[Federal Register Volume 61, Number 59 (Tuesday, March 26, 1996)]
[Proposed Rules]
[Pages 13133-13144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7315]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 20 and 24

[WT Docket No. 96-59; GN Docket No. 90-314; FCC 96-119]


Broadband Personal Communications Services

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: The Federal Communications Commission has adopted a Notice of 
Proposed Rule Making (``Notice'') that proposes to resolve a number of 
issues relevant to the award of licenses for the broadband Personal 
Communications Services (``PCS'') D, E, and F blocks. The Notice begins 
the process of supplementing the record supporting the gender- and 
race-based competitive bidding rules in the wake of Adarand 
Constructors, Inc. v. Pena, but it also tentatively concludes that the 
Commission should not delay auctioning the remaining broadband PCS 
frequency blocks long enough to complete that process. Accordingly, the 
Notice proposes to modify the F block auction rules to make them 
gender- and race-neutral. The Notice also seeks comment on several 
other matters relating to designated entities and entrepreneurs, 
including the definitions of small business and rural telephone 
company, whether to extend installment payment plans to small 
businesses bidding on the D and E blocks, adjustments to the payment 
plans available to small businesses bidding on the D and E blocks, and 
adjustments to the benefits provided to entrepreneurs in the F block 
rules that might be warranted in light of the fact that 10 MHz licenses 
are expected to have lower values than the 30 MHz C block licenses. In 
addition, the Notice proposes changes to the F block license transfer 
restrictions.
    The Notice also proposes to resolve the question whether, in light 
of Cincinnati Bell Telephone Co. v. FCC, the Commission should for all 
broadband PCS licensees, retain or relax the cellular/PCS cross-
ownership rule and the attribution rules for cellular licensees 
interested in acquiring broadband PCS licenses. In addition, the Notice 
proposes to amend the ownership information disclosure requirements for 
broadband PCS auction applicants, and proposes to auction the D, E, and 
F block licenses in concurrent auctions.
    This Notice contains proposed or modified information collections 
subject to the Paperwork Reduction Act of 1995 (PRA). It has been 
submitted to the Office of Management and Budget (OMB) for review under 
the PRA. OMB, the general public, and other Federal agencies are 
invited to comment on the proposed or modified information collections 
contained in this proceeding.

DATES: Comments must be submitted on or before April 15, 1996; reply 
comments must be submitted on or before April 25, 1996. Written 
comments by the public on the proposed and/or modified information 
collections are due April 15, 1996. Written comments must be submitted 
by the Office of Management and Budget (OMB) on the proposed and/or 
modified information collections on or before May 28, 1996.

ADDRESSES: Federal Communications Commission, 1919 M Street, N.W., 
Washington, D.C. 20554. In addition to filing comments with the 
Secretary, a copy of any comments on information collections contained 
herein should be submitted to Dorothy Conway, Federal Communications 
Commission, Room 234, 1919 M Street, N.W., Washington, D.C. 20554, or 
via the Internet to [email protected], and to Timothy Fain, OMB Desk 
Officer, 10236 NEOB, 725--17th Street, N.W., Washington, D.C. 20503 or 
via the Internet to [email protected].

FOR FURTHER INFORMATION CONTACT: Mark Bollinger, Wireless

[[Page 13134]]
Telecommunications Bureau, (202) 418-0660. For additional information 
concerning the information collections contained in this Notice, 
contact Dorothy Conway at (202) 418-0217, or via the Internet at 
[email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rule Making in WT Docket No. 96-59; GN Docket No. 90-314; 
FCC 96-119, adopted March 20, 1996 and released March 20, 1996. The 
complete text of the Notice of Proposed Rule Making is available for 
inspection and copying during normal business hours in the FCC 
Reference Center (Room 239), 1919 M Street, N.W., Washington, D.C. and 
also may be purchased from the Commission's copy contractor, 
International Transcription Service, (202) 857-3800, 2100 M Street, 
N.W., Suite 140, Washington, D.C. 20037.
    This Notice contains either a proposed or modified information 
collection. The Commission, as part of its continuing effort to reduce 
paperwork burdens, invites the general public and the Office of 
Management and Budget (OMB) to comment on the information collections 
contained in this Notice, as required by the Paperwork Reduction Act of 
1995, Pub. L. No. 104-13. Public and agency comments are due at the 
same time as other comments on this Notice; OMB notification of action 
is due 60 days from date of publication of this Notice in the Federal 
Register. Comments should address: (a) whether the proposed collection 
of information is necessary for the proper performance of the functions 
of the Commission, including whether the information shall have 
practical utility; (b) the accuracy of the Commission's burden 
estimates; (c) ways to enhance the quality, utility, and clarity of the 
information collected; and (d) ways to minimize the burden of the 
collection of information on the respondents, including the use of 
automated collection techniques or other forms of information 
technology.
    OMB Approval Number: N/A.
    Title: Amendment of Part 20 and 24 of the Commission's Rules--
Broadband PCS Competitive Bidding and the Commercial Mobile Radio 
Service Spectrum Cap; Amendment of the Commission's Cellular PCS Cross-
Ownership Rule.
    Form No.: Form 175 and Form 600.
    Type of Review: New collection.
    Respondents: Business or other for-profit; individuals or 
households; not-for-profit institutions; and state, local and tribal 
governments.
    Number of Respondents: 6,000.
    Estimated Time Per Response: 13 hours.
    Total Annual Burden: 77,817 hours.
    Estimated costs per respondent: 2,848 dollars.
    Needs and Uses: The auction rules require broadband PCS applicants 
for the D, E, and F blocks to submit (1) ownership information, (2) 
terms of joint bidding agreements, (3) net asset (F block only) and 
gross revenues calculations, and (4) evidence of environmental impact. 
Furthermore, in case a licensee defaults or loses its license, the 
Commission retains the discretion to re-auction such licenses. If 
licenses are re-auctioned, the new license winners would be required at 
the close of the re-auction to comply with the same disclosure 
requirements explained above.
    The information collected will be used by the Commission to 
determine whether the applicant is legally, technically, and 
financially qualified to bid in the broadband PCS auctions and hold a 
broadband PCS license. Without such information the Commission could 
not determine whether to issue the license to the successful applicant 
and therefore fulfill its statutory responsibilities in accordance with 
the Communications Act of 1934, as amended.

SYNOPSIS OF THE NOTICE OF PROPOSED RULE MAKING

I. Introduction

    In this Notice, the Commission seeks comment on a range of issues 
pertaining to the competitive bidding and ownership rules for the D, E, 
and F frequency blocks of the Personal Communications Services in the 2 
GHz band (``broadband PCS''), and the Commission proposes modifications 
to these rules. A number of the issues the Commission addresses relate 
to the treatment of designated entities, i.e., small businesses, rural 
telephone companies, and businesses owned by members of minority groups 
and women. In addition, on remand from the U.S. Circuit Court of 
Appeals for the Sixth Circuit, the Commission reexamines certain rules 
governing cellular licensees' ownership of broadband PCS licenses in 
all frequency bands.

II. Proposals

A. Treatment of Designated Entities

1. Meeting the Adarand Standard
    2. In the Competitive Bidding Fifth Report and Order, 59 Fed Reg 
37566 (July 22, 1994) the Commission adopted gender- and race-based 
provisions as part of the F block rules to encourage the participation 
of women- and minority-owned businesses in the provision of PCS. The 
standard of review applied to federal programs designed to enhance 
opportunities for racial minorities at the time the F block rules were 
adopted was an intermediate scrutiny standard.
    3. In Adarand v. Pena, the Supreme Court invalidated the 
intermediate scrutiny standard for federal race-based programs. The 
Court held that all racial classifications, imposed by whatever 
federal, state or local government actor, must be analyzed by a 
reviewing court under strict scrutiny. In other words, such 
classifications are constitutional only if they are narrowly tailored 
to further a compelling governmental interest. Moreover, as the Court 
made clear in Adarand, a strict scrutiny standard of review will be 
applied even if the racial classifications are well motivated or 
``benign.''
    4. Application of the two-prong strict scrutiny standard of review 
to provisions designed to encourage minority participation in PCS 
requires the Commission to show (1) that a compelling governmental 
interest exists for taking race into account in adopting such 
provisions, and (2) that the provisions in question are narrowly 
tailored to further the compelling governmental interest established by 
the record and findings. Richmond v. J.A. Croson Co., and other cases 
provide the Commission with some indications of the type of record it 
might be necessary to develop in order to meet the strict scrutiny 
standard.
    5. In Croson, the Court held that remedying past discrimination 
constitutes a compelling interest, whether the discrimination was 
committed by the government or by private actors within its 
jurisdiction. Other courts have also held remedial measures--those 
intended to compensate for past discrimination--to be compelling 
governmental interests. In Croson, however, the Court makes clear that 
an interest in remedying general societal discrimination could not be 
considered compelling because a ``generalized assertion'' of past 
discrimination ``has no logical stopping point'' and would support 
unconstrained uses of racial classifications. Whether other objectives 
for race-based measures rise to the level of a compelling governmental 
interest is unclear. However, in a plurality opinion issued before 
Adarand, the Supreme Court indicated that non-remedial measures aimed 
at fostering ethnic diversity could satisfy the compelling interest 
requirement of strict scrutiny.
    6. The Supreme Court in Croson noted the high standard of evidence 
required of the government to establish

