[Federal Register Volume 63, Number 22 (Tuesday, February 3, 1998)]
[Notices]
[Pages 5522-5540]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2610]


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FEDERAL COMMUNICATIONS COMMISSION

[DA 98-66]


Minimum Opening Bids or Reserve Prices

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: By this Order, the Wireless Telecommunications Bureau of the 
FCC (``Bureau'') establishes minimum opening bid requirements for the 
auction of 986 Local Multipoint Distribution Service (LMDS) licenses 
set to begin February 18, 1998. The Balanced Budget Act of 1997 creates 
a presumption that the use of minimum opening bids or reserve prices is 
in the public interest in FCC auctions unless the Commission determines 
otherwise. Commenters have failed to persuade the Bureau that the use 
of minimum opening bids or reserve prices is contrary to the public 
interest in this instance. Accordingly, the Bureau adopts minimum 
opening bids, subject to reduction, and establishes a formula for 
calculating the minimum opening bids.

EFFECTIVE DATE: February 3, 1998.

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

SUPPLEMENTARY INFORMATION: This is a summary of an Order adopted 
January 14, 1998, and released January 14, 1998. The text of the Order 
is available for inspection and copying during normal business hours in 
the FCC Reference Center (Room 239), 1919 M Street, N.W., Washington, 
D.C. and also may be purchased from the Commission's copy contractor, 
International Transcription Services Inc. (ITS, Inc.) 1231 20th Street, 
N.W., Washington, D.C. 20036, (2020) 857-3800.

Synopsis of the Order

Background

    1. The Balanced Budget Act of 1997 directs the Commission to 
prescribe methods to establish reasonable reserve prices or minimum 
opening bids for licenses subject to auction, unless the Commission 
determines that such reserve prices or minimum opening bids are not in 
the public interest. On October 17, 1997, the Bureau sought comment by 
Public Notice regarding the establishment of reserve prices or minimum 
opening bids, Public Notice, ``Comments Sought on Reserve Prices or 
Minimum Opening Bids for LMDS Auction,'' DA 97-2224, 62 FR 55642-01 
(October 27, 1997).
    2. In the October 17 Public Notice, the Bureau proposed to 
establish minimum opening bids for the LMDS auction and retain 
discretion to lower the minimum opening bids. The October 17 Public 
Notice stated the Bureau's belief that minimum opening bids were more 
appropriate for LMDS than reserve prices. The Bureau noted that a 
minimum opening bid can be an effective bidding tool that regulates the 
pace of the auction and provides flexibility.
    3. In the October 17 Public Notice, the Bureau proposed the 
following formula for calculating minimum opening bids for the LMDS 
auction:

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       Population of license area              A block min. opening bid            B block min. opening bid     
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Less than 100,000.......................  $0.75  x  population..............  10% of A Block.                   
 100,000-1,000,000......................  1.50  x  population...............  10% of A Block.                   
More than 1,000,000.....................  2.25  x  population...............  10% of A Block.                   
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The Bureau sought comment on this proposal. The Bureau also asked that 
commenters who believed that the proposed formula would result in 
substantial numbers of unsold licenses, or is not a reasonable amount, 
or should instead operate as a reserve price, explain why this is so, 
and comment on the desirability of an alternative approach. Commenters 
were advised to support their claims with valuation analyses and 
suggested reserve prices or minimum opening bid levels or formulas. 
Alternatively, the Bureau sought comment on whether, consistent with 
the Balanced Budget Act, the public interest dictates having no minimum 
opening bid or reserve price.
    4. Comments. Most commenters favor reducible minimum opening bids 
over reserve prices. Commenters in favor of minimum opening bids 
believe they have the ability to greatly speed the auction, ensure the 
licenses are not dramatically undervalued, deter frivolous bidders, 
ensure fair recovery for the public, and provide immediate feedback on 
appropriateness of the floor price set as opposed to a reserve price. 
Several commenters cite the importance of being able to reduce the 
amount of the minimum opening bid to guard against the risk of setting 
the opening bid too high, as spectrum valuation is very difficult.
    5. Those commenters who oppose minimum opening bids do so for a 
variety of reasons. Several allege that minimum opening bids will work 
against an open market concept. One commenter argues that they will 
work against broad participation, and another asserts that they are not 
needed because this auction will be competitive. Some commenters oppose 
minimum opening bids for certain markets by asserting, for example, 
that they are not appropriate for Basic Trading Areas (BTAs) with 
population density under 75 persons per square mile, or that they are 
not appropriate for anything below the top 100 markets. Commenters also 
allege that there is a risk that they may be set above fair market 
value and delay service to the public, and they will hurt small 
businesses. Finally, many commenters opposing minimum opening bids 
argue that they cannot be appropriately set because valuation is very 
difficult due to geography, complexity of service and propagation, and 
lack of existing systems.
    6. Many commenters state, however, that if minimum opening bids are 
adopted, they should be lower than those proposed. Commenters offer 
several alternatives, including: setting them equal to the upfront 
payment; setting them at one-third of the upfront payment; establishing 
no minimum bid on markets with fewer than 50 persons per square mile; 
establishing a ceiling for the minimum opening bids at $0.40 per pop; 
adding a fourth tier and using a lower value; setting a single dollar

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amount minimum opening bid for each tier; and finally, if population 
density is under 25 persons per square mile, set the minimum opening 
bid at 25 percent of the comparable opening bid of places with higher 
density population. A commenter also offers a proposal for reducing the 
minimum opening bid during the course of the auction.
    7. Several commenters argue that minimum opening bids or reserve 
prices in LMDS are not in the public interest because they don't foster 
competition, will be arbitrary, will require a delay in the auction per 
the Budget Act, will result in a substantial number of unsold licenses, 
will harm the ability of small businesses to participate and delay, or 
eliminate LMDS in rural areas. Another commenter, however, argues that 
minimum bids are in the public interest because they will ensure that 
only serious parties participate, deter speculators, and have the 
potential to speed the auction by eliminating ``low ball'' speculation.

