[Federal Register Volume 62, Number 131 (Wednesday, July 9, 1997)]
[Proposed Rules]
[Pages 36752-36756]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17869]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR CHAPTER I
[WT Docket No. 97-150; FCC 97-232]
Competitive Bidding
AGENCY: Federal Communications Commission.
ACTION: Request for comments.
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SUMMARY: On July 2, 1997, the Federal Communications Commission
released a public notice requesting comment on the Commission's use of
competitive bidding to award licenses to provide wireless services as
part of its preparation of a report to Congress, as required by Section
309(j)(12) of the Communications Act, 47 U.S.C. 309(j)(2). The public
notice solicits comment from the public on a variety of issues relating
to the Commission's spectrum auction program to date, and announces
that comments are due on or before August 1, 1997.
DATES: Comments are due on or before August 1, 1997.
FOR FURTHER INFORMATION CONTACT: Mark Bollinger or Alice Elder,
Wireless Telecommunications Bureau, Federal Communications Commission,
(202) 418-0660.
SUPPLEMENTARY INFORMATION: This is a summary of the public notice
released on July 2, 1997. The complete public notice is available for
inspection and copying during normal business hours in the FCC
Reference Center (Room 239), 1919 M Street, N.W., Washington, D.C.,
20554, and also may be purchased from the Commission's copy contractor,
International Transcription Services, (202) 857-3800, 2100 M Street,
N.W., Washington, D.C. 20037. The complete public notice is also
available on the Commission's Internet home page (http://www.fcc.gov).
Summary of the Public Notice
Commission Opens Inquiry on Competitive Bidding Process for Report to
Congress
Comment Due Date: August 1, 1997
I. Introduction and Background
The Omnibus Budget Reconciliation Act of 1993 (the ``Budget Act'')
added Section 309(j) to the Communications Act of 1934, as amended, 47
U.S.C. Secs. 151-713 (the ``Communications Act''). Section 309(j)
authorized the Commission to employ competitive bidding to choose from
among mutually exclusive applications for initial licenses in services
where the licensee receives compensation from subscribers. It requires
the Commission to promote the development and rapid deployment of new
technologies, products and services for the benefit of the public,
including those residing in rural areas, without administrative or
judicial delays. It further requires the Commission to promote
opportunity and competition by avoiding excessive concentration of
licenses and by disseminating licenses among a wide variety of
applicants, including small businesses, rural telephone companies, and
businesses owned by members of minority groups and women.
In the four years since grant of auction authority, the Commission
has completed fourteen auctions. These auctions have resulted in the
assignment of over 4,300 licenses for spectrum-based services, which
include narrowband Personal Communications Service (PCS), broadband
PCS, Interactive Video Data Service (IVDS), Multipoint Distribution
Service (MDS), 900 MHz Specialized Mobile Radio Service (SMR), unserved
cellular areas, Direct Broadcast Satellite (DBS), Digital Audio Radio
Service (DARS) and Wireless Communications Service (WCS). Auctions to
date have raised a total of $23.1 billion for the U.S. Treasury. Future
auctions being planned include those for licenses to provide Local
Multipoint Distribution Service, paging, narrowband PCS, and the 800
MHz SMR and 220 MHz services.
Section 309(j)(12) of the Communications Act requires that the
Commission conduct a public inquiry regarding the use of competitive
bidding to award licenses and submit a report to Congress by September
30, 1997. Pursuant to the statute, the report must:
(1) Contain a statement of the revenues obtained, and a projection
of future revenues, from the use of competitive bidding systems;
(2) Describe the competitive bidding methodologies established by
the Commission pursuant to Sections 309(j)(3) and (4) of the
Communications Act;
(3) Compare the advantages and disadvantages of the competitive
bidding methodologies established by the Commission in terms of
attaining the objectives described in Sections 309(j)(3) and (4) of the
Communications Act;
(4) Evaluate whether and to what extent:
(i) Competitive bidding significantly improved the efficiency and
effectiveness of the process for granting radio spectrum licenses;
(ii) Competitive bidding facilitated the introduction of new
spectrum-based technologies and the entry of new companies into the
telecommunications market;
(iii) Competitive bidding methodologies have secured prompt
delivery of service to rural areas and have adequately addressed the
needs of rural spectrum users; and
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(iv) Small businesses, rural telephone companies, and businesses
owned by members of minority groups and women were able to participate
successfully in the competitive bidding process; and
(5) Recommend any statutory changes that are needed to improve the
competitive bidding process.
