33066 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules

1Telecommunications Act of 1996, Public Law

No. 104–104, 110 Stat. 56 (1996).

2 47 U.S.C. 151 et seq.

3 47 U.S.C. 257(a).

4 47 U.S.C. 257(b).

5 47 U.S.C. 257(c).

6 47 U.S.C. 309(j).

7See, e.g., 47 U.S.C. § 214 (Commission must

certify that public convenience or necessity requires

construction or extension of lines); 47 CFR § 303

(Commission must regulate radio as public interest,

convenience or necessity requires); 47 U.S.C. 307(a)

(Commission must grant radio licenses that serve

the public convenience, interest, or necessity).

8The Congressional Record provides:

[W]hile we should all look forward to the

opportunities presented by new, emerging

technologies, we cannot disregard the lessons of the

past and the hurdles we still face in making certain

that everyone in America benefits equally from our

country’s maiden voyage into cyberspace. I refer to

the well-documented fact that minority and

women-owned small businesses continue to be

extremely under represented in the

telecommunications field. * * * Underlying this

amendment [Section 257] is the obvious fact that

diversity of ownership remains a key to the

competitiveness of the U.S. telecommunications

marketplace.

142 Cong. Rec. H1141 at H1176–77 (daily ed. Feb.

1, 1996) (statement of Rep. Collins).

§ 540.9 [Amended]

5. In section 540.9, paragraph (j) is

removed, and paragraph (k) is

redesignated as paragraph (j).

Appendix A to Subpart A—[Amended]

6. The following sentence is added at

the end of Paragraph 12 of Appendix A

to subpart A—Example of Escrow

Agreement for Use Under 46 CFR

540.5(b):

The Operator and/or Ticket Issuer are not

entitled to, nor have any interest in, any

funds payable from this account to the extent

such funds represent unearned passenger

revenue, as that term is defined in subpart A

of part 540 of title 46, Code of Federal

Regulations.

* * * * *

By the Commission.

Joseph C. Polking,

Secretary.

[FR Doc. 96–16210 Filed 6–25–96; 8:45 am]

BILLING CODE 6730–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Chapter I

[General Docket No 96–113; FCC 96–216]

Identifying and Eliminating Market

Entry Barriers for Small Businesses

AGENCY: Federal Communications

Commission.

ACTION: Proposed rule; notice of inquiry.

SUMMARY: The attached Notice of

Inquiry (NOI) commences a proceeding

to examine barriers to small business

entry into the telecommunications

marketplace. Section 101 of the

Telecommunications Act of 1996 (1996

Telecommunications Act) adds new

Section 257 to the Communications Act,

which requires the Commission, within

15 months after enactment, to complete

a proceeding to identify and eliminate

market entry barriers for entrepreneurs

and other small businesses in the

provision and ownership of

telecommunications services and

information services, or in the provision

of parts or services to providers of

telecommunications services and

information services. Through this NOI,

the Commission initiates an omnibus

Section 257 proceeding and will

undertake specific initiatives that

further the objective of reducing market

entry barriers for small businesses. The

record developed in connection with

these intiatives also will, assist us in

achieving our mandate under Section

309(j) of the Communications Act of

1934 to disseminate licenses for

auctionable spectrum-based services to

small businesses, rural telephone

companies, and businesses owned by

women and minorities, as well as in

fulfilling our general obligation to serve

the public interest.

DATES: Comments must be submitted on

or before July 24, 1996 and reply

comments are due on or before August

23, 1996.

ADDRESSES: Comments and reply

comments may be mailed to the Office

of the Secretary, Federal

Communications Commission,

Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT:

Linda L. Haller, Office of General

Counsel, at (202) 418–1720 or S. Jenell

Trigg, Office of Communications

Business Opportunities, at (202) 418–

0990.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Notice of

Inquiry which was adopted on May 10,

1996, and released on May 21, 1996.

The complete text of this NOI is

available for inspection and copying

during normal business hours in the

FCC Reference Center (room 239), 1919

M Street, N.W., Washington, D.C., online at the Office of Communications

Business Opportunities’ web site via the

FCC’s Internet Home Page at

www.fcc.gov., and may also be

purchased from the Commission’s copy

contractor, International Transcription

Service (202) 857–3800, 2100 M Street,

N.W., Suite 140, Washington, D.C.

20037.

I. Introduction

1. Section 101 of the

Telecommunications Act of 1996 (1996

Telecommunications Act),1 adds new

Section 257 to the Communications Act

of 1934.2 Section 257 requires the

Commission, within 15 months after

enactment, to complete a proceeding

‘‘for the purpose of identifying and

eliminating, by regulations pursuant to

its authority under this Act * * *

market entry barriers for entrepreneurs

and other small businesses in the

provision and ownership of

telecommunications services and

information services, or in the provision

of parts or services to providers of

telecommunications services and

information services.’’ 3 In

implementing Section 257, the

Commission must ‘‘promote the policies

and purposes of this Act favoring

diversity of media voices, vigorous

economic competition, technological

advancement, and promotion of the

public interest, convenience and

necessity.’’ 4 Every three years following

the completion of the market entry

barriers proceeding, the Commission

must report to Congress on regulations

that have been issued to eliminate

barriers and any statutory barriers that

the Commission recommends be

eliminated.5

2. This Notice of Inquiry (NOI)

commences the Commission’s omnibus

Section 257 proceeding. We also will

undertake specific initiatives that

further the objective of Section 257 to

reduce market entry barriers for small

businesses. The record developed in

connection with these initiatives also

will assist us in achieving our mandate

under Section 309(j) of the Act 6 to

disseminate licenses for auctionable

spectrum-based services to small

businesses, rural telephone companies,

and businesses owned by women and

minorities, as well as in fulfilling our

general obligation to serve the public

interest.7

3. We also inquire whether small

businesses owned by minorities or

women face unique entry barriers. We

explore this area because the legislative

history of Section 257 suggests that

Congress was concerned about the

underrepresentation of minority or

women-owned small businesses in the

telecommunications market and sought

to increase competition by diversifying

ownership.8 In addition, Section 309(j)

specifically requires that we further

opportunities for businesses owned by

women and minorities in the provision

of spectrum-based services, because a

portion of small telecommunications

businesses under Section 257 are owned

by women and minorities, and because
Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules 33067

9 142 Cong. Rec. H1078–03, H1113–14, Joint

Explanatory Statement of the Committee of

Conference at 23.

10 142 Cong. Rec. H1078–03 at H1113. In debates

preceding passage of the 1996 Telecommunications

Act, two members of Congress expressed the view

that Section 257 would cover conduct including

that precluded by new Section 222(e), 47 U.S.C.

§ 222(e), which prohibits local telephone service

providers from charging discriminatory or

unreasonable rates, or setting discriminatory or

unreasonable terms or conditions, in selling

subscriber lists to independent directory publishers.

142 Cong. Rec. H1145–06 at H1160 (daily ed. Feb.

1, 1996) (statement of Rep. Barton); 142 Cong. Rec.

E184–03 (daily ed. Feb. 6, 1996) (extension of

remarks by Rep. Paxon).

11 ‘‘Report of the FCC Small Business Advisory

Committee to the Federal Communications

Commission Regarding Gen Docket 90–314,’’

reprinted at 8 FCC Rcd 7820, 7828 (1993) (SBAC

PCS Report) (citing Joint Petition for Further

Rulemaking of Advanced Mobilecomm

Technologies, Inc. and Digital Spread Spectrum

Technologies, Inc., in Gen Docket 90–314, Exhibit

# 3, at 12–13).

12For example, according to Edge Media,

worldwide revenues for Personal Communications

Services (PCS) could grow to $31 billion for

equipment and services by the year 2000, The

Telecommunications Industry A Market

Opportunity Analysis, Federal Communications

Commission, Office of Communications Business

Opportunities (June 1995) (1995 OCBO Analysis) at

17 & n.30 (citing 1995 Telecommunications Market

Review and Forecast, North American

Telecommunications Association), and PCS is

expected to have 13.5 million subscribers by the

year 2000, id. at 1. The cellular market itself is

growing rapidly: subscribership increased from

approximately 5 million in 1990 to over 24 million

in 1994. Id. The cable industry generated nearly $23

billion in 1994 and revenues will likely continue

to climb, given that over 65% of all households

with television sets subscribe to cable for video

programming and over 95% of the country is wired

for cable. Id. at 3.

