[Federal Register Volume 62, Number 97 (Tuesday, May 20, 1997)]
[Proposed Rules]
[Pages 27563-27578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13147]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 24

[GEN Docket No. 90-314; ET Docket No. 92-100; PP Docket No. 93-253; FCC 
97-140]


Narrowband Personal Communications Services

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: This FNPRM addresses eligibility and service area issues for 
the narrowband Personal Communications Services (narrowband PCS) 
channels and response channels, proposes changes to the Commission's 
build-out requirements, proposes a partitioning and disaggregation 
scheme, and proposes modifications to certain provisions of narrowband 
competitive

[[Page 27564]]

bidding rules. The Commission believes that these proposed changes will 
serve the public interest, promote competition in the wireless services 
market, allow incumbents to expand their systems, increase buildout 
flexibility and simplify licensing and competitive bidding procedures.

DATES: Comments are to be filed on or before June 18, 1997; reply 
comments are to be filed on or before July 7, 1997.

FOR FURTHER INFORMATION CONTACT: Alice Elder or Mark Bollinger at (202) 
418-0660 (Wireless Telecommunications Bureau/Auctions Division) or 
David Furth or Rhonda Lien at (202) 418-0620 (Wireless 
Telecommunications Bureau/Commercial Wireless Division).

SUPPLEMENTARY INFORMATION: This is a summary of the FNPRM in GEN Docket 
No. 90-314, ET Docket No. 92-100 and PP Docket 93-253, adopted April 
17, 1997 and released April 23, 1997. The complete text of the FNPRM is 
available for inspection and copying during normal business hours in 
the FCC Reference Center (Room 239), 1919 M Street, NW, Washington DC 
and also may be purchased from the Commission's copy contractor, 
International Transcription Services (202) 857-3800, 2100 M Street, NW, 
Suite 140, Washington, DC 20037.

Synopsis of the Notice of Proposed Rule Making

Further Notice of Proposed Rule Making

I. Discussion

A. Background

    1. In the narrowband PCS First Report and Order, 58 FR 42681 
(August 11, 1993), the Commission provided for operation of new, 
narrowband PCS in the 900 megahertz (MHz) band. The Commission broadly 
defined PCS as mobile and fixed communications offerings that serve 
individuals and businesses, and can be integrated with a variety of 
competing networks. In the First Report and Order, the Commission 
therefore declined to adopt a restrictive definition of narrowband PCS, 
such as limiting this category of PCS to advanced messaging and paging 
services. The Commission also adopted a spectrum allocation and 
channelization plan, licensing rules, and technical standards for 
narrowband PCS. Consistent with section 309(j) of the Communications 
Act of 1934, as amended, the Commission has determined that PCS is 
subject to competitive bidding in the case of mutually exclusive 
applications.
    2. In the Competitive Bidding Second Report and Order, 59 FR 22980 
(May 4, 1994) the Commission adopted general competitive bidding rules 
for auctionable services. In the Competitive Bidding Third Report and 
Order, 59 FR 26741 (May 24, 1994), the Commission established 
competitive bidding rules specifically for narrowband PCS. On 
reconsideration of that Order, the Commission revised certain auction 
processing rules, expanded special provisions for designated entities 
in future narrowband auctions, and sought comment on additional 
designated entity provisions for the upcoming narrowband PCS auction. 
Of the three MHz of spectrum allocated for narrowband PCS, two one-MHz 
blocks are currently divided into specific channels for immediate 
licensing. The remaining one MHz of narrowband PCS spectrum currently 
is reserved to accommodate future development of narrowband PCS.
    3. The Commission thus far has conducted two auctions for 
narrowband PCS licenses. As a result of these two auctions, ten 
nationwide narrowband PCS licenses and six regional narrowband PCS 
licenses in five different regions (totalling 30 regional licenses) 
have been issued. Auctions have not yet been conducted for the 
narrowband PCS spectrum currently designated for licensing in 51 Major 
Trading Areas (MTAs) and 493 Basic Trading Areas (BTAs). In addition, 
the 204 MTA licenses and 1,968 BTA licenses designated as unpaired 
response channels also have not been auctioned.

B. Service Rules

    4. The Commission believes that the channelization plan for 
narrowband PCS provides a flexible framework that will foster its goals 
of universality, speed of deployment, diversity of services, and 
competitive delivery. In the narrowband PCS First Report and Order, 58 
FR 42681 (August 11, 1993), the Commission found that a mix of paired, 
unpaired, and varying bandwidths would provide the most flexible 
solution for meeting the stated needs of narrowband PCS providers. The 
Commission determined that while there appears to be interest in 
providing narrowband PCS services across a wide range of local, 
regional, and nationwide licensed service areas, the bulk of demand is 
for large regional or nationwide licensed service areas.
    5. Thus, the Commission set aside the majority of narrowband PCS 
spectrum for nationwide and MTA-based licensing. In addition, the 
Commission recognized that a variety of narrowband PCS services could 
be offered on a local level. As a result, the Commission's initial 
channelization plan for narrowband PCS consisted of 26 channels 
allocated as follows: 11 channels for nationwide use, 13 channels for 
use on an MTA basis, and two channels for use on a BTA basis. The 
Commission also set aside eight unpaired channels with BTA service 
areas for use by existing 900 MHz paging licensees as acknowledgement 
or response channels.
    6. In the narrowband PCS Memorandum Opinion & Order, 59 FR 37163 
(July 21, 1994), the Commission modified its initial channelization 
plan in two respects. First, the Commission determined that while 
regional service areas based on MTAs contain sufficient population and 
geographic area to support economically viable PCS services, a 
continued need existed for an additional category of licenses with a 
service area smaller than a nationwide area, but larger than an 
individual MTA. Therefore, the Commission designated six paired 
channels for licensing in five large regions to better reflect the 
technologies and business plans of the licensees desiring to implement 
large regional narrowband PCS systems. Second, the Commission 
determined that licensing some of the eight unpaired channels for use 
by existing 900 MHz paging licenses on an MTA basis would make it 
easier for operators of local and regional paging systems to upgrade 
and coordinate their operations. Thus, four of the paging response 
channels are currently licensed using MTA service areas and four using 
BTA service areas.
    7. In the Competitive Bidding Third Memorandum Opinion & Order/
FNPRM, 59 FR 44058 (August 26, 1994), the Commission proposed to 
redesignate channels 25 and 26, which currently are licensed on a BTA 
basis, as regional licenses with the same service areas described in 
Sec. 24.102 of the Commission's rules. See 47 CFR 24.102. The proposed 
redesignation of channels 25 and 26 was an outgrowth of the 
Commission's concern that designated entities interested in narrowband 
PCS licenses may desire service areas larger than MTAs and BTAs. In 
this connection, the Commission recognized that over half of the 
bidders who participated in the nationwide auction would have qualified 
for an entrepreneurs' block license if it had been available. Thus, the 
Commission sought comment on whether it should redesignate some or all 
of the channels licensed on a BTA basis, including the response 
channels licensed on a BTA basis, to be licensed on an MTA basis,

[[Page 27565]]

or take other means to achieve larger license areas. The Commission 
also permitted MTA and BTA service areas to be aggregated up to and 
including nationwide coverage.
    8. The Commission believes the record provides support for 
reconfiguring the service area size of the remaining narrowband PCS 
channels. First, the Commission shares the concern of commenters that 
the BTA service areas in particular are too small to provide a viable 
narrowband service. The Commission's experience with similar services 
suggests that larger licensing areas may be more suitable to the actual 
configuration of narrowband systems. For example, the Commission 
recently adopted MTA-based licensing for the 929 MHz and 931 MHz paging 
bands, which are likely to be directly competitive with narrowband PCS. 
The Commission also believes that narrowband PCS could be licensed 
using larger areas without compromising the goal of ensuring entry for 
small businesses. An illustrative comparison is provided by the 900 MHz 
Specialized Mobile Radio (SMR) auction, which was MTA-based, in which 
60 out of 80 high bidders are small businesses.
    9. There may also be additional demand to provide narrowband PCS on 
a regional or nationwide basis. In the PCS First Report and Order, the 
Commission agreed with commenting parties that regional and nationwide 
service areas in narrowband PCS would provide economies of scale and 
should alleviate some of the problems licensees have experienced when 
they have tried to aggregate smaller license areas. In the previous 
narrowband PCS auctions, a number of bidders for the regional licenses 
aggregated their licenses into nationwide service, and several 
nationwide licenses were aggregated by a single licensee. Moreover, the 
large number of regional and nationwide paging systems in the 929 and 
931 MHz paging bands suggests that the market for this level of 
coverage is dynamic and competitive.
    10. Based on these factors, the Commission believes that its prior 
proposal for reconfiguring the service areas of the remaining 
narrowband PCS channels should be expanded by eliminating all BTA 
licensing and instead using a combination of MTAs, regional licensing 
areas, and nationwide licensing. The Commission agrees with those 
commenters who argue that reallocating some of the response channels 
for use in larger service areas will facilitate the upgrade of existing 
paging networks. Specifically, the Commission proposes to (1) 
redesignate the two remaining 50 kHz paired channels as nationwide 
channels; (2) establish one nationwide, three regional, and one MTA-
based channel pairs from the five 50/12.5 kHz channel pairs; and (3) 
convert the four BTA-based 12.5 kHz unpaired response channels to 
regional channels. By designating these larger service areas, the 
Commission seeks to give companies, including designated entities, the 
opportunity to establish a viable narrowband service and to provide 
regional and nationwide service if circumstances warrant. The 
Commission requests comment on this proposal and on any possible 
alternative service area combinations. In particular, commenters should 
comment on the effect of licensing in larger areas on opportunities for 
entry and competition by small businesses. The Commission also seeks 
comment on whether local participation in narrowband PCS by smaller 
businesses could occur through partitioning or disaggregation 
arrangements with MTA-based, regional, and nationwide PCS licensees, 
thus affording more opportunities to serve smaller areas.
    11. The Commission also seeks comment on what effect increasing the 
service area size of as-yet unlicensed channels will have on existing 
narrowband PCS licenses. Although some commenters argue that using 
larger areas would devalue their licenses, the Commission notes that 
they were licensed over two years ago, which would appear to reduce the 
impact of subsequent licensing. In addition, as noted above, numerous 
paging licensees have established nationwide and regional systems that 
already provide competition for narrowband PCS. Finally, the Commission 
notes that the goal of its spectrum policy is not to preserve the value 
of the licenses that auction winners acquire, but to promote 
competition and service in the public interest. The Commission 
therefore seeks comment on whether its proposals are equitable to 
existing licensees, and whether they would assist new entrants in 
offering services to the public in a more efficient manner.

