[Federal Register Volume 63, Number 15 (Friday, January 23, 1998)]
[Notices]
[Pages 3572-3574]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1608]
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FEDERAL COMMUNICATIONS COMMISSION
[DA 98-37]
Wireless Telecommunications Bureau Responds to Questions About
the Local Multipoint Distribution Service Auction
Released: January 9, 1998.
Over the past weeks, the Wireless Telecommunications Bureau
(``Bureau'') has received numerous inquiries concerning the auction
rules and eligibility requirements for the Local Multipoint
Distribution Service (``LMDS'') auction scheduled to commence on
February 18, 1998. In this Public Notice, the staff provides guidance
on a range of issues involving the rules for the LMDS auction.
The service and auction rules pertaining to LMDS are found in parts
1 and 101 of the Commission's rules (Title 47 of the Code of Federal
Regulations). The Commission's rules governing eligibility for bidding
credits were established to ensure that small businesses, rural
telephone companies, and businesses owned by members of minority groups
and/or women (collectively referred to as ``designated entities'' or
``DEs'') are provided meaningful opportunities to compete in the
provision of LMDS. These rules are primarily addressed in the LMDS
Second Report and Order, the LMDS Order on Reconsideration, and the
LMDS Second Order on Reconsideration. Additional auction information is
provided to potential bidders in a comprehensive Bidder Information
Package. This package contains guidelines regarding pre-auction
procedures, the auction event, and post-auction procedures. (Interested
parties can order an LMDS Bidder Information Package by calling (888)
225-5322, Option #2. Applicants are entitled to one free LMDS Bidder
Information Package; additional copies cost $16 each.) The Bureau will
release a public notice setting forth minimum opening bids for the LMDS
auction prior to the FCC Form 175 short form filing deadline.
Many of the inquiries the Bureau has received are based on the
inquiring parties' specific circumstances. The Bureau has recast the
most frequently asked questions in more general terms in order to
provide guidance to a larger group of interested parties. Potential
applicants should understand that the advice and rule interpretations
provided in this Public Notice constitute informal staff opinion, not
official Commission decisions or rulings.
I. General Ownership Issues
Q: When disclosing ownership information on the FCC Form 175,
should applicants report all entities that hold a five percent or
greater voting (control) interest or other economic interest?
A: In previous services (e.g., broadband PCS), the Commission
specifically required that applicants report all entities that held
interests in the applicant of five percent or more that also held or
were applying for CMRS or PMRS licenses. For LMDS, applicants must
comply with the general reporting rule set forth in Part 1 of the
Commission's rules, which is less specific about which entities must be
identified. By identifying on Attachment A to their FCC Forms 175 all
entities holding five percent or greater interests in the applicant
that also hold or are applying for CMRS or PMRS licenses, applicants
will assist themselves in identifying entities with which they must
avoid contact pursuant to the anti-collusion rule. Applicants should be
aware that at the long-form application stage, they will be subject to
the reporting requirements contained in the newly adopted Part 1
ownership disclosure rule.
Q: Can new non-controlling investors be added after the FCC Form
175 is filed and throughout the auction?
A: New non-controlling investors can be added after the FCC Form
175 is filed and throughout the duration of the auction, provided their
addition does not result in a change of control of the applicant. An
applicant should amend its FCC Form 175 within 10 business days of any
change, and should provide notice of the change by letter addressed to
Kathleen O'Brien Ham, Chief, Auctions and Industry Analysis Division,
Wireless Telecommunications Bureau, 2025 M Street, N.W., Suite 5202,
Washington, D.C. 20554, with a copy filed with the Office of the
Secretary, 1919 M Street, N.W., Washington, D.C. 20554.
Q: When an applicant is a consortium, can only one member of the
consortium conduct bidding during the auction? What if a member of a
consortium decides to withdraw during the auction?
A: A consortium is defined 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.'' Where an applicant is
a consortium, the gross revenues of its members are not aggregated. The
definition of consortium does not prohibit one member from placing the
bids for the consortium as a whole.
