Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations 33859

Dated: June 25, 1996.

Richard W. Krimm,

Acting Associate Director for Mitigation.

[FR Doc. 96–16699 Filed 6–28–96; 8:45 am]

BILLING CODE 6718–04–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Parts 20 and 24

[WT Docket No. 96–59; GN Docket No. 90–

314; FCC 96–278]

Broadband Personal Communications

Services

AGENCY: Federal Communications

Commission.

ACTION: Final rule.

SUMMARY: This Report and Order

amends the Commission’s broadband

Personal Communications Services

(‘‘PCS’’) rules. The Commission

concludes that the present record is

insufficient to support the race-based F

block rules under the strict scrutiny

standard of judicial review required by

the Supreme Court’s decision in

Adarand Constructors, Inc. v. Pen ̃ a, or

to support the gender-based rules under

the intermediate scrutiny standard that

currently applies to those rules. Taking

account of the need to award the

remaining broadband PCS licenses

expeditiously and to promote the rapid

deployment of new services to the

public, as well as the statutory objective

of disseminating licenses among a wide

variety of applicants, the Commission

makes the F block rules race- and

gender-neutral to avoid the delay that

would likely result from legal

challenges to the special provisions for

minority- and women-owned

businesses. The Commission also

amends its D, E, and F block rules and

broadband PCS rules generally to

streamline procedures, reduce

administrative burdens, and minimize

the possibility of insincere bidding and

bidder default. Finally, the Commission,

in response to Cincinnati Bell

Telephone Co. v. FCC, eliminates the

cellular/PCS cross-ownership rule and

the PCS spectrum cap in favor of the 45

MHz cap on Commercial Mobile Radio

Services spectrum.

EFFECTIVE DATE: July 31, 1996.

FOR FURTHER INFORMATION CONTACT:

Mark Bollinger, Wireless

Telecommunications Bureau, (202) 418–

0660.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Report

and Order in WT Docket No. 96–59; GN

Docket No. 90–314; FCC 96–278,

adopted June 21, 1996, and released

June 24, 1996. The complete text is

available for inspection and copying

during normal business hours in the

FCC Reference Center (Room 239), 1919

M Street, N.W., Washington, DC. The

complete text may also be purchased

from the Commission’s copy contractor,

International Transcription Service,

Inc., (202) 857–3800, 2100 M Street,

N.W., Washington, DC 20037.

Synopsis of the Report and Order

I. Introduction

1. In this Report and Order, the

Commission modifies the competitive

bidding and ownership rules for

broadband Personal Communications

Services (‘‘PCS’’). Many of the rule

modifications concern the treatment of

‘‘designated entities,’’ i.e., small

businesses, rural telephone companies,

and businesses owned by members of

minority groups and women, under the

broadband PCS F block rules. The

Commission also amends the D, E, and

F block rules and other broadband PCS

rules in order to encourage sincere

bidding, streamline the auction process,

and lessen administrative burdens. In

addition, in response to the remand

from the U.S. Court of Appeals for the

Sixth Circuit in Cincinnati Bell

Telephone Co. v. FCC, 69 F.3d 752 (6th

Cir. 1995), the Commission modifies the

rules governing cellular licensees’

ownership of broadband PCS licenses in

all frequency blocks.

II. Rules Affecting Designated Entities

A. Meeting the Adarand Standard

2. In Adarand Constructors, Inc. v.

Pen ̃ a, 115 S. Ct. 2097 (1995), the

Supreme Court held that all racial

classifications, whether imposed at the

federal, state or local government level,

must be analyzed by a reviewing court

under strict scrutiny, which requires

such classifications to be narrowly

tailored to further a compelling

governmental interest. An intermediate

scrutiny standard of review (under

which a provision is constitutional if it

serves an important governmental

objective and is substantially related to

achievement of that objective) applies to

gender-based measures. Having

evaluated the record before it, the

Commission concludes that this record

is insufficient to support the race- and

gender-based F block provisions and

revises the F block rules in this Report

and Order to make them race- and

gender-neutral. Overall, the commenters

agree that this approach will best serve

the goal of rapidly conducting the F

block auction with the least risk of

judicial delay. Moreover, this type of

approach was upheld by the D.C. Circuit

Court of Appeals, which held in

Omnipoint v. FCC, 78 F.3d 620 (D.C.

Cir. 1996), that the Commission acted

reasonably in concluding that, in light

of the additional time it would take to

develop a record to support the raceand gender-based provisions of the C

block rules, it should revise these rules

by providing the most favorable terms to

all small businesses. The Commission

concludes that making the F block rules

race- and gender-neutral will serve the

public interest by enabling it to auction

the remaining broadband PCS licenses

as expeditiously as possible. Because

many minority- and women-owned

entities are small businesses and will

therefore qualify for the same special

provisions that would have applied to

them under the previous rules, the

Commission also believes that the

amended rules will continue to fulfill

the mandate under Section 309(j) of the

Communications Act, as amended, 47

U.S.C. 309(j)(3), to provide

opportunities for minority- and womenowned businesses to become providers

of spectrum-based services.

1. Control Group Equity Structures

3. The F block auction is limited to

applicants that, together with their

affiliates and persons or entities that

hold interests in them, have gross

revenues of less than $125 million in

each of the last two years and total

assets of less than $500 million. As part

of its decision to make the F block rules

race- and gender-neutral, the

Commission concludes that the 50.1/

49.9 percent equity option, previously

available to minority- and womenowned applicants only, should be

available to all small businesses and

entrepreneurs. Applicants may use this

control group equity structure to

establish eligibility to participate in the

F block auction. It requires the control

group to own at least 50.1 percent of the

applicant’s total equity; of that 50.1

percent equity, at least 30 percent must

be held by qualifying investors. If these

and certain other requirements are met,

the remaining 49.9 percent of the

applicant’s equity may be held by noncontrolling investors, and the gross

revenues and total assets of any such

investor will not be attributed.

4. The Commission adopts this rule

modification because it reduces the

likelihood of legal challenges to the F

block rules and enhances the

opportunities for a wide variety of

applicants to obtain licenses and rapidly

deploy broadband PCS; and because it

believes that making the same equity

structures available to both C and F

block applicants is necessary so that C
33860 Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations

block participants will not be required

to structure themselves differently in

order to participate in the F block

auction. Moreover, this rule amendment

will benefit other entities that did not

participate in the C block auction

because it continues equity structures

that are familiar to the industry and the

financial community.

5. The Commission declines to make

adjustments to the financial eligibility

thresholds in the F block rules. The

Commission believes that retaining the

same thresholds as those used for the C

block auction will allow for

participation by entities that used the C

block rules as guidelines for

determining their structure in

preparation for the F block auction.

Moreover, these thresholds were used

by C block bidders, many of whom will

be interested in participating in the F

block auction. The Commission declines

to further restrict participation in the F

block (or any of the other 10 MHz

blocks) to small businesses and rural

telephone companies. It believes that

setting aside the F block for both

entrepreneurs and small businesses will

be sufficient to achieve the objectives of

providing opportunities for small

businesses to obtain 10 MHz licenses

and ensuring broad dissemination of 10

MHz licenses.

6. In addition, the Commission

declines to treat C block licenses as

assets that could potentially preclude C

block winners from F block eligibility.

It believes it would be unfair to

disqualify C block winners on the basis

of their success in acquiring capital to

participate in that auction, primarily

because the Commission has indicated

previously that the C and F blocks are

linked. The Commission believes that

treating C block winners’ licenses as an

asset for purposes of eligibility for the

F block auction could frustrate business

plans and auction strategies made in

reliance on its previous statements.

Applicants should be aware that other

licenses (such as Specialized Mobile

Radio (‘‘SMR’’), cellular, narrowband

PCS, and broadband PCS A and B block

licenses) should be included in their

total asset calculations for F block

eligibility.

2. Affiliation Rules

7. The affiliation rules applicable to

the F block identify all individuals and

entities whose gross revenues and assets

must be aggregated with those of the

applicant to determine whether the

applicant exceeds the financial caps for

the entrepreneurs’ blocks or for small

business size status. There are two

exceptions to these rules. Under the first

exception, Indian tribes and Alaska

Regional or Village Corporations

organized pursuant to the Alaska Native

Claims Settlement Act, 43 U.S.C. 1601

et seq., are not considered affiliates of

an applicant owned and controlled by

such tribes and corporations. Under the

second exception, the gross revenues

and assets of affiliates controlled by

minority investors who are members of

the applicant’s control group are not

attributed to the applicant.

8. The Commission will eliminate the

exception to the affiliation rules

pertaining to minority investors for

purposes of the F block auction. To

retain this exception in its present state

poses legal risks that, as discussed

above, could delay the award of F block

licenses. Furthermore, the Commission

declines to adopt the modification of

this rule that it utilized for the C block,

which allowed all small business

applicants to exclude any affiliates who

would otherwise qualify as

entrepreneurs by having gross revenues

of $125 million or less and total assets

of $500 million or less and whose total

assets and gross revenues, when

considered on a cumulative basis and

aggregated with each other, do not

exceed these amounts. The Commission

adopted the modified exception for the

C block at a time when a number of

minority-owned applicants had relied

on the rule and had structured their

business arrangements accordingly.

