[Federal Register Volume 59, Number 238 (Tuesday, December 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30447]


[[Page Unknown]]

[Federal Register: December 13, 1994]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 1

[PP Docket No. 93-253, FCC 94-295]

 

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 modifies its rules pertaining to three aspects 
of auction design for the broadband PCS auctions: Procedures triggering 
the close of an auction, timing of the auctions for the entrepreneurs' 
blocks, and anti-collusion rules. These actions are intended to speed 
the conclusion of the auctions, thus facilitating rapid introduction of 
service to the public; to improve the administrative efficiency of the 
auction process; and to foster competition and widespread participation 
in the auctions.

EFFECTIVE DATE: December 13, 1994.

FOR FURTHER INFORMATION CONTACT:
Jonathan Cohen, 202/418-2040, or Florence Setzer, 202/418-2038.

SUPPLEMENTARY INFORMATION: This Memorandum Opinion and Order in PP 
Docket No. 93-253, adopted November 16, 1994, and released November 17, 
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.

I. Introduction

    1. By this action, we reconsider, on our own motion, decisions made 
in the Fourth Memorandum Opinion and Order in this proceeding, which 
addressed petitions for reconsideration of the Fifth Report and Order 
concerning auction design and procedures for the auction of licenses to 
provide personal communications services in the 2 GHz band (``broadband 
PCS'').\1\ In light of our experience in the national and regional 
narrowband PCS license auctions, we find it desirable to modify our 
rules pertaining to three aspects of auction design for the broadband 
PCS auctions: procedures triggering the close of an auction, timing of 
the auctions for the entrepreneurs' blocks, and anti-collusion rules.
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    \1\Fourth Memorandum Opinion and Order in PP Docket No. 93-253, 
59 FR 37566 (October 24, 1994) (Fourth Memorandum Opinion and 
Order); Fifth Report and Order in PP Docket No. 93-253, 59 FR 37566 
(July 22, 1994) (Fifth Report and Order).
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II. Stopping Rules

    2. In the Fifth Report and Order we stated that a simultaneous 
multiple round auction with a simultaneous stopping rule will close 
when a single round has passed in which there is no new acceptable bid 
on any license and no activity rule waiver is submitted.\2\ In the 
Fourth Memorandum Opinion and Order we allowed for two types of 
activity rule waivers, ``proactive'' waivers, which will keep an 
auction open in a round in which no new valid bids are submitted, and 
``automatic'' waivers, which will not keep an auction open.\3\ We also 
reaffirmed our decision to use a simultaneous stopping rule, which 
holds bidding open on all licenses until no new acceptable bid is 
offered on any license.\4\ These same rules were applied in the 
regional and national narrowband auctions. The nationwide narrowband 
PCS auction (with 10 licenses) was completed after 47 rounds of 
bidding, and the regional narrowband PCS auction (with 30 licenses) 
took 105 rounds to complete. In the broadband PCS auctions 99 MTA 
licenses will be auctioned in the first auction and a total of 1,972 
BTA licenses in subsequent auctions. Although the number of rounds to 
complete a simultaneous multiple round auction is not necessarily 
directly proportional to the number of licenses put up for bid, we are 
concerned that, without changes in procedures, it may take an 
excessively long period of time to conduct these auctions, thus 
creating a significant delay in providing service to the public.\5\ 
Thus our recent experience with simultaneous multiple round auctions 
suggests that the Commission should consider additional measures to 
ensure that future auctions are completed within a reasonable period of 
time.
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    \2\Fifth Report and Order at 46, 56.
    \3\Fourth Memorandum Opinion and Order at 15.
    \4\Id. at 16.
    \5\Fifth Report and Order at 50.
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    3. We believe that retaining the discretion to keep an auction open 
even if no new acceptable bids and no proactive waivers are submitted 
will allow the Commission to complete the broadband PCS auctions in a 
timely manner without sacrificing efficiency or revenue. Providing the 
auction staff with the discretion to keep an auction open will permit 
the Commission to use larger minimum bid increments early in the 
auction (to move the auction along quickly) without incurring the risk 
that the auction will close while some bidders are willing to pay 
significantly more for certain licenses than the current high bid but 
not more than the relatively large minimum bid increments. The 
Commission will be able to permit additional bidding at lower bid 
increments subsequent to a round with no bids, thereby increasing the 
likelihood that licenses will be awarded to the bidders that value them 
most highly and facilitating efficient aggregations of licenses.
    4. Retaining the discretion to keep an auction open will also allow 
the Commission to continue to accept bids on a license for which a bid 
was withdrawn late in an auction, especially in the last round of an 
auction. Without the option of keeping an auction open, a license for 
which a bid was withdrawn in the last round would have to be put up for 
bid in a subsequent auction.
    5. Accordingly, we retain the discretion to keep an auction open 
even if no new acceptable bids and no proactive waivers are submitted 
in a single round. Under this minor modification of our procedures, the 
Commission would in essence have the ability to submit its own 
proactive waiver, thus keeping the auction open. This rule modification 
will facilitate the rapid completion of future auctions because it will 
permit the Commission to use larger bid increments, which speed the 
pace of the auction, without risking a premature auction close.

