[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: 94-21182]


[[Page Unknown]]

[Federal Register: August 26, 1994]


_______________________________________________________________________

Part VI





Federal Communications Commission





_______________________________________________________________________



47 CFR Part 1



Practice and Procedure: Competitive Bidding Procedures; Rule
-----------------------------------------------------------------------


47 CFR Part 1

[PP Docket No. 93-253; FCC 94-215]

 

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

AGENCY: Federal Communications Commission.

ACTION: Final Rule; Petition for Reconsideration.

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

SUMMARY: In this Second Memorandum Opinion and Order, the Commission 
responds to petitions for reconsideration or clarification of the rules 
and policies adopted in the Second Report and Order in this proceeding, 
which sets forth general rules for the use of competitive bidding to 
award licenses for use of the spectrum. The Commission makes minor 
changes in the rules adopted in the Second Report and Order. This 
action is taken to implement Section 309(j) of the Communications Act 
of 1934, as amended. The rules will promote the development and rapid 
deployment of new technologies, products, and services for the benefit 
of the public, including those residing in rural areas. These rules 
also will promote economic opportunity and competition, and disseminate 
licenses among a wide variety of applicants, including small 
businesses, rural telephone companies, and businesses owned by members 
of minority groups and women. This action will result in recovery for 
the public of a portion of the value of the public spectrum made 
available for commercial use.

EFFECTIVE DATE: September 26, 1994.

FOR FURTHER INFORMATION CONTACT:
Jackie Chorney or Florence Setzer, Office of Plans and Policy, (202) 
418-2030.

SUPPLEMENTARY INFORMATION: This Second Memorandum Opinion and Order in 
PP Docket No. 93-253, adopted August 12, 1994, and released August 15, 
1994, is available for inspection and copying during normal business 
hours in the FCC Dockets Branch, room 230, 1919 M Street NW., 
Washington, DC. The complete text may be purchased from the 
Commission's copy contractor, International Transcription Service, 
Inc., 2100 M Street, NW., suite 140, Washington, DC 20037, telephone 
(202) 857-3800.

Paperwork Reduction Act

    In the Second Memorandum Opinion and Order in PP Docket No. 93-253, 
the Commission adopted no new reporting or recordkeeping requirements.

    In the Matter of Implementation of Section 309(j) of the 
Communications Act--Competitive Bidding PP Docket No. 93-253.

Second Memorandum Opinion and Order

    Adopted: August 12, 1994; Released: August 15, 1994; By the 
Commission:

                            Table of Contents                           
                                                                        
                                                               Paragraph
                                                                        
I. Introduction..............................................          1
II. Applicability of Competitive Bidding.....................          7
  A. Cellular Unserved Areas.................................          7
  B. Principal Use of PCS....................................         11
III. Auction Design and Procedures...........................         12
  A. Activity and Stopping Rules.............................         12
  B. Suggested Opening Bid...................................         19
  C. Commission Discretion During Auctions...................         21
  D. Treatment of Upfront Payments...........................         27
  E. Default Penalty.........................................         34
  F. Disclosure of Bidding Information.......................         37
  G. Standby Queue...........................................         43
  H. Filing Fees.............................................         45
  I. Waiver Requests in Short Form Applications..............         47
  J. Rules Prohibiting Collusion.............................         48
  K. Information Disclosure by Applicants and Licensees......         54
  L. Application-Processing Rules............................         58
  M. Financial Qualifications................................         61
IV. Designated Entities......................................         64
  A. Introduction............................................         64
  B. Rural Telephone Company Definition......................         67
  C. Rural Telephone Consortia...............................         81
  D. Affiliation Rules.......................................         86
  E. Rural Telephone Company Bidding Credits.................        105
  F. Rural Telephone Company Eligibility for Installment                
   Payments..................................................        116
  G. Rural Telephone Company Partitioning....................        123
  H. Unjust Enrichment Provisions............................        125
  I. Upfront Payment.........................................        129
  J. Installment Payments....................................        132
  K. Eligibility Issues......................................        134
  L. Small Business..........................................        144
V. Final Regulatory Flexibility Analysis.....................        151
VI. Procedural Matters and Ordering Clauses..................        155
                                                                        

I. Introduction

    1. By this action, we respond to petitions for reconsideration or 
clarification of the rules and policies adopted in the Second Report 
and Order in this proceeding, which sets forth general rules for the 
use of competitive bidding to award licenses.1 Twenty-one such 
petitions were received, as well as eight oppositions and five replies.
---------------------------------------------------------------------------

    \1\Second Report and Order, PP Docket No. 93-253, 9 FCC Rcd 
2348, 59 FR 22980, May 4, 1994 (Second Report and Order).
---------------------------------------------------------------------------

    2. On August 10, 1993, the Omnibus Budget Reconciliation Act of 
1993 (the Budget Act) added Section 309(j) to the Communications Act of 
1934, as amended, 47 U.S.C. Sec. 309(j).2 Section 309(j) gives the 
Commission express authority to employ competitive bidding procedures 
to choose among mutually exclusive applications for initial licenses. 
The Commission adopted a Notice of Proposed Rulemaking in this 
proceeding on September 23, 1993.3 The Second Report and Order 
prescribing the required regulations was adopted on March 8, 1994. The 
Commission has subsequently adopted specific rules for auction of 
narrowband Personal Communications Service (PCS) licenses,4 
Interactive Video and Data Service (IVDS) licenses,5 and broadband 
PCS licenses.6
---------------------------------------------------------------------------

    \2\See, Omnibus Budget Reconciliation Act of 1993, 47 U.S.C. 
309(j)(3)(B).
    \3\Notice of Proposed Rule Making in PP Docket No. 93-253, 8 FCC 
Rcd 7635, 58 FR 53489 (Oct 15, 1993), (NPRM). In the First Report 
and Order in PP Docket No. 93-253, FCC 94-32, released February 4, 
1994, 59 FR 09100 (Feb 25, 1994), (First Report and Order), the 
Commission prescribed transfer disclosure requirements with respect 
to licenses awarded by random selection.
    \4\Third Report and Order in PP Docket No. 93-253, 9 FCC Rcd 
2941, 59 FR 26741, May 24, 1994 (Third Report and Order).
    \5\Fourth Report and Order in PP Docket No. 93-253, 59 FR 24947, 
May 13, 1994 (Fourth Report and Order).
    \6\Fifth Report and Order in PP Docket No. 93-253, FCC 94-178, 
59 FR 37566, July 29, 1994, adopted June 29, 1994, released July 15, 
1994 (Fifth Report and Order).
---------------------------------------------------------------------------

    3. The Second Report and Order established rules for determining 
what types of services and licenses may be subject to auctions. The 
Second Report and Order also set forth a range of auction designs and 
procedures, from which the Commission stated it would choose in 
establishing procedures for awarding licenses in specific services. The 
Second Report and Order addressed a variety of procedural issues 
regarding announcement of auctions, filing of applications, bidder and 
licensee qualifications, payment requirements, and penalties for 
default or disqualification, as well as safeguards to deter possible 
abuses of the bidding and licensing process. In response to statutory 
directive, the Second Report and Order also identified provisions 
designed to ensure that small businesses, rural telephone companies, 
and businesses owned by women or members of minority groups (designated 
entities) are given the opportunity to participate in the provision of 
spectrum-based services.
    4. In many cases, the appropriate auction procedures and rules vary 
from service to service. In the Second Report and Order we retained the 
flexibility to choose, from within a defined range, the appropriate 
procedures for particular services, depending on characteristics of the 
service such as the likely value and interdependence of the licenses 
being auctioned and the capital required to construct a system. We also 
retained the flexibility to alter our procedures in response to our 
experience with different auction techniques.
    5. We dispose of all but two of the petitions for reconsideration 
of the Second Report and Order in this Order. We defer consideration of 
Brown and Schwaninger's petition concerning Finder's Preferences. We 
plan to issue a Further Notice addressing the applicability of Finder's 
Preferences to auctionable services in the near future, and we will 
consider Brown and Schwaninger's petition in the context of that 
Notice. We also defer to a future Order consideration of MCI's petition 
concerning auctioning of BETRS licenses.
    6. The issues raised in the petitions for reconsideration fall into 
three categories: those dealing with the applicability of competitive 
bidding to specific services and particular circumstances, those 
dealing with auction design and procedures, and those dealing with the 
definition of the groups eligible for special provisions (the 
``designated entities'') and the nature of these provisions. We 
consider issues raised by these petitions below.

II. Applicability of Competitive Bidding

A. Cellular Unserved Areas
    7. Two cellular systems operate on separate frequency blocks in 
each cellular market.7 The geographic areas not covered after five 
years by the initial licensees are considered cellular ``unserved 
areas'' that are licensed separately. In 1991, we adopted random 
selection procedures to govern licensing of the cellular unserved 
areas,8 and stated that we would revisit this decision to use 
lotteries if Congress authorized Commission use of competitive bidding 
procedures.9 As noted above, competitive bidding authority was in 
fact enacted in 1993.10
---------------------------------------------------------------------------

    \7\The Domestic Public Cellular Service is governed by Part 22 
of the Commission's Rules, 47 CFR Part 22.
    \8\See First Report and Order and Memorandum Opinion and Order 
on Reconsideration, CC Docket No. 90-6, 6 FCC Rcd 6185, 56 FR 58503, 
Nov 20, 1991.
    \9\Id. at 6217.
    \1\0See Budget Act, 107 Stat. 387-392.
---------------------------------------------------------------------------

    8. After receiving comment and considering the extensive record, 
the Commission indicated in the Second Report and Order that, unless 
specifically excluded, mutually exclusive applications for licenses in 
the Public Mobile Services, including the Cellular Service, will be 
subject to competitive bidding if they were filed after July 26, 
1993.\11\ We noted, however, that applications filed before July 26, 
1993 present special issues due to the ``special rule'' of Section 
6002(e) of the Budget Act.\12\ That rule does not require the 
Commission to award licenses or permits by competitive bidding if the 
license applications were filed before July 26, 1993, even if the 
applications otherwise meet the criteria that would subject them to 
selection by bidding.\13\ We therefore stated in the Second Report and 
Order that we would determine in a separate order how to authorize 
Public Mobile systems if applications were filed before July 26, 
1993.\14\ Subsequently, after thorough consideration of the record, we 
adopted a Memorandum Opinion and Order stating that in such situations 
we will award licenses for the unserved areas by random selection.\15\
---------------------------------------------------------------------------

    \11\See Second Report and Order at  61 & n.58.
    \12\See id. at n.55, citing Budget Act, Sec. 6002(e).
    \13\See Budget Act, Sec. 6002(e).
    \14\See Second Report and Order at n.55.
    \15\See Memorandum Opinion and Order, PP Docket No. 93-253, FCC 
No. 94-123, 59 FR 37163, July 21, 1994, adopted May 27, 1994, 
released July 14, 1994 (Memorandum Opinion and Order).
---------------------------------------------------------------------------

    9. Petitions. We received three petitions for reconsideration of 
the provisions of the Second Report and Order related to authorization 
of the cellular unserved areas.\16\ John G. Andrikopoulos, et al. 
(Andrikopoulos) states that where applications for cellular unserved 
area licenses were accepted for filing before July 26, 1993, the 
applications should not be subject to competitive bidding. 
Andrikopoulos asserts that auctioning these licenses would be 
unreasonable, retroactive application of the Budget Act.\17\ The 
Houston, Dallas, Oxnard and Huntington Cellular Settlement Groups 
(Cellular Settlement Groups; Groups) assert that the Commission should 
accept full-market settlements between mutually exclusive applicants 
for cellular unserved area licenses.\18\ These Groups state that 
Congress intended the Commission to continue use of its existing policy 
favoring full-market settlements, and express concern that the Second 
Report and Order appears to profit full-market settlements where 
licenses will be awarded through competitive bidding procedures.\19\ 
Finally, Thumb Cellular, a party to a full-market settlement agreement 
filed for a Detroit unserved area, asks the Commission to process its 
settlement agreement immediately.\20\
---------------------------------------------------------------------------

    \16\See petitions of Thumb Cellular Limited Partnership (Thumb 
Cellular), John Andrikopoulos, et al. (Andrikopoulos), and cellular 
settlement groups in Houston, Dallas, Oxnard and Huntington 
(Cellular Settlement Groups).
    \17\See Andrikopoulos Petition at 4-5.
    \18\See Cellular Settlement Groups Petition at 3-7.
    \19\Id.
    \20\Thumb Cellular Petition at 3-4.
---------------------------------------------------------------------------

    10. Discussion. The issues raised by these petitioners are fully 
addressed in the Memorandum Opinion and Order, which was released 
shortly after these petitions were filed. We stated in that item that 
we will grant licenses for cellular unserved areas by random selection 
from the pool of applicants that filed lottery applications prior to 
July 26, 1993, and we will permit full-market settlements among lottery 
applicants to avoid mutual exclusivity.\21\ Applications for cellular 
unserved areas accepted for filing prior to July 26, 1993 will not be 
subject to competitive bidding. Accordingly, the issues raised by these 
three petitioners are moot.
---------------------------------------------------------------------------

    \21\See Memorandum Opinion and Order at  10-18.
---------------------------------------------------------------------------

B. Principal Use of PCS
    11. Section 309(j)(1) of the Communications Act, as amended, 
permits auctions only where mutually exclusive applications for initial 
licenses or construction permits are accepted for filing by the 
Commission and where the principal use of the spectrum will involve or 
is reasonably likely to involve the receipt by the licensee of 
compensation from subscribers in return for enabling those subscribers 
to receive or transmit communications signals.\22\ In the Second Report 
and Order we concluded that PCS service would meet the criteria for 
auctionablility.\23\ Millin requests that we reverse that decision and 
conduct further inquiry concerning the possibility of non-subscription 
PCS.\24\ We consider and rejected Millin's arguments in the Fifth 
Report and Order in this docket, stating that the overwhelming weight 
of the comments in that proceeding, as well as our experience with the 
PCS experiments that we have licensed, reflect that licensed PCS 
spectrum is likely to be used principally for the provision of service 
to subscribers for compensation.\25\ We continue to believe that the 
record strongly supports the likelihood that PCS spectrum will be used 
principally for the provision of service to subscribers for 
compensation. Accordingly, we deny Millin's request.
---------------------------------------------------------------------------

    \22\47 U.S.C. Sec. 309(j)(1).
    \23\See Second Report and Order at  55-56.
    \24\See petition of Millin Publications, Inc. (Millin).
    \25\Fifth Report and Order at n.8.
---------------------------------------------------------------------------

III. Auction Design and Procedures

A. Activity and Stopping Rules
    12. Activity rules and stopping rules are intended to govern the 
speed and duration of bidding in an auction. An activity rule 
encourages each bidder to participate actively through the course of an 
auction. Activity rules are intended to ensure that simultaneous 
auctions with simultaneous stopping rules will close within a 
reasonable period of time and that bid prices will convey meaningful 
information during the course of the auction. In the Second Report and 
Order, the Commission adopted a three-stage Milgrom-Wilson activity 
rule as the preferred activity rule when a simultaneous stopping rule 
is employed.\26\ Under this rule the auction moves from stage I to 
stage II when, in each of three consecutive rounds of bidding, the high 
bid has increased on less than some specified percent of the spectrum 
(measured in terms of MHz-pops) being auctioned.\27\ The auction will 
move from stage II to stage III when in each of three consecutive 
rounds the high bid has increased on less than some specified percent 
of the spectrum (measured in terms of MHz-pops). The Commission, 
however, retained the flexibility to decide whether to use an activity 
rule, and if so what type of activity rule to use. We described 
possible activity rules, and stated the range of alternatives from 
which we would choose and the circumstances that might cause us to 
choose particular rules. We stated that we would announce the activity 
rule to be used by Public Notice before an auction.\28\ A stopping rule 
specifies when an auction is over. In the Second Report and Order we 
stated that, for simultaneous auctions, our preferred stopping rule was 
that all markets would close simultaneously if a single round passed in 
which no new acceptable bids are submitted for any license. We retained 
the discretion, however, to announce at any point during a multiple 
round auction would end after a specified number of rounds.\29\
---------------------------------------------------------------------------

    \26\Second Report and Order at 144.
    \27\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.
    \28\Id. at 133.
    \29\Id. at 132.
---------------------------------------------------------------------------

    13. Petitions. Southwestern Bell Corporation (SBC), the GTE Service 
Corporation (GTE), and the Association of Independent Designated 
Entities (AIDE) argue that the three-stage Milgrom-Wilson activity rule 
is unnecessarily complex and should be simplified or eliminated.\30\ 
SBC points out that the three-stage Milgrom-Wilson activity rule would 
require the Commission to track a large number of upfront payments and 
eligibility levels, and notes that the software the Commission intends 
to develop to track activity levels may not be developed in time. SBC 
states that allowing five automatic waivers, as the Commission proposes 
to do, does not reduce the uncertainty and expense which the activity 
rule imposes and may make bidding strategy more complex.\31\ GTE states 
that the upfront payment formula, when combined with the activity rule, 
unnecessarily restricts bidder flexibility.\32\ GTE states that the 
activity rules limit the ability of bidders to revise their plans in 
the course of the auction, particularly if information revealed during 
the latter stages of the auction causes a bidder to become interested 
in additional properties. The activity rules, according to GTE, 
discourage qualified entities from participating as fully as they might 
otherwise do, so that some licenses may not be awarded to the entity 
placing the highest value on them.\33\
---------------------------------------------------------------------------

    \30\SBC Petition at 1-6; GTE Petition at 6-11; AIDE Petition at 
12-13.
    \31\SBC Petition at 3-6.
    \32\GTE Petition at 7.
    \33\Id. at 9-10.
---------------------------------------------------------------------------

    SBC urges the Commission to alter the stopping rule to allow the 
agency to issue a notice that bidding will close after a given number 
of rounds.\34\ GTE and SBC ask the Commission to adopt a simpler 
activity rule, such as a requirement that bidders be active on a single 
license in each round.\35\ AIDE urges that the activity rules be 
withdrawn, at least in the case of designated entities.\36\ Pacbell 
counters that the three-stage Milgrom-Wilson activity rule avoids 
delay, provides meaningful information, and allows bidders the 
flexibility to react to that information, and that software is 
available to help ensure that the Milgrom-Wilson rule will not be hard 
to implement.\37\
---------------------------------------------------------------------------

    \34\SBC Petition at 5.
    \35\GTE Petition at 10-11; SBC Petition at 5.
    \36\AIDE Petition at 12-13.
    \37\Bell Opposition at ii.
---------------------------------------------------------------------------

    14. Discussion. As we noted in the Second Report and Order, the 
decision to use activity rules and the choice among activity rules 
involve tradeoffs among the speed of the auction, bidder flexibility, 
and simplicity.\38\ The petitioners raise no issues relating to 
activity rules that we did not consider carefully in the Second Report 
and Order.\39\ We see nothing in the petitions for reconsideration to 
cause us to change our opinion concerning the choices we made among 
these goals.
---------------------------------------------------------------------------

    \38\Second Report and Order at  134.
    \39\For instance, GTE notes that a bidder may be interested in 
some properties only if it can also acquire other key properties. 
GTE states that ``under the modified Milgrom-Wilson rule, the bidder 
could be forced to choose between dropping out of the auction 
prematurely or staying active in markets that may prove to be less 
valuable if the bidder loses out in the other key markets.'' GTE 
Petition at 9-10. The Second Report and Order considers the same 
situation of interdependency and concludes that a bidder would have 
more flexibility with the three-stage Milgrom-Wilson rule than with 
another possible activity rule, that of starting the bidding with 
the third stage of the Milgrom-Wilson rule. See Second Report and 
Order at  142.
---------------------------------------------------------------------------

