[Federal Register Volume 63, Number 10 (Thursday, January 15, 1998)]
[Rules and Regulations]
[Pages 2315-2350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-823]



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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: Final rule.

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SUMMARY: In this Third Report and Order, the Commission adopts uniform 
competitive bidding rules for all future auctions. The Commission 
believes that these rule changes will simplify and streamline its 
regulations in order to increase the overall efficiency of the 
competitive bidding process. These rule changes are necessary to 
further the Commission's goals of simplifying and streamlining its 
regulations, and to develop uniform auction rules and procedures for 
all future auctions. The intended effect of this action is to adopt 
uniform final rules and procedures applicable to the Commission's 
spectrum auction program.

EFFECTIVE DATE: March 16, 1998.

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 summary of the Third Report and 
Order in WT Docket No. 97-82, ET Docket No. 94-32, adopted on December 
18, 1997 and released on December 31, 1997. The complete Third Report 
and Order is available for inspection and copying during normal 
business hours in the FCC Reference Center, Room 239, 1919 M Street, 
NW., Washington, DC 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 Third Report and Order also is available on the 
Commission's Internet home page (http://www.fcc.gov).

SUMMARY OF ACTION:

I. Background

    1. On December 18, 1997, the Federal Communications Commission 
(Commission) adopted a Third Report and Order making substantive 
amendments and modifications to its general competitive bidding rules 
for all auctionable services. These changes to the Commission's general 
competitive bidding rules are intended to streamline the Commission's 
regulations and eliminate unnecessary rules wherever possible, increase 
the efficiency of the competitive bidding process, and provide more 
specific guidance to auction participants. The changes also advance the 
Commission's auction program by reducing the burden on the Commission 
and the public of conducting service-by-service auction rule makings. 
In the Competitive Bidding Second Report and Order in PP Docket No. 93-
253, the Commission stated that we would ``issue further Reports and 
Orders * * * to adopt auction rules for each auctionable service or 
class of service,'' and we identified criteria that would govern our 
choice of service-specific auction rules and procedures, which may be 
found in subpart Q of part 1 of our rules. Implementation of Section 
309(j) of the Communications Act--Competitive Bidding, PP Docket No. 
93-253, Second Report and Order, 59 FR 22980 (May 4, 1994) 
(``Competitive Bidding Second Report and Order''), on recon., Second 
Memorandum Opinion and Order, 59 FR 44272 (August 26, 1994) 
(``Competitive Bidding Second Memorandum Opinion and Order''). These 
rule changes result from the Commission's proposals in Amendment of 
Part 1 of the Commission's Rules--Competitive Bidding Proceeding, 
Order, Memorandum Opinion and Order, and Notice of Proposed Rule 
Making, WT Docket No. 97-82, 62 FR 13570 (March 21, 1997) (``Notice'').
    2. The Commission also released a Second Further Notice of Proposed 
Rule Making in this Docket, in which it sought comment on additional 
changes to its general competitive bidding rules. The Second Further 
Notice of Proposed Rule Making was published in the Federal Register on 
January 7, 1998. See Amendment of Part 1 of the Commission's Rules--
Competitive Bidding Procedures, Allocation of Spectrum Below 5 GHz 
Transferred from Federal Government Use, 4660-4685 MHz, Second Further 
Notice of Proposed Rule Making, WT Docket No. 97-82, ET Docket No. 94-
32 (rel. January 7, 1998) (``Second Further Notice of Proposed Rule 
Making'').

II. Applicability of General Competitive Bidding Rules

    3. With some exceptions, the Commission adopts its proposal in the 
Notice to apply the general competitive bidding rules adopted herein to 
all future auctions, regardless of whether service-specific auction 
rules have previously been adopted. The Part 1 rules will apply to all 
auctionable services, unless the Commission determines that with regard 
to particular matters the adoption of service-specific rules is 
warranted. As the Commission indicated in the Notice, the Commission 
has gained significant experience in the course of the 15 auctions 
conducted to date. In particular, the Commission has found that much of 
the auction process can be standardized and that adopting service-
specific rules for many aspects of the competitive bidding process is 
both unnecessary and confusing. The Commission also finds that 
conducting separate rule makings for each individual service often 
slows the delivery of service to the public because it results in 
regulatory delays before the licensing process begins. The majority of 
commenters addressing this issue agree, emphasizing that the adoption 
of uniform auction procedures will (1) shorten the rule making process 
for future auctions by narrowing the issues on which the Commission 
must seek comment in service-specific rule makings; (2) decrease 
uncertainty for auction participants; (3) benefit small businesses 
because uniform rules are more easily understood and complied with, 
particularly by those with limited resources and those that participate 
in different auctions; and (4) enable the Commission to develop a 
consistent body of law and precedent governing the auction process.
    4. The Balanced Budget Act of 1997, Pub. L. 105-33, 111 Stat. 251 
(1997), to be codified in relevant part at 47 U.S.C. 309(j)(2)(E) and 
309(j)(4)(F) (``Balanced Budget Act''), expands the Commission's 
auction authority. Section 309(j)(2) formerly stated that mutually 
exclusive applications for initial licenses or construction permits 
were auctionable if the principal use of the spectrum was for 
subscription-based services and competitive bidding would promote the 
expressed objectives. As amended, Section 309(j)(2) provides that, in 
cases of mutually exclusive applications, all spectrum is auctionable 
except licenses or construction permits for (1) public safety services; 
(2) digital television service given to existing broadcasters to 
replace their analog license; and (3) non-commercial educational or 
public broadcast stations. In addition, the Balanced Budget Act 
authorizes the Commission to assign pending broadcast license 
applications filed before July 1, 1997 by means of competitive bidding 
pursuant to Section 309(j). Because these legislative changes 
significantly increase the number of services that will be licensed by 
competitive bidding, we believe that adopting uniform competitive 
bidding

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rules for all auctionable services is even more necessary.
    5. With limited exceptions, the rules the Commission adopts today 
will not apply to the initial auction of licenses in the paging, 220 
MHz, and Local Multipoint Distribution (``LMDS'') services. The 
Commission previously adopted service-specific auction rules for the 
auction of these services, and believes that this decision is in the 
best interest of prospective applicants for these auctions, who may 
have relied upon the service-specific rules previously adopted by the 
Commission in formulating business plans and making early efforts to 
obtain financing. As discussed below, however, the Commission retains 
the discretion to use the revised general competitive bidding 
procedures adopted in this proceeding for any reauction of licenses in 
these services. The Commission also notes that while service-specific 
rules exist for the auction of the 220 MHz service, many of these rules 
are similar, or refer to the Part 1 rules. To apply the existing rules 
for the most part is also strongly supported by those commenters 
addressing the issue. For example, AMTA states that the 220 MHz 
industry has encountered extraordinary delays in achieving regulatory 
certainty, and that amending or altering the auction rules for this 
service would create further uncertainty. Consistent with the 
Commission's discussion below, the Commission's decision regarding the 
establishment of minimum opening bids will apply to the initial auction 
of licenses in the paging and 220 MHz services. In addition, the 
Commission notes that several petitions for reconsideration are pending 
in these proceedings. In resolving these petitions, the Commission will 
address installment payment financing for licenses in these services in 
a manner consistent with our decision herein to temporarily suspend the 
use of installment payments.
    6. Many of the commenters who support the Commission's proposal to 
adopt general competitive bidding procedures for all auctionable 
services argue that the Commission should, in its discretion, adopt or 
retain service-specific rules in particular instances. Airadigm argues 
that the Commission should use existing service-specific rules where it 
would be unfair to allow one group of licensees in the same service to 
benefit or be disadvantaged by operating under a different set of rules 
than its competitors in the same service (e.g., in the case of a 
reauction of licenses following bidder default). Similarly, NextWave 
contends that the adoption of service-specific rules may be appropriate 
in some circumstances. In a related argument, some commenters believe 
that, in certain instances, the rules adopted in this proceeding should 
not be applied retroactively to supersede previously adopted service-
specific rules. For example, AirTouch and WWC suggest that when 
service-specific rules have been adopted after industry participation 
and based upon particular characteristics of a specific industry or 
spectrum to be auctioned, those service-specific rules should govern.
    7. With regard to the auction of licenses to provide paging 
services, AirTouch opposes the Commission's proposal to apply general 
auction rules to all future auctions, regardless of whether service 
specific rules have been adopted. AirTouch argues in particular that 
the Commission should not adopt a general stopping rule for the paging 
auction which would be contrary to the comments received in that 
proceeding and the stopping rule that the Commission ultimately 
adopted. As discussed above, the Commission will use previously-
adopted, service-specific rules for the paging auction.
    8. The rule changes the Commission adopts today streamline and 
simplify its general competitive bidding procedures. The majority of 
the rules the Commission adopts today address aspects of the 
Commission's spectrum auction program that affect future auction 
applicants only. These rules include application procedures (e.g., 
electronic filing, short-form application amendments, ownership 
disclosure requirements), upfront and down payment issues, issues 
relating to competitive bidding design, procedure and timing (e.g., 
alternate bidding methodologies, minimum opening bids, and bid 
withdrawal), and rules prohibiting collusion during the auction. 
However, some of the provisions the Commission adopts today address 
aspects of its rules that govern current licensees as well. 
Specifically, these minor rule changes affect certain license-related 
payment terms (e.g., installment payments, grace periods, and unjust 
enrichment).
    9. Two commenters, AICC and AAA, argue that the general competitive 
bidding procedures adopted in this proceeding would be wholly 
inappropriate for auctions of shared frequencies governed by Part 90 of 
the Commission's rules. In support of this position, these commenters 
argue that: (1) None of the Commission's auctions have involved shared 
frequencies; (2) any auction of Part 90 shared spectrum would involve 
participants ranging in size from very large corporations to very small 
businesses and individual users, which would require a significant 
adjustment in the Commission's traditional auction rules; (3) industry 
participation would be crucial in crafting appropriate auction and 
service rules; and (4) in light of the public safety services provided 
using Part 90 spectrum, auctioning such spectrum is not in the public 
interest. AICC and AAA further suggest that those commenters who favor 
the adoption of general competitive bidding procedures for all spectrum 
might not have considered the possibility of auctions for shared 
channels, since the Commission is not currently authorized to award 
licenses for such spectrum by means of competitive bidding. The 
Commission agrees that shared spectrum is, by definition, not 
auctionable under Section 309(j) due to the lack of mutual exclusivity.
    10. Similarly, Hughes suggests that in the event the Commission 
decides to auction satellite services, it should conduct a service-
specific rule making specially tailored to the capital intensive nature 
of the satellite industry, instead of employing the general competitive 
bidding procedures adopted in this proceeding. Although the Commission 
does not decide that issue now, as the Commission suggested in the 
Notice, the Commission will continue to adopt service-specific auction 
procedures where it finds that its general competitive bidding 
procedures are inappropriate.

III. Rules Governing Designated Entities

    11. Section 309(j)(4)(D) of the Communications Act of 1934 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.'' 47 U.S.C. 309(j)(4)(D). The statute further directs 
the Commission to consider the use of tax certificates, bidding 
preferences, alternative payment schedules and methods of calculations 
and other procedures as means of accomplishing this statutory 
objective. See 47 U.S.C. 309(j)(3)(B) and (j)(4)(D).
    12. The Commission adopts the rules in this Third Report and Order 
in order to facilitate broad-based participation in auctions. The 
Commission believes that standardizing the rules regarding definitions 
of eligible entities, unjust enrichment and bidding credits will assist 
small, minority and women-owned businesses because the rules'

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predictability will facilitate the business planning and capital 
fundraising process. While the Commission suspends the use of 
installment payments, the Commission seeks comment in the Second 
Further Notice of Proposed Rule Making in this docket on whether 
installment payments should be adopted in the future.
    13. The Commission also notes that pursuant to Section 309(j)'s 
obligations to ensure opportunities for participation by small 
enterprises, rural telephone companies, and minority- and women-owned 
businesses, and Section 257 of the Telecommunications Act, requiring 
that the Commission identify and eliminate market entry barriers for 
small and entrepreneurial telecommunications businesses, the Commission 
has commenced a series of studies, and has other studies in the 
planning process, to examine barriers encountered by minorities and 
women in the auctions process and the secondary market for licenses. 
When those studies are completed, the Commission will examine whether 
additional measures are warranted to promote the objectives of giving 
small businesses, rural telephone companies, and women- and minority-
owned businesses the chance to provide spectrum-based services, as 
required in Section 309(j).
    14. Small Business Size Standards. The Commission adopts its 
proposal to continue to define small businesses, as it has in the past, 
based on the characteristics and capital requirements of the specific 
service. The Commission believes that this approach has given it 
flexibility that will continue to benefit small businesses in future 
auctions. The Commission also notes that this approach is consistent 
with the Small Business Administration's practice of approving small 
business size standards on a service-by-service basis. Commenters 
addressing this issue support this conclusion. For example, AMTA and 
NextWave both believe that the determination of appropriate small 
business size standards should be made on a case-by-case basis.
    15. No commenters addressed the Commission's proposal in the Notice 
to create size standards that require small businesses to have gross 
revenues ``not to exceed,'' as opposed to ``less than'' a certain 
amount. Nevertheless, the Commission believes that adoption of this 
proposal is important to further its objective of establishing uniform 
definitions relating to small business standards for future auctions. 
From this point forward, the Commission's service-specific small 
business definitions will be expressed in terms of average gross 
revenues over the preceding three years ``not to exceed'' particular 
amounts. The Commission also continues to believe that average gross 
revenues provide an accurate, equitable, and easily ascertainable 
measure of business size. As the Commission has discussed in the past, 
a single gross revenues size standard is an established method for 
determining size eligibility for various kinds of federal programs that 
aid smaller businesses. NextWave, in its comments, agrees, stating that 
gross revenues are a generally reliable measure of whether a company is 
indeed small. In addition, while the Commission has used a total assets 
test in determining eligibility for entrepreneur blocks, see, e.g., 47 
CFR 709(a), the Commission has not used such a test for determining 
small business eligibility. The Commission also notes that the Small 
Business Act's statutory definition of small business does not use a 
total assets test. See 15 U.S.C. 632(c). Thus, the Commission declines 
to adopt any other measure of business size, such as a total assets 
test, at this time.
    16. Definition of Gross Revenues. All commenters addressing the 
issue support the Commission's proposal in the Notice to adopt a 
uniform definition of gross revenues for all auctionable services. The 
Commission believes that a uniform definition of gross revenues, as the 
essential element of our small business definitions, furthers the 
Commission's goal of establishing uniform definitions and is 
administratively efficient. Thus, the Commission adopts a uniform 
definition of gross revenues in the Part 1 rules.
    17. Various commenters addressed specific aspects of the 
Commission's proposed definition of gross revenues. CII supports the 
Commission's proposal that applicants be permitted to use either fiscal 
year or calendar year figures for calculation purposes. No commenters 
opposed this proposal. The Commission is persuaded that permitting use 
of either of these figures will assist applicants in providing the most 
current information available on their applications. The Commission 
concludes that its general gross revenue definition should permit 
applicants to support their gross revenue calculations using either 
fiscal or calendar years.
    18. Several commenters responded to the Commission's tentative 
conclusion in the Notice to accept the use of unaudited financial 
statements where audited financial statements are unavailable, if 
prepared in accordance with Generally Accepted Accounting Principles, 
for gross revenue calculations by auction applicants seeking to qualify 
for small business status. A majority of these commenters supported the 
Commission's tentative conclusion that where audited financial 
statements are not available, they should not be required. In 
particular, these commenters argue that any strict requirement that 
financial statements be audited is unduly burdensome for most small 
business applicants. In addition, AMTA contends that the certification 
requirement already present on the short-form (FCC Form 175) 
application is sufficient to ensure that small business applicants 
submit only accurate information, both financial and otherwise, as part 
of their applications. Only two commenters, ISTA and PageNet advocate 
that applicants use audited financial statements in order to qualify 
for small business status. After review of the comments on this issue, 
the Commission concludes that such a requirement would be onerous to 
small business. The Commission also agrees with AMTA's observation that 
the certification requirement on the FCC Form 175 acts to ensure that 
applicants submit accurate information. Furthermore, as discussed 
below, the Commission also will retain the authority to audit 
applicants individually if there is any question concerning small 
business status. The Commission therefore declines to require all 
applicants to use audited financial statements to support their gross 
revenue calculations. Audited financial statements, however, are 
necessary if they exist. The Commission also notes that, consistent 
with the Small Business Act, 15 U.S.C. 632(c)(ii)(II), where an entity 
has been in existence for less than three years, the entity's gross 
revenues should be averaged for the relevant number of years the 
entity, or its predecessor in interest (affiliate), has been in 
existence.
    19. Accordingly, as proposed in the Notice, and consistent with the 
Commission's broadband PCS rules, the Commission will define gross 
revenues for all auctionable services as:

all income received by an entity, whether earned or passive, before 
any deductions are made for costs of doing business (e.g., cost of 
goods sold), as evidenced by audited financial statements for the 
three (3) most recent calendar years or, if audited financial 
statements were not prepared on a calendar-year basis, for the most 
recently completed fiscal years preceding the filing of the 
applicant's short-form (FCC Form 175). If an entity was not in 
existence for all or part of the relevant period, gross revenues 
shall be evidenced by the audited financial statements of the 
entity's predecessor-in-interest or, if there is no identifiable 
predecessor-in-interest, unaudited financial statements certified by 
the applicant as

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accurate. When an applicant does not have audited financial 
statements, its gross revenues must be certified by its chief 
financial officer or its equivalent and must be prepared in 
accordance with Generally Accepted Accounting Principles.

    20. Definition of Affiliate. The Commission adopts its proposal to 
adopt a uniform definition of the term ``affiliate'' for all future 
auctions. As the Commission discussed in the Notice, the term affiliate 
is defined by the Commission's Part 1 rules as an individual or entity 
that directly or indirectly controls or has the power to control the 
applicant; is directly or indirectly controlled by the applicant; is 
directly or indirectly controlled by a third person(s) that also 
controls or has the power to control the applicant; or has an 
``identity of interest'' with the applicant. The Commission has found 
that this definition, which also contains detailed discussion and 
examples of relevant terms such as ``control'' and ``identity of 
interest,'' has proven workable and is broad enough to address a wide 
variety of business structures. In particular, this definition has 
helped to ensure that businesses seeking small business status are 
truly small. The Commission also believes that this definition, by 
focusing on ``indicia of control,'' is consistent with our proposals 
regarding attribution of gross revenues of investors and affiliates 
discussed in the Second Further Notice of Proposed Rule Making in this 
docket.
    21. CIRI requests that the Commission include in its general 
definition of the term ``affiliate'' an exemption for Indian tribes and 
Alaska Regional or Village Corporations, as the Commission did for 
broadband PCS, and more recently, for LMDS. The Commission agrees with 
CIRI that entities owned and controlled by Indian tribes and Alaska 
Regional or Village Corporations should be eligible to bid in future 
auctions as small businesses, notwithstanding their affiliation with 
other entities owned by tribes or Alaska Native Corporations whose 
gross revenues cause the combined average gross revenues of the entity 
and its affiliates to exceed the general limits for eligibility for 
bidding as such a business. As the Commission stated in support of a 
similar exemption from the affiliation rules in LMDS, this exception 
will ensure that these entities will have a meaningful opportunity to 
participate in spectrum-based services from which they would otherwise 
be precluded. Furthermore, the Commission does not believe that this 
exemption for the specified entities will entitle them to an unfair 
advantage over entities that are otherwise eligible for small business 
status.
    22. The Commission also takes this opportunity to clarify its Part 
1 definition of affiliate. The Commission's Part 1 rules provide that 
parties to a joint venture are considered to be affiliated with each 
other for purposes of determining the gross revenues of an applicant 
seeking to qualify for status as a small business. See 47 CFR 
1.2110(b)(4)(x). In the past, however, the term ``consortium'' has been 
defined on a service-by-service basis as ``a conglomerate organization 
formed as a joint venture between or among mutually independent 
business firms, each of which individually satisfies the definition of 
a very small business, small business or entrepreneur.'' See, e.g., 47 
CFR 101.1112(f) (defining the term ``consortium'' for LMDS). This 
results in each member of a consortium being defined as an affiliate of 
each other member. The resulting attribution of gross revenues of each 
member of the consortium is inconsistent with our intention to permit 
small or very small businesses to form consortia as a means of 
increasing the capital available to participate in the Commission's 
auctions, while still being eligible for status as a small business.
    23. The Commission therefore amends Sec. 1.2110(b)(4)(x) to provide 
that a ``consortium'' as defined on a service-by-service basis for 
purposes of determining status as a designated entity will not be 
treated as a ``joint venture'' under our attribution standards. As a 
result, when two or more entities form an association that meets the 
service-specific definition of a ``consortium,'' the gross revenues of 
each entity will not be attributed to each entity in determining 
eligibility for designated entity status. The Commission believes that 
this clarification to the general definition of the term ``affiliate'' 
will enhance the ability of small businesses to form associations that 
will permit them to bid for licenses that would be too expensive for 
them individually. Auction winners have successfully used consortium 
structures to acquire licenses and ``spin-off'' licenses post-auction, 
and the Commission wishes to continue to make this option available.
    24. Definition of Rural Telephone Company. The National Telephone 
Cooperative Association (``NTCA'') and the Rural Telecommunications 
Group (``RTG''), commented in support of the Commission's proposal in 
the Notice to adopt the definition of a rural telephone company 
contained in the Telecommunications Act of 1996 as the single 
definition of the term to be used in all auctionable services. No 
commenters opposed this proposal. As the Commission noted in the 
Notice, when the Commission amended the broadband PCS rule, the 
Commission stated that using the definition contained in the 1996 Act 
would likely expedite the delivery of advanced services to rural areas. 
the Commission also noted that adopting the 1996 Act definition would 
promote uniformity of regulations and is therefore consistent with the 
mandate of that legislation to ease regulatory burdens and eliminate 
unnecessary regulation. The Commission believes that the same reasons 
for amending this definition in the broadband PCS rules justify 
amending the definition in Part 1 for all services subject to 
competitive bidding.
    25. Thus, the Commission amends Sec. 1.2110(b)(3) to define the 
term rural telephone company as a local exchange carrier operating 
entity to the extent that such entity--(A) provides common carrier 
service to any local exchange carrier study area that does not include 
either (i) any incorporated place of 10,000 inhabitants or more, or any 
part thereof, based on the most recently available population 
statistics of the Bureau of the Census, or (ii) any territory, 
incorporated or unincorporated, included in an urbanized area, as 
defined by the Bureau of the Census as of August 10, 1993; (B) provides 
telephone exchange service, including exchange access, to fewer than 
50,000 access lines; (C) provides telephone exchange service to any 
local exchange carrier study area with fewer than 100,000 access lines; 
or (D) had less than 15 percent of its access lines in communities of 
more than 50,000 on the date of enactment of the Telecommunications Act 
of 1996.
    26. Installment Payments. After careful review of the comments in 
this docket, and the Commission's recent decisions in the broadband PCS 
C block, LMDS and 800 MHz SMR services, the Commission has determined 
that installment payments should not be used in the immediate future as 
a means of financing small business participation in the Commission's 
auction program. See also ``FCC Announces Spectrum Auction Schedule for 
1998,'' Public Notice, DA 97-2497 (rel. November 25, 1997), announcing 
the following upcoming auctions: LMDS, 220 MHz, broadband C block 
Reauction, 39 GHz, Paging, 800 MHz SMR (Lower 80 and General Category 
Channels), Location Monitoring Services (LMS), Public Coast Stations, 
Pending Analog Broadcast Licenses for Commercial Radio and Television 
Stations, and ``FCC Announces Auction Schedule for the General Wireless 
Communications Service,'' Public

[[Page 2319]]

