[Federal Register Volume 63, Number 15 (Friday, January 23, 1998)]
[Notices]
[Pages 3572-3574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1608]


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FEDERAL COMMUNICATIONS COMMISSION

[DA 98-37]


Wireless Telecommunications Bureau Responds to Questions About 
the Local Multipoint Distribution Service Auction

    Released: January 9, 1998.

    Over the past weeks, the Wireless Telecommunications Bureau 
(``Bureau'') has received numerous inquiries concerning the auction 
rules and eligibility requirements for the Local Multipoint 
Distribution Service (``LMDS'') auction scheduled to commence on 
February 18, 1998. In this Public Notice, the staff provides guidance 
on a range of issues involving the rules for the LMDS auction.
    The service and auction rules pertaining to LMDS are found in parts 
1 and 101 of the Commission's rules (Title 47 of the Code of Federal 
Regulations). The Commission's rules governing eligibility for bidding 
credits were established to ensure that small businesses, rural 
telephone companies, and businesses owned by members of minority groups 
and/or women (collectively referred to as ``designated entities'' or 
``DEs'') are provided meaningful opportunities to compete in the 
provision of LMDS. These rules are primarily addressed in the LMDS 
Second Report and Order, the LMDS Order on Reconsideration, and the 
LMDS Second Order on Reconsideration. Additional auction information is 
provided to potential bidders in a comprehensive Bidder Information 
Package. This package contains guidelines regarding pre-auction 
procedures, the auction event, and post-auction procedures. (Interested 
parties can order an LMDS Bidder Information Package by calling (888) 
225-5322, Option #2. Applicants are entitled to one free LMDS Bidder 
Information Package; additional copies cost $16 each.) The Bureau will 
release a public notice setting forth minimum opening bids for the LMDS 
auction prior to the FCC Form 175 short form filing deadline.
    Many of the inquiries the Bureau has received are based on the 
inquiring parties' specific circumstances. The Bureau has recast the 
most frequently asked questions in more general terms in order to 
provide guidance to a larger group of interested parties. Potential 
applicants should understand that the advice and rule interpretations 
provided in this Public Notice constitute informal staff opinion, not 
official Commission decisions or rulings.

I. General Ownership Issues

    Q: When disclosing ownership information on the FCC Form 175, 
should applicants report all entities that hold a five percent or 
greater voting (control) interest or other economic interest?
    A: In previous services (e.g., broadband PCS), the Commission 
specifically required that applicants report all entities that held 
interests in the applicant of five percent or more that also held or 
were applying for CMRS or PMRS licenses. For LMDS, applicants must 
comply with the general reporting rule set forth in Part 1 of the 
Commission's rules, which is less specific about which entities must be 
identified. By identifying on Attachment A to their FCC Forms 175 all 
entities holding five percent or greater interests in the applicant 
that also hold or are applying for CMRS or PMRS licenses, applicants 
will assist themselves in identifying entities with which they must 
avoid contact pursuant to the anti-collusion rule. Applicants should be 
aware that at the long-form application stage, they will be subject to 
the reporting requirements contained in the newly adopted Part 1 
ownership disclosure rule.
    Q: Can new non-controlling investors be added after the FCC Form 
175 is filed and throughout the auction?
    A: New non-controlling investors can be added after the FCC Form 
175 is filed and throughout the duration of the auction, provided their 
addition does not result in a change of control of the applicant. An 
applicant should amend its FCC Form 175 within 10 business days of any 
change, and should provide notice of the change by letter addressed to 
Kathleen O'Brien Ham, Chief, Auctions and Industry Analysis Division, 
Wireless Telecommunications Bureau, 2025 M Street, N.W., Suite 5202, 
Washington, D.C. 20554, with a copy filed with the Office of the 
Secretary, 1919 M Street, N.W., Washington, D.C. 20554.
    Q: When an applicant is a consortium, can only one member of the 
consortium conduct bidding during the auction? What if a member of a 
consortium decides to withdraw during the auction?
    A: A consortium is defined as ``a conglomerate organization formed 
as a joint venture between or among mutually independent business 
firms, each of which individually satisfies the definition of a very 
small business, small business or entrepreneur.'' Where an applicant is 
a consortium, the gross revenues of its members are not aggregated. The 
definition of consortium does not prohibit one member from placing the 
bids for the consortium as a whole.
    Because each member of a consortium must individually satisfy the 
definition of a very small business, small business, or entrepreneur at 
the FCC Form 175 filing deadline, members may withdraw during the 
course of the auction, or afterward, without endangering the treatment 
of the consortium. The withdrawal of a member would merely change the 
composition of the consortium, and should be reflected in a filing with 
the Commission. On the other hand, adding a new member to a consortium 
after the FCC Form 175 filing deadline will not be permitted because 
the filing deadline is the cut-off date for determinations of whether 
applicants meet the definitions of very small business, small business, 
or entrepreneur.

