[Federal Register Volume 61, Number 230 (Wednesday, November 27, 1996)]
[Rules and Regulations]
[Pages 60198-60205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30358]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 95

[PP Docket No. 93-253; FCC 96-447]


Interactive Video and Data Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This Tenth Report and Order modifies the competitive bidding 
rules for the upcoming auction of Interactive Video and Data Service 
(IVDS) licenses as proposed by the Sixth Memorandum Opinion and Order 
and Further Notice of Proposed Rule Making, In the Matter of 
Implementation of Section 309(j) of the Communications Act--Competitive 
Bidding. Specifically, the rule amendments include eliminating the 
bidding credits available to women- and minority-owned IVDS applicants 
and extending bidding credits to small businesses based upon a revised 
two-tiered small business definition, i.e., providing varying bidding 
credit amounts to small businesses of different sizes. The Tenth Report 
and Order also clarifies the attribution rules for affiliates of IVDS 
applicants, and amends the competitive bidding rules to increase the 
amount of the upfront payments required to participate in the IVDS 
auction. The intended effect of this action is to establish the 
competitive bidding rules for the upcoming auction of IVDS licenses.

EFFECTIVE DATE: December 27, 1996.

FOR FURTHER INFORMATION CONTACT: Howard Griboff or Christina Eads 
Clearwater, Wireless Telecommunications Bureau, (202) 418-0660.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Tenth 
Report and Order in PP Docket No. 93-253; FCC 96-447, adopted November 
15, 1996 and released November 21, 1996. The complete text of the Tenth 
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.
    Title: In the Matter of Implementation of Section 309(j) of the 
Communications Act--Competitive Bidding

Tenth Report and Order

I. Introduction and Executive Summary

    1. In this Tenth Report and Order, the Commission modifies its 
competitive bidding rules for the upcoming auction of Interactive Video 
and Data Service (IVDS) licenses.1 Specifically, the Commission 
amends certain provisions concerning the treatment of small businesses, 
businesses owned by members of minority groups and women, and rural 
telephone companies (collectively, ``designated entities''), in order 
to address the legal requirements of the Supreme Court's decisions in 
Adarand Constructors, Inc. v. Pena (Adarand) 2 and United States 
v. Virginia (VMI).3 The Commission also increases the upfront 
payment amounts for bidding on IVDS licenses in order to encourage 
sincere bidding. By implementing these modifications, the Commission 
reiterates that it is committed to fulfilling its statutory obligation 
to ensure that designated entities are afforded opportunities to 
participate in the provision of spectrum-based services.4
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    \1\ IVDS is a point-to-multipoint, multipoint-to-point, short 
distance communications service. IVDS licensees may provide 
information, products, or services to individual subscribers located 
within a service area and subscribers may provide responses. 47 CFR 
Section 95.803(a).
    \2\ ______ U.S. ______, 115 S. Ct. 2097, 132 L.Ed.2d 158 (1995).
    \3\ ______ U.S. ______, 116 S. Ct. 2264, 135 L.Ed.2d 735 (1996).
    \4\ 47 U.S.C. Section 309(j)(4)(D).
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    2. As it explained in the Sixth Memorandum Opinion and Order and 
Further Notice of Proposed Rule Making (FNPRM),5 the Commission 
was prompted to reexamine its race- and gender-based IVDS auction rules 
by the Supreme Court's decisions in Adarand and VMI. The Commission 
initially adopted these race- and gender-based rules in the Fourth 
Report and Order in this docket in order to fulfill its mandate under 
Section 309(j) of the Communications Act of 1934, as amended 
(``Communications Act''), to provide opportunities for businesses owned 
by members of minority groups and women to participate in the provision 
of spectrum-based services.6 After the Commission adopted these 
rules, however, the Supreme Court held in Adarand that any federal 
program that makes distinctions on the basis of race must satisfy the 
strict scrutiny standard of judicial review.7 More recently, the 
Supreme Court held in VMI that a state program that makes distinctions 
on the basis of gender must be supported by an ``exceedingly persuasive 
justification'' in order to withstand constitutional scrutiny.8 
Based on the analysis of VMI in conjunction with Adarand, the 
Commission concludes that any gender-based preference maintained in the 
IVDS auction rules must meet the VMI intermediate scrutiny standard of 
judicial review.
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    \5\ Implementation of Section 309(j) of the Communications Act--
Competitive Bidding, Sixth Memorandum Opinion and Order and Further 
Notice of Proposed Rule Making, PP Docket No. 93-253, FCC 96-330, 61 
FR 49103 (September 18, 1996). In response to the FNPRM, comments 
were filed by (1) ITV, Inc. and IVDS Affiliates, LLC (ITV/IALC); (2) 
Interactive America Corporation, Inc. (IAC); (3) Loli, Inc., Trans 
Pacific Interactive, Wireless Interactive Return Path, L.L.C., and 
IVDS On-Line Partnership (collectively, ``IVDS Licensees''); and (4) 
Progressive Communications, Inc. (Progressive). Reply comments were 
filed by IAC.
    \6\ Implementation of Section 309(j) of the Communications Act--
Competitive Bidding, Fourth Report and Order, PP Docket No. 93-253, 
59 FR 24947 (May 13, 1994), 9 FCC Rcd 2330, 2336-40 (1994) (Fourth 
Report and Order).
    \7\ Adarand, 115 S. Ct. at 2113. Adarand explicitly overruled 
the intermediate scrutiny standard for racial classifications set by 
the Supreme Court in Metro Broadcasting, Inc. v. FCC, 497 U.S. 547, 
564-65 (1990), which was the standard of review at the time the IVDS 
rules were adopted. See Fourth Report and Order, 9 FCC Rcd at 2338 
n.73.
    \8\ VMI, 116 S. Ct. at 2274-76.
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    3. Based upon review of the comments submitted in response to the 
FNPRM, the Commission also concludes that the present record is 
insufficient to support either the race-based IVDS auction rules under 
the strict scrutiny standard or the gender-based rules under the 
``exceedingly persuasive justification'' standard of intermediate 
scrutiny. The Commission has considered the need to award the remaining 
IVDS licenses expeditiously and to promote the rapid deployment of new 
services to the public without judicial delays,9 as well as the 
statutory objective of disseminating licenses among a wide variety of 
applicants, including designated entities.10 Bearing these factors 
in mind, the Commission concluded that in order to avoid uncertainty 
and delay that would likely result from legal challenges to the special 
provisions for minority- and women-owned businesses in its current

[[Page 60199]]

