[Federal Register Volume 65, Number 168 (Tuesday, August 29, 2000)]
[Rules and Regulations]
[Pages 52323-52348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21982]


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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: Final rule.

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SUMMARY: This document clarifies and amends the Commission's general 
competitive bidding rules for all, auctionable services. These 
modifications are intended to increase the efficiency of the 
competitive bidding process and provide more specific guidance to 
auction participants. In the past, the Commission adopted separate 
competitive bidding rules for each auctionable service. This rule 
making is part of the Commission's ongoing effort to establish a 
uniform and streamlined set of general competitive bidding rules for 
all auctionable services and to reduce the burden on both the 
Commission and the public of conducting service-specific auction rule 
makings.

DATES: Effective October 30, 2000. Public and agency comments on the 
information collection are due on or before October 30, 2000.

ADDRESSES: Office of the Secretary, Federal Communications Commission, 
445 12th St., SW., Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Leora Hochstein, Auctions and Industry 
Analysis Division, Wireless Telecommunications Bureau, at (202) 418-
0660.

SUPPLEMENTARY INFORMATION: This is a summary of an Order on 
Reconsideration of the Third Report and Order, Fifth Report and Order 
(Order on Reconsideration, Fifth Report and Order) in the Commission's 
Part 1--Competitive Bidding proceeding adopted July 27, 2000 and 
released August 14, 2000. The complete text of this Order on 
Reconsideration, Fifth Report and Order 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 Order on Reconsideration of the Third Report and 
Order, Fifth Report and Order

    1. The Commission adopts an Order on Reconsideration, Fifth Report 
and Order in its Part 1--Competitive Bidding proceeding, clarifying and 
amending general competitive bidding rules for all auctionable 
services. These modifications are intended to increase the efficiency 
of the competitive bidding process and provide more specific guidance 
to auction participants. In the past, the Commission adopted separate 
competitive bidding rules for each auctionable service. This rule 
making is part of the Commission's ongoing effort to establish a 
uniform and streamlined set of general competitive bidding rules for 
all auctionable services and to reduce the burden on both the 
Commission and the public of conducting service-specific auction rule 
makings.
    2. In 1994, in implementing the Omnibus Budget Reconciliation Act 
of 1993, the Commission prescribed certain general competitive bidding 
rules and procedures, indicating that it would use these general rules 
and procedures as a basis for adopting specific competitive bidding 
rules for each auctionable service. See Implementation of Section 
309(j) of the Communications Act--Competitive Bidding, PP Docket No. 
93-253, Second Report and Order, 59 FR 22980 (May 4, 1994) 
(``Competitive Bidding Second Report and Order''). See Implementation 
of Section 309(j) of the Communications Act--Competitive Bidding, PP 
Docket No. 93-253, Second Memorandum Opinion and Order, 59 FR 44272 
(August 26, 1994). In 1997, after completing 15 spectrum auctions and 
adopting service-specific bidding rules for each such auction, the 
Commission initiated a proceeding to expand the general competitive 
bidding rules, contained in part 1, subpart Q of its rules, and 
replaced any inconsistent or repetitive service-specific auction rules. 
See Amendment of Part 1 of the Commission's Rules--Competitive Bidding 
Proceeding, WT Docket No. 97-82, Order, Memorandum Opinion and Order 
and Notice of Proposed Rule Making, (``Part 1 NPRM'') 62 FR 13570 
(March 21, 1997). The most recent comprehensive order in this 
proceeding was the Third Report and Order, 63 FR 2315 (January 15, 
1998), and Second Further Notice of Proposed Rule Making, 63 FR 770 
(January 7, 1998), (``Part 1 Third Report and Order'' and ``Second 
FNPRM''). In the Order on Reconsideration, the Commission addresses 
petitions for reconsideration and comments filed in response to the 
Part 1 Third Report and Order. The Fifth Report and Order addresses 
comments filed in response to the Second FNPRM, and the Fourth FNPRM, 
published elsewhere in this issue of the Federal Register, and adopted 
herein seeks comment on additional proposals relating to the general 
competitive bidding rules.

I. Executive Summary

    3. In this Order on Reconsideration the Commission:
     Amends Sec. 1.2105(c)(1) of its rules to clarify that the 
prohibition on collusion begins on the filing deadline for short-form 
applications and ends on the down payment deadline.
     Clarifies and corrects the ownership disclosure 
requirements contained in Sec. 1.2112 of its rules. In particular, with 
respect to entities not seeking designated entity status, the 
Commission eliminates the requirement to include debt and instruments 
such as warrants, convertible debentures, options and other debt 
interests in reporting their ownership interests.
     Amends Sec. 1.2104(g)(1) of its rules to clarify that in 
the case of multiple bid withdrawals on a single license, within the 
same or subsequent auction(s), the payment for each bid withdrawal will 
be calculated based on the sequence of bid withdrawals and the amounts 
withdrawn. The Commission further clarifies that no withdrawal payment 
will be assessed for a withdrawn bid if either the subsequent winning 
bid or any of the intervening subsequent withdrawn bids, in either the 
same or subsequent auction(s), equals or exceeds that withdrawn bid. In 
addition, the

[[Page 52324]]

Commission amends Sec. 1.2104(g)(1) of its rules to provide that in 
instances in which bids have been withdrawn on a license that is not 
won in the same auction, the Commission will assess an interim 
withdrawal payment equal to 3 percent of the amount of the bid 
withdrawals.
     Retains, for the most part, the installment payment grace 
period and late payment fee provisions adopted in the Part 1 Third 
Report and Order, but adopts a slight modification to the payment due 
dates for late installment payments and associated late fees.
     Clarifies that licensees continue to have the opportunity 
to seek restructuring of installment payments. There is, however, no 
longer a procedure for requesting a grace period to stay installment 
payment deadlines pending such restructuring. Rather, licensees will be 
subject to the automatic late payment provisions of Sec. 1.2110(g) as 
adopted herein.
     Clarifies that the assignee or transferee of a license 
paid for through installment payments is not responsible for the 
license debt until the assignment of license or transfer of control has 
been consummated.
     Clarifies that the unjust enrichment rules for bidding 
credits (Sec. 1.2111(d) of the Commission's rules) do not apply to 
assignments or transfers of C and F block licenses to non-
entrepreneurs. The Commission further clarifies that pursuant to 
Secs. 1.2111(c) and (d) of its rules, Commission approval of 
assignments of licenses and transfers of control that result in unjust 
enrichment with respect to bidding credits and installment payments is 
conditioned upon full payment of the required unjust enrichment 
payments on or before the consummation date.
     Clarifies that licensees defaulting on installment 
payments are subject to the default provisions of Sec. 1.2110(f)(4) of 
its rules (redesignated herein as Sec. 1.2110(g)(4)), and not to 
Sec. 1.2104(g).
     Incorporates into the part 1 general competitive bidding 
rules the ``former defaulter'' policies adopted with respect to C block 
auction applicants. Specifically, the Commission: (i) allows ``former 
defaulters,'' i.e., applicants that have defaulted or been delinquent 
in the past, but have since paid all of their outstanding non-tax debts 
and all associated charges or penalties, to certify on FCC Form 175 
that they are not in default and are, therefore, eligible for auction 
participation; and (ii) requires ``former defaulters'' to pay an 
upfront payment amount of 1.5 times the normal amount set by the Bureau 
for any given license in a Commission auction.
     Clarifies that licensees defaulting on installment 
payments will be permitted to participate in future Commission spectrum 
auctions if they have either (i) paid all of their outstanding non-tax 
debt, along with all associated charges and penalties; or (ii) been 
relieved of such obligations pursuant to otherwise applicable law. In 
all instances, installment payment defaulters eligible to participate 
in future auctions will be required to pay an upfront payment amount of 
1.5 times the normal amount set by the Bureau for any given license in 
a Commission auction to assure their future financial soundness.
    4. In this Fifth Report and Order the Commission:
     Declines, at this time, to adopt special provisions for 
minority-and women-owned businesses pending completion of a series of 
market studies to determine whether, and under what circumstances, 
targeted preferences for minorities and women are appropriate. The 
Commission notes, however, that minority-and women-owned businesses 
that qualify as small businesses may take advantage of the provisions 
the Commission has adopted for small businesses.
     Declines, at this time, to adopt special provisions for 
rural telephone companies, such as bidding preferences or an unserved 
area fill-in policy. The Commission notes, however, that it will 
continue to provide rural telephone companies with bidding credits 
should such entities qualify as small businesses.
     Adheres to the Commission's previous decision to suspend 
the installment payment program. The Commission will, however, continue 
to provide small businesses with bidding credits as it has done in 
auctions for a number of services, e.g., the Local Multipoint 
Distribution Service (``LMDS''), Location and Monitoring Service 
(``LMS''), 220 MHz and VHF Public Coast services.
     Adopts as its general attribution rule a controlling 
interest standard for determining which applicants qualify as small 
businesses. Under this standard, the Commission will attribute to the 
applicant the gross revenues of its controlling interests and their 
affiliates in assessing whether the applicant qualifies for its small 
business provisions, such as bidding credits. The Commission does not 
adopt a minimum equity threshold. Rather, applicants will be required 
to identify controlling interests based on the principles of either de 
jure or de facto control. Current C and F block licensees will continue 
to be eligible to hold their licenses regardless of whether or not they 
would qualify under the newly established attribution rules adopted 
herein. As to future C and F block auctions, however, all applicants, 
including existing C and F block licensees, will be subject to the 
attribution rules in effect at the time of filing their short-form 
applications.
     Maintains its rule of calculating default payment amounts 
on a license-by-license basis and implements the Balanced Budget Act 
provisions regarding administrative filing periods as set forth here.
     Delegates to the Wireless Telecommunications Bureau the 
authority to make any revisions to the Code of Federal Regulations that 
are necessary to conform the service-specific auction rules to the part 
1 general competitive bidding rules.

II. Order on Reconsideration of the Third Report and Order

A. Introduction

    5. In response to the Part 1 Third Report and Order, the Commission 
received seven petitions for reconsideration and two comments in 
support of the petitions for reconsideration. A list of the parties 
that filed pleadings in response to the Part 1 Third Report and Order, 
and the abbreviations used to refer to such parties, is included in 
Appendix B of the complete document. The petitioners raise various 
issues regarding installment payments for auction-won licenses. For the 
reasons discussed here, the Commission clarifies certain rules at 
petitioners' request and dismiss or deny these petitions in all other 
respects. Further, the Commission addresses comments filed in response 
to the ULS NPRM that relates to aspects of its auction rules. See 
Biennial Regulatory Review--Amendment of Parts 0, 1, 13, 22, 24, 26, 
27, 80, 87, 90, 95, 97, and 101 of the Commission's Rules to Facilitate 
the Development and Use of the Universal Licensing System in the 
Wireless Telecommunications Services, WT Docket No. 98-20, Notice of 
Proposed Rulemaking, 63 FR 16938 (April 7, 1998) (``ULS NPRM''). In 
addition, the Commission takes this opportunity to clarify, on its own 
motion, certain aspects of the Part 1 Third Report and Order.

B. Clarification of Prohibition on Collusion

    6. Background. Section 1.2105(c)(1) of the Commission's rules 
generally prohibits collusion between competing bidders from ``after 
the filing of short-form applications * * * until after the

[[Page 52325]]

high bidder makes the required down payment * * *'' See 47 CFR 
1.2105(c)(1). The Commission's bidder information packages generally 
state that ``[t]his prohibition begins with the filing of short-form 
applications, and ends on the down payment due date.'' The Commission's 
Public Notices specifically provide that the collusion prohibition 
becomes effective on the ``filing deadline of short-form applications'' 
and ends on the ``post-auction down payment due date.'' To avoid any 
confusion regarding when the prohibition on collusion begins and ends, 
the Commission believes it is necessary to amend Sec. 1.2105(c)(1) of 
its rules.
    7. Discussion. On its own motion, the Commission amends 
Sec. 1.2105(c)(1) of its rules to provide that applicants are 
prohibited from communicating with each other about bids, bidding 
strategies, or settlements from ``after the short-form application 
filing deadline * * * until after the down payment deadline * * *.'' 
This rule change makes clear that competing bidders may not engage in 
communications prohibited by the rule from the date that short-form 
applications are due to the Commission until after the down payment 
deadline has passed. The amendment affirms that there is a uniform date 
for all bidders on which restrictions on communications begin and end.

C. Clarification of Sec. 1.2112

    8. Background. In the Part 1 Third Report and Order, the Commission 
concluded that detailed ownership information is necessary to ensure 
that applicants claiming designated entity status qualify for such 
status and that all applicants comply with spectrum caps and other 
ownership limits. The Commission also stated that disclosure of 
ownership information helps bidders identify entities that are subject 
to its anti-collusion rules. To these ends, the Commission promulgated 
Sec. 1.2112, based on its broadband PCS rules, to serve as a uniform 
ownership disclosure rule for all auctionable services.
    9. Discussion. Because a number of applicants in the Phase II 220 
MHz auction found Sec. 1.2112 confusing, the Commission has decided, on 
reconsideration, to reorganize the rule in a more logical, 
straightforward manner. The Commission first revised Sec. 1.2112(b)(1) 
to use the term ``controlling interest'' to describe the parties whose 
connection or relationship with another FCC-regulated business must be 
reported under (b)(1). A ``controlling interest'' includes individuals 
or entities, or groups of individuals or entities, that have control of 
the applicant under the principles of either de jure or de facto 
control as discussed herein. Then, because identification of 
controlling interests is significant only for applicants claiming 
designated entity status, the Commission includes those reporting 
requirements related to such status in paragraph (b), which applies 
only to applicants claiming eligibility for small business provisions. 
The Commission also corrects the rule to indicate that gross revenues 
must be reported not only on the long-form application, but also on the 
short-form application.
    10. In addition, the Commission corrects Sec. 1.2112(a)(3) in which 
it used language that was overly broad. Section 1.2112(a)(3) states 
erroneously that an applicant must provide: ``[a] list of any party 
holding a 10 percent or greater interest in any entity holding or 
applying for any FCC-regulated business in which a 10 percent or more 
interest is held by another party which holds a 10 percent or more 
interest in the applicant.'' This language has the unintended effect of 
requiring the reporting of parties with a distant relationship to the 
applicant. Section 1.2112(a)(3), however, also provides the following 
example: ``If Company A owns 10 percent of Company B (the applicant) 
and 10 percent of Company C then Companies A and C must be listed on 
Company B's application.'' The rule's example accurately reflects which 
parties the Commission intended the applicant to report. That is, when 
a company (Company A) that must be reported under the rule because of 
its ownership interest in the applicant (Company B) also owns at least 
10 percent of another company that is an FCC-licensed entity or 
applicant for an FCC license (Company C), Company C must be reported. 
The Commission's intent was to require that FCC-regulated entities be 
reported when there is a connection between such an entity and the 
applicant at issue through a common owner. The Commission therefore 
amends Sec. 1.2112 to better reflect its intent and comport with the 
example provided in the rule. In addition, the Commission amends 
Sec. 1.2112 to require applicants to disclose, in the case of a limited 
liability company, only those members that hold a 10 percent or greater 
interest in the applicant. Section 1.2112(a)(8), as adopted in the Part 
1 Third Report and Order, required applicants to disclose all members 
of a limited liability company, regardless of their ownership interest 
in the applicant. The Commission now revises the disclosure requirement 
pertaining to limited liability companies to be consistent with those 
regarding limited partnerships. Finally, the Commission changes other 
aspects of the sequencing so that the revised rule begins by seeking 
general information in Sec. 1.2112(a)(1) through (a)(4) and becomes 
progressively more detailed in (a)(5) and (a)(6). This ``building 
block'' approach is intended to provide applicants with a clearer 
understanding regarding the information that must be disclosed.
    11. The Commission also takes this opportunity to address relevant 
comments that were filed separately in response to the ULS NPRM. In 
comments on the ULS NPRM, commenters object to the breadth of 
information collected in Sec. 1.2112. In particular, they argue that 
the requirement to identify direct and indirect owners with an interest 
of 10 percent or greater is burdensome and overly broad. The Commission 
disagrees, and believes that the 10 percent reporting requirement helps 
competing, bidders accurately assess the legitimacy of their auction 
opponents and their respective bids. As discussed in the Part 1 Third 
Report and Order, the collection of detailed ownership information is 
necessary for ensuring compliance with ownership limits, such as 
spectrum caps. Disclosure of ownership information also aids bidders by 
providing them with information about their auction competitors and 
alerting them to entities subject to the Commission's anti-collusion 
rules. The Commission agrees with commenters, however, that Sec. 1.2112 
could be less burdensome in certain regards. Therefore, except for 
entities claiming special eligibility or designated entity status, the 
Commission will not require applicants to include information regarding 
warrants, convertible debentures, stock options, debt securities or 
other debt interests as part of the 10 percent reporting requirement 
unless and until conversion of such interests is effected. Generally, 
the Commission has not included such interests in calculating ownership 
interests under rules establishing various ownership limits. See 47 CFR 
20.6(d) (CMAS spectrum cap), 22.942(d) (cellular cross-interest), 
73.3555 Note 2 (broadcast multiple ownership), and 76.501 Note 2 (cable 
cross-ownership). The Commission agrees with commenters that the 
current reporting burden imposed on applicants may exceed the benefit 
of requiring disclosure of these interests. The Commission continues to 
believe, however, that in calculating ownership

[[Page 52326]]

interests for the purpose of determining designated entity status and 
eligibility for bidding credits, warrants, convertible debentures, 
options and other debt interests must be treated as having been 
exercised and must be reported as part of the applicant's disclosure. 
In the case of applicants seeking special eligibility or designated 
entity status, the Commission has traditionally treated these interests 
as being fully diluted because it is reaching determinations regarding 
the bona fide nature of the applicant. See 47 CFR. Sec. 24.813 (1997). 
This section was subsequently removed from the Code of Federal 
Regulations. See Biennial Regulatory Review--Amendment of Parts 0, 1, 
13, 22, 24, 26, 27, 80, 87, 90, 95, 97, and 101 of the Commission's 
Rules to Facilitate the Development and Use of the Universal Licensing 
System in the Wireless Telecommunications Services, WT Docket No. 98-
20, ULS Report and Order, 63 FR 68904 (December 14, 1998). Thus, the 
Commission agrees that it is reasonable for it to require more 
ownership information from these entities where such information is 
designed to show that the special eligibility and/or bidding credit is 
both legitimate and warranted.

