[Federal Register Volume 61, Number 127 (Monday, July 1, 1996)]
[Rules and Regulations]
[Pages 33859-33870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16665]


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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.

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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. Pena, 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. Pena, 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 race- and 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 women-owned 
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 women-owned 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 non-controlling 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

[[Page 33860]]

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-

[[Page 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 race- and 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

[[Page 33862]]

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 MHz-pop 
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 Sec. 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

[[Page 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 cross-ownership 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 Sec. 20.6 to conform with the 
divestiture provisions that previously applied in the cellular/PCS 
cross-ownership 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

[[Page 33864]]

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 control-based 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 non-controlling, 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 capital-intensive 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

[[Page 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 non-quantifiable 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 non-
controlling 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 post-licensing 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 cross-ownership 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 Secs. 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 
short-form and long-form applications. The Commission has found this 
requirement

[[Page 33866]]

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 long-form 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 women-owned 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

[[Page 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 Sec. 20.6 to read as follows:


Sec. 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 
Sec. 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 ``non-controlling 
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 Secs. 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 Sec. 20.6: Waivers of Sec. 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.
* * * * *

[[Page 33868]]

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. Secs. 154, 301, 302, 303, 309 and 332, 
unless otherwise noted.


Sec. 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.


Sec. 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:


Sec. 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:


Sec. 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 Sec. 1.2106 of this chapter, 
paragraph (c) of this section, and Secs. 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 Sec. 1.2107(b) of this chapter and 
Secs. 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 Sec. 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:


Sec. 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 
short-form 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 
Sec. 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 Sec. 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., Secs. 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 Secs. 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
* * * * *


Sec. 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:


Sec. 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 MHz-pops) on which it 
intends to bid pursuant to Sec. 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

[[Page 33869]]

percent) shall be paid within five business days after the application 
required by Sec. 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 Sec. 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 Sec. 24.709 (a)(2) and (b)) in 
each of the two preceding years (calculated in accordance with 
Sec. 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 Sec. 24.709 (a)(2) and (b)) in 
each of the two preceding years (calculated in accordance with 
Sec. 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 Sec. 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:


Sec. 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:


Sec. 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 Sec. 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 Sec. 24.709(b)(3) and 
(b)(5) or Sec. 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 predecessor-in-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

[[Page 33870]]

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 
Sec. 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 Secs. 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 
Sec. 24.709 (b)(3) and (b)(5) or Sec. 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 
Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 24.709(a).
* * * * *
    13. Section 24.813 is amended by revising paragraphs (a)(1), (a)(2) 
and (a)(4) to read as follows:


Sec. 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 Sec. 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 Sec. 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 Sec. 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:


Sec. 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 Secs. 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 Sec. 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 Sec. 24.709;
    (3) The application is for partial assignment of a partitioned 
service area to a rural telephone company pursuant to Sec. 24.714 and 
the proposed assignee meets the eligibility criteria set forth in 
Sec. 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