Notice, DA 97-2634 (rel. December 17, 1997). The Commission must 
balance competing objectives in Section 309(j) that require, inter 
alia, that it promote the development and rapid deployment of new 
spectrum-based services and ensure that designated entities are given 
the opportunity to participate in the provision of such services. The 
Commission notes that its experience has demonstrated that installment 
payments may not be necessary to ensure a meaningful opportunity for 
small businesses to participate successfully in our auction program. 
For example, in the cellular auction of licenses for unserved areas, 
which had no special bidding provisions, 36 percent of the licenses 
went to small or very small businesses. The Commission also stated that 
in assessing the public interest, we must try to ensure that all the 
objectives of Section 309(j) are considered. The Commission has found, 
for example, that obligating licensees to pay for their licenses as a 
condition of receipt requires greater financial accountability from 
applicants.
    27. In addition, questions have been raised in bankruptcy 
litigation about whether the Commission can quickly reclaim licenses 
should a licensee declare bankruptcy (even though licenses are 
expressly conditioned upon payment and cancel automatically in the 
event of non-payment) resulting in significant delays in the provision 
of service to the public. While the Commission is confident of 
prevailing in any litigation, until controlling precedent is 
established or legislation addressing the conflicting rights is 
enacted, such delays may occur. In this regard, the Commission has 
strongly urged Congress to adopt legislation that would clarify that 
provisions of the Bankruptcy Code (1) are not applicable to any FCC 
license for which a payment obligation is owed; (2) do not relieve any 
licensee from payment obligations; and (3) do not affect the 
Commission's authority to revoke, cancel, transfer or assign such 
licenses. The Commission also notes that, in order to balance the 
impact on small businesses of its decision to discontinue the use of 
installment payments in the near future, the Commission is adopting 
higher bidding credits than those proposed in the Notice.
    28. Therefore, subject to the Commission's proposals in the Second 
Further Notice of Proposed Rule Making, the Commission concludes that 
until further notice, installment payments should not be offered in 
auctions as a means of financing small businesses and other designated 
entities seeking to secure spectrum licenses. Consistent with this 
decision, the Commission hereby eliminates installment payments in the 
auction of the lower 80 and General Category channels in the 800 MHz 
SMR service. Although Merlin submits that the elimination of the 
Commission's installment payment provisions in any service would be 
contrary to the Commission's conclusions in previous rule makings, the 
Commission believes that this decision is consistent with suggestions 
of CIRI, as well as the Commission's general experience in examining 
the success of the installment payment program to date. As the 
Commission recently recognized in eliminating installment payments for 
LMDS licensees, Congress did not require the use of installment 
payments in all auctions, but rather recognized them as one means of 
promoting the objectives of Section 309(j)(3) of the Communications 
Act. The Commission continues to experiment with different means of 
achieving its obligations under the statute, and has offered 
installment payments to licensees in several auctioned wireless 
services. Installment payments are not the only tool available to 
assist small businesses. Indeed, the Commission have conducted auctions 
without installment payments. Moreover, Section 3007 of the Balanced 
Budget Act requires that the Commission conduct certain future auctions 
in a manner that ensures that all proceeds from such bidding are 
deposited in the U.S. Treasury not later than September 30, 2002. 
Although the Commission seeks comment in the Second Further Notice of 
Proposed Rule Making on offering installment payment plans in the 
future, the Commission believes that Section 3007 may require that 
these auctions be conducted without offering long-term installment 
payments. See Balanced Budget Act of 1997. The Conference Report on the 
Balanced Budget Act of 1997 indicates that the deadline set forth in 
Section 3007 ``applies to all competitive bidding provisions in this 
title of the conference agreement and any amendments to other law made 
in this title.'' Conference Report on H.R. 2015, Balanced Budget Act of 
1997, Congressional Record--House, Vol. 143, No. 109--Part II, at 
H6176.
    29. In this regard, the Commission agrees with commenters such as 
CIRI, that contend that increased bidding credits will allow 
responsible small bidders with appropriately tailored business plans to 
secure adequate private financing to be successful in future auctions. 
Further, as the Commission has already noted, Section 309(j) requires 
the Commission to consider alternative methods to allow for 
dissemination of licenses among designated entities, including small 
businesses. The Commission believes that the rules it adopts below 
regarding the use of bidding credits for small business applicants in 
future auctions will both fulfill the mandate of Section 309(j) to 
provide small businesses with the opportunity to participate in 
auctions and ensure that new services are offered to the public without 
delay.
    30. Merlin contends that while significant bidding credits can be 
useful in helping smaller entities win licenses when they bid against 
larger companies, bidding credits alone do not help smaller entities 
access the capital required to build a spectrum-based service. In 
addition, Merlin states that eliminating the installment payment plan 
would raise the cost of capital for small businesses which would be 
forced to borrow additional funds from commercial lenders at higher 
interest rates. Merlin also argues that because many small businesses 
have relied on the current installment plan terms in formulating 
business plans necessary to bid in upcoming auctions, any decision to 
eliminate the installment payment program could effectively preclude 
small business participation in future auctions altogether. The 
Commission disagrees with Merlin's assertions. As the Commission has 
discussed, the Commission believes that the increased bidding credits 
it adopts below will help fulfill the mandate of Section 309(j)(4)(D) 
of the Communications Act to provide small businesses with the 
opportunity to participate in spectrum-based services. As noted above, 
this approach was successful in enabling small businesses to 
participate in the WCS auction, in which the Commisison was unable to 
employ installment payments because of the statutory deadline for 
depositing auction revenues in the U.S. Treasury. The Commission also 
recently used this approach in establishing rules for the auction of 
licenses for 800 MHz SMR and LMDS.
    31. The Commission recognizes that it previously adopted rules for 
both the 220 MHz and paging services that permit eligible small 
businesses to pay for their licenses in installments. Several petitions 
for reconsideration have been filed in these proceedings that remain 
pending before the Commission. The Commission will resolve these 
petitions separately in a manner consistent with our decision herein to 
suspend the use of installment payment plans at least until our rights

[[Page 2320]]

to recover and reauction licenses in a timely fashion are established.
    32. Bidding Credits. Although all commenters addressing the issue 
are largely supportive of the use of bidding credits as a means of 
ensuring the widest possible participation in future auctions, there is 
disagreement among commenters as to whether a standard schedule of 
bidding credits for small businesses is desirable. For example, CII 
supports our proposal to standardize the sliding scale of bidding 
credits that is available to an applicant. Specifically, CII believes 
that granting businesses of different sizes different levels of bidding 
credits in different services threatens to result in inconsistent 
participation by small businesses in spectrum auctions. In contrast, 
some commenters oppose any set schedule of bidding credits, and believe 
that the Commission should specify appropriate bidding credits for each 
auctionable service. Among these, PCIA and AMTA believe that the 
Commission should continue to examine what constitutes an effective 
bidding credit on a service-by-service basis because the financing 
requirements of different spectrum-based services may necessitate use 
of different size bidding credits to provide the proper assurances that 
small businesses will be able to effectively compete. As the Commission 
stated in the Notice, the Commission believes that an approach in which 
the Commission provides certainty for future auctions about the size of 
available bidding credits will benefit small businesses because 
potential bidders will have more information well in advance of the 
auction than previously about how such levels will be set. Once a small 
business definition is adopted for a particular service, eligible 
businesses will benefit they are able to refer to a schedule in our 
Part 1 rules to determine the level of bidding credit available to 
them. The Commission therefore adopts its proposal to create a standard 
schedule of bidding credits.
    33. In light of the Commission's decision to suspend installment 
payment financing for the near future, the Commission has determined 
that higher bidding credits than those proposed in the Notice would 
better effectuate our statutory mandate. Airadigm supports larger 
bidding credits than those proposed by the Commission. Similarly, CIRI 
contends that unless the Commission is prepared to establish the 
creditworthiness of installment payment applicants, the Commission 
should offer substantial bidding credits to small businesses in lieu of 
government financing. The Commission notes that some commenters argue 
that, in relation to installment payment provisions, bidding credits 
are less effective in allowing designated entities to participate in 
the Commission's auction program. For example, Pocket states that 
bidders often ``bid through'' bidding credits and that bidding credits 
tend to result in higher bids and, in general, higher auction prices. 
The Commission believes that without installment payments, bidding 
credits, coupled with providing bidders sufficient time to raise 
financing, will enable small businesses to successfully compete in 
future auctions. Also, tiered bidding credits have proven to work well 
and provide for more competition between small business participants of 
different sizes. The use of tiered bidding credits was successful in 
enabling small businesses to participate in the WCS auction, in which 
the Commission was unable to employ installment payments because of the 
statutory deadline for depositing auction revenues in the U.S. 
Treasury. Finally, while the Commission recognizes Pocket's concerns 
about the possibility that bidders ``bid through'' bidding credits, the 
Commission does not believe that this problem is significant where not 
all bidders are eligible for bidding credits, and the size of the 
bidding credit varies among those who are eligible.
    34. Consistent with this reasoning, the Commission adopts the 
following schedule of bidding credits for use in future auctions in 
which provisions for designated entities are offered:

------------------------------------------------------------------------
                                                                Bidding 
                Average annual gross revenues                   credits 
                                                               (percent)
------------------------------------------------------------------------
Not to exceed $3 million.....................................         35
Not to exceed $15 million....................................         25
Not to exceed $40 million....................................         15
------------------------------------------------------------------------

The Commission recognizes that these credits are higher than some 
previously adopted for specific services. Based on the Commission's 
past auction experience and the suspension of installment payments, 
however, the Commission believes that the approach taken here will 
provide adequate opportunities for small businesses of varying sizes to 
participate in spectrum auctions.
    35. The Commission recognizes that Merlin recommends providing 
higher bidding credits than those which the Commission adopts. 
Specifically, Merlin suggests that (1) businesses with average gross 
revenues for the preceding three years not exceeding $3 million be 
eligible for bidding credits of 40 percent; (2) businesses with average 
gross revenues for the preceding three years not exceeding $15 million 
be eligible for bidding credits of 35 percent; and (3) businesses with 
average gross revenues for the preceding three years not exceeding $40 
million be eligible for bidding credits of 25 percent. As discussed 
above, the Commission believes that higher bidding credits than those 
proposed in the Notice are necessary now that our installment payment 
program is suspended. The Commission believes that the schedule of 
bidding credits it adopts is reasonable in light of our decision to 
suspend installment payments for services auctioned in the immediate 
future, and expect that it will prove sufficient to enable small 
businesses to obtain spectrum licenses through our auction program. 
Thus, the Commission declines to adopt Merlin's proposal. The 
Commission also notes that it seeks comment in the Second Further 
Notice of Proposed Rule Making on means other than bidding credits and 
installment payments by which the Commission might facilitate the 
participation of small businesses in our spectrum auction program.
    36. Unjust Enrichment. The Commission adopts its proposal to 
conform the Part 1 unjust enrichment rules to the broadband PCS rules. 
The Commission believes that effective unjust enrichment rules are 
necessary to ensure that meaningful small business participation in 
spectrum-based services is not thwarted by transfers of licenses to 
non-designated entities. As the Commission stated in the Notice, the 
broadband PCS unjust enrichment rules are preferable to our current 
general unjust enrichment rules because they provide greater 
specificity about funds due at the time of transfer or assignment and 
specifically address changes in ownership that would result in loss of 
eligibility for installment payments, which the current general rules 
do not address. The broadband PCS rules also address assignments and 
transfers between entities qualifying for different tiers of 
installment payments or bidding credits, thus supplying clearer 
guidance for auctions in which tiered installment payment plans or 
bidding credits are provided. Commenters addressing this issue largely 
support this decision. For example, Pocket and Ericsson both argue that 
modified unjust enrichment rules would still deter transfers designed 
to subvert the Commission's rules, but would provide businesses with 
more flexibility in situations of financial distress and permit the 
transfer

[[Page 2321]]

of individual licenses that no longer comport with their business 
plans.
    37. Current as well as future licensees will be governed by the 
rules the Commission adopts providing for unjust enrichment payments 
upon assignment, transfer, partitioning and disaggregation. While the 
Commission did not receive significant comment on this issue, the 
Commission notes that in awarding licenses in the past, the Commission 
has emphasized that the terms associated with the continued grant of a 
license will be governed by current Commission rules and regulations. 
For example, in awarding licenses to C block licensees paying for their 
licenses in installments, the Commission indicated in the associated 
``Note'' and ``Security Agreement'' that the terms of the installment 
plan would be governed by and construed in accordance with then-
applicable Commission orders and regulations, as amended. Therefore, 
the Commission concludes that the unjust enrichment rules it adopts 
apply to existing licensees, and supersede service-specific rules where 
applicable. Specifically, these rules will supersede existing unjust 
enrichment provisions in the narrowband and broadband PCS, WCS, 900 
MHz, and IVDS services. See 47 CFR 24.309(f) (narrowband PCS), 24.711 
(C block), 24.716(d) (F block), 27.209(d)(1), (2) (WCS), 90.812(b) (900 
MHz), 95.816(e) (IVDS). As discussed above, the Commission suspends the 
use of installment payments for the immediate future as a means of 
financing small business participation in the Commission's auction 
program. As a result, the Commission's decision with regard to unjust 
enrichment payments as they relate to licensees paying for their 
licenses in installment payments will apply only to existing licensees, 
their transferees and assignees (until the Commission reinstates 
installment payments).

Unjust Enrichment and Installment Payments

    38. For existing licensees who make use of Commission installment 
payment financing, the Commission amends Sec. 1.2111(c) to conform to 
the Commission's broadband PCS rules. Specifically, if a licensee seeks 
to assign or transfer control of its license to an entity not meeting 
the eligibility standards for installment payments, the licensee must 
make full payment of the remaining unpaid principal and any unpaid 
interest accrued through the date of the assignment or transfer as a 
condition of Commission approval. Similarly, if the licensee seeks to 
make any change in ownership structure that would result in the 
licensee losing eligibility for installment payments, the licensee must 
first seek Commission approval and must make full payment of the 
remaining unpaid principal and any unpaid interest accrued through the 
date of such change as a condition of approval. If a licensee seeks to 
make any change in ownership that would result in the licensee 
qualifying for a less favorable installment plan, the licensee must 
seek Commission approval and must adjust its payment plan to reflect 
its new eligibility status.

Unjust Enrichment and Bidding Credits

    39. For existing and future licensees who qualified or qualify in 
the future for a bidding credit in paying for their winning bid, the 
Commission also amends Sec. 1.2111(c) to provide for unjust enrichment 
payments similar to those contained in the Commission's broadband PCS 
rules. Specifically, during the term of the initial license grant, if a 
licensee seeks to assign or transfer control of its license to an 
entity not meeting the eligibility standards for bidding credits, or 
seeks to make any other change in ownership that would result in the 
licensee no longer qualifying for a bidding credit, the licensee must 
seek Commission approval and must reimburse the government for the 
amount of the bidding credit, plus interest based on the rate for U.S. 
Treasury obligations applicable on the date the license is granted, as 
a condition of the approval of such assignment, transfer or other 
ownership change. Similarly, if the licensee seeks to assign or 
transfer control of its license to an entity meeting the eligibility 
standards for lower bidding credits, or seeks to make any other change 
in ownership that would result in the licensee qualifying for a lower 
bidding credit under this section, the licensee must seek Commission 
approval and must pay to the United States Treasury the difference 
between the amount of the bidding credit obtained by the licensee and 
the bidding credit for which the assignee, transferee or licensee is 
eligible as a condition of the approval of such assignment, transfer or 
other ownership change. These provisions also will apply to licensees 
who partition or disaggregate their licenses.
    40. The Commission also adopts its proposal in the Notice to 
provide for decreasing unjust enrichment payments for licensees that 
utilized a bidding credit when paying for their licenses and that make 
transfers and assignments occurring later in the license term. This 
decision also is supported by the commenters. In amending the rule in 
this manner, the Commission ensures that its general rule resembles 
those rules the Commission has adopted in specific services (e.g., MDS, 
narrowband PCS, and 900 MHz SMR ) that reduce the amount of unjust 
enrichment payments due on transfer based upon the amount of time the 
initial license has been held. Consistent with the rules that exist in 
these services, the amount of this payment will be reduced over time as 
follows: A transfer in the first two years of the license term will 
result in a forfeiture of 100 percent of the value of the bidding 
credit (or, in the case of very small businesses transferring to small 
businesses, 100 percent of the difference between the bidding credit 
received by the former and the bidding credit for which the latter is 
eligible); in year three of the license term the payment will be 75 
percent; in year four the payment will be 50 percent; and in year five 
the payment will be 25 percent, after which there will be no payment. 
These assessments will have to be paid to the U.S. Treasury as a 
condition of approval of the assignment, transfer, or ownership change. 
All current and future licensees, with the exception of entrepreneur 
block licensees subject to restrictions on assignments and transfers of 
licenses, will be governed by this modification to our general rules. 
The Commission believes that our decision to maintain the original 
transfer restrictions for such licensees is proper in light of the 
special provisions which were made available for licensees in the 
Commission's entrepreneur blocks.

Unjust Enrichment and Partitioning and Disaggregation

    41. Also as proposed in the Notice, the Commission will adopt a 
general rule modeled on the Commission's broadband PCS rules to 
determine the amount of unjust enrichment payments assessed for all 
current and future licensees. Thus, the Commission adopts a general 
unjust enrichment rule that treats partitioning and disaggregation by 
licensees in the same manner as the broadband PCS rule. Specifically, 
if the licensee seeks to partition any portion of its geographic 
service area, the amount of the unjust enrichment payment discussed 
above will be calculated based upon the ratio of population in the 
partitioned area to the overall population of the licensed area. 
Similarly, if a licensee seeks to disaggregate spectrum, the amount of 
the unjust enrichment payment will be determined based upon the ratio 
of the amount of spectrum disaggregated to the amount of spectrum held 
by the disaggregating licensee.

[[Page 2322]]

IV. Application Issues

    42. Electronic Filing. The Commission believes that electronic 
filing of all short-form and long-form applications for auctionable 
services is in the best interest of auction participants, as well as 
members of the public monitoring Commission auctions. Therefore, the 
Commission amends Secs. 1.2105(a) and 1.2107(c) of its rules to require 
electronic filing of all short-form and long-form applications, 
beginning January 1, 1999, unless it is not operationally feasible. 
Although in the Notice the Commission proposed to require electronic 
filing commencing January 1, 1998, the Commission believes that this 
additional phase-in period before the requirement becomes effective 
will benefit potential bidders. The majority of the comments addressing 
the issue support the decision to require electronic filing. For 
example, PageNet contends that electronic filing promotes access to 
applications by competing bidders, as well as the general public, by 
making it possible to review and download applications without 
traveling to FCC headquarters or contracting for photocopying of paper 
applications. To facilitate public access, the Commission has developed 
user-friendly electronic filing software and Internet World Wide Web 
forms to give auction applicants the ability to conveniently file and 
review applications. This software helps applicants ensure the accuracy 
of their applications as they are filling them out, and enables them to 
correct errors and omissions prior to submitting their applications. To 
assist the public, the Commission provides technical support personnel 
to answer questions and work with callers using the electronic auction 
system. In addition, the Commission has demonstrated its auction 
software at conferences organized by potential bidders and members of 
the industry in order to familiarize interested parties with our recent 
software enhancements.
    43. AT&T is generally supportive of electronic filing, but proposes 
that the Commission create a waiver process whereby an applicant that 
has missed a filing deadline due to technical problems can obtain a 
waiver quickly or be permitted to submit a paper original of the 
application by hand or mail the same day. In addition, AT&T requests 
that a Commission staff member be provided with the authority to grant 
such a waiver in the event of electronic filing difficulties. The 
Commission does not believe that a specific waiver provision is 
necessary. The Commission's existing waiver provisions, which specify 
the showing required for the grant of a waiver, provide adequate 
assurance that requests for waiver relating to the electronic filing of 
applications will receive proper consideration. In addition, the 
Commission emphasizes that it has typically responded rapidly to time-
sensitive waiver requests filed by auction applicants, and intends to 
continue to do so in the future.
    44. Only one commenter, Airadigm, opposes an electronic filing 
requirement. Airadigm states that the Commission experienced 
difficulties in processing electronic filings during the IVDS auction 
and argues that removing the option of manual filing could result in 
similar problems in future auctions. The Commission believes that the 
system enhancements discussed above, most of which were not in place 
during the IVDS auction, adequately respond to Airadigm's concerns. The 
Commission also notes that its experiences from recent auctions 
demonstrate that the electronic bidding system is reliable. For 
example, in the broadband PCS D, E, and F block auction, 94 percent of 
the qualified bidders filed their short-form applications 
electronically. In the recently completed 800 MHz SMR auction, 93 
percent of the qualified bidders filed their short-form applications 
electronically. The Commission did not experience problems with its 
electronic filing procedures.
    45. Finally, as the Commission stated in the Notice, the Commission 
recognizes that there is a need for a period of time before a 
comprehensive electronic filing requirement becomes effective in order 
for bidders to prepare and be completely comfortable with this process. 
The effective date of January 1, 1999, will provide potential bidders 
with adequate time in which to adapt to electronic filing requirements. 
Finally, although the Commission concludes that electronic filing is 
the preferred filing method, the Commission nevertheless reserves the 
right to provide for manual filing in the event of technical failure or 
other difficulties.
    46. Short-form Application Amendments. The majority of commenters 
support the Commission's proposal in the Notice to create a uniform 
definition of major and minor amendments to applicants' short-form (FCC 
Form 175) applications for all future auctions. However, commenters' 
opinions differ on what types of amendments the Commission should 
categorize as major or minor. For example, AT&T and ISTA argue that 
major amendments should include all changes in ownership that 
constitute a change in control, as well as all changes in size that 
would affect an applicant's eligibility for designated entity 
provisions. In contrast, Metrocall contends that all changes in 
ownership incidental to mergers and acquisitions, non-substantial pro 
forma changes, and involuntary changes in ownership should be 
categorized as minor. Metrocall also states that an applicant should 
not be permitted to upgrade its designated entity status after the 
short form filing deadline (i.e., go from a ``small'' to ``very small'' 
business), but should be permitted to lose its designated entity status 
as a result of a minor change in control (i.e., exceed the threshold 
for eligibility as a small business).
    47. After careful consideration of the comments addressing the 
issue, the Commission concludes that a definition of major and minor 
amendments similar to that provided in the Commission's PCS rules, 47 
CFR 24.822, is appropriate. After the short-form filing deadline, 
applicants will be permitted to make minor amendments to their short-
form applications both prior to and during the auction. However, 
applicants will not be permitted to make major amendments or 
modifications to their applications after the short-form filing 
deadline. Major amendments will include, but will not be limited to, 
changes in license areas designated on the short-form application, 
changes in ownership of the applicant which would constitute a change 
in control, and the addition of other applicants to any bidding 
consortia. Consistent with the weight of the comments addressing the 
issue, major amendments will also include any change in an applicant's 
size which would affect an applicant's eligibility for designated 
entity provisions. For example, if Company A, an applicant that 
qualified for special provisions as a small business, merges with 
Company B during the course of an auction, and if, as a result of this 
merger, the merged company would not qualify as a small business, the 
amendment reflecting the change in ownership of Company A would be 
considered a major amendment. Otherwise, the new entity could receive 
small business bidding credits and installment payments when it does 
not qualify for them. As is the case in the Commission's PCS rules, 
however, applicants will be permitted to amend their short-form 
applications to reflect the formation of bidding consortia or changes 
in ownership that do not result in a change in control of the 
applicant, provided that the parties forming consortia or entering into 
ownership agreements have not applied for licenses

