[Federal Register Volume 68, Number 73 (Wednesday, April 16, 2003)]
[Notices]
[Pages 18642-18649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9389]


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FEDERAL COMMUNICATIONS COMMISSION

[Report No. AUC-03-51-A (Auction No. 51); DA 03-1065]


Auction of Regional Narrowband PCS Licenses Scheduled for 
September 24, 2003; Comment Sought on Package Bidding Procedures, 
Reserve Prices or Minimum Opening Bids, and Other Auction Procedures

AGENCY: Federal Communications Commission.

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: This document announces the auction of six regional Personal 
Communications Service (PCS) licenses in the 900 MHz band (``narrowband 
PCS'' scheduled to commence on September 24, 2003 (Auction No. 51). 
This document also seeks comment on package bidding procedures, reserve 
prices or minimum opening bids and other auction procedures.

DATES: Comments are due on or before April 17, 2003 and reply comments 
are due on or before April 24, 2003.

ADDRESSES: Comments and reply comments must be sent by electronic mail 
to the following address: [email protected].

FOR FURTHER INFORMATION CONTACT: Auctions and Industry Analysis 
Division: For legal questions: Christopher Shields at (202) 418-0660. 
For general auction questions: Lisa Stover at (717) 338-2888. For 
questions about package bidding: Martha Stancill at (202) 418-0660 or 
Craig Bomberger at (202) 418-0660. Commercial Wireless Division: For 
service rule questions: Amal Abdallah at (202) 418-7307, Evan Baranoff 
at (202) 418-7142, JoAnn Epps at (202) 418-0620 or Dwain Livingston at 
(202) 418-0620.

SUPPLEMENTARY INFORMATION: This is a summary of the Auction No. 51 
Comment Public Notice released on April 3, 2003. The complete text of 
the Auction No. 51 Comment Public Notice, including the attachments, is 
available for public inspection and copying during regular business 
hours at the FCC Reference Information Center, Portals II, 445 12th 
Street, SW., Room CY-B402, Washington, DC 20554. The Auction No. 51 
Comment Public Notice may also be purchased from the Commission's 
duplicating contractor, Qualex International, Portals II, 445 12th 
Street, SW., Room CY-B402, Washington, DC, 20554, telephone (202) 863-
2893, facsimile (202) 863-2898, or via e-mail [email protected].

I. General Information

    1. By the Auction No. 51 Comment Public Notice, the Wireless 
Telecommunications Bureau (``Bureau'') announces the auction of six 
regional Personal Communications Service (PCS) licenses in the 900 MHz 
band (``narrowband PCS'') scheduled to commence on September 24, 2003 
(``Auction No. 51''). These licenses were previously included as part 
of the inventory for Auction No. 50, Auction No. 50 Comment Public 
Notice, 67 FR 72417 (December 5, 2002). The one comment that the Bureau 
received in response to the Auction No. 50 Comment Public Notice stated 
that the regional licenses are uniquely complimentary and proposed a 
combinatorial (package bidding) auction, Auction No. 50 Procedures 
Public Notice, 68 FR 15174 (March 28, 2003). The commenter noted that 
these regional licenses effectively constitute a nationwide license and 
suggested that they would be more highly valued as a combined package 
by prospective auction participants intending to deploy nationwide 
service. After consideration of the issues raised by the comments, the 
Bureau determined that it may be appropriate to use package bidding for 
the regional licenses. Accordingly, the Bureau removed the six regional 
licenses from the Auction No. 50 inventory and announced that they 
would be included in Auction No. 51.
    2. The following table describes the licenses that will be included 
in Auction No. 51:

----------------------------------------------------------------------------------------------------------------
                                          Channel                                 Frequency bands     Bandwidth
                 Region                     no.        Channel description             (MHz)            (kHz)
----------------------------------------------------------------------------------------------------------------
Northeast..............................         17  12.5 kHz/50 kHz paired...    901.8250-901.8375,         62.5
                                                                                      930.70-930.75
South..................................         16  12.5 kHz/50 kHz paired...    901.8125-901.8250,         62.5
                                                                                      930.65-930.70
South..................................         17  12.5 kHz/50 kHz paired...    901.8250-901.8375,         62.5
                                                                                      930.70-930.75
Midwest................................         17  12.5 kHz/50 kHz paired...    901.8250-901.8375,         62.5
                                                                                      930.70-930.75
Central................................         17  12.5 kHz/50 kHz paired...    901.8250-901.8375,         62.5
                                                                                      930.70-930.75
West...................................         17  12.5 kHz/50 kHz paired...    901.8250-901.8375,         62.5
                                                                                      930.70-930.75
----------------------------------------------------------------------------------------------------------------

