[Federal Register Volume 59, Number 204 (Monday, October 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26437]


[[Page Unknown]]

[Federal Register: October 24, 1994]


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


FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 24

[PP Docket No. 93-253, FCC 94-264]

 

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

AGENCY: Federal Communications Commission.

ACTION: Final rule; petitions for reconsideration.

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

SUMMARY: In this Fourth Memorandum Opinion and Order the Commission 
resolves petitions for reconsideration or clarification of its rules 
governing the methodology and procedure for auctions to provide 
Personal Communications Services in the 2 GHz band (called ``broadband 
PCS'').
    The rules and decisions made in this Fourth Memorandum Opinion and 
Order are designed to result in auctions that will award licenses to 
those who value them most highly. To achieve this goal, the Commission 
adopts auction rules that balance the need to allow bidders the 
information necessary to express the interdependency of licenses with 
the need to minimize complexity of the auctions. The Commission 
believes these rules strike a proper balance between these objectives.

EFFECTIVE DATE: October 24, 1994.

FOR FURTHER INFORMATION CONTACT: Kathleen O'Brien Ham at (202) 634-
2443, or Florence Setzer at (202) 418-2038.

SUPPLEMENTARY INFORMATION: This Fourth Memorandum Opinion and Order in 
PP Docket No. 93-253, adopted October 19, 1994, and released October 
19, 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.
    Specifically, the Commission re-examines aspects of its rules 
concerning: simultaneous multiple-round auction design and procedures; 
application, payment and penalty procedures; and regulatory safeguards. 
In a future Order, the Commission will consider whether the public 
interest would be served by changing its entrepreneurs' block rules, as 
well as other provisions established to ensure that small businesses, 
rural telephone companies and businesses owned by minorities and women 
(collectively termed ``designated entities'') have a meaningful 
opportunity to participate in the provision of broadband PCS.

Synopsis of the Fourth Memorandum Opinion and Order

    1. 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). This section gives the 
Commission express authority to employ competitive bidding procedures 
to select among mutually exclusive applications for certain initial 
licenses. In the Second Report and Order in this docket, the Commission 
exercised its authority by determining that broadband PCS licenses 
should be awarded through competitive bidding and prescribing general 
rules and procedures and a broad menu of competitive bidding methods to 
be used for all auctionable services. The Commission re-examined 
certain aspects of these general rules and procedures in the Second 
Memorandum Opinion and Order, released August 15, 1994.
    2. In the Fifth Report and Order, released July 15, 1994, the 
Commission established specific competitive bidding rules for broadband 
PCS. As described more fully below, these rules, in part, set forth 
auction methodology, procedure, payment and safeguard provisions. The 
Commission decided to conduct each auction through simultaneous 
multiple-round bidding with simultaneous stopping rules. Under that 
approach, bidding will remain open on all licenses until the bidding 
closes on all licenses in the auction. It also established a variety of 
rules governing bid increments and bidding activity to move the 
auctions toward completion in a reasonable period of time. In addition, 
the Commission retained the ability to use other approaches, including 
sequential auctions for the licenses, and to make other adjustments to 
the auction process as necessary. Finally, it established pre- and 
post-auction application procedures; payment and default penalties; and 
other safeguards to prevent collusion among applicants.

Standby Bidding Queues

    3. In the Fifth Report and Order, the Commission determined that 
the simultaneous multiple-round auction design would be the preferred 
methodology for broadband PCS auctions, primarily because there is 
significant interdependency among the licenses to be auctioned, and the 
simultaneous multiple-round auction design facilitates more efficient 
aggregation and imparts to bidders greater amounts of information 
regarding license values than the other auction designs. It reserved 
the authority, however, to use combinatorial bidding techniques in 
conjunction with simultaneous multiple-round auctions to further 
facilitate the efficient aggregation of licenses. On reconsideration of 
the general auction rules adopted in this proceeding, the Commission 
also noted that we would consider the use of a standby queue mechanism 
if it elected to use combinatorial bidding techniques. The standby 
queue would allow parties seeking individual licenses to coordinate 
their bids in order to beat a prevailing bid for a combination of 
licenses.
    4. The standby queue is a mechanism that is useful only in the 
context of combinatorial bidding, and is inapplicable to simultaneous 
multiple-round bidding without combinatorial bidding. As the Commission 
noted in the Second Memorandum Opinion and Order, it has no current 
plans to use combinatorial bidding. If, however, it does adopt such an 
auction methodology in the future, the Commission will consider the use 
of a standby queue mechanism at the same time.