III. Timing of Auctions in the Entrepreneurs' Blocks

    6. In the Fifth Report and Order, the Commission chose to divide 
broadband PCS licenses into three groups and to hold a simultaneous 
multiple round auction for the licenses in each group. The license 
group to be auctioned first consisted of blocks A and B, each with 30 
MHz of spectrum and MTA geographic scope. The next group consisted of 
blocks C and F (the entrepreneurs' blocks), which have been reserved 
for bidding by smaller entrepreneurial firms. The group to be auctioned 
last consisted of blocks D and E, with 10 MHz of spectrum each and BTA 
geographic scope.\6\ We concluded that in order to promote efficient 
license allocation, highly interdependent licenses should be grouped 
together and put up for bid at the same time in a multiple round 
auction. Doing so, we concluded, would provide bidders information 
about the prices of complementary and substitutable licenses while such 
licenses were still up for bid, and thus would facilitate awarding 
licenses to the bidders who value them most highly. Nevertheless, we 
noted that the cost and complexity of auctioning a very large number of 
interdependent licenses simultaneously might outweigh the informational 
and bidding flexibility advantages.\7\ In the Fourth Memorandum Opinion 
and Order we reaffirmed our decision concerning the sequence of 
auctions.\8\
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    \6\Id. at 36.
    \7\Id.
    \8\Fourth Memorandum Opinion and Order at 29.
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    7. We now believe that we may wish to hold two separate auctions 
for the C and F block licenses.\9\ In light of our experience with the 
narrowband auctions, we are concerned that auctioning simultaneously 
the 986 licenses in the two entrepreneurs' blocks may create excessive 
administrative complexity for the Commission and for bidders, 
particularly when neither will have had experience with more than 99 
licenses in a single auction. In addition, we have found that as we 
gain experience with license auctions we identify certain modifications 
that are necessary to improve the efficiency and administration of the 
auction process. We may wish to benefit from such experience in 
administering the highly complex designated entity provisions that 
apply to competitive bidding for licenses on the C and F blocks. 
Further, it appears now that few, if any, potential applicants have any 
interest in aggregating block C and block F licenses, so that the 
interdependence between license values in the two blocks may be less 
than we initially believed. Consequently, we reserve the discretion to 
hold two separate simultaneous multiple round auctions for the 
entrepreneurs' block licenses, one auction for block C and one for 
block F. We will announce by Public Notice in advance of the 
application deadline whether one or two entrepreneurs' block auctions 
will be held and the date of those auctions.
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    \9\Potential bidders or their representatives have requested 
that the Commission auction the C and F blocks separately. See ex 
parte comments of the National Association of Black Owned 
Broadcasters, Inc., filed November 3, 1994 at 2; ex parte comments 
of North American Wireless, Inc., filed November 3, 1994 at 3-4; ex 
parte comments of National Association of Investment Companies, 
filed November 4, 1994 at 7.
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IV. Anti-Collusion Rules

