[Federal Register Volume 63, Number 4 (Wednesday, January 7, 1998)]
[Proposed Rules]
[Pages 770-777]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-297]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 1, 21, 24, 26, 27, 90, and 95

[WT Docket No. 97-82, ET Docket No. 94-32, FCC 97-413]


Competitive Bidding Proceeding

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In the Second Further Notice of Proposed Rule Making 
(``NPRM''), the Commission seeks comment on a variety of proposed rules 
relating to its general competitive bidding rules for all auctionable 
services. The Commission believes that these proposals will assist its 
efforts to simplify and streamline its regulations in order to increase 
the overall efficiency of the competitive bidding process. These 
proposed rules are necessary to further the Commission's goals of 
simplifying and streamlining its regulations, and developing uniform 
auction rules and procedures for all future auctions. The intended 
effect of this action is to seek comment on proposed rules and 
procedures applicable to the Commission's spectrum auction program.

DATES: Comments are due on or before February 6, 1998. Reply comments 
are due on or before February 17, 1998.

ADDRESSES: Federal Communications Commission, 1919 M Street, N.W., Room 
222, Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: Josh Roland or Mark Bollinger, 
Auctions and Industry Analysis Division, Wireless Telecommunications 
Bureau, at (202) 418-0660.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Second Further 
Notice of Proposed Rule Making in WT Docket No. 97-82, ET Docket No. 
94-32, FCC 97-413 which was adopted on December 18, 1997 and released 
on December 31, 1997. A copy of the complete item 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. The complete text may be purchased from the Commission's copy 
contractor, International Transcription Service, Inc., 1231 20th 
Street, N.W., Washington, D.C. 20036, (202) 857-3800. The complete 
Second Further Notice of Proposed Rule Making also is available on the 
Commission's Internet home page (http://www.fcc.gov).

Summary of Action:

I. Background

    On December 18, 1997, the Federal Communications Commission 
(Commission) adopted a Second Further Notice of Proposed Rule Making 
seeking comment on a variety of proposals relating to its competitive 
bidding rules for all future auctions. These proposed rules are 
summarized below.

A. Rules Governing Designated Entities

1. Designated Entities
    2. Background. Section 309(j)(4)(D) of the Communications Act 
provides that in prescribing rules for a competitive bidding system, 
the Commission shall ``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.'' The statute further provides that for this purpose, 
the Commission shall consider the use of tax certificates, bidding 
credits and other procedures. In addition, pursuant to section 
309(j)(4)(A), the Commission shall ``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,'' in order to ``disseminat[e] licenses among a 
wide variety of applicants, including small businesses, rural telephone 
companies, and small businesses owned by members of minority groups and 
women.'' Pursuant to these mandates, the Commission has adopted a 
number of measures, including entrepreneur blocks, bidding credits, 
reduced upfront payments/down payments and installment payments.
    3. In addition, section 257 of the Telecommunications Act requires 
the Commission to identify and eliminate market entry barriers for 
small and entrepreneurial telecommunications businesses. The Commission 
is committed to completing a study to examine barriers encountered by 
minorities and women in the auctions process and in the secondary 
market for licenses. The Commission has initiated this process with 
regard to the study on secondary markets, and will initiate the 
auctions study expeditiously. The Commission will release the results 
in 1998.
    4. Any measures that the Commission decides to adopt that give 
special preferences specifically to minority- and women-owned 
businesses must comply with recent Supreme Court decisions, as

