[Federal Register Volume 59, Number 92 (Friday, May 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11779]


[[Page Unknown]]

[Federal Register: May 13, 1994]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 0, 1, 95

[FCC 94-99]

 

Implement Competitive Bidding for Interactive Video and Data 
Services (IVDS)

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission has adopted a Fourth Report and Order to 
authorize procedures for auctioning licenses in the IVDS. This action 
implements new section 309(j) of the Communications Act of 1934, as 
amended. This will permit the Commission to employ competitive bidding 
procedures to choose from among two or more mutually exclusive 
applications for initial license.

EFFECTIVE DATE: June 13, 1994.

FOR FURTHER INFORMATION CONTACT:
Eric Malinen, (202) 632-6497, Private Radio Bureau.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Fourth 
Report and Order, FCC 94-99, adopted April 20, 1994, and released May 
10, 1994. The full text of this Fourth Report and Order is available 
for inspection and copying during normal business hours in the FCC 
Reference Center, 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, suite 140, 
Washington, DC 20037, telephone (202) 857-3800.

Summary of Order

I. Introduction

    1. On March 8, 1994, the Commission adopted a Second Report and 
Order in this proceeding (Second Report and Order)\1\ establishing 
general rules and procedures governing competitive bidding for radio 
spectrum (auctions). The Second Report and Order identified the types 
of services and licenses that may be subject to auctions, described a 
menu of competitive bidding methods, and adopted generic auction 
procedures. The Commission stated that specific competitive bidding 
rules for licensing individual services would be addressed in 
subsequent Reports and Orders. This Fourth Report and Order establishes 
rules and procedures for auctioning licenses in the Interactive Video 
and Data Service (IVDS).\2\
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    \1\Second Report and Order in PP Docket No. 93-253, FCC 94-61, 
released April 20, 1994 (Second Report and Order). On February 3, 
1994, we adopted the First Report and Order in this proceeding, 
which, pursuant to 47 U.S.C. 309(i)(4)(C), prescribed transfer 
disclosure requirements with respect to licenses or permits awarded 
by random selection. First Report and Order in PP Docket No. 93-253, 
FCC 94-32 (released February 4, 1994), petitions for reconsideration 
pending.
    \2\Concurrent with this Fourth Report and Order, we are adopting 
a Third Report and Order, FCC 94-98, in this docket addressing the 
specific competitive bidding rules and procedures for ``narrowband'' 
Personal Communications Services (PCS).
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    2. In this Fourth Report and Order, we find that the value of IVDS 
licenses is not expected to be sufficiently high to justify the use of 
simultaneous multiple round bidding. We therefore conclude that the 
auction methods most appropriate to the IVDS are oral bidding (open 
outcry) and single round sealed bidding. We also establish rules and 
procedures to deter possible abuses of the bidding and licensing 
procedures. Last, we establish preferences for small businesses and 
businesses owned by minorities or women to enhance their participation 
in the competitive bidding process and in the provision of IVDS system 
offerings.

II. Background and Auction Eligibility

    3. The IVDS is a point-to-multipoint, multipoint-to-point, short 
distance communications service in which licensees may provide 
information, products, or services to individual subscribers located at 
fixed locations in the service area, and subscribers may provide 
responses.\3\ The rules governing IVDS were adopted in 1992 in Gen. 
Docket No. 91-2.\4\ In that proceeding, the Commission decided to 
define specific service areas and license IVDS channels in these areas 
on an exclusive basis. As so defined, the IVDS has 734 service areas, 
with two licenses of 500 kilohertz each (218.0-218.5 and 218.5-219.0 
MHz) available in each area.\5\ In the event of mutually exclusive 
applications\6\ for license, the Commission decided in that earlier 
proceeding to use the lottery processes specified in our rules.\7\
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    \3\Service offerings might include subscriber opportunities to 
provide real-time responses to educational and pay-per-view 
programming, commercial data applications such as home banking, and 
the downloading of data. See Report and Order in Gen. Docket No. 91-
2, 7 FCC Rcd 1630, 1630 2, 1637 54 (1992).
    \4\Report and Order, supra note 3; see 47 CFR part 95, Subpart 
F.
    \5\See 47 C.F.R. Secs. 95.803, 95.853. IVDS service or market 
areas are defined in terms of the 734 cellular system service areas. 
See Public Notice, Report No. 92-40, released January 24, 1992; 47 
C.F.R. 22.903 (cellular). Many of these service areas cover rural or 
remote, sparsely populated areas.
    \6\The Commission, in general, ``considers two or more 
applications to be `mutually exclusive' if their conflicts are such 
that the grant of one application would effectively preclude, by 
reason of harmful electrical interference, the grant of one or more 
of the other applications.'' Second Report and Order at 12 n. 5.
    \7\See 47 CFR 1.972 (1992). On September 15, 1993, a lottery for 
nine IVDS markets was conducted. This lottery was permitted under 
the Budget Act described below, the pertinent applications having 
been accepted for filing by the Commission prior to July 26, 1993. 
See Budget Act, infra note 8, Sec. 6002(e).
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    4. The Omnibus Budget Reconciliation Act of 1993 (Budget Act)\8\ 
added a new Section 309(j) to the Communications Act of 1934, as 
amended (Communications Act),\9\ to permit the Commission to employ 
competitive bidding procedures to choose from among two or more 
mutually exclusive accepted applications for initial license. In the 
Notice of Proposed Rule Making in this proceeding, we stated that ``the 
principal use of IVDS-allocated spectrum is reasonably likely to 
involve the licensee receiving compensation from subscribers for 
communications services,'' and therefore proposed to subject IVDS to 
competitive bidding.\10\ Following our subsequent review of comments 
and reply comments, we concluded that IVDS should be subject to 
auctions.\11\ In this Fourth Report and Order we have attempted to 
design IVDS auction rules and procedures that meet Congressional 
objectives.\12\ We believe that these objectives are embodied in two 
basic Commission policy goals: promoting economic growth, and enhancing 
access to telecommunications service offerings for consumers, 
procedures, and new entrants.\13\
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    \8\Pub. L. No. 103-66, Title VI, Sec. 6002(a), 107 Stat. 312, 
387 (1993) (Budget Act); see H.R. Conf. Rep. No. 213, 103d Cong., 
1st Sess. 480-89 (1993), reprinted in 1993 U.S. Code Cong. & Admin. 
News 1169-78.
    \9\47 U.S.C. 151-713.
    \10\8 FCC Rcd 7635, 7659 143 (1993); see generally 47 U.S.C. 
Sec. 309(j)(2).
    \11\Second Report and Order at 49-53.
    \12\47 U.S.C. Sec. 309(j)(3).
    \13\Second Report and Order at 3-7.
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III. Competitive Bidding Design

    5. As noted, we have determined that mutually exclusive IVDS 
applications are subject to auctions. We must, therefore, identify the 
methodology and procedure we will use to auction the licenses. We do so 
in the paragraphs below, pursuant to Section 309(j)(3) of the 
Communications Act and based on the record in this proceeding.\14\ As 
described below, some further details about specific competitive 
bidding procedures will be provided later by Public Notice(s).\15\
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    \14\We received comments or reply comments on auctioning 
licenses in the IVDS from the following: American Group (American); 
Quentin L. Breen (Breen); Chase McNulty Group, Inc. (Chase); EON 
Corporation (EON) (ex parte filings); Independent Cellular 
Consultants (ICC); Andrea L. Johnson (Johnson); Kingswood Associates 
(Kingswood); NYNEX Corporation (NYNEX); Radio Telecom and 
Technology, Inc. (RTT); Harry Stevens, Jr. (Stevens); and Richard L. 
Vega Group (RLV). Of these, five--American (reply comment at 23-25), 
Kingswood (reply comment at 23-25), NYNEX (comment at 11), Stevens 
(reply comment at 1), and RLV (comment at 11-14)--commented in this 
context only on whether IVDS should be subject to auctions, an issue 
we addressed in the Second Report and Order. See 3, supra.
    \15\The Public Notice(s) will be issued by either the Commission 
or the Private Radio Bureau.
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A. General Competitive Bidding Designs