    8. We have become aware of some confusion regarding the definition 
of the terms ``applicant'' and ``bidder'' as they are used in our anti-
collusion rules, and we wish to clarify our rules on this issue.\10\ 
Section 1.2105(c)(1) of the Commission's Rules prohibits ``bidders'' 
from cooperating, collaborating, discussing or disclosing in any manner 
the substance of their bids or bidding strategies, but 
Sec. 1.2105(c)(2) and (3) provide exceptions to this rule so as to 
allow ``applicants'' to make changes in ownership that do not result in 
a change in control of the applicant, or to bid jointly with other 
applicants, as long as they have not applied for licenses in any of the 
same geographic license areas.\11\ Though we intended the terms 
``bidder'' and ``applicant'' to be used interchangeably, we now 
recognize that it would be less confusing simply to use the term 
``applicant,'' and we are amending the rules accordingly.
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    \10\See November 4, 1994 letter from Kathy L. Shobert, Director, 
Federal Affairs, General Communication Incorporated, to William E. 
Kennard, FCC General Counsel.
    \11\See 47 CFR 1.2105(c).
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    9. In addition, it has been suggested that Sec. 1.2105(c)(1) of our 
rules should be interpreted to mean that parties holding attributable 
interests in bidders are not prohibited from engaging in the 
discussions addressed in that section.\12\ We wish to make clear that 
this interpretation is an incorrect reading of our rules. For purposes 
of our anti-collusion rules, therefore, we clarify that the term 
``applicant'' will include all holders of attributable interests in an 
applicant. For this purpose, ``attributable interest'' shall have the 
same definition as that used in Sec. 24.204(d)(2)(i) of our Rules for 
purposes of defining interests subject to the spectrum aggregation 
limits: ``[p]artnership and other ownership interests and any stock 
interest amounting to 5 percent of more of the equity, or outstanding 
stock, or outstanding voting stock of a broadband PCS licensee or 
applicant will be attributable.''\13\ In addition ``[o]fficers and 
directors of a broadband PCS licensee or applicant * * * shall be 
considered to have an attributable interest in the entity with which 
they are so associated.''\14\ This is entirely consistent with the 
intent of the anti-collusion rules. Indeed, if holders of attributable 
interests were not considered applicants, collusive arrangements would 
be possible simply through the creation of a separate entity to act as 
the ``applicant.'' Further, this clarification conforms with other 
Commission rules regarding the competitive bidding process. For 
example, Sec. 24.813(a) requires parties applying to participate in 
broadband PCS auctions to provide, among other things, information with 
respect to ``any person holding five percent or more of each class of 
stock, warrants, options or debt securities * * *.''\15\
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    \12\See November 4, 1994 letter from James L. Lewis, Vice 
President, Regulatory Affairs, MCI Telecommunications Corporation to 
William E. Kennard, FCC General Counsel.
    \13\47 CFR 24.204(d)(2)(i).
    \14\47 CFR 24.204(d)(2)(vii).
    \15\47 CFR 24.813(a)(3).
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    10. We believe, however, that allowing holders of non-controlling 
attributable interests in an applicant greater flexibility to form 
agreements with other applicants may enable applicants to acquire the 
capital necessary to bid successfully for licenses. Our anti-collusion 
rules are intended to protect the integrity and robustness of our 
competitive bidding process. In pursuit of that goal, however, we do 
not wish to restrict unreasonably the formation of non-collusive 
bidding consortia. For example, in the Fourth Memorandum Opinion and 
Order, we added to our Rules Sec. 24.833, which provides that parties 
that after the auction hold non-controlling ownership interests in more 
PCS spectrum than a single entity is entitled to hold may divest 
sufficient properties to come into compliance with the spectrum 
aggregation limits.\16\ Section 24.833 clearly contemplates entities 
holding ownership interests in two applicants for licenses in the same 
markets. Nevertheless, when one entity holds an attributable interest 
in more than one applicant for licenses in the same geographic license 
area, the potential for collusion is present because of the opportunity 
for the common owner to influence the bidding of the applicants. Thus, 
our rules permit applicants to change their ownership, enter into joint 
bidding arrangements and form consortia after the filing of short-form 
applications only if the parties to such arrangements have not applied 
for licenses in any of the same geographic areas.\17\
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    \16\47 CFR 24.833.
    \17\47 CFR 1.2105(c)(2), (3).
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    11. We believe that so long as collusive conduct can be reliably 
prevented, the public interest favors allowing holders of non-
controlling attributable interests in one applicant for a particular 
license to obtain ownership interests in or enter into consortium 
arrangements with a second applicant for licenses in the same 
geographic area(s). Accordingly, we will amend the anti-collusion rules 
to permit a holder of non-controlling attributable interests in an 
applicant to obtain an ownership interest in or enter into a consortium 
arrangement with another applicant for a license in the same geographic 
area, provided that the attributable interest holder certifies to the 
Commission that it has observed and will observe certain restrictions 
on communication concerning the applicants in which it holds an 
attributable interest or with which it has entered into a consortium 
arrangement. The attributable interest holder must certify that it has 
not communicated and will not communicate, with the applicant or anyone 
else, concerning the bids or bidding strategies (including which 
licenses an applicant will or will not bid on) of more than one 
applicant for licenses in the same geographic area in which it holds an 
ownership interest or with which it has a consortium arrangement. As 
described above, ``applicant'' for this purpose includes all holders of 
attributable interests in an applicant. Thus, if the attributable 
interest holder has discussed the bidding strategy of the applicant in 
which it holds an attributable interest (Company A), or of any other 
entity that also holds an attributable interest in Company A, the 
attributable interest holder may not acquire an attributable interest 
in another applicant for a license in a geographic area in which 
Company A (or any other attributable interest holder in Company A) has 
applied for a license unless it certifies that it has not communicated 
concerning the bids or bidding strategies of the applicant in which it 
wishes to acquire an attributable interest.
    12. We believe that this revision will facilitate the flow of 
capital to applicants by enabling parties to make investments in 
multiple applicants for licenses in the same geographic license areas 
while ensuring that these investments will not lead to collusion among 
bidders. We recognize that some potential for collusion exists whenever 
an entity is permitted to hold an interest in more than one applicant 
for licenses in the same geographic license area. We expect that the 
certification requirement will adequately prevent collusion from 
occurring. However, we intend to scrutinize carefully any instances in 
which bidding patterns suggest that collusion may be occurring, and we 
wish to emphasize that all applicants and their owners continue to be 
subject to existing antitrust laws. Applicants should note that conduct 
that is permissible under the Commission's Rules may be prohibited by 
the antitrust laws.\18\ Thus, applicants should proceed with extreme 
caution in situations involving consortia and joint bidding 
arrangements. We also wish to make clear that communications concerning 
bids and bidding strategies may include communications regarding 
capital calls or requests for additional funds in support of bids or 
bidding strategies to the extent such communications convey information 
concerning the bids and bidding strategies directly or indirectly. If 
applicants enter into new or modified consortia or bidding 
arrangements, or if changes are made in an applicant's ownership, the 
applicants must timely modify their short-form applications to reflect 
these changes.
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    \18\See Fourth Memorandum Opinion and Order at n.125.
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V. Ordering Clauses