Activity Rules

    5. In the Fifth Report and Order, the Commission adopted an 
activity rule to ensure that the auctions will close within a 
reasonable period of time and to increase the information conveyed by 
bid prices during each auction. The activity rule requires bidders to 
maintain certain minimum levels of bidding activity during each round 
of the auction to preserve their maximum bidding eligibility. The rule 
provides for three stages with increasing levels of activity required 
in each stage. The Commission concluded that in simultaneous auctions 
without these requirements, bidders may be inclined to hold back, 
causing the auction to progress exceedingly slowly or possibly causing 
the auction to close prematurely. Furthermore, bidders would not know 
whether a low level of bidding on a license means that the license 
price is near its final level or, instead, if many serious bidders are 
holding back and may bid up the price later in the auction.
    6. The issues raised by petitioner GTE concerning the three-stage 
activity rule, and the alternative activity rule proposed by GTE, were 
considered in the reconsideration of the Second Report and Order. The 
Commission concluded at that time that no changes in the existing 
procedures were needed. The Commission sees no reason to revise that 
conclusion.
    7. As discussed in the Second Memorandum Opinion and Order, the 
Commission does not believe, despite GTE's assertion, that its 
preferred three-stage activity rule 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 may occur in simultaneous auctions, 
without unduly limiting bidders' flexibility to pursue backup 
strategies and to use new information. The requirement in the first 
stage that bidders remain active on one-third of the MHz-pops for which 
they wish to remain eligible constitutes only a minor restriction. By 
the time the auction enters stage III (if it ever does), bidding 
strategies should be well-advanced.
    8. The Commission notes that, in the Second Report and Order, it 
retained the flexibility to decide on an auction-by-auction basis, and 
to announce by Public Notice before each auction, whether to use an 
activity rule, and if so, what type of rule. This flexibility was 
retained for broadband PCS in the Fifth Report and Order. Thus, if 
experience shows that the three-stage rule is unduly difficult to 
administer or excessively restricts bidders' flexibility, the 
Commission will have the option to shift to some other activity rule, 
including the one recommended by GTE requiring only that bidders be 
active on a single license in each round.
    9. The Commission also makes some minor adjustments in the activity 
rules on its own motion. First, the Commission concludes, after its 
experience in conducting the nationwide narrowband auction, that it may 
be important to move the auctions from one stage to the next at a 
different pace than would occur under the current activity rule. 
Accordingly, it retains the discretion to determine and announce during 
the course of an auction when, and if, to move from one auction stage 
to the next, based on a variety of measures of bidder activity (e.g., 
the percentage of licenses on which there are new bids, the number of 
new bids, and the percentage increase in revenue). Bidders will be 
notified of the Commission's intention to move to another stage at 
least one round prior to the commencement of the next stage of an 
auction.
    10. The Commission also stated in the Fifth Report and Order that 
in stage III, a bidder would have to be active on 100 percent of the 
MHz-pops for which it wishes to retain eligibility. In order to allow 
bidders greater flexibility, the Commission thinks that it may be 
beneficial in auctions where high bidding is expected to reduce this 
figure slightly, but in no case below 95 percent. It will announce the 
required activity levels for stage III by Public Notice in advance of 
each auction.
    11. Finally, in the Fifth Report and Order the Commission permitted 
bidders one waiver from the activity rule during each stage of an 
auction. The Commission stated that if an activity rule waiver is 
entered in a round in which no other bidding activity occurs, the 
auction will remain open, but stated that it might announce that 
submission of a waiver would not keep an auction open under any 
circumstances. The Commission also stated that a waiver may be 
submitted either in the round in which bidding falls below the level 
required to maintain current eligibility, or prior to submitting a bid 
in the next round. The Commission now clarifies that it retains the 
discretion to modify the method and timing of submitting waivers and 
allows for two types of waivers--``proactive'' waivers and 
``automatic'' waivers. Both types of waivers will retain a bidder's 
eligibility even though its bidding activity in the current round falls 
below the required level. However, a proactive waiver invoked in a 
round in which there are no new valid bids will keep an auction open, 
while an automatic waiver submitted in a round in which no other 
bidding activity occurs will not keep an auction open. Proactive 
waivers must be requested by the bidder, but automatic waivers will be 
submitted automatically for a bidder whenever a bidder's eligibility 
would be reduced because of insufficient bidding activity and a waiver 
is available. Bidders will be afforded an opportunity to override the 
automatic waiver mechanism when they place a bid if they intentionally 
wish to reduce their bidding eligibility and do not want to use a 
waiver to retain their eligibility at its current level. The Commission 
also retains the discretion to change the number of waivers that will 
be permitted and the frequency with which they may be exercised by 
Public Notice prior to each auction. A change in the rule for moving 
from one stage to another may result in many more rounds being 
completed in one stage, and may make a rule allowing one waiver per 
stage inappropriate. Airtouch also recommends allowing bidders more 
flexibility in choosing when to use waivers.

