[Federal Register Volume 61, Number 182 (Wednesday, September 18, 1996)]
[Proposed Rules]
[Pages 49103-49108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23940]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 1 and 95
[PP Docket No. 93-253; FCC 96-330]
Interactive Video and Data Service
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: The Further Notice of Proposed Rule Making (FNPRM) tentatively
concludes that the 25 percent bidding credit available to women- and
minority-owned applicants in IVDS is not supported by the record, and
seeks additional evidence to support the provision of the bidding
credit to women- and minority-owned applicants in light of the Supreme
Court's decision in Adarand. The FNPRM also seeks comment on whether
and how the Commission should extend bidding credits to small
businesses. The FNPRM also requests comment on whether the Commission
should implement a tiered bidding credit scheme to provide varying
bidding credit amounts to small businesses of different sizes and
modify its small business definition. The FNPRM also tentatively
concludes that the Commission should increase the upfront payments from
$2,500 for every five licenses won to $9,000 per Metropolitan
Statistical Area license won, and $2,500 per Rural Statistical Area
license won.
DATES: Comments must be submitted on or before October 3, 1996; reply
comments must be submitted on or before October 10, 1996.
ADDRESSES: Federal Communications Commission, 1919 M Street, N.W.,
Washington, D.C. 20554.
FOR FURTHER INFORMATION CONTACT: Eric Malinen, Wireless
Telecommunications Bureau, (202) 418-0680 or Christina Eads Clearwater,
Wireless Telecommunications Bureau, (202) 418-0660.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's
Further Notice of Proposed Rule Making in PP Docket No. 93-253; FCC 96-
330, adopted August 6, 1996 and released September 10, 1996. The
complete text of the Sixth Memorandum Opinion and Order and Further
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.
Title: In the Matter of Implementation of Section 309(j) of the
Communications Act--Competitive Bidding
I. Further Notice of Proposed Rule Making
A. Treatment of Designated Entities
1. In the Fourth Report and Order, Implementation of Section 309(j)
of the Communications Act--Competitive Bidding, PP Docket No. 93-253,
59 FR 24947 (May 13, 1994), 9 FCC Rcd 2330 (Fourth Report and Order),
the Commission established several special provisions to ensure that
designated entities, i.e., small businesses, rural telephone companies,
and businesses owned by members of minority groups and women, are given
the opportunity to participate both in the competitive bidding process
for, and in the provision of, IVDS service. Among other provisions, the
rules provided that on one of the two licenses in each market, a 25
percent bidding credit would be awarded to a winning bidder that was a
business owned by women or minorities. See 47 CFR Sec. 95.816(d)(1).
The standard of review applied to federal programs designed to enhance
opportunities for racial minorities at the time the IVDS rules were
adopted was an intermediate scrutiny standard. In Adarand Constructors,
Inc. v. Pena, ____ U.S. ____, 115 S.Ct. 2097, 132 L.Ed.2d 158 (1995)
(Adarand), the Supreme Court invalidated the intermediate scrutiny
standard for federal race-based programs. The Court held that all
racial classifications, imposed by any federal, state or local
government actor, must be analyzed by a reviewing court under strict
scrutiny. Application of the two-prong strict scrutiny standard of
review to provisions designed to encourage minority participation in
IVDS requires the Commission to show: (1) a compelling governmental
interest exists for taking race into account in licensing allocation
decisions, and (2) the provisions in question are narrowly tailored to
further the compelling governmental interest established by the record
and findings. Adarand offers little guidance regarding the specific
requirements of this test. However, other cases, such as Richmond v.
J.A. Croson Co., 488 U.S. 469 (1989) (Croson) provide some indications
of the type of record necessary to meet the strict scrutiny standard.
2. In Croson, the Supreme Court applied strict scrutiny to
invalidate as unconstitutional a municipality's partial set-aside for
minority-owned businesses. 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 made
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.
