[Federal Register Volume 60, Number 118 (Tuesday, June 20, 1995)]
[Rules and Regulations]
[Pages 32116-32120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14945]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 0 and 1

[ET Docket No. 93-266; FCC 95-218]


Pioneer's Preference Rules

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: By this Third Report and Order, the Commission modifies 
certain rules regarding its pioneer's preference program. This action 
is intended to address directives of the General Agreement on Tariffs 
and Trade (GATT) legislation and make the pioneer's preference rules 
better comport with the Commission's experience administering them.

EFFECTIVE DATE: August 21, 1995.

FOR FURTHER INFORMATION CONTACT:
Rodney Small, Office of Engineering and Technology, (202) 776-1622.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Third 
Report and Order, adopted June 6, 1995, and released June 8, 1995. The 
full text of this Commission decision is available for inspection and 
copying during regular business hours in the FCC Reference Center (Room 
239), 1919 M Street NW., Washington, DC. The complete text of this 
decision also may be purchased from the Commission's duplication 
contractor, International Transportation Service, Inc., (202) 857-3800, 
2100 M Street NW., Suite 140, Washington, DC 20037.

Summary of Third Report and Order

    1. The Third Report and Order (Third R&O) addresses proposals set 
forth in the Further Notice of Proposed Rule Making (Further Notice) in 
this proceeding, 60 FR 13396 (March 13, 1995), and modifies certain 
rules regarding the Commission's pioneer's preference program pursuant 
to recent legislation. The pioneer's preference program provides 
preferential treatment in the Commission's licensing processes for 
parties that make significant contributions to the development of a new 
service or to the development of a new technology that substantially 
enhances an existing service.
    2. The Further Notice proposed rules in response to the pioneer's 
preference directives contained in the legislation implementing 
domestically the GATT, as well as on the Commission's own motion. The 
GATT legislation requires parties to whom any licenses are awarded 
pursuant to the pioneer's preference program in services in which 
competitive bidding is used to pay 85 percent of the average price paid 
for comparable licenses. This payment may be made in a lump sum or in 
installment payments over a period of not more than five years. The 
GATT legislation, including the payment requirement, applies to any 
license issued on or after August 1, 1994 pursuant to a pioneer's 
preference award.
    3. The legislation also directs the Commission to prescribe 
regulations specifying the procedures and criteria to ``evaluate 
applications for preferential treatment in its licensing processes (by 
precluding the filing of mutually exclusive applications) for persons 
who make significant contributions to the development of a new service 
or to the development of new technologies that substantially enhance an 
existing service.'' The legislation requires the pioneer's preference 
regulations to include: (1) Procedures and criteria by which the 
significance of a pioneering contribution will be determined, after an 
opportunity for review and verification by experts not employed by the 
Commission; and (2) such other procedures as may be necessary to 
prevent unjust enrichment by ensuring that the value of a pioneering 
contribution justifies any reduction in the amounts paid for comparable 
licenses. The regulations issued pursuant to this legislation must be 
prescribed not later than 6 months after enactment of the GATT 
legislation (i.e., by June 8, 1995), shall apply to pioneer's 
preference applications accepted for filing after September 1, 1994, 
and must cease to be effective on September 30, 1998, when the 
pioneer's preference program sunsets.
    4. In the Further Notice, the Commission tentatively concluded 
that, with the exceptions of the two areas specifically addressed by 
the GATT legislation, the existing pioneer's preference rules, as 
modified by the Second Report and Order, 60 FR 13636 (March 14, 1995), 
comply with the GATT legislation's requirement to specify procedures 
and criteria by which to evaluate pioneer's preference applications. 
However, the Commission solicited comment regarding any alternatives to 
any aspects of these rules that might better achieve the objectives of 
the GATT legislation.
    5. With respect to the two areas specifically set forth in the GATT 
legislation, the Commission noted that the GATT legislation's directive 
that the Commission establish a procedure for review and verification 
by outside experts was contemplated as an optional measure by the 
current pioneer's preference policies, but that such ``peer review'' 
was not mandatory. It therefore proposed to formalize this policy 
pursuant to the GATT legislation to provide an opportunity for review 
of potentially pioneering proposals by experts in the radio sciences 
who are not Commission employees. It sought comment on whether such 
review by outside experts should be required in all cases or whether 
pioneer's preference applicants (or other interested parties) should be 
