[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
[[Page 771]]
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
[[Page 773]]
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
[[Page 774]]
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