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discussed below. To that end, the Commission seeks comment on (1) 
whether there is a compelling governmental interest that would justify 
the use of preferences for minority-owned businesses and ``exceedingly 
persuasive justification'' for preferences for women-owned businesses; 
(2) what evidence supports the commenter's position on the issue; and 
(3) what measures, if any, could be narrowly tailored to withstand 
judicial review. The specific issues that commenters should address are 
discussed in more detail below.
    5. Discussion.
a. Minority-based Designated Entity Provisions
    6. As the Commission has recognized in the past, in Adarand 
Constructors, Inc. v. Pena, 515 U.S. 200 (1995), the Supreme Court 
established that governmental policies that take race into account are 
reviewed under a strict (as opposed to intermediate) scrutiny standard. 
The Commission tentatively concludes that, to the extent consistent 
with constitutional standards, the Commission should take steps to 
further the Commission's statutory mandate to ensure that minorities 
have the opportunity to engage in the provision of spectrum services 
pursuant to section 309(j)(4). The Commission seeks comment on how it 
can modify its designated entity provisions, consistent with the 
standards set forth in Adarand. In particular, the Commission seeks 
comment on what tools, such as bidding credits, might be used 
consistent with Adarand. In addition, the Commission seeks comment on 
whether it should limit any tools designed to ensure that minority-
owned businesses have the chance to take part in the Commission's 
auction program to those minority-owned businesses that also qualify as 
small businesses. Commenters advocating the adoption of such measures 
should address the constitutional issue and present specific empirical 
evidence supporting their views.
    7. Should the Commission determine that provisions for minorities 
would withstand strict scrutiny as required by Adarand, the Commission 
also seeks comment on appropriate eligibility standards for applicants 
seeking to qualify for minority-based provisions. For example, the 
Commission could specify that to qualify for any minority-based 
provisions, an applicant must be minority-controlled (i.e., minorities 
must have de facto as well as de jure control of the applicant and must 
own more than 50 percent of the equity on a fully diluted basis) and 
meet the eligibility requirements set forth in 47 CFR 1.2110(b)(2). 
Alternatively, to ensure that any minority policies are reserved for 
businesses in which minorities have a substantial financial stake, as 
well as de jure and de facto control, the Commission could strictly 
define equity to require that minorities have the right to receive at 
least 50.1 percent of the annual distribution of any dividends paid on 
the voting stock and the right to receive dividends, profits, and other 
distributions from the business in proportion to their equity 
interests. This requirement would be similar to the eligibility 
standards for minority-owned businesses adopted but never implemented 
for the broadband PCS auctions, and to the eligibility standards 
recently proposed for the auction of pending broadcast license 
applications. In addition, the Commission seeks comment on alternate 
formulas that might be appropriate for determining eligibility for 
minority-based provisions.
    8. The Commission also observes that the Office of Management and 
Budget (OMB) recently modified its standards for the classification of 
federal data on race and ethnicity. Specifically, OMB: (1) separated 
the category for Asian and Pacific Islander category into two 
categories--``Asian'' and ``Native Hawaiian or Other Pacific 
Islander''; and (2) changed the term ``Hispanic'' to ``Hispanic or 
Latino''. The Commission previously has used this standard to define 
the term ``minority'' for purposes of its designated entity provisions, 
and seeks comment on whether it should similarly amend the current 
definition in the Commission's rules.
b. Gender-based Designated Entity Provisions
    9. The Commission seeks comment on whether special policies are 
warranted for female-owned applicants. The Commission notes that the 
constitutionality of its former practice of awarding comparative 
preferences for female ownership was not addressed by the Supreme Court 
in Metro Broadcasting Inc. v. FCC, 497 U.S. 547 (1990) and that the 
Commission suspended that practice following Lamprecht v. FCC, 958 F.2d 
382 (D.C. Cir. 1992), which held, under ``intermediate'' scrutiny, that 
the Commission's gender preference was not shown to be substantially 
related to achieving program diversity and that it was thus 
unconstitutional. More recently, the Supreme Court has ruled that a 
state program, which makes distinctions based upon gender, must be 
supported by an ``exceedingly persuasive justification'' in order to 
withstand constitutional muster. United States v. Virginia Military 
Institute, 116 S.Ct 2264, 2274-76 (1996). The Commission seeks comment 
on whether there is sufficient evidence to justify special provisions 
for women-owned businesses under that standard.
    10. As with minority-based provisions, the Commission tentatively 
concludes that to the extent consistent with applicable constitutional 
standards, it should take steps to further the Commission's statutory 
goal of making certain that women have the opportunity to provide 
spectrum-based services pursuant to section 309(j)(4). The Commission 
seeks comment on how it can modify its designated entity provisions, 
consistent with the standards set forth in recent court decisions. In 
particular, the Commission seeks comment on what tools, such as bidding 
credits, might be used consistent with judicial precedent. In addition, 
the Commission seeks comment on whether it should limit any tools 
designed to encourage participation in the Commission's auction program 
by women-owned businesses that also qualify as small businesses. 
Commenters advocating the adoption of such measures at this time should 
address the constitutional issue and present specific empirical 
evidence supporting their views.
c. Rural Telephone Company Provisions
    11. In the Commission's recent report to Congress on the spectrum 
auctions, the Commission stated its belief that auctions have generally 
provided rural telephone companies with favorable opportunities. The 
Commission observed that, to date, rural telephone companies have won 
about 44 percent of the 123 rural Basic Trading Areas (BTA) licenses in 
the United States and noted some examples of rural telephone companies' 
successes in offering broadband PCS. In keeping with the Commission's 
duties under the Act, however, the Commission seeks comment on whether 
there are mechanisms that might further opportunities for rural 
telephone companies to provide spectrum based services.
2. Installment Payments
    12. Background. The Commission is required by statute to provide 
incentives to ensure participation by small businesses and other 
``designated entities'' when implementing its authority to conduct 
auctions, as set forth in section 309(j) of the Communications Act. 
Among other methods, allowing winning bidders to pay for their licenses 
using installment

[[Page 772]]