However, the Commission is not

convinced that the C block exception is

needed under current circumstances,

and it acknowledges the argument made

by certain commenters that the

exception may qualify too many larger

entities as small businesses. For

applicants that participated in the C

block auction and relied on the

affiliation exception in structuring

themselves, the Commission will

consider requests to waive the rules to

allow them to be eligible to participate

in the F block auction. Finally, the

Commission will retain the exception to

the affiliation rules for Indian tribes and

Alaska Regional or Village Corporations.

The Commission notes that certain

comments support its tentative

conclusion in the Notice of Proposed

Rule Making that the Indian Commerce

Clause of the U.S. Constitution provides

a basis for this exception which is not

implicated by Adarand.

3. Installment Payments

9. The Commission amends its F

block rules concerning installment

payments to provide for three rather

than five installment payment plans and

to make all small businesses, rather than

only those owned by minorities and

women, eligible for the most favorable

installment plan. The Commission

concludes that extending the most

favorable payment plan to all small

businesses will give minority- and

women-owned businesses an

opportunity to participate in the

provision of spectrum-based services.

The Commission also concludes,

however, that it should shorten the

period during which F block auction

winners eligible for this plan may make

interest-only payments. Thus, the most

favorable plan will have a two-year

interest-only payment period, rather

than a six-year interest-only period. The

plan will provide for installments at a

rate equal to ten-year U.S. Treasury

obligations applicable on the date the

license is granted, with payments of

principal and interest amortized over

the remaining eight years of the license

term. Principal will be repaid as part of

equal quarterly payments of interest and

principal (as with a standard mortgage

amortization schedule).

10. The Commission believes that

these terms will provide small

businesses with the appropriate level of

U.S. government assisted financing to

overcome the difficulties they face in

accessing capital to compete in the PCS

marketplace. It further believes that

reducing the interest-only period to two

years will deter speculation; encourage

bidding, business, and financial

strategies based upon market forces

rather than the financial terms of

installment payment plans; and still

provide small businesses with the

ability to obtain the necessary funds for

construction and initial operation of

their systems. Finally, shortening the

interest-only period to two years will

not foreclose opportunities for small

businesses to compete in PCS. The

terms that the Commission is offering

are extremely attractive compared to

other terms small businesses may be

able to obtain.

11. Entrepreneurs that are not small

businesses will be eligible for

installment payments as provided in

Sections 24.716(b)(1) and 24.716(b)(2) of

the rules. These rules provide for

installments at a rate equal to ten-year

U.S. Treasury obligations applicable on

the date the license is granted plus 3.5

percent, with payments of principal and

interest amortized over the license term

for eligible licensees with gross

revenues exceeding $75 million in each

of the two preceding years. Eligible

licensees with gross revenues not

exceeding $75 million in each of the

two preceding years may make

installment payments at a rate equal to

ten-year U.S. Treasury obligations

applicable on the date the license is

granted plus 2.5 percent, with interest-
Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations 33861

only payments for the first year and

payments of interest and principal

amortized over the remaining nine years

of the license term.

12. The Commission also concludes

that it should amend the terms of the

installment payment plans to provide

for late payment fees. Therefore, when

licensees are more than fifteen days late

in their scheduled installment

payments, the Commission will charge

a late payment fee equal to 5 percent of

the amount of the past due payment.

Without this late payment fee, licensees

may not have adequate financial

incentives to make installment

payments on time. The 5 percent

payment adopted here is an

approximation of late payment fees

applied in typical commercial lending

transactions. Payments will be applied

in the following order: late charges,

interest charges, principal payments.

4. Bidding Credits

13. Consistent with its concerns about

avoiding litigation based on Adarand,

the Commission will eliminate the raceand gender-based aspects of the F block

bidding credits. In place of these

provisions, the Commission adopts a

two-tiered bidding credit for small

businesses. It believes that this

approach will promote dissemination of

licenses to a broader variety of

applicants than a 25 percent bidding

credit for all small businesses and will

encourage smaller businesses, possibly

businesses that are very well suited to

provide 10 MHz niche services, to

participate in the F block auction.

14. The Commission modifies its rules

to provide that entities with average

gross revenues greater than $15 million

but not more than $40 million for the

past three years are eligible for a 15

percent bidding credit; entities with

average gross revenues of not more than

$15 million for the past three years are

eligible for a 25 percent bidding credit.

The Commission believes that the

timing of the modification here allows

it to take a different approach than it

took for the C block. Entities interested

in bidding on F block licenses have not

had expectations similar to those of

entities that were interested in bidding

on the C block licenses and that

formulated business strategies in

reliance on the tiered bidding credits

originally adopted.

5. Information Collection

15. The Commission will request

information regarding minority- and

women-owned status in the F block

short-form applications. The

Commission believes that continuing to

collect such information will assist it in

analyzing applicant pools and auction

results to determine whether it has

promoted substantial participation in

auctions by minorities and women, as

directed by Congress, through the

special provisions it makes available to

small businesses.

B. Definitions

1. Small Business

16. Under the current F block rules,

a ‘‘small business’’ is defined as an

entity that, together with its affiliates

and persons or entities that hold

interests in such entity and their

affiliates, has average gross revenues of

not more than $40 million for the

preceding three years. The Commission

will continue to define small businesses

in this way. Maintaining the $40 million

definition of small businesses avoids

disruption to the business plans of

potential bidders, particularly

participants in the C block auction.

Additionally, however, the Commission

defines a second tier of small

businesses, which it will refer to as

‘‘very small businesses,’’ as entities that,

together with their affiliates and persons

or entities that hold interests in such

entities and their affiliates, have average

gross revenues of not more than $15

million for the preceding three years.

Creation of this subcategory of small

businesses enables the Commission to

tailor its benefits to better meet the

needs of bidders likely to participate in

the F block auction. Smaller license size

may mean that smaller businesses are

likely to participate in the F block

auction. Thus, as discussed above, the

Commission’s goals can best be served

by offering varying bidding credits

depending on the applicant’s size.

17. The Commission declines to make

special provisions for small business

winners of C block licenses as requested

by some commenters. As a practical

matter, C block small business winners

will likely not have accrued substantial

gross revenues by the time the

Commission auctions the D, E, and F

blocks. Therefore, most of these winners

should continue to qualify as small

businesses. On the other hand, if they

have grown in size beyond the

established financial cap, or if they can

no longer avail themselves of the

exception to the affiliation rules, they

may no longer qualify as a small

business.

2. Rural Telephone Company

18. The Telecommunications Act of

1996 (‘‘1996 Act’’) defines ’rural

telephone company’ to include a larger

number of local exchange carriers than

the Commission’s F block rules, which

define a rural telephone company as ‘‘a

local exchange carrier having 100,000 or

fewer access lines, including all

affiliates.’’ The Commission adopts the

definition of rural telephone company

contained in the 1996 Act. It finds

compelling the argument that this

definition will increase the number of

entities eligible for partitioning and

expedite the delivery of advanced

services to rural areas. Although this

decision may result in larger rural

telephone companies being eligible to

partition licenses, the Commission

recognizes that the number of

accesslines—including those provided

by rural telephone companies—

continues to grow rapidly as the uses of

telecommunications services expand.

Thus, most rural telephone companies

will benefit from a definition that

accounts for their growth. Adopting the

1996 Act definition for purposes of

Section 309(j) will also promote

uniformity of regulations and is

therefore consistent with the mandate of

this legislation of easing regulatory

burdens and eliminating unnecessary

regulation.

19. The Commission agrees with

commenters who assert that the

definition is one of general applicability

and it therefore elects not to adopt the

definition of rural telephone company

contained in Section 251(f)(2) of the

1996 Act, as proposed by one

commenter. This definition applies to

rural telephone companies only in the

context of suspensions or modifications

of the application of certain statutory

requirements to rural carriers. Absent a

specific definition of rural telephone

company for purposes of Section 309(j),

and reading the statute as a whole, the

Commission is constrained to adopt the

more generalized definition.

C. Extending Small Business Provisions

to the D and E Blocks

20. The Commission declines to

extend installment payment plans or

any other special provisions to small

businesses bidding on the D and E

blocks, believing that the special

provisions for small businesses in the F

block rules sufficiently further the

objective of encouraging wide

dissemination of broadband PCS

licenses. Since the F block is an

entrepreneurs’ block, it guarantees that

one third of the 10 MHz broadband PCS

licenses will be assigned to

entrepreneurs and small businesses. The

Commission believes that it would

undermine the justification for the F

block as an entrepreneurs’ block if it

were to open the D and E blocks to

special provisions for small businesses,

and that departing from the original
33862 Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations

plan to establish two contiguous blocks

of broadband PCS spectrum for the

exclusive use of entrepreneurs and

small businesses is not warranted.