    6. The Second Report and Order established the criteria to be used 
in selecting the auction design method for each auctionable service. 
Generally, we concluded that awarding licenses to those parties that 
value them most highly will foster Congress' policy objectives. In this 
regard, we noted that because a bidder's ability to introduce valuable 
new services and to deploy them quickly, intensively, and efficiently 
increases the value of the license to that bidder, an auction design 
that awards licenses to those bidders who are willing to pay the 
highest bid tends to promote the development and rapid deployment of 
new services and the efficient and intensive use of the spectrum.
    7. We concluded that where the licenses to be auctioned are 
interdependent (that is, either substitutes for, or complements to, 
each other) and their value is expected to be high, ``simultaneous 
multiple round'' auctions would best achieve the Commission's goals for 
competitive bidding.\16\ We also noted that simultaneous multiple round 
bidding is more complex for bidders and may be administratively more 
expensive than other auction methods we may select, and indicated that 
we would use this design only in instances where the expected value of 
the licenses to be auctioned is high relative to the costs of 
conducting a simultaneous multiple round auction.\17\
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    \16\See Second Report and Order at 106-111. With this method, 
all licenses or classes of licenses are auctioned at once, using 
multiple rounds, and the bidding continues until bidding activity 
subsides. Thus, bidders may repeatedly ``top'' the previously high 
bids. See id. at 82, 86.
    \17\Id. at 111.
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    8. In the Second Report and Order we stated our intention to tailor 
the auction design to fit the characteristics of the licenses to be 
awarded. We noted that simultaneous multiple round auctions may not be 
appropriate for all licenses.\18\ The less the interdependence among 
licenses, the less the benefit to auctioning them simultaneously. To 
the extent that simultaneous auctions are more costly and complex to 
run, we indicated that we may choose a sequential auction design, 
including sequential oral auctions, when there is little 
interdependence among individual licenses.
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    \18\Id. at 112.
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    9. We further explained that when the values of particular licenses 
to be auctioned are low relative to the costs of conducting a 
simultaneous multiple round auction, we may consider auction designs 
that are relatively simple, with low administrative costs and minimal 
costs to the auction participants. We noted that as the value of 
licenses decreases, and thus the benefits of simultaneous multiple 
round bidding diminish relative to the cost and complexity of such 
auctions, a less complex auction method may be more suitable. For 
example, with large numbers of low value licenses we noted that we may 
decide that it is preferable to implement a low cost auction method 
such as single round sealed bidding to minimize cost and expedite the 
licensing process.
    10. Last, in the Second Report and Order we noted that Congress 
directed us to ``design and test multiple alternative methodologies 
under appropriate circumstances.''\19\ Thus, where appropriate, we 
intend to choose bidding methods other than simultaneous multiple round 
auctions and periodically reevaluate the effectiveness of all methods 
utilized.
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    \19\Id. at 115, quoting 47 U.S.C. Sec. 309(j)(3); see also ICC 
comment at 9 (supporting IVDS as a candidate for testing alternative 
methodologies).
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B. IVDS Competitive Bidding Design

    11. We find that the generally preferred method of simultaneous 
multiple round auctions is not the most appropriate for IVDS, and that 
IVDS also presents a good opportunity to test less complex alternative 
procedures. As discussed below, of the auction methods described in the 
Second Report and Order, oral bidding (open outcry) and single round 
sealed bidding appear best suited to the IVDS. Both are relatively 
inexpensive for the Commission to administer, and the costs of 
participation by bidders are fairly low. Moreover, both have the 
advantage of being relatively simple for bidders to understand and also 
generally can be completed quickly. Thus, these methods are likely to 
promote the statutory goal of rapid implementation of service to the 
public.\20\ We therefore adopt these two methods to auction IVDS 
licenses.\21\
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    \20\See 47 U.S.C. Sec. 309(j)(3)(A).
    \21\If, as we gain experience, we find that another auction 
design for the IVDS would better achieve the goals of the Budget 
Act, we may revisit this issue.
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    12. The IVDS offers two 500 kilohertz channels (frequency segments 
A and B) in each of 734 service areas, and the aggregation of both 
channels in a market is not permitted. While there may be some degree 
of interdependency among the IVDS licenses for geographically 
contiguous areas,\22\ we do not believe that it is great enough to 
justify the greater costs and administrative complexities associated 
with holding a simultaneous multiple round auction.\23\ Last, with 
large numbers of IVDS licenses covering only rural areas,\24\ we 
anticipate that the demand for, and value of, most markets will not be 
great enough to justify the use of more complex methods such as 
simultaneous multiple round auctions.\25\
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    \22\Two commenters, EON and ICC, very briefly address the issue 
of potential interdependence among IVDS licenses. EON argues that 
the sequence of IVDS auctions should track ``ADIs,'' a proposal we 
discuss and adopt infra. EON does not state, however, that bidders 
might perceive the aggregation of licenses to result in additional 
efficiencies of IVDS operation. EON ex parte filing of Jan. 26, 
1994, at 4. ICC states that auction procedures favoring license 
aggregation run counter to policies favoring licensee diversity. ICC 
Comment at 7.
    \23\The interdependencies for IVDS are likely to be less than 
for services where roaming is important. See generally Second Report 
and Order at 91. The IVDS rules do not permit ``roaming'' across 
service areas.
    \24\See note 5, supra.
    \25\See Second Report and Order at 112-113.
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    13. For IVDS open outcry auctions, each service area (with two 
licenses each) will be auctioned individually, and the two highest 
bidders in each service area will be awarded a license. The highest 
bidder will get first choice of frequency segment A or segment B at the 
highest bid price. The second highest bidder will be awarded the 
remaining segment at the amount it bid.
    14. With single round sealed bidding, we will auction the two 
frequency segments separately. Licenses for frequency segment B will be 
auctioned first. As soon as practicable thereafter, we will announce 
the high bidders for licenses on frequency segment B and announce a 
deadline date for short-form applications for segment A licenses. In 
the event of a tie in single round sealed bidding, we will hold one 
additional round between the parties that tied.
    15. Having both oral and sealed bidding methods available permits 
us the flexibility to fit the right auction method to the particular 
IVDS licenses being auctioned. Further, it is consistent with Congress' 
directive that we design and test multiple alternative methodologies 
under different circumstances. ICC comments that, of the two methods, 
sealed (or electronic) bidding is preferable to oral bidding because 
some potential bidders perhaps cannot afford to attend an auction in 
person.\26\ As noted in the Second Report and Order, however, such 
sealed bidding generates no information about license values until 
after the auction closes, tending to decrease bid levels and reduce the 
efficiency of the license assignment.\27\ We therefore believe that 
oral bidding should be used in the potentially higher valued markets, 
where having license value information during the auction is especially 
important, and that sealed bidding should be used for the remaining 
markets.\28\
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    \26\ICC comment at 6-7, reply comment at 7-8. Chase would prefer 
that we randomly alternate between oral and sealed methodologies. 
Chase comment at 1-2.
    \27\Second Report and Order at 89 n. 81.
    \28\For example, when choosing between the two methods, we do 
not want to hold the more expensive oral bidding auction in 
instances where we believe that the operational costs of holding the 
auction might outweigh the benefits (efficient allocation and 
revenues generated).
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    16. We believe that, in general, the greater the population in the 
service area, the greater will be the perceived value of, and demand 
for, the license. The 734 service areas for the IVDS are identical to 
those of cellular radio service areas: 306 ``Metropolitan Statistical 
Areas'' (MSAs) and 428 ``Rural Service Areas'' (RSAs).\29\ We have 
concluded that we should conduct oral auctions for the IVDS service 
areas corresponding to MSAs, and sealed bid auctions for the remaining 
service areas, or RSAs. We reserve the discretion to reconsider this 
bidding design if, in light of experience gained with auctions, a 
change appears warranted.\30\
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    \29\See note 5, supra.
    \30\For instance, sealed bidding might be appropriate if we re-
auction a small number of MSAs, or postpone initially the auctioning 
of MSAs located near international borders while agreements are 
negotiated.
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C. Bidding Procedures

    17. Sequencing. We must choose the sequence in which IVDS licenses 
will be auctioned. We believe that, in general, the higher valued IVDS 
licenses should be auctioned first: the cost to the public from 
delaying licensing increases with the value of the license, and, to the 
limited extent that aggregation of license is important, auctioning the 
higher valued licenses first facilities it.\31\ In determining the 
sequence for auctioning IVDS licenses we are persuaded by EON's 
argument that the IVDS is a television-driven service and that the 
licenses should therefore be auctioned in a manner consistent with the 
geographic areas defined by ``Areas of Dominant Influence'' (ADIs),\32\ 
rather than by numerical order of service area. EON and ICC also 
commented generally that licenses for the more densely populated IVDS 
service areas should be auctioned prior to the other areas.\33\ 
Therefore, we will auction licenses in ADI order, starting with the 
lowest numbered ADI (having the highest population) and proceeding in 
numerical order.\34\ Prior to starting the auction process, we will 
issue a Public Notice listing the pertinent ADIs, and the order in 
which licenses for the corresponding service areas will be auctioned 
(by open outcry) in each ADI. We anticipate that we will hold sealed 
bid auctions for licenses in rural areas as soon as practicable after 
auctioning the more populated areas. For the rural areas, licenses on 
frequency segment B will be auctioned first, and then a separate sealed 
bid auction will be held for licenses on frequency segment A.
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    \31\Second Report and Order at 117-120. We have noted, 
``Knowing who has won [the] large markets is likely to be more 
important for bidding decisions about small markets than the 
converse.'' Id. at 119.
    \32\This standard market definition, developed by Arbitron 
Ratings Company, places each county in the continental U.S. within 
one of 210 ADIs.
    \33\EON ex parte filing of Jan. 26, 1994, at 2, 4; ICC comment
    \34\The majority of ADIs comprise a number of MSAs. See 
generally note 5, supra. We will auction the lowest numbered service 
area in the ADI first, also auction the remaining service areas 
(MSAs) that make up the ADIs for the 9 markets that were lotteried. 
See id.
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    18. Bid Increments. In a multiple round auction, a bid increment is 
the amount or percentage by which a bid must be raised above the 
previous round's high bid in order to be accepted as a valid bid in the 
current round of bidding. For IVDS auctions, the Commission, including 
the auctioneer, retains the discretion to impose bid increments before 
or during the auction.\35\
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    \35\See generally id. at 126.
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IV. Procedural Payment and Penalty Issues