Stopping Rule

    12. In the Fifth Report and Order, the Commission adopted a 
simultaneous stopping rule for all licenses in an auction. The 
Commission determined that this approach would provide bidders full 
flexibility to modify their bidding strategy as more information became 
available. The Commission further concluded that the activity rule 
would help establish a reasonable pace and minimize the risk that 
bidders would hold back their bidding until the final rounds. However, 
the Commission retained the discretion to use a hybrid stopping rule or 
to allow bidding to close individually for BTA licenses if it 
determines that the present rule is too complex. In addition, the 
Commission retained discretion to declare at any point after 40 rounds 
in a simultaneous multiple round auction that the auction will end 
after some specified number (probably three) of additional rounds. 
However, if the Commission exercises this authority it will accept bids 
in the final round(s) only for licenses on which the highest bid had 
increased in at least one of the preceding three rounds.
    13. The Commission reaffirms that it will in most cases use a 
simultaneous stopping rule for simultaneous auctions. The rule has 
important efficiency advantages in allowing bidders to pursue backup 
strategies and to take advantage of new information from earlier bids. 
Further, a simultaneous stopping rule will not prevent the 
implementation of regional strategies. The Commission believes bidding 
activity in early rounds will provide significant information about the 
value of licenses to competing bidders. If bidding takes unexpected 
turns, it is precisely the fact that bidding on all licenses remains 
open to the end that will give bidders the flexibility to adopt a new 
strategy if an original one proves less desirable than anticipated. 
Moreover, bidders have the option of withdrawing high bids during an 
auction, subject to the applicable penalties, if they find they have 
bid too high on one license in the expectation of getting a 
complementary license at a low price.
    14. The Commission's experience in the nationwide narrowband 
auctions bears out this conclusion. Individual licenses often had no 
new bids for several rounds, followed by active bidding and steep 
increases in bids. Allowing bidding to close on licenses individually, 
while bidding remains active on others, creates a risk of closing on 
some licenses before the final value has been reached, decreasing the 
likelihood that the license will be awarded to the bidder that values 
it most and reducing the revenues generated. In addition, individual 
closing might encourage strategic bidding that would reduce the 
efficiency of the auction. Hence, the Commission declines to adopt 
Metrex's recommendation that the Commission adopt and immediately 
announce an individual stopping rule. However, the Commission retains 
the discretion to use a hybrid or individual stopping rule for BTA 
licenses if a simultaneous stopping rule proved too complex to 
administer for large numbers of licenses. The Commission will announce 
the specific stopping rule to be used for BTA licenses by Public Notice 
prior to each auction.
    15. As for the option of declaring that the auction will end after 
some specified number of additional rounds, the Commission agrees with 
GTE that this procedure would likely result in less efficient 
allocation of licenses, and lower revenues, than allowing the auction 
to remain open as long as new bids are received. Other methods are 
available to hasten the end of an auction, including shortening the 
bidding rounds, raising the minimum bid increments, and proceeding to a 
later auction stage. The Commission retains the option of declaring the 
imminent end of the auction, however, as a fallback in case of 
extremely dilatory bidding. The Commission does not expect to use this 
option except in the unlikely case that other methods fail to bring 
about the close of an excessively long auction.

Duration of Bidding Rounds

    16. In the Fifth Report and Order, the Commission decided that 
bidders would be provided a single business day to submit bids and that 
one round of bidding would be conducted each business day. However, the 
Commission retained discretion to vary, by Public Notice or 
announcement, the duration of bidding rounds or the interval at which 
bids are accepted, in order to move the auction toward closure more 
quickly.
    17. In the Fifth Report and Order, the Commission discussed its 
discretion to vary the duration of bidding rounds or the interval at 
which bids are accepted as a tool for moving auctions toward closure 
more quickly. The Commission anticipated that holding one round of 
bidding per day might allow bidders more time than necessary to 
formulate their bids and might result in excessively long auctions. The 
Commission still believes that its planned one-day bidding rounds are 
more likely to be too long than too short, particularly since much of 
the work of estimating the values of licenses, developing business 
plans, and arranging financing can be done in advance of the auction.
    18. The Commission retains the discretion to lengthen as well as 
shorten the duration of bidding rounds or the interval at which bids 
are accepted, and will lengthen the time allowed for bidding if it sees 
evidence during the auctions that bidders are prevented by the bidding 
schedule from developing rational, well-informed bids. Nevertheless, it 
is more likely that the Commission will shorten bidding rounds because 
doing so will expedite provision of PCS service to the public without 
reducing the efficiency of the auction. The Commission believes it is 
extremely unlikely that it will hold more than two rounds per day, 
though it may start with one round per day and move to two rounds per 
day after the first week if it appears that this schedule will allow 
bidders enough time to formulate their bids.
    19. The Commission agrees with Pacific Bell that prospective 
bidders may find it important to know the time parameters of bidding 
rounds as early as possible. However, the Commission doesn't have 
enough information at present to set an appropriate minimum duration 
for bidding rounds. The Commission will continue to consider this issue 
as the broadband PCS auctions approach in light of the experience 
gained in the regional narrowband auctions.

