[Federal Register Volume 61, Number 124 (Wednesday, June 26, 1996)]
[Proposed Rules]
[Pages 33066-33074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16259]



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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.

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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., on-line 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\
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    \1\ Telecommunications 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).
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    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\
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    \6\ 47 U.S.C. 309(j).
    \7\ See, e.g., 47 U.S.C. Sec. 214 (Commission must certify that 
public convenience or necessity requires construction or extension 
of lines); 47 CFR Sec. 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).
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    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

[[Page 33067]]

evidence suggests that these entities encounter unique market barriers.
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    \8\ The 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).
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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\
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    \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. Sec. 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).
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    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\
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    \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).
    \12\ For 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.
    \13\ For 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).
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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,<SUP>14 as well as percentage of minority or female 
control;
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    \14\ Consistent 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 Secs. 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).
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    (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.

[[Page 33068]]

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,<SUP>15 government regulation, or external factor, e.g., 
difficulty obtaining loans.
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    \15\ Section 257 requires that we report to Congress any 
statutory barriers that the Commission recommends be eliminated. 47 
U.S.C. 257(c).
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    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 spectrum-based 
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.<SUP>16 In the Women's Business Ownership Act of 1988,<SUP>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.<SUP>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.<SUP>19
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    \16\ 1992 Small Business Act, sections 112(4) and 33(a)(4).
    \17\ Public 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.
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    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).<SUP>20
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    \20\ Policies 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).
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    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

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United States.<SUP>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.<SUP>22 According to the Census Bureau, 
in 1992, Blacks owned 3.5% of the entities characterized generally as 
communications firms <SUP>23 and women owned 31%; and most of these 
businesses were solely-owned.<SUP>24
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    \21\ See 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, ``Women-Owned 
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.
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    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,<SUP>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 woman-owned 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.<SUP>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 
women-owned; 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: <SUP>27 13.3% of the eligible bidders claimed 
woman-owned status, 18.0% claimed minority-owned status; <SUP>28 and of 
the 89 successful bidders, 16.9% indicated they were woman-owned; 28.1% 
indicated they were minority-owned.<SUP>29
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    \25\ Factors 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 women-owned 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 minority-owned 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 para. 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).
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    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 
minority-owned status, and 38.2% to bidders claiming women-owned 
status.<SUP>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.<SUP>31 None of the winners 
were minority or women-owned 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.<SUP>32 Of the nine winners, 22.2% claimed minority-owned 
status, and 33.3% claimed women-owned status.<SUP>33
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    \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.
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    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

[[Page 33070]]

not required.<SUP>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.
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    \34\ Parties 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.
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    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 
<SUP>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.'' <SUP>36 We solicit comment on this 
particular argument.
---------------------------------------------------------------------------

    \35\ See ``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]').''
---------------------------------------------------------------------------

    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.<SUP>37
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    \37\ See 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 para. 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'').
---------------------------------------------------------------------------

    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 gender-neutral 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,<SUP>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) <SUP>39 that would support any such proposals.
---------------------------------------------------------------------------

    \38\ See supra note 10 (citing legislative history of Section 
257).
    \39\ 47 U.S.C. 154(i).
---------------------------------------------------------------------------

    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.<SUP>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.<SUP>41 How do we 
balance the

[[Page 33071]]

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?
---------------------------------------------------------------------------

    \40\ Bidding 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 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).
---------------------------------------------------------------------------

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. Race-based 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. Pena, <SUP>42 the Supreme 
Court held that the federal government's use of race-based criteria for 
decisionmaking must satisfy the requirements of strict scrutiny.<SUP>43 
The Court wrote:

    \42\ 115 S. Ct. 2097 (1995).
    \43\ Prior 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).
---------------------------------------------------------------------------

    [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.<SUP>44

    \44\ Id. at 2113.
---------------------------------------------------------------------------

    By this decision, the Court rejected its earlier legal analysis in 
Metro Broadcasting, Inc. v. FCC,<SUP>45 which had applied the 
intermediate scrutiny standard of judicial review to the Commission's 
broadcasting distress sale and comparative preference policies for 
minorities.<SUP>46
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.<SUP>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.'' <SUP>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.'' <SUP>49
---------------------------------------------------------------------------