D. Computation of Bid Withdrawal Payments Under Sec. 1.2104

    12. Background. Section 1.2104(g)(1) of the Commission's rules sets 
forth the payment obligations of a bidder that withdraws a high bid on 
a license during the course of an auction. Specifically, it provides 
that a bidder that withdraws a standing high bid is subject to a 
payment equal to the difference between the amount of the withdrawn bid 
and the amount of the subsequent winning bid the next time the license 
is offered by the Commission. As the auctions program has evolved, 
however, the Commission has encountered situations involving multiple 
bid withdrawals on a single license, which are not specifically 
addressed by Sec. 1.2104(g)(1) of the Commission's rules. The 
Commission, therefore, believes it is necessary to broaden its rule to 
clarify its application to this particular contingency. In addition, 
the Commission wishes to modify Sec. 1.2104(g)(1) to more specifically 
articulate its policy of assessing interim bid withdrawal payments.
    13. Discussion. On its own motion, the Commission clarifies a 
policy that the Bureau has relied on in the past. If a bidder withdraws 
its bid and there is no higher bid in the same or subsequent 
auction(s), the bidder that withdrew its bid is responsible for the 
difference between its withdrawn bid and the net high bid in the same 
or subsequent auction(s). In the case of multiple bid withdrawals on a 
single license, within the same or subsequent auction(s), the payment 
for each bid withdrawal will be calculated based on the sequence of bid 
withdrawals and the amounts withdrawn. No withdrawal payment will be 
assessed for a withdrawn bid if either the subsequent winning bid or 
any of the intervening subsequent withdrawn bids, in either the same or 
subsequent auction(s), equals or exceeds that withdrawn bid. Thus, a 
bidder that withdraws a bid will not be responsible for any withdrawal 
payments if there is a subsequent higher bid in the same or subsequent 
auction(s). This policy allows bidders to most efficiently allocate 
their resources as well as to evaluate their bidding strategies and 
business plans during an auction while, at the same time, maintaining 
the integrity of the auction process. The Bureau retains the discretion 
to scrutinize multiple bid withdrawals on a single license for evidence 
of anti-competitive strategic behavior and take appropriate action when 
deemed necessary.
    14. The Commission also wishes to modify Sec. 1.2104(g)(1) of its 
rules to state more specifically its policy of assessing interim bid 
withdrawal payments. The Commission amends Sec. 1.2104(g)(1) to provide 
that in instances in which bids have been withdrawn on a license that 
is not won in the same auction, the Commission will assess an interim 
withdrawal payment equal to 3 percent of the amount of the bid 
withdrawals. The 3 percent interim payment will be applied toward any 
final bid withdrawal payment that will be assessed at the close of the 
subsequent auction of the license. Assessing an interim bid withdrawal 
payment ensures that the Commission receives a minimal withdrawal 
payment pending assessment of any final withdrawal payment.

E. Installment Payment Grace Periods and Imposition of Late Payment 
Fees

    15. Background. The installment payment rules, adopted in the 
Competitive Bidding Second Report and Order, permitted a licensee to 
make an installment payment up to 90 days after the due date without a 
late payment charge and without being considered in default. A licensee 
whose installment payment was more than 90 days past due, however, was 
in default, unless a ``grace period'' request was filed prior to the 
payment due date. See 47 CFR Sec. 1.2110(b)(4)(x)(E)(4)(i) and (ii) 
(1994). Specifically, in anticipation of default on one or more 
installment payments, a licensee could request that the Commission 
grant a three to six month grace period during which no installment 
payments need be made. The licensee would not be declared in default 
during the pendency of such request. Grant of the request would result 
in the licensee not being considered in default during the grace 
period, and the interest that accrued while no payments were made would 
be amortized over the remaining term of the license. Following the 
expiration of any grace period without successful resumption of 
payment, or upon denial of a grace period request, or default with no 
such request submitted, the license would cancel automatically.
    16. In the Part 1 Third Report and Order, the Commission modified 
the grace period provisions as applied to all licensees participating 
in an installment payment plan at that time. These provisions took 
effect on March 16, 1998. Thus, beginning with installment payments due 
on or after March 16, 1998, a licensee that did not make an installment 
payment when due automatically had an additional 90 days in which to 
submit its required payment without being considered delinquent, but 
was assessed a late payment fee equal to 5 percent of the amount of the 
past due installment payment. If the licensee failed to make the 
required payment within the first 90-day period, the licensee was 
automatically provided a subsequent 90 days to submit its required 
payment without being considered delinquent, this time subject to a 
second, additional late payment fee equal to 10 percent of the amount 
of the past due installment payment. The licensee was not required to 
submit a request to take advantage of these provisions. A licensee that 
failed to make payment within 180 days after an installment payment due 
date sufficient to pay all past due late payment fees, interest, and 
principal, was deemed to have failed to make full payment of its 
obligation and the license was automatically cancelled without further 
Commission action. The late payment fee and automatic cancellation 
provisions described did not apply to licensees with grace period 
requests that were properly filed prior to the effective date of the 
Part 1 Third Report and Order until such time as the Commission (or the 
Bureau upon delegated authority) addressed these grace period requests.
    17. Discussion. All petitioners oppose some aspect of the modified 
provisions relating to the submission of late installment payments. In 
challenging

[[Page 52327]]

the modified late payment provisions, petitioners generally argue that: 
(i) they are unfair, punitive, and commercially unreasonable; (ii) they 
constitute impermissible retroactive rulemaking as applied to licensees 
currently participating in the installment payment plan; and (iii) they 
violate basic contract principles. The Commission addresses each of 
these arguments in turn.
    18. While installment payments must be timely, the Commission's 
grace period provisions provide limited relief for entities that find 
themselves in financial distress. Petitioners claim that the revised 
late payment provisions are unfair because, in determining auction and 
construction strategies, petitioners had relied on the availability of 
a 90-day non-delinquency period and deferral of payment obligations 
while grace period requests remained pending. The Commission's late 
payment provisions, however, were not intended to serve as a tool that 
licensees might use in their normal course of planning auction strategy 
and build-out. These provisions are provided for extraordinary 
circumstances--instances of financial distress--for which temporary 
relief is appropriate. Petitioners' assertions of reliance on such 
provisions for any other purpose are misplaced. Petitioners also claim 
that it is punitive and commercially unreasonable to impose the same 
late payment fee amount whether the payment arrives one day late or 
ninety days late. The Commission disagrees. The Commission's 
fundamental goal in adopting the late payment provisions is to 
encourage payment by the due date. Achievement of this goal is best 
attainable by adhering to the 5 percent and 10 percent late payment fee 
schedule the Commission has adopted. A prorated approach towards late 
fees could serve as a disincentive to licensees to pay on time and, 
thereby, undermine achievement of the Commission's basic goal. As the 
Commission stated in the Part 1 Third Report and Order, the 
Commission's ``approach is consistent with the standard commercial 
practice of establishing late payment fees and developing financial 
incentives for licensees to resolve capital issues before payment due 
dates.'' Further, the approach the Commission has taken is a 
commercially reasonable debt management practice used with respect to a 
variety of debt instruments from credit cards to mortgages. Therefore, 
the Commission disagrees with petitioners' claims that the revised late 
payment provisions are unfair, punitive, and commercially unreasonable.
    19. Petitioners also contend that the regulatory changes to the 
installment payment program adopted in the Part 1 Third Report and 
Order are unlawfully retroactive, insofar as they could have an adverse 
effect on the previously established installment payment obligations. 
For example, a commenter claims that the revised late payment rules 
unsettle the expectations of licensees that opted to pay for licenses 
in installments. Another commenter argues that a ``rule'' under the 
Administrative Procedure Act (``APA'') is supposed to embody ``the 
whole or a part of any agency statement of general or particular 
applicability and future effect. * * *'' These arguments do not 
withstand analysis.
    20. The Commission's new Part 1 rules do not violate the 
prohibitions on ``primary retroactivity'' under the APA as set forth in 
Supreme Court cases such as Bowen v. Georgetown Univ. Hospital, 488 
U.S. 204 (1988). The Commission has not, for example, gone back to past 
transactions and imposed new penalties for conduct, which was 
previously allowed by its rules. Rather, the Commission here merely 
prescribed rules for the future, i.e., prospective procedures by which 
licensees remit installment payments after March 16, 1998, the 
effective date of the new rules, that deal with past transactions, 
i.e., the previously established installment payment obligations. Such 
a rule change does not constitute unlawful retroactive rulemaking under 
the APA.
    21. Further, the fact that the new rules may unsettle expectations 
about the economic benefits of participating in the installment payment 
plan does not make the new rules unlawfully retroactive. In that 
regard, the U.S. Court of Appeals for the D.C. Circuit has explained: 
``[A] new rule or law is not retroactive `merely because it * * * 
upsets expectations based on prior law.' '' DirecTV, Inc. v. FCC 110 
F.3d 816, 826 (D.C. Cir. 1997) (quoting Landgraf v. USI Film Products, 
511 U.S. 244, 269, 114 S. Ct. 1483, 1499 (1994)). This type of 
``secondary'' retroactivity is an entirely lawful consequence of much 
agency rulemaking and does not by itself render a rule invalid. 
Commission licensees, in particular, have no vested right to an 
unchanged regulatory scheme throughout their license term. Therefore, 
petitioners' claim that the revised late payment provisions are 
unlawfully retroactive fails.
    22. Finally, petitioners contend that contract law precludes 
application of the new late payment procedures to licensees paying for 
their licenses in installments prior to the effective date of the Part 
1 Third Report and Order. For example, a commenter challenges the 
Commission's elimination of the 90-day non-delinquency period, which 
was incorporated as a term of the existing promissory notes executed by 
900 MHz Specialized Mobile Radio service (900 MHz SMR) licensees. Other 
commenters argue that adoption of the new late payment procedures 
constitutes unilateral modification (i.e., breach) of a contract 
between the Commission and the licensees for payment of licenses under 
specified payment terms even without a signed promissory note.
    23. Installment payment programs currently exist in the following 
services: the 218-219 MHz Service, broadband Personal Communications 
Services (PCS) frequency block C, broadband PCS frequency block F, 
broadband PCS frequency block A (pioneers' preference licensees only), 
regional narrowband PCS, 900 MHz SMR, and the Multipoint Distribution 
Service (MDS). For some services in which the Commission has offered 
installment payments, far from being punitive and unreasonable, the 
Commission has afforded extraordinary relief regarding installment 
payment obligations. Specifically, the Commission suspended the effect 
of the new late payment provisions as applied to any license in the 
218-219 MHz Service for which a properly filed grace period request was 
pending or for which adequate installment payments were made as of 
March 16, 1998, pending Commission resolution of issues raised in the 
218-219 MHz Service Order, 63 FR 54073 (October 8, 1998), and NPRM, 63 
FR 52215 (September 30, 1998). Most recently, the Commission offered 
restructuring to certain 218-219 MHz Service licensees. Regarding these 
licensees, therefore, there is no conflict between the application of 
the new late payment procedures and contract law.
    24. Among the remaining licensees that have benefitted from 
Commission installment payment plans, licensees in broadband PCS 
frequency block A and regional narrowband PCS did not sign separate 
loan documents. The payment terms and conditions with respect to these 
licenses, therefore, have always been a matter of Commission regulation 
through the part 1 rules. In this regard, the following language 
appears on the licenses themselves: ``This authorization is subject to 
the condition that the remaining balance of the winning bid amount will 
be paid in accordance with part 1 of the Commission's rules.'' These 
licensees were aware, or should have been aware, that the terms and 
conditions of part 1 or other aspects of the license can be modified by 
the Commission by rulemaking, and that such changes have been uniformly

[[Page 52328]]

upheld by the courts as lawful. The part 1 rules at issue in this 
proceeding were modified subject to APA-consistent administrative 
rulemaking procedures and are intended to provide greater flexibility 
to licensees in determining their use of grace periods and late payment 
provisions. The application of the Commission's modified late payment 
provisions does not constitute a breach of contract as argued by these 
petitioners.
    25. Some SMR and MDS licensees argue that the Promissory Note and 
Security Agreements executed by these licensees bound the Commission to 
the rules in place at the time of the license grant. This is 
demonstrably incorrect. The Commission did not promise these licensees, 
or any other licensees, that the part 1 rules would remain unchanged 
during the license term. Rather, the Note and Security Agreement 
provide that the licensee must comply with ``all Commission orders and 
regulations applicable to the licensee,'' without regard to the time in 
which those applicable rules were promulgated or amended. The SMR and 
MDS notes emphasized that the Commission's rules, as amended, would 
take precedence over the terms of the notes in case of any conflict. 
Moreover, when addressing future events, such as the making of 
installment payments, applications for grace periods and incidents of 
default, the Note and Security Agreement refer to the ``then-
applicable'' rules of the Commission, a clear reference to the rules 
that would be applicable at the time of such events. Specifically with 
respect to ``grace periods'' which were modified by the revision of 
part 1, the SMR and MDS Notes are worded conditionally--``if any such 
grace period or extension of payments is provided for in the then-
applicable orders and regulations of the Commission.'' This conditional 
language confirms that the ``then-applicable'' grace period rules 
referred to in the Note are those rules that may exist at the time in 
the future when a grace period is sought, and not necessarily the rules 
that were in place at the time of the license grant; otherwise, the 
sentence would not have been phrased as a contingency, but would have 
cited whatever grace period rules were in effect at the time of the 
Note. Given these provisions, the last paragraph in the Note--which 
states that the Note may not be changed except by an agreement in 
writing executed by the party against whom enforcement of such change 
is sought--means that individual modifications to any particular 
agreement must be made in writing by mutual consent. Significantly, 
however, this clause does not preclude service-wide changes of the 
governing rules by the agency's public notice and comment rulemaking 
process. Specifically, the Payee, by signing such Note, has already 
agreed to be bound by the Commission's rules as they may be amended 
from time to time in the provisions of the Note and Security Agreement 
referencing the ``then-applicable'' rules of Commission. The 
Commission, therefore, retains the modified grace period and late 
payment fee provisions adopted in the Part 1 Third Report and Order.
    26. As discussed, the Commission concludes that the revised late 
payment rules are not commercially unreasonable, do not constitute 
impermissible retroactive rulemaking, and do not violate basic contract 
principles. The Commission believes, however, that a slight 
modification to the payment due dates for late installment payments and 
associated late fees would benefit licensees. Under the Part 1 Third 
Report and Order, licensees that miss an installment payment are given 
up to two 90-day periods in which to submit the installment payment and 
associated late fee without being considered delinquent. Regularly 
scheduled installment payments, on the other hand, are due quarterly 
(i.e., every 3 months), which may provide a licensee with up to 92 
calendar days to make timely payment depending upon the month in which 
the payment is due. This discrepancy in payment due dates may cause 
confusion for licensees. For example, a late installment payment and 
associated late fee may be due a day or two before the next regularly 
scheduled quarterly installment payment. Because these due dates are so 
proximate, licensees may mistakenly assume that they can pay their late 
installment payment and late fee on the due date of the next regularly 
scheduled quarterly installment payment without incurring an additional 
late payment fee or being considered delinquent.
    27. In order to avoid any confusion as to when late installment 
payments and accompanying late fees are due, the Commission will amend 
the due dates for late installment payments to comport with quarterly 
due dates. Specifically, rather than providing licensees that fail to 
make timely installment payments with two 90-day periods in which to 
satisfy their payment obligations, the Commission will provide such 
licensees with two quarters (two 3-month periods) in which to submit 
their late installment payments and required late fees without being 
considered delinquent. Thus, due dates for late installment payments 
and associated late fees will coincide with quarterly due dates for 
regularly scheduled installment payments. Although the Commission 
modifies the due dates for submitting late installment payments, it 
does not change the associated late fee provisions. The Commission, 
therefore, amends Sec. 1.2110(f)(4) (redesignated herein as 
Sec. 1.2110(g)(4)) of its rules to provide that a licensee that fails 
to make an installment payment when due will be permitted to make its 
required payment by the end of the next quarter (a 3-month period) 
without being considered delinquent, but will be assessed a late 
payment fee equal to 5 percent of the amount of the past due 
installment payment. If the licensee fails to make the required payment 
within the first quarter after the regularly scheduled due date, the 
licensee will be allowed to make its required payment by the end of the 
subsequent quarter without being considered delinquent, this time 
subject to a second, additional late payment fee equal to 10 percent of 
the amount of the past due installment payment. The licensee is not 
required to submit a request to take advantage of these provisions. A 
licensee that fails to make payment within two quarters (or 6 months) 
after an installment payment due date sufficient to pay all past due 
late payment fees, interest, and principal, will be deemed to have 
failed to make full payment of its obligation and, as has been the case 
since the inception of the Commission's competitive bidding and auction 
specific installment payment rules, the license will automatically 
cancel without further Commission action.

F. Installment Payment Restructuring

    28. Background. In the Competitive Bidding Second Report and Order, 
the Commission stated that once it granted a grace period request, ``a 
defaulting licensee could maintain its construction efforts and/or 
operations while seeking funds to continue payments or seek from the 
Commission a restructured payment plan.'' Reference to a restructured 
payment plan also appeared in the former grace period rule, 
Sec. 1.2110(e)(4)(ii), which permitted licensees to temporarily suspend 
their installment payments pending the restructuring of such payment 
obligations. In amending Sec. 1.2110 to be consistent with the 
Commission's decision in the Part 1 Third Report and Order to revise 
the late payment provisions and eliminate the grace payment procedure, 
the Commission

[[Page 52329]]

removed language that referred to a restructured payment schedule.
    29. Discussion. Commenter objects to the elimination of language in 
Sec. 1.2110 referring to a restructuring of installment payments. 
Commenter contends that the Commission eliminated the option to 
restructure without providing notice and comment or any rationale for 
the elimination in violation of the APA. By removing language in 
Sec. 1.2110(e)(4)(ii) that referenced a restructured payment schedule, 
the Commission did not intend to eliminate a licensee's option to 
request restructuring of its installment payment obligations. The 
Commission simply sought to amend the rule to provide for automatic 
grace periods rather than requiring a showing of financial need to 
support a grace period request. Licensees in the installment payment 
program may still submit requests for payment restructuring or 
workouts. There is, however, no longer a procedure for requesting a 
grace period to stay installment payment deadlines pending such 
restructuring. Rather, licensees will be subject to the automatic late 
payment provisions of Sec. 1.2110(g) as adopted herein. Because 
licensees continue to have the opportunity to seek restructuring of 
installment payments, the Commission was not required under the APA to 
seek comment on the elimination of that option. Moreover, the reference 
to a ``restructured payment schedule'' in Sec. 1.2110(e)(4)(ii) was 
part and parcel of the Commission's rule section that provided for 
individual grace period requests and financial distress showings. The 
Commission proposed to amend that rule section in its entirety and 
adopt automatic grace periods in the Part 1 Notice of Proposed Rule 
Making. Interested parties could reasonably have anticipated that the 
Commission's proposal to amend the grace period request rule could 
result in the amendment of language in that rule referencing 
restructuring. Thus, omitting a reference to a restructured payment 
schedule is within the specific scope of the Part 1 Notice of Proposed 
Rule Making to adopt automatic grace periods and eliminate the 
requirement to file financial distress showings and, therefore, is not 
violative of the APA.

