[Federal Register Volume 60, Number 163 (Wednesday, August 23, 1995)]
[Proposed Rules]
[Pages 43740-43756]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20731]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 21 and 25

[CC Docket No. 92-297, FCC 95-287]


Redesignating the 27.5-29.5 GHz Frequency Band, Reallocating the 
29.5-30.0 GHz Frequency Band, and Establishing Rules and Policies for 
Local Multipoint Distribution Service and for Fixed Satellite Services

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: This is the Third Notice of Proposed Rulemaking to establish 
Local Multipoint Distribution Service (LMDS) in the 27.5-29.5 GHz (28 
GHz) frequency band. In this Notice, the Commission proposes a band 
segmentation plan designed to permit both LMDS and Fixed Satellite 
Service (FSS) systems to operate in the 28 GHz frequency band. It also 
proposes to accommodate feeder links for certain Mobile Satellite 
Service (MSS) systems in this band. The proposal ensures the rapid 
dissemination of innovative communications services by facilitating the 
entry of multiple providers into the market. New providers will offer 
facilities-based competition to each other and traditional cable and 
telephone carriers--greatly enhancing customer choice. A wealth of 
innovative services will include two-way video, teleconferencing, 
telemedicine, telecommuting, data services and global networks. The 
Commission proposes the use of competitive bidding to choose among 
mutually exclusive LMDS and FSS applicants. It also proposes to 
reallocate the 29.5-30.0 GHz band in connection with the band 
segmentation plan. The Commission is also supplementing its earlier 
Tentative Decision on CellularVision's request for a Pioneer 
Preference.

DATES: Comments are due on or before August 28, 1995 and replies are 
due on or before September 18, 1995.

FOR FURTHER INFORMATION CONTACT:
Susan Magnotti, Private Wireless Division, Wireless Telecommunications 
Bureau, (202) 418-0871; Donna Bethea, Satellite and Radiocommunication 
Division, International Bureau, (202) 739-0728.


[[Page 43741]]

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's Third 
Notice of Proposed Rulemaking in CC Docket 92-297, adopted July 13, 
1995, and released July 28, 1995.
    The complete text of the Third Notice of Proposed Rulemaking is 
available for inspection and copying during normal business hours in 
the FCC Reference Center (Room 230), 1919 M Street, NW., Washington, 
DC, and also may be purchased from the Commission's copy contractor, 
International Transcription Services, at (202) 857-3800, 1919 M Street, 
NW., Room 246, Washington, DC 20554.

Synopsis of Third Notice of Proposed Rulemaking and Supplemental 
Tentative Decision

    In the first NPRM, 58 FR 6400 (January 28, 1993), the Commission 
considered three petitions for rulemaking proposing a redesignation of 
the 28 GHz band. That band currently is designated for fixed point-to-
point and fixed satellite service use. It found that redesignation of 
the point-to-point use of the band to point-to-multipoint use could 
stimulate greater use of a band that largely has lain fallow. However, 
the Commission asked for comment from satellite entities regarding the 
effect of redesignation on any proposed fixed satellite use of the 
band. Non-geostationary orbit (NGSO) and Geostationary orbit (GSO) FSS 
systems were proposed. In addition, entities planning mobile satellite 
services requested spectrum for their uplink feederlinks.
    In this Notice, the Commission proposes a band segmentation plan 
that it tentatively concludes will permit both LMDS and Fixed Satellite 
Service (FSS) systems to operate in the 28 GHz frequency band. It also 
proposes to accommodate feeder links for certain Mobile Satellite 
Service (MSS) systems in this band.
    The proposal ensures the rapid dissemination of innovative 
communications services by facilitating the entry of multiple providers 
into the market. New providers will offer facilities-based competition 
to each other and traditional cable and telephone carriers--greatly 
enhancing customer choice. A wealth of innovative services will include 
two-way video, teleconferencing, telemedicine, telecommuting, data 
services and global networks. Flexible service rules will also promote 
the efficient use of scarce spectrum by allowing providers to adjust 
and respond to changes in technology and market demand.
    The Commission proposes a segmentation scheme for the 28 GHz band 
that it believes is equitable, allows licensees to operate viable 
systems, promotes competition within the band, allows the public to 
receive service as soon as possible, and provides for future growth of 
both satellite and terrestrial services. The plan also supports the NII 
and GII, creates competition to cable, LECs, cellular, and PCS, and 
continues to promote the U.S. as a leader in satellite technology. The 
Commission believes this spectrum band plan accommodates the expected 
needs of all of the parties, although it does not reflect their exact 
requests. The Commission maintains that each proponent can still 
develop and operate viable systems within the band, and initiate 
competitive services. Moreover, this proposal allows both terrestrial 
LMDS and satellite industries to implement services in the near term.
    The Commission's proposed plan is depicted graphically as 
follows:\1\

    \1\ Primary services are listed in capital letters. Lower-case 
letters indicate secondary services. Primary services in a 
particular frequency band have equal rights to any other services 
operating in the same band. Stations operating in primary services 
are protected against interference from stations of ``secondary'' 
services. Moreover, stations operating in a secondary service cannot 
claim protection from harmful interference from stations of a 
primary service. 47 CFR 2.104(d) and 2.105(c).
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BILLING CODE 6712-01-M

[GRAPHIC][TIFF OMITTED]TP23AU95.024

BILLING CODE 6712-01-C
    The Commission's recommended proposals for the WRC-95 include 
proposals designed to eliminate a principle regulatory obstacle to NGSO 
service--ITU Radio Regulation 2613 from applying in Ka-Band uplink and 
downlink spectrum. The proposals, if adopted at WRC-95, would 
facilitate the implementation of the band segmentation plan it 
proposes. However, adoption of different provisions at the WRC-95 could 
affect the ability to implement the plan. Accordingly, the Commission 
requests comment on what, if any, contingency plans may be appropriate 
at this stage, and on any other information that develops from the WRC-
95 Preparatory process that may be relevant to implementation of the 
proposed plan.

Supplemental Tentative Decision on CellularVision's Pioneer's 
Preference Application

    In the Tentative Decision on CellularVision's request for a 
pioneer's preference, the Commission found that CellularVision is the 
innovator of LMDS technology. Accordingly, it tentatively found that 
CellularVision should be awarded a pioneer's preference. 
CellularVision's specific pioneer's preference request was for the Los 

[[Page 43742]]
Angeles MSA--it argued that the service it was providing in New York 
was substantially different from the service for which it requested a 
pioneer's preference in Los Angeles. The Commission disagreed, however, 
and determined not to award a pioneer's preference for LMDS in more 
than one service area. Accordingly, the Commission stated that if a 
pioneer's preference to CellularVision were to be awarded, that it 
would ``modify the authorization to (CellularVision) to meet the 
service area, frequency, and other technical rules developed in this 
proceeding for the area encompassing (CellularVision's) New York PMSA 
authorization.'' However, the Commission further stated that if 
CellularVision were to inform the Commission that it prefers Los 
Angeles, and if it were to surrender its New York license, the 
Commission would grant its pioneer's preference for Los Angeles.
    CellularVision filed comments to the Tentative Decision in which it 
argued that it was entitled to a pioneer's preference in the Los 
Angeles area without its affiliate Hye Crest being forced to surrender 
its New York license. Specifically, CellularVision argued that: (a) Hye 
Crest was licensed prior to the adoption of the pioneer's preference 
rules; (b) the proposed 28 GHz service rules are an outgrowth of the 
work commenced by CellularVision after Hye Crest was authorized and the 
pioneer's preference rules were adopted; and, (c) the service provided 
by Hye Crest is different than the service for which CellularVision 
seeks a pioneer's preference.
    A number of parties supported CellularVision's pioneer's preference 
arguments in comments and reply comments to the Tentative Decision. 
However, in this supplemental tentative decision, the Commission notes 
that all of those filings were made prior to the Commission being 
granted comptetiive bidding authority by Congress in August 1993. Due 
to the fact such authority has drastically altered the pioneer's 
preference rules by requiring payment from pioneers, and due to the 
unique circumstances discussed below, the Commission finds no further 
need to consider whether CellularVision is entitled to a preference in 
Los Angeles. Rather, it proposes to change its earlier tentative 
decision, and grant CellularVision a preference for that portion of the 
New York BTA (or other geographic service area utimately adopted) which 
includes the New York PMSA. The pioneer's preference, covering the 
portion of the BTA lying outside the PMSA, would be for the portion of 
the 28 GHz band proposed to be available for LMDS in the Commission's 
band splitting plan, infra, i.e., 27.5-28.35 GHz and 29.1-29.25 GHz (or 
whatever band plan is ultimately adopted by the Commission). The 
Commission notes that if a pioneer's preference is awarded for the 
remainder of the BTA, section 309(j)(13)(B) of the Communications Act, 
requiring an 85 percent payment of the value of the pioneer's 
preference license, would apply only to the portion of the New York BTA 
not covered by CellularVision's existing license for the PMSA. The 
Commission also clarifies that the rules governing its evaluation of 
CellularVision's pioneer's preference request are those that were in 
effect when the Tentative Decision was adopted.\2\

    \2\ When the Commission adopted amendments to its pioneer's 
preference evaluation criteria in 1994, it explicitly held that the 
new criteria would not apply to proceedings in which tentative 
decisions had been issued, such as this one, see In the Matter of 
Review of the Pioneer's Preference Rules, First Report and Order, 59 
FR 8413, February 22, 1994 9 FCC Rcd 605, para. 9 (1994).
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    Since the Commission's tentative decision on its pioneer's 
preference request in the First NPRM, CellularVision has begun serving 
a significant number of customers within its New York license area. 
Therefore, the Commission does not beleive it is in the public interest 
for it to continue proposing, in the context of a pioneer's preference 
award, that CellularVision voluntarily discontinue service in New York 
and turn in its license. Moreover, it believes that CellularVision has 
made a commitment to providing service in New York, as evidenced by the 
fact that it has applied for additional cell sites to cover the 
remainder of the PMSA. The Commission has held that the choice of which 
geographic area to be awarded as the pioneer's preference license will 
be the licensee's. CellularVision's circumstances are unique, however, 
in that the original license was granted before the Commission 
established an LMDS service category and adopted regulations to govern 
the service. Further, the license was granted pursuant to waiver, prior 
to the Commission's adoption of the pioneer's preference rules, and for 
reasons that are consistent with the underlying objectives of those 
rules. These unique circumstances warrant the Commission's tentative 
decision to waive its rules on its own motion to the extent they would 
afford CellularVision the opportunity to choose the geographic area to 
be awarded as the pioneer's preference license. The Commission also 
notes that CellularVision would have the opportunity (as would any 
interested party) to participate in any competitive bidding procedures 
we may establish in this proceeding for purposes of licensing LMDS 
service in the Los Angeles area.
    It is the Commission's intention to accommodate CellularVision's 
operations within the New York PMSA to the maximum extent possible, 
while minimizing adverse effects of its operations in the 28.35-28.5 
frequency band on eventual GSO licensees. It proposes, if it takes 
favorable action on any renewal application CellularVision files 
pursuant to its existing license (such a filing would be due in January 
1996), to include as a condition of the PMSA license a provision 
permitting CellularVision to operate on the contiguous 1 GHz for which 
it is presently licensed for a period of time sufficient to accommodate 
its operations within the New York PMSA without adversely affecting the 
eventual GSO licensee. The Commission tentatively concludes that a 
grandfathering period of 36 months following the release date of the 
First Report and Order in this proceeding, or until the first GSO 
satellite is successfully launched, whichever occurs later, is 
appropriate. The Commission tentatively intends to instruct the 
Wireless Telecommunications Bureau to condition any such renewed 
license with a provision specifying that, after the end of the 
grandfathering period it adopts, the CellularVision license would 
become subject to the generally applicable rules for the provision of 
LMDS service. Thus, if the proposed band segmentation plan is adopted, 
at the end of the grandfathering period CellularVision would be 
required to cease operation on the 150 MHz allocated for GSO/FSS 
operations 36 months after release of the First Report and Order in 
this proceeding or until the first GSO satellite is launched, whichever 
is later. Simultaneously, CellularVision would be permitted to operate 
on a co-primary basis on the 150 MHz at 29.1-29.25 GHz.
    Finally, the Commission seeks comment on whether it would be 
appropriate to place conditions on any pioneer's preference license 
issued to CellularVision, similar to those placed on other pioneer's 
preference licensees in PCS. For the pioneer's preference licenses 
heretofore granted, the Commission placed a condition on the broadband 
and narrowband PCS licenses that required that they be held for three 
years or until the construction requirements applicable to the five-
year build-out period have been met, whichever is earlier. 