C. Allocation of Reserve Spectrum

    12. In the PCS First Report and Order, the Commission allocated 
three MHz for narrowband PCS. Specifically, the narrowband PCS spectrum 
was allocated into three one-MHz bands, with two MHz of this spectrum 
divided into specific channels and available for immediate licensing. 
At that time, the Commission determined that the service proposals for 
narrowband PCS did not require use of the entire narrowband PCS 
spectrum allocation. The Commission retained the flexibility to 
channelize and license the remaining one MHz of spectrum for expanded 
narrowband PCS licensing opportunities as the service developed. 
Subsequently, several commenters to the Competitive Bidding Third 
Memorandum Opinion and Order, 59 FR 44058 (August 26, 1994), raised the 
issue of the reserve narrowband PCS spectrum and requested that the 
Commission immediately channelize and license it.
    13. The Commission believes that channelizing and licensing the 
reserve narrowband PCS spectrum will serve the public interest by 
facilitating competition, opening the market to new entrants, and 
allowing existing narrowband PCS licensees to expand their systems 
through access to additional spectrum. Therefore, the Commission 
tentatively concludes that the one MHz of spectrum that it reserved in 
the PCS First Report and Order should now be channelized and licensed. 
The Commission seeks comment on this tentative conclusion. The 
Commission also seeks comment on whether the reserve narrowband PCS 
spectrum should be channelized for additional narrowband PCS paired-
channel use, or whether a greater need exists for narrowband PCS 
unpaired channels. The Commission also seeks comment on the way in 
which it should allocate this spectrum. For example, the Commission 
could authorize three licenses: two 300-kHz licenses and one 400-kHz 
license. The Commission requests comment on whether another allocation 
would be preferable.
    14. Additionally, the Commission requests comment on the narrowband 
PCS aggregation limit and whether it should be modified in light of 
this proposal. Narrowband PCS is not subject to the commercial mobile 
radio service (CMRS) spectrum cap. However, a single licensee is only 
permitted to hold licenses for up to three 50 kHz channels, either 
paired or unpaired. This limit is based on the total narrowband PCS 
spectrum held by a licensee through nationwide, regional and local 
licenses at any geographic point. In light of the Commission's proposal 
to open and license the narrowband PCS reserve spectrum, the Commission 
seeks comment on whether these aggregation limits on narrowband PCS 
spectrum are sufficient, or whether it needs to modify, increase or 
eliminate such aggregation limits.

D. Construction and Coverage Requirements

    15. When designing competitive bidding systems, section 309(j)(3) 
of the

[[Page 27566]]

Communications Act states, in part, that ``the Commission shall include 
safeguards to protect the public interest in the use of the spectrum. . 
. .'' 47 CFR 309(j)(3). In addition, section 309(j)(4)(B) states that 
the Commission shall include performance requirements, such as 
appropriate deadlines and penalties for performance failures, to ensure 
prompt delivery of service to rural areas, to prevent stockpiling or 
warehousing of spectrum by licensees or permittees, and to promote 
investment in and rapid deployment of new technologies and services. 47 
U.S.C. 309(j)(3).
    16. Pursuant to section 309(j), the Commission has previously 
adopted performance requirements in the form of minimum coverage 
requirements for narrowband PCS. 47 U.S.C. 24.103. Specifically, 
nationwide narrowband PCS licensees must provide coverage to a 
composite area of 750,000 square kilometers or serve 37.5 percent of 
the U.S. population within five years of their license grants, and must 
provide coverage to a composite area of 1,500,000 square kilometers or 
serve 75 percent of the U.S. population within ten years of license 
grant. Regional licensees must cover 150,000 square kilometers or serve 
37.5 percent of the population in their licensing areas within five 
years, and must cover 300,000 square kilometers or serve 75 percent of 
the regional population within ten years. MTA licensees must cover 
75,000 square kilometers or serve 25 percent of the MTA population in 
five years, and must cover 150,000 square kilometers or serve 75 
percent of the MTA population in ten years. 47 CFR 24.103.
    17. Since the Commission adopted these coverage requirements for 
narrowband PCS in 1994, it has moved towards a more flexible approach 
to coverage requirements in other services. For example, in the paging 
rulemaking, the Commission provided that paging licensees can either 
meet population coverage benchmarks (one-third of licensing area 
population within three years of the license grant, and two-thirds of 
the population within five years) or may meet their performance 
requirement by demonstrating that they are providing ``substantial 
service'' in the licensing area within five years of the license grant. 
Substantial service is defined as ``service that is sound, favorable, 
and substantially above a level of mediocre service, which would barely 
warrant renewal.'' In the Wireless Communications Service (WCS), the 
Commission concluded that the unique circumstances in that case, 
including an aggressive deadline for auctions and exceedingly strict 
technical requirements necessary to prevent interference, necessitated 
still more flexible performance requirements. WCS licensees are thus 
required to provide substantial service to their service areas within 
ten years. Report and Order, 62 FR 9636 (March 3, 1997). The 
substantial service standard may be met in WCS by providing coverage to 
20 percent of the population where mobile service is provided, or four 
permanent links per one million people in its licensed service area, or 
by an alternative demonstration of substantial service by the licensee.
    18. In light of these developments in other services, the 
Commission believes it should revisit the narrowband PCS coverage 
requirements to ensure that they continue to be justified. The 
Commission believes it is appropriate at a minimum to treat narrowband 
PCS and paging similarly in this respect: narrowband PCS licensees 
operate on adjacent bands to the 900 MHz paging licensees, and the 
Commission has previously observed the close, potentially competitive 
relationship between the two services. The Commission proposes to 
conform its narrowband PCS rules to its paging rules by allowing 
narrowband PCS licensees to meet their performance requirements through 
a demonstration of substantial service as an alternative to meeting the 
coverage requirements provided under the existing rules. The Commission 
seeks comment on this proposal and whether an alternative coverage 
standard based on geographic areas remains necessary if it adopts a 
``substantial service'' alternative as proposed above.
    19. The Commission also seeks comment on whether, in addition to 
adopting a substantial service option, it should modify its existing 
narrowband PCS coverage benchmarks. One option would be to conform 
these requirements to newly adopted requirements for geographic area 
paging. For example, the initial population coverage benchmark for 
narrowband PCS MTA licensees is 25 percent at five years, while the 
benchmark for MTA-based paging is two-thirds coverage at five years. 
This may reflect differences in technology in the two services or that 
paging channels already are substantially built out by incumbents, 
whereas narrowband PCS licensees are only beginning their buildout 
process. At ten years, MTA-based narrowband PCS licensees must achieve 
75 percent population coverage or cover 150,000 square kilometers, 
whereas paging licensees are not subject to any further coverage 
benchmark after five years. The Commission seeks comment on whether the 
existing benchmarks for MTA-based narrowband PCS licensees are 
appropriate compared to its paging requirements. Commenters should also 
discuss applicable coverage requirements for regional and nationwide 
narrowband PCS licensees.
    20. The Commission also seeks comment on whether it should 
eliminate all coverage requirements for narrowband PCS. As wireless 
competition evolves, narrowband PCS is likely to face significant 
competition not only from other narrowband CMRS providers, including 
paging and 220 MHz licensees, but also from broadband CMRS providers 
who have the ability to use a portion of their spectrum to offer 
``narrowband'' services such as paging and messaging. Commenters should 
address whether market forces alone will provide sufficient incentives 
for narrowband PCS licensees to construct facilities and provide 
valuable new services to the public. In this regard, the Commission 
notes that build-out requirements may encourage the provision of 
service to areas that would not necessarily receive service 
expeditiously solely through the operation of market forces. In 
addition, build-out requirements may also prevent stockpiling or 
warehousing of spectrum by allowing licenses to be recovered and made 
available to entities more willing and able to provide service 
expeditiously. On the other hand, simply requiring construction by 
itself does not ensure that licenses are put to use in an efficient and 
pro-competitive manner. Moreover, construction requirements alone may 
not be effective to ensure the provision of service to rural areas, 
because they can have the unintended consequence of causing licensees 
to build first in urban areas where the mandatory benchmarks could be 
met most cheaply, and thus may actually slow the development of service 
to rural areas.
    21. The Commission is obligated under section 309(j) of the 
Communications Act to take sufficient measures to ``ensure prompt 
delivery of service to rural areas.'' 47 U.S.C. 309(j)(4)(B). Because 
narrowband PCS has already been licensed on a nationwide and regional 
basis, and other competing services such as paging are widely available 
throughout the U.S, including rural areas, imposing coverage 
requirements with the specific intent of promoting rural service may be 
unnecessary. In addition, the Commission's decisions relating to 
partitioning and disaggregation in narrowband PCS should increase the 
potential for service to rural or

[[Page 27567]]

underserved areas. The Commission seeks comment on the potential impact 
of eliminating coverage benchmarks on service to rural or underserved 
areas. Commenters should address whether the auction and service rules 
that the Commission is adopting and proposing here constitute effective 
safeguards and performance requirements for narrowband PCS licensing.