Timing for Auctioning Specific Spectrum Blocks

    20. In the Fifth Report and Order, the Commission decided to 
auction the broadband PCS spectrum at three separate auctions. The 99 
available PCS licenses MTA blocks A and B will be auctioned first, 
followed by the 986 PCS licenses in BTA blocks C and F (the 
entrepreneurs' blocks). In the last auction, the remaining 986 licenses 
in BTA blocks D and E will be put up for bid. The Commission reasoned 
that this grouping strikes a proper balance among the competing 
concerns of awarding licenses to the parties who value them most 
highly, keeping the auction process simple and manageable, minimizing 
administrative delay, and fostering designated entity participation.
    21. With respect to arguments that we should auction BTA licenses 
(or at least entrepreneurs' block licenses) before MTA licenses to 
prevent larger firms from getting a head start over designated entities 
than the current auction sequence and might reduce the efficiency of 
the auctions. Because the large firms that are potential partners for 
designated entities probably would prefer to own outright any licenses 
they might obtain in an auction, it is less likely, rather than more 
likely, that these large firms would form partnership agreements with 
designated entities if auctions in the restricted blocks were held 
before the MTA auctions. In addition, the information about license 
values conveyed in the MTA auctions will reduce the risk of BTA 
financing and partnering and so will be valuable to bidders in the 
entrepreneurs' block auctions. In addition, it appears that a rational 
strategy for bidders in many cases might be to bid on the largest 
licenses first and only after the outcome of those auctions is known to 
attempt to acquire smaller, complementary licenses or, if unsuccessful 
in the auction for larger licenses, to attempt to aggregate smaller 
licenses as a backup strategy. In addition, if winners of MTA licenses 
were willing to bid more than other applicants for complementary BTA 
licenses, that willingness would almost certainly represent true 
efficiencies of joint operation and ought to be allowed to affect the 
assignment of licenses.
    22. As for auctioning MTA and BTA licenses together in markets with 
Pioneer's Preference licenses, the Commission continues to believe that 
substituting two 10 MHz BTA licenses for a 30 MHz MTA license is not 
likely to be a widely used strategy, so that little loss of efficiency 
would result from auctioning MTA and BTA licenses separately. Further, 
it believes that bidders will have enough information to make informed 
bids in all MTA markets. The Commission sees no reason to believe that 
auctioning MTA and BTA licenses separately would have a greater effect 
on efficiency in markets where Pioneer's Preference licenses have been 
removed from the auction than in other markets, since the same total 
amount of spectrum is available for PCS in all markets, and there is 
nothing to prevent bidders from negotiating with winners of Pioneer's 
Preference licenses. Commenters apparently have no objection to the 
plan to separate MTA and BTA auctions in other markets. In addition, 
auctioning MTA and BTA licenses together in Pioneer's Preference 
markets would remove those BTAs from the BTA auctions and thus may 
impede efficient geographic aggregation of licenses. As Omnipoint 
points out, the plan would also make it more difficult for 
entrepreneurs' block winners in those markets to aggregate their 
licenses with other BTA licenses. The auctions might also become 
unnecessarily administratively complex and confusing to bidders if BTAs 
were auctioned with MTAs in a few but not all markets. Further, 
changing the grouping of licenses at this stage in the planning process 
might cause the first auctions to be delayed. Consequently the 
Commission is unconvinced that any efficiency advantages would accrue 
from this strategy, and will continue to auction MTAs separately from 
BTAs in all markets.
    23. The Commission agrees, however, that auctioning the MTA blocks 
far ahead of other blocks would give a head start to the winners in the 
MTA blocks that would likely afford them some competitive advantage 
over winners in later auctions. Consequently, the Commission intends to 
hold the three broadband auctions as close together in time as possible 
given its administrative resources. The Commission declines to delay 
finalizing the award of A and B block licenses, however, because of an 
overriding interest in rapid introduction of PCS to the public.

Authority To Adopt Filing and Processing Rules

    24. In the Notice of Proposed Rule Making (Notice) in this 
proceeding, the Commission stated:

    In order to avoid needless duplication, we propose that the 
following general filing and processing rule apply to all PCS: 
Sections 22.3-22.45, 22.917(f), and 22.918-22.945. For those PCS 
applicants who file on Form 574, we believe that Sections 90.113-
90.159 of our rules, 47 CFR 90.113-90.159, could be used to process 
those applications with appropriate modifications.

    25. The Commission disagrees with AIDE and will not issue a 
supplemental Notice on the PCS application processing rules. Indeed, it 
has addressed AIDE's argument that there was inadequate notice of these 
rules before in the Fifth Report and Order and on reconsideration of 
the Second Report and Order on auctions. The Commission's response, 
once again, is that the Notice sought comment on specific rule sections 
contained in Parts 22 and 90 of our Rules, and asked commenters to 
indicate what modifications should be made to those rules to adapt them 
for PCS services. In addition, the Notice specifically requested 
comment on the general procedural, processing and petition-to-deny 
procedures that should be used for auctionable services. The Notice's 
proposal to adopt processing rules based on Parts 22 and 90 of the 
Commission's Rules, with any appropriate modifications for PCS 
services, clearly indicated to commenters the terms of the proposed 
rules, as is required by the Administrative Procedures Act and the 
Commission's Rules (see 5 U.S.C. Sec. 553 and 47 CFR 1.413(c)). Thus, 
the Commission believes its original description of the proposed rule 
was sufficiently specific to alert interested parties to the substance 
of our proposal and to provide an adequate opportunity for comment on 
those proposals. Several commenters did, in fact, address the proposed 
application and processing rules set forth in our Notice, a further 
indication that sufficient notice was provided. The Commission also 
believes that these issues were within the scope of this proceeding 
because as a means of assigning licenses, the competitive bidding 
process is integrally related to rules and procedures for processing of 
license applications.
    26. The broadband PCS rules established in the Fifth Report and 
Order, and modified here today, adopt several of the procedures set 
forth in Parts 22 and 90 of the Commission's Rules and discussed in the 
Notice. The minor modifications to the proposed rules were needed to 
reflect specific concerns related to auctioning broadband PCS licenses 
and address comments raised by the public. The adopted rules are a 
logical outgrowth of the rules proposed in the Notice, applied in the 
context of the use of competitive bidding to assign broadband PCS 
licenses. Rules adopted as a logical outgrowth comply with all 
Administrative Procedure Act requirements.

Disclosure of Bidding Information

    27. In the Second Memorandum Opinion and Order in this proceeding, 
the Commission announced that it would generally release the identities 
of bidders before each auction. The Commission concluded that 
disclosure was appropriate because of the advantages of providing more 
information to bidders and the difficulties involved in ensuring that 
bidder identities remain confidential. The Commission reserved the 
option, however, to withhold bidder identities on an auction-by-auction 
basis. Bidders will be informed by Public Notice prior to each auction 
whether the identities of bidders will be made public in that auction.
    28. As noted in the Public Notice announcing the first broadband 
PCS auction, Report No. AUC-94-04 (released Sept. 19, 1994), the 
Commission has decided to apply the bidder disclosure policy adopted in 
the Second Memorandum Opinion and Order to the first broadband PCS 
auction. As indicated in the Second Memorandum Opinion and Order, the 
Commission will generally identify bidders before each auction. It 
reserves the authority, however, to conceal bidder identities if 
further experience demonstrates it is desirable to do so. The 
Commission will announce its decision of whether to release bidder 
identities in a Public Notice released before each auction.

