[Federal Register Volume 61, Number 221 (Thursday, November 14, 1996)]
[Rules and Regulations]
[Pages 58333-58340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29054]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 22

[PP Docket No. 93-253; CC Docket No. 90-6; FCC 96-361]


Implementation of Section 309(j) of the Communications Act--
Competitive Bidding

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document adopts competitive bidding rules for mutually 
exclusive applications for cellular unserved Phase I and Phase II 
service areas. These rules result from the Commission's decision to use 
competitive bidding to select from among mutually exclusive 
applications. The Adoption of these rules will enable the Commission to 
complete the licensing of cellular unserved area licenses.

EFFECTIVE DATE: December 16, 1996.

FOR FURTHER INFORMATION CONTACT: Thomas Horan, Wireless 
Telecommunications Bureau, (202) 418-0660.

SUPPLEMENTARY INFORMATION: This is a summary of the Ninth Report and 
Order in PP Docket No. 93-253; CC Docket No. 90-6; FCC 96-361, adopted 
August 23, 1996 and released November 7, 1996. The complete text of the 
Ninth Report and Order 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.

Synopsis of the Report and Order

Background

    1. Initial cellular systems operators were given a five-year period 
during which to expand their systems within the geographic area in 
which they are licensees. Cellular unserved areas were created from the 
geographic area not covered by the licensee at the close of the five-
year build-out period. We adopted an application processing scheme that 
has two phases for all cellular markets in which the five-year build-
out period has expired or will expire in the future. Phase I is a one-
time process that provides an opportunity for eligible parties to file 
competing applications for authority to operate a new cellular system 
in, or to expand an existing cellular system into, unserved areas as 
soon as these areas become available. Phase II is an ongoing process 
that allows eligible parties to apply for any unserved areas that may 
remain in a market after the Phase I process is complete.

Grouping of Licenses

    2. Following adoption of these rules, all Phase I auction 
applicants, including those who previously filed FCC Form 464s, shall 
file a short-form application (FCC Form 175) prior to the filing 
deadline announced by Public Notice. The filing window for Phase I 
applications will open on the 31st day after the expiration of a 
market's five-year build-out period. For mutually exclusive Phase I 
applications that were filed prior to our new FCC Form 175 filing 
requirement, only the applicants who have timely-filed FCC Form 464 
applications will be eligible to submit an FCC Form 175 and participate 
in the auction for these markets. The auction process will repeat 
itself approximately every six months until all of the Phase I licenses 
for which there are mutually exclusive applications have been 
auctioned. Applicants cannot file more than one Phase I initial 
application for any cellular market, and Phase I initial applications 
must not propose any de minimis or contract service area boundary 
extensions. Phase I licensees may file a single major modification 
application no later than 90 days after the grant of their Phase I 
initial application. This major modification application may propose de 
minimis or contract service area boundary extensions, or a non-
contiguous Cellular Geographic Area (``CGSA'') provided that the non-
contiguous CGSA meets the minimum coverage requirement of section 
22.951 of the Commission's rules.
    3. The start of the Phase II process is dependent on the resolution 
of the Phase I short-form filing deadline. If a Phase I initial 
application is granted for a market and channel block, Phase II 
applications for that market and channel block may be filed on or after 
the 121st day after the Phase I application is granted. If no Phase I 
initial applications are received, Phase II applications may be filed 
on or after the 32nd day after the expiration of the relevant five-year 
build-out period. Competing Phase II applications are subject to a 30-
day filing window following a Phase II application's publication in a 
Public Notice. Phase II applicants should continue to submit an FCC 
Form 464A and an FCC Form 600 during the appropriate filing windows. 
For Phase II applications, we will require the FCC Form 600 prior to 
the FCC Form 175 in order to determine whether mutual exclusivity 
exists among applicants. Mutual exclusivity will be determined by 
comparing the technical information contained in each FCC Form 600 to 
determine whether any applicants are applying for the same specific 
cell sites in any given cellular unserved area. This differs from the 
Phase I process, because Phase I applicants are applying for the entire 
unserved area. Thus, mutual exclusivity may be determined by reviewing 
the FCC Form 464 application for Phase I licenses. If the Commission 
determines mutually exclusive Phase II initial applications have been 
received, these applicants will be required to file a short-form 
application (FCC Form 175) prior to the filing deadline specified in a 
Public Notice. The Phase II licenses for which there are mutually 
exclusive applications will be auctioned in either a separate Phase II 
auction or as part of a Phase I auction. The Wireless 
Telecommunications Bureau (``Bureau'') will issue a Public Notice 
describing the auction process for Phase II licenses prior to any Phase 
II auctions.

Competitive Bidding Design

    4. For Cellular Unserved Phase I and Phase II service areas, we are 
electing to use a simultaneous multiple round auction, but we reserve 
the option to do this auction sequentially.