    15. We do not believe that the Milgrom-Wilson activity rules will 
excessively restrict bidders' flexibility to bid for desired 
combinations of licenses or cause licenses to be awarded to bidders who 
value them less than other bidders. The rules were expressly designed 
to counteract the incentive to delay serious bidding that occurs in 
simultaneous auctions, without unduly limiting bidders' flexibility to 
pursue backup strategies and to use new information.\40\ The 
restrictions placed on bidders at the beginning of the three-stage 
auction procedure are modest. In the first stage, to retain full 
eligibility a bidder need only bid on, or have the highest bid from the 
previous round on, licenses representing at least one-third of the MHz-
pops he or she ultimately hopes to win. In the second stage, the bidder 
must bid on, or hold the high bid on, two-thirds of the MHz-pops he or 
she hopes to win. Only in the third stage are bidders required to bid 
on the full amount of MHz-pops they hope to acquire.\41\ Bidders may 
shift bids among any combination of licenses from round to round.\42\ 
Paul Milgrom points out that at the shift from stage I to stage II 
there will be no more than three bidders on an average license, and at 
the shift to stage III there will be at most 1\1/2\ bidders on an 
average license.\43\ Because the progression to higher stages imparts 
such information, it gives the bidders important signals concerning the 
state of bidding. By stage III, bidding should be rapidly drawing to a 
close, and any major shifts in strategy should already have been 
implemented. Bidders who believe that they may want to expand their 
purchases if prices are unexpectedly low can guarantee their ability to 
do so by making a sufficiently high upfront payment.
---------------------------------------------------------------------------

    \40\Id.
    \41\Id. at  137.
    \42\Id. at  136.
    \43\Ex parte submission of Paul Milgrom, June 21, 1994 at 2.
---------------------------------------------------------------------------

    16. In the Second Report and Order, we also stated our intention to 
reduce the complexity faced by bidders by developing bidding software 
and making it available to all bidders in auctions in which a Milgrom-
Wilson activity rule is used.\44\ SBC expresses concern that the 
software may not be available in time. Software was in fact developed 
in time for the July nationwide narrowband auction, and performed 
successfully in that auction. In light of that success, we have no 
doubt that appropriate software will also be available for the 
remaining narrowband and broadband auctions.
---------------------------------------------------------------------------

    \44\Second Report and Order at  143.
---------------------------------------------------------------------------

    17. Finally, we remind petitioners that, in the Second Report and 
Order, we adopted the three-stage Milgrom-Wilson activity rules only as 
a preferred option.\45\ We deferred to later, service-specific Orders 
the choice of actual rules to be used in auctions for individual 
services, depending, as discussed in the Second Report and Order, on 
the characteristics of the services and our experience with the conduct 
of auctions. In addition, we retained the flexibility to decide on an 
auction-by-auction basis, and to announce by Public Notice before the 
auction, whether to use an activity rule, and if so what type of 
rule.\46\ Thus, if experience shows that the Milgrom-Wilson rules are 
unduly difficult to administer, we may shift to other activity rules, 
including the one recommended by petitioners requiring only that 
bidders be active on a single license in each round. We also expressly 
retained the discretion, requested by SBC, to announce at any point 
during a multiple round auction that the auction will end after some 
specified number of additional rounds.\47\
---------------------------------------------------------------------------

    \45\Second Report and Order at  144.
    \46\Id. at  133.
    \47\Id. at  132.
---------------------------------------------------------------------------

    18. In the Second Report and Order the Commission also retained the 
ability to speed up an auction by announcing at any time during an 
auction that the next stage of the auction will begin in the next 
bidding round.\48\ In this Order the Commission wishes to make explicit 
that this discretion could be exercised by employing an alternative 
rule for moving from one stage of the auction to the next. The 
Commission will announce by Public Notice prior to an auction its 
intent to use an alternative rule. One possible alternative rule would 
be that the auction will move to the next stage if in each of some 
fixed number of rounds, bidding activity is below some level measured 
as the ratio of new bids (measured in terms of MHz-pops) to available 
licenses (measured in terms of MHz-pops). The ratio of new bids to 
licenses may be a better measure of bidding activity than the 
percentage of total licenses on which the high bid has increased 
(measured in terms of MHz-pops) because it accounts for the possibility 
that bidding may be concentrated on a few licenses. In contrast, the 
latter measure indicates the same level of bidding activity regardless 
of how many bids are made on a given set of licenses.
---------------------------------------------------------------------------

    \48\Id. at n.110.
---------------------------------------------------------------------------

B. Suggested Opening Bid
    19. In the Second Report and Order, we stated that in multiple 
round auctions the Commission will generally specify minimum bid 
increments to speed the progress of the auction.\49\ 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 retained the discretion to use a ``suggested'' 
minimum bid increment rather than a required bid increment.\50\
---------------------------------------------------------------------------

    \49\Second Report and Order at 124.
    \50\Under a suggested minimum bid increment rule, the auction 
would close if no bids or only one bid was submitted that was above 
the minimum bid increment. Id. at n. 102.
---------------------------------------------------------------------------

    20. In the recent nationwide narrowband auctions, it became 
apparent that the Commission may need further tools to avoid 
unnecessarily long auctions. In order to expedite the auction process 
further, we also reserve the discretion to establish a suggested 
opening bid on each license in addition to the minimum bid 
increment.\51\ Where we adopt a suggested opening bid, initial bids 
will have to be above the minimum bid increment but may be below the 
suggested opening bid. Generally, we will establish suggested opening 
bids in the range of $.02-$.20 per pop per MHz for each license. This 
suggested opening bid will provide bidders with an incentive to start 
bidding at a substantial portion of the license value, thus ensuring a 
rapid conclusion of the auction.
---------------------------------------------------------------------------

    \51\See ex parte submission of Paul Milgrom, May 19, 1994.
---------------------------------------------------------------------------

C. Commission Discretion During Auctions
    21. In the Second Report and Order, and discussed supra, we chose 
our primary auction methodology, but noted that no one auction design 
is optimal for all auctionable services. We stated that we would adopt 
auction rules for specific services in subsequent Report and Orders, 
based on criteria established in the Second Report and Order. We 
further stated that when we announced individual auctions for specific 
services, we would specify more detailed procedures for those auctions 
in a Public Notice, but that those procedures also would be governed by 
criteria set forth in the Second Report and Order.\52\ Our rules also 
afforded flexibility with respect to some auction procedures, such as 
those governing the duration of bidding rounds, minimum bid amounts, 
and stopping rules, and we stated that we might make decisions 
regarding such matters during the course of an auction.\53\
---------------------------------------------------------------------------

    \52\Id. at 68.
    \53\Id. at 123, 126, 132.
---------------------------------------------------------------------------

    22. Petition. The National Association of Business and Educational 
Radio, Inc. (``NABER'') asserts that the auction rules do not comply 
with the public interest and the Administrative Procedure Act\54\ 
because they allow the Commission to circumvent the normal notice and 
comment procedure, and that the rules prevent providers of service from 
devising a business plan and auction strategy in advance.\55\ NABER 
states that the Commission should eliminate its discretion to change 
the auction rules or procedures during a particular auction, that 
bidders need to know the rules which will apply for a particular 
service auction, and that interested parties should have the 
opportunity to provide meaningful comment before the final auction 
rules for particular services and frequencies are set.\56\ NABER 
asserts that should the Commission change bidding methods in mid-stream 
without prior public comment, the Commission would violate the notice 
and comment rulemaking requirements of the Administrative Procedure 
Act, by its failure to keep a record and analyze and consider all 
relevant matter regarding those new rules.\57\
---------------------------------------------------------------------------

    \54\See Administrative Procedure Act, 5 U.S.C. Secs. 551 et seq.
    \55\NABER Petition at 2.
    \56\Id. at 8.
    \57\Id. at 9; see 5 U.S.C. Sec. 553.
---------------------------------------------------------------------------

    23. Discussion. We believe that the process we have used to adopt 
auction designs and implementation procedures and the rules themselves 
fully comply with the Administrative Procedure Act. In the NPRM in this 
docket, we provided notice of the auction designs we were considering 
and requested comment on issues of auction design and procedure. We 
received voluminous public comment on these issues. In the Second 
Report and Order, we carefully considered all comments and suggestions 
concerning a wide variety of proposed auction designs, including the 
comments and proposals of numerous experts in auction theory. We have 
established a broad framework for the conduct of license auctions, 
specifying a menu of auction designs and procedures from which we will 
choose for individual auctions. We have identified our preferred 
options, and have discussed the circumstances in which we believe the 
various options will be most appropriate in order to serve our 
statutory goals, and which are therefore most likely to be chosen. 
After the Second Report and Order was issued, we made, in addition, 
more specific choices of auction designs for particular services in 
Orders dealing with those services.\58\ We have also established 
application, payment, and penalty procedures for individual 
services.\59\ The procedures, we believe, afforded members of the 
public all of the procedural rights to which they are entitled under 
the Administrative Procedure Act.
---------------------------------------------------------------------------

    \58\See Third Report and Order at 16-40, Fourth Report and 
Order at 11-18, and Fifth Report and Order at 27-57.
    \59\See Third Report and Order at 41-60, Fourth Report and 
Order at 19-29, and Fifth Report and Order at 58-92.
---------------------------------------------------------------------------

    24. Our rules, however, must also be flexible enough so that we can 
adjust our procedures to fit the circumstances of individual auctions. 
We will not know until we have gained some experience with simultaneous 
multiple round auctions exactly what values of such parameters as 
bidding increments and triggers for movement to the next auction phase 
work best under what circumstances. Consequently, we believe that it is 
important for those running the auctions to be able to use information 
generated in the early auctions and in the early rounds of individual 
auctions. Further, it may be important to be able to respond to the 
behavior of bidders in the course of particular auctions. We may find 
it desirable to allow more time for consultation between bidding rounds 
in complex auctions, for instance, or, in light of the statutory 
requirement to issue licenses expeditiously, to increase the bidding 
increment to hasten the conclusion of an auction if the auction is 
proceeding slowly. Clearly, notice and comment procedures would be 
unworkable in such cases. The flexibility that our rules permit us is 
analogous to the ad hoc decisional authority that may be exercised 
within other types licensing proceedings, and our discretion here is 
similarly constrained by the general framework and standards embodied 
in our rules. The latitude remaining to the Commission to alter auction 
procedures is, however, necessary to ensure that we can make 
improvements as we become aware of the need for them, and that we can 
manage auctions efficiently. The Commission will exercise its 
discretion in a manner consistent with our clearly articulated goals 
and the general procedures we have established.
    25. We have also taken care to safeguard bidders' interests. During 
the course of an auction only minor adjustments in procedures are 
permitted that will necessitate no major changes of strategy on their 
part. Further, we have stated clearly which procedures are, and which 
are not, subject to change during the course of an auction, so that 
bidders will know what kinds of changes to expect and to prepare for. 
We have stated that when we announce auctions for particular services 
by public notice, we will also announce the procedures to be used in 
those auctions.\60\ We believe that this approach will provide 
prospective bidders with ample information to plan rational bidding 
strategies.
---------------------------------------------------------------------------

    \60\Second Report and Order at 68.
---------------------------------------------------------------------------

    26. Finally, although the Commission has never before used auctions 
as a licensing method, we note that our auction procedures afford as 
much, or more, detailed guidance to bidders than is usually provided in 
advance of an auction. For example, in conventional oral auctions the 
auctioneer customarily has the discretion to alter bid increments and 
other procedures at will in any manner and at any time during an 
auction. As in other types of auctions, we believe that it will be 
critically important to the success of our auctions to leave the 
Commission some discretion to fine-tune auction procedures between 
auctions and, in some cases, on an ad hoc basis, during the course of 
an auction. Accordingly, we affirm our original decisions to adopt 
rules that afford the Commission some flexibility to modify its 
procedures during the course of an auction, within the scope of the 
options we have delineated and under the circumstances described above.
D. Treatment of Upfront Payments
    27. In the Second Report and Order we required bidders to tender a 
substantial payment in advance of the auction in order to deter 
frivolous or insincere bidding.\61\ Upfront payments were also intended 
to provide a source of funds for collection of penalties for bid 
withdrawal.\62\ The amount of the upfront payment was related to the 
level of eligibility the bidder wished to establish, measured in terms 
of the population and amount of spectrum encompassed by the licenses on 
which the bidder was permitted to bid. In some cases the upfront 
payment could amount to millions of dollars.\63\ We required that 
upfront payments be submitted prior to bidding, and we did not permit 
use of letters of credit or Treasury bills for upfront deposits due to 
administrative difficulties in accepting payment in such forms, at 
least until the Commission has more experience in conducting 
auctions.\64\ We stated that upfront payments made by a winning bidder 
would be applied to satisfy its down payment obligations, and that 
losing bidders' upfront payments would be returned if they wished to 
withdraw from further bidding.\65\
---------------------------------------------------------------------------

    \61\Second Report and Order at 171.
    \62\Id. at 176.
    \63\Id. at 172, 173.
    \64\Id. at 182, 184, 185.
    \65\Id. at 187, n.140.
---------------------------------------------------------------------------

    28. Petitions. GTE asserts that the Commission should adopt an 
interest-bearing evergreen deposit procedure for upfront deposits.\66\ 
GTE states that, since the Commission is not currently authorized to 
establish interest-bearing accounts, substantial sums of money could be 
tied up in upfront deposits without any accrual of interest for 
substantial periods of time. GTE asserts that maximum bidder 
flexibility can be achieved by allowing bidders to add or withdraw 
deposit funds during the course of the auction. GTE states that the 
Commission needs to ensure that it has the requisite authority to 
permit the accumulation and payment of interest.
---------------------------------------------------------------------------

    \66\GTE Petition at 11-13.
---------------------------------------------------------------------------

    29. AIDE states that when a winning bidder's upfront payments, less 
bid withdrawal penalties, exceed the required deposit, the excess 
upfront payment should remain available for crediting to another 
auction or for refund to the winning bidder.\67\ AIDE points out that, 
in the case of designated entities, the required deposit is only 10 
percent. AIDE notes that the Commission has stated that it will apply 
this policy for losing bidders, and as a matter of equal protection the 
Commission should apply the same policy to winning bidders with excess 
upfront payments.\68\
---------------------------------------------------------------------------

    \67\AIDE Petition at 15.
    \68\Id. at 16.
---------------------------------------------------------------------------

    30. AIDE requests clarification of footnote 133 in the Second 
Report and Order.\69\ Footnote 133 reads:
---------------------------------------------------------------------------

    \69\Id. at 13.
---------------------------------------------------------------------------

    For example, an entity that is interested in bidding on several 30 
MHz PCS licenses with a goal of providing service to a population of at 
most 50 million should make an upfront payment of $30 million ($.02 x 
30 MHz x 50,000,000). That bidder will not be permitted to bid (at any 
time) in the auction, or be permitted to win, 30 MHz licenses covering 
more than 50 million pops.
    31. Discussion. Allowing bidders to add funds to upfront deposits 
in order to increase their eligibility level, or to withdraw funds from 
upfront deposits, as GTE recommends, would add greatly to the 
complexity of the Commission's administrative task. The Commission 
would have to keep track of changes in eligibility due to changes in 
upfront payments, as well as to changes in bidders' activity levels, 
and would have to ascertain that fund transfers had taken place before 
permitting bidders to bid at the levels to which the additional 
payments entitled them. Because of the short intervals between rounds, 
delays in the transfer of funds would likely create problems for both 
bidders and the Commission. For these reasons, we believe it is prudent 
to require bidders to submit upfront payments that represent the 
maximum level of bidding that they anticipate before the beginning of 
the auction. Bidders can always ensure that they will be able to expand 
their bidding above their originally anticipated level by submitting a 
sufficiently large upfront payment and maintaining a high activity 
level.
    32. We agree with AIDE that winners' upfront deposits, in excess of 
their required down payment deposits and any penalties they may owe, 
should be refunded expeditiously. We intend to refund excess upfront 
deposits of all bidders as soon as possible. We will not apply excess 
upfront deposit balances to subsequent auctions, however, due to the 
additional administrative difficulty of tracking the funds.
    33. With respect to AIDE's request for clarification, we clarify 
that footnote 133 means that in any round of the auction, a bidder who 
has made an upfront payment of $30 million may bid on, or hold the high 
bid from the previous round on, 30 MHz licenses in markets with a 
combined population totaling not more than 50 million. The specific 
licenses on which the bidder submits bids may vary from round to round, 
but the total MHz-pop ceiling cannot be exceeded in any single round.
E. Default Penalty
    34. In the Second Report and Order the Commission imposed a default 
penalty for withdrawing a bid after a simultaneous multiple round 
auction has closed.\70\ This default penalty was set at 3 percent of 
the amount of the winning bid the next time the license is offered by 
the Commission, or 3 percent of the amount of the defaulting bidder's 
bid, whichever is less. The default penalty would be imposed in 
addition to the bid withdrawal penalty, which was set at the difference 
between the amount bid and the amount of the subsequent winning bid. We 
stated that the default penalty was intended to provide an incentive 
for bidders who wished to withdraw their bids to do so before the close 
of the auction. We stated that such a penalty was appropriate because a 
withdrawal that occurs after an auction closes is likely to be more 
harmful than one that occurs before closing. We stated that if a 
withdrawal occurs after the auction closes, other bidders will have 
little opportunity to revise their strategies, and the likelihood will 
be lower that the licenses will be awarded to those who value them 
most. We also stated that default imposes on the government the extra 
costs of re-auctioning the license.
---------------------------------------------------------------------------

    \70\ Second Report and Order at 154.
---------------------------------------------------------------------------

    35. Petition. AIDE asserts that the default penalty will produce a 
windfall to the Treasury if the winning bid exceeds the defaulting bid 
by more than 3 percent.\71\ AIDE states that the defaulting bidder 
should pay no penalty if the second bid exceeds the defaulting bid by 3 
percent or more, and that if the second bid exceeds the defaulting bid 
by less than 3 percent, the defaulting bidder's penalty should be the 
difference between the second winning bid and 103 percent of the 
defaulting bid.
---------------------------------------------------------------------------

    \71\AIDE Petition at 14.
---------------------------------------------------------------------------

    36. Discussion. We believe that it is appropriate to charge the 
full 3 percent default penalty in addition to the bid withdrawal 
penalty whether or not the winning bid in the second auction exceeds 
the defaulting bid. As we stated in the Second Report and Order, the 
function of the default penalty is to encourage bidders who plan to 
withdraw their bids to do so before the close of the auction.\72\ The 
additional costs to the Commission and to other bidders of auctioning 
the license a second time, and the increased likelihood that the 
license will not be won by the bidder who values it most, are incurred 
as a consequence of default regardless of the level of the bids. Even 
if the winning bid is higher than the defaulting bid, we have no reason 
to believe that it is higher than the winning bid would have been had 
the defaulting bidder withdrawn before the close of the auction, nor 
have we reason to believe that a high winning bid compensates for the 
undesirable effects of default. Consequently, we retain the default 
penalty as set forth in the Second Report and Order.
---------------------------------------------------------------------------

    \72\Second Report and Order at 154.
---------------------------------------------------------------------------