Short and Long Form Applications

    29. The Commission adopted a two-part application procedure in the 
Fifth Report and Order consistent of short- and long-form application 
obligations. The Commission will initiate the application process by 
Public Notice, announcing when it will accept short-form applications 
to participate in an auction for specific broadband PCS licenses. The 
notice, in part, will specify the licenses that will be available, 
identify the time and place of an auction in the event that mutually 
exclusive applications are filed, and announce a deadline by which 
short-form applications must be filed. After an auction, winning 
bidders will be required to file a long-form application. The long-form 
applications must be submitted by a date specified by Public Notice, 
generally within ten business days after the close of bidding. Upon 
acceptance for filing of the long-form application, the Commission will 
issue a Public Notice, which will open the filing window for petitions 
to deny.
    30. The Commission will specify by Public Notice prior to each 
broadband auction the filing date for short-form applications and the 
accepted applications for each auction. Similarly, it plans to specify 
by Public Notice after each auction is conducted the long-form filing 
dates and accepted long- form applications. The Commission's experience 
with the nationwide narrowband PCS auctions to date shows that these 
procedures work well to facilitate efficient operation of the 
competitive bidding process. It reserves the right, however, to alter 
these procedures if there is a need to do so in the future.

Upfront Payments

    31. In establishing its auction methodology for PCS, the Commission 
set forth several provisions to ensure that winning bidders will have 
the resources needed to obtain their licenses and construct their 
systems and to discourage insincere bidding. For example, short-form 
applicants must certify that they are financially qualified pursuant to 
Section 308(b) of the Communications Act, and must disclose certain 
information concerning the real party or parties in interest (e.g., 
major stockholders, partners, joint ventures). Additionally, the 
Commission requires accepted short-form applicants to make a 
substantial upfront payment, and has established significant bid 
withdrawal and default penalties.
    32. With respect to the concerns raised by Hernandez, the 
Commission believes that the existing requirements provide an adequate 
measure of a party's ability to pay. As indicated above, short-form 
applicants must make a substantial upfront payment and subject 
themselves to significant bid withdrawal and default penalties in order 
to participate in the auctions. Thus far, the Commission's experience 
with the narrowband PCS nationwide license auction suggests that the 
requirements are sufficiently stringent to ensure that auction 
participants have the financial resources to purchase the spectrum for 
which they intent to bid. The Commission will address Hernandez's 
concern about the ability of designated entities to make their 
installment payments in a separate reconsideration order on designated 
entity issues.
    33. The Commission has considered GTE's request that applicants 
earn interest on their upfront payments in the Second Memorandum 
Opinion and Order on auctions. The Commission rejects such a proposal 
for now because of the administrative difficulties that are posed by 
the need to track and transfer applicant funds, and because it lacks 
the legal authority to engage in such financial activity. The 
Commission has sought legislative authority in the 1994 House and 
Senate FCC authorization bills to establish interest-bearing accounts 
so that auction applicants may accrue interest on upfront payments. If 
such authority is granted, the Commission may choose to pay interest.