[[Page 2323]]

in any of the same geographic license areas. In contrast, minor 
amendments will include, but will not be limited to, the correction of 
typographical errors and other minor defects, and any amendment not 
identified as major.
    48. As noted above, the Commission has generally refused to grant 
requests to add or delete markets on an applicant's short-form 
application in order to prevent collusive conduct or gaming that would 
reduce the competitiveness of the auction. While the Commission 
recognizes that there may be some circumstances in which the 
competitiveness of the auction might be enhanced by allowing applicants 
to add markets to their short-form applications, the Commission 
concludes that the risks of encouraging or facilitating conduct that 
negatively affects the competitiveness of the auction and the post-
auction market structure outweigh the benefits of categorizing such 
amendments as minor. Several commenters support this conclusion that 
the addition or deletion of markets on the short-form application 
should always be deemed a ``major'' amendment. Specifically, PageNet 
states that because the only new information that an applicant could be 
deemed to possess at this stage would be licenses on which other 
applicants intend to bid, amendment of the short-form application in 
this regard could only lead to auction abuses. Those commenters 
supporting defining the addition or deletion of markets after the 
short-form filing deadline as a minor amendment argue that such an 
amendment should only be permitted prior to the upfront payment 
deadline or the release of the Public Notice announcing qualified 
bidders. After this point, the overall competitiveness of the auction 
may be threatened.
    49. AT&T proposes that the deletion of markets to avoid specifying 
markets that overlap with another auction applicant (and thus 
preventing discussion on potentially non-auction-related matters such 
as interconnection, resale, and equipment orders that do not affect 
bids or bidding strategies) be deemed a minor amendment. The Commission 
notes that in previous auctions some applicants have inadvertently 
placed themselves at risk of violating the Commission's anti-collusion 
rule by choosing to specify ``all markets'' on their short-form 
applications when they intended to bid only on a particular license or 
group of licenses. As a general matter, the anti-collusion rule does 
not prohibit non-auction-related business negotiations between auction 
applicants that have applied for the same geographic service areas. 
AT&T argues that the aspect of the rule prohibiting the addition or 
deletion of markets often has had the unfortunate result of 
discouraging non-auction, business-related discussions between auction 
applicants who are not actually bidding for licenses in the same 
geographic license areas. Because of the potential anti-competitive 
results of allowing bidders to delete markets after the short-form 
filing deadline, however, the Commission believes that this type of 
error can be more effectively addressed by other means, including 
increased awareness on the part of prospective auction applicants of 
the consequences of choosing ``all markets,'' as well as software 
enhancements that make specifying particular markets on the FCC Form 
175 less burdensome.
    50. The Commission also emphasizes that, pursuant to Sec. 1.65 of 
the Commission's rules, each auction applicant is required to assure 
the continuing accuracy and completeness of information furnished in a 
pending application. See 47 CFR 1.65. Each applicant is therefore under 
a continuing obligation to update its short-form and long-form 
applications as appropriate to reflect any changes that would make a 
pending application inaccurate or incomplete, or that are necessary to 
determine that an applicant is in compliance with our rules. As in all 
prior auctions, an application that is amended by a major amendment 
will be considered newly filed, and therefore will not be accepted 
after the short-form filing deadline. The Commission further notes that 
it has waived its ex parte rules as they apply to the submission of 
amended short-form applications to maximize applicants' opportunities 
to seek the advice of Commission staff when making amendments at any 
time after the short-form filing deadline.
    51. Finally, the Commission notes that in the context of cellular 
unserved area licensing, WWC contends that the rules adopted in this 
proceeding addressing major and minor amendments to short-form 
applications should not apply to cellular unserved area applications 
filed in 1994 as these applications were to be governed by a ``letter-
perfect'' standard and applicants were given no opportunity to cure 
minor defects. While the Commission has considered WWC's argument, the 
Commission believes that it is inapplicable. WWC addresses the initial 
application procedures for cellular unserved area licenses, while the 
Part 1 rules, in contrast, address application procedures for 
participation in an auction once a finding of mutual exclusivity has 
been made.
    52. Ownership Disclosure Requirements. As the Commission indicated 
in the Notice, the Commission continues to believe that detailed 
ownership information is necessary to ensure that applicants claiming 
small business status qualify for such status, and to ensure compliance 
by all applicants with spectrum caps and other ownership limits. 
Disclosure of ownership information also aids bidders by providing them 
with information about their auction competitors and alerting them to 
entities subject to our anti-collusion rules. Therefore, the Commission 
adopts standard ownership disclosure requirements for all auctionable 
services that will avoid the variations found in the Commission's 
current service-specific ownership disclosure requirements.
    53. This decision is widely supported by the majority of comments 
in this proceeding. Most commenters addressing the issue of ownership 
disclosure support requiring some level of ownership information at the 
short-form application stage. For example, PCIA believes that full 
disclosure of bidder ownership information is necessary if competing 
bidders are to accurately assess the legitimacy of their auction 
opponents and their respective bids. PCIA contends that there can be no 
valid reason for legitimate bidders to hide their ownership. Such 
information, according to PCIA, is crucial for purposes of the 
Commission's anti-collusion rules, spectrum caps, and other ownership 
limits. Similarly, PageNet contends that full ownership disclosure is 
important to aid bidders in compiling information about their auction 
competitors and, most importantly, to alert them to any conduct that 
might be a violation of the Commission's anti-collusion rules. In the 
satellite context, Hughes argues that the submission of detailed 
ownership information is essential because of the extreme costs 
associated with the build-out of a satellite system. In contrast, only 
CII argues that the Commission's objectives with regard to the rules 
governing designated entity status, spectrum caps, and other ownership 
limitations would be fully satisfied by deferring the filing of 
comprehensive ownership information until the long-form application 
stage.
    54. For all future auctions, therefore, the Commission will model 
our reporting requirements on the general application requirements 
contained in our broadband PCS rules. Under this standard, all auction 
applicants will be required to disclose the real party or parties in 
interest by including as an exhibit to their short-form applications

[[Page 2324]]

detailed ownership information. Although the Commission's current Part 
1 rules require auction applicants to list all owners of a five percent 
or greater interest in the applicant, the Commission agrees with 
commenters such as CII that argue that applicants should not be 
required to list all holders of this small an interest in the 
applicant, unless they are in a position of control by virtue of other 
factors (i.e., voting agreements, management structure), or hold a 
significant passive ownership interest (i.e., 20 percent). Thus, the 
Commission amends its rules to require that applicants list controlling 
interests as well as all parties holding a 10 percent or greater 
interest in the applicant and any affiliates of these interest holders. 
See 47 CFR 1.2110(b)(4). A 10 percent or greater interest reporting 
requirement is consistent with the revised definition of the term 
``applicant'' we adopt for purposes of the anti-collusion rule. The 
Commission notes that PageNet contends that the Commission should 
require disclosure of entities and individuals that own more than five 
percent of the applicant or who have provided more than five percent of 
the applicant's equity. However, as suggested above, the Commission 
believes that the detailed reporting requirement we create today, in 
combination with our comprehensive affiliation rules, permits us to 
determine the ``real party or parties in interest'' when parties apply 
to participate in an auction.
    55. Specifically, all auction applicants will be required to 
disclose: (1) A list of any FCC-regulated business, 10 percent or more 
of whose stock, warrants, options or debt securities are owned by the 
applicant; (2) a list of any party holding a 10 percent or greater 
interest in the applicant, including the specific amount of the 
interest; (3) a list of any party holding a 10 percent or greater 
interest in any entity holding or applying for any FCC-regulated 
business in which a 10 percent or greater interest is held by another 
party which holds a 10 percent or greater interest in the applicant 
(e.g., if company A owns 10% of company B (the applicant) and 10% of 
company C, a company holding or applying for an FCC-regulated business, 
the companies A and C must be listed in company B's application); (4) 
the name, address and citizenship of any party holding 10 percent or 
more of each class of stock, warrants, options or debt securities, 
together with the amount and percentage held; (5) the name, address and 
citizenship of all controlling interests of the applicants, as this 
term is defined in Sec. 1.2110 of our rules; (6) if the applicant is a 
general partnership, the name, address and citizenship of each partner, 
and the share or interest participation in the partnership; (7) if the 
applicant is a limited partnership, the name, address and citizenship 
of each general partner and each limited partner whose interest in the 
applicant is equal to or greater than 10 percent (as calculated 
according to the percentage of equity paid in and the percentage of 
distribution of profits and losses); (8) if the applicant is a limited 
liability corporation, the name, address and citizenship of each of its 
members; and (9) a list of all parties holding indirect ownership 
interests in the applicant, as determined by successive multiplication 
of the ownership percentages for each link in the vertical ownership 
chain, that equal 10 percent or more of the applicant, except that if 
the ownership percentage for an interest in any link in the chain 
exceeds 50 percent or represents actual control, it shall be treated 
and reported as if it were a 100 percent interest. See, e.g., 47 CFR 
20.6(d)(8).
    56. In addition, consistent with the reporting requirements set 
forth in the 900 MHz SMR rules, the Commission will require that 
applicants claiming small business status disclose on their short-form 
applications the names of each controlling interest and affiliate, as 
these terms are defined in this proceeding, and to provide gross 
revenues calculations for each. On their long-form applications, such 
applicants will be required to disclose any additional gross revenues 
calculations, any agreements that support small business status, and 
any investor protection agreements. The Commission believes that these 
reporting requirements will help to assure that only qualifying 
applicants obtain the benefits of our small business provisions, 
without being unduly burdensome.
    57. Finally, in a related proposal, PageNet states that Commission 
should expressly prohibit ``blind bidding'' (i.e., bidding in which 
auction participants do not know the identities or ownership 
information of the other bidders in the auction) in any pending and 
future auction because it (1) is unfair to auction participants; (2) 
encourages auction abuses; and (3) encourages speculation. PageNet 
contends that these factors can have a significant impact upon the 
competitiveness of the auction and the post-auction marketplace. In 
situations in which an incumbent has already met the Commission's 
build-out requirements and must still bid in an auction in which blind 
bidding is used, PageNet contends that a competitor is often able to 
bid up the price of a license that it never intends to win in order to 
force the incumbent to buy the license at a higher price. PageNet 
further contends that this higher price is then reflected in higher 
rates for services, which in turn affect the incumbent's ability to 
compete. As discussed above, the Commission agrees that it is important 
that auction applicants disclose certain ownership information prior to 
the start of an auction. At the same time, however, the Commission 
believes that in certain circumstances, the competitiveness of an 
auction may be increased if less bidder information is made available. 
In the Competitive Bidding Second Memorandum Opinion and Order, the 
Commission retained the flexibility to conceal bidder identities if 
further experience showed that it would be desirable to do so. More 
recently, in the auction rules for geographic area paging licenses, the 
Commission concluded that the advantages of limiting information 
disclosed to bidders outweigh the disadvantages of this approach, and 
reserved the discretion to announce by Public Notice prior to the 
auction the precise information to be revealed to bidders during that 
auction. The Commission believes that the uniform rules adopted today 
provide the Commission with the necessary flexibility to tailor the 
amount of bidder information made available to applicants to ensure the 
competitiveness of each auction. The Commission therefore declines to 
adopt a provision prohibiting non-disclosure of bidder identities in 
all future auctions.
    58. Ownership Disclosure Filings. The Commission believes that 
permitting applicants to file ownership information when they apply for 
their first auction, which would then be stored in a central database 
and updated each time the information changes during or after the first 
auction and when applicants participate in a subsequent auction, will 
streamline our application processes and minimize the burden on auction 
applicants. This concept is supported by the record. For example, CII 
and Airadigm argue that this approach will benefit auction applicants 
by reducing the time spent preparing auction applications, and will 
benefit the Commission by eliminating the need to review and analyze 
duplicative filings. The Commission believes that by requiring 
ownership disclosure filings, we ensure that we receive all the 
information necessary to evaluate an applicant's qualifications. As the

[[Page 2325]]

Commission indicated in the Notice, however, these requirements could 
result in duplicative filings. For example, where licenses for a 
service are offered in a series of blocks, as in the case of broadband 
PCS, an entity may wish to participate in several auctions, and would 
be required to disclose the same information a number of times. Under 
the system the Commission envisions, when applying to participate in 
subsequent auctions, applicants will be permitted to update the 
database or certify that there have been no changes in ownership and 
that the information contained in the database remains correct. The 
Commission will look to implement this process in the near future as 
part of our Universal Licensing System.
    59. Audits. The only commenters to address this proposal, PageNet 
and Airadigm, support this proposal. Airadigm requests that applicants 
and licensees subject to audit be afforded sufficient time to provide 
information to the Commission and that the Commission issue written 
findings following its examination. The Commission therefore adopts its 
proposal, and will modify our rules governing status as a designated 
entity to expressly provide that applicants and licensees claiming 
eligibility for special provisions shall be subject to audits by the 
Commission. Such audits will be governed by the standards set forth in 
Sections 403 and 308(b) of the Communications Act. 47 U.S.C. 403, 
308(b). The Commission believes that these provisions, as well as the 
general provisions of the Administrative Procedure Act, will adequately 
address Airadigm's concerns, and the Commission therefore declines at 
this time to adopt specific rules to govern audits of applicants and 
licensees conducted in the future.

V. Payment Issues

    60. Determination of Upfront Payment Amount. In the Competitive 
Bidding Second Report and Order, the Commission indicated that the 
upfront payment should be set using a formula based upon the amount of 
spectrum and population (or ``pops'') covered by the license or 
licenses for which parties intend to bid. The Commission reasoned that 
this method of determining the required upfront payment would enable 
prospective bidders to tailor their upfront payment to their bidding 
strategies. At the same time, however, the Commission noted that 
determining an appropriate upfront payment involved balancing the goal 
of encouraging bidders to submit serious, qualified bids with the 
desire to simplify the bidding process and minimize implementation 
costs imposed on bidders. The Commission concluded that the best 
approach would be to maintain the flexibility to determine the amount 
of the upfront payment on an auction-by-auction basis, because this 
balancing may yield different results depending upon the particular 
licenses being auctioned.
    61. Many commenters make specific proposals regarding the proper 
size and terms for assessing upfront payments in future auctions. For 
example, PageNet and CII suggest that the Commission adopt a standard 
upfront payment rule requiring separate upfront payments for each 
license identified in an applicant's short-form application. CII 
contends that this would reduce the number of ``phantom'' mutual 
exclusivities (i.e., theoretical frequency conflicts caused by the fact 
that the current auction rules create no financial disincentive to list 
licenses in an application on which the applicant has no bona fide 
intention to bid). In contrast, Airadigm and NPCS argue that the 
Commission should not require a separate upfront payment for each 
license on which an entity elects to bid, as this would limit bidders' 
flexibility to change strategy and force them to reveal their bidding 
strategy prior to the start of the auction. In an alternate proposal, 
AirTouch and CII suggest that the Commission require applicants to 
increase their upfront payments as an auction progresses to equal a 
percentage of their total bids. AirTouch argues that this requirement 
would reduce the risk of defaults and discourage parties from 
submitting ``jump bids'' where they have no intention of actually 
winning a particular license. Similarly, to reduce the risk of default, 
CII recommends that when an applicant's upfront payment drops below a 
specific percentage of its high bid amount, the Commission allow the 
applicant to increase its deposit to a certain percentage of its high 
bid total within ten business days. In contrast to these two proposals, 
Airadigm opposes increasing the upfront payment requirement once a 
bidder's bid amount exceeds a certain multiple of the original upfront 
payment amount because this would create a significant barrier to small 
businesses.
    62. The Commission agrees with Airadigm and NPCS that it is 
unnecessary to adopt additional rules governing the amount of the 
upfront payment and the terms under which it is assessed. The 
Commission believes its reasoning in the Competitive Bidding Second 
Report and Order remains valid, and that the required upfront payment 
should be tailored to the particular auction design and to the 
characteristics of the licenses being auctioned. This determination can 
be made in a variety of ways and using a variety of techniques to 
estimate the value of the spectrum being auctioned; however, as a 
general rule we have required an upfront payment equal to $0.02 per pop 
per megahertz. As discussed infra, under the current competitive 
bidding rules the Commission maintains the discretion to alter the 
amount of the required upfront payment or to modify the terms under 
which the upfront payment is assessed. The Commission believes that 
retaining this discretion provides the Commission with the greatest 
level of flexibility to determine the appropriate upfront payment 
amount on an auction-by-auction basis.
    63. Refund of Upfront Payments. After considering the issue in 
light of Congress's 1996 amendment to Section 309(j)(8)(C) and the 
comments received in this proceeding, the Commission will continue our 
current practice of returning the upfront payments of bidders who have 
completely withdrawn from an auction prior to the conclusion of 
competitive bidding. As the Commission suggested in the Notice, it is 
unclear whether Congress intended, in amending Section 309(j)(8)(C), to 
require the Commission to change its practice of refunding upfront 
payments to bidders who withdraw during the course of an auction. The 
Commission continues to believe, however, that the prompt return of 
upfront payments is in the public interest, because it prevents 
unnecessary encumbrances on the funds of auction bidders, many of whom 
may be small businesses, after they have withdrawn from the auction. In 
addition, we believe that this practice minimizes the financial burdens 
of participating in an auction, because auction participants earn no 
interest on upfront payment funds on deposit with the Commission. 
Moreover, all commenters addressing the issue support our proposal to 
continue this practice. AirTouch proposes that the Commission retain an 
administrative fee based upon the number of rounds an applicant has 
remained in the auction when it refunds upfront payments to bidders who 
have withdrawn. Airadigm and AT&T state that not returning upfront 
payments in a prompt manner in circumstances where a bidder has 
withdrawn is akin to a ``fee'' that Congress did not intend to 
authorize, and that may work to discourage participation in the 
Commission's auction program. The Commission agrees with Airadigm and 
AT&T, and conclude that such a fee is

[[Page 2326]]

inappropriate, and therefore, rejects AirTouch's proposal.

64. Down Payment and Full Payment for Licenses

Level of Down Payments

    65. The Commission created the down payment requirement in the 
Competitive Bidding Second Report and Order, in which the Commission 
concluded that at the conclusion of the auction, a bidder must tender a 
significant and non-refundable down payment to the Commission over and 
above its upfront payment in order to provide further assurance that 
the winning bidder will be able to pay the full amount of its winning 
bid. The Commission believes that a substantial down payment is 
required to ensure that licensees have the financial capability to 
attract the capital necessary to deploy and operate their systems, and 
to protect against default. Because it is due soon after the close of 
the auction, the down payment is a valuable indicator of a license 
applicant's financial viability. In addition, the Commission believes 
that it is important it learns early on in the licensing process when 
an applicant might be unable to finance its winning bid or bids.
    66. Several commenters oppose any increase in the down payment 
beyond 20 percent of the high bid amount. Airadigm opposes granting the 
Bureau the discretion to establish a down payment amount because it 
believes that the Bureau could unfairly disadvantage small businesses 
by requiring disproportionately large down payments for auctions of 
particularly capital-intensive services. In addition, Airadigm states 
that granting the Bureau this discretion could complicate applicants' 
financing arrangements because down payment amounts could vary with 
each auction. After consideration of these comments, the Commission 
concludes that a standard down payment amount of 20 percent is 
appropriate. Finally, if unusual circumstances present themselves in 
the context of a particular service, the Commission reserves the right 
to adopt a different amount by rule in that service.

Untimely Second Down Payments and Full Payments

    67. The Commission will amend sections 1.2109(a) and 1.2110(e) of 
its rules to permit auction winners to make their second down payments 
or final payments within ten business days after the applicable 
deadline, provided that they also pay an appropriate late fee, without 
being considered in default. As the Commission recognizes in the 
Notice, in past auctions there have been cases where a winning bidder 
missed the applicable second down payment deadline but subsequently 
made its down payment and filed a request seeking a waiver of the 
deadline. In some of these cases, the Bureau granted the waivers, 
subject to payment of a five percent late fee. In granting the waivers, 
the Bureau recognized the licensee's good faith and ability to pay as 
evidenced by its timely remittance of all earlier payments and prompt 
action to cure the delinquency.
    68. The Commission recognizes that applicants may encounter 
unexpected or unforeseeable difficulties when trying to arrange 
financing and make substantial payments under strict deadlines. In 
circumstances that may warrant favorable consideration of a waiver 
request or an extension of the payment date, the Commission must also 
evaluate the fairness to other licensees who made their payments in a 
timely fashion. Two commenters, Mountain Solutions, Ltd. (``Mountain 
Solutions'') and AirTouch, the only commenters to address this issue in 
detail, support our proposal to permit late payment subject to a 
standard late fee for any licensee not able to make a timely payment. 
The Commission agrees, and amends Sec. 1.2109(a) to permit winning 
bidders who are required to make final payment on their licenses within 
a certain period of time as announced by public notice, to submit their 
payment 10 business days after the payment deadline, provided that they 
also pay a late fee equal to five percent of the amount due. Although 
the Commission suspends the use of installment payments for the 
immediate future, in the event the Commission once again offers 
installment payments, the Commission will also amend Sec. 1.2110(e) to 
permit auction winners paying for the licenses in installments to 
submit their second down payment 10 business days after the payment 
deadline, provided they also pay a late fee equal to five percent of 
the amount due.
    69. As discussed above, the Commission's rules provide that winning 
bidders have ten business days to make timely payment following 
notification that their licenses are ready to be granted. The 
Commission believes that in establishing this additional ten business 
day period, during which winning bidders will not be considered in 
default, the Commission will provide an adequate amount of time to 
permit winning bidders to adjust for any last-minute problems. The 
Commission declines to provide for a lengthier late payment period 
because we believe that extensive relief from initial payment 
obligations could threaten the integrity, fairness, and efficiency of 
the auction process. As observed in the Notice, a late fee of five 
percent is consistent with general commercial practice and provides 
some recompense to the federal government for the delay and 
administrative or other costs incurred. In addition, we believe that a 
five percent fee is large enough to deter winning bidders from making 
late payments and yet small enough so as not to be punitive. Therefore, 
applicants who do not submit the required final payment and five 
percent late fee within the 10-day late payment period will be declared 
in default, and will be subject to the default payment specified in 
Sec. 1.2104(g) of our rules. 47 CFR 1.2104(g).
    70. Finally, the Commission emphasizes that its decision to permit 
late payments is limited to payments owed by winning bidders who have 
submitted timely initial down payments. The Commission continues to 
believe that the strict enforcement of payment deadlines enhances the 
integrity of the auction and licensing process by ensuring that 
applicants have the necessary financial qualifications. In this 
connection, the Commission believes that the bona fide ability to pay 
demonstrated by a timely initial down payment is essential to a fair 
and efficient auction process. Thus, the Commission has not proposed to 
modify its approach of requiring timely submission of initial down 
payments that immediately follow the close of an auction. The 
Commission did not propose to adopt a late payment period for down 
payments that are due soon after the close of the auction as the 
Commission believes it is reasonable to expect that winning bidders 
timely remit their down payments, given that it is their first 
opportunity to demonstrate to the Commission their ability to make 
payments toward their licenses. Further, if a winning bidder defaults 
on its down payment on a license, the Commission can take action under 
Sec. 1.2109(b) relatively soon after the auction has closed, by, for 
example, re-auctioning the license or offering it to the other highest 
bidders (in descending order) at their final bids. Similarly, the 
Commission will not allow for any late submission of upfront payments, 
as to do so would slow down the licensing process by delaying the start 
of an auction.

Full Payment and Petitions To Deny

    71. The Commission will suspend the use of installment payments as 
a means

[[Page 2327]]

of financing small business participation in our auction program for 
the immediate future. As a result, all auction winners, including small 
businesses, will be required to submit the full payment owed on their 
winning bids shortly after a license is ready to be granted. The 
Commission will recognize that in the past the filing of petitions to 
deny against a winning bidder's application(s) has often had the effect 
of significantly delaying the grant of the applicant's license(s), and 
as a result, the deadline for that applicant to submit the balance of 
its winning bid. However, in the Balanced Budget Act Congress granted 
the Commission the authority to shorten the petition to deny period, 
and as a result, to grant licenses much more rapidly. Balanced Budget 
Act, Sec. 3008. As an initial matter, consistent with this legislation, 
the Commission amends Secs. 1.2108(b) and (c) of its rules to provide 
that the Commission shall not grant a license earlier than seven days 
following issuance of a public notice by the Commission that long-form 
applications have been accepted for filing. 47 CFR 1.2108(b), (c). Also 
consistent with the Balanced Budget Act, the Commission amends this 
section to provide that in all cases the period for filing petitions to 
deny shall be no shorter than five days. In this regard, the Commission 
seeks comment in the Second Further Notice of Proposed Rule Making on 
whether there are instances in which the Commission should provide for 
a longer period for the filing of petitions to deny or for the grant of 
initial licenses in auctionable services.
    72. In light of this change in our rules, the Commission believes 
that the concerns discussed in the Notice regarding delays in the 
granting of licenses and, as a result, in the deadline for full payment 
are substantially reduced. While applications that are the subject of 
petitions to deny ordinarily take longer to resolve than uncontested 
applications, the Commission believes these changes in procedure will 
reduce the risk of frivolous petitions being filed solely for purposes 
of delay, and will enhance our ability to resolve petitions 
expeditiously. Finally, the Commission believes that concerns regarding 
delayed payment are outweighed by the risk and uncertainty that would 
be imposed on an applicant if it were required to make its full auction 
payment while a petition against its application was still pending and 
could potentially result in denial of the application. As a result, the 
Commission declines to amend its rules to require all winning bidders 
to make their full payments at the same time, regardless of whether 
petitions to deny their applications have been filed.
    73. Default Payments. The Commission adopts its proposal to delete 
the words ``simultaneous multiple-round'' from Sec. 1.2104(g), and will 
apply the default/withdrawal payment procedure to all auction designs. 
Several commenters support this decision, maintaining that rigorous 
enforcement of the Commission's payment deadlines is critical to 
preserving the integrity of the auction and licensing process by 
ensuring that applicants possess the necessary financial 
qualifications. These commenters also suggest that default payments are 
an effective and necessary method of discouraging defaults and 
encouraging private market solutions to licensee financing 
difficulties. The Commission believes that this modification to our 
general rules governing bidder default will help to maintain the 
integrity of the auction process by discouraging defaults on the part 
of bidders, encouraging bidders to make secondary or back-up financial 
arrangements, and ensuring that default payments are made in a timely 
manner. The Commission also believes this modification will help to 
discourage insincere bidding and ensure that licenses end up in the 
hands of those parties that value them the most and have the financial 
qualifications necessary to construct operational systems and provide 
service. See 47 U.S.C. 309(j)(5).
    74. Our rules provide 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, plus a payment equal to three 
percent of the subsequent winning bid or the amount bid, whichever is 
lower. See 47 CFR 1.2104(g)(2). In the Competitive Bidding Fifth Report 
and Order, the Commission stated that where the default payment cannot 
be determined, the Commission may assess an initial default payment 
``of up to 20 percent'' of the defaulting bidder's winning bid. We 
adopt our proposal in the Notice to employ this practice for all 
auctionable services. No commenter addressed this issue. Although the 
Commission provided that this deposit amount will be up to 20 percent 
of the defaulted bid amount, we note that if a license is reauctioned 
for an amount greater than the defaulted bid for the license, the 
default payment due will be only three percent of the defaulted bid. 47 
CFR 24.704(a)(2). See also 47 CFR 1.2104(g). Thus, in the future we 
will assess an initial default deposit of between three percent (3%) 
and twenty percent (20%) of the defaulted bid amount where a winning 
bidder or licensee defaults and the defaulted license has yet to be 
reauctioned. Once the license has been reauctioned by the Commission 
and the total default payment can be determined, the Commission will 
either assess the balance of the appropriate default payment, or refund 
any amounts due, as necessary.

