[Federal Register Volume 66, Number 18 (Friday, January 26, 2001)]
[Notices]
[Pages 7907-7911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-2248]


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FEDERAL COMMUNICATIONS COMMISSION

[Report No. AUC-00-31-J (Auction No. 31); DA 01-12]


Auction of Licenses in the 747-762 and 777-792 MHz Bands 
Scheduled for March 6, 2001; Modifications to the Calculation for 
Determining Minimum Acceptable Bids and the Provisions Concerning 
``Last and Best Bids'' and Other Procedural Issues

AGENCY: Federal Communications Commission.

ACTION: Notice.

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SUMMARY: This document announces two refinements to the package bidding 
procedures for Auction No. 31. We adopt our proposal to change part 
(iii) of the formula for determining minimum acceptable bids to 
incorporate a shortfall allocation. This revision will ensure a 
reasonable auction pace and a timely close of the auction. We also 
adopt our proposal to change provisions concerning last and best bids 
to allow a bidder to submit up to two sets of last and best bids. This 
is likely to produce a more efficient assignment of licenses because it 
permits bidders to express their valuations more precisely. In 
addition, the Bureau highlights for prospective bidders the dates 
already set forth for the conduct of Auction No. 31 and recent changes 
to the Competitive Bidding Rules. To further facilitate participation 
in the first auction that will allow package bidding as an option, the 
Bureau has included, in Attachments A and B to the Public Notice, a 
summary of the provisions that will govern package bidding in this 
auction and a chart that summarizes package bidding activity 
calculations, respectively.

DATES: Auction No. 31 is scheduled for March 6, 2001.

FOR FURTHER INFORMATION CONTACT: Walter D. Strack, Bureau Chief 
Economist, Wireless Telecommunications Bureau, (202) 418-0600; Evan 
Kwerel, Senior Economist, Office of Plans and Policy, (202) 418-2030; 
Howard Davenport, Auctions Attorney; Craig Bomberger, Auctions Analyst; 
or Karen Wrege, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau, (202) 418-0600.

[[Page 7908]]


SUPPLEMENTARY INFORMATION: This is a summary of a public notice 
released January 5, 2001. The complete text of the public notice, 
including the attachments, is available for inspection and copying 
during normal business hours in the FCC Reference Center (Room CY-
A257), 445 12th Street, SW., Washington, DC 20554. It may also be 
purchased from the Commission's copy contractor, International 
Transcription Services, Inc. (ITS, Inc.) 1231 20th Street, NW., 
Washington, DC 20036, (202) 857-3800. It is also available on the 
Commission's web site at http://www.fcc.gov.

List of Attachments available at the FCC:

ATTACHMENT A--Summary of Package Bidding Rules for 700 MHz Auction
ATTACHMENT B--Package Bidding Activity Calculations
ATTACHMENT C--FCC Auction Seminar Registration Form
ATTACHMENT D--Guidelines for Completion of FCC Form 175 and Exhibits
ATTACHMENT E--Electronic Filing and Review of the FCC Form 175
ATTACHMENT F--Accessing the FCC Network to File FCC Form 175
ATTACHMENT G--FCC Bidding Preference/Remote Security Access Cards 
Software Order Form

I. General

    1. On July 3, 2000, the Wireless Telecommunications Bureau (Bureau) 
announced the procedures for implementing package bidding for Auction 
No. 31. After further testing and analysis, the Bureau issued Auction 
No. 31 Package Bidding Further Comment Public Notice, 65 FR 66752 
(November 7, 2000) proposing changes to and seeking comment on the 
following matters: (i) The calculation for determining minimum 
acceptable bids; and (ii) the provisions concerning last and best bids. 
In response to the Auction No. 31 Package Bidding Further Comment 
Public Notice, three comments were filed and no reply comments were 
filed.