[[Page 13135]]
a compelling interest. It stated that the government must demonstrate a 
``strong basis in evidence for its conclusion that remedial action was 
necessary'' and that such evidence should approach ``a prima facie case 
of a constitutional or statutory violation of the rights of 
minorities.'' Other courts, in cases decided after Croson, have held 
that statistical evidence can be probative of discrimination in the 
remedial setting, and that anecdotal evidence can buttress statistical 
evidence.
    7. As indicated above, even if a compelling governmental interest 
is established, the second prong of the strict scrutiny test, narrow 
tailoring, must also be shown. This requirement is intended to ensure 
``that the means chosen 'fit' [the] compelling goal so closely that 
there is little or no possibility that the motive for the 
classification was illegitimate racial prejudice or stereotype.'' 
Different factors have been used by courts to determine, under a strict 
scrutiny standard, whether a program is narrowly tailored. These 
include: (1) whether race-neutral measures were considered before 
adopting race-conscious measures; (2) the scope of the program and 
whether it contains a waiver mechanism that facilitates narrowing of 
that scope; (3) the comparison of any numerical target to the number of 
qualified minorities in the relevant sector; (4) the duration of the 
program and whether it is subject to periodic review; (5) the manner in 
which race is considered; and (6) the degree and type of burden on non-
minorities.
    8. An intermediate scrutiny standard of review currently applies to 
gender-based measures. Under this standard, a gender-based provision is 
constitutional if it serves an important governmental objective and is 
substantially related to achievement of that objective. The Supreme 
Court has not addressed constitutional challenges to federal gender-
based programs since Adarand. However, the Court's refusal in Adarand 
to apply a less strict standard to benign race-based classifications 
than that applied to ``invidious'' race-based classifications suggests 
that the same standard should be applied to benign and invidious 
gender-based classifications.
    9. In the Competitive Bidding Sixth Report and Order, 60 FR 37786 
(July 21, 1995), in which it eliminated the race- and gender-based 
provisions in the C block rules, the Commission expressed its concern 
that the record would not adequately support the race- and gender-based 
provisions in the C block competitive bidding rules under a strict 
scrutiny standard of review. The evidence supporting the gender- and 
race-based provisions cited in the Competitive Bidding Fifth Report and 
Order primarily shows broad discrimination against racial groups and 
women by lenders and underrepresentation of these groups as owners and 
employees in the communications industry. Similar evidence has been 
submitted to the Commission since that time, including evidence 
supporting a petition for reconsideration of the Competitive Bidding 
Sixth Report and Order.
    10. The Commission continues to believe that this evidence is 
insufficient to demonstrate a compelling interest under the strict 
scrutiny standard to support the race-based provisions of the F block 
because it reflects primarily generalized assertions of discrimination. 
Adarand and Croson make clear that only a record of discrimination 
against a particular racial group would support remedial measures 
designed to help that group. Therefore, the Commission believes that a 
record of discrimination against minorities in general is not 
sufficient. Specific evidence of discrimination against particular 
racial groups would be required to support a rule for any group. 
Commission Rules define minority group members to include Blacks, 
Hispanics, American Indians, Alaskan Natives, Asians, and Pacific 
Islanders. Although the Commission has some general evidence of 
discrimination against certain racial groups, none of the evidence it 
has appears to satisfy strict scrutiny.
    11. The Commission notes too that last year, the D.C. Circuit Court 
of Appeals stayed the C block auction in response to a constitutional 
equal protection challenge against women- and minority-based 
provisions, even though an intermediate level standard of review 
applied. Thus, the Commission tentatively concludes that the present 
record in support of race-based F block provisions is insufficient to 
satisfy strict scrutiny. The Commission seeks comment on this tentative 
conclusion. The Commission also requests comment on whether the F block 
provisions promote a compelling governmental interest and, more 
particularly, whether compensating for discrimination in lending 
practices and in practices in the communications industry constitutes 
such an interest. The Commission also asks interested parties to 
comment on nonremedial objectives that could be furthered by the 
minority-based provisions of the F block rules and whether they could 
be considered compelling governmental interests, such as increased 
diversity in ownership and employment in the communications industry or 
increased industry competition. In commenting, the Commission asks 
parties to submit statistical data, personal accounts, studies, or any 
other data relevant to the entry of specific racial groups into the 
field of telecommunications. Examples of relevant evidence could 
include discrimination against minorities trying to obtain FCC licenses 
for auctioned or non-auctioned spectrum; discrimination against 
minorities seeking positions of ownership or employment in 
communications or related businesses; discrimination against minorities 
attempting to obtain capital to start up or expand a telecommunications 
enterprise, including terms and conditions; and discrimination against 
minorities operating telecommunications businesses, including treatment 
by vendors, FCC licensees, and suppliers.
    12. The Commission also asks those parties who conclude that the 
race-based provisions serve a compelling governmental interest to 
comment on whether the provisions are narrowly tailored to serve that 
interest. Are these provisions sufficiently narrow in scope? Do they 
unduly burden non-minorities? Would race-neutral measures further the 
same interests and achieve the same objectives as race-conscious 
measures?
    13. In addition, the Commission also tentatively concludes that the 
present record in support of the gender-based F block rules may be 
insufficient to satisfy intermediate scrutiny. The Commission seeks 
comment on this tentative conclusion. The Commission also seeks comment 
on whether there are remedial or nonremedial goals that would satisfy 
the ``important governmental objective'' requirement of the 
intermediate scrutiny standard. Are the gender-based F block rules 
``substantially related'' to the achievement of such objectives? Just 
as it requested for the F block race-based provisions, the Commission 
asks parties to submit statistical data, personal accounts studies or 
any other data relevant to the entry of women into the field of 
telecommunications.
    14. The Commission also is interested in supplementing the current 
record to support race- and gender-based provisions in other rules. In 
this regard, the Commission plans shortly to issue a Notice of Inquiry 
that requests evidence of current and past discrimination experienced 
by small businesses and businesses owned by women and minorities or by 
individual women and minorities. The record outlined in response to 
this Notice will also be incorporated into that Docket.

[[Page 13136]]