G. Installment Payment Obligations Under Assignments of Licenses and 
Transfers of Control

    30. Background. The Communications Act of 1934 (``Communications 
Act''), as amended, requires the Commission to approve assignments of 
licenses and transfers of control. Prior to the adoption of the ULS 
Report and Order, upon approval of an assignment or transfer, the 
Bureau amended its licensing database for certain private and microwave 
services. If an assignment or transfer was not consummated, the 
Commission required the filing of a second transfer application that 
reflected the ``return'' of the license from the putative transferee to 
the original licensee. The ULS rules, however, now require parties to 
assignments of licenses or transfers of control in all wireless 
services only to file a notice that they have consummated the 
underlying transaction, at which point the Bureau amends its licensing 
database.
    31. Discussion. A commenter seeks clarification regarding an 
assignee's or transferee's responsibility for installment payment debt 
in the event of default by an assignor or transferor in cases where the 
Bureau amended its database simply upon approval of the assignment or 
transfer. Specifically, the commenter believes that the assignee or 
transferee should not be responsible for licensee debt until the 
transaction is consummated. As an initial matter, the Commission 
emphasizes that the consummation date of an assignment of license or 
transfer of control governs debt obligations irrespective of the post-
consummation notification requirement. Therefore, regarding an 
assignment of license, the Commission clarifies that the assignee of a 
license paid for through installment payments is not responsible for 
the license debt until the transaction is consummated. As a practical 
matter, for services where licensees have signed promissory notes 
(i.e., C block, F block, MDS and 900 MHz SMR) assignees must execute 
loan documents and consummation does not occur until the execution of 
such documents. In these instances, the assignee will, of course, be 
aware that consummation has occurred. However, for services where 
licensees did not sign promissory notes (i.e., 218-219 MHz, regional 
narrowband PCS and broadband PCS frequency block A (pioneers' 
preference licenses)), if a default occurs prior to consummation, and 
the Commission mistakenly initiates debt collection procedures against 
the assignee that is not the actual licensee, that party should notify 
the Commission in writing that the underlying transaction was not 
consummated and the Commission will initiate debt collection procedures 
against the assignor that is the licensee.
    32. In contrast to an assignment of license, with transfers of 
control the licensee does not change and, therefore, remains liable for 
the debt irrespective of consummation. In such cases, the Commission 
generally looks to the licensee for repayment of the debt. The 
Commission recognizes, however, that there may be unusual circumstances 
in which the Commission might look beyond the licensee for repayment of 
the debt, e.g., pierce the corporate veil, and a new party to the 
licensing entity could become subject to debt collection at 
consummation. The Commission reiterates that the consummation date 
governs the debt obligations irrespective of the post-notification 
requirements. Therefore, if the Commission inadvertently initiates debt 
collection procedures against a party that is not part of the licensing 
entity because the transfer of control was not consummated, the party 
should notify the Commission in writing that the underlying transaction 
was not consummated and the Commission will stop its debt collection 
proceedings against the party that is not part of the licensing entity.

H. Clarification of Unjust Enrichment Rules

    33. Background. In the Part 1 Third Report and Order, the 
Commission revised the part 1 unjust enrichment rules as applied to 
assignments and transfers of control of licenses acquired using bidding 
credits and/or installment payments. Specifically, if a licensee seeks 
to assign or transfer control of its license to an entity not meeting 
the same eligibility standards for installment payments at any time 
during the initial license term, the licensee must make full payment of 
the remaining unpaid principal and any unpaid interest accrued through 
the date of assignment or transfer as a condition of Commission 
approval. Similarly, if a licensee seeks to assign or transfer control 
of its license to an entity not meeting the same eligibility standards 
for bidding credits, the licensee must reimburse the government for the 
amount of the bidding credit, plus interest based on the rate for 
United States Treasury obligations applicable on the date the license 
is granted, as a condition of Commission approval. Unlike the unjust 
enrichment payment for installment payments, however, the unjust 
enrichment payment for bidding credits decreases based on the amount of 
time the initial license has been held, with no unjust enrichment 
payment due after the fifth year of initial licensing. In making these 
changes to the unjust enrichment rules in the Part 1 Third Report and 
Order, the Commission specifically superseded the existing service-
specific unjust enrichment provisions, replacing each of those rules 
with a cross-reference to

[[Page 52330]]

the new part 1 unjust enrichment rule, 47 CFR Sec. 1.2111.
    34. Discussion. A commenter seeks clarification regarding the 
application of the revised unjust enrichment rules for bidding credits 
(Sec. 1.2111(d) of the Commission's rules) and the broadband PCS 
entrepreneurs' block prohibition on assignments and transfers to non-
entrepreneurs during the first five years of initial licensing 
(Sec. 24.839 of the Commission's rules). As a practical matter, under 
the part 1 rules as modified in the Part 1 Third Report and Order, 
bidding credit unjust enrichment payments are not required for 
assignments or transfers of control of C and F block licenses to non-
entrepreneurs because Sec. 24.839 bars such assignments or transfers 
until five years after the date of the initial license grant, at which 
point the bidding credit unjust enrichment penalties of Sec. 1.2111 
lapse. The proscription of Sec. 24.839, however, does not apply if an 
entrepreneur proposes to assign or transfer its C or F block license to 
another qualifying entrepreneur. In such a case, Sec. 1.2111 provides 
for unjust enrichment payments with respect to assignments and 
transfers between entities qualifying for different tiers of bidding 
credits.
    35. The commenter further argues that the Commission has not 
adequately explained why PCS entrepreneur block licensees are subject 
to a five-year transfer restriction when licensees in other services 
are allowed to assign or transfer licenses during the first five years 
of the license term, subject to the repayment of bidding credits. In 
order to fulfill its statutory duty to give opportunities to small 
businesses, the Commission set aside the PCS C and F blocks for 
participation only by smaller entities, in this case, entrepreneurs. 
See Implementation of Section 309(j) of the Communications Act--
Competitive Bidding, PP Docket No. 93-253, Fifth Report and Order, 59 
FR 37566 (July 22, 1994). To ensure that licenses in these blocks are 
used exclusively by smaller entities, the Commission adopted a rule to 
preclude the trafficking of entrepreneur block licenses to non-
entrepreneurs for the first five years of licensing. See 47 CFR 24.839. 
In adopting this transfer restriction, the Commission explained that 
allowing parties to take advantage of bidding in the entrepreneurs' 
blocks and immediately assign or transfer control of the authorizations 
to non-entrepreneurs would undermine its goal of giving entrepreneurs 
the opportunity to provide PCS. Since these entrepreneur blocks are the 
only spectrum set aside specifically for smaller entities, these are 
the only licenses subject to the five-year anti-trafficking provision. 
In contrast, with respect to services in which all entities, large and 
small, are permitted to acquire licenses, the Commission's objective is 
to ensure that, irrespective of entity size, the license is awarded to 
the entity that values it most. In such cases, the Commission may offer 
bidding credits or other incentives to afford small entities an 
opportunity to acquire licenses. In these instances, the Commission is 
not concerned with ensuring that a block of spectrum is used 
exclusively by smaller entities and, therefore, permits the transfer of 
licenses early in the license term subject to repayment under its 
unjust enrichment rules for bidding credits and installment payments.
    36. The Commission further clarifies that pursuant to 
Sec. 1.2111(c) and (d) of its rules, Commission approval of assignments 
of licenses and transfers of control that result in unjust enrichment 
with respect to bidding credits and installment payments is conditioned 
upon full payment of the required unjust enrichment payments on or 
before the consummation date. In other words, consummation of an 
assignment of license or transfer of control will not be valid unless 
the Commission first receives the required unjust enrichment payment in 
full. The Commission believes that this clarification will ensure 
efficiency in the processing and consummation of assignments of 
licenses and transfers of control.

I. Inapplicability of Sec. 1.2104 to Installment Payment Defaults

    37. Background. In the Part 1 Third Report and Order, the 
Commission addressed matters relating to defaults on payment 
obligations by winning bidders in spectrum auctions. Under 
Sec. 1.2104(g), winning bidders that default on a down payment or full 
payment after the close of an auction are subject to a payment equal to 
the difference between the amount of the defaulted bid and the amount 
of the winning bid the next time the license is auctioned, plus 3 
percent of the lesser of these amounts. The Commission considered 
whether a licensee failing to make a timely installment payment should 
be subjected to these same provisions. In paragraphs 115 and 116 of the 
Part 1 Third Report and Order, the Commission decided against imposing 
the default provisions of Sec. 1.2104(g) with respect to defaults on 
installment payments. The Commission found that without such additional 
payments, its other rules and installment payment terms are adequate to 
discourage defaults. Despite the clear statement on this point in 
paragraphs 115 and 116, the Commission believes that paragraph 122 of 
the Part 1 Third Report and Order may still have left some ambiguity in 
this matter. Specifically, the latter paragraph may be construed as 
stating that the additional payment requirements of Sec. 1.2104(g)(2) 
relating to down payment and full payment defaulters are also 
applicable to installment payment defaulters.
    38. Discussion. The Commission clarifies that licensees defaulting 
on installment payments (``installment payment defaulters'') are not 
subject to Sec. 1.2104(g)(2). The automatic default provisions of 
Sec. 1.2110(f)(4) (redesignated herein as Sec. 1.2110(g)(4)) are 
adequate to discourage untimely installment payments. The Commission 
notes that while Sec. 1.2109(c) identifies types of defaulters that are 
subject to Sec. 1.2104(g)(2), the rule does not reference installment 
payment defaulters. Instead, installment payment defaults are covered 
by Sec. 1.2110(g)(4), as designated herein, which does not incorporate 
Sec. 1.2104(g)(2). As the Commission noted in the Part 1 Third Report 
and Order, the risk of losing a license should provide most licensees 
with a strong incentive to avoid default. Accordingly, the Commission 
concludes that Sec. 1.2104(g)(2) does not apply to installment payment 
defaulters. Rather, pursuant to Sec. 1.2110(g)(4)(iv), as designated 
herein, licensees that default on installment payment obligations will 
automatically lose their licenses and be subject to debt collection 
procedures.

J. Eligibility for Participation

    39. Background. The Commission's FCC Form 175 short-form 
application for all auctions requires applicants to certify that they 
are not in default on any Commission licenses and that they are not 
delinquent on any non-tax debt owed to any Federal agency. The purpose 
of this rule is to preserve the integrity of the auction process and to 
ensure that bidders are capable of meeting their financial commitments 
to the Commission. In the C Block Fourth Report and Order, the 
Commission determined that ``former defaulters,'' i.e., applicants that 
have defaulted or been delinquent in the past, but have since paid all 
of their outstanding non-Internal Revenue Service Federal debts and all 
associated charges or penalties, are eligible to participate in future 
auctions of C block spectrum, provided that they are otherwise 
qualified. See Amendment of the Commission's Rules Regarding 
Installment Payment Financing for Personal Communications Services 
(PCS) Licensees, WT Docket

[[Page 52331]]

No. 97-82, C Block Fourth Report and Order, 63 FR 50791 (September 23, 
1998). In addition, the Commission adopted a special upfront payment 
policy for ``former defaulters'' seeking to participate in C block 
auctions. It required that ``former defaulters'' make an upfront 
payment of 50 percent more than the normal amount set by the Bureau for 
any given license in a C block auction. The Commission applied these 
policies in the broadband PCS auction that concluded on April 15, 1999 
(Auction No. 22).
    40. Discussion. On its own motion, the Commission hereby 
incorporates into the part 1 general competitive bidding rules the 
``former defaulter'' policies adopted with respect to C block auction 
applicants. While the Commission has determined that it is necessary to 
limit participation in Commission auctions to entities that can certify 
that they are not in default on certain debts, the Commission also 
believes that past business misfortunes do not inevitably preclude an 
entity from being able to meet its present and future responsibilities 
as a Commission licensee. Therefore, the Commission will allow ``former 
defaulters,'' i.e., applicants that have defaulted or been delinquent 
in the past, but have since paid all of their outstanding non-tax debts 
and all associated charges or penalties, to certify on Form 175 that 
they are not in default and are, therefore, eligible for auction 
participation. Thus, a bidder that has defaulted on its down or final 
payment obligation, but has paid, by the short-form application 
deadline, any default payments assessed by the Commission (e.g., the 
initial default payment of 3 percent of the defaulted bid amount 
pursuant to 47 CFR 1.2104(g)(2)) is qualified to certify on Form 175 
that it is not in default and is eligible to participate in Commission 
auctions. Such bidder, however, remains subject to any as yet 
unassessed payment obligations pursuant to Sec. 1.2104(g) of the 
Commission's rules, unless otherwise relieved from such obligations 
under applicable law.
    41. In determining the upfront payment amounts required by ``former 
defaulters'' seeking to participate in future C block auctions, the 
Commission reasoned that ``the integrity of the auctions program and 
the licensing process dictates requiring a more stringent financial 
showing from applicants with a poor Federal financial track record.'' 
The Commission believes that this reasoning applies with equal force to 
``former defaulters'' seeking to participate in any Commission auction. 
Consequently, the Commission will amend Sec. 1.2106(a) of its general 
competitive bidding rules to require that ``former defaulters'' pay an 
upfront payment amount of 1.5 times the normal amount set by the Bureau 
for any given license in a Commission auction. So that the Bureau may 
implement this rule, the Commission will require applicants to make an 
additional certification revealing whether they have ever been in 
default on any Commission license or have ever been delinquent on any 
non-tax debt owed to any Federal agency. If any one of an applicant's 
controlling interests or their affiliates as defined by Sec. 1.2110 of 
the Commission's rules (as adopted herein) has ever been in default on 
Commission licenses or has ever been delinquent on any non-tax debt 
owed to any Federal agency, but has made the requisite payment, the 
applicant will be eligible to participate in Commission auctions but 
will be considered a ``former defaulter'' for purposes of the upfront 
payment requirements. The Commission may use credit information 
concerning the applicant, its controlling interests and their 
affiliates to verify any certified statements regarding the history of 
payments made to the Federal government by such entities.
    42. Under Sec. 1.2110(g)(4), as designated herein, when a licensee 
defaults on an installment payment, its license automatically cancels 
without any action by the Commission, and the entire outstanding debt 
obligation becomes subject to debt collection procedures. A licensee 
that has previously defaulted on an installment payment will be 
permitted to participate in future Commission spectrum auctions under 
certain conditions. In order to be eligible for participation in a 
future auction, an installment payment defaulter must have either (i) 
paid all of its outstanding non-tax debt, along with all associated 
charges and penalties; or (ii) been relieved of such obligations 
pursuant to otherwise applicable law. See, e.g., Debt Collection 
Improvement Act of 1996 (DCIA); 31 U.S.C. 3711 et seq.; see also 4 CFR 
103.1 et seq; NextWave Personal Comms., Inc. 200 F.3d 43, 59 at n. 15 
(2d Cir. December 22, 1999). In all instances, installment payment 
defaulters eligible to participate in future auctions will be required 
to pay an upfront payment amount of 1.5 times the normal amount set by 
the Bureau for any given license in a Commission auction to assure 
their future financial soundness.

III. Fifth Report and Order

A. Introduction

    43. In the Part 1 Third Report and Order, the Commission 
established a uniform set of bidding rules for all auctionable services 
to increase the efficiency of its licensing process. In the Second 
FNPRM, the Commission sought comment on a variety of additional 
proposals relating to the general competitive bidding rules. In 
particular, the Commission sought comment on whether a sufficient 
evidentiary basis exists for creating bidding preferences for minority- 
and women-owned businesses, and whether there are mechanisms the 
Commission should employ to further the opportunities for rural 
telephone companies to participate in the provision of spectrum-based 
services. In addition, the Commission asked whether the Commission 
should continue its installment payment program for small businesses 
and, if not, whether appropriate alternatives exist that would further 
the goals of section 309(j) of the Communications Act. Next, the 
Commission requested comment on what uniform attribution standard it 
should adopt for determining whether entities seeking bidding credits 
qualify as small businesses. Finally, the Commission sought comment on 
a number of payment and administrative issues, including the 
appropriate formula for calculating default payments. In response to 
the Second FNPRM, the Commission received six comments and one reply 
comment.

B. Rules Governing Designated Entities

i. Designated Entities
    44. Background. In Adarand Constructors, Inc. v. Pena, the Supreme 
Court held that ``all racial classifications * * * must be analyzed by 
a reviewing court under strict scrutiny.'' Under the Adarand decision, 
any federal program that uses race as a basis for decisionmaking must 
serve a compelling governmental interest and must be narrowly tailored 
to serve that interest in order to pass constitutional muster. In 
United States v. Virginia, et al., the Supreme Court determined that 
gender-based programs are subject to intermediate scrutiny. Under this 
standard of review, there must be an ``exceedingly persuasive 
justification'' for a program in which gender is a determining factor 
in decisionmaking. Further, a gender-based government action is 
constitutional only if it serves an important governmental objective 
and is substantially related to the achievement of that objective.