A. Pre-Auction Application Procedures

    19. The Second Report and Order established general rules and 
procedures for participating in auctions. Again, however, we noted that 
these might be modified on a service-specific basis. As described 
below, we have determined that we will follow the procedural, payment, 
and penalty rules established in the Second Report and Order, with 
certain minor modifications to fit the IVDS. Certain procedural details 
will be supplied later by Public Notice(s). Our objective has been to 
design rules and procedures that will reduce administrative burdens and 
costs on bidders and the Commission, ensure that bidders and licensees 
are qualified and able to construct their systems, and minimize the 
potential for delay of service to the public.
    20. We will require applicants to follow the application filing and 
processing rules outlined in the Second Report and Order.\36\ Before 
each scheduled IVDS auction the Commission, or, pursuant to delegated 
authority, the Private Radio Bureau, will release Public Notices 
concerning the auction. The Public Notices will specify the license(s) 
to be auctioned and the time, place, and method of competitive bidding 
to be used, as well as applicable bid submission and payment 
procedures. A Public Notice will also specify the filing deadline date 
for short-form applications.
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    \36\Second Report and Order at 160-188. In its comments, RTT 
sets forth a waiver request and asks that we rule on it in advance 
of the IVDS auctions. RTT comment at 1-5. Specifically, RTT requests 
that the Commission, by declaratory ruling, rule that any IVDS 
licensee using ``T-NET'' technology, with a power level greater than 
that permitted in our rules, will be granted a rule waiver to permit 
the power level. We will not make the requested ruling at this time. 
All requests for waiver must be evaluated in the context of a 
specific system design for avoidance of interference to television 
reception. This information can be provided when the applicant files 
a long-form application for license in a particular market. See 
generally Second Memorandum Opinion and Order in Gen. Docket No. 91-
2, 8 FCC Rcd 2787, 2788 8 (1993).
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    21. Bidders will be required to submit short-form applications on 
FCC form 175 by the date specified in the Public Notice.\37\ If the 
Commission receives only one application that is acceptable for filing 
for a particular frequency segment, and there is thus no mutual 
exclusivity,\38\ the Commission will by Public Notice cancel the 
auction for this license and established a date for the filing of a 
long-form application (FCC Form 574). In order to encourage maximum 
bidder participation, we will provide applicants whose short-form 
applications are substantially complete, but which contain minor errors 
or defects, with 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.\39\ 
In addition, applications that are not signed or that fail to make the 
required certifications will be dismissed and may not be resubmitted.
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    \37\Applicants should note whether they intend to bid for one or 
both frequency segments. Applicants need not submit microfiche 
originals or copies.
    \38\As noted previously, absent mutually exclusive applications, 
the Commission is prohibited from auctioning the license. 47 U.S.C. 
Sec. 309(j)(1).
    \39\See Second Report and Order at 167
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    22. The Commission will issue a subsequent Public Notice listing 
all applications containing minor defects, and applicants will be given 
an opportunity to cure and resubmit defective applications. 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.

B. Upfront Payment

    23. In the Second Report and Order, we described three types of 
payments: upfront payments, down payments, and final payments. Chase 
favors upfront payments, while ICC believes that such a requirement 
would constitute a hardship on small entrepreneurs.\40\ We believe an 
upfront payment is needed for oral outcry IVDS auctions. Requiring this 
payment provides some degree of assurance that only serious, qualified 
bidders will participate and serves as a deterrent to the filing of 
speculative applications which tend to slow down the provision of 
service to the public. It also provides the Commission with a source of 
funds to satisfy any penalties assessed. Therefore, we will require the 
upfront payment and retain the flexibility to determine the payment 
amount on an auction-by-auction basis. We will not, however, require an 
upfront payment for applicants in sealed bid IVDS auctions.
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    \40\Chase comment at 2; ICC comment at 8, reply comment at 7.
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    24. A bidder may file applications for every IVDS license being 
auctioned, but, for open outcry auctions, its upfront payment should 
reflect the maximum number of licenses it desires to win. Once a bidder 
is a ``winning'' bidder for the maximum number of licenses reflected by 
its upfront payment, it will be precluded from bidding further. We will 
use the following procedure for collecting this payment for oral 
bidding IVDS auctions. The applicant or its representative will be 
required to show the Commission, immediately prior to the auction, a 
cashier's check for at last $2,500\41\ in order to get a bidding number 
and enter the designated area in the room where the bidding will take 
place. Bidders will be required to have $2,500 upfront money for every 
five licenses they win.\42\ The $2,500 upfront payment will be 
collected immediately after the first license is won by an 
applicant.\43\ The highest bidder will be asked to sign a bid 
confirmation form. The upfront money will later be counted toward the 
down payment. We believe these procedures will keep the auction process 
simple, keep costs down for small businesses who wish to bid on only a 
few licenses, and eliminate Commission expenses due to issuing refunds.
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    \41\In establishing procedures for auctioning IVDS licenses, we 
have tried to reduce the complexities of the auction process for 
both the Commission and potential applicants. To this end, we have 
established a standard, reasonable upfront payment amount in lieu of 
an amount based on a formula (e.g., $0.02/pop/MHz). Such a formula, 
when used in the context of more populated areas, can result in a 
very substantial upfront payment. In the context of IVDS, we believe 
$2,500 strikes a good balance between ensuring that only serious, 
qualified bidders participate and not placing an unreasonable 
financial burden on small businesses. This amount was established in 
the Second Report and Order, see id. at 180, as the general minimum 
upfront payment, consistent with comments submitted.
    \42\For example, if a bidder brings only one check for $2,500 
and wins five licenses, he or she will not be allowed to bid on 
another license. If a bidder brings two $2,500 checks, he or she may 
bid until 10 licenses are won. Therefore, if a bidder anticipates 
winning 16 licenses, he or she must bring four $2,500 cashier's 
checks.
    \43\The upfront money will be collected immediately after the 
first license is won in each group of five licenses (1, 6, 11, 
etc.). Bidders should bring a $2,500 cashier's check for each five 
licenses they desire to purchase. The Commission will not refund 
money to those bringing a single check to cover the total upfront 
payment required, rather than multiple $2,500 checks, if the single 
check is for an amount ultimately greater than the upfront payment 
required. On request we will, however, apply such balance to any 
further monies owed in the context of IVDS auctions.
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C. Payment for Licenses Awarded by Competitive Bidding

    25. To provide further assurance that winning bidders will be able 
to pay the full amount of their bids, we decided generally in the 
Second Report and Order that each winning bidder must tender a down 
payment sufficient to bring the total deposit up to 20 percent of the 
winning bid. We believe a down payment is appropriate for IVDS. 
Therefore, winning bidders will be required to supplement their upfront 
payments to bring their total deposit with the Commission up to at 
least 20 percent\44\ of the final payment due for the license(s) won in 
that particular auction.\45\ The down payment will be due within five 
business days after the close of bidding.\46\ The down payment 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, 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. During the period that deposits are held pending ultimate 
award of the license, the interest that accrues, if any, will be 
retained by the Government.
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    \44\Small businesses using the preference of installment 
payments, see Section VI below, need only bring their deposits up to 
10 percent within 5 business days, with the remaining 10 percent due 
within five days of the license grant. See Second Report and Order 
at 192 n. 145, 238.
    \45\If the upfront payment already tendered amounts to 20 
percent or more of the winning bid, no additional deposit will be 
required.
    \46\Second Report and Order at 192. For single round sealed 
bidding, we will notify the high bidders soon after the auction. The 
down payment will then be due within five business days.
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    26. Long-form applications (FCC Form 574) will be due from 
successful bidders within 10 business days after they have been 
notified of their winning bidder status.\47\ Once we have reviewed the 
application and made a determination that the applicant is qualified, 
we will grant the license, conditioned on the timely payment of all 
monies due. In the Second Report and Order, we decided to require 
auction winners to make full payment of the balance of their winning 
bids within 5 business days of the grant of their license, except for 
small businesses using the preference of installment payments.\48\ This 
time frame appears to be appropriate for IVDS, and we will therefore 
use it.
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    \47\If a filing fee is required, the general rules governing the 
submission of fees will apply. See 47 C.F.R. Sec. 1.1101 et seq. 
These rules provide for dismissal of an application if the 
application fee is not paid, is insufficient, is in improper form, 
is returned for insufficient funds, or is otherwise not in 
compliance with our fee rules. See also Second Report and Order at  
167 n. 127.
    \48\Id. at  194.
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D. Default and Disqualification