13For example, the SBAC noted that SBA sales

and employment data for the period 1989–1991

indicated that while the total number of small

telecommunications enterprises had increased,

cumulative market share possessed by those

businesses decreased significantly. ‘‘Report of the

FCC Small Business Advisory Committee to the

Federal Communications Commission Regarding

Gen Docket 90–314,’’ reprinted at 8 FCC Rcd 7820,

7826 (1993) (SBAC PCS Report). Stated differently,

bigger businesses were commanding larger portions

of telecommunications revenues. Of a total of 990

firms in Standard Industrial Code 4812

(radiotelephone industries) in 1989, 971 firms with

249 employees or less possessed a 35.1%

cumulative market share in 1991, compared to 927

firms in the same employment size range with a

cumulative market share of 52.5% in 1989. Id. In

contrast, there were a total of 19 firms with over 249

employees commanding a 64.9% cumulative

market share in 1991, compared to 21 firms of the

same size range with a cumulative market share of

47.5% in 1989. Id.; see also FCC,

‘‘Telecommunications Industry Revenue: TRS Fund

Worksheet Data’’ (February 1996) at Table 21 (of all

1,347 local exchange carriers (LEC) filing FCC Form

431 Telecommunications Relay Service (TRS) Fund

Worksheets, the top fifth represent 98% of all LEC

revenues; of all 97 interexchange carriers (IXC)

filing TRS Fund Worksheets, the top fifth represent

99% of all IXC revenues); Implementation of

Section 309(j) of the Communications Act—

Competitive Bidding, Fifth Report and Order, 9 FCC

Rcd 5532, 5578, 59 Fed. Reg. 37,566 (1994)

(Competitive Bidding Fifth Report and Order)

(comments of DCR Communications asserting that

ten large companies—the six RBOCs, AirTouch

(formerly owned by Pacific Telesis), McCaw (now

owned by AT&T), GTE and Sprint—control nearly

86 percent of the cellular industry, and that nine

of these ten companies control 95% of the cellular

population and licenses in the 50 BTAs that have

one million or more people).

14Consistent with the definition of ‘‘minority’’ in

our rules, minority identification should be Black,

Hispanic, American Indian, Alaskan Native, Asian,

or Pacific Islander, as appropriate. See, e.g., 47 CFR

§§ 1.1621(b) and 24.720(i); see also Race and Ethnic

Standards for Federal Statistics and Administration

Reporting, OMB Statistical Policy Directive, No. 15

(1977).

evidence suggests that these entities

encounter unique market barriers.

II. Background

4. The primary purpose of this inquiry

is to fulfill our mandate under Section

257 to identify and eliminate market

barriers for small businesses in the

provision and ownership of

telecommunications and information

services, and in the provision of parts or

services to providers of

telecommunications services and

information services. We interpret

‘‘market entry barriers’’ to include

obstacles that deter entrepreneurs from

forming small businesses, barriers that

impede entry into the

telecommunications market by existing

small businesses, and obstacles that

small telecommunications businesses

face in providing service or expanding

within the telecommunications

industry, e.g., those that inhibit a paging

company from expanding into a new

geographic area or new service such as

cellular.

5. The legislative history of Section

257 essentially parallels the language of

the enacted provision. The Conference

Report states: ‘‘The conference

agreement adopts the House provisions

with minor modifications as a new

Section 257 of the Communications

Act.’’ 9 There was no provision in the

Senate bill and the House amendment

stated: ‘‘Section 250 [now Section 257]

requires the Commission to adopt rules

that identify and eliminate market entry

barriers for entrepreneurs and small

businesses in the provision and

ownership of telecommunications and

information services. The Commission

must review these rules and report to

Congress every three years on how it

might prescribe or eliminate rules to

promote the purposes of this section.’’ 10

6. Small businesses play a significant

role in the U.S. economy. According to

the U.S. Small Business Administration

(SBA), in 1992 (the last year for which

information is available), small

businesses constituted the vast majority

of all employers, employed 53% of the

private work force, and provided 50% of

all receipts. Research also has shown

that small firms innovate at a per person

rate twice that of large firms, spend

more money on research and

development (R&D), and more

efficiently convert R&D efforts to new

products than large firms.11

Furthermore, small businesses are able

to serve narrower niche markets that

may not be easily or profitably served by

large corporations, especially as large

telecommunications expand globally.

Despite the role of small businesses in

the economy, and the growth of the

telecommunications market,12 small

businesses currently constitute only a

small portion of telecommunications

companies.13

III. Identifying Market Barriers

A. General Market Barriers

7. In this section, we first request

commenters to provide profile data

about small telecommunications

businesses, including financing sources

and terms, services provided, markets

served, geographic areas of operation,

and employee workforce. This

information will assist us in identifying

market barriers and designing

appropriate measures to eliminate

barriers. Commenters may submit

individualized or aggregated data. We

request commenters to provide the

following information in as much detail

as possible regarding particular services,

including but not limited to PCS,

cellular, paging, SMR, satellite, radio,

television, wired cable, wireless cable,

local exchange, long-distance, access,

on-line, messaging, and international

services, and resale of any such service,

as well as information regarding

businesses that provide parts or services

to providers of telecommunications

services and information services:

(1) Ownership structure, including

identity of owner(s) by gender and racial

group,14 as well as percentage of

minority or female control;

(2) Communications service(s)

provided;

(3) Geographic region(s) served;

(4) Primary markets (e.g., businesses,

residences, government);

(5) Number of employees, job

categories (i.e., officials and managers,

professionals, technicians, clerical), and

employee composition in job categories

by race and gender.

(6) Capital requirements for entry or

expansion;

(7) Funding sources and methods of

raising capital;

(8) Revenue, income and profit levels.

8. To help fulfill our responsibilities

under Sections 257 and 309(j), we

request comment on the following

questions regarding market barriers.
33068 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules

15Section 257 requires that we report to Congress

any statutory barriers that the Commission

recommends be eliminated. 47 U.S.C. 257(c).

16 1992 Small Business Act, sections 112(4) and

33(a)(4).

17Public Law No. 100–533 (1988).

18 ‘‘Financing the Business, A Report on Financial

Issues from the 1992 Biennial Membership Survey

of Women Business Owners,’’ The National

Foundation for Women Business Owners (October

1993).

19 ‘‘Annual Report to the President and Congress,’’

National Women’s Business Council (1992) at 11.

20Policies and Rules Regarding Minority and

Female Mass Media Ownership of Mass Media

Facilities, Notice of Proposed Rulemaking, 10 FCC

Rcd 2788, 2791, 60 Fed. Reg. 6,068 (1995)

(Minority/Female Mass Media Ownership NPRM).

Comments should be as specific as

possible and identify with particularity

the types of services and geographic

regions covered.

(1) What obstacles do small

businesses face in accessing capital and

credit?

(2) Do small businesses obtain capital

and credit under terms and conditions

less favorable than those provided large

businesses? If so, why?

(3) What difficulties do small

businesses face in their dealings with

suppliers, vendors, contractors, or FCC

licensees?

(4) What obstacles do small

businesses face in their abilities to

resell, interconnect, or benefit from

economies of scale?

(5) Do high deposit requirements

deter small business entry into resale?

(6) Do small businesses have

difficulty attracting or retaining clients?

(7) Do small businesses have

difficulty dealing with trade

associations and other private entities?

(8) Do small businesses have

particular difficulties in obtaining

government contracts, licenses,

franchises, or other government

benefits? Have small businesses faced

any such problems regarding FCC

policies or rules?

(9) Do contracts for a single bidder to

serve a large volume and diversity of

companies through one contract

disadvantage small businesses?

(10) Do small businesses encounter

difficulties attracting strategic partners?