[[Page 52332]]

    45. In the Second FNPRM, the Commission sought comment on whether 
there is a compelling governmental interest that would justify the use 
of preferences for minority-owned businesses or an exceedingly 
persuasive justification to support gender-based preferences for women-
owned businesses. In addition, the Commission asked commenters to 
provide evidence in support of their positions and to indicate what 
measures, if any, could be narrowly tailored to withstand judicial 
review. What specifically tailored tools, the Commission asked, such as 
bidding credits, might be appropriate or should preferences be given to 
minority-owned or women-owned businesses that also qualify as small 
businesses.
    46. Finally, the Commission noted that the Office of Management and 
Budget (``OMB'') modified its standards for the classification of 
federal data on race and ethnicity. Specifically, OMB: (i) separated 
the category for Asian and Pacific Islander into two categories--
``Asian'' and ``Native Hawaiian or Other Pacific Islander'' and (ii) 
changed the term ``Hispanic'' to ``Hispanic or Latino.'' The Commission 
sought comment on whether it should amend the designated entity 
provisions of the part 1 rules to reflect this change.
    47. Discussion. The Commission did not receive any comments on 
these issues. Because the record is sparse, the Commission concludes 
that it is not appropriate to adopt special provisions for minority-
owned and women-owned businesses at this time. The Commission has said 
that minority- and women-owned businesses that qualify as small 
businesses may take advantage of the special provisions it has adopted 
for small businesses.
    48. The Commission notes, too, that the Office of Communications 
Business Opportunities (OCBO) has initiated several studies to gather 
information regarding barriers to entry faced by minority- and women-
owned firms that wish to participate, or have participated, in 
Commission auctions. Further, the Commission has recently commenced 
several new studies to explore additional entry barriers and to seek 
further evidence of racial and gender discrimination against potential 
licensees. In addition, the Commission will continue to track the rate 
of participation in its auctions by minority- and women-owned firms and 
evaluate this information with other data gathered to determine whether 
provisions to promote participation by minorities and women can satisfy 
judicial scrutiny. If a sufficient record can be adduced, the 
Commission will consider race- and gender-based provisions for future 
auctions.
    49. Finally, having received no comments on the issue, the 
Commission will amend its definition of the term ``minority'' in 
Sec. 1.2110 of the general competitive bidding rules to reflect the 
changes identified. This will conform the Commission's definition of 
the term ``minority'' to that currently used by OMB.
ii. Rural Telephone Company Provisions
    50. Background. In the Second FNPRM, the Commission noted that 
auctions have generally provided rural telephone companies with 
favorable opportunities. The Commission has also observed that the 
percentage of rural telephone companies that have won rural geographic 
area licenses in the United States is significant. The Commission 
sought comment on whether there were additional mechanisms that might 
increase opportunities for rural telephone companies to provide 
spectrum-based services to the public.
    51. Discussion. Based on the limited record before it, the 
Commission will not, at this time, adopt mechanisms, such as bidding 
preferences or an unserved area fill-in policy, specifically for rural 
telephone companies. The Commission will, however, continue to provide 
rural telephone companies with bidding credits should such entities 
qualify as small businesses. The Commission will address issues 
affecting rural communities and underserved areas in other upcoming 
proceedings and believe a more extensive record can be developed at 
that time.
    52. The Commission does, however, want to highlight one issue 
raised by commenters. It was proposed that the Commission establish 
geographic area licenses no larger than BTAs in all future auctions. 
Section 309(j) of the Communications Act requires the Commission to 
disseminate licenses to a wide variety of applicants, including small 
businesses and rural telephone companies, and to promote the 
development and rapid deployment of new technologies to the public, 
including those residing in rural areas. The Commission can best 
satisfy this mandate by establishing license areas that promote these 
goals on a service-specific basis. Although the Commission has used 
small license areas in several services (e.g., broadband PCS D, E and F 
blocks and LMDS) and may do so in specific services in the future, the 
Commission is unwilling to limit its flexibility by adopting an 
ironclad rule against large service areas. The Commission anticipates, 
for example, that certain satellite-based services may not be 
particularly suited to small geographic area licensing, while other 
services may indeed be more suitable for this type of license category 
(i.e., the broadband PCS C block auction). The Commission always 
invites comment on these issues so as to tailor its rules for specific 
services in ways that afford opportunities to a wide variety of 
entities.
iii. Installment Payments
    53. Background. In the Part 1 Third Report and Order, the 
Commission suspended the installment payment program. Because, however, 
small businesses have been successful in the auctions in which 
installment payment plans were offered, the Commission sought comment 
on ways the Commission could provide an effective installment payment 
program while at the same time minimizing the concerns (e.g., licensee 
default or difficulty meeting financial obligations to the Commission) 
that led to the suspension of installment payment plans for small 
businesses. The Commission also sought comment on how it could create 
an installment payment plan that would encourage only serious, 
financially qualified small business applicants to apply for licenses 
while ensuring the rapid provision of service to the public and 
guaranteeing that the American public is reasonably compensated for use 
of the spectrum. In addition, the Commission sought comment on how it 
might fashion an installment payment program that would meet the 
statutory requirement that all payments of principal and interest for 
covered auctions be deposited in the United States Treasury by the 
statutory deadline (September 30, 2002) for collection. The Commission 
further requested comment on means other than bidding credits and 
installment payments by which it might facilitate the participation of 
small businesses and other designated entities in its spectrum auction 
program. Finally, the Commission asked whether it should establish the 
interest rate for installment payments (if the program is reinstituted) 
based upon the rate of United States Treasury obligations on the date 
of the close of the auction.
    54. Discussion. Having received no comments regarding reinstitution 
of its installment payment program or alternatives thereto, the 
Commission will adhere to its previous decision to suspend the 
installment payment program. In suspending the installment payment 
program, the Commission concluded that small businesses need

[[Page 52333]]

not receive installment payments to successfully participate in its 
spectrum auctions. The Commission noted, for example, that in the 
cellular auction for unserved areas, which had no installment payment 
plans, 36 percent of the licenses went to small or very small 
businesses. In addition, the Commission stated that requiring payment 
in full within a short time after the close of the auction ensures 
greater financial accountability from applicants. Finally, experience 
has shown that licensees filing for bankruptcy may impede the 
Commission's processes, resulting in delayed deployment of service.
    55. The Commission believes that section 309(j) of the 
Communications Act requires it to explore ways of responding to the 
investment capital needs of small, minority-owned and women-owned 
businesses. Accordingly, while the Commission believes its decision to 
offer bidding credits has been extremely helpful in allowing these 
designated entities a foothold in many of its auctionable wireless 
services, it remains open to proposals that would result in even 
greater participation by these entities.
    56. The Commission will, as it has done in the LMDS, LMS, 220 MHz 
Service, and VHF Public Coast Service auctions, continue to provide 
small businesses with bidding credits. In light of this decision, the 
Commission need not address the method of establishing interest rates 
for such installment payments. If the Commission reinstates an 
installment payment plan in the future, it will revisit this issue.
iv. Attribution of Gross Revenues of Investors and Affiliates
    57. Background. In the Second FNPRM, the Commission discussed its 
earlier proposal to adopt a general attribution rule for determining 
small business eligibility for all future auctions. Specifically, the 
Commission sought further comment on whether to adopt a ``controlling 
interest'' standard for attributing to an applicant the gross revenues 
of its investors and affiliates in determining whether the applicant 
qualifies as a small business. The Commission explained that, in the 
past, the Commission adopted service-specific attribution rules with 
varying standards of attribution. In addition, the Commission asked 
whether a ``controlling interest'' standard is sufficient to calculate 
size so that only those entities truly meriting small business status 
qualify for bidding credits. The Commission also sought comment on 
whether alternate standards for attributing the gross revenues of 
investors and affiliates in an applicant would better meet its goals. 
The Commission further requested comment on whether or not the 
controlling interest standard would be strengthened by imposing a 
minimum equity requirement (e.g., 15 percent) that any person or entity 
identified as controlling must hold.
    58. Discussion. The Commission will adopt as its general 
attribution rule a ``controlling interest'' standard for determining 
which applicants qualify as small businesses. Under this standard, the 
Commission will attribute to the applicant the gross revenues of its 
controlling interests and their affiliates in assessing whether the 
applicant is qualified to take advantage of its small business 
provisions, such as bidding credits. The Commission notes that 
operation of its definition of ``affiliate'' will cause all affiliates 
of controlling interests to be affiliates of the applicant. The 
Commission believes that this approach is simpler and more flexible 
than the previously used control group approach, and thus will be more 
straightforward to implement. Moreover, application of the 
``controlling interest'' standard will ensure that only those entities 
truly meriting small business status qualify for the Commission's small 
business provisions. The Commission used this same approach in the 
attribution rules for the LMDS, 800 MHz SMR, 220 MHz, VHF Public Coast 
and LMS auction proceedings.
    59. A ``controlling interest'' includes individuals or entities, or 
groups of individuals or entities, that have control of the applicant 
under the principles of either de jure or de facto control. Thus, there 
may be more than one ``controlling interest'' whose revenues must be 
counted. The premise of this rule is that all parties that control an 
applicant or have the power to control an applicant, and their 
affiliates, will have their gross revenues counted and attributed to 
the applicant in determining the applicant's eligibility for small 
business status or for any other size-based status using a gross 
revenue threshold.
    60. De jure control is typically evidenced by the holding of 50.1 
percent or more of the voting stock of a corporation or, in the case of 
a partnership, general partnership interests. De facto control is 
determined on a case-by-case basis and includes the criteria set forth 
in Ellis Thompson. See Ellis Thompson Corporation, 60 FR 1776 (January 
5, 1995). For instance, the gross revenues of managers may be 
attributed to the applicant if de facto control standards are met. The 
Commission does not believe it is necessary to presume that equity 
interests of less than 50.1 percent are attributable to the applicant 
because it relies on the concept of de facto control. An applicant may 
have interest holders that do not possess de jure control but have 
``actual'' (i.e., de facto) control. Therefore, in determining the 
gross revenues to be attributed to the applicant, the Commission will 
include individuals or entities that have either de jure or de facto 
control. Accordingly, the Commission will amend Sec. 1.2110 to 
incorporate these principles of control.
    61. Controlling interests must be identified by the applicant 
seeking status as a small business. The ``controlling interest'' 
definition provides specific guidance on the calculation of various 
types of ownership interests. For purposes of calculating equity held 
in an applicant, the definition provides for full dilution of certain 
stock interests, warrants and convertible debentures. In addition, the 
definition provides for attribution of partnership and other ownership 
interests, including stock interests held in trust, non-voting stock 
and indirect ownership through intervening corporations. When an 
applicant cannot identify controlling interests under the definition, 
the revenues of all interest holders in the applicant and their 
affiliates will be attributed. For example, if a company is owned by 
four entities, each of which has 25 percent voting equity, and no 
shareholders' agreement or voting trust gives any one of them control 
of the company, the revenues of all four entities must be attributed to 
the applicant. Treating such a corporation in this way is similar to 
the Commission's treatment of a general partnership--all general 
partners are considered to have a controlling interest. This rule, the 
Commission believes, looks to substance over form in assessing 
eligibility for small business status.
    62. Some commenters have expressed concern over whether the 
revenues of so called ``passive investors'' would be attributed to the 
applicant. The controlling interest standard adopted herein will be 
applied to all investors in an applicant. In other words, if any 
investor has either de jure or de facto control of the applicant, that 
investor's gross revenues will be attributed to the applicant for 
purposes of determining whether the applicant qualifies as a small 
business. Application of the principles of either de jure or de facto 
control will accurately identify those investors that are controlling 
interests and that are not, by definition, therefore, ``passive 
investors.'' The Commission notes too that, under the controlling

[[Page 52334]]

interest standard, the officers and directors of any applicant will be 
considered to have a controlling interest in the applicant.
    63. The Commission believes that the de jure and de facto concepts 
of control, together with the application of its affiliation rules, 
will effectively prevent larger firms from illegitimately seeking 
status as small businesses. For this reason, the Commission disagrees 
with the commenter that urges it not to amend its attribution rules to 
include those that have management agreements and joint marketing 
agreements with the applicant or licensee. The Commission will adopt 
provisions that make attributable the gross revenues of those that have 
management or marketing agreements with the applicant or licensee where 
such agreements grant authority over key aspects of the applicant's or 
licensee's business.
    64. The Commission declines to adopt a minimum equity requirement 
for controlling interests because it is contrary to its goal of 
providing legitimate small businesses maximum flexibility in attracting 
passive financing. A minimum equity requirement would require any 
person or entity identified as a controlling interest to retain some 
level of equity in the applicant, thereby reducing the amount of equity 
the applicant could offer to non-controlling interests in exchange for 
financing. This policy would thus limit a small business' ability to 
raise capital and undermine the Commission's intention of promoting 
small business participation in the highly competitive 
telecommunications marketplace.
    65. Further, the Commission does not believe that the adoption of a 
minimum equity requirement is necessary to ensure appropriate 
identification of an applicant's controlling interests if the 
principles of de jure and de facto control are applied. These 
principles are, in effect, broader than the minimum equity requirement 
because they look to actual control irrespective of the amount of 
equity held in an applicant. While the Commission agrees with 
commenters that lack of equity may indicate lack of de facto control, 
it is not persuaded that this factor alone is dispositive. Rather than 
focusing solely on equity holdings, applicants are required to identify 
those controlling interests that actually have control through 
application of the principles of either de jure or de facto control. 
This approach, which has proven successful in the broadcast context, 
will operate equally well with respect to the calculation of gross 
revenues for purposes of determining eligibility for bidding 
preferences. By alerting the Commission to all attributable interests, 
application of the principles of de jure and de facto control will 
preclude unqualified applicants from taking advantage of its small 
business provisions. Moreover, as discussed in the Part 1 Third Report 
and Order, requiring detailed ownership information under Sec. 1.2112 
will ensure that applicants claiming small business status qualify for 
such status and that all applicants comply with spectrum caps and other 
ownership limits.
    66. The Commission further concludes that these new rules should 
not make current C and F block licensees ineligible to hold their 
licenses. The eligibility of current C and F block licensees to 
continue to hold their licenses will not be reassessed based on the new 
attribution rules. These licensees will remain eligible to hold their 
licenses regardless of whether or not they would qualify under the 
newly established attribution rules. As to future C and F block 
auctions, however, all applicants, including existing C and F block 
licensees, will be subject to the attribution rules in effect at the 
time of filing their short-form applications. For auctions that begin 
within two years after the start of Auction No. 22, the C, E, and F 
block auction that began on March 23, 1999, the Commission's new 
attribution rules will have no effect on the eligibility as an 
entrepreneur of any entity that was eligible for, and participated in, 
Auction No. 5 or Auction No. 10. Eligibility for small business 
preferences, however, will be determined based on the attribution rules 
in effect at the time of an applicant's short-form filing. Similarly, 
with respect to transfers of control and assignments of license, 
existing C and F block licensees may be assignees or transferees within 
the first five years of license grant consistent with the anti-
trafficking provision contained in Sec. 24.839(d) of the Commission's 
rules. Non-licensees, however, are precluded from being assignees or 
transferees within the first five years of license grant unless they 
qualify as entrepreneurs based on the attribution rules in effect at 
the time of assignment or transfer.

C. Default Payments

    67. Background. In the Second FNPRM, the Commission sought comment 
on whether it should modify Sec. 1.2104(g) of its rules to provide 
that, where a winning bidder defaults on multiple licenses, the default 
payment will be determined based upon the aggregate winning bid and the 
aggregate winning bid the next time the licenses are offered by the 
Commission. The Commission sought comment on whether this system could 
encourage insincere bidding and defaults since it could greatly reduce 
the effective penalty for a default. The Commission questioned whether, 
since the potential defaulter would not be facing the full harm caused 
by the default on the additional license, the incentive for insincere 
bidding and default would be too great. Indeed, the Commission 
continued, this modification could encourage speculation by encouraging 
a high bidder on a relatively high valued license that anticipates 
default to purposely bid and default on a relatively low valued license 
in order to lessen the default payment assessed under its rules. 
Finally, the Commission sought comment on whether such a modification 
could function without nullifying the provision in Sec. 1.2104(g) that 
assesses an additional default payment equal to three percent of the 
subsequent winning bid or the amount bid, whichever is lower. No 
comments were received on this issue.
    68. Discussion. Section 1.2104(g)(2) of the Commission's rules is 
central to the integrity of the Commission's auction process. The 
principal function of this rule is to establish that the close of the 
auction creates a binding contractual obligation by the high bidder to 
pay the auction price for the license. Whether the obligation is 
thereafter breached by a default of payment or by a failure to qualify 
to receive the license for which the bid was placed, the winning 
bidder's liability remains a function of the high bid and is based on 
the obligation that was incurred at auction, plus an additional 3 
percent payment as set forth in the rule.
    69. Without more comment, the Commission will not amend its rule to 
adopt an aggregate approach to calculating default payments. Rather, 
the Commission will continue to evaluate each licensee's default 
payment obligations on a license-by-license basis. In other words, the 
Commission will calculate the default payment owed on each license 
separately, even in cases where a single bidder defaults on multiple 
licenses. Therefore, licensees may not use a subsequent auction gain 
from one defaulted license to reduce default payments on other licenses 
that are subsequently auctioned for less than that originally bid by 
the defaulting licensee.
    70. When a winning bidder defaults on a license, the bidder becomes 
subject to a default payment equal to the difference between the amount 
bid and the subsequent winning bid, plus an additional payment equal to 
3 percent of

[[Page 52335]]

the lower of the initial winning bid or the subsequent winning bid. In 
the case of multiple defaults, the Commission has determined that the 
amount of the default payment is calculated on a license-by-license 
basis and then added together to determine the total default payment.
    71. The Commission's auction rules were designed to encourage 
bidders wishing to withdraw their bids to do so prior to the close of 
the auction, rather than default after the auction. In the case of 
withdrawal, the additional 3 percent payment is not required. Thus no 
withdrawal payment is assessed if the subsequent winning bid exceeds 
the withdrawn bid. Encouraging withdrawals over defaults increases 
auction efficiency. If a bidder withdraws its bid during the auction, 
there is an opportunity for another bidder to win the license. However, 
if the bidder defaults after the auction, a new spectrum license must 
be auctioned. A bidder that would have bid to win the license after a 
withdrawal may not be as willing or able to pay if it has to wait for 
another auction before it can obtain the license. In addition to the 
time and expense required to auction the new spectrum license and 
collect the default payment, a subsequent auction results in a delay in 
provision of service to the public.
    72. The Commission believes if it were to allow a bidder that 
defaults on multiple licenses to offset subsequent auction losses with 
subsequent auction gains, it might encourage insincere bidding and 
defaults by greatly reducing the effective penalty for a default. If 
aggregation of subsequent auction gains and subsequent auction losses 
would result in a net gain, the defaulting bidder would be required to 
pay only the 3 percent penalty, an amount that could be lower than the 
withdrawal payments determined on a license-by-license basis.

D. Administrative Filing Periods for Applications and Petitions to Deny

    73. Background. In the Part 1 Third Report and Order, the 
Commission amended Sec. 1.2108 of its rules to conform to the 
provisions in the Balanced Budget Act of 1997 regarding the filing 
period for petitions to deny the long-form applications of winning 
bidders. The Balanced Budget Act of 1997 gives the Commission authority 
to shorten the period in which license applications are granted, 
notwithstanding section 309(b) of the Communications Act which 
generally prohibits the Commission from granting applications for 
licenses prior to 30 days following public notice of their filing. 
Section 1.2108, as amended, provides that the Commission shall not 
grant a license less than seven days after public notice that long-form 
applications have been accepted for filing and that, in all cases, the 
period for filing petitions to deny such applications shall be no 
shorter than five days.
    74. Although noting its belief that a shortened petition to deny 
period is appropriate for future auctions, the Commission sought 
comment on the appropriate length of a petition to deny period in light 
of this legislation. For example, the Commission sought comment on 
whether there are instances in which the Commission should provide for 
a longer period than the minimums set forth in the statute for the 
filing of petitions to deny or for the grant of initial licenses in 
auctionable services (five days and seven days, respectively). In 
particular, the Commission asked commenters to address whether auctions 
for specific services (e.g., broadcast licenses) require longer periods 
for the filing of petitions to deny and why this may be so. No comments 
on these matters were received.
    75. Discussion. The Commission will adopt its proposal to shorten 
administrative filing periods, when possible, as directed by the 
Balanced Budget Act of 1997. This conclusion is consistent with the 
Commission's mandate in section 309(j)(3)(A) of the Communications Act, 
which obligates it to promote ``the development and rapid deployment of 
new technologies, products, and services for the benefit of the public, 
including those residing in rural areas, without administrative or 
judicial delays.''
    76. In order to have a consistent and general rule for filing 
petitions to deny, the Commission will establish a maximum ten-day 
period for the filing of such petitions. However, because the provision 
in the Balanced Budget Act anticipates--and the Commission believes--
that the appropriate period for filing petitions to deny may vary from 
service to service, it will delegate to the appropriate licensing 
bureau the discretion, to be exercised in exigent circumstances, to 
reduce this period. This reduced filing period may not be shorter than 
that prescribed by the Balanced Budget Act. The Commission will 
increase the time period from 5 days (as originally adopted in the 
rule) to 10 days in order to afford parties (including small 
businesses) additional flexibility in challenging license awards. This 
approach, the Commission believes, is consistent with the intent of 
Congress in the Balanced Budget Act to more expeditiously resolve these 
disputes while, at the same time, ensuring that all parties 
(particularly small businesses) have a reasonable opportunity to 
exercise their rights under the Communications Act.