    15. The Commission undertakes this effort to support the auction 
rules because it is committed to fulfilling the Congressional mandate 
to provide opportunities for women- and minority-owned businesses 
through the competitive bidding process. The Commission believes, 
however, that marshaling sufficient evidence to satisfy the strict 
scrutiny standard of review now applicable to federal race-based 
programs may be a time-consuming process, and it is mindful that it may 
not fulfill its other obligations under Section 309(j) if it delayed 
the award of F block licenses until that process is complete.
    16. The Commission notes that some representatives of the 
telecommunications industry have voiced a need to have the D, E, and F 
block licenses awarded quickly. With the completion of the C block 
auction, the Commission will have neared completion of awarding the 30 
MHz A, B, and C block licenses. Any entity with plans to aggregate a 10 
MHz F block license with a 30 MHz A, B, or C block PCS license or any 
cellular or Specialized Mobile Radio (``SMR'') licensee that plans to 
acquire a 10 MHz license for use in its service area, the Commission 
believes, will be interested in swift auctioning of D, E, and F block 
licenses. The Commission also believes that entities that were unable 
to win licenses in the previous PCS auctions may be interested in 
bidding on the D, E, and F blocks, and that it will be important to 
these entities to acquire licenses quickly so that they can compete at 
the earliest point possible with other providers of Commercial Mobile 
Radio Services (``CMRS''), and with wireline service providers. 
Further, the Commission believes that both Congress and consumers 
expect it to promote the rapid development of PCS. Balancing its 
obligation to provide opportunities for women- and minority-owned 
businesses to participate in spectrum-based services against its 
statutory duties to facilitate the rapid delivery of new services to 
the American consumer and promote efficient use of the spectrum, the 
Commission tentatively concludes that it should not delay the F block 
auction for the amount of time it would take to adduce sufficient 
evidence to support the race- and gender-based F block provisions. 
While the Commission could proceed with the F block auction under the 
current rules, it tentatively concludes that this course of action 
would not serve the public interest because it may likely result in 
litigation that would delay the auction, the dissemination of 
additional broadband PCS licenses, and ultimately the introduction of 
competition.
    17. As a result, the Commission tentatively concludes that if it is 
unable to gather sufficient evidence to support the race- and gender-
based provisions in the instant proceeding, it should eliminate these 
provisions from the rules and proceed as expeditiously as possible to 
auction the remaining broadband PCS licenses. The Commission seeks 
comment on these tentative conclusions.
    18. In reaching these tentative conclusions, the Commission notes 
that of the 255 bidders that qualified to bid in the C block auction, 
46 claimed minority-owned business status and 34 claimed women-owned 
business status. These statistics indicate that even without the women- 
and minority-owned business specific provisions in the C block rules, 
women- and minority-owned businesses were able to participate in the 
auction. However, one could also argue that the presence of race- and 
gender-based rules before the Competitive Bidding Sixth Report and 
Order encouraged the participation of minorities and women. It may have 
helped such companies open the door to discussions with investors that 
persisted even when the rules changed. Indeed, in the Competitive 
Bidding Sixth Report and Order, one of the Commission's primary 
objectives was to preserve the relationships and deals minority- and 
women-owned companies had made prior to the rule change. As discussed 
more fully below, the Commission seeks comment on whether, if it 
ultimately decides to make the F block rules race- and gender-neutral, 
it should do so by making these rules conform to the C block rules, or 
whether other approaches to amending the F block rules would be more 
appropriate. The Commission also seeks comment on how the Commission 
can meet its statutory requirement under Section 309(j) to ensure 
participation by minorities and women in the provision of service, if 
the rules are changed to be race- and gender-neutral.
a. Control Group Equity Structures
    19. To be eligible to participate in the entrepreneurs' block 
auctions, an applicant, together with its affiliates and persons or 
entities that hold interests in the applicant, must have gross revenues 
of less than $125 million in each of the last two years and total 
assets of less than $500 million. Under the Commission's current rules, 
the gross revenues and total assets of certain persons or entities 
holding interests in an applicant will not be considered for purposes 
of determining eligibility to participate in the F block auction if the 
applicant utilizes one of two equity structures. Use of either of these 
equity structures requires the applicant to form a ``control group,'' 
but one of these options is available only to minority- and women-owned 
businesses.
    20. The first equity structure option, the Control Group Minimum 25 
Percent Equity Option, is available to all applicants for the F block 
auction. Under this option, the control group must hold at least 25 
percent of the applicant's total equity. Of that 25 percent, at least 
15 percent must be held by ``qualifying investors.'' The remaining ten 
percent may be held by qualifying investors, certain institutional 
investors, non-controlling existing investors in any preexisting entity 
that is a member of the control group, or individuals that are members 
of the applicant's management. In addition, members of the control 
group must have de facto control of the control group and of the 
applicant, and hold at least 50.1 percent of the voting stock or all 
general partnership interests. If these requirements are met, the 
remaining 75 percent of the applicant's equity may be held by other 
non-controlling investors, and the gross revenues and total assets of 
any such investor will not be attributed to the applicant provided that 
the investor holds no more than 25 percent of the total equity of the 
applicant.
    21. The second equity structure option, the Control Group Minimum 
50.1 Percent Equity Option, is currently available only to minority- or 
women-owned applicants for the F block auction. Under this option, the 
control group must own at least 50.1 percent of the applicant's total 
equity. Of that 50.1 percent equity, at least 30 percent must be held 
by qualifying investors who are members of minority groups or women. 
The remaining 20.1 percent may be held by qualifying investors, certain 
institutional investors, non-controlling existing investors in any 
preexisting entity that is a member of the control group, or 
individuals who are members of the applicant's management. In addition, 
members of the control group must hold 50.1 percent of the voting stock 
or all general partnership interests, and have de facto control of both 
the control group and the applicant. If these requirements are met, the 
remaining 49.9 percent of the applicant's equity may be held by a 
single non-controlling investor, and the gross revenues and total 
assets of any such investor will not be attributed.
    22. When the Commission adopted the Control Group Minimum 50.1

[[Page 13137]]
Percent Equity Option, it determined that making such a mechanism 
available to minority- and women-owned businesses would help them 
attract adequate financing. However, in light of the Supreme Court's 
holding in Adarand, the Commission tentatively concludes that, if it 
determines after reviewing the comments in this proceeding that it 
still does not have a sufficient record to support offering the 50.1/
49.9 percent equity structure only to women- and minority-owned 
businesses, it should make the Control Group Minimum 50.1 Percent 
Equity Option available to small businesses and entrepreneurs as it did 
in the C block auction. In other words, if commenters in this 
proceeding are unable to supply sufficient evidence to meet the 
applicable standard of review, the Commission proposes to modify the 
rules to permit all F block applicants to avail themselves of the 50.1/
49.9 percent equity structure. The Commission believes that such a rule 
change, which is identical to a rule change upheld in the C block by 
the D.C. Circuit, would facilitate the expeditious dissemination of the 
F block licenses by forestalling the legal challenges based on Adarand 
that would likely result if it moved forward with this rule in its 
current form. The Commission seeks comment on this proposal. Since this 
control group option was adopted to help minority-and women-owned 
businesses, in particular, attract capital, the Commission also seeks 
comment on whether it needs to extend this provision to all small 
businesses here.
    23. As an alternative to adopting the above rule changes, the 
Commission could simplify or abandon both control group equity 
structure options currently offered to F block applicants. Should it, 
for example, provide that only the gross revenues and assets of 
controlling principals in the applicant, together with any affiliates 
of the applicant, be aggregated to determine eligibility? If the 
Commission were to modify the rules in this way, how should it 
determine who is a controlling principal? Alternatively, the Commission 
could aggregate the gross revenues and assets of controlling principals 
and any investor that has an interest in the applicant that exceeds a 
certain percentage. For example, the Commission could provide that only 
the gross revenues of investors with an ownership interest of 25 
percent or more in the applicant will be aggregated with the assets of 
controlling principals. If the Commission were to adopt this 
modification, what percentage of interest in the applicant should it 
adopt as the threshold? The Commission seeks comment on these and other 
options that interested parties might wish to propose.
    24. Finally, the Commission asks commenters to discuss whether 
there is any need to make adjustments to the financial eligibility 
threshold for the F block auction. Is there a concern, for example, 
that C block winners will be disqualified from acquiring F block 
licenses by virtue of the valuation of their C block licenses? Should 
the Commission simply allow any qualified C block bidder to bid on F 
block licenses?
b. Affiliation Rules
    25. The Commission adopted affiliation rules for identifying all 
individuals and entities whose gross revenues and assets must be 
aggregated with those of the applicant to determine whether the 
applicant exceeds the financial caps for the entrepreneurs' blocks or 
for small business size status. The affiliation rules identify which 
individuals or entities will be found to control or be controlled by 
the applicant or an attributable investor in the applicant by 
specifying which ownership interests or other criteria will give rise 
to an affiliation.
    26. The Commission adopted two exceptions to the affiliation rules 
in the broadband PCS C and F block context. Under one exception, 
applicants affiliated with Indian tribes and Alaska Regional or Village 
Corporations organized pursuant to the Alaska Native Claims Settlement 
Act, 43 U.S.C. Sec. 1601 et seq., are generally exempted from the 
affiliation rules for purposes of determining eligibility to 
participate in bidding on C and F block licenses and to qualify as a 
small business. Under the second exception, as originally adopted, the 
gross revenues and assets of affiliates controlled by minority 
investors who are members of the applicant's control group are not 
attributed to the applicant for purposes of determining compliance with 
the eligibility standards for participation in the entrepreneurs' block 
auctions.
    27. In the Further Notice of Proposed Rule Making, 60 FR 34201 
(June 30, 1995), the Commission proposed elimination of the exception 
to the affiliation rules pertaining to minority investors for purposes 
of the C block auction. This exception was intended to permit minority 
investors who control other concerns to be members of an applicant's 
control group and to bring their management skills and financial 
resources to bear in its operation without the assets and revenues of 
those other concerns being counted as part of the applicant's total 
assets and revenues. The Commission further anticipated that such an 
exception would permit minority applicants to pool their resources with 
other minority-owned businesses and draw on the expertise of those who 
have faced similar barriers to raising capital in the past. The 
Commission tentatively concluded that it would be imprudent to extend 
such an exception to all entrepreneurs because to do so would frustrate 
the Commission's goals in establishing the entrepreneurs' blocks--
namely, to ensure that broadband PCS licenses will be disseminated 
among a wide variety of applicants and to exclude large 
telecommunications companies from bidding on such blocks.
    28. In the Competitive Bidding Sixth Report and Order, however, the 
Commission declined to eliminate the exception and adopted a 
modification to the minority affiliation rule for the C block which was 
suggested by commenters. The modified rule, 47 CFR 
Sec. 24.720(l)(11)(ii), allows all small business applicants to exclude 
any affiliates who would otherwise qualify as entrepreneurs by having 
gross revenues under $125 million and total assets under $500 million 
and whose total assets and gross revenues, when considered on a 
cumulative basis and aggregated with each other, do not exceed these 
amounts. This rule change in the C block was affirmed by the D.C. 
Circuit Court of Appeals.
    29. The Commission seeks comment on whether, if it determines that 
the record is insufficient to support an exception to the affiliation 
rule based on race, it should amend the affiliation rule for the F 
block to eliminate the exception pertaining to minority investors, as 
was originally proposed for the C block, or whether it should adopt the 
C block's modified exception. It has been alleged that the modification 
of the exception for minority investors for purposes of the C block 
auction could lead to abuse. The Commission believes that its 
experience with the C block auction may show whether this rule has had 
its intended effect of allowing small businesses to pool their 
resources to bid on capital-intensive services and draw on the 
expertise of those who have started small businesses. If information 
from the C block auction is relevant to whether the Commission should 
amend the rule, it proposes to incorporate it here. The Commission also 
seeks comment on whether this modified minority investors exception 
would serve the public interest given the fact that F block licenses 
are smaller than C