IVDS rules, it is appropriate to make the IVDS rules race- and gender-
neutral.11 The Commission believes that its action here is 
consistent with its obligations under Section 309(j)(3).12
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    \9\ 47 U.S.C. Section 309(j)(3)(A).
    \10\ Id. Section 309(j)(3)(B).
    \11\ See Amendment of Parts 20 and 24 of the Commission's Rules, 
Report and Order, WT Docket No. 96-59, 61 FR 51233 (October 1, 
1996), 11 FCC Rcd 7824 (1996) (DEF Report and Order), which modified 
the designated entity provisions of the broadband Personal 
Communications Services (PCS) F block rules to make them race- and 
gender-neutral; Implementation of Section 309(j) of the 
Communications Act--Competitive Bidding, Sixth Report and Order, PP 
Docket No. 93-253, 60 FR 37786 (July 21, 1995), 11 FCC Rcd 136 
(1995), aff'd sub nom. Omnipoint Corp. v. FCC, 78 F.3d 620 (D.C. 
Cir. 1996), which modified the designated entity provisions of the 
broadband PCS C block rules to make them race- and gender-neutral.
    \12\ 47 U.S.C. Section 309(j)(3).
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    4. As explained in the FNPRM, the Commission's experience in 
conducting the initial IVDS auction also led it to examine other 
aspects of its rules, and the Commission has determined that it should 
take certain steps to minimize the possibility of insincere bidding and 
bidder default. To achieve these goals, the Commission amends its rules 
to raise the initial upfront payment for participation in the IVDS 
auction to $9,000 per Metropolitan Statistical Area (MSA) license and 
$2,500 per license for Rural Service Area (RSA) markets, for the 
maximum number of licenses on which the applicant wishes to bid.
    5. Finally, a number of the comments addressed other issues which 
are not within the scope of this proceeding. The Commission defers 
decisions on those matters until they can be addressed in the 
appropriate context.

II. Rules Affecting Designated Entities

A. Meeting the Constitutional Standards

    6. Background. In the FNPRM, the Commission explained the history 
of its race-and gender-based IVDS rules, the statutory objectives they 
were designed to promote, and the impact of the Supreme Court's 
decisions in Adarand and VMI. As discussed, an intermediate scrutiny 
standard of review was applied to federal race- and gender-based 
programs at the time the IVDS rules were adopted.
    7. In Adarand, the Supreme Court held that all racial 
classifications, whether imposed at the federal, state or local 
government level, must be analyzed by a reviewing court under a strict 
scrutiny standard of review. This standard requires such 
classifications to be narrowly tailored to further a compelling 
governmental interest.13 In VMI, the Supreme Court reviewed a 
state program containing gender classification and held it was 
unconstitutional under an intermediate scrutiny standard of review. 
This standard requires that ``[p]arties who seek to defend gender-based 
government action must demonstrate an `exceedingly persuasive 
justification' for that action.'' 14 Under this test, the 
government 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.' '' 15 While the Supreme Court has not directly 
addressed constitutional challenges to federal gender-based programs 
since Adarand and VMI,16 a review of the relevant broad language 
in VMI indicates that the Court does not differentiate between federal 
and state official actions in its equal protection analysis.17 
Similarly, the Adarand decision definitively eliminated any distinction 
between federal and state race-based programs in setting its strict 
scrutiny standard of judicial review.18 Therefore, the Commission 
concludes that any gender-based preference maintained in the IVDS 
auction rules would need to meet the VMI intermediate scrutiny standard 
of review.
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    \13\ Adarand, 115 S. Ct. at 2113.
    \14\ VMI, 116 S. Ct. at 2274 (citing J.E.B. v. Alabama ex rel. 
T. B., 511 U.S. 127, 136-37 & n.6 (1994) and Mississippi Univ. for 
Women v. Hogan, 458 U.S. 718, 724 (1982)).
    \15\ Id. at 2275 (quoting Mississippi Univ. for Women, 458 U.S. 
at 724 (quoting Wengler v. Druggists Mutual Ins. Co., 446 U.S. 142, 
150 (1980))).
    \16\ But see Lamprecht v. FCC, 958 F.2d 382, 391, 393 n.3 (D.C. 
Cir. 1992), a pre-Adarand/VMI decision in which Justice Thomas (a 
member of the D.C. Circuit panel to which the case was presented) 
invokes the ``exceedingly persuasive justification'' standard in 
striking down a federal gender-preference policy. As the dissent in 
Lamprecht confirmed, Justice Thomas applied ``the more exacting 
scrutiny of Justice O'Connor's dissent [in Metro, 497 U.S. at 602-
31],'' id. at 404 (Mikva, C.J., dissenting), which formed the core 
of Justice O'Connor's majority opinion in Adarand.
    \17\ ``Since [Reed v. Reed, 404 U.S. 71 (1971)], the Court has 
repeatedly recognized that neither federal nor state government acts 
compatibly with the equal protection principle when a law or 
official policy denies * * * equal opportunity * * *.'' VMI, 116 S. 
Ct. at 2275 (emphasis added); ``To summarize the Court's current 
directions for cases of official classification based on gender: * * 
* the reviewing court must determine whether the proffered 
justification is `exceedingly persuasive.' '' Id. (emphasis added). 
See also Heckler v. Mathews, 465 U.S. 728, 744-45 (1984) (reviewing 
a federal statute containing gender classification under the same 
standard the Court used to review the state statute in Mississippi 
Univ. for Women); Califano v. Westcott, 443 U.S. 76, 85 (1979) 
(same).
    \18\ Adarand, 115 S. Ct. at 2113.
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    8. In the FNPRM, the Commission noted that judicial precedent 
indicates that only a record of discrimination against a particular 
racial group would support remedial measures designed to benefit that 
group and that generalized assertions of discriminations are 
inadequate.19 The Commission tentatively concluded that, although 
it has some general evidence of discrimination against certain racial 
groups, the evidence in the record to date does not appear adequate to 
satisfy the strict scrutiny standard of review. The Commission 
requested comment on this tentative conclusion. The Commission also 
requested comment on a number of questions related to this analysis, 
including whether compensating for discrimination in lending practices 
in the communications industry constitutes a compelling government 
interest. The Commission also asked interested parties to comment on 
other objectives that could be furthered by the minority-based 
provisions 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. The 
Commission asked commenters to submit statistical data, personal 
accounts, studies, or any other data relevant to the entry of specific 
racial groups into the field of telecommunications, and whether its 
race-based provisions are narrowly tailored to serve the interests that 
commenters assert to be compelling governmental interests. In the 
FNPRM, the Commission also tentatively concluded that the present 
record in support of its gender-based IVDS rules may be insufficient to 
satisfy the intermediate scrutiny standard and asked commenters to 
submit evidence relating to the entry of women into the field of 
telecommunications. The Commission asked interested parties to comment 
on whether there are any other goals that would satisfy the ``important 
government objective'' requirement of the intermediate scrutiny 
standard, such as increased participation of women in the FCC-licensing 
process for auction spectrum, and whether its gender-based IVDS rules 
are ``substantially related'' to the achievement of such objectives.
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    \19\ FNPRM (citing Richmond v. J.A. Croson Co., 488 U.S. 469, 
498 (1989) (quoting Wygant v. Jackson Bd. of Educ., 476 U.S. 267, 
275 (1986))).
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    9. In the FNPRM, the Commission also tentatively concluded that it 
should not delay the IVDS auction for the amount of time it would take 
to adduce sufficient evidence to support the race- and gender-based 
IVDS provisions. The Commission also concluded that proceeding with the 
IVDS auction with these rules intact would not serve the public 
interest because it might result in litigation that ultimately would 
further