(11) In forming alliances with other

entities, are small businesses required to

do so under unfavorable terms and

conditions for the small business?

(12) Are there unique obstacles that

small businesses face in entering or

operating in the telecommunications

field that are not faced by small

businesses operating in other sectors

(for example, in the retail or service

sectors)?

(13) Do small businesses experience

difficulties identifying and obtaining

access to spectrum?

9. We request comment on how these

impediments vary depending on the

particular service provided. What

particular types of businesses have

difficulty getting started, operating, and

expanding? Does the cost of capital

differ for small broadcast stations versus

small wireless providers? Does the cost

of capital vary depending on the

particular type of wireless (paging,

SMR, PCS, etc.) or broadcast (television

or radio) service offered? Do any other

market entry barriers exist? For what

services? Parties should comment on the

geographic scope of any identified

barrier, i.e., does the barrier exist

nationwide, or in particular regions or

locales? For any barrier, commenters

also should identify whether it is a

statutory requirement,15 government

regulation, or external factor, e.g.,

difficulty obtaining loans.

10. We also request comment on how

these difficulties are influenced by size.

Are impediments to entry and

expansion greater for very small

businesses? For example, does the cost

of capital increase as the size of a small

business decreases? Do very small

businesses encounter greater difficulties

in dealings with suppliers, vendors, or

contractors than larger small

businesses?

B. Unique Market Entry Barriers

11. In this section, we seek

information to help us identify any

unique obstacles that small

telecommunications businesses owned

by women or minorities encounter in

forming firms, providing service, or

expanding in the telecommunications

market. We explore this area because

first, the legislative history of Section

257 suggests Congress was concerned

about the underrepresentation of

minority and women-owned small

businesses in the telecommunications

market and sought to increase

competition by diversifying ownership.

Second, Section 309(j) specifically

requires that we further opportunities

for businesses owned by women and

minorities in the provision of spectrumbased services. Third, based on our

licensing information and other

statistical data, we know that a portion

of small communications businesses are

owned by women and minorities and

there is evidence that these entities

encounter unique market barriers.

12. Evidence demonstrates that a

principal barrier is minority or female

status, rather than race or gender-neutral

factors, and that this barrier contributes

directly to low participation rates. For

example, in the 1992 Small Business

Act, Congress found that businesses

owned by minorities or women have

particular difficulties in obtaining

capital.16 In the Women’s Business

Ownership Act of 1988,17 Congress

found that women as a group are subject

to discrimination that adversely affects

their ability to raise or secure capital. In

1993, the National Foundation for

Women Business Owners found that

women-owned firms are 22% more

likely to report difficulties with banks

than are businesses at large, and that

removal of financial barriers would

encourage stronger growth among

women-owned businesses, resulting in

much greater growth throughout the

economy.18 Further, in a 1992 Report to

the President and Congress, the National

Women’s Business Council cited lack of

access to capital as the most pervasive

barrier to success for women business

owners.19

13. As to communications businesses

specifically, the American Women in

Radio and Television, Inc. asserts that

‘‘[b]ased on their gender, women today

confront significant barriers in raising

the amount of capital necessary to seize

the ownership opportunity. This lack of

access to capital has contributed

directly to the low level of female

ownership of mass media facilities.’’

The Commission has recognized that

‘‘considerable evidence has been

presented showing that the primary

impediment to minorities seeking to

enter the communications industry or to

increase their mass media holdings has

been lack of access to capital.’’ In April

1995, the National Telecommunications

and Information Administration (NTIA)

found that ‘‘there are real barriers to

minority participation in

telecommunications, and that minorities

often lack access to the types and

amount of capital required to form and

expand telecommunications

businesses.’’ Congressional testimony

regarding minority discrimination in

telecommunications shows that

controlling for education, work

experience, age, gender, and other

factors, bank loan dollars, per dollar of

owner equity investment, are 160%

higher for white firms ($1.85) than black

firms ($1.16).20

14. The relatively low representation

of women or minority-owned

communications businesses also

suggests that these types of businesses

encounter unique obstacles in entering

the telecommunications industry.

According to the U.S. Census Bureau, in

1987 women owned and controlled

1.9% (27) of 1,342 commercial

television stations and 3.8% (394) of

10,244 commercial radio stations in the
Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules 33069

21See Comments of American Women in Radio

and Television, Inc. in MM Docket No. 94–149 and

MM Docket No. 91–140, at 4 n.4 (filed May 17,

1995), citing 1987 Economic Censuses, ‘‘WomenOwned Business,’’ WB87–1, U.S. Department of

Commerce, Bureau of the Census, August 1990

(based on 1987 Census).

After the 1987 Census report, the Census Bureau

did not provide data by particular communications

services (four-digit Standard Industrial

Classification (SIC) Code), but rather by the general

two-digit SIC Code for communications (#48).

Consequently, since 1987, the U.S. Census Bureau

has not updated data on ownership of broadcast

facilities by women, nor does the FCC collect such

data. However, we sought comment on whether the

Annual Ownership Report Form 323 should be

amended to include information on the gender and

race of broadcast license owners. Minority/Female

Mass Media Ownership NPRM, 10 FCC Rcd at 2797.

22 ‘‘Analysis and Compilation of Minority-Owned

Commercial Broadcast Stations in the United

States,’’ U.S. Department of Commerce, National

Telecommunications and Information

Administration, The Minority Telecommunications

Development Program (MTDP) (September 1994).

These percentages are based on reported ownership

of 1,155 commercial television stations and 9,973

commercial radio stations. MTDP considers

‘‘minority ownership’’ as ownership of more than

50% of a broadcast corporation’s stock, or have

voting control in a broadcast partnership.’’ Id. Of

the 11,128 combined radio and television stations

nationwide, minorities owned 2.9% (323). Id.

23 ‘‘Communications’’ firms are a subcategory in

a larger grouping called ‘‘transportation and public

utilities.’’

24 ‘‘1992 Survey of Black-Owned Businesses,’’

U.S. Department of Commerce, Economics and

Statistics Administration, Bureau of the Census

(‘‘1992 Black-Owned Businesses’’); ‘‘1992 Survey of

Women-Owned Businesses,’’ U. S. Department of

Commerce, Economics and Statistics

Administration, Bureau of the Census (1992

Women-Owned Businesses’’). These figures

represent firms classified by the Census Bureau as

Standard Industrial Classification Code (SIC) #48

and 1,517 Black-owned firms out of 43,666 total

communications firms and 13,592 women-owned

firms out of 43,665 total communications firms.

25Factors that may influence participation,

include for example, the type of service, presence

of incumbents, projected cost of a successful bid,

capital requirements for offering service, access to

capital, license coverage area, availability of

Commission bidding incentives, and the extent of

Commission outreach to small minority or womenowned businesses and new entrants.

26 ‘‘Multipoint Distribution Service Questions and

Answers,’’ FCC Auctions, Press Information

(released March 29, 1996) at 3.

27 In the Competitive Bidding Sixth Report and

Order, the Commission noted that many minorityowned and women-owned applicants prepared to

bid in the C Block auction in reliance on race and

gender-based incentives. Thus, their rate of

participation is likely higher than it would have

been in the absence of any pre-auction incentives.

See Amendment of Part 20 and 24 of the

Commission’s Rules—Broadband PCS Competitive

Bidding and the Commercial Radio Service

Spectrum Cap, Notice of Proposed Rulemaking, WT

Docket No. 96–59, GN Docket No. 90–314, 61 Fed.

Reg. 13,133 (released March 20, 1996) (D, E & F

Block NPRM) at ¶ 27 (citing Implementation of

Section 309(j) of the Communications Act—

Competitive Bidding, Sixth Report and Order, 11

FCC Rcd 136, 60 Fed. Reg. 37,786 (1996).

28 Id.

29 ‘‘Distribution of Licenses in PCS C-Block

Auction,’’ FCC Auctions, Press Information

(released May 6, 1996).

30 ‘‘Visitor’s Auction Guide, FCC Auction,

Broadband Personal Communications Services’’

(December 5, 1994) (1994 FCC Visitor’s Auction

Guide) at Section IX.