E. Auction Design

    22. The Competitive Bidding Third Report and Order, 59 FR 26741 
(May 24, 1994), established simultaneous multiple round auctions as the 
methodology for awarding narrowband PCS licenses. In light of the 
experience gained from the nationwide narrowband PCS auction, the 
Commission later revised or clarified provisions governing minimum 
opening bids, activity rules, pre-auction procedures, the release of 
bidder information, and collusion. The Commission generally reaffirms 
the auction methodology adopted for narrowband PCS, but seeks comment 
on whether modifications should be made to the overall auction design 
adopted for narrowband PCS. Additionally, having now completed thirteen 
auctions under the competitive bidding authority granted by Congress 
and recently having initiated a rule making to revise our general 
auction rules, in this FNPRM the Commission revisits certain provisions 
governing the general bidding procedures for narrowband PCS that it 
believes require revision.
1. Activity Rules
    23. In order to ensure that simultaneous multiple round auctions 
close within a reasonable period of time and to increase the 
information conveyed by bid prices during the auction, it is necessary 
to impose an activity rule to prevent bidders from waiting until the 
end of the auction before participating. The Commission determined in 
the Competitive Bidding Third Report & Order, 59 FR 44058 (August 26, 
1994) that the Milgrom-Wilson activity rule would be used in 
conjunction with a simultaneous stopping rule to award narrowband PCS 
licenses.
    24. The Commission determined in the Competitive Bidding Third 
Report and Order that a waiver procedure would apply, whereby bidders 
would be permitted five automatic waivers from the activity rule during 
the course of an auction. In the Competitive Bidding Third Memorandum 
Opinion & Order/FNPRM, the Commission modified the waiver procedure for 
the narrowband PCS auctions and allowed one automatic waiver during 
each stage of an auction, or one automatic waiver during a number of 
bidding rounds specified by Public Notice. The Commission noted that 
while proactive waivers would keep the bidding open, under no 
circumstances would an automatic waiver prevent an auction from 
closing.
    25. With respect to broadband PCS auctions, the Commission 
initially determined that only proactive waivers, and not automatic 
waivers, would keep an auction open. In that context, however, the 
Commission later modified the rule by retaining the discretion to keep 
an auction open even if no new acceptable bids and no proactive waivers 
are submitted in a single round. The Commission observed that this 
would facilitate the rapid completion of the auction by permitting the 
Commission to use larger bid increments, thereby speeding the auction 
pace without risking a premature auction close.
    26. The Commission proposes for narrowband PCS that it retain the 
same discretion as it has in the broadband PCS auctions to keep an 
auction open even if no new acceptable bids and no proactive waivers 
are submitted in a single round. The Commission tentatively concludes 
that this provision will allow the completion of the narrowband PCS 
auction in a timely and efficient manner. The Commission seeks comment 
on whether this modification of its activity and stopping rules is 
appropriate.
2. License Grouping
    27. In the Competitive Bidding Third Report and Order, the 
Commission determined that choosing which licenses to auction 
simultaneously requires a judgment about the degree of interdependence 
of the licenses, i.e., the extent to which the amount the bidders are 
willing to pay for one license depends on the price of another. The 
Commission auctioned the nationwide narrowband PCS licenses in a 
simultaneous multiple round auction. The Commission then auctioned the 
five regional blocks for a total of 30 licenses together in one 
simultaneous multiple round auction. The Commission decided to conduct 
a third simultaneous multiple round auction for all of the 50/50 kHz 
paired, 50/12.5 kHz paired, and the 50 kHz unpaired MTA licenses for a 
total of 357 licenses and, after the MTA licenses are auctioned, to 
conduct another simultaneous multiple round auction for the 50/12.5 kHz 
paired BTA licenses for a total of 986 licenses.
    28. In light of the channel reallocation the Commission adopts 
herein, it tentatively concludes that it will conduct one auction for 
the remaining narrowband PCS spectrum that has been allocated. The 
Commission reserves the right, however, to auction each category, i.e., 
nationwide, regional, MTA of the channels adopted separately. As a 
result of its proposal, the Commission considers the issue raised by 
commenters that BTAs should be auctioned before MTAs to be moot. The 
Commission seeks comment on this proposal. The Commission also seeks 
comment on whether it should auction certain categories together if it 
decides to conduct more than one auction for the remaining narrowband 
PCS spectrum, e.g., nationwide and regional.
3. Auction Design for Response Channels
    29. There are 204 MTA 12.5 kHz unpaired response channel licenses 
and 1,968 BTA 12.5 kHz unpaired response channel licenses. In the 
Competitive Bidding Third Report and Order, the Commission decided to 
auction the 12.5 kHz unpaired MTA and BTA response channel licenses in 
a single round sealed bid auction because it determined the value of 
the licenses to be low relative to the cost of conducting more complex 
auctions. Moreover, because only incumbent paging licensees are 
eligible to bid on these licenses, it believed that sealed bid auctions 
would help to reduce the chances of collusion among the limited number 
of bidders. However, petitioners convinced the Commission that paging 
response channel licenses may have more interdependency and higher 
value than was apparent at the time of its decision in the Competitive 
Bidding Third Report and Order. In addition, the Commission stated in 
the Competitive Bidding Third Memorandum Opinion & Order/FNPRM that the 
nationwide narrowband auction demonstrated simultaneous multiple round 
auctions are easier and less expensive to implement than anticipated. 
Thus, the Commission deferred its decision regarding auction design for 
the paging response channels.
    30. The Commission proposes to auction the paging response channels 
in one simultaneous multiple round auction, but reserves the option of 
auctioning these channels with the remaining narrowband PCS licenses. 
The Commission now has the experience necessary to conduct a large 
simultaneous multiple round auction in an administratively efficient 
manner. In addition, in balancing the advantages of simultaneous 
multiple round bidding with the greater complexity that this method 
entails, the Commission believes that it is the most appropriate

[[Page 27568]]

auction methodology for these auctions, because of the high value of 
most narrowband PCS licenses and the significant interdependence 
between spectrum blocks and geographic regions. The Commission seeks 
comment on this proposal.
4. Auction Design for Reserved Spectrum
    31. The Commission seeks comment on the manner in which it should 
auction the one MHz of reserved spectrum. Specifically, the Commission 
seeks comment on whether it should use its current narrowband PCS 
rules, as set forth in part 24 of its rules or whether other rules 
should be adopted to auction this spectrum. In addition, the Commission 
seeks comment on whether or not it should auction the reserve spectrum 
in conjunction with other narrowband spectrum. The Commission 
additionally seeks comment on whether there should be any special 
provisions for small businesses, and if so, whether to adopt the small 
business size definition and the special provisions proposed herein.

F. Treatment of Designated Entities

1. Overview of Adarand Constructors, Inc. v. Pena
    32. The Commission has employed in its narrowband PCS auction rules 
a wide range of special provisions and eligibility criteria designed to 
meet the statutory objectives of providing opportunities to small 
businesses, rural telephone companies, and businesses owned by members 
of minority groups and women, collectively known as ``designated 
entities.'' Notably, the special provisions adopted for designated 
entities in the two narrowband PCS auctions completed thus far produced 
varied results. In the nationwide narrowband PCS auction, the 
Commission provided a 25 percent bidding credit for businesses owned by 
members of minority groups and/or women. No designated entities won 
licenses in this auction. Although other factors could have caused this 
result, the bidding credit of 25 percent proved insufficient to assist 
designated entities in obtaining nationwide narrowband PCS licenses 
when no other provisions were provided. The Commission considered the 
results of the nationwide narrowband auction when contemplating the 
provisions that would govern the regional narrowband PCS auction and 
raised the bidding credit to 40 percent for businesses owned by members 
of minority groups and/or women. In addition, the Commission 
implemented an installment payment plan for businesses owned by members 
of minority groups and women. Designated entities were more successful 
in the regional narrowband PCS auction, winning all of the licenses for 
which a bidding credit was provided for designated entities. In total, 
designated entities won 11 of the 30 licenses offered in the regional 
narrowband auction. Specifically, four of the nine winners in the 
entire auction were designated entities that qualified as small 
businesses owned by members of minority groups and/or women.
    33. At the time the Commission's narrowband PCS rules were adopted, 
an intermediate scrutiny standard of review was applied to federal 
race- and gender-based programs. In Adarand Constructors v. Pena, 115 
S. Ct. at 2113, 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. In VMI, United 
States v. Commonwealth of Virginia, ____ U.S. __, 116 S.Ct. 2264 
(1996), 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.'' 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.' '' VMI, 116 S. Ct. at 2274. While the 
Supreme Court has not directly addressed constitutional challenges to 
federal gender-based programs since Adarand and VMI, the Commission's 
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. Similarly, the Adarand decision 
definitively eliminated any distinction between federal and state race-
based programs in setting its strict scrutiny standard of judicial 
review. Therefore, the Commission concludes that any gender-based 
preference maintained in the narrowband PCS auction rules would need to 
meet the VMI intermediate scrutiny standard of review.
    34. The Adarand decision potentially affects three race- and 
gender-based measures in the Commission's narrowband PCS auction rules 
and proposals. First, the Commission's attribution rules enable an 
applicant in which women or minorities hold 50.1 percent of the equity 
while another investor holds 49.9 percent of the equity to obtain 
special status as businesses owned by minorities or women. Second, 
businesses owned by minorities or women and small businesses owned by 
minorities or women receive larger bidding credits than other 
designated entities. Finally, the Competitive Bidding Third Memorandum 
Opinion & Order/FNPRM proposes that small businesses owned by 
minorities or women receive the most favorable installment payment 
options available. The purpose of these provisions was to address the 
lack of access to capital problem that the Commission's record showed 
women and minorities face.
    35. The Commission tentatively concludes that the present record in 
support of its race-based narrowband PCS rules lack sufficient 
evidentiary support to withstand strict scrutiny. The Commission seeks 
comment on its tentative conclusion and whether its provisions promote 
a compelling governmental interest and, more particularly, whether 
compensating for discrimination in lending practices and in practices 
in the communications industry constitutes such an interest. The 
Commission also asks interested parties to comment on nonremedial 
objectives that could be furthered by the minority-based provisions of 
its rules and whether they could be considered compelling governmental 
interests, such as increased diversity in ownership and employment in 
the communications industry or increased industry competition. In 
commenting, the Commission asks parties to submit statistical data, 
personal accounts, studies, or any other data relevant to the entry of 
specific racial groups into the field of telecommunications. Examples 
of relevant evidence could include discrimination against minorities 
trying to obtain FCC licenses; discrimination against minorities 
seeking positions of ownership or employment in communications or 
related businesses; discrimination against minorities attempting to 
obtain capital to start up a telecommunications enterprise, including 
terms and conditions; and discrimination against minorities operating 
telecommunications businesses, including treatment by vendors and 
suppliers.
    36. With respect to the Commission's gender-based provisions, the 
Commission seeks comment on whether there are remedial or nonremedial 
goals that would satisfy the ``important