[[Page 43743]]


Local Multipoint Distribution Service Licensing Issues

    The Commission seeks comment on whether it is advisable, from a 
competitive standpoint, to license more than one LMDS operator per 
market and on any competitive concerns raised by the grant of a 1000 
MHz block to a single LMDS licensee in each market.
    While allowing one LMDS provider per market may help ensure the 
competitive viability of this fledgling service, and thereby maximize 
the ability of LMDS licensees to provide significant competition to 
other services, the Commission recognizes that digital LMDS is being 
developed that has the potential to greatly increase the capacity of 
LMDS systems. Possible schemes include issuing only one license per 
market for the entire 1000 MHz; issuing two licenses, one for the 850 
MHz contiguous band of spectrum and one for the 150 MHz coprimary 
portion; and issuing three licenses, two for 425 MHz and one for the 
150 MHz coprimary segment. If the licensing scheme which is ultimately 
adopted includes more than one license per market, the Commission seeks 
comment on whether to permit aggregation of licenses within the same 
geographic service area.
    The Commission continues to believe that BTAs are the best 
geographic area for licensing LMDS.\3\ It believes that, based on the 
record submitted thus far in this proceeding, there is a reasonable 
likelihood that services provided through use of the LMDs spectrum will 
have a local focus. BTA service areas, it tentatively concludes, will 
best approximate the likely scope of the service areas for these 
services.

    \3\ Rand McNally is the copyright owner of the MTA/BTA Listings, 
which list the BTAs contained in each MTA and the counties within 
each BTA, as embodied in Rand McNally's Trading Area System MTA/BTA 
Diskette, and geographically represented in the map contained in 
Rand McNally's Commercial Atlas & Marketing Guide. The conditional 
use of Rand McNally's copyrighted material by interested persons is 
authorized under a blanket licensee agreement dated February 10, 
1994, and covers use by LMDS applicants. This agreement requires 
authorized users of the material to include a legend on 
reproductions (as specified in the license agreement) indicating 
Rand McNally's ownership.
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    The Commission seeks comment on whether the most rapid build-out of 
LMDS would occur if it were to permit partitioning of the license 
pursuant to eligibility and other rules adopted for this service. It 
seeks comment regarding whether geographic partitioning should be 
established in the case of LMDS licenses, and on the manner in which 
the proposed build-out requirement would be applied to a partitioned 
license.
    The Commission requests comment on three alternatives for 
regulating LMDS licensees. One option is that licensees would be 
presumed to be common carriers subject to Title II regulation to the 
extent the system is used to provide two-way data, voice, and other 
telecommunications services, and in the absence of evidence 
demonstrating that they provide only private carriage. The second 
option is the same one set forth in the First NPRM, i.e., in their 
applications, successful bidders would specify the types of services 
they expect to offer and indicate the regulatory status under which 
those services would be offered. Licensees would be required to 
describe their proposed service in sufficient detail for the Commission 
to confirm that their requested status complies with relevant judicial 
and/or statutory standards. The Commission would retain oversight of 
the parties' compliance with the statutory and judicial standards for 
status based on the type of service offered. The third option for LMDS 
licensees is to treat them similarly to the way in which MMDS licensees 
are treated. MMDS licensees are permitted to provide service as common 
carriers or private carriers. Under the MMDS rules, however, licensees 
operating as private carriers must comply with common carriage rules, 
except for the tariffing requirement.
    The Third NPRM seeks comment on the eligibility of telephone 
companies, commercial mobile radio service providers, cable television 
companies, and multichannel multipoint distribution service providers 
to be licensed for LMDS within their service areas.
    Since the Commission is proposing the use of competitive bidding to 
award LMDS licenses, it withdraws its proposal to limit transfer or 
assignment of LMDS licenses, except in the case of licenses awarded to 
designated entities. Because of the special consideration accorded 
designated entities in the auction process, the Commission proposes 
that such licenses be restricted in a manner similar to that proposed 
for Specialized Mobile Radio licenses. A designated entity would be 
prohibited from voluntarily assigning or transferring control of its 
license to any other entity during the three years after license grant. 
In the fourth and fifth years of the license term, the designated 
entity would only be able to assign or transfer control of its license 
to another qualified designated entity, and no unjust enrichment could 
be gained through the transfer.
    Although the Commission proposed in the First NPRM to forbear from 
regulating rates of LMDS licensees if regulated as common carriers, 
subsequent judicial interpretation of the Communications Act forecloses 
this approach to the extent that LMDS providers operate as common 
carriers. AT&T v. FCC, 978 F.2d (D.C. Cir. 1993), Southwestern Bell 
Corp. v. FCC, 43 F.3d 1515 (D.C. Cir. 1995) Accordingly, to the extent 
LMDS licensees offer services which are categorized as common carrier 
offerings that are not within the definition of Commercial Mobile Radio 
Services (CMRS), the Commission has no alternative but to impose all 
statutory requirements pertaining to common carriers. In the case of 
filings required under Section 214 of the Act, the Commission seeks 
comment regarding whether we should consider the development of 
streamlined filing provisions in the case of LMDS service providers.
    The Commission tentatively concludes that some build-out 
requirement is necessary for LMDS, but one which is more moderate than 
was proposed in the First NPRM. The Commission proposes to require 
licensees to have made service available to a minimum of one-third of 
the population of their geographic areas within five years from license 
grant. It proposes that licensees will have made service available to a 
minimum of two-thirds of the population of their geographic areas 
within ten years from license grant.

Satellite Services Licensing

    There are existing rules for the GSO/FSS systems in place in part 
25 of the Commission's rules. These include technical rules, such as 
2 deg. orbital spacing and full frequency reuse, and licensee 
qualification rules, for example, a rigorous financial qualification 
standard. The Commission proposes to apply these rules to GSO/FSS 
systems that will use the 27.5-30.0 GHz band. The Commission requests 
comment on whether specific rules, such as the financial qualification 
requirement, should be altered and whether any additional rules should 
be created. It requests specific comment on any technical standards 
that will facilitate sharing under the band segmentation plan.
    Following the release of this Notice, the Commission will place the 
pending satellite applications on separate Public Notice, and will 
establish cut-off periods for both the GSO/FSS and NGSO/FSS 
applications to be 

[[Page 43744]]
considered concurrently with these.\4\ If all qualified applicants in 
the processing group cannot be accommodated, it proposes to use 
competitive bidding as the procedure to choose among the mutually 
exclusive applications to provide domestic service within the United 
States. The Commission is not auctioning access rights to other 
countries from either NGSO/FSS or GSO/FSS systems. The Commission is 
also auctioning access rights to serve the U.S. market only from 
certain orbit locations for specific frequency bands.

    \4\ All applicants would have to pay the filing fees set out in 
our rules, for applications for authority to construct, launch, and 
operate a satellite in the FSS.
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Competitive Bidding Proposal and Procedures

    Following is the verbatim text of that portion of the third NPRM 
pertaining to competitive bidding issues:

A. Competitive Bidding

    Section 309(j)(1) of the Communications Act, as amended, 47 U.S.C. 
309(j)(1), permits auctions only where mutually exclusive applications 
for initial licenses or construction permits are accepted for filing by 
the Commission and where the principal use of the spectrum will involve 
or is reasonably likely to involve the receipt by the licensee of 
compensation from subscribers in return for enabling those subscribers 
to receive or transmit communications signals.\5\

    \5\ As discussed infra, the LMDS services proposed to date all 
appear to be subscriber-based services. However, we are aware that 
interest in the use of this spectrum has been demonstrated by two 
entities interested in manufacturing point-to-point equipment 
(Digital Corporation and Harris Corp.--Farinon Div.) which is 
unlikely to be subscriber-based.
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    The Commission has previously determined that auctions are 
permissible if at least a majority of the use of the spectrum would be 
for service to subscribers. In making this determination, we looked to 
classes of licenses and permits rather than to individual licenses.\6\ 
Based on the service proposals in the extensive record developed in 
this proceeding to date, we believe that the principal use of the LMDS 
spectrum will meet these requirements.

    \6\ Second Report and Order, supra, n. 79 at 2354.
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    With respect to the NGSO and GSO FSS applicants, we tentatively 
conclude that the principal use of the spectrum will be to provide 
subscription based services,\7\ even though certain portions of the 
spectrum will be used for large bandwidth applications through gateway 
terminals. We request comment on these tentative conclusions, including 
information from any potential LMDS or satellite applicants on the type 
of service they contemplate offering.

    \7\ See First Report and Order and Second Notice of Proposed 
Rulemaking in ET Docket No. 94-32, FCC 95-47, 60 FR 13102 (March 10, 
1995) at 33.
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    In addition, we tentatively conclude that the use of competitive 
bidding to award LMDS and satellite licenses will promote the 
objectives described in section 309(j)(3) of the Communications Act. 
These objectives are:
    (A) The development and rapid deployment of new technologies, 
products, and services for the benefit of the public, including those 
residing in rural areas, without administrative or judicial delays;
    (B) Promoting economic opportunity and competition and ensuring 
that new and innovative technologies are readily accessible to the 
American people by avoiding excessive concentration of licenses and by 
disseminating licenses among a wide variety of applicants, including 
small businesses, rural telephone companies, and businesses owned by 
members of minority groups and women;
    (C) Recovery for the public of a portion of the value of the public 
spectrum made available for commercial use and avoidance of unjust 
enrichment through the methods employed to award uses of that 
resources; and
    (D) Efficient and intensive use of the electromagnetic spectrum.
    First, based on our experience conducting PCS auctions, we believe 
that the use of competitive bidding to award GSO/FSS and NGSO/FSS and 
LMDS licenses, as compared with other licensing methods, will speed the 
development and deployment of new technologies, products and services 
to the public with minimal administrative or judicial delay, and will 
encourage efficient use of the spectrum as required by sections 
309(j)(3) (A) and (D). Second, use of auctions to assign LMDS and 
satellite licenses will clearly advance the goals of section 
309(j)(3)(C) by enabling us to recover for the public a portion of the 
value of the public spectrum.\8\ By using a licensing methodology which 
ensures that licenses are assigned to those who value them most highly, 
it follows that such licensees can be expected to make the most 
efficient and intensive use of the spectrum. Finally, we believe that 
using auctions will meet the objectives of section 309(j)(3)(B) because 
we propose to adopt competitive bidding rules that foster economic 
opportunity and the distribution of licenses among a wide variety of 
applicants including small businesses, rural telephone companies and 
businesses owned by women and minorities (collectively referred to as 
``designated entities'') who might otherwise face entry barriers.

    \8\ Id.
B. Determining Mutual Exclusivity

    As noted above, one of the prerequisites for use of the auction 
procedures is that applications must be mutually exclusive. The 
Communications Act states that ``[n]othing in [Section 309(j)], or in 
the use of competitive budding, shall * * * be construed to relieve the 
Commission of the obligation in the public interest to continue to use 
engineering solutions, negotiation, threshold qualifications, service 
regulations, and other means in order to avoid mutual exclusivity in 
application and licensing proceedings * * *.'' 47 U.S.C. 309(j)(6)(E). 
With respect to LMDS, we propose to use discrete geographic service 
areas and spectrum blocks, thus avoiding the possibility of ``daisy 
chain'' mutual exclusivity among applications. However, because of the 
great interest shown in LMDS in this proceeding to date, we anticipate 
that there will be multiple applications filed for each geographic 
area. Moreover, we tentatively conclude that it would not serve the 
public interest for the Commission to avoid mutual exclusivity 
altogether because doing so would greatly circumscribe the geographic 
service areas and would defeat the Commission's ability to determine 
the applicants who would put the spectrum to its highest valued use.
    We propose to determine mutual exclusivity based on the FCC Form 
175 application for LMDS licenses. If more than one application is 
filed for the same LMDS frequency in the same geographic area then 
mutual exclusivity would be established and the license will be 
auctioned. As we indicated in the Second Report and Order in PP Docket 
No. 93-253, 9 FCC Rcd 2348 (1994) 59 FR 22980, May 4, 1994, if the 
Commission receives only one application that is acceptable for filing 
for a particular license, and thus there is no mutual exclusivity, the 
Commission by Public Notice will cancel the auction for this license 
and establish a date for the filing of a long-form application, the 
acceptance of which will trigger the procedures permitting petitions to 
deny.\9\ We seek comment on this proposal, particularly whether some 
other type of filing method would be more appropriate for 

[[Page 43745]]
determining whether initial applications are mutually exclusive.