31 Id. at Section VIII.

32 Id. at Section VII.

33 Id.

United States.21 In 1994, minorities

owned and controlled 2.7% of the

commercial television stations and 2.9%

of the commercial radio stations in the

United States.22 According to the

Census Bureau, in 1992, Blacks owned

3.5% of the entities characterized

generally as communications firms 23

and women owned 31%; and most of

these businesses were solely-owned.24

15. Finally, the participation level of

minority or women-owned businesses

in the Commission’s spectrum auctions

so far suggests that these entities may

face unique obstacles. Because auctions

will continue and various factors

influence participation,25 we are not

able to fully assess participation by

women and minorities. Figures

preliminarily indicate, however, that

participation in auctions without

bidding incentives for minorities and

women is lower than participation in

auctions with incentives. For example,

in the broadband PCS auction for A and

B blocks, which concluded in March

1995, no minority-owned businesses

won a broadband PCS license and only

one license (for one of the lower-priced

markets) was won by a woman-owned

business. In the MDS auction, which

concluded on March 28, 1996, 7.7% of

the eligible bidders claimed womanowned status; 8.4% of the eligible

bidders claimed minority-owned status.

Of the 67 winners, 5.9% indicated they

were women-owned; 7.5% indicated

they were minority-owned.26 In the 900

MHz SMR auction, which concluded on

April 15, 1996, 7.8% of the eligible

bidders claimed woman-owned status

and 3.9% claimed minority-owned

status. Of the 80 successful bidders,

6.3% indicated they were womenowned; 5% indicated they were

minority-owned. Statistics for the PCS C

block auction, which ended May 6,

1996, were higher, even though no

competitive bidding incentives were

available for businesses owned by

minorities or women: 27 13.3% of the

eligible bidders claimed woman-owned

status, 18.0% claimed minority-owned

status; 28 and of the 89 successful

bidders, 16.9% indicated they were

woman-owned; 28.1% indicated they

were minority-owned.29

16. By comparison, auctions that

offered incentives for women and

minority-owned businesses yielded

higher participation by those entities

(both as bidders and winners).

For example, in the July 1994 IVDS

auction, 22.5% of the registered bidders

claimed status as minority-owned, and

33.2% as women-owned; of the

auctioned licenses, 23.6% were

awarded to bidders claiming minorityowned status, and 38.2% to bidders

claiming women-owned status.30 In the

nationwide narrowband PCS auction,

also held in July 1994, of the 29

qualified bidders, 20.1% claimed

minority-owned status and 10.3%

claimed women-owned status.31 None of

the winners were minority or womenowned businesses. In the Fall 1994

regional narrowband PCS auction,

which offered a larger bidding credit

than was available in the nationwide

narrowband PCS auction, of the 28

qualified bidders, 35.7% claimed

minority-owned status, and 28.6 %

claimed women-owned status.32 Of the

nine winners, 22.2% claimed minorityowned status, and 33.3% claimed

women-owned status.33

17. We seek a broad and

comprehensive record from which to

determine whether the experiences of

women and particular minority groups

in entering and participating in the

telecommunications market warrant

adopting more significant gender or

race-based incentives for minority or

women-owned small businesses. Parties

may submit personal accounts of

individual experiences, studies, reports,

statistical data, or any other relevant

information.

18. Commenters should address

whether there are particular barriers to

entry and expansion based on a small

business owner’s race or gender. If so,

for which services? Do barriers differ by

service, e.g., radio, television, advanced

television, DBS, PCS, equipment

manufacturing? What specific obstacles

do women and minorities encounter in

trying to start small communications

businesses? Are there problems endemic

to small women and minority-owned

telecommunications businesses but not

to small businesses owned by women

and minorities in other industries (e.g.,

retail, real estate), and if so, why? Are

any such difficulties the result of race/

gender neutral factors such as economic

status, geographic location, level of

experience? Are differences in capital

requirements determinative? What other

factors play a role? Commenters should

address to what extent any impediments

are unique to small businesses owned

by women or minorities, rather than

small businesses generally.

19. Discrimination can be a market

entry barrier. Parties may submit

evidence of past or current

discrimination based on race or gender.

Judicial findings of discrimination are
33070 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules

34Parties should be mindful, however, that to the

extent it is applicable to federal action, Croson

requires that the government have a ‘‘ ‘strong basis

in evidence for its conclusion that remedial action

was necessary,’ ’’ City of Richmond v. J.A.Croson,

488 U.S. 469, 500 (1989) (quoting Wygant, 476 U.S.

at 277); see also Memorandum Regarding Adarand

to General Counsels from Walter Dellinger,

Assistant Attorney General, Office of Legal Counsel,

U.S. Department of Justice (dated June 28, 1995)

(DOJ Memorandum) at 11.

35See ‘‘Statement of David Honig, Executive

Director, Minority Media and Telecommunications

Council,’’ En Banc Advanced Television Hearing,

MM Docket No. 87–268 (December 12, 1995) at 2–

3 & n.2.

36 Id. at n.2 citing Southland Television Co., 10

RR 699, 750, recon. denied, 20 FCC 159 (1955)

(awarding a Shreveport VHF license to the owner

of a segregated movie theaters because such

segregation ‘would be legal under the laws of

[Louisiana]’).’’

37See Streamlining Broadcast EEO Rule and

Policies, Vacating the EEO Forfeiture Policy

Statement and Amending Section 1.80 of the

Commission’s Rules to Include Forfeiture

Guidelines, MM Docket No. 96–16, FCC 96–49, 61

Fed. Reg. 9,964 (released February 16, 1996) (1996

EEO Order & NPRM) at ¶ 4 (‘‘employment

discrimination in the broadcast industry . . .

imped[es] opportunities for minorities and women

to learn the operating and management skills

necessary to become media owners and

entrepreneurs’’); see also Policy Statement,

Standards for Assessing Forfeitures for Violations of

the Broadcast EEO Rules, 9 FCC Rcd 929, 930, 59

Fed. Reg. 12,606 (1994) (EEO Forfeiture Policy

Statement), vacated on other grounds, 1996 EEO

Order and NPRM (‘‘increased employment

opportunities are the foundation for increasing

opportunities for minorities and women in all facets

of the communications industry, including

participation in ownership’’).

38See supra note 10 (citing legislative history of

Section 257).

39 47 U.S.C. 154(i).

40Bidding ended in the IVDS MSA auction on

July 29, 1994, regional narrowband PCS auction on

November 8, 1994, MDS auction on March 28, 1996,

900 MHz SMR auction on April 15, 1996, and the

C Block auction on May 6, 1996.

41 ’’$6 Billion Bid so Far in Latest F.C.C. Auction

For Airwaves,’’ N.Y. Times, February 14, 1996, at

D1 Column 6 (noting concerns of one industry

consultant that the C Block auction was overvaluing

the wireless market by 20%); ‘‘Billions Pledged at

Wireless License Auction,’’ Washington Post,

February 17, 1996 at B1 Column 1 (noting that even

with the Commission’s liberal payment terms for

not required.34 Evidence of

discrimination can be derived from a

variety of sources, including academic

research studies, adjudications,

legislative findings, statistical data, and

personal accounts. To the extent

possible, evidence should relate to a

particular racial, ethnic, or gender

group.

20. Women and minority owned

businesses may have experienced

discrimination or difficulty in obtaining

government licenses. These experiences

may have impeded the ability of such

entities to enter the communications

market, and consequently, impeded

subsequent opportunities. We seek

evidence of discrimination or

unfavorable treatment by any

governmental or public entity with

respect to communications-related

licenses, contracts or other benefits. It

has been argued to the Commission that

as a result of our system of awarding

broadcast licenses in the 1940s and

1950s, no minority held a broadcast

license until 1956 or won a comparative

hearing until 1975 35 and that special

incentives for minority businesses ‘‘are

needed in order to compensate for a

very long history of official actions

which deprived minorities of

meaningful access to the radiofrequency

spectrum.’’ 36 We solicit comment on

this particular argument.

