[Federal Register Volume 59, Number 165 (Friday, August 26, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21016]
[[Page Unknown]]
[Federal Register: August 26, 1994]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 24
[PP Docket No. 93-253; FCC 94-219]
Implementation of Section 309(j) of the Communications Act--
Competitive Bidding
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this Third Memorandum Opinion and Order and Further Notice
of Proposed Rulemaking, the Commission responds to petitions for
reconsideration or clarification of the rules and policies adopted in
the Third Report and Order in this proceeding, which sets forth the
service specific competitive bidding rules for narrowband PCS. In this
regard, the Commission makes certain modifications to the rules adopted
on the Third Report and Order. These rules will promote the development
and rapid deployment of narrowband PCS technologies, products and
services for the benefit of the public. These rules also will promote
economic opportunity and competition, and disseminate licenses among a
wide variety of applicants, including small businesses and businesses
owned by members of minority groups and women. This action will result
in recovery for the public of a portion of the value of the public
spectrum make available for commercial use.
EFFECTIVE DATE: September 26, 1994.
FOR FURTHER INFORMATION CONTACT:
Jackie Chorney, Office of Plans and Policy, (202) 418-2030.
SUPPLEMENTARY INFORMATION: This Third Memorandum Opinion and Order and
Further Notice of Proposed Rulemaking in PP Docket No. 93-253, adopted
August 16, 1994, and released August 17, 1994, is available for
inspection and copying during normal business hours in the FCC Dockets
Branch, Room 230, 1919 M Street N.W., Washington, D.C. The complete
text may be purchased from the Commission's copy contractor,
International Transcription Service, Inc., 2100 M Street, N.W., Suite
140, Washington, D.C. 20037, telephone (202) 857-3800.
Paperwork Reduction Act
In the Third Memorandum Opinion and Order and Further Notice of
Proposed Rulemaking in PP Docket No. 93-253, the Commission has amended
47 CFR Part 24 which contain rules and requirements governing the award
of narrowband PCS licenses through a system of competitive bidding.
Applicants are required to file certain information so that the
Commission can determine whether the applicants are legally,
technically, and financially qualified to be licensed. Affected members
of the public are any members of the public who want to become a
narrowband PCS licensee. Implementation of the rules contained in the
Third Memorandum Opinion and Order and Further Notice of Proposed
Rulemaking will impose reporting and recordkeeping requirements on
certain members of the public. The Federal Communications Commission
will submit an information collection request to OMB for review and
clearance under the Paperwork Reduction Act of 1980, 44 U.S.C. 3507.
Persons wishing to comment on this information collection should
contact Timothy Fain, Office of Management and Budget, Room 3225, New
Executive Office Building, Washington, D.C. 20503, (202) 395-3561. For
further information, contact Judy Boley, Federal Communications
Commission, (202) 418-0210.
In the Matter of Implementation of Section 309(j) of the
Communications Act--Competitive Bidding, Narrowband PCS, PP Docket
No. 93-253 and Amendment of the Commission's Rules to Establish New
Narrowband Personal Communication Services, GEN Docket No. 90-314,
ET Docket No. 92-100.
Third Memorandum Opinion and Order and Further Notice of Proposed
Rulemaking
Adopted: August 16, 1994.
Released: August 17, 1994.
Comment Date: September 16, 1994.
Reply Comment Date: October 3, 1994.
By the Commission:
Table of Contents
Paragraph
I. Introduction.............................................. 1
II. Auction Design........................................... 5
A. Bidding Procedures...................................... 5
B. Minimum Opening Bid..................................... 10
C. Activity and Stopping Rules............................. 12
D. Release of Bidder Information........................... 16
E. Filing Procedures....................................... 17
F. Application-Processing Rules............................ 21
III. Rules Prohibiting Settlements and Collusion............. 25
IV. Paging Response Channel Eligibility...................... 32
V. Designated Entity Provisions.............................. 33
A. Definition of Small Business............................ 42
B. Bidding Credits in Regional Narrowband Auctions......... 58
C. Rural Telephone Companies............................... 59
D. Other Designated Entity Decisions....................... 62
VI. Procedural Matters and Ordering Clause................... 64
A. Final Regulatory Flexibility Analysis................... 64
B. Ordering Clause......................................... 68
I. Introduction
1. By this action, we respond to petitions for reconsideration of
the Third Report and Order in this proceeding.\1\ The Third Report and
Order established service-specific rules for competitive bidding for
the award of licenses for Personal Communications Services in the 900
MHz band (narrowband PCS). Seven such petitions were received, as well
as three oppositions and comments and one reply.\2\
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\1\See Third Report and Order in PP Docket No. 93-253, 9 FCC Rcd
2941, 59 FR 26741 (May 24, 1994), (Third Report and Order).
\2\Petitions for reconsideration were received from the
Association of Independent Designated Entities (AIDE), Mercury
Communications, Inc. (Mercury), Paging Network, Inc. (PageNet),
Phase One Communications, Inc. (Phase One), the Rural Cellular
Association (RCA), Tri-State Radio Co. (Tri-State), and U.S. Intelco
Networks, Inc. (USIN). Oppositions or comments were received from
United States Telephone Association (USTA), AirTouch Paging
(AirTouch), and Paging Network, Inc. (PageNet); a reply was received
from American Paging, Inc. (API).
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2. On August 10, 1993, the Omnibus Budget Reconciliation Act of
1993 (the Budget Act) added a new section 309(j) to the Communications
Act of 1934, as amended, 47 U.S.C. 151-173 (the Communications Act).
This amendment to the Communications Act gave the Commission express
authority to employ competitive bidding procedures to choose from among
mutually exclusive applications for initial licenses. The Commission's
Second Report and Order established general rules and procedures and a
broad menu of competitive bidding methods to be used for all
auctionable services.\3\
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\3\Second Report and Order in PP Docket No. 93-253, 9 FCC Rcd
2348, 59 FR 22980 (May 4, 1994), (Second Report and Order).
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3. The Third Report and Order established competitive bidding rules
for narrowband PCS. The Commission decided that because of the
interdependence within certain classes of narrowband PCS licenses and
the relatively high expected value of such licenses, where the agency
received mutually exclusive applications most narrowband PCS licenses
would be awarded through a sequence of simultaneous multiple round
auctions. However, we stated that we might alternatively use oral
sequential or single round sealed bidding to award certain narrowband
PCS licenses if the operational complexity or administrative costs
associated with simultaneous auctions proved excessive relative to the
expected value of the licenses to be awarded. We stated that in
conducting narrowband PCS auctions we would generally follow the
payment and procedural rules adopted in the Second Report and Order,
and we adopted general procedural and processing rules for the
narrowband PCS service based on Parts 22 and 90 of the Commission's
rules. We also structured our rules to provide opportunities for small
businesses and businesses owned by women and minorities to participate
in the auction and in the provision of spectrum based services.
4. On July 29, 1994 we completed the first spectrum auction for the
ten available nationwide narrowband PCS licenses. This auction was the
first test of the simultaneous multiple round auction design and of our
provisions for designated entities. This auction was enormously
successful. One indication of the efficiency of the simultaneous
multiple round bidding process is the fact that the winning bids were
either identical or virtually identical for virtually identical
licenses. As we expected, this auction also attracted broad
participation by designated entities. Of the 29 registered bidders 9,
or 30 percent, indicated status as either minority or woman-owned
firms. The strong bidding competition among relatively large firms and
incumbent paging companies, however, may have been a factor in the lack
of designated entities among the winning bidders. These results have
caused us to reexamine some of the auction rules and designated entity
provisions previously adopted in the Third Report and Order. In
addition, we request comment on a number of possible further changes in
the designated entity provisions that might apply to the upcoming MTA
and BTA auctions.
II. Auction Design
A. Bidding Procedures
5. In the Third Report and Order, the Commission noted its earlier
findings: (1) That licenses with strong value interdependencies should
be auctioned simultaneously, (2) that multiple round auctions will
generally yield more efficient allocations of licenses and higher
revenues than other auction methodologies because they provide bidders
with information regarding other bidders' valuations of licenses, and
(3) that simultaneous multiple round auctions become less cost
effective as the value of licenses decreases, because they are
relatively time-consuming and expensive to implement.\4\ The Commission
stated that where the licenses to be auctioned are interdependent and
their value is expected to be high, simultaneous multiple round
auctions would best achieve the Commission's goals.\5\ We stated,
however, that we might use methods other than simultaneous multiple
round bidding in cases where license values are expected to be
relatively low, where bidder participation is expected to be limited,
or where the interdependence of licenses is less significant.\6\ We
stated that in selecting the auction method for each narrowband PCS
auction, we would balance the advantages of more sophisticated auction
methods, such as simultaneous multiple round bidding, with the greater
complexity and cost they might entail.\7\
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\4\Third Report and Order at 12.
\5\Id. at 13.
\6\Id. at 20.
\7\Id.
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6. In the Third Report and Order the Commission decided to auction
the 12.5 kHz unpaired MTA and BTA response channel licenses in a single
round sealed bid auction because the value of those licenses is low
relative to the cost of conducting more complex auctions. We also
stated that because only incumbent paging licensees already serving the
license area are eligible to bid on these licenses, sealed bid auctions
might help to reduce the likelihood of collusion. We further stated
that information about license values from earlier narrowband auctions
would also be available to assist bidders in valuing these licenses.
Moreover, because under the sealed bid approach bidders cannot be
certain that they will be the high bidder on the licenses they seek to
obtain, we allowed bidders to bid without risking a default penalty on
more than the two licenses in each service area, provided they specify
in advance the order in which they wish to be awarded such licenses if
they are the high bidder on more than they are permitted to hold.\8\
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\8\Id. at 29.
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7. Petitions. Paging Network, Inc. (PageNet) and Tri-State Radio
Co. (Tri-State) seek reconsideration of the decision to use single
round sealed bid auction procedures for assignment of the 12.5 kHz
unpaired licenses.\9\ PageNet and Tri-State assert that the Commission
has underestimated the likely value of the response channel
licenses.\10\ PageNet and Tri-State also assert that great value
interdependence exists among the response channel licenses.\11\ They
state that there are likely to be numerous bidders for most
licenses.\12\ In this regard, PageNet claims that collusive behavior is
no more likely for these licenses than for other narrowband PCS
licenses. PageNet and Tri-State question whether bidders for response
channel licenses will obtain useful information about license values
from previous narrowband PCS auctions. PageNet asserts that license
values will vary from one provider and area to another, and that
bidders may have no realistic idea as to the value of the licenses.\13\
PageNet claims that the single sealed bid mechanism will require
exorbitantly expensive market research on the part of bidders, and the
result will still depend on chance.\14\ Further, PageNet states that it
is important to choose an auction method which provides useful
information on license values to bidders during the auction. Therefore,
PageNet supports adopting an alternative auction method that is
streamlined to minimize cost and complexity, and recommends an
ascending bid multiple round methodology.\15\
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\9\PageNet Petition at 2; Tri-State Petition at 3.
\10\PageNet Petition at 2; Tri-State Petition at 7.
\11\PageNet Petition at 5; Tri-State Petition at 3.
\12\PageNet Petition at 10; Tri-State Petition at 8.
\13\PageNet Petition at 5.
\14\Opposition of PageNet at 3.
\15\PageNet reserves comment on more specific procedures pending
conclusion of the nationwide narrowband PCS and Interactive Video
and Data Service (IVDS) auctions. Id. at 6.