E. Conclusion

    77. In the Part 1 Third Report and Order, the Commission stated 
that ``[t]hese changes to our general competitive bidding rules are 
intended to streamline our regulations and eliminate unnecessary rules 
wherever possible * * *.'' With the issuance of this Order on 
Reconsideration, Fifth Report and Order, the Commission has made a 
majority of the part 1, rule changes contemplated in its efforts to 
streamline the competitive bidding regulations. The next step in this 
process is to eliminate unnecessary rules to the best of the 
Commission's ability at this time. Some service-specific rules repeat 
portions of the Commission's new part 1 rules almost verbatim; others 
contain obvious discrepancies. In its attempt to provide the most 
specific guidance possible to future auction participants, the 
Commission believes it is in the public interest to conform the 
service-specific auction rules to the general competitive bidding rules 
in cases of obvious repetition and where the Commission specifically 
superseded inconsistent rules in the course of the part 1 proceeding. 
The Commission hereby instructs the Wireless Telecommunications Bureau 
to make conforming edits to the Code of Federal Regulations consistent 
with this decision.

Procedural Matters and Ordering Clauses

A. Regulatory Flexibility Analysis

    78. Pursuant to the Regulatory Flexibility Act, 5 U.S.C. 604, a 
Supplemental Final Regulatory Flexibility Analysis for the Order on 
Reconsideration and a Final Regulatory Flexibility Analysis for the 
Fifth Report and Order is incorporated herein.

B. Paperwork Reduction Act Analysis

    79. This Order on Reconsideration, Fifth Report and Order contains 
a modified information collection. As part of its continuing effort to 
reduce paperwork burdens, the Commission invites the general public and 
the Office of Management and Budget (``OMB'') to take this opportunity 
to comment on the information collections contained in this Order on 
Reconsideration, Fifth Report and Order as required by the Paperwork 
Reduction Act of 1995, Public Law 104-13. Public and agency

[[Page 52336]]

comments are due on or before October 30, 2000. Comments should 
address: (a) whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents, including the use of automated 
collection techniques or other forms of information technology.
    80. In addition to filing comments on the information collections 
contained in this Order on Reconsideration, Fifth Report and Order with 
the Secretary, a copy of any comments on the information collections 
should be submitted to Judy Boley, Federal Communications Commission, 
Room 1-C804, 445 12th Street SW., Washington, DC 20554, or via the 
Internet to [email protected] and to Edward Springer, OMB Desk Officer, 
10236 NEOB, 725--17th Street, N.W., Washington, DC 20503 or via the 
Internet to [email protected].

C. Contacts for Further Information

    81. For further information concerning this Order on 
Reconsideration, Fifth Report and Order, contact Leora Hochstein at 
(202) 418-1022 (Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau). For additional information concerning the 
information collections contained in this Order on Reconsideration, 
Fifth Report and Order, contact Judy Boley at (202) 418-0214 or via the 
Internet at [email protected].

D. Ordering Clauses

    82. Authority for issuance of this Order on Reconsideration, Fifth 
Report and Order is contained in sections 4(i), 303(r) and 309(j) of 
the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r) 
and 309(j).
    83. Accordingly, it is ordered that, pursuant to the authority 
granted in 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), part 1 of the Commission's rules is 
amended as specified, effective October 30, 2000, following OMB 
approval, unless a document is published in the Federal Register 
stating otherwise.
    84. It is further ordered that the Commission's Consumer 
Information Bureau, Reference Operations Division, shall send a copy of 
this Order on Reconsideration, Fifth Report and Order, including the 
Supplemental Final Regulatory Flexibility Analysis, the Final 
Regulatory Flexibility Analysis to the Chief Counsel for Advocacy of 
the Small Business Administration.

Supplemental Final Regulatory Flexibility Analysis--Order on 
Reconsideration

    85. As required by the Regulatory Flexibility Act (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated in the FNPRM 
(published elsewhere in this issue of the Federal Register) in WT 
Docket No. 97-82. The Commission sought written public comment on the 
proposals in the FNPRM, including comment on the IRFA. A Final 
Regulatory Flexibility Analysis (FRFA) was incorporated in the report 
and order section of the Part 1 Third Report and Order and Second 
FNPRM. The Commission received seven petitions for reconsideration in 
response to the Part 1 Third Report and Order and two comments in 
support of the petitions for reconsideration. This supplemental FRFA 
analyzes the modifications adopted in response to those petitions and 
comments, and conforms to the RFA.

A. Need for, and Objectives of, the Order on Reconsideration

    86. The Order on Reconsideration of the Third Report and Order 
(``Order on Reconsideration'') amends and clarifies the Commission's 
general competitive bidding rules for all auctionable services. 
Specifically, the Commission clarifies that the prohibition on 
collusion begins on the filing deadline for short-form applications and 
ends on the down payment deadline. In addition, the Commission 
clarifies and corrects the ownership disclosure requirements. With 
respect to entities not seeking designated entity status, the 
Commission eliminates the requirement to include debt and instruments 
such as warrants, convertible debentures, options and other debt 
interests in reporting their ownership interests. The Commission also 
amends its rules to clarify that in the case of multiple bid 
withdrawals on a single license, within the same or subsequent 
auction(s), the payment for each bid withdrawal will be calculated 
based on the sequence of bid withdrawals and the amounts withdrawn. The 
Commission further amends its rules to provide that in instances in 
which bids have been withdrawn on a license that is not won in the same 
auction, the Commission will assess an interim withdrawal payment equal 
to 3 percent of the amount of the bid withdrawals. In addition, the 
Commission retains, for the most part, the installment payment grace 
period and late payment fee provisions adopted in the Part 1 Third 
Report and Order, but adopts a slight modification to the payment due 
dates for late installment payments and associated late fees. The 
Commission also concludes that licensees defaulting on installment 
payments are subject to the default provisions of Sec. 1.2110(f)(4) of 
its rules (redesignated herein as Sec. 1.2110(g)(4)) and not to 
Sec. 1.2104(g). The Commission incorporates into the part 1 general 
competitive bidding rules the ``former defaulter'' policies adopted 
with respect to C block auction applicants. The Commission clarifies 
the circumstances under which installment payment defaulters will be 
eligible to participate in future auctions. Finally, the Order on 
Reconsideration makes a number of clarifications with respect to the 
restructuring of installment payments, the assignment and transfer of 
licenses paid for through installment payments, and the unjust 
enrichment rules for bidding credits.
    87. These amendments and clarifications are intended to simplify 
the Commission's general competitive bidding rules, increase the 
efficiency of the competitive bidding process, and provide more 
specific guidance to auction participants.

B. Summary of Significant Issues Raised by Public Comment in Response 
to the FRFA Contained in the Part 1 Third Report and Order

    88. No petitions for reconsideration directly addressed the FRFA 
contained in the Part 1 Third Report and Order. The Commission, 
however, did receive petitions for reconsideration of the Part 1 Third 
Report and Order that addressed issues affecting small businesses. In 
particular, the Commission received petitions opposing various aspects 
of the installment payment grace period and late payment fee provisions 
adopted in the Part 1 Third Report and Order. The Order on 
Reconsideration addresses petitioners' arguments and concludes that the 
revised late payment rules relating to the submission of installment 
payments are not commercially unreasonable, do not constitute 
impermissible retroactive rulemaking, and do not violate basic contract 
principles. The Commission further determines that the modified grace 
period and late payment fee provisions apply to 900 MHz SMR and MDS 
licensees that have signed Promissory Notes and Security Agreements. In 
addition, the Commission adopts a slight modification to the payment 
due

[[Page 52337]]

dates for late installment payments and associated late fees in order 
to avoid any confusion as to when such payments are due. The Commission 
clarifies that, despite amendments to the installment payment rules, 
licensees in the installment payment program continue to have the 
opportunity to seek restructuring of installment payments. The 
Commission notes, however, that there is no longer a procedure for 
requesting a grace period to stay installment payment deadlines pending 
such restructuring. Rather, licensees will be subject to the automatic 
late payment provisions of Sec. 1.2110(g) of the Commission's rules as 
adopted in this Order on Reconsideration. The Commission further 
clarifies in response to comments that the assignee or transferee of a 
license paid for through installment payments is not responsible for 
the license debt until the assignment of license or transfer of control 
has been consummated. Also in response to requests for clarification, 
the Commission clarifies that the unjust enrichment rules for bidding 
credits do not apply to assignments and transfers of C and F block 
licenses to non-entrepreneurs.

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

    89. 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 RFA generally 
defines the term ``small entity'' as having the same meaning as the 
terms ``small business,'' ``small organization,'' and ``small 
governmental jurisdiction.'' In addition, the term ``small business'' 
has the same meaning as the term ``small business concern,'' under 
section 3 of the Small Business Act, unless the Commission has 
developed one or more definitions that are appropriate for its 
activities. Under the Small Business Act, a ``small business concern'' 
is one which: (i) is independently owned and operated; (ii) is not 
dominant in its field of operation; and (iii) meets any additional 
criteria established by the Small Business Administration (SBA). A 
small organization is generally ``any not-for-profit enterprise which 
is independently owned and operated and is not dominant in its field.'' 
Nationwide, as of 1992, there were approximately 275,801 small 
organizations. ``Small governmental jurisdiction'' generally means 
``governments of cities, counties, towns, townships, villages, school 
districts, or special districts, with a population of less than 
50,000.'' As of 1992, there were approximately 85,006 such 
jurisdictions in the United States. This number includes 38,978 
counties, cities and towns; of these, 37,566, or 96 percent, have 
populations of fewer than 50,000. The Census Bureau estimates that this 
ratio is approximately accurate for all governmental entities. Thus, of 
the 85,006 governmental entities, the Commission estimates that 81,600 
(96 percent) are small entities. Nationwide, there are 4.44 million 
small business firms, according to SBA reporting data.
    90. The rules adopted in the Order on Reconsideration apply to all 
entities, including small entities, seeking to obtain licenses in 
auctionable services through competitive bidding. These rules generally 
apply to future auctions. In estimating the number of small entities 
that may participate in future auctions of radio services, the 
Commission anticipates that current radio services licensees are 
representative of future auction participants. The following is the 
Commission's estimate of the number of small entities that are current 
radio licensees:
    Cellular Licensees. Neither the Commission nor the SBA has 
developed a definition of small entities applicable to cellular 
licensees. Therefore, the applicable definition of small entity is the 
definition under the SBA rules applicable to radiotelephone (wireless) 
companies. This definition provides that a small entity is a 
radiotelephone company employing no more than 1,500 persons. According 
to the Bureau of the Census, only 12 radiotelephone firms out of a 
total of 1,178 such firms that operated during 1992 had 1,000 or more 
employees. Therefore, even if all 12 of these firms were cellular 
telephone companies, nearly all, cellular carriers were small 
businesses under the SBA's definition. In addition, the Commission 
notes that there are 1,758 cellular licenses; however, it does not know 
the number of cellular licensees, since a cellular licensee may own 
several licenses. The most reliable source of information regarding the 
number of cellular service providers nationwide appears to be data the 
Commission publishes annually in its Telecommunications Industry 
Revenue report, regarding the Telecommunications Relay Service (TRS). 
The report places cellular licensees and Personal Communications 
Service (PCS) licensees in one group. According to the most recent 
Telecommunications Industry Revenue data, 808 carriers reported that 
they were engaged in the provision of either cellular service or 
Personal Communications Service (PCS) services. The Commission does not 
have data specifying the number of these carriers that are not 
independently owned and operated or have more than 1,500 employees, and 
thus are unable at this time to estimate with greater precision the 
number of cellular service carriers that would qualify as small 
business concerns under the SBA's definition. Consequently, the 
Commission estimates that there are no more than 808 small cellular 
service carriers.
    220 MHz Radio Service--Phase I Licensees. The 220 MHz service has 
both Phase I and Phase II licenses. Phase I licensing was conducted by 
lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized 
to operate in the 220 MHz band. The Commission has not developed a 
definition of small entities specifically applicable to such incumbent 
220 MHz Phase I licensees. To estimate the number of such licensees 
that are small businesses, the Commission applies the definition under 
the SBA rules applicable to radiotelephone communications companies. 
This definition provides that a small entity is a radiotelephone 
company employing no more than 1,500 persons. According to a 1995 
estimate by the Bureau of the Census, only 12 radiotelephone firms out 
of a total of 1,178 such firms that operated during 1992 had 1,000 or 
more employees. Therefore, assuming this general ratio has not changed 
significantly in recent years in the context of Phase I 220 MHz 
licensees, the Commission estimates that nearly all such licensees are 
small businesses under the SBA's definition.
    220 MHz Radio Service--Phase II Licensees. The Phase II 220 MHz 
service is a new service, and is subject to spectrum auctions. In the 
220 MHz Third Report and Order, 62 FR 16004 (April 3, 1997) the 
Commission adopted criteria for defining small businesses and very 
small businesses for purposes of determining their eligibility for 
special provisions such as bidding credits and installment payments. 
The Commission has defined a small business as an entity that, together 
with its affiliates and controlling principals, has average gross 
revenues not exceeding $15 million for the preceding three years. 
Additionally, a very small business is defined as an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues that are not more than $3 million for the preceding 
three years. The SBA has approved these definitions. An auction of 
Phase II licenses commenced on September 15, 1998, and closed on 
October 22, 1998.

[[Page 52338]]

Nine hundred and eight (908) licenses were auctioned in 3 different-
sized geographic areas: three nationwide licenses, 30 Regional Economic 
Area Group (``REAG'') licenses, and 875 Economic Area (EA) licenses. Of 
the 908 licenses auctioned, 693 were sold. Companies claiming small 
business status won: 1 of the Nationwide licenses, 67% of the Regional 
licenses, 47% of the REAG licenses and 54% of the EA licenses. As of 
January 22, 1999, the Commission announced that it was prepared to 
grant 654 of the Phase II licenses won at auction. A second 220 MHz 
Radio Service auction began on June 8, 1999 and closed on June 30, 
1999. This auction offered 225 licenses in 87 EAs and four REAGs. (A 
total of 9 REAG licenses and 216 EA licenses. No nationwide licenses 
were available in this auction.) Of the 215 EA licenses won, 153 EA 
licenses (71%) were won by bidders claiming small business status. Of 
the 7 REAG licenses won, 5 REAG licenses (71%) were won by bidders 
claiming small business status.
    Private and Common Carrier Paging. The Commission has adopted a 
two-tier definition of small businesses in the context of auctioning 
licenses in the Common Carrier Paging and exclusive Private Carrier 
Paging services. A small business will be defined as either (1) an 
entity that, together with its affiliates and controlling principals, 
has average gross revenues for the three preceding years of not more 
than $3 million, or (2) an entity that, together with affiliates and 
controlling principals, has average gross revenues for the three 
preceding calendar years of not more than $15 million. Because the SBA 
has not yet approved this definition for paging services, the 
Commission will utilize the SBA's definition applicable to 
radiotelephone companies, i.e., an entity employing no more than 1,500 
persons. At present, there are approximately 24,000 Private Paging 
licenses and 74,000 Common Carrier Paging licenses. According to the 
most recent Telecommunications Industry Revenue data, 172 carriers 
reported that they were engaged in the provision of either paging or 
``other mobile'' services, which are placed together in the data. The 
Commission does not have data specifying the number of these carriers 
that are not independently owned and operated or have more than 1,500 
employees, and thus are unable at this time to estimate with greater 
precision the number of paging carriers that would qualify as small 
business concerns under the SBA's definition. Consequently, the 
Commission estimates that there are no more than 172 small paging 
carriers. The Commission estimates that the majority of private and 
common carrier paging providers would qualify as small entities under 
the SBA definition.
    Mobile Service Carriers. Neither the Commission nor the SBA has 
developed a definition of small entities specifically applicable to 
mobile service carriers, such as paging companies. As noted in the 
section concerning paging service carriers, the closest applicable 
definition under the SBA rules is that for radiotelephone (wireless) 
companies, and the most recent Telecommunications Industry Revenue data 
shows that 172 carriers reported that they were engaged in the 
provision of either paging or ``other mobile'' services. Consequently, 
the Commission estimates that there are no more than 172 small mobile 
service carriers.
    Broadband Personal Communications Service (PCS). The broadband PCS 
spectrum is divided into six frequency blocks designated A through F, 
and the Commission has held auctions for each block. The Commission 
defined ``small entity'' for blocks C and F as an entity that has 
average gross revenues of less than $40 million in the three previous 
calendar years. For block F, an additional classification for ``very 
small business'' was added and is defined as an entity that, together 
with their affiliates, has average gross revenues of not more than $15 
million for the preceding three calendar years. These regulations 
defining ``small entity'' in the context of broadband PCS auctions have 
been approved by the SBA. No small businesses within the SBA-approved 
definition bid successfully for licenses in blocks A and B. There were 
90 winning bidders that qualified as small entities in the C block 
auctions. A total of 93 small and very small business bidders won 
approximately 40% of the 1,479 licenses for blocks D, E, and F. On 
March 23, 1999, the Commission held another auction (Auction No. 22) of 
C, D, E, and F block licenses for PCS spectrum returned to the 
Commission by previous license holders. In that auction, 48 bidders 
claiming small business, very small business or entrepreneurial status 
won 272 of the 341 licenses (80%) offered. Based on this information, 
the Commission concludes that the number of small broadband PCS 
licensees includes the 90 winning C block bidders, the 93 qualifying 
bidders in the D, E, and F blocks, and the 48 winning bidders from 
Auction No. 22, for a total of 231 small entity PCS providers as 
defined by the SBA and the Commission's auction rules.
    Narrowband PCS. The Commission has auctioned nationwide and 
regional licenses for narrowband PCS. There are 11 nationwide and 30 
regional licensees for narrowband PCS. The Commission does not have 
sufficient information to determine whether any of these licensees are 
small businesses within the SBA-approved definition for radiotelephone 
companies. At present, there have been no auctions held for the major 
trading area (MTA) and basic trading area (BTA) narrowband PCS 
licenses. The Commission anticipates a total of 561 MTA licenses and 
2,958 BTA licenses will be awarded by auction. Such auctions, however, 
have not yet been scheduled. Given that nearly all radiotelephone 
companies have no more than 1,500 employees and that no reliable 
estimate of the number of prospective MTA and BTA narrowband licensees 
can be made, the Commission assumes, for its purposes here, that all of 
the licenses will be awarded to small entities, as that term is defined 
by the SBA.
    Rural Radiotelephone Service. The Commission has not adopted a 
definition of small entity specific to the Rural Radiotelephone 
Service. A significant subset of the Rural Radiotelephone Service is 
the Basic Exchange Telephone Radio Systems (BETRS). The Commission will 
use the SBA's definition applicable to radiotelephone companies, i.e., 
an entity employing no more than 1,500 persons. There are approximately 
1,000 licensees in the Rural Radiotelephone Service, and the Commission 
estimates that almost all of them qualify as small entities under the 
SBA's definition.
    Air-Ground Radiotelephone Service. The Commission has not adopted a 
definition of small entity specific to the Air-Ground Radiotelephone 
Service. Accordingly, the Commission will use the SBA's definition 
applicable to radiotelephone companies, i.e., an entity employing no 
more than 1,500 persons. There are approximately 100 licensees in the 
Air-Ground Radiotelephone Service, and the Commission estimates that 
almost all of them qualify as small under the SBA definition.
    Specialized Mobile Radio (SMR). The Commission awards bidding 
credits in auctions for geographic area 800 MHz and 900 MHz SMR 
licenses to two tiers of firms: (1) ``small entities,'' those with 
revenues of no more than $15 million in each of the three previous 
calendar years; and (2) ``very small entities,'' those with revenues of 
no more than $3 million in each of the three previous calendar years. 
The regulations defining ``small entity'' and ``very small entity''

