[Federal Register Volume 59, Number 85 (Wednesday, May 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10638]


[[Page Unknown]]

[Federal Register: May 4, 1994]


=======================================================================
-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 1

[PP Docket No. 93-253, FCC 94-61]

 

Implementation of Competitive Bidding

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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

SUMMARY: The Commission has adopted rules establishing general 
procedures that will apply whenever it employs a system of competitive 
bidding (``auctions'') to choose from among mutually exclusive 
applications for certain initial licenses. This action is taken to 
implement section 309(j) of the Communications Act of 1934, as amended. 
Procedures applicable to specific services will be determined in future 
Reports and Orders. The new rules will promote the development and 
rapid deployment of new technologies, products, and services for the 
benefit of the public, including those residing in rural areas. These 
rules also will promote economic opportunity and competition, and 
disseminate licenses among a wide variety of applicants, including 
small businesses, rural telephone companies, and businesses owned by 
members of minority groups and women. This action will provide recovery 
for the public of a portion of the value of the public spectrum made 
available for commercial use.

EFFECTIVE DATE: June 3, 1994.

FOR FURTHER INFORMATION CONTACT:
Toni Simmons, Office of Plans and Policy, (202) 418-2030.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second 
Report and Order, PP Docket No. 93-253, adopted March 8, 1994, and 
released April 20, 1994. The full text of this Second Report and Order 
is available for inspection and copying during normal business hours in 
the FCC Dockets Branch, Room 230, 1919 M Street NW., Washington, DC. 
The complete text may be purchased from the Commission's copy 
contractor, International Transcription Service, Inc., 2100 M Street 
NW., suite 140, Washington, DC 20037, telephone (202) 857-3800.

Paperwork Reduction Act

    The Federal Communications Commission has submitted the following 
information collection request to OMB for review and clearance under 
the Paperwork Reduction Act of 1980, 44 U.S.C. 3507. Persons wishing to 
comment on this information collection should contact Timothy Fain, 
Office of Management and Budget, Room 3225, New Executive Office 
Building, Washington, DC 20503, (202) 395-3561. For further 
information, contact Judy Boley, Federal Communications Commission, 
(202) 632-7513.
    Please note: The Commission has requested emergency review of this 
collection by May 6, 1994, under the provisions of 5 CFR 1320.18.
    Title: Implementation of Section 309(j) of the Communications Act--
Competitive Bidding, Second Report and Order, PP Docket No. 93-253.
    Action: New collections.
    Respondents: Individuals, state or local governments, non-profit 
organizations, business or other for-profit entities, including small 
business.
    Frequency of response: On occasion.
    Estimated Annual Burden:

------------------------------------------------------------------------
                                                    Estimated           
                                        Number of    average   Estimated
            Section/forms              respondents  hours per    annual 
                                                     response  responses
------------------------------------------------------------------------
FCC Form 175.........................      6,400         .50      3,200 
Section 1.2105(a)(2) (i)-(ix)........      6,400         .50      3,200 
Section 1.2107.......................      4,700        1.00      4,700 
Section 1.2108.......................      2,350       20.00     47,000 
Section 1.2111.......................        100         .50         50 
FCC Form 175-S.......................      2,700         .25        675 
Microfiche Req.......................      6,400        2.00     12,800 
Total Annual Burden: 71,625.                                            
------------------------------------------------------------------------

    Needs and Uses: In the Second Report and Order in PP Docket No. 93-
253, the Commission has amended 47 CFR part 1 to add a new Subpart Q 
which contains the general rules and requirements governing the 
competitive bidding process for certain initial licenses. Applicants 
are required to file certain information so that the Commission can 
determine whether the applicants are legally, technically, and 
financially qualified to be licensed. Affected public are any member of 
the public who wants to become a licensee. The foregoing estimates 
include the time for reviewing instructions, searching existing data 
sources, gathering and maintaining the data needed, and completing and 
reviewing the burden estimates or any other aspect of the collection of 
information including suggestions for reducing the burden to the 
Federal Communications Commission Records Management Division, 
Paperwork Reduction project, Washington, DC 20554 and to the Office of 
the Management and Budget Paperwork reduction project, Washington, DC 
20503.

Summary of Second Report and Order

Introduction

    1. In this Second Report and Order, we prescribe general rules and 
procedures to implement the Commission's new authority under Section 
309(j) of the Communications Act of 1934, as amended, to use 
competitive bidding to award licenses for use of the radio spectrum. In 
the future, in subsequent Reports and Orders, specific rules within the 
scope of these general rules will be adopted for each service subject 
to competitive bidding.
    2. A voluminous number of comments and reply comments were filed by 
interested parties in response to the Notice of Proposed Rule Making 
(58 FR 53489 (October 15, 1993)) in this docket. These comments address 
the many proposals made in the Notice.

Eligibility of License Applications for Competitive Bidding

    3. The Commission will use competitive bidding to award licenses 
only when the statutory criteria for auctionability set forth in 
Section 309(j) of the Communications Act are met. First, there must be 
mutually exclusive applications for an initial license or construction 
permit. Second, the service applied for must principally involve the 
transmission or reception of communications services to subscribers for 
compensation. Applying these criteria, the Commission determined that 
mutually exclusive licenses in the Interactive Video Data Service 
(IVDS), the Personal Communications Services, most of the Public Mobile 
Services, the Multipoint Distribution Service, the Multichannel 
Multipoint Distribution Service, the Specialized Mobile Radio Service, 
Marine Public Coast Stations and for exclusive frequencies above 900 
MHz in the Private Carrier Paging Service should be awarded through 
competitive bidding.
    4. Because licensees in the Broadcast Radio and Broadcast 
Television Services, Maritime Operational Fixed Stations, Personal 
Radio Services (except IVDS), certain Private Land Mobile Radio 
Services and certain other services do not receive compensation from 
subscribers, these services are excluded from the competitive bidding 
process. The following kinds of applications are not subject to 
competitive bidding: Applications for renewal of licenses, most 
applications for modification, applications for subsidiary 
communications services, and applications for frequencies used as 
intermediate links in the provision of service.

Competitive Bidding Design Options

    5. We adopt simultaneous multiple round auctions as our primary 
auction methodology. However, as the record convinces us that there is 
no single competitive bidding design that is optimal for all 
auctionable services and because Congress directed us to design and 
test multiple alternative methodologies, we have provided alternative 
methods from which to choose under appropriate circumstances. The 
alternative design options are single round sealed bid auctions (either 
sequential or simultaneous) and sequential oral auctions.
    6. The two primary characteristics that will determine the choice 
of auction design are: (1) The degree to which licenses are 
interdependent, and (2) whether the expected license values are high or 
low. Because we expect most licenses to be of high value and 
interdependent, the simultaneous multiple round auction is our 
preferred auction design. The Commission will select the competitive 
bidding design to be used in auctioning particular licenses on a 
service-specific basis. Combinatorial bidding, which may be used with 
any type of auction, is also authorized for use as a competitive 
bidding mechanism.