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8. Tri-State claims that the rules mandating single round sealed
bidding are deficient from an auction design perspective. Tri-State
asserts that these rules are poorly structured to allow bidders to
obtain a common frequency across regions, and that under the rules
bidders cannot know how to prioritize their bids. Tri-State further
claims that the sealed bidding procedures require exceedingly
complicated bidding strategies, which necessitate the adoption of a
clear reallocation mechanism for defaulted licenses. Alternatively,
Tri-State recommends a procedure in which bidders submit sealed bids
for a given MTA or BTA without specifying which of the available
frequencies the bidder is bidding on. Under Tri-State's recommended
approach, winning bidders would be ranked for purposes of frequency
selection according to the total amount they bid for all the channels
on which they hold winning bids. Tri-State claims that this procedure
maximizes the number of multiple MTA/BTA bidders who can obtain a
common paging response channel in all markets in which they bid.\16\
Tri-State argues that its proposed auction procedures will level the
playing field between bidders for paging response channels and those
for regional and nationwide narrowband PCS authorizations, who do not
need to aggregate a common frequency across geographic areas.\17\ Tri-
State includes a 25 percent bidding credit for minority- and female-
owned businesses and small businesses, and states that its plan could
be refined by providing that winning bidders pay the highest losing bid
for a license.\18\ Tri-State asserts that its proposed auction
procedures will ensure that the Commission maximizes revenues from
paging response license auctions and allow bidders to set priorities
more accurately and to adopt relatively simple bidding strategies.\19\
AirTouch recommends multiple round simultaneous auctions, and suggests
that bids for the response channels be in pool form, such that the
highest four bidders would receive a license and could agree among
themselves as to the licenses to be held by each.\20\ American Paging,
Inc. (API) supports multiple-round ascending simultaneous bidding
methodologies, at least for the MTA response channel licensing.\21\
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\16\Tri-State Petition at 12-16.
\17\Id. at 17.
\18\Id. at 18-20.
\19\Id. at 21.
\20\Opposition of AirTouch at 7-8.
\21\Reply of API at 2.
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9. Discussion. Petitioners have convinced us that paging response
channel licenses may have more value interdependency, and higher value,
than was apparent at the time of the Third Report and Order. We also
recognize that alternative auction methodologies proposed by
petitioners may offer a low-cost auction method with desirable
characteristics for auctioning interdependent licenses, and thus may
prove superior to the sealed bid approach set forth in the Third Report
and Order. In addition, the recent nationwide narrowband auction
demonstrated that simultaneous multiple round auctions are easier and
less expensive to implement than we earlier anticipated, and thus they
may prove to be an appropriate procedure for auctioning the response
channel licenses. However, we will defer our decision regarding the
auction design for the 12.5 kHz MTA and BTA paging response channels
until we have gained further experience with simultaneous multiple
round auctions. We will announce our final choice of auction design and
procedures for the response channels by Public Notice prior to the
auction.
B. Minimum Opening Bid
10. In the Third Report and Order, we stated that we believe it is
necessary to impose a minimum bid increment to ensure that the auctions
conclude within a reasonable period of time in narrowband PCS auctions
where simultaneous multiple round bidding is used. The bid increment is
the amount or percentage by which the bid must be raised above the
previous round's high bid in order to be accepted as a valid bid in the
current round. We stated that we might impose a minimum bid increment
of 5 percent or $0.01 per MHz per pop, whichever is greater, in
narrowband PCS auctions where multiple round bidding is used. We also
retained the discretion to vary the minimum bid increments for
individual licenses or groups of licenses over the course of an
auction.\22\
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\22\Third Report and Order at 30-32.
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11. In order to expedite the auction process further, we also
reserve the discretion to establish a suggested opening bid or a
minimum opening bid on each license in addition to the minimum bid
increment.\23\ If we were to adopt minimum opening bids, we anticipate
that we would seek expedited comments on any figures proposed. Once a
minimum bid is established for a license, initial bids will have to be
above that level to be considered valid. The amount of the suggested
opening bid or the minimum opening bid, if one is used, will be set
forth in the Public Notice announcing the auction. Generally, we will
establish suggested opening bids or minimum opening bids in the range
of $.03-$.20 per MHz-pop for each license.\24\ A suggested opening bid
or minimum opening bid will provide bidders with an incentive to start
bidding at a substantial portion of the license value, thus ensuring a
rapid conclusion to the auction.
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\23\See ex parte submission of Paul Milgrom, May 19, 1994 and
Fifth Report and Order 45, in PP Docket 93-253, FCC No. 94-178, 59
FR 37566 (Jul 29, 1994), (Fifth Report and Order).
\24\The number of ``MHz-pops'' is calculated by multiplying the
population of the license service area by the amount of spectrum
authorized by the license. In its September 1993 Mid-Session Review
of the 1994 Budget, the Office of Management and Budget estimated
that spectrum auctions would generate $12.6 billion from 1994
through 1998. A 1992 report by the Congressional Budget Office
assumed that $2 billion would be raised from competitive bidding in
services other than PCS. Thus, the approximate value of 120 MHz of
PCS spectrum is placed at $10.6 billion according to these
estimates, or 35 cents per pop per MHz.
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C. Activity and Stopping Rules
12. In the Third Report and Order, we stated that when we use the
three-stage Milgrom-Wilson activity rule, the auction will move from
stage I to stage II when, after three rounds of bidding, the high bid
has changed on 5 percent or fewer of the licenses (measured in MHz-
pops) being auctioned. Stage III will begin when the high bid has
changed on 2 percent or fewer licenses over three rounds.\25\ We
conclude after our experience in conducting the nationwide narrowban
auction that we may find it important to move the auctions from one
stage to the next at a different pace than would occur under this rule.
Accordingly, we retain the discretion to determine and announce during
the course of an auction when, and if, to move from one auction stage
to the next, based on a variety of measures of bidder activity, (e.g.,
the percentage of licenses on which there are new bids, the number of
new bids, and the percentage increase in revenue). Bidders will be
notified at least one round prior to the commencement of the next stage
of an auction.
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\25\Third Report and Order at n. 16.
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13. We also stated that in stage III, a bidder would have to be
active on 100 percent of the MHz-pops for which it wishes to retain
eligibility.\26\ In order to allow bidders greater flexibility, we
think that it may be beneficial in some auctions to reduce this figure
slightly, but in no case below 90 percent. We will announce the
required activity levels for stage III in a Public Notice in advance of
each auction.
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\26\See Third Report and Order 38.
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14. In the Third Report and Order, we stated that where we use the
Milgrom-Wilson activity rule we intend to use a simplified waiver
procedure whereby bidders will be permitted five automatic waivers from
the activity rule during the course of an auction.\27\ A waiver permits
a bidder to maintain its eligibility at the same level as in the round
for which the waiver is submitted, regardless of the bidder's level of
bidding activity in that round. Subsequently, we have concluded based
on our experience in conducting the nationwide narrowband auction that
fewer waivers may be necessary to maintain the pace of the auction and
prevent strategic use of waivers. Consequently, we will allow one
automatic waiver from the activity rule during each stage of an
auction, or one automatic waiver during a number of bidding rounds
specified in a Public Notice. We retain the flexibility, however, to
change by Public Notice the number of waivers that will be permitted
and the frequency with which they may be exercised by public notice
prior to a specific narrowband auction. While we may allow bidders to
request proactive waivers that will keep the bidding open, under no
circumstances will an automatic waiver prevent an auction from closing.
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\27\Third Report and Order at 40.
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15. In the Second Report and Order, we retained the discretion to
declare by announcement at any point during a multiple round auction
that the auction will end after a specified number of additional
rounds.\28\ We want to clarify however, that if this procedure is used,
we will accept bids in the final rounds only for licenses on which the
highest bid increased in at least one of the preceding three rounds. No
new bids will be accepted for other licenses.\29\ There are two reasons
not to take bids on licenses on which there has been no recent bidding.
First, the fact that bidding on an individual license may close will
provide an additional incentive to bid actively and thus speed the
conclusion of the auction. If bids are accepted on all licenses in the
final rounds there is less cost to a bidder in holding back. Second,
closing bidding on licenses for which activity has ceased ensures high
bidders for those licenses that they will not lose a license without
having an opportunity to make a counter-offer.\30\ This reduces the
uncertainty associated with aggregating licenses that are worth more to
a particular bidder as a package than individually. If final bids are
accepted on all licenses, a high bidder on an aggregation of licenses
may unexpectedly lose a critical part of the aggregation and have no
chance to regain it except in the post-auction market, where bargaining
or other transaction costs may be high.
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\28\Second Report and Order at 132.
\29\See reply comments of PacBell, appendix to attachment by
Milgrom and Wilson at 5. See also Second Report and Order at 130,
n.106.
\30\Either the auction will close only when bidding ceases on
all licenses, so the high bidder will have an opportunity to respond
to any new bids, or the Commission will call for final bids but not
accept new bids on licenses on which there have been no new bids in
the previous three rounds, so no other bidder will have the
opportunity to outbid the high bidder in a final round.
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D. Release of Bidder Information
16. We note that in the reconsideration of the Second Report and
Order we reserved additional flexibility with respect to the
requirement to release information concerning the identity of bidders,
which may affect auctions for narrowband PCS licenses. In the Second
Memorandum Opinion and Order\31\ we reserved the option to release
bidder identities on an auction-by-auction basis, and stated that we
would announce by Order and Public Notice prior to each auction whether
the identities of bidders would be made public in that auction.\32\ In
this regard, we retain the flexibility in the context of narrowband PCS
auctions to determine on an auction-by-auction basis whether or not to
release bidder identities during the course of the auction.
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\31\Second Memorandum Opinion and Order at 46, in PP Docket No.
93-253, FCC No. 94-215, released Aug 15, 1994, (Second Memorandum
Opinion and Order).
\32\Second Memorandum Opinion and Order at 46, in PP Docket No.
93-253, FCC No. 94-215, released Aug 15, 1994, (Second Memorandum
Opinion and Order).
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E. Filing Procedures
17. Petition. Phase One asserts that the Communications Act permits
the FCC to employ competitive bidding procedures only where mutual
exclusivity exists, and that consequently the FCC is prohibited from
establishing specific auction dates until it has determined that a
particular application is mutually exclusive with another.\33\ Phase
One states that the FCC must first notify each qualified applicant of
its application processing status in advance of scheduling auctions to
allow applicants sufficient time to analyze auction strategies and
evaluate the competition.\34\ Phase One also states that the FCC is
obligated to suspend its auctions until each petition in PP Docket No.
93-253 has been addressed.\35\ Phase One states that our contractor,
Tradewinds International, Inc. (Tradewinds) must be prevented from
promoting FCC auctions. Because there can be no auctions without mutual
exclusivity, according to Phase One the advertising by Tradewinds
amounts to false and misleading advertising and raises conflict of
interest questions because Tradewinds may benefit if auctions are
actually held.\36\
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\33\Phase One Petition at 2.
\34\Id. at 3.
\35\Id. at 5.
\36\Id. at 5-6.
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18. AirTouch Paging (AirTouch) asserts in opposition that the
Communications Act only prohibits auctioning of a license for which no
mutually exclusive applications have been accepted for filing, and not
the establishment of auction dates. In fact, AirTouch notes that
mutually exclusive applications were received for each of the
nationwide narrowband PCS licenses.\37\ PacBell states that there is no
legal basis for Phase One's argument that the Commission must delay
announcing auction dates until mutual exclusivity has been
established.\38\
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\37\Opposition of Airtouch at 4.
\38\Opposition of PacBell at 8.