    \9\ See Second Report and Order at para. 165.
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    With respect to GSO/FSS service and NGSO/FSS systems, it is 
premature to determine whether mutual exclusivity will occur. We intend 
to open a new filing period permitting additional parties to apply for 
this spectrum. If additional entities file applications during this 
filing period, it is possible, given the limited amount of spectrum 
available, that we may not be able to accommodate all of the 
applicants' proposals. Under these circumstances the Commission 
proposes to award these licenses by auction. We seek comment on this 
proposal.

C. Competitive Bidding Issues

1. Competitive Bidding Design

(a) General Competitive Bidding Principles
    The Competitive Bidding Second Report and Order,\10\ as modified by 
the Competitive Bidding Reconsideration Order,\11\ established the 
criteria to be used in selecting which auction design method to use for 
each particular auctionable service. Generally, we concluded that 
awarding licenses to those parties who value them most highly will 
foster the statutory policy objectives. In this regard, we noted that 
since a bidder's ability to introduce valuable new services and to 
deploy them quickly, intensively, and efficiently increases the value 
of a license to that bidder, an auction design that awards licenses to 
those bidders with the highest willingness to pay tends to promote the 
development and rapid deployment of new services and the efficient and 
intensive use of the spectrum.\12\

    \10\ Implementation of Section 309(j) of the Communications 
Act--Competitive Bidding, Second Report and Order, PP Docket No. 93-
253, 9 FCC Rcd 2348, para. 69 (1994) (Competitive Bidding Second 
Report and Order).
    \11\ Competitive Bidding Reconsideration Order, 9 FCC Rcd at 
7249-50.
    \12\ See Competitive Bidding Second Report and Order, 9 FCC Rcd 
at 2360-61, para. 70.
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    Based on the foregoing, we concluded that where the licenses to be 
auctioned are interdependent and their value is expected to be high, 
simultaneous multiple round auctions would best achieve the 
Commission's goals for competitive bidding.\13\ We also noted, however, 
that simultaneous multiple round auctions may not be appropriate for 
all licenses. For example, where there is less interdependence among 
licenses, there is less benefit to auctioning them simultaneously. 
Similarly, we explained that when the values of particular licenses to 
be auctioned are low relative to the costs of conducting a simultaneous 
multiple round auction, we may consider auction designs that are 
relatively simple, with low administrative costs and minimal costs to 
the auction participants.\14\

    \13\ See 9 FCC Rcd at 2367, paras. 109-111.
    \14\ See id. at 2367, paras. 112-113.
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(b) Competitive Bidding Methodology for LMDS Licenses
    Simultaneous Multiple Round Bidding. We believe that simultaneous 
multiple round bidding should be the preferred method for licensing 
LMDS spectrum blocks. Based on the record in this proceeding and our 
successful experience conducting simultaneous multiple round auctions 
for narrowband and broadband PCS licenses, we believe that this auction 
design is the most appropriate for auctioning LMDS licenses. First, we 
believe that for certain bidders the value of these licenses will be 
significantly interdependent because of the desirability of aggregation 
across geographic regions and because, if the Commission provides for 
more than one license in each geographic service area, licenses within 
the same area would likely be close substitutes or strong complements. 
As indicated above, under these circumstances, simultaneous multiple 
round bidding will generate more information about license values 
during the course of the auction and provide bidders with more 
flexibility to pursue back-up strategies than if these licenses are 
auctioned separately. Simultaneous multiple round bidding is therefore 
most likely to award licenses to the bidders who value them the most 
highly and to provide bidders with the greatest likelihood of obtaining 
the license combinations which best satisfy their service needs. 
Finally, we expect the value of these licenses to be sufficiently high 
to warrant the use of simultaneous multiple round auctions. Therefore, 
we intend to use simultaneous multiple round bidding to award LMDS 
licenses. We ask commenters to address this tentative conclusion and 
whether any other competitive bidding designs would be more appropriate 
for the licensing of this spectrum.
    Grouping of Licenses. Assuming we use simultaneous multiple round 
auctions for LMDS licenses, we also seek comment on which blocks should 
be auctioned together, and the sequencing of each auction. The 
importance of the choice of license groupings increases with the degree 
of interdependence among the individual licenses or groups of licenses 
to be auctioned. Grouping interdependent licenses together and putting 
them up for bid at the same time will facilitate awarding licenses to 
bidders who value them the most highly by providing bidders with 
information about the prices of complementary and substitutable 
licenses during the course of the auction. Based on the foregoing, we 
propose to auction all LMDS licenses together in one simultaneous 
multiple round auction because of the expected value and significant 
interdependence of the licenses. We seek comment on this tentative 
analysis and on possible alternative license groupings.
    Combinatorial Bidding. Another issue for consideration in auction 
design is whether to permit combinatorial bidding. In general terms, 
combinatorial bidding allows bidders to bid for multiple licenses as 
all-or-nothing packages (e.g., all licenses nationwide on a particular 
spectrum block, with the licenses awarded as a package if the 
combinatorial bid is greater than the sum of the high bids on the 
individual licenses in the package).\15\ Combinatorial bidding can be 
implemented with either simultaneous or sequential auction designs. At 
this time, we do not plan to use combinatorial bidding in LMDS 
licensing because although we recognize that there may be significant 
benefits associated with combinatorial bidding, especially in terms of 
efficient aggregation of licenses, we tentatively conclude that 
simultaneous multiple round auctions offer many of the same advantages 
without the same degree of administrative and operational complexity 
and without biasing auction outcomes in favor of combination bids. We 
seek comment on the specific combinatorial bidding procedures that 
should be adopted if combinatorial bidding is used.

    \15\ In combinatorial bidding, if a bid for a group of licenses 
exceeds the sum of the highest bids for the individual licenses that 
comprise the package, then the package bid would win. In the Second 
Report and Order we also indicated that if we were to utilize 
combinatorial bidding we might institute a premium so that the 
combinatorial bid would win only if it exceeded the sum of the bids 
for individual licenses by a set percentage.
    See Second Report and Order at para. 114. NTIA is the main 
advocate of combinatorial bidding. See comments of NTIA, and ex 
parte submission of NTIA in PP Docket No. 93-253, Feb. 28, 1994.
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    Alternatively, we may consider modifying the auction rules to 
directly limit the risk associated with bid withdrawal for those 
seeking nationwide aggregations. For example, we might cap the bid 
withdrawal payment (discussed below) for nationwide bidders at five 
percent of the 

[[Page 43746]]
withdrawn bids. To discourage those who do not truly seek nationwide 
aggregations of taking advantage of the limitations on bid withdrawal 
payments and to speed up the auction, nationwide bidders might be 
subject to the requirement that they be active (defined below) on all 
license on each nationwide aggregation on which they did. To ensure 
adequate competition for licenses which are reoffered after a 
nationwide withdrawal we might also modify the activity rules 
(discussed below) so that if any bidder withdraws a bid, the 
eligibility of all other bidders will be increased by the amount of the 
withdrawal bid up to each bidder's initial maximum eligibility. We seek 
comment on this alternative method of facilitating efficient nationwide 
aggregations.
(c) GSO/FSS Auction Proposals
    In the event a competitive bidding approach is adopted to award 
GSO/FSS and NGSO/FSS licenses, we emphasize that we would be auctioning 
access to the United States only for use of specific frequency bands 
within the U.S. Any international access by the satellite users depends 
on the rules of that particular country. To afford licensees some 
flexibility in designing their systems and to allow for the 
uncertainties of the international coordination process, we propose to 
allow applicants to bid on the total amount of spectrum designated for 
GSO/FSS and NGSO/FSS services, respectively, set out in the band 
segmentation plan.
    As we discussed earlier, it is premature for us to determine 
whether there will be mutually exclusive applications for GSO/FSS 
licenses in the band. Applications for GSO/FSS licenses would be 
mutually exclusive if we do not have a sufficient number of orbit 
locations to accommodate all qualified applicants. We request comment, 
with accompanying justification, from applicants and potential 
applicants, on how many users, within our two degree spacing rule, they 
believe can be supported in the GSO/FSS segments to provide service to 
the continental United States (CONUS), without causing harmful 
interference. If a mutually exclusive situation should arise, we 
propose to auction the GSO/FSS spectrum at each orbit location in two 
paired, uplink and downlink, 500 MHz blocks, allowing applicants to bid 
for up to two blocks. We believe 500 MHz blocks are the smallest 
spectrum blocks feasible to support a viable FSS system at 28 GHz. We 
request comment on whether this amount of spectrum is sufficient. If 
auctions are used to award GSO/FSS licenses, we propose to use a 
simultaneous multiple round bidding, which will enable bidders to 
express the value interdependencies between the two blocks. We request 
comment on whether simultaneous multiple round bidding procedures are 
appropriate for this spectrum or whether other bidding procedures would 
better serve the statutory goals.
(d) NGSO/FSS Auction Proposals
    The band segmentation plan designates 500 MHz of unrestricted 
contiguous spectrum to NGSO/FSS systems. Our preliminary technical 
analysis indicates that 500 MHz is the minimum amount of spectrum 
required to implement a viable system offering NGSO/FSS services. For 
NGSO/FSS systems, a mutually exclusive situation will arise if all 
qualified applicant are unable to share the spectum. If mutually 
exclusive applications are received, we propose to use competitive 
bidding to award a single license. If competitive bidding is used to 
award such a license, we propose to conduct a multiple round auction 
for the entire 500 MHz block of spectrum. This multiple round auction 
may be either oral or electronic. We request comment from NGSO/FSS 
applicants and potential applicants on this proposal. Specifically we 
ask commenters to address the specific application and auction 
procedures that should be used.
(e) MSS Feeder Links
    We are not proposing competitive bidding rules for MSS feeder 
links. In the Second Report and Order in the Competitive Bidding 
Rulemaking Proceeding, the Commission decided not to auction 
intermediate links, including feeder links in the Mobile Satellite 
Services (MSS).\16\ We reasoned that before employing competitive 
bidding, the Commission is required to determine that mutually 
exclusive applications are likely to be filed and that such bidding 
would promote the objectives of section 309(j)(3)(A) through (D) of the 
Communications Act. With regard to mutual exclusivity, we noted that in 
those frequency bands most often utilized as intermediate links, mutual 
exclusivity is usually avoided by employing a frequency coordination 
process for each intermediate link prior to the time an application is 
granted. With regard to the objective of section 309(j)(3)(A) through 
(D), we concluded that auctioning intermediate links could 
significantly delay the development and rapid deployment of new 
technologies, products and services for the benefit of the public, that 
auctions for these links could impose significant administrative costs 
on licensees and the Commission, and that it was unclear whether 
competitive bidding for intermediate links would recover for the public 
a significant portion of the value of the spectrum, prevent unjust 
enrichment or promote efficient and intensive use of the spectrum.\17\

    \16\ See Implementation of Section 309(j) of the Communications 
Act--Competitive Bidding, PP Docket No. 93-253, Second Report and 
Order, 9 FCC Rcd. 2348, 2355-56 n. 30 (1994).
    \17\ Id at 2355, para. 43.
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    We tentatively conclude that FSS spectrum used for MSS feeder links 
should be excluded from competitive bidding. We base this tentative 
conclusion on the finding that auctions for MSS feeder links would not 
achieve the public interest objectives in Section 309(j)(3). The feeder 
links are an integral part of the MSS systems and the systems would be 
unable to operate without them. Three MSS systems have also already 
been licensed and auctioning the feeder links would only delay 
implementation of service to the public.
(f) Bidding Procedures
    If we use simultaneous multiple round auctions, we generally 
propose to use bidding procedures similar to those use for broadbank 
PCS.\18\ We seek comment, however, on whether any variations on these 
procedures should be adopted for LMDS or FSS licenses.