    27. In the Second Report and Order, we concluded that strong 
incentives are needed to ensure that potential bidders are financially 
and otherwise qualified to participate in auction proceedings, so as to 
avoid delays in the deployment of new services to the public.\49\ We 
stated that, for open outcry auctions, we will assess a default penalty 
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 the 
case of single round bidding, we stated that we will impose a penalty 
in instances where the default occurs after the high bidder has been 
notified by the Commission that it has submitted the high bid.\50\
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    \49\Id. at  195-197.
    \50\Id. at  156-157.
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    28. In an oral auction, a winning bidder that withdraws its bid 
after signing a bid confirmation form or fails to remit the required 
down payment or balance of its winning bid in the time frame specified, 
will be deemed to have defaulted. In a sealed bid auction, a winning 
bidder is deemed to have defaulted if it withdraws its bid after 
publication of the initial public notice notifying auction winners or 
fails to remit the required down payment or balance of its winning bid 
in the time frame specified. In such instances, we may re-auction the 
license or offer it to the next highest bidder(s). In cases where 
disqualification or default occurs after the full down payment has been 
made, we will hold a new auction for the license. Further, ``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, 
including institution of proceedings to revoke any existing licenses 
held by the applicant.''\51\ Entities who obtain their licenses through 
the auction process are put on notice that if their licenses are 
revoked or canceled they will forfeit all monies paid to the Commission 
regarding those licenses.\52\
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    \51\Id. at  198.
    \52\This includes licensees who fail to meet the construction 
benchmarks contained in 47 C.F.R. Sec. 95.833.
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    29. We believe it is important to adopt default penalties for IVDS 
auctions. If a bidder in an oral auction defaults or is disqualified, a 
default penalty will be impose equal to the difference between the 
bidder's high ``winning'' bid and the amount of the winning bid the 
next time the license is offered by the Commission, if this latter 
amount is lower. In addition, with open outcry auctions, the defaulting 
auction winner will be assessed a penalty of three (3) percent of the 
subsequent winning bid or three percent of its own (the defaulting 
bidder's) bid, whichever is less.\53\ The additional three percent 
penalty is designed to discourage insincere bidding and to compensate 
the government for the cost of reauctioning a license. In single round 
sealed bid auctions, if a high bidder defaults prior to making the 
required down payment, we will impose a default penalty equal to the 
difference between the high bid and the next highest bid. If a high 
bidder defaults after having made the down payment, the additional 
three percent penalty will be applied.\54\
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    \53\Id. at 154-157.
    \54\See id. at 157.
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V. Regulatory Safeguards

A. Unjust Enrichment Provisions

    30. Congress directed that we take steps to prevent unjust 
enrichment due to trafficking in licenses that were obtained through 
competitive bidding. 47 U.S.C. Sec. 309(j)(4)(E). In Section VI, below, 
we adopt specific rules governing unjust enrichment by designated 
entities.\55\ The IVDS rules already contain provisions to reduce 
trafficking,\56\ and ICC argues that these rules are sufficient.\57\ 
Consistent with the Second Report and Order, however, the IVDS-specific 
anti-trafficking provisions will not apply to licenses obtained through 
competitive bidding, although we will enforce the new transfer 
disclosure requirements contained in Section 1.2111 of our rules.\58\ 
Generally, applicants seeking to transfer their licenses within five 
years of the initial license grant will be required to file, together 
with their transfer application, the associated contracts for sale, 
option agreements, management agreements, and all other documents 
disclosing the total consideration received in return for the transfer 
of the license. We will give particular scrutiny to auction winners who 
have not yet begun commercial service and who seek approval for an 
assignment or transfer of control of their licenses, in order to 
determine whether any unforeseen problems relating to unjust enrichment 
have arisen outside of the designated entity context.
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    \55\See 47, 52, 54 & n. 90, infra. We have amended 47 CFR 
95.819 to clarify the procedures for the transfer or assignment of 
IVDS licenses.
    \56\For example, current IVDS licenses must meet the five-year 
construction benchmark before they may transfer, sell, assign, or 
give an IVDS license to another entity. See 47 CFR 95.819.
    \57\ICC comment at 7.
    \58\See 47 CFR 1.2111; Second Report and Order at 263-265.
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B. Performance Requirements

    31. Congress has directed that the Commission, in implementing 
auction procedures, ``include performance requirements, such as 
appropriate deadlines and penalties for performance failures, to ensure 
prompt delivery of service to rural areas, to prevent stockpiling or 
warehousing of spectrum by licensees or permittees, and to promote 
investment in and rapid deployment of new technologies and 
services.''\59\ In the Second Report and Order, we decided that it was 
unnecessary and undesirable to impose additional performance 
requirements for auctionable services beyond those already provided in 
service rules.\60\ The IVDS rules already contain specific performance 
requirements, such as the requirement to build-out the system within a 
specified period of time. See, e.g., 47 CFR 95.833. Entities that 
obtain, by transfer or assignment, an IVDS license that was awarded by 
competitive bidding, take such license subject to the existing 
performance requirements.
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    \59\47 U.S.C. 309(j)(4)(B).
    \60\Second Report and Order at 219.
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C. Rules Prohibiting Collusion

    32. In the Second Report and Order we adopted special rules 
prohibiting collusive conduct in the context of competitive bidding. 
See 47 CFR 1.2105(c). We indicated that such rules would serve the 
objectives of the Budget Act by preventing parties, especially larger 
firms, from agreeing in advance to bidding strategies that might divide 
the market according to their strategic interests and to the 
disadvantage of other bidders. These rules apply to all auctionable 
services, including the IVDS. Bidders are required to identify on their 
FCC Form 175 applications any parties with whom they have entered into 
any consortium arrangements, joint ventures, partnerships or other 
agreements or understandings which relate to the competitive bidding 
process. Bidders are also required to certify that they have not 
entered into any explicit or implicit agreements, arrangements or 
understandings 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. After the short-form 
applications are filed and prior to the time that the winning bidder 
has made its required down payment, all bidders are prohibited from 
cooperating, collaborating, discussing or disclosing in any manner the 
substance of their bids or bidding strategies with other bidders, 
unless such bidders are members of a bidding consortium or other joint 
bidding arrangement identified on the bidder's short-form application.
    33. Concerning bidding consortia, joint venture, partnership or 
other such agreements or arrangements, all such arrangements must have 
been entered into prior to the filing of short-form applications. Where 
specific instances of collusion in the competitive bidding process are 
alleged, the Commission may conduct an investigation or refer such 
complaints to the United States Department of Justice for 
investigation. Bidders who are found to have violated the antitrust 
laws or the Commission's rules in connection with participation in the 
auction process may be subject to forfeiture of their down payment or 
their full bid amount, revocation of their license(s), and may be 
prohibited from participating in future auctions.

VI. Treatment of Designated Entities

A. Introduction

    34. As discussed in the Second Report and Order, Congress mandated 
that the Commission ``ensure that small businesses, rural telephone 
companies, and businesses owned by members of minority groups and women 
are given the opportunity to participate in the provision of spectrum-
based services.'' 47 U.S.C. 309(j)(4)(D). The statute requires the 
Commission to ``consider the use of tax certificates, bidding 
preferences, and other procedures'' in order to achieve this 
congressional goal. In addition, Section 309(j)(3)(B) provides that in 
establishing eligibility criteria and bidding methodologies the 
Commission shall promote ``economic opportunity and competition . . . 
by avoiding excessive concentration of licenses and by disseminating 
licenses among a wide variety of applicants, including small 
businesses, rural telephone companies, and businesses owned by members 
of minority groups and women.'' 47 U.S.C. 309(j)(3)(B). Finally, 
Section 309(j)(4)(A) provides that to promote these objectives, the 
Commission shall consider alternative payment schedules, including lump 
sums or guaranteed installment payments.
    35. In the Second Report and Order we established the eligibility 
criteria and general rules that would govern the award of preferences 
for designated entities. We also established a menu of preferences, 
including installment payments and bidding preferences, that we could 
choose from in selecting the preferences that will be applicable to a 
particular service, and specified the circumstances under which a tax 
certificate program would be established. In addition, we set forth 
rules to prevent unjust enrichment by designated entities seeking to 
transfer licenses obtained through use of one of the preferences.
    36. In this Fourth Report and Order we adopt specific preferences 
for the IVDS designed to ensure that designated entities are given the 
opportunity to participate both in the competitive bidding process and 
in the provision of the service. In particular, we adopt the following 
preferences:
    (1) A 25 percent bidding credit will be available for one license 
in each service area (for either frequency segment A or B), for 
businesses owned by minorities and/or women;
    (2) Tax certificates will be available to initial investors in 
minority and women-owned enterprises upon divestiture of their non-
controlling interests, and to licensees who transfer their 
authorizations to minority or women-owned businesses; and
    (3) Installment payments will be made available to small 
businesses. We also incorporate and adopt the unjust enrichment 
provisions adopted in the Second Report and Order applicable to each of 
the preferences we adopt here, and adopt the designated entities 
eligibility requirements of the Second Report and Order.\61\
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    \61\See 47 CFR 1.2111; Second Report and Order at  267-278.
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    37. We received IVDS-specific comments favoring the preferences of 
spectrum set-asides\62\ and royalty payments.\63\ As we noted in the 
Second Report and Order, however, the appropriateness of preferences is 
best determined in light of the characteristics of the particular 
service and the nature of its expected pool of bidders, and we find 
that these preferences are not appropriate for the IVDS. Concerning 
set-asides, we note that the total spectrum available in the service is 
small: two 500 kilohertz channels available in each service area. Thus 
for the IVDS, with its licensing scheme of two licenses per market, the 
use of set-asides would result in one of every two licenses being 
reserved for designated entities. We decline to reserve so great a 
proportion of the service's spectrum. Furthermore, in the Second Report 
and Order we decided, for all services, not to use the preference of 
royalty payments.\64\ While we will continue to assess the feasibility 
of these preferences as we gain experience with auctions in the context 
of this and other services, we are not persuaded to change our decision 
for the IVDS.
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    \62\Breen and ICC favor set-asides as a means to encourage 
applications from small businesses. Comments of Breen 9; ICC at 4-6. 
ICC also argues that, without set-asides, large telecommunications 
providers might attempt to stifle IVDS technology or permit it only 
as an adjunct to existing offerings. ICC comments at 5-6.
    \63\Breen and ICC state that this option will encourage 
participation by designated entities. Breen at 7; ICC comment at 7, 
reply comment at 8.
    \64\Id. at  252-253.
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    38. We note that the IVDS, with its expected relatively low capital 
entry requirements, is well suited for ownership by designated entities 
and other potential bidders that might otherwise lack the financial 
resources to compete by auction for a license. This, combined with the 
variety of uses possible with the service, makes it likely that the 
IVDS will promote economic growth and enhance the access of consumers 
to new and innovative service offerings. As we gain experience with 
IVDS auctions, we intend continually to assess the effectiveness of our 
measures, and will apply any knowledge gained to subsequent auctions 
for other services.