To date, the Commission has conducted numerous rule makings
implementing its auction authority. As a result, the agency has
obtained comments and information from potential and actual bidders,
industry groups and licensees concerning its auction process. By this
Public Notice, the Commission seeks additional information and comment
in order to assist in preparing its report to Congress. The Commission
encourages comment from participants in prior auctions, from persons or
entities who are planning to participate in upcoming auctions, and from
other interested parties, including small businesses, rural telephone
companies, and businesses owned by members of minority groups and
women. Analysis of the data and results of specific auctions already
conducted, as well as information helpful in evaluating future
auctions, is desirable. Further information about the Commission's
auctions can be found at the Commission's Internet Auctions site,
http://www.fcc.gov/wtb/auctions.html. Parties are asked to provide any
examples or detailed analyses, studies or statistics concerning the
issues to be addressed in our report.
II. Request for Public Comment
A. Projection of Revenues From the Use of Competitive Bidding Systems
To date, the Commission has raised $23 billion for the U.S.
Treasury through fourteen spectrum auctions. Revenue to be derived from
future auctions will likely be affected by various factors, including
the nature and amount of spectrum auctioned, service-specific FCC
rules, market conditions, and auction methodology. Determining the
value of spectrum in advance of an auction is very difficult. The value
of spectrum depends on a number of factors, including its location,
technical characteristics, the amount of spectrum, the geographic area
covered, the availability of technology suitable for a given band, the
amount of spectrum already available for provision of similar services,
the number of incumbents presently occupying the spectrum, and whether
incumbents, if any, will remain licensed in that spectrum or will be
relocated to other spectrum. The Commission has not made estimates of
the value of auctionable spectrum in the past. Moreover, the
Commission's statutory authority specifically instructs the Commission
not to base its spectrum allocation decisions ``solely or
predominantly'' on the expectation of revenues that auctions may
generate. The Commission's primary mission in conducting auctions is
promoting competition by awarding licenses rapidly to those who value
them most highly.
The Commission asks commenters to provide it with information that
will aid the Commission in estimating projected revenues for its report
to Congress. Specifically, the Commission asks:
How have the Commission's auction rules affected revenues
in the first fourteen spectrum auctions? Please be specific.
How and to what extent has the amount of spectrum being
offered for auction, size of the license areas, the timing of the
offerings, and the use for which the spectrum is allocated, affected
revenues?
What other factors have affected the revenues derived from
the spectrum auctions conducted to date?
What methodologies should the Commission use to project
future revenues? Please provide specific illustrations of how such
methodologies might be applied.
B. Comparison of Different Methodologies
The introduction of competitive bidding into the license assignment
process promotes competition by awarding licenses quickly to those who
value them most highly, reduces wasteful private expenditures on
obtaining licenses in the secondary market, and raises revenue that
lessens taxpayer burdens. Before the grant of auction authority, the
Commission mainly relied upon comparative hearings and lotteries to
select a single licensee from a pool of mutually exclusive applicants
for a license. Under the comparative hearing process, the licensee was
selected from among a group of applicants on the basis of certain
criteria; under the lottery process, a licensee was selected at random.
The Commission has found that spectrum auctions more effectively assign
licenses than either comparative hearings or lotteries in most cases.
For example, using comparative hearings and lotteries, it generally
took the Commission at least two years or more to award licenses in
each of the top cellular markets. Lotteries also had the effect of
fueling speculation that resulted in the agency receiving nearly
400,000 applications for cellular licenses, and of allowing license
winners to reap large windfall profits by quickly selling their
licenses in a private auction to others. Notably, between 1983 and 1993
over 75 percent of all cellular licenses had been transferred at least
once. By using auctions, the Commission has reduced the average time
from license application to award to less than one year and the public
is now receiving the direct financial benefit from the award of
licenses.
Additionally, the Commission auction methodology promotes efficient
spectrum use in several ways. First, it facilitates efficient spectrum
aggregation across geographic areas and spectrum blocks. Second, it
generates information about the value of spectrum for alternative uses.
Moreover, auctions, unlike comparative hearings, can be conducted at
modest cost relative to license value. The total cost of all Commission
auctions to date has been approximately $65 million, which represents
only about 0.28 percent of the total auction revenue raised to date.
In conducting spectrum auctions, the Commission also has analyzed
and experimented with various auction methodologies. The Commission
pioneered the use of simultaneous multiple round auctions, the format
which we have used for most of our auctions. In contrast to other
bidding mechanisms, simultaneous multiple round bidding generates the
most information about license values during the course of the auction
and provides bidders with the most flexibility to pursue spectrum
aggregation strategies. Thus, this methodology effectively awards
interdependent licenses to the bidders who value them most highly.
