[Federal Register Volume 65, Number 63 (Friday, March 31, 2000)]
[Notices]
[Pages 17268-17272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-7968]


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FEDERAL COMMUNICATIONS COMMISSION

[Report No. AUC-00-34-A (Auction No. 34); DA 00-667]


Auction of Licenses for 800 MHz Specialized Mobile Radio (SMR) 
Service General Category Frequencies in the 851-854 MHz Band Scheduled 
for August 23, 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 announces the auction of licenses for the 800 
MHz SMR Service General Category Frequencies in the 851-854 MHz Band 
(Auction No. 34) scheduled to commence on August 23, 2000 and seeks 
comment on the reserve prices or minimum opening bids and other auction 
procedural issues for the upcoming auction of licenses.

DATES: Comments are due on or before April 5, 2000 and reply comments 
are due on or before April 12, 2000.

ADDRESSES: Office of the Secretary, Federal Communications Commission, 
Federal Communications Commission, 445 12th Street, SW, TW-A325, 
Washington, D.C. 20554. In addition, parties must submit one copy to M. 
Nicole Oden, Attorney, Auctions and Industry Analysis Division, 
Wireless Telecommunications Bureau, Federal Communications Commission, 
Room 4-A337, 445 12th Street SW, 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 CY-A257, 445 12th 
Street SW, Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: M. Nicole Oden, Auctions Attorney, 
Auctions and Industry Analysis Division, at (202) 418-0660, Nancy 
Gilbert or Bob Reagle, Auction Operations, Auctions and Industry 
Analysis Division, at (717) 338-2888.

SUPPLEMENTARY INFORMATION: This is a summary of a Public Notice 
released March 23, 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, DC 20554. It may also be purchased from 
the Commission's copy contractor, International Transcription Services, 
Inc. (ITS, Inc.) 1231 20th Street, NW, Washington, DC 20036,

[[Page 17269]]

(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 of licenses for the 800 MHz SMR 
Service General Category Frequencies (``Auction No. 34'') scheduled to 
begin on August 23, 2000. See Amendment of part 90 of the Commission's 
Rules to Facilitate Future Development of SMR Systems in the 800 MHz 
Frequency (First Report and Order) 61 FR 6212 (February 16, 1996), 
(Second Report and Order) 62 FR 41190 (July 31, 1997) and 
(Reconsideration Order) 64 FR 71042 (December 20, 1999). As discussed 
in greater detail herein, the Bureau proposes that Auction No. 34 be 
composed of 1,050 licenses in the 851-854 MHz band. Six contiguous 25 
channel blocks (1.25 MHz bandwidth) will be offered in each of 172 
Economic Areas (EAs) and 3 EA-like areas, covering the United States, 
possessions or territories in the Northern Mariana Islands and Guam, 
American Samoa, the United States Virgin Islands and Puerto Rico.
    2. The following table contains the proposed Block/Frequency Band 
Limits Cross-Reference List for the 800 MHz SMR Service General 
Category Frequencies:

                      800 MHz SMR Service General Category Frequencies--(851-854 MHz Band)
----------------------------------------------------------------------------------------------------------------
             Channel block                     Channel No.          Base station frequencies  (channel centers)
----------------------------------------------------------------------------------------------------------------
D.....................................  1 through 25............  851.0125 through 851.6125.
DD....................................  26 through 50...........  851.6375 through 852.2375.
E.....................................  51 through 75...........  852.2625 through 852.8625.
EE....................................  76 through 100..........  852.8875 through 853.4875.
F.....................................  101 through 125.........  853.5125 through 854.1125.
FF....................................  126 through 150.........  854.1375 through 854.7375.
----------------------------------------------------------------------------------------------------------------

The Balanced Budget Act of 1997, Public Law 105-33, 111 Stat. 251 
(Budget Act) 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 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 
procedures prior to the start of each auction. See Amendment of Part 1 
of the Commission's Rules--Competitive Bidding Proceeding (Part 1 
Order) 62 FR 13540 (March 21, 1997), Amendment of Part 1 of the 
Commission's Rules--Competitive Bidding Procedures (Part 1 Third Report 
and Order) 63 FR 770 (January 7, 1998). We therefore seek comment on 
the following issues relating to Auction No. 34.