[[Page 58334]]

    5. For the cellular unserved auctions, we will use a simultaneous 
stopping rule. Bidding will remain open on all licenses until bidding 
stops on every license. We intend to close the auction after one round 
passes in which no new valid bids or proactive activity rule waivers 
are submitted. The Commission, however, retains the discretion to keep 
the auction open even if no new valid bids and no proactive waivers are 
submitted. The Commission delegates to the Bureau the authority to 
exercise such discretion. In the event that the Bureau exercises this 
discretion, the effect would be the same as if a bidder had submitted a 
proactive waiver. In addition, the Commission will retain the 
discretion to declare after a certain number of rounds that the auction 
will end after some specified number of additional rounds and delegates 
to the Bureau the authority to exercise such discretion. If this option 
is used, we will accept bids only on licenses where the high bid had 
increased in at least one of the last three rounds.

Bidding Procedures

    6. We intend to allow only remote bidding for the cellular unserved 
area licenses auction. Bidders will be able to submit bids from remote 
locations electronically using special bidding software, or via 
telephone. We have established a schedule of fees that participants in 
the competitive bidding process will be assessed for certain on-line 
computer services, bidding software, and for bidder information 
packages. By Public Notice, the Bureau will provide additional 
information to prospective bidders to acquaint them with bidding 
procedures.

Bid Increments

    7. We will establish minimum bid increments for bidding in each 
round of the auction at a level of five percent of the high bid in the 
previous round. The Commission also retains the discretion to vary the 
minimum bid increments for individual licenses or groups of licenses at 
any time before or during the course of the auction, based on the 
number of bidders, bidding activity, and the aggregate high bid amounts 
and delegates to the Bureau the authority to exercise such discretion. 
The Bureau will announce by Public Notice prior to the auction the 
general guidelines for bid increments. Where a tie bid occurs, we will 
determine the high bidder by the order in which the Commission receives 
the bids.

Duration of Bidding Rounds

    8. We will retain the discretion to establish the duration and 
frequency of bidding rounds (e.g., the number of bidding rounds per day 
and the length of each bidding round) by Public Notice before each 
auction and delegate to the Bureau the authority to exercise such 
discretion. The Bureau will announce any changes to the duration of or 
intervals between bidding rounds either by Public Notice prior to the 
auction, or announcement during the auction.

Activity Rules

    9. The Commission will assign a ``bidding unit'' value to each 
cellular unserved license for the purpose of measuring bidding activity 
and eligibility. For the cellular unserved auction, each cellular 
unserved license will be assigned a uniform 5,000 bidding units. This 
amount will be equal to the upfront payment associated with each 
cellular unserved license. Licenses on which a bidder is the high 
bidder at the end of the bid withdrawal period in the previous round 
count against the maximum eligibility bidding limit. To preserve their 
maximum eligibility, bidders are required to maintain a certain level 
of bidding activity during each round of the auction. The auction is 
divided into three stages with increasing levels of bidding activity 
required in each stage of the auction. A bidder is considered active on 
a license in the current round if the bidder has submitted an 
acceptable bid for that license in the current round, or has the high 
bid for that license at the end of the bid withdrawal period in the 
previous round, in which case, the bidder does not need to bid on that 
license in the current round to be considered active on that license. A 
bidder's activity level in a round is the sum of the bidding units 
associated with licenses on which the bidder is active.
    10. We intend to establish the following minimum required activity 
levels for each stage of the auction: In each round of Stage One of the 
auction, a bidder who wishes to maintain its current eligibility is 
required to be active on licenses encompassing at least 60 percent of 
the bidding units for which it is currently eligible. Failure to 
maintain the requisite activity level will result in a reduction in the 
amount of bidding units upon which a bidder will be eligible to bid in 
the next round of bidding. During Stage One, if activity is below the 
required minimum level, eligibility in the next round will be 
calculated by multiplying the current round activity by five-thirds 
(\5/3\). Eligibility for each applicant in the first round of the 
auction is determined by the amount of the upfront payment received and 
the licenses identified in its short-form application. In each round of 
Stage Two, a bidder who wishes to maintain its current eligibility is 
required to be active on 80 percent of the bidding units for which it 
is eligible in the current round. During the second stage, if activity 
is below the required minimum level, eligibility in the next round will 
be calculated by multiplying the current round activity by five-fourths 
(\5/4\). In each round of Stage Three, a bidder who wishes to maintain 
its current eligibility is required to be active on licenses 
encompassing 95 percent of the bidding units for which it is eligible 
in the current round. In Stage Three, if activity in the current round 
is below 95 percent of current eligibility, eligibility in the next 
round will be calculated by multiplying the current round activity by 
twenty-nineteenths (\20/19\). The Commission, however, will retain the 
discretion to set and, by announcement before or during the auction, 
vary the required minimum activity levels (and associated eligibility 
calculations) for each auction stage, to control the pace of the 
auction and delegates to the Bureau the authority to exercise such 
discretion.

Stage Transitions

    11. Stage transitions will be determined by the auction activity 
level. The ``auction activity level'' is the sum of the bidding units 
of licenses for which the high bid increased in the current round as a 
percentage of the total bidding units of all licenses offered in the 
auction. The cellular unserved auction will begin in Stage One and 
generally will move from Stage One to Stage Two when the auction 
activity level is below ten percent for three consecutive rounds in 
Stage One. The auction generally will move from Stage Two to Stage 
Three when the auction activity level is below five percent for three 
consecutive rounds in Stage Two. In no case can the auction revert to 
an earlier stage. The Commission will retain the discretion to 
determine and announce during the course of an auction when, and if, to 
move from one auction stage to the next, based on a variety of measures 
of bidder activity, including, but not limited to, the auction activity 
level as defined above, the percentage of licenses (measured in terms 
of bidding units) on which there are new bids, the number of new bids, 
and the percentage increase in revenue. The Commission delegates to the 
Bureau the authority to exercise such discretion.