Procedures to Implement the Competitive Bidding Designs

    7. To efficiently implement the competitive bidding designs, we 
must specify certain auction procedures. We will choose from these 
procedures and incorporate them into the service-specific rules that we 
will adopt in the future.
    8. Sequencing. We will choose the sequence of what is auctioned. 
The importance of the choice of sequence increases with the degree of 
interdependence among the items auctioned in sequence. We intend to 
minimize the importance of the choice of sequence by auctioning 
licenses sequentially only when there is not a high degree of value 
interdependence across the licenses or groups that are offered in 
sequence.
    9. Duration of bidding rounds. In simultaneous multiple round 
auctions, bids can be submitted continuously with the high bids 
announced at the end of each round. With discrete rounds, the 
Commission can more readily control the pace at which the auction 
proceeds. The duration of bidding rounds and the interval between 
rounds in simultaneous multiple round auctions may be varied by 
announcement during the course of an auction. We generally intend to 
give bidders a single business day to submit bids and intend to conduct 
a new bidding round each business day, but we may choose other round 
lengths and intervals between rounds.
    10. Minimum bid increments. In multiple round auctions, whether 
they be sequential or simultaneous, the Commission will generally 
specify minimum bid increments. The bid increment is the amount or 
percentage by which the bid must be raised above the previous round's 
high bid in order to be accepted as a valid bid in the current round. 
Imposing a minimum bid increment speeds the progress of the auction 
and, along with activity and stopping rules, helps to ensure that the 
auction comes to closure within a reasonable period of time. We reserve 
the right to specify minimum bid increments in dollar terms as well as 
in percentage terms. We also may vary the minimum bid increments with 
respect to different licenses being awarded in one auction.
    11. Stopping rules for multiple round auctions. Prior to each 
multiple round auction, the Commission will announce by Public Notice a 
stopping rule for determining when the auction is over. We seek a 
stopping rule that will (1) terminate the auction in a reasonable 
period of time, (2) be simple and clearly understood by participating 
bidders and observers of the auction process, and (3) in the case of 
simultaneous auctions, close all markets at approximately the same 
time. In simultaneous auctions, the stopping rules must also specify 
whether to close markets individually or simultaneously. Hybrid 
stopping rules are also possible.
    12. The following stopping rules are preferred: (1) When auctioning 
licenses one at a time, or simultaneously and closing markets one at a 
time bidding on a market will close if a single round passes in which 
no new acceptable bids (i.e., no bids that meet any applicable bid 
increment rule) are submitted for that license; (2) when auctioning 
licenses simultaneously and closing markets simultaneously--bidding on 
all markets will close if a single round passes in which no new 
acceptable bids are submitted for any license.
    13. Activity rules. To ensure that simultaneous auctions with our 
preferred simultaneous stopping rule close within a reasonable period 
of time, an activity rule is likely to be necessary to prevent bidders 
from waiting until the end of the auction before participating. Where 
we decide to employ an activity rule, we will seek one that (1) moves 
auctions along at an appropriate speed, (2) provides bidders with 
sufficient flexibility to pursue a wide range of alternative bidding 
strategies, and (3) is simple and clearly understood by participating 
bidders.
    14. When the Commission employs a simultaneous stopping rule, our 
preferred activity rule will be the three stage rule proposed by 
Professors Paul Milgrom and Robert Wilson. Under this rule, the minimum 
activity level, measured as a fraction of the self declared maximum 
eligibility, would increase during the course of the auction. The 
auction would be divided into three stages. During the first stage of 
the auction, bidders would be required to be active on licenses 
encompassing at least one-third of the MHz-pops for which they are 
eligible. In the second stage, bidders would be required to be active 
on licenses encompassing at least two-thirds of the MHz-pops for which 
they are eligible. In the third stage, bidders would be required to be 
active on licenses encompassing 100 percent of the MHz-pops for which 
they are eligible. Bidders under this rule would be required to meet 
these activity levels to retain their desired eligibility. A shortfall 
in activity would reduce eligibility levels accordingly.
    15. The Commission retains the flexibility to choose among activity 
rules, other than the three stage Milgrom-Wilson rule, on a case-by-
case basis. These include: (1) A Milgrom-Wilson rule with one or two 
stages, (2) a rule that requires bidders to be active on a single 
license, (3) a rule that requires that a bidder's activity level remain 
within a single range throughout the action, (4) a rule that replaces 
the maximum allowed bidding levels in the Milgrom-Wilson rule with a 
bidding premium for exceeding those maximums, or (5) a combination of 
the foregoing rules. We conclude that a waiver procedure is necessary 
in conjunction with a Milgrom-Wilson activity rule. Under our preferred 
option, bidders will be permitted five automatic waivers of the minimum 
activity requirement during the course of an auction.
    16. Bid withdrawal and default penalties. If a high bid is 
withdrawn prior to the close of a simultaneous round auction, the 
Commission will impose a penalty equal to the difference between the 
withdrawn bid and the amount of the winning bid the next time the 
license is offered by the Commission. No withdrawal penalty will be 
assessed if the subsequent winning bid exceeds the withdrawn bid. If a 
winning bidder defaults after the close of such an auction, the 
defaulting bidder will be required to pay the foregoing penalty plus an 
additional penalty equal to three percent of the amount of the winning 
bid the next time the license is offered by the Commission or three 
percent of the amount of the defaulting bidder's bid, whichever is 
less.
    17. In the case of open outcry auctions, the Commission may choose 
not to impose any penalty for bid withdrawal during the course of an 
auction and instead rely only on the default penalty to discourage 
insincere bidding. The default penalty will be assessed if a bidder 
fails to make the down payment on a license, fails to pay for a license 
or is disqualified after the close of an auction. In connection with 
single round bidding, only the basic penalty (and not the additional 
three percent penalty) would generally apply.
    18. Release of Bid Information. We will announce bidder 
identification numbers and bid amounts during the course of an auction, 
but not the identities of bidders, to avoid potential manipulation and 
collusion among bidders.
    19. Delay, Suspension or Cancellation of Auction. By Public Notice 
or by announcement during an auction, the Commission may delay, suspend 
or cancel an auction in the event of a natural disaster, technical 
obstacle, evidence of auction security breach, unlawful bidding 
activity, administrative necessity, or for any other reason that 
affects the fair and competitive conduct of the competitive bidding. In 
such cases, the Commission may, at its sole discretion, resume the 
auction starting from the beginning of the current or some previous 
round or may cancel the auction in its entirety.

Pre-Auction Procedures and Bidder and License Qualification

    20. To streamline the processing of auction applications and ensure 
that bidders and licensees are qualified, we are adopting the following 
procedures. Usually, no less than 75 days before each scheduled 
auction, the Commission will release a Public Notice announcing the 
auction. The initial Public Notice will normally contain information 
such as the licenses to be auctioned and the time, place and method of 
competitive bidding to be used, including applicable bid withdrawal 
procedures and penalties, stopping rules and activity rules.
    21. The initial Public Notice will also specify filing windows for 
short-form applications (no long form applications are to be filed at 
this stage of the competitive bidding application procedure) and bidder 
certifications, filing fees, upfront and down payments. Applications 
filed before or after the dates specified in the Public Notice will not 
be accepted by the Commission. Applications submitted after the 
deadline specified will be dismissed with prejudice. An auction 
information package will be made available to prospective bidders after 
the release of the initial Public Notice. Slightly different procedures 
will apply when the rules permit applicants to submit long form 
applications after the occurrence or nonoccurrence of certain events 
(e.g., passage of time and failure to serve a particular area).
    22. The short-form applications and bidder certifications will 
normally require applicants to provide the following information: (1) 
The license(s) for which the applicant wishes to bid, (2) the 
applicant's name, (3) the identity of the person(s) authorized to bid, 
(4) certifications that the applicant is legally, technically, 
financially, and otherwise qualified, and (5) certification that the 
applicant satisfies any financial qualification requirements for the 
service in question. Applicants seeking to file as designated entities 
eligible for bidding preferences must indicate their status in the 
short-form application and must certify that they are qualified to file 
as designated entities. Bidders will also be required to identify all 
parties with whom they have entered into partnerships, joint ventures, 
consortium, or other arrangements or agreements. Bidders will also be 
required to certify on their short-form applications that they have not 
entered into any explicit or implicit agreements with any parties other 
than those identified regarding the amount of their bid, bidding 
strategies or the particular properties on which they will or will not 
bid.
    23. After reviewing the short-form applications, the Commission 
will issue a Public Notice listing all defective applications and 
notify applicants of the specific defect. If the Commission receives 
only one application that is acceptable for filing for a particular 
license, the Commission will issue a Public Notice cancelling the 
auction for this license and establishing a date for the filing of a 
long-form application, the acceptance of which would trigger the 
relevant procedures permitting petitions to deny. Applicants whose 
short-form applications are substantially complete but have minor 
errors or defects will be provided an opportunity to correct their 
applications prior to the auction. However, applicants will not be 
permitted to make any major modifications to their applications, 
including ownership changes or changes in the identification of parties 
to bidding consortia. Also, applications that are not signed or that 
fail to make the requisite certifications will be dismissed as 
unacceptable.
    24. After reviewing the corrected applications, the Commission will 
release another Public Notice announcing the names of all applicants 
whose applications have been accepted for filing. Applicants identified 
in the Public Notice will then be required to submit the full amount of 
their upfront payment to the Commission's lock-box bank by a date to be 
specified in that Public Notice which generally will be no later than 
14 days before the scheduled auction.
    25. Once the Commission has received from the lock-box bank the 
names of all applicants who have submitted timely unfront payments, the 
Commission will issue a fourth Public Notice announcing the names of 
all applicants that have been determined to be qualified to bid. Each 
of these applicants will be provided a bidder identification number and 
further information and instructions regarding the auction procedures.