II. Foreign Ownership Issues

    Q: How much foreign ownership of a licensee is permissible? Can 
LMDS applicants seek more than 25 percent indirect foreign ownership?
    A: Section 310(a) of the Communications Act of 1934, as amended 
(``Communications Act''), prohibits granting any wireless license to a 
foreign government or a representative thereof. Section 310(b) of the 
Communications Act imposes restrictions on the foreign ownership of 
common carrier, broadcast, and aeronautical licensees. Under this 
section, the Commission may not grant a common carrier wireless license 
to an alien, the representative of an alien, any corporation organized 
under the laws of any foreign government, or any corporation of which 
more than 20 percent is owned by foreign entities. Section 310(b)(4) 
imposes additional restrictions on the foreign ownership of the parent 
corporation of a common carrier licensee, specifically that no common 
carrier license shall be granted to or held by ``any corporation 
directly or indirectly controlled by any other corporation of which 
more than one-fourth of the capital stock is owned of record or voted 
by aliens * * * or by any corporation organized under the laws of a 
foreign country . . . if the Commission finds that the public interest 
will be served by the refusal or revocation of such license.'' Under 
the Foreign Participation Order, the Commission recently liberalized 
its

[[Page 3573]]

rules for determining when refusal or revocation would serve the public 
interest. The final rules set forth in the Foreign Participation Order 
will not become effective before February 9, 1998. Any applicant that 
is controlled by a corporation with more than 25 percent foreign 
ownership, or which seeks to exceed that limit, must inform the 
Commission in a separate petition for declaratory ruling. The 
Commission will accept petitions for declaratory ruling immediately, 
but will not necessarily rule on them prior to the auction start date. 
Because applicants must certify on their short form applications that 
they are in compliance with the foreign ownership provisions of Section 
310 of the Communications Act, applicants filing petitions for 
declaratory rulings must reference their pending petitions in their 
short form applications. Applicants seeking foreign investment should 
familiarize themselves with the Foreign Participation Order, 
particularly Section III.D. That order is available from the 
Commission's web site at <http://www.fcc.gov/ib/wto.html>.

III. Bidding Credits and Eligibility Issues

    Q: What constitutes gross revenues as described in 47 CFR 101.1112?
    A: Gross revenues include all income received by an entity, whether 
earned or passive, before any deductions are made for the costs of 
doing business, as evidenced by audited financial statements for the 
preceding three years. If an entity was not in existence for the entire 
preceding three years, gross revenues shall be evidenced by audited 
financial statements of the entity's predecessor-in-interest, or if 
there is no identifiable predecessor-in-interest, unaudited financial 
statements certified by the applicant as accurate. The Commission will 
evaluate applicants' gross revenues as they are reflected in financial 
statements prepared in accordance with generally accepted accounting 
principles.
    Q: Now that the auction has been rescheduled for February 18, 1998, 
will the Commission require applicants to provide audited financial 
statements for 1997?
    A: Applicants must furnish evidence of their gross revenues based 
upon their most recently-completed audited financial statements. Thus, 
if audited financial statements for calendar year 1997 have not been 
fully prepared by the FCC Form 175 filing deadline of January 20, 1998, 
audited statements for the years 1994, 1995, and 1996 will suffice.
    Q: Are the gross revenues of an applicant's affiliates counted in 
determining that applicant's eligibility for a bidding credit?
    A: Yes. An applicant must aggregate the gross revenues of all 
affiliates, as defined in 47 CFR 101.1112(h), in order to determine its 
bidding credit eligibility.
    Q: When determining eligibility for bidding credits, will the gross 
revenues of individuals who are affiliates be included in determining 
the bidder's gross revenues? Is there a conceivable instance when an 
individual's gross revenues will affect an applicant's eligibility for 
a bidding credit?
    A: This issue has been raised on reconsideration in another 
proceeding and the Bureau refrains from directly addressing it at this 
point. However, the Bureau notes that for LMDS, the Commission did not 
adopt a rule that attributes personal net worth for purposes of 
determining eligibility. Personal net worth has been defined as ``the 
market value of all assets (real and personal, tangible and intangible) 
owned by an individual, less all liabilities (including personal 
guarantees) owed by the individual in his individual capacity or as a 
joint obligor.'' In other services (i.e., broadband PCS), the 
Commission eliminated a personal net worth test, concluding that ``the 
affiliation rules make the personal net worth rules largely unnecessary 
since most wealthy individuals are likely to have their wealth closely 
tied to ownership of another business.''
    Q: Is there a minimum equity requirement for controlling small 
business principals?
    A: No. However, the Bureau cautions that the absence of equity in 
the hands of controlling small business principals could raise 
questions about whether the applicant itself qualifies as a bona fide 
small business. For instance, if a single party holds de jure control, 
as evidenced by ownership of 50.1 percent of the voting stock, this 
party must also hold de facto control in order to be considered a 
controlling principal. If no single party has de jure control of the 
applicant, de facto control factors will determine who controls the 
applicant. By way of comparison, in broadband PCS, controlling 
principals were required to hold at least 15 percent of the applicant's 
total equity under one particular business structure.
    Q: Does the bidding credit schedule adopted in the Commission's 
Part 1 Proceeding apply to LMDS?
    A: No. LMDS has a specific bidding credit rule that is not affected 
by the Part 1 rule changes.