[[Page 52339]]

in the context of 800 MHz SMR (upper 10 MHz and lower 230 channels) and 
900 MHz SMR have been approved by the SBA. The Commission does not know 
how many firms provide 800 MHz or 900 MHz geographic area SMR service 
pursuant to extended implementation authorizations, nor how many of 
these providers have annual revenues of no more than $15 million. One 
firm has over $15 million in revenues. The Commission assumes, for its 
purposes here, that all of the remaining existing extended 
implementation authorizations are held by small entities, as that term 
is defined by the SBA. The Commission has held auctions for geographic 
area licenses in the 800 MHz (upper 10 MHz) and 900 MHz SMR bands. 
There were 60 winning bidders that qualified as small and very small 
entities in the 900 MHz auction. Of the 1,020 licenses won in the 900 
MHz auction, 263 licenses were won by bidders qualifying as small and 
very small entities. In the 800 MHz SMR auction, 38 of the 524 licenses 
won were won by small and very small entities.
    Private Land Mobile Radio (PLMR). PLMR systems serve an essential 
role in a range of industrial, business, land transportation, and 
public safety activities. These radios are used by companies of all 
sizes operating in all U.S. business categories. The Commission has not 
developed a definition of small entity specifically applicable to PLMR 
licensees due to the vast array of PLMR users. For the purpose of 
determining whether a licensee is a small business as defined by the 
SBA, each licensee would need to be evaluated within its own business 
area. The Commission is unable at this time to estimate the number of 
small businesses that could be affected by the rules. However, the 
Commission's 1994 Annual Report on PLMRs indicates that at the end of 
fiscal year 1994 there were 1,087,267 licensees operating 12,481,989 
transmitters in the PLMR bands below 512 MHz. Any entity engaged in a 
commercial activity is eligible to hold a PLMR license. Therefore, 
these rules could potentially affect every small business in the United 
States if PLMR licenses are subject to auction.
    Amateur Radio Service. The Commission estimates that 8,000 
applicants will apply for vanity call signs in FY 2000. All are 
presumed to be individuals.
    Aviation and Marine Radio Service. Small businesses in the aviation 
and marine radio services use a marine very high frequency (VHF) radio, 
any type of emergency position indicating radio beacon (EPIRB) and/or 
radar, a VHF aircraft radio, and/or any type of emergency locator 
transmitter (ELT). The Commission has not developed a definition of 
small entities specifically applicable to these small businesses. 
Therefore, the applicable definition of small entity is the definition 
under the SBA rules for radiotelephone communications. Most applicants 
for recreational licenses are individuals. Approximately 581,000 ship 
station licensees and 131,000 aircraft station licensees operate 
domestically and are not subject to the radio carriage requirements of 
any statute or treaty. Therefore, for purposes of its evaluations and 
conclusions here, the Commission estimates that there may be at least 
712,000 potential licensees that are individuals or small entities, as 
that term is defined by the SBA.
    Marine Coast Service. Between December 3, 1998 and December 14, 
1998, the Commission held an auction of 42 VHF Public Coast licenses in 
the 157.1875-157.4500 MHz (ship transmit) and 161.775-162.0125 MHz 
(coast transmit) bands. For purposes of this auction, and for future 
public coast auctions, the Commission defines a ``small'' business as 
an entity that, together with controlling interests and affiliates, has 
average gross revenues for the preceding three years not to exceed $15 
million dollars. A ``very small'' business is one that, together with 
controlling interests and affiliates, has average gross revenues for 
the preceding three years not to exceed $3 million dollars. There are 
approximately 10,672 licensees in the Marine Coast Service, and the 
Commission estimates that almost all of them qualify as ``small'' 
businesses under the Commission's definition, which has been approved 
by the SBA.
    Location and Monitoring Service (LMS). The SBA has not developed a 
definition of small entities specifically applicable to LMS licensees. 
Therefore, the applicable definition under SBA rules of a small entity 
is the definition under the rules applicable to radiotelephone 
(wireless) companies. This provides that a small entity is a 
radiotelephone company employing no more than 1,500 persons. According 
to the Bureau of the Census, only twelve radiotelephone firms out of a 
total of 1,178 such firms which operated during 1992 had 1,000 or more 
employees. Therefore, using such data, even if all twelve of these 
firms were LMS companies, nearly all such carriers were small 
businesses under the SBA's definition. As a practical matter, there are 
only a handful of existing LMS licensees--those being those licensed 
under the former Automatic Vehicle Monitoring service.
    Fixed Microwave Services. Microwave services include common 
carrier, private-operational fixed, and broadcast auxiliary radio 
services. At present, there are approximately 22,015 common carrier 
fixed licensees and 61,670 private operational-fixed licensees and 
broadcast auxiliary radio licensees in the microwave services. The 
Commission has not yet defined a small business with respect to 
microwave services. For its purposes here, the Commission will utilize 
the SBA's definition applicable to radiotelephone companies--i.e., an 
entity with no more than 1,500 persons. Under this definition, the 
Commission estimates that all of the Fixed Microwave licensees 
(excluding broadcast auxiliary licensees) would qualify as small 
entities.
    Local Multipoint Distribution Service. The Commission held two 
auctions for licenses in the Local Multipoint Distribution Services 
(LMDS) (Auction No. 17 and Auction No. 23). For both of these auctions, 
the Commission defined a small business as an entity, together with its 
affiliates and controlling principals, having average gross revenues 
for the three preceding years of no more than $15 million but not more 
than $40 million. A very small business was defined as an entity, 
together with affiliates and controlling principals, having average 
gross revenues for the three preceding years of not more than $15 
million. Of the 144 winning bidders in Auction Nos. 17 and 23, 125 
bidders (87%) were small or very small businesses.
    24 GHz--Incumbent 24 GHz Licensees. The rules the Commission are 
adopting today may affect incumbent licensees who were relocated to the 
24 GHz band from the 18 GHz band, and applicants who wish to provide 
services in the 24 GHz band. The Commission has not developed a 
definition of small entities applicable to licensees in the 24 GHz 
band. Therefore, the applicable definition of small entity is the 
definition under the SBA rules for the radiotelephone industry that 
provides that a small entity is a radiotelephone company employing 
fewer than 1,500 persons. The 1992 Census of Transportation, 
Communications, and Utilities, conducted by the Bureau of the Census, 
which is the most recent information available, shows that only 12 
radiotelephone firms out of a total of 1,178 such firms that operated 
during 1992 had 1,000 or more employees. This information 
notwithstanding, the Commission believes that there are only two 
licensees in the 24 GHz band that

[[Page 52340]]

were relocated from the 18 GHz band. Both licensees appear to have more 
than 1,500 employees. Therefore, it appears that no incumbent licensee 
in the 24 GHz band is a small business entity.
    Future 24 GHz Licensees. The proposals also affect potential new 
licensees on the 24 GHz band. Pursuant to 47 CFR 24.720(b), the 
Commission has defined ``small business'' for Blocks C and F broadband 
PCS licensees as firms that had average gross revenues of less than $40 
million in the three previous calendar years. This regulation defining 
``small business'' in the context of broadband PCS auctions has been 
approved by the SBA. With respect to new applicants in the 24 GHz band, 
the Commission shall use this definition of ``small business'' and 
apply it to the 24 GHz band under the name ``entrepreneur.'' With 
regard to ``small business,'' the Commission shall adopt the definition 
of ``very small business'' used for 39 GHz licenses and PCS C and F 
block licenses: businesses with average annual gross revenues for the 
three preceding years not in excess of $15 million. Finally, ``very 
small business'' in the 24 GHz band shall be defined as an entity with 
average gross revenues not to exceed $3 million for the preceding three 
years. The Commission will not know how many licensees will be small or 
very small businesses until the auction, if required, is held. Even 
after that, the Commission will not know how many licensees will 
partition their license areas or disaggregate their spectrum blocks, if 
partitioning and disaggregation are allowed.
    39 GHz. The Commission held an auction (Auction No. 30) for fixed 
point-to-point microwave licenses in the 38.6 to 40.0 GHz band (39 GHz 
Band). For this auction, the Commission defined a small business as an 
entity, together with affiliates and controlling interests, having 
average gross revenues for the three preceding years of not more than 
$40 million. A very small business was defined as an entity, together 
with affiliates and controlling principals, having average gross 
revenues for the three preceding years of not more than $15 million. 
The SBA has approved these definitions. Of the 29 winning bidders in 
Auction No. 30, 18 bidders (62%) were small business participants.
    Multipoint Distribution Service (MDS). This service involves a 
variety of transmitters, which are used to relay data and programming 
to the home or office, similar to that provided by cable television 
systems. In connection with the 1996 MDS auction, the Commission 
defined small businesses as entities that had annual average gross 
revenues for the three preceding years not in excess of $40 million. 
This definition of a small entity in the context of MDS auctions has 
been approved by the SBA. These stations were licensed prior to 
implementation of section 309(j) of the Communications Act of 1934, as 
amended. Licenses for new MDS facilities are now awarded to auction 
winners in Basic Trading Areas (BTAs) and BTA-like areas. The MDS 
auctions resulted in 67 successful bidders obtaining licensing 
opportunities for 493 BTAs. Of the 67 auction winners, 61 meet the 
definition of a small business.
    MDS is also heavily encumbered with licensees of stations 
authorized prior to the MDS auction. SBA has developed a definition of 
small entities for pay television services, which includes all such 
companies generating $11 million or less in annual receipts. This 
definition includes MDS systems, and thus applies to incumbent MDS 
licensees and wireless cable operators which may not have participated 
or been successful in the MDS auction. Information available to us 
indicates that there are 832 of these licensees and operators that do 
not generate revenue in excess of $11 million annually. Therefore, for 
purposes of this analysis, the Commission finds there are approximately 
892 small MDS providers as defined by the SBA and the Commission's 
auction rules.
    Public Safety Radio Services. Public Safety radio services include 
police, fire, local government, forestry conservation, highway 
maintenance, and emergency medical services. There are a total of 
approximately 127,540 licensees within these services. Governmental 
entities as well as private businesses comprise the licensees for these 
services. As noted, governmental entities with populations of less than 
50,000 fall within the SBA definition of a small entity. There are 
85,006 governmental entities in the nation, as of the last census. This 
number includes such entities as states, counties, cities, utility 
districts, and school districts. There are no figures available on what 
portion of this number has populations of fewer than 50,000; however, 
this number includes 38,978 counties, cities, and towns and of those, 
37,566 or 96 percent, have populations of fewer than 50,000. The Census 
Bureau estimates that this ratio is approximately accurate for all 
governmental entities. Thus, of the 85,006 governmental entities, the 
Commission estimates that 96 percent or 81,600 are small entities that 
may be affected by its rules.
    Offshore Radiotelephone Service. This service operates on several 
UHF TV broadcast channels that are not used for TV broadcasting in the 
coastal area of the states bordering the Gulf of Mexico. At present, 
there are approximately 55 licensees in this service. The Commission is 
unable at this time to estimate the number of licensees that would 
qualify as small under the SBA's definition for radiotelephone 
communications.
    Wireless Communications Services. This service can be used for 
fixed, mobile, radio-location and digital audio broadcasting satellite 
uses. The Commission defined ``small business'' for the wireless 
communications services (WCS) auction as an entity with average gross 
revenues of $40 million for each of the three preceding years, and a 
``very small business'' as an entity with average gross revenues of $15 
million for each of the three preceding years. The Commission auctioned 
geographic area licenses in the WCS service. In the auction, there were 
seven winning bidders that qualified as very small business entities 
and one winning bidder that qualified as a small business entity. The 
Commission concludes that the number of geographic area WCS licensees 
affected includes these eight entities.
    General Wireless Communication Service. This service was created by 
the Commission on July 31, 1995 by transferring 25 MHz of spectrum in 
the 4660-4685 MHz band from the federal government to private sector 
use. The Commission sought and obtained SBA approval of a refined 
definition of ``small business'' for GWCS in this band. According to 
this definition, a small business is any entity, together with its 
affiliates and entities holding controlling interests in the entity 
that has average annual gross revenues over the three preceding years 
that are not more than $40 million. By letter dated March 30, 1999, 
NTIA reclaimed the spectrum allocated to GWCS and identified 
alternative spectrum at 4940-4990 MHz. On February 23, 2000, the 
Commission released its Notice of Proposed Rule Making, 65 FR 14230 
(March 16, 2000) in WT Docket No. 00-32 proposing to allocate and 
establish licensing and service rules for the 4.9 GHz band.
    Television Broadcasting Stations. The SBA defines a television 
broadcasting station that has no more than $10.5 million in annual 
receipts as a small business. Television broadcasting stations consist 
of establishments primarily engaged in broadcasting visual programs by 
television to the public, except cable and other pay television 
services. Included in this industry are commercial, religious, 
educational, and other television

[[Page 52341]]

stations. Also included are establishments primarily engaged in 
television broadcasting and which produce taped television program 
materials. Separate establishments primarily engaged in producing taped 
television program materials are classified under another SIC number.
    There were 1,509 television stations operating in the nation in 
1992. That number has remained fairly steady as indicated by the 
approximately 1,590 operating television broadcasting stations in the 
nation as of January 1999. For 1992, the number of television stations 
that produced less than $10.0 million in revenue was 1,155 
establishments. Thus, of the 1,590 television stations approximately 
77%, or 1,224, of those stations are considered small businesses. As of 
January 1999, 2136 low power television stations and 4921 television 
translator stations were also licensed, and the Commission believes the 
vast majority of these stations are small businesses. These estimates 
may overstate the number of small entities since the revenue figures on 
which they are based do not include or aggregate revenues from non-
television affiliated companies.
    Radio Broadcasting Stations. The SBA defines a radio broadcasting 
station that has no more than $5 million in annual receipts as a small 
business. A radio broadcasting station is an establishment primarily 
engaged in broadcasting aural programs by radio to the public. Included 
in this industry are commercial, religious, educational and other radio 
stations. Radio broadcasting stations that primarily are engaged in 
radio broadcasting and that produce radio program materials are 
similarly included. However, radio stations that are separate 
establishments and are primarily engaged in producing radio program 
material are classified under another SIC number. The 1992 census 
indicates that 96% (5,861 of 6,127) of radio station establishments 
produced less than $5 million in revenue in 1992. Official Commission 
records indicate that 11,334 individual radio stations were operating 
in 1992. As of January 1999, official Commission records indicate that 
12,496 radio stations were operating. The Commission concludes that a 
similarly high percentage (96%) of current radio broadcasting licensees 
are small entities. As of January 1999, there were also 3171 FM 
translator/booster stations licensed, and the Commission believes the 
vast majority of these stations are small businesses. These estimates 
may overstate the number of small entities since the revenue figures on 
which they are based do not include or aggregate revenues from non-
radio affiliated companies.
    Instructional Television Fixed Service (ITFS). In addition, there 
are presently 2032 ITFS licensees. All but 100 of these licenses are 
held by educational institutions. Educational institutions may be 
included in the definition of a small entity. ITFS is a non-pay, non-
commercial educational microwave service that, depending on SBA 
categorization, has, as small entities, entities generating either 
$10.5 million or less, or $11.0 million or less, in annual receipts. 
However, the Commission does not collect, nor is it aware of other 
collections of, annual revenue data for ITFS licensees. Thus, the 
Commission concludes that up to 1932 of these licensees are small 
entities.
    Pending and Future Broadcast Applicants. The Commission has given 
the SBA broadcast size standards, supra. The competitive bidding 
procedures set forth in the Order on Reconsideration will affect: (i) 
any entity with a pending application for a construction permit for a 
new full service commercial radio or analog television broadcast 
station, if mutually exclusive applications have been filed; (ii) any 
entity that files an application in the future for a new full service 
commercial radio or analog television station, if mutually exclusive 
applications are filed; (iii) any entity with a pending application on 
file, or filing an application in the future, for a new low power 
television station, or a television or FM translator station, if 
mutually exclusive applications have been or are filed; (iv) any entity 
that has a pending or future application to make a make a major change 
in an existing facility in any commercial broadcast or secondary 
broadcast service, if mutually exclusive applications have been or are 
filed; and (v) any entity that has filed or files in the future an 
application for a license for an ITFS station, if mutually exclusive 
applications have been filed or are filed. The Commission estimates 
that there are currently pending before the Commission the following 
mutually exclusive applications:

     approximately 620 mutually exclusive applications for full 
power commercial radio stations, and approximately 165 competing 
applications for full power commercial analog television stations;
     approximately 275 mutually exclusive applications for low 
power television stations and television translator stations, and 
approximately 20 competing applications for FM translator stations; and
     approximately 200 or more mutually exclusive applications 
for ITFS stations.

