[Federal Register Volume 63, Number 147 (Friday, July 31, 1998)]
[Notices]
[Pages 40906-40909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20524]



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FEDERAL COMMUNICATIONS COMMISSION

[DA 98-1469; Report No. AUC-98-20-A (Auction No. 20)]


156-162 MHz Public Coast Station Spectrum Auction Scheduled for 
December 3, 1998; Comment Sought on Reserve Prices or Minimum Opening 
Bids and Other Auction Procedural Issues

AGENCY: Federal Communications Commission.

ACTION: Notice seeking comment.

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SUMMARY: The Commission announces the auction of 42 VHF public coast 
station licenses scheduled for December 3, 1998, and seeks comment on a 
proposed formula for calculating minimum opening bids and other auction 
procedural issues.

DATES: Comments are due on or before August 14, 1998. Reply comments 
are due on or before August 21, 1998.

ADDRESSES: To file formally, parties must submit an original and four 
copies to the Office of the Secretary, Federal Communications 
Commission, Room 222, 1919 M Street N.W., Washington, D.C. 20554. In 
addition, parties must submit one copy to Amy Zoslov, Chief, Auctions 
and Industry Analysis Division, Wireless Telecommunications Bureau, 
Federal Communications Commission, Room 5202, 2025 M Street N.W., 
Washington, D.C. 20554. Comments and reply comments will be available 
for public inspection during regular business hours in the FCC Public 
Reference Room, Room 239, 1919 M Street N.W., Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: Bob Reagle, Jeff Garretson, or Anne 
Napoli, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, at (202) 418-0660.

SUPPLEMENTARY INFORMATION: This public notice was released on July 23, 
1998 and is available in its entirety 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, 
(202) 857-3800, fax (202) 857-3805, 1231 20th Street, N.W., Washington, 
D.C. 20036.

Synopsis of the Public Notice

    1. By this Public Notice, the Wireless Telecommunications Bureau 
(``the Bureau'') announces the auction of 42 VHF public coast station 
licenses, to begin on December 3, 1998. These licenses encompass the 
United States, the Northern Mariana Islands, Guam, American Samoa, the 
United States Virgin Islands and Puerto Rico. Specifically, one license 
will be available in each of 42 geographic areas known as VHF Public 
Coast Areas (VPCs). There are two categories of VPCs, maritime VPCs and 
inland VPCs. Maritime VPCs, of which there are nine, are roughly 
equivalent to U.S. Coast Guard Districts, and include geographic areas 
any part of which is within 100 miles of a major waterway. Inland VPCs, 
of which there are 33, are smaller geographic areas identical to the 
Commerce Department's Economic Areas, no part of which is within 100 
miles of a major waterway.
    2. Future public notices will include further details regarding 
application filing and payment deadlines, seminars, and other pertinent 
information. In this Public Notice, the Commission seeks comment on 
procedural issues relating to the VHF public coast station auction.