75. Installment Payments

Late Payments

    76. In order to add certainty to the installment payment process, 
the Commission adopts its proposals from the Notice to modify its grace 
period provisions. As discussed above, the Commission declines to use 
installment payments for the immediate future as a means of financing 
small business participation in our auction program. As a result, the 
Commission's decision with regard to late payment fees for installment 
payments effectively will apply only to existing licensees who are 
currently paying for their licenses in installments. From this point 
forward, instead of considering individual grace period requests, the 
following system will apply: A licensee who does not make payment on an 
installment obligation will automatically have an additional 90 days in 
which to submit its required payment without being considered 
delinquent, but will be assessed a five percent late payment fee as 
discussed above. If the licensee fails to make the required payment at 
the close of this first 90-day non-delinquency period, the licensee 
will automatically be provided a subsequent 90-day grace period, this 
time subject to a second, additional late fee equal to ten percent of 
the initial required payment.
    77. As proposed in the Notice, under this system, licensees will 
not be required to submit a filing to take advantage of these 
provisions. During this 90-to-180-day period, the Commission or its 
designated collection agent will continue to pursue collection of past-
due installments and fees. Also during this time, the licensee will 
have the opportunity to raise necessary capital, continue service and 
construction efforts, or seek a buyer for its license(s) that will 
resume payments. These late payment provisions will apply independently 
to all installment payments. Therefore, the late payment provisions and 
accompanying late fees will not affect the payment schedule for future 
payments. Thus, even if a licensee elects to take advantage of the late 
payment provisions, the licensee

[[Page 2328]]

will still be responsible for remitting all future installment payments 
in a timely manner, unless the licensee elects to take advantage of the 
late payment provisions for any future installment payment. The 
following example illustrates how this system will operate:

    ABC Corp. has a $100,000 installment interest payment due on 
March 1. If ABC Corp. is able to make its payment on March 1, then 
it must remit $100,000 to the Commission. If ABC Corp. makes its 
payment anytime from March 2 until May 30 (the end of the non-
delinquency period), then ABC Corp. must remit $105,000 to the 
Commission to be considered current on its March 1 installment 
payment. If ABC Corp. does not make its March 1 payment by May 30, 
then it must remit $115,000 on or before August 28. If ABC Corp. 
does not remit the required $115,000 by August 29 (the end of the 
90-day grace period), then it will be considered in default and its 
license will automatically cancel on August 30 without further 
action by the Commission. See 47 CFR 1.2110(e)(4)(iii).

    ABC Company's June 1 installment payment of $100,000 remains due on 
June 1 regardless of the payment status of the March 1 payment. The 
late payment terms apply to June installment payment independently of 
the March payment. Thus, if ABC Company does not make its March 1 
payment until June 1, the total amount due to the Commission on June 1 
is $215,000 which consists of the March payment, the March 5% non-
delinquency late fee, the March 10% grace period late fee and the June 
payment. Assuming the licensee remits the March 1 payment and 
accompanying March late fees of $115,000 to the Commission by August 
29, then the total amount due to the Commission on September 1 will be 
$215,000 which consists of the June installment payment of $100,000, 
the June 5% non-delinquency late fee, the June 10% grace period late 
fee and September installment payment of $100,000.
    ABC Company may elect to make late payments and pay the 
accompanying late fees on the March and June payments. However, ABC 
Company must remit $115,00 representing the required March payment and 
accompanying March late fees by August 29 (the end of March's 90-day 
grace period) or it will be considered in default and its license will 
automatically cancel on August 30 without further action by the 
Commission. Furthermore, ABC Company must remit and additional $115,000 
representing the required June payment and accompanying June late fees 
by November 29 (the end of June's 90-day grace period) or it will be 
considered in default and its license will automatically cancel on 
November 30 without further action by the Commission.
    As proposed in the Notice, the late fees the Commission adopts will 
accrue on the next business day following the payment due date and will 
be payable with the next quarterly installment payment obligation. The 
Commission emphasizes that at the close of non-delinquency or grace 
period, a licensee must submit the required late fee(s), all interest 
accrued during the non-delinquency period, and the appropriate 
scheduled payment with the first payment made following the conclusion 
of the non-delinquency period or grace period. Payments made at the 
close of any grace period will first be applied to satisfy any lender 
advances as required under each licensee's ``Note and Security 
Agreement.'' Afterwards, payments will be applied in the following 
order: late charges, interest charges, principal payments. As part of 
the Commission's spectrum management responsibilities, the Commission 
wishes to ensure that spectrum is put to use as soon as possible. The 
Commission also believes that licensees should be working to obtain the 
funds necessary to meet their payment obligations before they are due 
and, accordingly, that the non-delinquency and grace periods the 
Commission adopts should be used only in extraordinary circumstances. 
Thus, as the Commission emphasized in the Notice, a licensee who fails 
to make payment within 180 days sufficient to pay the late fees, 
interest, and principal, will be deemed to have failed to make full 
payment on its obligation and will be subject to license cancellation 
pursuant to Sec. 1.2104(g)(2) of the Commission's rules.
    78. Several commenters support the Commission's efforts to provide 
licensees with predetermined non-delinquency periods without requiring 
the submission of a formal grace period request. In addition, many of 
the commenters addressing this issue, including AMTA, Hughes, AirTouch, 
Mountain Solutions and CII support the imposition of a late payment fee 
similar to that imposed in the broadband F block auction, in order to 
create a significant incentive for timely payment of installment 
obligations. CII believes that modifying our current grace period 
procedures will provide licensees with knowledge in advance of the 
extent of any relief that will be forthcoming from the Commission to a 
licensee who misses an installment payment. AirTouch believes that any 
licensee who fails to make payment within 180 days should face the 
automatic cancellation of its license. AirTouch contends that once a 
certain number of installment payments have been submitted late, the 
Commission should declare the licensee in default and subject to the 
default payments proposed in the Notice. In contrast, only CIRI opposes 
this liberalization of the current grace period rules, requesting 
instead that grace period relief be made available only when a licensee 
can demonstrate that such relief is warranted and the public debt will 
ultimately be satisfied. Although Hughes recommends the imposition of a 
``significant'' late fee to the extent that an applicant misses a 
payment deadline, Hughes believes that a five to ten percent late fee 
is large enough to discourage late payments and to ensure that the 
government is compensated for its administrative expenses in recouping 
the payment. As an alternative to our proposal in the Notice, GWI 
proposes that any such late payment fee should be pro-rated over the 
90-day payment period instead of accruing all at once regardless of 
when the late payment is made, in order to provide an economic 
incentive for licensees who are overdue in their payment obligations to 
retire the payment quickly instead of waiting until the end of the 
payment period. In addition, GWI suggests that such a pro-rated payment 
is fairer to licensees who inadvertently miss a required payment 
through administrative error or other unavoidable, unforeseen 
circumstances.
    79. As an alternative to the Commission's proposals in the Notice, 
Airadigm contends that following the first 90-day non-delinquency 
period, licensees should be given a second 90-day period with a five 
percent late fee, followed by a third 90-day grace period with a 10 
percent late fee. ISTA believes that a rule whereby any license is 
cancelled at the close of the second 90-day grace period is draconian, 
and that such a ``hard-and-fast'' automatic cancellation rule would 
doom many small businesses. GWI opposes the imposition of an additional 
10 percent late payment fee where licensees require an additional 90-
day late payment period. The Commission declines to adopt these 
alternate proposals. As the Commission indicated in the Notice, the 
grant of a grace period is an extraordinary remedy and we wish to 
encourage licensees to seek private market solutions to their capital 
problems before the payment due date. In this regard, the Commission 
notes that it has an obligation under the Debt Collection Improvement 
Act to enforce payment obligations owed to the federal

[[Page 2329]]

government. See Debt Collection Improvement Act, Pub. L. 104-134, 
Sec. 3100(j)(i), 110 Stat. 1321 (1996), codified at 31 U.S.C. 3711(a) 
(``DCIA'').
    80. The Commission believes that the automatic grace period 
provisions we adopt today provide licensees with adequate financial 
incentives to make installment payments on time, while at the same time 
creating increased certainty that will help licensees pursue private 
market solutions to their financing difficulties. These provisions also 
will discourage licensees from attempting to maximize their cash flow 
at the government's expense by submitting a required installment 
payment after it is due. Several commenters agree with this assessment. 
At the same time, these provisions will eliminate uncertainty for many 
licensees who are seeking to restructure other debt contingent upon the 
results of the Commission's installment payment provisions. In 
addition, this system will ease the burden on the Commission of 
considering individual grace period requests where Commission or its 
designee may not have the necessary resources to evaluate a licensee's 
financial condition, business plans, and capital structure proposals. 
The Commission recognizes that some commenters oppose the imposition of 
a late fee on overdue installment payment, and in particular on the 90-
day non-delinquency period. However, this approach is consistent with 
the standard commercial practice of establishing late payment fees and 
developing financial incentives for licensees to resolve capital issues 
before payment due dates. This approach also is consistent with the 
provisions of the DCIA, which requires that the Commission notify the 
Secretary of the Treasury and commence debt collection procedures where 
a party is more than 180 days past due on any outstanding debt owed to 
a federal agency. See 31 CFR 3711(g)(1).
    81. The Commission recognizes that a number of commenters oppose 
the application of these provisions to current licensees. In 
particular, GWI and IVDS Enterprises argue that to the extent the 
Commission adopts a late payment fee, it should limit the imposition of 
such a fee to licenses issued in future auctions. However, the 
Commission's recent experience with the installment payment program has 
shown the importance of ensuring that all licensees, including current 
licensees, have adequate financial incentives to make installment 
payments on time. The Commission notes that in awarding licenses in the 
past to entities choosing to pay in installments, the Commission has 
emphasized that the terms of the installment payment program will be 
governed by current Commission rules and regulations, as amended. For 
example, in awarding licenses to C block licensees paying for their 
licenses in installments, the Commission indicated in the associated 
``Note and Security Agreement'' that the terms of the installment plan 
would be governed by and construed in accordance with then-applicable 
Commission orders and regulations, as amended. The Commission also 
believes that these licensees should obtain the benefit of increased 
certainty that provisions for automatic grace periods provide. This 
decision is supported by Mountain Solutions, who requests that current 
licensees obtain the benefits of any loosening of the late payment fee 
and grace period rules.
    82. As provided in the Second Report and Order and Further Notice 
of Proposed Rule Making in this docket, installment payments for C and 
F block licensees will resume effective March 31, 1998. See Amendment 
of the Commission's Rules Regarding Installment Payment Financing for 
Personal Communications Services (PCS) Licensees, Second Report and 
Order and Further Notice of Proposed Rule Making, WT Docket No. 97-82 
62 FR 55348 (October 24, 1997) (``Second Report and Order and Further 
Notice of Proposed Rule Making''). Under the Commission's decision to 
reinstate installment payments for these licensees, the Commission 
provided them with one automatic 60-day non-delinquency period 
following the March 31, 1998, deadline, during which time they will not 
be considered delinquent in their payment obligations. As the 
Commission indicated in the Second Report and Order and Further Notice 
of Proposed Rule Making, the Commission will not entertain any requests 
for extension of the March 31, 1998 deadline beyond an automatic 60-day 
non-delinquency period, so that for C and F block licensees all 
required payments must be submitted no later than May 30, 1998. Only 
those licensees making a timely payment of all amounts due, as set 
forth in the Second Report and Order will be permitted to take 
advantage of the late payment provisions the Commission adopts today. 
See 47 CFR 1.2110.
    83. In commenting on these modifications to the grace period 
provisions, CIRI also proposes that the Commission make public the 
terms of any workouts or debt relief provided to licensees. CIRI notes 
that parties may request confidential treatment of sensitive financial 
information pursuant to Sec. 0.459 of the Commission's rules, and that 
such confidential treatment should be sufficient to safeguard the 
privacy interests of licensees, while still making the terms of any 
workout available for public scrutiny. As an initial matter, because 
the Commission adopts its proposals providing for automatic grace 
periods, the Commission does not envision licensees filing grace period 
requests under normal circumstances from this point forward. As a 
result, the Commission believes that CIRI's concerns about the 
Commission making public a licensee's request for grace period relief 
are moot. Moreover, because from this point forward a licensee's taking 
advantage of our late payment provisions will be an administrative 
matter processed by the Commission's loan servicer, and not a formal 
waiver request, aside from instances where a licensee is declared in 
default, there will be no public notice of a licensee's payment status. 
The license is cancelled automatically under such circumstances. In 
contrast, for licensees who have previously filed grace period requests 
consistent with the Commission's current rules and procedures, the 
Commission will continue its current practice of making the request 
public when a decision is released granting or denying the request, 
except to the extent that any request by the licensee for confidential 
treatment is granted pursuant to Sec. 0.459 of the Commission's rules. 
See 47 CFR 0.459. The Commission further clarifies that such licensees 
are not deemed to be in default on these licenses until such time as 
the Bureau issues a decision on these grace period requests. Licensees 
whose requests for a grace period are denied will have ten (10) 
business days to make the required payment or be considered in default.

Defaults on Installment Payments

    84. The Commission will not adopt its tentative conclusion to apply 
the default provisions of Sec. 1.2104(g) to licensees who default on an 
installment payment. Most commenters addressing the issue oppose this 
proposal. For example, Pocket submits that default payments assessed 
later in the license term become highly arbitrary and unduly 
burdensome. Pocket also contends that such payments are greater than 
those traditionally required for secured creditors and create 
substantial disincentives for investors and creditors who might 
otherwise be interested in providing financing for licensees. Pocket 
also notes that any default payment assessed disadvantages a licensee's 
other creditors, which also makes it more difficult for licensees to

[[Page 2330]]

raise capital. Finally, Pocket states that default payments assessed 
later in the license term have no deterrent effect as there is no basis 
to believe that licensees that have paid substantial sums to the 
Treasury will willingly default. In contrast, AirTouch supports our 
tentative conclusion that licensees that ultimately fail to fulfill 
their installment payment obligations despite the availability of a 90-
day non-delinquency period and a subsequent, automatic 90-day grace 
period, should be declared in default, and in turn be made subject to 
the default payments proposed in the Notice.
    85. The Commission has considered the comments of those who oppose 
the proposed assessment, and find that an additional payment 
requirement for licensees defaulting on installments is not necessary 
to achieve our stated objectives. The Commission's current rules and 
installment payment terms are adequate to discourage defaults and 
encourage licensees to find private market solutions when they face 
financial difficulties. The Commission also believes that the rules it 
adopts providing for a 90-day non-delinquency period followed by a 
subsequent, automatic 90-day grace period, subject to appropriate late 
fees of five percent for the 90-day non-delinquency period and 10% for 
automatic 90-day grace period, payable at the conclusion of these 
periods serve these goals without substantially risking delays or 
disruption in service to the public. In particular, the Commission 
believes that this certainty regarding the Commission's treatment of 
licensees needing extra time to make their installment payments will 
increase the likelihood that licensees and potential investors will 
find solutions to capital problems before a default occurs. The risk of 
losing its license should provide a licensee a strong incentive to 
avoid default. If, however, a default does occur, the conditions on the 
face of each license and the terms of the notes and security agreements 
executed by licensees provide the Commission appropriate remedies that 
will ensure that defaulted licenses are returned to the Commission for 
reauction and that all outstanding debts, as well as the Commission's 
costs, are recoverable.

Cross Default in the Context of Installment Payments

    86. After consideration of the comments in this proceeding, The 
Commission concludes that it will not pursue a policy of cross default 
(either within or across services) where licensees default on an 
installment payment. Because the Commission will eliminate the use of 
installment payments as a means of financing small business 
participation in its auction program for the foreseeable future, the 
Commission notes that in practice this decision will apply only to 
existing licensees who are currently paying for their licenses in 
installments.
    87. The Commission's decision not to pursue cross default remedies 
against current licensees who default on an installment payment is 
supported by the majority of commenters. For example, Airadigm contends 
that it is unfair to jeopardize an entire business because of a default 
on one license. Similarly, ISTA argues for separate treatment of 
separate services, regardless of ownership, lest a failure in one 
business cause failure in unrelated businesses. IVDS Enterprises 
proposes that licensees be able to discontinue installment payments on 
a particular license and allow that license to be cancelled or revoked. 
IVDS Enterprises believes that such a decision should not affect the 
licensee's other licenses, whether in the same or other services, where 
the licensee has made timely installment payments. Alternatively, 
Pocket believes that the Commission should reserve the authority to 
impose cross defaults on a case-by-case basis only for licensees that 
have demonstrated bad faith.
    88. The Commission recognizes that some commenters strongly 
advocate a policy of cross defaults in this context. These commenters 
suggest that such a policy (1) prevents speculation during the auction 
and cherry-picking (e.g., selectively defaulting on some licenses while 
keeping others) after the auction concludes, (2) encourages auction 
participants to find private market solutions to financial shortfalls, 
and (3) is consistent with commercial lending policies. The Commission 
believes, however, that the default provisions contained in 
Sec. 1.2104(g)(2) serve as an adequate incentive to discourage 
speculation and encourage licensees to pursue non-default solutions to 
financial difficulties. The Commission also emphasizes that our 
decision on this matter only addresses default in the context of 
installment payments, and does not affect our policy with regard to 
defaults on down payments. In addition, by making licensees who default 
on an installment payment subject to the default payment set forth in 
Sec. 1.2104(g)(2), the Commission created an additional deterrent to 
licensees considering default as a solution to financing shortfalls. 
The Commission believes that this policy will promote the goals of 
section 309(j) by not punishing otherwise successful licensees for 
failures in one market, and will strike an appropriate balance between 
our conflicting roles as both ``lender'' and ``regulator.'' 
Accordingly, upon default on an installment payment, a license will 
automatically cancel without further action by the Commission, the 
licensee will become subject to the default payment set forth in 
Sec. 1.2104(g) of our rules, and the Commission will initiate debt 
collection procedures against the licensee and accountable affiliates. 
47 CFR 1.2104(g), 1.2110(e)(4)(iii). See also 31 U.S.C. Chapter 37; 4 
CFR Parts 101-105; 47 CFR Part 1, Subpart O.

VI. Competitive Bidding Design, Procedure, and Timing Issues

    89. Balanced Budget Act of 1997 Notice and Comment Procedures. The 
Commission believes that in the past our service-specific rule making 
process has served the purpose of adequately ensuring that interested 
parties have sufficient 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. The Commission nevertheless 
believes that this legislation requires that the Commission provide an 
additional opportunity for input from potential bidders prior to the 
issuance of detailed auction-specific information by the Bureau. To 
date, the Bureau has served as the primary point of contact with 
potential bidders and other parties interested in issues relating to 
each upcoming auction, and this has worked well. In light of the 
typically time-sensitive nature of most issues arising in the weeks 
prior to the start of an auction, the Bureau has been equipped to make 
determinations and respond rapidly to potential bidders' concerns. 
Consistent with the provisions of the Balanced Budget Act, and to 
ensure that potential bidders have adequate time to familiarize 
themselves with the specific provisions that will govern the day-to-day 
conduct of an auction, the Commission directs the Bureau, under its 
existing delegated authority, see 47 CFR 0.131(c), 0.331, 0.332, to 
seek comment on a variety of auction-specific issues prior to the start 
of each auction.
    90. The Commission directs the Bureau to seek comment on specific 
mechanisms relating to day-to-day auction conduct including, for 
example, the structure of bidding rounds and stages, establishment of 
minimum opening bids or 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

[[Page 2331]]

eligibility, information regarding bid withdrawal and bid removal, 
stopping rules, and information relating to auction delay, suspension, 
or cancellation. The Commission directs the Bureau to afford interested 
parties a reasonable time, in light of the start date of each auction 
and relevant pre-auction filing deadlines, to comment on auction-
specific issues. In this regard, the Commission notes that it has been 
the Bureau's practice to release the public notice providing details 
concerning each upcoming auction sufficiently in advance of the short-
form filing deadline (e.g., 30 days prior to the deadline) to provide 
interested parties with an opportunity to develop business plans, 
assess market conditions and evaluate the availability of equipment. 
Also consistent with previous practice, the Commission recognizes that 
the Bureau needs the flexibility to announce, at any time in the weeks 
leading up to the start date of each auction, any minor, non-
substantive amendments or clarifications to the specific mechanisms set 
forth in auction-related public notices or the Bidder Information 
Package. The Commission believes that this process is consistent with 
the requirements of section 3002(a)(1)(B)(iv) of the Balanced Budget 
Act, and will afford potential bidders adequate notice, as well as an 
opportunity to comment on the Bureau's intentions regarding issues 
relating to the day-to-day conduct of each auction.
    91. ``Real time'' Bidding. The Commission will adopt its proposal 
in the Notice to allow for ``real time'' bidding as an alternate design 
methodology in our rules. After careful consideration of the comments 
received in this proceeding, as well as its experience in conducting 15 
auctions to date, the Commission concludes that ``real time'' bidding 
will allow auctions to proceed more rapidly because it will allow 
bidders immediate feedback on new high bids. The Commission also notes 
that in an effort to simplify the auction process and prevent 
``gaming'' of bids, the Commission has recently modified its electronic 
bidding process by implementing ``click-box bidding.'' This feature, 
which replaces the field where bidders previously typed their dollar 
bid amount with a ``click on check box to bid'' field (where the only 
bid amount allowed is at the minimum acceptable bid) no longer allows 
bidders to type a bid amount on the Bid Submission screen. As such, 
``click-box bidding'' can work well in a ``real-time'' bidding context 
because bidders can more rapidly respond to the bids of other bidders, 
permitting an auction to progress more rapidly and efficiently. The 
Commission has successfully employed click box bidding in the recently 
completed 800 MHz SMR auction, and plans to employ it in the 
forthcoming LMDS auction.
    92. The Commission delegates to the Bureau the authority to 
determine whether the public interest will be served by ``real time'' 
bidding in a particular auction. Most commenters oppose the use of 
``real time'' bidding, arguing it may be difficult for bidders to react 
quickly enough to ensure that in each bidding round they make new high 
bids on the necessary percentage of their bidding eligibility to meet 
their activity requirement. These commenters also believe that the 
somewhat accelerated pace of ``real time'' bidding may leave less time 
to craft informed bidding strategies during the auction.
    93. As mentioned above, the ``click-box bidding'' format should 
significantly improve a bidder's ability to react quickly. Further, 
should the Commission determine to employ ``real-time'' bidding in the 
future, the Commission believes that the issues involving meeting 
activity requirements will be alleviated by our proposal in the Notice 
to open a discrete closed bidding period after each fixed period of 
``real time'' bidding (when only standing high bids from the previous 
round and new high bids from the current round count in determining the 
bidder's activity level). During this closed bidding period, bidders 
will be able to submit valid bids (bids that meet or exceed the minimum 
accepted bid) to ensure that they have the opportunity to meet their 
activity requirements for the round. Following the discrete closed 
bidding period, the Commission will post the final round results for 
the period and make all bids available to the public. This discrete 
period should help to eliminate any risks of not meeting eligibility 
requirements or having time to formulate bidding strategies which 
commenters suggest may be associated with ``real time'' electronic 
bidding. In particular, this period will help to provide bidders 
sufficient time to meet eligibility requirements and will minimize the 
risks, suggested by some commenters, of the submission of erroneous 
bids.
    94. One of the greatest advantages to ``real time'' bidding is that 
it allows bidders to obtain immediate feedback on new high bids, 
withdrawn high bids and minimum accepted bids, and thereby provides 
them with the opportunity to immediately respond to this information 
and move licenses toward their final valuations more quickly. The 
Commission believes that, particularly in the case of complex auctions 
of multiple licenses, it is one means of helping auctions to progress 
more efficiently. Under the current simultaneous multiple-round auction 
rules, each round of bidding contains a discrete bidding period during 
which bidders cannot see the actions of other bidders. Bidders must 
wait until the end of each round to see the bids placed by other 
bidders and determine their status as high bidder. In contrast, an 
open, continuous bidding round--in which bidders know when their bid 
has been exceeded and are free to bid again--can be used to reduce the 
delay inherent in the current design where a bidder must wait until the 
next discrete round to react to the actions of other bidders.
    95. The Commission notes that some commenters express concern that 
the widespread use of ``real time'' bidding would increase the 
administrative costs of participating in the auction due to the 
incentive to stay on-line during the continuous bidding period and 
thereby work to exclude smaller entities that may lack the resources to 
devote to a concentrated bidding period or to stay on-line during the 
entire bidding period. The Commission agrees with commenters that under 
some circumstances the costs of participating in an auction in which 
bidders are required to be ``on-line'' may discourage the participation 
of small businesses. The Commission therefore concludes that the per 
minute charge for bidding ``on-line'' should be reexamined, and 
delegate to the Bureau that authority to implement such a reduced fee 
in the future, if appropriate.
    96. No commenters addressed the Commission's tentative conclusion 
in that Notice that because ``real time'' auctions are a variation of 
the simultaneous multiple-round auction design established in our 
rules, many of the same procedures (i.e., upfront payments to determine 
eligibility, activity requirements that apply to each round, minimum 
bid increments, and a stopping rule) should apply. These procedures 
have proven workable and easily understood by bidders in the context of 
our simultaneous multiple-round auction design, but some modifications 
to these procedures may be necessary if the Commission employs ``real 
time'' bidding. The Commission concludes that the Bureau should 
undertake this task.
    97. Consistent with section 3002 of the Balanced Budget Act, the 
Commission directs the Bureau to seek comment from the public on 
auction-specific issues (i.e., duration of bidding rounds and activity 
requirements) prior to the start of each auction. The