F. Disclosure of Bidding Information
    37. In the Second Report and Order the Commission recognized the 
informational benefits to be gained from releasing bidder identities 
during an auction, but concluded that such information should not be 
released because ``the risk of collusion and strategic manipulation 
outweighs the benefits of the additional information.'' Instead the 
Commission adopted an intermediate approach pursuant to which the 
bidder identification numbers and bid amounts for each bidder will be 
released at the end of each round of bidding. This approach provides 
bidders with useful information without incurring excessive risks of 
collusion and strategic manipulation.\73\
---------------------------------------------------------------------------

    \73\Id at 158.
---------------------------------------------------------------------------

    38. Petitions. GTE and Southwestern Bell request that the 
identities of bidders be released during the course of the auction. GTE 
requests that the identity of the bidder associated with each bidder 
identification number be disclosed during the bidding process.\74\ SBC 
states that the Commission should announce both the identity of the 
highest bidder and the bid amount for each round of the auction.\75\ 
GTE argues that a bidder must construct a strategy based on its own 
valuation of the spectrum as well as estimates of its competitors' 
valuations and past bids, and that a fundamental component of this 
exercise is knowledge of who the competitors are. GTE notes that the 
Commission's sole justification for not furnishing information about 
the identity of bidders is a concern for collusion, and states that the 
Second Report and Order includes other mechanisms for minimizing 
collusion. GTE states that increases in available information raise the 
level of competition and the efficiency of license assignments, and 
that access to bidder identification information may increase revenue 
from the auction process while ensuring award to the bidder who most 
highly values the license.\76\ SBC argues that the decision to keep 
winning bidder identities secret creates an opportunity for collusive 
behavior because cartels could coordinate activities and punish 
violators without detection. SBC notes that if the identity of all 
bidders is known, the Commission and bidders need not be concerned with 
protecting bidders' identity. SBC states that knowing who the 
successful bidders are affects other bidders' ability to assess the 
accuracy of their valuation of the spectrum and allows them to 
ascertain that an aggregation of licenses is underway which might pose 
a competitive threat. MCI states that because of the potential for 
bidder collusion and strategic manipulation, bidder identities should 
not be revealed.\77\
---------------------------------------------------------------------------

    \74\GTE Petition at 4-6.
    \75\SBC Petition at 8-10.
    \76\GTE Petition at 5-6.
    \77\MCI Comments at 3.
---------------------------------------------------------------------------

    39. Discussion. Arguments in favor of disclosing bidder identities 
primarily turn on the value of the information in improving the quality 
of bids. Some auction experts argue that bidders' estimates of license 
values can be improved by comparing them to the valuations of their 
competitors.\78\ Bidders' valuations of licenses may also be highly 
dependent on knowing the identity of neighboring carriers, especially 
regional leaders and competitors, and on knowing the manner in which 
complementary licenses are likely to be used and the compatibility of 
standards both inside and outside their desired service areas. 
Maximizing information available to bidders may increase bids by 
decreasing bidders' incentives to reduce their bids to avoid the 
``winner's curse,'' the tendency for the bidder who most overestimates 
the value of the item for sale to win an auction. Revealing bidder 
identities may facilitate awarding licenses to those who value them 
most highly by providing more information to bidders. More accurate 
valuation of licenses by bidders can thus improve the efficiency of 
license assignments. In addition, publicly disclosing the identity of 
other bidders may encourage vigorous bidding for licenses. Releasing 
bidder identities may increase interest in and media coverage of the 
auctions.
---------------------------------------------------------------------------

    \78\See e.g. comments of PacBell on NPRM, Attachment by Paul R. 
Milgrom and Robert B. Wilson at 21.
---------------------------------------------------------------------------

    40. Our experience with the first narrowband PCS auction showed 
that preventing bidder identities from being revealed can be extremely 
difficult. In addition, if some but not all bidders know other bidders' 
identities, those bidders have an advantage in the quality of 
information available to them and in the potential ability to thwart 
others' bidding strategies. Concealing bidder identities may give an 
advantage to larger bidders that have the resources to devote to 
discovering other bidders' identities.
    41. As we noted in the Second Report and Order, however, releasing 
the identities of high bidders may foster strategic manipulation, such 
as bidding up the prices of licenses needed by rivals, and may 
facilitate collusion.\79\ Some auction experts argue that anonymity 
makes it harder to target a firm for strategic hold-up because the 
bidding and aggregation strategies of specific competitors cannot be 
easily detected.\80\ Concealing bidder identities makes initiating 
collusive arrangements during the course of an auction more difficult 
because bidders will not easily be able to identify the parties against 
whom they are bidding, unless those parties voluntarily reveal their 
identities. On the other hand, concealing bidders' identities may not 
be critical to preventing collusion during an auction; existing 
antitrust laws and the FCC's collusion rules should be adequate to 
prevent collusive conduct. In any event, under an anonymous bidding 
scenario, if bidders want to collude they can simply disclose their 
bidder identification numbers to one another before the auction.
---------------------------------------------------------------------------

    \79\Second Report and Order at 158.
    \80\Comments of NYNEX on NPRM, attachment by Robert G. Harris 
and Michael L. Katz, ``A Public Interest Assessment of Spectrum 
Auctions for Wireless Telecommunications Services'' at 9.
---------------------------------------------------------------------------

    42. Because of the advantages of providing more information to 
bidders and the difficulties involved in ensuring that bidder 
identities remain confidential, we will generally release the 
identities of bidders before each auction. However, we recognize that 
experts disagree on the potential for knowledge of bidders' identities 
to facilitate collusion and other strategic behavior. Consequently we 
wish to have the flexibility to conceal bidder identities if further 
experience shows that it would be feasible and desirable to do so. We 
may also wish to test the effects of releasing identities of bidders. 
Consequently we are reserving the option to withhold bidder identities 
on an auction-by-auction basis. If we decide to withhold bidder 
identities for a particular auction, we will announce that decision by 
a service-specific auction Order. We will announce by Public Notice 
prior to each auction whether the identities of bidders will be made 
public in that auction.
G. Standby Queue
    43. Petition. GTE states that for 10 MHz blocks in broadband PCS 
the Commission should adopt the ``standby queue'' bidding mechanism 
considered in experiments sponsored by the National Telecommunications 
and Information Administration and conducted at the California 
Institute of Technology.\81\ The standby queue allows parties seeking 
individual licenses to coordinate their bids in order to beat a bid for 
a combination of licenses. GTE asserts that the standby queue would 
allow bidders seeking to combine smaller blocks into a larger set of 
frequencies, or to combine blocks on a geographic basis, to obtain 
information about the status of bidding that would permit them to bid 
rationally and efficiently.
---------------------------------------------------------------------------

    \81\GTE Petition at 13-14.
---------------------------------------------------------------------------

    44. Discussion. The standby queue is a mechanism to be used in 
conjunction with combinatorial auctions. In the Fifth Report and Order 
we concluded that the disadvantages of combinatorial bidding were 
likely to outweigh the advantages for auctions of broadband PCS 
licenses, and we adopted simultaneous multiple round bidding as our 
auction methodology for broadband PCS licenses. Nevertheless, we left 
open the option to use combinatorial auctions if simultaneous multiple 
round auctions do not result in efficient aggregation of licenses, and 
if there are significant advances in the development of combinatorial 
auctions.\82\ Although we have no current plans to use combinatorial 
auctions, if in the future we do adopt such an auction methodology we 
will consider the use of a standby queue mechanism.
---------------------------------------------------------------------------

    \82\Fifth Report and Order at 35.
---------------------------------------------------------------------------

H. Filing Fees
    45. Petition. William E. Zimsky (Zimsky) states that the rule 
imposing filing fees for the filing of short-form applications for 
auctions should be deleted.\83\ Zimsky asserts that because there is no 
provision in 47 U.S.C. Sec. 158(g) for imposing the filing fee for the 
new short-form application, the Commission lacks the statutory 
authority to impose such a fee. Zimsky also asserts that, even if the 
Commission has such statutory power, to impose a filing fee on all 
bidders is unreasonable because the filing fee was designed to recoup 
the costs of fully processing the application. Since only auction 
winners will submit long-form applications and have their applications 
scrutinized, the losing bidders do not receive this service. 
Consequently, the Commission's proposed scheme is unconstitutional, he 
argues, because a user fee which is not reasonably related to, or a 
fair approximation of, the cost incurred by the government in providing 
the service for which the fee is assessed, effects a taking of 
applicants' property without just compensation, in violation of their 
fifth amendment rights. Zimsky cites Webb's Fabulous Pharmacies, Inc. 
v. Beckwith, 449 U.S. 155, 163 (1980); United States v. Sperry Corp., 
493 U.S. 52, 60 (1989) in support of his argument.
---------------------------------------------------------------------------

    \83\See William E. Zimsky Petition.
---------------------------------------------------------------------------

    46. Discussion. The Commission has requested express statutory 
authority to impose section 8 application fees for short-form 
applications. In the absence of such express authority, we do not 
currently impose fees for short-form applications. However, long-form 
applications in most services are subject to fees under section 8. 
Consequently we find Zimsky's petition to be moot, and we dismiss it.
I. Waiver Requests in Short-Form Applications
    47. Cable & Wireless, Inc. (CWI) asks that the Commission 
reconsider its rules that appear to mandate dismissal of the short-form 
application (Form 175) that do not certify compliance with the foreign 
ownership provision of Section 310 of the Communications Act, 
notwithstanding the filing of a request for waiver or other relief.\84\ 
CWI asserts that the Commission should permit participation at auction 
where the applicant certifies to the pendency of such a waiver request. 
In considering the acceptance for filing of short-form applications, 
the Commission will accept certifications that state that a request for 
waiver or declaratory ruling concerning the requirements of section 310 
is pending.\85\
---------------------------------------------------------------------------

    \84\See petition of CWI.
    \85\On January 5, 1994, CWI also filed a petition seeking a 
declaratory ruling that the public interest warrants grant of common 
carrier radio license applications to U.K. citizens and/or 
corporations that possess ownership interests in excess of the 
foreign ownership benchmarks in Section 310(b)(4) of the 
Communications Act. We expect to address the merits of this petition 
in a separate Declaratory Ruling.
---------------------------------------------------------------------------

J. Rules Prohibiting Collusion
    48. In order to prevent collusion in bidding, the Commission in the 
Second Report and Order stated, * * * bidders will be required to 
identify on their short-form applications any parties with whom they 
have entered into any consortium arrangements, joint ventures, 
partnerships or other agreements or understandings which relate in any 
way to the competitive bidding process. Bidders will also be required 
to certify on their short-form applications that they have not entered 
into any explicit or implicit agreements, arrangements or 
understandings of any kind with any parties, other than those 
identified, regarding the amount of their bid, bidding strategies or 
the particular properties on which they will or will not bid * * *. 
After such applications are filed and prior to the time that the 
winning bidder has made its required down payment, all bidders will be 
prohibited from cooperating, collaborating, discussing or disclosing in 
any manner the substance of their bids or bidding strategies with other 
bidders, unless such bidders are members of a bidding consortium or 
other joint bidding arrangement identified on the bidder's short form 
application.\86\
---------------------------------------------------------------------------

    \86\Second Report and Order 225.
---------------------------------------------------------------------------

    49. Petition. BET Holidays, Inc. (BET) states that the above 
requirements prevent bidders from entering into any new agreements, 
joint ventures or similar arrangements with other entities after filing 
a short-form application.\87\ BET claims that as a consequence bidders 
may be locked into bidding arrangements significantly before the 
commencement of the auctions, and will be unable to modify their 
bidding strategies, consult with experts or others, or enter into 
alliances with new parties any time after the filing of the short-form 
application. BET states that the collusion rule is an unrealistic 
constraint on lawful business behavior. For example, according to BET, 
if a company does not identify affiliates or others with whom it must 
consult, the company would be forbidden from soliciting research, 
sharing resources, or discussing its bids until after the winning 
bidder tenders its down payment.\88\ BET requests that the Commission 
rely on antitrust law as a safeguard against collusion.
---------------------------------------------------------------------------

    \87\BET Petition at 10.
    \88\Id. at 11.
---------------------------------------------------------------------------

    50. Discussion. While we intend to rely primarily on the antitrust 
laws to prevent bidding collusion, we believe that the anticollusion 
rules in the Second Report and Order will provide an important tool 
that will enable the Commission to detect, prevent, and punish 
collusion. To prevent and detect collusion, we believe that it is 
important to have clearly stated rules concerning the entities with 
whom communication about bidding strategies is permissible. The 
requirement that an entity identify at the time of the short-form 
application those affiliates, or others with whom it has agreements 
concerning bidding, and the prohibition of communication concerning 
bidding with entities identified by other bidders, serve this purpose 
and are not particularly burdensome. Similarly, prohibiting additional 
agreements and alliances concerning bidding between applicants bidding 
for the same licenses, after applications have been filed and the 
identities of all applicants are known, seems a prudent deterrent to 
collusion that should have only a minimal and temporary effect on 
bidders' flexibility. We wish to make explicit our intention that the 
prohibition extend to post-application settlement agreements and 
discussions concerning settlement agreements.
    51. We do believe, however, that our prohibition on communication 
among bidders and formation of agreements among bidders after 
applications have been filed may have been excessively broad in that it 
includes communications and agreements with bidders who are not bidding 
against each other, and so may prevent useful agreements that have no 
effect on the competitiveness of bidding. Consequently, we are 
modifying our collusion rules, which currently prohibit bidders from 
communicating with 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 consortium arrangements 
or joint bidding agreements of any kind after the deadline for short-
form applications has passed. In order to permit certain 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 and therefore we believe that it is 
appropriate to relax our collusion rules to permit bidders in this 
context to have great flexibility to increase their competitiveness in 
the auction by combining their resources, provided that no change of 
control of any applicant takes place.
    52. In addition, we now believe that entering into consortium 
arrangements or adding equity partners during an auction may have a 
useful effect in enabling bidders to acquire the capital necessary to 
bid successfully for licenses. We have concluded that formation of 
consortia or changes in ownership after the filing of short-form 
applications will not necessarily have anticompetitive effects, 
provided they do not involve parties that might have bid against each 
other and do not result in a change in control of the applicant. 
Consequently, we wish to modify our rules regarding amendments to 
short-form applications. 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. 
Permitting such amendments will provide bidders with flexibility to 
seek additional capital after applications have been filed, whole 
ensuring that the real party in interest does not change. Accordingly, 
we will modify Section 1.2105(c) 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, provided the parties 
have not filed Form 175 applications for any of the same licenses. Such 
changes shall not be regarded as major amendments to an application, 
provided they do not result in a transfer of control of the license or 
the applicant and do not change control of the company.
    53. Situations may arise in which an applicant has some common 
ownership interest with another bidder. We wish to clarify that, unless 
that other entity is expressly identified as an entity with whom the 
applicant has an agreement concerning bidding, we will prohibit 
communication concerning bidding with that bidder, as described in the 
Second Report and Order, even if the other bidder is identified on the 
applicant's short form application as having some common ownership 
interest with the applicant. We will retain the anticollusion rule as 
set forth in the Second Report and Order, with these clarifications.
K. Information Disclosure by Applicants and Licensees
    54. Petitions. Two petitions deal with the amount of information 
auction participants are required to disclose. GTE requests that the 
Commission require applicants to provide full ownership disclosure in 
their short form applications.\89\ GTE asserts that by enabling the 
Commission and competing applicants to assess the legitimacy of auction 
applicants, full disclosure facilitates the award of licenses to 
qualified and eligible service providers. According to GTE, full 
disclosure also promotes open and informed bidding decision.
---------------------------------------------------------------------------

    \89\GTE Petition at 2-4.
---------------------------------------------------------------------------

    55. SBC asks that the Commission minimize requirements for 
disclosure of information upon transfer of licenses.\90\ SBC states 
that the point of transfer disclosures is to ``prevent unjust 
enrichment as a result of the methods employed to issue licenses and 
permits.''\91\ SBC assserts that rules designed to prevent unjust 
enrichment should be solely applicable, if at all, to designated 
entities that receive special accommodations, since the risk of unjust 
enrichment is high only in auctions where such special accommodations 
are provided. SBC asserts that the formation of reasonable and 
efficient alliances would be discouraged by the mandate to expose the 
details of the alliance to competitors. SBC particularly objects to the 
requirement that any management agreements or consulting contracts be 
filed. SBC seeks clarification that the disclosure requirements will 
apply only to the licensees which either have not begun to offer 
service or have only offered service for some minimal period of time.
---------------------------------------------------------------------------

    \90\SBC Petition at 6-8.
    \91\Id. at 6 (citing 47 U.S.C. Sec. 309(j)(4)(E)).
---------------------------------------------------------------------------

    56. Discussion. With respect to ownership disclosure in short-form 
applications, in the Second Report and Order we decided to require 
applicants to furnish only minimal information in short-form 
applications and bidder certifications prior to auctions in order to 
reduce administrative burdens and minimize the potential for delay.\92\ 
Further ownership disclosure requirements, however, were adopted on a 
service specific basis in later Reports and Orders.\93\ We believe that 
GTE's concerns are fully met by these requirements.
---------------------------------------------------------------------------

    \92\Second Report and Order at 165.
    \93\See Third Report and Order, Appendix at 13; Fifth Report and 
Order at 62.
---------------------------------------------------------------------------

    57. As for transfer disclosure requirements, Congress in the Budget 
Act required us to develop and test alternative auction designs.\94\ We 
noted in the Second Report and Order that in addition to allowing 
detection of unjust enrichment, transfer disclosure requirements would 
provide data necessary for evaluation on our auction designs.\95\ We 
noted that the reporting requirements would allow us to monitor our 
compliance with the Congressional directive in Section 309(j)(3)(B) to 
ensure 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. 
***.''\96\ The information will be useful in meeting our statutory 
obligation to report to Congress on the outcome of the auctions.\97\ 
The information we acquire from transfer disclosures, including 
purchase price and other aspects of the sale contracts and management 
agreements, will enable us to determine the ultimate distribution of 
licenses and the value of the spectrum for particular uses, and will 
permit comparisons between licenses awarded with and without designated 
entity provisions. Such analyses require collection of data from all 
licensees, not just from designated entities or those who have not 
begun to offer service or have only offered service for a short period 
of time. As we stated in the Second Report and Order, we do not expect 
the transfer disclosure requirements to be burdensome to licensees 
because the documents to be submitted will have been prepared for other 
purposes in any event. Moreover, parties may request confidential 
treatment of competitively sensitive information pursuant to 
Secs. 0.457 and 0.459 of our Rules.\98\ Consequently we will retain 
transfer disclosure requirements for all transfers of licenses obtained 
by competitive bidding.
---------------------------------------------------------------------------

    \94\47 U.S.C. 309(j)(3).
    \95\Second Report and Order at 214.
    \96\Id. at 215.
    \97\See Budget Act, 47 U.S.C. Sec. 309(j)(2).
    \98\Second Report and Order at 215, citing 47 CFR 0.457, 0.459.
---------------------------------------------------------------------------

L. Application-Processing Rules
    58. 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 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 
90.113-90.159, could be used to process those applications with 
appropriate modifications.\99\
---------------------------------------------------------------------------

    \99\NPRM at 128.
---------------------------------------------------------------------------

    59. Petition. AIDE asserts 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. 390(j) of the Communications Act.\100\ 
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.
---------------------------------------------------------------------------

    \100\AIDE Petition at 20-21.
---------------------------------------------------------------------------

    60. Discussion. The competitive bidding process is a means of 
assigning licenses, and rules and procedures for processing of license 
application are an integral and necessary part of that process. 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.\101\ The rules to which AIDE refers were adopted 
not in the Second Report and Order but in subsequent Orders 
establishing auction rules for specific services.\102\ We address 
AIDE's petition relating to those rules either in the Orders in which 
they were adopted or in reconsiderations of those Orders.\103\
---------------------------------------------------------------------------

    \101\See Second Report and Order at 164-168, NPRM at 96-101.
    \102\See Third Report and Order at 41, n. 18; Fifth Report and 
Order at 83.
    \103\See Fifth Report and Order at 83.
---------------------------------------------------------------------------

M. Financial Qualifications
    61. In the Second Report and Order, the Commission stated that 
applicants filing short form applications would be required to certify 
that they are financially qualified pursuant to Section 308(b) of the 
Communications Act. The applicants would also be required to certify 
that they satisfy any financial qualification requirements for the 
service in question.\104\
---------------------------------------------------------------------------

    \104\Second Report and Order at 166.
---------------------------------------------------------------------------

    62. Petition. AIDE states that applying competitive bidding and 
payment requirements in addition to existing financial qualification 
requirements disadvantages designated entities, who have historically 
been constrained by difficulties in capital formation and financing. 
AIDE recommends that short-form applications not require and 
certification of financial qualification. If an application become 
mutually exclusive, according to AIDE, the applicant's payment of its 
winning bid would demonstrate that it was financially qualified. If the 
application did not become mutually exclusive, then the applicant 
should have a short period in which to file any required demonstration 
of financial qualifications by amendment.\105\
---------------------------------------------------------------------------

    \105\AIDE Petition at 19-20.
---------------------------------------------------------------------------

    63. Discussion. We believe that, in order to prevent the delay in 
bringing service to the public that might be occasioned by bankruptcies 
or by prolonged financial negotiations, it is important to require 
licensee to have the financial ability to construct and operate a 
system in addition to being able to purchase the license. Consequently 
we will continue to require applicants to certify on their short-form 
applications that they meet any existing financial qualification 
requirements of the services in which licenses are auctioned. We will 
not, however, impose additional showings of financial qualification as 
part of the auction process.