[[Page 13138]]
block licenses and are expected to have lower values.
    30. The Commission does not propose to eliminate the affiliation 
exception for Indian tribes and Alaska Regional or Village 
Corporations. It tentatively concludes that the ``Indian Commerce 
Clause'' of the United States Constitution provides an independent 
basis for this exception that is not implicated by the holding in 
Adarand. The Commission requests comment on this tentative conclusion.
c. Installment Payments
    31. As a general matter, entrepreneurs' block licensees are 
eligible for installment payment plans that afford them the opportunity 
to pay for their licenses over a period of time at favorable interest 
rates, rather than pay for the licenses in full at the time of grant.
    32. Five different installment payment plans are currently 
available to F block applicants under Section 24.716 of the 
Commission's Rules. The first installment payment plan, which is 
available to entities with gross revenues in excess of $75 million, 
allows them to pay interest based on the ten-year U.S. Treasury rate 
plus 3.5 percent, with payment of principal and interest amortized over 
the term of the license. The second installment payment plan, which is 
available to entities with gross revenues between $40 and $75 million, 
provides for the payment of interest equal to the ten-year U.S. 
Treasury rate plus 2.5 percent. Entities eligible for this plan make 
interest-only payments for one year, with the principal and interest 
amortized over the remaining nine years of the license term.
    33. The third installment payment plan is available only to 
entities that qualify as a small business or consortium of small 
businesses. This plan provides for the payment of interest at the ten-
year U.S. Treasury rate plus 2.5 percent, but allows eligible entities 
to make interest-only payments for two years, with principal and 
interest amortized over the remaining eight years of the license term.
    34. The fourth plan provides for interest-only payments for three 
years and payments of principal and interest over the remaining seven 
years of the license term and is only available to businesses owned by 
members of minority groups or women. The final and most favorable 
installment payment plan provides for interest-only payments for six 
years and payments of principal and interest amortized over the 
remaining four years of the license term. This plan is available only 
to small businesses owned by members of minority groups or women.
    35. In the event the Commission finds after reviewing the comments 
in this proceeding that the record is insufficient to sustain the race- 
and gender-based provisions of the F block rules under the appropriate 
standard of review, the Commission proposes to modify Section 24.716 to 
eliminate the special provisions that are tied to an applicant's status 
as a minority- or women-owned business. The Commission seeks comment on 
whether it should provide for three installment payment plans based 
solely on financial size, as it did for the C block. Under this 
approach, the first two installment payments described above--those for 
eligible bidders with gross revenues exceeding $75 million and with 
gross revenues between $40 and $75 million--would remain unchanged. The 
most favorable installment payment plan--set forth in Section 
24.716(b)(5) and previously available only to small minority- or women-
owned firms--would be made available to all small businesses. Thus, all 
small businesses would be permitted to pay for their licenses in 
installments at the ten-year U.S. Treasury rate applicable on the date 
the license is granted, and would be permitted to make interest-only 
payments for the first six years, with payments of principal and 
interest amortized over the remaining four years of the license term. 
As discussed below, however, the Commission also seeks comment on 
whether such favorable payment terms are necessary for F block auction 
winners and, in particular, whether the 6-year interest only period 
serves the public interest given that the amounts bid for the 10 MHz 
licenses most likely would be lower than those bid for 30 MHz licenses 
in the C block.
d. Bidding Credits
    36. A bidding credit acts as a discount on the winning bid amount 
that a bidder actually has to pay for the license. The current F block 
rules provide for three tiers of bidding credits ranging between 10 
percent and 25 percent. Under these rules, a small business is granted 
a 10 percent bidding credit, a business that is owned by members of 
minority groups or women is granted a 15 percent bidding credit, and a 
small business owned by members of minority groups or women is allowed 
to aggregate the bidding credits for a 25 percent bidding credit.
    37. If the Commission finds that they cannot withstand judicial 
review on the basis of the evidence adduced in this proceeding, it 
proposes to eliminate the race- and gender-based bidding credits in the 
F block rules. The Commission believe that this proposed rule change, 
like the other proposals for making the rules race- and gender-neutral, 
should allow it and prospective bidders to avoid litigation based on 
Adarand and thus will permit the auction to proceed without delay. The 
Commission seeks comment on this proposal. It also seeks comment on 
whether it should, in place of these bidding credits, extend a single 
bidding credit to all small businesses as it did for the C block. If 
the Commission chooses to adopt a single small business bidding credit 
for the F block, how big should the credit be? Should the Commission 
retain one of the three bidding credits currently provided--10, 15 or 
25 percent--and make it available to all small businesses bidding in 
the F block? In the alternative, should the Commission offer tiered 
bidding credits, such as 15 percent for small businesses with aggregate 
gross revenues under $15 million and 10 percent for businesses with 
gross revenues between $15 million and $40 million? The Commission 
tentatively concludes that because the value of 10 MHz licenses may be 
lower than the value of 30 MHz licenses, a smaller bidding credit than 
was offered C block bidders may be appropriate for F block bidders. The 
Commission also tentatively concludes that these lower expected values 
may attract smaller businesses, thus justifying a tiered bidding 
credit. The Commission seeks comments on these tentative conclusions.
e. Information Collection
    38. If the Commission eliminates the race- and gender-based 
provisions in the F block rules because it finds after reviewing the 
comments in this proceeding that it still does not have a record 
sufficient to withstand the appropriate standard of review, it intends 
nonetheless to continue to request that applicants provide information 
regarding minority- or women owned status in their short-form 
applications. The Commission notes that it has collected such 
information concerning participants in ongoing auctions, including the 
C block auction. The Commission believes that continuing to collect 
such information will assist it in analyzing applicant pools and 
auction results to determine whether it has promoted substantial 
participation in auctions by minorities and women, as Congress 
directed, through the special provisions it propose to make available 
to small businesses. This information will also assist the Commission 
in preparing a report to Congress on the participation of designated 
entities in the auctions

[[Page 13139]]
and in the provision of spectrum-based services. In addition, such 
information will be relevant in developing a supplemental record should 
the Commission find that special provisions for small businesses prove 
unsuccessful in encouraging the dissemination of licenses to a wide 
variety of applicants, including businesses owned by members of 
minority groups and women. The Commission seeks comment on this 
information collection proposal.