[[Page 27569]]

governmental objective'' requirement of the intermediate scrutiny 
standard. Are the Commission's gender-based rules ``substantially 
related'' to the achievement of such objectives? Just as the Commission 
requested above, in addressing evidence to support the narrowband race-
based provisions, it asks parties to submit statistical data, personal 
accounts, studies, or any other data relevant to the entry of women 
into the field of telecommunications. The Commission is also interested 
in supplementing the current record to support race- and gender-based 
provisions in its other rules. In this regard, the Commission initiated 
a comprehensive rule making proceeding to explore market barriers to 
women-and minority-owned businesses, as well as small businesses, 
pursuant to section 257 of the Communications Act. The record created 
in response to this FNPRM will also be incorporated into that docket.
    37. Based on the Commission's tentative conclusions, it proposes to 
offer only race- and gender-neutral provisions for narrowband PCS. The 
Commission proposes that bidding credits and installment payments 
should be made available to small businesses--including those owned by 
minorities and women.
2. Eligibility for Bidding Credits and Installment Payments
a. Small Business Definition
    38. In the Competitive Bidding Second Memorandum Opinion & Order, 
59 FR 44272 (August 26, 1994), the Commission stated that it would 
define eligibility requirements for small businesses on a service-
specific basis, taking into account the capital requirements and other 
characteristics of each particular service. In the recently adopted 
Part One NPRM, 62 FR 13540 (March 21, 1997), it proposed to continue 
this practice. Once small business eligibility requirements are 
defined, however, the Commission proposed in the Part One NPRM to adopt 
uniform schedules of bidding credits and installment payments that 
would determine the level of benefits provided to small businesses. For 
the regional narrowband PCS and broadband PCS auctions, the Commission 
believed that build-out and operational costs would be high and adopted 
a small business threshold of $40 million. More recently, the 
Commission have adopted a ``tiered'' approach for determining small 
business eligibility. For instance, for the 900 MHz Specialized Mobile 
Radio (SMR) service it adopted a two-tiered system for determining 
eligibility for bidding credits, reduced down payments, and installment 
payment plans.
    39. The Commission proposes to limit eligibility for bidding 
credits and installment payments to small businesses. The Commission 
proposes a ``two-tiered'' approach in defining small businesses, based 
on a $40 million and $15 million definition. Currently, it has a $40 
million small business definition. Businesses with gross revenues of 
not more than $40 million may have significantly greater difficulty in 
obtaining capital than larger enterprises. At the same time, a company 
with $40 million in revenue is sufficiently large that it could survive 
in a competitive wireless communications market. The Commission 
believes that ``small businesses,'' as defined by the Commission's 
proposal, will be at a disadvantage in competing against large 
companies. Accordingly, the Commission proposes to enhance special 
provisions for small businesses by creating an additional category, 
very small business entities, with a $15 million threshold.
    40. The Commission seeks comment on these proposals. Specifically, 
are $40 million and $15 million appropriate thresholds? Are such tiers 
necessary to ensure that small businesses, including those owned by 
minorities and women, have the opportunity to participate in providing 
service on an MTA, regional, and nationwide basis? Should the 
thresholds be higher or lower, based on the types of companies that are 
likely to benefit from the special provisions proposed below? Also, 
should different definitions of small businesses be used for different 
channel blocks? For example, should the threshold for nationwide 
licenses be higher than the threshold for regional licenses?
b. Attribution
    41. To ensure that only bona fide small businesses avail themselves 
of the special provisions provided to them, the narrowband PCS rules 
requires the Commission to consider the gross revenues of the 
applicant, its affiliates, and all ``attributable'' investors in the 
applicant on a cumulative basis. The attribution rules established for 
narrowband PCS count the gross revenues of all investors in, and 
affiliates of, an applicant on a cumulative, fully-diluted basis for 
purposes of determining whether the $40 million gross revenue threshold 
for small businesses has been exceeded. In addition, an applicant will 
not qualify as a small business if any one attributable investor in, or 
affiliate of, the entity has $40 million or more in personal net worth. 
There are two exceptions, however. First, applicants that meet the 
definition of a small business may form consortia of small businesses 
that, on an aggregate basis, exceed the gross revenue cap. Second, if 
the applicant forms a ``control group,'' the gross revenues, personal 
net worth, and affiliations of any investor in the applicant are not 
considered so long as the investor holds 25 percent or less of the 
applicant's passive equity, is not a member of the applicant's control 
group, and the control group holds at least 25 percent of the 
applicant's equity.
    42. The Commission also established in the Competitive Bidding 
Third Memorandum Opinion & Order/FNPRM a relaxed attribution standard 
for women- and minority-owned businesses. Under this standard, the 
gross revenues or net worth of any single investor in a minority- or 
woman-owned small business applicant that is not a member of the 
applicant's control group is not attributable unless it holds more than 
49.9 percent of the passive equity of the applicant. The control group 
must (1) own at least 50.1 percent of the applicant's equity, (2) 
retain control and hold at least 50.1 percent of the voting stock, and 
(3) consist entirely of minorities and/or women or entities 100 percent 
owned and controlled by minorities and/or women. The gross revenues and 
net worth of each member of the control group and each member's 
affiliates are counted toward the gross revenue threshold or the 
individual $40 million individual net worth limitation, regardless of 
the size of the member's total interest in the applicant. These 
provisions were intended to address the special problems of women and 
minorities in obtaining financing due, in part, to discriminatory 
lending practices by private financial institutions.
    43. The Commission proposes replacing the ``control group'' 
structure established for narrowband PCS in the Competitive Bidding 
Third Memorandum Opinion and Order with simpler structural and control 
requirements. In determining whether an applicant qualifies as a small 
business in the narrowband PCS auction, the Commission will consider 
the gross revenues of the small business applicant, its affiliates, and 
certain investors in the applicant. Specifically, for purposes of 
determining small business status, 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. 
The Commission also chooses not to

[[Page 27570]]

impose specific equity requirements on the controlling principals that 
meet its small business definition.
    44. The Commission will still require, however, 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 facto and de jure control of the 
applicant. For this purpose, the Commission would borrow from certain 
Small Business Administration (SBA) rules that are used to determine 
when a firm should be deemed an affiliate of a small business. 
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. 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. The existence of special small 
business provisions requires the Commission to adopt the provisions set 
forth herein in order to prevent their improper use. Accordingly, the 
Commission seeks comment on whether it should count the gross revenues 
and assets only of controlling principals in the applicant to determine 
small business eligibility. The Commission also seeks comment on 
whether there is a more appropriate attribution standard for 
determining size.
    45. The Commission also proposes to eliminate the $40 million 
individual net worth limitation currently applicable in the 
Commission's narrowband PCS rules. The Commission eliminated the 
personal net worth limits for broadband PCS. In that context, the 
Commission determined that the obstacles faced by minorities and 
minority-controlled businesses in raising capital are not necessarily 
confined to minorities with limited personal net worth. Rather than 
eliminating the personal net worth limits for minorities only, however, 
it eliminated the requirement for all applicants because such limits 
are difficult to apply and enforce. The Commission seeks comment on 
whether the individual net worth limitation should be eliminated for 
narrowband PCS.
3. Bidding Credits
    46. Bidding credits allow eligible designated entities to receive a 
payment discount for their winning bid in an auction. In the 
Competitive Bidding Third Report and Order, the Commission determined 
that women and minorities would receive a 25 percent bidding credit for 
three nationwide channels, two regional channels, three MTA channels, 
and one BTA channel. After considering the outcome of the nationwide 
narrowband auction in which no designated entities won licenses, the 
Commission increased the bidding credit on the designated regional 
licenses from 25 percent to 40 percent In addition, the Commission 
proposed in the Competitive Bidding Third Memorandum Opinion & Order/
FNPRM to provide bidding credits in the proposed entrepreneurs' blocks 
that would give small businesses a 10 percent bidding credit, women and 
minority-owned businesses a 15 percent credit, and small businesses 
owned by women and minorities an aggregate credit of 25 percent.
    47. Taking into account the recent Adarand decision and the 
Commission's decision to redesignate the remaining narrowband channel 
blocks into larger license areas, the Commission proposes to eliminate 
the bidding credit scheme adopted in the Competitive Bidding Third 
Report and Order and subsequently modified in the Competitive Bidding 
Third Memorandum Opinion & Order/FNPRM. The Commission proposes instead 
to extend a bidding credit to all small businesses on a ``tiered'' 
basis consistent with its proposal in the Part One NPRM. The Commission 
proposes that small businesses with gross revenues of not more than $15 
million for the preceding three years be entitled to a 15 percent 
credit and small businesses with gross revenues of not more than $40 
million for the preceding three years be entitled to a 10 percent 
bidding credit. Bidding credits for small businesses will not be 
cumulative. Thus, a $15 million small business will be eligible for 
only a 15 percent credit, not a 25 percent credit.
    48. The Commission recognizes that this proposal would enhance the 
competitiveness of small businesses, which will receive a bidding 
credit that they did not receive previously. The Commission tentatively 
concludes, however, that extending the bidding credit to small 
businesses will achieve the objectives of Congress by providing small 
businesses, including women-owned and minority-owned small businesses, 
a meaningful opportunity to obtain licenses in the narrowband PCS 
auction. The Commission tentatively concludes that the redesignation of 
channel blocks into larger geographic license areas would increase the 
value of the licenses by allowing larger firms to bid on licenses that 
will enable wide-area service. As a result, the Commission believes 
that small businesses would require additional bidding enhancements in 
order to participate in the auction.
    49. The Commission further recognizes that this bidding credit 
would be less than the bidding credit previously made available to 
minority-and women-owned businesses in the Competitive Bidding Third 
Report and Order and the Competitive Bidding Third Memorandum Opinion & 
Order/FNPRM i.e., 25 percent for selected nationwide and 40 percent for 
selected regional licenses. However, the Commission believes that a 
lower bidding credit, combined with the installment payments will 
provide sufficient opportunities for small businesses to compete for 
the licenses. Furthermore, tiered bidding credits are narrowly tailored 
to the varying abilities of businesses to access capital. Thus, the 
Commission believes that tiering will account for the fact that smaller 
businesses, which often include businesses owned by minorities and 
women, have more difficulty accessing capital and thus need a more 
substantial bidding credit.
4. Payment Matters
    50. The current narrowband PCS rules provide installment payments 
for small businesses and businesses owned by members of minority groups 
and/or women bidding for any of the BTA, MTA, or regional narrowband 
PCS licenses. The terms and conditions of the installment payments 
follow those set forth in the Commission's general Part 1 rules, 
entitling eligible licensees to pay their winning bid amount in 
installments over the term of the license, with interest charges to be 
fixed at the time of licensing at a rate equal to the rate for ten-year 
U.S. Treasury obligations. Qualified licensees would make interest-only 
payments during the first two years of the license term.
    51. In light of the Adarand decision, for other services the 
Commission has adopted a ``tiered'' approach to implementing 
installment payment plans, which is based solely on the financial 
status of licensees. Most recently, in the Broadband PCS Report and 
Order, the Commission adopted a