    3. The Balanced Budget Act of 1997 requires the Commission to 
``ensure that, in the scheduling of any competitive bidding under this 
subsection, an adequate period is allowed * * * before issuance of 
bidding rules, to permit notice and comment on proposed auction 
procedures * * *.'' Consistent with the provisions of the Balanced 
Budget Act and to ensure that potential bidders have adequate time to 
familiarize themselves with the specific rules that will govern the 
day-to-day conduct of an auction, the Commission directed the Bureau, 
under its existing delegated authority, to seek comment on a variety of 
auction-specific procedures prior to the start of each auction. The 
Bureau therefore seeks comment on the proposed Auction No. 51 
procedures as set forth in sections following the ``II. Introduction to 
Package Bidding.''

II. Introduction to Package Bidding

    4. ``Package bidding'' refers to an auction design in which bidders 
may place bids on groups, or packages, of licenses. A bid on a package 
is an all-or-nothing bid for all of the licenses in that package. This 
is a departure from the Bureau's usual simultaneous multiple-round 
(SMR) design, in which bidders only have the ability to submit 
individual bids for each license. Like the Bureau's existing SMR 
design, its

[[Page 18643]]

current implementation of package bidding uses a simultaneous multiple-
round design. In addition to submitting bids on packages, bidders may 
also submit bids on individual licenses.

A. License Complementarities

    5. Under certain circumstances, package bidding may be desirable 
for bidders that wish to aggregate licenses. Bidders have aggregated 
licenses under our SMR auction design. However, package bidding may be 
appropriate when bidders have strong and divergent complementarities 
among licenses, and when package bidding rules do not introduce other 
undue difficulties. Complementarities exist when the value of the whole 
is greater than the sum of the parts. In the context of spectrum 
auctions, complementarities could result in a bidder being willing to 
pay more for two licenses together than the sum of the amounts it would 
be willing to pay for either license individually. That is, a bidder 
willing to pay $1 million for a license covering Washington, DC, or $1 
million for a license covering Baltimore, Maryland, would be willing to 
pay more than $2 million for both licenses together.
    6. Divergent complementarities exist when the patterns of 
complementarities are different for different bidders. For example, if 
one bidder has complementarities for a geographic aggregation and 
another bidder has complementarities for a bandwidth aggregation, then 
either of these bidders achieving its desired aggregation would prevent 
the other bidder from doing so. That is, if there are two licenses 
available in each of two markets, a bidder successfully aggregating 
both licenses in one market (bandwidth aggregation) precludes another 
bidder from aggregating one license in each market (geographic 
aggregation).

B. Exposure Problem

    7. The exposure problem is a financial risk that occurs when a 
bidder, in hopes of also winning complementary items, bids more for a 
single object than the object alone is worth to that bidder. Package 
bidding allows bidders to mitigate the exposure problem by placing all-
or-nothing bids on packages of licenses.
    8. The following builds upon the previous example of a bidder 
willing to pay $1 million for a license covering Washington, DC, or $1 
million for a license covering Baltimore, Maryland, but willing to pay 
more than $2 million for both licenses together. For purposes of this 
explanation, assume that the bidder is willing to pay $3 million for 
both licenses together.
    9. In an SMR auction in which bids are submitted on individual 
licenses, the bidder would clearly be willing to bid $1 million for 
each of the Washington and Baltimore licenses, for a total of $2 
million. If the auction price of one of those licenses exceeds $1 
million, the bidder faces a dilemma. The bidder can stop bidding for a 
license when the license price exceeds what the bidder is willing to 
pay for that license alone, or the bidder can keep bidding in hopes of 
winning both licenses. This exposes the bidder to a financial risk. On 
the one hand, if the bidder wins both licenses by bidding $1 million 
for Washington and $1.5 million for Baltimore, it will pay a total of 
$2.5 million for both licenses, which is less than the $3 million it is 
willing to pay for both licenses together. Thus, the bidder would be 
satisfied with its decision to bid $1.5 million for the Baltimore 
license even though that license alone is only worth $1 million to the 
bidder. On the other hand, if the bidder bids $1.5 million for the 
Baltimore license (again, in hopes of winning both licenses) but wins 
only that license and not the Washington license as well, the bidder 
would have to pay more for the Baltimore license than the license is 
worth to the bidder.
    10. In a package bidding auction, the bidder in the example could 
submit package bids to avoid such a risk. The bidder could create a 
package of the Washington and Baltimore licenses and submit a bid for 
the package. The bidder would either win the package-- i.e., both 
licenses--at the amount it bid for the package, or it would not win the 
package. By placing a bid on a package, the bidder would not have to 
worry about the possibility of only winning part of the package. That 
is, the bidder could bid up to $3 million for the package and thereby 
express what it is willing to pay not only for the licenses but also 
for the complementarity of the licenses.