    Although applicants for broadcast construction permits have been 
required to demonstrate sufficient financing to construct and initially 
operate the proposed broadcast station, the Commission does not require 
the filing of financial information specifically concerning the entity 
seeking a construction permit, such as the entity's annual revenues. 
Thus, the Commission has no data on file as to whether entities with 
pending permit applications, which are subject to the new competitive 
bidding selection procedures adopted for the broadcast services, meet 
the SBA's definition of a small business concern. However, the 
Commission concludes that, given the smaller size of the markets at 
issue in the pending applications, most of the entities with pending 
applications for a permit to construct a new primary or secondary 
broadcast station are small entities, as defined by the SBA rules.
    In addition to the pending applicants that may be affected by the 
auction procedures adopted for the broadcast services, any entity that 
applies for a construction permit for a new broadcast station in the 
future will be subject to these competitive bidding rules if mutually 
exclusive applications are filed. It is not possible, at this time, to 
estimate the number of markets for which mutually exclusive 
applications will be received, nor the number of entities that in the 
future may seek a construction permit for a new broadcast station. 
Given the fact that fewer new stations (particularly fewer analog 
television stations) will be licensed in the future and that these 
stations generally will be located in smaller, more rural areas, the 
Commission concludes that most of the entities applying for these 
stations will be small entities, as defined by the SBA rules.
    Digital Audio Radio Service (DARS). The Commission has not 
developed its own definition of ``small entity'' for purposes of 
licensing satellite delivered services. Accordingly, the Commission 
relies on the definition of ``small entity'' provided under the Small 
Business Administration (SBA) rules applicable to Communications 
Services, Not Elsewhere Classified. A ``small entity'' under these SBA 
rules is defined as an entity with $11.0 million or less in annual 
receipts. The two current U.S. satellite DARS licensees, XM Satellite 
Radio and Sirius Satellite Radio, are in the midst of deploying their 
systems, and appear to have no revenues. Thus,

[[Page 52342]]

XM and Sirius are ``small entities'' under the SBA definition.
    Direct-to-Home (DTH) Satellite Service--Direct Broadcast Satellite 
(DBS) and Home Satellite Services (HSD). Video service is available 
from high power DBS satellites that transmit signals to small DBS dish 
antennas installed at subscribers' premises, and from medium and low 
power satellites requiring larger satellite dish antennas. In the last 
year, DirecTV merged with United States Satellite Broadcasting Co., 
Inc. (USSB) and acquired PrimeStar. DirecTV and EchoStar are among the 
ten largest providers of multichannel video programming service. DBS 
represented a 12.5% share of the national MVPD market in June 1999 and 
HSD represented another 2.2% of that market. Thus, it appears that no 
DBS or HSD operators meet the SBA's definition of ``small entity.''

D. Description of the Projected Reporting, Record-keeping, and Other 
Compliance Requirements

    91. One rule amendment adopted in this Order on Reconsideration 
will decrease the reporting requirements for entities not seeking 
designated entity status. Other rule amendments, however, may increase 
the reporting and recordkeeping requirements for all license 
applicants, including small entities.
    92. Specifically, the Commission amends Sec. 1.2112 of its rules to 
reduce the amount of ownership information that applicants must report 
on their short- and long-form applications. Section 1.2112 requires 
applicants to identify direct and indirect owners with an interest of 
10 percent or greater. Previously under Sec. 1.2112, in calculating the 
10 percent interest, the Commission required applicants to include debt 
and interests such as warrants and convertible debentures, stock 
options, debt securities or other debt interests. In this Order on 
Reconsideration, the Commission amends Sec. 1.2112 to provide that such 
interests need not be reported unless the entity is seeking status as a 
designated entity. For the purpose of determining designated entity 
status and eligibility for bidding credits, the Commission believes 
that warrants, convertible debentures, options and other debt interests 
should be treated as having been exercised. For the broader purpose of 
determining all applicants' ownership interests, the Commission will 
not require information regarding interests in an applicant that have 
not yet vested.
    93. The Commission amends its general competitive bidding rules to 
permit ``former defaulters,'' i.e., applicants that have defaulted or 
been delinquent in the past, but have since paid all of their 
outstanding non-Internal Revenue Service Federal debts and all 
associated charges or penalties, to certify on FCC Form 175 that they 
are not in default and are, therefore, eligible for auction 
participation. ``Former defaulters'' will be required to pay an upfront 
payment amount of 1.5 times the normal amount set by the Bureau for any 
given license in a Commission auction. So that the Bureau may implement 
this rule, it will require applicants to make an additional 
certification revealing whether they or any of their controlling 
interests or affiliates have ever been in default on any Commission 
license or have ever been delinquent on any non-tax debt owed to any 
Federal agency.
    94. The Order on Reconsideration also clarifies that the assignee 
or transferee of a license paid for through installment payments is not 
responsible for the license debt until the assignment or transfer has 
been consummated. There may be cases in which the Commission believes 
that an assignment or transfer has been consummated when it has not. In 
such instances, the Commission may mistakenly initiate debt collection 
procedures against the wrong party. If such action occurs, the affected 
party should notify the Commission in writing that the underlying 
transaction was not consummated and the Commission will stop its debt 
collection proceedings against that party.

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

    95. Incorporation into the part 1 general competitive bidding rules 
of the ``former defaulter'' policies adopted with respect to C block 
auction applicants will provide more opportunities for all entities, 
including small entities, to participate in spectrum auctions. The 
``former defaulter'' policies adopted herein permit all ``former 
defaulters'' including small entities, to participate in future 
spectrum auctions under certain conditions.
    96. All petitioners in this proceeding oppose some aspect of the 
Commission's installment payment grace period and late payment fee 
provisions adopted in the Part 1 Third Report and Order. The Commission 
has reviewed petitioners' arguments and concludes that it will retain 
these provisions, but will adopt a slight modification to the payment 
due dates for late installment payments and associated late fees. 
Specifically, the Commission amends the due dates for installment 
payments to comport with quarterly due dates. An alternative would be 
to maintain the current rules, but this modification may avoid 
confusion as to when such payments are due. Revisions to the 
Commission's installment payment rules were first proposed in the 
notice section of the Order, Memorandum Opinion and Order and Notice of 
Proposed Rule Making, 62 FR 13540 (March 21, 1997). Comments on 
installment payment issues were received and addressed in the Part 1 
Third Report and Order. In response to the Part 1 Third Report and 
Order, the Commission received petitions for reconsideration of its 
installment payment grace period and late payment fee provisions. In 
concluding to retain these provisions in this Order on Reconsideration, 
the Commission has thoroughly reviewed and carefully evaluated all of 
the opposing arguments presented. The Commission rejected the 
alternative of reinstating the requirement for licensees using 
installment payments to submit grace period requests demonstrating 
financial needs due, in part, to the burdens that procedure imposes on 
small business licensees.
    97. The Commission determines that the revised late payment rules 
relating to the submission of installment payments are not commercially 
unreasonable, do not constitute impermissible retroactive rulemaking, 
and do not violate basic contract principles. The late installment 
payment provisions were not intended to serve as a tool that licensees 
might use in their normal course of planning auction strategy and 
build-out. These provisions are provided for extraordinary 
circumstances--instances of financial distress--for which temporary 
relief is appropriate. The Commission considered a number of 
alternatives presented by petitioners, but found that those proposals 
were not consistent with the Commissions fundamental goal in adopting 
the late payment provisions, which is to encourage payment on the due 
date. The Commission has determined that this goal is best attainable 
by adhering to the 5 percent and 10 percent late payment fee schedule 
adopted in the Part 1 Third Report and Order. The Commission further 
determines that the modified grace period and late payment fee 
provisions apply to 900 MHz SMR and MDS licensees that have signed 
Promissory Notes and Security Agreements. The SMR and MDS notes 
emphasized that the Commission's rules, as amended, would take

[[Page 52343]]

precedence over the terms of the notes in case of any conflict. The 
Commission clarifies that, despite amendments to the installment 
payment rules, licensees in the installment payment program continue to 
have the opportunity to seek restructuring of installment payments. The 
Commission notes, however, that there is no longer a procedure for 
requesting a grace period to stay installment payment deadlines pending 
such restructuring. Rather, licensees will be subject to the automatic 
late payment provisions of Sec. 1.2110(g) of the Commission's rules as 
adopted in this Order on Reconsideration.

E. Report to Congress

    98. The Commission shall send a copy of this Final Regulatory 
Flexibility Analysis, along with this Order on Reconsideration, in a 
report to Congress pursuant to the Small Business Regulatory 
Enforcement Fairness Act of 1996, 5 U.S.C. 801(a)(1)(A). See 5 U.S.C. 
Sec. 604(b). A copy of the Order and this FRFA will also be sent to the 
Chief Counsel for Advocacy of the Small Business Administration.

Final Regulatory Flexibility Analysis--Fifth Report and Order

    99. This Final Regulatory Flexibility Analysis (FRFA) in the Fifth 
Report and Order conforms to the RFA, as amended by the Contract With 
America Advancement Act of 1996 (CWAAA), Public Law 104-121, 110 Stat. 
847 (1996).

A. Need for, and Objectives of, The Fifth Report and Order

    100. The Fifth Report and Order makes substantive amendments to the 
Commission's general competitive bidding rules for auctionable 
services. Specifically, the Fifth Report and Order adopts a 
``controlling interest'' standard for the attribution of gross revenues 
in determining whether a license applicant qualifies as a small 
business. The ``controlling interest'' standard is intended to prevent 
larger firms from illegitimately seeking status as small businesses and 
ensure that only those entities truly meriting small business status 
are eligible for the small business provisions. In addition, the Fifth 
Report and Order establishes a maximum 10-day filing period for the 
submission of petitions to deny the long-form applications of winning 
bidders. The Commission increases the filing period from 5 days (as 
adopted in the Part 1 Third Report and Order) to 10 days in order to 
afford parties (including small businesses) additional flexibility in 
challenging license awards. The Commission also delegates to the 
Wireless Telecommunications Bureau the authority to make any revisions 
to the Code of Federal Regulations that are necessary to conform the 
service-specific auction rules to the part 1 general competitive 
bidding rules. Finally, the Commission addresses other issues raised by 
the Second FNPRM and affirms its existing rules relative to those 
issues.

B. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    101. No comments were received directly in response to the IRFA. 
The Commission, however, did receive comments on issues affecting small 
businesses in response to the Second FNPRM. Specifically, a commenter 
proposed that the Commission establish geographic area licenses no 
larger than BTAs in all future auctions. Commenter argued that the use 
of small areas facilitates the delivery of service to rural areas by 
increasing the opportunity for rural small businesses and rural 
telephone companies to acquire licenses. Commenter also contends that 
authorizing smaller geographic areas increases the number of licenses 
available and the diversity of licenses, and facilitates the buildout 
of networks. The Commission rejects the commenter's proposal. Section 
309(j) of the Communications Act requires the Commission to disseminate 
licenses to a wide variety of applicants, including small businesses 
and rural telephone companies, and to promote the development and rapid 
deployment of new technologies to the public, including those residing 
in rural areas. The Commission believes that it can best satisfy this 
mandate by establishing license areas that promote these goals on a 
service-specific basis. Although the Commission has used small license 
areas in several services (e.g., broadband PCS D, E and F blocks and 
LMDS) and may do so in specific services in the future, it is unwilling 
to limit its flexibility by adopting an ironclad rule against large 
service areas. The Commission anticipates, for example, that certain 
satellite-based services may not be particularly suited to small 
geographic area licensing, while other services may indeed be more 
suitable for this type of license category (i.e., the broadband PCS C 
block auction).
    102. Comments were also filed in response to the Commission's 
proposal to adopt a ``controlling interest'' standard as its general 
attribution rule for determining which applicants qualify as small 
businesses. In this Fifth Report and Order, the Commission adopts a 
``controlling interest'' standard and addresses the related comments. 
Under the ``controlling interest'' standard, the gross revenues of the 
applicant, its controlling interests and their affiliates will be 
aggregated and attributed to the applicant in determining whether the 
applicant qualifies as a small business. A ``controlling interest'' 
includes individuals or entities that have control of the applicant as 
determined by the principles of de jure or de facto control.
    103. Commenters raised various issues regarding the attribution 
standard. Some commenters expressed concern over whether the revenues 
of so called ``passive investors'' would be attributed to the 
applicant. The Commission states that the controlling interest standard 
adopted herein will be applied to all investors of the applicant. In 
other words, if any investor has either de jure or de facto control of 
the applicant, that investor's gross revenues will be attributed to the 
applicant for purposes of determining whether the applicant qualifies 
as a small business. Some commenters suggested that the Commission 
adopt a minimum equity requirement for controlling interests. The 
Commission concludes that rather than focusing solely on equity-
holdings, applicants will be required to identify those controlling 
interests that actually have control through application of the 
principles of de jure or de facto control. A Commenter urges the 
Commission not to amend its attribution rules to include entities that 
have management and joint marketing agreements with the applicant or 
licensee. The Commission adopts provisions that make attributable the 
gross revenues of those that have management or marketing agreements 
where such agreements grant authority over key aspects of the 
applicant's or licensee's business. Another commenter urges the 
Commission not to apply any new attribution or affiliation rules 
adopted in this proceeding to current C block licensees that won their 
licenses under the control group broadband PCS rules. The Commission 
will not reassess the eligibility of current C and F block licensees to 
continue to hold their licenses under the new attribution rules adopted 
herein. These licensees will remain eligible to hold their licenses 
regardless of whether or not they would qualify under the newly 
established attribution rules. As to future C and F block auctions, 
however, all applicants, including existing C and F block licensees, 
will be subject to the attribution rules in effect at the time of 
filing their short-form applications. For auctions that begin within 
two years after the start of Auction No. 22 (March

[[Page 52344]]

23, 1999), the Commission's new attribution rules will have no effect 
on the eligibility as an entrepreneur of any entity that was eligible 
for, and participated in, Auction No.5 or Auction No.10. Eligibility 
for small business preferences, however, will be determined based on 
the attribution rules in effect at the time of an applicant's short-
form filing.

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

    104. 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 adopted in 
this Fifth Report and Order apply to all entities, including small 
entities, seeking to obtain licenses in auctionable services through 
competitive bidding. These rules generally apply to future auctions. In 
estimating the number of small entities that may participate in future 
auctions of wireless services, the Commission anticipates that current 
wireless services licensees are representative of future auction 
participants. The Commission hereby incorporates into this FRFA section 
the detailed Supplemental FRFA analysis and descriptions of potentially 
affected small entities, supra, including the cellular, broadband and 
narrowband PCS, 220 MHz, paging, mobile service, air-ground, SMR, PLMR, 
aviation and marine, offshore radiotelephone services, GWCS, fixed 
microwave, rural, wireless, public safety, governmental entities and 
Marine Coast Services.

D. Description of the Projected Reporting, Record-keeping, and Other 
Compliance Requirements

    105. All license applicants are subject to the reporting and 
record-keeping requirements of the competitive bidding rules. 
Specifically, applicants are required to apply for spectrum auctions by 
filing a short-form application prior to auction. Applicants are also 
required to file a long-form application at the conclusion of an 
auction. Entities seeking treatment as ``small businesses'' must 
disclose on their short-and long-form applications, separately and in 
the aggregate, the gross revenues of the applicant, its controlling 
interests (as that term is defined in the Fifth Report and Order), and 
their affiliates.

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

    106. The Commission has considered the economic impact on small 
entities of the following rules and modifications adopted in the Fifth 
Report and Order and has taken steps to minimize the burdens on small 
entities.
    Attribution of Gross Revenues of Investors and Affiliates. The 
Commission adopts a ``controlling interest'' standard for attributing 
to an applicant the gross revenues of its investors and affiliates in 
determining whether the applicant qualifies as a small business. 
Application of the controlling interest standard protects the interests 
of small businesses by preventing larger firms from illegitimately 
seeking small business status and ensuring that only those entities 
truly meriting such status are eligible for the small business 
provisions. The Commission further concludes that the eligibility of 
current C and F block licensees to continue to hold their licenses will 
not be reassessed based on the new attribution rules. Therefore, these 
licensees will continue to be eligible to hold their licenses 
regardless of whether or not they would qualify under the newly 
established attribution rules. By applying the current, rather than the 
new, rules to existing C and F block licensees, the Commission 
eliminates the burden on such licensees of having to restructure to 
meet new standards in order to remain licensees.
    Administrative Filing Periods for Applications and Petitions to 
Deny. The Commission establishes a maximum 10-day filing period for 
submitting petitions to deny against long-form applications. The 
Commission increases the filing period from 5 days (as adopted in the 
Part 1 Third Report and Order) to 10 days in order to afford parties 
(including small businesses) additional flexibility in challenging 
license applications.
    107. In addition to the modifications adopted in this Fifth Report 
and Order, the Commission affirms its existing rules with respect to 
certain other issues affecting small businesses. Specifically, the 
Commission declines, at this time, to adopt special provisions for 
minority-and women-owned businesses pending completion of a series of 
market studies to determine whether, and under what circumstances, 
targeted preferences for minorities and women are appropriate. The 
Commission notes, however that minority-and women-owned businesses that 
qualify as small businesses may take advantage of the provisions 
adopted for small businesses. In addition, the Commission declines, at 
this time, to adopt special provisions for rural telephone companies, 
such as bidding preferences or an unserved area fill-in policy. The 
Commission notes, however, that it will continue to provide rural 
telephone companies with bidding credits should such entities qualify 
as small businesses. The Commission further determines that, for the 
time being, it will not offer installment payments for auctionable 
services. The Commission notes that commenters did not offer 
suggestions as to how to retain the program or alternatives to replace 
the program. The Commission states that it will, as it has done in the 
LMDS, LMS, 220 MHz Service, and VHF Public Coast Service auctions, 
continue to provide small businesses with bidding credits.

F. Report to Congress

    108. The Commission shall send a copy of this Final Regulatory 
Flexibility Analysis, along with the Fifth Report and Order, in a 
report to Congress pursuant to the Small Business Regulatory 
Enforcement Fairness Act of 1996, 5 U.S.C. 801(a)(1)(A). See 5 U.S.C. 
Sec. 604(b). A copy of the Order and this FRFA will also be sent to the 
Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 1

    Communications common carriers, Reporting and recordkeeping 
requirements.
    Federal Communications Commission.

Magalie Roman Salas,
Secretary.

Rule Changes

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 1 as follows:
    1. Section 1.2104 is amended by revising paragraphs (g)(1) and 
(g)(2) to read as follows:


Sec. 1.2104  Competitive bidding mechanisms.

* * * * *
    (g) * * *
    (1) Bid withdrawal prior to close of auction. A bidder that 
withdraws a high bid during the course of an auction is subject to a 
withdrawal payment equal to the difference between the amount of the 
withdrawn bid and the amount of the winning bid in the same or 
subsequent auction(s). In the event that a bidding credit applies to 
any of the bids, the bid withdrawal payment is either the difference 
between the net withdrawn bid and the subsequent net winning bid, or 
the difference between the gross withdrawn bid and the subsequent gross 
winning bid, whichever is less. No withdrawal payment will be assessed 
for a withdrawn bid if either the subsequent

[[Page 52345]]

winning bid or any of the intervening subsequent withdrawn bids equals 
or exceeds that withdrawn bid. The withdrawal payment amount is 
deducted from any upfront payments or down payments that the 
withdrawing bidder has deposited with the Commission. In the case of 
multiple bid withdrawals on a single license, the payment for each bid 
withdrawal will be calculated based on the sequence of bid withdrawals 
and the amounts withdrawn in the same or subsequent auction(s). In the 
event that a license for which there have been withdrawn bids is not 
won in the same auction, those bidders for which a final withdrawal 
payment cannot be calculated will be assessed an interim bid withdrawal 
payment equal to 3 percent of the amount of their bid withdrawals. The 
3 percent interim payment will be applied toward any final bid 
withdrawal payment that will be assessed at the close of the subsequent 
auction of the license.