[[Page 60200]]

delay the award of the IVDS licenses and postpone the introduction of 
new competition to the marketplace.20 The Commission tentatively 
concluded that in order to meet its Congressional mandate and 
expeditiously proceed to auction the remaining IVDS licenses, it should 
adopt race- and gender-neutral IVDS auction 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.
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    \20\ Id. The Commission observes that the D.C. Circuit Court of 
Appeals stayed the C block auction under an intermediate scrutiny 
standard on the basis of race- and gender-based provisions similar 
to those adopted in the IVDS rules. Telephone Electronics Corp. v. 
FCC, No. 95-1015 (D.C. Cir. Mar. 15, 1995) (order granting stay).
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    10. Discussion. Upon review of the record before it, the Commission 
revises the IVDS rules to make them race- and gender-neutral, 
particularly since most of the commenters support this action.21 
The other commenters failed to provide any specific anecdotal or 
statistical evidence to supplement the record supporting race-based or 
gender-based IVDS auction rules. IAC takes the position that, because 
there is a lack of available equipment for constructing IVDS systems, 
the Commission is moving too quickly in eliminating minority- and 
gender-based preferences.22 IAC proposes that the Commission allow 
parties additional time to establish a full record upon which to decide 
whether the race- and gender-based preferences should be 
eliminated.23 However, IAC does not present any support for the 
proposition that a record could be developed in this proceeding if more 
time was available, nor do any of the other commenters. Accordingly, 
the Commission concludes that making the IVDS auction rules race- and 
gender-neutral will serve the public interest by enabling it to 
expeditiously auction the remaining IVDS licenses. Other commenters 
also requested that the Commission delay the IVDS auction, but not for 
the purpose of establishing a record to support race- and gender-based 
rules.24 The Commission denies these requests to delay the 
auction, and notes that applicants should factor the obligations and 
uncertainties attendant to the auction process into their decision to 
participate and the amount to bid.25
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    \21\ See, e.g., Progressive Comments at 1; ITV/IALC Comments at 
4.
    \22\ IAC Comments at 5-7.
    \23\ Id.; IAC Reply Comments at 1-2.
    \24\ IVDS Licensees request that the Commission delay the 
auction until certain technical, regulatory, and administrative 
issues are resolved. IVDS Licensees Comments at 4-6. ITV/IALC 
request that the auction not be held until resolution of all auction 
default issues and action has been taken on the petitions for 
reconsideration of the Commission's decision in Amendment of Part 95 
of the Commission's Rules to Allow Interactive Video and Data 
Service Licensees to Provide Mobile Service to Subscribers, Report 
and Order, WT Docket No. 95-47, 61 FR 32710-01 (June 25, 1996), 11 
FCC Rcd 6610 (1996). ITV/IALC Comments at 7-9. See also IAC Reply 
Comments at 4-5 (agreeing with IVDS Licensees and ITV/IALC on these 
points).
    \25\ See Requests for Waivers in the First Auction of 
Interactive Video and Data Service (IVDS) Licenses, Memorandum 
Opinion and Order, 11 FCC Rcd 8211, 8213 (1996).
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    11. While the Commission eliminates the race- and gender-based 
provisions of the IVDS auction rules, it will retain provisions for 
small businesses, as agreed to by all commenters.26 The Commission 
concludes that nothing in the Adarand or VMI decisions calls its small 
business provisions into question. Moreover, by retaining small 
business preferences, the Commission believes it will continue to 
fulfill the mandate under Section 309(j) to provide increased 
opportunities for minority- and women-owned businesses,27 because 
many minority- and women-owned entities are small businesses who 
therefore will qualify for the same special provisions that would have 
applied to them under the previous rules.28
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    \26\ IVDS Licensees Comments at 2 (in light of the elimination 
of race- and gender-based provisions, the small business preferences 
provide ``one of the few avenues remaining for minority- and women-
owned businesses to enter the communications industry''); IAC 
Comments at 8 (preferences for small businesses should be retained 
to fulfill the Commission's statutory obligations under Section 
309(j)); ITV/IALC Comments at 4 (preferences should be based on a 
party's lack of economic strength); Progressive Comments at 1 (small 
business provisions will give ``equal status to all small business 
enterprises'').
    \27\ 47 U.S.C. Section 309(j)(3).
    \28\ See generally 1992 Survey of Minority-Owned Business 
Enterprises, Agriculture and Financial Statistics Division, Bureau 
of the Census, U.S. Department of Commerce (December 11, 1995); 1992 
Survey of Women-Owned Businesses, Agriculture and Financial 
Statistics Division, Bureau of the Census, U.S. Department of 
Commerce (January 29, 1996).
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    12. The Commission also has initiated a comprehensive rule making 
proceeding to gather evidence regarding market barriers to entry faced 
by minority- and women-owned firms as well as small businesses.29 
If a sufficient record is adduced that will support race- and gender-
based provisions that will satisfy judicial scrutiny, it will consider 
race- and gender-based provisions for future auctions. Toward this end, 
the Commission will continue to request bidder information on the IVDS 
short-form filings as to minority and/or women-owned status. In 
analyzing the applicant pool and the auction results, the Commission 
will monitor whether it has accomplished substantial participation by 
minorities and women through the broad provisions available to small 
businesses. This will also assist the Commission in preparing its 
report to Congress on the success of designated entities in 
auctions.30
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    \29\ 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), 11 FCC Rcd 6280 
(1996)(Section 257 Notice of Inquiry). See also 47 U.S.C. Section 
257.
    \30\ See 47 U.S.C. Section 309(j)(12)(D).
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B. Special Provisions for Designated Entities