Competitive Bidding Payments

    26. Upfront Payments. In most cases, some form of upfront payment 
is necessary to deter frivolous or insincere bidding. We have 
determined that the best approach is to retain flexibility to determine 
the amount of upfront payment on an auction-by-auction basis. 
Generally, a bidder must submit an upfront payment equal to $0.02 per 
pop per MHz for the largest combination of MHz-pops the bidder 
anticipates bidding on in any single round of bidding. A bidder may 
file applications for every license being auctioned, but its actual 
bidding in any round of an auction will be limited by the amount of its 
upfront payment.
    27. Upfront payments will provide the Commission with a source of 
available funds in the event a penalty must be assessed for bid 
withdrawal prior to further payments. In future Reports and Orders 
establishing service-specific auction rules, we may determine that the 
$0.02 per pop per MHz formula is inappropriate because of product 
market or license characteristics or auction design choice. In some 
circumstances, we may decide that it is more appropriate instead to set 
a fixed upfront payment or eliminate the upfront payment. We therefore 
reserve the option of revising or waiving the upfront payment. In such 
cases, we will adopt an alternative upfront payment in service-specific 
auction rules or in the Public Notice announcing the auction.
    28. As a general rule, we will not cap upfront payments because we 
need to ensure that those bidding on large numbers of licenses have the 
financial capability to build out those licenses and are bidding in 
good faith. However, we reserve the right to institute caps in specific 
services if we are satisfied that an absolute dollar amount will 
provide sufficient deterrence against frivolous bidding and pernicious 
strategic bidding. Setting a minimum upfront payment may be appropriate 
when use of our preferred formula would result in a payment that would 
be too small. Although a general minimum upfront payment of $2,500 is 
reasonable, we retain the flexibility to modify this amount.
    29. As a general matter, to protect the integrity of the auction 
process, all applicants should be required to tender their upfront 
payments to the Commission prior to bidding. However, given the likely 
magnitude of some upfront payments and the fact that there will be a 
significant interval between the date that short-form applications are 
filed and the auction date, we will not require the filing of upfront 
payments with short-form applications. Upfront payments will be 
required to be made to the Commission on a date to be announced by 
Public Notice, generally no later than 14 days before the scheduled 
auction.
    30. Down Payment. A 20 percent down payment is appropriate to 
ensure that auction winners have the necessary financial capabilities 
to complete payment for the license and to pay for the costs of 
constructing a system and protect against possible default, while at 
the same time not being so onerous as to hinder growth and diminish 
access. We therefore will require that winning bidders supplement their 
upfront payments with a down payment sufficient to being their total 
deposits up to 20 percent of their winning bid(s). The down payment by 
cashier's check or wire transfer to our lock-box will generally be 
required within five business days after the auction is over.
    31. Remainder of License Payment. The Commission will not permit 
licensees to satisfy their payment obligations to the Commission 
through the payment of royalties. With the exception of certain 
designated entities, we are requiring full payment of the remainder of 
the winning bid in a lump sum. This will leave financing to the private 
sector and eliminate the need for the Commission to conduct detailed 
credit checks.
    32. Default and Disqualification. It is critically important to the 
success of our system of competitive bidding that potential bidders 
understand that there will be a substantial penalty assessed if they 
withdraw a high bid, are found not to be qualified to hold licenses, or 
default on a balance due. We will require any auction winner who 
defaults by failing to remit the required down payment within the 
prescribed time to reimburse the Commission in the amount of the 
difference between its high bid and the amount of the winning bid the 
next time the license is offered by the Commission.
    33. A defaulting auction winner will also be assessed a penalty of 
three percent of the subsequent winning bid. If the subsequent winning 
bid exceeds the defaulting bidder's bid amount, the three percent 
penalty will be calculated based on the defaulting bid's amount. This 
additional penalty will also apply if an auction winner is disqualified 
or fails to remit the balance of its winning bid after having made the 
required down payment. We will hold deposits made by defaulting or 
disqualified auction winners to help ensure that the penalty is paid.
    34. If a default or disqualification involves gross misconduct, 
misrepresentation, or bad faith by an applicant, the Commission also 
may declare the applicant and its principals ineligible to bid in 
future auctions, and may take any other action that it may deem 
necessary. Where specific instances of collusion in the competitive 
bidding process are alleged during the petition to deny process, the 
Commission may conduct an investigation or refer such complaints to the 
United States Department of Justice for investigation.
    35. If the high bidder makes the down payment in a timely manner, a 
long-form application will be required to be filed by a specified date, 
generally within ten business days after the close of the auction. The 
Commission will then review the long-form application to determine if 
it is acceptable for filing. Upon acceptance for filing, the Commission 
will release a Pubic Notice announcing acceptance for filing of the 
long-form application thus triggering the filing window for petitions 
to deny.
    36. The long-form application must include as an exhibit a detailed 
explanation of the terms and conditions and parties involved in any 
bidding consortia, joint venture, partnership or other agreement they 
have entered into relating to the competitive bidding process prior to 
the close of bidding. All such arrangements must have been entered into 
prior to the filing of the short-form application. If all petitions to 
deny are dismissed or denied, the Commission is satisfied that the 
applicant is qualified, the license(s) will be granted to the auction 
winner.
    37. The Commission need not conduct a hearing before denial if it 
determines that an applicant is not qualified and no substantial issue 
of fact exists concerning that determination. In the event that the 
Commission identifies substantial and material issues of fact in need 
of resolution, Sections 309 (j)(5) and (i)(2) of the Communications Act 
permit in any hearing the submission of all or part of evidence in 
written form and allows employees other than administrative law judges 
to preside at the taking of written evidence.
    38. As a general rule, when an auction winner defaults on its final 
payment or is otherwise disqualified after having made the required 
down payment, the best course of action is to re-auction the license. 
Nevertheless, if a default occurs within five business days after the 
end of bidding, the Commission retains the right to offer the license 
to the second highest bidder at its final bid level, or if that bidder 
declines the offer, to offer the license to other bidders at their 
final bid levels. If a new auction becomes necessary because of a 
disqualification or default more than five business days after the end 
of bidding, we will afford new parties an opportunity to file 
applications to assure that serious interested bidders are in the pool 
of qualified bidders at any re-auction.
    39. Reservation Prices. We will retain the flexibility to utilize a 
reservation price below which a license would not be awarded if we 
decide that it is appropriate in a particular auction. The reservation 
price could be disclosed, in which case it would effectively constitute 
a minimum bid, or it could be undisclosed.

Regulatory Safeguards

    40. We will impose a transfer disclosure requirement on licenses 
obtained through the competitive bidding process, whether by a 
designated entity or not. We will give particular scrutiny to action 
winners who have not yet begun commercial service and who seek approval 
for a transfer of control or assignment of their licenses within three 
years after the initial license grant, in order to determine if any 
unforeseen problems relating to unjust enrichment have arisen outside 
the designated entity context. The applicant will be required to file, 
together with its application, the associated contracts for sale, 
option agreements and all other documents disclosing the total 
consideration received in return for the transfer of its license
    41. We believe that it is unnecessary and undesirable to impose 
performance requirements on all auctionable services in excess of those 
set forth in service rules for most existing services. We do not 
believe that additional, general requirements are needed to address 
concerns over ``warehousing'' of spectrum. With respect to those 
services where no performance requirements currently exist, however, we 
will prescribe such performance rules as are necessary at the same time 
we promulgate competitive bidding rules for each of those services.