II. Calculation for Determining Minimum Acceptable Bids

Background

    2. In the Auction No. 31 Package Bidding Procedures Public Notice, 
65 FR 43361 (July 13, 2000) the Bureau adopted a three-part formula for 
determining minimum acceptable bids. Specifically, the minimum 
acceptable bid for any license or package would be the greater of: (i) 
the minimum opening bid; (ii) the bidder's own previous high bid on 
that package plus x%, where the Bureau would specify the value of x in 
each round; and (iii) the number of bidding units for the license or 
package multiplied by the lowest $/bidding unit on any provisionally 
winning package in the last 5 rounds.
    3. In the Auction No. 31 Package Bidding Further Comment Public 
Notice, we proposed to replace part (iii) of the minimum acceptable bid 
formula with the sum of a bidder's previous high bid on a license/
package and a share of the increase in revenue needed to tie the 
provisional winners. We defined the shortfall associated with a 
license/package as the difference between the revenue of the 
provisionally winning bid set and the maximum total revenue associated 
with the set of bids that includes that particular license/package. The 
deficit was defined as an allocation of the shortfall to the particular 
license/package in proportion to its share of bidding units relative to 
those associated with bids that were not part of the provisionally 
winning set but are part of the set that maximizes revenue when 
including the particular license/package. (When there is more than one 
set of bids that yields the same shortfall for a given bid, we proposed 
to choose the shortfall set that includes the most provisionally 
winning bidding units.) We proposed to set part (iii) of the minimum 
acceptable bid formula initially to be a bidder's previous high bid on 
a license/package plus 100 percent of the deficit, but retain the 
discretion to adjust the percentage of the deficit during the course of 
the auction to provide control over the auction's pace.

Discussion

    4. Pekec and Rothkopf agree that using the shortfall calculation in 
the determination of the minimum acceptable bid price is a clear 
improvement to the originally proposed calculation. However, they 
believe that the allocation of this calculated shortfall should be 
proportional to bid amounts rather than bidding units.
    5. The Bureau acknowledges that if all bidders bid in a 
straightforward fashion, it is likely that current prices would be the 
best estimate of the relative values of the licenses/packages. Under 
these circumstances, the proposal made by Pekec and Rothkopf might be a 
better approach to allocating the shortfall than that set forth by the 
Bureau. However, the Bureau is concerned with two potential 
consequences of implementing a procedure that allocates shortfall based 
on bid amounts. Such an allocation of the shortfall would (i) provide 
an incentive for bidders to game the auction by bidding up the price on 
a license/package that would partner with their own license/package in 
order to shift the burden of the shortfall to another bidder; and (ii) 
afford to bidders that have not bid on a license/package for some time 
the ability to ``park'' (i.e., make bids that receive eligibility 
activity credit but have little prospect of winning) on that license/
package since potentially small allocations of shortfall will be added 
to a bid amount that is well below the amount needed to become a 
provisional winner. Consequently, the Bureau believes that using 
bidding units to allocate the shortfall provides an efficient mechanism 
for determining the minimum bid increment added to a bidder's previous 
high bid. In addition, if the minimum acceptable bid price is too high, 
bidders will have the opportunity to bid a price less than that amount 
if they choose to exit the auction via last and best bids.
    6. In the Auction No. 31 Package Bidding Further Comment Public 
Notice, we proposed an exception to the modified minimum acceptable bid 
formula for new packages. We proposed that part (iii) of the formula 
for the initial minimum acceptable bid for any package other than a 
global package created during the auction will continue to be 
calculated by multiplying the number of bidding units in the package by 
the lowest $/bidding unit of any provisionally winning bid in the last 
five rounds.
    7. Pekec and Rothkopf argue that we should calculate the minimum 
acceptable bid for new packages the same way as for all other bids and 
calculate the minimum acceptable bid prices for all possible packages 
and licenses regardless of whether the bidder has bid on a license/
package. We note that this would require the determination of minimum 
acceptable bid values equal to the total number of possible 
combinations of the twelve licenses times the number of bidders, with 
most of the calculations never being used. Alternatively, we could 
provide for immediate minimum acceptable bid calculations for any new 
package, but that could allow individuals to flood the FCC bidding 
system with requests and possibly disrupt the auction.
    8. Balancing operational considerations with the desire to set the 
minimum acceptable bid at a level that provides a realistic chance of a 
bid becoming a provisional winner, the Bureau adopts the procedure 
proposed in the Auction No. 31 Package Bidding Further Comment Public 
Notice. For a new package created after the close of