3. The Supreme Court in Croson noted the high standard of evidence
required for the government to establish 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
[[Page 49104]]
statistical evidence can be probative of discrimination in the remedial
setting, and that anecdotal evidence can buttress statistical evidence.
4. As indicated above, once a compelling governmental interest is
established, narrow tailoring, the second prong of the strict scrutiny
test, 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.'' The Court in Croson
required that the government's remedial actions be narrowly tailored
``to break down a pattern of deliberate exclusion'' and stated that
broader relief could be justified only on the basis of ``evidence of a
pattern of individual discriminatory acts * * * supported by
appropriate statistical proof * * *''. Different factors have been used
by courts to determine, under a strict scrutiny standard, whether a
program is narrowly tailored. These include the following: (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, whether as one factor among several or as determinative;
and (6) the degree and type of burden on non-minorities.
5. 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 Supreme Court recently
upheld a constitutional challenge to a state gender-based program in
United States v. Commonwealth of Virginia, 1996 WL 345786 (1996) and
reaffirmed the application of an intermediate standard of review to
gender-based measures. In that case, the Court first indicated that
parties defending their gender-based governmental action must
demonstrate an ``exceedingly persuasive justification'' for their
action, then stated that the parties must show at least that the
challenged classification serves important governmental objectives and
that the discriminatory means employed are substantially related to the
achievement of those objectives.
6. The evidence supporting the gender- and race-based provisions
cited in the Fourth Report and Order primarily shows: (1) broad
discrimination against racial groups and women by lenders; and (2)
underrepresentation of these groups as owners and employees in the
communications industry. At present, the Commission believes that the
record is insufficient to demonstrate a compelling interest under the
strict scrutiny standard to support the race-based incentive programs
of IVDS 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. Although the Commission has general evidence of discrimination
against certain racial groups, none of the evidence appears to satisfy
the strict scrutiny standard.
7. Thus, the Commission tentatively concludes that the present
record in support of its race-based IVDS provisions is insufficient to
satisfy strict scrutiny. The Commission seeks comment on this tentative
conclusion. The Commission also requests comment on whether the IVDS
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 IVDS 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.
8. 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?
9. In addition, the Commission also tentatively concludes that the
present record in support of the gender-based IVDS rules may be
insufficient to satisfy intermediate scrutiny. The Commission seeks
comment on its 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 such as, for example, increased
participation of women in the FCC-licensing process for auctioned
spectrum. Are the gender-based IVDS rules ``substantially related'' to
the achievement of such objectives? Just as the Commission requested
above, in addressing evidence to support IVDS race-based provisions, it
asks parties to submit statistical data, personal accounts, studies, or
any other data relevant to the entry of women into the field of
telecommunications.
10. The Commission also is interested in supplementing the current
record to support race- and gender-based provisions in its other rules.
In this regard, the Commission initiated a comprehensive rule making
proceeding to explore market barriers to women- and minority-owned
businesses, as well as small businesses, pursuant to Section 257 of the
Communications Act. See Section 257 Proceeding to Identify and
Eliminate Market Entry Barriers for Small Businesses, Notice of
Inquiry, GN Docket No. 96-113, 61 FR 33066 (June 26, 1996), FCC 96-216
(released May 21, 1996). The record created in response to this FNPRM
will also be incorporated into that Docket.
11. The Commission undertakes this effort to support its auction
rules because the Commission is committed to fulfilling the
Congressional mandate to provide opportunities for women- and minority-
owned businesses through the competitive bidding process. The
[[Page 49105]]
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 the
Commission is mindful that it may not fulfill its other obligations
under Section 309(j) if the Commission delays the award of IVDS
licenses until that process is complete.
12. The Commission notes that the high number of defaulting bidders
in the initial IVDS auction, combined with the delay in auctioning off
the RSA licenses, has caused a significant delay in awarding IVDS
licenses. This delay has hurt businesses that are interested in
developing competitive IVDS. In addition, where one MSA bidder has
defaulted, the second winning bidder has had a significant head start
over the ultimate winner of the first license in providing service.