    \47\ 488 U.S. 469 (1989).
    \48\ Adarand, 115 S. Ct. at 2117.
    \49\ Id. at 2113.
---------------------------------------------------------------------------

    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.<SUP>50
---------------------------------------------------------------------------

    \50\ See 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).
---------------------------------------------------------------------------

    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,<SUP>51 
including evidence of discrimination against particular minority 
groups.<SUP>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.'' <SUP>53 In addition, the government should 
have a ``strong basis,'' approaching a ``prima facie case of 
constitutional or statutory violation'' <SUP>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.'' <SUP>55 Post-Croson cases have held 
that statistical evidence can be probative of discrimination in the 
remedial setting,<SUP>56 and that anecdotal evidence can buttress 
statistical evidence.<SUP>57
---------------------------------------------------------------------------

    \51\ Croson 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.
    \52\ Croson 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.
    \56\ See, 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'').
    \57\ See, e.g., Coral Construction Co., 941 F.2d at 919 
(convincing anecdotal and statistical evidence can be ``potent''); 
see also DOJ Memorandum at 12-13.

---------------------------------------------------------------------------

[[Page 33072]]

    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,<SUP>58 might be 
lower where Congressional findings are involved.<SUP>59
---------------------------------------------------------------------------

    \58\ Croson, 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.
---------------------------------------------------------------------------

    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,<SUP>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.'' <SUP>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.<SUP>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,<SUP>63 and in 
Wygant v. Jackson Board of Education,<SUP>64 Justice O'Connor expressed 
approval of that view.<SUP>65
---------------------------------------------------------------------------

    \60\ 438 U.S. 265 (1978) (plurality).
    \61\ Croson, 488 U.S. at 493.
    \62\ Adarand, 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.
---------------------------------------------------------------------------

    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.'' 
<SUP>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.
---------------------------------------------------------------------------

    \66\ Croson, 488 U.S. at 493.
---------------------------------------------------------------------------

    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.<SUP>67 Prior to Adarand, the Court applied 
intermediate scrutiny; that standard currently applies.<SUP>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.'' <SUP>69
---------------------------------------------------------------------------

    \67\ United 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.
    \68\ Craig 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).
    \69\ Boren, 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'').
---------------------------------------------------------------------------

    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.' '' <SUP>70
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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 race-based 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,<SUP>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.
---------------------------------------------------------------------------

    \71\ 458 U.S. 718 (1982).
---------------------------------------------------------------------------

    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.<SUP>72
---------------------------------------------------------------------------

    \72\ See, 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 
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).

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[[Page 33073]]

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.<SUP>73 We also ask whether 
there is sufficient evidence of discrimination against women in 
telecommunications to justify remedial-based 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.
---------------------------------------------------------------------------

    \73\ See 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'').
---------------------------------------------------------------------------

    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.<SUP>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),<SUP>75 promoting economic opportunity and competition as 
encouraged in the legislative history of Section 257 <SUP>76 and 
Section 257(b),<SUP>77 and as required by Section 309(j),<SUP>78 or 
promoting the public interest.<SUP>79 We seek comment on these 
nonremedial objectives <SUP>80 and request commenters to suggest other 
nonremedial objectives that would satisfy the governmental interest 
prong under strict (race) or intermediate (gender) scrutiny.
---------------------------------------------------------------------------

    \74\ See, 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).
    \76\ See supra para. 3 and n.8.
    \77\ Section 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. 
Sec. 257(b).
    \78\ 47 U.S.C. 309(j).
    \79\ See, 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 
women-owned 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.
---------------------------------------------------------------------------

    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.<SUP>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.
---------------------------------------------------------------------------

    \81\ The 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.
---------------------------------------------------------------------------

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.'' <SUP>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.
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    \82\ 47 U.S.C. 257(b).
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V. Administrative Matters

    43. Reason for Action: Section 101 of the Telecommunications Act of 
1996 (1996 Telecommunications Act),<SUP>83 adds new Section 257 to the 
Communications Act of 1934.<SUP>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

[[Page 33074]]

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.
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    \83\ Telecommunications Act of 1996, Public Law No. 104-104, 110 
Stat. 56 (1996).
    \84\ 47 U.S.C. 151 et seq.
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    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]
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