[[Page 7909]]

the prior round, part (iii) of the initial minimum acceptable bid will 
be calculated by multiplying the number of bidding units in the package 
by the lowest $/bidding unit of any provisionally winning bid in the 
last five rounds. This exception will not apply to a global package 
whose minimum acceptable bid will always be (a percentage of) the 
maximum revenue from the previous round.
    9. After each round, the Bureau will, for every bidder, calculate 
part (iii) of the minimum acceptable bid price based on shortfall 
allocation for every license and for every constructed package. When 
there is no previous high bid because the bidder has not bid on a 
license or an already created package, we will use the minimum opening 
bid as the previous high bid to calculate part (iii) of the minimum 
acceptable bid rule; and part (ii) of the rule does not apply.

III. ``Last and Best'' Bids

Background

    10. In the Auction No. 31 Package Bidding Procedures Public Notice 
the Bureau adopted a ``last and best'' bid procedure. Specifically, 
bidders that wish to drop out of the auction would have the opportunity 
before they drop out to make a ``last and best'' bid on any packages 
for which they remain eligible. Such bids could be of any amount (in 
thousand dollar increments) between their previous high bid and the 
minimum acceptable bid. A bidder that submits a last and best bid(s) 
would not be permitted to make any further bids in the auction.
    11. In the Auction No. 31 Package Bidding Further Comment Public 
Notice, we proposed modifying the last and best bid procedure to allow 
a bidder to submit two sets of mutually exclusive last and best bids. 
We proposed that in determining the provisionally winning bid(s), the 
round solver would consider these two sets of mutually exclusive bids 
as well as any of the bidder's bids that remain in the provisionally 
winning set.

Discussion

    12. In their comments, Pekec and Rothkopf state that the Bureau's 
proposed modifications, particularly in the case of last and best bid 
provisions, are of limited importance and are not sufficient to affect 
the overall quality of the auction.
    13. Verizon supports the Bureau's general plan to allow bidders the 
opportunity to make a last and best bid on any package for which they 
remain eligible before they drop out of the auction. However, Verizon 
disagrees with the Bureau's decision to prohibit from further bidding a 
bidder that chooses to make a last and best bid. Verizon claims that 
the Bureau's proposal is inconsistent with the public interest because 
it could prematurely reduce the number of participants in the auction, 
ultimately resulting in an inefficient assignment of licenses. Verizon 
urges the Bureau to apply the last and best bid option to licenses and 
packages, rather than bidders. Verizon further requests that the Bureau 
clarify or confirm that the second opportunity to place a last and best 
bid means that a bidder whose last and best bid was bested by another 
bidder has an opportunity to place an additional last and best bid on 
another license or package. Verizon also asks that the Bureau provide 
bidders an example that applies this two-round process to a 
hypothetical set of last and best bids.
    14. The Bureau clarifies the procedure for placing last and best 
bids as follows. A bidder may make up to two sets of last and best 
bids. The two sets of last and best bids must be submitted in a single 
round, but will be treated as mutually exclusive, as are bids placed in 
two separate rounds. Once last and best bids are placed, the bidder 
will not be permitted to place new bids or renew previous bids in any 
subsequent round. If a bidder chooses to submit two sets of last and 
best bids, then, for the remainder of the auction, the ``solver'' 
(computer software) will consider those two sets of bids. If a bidder 
chooses to submit only one set of last and best bids, then, for the 
remainder of the auction, the solver will consider this set of bids and 
the set of bids from the last round in which the bidder placed bids. 
The only other bids that would be considered in a round for a bidder 
that places last and best bids are provisionally winning bids from the 
previous round.
    15. Each set of last and best bids may consist of bids on any or 
all of the licenses and any or all of the packages created by the 
bidder, consistent with the activity rules and the twelve package 
limitation. The last and best bid amount for any license or package is 
any amount, in thousand dollar increments, greater than or equal to the 
bidder's previous high bid on the license or package and less than or 
equal to the ninth increment above the minimum acceptable bid for that 
license or package. Note that placing a last and best bid equal to the 
bidder's previous high bid will be considered as a renewed bid when 
applying activity rules. Also, if the bidder has never placed a bid on 
a package or license, the lower bound on the last and best bid amount 
is equal to the minimum opening bid for that package or license.
    16. The Bureau believes that the procedure for placing last and 
best bids provides a bidder that is dropping out of the auction with 
sufficient flexibility to pursue its current business strategies, while 
maintaining bidding rules consistent with the overall auction 
structure. Moreover, providing bidders with opportunities in each round 
to place bids below the minimum acceptable bid amount may significantly 
slow the pace of the auction. Having a bidder-specific procedure, 
rather than a bid-specific procedure, is also more straightforward to 
implement. The Bureau believes that bidders are unlikely to exit the 
auction prematurely, as Verizon argues, because they may renew their 
bids and utilize activity rule waivers to prevent eligibility 
reduction.