1. Small Business Definition
    13. Background. In the current IVDS rules, the Commission adopted a 
definition of ``small business,'' that requires an entity to 
demonstrate that, together with its affiliates, its net worth is not 
more than $6 million, and its annual profits are not more than $2 
million for the previous two years. In the FNPRM, the Commission stated 
its belief that the gross revenues of the applicant and its affiliates 
is a more accurate indicator of its size than is its net worth or 
annual profits, and the Commission proposed to revise the IVDS 
definition of small business to match the three-year gross revenues 
test that it has used to define ``small business'' for other 
auctions.31 The Commission further stated that, because it expects 
that the capital requirements for IVDS will be relatively low (as 
compared to, for example, broadband PCS), IVDS may attract greater 
participation by smaller businesses who lack access to capital. The 
potential in IVDS for greater participation by smaller businesses also 
justifies special provisions based on the size of the bidding entity, 
such as a tiered bidding credits. Therefore, the Commission proposed to 
redefine a ``small business'' as an entity with average gross revenues 
not to exceed $15 million for each of the preceding three years. The 
Commission also proposed to add a second tier of small businesses, 
referred to as ``very small businesses,'' and defined as entities with 
average gross revenues of not more than $3 million for each of the 
preceding three years. The Commission requested comment on these 
revised definitions. It also requested comment on whether to implement 
a five percent

[[Page 60201]]

attribution threshold for purposes of determining an entity's 
eligibility as a small business. Alternatively, the Commission sought 
comment on whether it should only count the gross revenues of the 
controlling principals in the applicant and its affiliates for purposes 
of determining small business status. Finally, the Commission sought 
comment on its tentative conclusion to use a multiplier similar to the 
one adopted in the CMRS Third Report and Order for the spectrum 
aggregation cap to determine attribution when IVDS licensees are held 
indirectly through intervening corporate entities.32
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    \31\ FNPRM (citing 47 CFR Sections 24.320, 24.720, 90.912(b), 
90.814(b)(1)). See also 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, 60 FR 48913 (September 
21, 1996), 11 FCC Rcd 2639, 2700-01 & n.320 (1995) (900 SMR Auction 
Report and Order).
    \32\ Id. (citing Implementation of Sections 3(n) and 332 of the 
Communications Act--Regulatory Treatment of Mobile Services, Third 
Report and Order, GN Docket No. 93-252, PR Docket No. 93-144, PR 
Docket No. 89-553, 59 FR 59945 (November 21, 1996), 9 FCC Rcd 7988, 
8114-15 (1994) (CMRS Third Report and Order)).
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    14. Discussion. Based upon its experience with spectrum auctions, 
the Commission believes that gross revenues-based definitions are a 
more accurate indicator of an entity's size than the net worth/annual 
profit definition which was previously used. Therefore, the Commission 
will redefine a ``small business'' as an entity with average gross 
revenues not exceeding $15 million for each of the preceding three 
years, and a ``very small business'' as an entity with average gross 
revenues not exceeding $3 million for each of the preceding three 
years. IVDS Licensees and ITV/IALC support small business definitions 
based upon gross revenues,33 and only Progressive takes the 
position that the Commission should retain the previous small business 
definition.34 The Commission further notes that the creation of a 
subcategory of very small businesses enables it to tailor benefits to 
better meet the needs of the smaller business entities likely to 
participate in the IVDS auction. As discussed below, the Commission 
finds that its goals can best be served by offering varying bidding 
credits tailored to the applicant's size. The Commission also believes 
that the $15 million/$3 million gross revenue financial thresholds are 
appropriate and are consistent with the carefully-analyzed approach it 
took in the auction of 900 MHz Specialized Mobile Radio (SMR) 
licenses.35 Indeed, in this auction, the Commission expects 
participation by a comparable group of smaller businesses that 
participated in the 900 MHz SMR auction. Because the Commission 
believes these are appropriate thresholds, it declines to adopt the 
higher thresholds proposed by ITV/IALC.36
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    \33\ See, e.g., IVDS Licensees Comments at 1-2; ITV/IALC 
Comments at 4-5.
    \34\ Progressive Comments at 1 (contending that differing 
categories of small businesses will create problems for the 
Commission in the future).
    \35\ 900 SMR Auction Report and Order, 11 FCC Rcd at 2700.
    \36\ ITV/IALC Comments at 4-5 (proposing small business average 
gross revenues eligibility threshold of $18 million and very small 
business average gross revenues eligibility threshold of $5 million 
because IVDS licensees will more likely be financing their systems 
from equity sources rather than debt).
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    15. In determining whether an entity qualifies as a small business 
at either threshold, the Commission will consider the gross revenues of 
the small business applicant, its affiliates, and certain investors in 
the applicant. Specifically, the Commission will attribute the gross 
revenues of all controlling principals in the small business applicant 
as well as the gross revenues of affiliates of the applicant.37 At 
ITV/IALC's request,38 the Commission clarifies that personal net 
worth is not included in the determination of eligibility for bidding 
as a small business.39 In addition, the Commission will use the 
multiplier adopted in the CMRS Third Report and Order for the spectrum 
aggregation cap to determine when IVDS licensees are indirectly held 
through intervening corporate entities.40 The Commission thus 
chooses not to impose specific equity requirements on the controlling 
principals that meet the small business definition.41 However, the 
Commission will still require that, in order for an applicant to 
qualify as a small business, qualifying small business principals must 
maintain ``control'' of the applicant. The term ``control'' would 
include both de jure and de facto control of the applicant.42 
While the Commission is not imposing specific equity requirements on 
the small business principals, the absence of significant equity could 
raise questions about whether the applicant qualifies as a bona fide 
small business.
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    \37\ Both commenters addressing this issue supported the use of 
gross revenues of controlling principals as the determinant of small 
business status. See IVDS Licensees Comments at 2; ITV/IALC Comments 
at 5 n.5.
    \38\ ITV/IALC Comments at 5 n.5.
    \39\ See, e.g., Implementation of Section 309(j) of the 
Communications Act--Competitive Bidding, Fifth Memorandum Opinion 
and Order, PP Docket No. 93-253, 59 FR 63210 (December 7, 1994), 10 
FCC Rcd 403, 421 (1994) (Competitive Bidding Fifth Memorandum 
Opinion and Order).
    \40\ CMRS Third Report and Order, 9 FCC Rcd 7988, 8114-15. IVDS 
Licensees supports this proposal. IVDS Licensees Comments at 2.
    \41\ IVDS Licensees alternatively proposes a twenty-five percent 
equity exception similar to that adopted in the Commission's 
broadband PCS rules. 47 CFR Section 24.709(b)(3). IVDS Licensees 
Comments at 2.
    \42\ Typically, de jure control is evidenced by ownership of 
50.1 percent of an entity's voting stock. De facto control is 
determined on a case-by-case basis. An entity must demonstrate at 
least the following indicia of control to establish that it retains 
de facto control of the applicant: (1) the entity constitutes or 
appoints more than 50 percent of the board of directors or 
partnership management committee; (2) the entity has authority to 
appoint, promote, demote and fire senior executives that control the 
day-to-day activities of the licensees; and (3) the entity plays an 
integral role in all major management decisions. See Competitive 
Bidding Fifth Memorandum Opinion and Order, 10 FCC Rcd at 447.
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    16. On a related matter, ITV/IALC seeks clarification in its 
comments that once an entity qualifies as a small business, it would 
not lose its status through financial growth in subsequent 
years,43 and thereby lose its ability to make installment payments 
as a small business under 47 CFR Section 95.816(d)(2). The Commission 
addressed this concern in its broadband PCS rules. There it emphasized 
its strong interest in seeing small businesses grow and succeed in the 
wireless marketplace and stated that growth of the licensee's gross 
revenues and assets, or growth as a result of a licensee acquiring 
additional licenses, generally would not jeopardize continued 
eligibility for designated entity preferences.44 The Commission 
believes this policy equally should apply to IVDS licensees and, 
therefore, incorporates this concept into its IVDS rules.45
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    \43\ ITV/IALC Comments at 5 n.4.
    \44\ Competitive Bidding Fifth Memorandum Opinion and Order, 10 
FCC Rcd at 420. See also 47 CFR Section 24.711(c)(2) (``A licensee 
(or other attributable entity's) increased gross revenues or 
increased total assets due to nonattributable equity investments * * 
*, debt financing, revenue from operations or other investments , 
business development or expanded service shall not be considered to 
result in the licensee losing eligibility for installment 
payments.'').
    \45\ 47 CFR Section 95.816(e)(2) (as revised).
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2. Bidding Credits
    17. Background. Under the current IVDS rules, businesses owned by 
members of minority groups or women are granted a 25 percent bidding 
credit. In the FNPRM, the Commission proposed to eliminate race-and 
gender-based bidding credits in its IVDS rules and sought comment on 
whether it should extend a single bidding credit to all small 
businesses and, if so, the magnitude of that credit. The Commission 
asked whether it should offer tiered bidding credits for small 
businesses of different sizes, e.g., a 15 percent bidding credit for 
very small businesses and a 10 percent bidding credit for small 
businesses. The Commission tentatively concluded that given the 
relatively low bids that IVDS garnered in the July 1994 auction, IVDS 
may attract smaller businesses, thus justifying tiered bidding credits.