plans has been one method the Commission has used to encourage small 
business involvement in the wireless marketplace. In the Third Report 
and Order, WT Docket No. 97-82, ET Docket No. 94-32, FCC 97-413 
(released December 31, 1997) (``Third Report and Order''),\1\ the 
Commission suspends the use of installment payments for the foreseeable 
future. In lieu of installment payments, the Commission has adopted a 
schedule of bidding credits applicable to small businesses that is 
higher than that which the Commission originally proposed.
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    \1\ A summary of the Third Report and Order will be published in 
the Federal Register and a copy is available on the Commission's 
Internet home page.
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    13. Discussion. The Commission observed in the NPRM in this docket 
that small businesses have been successful in the auctions in which 
installment payments plans were offered. The Commission therefore seeks 
comment on ways in which it can provide an effective installment 
payment program while at the same time minimizing the concerns (e.g., 
licensee default or difficulty meeting financial obligations to the 
Commission) that have led to the decision to suspend the use of 
installment payments for the present time. The Commission seeks 
comment, for example, on how the Commission can create an installment 
payment plan which fulfills the Commission's sometimes incongruent 
goals of encouraging only serious, financially qualified small business 
applicants to apply for licenses, ensuring the rapid provision of 
service to the public, and guaranteeing that the American public is 
reasonably compensated for the use of the spectrum being auctioned. The 
Commission also seeks comment on how the Commission might fashion an 
installment payment program that is consistent with the provision of 
the Balanced Budget Act that requires that all proceeds from certain 
future auctions be deposited in the United States Treasury not later 
than September 30, 2002. In this regard, the Commission notes that 
under most of the installment payment plans previously offered by the 
Commission, winning bidders have been permitted to pay for their 
licenses over the entire 10 year license term. If the Commission were 
to make installment plans available in the future, the Commission 
interprets this legislation as requiring that all payments of principal 
and interest for covered auctions be deposited in the United States 
Treasury by the statutory deadline for collection, which is 
approximately five years away. Finally, the Commission seeks comment on 
means other than bidding credits and installment payments by which the 
Commission might facilitate the participation of small businesses and 
other designated entities in the Commission's spectrum auction program. 
Commenters should provide sufficient detail to assist the Commission in 
fashioning a program based upon their comments.
    14. The Commission also notes that under its current rules, winning 
bidders that are designated entities are not required to pay their 
second down payment until petitions to deny filed against them are 
dismissed or denied. In the interim, designated entity winning bidders 
for the same auction with no petitions filed against them are required 
to submit their second down payments earlier because their licenses are 
ready for grant. Because Sec. 1.2110(e)(3)(i) of the Commission's rules 
provides that interest rates on installment payments will be based on 
the rate of U.S. Treasury obligations at the time of licensing, in 
previous auctions this has had the result of establishing different 
rates of interest on installment payments for winning bidders in the 
same auction. In the event the Commission reinstates installment 
payments in the future, the Commission seeks comment on whether it 
should establish the interest rate based upon the rate of U.S. Treasury 
obligations on the date of the close of the auction. The Commission 
also seeks comment on one aspect of its rules relating to the 
calculation of the total default payment owed where a winning bidder 
defaults on multiple licenses.
3. Attribution of Gross Revenues of Investors and Affiliates
    15. Background. In the NPRM, the Commission proposed to adopt 
uniform rules and definitions for the attribution of gross revenues of 
investors and affiliates for all auctionable services. Some of the 
Commission's service-specific competitive bidding rules require that, 
in determining whether an applicant meets certain size-based 
eligibility requirements, the Commission consider, among other things, 
the gross revenues of certain investors in the applicant and the 
affiliates of attributable investors. These service-specific rules have 
established varying standards of attribution. For example, in both 
narrowband and broadband PCS, the gross revenues and total assets of an 
applicant, together with those of its affiliates and persons who hold 
an interest in the applicant or its affiliates, must be below a certain 
threshold in order for the applicant to qualify as a small business or 
entrepreneur. However, in order to avoid counting the revenue of all of 
these entities, the rules for each service provide different exceptions 
whereby the applicants can create control groups. For example, the 
Commission's broadband PCS rules provide two control group exceptions, 
while the Commission's narrowband PCS rules provide only one control 
group exception.
    16. In the 900 MHz SMR service, to determine whether an applicant 
qualifies as a small business, the Commission attributes the revenues 
of parties holding partnership and other ownership interests and any 
stock interest amounting to 20 percent or more of the equity, or 
outstanding stock, or outstanding voting stock of the applicant in 
conformance with the Commercial Mobile Radio Service (CMRS) spectrum 
cap attribution standard. In contrast, under the Commission's MDS 
rules, the Commission attributes the gross revenues of the applicant 
and all of the applicant's affiliates (as defined in 47 CFR 
1.2110(b)(4)).
    17. Discussion. In the NPRM, the Commission proposed to adopt a 
``controlling interest'' standard, similar to that which the Commission 
has recently adopted in the Commission's rules for LMDS, as its general 
attribution rule for all future auctions. Under this standard, 
determination of eligibility for small business provisions would be 
made by attributing the gross revenues only of principals of the 
applicant who exercise both ``de jure'' and ``de facto'' control, and 
their affiliates. Nevertheless, the Commission seeks further comment on 
the controlling interest standard, and whether it is sufficient to 
calculate size so that only those entities truly meriting small 
business status qualify for bidding credits. The Commission also asks 
commenters whether alternate standards for attributing the gross 
revenues of investors and affiliates in an applicant would better meet 
the Commission's goals. Commenters should specify what alternatives 
could be applied.
    18. The Commission notes that its intent in proposing this standard 
is to provide flexibility that will enable legitimate small businesses 
to attract passive financing in a highly competitive and evolving 
telecommunications marketplace. In the NPRM, the Commission 
preliminarily concluded that structuring the standard in this manner 
will not invite abuse. In this regard, the Commission seeks comment on 
whether this proposed standard would be strengthened by

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imposing a minimum equity requirement (e.g., 15 percent) that any 
person or entity identified as controlling must hold. Alternatively, 
the Commission asks whether it should not adopt a minimum equity 
requirement, but rather indicate only that an absence of equity would 
raise a question as to whether de facto control exists.
    19. The Commission notes that for purposes of calculating equity 
held in an applicant, the Commission provides for full dilution of 
certain stock interests, warrants, etc. Finally, the Commission notes 
that it requires detailed reporting of all ownership interests as part 
of the general application requirement adopted in this Third Report and 
Order, and under the proposed controlling interest standard would apply 
the comprehensive affiliation rule to all investors in an applicant. 
Thus, passive interests that were otherwise non-attributable would be 
attributed if they are affiliates under this rule. Finally, the 
Commission notes that it reserves the right to conduct random audits of 
auction applicants and licensees in order to verify information 
provided regarding eligibility for small business provisions. The 
Commission seeks comment on the proposed rule.