given only an opportunity for such review, which may be either accepted 
or declined by the applicants. It tentatively concluded that it would 
establish a peer review process on a permanent basis. The Commission 
therefore proposed to delegate to the Chief of the Office of 
Engineering and Technology (``Chief, OET'') the authority to select a 
panel of experts consisting of persons who are knowledgeable about the 
specific technology set forth in a pioneer's preference request. In 
addition, while the Commission sought comment on two possible 
interpretations of section 309(j)(13(D)(i) of the GATT legislation, 
which concerns possible conflicts of interest of such experts, it 
proposed appointing experts who are neither employed by the Commission 
nor by any applicant seeking a pioneer's preference in the same or 
similar communications service. Based on its experience with the 
pioneer's preference program, the Commission tentatively concluded that 
the outside expertise required to evaluate the claims made in pioneer's 
preference requests will vary greatly. Accordingly, it proposed that 
its staff evaluate on a case-by-case basis how much outside assistance 
is required and that the Chief, OET select experts from all available 
sources after reviewing the proposed new technology or service.
    6. The Commission further proposed that the experts generally be 
granted a period of up to 180 days to present their findings to the 
Commission. It sought comment on whether it should generally seek the 
experts' individual opinions or their consensus (as a Federal Advisory 
Committee under the Federal Advisory Committee Act). The Commission 
[[Page 32117]] tentatively concluded that it should not be bound to 
follow the recommendations of the panel, but that it should evaluate 
the recommendations in light of all the submissions and comments in the 
record. However, it solicited comment on whether the views of the panel 
(especially where consensus is reached) should be entitled to greater, 
or perhaps controlling, deference. The Commission also sought comment 
on what restrictions, if any, the panel members should have vis-a-vis 
contact with the applicants; e.g., whether they should have authority 
to seek further information pertaining to the preference request or to 
perform field evaluations. Finally, the Commission sought comment on 
any additional conflict of interest requirements (e.g., related to 
financial interests) it should impose upon outside experts.
    7. With respect to the second area addressed by the GATT 
legislation, the Commission stated in the Further Notice that its 
concerns about unjust enrichment are lessened by the statutorily-
mandated payment requirement for prioneer's preference grantees in 
auctionable services and the formula for calculating per capita bid 
amounts. Nonetheless, it stated that it remained concerned about the 
effect of competitive bidding on the pioneer's preference program. It 
sought comment on a more stringent showing by a preference applicant in 
a service in which licenses are awarded by competitive bidding. 
Specifically, the Commission sought comment on whether the applicant 
should have to demonstrate that our public rulemaking process inhibits 
it from capturing the economic rewards of its innovation unless it is 
granted a pioneer's preference license. It also sought comment on 
whether in its pioneer's preference request each applicant should make 
a demonstration regarding possible loss of intellectual property 
protection to ensure that it will retain its eligibility for a 
preference.
    8. With regard to determining which licenses are most reasonably 
comparable under section 309(j)(13)(B)(i) of the GATT legislation, in 
the Further Notice the Commission sought comment on any standards for 
comparing licenses and for excluding anomalous licenses that it might 
codify into its rules along with the statutory formulas for determining 
the average per capita bid amount and the payment amount. It also 
sought comment on the implementation of the installment payment 
provision in section 309(j)(13)(C). It tentatively concluded that it 
would not adopt any installment payment scheme that includes royalty 
payments. The Commission further sought comment on whether eligibility 
for installment payments should be limited to small businesses or other 
entities as it has done in its general auction rules. The Commission 
proposed that, if an entity receiving a pioneer's preference award and 
license in a particular service would be eligible for installment 
payments in the auction for that service, that entity would be able to 
pay for its pioneer's preference license in installments under similar 
terms and conditions. Finally, the Commission proposed to require a 
pioneer's preference license that is not eligible for installment 
payments to pay in one lump sum within a reasonable time (e.g., 30 
days) after the auction for comparable licenses has concluded or after 
the license grant becomes final, whichever is later.
    9. In accord with the GATT legislation, the Commission proposed to 
sunset the pioneer's preference program on September 30, 1998. It 
requested comment on the utility of the program, particularly in light 
of its competitive bidding authority. Additionally, it proposed on its 
own motion to modify the pioneer's preference rules by limiting the 