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. 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 for Each Bidder

    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 end of the auction. See Implementation of section 309(j) of 
the Communications Act-Competitive Bidding (Second Report and Order) 59 
FR 22980 (May 4, 1994). With these guidelines in mind, we propose for 
Auction No. 34 the following upfront payment formula.

    License population * $0.005 (the result rounded to the nearest 
hundred for levels below $10,000 and to the nearest thousand for 
levels above $10,000) with a minimum of no less than $2500.00 per 
license.

All licenses, including the related license area population and upfront 
payment, are listed in Attachment A. We seek comment on this proposal. 
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. 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. We 
seek comment on this proposal.

C. Activity Rules

    5. 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 must use an activity rule waiver (if 
any remain).
    6. 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 Stages One and Two. 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

[[Page 17270]]

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. We seek comment on these proposals.
    7. For Auction No. 34, we propose the following activity 
requirements:
    Stage One: In each round of the first stage of the auction, a 
bidder desiring to maintain its current eligibility is required to be 
active on licenses representing 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, a bidder desiring to 
maintain its current eligibility is required to be active on 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 the third stage, 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\).
    We seek comment on these proposals.

D. Activity Rule Waivers and Reducing Eligibility

    8. 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 
elimination from the auction.
    9. 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:

    (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.

    10. 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. Once 
eligibility has been reduced, a bidder will not be permitted to regain 
its lost bidding eligibility.
    11. A bidder may proactively apply 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. Note: an automatic waiver invoked in a round in 
which there are no new valid bids will not keep the auction open.
    12. We propose that each bidder in Auction No. 34, be provided with 
five activity rule waivers that may be used in up to five separate 
rounds 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

    13. For Auction No. 34, 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

    14. The Commission will use its Automated Auction System to conduct 
the electronic simultaneous multiple round auction format for Auction 
No. 34. 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.
    15. 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

    16. The 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
    17. 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.
    18. In anticipation of this auction and in light of the Budget Act, 
the Bureau proposes to establish minimum opening bids for Auction No. 
34. The Bureau believes a minimum opening bid, which has been utilized 
in other auctions, is an effective bidding tool. See Auction of 800 MHz 
SMR, Minimum Opening Bids or Reserve Prices (DA 97-2147) 62 FR 55251 
(October 23, 1997), Auction of the Phase II 220 MHz Service Licenses 
(DA

[[Page 17271]]

98-1010) 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.
    19. Specifically, for Auction No. 34, the Commission proposes the 
following formula for calculating minimum opening bids for each 
license, based on the population (``pops'') of the relevant EA:

    License population * $0.005 (the result rounded to the nearest 
hundred for results less than $10,000 and to the nearest thousand 
for results greater than $10,000) with a minimum of no less than 
$2500.00 per license.

We seek comment on this proposal. All licenses including the related 
license area population and the proposed minimum opening bid, are 
listed in Attachment A. If commenters believe 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, 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 800 MHz band. 
Alternatively, comment is sought on whether, consistent with the Budget 
Act, the public interest would be served by having no minimum opening 
bid or reserve price.

C. Minimum Accepted Bids and Bid Increments

    20. 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. 34, we propose to use a 
smoothing methodology to calculate bid 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.
    21. 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.
    22. 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
    I2 = The smaller of (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
    I3 = The smaller of (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
    I4 = The smaller of (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

    23. For Auction No. 34, 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.
    24. Once a round closes, a bidder may no longer remove a bid. 
However, in the next round, a bidder may withdraw

[[Page 17272]]

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.
    25. 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.
    26. Applying this reasoning, we propose to limit each bidder in 
Auction No. 34, 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 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

    27. For Auction No. 34, 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 
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.
    28. 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.
    29. We propose 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.
    30. 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. 00-7968 Filed 3-30-00; 8:45 am]
BILLING CODE 6712-01-U