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19. Discussion. The Budget Act provides that if applications are
not mutually exclusive no auction will be held.\39\ We have found,
however, that it is important to begin planning for auctions as early
as possible to assure that they will run smoothly. To maintain an
expeditious auctioning and licensing schedule it is necessary, for
instance, to reserve sites for auctions before all applications have
been received. Further, we believe that it is important that we
schedule auctions far enough in advance to provide applicants with
ample time to attract financing and plan their bidding strategies. In
any event, we have previously indicated that we will cancel a scheduled
auction if we do not receive mutually exclusive applications.\40\
Consequently we believe that our auction schedule and procedures are
fully consistent with the provisions of the Budget Act.
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\39\47 U.S.C. Sec. 309(j)(1).
\40\See Second Report and Order at 165. In fact, 29 applicants
are eligible to bid for nationwide narrowband PCS licenses; at least
24 applicants are eligible to bid on each of the ten licenses. Thus,
mutual exclusivity exists for all nationwide narrowband licenses,
and Phase One's petition is moot on this point.
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20. We find advertising of auctions desirable and in the public
interest, even if, because of lack of mutual exclusivity, no auction
takes place for some licenses. Among its other beneficial effects,
advertising of auctions may be essential for making potential
licensees, and in particular designated entities, aware of the
opportunities available to them. In order to make service available as
rapidly and efficiently as possible, we must ensure that those who
value the license most highly, and will offer the services most valued
by the public, have an opportunity to bid on them. Mutual exclusivity
cannot be established until applications have been received, and at
that point advertising will no longer be useful because the purpose of
advertising is to inform potential licensees of the opportunity to file
applications. Consequently, we retain our existing filing procedures
and continue to permit our contractor to advertise auctions even before
mutual exclusivity has been established.\41\
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\41\In this regard we also note that since we find that
advertising auctions is in the public interest, no conflict of
interest exists between Tradewinds' interests and the Commission's.
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F. Application-Processing Rules
21. In the NPRM in this proceeding, the Commission stated: In order
to avoid needless duplication, we propose that the following general
filing and processing rules apply to all PCS: Sections 22.3-22.45 and
22.917(f), and 22.918-22.945, 47 CFR Secs. 22.3-22.45, 22.917(f), and
22.918-22.945. For those PCS applicants who file on Form 574, we
believe that Secs. 90.113-90.159 of our rules, 47 CFR Secs. 90.113-
90.159, could be used to process those applications with appropriate
modifications.\42\
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\42\NPRM, 58 FR 53489 (Oct. 15, 1993) at 128.
22. Petition. AIDE asserts in its petition for reconsideration of
the Second Report and Order that the Commission acted improperly in
proposing substantive PCS application-processing rules in the NPRM
because, it argues, such rules are outside the scope of this
rulemaking, which is limited to implementation of the competitive
bidding requirements of Sec. 309(j) of the Communications Act.\43\ AIDE
argues that the Commission's proposal of application-processing rules
is legally insufficient to constitute a valid notice of proposed rules,
and that some of the rules cited have no immediate applicability to PCS
service. AIDE asserts that in the Second Report and Order the
Commission failed to respond to the merits of the arguments concerning
filing and processing rules in AIDE's comments on the NPRM. AIDE
concludes that the Commission needs to issue a supplemental Notice of
Proposed Rulemaking to adopt license-processing rules for PCS. PacBell
states, however, that the Administrative Procedure Act does not
prohibit the Commission from issuing more than one order based on a
notice and comment period.\44\ PacBell also states that there is an
exception to the Administrative Procedure Act's notice and comment
requirements ``when the agency for good cause finds (and incorporates
the finding * * * in the rules issued) that notice and public procedure
thereon are impracticable, unnecessary, or contrary to the public
interest.''\45\
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\43\AIDE Petition at 20-21.
\44\PacBell Opposition at 10.
\45\Id. at 11, citing 5 U.S.C. Sec. 553(c).
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23. Discussion. The Commission adopted few filing or processing
rules in the Second Report and Order. Those rules that the Commission
did adopt pertaining to the filing and processing of applications and
certifications were clearly proposed in the NPRM.\46\ In the Second
Memorandum Opinion and Order we stated that we would address AIDE's
concerns in the reconsiderations of the service-specific Orders in
which the application processing rules were adopted. In the Third
Report and Order, we adopted the service-specific narrowband PCS
application processing rules to which AIDE's petition refers and thus,
we address the substance of AIDE's arguments below.
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\46\See Second Report and Order at 164-168, NPRM at 96-101.
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24. The competitive bidding process is a means of assigning
licenses, and rules and procedures for processing of license
applications are an integral and necessary part of that process. By
citing in the NPRM the specific Part 22 and Part 90 application
processing rules that we would use as the basis for adopting PCS rules,
we provided commenters with exceptionally clear notice and an
opportunity to comment on the rules we contemplated adopting for
narrowband PCS. The few changes that we made from the proposed rules
were necessary to adapt them to auctioning narrowband PCS licenses. For
example, we adopted certain technical requirements such as restrictions
on station antenna structures.\47\ We also deleted any procedures that
were related to grants by random selection.\48\ The resulting rules are
clearly a logical outgrowth of the rules proposed in the NPRM, applied
in the context of the use of competitive bidding to assign narrowband
PCS licenses. Rules adopted as a logical outgrowth comply with all
Administrative Procedure Act requirements.\49\
\47\47 CFR 24.416.
\48\47 CFR 22.33.
\49\Public Service Commission of the District of Columbia v.
FCC, 906 F.2nd 713, 717 (D.C. Cir. 1990).
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III. Rules Prohibiting Settlements and Collusion
25. Petitions and Oppositions. The collusion rules adopted in the
Third Report and Order prevent bidders for narrowband PCS licenses from
entering into settlement agreements after applications are filed. AIDE
asserts that narrowband bidders should be allowed to enter into
settlement agreements, as encouraged by Sec. 24.429(b), and asserts
that the Commission's decision to avoid post-filing settlements was
impermissibly based on consideration of potential revenues. Quentin L.
Breen (Breen) urges us to act on AIDE's petition to liberalize
treatment of full market settlements. Breen states that the Budget Act
does not relieve the Commission of its obligation in the public
interest to continue to use means such as negotiation to avoid mutual
exclusivity, nor does the Act oblige us to adopt anti-collusion
regulations. Instead of permitting applicants to avoid the
uncertainties and inefficiencies of the auction process, Breen states
that the rules effectively mandate that parties will go to end of the
auction without being able to consider settlement.\50\ PageNet,
conversely, urges the Commission to prohibit any settlement
negotiations during the competitive bidding process.\51\ According to
PageNet, there is no way for mutually exclusive applicants to come to
an agreement on settlement without exchanging the same kinds of
information that would be exchanged for the formation of collusive
strategies in auction bidding. Accordingly, PageNet asserts that
settlement discussions should be prohibited prior to selection of a
winner from among the Form 175 applicants.\52\ Furthermore, PageNet
contends, that there is little likelihood of an all-market settlement
in any given market, because if any one applicant declines to settle,
the settlement is defeated.\53\
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\50\Breen Opposition at 1-4.
\51\PageNet Opposition at 20-26.
\52\Id. at 22 & n.11.
\53\Id. at 24.
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26. Discussion. As stated in our reconsideration of the Second
Report and Order, we have decided to retain the existing collusion
rules, to the extent that they prevent settlements after applications
are filed.\54\ These rules were designed to avoid formation of
anticompetitive agreements among bidders, although we intend to
continue reliance on the antitrust laws as our primary method of
avoiding bidder collusion.\55\ As we indicated in the Second Report and
Order, we believe that our rules prohibiting collusion will serve the
objectives of the Budget Act by preventing applicants, especially the
largest companies, from entering into agreements to use bidding
strategies that divide the market to the disadvantage of other
bidders.\56\ We also seek to ensure that entities will not file
applications solely for the purpose of demanding payment from other
bidders in exchange for settlement or withdrawal of their applications.
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\54\See Second Memorandum Opinion and Order at 54.
\55\See Second Report and Order, 221-224.
\56\Id.
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27. Accordingly, to ensure that the bidding process is competitive
and to encourage formation of a competitive post-auction market
structure, we are retaining the collusion rules in the narrowband PCS
context.\57\ Furthermore, to make clear that we recognize that these
rules effectively prohibit post-filing settlements, we are amending our
rules to eliminate Section 24.429(b). We believe that this is the most
straightforward approach, given our strong concerns that collusion
could have an extremely harmful impact upon competition.
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\57\See id., 223.
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28. However, in order to provide bidders sufficient time and
greater flexibility to attract capital, we make several modifications
to our collusion rules adopted in the Third Report and Order. First, in
the Second Memorandum Opinion and Order, we clarified the applicability
of the collusion rules to cases where an applicant has a common
ownership interest with another applicant.\58\ In that item we stated
that, unless the second applicant is expressly identified as an entity
with whom the first applicant has an agreement concerning bidding, we
will prohibit these parties from communicating concerning their bidding
strategies. This prohibition will hold even if the other bidder is
identified on the applicant's short-form application as having a common
ownership interest with the applicant.
---------------------------------------------------------------------------
\58\Second Memorandum Opinion and Order at 55.
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29. Furthermore, where common non-controlling ownership exists
between two or more bidders, those bidders may win more licenses
cumulatively than a single entity is entitled to hold. In such cases we
will permit divestiture of non-controlling interests to bring the
entities into compliance with the license aggregation limits provided
such divestiture is completed within 90 days of grant of the license.
Such post-auction divestiture will enable investors to finance more
than one bidder without risking default penalties if both bidders win
licenses which in combination exceed our aggregation limits.
30. In addition, we wish to modify our rules regarding amendments
to short-form applications. Section 24.413 of the Commission's rules
requires all applicants to list certain ownership information including
all partners, subsidiaries, affiliates and all persons holding five
percent or more of the stock, warrants, options or debt securities of
the applicant. Section 24.422(b) currently prohibits amendments to the
short-form application to make ownership changes or changes in the
parties to bidding consortia after the application filing deadline has
passed. As a result of our experience in the nationwide narrowband PCS
auction we believe that it is necessary to allow applicants to amend
their FCC Form 175 applications to make ownership changes after the
filing deadline has passed, provided such changes do not result in a
change in control of the applicant and provided that discussions
leading up to such changes do not violate our anti-collusion rules.
Such amendments must be made within two business days of any such
change. Permitting such amendments will provide bidders with
flexibility to seek additional capital after applications have been
filed, while ensuring that the real party in interest does not change.
Accordingly, we will modify rule 24.422(b) to permit applicants to
amend their FCC Form 175 applications to reflect ownership changes that
do not result in a change in control of the applicant. Such changes
shall not be regarded as major amendments to an application, provided
they do not result in a transfer of control of the applicant.
31. In addition, we are modifying our collusion rules, which
currently prohibit bidders from communicating with one another after
short form applications have been filed regarding the substance of
their bids or bidding strategies and which also prohibit bidders from
entering into consortia arrangements or joint bidding agreements of any
kind after the deadline for short form applications has passed. In
order to permit bidders to respond to higher than expected license
prices by combining their resources during an auction, we will now
permit bidders who have not filed Form 175 applications for any of the
same licenses to engage in discussions and enter into bidding consortia
or joint bidding arrangements during the course of an auction. We
conclude that where bidders have not applied for any of the same
licenses there is little risk of anticompetitive conduct with respect
to a single license and therefore we believe that it is appropriate to
relax our collusion rules to permit bidders in this context to have
greater flexibility to increase their competitiveness in the auction by
combining their resources, provided that no change of control of any
applicant takes place.