IV. Anti-Collusion Rule Issues

    Q: What conduct constitutes a violation of the Commission's anti-
collusion rule?
    A: After the deadline for submission of the FCC Form 175, 
applicants may not discuss the substance of their bids or bidding 
strategies with other bidders that have applied to bid in the same 
geographic license areas, with the exception of those with which they 
have entered into agreements identified on the FCC Form 175. The term 
``applicant'' includes the entity that submits an application for 
auction participation, owners of five percent or more of that entity, 
and all officers and directors of that entity. (But see part 1 at para. 
164 (which changes the attribution level of the anti-collusion rule to 
10 percent; however, this rule does not apply to the LMDS auction. The 
new part 1 rules, with the exception of rules pertaining to post-
auction payment and long-form application obligations, will apply only 
to auctions commencing after the new rules' effective date)). The rule 
also prohibits the transfer of indirect information which affects, or 
could affect, bids or bidding strategy. All bidding arrangements must 
be disclosed on an applicant's short form application. Auction 
applicants who have applied for licenses in the same geographic areas, 
and who are also licensees or applicants for licenses in the same or 
competing services, must affirmatively avoid all communications with 
each other that affect, or have the potential to affect, their bids or 
bidding strategy. This does not mean that all business negotiations 
between bidders for the same markets are prohibited; however, the 
Bureau recommends that bidders for the same markets exercise caution 
when engaging in such discussions.
    Q: Do public statements such as ``we want to win 10 million pops'' 
or ``we want to win top markets'' or ``we have $5 million to spend'' 
constitute disclosures of bids or bidding strategy?
    A: Public statements can give rise to collusion concerns. This has 
occurred in the antitrust context, where certain public statements can 
support other evidence which tends to indicate the existence of a 
conspiracy. The Bureau therefore urges bidders for common markets to 
exercise caution when making public statements about their bids or 
bidding strategies.
    Q: If an applicant files an FCC Form 175 prior to the filing 
deadline of January 20, 1998, may this applicant speak with other 
potential applicants during the time between its filing and the 
deadline? In other words, at what

[[Page 3574]]

point are two parties considered to be competing for the same market?
    A: An FCC Form 175 is considered officially filed upon the filing 
deadline, regardless of whether it was actually filed one day or one 
month prior to the deadline. Changes to electronically filed 
applications can be made any time prior to the filing deadline on 
January 20, 1998, and applicants cannot view each others' 
electronically filed applications prior to that deadline. Thus, parties 
are not considered to be competing for the same market until the window 
for submitting applications closes at 5:30 p.m., ET, on January 20, 
1998.
    Q: Can an individual act as the authorized bidder and place bids 
for two or more applicants who are competing for one or more of the 
same markets? What if different individuals who are employed by the 
same organization place bids for applicants in competing markets?
    A: A violation of the anti-collusion rule could occur if an 
individual acts as the authorized bidder for two or more competing 
applicants, and conveys information concerning the substance of bids or 
bidding strategies between the bidders he/she is authorized to 
represent in the auction. Also, if the authorized bidders are different 
individuals employed by the same organization, a violation could 
similarly occur. In such instances, the Bureau strongly encourages 
applicants to certify on their application that precautionary steps 
(e.g., establishing a ``Chinese wall'') have been taken to prevent 
communication between authorized bidders and that applicants and their 
bidding agents will comply with the anti-collusion rule.