2. Definitions

a. Small Business
    39. The proposal to extend to small businesses certain F block rule 
provisions previously applicable only to women- and minority-owned 
businesses highlights the importance of the definition of a small 
business. The current generic auction rules enable the Commission to 
establish a small business definition in the context of each particular 
service. Under the specific rule for the C and F blocks, a ``small 
business'' is defined as an entity that, together with its affiliates 
and persons or entities that hold interests in such entity and their 
affiliates, has average gross revenues that are not more than $40 
million for the preceding three years.
    40. The Commission requests comment on whether the definition of 
small business continues to be appropriate. Is a threshold of average 
gross revenues of not more than $40 million too high or too low for 
entities bidding on 10 MHz licenses? How does the definition of small 
business in Section 24.720(b)(1) compare to the definition of small 
businesses for other services? Does the current service-by-service 
approach remain valid? In the alternative, would it be feasible to 
establish an appropriate small business size applicable to all CMRS 
services? The Commission proposes to keep the current small business 
definition for the F block--the same definition used for the C block--
to allow C block small business licensees to benefit from the small 
business provisions of the F block. The Commission requests comment on 
this proposal. However, the Commission is concerned that by using this 
threshold, C block winners may not be able to acquire F block licenses 
given the value of their C block licenses. The Commission, therefore, 
requests comment on whether the value of a C block license should be 
part of the gross revenues calculation. The Commission also requests 
comment on whether it should define and adopt rules for very small 
businesses. If so, what should be the appropriate size standard for 
very small businesses and why? Instead of or in addition to modifying 
the small business definition, should the Commission modify or simplify 
the affiliation rules? The Commission notes that the Small Business 
Administration recently simplified the definition of ``affiliate'' in 
its rules.
b. Rural Telephone Company
    41. In the Competitive Bidding Fifth Report and Order, the 
Commission established provisions to help rural telephone companies 
become meaningful participants in the PCS industry and defined a rural 
telephone company as ``a local exchange carrier having 100,000 or fewer 
access lines, including all affiliates.'' The impact of this definition 
was to identify entities that qualified for the partitioning system 
that the Commission adopted to allow rural telephone companies to 
obtain broadband PCS licenses that are geographically partitioned from 
large PCS service areas.
    42. The Telecommunications Act of 1996 creates, for the first time, 
a statutory definition for rural telephone companies. The Commission 
requests comment on whether Congress intended to define the term rural 
telephone company used in Section 309(j) or whether it was only meant 
to define the term as used in new sections of the Communications Act, 
such as Section 251. In any event, should the Commission change the 
definition of a rural telephone company to this definition for purposes 
of the broadband PCS designated entity provisions. The Commission also 
asks commenters to discuss how adoption of this definition would affect 
the current rules allowing geographic partitioning of rural areas 
served by rural telephone companies.

3. Extending Small Business Provisions to the D and E Blocks

    43. The rule modifications discussed above would extend greater 
bidding credits and more favorable installment payment plans to all 
small business bidders in the F block auction. The D and E blocks are 
not entrepreneurs' blocks, and current D and E block auction rules do 
not make special provision for small businesses. Members of the 
telecommunications industry, however, have expressed a desire for the 
Commission to extend the small business provisions of the F block 
auction rules to bidders for D and E block licenses.
    44. The Commission requests comment on whether it should extend 
installment payment plans to small businesses bidding on the D and E 
blocks. From parties that believe the Commission should extend these 
provisions to the D and E blocks, the Commission also requests comment 
on the terms for these provisions for D and E block small businesses. 
For example, should small businesses bidding in the D and E blocks 
qualify for installment payments with the same terms as small 
businesses in the F block, or should D and E block small businesses 
receive less favorable payment terms? The Commission tentatively 
concludes that extension of installment payments could result in 
disseminating licenses in the D and E blocks to a wider variety of 
applicants in two ways. First, it could increase the chances for all 
small businesses, including those that are women- or minority-owned and 
that would have benefited from the F block provisions that it proposes 
to change, to win a D, E, or F block license. Second, it could increase 
opportunities for small businesses that are current PCS, cellular, or 
SMR licensees to obtain 10 MHz-licenses that they could aggregate with 
their current licenses. The Commission requests comment on this 
tentative conclusion.

4. Adjusting for Lower Values of 10 MHz Licenses

    45. Notwithstanding the Commission's desire to increase 
opportunities for small businesses, including those that are women- and 
minority-owned, to acquire PCS licenses, the Commission is aware that 
winning bids for the D, E, and F block licenses, which authorize the 
use of 10 MHz, could be lower than those for the 30 MHz A, B, and C 
block licenses. Accordingly, it asks for comment on whether it should 
adjust the terms of the installment financing provisions to reflect the 
lower values of the 10 MHz license. Are the installment payment plans 
for small businesses too generous in light of the expected lower values 
of the 10 MHz licenses? In particular, is it in the public interest to 
offer a 6-year interest-only period for all small business F block 
licensees?
    46. Similarly, the Commission seeks comment on whether the F block 
rules establishing discounted upfront payments and reduced down 
payments for entrepreneurs should be adjusted. Upfront payment 
requirements are designed to ensure that only serious and qualified 
bidders participate in the Commission's spectrum auctions, and to deter 
frivolous or insincere bidding. Upfront payments are also required to 
provide the Commission with a source of funds in the event that it 
becomes necessary to assess default or bid withdrawal payments. The

[[Page 13140]]
Commission's rules currently require participants in the F block 
auction to submit an upfront payment of $0.015 per MHz per pop (or per 
bidding unit) for the maximum number of licenses (in terms of bidding 
units) on which they intend to bid. This differs from the standard 
upfront payment formula originally set at $0.02 per MHz-pop for 
broadband PCS services, which was utilized in the A and B block 
auctions and will be required in the D and E blocks. The 25 percent 
discount on the upfront payment for the entrepreneurs' block auctions 
was intended to facilitate the participation of capital-constrained 
companies and permit them to conserve resources for infrastructure 
development after winning a license.
    47. The Commission requests comment on whether a discounted upfront 
payment is necessary to encourage the participation of entrepreneurs 
and designated entities in the F block auction. It also requests 
comment on whether the discounted upfront payment is sufficient to 
ensure that only serious and qualified bidders participate in the F 
block auction. Is the discounted upfront payment amount an adequate 
measure of a bidder's ability to pay for the licenses it might win and 
to meet the Commission's build-out requirements? Or, should the 
Commission increase the required upfront payment to $0.02 per bidding 
unit or more in order to minimize the possibility of insincere or 
frivolous bidding and bidder default?
    48. The F block rules also discount down payments for winning 
bidders. The primary purpose of the down payment requirement is to 
ensure that a winning bidder will be able to pay the full amount of its 
winning bid. In arriving at an appropriate level for the down payment, 
the Commission sought to ensure that auction winners would have the 
necessary financial capabilities to complete payment for the license 
and to pay for the costs of constructing a system. At the same time, 
the Commission did not want to require a down payment so onerous as to 
hinder an applicant's growth and diminish its access to capital. The 
Commission decided to require winning bidders in broadband PCS auctions 
(except for those eligible for installment payments in the 
entrepreneurs' blocks) to supplement their upfront payment with a down 
payment sufficient to bring their total deposits up to 20 percent of 
their winning bid(s). For winning bidders in the entrepreneurs' blocks 
auctions, the Commission agreed to require a reduced down payment of 
only ten percent of the winning bid. Currently, a winning bidder in the 
F block auction is required to make a down payment equal to ten percent 
of its net winning bid, with five percent due within five days of the 
close of the auction, and the remainder due within five days of the 
grant of the license.
    49. The Commission now requests comment on whether this reduction 
in the down payment requirement is necessary to facilitate the 
participation of entrepreneurs and designated entities in providing 
service to the public as F block licensees. The Commission also 
requests comment on whether the reduced down payment is sufficient to 
demonstrate that a winning bidder has the necessary financial 
capabilities to complete payment for the license and to pay for the 
costs of constructing a system. Should the Commission increase the 
required down payment to 20 percent of the winning bid in order to 
guard against the possibility of bidder default? Would a higher payment 
hinder growth and access to capital?