21. Race or gender discrimination in

employment may impede participation

and advancement in the

communications industry. Employment

provides business knowledge, judgment,

technical expertise, and entrepreneurial

acumen, and other experience that is

valuable in attaining ownership

positions. For example, the Commission

has found that employment in the

broadcast industry is a valuable

stepping stone to broadcast

ownership.37

22. We seek any evidence that

employment discrimination in the

communications industry has been a

barrier to entry in the

telecommunications market by small

businesses owned by minorities or

women. Submissions should be detailed

and should explain why the commenter

believes the conduct at issue (e.g.,

failure to hire or promote) was based on

race or gender discrimination, rather

than the result of a race or genderneutral factor (e.g., no job vacancy, job

applicant not qualified for the position).

IV. Eliminating Market Barriers

A. Small Businesses Generally

23. Section 257 requires that after

identifying market barriers, we prescribe

regulations to eliminate those barriers.

In implementing this mandate, first,

how should we define small businesses

under Section 257? By number of

employees, gross revenue, net revenue,

assets, or any other factor? Should we

adopt a general size standard or specific

standards for particular services (e.g.,

broadcast, PCS)? For example, the

Commission’s current Section 309(j)

definitions are based on gross revenues

and assets. Are there other factors the

Commission should consider in

defining what constitutes a small

business? Should the Commission

explore minimum capital requirements,

debt/equity ratios, cash flow, net worth

or other indicia of a business’ ability to

enter and compete in the marketplace?

To formulate a policy using such

indicia, the Commission would need

specific financial information for small

businesses generally, and requests that

commenters recommending new

approaches indicate the type of

information needed by the Commission.

24. Second, we seek comments and

proposals regarding ways to eliminate

market entry barriers and enhance

opportunities for small businesses in

communications services, including,

e.g., wireline, wireless, mass media,

cable, satellite. What types of incentives

or requirements would be most effective

in eliminating market entry barriers?

Commenters may propose new

initiatives or suggest changes to existing

rules or make any other

recommendation. Proposals may

address, for example, sale of subscriber

lists to independent directory

publishers as recognized by Congress in

enacting Section 257,38 or any other

area. Commenters should provide data

to support their proposals. Because

Section 257 states that in prescribing

rules to eliminate barriers we must rely

on our rulemaking authority under

provisions of the Act other than Section

257, we also request that commenters

identify specific rulemaking provisions

in the Act, e.g., Section 4(i) 39 that

would support any such proposals.

25. Our Section 309(j) competitive

bidding incentives for small businesses

are examples of the types of

mechanisms we could adopt in

furtherance of our Section 257 mandate.

Have bidding credits, installment

payments, and reduced upfront

payments enhanced opportunities for

small business participation? Did the

Commission’s outreach efforts in

providing information to prospective

bidders enhance small business

participation in each auction? If

commenters believe the Commission’s

existing mechanisms could be modified

to enhance opportunities for small

businesses, please explain how, or

suggest new approaches. In addition, we

seek preliminary views on how the

Section 309(j) incentives have operated

in the five completed auctions

employing small business incentives.40

For example, we are aware of concerns

that due to the high level of bidding in

the PCS C Block auction successful

bidders may find it difficult later on to

secure the necessary financial resources

to build out their systems, and may

ultimately encounter problems in the

market against established competitors

like incumbent cellular providers and

the generally large, well-financed

winners of PCS A and B block

licenses.41 How do we balance the
Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules 33071

small businesses, which some analysts figure

amounts to a 40–60% discount, small businesses

may find difficulty surviving if the market proves

soft or glutted with competitors).

42 115 S. Ct. 2097 (1995).

43Prior to Adarand, the standard differed for

federal and state programs. Compare Fullilove v.

Klutznick, 448 U.S. 448 (1980) (federal program

evaluated under intermediate scrutiny) with City of

Richmond v. J.A. Croson Co., 488 U.S. 469 (1989)

(state program evaluated under strict scrutiny).

44 Id. at 2113.

45 497 U.S. 547 (1990).

46 In Metro Broadcasting, the Court held:

[B]enign race-conscious measures mandated by

Congress—even if those measures are not

‘‘remedial’’ in the sense of being designed to

compensate victims of past governmental or societal

discrimination—are constitutionally permissible to

the extent that they serve important governmental

objectives within the power of Congress and are

substantially related to achievement of those

objectives.

Id. at 564–65.

47 488 U.S. 469 (1989).

48Adarand, 115 S. Ct. at 2117.

49 Id. at 2113.

50See Hopwood v. Texas, 78 F.3d 932 (5th Cir.

1996) petition for cert. filed (holding that the

University of Texas School of Law may not use race

as a factor in law school admissions).

51Croson requires that a government ‘‘identif[y]

discrimination with the particularity required by

the Fourteenth Amendment.’’ Croson, 488 U.S at

492, 499, 509; see also DOJ Memorandum at 22.

52Croson 488 U.S. at 506 (‘‘The random inclusion

of racial groups that, as a practical matter, may

never have suffered from discrimination in the

construction industry in Richmond suggests that

perhaps the city’s purpose was not in fact to remedy

past discrimination.’’)

53 Id. at 499.

54 Id. at 500.

55 Id. at 509.

56See, e.g., Peightal v. Metropolitan Dade County,

26 F.3d 1548, 1556 (11th Cir. 1994) (statistical

evidence constitutes ‘‘requisite ‘strong basis in

evidence’ mandated by Croson’’).

57See, e.g., Coral Construction Co., 941 F.2d at

919 (convincing anecdotal and statistical evidence

Continued

desire to do more with the need to

ensure that larger businesses do not

usurp measures designed to aid small

businesses? Do we need to do more to

make sure that small businesses have

meaningful opportunities to participate

in the provision of spectrum-based

services?

B. Minority or Women-Owned Small

Businesses

26. In Part III.B. above, we request

data to identify whether small

businesses owned by minorities or

women experience unique market

barriers. In this section, we explore

whether there is sufficient evidence of

market barriers to justify special

incentives to eliminate those barriers.

We do so because governmental action

that takes race or gender into account is

subject to particular constitutional

standards: strict scrutiny for race-based

incentives; intermediate scrutiny for

gender-based incentives. We discuss

these standards below and then seek

comment on possible incentives that

would satisfy the standards while at the

same time furthering the mandate of

Section 257.

1. Constitutional Standards

27. The Constitution limits the power

of government to classify individuals

based on race or gender. Thus, federal

incentive programs that take race or

gender into account must satisfy

constitutional standards. Courts

reviewing government programs have

applied different standards of review

and reached various results depending

on whether the classification covers race

or gender and whether the classification

burdens or benefits its subjects. Racebased programs must be narrowly

tailored to further a compelling

governmental interest. Gender-based

programs must be substantially related

to serve an important governmental

interest.

28. In Adarand Constructors, Inc. v.

Pen ̃ a, 42 the Supreme Court held that the

federal government’s use of race-based

criteria for decisionmaking must satisfy

the requirements of strict scrutiny.43

The Court wrote:

[W]e hold today that all racial

classifications, imposed by whatever federal,

state, or local governmental actor, must be

analyzed by a reviewing court under strict

scrutiny. In other words, such classifications

are constitutional only if they are narrowly

tailored measures that further compelling

governmental interests.44

By this decision, the Court rejected its

earlier legal analysis in Metro

Broadcasting, Inc. v. FCC,45 which had

applied the intermediate scrutiny

standard of judicial review to the

Commission’s broadcasting distress sale

and comparative preference policies for

minorities.46

29. Overruling this aspect of Metro

Broadcasting, the Court in Adarand

clarified the permissible scope of

affirmative action. First, the Court

rejected the notion that the

characterization of a racial classification

as ‘‘benign’’ should entitle it a lower

level of judicial review. Second, the

Court applied to federal minority

preference programs the strict scrutiny

standard it had applied to a local

contracting set-aside program in City of

Richmond v. J.A. Croson Co.47 Yet in

doing so, the Court emphasized its

intention not to impinge upon the

federal government’s ability to actively

combat both the practice and the

continuing effects of discrimination. A

majority of the Court rejected any notion

that strict scrutiny review is ‘‘strict in

theory, but fatal in fact.’’ As Justice

O’Connor stated in Adarand, ‘‘[t]he

unhappy persistence of both the

practice and the lingering effects of

racial discrimination against minority

groups in this country is an unfortunate

reality, and government is not

disqualified from acting in response to

it.’’ 48 In rejecting the Metro

Broadcasting standard, the Court

nonetheless reasoned that because the

Constitution protects individuals rather

than groups, any governmental action

based upon a racial group classification

should be subject to ‘‘detailed judicial

inquiry.’’ 49

30. Thus, Adarand established a new

strict scrutiny standard for federal

minority programs, based upon the two

prong analysis of Croson: (1) the

governmental interest underlying the

affirmative action measure be

‘‘compelling;’’ and (2) the measure

adopted must be ‘‘narrowly tailored’’ to

serve that interest. Because a federal

minority program has not yet been

subjected to strict scrutiny pursuant to

Adarand, judicial guidance regarding

the strict scrutiny standard thus far is

limited to Croson and lower court

decisions applying strict scrutiny to

state and local programs.50

31. Under these cases, the most

clearly permissible compelling

governmental interest is remedying the

effects of present or past discrimination.