Given that, the Commission authorized two licenses per service area in
an attempt to have both licensees make service available in the near
future, such an advantage was not contemplated when the Commission
established the rules authorizing reauctioning of licenses. The
Commission also believes that both Congress and consumers expect us to
promote the rapid development of IVDS. 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 contribute any further delays to the IVDS
auction by postponing the auction to adduce sufficient evidence to
support the race- and gender-based IVDS provisions. While the
Commission could proceed with the IVDS auction under the current rules,
the Commission tentatively concludes that this course of action would
not serve the public interest because it may result in litigation that
would delay the auction, the dissemination of additional IVDS licenses,
and, ultimately, the introduction of competition. As a result, the
Commission tentatively concludes that it will adopt race and gender
neutral provisions, but continue to maintain the provisions for small
businesses which it believes adequately benefit most of the businesses
owned by minorities and/or women. The Commission believes these
proposed changes will enable it to meet its Congressional-mandate and
proceed as expeditiously as possible to auction the remaining IVDS
licenses. The Commission seeks comment on these tentative conclusions.
13. In the Second Report and Order, Implementation of Section
309(j) of the Communications Act--Competitive Bidding, PP Docket No.
93-253, 59 FR 22980 (May 4, 1994), 9 FCC Rcd 2348 (1994) (Second Report
and Order), the Commission adopted a definition of small business for
the generic auction rules. This definition requires the entity to
demonstrate that, together with its affiliates, its net worth is no
more than $6 million, and its annual profits are no more than $2
million for the previous two years. In the Fourth Report and Order, the
Commission determined that these definitions should apply to applicants
for IVDS auctions. See 47 CFR Sec. 95.816(d). Since that time, however,
the Commission has defined small business for other services based on
the gross revenues on the applicant and its affiliates for the
preceding three years. See 47 CFR Sec. 24.720 (broadband PCS); 47 CFR
Sec. 24.320 (narrowband PCS); 47 CFR Sec. 90.814(b)(1) (900 MHz SMR);
47 CFR Sec. 90.912(b) (800 MHz SMR).
14. The Commission proposes to define small businesses based on
gross revenues for the preceding three years. Specifically, it proposes
to define a small business as an entity whose average gross revenues
for each of the preceding three (3) years do not exceed $15 million.
Additionally, the Commission proposes to define a very small business
(as discussed later in connection with the tiered bidding credits) as
an entity with less than an average of $3 million in gross revenues in
each of the last three (3) years. The Commission believes that a
company's gross revenues is a more accurate indicator of its size than
is its net worth or annual profits. A gross revenues test is a clear
measure for determining the size of a business and is an established
method of determining size eligibility for various types of federal
programs that aid small businesses. See, e.g., 13 CFR Sec. 121.902.
Moreover, the Commission observes that this approach is consistent with
its approach in 900 MHz SMR. See Implementation of Section 309(j) of
the Communications Act--Competitive Bidding, Second Order on
Reconsideration and Seventh Report and Order, PR Docket No. 89-553, PP
Docket No. 93-253, GN Docket No. 93-252, FCC 95-395, 60 FR 48913
(September 21, 1995) (Second Order on Reconsideration and Seventh
Report and Order). Commenters are invited to address whether the
Commission should modify its small business definition and calculate
small business eligibility based on gross revenues, rather than net
worth and annual profits. Commenters should discuss what gross revenues
threshold is appropriate for defining small business in the IVDS
context.
15. The Commission also proposes a five percent attribution
threshold for purposes of determining eligibility as a small business.
Under such a standard, the gross revenues and affiliations of any
investor in the applicant would not be considered so long as the
investor holds less than a five percent interest in the applicant.
Alternatively, the Commission seeks comment on whether it should count
the gross revenues of controlling principals in the applicant and its
affiliates for purposes of determining small business status. In
determining attribution when IVDS licensees are held indirectly through
intervening corporate entities, the Commission proposes to use the
multiplier adopted in the CMRS Third Report and Order for the spectrum
aggregation cap. See CMRS Third Report and Order, GN Docket No. 93-252,
59 FR 9945 (November 12, 1994), 9 FCC Rcd 7988 (1994). The Commission
seeks comment on these tentative conclusions.