[[Page 27571]]

tiered installment plan for the D, E, and F block broadband PCS 
licenses, but limited the interest payment period to two years. 61 FR 
33859 (July 1, 1996). In the earlier 900 MHz Second Order on 
Reconsideration/Seventh Report and Order, 60 FR 48913 (September 21, 
1995), the Commission adopted a tiered installment payment plan for 900 
MHz SMR licensees.
    52. The Commission tentatively concludes that quarterly installment 
payments are appropriate for small businesses acquiring licenses for 
narrowband PCS. Installment payments will provide financial assistance 
to all small businesses. By allowing payment in installments, the 
government is in effect extending credit to licensees, thus reducing 
the amount of private financing needed prior to the auction. Such 
government financing will promote participation by small businesses 
that, because of their size and lack of access to capital, need such 
incentives to participate in new spectrum opportunities such as 
narrowband PCS.
    53. The installment payment plan the Commission proposes today is 
consistent with the plans set out in the proposed schedule in the Part 
One NPRM. Small businesses with gross revenues that are not more than 
$40 million for the preceding three years would be required to pay 
interest only for the first two years of the license term at the 
Treasury note rate plus 2.5 percent. Very small businesses with gross 
revenues that are not more than $15 million for the preceding three 
years would be able to make interest-only payments for two years at the 
Treasury note rate without the additional 1.5 percent. In both cases, 
i.e., small businesses with gross revenues of not more than $40 million 
and not more than $15 million, payment of principal and interest will 
be amortized over the remaining eight years of the license term and be 
payable in equal, quarterly payments. Timely payment of all quarterly 
installments would be a condition of the license grant, and failure to 
make such timely payment could ultimately be grounds for revocation of 
the license. The Commission seeks comment on this proposal. The 
Commission also seeks comment on alternative installment payment plans.
    54. Consistent with its recent proposal in the Part One NPRM, the 
Commission seeks comment on whether it should adopt a late payment fee 
on any installment payment that is overdue. Payments would be applied 
in the following order: late charges, interest charges, principal 
payments. Thus, a licensee who makes payment after the due date but 
does make payment sufficient to pay the late fee, interest, and 
principal (only if principal is due), will be deemed to have failed to 
make full payment and will be subject to license cancellation pursuant 
to the Commission's rules. The Commission tentatively concludes that 
such a late payment provision is necessary to ensure that licensees 
have an adequate financial incentive to make installment payments on 
time. It notes that licensees would continue to have 90 days before a 
payment is deemed delinquent but a late payment fee would be assessed 
during this period. It also notes that in the Part One NPRM it proposed 
that where a winning bidder misses the second down payment deadline and 
fails to remit the required payment (plus the applicable late fee) by 
the end of the late payment period, it would be declared in default and 
subject to applicable default payments. The Commission seeks comment on 
the applicability of this proposal within the context of narrowband 
PCS.
    55. Under Sec. 1.2110(e)(4)(ii) of the Commission's rules, interest 
that accrues during a grace period will be amortized over the remaining 
term of the license. Amortizing interest in this way has the effect of 
changing the amount of all future payments and requiring the 
Commission, or its designee, to generate a new payment schedule for the 
license. Changing the amount of the installment payment has, in turn, 
created uncertainty about the interest schedule, and increased the 
administrative burden by requiring formulation of a new amortization 
schedule. In order to avoid potential problems associated with changing 
the amount of installment payments and consistent with its proposal in 
the Part One NPRM, the Commission proposes to require all current 
licensees who avail themselves of the grace period to pay all fees, all 
interest accrued during the grace period, and the appropriate scheduled 
payment with the first payment made following the conclusion of the 
grace period. The Commission seeks comment on this proposal.
5. Unjust Enrichment, Holding Period and Transfer Restrictions
    56. Under current rules for narrowband PCS, licensees that receive 
bidding credits and installment payments, and choose to transfer their 
licenses to entities not eligible for these benefits, are subject to 
certain restrictions. Entities seeking to transfer a license acquired 
through a bidding credit are required to repay the amount of the 
bidding credit on a graduated basis until six years after the license 
grant. Similarly, if a small business making installment payments seeks 
to transfer a license to a non-small business entity during the term of 
the license, it must pay the remaining principal balance as a condition 
of the license transfer. The ineligible transferee would not have the 
benefit of installment payments.
    57. The Commission later sought comment on revising these 
provisions in the Competitive Bidding Third Memorandum Opinion & Order/
FNPRM. With regard to bidding credits, the Commission proposed that if, 
within the original 10 year term, a licensee applies to assign or 
transfer control of a license to an entity that is not eligible for as 
high a level of bidding credit, then the assignor would be required to 
pay to the U.S. Treasury the difference between the bidding credit 
obtained by the assignor and the bidding credit for which the acquiring 
party would qualify as a condition of transfer. Similarly, a sale to an 
entity that would not qualify for bidding credits would entail full 
repayment of the original bidding credit as a condition of transfer. 
With regard to installment payments, the Commission proposed to retain 
the unjust enrichment provisions adopted in the Competitive Bidding 
Third Report and Order and clarified these provisions, noting that if 
an entity seeks to assign or transfer control of a license to an entity 
that does not qualify for as favorable an installment payment plan, the 
installment payment plan for which the acquiring entity qualifies would 
become effective immediately upon transfer. Thus, a higher interest 
rate and earlier payment of principal may begin to be applied.
    58. In the Competitive Bidding Third Memorandum Opinion & Order/
FNPRM, the Commission also proposed that entrepreneurs' block licensees 
be prohibited from voluntarily assigning or transferring control of 
their licenses for a period of three years from the date of grant. The 
Commission asked commenters whether, for the next two to seven years of 
the license term, it should permit the licensee to assign or transfer 
control of its authorization only to an entity that satisfies the 
entrepreneurs' blocks entry criteria. During this limited transfer 
period, licensees would continue to be bound by the financial 
eligibility requirements, and a transferee or assignee who receives an 
entrepreneurs' block license during this period would remain subject to 
the transfer restrictions for the balance of the holding period. The 
Commission recognized that in order to provide significant 
opportunities for

[[Page 27572]]

entrepreneurs and small businesses, applicants require flexibility. The 
Commission was concerned, however, that such flexibility would 
undermine the more fundamental objective to ensure that designated 
entities retain de facto and de jure control of their companies. Thus, 
the Commission proposed a holding and limited transfer period to 
address this concern.
    59. The Commission now seeks further comment on the applicability 
of unjust enrichment, assignment, and transfer restrictions to the 
Commission's proposed narrowband PCS rules, as they apply to designated 
entities. The Commission tentatively concludes that the unjust 
enrichment provisions already applicable to narrowband PCS will ensure 
that large businesses do not become the unintended beneficiaries of 
provisions intended to benefit small firms. The Commission thus 
proposes unjust enrichment restrictions as applied to bidding credits 
and installment payments, similar to the existing restrictions for 
narrowband PCS. Specifically, the Commission proposes that if a small 
business that has received bidding credits or is making installment 
payments seeks to transfer a license to a non-small business entity 
during the term of the license, it will be required to reimburse the 
government for the amount of the bidding credit plus interest or the 
remaining principal balance on the license, respectively, as a 
condition of the license transfer. The Commission seeks comment on this 
proposal. The Commission also seeks comment on whether it should 
eliminate the service-specific unjust enrichment rule for narrowband 
PCS in favor of the rule proposed in the Part One NPRM, which conforms 
to the broadband PCS unjust enrichment rules. Furthermore, in light of 
the Commission's decision not to establish an entrepreneurs' block for 
narrowband PCS, the Commission tentatively concludes that it is not 
necessary to propose holding and transfer restrictions for the 
licenses. The Commission seeks comment on this tentative conclusion.
6. Partitioning
    60. The Commission recently adopted a detailed framework for 
revising the geographic partitioning and spectrum disaggregation rules 
for broadband PCS. In particular, it modified the rules to (1) allow 
broadband PCS licensees in the non-entrepreneurs' blocks to partition 
any portion of their license area or disaggregate any portion of their 
spectrum post-auction to entities that are eligible to be a broadband 
licensee, (2) allow entrepreneurs' block licensees to partition and/or 
disaggregate during the first five years of the license term any 
portion of their licensed geographic area and/or spectrum post-auction 
to entities that qualify as ``entrepreneurs'' and are eligible to be 
broadband PCS licensees, (3) establish license term provisions that 
permit partitioned license holders (partitionees) to hold partitioned 
licenses for the duration of the original ten year license term, and 
(4) establish flexible construction requirements to ensure expedient 
access to broadband PCS service in partitioned areas. The Commission 
concluded that these rules would facilitate the efficient use of the 
broadband PCS spectrum, increase competition, and expedite the 
provision of broadband PCS service to areas that may not otherwise 
receive broadband PCS or other wireless services in the near term.
    61. In light of the Commission's decision to redesignate narrowband 
PCS MTA and BTA channel blocks to create larger service areas, it 
believes that a partitioning proposal for narrowband PCS is warranted. 
The Commission proposes a geographic partitioning scheme similar to 
that adopted for broadband PCS. Under this proposal, anyone eligible to 
be a narrowband PCS licensee, i.e., ``qualifying entity,'' would be 
allowed to acquire a partitioned license. This more liberal 
partitioning policy would allow spectrum to be used more efficiently, 
speed service to underserved areas, and increase competition. The 
Commission seeks comment on this proposal. Specifically, the Commission 
seeks comment on whether a partitioning scheme should be available to 
all qualifying entities, or limited to rural telephone companies as in 
the initial broadband PCS rules.
    62. The Commission proposes to allow all narrowband PCS licensees 
to partition at any time to any entity eligible for an narrowband PCS 
license. It notes that small businesses and others may face certain 
barriers to entry into the provision of spectrum-based services which, 
it believes, may be addressed by changes in the partitioning rules. The 
Commission tentatively concludes that providing narrowband PCS 
licensees with the flexibility to partition their geographic service 
areas would create smaller areas that could be licensed to small 
businesses, including those entities which previously may not have had 
the resources to participate successfully in spectrum auctions. The 
Commission also tentatively concludes that partitioning may provide a 
funding source that would enable licensees to construct their systems 
and provide the latest in technological enhancements to the public. The 
Commission seeks comment on these tentative conclusions. In particular, 
commenters are invited to address whether the partitioning scheme will 
help eliminate market entry barriers for small businesses pursuant to 
section 257 of the Communications Act.
    63. The Commission further proposes that a partitionee be 
authorized to hold its license for the remainder of the original ten-
year license term. It tentatively concludes that this term is 
appropriate because a licensee, through partitioning, should not be 
able to confer greater rights than it was awarded under the terms of 
its license grant. The Commission solicits comment on this proposal.
    64. It seeks comment on what should be the respective obligations 
of the participants in a partitioning arrangement. First, with respect 
to scope of narrowband PCS partitioned areas, the Commission 
tentatively concludes that a flexible approach, similar to the one it 
adopted for broadband PCS, is appropriate for narrowband PCS licenses. 
Therefore, the Commission proposes to permit partitioning of narrowband 
PCS licenses based on any geographic area defined by the parties to a 
partitioning arrangement. The Commission seeks comment on this 
proposal, and in particular on whether this proposal is consistent with 
its licensing of narrowband PCS spectrum, and whether there are any 
technical or other issues unique to narrowband PCS that might impede 
the adoption of a flexible approach to defining partitioned license 
areas.
    65. Second, with respect to construction requirements, the 
Commission seeks comment as to which party should be held responsible 
for satisfying outstanding construction requirements. In this FNPRM, 
the Commission has proposed construction requirements for geographic 
narrowband PCS licensees at the five-year and ten-year benchmarks, 
including a ``substantial service'' benchmark. In the Partitioning and 
Disaggregation Report and Order, the Commission adopted two 
construction options for partitioning broadband PCS licensees which 
give the parties the flexibility to choose how to apportion the 
responsibility to build out the partitioned license areas. The 
Commission tentatively concludes that a similar approach is appropriate 
for the narrowband PCS context. Thus, it proposes two options for 
meeting the applicable narrowband PCS construction requirements in a 
partitioning arrangement: (1) The partitionee can certify that it will 
satisfy the same construction requirements as