C. Threshold Problem

    11. Allowing package bidding potentially introduces a threshold 
problem--the difficulty that multiple bidders for the single licenses 
(or smaller packages) that constitute a larger package may have in 
outbidding a single bidder on the larger package, even though the 
multiple bidders may value the sum of the parts more than the single 
bidder values the whole. This may occur because bidders for parts of a 
larger package each have an incentive to hold back in the hope that a 
bidder for another part will increase its bid sufficiently for the bids 
on the pieces collectively to beat the bid on the larger package. The 
package bidding procedures that the Bureau proposes are designed to 
facilitate the emergence of bids that will overcome this problem. 
Specifically, the Bureau proposes to allow bids on licenses and 
packages that individually are not high enough to enter immediately 
into the provisionally winning set. This allowance is meant to 
facilitate price discovery and diminish the threshold problem. 
Effectively, bidders can take ``baby steps'' toward getting into the 
provisionally winning set. Additionally, under these proposed package 
bidding procedures, the auction will close after two consecutive rounds 
with no new bids. Thus, after a round with no new bids, bidders will be 
notified that if no new bids are placed in the subsequent round, the 
auction will close.

D. Other Package Bidding Highlights

    12. Implementing package bidding requires changes in some of the 
procedures used in the Bureau's SMR auctions. Some of the main 
differences are introduced in this section in order to highlight the 
differences between the Bureau's proposed package bidding procedures 
for Auction No. 51 and the Bureau's SMR auction procedures. Later in 
this public notice, in the ``Auction Structure'' and ``Bidding 
Procedures'' sections, the Bureau seeks comment on the package bidding 
procedures for Auction No. 51.
i. Provisionally Winning Bids
    13. In an SMR auction it is a simple matter to determine high bids. 
At the end of a bidding round, the high bids are determined based on 
the highest gross bid amount received for each license. A high bid from 
a previous round is sometimes referred to as a ``standing high bid.'' A 
``standing high bid'' remains the high bid until there is a higher bid 
on the same license at the close of a subsequent round.
    14. In a package bidding auction, provisionally winning bids are 
similar to standing high bids. Provisionally winning bids are the set 
of bids that maximizes revenue at the end of a particular round. The 
set of provisionally winning bids cannot include overlapping bids; each 
license may be assigned only once. In the event of tied bids or tied 
sets of bids, ties are broken randomly. The set of provisionally 
winning bids may, of course, include package bids as well as individual 
license bids.
    15. Unlike in an SMR auction, a provisionally winning bid does not 
necessarily remain a provisional winner until there is a higher bid on 
the same license or package at the close of a

[[Page 18644]]