B. Payment Issues

1. Default Payments
    20. Background. Section 1.2104(g) of the Commission's rules 
provides that where a winning bidder defaults on a license the bidder 
becomes subject to a default payment equal to the difference between 
the amount bid and the winning bid the next time the license is offered 
by the Commission (net or gross, whichever is less) plus an additional 
payment equal to three percent of the subsequent winning bid or the 
amount bid (net or gross, whichever is less). In the past, where a 
bidder has defaulted on multiple licenses, this rule has been 
interpreted to require that the amount of the default payment be 
determined on a license-by-license basis, and then added together to 
determine the total default payment assessed.
    21. Discussion. The Commission seeks comment on whether it should 
modify Sec. 1.2104(g) to provide that where a winning bidder defaults 
on multiple licenses the default payment will be determined based upon 
the aggregate winning bid and the aggregate winning bid the next time 
the licenses are offered by the Commission. The Commission recognizes 
that assessing default payments through this method could significantly 
alter the amount of the default payment assessed under the Commission's 
rules. In this regard, the Commission seeks comment on whether this 
system could encourage insincere bidding and defaults since it could 
greatly reduce the effective penalty for a default. To the extent that 
a bidder is already intending to default on a license whose price at 
reauction is anticipated to exceed the initial bid price, the effective 
penalty for defaulting on additional licenses would be limited to three 
percent of the subsequent winning bid or the amount bid, whichever is 
lower. Since the potential defaulter would not be facing the full harm 
caused by the default on the additional license, the incentive for 
insincere bidding and default could be too great. Indeed, this 
modification could encourage speculation by encouraging a high bidder 
on a relatively high valued license who anticipates default to 
purposely bid and default on a relatively low valued license in order 
to lessen the default payment assessed under the Commission's rules. 
Finally, the Commission seeks comment on whether such a modification 
could function without nullifying the provision in Sec. 1.2104(g) 
assessing an additional default payment equal to three percent of the 
subsequent winning bid or the amount bid, whichever is lower.

C. Administrative Filing Periods for Applications and Petitions to Deny

    22. Background. Previously, the Commission has provided a 30-day 
period for filing of petitions to deny. A 30-day petition to deny 
period will be used for the upcoming paging and LMDS auctions. In the 
Third Report and Order, the Commission amends Sec. 1.2108 of its rules 
to conform to the provisions in the Balanced Budget Act regarding the 
filing period for petitions to deny applications for initial licenses 
in auctionable services. Specifically, notwithstanding section 309(b) 
of the Communications Act, Sec. 1.2108 as amended will provide that the 
Commission shall not grant a license less than seven days after public 
notice that long-form applications have been accepted for filing and 
that in all cases the period for filing petitions to deny shall be no 
shorter than five days.
    23. Discussion. Although the Commission believes that in light of 
Congress' directive in the Balanced Budget Act a shortened petition to 
deny period is generally appropriate for future auctions, the 
Commission seeks comment on the appropriate length of a petition to 
deny period in light of this legislation. For example, the Commission 
seeks comment on whether there are instances in which the Commission 
should provide for a longer period than the minimums set forth in the 
statute for the filing of petitions to deny or for the grant of initial 
licenses in auctionable services (5 days and 7 days respectively). In 
particular, the Commission asks commenters to address whether auctions 
for specific services (e.g., broadcast licenses) require longer periods 
for the filing of petitions to deny, and why this may be so.

D. Competitive Bidding Rules and Procedures for the Auction of General 
Wireless Communications Services (GWCS) Licenses

    24. Background. On July 31, 1995, the Commission adopted the Second 
Report and Order, 60 FR 40712 (August 9, 1995), establishing auction 
and service rules for the General Wireless Communications Service 
(GWCS) in the 4660-4685 MHz band. Subsequently, several parties filed 
petitions for reconsideration of the Second Report and Order that 
remain pending before the Commission. The 1993 Omnibus Budget 
Reconciliation Act requires that 5 MHz of this spectrum be auctioned 
and licensed not later than August 9, 1998, and to comply with that 
deadline, the Commission has announced an auction for licenses in the 
GWCS as May 27, 1998.
    25. Discussion. The Commission tentatively concludes that the part 
1 rules it adopted in the Third Report and Order should apply to the 
auction of GWCS spectrum and specifically supersede the previously-
adopted GWCS rules setting forth auction rules and procedures. In this 
regard, consistent with the Commission's decision in the Third Report 
and Order, the Commission notes that it would no longer offer 
installment payments as a means of financing small business 
participation in the GWCS auction, but instead would offer somewhat 
higher bidding credits. Employing part 1 rules for the GWCS auction 
furthers the Commission's goal of simplifying and streamlining all 
competitive bidding rules and procedures for future auctions. In 
addition, by applying the part 1 rules to the GWCS auction, the 
Commission assures that GWCS auction participants, like participants in 
other future auctions, benefit from the experience it has gained in the 
15 spectrum auctions it has conducted to date. The Commission seeks 
comment on this tentative conclusion.
    26. In light of the statutory deadline for the auction and 
licensing of GWCS spectrum, the Commission also

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tentatively concludes to use its discretion to truncate the petition to 
deny period for the grant of licenses in the GWCS auction. The 
Commission believes that a shortened petition to deny period will 
assure issuance of the GWCS licenses by Congress' deadline. 
Notwithstanding section 309(d)(1) of the Communications Act, the 
Balanced Budget Act provides for shortened periods for the filing of 
petitions to deny and for the grant of licenses. Under this provision, 
the Commission is permitted to grant any application for authorization 
assigned under competitive bidding not earlier than 7 days following 
public notice that an application has been accepted for filing, and may 
specify a period of not less than 5 days for filing petitions to deny. 
The Commission seeks comment on this tentative conclusion.