[[Page 2332]]

Commission believes that this practice of seeking comment on such 
issues prior to the start of each auction will adequately address any 
additional concerns associated with the use of ``real time'' bidding. 
The Commission also notes that it seeks, on an ongoing basis, to 
enhance and improve our bidding processes. The Commission believes that 
the Bureau should explore ``real time'' bidding consistent with the 
requirement under section 309(j) that the Commission experiment with 
different bidding methodologies. See 47 U.S.C. 309(j)(3).
    98. Combinatorial Bidding. The Commission did not specifically seek 
comment in the Notice on the use of combinatorial bidding as an auction 
design methodology. The Commission's current Part 1 rules already 
provide for the use of combinatorial bidding as one of our competitive 
bidding design options. See 47 CFR 1.2103(b). In addition, the 
Commission was directed by Congress in the Balanced Budget Act of 1997 
to consider the use of combinatorial bidding as an alternative auction 
design that could be used, in certain instances, as a means of speeding 
the auction process. Specifically, the Balanced Budget Act requires the 
Commission, for testing purposes, to design and conduct an auction in 
which a system of combinatorial bidding is used. Balanced Budget Act; 
47 U.S.C. 309(j)(3)(i).
    99. The Commission has insufficient information to determine how 
this relatively new bidding methodology might be used to improve our 
spectrum auction program. The Commission will seek comment on a number 
of issues relating to combinatorial bidding, and will more thoroughly 
address this issue once the record is complete. The Commission has also 
awarded a research and development contract to a private sector 
consultant to examine theoretical and applied combinatorial bidding 
approaches where licenses exhibit strong synergies and bidders have 
overlapping preferences (i.e., prefer different packages of licenses). 
The contractor will also evaluate the most appropriate of the 
theoretical and applied approaches to combinatorial bidding for 
spectrum auctions and address a number of concerns raised by the 
Commission and other interested parties. The Commission's goal in 
awarding the contract is to allow private sector and government auction 
experts to address these concerns and investigate the possible effects 
of the use of combinatorial bidding on the auction process, including 
the Commission's fulfillment of the objectives of Section 309(j) of the 
Communications Act.
    100. Minimum Opening Bids and Reserve Prices. Several commenters 
oppose the use of minimum opening bids. However, the Balanced Budget 
Act establishes a presumption in favor of a required minimum opening 
bid or reserve price. Balanced Budget Act, section 3002(a)(1)(C)(iii). 
The Commission therefore adopts its proposal in the Notice to delete 
the term ``suggested'' from Sec. 1.2104(d). The Commission also 
clarifies that the Bureau has the authority to seek comment on minimum 
opening bids and reserve prices and to establish such mechanisms for 
each auction, consistent with its role in managing the auction process 
and setting valuations for other purposes (e.g., setting upfront 
payment amounts). The Bureau shall establish a minimum opening bid and/
or reserve price for each auction, unless, after comment is sought 
prior to a particular auction, it is determined that a minimum opening 
bid or reserve price would not be in the public interest.
    101. The terms ``minimum opening bid'' and ``reserve price'' are 
traditionally different, and are employed for different purposes. A 
reserve price is defined as an absolute minimum price below which an 
auctioneer will not sell an object being auctioned. It may be disclosed 
to bidders before an auction or during an auction, or it may be kept 
secret, so that a ``winning'' bidder does not actually find out if the 
object has been won until after the auction has closed. Auctioneers 
generally employ reserve prices to order to maximize the revenue earned 
from an auction. A minimum bid is a minimum value below which bids will 
not be accepted in the first round of an auction. The level of a 
minimum opening bid is not unchangeable like a reserve price, but may 
be reduced at the discretion of the auctioneer if no bids are made at 
the existing level. The primary purpose of a minimum opening bid is to 
speed up the course of an auction. However, a minimum bid also can 
serve as a revenue-enhancing function like a reserve price, because if 
bids will not be accepted below a certain level, they will also not be 
sold below that level. That is, a minimum opening bid effectively 
functions as a reserve price unless or until it is reduced. Regarding 
the level of reserves or minimum bids, the Commission does not believe 
that the Balanced Budget Act provision means that it should now be 
attempting to maximize the revenue earned in all future spectrum 
license auctions. The other auction goals in the Act, such as ensuring 
the deployment and rapid deployment of new technologies and services 
and promoting economic opportunity and competition (see 47 U.S.C. 
309(j)(3)) have not been eliminated, and the Commission must continue 
to balance and pursue them all. Therefore, the Commission concludes 
that the new provision does not call for traditional reserve prices. 
Rather, it calls for an added protection that licenses will not be 
assigned at unacceptably low prices.
    102. The Commission believes that the Bureau should have the 
discretion to employ either or both of these mechanisms for future 
auctions. The Commission directs the Bureau to seek comment on the use 
of a minimum opening bid and/or reserve price, as it will do for a 
variety of auction-specific issues, prior to each auction. In addition, 
the Bureau should seek comment on the methodology to be employed in 
establishing each of these mechanisms. Among other factors, the Bureau 
should consider the amount of spectrum being auctioned, levels of 
incumbency, the availability of technology to provide service, the size 
of the geographic service areas, issues of interference with other 
spectrum bands, and any other relevant factors that could reasonably 
have an impact on valuation of the spectrum being auctioned.
    103. Maximum Bid Increments. Several commenters suggest that jump 
bidding is not a problem of serious concern. Some theoretical 
literature, however, suggests that bidders could use jump bidding to 
manipulate the auction process and potentially reduce efficiency of the 
auction. For example, a general principle of auction theory is that the 
auction mechanisms that perform the best are those which are able to 
induce bidders to reveal the most information. To the extent that jump 
bids enable bidders to conceal information, the phenomenon moves us 
away from the informational advantages of an ascending bid (multiple 
round) auction in the direction of a first-price sealed bid (single 
round) auction. As ISTA recognizes, jump bidding can complicate bidding 
strategy and deny bidders information about the number of bidders who 
would be willing to pay prices between the minimum acceptable bid and 
the jump bid. In the absence of information about the bidders who would 
be willing to participate at intermediate bids, other bidders may feel 
compelled to shade their bids more than they would otherwise. This 
behavior is an attempt to avoid the ``winner's curse,'' that is, the 
tendency for the winner to be the bidder who most overestimates the 
value of the item being auctioned.

[[Page 2333]]

    104. As an initial matter, the Commission notes that recent changes 
designed to improve the Commission's electronic auction bidding process 
eliminate the dangers that a maximum bid increment is designed to avoid 
(e.g., jump bidding). In an effort to speed the auction process and 
eliminate unwarranted ``gaming'' of our processes, the Commission has 
simplified the electronic auction bidding process by implementing 
``click-box bidding.'' As discussed above, this feature permits bidders 
to enter a bid only at the maximum bid increment as determined by the 
Commission, and thus makes bidding tactics such as jump bidding 
impossible. Nevertheless, the Commission will reserve the discretion to 
employ a maximum bid increment should it return to an auction format in 
which jump bidding can in any way decrease the competitiveness of an 
auction. In this regard, the Commission disagrees with NextWave's 
suggestion that by disallowing jump bids as one method by which bidders 
may obtain information about each other the Commission risks prolonging 
an auction. On the contrary, the Commission has alternate methods 
(e.g., ``click-box bidding,'' employing minimum bid increments and 
activity rules and increasing the number of rounds per day) to ensure 
that auctions close within a reasonable time.
    105. Bid Withdrawal Payments. As discussed above, the Commission 
recently implemented ``click-box bidding'' in an effort to improve the 
auction process and eliminate erroneous bids. The Commission also 
recently modified the electronic bidding format to limit withdrawals. 
As a result of such changes, the types of erroneous bids discussed in 
the Notice cannot occur under our new bidding format. The Commission 
therefore concludes that its proposal regarding decreased bid 
withdrawal payments in cases of erroneous bids is moot.
    106. Misuse of Bid Withdrawals. Several commenters oppose the 
Commission's proposal to place limits on bid withdrawals in certain 
circumstances as a means of avoiding strategic withdrawals that are 
intended for anti-competitive purposes. Both AT&T and Merlin argue that 
the ability to withdraw bids is critical to a bidder's auction 
strategy. While they recognize the difficulty in determining the true 
intent behind a withdrawn bid, these commenters suggest that the 
Commission continue to monitor each auction carefully, and address 
abusive behavior on a case-by-case basis. Similarly, PageNet states 
that the Commission should not limit bid withdrawals as they are 
critical to providing applicants with the flexibility to correct bids 
that are placed in error and to quickly change bidding strategy. 
PageNet contends that concerns about strategic withdrawals intended to 
produce anti-competitive results are not sufficient to eliminate the 
bidding flexibility that bid withdrawals provide. Finally, AirTouch 
suggests that the Commission permit bid withdrawals at any time, 
subject to certain conditions. In particular, AirTouch recommends that: 
(1) All bid withdrawals should be subject to applicable bid withdrawal 
payments; (2) a bidder withdrawing a bid should not be permitted to 
regain eligibility on any bidding units lost as a result of the 
withdrawal; and (3) the high bidder in the round prior to the withdrawn 
bid should be permitted to bid again on the license, and to reacquire 
eligibility for bidding units necessary to resubmit the new bid.
    107. In contrast, NextWave supports a limitation on bid 
withdrawals. NextWave states that bid withdrawals are a necessary tool, 
but in some instances, bid withdrawals are used for insincere bidding 
designed to ``game'' the auction. To protect against such misuse, 
NextWave proposes, for example, that the Commission create a fourth 
stage of the auction, during which a bidder who has withdrawn from a 
particular market would be prohibited from re-bidding in the same 
market. In the past, the Commission has recognized that allowing bid 
withdrawals facilitates efficient aggregation of licenses and pursuit 
of efficient backup strategies as information becomes available during 
the course of an auction. Nevertheless, the Commission also has 
recognized that bidders may, in some instances, seek to remove bids for 
improper purposes, such as to delay the close of the auction for 
strategic purposes. For this reason, the Bureau has traditionally 
retained the discretion to limit withdrawals as part of the management 
of an auction. To prevent strategic delays to the close of the auction, 
or other abuses, the Bureau should exercise its discretion assertively. 
In addition, the Bureau should consider limiting the number of rounds 
in which bidders may withdraw bids, and to prevent bidders from bidding 
on a particular market if the Bureau finds that a bidder is abusing the 
Commission's bid withdrawal procedures. These are among the types of 
issues on which the Bureau will seek comment prior to the start of each 
future auction.
    108. Reauction Versus Offering to Second Highest Bidder. The 
Commission will modify Sec. 1.2109(b) to reserve the discretion to 
either reauction a defaulted license or offer it to the other highest 
bidders (in descending order) at their final bids. 47 CFR 1.2109(b). 
Several commenters support the reauction of defaulted licenses because 
it helps to ensure that the price paid for a license is the current 
price, rather than the price that was applicable at the time the 
original auction occurred. Only two commenters oppose reauction in all 
circumstances. Airadigm and AMTA oppose providing the Commission with 
the discretion to reauction defaulted licenses because they believe 
that awarding licenses to the next highest bidder will be faster than 
reauctioning. However, as the Commission stated in the Notice, the 
Commission has developed a computerized auction system and conducted 
numerous auctions and now believes that the costs of a reauction, even 
for a small number of relatively low value licenses, is generally 
minimal. The Commission also believes that the planned use of regularly 
scheduled quarterly auctions will ensure rapid reauction.
    109. Further, the Commission notes that re-offering a defaulted 
license to the next highest bidder (in descending order) at their final 
bids may not ensure that the license will be awarded to the bidder who 
values it the most highly. In particular, as the license is offered to 
bidders at the next highest bids, other parties can argue that they 
would pay more for the license if given the opportunity. In addition, 
when more than one license is being auctioned, aggregation strategies 
may shift during the course of the auction, affecting the value placed 
on any individual license by a particular bidder. As the Commission 
discussed in the Notice, when it first adopted rules governing the 
licensing of defaulted licenses, the Commission stated that ``[i]n the 
event that a winning bidder in a simultaneous multiple-round auction 
defaults on its down payment obligations, the Commission will generally 
reauction the license either to existing or new applicants.'' Noting 
that in some circumstances the costs of conducting a reauction may not 
always be justified, the Commission reserved the discretion in cases in 
which the winning bidder defaults on its down payment obligation to 
offer a defaulted license to the highest losing bidders (in descending 
order of their bids) at their final bids if ``only a small number of 
relatively low value licenses are to be reauctioned * * *.''
    110. Nextel and others suggest that the Commission should retain 
the discretion to award defaulted licenses to

[[Page 2334]]

the next highest bidder only when the default occurs soon after the 
close of the auction and there has been no opportunity for parties to 
file petitions to deny. Nextel suggests that in such an instance, there 
is little risk of a significant change in market price, and no risk of 
encouraging frivolous petitions to deny. The Commission is aware of the 
dangers of adopting a rule which could have the unfortunate consequence 
of encouraging the filing of frivolous petitions to deny. Nevertheless, 
the Commission believes that by reserving the discretion to either 
reauction defaulted licenses or award them to the next highest bidder, 
the Commission will be in the best possible position to determine which 
option serves the public interest in each particular situation.

VII. Anti-Collusion Rules

    111. The Commission has taken this opportunity in revisiting our 
general competitive bidding procedures to examine the effectiveness of 
the anti-collusion rule in the 15 auctions the Commission has conducted 
to date. The Commission continues to believe that its anti-collusion 
rules are necessary to deter bidders from engaging in anti-competitive 
behavior. Nevertheless, after careful review of the comments received 
in this proceeding, the Commission has determined that some 
modifications to Sec. 1.2105(c) can be made which will benefit bidders 
in several respects, without jeopardizing the competitiveness and 
overall integrity of our auction program.
    112. In the Collusion MO&O, the Commission revisited the anti-
collusion rules prior to the start of the PCS auctions, and concluded 
that allowing holders of non-controlling attributable interests in an 
applicant greater flexibility to form agreements with other applicants 
would help applicants to acquire the additional capital necessary to 
bid successfully for licenses. See Implementation of Section 309(j) of 
the Communications Act--Competitive Bidding, WT Docket No. 93-253, 
Memorandum Opinion and Order, 59 FR 64159 (December 13, 1994) 
(``Collusion MO&O''). The Commission therefore created an exception to 
the general rule contained in Sec. 1.2105 to permit a holder of a non-
controlling attributable interest in one applicant for a particular 
license or licenses to obtain ownership interests in or enter into 
consortium arrangements with a second applicant for a license in the 
same geographic service area. See 47 CFR 1.2105(c)(4). The attributable 
interest holder must certify to the Commission that it has observed and 
will observe certain restrictions on communication concerning the 
applicants in which it holds an attributable interest or with which it 
has entered into a bidding arrangement.
    113. After considering the comments filed in response to our 
proposals in the Notice, the Commission has decided to adopt a second 
exception to our general rules prohibiting collusion. See 47 CFR 
1.2105(c). Specifically, the Commission will permit a holder of a non-
controlling attributable interest in an applicant to obtain an 
ownership interest in or enter into a consortium arrangement with 
another applicant for a license in the same geographic area provided 
that the original applicant has withdrawn from the auction, is no 
longer placing bids, and has no further eligibility. To meet the 
requirements of this exception, the attributable interest holder will 
be required to certify to the Commission that it did not communicate 
with the new applicant prior to the date the original applicant 
withdrew from the auction, and that it will not convey bidding 
information, or otherwise serve as a nexus between the previous 
applicant and the new applicant. As stated in the Notice, this 
additional exception will further facilitate the flow of capital to 
auction applicants by encouraging, and providing the flexibility 
necessary for, non-controlling investors to invest in other auction 
applicants if their original applicant fails to complete the auction. 
The majority of commenters addressing this proposal agree that it will 
encourage investment in auction applicants without threatening the 
overall competitiveness of the auction process.
    114. Only Nextel and PageNet oppose this exception, citing the 
potential for collusive activity when an investor in an applicant that 
has chosen to withdraw from the auction explores possible investments 
in other applicants, thus learning bidding strategies of multiple 
auction participants. In addition, PageNet contends that this exception 
could encourage speculation which would threaten the integrity of the 
auction process and ultimately result in lower prices paid for the 
spectrum. However, after balancing these factors, the Commission 
believes that the benefits of this certification requirement, in 
particular the likelihood that auction applicants will be able to 
attract increased investment, exceed any possible disadvantages. The 
Commission requires that auction applicants certify to the truthfulness 
and accuracy of a number of issues on their Form 175 applications, and 
to make minor amendments when necessary. The Commission believes that 
applicants are no more likely to make false certifications about the 
exception which the Commission adopts today than about other 
information on the form. As discussed infra, the Commission also 
reminds prospective applicants that the Commission will conduct a 
detailed investigation in the event it becomes aware of a possible 
violation of the anti-collusion rule, and that violations may result in 
the loss of the down payment or full bid amount, the cancellation of 
licenses, and preclusion from participation in future auctions.
    115. Commenters in both the Paging proceeding and in this 
proceeding support the creation of a safe harbor for discussions of 
certain non-auction related business matters between applicants for the 
same license areas. In general, these commenters argue that (1) the 
Commission's anti-collusion rules cause unnecessary confusion in their 
current form, (2) the purposes of the anti-collusion rules would not be 
threatened by such a safe harbor, and (3) existing antitrust laws and 
policies will adequately accomplish the goal of protecting the 
competitiveness of the bidding process. As the auction program has 
evolved, the Commission has continued to refine and clarify for bidders 
the operation and impact of the anti-collusion rule upon bidder conduct 
during the course of an auction. Prior to the start of the broadband 
PCS D, E and F block auction, the Bureau received numerous inquiries 
concerning the impact of these rules upon business contacts between 
current broadband PCS licensees and auction winners and eligible 
participants in the ongoing broadband PCS D, E and F Block auction. In 
response to these inquiries, the Bureau released a Public Notice 
providing guidance on these business negotiations in the context of our 
anti-collusion rules. The Bureau emphasized that Sec. 1.2105(c) may 
affect the way in which auction applicants conduct their routine 
business during an auction by placing significant limitations upon 
their ability to pursue business opportunities involving services in 
the geographic areas for which they have applied to bid for licenses. 
These interpretations have provided sufficient guidance concerning the 
types of non-auction related communications which are permitted under 
Sec. 1.2105(c), and the Commission therefore declines to create such a 
safe harbor.
    16. The Commission affirms the Bureau's interpretation of this 
aspect of the anti-collusion rule. As a general matter, the anti-
collusion rule does not prohibit non auction-related business

[[Page 2335]]

negotiations between auction applicants who have applied for the same 
geographic service areas. The Commission cautions auction applicants, 
however, that discussions concerning, but not limited to, issues such 
as management, resale, roaming, interconnection, partitioning and 
disaggregation may all raise impermissible subject matter for 
discussion because they may convey pricing information and bidding 
strategy. Because auction applicants should avoid all discussions with 
each other that will likely affect bids or bidding strategies, the 
Commission believes that individual applicants, and not the Commission, 
are in the best position to determine in the first instance which 
communications are permissible and which are not.
    117. As discussed above, the Notice also invited comment on any 
other changes to our rules prohibiting collusion that commenters 
believe are warranted. Section 1.2105(c)(6)(i) of the Commission's 
rules provide that, for purposes of the anti-collusion rule, an 
applicant is defined as an entity submitting a short-form application, 
as well as all holders of partnership, ownership, and any stock 
interest amounting to five percent or more of the entity. 47 CFR 
1.2105(c)(6)(i). One commenter, the Coalition of Institutional 
Investors (``CII''), states that defining any holder of five percent or 
more of an auction applicant as part of the applicant for purposes of 
the Commission's anti-collusion rules unnecessarily restricts 
applicants' abilities to obtain financing from a variety of sources. 
After careful consideration of the issue, the Commission agrees with 
CII. Therefore, the Commission will increase the attribution standard 
contained in Sec. 1.2105(c)(6)(i) to 10 percent, or any holder of a 
controlling interest in the applicant.
    118. A higher attribution standard will facilitate the flow of 
capital to applicants by enabling parties to make investments in 
multiple applicants, including applicants for licenses in the same 
geographic areas. The Commission's decision to use an attribution 
threshold of 10 percent is consistent with the change the Commission 
makes to the general reporting requirement. The Commission recognizes 
that some potential for collusion exists whenever an entity is 
permitted to hold an interest in more than one applicant for licenses 
in the same geographic service area. However, the Commission 
reemphasizes that auction applicants and their owners continue to be 
subject to existing antitrust laws, and that conduct that is 
permissible under the Commission's rules may be prohibited by the 
antitrust statute. In addition, the Commission reminds prospective 
auction participants it will continue to scrutinize carefully any 
instances in which bidding patterns suggest that collusion may be 
occurring.
    119. Finally, the Commission reemphasizes that the Commission will 
aggressively investigate any allegations that an auction participant 
has violated Sec. 1.2105(c). Bidders who are found to have violated the 
Commission's anti-collusion rules may, among other sanctions, be 
subject to the loss of their down payment or their full bid amount, 
face the cancellation of their licenses, and may be prohibited from 
participating in future auctions. In addition, where allegations appear 
to give rise to violations of the federal antitrust laws, the 
Commission may investigate and/or refer such cases to the United States 
Department of Justice for investigation.

VIII. Pre-grant Construction

    120. The Commission will adopt its proposal in the Notice to permit 
applicants for all licenses awarded by competitive bidding to begin 
construction of facilities prior to the grant of their applications. 
All commenters addressing the issue support our proposal to permit 
license applicants to begin construction of their facilities, at their 
own risk, upon release of a public notice announcing the acceptance for 
filing of post-auction long-form applications. These commenters agree 
that allowing pre-grant construction furthers the statutory objective 
of rapidly deploying new technologies, products, and services for the 
benefit of the public. 47 U.S.C. 309(j)(3)(A).
    121. Commenters also support our proposal to permit license 
applicants with petitions to deny filed against their long-form 
applications to begin construction of their facilities at the same time 
as license applicants whose licenses are not the subject of pending 
petitions to deny. While the Commission's current service-specific 
rules require as a condition for pre-grant construction no pending 
petitions to deny, the Commission concludes that the merits of 
petitions to deny may be judged by an applicant and factored into its 
assessment of the risk of proceeding with construction before license 
grant. The Commission therefore adopts a pre-grant construction rule 
for all services subject to competitive bidding that permits 
construction by applicants that are subject to petitions to deny. Of 
course, pre-grant construction will be subject to any service-related 
restrictions, including but not limited to antenna restrictions, 
environmental requirements, and international coordination. Any 
applicant engaging in pre-grant construction activity does so entirely 
at its own risk, and the Commission will not take such activity into 
account in ruling on any petition to deny. Finally, the Commission 
notes that it expects its licensing process to be more rapid generally 
in light of the shortened petition to deny period permitted by the 
Balanced Budget Act. Balanced Budget Act, section 3008.