award of preferences to services in which a new allocation of spectrum 
is required.
    10. Finally, the Commission proposed to apply the rules adopted in 
response to the Further Notice to any pioneer's preference requests 
granted after adoption of those rules, regardless of when the requests 
were accepted for filing, except in proceedings in which tentative 
pioneer's preference decisions have been made.
    11. Only two parties filed comments on the Further Notice, and no 
party filed reply comments. Satellite CD Radio, Inc. (CD Radio) states 
that the Commission should grant pioneer's preferences for regulatory 
as well as technical innovation, and also grant preferences in services 
in which no mutually exclusive applications exist. Omnipoint 
Communications, Inc. (Omnipoint) addresses payment measures for small 
business pioneers in services in which licenses are awarded by 
competitive bidding. It argues that the Commission should provide: (1) 
Payment terms that are more attractive than the terms offered to 
designated entities or entrepreneur-band applicants, so that small 
business pioneers have an incentive to take on the risks of innovation; 
and (2) the use of an installment plan with principal and accrued-
interest obligations deferred until the end of a five-year period.
    12. With respect to CD Radio's statements regarding regulatory 
innovation, the Commission finds that its pioneer's preference rules 
already incorporate non-technical or regulatory aspects. Accordingly, 
it finds no need to amend its pioneer's preference rules in this 
regard.
    13. With respect to CD Radio's proposals regarding awarding 
preferences in services where mutually exclusive situations do not 
exist and where competitive bidding is not authorized, the Commission 
finds that a preference, beyond a guaranteed license and a 15 percent 
discount in auctioned services, would be unnecessary and contrary to 
the stated purpose of the pioneer's preference program. In adopting the 
pioneer's preference procedures, the Commission sought to foster the 
development of new services and to improve existing services by 
reducing the delays and risks for innovators associated with the 
Commission's licensing processes as they existed at that time. 
Applicants facing no mutually exclusive applications run no risk of not 
receiving licenses, assuming they are qualified, so the Commission did 
not contemplate that any preferences would be needed to serve the 
public interest purposes of the pioneer's preference program. 
Accordingly, the Commission rejects CD Radio's proposal to award 
preferences in services in which mutually exclusive license 
applications do not exist.
    14. With respect to Omnipoint's proposal for lower payments for 
small business pioneers than designated entities in services in which 
licenses are awarded by competitive bidding, the Commission noted that 
the pioneer's preference and designated entity programs are designed to 
meet different goals. The pioneer's preference program is designed to 
reward a particular entity for its innovative contributions to a new or 
existing service, whereas the designated entity program is designed to 
promote economic opportunity and competition by dissemininating 
licenses among a wide variety of applicants and to increase 
participation in spectrum-based telecommunications services by entities 
that lack access to substantial amounts of capital and that face 
economic disadvantages in obtaining licenses in a competitive bidding 
environment, such as small businesses. Accordingly, the Commission 
rejects Omnipoint's proposal to guarantee small business pioneers lower 
payments than other designated entities.
    15. With respect to Omnipoint's proposal for a deferred payment 
plan for small business pioneers in services in which licenses are 
awarded by [[Page 32118]] competitive bidding, consistent with the 
above discussion, the Commission finds no need to give such pioneers an 
advantage over similarly situated small businesses. The Commission 
notes that in the Further Notice it proposed that if an entity 
receiving a pioneer's preference would be eligible for installment 
payments in the auction for that service, the entity could pay for its 
pioneer's preference license in installments under comparable terms and 
conditions to similarly situated licenses over a period not to exceed 
five years. The Commission finds this proposal adequate to address 
Omnipoint's concerns and adopts it, while rejecting Omnipoint's 
deferred payment proposal.
    16. No comments were filed with respect to the other proposals in 
the Further Notice. Because they are in the public interest and promote 
the goals of the pioneer's preference program and the GATT legislation, 
the Commission adopts them. Specifically, with respect to peer review, 
it provides an opportunity for review and verification of pioneer's 
preference requests by experts who are not Commission employees. It 
delegates to the Chief, OET the authority to select, in appropriate 
cases on his/her own initiative or upon request by a preference 
applicant or other interested person, a panel of experts consisting of 
persons who are knowledgeable about the specific technology set forth 
in a pioneer's preference request and who are neither employed by the 