[[Page 58335]]

Activity Waivers

    12. We will provide bidders five waivers of the above-described 
activity rule that may be used in any round during the course of the 
auction. If a bidder's activity level is below the required activity 
level, a waiver will be applied automatically.
    A waiver will preserve current eligibility in the next round. An 
activity rule waiver applies to an entire round of bidding and not to a 
particular service area.
    13. Bidders will be afforded an opportunity to override the 
automatic waiver mechanism when they place a bid if they intentionally 
wish to reduce their bidding eligibility and do not want to use a 
waiver to retain their eligibility at its current level. If a bidder 
overrides the automatic waiver mechanism, its eligibility will be 
permanently reduced (according to the formulas specified above), and it 
will not be permitted to regain its bidding eligibility from a previous 
round. An automatic waiver invoked in a round in which there are no new 
valid bids will not keep the auction open. Bidders will have the option 
of entering an activity rule waiver proactively during the bid 
submission period. If a bidder submits a proactive waiver in a round in 
which no other bidding activity occurs, the auction will remain open.
    14. The Commission will retain the discretion to issue additional 
waivers during the course of an auction for circumstances beyond a 
bidder's control and delegates to the Bureau the authority to exercise 
such discretion. The Bureau will also have the flexibility to adjust by 
Public Notice prior to an auction the number of waivers permitted, or 
to institute a rule that allows one waiver during a specified number of 
bidding rounds or during specified stages of the auction.

Pre-Auction Application Procedures

    15. Before each scheduled auction for cellular unserved area 
licenses, the Bureau will release an initial Public Notice announcing 
the auction. This initial Public Notice will specify the license(s) to 
be auctioned, the time and place for the auction, and other important 
information concerning the procedures, terms, and conditions of the 
auctions. The initial Public Notice will also specify the filing 
deadline for short-form applications.
    16. Potential bidders who currently have long-form applications 
(FCC Form 401 or FCC Form 600) on file for the cellular unserved area 
licenses being offered in the first auction will be required to submit 
a short-form application (FCC Form 175) by a date specified in the 
initial Public Notice to participate in the cellular unserved area 
auction. Those applicants who filed their applications on the FCC Form 
401 will be required to resubmit their applications on an FCC Form 600, 
and we will waive the filing fee for the FCC Form 600. Those applicants 
will not have to repeat information which is contained on the FCC Form 
401.
    17. This requirement will provide current applicants with the 
opportunity to file their short-form applications electronically. The 
Bureau will provide detailed instructions on electronic filing in a 
Public Notice prior to the auction. For the first auction for cellular 
unserved area licenses, all other potential bidders will also be 
required to submit, either electronically or manually, a short-form 
application by the date specified in the Public Notice announcing the 
auction. If the Commission receives only one application that is 
acceptable for filing for a particular frequency block and there is 
thus no mutual exclusivity, the Bureau will cancel the auction for this 
license. Phase I applicants would then file a long-form application 
(FCC Form 600) by a date established by the Bureau. Phase II applicants 
would not file another long-form application (FCC Form 600, since one 
would already be on file.

Upfront Payments

    18. We are establishing a uniform upfront payment amount of $5,000 
per license. A bidder may file applications for every license being 
auctioned, but its upfront payment should reflect the maximum number of 
licenses it seeks to win.
    19. Upfront payments will be due by a date specified by Public 
Notice, but generally not later than 14 days before a scheduled 
auction. To receive a bidder identification number, the applicant or 
its representative will be required to deposit with Mellon Bank, by 
cashiers' check or wire transfer, at least $5,000. During the auction, 
bidders will be required to provide their bidder identification numbers 
when submitting bids. The highest bidder for each license will be asked 
to sign a bid confirmation form. The upfront money will later be 
counted toward the down payment for the license. During the period that 
upfront payment deposits are held pending ultimate award of the 
license, the interest that accrues will be retained by the Government.

Down Payments

    20. Winning bidders will be required to supplement their upfront 
payments to bring their total deposit with the Commission up to at 
least 20 percent of the final payment due for the license(s) won in 
that particular auction. If the upfront payment already tendered 
amounts to 20 percent or more of the winning bid, no additional deposit 
will be required. If the upfront payment on deposit is greater than 20 
percent of the winning bid amount after deducting any bid withdrawal 
and default penalties due, the additional monies will be refunded. If a 
bidder has withdrawn a bid or defaulted but the amount of the payment 
cannot yet be determined, the bidder will be required to make a deposit 
of 20 percent of the amount bid on such licenses. When it becomes 
possible to calculate and assess the payments, any excess deposit will 
be refunded. Upfront payments will be applied to such deposits, and to 
bid withdrawal and default assessments due, before being applied toward 
the bidder's down payment on licenses the bidder has won.
    21. The winning bidders will be required to submit the required 
down payment by cashier's check or wire transfer to Mellon bank by a 
date to be specified by Public Notice, generally within five business 
days following the close of bidding. The Commission will hold the down 
payment until the high bidder has been awarded the license and has paid 
the remaining balance due on the license.