II. Procedural Matters

A. Initial Regulatory Flexibility Analysis

    27. As required by the Regulatory Flexibility Act (RFA), 5 U.S.C. 
603, the Commission has prepared this Initial Regulatory Flexibility 
Analysis (IRFA) of the expected impact on small entities of the rules 
proposed in the NPRM. Written public comments are requested on the 
IRFA. Comments on the IRFA must have a separate and distinct heading 
designating them as responses to the IRFA and must be filed by the 
deadlines for comments on the NPRM. The Commission will send a copy of 
the NPRM, including this IRFA, to the Chief Counsel for Advocacy of the 
Small Business Administration. In addition, the NPRM and IRFA (or 
summaries thereof) will be published in the Federal Register.
A. Need for, and objectives of, the proposed rules
    28. This NPRM is being initiated to secure comment on additional 
issues relating to the general competitive bidding rules for all 
auctionable services that are necessary in light of the Balanced Budget 
Act of 1997. This NPRM seeks comment on the use of installment payments 
for future auctions, the controlling interest standard as a general 
attribution rule, the appropriate petition to deny period for future 
auctions, and whether the part 1 rules adopted in the Third Report and 
Order should apply to the auction of General Wireless Communications 
Services (GWCS) and supersede the previously adopted GWCS auction rules 
and procedures. The Commission believes that these proposals will 
further simplify and streamline the rules and regulations and increase 
the overall efficiency of the competitive bidding process.
B. Legal Basis
    29. This action is taken pursuant to sections 4(i), 5(b), 5(c)(1), 
303(r), and 309(j) of the Communications Act of 1934, as amended, 47 
U.S.C. sections 154(i), 155(b), 155(c)(1), 303(r), and 309(j).
C. Description and estimate of the number of small entities to which 
the proposed rule will apply
    30. The Commission is required to provide a description of and, 
where feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under section 3 of the 
Small Business Act. Under the Small Business Act, a ``small business 
concern'' is one which: (1) is independently owned and operated; (2) is 
not dominant in its field of operation; and (3) meets any additional 
criteria established by the Small Business Administration (``SBA''). As 
discussed below, various wireless small entities may be affected by the 
proposed rules. Also, as noted, with a few exceptions, the Commission 
has not developed a precise definition of small entities for the 
various affected wireless services. Therefore, the applicable 
definition of small entity is the definition under the Small Business 
Administration (SBA) rules applicable to radiotelephone companies. This 
definition provides that a small entity is a radiotelephone company 
employing no more than 1,500 persons. In addition, the Commission 
incorporates by reference the more refined definitions of small 
entities pertaining to the broadband PCS, 220 MHz, paging, and SMR 
services. Generally, a small organization is ``any not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field.'' Nationwide, there are 275,801 small 
organizations. ``Small governmental jurisdiction'' generally means 
``governments of cities, counties, towns, townships, villages, school 
districts, or special districts, with a population of less than 
50,000.'' As of 1992, there were 85,006 such jurisdictions in the 
United States.
    31. The rules proposed in this NPRM would allow all entities, 
including existing cellular, PCS, paging, and other small 
communications entities to obtain licenses in auctionable services 
through competitive bidding. These rules apply to future auctions, but 
will not apply to the initial auctions of licenses in the paging, 220 
MHz, 800 MHz Specialized Mobile Radio (SMR), and Local Multipoint 
Distribution (LMDS) services. In estimating the number of small 
entities who may participate in future auctions of wireless services, 
the Commission anticipates that the makeup of current wireless services 
licensees is representative of future auction winning bidders. The 
following is the Commission's estimate of the number of small entities 
who are current wireless licensees:
1. Estimates for Cellular Licensees
    The Commission has not developed a definition of small entities 
applicable to cellular licensees. Therefore, the applicable definition 
of small entity is the definition under the SBA rules applicable to 
radiotelephone companies. This definition provides that a small entity 
is a radiotelephone company employing no more than 1,500 persons. The 
size data provided by the SBA does not enable us to make a meaningful 
estimate of the number of cellular providers which are small entities 
because it combines all radiotelephone companies with 500 or more 
employees. The 1992 Census of Transportation, Communications, and 
Utilities, conducted by the Bureau of the Census, is the most recent 
information available. This document shows that only 12 radiotelephone 
firms out of a total of 1,178 such firms which operated during 1992 had 
1,000 or more employees. Therefore, even if all 12 of these firms were 
cellular telephone companies, nearly all cellular carriers were small 
businesses under the SBA's definition. The Commission assumes, for 
purposes of its evaluations and conclusions in this IRFA, that all of 
the current cellular licensees are small entities, as that term is 
defined by the SBA. In addition, the Commission notes that there are 
1,758 cellular licenses; however, the Commission does not know the 
number of cellular licensees, since a cellular licensee may own several 
licenses. The most reliable source of information regarding the number 
of cellular service providers nationwide appears to be data the 
Commission publishes annually in its Telecommunications Industry 
Revenue report, regarding the Telecommunications Relay Service (TRS). 
The report places cellular licensees and Personal Communications 
Service (PCS) licensees in one group. According to the data released in 
November, 1997, there are 804 companies reporting that they engage in