[[Page 60202]]

    18. Discussion. The Commission will maintain bidding credits for 
small businesses and will adopt a tiered bidding credit approach, as 
supported by several commenters.46 The Commission agrees with IVDS 
Licensees that preservation of the bidding credit is consistent with 
its obligations under Section 309(j) to ``promote economic opportunity 
for a wide variety of applicants, including small businesses and 
businesses owned by minorities and women.'' 47 Furthermore, the 
Commission believes that a tiered approach, which enhances the 
discounting effect of bidding credits because not all entities receive 
the same benefit, will encourage smaller businesses to participate in 
the provision of IVDS services.48 The Commission also believes 
that the 15 percent bidding credit for very small businesses and a 10 
percent bidding credit for small businesses are appropriate and 
consistent with the thresholds used in the 900 MHz SMR auctions.49 
As noted above, the Commission expects auction participation by a group 
of smaller businesses comparable to those that participated in the 900 
MHz SMR auction. Moreover, the Commission does not believe a greater 
bidding credit is justified here as it was for certain highly capital 
intensive services, like broadband PCS. Therefore, the Commission 
declines to adopt the higher bidding credits proposed by IVDS Licensees 
and ITV/IALC.50 The two tiered approach and the magnitude of the 
bidding credits the Commission adopts here are reasonable and equitable 
and meet the concerns of the commenters. These credits are narrowly 
tailored to the varying abilities of businesses to access capital and 
also take into account that different small businesses will pursue 
different strategies.
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    \46\ See IVDS Licensees Comments at 2-3; ITV/IALC Comments at 6.
    \47\ See IVDS Licensees Comments at 3 (quoting 47 U.S.C. Section 
309(j)(4)(C)(ii)).
    \48\ See id. (quoting DEF Report and Order, 11 FCC Rcd at 7849).
    \49\ 900 SMR Auction Report and Order, 11 FCC Rcd at 2700.
    \50\ IVDS Licensees Comments at 3; ITV/IALC Comments at 6 
(suggesting a 25 percent bidding credit for very small businesses 
and a 15 percent credit for small businesses).
---------------------------------------------------------------------------

III. Upfront Payments

    19. Background. The Commission recognized in the FNPRM that in 
order to deter insincere, speculative bidding and guard against the 
substantial number of defaults that occurred after the July 1994 
auction, it needs to obtain a higher upfront payment from IVDS bidders 
than the upfront payment currently required by the rules (i.e., $2,500 
for every five licenses a bidder desires to win). In response to 
several ex parte filings from IVDS bidders supporting increased upfront 
payments, the Commission proposed to increase the initial upfront 
payment to $9,000 per MSA license and $2,500 per RSA license, for the 
maximum number of licenses on which the applicant wishes to bid.
    20. Discussion. Based upon the record regarding IVDS upfront 
payment amounts,51 the Commission adopts the proposed upfront 
payment amounts and will amend Section 95.816(c)(3) of the Commission's 
Rules. Specifically, the Commission raises the initial upfront payments 
for participation in the IVDS auction to $9,000 per MSA license and 
$2,500 per RSA license, for the maximum number of licenses on which an 
entity wishes to bid. The Commission believes that this action is 
consistent with the underlying purpose for upfront payments--to deter 
insincere and speculative bidding and to ensure that bidders have the 
financial capability to build out their systems.52 The Commission 
also believes that the revised upfront payments will continue to 
attract as many qualified bidders, while providing an adequate 
deterrent against frivolous bidding. Thus, the Commission declines to 
adjust the upfront payment amounts as proposed by ITV/IALC.53
---------------------------------------------------------------------------

    \51\ IVDS Licensees Comments at 3; IAC Comments at 9; ITV/IALC 
Comments at 6-7; FNPRM at n.140 (list of ex parte filings supporting 
increased upfront payments).
    \52\ See, e.g., DEF Report and Order, 11 FCC Rcd at 7860.
    \53\ ITV/IALC Comments at 6-7 (proposing that the MSA payment be 
an even multiple of the RSA payment, e.g., per-market payments of 
$7,500.00 for MSA's and $2,500.00 for RSA's, to reduce computational 
complexity in figuring bidding eligibility as the auction proceeds 
and to avoid ``stranding'' MSA upfront payments with no ability to 
apply the entire amount to an RSA license).
---------------------------------------------------------------------------