    \18\ Fifth Report and Order in PP Docket No. 93-253, 59 FR 
37566, July 22, 1994 9 FCC Rcd 5532 (1994) (Fifth Report and Order), 
recon. granted in part, Fifth Memorandum Opinion and Order, 59 FR 
63210, December 7, 1994 10 FCC Rcd 403 (1995) (Fifth Memorandum 
Opinion and Order).
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    Bid Increments and Tie Bids. In using simultaneous multiple round 
auctions to award licenses it is important to specify minimum bid 
increments. The bid increment is the amount or percentage by which the 
bid must be raised above the previous round's high bid in order to be 
accepted as a valid bid in the current bidding round. The application 
of a minimum bid increment speeds the progress of the auction and, 
along with activity and stopping rules, helps to ensure that the 
auction comes to closure within a reasonable period of time. 
Establishing an appropriate minimum bid increment is especially 
important in a simultaneous auction with a simultaneous closing rule. 
In that case, all markets remain open until there is no bidding on any 
license, and a delay in closing one market will delay the closing of 
all markets. As we recognized in the Second Report and Order in the 

[[Page 43747]]
competitive bidding docket, it is important in establishing the amount 
of the minimum bid increment to express such increment as the greater 
of a percentage and fixed dollar amount.\19\ This will ensure a timely 
completion of the auction even if bidding begins at a very low dollar 
amount. Accordingly, we propose to impose a minimum bid increment equal 
to some percentage of the high bid from the previous round or a dollar 
amount per MHza per pop, whichever is greater where multiple round 
bidding is used.

    \19\ See Second Report and Order, supra, at para. 126.
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    We propose to announce by public notice prior to auction the 
specific bid increment that generally will be used. We anticipate using 
large bid increments early in the auction and reducing the increment as 
bidding activity falls. We note, however, that the Commission proposes 
to retain the discretion to set and, by announcement before or during 
the auction, vary the minimum bid increments for individual licenses or 
groups of licenses over the course of an auction.\20\

    \20\ In oral or electronic sequential auctions the auctioneer 
may within his or her sole discretion establish and vary the amount 
of the minimum bid increment in each round of bidding.
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    Where a tie bid occurs, we propose that the high bidder be 
determined by the order in which the bids were received by the 
Commission.\21\

    \21\ See Second Report and Order at 2369.
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    Stopping Rules. When simultaneous multiple round auctions are used, 
a stopping rule must be established for determining when the auction is 
over. In simultaneous multiple round auctions, bidding may close 
separately on individual licenses, simultaneously on all licenses, or a 
hybrid approach may be used. Under an individual, license-by-license 
approach, bidding closes on each license after one round passes in 
which no new acceptable bids are submitted for that particular license. 
With a simultaneous stopping rule, bidding generally remains open on 
all licenses until there is no new acceptable bid on any license. This 
approach has the advantage of providing bidders full flexibility to bid 
for any license as more information becomes available during the course 
of the auction, but it may lead to very long auctions, unless an 
activity rule (see discussion infra, paras. 157 ff) is imposed. A 
hybrid approach combines the first two stopping rules. For example, we 
may use a simultaneous stopping rule (along with an activity rule 
designed to expedite closure for licenses subject to the simultaneous 
stopping rule) for the higher value licenses. For lower value licenses, 
where the loss from eliminating some back-up strategies is less, we may 
use simpler license-by-license closings. In the Competitive Bidding 
Second Report and Order we recognized that such a hybrid approach might 
simplify and speed up the auction process without significantly 
sacrificing efficiency or expected revenue.\22\

    \22\ Id.
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    For LMDS and FSS auctions, we propose to use a simultaneous 
stopping rule. Under this proposal, bidding will remain open on all 
licenses in an auction until bidding stops on every license. We propose 
that the auction will close after one round passes in which no new 
valid bids or proactive activity rule waivers (as defined below in the 
section on activity rules) are submitted. The Commission proposes to 
retain the discretion, however, to keep the auction open even if no new 
valid bids and no proactive waivers are submitted. In the event that 
the Commission exercises this discretion, the effect would be the same 
as if a bidder had submitted a proactive waiver.\23\ Since we intend to 
impose an activity rule (as discussed below), we believe that allowing 
simultaneous closing for all licenses will afford bidders flexibility 
to pursue back-up strategies without running the risk that bidders will 
hold back their bidding until the final rounds.

    \23\ This will help ensure that the auction is completed within 
a reasonable period of time, because it will enable the Commission 
to utilize larger bid increments, which speed the pace of the 
auction, without risking premature closing of the auction. See 
Memorandum Opinion and Order in PP Docket No. 93-253, 59 FR 64159, 
December 13, 1994 9 FCC Rcd 7684-7685 (1994).
---------------------------------------------------------------------------

    In addition, we propose to retain the discretion to declare after 
forty rounds that the auction will end after some specified number of 
additional rounds. If this option were used, we propose to only accept 
bids on licenses where the high bid had increased in at least one of 
the last three rounds. We seek comment on our proposed use of a 
simultaneous stopping rule and ask commenters to indicate whether an 
alternative stopping rule would be more appropriate.
    Duration of Bidding Rounds. In simultaneous multiple round 
auctions, bidders may need a significant amount of time to evaluate 
back-up strategies and develop their bidding plans. We seeks comment on 
the appropriate duration of the bidding rounds as well as the interval 
between bidding rounds. We propose to retain the discretion to 
establish the duration and frequency of bidding rounds by public notice 
before each auction. We also propose to announce any changes to the 
duration of or intervals between bidding rounds either by public notice 
prior to the auction, or announcement during the auction. We request 
comment on this proposal.
    Bid Withdrawals. We propose to permit a high bidder to withdraw one 
or more of its high bids during the bid withdrawal period in each round 
subject to the bid withdrawal payments specified below. If a high bid 
is withdrawn, we propose that the license be offered in the next round 
at the second highest bid price. The Commission may at its discretion 
adjust the offer price in subsequent rounds until a valid bid is 
received on the license. In addition, to prevent a bidder from 
strategically delaying the close of the auction, we propose that the 
FCC retain the discretion to limit the number of times that a bidder 
may re-bid on a license from which it has withdrawn a high bid.
    Activity Rules. In the Second Report and Order, we adopted the 
Milgrom-Wilson activity rule as our preferred activity rule where a 
simultaneous stopping rule is used. See Second Report and Order at 
paras. 144-145. The Milgrom-Wilson approach encourages bidders to 
participate in early rounds by limiting their maximum participation to 
some multiple of their minimum participation level. Bidders are 
required to declare their maximum eligibility in terms of MHz-pops, and 
make an upfront payment proportional to that eligibility level.\24\ 
(See discussion of upfront payments infra, para. 167.) That is, in each 
round, bidders will be limited to bidding on licenses encompassing no 
more than the number of MHz-pops covered by their upfront payment. 
Licenses on which a bidder is the high bidder at the end of the bid 
withdrawal period in the previous round count against this bidding 
limit. Under this approach, bidders have the flexibility to shift their 
bids among any licenses for which they have applied so long as, within 
each round, the total MHz-pops encompassed by those licenses does not 
exceed the total number of MHz-pops on which they are eligible to bid. 
Under this approach, to preserve their maximum eligibility, bidders are 
required to maintain a certain level of bidding activity during each 
round of the auction. The auction is divided into three stages with 
increasing levels of bidding activity required in each stage of the 
auction. A bidder is considered active on a license 

[[Page 43748]]
in the current round if the bidder has submitted an acceptable bid for 
that license in the current round, or has the high bid for that license 
at the end of the bid withdrawal period in the previous round in which 
case, the bidder does not need to bid on that license in the current 
round to be considered active on that license. A bidder's activity 
level in a round is the sum of the MHz-pops associated with licenses on 
which the bidder is active.

    \24\ The number of ``MHz-pops'' is calculated by multiplying the 
population of the license service area by the amount of spectrum 
authorized by the license. We use the terms ``per MHz-pop'' and 
``per MHz per pop'' interchangeably.
---------------------------------------------------------------------------

    We tentatively conclude that the Milgrom-Wilson activity rule 
should be used in conjunction with the proposed simultaneous stopping 
rule for LMDS and FSS auctions. We believe that the Milgrom-Wilson 
approach will best achieve the Commission's goals of affording bidders 
flexibility to pursue backup strategies, while at the same time 
ensuring that simultaneous auctions are concluded within a reasonable 
period of time.
    Under the Milgrom-Wilson proposal, the minimum activity level, 
measured as a fraction of the bidder's eligibility in the current 
round, will increase during the course of the auction. Milgrom-Wilson 
divide the auction into three stages. We propose to establish the 
following minimum required activity levels for each stage of the 
auction: In each round of Stage One of the auction, a bidder who wishes 
to maintain its current eligibility is required to be active on 
licenses encompassing at least 60% of the MHz-pops for which it is 
currently eligible. Failure to maintain the requisite activity level 
will result in a reduction in the amount of MHz-pops upon which a 
bidder will be eligible to bid in the next round of bidding (unless an 
activity rule waiver, as defined below, is used). During Stage One, if 
activity is below the required minimum level, eligibility in the next 
round will be calculated by multiplying the current round activity by 
five-thirds (\5/3\). Eligibility for each applicant in the first round 
of the auction is determined by the amount of the upfront payment 
received and the licenses identified in its auction application. In 
each round of the Stage Two, a bidder who wishes to maintain its 
current eligibility is required to be active on 80% on the MHz-pops for 
which it is eligible in the current round. During the second stage, if 
activity is below the required minimum level, eligibility in the next 
round will be calculated by multiplying the current round activity by 
five-fourths (\5/4\). In each round of Stage Three, a bidder who wishes 
to maintain its current eligibility is required to be active on 
licenses encompassing 95 percent of the MHz-pops for which it is 
eligible in the current round. In Stage Three, if activity in the 
current round is below 95 percent of current eligibility, eligibility 
in the next round will be calculated by multiplying the current round 
activity by twenty-nineteenths (\20/19\). We note, however, that the 
Commission proposes to retain the discretion to set and, by 
announcement before or during the auction, vary the required minimum 
activity levels (and associated eligibility calculations) for each 
auction stage. Retaining this flexibility will improve the Commission's 
ability to control the pace of the auction and help ensure that the 
auction is completed within a reasonable period of time.
    In the PCS auctions, we specified transition guidelines for 
deciding when the auction would move from Stage One to Stage Two to 
Stage Three. Those guidelines are based on the ``auction activity 
level,'' the sum of the MHz-pops of PCS licenses for which the high bid 
increased in the current round as a percentage of the total MHz-pops of 
all licenses offered in the auction.\25\ However, we also retained the 
discretion to move the PCS auctions from one stage to another at a rate 
different from that set out in the guidelines.\26\

    \25\ See, e.g., Fifth Report and Order at 5555.
    \26\ See Fourth Memorandum Opinion and Order in PP Docket No. 
93-253, 9 FCC Rcd 6858, 6860 (1994), 59 FR 53364, October 24, 1994.
---------------------------------------------------------------------------

    For the LMDS and FSS auctions, we propose to use the following 
transition guidelines: The auction will begin in Stage One and move 
from Stage One to Stage Two when the auction activity level is below 
ten percent for three consecutive rounds in Stage One. The auction will 
move from Stage Two to Stage Three when the auction activity level is 
below five percent for three consecutive rounds in Stage Two. In no 
case can the auction revert to an earlier stage. We propose, however, 
that the Commission retain 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, 
including, but not limited to, the auction activity level as defined 
above, the percentage of licenses (measured in terms of MHz-pops) on 
which there are new bids, the number of new bids, and the percentage 
increase in revenue.
    To avoid the consequences of clerical errors and to compensate for 
unusual circumstances that might delay a bidder's bid preparation or 
submission in a particular round, we proposed to provide bidders with a 
limited number of waivers of the above-described activity rule. We 
believe that some waiver procedure is needed because the Commission 
does not wish to reduce a bidder's eligibility due to an accidental act 
or circumstances not under the bidder's control.\27\

    \27\ See Second Report and Order at 2372.
---------------------------------------------------------------------------

    We propose to provide bidders five activity rule waivers that may 
be used in any round during the course of the auction.\28\ If a 
bidder's activity level is below the required activity level, a waiver 
will automatically be applied. That is, if a bidder fails to submit a 
bid in a round, and its activity level from any standing high bids 
(high bids at the end of the bid withdrawal period in the previous 
round) falls below its required activity level, a waiver will be 
automatically applied. A waiver will preserve current eligibility in 
the next round.\29\ An activity rule waiver applies to an entire round 
of bidding and not to a particular BTA service area.

    \28\ See Second Report and Order at 2373.
    \29\ An activity rule waiver cannot be used to correct an error 
in the amount bid.
---------------------------------------------------------------------------

    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.\30\ If a bidder 
overrides the automatic waiver mechanism, its eligibility will be 
permanently reduced (according to the formulas specified above), and it 
will not be permitted to regain its bidding eligibility from a previous 
round. An automatic waiver invoked in a round in which there are no new 
valid bids will not keep the auction open. Bidders will have the option 
of proactively entering an activity rule waiver during the bid 
submission period.\31\ If a bidder submits a proactive waiver in a 
round in which no other bidding activity occurs, the auction will 
remain open.