IX. Conclusion

    122. Based on the experience the Commission has gained from its 15 
completed auctions, as well as the feedback it has received from 
bidders, the Commission believes the time has come to streamline its 
competitive bidding rules in order to make our licensing process more 
efficient. In the past, the Commission has adjusted its auction 
procedures for different services and has gained experience with the 
process, resulting in the adoption of different procedures for 
different auctionable services. This Third Report and Order amends 
subpart Q of part 1 of the Commission's rules to reflect substantive 
amendments and modifications intended to simplify these regulations, 
supersede unnecessary rules wherever possible, and eliminate the need 
to conduct separate, comprehensive rule making proceedings prior to 
each auction. The Commission believes that the rules it adopts today 
will benefit bidders and the auction process generally. The Commission 
also believes these rules will help to provide more specific guidance 
and flexibility on a number of issues that will increase the overall 
effectiveness of our auctions.

X. Final Regulatory Flexibility Analysis

    123. As required by the Regulatory Flexibility Act (RFA), 5 U.S.C. 
603, the Commission has prepared a Final Regulatory Flexibility 
Analysis (FRFA) of the expected impact on small entities of the rules 
adopted in the Third Report and Order. The Commission will send a copy 
of the Third Report and Order, including this FRFA, to the Chief 
Counsel for Advocacy of the Small Business Administration. (In 
addition, the Third Report and Order and FRFA (or summaries thereof) 
will be published in the Federal Register.) As required by the 
Regulatory Flexibility Act (RFA), an Initial Regulatory Flexibility 
Analysis (IRFA) was incorporated in the Notice of Proposed Rulemaking 
in WT Docket No. 97-82.

[[Page 2336]]

See 5 U.S.C. 604. The RFA is codified at 5 U.S.C. 601 et seq. See also, 
Amendment of Part 1 of the Commission's Rules--Competitive Bidding 
Proceeding, WT Docket No. 97-82, Order, Memorandum Opinion and Order, 
and Notice of Proposed Rulemaking, 62 FR 13570 (March 21, 1997). The 
Commission sought written public comment on the proposals in the Notice 
of Proposed Rulemaking, including comment on the IRFA. This Final 
Regulatory Flexibility Analysis (FRFA) in this Third Report and Order 
(Order) conforms to the RFA, as amended by the Contract With America 
Advancement Act of 1996 (CWAAA), Pub. L. 104-121, 110 Stat. 847 (1996).

A. Need for, and Objectives of, the Order in WT Docket No. 97-82

    124. This Order makes substantive amendments and modifications to 
the Commission's general competitive bidding rules for all auctionable 
services. These changes to the competitive bidding rules are intended 
to simplify the Commission's rules and regulations and eliminate 
unnecessary rules wherever possible, increase the efficiency of the 
competitive bidding process, and provide more specific guidance to 
auction participants while also giving them more flexibility.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    125. One party, Merlin Telecom, Inc. (Merlin), filed comments 
directly in response to the IRFA. Merlin raises six arguments:
    (1) Merlin urges the Commission not to impose additional reporting 
requirements or additional fees on applicants seeking installment 
payments. In this Order, the Commission concludes that installment 
payments should not be offered in auctions as a means of financing 
small businesses and other designated entities seeking to secure 
spectrum licenses. The Commission eliminates installment payments in 
the auction of the lower 80 and General Category channels in the 800 
MHz SMR service. The Commission notes that installment payments are not 
the only tool available to assist small businesses. Section 3007 of the 
Balanced Budget Act requires that the Commission conduct certain future 
auctions in a manner that ensures that all proceeds from such bidding 
are deposited in the U.S. Treasury not later than September 30, 2002. 
The Commission seeks comment in the Further Notice on offering 
installment payments in the future; however, section 3007 of the 
Balanced Budget Act may require that these auctions be conducted 
without offering long-term installment payments. Thus, there probably 
will be no reporting requirements or fees for future installment 
payments.
    (2) Merlin contends that including past affiliates in the proposed 
new definition of affiliate would require small businesses to keep more 
extensive records and would be unduly burdensome. This Order adopts a 
uniform definition of ``affiliate'' for all future auctions. The term 
``affiliate'' is defined in the Part 1 rules as an individual or entity 
that directly or indirectly controls or has the power to control the 
applicant; is directly or indirectly controlled by the applicant; is 
directly or indirectly controlled by a third person(s) that also 
controls or has the power to control the applicant; or has an 
``identity of interest'' with the applicant. The Commission concludes 
that this definition has helped to ensure that businesses seeking small 
business status are truly small. In addition, the Commission finds that 
this definition is consistent with the decision to adopt a controlling 
interest threshold for purposes of attribution of gross revenues of 
investors and affiliates of an applicant.
    (3) Merlin argues that the Commission's proposal to lower the 
financial caps which permit small businesses to take advantage of 
special benefits would limit the number of small businesses eligible 
for benefits and thus increase the barriers to entry that small 
businesses face. This Order adopts the proposal in the Notice to 
continue to define small businesses based on the characteristics and 
capital requirements of a specific service, in order to reduce the 
barriers to entry faced by small businesses.
    (4) Merlin argues that the Commission's proposals to reduce bidding 
credits, raise the interest rate on installment payments, raise down 
payments, and eliminate installment payments will have a negative 
effect on the ability of small businesses to compete effectively in the 
telecommunications industry. In this Order, the Commission concludes 
that installment payments should not be offered in auctions as a means 
of financing small businesses and other designated entities seeking to 
secure spectrum licenses. In the Further Notice, the Commission seeks 
comment on offering installment payments in the future; however, 
section 3007 of the Balanced Budget Act may require that these auctions 
be conducted without offering long-term installment payments. In light 
of the decision to suspend installment payment financing for the near 
future, the Commission determined that higher bidding credits would 
better fulfill the mandate of section 309(j)(4)(D) of the 
Communications Act to provide small businesses the opportunity to 
participate in spectrum-based services. Therefore, the Commission 
adopts bidding credits of 35 percent for designated entities with 
average gross revenues not to exceed $3 million, 25 percent for 
designated entities with average gross revenues not to exceed $15 
million, and 15 percent for designated entities with average gross 
revenues not to exceed $40 million. With respect to down payments, the 
Commission adopts the proposal in the Notice to delegate to the Bureau 
the discretion to determine the down payment amount on a service-by-
service basis. The Commission believes that a substantial down payment 
is required to ensure that licensees have the financial capability to 
attract the capital necessary to deploy and operate their systems and 
to protect against default.
    (5) Merlin argues that the proposal to require auction winners to 
pay their second down payment regardless of a pending petition to deny 
would increase the defaults by small businesses. In this Order, the 
Commission is suspending the use of installment payments as a means of 
financing small business participation in the auction program for the 
immediate future. As a result, all auction winners, including small 
businesses, will be required to submit the full payment owed on their 
winning bids shortly after the license is ready to be granted. The 
Commission notes that in the Balanced Budget Act Congress granted the 
Commission authority to shorten the petition to deny period, and as a 
result, to grant licenses much more rapidly. Sections 1.2108 (b) and 
(c) of the rules are amended to 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. In addition, the Commission 
amends this section to provide that in all cases the period for filing 
petitions to deny shall be no shorter than five days. Applications that 
are the subject of petitions to deny will ordinarily take longer to 
resolve than uncontested applications, these changes in procedure will 
reduce the risk of frivolous petitions being filed solely for the 
purpose of delay and will enhance the Commission's ability to resolve 
petitions expeditiously. The Commission declines to require all winning 
bidders to make their full payments at the same time regardless of

[[Page 2337]]

whether petitions to deny their applications have been filed.
    (6) Finally, Merlin contends that the Commission should not adopt a 
cross-default rule. In this Order, the Commission concludes that it 
will not pursue a policy of cross-default (either within or across 
services) where licensees default on an installment payment. The 
Commission is eliminating the use of installment payments as a means of 
financing small business participation in the auction program for the 
foreseeable future. Therefore, in practice this decision will apply 
only to existing licensees who are currently paying for their licenses 
in installments.

C. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply

    126. The RFA directs agencies to provide a description of, and, 
where feasible, an estimate of the number of small entities that will 
be affected by our rules. The RFA generally defines the term ``small 
entity'' as having the same meaning as the terms ``small business,'' 
``small organization,'' and ``small governmental jurisdiction.'' 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.
    127. 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).
    128. The rules adopted in this Order will allow all entities, 
including existing cellular, PCS, paging, and other small 
communications entities, to obtain licenses in auctionable services 
through competitive bidding. These rules generally apply to future 
auctions, but, with limited exceptions, 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 current 
wireless services licensees are representative of future auction 
participants. The following is our estimate of the number of small 
entities who are current wireless licensees:

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 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. 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 FRFA, 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 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.

Estimates for Broadband and Narrowband PCS Licensees

    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 FRFA, 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.
    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 FRFA, that all of the licenses will be awarded to small 
entities, as that term is defined by the SBA.

Estimates for 220 MHz Radio Services

    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.

[[Page 2338]]

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.

Common Carrier Paging

    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. See FCC, 
Telecommunications Industry Revenue: TRS Fund Worksheet Data, Figure 2 
(Number of Carriers Paying Into the TRS Fund by Type of Carrier) (Nov. 
1997). Consequently, the Commission estimates 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.

Air-Ground Radiotelephone Service

    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.

Specialized Mobile Radio Licensees

    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 FRFA 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.

Private Land Mobile Radio Licensees (PLMR)

    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 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.

Aviation and Marine Radio Service

    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, 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 
FRFA, 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.

Offshore Radiotelephone Service

    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.

General Wireless Communication Service

    This service was created by the Commission on July 31, 1995 by 
transferring 25 MHz of spectrum in the

[[Page 2339]]

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 the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements

    129. All license applicants will be subject to reporting and 
recordkeeping requirements to comply with the competitive bidding 
rules. Specifically, applicants will apply for license auctions by 
filing a short-form application and will file a long-form application 
at the conclusion of the auction. Additionally, entities seeking 
treatment as ``small businesses'' will need to submit information 
pertaining to the gross revenues of the small business applicant, its 
affiliates, and certain investors in the applicant.

E. Steps Taken to Minimize the Economic Impact on Small Entities and 
Significant Alternatives Considered

    130. Among other goals, Section 309(j) directs the Commission to 
disseminate licenses among a wide variety of applicants, including 
small businesses and other designated entities. At the same time, 
Section 309(j) 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.
    131. The Commission received numerous comments addressing the 
applicability of general competitive bidding rules for future auctions. 
Many commenters support general competitive bidding rules, but argue 
that the Commission should adopt service-specific rules in particular 
instances, such as a reauction. For example, two commenters, AICC and 
AAA, argue that shared channels should not be auctioned under the 
general competitive bidding procedures. Hughes contends that if 
satellite services are auctioned, the Commission must conduct a 
service-specific rulemaking tailored to the nature of the satellite 
industry. The Commission does not address the issue of the 
auctionability of particular services in this proceeding; however, 
service-specific auction rules will be adopted in the future where the 
general competitive bidding rules are inappropriate.
    132. The Commission also received numerous comments with respect to 
the issue of eliminating installment payments. The Commission has 
reviewed all of the comments in response to the Notice of Proposed 
Rulemaking in this docket, as well as the comments filed in response to 
Installment Public Notice (see ``Wireless Telecommunications Bureau 
Seeks Comment on Broadband PCS C and F Block Installment Payment 
Issues,'' Public Notice, DA 97-82, 62 FR 31777 (June 11, 1997) 
(``Installment Public Notice'')) and concludes that installment 
payments should not be offered in auctions as a means of financing 
small businesses and other designated entities seeking to secure 
spectrum licenses. In this Order, Commission eliminates installment 
payments in the auction of the lower 80 and General Category channels 
in the 800 MHz SMR service. The Commission notes that installment 
payments are not the only tool available to assist small businesses, 
and that section 3007 of the Balanced Budget Act requires that the 
Commission conduct certain future auctions in a manner that ensures 
that all proceeds from such bidding are deposited in the U.S. Treasury 
not later than September 30, 2002. The Commission seeks comment in the 
Further Notice on offering installment payments in the future; however, 
section 3007 of the Balanced Budget Act may require that these auctions 
be conducted without offering long-term installment payments.
    133. In assessing the public interest, the Commission must try to 
ensure that all the objectives of section 309(j) are considered. In 
this Order, the Commission continues the practice of defining small 
business standards on a service-specific basis; adopts uniform 
definitions of ``gross revenues'' and ``affiliate''; eliminates the use 
of installment payments for the 800 MHz Lower 80 channels and General 
Category channels services; suspends the use of installment payments 
for other services to be auctioned in the immediate future; provides 
for higher bidding credits, in lieu of installment payments, to 
encourage and facilitate the participation of designated entities in 
future auctions; and modifies the unjust enrichment rule.
    134. In addition, this Order requires electronic filing of all 
short-form and long-form applications, beginning January 1, 1999; 
adopts a uniform definition of major amendments to the short-form; 
adopts general ownership disclosure requirements; affirms the policy of 
refunding upfront payments before the end of an auction to bidders that 
lose eligibility; adopts uniform default rules to all auctionable 
services; permits auction winners who have submitted a timely down 
payment to submit final payments 10 business days after the applicable 
deadline, provided the appropriate late fee is paid; adopts one 90-day 
non-delinquency period and one automatic 90-day grace period, and a 
late payment fee, similar to the rules for broadband PCS F block for 
licensees currently paying under installments; and clarifies that the 
Commission will not pursue a policy of cross-default, either within or 
across services, where licensees default on an installment payment.
    135. Finally, this Order delegates authority to the Wireless 
Telecommunications Bureau to seek comment on specific mechanisms 
relating to auction conduct; allows for real-time bidding in 
simultaneous multiple-round auctions; provides that the Bureau will 
seek comment on and specify a minimum opening bid and/or reserve price 
in future auctions; adopts, for all auctionable services, the broadband 
PCS rules for bid withdrawal payments in the event of erroneous bids; 
modifies the attributable investor threshold of the anti-collusion rule 
to include controlling interests and/or holders of a 10 percent or 
greater interest in the applicant and to permit an entity that has 
invested in an applicant that withdraws from an auction to invest in 
other applicants that have applied to bid in the same markets; and 
permits all auction winners to begin construction at their own risk 
upon issuance of a public notice announcing the auction winners.
    136. The Commission believes that the objectives of section 309(j) 
are met by the rule changes in this Order. In addition, this Order 
serves the public interest by simplifying regulations, eliminating 
unnecessary rules, increasing the efficiency of the competitive bidding 
process, and providing more specific guidance to auction participants 
while also giving them more flexibility.

F. Report to Congress

    137. The Commission shall send a copy of this Final Regulatory 
Flexibility Analysis, along with this Order, in a report to Congress 
pursuant to the Small Business Regulatory Enforcement Fairness Act of 
1996, 5 U.S.C. 801(a)(1)(A). A copy of the Order and this FRFA (or a 
summary thereof) will be published in the Federal Register. See 5 
U.S.C. 604(b). A copy of the Order and this FRFA will also be sent to 
the

[[Page 2340]]

Chief Counsel for Advocacy of the Small Business Administration.

XII. Paperwork Reduction Act Analysis

Notice of Public Information Collections Submitted to OMB for Emergency 
Review and Approval

Paperwork Reduction Act
    The Federal Communications Commission, as part of its continuing 
effort to reduce paperwork burden, invites the general public and other 
federal agencies to take this opportunity to comment on the following 
emergency information collection, as required by the Paperwork 
Reduction Act of 1995, Pub. L. 104-13. An agency may not conduct or 
sponsor a collection of information unless it displays a currently 
valid control number. No person shall be subject to any penalty for 
failing to comply with a collection of information subject to the 
Paperwork Reduction Act (PRA) that does not display a valid control 
number. Comments are requested concerning whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information 
shall have practical utility, the accuracy of the Commission's burden 
estimate, ways to enhance the quality, utility and clarity of the 
information collected, and ways to minimize the burden of the 
collection of information on the respondents, including the use of 
automated collection techniques or other forms of information 
technology. The Commission is seeking emergency approval for this 
information collection by March 2, 1998 under the provisions of 5 CFR 
1320.13.

DATES: Persons wishing to comment on this information collection should 
submit comments by February 25, 1998.

ADDRESSES: Direct all comments to Judy Boley, Federal Communications 
Commission, Room 234, 1919 M St., NW., Washington, DC 20554 or via 
internet to JB[email protected] and Timothy Fain, OMB Desk Officer, 10236 
NEOB 725 17th Street, NW., Washington, DC 20503 or [email protected].

FOR FURTHER INFORMATION CONTACT: for additional information or copies 
of the information collection contact Judy Boley at (202) 418-0217 or 
via Internet at [email protected].

SUPPLEMENTARY INFORMATION: OMB approval Number 3060-0767 Title: Auction 
Forms and License Transfer Disclosures: Supplement For the Second 
Report and Order, Order on Reconsideration and Fifth Notice of Proposed 
Rulemaking in CC Docket No. 92-297.
    Type of Review: Revised Collection.
    Respondents: Businesses or Other For-profit entities.
    Number of Respondents: 44,000.
    Total Annual Burden: 773,000 hours.
    Total Cost to Respondents: $46,347,350.

Needs and Uses

    The Commission is adopting a general rule to determine the amount 
of unjust enrichment payments to be assessed upon assignment, transfer, 
partitioning and disaggregation of licenses. The new rule, applicable 
to all current and future licensees, is based upon the unjust 
enrichment rule currently applicable to broadband PCS licensees. 
Therefore, transfer disclosure requirements will apply in all these 
license transactions.
    Second, the Commission is amending its general anti-collusion 
rules, permitting the holder of a non-controlling attributable interest 
in an applicant to obtain an ownership interest in or enter into a 
consortium arrangement with another applicant for a license in the same 
geographic area provided that the original applicant has withdrawn from 
the auction, is no longer placing bids, and has no further eligibility. 
To meet the requirements of the exception, the attributable interest 
holder will be required to certify to the Commission that it did not 
communicate with the new applicant prior to the date the original 
applicant withdrew from the auction, and that it will not convey 
bidding information, or otherwise serve as a nexus between the previous 
and the new applicant.
    These requirements are being added to the existing requirements. 
The number of respondents will not increase but the annual burden hours 
and costs will increase by an estimated 8,500 hours and $612,650.

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 90

    Reporting and recordkeeping requirements.

47 CFR Part 95

    Reporting and recordkeeping requirements.

Federal Communications Commission.
Magalie Roman Salas,
Secretary.

Rule Changes

    Parts 1, 21, 24, 27, 90 and 95 of Title 47 of the Code of Federal 
Regulations are amended as follows:

PART 1--PRACTICE AND PROCEDURE

    1. The authority citation for part 1 continues to read as follows:

    Authority: 47 U.S.C. 151, 154, 207, 303 and 309(j), unless 
otherwise noted.

    2. Section 1.2101 is revised to read as follows:


Sec. 1.2101  Purpose.

    The provisions of this subpart implement Section 309(j) of the 
Communications Act of 1934, as added by the Omnibus Budget 
Reconciliation Act of 1993 (Pub. L. 103-66) and the Balanced Budget Act 
of 1997 (Pub. L. 105-33), authorizing the Commission to employ 
competitive bidding procedures to choose from among two or more 
mutually exclusive applications for certain initial licenses.
    3. Section 1.2102 is amended by revising paragraphs (a) and (b) and 
adding a note to the section to read as follows:


Sec. 1.2102  Eligibility of applications for competitive bidding.

    (a) Mutually exclusive initial applications are subject to 
competitive bidding.
    (b) The following types of license applications are not subject to 
competitive bidding procedures:
    (1) Public safety radio services, including private internal radio 
services used by state and local governments and non-government 
entities and including emergency road services provided by not-for-
profit organizations, that
    (i) Are used to protect the safety of life, health, or property; 
and
    (ii) Are not commercially available to the public;
    (2) Initial licenses or construction permits for digital television 
service given to existing terrestrial broadcast licensees to replace 
their analog television service licenses; or
    (3) Noncommercial educational and public broadcast stations 
described under 47 U.S.C. 397(6).
* * * * *
    Note to Sec. 1.2102: To determine the rules that apply to 
competitive bidding, specific service rules should also be 
consulted.

    4. Section 1.2103 is amended by revising paragraph (a) and adding 
paragraph (d) to read as follows:

[[Page 2341]]

Sec. 1.2103  Competitive bidding design options.

    (a) The Commission will choose from one or more of the following 
types of auction designs for services or classes of services subject to 
competitive bidding:
    (1) Simultaneous multiple-round auctions (using remote or on-site 
electronic bidding);
    (2) Sequential multiple round auctions (using either oral ascending 
or remote and/or on-site electronic bidding);
    (3) Sequential or simultaneous single-round auctions (using either 
sealed paper or remote and/or on-site electronic bidding); and
    (4) Combinatorial (package/contingent) bidding auctions.
* * * * *
    (d) The Commission may use real time bidding in all electronic 
auction designs.
    5. Section 1.2104 is amended by revising paragraphs (d) and (g) to 
read as follows:


Sec. 1.2104  Competitive bidding mechanisms.

* * * * *
    (d) Minimum Bid Increments, Minimum Opening Bids and Maximum Bid 
Increments. The Commission may, by announcement before or during an 
auction, require minimum bid increments in dollar or percentage terms. 
The Commission also may establish minimum opening bids and maximum bid 
increments on a service-specific basis.
* * * * *
    (g) Withdrawal, Default and Disqualification Payment. As specified 
below, when the Commission conducts an auction pursuant to Sec. 1.2103, 
the Commission will impose payments on bidders who withdraw high bids 
during the course of an auction, or who default on payments due after 
an auction closes or who are disqualified.
    (1) Bid withdrawal prior to close of auction. A bidder who 
withdraws a high bid during the course of an auction is subject to a 
payment equal to the difference between the amount bid and the amount 
of the winning bid the next time the license is offered by the 
Commission. The bid withdrawal payment is either the difference between 
the net withdrawn bid and the subsequent net winning bid, or the 
difference between the gross withdrawn bid and the subsequent gross 
winning bid, whichever is less. No withdrawal payment is assessed if 
the subsequent winning bid exceeds the withdrawn bid. This payment 
amount is deducted from any upfront payments or down payments that the 
withdrawing bidder has deposited with the Commission.
    (2) Default or disqualification after close of auction. If a high 
bidder defaults or is disqualified after the close of such an auction, 
the defaulting bidder will be subject to the payment in paragraph 
(g)(1) of this section plus an additional payment equal to 3 percent of 
the subsequent winning bid. If the subsequent winning bid exceeds the 
defaulting bidder's bid amount, the 3 percent payment will be 
calculated based on the defaulting bidder's bid amount. If either bid 
amount is subject to a bidding credit, the 3 percent credit will be 
calculated using the same bid amounts and basis (net or gross bids) as 
in the calculation of the payment in paragraph (g)(1) of this section. 
Thus, for example, if gross bids are used to calculate the payment in 
paragraph (g)(1) of this section, the 3 percent will be applied to the 
gross amount of the subsequent winning bid, or the gross amount of the 
defaulting bid, whichever is less.
* * * * *
    6. Section 1.2105 is revised to read as follows:


Sec. 1.2105  Bidding application and certification procedures; 
prohibition of collusion.