IV. Other Issues

    21. Several commenters raise issues beyond the scope of the FNPRM. 
For example, Progressive and IAC request that the Commission revise the 
length of the IVDS license terms from 5 to 10 years.54 This 
proposal requires formal rule making procedures and is beyond the scope 
of this proceeding. Similarly, ITV/IALC seeks an exception to the 
cross-ownership rule.55 Again, this type of relief falls outside 
the scope of this proceeding. Finally, a number of policy questions 
were raised in the comments regarding default issues.56 The 
Commission notes that it will be addressing default issues in a future 
proceeding regarding the general competitive bidding rules.
---------------------------------------------------------------------------

    \54\ Progressive Comments at 1; IAC Reply Comments at 4.
    \55\ ITV/IALC Comments at 3-5.
    \56\ IAC Comments at 7-8 (request not to reauction defaulted 
licenses before the defaulting party's administrative and judicial 
remedies are exhausted); id. at 9 (request the Commission clarify 
how it evaluates requests for waiver of payment deadlines and other 
IVDS auction-related rules); ITV/IALC Comments at 2 (request that 
defaulting parties should not be eligible for future IVDS auctions); 
IAC Reply Comments at 2-4 (opposition to ITV/IALC's request).
---------------------------------------------------------------------------

V. Procedural Matters and Ordering Clauses

    22. As required by the Regulatory Flexibility Act of 1980 (RFA), 5 
U.S.C. Section 603, an Initial Regulatory Flexibility Analysis (IRFA) 
was incorporated in the FNPRM. The Commission sought written public 
comments on the expected impact of the rule changes proposed in the 
FNPRM on small entities, including on the IRFA. The Commission's Final 
Regulatory Flexibility Analysis (FRFA) in this Tenth Report and Order 
conforms to the RFA, 5 U.S.C. Section 604, as amended by the Contract 
with America Advancement Act of 1996 (CWAAA), Public Law No. 104-121, 
110 Stat. 847 (1996).57
---------------------------------------------------------------------------

    \57\ Subtitle II of the CWAAA is ``The Small Business Regulatory 
Enforcement Fairness Act of 1996'' (SBREFA), codified at 5 U.S.C. 
Section 601, et seq.
---------------------------------------------------------------------------

A. Need for and Objective of the Rules

    23. This Tenth Report and Order adopts rule changes regarding the 
Commission's auction of IVDS licenses. The rule changes are appropriate 
because laws have changed since the rules were originally adopted. The 
Supreme Court's decisions in Adarand 58 and VMI 59 raised 
questions about the level of legal scrutiny that must be met by some of 
the designated entity provisions in the Commission's rules which take 
race and gender into account. The objective of the rule changes in the 
Tenth Report and Order primarily is to ensure that the competitive 
bidding rules comply with the appropriate legal standards by making the 
rules race- and gender-neutral, while at the same time instituting 
further rule changes that continue to promote participation of small 
businesses in auctions for licenses to provide spectrum services. 
Further, a secondary objective of some of the rule changes, such as the 
small business definition, availability of bidding credits, and 
increased upfront payments, is to apply the benefit of the

[[Page 60203]]

Commission's experience from the first IVDS auction to subsequent IVDS 
auctions, and to increase the flexibility and opportunities available 
to small businesses to participate in the provision of the services.
---------------------------------------------------------------------------

    \58\ 115 S. Ct. 2097.
    \59\ 116 S. Ct. 2264.
---------------------------------------------------------------------------

B. Summary of Issues Raised by Public Comment on the Initial Regulatory 
Flexibility Analysis

    24. There were no petitions or comments which solely discussed or 
addressed the IRFA. However, a number of commenters raised and 
discussed issues effecting small businesses in their comments on the 
Tenth Report and Order. Those comments are addressed and discussed, 
where applicable, in the detailed sections below.

C. Projected Reporting, Recordkeeping and Other Compliance Requirements 
of the Rules

    25. The 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 (or very small businesses), 
just as was required by the prior rules. The changed rules will include 
more businesses in the category of small businesses, which will be 
eligible for designated entity preferences such as bidding credits and 
installment payment plans. Any small business applicant wishing to 
avail itself of those provisions will need to make the general 
financial disclosures, as well as applicant and affiliate disclosures, 
necessary to establish that the small business is in fact small (or 
very small). The changed rules have eliminated the requirements that 
small businesses owned by women or minorities demonstrate that their 
owners are women or minorities. However, the Commission requests 
voluntary reporting of minority and women ownership to comply with its 
mandate to report its efforts to Congress. Accordingly, there are no 
additional reporting or recordkeeping requirements being imposed by 
these rules.

D. Description and Estimate of Small Entities Subject to the Rules

    26. The Commission is directed by the Communications Act of 1934, 
47 U.S.C. section 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 
and comply with the current legal standards, these rule changes are 
designed to ensure compliance with the new legal standards while 
promoting participation by small entities, including minorities, women, 
and rural telephone companies. The small businesses who will be subject 
to the rules would be those which choose to operate IVDS, 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 wireless provider of pay television services under Standard 
Industrial Classification 4841 (SIC 4841), which covers subscription 
television services.60 The U.S. Small Business Administration 
(SBA) defines small businesses in SIC 4841 as businesses with annual 
gross revenues of $11 million or less. 13 CFR section 121.201. In this 
Tenth Report and Order, the Commission extends special provisions to 
small businesses with annual gross revenues of $15 million or less and 
additional benefits to very small businesses with annual gross revenues 
of $3 million or less. The Commission observes that this rule change is 
consistent with its approach in other wireless services, e.g., the 900 
MHz specialized mobile radio service, and is narrowly tailored to 
address the lower capital requirements for IVDS. SBA approval for the 
small business definitions is pending for this and other auctionable 
services.
---------------------------------------------------------------------------

    \60\ Generally, IVDS services will be subscriber-based services 
providing video communications which could be described as a form of 
subscription television service.
---------------------------------------------------------------------------

    28. The Commission's 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 1,788.61 There 
are 1,463 companies in the 1992 Census Bureau report which are 
categorized as small businesses providing cable and pay TV 
services.62 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.
---------------------------------------------------------------------------

    \61\ U.S. Small Business Administration 1992 Economic Census 
Industry and Enterprise Report, Table 2D, SIC Code 4841 (Bureau of 
the Census data adapted by the Office of Advocacy of the U.S. Small 
Business Administration).
    \62\ The Census table divides those companies by the amount of 
annual receipts. There is a dividing point at companies with annual 
receipts of $10 million. The next increment is annual receipts of 
$17 million, a category that greatly exceeds the SBA definition of 
small businesses that provide subscription television services. 
However, there are 17 firms in this category, with revenues between 
$10-$17 million. Approximately 1,480 SIC 4841 category firms have 
annual gross receipts of $15 million or less. Only a small fraction 
of those 1,480 firms provide interactive video and data services.
---------------------------------------------------------------------------