Designated Entities

    42. Definitions. We are adopting a menu of preferences from which 
we will choose in service-specific auction rules. These preferences are 
designed to ensure that small businesses, rural telephone companies, 
and businesses owned by members of minority groups and women 
(collectively ``designated entities'') are given the opportunity to 
participate in both the competitive bidding process and in the 
provision of spectrum-based services. To qualify as a ``small 
business'' for the purposes of competitive bidding, an entity must be 
an independently-owned business with a net worth not exceeding $6 
million dollars and an average net income after Federal income taxes 
for two preceding years not in excess of $2 million. In order to be 
eligible for preferences, businesses owned by women or minorities will 
be required to have at least 50.1 percent equity ownership and a 50.1 
percent controlling interest owned by women or minorities. Rural 
telephone companies will be eligible for preferences if they are 
independently owned, have 50,000 access lines or fewer and serve 
communities with no more than 10,000 inhabitants.
    43. Installment payments. We may allow small businesses (including 
rural telephone companies and businesses owned by women and minorities 
and rural telephone companies) that are winning bidders for certain 
blocks of spectrum to pay in installments over the term of their 
licenses. As a general matter, we will only allow installment payments 
for licenses in those smaller spectrum blocks that are most likely to 
match the business objectives of bona fide small businesses. The down 
payment for such designated entities will be 10 percent of the winning 
bid instead of 20 percent. Once the license is granted we will require 
that the remaining 10 percent of the down payment be made within five 
business days of grant, thereby commencing the eligible entity's 
installment payment plan, which will extend over the period of the 
license.
    44. We will impose interest of installment payments equal to the 
rate for U.S. Treasury obligations of maturity equal to the license 
term. The schedule of installment payments will begin with interest-
only payments for the first two years. After that, principal and 
interest will be amortized over the remaining term of the license. An 
eligible designated entity that elects installment payments will have 
its license conditioned upon the full and timely performance of its 
payment obligations under the installment plan. However, we will 
consider (on a case-by-case basis) a grace period before a delinquent 
payor's license cancels.
    45. Bidding credits. Bidding credits (payment discounts) may be 
available to designated entities on certain frequency blocks. 
Competitive bidding rules applicable to individual services will 
specify the designated entities eligible for bidding credits, the 
licenses for which bidding credits are available, the amounts of 
bidding credits and other procedures. We reserve the option to 
determine, on a service-specific basis, whether certain auctionable 
services should allow other bidding credits to a consortium of 
companies organized to bid for auctionable services.
    46. To further promote the investment and rapid deployment of new 
technologies and services in rural areas, we will also institute a 
system of bidding credits for rural telephone companies for licenses in 
their rural service areas. The amount of the bidding credit for rural 
telephone companies will be tied to their commitments to achieve 
certain telecommunications infrastructure build-out milestones in their 
rural service areas. The amount of the bidding credit will be 
proportionately linked to the amount by which the rural telephone 
company agrees to expand its built-out commitment. Failure to meet a 
build-out commitment will result in liability for a penalty in the 
amount of the bidding credit, plus interest. Grant of licenses to rural 
telephone companies utilizing bidding credits will be conditioned upon 
payment of this penalty, if and when it becomes applicable.
    47. Set-aside spectrum. We may establish set-aside spectrum in 
certain services in which eligibility to bid may be limited to some or 
all designated entities. For any auctions of set-aside spectrum, we 
anticipate that we will establish lower upfront payments. This lower 
payment would serve to encourage participation by all eligible 
designated entities in the auction.
    48. Tax certificates, distress sales and royalties. We will not at 
this time adopt a general tax certificate program for services subject 
to competitive bidding because other available measures will generally 
provide sufficient incentive to attract investors in designated entity 
enterprises. We will examine the feasibility of utilizing tax 
certificates in subsequent competitive bidding rules for particular 
services, especially where the record demonstrates a need to further 
stimulate designated entity participation in spectrum auctions and in 
the after-market for auctioned services. Before we determine whether 
distress sales to designated entities should be authorized, we will 
evaluate the success of our other measures. We do not adopt royalties 
as an alternative payment method for designated entities. Such a 
procedure would prove extremely intrusive and difficult to implement.
    49. Preventing unjust enrichment. If we employ set-asides to 
benefit some or all of the designated entities, we will impose a 
recapture provision, applicable in the event of a sale to a non-
designated entity, that would be designed to recoup for the government 
a portion of the value of the benefit received by the designated entity 
in the bidding. Such a recapture provision would require that licensees 
seeking to transfer their licenses for profit must within a specified 
time remit to the government a penalty equal to a portion of the total 
value of the benefit conferred by the government. We will generally 
reduce the penalty as time passes or construction benchmarks are met.
    50. Any specific recapture provisions will be set forth in 
competitive bidding rules applicable to any services in which we decide 
to set aside licenses. In no event will recapture provisions apply to 
the transfer or assignment of a license that has been held for more 
than five years. If the transfer is made to another eligible designated 
entity, there would be no penalty.
    51. If a small business making installment payments sells its 
license to an entity that does not qualify under the standards we have 
set for small businesses, we will require payment of the full amount of 
the remaining principal balance as a condition of the license transfer. 
Also, where bidding credits are used, transfer of a license to a non-
designated entity or any action relating to ownership or control that 
will result in loss of status as an eligible designated entity, will 
require the designated entity to reimburse the government for the 
amount of the bidding credit, plus interest.

Final Regulatory Flexibility Analysis

    Need for and purpose of this action:
    52. This rulemaking proceeding was initiated to implement Section 
309(j) of the Communications Act, as amended. The rules adopted herein 
will carry out Congress's intent to establish a system of competitive 
bidding for choosing from among mutually exclusive applications for 
initial licenses to use the electromagnetic spectrum principally for 
the transmission or reception of communications signals to or from 
subscribers for compensation. The rules adopted herein also will carry 
out Congress's intent to ensure that small businesses, rural telephone 
companies, and businesses owned by women and minorities are afforded an 
opportunity to participate in the provision of spectrum-based services.
    Issues raised in response to the Initial Regulatory Flexibility 
Analysis:
    53. The IRFA noted that the proposals under consideration in the 
NPRM included the possibility of new reporting and recordkeeping 
requirements for a number of small business entities. No commenters 
responded specifically to the issues raised to the IFRA. We have made 
some modifications to the proposed requirements as appropriate.
    Significant alternatives considered and rejected:
    54. All significant alternatives have been addressed in the Second 
Report and Order.

List of Subjects in 47 CFR Part 1

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Telecommunications.

Amendatory Text

    47 CFR part 1 is amended as follows:

PART 1--[AMENDED]

    1. The authority citation for Part 1 is revised to read as follows:


    Authority: 47 U.S.C. 151, 154, 303, and 309(j) unless otherwise 
noted.


    2. A new subpart (Q), consisting of Secs. 1.2101-1.2111, is added 
to read as follows:

Subpart Q--Competitive Bidding Proceedings

General Procedures

Sec.
1.2101  Purpose.
1.2102  Eligibility of applications for competitive bidding.
1.2103  Competitive bidding design options.
1.2104  Competitive bidding mechanisms.
1.2105  Bidding application and certification procedures; 
prohibition of collusion.
1.2106  Submission of upfront payments.
1.2107  Submission of down payment and filing of long-form 
applications.
1.2108  Procedures for filing petitions to deny against long-form 
applications.
1.2109  License grant, denial, default, and disqualification.
1.2110  Designated entities.
1.2111  Assignment or transfer of control: Unjust enrichment.