subsequent round. That is, a bid on a license that is a provisionally 
winning bid at the end of a round might not be a provisionally winning 
bid at the end of a subsequent round even if no other bids are received 
for that license. Determining the provisionally winning bids in a 
package bidding auction is more complex than determining the standing 
high bids in an SMR auction. In a package bidding auction, whether a 
bid is a provisional winner depends on both the amount of the bid and 
the amount of revenue generated in the auction when that bid is 
combined with other bids submitted in the auction. With package bidding 
it is possible that, because of an increase in the bids submitted by 
one or more other bidders, a previous round's provisionally winning bid 
may cease to be a provisional winner in a subsequent round even though 
no higher bid has been placed on that license or package. In a package 
bidding auction, competing bids for a license or package consist of not 
only other bids for the same license or package, but also bids on 
packages that include any of the same licenses. Moreover, because of 
this, a bid that is not a provisionally winning bid at the end of a 
given round could become a provisionally winning bid at the end of a 
subsequent round. This is explained further in the following section.
ii. All Bids Considered
    16. Under the Bureau's proposed package bidding procedures, all 
bids placed in an auction are considered throughout the course of the 
auction. This is in contrast with the SMR procedures under which, at 
the conclusion of a round, only new bids placed in that round and 
standing high bids are considered. Bidders in a package bidding auction 
must therefore be mindful that even if a bid did not become a 
provisional winner when placed, it could become a provisionally winning 
bid later in the auction.
    17. The following table portrays the six licenses available in 
Auction No. 51:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Region
                            Channel                            -----------------------------------------------------------------------------------------
                                                                      West             Central           Midwest            South           Northeast
--------------------------------------------------------------------------------------------------------------------------------------------------------
16............................................................                                                            CN-RPC002-16
                                                                                                                            (South-16)
17............................................................      CN-RPC005-17      CN-RPC004-17      CN-RPC003-17      CN-RPC002-17      CN-RPC001-17
                                                                       (West-17)      (Central-17)      (Midwest-17)        (South-17)    (Northeast-17)
--------------------------------------------------------------------------------------------------------------------------------------------------------

    18. For purposes of this example, assume that bidders place the 
following bids in a round: $50,000 for each of the six licenses and 
$200,000 for the package South-16/South-17/Northeast-17 (the northeast 
region license and both licenses in the south region). The resulting 
provisionally winning bids following the round would be as follows (the 
individual license bids of $50,000 for each of South-16, South-17 and 
Northeast-17 are not provisionally winning bids and are not shown):

----------------------------------------------------------------------------------------------------------------
                                                                      Region
             Channel             -------------------------------------------------------------------------------
                                       West           Central         Midwest          South         Northeast
----------------------------------------------------------------------------------------------------------------
16..............................
---------------------------------------------------------------------------------                ---------------
17..............................         $50,000         $50,000         $50,000        $200,000
----------------------------------------------------------------------------------------------------------------

    Total revenue = $350,000

    19. Next, assume that a bidder places a bid of $160,000 for the 
package South-16/South-17 (both licenses in the south region) in the 
next round, and no other new bids are placed.

------------------------------------------------------------------------
                                        Region
  Channel   ------------------------------------------------------------
                West       Central     Midwest      South      Northeast
------------------------------------------------------------------------
        16
------------------------------------------------             -----------
        17                                         $160,000
------------------------------------------------------------------------

    20. Then, the provisionally winning bids following that round would 
be as follows:

------------------------------------------------------------------------
                                        Region
  Channel   ------------------------------------------------------------
                 West       Central     Midwest      South     Northeast
------------------------------------------------------------------------
        16
-------------------------------------------------            -----------
        17      $50,000     $50,000     $50,000    $160,000     $50,000
------------------------------------------------------------------------


[[Page 18645]]

Total revenue = $360,000

    21. Note that in this example the bid of $50,000 for the northeast 
region license was not a provisionally winning bid after the first 
round but became a provisionally winning bid after the next round. The 
new bid of $160,000 for package of both licenses in the south region, 
when considered with the previous $50,000 bid for the northeast region 
license, was able to beat the previous $200,000 bid for the package of 
the northeast region license and both licenses in the south region.
    22. Considering bids from all rounds allows more potential 
combinations of bids, and therefore, potentially greater flexibility 
for bidders to submit bids that may become part of the provisionally 
winning set. As in the example, it helps ensure that bids on single 
licenses or small packages can combine with other bids to become 
winners, even when a different combination of bids has comprised the 
provisionally winning set for a number of rounds. Considering bids from 
all prior rounds also permits the bids of bidders no longer eligible to 
participate in the auction to become part of the provisionally winning 
set when that is the most economically efficient outcome. Moreover, 
considering all bids throughout the auction encourages sincere bidding.
iii. Mutually Exclusive Rounds
    23. As explained in the previous section, all bids placed 
throughout the course of the auction are considered when determining 
the winning bids. However, the proposed procedures restrict how the 
bids are considered. Bids placed by a bidder in one round are 
considered mutually exclusive of that bidder's bids placed in all other 
rounds. If a bidder places a bid for one license in one round and for 
another license in another round, one bid or the other could be a 
provisionally winning bid, but not both at the same time. Likewise, if 
a bidder places several bids in one round and several bids in another 
round, any or all of the bids from one round or the other could be 
provisionally winning bids, but not bids from both rounds at the same 
time.
    24. Using the example from the previous section, assume that in the 
first round of the example the $50,000 bid for each of the six licenses 
was placed by Bidder 1 and the $200,000 bid for the package of the 
northeast region license and both licenses in the south region was 
placed by Bidder 2. In the next round of the example, the bid of 
$160,000 for the package of both licenses in the south region was 
placed by Bidder 1. Under these assumptions, the provisionally winning 
bids at the end of the second round could include Bidder 1's bids from 
one round or the other, but not both--i.e., any or all of Bidder 1's 
$50,000 bids for each of the six licenses from the first round, or 
Bidder 1's bid of $160,000 for the package of both licenses in the 
south region from the second round. Since the choice of Bidder 1's bids 
in the first round achieves greater revenue, the provisionally winning 
bids after the second round would remain the same as after the first 
round:
[GRAPHIC] [TIFF OMITTED] TN16AP03.003