Because each member of a consortium must individually satisfy the
definition of a very small business, small business, or entrepreneur at
the FCC Form 175 filing deadline, members may withdraw during the
course of the auction, or afterward, without endangering the treatment
of the consortium. The withdrawal of a member would merely change the
composition of the consortium, and should be reflected in a filing with
the Commission. On the other hand, adding a new member to a consortium
after the FCC Form 175 filing deadline will not be permitted because
the filing deadline is the cut-off date for determinations of whether
applicants meet the definitions of very small business, small business,
or entrepreneur.
II. Foreign Ownership Issues
Q: How much foreign ownership of a licensee is permissible? Can
LMDS applicants seek more than 25 percent indirect foreign ownership?
A: Section 310(a) of the Communications Act of 1934, as amended
(``Communications Act''), prohibits granting any wireless license to a
foreign government or a representative thereof. Section 310(b) of the
Communications Act imposes restrictions on the foreign ownership of
common carrier, broadcast, and aeronautical licensees. Under this
section, the Commission may not grant a common carrier wireless license
to an alien, the representative of an alien, any corporation organized
under the laws of any foreign government, or any corporation of which
more than 20 percent is owned by foreign entities. Section 310(b)(4)
imposes additional restrictions on the foreign ownership of the parent
corporation of a common carrier licensee, specifically that no common
carrier license shall be granted to or held by ``any corporation
directly or indirectly controlled by any other corporation of which
more than one-fourth of the capital stock is owned of record or voted
by aliens * * * or by any corporation organized under the laws of a
foreign country . . . if the Commission finds that the public interest
will be served by the refusal or revocation of such license.'' Under
the Foreign Participation Order, the Commission recently liberalized
its
[[Page 3573]]
rules for determining when refusal or revocation would serve the public
interest. The final rules set forth in the Foreign Participation Order
will not become effective before February 9, 1998. Any applicant that
is controlled by a corporation with more than 25 percent foreign
ownership, or which seeks to exceed that limit, must inform the
Commission in a separate petition for declaratory ruling. The
Commission will accept petitions for declaratory ruling immediately,
but will not necessarily rule on them prior to the auction start date.
Because applicants must certify on their short form applications that
they are in compliance with the foreign ownership provisions of Section
310 of the Communications Act, applicants filing petitions for
declaratory rulings must reference their pending petitions in their
short form applications. Applicants seeking foreign investment should
familiarize themselves with the Foreign Participation Order,
particularly Section III.D. That order is available from the
Commission's web site at <http://www.fcc.gov/ib/wto.html>.
III. Bidding Credits and Eligibility Issues
Q: What constitutes gross revenues as described in 47 CFR 101.1112?
A: Gross revenues include all income received by an entity, whether
earned or passive, before any deductions are made for the costs of
doing business, as evidenced by audited financial statements for the
preceding three years. If an entity was not in existence for the entire
preceding three years, gross revenues shall be evidenced by 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. The Commission will
evaluate applicants' gross revenues as they are reflected in financial
statements prepared in accordance with generally accepted accounting
principles.
Q: Now that the auction has been rescheduled for February 18, 1998,
will the Commission require applicants to provide audited financial
statements for 1997?
A: Applicants must furnish evidence of their gross revenues based
upon their most recently-completed audited financial statements. Thus,
if audited financial statements for calendar year 1997 have not been
fully prepared by the FCC Form 175 filing deadline of January 20, 1998,
audited statements for the years 1994, 1995, and 1996 will suffice.
Q: Are the gross revenues of an applicant's affiliates counted in
determining that applicant's eligibility for a bidding credit?
A: Yes. An applicant must aggregate the gross revenues of all
affiliates, as defined in 47 CFR 101.1112(h), in order to determine its
bidding credit eligibility.
Q: When determining eligibility for bidding credits, will the gross
revenues of individuals who are affiliates be included in determining
the bidder's gross revenues? Is there a conceivable instance when an
individual's gross revenues will affect an applicant's eligibility for
a bidding credit?
A: This issue has been raised on reconsideration in another
proceeding and the Bureau refrains from directly addressing it at this
point. However, the Bureau notes that for LMDS, the Commission did not
adopt a rule that attributes personal net worth for purposes of
determining eligibility. Personal net worth has been defined as ``the
market value of all assets (real and personal, tangible and intangible)
owned by an individual, less all liabilities (including personal
guarantees) owed by the individual in his individual capacity or as a
joint obligor.'' In other services (i.e., broadband PCS), the
Commission eliminated a personal net worth test, concluding that ``the
affiliation rules make the personal net worth rules largely unnecessary
since most wealthy individuals are likely to have their wealth closely
tied to ownership of another business.''