D. Adjusting Payment Provisions for 10

MHz Licenses

21. The Commission modifies the

upfront payment requirement for the F

block to raise it to the same level as the

D and E block requirement and

eliminate the discount previously

provided to entrepreneurs. The

Commission originally discounted

upfront payments for entrepreneurs

because their down payment

requirement was low (5 percent) and it

was concerned that if it required them

to pay upfront payments larger than the

required down payment it might

discourage their participation. The

Commission’s experience to date,

however, indicates that it has

underestimated the value of spectrum

and that upfront payments have not

created a barrier to entrepreneur

participation in auctions. The

Commission is also concerned, based on

defaults in the C block auction, that

there is a need to obtain a higher

payment up front to guard against

default. The Commission also agrees

that requiring a uniform upfront

payment (per bidding unit) of all

bidders for D, E, and F block licenses

will greatly simplify the auction process

for bidders interested in bidding on two

or more of the blocks. The Commission

also believes that if it conducts a single

simultaneous multiple round auction of

the D, E, and F block licenses, it is

necessary for operational reasons to

have the same upfront payment and

activity requirements across all three

blocks.

22. Further, because the Commission

wants the payment terms to more

accurately reflect the value of the

licenses, it will raise the upfront

payment requirement for all three

blocks. It believes that this action is

consistent with the policy reason for

requiring upfront payments—to deter

insincere and speculative bidding and

to ensure that bidders have the financial

capability to build out their systems.

The formula for calculating upfront

payments was intended to approximate

5 percent of the estimated license value.

Based on the license values established

in the completed PCS auctions,

however, the formula of $0.02 per MHzpop underestimates actual value. The

Commission adopts an upfront payment

of $.06 per MHz-pop for the D, E, and

F blocks. Based on its analysis of the

prices paid in the C block auction, the

Commission believes that such an

upfront payment is sufficient to ensure

sincere bidding and guard against

defaults. The Commission also delegates

authority to the Wireless

Telecommunications Bureau to modify

the upfront payment requirement for

any C block licenses that are

reauctioned in the future. The

Commission notes that it also favors the

suggested approach that would require

applicants to supplement their upfront

payments during the auction to ensure

that their payment is a certain

percentage of their bids. Operationally

the Commission cannot implement this

proposal at this time, but it will look for

ways to implement it in future auctions.

23. For similar reasons, the

Commission also modifies the rule

governing down payments for the F

block. It finds that a 20 percent down

payment, the same down payment that

is required of D and E block auction

winners, should be required of F block

winners. Under this approach, F block

entrepreneurs and small businesses will

be required to supplement their upfront

payments to bring their total payment to

10 percent of their winning bid within

5 business days of the close of the

auction. Prior to licensing, they will be

required to pay an additional 10

percent. The government will then

finance the remaining 80 percent of the

purchase price. The Commission

believes an increased down payment

will provide it with strong assurance

against default and sufficient funds to

cover default payments in the unlikely

event of default. Increasing the amount

of the bidder’s funds at risk in the event

of default discourages insincere bidding

and therefore increases the likelihood

that licenses are awarded to parties who

are best able to serve the public.

E. Rules Regarding the Holding of

Licenses

24. The Commission amends the

holding requirement for F block

licensees and extends this change to the

C block rules. The Commission amends

47 CFR § 24.839 to permit the transfer

of entrepreneurs’ block licenses in the

first five years to any entity that either

holds other entrepreneurs’ block

licenses (and thus at the time of auction

satisfied the entrepreneurs’ block

criteria) or that satisfies the criteria at

the time of transfer. There will be no

restrictions on transfers after the fifth

year. The Commission notes, however,

that the unjust enrichment provisions

will continue to apply as before. The

Commission further amends the holding

rule to exempt pro forma transfers and

assignments because trafficking

concerns do not exist under such

circumstances. The Commission

concludes that allowing transfers and

assignments in the first five years—but

only to entrepreneurs—provides a

sufficient safeguard. It also has the

experience of the C block auction

behind it, and understands that strict

holding requirements may actually be

hampering the ability of entrepreneurs

to attract the capital necessary to

construct and operate their systems. In

particular, lenders and investors have

expressed concern about the need for

more flexibility in the event of financial

distress and default. Because the

Commission does not want investors to

shy away from financing C and F block

winners due to such concerns, it

modifies the holding rule in a manner

that continues to promote small and

entrepreneurial ownership in broadband

PCS licenses. The Commission believes

that by not eliminating the transfer

restriction entirely, it continues to have

a useful safeguard to ensure that small

businesses and entrepreneurs retain the

opportunity to build out and operate

broadband PCS licenses. At the same

time, by allowing entrepreneurs to

transfer their licenses to other

entrepreneurs, the Commission believes

that it allows market transactions to

occur that balance the objectives of

ensuring that entrepreneurs have an

opportunity to participate in PCS and

putting spectrum in the hands of those

who value it most in the event the

auction fails to accomplish this

objective. In addition, the Commission

believes that its amendment to the

holding requirement serves the public

interest by helping to ensure rapid and

uninterrupted service to the public.

Market-oriented solutions in the event

of financial distress will help avoid PCS

license defaults to the Commission and

the accompanying investor and/or

service disruption that such defaults

engender.

III. The Cincinnati Bell Remand

A. The Cellular/PCS Cross-ownership

Rule

25. In light of the Sixth Circuit’s

ruling in Cincinnati Bell Telephone Co.

v. FCC, remanding the Commission’s

rule limiting cellular operators’

eligibility for PCS licenses, the

Commission will maintain the 45 MHz

Commercial Mobile Radio Services

(‘‘CMRS’’) spectrum cap set forth in 47

CFR 20.6 and eliminate the PCS and

cellular/PCS spectrum cap contained in

Sections 24.229 and 24.204,

respectively. The Commission finds that

a spectrum cap is necessary to avoid

excessive concentration of licenses and

promote and preserve competition in

the CMRS marketplace and therefore

declines to eliminate all limitations on
Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations 33863

the amount of CMRS spectrum a single

entity (or affiliated entities) may

acquire.

26. The Commission adopted the 45

MHz CMRS spectrum cap to discourage

anticompetitive behavior while at the

same time maintaining incentives for

innovation and efficiency. The

Commission was concerned that

excessive aggregation of spectrum by

any one of several CMRS licensees

could reduce competition by precluding

entry by other service providers and

might thus confer excessive market

power on incumbents. The continuation

of the 45 MHz spectrum cap will

promote competition and prevent

anticompetitive horizontal

concentration in the CMRS business.

27. For determining when

concentration reduces competition to an

undesirable level, one accepted tool is

the Herfindahl-Hirschman Index

(‘‘HHI’’), which is used in the

Department of Justice and Federal Trade

Commission Horizontal Merger

Guidelines (‘‘DOJ/ FTC Guidelines’’) to

measure market concentration. In

addition to considering the arguments

presented by commenters in this

proceeding and in response to the Sixth

Circuit’s concern about the lack of

economic support for the cellular/PCS

spectrum cap, the Commission’s

competitive analysis staff performed an

HHI analysis for various possible

structures of a hypothetical market for

mobile two-way voice communications

service in the same geographic area. The

Commission staff’s HHI analysis

indicates that the 45 MHz CMRS

spectrum cap is needed to prevent

undue market concentration and the

noncompetitive conditions in local

markets that result from such

concentration.

28. The 45 MHz spectrum cap is also

needed specifically to prevent cellular

licensees from gaining too great a

competitive advantage over new

entrants to the wireless telephony

market. Cellular companies already hold

licenses for 25 MHz of clear spectrum,

and they already have technical

expertise, customer bases, marketing

operations, and antenna and transmitter

sites. In short, cellular operators have a

competitive position that is superior to

that of any new market entrant. By

limiting current cellular licensees to an

additional 20 MHz of spectrum (i.e., two

of the three 10 MHz broadband PCS

licenses), the 45 MHz cap will help to

level the playing field for all new

entrants, while ensuring that incumbent

providers are not placed at any

disadvantage.

29. The 45 MHz spectrum cap also

furthers the goal of diversity of

ownership that the Commission is

mandated to promote under Section

309(j). Section 309(j) directs the

Commission, in specifying eligibility for

licenses and permits, to avoid excessive

concentration of licenses and

disseminate licenses among a wide

variety of applicants. The statute further

states that in prescribing regulations, the

Commission must, inter alia, prescribe

area designations and bandwidth

assignments that promote economic

opportunity for a wide variety of

applicants. A spectrum cap is one of the

most effective mechanisms the

Commission could employ to achieve

these goals.

30. The court in the Cincinnati Bell

decision was concerned that the

cellular/PCS spectrum cap would ‘‘have

a profound impact on businesses in an

industry enmeshed in this country’s

telecommunications culture.’’ It stated

that ‘‘[t]he continued existence of some

wireless communications businesses

rests on their ability to bid on Personal

Communications Service licenses’’ and

that ‘‘Cellular providers foreclosed from

obtaining Personal Communications

Service licenses may ultimately be left

holding the remnants of an obsolete

technology.’’ Cincinnati Bell, 69 F.3d at

764. The Commission’s amendment of

its rules provides cellular licensees

additional flexibility to expand into or

migrate to PCS technology. Under the

old rule, they were limited to one 10

MHz channel until the year 2000. The

shift to a single 45 MHz spectrum cap

will allow incumbent cellular operators

to acquire up to two of the 10 MHz

broadband PCS licenses (20 MHz) in the

upcoming auction for the D, E, and F

blocks. As many commenters point out,

an additional 20 MHz of spectrum will

be sufficient to develop and provide

new digital services. The Commission

also notes that cellular carriers have

been rapidly implementing digital and

other new technologies with their

current 25 MHz of spectrum.