    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, 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.63 In the upcoming IVDS re-auction of approximately 100 
licenses in MSA markets and auction of 856 licenses in RSA markets (two 
licenses in each of 428 markets), while the Commission makes the rules 
race and gender-neutral, it also modifies its definition of small 
business to include a second tier of very small businesses, adopts 
tiered bidding credits, and continues to include provisions for 
installment payments in its rules 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 rules. Given the success of small 
businesses in past IVDS auctions, and that small businesses comprise 
over 80 percent of firms in the subscription television services 
industry, the Commission assumes for purposes of this FRFA that all of 
the licenses may be awarded to small businesses, which would be 
affected by the rule changes it has made. Some companies may win more 
than one license, as was the situation in the earlier IVDS auction.
---------------------------------------------------------------------------

    \63\ Fourth Report and Order, 9 FCC Rcd at 2336.
---------------------------------------------------------------------------

    30. Applicants seeking to participate in the auction also will be 
subject to these rule changes. 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. However, because of the 
lower capital requirements for IVDS in general, there may be a greater 
number of very small businesses participating.

E. Steps Taken to Minimize the Burdens on Small Entities

    31. The changes made in the Tenth Report and Order are designed to 
ensure compliance with the current legal standards applicable to 
federal programs implemented to benefit minority and women-owned 
businesses, while minimizing burdens on small

[[Page 60204]]

businesses and promoting participation of small businesses in spectrum 
auctions. The extension of a two-tiered definition for small 
businesses, as well as the provision for tiered bidding credits will 
assist businesses owned by women and minorities. Based upon experience 
to date, most of the businesses owned by women and minorities which 
have participated in the Commission's auctions are small businesses or 
very small businesses which, in the end, will benefit from these rule 
changes. As discussed below, the Commission considered and rejected 
alternatives, such as providing parties additional time to supplement 
the record or to afford the industry more time to develop technology 
and equipment, because there is no evidence that, given additional 
time, the record will be sufficiently supplemented or the industry will 
develop the technology any faster. While some may argue that the 
increase in upfront payments may raise some entry barriers, such 
concerns are outweighed by the need to maintain the integrity of the 
auction process to ensure sincere bidders and, thus, create increased 
opportunities for sincere small business bidders. Furthermore, the rule 
change increasing the upfront payment amounts will ultimately benefit 
the entities participating in the IVDS auctions, by ensuring that the 
participants have the financial ability to pay for the licenses for 
which they bid.

F. Significant Alternatives Considered and Rejected

Eliminating the Race and Gender-Based Provisions
    32. In the Tenth Report and Order, the Commission concludes that 
the possibility of legal challenges to the rules due to the race and 
gender-based provisions could cause lengthy delays in issuing licenses 
in this service and, therefore, revises those provisions in its 
competitive bidding rules to make them race and gender-neutral. The 
Commission has not been able to consider other alternatives to the rule 
changes given that no alternatives were proposed by any of the 
commenters, and the record was not supplemented during this proceeding 
with any additional evidence of market entry barriers, anecdotal or 
statistical evidence or any other factors which directly adversely 
effect small businesses owned by minorities and/or women. Although one 
commenter requested that the Commission provide parties with additional 
time to supplement the record, and another requested that the 
Commission delay any rule making determinations to afford the industry 
additional time to develop equipment and technology for implementing 
IVDS, the Commission rejected these requests, because there is no 
evidence the record will be sufficiently supplemented or the industry 
will develop the technology any faster. The Commission notes that it is 
currently gathering evidence, through a Notice of Inquiry proceeding 
pursuant to the Telecommunications Act of 1996, on barriers to market 
entry for small businesses, including those owned by women and 
minorities.64 The Commission believes that the rule changes 
discussed below (for example, offering bidding credits based upon an 
entity's size) will more than adequately benefit small businesses that 
are owned by minorities or women.
---------------------------------------------------------------------------

    \64\ Section 257 Notice of Inquiry.
---------------------------------------------------------------------------

Adoption of Two-Tiered Definition for Small Businesses
    33. The Tenth Report and Order adopts a two-tiered definition to 
define small businesses: (1) a small business is a business with 
average gross revenues for each of the preceding three years that do 
not exceed $15 million, and (2) a very small business is one which has 
less than an average of $3 million in gross revenues in each of the 
last three years. The Commission adopts this two-tiered definition 
because its ongoing experience with spectrum auctions has affirmed its 
belief that gross revenues-based definitions are a more accurate 
indicator of size than a net worth/annual profit definition. Also, this 
definition is consistent with the carefully-analyzed approach used in 
other auctionable mobile radio services such as 900 MHz SMR 
services.65 Although one commenter suggested altering the 
financial thresholds for determining whether an entity is a ``small 
business'' or ``very small business'' under the proposed definition, 
the Commission believes that the adopted two-tiered definition is 
appropriate given the likely participants in this auction and the 
Commission's desire to maintain consistency between auctions. In 
determining whether an entity qualifies as a small business under 
either tier, the Commission will attribute the gross revenues of all 
controlling principals, as well as the gross revenues of affiliates of 
the applicant. Also, the Commission will use the multiplier adopted in 
the CMRS Third Report and Order for the spectrum aggregation cap to 
determine when IVDS licensees are indirectly held through corporate 
entities. While the Commission chose not to impose specific equity 
requirements on the controlling principals of qualifying small 
businesses, it will still require that qualifying small businesses are 
actually ``controlled'' by their principals.
---------------------------------------------------------------------------

    \65\ 900 SMR Auction Report and Order.
---------------------------------------------------------------------------

Adoption of Tiered Bidding Credits
    34. The Commission adopted tiered small business bidding credits 
for the upcoming IVDS auction as follows: (1) 10 percent bidding 
credits for small businesses and (2) 15 percent for very small 
businesses. Although a few commenters proposed higher percentages for 
each tier of bidding credits offered (for example, 15 percent for small 
businesses and 25 percent for very small businesses), the Commission 
declines to adopt their proposals because it does not believe a greater 
bidding credit is justified here as it was for certain highly capital 
intensive services, like broadband PCS. The Commission believes the 
extent, magnitude and range of the bidding credits adopted meet the 
varying needs of small and very small businesses who will participate 
in the IVDS auctions.
Increase in Upfront Payment Amounts
    35. The Tenth Report and Order adopts increased upfront payment 
amounts of $9,000 per MSA license and $2,500 per RSA license for 
businesses participating in IVDS auctions. These increased amounts are 
designed to maintain the integrity of the auction by minimizing the 
adverse impact of participation by speculators and other frivolous 
bidders in the IVDS auction. Commenters agree that the previous upfront 
payment was too low, and no other alternatives were suggested to deter 
speculative or frivolous bidders who do not meet the commitments they 
make in bidding in IVDS auctions. Based upon the record regarding IVDS 
upfront payment values, the Commission believes that the revised 
upfront payment values are set at appropriate levels and provide an 
adequate deterrent against frivolous bidding, and therefore, the 
Commission declined to adopt the approach of one commenter who 
suggested it modify the multiplier for the MSA payment to an even 
multiplier of the RSA payment. Moreover, the impact that increased 
upfront payments may have on designated entities will be offset by the 
fact that eligible entities may elect to make payments for their 
licenses via installment payments, which eligibility shall not be 
jeopardized due to normal projected growth of gross revenues and 
assets.