    Example: 1 to paragraph (g)(1). Bidder A withdraws a bid of 
$100. Subsequently, Bidder B places a bid of $90 and withdraws. In 
that same auction, Bidder C wins the license at a bid of $95. 
Withdrawal payments are assessed as follows: Bidder A owes $5 
($100-$95). Bidder B owes nothing.
    Example 2 to paragraph (g)(1). Bidder A withdraws a bid of $100. 
Subsequently, Bidder B places a bid of $95 and withdraws. In that 
same auction, Bidder C wins the license at a bid of $90. Withdrawal 
payments are assessed as follows: Bidder A owes $5 ($100-$95). 
Bidder B owes $5 ($95-$90).
    Example 3 to paragraph (g)(1). Bidder A withdraws a bid of $100. 
Subsequently, in that same auction, Bidder B places a bid of $90 and 
withdraws. In a subsequent auction, Bidder C places a bid of $95 and 
withdraws. Bidder D wins the license in that auction at a bid of 
$80. Withdrawal payments are assessed as follows: At the end of the 
first auction, Bidder A and Bidder B are each assessed an interim 
withdrawal payment equal to 3 percent of their withdrawn bids 
pending Commission assessment of a final withdrawal payment (Bidder 
A would owe 3% of $100, or $3, and Bidder B would owe 3% of $90, or 
$2.70). At the end of the second auction, Bidder A would owe $5 
($100-$95) less the $3 interim withdrawal payment for a total of $2. 
Because Bidder C placed a subsequent bid that was higher than Bidder 
B's $90 bid, Bidder B would owe nothing. Bidder C would owe $15 
($95-$80).

    (2) Default or disqualification after close of auction. A bidder 
assumes a binding obligation to pay its full bid amount upon acceptance 
of the high bid at the close of an auction. If a high bidder defaults 
or is disqualified after the close of such an auction, the defaulting 
bidder will be subject to the payment in paragraph (g)(1) of this 
section plus an additional payment equal to 3 percent of the subsequent 
winning bid. If the subsequent winning bid exceeds the defaulting 
bidder's bid amount, the 3 percent payment will be calculated based on 
the defaulting bidder's bid amount. If either bid amount is subject to 
a bidding credit, the 3 percent credit will be calculated using the 
same bid amounts and basis (net or gross bids) as in the calculation of 
the payment in paragraph (g)(1) of this section. Thus, for example, if 
gross bids are used to calculate the payment in paragraph (g)(1) of 
this section, the 3 percent will be applied to the gross amount of the 
subsequent winning bid, or the gross amount of the defaulting bid, 
whichever is less.
* * * * *

    2. Section 1.2105 is amended by revising paragraphs (a)(2)(xi) and 
(c)(1) to read as follows:


Sec. 1.2105  Bidding application and certification procedures; 
prohibition of collusion.

* * * * *
    (a) * * *
    (2) * * *
    (xi) An attached statement made under penalty of perjury indicating 
whether or not the applicant has ever been in default on any Commission 
license or has ever been delinquent on any non-tax debt owed to any 
Federal agency.
* * * * *
    (c) Prohibition of collusion. (1) Except as provided in paragraphs 
(c)(2), (c)(3) and (c)(4) of this section, after the short-form 
application filing deadline, all applicants are prohibited from 
cooperating, collaborating, discussing or disclosing in any manner the 
substance of their bids or bidding strategies, or discussing or 
negotiating settlement agreements, with other applicants until after 
the down payment deadline, unless such applicants are members of a 
bidding consortium or other joint bidding arrangement identified on the 
bidder's short-form application pursuant to Sec. 1.2105(a)(2)(viii).
* * * * *

    3. Section 1.2106 is amended by revising paragraph (a) to read as 
follows:


Sec. 1.2106  Submission of upfront payments.

    (a) The Commission may require applicants for licenses subject to 
competitive bidding to submit an upfront payment. In that event, the 
amount of the upfront payment and the procedures for submitting it will 
be set forth in a Public Notice. Any auction applicant that has 
previously been in default on any Commission license or has previously 
been delinquent on any non-tax debt owed to any Federal agency must 
submit an upfront payment equal to 50 percent more than that set for 
each particular license. No interest will be paid on upfront payments.
* * * * *

    4. Section 1.2108 is amended by revising paragraph (b) to read as 
follows:


Sec. 1.2108  Procedures for filing petition to deny against long-form 
applications.

* * * * *
    (b) Within a period specified by Public Notice and after the 
Commission by Public Notice announces that long-form applications have 
been accepted for filing, petitions to deny such applications may be 
filed. The period for filing petitions to deny shall be no more than 
ten (10) days. The appropriate licensing Bureau, within its discretion, 
may, in exigent circumstances, reduce this period of time to no less 
than five (5) days. Any such petitions must contain allegations of fact 
supported by affidavit of a person or persons with personal knowledge 
thereof.
* * * * *

    5. Section 1.2110 is amended by redesignating paragraphs (b) 
through (m) as (c) through (n), adding new paragraph (b), and revising 
newly redesignated paragraphs (c), (g)(4), and (j) to read as follows:


Sec. 1.2110  Designated entities.

* * * * *
    (b) Eligibility for small business provisions. (1) Size 
attribution. The gross revenues of the applicant (or licensee), its 
controlling interests and their affiliates shall be attributed to the 
applicant and considered on a cumulative basis and aggregated for 
purposes of determining whether the applicant (or licensee) is eligible 
for status as a small business under this section. An applicant seeking 
status as a small business under this section must disclose on its 
short-and long-form applications, separately and in the aggregate, the 
gross revenues of the applicant (or licensee), its controlling 
interests and their affiliates for each of the previous three years.
    (2) Aggregation of affiliate interests. Persons or entities that 
hold interests in an applicant (or licensee) that are affiliates of 
each other or have an identity of interests identified in 
Sec. 1.2110(c)(5)(iii) will be treated as though they were one person 
or entity and their ownership interests aggregated for purposes of 
determining an applicant's (or licensee's) compliance with the 
requirements of this section.


[[Page 52346]]


    Example 1 to paragraph (b)(2). ABC Corp. is owned by 
individuals, A, B and C, each having an equal one-third voting 
interest in ABC Corp. A and B together, with two-thirds of the stock 
have the power to control ABC Corp. and have an identity of 
interest. If A&B invest in DE Corp., a broadband PCS applicant for 
block C, A and B's separate interests in DE Corp. must be aggregated 
because A and B are to be treated as one person or entity.
    Example 2 to paragraph (b)(2). ABC Corp. has subsidiary BC 
Corp., of which it holds a controlling 51 percent of the stock. If 
ABC Corp. and BC Corp., both invest in DE Corp., their separate 
interests in DE Corp. must be aggregated because ABC Corp. and BC 
Corp. are affiliates of each other.

    (3) Exceptions. (i) Small business consortia. Where an applicant 
(or licensee) is a consortium of small businesses, the gross revenues 
of each small business consortium member shall not be aggregated. Each 
small business consortium member must constitute a separate and 
distinct legal entity to qualify.
    (ii) Applicants without identifiable controlling interests. Where 
an applicant (or licensee) cannot identify controlling interests under 
the standards set forth in this section, the gross revenues of all 
interest holders in the applicant, and their affiliates, will be 
attributable.
    (c) Definitions. (1) Small businesses. The Commission will 
establish the definition of a small business on a service-specific 
basis, taking into consideration the characteristics and capital 
requirements of the particular service.
    (2) Controlling interests. (i) For purposes of this section, 
controlling interest includes individuals or entities with either de 
jure or de facto control of the applicant. De jure control is evidenced 
by holdings of greater than 50 percent of the voting stock of a 
corporation, or in the case of a partnership, general partnership 
interests. De facto control is determined on a case-by-case basis. An 
entity must disclose its equity interest and demonstrate at least the 
following indicia of control to establish that it retains de facto 
control of the applicant:
    (A) the entity constitutes or appoints more than 50 percent of the 
board of directors or management committee;
    (B) the entity has authority to appoint, promote, demote, and fire 
senior executives that control the day-to-day activities of the 
licensee; and
    (C) the entity plays an integral role in management decisions.
    (ii) Calculation of certain interests.
    (A) Ownership interests shall be calculated on a fully diluted 
basis; all agreements such as warrants, stock options and convertible 
debentures will generally be treated as if the rights thereunder 
already have been fully exercised.
    (B) Partnership and other ownership interests and any stock 
interest equity, or outstanding stock, or outstanding voting stock 
shall be attributed as specified.
    (C) Stock interests held in trust shall be attributed to any person 
who holds or shares the power to vote such stock, to any person who has 
the sole power to sell such stock, and to any person who has the right 
to revoke the trust at will or to replace the trustee at will. If the 
trustee has a familial, personal, or extra-trust business relationship 
to the grantor or the beneficiary, the grantor or beneficiary, as 
appropriate, will be attributed with the stock interests held in trust.
    (D) Non-voting stock shall be attributed as an interest in the 
issuing entity.
    (E) Limited partnership interests shall be attributed to limited 
partners and shall be calculated according to both the percentage of 
equity paid in and the percentage of distribution of profits and 
losses.
    (F) Officers and directors of an entity shall be considered to have 
a controlling interest in the entity. The officers and directors of an 
entity that controls a licensee or applicant shall be considered to 
have a controlling interest in the licensee or applicant.
    (G) Ownership interests that are held indirectly by any party 
through one or more intervening corporations will be determined by 
successive multiplication of the ownership percentages for each link in 
the vertical ownership chain and application of the relevant 
attribution benchmark to the resulting product, except that if the 
ownership percentage for an interest in any link in the chain exceeds 
50 percent or represents actual control, it shall be treated as if it 
were a 100 percent interest.
    (H) Any person who manages the operations of an applicant or 
licensee pursuant to a management agreement shall be considered to have 
a controlling interest in such applicant or licensee if such person, or 
its affiliate, has authority to make decisions or otherwise engage in 
practices or activities that determine, or significantly influence:
    (1) The nature or types of services offered by such an applicant or 
licensee;
    (2) The terms upon which such services are offered; or
    (3) The prices charged for such services.
    (I) Any licensee or its affiliate who enters into a joint marketing 
arrangement with an applicant or licensee, or its affiliate, shall be 
considered to have a controlling interest, if such applicant or 
licensee, or its affiliate, has authority to make decisions or 
otherwise engage in practices or activities that determine, or 
significantly influence:
    (1) The nature or types of services offered by such an applicant or 
licensee;
    (2) The terms upon which such services are offered; or
    (3) The prices charged for such services.
    (3) Businesses owned by members of minority groups and/or women. 
Unless otherwise provided in rules governing specific services, a 
business owned by members of minority groups and/or women is one in 
which minorities and/or women who are U.S. citizens control the 
applicant, have at least greater than 50 percent equity ownership and, 
in the case of a corporate applicant, have a greater than 50 percent 
voting interest. For applicants that are partnerships, every general 
partner must be either a minority and/or woman (or minorities and/or 
women) who are U.S. citizens and who individually or together own at 
least 50 percent of the partnership equity, or an entity that is 100 
percent owned and controlled by minorities and/or women who are U.S. 
citizens. The interests of minorities and women are to be calculated on 
a fully diluted basis; agreements such as stock options and convertible 
debentures shall be considered to have a present effect on the power to 
control an entity and shall be treated as if the rights thereunder 
already have been fully exercised. However, upon a demonstration that 
options or conversion rights held by non-controlling principals will 
not deprive the minority and female principals of a substantial 
financial stake in the venture or impair their rights to control the 
designated entity, a designated entity may seek a waiver of the 
requirement that the equity of the minority and female principals must 
be calculated on a fully-diluted basis. The term minority includes 
individuals of Black or African American, Hispanic or Latino, American 
Indian or Alaskan Native, Asian, and Native Hawaiian or Pacific 
Islander extraction.
* * * * *
    (g) * * *
    (4) A license granted to an eligible entity that elects installment 
payments shall be conditioned upon the full and timely performance of 
the licensee's payment obligations under the installment plan.
    (i) Any licensee that fails to submit its quarterly payment on an 
installment

[[Page 52347]]

payment obligation (the ``Required Installment Payment'') may submit 
such payment on or before the last day of the next quarter (the ``first 
additional quarter'') without being considered delinquent. Any licensee 
making its Required Installment Payment during this period (the ``first 
additional quarter grace period'') will be assessed a late payment fee 
equal to five percent (5%) of the amount of the past due Required 
Installment Payment. The late payment fee applies to the total Required 
Installment Payment regardless of whether the licensee submitted a 
portion of its Required Installment Payment in a timely manner.
    (ii) If any licensee fails to make the Required Installment Payment 
on or before the last day of the first additional quarter set forth in 
paragraph (g)(4)(i) of this section, the licensee may submit its 
Required Installment Payment on or before the last day of the next 
quarter (the ``second additional quarter''), except that no such 
additional time will be provided for the July 31, 1998 suspension 
interest and installment payments from C or F block licensees that are 
not made within 90 days of the payment resumption date for those 
licensees, as explained in Amendment of the Commission's Rules 
Regarding Installment Payment Financing for Personal Communications 
Services (PCS) Licensees, Order on Reconsideration of the Second Report 
and Order, WT Docket No. 97-82, 13 FCC Rcd 8345 (1998). Any licensee 
making the Required Installment Payment during the second additional 
quarter (the ``second additional quarter grace period'') will be 
assessed a late payment fee equal to ten percent (10%) of the amount of 
the past due Required Installment Payment. Licensees shall not be 
required to submit any form of request in order to take advantage of 
the first and second additional quarter grace periods.
    (iii) All licensees that avail themselves of these grace periods 
must pay the associated late payment fee(s) and the Required 
Installment Payment prior to the conclusion of the applicable 
additional quarter grace period(s). Payments made at the close of any 
grace period(s) will first be applied to satisfy any lender advances as 
required under each licensee's ``Note and Security Agreement,'' with 
the remainder of such payments applied in the following order: late 
payment fees, interest charges, installment payments for the most back-
due quarterly installment payment.
    (iv) If an eligible entity obligated to make installment payments 
fails to pay the total Required Installment Payment, interest and any 
late payment fees associated with the Required Installment Payment 
within two quarters (6 months) of the Required Installment Payment due 
date, it shall be in default, its license shall automatically cancel, 
and it will be subject to debt collection procedures. A licensee in the 
PCS C or F blocks shall be in default, its license shall automatically 
cancel, and it will be subject to debt collection procedures, if the 
payment due on the payment resumption date, referenced in paragraph 
(g)(4)(ii) of this section, is more than ninety (90) days delinquent.
* * * * *
    (j) Designated entities must describe on their long-form 
applications how they satisfy the requirements for eligibility for 
designated entity status, and must list and summarize on their long-
form applications all agreements that affect designated entity status 
such as partnership agreements, shareholder agreements, management 
agreements and other agreements, including oral agreements, 
establishing, as applicable, de facto or de jure control of the entity. 
Such information must be maintained at the licensees' facilities or by 
their designated agents for the term of the license in order to enable 
the Commission to audit designated entity eligibility on an ongoing 
basis.
* * * * *

    6. Section 1.2112 is revised to read as follows:


Sec. 1.2112  Ownership disclosure requirements for short- and long-form 
applications.

    (a) Each application to participate in competitive bidding (i.e., 
short-form application (see 47 CFR 1.2105)), or for a license, 
authorization, assignment, or transfer of control shall disclose fully 
the real party or parties in interest and must list the following 
information:
    (1) The name, address, and citizenship of any party holding 10 
percent or more of stock in the applicant, whether voting or nonvoting, 
common or preferred, including the specific amount of the interest or 
percentage held.
    (2) In the case of a limited partnership, the name, address and 
citizenship of each limited partner whose interest in the applicant is 
10 percent or greater (as calculated according to the percentage of 
equity paid in or the percentage of distribution of profits and 
losses);
    (3) In the case of a general partnership, the name, address and 
citizenship of each partner, and the share or interest participation in 
the partnership;
    (4) In the case of a limited liability company, the name, address 
and citizenship of each of its members whose interest in the applicant 
is 10 percent or greater.
    (5) All parties holding indirect ownership interests in the 
applicant as determined by successive multiplication of the ownership 
percentages for each link in the vertical ownership chain, that equals 
10 percent or more of the applicant, except that if the ownership 
percentage for an interest in any link in the chain exceeds 50 percent 
or represents actual control, it shall be treated and reported as if it 
were a 100 percent interest.
    (6) Any FCC-licensed entity or applicant for an FCC license, in 
which the applicant or any of the parties identified in paragraphs 
(a)(1) through (5) of this section, owns 10 percent or more of stock, 
whether voting or nonvoting, common or preferred. This list must 
include a description of each such entity's principal business and a 
description of each such entity's relationship to the applicant (e.g., 
Company A owns 10 percent of Company B (the applicant) and 10 percent 
of Company C, then Companies A and C must be listed on Company B's 
application, where C is an FCC licensee and/or license applicant);
    (b) Designated Entity Status: In addition to the information 
required under paragraph (a) of this section, each applicant claiming 
eligibility for small business provisions shall disclose the following:
    (1) On its application to participate in competitive bidding (i.e., 
short-form application (see 47 CFR 1.2105)),
    (i) List the names, addresses, and citizenship of all officers, 
directors, and other controlling interests of the applicant, as 
described in Sec. 1.2110;
    (ii) List any FCC-licensed entity or applicant for an FCC license, 
in which any controlling interest of the applicant owns a 10 percent or 
greater interest or a total of 10 percent or more of any class of 
stock, warrants, options or debt securities. This list must include a 
description of each such entity's principal business and a description 
of each such entity's relationship to the applicant;
    (iii) List separately and in the aggregate the gross revenues, 
computed in accordance with Sec. 1.2110, for each of the following: the 
applicant, its affiliates, its controlling interests, and affiliates of 
its controlling interests; and if a consortium of small businesses, the 
members comprising the consortium;
    (2) As an exhibit to its long-form application (i.e., see 47 CFR 
1.2107):

[[Page 52348]]

    (i) List and summarize all agreements or instruments (with 
appropriate references to specific provisions in the text of such 
agreements and instruments) that support the applicant's eligibility as 
a small business under the applicable designated entity provisions, 
including the establishment of de facto or de jure control; such 
agreements and instruments include articles of incorporation and 
bylaws, shareholder agreements, voting or other trust agreements, 
franchise agreements, and any other relevant agreements (including 
letters of intent), oral or written; and
    (ii) List and summarize any investor protection agreements, 
including rights of first refusal, supermajority clauses, options, veto 
rights, and rights to hire and fire employees and to appoint members to 
boards of directors or management committees.
    (iii) List separately and in the aggregate the gross revenues, 
computed in accordance with Sec. 1.2110, for each of the following: the 
applicant, its affiliates, its controlling interests, and affiliates of 
its controlling interests; and if a consortium of small businesses, the 
members comprising the consortium.

[FR Doc. 00-21982 Filed 8-28-00; 8:45 am]
BILLING CODE 6712-01-P