31. While the Commission’s analysis

of the CMRS market under the DOJ/FTC

Guidelines indicates that the 45 MHz

spectrum cap is needed to ensure

competition, it also shows that this cap

adequately addresses the Commission’s

concerns about anticompetitive

behavior. Indeed, the Commission’s HHI

analysis indicates that the concentration

levels under the single 45 MHz

spectrum cap would not be higher than

the level that would be possible under

all three of the existing caps. Thus, the

Commission concludes that the PCS and

cellular/PCS spectrum caps are

unnecessary.

32. The Commission also believes that

elimination of the cellular/PCS crossownership rule and the PCS spectrum

cap in favor of the single 45 MHz CMRS

spectrum cap has important advantages.

Applying the single 45 MHz CMRS cap

will give both cellular and PCS

providers more flexibility to participate

in a more competitive marketplace. The

elimination of the cellular/PCS and PCS

limits will give PCS providers greater

flexibility to own interests in other

providers and provide additional

services and, hence, enhanced

opportunities to compete. In addition,

PCS providers will no longer be

restricted to less than a 5 percent

ownership interest in cellular and other

PCS licensees in order to avoid

attribution. Instead, they will be subject

to the more liberal 20 percent

attribution level for all CMRS.

33. The Commission also notes that

the 1996 Act requires it to determine in

every even-numbered year (beginning

with 1998) ‘‘whether any regulation is

no longer necessary in the public

interest as the result of meaningful

economic competition between

providers of such service’’ and to

modify or repeal such regulation. 47

CFR 161(a)(2). In an effort to streamline

regulations consistent with the spirit of

the 1996 Act, and in light of the findings

set forth above, the Commission

believes that simplifying the rules to

include a single 45 MHz CMRS cap in

place of the three separate spectrum

caps is warranted. In addition, at the

next biennial review of the

Commission’s regulations under the

1996 Act and in annual reports on the

state of competition in the CMRS

market, the Commission will continue

to evaluate the need for the 45 MHz

spectrum cap in its present form.

34. The Commission declines to alter

the 10 percent overlap restriction for the

CMRS cap as some commenters suggest.

It continues to believe that an overlap of

less than 10 percent of the population

is sufficiently small that the potential

for exercise of undue market power by

the cellular operator is slight. Given its

decision to eliminate the cellular/PCS

and PCS ownership limitations, the

Commission is concerned that greater

overlap might lead to anticompetitive

practices. It will, however, expand the

post-auction divestiture provisions of 47

CFR § 20.6 to conform with the

divestiture provisions that previously

applied in the cellular/PCS crossownership rule, including the relaxed

rule applicable to situations where the

overlap exceeds 10 percent, but is less

than 20 percent. Thus, any party

holding an attributable ownership

interest in a CMRS licensee may be a

party to a broadband PCS application if

it certifies that, if necessary, it will come
33864 Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations

into compliance with the CMRS

spectrum cap through post-auction

divestiture procedures.

B. The 20 Percent Attribution Standard

35. The Commission’s decision to

eliminate the 35 MHz cellular/PCS

spectrum cap renders the issue of

whether to modify the attribution

standard of 47 CFR 24.204(d) moot. The

Commission reaffirms, however, the 20

percent attribution standard for the

purpose of determining whether an

entity is subject to the 45 MHz CMRS

spectrum aggregation limit. The

Commission also concludes that the

attribution standard for the 45 MHz

spectrum cap should be made race- and

gender-neutral such that a 40 percent

attribution standard applies to all small

businesses and rural telephone

companies. The Commission believes

that extending the 40 percent threshold

to noncontrolling investors in small

businesses as it did for the C block

licenses will promote additional

investment in small business applicants

and ensure broad participation in PCS

by designated entities.

36. The Commission believes that a 20

percent interest held by a single entity

would create a possibility of de facto

control. Such an interest (whether 20

percent or less) that conveys to its

holder actual working control

(including investor control) is already

attributable under the rules. The

Commission believes generally,

however, that even an entity that does

not have de facto or de jure control but

owns a 20 percent or more interest in a

licensee would have sufficient influence

to reduce competition and should be

subject to the CMRS spectrum

aggregation limit. The Commission

notes that attribution rules for other

services typically apply much lower

ownership benchmarks of 5 to 10

percent. Both cable and broadcast use a

5 to 10 percent attribution level. The

Commission further notes, as do some

commenters, that the 1996 Act defines

‘‘affiliate’’ as a ‘‘person that * * * owns

or controls, is owned or controlled by,

or is under common ownership or

control with, another person * * *.

[The] term ‘own’ means to own an

equity interest (or the equivalent

thereof) of more than 10 percent.’’ 47

U.S.C. 153 (1).

37. The Commission continues to

believe that a higher benchmark of 20

percent should apply for purposes of the

CMRS spectrum cap to encourage

capital investment and business

opportunities in CMRS. Given the

changing technology and the variety of

competing services that will be subject

to this limitation, it believes that

increased flexibility in the rules will

enable CMRS providers to adapt their

services to meet customer demand.

Furthermore, the Commission originally

adopted a 20 percent attribution level in

the cellular/PCS cross-ownership rules

to allow partial owners of cellular

licensees to participate in PCS, in light

of several partial and often passive

ownership interests that may have

resulted from early settlements during

the initial phase of cellular licensing.

The Commission believes that

maintaining a 20 percent attribution

level for the CMRS cap will allow a

wide variety of players (i.e., PCS,

cellular and SMR providers) to enter the

marketplace while still preventing

anticompetitive practices that would

have harmful effects on consumers.

38. The Commission disagrees with

suggestions that only controlling

interests should be attributable.

Establishing a control test would require

the Commission to conduct frequent

case-by-case determinations of control,

which are time-consuming, fact specific,

and subjective. The bright line 20

percent attribution rule avoids these

problems. Also, for the reasons

discussed below, a single majority

shareholder exception to the rule is not

appropriate for all situations involving

CMRS licensees and their owners, and

so adoption of such an exception is not

a suitable bright line substitute for 20

percent attribution. However, the

Commission adopts a less restrictive

alternative and allows licensees with

non-controlling minority investors with

potentially conflicting CMRS ownership

interests to seek waivers of the spectrum

cap rule where the licensee is controlled

by a single majority shareholder or

controlling general partner.

39. The Commission rejects a controlbased attribution test because

significant, but non-controlling,

investments have sufficient potential to

affect the level of competition in the

CMRS market. The CMRS spectrum cap

ownership attribution rule, just as all

other ownership attribution rules and

similar statutory provisions, must take

such interests into account. Economic

theory predicts that where a CMRS

licensee owns a substantial portion of

one of its competitors, neither company

has as strong an incentive to compete

vigorously against its partner as it does

with respect to an unrelated competitor.

Theoretical analysis has demonstrated

that partial ownership interests can

create the very non-competitive markets

that the Commission wants to avoid.

Indeed, as noted above, Congress was

also apparently concerned about

competitive incentives when it defined

ownership in the 1996 Act to mean an

interest of ten percent. The

Communications Act also limits foreign

ownership interests in CMRS licenses to

20 percent. Although these statutory

ownership attribution criteria do not

directly apply to the CMRS ownership

attribution rules, they indicate that

Congress believed that even noncontrolling, minority ownership

interests can convey significant

influence to their holders.

40. The Commission recognizes that

small businesses and rural telephone

companies, as well as non-controlling

investors in small businesses, may have

non-attributable ownership of up to 40

percent under the rules. But these

relaxed attribution rules present a

situation entirely different from the 20

percent attribution rule. The

Commission has been charged expressly

by Congress to ensure that small

businesses, including businesses owned

by women and minorities, and rural

telephone companies are given

meaningful opportunities to participate

in the provision of wireless services.

The rules must also promote the

development and rapid deployment of

new technologies, products, and

services for the benefit of the public,

including those residing in rural areas.

One of the most formidable barriers to

such participation is the difficulty such

businesses face in raising sufficient

capital to compete in the highly capitalintensive wireless communications

businesses. By increasing the attribution

threshold for such designated entities

and their investors, the Commission’s

goal was to make capital more readily

available by reducing the number of

investors such businesses must seek out.

The Commission also concluded that

smaller entities that have some interests

in cellular operations may be especially

effective PCS competitors because of

their cellular experience. This will help

ensure that service is brought quickly to

underserved areas and that designated

entities become viable competitors. In

particular, rural telephone companies

and some small cellular companies, due

to their existing infrastructure, are

uniquely positioned rapidly to

introduce PCS services into their service

areas or adjacent areas.

41. However, the Commission did not

exempt small businesses and rural

telephone companies entirely from the

cellular eligibility rules because such an

exemption could foreclose competition

from a new PCS entrant. In maintaining

the 45 MHz spectrum cap, the

Commission remains concerned that

there is potential for some of these

parties to compete less vigorously in the

nascent PCS industry. While it

recognizes that its relaxation of the rules
Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations 33865

for the CMRS spectrum cap presents a

risk of lower than optimal competition,

the Commission must balance

competing public policies and believes

that this is the proper balance to fulfill

the various statutory mandates under

Section 309(j) of the Communications

Act.