IV. Paging Response Channel Eligibility
32. Mercury submitted a request for clarification that non-
incumbent paging licensees will be permitted to apply for only those
narrowband paging response channel licenses that remain available after
the initial response channel auctions. Eligibility requirements for
these channels were adopted in GEN Docket No. 90-314, and therefore we
will address this issue as part of the further reconsideration of the
narrowband PCS service rules in that docket and in ET Docket No. 92-
100.
V. Designated Entity Provisions
33. Background. In the 1993 Omnibus Budget Reconciliation Act,
Congress amended the Communications Act to require the Commission to
ensure that small businesses, rural telephone companies, and businesses
owned by women and minority group members (designated entities) would
have an opportunity to obtain licenses and participate in offering
spectrum-based services.\59\ We considered numerous alternatives that
might ensure opportunities for these designated entities, including
installment payment plans, bidding credits, spectrum set-asides, tax
certificates, royalty payments, innovator's preferences, and distress
sales to designated entities.\60\ After considering the characteristics
of the narrowband PCS service, we ultimately adopted installment
payments for small businesses acquiring certain regional, MTA or BTA
licenses.\61\ We also provided that a 25 percent bidding credit would
be available to businesses owned by minorities and/or women on certain
nationwide, regional, MTA and BTA licenses.\62\ Both installment
payments and bidding credits were made available to small businesses
owned by minorities and/or women. In addition, we provided that tax
certificates would be made available to encourage investment in women-
and minority-owned businesses.\63\ Our rules, however, did not permit
rural telephone companies to obtain bidding credits or installment
payments unless they also qualified as small businesses or businesses
owned by minorities and/or women.\64\
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\59\See Omnibus Budget Reconciliation Act of 1993, Pub. L. No.
103-66, Title VI, Sec. 6002(a), 107 Stat. 312, 387-389, (1993)
(Budget Act) (adopting 47 U.S.C. Secs. 309(j)(3)(B), 309(j)(4)(D)).
\60\See Second Report and Order, 231-257.
\61\See Third Report and Order, 68, 86-89.
\62\Id., 72.
\63\Id., 68, 70, 72-85.
\64\As discussed further infra, these rules were based on the
rationale that rural telephone companies do not face special
barriers to entry into this service, nor are special accommodations
necessary to ensure service in rural areas. See Third Report and
Order, 71, 76. We concluded in the Third Report and Order, that,
given the relatively modest construction costs for narrowband PCS,
even new entrants may choose to provide service to rural areas, and
special provisions are not necessary to ensure that rural telephone
companies will have the opportunity to participate in provision of
service to rural areas. Id., 71. We noted that women, minorities,
and small businesses, in contrast, may face particular financing
obstacles that require additional provisions to ensure that they
have an opportunity to participate in providing narrowband PCS. Id.,
72, 76.
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34. Petitions. Three petitions assert that provisions made
available for various designated entities, such as bidding credits,
installment payments and tax certificates, should also be made
available to all designated entity groups, and for all narrowband PCS
licenses. The Association of Independent Designated Entities (AIDE)
suggests that bidding credits, currently available for all businesses
owned by minorities Pand/or women, should be granted to all small
businesses and rural telephone companies, for all narrowband PCS
licenses.\65\ AIDE reasons that even if bidding credits are not
appropriate for small businesses applying for nationwide licenses
(because small businesses can not afford to construct nationwide
narrowband PCS systems), the Commission should nevertheless permit
small businesses to obtain bidding credits for the smaller,
geographically limited narrowband licenses.\66\ AIDE also states that
the decision to limit installment payments to certain licenses was
impermissibly based on maximizing auction revenues.\67\
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\65\AIDE Petition at 14-18.
\66\AIDE Petition at 16-17.
\67\Id. at 18-19.
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35. U.S. Intelco Networks, Inc. (USIN) and the Rural Cellular
Association (RCA) assert that the failure to provide any narrowband
provisions for rural telephone companies violates the Budget Act\68\
and ensures that narrowband PCS will be unavailable in rural areas.\69\
RCA states that rural telephone companies should receive bidding
credits and tax certificates.\70\ RCA bases this assertion on the
rationale that providing special bidding provisions for rural telephone
companies would increase the likelihood that narrowband PCS licenses
will be awarded to entities that will provide service to rural
areas.\71\ RCA also notes that the Budget Act directs that the auction
procedures must ensure that licenses for new technologies are awarded
in a manner that promotes their rapid deployment ``for the benefit of
the public, including those residing in rural areas.''\72\
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\68\The Budget Act names rural telephone companies as one of the
groups whose opportunity to participate in auctioned services must
be ensured by our auction procedures. See Budget Act, Sec. 6002, 107
Stat. 388 (adopting 47 U.S.C. Sec. 309(j)(3)(B) and 309(j)(4)(D)).
\69\See USIN Petition at 1-8, RCA Petition at P2-9.
\70\RCA Petition at 9.
\71\RCA Petition at 2.
\72\Id. (quoting 47 U.S.C. Sec. 309(j)(3)(A)).
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36. Oppositions. PageNet states that no additional measures should
be taken with respect to participation of rural telephone companies or
small businesses in narrowband PCS auctions.\73\ As to the availability
of provisions for women and minority-owned businesses for only one
license per channel grouping, PageNet notes that licenses with bidding
credits comprise 37 percent of regional licenses and almost 45 percent
of the available narrowband spectrum, thus earmarking a good deal of
spectrum for designated entities.\74\ PageNet states that small
businesses have always had ample opportunities in paging, and thus
there is no reason to grant them special consideration.\75\ We also
request comment on a proposal to redesignate the BTA licenses as
regional licenses.
---------------------------------------------------------------------------
\73\PageNet Opposition at 12-15.
\74\Id. at 14.
\75\Id. at 14-15.
---------------------------------------------------------------------------
37. Decision. We have decided, in response to petitions and to our
experience with the nationwide narrowband auction, to expand the
provisions for designated entities in future narrowband auctions.
First, we will modify the definition of small business to expand
eligibility. Second, for the upcoming regional narrowband auctions we
will increase the bidding credit for women- and minority-owned
businesses.
38. 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.''\76\ To achieve this
goal, the statute requires the Commission to ``consider the use of tax
certificates, bidding preferences, and other procedures.'' Thus, while
providing that we may charge for licenses, Congress has ordered that
the Commission design its auction procedures to ensure that designated
entities have opportunities to obtain licenses and provide service. For
that purpose, the law does not mandate the use of any particular
procedure but it specifically approves the use of ``tax certificates,
bidding preferences, and other procedures.'' The use of any such
procedure is, in our view, mandated where necessary to achieve
Congress's objective of ensuring that designated entities have the
opportunity to participate in narrowband PCS.
---------------------------------------------------------------------------
\76\47 U.S.C. Sec. 309(j)(4)(D).
---------------------------------------------------------------------------
39. In addition to this mandate, the statute sets forth various
congressional objectives. For example, it provides that in establishing
eligibility criteria and bidding methodologies the Commission shall
``promot[e] economic opportunity and competition and ensur[e] that new
and innovative technologies are readily accessible to the American
people 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.''\77\ Further, Section
309(j)(4)(A) provides that to promote the statute's objectives the
Commission shall ``consider alternative payment schedules and methods
of calculation, including lump sums or guaranteed installment payments,
with or without royalty payments, or other schedules or methods * * *
and combinations of such schedules and methods.''
---------------------------------------------------------------------------
\77\47 U.S.C. Sec. 309(j)(3)(B); see also id. Sec. 309(j)(4)(C)
(requiring the Commission when prescribing area designations and
bandwidth assignments, to promote ``economic opportunity for a wide
variety of applicants, including small businesses, rural telephone
companies, and businesses owned by members of minority groups and
women). As noted in the Second Report and Order, the statute also
requires the Commission to promote the purposes specified in Section
1 of the Communications Act, which include, among other things, ``to
make available, so far as possible, to all the people of the United
States a rapid, efficient, Nationwide, and world-wide wire and radio
communication service with adequate facilities at reasonable
charges.'' 47 U.S.C. Sec. 151; Second Report and Order at n.3.
---------------------------------------------------------------------------
40. To satisfy these statutory mandates and objectives, we
established in the Second Report and Order eligibility criteria and
general rules to govern the special measures for small businesses, and
businesses owned by members of minority groups and women. In the Third
Report and Order, we employed several measures, including installment
payments, bidding credits and tax certificates, to enhance
opportunities for designated entities bidding on certain narrowband PCS
licenses. We stated that we believed that narrowband PCS would provide
significant opportunities for all designated entities to provide a wide
variety of new services including advanced paging and messaging
services. In adopting the particular measures for designated entities,
however, we assumed that narrowband PCS would involve relatively low
capital entry requirements, and would therefore be well-suited to small
entities, which lack access to large amounts of capital.\78\
Accordingly, we found that the measures we selected for narrowband PCS
auctions were appropriately tailored to the unique characteristics of
narrowband PCS and would therefore ``create meaningful incentives for
small businesses and businesses owned by minorities and/or women to
both bid successfully for available licenses and provide innovative and
expeditious service to the public.\79\ In this regard we indicated that
installment payments would provide a significant means for small
businesses to overcome their main barrier to entry: lack of access of
financing. And, a 25 percent bidding credit for minority and women-
owned businesses together with a tax certificate program would address
the additional obstacles faced by those designated entities. We noted,
however, that we would continue to assess the effectiveness of the
measures adopted for narrowband PCS, and would apply any knowledge
gained to subsequent auctions.
---------------------------------------------------------------------------
\78\Third Report and Order at 69.
\79\Id. at 70.
---------------------------------------------------------------------------
41. Our goal in the narrowband personal communications service is
to meet fully the statutory mandate of Section 309(j)(4)(D), as well as
the objectives of promoting economic opportunity and competition, of
avoiding excessive concentration of licenses, and of ensuring access to
new and innovative technologies 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. As explained more fully below, we believe that it is necessary
in some respects to do more to ensure that small businesses and
businesses owned by members of minority groups and women have a
meaningful opportunity to participate in the provision of narrowband
PCS. As a result of our experience in the nationwide narrowband PCS
auction, we are concerned that a 25 percent bidding credit and
installment payments may not be sufficient to ensure the opportunity of
these businesses to compete against the larger, deep pocketed incumbent
firms. Therefore, we have decided to expand the provisions for
designated entities as described below.
A. Definition of Small Business
42. In the Third Report and Order we adopted a definition for small
businesses based on the standard definition used by the Small Business
Administration (SBA). This definition permits an applicant to qualify
for installment payments based on a net worth not in excess of $6
million with average net income after Federal income taxes for the two
preceding years not in excess of $2 million. 13 CFR 121.802(a)(2).\80\
In the Second Memorandum Opinion and Order, we removed our generic
``small business'' definition, which was based on the original SBA size
standard and indicated that we would establish a definition for ``small
businesses'' on a service-specific basis.
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\80\The SBA has recently changed its net worth/net income
standard as it applies to its Small Business Investment Company
(SBIC) Program. See 59 FR 16953, 16956 (April 8, 1994). The new
standard for determining eligibility for small business concerns
applying for financial and/or management assistance under the SBIC
program was increased to $18 million net worth and $6 million after-
tax net income. 13 CFR 121.802(a)(3)(i). The change in this size
standard was attributable to an adjustment for inflation and changes
in the SBIC program ``designed to strengthen and expand the
capabilities of SBICs to finance small businesses so that they can
increase their contribution to economic growth and job creation.''