Commission nor by any applicant seeking a pioneer's preference in the 
same or similar communications service. It concludes that the best 
interpretation of Section 309(j)(13)(D)(i)'s conflict-of-interest 
language provides that there must be an opportunity for review and 
verification by experts who are neither employees of the Commission nor 
employees of any applicant seeking a pioneer's preference. These panels 
will generally be granted a period of up to 90 days, but no more than 
180 days, to present their findings to the Commission.
    17. With respect to implementing the unjust enrichment provisions 
in section 309(j)(13)(D)(ii), the Commission is requiring that to 
qualify for a pioneer's preference in services in which licenses are 
awarded by competitive bidding, an applicant--in addition to meeting 
the other pioneer's preference requirements--must demonstrate that the 
Commission's public rulemaking process inhibits it from capturing the 
economic rewards of its innovation unless it is granted a pioneer's 
preference license. The applicant must show that it may lose its 
intellectual property protection because of the Commission's public 
process; that the damage to its intellectual property is likely to be 
more significant than in other contexts, such as the patent process; 
and that the guarantee of a license is a significant factor in its 
ability to capture the rewards from its innovation. Such a showing must 
accompany the pioneer's preference request even if the Commission has 
not yet determined that the particular service for which a preference 
is sought will be subject to competitive bidding.
    18. As proposed in the Further Notice, pioneer's preference awards 
will be limited to services that require a spectrum allocation. 
However, the Commission notes that an entity that develops a new 
technology that may be used in an existing service may be able to reap 
significant financial benefits by patenting that technology or by 
selling equipment that uses that technology.
    19. Pursuant to authority in section 4(i), in conjunction with 
sections 1, 303(r), 307, and 309 of the Communications Act, the 
Commission finds that it is in the public interest and in furtherance 
of its pioneer's preference policy in an auction environment to apply 
the rules adopted herein to pending pioneer's prference proceedings 
that have not reached the tentative decision stage. Parties with 
pending pioneer's preference applications on file with the Commission 
will have 30 days from the effective date of the rules adopted herein 
to amend their applications to bring them into conformance with these 
rules and the rules adopted in the Second Report and Order in this 
proceeding. Failure to timely amend a pending pioneer's preference 
request will result in the dismissal of the request.
    20. In the Second Report and Order, the Commission stated that 
while the payment mechanism in the GATT legislation does not apply to 
pioneer's preference requests accepted for filing on or before 
September 1, 1994, nevertheless--pursuant to section 4(i) and other 
provisions of the Communications Act--license charges would be imposed 
on any pioneer's preference license granted in proceedings in which no 
tentative decision had yet been made, even if the requests in such 
proceedings were accepted for filing on or before that date. In 
addition, prior to enactment of the GATT legislation, the Commission 
amended the rules (also pursuant to Section 4(i)) to impose charges on 
any pioneer's preference licenses granted as a result of the three 
pioneer's preference proceedings in which only tentative decisions had 
been made prior to the initiation of this pioneer's preference review 
rulemaking.
    21. The Commission now concludes, on further analysis, that the 
payment requirements in subsections 309(j)(13)(B), (C) and (E) of the 
Communications Act, which were enacted by the GATT legislation, apply 
to pioneer's preference requests relatless to any licenses issued on or 
after August 1, 1994, regardless of when the pioneer's preference 
requests were accepted for filing. The September 1, 1994 date applies 
only to the regulations required by subsection 309(j)(13)(D). 
Accordingly, the Commission determines that, while the new regulations 
prescribed here (regarding criteria, peer review and unjust 
enrichment), pursuant to subsection 309(j)(13)(D), will not apply in 
the proceedings in which tentative decisions have been made, the 
payment provisions of the GATT legislation will apply to any and all 
licenses ultimately issued in the future resulting from a pioneer's 
preference, including any license based on a preference granted in CC 
Docket No. 92-297 (28 GHz Local Multipoint Distribution Service 
proceeding).
    22. Finally, pursuant to the GATT legislation, the Commission will 
terminate the pioneer's preference program on September 30, 1998.
    23. Accordingly, it is ordered that Parts 0 and 1 of the 
Commission's Rules are amended as specified below, effective 60 days 
after publication in the Federal Register. This action is taken 
pursuant to Sections 4(i), 7(a), 303(c), 303(f), 303(g), 303(r), and 
309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 
Secs. 154(i), 157(a), 303(c), 303(f), 303(g), 303(r), and 309(j).