42. Further, the Commission declines

to adopt a single majority shareholder

exception for the CMRS spectrum cap

rule. As discussed above, economic

theory indicates that an entity holding

less than a majority interest may

influence the CMRS market in an

anticompetitive manner. In those

circumstances, it makes no difference

whether there is another shareholder

that exercises control since significant

minority ownership that does not

convey control still poses a serious

danger of hindering competition in a

concentrated market such as CMRS. In

addition, the Commission notes that,

although the single majority shareholder

exception currently applies in the

broadcast context, it believes that the

broadcast and CMRS markets are

sufficiently different to warrant different

treatment (and even in the broadcast

arena the Commission has recently

sought comment on whether to restrict

the single majority shareholder rule).

Mass media entities subject to the

broadcast ownership rules with the

single majority shareholder exception—

including AM and FM radio licensees,

UHF and VHF television licensees,

cable television operators and

newspaper publishers—offer the

audience with numerous competing

‘‘voices’’ from which to choose. There

are as many as 30 or more broadcast

stations in some areas. In contrast, as

the Commission envisions CMRS

(particularly in the short term),

consumers will be able to choose from

only about 5 or 6 competing service

providers at most—as noted above, a

fairly concentrated market. The

concerns the Commission has expressed

above about the potential of common

ownership to influence the entire

market may be far less serious in a less

concentrated market such as that for

mass media services. That is because the

participants in a non-oligopoly market

are less likely to act jointly in order to

preserve high prices. In addition, the

type of ‘‘product’’ on which competition

in broadcasting is based is different

from the product offered by CMRS

providers. Broadcasters compete for

advertising dollars (by attracting

audience share) on the basis of nonquantifiable programming choices,

while CMRS providers are expected to

offer commodity-type services that

compete in terms of prices charged

directly to consumers. The Commission

believes that it is more important to

preserve vigorous competition in a

commodity-based market than in a

market like broadcasting. CMRS prices

will be lowered only where competitors

must vie to survive, whereas it is not so

clear that programming will improve or

become more diverse as the result of

competition in free over-the-air

television and radio. Indeed, some

economists suggest that less competitive

markets may actually offer more diverse

programming. Thus, even if the single

majority shareholder rule is appropriate

for the mass media industry, that sector

is sufficiently different from the CMRS

market to justify somewhat different

regulation.

43. Hence, the Commission believes

that, as a general matter, minority stock

interests and limited partnership

interests should be deemed attributable

CMRS ownership interests even if a

single holder (or group of affiliated

holders) that owns more than 50 percent

of the outstanding stock or partnership

equity or has voting control of the

CMRS licensee. Nevertheless, the

Commission believes that there may be

limited circumstances where the

existence of a single majority

shareholder (or a single, controlling

general partner) may mitigate the

competitive impact of common

ownership and the ability of the noncontrolling interest holder to influence

the licensee. Accordingly, the

Commission will implement two less

restrictive measures as an alternative to

attributing ownership in such cases.

44. First, as was previously done with

the cellular/PCS cross-ownership rule,

the Commission will allow parties with

non-controlling, attributable interests in

CMRS licensees to have an attributable

(or controlling) interest in another

CMRS application that would exceed

the 45 MHz cap so long as certain postlicensing divestiture procedures are

followed. A ‘‘non-controlling

attributable interest’’ is one where the

holder has less than a 50 percent voting

interest and there is an unaffiliated

single holder of a 50 percent or greater

voting interest. This will allow interest

holders in licensees with a single

majority shareholder to obtain another

CMRS license (or attributable interest

therein) through an auction or other

means, subject to the interest holder

coming into compliance with the

divestiture provisions within 90 days of

grant of the conflicting license.

45. Second, the Commission will

consider requests for waivers of the

CMRS spectrum cap that make an

affirmative showing that an otherwise

attributable ownership interest should

not be attributed to its holder because:

the interest holder has less than a 50

percent voting interest and there is an

unaffiliated single holder of a 50 percent

or greater voting interest; the interest

holder is not likely to affect the local

market in an anticompetitive manner

because the market is highly

competitive; the interest holder is not

involved in operations of the licensee

and does not have the ability to

influence the licensee on a regular basis;

and grant of a waiver is in the public

interest because the benefits of such

common ownership to the public

outweigh any potential for

anticompetitive harm to the market.

46. Finally, the Commission believes

that retroactive application of any crossownership or spectrum cap rule changes

would be contrary to the public interest.

PCS licensees that participated in the A,

B, and C block auctions have already

incurred enormous expenses to, inter

alia, design their systems, relocate

incumbent users of the spectrum,

acquire cell sites, and establish

marketing plans. Retroactive application

of the rules would disrupt this

burgeoning industry and delay service

to the public. Furthermore, entities that

may have been precluded from

participating in past auctions for CMRS

spectrum based on the prior rules may

now acquire additional spectrum

through future auctions, assignments of

licenses, transfers of control or

investments. Thus, the Commission

concludes that any changes to the

spectrum cap and cross-ownership rules

will apply prospectively.

IV. Ownership Disclosure Provisions

47. The Commission amends Section

24.813(a)(1) and Section 24.813(a)(2) of

the rules, 47 CFR §§ 24.813 (a)(1) and

(a)(2), to limit the information

disclosure requirement with respect to

outside ownership interests of

applicants’ attributable stockholders,

and will require only the disclosure of

attributable stockholders’ direct,

attributable ownership in other

businesses holding or applying for

CMRS or PMRS licenses. The

Commission believes that the more

extensive ownership disclosure

requirements are burdensome and

difficult to administer, and that the

more limited requirements will

continue to ensure participation of only

eligible bidders. The Commission also

amends 47 CFR 24.813(a)(4) to delete

the requirement that partnerships file a

signed and dated copy of their

partnership agreement with their shortform and long-form applications. The

Commission has found this requirement
33866 Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations

to be overly burdensome and is

concerned that confidential or strategic

bidding information could be

unnecessarily disclosed through

submissions of such agreements.

48. The Commission also amends

Sections 24.720(f) and 24.720(g) of the

rules, to allow each applicant that does

not otherwise use audited financial

statements to provide a certification

from its chief financial officer that the

gross revenue and total asset figures

indicated in its short-form and longform applications are true, full, and

accurate and, that it does not have the

audited financial statements that are

otherwise required under the rules. The

Commission believes the requirement of

using audited financial statements to be

unnecessarily burdensome, especially

for small businesses that do not

normally rely on such statements.

49. Finally, the Commission amends

its rules to require that an applicant’s

determination of average gross revenues

be based on the three most recently

completed fiscal or calendar years. With

regard to concerns about inadvertent

release of confidential data, the

Commission will require that

confidential data be filed separately on

paper. Similarly, any requests that

information be treated as confidential

will not be accepted electronically and

must otherwise comply with the rules

governing confidential treatment of

documents.

V. Auction Schedule

50. The Commission concludes that it

should auction the D, E, and F blocks at

the same time. It also intends to auction

the D, E, and F blocks in a single

auction. The Commission believes that

auctioning the three blocks in one

simultaneous multiple round auction

will benefit bidders by reducing

administrative inefficiencies and by

providing maximum flexibility for

bidders to choose between similar

licenses. The Commission believes that

if it uses uniform upfront payments,

which it adopts for the three blocks in

this Report and Order, it will reduce the

complexity of a single auction. The

Commission also believes that this

method will expedite service to the

public. Although the Commission

believes that a single auction is the best

option, it delegates authority to the

Wireless Telecommunications Bureau to

conduct one auction for the D and E

blocks and one for the F block

concurrently if such an approach is

operationally necessary or otherwise

furthers the public interest.

VI. Other Issues

A. Limit on Licenses Acquired at

Auction

51. Several commenters suggested

modifying the limitation on the number

of licenses that a single entity may

acquire at auction to ensure wide

distribution of entrepreneurs’ block

licenses. Commission rules provide that

a single entity may win no more than 10

percent of the licenses available in the

entrepreneurs’ blocks; these licenses

may be all C block licenses or F block

licenses or some combination of the

two. Several commenters proposed that

the Commission change this limitation

to one based on population rather than

on the number of licenses. The

Commission declines to modify the rule

as requested. First, C block licenses

were disseminated to a large number of

auction winners. Second, bidding

strategies in the C block auction and the

business plans of many firms may have

been formulated in reliance on this rule.

The Commission finds no basis for

modifying it here.

B. Partitioning and Disaggregation

52. Numerous commenters argue that

the Commission’s geographic

partitioning provisions, which currently

apply only to rural telephone

companies, should be expanded to

include broadband PCS licensees and

spectrum disaggregation should be

permitted in the near term. Under the

current rules, broadband PCS licensees

may disaggregate licensed broadband

PCS spectrum after January 1, 2000, if

they have met the five-year construction

requirement. Because the issues of

partitioning and disaggregation exceed

the scope of this proceeding, the

Commission will consider these issues

in a separate proceeding.

C. Bid Withdrawal

53. One commenter suggested that the

bid submission software should be

enhanced to warn bidders whenever a

bid is entered that exceeds the

minimum bid by more than 10 bid

increments. For the D, E, and F block

auction, the Wireless

Telecommunications Bureau will

employ a procedure in addition to those

in place that will warn bidders of the

possibility of a mistaken bid.