    (a) Submission of Short-Form Application (FCC Form 175). In order 
to be eligible to bid, an applicant must timely submit a short-form 
application (FCC Form 175), together with any appropriate upfront 
payment set forth by Public Notice. Beginning January 1, 1999, all 
short-form applications must be filed electronically.
    (1) All short-form applications will be due:
    (i) On the date(s) specified by public notice; or
    (ii) In the case of application filing dates which occur 
automatically by operation of law (see, e.g., 47 CFR 22.902), on a date 
specified by public notice after the Commission has reviewed the 
applications that have been filed on those dates and determined that 
mutual exclusivity exists.
    (2) The short-form application must contain the following 
information:
    (i) Identification of each license on which the applicant wishes to 
bid;
    (ii)(A) The applicant's name, if the applicant is an individual. If 
the applicant is a corporation, then the short-form application will 
require the name and address of the corporate office and the name and 
title of an officer or director. If the applicant is a partnership, 
then the application will require the name, citizenship and address of 
all general partners, and, if a partner is not a natural person, then 
the name and title of a responsible person should be included as well. 
If the applicant is a trust, then the name and address of the trustee 
will be required. If the applicant is none of the above, then it must 
identify and describe itself and its principals or other responsible 
persons; and
    (B) Applicant ownership information, as set forth in Sec. 1.2112.
    (iii) The identity of the person(s) authorized to make or withdraw 
a bid;
    (iv) If the applicant applies as a designated entity pursuant to 
Sec. 1.2110, a statement to that effect and a declaration, under 
penalty of perjury, that the applicant is qualified as a designated 
entity under Sec. 1.2110.
    (v) Certification that the applicant is legally, technically, 
financially and otherwise qualified pursuant to section 308(b) of the 
Communications Act of 1934, as amended. The Commission will accept 
applications certifying that a request for waiver or other relief from 
the requirements of section 310 is pending;
    (vi) Certification that the applicant is in compliance with the 
foreign ownership provisions of section 310 of the Communications Act 
of 1934, as amended;
    (vii) Certification that the applicant is and will, during the 
pendency of its application(s), remain in compliance with any service-
specific qualifications applicable to the licenses on which the 
applicant intends to bid including, but not limited to, financial 
qualifications. The Commission may require certification in certain 
services that the applicant will, following grant of a license, come 
into compliance with certain service-specific rules, including, but not 
limited to, ownership eligibility limitations;
    (viii) An exhibit, certified as truthful under penalty of perjury, 
identifying all parties with whom the applicant has entered into 
partnerships, joint ventures, consortia or other agreements, 
arrangements or understandings of any kind relating to the licenses 
being auctioned, including any such agreements relating to the post-
auction market structure.
    (ix) Certification under penalty of perjury that it has not entered 
and will not enter into any explicit or implicit agreements, 
arrangements or understandings of any kind with any parties other than 
those identified pursuant to paragraph (a)(2)(viii) regarding the 
amount of their bids, bidding strategies or the particular licenses on 
which they will or will not bid.

    Note to paragraph (a): The Commission may also request 
applicants to submit

[[Page 2342]]

additional information for informational purposes to aid in its 
preparation of required reports to Congress.

    (b) Modification and Dismissal of Short-Form Application (FCC Form 
175). (1) Any short-form application (FCC Form 175) that does not 
contain all of the certifications required pursuant to this section is 
unacceptable for filing and cannot be corrected subsequent to the 
applicable filing deadline. The application will be dismissed with 
prejudice and the upfront payment, if paid, will be returned.
    (2) The Commission will provide bidders a limited opportunity to 
cure defects specified herein (except for failure to sign the 
application and to make certifications) and to resubmit a corrected 
application. During the resubmission period for curing defects, a 
short-form application may be amended or modified to cure defects 
identified by the Commission or to make minor amendments or 
modifications. After the resubmission period has ended, a short-form 
application may be amended or modified to make minor changes or correct 
minor errors in the application. Major amendments cannot be made to a 
short-form application after the initial filing deadline. Major 
amendments include changes in ownership of the applicant that would 
constitute an assignment or transfer of control, changes in an 
applicant's size which would affect eligibility for designated entity 
provisions, and changes in the license service areas identified on the 
short-form application on which the applicant intends to bid. Minor 
amendments include, but are not limited to, the correction of 
typographical errors and other minor defects not identified as major. 
An application will be considered to be newly filed if it is amended by 
a major amendment and may not be resubmitted after applicable filing 
deadlines.
    (3) Applicants who fail to correct defects in their applications in 
a timely manner as specified by public notice will have their 
applications dismissed with no opportunity for resubmission.
    (c) Prohibition of collusion. (1) Except as provided in paragraphs 
(c)(2), (c)(3) and (c)(4) of this section, after the filing of short-
form applications, all applicants are prohibited from cooperating, 
collaborating, discussing or disclosing in any manner the substance of 
their bids or bidding strategies, or discussing or negotiating 
settlement agreements, with other applicants until after the high 
bidder makes the required down payment, unless such applicants are 
members of a bidding consortium or other joint bidding arrangement 
identified on the bidder's short-form application pursuant to 
Sec. 1.2105(a)(2)(viii).
    (2) Applicants may modify their short-form applications to reflect 
formation of consortia or changes in ownership at any time before or 
during an auction, provided such changes do not result in a change in 
control of the applicant, and provided that the parties forming 
consortia or entering into ownership agreements have not applied for 
licenses in any of the same geographic license areas. Such changes will 
not be considered major modifications of the application.
    (3) After the filing of short-form applications, applicants may 
make agreements to bid jointly for licenses, provided the parties to 
the agreement have not applied for licenses in any of the same 
geographic license areas.
    (4) After the filing of short-form applications, a holder of a non-
controlling attributable interest in an entity submitting a short-form 
application may acquire an ownership interest in, form a consortium 
with, or enter into a joint bidding arrangement with, other applicants 
for licenses in the same geographic license area, provided that:
    (i) The attributable interest holder certifies to the Commission 
that it has not communicated and will not communicate with any party 
concerning the bids or bidding strategies of more than one of the 
applicants in which it holds an attributable interest, or with which it 
has a consortium or joint bidding arrangement, and which have applied 
for licenses in the same geographic license area(s); and
    (ii) The arrangements do not result in any change in control of an 
applicant; or
    (iii) When an applicant has withdrawn from the auction, is no 
longer placing bids and has no further eligibility, a holder of a non-
controlling, attributable interest in such an applicant may obtain an 
ownership interest in or enter into a consortium with another applicant 
for a license in the same geographic service area, provided that the 
attributable interest holder certifies to the Commission that it did 
not communicate with the new applicant prior to the date that the 
original applicant withdrew from the auction.
    (5) Applicants must modify their short-form applications to reflect 
any changes in ownership or in membership of consortia or joint bidding 
arrangements.
    (6) For purposes of this paragraph:
    (i) The term applicant shall include all controlling interests in 
the entity submitting a short-form application to participate in an 
auction (FCC Form 175), as well as all holders of partnership and other 
ownership interests and any stock interest amounting to 10 percent or 
more of the entity, or outstanding stock, or outstanding voting stock 
of the entity submitting a short-form application, and all officers and 
directors of that entity; and
    (ii) The term bids or bidding strategies shall include capital 
calls or requests for additional funds in support of bids or bidding 
strategies.

    Example: Company A is an applicant in area 1. Company B and 
Company C each own 10 percent of Company A. Company D is an 
applicant in area 1, area 2, and area 3. Company C is an applicant 
in area 3. Without violating the Commission's Rules, Company B can 
enter into a consortium arrangement with Company D or acquire an 
ownership interest in Company D if Company B certifies either (1) 
that it has communicated with and will communicate neither with 
Company A or anyone else concerning Company A's bids or bidding 
strategy, nor with Company C or anyone else concerning Company C's 
bids or bidding strategy, or (2) that it has not communicated with 
and will not communicate with Company D or anyone else concerning 
Company D's bids or bidding strategy.

    7. Section 1.2107 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec. 1.2107  Submission of down payment and filing of long-form 
applications.

* * * * *
    (b) Unless otherwise specified by public notice, within ten (10) 
business days after being notified that it is a high bidder on a 
particular license(s), a high bidder must submit to the Commission's 
lockbox bank such additional funds (the ``down payment'') as are 
necessary to bring its total deposits (not including upfront payments 
applied to satisfy bid withdrawal or default payments) up to twenty 
(20) percent of its high bid(s). (In single round sealed bid auctions 
conducted under Sec. 1.2103, however, bidders may be required to submit 
their down payments with their bids.) Unless otherwise specified by 
public notice, this down payment must be made by wire transfer in U.S. 
dollars from a financial institution whose deposits are insured by the 
Federal Deposit Insurance Corporation and must be made payable to the 
Federal Communications Commission. Down payments will be held by the 
Commission until the high bidder has been awarded the license and has 
paid the remaining balance due on the license or authorization, in 
which case it will not be returned, or until the winning bidder is 
found unqualified to

[[Page 2343]]

be a licensee or has defaulted, in which case it will be returned, less 
applicable payments. No interest on any down payment will be paid to 
the bidders.
    (c) A high bidder that meets its down payment obligations in a 
timely manner must, within ten (10) business days after being notified 
that it is a high bidder, submit an additional application (the ``long-
form application'') pursuant to the rules governing the service in 
which the applicant is the high bidder. Notwithstanding any other 
provision in title 47 of the Code of Federal Regulations to the 
contrary, high bidders need not submit an additional application filing 
fee with their long-form applications. Specific procedures for filing 
applications will be set out by Public Notice. Beginning January 1, 
1999, all long-form applications must be filed electronically. An 
applicant that fails to submit the required long-form application under 
this paragraph and fails to establish good cause for any late-filed 
submission, shall be deemed to have defaulted and will be subject to 
the payments set forth in Sec. 1.2104.
* * * * *
    8. Section 1.2108 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec. 1.2108  Procedures for filing petitions to deny against long-form 
applications.

* * * * *
    (b) Within a period specified by Public Notice, and after the 
Commission by public notice announces that long-form applications have 
been accepted for filing, petitions to deny such applications may be 
filed. In all cases, the period for filing petitions to deny shall be 
no shorter than five (5) days. Any such petitions must contain 
allegations of fact supported by affidavit of a person or persons with 
personal knowledge thereof.
    (c) An applicant may file an opposition to any petition to deny, 
and the petitioner a reply to such opposition. Allegations of fact or 
denials thereof must be supported by affidavit of a person or persons 
with personal knowledge thereof. The time for filing such oppositions 
shall be at least five (5) days from the filing date for petitions to 
deny, and the time for filing replies shall be at least five (5) days 
from the filing date for oppositions. The Commission may grant a 
license based on any long-form application that has been accepted for 
filing. The Commission shall in no case grant licenses earlier than 
seven (7) days following issuance of a public notice announcing long-
form applications have been accepted for filing.
* * * * *
    9. Section 1.2109 is amended by revising paragraphs (a), (b) and 
(c) to read as follows:


Sec. 1.2109  License grant, denial, default, and disqualification.

    (a) Unless otherwise specified by public notice, auction winners 
are required to pay the balance of their winning bids in a lump sum 
within ten (10) business days following the release of a public notice 
establishing the payment deadline. If a winning bidder fails to pay the 
balance of its winning bids in a lump sum by the applicable deadline as 
specified by the Commission, it will be allowed to make payment within 
ten (10) business days after the payment deadline, provided that it 
also pays a late fee equal to five percent of the amount due. When a 
winning bidder fails to pay the balance of its winning bid by the late 
payment deadline, it is considered to be in default on its license(s) 
and subject to the applicable default payments. Licenses will be 
awarded upon the full and timely payment of winning bids and any 
applicable late fees.
    (b) If a winning bidder withdraws its bid after the Commission has 
declared competitive bidding closed or fails to remit the required down 
payment within ten (10) business days after the Commission has declared 
competitive bidding closed, the bidder will be deemed to have 
defaulted, its application will be dismissed, and it will be liable for 
the default payment specified in Sec. 1.2104(g)(2). In such event, the 
Commission, at its discretion, may either re-auction the license to 
existing or new applicants or offer it to the other highest bidders (in 
descending order) at their final bids. The down payment obligations set 
forth in Sec. 1.2107(b) will apply.
    (c) A winning bidder who is found unqualified to be a licensee, 
fails to remit the balance of its winning bid in a timely manner, or 
defaults or is disqualified for any reason after having made the 
required down payment, will be deemed to have defaulted and will be 
liable for the payment set forth in Sec. 1.2104(g)(2). In such event, 
the Commission may either re-auction the license to existing or new 
applicants or offer it to the other highest bidders (in descending 
order) at their final bids.
* * * * *
    10. Section 1.2110 is revised to read as follows:


Sec. 1.2110  Designated entities.

    (a) Designated entities are small businesses, businesses owned by 
members of minority groups and/or women, and rural telephone companies.
    (b) Definitions. (1) Small businesses. The Commission will 
establish the definition of a small business on a service-specific 
basis, taking into consideration the characteristics and capital 
requirements of the particular service.
    (2) Businesses owned by members of minority groups and/or women. 
Unless otherwise provided in rules governing specific services, a 
business owned by members of minority groups and/or women is one in 
which minorities and/or women who are U.S. citizens control the 
applicant, have at least 50.1 percent equity ownership and, in the case 
of a corporate applicant, a 50.1 percent voting interest. For 
applicants that are partnerships, every general partner either must be 
a minority and/or woman (or minorities and/or women) who are U.S. 
citizens and who individually or together own at least 50.1 percent of 
the partnership equity, or an entity that is 100 percent owned and 
controlled by minorities and/or women who are U.S. citizens. The 
interests of minorities and women are to be calculated on a fully-
diluted basis; agreements such as stock options and convertible 
debentures shall be considered to have a present effect on the power to 
control an entity and shall be treated as if the rights thereunder 
already have been fully exercised. However, upon a demonstration that 
options or conversion rights held by non-controlling principals will 
not deprive the minority and female principals of a substantial 
financial stake in the venture or impair their rights to control the 
designated entity, a designated entity may seek a waiver of the 
requirement that the equity of the minority and female principals must 
be calculated on a fully-diluted basis. The term minority includes 
individuals of African American, Hispanic-surnamed, American Eskimo, 
Aleut, American Indian and Asian American extraction.
    (3) Rural telephone companies. A rural telephone company is any 
local exchange carrier operating entity to the extent that such 
entity--
    (i) provides common carrier service to any local exchange carrier 
study area that does not include either
    (A) any incorporated place of 10,000 inhabitants or more, or any 
part thereof, based on the most recently available population 
statistics of the Bureau of the Census, or
    (B) any territory, incorporated or unincorporated, included in an 
urbanized area, as defined by the Bureau of the Census as of August 10, 
1993;

[[Page 2344]]

    (ii) provides telephone exchange service, including exchange 
access, to fewer than 50,000 access lines;
    (iii) provides telephone exchange service to any local exchange 
carrier study area with fewer than 100,000 access lines; or
    (iv) has less than 15 percent of its access lines in communities of 
more than 50,000 on the date of enactment of the Telecommunications Act 
of 1996.
    (4) Affiliate. (i) An individual or entity is an affiliate of an 
applicant or of a person holding an attributable interest in an 
applicant if such individual or entity--
    (A) Directly or indirectly controls or has the power to control the 
applicant, or
    (B) Is directly or indirectly controlled by the applicant, or
    (C) Is directly or indirectly controlled by a third party or 
parties that also controls or has the power to control the applicant, 
or
    (D) Has an ``identity of interest'' with the applicant.
    (ii) Nature of control in determining affiliation.
    (A) Every business concern is considered to have one or more 
parties who directly or indirectly control or have the power to control 
it. Control may be affirmative or negative and it is immaterial whether 
it is exercised so long as the power to control exists.

    Example. An applicant owning 50 percent of the voting stock of 
another concern would have negative power to control such concern 
since such party can block any action of the other stockholders. 
Also, the bylaws of a corporation may permit a stockholder with less 
than 50 percent of the voting stock to block any actions taken by 
the other stockholders in the other entity. Affiliation exists when 
the applicant has the power to control a concern while at the same 
time another person, or persons, are in control of the concern at 
the will of the party or parties with the power to control.

    (B) Control can arise through stock ownership; occupancy of 
director, officer or key employee positions; contractual or other 
business relations; or combinations of these and other factors. A key 
employee is an employee who, because of his/her position in the 
concern, has a critical influence in or substantive control over the 
operations or management of the concern.
    (C) Control can arise through management positions where a 
concern's voting stock is so widely distributed that no effective 
control can be established.

    Example. In a corporation where the officers and directors own 
various size blocks of stock totaling 40 percent of the 
corporation's voting stock, but no officer or director has a block 
sufficient to give him or her control or the power to control and 
the remaining 60 percent is widely distributed with no individual 
stockholder having a stock interest greater than 10 percent, 
management has the power to control. If persons with such management 
control of the other entity are persons with attributable interests 
in the applicant, the other entity will be deemed an affiliate of 
the applicant.

    (iii) Identity of interest between and among persons. Affiliation 
can arise between or among two or more persons with an identity of 
interest, such as members of the same family or persons with common 
investments. In determining if the applicant controls or has the power 
to control a concern, persons with an identity of interest will be 
treated as though they were one person.

    Example. Two shareholders in Corporation Y each have 
attributable interests in the same PCS application. While neither 
shareholder has enough shares to individually control Corporation Y, 
together they have the power to control Corporation Y. The two 
shareholders with these common investments (or identity in interest) 
are treated as though they are one person and Corporation Y would be 
deemed an affiliate of the applicant.

    (A) Spousal affiliation. Both spouses are deemed to own or control 
or have the power to control interests owned or controlled by either of 
them, unless they are subject to a legal separation recognized by a 
court of competent jurisdiction in the United States. In calculating 
their net worth, investors who are legally separated must include their 
share of interests in property held jointly with a spouse.
    (B) Kinship affiliation. Immediate family members will be presumed 
to own or control or have the power to control interests owned or 
controlled by other immediate family members. In this context 
``immediate family member'' means father, mother, husband, wife, son, 
daughter, brother, sister, father- or mother-in-law, son- or daughter-
in-law, brother- or sister-in-law, step-father or -mother, step-brother 
or -sister, step-son or -daughter, half brother or sister. This 
presumption may be rebutted by showing that the family members are 
estranged, the family ties are remote, or the family members are not 
closely involved with each other in business matters.

    Example. A owns a controlling interest in Corporation X. A's 
sister-in-law, B, has an attributable interest in a PCS application. 
Because A and B have a presumptive kinship affiliation, A's interest 
in Corporation Y is attributable to B, and thus to the applicant, 
unless B rebuts the presumption with the necessary showing.

    (iv) Affiliation through stock ownership. (A) An applicant is 
presumed to control or have the power to control a concern if he or she 
owns or controls or has the power to control 50 percent or more of its 
voting stock.
    (B) An applicant is presumed to control or have the power to 
control a concern even though he or she owns, controls or has the power 
to control less than 50 percent of the concern's voting stock, if the 
block of stock he or she owns, controls or has the power to control is 
large as compared with any other outstanding block of stock.
    (C) If two or more persons each owns, controls or has the power to 
control less than 50 percent of the voting stock of a concern, such 
minority holdings are equal or approximately equal in size, and the 
aggregate of these minority holdings is large as compared with any 
other stock holding, the presumption arises that each one of these 
persons individually controls or has the power to control the concern; 
however, such presumption may be rebutted by a showing that such 
control or power to control, in fact, does not exist.
    (v) Affiliation arising under stock options, convertible 
debentures, and agreements to merge. Stock options, convertible 
debentures, and agreements to merge (including agreements in principle) 
are generally considered to have a present effect on the power to 
control the concern. Therefore, in making a size determination, such 
options, debentures, and agreements are generally treated as though the 
rights held thereunder had been exercised. However, an affiliate cannot 
use such options and debentures to appear to terminate its control over 
another concern before it actually does so.

    Example 1. If company B holds an option to purchase a 
controlling interest in company A, who holds an attributable 
interest in a PCS application, the situation is treated as though 
company B had exercised its rights and had come owner of a 
controlling interest in company A. The gross revenues of company B 
must be taken into account in determining the size of the applicant.
    Example 2. If a large company, BigCo, holds 70% (70 of 100 
outstanding shares) of the voting stock of company A, who holds an 
attributable interest in a PCS application, and gives a third party, 
SmallCo, an option to purchase 50 of the 70 shares owned by BigCo, 
BigCo will be deemed to be an affiliate of company A, and thus the 
applicant, until SmallCo actually exercises its option to purchase 
such shares. In order to prevent BigCo from circumventing the intent 
of the rule which requires such options to be considered on a fully 
diluted basis, the option is not considered to have present effect 
in this case.
    Example 3. If company A has entered into an agreement to merge 
with company B in

[[Page 2345]]

the future, the situation is treated as though the merger has taken 
place.

    (vi) Affiliation under voting trusts. (A) Stock interests held in 
trust shall be deemed controlled by any person who holds or shares the 
power to vote such stock, to any person who has the sole power to sell 
such stock, and to any person who has the right to revoke the trust at 
will or to replace the trustee at will.
    (B) If a trustee has a familial, personal or extra-trust business 
relationship to the grantor or the beneficiary, the stock interests 
held in trust will be deemed controlled by the grantor or beneficiary, 
as appropriate.
    (C) If the primary purpose of a voting trust, or similar agreement, 
is to separate voting power from beneficial ownership of voting stock 
for the purpose of shifting control of or the power to control a 
concern in order that such concern or another concern may meet the 
Commission's size standards, such voting trust shall not be considered 
valid for this purpose regardless of whether it is or is not recognized 
within the appropriate jurisdiction.
    (vii) Affiliation through common management. Affiliation generally 
arises where officers, directors, or key employees serve as the 
majority or otherwise as the controlling element of the board of 
directors and/or the management of another entity.
    (viii) Affiliation through common facilities. Affiliation generally 
arises where one concern shares office space and/or employees and/or 
other facilities with another concern, particularly where such concerns 
are in the same or related industry or field of operations, or where 
such concerns were formerly affiliated, and through these sharing 
arrangements one concern has control, or potential control, of the 
other concern.
    (ix) Affiliation through contractual relationships. Affiliation 
generally arises where one concern is dependent upon another concern 
for contracts and business to such a degree that one concern has 
control, or potential control, of the other concern.
    (x) Affiliation under joint venture arrangements. (A) A joint 
venture for size determination purposes is an association of concerns 
and/or individuals, with interests in any degree or proportion, formed 
by contract, express or implied, to engage in and carry out a single, 
specific business venture for joint profit for which purpose they 
combine their efforts, property, money, skill and knowledge, but not on 
a continuing or permanent basis for conducting business generally. The 
determination whether an entity is a joint venture is based upon the 
facts of the business operation, regardless of how the business 
operation may be designated by the parties involved. An agreement to 
share profits/losses proportionate to each party's contribution to the 
business operation is a significant factor in determining whether the 
business operation is a joint venture.
    (B) The parties to a joint venture are considered to be affiliated 
with each other. Nothing in this subsection shall be construed to 
define a small business consortium, for purposes of determining status 
as a designated entity, as a joint venture under attribution standards 
provided in this section.
    (xi) Exclusion from affiliation coverage. For purposes of this 
section, Indian tribes or Alaska Regional or Village Corporations 
organized pursuant to the Alaska Native Claims Settlement Act (43 
U.S.C. 1601 et seq.), or entities owned and controlled by such tribes 
or corporations, are not considered affiliates of an applicant (or 
licensee) that is owned and controlled by such tribes, corporations or 
entities, and that otherwise complies with the requirements of this 
section, except that gross revenues derived from gaming activities 
conducted by affiliate entities pursuant to the Indian Gaming 
Regulatory Act (25 U.S.C. 2701 et seq.) will be counted in determining 
such applicant's (or licensee's) compliance with the financial 
requirements of this section, unless such applicant establishes that it 
will not receive a substantial unfair competitive advantage because 
significant legal constraints restrict the applicant's ability to 
access such gross revenues.
    (c) The Commission may set aside specific licenses for which only 
eligible designated entities, as specified by the Commission, may bid.
    (d) The Commission may permit partitioning of service areas in 
particular services for eligible designated entities.
    (e) Bidding credits. (1) The Commission may award bidding credits 
(i.e., payment discounts) to eligible designated entities. Competitive 
bidding rules applicable to individual services will specify the 
designated entities eligible for bidding credits, the licenses for 
which bidding credits are available, the amounts of bidding credits and 
other procedures.
    (2) Size of bidding credits. A winning bidder that qualifies as a 
small business or a consortium of small businesses may use the 
following bidding credits corresponding to their respective average 
gross revenues for the preceding 3 years:
    (i) Businesses with average gross revenues for the preceding years, 
3 years not exceeding $3 million are eligible for bidding credits of 35 
percent;
    (ii) Businesses with average gross revenues for the preceding 
years, 3 years not exceeding $15 million are eligible for bidding 
credits of 25 percent; and
    (iii) Businesses with average gross revenues for the preceding 
years, 3 years not exceeding $40 million are eligible for bidding 
credits of 15 percent.
    (f) Installment payments. The Commission may permit small 
businesses (including small businesses owned by women, minorities, or 
rural telephone companies that qualify as small businesses) and other 
entities determined to be eligible on a service-specific basis, which 
are high bidders for licenses specified by the Commission, to pay the 
full amount of their high bids in installments over the term of their 
licenses pursuant to the following:
    (1) Unless otherwise specified by public notice, each eligible 
applicant paying for its license(s) on an installment basis must 
deposit by wire transfer in the manner specified in Sec. 1.2107(b) 
sufficient additional funds as are necessary to bring its total 
deposits to ten (10) percent of its winning bid(s) within ten (10) days 
after the Commission has declared it the winning bidder and closed the 
bidding. Failure to remit the required payment will make the bidder 
liable to pay a default payment pursuant to Sec. 1.2104(g)(2).
    (2) Within ten (10) days of the conditional grant of the license 
application of a winning bidder eligible for installment payments, the 
licensee shall pay another ten (10) percent of the high bid, thereby 
commencing the eligible licensee's installment payment plan. Failure to 
remit the required payment will make the bidder liable to pay default 
payments pursuant to Sec. 1.2104(g)(2).
    (3) Upon grant of the license, the Commission will notify each 
eligible licensee of the terms of its installment payment plan and that 
it must execute a promissory note and security agreement as a condition 
of the installment payment plan. Unless other terms are specified in 
the rules of particular services, such plans will:
    (i) Impose interest based on the rate of U.S. Treasury obligations 
(with maturities closest to the duration of the license term) at the 
time of licensing;
    (ii) Allow installment payments for the full license term;