Discussion

    8. The Bureau adopts minimum opening bids for the LMDS auction that 
are reducible at its discretion. The levels will be set as follows:

                                                                                                                
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     Population of the license area            A block min. opening bid            B block min. opening bid     
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Less than 100,000.......................  $0.50  x  population..............  10% of A Block.                   
100,000-1,000,000.......................  1.00  x  population...............  10% of A Block.                   
More than 1,000,000.....................  2.25  x  population...............  10% of A Block.                   
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    9. As was the case in prescribing minimum opening bids in the 
auction of the upper channels in the 800 MHz SMR service, Congress has 
enacted a presumption that unless the Commission determines otherwise, 
minimum opening bids or reserve prices are in the public interest. The 
Bureau is not persuaded by commenters' assertions that minimum opening 
bids for LMDS do not fulfill the public interest objectives set forth 
in section 309(j) of the Communications Act of 1934, as amended. The 
Bureau rejects commenters' arguments that the use of minimum opening 
bids works against an open market concept. The use of competitive 
bidding implements the principle that the marketplace should determine 
the value of this spectrum. The use of a minimum opening bid does not 
undermine that principle. As commenters have suggested, minimum opening 
bids can help speed the auction process and ensure that licenses are 
not dramatically undervalued. Further, these goals are fully consistent 
with the public interest goals set forth in the Communications Act. The 
Commission agrees with commenters that setting the level of the minimum 
opening bids is a very difficult task, especially in the case of LMDS 
where geography and climate may have a significant effect on 
propagation. To address this concern, the minimum opening bids adopted 
here are reducible. This will allow the Bureau flexibility to adjust 
the minimum opening bids if circumstances warrant. The Bureau 
emphasizes, however, that such discretion will be exercised sparingly 
and early in the auction, i.e., before bidders lose all waivers and 
begin to lose eligibility. During the course of the auction, the Bureau 
will not entertain any bidder requests to reduce the minimum opening 
bid.
    10. The Bureau concludes that the revised formula presented here 
best meets the objectives of the Commission's auction authority in 
establishing a reasonable minimum opening bid. The Bureau has noted in 
the past that the reserve price and minimum opening bid provision is 
not a requirement to maximize auction revenue, but rather a protection 
against assigning licenses at unacceptably low prices and in 
noncompetitive markets, and that the Bureau must balance the revenue 
raising objective against its other public interest objectives in 
setting the minimum bid level. In doing so, the Bureau has recognized 
the special characteristics of LMDS services, especially in small and 
less dense markets and, accordingly, has reduced the minimum opening 
bid from what was proposed for the lower two tiers. Minimum opening 
bids for the two lower tiers that are less than those proposed will, 
the Bureau believes, assist small businesses and facilitate service for 
rural and other sparsely populated areas. The revised minimum opening 
bid levels for licenses in the two tiers with populations below 
1,000,000 will balance the objective of providing a fair return for the 
public while still encouraging broad participation and avoiding a delay 
of service to smaller markets.
    11. Effective Date: As noted in this Order, the minimum opening 
bids adopted herein effectuate the recently-enacted Balanced Budget Act 
of 1997. In addition, the LMDS auction is scheduled to begin very 
shortly, on February 18, 1998. The Bureau therefore finds, for good 
cause, that the minimum opening bids adopted herein should be made 
effective upon publication in the Federal Register.
    12. Accordingly, It is ordered that, under the authority contained 
in 47 CFR 0.131(c), 0.331, and 1.2104, and pursuant to the authority of 
sections 4(i), 303(r), 309(j), and 332(a)(2) of the Communications Act 
of 1934, as amended, 47 USC 154(i), 303(r), and 332(a), minimum opening 
bids subject to reduction are established for this auction as specified 
in this Order.
    13. It is further ordered that the amount of the minimum opening 
bid for each auctionable license is set pursuant to the formula adopted 
in this Order and specified for each license in Table B to this Order.

Federal Communications Commission.
Daniel Phythyon,
Chief, Wireless Telecommunications Bureau.

BILLING CODE 6712-01-P 

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    Notes:
    (1) All population figures are 4/1/90 U.S. Census, U.S. Department 
of Commerce, Bureau of the Census
    (2) The minimum opening bid for Block A is calculated in three 
tiers, for licenses with populations over 1,000,000 it is calculated as 
Population x $2.25, for licenses with populations between 100,000 and 
1,000,000 it is calculated as Population x $1.00, for licenses with 
populations under 100,000 it is calculated as Population x $0.50. The 
minimum opening bid for Block B is 10% of the Block A opening bid 
(except as noted below for New York). All opening bids are rounded up 
to the nearest dollar. No opening bids will be initially set below 
$2,500 per license.
    (3) The New York A Block opening bid is based on an encumbered 
population of 9,503,769, (the unencumbered BTA less the pops in the 
encumbered PMSA) but the B block opening bid is based on an 
unencumbered population of 18,050,615. 

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    Note regarding use of Major Trading Areas and Basic Trading Areas: 
Based on material Copyrighted 1992 by Rand McNally & Company. Rights 
granted pursuant to a license from Rand McNally & Company (through an 
arrangement with the Personal Communications Industry Association) to 
all interested parties for use solely in connection with the licensing, 
building, marketing and operation of personal communications services, 
certain specialized mobile radio services and local multipoint 
distribution services. 
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[FR Doc. 98-2610 Filed 2-2-98; 8:45 am]
BILLING CODE 6712-01-C