Subpart Q--Competitive Bidding Proceedings

General Procedures


Sec. 1.2101  Purpose.

    The provisions of this subpart implement section 309(j) of the 
Communications Act of 1934, as added by the Omnibus Budget 
Reconciliation Act of 1993 (Pub. L. 103-66), authorizing the Commission 
to employ competitive bidding procedures to choose from among two or 
more mutually exclusive applications for certain initial licenses.


Sec. 1.2102  Eligibility of applications for competitive bidding.

    (a) Mutually exclusive initial applications in the following 
services or classes of services are subject to competitive bidding:
    (1) Interactive Video Data Service (see 47 CFR part 95, subpart F);
    (2) Marine Public Coast Stations (see 47 CFR part 80, subpart J);
    (3) Multipoint Distribution Service and Multichannel Multipoint 
Distribution Service (see 47 CFR part 21, subpart K). This subsection 
does not apply to applications in these services that were filed prior 
to July 26, 1993;
    (4) Exclusive Private Carrier Paging above 900 MHz (see 47 CFR part 
90, subpart P and the Private Carrier Paging Exclusivity Report and 
Order, 8 FCC Rcd 8318 (1993));
    (5) Public Mobile Services (see 47 CFR part 22), except in the 800 
MHz Air-Ground Radiotelephone Service, and in the Rural Radio Service. 
Paragraph (a)(g) of this section does not apply to certain applications 
in the cellular radio service that were filed prior to July 26, 1993;
    (6) Specialized Mobile Radio Service (SMR) (see 47 CFR part 90, 
subpart S) including finder's preference requests for frequencies 
allocated to the SMR service (see 47 CFR 90.173); and
    (7) Personal Communications Services (PCS) (see 47 CFR part 24).


    Note: To determine the rules that apply to competitive bidding 
in the foregoing services, specific service rules should also be 
consulted.


    (b) The following types of license applications are not subject to 
competitive bidding procedures:
    (1) Applications for renewal of licenses;
    (2) Applications for modification of license; provided, however, 
that the Commission may determine in particular instances that 
applications for modification that are mutually exclusive with other 
applications should be subject to competitive bidding;
    (3) Applications for subsidiary communications services. A 
``subsidiary communications service'' is a class of service where the 
signal for that service is indivisible from that of the main channel 
signal and that main channel signal is exempt from competitive bidding 
under other provisions of these rules. See, e.g., Sec. 1.2102(c) 
(exempting broadcast services). Examples of such subsidiary 
communications services are those transmitted on subcarriers within the 
FM baseband signal (see 47 CFR 73.295), and signals transmitted within 
the Vertical Blanking Interval of a broadcast television signal; and
    (4) Applications for frequencies used as an intermediate link or 
links in the provision of a continuous, end-to-end service were no 
service is provided directly to subscribers over the frequencies. 
Examples of such intermediate links are
    (i) Point-to-point microwave facilities used to connect a cellular 
radio telephone base station with a cellular radio telephone mobile 
telephone switching office; and
    (ii) Point-to-point microwave facilities used as part of the 
service offering in the provision of telephone exchange or 
interexchange service.
    (c) Applications in the following services or classes of services 
are not subject to competitive bidding:
    (1) Alaska-Private Fixed Stations (see 47 CFR part 80, subpart O);
    (2) Broadcast radio (AM and FM) and broadcast television (VHF, UHF, 
LPTV) under 47 CFR part 73;
    (3) Broadcast Auxiliary and Cable Television Relay Services (see 47 
CFR part 74, subparts D, E, F, G, H and L and part 78, subpart B);
    (4) Instructional Television Fixed Service (see 47 CFR part 74, 
subpart I);
    (5) Maritime Support Stations (see 47 CFR part 80, subpart N);
    (6) Marine Operational Fixed Stations (see 47 CFR part 80, subpart 
L);
    (7) Marine Radiodetermination Stations (see 47 CFR part 80, Subpart 
M);
    (8) Personal Radio Services (see 47 CFR part 95), except 
applications filed after July 26, 1993, in the Interactive Video Data 
Service (see 47 CFR part 95, subpart F);
    (9) Public Safety, Industrial/Land Transportation, General and 
Business Radio categories above 800 MHz, including finder's preference 
requests for frequencies not allocated to the SMR service (see 47 CFR 
90.173), and including, until further notice of the Commission, the 
Automated Vehicle Monitoring Service (see 47 CFR 90.239);
    (10) Private Land Mobile Radio Services between 470-512 MHz (see 47 
CFR part 90, subparts B through F) including finder's preference 
requests, see 47 CFR 90.173;
    (11) Private Land Mobile Radio Services below 470 MHz (see 47 CFR 
part 90, subparts B through F) except in the 220 MHz band (see 47 CFR 
part 90, subpart T), including finder's preference requests (see 47 CFR 
90.173); and
    (12) Private Operational Fixed Services (see 47 CFR part 94).


Sec. 1.2103   Competitive bidding design options.

    (a) The Commission will select the competitive bidding design(s) to 
be used in auctioning particular licenses or classes of licenses on a 
service-specific basis. The Commission will choose from one or more of 
the following types of auction designs for services or classes of 
services subject to competitive bidding:
    (1) Single round sealed bid auctions (either sequential or 
simultaneous);
    (2) Sequential oral auctions; or
    (3) Simultaneous multiple round auctions.
    (b) The Commission may use combinatorial bidding, which would allow 
bidders to submit all or nothing bids on combinations of licenses, in 
addition to bids on individual licenses. The Commission may require 
that to be declared the high bid, a combinatorial bid must exceed the 
sum of the individual bids by a specified amount. Combinatorial bidding 
may be used with any type of auction.
    (c) The Commission may use single combined auctions, which combine 
bidding for two or more substitutable licenses and award licenses to 
the highest bidders until the available licenses are exhausted. This 
technique may be used in conjunction with any type of auction.


Sec. 1.2104   Competitive bidding mechanisms.

    (a) Sequencing. The Commission will establish the sequence in which 
multiple licenses will be auctioned.
    (b) Grouping. In the event the Commission uses either a 
simultaneous multiple round competitive bidding design or combinatorial 
bidding, the Commission will determine which licenses will be auctioned 
simultaneously or in combination.
    (c) Reservation price. The Commission may establish a reservation 
price, either disclosed or undisclosed, below which a license subject 
to auction will not be awarded.
    (d) Minimum bid increments. The Commission may, by announcement 
before or during an auction, require minimum bid increments in dollar 
or percentage terms.
    (e) Stopping rules. The Commission may establish stopping rules 
before or during multiple round auctions in order to terminate the 
auctions within a reasonable time.
    (f) Activities rules. The Commission may establish activity rules 
which require a minimum amount of bidding activity.
    (g) Withdrawal, default and disqualification penalties. As 
specified below, when the Commission conducts a simultaneous multiple 
round auction pursuant to Sec. 1.2103, the Commission will impose 
penalties on bidders who withdraw high bids during the course of an 
auction, or who default on payments due after an auction closes or who 
are disqualified.
    (1) Bid withdrawal prior to close of auction. A bidder who 
withdraws a high bid during the course of an auction will be subject to 
a penalty equal to the difference between the amount bid and the amount 
of the winning bid the next time the license is offered by the 
Commission. No withdrawal penalty would be assessed if the subsequent 
winning bid exceeds the withdrawn bid. This penalty amount will be 
deducted from any upfront payments or down payments that the 
withdrawing bidder has deposited with the Commission.
    (2) Default or disqualification after close of auction. If a high 
bidder defaults or is disqualified after the close of such an auction, 
the defaulting bidder will be subject to the penalty in paragraph 
(g)(1) of this section plus an additional penalty equal to three (3) 
percent of the subsequent winning bid. If the subsequent winning bid 
exceeds the defaulting bidder's bid amount, the 3 percent penalty will 
be calculated based on the defaulting bidder's bid amount. These 
amounts will be deducted from any upfront payments or down payments 
that the defaulting or disqualified bidder has deposited with the 
Commission.
    When the Commission conducts single round sealed bid auctions or 
sequential oral auctions, the Commission may modify the penalties to be 
paid in the event of bid withdrawal, default or disqualification; 
provided, however, that such penalties shall not exceed the penalties 
specified above.
    (h) Bidder identification during auctions. During any auction, the 
Commission may identify bidders and the bids only by bid numbers.
    (i) The Commission may delay, suspend, or cancel an auction in the 
event of a natural disaster, technical obstacle, evidence of security 
breach, unlawful bidding activity, administrative necessity, or for any 
other reason that affects the fair and efficient conduct of the 
competitive bidding. The Commission also has the authority, at its sole 
discretion, to resume the competitive bidding starting from the 
beginning of the current or some previous round or cancel the 
competitive bidding in its entirety.