    13. Accordingly, it is ordered That part 1 of the Commission's 
rules is amended as set forth below.
    14. It is further ordered That the rule amendments made herein will 
become effective immediately upon 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. 154(i), 303(r) 
and 309(j).\19\
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    \19\Pursuant to 5 U.S.C. 553(d)(3), we conclude that ``good 
cause'' exists to have the rule changes take effect immediately 
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. 553(d)(1).
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List of subjects in 47 CFR Part 1

    Administrative practice and procedure.

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

Final Rules

    Part 1 of chapter I of title 47 of the Code of Federal Regulations 
is amended as follows:

PART 1--COMMISSION ORGANIZATION

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

    Authority: Secs. 1, 4(i), 303, 309(j), 48 Stat. 1066, 1082, as 
amended; 47 U.S.C. 151, 154, 303, and 309(j), unless otherwise 
noted.

    2. Section 1.2105(c) is revised to read as follows:


Sec. 1.2105  [Amended]

* * * * *
    (c) Prohibition of collusion. (1) Except as provided in paragraphs 
(c)(2), (c)(3) and (c)(4) of this section, after the filing of short-
form applications, all applicants 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 applicants until after the high 
bidder makes the required down payment, unless such applicants 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 
licenses in any of the same geographic license areas. 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 licenses in any of the same 
geographic license areas.
    (4) After the filing of short-form applications, a holder of a non-
controlling attributable interest in an entity submitting a short-form 
application may acquire an ownership interest in, form a consortium 
with, or enter into a joint bidding arrangement with, other applicants 
for licenses in the same geographic license area, provided that:
    (i) The attributable interest holder certifies to the Commission 
that it has not communicated and will not communicate with any party 
concerning the bids or bidding strategies of more than one of the 
applicants in which it holds an attributable interest, or with which it 
has a consortium or joint bidding arrangement, and which have applied 
for licenses in the same geographic license area(s); and
    (ii) The arrangements do not result in any change in control of an 
applicant.
    (5) Applicants must modify their short-form applications to reflect 
any changes in ownership or in the membership of consortia or joint 
bidding arrangements.
    (6) For purposes of this paragraph:
    (i) The term ``applicant'' shall include the entity submitting a 
short-form application to participate in an auction (FCC Form 175), as 
well as all holders of partnership and other ownership interests and 
any stock interest amounting to 5 percent or more of the entity, or 
outstanding stock, or outstanding voting stock of the entity submitting 
a short-form application, and all officers and directors of that 
entity; and
    (ii) The term ``bids or bidding strategies'' shall include capital 
calls or requests for additional funds in support of bids or bidding 
strategies.

    Example for paragraph (c): Company A is an applicant in area 1. 
Company B and Company C each own 10 percent of Company A. Company D 
is an applicant in area 1, area 2, and area 3. Company C is an 
applicant in area 3. Without violating the Commission's Rules, 
Company B can enter into a consortium arrangement with Company D or 
acquire an ownership interest in Company D if Company B certifies 
either
    (1) That it has communicated with and will communicate neither 
with Company A or anyone else concerning Company A's bids or bidding 
strategy, nor with Company C or anyone else concerning Company C's 
bids or bidding strategy, or
    (2) That it has not communicated with and will not communicate 
with Company D or anyone else concerning D's bids or bidding 
strategy.

[FR Doc. 94-30447 Filed 12-12-94; 8:45 am]
BILLING CODE 6712-01-M