Full Payment

    22. Long-form applications (FCC Form 600) will be due from 
successful Phase I bidders within ten (10) business days after they 
have been notified of their winning bidder status, including those 
applicants who have an FCC Form 401 currently on file who are required 
to refile on FCC Form 600. Thus, FCC Form 600 applications will be due 
from all successful Phase I bidders on the same date. If a filing fee 
is required, the general rules governing the submission of fees will 
apply except for applicants who currently have FCC Form 401 
applications on file. Once we have reviewed a long-form application and 
have made an initial determination that the applicant is qualified, we 
will release a Public Notice that the long-form applications have been 
accepted. This Public Notice will trigger the filing window for 
petitions to deny. After resolution of petitions to deny, the 
Commission will later release a Public Notice announcing that the 
Commission is prepared to award licenses. Applicants will be required 
to submit full payment for the license(s) within five days of the 
release of this Public Notice. If the Commission denies all

[[Page 58336]]

petitions to deny, and is otherwise satisfied that the applicant is 
qualified, the Commission will grant the license generally within ten 
(10) business days after receiving full payment.
    23. Phase I or Phase II applicants with long-form applications (FCC 
Form 401 or FCC Form 600) currently on file will be permitted to make 
both minor and major modifications to their FCC Form 600 applications, 
including ownership changes or changes in the identification of parties 
to bidding consortia on or before the date of the auction. Other 
applicants will not be permitted to make any major modifications to 
their applications, including ownership changes or changes in the 
identification of parties to bidding consortia. Prospective bidders in 
a Phase I auction should be aware that their single major modification 
application permits them to bid for a license to cover all unserved 
areas in that particular market. Phase II applicants are limited to 
bidding for the ability to serve only the areas described in the 
technical parameters shown in their FCC Form 600 application and do not 
hold any rights to any unserved area not covered in this application.

Bid Withdrawal, Default, and Disqualification

    24. Any bidder who withdraws a high bid during an auction before 
the Commission declares bidding closed, or defaults by failing to remit 
the required down payment within the prescribed time, would be required 
to reimburse the Commission in the amount of the difference between its 
high bid and the amount of the winning bid the next time the license is 
offered by the Commission, if the subsequent winning bid is lower. 
After bidding closes, we will apply Sec. 1.2104(g)(2) of the 
Commission's rules to assess a defaulting auction winner an additional 
payment of three percent of the subsequent winning bid or three percent 
of the amount of the defaulting bid, whichever is less. The additional 
three percent payment is designed to encourage bidders who wish to 
withdraw their bids to do so before bidding ceases. We will hold 
deposits made by defaulting or disqualified auction winners until full 
payment is made. Entities that obtain their licenses through the 
auction process will forfeit all monies paid to the Commission if their 
licenses are revoked or canceled.
    25. In the event an auction winner defaults or is otherwise 
disqualified after an auction is closed, the Commission must exercise 
our discretion to decide whether to hold a new auction or offer the 
license to the second highest bidder. In the unlikely event that there 
is more than one bid withdrawal on the same license, we will hold each 
withdrawing bidder responsible for the difference between its withdrawn 
bid and the amount of the winning bid the next time the license is 
offered by the Commission.

Transfer Disclosure Provisions

    26. We conclude that the transfer disclosure requirements of 
Sec. 1.2111(a) should apply to all cellular radiotelephone licenses for 
unserved areas obtained through the competitive bidding process. 
Licensees transferring their licenses within three years after the 
initial unserved area license grant will be required to file, together 
with their transfer applications, the associated contracts for sale, 
option agreements, management agreements, and all other documents 
disclosing the total consideration received in return for the transfer 
of their licenses.

Performance Requirements

    27. We will not adopt additional performance requirements for the 
cellular unserved area licenses beyond those already provided in the 
service rules for all auctionable services.

