[Federal Register Volume 65, Number 53 (Friday, March 17, 2000)]
[Notices]
[Pages 14561-14565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6652]


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FEDERAL COMMUNICATIONS COMMISSION

[Report No. AUC-00-33-A (Auction No. 33); DA 00-559]


Auction of Licenses for the 700 MHz Guard Bands Scheduled for 
June 14, 2000; Comment Sought on Reserve Prices or Minimum Opening Bids 
and Other Auction Procedural Issues

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: This document seeks comment on the reserve prices or minimum 
opening bids and other auction procedural issues for the upcoming 
auction of licenses for the 700 MHz Guard Bands (Auction No. 33) 
scheduled to commence on June 14, 2000.

DATES: Comments are due on or before March 22, 2000, and reply comments 
are due on or before March 29, 2000.

ADDRESSES: An original and four copies of all pleadings must be filed 
with the Commission's Secretary, Magalie Roman Salas, Office of the 
Secretary, Federal Communications Commission, 445 Twelfth Street, SW, 
TW-A325, Washington, DC 20054. In addition, one copy of each pleading 
must be delivered to each of the following locations:
    (1) Commission's duplicating contractor, International 
Transcription Service, Inc. (ITS), 1231 20th Street, NW, Washington, DC 
20036;
    (2) Office of Media Relations, Public Reference Center, 445 Twelfth 
Street, SW, Suite CY-A257, Washington, DC 20554;
    (3) Rana Shuler, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, 445 Twelfth Street, SW, Suite 4-A628, 
Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Howard Davenport or Craig Bomberger, 
Auctions and Industry Analysis Division, Wireless Telecommunications 
Bureau, at (202) 418-0660, Kathy Garland, Project Manager, at (717) 
338-2888.

SUPPLEMENTARY INFORMATION: This is a summary of a Public Notice 
released March 10, 2000. The complete text of the public notice, 
including Attachment A, is available for inspection and copying during 
normal business hours in the FCC Reference Center (Room CY-A257), 445 
12th Street, SW, Washington, D.C. 20554. It may also be purchased from 
the Commission's copy contractor, International Transcription Services, 
Inc. (ITS, Inc.) 1231 20th Street, NW, Washington, D.C. 20036, (202) 
857-3800. It is also available on the Commission's web site at http://www.fcc.gov.
    1. By this Public Notice, the Wireless Telecommunications Bureau 
(``Bureau'') announces the auction (``Auction No. 33'') of Guard Band 
Manager licenses in the 700 MHz Guard Bands to commence on June 14, 
2000. See Service Rules for the 746-764 MHz Bands, and Revisions to 
Part 27 of the Commission's Rules, WT Docket No. 99-168, FCC 00-90, 
released March 9, 2000 (``700 MHz Second Report and Order''). As 
discussed in greater detail herein, the Bureau proposes that Auction 
No. 33 be composed of 104 licenses in the 700 MHz Guard Bands, 746-747/
776-777 and 762-764/792-794 MHz. One 4 megahertz license (paired 2 
megahertz blocks) and one 2 megahertz license (paired 1 megahertz 
blocks) will be offered in each of 52 Major Economic Areas (MEAs).
    2. The following table contains the Block/Frequency Band Cross 
Reference List for each MEA in Auction No. 33:

[[Page 14562]]



746-747, 762-764, 776-777, and 792-794 MHz Allocations 746-747, 762-764,
                  776-777, and 792-794 MHz Allocations
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                License suffix                   Frequency    Frequency
------------------------------------------------------------------------
A.............................................      746-747      776-777
B.............................................      762-764      792-794
------------------------------------------------------------------------

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 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 rules 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 procedures prior to the start of each auction. See 
Memorandum Opinion and Order, and Notice of Proposed Rule Making 
(``Part 1 Order'') 62 FR 13540 (March 21, 1997) and Amendment of Part 1 
of the Commission's Rules--Competitive Bidding Proceeding (``Part 1 
Third Report and Order'') 63 FR 770 (January 1, 1998). We therefore 
seek comment on the following issues relating to Auction No. 33.

I. Auction Structure

A. Simultaneous Multiple Round Auction Design

    3. We propose to award the licenses in a single, simultaneous 
multiple-round auction to allow bidders to take advantage of any 
synergies that exist among licenses. See 700 MHz Second Report and 
Order, Paras.  61, 62, and 71; see also 47 CFR 27.604. This methodology 
offers every license for bid at the same time in successive bidding 
rounds. We seek comment on this proposal.

