[Federal Register Volume 65, Number 168 (Tuesday, August 29, 2000)]
[Proposed Rules]
[Pages 52401-52403]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21981]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 1

[WT Docket No. 97-82; FCC 00-274]


Competitive Bidding Procedures

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this document the Federal Communications Commission 
(Commission) seeks comments on a total assets test to determine small 
business status and propose exceptions to the attribution rule's 
requirement that certain stock interest be counted on a ``fully 
diluted'' basis.

DATES: Comments are due on or before October 30, 2000. Reply comments 
are due on or before November 27, 2000.

ADDRESSES: Office of the Secretary, Federal Communications Commission, 
445 12th Street, SW, Washington, DC 20554. See ``Filing Procedures.''

FOR FURTHER INFORMATION CONTACT: Leora Hochstein, Auctions and Industry 
Analysis Division, Wireless Telecommunications Bureau, at (202) 418-
1022.

SUPPLEMENTARY INFORMATION: This is a summary of a Fourth Further Notice 
of Proposed Rule Making (Fourth FNPRM) adopted on July 27, 2000, and 
released on, August 14, 2000. The complete text of this Fourth FNPRM, 
including attachments, is available for inspection and copying during 
normal business hours in the FCC Reference Center (Room CY-A257), 445 
12th Street, SW, Washington, DC. It may also be purchased from the 
Commission's copy contractor, International Transcription Services, 
Inc. (ITS, Inc.), 1231 20th Street, NW, Washington, DC 20036, (202) 
857-3800. It is also available on the Commission's web site at http://www.fcc.gov/wtb/auctions.

Synopsis of the Further Notice of Proposed Rule Making

A. Rules Governing Designated Entities

i. Total Assets Test
    1. Background. In the first Part 1 Notice of Proposed Rulemaking 62 
FR 13540 (March 21, 1997) in this proceeding, we proposed to define 
small businesses, for the purposes of auctions, ``purely in terms of 
gross revenues.'' In another proceeding, Second Order on 
Reconsideration 62 FR 48787 (September 17, 1997) we observed that 
``[a]ssets, being potentially fluid and subject to inconsistent 
valuation * * * are generally much less ascertainable than gross 
revenues. * * *'' In the Part 1 Third Report and Order, 63 FR 2315 
(January 15, 1998) we adopted our proposal to use gross revenues as our 
general standard for measuring a business' size. We indicated at that 
time that a gross revenues-based standard provides ``an accurate, 
equitable, and easily ascertainable measure of business size.'' 
Furthermore, we observed that while a total assets test had been used 
in the past to determine eligibility for participation in entrepreneur 
block auctions, it had not been employed for determining small business 
eligibility. We also relied on the Small Business Act, which controls 
how agencies may prescribe size standards for categorizing small 
businesses. This statute provides no assets test for categorizing 
business concerns that provide services.
    2. Discussion. The Commission intends its small business provisions 
to be available only to bona fide small businesses. While we have 
concluded in the past to use gross revenues as the measure of business 
size, based on correspondence from the Small Business Administration, 
we take this opportunity to revisit the issue of whether to use a total 
assets test as well. We seek comment on whether the use of a total 
assets test, in conjunction with the gross revenues measure already 
employed, would enhance the Commission's determinations of small 
business status. For example, commenters may address whether a gross 
revenues standard alone allows participation of legitimate start-up 
companies that are supported only by assets held by affiliates. In the 
alternative, commenters should address whether our comprehensive 
affiliation rules counterbalance the effects of a gross revenues 
standard when applied to such enterprises. We ask that commenters cite 
to specific statistical and/or anecdotal evidence when addressing these 
issues. If supporting use of an assets test, commenters should address 
appropriate thresholds for small business determinations. For example, 
commenters may address whether the $500 million total assets test used 
in determining eligibility for entrepreneurs' block auctions provides a 
suitable benchmark. See Implementation of Section 309(j) of the 
Communications Act-Competitive Bidding, Fifth Report and Order 59 FR 
37566 (July 7, 1994). A more complete record on this matter will assist 
the Commission in meeting its goals for small business participation in 
future spectrum auctions.
ii. Attribution of Gross Revenues or Total Assets of Investors and 
Affiliates
    3. Background. In the Second Notice, 63 FR 770 (January 7, 1998) we 
sought further comment on whether to adopt a ``controlling interest'' 
standard as our general rule for attributing to an applicant the gross 
revenues of its investors and their affiliates in determining whether 
the applicant is eligible for small business preferences. In the Fifth 
Report and Order, we adopt the ``controlling interest'' standard as our 
general attribution rule for all future auctions. For purposes of 
calculating equity held in an applicant, the ``controlling interest'' 
definition provides for full dilution of certain stock interests, such 
as warrants, stock options, and convertible debentures. Accordingly, 
under the rule we adopt today, as well as under our existing rules, 
agreements of this type are generally treated as if the rights 
thereunder have been fully exercised. In our Competitive Bidding, Fifth 
Memorandum Opinion and Order (``Fifth M O & O''), 59 FR 63210 (December 
7, 1994) we established two exceptions to the ``fully diluted'' 
requirement for the broadband PCS attribution rule. We decided that two 
types of ownership interests, ``rights of first refusal'' and ``put'' 
options, would not be considered on a fully diluted basis for purposes 
of calculating ownership levels.
    4. Discussion. In this Fourth FNPRM, we seek comment on whether to 
incorporate into our part 1 general competitive bidding rules the two 
exceptions we adopted for our broadband PCS attribution rule. We also 
seek comment on a proposed third exception to our general requirement 
that we treat certain stock interests as ``fully exercised.''
    5. Our attribution rules are designed to preserve control of the 
applicant by eligible entities while allowing investment in the 
applicant by entities that do not meet the size restrictions in our 
rules. We recognize that some forms of stock options and convertible 
debt instruments are common and often beneficial to the management of a 
company. Convertible debt instruments may also allow designated 
entities to obtain debt financing at a lower cost than would otherwise 
be available, thereby preserving working capital for such uses as the 
further construction of facilities. Because our rules generally require 
us to treat stock interests on a fully diluted basis, if an applicant 
grants its lender stock conversion rights in several promissory notes, 
the lender's equity could exceed the applicable limit