    \30\ See Fourth Memorandum Opinion and Order in PP Docket No. 
93-253, 9 FCC Rcd 6858, 6861 (1994).
    \31\ Thus, a ``proactive'' waiver, as distinguished from the 
automatic waiver described above, is one requested by the bidder.
---------------------------------------------------------------------------

    The Commission proposes to retain the discretion to issue 
additional waivers during the course of an auction for circumstances 
beyond a bidder's control. We also propose to retain the flexibility to 
adjust by public notice prior to an auction the number of waivers 
permitted, or to institute a rule that allows one waiver during a 
specified number of bidding rounds or during specified stages of the 
auction.\32\ 

[[Page 43749]]
We request comment on these proposals.

    \32\ See Second Report and Order at 2373.
2. Procedural and Payment Issues

    In the Competitive Bidding Second Report and Order, as modified by 
the Competitive Bidding Reconsideration Order in PP Docket No. 93-253, 
9 FCC Rcd 7245 (1944), the Commission established general procedural 
and payment rules for auctions, but also stated that such rules may be 
modified on a service-specific basis.\33\ As discussed below, we 
generally propose to follow the procedural and payment rules 
established in subpart Q of part 1 of the Commission's rules, but seek 
comment on whether any service-specific modifications of these rules 
are needed based on the particular characteristics of LMDS services.

    \33\ 9 FCC Rcd at 7249-50, paras. 23-26.
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(a) Upfront Payments
    As in the case of other auctionable services, we propose to require 
participants in the LMDS and FSS auctions to tender to the Commission 
in advance of the auction, a substantial upfront payment. We have 
previously determined that a substantial upfront payment requirement is 
necessary to ensure that only serious, qualified bidders participate in 
auctions and to ensure that sufficient funds are available to satisfy 
any bid withdrawal or default payments (discussed infra) that may be 
incurred. We seek comment on the appropriate amount of such upfront 
payments for LMDS and satellite auctions. In the PCS auctions the 
upfront payments was established based on a formula of $0.02 per pop 
per MHz for the largest combination of MHz-pops a bidder anticipates 
being active in any single round of bidding. This upfront payment was 
designed to require an upfront payment representing approximately 5 
percent of the expected value of such licenses. We seek comment on what 
the appropriate upfront payment price per MHz-pop should be for LMDS 
and satellite licenses. We also seek comment on whether we should 
establish a minimum upfront payment for applications and if so what the 
amount of that minimum upfront should be. In the Competitive Bidding 
Second Report and Order, we established a minimum upfront payment of 
$2,500, but we also indicated that the minimum amount could be modified 
on a service-specific basis.\34\ With respect FSS auctions, we seek 
comment on whether a fixed upfront payment would be more appropriate, 
and if so, what the amount of that upfront should be.

    \34\ 9 FCC Rcd at 2379, para. 180.
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(b) Down Payment and Full Payment for Licenses Awarded by Competitive 
Bidding
    The Competitive Bidding Second Report and Order generally 
established a 20 percent down payment requirement for winning bidders 
to discourage default between the auction and licensing and to ensure 
payment if such default occurs. We concluded that a 20 percent down 
payment was appropriate to ensure that auction winners have the 
necessary financial capabilities to complete payment for the license 
and to pay for the costs of constructing a system, while at the same 
time not being so onerous as to hinder growth or diminish access.
    We similarly propose to require all winning bidders in LMDS, GSO/
FSS and NGSO/FSS auctions to supplement their upfront payments with a 
down payment sufficient to bring their total deposits up to 20 percent 
of their winning bid(s).\35\ Under this approach, winning bidders would 
be required to submit the required down payment by cashier's check or 
wire transfer to our lock-box bank by a date to be specified by Public 
Notice, generally within five (5) business days following the close of 
bidding. All auction winners would generally be required to make full 
payment of the balance of their winning bids within five (5) business 
days following notification by the Commission that it was prepared to 
award the license. The license would then be granted after this payment 
was received. We seek comment on whether this is an appropriate 
requirement for licensing of these services, and whether 20 percent 
represents an appropriate level of payment. In addition, as discussed 
more fully below, we ask commenters to address whether any special 
payment provisions, for example a reduced down payment, should be 
adopted for designated entities, and if so, for which specific 
categories of designated entities and why.

    \35\ If the upfront payment already tendered by a winning 
bidder, after deducting any bid withdrawal and default payments due, 
amounts to 20 percent or more of its winning bids, no additional 
deposit will be required. If the upfront payment amount on deposit 
is greater than 20 percent of the winning bid amount after deducting 
any bid withdrawal and default payments due, the additional monies 
will be refunded. If a bidder has withdrawn a bid or defaulted but 
the amount of the payment cannot yet be determined, the bidder will 
be required to make a deposit of 20 percent of the amount bid on 
such licenses. When it becomes possible to calculate and assess the 
additional payment, any excess deposit will be refunded. Upfront 
payments will be applied to such deposits and to bid withdrawal and 
default payments due before being applied toward the bidder's down 
payment on licenses the bidder has won and seeks to acquire.
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(c) Bid Withdrawal, Default, and Disqualification
    As we discussed in the Second Report and Order, it is important to 
the success of our system of competitive bidding that potential bidders 
understand that there will be a substantial payment assessed if they 
withdraw a high bid, are found not to be qualified to hold licenses or 
default on payment of a balance due. Accordingly, we propose to use the 
bid withdrawal, default and disqualification rules contained 
Secs. 1.2104(g) and 1.2109 of the Commission's rules for LMDS, GSO/FSS 
and NGSO/FSS auctions. Pursuant to these rules, any bidder who 
withdraws a high bid during an auction before the Commission declares 
bidding closed will be required to reimburse the Commission in the 
amount of the difference between its high bid and the amount of the 
winning bid the next time the license is offered by the Commission, if 
this subsequent winning bid is lower than the withdrawn bid.\36\ No 
withdrawal payment will be assessed if the subsequent winning bid 
exceeds the withdrawn bid. After bidding closes, a defaulting auction 
winner (i.e., a winner who fails to remit the required down payment 
within the prescribed time, fails to pay for a license, or is otherwise 
disqualified) will be assessed an additional payment of three percent 
of the subsequent winning bid or three percent of the amount of the 
defaulting bid, whichever is less.\37\ The additional three percent 
payment is designed to encourage bidders who wish to withdraw their 
bids to do so before bidding ceases. We propose to hold deposits made 
by defaulting or disqualified auction winners until full payment of the 


[[Page 43750]]
additional amount.\38\ We believe that these additional payments will 
adequately discourage default and ensure that bidders have adequate 
financing and that they meet all eligibility and qualification 
requirements. In the case of defaults, we also propose to retain 
discretion to offer a license to the next highest bidder at its final 
bid price if the default occurs within five business days after the 
close of bidding. We seek comment on these propose procedures.

    \36\ If a license is re-offered by auction, the ``winning bid'' 
refers to the high bid in the auction in which the license is re-
offered. If a license is re-offered in the same auction, the winning 
bid refers to the high bid amount, made subsequent to the 
withdrawal, in that auction. If the subsequent high bidder also 
withdraws its bid, that bidder will be required to pay an amount 
equal to the difference between its withdrawn bid and the amount of 
the subsequent winning bid the next time the license is offered by 
the Commission. If a license which is the subject of withdrawal or 
default is not re-auctioned, but is instead offered to the highest 
losing bidders in the initial auction, the ``winning bid'' refers to 
the bid of the highest bidder who accepts the offer. Losing bidders 
would not be required to accept the offer, i.e., they may decline 
without additional payment. We wish to encourage losing bidders in 
simultaneous multiple round auctions to bid on other licenses, and 
therefore we will not hold them to their losing bids on a license 
for which a bidder has withdrawn a bid or on which a bidder has 
defaulted.
    \37\ See 47 CFR Secs. 1.2104(g) and 1.2109.
    \38\ In rare cases in which it would be inequitable to retain a 
down payment, we will entertain requests for waiver of this 
provision.
---------------------------------------------------------------------------

    In addition, if a default or disqualification involves gross 
misconduct, misrepresentation or bad faith by an applicant, we propose 
to retain the option to declare the applicant and its principals 
ineligible to bid in future auctions, or take any other action we deem 
necessary, including institution of proceedings to revoke any existing 
licenses held by the applicant.\39\ 

    \39\ See Second Report and Order at para. 198.
---------------------------------------------------------------------------

3. Regulatory Safeguards

(a) Unjust Enrichment Provisions
    The Budget Act directs the Commission to ``require such transfer 
disclosures and anti-trafficking restrictions and payment schedules as 
may be necessary to prevent unjust enrichment and as a result of the 
methods employed to issue licenses and permits.'' We therefore propose 
to adopt the transfer disclosure requirements contained in 
Sec. 1.2111(a) of our rules for all LMDS,GSO/FSS and NGSO/FSS licenses 
obtained through the competitive bidding process. In addition, we 
propose specific rules governing unjust enrichment by designated 
entities, which are discussed below. Generally, applicants transferring 
their licenses within three years after the initial license grant will 
be required to file, together with their transfer application, the 
associated contracts for sale, option agreements, management 
agreements, and all other documents disclosing the total consideration 
received in return for the transfer of their licenses. We seek comment 
on these proposals.
(b) Performance Requirements
    The Budget Act requires the Commission to ``include performance 
requirements, such as appropriate deadlines and penalties for 
performance failures, to ensure prompt delivery of service to rural 
areas, to prevent stockpiling or warehousing of spectrum by licensees 
or permittees, and to promote investment in and rapid deployment of new 
technologies and services.'' 47 U.S.C. 309(j)(4)(B). In the Competitive 
Bidding Second Report and Order, we determined that it was unnecessary 
and undesirable to impose additional performance requirements, beyond 
those already provided in the service rules, for all auctionable 
services. Our proposed LMDS service rules (and GSO/FSS and NGSO/FSS 
service rules) contain specific performance requirements, such as the 
requirement to construct and provide service within a specific period 
of time. Thus, we do not propose to adopt any additional performance 
requirements for competitive bidding purposes. We seek comment on this 
tentative conclusion.
(c) Rules Prohibiting Collusion
    In the Competitive Bidding docket, we adopted special rules 
prohibiting collusive conduct in the context of competitive bidding. We 
indicated that such rules would serve the objectives of the Budget Act 
by preventing parties, especially the largest firms, from agreeing in 
advance to bidding strategies that divide the market according to their 
strategic interests and that disadvantage other bidders. We propose to 
apply these rules to LMDS, GSO/FSS and NGSO/FSS auctions. Pursuant to 
these rules, from the time the short-form applications are filed until 
a winning bidder has made its required down payment, all bidders will 
be prohibited from cooperating, collaborating, discussing or disclosing 
in any manner the substance of their bids or bidding strategies with 
other bidders, unless such bidders are members of a bidding consortium 
or other joint bidding arrangement identified on the bidder's short-
form application. In addition, bidders are required by 
Sec. 1.2105(a)(2) of the Commission's Rules to identify on their Form 
175 applications all parties with whom they have entered into any 
consortium arrangements, joint ventures, partnerships or other 
agreements or understandings which relate to the competitive bidding 
process. Bidders will also be required to certify that they have not 
entered and will not enter into any explicit or implicit agreements, 
arrangements or understandings with any parties, other than those 
identified, regarding the amount of their bid, bidding strategies or 
the particular properties on which they will or will not bid.
    We also propose to require winning bidders, pursuant to Sec. 1.2107 
of the Commission's Rules, to attach as an exhibit to their license 
application a detailed explanation of the terms and conditions and 
parties involved in any bidding consortium, joint venture, partnership, 
or other agreement or arrangement they had entered into relating to the 
competitive bidding process prior to the close of bidding. All such 
arrangements must have been entered into prior to the filing of short-
form applications. In addition, where specific instances of collusion 
in the competitive bidding process are alleged during the petition to 
deny process, the Commission may conduct an investigation or refer such 
complaints to the United States Department of Justice for 
investigation. Bidders who are found to have violated the antitrust 
laws or the Commission's rules in connection with participation in the 
auction process may be subject to forfeiture of their down payment or 
their full bid amount and revocation of their license(s), and they may 
be prohibited from participating in future auctions. We seek comment on 
these proposals.

