[Federal Register Volume 61, Number 101 (Thursday, May 23, 1996)]
[Rules and Regulations]
[Pages 25810-25813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12967]



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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 24 and 90

[FCC 96-203]


Waiver of Bid Withdrawal Payment Provisions

AGENCY: Federal Communications Commission.

ACTION: Final rule; waiver.

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SUMMARY: The Commission has before it requests for waiver of the rules 
governing bid withdrawal payments associated with spectrum auctions. On 
December 18, 1995, ATA filed a request for waiver of the bid withdrawal 
payment applicable to the 900 MHz SMR auction. On January 24, 1996, MAP 
filed a request for waiver of the bid withdrawal payment applicable to 
the broadband PCS C block auction. This Order reduces ATA's bid 
withdrawal payment to two times the minimum bid increment for license 
11P in Round 9 of the 900 MHz SMR auction, or $45,594. In addition, 
this Order reduces MAP's withdrawal payment to the minimum bid 
increment for license B-380 in Round 10 of the broadband PCS C block 
auction, or $206,400.

EFFECTIVE DATE: May 3, 1996.

FOR FURTHER INFORMATION CONTACT:
James Hedlund at 202-418-0660.

SUPPLEMENTARY INFORMATION: This Order, adopted May 2, 1996, and 
released May 3, 1996, is available for inspection and copying during 
normal business hours in the FCC Reference Center, Room 239, 1919 M 
Street NW., Washington D.C. The complete text may be purchased from the 
Commission's copy contractor, International Transcription Service, 
Inc., 2100 M Street, N.W., Suite 140, Washington D.C. 20037 (202) 857-
3800.

ORDER

I. Introduction

    1. The Commission has before it Requests for Waiver of its rules 
filed by Atlanta Trunking Associates, Inc. (``ATA'') and MAP Wireless, 
L.L.C (``MAP''). Specifically, ATA and MAP request waivers of the rules 
governing bid withdrawal payments associated with spectrum auctions. By 
this Order, we hereby resolve ATA's and MAP's Requests. Specifically, 
this Order reduces ATA's bid withdrawal payment to two times the 
minimum bid increment for license 11P in Round 9 of the 900 MHz SMR 
auction, or $45,594. In addition, this Order reduces MAP's withdrawal 
payment to the minimum bid increment for license B-380 in Round 10 of 
the broadband PCS C block auction, or $206,400.

II. Background

    2. Waiver Requests. On December 18, 1995, ATA filed a request for 
waiver of the bid withdrawal payment applicable to the 900 MHz SMR 
auction. Under our rules, the amount of the bid withdrawal payment is 
equal to the difference between the withdrawn bid amount and the amount 
of the subsequent winning bid, if the subsequent winning bid is lower. 
No withdrawal payment is assessed if the subsequent winning bid exceeds 
the withdrawn bid.
    3. In its request, ATA alleges it erroneously submitted a bid of 
$125,025,000 for license 11P (Atlanta, GA) in Round 9 of the 900 MHz 
SMR auction. Pursuant to our auction procedures, the minimum acceptable 
bid for that license in Round 9 was $121,000. According to ATA, it had 
intended to submit a bid of $125,025, but inadvertently added three 
extra

[[Page 25811]]