B. Bidding Credits

    39. In the Second Report and Order we stated that we would consider 
using bidding credits to encourage participation by designated entities 
in auctions. Upon consideration and review of the record on this 
subject, we believe that affording businesses owned by minorities and 
women a substantial bidding credit for certain specified IVDS licenses 
is the most cost-effective and efficient means of achieving Congress' 
objective of ``ensuring'' the opportunity of these designated entities 
to participate in the provision of IVDS offerings. Bidding credits will 
provide minority and women-owned firms with a significant advantage, 
which we believe is necessary to achieve this congressional goal, while 
preserving the advantages of open bidding competition. In effect, the 
bidding credit will function as a discount on the bid price a minority- 
or women-owned firm will actually have to pay to obtain a license and, 
thus, will address directly the financing obstacles encountered by 
these entities. We believe that a bidding credit in the amount of 
twenty-five (25) percent is necessary to provide these designated 
entities with a significant enough advantage to ensure their ability to 
compete successfully for some IVDS licenses. Thus, in each market, a 
single 25 percent bidding credit will be awarded to a business owned by 
minorities and/or women if it is a winning bidder.\65\
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    \65\Only one bidding credit is available in each market. If it 
happens that the two highest bidders are both designated entities 
eligible for a bidding credit, the second highest bidder will be 
given the option of accepting the remaining license without the 
credit, or declining the remaining license.
---------------------------------------------------------------------------

    40. As discussed in the Second Report and Order, Congress mandated 
that the Commission ``ensure'' the opportunity for participation in 
spectrum-based services by each category of designated entity, 
including businesses owned by minorities and women. This plain language 
leads us to conclude that adequate measures must be taken to assure 
that minority and women-owned businesses have the ability to 
participate in the provision of services subject to competitive 
bidding. Moreover, in enacting this legislation, it is clear that 
Congress was concerned about disseminating licenses to a wide variety 
of applicants and wanted the Commission to take meaningful steps to 
accomplish this goal.\66\ Indeed, Congress included a requirement in 
the statute that the Commission report to it in 1997 about, among other 
things, whether competitive bidding facilitated the introduction of new 
companies into the telecommunications market and whether designated 
entities ``were able to participate successfully in the competitive 
bidding process.'' 47 U.S.C. 309(j)(12)(iv).
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    \66\We have decided not to provide bidding credits (or other 
separate preferences) to rural telephone companies bidding on IVDS 
spectrum because we conclude that, given the relatively modest 
build-out costs for systems in this service, such preferences are 
unnecessary to ensure the participation of rural telephone companies 
in the provision of IVDS offerings to rural areas. The preferences 
are also, therefore, unnecessary in this context to meet Congress' 
intent to ensure that rural consumers receive the benefit of new 
technologies such as IVDS. Rural telephone companies will, however, 
be eligible for bidding credits if they are owned by minorities or 
women. They may also qualify for installment payments if they 
satisfy the eligibility criteria for small businesses.
---------------------------------------------------------------------------

    41. Apart from Congress' directive, we think that ensuring 
opportunities for women and minorities to participate in the IVDS is 
important for the telecommunications industry. These companies can play 
a vital role in serving inner city areas and other niche markets that 
may be overlooked by other companies, thus promoting our goal of 
universal access to telecommunications services. Not only will the 
industry become more diverse through the adoption of meaningful 
preferences, but we believe that a much wider customer base will obtain 
access to innovative technologies. Moreover, studies show that even 
when minority-owned firms do not locate within urban minority 
communities, they employ more minorities relative to other companies, 
thereby promoting our goals of equal employment opportunity and 
economic growth.\67\
---------------------------------------------------------------------------

    \67\See e.g., 47 CFR 21.307, 22.307 (equal employment 
opportunity rules for common carriers); Implementation of the 
Commission's Equal Employment Opportunity Rules (Notice of Inquiry), 
FCC 94-103 (released April 21, 1994) (``[O]ur EEO rules enhance 
access by minorities and women to increase employment opportunities 
which are the foundation for increasing opportunities for minorities 
and women in all facets of the communications industry, including 
participation in ownership. Thus the rules * * * promote the further 
development of the broader communications infrastructure.'') See 
also Banking on Black Enterprise at 3.
---------------------------------------------------------------------------

    42. The general record in this proceeding\68\ reflects a severe 
underrepresentation of minorities and women in telecommunications. 
Indeed, the Commission's Small Business Advisory Committee (SBAC) found 
only 11 minority firms engaged in the delivery of cellular, specialized 
mobile radio, radio paging, or messaging services.\69\ Likewise, 
American Women in Radio and Television (AWRT) found that only 24 
percent of small communications businesses are owned by women (when 
companies without paid employees are excluded, women own less than 15 
percent of small communications firms).\70\ Many commenters observe 
that the factors that preclude minorities and women from effective 
participation concern access to financing. With regard to women, they 
note that no existing FCC policy provides an incentive for women to 
enter the communications business, and that access to capital remains 
the biggest obstacle women business owners must face. Similarly, the 
SBAC states that minorities frequently do not or cannot use traditional 
sources of financing. Citing the U.S. Senate amicus brief in Metro 
Broadcasting, Inc. v. FCC, 110 S. Ct. 2997 (1990), the SBAC asserts 
that ``spectrum for radio facilities was first allocated at a time when 
undisguised discrimination in education, employment opportunities, and 
access to capital excluded minorities from all but token 
participation.'' The SBAC concludes that minorities were impeded from 
successfully competing for licenses when they were first awarded and, 
due to systematic barriers to technical training and employment 
opportunities, this situation has continued over time.
---------------------------------------------------------------------------

