[Federal Register Volume 59, Number 161 (Monday, August 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20559]


[[Page Unknown]]

[Federal Register: August 22, 1994]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 24

[PP Docket No. 93-253; FCC 94-217]

 

Implementation of Section 309(j) of the Communications Act--
Competitive Bidding

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission, on its own motion, reconsiders several aspects 
of the competitive bidding rules adopted for personal communications 
services in the 2 GHz band (``broadband PCS''). The amendments adopted: 
exempt entities owned and controlled by Indian tribes or Alaska 
Regional or Village Corporations organized pursuant to the Alaska 
Native Claims Settlement Act from the affiliation rules for purposes of 
eligibility to apply for licenses in frequency blocks C and F 
(``entrepreneurs' blocks''); and modify the rules governing the 
attribution of gross revenues, total assets and personal net worth of 
investors in corporate applicants in the entrepreneurs' blocks to 
permit non-attributable investors to own up to 15 percent of a 
corporate applicant's voting stock. The Commission's action furthers 
the congressional policies of ensuring that all classes of designated 
entities are provided opportunities for meaningful participation in 
broadband PCS spectrum auctions. It also introduces additional 
flexibility into the attribution rules to attract investment to all 
types of corporations controlled by entrepreneurs' block eligibles and 
to increase the level of participation by smaller corporate applicants 
which have not made a public offering of their stock.

EFFECTIVE DATE: September 21, 1994.

FOR FURTHER INFORMATION CONTACT:
Peter A. Tenhula, Attorney, Office of General Counsel, (202) 418-1720.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
on Reconsideration in PP Docket No. 93-253, adopted August 15, 1994 and 
released August 15, 1994. The full text of Commission decisions are 
available for inspection and copying during normal business hours in 
the FCC Docket Branch (Room 230), 1919 M Street NW., Washington, D.C. 
The complete text of this decision may also be purchased from the 
Commission's copy contractor, International Transcription Service, 
Inc., (202) 857-3800, 2100 M Street NW., Washington, D.C. 20037.