zeroes to its bid. ATA immediately reported the error after Round 9 had 
closed and withdrew its bid in Round 10. When the SMR auction closed, 
the winning bid for license 11P was $531,000. A declaration by L. 
Harold Josey, ATA's vice-president and one of its authorized bidders, 
describes the events surrounding the erroneous bid submission. ATA 
states that it cannot explain how the typographical error occurred, but 
suggests that the error may be due to a function of the Commission's 
bidding software.
    4. ATA claims that the public interest will not be served by strict 
enforcement of the bid withdrawal payment rule in this instance. ATA 
notes that the error occurred early in the auction and hence there was 
no harm to the integrity of the auction or other bidders. Because 
imposition of the full bid withdrawal payment would be a significant 
burden on ATA, it claims that the ``equities demonstrate that ATA 
should be provided relief from the Commission's rules as it relates to 
this typographical error.''
    5. On January 24, 1996, MAP filed a request for waiver of the bid 
withdrawal payment applicable to the broadband PCS C block auction. 
Under our rules, the amount of the bid withdrawal payment is equal to 
the difference between the withdrawn bid amount and the amount of the 
subsequent winning bid, if the subsequent winning bid is lower. No 
withdrawal payment is assessed if the subsequent winning bid exceeds 
the withdrawn bid.
    6. In its request, MAP alleges that due to a typographical error, 
it submitted a bid of $22,680,020 for license B-380 (Rockford, IL) in 
Round 10 of the broadband PCS C block auction. Pursuant to our auction 
procedures, the minimum accepted bid for that round and license was 
$2,267,000. MAP states that it intended to submit a bid of $2,268,002, 
slightly higher than the minimum accepted bid. MAP withdrew its 
$22,680,020 bid during the bid withdrawal period for Round 10. As of 
Round 170, the standing high bid on license B-380 was $14,433,000. A 
declaration and statement by Christopher O. Mantle, one of MAP's 
authorized bidders, describes the events surrounding the erroneous bid 
submission. MAP alleges that the error was attributable to a ``quirk'' 
in the Commission's bidding software. MAP claims that the error 
occurred because the bidding software places a zero on each bid entry 
line, which does not disappear when a bid is entered unless it is 
manually removed. As a result, MAP's bid for that round and license was 
ten times greater than its intended bid. According to MAP, the only 
error attributable to it is ``failing to notice and delete the 
extraneous zero caused by the bidder's software format.''
    7. MAP argues that imposition of the bid withdrawal payment for its 
erroneous bid would be inequitable and contrary to the public interest. 
It observes that the Auctions Division has granted waiver requests to 
other C block applicants which sought to correct clerical or 
typographical errors. Finally, MAP argues that Commission precedent and 
principles of administrative law require that parties be allowed to 
correct typographical errors when dealing with governmental agencies.
    8. Public Notice. On February 7, 1996, the Wireless 
Telecommunications Bureau (``Bureau'') released a Public Notice seeking 
comment on requests for waiver of the Commission's bid withdrawal 
payment provisions, including the requests of ATA and MAP. See Public 
Notice, DA 96-145, ``Comment Sought on Requests to Waive Bid Withdrawal 
Payments and General Enforcement Guidelines'' (rel. February 7, 1996). 
The waiver requests were filed by ATA, MAP and PCS 2000, L.P. We note 
that we are deferring action on the request filed by PCS 2000 until a 
later date. In addition, the Bureau sought comment on proposals to 