IV. Designated Entities

A. Introduction
    64. Several provisions of the Budget Act address participation by 
small businesses, rural telephone companies, and businesses owned by 
women and minorities (referred to collectively as ``designated 
entities'') in the competitive bidding process and in the provision of 
spectrum-based services. Specifically, Section 309(j)(4)(D) of the Act, 
provides that, in prescribing competitive bidding regulations, the 
Commission shall, inter alia, 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, and, for such purposes, consider the use of 
tax certificates, bidding preferences, and other procedures * * *\106\
---------------------------------------------------------------------------

    \106\47 U.S.C. Sec. 309(j)(4)(D).
---------------------------------------------------------------------------

    In addition, section 309(j)(3)(B), provides that in establishing 
eligibility criteria and bidding methodologies the Commission shall 
seek to promote the objectives of ``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.'' To promote these objectives, section 309(j)(4)(A) expressly 
states that the Commission is required ``to 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.''\107\
---------------------------------------------------------------------------

    \107\See also 47 U.S.C. Sec. 309(j)(4)(C)(ii), 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''; 
section 309(j)(3)(A), establishing the objective to promote ``the 
development and rapid deployment of new technologies, products, and 
services for the benefit of the public, including those residing in 
rural areas, without administrative or judicial delays''; section 
309(j)(12)(D)(iv), requiring that the Commission's 1997 report to 
Congress evaluate, inter alia, whether and to what extent ``small 
businesses, rural telephone companies, and businesses owned by 
members of minority groups and women wee able to participate 
successfully in the competitive bidding process.''
---------------------------------------------------------------------------

    65. In the Second Report and Order we adopted a broad menu of 
provisions that the Commission might employ to implement these 
statutory provisions. We adopted general provisions and eligibility 
rules designed to ensure that small businesses, rural telephone 
companies, and businesses owned by members of minority groups and/or 
women were afforded the opportunity to participate in both the 
competitive bidding process and in the provision of spectrum-based 
services. Specifically, we provide that small businesses (including 
those owned by women and/or minorities and rural telephone companies) 
that are winning bidders for certain blocks of spectrum could pay in 
installments over the term of their licenses. We also indicated that 
rural telephone companies may be eligible for bidding credits for 
licenses obtained in their service areas if they make an additional 
infrastructure build-our commitment beyond any existing performance 
requirements. We indicated that bidding credits may be available to 
designated entities on certain frequency blocks. In addition, we 
retained the option of establishing set-aside spectrum in certain 
services, in which eligibility to bid may be limited to some or all 
designated entities. Finally, we stated that we would consider the use 
of tax certificates as a means of creating incentives both for 
designated entities to attract capital from non-controlling investors 
and to encourage licensees to assign licenses to designated entities in 
post-auction transactions.
    66. In the Second Report and Order we recognized that the 
provisions applicable to particular designated entities would vary 
depending on the nature of each individual service. For example, we 
retained the discretion to modify our general designated entity 
provisions for capital intensive services such as broadband PCS. In 
this regard, we stated that we would evaluate on a service-specific 
basis the capital requirements and other characteristics of the service 
to determine the appropriate provisions. We continue to believe that it 
is essential for the Commission to retain flexibility to select, and if 
necessary to modify, the general designated entity provisions and 
eligibility requirements on a service-specific basis depending on the 
capital requirements and construction costs of the particular service.
B. Rural Telephone Company Definition
    67. Background. In the Second Report and Order, we adopted a 
definition of ``rural telephone company'' that includes independently 
owned and operated local exchange carriers that (1) do not serve 
communities with more than 10,000 inhabitants in the licensed area, and 
(2) do not have more than 50,000 access lines, including all 
affiliates.\108\ We stated our belief that a limitation on the size of 
eligible rural telephone companies was appropriate because Congress did 
not intend for us to provide special treatment to large LECs that 
happen to serve small rural communities.\109\
---------------------------------------------------------------------------

    \108\47 CFR 1.2110(b)(3).
    \109\See Second Report and Order at 282.
---------------------------------------------------------------------------

    68. Petitions. Several parties filed petitions for reconsideration 
of the Second Report and Order requesting that we modify our standard 
definition for rural telephone companies. Petitioners' proposals 
include requests that the Commission amend its definition of ``rural 
telephone company'' (1) to expressly include municipal- and government-
owned telephone companies within the ``rural telephone company'' 
definition in accordance with the earlier Senate version of the Budget 
Act,\110\ (2) to define ``rural telephone company'' as a local exchange 
carrier with annual revenues of less than $100 million or serving no 
more than 100,000 access lines;\111\ and (3) to include within the 
definition of ``independently owned and operated'' LECs that either 
operate 50,000 access lines or less serve communities of 10,000 or 
fewer inhabitants.\112\
---------------------------------------------------------------------------

    \104\See Anchorage Telephone Utility (ATU) Petition.
    \111\See Petitions of The National Telephone Cooperative 
Association (NTCA), South Dakota Network, Inc. (SDN) and U.S. 
Intelco Networks, Inc. (USIN).
    \112\See Petitions of the Rural Cellular Association (RCA) and 
SDN.
---------------------------------------------------------------------------

    69. In addition, Blooston, Mordkofsky, Jackson & Dickens (Blooston) 
and South Dakota Networks, Inc. (SDN) request that the Commission 
eliminate the term ``independently owned and operated'' from the 
definition of ``rural telephone company.'' According to Blooston, this 
restriction is unnecessary to prevent the largest telephone companies 
from taking advantage of provisions provided for rural telephone 
companies, since this same purpose is already served by the 50,000 
access line limit, Blooston argues the Commission should amend its 
eligibility rules to indicate that they include the access lines of 
affiliates. Similarly, SDN indicates that the Commission should include 
``and affiliates'' after ``50,000 or fewer access lines'' in the 
current definition. SDN maintains that the current language penalizes 
holding companies structured to permit telephone companies to offer 
paging and other nonregulated services.
    70. The National Telephone Cooperative Association (NTCA) requests 
that the Commission amend the definition of rural telephone company to 
include any local exchange carrier with annual revenues of less than 
$100 million or serving no more than 100,000 access lines. NTCA also 
indicates that the term ``independently owned'' should not exclude 
small rural telephone companies that are affiliated with each other and 
that rural telephone company consortia should be permitted. USIN 
similarly advocates a ``rural telephone company'' definition based 
annual revenues of less than $100,000,000 or less than 100,000 access 
lines. According to USIN a revenue-based test is more accurate than net 
worth/net profit test.
    71. The Rural Cellular Association (RCA), South Dakota Network, 
Inc. (SDN) and NTCA ask that the Commission amend the definition of 
rural telephone companies to include any independently owned and 
operated local exchange carriers (``LECs'') that either operate 50,000 
access lines or less or serve communities of 10,000 or fewer 
inhabitants. According to NTCA and RCA, the existing definition 
needlessly excludes many small independent telephone companies that 
serve rural areas. SDN alternatively requests that we revise the 
definition to include carriers with 100,000 or fewer access lines or up 
to $100 million in annual revenues.
    72. Finally, Anchorage Telephone Utility (ATU) requests that the 
Commission modify the definition of rural telephone companies to 
include government-owned telephone companies. According to ATU, such a 
modification is necessary to achieve congressional intent. ATU notes 
that the Senate bill included municipally-owned telephone companies in 
its definition of rural telephone companies. ATU's argues that the 
Senate Bill mandates special consideration for rural telephone 
companies and directed the FCC to grant ``rural program licenses'' to 
``qualified'' common carriers and explicitly said that the category of 
``qualified'' carriers included all state-owned and municipally-owned 
telephone companies.\113\ As evidence Congress' intent to include these 
provisions in the enacted version of Budget Act, ATU asserts that the 
Conference Report declares that the Senate's ``findings'' are 
incorporated by reference.
---------------------------------------------------------------------------

    \113\See ATU Petition at 2-3.
---------------------------------------------------------------------------

    73. Oppositions and Replies. In its Comment on Petitions for 
Reconsideration, BET supports retention of the Commission's existing 
generic rural telephone company definition.\114\ BET maintains that 
adoption of RCA's proposal to define rural telephone companies as LECs 
that have 50,000 access or fewer or serve communities with no more than 
10,000 inhabitants will allow large LECs that ``happen to serve rural 
areas'' to qualify for designated entity provisions. In response to 
BET's Comments, RCA asserts that the ``independently owned and 
operated'' requirement for rural telephone company eligibility will 
prevent large LECs from qualifying for rural telephone company 
provisions. RCA also restates its request for an amendment to the 
general rural telephone company definition to include LECs that serve 
100,000 access lines or fewer.\115\
---------------------------------------------------------------------------

    \114\BET Comments at 2.
    \115\RCA Reply at 2.
---------------------------------------------------------------------------

    74. In light of the Commission's decision in Fifth Report and Order 
in this proceeding, which adopted an alternative rural telephone 
company definition, NTCA argues that the Commission should abandon its 
generic rural telephone company definition and instead establish rural 
telephone company eligibility criteria on a service-specific basis. 
Alternatively NTCA proposes that we define rural telephone companies to 
include LECs that have annual revenues not in excess of $125 million or 
that serve no more than 100,000 access lines.\116\ Tri-County Telephone 
Company, Inc. (Tri-County) supports SDN's proposed rural telephone 
company definition (50,000 access lines or serves no community with 
more than 10,000 inhabitants or alternatively 100,000 access lines or 
less).\117\
---------------------------------------------------------------------------

    \116\NTCA Reply Comments at 4.
    \117\Tri-County Reply at 3.
---------------------------------------------------------------------------

    75. Discussion. We are persuaded by petitioner's arguments that the 
current generic ``rural telephone company'' definition is overly 
restrictive and effectively excludes many independently owned telephone 
companies that serve rural areas.\118\ In the Fifth Report and Order we 
departed from our generic definition of rural telephone companies in 
the context of broadband PCS by adopting a definition that includes any 
local exchange carrier having 100,000 or fewer access lines, including 
all affiliates.\119\ In adopting this definition of a ``rural telephone 
company,'' we sought to achieve the congressional goal of promoting the 
rapid deployment of service in rural areas by targeting only those 
telephone companies whose service territories are predominantly rural 
in nature, and who are thus likely to use their wireline telephone 
networks to build infrastructures to serve rural America.\120\ For 
purposes of our rules governing broadband PCS licenses, we indicated 
our belief that this goal could best be achieved if we defined ``rural 
telephone companies'' as those local exchange carriers having 100,000 
or fewer access lines, including all affiliates. We concluded that this 
definition included virtually all telephone companies whose service 
areas are predominantly rural.
---------------------------------------------------------------------------

    \118\See RCA Petition at 4-5; USIN Petition at 10; NTCA Petition 
at 2.
    \119\See Fifth Report and Order at 198.
    \120\We also note that the unique technological requirements and 
the capital intensive nature of broadband PCS dictated that we adopt 
this definition of ``rural telephone company.''
---------------------------------------------------------------------------

    76. For the foregoing reasons, we also believe that using the 
100,000 access line definition as our standard rural telephone company 
definition will better serve our goals of encouraging the provision of 
service to rural areas than the definition previously adopted in the 
Second Report and Order. Accordingly, we will amend our standard 
definition of ``rural telephone company'' to include all local exchange 
carriers with 100,000 access lines or fewer, including affiliates. In 
general, we believe that this definition will more precisely capture 
those carriers that are truly rural in nature, while excluding the 
largest telephone carriers that do not face similar capital formation 
problems. We believe that this definition will also better achieve 
Congress' goal for fostering the development and rapid deployment of 
new technologies and services to rural areas by making special measures 
available to legitimate rural telephone companies that require such 
provisions in order to meaningfully participate in the provision of 
service to rural areas without giving such benefits to large companies 
that do not require such assistance. Rural telephone companies that 
satisfy this definition thus will be eligible for rural telephone 
company provisions in each service where such provisions are 
established.\121\
---------------------------------------------------------------------------

    \121\Such companies also will be eligible for special treatment 
under our cellular attribution rules for broadband PCS. See 47 CFR 
24.204(d)(2)(ii).
---------------------------------------------------------------------------

    77. As indicated above, Blooston, SDN and NTCA request that we 
eliminate the phrase ``independently owned and operated'' from the 
definition of ``rural telephone company.'' These petitioners assert 
that the ``independently owned and operated'' restriction in the rural 
telephone company definition was intended to prevent large telephone 
companies from taking advantage of rural telephone company benefits, 
but that this purpose is served by the access line limit. In this 
regard, SDN argues that such language unduly penalizes holding 
companies of nonregulated services and entities created by groups of 
telephone companies to provide equal access, SS7, and other services.
    78. We agree. The new 100,000 access line rural telephone company 
definition adopted above includes the access lines of affiliates. Under 
the affiliation rules established in the context of broadband PCS, and 
adopted below as our generic affiliation rules, the access lines of 
holding companies, parent companies or affiliates of rural telephone 
companies that are not independently owned will be attributed for 
purposes of determining eligibility. This definition will capture most 
of the independently owned rural telephone companies, while excluding 
carriers affiliated with the largest LECs. In addition, we are 
concerned that the requirement that a rural telephone company must be 
independently owned would unnecessarily exclude rural telephone 
companies that are part of a holding company structure. Therefore we 
will delete the ``independently owned and operated'' requirement from 
our standard rural telephone company definition.
    79. With respect to ATU's request that we amend our definition of 
rural telephone company to include municipal and government owned 
telephone companies that are owned by governmental authorities, we do 
not believe that such a change is warranted. ATU contends that Congress 
meant to mandate special consideration not only for telephone carriers 
serving rural areas but also for all municipally-owned telephone 
companies, even those with wholly or predominantly urban service 
areas.\122\ This argument is based on ATU's interpretation of the 
Senate bill which preceded the enacted Budget Act. ATU argues that the 
Senate bill containing the prototype of a mandate for special 
consideration for rural telephone companies directed the FCC to grant 
``rural program licenses'' to ``qualified'' common carriers and 
explicitly said that the category of ``qualified'' carriers included 
all state-owned and municipally-owned telephone companies. ATU further 
states that the report of the conference committee that drafted the 
Budget Act declares that the Senate's ``findings'' are incorporated by 
reference.\123\ ATU also asserts that without the aid of special 
assistance it and most other state-owned and municipal telephone 
companies will not be able to purchase spectrum licenses at auction 
because it is politically infeasible for them to generate and retain 
enough surplus revenue to fund such investments, due to popular 
aversion to increases in taxes or telephone rates.\124\
---------------------------------------------------------------------------

    \122\ATU Petition at 2-3.
    \123\Id.
    \124\Id. at 4-5.
---------------------------------------------------------------------------

    80. As we indicated in the Fifth Report and Order, we are not 
persuaded by ATU's arguments.\125\ We can find no specific evidence 
that Congress intended the term ``rural telephone companies'' to 
include all state or municipally-owned telephone companies. In fact, 
the preceding bill contained an explicit mandate for preferential 
treatment of government-owned telephone companies that was deleted from 
the enacted bill. To the contrary, the fact that an antecedent bill 
contained an explicit mandate for preferential treatment of government-
owned telephone companies that was deleted from the enacted bill could 
just as easily be interpreted as an indication that Congress rejected 
such a rule. We also disagree that state and municipal governments are 
without the means to participate successfully in auctions. As we noted 
in Fifth Report and Order such governments have substantial 
capabilities to raise funds through private financing, bond offerings 
and taxation.\126\
---------------------------------------------------------------------------

    \125\See Fifth Report and Order at 203.
    \126\See Fifth Report and Order at 200. In any event, most 
state and municipally owned telephone systems (although not ATU) 
will be captured by our new 100,000 access line rural telephone 
company definition.
---------------------------------------------------------------------------

C. Rural Telephone Company Consortia
    81. Petitions. Telephone and Data Systems, Inc. (TDS) requests that 
the Commission relax the eligibility requirements for rural telephone 
company bidding consortia by (1) eliminating the 50,000 access line 
limit for rural telephone company consortium applicants; (2) allowing 
companies with more than 50,000 access lines, directly or through 
affiliates, to participate in rural telephone company consortia by 
demonstrating that more than 50 percent of their access lines company-
wide (including affiliates) and over 50 percent of those in the 
proposed service area serve only communities with 10,000 or fewer 
inhabitants and (3) providing that all rural telephone companies in 
consortia with 50,000 access lines or less have the right to hold up to 
60 percent of the equity in the consortium. SDN and NTCA also argue 
that the Commission should allow rural telephone companies to form 
consortia, since combining telephone companies would not alter their 
rural nature, so long as the rural telephone company retains at least 
50.1 percent equity and control.
    82. USIN similarly requests that small businesses, including rural 
telephone companies, be allowed to qualify for special provisions if 
they pool their resources into consortia, provided such consortia are 
controlled by designated entities. According to USIN, if such consortia 
are not permitted, rural telephone companies and other small businesses 
may be foreclosed from participation in the auction process and in the 
provision of auctionable services. USIN also indicates that 
efficiencies and economies of scale are created by aggregation and thus 
special measures should be provided to these entities who may be able 
to provide service most efficiently.
    83. Discussion. We deny the requests of TDS, SDN,\127\ and NTCA 
that we modify the standard definition of rural telephone company to 
eliminate or relax the access line limit for rural telephone company 
consortia. In the Second Report and Order as a general matter, we 
declined to provide exceptions to our designated entity eligibility 
criteria for applicants that are consortia of various individual 
entities, which in combination fail to qualify as designated 
entities.\128\ We found that such combinations, if they deviate from 
our standard definitions of designated entities, should not be eligible 
for provisions expressly designed for designated entities. This 
conclusion was based on our desire to provide economic opportunity to 
those entities designated in the statute and to ensure such entities 
the opportunity to provide spectrum-based services. We concluded that 
establishing exceptions to our definitions for consortia (even those 
wholly comprised of otherwise qualified designated entities) would 
undermine this objective by diluting the economic opportunity for 
individual qualified designated entities. We also found that allowing 
applicants to be formed from a combination of eligible and ineligible 
entities would invite attempts to abuse the designated entity 
provisions by those not entitled to them.
---------------------------------------------------------------------------