54. The same commenter also states

that since the Commission cannot

distinguish honest mistakes from

strategic mistakes, it should impose a

penalty for mistaken bids. The rules

provide for a bid withdrawal payment

that is equal to the difference between

the withdrawn bid amount and the

subsequent winning bid, if the

subsequent winning bid is lower. No

withdrawal payment is assessed if the

subsequent winning bid exceeds the

withdrawn bid.

55. For the D, E, and F block auction,

the Commission adopts the approach of

Atlanta Trunking, where it held that in

cases of erroneous bids, some relief from

the bid withdrawal payment

requirement appears necessary. (Atlanta

Trunking Associates, Inc. and MAP

Wireless L.L.C. Requests to Waive Bid

Withdrawal Payment Provisions, Order,

FCC 96–203, 61 FR 25807 (May 23,

1996)). In Atlanta Trunking, the

Commission fashioned the following

guidelines to be followed when

addressing individual requests for

waiver of withdrawal payments: If a

mistaken bid is withdrawn in the round

immediately following the round in

which it was submitted, and the auction

is in Stage I or Stage II, the withdrawal

payment should be the greater of (a) two

times the minimum bid increment

during the round in which the mistaken

bid was submitted or (b) the standard

withdrawal payment calculated as if the

bidder had made a bid at one bid

increment above the minimum accepted

bid. If the mistaken bid is withdrawn

two or more rounds following the round

in which it was submitted, the bidder

should not be eligible for any reduction

in the bid withdrawal payment.

Similarly, during Stage III of an auction,

if a mistaken bid is not withdrawn

during the round in which it was

submitted, the bidder should not be

eligible for any reduction in the bid

withdrawal payment. The Commission

believes that under this approach, the

required bid withdrawal payment

would be substantial enough to

discourage strategic placement of

erroneous bids without being so severe

as to impose an untenable burden on

bidders.

VII. Conclusion

In this Order, the Commission

concludes that making the F block rules

race- and gender-neutral will avoid the

uncertainty and delay that could result

from legal challenges to the special

provisions for minority- and womenowned businesses in the broadband PCS

F block rules. The Commission also

takes steps to streamline procedures and

minimize the possibility of insincere

bidding and bidder default. The

Commission also responds to the

Cincinnati Bell remand issues. Finally,

to expedite the delivery of broadband

PCS services to the public, the

Commission plans to offer the D, E, and

F block licenses together in one

simultaneous multiple round auction

and delegates authority to the Wireless
Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations 33867

Telecommunications Bureau to conduct

two concurrent auctions if

circumstances warrant.

VIII. Procedural Matters and Ordering

Clauses

57. The Final Regulatory Flexibility

Analysis, as required by Section 604 of

the Regulatory Flexibility Act, is set

forth in Appendix C of the Report and

Order. Public Law No. 96–354, 94 Stat.

1164, 5 U.S.C. 601 et seq. (1981).

58. It is ordered, That the rule changes

specified below are adopted and are

effective July 31, 1996.

59. This action is taken pursuant to

Sections 4(i), 303(r), and 309(j) of the

Communications Act of 1934, as

amended, 47 U.S.C. 154(i), 303(r) and

309(j).

List of Subjects in 47 CFR Parts 20 and

24

Commercial Mobile Radio Service,

Personal Communications Services.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Parts 20 and 24 of Chapter I of Title

47 of the Code of Federal Regulations

are amended as follows:

PART 20—COMMERCIAL MOBILE

RADIO SERVICES

1. The authority citation for Part 20

continues to read as follows:

Authority: Secs. 4, 303, and 332, 48 Stat.

1066, 1082, as amended; 47 U.S.C. 154, 303,

and 332, unless otherwise noted.

2. Section 20.6 is amended by revising

paragraphs (d)(2), (e), and Note 1 to

§ 20.6 to read as follows:

§ 20.6 CMRS spectrum aggregation limit.

* * * * *

(d) * * *

(2) Partnership and other ownership

interests and any stock interest

amounting to 20 percent or more of the

equity, or outstanding stock, or

outstanding voting stock of a broadband

PCS, cellular or SMR licensee shall be

attributed, except that ownership will

not be attributed unless the partnership

and other ownership interests and any

stock interest amount to at least 40

percent of the equity, or outstanding

stock, or outstanding voting stock of a

broadband PCS, cellular or SMR

licensee if the ownership interest is held

by a small business or a rural telephone

company, as these terms are defined in

§ 1.2110 of this chapter or other related

provisions of the Commission’s rules, or

if the ownership interest is held by an

entity with a non-controlling equity

interest in a broadband PCS licensee or

applicant that is a small business.

* * * * *

(e) Divestiture. (1) Any party holding

controlling or attributable ownership

interests in broadband PCS, cellular,

and/or SMR licensees regulated as

CMRS providers that would exceed the

spectrum aggregation limitation defined

in paragraph (a) of this section, if

granted additional licenses, may be a

party to a broadband PCS, cellular, or

SMR application (i.e., have a controlling

or attributable interest in the applicant),

and such applicant will be eligible for

licenses amounting to more than 45

MHz of broadband PCS, cellular, and/or

SMR spectrum regulated as CMRS in a

geographical area, pursuant to the

divestiture procedures set forth in

paragraphs (e)(2) through (e)(4) of this

section; provided, however, that in the

case of parties holding controlling or

attributable ownership interests in

broadband PCS, cellular, and/or SMR

licensees, these divestiture procedures

shall be available only to:

(i) Parties with controlling or

attributable ownership interests in

broadband PCS, cellular, and/or SMR

licenses where the geographic license

areas cover 20 percent or less of the

applicant’s service area population;

(ii) Parties with attributable interests

in broadband PCS, cellular, and/or SMR

licenses solely due to management

agreements or joint marketing

agreements; and

(iii) Parties with non-controlling

attributable interests in broadband PCS,

cellular, and/or SMR licenses,

regardless of the degree to which the

geographic license areas cover the

applicant’s service area population. For

purposes of this paragraph, a ‘‘noncontrolling attributable interest’’ is one

in which the holder has less than a fifty

(50) percent voting interest and there is

an unaffiliated single holder of a fifty

(50) percent or greater voting interest.

(2) The applicant for a license that, if

granted, would exceed the 45 MHz

limitation shall certify on its application

that it and all parties to the application

will come into compliance with this

limitation.

(3) If such an applicant is a successful

bidder in an auction, it must submit

with its long-form application a signed

statement describing its efforts to date

and future plans to come into

compliance with the 45 MHz spectrum

limitation. A similar statement must

also be included with any application

for assignment of licenses or transfer of

control that, if granted, would exceed

the spectrum aggregation limit.

(4) If such an applicant is otherwise

qualified, its application will be granted

subject to a condition that the licensee

shall come into compliance with the 45

MHz spectrum limitation within ninety

(90) days of final grant.

(i) Parties holding controlling

interests in broadband PCS, cellular,

and/or SMR licensees that conflict with

the attribution threshold or geographic

overlap limitations set forth in this

section will be considered to have come

into compliance if they have submitted

to the Commission an application for

assignment of license or transfer of

control of the conflicting licensee (see

§§ 24.839 of this chapter (PCS), 22.39 of

this chapter (cellular), 90.158 of this

chapter (SMR)) by which, if granted,

such parties no longer would have an

attributable interest in the conflicting

license. If no such assignment or

transfer application is tendered to the

Commission within ninety (90) days of

final grant of the initial license, the

Commission may consider the

certification and the divestiture

statement to be material, bad faith

misrepresentations and shall invoke the

condition on the initial license or the

assignment or transfer, cancelling or

rescinding it automatically, shall retain

all monies paid to the Commission, and,

based on the facts presented, shall take

any other action it may deem

appropriate. Divestiture may be to an

interim trustee if a buyer has not been

secured in the required period of time,

as long as the applicant has no interest

in or control of the trustee, and the

trustee may dispose of the license as it

sees fit.

(ii) Where parties to broadband PCS,

cellular, or SMR applications hold less

than controlling (but still attributable)

interests in broadband PCS, cellular, or

SMR licensee(s), they shall submit,

within ninety (90) days of final grant, a

certification that the applicant and all

parties to the application have come

into compliance with the limitations on

spectrum aggregation set forth in this

section.

Note 1 to § 20.6: Waivers of § 20.6(d) may

be granted upon an affirmative showing:

(1) That the interest holder has less than

a 50 percent voting interest in the licensee

and there is an unaffiliated single holder of

a 50 percent or greater voting interest;

(2) That the interest holder is not likely to

affect the local market in an anticompetitive

manner;

(3) That the interest holder is not involved

in the operations of the licensee and does not

have the ability to influence the licensee on

a regular basis; and

(4) That grant of a waiver is in the public

interest because the benefits to the public of

common ownership outweigh any potential

anticompetitive harm to the market.

* * * * *
33868 Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations

PART 24—PERSONAL

COMMUNICATIONS SERVICES

3. The authority citation for Part 24

continues to read as follows:

Authority: Secs. 4, 301, 302, 303, 309 and

332, 48 Stat. 1066, 1082, as amended; 47

U.S.C. §§ 154, 301, 302, 303, 309 and 332,

unless otherwise noted.