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or threshold, thus requiring the applicant to include the lender's 
gross revenues in determining its eligibility as a designated entity.
    6. Our proposed exception to the general attribution rule is a 
refinement to the ``fully diluted'' requirement that addresses stock 
conversion rights that are granted on a contingent basis. An applicant 
may grant conversion rights on a contingent basis, such rights vesting 
only in the event that the lender first assigns or transfers all 
interest in one or more other debt instruments to a qualified 
unaffiliated third party. Thus, the contingent right of conversion in 
one debt instrument could only be exercised upon divestiture of enough 
equity associated with the other debt instruments to allow the lender 
to remain below the applicable equity limit.
    7. We tentatively conclude that furtherance of the policy 
underlying Sec. 1.2110(c)(5)(v) of our designated entities rule does 
not require us to consider all existing stock conversion rights as 
having been fully exercised simultaneously in a case where exercise of 
the various conversion rights are mutually exclusive by their terms. We 
therefore propose an exception to the ``fully diluted'' requirement in 
Sec. 1.2110(c)(5)(v) to permit conversion rights or stock options to be 
considered individually rather than collectively when they are mutually 
exclusive. Under this interpretation, for the purpose of calculating 
ownership interests, all stock interests would continue to be 
calculated on a fully diluted basis, but if a stock interest by its 
terms is mutually exclusive of one or more other stock interests, the 
various ownership interests would be treated as having been fully 
exercised only in the possible combinations in which they can be 
exercised by their holder.
    8. We seek comment on whether we should amend the controlling 
interest standard in our part 1 general competitive bidding rules to 
include this exception to our requirement for calculating ownership 
interests on a fully diluted basis. Under the proposed rule, ownership 
interests that by their terms are capable of being exercised 
simultaneously or successively would continue to be treated 
collectively as if the rights thereunder have been fully exercised. 
Ownership interests that are mutually exclusive would be considered 
separately, but each mutually exclusive ownership interest would be 
considered in combination with all other ownership interests that are 
capable of being exercised with it simultaneously or successively. 
Thus, in calculating the equity held in an applicant, we propose to 
consider the various combinations of stock options or conversion rights 
that could possibly be exercised by an investor. For each combination, 
the ownership interests would be considered to have been fully 
exercised, and each combination would then be reviewed in the context 
of the specific equity limit or threshold applicable in a given case. 
We also propose that, for purposes of this rule, we consider one 
ownership interest to be mutually exclusive of another only if the 
agreement that conveys the first interest contains explicit language 
making it clear that the rights conveyed by that agreement cannot be 
exercised unless all ownership rights associated with the other 
agreement are either terminated or transferred or assigned to a 
qualified unaffiliated third party.
    9. We further propose to codify in our part 1 general competitive 
bidding rules the policy under which we have previously adopted two 
exceptions to our broadband PCS attribution rule for the same reasons 
identified in the Fifth M O & O. Under these exceptions, we would not 
treat ``rights of first refusal'' and ``put'' options as having been 
exercised for purposes of calculating ownership levels. We seek comment 
on this proposal.