Thus, federal minority incentive

programs that serve a remedial interest

are likely to satisfy the compelling

governmental interest prong.

Discrimination can be that committed

by the government itself, or by private

actors within the government’s

jurisdiction (such that the government

was a ‘‘passive participant’’ or

facilitated the perpetuation of a system

of exclusion). The government must

identify with some precision the

discrimination to be redressed,51

including evidence of discrimination

against particular minority groups.52

General, historical discrimination is an

insufficient predicate. ‘‘[A]n amorphous

claim that there has been past

discrimination in a particular industry

cannot justify the use of an unyielding

racial quota.’’ 53 In addition, the

government should have a ‘‘strong

basis,’’ approaching a ‘‘prima facie case

of constitutional or statutory

violation’’ 54 of the rights of minorities.

Croson permits remedial relief on the

basis of ‘‘evidence of a pattern of

individual discriminatory acts * * *

supported by appropriate statistical

proof.’’ 55 Post-Croson cases have held

that statistical evidence can be probative

of discrimination in the remedial

setting,56 and that anecdotal evidence

can buttress statistical evidence.57
33072 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules

can be ‘‘potent’’); see also DOJ Memorandum at 12–

13.

58Croson, however, involved a race preference

program adopted at the local, rather than federal,

level. See Croson, 488 U.S. at 469.

59 In the DOJ Memorandum, Justice states that

Adarand ‘‘hinted’’ that where a federal preference

program is congressionally mandated, the Croson

standards may apply more loosely. DOJ

Memorandum at 30. The Adarand majority

confronted the issue of congressional versus state

remedial power, noting that various Members of the

Court have taken different views of the authority

that Section 5 of the Fourteenth Amendment

confers upon Congress—power not delegated to the

states—and the extent to which courts should defer

to congressional exercise of that authority.

Adarand, 115 S. Ct. at 2114. The Court concluded

it did not need to resolve those differences in

Adarand, and rejecting Justice Stevens’ assertion to

the contrary, stated that none of the Justices in

Adarand repudiated previously expressed views on

this subject. Croson suggested that Congress has

broader authority than the states—a positive grant

of legislative power—and rejected the City of

Richmond’s finding that it was remedying the

present effects of past discrimination. Croson, 488

U.S. at 498.

60 438 U.S. 265 (1978) (plurality).

61Croson, 488 U.S. at 493.

62Adarand, 115 S. Ct. at 2127–28 (Stevens, J.,

dissenting).

63 438 U.S. at 311–14.

64 476 U.S. 267 (1986).

65 Id. at 286. In Hopwood, a panel of the Fifth

Circuit held that the University of Texas ‘‘law

school has presented no compelling justification,

under the Fourteenth Amendment or Supreme

Court precedent, that allows it to continue to

elevate some races over others, even for the

wholesome purpose of correcting perceived racial

imbalance in the student body.’’ Hopwood, 78 F.3d

at 934. A majority of the Hopwood panel

specifically rejected Justice Powell’s opinion in

Bakke that diversity can be a compelling interest as

‘‘not binding precedent’’ and concluded that ‘‘any

consideration of race or ethnicity by the law school

for the purpose of achieving a diverse student body

is not a compelling interest under the Fourteenth

Amendment.’’ Id. at 944. In a concurring opinion,

Judge Wiener disagreed with the panel’s opinion

that diversity can never be a compelling

governmental interest, but concluded that the

program in question was not narrowly tailored

because it singled out only two minority groups—

Blacks and Mexican Americans. Id. at 962–68.

66Croson, 488 U.S. at 493.

67United States v. Commonwealth of Virginia, 44

F.3d 1229 (1995), cert. granted 116 S. Ct. 281 (1995)

(No. 94–1941) (argued Jan. 17, 1996). The case

presents the question whether the Equal Protection

Clause permits a state to maintain single-sex

military-style educational programs.

68Craig v. Boren, 429 U.S. 190, 197 (1976). Thus

far, the Court has not decided whether gender is a

suspect category. See, e.g., J.E.B. v. Alabama ex rel.

T.B., 114 S. Ct. at 1419, 1425 n.6 (1992) (concluding

that gender-based peremptory challenges are not

substantially related to an important governmental

objective and finding ‘‘once again’’ that the Court

need not decide whether gender classifications are

inherently suspect’’); Mississippi University for

Women v. Hogan, 458 U.S. 718, 724 n.9 (1982)

(finding it ‘‘unnecessary’’ to decide whether

classifications based upon gender are inherently

suspect).

69Boren, 429 U.S. at 197; see also J.E.B. v.

Alabama ex rel. T.B., 114 S. Ct. 1419, 1425 (1994)

(‘‘our Nation has had a long and unfortunate history

of sex discrimination, a history which warrants the

heightened scrutiny we afford all gender-based

classifications today’’); City of Cleburne v. Cleburne

Living Center, 473 U.S. 432, 440 (1985)

(‘‘[l]egislative classifications based on gender * * *

call for a heightened standard of review’’).

70 J.E.B., 114 S. Ct. at 1424–25 (citations omitted).

The Court has rejected attempts to exclude or

protect one gender based on presumptions. See

Hogan, 458 U.S. at 725.

71 458 U.S. 718 (1982).

72See, e.g., Boren, 429 U.S. at 200–04 (finding

that the low disparity between drunk driving

statistics for men and women ‘‘exemplifies the

ultimate unpersuasiveness of this evidentiary

32. Courts generally give more

deference to Congressional race-based

remedial action than to state action

because of Congress’ special remedial

powers under the Fourteenth

Amendment. Thus, it is possible that

the Croson standards for remedial

action, e.g., the degree of discrimination

required to justify remedial action,58

might be lower where Congressional

findings are involved.59

33. A government may adopt race or

gender based programs for reasons other

than to remedy discrimination. Such

objectives are nonremedial. For

example, in Regents of the University of

California v. Bakke,60 the purpose of the

state of California’s college admissions

program was to diversify the student

body. No majority opinion of the Court

has addressed the sufficiency of

nonremedial objectives. Because Croson

addressed the authority of a local

government to engage in remedial

action, it did not decide the sufficiency

of nonremedial objectives as a

compelling interest. In Croson, Justice

O’Connor stated that affirmative action

must be ‘‘strictly reserved for the

remedial setting.’’ 61 In Justice Stevens’

dissent in Adarand, however, he stated

that Adarand does not expressly adopt

the view that past discrimination is the

only valid compelling governmental

interest; nor does it prohibit

nonremedial objectives.62 In Bakke,

Justice Powell found that a university

has a compelling interest in taking the

race of applicants into account in its

admission process in order to foster

greater diversity among the student

body to enhance the exchange of ideas

on campus,63 and in Wygant v. Jackson

Board of Education,64 Justice O’Connor

expressed approval of that view.65

34. The second prong of strict

scrutiny analysis requires that the use of

any racial classification be ‘‘narrowly

tailored,’’ to ensure that ‘‘the means

chosen ‘fit’ [the] compelling goal so

closely that there is little or no

possibility that the motive for the

classification was illegitimate racial

prejudice or stereotype.’’ 66 In Adarand,

the Court identified two factors in

determining whether the use of a racial

classification is narrowly-tailored: (1)

Whether race-neutral alternatives were

considered, and (2) whether the

measure is appropriately limited in

duration so that it will not continue

longer than purposes for which it was

adopted. Additional factors, identified

in post-Croson cases, are: (3) the

flexibility of the program, e.g., whether

it contains a waiver provision that may

narrow its scope; (4) the manner in

which race is used, whether as a

determinant, or as one of several factors;

(5) whether any numerical target is

compared to the relevant number of

qualified minorities or to the population

of minorities as a whole; (6) the extent

of the burden on nonminorities.