Collusion and Settlement Restrictions

    34. In the Fifth Report and Order the Commission prohibited bidders 
from discussing 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. The Commission further required bidders to identify 
on their Form 175 short-form applications all parties with whom they 
have entered into any consortium arrangements, joint ventures, 
partnerships or other agreements relating to the competitive bidding 
process. The Commission also determined that auction applicants would 
not be permitted to make any ownership changes or changes in the 
identification of parties to bidding consortia once a short-form 
application is filed. The Commission recently modified these rules on 
reconsideration of the general competitive bidding rules to permit 
bidders who have not applied for any of the same licenses to enter into 
bidding agreements during the course of an auction. It also decided to 
allow applicants to amend their Form 175 applications to make ownership 
changes after the filing deadline has passed, provided such changes do 
not result in a change of control of the applicant.
    35. The Commission declines to liberalize its collusion and 
settlement restrictions in the manner requested by either McCaw or 
AIDE. The Commission continues to believe that a prohibition against 
agreements and alliances concerning bidding between applicants bidding 
for the same licenses is a prudent deterrent to collusion that should 
have only a minimal and temporary effect on bidders' flexibility. As 
stated in the Second Report and Order, rules prohibiting collusion 
serve the objectives of the Budget Act by preventing applicants, 
especially the largest companies, from entering into agreements to use 
bidding strategies that divide the market to the disadvantage of other 
bidders. In addition the rules avoid the problem of entities filing 
applications solely for the purpose of demanding payment from other 
bidders in exchange for settlement or withdrawal. Overall, the 
Commission believes that auctions are likely to result in more 
efficient assignments than settlements because they reduce the 
transaction cost of putting a license in the hands of the applicant 
that values it most highly.
    36. With regard to McCaw's proposal, the fact that one bidder has 
withdrawn its application before entering into a consortium with 
another bidder does not reduce the importance of the collusion rules, 
even if the Commission forbids bidders from communicating with other 
bidders competing for the same license until after a formal withdrawal 
has taken place. The Commission is concerned that if such consortium 
arrangements were permissible, particularly in an environment where 
bidder identities are known, undue pressure may be brought to bear on 
smaller bidders to withdraw in exchange for teaming up with other 
larger bidders, or sham applications would be filed to demand payment 
from other applicants. In general, The Commission is concerned that 
McCaw's proposal would create incentives for parties to collude and 
behave in an anti-competitive manner. While the Commission recognizes 
that allowing consortia to occur could enable many smaller applicants 
to pool their resources to win licenses, it believes the risks of 
allowing such arrangements between applicants for the same license 
(even when one applicant has withdrawn) outweigh the benefits at this 
time.
    37. The Commission also rejects AIDE's contention that the 
Commission lacks the authority under the Communications Act to preclude 
settlements between mutually exclusive applicants for auctionable 
licenses. While the Commission has an established policy of favoring 
settlements in some contexts, it is entirely within our authority to 
restrict or prohibit settlements if we find such agreements would not 
be in the public interest. At this time, the Commission finds that 
post-filing settlements between applicants for the same license in the 
broadband PCS competitive bidding process would not serve the public 
interest for reasons stated above. The Commission believes that nothing 
in the language or legislative history of Section 309(j) contradicts 
this view. Consequently, the Commission is amending its rules to 
eliminate Section 24.829(b), which is inconsistent with the collusion 
rules contained in Section 1.2105 of the Rules.
    38. In order to provide bidders sufficient time and greater 
flexibility to attract capital, however, the Commission makes several 
modifications to its collusion rules and policies adopted in the Fifth 
Report and Order and in its reconsideration of the generic auction 
rules. First, the Commission recognizes that an entity may hold non-
controlling ownership interests in two or more bidders, and that those 
bidders may aggregate more PCS spectrum cumulatively than a single 
entity is entitled to hold. In such cases, the Commission will permit 
divestiture of non-controlling interests to bring the entities into 
compliance with the PCS spectrum aggregation limits provided such 
divestiture is completed within 90 days of grant of the license. Such 
post-auction divestiture will enable investors to finance more than one 
bidder without risking default penalties if both bidders, for example, 
win licenses which in combination exceed our aggregation limits.
    39. Procedurally, if entities with a common non-controlling 
ownership interest aggregate more PCS spectrum among them than a single 
entity is entitled to hold, the Commission will require that the long-
form applications for broadband PCS licensing be accompanied by a 
signed statement from the applicant that sufficient properties will be 
divested within 90 days of the license grant to bring the broadband PCS 
licenses held within the permitted aggregation limits. If the applicant 
is otherwise qualified, the applications will be granted subject to a 
condition that the licensee come into compliance with the PCS spectrum 
aggregation limits within 90 days of grant. Within 90 days of license 
grant, the licensee must certify to the Commission that the applicant 
and all parties to the application have come into compliance with our 
PCS spectrum aggregation limits. If the PCS licensee fails to submit 
this certification within 90 days, the Commission will invoke the 
condition on all broadband PCS licenses won by the applicant in the 
auction, cancelling them immediately and imposing the default penalty. 
In addition, the Commission may investigate whether the certifications 
on divestiture are evidence of misrepresentations that call into 
question the party's qualification to hold any PCS licenses. If a buyer 
has not been secured in the required period of time, the PCS licensee 
may divest the prohibited interest to an interim independent trustee, 
as long as the applicant has no interest in or control of the trustee. 
The trustee may dispose of the interest as it sees fit. In no event, 
however, may the trustee retain the property for longer than six 
months.
    40. Also, as indicated supra, the Commission's auction collusion 
rules have been revised to 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. The Commission stated in the Third Memorandum 
Opinion and Order on narrowband PCS auctions that where bidders have 
not applied for any of the same licenses there is little risk of anti-
competitive conduct with respect to a single license. The Commission 
reaches the same conclusion with respect to broadband PCS. The relaxed 
collusion rules, which the Commission will apply in the broadband PCS 
context, will permit bidders to have greater flexibility to compete in 
the auction by combining their resources, provided that no change of 
control of any applicant takes place. The Commission wishes to clarify 
that it intended these provisions to apply to applicants that have not 
applied for licenses in any of the same geographic license areas, i.e., 
the same MTAs for A and B block licenses or the same BTAs for other 
broadband PCS licenses.
    41. As noted above, the Commission also modified our generic 
auction rules 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. The Commission now modifies Section 
24.822 (b) to clarify the applicability of this provision to broadband 
PCS. Such changes shall not be regarded as major amendments to an 
application, provided they do not result in a transfer of control of 
the applicant. Amendments to FCC Form 175 must be filed with the 
Commission within two business days of any such change. The 
Commission's experience in the nationwide narrowband PCS auction 
demonstrated 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 of 
control or discussions that violate the Commission's anti-collusion 
rules. Permitting such amendments will provide bidders with flexibility 
to seek additional capital after applications have been filed, while 
ensuring that the real party in interest does not change. Again, the 
Commission clarifies that this change applies only to applicants that 
have not applied for licenses in any of the same geographic license 
areas. Of course, formation of consortia, bidding agreements and new 
ownership arrangements remains subject to Commission review under the 
public interest standard, and we would expect that entities entering 
into such agreements would comply with all relevant Commission policies 
and other applicable laws, e.g., the antitrust laws.
    42. The Commission will also permit ownership changes in which 
consortium investors drop out of bidding consortia, even if control of 
the consortium changes as a result. The Commission does not wish to 
restrict some members of consortia from continuing to bid even though 
other members of the consortia wish to drop out of the bidding. The 
Commission emphasizes that members that are removed from a consortium 
may not subsequently become involved with another bidder in bidding on 
any license for which the consortium had applied. Bidders must submit a 
revised Form 175 to reflect the change in ownership.
    43. The Commission also wishes to clarify an aspect of its rules 
dealing with the information that applicants must provide to the 
Commission with their Form 175 and Form 401 applications. Section 
24.813(a)(1) of the Commission's Rules, 47 CFR 24.813(a)(1), states 
among other things that applicants must provide ``a list of any 
business five percent or more of whose stock, warrants, options or debt 
securities are owned by the applicant or an officer, director, 
stockholder or key management personnel of the applicant.'' (Emphasis 
added.) Read literally, this provision would require applicants to 
ascertain the holdings in other concerns of every one of their 
stockholders, regardless of how small that stockholder's stake in the 
applicant may be. This was not the Commission's intent, and it takes 
this opportunity to amend this rule to clarify that only holdings in 
other concerns that are held by attributable shareholders in the 
applicant need be disclosed.
    44. Finally, the Commission notes that in the Second Memorandum 
Opinion and Order, it clarified the applicability of the collusion 
rules to cases where an applicant has a common ownership interest with 
another applicant. The Commission stated that, unless the second 
applicant is expressly identified as an entity with whom the first 
applicant has an agreement concerning bidding, the Commission will 
prohibit these parties from communicating concerning their bidding 
strategies. As the Commission stated in the Second Memorandum Opinion 
and Order, this prohibition will hold even if the other bidder is 
identified on the applicant's short-form application as having a common 
ownership interest with the applicant. Communication among bidders 
concerning matters unrelated to license auctions, however, will be 
permitted.
    45. Accordingly, to ensure that the bidding process is competitive 
and to encourage formation of a competitive post-auction market 
structure, the Commission is retaining the collusion rules in the 
broadband PCS context with the modifications set forth in the Second 
Memorandum Opinion and Order.