    The following is a simple example of the procedures for last and 
best bids. Bidder A desires to win the Great Lakes 10 MHz license 
and either a package of the two licenses in the Pacific region or a 
package of the two licenses in the Northeast region. To meet this 
objective, Bidder A has been bidding on the Great Lakes 10 MHz 
license and a package consisting of both the 10 MHz and the 20 MHz 
licenses in the Pacific region in even rounds while bidding on the 
Great Lakes 10 MHz license and a package consisting of both the 10 
MHz and the 20 MHz licenses in the Northeast region in odd rounds. 
Because of the mutual exclusivity of bids placed in different 
rounds, this strategy will ensure that Bidder A does not win more 
than it wants. Suppose that Bidder A has decided to place last and 
best bids. Bidder A may create a set of last and best bids comprised 
of a bid on the Great Lakes 10 MHz license and a bid on the Pacific 
region package. Bidder A may also submit a second set of last and 
best bids comprised of a bid on the Great Lakes 10 MHz license and a 
bid on the Northeast region package. In this example, the last and 
best bid procedure affords the bidder the opportunity to value the 
Great Lakes 10 MHz license differently in the two sets according to 
its synergistic relation to the other bids in each set.

IV. Ties With the FCC at the Minimum Opening Bid

    17. In the Auction No. 31 Package Bidding Procedures Public Notice, 
we stated that individual licenses on which no bids are available to be 
considered when solving for the provisionally winning set will be 
treated as having a bid by the FCC at the minimum opening bid. We now 
wish to clarify treatment of FCC bids where there are other bids 
available to be considered for the provisionally winning set. 
Implementing the minimum opening bid requirement by treating the FCC as 
having a bid on each license at the

[[Page 7910]]

minimum opening bid could result in the FCC retaining a license even 
though a bidder had an equivalent minimum opening bid on that license. 
To ensure that a bid on a license or package at the minimum opening bid 
always beats the FCC bid, the Bureau will treat all licenses as having 
FCC bids at some small amount less than the minimum opening bid.

V. Comments on Other Package Bid Provisions

    18. Comments filed by Paul Milgrom and Charles Plott addressed some 
matters that are beyond the scope of the Auction No. 31 Package Bidding 
Further Comment Public Notice and upon which other parties have not had 
an opportunity to comment. That document sought comment specifically on 
the calculation for determining minimum acceptable bids and the last 
and best bid procedures. While we appreciate the input provided by 
commenters, we cannot at this time make any further changes to our 
package bidding procedures. The auction is scheduled to begin on March 
6, 2001, and short-form applications are due on February 2, 2001. We 
are confident that the package bidding procedures we have established 
for Auction No. 31 will work effectively. We will revisit our package 
bidding procedure whenever we consider the use of package bidding for 
another auction.