Sec. 1.2105  Bidding application and certification procedures; 
prohibition of collusion.

    (a) Submission of Short Form Application (FCC Form 175). In order 
to be eligible to bid, an applicant must timely submit a short-form 
application (FCC Form 175), together with any appropriate filing fee 
set forth in public notice. Unless otherwise provided by Public Notice, 
the Form 175 need not be accompanied by an upfront payment (see 
Sec. 1.2106).
    (1) All Form 175s will be due:
    (i) On the date(s) specified by public notice; or
    (ii) In the case of application filing dates which occur 
automatically by operation of law (see e.g., 47 CFR 22.902), on a date 
specified by public notice after the Commission has reviewed the 
applications that have been filed on those dates and determined that 
mutual exclusivity exists.
    (2) The Form 175 must contain the following information:
    (i) Identification of each license on which the applicant wishes to 
bid;
    (ii) The applicant's name, if the applicant is an individual. If 
the applicant is a corporation, then the short-form application will 
require the name and address of the corporate office and the name and 
title of an officer or director. If the applicant is a partnership, 
then the application will require the name, citizenship and address of 
all partners, and, if a partner is not a natural person, then the name 
and title of a responsible person should be included as well. If the 
applicant is a trust, then the name and address of the trustee will be 
required. If the applicant is none of the above, then it must identify 
and describe itself and its principles or other responsible persons;
    (iii) The identity of the person(s) authorized to make or withdraw 
a bid;
    (iv) If the applicant applies as a designated entity pursuant to 
Sec. 1.2110, a statement to that effect and a declaration, under 
penalty of perjury, that the applicant is qualified as a designated 
entity under Sec. 1.2110;
    (v) Certification that the applicant is legally, technically, 
financially and otherwise qualified pursuant to section 308(b) of the 
Communications Act of 1934, as amended;
    (vi) Certification that the applicant is in compliance with the 
foreign ownership provisions of section 310 of the Communications Act 
of 1934; as amended;
    (vii) Certification that the applicant is and will, during the 
pendency of its application(s), remain in compliance with any service-
specific qualifications applicable to the licenses on which the 
applicant intends to bid including, but not limited to, financial 
qualifications. The Commission may require certification in certain 
services that the applicant will, following grant of a license, come 
into compliance with certain service-specific rules, including, but not 
limited to, ownership eligibility limitations;
    (viii) An exhibit, certified as truthful under penalty of perjury, 
identifying all parties with whom the applicant has entered into 
partnerships, joint ventures, consortia or other agreements, 
arrangements or understandings of any kind relating to the licenses 
being auctioned, including any such agreements relating to the post-
auction market structure. All such arrangements must have been entered 
into prior to the filing of Form 175 and no such arrangements may be 
entered into after the filing of Form 175 until after the winning 
bidder has made the required down payment;
    (ix) Certification under penalty of perjury that is has not entered 
and will not enter into any explicit or implicit agreements, 
arrangements or understandings of any kind with any parties other than 
those identified pursuant to paragraph (a)(2)(viii) of this section 
regarding the amount of their bids, bidding strategies or the 
particular licenses on which they will or will not bid;

    Note: The Commission may also request applicants to submit 
additional information for informational purposes to aid in its 
preparation of required reports to Congress.

    (b) Modification and Dismissal of Form 175. (1) Any Form 175 that 
is not signed or otherwise does not contain all of the certifications 
required pursuant to this section is unacceptable for filing and cannot 
be corrected subsequent to any applicable filing deadline. The 
application will be dismissed with prejudice and the upfront payment, 
if paid, will be returned.
    (2) The Commission will provide bidders a limited opportunity to 
cure defects specified herein (except for failure to sign the 
application and to make certifications) and to resubmit a corrected 
application. Form 175 may be amended or modified to make minor changes 
or correct minor errors in the application (such as typographical 
errors). The Commission will classify all amendments as major or minor, 
pursuant to rules applicable to specific services. An application will 
be considered to be a newly filed application if it is amended by a 
major amendment and may not be resubmitted after applicable filing 
deadlines.
    (3) Applicant who fail to correct defects in their applications in 
a timely manner as specified by public notice will have their 
applications dismissed with no opportunity for resubmission.
    (c) Prohibition of Collusion. After the filing of short-form 
applications, all bidders are prohibited from cooperating, 
collaborating, discussing or disclosing in any manner the substance of 
their bids or bidding strategies with other bidders until after the 
high bidder makes the required down payment, unless such bidders are 
members of a bidding consortium or other joint bidding arrangement 
identified on the bidder's short-form application.


Sec. 1.2106  Submission of upfront payments.

    (a) The Commission may require applicants for licenses subject to 
competitive bidding to submit an upfront payment. In that event, the 
amount of the upfront payment and the procedures for submitting it will 
be set forth in a Public Notice. No interest will be paid on upfront 
payments. In auctions for licenses set aside pursuant to 
Sec. 1.2110(c), the Commission may establish lower upfront payments for 
eligible designated entities.
    (b) Upfront payments must be made either by wire transfer or by 
cashier's check drawn in U.S. dollars from a financial institution 
whose deposits are insured by the Federal Deposit Insurance Corporation 
and must be made payable to the Federal Communications Commission.
    (c) If an upfront payment is not in compliance with the 
Commission's Rules, or if insufficient funds are tendered to constitute 
a valid upfront payment, the applicant shall have a limited opportunity 
to correct its submission to bring it up to the minimum valid upfront 
payment prior to the auction. If the applicant does not submit at least 
the minimum upfront payment, it will be ineligible to bid, its 
application will be dismissed and any upfront payment it has made will 
be returned.
    (d) The upfront payment(s) of a bidder will be credited toward any 
down payment required for licenses on which the bidder is the high 
bidder.
    (e) Notwithstanding the provisions of paragraph (d) of this 
section, in the event a penalty is assessed pursuant to Sec. 1.2104 for 
bid withdrawal or default, upfront payments or down payments on deposit 
with the Commission will be used to satisfy the bid withdrawal or 
default penalty before being applied toward any additional payment 
obligations that the high bidder may have.