5. Rules Regarding the Holding of Licenses

    50. In the Competitive Bidding Fifth Report and Order, the 
Commission adopted restrictions on the transfer or assignment of 
licenses won by bidders in the entrepreneurs' blocks. These 
restrictions were designed to ensure that licensees did not take unfair 
advantage of entrepreneurs' block special provisions by immediately 
assigning or transferring control of their licenses to other entities. 
The rules prohibit licensees in the entrepreneurs' block from 
voluntarily assigning or transferring control of their license during 
the three years after the date of the license grant. Two years 
thereafter, the licensee is permitted to assign or transfer control of 
its authorization only to an entity that satisfies the eligibility 
criteria for the entrepreneurs' blocks.
    51. The Commission also adopted specific rules to prevent 
recipients of bidding credits and installment payment plans from 
realizing any unjust enrichment that they might gain from transfer or 
assignment that occurs during the full ten-year license term. With 
regard to bidding credits, the rules require that if a licensee applies 
to assign or transfer control of a license to an entity that is not 
eligible for as high a level of bidding credit, then the difference 
between the bidding credit obtained by the assigning party and the 
bidding credit for which the acquiring party would qualify must be paid 
to the U.S. Treasury as a condition of approval of the transfer or 
assignment. If a licensee that was awarded installment payments seeks 
to assign or transfer control of its license during the term of the 
license to an entity not meeting the applicable eligibility standards, 
the rules require payment of the remaining principal and any interest 
accrued through the date of assignment as a condition of approval of 
the transfer or assignment.
    52. The Commission tentatively concludes that, in addition to the 
changes that it proposes to the F block auction rules, some measure is 
still needed to discourage speculators or sham bidders in the 
entrepreneurs' block auction. The Commission also tentatively concludes 
that if it adopts the proposals to make the F block auction rules race- 
and gender-neutral, and extend small business provisions to bidders in 
all three 10 MHz broadband PCS blocks, the current transfer 
restrictions for F block licensees may be too restrictive. For example, 
under the proposed changes to the race- and gender-based provisions and 
the current transfer restriction, a small business cannot transfer its 
F block license in the first three years and, in the two years 
thereafter, may only transfer its license to another small business. An 
entrepreneur F block licensee, however, would be able to transfer its F 
block license in years four and five to any other entrepreneur, 
including a small business. Such a result goes farther than to merely 
discourage speculative bidding in the entrepreneurs' block auction. 
Therefore, the Commission proposes to amend the holding requirement to 
let all F block licensees transfer their licenses within the first 
three years to an entity that qualifies as an entrepreneur. The 
Commission also proposes to retain the unjust enrichment provisions. It 
seeks comment on this proposal and its tentative conclusions. It 
particularly seeks comment on whether entities participating in the C 
block auction may have had experiences that would influence the 
Commission's tentative conclusions here.

B. The Cincinnati Bell Remand

1. The Cellular/PCS Cross-ownership Rule

    53. Under Section 24.204(a), no cellular licensee may be granted a 
license for more than 10 MHz of broadband PCS spectrum prior to the 
year 2000 if the grant will result in a significant overlap of the 
cellular licensee's Cellular Geographic Service Area (``CGSA'') and the 
PCS service area. After the year 2000, cellular licensees will be 
allowed to obtain a grant of 15 MHz of PCS spectrum in an area that 
overlaps significantly with their CGSA. ``Significant overlap'' occurs 
when ten percent or more of the

[[Page 13141]]
population of the PCS service area is contained within the CGSA. Thus, 
because cellular licenses authorize the use of 25 MHz of spectrum, 
cellular operators currently are limited to 35 MHz of aggregated 
cellular and PCS spectrum in any one geographic area.
    54. In Cincinnati Bell, the Court concluded that the Commission's 
limitations on cellular operators' eligibility for PCS licenses are 
arbitrary because the FCC provided little or no support for its 
assertions that, without such restrictions, cellular providers might 
engage in anticompetitive practices or exert undue market power. The 
Court further explained that, while the Commission's stated goal of 
avoiding excessive concentration of licenses is a permissible objective 
under the Communications Act, the cellular eligibility rules are, 
without an economic rationale, an arbitrary solution to this problem. 
According to the Court, the FCC must supply more factual support for 
its belief that cellular operators might detrimentally affect the 
market if they were allowed to obtain licenses for larger amounts of 
PCS spectrum.
    55. In light of the Sixth Circuit's ruling, the Commission seeks 
comment on whether the PCS/cellular cross-ownership rule should be 
relaxed or retained. Currently, the Commission's rules contain other 
spectrum caps that affect applicants for PCS licenses. The broadest 
limitation on wireless spectrum ownership is the 45 MHz cap on CMRS 
uses within three radio services: broadband PCS, cellular, and SMR. In 
addition, all PCS licensees are limited to a total of 40 MHz of 
spectrum in any one geographic area. This means that an entity may not 
own PCS licenses for any two or more spectrum blocks that will total 
more than 40 MHz in the same geographic area. Are there reasons for 
maintaining the separate 35 MHz spectrum cap on cellular providers' 
ownership of PCS spectrum in their service area or the 40 MHz PCS 
spectrum cap? Comments supporting retention of the current rules should 
provide facts showing that cellular operators will detrimentally affect 
the market if allowed to obtain immediately 10 MHz or more of PCS 
spectrum in their geographic service areas. The Commission also seeks 
comment on whether it should relax and simplify the ownership 
limitations by eliminating the PCS/cellular ownership limitations and 
the 40 MHz PCS spectrum cap in favor of the single 45 MHz CMRS spectrum 
cap. Under such a rule, cellular operators would be permitted to 
acquire licenses for two 10 MHz blocks of broadband PCS spectrum. The 
Commission asks commenters to discuss the impact on competition among 
CMRS providers, including the effect, if any, on the provision of PCS.

2. The 20 Percent Attribution Standard

    56. For the purpose of determining whether an entity is a cellular 
operator and subject to the cellular/PCS cross-ownership rule, the 
Commission has developed attribution standards. Section 
24.204(d)(2)(ii) of the Commission's Rules provides that partnership 
and other ownership interests and any stock interest amounting to 20 
percent or more of the equity, or outstanding stock, or outstanding 
voting stock of a cellular licensee will be attributable. Thus, any 
entity owning such a 20 percent interest in a cellular licensee is 
precluded from obtaining a license for broadband PCS in excess of 10 
MHz in a service area that overlaps the cellular licensee's CGSA.
    57. Section 24.204(d)(2)(ii) also currently provides for a higher 
cellular ownership attribution threshold for small businesses, rural 
telephone companies, and businesses owned by minorities or women than 
for other entities. If cellular ownership interests are held by such 
types of businesses, their interests are not attributable until they 
reach at least 40 percent. Similarly, a cellular ownership interest 
held by an entity with a non-controlling equity interest in a broadband 
PCS licensee or applicant owned by minorities or women is attributable 
only if it reaches 40 percent or more.
    58. The Court in Cincinnati Bell found the 20 percent cellular 
attribution standard to be arbitrary on the ground that it does not 
bear a reasonable relationship to whether a party with a minority 
interest in a cellular licensee actually has the ability to control 
that licensee. The Court rejected the FCC's argument that an entity 
with such an interest in a cellular licensee would have a reduced 
incentive to compete with the cellular company as a PCS provider, 
indicating that this argument is unsupported by either statistical data 
or a general economic theory and stating that the Commission must 
provide support for such predictive conclusions. In response to the 
FCC's argument that the Commission needs a bright-line rule to avoid 
delays in resolving PCS eligibility issues, the Court agreed with those 
challenging the 20 percent standard that the Commission should have 
supplied a reasoned basis for its decision not to adopt less 
restrictive alternatives.
    59. The 45 MHz CMRS spectrum aggregation limit, discussed above, 
includes an attribution rule that governs how ownership interests are 
measured. Under this rule, partnership and other ownership interests, 
and any stock interest amounting to 20 percent or more of the equity, 
or outstanding stock, or outstanding voting stock of a broadband PCS, 
cellular, or SMR licensee shall be attributed, except that those 
interests held by small businesses, rural telephone companies, or 
businesses owned by minorities or women will not be attributed unless 
they reach a threshold level of 40 percent. Similarly, a CMRS ownership 
interest held by an entity with a non-controlling equity interest in a 
broadband PCS licensee or applicant owned by minorities or women is 
attributable only if it reaches 40 percent or more. The Commission's 20 
percent attribution level for the CMRS spectrum cap was chosen to be 
consistent with the attribution standard for the PCS/cellular cross-
ownership rule. The Commission supported this standard with an opinion 
of the Federal Accounting Standards Board which explicitly states that 
ownership interests below 20 percent presumptively do not have control 
and above 20 percent they do unless evidence to the contrary is 
established.
    60. In the Competitive Bidding Sixth Report and Order, the 
cellular/PCS cross-ownership attribution rule and the CMRS spectrum 
aggregation rules were amended for purposes of C block licenses to 
eliminate race- and gender-based provisions and make the 40 percent 
attribution standard applicable only to interests held by a small 
business or rural telephone company and interests held by an entity 
with a non-controlling equity interest in a licensee or applicant that 
is a small business.
    61. The Commission seeks comment on whether it should retain the 
ownership attribution rule for cellular licensees interested in 
acquiring broadband PCS licenses. The 20 percent attribution rule was 
fashioned to strike a balance between maximizing competition and 
allowing cellular entities to bring their expertise to PCS. The 
Commission did not adopt a rule that required inquiry into whether a 
party has a controlling interest in a cellular licensee because it 
believed a bright-line rule would result in faster, less burdensome 
licensing. However, the Sixth Circuit found that the Commission did not 
adequately justify this decision. Accordingly, the Commission seeks 
comment on whether the 20 percent attribution rule should be modified. 
Should the attribution rule be changed to a controlling interest test? 
Is there some other bright-line test that