    25. This treatment of bids as mutually exclusive across rounds is 
done on a per bidder basis. The provisionally winning bids could 
include Bidder 1's bids from one round and Bidder 2's bids from a 
different round.
    26. This mutually exclusive treatment of bids--for each bidder, 
allowing its bids from only one round to become provisionally winning 
bids--allows bidders to mind budget constraints and to pursue backup 
strategies. For example, if a bidder wants the license in the west 
region or the license in the central region but not both, the bidder 
could place a bid for one of the licenses in one round and a bid for 
the other license in the next round. Because the bids are considered 
mutually exclusive, only one could become a provisionally winning bid.
iv. Renewing Bids
    27. The proposed procedures include bid renewal to provide a 
mechanism that bidders can use so that their bids from different rounds 
are not considered mutually exclusive. For example, assume a bidder 
places a bid for the west region license in one round. In the following 
round, the bidder places a bid for the central region license and 
renews its bid on the west region license. Then, after that round, 
either bid or both could become a provisionally winning bid.
    28. This concludes the ``II. Introduction to Package Bidding.'' In 
the following ``Auction Structure'' and ``Bidding Procedures,'' 
sections, the Bureau seeks comment on the specific package bidding 
procedures for Auction No. 51.

III. Auction Structure

A. Simultaneous Multiple Round With Package Bidding

    29. The Bureau proposes to award all licenses included in Auction 
No. 51 in a simultaneous multiple-round with package bidding (SMR-PB) 
auction. This methodology offers every license for bid at the same time 
with successive bidding rounds in which bidders may place bids. Bidders 
will be able to submit bids on individual licenses, as in the Bureau's 
simultaneous multiple round auction design, but may also submit all-or-
nothing bids on packages of licenses. The Bureau seeks comment on this 
proposal.

B. Upfront Payments and Initial Maximum Eligibility

    30. The Bureau has delegated authority and discretion to determine 
an appropriate upfront payment for each license being auctioned. 
Upfront payments related to the specific spectrum subject to auction 
protect against frivolous or insincere bidding and provide the 
Commission with a source of funds from which to collect payments owed 
at the close of the auction. The total upfront payment does

[[Page 18646]]

not affect the dollar amount a bidder may bid on licenses.
    31. For Auction No. 51 the Bureau proposes to calculate upfront 
payments on a license-by-license basis using the following formula:

    $.00001 * kHz * License Area Population, rounded.

The Bureau seeks comment on this proposal.

    32. The amount of the upfront payment submitted by a bidder will 
determine the initial maximum eligibility (as measured in bidding 
units) for each bidder. Each license is assigned a specific number of 
bidding units equal to the upfront payment, on a bidding unit per 
dollar basis. This number does not change during the auction. A 
bidder's upfront payment is not attributed to specific licenses or 
packages. Rather, a bidder may place bids on licenses and packages as 
long as the total number of bidding units associated with those 
licenses and packages does not exceed the bidder's eligibility. For a 
package, the Bureau proposes to calculate the bidding units by adding 
together the bidding units of the individual licenses that make up the 
package. Eligibility cannot be increased during the auction. Thus, in 
calculating its upfront payment amount, an applicant should determine 
the maximum number of bidding units (either individually or in a 
package) it may wish to bid on in any single round and submit an 
upfront payment covering that number of bidding units. The Bureau seeks 
comment on this proposal. The Bureau lists the proposed bidding units 
and upfront payments for all licenses in Attachment A of the Auction 
No. 51 Comment Public Notice. 

