[Federal Register Volume 59, Number 191 (Tuesday, October 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24404]


[[Page Unknown]]

[Federal Register: October 4, 1994]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 24

[PR Docket 93-253, FCC 94-240]

 

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

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission, on its own motion, reconsiders and clarifies 
various decisions made with regard to designated entities in the Third 
Memorandum and Order in this docket. This Order on Reconsideration 
adopts installment payments for businesses owned by minorities and/or 
women so that these entities have a greater opportunity to participate 
successfully in the upcoming auction for licenses for regional 
narrowband personal communication services and clarifies its definition 
of businesses owned by minorities and/or women.

EFFECTIVE DATE: November 3, 1994.

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

SUPPLEMENTARY INFORMATION:

Order on Reconsideration

    Adopted: September 22, 1994.
    Released: September 22, 1994.

    By the Commission: Commissioner Barrett not participating.
    1. In this Order, we reconsider on our own motion various decisions 
made with regard to designated entities in the Third Memorandum Opinion 
and Order in this docket.\1\ In addition, we take this opportunity to 
clarify other rules adopted in that Order.
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    \1\See Third Memorandum Opinion and Order and Further Notice of 
Proposed Rulemaking in PP Docket No. 93-253, FCC 94-219 (released 
August 17, 1994), 59 FR 44058 (August 26, 1994) (``Third Memorandum 
Opinion and Order'').
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I. Installment Payments for Women and Minority-Owned Businesses