    \127\SDN argues that the Commission should allow rural telephone 
companies to form consortia among themselves, since combining 
telephone companies does not alter their rural nature. SDN also 
argues that consortia with investors should be permitted so long as 
the rural telephone company retains at least 50.1 percent equity and 
control. SDN Petition at 20-23.
    \128\See Second Report and Order at 286.
---------------------------------------------------------------------------

    84. However, in the Second Report and Order we noted that we may 
determine on a service-specific basis to allow a designated entity 
consortium to receive other benefits based on equity and operational 
participation in the consortium by one or more designated entities. We 
retained the flexibility to enable designated entity consortia to 
qualify for special provisions particularly where the capital costs of 
a particular service are high and the formation of consortia is thus 
essential to foster investment in designated entity ventures and to 
enable such entities to compete in the provision of such service. In 
this regard, in the Fifth Report and Order we allowed consortia 
comprised of small businesses to qualify for all of the measures 
applicable to individual small businesses provided each member of the 
consortium individually satisfies the definition of a small business. 
We found that given the ``exceptionally large capital requirements'' 
associated with broadband PCS, allowing small businesses to pool their 
resources in this manner was necessary to help them overcome capital 
formation problems and thereby ensure their opportunity to participate 
in auctions and to become strong broadband PCS competitors.
    85. As a general matter, we will continue to determine whether to 
permit designated entities to receive benefits based on their 
participation in consortia on a service-specific basis, depending on 
the capital requirements and other characteristics of the particular 
service. We modify the Second Report and Order, however, to provide 
that consortia may be permitted to qualify for any designated entity 
provisions (where each member individually meets the eligibility 
requirements) on a service-specific basis, where the capital 
requirements of the service are high. Where, as in broadband PCS, we 
will find that the capital requirements necessitate allowing designated 
entities to pool their resources to help them overcome capital 
formation problems and thereby ensure their opportunity to participate 
in auctions and in the provision of service, we may adopt rules 
allowing such consortia to qualify for designated entity provisions.
D. Affiliation Rules
    86. Petitions. Blooston and NTCA request that the Commission 
clarify the meaning of ``affiliate'' for purposes of access line 
aggregation. According to Blooston, passive investments by a rural 
telephone holding company in other telephone companies should not 
preclude eligibility for rural telephone company status, so long as 
there is no common control between the rural telephone company and the 
other carrier. Blooston reasons that the common control definition is 
used in the auction rules for small businesses' affiliates, has been 
used by the Commission when defining connecting carriers, and is 
generally used by the financial community and the Securities and 
Exchange Commission. Finally, Blooston requests that the Commission 
amend its designated entity provisions to allow rural telephone 
companies to combine into consortia and partner with investors without 
losing designated entity status so long as the majority equity control 
resides with members who are rural telephone companies. NTCA similarly 
requests that the term ``affiliates'' be clarified to indicate what 
organizational structures are permitted.
    87. Discussion. In response to the requests of the NTCA and 
Blooston that we clarify the meaning of the term affiliate to indicate 
the types of organizational structures that will be included, we amend 
the Second Report and Order to establish as our standard affiliation 
rules the same affiliation rules adopted by the Commission in the Fifth 
Report and Order.\129\ Blooston specifically requests that we clarify 
the meaning of ``affiliate'' so that passive investments by a rural 
telephone company in other rural telephone companies do not preclude 
designated entity status if there is no common control. As described 
more fully below, under our affiliation rules a passive interest in 
another telephone company, which does not constitute control of that 
company would not be considered an affiliation for purposes of access 
line aggregation.
---------------------------------------------------------------------------

    \129\See Fifth Report and Order at 201-217.
---------------------------------------------------------------------------

    88. In the Second Report and Order, we referenced the SBA's 
affiliation rules for purposes of defining generally whether an entity 
qualifies as a small business and gave examples of how the affiliation 
rules would be applied. In the Fifth Report and Order we expanded on 
the SBA's affiliation rules in establishing detailed affiliation 
standards for broadband PCS to be used in the context of determining 
designated entity eligibility where our criteria are based on the size 
of the entity seeking special treatment and require applicants to 
include ``affiliates'' when calculating their eligibility. These 
affiliation requirements are intended to prevent entities that do not 
meet these size standards for receiving benefits targeted to smaller 
entities.\130\ We believe that these rules are appropriate for 
determining affiliations generally, and therefore we will incorporate 
these standards into our generic auction rules for purposes of 
determining all size-based eligibility requirements. We summarize these 
standards below.
---------------------------------------------------------------------------

    \130\See, e.g., Second Report and Order at 272.
---------------------------------------------------------------------------

    89. Where we adopt sized-based eligibility rules and provide that 
such eligibility determinations shall include the applicant and all its 
``affiliates,'' the following rules shall govern determinations 
regarding affiliation. Apart from determining affiliation between the 
applicant itself and outside entities, the need to determine 
affiliation arises where an investor has an attributable interest in a 
designated entity.\131\ In this context it is necessary for the 
Commission to examine whether such investor has a relationship with 
other persons or outside entities that rise to the level of an 
affiliation with the applicant, and if so, whether the affiliate's 
assets, revenues, net worth, number of access lines, or other 
applicable financial thresholds, when aggregated with the applicant's, 
exceed the Commission's size eligibility thresholds.
---------------------------------------------------------------------------

    \131\In the context of broadband PCS, we stated that, generally, 
investors owning more than 25 percent of the applicant's passive 
equity would be considered to have ``attributable'' interests. See 
Fifth Report and Order at 158. With regard to IVDS, we used the SBA 
standard to determine attributable interests, i.e., control.
---------------------------------------------------------------------------

    90. General Principles of Affiliation. An affiliation under the SBA 
rules would arise, first, from ``control'' of an entity or the ``power 
to control it.'' Thus, under the SBA rules, entities are affiliates of 
each other when either directly or indirectly (i) one concern controls 
or has the power to control the other, or (ii) a third party or parties 
controls or has the power to control both.\132\ In determining control, 
the SBA's rules provide generally that every business concern is 
considered to have one or more parties who directly or indirectly 
control or have the power to control it. The rules, in addition, 
provide specific examples of where control resides under various 
scenarios, such as through stock ownership or occupancy of director, 
officer or management positions. The rules also articulate general 
principles of control, and note, for example, that control may be 
affirmative or negative and that it is immaterial whether control is 
exercised so long as the power to control exists.\133\ Second, an 
affiliation, under SBA rules, may also arise out of an ``identity of 
interest'' between or among parties.\134\ We adopted these same general 
provisions as our affiliation rules for broadband PCS and will also 
incorporate them into our general affiliation rules.
---------------------------------------------------------------------------

    \132\13 CFR Sec. 121.401(a)(2) (i), (ii).
    \133\Id. Sec. 121.401(c)(1).
    \134\Id. Sec. 121.401(a)(2)(iii), (d).
---------------------------------------------------------------------------

    91. In adopting these affiliation rules, we emphasize that these 
rules will not be applied in a manner that defeats the objectives of 
our service specific attribution rules. For example, in the context of 
broadband PCS, our attribution rules expressly permit applicants to 
disregard the gross revenues, total assets and net worth of certain 
passive investors, provided that an eligible control group has de facto 
and de jure control of the applicant.\135\ Our attribution rules are 
designed to preserve control of the applicant by eligible entities, yet 
allow investment in the applicant by entities that do not meet the size 
restrictions in our rules. Therefore, so long as the requirements of 
our attribution rules are met, the affiliation rules will not be used 
to defeat the underlying policy objectives of allowing such passive 
investors. More specifically, if a control group has de facto and de 
jure control of the applicant, we shall not construe the affiliation 
rules in a manner that causes the interests of passive investors to be 
attributed to the applicant.
---------------------------------------------------------------------------

    \135\See Fifth Report and Order at 205.
---------------------------------------------------------------------------

    92. Applying these SBA affiliation rules, an affiliation would 
arise, for example, where an entity with an attributable interest in an 
applicant is under the control of another entity. An affiliation would 
also arise where an entity with an attributable interest in an 
applicant controls, or has the power to control, another entity. For 
example, if an attributable investor in an applicant is also a 
shareholder in a large Corporation X, when should Corporation X be 
deemed an affiliate of the applicant as a result of the shareholder's 
ownership interest in both entities? Under the SBA rules and the rules 
we adopt here, Corporation X would be deemed an affiliate of the 
applicant if the shareholder controlled or had the power to control 
Corporation X, in which case, Corporation X's gross revenues must be 
included in determining the applicant's gross revenues.\136\
---------------------------------------------------------------------------

    \136\See Fifth Report and Order at 206.
---------------------------------------------------------------------------

    93. For purposes of determining control, ownership interests will 
be calculated on a fully-diluted basis. Thus, for example, stock 
options, convertible debentures, and agreements to merge (including 
agreements in principle) will generally be considered to have a present 
effect on the power to control or own an interest in either an outside 
entity or the PCS applicant or licensee. We will treat such options, 
debentures, and agreements generally as though the rights held 
thereunder had been exercised.\137\ However, an affiliate cannot use 
such options and debentures to appear to terminate its control over or 
relationship with another concern before it actually does so.\138\
---------------------------------------------------------------------------

    \137\See 13 CFR 121.401(f). SBA's rules provide the following 
examples to guide the application of this provision: Example 1. If 
company ``A'' holds an option to purchase a controlling interest in 
company ``B,'' the situation is treated as though company ``A'' had 
exercised its rights and had become owner of a controlling interest 
in company ``B.'' The [annual revenues] of both concerns must be 
taken into account in determining size. Example 2. If company ``A'' 
has entered into an agreement to merge with company ``B'' in the 
future, the situation is treated as though the merger has taken 
place. [A and B are affiliates of each other].
    \138\Id. SBA's rules provide this example: If large company 
``A'' holds 70 percent (70 of 100 outstanding shares) of the voting 
stock of company ``B'' and gives a third party an option to purchase 
66 of the 70 shares owned by A, company ``B'' will be deemed to be 
an affiliate of company ``A'' until the third party actually 
exercises its option to purchase such shares. In order to prevent 
large company ``A'' from circumventing the intent of the regulation 
which [gives] present effect to stock options, the option is not 
considered to have present effect in this case.
---------------------------------------------------------------------------

    94. Voting and Other Trusts. In a similar vein, we also borrow from 
the SBA's rules and our own rules in other services to find affiliation 
under certain voting trusts in order to prevent a circumvention of 
eligibility rules. The SBA's rules provide that a voting trust, or 
similar agreement, cannot be used to separate voting power from 
beneficial ownership of voting stock for the purpose of shifting 
control of or the power to control an outside concern, if the primary 
purpose of the trust is to meet size eligibility rules.\139\ Similarly, 
under the Commission's broadcast multiple ownership rules, stock 
interests held in trust may be attributed to any person who holds or 
shares the power to vote such stock, has the sole power to sell such 
stock, has the right to revoke the trust at will or to replace the 
trustee at will.\140\ Also, under the broadcast rules, if a trustee has 
a familial, personal or extra-trust business relationship to the 
grantor or the beneficiary of a trust, the stock interests held in 
trust will be considered assets of the grantor or beneficiary, as 
appropriate.\141\ Because we believe the broadcast rules provide more 
definitive guidance in this particular area, we shall use them as a 
model for the general affiliation rules adopted here. Thus, for 
example, if an investor with an attributable interest in an applicant 
holds a beneficial interest in stock of another firm that amounts to a 
controlling interest in that other firm, depending on the identity of 
the trustee, the other firm may be considered an affiliate and its 
assets and gross revenues may be attributed to the applicant.
---------------------------------------------------------------------------

    \139\13 CFR 121.401(g).
    \140\See 47 CFR 73.3555 note 2(e).
    \141\Id.
---------------------------------------------------------------------------

    95. Officers, Directors and Key Employees. Under the SBA's 
affiliation rules, which we adopt as our generic approach, affiliations 
also generally arise where persons serve as the officers, directors or 
key employees of another concern and they represent a majority or 
controlling element of that other concern's board of directors and/or 
management of the outside entity.\142\ Thus, if a person with an 
attributable interest in an applicant, through his or her other key 
employment positions or positions on the board of another firm, 
controls that other firm, then the other firm will be considered an 
affiliate of the applicant. Such affiliations may or may not result in 
the applicant's exceeding our size limitations. As this rule reflects, 
for purposes of attributing the financial position of an outside entity 
in this context, officers and directors of an outside concern are not 
foreclosed entirely from holding attributable or non-attributable 
interests in an applicant. Whether or not such persons control the 
outside entity, we also do not want to prohibit these persons, who may 
be experienced in the telecommunications, finance, or communications 
and equipment industries, from assisting start-up companies by serving 
as officers or directors of the applicant. Thus, if such persons 
serving as officers or directors of the applicant do not control the 
applicant or otherwise have an attributable interest in the applicant, 
their outside affiliations (even if controlling) will not be considered 
at all for purposes of determining the applicant's eligibility under 
our rules.\143\
---------------------------------------------------------------------------

    \142\See 13 CFR 121.401(h). A key employee is an employee who, 
because of his/her position in the concern, has a critical influence 
in or substantive control over the operations or management of the 
concern. 13 CFR 121.405.
    \143\SBA's size standard affiliation rules also provide that 
affiliations can arise in a variety of other scenarios, such as 
where one concern is dependent upon another for contracts and 
business, where firms share joint facilities, or have joint venture 
or franchise license agreements. To the extent we believe these 
rules may have general applicability we shall codify them in our 
affiliate rules. We caution parties that issues relating to de facto 
control of the applicant (or parties with attributable interests in 
the applicant) could also arise under arrangements not expressly 
codified in the rules.
---------------------------------------------------------------------------

    96. Affiliation Through Identity of Interest: Family and Spousal 
Relationships. Consistent with the SBA's rules, an affiliation may 
arise not only through control, but out of an ``identity of interest'' 
between or among parties.\144\ For example, affiliation can arise 
between or among members of the same family or persons with common 
investments in more than one concern. In determining who controls or 
has the power to control an entity , persons with an identity of 
interest may be treated as though they were one person.\145\ For 
example, if two shareholders in Corporation X are both attributable 
shareholders in an applicant, to the extent that together they have the 
power to control Corporation X, Corporation X may be deemed an 
affiliate of the applicant.
---------------------------------------------------------------------------

    \144\See 13 CFR 121.401(a)(2)(iii).
    \145\Id. Sec. 121.401(d).
---------------------------------------------------------------------------

    97. Similarly, as under the SBA rules, we will consider spousal and 
other family relationships in determining whether an affiliation 
exists. Under the SBA rules for determining small business status, for 
example, members of the same family may be treated as though they were 
one person because they have an ``identity of interest.''\146\ 
Likewise, in order to determine whether individuals are economically 
disadvantaged, the SBA rules governing eligibility for participation in 
the government's ``section 8(a)'' program for socially and economically 
disadvantaged small businesses have special provisions for attributing 
spousal interests. The latter rules provide generally that half of the 
joint-owned interests of an applicant and his or her spouse must be 
attributed to the applicant for purposes of determining the applicant's 
net worth.\147\
---------------------------------------------------------------------------

    \146\13 CFR 121.401(d).
    \147\See 13 CFR 124.106(a)(2)(i)(A)(1).
---------------------------------------------------------------------------

    98. In the context of auction size-based eligibility standards at 
issue here, we begin by clarifying that our reason for considering 
spousal and kinship relationships is not to determine whether the 
spouse or other kin of a women-owned applicant actually is controlling 
the applicant, thereby violating our eligibility rules for woman-owned 
businesses. Our rules do not embody any presumptions concerning spousal 
control in that context. Rather, our objective here is to ensure both 
that entities are actually in need of the assistance provided by our 
rules and that entities otherwise ineligible under applicable size 
criteria do not circumvent the rules by funding family members that 
purport to be eligible applicants.
    99. In formulating these rules, we need to consider also that, as a 
practical matter, it will not be possible for us prior to the auctions 
to resolve all questions that pertain to the individual circumstances 
of particular applicants. Furthermore, if we determine subsequent to an 
auction that a winning bidder in fact was ineligible to bid or to 
benefit from special provisions, such as bidding credits, because of 
spousal or kinship relationships, not only will authorization of 
service be delayed but, as discussed above, disqualified applicants may 
be subject to substantial penalties. In these circumstances, we think 
that the public interest requires that we endeavor, insofar as 
possible, to establish bright-line tests for determining when the 
financial interests of spouses and other kin should be attributed to 
the applicant.
    100. We have decided that, for purposes of determining whether the 
financial limitations in our eligibility rules have been met, interests 
of an applicant's spouse to the applicant. This will resolve any 
concern that an applicant might transfer his or her assets to a spouse 
in order to satisfy the financial restrictions that apply to eligible 
entities. For example, an applicant could not transfer stock or other 
assets to his or her spouse and thereby dispose of interests that, I 
held by the applicant, would render the applicant ineligible. Just as 
importantly, this approach will resolve any concern that an applicant 
might participate in bidding by using the personal assets of an 
ineligible spouse, which would defeat entirely the objective of 
providing special financial measures for designated entities.
    101. In adopting this rule, we fully recognize that instances could 
arise in which, if all factors were considered, attributing a spouse's 
financial interests to the applicant could lead to harsh results. As a 
general matter, however, we think it provides a workable bright-line 
standard that resolves fully our policy concerns and avoids undesirable 
ambiguity concerning the nature of our requirements. As in the SBA 
rules, however, one exception is clearly warranted; this affiliation 
standard would not apply if the applicant and his or her spouse are 
subject to a legal separation recognized by a court of competent 
jurisdiction. In calculating their personal net worth, for example, 
investors in the applicant who are legally separated must, of course, 
still include their share of interests in community property held with 
a spouse.
    102. As indicated above, circumstances could also arise in which 
other kinship relationships are used as a means to evade our 
eligibility requirements. Because we believe kinship relationships in 
many cases do not present the same potential for abuse that exists with 
spousal relationships, particularly in terms of the ``identity of 
interests'' that are likely to exist between the persons involved, we 
shall adopt a more relaxed standard for determining when kinship 
interests must be attributed to applicants. In this area, we shall 
follow the same standard that is applied by the SBA when interpreting 
its ``identity of interest'' rule described above. Specifically, an 
identity of interests between family members and applicants will be 
presumed to exist, but the presumption can be rebutted by showing that 
the family members are estranged, or that their family ties are remote, 
or that the family members are not closely related in business 
matters.\148\ For purposes of determining who is a family member under 
this rule, we shall use a definition that is identical to the 
definition of ``immediate family member'' in the SBA's rules, 13 CFR 
124.100.
---------------------------------------------------------------------------