59 FR at 16955.
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43. Many commenters, including the Chief Counsel for Advocacy of
the SBA, argue that the SBA net worth/net revenue definition is too
restrictive and will exclude businesses of sufficient size to survive,
much less succeed, in the competitive PCS marketplace. The SBA's Chief
Counsel for Advocacy and the Suite 12 Group advocate adoption of a
gross revenue test, arguing that a net worth test could be misleading
as some very large companies have low net worth. The SBA's Chief
Counsel for Advocacy recommends that the revenue standard be raised to
include firms that (together with affiliates) have less than $40
million in gross revenues. Similarly, Suite 12 suggests a $75 million
in annual sales threshold. As another option, the SBA's Chief Counsel
for Advocacy suggests that the Commission consider a higher revenue
ceiling or adopt different size standards for different
telecommunications markets.\81\
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\81\Some parties recommend using the SBA's alternative 1500
employee standard. See, e.g., comments of SBA Associate
Administrator for Procurement Assistance at 2, CFW Communications at
2, and Iowa Network at 17. A number of other commenters, including
the SBA's Chief Counsel for Advocacy, argue, however, that adoption
of this alternative SBA definition would open up a huge loophole in
the designated entity eligibility criteria. Specifically, they
contend that telecommunications is a capital, rather than labor,
intensive industry, and that a entity with 1,500 employees is likely
to be extremely well capitalized and have no need for the special
treatment mandated by Congress in the Budget Act. See, e.g.,
comments of SBA Chief Counsel for Advocacy at 8, LuxCel Group, Inc.
at 4, Suite 12 Group at 10-11.
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44. We now realize that the cost of acquiring a narrowband PCS
license will be significant and bidders may be required to expend
millions of dollars to acquire a license and construct a system in PCS
markets. Thus, we believe that our current narrowband PCS small
business definition is overly restrictive because it would exclude most
businesses possessing the financial resources to compete successfully
in the provision of narrowband PCS services. Accordingly, we modify our
small business definition for narrowband PCS auctions to ensure the
participation of small businesses with the financial resources to
compete effectively in an auction and in the provision of narrowband
PCS services.
45. There is substantial support in the record for a $40 million
gross revenue standard. For example, the SBA recommends that for PCS, a
small business be defined as one whose average annual gross revenues
for its past three years do not exceed $40 million.\82\ It states that
this definition isolates those companies that have significantly
greater difficulty in obtaining capital than larger enterprises. At the
same time, the SBA contends that a company with $40 million in revenue
is sufficiently large that it could survive in a competitive wireless
communications market.\83\ Similarly, the SBA Chief Counsel for
Advocacy asserts that a $40 million threshold will allow participation
by firms ``of sufficient size to meet demands in almost all small
markets and some medium-size markets without significant outside
financial assistance.''\84\
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\82\Ex parte filing of U.S. Small Business Administration, June
24, 1994.
\83\Id.
\84\Comments of SBA Office of Advocacy at 10. Cf. comments of
Iowa Network and Telephone Electronics Corporation (advocating a $40
million annual revenue criterion for telephone companies) and replay
comments of North American Interactive Partners and Kingwood
Associates (advocating $40 million gross-revenue criterion for
applicants for the fifty most-populous BTAs, based on estimated
average build-out cost).
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46. For purposes of narrowband PCS, we shall therefore define a
small business as any firm, together with affiliates and certain large
investors, with average gross revenues for the three preceding years of
less than $40 million.\85\ In addition, an applicant will not qualify
as a small business if any one attributable investor in, or affiliate
of, the entity has $40 million or more in personal net worth.\86\ To
ensure that only bona fide small businesses in need of government
financing are eligible, we will consider the gross revenues of the
applicant, its affiliates, as well as those of ``attributable''
investors on a cumulative basis. The text that follows discusses what
interests are attributable for these purposes. In addition, it sets
forth exceptions to these attribution rules for minority and women-
owned applicants.
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\85\The establishment of small business size standards is
generally governed by Section 3 of the Small Business Act of 1953,
as amended, 15 U.S.C. Sec. 642(a). Recent amendments to that statute
provide that small business size standards developed by Federal
agencies must be based on the average annual gross revenues of such
business over a period of not less than three years. See Pub. L. No.
102-366, Title II, Sec. 222(a), 106 Stat. 999 (1992); 15 U.S.C.
Sec. 632(a)(2)(B)(ii).
\86\Unlike our proposed eligibility criteria to bid in the
entrepreneurs' blocks, described below, the small business
definition does not include a total assets standard. We believe that
the $40 million gross revenue cap for small businesses should be
sufficient to ensure that only bona fide small businesses are able
to take advantage of the measures intended for them.
---------------------------------------------------------------------------
47. Qualified ``Small Businesses''. As a general rule, the gross
revenues of all investors in, and affiliates of, an applicant are
counted on a cumulative, fully-diluted basis for purposes of
determining whether the $40 million gross revenue threshold has been
exceeded, and on an individual basis regarding the $40 million personal
net worth standard.\87\ There are two exceptions to this rule, however.
First, applicants that meet the definition of a small business may, as
discussed below, form consortia of small businesses that, on a
aggregate basis, exceed the gross revenue cap. Second, the gross
revenues, personal net worth, and affiliations of any investor in the
applicant are not considered so long as the investor holds 25 percent
or less of the applicant's passive equity. For corporations, we shall
use the term passive equity investors to mean investors who hold only
non-voting stock or voting stock that includes no more than 15 percent
of the voting interests. Where different classes of stock are held,
however, the total amount of equity must still be no more than 25
percent to meet this requirement. For partnerships, the term means
limited partnership interests that do not have the power to exercise
control of the entity.\88\ The passive investor exception will be
available, however, only so long as the applicant remains under the
control of one or more entities or individuals (defined as the
``control group'') and the control group holds at least 25 percent of
the applicant's equity and, in the case of corporate applicants, at
least 50.1 percent of the voting stock.\89\ In the case of partnership
applicants, the control group must hold all the general partnership
interests. Winning bidders are required to identify on their long-form
applications the identity of the members of this control group and the
means of ensuring control (such as a voting trust agreement). The gross
revenues of each member of the control group and each member's
affiliates will be counted toward the $40 million gross revenues
threshold and applicants shall certify that each control group member
meets the individual $40 million personal net worth standard,
regardless of the size of the member's total interest in the applicant.
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\87\By ``fully-diluted,'' we mean that agreements such as stock
options, warrants and convertible debentures will generally be
considered to have a present effect and will be treated as if the
rights thereunder already have been fully exercised.
\88\Applicants must be prepared to demonstrate that the limited
partners do not have influence over the affairs of the applicant
that is inconsistent with their roles as passive investors. For
purposes of our rules, we presume that any general partner has the
power to control a partnership. Therefore, each general partner in a
partnership will be considered part of the partnership's control
group.
\89\So long as the applicant remains under de jure and de facto
control of the control group, we shall not bar passive investors
from entering into management agreements with applicants.
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48. The attribution levels we have selected here are intended to
balance the competing considerations that apply in this particular
context and may differ from those we have used in other circumstances.
As a general matter, the 25 percent limitation on equity investment
interests will serve as a safeguard that the very large entities who
are excluded from bidding in these blocks do not, through their
investments in qualified firms, circumvent the gross revenue cap. At
the same time, it will afford qualified bidders a reasonable measure of
flexibility in obtaining needed financing from other entities, while
ensuring that such entities do not acquire controlling interests in the
eligible bidders. Similarly, the 15 percent threshold for attributing
revenues of investors with voting stock in corporate applicants is
designed to keep ineligible parties from exerting undue influence over
eligible firms. For all of these reasons, we also will attribute the
gross revenues of entities, or the personal net worth of individuals,
that otherwise constitute ``affiliates'' of the applicant.\90\
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\90\The definition of an ``affiliate'' is described in the
Further Notice 55.
---------------------------------------------------------------------------
49. Qualified Woman and Minority-Owned Small Businesses. The record
demonstrates that women and minorities have especially acute problems
in obtaining financing, due in part to discriminatory lending practices
by private financial institutions. To address these special problems
and to afford women and minority-owned small businesses more
flexibility in attracting financing, it is necessary to provide these
entities with an alternative, somewhat more relaxed option regarding
the attribution of revenues of passive investors. Under the alternative
standard, we will not attribute to the applicant the gross revenues or
net worth of any single investor in a minority or woman-owned small
business applicant unless it holds more than 49.9 percent of the
passive equity (which is defined to include as much as 15 percent of a
corporation's voting stock). To guard against abuses, however, the
control group of applicants choosing this option would have to own at
least 50.1 percent of the applicant's equity, as well as retain control
and hold at least 50.1 percent of the voting stock.\91\ Winning bidders
must identify on their long-form applications a control group (this
time consisting entirely of minorities and/or women or entities 100
percent owned and controlled by minorities and/or women) and the gross
revenues and net worth of each member of the control group and each
member's affiliates will be counted toward the $40 million gross
revenue threshold or the individual $40 million personal net worth
limitation, regardless of the size of the member's total interest in
the applicant.
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\91\As noted previously, the control group of a partnership
applicant must hold all of the general partnership interests.
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50. Relaxing the attribution standard somewhat in determining the
eligibility of woman and minority-owned companies to bid as small
businesses directly addresses what most commenters have stated to be
the biggest obstacle to entry for these designated entities: obtaining
adequate financing. By this measure, women and minorities who are
eligible to bid as small businesses (i.e., who otherwise meet the $40
million gross revenue standard) will be required to maintain control of
their companies and, at the same time, will have flexibility to attract
significant infusions of capital from a single investor. The
requirement that the minority and women principals hold 50.1 percent of
the company's equity mitigates substantially the danger that a well-
capitalized investor with a substantial ownership stake will be able to
assume de facto control of the applicant.
51. Of course, women and minority-owned firms, like any other small
business applicant, may sell a larger portion of their companies'
equity, provided that they also abide by the general eligibility
requirements for small businesses. Specifically, the gross revenues and
net worth of all investors holding more than 25 percent of the
company's passive equity (as defined to include 15 percent or more of
the voting stock) will be attributed toward the $40 million cap and the
$40 million personal net worth standard. In this event, the control
group will be required to hold at least 25 percent of the company's
equity and 50.1 percent of its voting stock.
52. De Facto Control Issues. We shall codify in our rules a
provision explaining more explicitly the term ``control,'' so that
applicants will have clear guidance concerning the requirement that a
control group maintains de facto as well as de jure control of the
firms that are eligible for special treatment under the rules for
narrowband PCS. For this purpose, we shall borrow from certain SBA
rules that are used to determine when a firm should be deemed an
affiliate of a small business. These SBA rules, which are codified in
13 CFR 121.401, provide several specific examples of instances in which
an entity might have control of a firm even though the entity has less
than 50 percent of the voting stock of a concern, and thus provide a
useful model for our rules. Through reference to circumstances such as
those described in the SBA rules, our rules will expressly alert
designated entities that control of the applicant through ownership of
50.1 percent of the firm's voting interests may be insufficient to
ensure de facto control of the applicant if, for example, the voting
stock of the eligible control group is widely dispersed. In those and
other circumstances, ownership of 50.1 percent of the voting stock may
be insufficient to assure control of the applicant. Of course, apart
from these structural issues relative to control, eligible entities
must not, during the license term, abandon control of their licenses
through any other mechanism. As we stated in the Second Report and
Order, designated entities must be prepared to demonstrate that they
are in control of the enterprise.\92\
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\92\Second Report and Order at 278, citing Intermountain
Microwave, 24 Rad. Reg. 983, 984 (1963).