[[Page 27573]]

the original licensee with the partitionee meeting the requirements in 
its partitioned area and the partitioner being responsible for 
satisfying the requirements in the area it has retained; or (2) the 
original licensee can certify that it has already met or will meet its 
five-year construction requirement and that it will meet the 10-year 
requirement for the entire market involved. The Commission also 
proposes to require that the parties to such partitioning arrangements 
file supporting documentation showing compliance with the applicable 
construction requirements. The Commission seeks comment on these 
proposals. It also seeks comment on whether, and if so, how the option 
of partitioning could be extended to incumbent narrowband PCS licensees 
as well.
    66. Consistent with the rules for broadband PCS, the Commission 
proposes to establish separate installment payment and default 
obligations for the small business licensees and partitionees. When a 
licensee paying its winning bid through installment payments partitions 
to a party that would qualify for installment payments, the partitionee 
will be permitted to make installment payments of its pro rata portion 
of the remaining government obligation. The payments will be based on 
the ratio of the population of the partitioned area to the population 
of the entire license area calculated on the latest available census 
data. Partitionees that do not qualify for installment payments will be 
required to pay their entire pro rata share with 30 days of the Public 
Notice conditionally granting the partitioning transaction. The 
Commission requests comment on its proposals.
    67. The Commission also proposes that in cases where a licensee 
that has qualified as a small business has received a bidding credit 
partitions a portion of its licenses to an entity that would not meet 
the eligibility standards for a bidding credit, it will require that 
the licensee reimburse the government for the amount of the bidding 
credit calculated on a proportional basis based on the ratio of the 
population. If a small business licensee that received a bidding credit 
partitions to an entity that would qualify for a lower bidding credit, 
the Commission will require that the licensee reimburse the government 
for the difference between the amount of the bidding credit obtained by 
the licensee and the bidding credit for which the partitionee is 
eligible calculated on a proportional basis based upon the ratio of 
population of the partitioned area. The Commission requests comment on 
its proposal.
    68. It also seeks comment on the type of unjust enrichment 
requirements that should be placed as a condition for approval of an 
application for a partial transfer of a license owned by a qualified 
small business to a non-small business entity. The Commission 
tentatively concludes that these unjust enrichment provisions would 
include accelerated payment of bidding credits, unpaid principal, and 
accrued unpaid interest, and would be applied on a proportional basis. 
The Commission seeks comment on how such unjust enrichment amounts 
should be calculated, especially in light of the difficulty of devising 
a methodology or formula that will differentiate the relative market 
value of the opportunities to provide service to various partitioned 
areas within a geographic or market area. The Commission seeks comment 
on whether it should consider the price paid by the partitionee in 
determining the percentage of the outstanding principle balance to be 
repaid.
7. Disaggregation
    69. The Commission seeks comment on the feasibility of spectrum 
disaggregation for narrowband PCS. Commenters should provide technical 
justifications and other relevant support in responding to this issue. 
Commenters should address whether minimum disaggregation standards are 
necessary for narrowband PCS services. Commenters should also address 
whether the Commission should permit nationwide licensees to 
disaggregate spectrum.
    70. The Commission also seeks comment on what the respective 
obligations of the participants in a disaggregation transfer should be, 
and whether each party should be required to guarantee a proportionate 
amount of the disaggregator's original auctions-related obligation in 
the event of default or bankruptcy by any of the parties to the 
disaggregation transfer. The Commission seeks comment on whether the 
disaggregator (the original licensee) should have a continuing 
obligation with respect to the entire initial license. Alternatively, 
should the parties have available a choice of options, ranging from an 
accelerated payment based on purchase price to a guarantee for a larger 
payment by one party in the event another party defaults? Parties are 
invited to comment on whether the disaggregating parties should be able 
to determine which party has a continuing obligation with respect to 
the original license area.
    71. The Commission proposes to allow all small business licensees 
to disaggregate to similarly qualifying parties as well as parties not 
eligible for small business provisions. It tentatively concludes that 
if it permits a qualified small business licensee to disaggregate to a 
non-small business entity, the disaggregating licensee should be 
required to repay any benefits it received from the small business 
special provisions on a proportional basis. This would include 
accelerated payment of bidding credits, unpaid principal, and accrued 
unpaid interest. The Commission seeks comment on how such repayment 
amounts should be calculated. It also seeks comment on whether it 
should consider the price paid by the disaggregatee in determining the 
percentage of the outstanding principal balance to be repaid.
    72. The Commission tentatively concludes that if it permits a small 
business licensee to disaggregate to another qualified small business 
that would not qualify for the same level of bidding credit as the 
disaggregating licensee, the disaggregating licensee should be required 
to repay a portion of the benefit it received. It seeks comment on how 
that amount should be calculated. Finally, the Commission seeks comment 
on what provisions, if any, it should adopt to address the situation of 
a small business licensee's disaggregation followed by default in 
payment of a winning bid at auction.

G. Ownership Disclosure Requirements

    73. The rules for narrowband PCS currently require applicants to 
disclose on their short-form applications, FCC Form 175, and long-form 
applications, FCC Form 600, certain ownership information. Section 
24.413(a) of the Commission's rules provides that parties filing the 
short-form application to participate in the narrowband PCS auction and 
auction winners filing the long-form application shall include in an 
exhibit, inter alia, (1) a list of its subsidiaries, if any, (2) a list 
of its affiliates, if any, and (3) in the case of partnerships, the 
name and address of each partner, each partner's citizenship and the 
share or interest participation in the partnership, and a signed and 
dated copy of the partnership agreement. 47 CFR Sec. 24.413(a).
    74. The broadband PCS rules similarly contained ownership 
disclosure requirements for both the short-form and long-form 
applications. The Commission waived the five percent ownership 
disclosure requirements, however, for the broadband PCS A, B, and C 
block auctions. 61 FR 25808 (May 23, 1996). In that context, the 
Commission reasoned that requiring applicants to list

[[Page 27574]]

all businesses in which each attributable stockholder owns at least 5 
percent would necessitate reporting of interests in firms with no 
relation to the services for which licenses are being auctioned, and 
for many companies, particularly investment firms with diverse 
holdings, might be extremely burdensome. The Commission therefore 
waived Secs. 24.813(a)(1) and 24.813(a)(2) of the rules. Disclosure of 
direct, attributable ownership interests in other commercial mobile 
radio service licensees or applicants, however, is still required under 
Sec. 20.6 of the Commission's rules. Similarly, the Commission waived 
the requirement that partnerships submit a signed and dated copy of 
partnership agreements with the short-form application. In waiving this 
requirement, it noted that partnership agreements often discuss 
strategic business objectives and financial and business obligations, 
including bidding strategies, which might be highly sensitive.
    75. The Commission proposes to modify the ownership disclosure 
requirements for narrowband PCS as the Commission modified those 
requirements for broadband PCS through waiver. The Commission 
tentatively concludes that relaxing the disclosure requirements in this 
regard serves the public interest by reducing the administrative 
burdens associated with the auction process. The Commission seeks 
comment on this proposal. Furthermore, the Commission seeks comment on 
whether a separate schedule to the FCC Form 175 should be designed, 
which would formalize the ownership disclosure requirements for the 
short-form application that are presently reported in separate exhibits 
to the FCC Form 175.

H. Construction Prior To Grant of Licenses for Narrowband and Broadband 
PCS

    76. In the Third Report and Order, 59 FR 26741 (August 24, 1994), 
the Commission determined that all commercial mobile radio service 
applicants should be subject to the same rules governing the 
construction of facilities prior to grant of pending applications. The 
Commission later clarified that such rules would extend to successful 
broadband PCS bidders that had filed a long-form application. Thus, 35 
days after the date of the Public Notice announcing the Form 600 
applications accepted for filing, PCS applicants listed therein may, at 
their own risk, commence construction of facilities, provided that (1) 
no petitions to deny the application have been filed, (2) the 
application does not contain a request for a rule waiver; (3) the 
applicant complies fully with the antenna structure provisions of 47 
CFR 24.416, 24.816, including FAA notification and Commission filing 
requirements; (4) the application indicates that the facilities for 
which construction is commenced would not have a significant 
environmental effect (see 47 CFR 24.413(f), 24.813(f)); and (5) 
international coordination of the facility for which construction is 
commenced is not required.
    77. The Commission proposes to modify its pre-licensing 
construction requirements for both broadband and narrowband PCS in 
order to expedite service to the public. Specifically, the Commission 
proposes that long-form applicants may begin construction of facilities 
at their own risk regardless of whether petitions to deny have been 
filed. In adopting pre-grant construction rules for CMRS applicants in 
general, the Commission favored a more liberal approach, urged by the 
industry's comments that granting applicants authority to engage in 
pre-grant construction could advance the date on which the public 
receives service. The Commission continues to believe that liberal pre-
grant construction rules could speed the deployment of services to the 
public. The Commission also believes that applicants that begin 
construction pursuant to these provisions before receiving a final 
license grant do so at their own risk and, thus, they assume the risk 
that their licenses may not be granted as a result of pending petitions 
to deny. The Commission proposes to retain the remaining restrictions, 
however, in light of the specific public interest considerations they 
promote. The Commission seeks comment on these tentative conclusions 
and proposals.

II. Conclusion

    78. The Commission believes that the proposals set forth for 
narrowband PCS in this FNPRM will promote the public policy goals set 
forth by Congress.