Rules Prohibiting Collusion

    28. We will subject cellular unserved area licensees to the rules 
prohibiting collusion embodied in Secs. 1.2107(d) and 1.2105(c) of the 
Commission's rules. Bidders will be required by Sec. 1.2105(a)(2) to 
identify on their short-form applications all parties with whom they 
have entered into any consortium arrangements, joint ventures, 
partnerships, or other agreements or understandings that relate to the 
competitive bidding process. Bidders will be required to certify that 
they have not entered and will not enter into any explicit or implicit 
agreements, arrangements or understandings with any parties, other than 
those identified, regarding the amount of their bid, bidding 
strategies, or the particular properties on which they will or will not 
bid. In light of our decision to apply Sec. 1.2105 to mutually 
exclusive cellular radiotelephone applicants for unserved areas, we are 
modifying Sec. 22.949(c) which currently provides that settlements 
among all applicants with mutually exclusive applications (full 
settlements) for unserved areas must be filed no later than fifteen 
(15) days before the competitive bidding procedure is scheduled to take 
place. To provide consistency with auction rules for other services, 
Sec. 22.949(c) will now reflect that full settlements must be filed no 
later than the deadline for the short-form application (FCC Form 175).
    29. Although applicants may not make major modifications to their 
short-form applications, a single member of a bidding consortium may 
withdraw from a consortium only in a particular RSA or MSA(s), but 
otherwise remain in the consortium for purposes of bidding on all other 
markets specified on the short-form application. However, such 
arrangements to assign the member's interests in particular licenses to 
other consortium members after the auction must be disclosed on an 
original or amended short-form application, and a request to transfer 
or assign the license also must be filed in conjunction with the long-
form application.
    30. Section 1.2107(d) provides that, as an exhibit to the long-form 
application, the applicant must provide a detailed explanation of the 
terms and conditions and parties involved in any bidding consortia, 
joint venture, partnership or other agreement or arrangement it had 
entered into relating to the competitive bidding process prior to the 
time the bidding was completed. The rule provides that such agreements 
must have been entered into prior to the filing of the short-form 
application. Section 1.2105(c), however, provides an exception to that 
prohibition for bidders who have not filed short-form applications for 
licenses in any of the same geographic license areas because of the low 
risk of anticompetitive conduct among those bidders. Those bidders may 
enter into such discussions, consortia, or arrangements, or add equity 
partners, during the course of an auction provided that such changes do 
not result in a change of control of the applicant. We will also permit 
communications among bidders concerning matters unrelated to the 
license auctions, except for communications resulting in a transfer of 
control of the applicant.

Designated Entities

    31. We believe it is unnecessary to create special provisions for 
designated entities in the auctions for cellular unserved area 
radiotelephone licenses. Unlike broadband PCS, which is a new service 
that attracts many entrepreneurs to the wireless telecommunications 
arena, unserved area licenses in the cellular radiotelephone service 
are highly specialized licenses that are valued mainly by a discrete 
group of entrepreneurs. In addition, because cellular unserved area 
radiotelephone service, characterized by small geographic areas that 
were not covered by the initial cellular licensee during the five-year 
build-out period, is not a capital-intensive service, we expect that 
designated entities who are interested in

[[Page 58337]]

participating in provision of the service will more easily access the 
capital needed to participate in the auction.

Procedural Matters

    32. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C. 
604, the Commission's final analysis for the Ninth Report and Order is 
as follows:
    33. Need for and purpose of the action. As a result of new 
statutory authority, the Commission may utilize competitive bidding 
mechanisms in the grant of certain initial licenses. The Commission 
published an Initial Regulatory Flexibility Analysis (IRFA) within the 
Notice of Proposed Rule Making, Implementation of Section 309(j) of the 
Communications Act--Competitive Bidding, PP Docket No. 93-253, 58 FR 
53489 (Oct. 15, 1993), 8 FCC Rcd 7635 (1993) (Auctions NPRM) and 
published a Final Regulatory Flexibility Analysis within the 
Competitive Bidding 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) (Competitive 
Bidding Second Report and Order). As noted in that previous final 
analysis, this proceeding will establish a system of competitive 
bidding for choosing among certain applications for initial licenses.
    34. Issues raised in response to the IRFA. The IRFA in PP Docket 
No. 93-253 noted that the proposals under consideration in the Auctions 
NPRM included the possibility of new reporting and recordkeeping 
requirements for a number of small business entities. No commenters 
responded specifically to the issues raised in the IRFA. We have made 
some modifications to the proposed requirements as appropriate.
    35. Significant alternatives considered and rejected. All 
significant alternatives have been addressed in the Competitive Bidding 
Second Report and Order.
    36. With respect to the Ninth Report and Order, a Final Regulatory 
Flexibility Analysis (FRFA), in compliance with 5 U.S.C. 801, is 
provided as follows:

Final Regulatory Flexibility Analysis

    37. As required by Section 603 of the Regulatory Flexibility Act, 5 
U.S.C. 603 (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Auctions NPRM. The Commission sought written public 
comments on the proposals in the Auctions NPRM including on the IRFA. 
The Commission's Final Regulatory Flexibility Analysis (FRFA) in this 
Order conforms to the RFA, as amended by the Contract with America 
Advancement Act of 1996 (CWAAA), Public Law 104-131, 110 Stat. 847 
(1996).
A. Need for and Objective of the Rules
    38. This Report and Order adopts final auction rules that will 
enable the Commission to complete the licensing of unserved areas in 
the cellular radiotelephonic service. Initial cellular operators were 
given a five-year period during which to expand their systems within 
Metropolitan Service Areas (MSAs) and Rural Statistical Areas (RSAs) in 
which they are licensees. The Commission adopted an application 
processing approach that has two phases for all cellular markets in 
which the five-year period has expired or will expire in the future. 
The Commission now adopts competitive bidding as the appropriate method 
to award licenses from among mutually exclusive applications for 
unserved areas filed after July 26, 1993, in light of the competitive 
bidding authority contained in the Omnibus Budget Reconciliation Act of 
1993. In adopting these rules for the provision of cellular service in 
unserved areas, the Commission's objectives are to: (1) foster the 
creation of a seamless and integrated nationwide cellular service, so 
that subscribers can receive high quality cellular service throughout 
the nation, and (2) make cellular service available to the public as 
expeditiously as possible.
B. Summary of Issues Raised by Public Comment on the Initial Regulatory 
Flexibility Analysis
    39. The Commission included an Initial Regulatory Flexibility 
Analysis (IRFA) within the Auctions NPRM and published a Final 
Regulatory Flexibility Analysis (FRFA) in the Competitive Bidding 
Second Report and Order, the initiating document for this item. There 
were no specific comments in response to the IRFA or the FRFA. With 
respect to comments received in response to the Auctions NPRM from the 
initiating proceeding, the majority of comments that related to 
cellular unserved areas focused on whether auctions should be used for 
pending applications or whether the Commission should use lotteries to 
award those licenses. This issue was resolved in the Competitive 
Bidding Second Report and Order in which the Commission determined that 
unless specifically excluded, licenses for the Public Mobile Radio 
Service, including unserved area licenses, should be awarded through 
competitive bidding. The Competitive Bidding Second Report and Order 
also prescribed general rules and procedures, including a broad menu of 
competitive bidding methods, to be used for all auctionable services.
C. Projected Reporting, Recordkeeping and Other Compliance Requirements 
of the Rules
    40. Authorizing use of simultaneous multiple round auctions.
    The Commission is adopting a rule which will permit cellular 
unserved areas to be auctioned using a simultaneous multiple round 
auction. This type of auction has the advantage of providing bidders 
full flexibility to bid for any license as more information becomes 
available during the course of the auction. A simultaneous multiple 
round auction will allow remote access to bidding software, auction 
information, bid submission and results. This will make it easier for 
small business operators to participate in an auction without leaving 
their places of business. Also, it will make information concerning the 
status of the auction easier to access, which will reduce the 
administrative burden on participants in the auction.

Short Form Applications Required

    41. Applicants for Phase I licenses were required to file an FCC 
Form 464 within 31 days after the expiration of the five-year build-out 
period of the authorized system(s) on the channel block requested in 
the market containing the unserved area. The adopted auction rules 
require all Phase I auction applicants to file a short-form application 
(FCC Form 175) prior to the filing deadline announced by Public Notice. 
The short-form applications require applicants to provide information 
required by Sec. 1.2105(a)(2) of the Commission's Rules. The short-form 
applications are used to determine if there is mutual exclusivity for a 
license.
    42. Also, potential bidders who currently have long-form 
applications (FCC Form 401 or FCC Form 600) on file for the cellular 
unserved area licenses will be required to submit a short-form 
application (FCC Form 175) by a date specified in the initial Public 
Notice to participate in the cellular unserved auction.
    43. The Commission does not believe requiring all applicants to 
file a short-form application is burdensome because the information 
requirement is not substantial. Submitting a short-form application may 
be beneficial by providing the applicants with the opportunity to file 
their short-forms electronically. Those applicants who file their 
applications electronically will have the option of bidding in the 
auction either electronically or

[[Page 58338]]

telephonically. The Commission is moving toward electronic filing of 
short-forms applications to streamline the administrative process for 
auction participants.