    \148\See generally Texas-Capital Contractors, Inc. v. Abdnor, 
933 F.2d 261 (5th Cir. 1990).
---------------------------------------------------------------------------

    103. In appropriate cases, an applicant should be able to rebut the 
presumption regarding kinship affiliations with relative ease, simply 
by demonstrating that the applicant has no close relationship in 
business matters with the relevant family members. Of course, should 
such business relationships arise with a winning applicant after the 
auction, we might need to consider whether the applicant intended to 
circumvent the requirements of our eligibility rules.
    104. The affiliation requirement is intended to prevent entities 
that, for all practical purposes, do not meet the size standard 
required for eligibility from receiving benefits targeted to smaller 
entities.\149\ We believe that the affiliation rules described above 
will accomplish this objective.
---------------------------------------------------------------------------

    \149\See, e.g., Second Report and Order at 272.
---------------------------------------------------------------------------

E. Rural Telephone Company Bidding Credits.
    105. Petitions. NCTA, USIN and SDN argue that the FCC should retain 
the rural telephone company bidding credit provision adopted in the 
Second Report and Order but delete the accelerated build-out 
requirement as a condition for receipt of bidding credits. USIN asserts 
that bidding credits will not help attract capital when tied to such an 
expanded build-out requirement. According to USIN, making bidding 
credits contingent on an accelerated build-out effectively nullifies 
the provision because the commitment of additional capital for network 
build-out will reduce the amount available to finance the license price 
by enough to offset any benefit conferred by the availability of the 
credit.\150\ SDN agrees that additional build-out should not be 
required as a prerequisite for rural telephone company bidding credits, 
but states that a rural telephone company should receive additional 
bidding credits if it substantially covers its certified rural service 
area during its license term.\151\ NTCA argues that the accelerated 
build-out requirement for bidding credits should be eliminated since 
this requirement is unrelated to the statutory purpose of promoting 
investment in and rapid deployment of new technologies and services in 
rural areas.\152\
---------------------------------------------------------------------------

    \150\USIN Petition at 12.
    \151\SDN Petition at 14.
    \152\See 47 U.S.C. 309(j)(3)(A).
---------------------------------------------------------------------------

    106. SDN also contends that the risk of forfeiting the bidding 
credit (plus interest) for failure to meet the expanded build-out 
commitment will have a chilling effect because of the difficulty of 
anticipating potential problems that may be encountered in attempting 
to extend service rapidly to remote areas. Further, SDN maintains that 
an accelerated build-out requirement could engender a perverse 
incentive for a rural telephone company that would otherwise 
concentrate primarily on providing PCS service in the rural portions of 
a BTA or MTA (which, according to SDN might be a commercially-
attractive strategy because of in densely-populated areas.\153\
---------------------------------------------------------------------------

    \153\SDN Petition at 14-15.
---------------------------------------------------------------------------

    107. Finally, SDN and USIN contend that it is inequitable to 
provide rural telephone companies with a less favorable bidding credit 
provision than other designated entities. In this regard, USIN argues 
that the Second Report and Order fails to explain why rural telephone 
company bidding credits should contain more restrictive terms than 
other designated entity bidding credits. On the contrary, SDN contends 
that rural telephone companies should receive a greater bidding credit 
than other entities, because they face higher service and construction 
costs. Accordingly, SDN maintains that if accelerated build-out is to 
be included in the rural telephone company provision, an incentive 
should be provided in the form of bonus credit over and above the 
standard bidding credit available to other designated entities.
    108. Discussion. In the Second Report and Order we adopted a system 
of bidding credits for rural telephone companies designed to further 
promote the investment in and rapid deployment of new technologies and 
services in rural areas.\154\ We generally concluded that any special 
measures adopted for rural telephone companies, including bidding 
credits, should be limited to bidding for licenses, in their rural 
service areas. We found that this limitation satisfied Congress' 
objectives without unduly favoring rural telephone companies in markets 
where there was no compelling reason to do so. Specifically, we 
concluded that Congress was primarily concerned with assuring rural 
consumers the benefits of new technologies and providing opportunities 
for participation by rural telephone companies in the provision of 
wireless services that supplement or replace their landline 
facilities.\155\ Accordingly, we provided that rural telephone 
companies would be eligible for bidding credits for specified licenses 
only in their service areas.
---------------------------------------------------------------------------

    \154\See 47 U.S.C. 309(j)(3)(A).
    \155\Second Report and Order at 243.
---------------------------------------------------------------------------

    109. However, unlike bidding credits available to women and 
minority-owned firms, we linked the amount of the bidding credit for 
rural telephone companies to their commitment to achieve certain 
expanded infrastructure build-out requirements in their rural service 
areas. We provided that the amount of the bidding credit would be 
proportionately linked to the amount by which the rural telephone 
company agreed to expand its build-out commitment. In this regard, we 
indicated that failure to meet the expanded build-out commitment would 
result in liability for a penalty in the amount of the bidding credit, 
plus interest at the rate applicable to installment payments. We 
further provided that grant of the licenses to rural telephone 
companies utilizing bidding credits would be conditioned upon payment 
of this penalty, if and when it becomes applicable. We concluded that 
this added construction requirement would fulfill the congressional 
objective of developing and rapidly deploying new services to those 
residing in rural areas.
    110. On reconsideration of this issue, we no longer believe the 
provision in the Second Report and Order, which links the availability 
of bidding credits for rural telephone companies to their agreement to 
satisfy an expanded construction requirement, is necessary or 
appropriate to promote the statutory objectives. We agree with 
petitioners' assertions that the expanded build-out requirement may 
have adverse consequences contrary to the purpose of bidding credit 
provision. We are also concerned that the expanded construction 
requirement may be unduly burdensome both to rural telephone company 
licensees and the Commission. In this regard, we are concerned that the 
accelerated build-out requirement may not be economically feasible in 
some rural areas and thus may result in frequent forfeitures of the 
bidding credit amount by rural telephone companies. As discussed more 
fully below, we now believe that Congress' objectives of promoting 
investment in and rapid deployment of new technologies and services to 
rural areas will best be achieved through the use of other provisions 
such as installment payments, bidding credits (without an expanded 
build out requirement), and service area partitioning. Thus, we amend 
our rules to retain flexibility to adopt any of these or other 
provisions for rural telephone companies on a service-specific basis 
after considering the characteristics and capital requirements of the 
particular service.
F. Rural Telephone Company Eligibility for Installment Payments
    111. Petitions. SDN, USIN, and NCTA all request that installment 
payments be extended to rural telephone companies regardless of their 
status as small businesses. AIDE and Cook Inlet argue that all 
designated entities should be permitted to pay for their licenses in 
installment payments irrespective of their size. These parties all 
object to the decision to limit eligibility for installment payments to 
small businesses as defined in Sec. 1.2110(b)(1), (i.e., companies with 
net worth including that of affiliates of $6 million or less and no 
more than $2 million of annual after-federal-tax profit for the last 
two years). USIN argues that there is no statutory support in the 
provisions cited by the Commission as authority for adopting different 
provisions for one designated entity group as opposed to another.
    112. Citing the legislative history to the Budget Act and H.R. 
Report No. 103-111 in particular, USIN also maintains that the 
statutory purpose of requiring special provisions for designated 
entities was to promote entry by firms with difficulty in obtaining 
access to capital. Petitioners maintain that the $6 million net worth/
$2 million net revenue standard for installment payment eligibility is 
too strict and will prevent rural telephone companies from qualifying 
for the installment payment option although they face significant 
difficulty in obtaining access to capital. USIN asserts that as a 
practical matter rural telephone companies may have high levels of non-
amortized assets and yet have less capital available for investment 
than many businesses that meet the small business definition. SDN 
maintains that rural telephone companies should be eligible for 
installment payments regardless of whether they qualify as small 
businesses because they will generally incur higher build out costs 
with lower revenue streams than other designated entities. According to 
USIN, a rural telephone company bidding for a license in a capital-
intensive service should be eligible for installment payments if its 
annual revenue are under $100 million. USIN asserts that without 
installment payments such telephone companies will be unable to bid for 
broad-coverage licenses as traditional rural telephone company lenders 
have indicated unwillingness to finance auction bids.
    113. AIDE objects to the determination in the Second Report and 
Order that limits the installment payment option to small businesses 
bidding on licenses for ``those smaller spectrum blocks that are most 
likely to match the business objectives of bona fide small 
businesses.''\156\ According to AIDE, such the installment payment 
option should be available to all designated entities bidding on all 
licenses. AIDE maintains that Congress did not intend to give the FCC 
discretion to offer special provisions to some designated entities in 
some auctions but not in others. AIDE argues, moreover, that these 
limitations on the availability of installment payments are not 
justified by the Commission's desire to prevent abuse of its designated 
entity provisions since there are other safeguards designed 
specifically for that purpose, such as the rules for disclosure of real 
parties in interest, the definitional requirements including the assets 
of affiliates and the financial qualification rules.
---------------------------------------------------------------------------

    \156\See Second Report and Order at 237.
---------------------------------------------------------------------------

    114. Discussion. For the reasons set forth below, we deny 
petitioners' requests to expand the installment payment option to other 
designated entities irrespective of their economic status. However, we 
will retain the flexibility to expand or modify the installment payment 
option on a service-specific basis for other appropriately-sized 
entities where the spectrum costs and capital infrastructure 
requirements necessitate their application to other entities. For 
example, in the Fifth Report and Order we recognized that the 
substantial expected capital required to acquire and construct 
broadband PCS licenses warranted expansion of the installment payment 
option to most entities acquiring licenses in the entrepreneurs' 
blocks.\157\ Under the broadband PCS rules, installment payments are 
available to smaller entities that do not technically qualify as small 
businesses and an enhanced installment payment option is available to 
eligible small businesses and businesses owned by women and/or 
minorities.
---------------------------------------------------------------------------

    \157\See Fifth Report and Order at 136-140.
---------------------------------------------------------------------------

    115. In the Second Report and Order, we concluded that for some 
auctions, small businesses would be eligible for installment payments. 
We noted that by allowing payment in installments, the government would 
be extending credit to an eligible winning bidder, thus reducing the 
amount of private financing needed in advance of the auction by a 
prospective licensee. We noted that this will assist small entities who 
are likely to have difficulty obtaining adequate private financing. As 
a result, we concluded that installment payments would be an effective 
way to promote efficiently the participation of small businesses in the 
provision of spectrum-based telecommunications service and an effective 
tool for efficiently distributing licenses and services among 
geographic areas.\158\ Thus, we limited application of installment 
payments to small entities, including such entities that are owned by 
minorities and/or women. We found that this approach best served the 
intent of Congress in enacting section 309(j)(4)(A), to avoid a 
competitive bidding program that has the effect of favoring incumbents, 
with established revenue streams, over new companies or start-ups.\159\
---------------------------------------------------------------------------

    \158\See Second Report and Order at 233-240.
    \159\See H.R. Rep. No. 103-111 at 255.
---------------------------------------------------------------------------

    116. Consistent with Congress's concern that auctions not operate 
to exclude small businesses, the provisions relating to installment 
payments for minorities and/or women also were intended to assist only 
minorities and women who are small businesses. The House Report states 
that these related provisions were drafted to ``ensure that all small 
businesses will be covered by the Commission's regulations, including 
those owned by members of minority groups and women.''\160\ (emphasis 
added). It also states that the provisions in section 309(j)(4)(A) 
relating to installment payments were intended to promote economic 
opportunity by ensuring that competitive bidding does not inadvertently 
favor incumbents with ``deep pockets'' ``over new companies or start-
ups.''\161\ Because the Congressional objective here was to assist 
``new companies or start-ups,'' we therefore concluded that the 
Commission should use installment payments only for smaller sized 
entities. As indicated by the legislative history, large entities with 
established revenue streams were not intended to be beneficiaries of 
this particular means of financial assistance. We concluded that the 
statutory language, when read in conjunction with the legislative 
history, does not indicate that Congress's purpose was to accord 
special financial assistance measures under section 309(j)(4)(A) to 
entities other than those with small economic status.\162\ In this 
regard, we reject petitioner's proposals to allow installment payments 
for rural telephone companies or other designated entities irrespective 
of their size. We will continue to determine on a service-specific 
basis the appropriate economic eligibility criteria for installment 
payments. And we may, as we did in the context of broadband PCS, 
establish different installment payment options for entities who face 
different economic barriers.
---------------------------------------------------------------------------

    \160\Id.
    \161\Id.
    \162\Under authority of Section 309(j)(4))(D), we have, however, 
afforded other types of financial assistance measures, such as 
bidding credits, to other designated entities. See e.g., Third 
Report and Order, in PP Docket No. 92-253, 59 FR 26741, May 24, 
1994, at 72-81 (which provides bidding credits to businesses owned 
by minorities and/or women).
---------------------------------------------------------------------------

    117. In addition, and consistent with our decision to limit 
installment payments to small entities, we decline to make installment 
payments available for all licenses in all auctions. Rather, in order 
to match the provisions with eligible recipients, we will continue to 
make installment payments available only for certain licenses that do 
not involve the largest spectrum blocks and service areas. In this 
regard, in the context of narrowband PCS, we adopted installment 
payments only for the regional, MTA and BTA licenses. Similarly, for 
broadband PCS, we limited eligibility for installment payments to the 
BTA licenses contained in the entrepreneurs' blocks. We continue to 
believe that where large, valuable blocks of spectrum are being 
auctioned we should not give ineligible entities the incentive to 
create small business ``fronts,'' thereby enabling large businesses to 
become eligible for low-cost government financing. Nor do we desire to 
delay service to the public by encouraging under-capitalized firms to 
receive licenses for facilities which they may lack the resources 
adequately to finance.\163\ Accordingly, we will continue to allow 
installment payments only for licenses in those smaller spectrum blocks 
and service areas that are most likely to match the business objectives 
of bona fide small entities in the context of a particular service. The 
particular spectrum block sizes that will be eligible for installment 
payments will be decided in the context of each particular service 
taking into account the cost of acquiring the spectrum and constructing 
the system.
---------------------------------------------------------------------------

    \163\See 47 U.S.C. Sec. 309(j)(3)(A).
---------------------------------------------------------------------------

G. Rural Telephone Company Partitioning
    118. Petitions. SDN requests that rural telephone companies be 
allowed to partition their rural service areas either pursuant to an 
agreement with the BTA or MTA licensee, or by licensing a separate PCS 
service area using a system similar to the cellular unserved area 
application process.\164\
---------------------------------------------------------------------------

    \164\See SDN Petition at 7.
---------------------------------------------------------------------------

    119. Several commenters responding to the NPRM in this proceeding 
suggested that the Commission allow partitioning of PCS licenses so as 
to permit rural telephone companies to hold licenses to provide service 
only in their service areas.\165\ In the Second Report and Order we 
recognized that partitioning may be an effective means to achieve 
Congress's goal of ensuring that advanced services are provided in 
rural areas.\166\ In the context of broadband PCS, we adopted a system 
of geographic partitioning, for rural telephone companies which allows 
rural telephone companies to acquire partitioned broadband PCS licenses 
in one of two ways: (1) they may form bidding consortia to participate 
in auctions, and then partition the licenses won among consortia 
participants, or (2) they may acquire partitioned broadband PCS 
licenses from other licensees through private negotiation and agreement 
either before or after the auction (provided the partitioned area is 
reasonably related to the size of the rural telephone company's rural 
service area).\167\ We require that partitioned areas conform to 
established geopolitical boundaries and that each area include the 
wireline service area of the rural telephone company applicant. We 
believe that this system of partitioning of rural service areas will 
provide a significant opportunity for many of these designated entities 
who desire to offer PCS to their customers as a complement to their 
local telephone services. Therefore, we will retain the flexibility in 
the generic auction rules to adopt a system of partitioning on a 
service-specific basis where the capital requirements and construction 
costs are such that a system is necessary to assist rural telephone 
companies who cannot afford or do not desire to bid for or construct 
systems for an entire service area.\168\
---------------------------------------------------------------------------

    \165\See, e.g., comments of GVNW at 2-4, and NTCA at 13.
    \166\See Second Report and Order at 243 n. 186.
    \167\See Fifth Report and Order at 152.
    \168\In a Further Notice of Proposed Rulemaking in this docket, 
the Commission will also explore the merits of allowing businesses 
owned by minorities and/or women to acquire partitioned PCS 
licenses, as well as partitioned licenses in other services.
---------------------------------------------------------------------------

H. Unjust Enrichment Provisions
    120. Petitions. AIDE requests that when the Commission recaptures 
the benefits accruing to a designated entity pursuant to the unjust 
enrichment provisions, the unjust enrichment penalty should credit the 
licensee's pre-sale investments in the license and should be based on 
the portion of the licensee's taxable gain on the sale allocated to the 
license, with appropriate adjustments. BET similarly requests that the 
Commission revise the unjust enrichment provisions to credit the 
designated entity for its pre-transfer expenditures on the license 
including construction costs.
    121. Discussion. We deny the requests of AIDE and BET. In the 
Second Report and Order the Commission crafted unjust enrichment 
provisions designed to prevent designated entities from profiting by 
the rapid sale of licenses acquired through the benefit of provisions 
and policies meant to encourage their participation in the provision of 
spectrum-based services. These rules were intended to deter designated 
entities from prematurely transferring licenses obtained through the 
benefit of provisions designed to create opportunities for such 
designated entities in the provision of spectrum-based services. We 
sought through our unjust enrichment provisions to discourage 
designated entities who do not intend to provide service to the public 
from abusing our provisions by obtaining a license at a lower cost than 
other licensees and then selling the license after a short time to a 
non-designated entity at a profit. In addition, the unjust enrichment 
rules were intended to recapture for the government a portion of the 
value of the bidding credit or other special provision if such a 
designated entity prematurely transfers its licenses to an ineligible 
entity, thereby frustrating the government's efforts to encourage the 
inclusion of designated entities in the provision of new spectrum-based 
services.
    122. We recognize that over time, a designated licensee may have 
made substantial investments in a license prior to transfer. In order 
to reward efficiency and encourage such investments in infrastructure 
development, we provided that we will generally reduce the amount of 
the recapture penalty as time passes or construction benchmarks are 
met.\169\ We further provided that our recapture provisions would not 
apply to the transfer or assignment of a license that has been held for 
more than five years.\170\ In addition, where a recapture penalty is 
assessed, we stated that the penalty will not prevent the transferring 
designated entity from recovering the depreciated value of its capital 
investment. Moreover, we indicated that in appropriate circumstances, 
we might waive recapture ``if the licensee has incurred substantial 
start-up costs or made significant capital investments with the 
intention of starting service, but due to circumstances beyond its 
control, was unable to provide service.''\171\
---------------------------------------------------------------------------

    \169\See Second Report and Order at 262.
    \170\Id.
    \171\Id. at n.205.
---------------------------------------------------------------------------