reduce the bid withdrawal payment requirement in cases of erroneous 
bids attributed to inadvertent or typographical mistakes. The Bureau 
proposed reducing the bid withdrawal payment in such circumstances to 
the greater of the upfront payment amount for the market for which the 
bid was submitted, or five percent of that market's winning bid. 
Alternatively, the Bureau proposed to treat a mistaken bid that is 
withdrawn in the same round as if it were made at the minimum accepted 
bid (if there are no other bids for that round), or at the second 
highest bit (if there are other bids above the minimum accepted bid). 
The required payment would be the difference between this amount and 
the subsequent winning bid. Finally, the Bureau sought comment on 
whether any circumstances should warrant a complete waiver of the bid 
withdrawal payment (e.g., a bidding error clearly attributable to a 
mistake by the Commission, its staff or contractors).
    9. Comments. In total, 20 parties submitted Comments, and six 
parties submitted Reply Comments, concerning the waiver requests and 
the Bureau's proposed enforcement guidelines. Six parties, all 
participants in the broadband PCS C block auction, submitted comments 
urging the Commission to deny the various waiver requests and strictly 
adhere to the applicable bid withdrawal payment provisions. Generally, 
these commenters argue that a waiver of the bid withdrawal payment 
provisions would distort the auction process and prejudice other 
bidders. For example, Quantum claims that if the Commission grants any 
of these waivers, it would undermine the integrity of the auctions by 
announcing to bidders that they may strategically place ``erroneous'' 
bids and withdraw them with impunity. These commenters also note that 
the bidding software contains numerous safeguards which are designed to 
encourage bidders to verify their bids prior to submission. PCS One 
claims that these safeguards have been effective, as bidders in the 
broadband PCS C block auction have reported only three mistaken bids 
out of the approximately 11,500 bids submitted as of February 9, 1996. 
They further note that the Commission staff clearly explained the bid 
withdrawal provisions as well as the safeguards built in to the bidding 
software prior to the commencement of the auction.
    10. Eight parties, including participants in the broadband PCS C 
block auction and the 900 MHz SMR auction, urge the Commission to grant 
the waiver requests and impose no bid withdrawal payment requirement 
when it is clear that an erroneous bid is the result of an honest 
typographical or clerical mistake. Some of these commenters note that 
the Commission adopted the bid withdrawal payment provisions to deter 
insincere bidding. They further note that in adopting these provisions, 
the Commission did not contemplate the possibility that bidders might 
submit erroneous bids, resulting from typographical or clerical errors. 
Several commenters also argue that alleged problems with the 
Commission's bidding software necessitate granting the waiver requests 
at issue. For example, MAP claims that its erroneous bid resulted from 
an ``irregularity'' in the ``Go to Market'' function of its competitive 
bidding software. MAP notes that after it filed its request for waiver, 
the Wireless Telecommunications Bureau released a Public Notice which 
stated that ``when a bidder begins keying in a bid amount, the zero 
remains in the bid column as the bid amount's final digit.'' Wilderness 
claims that the fact that ``several diligent bidders'' have submitted 
erroneous bids with an extra zero four times indicates that the 
Commission's software is ``far from fool proof.''
    11. Antigone suggests that there is an established body of case law 
governing mistaken bids that result from clerical or