Upfront Payment

    44. The Commission is adopting a rule requiring each auction 
participant to make an upfront payment in the amount of $5,000 per 
license prior to the beginning of an auction. An upfront payment 
provides some degree of assurance that only serious, qualified bidders 
will participate in the auction and serves as a deterrent to the filing 
of speculative applications which would delay the provision of cellular 
service to the public. Upfront payments will be due by a date specified 
by Public Notice. The upfront money will later be counted toward the 
down payment for the license. Bidders who do not make the winning bid 
will be refunded their upfront payment minus any applicable bid 
withdrawal or default payments. The upfront payment procedures should 
keep the auction process simple and keep the costs down for 
entrepreneurs who wish to bid on only a few licenses.
D. Description and Estimate of Small Entities Subject to the Rules
    45. The Commission has not developed a definition of small entities 
applicable to cellular licensees. Therefore, the applicable definition 
of small entity is the definition under the Small Business 
Administration (SBA) rules applicable to radiotelephone companies. This 
definition provides that a small entity is a radiotelephone company 
employing fewer than 1,500 persons. Since the Regulatory Flexibility 
Act amendments were not enacted until after the record in this 
proceeding was closed, the Commission was unable to request information 
regarding the number of small cellular businesses and is unable at this 
time to determine the precise number of cellular firms which are small 
businesses.
    46. The size data provided by the SBA does not enable the 
Commission to make a meaningful estimate of the number of cellular 
providers which are small entities because it combines all 
radiotelephone companies with 500 or more employees. We therefore used 
the 1992 Census of Transportation, Communications, and Utilities, 
conducted by the Bureau of the Census, which is the most recent 
information available. This document shows that only 12 radiotelephone 
firms out of a total of 1,178 such firms which operated during 1992 had 
1,000 or more employees. Therefore, even if all 12 of these firms were 
cellular telephone companies, nearly all cellular carriers were small 
businesses under the SBA's definition. We assume, for purposes of our 
evaluations and conclusions in this FRFA, that all of the current 
cellular licensees are small entities, as that term is defined by the 
SBA. Although there are 1,758 cellular licenses, we do not know the 
exact number of cellular licensees, because a cellular licensee may own 
several licenses.
E. Steps Taken to Minimize the Burdens on Small Entities
    47. The rules adopted in the Ninth Report and Order are designed to 
minimize burdens on small businesses who may participate in the 
competitive bidding process. By adopting a simultaneous multiple round 
design for cellular unserved area auctions, but reserving discretion to 
use an alternative competitive bidding design, the Commission adds 
flexibility to its process for awarding licenses. The Commission 
intends to allow only remote bidding. Bidders will be able to submit 
bids from remote locations electronically using special bidding 
software, or via telephone. One advantage of simultaneous multiple 
round auctions is that they can make it possible for bidders to 
participate from their own places of business.
F. Significant Alternatives Considered and Rejected
    48. In 1994, the Commission established procedures to ensure that 
licenses awarded by auction were disseminated to a wide variety of 
applicants, including small businesses, but left the decision whether 
and how to use special provisions to the subsequent Reports and Orders 
designating specific competitive bidding rules for a particular 
service. For cellular unserved area radiotelephone licenses, the 
Commission considered and rejected creating special provisions for 
designated entities such as small businesses. The Commission believed 
that creating special provisions was unnecessary. Unlike licenses for 
new wireless telecommunications services such as PCS which attract 
numerous entrepreneurs and existing licensees from other services, 
cellular unserved area licenses are highly specialized licenses within 
limited geographic boundaries that are valued mainly by a discrete 
group of entities (most of whom are already providing cellular service 
in adjacent areas). In addition, the Commission anticipates that few 
markets will attract significant bids. Cellular unserved areas 
typically are small geographic areas, which most likely would entail 
smaller build-out costs as compared to other wireless 
telecommunications services. As a result, the Commission expects that 
small businesses who are interested in participating in provision of 
this service may more easily access the capital needed to participate 
in the auction.
G. Commission's Outreach Efforts to Learn of and Respond to the Views 
of Small Entities Pursuant to 5 U.S.C. 609
    49. Because the petitions and comments were filed in this 
proceeding prior to the enactment of the 1996 Regulatory Flexibility 
Act amendments, the Commission did not seek specific comments regarding 
small entities' views of these rules being adopted. In the overall 
proceeding in which this item was adopted, however, the Commission 
sought comment on how the Commission could achieve the objectives of 
the Omnibus Budget Reconciliation Act of 1993 related to designated 
entities such as small businesses.
H. Report to Congress
    50. The Commission shall send a copy of this Final Regulatory 
Flexibility Analysis, along with this Report and Order, in a report to 
Congress pursuant to the Small Business Regulatory Enforcement Fairness 
Act of 1996, 4 U.S.C. 801(a)(1)(A). A copy of this FRFA will also be 
published in the Federal Register.
    51. Accordingly, it is ordered that, pursuant to the authority of 
Sections 4(I), 303(r), 309(j), and 332 of the Communications Act of 
1934, as amended, 47 U.S.C. 154(I), 303(r), 309(j), and 332, this Ninth 
Report and Order is adopted and Part 22 of the Commission's Rules IS 
AMENDED as set forth below.
    52. It is further ordered that the rule amendments set forth below 
will become effective December 16, 1996.

List of Subjects in 47 CFR Part 22

    Communications common carriers, Reporting and recordkeeping 
requirements.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
Rule Changes
    Part 22 of title 47 of the Code of Federal Regulations is amended 
as follows:

PART 22--PUBLIC MOBILE SERVICES

    1. The authority citation for Part 22 is revised to read as 
follows:


[[Page 58339]]


    Authority: Sections 4, 303, 309 and 332, 48 Stat. 1066, 1082, as 
amended; 47 U.S.C. 154, 303, 309 and 332, unless otherwise noted.

    2. Section 22.943 is amended by adding paragraph (b)(3) to read as 
follows:


Sec. 22.943  Limitations on assignments and transfers of cellular 
authorizations.

* * * * *
    (b) * * *
    (3) An applicant seeking approval for a transfer of control or 
assignment (otherwise permitted under the Commission's Rules, 47 CFR 
chapter I) of a license within three years of receiving a new license 
through a competitive bidding procedure must, together with its 
application for transfer of control or assignment, file with the 
Commission a statement indicating that its license was obtained through 
competitive bidding. Such applicant must also file with the Commission 
the other documents and information set forth in Sec. 1.2111 of this 
chapter.
* * * * *
    3. Section 22.949 is amended by revising paragraph (c) to read as 
follows:


Sec. 22.949  Unserved area licensing process.

* * * * *
    (c) Settlements among some, but not all, applicants with mutually 
exclusive applications for unserved areas (partial settlements) are 
prohibited. Settlements among all applicants with mutually exclusive 
applications (full settlements) are allowed and must be filed no later 
than the date that the FCC Form 175 (short-form) is filed.
* * * * *
    4. New Secs. 22.960 through 22.967 are added to Part 22, Subpart H, 
to read as follows:


Sec. 22.960  Cellular unserved area radiotelephone licenses subject to 
competitive bidding.

    Mutually exclusive initial applications for cellular unserved area 
Phase I and Phase II licenses filed after July 26, 1993, are subject to 
competitive bidding procedures. The general competitive bidding 
procedures found in part 1, subpart Q, of this chapter will apply 
unless otherwise provided in this part.


Sec. 22.961  Competitive bidding design for cellular unserved area 
radiotelephone licensing.