4. Treatment of Designated Entities

(a) Introduction
    In authorizing the Commission to use competitive bidding, Congress 
mandated that the Commission ``ensure that small business, rural 
telephone companies, and businesses owned by members of minority groups 
and women are given the opportunity to participate in the provision of 
spectrum-based services.'' 47 U.S.C. 309(j)(4)(D). The statute requires 
the Commission to ``consider the use of tax certificates, bidding 
preferences, and other procedures'' in order to achieve this 
Congressional goal. In addition, section 309(j)(3)(B) provides that in 
establishing eligibility criteria and bidding methodologies the 
Commission shall promote ``economic opportunity and competition . . . 
by avoiding excessive concentration of licenses and by disseminating 
licenses among a wide variety of applicants, including small 
businesses, rural telephone companies, and businesses owned by members 
of minority groups and women.'' Finally, section 309(j)(4)(A) provides 
that to promote these objectives, the Commission shall consider 
alternative payment schedules including installment payments.
    In instructing the Commission to ensure the opportunity for 
designated entities to participate in auctions and spectrum-based 
services, Congress was well aware of the problems that designated 
entities would have in competing against large, well-capitalized 
companies in auctions and the difficulties they encounter in accessing 
capital. For example, the legislative history accompanying our 

[[Page 43751]]
grant of auction authority states generally that the Commission's 
regulations ``must promote economic opportunity and competition,'' and 
``(t)he Commission will realize these goals by avoiding excessive 
concentration of licenses and by disseminating licenses among a wide 
variety of applicants, including small businesses and businesses owned 
by members of minority groups and women.'' \40\ The House Report states 
that the House Committee was concerned that, ``unless the Commission is 
sensitive to the need to maintain opportunities for small business, 
competitive bidding could result in a significant increase in 
concentration in the telecommunications industries.'' \41\ More 
specifically, the House Committee was concerned that adoption of 
competitive bidding should not have the effect of ``excluding'' small 
businesses from the Commission's licensing procedures, and anticipated 
that the Commission would adopt regulations to ensure that small 
businesses would ``continue to have opportunities to become 
licensees.'' \42\ On the other hand, the House Report also states that 
``the characteristics of some services are inherently national in 
scope, and are therefore ill-suited for small businesses.'' \43\

    \40\ H.R. Rep. No. 111, 103d Cong., 1st Sess. 254 (1993).
    \41\ Id.
    \42\ Id. at 255.
    \43\ Id. at 254.
---------------------------------------------------------------------------

    Consistent with Congress's concern that auctions not operate to 
exclude small businesses, the provisions relating to installation 
payments were intended to assist small businesses. The House Report 
states that these related provisions were drafted to ``ensure that all 
small businesses will be covered by the Commission's regulations, 
including those owned by members of minority groups and women.'' \44\ 
It also states that the provisions in section 309(j)(4)(A) relating to 
installment payments were intended to promote economic opportunity by 
ensuring that competitive bidding does not inadvertently favor 
incumbents with ``deep pockets'' ``over new companies or start-ups.'' 
\45\

    \44\ Id.
    \45\ Id.
---------------------------------------------------------------------------

    In addition, with regard to access to capital, Congress had made 
specific findings in the Small Business Credit and Business Opportunity 
Enhancement Act of 1992, that ``small business concerns, which 
represent higher degrees of risk in financial markets than do large 
businesses, are experiencing increased difficulties in obtaining 
credit.'' \46\ As a result of these difficulties. Congress resolved to 
consider carefully legislation and regulations ``to ensure that small 
business concerns are not negatively impacted'' and to give priority to 
passage of ``legislation and regulations that enhance the viability of 
small business concerns.'' \47\ In the Competitive Bidding Second 
Report and Order, we also indicated that special measures may not be 
appropriate in all circumstances.

    \46\ Small Business Credit and Business Opportunity Enhancement 
Act of 1992, section 331(a)(3), Pub. L. 102-366, Sept. 4, 1992.
    \47\ Id. section 331(b)(2)-(3).
    We have employed a wide range of special provisions and eligibility 
criteria designed to meet the statutory objectives of providing 
opportunities to designated entities in other spectrum-based services. 
For instance, we determined that minority-owned and women-owned 
businesses in the nationwide narrowband PCS auction would receive a 25 
percent bidding credit on certain channels; \48\ in the regional 
narrowband PCS auction women-owned and minority-owned businesses would 
receive a 40 percent bidding credit on certain channels and small 
businesses would be eligible for installment payments on all channels; 
\49\ in the broadband PCS auction, on separate entrepreneurs' blocks, 
the bidding credits would vary according to the type of qualifying 
designated entity that applied,\50\ and all entrepreneurs' block 
licensees would be eligible for installment payments.\51\ For the 
Multipoint Distribution Service (``MDS'') we adopted a 15 percent 
bidding credit, reduced upfront payments and installment payments for 
small businesses, including those owned by members of minority groups 
and women.\52\ In satellite services, we have not proposed or adopted 
specific measures for designated entitles.\53\ 

    \48\ Auctions Third Report and Order at para. 72.
    \49\ Id. at para. 87. See implementation of Section 309(j) of 
the Communications Act--Competitive Bidding, PP Docket No. 93-253, 
Third Memorandum Opinion and Order and Further Notice of Proposed 
Rulemaking, 10 FCC Rcd 175, para. 58 (1994), 5Q FR 44058, August 26, 
1994.
    \50\ Auctions Fifth Report & Order at para. 133; Auctions Fifth 
Memorandum Opinion & Order at para. 99; See also Further Notice of 
Proposed Rulemaking, FCC 95-263 (released June 23, 1995), 60 FR 
34201, June 30, 1995.
    \51\ Auctions Fifth Memorandum Opinion & Order at para. 103.
    \52\ Report and Order, MM Docket No. 94-131 and PP Docket 93-
253, FCC 95-230 (adopted June 15, 1995), 60 FR 36524, July 17, 1995.
    \53\ See Rules and Policies Pertaining to a Mobile Satellite 
Service in the 1610-1626.5/2483-2500 MHz Frequency Bands, Report and 
Order, CC Docket No. 92-166, 9 FCC Rcd 5936, 5969-70 (1994); 
Establishment of Rules and Policies for the Digital Audio Radio 
Satellite Service in the 2310-2360 MHz Frequency Band, Notice of 
Proposed Rulemaking, IB Docket No. 95-91, paras. 107-108, FCC 95-229 
(released June 15, 1995) 60 FR 35166, July 6 1995.
---------------------------------------------------------------------------

    The measures considered thus far for each service were established 
after closely examining the specific characteristics of the service and 
determining whether any particular barriers to accessing capital stood 
in the way of designated entity opportunities. After examining the 
record in the competitive bidding proceeding in PP Docket 93-253, we 
established provisions necessary to enable designated entities to 
overcome the barriers to accessing capital in each particular service. 
Moreover, the measures we adopted also were designed to increase the 
likelihood that designated entities who win licenses in the auctions 
become strong competitors in the provision of wireless services.
    As in other auctionable services, we fully intend in services using 
the 28 GHz band to meet the statutory objectives of promoting economic 
opportunity and competition, of avoiding excessive concentration of 
licenses, and of ensuring access to new and innovative technologies by 
disseminating licenses among a wide variety of applicants, including 
small businesses, rural telephone companies, and businesses owned by 
members of minority groups and women. At the same time, we must be 
cautious and deliberative in our selected approach in light of the 
auction statute's directive to avoid judicial delays \54\ and the 
substantial legal risks involved with providing preferential treatment 
on the basis of race or gender. In this regard, on June 12, 1995, the 
Supreme Court ruled in Adarand Constructors v. Pena \55\ that measures 
adopted by the federal government awarding preferential treatment on 
the basis of race are subject to strict scrutiny.\56\ To pass muster 
under that standard, such measures must be narrowly tailored to further 
compelling government interests.\57\ 

    \54\ 47U.S.C. 309(j)(3)(A).
    \55\ 63 U.S.L.W. 4523 (U.S. June 12, 1995).
    \56\ Id., 63 U.S.L.W. at 4530.
    \57\ Id.
---------------------------------------------------------------------------

    Adarand thus introduces an additional level of complexity in 
implementing Congress' mandate to ensure that businesses owned by 
minorities and women are provided ``the opportunity to participate in 
the provision of spectrum-based services.'' \58\ Although Adarand did 
not address gender-based preferences, we 

[[Page 43752]]
have included them here in an effort to seek the broadest possible 
comment. We welcome comment as to the appropriateness of our approach. 
Accordingly, we seek comment on how we can best promote opportunities 
for businesses owned by minorities and women in the provision of LMDS 
and satellite services in light of Adarand. We seek the broadest 
possible comments including, but not limited to, responses to the 
following questions:

    \58\ 47 U.S.C. 309(j)(4)(D).
---------------------------------------------------------------------------

    (1) Does the Commission have a compelling interest in establishing 
opportunity-enhancing measures in the provision of LMDS and satellite 
services specifically for minority-and women-owned businesses? If so, 
what is that compelling interest? Would the goal of assuring a 
``diversity of voices'' in the provision of LMDS and satellite 
services? suffice as a compelling interest? \59\ 

    \59\ We suggest ``diversity of voices'' as a possible compelling 
interest because LMDS is likely to be used as a ``medium of mass 
communication'' similar to other multipoint distribution services. 
See 47 U.S.C. 309(i)(3)(C)(i). In Metro Broadcasting v. F.C.C., the 
Supreme Court upheld the Commission's minority preference programs 
in the awarding of broadcast licenses because they served the 
``important'' governmental interest of promoting diversity in 
broadcast programming. Metro Broadcasting v. F.C.C., 497 U.S. 547, 
566-68 (1990). While Adarand overrules Metro, to the extent that 
Metro applied ``Intermediate scrutiny,'' Adarand did not reject the 
diversity interest; rather, it simply held that the diversity 
interest must be ``compelling.''
---------------------------------------------------------------------------

    (2) What evidence (statistical, documentary, anecdotal or 
otherwise) can be marshalled to support the proposed compelling 
interest?
    (3) What techniques could the Commission employ that would be 
narrowly tailored to further the proposed compelling interest? Would 
such techniques include bidding credits and installment payments? Are 
race-conscious or gender-conscious measures necessary, or are there 
race-or gender-neutral measures that would be effective?

Commenters are encouraged to provide the Commission as much evidence as 
possible with regard to past discrimination, continuing discrimination, 
discrimination in access to capital, underrepresentation and other 
significant barriers facing businesses owned by minorities and women in 
satellite services, services similar to LMDS, and in licensed 
communications services generally.
    In the Competitive Bidding docket, we established eligibility 
criteria and general rules that would govern the award of special 
provisions for small businesses, rural telephone companies, and 
minority-and women-owned businesses (collectively, ``designated 
entities''). We also established a menu of possible special provisions 
that could be awarded to designated entities in particular services, 
including installment payments, spectrum set-asides, bidding credits, 
and tax certificates.\60\ In addition, we set forth rules to prevent 
unjust enrichment by designated entities seeking to transfer licenses 
obtained through use of one of these special provisions.