Generally, the Commission has found that because of the superior
information and flexibility simultaneous multiple round bidding
provides, it is likely to yield more revenue than other auction
designs. The Commission also has used oral outcry and sequential
multiple round electronic auction designs, and is exploring other
bidding mechanisms, such as combinatorial bidding, for future auctions.
See Amendment of Part 1 of the Commission's Rules--Competitive Bidding
Proceeding, WT Docket No. 97-82, Order, Memorandum Opinion and Order
and Notice of Proposed Rule Making, FCC 97-60, 62 FR 13540 (March 21,
1997) (``Part 1 NPRM''). The Commission asks commenters to consider the
different methodologies used to date and offer any views or comparisons
of these mechanisms that would be helpful for the Commission's report
to Congress. In particular, the Commission asks:
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Are there specific examples of where the simultaneous
multiple round auction methodology has facilitated efficient
aggregation of complementary licenses?
What costs have been incurred in the preparation of bids?
Have these costs been significantly affected by the duration of the
auctions? How do these costs compare to the costs associated with
lotteries and comparative hearings?
How has the use in connection with auctions of electronic
application filing, electronic bidding, and the distribution of
information via the Internet improved the efficiency and effectiveness
of granting spectrum licenses?
Are there any other auction methodologies or improvements
to existing methodologies that might be explored?
C. Evaluation of How Competitive Bidding Has Facilitated the
Introduction of New Technologies and the Entry of New Companies Into
the Telecommunications Market
The PCS spectrum auctions resulted in the creation of many new
wireless telecommunications companies. Counted among these companies
are many small entrepreneurial firms. Indeed, 54 percent of the
licenses thus far awarded by auctions have gone to small businesses,
many of which are new entrants in the telecommunications market. Also,
several of the largest telecommunications enterprises in the world,
such as Sprint Telecommunications and the Bell Operating Companies,
have formed alliances to establish nationwide PCS networks. For
subscribers, these new firms represent new choices for increasingly
improving wireless service at lower prices. A recent report identifies
over 40 markets that now have three wireless competitors and 10 markets
with four competitors. There have been some reports that pricing in
competitive markets with at least one PCS operator averages 18 percent
lower than in markets with no PCS competitors. Competition is also
increasing consumers' choice of products by advancing the development
of three digital standards. In monetary terms, the most important
effect to the economy is that these firms are now investing in
infrastructure that will permit them to offer telecommunications
services in competition with each other and with other providers such
as cable and telephone companies. The wireless investment is expected
to be in the area of $50 billion over the next five years--the largest
single non-military investment in a new technology in history.
By substantially lessening the length of the license assignment
process, auctions have resulted in speeding new technologies and
services to the wireless communications marketplace. For example, the
Commission recently completed the Digital Audio Radio Service auction,
which will bring a new digital radio service to American listeners
nationwide. Other services that have been rapidly developed through
auctions include narrowband PCS, Direct Broadcast Satellite, Multipoint
Distribution Service, and Specialized Mobile Radio. For its report, the
Commission asks:
How do spectrum auctions compare with previous assignment
methods in attracting new entities to the communications market? How
successful have new entrants been in winning licenses at auction? What
effect are new entities having on the availability to the public of
competitive communications offerings?
What are specific examples of new and innovative service
offerings or technologies that have been made available to the public
rapidly because of auctions?
Has the auction process or the timing of auctions
adversely affected the introduction of new technologies in any way? If
so, what changes could we make in our auctions process to better
facilitate new technologies?
D. Evaluation of How Competitive Bidding Methodologies Have Secured
Prompt Delivery of Service to Rural Areas
For broadband PCS, the Commission adopted measures that would
facilitate the delivery of new services to rural and underserved areas.
In that proceeding, rural telephone companies were concerned that they
effectively would be barred from entering the broadband PCS industry if
they were required to bid on an entire Basic Trading Area (BTA) or
Major Trading Area (MTA) license to obtain the license which covered
their wireline service areas. They believed that partitioning would
allow them to serve areas in which they already provide service,
encouraging them to take advantage of existing infrastructure in
providing PCS services and thereby speeding service to rural areas. In
response to their concerns, the Commission adopted measures allowing
rural telephone companies to obtain broadband PCS licenses that are
geographically partitioned from larger PCS service areas, as well as to
obtain disaggregation of a portion of the spectrum assigned to the
licensee. In the Partitioning and Disaggregation Order, the Commission
extended its PCS partitioning and disaggregation rules to allow
entities other than rural telephone companies to obtain partitioned or
disaggregated licenses in order to speed service to unserved or
underserved areas. Partitioning is the assignment of geographic
portions of a spectrum license along geopolitical or other boundaries.