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53. In the Second Memorandum Opinion and Order, we concluded that
designated entities might be permitted to receive benefits based on
their participation in consortium on a service specific basis, but
believed generally that such a consortium should not be entitled to
qualify for measures designed specifically for designated entities. As
a general matter, we shall continue to adhere to that principle. We
think, however, that in the narrowband PCS service, allowing small
businesses to pool their resources in this manner is necessary to help
them overcome capital formation problems and thereby ensure their
opportunity to participate in auctions and to become strong narrowband
PCS competitors. Because of the exceptionally large capital
requirements associated with acquiring a license in this service, we
agree with the SBA Chief Counsel for Advocacy that, so long as
individual members of the consortium satisfy the definition of a small
business, the congressional objective of ensuring opportunities for
small businesses will be fully met. Individual small entities that join
to form consortia, as distinguished from a single entity with gross
revenues in excess of $40 million, still are likely to encounter
capital access problems and, thus, should qualify for measures aimed at
small businesses. We do not believe however, that this congressional
goal will be satisfied if special measures are allowed for consortia
that are ``predominantly'' or ``significantly'' owned and/or controlled
by small businesses. This would have the effect of eviscerating our
small business definition criteria and would not further the ability of
bona fide small businesses to participate in PCS services.
54. Financial Benefits. To ensure that the control group has a
substantial financial stake in the venture, we shall adopt certain
additional requirements. As noted previously, we shall require that at
least 50.1 percent of the voting stock and at least 25 percent (or 50.1
percent for the alternative option for minority- and women-owned
businesses) of the aggregate of all outstanding shares of stock to be
unconditionally owned by the control group members. In addition, 50.1
percent of the annual distribution of dividends paid on the voting
stock of a corporate applicant concern must be paid to these members.
Also, in the event stock is sold, the control group members must be
entitled to receive 100 percent of the value of each share of stock in
his or her possession. Similarly, in the event of dissolution or
liquidation of the corporation, the control group members must be
entitled to receive at least 25 percent (or 50.1 percent, as the case
may be) of the retained earnings of the concern and 100 percent of the
value of each share of the stock in his or her possession, subject, of
course, to any applicable laws requiring that debt be paid before
distribution of equity.
55. Partnerships and other non-corporate entities will be subject
to similar requirements. Indicia of ownership that we will consider in
non-corporate cases include (but are not limited to) (a) the right to
share in the profits and losses, and receive assets or liabilities upon
liquidation, of the enterprise pro rata in relationship to the
designated entity's ownership percentage and (b) the absence of
opportunities to dilute the interest of the designated entity (through
capital calls or otherwise) in the venture. As with corporations, our
concern is ensuring that the economic opportunities and benefits
provided through these rules flow to designated entities, as Congress
directed.
56. Abuses. As stated above, we intend by these attribution rules
to ensure that bidders and recipients of these licenses are bona fide
in their eligibility, and we intend to conduct random audits both
before the auctions and during the 10-year initial license period to
ensure that our rules are complied with in letter and spirit. If we
find that large firms or individuals exceeding our personal net worth
caps are able to assume control of licensees that have received small
business provisions or otherwise circumvent our rules, we will not
hesitate to force divestiture of such improper interests or, in
appropriate cases, issue forfeitures or revoke licenses. In this
regard, we reiterate that it is our intent, and the intent of Congress,
that women, minorities and small businesses be given an opportunity to
participate in narrowband PCS services, not merely as fronts for other
entities, but as active entrepreneurs.
57. In addition, in view of our new small business definition and
the associated maximum investor limits, we are modifying our unjust
enrichment rules to prevent any post-auction circumvention of our
financial threshold, and to ensure that the ultimate licensees are bona
fide designated entities. Accordingly, firms that received installment
payments based on their small business status will be subject to
repayment if, for example, another entity subsequently purchases an
``attributable'' interest or becomes a member of the control group and,
as a result, the gross revenues of the firm would exceed the $40
million gross revenues cap, or the personal net worth of an individual
investor exceeds the $40 million personal net worth threshold.
B. Bidding Credits in Regional Narrowband Auctions
58. In the Third Report and Order we established bidding credits of
25 percent for women- and minority-owned businesses on two of the six
regional narrowband licenses.\93\ In order to increase the
opportunities for women and minorities to participate in the provision
of narrowband service, we have decided to increase the bidding credit
on the same two licenses for women- and minority-owned businesses in
the upcoming regional narrowband auction from 25 percent to 40 percent.
Our experience with the nationwide narrowband PCS auctions, where very
high license values coupled with only a 25 percent bidding credit may
have contributed to the failure of women- and minority-owned businesses
to win licenses, suggests that a credit of this magnitude may be
necessary to overcome the disadvantages of these groups in bidding for
licenses representing large populations and large geographic areas.\94\
In an ex parte filing, Essence Television Productions, Inc. one of the
initial participants in the nationwide narrowband PCS auction, argues
that designated entities should receive bidding credits of up to 40
percent when competing in auctions against non-designated entities.\95\
The increased bidding credit combined with installment payments for
firms that meet our revised small business definition should enable
minority- and women-owned businesses to attract the capital necessary
to compete. In addition, we seek comment on whether additional measures
such as an entrepreneur's block should be employed in future auctions
(see infra.).
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\93\Third Report and Order at 68.
\94\We have already adopted installment payments for small
businesses on regional, MTA and BTA licenses. See Sec. 24.309(A).
\95\Ex parte filing of Essence Television Productions, Inc.,
August 2, 1994.
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C. Rural Telephone Companies
59. In this docket, we established general rules and identified
several measures, including installment payments, spectrum set-asides,
bidding credits and tax certificates, that we would choose among in
establishing rules for auctionable spectrum-based services, on a
service-specific basis. In adopting service-specific rules, we have
carefully selected provisions to meet the particular needs of each
designated entity group, so as to ``ensure,'' pursuant to the statute,
that each group has the opportunity to participate in providing
spectrum-based services.
60. As we indicated above, it is occasionally necessary to do more
to ensure that businesses owned by members of minority groups and women
have a meaningful opportunity to participate in provision of personal
communications services than is necessary to ensure that other
designated entity groups have similar opportunities.\96\ The major
problem facing minorities and women who seek to offer PCS is lack of
access to capital.\97\ Small businesses also encounter serious funding
problems.\98\ In contrast, rural telephone companies that are not small
businesses (and are not owned by minorities or women) do not face the
same difficulties in obtaining capital. Accordingly, we do not believe
that any additional provisions for rural telephone companies are
necessary or appropriate in the context of narrowband PCS. Moreover, as
we stated in the Second Report and Order, limiting installment payments
to smaller businesses, including those owned by minorities and women,
best comports with the intent of Congress by avoiding auction
procedures that tend to favor incumbents with established revenue
streams over new companies and entrepreneurs.\99\ Therefore, rural
telephone companies that are not eligible as small businesses will not
receive installment payment assistance.
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\96\Fifth Report and Order at 96, in PP Docket No. 93-253, FCC
94-178, adopted June 29, 1994, released July 15, 1994, 59 FR 37566
(Jul 29, 1994), (Fifth Report and Order).
\97\Id.; see also, e.g., 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, 8727 (1993) (SBAC
Report); Small Business Credit and Business Opportunity Enhancement
Act of 1992, Sections 112(4), 331(a)(4), Pub. Law 102-366, Sept. 4,
1992 (Small Business Credit Act) (finding that minority- and woman-
owned businesses encounter particular problems in obtaining capital,
and minorities face ``extraordinary'' obstacles in this regard).
\98\See Fifth Report and Order 93-108.
\99\See Second Report and Order, 234 & n.179 (citing H.R. Rep.
No. 103-111 at 255), 237. We note, however, that many more rural
telephone companies are considered small businesses under our
revised small business definition than was the case previously.
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61. Finally, we believe that special provisions for rural telephone
companies that are not smaller entities are not necessary in this
context to encourage service to rural areas.\100\ Especially in regions
where the lack of wireline service makes wireless alternatives
desirable, paging service is provided to rural areas by paging
companies as well as telephone companies. We therefore believe that
many telecommunications companies, and not only rural telephone
companies, will pursue ordinary profit incentives to provide narrowband
PCS service to outlying areas. Accordingly, we believe that installment
payment plans are not necessary to encourage larger rural telephone
companies to provide this relatively low-cost service in rural areas.
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\100\Congress did not instruct us to provide for every
designated entity group in every service, and we believe that
provisions for this particular group are not necessary for
narrowband PCS.
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D. Other Designated Entity Decisions
62. We make two additional decisions concerning designated entities
on our own motion. First, we clarify that, for a partnership to qualify
for designated entity status, all general partners in the applicant and
its ``control group'' must be eligible entities, consistent with our
revised generic eligibility criteria in the Second Memorandum Opinion
and Order in this proceeding. For the purposes of our rules, we presume
that all general partners in a partnership have the power to bind the
partnership, and therefore have de facto control.\101\ Therefore, to
ensure that designated entity provisions are made available only to
legitimate eligible entities if the partnership is to receive
designated entity benefits, all general partners will be required to be
designated entities if the partnership is to obtain designated entity
status.
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\101\See, e.g., Fifth Report and Order, 158 & n. 134 (making
such a presumption and therefore treating each general partner in a
partnership applying for broadband PCS licenses as part of the
partnership's control group).
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63. In addition, we are adopting for narrowband PCS the requirement
that all entities claiming a designated entity benefit must
substantiate their eligibility for such benefits. In a related action
reconsidering the Second Report and Order in this proceeding, we are
requiring applicants that seek designated entity benefits to document
their eligibility for such benefits.\102\ For narrowband PCS we
therefore require designated entity applicants to describe on their
long-form applications how they meet the eligibility criteria for
designated entity benefits. Applicants must list and summarize on their
long-form application all agreements that affect designated entity
status, such as all partnership agreements, shareholder agreements,
management agreements and other agreements, including oral agreements,
which establish that the designated entity will have both de facto and
de jure control of the entity. In addition, we will require that such
information be maintained at the licensee's facilities, or by its
designated agent, for the term of the license, and that the information
be made available to Commission staff upon request. We believe that
this provision will prove useful when the Commission conducts its
random audits of designated entities providing narrowband PCS to ensure
their continuing designated entity status.
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\102\See Second Memorandum Opinion and Order at 134; Cook Inlet
Petition for reconsideration of Second Report and Order at 16.
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VI. Procedural Matters And Ordering Clause
A. Regulatory Flexibility Analysis
64. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.
Sec. 604, the Commission's final analysis for the Memorandum Opinion
and Order is as follows:
Memorandum Opinion and Order--Final Analysis
65. Need for, and Purpose of, this Action. As a result of new
statutory authority, 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. Sec. 603, within the Notice of Proposed Rule Making in this
proceeding, and published Final Regulatory Flexibility Analyses within
the Second Report and Order (at 299-302) and the Third Report and
Order (at 91-94). As noted in these previous final analyses, this
proceeding will establish a system of competitive bidding for choosing
among certain applications for initial licenses, and will carry out
statutory mandates that certain designated entities, including small
entities, be afforded an opportunity to participate in the competitive
bidding process and in the provision of spectrum-based services.
66. Summary of the Issues Raised by the Public Comments. In regard
to the specific narrowband PCS issues addressed by this Third
Memorandum Opinion and Order, no comments were submitted in response to
our Initial Regulatory Flexibility Analysis.
67. Significant Alternatives Considered. Although, as described in
(B) above, no comments were received pertaining to narrowband PCS, the
Second Report and Order and Third Report and Order addressed at length
the general policy considerations raised as a result of the
Commission's new auction authority.
B. Ordering Clause
68. Accordingly, It Is Ordered, That the petitions for
reconsideration Are Granted to the extent described above and Denied in
all other respects.