Q: Is there a minimum equity requirement for controlling small
business principals?
A: No. However, the Bureau cautions that the absence of equity in
the hands of controlling small business principals could raise
questions about whether the applicant itself qualifies as a bona fide
small business. For instance, if a single party holds de jure control,
as evidenced by ownership of 50.1 percent of the voting stock, this
party must also hold de facto control in order to be considered a
controlling principal. If no single party has de jure control of the
applicant, de facto control factors will determine who controls the
applicant. By way of comparison, in broadband PCS, controlling
principals were required to hold at least 15 percent of the applicant's
total equity under one particular business structure.
Q: Does the bidding credit schedule adopted in the Commission's
Part 1 Proceeding apply to LMDS?
A: No. LMDS has a specific bidding credit rule that is not affected
by the Part 1 rule changes.
IV. Anti-Collusion Rule Issues
Q: What conduct constitutes a violation of the Commission's anti-
collusion rule?
A: After the deadline for submission of the FCC Form 175,
applicants may not discuss the substance of their bids or bidding
strategies with other bidders that have applied to bid in the same
geographic license areas, with the exception of those with which they
have entered into agreements identified on the FCC Form 175. The term
``applicant'' includes the entity that submits an application for
auction participation, owners of five percent or more of that entity,
and all officers and directors of that entity. (But see part 1 at para.
164 (which changes the attribution level of the anti-collusion rule to
10 percent; however, this rule does not apply to the LMDS auction. The
new part 1 rules, with the exception of rules pertaining to post-
auction payment and long-form application obligations, will apply only
to auctions commencing after the new rules' effective date)). The rule
also prohibits the transfer of indirect information which affects, or
could affect, bids or bidding strategy. All bidding arrangements must
be disclosed on an applicant's short form application. Auction
applicants who have applied for licenses in the same geographic areas,
and who are also licensees or applicants for licenses in the same or
competing services, must affirmatively avoid all communications with
each other that affect, or have the potential to affect, their bids or
bidding strategy. This does not mean that all business negotiations
between bidders for the same markets are prohibited; however, the
Bureau recommends that bidders for the same markets exercise caution
when engaging in such discussions.
Q: Do public statements such as ``we want to win 10 million pops''
or ``we want to win top markets'' or ``we have $5 million to spend''
constitute disclosures of bids or bidding strategy?
A: Public statements can give rise to collusion concerns. This has
occurred in the antitrust context, where certain public statements can
support other evidence which tends to indicate the existence of a
conspiracy. The Bureau therefore urges bidders for common markets to
exercise caution when making public statements about their bids or
bidding strategies.
Q: If an applicant files an FCC Form 175 prior to the filing
deadline of January 20, 1998, may this applicant speak with other
potential applicants during the time between its filing and the
deadline? In other words, at what
[[Page 3574]]
point are two parties considered to be competing for the same market?
A: An FCC Form 175 is considered officially filed upon the filing
deadline, regardless of whether it was actually filed one day or one
month prior to the deadline. Changes to electronically filed
applications can be made any time prior to the filing deadline on
January 20, 1998, and applicants cannot view each others'
electronically filed applications prior to that deadline. Thus, parties
are not considered to be competing for the same market until the window
for submitting applications closes at 5:30 p.m., ET, on January 20,
1998.
Q: Can an individual act as the authorized bidder and place bids
for two or more applicants who are competing for one or more of the
same markets? What if different individuals who are employed by the
same organization place bids for applicants in competing markets?
A: A violation of the anti-collusion rule could occur if an
individual acts as the authorized bidder for two or more competing
applicants, and conveys information concerning the substance of bids or
bidding strategies between the bidders he/she is authorized to
represent in the auction. Also, if the authorized bidders are different
individuals employed by the same organization, a violation could
similarly occur. In such instances, the Bureau strongly encourages
applicants to certify on their application that precautionary steps
(e.g., establishing a ``Chinese wall'') have been taken to prevent
communication between authorized bidders and that applicants and their
bidding agents will comply with the anti-collusion rule.