    The Commission will employ a simultaneous multiple round auction 
design when choosing from among mutually exclusive initial applications 
to provide cellular unserved area radiotelephone service, unless 
otherwise specified by the Wireless Telecommunications Bureau before 
the auction.


Sec. 22.962  Competitive bidding mechanisms.

    (a) Grouping. All cellular unserved area Phase I and Phase II 
licenses will be auctioned simultaneously, unless the Wireless 
Telecommunications Bureau announces, by Public Notice prior to the 
auction, an alternative auction scheme.
    (b) Minimum bid increments. The Wireless Telecommunications Bureau 
will, by announcement before or during an auction, require minimum bid 
increments in dollar or percentage terms.
    (c) Stopping rules. The Wireless Telecommunications Bureau will 
establish stopping rules before or during multiple round auctions in 
order to terminate an auction within a reasonable time.
    (d) Activity rules. The Wireless Telecommunications Bureau will 
establish activity rules which require a minimum amount of bidding 
activity. In the event that the Wireless Telecommunications Bureau 
establishes an activity rule in connection with a simultaneous multiple 
round auction, each bidder will be entitled to request and will be 
automatically granted a certain number of waivers of such rule during 
the auction.


Sec. 22.963  Withdrawal, default and disqualification payments.

    (a) During the course of an auction conducted pursuant to 
Sec. 22.961, the Commission will impose payments on bidders who 
withdraw high bids during the course of an auction, who default on 
payments due after an auction closes, or who are disqualified.
    (b) Bid withdrawal prior to close of auction. A bidder who 
withdraws a high bid during the course of an auction will be subject to 
a payment equal to the difference between the amount bid and the amount 
of the winning bid the next time the license is offered by the 
Commission. No withdrawal payment would be assessed if the subsequent 
winning bid exceeds the withdrawn bid. This payment amount will be 
deducted from any upfront payments or down payments that the 
withdrawing bidder has deposited with the Commission.
    (c) Default or disqualification after close of auction. If a high 
bidder defaults or is disqualified after the close of such an auction, 
the defaulting bidder will be subject to the payment in paragraph (a) 
of this section plus an additional penalty equal to three (3) percent 
of the subsequent winning bid. If the subsequent winning bid exceeds 
the defaulting bidder's bid amount, the 3 percent payment will be 
calculated based on the defaulting bidder's bid amount. These amounts 
will be deducted from any upfront payments or down payments that the 
defaulting or disqualified bidder has deposited with the Commission.


Sec. 22.964  Bidding application (FCC Form 175).

    All applicants who wish to participate in competitive bidding for 
cellular unserved area radiotelephone licenses must submit applications 
on FCC Form 175 pursuant to Sec. 1.2105 of this chapter. The Wireless 
Telecommunications Bureau will issue a Public Notice announcing the 
availability of cellular unserved area Phase I and Phase II licenses 
and, in the event that mutually exclusive applications are filed, the 
date of the auction for those licenses. This Public Notice will specify 
the date on or before which applicants intending to participate in a 
cellular unserved area radiotelephone service auction must file their 
applications in order to be eligible for that auction, and it will 
contain information necessary for completion of the application as well 
as other important information such as the materials which must 
accompany the short form, any upfront payment that will need to be 
submitted, and the location where the application must be filed.


Sec. 22.965  Submission of upfront payments and down payments.

    (a) Each bidder in the cellular unserved radiotelephone service 
auction(s) will be required to pay the Commission, immediately prior to 
the auction, by cashier's check or by wire, at least $5,000 in order to 
get a bidder identification number. The upfront money will later be 
counted toward the full payment of the license.
    (b) Each winning bidder in the cellular unserved radiotelephone 
service auction(s) will be required to make a down payment to the 
Commission's lock-box bank in an amount sufficient to bring its total 
deposits up to 20 percent of its winning bid within five business days 
after the close of the auction, or by a date specified by Public 
Notice. The remainder of the full payment for the license shall be paid 
within 5 days following the release of a Public Notice that will 
indicate that the Commission is prepared to award the license(s). The 
Commission will grant the license generally within ten (10) business 
days after receiving full payment.


Sec. 22.966  Long-form applications.

    Each winning bidder will be required to submit a long-form 
application on

[[Page 58340]]

FCC Form 600 within ten (10) business days after being notified by 
Public Notice that it is the winning bidder. Applications on FCC Form 
600 shall be submitted pursuant to the procedures set forth in 
Sec. 1.2107 of this chapter and any associated Public Notices.


Sec. 22.967  License grant, denial, default, and disqualification.

    (a) Each winning bidder will be required to pay the balance of its 
winning bid in a lump sum payment within five (5) business days 
following Public Notice that the Commission is prepared to award the 
license. The Commission will grant the license generally within ten 
(10) business days after receipt of full and timely payment of the 
winning bid amount.
    (b) A bidder who withdraws its bid subsequent to the close of 
bidding, defaults on a payment due, or is disqualified, will be subject 
to the payments specified in Sec. 22.963 or Secs. 1.2104(g) and 1.2109 
of this chapter, as applicable.

[FR Doc. 96-29054 Filed 11-13-96; 8:45 am]
BILLING CODE 6712-01-P