69. It Is Further Ordered, that Part 24 of the Commission's Rules
Is Amended as set forth in the attached Appendix. It Is Ordered, that
the rule changes made herein Will Become Effective 30 days after their
publication in the Federal Register. This action is taken pursuant to
Sections 4(i), 303(r) and 309(j) of the Communications Act of 1934, as
amended, 47 U.S.C. Secs. 154(i), 303(r) and 309(j).
List of Subjects in 47 CFR Part 24
Administrative practice and procedure, Reporting and recordkeeping
requirements, Telecommunications.
Federal Communications Commission.
LaVera F. Marshall,
Acting Secretary.
Rules
Part 24 of chapter I of title 47 of the Code of Federal Regulations
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. Secs. 154, 301, 302, 303, 309 and 332,
unless otherwise noted.
2. Section 24.129 is revised to read as follows:
Sec. 24.129 Frequencies.
The following frequencies are available for narrowband PCS. All
licenses on channels indicated with an (*) will be eligible for bidding
credits of 25 percent, and all licenses indicated with an (**) will be
eligible for bidding credits of 40 percent, as set forth in
Sec. 24.309(b) if competitive bidding is used to award such licenses.
(a) Eleven frequencies are available for assignment on a nationwide
basis as follows:
(1) Five 50 kHz channels paired with 50 kHz channels:
Channel 1: 940.00-940.05 and 901.00-901.05 MHz;
Channel 2: 940.05-940.10 and 901.05-901.10 MHz;
Channel 3: 940.10-940.15 and 901.10-901.15 MHz;
Channel 4: 940.15-940.20 and 901.15-901.20 MHz; and,
Channel 5: 940.20-940.25 and 901.20-901.25 MHz:*
(2) Three 50 kHz channels paired with 12.5 kHz channels:
Channel 6: 930.40-930.45 and 901.7500-901.7625 MHz;
Channel 7: 930.45-930.50 and 901.7625-901.7750 MHz; and,
Channel 8: 930.50-930.55 and 901.7750-901.7875 MHz;*
(3) Three 50 kHz unpaired channels:
Channel 9: 940.75-940.80 MHz;
Channel 10: 940.80-940.85 MHz; and,
Channel 11: 940.85-940.90 MHz.*
(b) Six frequencies are available for assignment on a regional
basis as follows:
(1) Two 50 kHz channels paired with 50 kHz channels:
Channel 12: 940.25-940.30 and 901.25-901.30 MHz; and,
Channel 13: 940.30-940.35 and 901.30-901.35 MHz.**
(2) Four 50 kHz channels paired with 12.5 kHz channels:
Channel 14: 930.55-930.60 and 901.7875-901.8000 MHz;
Channel 15: 930.60-930.65 and 901.8000-901.8125 MHz;
Channel 16: 930.65-930.70 and 901.8125-901.8250 MHz; and,
Channel 17: 930.70-930.75 and 901.8250-901.8375 MHz.**
(c) Seven frequencies are available for assignment on a MTA basis
as follows:
(1) Two 50 kHz channels paired with 50 kHz channels:
Channel 18: 940.35-940.40 and 901.35-901.40 MHz; and,
Channel 19: 940.40-940.45 and 901.40-901.45 MHz.*
(2) Three 50 kHz channels paired with 12.5 kHz channels:
Channel 20: 930.75-930.80 and 901.8375-901.8500 MHz;
Channel 21: 930.80-930.85 and 901.8500-901.8625 MHz; and,
Channel 22: 930.85-930.90 and 901.8625-901.8750 MHz.*
(3) Two 50 kHz unpaired channels:
Channel 23: 940.90-940.95 MHz; and,
Channel 24: 940.95-941.00 MHz.*
(d) Two 50 kHz channels paired with 12.5 kHz channels are available
for assignment on a BTA basis:
Channel 25: 930.90-930.95 and 901.8750-901.8875 MHz; and,
Channel 26: 930.95-931.00 and 901.8875-901.9000 MHz.*
Note 1: Operations in markets or portions of markets which
border other countries, such as Canada and Mexico, will be subject
to on-going coordination arrangements with neighboring countries.
Sec. 24.130 Paging response channels.
3. Section 24.130 is amended by revising paragraphs (b) and (c) to
read as follows:
* * * * *
(b) The following four 12.5 kHz unpaired channels are available for
assignment on a MTA basis:
A: 901.9000-901.9125 MHz;
B: 901.9125-901.9250 MHz;
C: 901.9250-901.9375 MHz; and
D: 901.9375-901.9500 MHz.
(c) The following four 12.5 kHz unpaired channels are available for
assignment on a BTA basis:
E: 901.9500-901.9625 MHz;
F: 901.9625-901.9750 MHz;
G: 901.9750-901.9875 MHz; and
H: 901.9875-902.0000 MHz.
4. Section 24.303 is revised to read as follows:
Sec. 24.303 Competitive bidding mechanisms.
(a) Sequencing. The Commission will establish and may vary the
sequence in which narrowband PCS licenses will be auctioned.
(b) Grouping. In the event the Commission uses either a
simultaneous multiple round competitive bidding design or combinatorial
bidding, the Commission will determine which licenses will be auctioned
simultaneously or in combination.
(c) Reservation Price. The Commission may establish a reservation
price, either disclosed or undisclosed, below which a license subject
to auction will not be awarded.
(d) Minimum Bid Increments. The Commission may, by announcement
before or during an auction, require minimum bid increments in dollar
or percentage terms. The Commission may also establish by Public Notice
a suggested opening bid or a minimum opening bid on each license.
(e) Stopping Rules. the Commission may establish stopping rules
before or during multiple round auctions in order to terminate an
auction within a reasonable time.
(f) Activity Rules. The Commission may establish activity rules
which require a minimum amount of bidding activity. In the event that
the Commission establishes an activity rule in connection with a
simultaneous multiple round auction, each bidder will be entitled to
request and will be automatically granted one activity rule waiver
during each stage of an auction, or one automatic waiver during a
specified number of bidding rounds. The Commission may change by Public
Notice the number and frequency of such automatic activity rule waivers
for a specific auction.
(g) Bidder Identification During Auctions. The Commission may
choose, on an auction-by-auction basis, to release the identity of the
bidders associated with bidder identification numbers. The Commission
will announce by Public Notice before each auction whether bidder
identities will be revealed.
5. Section 24.308 is revised to read as follows:
Sec. 24.308 License Grant, Denial, Default, and Disqualification.
(a) Unless eligible for installment payments and/or a bidding
credit, each winning bidder is required to pay the balance of its
winning bid in a lump sum payment within five (5) business days
following the award of the license. Grant of the license will be
conditioned upon full and timely payment of the winning bid amount.
(b) A bidder who withdraws its bid, defaults on a payment or is
disqualified will be subject to the penalties specified in Sec. 1.2109
of this Chapter.
6. Section 24.309 is revised to read as follows:
Sec. 24.309 Designated Entities.
(a) Designated entities entitled to preferences in the narrowband
PCS service are small businesses and businesses owned by members of
minority groups and/or women as defined in Secs. 24.320(b) and
24.320(c).
(b) Designated entities will be eligible for certain special
narrowband PCS provisions as follows:
(1) Installment payments. Small businesses, including small
businesses owned by members of minority groups and women, will be
eligible to pay the full amount of their winning bid on any regional,
MTA or BTA license in installments over the term of the license
pursuant to the terms set forth in Section 1.2110(d) of this Chapter.
(2) Bidding Credits. Businesses owned by member of minority groups
and women, including small businesses owned by members of minority
groups and women, will be eligible for a twenty-five (25) percent
bidding credit when bidding on the following licenses: (i) The
nationwide licenses on Channel 5, Channel 8 and Channel 11; (ii) All
MTA licenses on Channel 19, Channel 22, Channel 24; and (iii) All BTA
licenses on Channel 26. This bidding credit will reduce by 25 percent
the bid price that businesses owned by members of minority groups and
women will be required to pay to obtain a license. Businesses owned by
women and/or minorities, including small businesses owned by women and/
or minorities will be eligible for a forty (40) percent bidding credit
when bidding on all regional licenses on Channel 13 and Channel 17. In
Sec. 24.129, the licenses that will be eligible for 25 percent bidding
credits are indicated by an (*); the licenses that will be eligible for
40 percent bidding credits are indicated by an (**).
(3) Tax Certificates. Any non-controlling initial investor in a
business owned by members of minority groups and/or women and who
provides ``start-up'' financing, which allows such business to acquire
a narrowband PCS license(s), and any non-controlling investor who
purchases an interest in a narrowband PCS license held by a business
owned by members of minority groups and/or women with the first year
after license issuance, may, upon the sale of such investment or
interest, request from the Commission a tax certificate. Any narrowband
PCS licensee who assigns or transfers control of its license to a
business owned by members of minority groups and/or women may request
that the Commission issue the licensee a tax certificate.
(c) Short-Form Application Certification; Long-Form Application
Disclosure. (1) All applicants for licenses under the designated entity
provisions set forth in this section shall certify on their short-form
applications (Form 175) that they are eligible for those preferences
pursuant to this section.
(2) In addition to the requirements in subpart I, all designated
entity applicants that are winning bidders shall, in an exhibit to
their long-form applications--
(i) Identify each member of the applicant's control group,
regardless of the size of the member's total interest in the applicant,
and each member's minority group or gender classification, if
applicable;
(ii) Disclose the gross revenues of the applicant and its
affiliates, and other persons that hold interests in the applicant and
their affiliates (including all members of the applicant's control
group); and
(iii) Certify that the personal net worth of the applicant (if an
individual), each affiliate and each person that hold an interest in
the applicant is less than $40 million.
(d) Audits. Applicants and licensees claiming eligibility under
this section shall be subject to random audits by the Commission.
(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 small business used in this section are defined
in Sec. 24.320.
(f) Unjust Enrichment. Designated entities using installment
payments, bidding credits or tax certificates to obtain a narrowband
PCS license will be subject to the following unjust enrichment
provisions:
(1) If a small business paying for a narrowband PCS license in
installment payments seeks to transfer a license to a non-small
business entity during the term of the license, the remaining principal
balance must be repaid as a condition of the license transfer.
(2) If a licensee that utilizes installment financing under this
section seeks to make any change in ownership structure that would
result in the licensee losing eligibility for installment payments, the
licensees shall first seek Commission approval and must make full
payment of the remaining unpaid principal and any unpaid interest
accrued through the date of the change as a condition of approval.
Increases in gross revenues that result from equity investments that
are not attributable to the licensee under Sec. 24.320(b)(2)(iv),
revenues from operations, business development or expanded service
shall not be considered changes in ownership structure under this
paragraph.
7. Section 24.320 is added to subpart F to read as follows:
Sec. 24.320 Definitions.
(a) Scope. The definitions in this section apply to Secs. 24.309-
24.315 of this subpart, unless otherwise specified in those sections.
(b) Small Business; Consortium of Small Businesses.
(1) A small business is an entity that:
(i) Together with its affiliates has average annual gross revenues
that are not more than $40 million for the preceding three calendar
years;
(ii) Has no attributable investor or affiliate that has a personal
net worth of $40 million or more;
(iii) Has a control group all of whose members and affiliates are
considered in determining whether the entity meets the $40 million
annual gross revenues and personal net worth standards; and
(iv) Such control group holds 50.1 percent of the entity's voting
interest, if a corporation, and at least 25 percent of the entity's
equity on a fully diluted basis, except that a business owned by
members of minority groups and/or women (as defined in paragraph (c) of
this section) may also qualify as a small business if a control group
that is 100 percent composed of members of minority groups and/or women
holds 50.1 percent of the entity's voting interests, if a corporation,
and 50.1 percent of the entity's total equity on a fully diluted basis
and no single other investor holds more than 49.9 percent of passive
equity in the entity.