    \60\ Congress has now repealed the tax credit program in the 
Communications Act, except with respect to fixed microwave licenses 
not at issue here. 109 Stat. 93 (195), Pub. L. 104-7, April 11, 
1995.
---------------------------------------------------------------------------

    In keeping with the general parameters set forth in the Competitive 
Bidding docket, we propose specific measures and eligibility criteria 
for designated entities who seek to obtain spectrum to provide LMDS and 
satellite services, designed to ensure that such entities are given the 
opportunity to participate both in the competitive bidding process and 
in the provision of these services. We seek comment on these proposals, 
and specifically on identifying special provisions that are tailored to 
the unique characteristics of the LMDS and satellite services and that 
will create meaningful incentives and opportunities for designated 
entities.
(b) Installment Payments
    We propose to adopt installment payments for small businesses 
bidding for LMDS licenses. The record in the Competitive Bidding 
proceeding suggests that the most significant barrier for small 
business participation in the auctioning of LMDS spectrum will be 
access to adequate private financing to ensure their ability to compete 
against larger firms in the competitive bidding process. In the 
competitive Bidding Second Report and Order, we concluded that a 
reduced down payment requirement coupled with installment payments is 
an effective means to address the inability of small businesses bidding 
for PCS licenses. We seek comment on our proposal to use this same 
approach in the LMDS auctions, and on whether any additional or 
alternative special provisions should be provided for small businesses 
bidding on LMDS spectrum. We also seek comment on whether installment 
payments are appropriate to encourage small businesses participation in 
the provision of satellite services.
    To ensure that large businesses do not become the unintended 
beneficiaries of installment payment provisions meant for small 
businesses, we also propose to make the unjust enrichment provisions 
adopted in the Competitive Bidding Second Report and Order applicable 
to installment payments by small business applicants. Specifically, if 
a small business making installment payments seeks to transfer a 
license to a non-small business entity during the term of the license, 
we propose to require payment of the remaining principle balance and 
accrued interest as a condition of the license transfer. We seek 
comment on this proposal including whether additional unjust enrichment 
provisions are necessary for LMDS licensing. We also see comment on 
whether these unjust enrichments would be appropriate if installment 
payments are also adopted for small businesses participating in 
satellite auctions.
    Eligibility Criteria. We propose to define a small business as an 
entity that, together with affiliates and attributable investors, has 
average gross revenues for the three preceding years of less than $40 
million. We believe this standard is appropriate for LMDS service 
because build-out costs are likely to be significant. Additionally, the 
cost of acquiring a license is likely to be higher than for other 
services. We also seek comment on whether this definition is 
appropriate for small businesses in the context of satellite auctions.
    Commenters should address whether this is an appropriate threshold 
given the expected cost associated with the provision of LMDS and 
satellite services. Should it be higher or lower, based on the types of 
companies that are likely to benefit from the special provisions 
proposed here? We also propose not to attribute the gross revenues of 
investors that hold less than 25 percent interest in the applicant, but 
we will include the gross revenues of the applicant's affiliates and 
investors with ownership interests of 25 percent or more in the 
applicant in determining whether an applicant qualifies as a small 
business. Is a different attribution threshold warranted for LMDS or 
for satellite services? We seek comment on these issues.
(c) Bidding Credits
    Specific Special Provisions. Based on the list of special 
provisions for designated entities established in the Competitive 
Bidding Second Report and Order, we propose to utilize bidding credits 
for small businesses participating in LMDS or FSS auctions. We 
tentatively conclude that affording such businesses bidding credits and 
installment payments is the most cost-effective and efficient means of 
achieving Congress' objective of ensuring an opportunity for these 
designated entities to participate in the provision of LMDS service, 
while preserving the advantages of 

[[Page 43753]]
competitive open bidding. We seek comment on this proposal.
    We request comment on how we should determine the appropriate 
amount of the bidding credit. Our analysis of the telecommunications 
industry suggests the possibility that incumbent telecommunications 
providers may be able to utilize existing infrastructure and thus enjoy 
economies of scope in the provision of many of the services that may 
develop in LMDS. Therefore, these incumbents may have the ability to 
bid more than first-time operators.
    We propose a bidding credit of 25 percent that would be available 
on one of the proposed spectrum blocks. We seek comment on the 
appropriateness of the proposed bidding credits for LMDS and FSS 
auctions.
    To prevent unjust enrichment by small businesses trafficking in 
licenses acquired through the use of bidding credits, we propose 
imposition of a payment requirement on transfers of such licenses to 
entities that are not owned by small businesses. Small businesses 
seeking to transfer a license to an entity that does not meet the 
eligibility criteria for a small business would be required to 
reimburse the Government for the amount of the bidding credit, plus 
interest at the rate imposed for installment financing at the time the 
license was awarded, before the transfer will be permitted. The amount 
of the penalty would be reduced over time so that a transfer in the 
first two years of the license term would result in a payment of 100 
percent of the value of the bidding credit; in year three of the 
license term the payment would be 75 percent; in year four the penalty 
would be 50 percent and in year five the payment would be 25 percent, 
after which there would be no payment. We seek comment on these 
proposals.
(d) Rural Telephone Companies
    We seek comment on whether we should provide bidding credits or 
other special provisions for rural telephone companies. In addition, 
the vast majority of rural telephone companies will qualify as small 
businesses and thus will receive installment payment options. Because 
many of the specific uses proposed for LMDS, including wireless cable 
and video telecommunications, may be of interest to rural telephone 
companies, such entities may be interested in bidding for LMDS 
spectrum. However, we are unable to determine with any certainty the 
potential prices these services may bring in rural areas. If service 
prices in such areas are low, acquiring a license should not present 
significant barriers to rural telephone companies. Also, under one 
possible approach, the degree of flexibility we would afford in the use 
of this spectrum, including provisions for partitioning or leasing 
spectrum, should assist in satisfying the spectrum needs of rural 
telephone companies at low cost. Finally, as with other incumbent 
providers of telecommunications services, rural telephone companies may 
be able to benefit from the use of their existing infrastructure in the 
provision of some services. Such economies of scale would give rural 
telephone companies an advantage in the bidding for such licenses. For 
these reasons, we do not believe that special preferences are needed to 
ensure adequate participation by rural telephone companies in the 
provision of services in this spectrum. However, comments on this 
analysis are requested.
(e) Additional Special Provisions
    In addition to the special provisions proposed above for the 
various classes of designated entities, we seek comment on whether 
additional special provisions should be adopted that would enhance our 
goal of ensuring their participation in the competitive bidding process 
for LMDS and satellite licenses. We request that commenters give 
particular attention to the alternatives described below.
    Reduced Upfront Payments. In the Competitive Bidding Second Report 
and Order, we concluded that upfront payment requirements would ensure 
that bidders are qualified and serious and would provide the Commission 
with a source of funds in the event of default or bid withdrawal. 9 FCC 
Rcd at 2377, 2379, paras. 169, 176. We also noted that reduced upfront 
payments may be particularly appropriate for auctions of spectrum 
specifically set aside for designated entities as a means of 
encouraging participation in the auctions, particularly by all eligible 
designated entities.\61\ We seek comment on whether there should be a 
similar reduction in upfront payments for small businesses or any other 
designated entities applying for LMDS or satellite licenses. In 
addition, we ask commenters to address the costs and benefits with 
respect to auction administration and designated entity participation 
associated with a reduced upfront payment for licenses in LMDS or 
satellite services in the absence of a spectrum set-aside.

    \61\ Competitive Bidding Fifth Report and Order, 9 FCC Rcd at 
5599-5600, para. 154.
---------------------------------------------------------------------------

Comment Dates

    Pursuant to applicable procedures set forth in Secs. 1.415 and 
1.419 of the Commission's rules, 47 CFR 1.415 and 1.419, interested 
parties may file comments on or before August 28, 1995, and reply 
comments on or before September 18, 1995. To file formally in this 
proceeding, you must file an original and five copies of all comments, 
reply comments, and supporting comments. If you want each Commissioner 
to receive a personal copy of your comments, you must file an original 
plus nine copies. You should send comments and reply comments to the 
Office of the Secretary, Federal Communications Commission, Washington, 
DC 20554. Comments and reply comments will be available for public 
inspection during regular business hours in the Dockets Reference Room 
of the Federal Communications Commission, 1919 M Street, NW., 
Washington, DC 20554.

Initial Regulatory Flexibility Analysis

    Reason for action. The purposes of this NPRM are four-fold; first, 
to obtain comment on the Commission's designation proposal for the 
27.5-29.5 GHz frequency band; second, to obtain comment on the 
Commission's proposal for a reallocation pertaining to the 29.5-30.0 
GHz frequency band; third, to obtain comment on proposed service rules 
for LMDS and FSS; and fourth, to obtain comment on the Commission's 
supplemental tentative decision to grant CellularVision a Pioneer's 
Preference.
    Objectives. The objective of this Notice is to request public 
comment on the proposals made herein for the efficient licensing of 
services in the 27.5-30.0 GHz band, for the development and 
implementation of a new technology to provide innovative 
telecommunications services to the public.
    Legal basis. The authority for this action is the Administrative 
Procedure Act, 5 U.S.C. 553; and sections 4(i), 4(j), 301, 303(r) of 
the Communications Act of 1934 as amended, 47 U.S.C. 145, 301, and 
303(r).
    Reporting, recordkeeping and other compliance requirements. 
Reporting requirements are proposed to ensure that the spectrum, if 
redesignated for these new uses, is used to serve the public's need for 
communications services.
    Federal rules which overlap, duplicate or conflict with these 
rules. None.
    Description, potential impact and number of small entities 
involved. Any rule changes in this proceeding could 

[[Page 43754]]
affect MMDS licensees, the majority of which are small businesses. 
These entities may have some additional competition from video 
programming service which could be provided by Suite 12's multicell 
technology. In addition, rule changes could affect rural telephone 
companies, to the extent that any are considered small businesses. 
These entities may have competition to their local exchange service; 
alternatively, these entities may be considered designated entities and 
given bidding and other benefits. After evaluating the comments in this 
proceeding, the Commission will further examine the impact of any rule 
changes on small entities and set forth our findings in the Final 
Regulatory Flexibility Analysis.
    Significant Alternatives. While there are alternative methods to 
provide the services proposed by LMDS and FSS parties, we find that the 
services proposed will provide significant competition to existing 
service providers, thus bringing the benefits of competition to the 
public.

Ordering Clauses

    According, it is ordered that the Notice of Proposed Rulemaking is 
hereby adopted with proposed rules below.
    It is further ordered that the Petition for Rulemaking filed by 
Harris Corporation-Farinon Division and Digital Equipment Company is 
denied.
    It is further ordered that CellularVision, the successor-in-
interest to Suite 12 Group, is tentatively granted a pioneer's 
preference in accordance with the discussion in paragraphs 68-73 of 
this Supplemental Tentative Decision.
    It is further ordered that the Acting Secretary shall mail a copy 
of this document to the Chief Counsel for Advocacy, Small Business 
Administration.

List of Subjects

47 CFR Part 21

    Communications common carriers, Radio.

47 CFR Part 25

    Satellites.

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

Proposed Amendatory Text

    47 CFR Parts 21 and 25 are proposed to be amended as follows:

PART 21--DOMESTIC PUBLIC FIXED RADIO SERVICES

    1. The authority citation for part 21 continues to read as follows:

    Authority: Secs. 1, 2, 4, 201-205, 208, 215, 218, 303, 307, 313, 
403, 404, 410, 602, 48 Stat. as amended, 1064, 1066, 1070-1073, 
1077, 1080, 1082, 1083, 1087, 1094, 1098, 1102; 47 U.S.C. 151, 154, 
201-205, 208, 215, 218, 303, 307, 313, 314, 403, 404, 602,: 47 
U.S.C. 552,554.

    2. Section 21.2 is proposed to be amended by adding the following 
definitions, in alphabetical order, to read as follows:
* * * * *


Sec. 21.2  Definitions.

* * * * *
    Local Multipoint Distribution Service Hub Station. A fixed point-
to-multipoint radio station in a Local Multipoint Distribution Service 
System that provides one-way or two-way communication with Local 
Multipoint Distribution Service Subscriber Stations.
* * * * *
    Local Multipoint Distribution Service System. A fixed point-to-
multipoint radio system consisting of Local Multipoint Distribution 
Service Hub Stations and their associated Local Multipoint Distribution 
Service Subscriber Stations.
* * * * *
    Local Multipoint Distribution Service Subscriber Station. Any one 
of the fixed microwave radio stations located at users' premises, lying 
within the coverage area of a Local Multipoint Distribution Service Hub 
Station, capable of receiving one-way communications from or providing 
two-way communications with the Local Multipoint Distribution Service 
Hub Station.
* * * * *
    Local Multipoint Distribution Service Backbone Link. A point-to-
point radio service link in a Local Multipoint Distribution Service 
System that is used to interconnect Local Multipoint Distribution 
Service Hub Stations with each other or with the public switched 
telephone network.
* * * * *
    3. Section 21.107(b) is amended by removing the entry for the 
frequency band 27,500 MHz to 29,500 MHz, and adding new entires 27,500 
MHz to 28,350 MHz and 29,100 MHz to 29,250 MHz to read as follows:


Sec. 21.107  Transmitter power.