List of Subjects

47 CFR Part 0

    Organization and functions (Government agencies).

47 CFR Part 1

    Administrative practice and procedure.

Federal Communications Commission
William F. Caton,
Acting Secretary.

Amendatory Text

    Parts 0 and 1 of chapter I of title 47 of the Code of Federal 
Regulations are amended as follows: [[Page 32119]] 

PART 0--COMMISSION ORGANIZATION

    1. The authority citation for part 0 continues to read as follows:

    Authority: Sec. 5, 48 Stat. 1068, as amended; 47 U.S.C. 155, 
225, unless otherwise noted.

    2. Section 0.241 is amended by adding new paragraph (f) to read as 
follows:


Sec. 0.241  Authority delegated.

* * * * *
    (f) The Chief, Office of Engineering and Technology (OET) is 
authorized to select, in appropriate cases on his/her own initiative or 
upon request by a pioneer's preference applicant or other interested 
person, a panel of experts consisting of persons who are knowledgeable 
about the specific technology set forth in a pioneer's preference 
request and who are neither employed by the Commission nor by any 
applicant seeking a pioneer's preference in the same or similar 
communications service. In consultation with the General Counsel, the 
Chief, OET, shall also impose other conflict-of-interest requirements 
that are necessary in the interest of attaining impartial, expert 
advice regarding the particular pioneer's preference request or 
requests.

PART 1--PRACTICE AND PROCEDURE

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

    Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47 
U.S.C. 154, 303; Implement, 5 U.S.C. 552 and 21 U.S.C. 853a, unless 
otherwise noted.

    2. Section 1.402 is amended by revising the first sentence of 
paragraph (a); removing paragraph (b); redesignating paragraphs (c), 
(e), (f), and (h) as new paragraphs (b), (d), (e), and (j) 
respectively; redesignating paragraphs (d) and (g) as new paragraphs 
(c) and (f), respectively, and revising them; and adding new paragraphs 
(g), (h), (i), and (k) to read as follows:


Sec. 1.402  Pioneer's preference.