B. Upfront Payments and Initial Maximum Eligibility

    4. 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. The upfront payment is a 
refundable deposit made by each bidder to establish eligibility to bid 
on licenses. Upfront payments related to the specific spectrum subject 
to auction protect against frivolous or insincere bidding and provide 
the Commission with a source of funds from which to collect payments 
owed at the close of the auction. See Implementation of Section 309(j) 
of the Communications Act--Competitive Bidding, PD Docket No. 93-253 
(``Second Report and Order'') 59 FR 22980 (May 4, 1994). In this case, 
we have information available in the form of a congressional estimate 
of the value of the spectrum. Accordingly, we list all licenses, 
including the related license area population and the proposed upfront 
payment for each, in Attachment A. We seek comment on this proposal.
    5. We further propose 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. The maximum eligibility 
will determine the licenses on which a bidder may bid in each round of 
the auction. Thus, in calculating its 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. We seek 
comment on this proposal.

C. Activity Rules

    6. 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.
    7. We propose to divide the auction into three stages: Stage One, 
Stage Two and Stage Three, each characterized by an increased activity 
requirement. The auction will start in Stage One. We propose 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 approximately ten percent or below for 
three consecutive rounds of bidding in each stage. However, we further 
propose 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 percentage of licenses (as measured in bidding units) on which 
there are new bids, the number of new bids, and the percentage increase 
in revenue. We seek comment on these proposals.
    8. For the 700 MHz Guard Band Auction, we propose the following 
activity requirements:
    Stage One: In each round of Stage One, a bidder desiring to 
maintain its current eligibility be required to be active on licenses 
encompassing at least 80 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-fourths (\5/4\).
    Stage Two: 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 90 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 ten-ninths 
(\10/9\).
    Stage Three: 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-fortyninths (\50/49\). We seek comment 
on these proposals.

D. Activity Rule Waivers and Reducing Eligibility

    9. 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.
    10. 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

[[Page 14563]]

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:
    (i) There are no activity rule waivers available; or
    (ii) The bidder overrides the automatic application of a waiver by 
reducing eligibility, thereby meeting the minimum requirements.
    11. A bidder with insufficient activity may wish to reduce its 
bidding eligibility rather than use an activity rule waiver. If so, the 
bidder 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. Once eligibility has been reduced, a bidder will not be 
permitted to regain its lost bidding eligibility.
    12. 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.
    13. We propose that each bidder in Auction No. 33 be provided with 
five activity rule waivers that may be used at the bidder's discretion 
during the course of the auction. We seek comment on this proposal.

E. Information Relating to Auction Delay, Suspension or Cancellation

    14. For Auction No. 33, we propose 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. We emphasize 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. We seek comment on this proposal.

II. Bidding Procedures

A. Round Structure

    15. The Commission will use its Automated Auction System to conduct 
the electronic simultaneous multiple round auction format for Auction 
No. 33. The initial bidding schedule will be announced in a public 
notice to be released at least one week before the start of the 
auction, and will be included in the registration mailings. The 
simultaneous multiple round format will consist of sequential bidding 
rounds, each followed by the release of round results. Details 
regarding the location and format of round results will be included in 
the same public notice.
    16. The Bureau has discretion to change the bidding schedule in 
order to foster an auction pace that reasonably balances speed with the 
bidders' need to study round results and adjust their bidding 
strategies. The Bureau may increase or decrease the amount of time for 
the bidding rounds and review periods, or the number of rounds per day, 
depending upon the bidding activity level and other factors. We seek 
comment on this proposal.

B. Reserve Price or Minimum Opening Bid

    17. The Balanced Budget Act 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 the Commission has accepted mutually exclusive 
applications for those licenses), 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.
    18. 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. It is also possible for the minimum 
opening bid and the reserve price to be the same amount.
    19. In light of the Balanced Budget Act, the Bureau proposes to 
establish minimum opening bids for Auction No. 33. The Bureau believes 
a minimum opening bid, which has been utilized in other auctions, is an 
effective bidding tool. See Auction of 800 MHz Upper 10 MHz Band, 
Minimum Opening Bids or Reserve Prices (``800 MHz SMR Order'') 62 FR 
55252 (October 23, 1997) and Auction of the Phase II 220 MHz Service 
Licenses, Auction Notice and Filing Requirements for 908 Licenses 
Consisting of Economic Area (EA), Economic Area Grouping (EAG), and 
Nationwide Licenses, Scheduled for September 15, 1998, Minimum Opening 
Bids and Other Procedural Issues, (``Phase II 220 MHz Public Notice'') 
63 FR 35213 (June 29, 1998). A minimum opening bid, rather than a 
reserve price, will help to regulate the pace of the auction and 
provides flexibility. For Auction No. 33, we have information available 
in the form of a congressional estimate of the value of the spectrum. 
Accordingly, we list all licenses, including the related license area 
population and the proposed minimum opening bid for each, in Attachment 
A. We seek comment on this proposal.
    20. If commenters believe that these minimum opening bids will 
result in substantial numbers of unsold licenses, or are not reasonable 
amounts, or should instead operate as reserve prices, 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 minimum opening bids, we 
particularly seek 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 700 MHz Guard Bands. 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.