V. Technical Issues
Q: In bands where Mobile Satellite Service (``MSS'') feeder links
are permitted, is uplink transmission (subscriber end) allowed if there
is no MSS licensee operating?
A: No. The interference analyses conducted indicated that
subscribers' transceivers potentially are major interferers to MSS
feeder link earth station satellite receivers because of the elevation
angles many will be employing. The satellites to be deployed in these
MSS systems will be orbiting in different planes over the United
States. Therefore, there is the potential for them to become aligned
with the beam of a subscriber transceiver at any location in the United
States. To review those analyses, see the Report of the LMDS/FSS 28 GHz
Band Negotiated Rulemaking Committee, CC Docket No. 92-297 (September
23, 1994).
Q: What are the deadlines for 31 GHz incumbents to vacate the 31
GHz middle band?
A: Incumbent 31 GHz licensees were provided 75 days after the
effective date of the LMDS service rules to request modification of
their licenses to relocate to the outer two 75 megahertz blocks of the
31 GHz band. Failure to do so means that such incumbent operations
become secondary to LMDS operations in the middle band. This means that
LMDS operators are not required to protect these incumbent operations
from interference, nor are the incumbent operations permitted to cause
interference to LMDS systems. Of course, these incumbents can relocate
to other bands or other transmission media at any time.
VI. Miscellaneous
Q: Will the Commission inform applicants of the minimum opening bid
for each BTA license prior to the FCC Form 175 filing deadline of
January 20, 1998?
A: Yes. The Bureau released a Public Notice on October 17, 1997,
seeking comment on minimum opening bid proposals. Comments were due on
November 5, 1997, with reply comments due on November 10, 1997. A
subsequent Public Notice extended the reply comment deadline to
December 1, 1997. Prior to January 20, 1998, the Bureau will release a
public notice setting forth a minimum opening bid for each license.
Q: What is the Commission's calculation to convert ILEC access
lines to pops for purposes of the 10 percent in-region calculation?
A: The Commission has not developed a calculation to convert access
lines to pops. The ILEC should determine the geographic area that it
serves and then use census data for determining the population of that
area.
Q: What are the consequences if an applicant fails to complete
properly the FCC Form 175?
A: An applicant is solely responsible for the true, accurate, and
complete submission of its FCC Form 175, and incomplete or inaccurate
FCC Forms 175 may be rejected or required to be refiled. The Commission
checks FCC Forms 175 for deficiencies that would affect their initial
acceptability, and will act to apprise applicants of deficiencies after
initial review. Applicants are then given an opportunity to cure such
deficiencies. Once a corrected application is resubmitted, however, no
major amendments can occur. This would include, for example, changes to
bidding credits.
Q: Does the must-carry rule apply to LMDS for license holders who
wish to provide television service?
A: No. According to the Communications Act, the must-carry rule
applies only to cable operators. Cable operators are defined as persons
who provide cable service to subscribers, and cable service is defined
as one-way transmission of video or other programming by means of a set
of closed transmission paths. As a two-way wireless service, LMDS is
not subject to must-carry requirements.
Q: Will the bidding software be supported by Windows 95?
A: While the auction software has been known to work with Windows
95, Microsoft has not yet affirmed supportability. Until Microsoft
makes that determination, use of the auction software with Windows 95
is solely at the bidder's own risk.
Q: Will the Commission provide applicants a list of proposed and
licensed MSS feeder link earth station sites?
A: Yes. The list is attached to this Public Notice as Attachment A.
Q: Is the Commission considering the authorization of any other
two-way video services in the near future?
A: Yes. Bidders should be aware that the Commission's Mass Media
Bureau is conducting a proceeding in which additional spectrum for the
Multipoint Distribution Service (``MDS'') is being discussed. Comments
in that proceeding were due December 9, 1997, and reply comments are
due January 8, 1998.
Bidders should also be aware that the 39 GHz band has the potential
for point-to-multipoint service.
Federal Communications Commission.
William F. Caton,
Deputy Secretary.
[FR Doc. 98-1608 Filed 1-22-98; 8:45 am]
BILLING CODE 6712-01-P