35. Since Adarand, the Supreme

Court has not ruled on the standard of

review for federal gender-based

programs, although the issue is before it

in a pending case.67 Prior to Adarand,

the Court applied intermediate scrutiny;

that standard currently applies.68 Under

the intermediate scrutiny standard, ‘‘[t]o

withstand constitutional challenge

* * * classifications by gender must

serve important governmental objectives

and must be substantially related to

those objectives.’’ 69

36. In applying intermediate scrutiny

to invidious gender-based

classifications, the Court has expressed

concern that such classifications are, in

fact ‘‘reflective of ‘archaic and

overbroad’ generalizations about

gender’’ or are ‘‘based on ‘outdated

misconceptions concerning the role of

females in the home rather than in the

marketplace and world of ideas.’ ’’ 70

37. It is unclear what standard would

apply to benign gender classifications.

In Adarand, the Court refused to apply

a less strict standard to benign racebased classifications than the standard

applied to ‘‘invidious’’ race-based

classifications. Although Adarand did

not address gender, its rejection of a

lower standard for benign action in the

race context suggests that the same

standard applied to invidious gender

classifications should apply to benign

gender classifications. This conclusion

is supported by the Court’s analysis in

Mississippi University for Woman v.

Hogan,71 which held that a state

university’s exclusion of men from its

nursing program violated the Equal

Protection Clause under a test of

intermediate scrutiny.

38. In evaluating the second prong of

the intermediate scrutiny test—whether

a gender classification is substantially

related to the government’s objective—

courts consider several factors,

including the correlation between

gender and the actual activity the

government seeks to regulate and the

practical effect of the program.72
Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules 33073

record’’); Hogan, 458 U.S. at 730–32 (finding that

presence of men in nursing school would not have

negative effect on women students, and that the

record is ‘‘flatly inconsistent’’ with the claim that

excluding men is necessary to reach the state’s

educational goals and falls ‘‘far short’’ of the

‘‘’exceedingly persuasive justification’’’ needed to

sustain a gender-based classification).

73See supra n.14 (definition of minority). When

considering incentives for Native Americans, the

Commission looks for guidance to the Indian

Commerce clause, which recognizes the status of

tribes as sovereign nations. See Competitive Bidding

Sixth Report and Order, 11 FCC Rcd at 155–56. See

also DOJ Memorandum at 8 (‘‘Adarand does not

require strict scrutiny review for programs

benefiting Native Americans as members of

federally recognized Indian tribes’’).

74See, e.g., the broadcast licensing policy which

was adopted following the D.C. Circuit decision in

TV 9, Inc. v. FCC, 495 F.2d 929 (D.C. Cir. 1973),

cert. denied, 419 U.S. 986 (1974). The Commission

considered a minority applicant’s proposed

participation in station operation as one of several

factors in comparing applicants for mutually

exclusive broadcast licenses. In Metro Broadcasting,

Inc. v. FCC, 497 U.S. 547, 567 (1990), the Supreme

Court upheld our licensing policy, however, in

Lamprecht v. FCC, 958 F.2d 395, 398 (D.C. Cir.

1992), the D.C. Circuit found the policy for women

to be unconstitutional. Thereafter, in Bechtel v.

FCC, 10 F.3d 875, 877, 887 (D.C. Cir. 1993), the D.C.

Circuit held that the integration credit, upon which

the minority/female licensing policy is based, was

arbitrary and capricious. Following Bechtel, the

Commission suspended comparative hearings

altogether.

75 47 U.S.C. 257(b).

76See supra ¶ 3 and n.8.

77Section 257(b) provides: ‘‘In carrying out

subsection (a), the Commission shall seek to

promote the policies and purposes of this Act

favoring * * * vigorous economic competition.’’ 47

U.S.C. § 257(b).

78 47 U.S.C. 309(j).

79See, e.g., 47 U.S.C. 201 (public interest

regulation of common carriers); 47 U.S.C. 257(b)

(promotion of public interest, convenience and

necessity in carrying out Section 257(a)); 47 U.S.C.

303 (public interest regulation of radio services).

80 Depending on the record of discrimination

developed, any such nonremedial objectives could

be remedial in nature. For example, if there were

a strong record of discrimination against womenowned small businesses in the telecommunications

market (which itself would be an entry barrier), we

could adopt a mechanism intended to increase

ownership opportunities for those businesses. The

immediate objective—increasing ownership—

would be a means of achieving the ultimate

objective—remedying discrimination.

81The legislative history of Section 257 indicates

that Congress recognized a nexus between

ownership and competition: ‘‘[M]inority and

women-owned small businesses continue to be

extremely under represented in the

telecommunications field * * *. Underlying this

amendment [Section 257] is the obvious fact that

diversity of ownership remains a key to the

competitiveness of the U.S. telecommunications

marketplace.’’ 142 Cong. Rec. H1141 at H1177–78

(daily ed. Feb. 1, 1996) (statement of Rep. Collins).

We note that communications is among a handful

of industries with the highest expected growth

between the year 1990 and 2005, and is predicted

to provide women opportunities for advancement

into management and decisionmaking positions. A

Solid Investment: Making Full Use of the Nation’s

Human Capital, Recommendations of the Federal

Glass Ceiling Commission (November 1995) (Glass

Ceiling Report), Special Supplement at S–9. In

addition, facilitating employment could serve the

public interest by enhancing productivity: the Glass

Ceiling Commission found that ‘‘[o]rganizations

that excel at leveraging diversity (including hiring

and promoting minorities and women into senior

positions) can experience better financial

performance in the long run than those which are

not effective in managing diversity.’’ Glass Ceiling

Report, Special Supplement at S–8.

82 47 U.S.C. 257(b).

83Telecommunications Act of 1996, Public Law

No. 104–104, 110 Stat. 56 (1996).

84 47 U.S.C. 151 et seq.

2. Possible Incentives

39. As described above, a record of

discrimination against a particular

group is necessary to support remedial

measures to remedy such

discrimination. We seek comment on

whether under the compelling

governmental interest prong, there is

sufficient evidence of discrimination in

the communications industry against

any particular minority group to support

race-based incentives to eliminate

market entry barriers for such group. As

discussed above, minority groups

include African Americans, Hispanics,

American Indians, Alaskan Natives,

Asians, and Pacific Islanders.73 We also

ask whether there is sufficient evidence

of discrimination against women in

telecommunications to justify remedialbased mechanisms to eliminate market

entry barriers for women, under either

the compelling governmental interest

prong (strict scrutiny) or important

governmental interest (intermediate

scrutiny). Parties may use any data

submitted in response to Part III above

to support their comments.

40. We also seek comment on any

nonremedial objectives that would

justify the use of race and gender-based

incentives and also serve the Section

257 mandate of decreasing market entry

barriers for small telecommunications

firms owned by minorities and women.