16. A bidding credit acts as a discount on the winning bid amount
that a bidder actually has to pay for the license. The current IVDS
rules provide for a bidding credit of 25 percent to businesses owned by
members of minority groups or women. 47 CFR Section 95.816(d)(1).
17. The Commission seeks comment on whether it should extend a
single bidding credit to all small businesses as it did for the C block
PCS auction. If the Commission chooses to adopt a single small business
bidding credit for IVDS, how big should the credit be? Should the
Commission retain the 25 percent bidding credits currently provided and
make it available to all small businesses bidding in the IVDS auction?
If it extends a bidding credit to small businesses, the Commission
expects that a significant number of women and minority-owned
businesses will continue to qualify for bidding credits under the
rules. See, e.g., Second Report and Order and Second Further Notice of
Proposed Rule Making, PR Docket No. 89-553, 60 FR 50583 (September 29,
1995), 10 FCC Rcd 6884 (1995). The Commission believes that this may be
the most effective way to amend the rules and proceed with the auction.
The Commission also believes that this proposal will meet the statutory
objectives of promoting economic opportunity and competition, avoiding
excessive concentration of licenses, and ensuring access to new and
innovative
[[Page 49106]]
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. Moreover, as
the Commission observed in the Fourth Report and Order, the Commission
expects that the capital requirements for IVDS will be relatively low,
particularly with respect to the smaller RSA licenses. The Commission
therefore anticipates that women- and minority-owned firms, as well as
other potential bidders that might lack access to capital, will be able
to compete effectively for IVDS licenses. The Commission also points
out that the overwhelming majority of IVDS applicants in the past have
been small businesses.
18. In the alternative, should the Commission offer tiered bidding
credits, such as 15 percent for small businesses with aggregate gross
revenues under $3 million and 10 percent for businesses with gross
revenues between $3 million and $15 million? The Commission tentatively
concludes that given the relatively low bids that IVDS licenses
garnered in the July 1994 auction, IVDS may attract smaller businesses,
thus justifying a tiered bidding credit. The Commission seeks comments
on this tentative conclusion. Commenters are asked to address whether
this approach would better reflect the difficulties that small
businesses of varying size face in accessing capital. Commenters also
should discuss what size definitions and bidding credit amounts are
appropriate if the Commission adopts a tiered bidding credit scheme.
19. Commenters are also asked to address whether the Commission
should completely eliminate the bidding credit. Commenters should
address whether a bidding credit is needed to permit small businesses
to compete effectively for IVDS spectrum. As noted above, IVDS, with
its relatively low capital entry requirements, is well suited for small
business investment and a bidding credit may not be needed to foster
participation by these entities. See Fourth Report and Order. Given the
success of small businesses in the MSA auction, commenters are invited
to address whether the Commission should revisit that conclusion.
B. Upfront Payments
20. In the Fourth Report and Order, the Commission determined that
the appropriate upfront payment for IVDS auctions would be based on the
maximum number of licenses a bidder desired to win. Bidders were
required to present a cashier's check for $2,500 in order to bid on the
IVDS licenses, and would be required to have $2,500 upfront money for
every five licenses they won, effectively constituting an upfront
payment of $500 per license won. Following the initial IVDS auction,
certain high bidders requested waivers to permit them to delay payment
of their required down payments. Further, a substantial number of
bidders defaulted on their winning bids, requiring us to reauction
those licenses.