Sec. 1.2107  Submission of Down Payment and Filing of Long-Form 
Applications

    (a) After bidding has ended, the Commission will identify and 
notify the high bidder and declare the bidding closed.
    (b) Within five (5) business days after being notified that it is a 
high bidder on a particular license(s), a high bidder must submit to 
the Commission's lockbox bank such additional funds (the ``down 
payment'') as are necessary to bring its total deposits (not including 
upfront payments applied to satisfy penalties) up to twenty (20) 
percent of its high bid(s). (In single round sealed bid auctions 
conducted under Sec. 1.2103, however, bidders may be required to submit 
their down payments with their bids.) This down payment must be made by 
wire transfer or cashier's check drawn in U.S. dollars from a financial 
institution whose deposits are insured by the Federal Deposit Insurance 
Corporation and must be made payable to the Federal Communications 
Commission. Winning bidders who are qualified designated entities 
eligible for installment payments under Sec. 1.2110(d) are only 
required to bring their total deposits up to ten (10) percent of their 
winning bid(s). Such designated entities must pay the remainder of the 
twenty (20) percent down payment within five (5) business days of grant 
of their application. See Sec. 1.2110(e) (1) and (2). Down payments 
will be held by the Commission until the high bidder has been awarded 
the license and has paid the remaining balance due on the license, in 
which case it will not be returned, or until the winning bidder is 
found unqualified to be a licensee or has defaulted, in which case it 
will be returned, less applicable penalties. No interest will be paid 
on any down payment.
    (c) A high bidder that meets its down payment obligations in a 
timely manner must, within ten (10) business days after being notified 
that it is a high bidder, submit an additional application (the ``long-
form application'') pursuant to the rules governing the service in 
which the applicant is the high bidder (unless it has already submitted 
such an application, as contemplated by Sec. 1.2105(a)(1)(b). For 
example, if the applicant is a high bidder for a license in the 
Interactive Video Data Service (see 47 CFR part 95, subpart F), the 
long form application will be submitted on FCC Form 574 in accordance 
with Section 95.815 of the Rules. Notwithstanding any other provision 
in title 47 of the Code of Federal Regulations to the contrary, high 
bidders need not submit an additional application filing fee with their 
long-form applications. Notwithstanding any other provision in title 47 
of the Code of Federal Regulations to the contrary, the high bidder's 
long-form application must be mailed or otherwise delivered to: Office 
of the Secretary, Federal Communications Commission, 1919 M Street NW., 
room 222, Washington, DC 20554, Attention: Auction Application 
Processing Section.
    An applicant that fails to submit the required long-form 
application as required under this subsection, and fails to establish 
good cause for any late-filed submission, shall be deemed to have 
defaulted and will be subject to the penalties set forth in 
Sec. 1.2104.
    (d) As an exhibit to its long-form application, the applicant must 
provide a detailed explanation of the terms and conditions and parties 
involved in any bidding consortia, joint venture, partnership or other 
agreement or arrangement it had entered into relating to the 
competitive bidding process prior to the time bidding was completed. 
Such agreements must have been entered into prior to the filing of 
short-form applications pursuant to Sec. 1.2105.


Sec. 1.2108  Procedures for filing petitions to deny against long-form 
applications.

    (a) Where petitions to deny are otherwise provided for under the 
Act or the Commission's Rules, and unless other service-specific 
procedures for the filing of such petitions are provided for elsewhere 
in the Commission's Rules, the procedures in this section shall apply 
to the filing of petitions to deny the long-form applications of 
winning bidders.
    (b) Within thirty (30) days after the Commission gives public 
notice that a long-form application has been accepted for filing, 
petitions to deny that application may be filed. Any such petitions 
must contain allegations of fact supported by affidavit of a person or 
persons with personal knowledge thereof.
    (c) An applicant may file an opposition to any petition to deny, 
and the petitioner a reply to such opposition. Allegations of fact or 
denials thereof must be supported by affidavit of a person or persons 
with personal knowledge thereof. The times for filing such opposition 
and replies will be those provided in Sec. 1.45.
    (d) If the Commission determines that:
    (1) An applicant is qualified and there is no substantial and 
material issue of fact concerning that determination, it will grant the 
application.
    (2) An applicant is not qualified and that there is no substantial 
issue of fact concerning that determination, the Commission need not 
hold an evidentiary hearing and will deny the application.
    (3) Substantial and material issues of fact require a hearing, it 
will conduct a hearing. The Commission may permit all or part of the 
evidence to be submitted in written form and may permit employees other 
than administrative law judges to preside at the taking of written 
evidence. Such hearing will be conducted on an expedited basis.


Sec. 1.2109  License grant, denial, default, and disqualification.

    (a) Unless otherwise specified in these rules, auction winners are 
required to pay the balance of their winning bids in a lump sum within 
five (5) business days following award of the license. Grant of the 
license will be conditioned on full and timely payment of the winning 
bid.
    (b) If a winning bidder withdraws its bid after the Commission has 
declared competitive bidding closed or fails to remit the required down 
payment within five (5) business days after the Commission has declared 
competitive bidding closed, the bidder will be deemed to have 
defaulted, its application will be dismissed, and it will be liable for 
the default penalty specified in Sec. 1.2104(g)(2). In such event, the 
Commission may either re-auction the license to existing or new 
applicants or offer it to the other highest bidders (in descending 
order) at their final bids. The down payment obligations set forth in 
Sec. 1.2107(b) will apply.
    (c) A winning bidder who is found unqualified to be a licensee, 
fails to remit the balance of its winning bid in a timely manner, or 
defaults or is disqualified for any reason after having made the 
required down payment, will be deemed to have defaulted and will be 
liable for the penalty set forth in Sec. 1.2104(g)(2). In such event, 
the Commission will conduct another auction for the license, affording 
new parties an opportunity to file applications for the license.
    (d) Bidders who are found to have violated the antitrust laws or 
the Commission's rules in connection with their participation in the 
competitive bidding process may be subject, in addition to any other 
applicable sanctions, to forfeiture of their upfront payment, down 
payment or full bid amount, and may be prohibited from participating in 
future auctions.


Sec. 1.2110  Designated entities.

    (a) Designated entities are small businesses, businesses owned by 
members of minority groups and/or women, and rural telephone companies.
    (b) Definitions.
    (1) Small businesses. Unless otherwise provided in rules governing 
specific services, a small business is an entity that, together with 
its affiliates, has no more than a $6 million net worth and, after 
federal income taxes (excluding any carry over losses), has no more 
than $2 million in annual profits each year for the previous two years.
    (2) Businesses owned by members of minority groups and/or women. A 
business owned by members of minority groups and/or women is one in 
which minorities and/or women who are U.S. citizens have at least 50.1 
percent equity ownership and 50.1 percent controlling interest in the 
applicant. For applicants that are limited partnerships, the general 
partner either must be a minority and/or woman (or minorities and/or 
women) who is a U.S. citizen and owns at least 50.1 percent of the 
partnership equity, or an entity that is 100 percent owned and 
controlled by minorities and/or women who are U.S. citizens. The 
interests of minorities and women are to be calculated on a fully-
diluted basis; agreements such as stock options and convertible 
debentures shall be considered to have a present effect on the power to 
control an entity and shall be treated as if the rights thereunder 
already have been fully exercised. However, upon a demonstration that 
options or conversion rights held by non-controlling principals will 
not deprive the minority and female principals of a substantial 
financial stake in the venture or impair their rights to control the 
designated entity, a designated entity may seek a waiver of the 
requirement that the equity of the minority and female principals must 
be calculated on a fully-diluted basis. The term minority includes 
individuals of African American, Hispanic-surnamed, American Eskimo, 
Aleut, American Indian and Asian American extraction.
    (3) Rural telephone companies. A rural telephone company is an 
independently owned and operated local exchange carrier with 50,000 
access lines or fewer, and serving communities with 10,000 or fewer 
inhabitants.
    (c) The Commission may set aside specific licenses for which only 
eligible designated entities, as specified by the Commission, may bid.
    (d) The Commission may permit small businesses, including small 
businesses owned by women and minorities and rural telephone companies 
that qualify as small businesses, that are high bidders for licenses 
specified by the Commission, to pay the full amount of their high bids 
in installments over the term of their licenses pursuant to the 
following:
    (1) Unless otherwise specified, each eligible applicant paying for 
its license(s) on an installment basis must deposit by wire transfer or 
cashier's check in the manner specified in Sec. 1.2107(b) sufficient 
additional funds as are necessary to bring its total deposits to ten 
(10) percent of its winning bid(s) within five (5) business days after 
the Commission has declared it the winning bidder and closed the 
bidding. Failure to remit the required payment will make the bidder 
liable to pay penalties pursuant to Sec. 1.2104(g)(2).
    (2) Within five (5) business days of the grant of the license 
application of a winning bidder eligible for installment payments, the 
licensee shall pay another ten (10) percent of the high bid, thereby 
commencing the eligible licensee's installment payment plan. Failure to 
remit the required payment will make the bidder liable to pay penalties 
pursuant to Sec. 1.2104(g)(2).
    (3) Upon grant of the license, the Commission will notify each 
eligible licensee of the terms of its installment payment plan. Such 
plans will:
    (i) Impose interest based on the rate of U.S. Treasury obligations 
(with maturities closest to the duration of the license term) at the 
time of licensing;
    (ii) Allow installment payments for the full license term;
    (iii) Begin with interest-only payments for the first two years; 
and
    (iv) Amortize principal and interest over the remaining term of the 
license.
    (4) A license granted to an eligible entity that elects installment 
payments shall be conditioned upon the full and timely performance of 
the licensee's payment obligations under the installment plan.
    (i) If an eligible entity making installment payments is more than 
ninety (90) days delinquent in any payment, it shall be in default.
    (ii) Upon default or in anticipation of default of one or more 
installment payments, a licensee may request that the Commission permit 
a three to six month grace period, during which no installment payments 
need be made. In considering whether to grant a request for a grace 
period, the Commission may consider, among other things, the licensee's 
payment history, including whether the licensee has defaulted before, 
how far into the license term the default occurs, the reasons for 
default, whether the licensee has met construction build-out 
requirements, the licensee's financial condition, and whether the 
licensee is seeking a buyer under an authorized distress sale policy. 
If the Commission grants a request for a grace period, or otherwise 
approves a restructured payment schedule, interest will continue to 
accrue and will be amortized over the remaining term of the license.
    (iii) Following expiration of any grace period without successful 
resumption of payment or upon denial of a grace period request, or upon 
default with no such request submitted, the license will automatically 
cancel and the Commission will initiate debt collection procedures 
pursuant to subpart O of this part.
    (e) The Commission may award bidding credits (i.e., payment 
discounts) to eligible designated entities.
    (1) Competitive bidding rules applicable to individual services 
will specify the designated entities eligible for bidding credits, the 
licenses for which bidding credits are available, the amounts of 
bidding credits and other procedures.
    (2) Any bidding credit for rural telephone companies will be 
available only for licenses in rural telephone company service areas 
and only if eligible rural telephone companies make an infrastructure 
build-out commitment beyond any standard performance requirement. The 
amount of the bidding credit for rural telephone companies will be 
based on the amount by which eligible applicants agree to expand or 
accelerate the build-out commitment. If a rural telephone company fails 
to meet an accelerated or expanded build-out commitment, it must make 
payment to the Commission within ninety (90) days of a penalty equal to 
the amount of the bidding credit. Grant of the license will be 
conditioned upon payment of this penalty if and when it becomes 
applicable.
    (f) The Commission may offer designated entities a combination of 
the available preferences or additional preferences.