§ 24.204 [Removed]

4. Section 24.204 is removed.

5. Section 24.229 is amended by

removing paragraph (c) and

redesignating paragraph (d) as

paragraph (c) and revising it to read as

follows.

§ 24.229 Frequencies.

* * * * *

(c) After January 1, 2000, licensees

that have met the 5-year construction

requirement may assign portions of

licensed PCS spectrum.

6. Section 24.704 is amended by

adding paragraph (a)(3) to read as

follows:

§ 24.704 Withdrawal, default and

disqualification penalties.

(a) * * *

(3) Erroneous Bids. If at any point

during an auction an erroneous bid is

withdrawn in the same round in which

it was submitted, the bid withdrawal

payment will be the greater of

(i) The minimum bid increment for

that license and round; and

(ii) The standard bid withdrawal

payment, as defined in paragraph (a)(1)

of this section, calculated as if the

bidder had made the minimum accepted

bid. If an erroneous bid is withdrawn in

the round immediately following the

round in which it was submitted, and

the auction is in Stage I or Stage II, the

withdrawal payment will be the greater

of

(A) Two times the minimum bid

increment during the round in which

the erroneous bid was submitted, and

(B) The standard withdrawal

payment, as defined in paragraph (a)(1)

of this section, calculated as if the

bidder had made a bid one bid

increment above the minimum accepted

bid. If an erroneous bid is withdrawn

two or more rounds following the round

in which it was submitted, the bidder

will not be eligible for any reduction in

the bid withdrawal payment as defined

in paragraph (a)(1) of this section.

During Stage III of an auction, if an

erroneous bid is not withdrawn during

the round in which it was submitted,

the bidder will not be eligible for any

reduction in the bid withdrawal

payment as defined in paragraph (a)(1)

of this section.

* * * * *

7. Section 24.706 is revised to read as

follows:

§ 24.706 Submission of upfront payments

and down payments.

(a) Where the Commission uses

simultaneous multiple round auctions

or oral sequential auctions, bidders will

be required to submit an upfront

payment in accordance with § 1.2106 of

this chapter, paragraph (c) of this

section, and §§ 24.711(a)(1) and

24.716(a)(1).

(b) Winning bidders in an auction

must submit a down payment to the

Commission in accordance with

§ 1.2107(b) of this chapter and

§§ 24.711(a)(2) and 24.716(a)(2).

(c) Each eligible bidder for licenses on

frequency Blocks D and E subject to

auction shall pay an upfront payment of

$0.06 per MHz per pop for the

maximum number of licenses (in terms

of MHz-pops) on which it intends to bid

pursuant to § 1.2106 of this chapter and

procedures specified by Public Notice.

8. Section 24.709 is amended by

revising the section heading, paragraphs

(a)(1), (a)(2), (c)(1) introductory text,

(c)(2) introductory text, and (c)(2)(ii) to

read as follows:

§ 24.709 Eligibility for licenses for

frequency Blocks C and F.

(a) * * *

(1) No application is acceptable for

filing and no license shall be granted for

frequency block C or frequency block F,

unless the applicant, together with its

affiliates and persons or entities that

hold interests in the applicant and their

affiliates, have gross revenues of less

than $125 million in each of the last two

years and total assets of less than $500

million at the time the applicant’s shortform application (Form 175) is filed.

(2) The gross revenues and total assets

of the applicant (or licensee), and its

affiliates, and (except as provided in

paragraph (b) of this section) of persons

or entities that hold interests in the

applicant (or licensee), and their

affiliates, shall be attributed to the

applicant and considered on a

cumulative basis and aggregated for

purposes of determining whether the

applicant (or licensee) is eligible for a

license for frequency block C or

frequency block F under this section.

* * * * *

(c) * * *

(1) Short-form Application. In

addition to certifications and

disclosures required by Part 1, subpart

Q of this chapter and § 24.813, each

applicant for a license for frequency

block C or frequency block F shall

certify on its short-form application

(Form 175) that it is eligible to bid on

and obtain such license(s), and (if

applicable) that it is eligible for

designated entity status pursuant to this

section and § 24.720, and shall append

the following information as an exhibit

to its Form 175:

* * * * *

(2) Long-form Application. In addition

to the requirements in subpart I of this

part and other applicable rules (e.g.,

§§ 20.6(e) and 20.9(b) of this chapter),

each applicant submitting a long-form

application for a license(s) for frequency

block C or frequency block F shall, in

an exhibit to its long-form application:

* * * * *

(ii) List and summarize all agreements

or other instruments (with appropriate

references to specific provisions in the

text of such agreements and

instruments) that support the

applicant’s eligibility for a license(s) for

frequency block C or frequency block F

and its eligibility under §§ 24.711,

24.712, 24.714 and 24.720, including

the establishment of de facto and de jure

control; such agreements and

instruments include articles of

incorporation and bylaws, shareholder

agreements, voting or other trust

agreements, partnership agreements,

management agreements, joint

marketing agreements, franchise

agreements, and any other relevant

agreements (including letters of intent),

oral or written; and

* * * * *

§ 24.715 [Removed]

9. Section 24.715 is removed.

10. Section 24.716 is amended by

revising paragraphs (a)(1), (a)(2), (b),

redesignating paragraph (c) as paragraph

(d); revising newly-redesignated

paragraph (d)(2); and adding a new

paragraph (c) to read as follows:

§ 24.716 Upfront payments, down

payments, and installment payments for

licenses for frequency Block F.

(a) * * *

(1) Each eligible bidder for licenses on

frequency Block F subject to auction

shall pay an upfront payment of $0.06

per MHz per pop for the maximum

number of licenses (in terms of MHzpops) on which it intends to bid

pursuant to § 1.2106 of this chapter and

procedures specified by Public Notice;

(2) Each winning bidder shall make a

down payment equal to 20 percent of its

winning bid (less applicable bidding

credits); a winning bidder shall bring its

total amount on deposit with the

Commission (including upfront

payment) to 10 percent of its net

winning bid within five business days

after the auction closes, and the

remainder of the down payment (10
Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations 33869

percent) shall be paid within five

business days after the application

required by § 24.809(b) is granted; and

(b) Installment Payments. Each

eligible licensee of frequency Block F

may pay the remaining 80 percent of the

net auction price for the license in

installment payments pursuant to

§ 1.2110(e) of this chapter and under the

following terms:

(1) For an eligible licensee with gross

revenues exceeding $75 million

(calculated in accordance with § 24.709

(a)(2) and (b)) in each of the two

preceding years (calculated in

accordance with § 24.720(f)), interest

shall be imposed based on the rate for

ten-year U.S. Treasury obligations

applicable on the date the license is

granted, plus 3.5 percent; payments

shall include both principal and interest

amortized over the term of the license;

(2) For an eligible licensee with gross

revenues not exceeding $75 million

(calculated in accordance with § 24.709

(a)(2) and (b)) in each of the two

preceding years (calculated in

accordance with § 24.720(f)), interest

shall be imposed based on the rate for

ten-year U.S. Treasury obligations

applicable on the date the license is

granted, plus 2.5 percent; payments

shall include interest only for the first

year and payments of interest and

principal amortized over the remaining

nine years of the license term; or

(3) For an eligible licensee that

qualifies as a small business or as a

consortium of small businesses, interest

shall be imposed based on the rate for

ten-year U.S. Treasury obligations

applicable on the date the license is

granted; payments shall include interest

only for the first two years and

payments of interest and principal

amortized over the remaining eight

years of the license term.

(c) Late Installment Payments. Any

licensee that submits a scheduled

installment payment more than 15 days

late will be charged a late payment fee

equal to 5 percent of the amount of the

past due payment. Payments will be

applied in the following order: late

charges, interest charges, principal

payments.

(d) * * *

(2) If a licensee that utilizes

installment financing under this section

seeks to make any change in ownership

structure that would result in the

licensee losing eligibility for installment

payments, the licensee shall first seek

Commission approval and must make

full payment of the remaining unpaid

principal and any unpaid interest

accrued through the date of such change

as a condition of approval. A licensee’s

(or other attributable entity’s) increased

gross revenues or increased total assets

due to nonattributable equity

investments (i.e., from sources whose

gross revenues and total assets are not

considered under § 24.709(b)), debt

financing, revenue from operations or

other investments, business

development or expanded service shall

not be considered to result in the

licensee losing eligibility for installment

payments.

* * * * *

11. Section 24.717 is amended by

revising paragraphs (a) and (b),

removing paragraph (c), and

redesignating paragraph (d) as

paragraph (c) to read as follows:

§ 24.717 Bidding credits for licenses for

frequency Block F.

(a) A winning bidder that qualifies as

a small business or a consortium of

small businesses may use a bidding

credit of 15 percent to lower the cost of

its winning bid.

(b) A winning bidder that qualifies as

a very small business or a consortium of

very small businesses may use a bidding

credit of 25 percent to lower the cost of

its winning bid.

* * * * *

12. Section 24.720 is amended by

revising the heading of paragraph (b)

redesignating paragraphs (b)(2) and

(b)(3) as paragraphs (b)(3) and (b)(4) and

revising them; adding new paragraphs

(b)(2) and (b)(5); and revising

paragraphs (c)(2), (e), (f), (g), (j)(2),

(l)(11)(i), (n)(1), (n)(3) and (n)(4) to read

as follows:

§ 24.720 Definitions.