[[Page 13142]]
might be used to avoid burdening the licensing process? Should the 
Commission adopt a single majority shareholder exception? Should the 
approach depend on whether the Commission modifies the cellular/PCS 
cross-ownership rule or, in the alternative, eliminates this rule and 
retains only the 45 MHz CMRS spectrum cap? Should the Commission, in 
any case, modify the 20 percent attribution standard applicable to the 
45 MHz CMRS spectrum cap in light of the Sixth Circuit's opinion 
regarding this type of standard in connection with the cellular/PCS 
cross-ownership rule? The Commission notes that the 20 percent 
attribution standard and the 40 percent exception are the highest 
ownership attribution rules the Commission has. The new 
Telecommunications Act, in the definition of ``affiliate'', defines 
ownership as a 10 percent interest.
    62. The Commission proposes to modify the cellular/PCS cross-
ownership and CMRS spectrum aggregation limit rules for F block 
purposes to comply with the requirements of Adarand. It proposes to 
remove the provisions in these rules which increase the cellular 
attribution threshold to 40 percent on the basis of the race or gender 
of the holder of the ownership interest or of the broadband PCS 
applicant in which such holder is an investor. Accordingly, the 
Commission proposes, for purposes of the F block auction, that the 40 
percent cellular attribution threshold of the PCS/cellular cross-
ownership rule will continue to apply if the ownership interest is held 
by a small business or a rural telephone company or if the cellular 
ownership interest is held by an entity with a non-controlling equity 
interest in a broadband PCS licensee or applicant that is a small 
business. Similarly, the Commission proposes, for purposes of the F 
block auction, that the 40 percent cellular attribution threshold of 
the CMRS spectrum aggregation limit will continue to apply if the CMRS 
ownership interest is held by a small business or a rural telephone 
company (including those owned by minorities or women). These proposed 
changes mirror modifications that were made to the C block rules in the 
Competitive Bidding Sixth Report and Order. The Commission seeks 
comment on this proposal.
    63. Finally, the Commission notes that the Court in Cincinnati Bell 
did not find Section 24.204(d)(2)(i) of the Commission's Rules to be 
arbitrary. Under this section, certain ownership interests of five 
percent or more in broadband PCS licensees and applicants are 
attributable for purposes of applying the 10 and 15 MHz spectrum 
limitations and the 40 MHz limit in the same geographic area, discussed 
above. The Commission does not propose to modify this rule.

C. Ownership Disclosure Provisions

    64. The rules provide ``short-form'' (FCC Form 175) and ``long-
form'' (FCC Form 600) application procedures for broadband PCS bidders. 
Short-form applications are submitted prior to the auction by entities 
seeking to qualify as bidders. Long-form applications are submitted by 
winning bidders in the auctions to obtain their licenses. The 
application procedures for broadband PCS require applicants to furnish 
detailed ownership information in both their short-form and long-form 
applications.
    65. In addition to this information required of all PCS applicants, 
specific rules require F block applicants to submit more detailed 
ownership and financial information. An F block applicant must identify 
its affiliates and provide its gross revenues and total assets. On 
their short-form applications, all other F block applicants must 
disclose: (1) the identity of each member of their control group, 
including the citizenship and gender or minority group classification 
for each member; (2) the status of each control group member that is an 
institutional investor and existing investor and/or a member of the 
applicant's management; (3) the identity of each affiliate of the 
applicant and each affiliate of individuals in applicant's control 
group; (4) their gross revenues and total assets. Applicants must 
demonstrate their gross revenues and total assets using audited 
financial statements for the most recently completed calendar or fiscal 
years. Each F block applicant must also certify on its short-form 
application that it is eligible to bid for and obtain licenses, 
consistent with the Commission's Rules and, if appropriate, that it is 
eligible to bid as a designated entity.
    66. Winning F block bidders' long-form applications must disclose, 
separately and in the aggregate, their gross revenues and total assets 
plus the gross revenues and total assets of their affiliates, their 
control group members, their attributable investors, and affiliates of 
their attributable investors. These applicants must also list and 
summarize all agreements that support their eligibility for an F block 
license and any investor protection agreements.
    67. During the course of previous broadband PCS auctions, it became 
evident that certain ownership disclosure requirements found in the 
general PCS competitive bidding rules were burdensome and difficult to 
administer both at the short-form and long-form stages. For many large 
corporations, especially investment firms with diverse holdings, the 
requirements were very burdensome, particularly when they involved 
calculating indirect ownership interests in outside firms using the 
multiplier. Moreover, while identifying all businesses in which an 
attributable stockholder of the applicant held a five percent (or 
greater) interest generated significant amounts of information, the 
disclosures identified businesses that had no relation to the services 
for which licenses were being auctioned. In addition, requiring the 
submission of partnership agreements proved sensitive because such 
agreements often contained strategic bidding information and other 
confidential data. These provisions were waived by the Wireless 
Telecommunications Bureau for the short-form and long-form filings for 
PCS blocks A and B and for the short-form application for the C block.
    68. In waiving ownership disclosure requirements for the A and B 
block short-form applications, the Wireless Telecommunications Bureau 
stated that the purpose of the disclosure rules contained in Section 
24.813(a) of the Commission's Rules is ``to allow the Commission to 
determine who is the real party in interest, to determine compliance 
with anti-collusion rules and ownership restrictions such as the 
multiple- and cross-ownership rules and the alien ownership 
restrictions.'' The Bureau noted that the short-form application 
requires applicants to certify that they are in compliance with these 
regulations. The Wireless Telecommunications Bureau concluded that 
requiring information about all attributable stockholders' other 
interests does not serve the stated purposes of ownership disclosure. 
The Bureau also concluded that because partnership agreements often 
discuss strategic business objectives, submission of them would be 
detrimental to partnerships. Following the same rationale, the Wireless 
Telecommunications Bureau waived Section 24.813(a)(1), 24.813(a)(2) and 
24.813(a)(4) of the rules for the A and B block long-form and the C 
block short-form applications.
    69. At the short-form application stage in the C block PCS auction, 
the Commission received 36 waiver petitions from applicants requesting 
that they be permitted to demonstrate their gross revenues and total 
assets using methods other than audited financial statements. These 
waiver requests indicate that many smaller businesses do not use 
audited financial statements