VI. Auction Schedule

    19. The Commission set forth the following dates which will govern 
the conduct of Auction No. 31:

Opening of the Form 175 Filing Window: January 11, 2001
Bidders' Seminar: January 23, 2001
Industry Test: January 24-26, 2001; 9 a.m. to 5 p.m. ET
Filing Deadline for FCC Form 175: February 2, 2001; 6 p.m. ET
Upfront Payment Deadline: February 16, 2001; 6 p.m. ET
Bidding Preference Form Deadline: February 20, 2001; 6 p.m. ET
Mock Auction: March 1-2, 2001
Auction Start Date: March 6, 2001

VII. Industry Test of the Package Bidding System

    20. As stated, package bidding is a new concept in our auctions 
program. To further facilitate understanding and participation, the 
Bureau has scheduled an industry test that will help potential bidders 
and other interested parties to become familiar with the system. The 
industry test will run from 9 a.m. to 5 p.m. Eastern Time on January 
24, 25 & 26, 2001. The test software, like the auction software, will 
run over the Internet. To use this software, your computer must have 
the minimum hardware and software listed in the attachment titled 
Electronic Filing and Review of the FCC Form 175.
    21. To participate in the test, send an e-mail to [email protected] 
by 4 p.m. ET on January 17, 2001. Please include your company name and 
the name and e-mail address of the person we should contact with any 
questions. If you want our response sent to a different address than 
where you sent from, please include that return e-mail address as well. 
The Bureau will e-mail to that address the URL of our test system, 
along with a bidder ID and password that you will need to access the 
system.

VIII. Due Diligence

    22. Potential bidders are reminded that there are a number of 
incumbent broadcast television licensees already licensed and operating 
in the 746-764 and 776-794 MHz bands (television Channels 60-62 and 65-
67) that will be subject to the upcoming auction. Listed in Attachment 
J to the Auction No. 31 Procedures Public Notice, 65 FR 21196 (April 
20, 2000) are facilities of incumbent television permittees and 
licensees on television Channels 60-62 and 65-67 as well as on adjacent 
television Channels 59, 63, 64, and 68. However, prospective bidders 
should not rely solely on this list, but should carefully review the 
Commission's databases and records before formulating bidding 
strategies.
    23. In addition, there are several pending applications and rule 
making petitions for new analog and digital television authorizations 
on channel 59 which, if granted, would become additional incumbents on 
that channel. Information on pending applications can be found in the 
Mass Media Bureau's Consolidated Database System on the Commission's 
website. The Commission makes no representations or guarantees 
regarding the accuracy or completeness of information that has been 
incorporated into the databases. Potential bidders are strongly 
encouraged to physically inspect any sites located in or near the 
geographic area for which they plan to bid.
    24. As more fully discussed in the Auction No. 31 Procedures Public 
Notice, we remind potential bidders that certain applications 
(including those for modification), petitions for rulemaking, waiver 
requests, requests for special temporary authority (``STA''), petitions 
to deny, petitions for reconsideration, and applications for review may 
be pending before the Commission that relate to the facilities listed 
in Attachment J to the Auction No. 31 Procedures Public Notice. We 
again note that resolution of these pending matters could have an 
impact on the availability of spectrum for licensees in the 746-764 and 
776-794 MHz bands. While the Commission will continue to act on pending 
matters, some of these matters may not be resolved by the time of 
Auction No. 31. Potential bidders are strongly encouraged to conduct 
their own research prior to Auction No. 31 in order to determine the 
existence of pending proceedings that might affect their decisions 
regarding participation in the auction. Participants in Auction No. 31 
are strongly encouraged to continue such research during the auction.

IX. Other Procedural Issues

    25. Since the release of the Auction No. 31 Package Bidding 
Procedures Public Notice, there have been changes in the Competitive 
Bidding Rules that will apply to Auction No. 31. The Bureau has set 
forth significant amendments to the Competitive Bidding Rules, but it 
is the responsibility of each applicant to carefully review and comply 
with all applicable rules.

Ownership Disclosure Requirements (Form 175 Exhibit A)

    26. All applicants must comply with the uniform part 1 ownership 
disclosure standards and provide information required by Secs. 1.2105 
and 1.2112 of the Commission's rules. Specifically, in completing Form 
175, applicants will be required to file an Exhibit A providing a full 
and complete statement of the ownership of the bidding entity. The 
ownership disclosure standards for the short-form are set forth in 
Sec. 1.2112 of the Commission's rules.