[[Page 25812]]

arithmetic errors. According to Antigone, these cases hold that when a 
bidder demonstrates that its bid was the result of clerical or 
arithmetic errors, the government agency holding the auction cannot 
require a forfeiture. Antigone relies particularly on Ruggiero v. 
United States for the proposition that once a factual determination is 
made that a bidder made a clerical error, equitable principles compel 
the remission of any bid withdrawal penalty. Similarly, PCS 2000 relies 
on the practice under certain provisions of the Federal Acquisition 
Regulation (FAR) for the proposition that bidders who submit erroneous 
bids may be permitted to withdraw without paying any forfeiture.
    12. In addition, several parties submitted comments on our proposed 
alternatives to the enforcement of the bid withdrawal payment 
provisions in cases of erroneous bids caused by inadvertent, 
typographical mistakes. One commenter, Auction Strategy Inc. (ASI), 
favors the Commission's second proposal, but with some modification. 
ASI describes how a bidder can ``game'' the second proposal so as to 
find out critical information concerning a competitor's bidding 
strategy without being subject to any bid withdrawal payment. ASI 
proposes modifications which it claims would reduce the bid withdrawal 
payment for erroneous bids without encouraging bidders to make 
strategic ``mistakes.''

III. Discussion

    13. The Commission established a bid withdrawal payment requirement 
in order to discourage insincere bidding. Insincere bidding, whether 
purely frivolous or strategic, distorts the price information generated 
by the auction process and reduces efficiency.
    14. The bid withdrawal payment provisions are silent on how to 
address erroneous bids which result from typographical or clerical 
errors. In cases in which the erroneous bid exceeds the intended bid by 
factors of 10 or more, full application of the bid withdrawal payment 
provisions could impose an extreme and unnecessary hardship on most 
bidders. We believe, however, that it may be extremely difficult for 
the Commission to distinguish between ``innocent'' erroneous bids and 
``strategic'' erroneous bids. Furthermore, we are mindful of the 
negative impact that erroneous bids may have on the integrity of the 
auction. In particular, an erroneous bid distort the price information 
generated by the auction process and reduce efficiency. Such distortion 
and inefficiency may result regardless of whether the bid was the 
result of an innocent error or was strategically placed. Consequently, 
we have strongly urged bidders to exercise great caution when 
submitting their bids.
    15. A waiver of the bid withdrawal payment provisions applicable to 
the 900 MHz SMR auction and to the broadband PCS C block auction is 
appropriate when a petitioner demonstrates that special circumstances 
warrant a deviation from the rule and such deviation will serve the 
public interest. Northeast Cellular Telephone Company v. FCC, 897 F.2d 
1164, 1166 (D.C. Cir., 1990), citing Wait Radio v. FCC, 418 F.2d 1153 
(D.C. Cir. 1969). On the facts before us, we believe that ATA and MAP 
have demonstrated that waivers of the applicable bid withdrawal payment 
provisions are appropriate. ATA and MAP have shown that they submitted 
erroneous bids which exceeded their intended bids by factors of ten or 
more. Under these circumstances, full imposition of the bid withdrawal 
payment provisions would impose an extreme and unnecessary financial 
hardship. As noted above, these provisions were adopted to discourage 
insincere bidding. They were not adopted to impose financial hardship 
on bidders who submit mistaken bids. Full enforcement of the bid 
withdrawal payment provisions would not serve the underlying purpose of 
these provisions, nor would it serve the public interest. For these 
reasons, we believe that ATA and MAP are entitled to a partial waiver 
of the applicable bid withdrawal payment provisions.
    16. In cases of erroneous bids, some relief from the bid withdrawal 
payment requirement appears necessary. We are concerned, however, that 
a complete waiver of these provisions could threaten the economic 
efficiency of the auction process. Such a precedent would encourage 
future bidders who are uncertain about how much more to bid on a 
particular license to submit ``mistaken'' bids intentionally so as to 
gain insight into competitors' valuation of licenses. As ASI points 
out, accurate bids are essential to the integrity of the auction 
process. In this regard, we believe that the cases and the practice 
under certain provisions of the Federal Acquisition Regulation (FAR) 
cited by Antigone and PCS 2000 are inapposite because of the unique 
auction methodology employed here (e.g., simultaneous multiple round 
bidding). We also disagree with MAP's contention that because the 
Auctions Division has previously granted waivers allowing applicants to 
correct typographical or clerical errors in their short-form 
applications (FCC Form 175s), MAP should be entitled to correct the 
typographical or clerical error which resulted in its erroneous bid. 
The waivers MAP cites allowed for changes to be made to the applicant's 
FCC Form 175s. These waivers were granted prior to the commencement of 
the auction where concerns about strategic manipulation of the bidding 
process were non-existent. Furthermore, Commission precedent allowed 
for changes to short-form applications to be made, whereas the 
Commission has never allowed a bidder to change its bids without being 
subject to the bid withdrawal payment provisions.
    17. Therefore, we intend to partially waive these provisions in a 
manner which is fair to bidders and which preserves the economic 
efficiency of the auction process. For those instances in which bidders 
submit an erroneous bid, we generally agree that the approach proposed 
by ASI, which is a modification of our second proposal contained in the 
Public Notice, is most appropriate. In determining an appropriate bid 
withdrawal payment, we will take into consideration the round and stage 
in which a mistaken bid is withdrawn. In general, the approach 
described below follows the guidelines suggested by ASI and is designed 
to eliminate the strategic benefit of purposely submitting mistaken 
bids.
    18. Specifically, 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 it was submitted, the bidder should not be 
eligible for any reduction in the bid withdrawal payment.