I. Reserve Price or Minimum Opening Bid

    3. The Balanced Budget Act of 1997 calls upon the Commission to 
prescribe methods by which a reasonable reserve price will be required 
or a minimum opening bid established when FCC licenses are subject to 
auction (i.e., because they are mutually exclusive), unless the 
Commission determines that a reserve price or minimum bid is not in the 
public interest. Consistent with this mandate, the Commission has 
directed the Bureau to seek comment on the use of a minimum opening bid 
and/or reserve price prior to the start of each auction. The Bureau was 
directed to seek comment on the methodology to be employed in 
establishing each of these mechanisms. Among other factors the Bureau 
should consider is 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 reasonably could 
have an impact on valuation of the spectrum being auctioned. The 
Commission concluded that the Bureau should have the discretion to 
employ either or both of these mechanisms for future auctions.
    4. Normally, a reserve price is an absolute minimum price below 
which an item will not be sold in a given auction. Reserve prices can 
be either published or unpublished. A minimum opening bid, on the other 
hand, is the minimum bid price set at the beginning of the auction 
below which no bids are accepted. It is generally used to accelerate 
the competitive bidding process. Also, in a minimum opening bid 
scenario, the auctioneer generally has the discretion to lower the 
amount later in the auction.
    5, In anticipation of this auction and in light of the Balanced 
Budget Act, the Bureau proposes to establish minimum opening bids for 
the VHF public coast station auction, and retain discretion to lower 
the minimum opening bids. The Bureau believes a minimum opening bid, 
which has been utilized in other auctions, is an effective bidding 
tool. A minimum opening bid, rather than a reserve price, will help to 
regulate the pace of the auction and provides flexibility.
    6. Specifically, the Commission proposes the following formula for 
calculating minimum opening bids on a license-by-license basis in 
Auction No. 20:
    a. Maritime VPC Licenses: $.001 * MHz * Pop (rounded up to the 
nearest dollar) with a minimum of no less than $2,500 per license.
    b. Inland VPC Licenses: $.011 * MHz * Pop (rounded up to the 
nearest dollar) with a minimum of no less than $2,500 per license.
    Comment is sought on this proposal. If commenters believe that the 
formula proposed above for minimum opening bids will result in 
substantial numbers of unsold licenses, or is not a reasonable amount, 
or should instead operate as a reserve price, they should explain why 
this is so, and comment on the desirability of an alternative approach. 
Commenters are advised to support their claims with valuation analyses 
and suggested reserve prices or minimum opening bid levels or formulas. 
In establishing the formula for minimum opening bids, the Commission 
particularly seeks comment on such factors as, among other things, 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 VHF public coast station spectrum. 
Alternatively, comment is sought on whether, consistent with the 
Balanced Budget Act, the public interest would be served by having no 
minimum opening bid or reserve price.

II. Other Auction Procedural Issues

    7. The Balanced Budget Act of 1997 requires the Commission to 
``ensure that, in the scheduling of any competitive bidding under this 
subsection, an adequate period is allowed * * * before issuance of 
bidding rules, to permit notice and

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comment on proposed auction procedures * * *'' 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 directed the Bureau, under its existing delegated authority, 
to seek comment on a variety of auction-specific issues prior to the 
start of each auction. The Commission therefore seeks comment on the 
following issues.

A. Auction Sequence and License Groupings

    8. Because it is most administratively appropriate, and allows 
bidders to take advantage of any synergies that exist among licenses, 
we propose to award the 42 VHF public coast station licenses in a 
single, simultaneous multiple-round auction. The Commission seeks 
comment on this proposal.

B. Structure of Bidding Rounds, Activity Requirements, and Criteria for 
Determining Reductions in Eligibility

    9. The Commission proposes to divide the auction into three stages: 
Stage One, Stage Two and Stage Three. The auction will start in Stage 
One. The Commission proposes that the auction will generally advance to 
the next stage (i.e., from Stage One to Stage Two, and from Stage Two 
to Stage Three) when the auction activity level, as measured by the 
percentage of bidding units receiving new high bids, is below ten 
percent for three consecutive rounds of bidding in each Stage. However, 
the Commission further proposes that the Bureau retain the discretion 
to change stages unilaterally by announcement during the auction. In 
exercising this discretion, the Bureau will consider a variety of 
measures of bidder activity including, but not limited to, the auction 
activity level, the percentages of licenses (as measured in bidding 
units) on which there are new bids, the number of new bids, and the 
percentage increase in revenue. The Commission seeks comment on these 
proposals.
    10. In order to ensure that the auction closes within a reasonable 
period of time, an activity rule requires bidders to bid actively on a 
percentage of their maximum bidding eligibility during each round of 
the auction rather than waiting until the end to participate. A bidder 
that does not satisfy the activity rule will either lose bidding 
eligibility in the next round or use an activity rule waiver.
    11. For the VHF public coast station auction, the Commission 
proposes that, in each round of Stage One of the auction, a bidder 
desiring to maintain its current eligibility is required to be active 
on licenses encompassing at least 60 percent of its current bidding 
eligibility. Failure to maintain the requisite activity level will 
result in a reduction in the bidder's bidding eligibility in the next 
round of bidding (unless an activity rule waiver is used). During Stage 
One, reduced eligibility for the next round will be calculated by 
multiplying the current round activity by five-thirds (5/3). In each 
round of the second stage of the auction, a bidder desiring to maintain 
its current eligibility is required to be active on at least 80 percent 
of its current bidding eligibility. During Stage Two, reduced 
eligibility for the next round will be calculated by multiplying the 
current round activity by five-fourths (5/4). In each round of Stage 
Three, a bidder desiring to maintain its current eligibility is 
required to be active on 98 percent of its current bidding eligibility. 
In this final stage, reduced eligibility for the next round will be 
calculated by multiplying the current round activity by fifty forty-
ninths (50/49). The Commission seeks comment on these proposals.