Antenna Height Restrictions

    46. The Commission established antenna height restrictions in the 
Fifth Report and Order which provide, in part, that no antenna 
structure, including radiating elements, tower, supports and all 
appurtenances, may be higher than 61 meters above ground level unless 
prior Commission approval is obtained.
    47. The Commission believes that issues relating to antenna height 
are best resolved in another proceeding, to afford a greater 
opportunity for industry comment. The Commission's primary concern when 
it adopted this rule section was to promote the safe location and 
identification of PCS antennas, particularly in areas around airports. 
There may be less administratively burdensome methods, however, of 
obtaining the same result. Moreover, Section 24.816, may be duplicative 
since Part 17 of the Commission's rules already provides for similar 
antenna height and use safeguards. The Commission therefore rescinds 
the antenna height restrictions adopted in the Fifth Report and Order, 
but will examine the issue in a future proceeding on revisions to Part 
24 of our rules.

Restrictions on Cellular Participation

    48. In the Fifth Report and Order, the Commission reserved specific 
spectrum blocks in broadband PCS for bidding exclusively by entities 
that, together with their affiliates and certain investors, have gross 
revenues of less than $125 million in each of the last two years and 
total assets of less than $500 million. The Commission determined that 
designation of these ``entrepreneurs' blocks'' was needed to ensure 
that small entities have a meaningful opportunity to participate in the 
acquisition and provision of broadband PCS services.
    49. The Commission rejects GTE's proposal to eliminate certain 
cellular restrictions, as its request is outside the scope of this 
proceeding. Rather, those restrictions were appropriately addressed in 
our broadband PCS service rules proceeding, GN Docket No. 90-314. As 
Pacific Bell points out in its Opposition, the Commission considered 
arguments identical or similar to the ones raised by GTE in that 
proceeding and concluded that our restrictions strike an appropriate 
balance between fostering broad participation in PCS and ensuring that 
cellular operators do not exert undue market power. Accordingly, the 
Commission will retain its present restrictions on cellular 
participation in the provision of PCS. The Commission will address the 
merits of GTE's claim that they will be unfairly disadvantaged by the 
creation of entrepreneurs' blocks in our reconsideration order on 
designated entity concerns.

Final Regulatory Flexibility Analysis

    50. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 
Sec. 604, the Commission's final analysis for the Fourth Memorandum 
Opinion and Order is as follows:
    Need for, the Purpose of, this Action. As a result of new statutory 
authority, the Commission may utilize competitive bidding mechanisms in 
the granting of certain initial licenses. The Commission published an 
Initial Regulatory Flexibility Analysis, see generally 5 U.S.C. 
Sec. 603, within the Notice of Proposed Rule Making in this proceeding 
and published Final Regulatory Flexibility Analyses within the Second 
Report and Order (at 299-302) and the Fifth Report and Order (at 
219-222). 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.
    51. Summary of the Issues Raised by the Public Comments. No 
commenters responded specifically to the issues raised by the Fifth 
Report and Order. The Commission has made some modifications to the 
proposed requirements as appropriate.
    52. Significant Alternatives Considered and Rejected. All 
significant alternatives have been addressed in the Fifth Report and 
Order and in this Fourth Memorandum Opinion and Order.