* * * * *
    (b) * * *

----------------------------------------------------------------------------------------------------------------
                                                   Maximum allowable transmitter      Maximum allowable EIRP    
                                                               power             -------------------------------
              Frequency band (MHz)               --------------------------------                               
                                                     Fixed (W)      Mobile (W)      Fixed (dBW)    Mobile (dBW) 
----------------------------------------------------------------------------------------------------------------
                                                                                                                
*                  *                  *                  *                  *                  *                
                                                        *                                                       
27,500 MHz to 28,350 MHz........................  ..............  ..............      -52 dBW/Hz  ..............
29,100 MHz to 29,250 MHz........................  ..............  ..............             (5)  ..............
----------------------------------------------------------------------------------------------------------------
\5\ This value is based on the value in Secs.  21.1018-21.1021.                                                 

* * * * *
    4. Section 21.1002 (proposed at 58 FR 6378, Jan. 28, 1993), is 
amended by adding new paragraph (c) to read as follows:
Sec. 21.1002  Frequencies.

* * * * *
    (c) Special requirements for operations in the band 29.1-29.25 GHz.
    (1)(i) LMDS receive stations operating on frequencies in the 29.1-
29.25 GHz band within a radius of 75 nautical miles of the geographic 
coordinates provided by a non-GSO MSS licensee pursuant to paragraphs 
(c)(2) or (c)(3)(i) of this section (the ``feeder link earth station 
complex protection zone'') shall accept any interference caused to them 
by such earth station complexes and shall not claim protection from 
such earth station complexes.
    (ii) LMDS licensees operating on frequencies in the 29.1-29.25 GHz 
band outside a feeder link earth station complex protection zone shall 
cooperate fully and make reasonable efforts to resolve technical 
problems with the non-GSO MSS licensee to the extent that transmissions 
from the non-GSO MSS operator's feeder link earth station complex 
interfere with an LMDS receive station.
    (2) At least 45 days prior to the commencement of LMDS auctions, 
feeder link earth station complexes shall 

[[Page 43755]]
be specified by a set of geographic coordinates in accordance with the 
following requirements: No feeder link earth station complex may be 
located in the top eight (8) metropolitan statistical areas (``MSAs''), 
ranked by population, as defined by the Office of Management and Budget 
as of June 1993, using estimated populations as of December 1992; two 
(2) complexes may be located in MSAs 9 through 25, one of which must be 
Phoenix, AZ (for a complex at Chandler, AZ); one (1) complex may be 
located in MSAs 26 to 50; three (3) complexes may be located in MSAs 51 
to 100, one of which must be Honolulu, Hawaii (for a complex at 
Waimea); and the two (2) remaining complexes must be located at least 
75 nautical miles from the borders of the 100 largest MSAs or in any 
MSA not included in the 100 largest MSAs. Any location allotted for one 
range of MSAs may be taken from an MSA below that range.
    (3)(i) Any non-GSO MSS licensee may at any time specify sets of 
geographic coordinates for feeder link earth station complexes with 
each earth station contained therein to be located at least 75 nautical 
miles from the borders of the 100 largest MSAs.
    (ii) For purposes of paragraph (c)(3)(i) of this section, non-GSO 
MSS feeder link earth station complexes shall be entitled to 
accommodation only if the affected non-GSO MSS licensee reapplies to 
the Commission for a feeder link earth station complex or certifies to 
the Commission within sixty days of receiving a copy of an LMDS 
application that it intends to file an application for a feeder link 
earth station complex within six months of the date of receipt of the 
LMDS application.
    (iii) If said non-GSO MSS licensee application is filed later than 
six months after certification to the Commission, the LMDS and non-GSO 
MSS entities shall still cooperate fully and make reasonable efforts to 
resolve technical problems, but the LMDS licensee shall not be 
obligated to re-engineer its proposal or make changes to its system.
    (4) LMDS licensees or applicants proposing to operate hub stations 
on frequencies in the 29.1-29.25 GHz band at locations outside of the 
100 largest MSAs or within a distance of 150 nautical miles from a set 
of geographic coordinates specified under paragraphs (c)(2) or 
(c)(3)(i) of this section shall serve copies of their applications on 
all non-GSO MSS applicants, permittees or licensees meeting the 
criteria specified in Sec. 25.257(a). Non-GSO MSS licensees or 
applicants shall serve copies of their feeder link earth station 
applications on any LMDS applicant or licensee within a distance of 150 
nautical miles from the geographic coordinates that it specified under 
paragraphs (c)(2) or (c)(3)(i) of this section. Any necessary 
coordination shall commence upon notification by the party receiving an 
application to the party who filed the application. The results of any 
such coordination shall be reported to the Commission within sixty 
days. The non-GSO MSS earth station licensee shall also provide all 
such LMDS licensees with a copy of its channel plan.
    5. A new Sec. 21.1018 is proposed to be added to read as follows:


Sec. 21.1018  LMDS single station EIRP limit.

    Point-to-point stations in the 29.1-29.5 GHz band for the LMDS 
backbone between LMDS hubs shall be limited to a maximum allowable EIRP 
density per carrier of 23 dBW/MHz in any one megahertz in clear air, 
and may exceed this limit by employment of adaptive power control in 
cases where link propagation attenuation exceeds the clear air value 
due to precipitation and only to the extent that the link is impaired.
    6. A new Sec. 21.1019 is proposed to be added to read as follows:


Sec. 21.1019  LMDS subscriber transmissions.

    LMDS licensees shall not operate transmitters from subscriber 
locations in the 29.1-29.25 GHz band.
    7. A new Sec. 21.1020 is proposed to be added to read as follows:


Sec. 21.1020  Hub transmitter EIRP spectral area density limit.

    (a) LMDS applicants shall demonstrate that, under clear air 
operating conditions, the maximum aggregate of LMDS transmitting hub 
stations in a Basic Trading Area in the 29.1-29.25 GHz band will not 
transmit a co-frequency hub-to-subscriber EIRP spectral area density in 
any azimuthal direction in excess of X dBW/(MHz-km2) when averaged 
over any 4.375 MHz band, where X is defined in Table 1. Individual hub 
stations may exceed their clear air EIRPs by employment of adaptive 
power control in cases where link propagation attenuation exceeds the 
clear air value and only to the extent that the link is impaired.
    (b) The EIRP aggregate spectral area density is calculated as 
follows:
[GRAPHIC][TIFF OMITTED]TP23AU95.022

Where:

N=number of co-frequency hubs in BTA
A=Area of BTA in km2
pi=spectral power density into antenna of i-th hub (in W/MHz)
gi=gain of i-th hub antenna at zero degree elevation angle
Each pi and gi are in the same 1 MHz

    (c) The climate zones in Table 1 are defined for different 
geographic locations within the US as shown in Appendix 28 of the ITU 
Radio Regulations and Sec. 25.254 of this chapter.

                                Table 1*                                
------------------------------------------------------------------------
                                                                  EIRP  
                                                                spectral
                                                                density 
                         Climate zone                            (clear 
                                                               air) (dbW/
                                                                  MHz-  
                                                                km\2\)**
------------------------------------------------------------------------
1............................................................        -23
2............................................................        -25
3,4,5........................................................       -26 
------------------------------------------------------------------------
*LMDS system licensees in two or more BTAs may individually or          
  collectively deviate from the spectral area density computed above by 
  averaging the power over any 200 km by 400 km area, provided that the 
  aggregate interference to the satellite receiver is no greater than if
  the spectral area density were as specified in Table 1. A showing to  
  the Commission comparing both methods of computation is required and  
  copies shall be served on any affected non-GSO MSS providers.         
**See Sec.  21.1007(c)(i) for the population density of the BTA.        

    8. A new Sec. 21.1021 is proposed to be added to read as follows:


Sec. 21.1021  Hub transmitter EIRP spectral area density limit at 
elevation angles above the horizon.

    (a) LMDS applicants shall demonstrate that, under clear air 
operating conditions, the maximum aggregate of LMDS transmitting hub 
stations in a Basic Trading Area in the 29.1-29.25 GHz band will not 
transmit a co-frequency hub-to-subscriber EIRP spectral area density in 
any azimuthal direction in excess of X dBW/(MHz-km\2\) when averaged 
over any 5.375 MHz band where X is defined in Table 2. Individual hub 
stations may exceed their clear air EIRPs by employment of adaptive 
power control in cases where link propagation attenuation exceeds the 
clear air value and only to the extent that the link is impaired.
    (b) The EIRP aggregate spectral area density is calculated as 
follows:
[GRAPHIC][TIFF OMITTED]TP23AU95.023

Where:

N=number of co-frequency hubs in BTA
A=Area of BTA in km\2\
EIRP(a1)=equivalent isoptropic radiated spectral power density of 
the i-th hub (in W/MHz) at elevation angle a

                                                                        

[[Page 43756]]
                                Table 2*                                
------------------------------------------------------------------------
  Elevation                                                             
  angle (a)              Relative EIRP density (dBW/MHz-km\2\)          
------------------------------------------------------------------------
0 deg.x)(1/x)
 -a4.0*.                                                                 
               Where x=(a+1)/7.5 deg.                                   
4.07.7 deg....  EIRP(a)=EIRP(0 deg.)-22                                  
------------------------------------------------------------------------
* LMDS system licensees in two or more BTAs may individually or         
  collectively deviate from the spectral area density computed above by 
  averaging the power over any 200 km by 400 km area, provided that the 
  aggregate interference to the satellite receiver is no greater than if
  the spectral area density were as specified in Table 1. A showing to  
  the Commission comparing both methods of computation is required and  
  copies shall be served on any affected non-GSO MSS providers.         
                                                                        
Note: Where a is the angle in degrees of elevation above horizon. EIRP(0
  deg.) is the hub EIRP area density at the horizon used in Section     
  21.1020. The nominal antenna pattern will be used for elevation angles
  between 0 deg. and 8 deg., and average levels will be used for angles 
  beyond 8 deg., where average levels will be calculated by sampling the
  antenna patterns in each 1 deg. interval between 8 deg. and 90 deg.,  
  dividing by 83.                                                       


    9. A new Sec. 21.1022 is proposed to be added to read as follows:


Sec. 21.1022  Power reduction techniques.

    LMDS hub transmitters shall employ methods to reduce average power 
levels received by non-GSO MSS satellite receivers, to the extent 
necessary to comply with Secs. 21.1020 and 21.1021, by employing the 
methods set forth below:
    (a) Alternate Polarizations. LMDS hub transmitters in the LMDS 
service area may employ both vertical and horizontal linear 
polarizations such that 50 percent (plus or minus 10 percent) of the 
hub transmitters shall employ vertical polarization and 50 percent 
(plus or minus 10 percent) shall employ horizontal polarization.
    (b) Frequency Interleaving. LMDS hub transmitters in the LMDS 
service area may employ frequency interleaving such that 50 percent 
(plus or minus 10 percent) of the hub transmitters shall employ channel 
center frequencies which are different by one-half the channel 
bandwidth of the other 50 percent (plus or minus 10 percent) of the hub 
transmitters.
    (c) Alternative Methods. As alternatives to paragraphs (a) and (b) 
of this section, LMDS operators may employ such other methods as may be 
shown to achieve equivalent reductions in average power density 
received by non-GSO MSS satellite receivers.

PART 25--SATELLITE COMMUNICATIONS

    1. The authority citation for part 25 continues to read as follows:

    Authority: Secs. 25.101 to 25.601 issued under sec. 4, 48 Stat. 
1066, as amended; 47 U.S.C. 154. Interpret or apply secs. 101-104, 
76 stat. 419-427; 47 U.S.C. 701-744; 47 U.S.C. 554.

    2. A new Sec. 25.257 is proposed to be added to read as follows:


Sec. 25.257  Special requirements for operations in the band 29.1-29.25 
GHz

    (a) Special requirements for operations in the band 29.1-29.25 GHz.
    (1) Non-geostationary mobile satellite service (non-GSO MSS) 
operators shall use the 29.1-29.25 GHz band for Earth-to-space 
transmissions from feeder link earth station complexes. For purposes of 
this subsection, a ``feeder link earth station complex'' may include up 
to three (3) earth station groups, with each earth station group having 
up to four (4) antennas, located within a radius of 75 nautical miles 
of a given set of geographic coordinates provided by a non-GSO MSS 
operator pursuant to paragraphs (c)(5) or (c)(6)(i) of this section.
    (2) A maximum of eight (8) feeder link earth station complexes in 
the contiguous United States, Alaska, and Hawaii may be operated 
concurrently in the band 29.1-29.25 GHz.
    (b) Coordination of LMDS systems and geostationary fixed satellite 
systems in the band 29.1-29.25 must be done in accordance with the 
technical standards of Secs. 21.1018-21.1024 of this chapter.

[FR Doc. 95-20731 Filed 8-22-95; 8:45 am]
BILLING CODE 6712-01-M