* * * * *

(b) Small business; very small

business; consortia. * * *

(2) A very small business is an entity

that, together with its affiliates and

persons or entities that hold interests in

such entity and their affiliates, has

average annual gross revenues that are

not more than $15 million for the

preceding three years.

(3) For purposes of determining

whether an entity meets the $40 million

average annual gross revenues size

standard set forth in paragraph (b)(1) of

this section or the $15 million average

annual gross revenues size standard set

forth in paragraph (b)(2) of this section,

the gross revenues of the entity, its

affiliates, persons or entities holding

interests in the entity and their affiliates

shall be considered on a cumulative

basis and aggregated subject to the

exceptions set forth in § 24.709(b).

(4) A small business consortium is a

conglomerate organization formed as a

joint venture between or among

mutually independent business firms,

each of which individually satisfies the

definition of a small business in

paragraphs (b)(1) and (b)(3) of this

section.

(5) A very small business consortium

is a conglomerate organization formed

as a joint venture between or among

mutually independent business firms,

each of which individually satisfies the

definition of a very small business in

paragraphs (b)(2) and (b)(3) of this

section.

(c) * * *

(2) That complies with the

requirements of § 24.709(b)(3) and (b)(5)

or § 24.709(b)(4) and (b)(6).

* * * * *

(e) Rural Telephone Company. A rural

telephone company is a local exchange

carrier operating entity to the extent that

such entity:

(1) Provides common carrier service

to any local exchange carrier study area

that does not include either;

(i) Any incorporated place of 10,000

inhabitants or more, or any part thereof,

based on the most recently available

population statistics of the Bureau of the

Census; or

(ii) Any territory, incorporated or

unincorporated, included in an

urbanized area, as defined by the

Bureau of the Census as of August 10,

1993;

(2) Provides telephone exchange

service, including exchange access, to

fewer than 50,000 access lines;

(3) Provides telephone exchange

service to any local exchange carrier

study area with fewer than 100,000

access lines; or

(4) Has less than 15 percent of its

access lines in communities of more

than 50,000 on the date of enactment of

the Telecommunications Act of 1996.

(f) Gross Revenues. Gross revenues

shall mean all income received by an

entity, whether earned or passive, before

any deductions are made for costs of

doing business (e.g., cost of goods sold),

as evidenced by audited financial

statements for the relevant number of

most recently completed calendar years,

or, if audited financial statements were

not prepared on a calendar-year basis,

for the most recently completed fiscal

years preceding the filing of the

applicant’s short-form application

(Form 175). If an entity was not in

existence for all or part of the relevant

period, gross revenues shall be

evidenced by the audited financial

statements of the entity’s predecessorin-interest or, if there is no identifiable

predecessor-in-interest, unaudited

financial statements certified by the

applicant as accurate. When an

applicant does not otherwise use
33870 Federal Register / Vol. 61, No. 127 / Monday, July 1, 1996 / Rules and Regulations

audited financial statements, its gross

revenues may be certified by its chief

financial officer or its equivalent.

(g) Total Assets. Total assets shall

mean the book value (except where

generally accepted accounting

principles (GAAP) require market

valuation) of all property owned by an

entity, whether real or personal, tangible

or intangible, as evidenced by the most

recent audited financial statements or

certified by the applicant’s chief

financial officer or its equivalent if the

applicant does not otherwise use

audited financial statements.

* * * * *

(j) * * *

(2) For purposes of assessing

compliance with the equity limits in

§ 24.709 (b)(3)(i) and (b)(4)(i), where

such interests are not held directly in

the applicant, the total equity held by a

person or entity shall be determined by

successive multiplication of the

ownership percentages for each link in

the vertical ownership chain.

* * * * *

(l) * * *

(11) * * *

(i) For purposes of §§ 24.709(a)(2) and

paragraphs (b)(2) and (d) of this section,

Indian tribes or Alaska Regional or

Village Corporations organized pursuant

to the Alaska Native Claims Settlement

Act (43 U.S.C. 1601 et seq.), or entities

owned and controlled by such tribes or

corporations, are not considered

affiliates of an applicant (or licensee)

that is owned and controlled by such

tribes, corporations or entities, and that

otherwise complies with the

requirements of § 24.709 (b)(3) and

(b)(5) or § 24.709 (b)(4) and (b)(6),

except that gross revenues derived from

gaming activities conducted by affiliated

entities pursuant to the Indian Gaming

Regulatory Act (25 U.S.C. 2701 et seq.)

will be counted in determining such

applicant’s (or licensee’s) compliance

with the financial requirements of

§ 24.709(a) and paragraphs (b) and (d) of

this section, unless such applicant

establishes that it will not receive a

substantial unfair competitive advantage

because significant legal constraints

restrict the applicant’s ability to access

such gross revenues.

* * * * *

(n) * * *

(1) A qualifying investor is a person

who is (or holds an interest in) a

member of the applicant’s (or licensee’s)

control group and whose gross revenues

and total assets, when aggregated with

those of all other attributable investors

and affiliates, do not exceed the gross

revenues and total assets limits

specified in § 24.709(a), or, in the case

of an applicant (or licensee) that is a

small business, do not exceed the gross

revenues limit specified in paragraph (b)

of this section.

* * * * *

(3) For purposes of assessing

compliance with the minimum equity

requirements of § 24.709(b) (5) and (6),

where such equity interests are not held

directly in the applicant, interests held

by qualifying investors or qualifying

minority and/or woman investors shall

be determined by successive

multiplication of the ownership

percentages for each link in the vertical

ownership chain.

(4) For purposes of § 24.709

(b)(5)(i)(C) and (b)(6)(i)(C), a qualifying

investor is a person who is (or holds an

interest in) a member of the applicant’s

(or licensee’s) control group and whose

gross revenues and total assets do not

exceed the gross revenues and total

assets limits specified in § 24.709(a).

* * * * *

13. Section 24.813 is amended by

revising paragraphs (a)(1), (a)(2) and

(a)(4) to read as follows:

§ 24.813 General application requirements.

(a) * * *

(1) A list of any business, holding or

applying for CMRS or PMRS licenses,

five percent or more of whose stock,

warrants, options or debt securities are

owned by the applicant or an officer,

director, attributable stockholder or key

management personnel of the applicant.

This list must include a description of

each such business’ principal business

and a description of each such business’

relationship to the applicant.

(2) A list of any party which holds a

five percent or more interest (or a ten

percent or more interest for institutional

investors as defined in § 24.720(h)) in

the applicant, or any entity holding or

applying for CMRS or PMRS licenses in

which a five percent or more interest (or

a ten percent or more interest for

institutional investors as defined in

§ 24.720(h)) is held by another party

which holds a five percent or more

interest (or a ten percent or more

interest for institutional investors as

defined in § 24.720(h)) in the applicant

(e.g. If Company A owns 5% of

Company B (the applicant) and 5% of

Company C, a company holding or

applying for CMRS or PMRS licenses,

then Companies A and C must be listed

on Company B’s applications.)

* * * * *

(4) In the case of partnerships, the

name and address of each partner, each

partner’s citizenship and the share or

interest participation in the partnership.

This information must be provided for

all partners, regardless of their

respective ownership interest in the

partnership.

* * * * *

14. Section 24.839 is amended by

revising paragraphs (a), (d)(1), and (d)(2)

and adding paragraphs (d)(3), (d)(4), and

(d)(5) to read as follows:

§ 24.839 Transfer of control or assignment

of license.

(a) Approval required. Authorization

shall be transferred or assigned to

another party, voluntarily (for example,

by contract) or involuntarily (for

example, by death, bankruptcy or legal

disability), directly or indirectly or by

transfer of control of any corporation

holding such authorization, only upon

application and approval by the

Commission. A transfer of control or

assignment of station authorization in

the broadband Personal

Communications Service is also subject

to §§ 24.711(e), 24.712(d), 24.713(b),

24.717(c) (unjust enrichment) and

1.2111(a) (reporting requirement).

* * * * *

(d) * * *

(1) The application for assignment or

transfer of control is filed after five years

from the date of the initial license grant;

or

(2) The proposed assignee or

transferee meets the eligibility criteria

set forth in § 24.709 at the time the

application for assignment or transfer of

control is filed, or the proposed assignee

or transferee holds other license(s) for

frequency blocks C and F and, at the

time of receipt of such license(s), met

the eligibility criteria set forth in

§ 24.709;

(3) The application is for partial

assignment of a partitioned service area

to a rural telephone company pursuant

to § 24.714 and the proposed assignee

meets the eligibility criteria set forth in

§ 24.709;

(4) The application is for an

involuntary assignment or transfer of

control to a bankruptcy trustee

appointed under involuntary

bankruptcy, an independent receiver

appointed by a court of competent

jurisdiction in a foreclosure action, or,

in the event of death or disability, to a

person or entity legally qualified to

succeed the deceased or disabled person

under the laws of the place having

jurisdiction over the estate involved;

provided that, the applicant requests a

waiver pursuant to this paragraph; or

(5) The assignment or transfer of

control is pro forma.

* * * * *

[FR Doc. 96–16665 Filed 6–28–96; 8:45 am]

BILLING CODE 6712–01–P