    123. We believe that these measures adequately account for a 
designated entity's pre-transfer investments in a license, including 
construction expenses. Therefore, we decline to adopt AIDE's proposal 
that we credit the licensee's pre-sale investments in the license and 
base the recapture amount on the portion of the licensee's taxable gain 
on the sale allocated to the license, because such provisions would 
require the government to undertake lengthy and complex accounting and 
allocation proceedings to determine the amount of the penalty. 
Similarly, we deny BET's request that we credit designated entities for 
their pre-transfer expenditures on a license because we believe that 
our recapture provisions adequately account for these expenditures by 
reducing the amount of the penalty over time. Moreover, the unjust 
enrichment provisions were designed to act as a penalty to deter 
premature license transfers by designated entities. Therefore we 
decline to modify the recapture provisions adopted in the Second Report 
and Order. We note, however, that because license terms and 
construction requirements vary by service, and because we may adopt 
different designated entity provisions for different services, we will 
set forth the specific recapture provisions in the service-specific 
competitive bidding rules of each auctionable service. Moreover, we 
modify our general recapture provisions to provide flexibility on a 
service-specific basis to extend the duration of the recapture 
provisions beyond five years.
I. Upfront Payment Amount
    124. Petitions. AIDE requests that the Commission reduce the amount 
of the upfront payment for designated entities. AIDE asserts that a 
reduced upfront payment would help ensure that capital constrained 
designated entities have the opportunity to participate in the 
competitive bidding process. According to AIDE, a reduced upfront 
payment is necessary to create opportunities for designated entities to 
participate in competitive bidding and will allow such entities to 
preserve their limited resources for post-auction infrastructure 
development.
    125. Discussion. The Commission adopted an upfront payment 
requirement in order to ensure that only serious, qualified bidders 
participate in our auctions. We reasoned that an upfront payment 
requirement would ensure the validity of the information generated 
during auctions and increase the likelihood that licenses will be 
awarded to the qualified bidders who value them the most, thus 
promoting the rapid deployment of new technology. Upfront payments will 
also provide the Commission with a source of available funds in the 
event a bid withdrawal penalty must be assessed. By requiring a 
substantial upfront payment amount, the Commission seeks to deter 
speculative and frivolous bidding by all bidders, including designated 
entities. Moreover, the standard upfront payment formula ($.02 per MHz 
per pop for the maximum MHz-pops a bidder intends to bid on in any 
single round of bidding), is based on the amount of spectrum and 
population coverage on which a bidder seeks to bid and therefore is 
directly linked to the expected value of the license and anticipated 
construction costs a licensee will incur.
    126. Nevertheless, in the Second Report and Order we retained the 
flexibility to cap, reduce or modify the upfront payment amount for 
designated entities.\172\ We indicated that such decisions would be 
made in the service-specific competitive bidding rules for individual 
services. In the Fifth Report and Order, recognizing that the standard 
upfront payment formula may create a barrier for smaller entities 
wishing to participate in auctions, we reduced by 25 percent the 
upfront payment amount required for designated entities bidding in the 
entrepreneur's blocks.\173\ Given the varied spectrum costs of 
different services, we will continue to consider such reduced upfront 
payments for designated entities on a service-specific basis. 
Generally, we will only reduce the upfront payment amounts for 
designated entities in capital intensive services, such as broadband 
PCS, where the spectrum bandwidth will result in upfront payment 
amounts that may be prohibitive for some smaller entities.
---------------------------------------------------------------------------

    \172\See Second Report and Order at  178 n.37.
    \173\See Fifth Report and Order at  156.
---------------------------------------------------------------------------

J. Installment Payments
    127. In the Second Report and Order, we stated that, for some 
auctions, winning bidders that are small businesses would be eligible 
to use installment payments in paying for licenses.\174\ We provided 
that for these winning bidders, a down payment of 10 percent would be 
due within five business days of the close of the auction, and that an 
additional 10 percent would be due within five days of grant of the 
license.\175\ We stated that we would impose interest on installment 
payments at a rate equal to the rate for U.S. Treasury obligations of 
maturity equal to the license term. We stated that the schedule of 
installment payments would begin with interest-only payments for the 
first two years, and that thereafter principal and interest would be 
amortized over the remaining term of the license.\176\
---------------------------------------------------------------------------

    \174\Id. at  233.
    \175\Id. at  238.
    \176\Id. at  239.
---------------------------------------------------------------------------

    128. Upon reconsideration, we have decided that we may need to 
tailor installment payment provisions more precisely to needs of 
various groups of designated entities and the characteristics of 
particular services. In the Fifth Report and Order we provided 
installment payments for minorities and women in some blocks, and 
provided different installment provisions for small businesses of 
different sizes.\177\ We will continue to establish different 
installment payment provisions on a service-specific basis. We may 
offer installment payments to minorities and women, in some 
circumstances, and may offer installment payments having differing 
terms to different classes of designated entities. We may vary the 
interest rate and the payment schedule for installment payments, 
including the amount and timing of the down payment and the schedule 
for amortization of principal and interest. Installment payment 
provisions for each service will be specified in Orders establishing 
auction rules for that service. We believe that this additional 
flexibility will allow us to take account of differences in capital 
requirements across services and license blocks, and to provide access 
to capital in ways that will give various groups of designated entities 
a realistic chance to participate in offering service.
---------------------------------------------------------------------------

    \177\Fifth Report and Order at  137-139.
---------------------------------------------------------------------------

K. Eligibility Issues
    129. Petitions. Black Entertainment Television Holdings, Inc. (BET) 
requests that the FCC reconsider the public company restriction on the 
availability of provisions for minority and women-owned companies in 
broadband PCS. BET argues that given the costs of acquiring spectrum 
and the construction expense, such a limitation would defeat realistic 
opportunities for a wide range of minority-owned firms. BET also 
requests that we clarify that provisions for minority and women-owned 
firms are separate and distinct from provisions for small businesses. 
Finally, BET argues that rights, privileges, options or other forms of 
ownership that do not affect the ability of a designated entity to 
control a company, or diminish a designated entity financial stake in a 
venture, should not be considered in the definitional analysis for 
purposes of determining eligibility.
    130. Discussion. In the Second Report and Order, we stated that 
publicly traded minority and women-owned companies would not be 
eligible for provisions applicable to these designated entities. In the 
Fifth Report and Order, however, we deviated from this restriction to 
allow publicly traded minority and women-owned companies to qualify to 
bid in the entrepreneurs' block, and under certain circumstances to 
qualify for bidding credits.\178\ We will continue to consider 
exceptions to our restriction on publicly traded company eligibility 
for minority and women-owned businesses on a service-specific basis, in 
each case considering the capital requirements and the expected build-
out cost of the service. We agree with BET that in services with high 
entry costs, precluding publicly traded companies from receiving 
measures intended for minority and women-owned businesses may undermine 
our objective of ensuring the opportunity for these designated entities 
to participate in the provision of spectrum-based services.
---------------------------------------------------------------------------

    \178\See Fifth Report and Order at 163-164.
---------------------------------------------------------------------------

    131. As requested by BET, we clarify that the provisions for 
businesses owned by women and minorities are separate and distinct from 
the provisions for small businesses. Thus, women and minority-owned 
businesses may qualify for measures adopted for these entities 
irrespective of their size, and small businesses may qualify for small 
business provisions regardless of their ownership by minorities and 
women. And small businesses that are owned by members of minorities 
and/or women may qualify for provisions applicable to both groups.
    132. Finally, in the general auction rules, we indicated that in 
determining designated entity eligibility we would consider all rights, 
warrants and options on a fully diluted basis, i.e., they will be 
treated as if already exercised.\179\ We intend to maintain the 
existing rule of calculating these ownership interests on a fully 
diluted basis, since we expect that such ownership interests will 
almost always have the potential either to impact the ability of a 
designated entity to control a company or to diminish a designated 
entity's financial stake in the venture. However, in the rare 
circumstance where such ownership interests have no effect on a 
designated entity's ability to control a firm or to diminish the 
designated entity's financial stake, we will consider requests for 
waivers.\180\ We note, however, that we expect such instances to be 
rare, and petitioners will be required to make an affirmative showing 
sufficient to overcome the presumption that such ownership interests 
should be calculated as if exercised for purposes of determining 
eligibility issues.
---------------------------------------------------------------------------

    \179\47 CFR 1.2110(b)(2).
    \180\See 47 CFR 1.2110.
---------------------------------------------------------------------------

    133. Petitions. AIDE and Cook Inlet propose stricter eligibility 
and anti-sham measures to avoid designated entity shams. Specifically, 
Cook Inlet proposes requiring that a designated entity maintain clear 
structural control of an entity in order to be eligible for designated 
entity provisions. In this regard, Cook Inlet argues that in limited 
partnerships, the general partner should be required to be a designated 
entity and restrictions should be imposed on the ability of other 
general partners to exercise management control. Cook Inlet also 
proposes that the Commission require designated entities to document 
their eligibility by attaching documentation to their long form 
application.
    134. We agree with AIDE that in some instances stricter eligibility 
requirements are appropriate to ensure that only legitimate designated 
entities are the beneficiaries of the special provisions established 
under our rules. In particular, we clarify that, when an applicant or a 
licensee is a partnership, because each general partner generally has 
the ability to act on behalf of the partnership, all general partners 
in the license applicant must be designated entities in order to 
qualify for designated entity status. We believe that this 
clarification is consistent with the Commission's long-standing 
practice of attributing control in the context of partnerships to the 
general partners. This clarification will ensure that designated 
entities in partnerships retain de facto as well as de jure control.
    135. In addition, we agree with AIDE that documentation of 
designated entity status should be submitted along with the applicants' 
long-form applications in order to enable the Commission to verify 
designated entity eligibility. Accordingly, we will require designated 
entities to substantiate their eligibility by describing on their long-
form application how they satisfy the requirements for eligibility. We 
will also require designated entity applicants to list on their long-
form application all agreements that effect 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 in order to enable 
the Commission to audit designated entity eligibility on an ongoing 
basis.
    136. In addition, if an applicant for designated entity status 
proves unqualified, and the Commission determines that the application 
for designated entity status involved willful misrepresentation or 
other serious misconduct, the Commission will impose severe penalties. 
These may include monetary forfeitures, revocation of licenses, and 
prohibition of participation in future auctions.
    137. With respect to AIDE's proposal that clear structural control 
should be required to establish designated entity eligibility, we 
believe that as a general rule, our strict requirement that women and 
minority principals control the applicant and maintain a 50.1 percent 
voting interest (in a corporate applicant) and a 50.1 percent equity 
stake in the entity is sufficient to prevent ``fronts'' and to ensure 
that our provisions are only made available to legitimate qualified 
designated entities. However, we reserve the flexibility on a service-
specific basis, taking into account the nature of the specific 
provisions applicable in that service, to adopt additional or different 
requirements for designated entity eligibility.\181\
---------------------------------------------------------------------------

    \181\For example, in the Fifth Report and Order we allowed 
minority or women-owned broadband PCS applicants to sell up to 75 
percent of the company's equity to passive investors so long as the 
control groups retained control and 25 percent of the equity and 
each other investor owned less than 25 percent of the passive 
equity. We also established control group tests for small businesses 
and entities that wished to bid in certain blocks.
---------------------------------------------------------------------------

    138. While we conclude that our requirement that control and 
substantial equity rest with minorities and/or women will generally be 
adequate to ensure that parties do not attempt to evade the statutory 
requirement to provide economic opportunities and ensure participation 
by businesses owned by these groups, we also reaffirm our commitment to 
investigate all allegations of fronts, shams or other methods used to 
try to evade our eligibility rules. In this regard, we remind parties 
that we will conduct random pre and post-auction audits to ensure that 
applicants receiving designated entity benefits are bona fide 
designated entities.
L. Small Businesses
    139. Petitions. NTCA and USIN request that we amend the small 
business definition so that it can be flexibly modified in the context 
of a particular service. NTCA and USIN advocate that such flexibility 
is appropriate because the existing $6 million net worth/$2 million net 
income test is too low to reflect the capital-intensive nature of the 
broadband PCS business. NTCA asserts that most telephone companies are 
unable to meet this test even though they have few subscribers and few 
employees. USIN states that the current definition discriminates 
against small rural telephone companies, and that the proper measure 
for small businesses in capital-intensive service is those with annual 
revenues of less than $100 million.
    140. Discussion. We agree with NTCA. In the Second Report and Order 
we relied on the Small Business Administration's (SBA) standard 
definition. The SBA definition permits an applicant to qualify for 
financial assistance 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.\182\ The record in this 
proceeding reflected broad disagreement about the appropriate 
definition of small businesses. Many commenters, including the Chief 
Counsel for Advocacy of the SBA, argued that the SBA net worth/revenue 
definition was too restrictive and would exclude businesses of 
sufficient size to survive, much less succeed, in the competitive 
wireless communications marketplace. The SBA's Chief Counsel for 
Advocacy and Suite 12 Group advocated adoption of a 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 recommended that 
the revenue standard be raised to include firms that (together with 
affiliates) have less than $40 million in revenue. The SBA Chief 
Counsel suggested that the Commission consider a higher revenue ceiling 
or adopt different size standards for different telecommunications 
markets.\183\
---------------------------------------------------------------------------

    \182\13 CFR 121.802.
    \183\Some parties recommend using the SBA's 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 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 an entity with 1,500 
employees is likely to be extremely well capitalized and have no 
need for the special treatment outlined by Congress in the Budget 
Act. See, e.g., comments of LuxCel Group, Inc. at 4, Suite 12 Group 
at 10-11.
---------------------------------------------------------------------------

    141. Other parties indicated that the definition used by the 
Commission might impede the ability of small businesses to raise 
capital in anticipation of auctions. They noted that many small firms 
are soliciting investors to enable these firms to compete better in 
auctions, and argued that their designated entity status should not be 
jeopardized as a result. Thus, these commenters suggested, if the FCC 
adopts the SBA's net worth standard, the net worth valuation should 
relate back to the date of the PCS Final Report and Order (September 
23, 1993).
    142. In contrast, several commenters argue that the small business 
definition must be made more restrictive in order to prevent large 
firms from spinning off companies to compete as designated entities. In 
this regard, some parties recommend limiting provisions to those small 
businesses that were in existence for the previous two years.
    143. In the Second Report and Order, we adopted the existing SBA 
net worth/net income size standard as the generic threshold for small 
businesses to qualify as designated entities because at that time we 
were unable to conclude that the other proposals suggested by 
commenters were superior to this established standard. However we 
acknowledged that for certain telecommunications industry sectors this 
standard may not be high enough to encompass those entities that 
require the benefits, but also have the financial wherewithal to 
construct and operate the systems. Accordingly, we indicated that this 
``threshold could be adjusted upward on a service-by-service basis to 
accommodate such situations.'' We also noted that we may modify the 
small business definition if the SBA changed its definition or the 
Commission determined that an alternative definition was more 
appropriate for capital intensive services.
    144. In this regard, in the Fifth Report and Order we revised the 
definition of a small business set forth in the Second Report and Order 
to include entities with up to $40 million in gross revenues, and we 
provided that these small businesses would permit to pool their 
resources and form consortia to bid in the entrepreneurs' blocks or to 
receive other small business benefits. We also adopted rules that allow 
small businesses and businesses owned by women and/or minorities to 
raise capital by selling passive ownership interests in their 
companies. Thus, for example, under certain conditions, businesses 
owned by women and minorities have the option of taking on one large 
passive partner (holding up to 49.9 percent of the enterprise) or 
selling a greater portion of their companies' equity (up to 75 percent 
of the equity) to passive investors in smaller increments. Either of 
these structures should enhance the ability of these entities to obtain 
the necessary funding to meet long-term construction, operation and 
expansion goals.\184\
---------------------------------------------------------------------------

    \184\See Fifth Report and Order at 185.
---------------------------------------------------------------------------

    145. Given the diversity of services that may be subject to 
competitive bidding and the varied spectrum costs and build-out 
requirements associated with each, we conclude that it is more 
appropriate to define the eligibility requirements for small businesses 
on a service-specific basis, taking into account the capital 
requirements of each particular service in establishing the appropriate 
threshold. Therefore we will amend our generic auction rules to replace 
the small business definition with a provision enabling the Commission 
to establish a small businesses definition in the context of each 
particular service.

V. Final Regulatory Flexibility Analysis

    146. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 
Sec. 604, the Commission's final analysis is as follows:
A. Need for, and Purpose of, this Action
    147. 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 a 
Final Regulatory Flexibility Analysis within the Second Report and 
Order (at 299-302). 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.
B. Summary of the Issues Raised by the Public Comments in Response to 
the Initial Regulatory Flexibility Analysis
    148. No comments were submitted in response to our Initial 
Regulatory Flexibility Analysis.
C. Significant Alternatives Considered
    149. Although, as described in (B) above, no comments were received 
pertaining to our Initial Regulatory Flexibility Analysis, the Second 
Report and Order addressed at length the general policy considerations 
raised as a result of the Commission's new auction authority.

VI. Procedural Matters and Ordering Clauses

    150. Accordingly, It Is Ordered, that the petitions for 
reconsideration Are Granted to the extent described above and Denied in 
all other respects, and that the petition of William E. Zimsky Is 
Dismissed as moot.
    151. It Is Further Ordered, that Part 1 of the Commission's Rules 
Is Amended as set forth in Appendix B, attached. 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 1:

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

Federal Communications Commission.
LaVera F. Marshall,
Acting Secretary.

Final Rules

    Part 1 of Chapter I of Title 47 of the Code of Federal Regulations 
is amended as follows:

PART 1--PRACTICE AND PROCEDURE

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

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

    2. Subpart Q of Part 1 is revised to read as follows:

Subpart Q--Competitive Bidding Proceedings

General Procedures

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

Subpart Q--Competitive Bidding Proceedings


Sec. 1.2101  Purpose.

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


Sec. 1.2102  Eligibility of applications for competitive bidding.

    (a) Mutually exclusive initial applications in the following 
services or classes of services are subject to competitive bidding:
    (1) Interactive Video Data Service (see 47 CFR Part 95, Subpart F). 
This paragraph does not apply to applications which were filed prior to 
July 26, 1993;
    (2) Marine Public Coast Stations (see 47 CFR Part 80, Subpart J);
    (3) Multipoint Distribution Service and Multichannel Multipoint 
Distribution Service (see 47 CFR Part 21, Subpart K). This paragraph 
does not apply to applications which were filed prior to July 26, 1993;
    (4) Exclusive Private Carrier Paging above 900 MHz (see 47 CFR Part 
90, Subpart P.)
    (5) Public Mobile Services (see 47 CFR Part 22), except in the 800 
MHz Air-Ground Radiotelephone Service, and in the Rural Radio Service. 
This paragraph does not apply to applications in the cellular radio 
service, such as cellular unserved area applications, that were filed 
prior to July 26, 1993;
    (6) Specialized Mobile Radio Service (SMR) (see 47 CFR Part 90, 
Subpart S) including applications based on finder's preferences for 
frequencies allocated to the SMR service (see 47 CFR 90.173); and
    (7) Personal Communications Services (PCS) (see 47 CFR Part 24).

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

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


Sec. 1.2103  Competitive bidding design options.

    (a) The Commission will select the competitive bidding design(s) to 
be used in auctioning particular licenses or classes of licenses on a 
service-specific basis. The choice of competitive bidding design will 
generally be made pursuant to the criteria set forth in PP Docket No. 
93-253, FCC 94-61, adopted March 8, 1994, available for purchase from 
the International Transcription Service, Inc., 2100 M St. NW, suite 
140, Washington, DC 20037, telephone (202) 857-3800, but the Commission 
may design and test alternative methodologies. The Commission will 
choose from one or more of the following types of auction designs for 
services or classes of services subject to competitive bidding: (1) 
Single round sealed bid auctions (either sequential or simultaneous); 
(2) Sequential oral auctions; (3) Simultaneous multiple round auctions.
    (b) The Commission may use combinatorial bidding, which would allow 
bidders to submit all or nothing bids on combinations of licenses, in 
addition to bids on individual licenses. The Commission may require 
that to be declared the high bid, a combinatorial bid must exceed the 
sum of the individual bids by a specified amount. Combinatorial bidding 
may be used with any type of auction.
    (c) The Commission may use single combined auctions, which combine 
bidding for two or more substitutable licenses and award licenses to 
the highest bidders until the available licenses are exhausted. This 
technique may be used in conjunction with any type of auction.