21. The Commission tentatively concludes that the upfront payment
required under the Fourth Report and Order is inadequate. In several ex
parte filings, parties indicated their support for increased upfront
payment amounts. The requests for waiver to delay making down payments,
coupled with the significant number of defaulting winning bidders, lead
the Commission to believe that the initial upfront payment was too low
to deter insincere, speculative bidding. The Commission proposes that
more appropriate upfront payments would be $9,000 per MSA license and
$2,500 per license for RSA markets, for the maximum number of licenses
on which the applicant wishes to bid. The Commission reaches these
proposed amounts by calculating values for each license of $.02 per MHz
per pop, which is the standard methodology for determining upfront
payment amounts. See Second Report and Order; see also Fourth Report
and Order. This calculation yielded average upfront payments of
approximately $9,011 per license for MSA markets (not counting the 9
markets previously awarded by lottery), and approximately $2,742 per
license for RSA markets. The Commission's proposed upfront payments
round these figures. The Commission believes that revised upfront
payments in these amounts would attract as many qualified bidders as
possible, while providing an adequate deterrent against frivolous
bidding. The Commission seeks comment on this tentative conclusion and
the proposal to increase the upfront payment amounts, as described.
II. Procedural Matters
Initial Regulatory Flexibility Analysis
22. 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 policies and
rules proposed in this FNPRM regarding the interactive video and data
service (IVDS). Written public comments are requested on the IRFA.
Comments must have a separate and distinct heading designating them as
responses to the IRFA and must be filed by the comment deadlines
provided above.
A. Reason for Action:
23. The further notice in this rule making proceeding was initiated
to secure comment on proposals to eliminate all race- and gender-based
provisions in the competitive bidding rules for the IVDS auction only.
The proposals advanced in the Further Notice of Proposed Rule Making
also are designed to implement Congress's goal of giving small
businesses, rural telephone companies, and businesses owned by members
of minority groups and women the opportunity to participate in the
provision of spectrum-based services in accordance with 47 U.S.C.
Sec. 309(j)(4)(D). The Commission also seeks to modify its rule
concerning the amount it requires for upfront payments from applicants
to participate in the auction in accordance with 47 U.S.C.
Sec. 309(j)(3).
B. Objectives
24. The Commission proposes changes to its rules for IVDS to
address legal uncertainties raised by the Supreme Court's decision in
Adarand Constructors, Inc. v. Pena, 115 S.Ct. 2097 (1995).
Specifically, the Commission seeks to ensure competition and ownership
diversity by avoiding a lengthy delay in the conduct of the auction
caused by probable legal challenges to the rules. The Commission also
proposes to increase the upfront payment amounts for IVDS licenses
because it believes the current upfront payment amount was insufficient
to ensure against a significant number of defaulting winning bidders
and to ensure payment of applicable penalties arising from defaults.
C. Legal Basis
25. The proposed action is authorized under Sections 4(i), 303(r)
and 309(j) of the Communications Act of 1934, 47 U.S.C. Secs. 154(i),
303(r) and 309(j), as amended.
D. Description and Estimate of Small Entities Subject to the Rules
26. The proposed changes in the regulations would affect a number
of entities both large and small. The Commission was directed by the
Communications Act, 47 U.S.C. Sec. 309(j) to make provisions to ensure
that smaller businesses, and other designated entities, have an
opportunity to participate in the auction process. To fulfill this
statutory mandate, these proposed rules are designed to attract
participation by the small entities. The small businesses who will be
subject to
[[Page 49107]]
the rules would be those which choose to operate interactive video and
data services, a class of wireless communications services with a wide
variety of uses. The services will generally be offered to consumers
who wish to subscribe to those services.
27. IVDS is a communications based service subject to regulation as
a wirelsss provider of pay television services under Standard
Industrial Classification 4841 (SIC 4841), which covers subscription
television services. The Small Business Administration (SBA) defines
small businesses in SIC 4841 as businesses with annual gross revenues
of $11 million or less. 13 CFR Sec. 121.201. In this Further Notice of
Proposed Rule Making, the Commission proposes to extend special
provisions to small businesses with annual gross revenues for each of
the preceding years three years that do not exceed $15 million, and
additional benefits to very small businesses who have less than an
average of $3 million in gross revenues in each of the last three
years. The Commission observes that this proposal is consistent with
its approach in other wireless services, see e.g., the 900 MHz
specialized mobile radio service, and is narrowly tailored to address
the capital requirements for IVDS. The Commission is soliciting SBA
approval for the small business definitions for this and other
auctionable services.