[[Page 775]]

cellular or PCS service. Although it seems certain that some of these 
carriers are not independently owned and operated, or have more than 
1,500 employees, the Commission is unable at this time to estimate with 
greater precision the number of cellular service carriers that would 
qualify as small business concerns under the SBA's definition. 
Consequently, the Commission estimates that there are fewer than 804 
small cellular service carriers.
2. Estimates for Broadband and Narrowband PCS Licensees
    32. Broadband PCS. The broadband PCS spectrum is divided into six 
frequency blocks designated A through F. The Commission has defined 
``small entity'' in the auctions for Blocks C and F as a firm that had 
average gross revenues of less than $40 million in the three previous 
calendar years. This definition of ``small entity'' in the context of 
broadband PCS auctions has been approved by the SBA. The Commission has 
auctioned broadband PCS licenses in Blocks A through F. Of the 
qualified bidders in the C and F block auctions, all were 
entrepreneurs--defined for these auctions as entities together with 
affiliates, having gross revenues of less than $125 million and total 
assets of less than $500 million at the time the FCC Form 175 
application was filed. Ninety bidders, including C block reauction 
winners, won 493 C block licenses and 88 bidders won 491 F block 
licenses. For purposes of this IRFA, the Commission assumes that all of 
the 90 C block broadband PCS licensees and 88 F block broadband PCS 
licensees, a total of 178 licensees, are small entities.
    33. Narrowband PCS. The Commission has auctioned nationwide and 
regional licenses for narrowband PCS. There are 11 nationwide and 30 
regional licensees for narrowband PCS. The Commission does not have 
sufficient information to determine whether any of these licensees are 
small businesses within the SBA-approved definition for radiotelephone 
companies. At present, there have been no auctions held for the major 
trading area (MTA) and basic trading area (BTA) narrowband PCS 
licenses. The Commission anticipates a total of 561 MTA licenses and 
2,958 BTA licenses will be awarded in the auctions. Given that nearly 
all radiotelephone companies have no more than 1,500 employees, and 
that no reliable estimate of the number of prospective MTA and BTA 
narrowband licensees can be made, the Commission assumes, for purposes 
of this IRFA, that all of the licenses will be awarded to small 
entities, as that term is defined by the SBA.
3. Estimates for 220 MHz Radio Services
    34. Since the Commission has not yet defined a small business with 
respect to 220 MHz radio services, it will utilize the SBA definition 
applicable to radiotelephone companies--an entity employing no more 
than 1,500 persons. With respect to the 220 MHz services, the 
Commission has proposed a two-tiered definition of small business for 
purposes of auctions: (1) For Economic Area (EA) licensees, a firm with 
average annual gross revenues of not more than $6 million for the 
preceding three years; and (2) for regional and nationwide licensees, a 
firm with average annual gross revenues of not more than $15 million 
for the preceding three years. Since this definition has not yet been 
approved by the SBA, the Commission will utilize the SBA definition 
applicable to radiotelephone companies. Given that nearly all 
radiotelephone companies employ no more than 1,500 employees, the 
Commission will consider the approximately 3,800 incumbent licensees as 
small businesses under the SBA definition.
4. Common Carrier Paging
    35. The Commission has proposed a two-tier definition of small 
businesses in the context of auctioning geographic area paging licenses 
in the Common Carrier Paging and exclusive Private Carrier Paging 
services. Under the proposal, a small business will be defined as 
either: (1) An entity that, together with its affiliates and 
controlling principals, has average gross revenues for the three 
preceding years of not more than $3 million; or (2) an entity that, 
together with affiliates and controlling principals, has average gross 
revenues for the three preceding calendar years of not more than $15 
million. Since the SBA has not yet approved this definition for paging 
services, the Commission will utilize the SBA definition applicable to 
radiotelephone companies--an entity employing no more than 1,500 
persons. At present, there are approximately 24,000 Private Paging 
licenses and 74,000 Common Carrier Paging licenses. According to 
Telecommunications Industry Revenue data, there were 172 ``paging and 
other mobile'' carriers reporting that they engage in these services. 
Consequently, we estimate that there are fewer than 172 small paging 
carriers. The Commission estimates that the majority of private and 
common carrier paging providers would qualify as small businesses under 
the SBA definition.
5. Air-Ground Radiotelephone Service
    36. The Commission has not adopted a definition of small business 
specific to the Air-Ground radiotelephone service. Accordingly, the 
Commission will use the SBA definition applicable to radiotelephone 
companies, i.e., an entity employing no more than 1,500 persons. There 
are approximately 100 licensees in the Air-Ground radiotelephone 
service, and the Commission estimates that almost all of them qualify 
as small under the SBA definition.
6. Specialized Mobile Radio licensees
    37. The Commission awards bidding credits in auctions for 
geographic area 800 MHz and 900 MHz SMR licenses to two tiers of firms: 
(1) ``Small entities,'' those with revenues of no more than $15 million 
in each of the three previous calendar years; and (2) ``very small 
entities,'' those with revenues of no more than $3 million in each of 
the three previous calendar years. The regulations defining ``small 
entity'' and ``very small entity'' in the context of 800 MHz SMR and 
900 MHz SMR have been approved by the SBA. The Commission does not know 
how many firms provide 800 MHz or 900 MHz geographic area SMR service 
pursuant to extended implementation authorizations, nor how many of 
these providers have annual revenues of no more than $15 million. One 
firm has over $15 million in revenues. The Commission assumes for 
purposes of this IRFA that all of the remaining existing extended 
implementation authorizations are held by small entities, as that term 
is defined by the SBA. The Commission has held auctions for geographic 
area licenses in the 900 MHz SMR band, and recently completed an 
auction for geographic area 800 MHz SMR licenses. There were 60 winning 
bidders who qualified as small and very small entities in the 900 MHz 
auction. In the recently concluded 800 MHz SMR auction there were 524 
licenses won by winning bidders, of which 38 licenses were won by small 
and very small entities.
7. Private Land Mobile Radio Licensees (PLMR)
    38. The Commission has not developed a definition of small entities 
specifically applicable to PLMR licensees. For the purpose of 
determining whether a licensee is a small business as defined by the 
SBA, each licensee would need to be evaluated within its own business 
area. The Commission is unable at this time to estimate the number of 
small businesses which could be impacted by