    (a) When filing a petition for rule making pursuant to Sec. 1.401 
that seeks an allocation of spectrum for a new service or that, by use 
of innovative technology in a new spectrum allocation, will 
substantially enhance an existing service, the petitioner may also 
submit a separate request that it be awarded a pioneer's preference in 
the licensing process for the service. * * *
* * * * *
    (c) Pioneer's preference requests complying with the requirements 
and procedures in paragraphs (a) and (b) of this section will be 
accepted for filing and listed by file number in a notice of proposed 
rule making addressing the new service or technology proposed in the 
request, if such a notice of proposed rulemaking is adopted. A final 
determination on a request for pioneer's preference and its scope will 
normally be made in a report and order adopting new rules for the 
service or technology proposed in the request, if such rules are 
adopted. If awarded, the pioneer's preference will provide that the 
preference applicant's application for a construction permit or license 
will not be subject to mutually exclusive applications. If granted, the 
construction permit or license will be subject to the conditions in 
paragraphs (e) and (f) of this section.
* * * * *
    (f) In services in which licenses are assigned by competitive 
bidding, any parties receiving pioneer's preferences will be required 
to pay for their licenses in accord with the payment formula specified 
in the General Agreement on Tariffs and Trade legislation, Pub. L. 103-
465. This formula requires that pioneers pay in a lump sum or in 
installment payments over a period of not more than five years 85 
percent of the average price paid for comparable licenses. Comparable 
licenses will be determined by the Commission on a case-by-case basis. 
For licenses issued on or after August 1, 1994, the Commission shall 
recover for the public a portion of the value of the public spectrum 
resource made available to a pioneer's preference recipient by 
requiring such person, as a condition for receipt of the license, to 
agree to pay a sum determined by--
    (1) Identifying the winning bids for the licenses that the 
Commission determines are most reasonably comparable in terms of 
bandwidth, scope of service area, usage restrictions, and other 
technical characteristics to the license awarded to such person, and 
excluding licenses that the Commission determines are subject to 
bidding anomalies due to the award of preferential treatment;
    (2) Dividing each such winning bid by the population of its service 
area (hereinafter referred to as the per capita bid amount);
    (3) Computing the average of the per capita bid amounts for the 
licenses identified under paragraph (f)(1) of this section;
    (4) Reducing such average amount by 15 percent; and
    (5) Multiplying the amount determined under paragraph (f)(4) of 
this section by the population of the service area of the license 
obtained by such person.
    (g) In services in which licenses are awarded by competitive 
bidding, a pioneer that qualifies as a designated entity will be 
eligible for installment payments under the same terms and conditions 
as other designated entities in that service, except that in all 
services the pioneer's payments must be completed within a five year 
period that will begin 30 days after the auction for comparable 
licenses has concluded or 30 days after the pioneer's license grant 
becomes final, whichever is later. A pioneer, like other applicants, 
will be required in its license application to certify and make the 
requisite demonstration that it is eligible for installments. Pioneers 
that are not eligible for installment payments must make the 85 percent 
payment specified in Sec. 1.402(f) within 30 days after the auction for 
comparable licenses has concluded or within 30 days after the license 
grant become final, whichever is later.
    (h) An opportunity for review and verification of pioneer's 
preference requests by experts who are not Commission employees will be 
provided by the Commission. The Chief, Office of Engineering and 
Technology (OET) may select a panel of experts consisting of persons 
who are knowledgeable about these specific technology set forth in a 
pioneer's preference request and who are neither employed by the 
Commission nor by any applicant seeking a pioneer's preference in the 
same or similar communications service. The panel of experts will 
generally be granted a period of up to 90 days, but no more than 180 
days, to present their findings to the Commission. The Commission will 
generally establish, conduct, and seek the consensus of the panel 
pursuant to the Federal Advisory Committee Act, and will evaluate its 
recommendations in light of all the submissions and comments in the 
record. Panelists will have the authority to seek further information 
pertaining to preference requests and to perform field evaluations, as 
deemed appropriate by the Chief, OET.
    (i) In order to qualify for a pioneer's preference in services in 
which licenses are awarded by competitive bidding, an applicant must 
demonstrate that the Commission's public rulemaking process inhibits it 
from capturing the economic rewards of its innovation unless it is 
granted a pioneer's preference license. The applicant must 
[[Page 32120]] show that it may lose its intellectual property 
protection because of the Commission's public process; that the damage 
to its intellectual property is likely to be more significant than in 
other contexts, such as the patent process; and that the guarantee of a 
license is a significant factor in its ability to capture the rewards 
from its innovation. This demonstration will be required even if the 
Commission has not determined at the time a pioneer's preference 
request is filed whether assignments in the proposed service will be 
made by competitive bidding.
* * * * *
    (k) This section, along with the other pioneer's preference rules 
specified in Sec. Sec. 0.241(f) and 5.207 of this chapter, will cease 
to be effective on September 30, 1998.

[FR Doc. 95-14945 Filed 6-19-95; 8:45 am]
BILLING CODE 6712-01-M