[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