[[Page 776]]

the rules. However, the Commission's 1994 Annual Report on PLMRs 
indicates that at the end of fiscal year 1994 there were 1,087,267 
licensees operating 12,481,989 transmitters in the PLMR bands below 512 
MHz. Any entity engaged in a commercial activity is eligible to hold a 
PLMR license, therefore, these rules could potentially impact every 
small business in the United States if PLMR licenses are subject to 
auction under these new auction rules.
8. Aviation and Marine Radio Service
    39. Small entities in the aviation and marine radio services use a 
marine very high frequency (VHF) radio, any type of emergency position 
indicating radio beacon (EPIRB) and/or radar, a VHF aircraft radio, 
and/or any type of emergency locator transmitter (ELT). The Commission 
has not developed a definition of small entities specifically 
applicable to these small businesses. Therefore, the applicable 
definition of small entity is the definition under the SBA rules 
applicable to a small organization. A small organization is generally 
``any not-for-profit enterprise which is independently owned and 
operated and is not dominant in its field.'' Nationwide, there are 
275,801 small organizations. ``Small governmental jurisdiction'' 
generally means ``governments of cities, counties, towns, townships, 
villages, school districts, or special districts, with a population of 
less than 50,000.'' As of 1992, there were 85,006 such jurisdictions in 
the United States. The Commission is unable at this time to make a 
meaningful estimate of the number of potential small businesses under 
these size standards. Most applicants for individual recreational 
licenses are individuals. Approximately 581,000 ship station licensees 
and 131,000 aircraft station licensees operate domestically and are not 
subject to the radio carriage requirements of any statute or treaty. 
Therefore, for purposes of the evaluations and conclusions in this 
IRFA, the Commission estimates that there may be at least 712,000 
potential licensees which are individuals or are small entities, as 
that term is defined by the SBA.
9. Offshore Radiotelephone Service
    40. This service operates on several UHF TV broadcast channels that 
are not used for TV broadcasting in the coastal area of the states 
bordering the Gulf of Mexico. At present, there are approximately 55 
licensees in this service. The Commission is unable at this time to 
estimate the number of licensees that would qualify as small entities 
under the SBA definition for radiotelephone communications.
10. General Wireless Communication Service (GWCS)
    41. This service was created by the Commission on July 31, 1995 by 
transferring 25 MHz of spectrum in the 4660-4685 MHz band from the 
federal government to private sector use. The Commission has announced 
that an auction of 875 GWCS licenses will begin on May 27, 1998. The 
Commission is unable at this time to estimate the number of licensees 
that would qualify as small entities under the SBA definition for 
radiotelephone communications.
D. Description of Reporting, Recordkeeping, and Other Compliance 
Requirements
    42. There are no additional reporting, recordkeeping, or other 
compliance requirements as a result of the NPRM.
E. Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    43. The Commission proposes, pursuant to the Balanced Budget Act of 
1997, to use competitive bidding for the award of any initial licenses 
or construction permits, unless excepted under section 309(j)(2), when 
mutual exclusivity exists among applications that have been accepted 
for filing. The Commission proposes to employ various mechanisms such 
as eligibility restrictions, spectrum caps, size limits on service 
areas, and providing for partitioning of service areas and 
disaggregation of spectrum in order to provide opportunities for 
avoiding mutually exclusive license applications. These different 
mechanisms are intended to help ensure that the marketplace for the 
various services continue to promote economic opportunity, provide 
incentives for the development and rapid deployment of new 
technologies, and to achieve efficient and intensive use of this 
spectrum.
    44. The Commission observes that small businesses have been 
successful in the auctions in which installment payments plans were 
offered, and seeks comment on ways to provide an effective installment 
payment program while at the same time minimizing the concerns that 
have led to the decision to discontinue the use of installment payments 
for the present time. The Commission seeks comment on how to create an 
installment payment plan which fulfills the sometimes incongruent goals 
of encouraging only serious, financially qualified small business 
applicants to apply for licenses, ensuring the rapid provision of 
service to the public, and guaranteeing that the American public is 
reasonably compensated for the use of the spectrum being auctioned. The 
Commission also seeks comment on how to fashion an installment payment 
program that is consistent with the provision of the Balanced Budget 
Act of 1997 that requires that all proceeds from future competitive 
bidding be deposited in the United States Treasury not later than 
September 30, 2002. In addition, the Commission seeks comment on means 
other than bidding credits and installment payments to facilitate the 
participation of small businesses and other designated entities in the 
spectrum auction program.
    45. With respect to general attribution rules, the Commission 
proposes to adopt a ``controlling interest'' standard as the general 
attribution rule for all future auctions. Under this standard, 
determination of eligibility for small business provisions would be 
made by attributing the gross revenues only of principals of the 
applicant who exercise both ``de jure'' and ``de facto'' control, and 
their affiliates. The Commission seeks comment on whether the standard 
is sufficient to calculate size so that only those entities truly 
meriting small business status qualify for bidding credits, or whether 
alternate standards for attributing the gross revenues of investors and 
affiliates in an applicant would better meet the Commission's goal to 
facilitate the participation of small businesses and other designated 
entities in the spectrum auction program. In addition, the Commission 
seeks comment on whether the controlling interest standard would be 
strengthened by imposing a minimum equity requirement.
    46. The Commission believes that the provision in the Balanced 
Budget Act of 1997 requiring that interested parties have adequate time 
to develop business plans, assess market conditions and evaluate the 
availability of equipment necessary to make use of the specific 
spectrum to be auctioned is primarily intended to ensure that 
interested parties have adequate time to familiarize themselves with 
the rules and procedures to be employed in an auction prior to the 
application deadlines and start date of that auction. Nevertheless, it 
is unclear whether this legislation requires an additional opportunity 
for notice and comment prior to the issuance of detailed auction-
specific information by the Wireless Telecommunications Bureau 
(Bureau). In order to comply with this provision of the Balanced Budget 
Act of 1997, and