[[Page 2346]]

    (iii) Begin with interest-only payments for the first two years; 
and
    (iv) Amortize principal and interest over the remaining term of the 
license.
    (4) A license granted to an eligible entity that elects installment 
payments shall be conditioned upon the full and timely performance of 
the licensee's payment obligations under the installment plan.
    (i) Any licensee that fails to submit payment on an installment 
obligation will automatically have an additional ninety (90) days in 
which to submit its required payment without being considered 
delinquent. Any licensee making its required payment during this period 
will be assessed a late payment fee equal to five percent (5%) of the 
amount of the past due payment. Late fees assessed under this paragraph 
will accrue on the next business day following the payment due date. 
Payments made at the close of any grace period will first be applied to 
satisfy any lender advances as required under each licensee's ``Note 
and Security Agreement.'' Afterwards, payments will be applied in the 
following order: late charges, interest charges, principal payments.
    (ii) If any licensee fails to make the required payment at the 
close of the 90-day period set forth in paragraph (i) of this section, 
the licensee will automatically be provided with a subsequent 90-day 
grace period. Any licensee making a required payment during this 
subsequent period will be assessed a late payment fee equal to ten 
percent (10%) of the amount of the past due payment. Licensees shall 
not be required to submit any form of request in order to take 
advantage of the initial 90-day non-delinquency period and subsequent 
automatic 90-day grace period. All licensees that avail themselves of 
the automatic grace period must pay the required late fee(s), all 
interest accrued during the non-delinquency and grace periods, and the 
appropriate scheduled payment with the first payment made following the 
conclusion of the grace period.
    (iii) If an eligible entity making installment payments is more 
than one hundred and eighty (180) days delinquent in any payment, it 
shall be in default.
    (iv) Any eligible entity that submits an installment payment after 
the due date but fails to pay any late fee, interest or principal at 
the close of the 90-day non-delinquency period and subsequent automatic 
grace period will be declared in default, its license will 
automatically cancel, and will be subject to debt collection 
procedures.
    (g) The Commission may establish different upfront payment 
requirements for categories of designated entities in competitive 
bidding rules of particular auctionable services.
    (h) The Commission may offer designated entities a combination of 
the available preferences or additional preferences.
    (i) Designated entities must describe on their long-form 
applications how they satisfy the requirements for eligibility for 
designated entity status, and must list and summarize on their long-
form applications all agreements that effect designated entity status, 
such as partnership agreements, shareholder agreements, management 
agreements and other agreements, including oral agreements, which 
establish that the designated entity will have both de facto and de 
jure control of the entity. Such information must be maintained at the 
licensees' facilities or by their designated agents for the term of the 
license in order to enable the Commission to audit designated entity 
eligibility on an ongoing basis.
    (j) The Commission may, on a service-specific basis, permit 
consortia, each member of which individually meets the eligibility 
requirements, to qualify for any designated entity provisions.
    (k) The Commission may, on a service-specific basis, permit 
publicly-traded companies that are owned by members of minority groups 
or women to qualify for any designated entity provisions.
    (l) Audits. (1) Applicants and licensees claiming eligibility under 
this section shall be subject to audits by the Commission, using in-
house and contract resources. Selection for audit may be random, on 
information, or on the basis of other factors.
    (2) Consent to such audits is part of the certification included in 
the short-form application (FCC Form 175). Such consent shall include 
consent to the audit of the applicant's or licensee's books, documents 
and other material (including accounting procedures and practices) 
regardless of form or type, sufficient to confirm that such applicant's 
or licensee's representations are, and remain, accurate. Such consent 
shall include inspection at all reasonable times of the facilities, or 
parts thereof, engaged in providing and transacting business, or 
keeping records regarding FCC-licensed service and shall also include 
consent to the interview of principals, employees, customers and 
suppliers of the applicant or licensee.
    (m) Gross revenues. Gross revenues shall mean all income received 
by an entity, whether earned or passive, before any deductions are made 
for costs of doing business (e.g., cost of goods sold), as evidenced by 
audited financial statements for the relevant number of most recently 
completed calendar years or, if audited financial statements were not 
prepared on a calendar-year basis, for the most recently completed 
fiscal years preceding the filing of the applicant's short-form (FCC 
Form 175). If an entity was not in existence for all or part of the 
relevant period, gross revenues shall be evidenced by the audited 
financial statements of the entity's predecessor-in-interest or, if 
there is no identifiable predecessor-in-interest, unaudited financial 
statements certified by the applicant as accurate. When an applicant 
does not otherwise use audited financial statements, its gross revenues 
may be certified by its chief financial officer or its equivalent and 
must be prepared in accordance with Generally Accepted Accounting 
Principles.
    11. Section 1.2111 is amended by revising paragraphs (c) and (d) 
and adding paragraph (e) to read as follows:


Sec. 1.2111  Assignment or transfer of control: unjust enrichment.

* * * * *
    (c) Unjust enrichment payment: installment financing. (1) If a 
licensee that utilizes installment financing under this section seeks 
to assign or transfer control of its license to an entity not meeting 
the eligibility standards for installment payments, the licensee must 
make full payment of the remaining unpaid principal and any unpaid 
interest accrued through the date of assignment or transfer as a 
condition of approval.
    (2) If a licensee that utilizes installment financing under this 
section seeks to make any change in ownership structure that would 
result in the licensee losing eligibility for installment payments, the 
licensee shall first seek Commission approval and must make full 
payment of the remaining unpaid principal and any unpaid interest 
accrued through the date of such change as a condition of approval. A 
licensee's (or other attributable entity's) increased gross revenues or 
increased total assets due to nonattributable equity investments, debt 
financing, revenue from operations or other investments, business 
development or expanded service shall not be considered to result in 
the licensee losing eligibility for installment payments.
    (3) If a licensee seeks to make any change in ownership that would 
result in the licensee qualifying for a less favorable installment plan 
under this section, the licensee shall seek

[[Page 2347]]

Commission approval and must adjust its payment plan to reflect its new 
eligibility status. A licensee may not switch its payment plan to a 
more favorable plan.
    (d) Unjust enrichment payment: bidding credits. (1) A licensee that 
utilizes a bidding credit, and that during the initial term seeks to 
assign or transfer control of a license to an entity that does not meet 
the eligibility criteria for a bidding credit, will be required to 
reimburse the U.S. Government for the amount of the bidding credit, 
plus interest based on the rate for ten year U.S. Treasury obligations 
applicable on the date the license was granted, as a condition of 
Commission approval of the assignment or transfer. If, within the 
initial term of the license, a licensee that utilizes a bidding credit 
seeks to assign or transfer control of a license to an entity that is 
eligible for a lower bidding credit, the difference between the bidding 
credit obtained by the assigning party and the bidding credit for which 
the acquiring party would qualify, plus interest based on the rate for 
ten year U.S. treasury obligations applicable on the date the license 
is granted, must be paid to the U.S. Government as a condition of 
Commission approval of the assignment or transfer. If, within the 
initial term of the license, a licensee that utilizes a bidding credit 
seeks to make any ownership change that would result in the licensee 
losing eligibility for a bidding credit (or qualifying for a lower 
bidding credit), the amount of the bidding credit (or the difference 
between the bidding credit originally obtained and the bidding credit 
for which the restructured licensee would qualify), plus interest based 
on the rate for ten year U.S. treasury obligations applicable on the 
date the license is granted, must be paid to the U.S. Government as a 
condition of Commission approval of the assignment or transfer.
    (2) Payment schedule. (i) The amount of payments made pursuant to 
paragraph (d)(1) of this section will be reduced over time as follows:
    (A) A transfer in the first two years of the license term will 
result in a forfeiture of 100 percent of the value of the bidding 
credit (or in the case of very small businesses transferring to small 
businesses, 100 percent of the difference between the bidding credit 
received by the former and the bidding credit for which the latter is 
eligible);
    (B) A transfer in year 3 of the license term will result in a 
forfeiture of 75 percent of the value of the bidding credit;
    (C) A transfer in year 4 of the license term will result in a 
forfeiture of 50 percent of the value of the bidding credit;
    (D) A transfer in year 5 of the license term will result in a 
forfeiture of 25 percent of the value of the bidding credit; and
    (E) for a transfer in year 6 or thereafter, there will be no 
payment.
    (ii) These payments will have to be paid to the United States 
Treasury as a condition of approval of the assignment, transfer, or 
ownership change.
    (e) Unjust enrichment: partitioning and disaggregation. (1) 
Installment payments. Licensees making installment payments, that 
partition their licenses or disaggregate their spectrum to entities not 
meeting the eligibility standards for installment payments, will be 
subject to the provisions concerning unjust enrichment as set forth in 
this section.
    (2) Bidding credits. Licensees that received a bidding credit that 
partition their licenses or disaggregate their spectrum to entities not 
meeting the eligibility standards for such a bidding credit, will be 
subject to the provisions concerning unjust enrichment as set forth in 
this section.
    (3) Apportioning unjust enrichment payments. Unjust enrichment 
payments for partitioned license areas shall be calculated based upon 
the ratio of the population of the partitioned license area to the 
overall population of the license area and by utilizing the most recent 
census data. Unjust enrichment payments for disaggregated spectrum 
shall be calculated based upon the ratio of the amount of spectrum 
disaggregated to the amount of spectrum held by the licensee.
    12. Section 1.2112 is added to read as follows:


Sec. 1.2112  Ownership disclosure requirements for short- and long-form 
applications.

    (a) Each application for a license or authorization or for consent 
to assign or transfer control of a license or authorization shall 
disclose fully the real party or parties in interest and must include 
in an exhibit the following information:
    (1) A list of any FCC-regulated business 10 percent or more of 
whose stock, warrants, options or debt securities are owned by the 
applicant or an officer, director, attributable stockholder or key 
management personnel of the applicant. This list must include a 
description of each such business's principal business and a 
description of each such business's relationship to the applicant;
    (2) A list of any party holding a 10 percent or greater interest in 
the applicant, including the specific amount of the interest;
    (3) A list of any party holding a 10 percent or greater interest in 
any entity holding or applying for any FCC-regulated business in which 
a 10 percent or more interest is held by another party which holds a 10 
percent or more interest in the applicant (e.g., If company A owns 10 
percent of Company B (the applicant) and 10 percent of Company C then 
Companies A and C must be listed on Company B's application;
    (4) A list of the names, addresses, and citizenship of any party 
holding 10 percent or more of each class of stock, warrants, options or 
debt securities together with the amount and percentage held;
    (5) A list of the names, addresses, and citizenship of all 
controlling interests of the applicants, as set forth in Sec. 1.2110;
    (6) In the case of a general partnerships, the name, address and 
citizenship of each partner, and the share or interest participation in 
the partnership;
    (7) In the case of a limited partnerships, the name, address and 
citizenship of each limited partner whose interest in the applicant is 
equal to or greater than 10 percent (as calculated according to the 
percentage of equity paid in and the percentage of distribution of 
profits and losses);
    (8) In the case of a limited liability corporation, the name, 
address and citizenship of each of its members; and
    (9) A list of all parties holding indirect ownership interests in 
the applicant, as determined by successive multiplication of the 
ownership percentages for each link in the vertical ownership chain, 
that equals 10 percent or more of the applicant, except that if the 
ownership percentage for an interest in any link in the chain exceeds 
50 percent or represents actual control, it shall be treated and 
reported as if it were a 100 percent interest.
    (b) In addition to the information required under paragraph (a) of 
this section, each applicant for a license or authorization claiming 
status as a small business shall, as an exhibit to its long-form 
application:
    (1) Disclose separately and in the aggregate the gross revenues, 
computed in accordance with Sec. 1.2110, for each of the following: the 
applicant and its affiliates, the applicant's attributable investors, 
affiliates of its attributable investors, and, if a consortium of small 
businesses, the members comprising the consortium;
    (2) List and summarize all agreements or instruments (with 
appropriate references to specific provisions in the

[[Page 2348]]

text of such agreements and instruments) that support the applicant's 
eligibility as a small business under the applicable designated entity 
provisions, including the establishment of de facto and de jure 
control; such agreements and instruments include articles of 
incorporation and bylaws, shareholder agreements, voting or other trust 
agreements, franchise agreements, and any other relevant agreements 
(including letters of intent), oral or written; and
    (3) List and summarize any investor protection agreements, 
including rights of first refusal, supermajority clauses, options, veto 
rights, and rights to hire and fire employees and to appoint members to 
boards of directors or management committees.
    13. Section 1.2113 is added to read as follows:


Sec. 1.2113  Construction prior to grant of application.

    Subject to the provisions of this section, applicants for licenses 
awarded by competitive bidding may construct facilities to provide 
service prior to grant of their applications, but must not operate such 
facilities until the FCC grants an authorization. If the conditions 
stated in this section are not met, applicants must not begin to 
construct facilities for licenses subject to competitive bidding.
    (a) When applicants may begin construction. An applicant may begin 
construction of a facility upon release of the Public Notice listing 
the post-auction long-form application for that facility as acceptable 
for filing.
    (b) Notification to stop. If the FCC for any reason determines that 
construction should not be started or should be stopped while an 
application is pending, and so notifies the applicant, orally (followed 
by written confirmation) or in writing, the applicant must not begin 
construction or, if construction has begun, must stop construction 
immediately.
    (c) Assumption of risk. Applicants that begin construction pursuant 
to this section before receiving an authorization do so at their own 
risk and have no recourse against the United States for any losses 
resulting from:
    (1) Applications that are not granted;
    (2) Errors or delays in issuing public notices;
    (3) Having to alter, relocate or dismantle the facility; or
    (4) Incurring whatever costs may be necessary to bring the facility 
into compliance with applicable laws, or FCC rules and orders.
    (d) Conditions. Except as indicated, all pre-grant construction is 
subject to the following conditions:
    (1) The application does not include a request for a waiver of one 
or more FCC rules;
    (2) For any construction or alteration that would exceed the 
requirements of Sec. 17.7 of this chapter, the licensee has notified 
the appropriate Regional Office of the Federal Aviation Administration 
(FAA Form 7460-1), filed a request for antenna height clearance and 
obstruction marking and lighting specifications (FCC Form 854) with the 
FCC, PRB, Support Services Branch, Gettysburg, PA 17325;
    (3) The applicant has indicated in the application that the 
proposed facility would not have a significant environmental effect, in 
accordance with Secs. 1.1301 through 1.1319;
    (4) Under applicable international agreements and rules in this 
part, individual coordination of the proposed channel assignment(s) 
with a foreign administration is not required; and
    (5) Any service-specific restrictions not listed herein.

PART 21--DOMESTIC PUBLIC FIXED RADIO SERVICES

    14. The authority citation for part 21 continues to read as 
follows:

    Authority: Secs. 1, 2, 4, 201-205, 208, 215, 218, 303, 307, 313, 
403, 404, 410, 602, 48 Stat. as amended, 1064, 1066, 1070-1073, 
1076, 1077, 1080, 1082, 1083, 1087, 1094, 1098, 1102; 47 U.S.C. 151, 
154, 201-205, 208, 215, 218, 303, 307, 313, 314, 403, 404, 602; 47 
U.S.C. 552, 554, unless otherwise noted.

    15. Section 21.959 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 21.959  Withdrawal, default, and disqualification.

* * * * *
    (a) * * *
    (2) Default or disqualification after close of auction. See 
Sec. 1.2104 (g)(2) of this chapter.
* * * * *
    16. Section 21.960 is amended by revising paragraphs (b)(4) and 
(d)(1) to read as follows:


Sec. 21.960  Designated entity provisions for MDS.

* * * * *
    (b) * * *
    (4) Conditions and obligations. See Sec. 1.2110(f)(4) of this 
chapter.
* * * * *
    (d) * * *
    (1) Unjust enrichment. See Sec. 1.2111 of this chapter.
* * * * *

PART 24--PERSONAL COMMUNICATIONS SERVICES

    17. The authority citation for part 24 continues to read as 
follows:

    Authority: 47 U.S.C. Sections 154, 301, 302, 303, and 332, 
unless otherwise noted.

    18. Section 24.304 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 24.304  Withdrawal, default and disqualification penalties.

    (a) * * *
    (2) Default or disqualification after close of auction. See 
Sec. 1.2104(g)(2) of this chapter.
* * * * *
    19. Section 24.309 is amended by revising paragraphs (b) and (f) to 
read as follows:


Sec. 24.309  Designated entities

* * * * *
    (b) Designated entities will be eligible for certain special 
narrowband PCS provisions as follows:
    (1) Installment payments. (i) Small businesses, including small 
businesses owned by members of minority groups and women, will be 
eligible to pay the full amount of their winning bids on any regional, 
MTA or BTA license in installments over the term of the license 
pursuant to the terms set forth in Sec. 1.2110(g) of this chapter.
    (ii) Businesses owned by members of minority groups and women that 
are winning bidders for the regional licenses indicated by an (**) in 
Sec. 24.129 may pay the full amount of their winning bids (less the 
applicable bidding credit and down payment) in installments with
    (A) Interest imposed based on the rate for ten-year U.S. Treasury 
obligations applicable on the date the license is granted, plus 2.5 
percent;
    (B) Interest-only payments for the first two years; and
    (C) Principal and interest payments amortized over the remaining 
eight years of the license.
    (2) Bidding credits. Businesses owned by member of minority groups 
and women, including small businesses owned by members of minority 
groups and women, will be eligible for a twenty-five (25) percent 
bidding credit when bidding on the following licenses:
    (i) The nationwide licenses on Channel 5, Channel 8 and Channel 11; 
and
    (ii) All MTA licenses on Channel 19, Channel 22, Channel 24; and
    (iii) All BTA licenses on Channel 26. This bidding credit will 
reduce by 25 percent the bid price that businesses owned by members of 
minority groups

[[Page 2349]]

and women will be required to pay to obtain a license. Businesses owned 
by women and/or minorities, including small businesses owned by women 
and/or minorities will be eligible for a forty (40) percent bidding 
credit when bidding on all regional licenses on Channel 13 and Channel 
17. In Sec. 24.129, the licenses that will be eligible for 25 percent 
bidding credits are indicated by an (*); the licenses that will be 
eligible for 40 percent bidding credits are indicated by an (**).
* * * * *
    (f) Unjust enrichment. Designated entities using installment 
payments, bidding credits or tax certificates to obtain a narrowband 
PCS license will be subject to the unjust enrichment provisions 
contained in Sec. 1.2111 of this chapter.
    20. Section 24.704 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 24.704  Withdrawal, default and disqualification penalties.

    (a) * * *
    (2) Default or disqualification after close of auction. See 
Sec. 1.2104(g)(2) of this chapter.
* * * * *
    21. Section 24.711 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec. 24.711  Upfront payments, down payments and installment payments 
for licenses for frequency Block C.

* * * * *
    (b) Installment payments. Each eligible licensee of frequency Block 
C or F may pay the remaining 90 percent of the net auction price for 
the license in installment payments pursuant to Sec. 1.2110(g) of this 
chapter and under the following terms:
    (1) For an eligible licensee with gross revenues exceeding $75 
million (calculated in accordance with Sec. 24.709(a)(2) and (b)) in 
each of the two preceding years (calculated in accordance with 
Sec. 24.720(f)), interest shall be imposed based on the rate for ten-
year U.S. Treasury obligations applicable on the date the license is 
granted, plus 3.5 percent; payments shall include both principal and 
interest amortized over the term of the license.
    (2) For an eligible licensee with gross revenues not exceeding $75 
million (calculated in accordance with Sec. 24.709(a)(2) and (b)) in 
each of the two preceding years, interest shall be imposed based on the 
rate for ten-year U.S. Treasury obligations applicable on the date the 
license is granted, plus 2.5 percent; payments shall include interest 
only for the first year and payments of interest and principal 
amortized over the remaining nine years of the license term.
    (3) For an eligible licensee that qualifies as a Small business or 
as a consortium of small businesses, interest shall be imposed based on 
the rate for ten-year U.S. Treasury obligations applicable on the date 
the license is granted, plus 2.5 percent; payments shall include 
interest only for the first two years and payments of interest and 
principal amortized over the remaining eight years of the license term.
    (4) For an eligible licensee that qualifies as a business owned by 
members of minority groups and/or women, interest shall be imposed 
based on the rate for ten-year U.S. Treasury obligations applicable on 
the date the license is granted; payments shall include interest only 
for the first three years and payments of interest and principal 
amortized over the remaining seven years of the license term.
    (5) For an eligible licensee that qualifies as a small business 
owned by members of minority groups and/or women or as a consortium of 
small business owned by members of minority groups and/or women, 
interest shall be imposed based on the rate for ten-year U.S. Treasury 
obligations applicable on the date the license is granted; payments 
shall include interest only for the first six years and payments of 
interest and principal amortized over the remaining four years of the 
license term.
    (c) Unjust enrichment. See Sec. 1.2111 of this chapter.
    22. Section 24.712 is amended by adding paragraph (c) to read as 
follows:


Sec. 24.712  Bidding credits for licenses for frequency Block C.

* * * * *
    (c) Unjust enrichment. See Sec. 1.2111 of this chapter.
    23. Section 24.716 is amended by revising paragraph (c) and (d) to 
read as follows:


Sec. 24.716  Upfront payments, down payments, and installment payments 
for licenses for frequency Block F.

* * * * *
    (c) Late installment payments. See Sec. 1.2110(f)(4) of this 
chapter.
    (d) Unjust enrichment. See Sec. 1.2111 of this chapter.
    24. Section 24.717 is amended by revising paragraph (c) to read as 
follows:


Sec. 24. 717  Bidding credits for licenses for frequency Block F.

* * * * *
    (c) Unjust enrichment. See Sec. 1.2111 of this chapter.

PART 27--WIRELESS COMMUNICATIONS SERVICE

    25. The authority citation for part 27 continues to read as 
follows:

    Authority: 47 U.S.C. Sections 154, 301, 302, 303, 307, 309 and 
332, unless otherwise noted.

    26. Section 27.203 is amended by revising paragraph (b) to read as 
follows:


Sec. 27.203  Withdrawal, default and disqualification payments.

* * * * *
    (b) Default or disqualification after close of auction. See 
Sec. 1.2104(g)(2) of this chapter.
    27. Section 27.209 is amended by revising paragraph (d) to read as 
follows:


Sec. 27.209  Designated entities; bidding credits; unjust enrichment.

* * * * *
    (d) Unjust enrichment. See Sec. 1.2111 of this chapter.

PART 90--PRIVATE LAND MOBILE RADIO SERVICES

    28. The authority citation for part 90 continues to read as 
follows:

    Authority: Secs. 4, 251-2, 303, 309 and 332, 48 Stat. 1066, 
1082, as amended; 47 U.S.C. 154, 251-2, 303, 309 and 332, unless 
otherwise noted.

    29. Section 90.805 is amended by revising paragraph (c) to read as 
follows:


Sec. 90.805  Withdrawal, default and disqualification payments.

* * * * *
    (c) Default or disqualification after close of auction. See 
Sec. 1.2104 (g)(2) of this chapter.
    30. Section 90.812 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec. 90.812  Installment payments for licensees won by small 
businesses.

    (a) Installment payments. See Sec. 1.2110(f)(4) of this chapter.
    (b) Unjust enrichment. See Sec. 1.2111(c) of this chapter.

PART 95--PERSONAL RADIO SERVICES

    31. The authority citation for part 95 continues to read as 
follows:

    Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47 
U.S.C. 154, 303.

    32. Section 95.816 is amended by revising paragraphs (c)(6) and (e) 
to read as follows:


Sec. 95.816  Competitive bidding proceedings.

* * * * *

[[Page 2350]]

    (c) * * *
    (6) Default or disqualification. See Sec. 1.2104 (g)(2) of this 
chapter.
* * * * *
    (e) Unjust enrichment. See Sec. 1.2111 of this chapter.
* * * * *
[FR Doc. 98-823 Filed 1-14-98; 8:45 am]
BILLING CODE 6712-01-P