    \68\For a list of all commenters in this proceeding, see 
Appendix A, Second Report and Order. Footnote 14, supra, lists those 
commenters that made IVDS-specific comments.
    \69\Report of the FCC Small Business Advisory Committee to the 
FCC Regarding Gen. Docket No. 90-314 (Sept. 15, 1993), reprinted at 
8 FCC Rcd 7820, 7827 (1993).
    \70\See Comments of AWRT at 5.
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    43. Given this history of underrepresentation of minorities and 
women in telecommunications and the inability of these groups to access 
financing, we find that the best way we can accomplish these statutory 
mandates is to provide bidding credits exclusively to minority and 
women-owned businesses. The record demonstrates that women and 
minorities face barriers to entry not encountered by other firms, 
including other designated entities, and it is, therefore, appropriate 
and necessary that we provide them with a substantial bidding 
advantage.\71\ In other contexts, Congress has recognized that the use 
of preferences in the licensing process can be necessary to remedy 
underrepresentation by minorities. For example, in 1982, Congress 
mandated the grant of a ``significant preference'' to minority 
applicants participating in lotteries for spectrum-based services. 47 
U.S.C. 309(i)(3)(A). And, in 1988, Congress attached a provision to the 
FCC appropriations legislation that precluded the Commission from 
spending any appropriated funds to examine or change its minority 
broadcast preference policies.\72\ Absent such measures targeted 
specifically to women and minorities, it would be virtually impossible 
to assure that these groups achieve any meaningful measure of 
opportunity for actual participation in the provision of the services 
in question.\73\
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    \71\See e.g., Comments of AWRT at 4-7; Call-Her at 5; Cook Inlet 
at 38-39.
    \72\Continuing Appropriations Act for Fiscal Year 1988, Public 
Law No. 100-102, 101 Stat. 1329-31.
    \73\In the Second Report and Order, we addressed the 
constitutionality of race and gender-based preferences and concluded 
that the proper standard of scrutiny to be employed in this context 
is the ``intermediate scrutiny'' standard used in the Metro case. 
Second Report and Order at 289-297; see 110 S.Ct at 2997. We 
further concluded that under such a standard, preferences for 
minority and women-owned businesses are constitutionally 
permissible. We recognize that Metro's standard of review applies to 
measures approved by Congress. 110 S. Ct. at 3008-09. As noted 
above, the bidding credits in question here were expressly approved 
and, indeed, are required to achieve the statutory goals. See 47 
U.S.C. Sec. 309(j)(4)(D) (The Commission must ``consider the use of 
tax certificates, bidding preferences, and other procedures'' to 
ensure the participation of ``small businesses, rural telephone 
companies, and businesses owned by members of minority groups and 
women.''). Moreover, an argument might be made that IVDS licensees 
will be able to control the content of the transmissions carried on 
their facilities and that the service can therefore be analogized 
(at least) to mass communications media. See, e.g., Johnson comment 
at 1-4, 8 (like other emerging subscription-based services, IVDS 
will, in practice, increasingly converage with broadcast and cable 
services). To the extent that this control exists or is later 
developed with regard to the IVDS, the preferences we adopt for 
minorities and women would be consistent with the important 
governmental interest identified in Metro: increasing minority 
ownership to encourage diversity in the provision of content.
---------------------------------------------------------------------------

    44. We also agree with Call-Her that even comparatively large 
businesses owned by women and minorities face discriminatory lending 
practices and other discriminatory barriers to entry and, therefore, 
eligibility for bidding credits should not be limited to small firms. 
The IVDS auctions present a unique licensing opportunity for these 
historically disadvantaged groups to gain a foot-hold in the 
communications industry.\74\ Our goal is to encourage businesses owned 
by minorities and women to provide viable, sustained competition to 
larger businesses. Therefore, we have accorded preferences to minority 
and women-owned firms regardless of their size. This approach is 
consistent with our auction rules and will further the statutory 
mandate to ensure participation by designated entities.\75\
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    \74\Because of the discrimination suffered by minorities and 
women as contractors and subcontractors in the telecommunications 
industry, see MBELDEF Study, this unique chance to enter the field 
as primary telecommunications providers, competing with, rather than 
dependent upon, other providers, is especially important.
    \75\See Banking on Black Enterprise at 13 (government assistance 
should accrue to more capable black entrepreneurs, who are most 
likely to contribute to the goal of economic development).
---------------------------------------------------------------------------

    45. Further, Congress clearly intended that businesses owned by 
minorities and women must be given the opportunity to participate in 
the provision of spectrum-based services independent of their status as 
small businesses. The plain language of section 309(j)(4)(D) states 
that the Commission ``shall . . . ensure'' the opportunity for 
participation by ``small businesses . . . and businesses owned by 
members of minority groups and women . . .'' (emphasis added). If 
Congress had intended to limit the directive of Section 309(j)(4)(D) 
only to small businesses, no need would have existed to mention 
separately minorities and women. Moreover, Section 309(j)(4)(D) was 
added to Conference, and the Conference Report does not offer any 
suggestion that, to come within the section's purview, businesses owned 
by minorities or women must be small businesses. In contrast, and as we 
discussed more fully in the Second Report and Order, the legislative 
history of Section 309(j)(4)(A), relating to installment payments, 
expressly indicates that the provision was intended only to promote 
financial assistance for small businesses.\76\ Accordingly, we shall 
interpret Section 309(j)(4)(D) in accordance with its plain language 
and will not limit its application to small businesses.\77\
---------------------------------------------------------------------------

    \76\See Second Report and Order at 234-236.
    \77\Even though small businesses are also mentioned in Section 
309(j)(4)(D), we do not believe bidding preferences for small 
businesses are appropriate for IVDS auctions. We believe the 
installment payments preference, as outlined below, will be 
sufficient to ensure their participation.
---------------------------------------------------------------------------

    46. In determining the appropriate amount of the bidding credit we 
considered several factors. First, we agree with those commenters that 
support a bidding credit of 25 percent or more\78\ because we think 
that a substantial credit is necessary to ensure meaningful 
participation by minority and women-owned businesses. In the broadcast 
context, we have noted that licensees can transfer their stations to 
minorities in distress sales provided that the price is no more than 75 
percent of market value.\79\ This policy is based upon our finding that 
25 percent is an appropriate discount to eliminate financial entry 
barriers for minority-owned companies seeking to become broadcast 
licensees. Likewise, we believe that a bidding credit of 25 percent 
will adequately ensure participation by a wide variety of minority and 
women-owned firms in IVDS auctions and service provision. The amount is 
not so substantial, however, as to foster participation by firms that 
are not otherwise financially capable of building-out an IVDS system. 
We will monitor carefully the effectiveness of the 25 percent bidding 
credit in the IVDS context and continually assess whether it is 
achieving the goal of ensuring that minority and women-owned firms 
participate successfully in auctions for this services.
---------------------------------------------------------------------------

    \78\See comments of AIDE at 7, Devsha at 5, NABOB at 10-11, and 
ex parte filing of Personal Communications Network Services of New 
York at 2-3, each suggesting a bidding credit of 25 percent. Rocky 
Mountain Telephone proposes of 50 percent bidding credit. Comments 
of Rocky Mountain Telephone at 16. And Richard Vega proposes a 100 
percent bidding credit for certain designated entities. Comments of 
Richard Vega at 7.
    \79\See Lee Broadcasting Corp., 76 FCC 2d 462 (1980).
---------------------------------------------------------------------------

    47. To prevent any unjust enrichment by minorities or women 
trafficking in licenses acquired through the use of bidding credits, we 
will impose a forfeiture requirement on transfers or assignments of 
such licenses to entities that are not owned by minorities or 
women.\80\ Minority and women-owned businesses seeking to transfer or 
assign a license to an entity that is not owned by minorities or women 
will be required to reimburse the government for the amount of the 
bidding credit, plus interest at the rate imposed for installment 
financing at the time the license was awarded, before transfer or 
assignment will be permitted. The amount of the penalty will be reduced 
over time: a transfer or assignment in the first two years of the 
license term will result in a forfeiture of 100 percent of the value of 
the bidding credit; during year three, of 75 percent of the bidding 
credit; in year four, of 50 percent; in year five, of 25 percent; and 
thereafter, no penalty.\81\ Furthermore, as noted earlier, we will use 
the eligibility criteria from the Second Report and Order to ensure 
that only legitimate minority and women-owned firms are able to take 
advantage of bidding credits. In addition, to further ensure that our 
rules are as narrowly tailored as possible, while still fulfilling the 
statutory goal, we are prohibiting publicly-traded companies from 
taking advantage of the bidding credits and we are providing bidding 
credits for only one license in each market for businesses owned by 
minorities or women.
---------------------------------------------------------------------------

    \80\See Second Report and Order at 264.
    \81\Interest will also be charged according to the total number 
of years the license was held.
---------------------------------------------------------------------------

C. Tax Certificates

    48. Congress instructed the Commission to consider the use of tax 
certificates to ensure designated entity participation in a spectrum-
based services. See 47 U.S.C. 309(j)(4)(D). In the Second Report and 
Order we observed that tax certificates could be useful as a means of 
attracting investors to designated entity enterprises and to encourage 
licensees to assign or transfer control of licenses to designated 
entities in post-auction transactions. We stated further that we would 
examine the feasibility of using this measure in subsequent service-
specific auction rules.\82\ After further consideration of this matter, 
we believe that tax certificates would be an appropriate tool to assist 
minority and women-owned businesses to attract start-up capital from 
non-controlling investors. In addition, we believe that tax 
certificates will give licensees the incentive to assign or transfer 
their authorizations to such entities in post-auction sales, thereby 
providing added assurance that minority and women-owned entities will 
have the opportunity to participate in the provision of IVDS offerings. 
Accordingly, we will issue tax certificates to initial investors in 
minority and women-owned IVDS applicants upon the sale of their non-
controlling interests. We will also issue tax certificates to IVDS 
licensees who assign or transfer control of their licenses to minority 
and/or women-owned entities.
---------------------------------------------------------------------------

    \82\Second Report and Order at 251.
---------------------------------------------------------------------------

    49. As stated previously, the record reveals that women and 
minorities face barriers to entry not encountered by other designated 
entities.\83\ In particular, they have an especially difficult time 
accessing capital and, as a result, are severely under-represented in 
the telecommunications industry. Together with the other preferences we 
adopt today, tax certificates should help to ensure the participation 
of minority and women-owned businesses in this service. This measure 
will make it easier for these designated entities to attract start-up 
capital because investors will know that they can defer taxes on any 
gains made when their interests are sold. In addition, tax certificates 
will provide incentives to licensees to seek out minority and female 
buyers in after-market sales because the licensees will be able to 
defer taxes on profits made in the sale.
---------------------------------------------------------------------------