Sec. 1.2111  Assignment or transfer of control: Unjust enrichment.

    (a) Reporting requirement. An applicant seeking approval for a 
transfer of control or assignment (otherwise permitted under the 
Commission's Rules) of a license within three years of receiving a new 
license through a competitive bidding procedure must, together with its 
application for transfer of control or assignment, file with the 
Commission a statement indicating that its license was obtained through 
competitive bidding. Such applicant must also file with the Commission 
the associated contracts for sale, option agreements, management 
agreements, or other documents disclosing the total consideration that 
the applicant would receive in return for the transfer or assignment of 
its license. This information should include not only a monetary 
purchase price, but also any future, contingent, in-kind, or other 
consideration (e.g., management or consulting contracts either with or 
without an option to purchase; below market financing).
    (b) Unjust enrichment payment: set-asides. As specified in this 
paragraph (b), an applicant seeking approval for a transfer of control 
or assignment (otherwise permitted under the Commission's Rules) of a 
license acquired by the transferor or assignor pursuant to a set-aside 
for eligible designated entities under Sec. 1.2110(c), or who proposes 
to take any other action relating to ownership or control that will 
result in loss of status as an eligible designated entity, must seek 
Commission approval and may be required to make an unjust enrichment 
payment (Payment) to the Commission by cashier's check or wire transfer 
before consent will be granted. The Payment will be based upon a 
schedule that will take account of the term of the license, any 
applicable construction benchmarks, and the estimated value of the set-
aside benefit, which will be calculated as the difference between the 
amount paid by the designated entity for the license and the value of a 
comparable non-set-aside license in the free market at the time of the 
auction. The Commission will establish the amount of the Payment and 
the burden will be on the applicants to disprove this amount. No 
Payment will be required if:
    (1) The license is transferred or assigned more than five years 
after its initial issuance; or
    (2) The proposed transferee or assignee is an eligible designated 
entity under Sec. 1.2110(c), and so certifies.
    (c) Unjust enrichment payment: installment financing. An applicant 
seeking approval for a transfer of control or assignment (otherwise 
permitted under the Commission's Rules) of a license acquired by the 
transferor or assignor through a competitive bidding procedure 
utilizing installment financing available to designated entities under 
Sec. 1.2110(d) will be required to pay the full amount of the remaining 
principal balance as a condition of the license transfer. No payment 
will be required if the proposed transferee or assignee assumes the 
installment payment obligations of the transferor or assignor, and if 
the proposed transferee or assignee is itself qualified to obtain 
installment financing under Sec. 1.2110(d), and so certifies.
    (d) Unjust enrichment payment: bidding credits. An applicant 
seeking approval for a transfer of control or assignment (otherwise 
permitted under the Commission's Rules) of a license acquired by the 
transferor or assignor through a competitive bidding procedure 
utilizing bidding credits available to eligible designated entities 
under Sec. 1.2110(e), or who proposes to take any other action relating 
to ownership or control that will result in loss of status as an 
eligible designated entity, must seek Commission approval and will be 
required to make an unjust enrichment payment (Payment) to the 
Government by wire transfer or cashier's check before consent will be 
granted. The Payment will be the sum of the amount of the bidding 
credit plus interest at the rate applicable for installment financing 
in effect at the time the license was awarded. See Sec. 1.2110(e). No 
payment will be required if:
    (1) The proposed transferee or assignee is an eligible designated 
entity under Sec. 1.2110(e), and so certifies; or
    (2) The proposed transferor or assignor is a rural telephone 
company as defined in Sec. 1.2110(b)(3), and the proposed transferee or 
assignee is also a rural telephone company and agrees to meet the same 
construction requirements as the transferor or assignor.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
    Editorial Note: This appendix will not appear in the Code of 
Federal Regulations.

BILLING CODE 6712-01-M

Appendix--FCC Form 175

TR04MY94.000


TR04MY94.001


TR04MY94.002


TR04MY94.003


BILLING CODE 6712-01-C
    Notice: The solicitation of personal information requested in this 
form is authorized by the Communications Act of 1934, as amended. The 
Commission will use the information provided in this form to determine 
whether grant of this application is in the public interest. In 
researching that determination, or for law enforcement purposes, it may 
become necessary to refer personal information contained in this form 
to another government agency. In addition, all information provided in 
this form will be available for public inspection. If information 
requested on the form is not provided, processing of the application 
may be delayed or the application may be returned without action 
pursuant to the Commission rules. Your response is required to obtain 
the requested authority.
    Public reporting burden for this collection of information is 
estimated to average 15 minutes per response including the time for 
reviewing instruction, searching existing data needed, and completing 
and reviewing the collection. Send comments regarding this burden, to 
the Federal Communications Commission, Office of Managing Director, 
Washington, DC 20554, and to the Office of Management and Budget, 
Office of Information and Regulatory Affairs, Washington, DC 20554.
    The Notice is required by the Privacy Act of 1974, Public Law 93-
579, December 31, 1974, 5 U.S.C. 552a(e)(3) and the Paperwork Reduction 
Act of 1980, Public Law 96-511, December 11, 1980.

[FR Doc. 94-10638 Filed 4-29-94; 4:43 pm]
BILLING CODE 6712-01-M