C. Minimum Accepted Bids

    12. Once there is a standing high bid on a license, a bid increment 
will be applied to that license to establish a minimum acceptable bid 
for the following round. For the VHF public coast station auction, the 
Commission proposes, as described immediately below, to use an 
exponential smoothing methodology to calculate minimum bid increments. 
The Bureau retains the discretion to change the minimum bid increment 
if it determines that circumstances so dictate. The exponential 
smoothing methodology has been used in previous auctions, including the 
LMDS auction, and will be used in the upcoming 220 MHz auction. The 
Commission seeks comment on this proposal.
Exponential Smoothing
    13. The exponential smoothing formula calculates the bid increment 
based on a weighted average of the activity received on each license in 
the current and all previous rounds. This methodology will tailor the 
bid increment for each license based on activity, rather than setting a 
global increment for all licenses. For every license that receives a 
bid, the bid increment for the next round for that license will be 
established as a percentage increment that is determined using the 
exponential smoothing formula.
    14. Using exponential smoothing, the calculation of the percentage 
bid increment for each license will be based on an activity index, 
which is calculated as the weighted average of the current activity and 
the activity index from the previous round. The activity index at the 
start of the auction (round 0) will be set at 0. The current activity 
index is equal to a weighting factor times the number of new bids 
received on the license in the current bidding period plus one minus 
the weighting factor times the activity index from the previous round. 
The activity index is then used to calculate a percentage increment by 
multiplying a minimum percentage increment by one plus the activity 
index with that result being subject to a maximum percentage increment. 
The Commission will initially set the weighting factor at 0.5, the 
minimum percentage increment at 0.1, and the maximum percentage 
increment at 0.2.

Equations
Ai = (C * Bi) + ( (1-C) * Ai-1)
Ii = smaller of ( (1 + Ai) * N) and M

Where,

Ai = activity index for the current round (round i)
C = activity weight factor
Bi = number of bids in the current round (round i)
Ai-1 = activity index from previous round (round i-1), 
A0 is 0
Ii = percentage bid increment for the current round (round 
i)
N = minimum percentage increment
M = maximum percentage increment

    Under the exponential smoothing methodology, once a bid has been 
received on a license, the minimum acceptable bid for that license in 
the following round will be the new high bid plus the dollar amount 
associated with the percentage increment (variable Ii from 
above times the high bid). This result will be rounded to the nearest 
thousand if it is over 10,000 or to the nearest hundred if it is under 
10,000.

Examples

License 1
C=0.5, N = 0.1, M = 0.2

Round 1 (2 new bids, high bid = $1,000,000)

a. Calculation of percentage increment using exponential smoothing:
    A1 = (0.5 * 2) + (0.5 * 0) = 1

    The smaller of I1 = (1 + 1) * 0.1 = 0.2 or 0.2 (the 
maximum percentage increment)

b. Minimum bid increment using the percentage increment 
(I1 from above)
    0.2 * $1,000,000 = $200,000
c. Minimum acceptable bid for round 2 = 1,200,000

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Round 2 (3 new bids, high bid = 2,000,000)

a. Calculation of percentage increment using exponential smoothing:
    A2 = (0.5 * 3) + (0.5 * 0) = 1.5

    The smaller of I2 = (1 + 1.5) * 0.1 = 0.25 or 0.2 
(the maximum percentage increment)

b. Minimum bid increment using the percentage increment is 
(I2 from above)
    0.2 * $2,000,000 = $400,000
c. Minimum acceptable bid for round 3 = 2,400,000

Round 3 (1 new bid, high bid = 2,400,000)

a. Calculation of percentage increment using exponential smoothing:
    A3 = (0.5 * 1) + (0.5 * 0.5) = 0.75

    The smaller of I3 = (1 + .75) * 0.1 = 0.175 or 0.2 
(the maximum percentage increment)

b. Minimum bid increment using the percentage increment 
(I3 from above)
    0.175 * $2,400,000 = $420,000
c. Minimum acceptable bid for round 4 = 2,820,000