B. Procedural Matters And Ordering Clauses

i. Regulatory Flexibility Analysis
    10. As required by the Regulatory Flexibility Act (RFA), the 
Commission has prepared an Initial Regulatory Flexibility Analysis 
(IRFA) of the possible impact on small entities of the proposals and 
tentative conclusions set forth in the Fourth FNPRM in WT Docket No. 
97-82. Written public comments are requested on the IRFA. Comments on 
the IRFA must have a separate and distinct heading designating them as 
responses to the IRFA and must be filed by the deadlines for comments 
on the Fourth FNPRM. In accordance with the RFA, the Commission will 
send a copy of this Fourth FNPRM, including the IRFA, to the Chief 
Counsel for Advocacy of the Small Business Administration.
ii. Paperwork Reduction Act Analysis
    11. This Fourth FNPRM contains neither a new nor a modified 
information collection.

C. Filing Procedures

    12. Pursuant to Secs. 1.415 and 1.419 of the Commission's rules, 47 
CFR 1.415, 1.419, interested parties may file comments on or before 
Ocotber 30, 2000, and reply comments on or before November 27, 2000. 
Comments may be filed using the Commission's Electronic Comment Filing 
System (ECFS) or by filing paper copies. See Electronic Filing of 
Documents in Rulemaking Proceedings, 63 FR 24121 (May 1, 1998).
    13. Comments filed through the ECFS can be sent as an electronic 
file via the Internet to http://www.fcc.gov/e-file/ecfs.html>. 
Generally, only one copy of an electronic submission must be filed. If 
multiple docket or rulemaking numbers appear in the caption of this 
proceeding, however, commenters must transmit one electronic copy of 
the comments to each docket or rulemaking number referenced in the 
caption. In completing the transmittal screen, commenters should 
include their full name, Postal Service mailing address, and the 
applicable docket or rulemaking number. Parties may also submit an 
electronic comment by Internet e-mail. To obtain filing instructions 
for e-mail comments, commenters should send an e-mail to [email protected], 
and should include the following words in the body of the message, 
``get form your e-mail address>.'' A sample form and directions will be 
sent in reply.
    14. Parties that choose to file by paper must file an original and 
four copies of each filing. If participants want each Commissioner to 
receive a personal copy of their comments, an original plus nine copies 
must be filed. All filings must be sent to the Commission's Secretary, 
Magalie Roman Salas, Office of the Secretary, Federal Communications 
Commission, The Portals, 445 12th Street, SW., Room TW-A325, 
Washington, DC 20554. In addition, a courtesy copy should be delivered 
to Leora Hochstein, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, Federal Communications Commission, 445 12th 
Street, SW., Room #4A633, Washington, DC 20554.
    15. All relevant and timely comments will be considered by the 
Commission before final action is taken in this proceeding. Comments 
and reply comments will be available for public inspection and 
duplication during regular business hours in the FCC Reference 
Information Center, Room CY-A257, 445 12th Street, SW., Washington, DC 
20554. Copies also may be obtained from International Transcription 
Services, Inc., 445 12th Street, SW., Room CY-B400, Washington, DC 
20554, (202) 314-3070.

D. Contacts for Further Information

    16. For further information concerning the Fourth FNPRM, contact 
Leora Hochstein at (202) 418-1022 (Auctions and Industry Analysis

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Division, Wireless Telecommunications Bureau).

E. Ordering Clauses

    17. Authority for issuance of this Fourth FNPRM is contained in 
sections 4(i), 309(r), and 309(j) of the Communications Act of 1934, as 
amended, 47 U.S.C. 154(i), 303(r), and 309(j).
    18. It is further ordered that the Commission's Consumer 
Information Bureau, Reference Operations Division, shall send a copy of 
this Fourth FNPRM including the Initial Regulatory Flexibility Analysis 
to the Chief Counsel for Advocacy of the Small Business Administration.