[[Page 60205]]

G. Commission's Outreach Efforts to Learn of and Respond to the Views 
of Small Entities Pursuant to 5 U.S.C. Section 609

    36. The Commission sought specific comments regarding the views of 
small entities with respect to the changes being made through 
solicitation of comments and reply comments to its FNPRM, and the IRFA 
that was contained therein. Although there were no comments on the 
IRFA, there were a number of comments received in connection with the 
FNPRM as noted herein. Further, the Commission's Office of 
Communications and Business Opportunities has undertaken additional 
outreach efforts through newsletters and other mailings to learn of the 
views of, and respond to, small entities.

H. Report to Congress

    37. The Commission shall send a copy of this Final Regulatory 
Flexibility Analysis, along with this Tenth Report and Order, in a 
report to Congress pursuant to the SBREFA, 5 U.S.C. Section 
801(a)(1)(A). A copy of this Final Regulatory Flexibility Analysis will 
also be published in the Federal Register.
    38. Authority for issuance of this Tenth Report and Order is 
contained in Sections 4(i), 303(r), and 309(j) of the Communications 
Act of 1934, as amended, 47 U.S.C. Sections 154(i), 303(r) and 309(j).
    39. Accordingly, IT IS ORDERED that, pursuant to the authority of 
Sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, as 
amended, 47 U.S.C. Sections 154(i), 303(r), and 309(j), this Tenth 
Report and Order is adopted, and Part 95 of the Commission's Rules IS 
AMENDED as set forth below.
    40. IT IS FURTHER ORDERED that the rule changes made herein WILL 
BECOME EFFECTIVE December 27, 1996.
    41. For further information concerning this proceeding, contact 
Howard Griboff or Christina Eads Clearwater at (202) 418-0660 (Auctions 
Division, Wireless Telecommunications Bureau).

List of Subjects in 47 CFR Part 95

    Communications equipment, Radio.

Federal Communications Commission
William F. Caton,
Acting Secretary.

Rule Changes

    Part 95 of Chapter I of Title 47 of the Code of Federal Regulations 
is amended as follows:

PART 95--PERSONAL RADIO SERVICES

    1. The authority citation for Part 95 continues to read as follows:

    Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47 
U.S.C. 154, 303.

    2. Section 95.816 is amended by revising paragraphs (c)(3) and 
(d)(1), adding new paragraph (d)(4), redesignating paragraph (e) as 
paragraph (e)(1) and revising it, and adding new paragraph (e)(2) to 
read as follows:


Sec. 95.816  Competitive bidding proceedings.

* * * * *
    (c) * * *
    (3) Upfront payments. Each eligible bidder in the IVDS auction will 
be required to submit an upfront payment of $9,000 per MSA license and 
$2,500 per RSA license for the maximum number of licenses on which it 
intends to bid pursuant to section 1.2106 of this chapter and 
procedures specified by Public Notice.
* * * * *
    (d) * * *
    (1) Bidding credits.
    (i) A winning bidder that qualifies as a small business (as defined 
in 95.816(d)(4)(i) of this section) may use a bidding credit of 10 
percent to lower the cost of its winning bid.
    (ii) A winning bidder that qualifies as a very small business (as 
defined in 95.816(d)(4)(ii) of this section) may use a bidding credit 
of 15 percent to lower the cost of its winning bid.
* * * * *
    (4) Definitions.
    (i) Small business. A small business is an entity that, together 
with its affiliates and persons or entities that hold interests in such 
entity and their affiliates, has average annual gross revenues that are 
not more than $15 million for the preceding three years.
    (ii) Very small business. A very small business is an entity that, 
together with its affiliates and persons or entities that hold 
interests in such entity and their affiliates, has average annual gross 
revenues that are not more than $3 million for the preceding three 
years.
    (iii) Gross revenues. Gross revenues shall mean all income received 
by an entity, whether earned or passive, before any deductions are made 
for costs of doing business (e.g., cost of goods sold), as evidenced by 
audited financial statements for the relevant number of most recently 
completed calendar years, or, if audited financial statements were not 
prepared on a calendar-year basis, for the most recently completed 
fiscal years preceding the filing of the applicant's short-form 
application (Form 175). If an entity was not in existence for all or 
part of the relevant period, gross revenues shall be evidenced by the 
audited financial statements of the entity's predecessor-in-interest 
or, if there is no identifiable predecessor-in-interest, unaudited 
financial statements certified by the applicant as accurate. When an 
applicant does not otherwise use audited financial statements, its 
gross revenues may be certified by its chief financial officer or its 
equivalent.
    (iv) Controlling interest shall be attributable. Controlling 
interest means majority voting equity ownership, any general 
partnership interest, or any means of actual working control (including 
negative control) over the operation of the licensee, in whatever 
manner exercised.
    (v) Multiplier. Ownership interests that are held indirectly by any 
party through one or more intervening corporations will be determined 
by successive multiplication of the ownership percentages for each link 
in the vertical ownership chain and application of the relevant 
attribution benchmark to the resulting product, except that if the 
ownership percentage for an interest in any link in the chain exceeds 
50 percent or represents actual control, it shall be treated as if it 
were a 100 percent interest.
    (e) Unjust enrichment.
    (1) Any business owned by minorities and/or women that has obtained 
a IVDS license in the IVDS auction held in July 1994 through the 
benefit of tax certificates shall not assign or transfer control of its 
license within one year of its license grant date. If the assignee or 
transferee is a business owned by minorities and/or women, this 
paragraph shall not apply; provided, however, that the assignee or 
transferee shall not assign or transfer control of the license within 
one year of the grant date of the assignment or transfer.
    (2) A licensee's (or other attributable entity's) increased gross 
revenues due to nonattributable equity investments (i.e., from sources 
whose gross revenues are not considered under 95.816(d)(4)(iv) of this 
section), debt financing, revenue from operations or other investments, 
business development or expanded service shall not be considered to 
result in the licensee losing eligibility for preferences as a small 
business or very small business under this section.

[FR Doc. 96-30358 Filed 11-26-96; 8:45 am]
BILLING CODE 6712-01-P