III. Procedural Matters

A. Regulatory Flexibility Act

    79. With respect to this FNPRM, as required by section 603 of the 
Regulatory Flexibility Act, the Commission has prepared an Initial 
Regulatory Flexibility Analysis (IRFA) of the expected impact on small 
entities of the proposals suggested in this document. Written public 
comments are requested on the IRFA. These comments must be filed in 
accordance with the same filing deadlines as comments on the rest of 
the FNPRM but they must have a separate and distinct heading 
designating them as responses to the Initial Regulatory Flexibility 
Analysis. The Secretary shall send a copy of this FNPRM, including the 
Initial Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration in accordance with 
paragraph 603(a) of the Regulatory Flexibility Act. Pub. L. 96-354, 94 
Stat. 1164, 5 U.S.C. 601 et seq. (1981).
    80. Reason for Action: This FNPRM was initiated to secure comment 
on proposals for revising rules for narrowband PCS. Such changes to the 
rules for the narrowband PCS service would promote efficient licensing 
and enhance the service's competitive potential in the Commercial 
Mobile Radio Service marketplace. The adopted and proposed rules are 
based on the competitive bidding authority of section 309(j) of the 
Communications Act of 1934, as amended, 47 U.S.C. 309(j), which 
authorized the Commission to use auctions to select among mutually 
exclusive initial applications in certain services, including 
narrowband Personal Communications Services (PCS).
    81. Objectives of this Action: The Omnibus Budget Reconciliation 
Act of 1993 (Budget Act), Pub. L. 103-66, Title VI, section 6002, and 
the subsequent Commission actions to implement it are intended to 
establish a system of competitive bidding for choosing among certain 
applications for initial licenses, and to carry out statutory mandates 
that certain designated entities, including small businesses, are 
afforded an opportunity to participate in the competitive bidding 
process and in the provision of narrowband PCS services.
    82. Legal Basis: The proposed action is authorized under the Budget 
Act and in sections 4(i), 303(r), and 309(j) of the Communications Act 
of 1934, as amended, 47 U.S.C. 154(i), 303(r) and 309(j).
    83. Reporting, Recordkeeping, and Other Compliance Requirements: 
The proposals under consideration in this FNPRM include the possibility 
of new reporting and recordkeeping requirements for a number of small 
business entities, as follows. The Commission requests comment on these 
proposals.
    a. Service Area Reallocation. The Commission proposes revising its 
current channelization plan to ensure that it provides sufficient 
opportunities for all interested parties, including small businesses, 
to establish a viable narrowband PCS system. The Commission is 
concerned that such opportunities may not be meaningful if a single 
Basic Trading Area (BTA) is not

[[Page 27575]]

a sufficiently large service area for implementation of narrowband PCS. 
The Commission has previously stated that the larger Major Trading Area 
licenses (MTAs) will provide for more reasonable and homogeneous 
license areas for the provision of PCS. In addition, the Commission 
reiterates that local participation in narrowband PCS could occur 
through franchising or partitioning arrangements with nationwide and 
regional PCS licensees, thus affording more opportunities to serve 
smaller areas. As a result, the Commission tentatively concludes that 
it will redesignate certain narrowband PCS frequencies for larger 
service areas and will thus provide additional opportunities for 
designated entities, including small businesses. The Commission 
proposes that the remaining narrowband PCS channel blocks will be 
redesignated as follows: (1) redesignate the two remaining 50 kHz 
paired channels as nationwide channels; (2) establish one nationwide, 
three regional, and one MTA-based channel pairs from the five 50/12.5 
kHz channel pairs; and (3) convert the four BTA-based 12.5 kHz unpaired 
response channels to regional channels. The Commission does not 
anticipate any additional reporting or recordkeeping requirements from 
this proposal.
    b. Response Channel Redesignation. The Commission tentatively 
concludes that the paging response channels should be reallocated for 
use in larger service areas. The Commission agrees with commenters who 
argue that reallocating some of the response channels for use in larger 
service areas will facilitate the upgrade of existing paging networks 
and enhance narrowband PCS systems. The Commission therefore proposes 
to redesignate the four 12.5 kHz unpaired response channels currently 
licensed as BTA channel blocks as regional channel blocks, and retain 
the four MTA paging response channels. Additionally, the Commission 
does not redesignate response channels to an entrepreneurs' block. 
Instead, as discussed in the FNPRM, the Commission proposes to open 
eligibility for these channels to all applicants, not just incumbent 
paging licensees. The Commission does not anticipate any additional 
reporting or recordkeeping requirements from this proposal.
    c. Construction Requirements. The proposals in the FNPRM include 
the possibility of imposing reporting and recordkeeping requirements 
for new narrowband PCS licensees to establish compliance with the 
coverage requirements, if such requirements are adopted.
    d. Geographic Partitioning and Spectrum Disaggregation. The 
proposals in the FNPRM include the possibility of imposing reporting 
and recordkeeping requirements for small businesses seeking licenses 
through the proposed partitioning and disaggregation rules. The 
information requirements would be used to determine whether the 
licensee is a qualifying entity to obtain partitioned or disaggregated 
spectrum. This information will be a one-time filing by any applicant 
requesting such a license. The information will be submitted on the FCC 
Forms 490 (or 430 and/or 600 filed as one package under cover of the 
Form 490) which are currently in use and have already received OMB 
clearance. The Commission estimates that the average burden on the 
applicant is three hours for the information necessary to complete 
these forms. The Commission estimates that 75 percent of the 
respondents, which may include small businesses, will contract out the 
burden of responding. The Commission estimates that it will take 
approximately 30 minutes to coordinate information with those 
contractors. The remaining 25 percent of respondents, which may include 
small businesses, are estimated to employ in-house staff to provide the 
information. Applicants, including small businesses, filing the package 
under cover of FCC Form 490 electronically will incur a $2.30 per 
minute on-line charge. On-line time would amount to no more than 30 
minutes. The Commission estimates that 75 percent of the applicants may 
file electronically. The Commission estimates that applicants 
contracting out the information would use an attorney or engineer, with 
an average cost of $200 per hour, to prepare the information.
    e. Construction Prior to Grant of Licenses for Narrowband and 
Broadband PCS. The proposals in the FNPRM include the possibility of 
changing existing Commission pre-licensing construction requirements 
for narrowband PCS. The proposal in the FNPRM would allow long-form 
applicants to begin construction of facilities at their own risk, 
regardless of whether any petitions to deny have been filed. The 
Commission does not anticipate any additional reporting or 
recordkeeping requirements from this proposal.
    f. Small Business Definition. The FNPRM proposes 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 $40 million, and (2) a very small business is 
one which has less than an average of $15 million in gross revenues in 
each of the last three years. Qualifying entities will be eligible for 
bidding credits and installment plans. In order to qualify as small 
business under either tier, an entity must demonstrate that its gross 
revenues fall within the proposed thresholds. The information will be 
submitted on the FCC Form 600, which is currently in use and which has 
received OMB clearance. Such entities will also need to maintain 
supporting documentation at their principal place of business.
    g. Ownership Disclosure Requirements. The proposals in the FNPRM 
include the possibility of changing the ownership disclosure 
requirements for all applicants. The information requirements would be 
used to determine whether the licensee is a qualifying entity under the 
Commission's ownership rules. The proposals include relaxing the 
disclosure requirements, such as the required submittal of partnership 
agreements, which would reduce the administrative burdens associated 
with the auction process. The Commission also seeks comment on whether 
a separate schedule to FCC Form 175 should be designated, which would 
formalize the disclosure requirements to the current FCC Form 175. The 
proposal in the FNPRM would decrease the amount of information that a 
narrowband PCS applicant would be required to file. This information 
will be a one-time filing by any applicant requesting such a license. 
The information will be submitted on the FCC Forms 600 and FCC Form 
175, which are currently in use and have already received OMB 
clearance.
    84. Federal Rules Which Overlap, Duplicate or Conflict With These 
Rules: None.
    85. Description, Potential Impact, and Number of Small Entities 
Involved: The FNPRM would establish certain narrowband PCS spectrum 
blocks for bidding by smaller entities as well as larger entities, and 
would provide installment payments and bidding credits to certain 
eligible entities bidding within those blocks. The Commission is 
required to estimate in its Final Regulatory Flexibility Analysis the 
number of small entities to which a rule will apply, provide a 
description of such entities, and assess the impact of the rule on such 
entities. To assist the Commission in this analysis, commenters are 
requested to provide information regarding how many total entities, 
existing and potential, would be affected by the proposed rules in the 
FNPRM. In particular, the Commission

[[Page 27576]]

seeks estimates of how many such entities will be considered small 
businesses.
    86. Geographic Partitioning and Spectrum Disaggregation. The 
partitioning and disaggregation rule changes proposed in this 
proceeding will affect all small businesses which avail themselves of 
these rule changes, including small businesses currently holding 
narrowband PCS licenses who choose to partition and/or disaggregate and 
small businesses who may acquire licenses through partitioning and/or 
disaggregation.
    87. The Commission is required to estimate in its Final Regulatory 
Flexibility Analysis the number of small entities to which a rule will 
apply, provide a description of such entities, and assess the impact of 
the rule on such entities. To assist the Commission in this analysis, 
commenters are requested to provide information regarding how many 
total entities, existing and potential, would be affected by the 
proposed rules in the FNPRM. In particular, the Commission seeks 
estimates of how many such entities will be considered small 
businesses. The Commission is utilizing the SBA definition applicable 
to radiotelephone companies, i.e., an entity employing less than 1,500 
persons. 13 CFR 121.201, Standard Industrial Classification Code 4812. 
The Commission seeks comment on whether this definition is appropriate 
for narrowband PCS licensees in this context. Additionally, the 
Commission requests each commenter to identify whether it is a small 
business under this definition. If a commenter is a subsidiary of 
another entity, this information should be provided for both the 
subsidiary and the parent corporation or entity.
    88. The Commission estimates that the approximately 30 current 
regional narrowband PCS licensees and 11 nationwide narrowband PCS 
licensees could take the opportunity to partition and/or disaggregate a 
license or obtain an additional license through partitioning or 
disaggregation. New entrants could obtain narrowband PCS licenses 
through the competitive bidding procedure, and take the opportunity to 
partition and/or disaggregate a license or obtain an additional license 
through partitioning or disaggregation. Additionally, entities that are 
neither incumbent licensees nor geographic area licensees could enter 
the market by obtaining a narrowband PCS license through partitioning 
or disaggregation. The Commission cannot estimate how many licensees or 
potential licensees could take the opportunity to partition and/or 
disaggregate a license or obtain a license through partitioning and/or 
disaggregation, because it has not yet determined the size or number of 
narrowband PCS licenses that will be granted in the future. Given the 
fact that nearly all radiotelephone companies have fewer than 1,000 
employees, and that no reliable estimate of the number of future 
narrowband PCS licensees can be made, the Commission assumes for 
purposes of this IRFA that all of the licenses will be awarded to small 
businesses. It is possible that a significant number of the potential 
licensees who could take the opportunity to partition and/or 
disaggregate a license or who could obtain a license through 
partitioning and/or disaggregation will be small businesses.
    89. Any Significant Alternatives Minimizing the Impact on Small 
Entities Consistent with the Stated Objectives: In the FNPRM, the 
Commission seeks comment on whether coverage requirements should be 
imposed for all narrowband PCS licensees. Any significant alternatives 
presented in the comments will be considered. Coverage requirements for 
narrowband PCS licensees, if adopted, would probably not affect small 
businesses.
    90. With respect to partitioning, the Commission tentatively 
concludes that unjust enrichment provisions should apply when a 
licensee has benefitted from the small business provisions in the 
auction rules and partitions a portion of the geographic license area 
to another entity that would not qualify for such benefits. The 
alternative to applying the unjust enrichment provisions would be to 
allow an entity who had benefitted from the special bidding provisions 
for small businesses to become unjustly enriched by partitioning a 
portion of their license area to parties that do not qualify for such 
benefits. The Commission also seeks comment on whether spectrum 
disaggregation would be feasible for narrowband PCS, and how much 
spectrum a narrowband PCS licensee should be permitted to disaggregate.
    91. The FNPRM proposes certain provisions for smaller entities 
designed to ensure that such entities have the opportunity to 
participate in the competitive bidding process and in the provision of 
narrowband PCS services. Any significant alternatives presented in the 
comments will be considered.