    2. In the Third Memorandum Opinion and Order, we adopted certain 
provisions to ensure the opportunity for businesses owned by women and 
minorities and small businesses to participate in the regional 
narrowband PCS auction to be held October 26, 1994. Specifically, we 
adopted a 40 percent bidding credit for women and minority-owned firms 
and installment payments for small businesses. Small businesses are 
defined as businesses with less than $40 million in annual gross 
revenues. On further reflection, we believe that to ensure that 
designated entities have the opportunity to participate in narrowband 
PCS, minority and women-owned companies, as opposed to just small 
businesses, should be allowed to pay their winning bids in 
installments.
    3. As we noted in the Third Memorandum Opinion and Order, the 
original provisions adopted for designated entities in the narrowband 
PCS service were based on assumed relatively low capital entry costs. 
The experience in the nationwide narrowband PCS auction in July led us 
to adjust the designated entity provisions for the regional auction to 
take into account the much higher than expected prices paid for 
narrowband licenses. Specifically, we raised the bidding credit from 25 
percent to 40 percent for women and minority-owned businesses and we 
raised the financial thresholds for businesses wishing to qualify as 
small businesses. We remain concerned, however, that, given these high 
costs, businesses owned by women and minorities will be unable to 
participate successfully in the upcoming regional auction without 
installment payments.
    4. In the Fifth Report and Order in this proceeding, we documented 
the serious funding problems faced by women and minorities. Indeed, we 
noted that Congress had recognized that these problems were even more 
severe for minority and women-owned businesses than for small 
businesses.\2\ We also referred to a number of studies that supported 
the congressional findings regarding the difficulties minorities and 
women have accessing capital.\3\
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    \2\Fifth Report and Order in PP Docket No. 93-253, FCC 94-178 at 
98 (released July 15, 1994), 59 FR 37566 (July 22, 1994).
    \3\Id. at 98-103. We incorporate by reference here the 
discussion of these issues in the Fifth Report and Order.
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    5. In its petition for reconsideration in this proceeding, Cook 
Inlet Region, Inc. asked us to reconsider the scope of the installment 
payment option for designated entities. It contended that failure to 
extend the availability of installment payments to all women and 
minority-owned companies, instead of just small businesses, will 
exclude a substantial number of designated entities from meaningful 
participation in spectrum-based services. Cook Inlet argued that this 
result is contrary to the intent of Congress.\4\ In response to this, 
we stated with respect to our generic auction rules that, while 
installment payments would not generally be available to all designated 
entities irrespective of their economic status, we retained the 
flexibility to expand or modify the installment payment option on a 
service-specific basis where the spectrum costs, capital infrastructure 
requirements and other economic barriers necessitate their application 
to other entities.\5\ ``[T]his 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.''\6\
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    \4\Petition for Reconsideration of Cook Inlet Region, Inc., PP 
Docket No. 93-253, May 20, 1994, at 3-6. See also, Petition for 
Reconsideration of the Association of Independent Designated 
Entities, PP Docket No. 93-253, June 3, 1994.
    \5\See Second Memorandum Opinion and Order in PP Docket No. 93-
253, FCC 94-215 at 114, 128 (released August 15, 1994), 59 FR 
44272 (August 26, 1994).
    \6\Id. at 128.
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    6. In addition, in a recent ex parte filing, Essence 
Communications, Inc. further elaborates on the various broad 
congressional initiatives that have been aimed at helping minorities 
overcome obstacles to financing.\7\ For example, Essence notes that the 
Equal Credit Opportunity Act (ECOA) Amendments\8\ impose a federal ban 
on race-based denials of extension of credit. The legislative history 
to the ECOA Amendments highlights the challenges faced by entrepreneurs 
seeking credit to fund their businesses.\9\ In addition, Essence states 
that Congress recently amended the Community Reinvestment Act (CRA)\10\ 
to bolster the evaluations of financial institutions that subsidize 
minority banks in predominately minority areas.\11\ According to 
Essence, this aspect of the CRA is entirely race-conscious and contains 
no financial thresholds.
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    \7\Comments and Recommendations of Essence Communications, Inc. 
in Response to the Commission's Third Memorandum Opinion and Order 
and Further Notice of Proposed Rulemaking, September 14, 1994, at 8-
10.
    \8\Pub. L. 94-239, 90 Stat. 251 (1976).
    \9\S. Rep. No. 589, 94th Cong., 2d Sess. 3 (1976), reprinted in 
1976 U.S.C.C.A.N. 403, 405.
    \10\Pub. L. 95-128, 91 Stat. 1147 (1977).
    \11\See Resolution Trust Corporation Refinancing, Restructuring 
and Improvement Act, Pub. L. No. 102-233, Sec. 302, 105 Stat. 1761 
(1991).
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    7. Essence further asserts that both these congressional measures 
and the steps taken by the Commission to improve minority access to 
capital have had limited success in reducing the barriers to entry for 
minority entrepreneurs. Therefore, Essence emphasizes that the 
Commission must do more to ensure the opportunity for minority 
participation in narrowband PCS. It states that the Commission's 
conclusion that bidding credits are the most cost effective and 
efficient means of achieving this congressional objective was mistaken 
and that the July 1994 narrowband auction proved that ``bidding credits 
do not and cannot sufficiently address financing obstacles nor provide 
a competitive advantage with regard to the national licenses.''\12\ 
Accordingly, Essence argues that the Commission should either adopt an 
``entrepreneur block'' scheme for the upcoming regional narrowband PCS 
auction or raise the small business financial threshold for minority-
owned companies.
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    \12\Essence ex parte filing at 11-12.
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    8. Based on this additional information, our experience from the 
recent nationwide narrowband auctions and upon further reflection, we 
agree that the funding problems faced by minority and women-owned 
companies, combined with the potentially high cost of purchasing a 
narrowband PCS license at auction, erect a significant hurdle for these 
entrepreneurs. Because of these difficulties, we already have adopted a 
40 percent bidding credit for businesses owned by women and 
minorities,\13\ regardless of size, on two of the regional narrowband 
PCS licenses.\14\ We think that allowing these applicants owned by 
women and minorities to pay for their licenses over time will go a long 
way toward overcoming this barrier to entry. It will also provide more 
meaningful opportunities for designated entities bidding in the 
upcoming regional auctions. Accordingly, we adopt an installment 
payment plan for women and/or minority-owned businesses that obtain a 
regional narrowband PCS license on Channel 13 and Channel 17. Similar 
to the installment payments for larger entities in the entrepreneurs' 
blocks for broadband PCS auctions, this plan provides for interest 
charges to be fixed at the time of licensing at a rate equal to the 
rate for ten-year U.S. treasury obligations, plus 2.5 percent.\15\ 
Payments of interest only will be due for the first two years, with 
principal and interest payments amortized over the remaining years of 
the license. In addition, as we did for small businesses, we will 
permit businesses owned by minorities and women to pay only half of the 
down payment (or 10 percent of the bid price) five business days after 
close of the auction. The remaining 10 percent payment will be deferred 
until five days after grant of the license.
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    \13\See 47 CFR 24.320(c). See also infra 9-13.
    \14\See 47 CFR 24.129(b), 24.309(b)(2).
    \15\Compare 47 CFR 24.711(a)(3). Standard installment payments-- 
at the 10-year treasury interest rate--remain available to small 
businesses, including small businesses owned by minorities and/or 
women, on all regional licenses. See Third Report and Order in PP 
Docket No. 93-253, FCC 94-98 at 86-89 (released May 10, 1994), 59 
FR 26741 (May 24, 1994).
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II. Definition of Businesses Owned by Women and Minorities