D. Initial Maximum Eligibility for Each Bidder

    15. The Bureau has delegated authority and discretion to determine 
an appropriate upfront payment for each license being auctioned, taking 
into account such factors as the population in each geographic license 
area, and the value of similar spectrum. With these guidelines in mind, 
the Commission proposes to calculate upfront payments on a license-by-
license basis for maritime VPC licenses and inland VPC licenses using 
the following formulae:
    a. Maritime VPC Licenses: $.0007 * MHz * Pop (rounded up to the 
nearest dollar) with a minimum upfront payment of $2,500 per license.
    b. Inland VPC Licenses: $.0075 * MHz * Pop (rounded up to the 
nearest dollar) with a minimum upfront payment of $2,500 per license.
    The Commission seeks comment on these proposals.
    16. The Commission further proposes that the amount of the upfront 
payment submitted by a bidder will determine the initial maximum 
eligibility (as measured in bidding units) for each bidder. Upfront 
payments will not be attributed to specific licenses, but instead will 
be translated into bidding units to define a bidder's initial maximum 
eligibility, which cannot be increased during the auction. Thus, in 
calculating the upfront payment amount, an applicant must determine the 
maximum number of bidding units it may wish to bid on (or hold high 
bids on) in any single round, and submit an upfront payment covering 
that number of bidding units. The Commission seeks comment on this 
proposal.

E. Activity Rule Waivers and Reducing Eligibility

    17. Use of an activity rule waiver preserves the bidder's current 
bidding eligibility despite the bidder's activity in the current round 
being below the required minimum level. An activity rule waiver applies 
to an entire round of bidding and not to a particular license. Activity 
waivers are principally a mechanism for auction participants to avoid 
the loss of auction eligibility in the event that exigent circumstances 
prevent them from placing a bid in a particular round.
    18. The FCC auction system assumes that bidders with insufficient 
activity would prefer to use an activity rule waiver (if available) 
rather than lose bidding eligibility. Therefore, the system will 
automatically apply a waiver (known as an ``automatic waiver'') at the 
end of any bidding period where a bidder's activity level is below the 
minimum required unless: (1) there are no activity rule waivers 
available; or (2) the bidder overrides the automatic application of a 
waiver by reducing eligibility thereby meeting the minimum 
requirements.
    19. A bidder with insufficient activity that wants to reduce its 
bidding eligibility rather than use an activity rule waiver must 
affirmatively override the automatic waiver mechanism during the 
bidding period by using the reduce eligibility function in the 
software. In this case, the bidder's eligibility is permanently reduced 
to bring the bidder into compliance with the activity rules as 
described above. Once eligibility has been reduced, a bidder will not 
be permitted to regain its lost bidding eligibility.
    20. A bidder may proactively use an activity rule waiver as a means 
to keep the auction open without placing a bid. If a bidder submits a 
proactive waiver (using the proactive waiver function in the bidding 
software) during a bidding period in which no bids are submitted, the 
auction will remain open and the bidder's eligibility will be 
preserved. An automatic waiver invoked in a round in which there are no 
new valid bids will not keep the auction open.
    21. The Commission proposes that each bidder in the VHF public 
coast station auction will be provided five activity rule waivers that 
may be used in any round during the course of the auction as set forth 
above. The Commission seeks comment on this proposal.