C. Minimum Accepted Bids and Bid Increments

    21. 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 Auction No. 33, we propose to use a 
smoothing methodology to calculate bid

[[Page 14564]]

increments, as we have done in several other auctions. The Bureau 
retains the discretion to change the minimum bid increment if it 
determines that circumstances so dictate. The Bureau will do so by 
announcement in the Automated Auction System. We seek comment on these 
proposals.
    22. The exponential smoothing formula calculates the bid increment 
for each license based on a weighted average of the activity received 
on each license in 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 using the exponential smoothing formula.
    23. The calculation of the percentage bid increment for each 
license in a given round is made at the end of the previous round. The 
computation is based on an activity index, which is calculated as the 
weighted average of the activity in that round and the activity index 
from the prior 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 most recent bidding round plus one minus the weighting factor 
times the activity index from the prior 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+1 = 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+1 = percentage bid increment for the next round (round 
i+1)
N = minimum percentage increment or bid increment floor
M = maximum percentage increment or bid increment ceiling
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+1 from 
above times the high bid). This result will be rounded to the nearest 
thousand if it is over ten thousand or to the nearest hundred if it is 
under ten thousand.
Examples
    License 1

    C = 0.5, N = 0.1, M = 0.2

    Round 1 (2 new bids, high bid = $1,000,000)
    i. Calculation of percentage increment for round 2 using 
exponential smoothing:

A1 = (0.5 * 2) + (0.5 * 0) = 1

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

    ii. Minimum bid increment for round 2 using the percentage 
increment (I2 from above)

0.2 * $1,000,000 = $200,000

    iii. Minimum acceptable bid for round 2 = $1,200,000
    Round 2 (3 new bids, high bid = $2,000,000)

    i. Calculation of percentage increment for round 3 using 
exponential smoothing:

A2 = (0.5 * 3) + (0.5 * 1) = 2

The smaller of I3 = (1 + 2) * 0.1 = 0.3 or 0.2 (the maximum 
percentage increment)

    ii. Minimum bid increment for round 3 using the percentage 
increment (I3 from above)

0.2 * $2,000,000 = $400,000

    iii. Minimum acceptable bid for round 3 = $2,400,000
    Round 3 (1 new bid, high bid = $2,400,000)
    i. Calculation of percentage increment for round 4 using 
exponential smoothing:

A3 = (0.5 * 1) + (0.5 * 2) = 1.5

The smaller of I4 = (1 + 1.5) * 0.1 = 0.25 or 0.2 (the 
maximum percentage increment)

    ii. Minimum bid increment for round 4 using the percentage 
increment (I4 from above)

0.2 * $2,400,000 = $480,000

    iii. Minimum acceptable bid for round 4 = $2,880,000

D. Information Regarding Bid Withdrawal and Bid Removal

    24. For Auction No. 33, we propose 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.
    25. 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. We seek comment on these bid 
removal and bid withdrawal procedures.
    26. In the Part 1 Third Report and Order, the Commission 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. The Bureau, therefore, has discretion, in 
managing the auction, to limit the number of withdrawals to prevent any 
bidding 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.
    27. Applying this reasoning, we propose to limit each bidder in 
Auction No. 33 to withdraw standing high bids 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. We seek comment 
on this proposal.

E. Stopping Rule

    28. For Auction No. 33, the Bureau proposes to employ a 
simultaneous stopping rule 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.'' A

[[Page 14565]]

simultaneous stopping rule means that all licenses remain open until 
the first round in which no new acceptable bids, proactive waivers or 
withdrawals are received. After the first such round, bidding closes 
simultaneously on all licenses. Thus, unless circumstances dictate 
otherwise, bidding would remain open on all licenses until bidding 
stops on every license.
    29. The Bureau seeks comment on a modified version of the 
simultaneous stopping rule. The modified stopping rule would close the 
auction for all licenses after the first round in which no bidder 
submits a proactive waiver, a withdrawal, or a new bid on any license 
on which it is not the standing high bidder. Thus, absent any other 
bidding activity, a bidder placing a new bid on a license for which it 
is the standing high bidder would not keep the auction open under this 
modified stopping rule. The Bureau further seeks comment on whether 
this modified stopping rule should be used unilaterally or only in 
stage three of the auction.
    30. The Bureau proposes to 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.
    31. Finally, we propose 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 certain circumstances, such as, for 
example, where the auction is proceeding very slowly, there is minimal 
overall bidding activity, or 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. We seek comment on these proposals.

Federal Communications Commission.
Louis J. Sigalos,
Deputy Chief, Auctions & Industry Analysis Division.
[FR Doc. 00-6652 Filed 3-16-00; 8:45 am]
BILLING CODE 6712-01-P