Initial Regulatory Flexibility Analysis

    19. As required by the Regulatory Flexibility Act (RFA), the 
Commission has prepared this Initial Regulatory Flexibility Analysis 
(IRFA) of the expected impact on small entities of the rules proposed 
in this Fourth FNPRM in WT Docket No. 97-82. Written public comments 
are requested on the IRFA. Comments on the IRFA must have a separate 
and distinct heading designating them as responses to the IRFA and must 
be filed by the deadlines for comments on the Fourth FNPRM. The 
Commission will send a copy of the Fourth FNPRM, including this IRFA, 
to the Chief Counsel for Advocacy of the Small Business Administration.

A. Need for, and Objectives of, This Fourth FNPRM

    20. This Fourth FNPRM is being initiated to secure comment on 
additional issues relating to the general competitive bidding rules for 
all auctionable services. Specifically, the Fourth FNPRM seeks comment 
on whether the Commission should use a total assets test, in 
conjunction with the gross revenues measure already employed, in 
determining whether auction applicants qualify as small businesses. The 
Commission seeks to ensure that only bona fide small businesses are 
eligible for the small business provisions. It, therefore, solicits 
comment on whether the application of a total assets test would enhance 
its determinations of small business status. Further, in the Order on 
Reconsideration, Fifth Report and Order, (published elsewhere in this 
issue of the Federal Register), the Commission adopts as its general 
attribution rule a ``controlling interest'' standard, which provides 
for the full dilution of certain stock interests for purposes of 
calculating equity held in an applicant. In this Fourth FNPRM, the 
Commission proposes to codify in the part 1 competitive bidding rules 
the policy under which it previously adopted two exceptions to the 
``fully diluted'' requirement of its broadband PCS attribution rule. 
Under these exceptions, two types of ownership interests, ``rights of 
first refusal'' and ``put'' options, would not be considered on a fully 
diluted basis for purposes of calculating ownership levels. The 
Commission also seeks comment on whether it should adopt a third 
exception to the ``fully diluted'' requirement of Sec. 1.2110(b)(4)(v) 
of the Commission's rules. The Commission proposes that, in calculating 
the equity held in an applicant, the conversion rights or stock options 
be considered individually rather than collectively when they are 
mutually exclusive. The Commission believes that these proposals will 
enhance its assessments of small business eligibility.

B. Legal Basis

    21. This action is taken pursuant to sections 4(i), 5(b), 5(c)(1), 
303(r), and 309 (j) of the Communications Act of 1934, as amended, 47 
U.S.C. 154(i), 155(b), 155(c)(1), 303(r), and 309(j).

C. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply

    22. The Commission is required to provide a description of and, 
where feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The rules proposed in this 
Fourth FNPRM would apply to license applicants seeking small business 
status in all future auctions. In estimating the number of small 
entities that may participate in future auctions of wireless services, 
the Commission anticipates that the makeup of current wireless services 
licensees is representative of future auction participants. The 
Commission hereby incorporates into this IRFA section the Supplemental 
FRFA analysis and descriptions of potentially affected small entities.

D. Description of Reporting, Recordkeeping, and Other Compliance 
Requirements

    23. The Fourth FNPRM proposes the adoption of a total assets test 
to be used in conjunction with the gross revenues measure already 
employed in determining whether auction applicants qualify as small 
businesses. The total assets test would require auction applicants 
seeking small business status to disclose their assets.

E. Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    24. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (i) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (ii) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(iii) the use of performance, rather than design, standards; and (iv) 
an exemption from coverage of the rule or any part thereof for small 
entities.
    25. The Commission has adopted specific provisions to promote small 
business participation in spectrum auctions. In order to ensure that 
only those entities truly meriting small business status qualify for 
special preferences, such as bidding credits, the Commission must have 
an accurate and easily applicable method of calculating business size. 
While it has concluded in the past to use gross revenues as the measure 
of business size, it now seeks comment on whether to use a total assets 
test as well. The Commission also seeks comment on whether it should 
adopt exceptions to the general requirement that certain stock 
interests are treated as fully diluted in calculating the equity held 
in an applicant. These proposals are intended to help the Commission 
realize its goal of widening the opportunities for small businesses in 
the spectrum auction program.
    26. Federal Rules Which Overlap, Duplicate, Or Conflict With These 
Rules. None.

List of Subjects in 47 CFR Part 1

    Communications common carriers, Reporting and recordkeeping 
requirements.

    Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 00-21981 Filed 8-28-00; 8:45 am]
BILLING CODE 6712-01-P