Summary of Order on Reconsideration

    1. On June 29, 1994, the Commission adopted its Fifth Report and 
Order in the Implementation of Section 309(j) of the Communications 
Act--Competitive Bidding (``Fifth Report and Order''), 59 FR 37566 
(July 22, 1994), where we established competitive bidding rules for 
broadband PCS. By this Order, we reconsider two aspects of our rules.
    2. In the Fifth Report and Order, the Commission adopted rules 
providing that gross revenues, assets and personal net worth of 
affiliates of a broadband PCS applicant are attributed to the applicant 
and counted toward certain eligibility criteria. These affiliation 
requirements are intended to prevent entities that, for all practical 
purposes, do not meet the Commission's size standards from receiving 
benefits targeted to smaller entities. These safeguards ensure, 
pursuant to Section 309(j)(3) of the Communications Act, that bona fide 
designated entities are provided with meaningful economic opportunities 
to participate in the provision of spectrum-based services. Generally, 
affiliation arises when the applicant (or an attributable investor in 
the applicant) controls or has power to control another entity or if 
the applicant (or an attributable investor in the applicant) is under 
the control of the other entity. In developing its affiliation rules, 
the Commission borrowed from rules that are used by SBA to make size 
determinations, including guidelines used to establish when a firm 
should be deemed an affiliate of an applicant and other safeguards 
designed to ensure that only qualified entities are eligible for 
special benefits under the SBA's ``section 8(a)'' program. The 
Commission failed, however, to adopt an exemption in the SBA's rules 
that excluded from affiliation coverage entities owned and controlled 
by Indian tribes or Alaska Regional or Village Corporations. See 13 CFR 
121.401(b), 121.1102(a), 124.112(c). SBA is required by statute 
generally to determine the size of a small business concern owned by an 
Indian tribe (or a wholly owned business entity of such tribe) 
``without regard to its affiliation with the tribe, any entity of 
tribal government, or any other business enterprise owned by the 
tribe.''\1\ The SBA has incorporated these and other statutory 
provisions into its regulations.\2\
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    \1\15 U.S.C. 636(j)(10)(J)(ii). The term ``Indian tribe'' 
defined in 25 U.S.C. 450b(e) includes ``any Indian tribe, band 
nation, or other organized groups or community, including any Alaska 
Native village or regional or village corporation as defined in or 
established pursuant to the Alaska Native Claims Settlement Act [43 
U.S.C. 1601 et seq.] which is recognized as eligible for the special 
programs and services provided by the United States to Indians 
because of their status as Indians.'' See also 15 U.S.C. 632(d) 
(defining ``Qualified Indian tribe'' for purposes of the Small 
Business Act; 25 CFR Part 83 (Department of the Interior procedures 
for establishing that an American Indian group exists as an Indian 
tribe).
    \2\See Small Business Size Standards, 54 FR 52634, 52635 (Dec. 
21, 1989) (amending 13 CFR 121.401(b)); Small Business Size 
Regulations; Minority Small Business and Capital Ownership 
Development, 59 FR 12811 (March 18, 1994) (amending 13 CFR 
121.1102(a), 124.112(c)).
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    3. We have reexamined our eligibility and affiliation rules and 
will make an amendment to these rules that is more consistent with the 
other Federal laws, policies and regulations so as not to preclude the 
eligibility of entities owned and controlled by Indian tribes and 
Alaska Native Corporations for entrepreneurs' block licenses and for 
the benefits accorded businesses owned by members of minority groups. 
We believe that adoption of an affiliation exemption for Indian tribes 
and Alaska Native Corporations for purposes of eligibility in the 
entrepreneurs' blocks is consistent with these other Federal 
policies\3\ and complies with the congressional mandate in the auction 
law.\4\ Specifically, this exemption will ensure that the congressional 
policies of ensuring that minority-owned businesses have the 
opportunity to participate in spectrum-based services will apply to a 
class of designated entities, Indian tribes and Alaska Native 
Corporations, that Congress has determined to be economically 
disadvantaged. Without the exemption we adopt herein, the Commission 
would not be able to ensure that all classes of designated entities are 
provided meaningful opportunities to participate in broadband PCS 
spectrum auctions.
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    \3\C.f. LaRose versus FCC, 494 F.2d 1145, 1146 n.2 (D.C. Cir. 
1974).
    \4\See 47 U.S.C. 309(j)(4)(D), (3)(B).
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    4. We note that Section 7(j)(10)(J) of the Small Business Act gives 
the SBA the discretion to consider tribal and other affiliations if it 
determines that one or more such tribally owned businesses have 
obtained, or are likely to obtain, a substantial unfair competitive 
advantage within an industry category.\5\ We do not believe it is 
necessary to make such a determination for broadband PCS auctions.\6\ 
The limited potential number of broadband PCS applicants that may 
benefit from this affiliation exemption will not present any unfair 
advantage to other eligible applicants that have had gross revenues up 
to $125 million and assets of up to $500 million. In addition, this 
exemption from the affiliation rules applies only to applicants for 
entrepreneurs' block licenses owned and controlled by Indian tribes and 
Alaska Native Corporations, not independent entities composed of 
individual Native Americans or other entities composed of individual 
Native Americans or other entities owned by members of this minority 
group. Thus, such entities will not have any unfair advantage over 
other minorities in the entrepreneurs' blocks.
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    \5\15 U.S.C. 636(j)(10)(J)(ii)(II).
    \6\We will retain the discretion, on a service-specific basis, 
to determine whether providing this exemption from similar 
affiliation rules applicable to other auctionable services would 
give these entities a substantial unfair competitive advantage.
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    5. For purposes of determining eligibility to bid in the 
entrepreneurs' blocks, we also attribute to the applicant (in addition 
to ``affiliates'' as discussed above) the gross revenues, assets and 
net worth of non-passive investors in the applicant. The attribution 
and affiliation rules are designed to prevent ineligible parties from 
exerting control or undue influence over firms eligible to apply for 
entrepreneurs' block licenses and to ensure that only bona fide 
applicants receive broadband PCS licenses. At the same time, we 
recognized that passive investment in entrepreneurs' block applicants 
would be critical to the successful development of these smaller 
companies. To balance these competing considerations, we decided not to 
attribute investors in corporate applicants that own a 25 percent or 
less passive equity interest. Passive equity in a corporate applicant 
was defined to include non-voting stock and no more than 5 percent of 
the voting stock. An exception was created, however for evaluating a 
publicly-traded corporation's financial eligibility in the 
entrepreneurs' blocks: an investor's ownership of no more than 15 
percent of the voting stock in a publicly-traded corporate applicant 
would be considered passive equity.
    6. We now believe that investors in all corporate applicants, 
including those that are not publicly traded, should be able to include 
in their 25 percent passive equity investment up to 15 percent of the 
applicant's voting stock. Both publicly traded and non-publicly traded 
applicants would have difficulty attracting substantial investment if 
each individual investor could own no more than 5 percent of the voting 
stock. Investors that are prepared to devote considerable funds to an 
entrepreneurs' block applicant should reasonably expect to exercise 
some ability to protect their investment through a modest level of 
voting stock ownership. The 15 percent voting stock limit would, in 
this respect, not rise to the level of a controlling interest, but, 
from the investor's perspective, could diminish the substantial risks 
associated with committing funds to a PCS applicant and enhance the 
potential rewards for providing start-up capital to these new ventures.