Ordering Clauses

    53. Accordingly, it is ordered that the petitions for 
reconsideration are granted to the extent described above, deferred 
with respect to designated entity issues and denied in all other 
respects.
    54. It is further ordered that Part 24 of the Commission's Rules is 
amended.
    55. It is further ordered that the rule amendments made herein will 
become effective upon publication in the Federal Register.\1\ This 
action is taken pursuant to Section 4(i), 303(r) and 309(j) of the 
Communication Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 303(r) 
and 309(j).
---------------------------------------------------------------------------

    \1\Pursuant to 5 U.S.C. Sec. 553(d)(3), we conclude that ``good 
cause'' exists to have the rule changes take effect October 24, 
1994, because a delay would not provide applicants with sufficient 
time to finalize their bidding strategies and business plans for the 
upcoming broadband PCS auctions. Immediate implementation of the 
rule changes set forth herein also provides applicants with the 
required certainty to proceed with their bidding and business 
strategies, alleviating concerns that last-minute modifications to 
our Rules would impede the success of their auction plan. See 5 
U.S.C. Sec. 553(d)(1).
---------------------------------------------------------------------------

List of Subjects in 47 CFR Part 24

    Personal Communications Services.

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

Amendatory Text

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

PART 24--PERSONAL COMMUNICATIONS SERVICES

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

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

    2. Section 24.703 is amended by revising paragraph (f) and adding 
paragraph (h) to read as follows:


Sec. 24.703  Competitive bidding mechanisms.

* * * * *
    (f) Activity Rules. The Commission will establish activity rules 
which require a minimum amount of bidding activity. In the event that 
the Commission establishes an activity rule in connection with a 
simultaneous multiple-round auction, bidders will be entitled to 
request and be granted waivers of such rule. The Commission will 
specify the number of waivers permitted in an auction, the frequency 
with which they may be exercised, and the method of operation of 
waivers by Public Notice prior to each auction.
* * * * *
    (h) Bidder Identification During Auctions. The Commission may 
choose, on an auction-by-auction basis, to release the identity of the 
bidders associated with bidder identification numbers. The Commission 
will announce by Public Notice before each auction whether bidder 
identities will be revealed.
    3. Section 24.813(a)(1) is revised to read as follows:


Sec. 24.813  General application requirements.

    (a) * * *
    (1) A list of any business five percent or more of whose stock, 
warrants, options or debt securities are owned by the applicant or an 
officer, director, attributable stockholder or key management personnel 
of the applicant. This list must include a description of each such 
business's principal business and a description of each such business's 
relationship to the applicant.
* * * * *


Sec. 24.816  [Removed and Reserved]

    4. Section 24.816 is removed and reserved.
    5. Section 24.822(b) is revised to read as follows:


Sec. 24.822  Amendment of application to participate in auction for 
licenses in the broadband Personal Communications Services filed on FCC 
Form 175.

* * * * *
    (b) In broadband PCS, applicants will be permitted to amend their 
Form 175 applications to make minor amendments to correct minor errors 
or defects such as typographical errors. Applicants will also be 
permitted to amend FCC Form 175 to make changes to the information 
required by Sec. 24.813(a) (such as ownership changes or changes in the 
identification of parties to bidding consortia), provided such changes 
do not result in a change in control of the applicant and do not 
involve another applicant (or parties in interest to an applicant) who 
has applied for licenses in any of the same geographic license areas as 
the applicant. Amendments which change control of the applicant will be 
considered major amendments. An FCC Form 175 which is amended by a 
major amendment will be considered to be newly filed and cannot be 
resubmitted after applicable filing deadlines. See also Sec. 1.2105 of 
this chapter.


Sec. 24.829  [Amended]

    6. Section 24.829 is amended by removing paragraph (b), and 
redesignating paragraph (c) as paragraph (b).
    7. Section 24.833 is added to read as follows:


Sec. 24.833  Post-auction divestitures.

    Any parties sharing a common non-controlling ownership interest who 
aggregate more PCS spectrum among them than a single entity is entitled 
to hold (See Secs. 20.6(e), 24.710, 24.204, 24.229(c) of this chapter) 
will be permitted to divest sufficient properties within 90 days of the 
license grant to come into compliance with the spectrum aggregation 
limits as follows:
    (a) The broadband PCS applicant shall submit a signed statement 
with its long-form application stating that sufficient properties will 
be divested within 90 days of the license grant. If the licensee is 
otherwise qualified, the Commission will grant the applications subject 
to a condition that the licensee come into compliance with the PCS 
spectrum aggregation limits within 90 days of grant.
    (b) Within 90 days of license grant, the licensee must certify that 
the applicant and all parties to the application have come into 
compliance with the PCS spectrum aggregation limits. If the licensee 
fails to submit the certification within 90 days, the Commission will 
immediately cancel all broadband PCS licenses won by the applicant, 
impose the default penalty and, based on the facts presented, take any 
other action it may deem appropriate. Divestiture may be to an interim 
trustee if a buyer has not been secured in the required time frame, as 
long as the applicant has no interest in or control of the trustee, and 
the trustee may dispose of the property as it sees fit. In no event may 
the trustee retain the property for longer than six months from grant 
of license.

[FR Doc. 94-26437 Filed 10-21-94; 8:45 am]
BILLING CODE 6712-01-M