[[Page 25813]]


    Example: Bidder X wishes to place the minimum accepted bid for 
Market 1. The standing high bid for this market after Round 19 of 
the auction is $1 million. The minimum bid increment is set at ten 
percent. Thus, the minimum accepted bid for Market 1 in Round 20 
would be $1.1 million. In Round 20, Bidder X erroneously submits a 
bid of $110 million. If Bidder X withdraws it erroneous bid during 
the bid withdrawal period for Round 20, it would be subject to a bid 
withdrawal payment of the minimum bid increment for Round 20, 
$100,000, or the difference between $1.1 million and the subsequent 
winning bid, whichever is greater. If Bidder X does not withdraw its 
bid until Round 21, and the auction is in Stage I or Stage II, it 
would be subject to a bid withdrawal payment of two times the 
minimum bid increment, $200,000, or the difference between $1.2 
million and the subsequent winning bid, whichever is greater. If 
Bidder X waits until Round 22 or later to withdraw its erroneous 
bid, it would be subject to the standard bid withdrawal payment. 
Similarly, if the auction is in Stage III, and Bidder X fails to 
withdraw its erroneous bid in Round 20, it would be subject to the 
standard bid withdrawal payment.

    19. Under this approach, the required bid withdrawal payment would 
be substantial enough to discourage strategic placement of erroneous 
bids without being so severe as to impose an untenable burden on 
bidders. In addition, the payment is tailored to the size of the 
license and the point in the auction when the mistaken bid was 
submitted. For example, if a mistaken bid is submitted early in a 
simultaneous, multiple round auction, the potential damage to the 
economic efficiency of the auction is lower than if it were submitted 
during the later stages of the auction, and the required bid withdrawal 
payment would be correspondingly lower. As an auction progresses, 
however, the potential gain from a strategically-placed erroneous bid 
is higher, and the potential damage to the efficiency of the auction 
process is higher. In other words, erroneous bids cause greater damage 
to the economic efficiency of the auction process as market prices 
approach their final valuation. Thus, the cost of submitting an 
erroneous bid during the later stages of an auction is higher than it 
would be if it were submitted earlier in an auction.
    20. We have decided to grant ATA and MAP relief from full 
enforcement of the bid withdrawal payment rules. Specifically, we will 
utilize the approach described above to reduce ATA's bid withdrawal 
payment to two times the minimum bid increment for license 11P in Round 
9, or $45,594. Similarly, we will utilize the approach described above 
to reduce MAP's bid withdrawal payment to the minimum bid increment for 
license B-380 in Round 10 of the broadband PCS C block auction, or 
$206,400.
    21. We delegate to the Wireless Telecommunications Bureau (the 
``Bureau'') the authority to resolve similar requests for waiver of the 
Commission's bid withdrawal provisions. In order for a party to be 
eligible for such a waiver, it must submit a request for waiver 
accompanied by a sworn declaration attesting to the veracity of the 
factual circumstances surrounding the erroneous bid submission. We will 
continue to evaluate these requests on a case-by-case basis. We caution 
that relief will not be available to bidders if there is evidence that 
they have engaged in insincere or frivolous bidding or have otherwise 
acted in bad faith. We consider all allegations of bidder misconduct 
very seriously.

IV. Ordering Clauses

    22. Accordingly, it is ordered That the waiver request submitted by 
Atlanta Trunking Associates, Inc. is granted to the extent indicated 
above.
    23. It is further ordered That Atlanta Trunking Associates, Inc. is 
subject to a bid withdrawal payment requirement of $45,594.
    24. It is further ordered That the waiver request submitted by MAP 
Wireless, L.L.C. is granted to the extent indicated above.
    25. It is further ordered That MAP Wireless, L.L.C. is subject to a 
bid withdrawal payment requirement of $206,400.
    26. It is further ordered That we delegate to the Wireless 
Telecommunications Bureau the authority to resolve bid withdrawal 
payment waiver requests involving factual circumstances similar to 
those presented here.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-12967 Filed 5-22-95; 8:45 am]
BILLING CODE 6712-01-M