28. The Commission estimate of the number of small business
entities subject to the rules begins with the Bureau of Census report
on businesses listed under SIC 4841, subscription television services.
The total number of entities under this category is 1,788. There are
1,463 companies in the 1992 Census Bureau report which are categorized
as small businesses providing cable and pay TV services. The Commission
knows that many of these businesses are cable and television service
businesses, rather than IVDS licensees. Therefore, the number of small
entities currently in this business which will be subject to the rules
will be less than 1,463.
29. The first IVDS auction resulted in 170 entities winning
licenses for 594 MSA licenses. Of the 594 licenses, 557 were won by
entities qualifying as a small business. For that auction, the
Commission defined a small business as an entity with a net worth not
in excess of $6 million and average net income after Federal income
taxes for the two preceding years not in excess of $2 million. In the
upcoming IVDS reauction of approximately 100 licenses in metropolitan
service area (MSA) markets and auction of 856 licenses in rural service
area (RSA) markets (two licenses per market), the Commission has
proposed bidding credits and installment payments to encourage
participation by small and very small businesses. The Commission cannot
estimate, however, the number of licenses that will be won by entities
qualifying as small or very small businesses under the proposed rules.
Given the success of small businesses in past IVDS auctions, and that
small businesses make up over 80 percent of firms in the subscription
television services industry, the Commission assumes for purposes of
this IRFA that all of the licenses may be awarded to small businesses,
which would be affected by the proposed rules. The Commission estimates
that some companies will win more than one license, as happened in the
earlier IVDS auction.
30. Applicants seeking to participate in the auction also will be
subject to these proposed rules. It is impossible to accurately predict
how many small businesses will apply to participate in the auction. In
the last IVDS auction, there were 289 qualified applicants. The
Commission does not anticipate that there will be significantly more
participants in the subsequent IVDS auction.
E. Reporting, Recordkeeping and Other Compliance Requirements
31. All small businesses which choose to participate in these
services will be required to demonstrate that they meet the criteria
set forth to qualify as small businesses, as was required under part 1,
subpart Q of the FCC's Rules, 47 CFR part 1, subpart Q. Any small
business applicant wishing to avail itself of those provisions will
need to make the general financial disclosures necessary to establish
that the small business is in fact small. The proposed rule changes
will eliminate the requirements that small businesses owned by
minorities and/or women demonstrate that their owners are minorities
and/or women. There are no additional reporting or recordkeeping
requirements proposed by these rules.
32. Each small business applicant will be required to submit an FCC
Form 175, OMB Clearance Number 3060-0600. The estimated time for
filling out an FCC Form 175 is 45 minutes. In addition to filing an FCC
Form 175, each applicant must submit information regarding the
ownership of the applicant, any joint venture arrangements or bidding
consortia that the applicant has entered into, and financial
information which demonstrates that a small business wishing to qualify
for installment payments and bidding credits is a small business.
Applicants which do not have audited financial statements available
will be permitted to certify to the validity of their financial
showings. While many small businesses have chosen to employ attorneys
prior to filing an application to participate in an auction, the rules
are proposed so that a small business working with the information in a
bidder information package can file an application on its own. When an
applicant wins a license, it will be required to submit an FCC Form
600, which will require technical information regarding the applicant's
proposals for providing service. This application will require
information provided by an engineer who will have knowledge of the
system's design.
F. Federal Rules Which May Overlap, Duplicate or Conflict With These
Rules
33. None.
G. Significant Alternative Minimizing the Impact on Small Entities
Consistent with the Stated Objectives
34. In the Further Notice of Proposed Rule Making, the Commission
tentatively concludes that the possibility of legal challenges to the
rules could cause lengthy delays in issuing licenses in this service.