    9. In the rules adopted pursuant to the Third Memorandum Opinion 
and Order, we changed the definition of a business owned by women and 
minorities for purposes of the regional narrowband PCS auction. See 47 
CFR 24.320(c). In particular, we departed from the definition adopted 
in the Second Report and Order, 59 FR 22980 (May 4, 1994) that required 
minorities and/or women to have at least 50.1 percent ownership and a 
50.1 percent controlling interest in the applicant. 47 CFR 
1.2110(b)(2). The new definition requires an applicant owned by women 
and/or minorities to establish a ``control group'' consisting entirely 
of women or minorities that has both de jure and de facto control of 
the applicant. It then gives the applicant two options for taking on 
passive investors. Under the first option, a single investor may hold 
as much as 49.9 percent of the applicant's passive equity if the 
control group holds at least 50.1 percent of the total equity.\16\ The 
second option allows the control group to reduce its equity stake to 25 
percent provided that no single other investor holds more than 25 
percent of the applicant's passive equity. Under either option, the 
control group must control the applicant and, in the case of 
corporations, hold at least 50.1 percent of the voting stock. For 
partnerships, all general partnership interests will be considered to 
be part of the control group.
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    \16\As provided in Section 24.320(g) of the Commission's rules, 
``passive equity'' means ``(i) for corporations, non-voting stock or 
stock that includes no more than fifteen percent of the voting 
equity; (ii) for partnerships, joint ventures and other non-
corporate entities, limited partnership interests and similar 
interests that do not afford the power to exercise control of the 
entity.'' 47 CFR 24.320(g).
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    10. In the Third Memorandum Opinion and Order we neglected, 
however, to explain this change in course. We take that opportunity 
here. We believe that the ``control group'' approach to defining a 
woman or minority-owned business provides these designated entities 
with greater flexibility to access capital than the rule adopted in the 
Second Report and Order. In particular, it allows these companies to 
reduce by 25 percent the amount of equity the minority or women 
principals must hold. This ability to sell more equity will help 
designated entities raise the capital necessary to participate in the 
auctions as well as to construct their systems. Moreover, like the 
definition set forth in the Second Report and Order, the new rule gives 
a minority or women-owned company the option to partner with one large 
company instead of seeking multiple investors so long as the control 
group retains 50.1 percent of the equity. This option meets the needs 
of designated entities that are able to attract investors that desire a 
more substantial equity stake in the venture. Thus, we believe that 
modification of the definition of minority and/or women-owned 
businesses more fully satisfies the congressional mandate that the 
Commission provide the opportunity for companies owned by these 
designated entities to participate in spectrum-based services.
    11. The new rule's requirement that investors take only passive 
interest also provides more assurance that the minority and women 
principals maintain control of their companies. As a result, we reduce 
the opportunity for fronts and help ensure that only bona fide 
designated entities will be able to take advantage of the 40 percent 
bidding credit and installment payments offered in the regional 
narrowband auctions.
    12. In addition, we believe that modifying the definition in this 
manner provides consistency with the definition of a small business 
adopted in the Third Memorandum Opinion and Order, which also uses a 
``control group'' approach. Thus, businesses will not have to satisfy 
disparate rules regarding levels of equity investment to receive both 
bidding credits and the installment payment option available to small 
businesses.
    13. Although not explicitly stated in the Third Memorandum Opinion 
and Order, we also clarify here that we are departing from the 
provision in the Second Report and Order that bars publicly traded 
companies from qualifying as minority and women-owned businesses. This 
prohibition was based on our assumption that companies traded on the 
public market would not require government-sponsored measures to 
succeed in spectrum auctions. The high prices paid for the nationwide 
narrowband PCS licenses in the auction held in July 1994 has led us to 
conclude, however, that even publicly traded companies owned by women 
and minorities will require bidding credits and installment payments to 
participate successfully in the regional auction. We recognized these 
increased capital requirements in the Third Memorandum Opinion and 
Order by raising significantly the financial thresholds for qualifying 
for small business installment payments. The same rationale applies to 
our decision here to give publicly traded minority and women-owned 
applicants government assistance in the form of bidding credits and 
installment payments. We emphasize, however, that these companies must 
comply with the control group and equity investment requirements set 
out above and in our rules.
    14. Finally, we do not intend to suggest that by clarifying this 
rule change here we have reached a decision regarding the designated 
entity issues raised by petitioners in the broadband PCS auction 
proceeding. After further analysis of those petitions, it is possible 
that we will make additional adjustments to our rules with regard to 
broadband PCS. In addition, if those changes loosen the restrictions on 
designated entities, we may decide to apply them to designated entity 
licensees in the regional narrowband service.

