[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