Since the first IVDS auction, the Supreme Court in Adarand v. Pena, 115
S. Ct. 2097 (1995) raised the legal standard for assessing the
constitutionality of federal programs which take race into account.
Such programs are now subject to a strict scrutiny standard of review.
Although programs which take gender into account are reviewed under
intermediate scrutiny, United States v. Commonwealth of Virginia, 1996
WL 345786 (United States Supreme Court, June 26, 1996), the Commission
believes there is a significant risk, under either standard, that the
auction would be subject to delay through litigation over the
constitutionality of the program. The Commission is currently gathering
evidence, through a Notice of Inquiry proceeding pursuant to Section
257 of the Telecommunications Act of 1996 on barriers to market entry
for small businesses, including those owned by women and minorities.
The Commission realizes that this change may impose a burden on small
businesses owned by women or minorities. It seeks comment on whether
there are alternatives which will enable it to avoid the delays of
litigation, which adversely affect all small businesses and still make
provision for these designated entities.
35. The Further Notice of Proposed Rule Making solicits comment on
a
[[Page 49108]]
variety of alternatives set forth herein. Any significant alternatives
presented in the comments will be considered. The Further Notice of
Proposed Rule Making proposes setting new standards for the measurement
of small businesses. The earlier standard defined a small business in
IVDS as a business, together with its affiliates, that has no more than
a $6 million net worth and, after federal income taxes (excluding any
carry over losses), has no more than $2 million in annual profits each
year for the previous two years. 47 CFR Sec. 1.2110. The Commission is
proposing to define a small business as a business with average gross
revenues for each of the preceding three (3) years that do not exceed
$15 million, and define a very small business as one which has less
than an average of $3 million in gross revenues in each of the last
three years. The Commission seeks comment on the classes of small
entities and how many total entities, existing and potential, would be
affected by the proposed rules in the Further Notice of Proposed Rule
Making. These changes would be consistent with the definitions used in
other auctionable mobile radio services such as 900 MHz specialized
mobile radio services. The Commission requests each commenter to
identify whether it is a ``small business'' under this definition.
36. The Further Notice of Proposed Rule Making proposes providing a
bidding credit to small businesses. The Commission seeks comment on
whether a 25 percent bidding credit is appropriate for all small
businesses or whether a tiered bidding credit, 10 percent for small
businesses and 15 percent for very small businesses, is appropriate.
The Commission seeks comment on the impact of the creation of a larger
pool of small businesses--defining as small all businesses with gross
revenues of $15 million or less. The Commission proposes businesses
with average gross revenues of $15 million or less in each of the last
three (3) years be eligible for bidding credits, as opposed to the
previous standard of an entity, together with its affiliates, that has
no more than a $6 million net worth and, after federal income taxes
(excluding any carry over losses), has no more than $2 million in
annual profits each year for the previous two years. It requests
comment on how this larger pool of small businesses will affect the
smaller businesses which choose to participate in the auction.
Additionally, the Commission is particularly interested in learning
whether tiered bidding credits will offset any potential competitive
disadvantage to those smaller businesses.
37. The Commission proposes to raise the upfront payment to $9000
per MSA and $2500 per RSA for businesses participating in IVDS
auctions. This rule change is designed minimize the adverse impact on
the IVDS service of participation in the auction by speculators and
other frivolous bidders. The Commission realizes that a higher upfront
payment may pose a greater obstacle to participation by smaller
businesses. It seeks comment on its tentative conclusion that the
previous upfront payment was too low. The Commission also requests
commenters to address the question of whether there are other means to
deter speculative or frivolous bidders who do not meet the commitments
they make in bidding in IVDS auctions.
List of Subjects
47 CFR Part 1
Administrative practice and procedure, Reporting and recordkeeping
requirements, Telecommunications.
47 CFR Part 95
Communications equipment, Radio.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-23940 Filed 9-17-96; 8:45 am]
BILLING CODE 6712-01-P