Final Regulatory Flexibility Analysis

    The Commission prepared a Final Regulatory Flexibility Analysis for 
the Fifth Report and Order. None of the rules adopted in this Order on 
Reconsideration modify that analysis.

List of Subjects in 47 CFR Part 24

    Radio.

Amendatory Text

    47 CFR part 24 is amended as follows:

PART 24--PERSONAL COMMUNICATIONS SERVICES

    1. The authority citation for Part 24 continues to read as follows:

    Authority: Secs. 4, 301, 302, 303, 309, and 332, 48 Stat. 1066, 
1082, as amended; 47 U.S.C. 154, 301, 302, 303, 309 and 332, unless 
otherwise noted.

    2. Section 24.709 is amended by removing paragraph (b)(4)(iii) and 
revising paragraph (e) to read as follows:


Sec. 24.709  Eligibility for licenses for frequency Blocks C and F.

* * * * *
    (e) Definitions. The terms affiliate, business owned by members of 
minority groups and women, consortium of small businesses, control 
group, gross revenues, members of minority groups, passive equity, 
personal net worth, and total assets used in this section are defined 
in Sec. 24.720.

    3. Section 24.711 is amended by revising paragraph (a)(4) to read 
as follows:


Sec. 24.711  Installment payments for licenses for frequency Blocks C 
and F.

    (a) * * *
    (4) For purposes of determining whether an applicants has $75 
million or less in gross revenues, gross revenues shall be attributed 
to the applicant and aggregated as provided in Sec. 24.709(b).
* * * * *
    4. Section 24.720 is amended by revising paragraphs (b)(2) and (j), 
by adding a new paragraph (l) (11) and by removing paragraph (m) to 
read as follows:


Sec. 24.720  Definitions.

* * * * *
    (b) * * *
    (2) For purposes of determining whether an entity meets the $40 
million gross revenues and $40 million personal net worth standards in 
paragraph (b)(1) of this section, gross revenues and personal net worth 
shall be attributed to the entity and aggregated as provided in 
Sec. 24.709(b).
* * * * *
    (j) Passive Equity. Passive equity shall mean:
    (1) For corporations, non-voting stock or stock that includes not 
more than fifteen percent of the voting equity;
    (2) For partnerships, joint ventures and other non-corporate 
entities, limited partnership interests and similar interests that do 
not afford the power to exercise control of the entity.
* * * * *
    (l) * * *
    (11) Exclusion from affiliation coverage. For purposes of 
Sec. 24.709, Indian tribes or Alaska Regional or Village Corporations 
organized pursuant to the Alaska Native Claims Settlement Act (43 
U.S.C. 1601, et seq.), or entities owned and controlled by such tribes 
or corporations, are not considered affiliates of an applicant owned 
and controlled by such tribes or corporations.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 94-20559 Filed 8-19-94; 8:45 am]
BILLING CODE 6712-01-M