[[Page 777]]

to ensure that potential bidders have adequate time to familiarize 
themselves with the specific provisions that will govern the day-to-day 
conduct of the auction, the Commission proposes to delegate to the 
Bureau the authority to seek comment on a variety of auction-specific 
issues prior to the start of each auction.
    47. The Commission proposes that the Bureau seek comment on 
specific mechanisms relating to day-to-day bidding, the round 
structure, minimum opening bid/reserve prices, minimum acceptable bids, 
initial maximum eligibility for each bidder, activity requirements for 
each stage of the auction, activity rule waivers, criteria for 
determining reductions in eligibility, information regarding bid 
withdrawal and bid removal, the stopping rules to be employed, and 
information relating to auction delay, suspension, or cancellation. The 
Commission also proposes that the Bureau afford interested parties a 
reasonable time (e.g., seven days), in light of the start date of each 
auction and relevant pre-auction filing deadlines, to comment on these 
auction-specific issues. Also, the Commission proposes that the Bureau 
announce, at any time in the weeks leading up to the start date of each 
auction, any amendment or clarifications to the information contained 
in the auction-related public notices or the Bidder Information 
Package.
    48. The Commission tentatively concludes that the Balanced Budget 
Act of 1997 establishes a presumption that a reserve price or minimum 
opening bid will be required for each auction, unless it is determined 
that such mechanisms are not in the public interest. Comment is sought 
on this conclusion. The Commission tentatively concludes that the new 
provision establishing reserve prices or a minimum opening bid does not 
call for traditional reserve prices; rather, it calls for an added 
protection that licenses will not be assigned at unacceptably low 
prices. The Commission also seeks comment on suggested methods by which 
a reserve price or minimum bid can be established in future auctions, 
in light of the tentative conclusion above.
    49. The Commission believes that in light of Congress' directive in 
the Balanced Budget Act, a shortened time period for the grant of 
initial licenses in auctionable services, as well as a shortened 
petition to deny period, is generally appropriate for future auctions. 
The Commission seeks comment on the appropriate length of a petition to 
deny period in light of this legislation, and in particular, whether 
auctions for specific services require longer periods for the grant of 
initial licenses or for the filing of petitions to deny.
    50. Section 309(j) of the Communications Act directs the Commission 
to disseminate licenses among a wide variety of applicants, including 
small businesses and other designated entities. Section 309(j) also 
requires that the Commission ensure the development and rapid 
deployment of new technologies, products, and services for the benefit 
of the public, and recover for the public a portion of the value of the 
public spectrum resource made available for commercial use. The 
Commission believes these provisions in the NPRM help meet those goals 
and promote efficient competition while maintaining fairness and 
efficiencies of process in the Commission's rules.
F. Federal Rules Which Overlap, Duplicate, or Conflict With These Rules
    51. None.

B. Ex Parte Presentations

    52. The NPRM is a permit but disclose notice and comment rule 
making proceeding. Ex parte presentations are permitted, provided they 
are disclosed as provided in Commission rules. See generally 47 CFR 
1.1202, 1.1203, and 1.1206(a).

C. Comments

    53. Pursuant to applicable procedures set forth in Secs. 1.415 and 
1.419 of the Commission's rules, interested parties may file comments 
on or before February 6, 1998 and reply comments on or before February 
17, 1998. In addition, a courtesy copy should be delivered to Josh 
Roland and Ken Burnley, Auctions and Industry Analysis Division, 
Wireless Telecommunications Bureau, Federal Communications Commission, 
2025 M Street, Room 5202, Washington, DC 20554. All relevant and timely 
comments will be considered by the Commission before final action is 
taken in this proceeding. To file formally in this proceeding, 
participants must file an original and five copies of all comments, 
reply comments, and supporting comments. If participants want each 
Commissioner to receive a personal copy of their comments, an original 
plus ten copies must be filed. Comments and reply comments should be 
sent to Office of the Secretary, Federal Communications Commission, 
1919 M Street, N.W., Room 222, Washington, DC 20554. Comments and reply 
comments will be available for public inspection during regular 
business hours in the FCC Reference Center (Room 239) of the Federal 
Communications Commission, 1919 M Street, N.W., Washington, DC 20554.

List of Subjects

47 CFR Part 1

    Communications common carriers, Reporting and recordkeeping 
requirements.

47 CFR Part 21

    Communications common carriers, Reporting and recordkeeping 
requirements.

47 CFR Part 24

    Communications common carriers, Reporting and recordkeeping 
requirements.

47 CFR Part 26

    Communications common carriers, Reporting and recordkeeping 
requirements.

47 CFR Part 27

    Communications common carriers, Reporting and recordkeeping 
requirements.

47 CFR Part 90

    Communications common carriers, Reporting and recordkeeping 
requirements.

47 CFR Part 95

    Communications common carriers, Reporting and recordkeeping 
requirements.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 98-297 Filed 1-6-98; 8:45 am]
BILLING CODE 6712-01-P