F. Information Regarding Bid Withdrawal and Bid Removal

    22. For the VHF public coast station auction, the Commission 
proposes the following bid removal and bid withdrawal procedures. 
Before the close of a bidding period, a bidder has the option of 
removing any bids placed in that round. By using the remove bid 
function in the software, a bidder may effectively ``unsubmit'' any bid 
placed within that round. A bidder removing a bid placed in the same 
round is not subject to withdrawal payments.
    23. Once a round closes, a bidder may no longer remove a bid. 
However, in the next round, a bidder may withdraw standing high bids 
from previous rounds using the withdraw bid function. A high bidder 
that withdraws its standing high bid from a previous round is subject 
to the bid withdrawal payment provisions. The Commission seeks comment 
on these bid removal and bid withdrawal procedures.
    24. In the Part 1 Third Report and Order, 63 FR 2315 (January 15, 
1998), the Commission recently explained that allowing bid withdrawals 
facilitates efficient aggregation of licenses and the pursuit of 
efficient backup strategies as information becomes available during the 
course of an auction. The Commission noted, however, that in some 
instances bidders may seek to withdraw bids for improper reasons, 
including to delay the close of the auction for strategic purposes. The 
Bureau, therefore, has discretion, in managing the auction, to limit 
the number of withdrawals to prevent strategic delay of the close of 
the auction or other abuses. The Commission stated that the Bureau 
should assertively exercise its discretion, consider limiting the 
number of rounds in which bidders may withdraw bids, and prevent 
bidders from bidding on a particular market if the Bureau finds that a 
bidder is abusing the Commission's bid withdrawal procedures.
    25. Applying this reasoning, the Commission proposes to limit each 
bidder in the VHF public coast station auction to withdrawals in no 
more than two rounds during the course of the auction. To permit a 
bidder to withdraw bids in more than two rounds would likely encourage 
insincere bidding or the use of withdrawals for anti-competitive 
strategic purposes. The two rounds in which withdrawals are utilized 
will be at the bidder's discretion; withdrawals otherwise must be in 
accordance with the Commission's rules. There is no limit on the number 
of standing high bids that may be withdrawn in either of the rounds in 
which withdrawals are utilized. Withdrawals will remain subject to the 
bid withdrawal payment provisions specified in the Commission's rules.

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The Commission seeks comment on this proposal.

G. Stopping Rule

    26. For the VHF public coast station auction, the Bureau proposes 
to employ a simultaneous stopping approach. The Bureau has discretion 
``to establish stopping rules before or during multiple round auctions 
in order to terminate the auction within a reasonable time.'' The 
Commission therefore has the discretion to adopt an alternative 
stopping rule to the simultaneous stopping rule if we deem appropriate. 
Thus, unless circumstances dictate otherwise, bidding would remain open 
on all licenses until bidding stops on every license. The auction would 
close for all licenses when one round passes during which no bidder 
submits a new acceptable bid on any license, applies a proactive 
waiver, or withdraws a previous high bid.
    27. The Commission proposes that the Bureau retain the discretion 
to keep an auction open even if no new acceptable bids or proactive 
waivers are submitted and no previous high bids are withdrawn. In this 
event, the effect will be the same as if a bidder had submitted a 
proactive waiver. The activity rule, therefore, will apply as usual and 
a bidder with insufficient activity will either lose bidding 
eligibility or use a remaining activity rule waiver.
    28. Finally, the Commission proposes that the Bureau, reserve the 
right to declare that the auction will end after a specified number of 
additional rounds (``special stopping rule''). If the Bureau invokes 
this special stopping rule, it will accept bids in the final round(s) 
only for licenses on which the high bid increased in at least one of 
the preceding specified number of rounds. The Bureau proposes to 
exercise this option only in circumstances such as where the auction is 
proceeding very slowly, where there is minimal overall bidding 
activity, or where it appears likely that the auction will not close 
within a reasonable period of time. Before exercising this option, the 
Bureau is likely to attempt to increase the pace of the auction by, for 
example, moving the auction into the next stage (where bidders would be 
required to maintain a higher level of bidding activity), increasing 
the number of bidding rounds per day, and/or increasing the amount of 
the minimum bid increments for the limited number of licenses where 
there is still a high level of bidding activity. The Commission seeks 
comment on these proposals.

H. Information Relating to Auction Delay, Suspension or Cancellation

    29. For the VHF public coast station auction, the Commission 
proposes that, by public notice or by announcement during the auction, 
the Bureau may delay, suspend or cancel the auction in the event of 
natural disaster, technical obstacle, evidence of an auction security 
breach, unlawful bidding activity, administrative or weather necessity, 
or for any other reason that affects the fair and competitive conduct 
of competitive bidding. In such cases, the Bureau, in its sole 
discretion, may elect to: resume the auction starting from the 
beginning of the current round; resume the auction starting from some 
previous round; or cancel the auction in its entirety. Network 
interruption may cause the Bureau to delay or suspend the auction. The 
Commission emphasizes that exercise of this authority is solely within 
the discretion of the Bureau, and its use is not intended to be a 
substitute for situations in which bidders may wish to apply their 
activity rule waivers. The Commission seeks comment on this proposal.
Amy Zoslov,
Chief, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau.
[FR Doc. 98-20524 Filed 7-30-98; 8:45 am]
BILLING CODE 6712-01-P