B. Paperwork Reduction Act

    92. As required by the Regulatory Flexibility Act, see 3 U.S.C. 
603, the Commission has prepared an Initial Regulatory Flexibility 
Analysis (IRFA) of the expected impact on small entities of the 
policies and rules proposed and adopted in the FNPRM section of this 
Report and Order and FNPRM. Written public comments are requested on 
the IRFA and must be filed by the deadlines for comments on the Report 
and Order and FNPRM.

C. Federal Rules Which Overlap, Duplicate or Conflict With These Rules

    None.

D. Description, Potential Impact, and Number of Small Entities Involved

    93. The FNPRM would establish certain narrowband PCS spectrum 
blocks for bidding by smaller entities as well as larger entities, and 
would provide installment payments and bidding credits to certain 
eligible entities bidding within those blocks. The Commission is 
required to estimate in its Final Regulatory Flexibility Analysis the 
number of small entities to which a rule will apply, provide a 
description of such entities, and assess the impact of the rule on such 
entities. To assist the Commission in this analysis, commenters are 
requested to provide information regarding how many total entities, 
existing and potential, would be affected by the proposed rules in the 
FNPRM. In particular, the Commission seeks estimates of how many such 
entities will be considered small businesses.
    94. Geographic Partitioning and Spectrum Disaggregation. The 
partitioning and disaggregation rule changes proposed in this 
proceeding will affect all small businesses which avail themselves of 
these rule changes, including small businesses currently holding 
narrowband PCS licenses who choose to partition and/or disaggregate and 
small businesses who may acquire licenses through partitioning and/or 
disaggregation.
    95. The Commission is required to estimate in its Final Regulatory 
Flexibility Analysis the number of small entities to which a rule will 
apply, provide a description of such entities, and assess the impact of 
the rule on such entities. To assist the Commission in this analysis, 
commenters are requested to provide information regarding how many 
total entities, existing and potential, would be affected by the 
proposed rules in the FNPRM. In particular, the Commission seeks 
estimates of how many such entities will be considered small 
businesses. The Commission is utilizing the Small Business 
Administration definition applicable to radiotelephone companies, i.e., 
an entity employing less

[[Page 27577]]

than 1,500 persons. The Commission seeks comment on whether this 
definition is appropriate for narrowband PCS licensees in this context. 
Additionally, the Commission requests each commenter to identify 
whether it is a small business under this definition. If a commenter is 
a subsidiary of another entity, this information should be provided for 
both the subsidiary and the parent corporation or entity.
    96. The Commission estimates that the approximately 30 current 
regional narrowband PCS licensees and 11 nationwide narrowband PCS 
licensees could take the opportunity to partition and/or disaggregate a 
license or obtain an additional license through partitioning or 
disaggregation. New entrants could obtain narrowband PCS licenses 
through the competitive bidding procedure, and take the opportunity to 
partition and/or disaggregate a license or obtain an additional license 
through partitioning or disaggregation. Additionally, entities that are 
neither incumbent licensees nor geographic area licensees could enter 
the market by obtaining a narrowband PCS license through partitioning 
or disaggregation. The Commission cannot estimate how many licensees or 
potential licensees could take the opportunity to partition and/or 
disaggregate a license or obtain a license through partitioning and/or 
disaggregation, because it has not yet determined the size or number of 
narrowband PCS licenses that will be granted in the future. Given the 
fact that nearly all radiotelephone companies have fewer than 1,000 
employees, and that no reliable estimate of the number of future 
narrowband PCS licensees can be made, the Commission assumes for 
purposes of this IRFA that all of the licenses will be awarded to small 
businesses. It is possible that a significant number of the potential 
licensees who could take the opportunity to partition and/or 
disaggregate a license or who could obtain a license through 
partitioning and/or disaggregation will be small businesses.

E. Any Significant Alternatives Minimizing the Impact on Small Entities 
Consistent With the Stated Objectives

    97. In the FNPRM the Commission seeks comment on whether coverage 
requirements should be imposed for all narrowband PCS licensees. Any 
significant alternatives presented in the comments will be considered. 
Coverage requirements for narrowband PCS licensees, if adopted, would 
probably not affect small businesses.
    98. With respect to partitioning, the Commission tentatively 
concludes that unjust enrichment provisions should apply when a 
licensee has benefitted from the small business provisions in the 
auction rules and partitions a portion of the geographic license area 
to another entity that would not qualify for such benefits. The 
alternative to applying the unjust enrichment provisions would be to 
allow an entity who had benefitted from the special bidding provisions 
for small businesses to become unjustly enriched by partitioning a 
portion of their license area to parties that do not qualify for such 
benefits. The Commission also seeks comment on whether spectrum 
disaggregation would be feasible for narrowband PCS, and how much 
spectrum a narrowband PCS licensee should be permitted to disaggregate.
    99. The FNPRM proposes certain provisions for smaller entities 
designed to ensure that such entities have the opportunity to 
participate in the competitive bidding process and in the provision of 
narrowband PCS services. Any significant alternatives presented in the 
comments will be considered.
    100. IRFA Comments: The Commission requests written public comment 
on the foregoing Initial Regulatory Flexibility Analysis. Comments must 
have a separate and distinct heading designating them as responses to 
the IRFA and must be filed by the deadlines provided in paragraph 109 
of this FNPRM.
    101. Dates. Written comments by the public on the proposed 
information collections are due on or before June 18, 1997 and reply 
comments are due on or before July 7, 1997. Written comments must be 
submitted by the Office of Management and Budget (OMB) on the proposed 
information collection on or before June 18, 1997 and reply comments 
are due on or before July 7, 1997.
    102. Addresses: In addition to filing comments with the Secretary, 
a copy of any comments on the information collections contained herein 
should be submitted to Dorothy Conway, Federal Communications 
Commission, Room 234, 1919 M Street NW, Washington DC 20554, or via the 
Internet to [email protected], and to Timothy Fain, OMB Desk Officer, 
10236 NEOB, 725 17th Street NW, Washington, DC 20503 or via the 
Internet to [email protected].
    103. Further Information: For additional information concerning the 
information collections contained in the NPRM, contact Dorothy Conway 
at (202) 418-0217, or via the Internet at [email protected].
    104. Supplementary Information:
    Title: Amendment of the Commission's Rules to Establish New 
Personal Communications Services, Narrowband PCS, implementation of 
section 309(j) of the Communications Act--Competitive Bidding, 
Narrowband PCS, FNPRM.
    OMB Number: 3060-0604.
    Form Number: FCC Forms 175 and 600.
    Type of Review: Revision of existing collection.
    Respondents:
    Affected public: Individuals, State or local governments, 
Businesses or other for-profit, Small businesses or organizations.
    Number of respondents: 6,136.
    Estimated time per response: 6 hours.
    Total annual burden: 16,000.5 hours.
    Needs and uses: The auction rules require narrowband PCS applicants 
to submit (1) information to qualify for small businesses, (2) 
ownership information, (3) proof of compliance with coverage 
requirements and (4) eligibility to participate in partitioning and 
disaggregation. The information needed to qualify as a small business 
and the ownership information will be submitted as attachments to FCC 
Form 600. Coverage requirements will be submitted in letter form during 
designated benchmarks during the license term. The information for 
partitioning and disaggregation will be covered under a generic 
clearance which has been submitted to OMB for approval. Collection of 
information is required so that the Commission can determine whether 
narrowband PCS applicants are legally, technically and financially 
qualified to be licensed and whether applicants are entitled to receive 
certain benefits. The information will also be used to ensure that 
licensees who acquire their licenses through competitive bidding are 
not unjustly enriched by premature transfer of their licenses. Without 
the information, the Commission could not determine whether to issue 
the licenses to the applicants that provide telecommunication services 
to the public. The information is used by Commission staff in carrying 
out its duties under the Communications Act. This is a revision of a 
previously approved collection. If no changes are made to these 
collections in the Report and Order, a correction worksheet will be 
submitted at that time.

F. Ex Parte Rules--Non-Restricted Proceeding

    105. This is a non-restricted notice proceeding. Ex parte 
presentations are permitted except during the Sunshine Agenda period, 
provided they are

[[Page 27578]]

disclosed as provided in the Commission's rules. See generally 47 CFR 
1.1202, 1.1203, and 1.1206(a).

G. Comment Dates

    106. Pursuant to applicable procedures set forth in Secs. 1.415 and 
1.419 of the Commission's rules, 47 CFR 1.415 and 1.419, interested 
parties may file comments on or before June 18, 1997, and reply 
comments on or before July 7, 1997. To file formally in this 
proceeding, you must file an original and four copies of all comments, 
reply comments, and supporting comments. If you want each Commissioner 
to receive a personal copy of your comments, you must file an original 
plus nine copies. You should send comments and reply comments to the 
Office of the Secretary, Federal Communications Commission, Washington, 
DC 20554. Comments and reply comments will be available for public 
inspection during regular business hours in the FCC Reference Center of 
the Federal Communications Commission, Room 239, 1919 M Street, NW, 
Washington, DC 20554.

H. Ordering Clauses

    107. Authority for issuance of this FNPRM is contained in sections 
4(i), 303(r) and 309(j) of the Communications Act of 1934, as amended, 
47 U.S.C. 154(i), 303(r) and 309(j).

List of Subjects in 47 CFR Part 24

    Communications common carriers, Radio, Reporting and recordkeeping 
requirements.

Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 97-13147 Filed 5-19-97; 8:45 am]
BILLING CODE 6712-01-P