Sec. 1.2104  Competitive bidding mechanisms.

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


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

    (a) Submission of Short Form Application (FCC Form 175). In order 
to be eligible to bid, an applicant must timely submit a short-form 
application (FCC Form 175), together with any appropriate filing fee 
set forth by Public Notice. Unless otherwise provided by Public Notice, 
the Form 175 need not be accompanied by an upfront payment (see 
Sec. 1.2106).
    (1) All Form 175s will be due:
    (i) On the date(s) specified by Public Notice; or
    (ii) In the case of application filing dates which occur 
automatically by operation of law (see, e.g., 47 CFR 22.902), on a date 
specified by Public Notice after the Commission has reviewed the 
applications that have been filed on those dates and determined that 
mutual exclusivity exists.
    (2) The Form 175 must contain the following information:
    (i) Identification of each license on which the applicant wishes to 
bid;
    (ii) The applicant's name, if the applicant is an individual. If 
the applicant is a corporation, then the short-form application will 
require the name and address of the corporate office and the name and 
title of an officer or director. If the applicant is a partnership, 
then the application will require the name, citizenship and address of 
all partners, and, if a partner is not a natural person, then the name 
and title of a responsible person should be included as well. If the 
applicant is a trust, then the name and address of the trustee will be 
required. If the applicant is none of the above, then it must identify 
and describe itself and its principals or other responsible persons;
    (iii) The identity of the person(s) authorized to make or withdraw 
a bid;
    (iv) If the applicant applies as a designated entity pursuant to 
Sec. 1.2110, a statement to that effect and a declaration, under 
penalty of perjury, that the applicant is qualified as a designated 
entity under Sec. 1.2110.
    (v) Certification that the applicant is legally, technically, 
financially and otherwise qualified pursuant to Section 308(b) of the 
Communications Act of 1934, as amended. The Commission will accept 
applications certifying that a request for waiver or other relief from 
the requirements of Section 310 is pending;
    (vi) Certification that the applicant is in compliance with the 
foreign ownership provisions of Section 310 of the Communications Act 
of 1934, as amended;
    (vii) Certification that the applicant is and will, during the 
pendency of its application(s), remain in compliance with any service-
specific qualifications applicable to the licenses on which the 
applicant intends to bid including, but not limited to, financial 
qualifications. The Commission may require certification in certain 
services that the applicant will, following grant of a license, come 
into compliance with certain service-specific rules, including, but not 
limited to, ownership eligibility limitations;
    (viii) An exhibit, certified as truthful under penalty of perjury, 
identifying all parties with whom the applicant has entered into 
partnerships, joint ventures, consortia or other agreements, 
arrangements or understandings of any kind relating to the licenses 
being auctioned, including any such agreements relating to the post-
auction market structure.
    (ix) Certification under penalty of perjury that it has not entered 
and will not enter into any explicit or implicit agreements, 
arrangements or understandings of any kind with any parties other than 
those identified pursuant to paragraph (a)(2)(viii) regarding the 
amount of their bids, bidding strategies or the particular licenses on 
which they will or will not bid;

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

    (b) Modification and Dismissal of Form 175. (1) Any Form 175 that 
is not signed or otherwise does not contain all of the certifications 
required pursuant to this section is unacceptable for filing and cannot 
be corrected subsequent to any applicable filing deadline. The 
application will be dismissed with prejudice and the upfront payment, 
if paid, will be returned.
    (2) The Commission will provide bidders a limited opportunity to 
cure defects specified herein (except for failure to sign the 
application and to make certifications) and to resubmit a corrected 
application. Form 175 may be amended or modified to make minor changes 
or correct minor errors in the application (such as typographical 
errors). The Commission will classify all amendments as major or minor, 
pursuant to rules applicable to specific services. An application will 
be considered to be a newly filed application if it is amended by a 
major amendment and may not be resubmitted after applicable filing 
deadlines.
    (3) Applicants who fail to correct defects in their applications in 
a timely manner as specified by Public Notice will have their 
applications dismissed with no opportunity for resubmission.
    (c) Prohibition of Collusion. (1) Except as provided in paragraphs 
(c)(2) and (c)(3) of this section, after the filing of short-form 
applications, all bidders are prohibited from cooperating, 
collaborating, discussing or disclosing in any manner the substance of 
their bids or bidding strategies, or discussing or negotiating 
settlement agreements, with other bidders until after the high bidder 
makes the required down payment, unless such bidders are members of a 
bidding consortium or other joint bidding arrangement identified on the 
bidder's short-form application pursuant to Sec. 1.2105(a)(2)(viii).
    (2) Applicants may modify their short-form applications to reflect 
formation of consortia or changes in ownership at any time before or 
during an auction, provided such changes do not result in a change in 
control of the applicant, and provided that the parties forming 
consortia or entering into ownership agreements have not applied for 
the same license. Such changes will not be considered major 
modifications of the application.
    (3) after the filing of short-form applications, applicants may 
make agreements to bid jointly for licenses, provided the parties to 
the agreement have not applied for the same license.


Sec. 1.2106  Submission of upfront payments.

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


Sec. 1.2107  Submission of down payment and filing of long-form 
applications.

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


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

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


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

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


Sec. 1.2110  Designated entities.

    (a) Designated entities are small businesses, businesses owned by 
members of minority groups and/or women, and rural telephone companies.
    (b) Definitions.
    (1) Small businesses. The Commission will establish the definition 
of a small business on a service-specific basis, taking into 
consideration the characteristics and capital requirements of the 
particular service.
    (2) Businesses owned by members of minority groups and/or women. 
Unless otherwise provided in rules governing specific services, a 
business owned by members of minority groups and/or women is one in 
which minorities and/or women who are U.S. citizens control the 
applicant, have at least 50.1 percent equity ownership and, in the case 
of a corporate applicant, a 50.1 percent voting interest. For 
applicants that are partnerships, every general partner either must be 
a minority and/or woman (or minorities and/or women) who are U.S. 
citizens and who individually or together own at least 50.1 percent of 
the partnership equity, or an entity that is 100 percent owned and 
controlled by minorities and/or women who are U.S. citizens. The 
interests of minorities and women are to be calculated on a fully-
diluted basis; agreements such as stock options and convertible 
debentures shall be considered to have a present effect on the power to 
control an entity and shall be treated as if the rights thereunder 
already have been fully exercised. However, upon a demonstration that 
options or conversion rights held by non-controlling principals will 
not deprive the minority and female principals of a substantial 
financial stake in the venture or impair their rights to control the 
designated entity, a designated entity may seek a waiver of the 
requirement that the equity of the minority and female principals must 
be calculated on a fully-diluted basis. The term minority includes 
individuals of African American, Hispanic-surnamed, American Eskimo, 
Aleut, American Indian and Asian American extraction.
    (3) Rural telephone companies. A rural telephone company is any 
local exchange carrier including affiliates (as defined in 
1.2110(b)(4)), with 100,000 access lines or fewer.
    (4) Affiliate. (i) An individual or entity is an affiliate of an 
applicant or of a person holding an attributable interest in an 
applicant under Sec. 24.709 (both referred to herein as ``the 
applicant'') if such individual or entity--
    (A) directly or indirectly controls or has the power to control the 
applicant, or
    (B) is directly or indirectly controlled by the applicant, or
    (C) is directly or indirectly controlled by a third party or 
parties that also controls or has the power to control the applicant, 
or
    (D) has an ``identity of interest'' with the applicant.
    (ii) Nature of control in determining affiliation.
    (A) Every business concern is considered to have one or more 
parties who directly or indirectly control or have the power to control 
it. Control may be affirmative or negative and it is immaterial whether 
it is exercised so long as the power to control exists.

    Example. An applicant owning 50 percent of the voting stock of 
another concern would have negative power to control such concern 
since such party can block any action of the other stockholders. 
Also, the bylaws of a corporation may permit a stockholder with less 
than 50 percent of the voting stock to block any actions taken by 
the other stockholders in the other entity. Affiliation exists when 
the applicant has the power to control a concern while at the same 
time another person, or persons, are in control of the concern at 
the will of the party or parties with the power to control.

    (B) Control can arise through stock ownership; occupancy of 
director, officer or key employee positions; contractual or other 
business relations; or combinations of these and other factors. A key 
employee is an employee who, because of his/her position in the 
concern, has a critical influence in or substantive control over the 
operations or management of the concern.
    (C) Control can arise through management positions where a 
concern's voting stock is so widely distributed that no effective 
control can be established.

    Example. In a corporation where the officers and directors own 
various size blocks of stock totaling 40 percent of the 
corporation's voting stock, but no officer or director has a block 
sufficient to give him or her control or the power to control and 
the remaining 60 percent is widely distributed with no individual 
stockholder having a stock interest greater than 10 percent, 
management has the power to control. If persons with such management 
control of the other entity are persons with attributable interests 
in the applicant, the other entity will be deemed an affiliate of 
the applicant.

    (iii) Identity of interest between and among persons. Affiliation 
can arise between or among two or more persons with an identity of 
interest, such as members of the same family or persons with common 
investments. In determining if the applicant controls or has the power 
to control a concern, persons with an identity of interest will be 
treated as though they were one person.

    Example. Two shareholders in Corporation Y each have 
attributable interests in the same PCS application. While neither 
shareholder has enough shares to individually control Corporation Y, 
together they have the power to control Corporation Y. The two 
shareholders with these common investments (or identity in interest) 
are treated as though they are one person and Corporation Y would be 
deemed an affiliate of the applicant.

    (A) Spousal Affiliation. Both spouses are deemed to own or control 
or have the power to control interests owned or controlled by either of 
them, unless they are subject to a legal separation recognized by a 
court of competent jurisdiction in the United States. In calculating 
their net worth, investors who are legally separated must include their 
share of interests in property held jointly with a spouse.
    (B) Kinship Affiliation. Immediate family members will be presumed 
to own or control or have the power to control interests owned or 
controlled by other immediate family members. In this context 
``immediate family member'' means father, mother, husband, wife, son, 
daughter, brother, sister, father- or mother-in-law, son- or daughter-
in-law, brother- or sister-in-law, step-father or -mother, step-brother 
or -sister, step-son or -daughter, half brother or sister. This 
presumption may be rebutted by showing that the family members are 
estranged, the family ties are remote, or the family members are not 
closely involved with each other in business matters.

    Example. A owns a controlling interest in Corporation X. A's 
sister-in-law, B, has an attributable interest in a PCS application. 
Because A and B have a presumptive kinship affiliation, A's interest 
in Corporation Y is attributable to B, and thus to the applicant, 
unless B rebuts the presumption with the necessary showing.

    (iv) Affiliation through stock ownership.
    (A) An applicant is presumed to control or have the power to 
control a concern if he or she owns or controls or has the power to 
control 50 percent or more of its voting stock.
    (B) An applicant is presumed to control or have the power to 
control a concern even though he or she owns, controls or has the power 
to control less than 50 percent of the concern's voting stock, if the 
block of stock he or she owns, controls or has the power to control is 
large as compared with any other outstanding block of stock.
    (C) If two or more persons each owns, controls or has the power to 
control less than 50 percent of the voting stock of a concern, such 
minority holdings are equal or approximately equal in size, and the 
aggregate of these minority holdings is large as compared with any 
other stock holding, the presumption arises that each one of these 
persons individually controls or has the power to control the concern; 
however, such presumption may be rebutted by a showing that such 
control or power to control, in fact, does not exist.
    (v) Affiliation arising under stock options, convertible 
debentures, and agreements to merge. Stock options, convertible 
debentures, and agreements to merge (including agreements in principle) 
are generally considered to have a present effect on the power to 
control the concern. Therefore, in making a size determination, such 
options, debentures, and agreements are generally treated as though the 
rights held thereunder had been exercised. However, an affiliate cannot 
use such options and debentures to appear to terminate its control over 
another concern before it actually does so.

    Example 1. If company B holds an option to purchase a 
controlling interest in company A, who holds an attributable 
interest in a PCS application, the situation is treated as though 
company B had exercised its rights and had come owner of a 
controlling interest in company A. The gross revenues of company B 
must be taken into account in determining the size of the applicant.
    Example 2. If a large company, BigCo, holds 70% (70 of 100 
outstanding shares) of the voting stock of company A, who holds an 
attributable interest in a PCS application, and gives a third party, 
SmallCo, an option to purchase 50 of the 70 shares owned by BigCo, 
BigCo will be deemed to be an affiliate of company A, and thus the 
applicant, until SmallCo actually exercises its option to purchase 
such shares. In order to prevent BigCo from circumventing the intent 
of the rule which requires such options to be considered on a fully 
diluted basis, the option is not considered to have present effect 
in this case.
    Example 3. If company A has entered into an agreement to merge 
with company B in the future, the situation is treated as though the 
merger has taken place.

    (vi) Affiliation under voting trusts.
    (A) Stock interests held in trust shall be deemed controlled by any 
person who holds or shares the power to vote such stock, to any person 
who has the sole power to sell such stock, and to any person who has 
the right to revoke the trust at will or to replace the trustee at 
will.
    (B) If a trustee has a familial, personal or extra-trust business 
relationship to the grantor or the beneficiary, the stock interests 
held in trust will be deemed controlled by the grantor or beneficiary, 
as appropriate.
    (C) If the primary purpose of a voting trust, or similar agreement, 
is to separate voting power from beneficial ownership of voting stock 
for the purpose of shifting control of or the power to control a 
concern in order that such concern or another concern may meet the 
Commission's size standards, such voting trust shall not be considered 
valid for this purpose regardless of whether it is or is not recognized 
within the appropriate jurisdiction.
    (vii) Affiliation through common management. Affiliation generally 
arises where officers, directors, or key employees serve as the 
majority or otherwise as the controlling element of the board of 
directors and/or the management of another entity.
    (viii) Affiliation through common facilities. Affiliation generally 
arises where one concern shares office space and/or employees and/or 
other facilities with another concern, particularly where such concerns 
are in the same or related industry or field of operations, or where 
such concerns were formerly affiliated, and through these sharing 
arrangements one concern has control, or potential control, of the 
other concern.
    (ix) Affiliation through contractual relationships. Affiliation 
generally arises where one concern is dependent upon another concern 
for contracts and business to such a degree that one concern has 
control, or potential control, of the other concern.
    (x) Affiliation under joint venture arrangements.
    (A) A joint venture for size determination purposes is an 
association of concerns and/or individuals, with interests in any 
degree or proportion, formed by contract, express or implied, to engage 
in and carry out a single, specific business venture for joint profit 
for which purpose they combine their efforts, property, money, skill 
and knowledge, but not on a continuing or permanent basis for 
conducting business generally. The determination whether an entity is a 
joint venture is based upon the facts of the business operation, 
regardless of how the business operation may be designated by the 
parties involved. An agreement to share profits/losses proportionate to 
each party's contribution to the business operation is a significant 
factor in determining whether the business operation is a point 
venture.
    (B) The parties to a joint venture are considered to be affiliated 
with each other.
    (C) The Commission may set aside specific licenses for which only 
eligible designated entities, as specified by the Commission, may bid.
    (D) The Commission may permit partitioning of service areas in 
particular services for eligible designated entities.
    (E) The Commission may permit small businesses (including small 
businesses owned by women, minorities, or rural telephone companies 
that qualify as small businesses) and other entities determined to be 
eligible on a service-specific basis, which are high bidders for 
licenses specified by the Commission, to pay the full amount of their 
high bids in installments over the term of their licenses pursuant to 
the following:
    (1) Unless otherwise specified, each eligible applicant paying for 
its license(s) on an installment basis must deposit by wire transfer or 
cashier's check in the manner specified in Sec. 1.2107(b) sufficient 
additional funds as are necessary to bring its total deposits to ten 
(10) percent of its winning bid(s) within five (5) business days after 
the Commission has declared it the winning bidder and closed the 
bidding. Failure to remit the required payment will make the bidder 
liable to pay penalties pursuant to Sec. 1.2104(g)(2).
    (2) Within five (5) business days of the grant of the license 
application of a winning bidder eligible for installment payments, the 
licensee shall pay another ten (10) percent of the high bid, thereby 
commencing the eligible licensee's installment payment plan. Failure to 
remit the required payment will make the bidder liable to pay penalties 
pursuant to Sec. 1.2104(g)(2).
    (3) Upon grant of the license, the Commission will notify each 
eligible licensee of the terms of its installment payment plan. Unless 
other terms are specified in the rules of particular services, such 
plans will:
    (i) impose interest based on the rate of U.S. Treasury obligations 
(with maturities closest to the duration of the license term) at the 
time of licensing;
    (ii) allow installment payments for the full license term;
    (iii) begin with interest-only payments for the first two years; 
and
    (iv) amortize principal and interest over the remaining term of the 
license.
    (4) A license granted to an eligible entity that elects installment 
payments shall be conditioned upon the full and timely performance of 
the licensee's payment obligations under the installment plan.
    (i) If an eligible entity making installment payments is more than 
ninety (90) days delinquent in any payment, it shall be in default.
    (ii) Upon default or in anticipation of default of one or more 
installment payments, a licensee may request that the Commission permit 
a three to six month grace period, during which no installment payments 
need be made. In considering whether to grant a request for a grace 
period, the Commission may consider, among other things, the licensee's 
payment history, including whether the licensee has defaulted before, 
how far into the license term the default occurs, the reasons for 
default, whether the licensee has met construction build-out 
requirements, the licensee's financial condition, and whether the 
licensee is seeking a buyer under an authorized distress sale policy. 
If the Commission grants a request for a grace period, or otherwise 
approves a restructured payment schedule, interest will continue to 
accrue and will be amortized over the remaining term of the license.
    (iii) Following expiration of any grace period without successful 
resumption of payment or upon denial of a grace period request, or upon 
default with no such request submitted, the license will automatically 
cancel and the Commission will initiate debt collection procedures 
pursuant to Part 1, Subpart O.
    (f) The Commission may award bidding credits (i.e., payment 
discounts) to eligible designated entities. Competitive bidding rules 
applicable to individual services will specify the designated entities 
eligible for bidding credits, the licenses for which bidding credits 
are available, the amounts of bidding credits and other procedures.
    (g) The Commission may establish different upfront payment 
requirements for categories of designated entities in competitive 
bidding rules of particular auctionable services.
    (h) The Commission may offer designated entities a combination of 
the available preferences or additional preferences.
    (i) Designated entities must describe on their long-form 
applications how they satisfy the requirements for eligibility for 
designated entity status, and must list and summarize on their long-
form applications all agreements that effect designated entity status, 
such as 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. Such information must be maintained at the 
licensees' facilities or by their designated agents for the term of the 
license in order to enable the Commission to audit designated entity 
eligibility on an ongoing basis.
    (j) The Commission may, on a service-specific basis, permit 
consortia, each member of which individually meets the eligibility 
requirements, to qualify for any designated entity provisions.
    (k) The Commission may, on a service-specific basis, permit 
publicly-traded companies that are owned by members of minority groups 
or women to qualify for any designated entity provisions.


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

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

[FR Doc. 94-21182 Filed 8-25-94; 8:45 am]
BILLING CODE 6712-01-M