Nonremedial objectives could be in

addition to the objective of remedying

past discrimination; thus, they may

provide a separate basis for

governmental action that takes race and

gender into account. For example, the

Commission has sought to fulfill the

nonremedial objective of increasing

diversity of voices and viewpoints over

the airwaves through various minority

and women-based programs.74 Those

programs also decrease market entry

barriers by providing new opportunities

for women and minorities and by

increasing incentives for other firms to

do business with those entities. Other

nonremedial objectives that could

justify taking race or gender into

account in Commission programs and

also help eliminate market entry barriers

might include favoring diversity of

media voices as required by Section

257(b),75 promoting economic

opportunity and competition as

encouraged in the legislative history of

Section 257 76 and Section 257(b),77 and

as required by Section 309(j),78 or

promoting the public interest.79 We seek

comment on these nonremedial

objectives 80 and request commenters to

suggest other nonremedial objectives

that would satisfy the governmental

interest prong under strict (race) or

intermediate (gender) scrutiny.

41. We also request that parties

propose incentives to meet these

remedial or nonremedial objectives.

Commenters may address incentives

that the Commission has adopted in the

past that eliminated or reduced barriers

to market entry, e.g., designated entity

rules for Section 309(j) services, as well

as propose new incentives. We also seek

comment on whether incentives that

foster ownership or employment of

women or minorities in

telecommunications would further these

objectives.81 Parties should explain

what objective an incentive would be

intended to achieve and whether it is

properly designed to achieve that

objective, i.e., narrowly tailored (strict

scrutiny); substantially related

(intermediate scrutiny). Parties may

support their proposals with data and

should identify specific provisions of

the Act that would authorize us to

implement those proposals.

C. Furthering Section 257(b) Objectives

42. As described in the Introduction

to this NOI, in Section 257(b), Congress

required that in implementing our

market barriers initiatives, the

Commission must ‘‘promote the policies

and purposes of this Act favoring

diversity of media voices, vigorous

economic competition, technological

advancement, and promotion of the

public interest, convenience, and

necessity.’’ 82 We ask for comment on

how the Commission should foster these

objectives in its efforts to eliminate

market barriers for entrepreneurs and

small businesses.

V. Administrative Matters

43. Reason for Action: Section 101 of

the Telecommunications Act of 1996

(1996 Telecommunications Act),83 adds

new Section 257 to the Communications

Act of 1934.84 Section 257 requires the

Commission, within 15 months after

enactment, to complete a proceeding

‘‘for the purpose of identifying and

eliminating, by regulations pursuant to

its authority under this Act * * *

market entry barriers for entrepreneurs

and other small businesses in the

provision and ownership of

telecommunications services and
33074 Federal Register / Vol. 61, No. 124 / Wednesday, June 26, 1996 / Proposed Rules

information services, or in the provision

of parts or services to providers of

telecommunications services and

information services.’’ In implementing

Section 257, the Commission must

‘‘promote the policies and purposes of

this Act favoring diversity of media

voices, vigorous economic competition,

technological advancement, and

promotion of the public interest,

convenience and necessity.’’ Every three

years following the completion of the

market barriers proceeding, the

Commission must report to Congress on

regulations that have been issued to

eliminate barriers and any statutory

barriers that the Commission

recommends be eliminated. This Notice

of Inquiry commences our omnibus

Section 257 proceeding.

44. Objectives: The Commission seeks

to develop a full record of profile data

on the type and scope of market entry

barriers in the telecommunications

industry faced by small businesses. To

this end, the Commission solicits

specific information regarding financing

sources and terms, services provided,

markets served, geographic areas of

operation, and employee workforce. The

Commission also seeks information

concerning obstacles small

telecommunications businesses

encounter, as well as any unique

obstacles that such businesses owned by

women and minorities encounter. We

also will undertake specific initiatives

that further the objective of Section 257

to eliminate market entry barriers for

small businesses. The record developed

in connection with these initiatives also

will assist us in achieving our mandate

under Section 309(j) of the

Communications Act to disseminate

licenses for auctionable spectrum-based

services to small businesses, rural

telephone companies, and businesses

owned by women and minorities, as

well as in fulfilling our general

obligation to serve the public interest.

45. Legal Basis: The proposed action

is authorized under the

Communications Act of 1934, 47 U.S.C.

257.

46. Reporting, Recordkeeping, and

Other Compliance Requirements: None

47. Description, Potential Impact and

Number of Small Entities Effected: None

48. Federal Rules Which Overlap,

Duplicate or Conflict With These Rules:

None

49. Significant Alternatives

Minimizing Impact on Small Entities

and Consistent with Stated Objectives:

This NOI solicits comment on a variety

of issues and recommendations that

impact small businesses. Any additional

significant issues or recommendations

related to small businesses in the

telecommunications industry presented

in the comments also will be

considered.

50. Paperwork Reduction Act: The

requirements proposed herein have

been analyzed with respect to the

Paperwork Reduction Act of 1995 and

found to impose no new or modified

information collection requirements.

VI. Procedural Matters

51. This proceeding is exempt from ex

parte restraints or disclosure

requirements, as provided in Section

1.1204(a)(4) of our rules.

52. Parties must file initial comments

on or before July 24, 1996 and reply

comments on or before August 23, 1996.

To file formally in this proceeding,

interested parties must file an original

and six copies of all comments. If

parties want each Commissioner to

receive a personal copy of their

comments, they must file an original

plus ten copies.

53. Parties should send comments to:

Office of the Secretary, Federal

Communications Commission,

Washington, D.C. 20554. Parties also

should send one copy of any documents

filed in this docket with the

Commission’s copy contractor,

International Transcription Services,

Room 246, 1919 M Street, N.W.,

Washington, D.C. 20554. Comments will

be available for public inspection during

regular business hours in the FCC

Reference Center (Room 239) of the

Federal Communications Commission,

1919 M Street, N.W., Washington, D.C.

20554. For further information, contact

Linda L. Haller in the Office of General

Counsel at (202) 418–1720 or S. Jenell

Trigg in the Office of Communications

Business Opportunities at (202) 418–

0990.

54. We also ask parties to submit

comments and reply comments on

diskette in addition to and not as a

substitute for the formal filing

requirements stated above. Parties

submitting diskettes should submit

them to S. Jenell Trigg, Office of

Communications Business

Opportunities, Federal Communications

Commission, Suite 644, 1919 M Street,

N.W., Washington D.C. 20554.

Submissions should be on a 3.5 inch

diskette formatted in an IBM compatible

form using WordPerfect 5.1 for

Windows software. The diskette should

be submitted in ‘‘read only’’ mode. The

diskette should be accompanied by a

cover letter and clearly labelled with the

party’s name, proceeding, type of

pleading (comment or reply comment),

and the date of submission.

VII. Ordering Clause

55. Accordingly, IT IS ORDERED that,

pursuant to our authority under the

Communications Act of 1934, 47 U.S.C.

4(i) and 403, an inquiry IS

COMMENCED to identify and eliminate

market entry barriers for small

businesses in the provision and

ownership of telecommunications and

information services in the

telecommunications market.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 96–16259 Filed 6–25–96; 8:45 am]

BILLING CODE 6712–01–P

47 CFR Part 64

[CC Docket No. 96–128; DA 96–983]

Pay Telephone Reclassification and

Compensation Provisions of the

Telecommunications Act of 1996

AGENCY: Federal Communications

Commission.

ACTION: Proposed rule; extension of

time.

SUMMARY: In this Order, we are

extending the comments and reply

comments deadlines in order to grant to

the parties more time to address all

issues raised in the Notice of Proposed

Rulemaking. This Order is issued on the

Commission’s own motion because of

the relatively short time that was

accorded to the parties to comment on

the important issues.

DATES: Comments due: July 1, 1996;

Reply Comments due: July 15, 1996.

ADDRESSES: In addition to filing

comments 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 Street, N.W., Washington,

DC 20554, or via the Internet to

dconway@fcc.gov and to Timothy Fain,

OMB Desk Officer, 10236 NEOB, 725 -

17th Street, N.W., Washington, DC

20503 or via the Internet to

fainlt@al.eop.gov.

FOR FURTHER INFORMATION CONTACT:

Michael Carowitz, Enforcement

Division, Common Carrier Bureau, (202)

418–0960. For additional information

concerning the information collections

contained in this Further Notice of

Proposed Rule Making contact Dorothy

Conway at 202–418–0217, or via the

Internet at dconway@fcc.gov.