Provisions Regarding Defaulters and Former Defaulters (Form 175, 
Exhibit D)

    27. Each applicant must certify on its FCC Form 175 application 
that it is not in default on any Commission licenses and that it is not 
delinquent on any non-tax debt owed to any Federal agency. In addition, 
each applicant must attach to its FCC Form 175 application a statement 
made under penalty of perjury indicating whether or not the applicant 
(or any of the applicant's controlling interests or their affiliates, 
as defined by Sec. 1.2110 of the Commission's rules, as recently 
amended in the Part 1 Fifth Report and Order) has ever been in default 
on any Commission licenses or has ever been delinquent on any non-tax 
debt owed to any federal agency. Applicants must include this statement 
as Exhibit D of the FCC Form 175. Prospective bidders are reminded that

[[Page 7911]]

the statement must be made under penalty of perjury and that submission 
of a false certification to the Commission is a serious matter that may 
result in severe penalties, including monetary forfeitures, license 
revocations, exclusion from participation in future auctions, and/or 
criminal prosecution.
    28. ``Former defaulters''--i.e., applicants, including their 
attributable interest holders, that in the past have defaulted on any 
Commission licenses or been delinquent on any non-tax debt owed to any 
Federal agency, but that have since remedied all such defaults and 
cured all of their outstanding non-tax delinquencies--are eligible to 
bid in Auction No. 31, provided that they are otherwise qualified. 
However, as discussed, former defaulters are required to pay upfront 
payments that are fifty percent more than the normal upfront payment 
amounts.

Amount of Upfront Payment

    29. In the Part 1 Order, Memorandum Opinion and Order, and Notice 
of Proposed Rule Making, 62 13540 (March 21, 1997) the Commission 
delegated to the Bureau the authority and discretion to determine an 
appropriate upfront payment for each license being auctioned. The 
Bureau set forth the amount of the upfront payment associated with each 
of the 12 licenses available in this auction. Those amounts remain 
unchanged.
    30. The upfront payment amount for ``former defaulters,'' i.e., 
applicants that have ever been in default on any Commission license or 
have ever been delinquent on any non-tax debt owed to any Federal 
agency, will be fifty percent more than the normal amount required to 
be paid. Former defaulters should calculate their upfront payment for 
all licenses by multiplying the number of bidding units they wish to 
purchase by 1.5. In calculating the number of bidding units to assign 
to former defaulters, the Commission will divide the upfront payment 
received by 1.5 and round the result up to the nearest bidding unit.

X. Changes to Post Auction Procedures

Tribal Land Bidding Credit

    31. A winning bidder that intends to use its license(s) to deploy 
facilities and provide services to federally-recognized tribal lands 
that are unserved by any telecommunications carrier or that have a 
telephone service penetration rate equal to or below 70 percent is 
eligible to receive a tribal land bidding credit as set forth in 47 CFR 
1.2107 and 1.2110(e). A tribal land bidding credit is in addition to, 
and separate from, any other bidding credit for which a winning bidder 
may qualify.
    32. Unlike other bidding credits that are requested prior to the 
auction, a winning bidder applies for the tribal land bidding credit 
after winning the auction when it files its long-form application (FCC 
Form 601). In order for a winning bidder to be awarded a tribal land 
bidding credit, it must provide specific certifications regarding the 
servicing of tribal lands and is subject to specific performance 
criteria as set forth in 47 CFR 1.2110(e).
    33. For additional information on the tribal land bidding credit, 
including how to determine the amount of credit available, see Public 
Notice, DA 00-2219, released September 28, 2000, entitled Wireless 
Telecommunications Bureau Announces Availability of Bidding Credits for 
Providing Wireless Services to Qualifying Tribal Lands, 15 FCC Rcd. 
18351 (2000).

Auctions Discount Voucher

    34. On June 8, 2000, the Commission awarded Qualcomm, Inc. a 
transferable Auction Discount Voucher in the amount of $125,273,878.00. 
This, Auction Discount Voucher may be used by Qualcomm or its 
transferee, in whole or in part, to adjust a winning bid in any 
spectrum auction prior to June 8, 2003, subject to terms and conditions 
set forth in the Commission's Order.

Federal Communications Commission.
Margaret Wiener,
Chief, Auctions and Industry Analysis Division, Wireless 
Telecommunications Bureau.
[FR Doc. 01-2248 Filed 1-25-01; 8:45 am]
BILLING CODE 6712-01-P