(2) Attribution and Aggregation of Gross Revenues and Personal Net
Worth.
(i) Except as specified in paragraphs (b)(1) (iii) and (iv), the
gross revenues of the applicant (or licensee) and its affiliates, and
other persons that hold interests in the applicant (or licensee) and
their affiliates shall be considered on a cumulative basis and
aggregated for purposes of determining whether the applicant (or
licensee) is a small business.
(ii) The personal net worth of individual applicants (or licensees)
and other persons that hold interests in the applicant (or licensee),
and their affiliates, if less than $40 million, shall not be considered
for purposes of determining whether the applicant (or licensee) is
eligible to bid as a small business.
(iii) Where an applicant (or licensee) is a consortium of small
businesses, the gross revenues of each small business shall not be
aggregated.
(iv) The gross revenues and personal net worth of a person that
holds an interest in the applicant (or licensee) shall not be
considered so long as:
(A) Such person holds no more than 25 percent of the applicant's
(or licensee's) passive equity and is not a member of the applicant's
or control group; and
(B) The applicant has a control group that owns at least 25 percent
of the applicant's total equity and, if a corporation, holds at least
50.1 percent of the applicant's voting interests.
(v) The gross revenues, total assets and personal net worth of a
person that holds an interest in the applicant shall not be considered
so long as:
(A) Such person holds no more than 49.9 percent of the applicant's
(or licensee's) passive equity and is not a member of the applicant's
control group; and
(B) The applicant has a control group that consists entirely of
members of minority groups and/or women and that owns at least 50.1
percent of the applicant's total equity and, if a corporation, at least
50.1 percent of the applicant's voting interests.
(3) A small business corsortium is a conglomerate organization
formed as a joint venture between mutually-independent business firms,
each of which individually satisfies the definition of a small
business.
Note to paragraph (b): Ownership interests shall be calculated
on a fully diluted basis; all agreements such as warrants, stock
options and convertible debentures will generally be treated as if
the rights thereunder already have been fully exercised, except that
such agreements may not be used to appear to terminate or divest
ownership interests before they actually do so.
(c) Business Owned by Members of Minority Groups and/or Women. A
business owned by members of minority groups and/or women is an entity:
(1) That has a control group composed 100 percent of members of
minority groups and/or women who are United States Citizens, and
(2) Such control group owns and holds 50.1 percent of the voting
interests, if a corporation, and
(i) Owns and holds 50.1 percent of the total equity in the entity,
provided that all other investors hold passive interests; or
(ii) Holds 25 percent of the total equity in the entity, provided
that no single other investor holds more than 25 percent passive equity
interests in the entity. In a partnership, all general partners must be
members of minority groups and/or women. Ownership interests shall be
calculated on a fully diluted basis; all agreements such as warrants,
stock options and convertible debentures will generally be treated as
if the rights thereunder already have been fully exercised, except that
such agreements may not be used to appear to terminate or divest
ownership interests before they actually do so.
(d) Gross Revenues. Gross revenues shall mean all income received
by an entity, whether earned or passive, before any deductions are made
for costs of doing business (e.g., cost of goods sold), as evidenced by
audited quarterly financial statements for the relevant period.
(e) Personal Net Worth. Personal net worth shall mean the market
value of all assets (real and personal, tangible and intangible) owned
by an individual, less all liabilities (including personal guarantees)
owed by the individual in his individual capacity or as a joint
obligor.
(f) Members of Minority Groups. Members of minority groups includes
individuals of African American, Hispanic-surnamed, American Eskimo,
Aleut, American Indian and Asian American extraction.
(g) Passive Equity. Passive equity shall mean:
(1) For corporations, non-voting stock or stock that includes no
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.
(h) Control Group. A control group is an entity, or a group of
individuals or entities, that possess de jure control and de facto
control of an applicant or licensee, and as to which the applicant's or
licensee's charters, articles of incorporation, bylaws, agreements and
any other relevant documents (and amendments thereto) provide:
(1) That the entity and/or its members own unconditionally at least
50.1 percent of the total voting interests of a corporation;
(2) That the entity and/or its members receive at least 50.1
percent of the annual distribution of any dividends paid on the voting
stock of a corporation;
(3) That, in the event of dissolution or liquidation of a
corporation, the entity and/or its members are entitled to receive 100
percent of the value of each share of stock in its possession and a
percentage of the retained earnings of the concern that is equivalent
to the amount of equity held in the corporation; and
(4) That the entity and/or its members have the right to receive
dividends, profits and regular and liquidating distributions from the
business in proportion to its interest in the total equity of the
applicant or licensee.
Note to paragraph (h): Voting control does not always assure de
facto control, such as, for example, when the voting stock of the
control group is widely dispersed (see, e.g.,
Sec. 24.720(e)(2)(iii)).
(i) Affiliate. Determinations regarding whether an individual or
entity will be considered an affiliate of:
(1) An applicant or
(2) A person holding an attributable interest in an applicant under
paragraph (b)(2) will be made pursuant to the general affiliation rules
set forth in Sec. 24.710(l).
8. Section 24.406 is revised to read as follows:
Sec. 24.406 Filing of Narrowband PCS applications, fees, and numbers
of copies.
(a) As prescribed by Secs. 24.305, 24.307, and Sec. 24.409,
standard formal application forms applicable to the narrowband PCS may
be obtained from either:
(1) Federal Communications Commission, Washington, DC 20554; or
(2) By calling the Commission's Forms Distribution Center, (202)
418-3676.
(b) Applications for the initial provision of narrowband PCS
service must be filed on FCC Form 175 in accordance with the rules in
Sec. 24.305 and Part 1, Subpart Q of this chapter. In the event of
mutual exclusivity between applicants filing FCC Form 175, only auction
winners will be eligible to file subsequent long form applications on
FCC Form 401 for initial narrowband PCS licenses. Mutually exclusive
applications filed on Form 175 are subject to competitive bidding under
those rules. Narrowband PCS applicants filing Form 401 need not
complete Schedule B.
(c) All applications for Narrowband PCS radio station
authorizations (other than applications for initial provision of
narrowband PCS service filed on FCC Form 175) shall be submitted for
filing to: Federal Communications Commission, Washington, DC 20554,
Attention: Narrowband PCS Processing Section. Applications requiring
fees as set forth at Part 1, Subpart G of this chapter must be filed in
accordance with Sec. 0.401(b) of this chapter.
(d) All correspondence or amendments concerning a submitted
application shall clearly identify the name of the applicant, applicant
identification number or Commission file number (if known) or station
call sign of the application involved, and may be sent directly to the
Common Carrier Bureau, Narrowband PCS Processing Section.
(e) Except as otherwise specified, all applications, amendments,
correspondence, pleadings and forms (including FCC Form 175) shall be
submitted on one original paper copy and with three microfiche copies,
including exhibits and attachments thereto, and shall be signed as
prescribed by Sec. 1.743 of this chapter. Unless otherwise provided by
the FCC, filings of five pages or less are exempt from the requirement
to submit on microfiche, as well as emergency filings like letters
requesting special temporary authority. Those filing any amendments,
correspondence, pleadings, and forms must simultaneously submit the
original hard copy which must be stamped ``original''. In addition to
the original hard copy, those filing pleadings, including pleadings
under Sec. 1.2108 of this chapter shall also submit 2 paper copies as
provided in Sec. 1.51 of this chapter.
(1) Microfiche copies. Each microfiche copy must be a copy of the
signed original. Each microfiche copy shall be a 148mm x 105mm
negative (clear transparent characters appearing on an opaque
background) at 24 x to 27 x reduction for microfiche or microfiche
jackets. One of the microfiche sets must be a silver halide camera
master or a copy made on silver halide film such as Kodak Direct
Duplicatory Film. The microfiche must be placed in paper microfiche
envelopes and submitted in a B6 (125 mm x 176 mm) or 5 x 7.5 inch
envelope. All applicants must leave Row ``A'' (the first row for page
images) of the first fiche blank for in-house identification purposes.
(2) All applications and all amendments must have the following
information printed on the mailing envelope, the microfiche envelope,
and on the title area at the top of the microfiche: (i) The name of the
applicant; (ii) The type of application (e.g. nationwide, regional,
MTA, BTA, response channel); (iii) The month and year of the document;
(iv) Name of the document; (v) File number, applicant identification
number, and call sign, if assigned; and (vi) The identification number
and date of the Public Notice announcing the auction in response to
which the application was filed (if applicable). Each microfiche copy
of pleadings shall include: (A) The month and year of the document; (B)
Name of the document; (C) Name of the filing party; (D) File number,
applicant identification number, and call sign, if assigned; (E) The
identification number and date of the Public Notice announcing the
auction in response to which the application was filed (if applicable).
Abbreviations may be used if they are easily understood.
9. Section 24.422 is revised to read as follows:
Sec. 24.422 Amendment of application for Narrowband Personal
Communications Service filed on FCC Form 175.
(a) The Commission will provide bidders a limited opportunity to
cure defects in FCC Form 175 specified herein except for failure to
sign the application and to make certifications. These are defects
which may not be cured. See also Section 1.2105 of this chapter.
(b) In the Narrowband PCS, applicants will be permitted to amend
their Form 175 applications to make minor amendments to correct minor
errors or defects such as typographical errors. Applicants will also be
permitted to amend FCC Form 175, to make ownership changes or changes
in the identification of parties to bidding consortia, provided such
changes do not result in a change in control of the applicant and do
not involve another applicant (or parties in interest to an applicant)
who has applied for any of the same licenses as the applicant.
Amendments which change control of the applicant will be considered
major amendments. An FCC Form 175 which is amended by a major amendment
will be considered to be newly filed and cannot be resubmitted after
applicable filing deadlines. See also Sec. 1.2105 of this chapter.
10. Section 24.429 is amended by removing paragraph (b) and
redesignating paragraphs (c) and (d) as (b) and (c), respectively.
11. Section 24.430 is revised to read as follows:
Sec. 24.430 Opposition to applications.
(a) Petitions to deny (including petitions for other forms of
relief) and responsive pleadings for Commission consideration must
comply with Sec. 1.2108 of this chapter and must:
(1) Identify the application or applications (including applicant's
name, station location, Commission file numbers and radio service
involved) with which it is concerned;
(2) Be filed in accordance with the pleading limitations, filing
periods, and other applicable provisions of Secs. 1.41 through 1.52 of
this chapter except where otherwise provided in Sec. 1.2108 of this
chapter;
(3) Contain specific allegations of fact which, except for facts of
which official notice may be taken, shall be supported by affidavit of
a person or persons with personal knowledge thereof, and which shall be
sufficient to demonstrate that the petitioner (or respondent) is a
party in interest and that a grant of, or other Commission action
regarding, the application would be prima facie inconsistent with the
public interest;
(4) Be filed within thirty (30) days after the date of public
notice announcing the acceptance for filing of any such application or
major amendment thereto (unless the Commission otherwise extends the
filing deadline); and
(5) Contain a certificate of service showing that it has been
mailed to the applicant no later than the date of filing thereof with
the Commission.
(b) A petition to deny a major amendment to a previously filed
application may only raise matters directly related to the amendment
which could not have been raised in connection with the underlying,
previously filed application. This does not apply to petitioners who
gain standing because of the major amendment.
(c) Parties who file frivolous petitions to deny may be subject to
sanctions including monetary forfeitures, license revocation, if they
are FCC licensees, and may be prohibited from participating in future
auctions.
[FR Doc. 94-21016 Filed 8-25-94; 8:45 am]
BILLING CODE 6712-01-M