[[Page 13143]]
in the normal course of business. Applicants in the C block auction 
also requested, and were granted, a waiver of the requirement that when 
financial information is supported by audited financial statements 
based on fiscal years, statements for the three most recent years must 
be used. Applicants were permitted to file statements for fiscal years 
1991, 1992, and 1993, instead.
    70. In light of its experience to date, the Commission proposes to 
amend Section 24.813(a)(1) and Section 24.813(a)(2) of the rules to 
limit the information disclosure requirement with respect to outside 
ownership interests of applicants' attributable stockholders. More 
specifically, it proposes to require only the disclosure of 
attributable stockholders' direct, attributable ownership in other 
businesses holding or applying for CMRS or Private Mobile Radio 
Services (``PMRS'') licenses. Moreover, the Commission proposes to 
amend Section 24.813(a)(4) to delete the requirement that partnerships 
file a signed and dated copy of the partnership agreement with their 
short-form and long-form applications. The Commission requests comment 
on these proposed changes. The Commission also seeks comment on whether 
it should further reduce the scope of information required by the 
general PCS rules at either the short-form or long-form filing stages. 
In addition, it requests comment on the alternative approach of 
requiring applicants to make their ownership documentation available 
upon request to other applicants during or after the auction. The 
Commission also requests comment on whether the proposed changes would 
provide bidders with sufficient information on their competitors in the 
auction.
    71. The number of waivers requesting permission to demonstrate 
gross revenues and total assets without audited financial statements in 
the C block auction leads the Commission to propose changes to Section 
24.720(f) and Section 24.720(g) of its rules. The Commission proposes 
to permit each applicant that does not otherwise use audited financial 
statements to provide a certification from its chief financial officer 
that the gross revenue and total asset figures that it provides in its 
short-form and long-form applications are true, full, and accurate; and 
that the applicant does not have the audited financial statements that 
are otherwise required under the rules. The Commission believes that 
such a modification to the rules would be the most effective way to 
amend the rules so that small businesses are not overly burdened by 
auditing their finances when they would not otherwise do so. The 
Commission seeks comment on this proposal. It also asks interested 
parties to suggest other alternatives to the audited financial 
statement requirement, and it seeks comment on whether an alternative--
the one it proposes or any other--should be available to all F block 
applicants (or D and E block applicants if small business provisions 
are extended to these blocks), or only to applicants that do not 
otherwise use audited financial statements. The Commission also 
requests comment on whether applicants should continue to be allowed to 
rely on either fiscal years or calendar years in providing their gross 
revenues. Should they instead be required to base their size 
calculations on the most recent four quarters so that the Commission 
receives the most current information available?

D. Auction Schedule

    72. While the rules do not establish a specific schedule for 
awarding the D, E, and F block broadband PCS licenses by competitive 
bidding, the Commission's reasons for creating these 10 MHz licenses 
and the communications industry's plans for using them directly affect 
when they should be auctioned. The Commission created the 10 MHz 
licenses to promote the provision of services that might not require a 
full 30 MHz of spectrum, or for aggregation with a 30 MHz PCS license 
or an existing cellular license.
    73. On December 23, 1994, the Commission sought comment on whether 
to auction the 10 MHz F block licenses together with the other 10 MHz D 
and E block licenses. Of the six comments received, the majority 
favored a single auction for all three blocks. Arguments in favor of a 
single auction included efficiency advantages for bidders, 
administrative and cost savings, and an equal timeline for start-up and 
deployment of all 10 MHz licensees. Commenters also noted a substantial 
need in broadband PCS for licensees to aggregate spectrum up to the 
limits set by the Commission and observed that a single auction would 
allow bidders to obtain 20-MHz licenses to meet unique service needs. 
Arguments opposing a single auction were that separate auctions would 
expedite auction administration and promote opportunities for 
designated entities by awarding them the first 10 MHz licenses.
    74. The Commission tentatively concludes that it should auction the 
D, E, and F frequency blocks concurrently in simultaneous multiple 
round auctions. The comments in response to the initial inquiry into 
this issue indicate that simultaneous access to all the 10 MHz licenses 
is important to the plans of some prospective PCS providers, and the 
Commission finds their arguments persuasive. The Commission seeks 
comment on this tentative conclusion. It also seeks comment on specific 
services that are planned for the D, E, and F licenses and how, if at 
all, auctioning all the licenses simultaneously would affect those 
planned services. The Commission is also interested in other factors 
that commenters believe would justify combining the auction of the D, 
E, and F block licenses, or that would argue against doing so.
    75. If the Commission auctions the D, E, and F blocks concurrently, 
it also seeks comment on the option of auctioning the D and E licenses 
together in one auction and the F block licenses in a separate auction. 
This approach would accommodate the difference in eligibility 
requirements for the F block auction. The Commission seeks comment on 
whether it should adopt this approach. It also requests comment on 
whether the auction rules for these three blocks should be modified in 
any way if it implements this proposal.

III. Procedural Matters

A. Regulatory Flexibility Act

    76. As required by Section 603 of the Regulatory Flexibility Act, 
the Commission has prepared an Initial Regulatory Flexibility Analysis 
(IRFA) of the expected impact on small entities of the proposals 
suggested in this document. The IRFA is set forth in Appendix A of the 
Notice. Written public comments are requested on the IRFA. These 
comments must be filed in accordance with the same filing deadlines as 
comments on the rest of the Notice, but they must have a separate and 
distinct heading designating them as responses to the Initial 
Regulatory Flexibility Analysis. The Secretary shall send a copy of 
this Notice, including the Initial Regulatory Flexibility Analysis, to 
the Chief Counsel for Advocacy of the Small Business Administration in 
accordance with paragraph 603(a) of the Regulatory Flexibility Act. 
Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C. 601 et seq. (1981).

B. Ex Parte Rules--Non-Restricted Proceeding

    77. This is a non-restricted notice and comment rule making 
proceeding. Ex parte presentations are permitted except during the 
Sunshine Agenda period, provided they are disclosed as provided

[[Page 13144]]
in Commission Rules. See generally 47 CFR Secs. 1.1202, 1.1203, and 
1.1206(a).

C. Initial Paperwork Reduction Act of 1995 Analysis

    78. This Notice contains either a proposed or modified information 
collection. As part of its continuing effort to reduce paperwork 
burdens, the Commission invites the general public and the Office of 
Management and Budget (``OMB'') to take this opportunity to comment on 
the information collections contained in this Notice as required by the 
Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency 
comments are due at the same time as other comments on this Notice; OMB 
comments are due 60 days from the date of publication of this Notice in 
the Federal Register. Comments should address: (a) whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
burden estimates; (c) ways to enhance the quality, utility, and clarity 
of the information collected; and (d) ways to minimize the burden of 
the collection of information on the respondents, including the use of 
automated collection techniques or other forms of information 
technology.

D. Comment Dates

    79. Pursuant to applicable procedures set forth in Sections 1.415 
and 1.419 of the Commission's Rules, 47 CFR Secs. 1.415 and 1.419, 
interested parties may file comments on or before April 15, 1996 and 
reply comments on or before April 25, 1996. To file formally in this 
proceeding you must file an original and four copies of all 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 your comments to Office of the Secretary, 
Federal Communications Commission, 1919 M Street, N.W., Washington, 
D.C. 20554. Comments will be available for public inspection during 
regular business hours in the Reference Center of the Federal 
Communications Commission, 1919 M Street, N.W., Room 239, Washington, 
D.C. 20554.
    80. Written comments by the public on the proposed and/or modified 
information collections are due on or before April 15, 1996. Written 
comments must be submitted by the Office of Management and Budget on 
the proposed and/or modified information collections on or before 60 
days after the date of publication in the Federal Register. In addition 
to filing comments with the Secretary, a copy of any comments on the 
information collections contained herein should be submitted to Dorothy 
Conway, Federal Communications Commission, Room 234, 1919 M Street, 
N.W., Washington, D.C. 20554, or via the Internet to [email protected] 
and to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725 17th Street, 
N.W., Washington, D.C. 20503 or via the Internet to [email protected].

E. Contact Persons

    81. For further information concerning this proceeding, contact 
Mark Bollinger at 418-0660 (Auctions Division, Wireless 
Telecommunications Bureau).

IV. Ordering Clauses

    82. Accordingly, it is ordered that, pursuant to Sections 1, 4(i), 
4(j), 7, 303(r), 308(b), and 309(j) of the Communications Act of 1934, 
as amended, 47 U.S.C. 151, 154(i), 154(j), 157, 303(r), 308(b), and 
309(j), notice is hereby given of the proposed amendments to Parts 20 
and 24 of the Commission's Rules, 47 CFR Parts 20 and 24, in accordance 
with the proposals in this Notice of Proposed Rule Making, and that 
COMMENT IS SOUGHT regarding such proposals.
    83. It is further ordered that the Secretary shall send a copy of 
this Notice of Proposed Rule Making, including the Initial Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration in accordance with paragraph 603(a) of the 
Regulatory Flexibility Act, 5 U.S.C. 601 et seq.

List of Subjects

47 CFR Part 20

    Commercial mobile radio services, Cellular/PCS cross-ownership.

47 CFR Part 24

    Broadband personal communications services.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-7315 Filed 3-25-96; 8:45 am]
BILLING CODE 6712-01-P