Disaggregation is the assignment of discrete portions or ``blocks'' of
spectrum licenses to another qualifying entity. See Geographic
Partitioning and Spectrum Disaggregation by Commercial Mobile Radio
Licensees, WT Docket No. 96-148, FCC 96-474, Report and Order and
Further Notice of Proposed Rulemaking, 62 FR 696 (January 6, 1997). The
benefits of these rules are demonstrated in a partitioning agreement
recently approved in which a large licensee partitioned a geographic
portion of its MTA to a rural telephone company, thereby increasing the
rural telephone company's footprint and giving it access to several key
interstate arteries.
The Commission has adopted or proposed partitioning and
disaggregation rules for other services, such as narrowband PCS, 220
MHz, paging, and LMDS. To identify other ways its rules have
facilitated delivery to underserved areas, the Commission asks
commenters to address the following questions:
How have the Commission's competitive bidding rules
facilitated delivery of new and competitive telecommunications services
to rural and/or underserved areas?
What effect have the Commission's rules on geographic
service area size and the size of spectrum blocks had on delivery of
new technologies and services to rural and/or underserved areas?
How well have service-specific performance requirements,
including build out requirements, ensured the prompt delivery of new
and competitive service to rural and/or underserved areas?
What effect have the Commission's policies on geographic
partitioning and spectrum disaggregation had on improving opportunities
for delivery of new technologies and services to rural and/or
underserved areas?
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E. Evaluation of How the Commission's Competitive Bidding Rules Ensure
that Small Businesses, Rural Telephone Companies and Businesses Owned
by Women and Members of Minority Groups were able to Participate
Successfully in the Competitive Bidding Process
In prescribing competitive bidding regulations, Congress directed
the Commission to ensure that small businesses, rural telephone
companies, and businesses owned by members of minority groups and women
are given the opportunity to participate in the provision of spectrum-
based services. 47 U.S.C. Sec. 309(j)(4)(D). To promote these
objectives, Section 309(j)(4)(A) requires the Commission ``to consider
. . . alternative payment schedules and methods of calculation,
including lump sums or guaranteed installment payments, with or without
royalty payments, or other schedules or methods.'' 47 U.S.C.
Sec. 309(j)(4)(A). The Commission has adopted a number of measures,
including entrepreneurs' blocks, bidding credits, reduced upfront
payments and down payments, and installment payments, to ensure the
participation of rural telephone companies and small businesses,
including those owned by women and minorities.
Since the 1993 mandate to ensure that designated entities are given
the opportunity to participate in the provision of spectrum-based
services, Congressional and Supreme Court actions have narrowed our
options for fulfilling this mandate. In 1994, Congress repealed Section
1071 of the Communications Act, voiding the Commission's tax
certificate program. In 1995, the Supreme Court held in Adarand
Constructors, Inc. v. Pena, 115 S. Ct. 2097, 2113 (1995), that ``all
racial classifications . . . must be analyzed by a reviewing court
under strict scrutiny.'' The Court ruled that any federal program that
makes distinctions on the basis of race must serve a compelling
governmental interest and must be narrowly tailored to serve that
interest. In 1996, the Supreme Court held in United States v. Virginia,
116 S. Ct. 2264, 2274-76 (1996), that a state program that makes
distinctions on the basis of gender must be supported by an ``exceeding
persuasive justification'' in order to withstand constitutional
scrutiny. Because the record developed in promulgating rules to promote
Section 309(j)'s objectives did not assume application of a ``strict
scrutiny test,'' the Commission narrowed the provisions for minority-
and women-owned businesses to provisions benefiting small businesses.
