the payments set forth in 
Sec. 1.2104.
* * * * *
    6. Section 1.2109 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec. 1.2109  License grant, denial, default, and disqualification.

    (a) Unless otherwise specified in these rules, auction winners are 
required to pay the balance of their winning bids in a lump sum within 
ten (10) business days following award of the license. Grant of the 
license will be conditioned on full and timely payment of the winning 
bid.
    (b) If a winning bidder withdraws its bid after the Commission has 
declared competitive bidding closed or fails to remit the required down 
payment within ten (10) business days after the Commission has declared 
competitive bidding closed, the bidder will be deemed to have 
defaulted, its application will be dismissed, and it will be liable for 
the default payment specified in Sec. 1.2104(g)(2). 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. The down payment obligations set forth in 
Sec. 1.2107(b) will apply.
* * * * *
    7. Section 1.2110 is amended by revising paragraphs (b)(2), (e)(1), 
(e)(2), and the introductory text of (e)(3) to read as follows:


Sec. 1.2110  Designated entities.

* * * * *
    (b) * * *
    (2) Businesses owned by members of minority groups and/or women. 
Unless otherwise provided in rules governing specific services, a 
business owned by members of minority groups and/or women is one in 
which minorities and/or women who are U.S. citizens control the 
applicant, have at least 50.1 percent equity ownership and, in the case 
of a corporate applicant, a 50.1 percent voting interest. For 
applicants that are partnerships, every general partner either must be 
a minority and/or woman (or minorities and/or women) who are U.S. 
citizens and who individually or together own at least 50.1 percent of 
the partnership equity, or an entity that is 100 percent owned and 
controlled by minorities and/or women who are U.S. citizens. The 
interests of minorities and women are to be calculated on a fully-
diluted basis; agreements such as stock options and convertible 
debentures shall be considered to have a present effect on the power to 
control an entity and shall be treated as if the rights thereunder 
already have been fully exercised. However, upon a demonstration that 
options or conversion rights held by non-controlling principals will 
not deprive the minority and female principals of a substantial 
financial stake in the venture or impair their rights to control the 
designated entity, a designated entity may seek a waiver of the 
requirement that the equity of the minority and female principals must 
be calculated on a fully-diluted basis. Members of minority groups 
include Blacks, Hispanics, American Indians, Alaskan Natives, Asians, 
and Pacific Islanders.
* * * * *
    (e) * * *
    (1) Unless otherwise specified, each eligible applicant paying for 
its license(s) on an installment basis must deposit by wire transfer in 
the manner specified in Sec. 1.2107(b) sufficient additional funds as 
are necessary to bring its total deposits to ten (10) percent of its 
winning bid(s) within ten (10) business days after the Commission has 
declared it the winning bidder and closed the bidding. Failure to remit 
the required payment will make the bidder liable to pay penalties 
pursuant to Sec. 1.2104(g)(2).
    (2) Within ten (10) business days of the grant of the license 
application of a winning bidder eligible for installment payments, the 
licensee shall pay another ten (10) percent of the high bid, thereby 
commencing the eligible licensee's installment payment plan. Failure to 
remit the required payment will make the bidder liable to pay default 
payments pursuant to Sec. 1.2104(g)(2).
    (3) Upon grant of the license, the Commission will notify each 
eligible licensee of the terms of its installment payment plan and that 
it must execute a promissory note and security agreement as a condition 
of the installment payment plan. Unless other terms are specified in 
the rules of particular services, such plans will:
* * * * *
[FR Doc. 97-7232 Filed 3-20-97; 8:45 am]
BILLING CODE 6712-01-P