    \83\See 42-44, supra.
---------------------------------------------------------------------------

    50. We have used tax certificates over the years to encourage 
broadcast licensees and cable television operators to transfer their 
stations and systems to minority buyers.\84\ We also have granted tax 
certificates to shareholders in minority-controlled broadcast or cable 
entities who sell their shares, when such interests were acquired to 
assist in the financing of the acquisition of the facility.\85\ These 
broadcast and cable tax certificates are issued pursuant to the 
Internal Revenue Code, 26 U.S.C. 1071. While Congress' goal in 
authorizing tax certificates under Section 309(j)(4)(D) of the Act is 
somewhat different, and focuses on ensuring the opportunity for 
designated entities to participate in auctions and spectrum-based 
services, we think that it will be an equally valuable program. 
Issuance of tax certificates to investors and licensees that sell to 
minorities and women will augment the bidding credits preference, and 
together the measures should increase the ability of these entities to 
access financing, thus ensuring their opportunity to participate in 
IVDS auctions and services.
---------------------------------------------------------------------------

    \84\See Commission Policy Regarding the Advancement of Minority 
Ownership in Broadcasting, 92 FCC 2d 849 (1982) (``1982 Policy 
Statement''); See also Statement of Policy on Minority Ownership of 
Broadcasting Facilities, 68 FCC 2d 979 (1978).
    \85\1982 Policy Statement, 92 FCC 2d at 855-58.
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    51. In implementing this program, we will borrow from our existing 
tax certificate program and grant tax certificates, upon request, that 
will enable the licensees and investors meeting the criteria outlined 
here to defer the gain realized upon a sale either by: (1) Treating it 
as an involuntary conversion under 26 U.S.C. 1033, with the recognition 
of gain avoided by the acquisition of qualified replacement property; 
or (2) electing to reduce the basis of certain depreciable property; or 
both. Tax certificates will be available to initial investors in 
minority and women-owned businesses who provide ``start-up'' financing, 
which allows these businesses to acquire licenses at auction or in the 
aftermarket, and those investors who purchase interests within the 
first year after license issuance, which allows for the stabilization 
of the designated entities' capital base. Also, in accordance with our 
existing policy, to be eligible for a tax certificate, such investor 
transactions must not reduce minority or female ownership or control in 
the entity below 50.1 percent. The definition of a minority or female-
owned entity is set forth in the Second Report and Order and, with 
regard to our investor tax certificate policy, the entity in which the 
investment is made must satisfy that definition at the time of the 
original investment as well as after the investor's shares are sold. 
For after-market sales, tax certificates will only be issued to 
licensees who sell to entities that meet that definition. Tax 
certificates will be granted only upon completion of the sale, although 
parties can request a declaratory ruling from the Commission regarding 
the tax consequences of prospective transactions.
    52. As with our other tax certificate policies, we wish to deter 
``sham'' arrangements to obtain tax certificates and, pursuant to 
Section 309(j)(4)(E), therefore adopt measures to prevent unjust 
enrichment. First, we intend to enforce strictly the definitions 
adopted in the Second Report and Order and will carefully review 
investment and purchase arrangements to ensure that 50.1 percent 
control and equity by minorities and women was, and will be maintained. 
Second, like our existing tax certificate program,86 we will 
impose a one-year holding requirement on the transfer or assignment of 
IVDS licenses obtained through the benefit of tax certificates. We 
believe that the rapid resale of such licenses to non-minorities or 
women at a profit would subvert our goal of ensuring the opportunity to 
participate by minority and women-owned businesses. The well-
established one-year holding period would prevent this type of unjust 
enrichment. While this restriction will not be applied to assignments 
or transfers to qualified minority and female-owned businesses, 
assignees and transferees obtaining licenses pursuant to this exception 
will be subject to the one-year holding requirement.
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    \8\6See Amendment of Section 73.3597 of the Commission's Rules, 
Memorandum Opinion and Order, 99 FCC 2d 971, 974 (1985).
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D. Installment Payments

    53. In this Fourth Report and Order, we adopt the preference of 
installment payments and limit its use to small businesses. Permitting 
a winning bidder to pay by installment payments is the equivalent of 
having the government extend credit to the bidder. Using this option, a 
prospective licensee may not need to rely as heavily on private 
financing either before or after an auction. As a result, this method 
is an effective way to promote the participation of designated entities 
in the provision of spectrum-based services, and is an effective means 
to distribute licenses and services among geographics areas.87 In 
the Second Report and Order, we decided that the option of installment 
payments should be extended only to small businesses (including those 
held by minorities and women), and then only in instances where smaller 
spectrum blocks are being auctioned and the use of the blocks is very 
likely to match the business objectives of bona fide small 
businesses.88 With the IVDS, the spectrum blocks are relatively 
small and the potential difficulties associated with permitting this 
option in the context of larger spectrum blocks (e.g., 
undercapitalization) are not present. We also find that, because of the 
expected relatively low capital entry requirements for the IVDS and the 
potential variety of offerings89 that might result from the 
service, the IVDS will offer a bona fide business opportunity to small 
businesses.
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    \8\7Second Report and Order at 231-233.
    \8\8Id. at 234-237. We noted that the legislative history of 
the Budget Act indicates that large entities with established 
revenue streams are not intended beneficiaries of the installment 
payments preference. Id. at 236.
    \8\9See note 3, supra.
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    54. Therefore, we will permit the use of installment plans for all 
IVDS auctions, and follow the general procedures given in the Second 
Report and Order for the use of this preference.90. The 
installment payment option will enable all small businesses to pay the 
full amount of their winning bid in installments (less the upfront 
payment, which must be paid in full, and the down payment, half of 
which is due five days after the auction closes and the other half five 
days after the application is granted). Timely payments of all 
installments will be a condition of the license grant, and failure to 
make such timely payments on or before the date due may be grounds for 
revocation.91.
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    \9\0Under these general procedures, for example, only interest 
payments will be due for the first two years, with principal and 
interest both being amortized over the remaining years of the 
license. Also, interest charges will be fixed at the time of 
licensing at a rate equal to that of five-year U.S. Treasury notes, 
to track the IVDS license term of five years. See Second Report and 
Order at 239. If a small business making installment payments seeks 
to transfer a license to a non-small business entity during the term 
of the license, we will require payment of the remaining principal 
balance as a condition of the license transfer. Id. at 263.
    \9\1Limited grace periods for defaulting licensees may be 
considered on a case-by-case basis. Id. at 240.
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VII. Conclusion

    55. In summary, the rules and procedures we adopt in this Fourth 
Report and Order for auctioning licenses in the IVDS are designed to 
minimize the regulatory burdens on both applicants and the Commission, 
reduce the potential for delay of service to the public, and maintain 
safeguards to preserve the integrity of the bidding process. The rules 
also seek to meet Congressional objectives and serve two basic goals: 
promoting economic growth, and enhancing access to telecommunications 
service offerings for consumers, producers, and new entrants. We also 
take account of Congress' desire that designated entities previously 
underrepresented in the provision of telecommunications services be 
afforded preferences to encourage their participation. We expect that 
these procedures will lead to the development and rapid deployment of 
IVDS offerings across the country.

VIII. Final Regulatory Flexibility Analysis

    56. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 
604, the Commission's final analysis is as follows:

A. Need For, and Purpose of, This Action

    As a result of the Budget Act referenced above, the Commission may 
utilize competitive bidding mechanisms in the granting of certain 
initial licenses. The Commission published an Initial Regulatory 
Flexibility Analysis, see generally 5 U.S.C. 603, within the Notice of 
Proposed Rule Making in this proceeding, and published a Final 
Regulatory Flexibility Analysis within the Second Report and Order (at 
299-304). As noted in that previous final analysis, this proceeding 
will establish a system of competitive bidding for choosing among 
certain applications for initial licenses, and will carry out 
Congressional mandates that certain designated entities be afforded an 
opportunity to participate in the competitive bidding process and the 
provision of spectrum-based services.

B. Summary of the Issues Raised by the Public Comments in Response to 
the Initial Regulatory Flexibility Analysis

    In regard to the specific IVDS issues addressed by this Fourth 
Report and Order, no comments were submitted in response to our Initial 
Regulatory Flexibility Analysis.

C. Significant Alternatives Considered

    Although, as described in (B) above, no comments were received 
pertaining to IVDS, the Second Report and Order addressed at length the 
general policy considerations raised as a result of the new 
legislation.

IX. Ordering Clauses

    57. Accordingly, it is ordered that, pursuant to the authority of 
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), this Fourth Report and 
Order is adopted, and Parts 0, 1, and 95 of the Commission's Rules are 
amended as set forth in the attached Appendix.
    58. It is further ordered that the rule amendments set forth in the 
Appendix will become effective 30 days after their publication in the 
Federal Register.

List of Subjects

47 CFR Part 0

    Organization and functions

47 CFR Part 1

    Administrative practice and procedure

47 CFR Part 95

    Radio.

    Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

    Parts 0, 1, and 95 of Chapter I of Title 47 of the Code of Federal 
Regulations are amended as follows:

PART 0--COMMISSION ORGANIZATION

    1. The authority citation for Part 0 continues to read as follows:

    Authority: Sec. 5, 48 Stat. 1068, as amended; 47 U.S.C. 155.

    2. Section 0.131 is amended by adding new paragraph (k) to read as 
follows:


Sec. 0.131  Functions of the Bureau.

* * * * *
    (j) Develops, in coordination with the Office of Plans and Policy, 
policies for selection of licensees from mutually exclusive applicants 
in the Private Radio Services subject to competitive bidding; issues 
Public Notices announcing auctions of Private Radio Services licenses; 
specifies the licenses to be auctioned, the time, place and method of 
competitive bidding, including applicable bid submission procedures, 
bid withdrawal procedures, stopping rules and activity rules; specifies 
the filing windows for short-form applications, bidder certifications, 
and the deadlines for submitting filing fees, upfront payments and down 
payments.

PART 1--PRACTICE AND PROCEDURE

    3. The authority citation for Part 1 continues to read as follows:

    Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47 
C.F.R. 154, 303: Implement, 5 U.S.C. 552 and 21 U.S.C. 853a, unless 
otherwise noted.

    4. Section 1.912 is amended by redesignating paragraph (e) as 
paragraph (f) and adding new paragraph (e) to read as follows:


Sec. 1.912  Where applications are to be filed.

* * * * *
    (e) Applicants submitting long-form applications pursuant to 
competitive bidding procedures (see Sec. 1.2107(c)) must mail or 
otherwise deliver their application to: Office of the Secretary, 
Federal Communications Commission, 1919 M Street NW., Room 222, 
Washington, DC 20554, Attention: Auction Application Processing 
Section.
* * * * *
    5. Section 1.922 is amended by adding two entries at the beginning 
of the table to read as follows:


Sec. 1.922  Forms to be used.

FCC Form and Title
175--Application to Participate in an FCC Auction
175-S Supplemental Application to Participate in an FCC Auction.
* * * * *


Sec. 1.972  [Amended]

    6. In Sec. Section 1.972, paragraph (a)(1) is amended by removing 
the words ``Part 95-Subpart F-Personal Radio Services'' and paragraph 
(c) is amended by removing the words ``or part 95-subpart F'', removing 
the comma and adding the word ``or'' after ``part 90'' in the first 
sentence.

PART 95--PERSONAL RADIO SERVICES

    7. The authority citation for Part 95 continues to read as follows:

    Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47 
U.S.C. 154, 303.

    8. New Sec. 95.816 is added to read as follows:


Sec. 95.816  Competitive bidding proceedings.

    (a) Mutually exclusive IVDS initial applications are subject to 
competitive bidding.
    (b) The General Procedures set forth in 47 CFR Part 1, Subpart Q 
are applicable to competitive bidding proceedings used to select among 
mutually exclusive applicants for initial IVDS licenses.
    (c) The specific procedures applicable to auctioning particular 
IVDS licenses will be set forth by Public Notice. Generally, the 
following competitive bidding procedures will be used to auction 
mutually exclusive IVDS licenses. The Commission, however, may design 
and test alternative procedures.
    (1) Competitive bidding design. Sequential oral (oral outcry) 
auctions will be used to assign licenses in and around large urban 
areas and single-round sealed bidding will be used for rural areas 
unless otherwise specified by the Commission. See 47 CFR 1.2103 and 
1.2104.
    (2) Forms. (i) Applicants must submit short-form applications (FCC 
Form 175) as specified in Commission Public Notices. Minor deficiencies 
may be corrected prior to the auction. Major modifications such as 
changes in ownership, failure to sign an application or failure to 
submit required certifications will result in the dismissal of the 
application. See 47 CFR 1.2105(a) and (b).
    (ii) Applicants must submit a long-form application (FCC Form 574) 
within ten (10) business days after being notified that it is the 
winning bidder for a license. See 47 CFR 1.2107 (c) and (d).
    (3) Upfront payments. For oral outcry bidding, applicants will be 
required to show the Commission or its representative, immediately 
prior to the auction, a cashiers check for at least $2500 in order to 
get a bidding number and secure a place in the room where the bidding 
will take place. Bidders will be required to have $2500 upfront money 
for every five licenses they win. No upfront payment will be required 
from applicants in single-round sealed bid auctions. See 47 CFR 1.2106.
    (4) Down payments. Within five (5) business days after an oral 
outcry auction is over, or within five (5) business days after being 
notified that it is the high bidder in a single round sealed bid 
auction, a high bidder on a particular license(s) must submit to the 
Commission's lockbox bank such additional funds as are necessary to 
bring total deposits (upfront payment plus down payment) up to twenty 
(20) percent of the high bid(s). Small businesses eligible and electing 
to use installment payments pursuant to Sec. 95.816(d)(3) are required 
to bring their total deposits up to ten (10) percent of their winning 
bid. The remainder of the twenty (20) percent down payment must be 
submitted within five (5) business days of the grant of their 
license(s). See 47 CFR 1.2107(b).
    (5) Full payment. Auction winners, except for small businesses 
eligible for installment payments, must pay the balance of their 
winning bids in a lump sum within five (5) business days following the 
grant of their license(s). The grant of a license(s) to an auction 
winner(s) will be conditioned on the timely payment of all monies due 
the Commission. See 47 CFR 1.2109(a).
    (6) Default or disqualification, see 47 CFR 1.2104(g).
    (i) Sequential oral auctions. If a high bidder, after signing a bid 
confirmation form, fails to make the required down payment, fails to 
pay for a license, or is otherwise disqualified, it will be assessed a 
penalty equal to the difference between its winning bid and the winning 
bid the next time the license is auctioned by the Commission, plus 
three (3) percent of the lower of these two amounts.
    (ii) Single round sealed bid auctions. If a high bidder withdraws 
its bid prior to making the required down payment, it will be assessed 
a penalty equal to the difference between its bid and the next highest 
bid. If a high bidder, after having made the required down payment for 
a license, fails to pay the remaining amount for the license, or is 
otherwise disqualified, it will be assessed a penalty equal to the 
difference between its winning bid and the winning bid the next time 
the license is auctioned by the Commission plus three (3) percent of 
the lower of these two amounts.
    (d) Designated entities. Designated entities are small businesses, 
and businesses owned by members of minority groups and/or women, as 
defined in 47 CFR 1.2110(b).
    (1) Bidding credits. A winning bidder that qualifies as a business 
owned by women and/or minorities may use a bidding credit of twenty-
five (25) percent to lower the cost of its winning bid. A bidding 
credit is available for a license for either frequency segment A or 
frequency segment B in each service area. A bidding credit, however, 
may be applied to only one of the two licenses available in each 
service area.
    (2) Tax certificates. Any initial investor in a business owned by 
minorities and/or women and who provides ``start-up'' financing, which 
allows such business to acquire a IVDS license(s), and any investor who 
purchases ownership in an interest in a IVDS license owned by 
minorities and/or women within the first year after license issuance, 
which allows for the stabilization of the entity's capital base, may, 
upon the sale of such investment or interest, request from the 
Commission a tax certificate, so long as such investor transaction does 
not reduce minority or female ownership or control in the entity below 
50.1 percent. Any IVDS licensee who assigns or transfers control of its 
license to a business owned by minorities and/or women may request that 
the Commission issue it a tax certificate.
    (3) Installment payments. Small businesses, including small 
businesses owned by women and/or minorities may elect to pay the full 
amount of their bid in installments over the term of their licenses. 
See 47 CFR 1.2110(d).
    (e) Unjust enrichment. Any business owned by minorities and/or 
women that obtains a IVDS license through the benefit of tax 
certificates shall not assign or transfer control of its license within 
one year of its license grant date. If the assignee or transferee is a 
business owned by minorities and/or women, this paragraph shall not 
apply; Provided, however, that the assignee or transferee shall not 
assign or transfer control of the license within one year of the grant 
date of the assignment or transfer.
    9. Section 95.819 is revised to read as follows:


Sec. 95.819  License transferability.

    (a) IVDS system licenses acquired through competitive bidding 
procedures may be transferred, assigned, sold, or given away only in 
accordance with the provisions and procedures set forth in 47 CFR 
1.2111.
    (b) Except for licenses acquired through competitive bidding 
procedures, the licensees may not transfer, assign, sell, or give the 
IVDS system licenses or any component CTS licenses to any other entity 
until the five year construction benchmark (50 percent coverage) has 
been met.
    (c) Once the five year construction benchmark has been met, 
licensees of IVDS systems that were not acquired through competitive 
bidding may transfer, sell, assign, or give the IVDS system licenses 
together with all of its component CTS licenses to any other entity in 
accordance with the provisions of Sec. 95.821. If the licensee sells or 
gives away the apparatus the new owner must obtain a new IVDS system 
license and CTS licenses before placing it in operation.

[FR Doc. 94-11779 Filed 5-12-94; 8:45 am]
BILLING CODE 6712-01-M