III. Conclusion

    15. Accordingly, it is ordered That Part 24 of the Commission's 
Rules is amended as set forth below.
    16. It is further ordered That the rules changes made herein will 
become effective 30 days after their publication in the Federal 
Register. This action is taken pursuant to Sections 4(i), 303(r) and 
309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 
Secs. 154(i), 303(r) and 309(j).

List of Subjects in 47 CFR Part 24

    Communications common carriers, Communications equipment, 
Competitive bidding, Radio, Reporting and recordkeeping requirements.

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

Rule Change

    Part 24 of Chapter 1 of Title 47 of the Code of Federal Regulations 
is amended as follows:

PART 24--PERSONAL COMMUNICATION SERVICES

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

    Authority:  47 U.S.C. 154, 301, 302, 303, 309 and 332, unless 
otherwise noted.

    2. Section 24.309 is amended by revising paragraph (b)(1) to read 
as follows:


Sec. 24.309  Designated entities.

* * * * *
    (b) * * *
    (1) Installment payments.
    (i) Small businesses, including small businesses owned by members 
of minority groups and women, will be eligible to pay the full amount 
of their winning bids on any regional, MTA or BTA license in 
installments over the term of the license pursuant to the terms set 
forth Sec. 1.2110(e) of this chapter.
    (ii) Businesses owned by members of minority groups and women that 
are winning bidders for the regional licenses indicated by an (**) in 
Sec. 24.129 may pay the full amount of their winning bids (less the 
applicable bidding credit and down payment) in installments with
    (A) Interest imposed based on the rate for ten-year U.S. Treasury 
obligations applicable on the date the license is granted, plus 2.5 
percent;
    (B) Interest-only payments for the first two years; and
    (C) Principal and interest payments amortized over the remaining 
eight years of the license.
* * * * *
[FR Doc. 94-24404 Filed 10-3-94; 8:45 am]
BILLING CODE 6712-01-M