V. Technical Issues

    Q: In bands where Mobile Satellite Service (``MSS'') feeder links 
are permitted, is uplink transmission (subscriber end) allowed if there 
is no MSS licensee operating?
    A: No. The interference analyses conducted indicated that 
subscribers' transceivers potentially are major interferers to MSS 
feeder link earth station satellite receivers because of the elevation 
angles many will be employing. The satellites to be deployed in these 
MSS systems will be orbiting in different planes over the United 
States. Therefore, there is the potential for them to become aligned 
with the beam of a subscriber transceiver at any location in the United 
States. To review those analyses, see the Report of the LMDS/FSS 28 GHz 
Band Negotiated Rulemaking Committee, CC Docket No. 92-297 (September 
23, 1994).
    Q: What are the deadlines for 31 GHz incumbents to vacate the 31 
GHz middle band?
    A: Incumbent 31 GHz licensees were provided 75 days after the 
effective date of the LMDS service rules to request modification of 
their licenses to relocate to the outer two 75 megahertz blocks of the 
31 GHz band. Failure to do so means that such incumbent operations 
become secondary to LMDS operations in the middle band. This means that 
LMDS operators are not required to protect these incumbent operations 
from interference, nor are the incumbent operations permitted to cause 
interference to LMDS systems. Of course, these incumbents can relocate 
to other bands or other transmission media at any time.

VI. Miscellaneous

    Q: Will the Commission inform applicants of the minimum opening bid 
for each BTA license prior to the FCC Form 175 filing deadline of 
January 20, 1998?
    A: Yes. The Bureau released a Public Notice on October 17, 1997, 
seeking comment on minimum opening bid proposals. Comments were due on 
November 5, 1997, with reply comments due on November 10, 1997. A 
subsequent Public Notice extended the reply comment deadline to 
December 1, 1997. Prior to January 20, 1998, the Bureau will release a 
public notice setting forth a minimum opening bid for each license.
    Q: What is the Commission's calculation to convert ILEC access 
lines to pops for purposes of the 10 percent in-region calculation?
    A: The Commission has not developed a calculation to convert access 
lines to pops. The ILEC should determine the geographic area that it 
serves and then use census data for determining the population of that 
area.
    Q: What are the consequences if an applicant fails to complete 
properly the FCC Form 175?
    A: An applicant is solely responsible for the true, accurate, and 
complete submission of its FCC Form 175, and incomplete or inaccurate 
FCC Forms 175 may be rejected or required to be refiled. The Commission 
checks FCC Forms 175 for deficiencies that would affect their initial 
acceptability, and will act to apprise applicants of deficiencies after 
initial review. Applicants are then given an opportunity to cure such 
deficiencies. Once a corrected application is resubmitted, however, no 
major amendments can occur. This would include, for example, changes to 
bidding credits.
    Q: Does the must-carry rule apply to LMDS for license holders who 
wish to provide television service?
    A: No. According to the Communications Act, the must-carry rule 
applies only to cable operators. Cable operators are defined as persons 
who provide cable service to subscribers, and cable service is defined 
as one-way transmission of video or other programming by means of a set 
of closed transmission paths. As a two-way wireless service, LMDS is 
not subject to must-carry requirements.
    Q: Will the bidding software be supported by Windows 95?
    A: While the auction software has been known to work with Windows 
95, Microsoft has not yet affirmed supportability. Until Microsoft 
makes that determination, use of the auction software with Windows 95 
is solely at the bidder's own risk.
    Q: Will the Commission provide applicants a list of proposed and 
licensed MSS feeder link earth station sites?
    A: Yes. The list is attached to this Public Notice as Attachment A.
    Q: Is the Commission considering the authorization of any other 
two-way video services in the near future?
    A: Yes. Bidders should be aware that the Commission's Mass Media 
Bureau is conducting a proceeding in which additional spectrum for the 
Multipoint Distribution Service (``MDS'') is being discussed. Comments 
in that proceeding were due December 9, 1997, and reply comments are 
due January 8, 1998.
    Bidders should also be aware that the 39 GHz band has the potential 
for point-to-multipoint service.

Federal Communications Commission.
William F. Caton,
Deputy Secretary.
[FR Doc. 98-1608 Filed 1-22-98; 8:45 am]
BILLING CODE 6712-01-P