Id. The Commission believes that these measures have allowed small
businesses, including those owned by women and minorities, to overcome
barriers that have impeded these groups' participation in the
telecommunications arena, including barriers related to access to
capital. The Commission continues to encourage the participation of a
variety of entrepreneurs in the provision of wireless services,
believing that innovation by small businesses will result in a
diversity of service offerings that will increase customer choice and
promote competition. Additionally, the Commission has initiated a
proceeding to consider other ways to improve the access of small
businesses, minority- and women-owned firms to the telecommunications
markets. See Section 257 Proceeding to Identify and Eliminate Market
Entry Barriers for Small Businesses, Report, GN Docket No. 96-113, FCC
97-164, 62 FR 34648 (June 27, 1997). The Commission recently issued a
report pursuant to this proceeding which discusses the numerous
measures the Commission has implemented to benefit small businesses,
such as the use of service-specific definitions of small businesses,
the outreach efforts by the FCC Office of Public Affairs and Office of
Communications Business Opportunities, and the establishment of the
Telecommunications Development Fund (TDF). The Commission also is
commencing a comprehensive study to further examine the role of small
businesses and businesses owned by minorities or women in the
telecommunications industry and the impact of our policies on access to
the industry for such businesses. This study will assist the Commission
in determining whether there are constitutionally-sound bases for
adopting licensing provisions to promote opportunities for women and
minorities.
The Commission's experience in conducting auctions has demonstrated
that small businesses, as well as minority- and women-owned businesses,
have benefited from its competitive bidding procedures. Of the over
4,300 licenses awarded thus far by auctions, 54 percent were awarded to
small businesses; 11 percent to minority-owned businesses; 11 percent
to women-owned businesses; 10 percent to women-owned small businesses;
4 percent to minority women-owned businesses; and 5 percent to rural
telephone companies. (Note that a licensee may fall into more than one
category.)
The Commission requests that commenters assess the provisions the
Commission has adopted to meet its statutory directive. Specifically,
the Commission asks:
How have the Commission's ownership policies (e.g.,
attribution rules and spectrum caps), eligibility restrictions (e.g.,
entrepreneurs' blocks) and favorable payment terms (e.g., bidding
credits, reduced upfront and down payments, and installment payment
plans) affected the ability of small businesses, rural telephone
companies and businesses owned by women and members of minority groups
(``designated entities'') to participate successfully in the
competitive bidding process? In particular, have these provisions
provided significant opportunities for rural telephone companies?
What specific financial incentives have been beneficial to
small businesses? Should these provisions be altered in any manner?
What, if any, policies could the Commission adopt to guard against
defaults by bidders and licensees? Are installment payment plans
essential to attracting new entrants to participate in the auctions? Do
the problems presented by the administration of such plans and by the
potential for licensee default detract from the efficient award of
licenses?
What should be the Commission's role in the management of
the Commission's installment loan portfolio? Should post-licensing
issues relating to the satisfaction of installment obligations be
transferred to another government agency with the appropriate
expertise?
Have designated entity provisions and other rules (e.g.,
spectrum caps) served the statutory objective of wide dissemination of
licenses?
Following the Supreme Court's decision in Adarand, the
Commission revised its auction rules to make them race- and gender-
neutral. What has been the impact of this on the opportunities of
businesses owned by women and minorities to participate in the
provision of spectrum-based services?
III. Recommendation of any Policy and Statutory Changes
The Commission also invites commenters to recommend specific
actions the Commission should take to improve the competitive bidding
rules and procedures in order to fulfill the objectives of Section
309(j). The Commission notes that it is currently considering proposals
to revise and improve the general competitive bidding rules and
procedures contained in subpart Q of part 1 of the
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Commission's Rules. See part 1 NPRM. Commenters are further requested
to offer recommendations on any statutory or procedural changes that
would improve the licensing processes following an auction.
IV. Procedural Matters
Comments must be submitted by August 1, 1997. All comments should
be filed with the Acting Secretary, Federal Communications Commission,
1919 M Street, N.W., Washington, D.C. 20554. Copies must be provided to
Kathleen O'Brien Ham, Chief, Auctions Division, Wireless
Telecommunications Bureau, Federal Communications Commission, 2025 M
Street, N.W., Room 5322, Washington, D.C. 20554. Comments should
reference Docket No. WT 97-150.
Copies of the comments may be obtained from the Commission's
duplicating contractor: International Transcription Service, Inc., 2100
M Street, N.W., Suite 140, Washington, D.C. 20037, (202) 857-3500.
Copies will also be available for public inspection during regular
business hours in the FCC Reference Center, Room 239, 1919 M Street,
N.W., Washington, D.C.
For further information, please contact Mark Bollinger or Alice
Elder, Auctions Division, Wireless Telecommunications Bureau, Federal
Communications Commission at (202) 418-0660.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 97-17869 Filed 7-8-97; 8:45 am]
BILLING CODE 6712-01-P