C. Activity and Eligibility Rules

    33. In order to ensure that the auction closes within a reasonable 
period of time, an activity rule provides incentives for bidders to 
participate throughout the auction. The activity rule requires each 
bidder to have active bids in each round that account for a specified 
fraction of the bidder's current eligibility, as measured in bidding 
units. A bidder that does not satisfy the activity rule will either use 
an activity rule waiver (if any remain) or lose bidding eligibility for 
the next round. Losing eligibility matters to bidders because a 
bidder's bidding activity cannot exceed its current eligibility.
i. Measuring Activity
    34. In SMR auctions, a bidder's activity in a round is determined 
by adding the bidding units associated with licenses on which the 
bidder is active. A bidder is considered active on a license in the 
current round of an SMR auction if it is either the high bidder at the 
end of the previous bidding round (and did not withdraw the high bid in 
the current round), or if it submits a bid in the current round (and 
does not subsequently remove the bid). In a package bidding auction, 
calculating activity levels in a round is not as simple because a 
bidder can submit bids on different packages that contain one or more 
of the same licenses. To illustrate this, suppose a bidder submits bids 
on the following packages in round t:

------------------------------------------------------------------------
             Package/Licenses                       Bidding units
------------------------------------------------------------------------
Package A:
    South-16 (38,000 bu)..................  76,000 bu
    South-17 (38,000 bu)..................
Package B:
    Northeast-17 (34,000 bu)..............
    South-17 (38,000 bu)..................  108,000 bu
    Central-17 (36,000 bu)................
------------------------------------------------------------------------

    35. For Auction No. 51, the Bureau proposes to measure a bidder's 
bidding activity in a round as the maximum number of bidding units the 
bidder can win considering new bids placed and provisionally winning 
bids renewed in that round. Thus, when a bidder submits bids in a round 
the FCC Automated Auction System will determine the set of bids, among 
the bidder's new bids and renewed provisionally winning bids, that 
contains the most bidding units and has no overlap among the licenses. 
For instance, in the example, the two bids contain four distinct 
licenses. The sum of the bidding units associated with these four 
licenses is 146,000. However, since both packages contain license 
South-17, this bidder cannot win both packages at the same time. Under 
the Bureau's proposal the maximum number of bidding units that the 
bidder can win is the 108,000 associated with Package B, so the 
bidder's bidding activity is 108,000 bidding units. The Bureau seeks 
comment on this proposal.
    36. A bidder is also considered to be active if the bidder has 
provisionally winning bids from the previous round. A bidder's bids 
made in different rounds will be considered mutually exclusive, so the 
bidding units associated with provisionally winning bids must be viewed 
independently from the bidding units associated with current round 
bids. The Bureau proposes to define a bidder's eligibility activity in 
a round as the greater of (i) its bidding activity in the round and 
(ii) the bidding units associated with the bidder's provisionally 
winning bids from the prior round. To illustrate how eligibility 
activity will be calculated in a round the Bureau continues with its 
example. Suppose this bidder has provisionally winning bids on the 
following licenses from round t-1:

------------------------------------------------------------------------
                  License                           Bidding units
------------------------------------------------------------------------
South-16..................................  38,000 bu
South-17..................................  38,000 bu
------------------------------------------------------------------------

    37. The number of bidding units associated with this bidder's 
provisionally winning bids is 76,000. Recall that the bidder's bidding 
activity for the round is 108,000 bidding units. The eligibility 
activity for this bidder in round t is therefore 108,000, the greater 
of its bidding activity (108,000 bidding units) and the bidding units 
associated with its bids in the provisionally winning set (76,000 
bidding units).
ii. Auction Requirement
    38. For Auction No. 51, the Bureau proposes that, in each round of 
the auction, a bidder desiring to maintain its current eligibility 
would be required to have eligibility activity equal to sixty percent 
(three-fifths) of its current eligibility. For a bidder that failed to 
meet the activity requirement in a given round, the Automated Auction 
System would reduce the bidder's eligibility for the next round to 
five-thirds times its eligibility activity in the current round. Thus, 
a bidder's eligibility in the current round is equal to either its 
eligibility in the previous round (bidder met the activity requirement) 
or five-thirds of its eligibility activity in the previous round 
(bidder did not meet the activity requirement), whichever is less:

    Eligibility (t) = Min (Eligibility (t-1), 5/3*Eligibility Activity 
(t-1))

    39. Activity rule waivers provide an exception to this rule and are 
discussed in the next section, ``Activity Rule Waivers and Reducing 
Eligibility.''
    40. In addition, the Bureau proposes to retain the discretion to 
increase to eighty percent (four-fifths) the proportion of bidding 
units on which bidders must be active to retain their current 
eligibility. Any such change will be announced to bidders prior to the 
beginning of the round in which the change takes effect. The Bureau 
seeks comment on these proposals. Commenters that believe these 
activity rules should be modified should explain their reasoning and 
comment on the desirability of an alternative approach. Commenters are 
advised to support their claims with analyses and suggested alternative 
activity rules.

[[Page 18647]]

iii. Activity Rule Waivers and Reducing Eligibility
    41. For Auction No. 51, the Bureau proposes that each bidder be 
provided with five activity rule waivers that may be used at the 
bidder's discretion during the course of the auction as set forth. Use 
of an activity rule waiver preserves the bidder's current bidding 
eligibility despite the bidder's eligibility activity in the current 
round being below the required minimum level. An activity rule waiver 
applies to an entire round of bidding and not to a particular license 
or package. Activity rule waivers are principally a mechanism for 
auction participants to avoid the loss of auction eligibility in the 
event that exigent circumstances prevent them from placing a bid in a 
particular round.
    42. The Automated Auction System assumes that bidders with 
insufficient eligibility activity would prefer to use an activity rule 
waiver (if available) rather than lose bidding eligibility. Therefore, 
the system will automatically apply a waiver (known as an ``automatic 
waiver'') at the end of any bidding round in which a bidder's 
eligibility activity is below the activity requirement unless: (i) The 
bidder has no activity rule waivers remaining; or (ii) the bidder 
overrides the automatic application of a waiver by reducing 
eligibility, thereby meeting the minimum requirements. Note: If a 
bidder has no waivers remaining and does not satisfy the activity 
requirement, its current eligibility will be permanently reduced, 
possibly eliminating the bidder from further bidding in the auction.
    43. A bidder with insufficient eligibility activity may wish to 
reduce its bidding eligibility rather than use an activity rule waiver. 
If so, the biddermust affirmatively override the automatic waiver 
mechanism during the bidding period by using the ``reduce eligibility'' 
function in the bidding system. In this case, the bidder's eligibility 
is permanently reduced to bring the bidder into compliance with the 
activity rules as described in the previous section. Once eligibility 
has been reduced, a bidder will not be permitted to regain its lost 
bidding eligibility.
    44. The activity rule waivers described are automatic waivers. 
Under the Bureau's SMR auction design, bidders can submit automatic or 
proactive waivers. Unlike automatic waivers, proactive waivers keep the 
auction open absent other bidding activity. The Bureau proposes not to 
allow bidders to submit proactive waivers in the context of package 
bidding for Auction No. 51. As part of the package bidding design for 
Auction No. 51 the Bureau is proposing a two-round simultaneous 
stopping rule, in which the bidding on all licenses remains open until 
the second consecutive round in which no new bids are placed. After the 
second consecutive such round, bidding closes simultaneously on all 
licenses. The two-round stopping rule affords bidders some additional 
time to consider their current status, and eliminates the need for 
bidders to use a proactive activity rule waiver to prevent the auction 
from closing in the current round. The Bureau seeks comment on this 
proposal.

D. Information Relating to Auction Delay, Suspension, or Cancellation

    45. For Auction No. 51, the Bureau proposes that, by public notice 
or by announcement during the auction, it may delay, suspend, or cancel 
the auction in the event of natural disaster, technical obstacle, 
evidence of an auction security breach, unlawful bidding activity, 
administrative or weather necessity, or for any other reason that 
affects the fair and efficient conduct of competitive bidding. In such 
cases, the Bureau, in its sole discretion, may elect to resume the 
auction starting from the beginning of the current round, resume the 
auction starting from some previous round, or cancel the auction in its 
entirety. Network interruption may cause the Bureau to delay or suspend 
the auction. The Bureau emphasizes that exercise of this authority is 
solely within its discretion, and its use is not intended to be a 
substitute for situations in which bidders may wish to apply their 
activity rule waivers. The Bureau seeks comment on this proposal.

IV. Bidding Procedures

A. Round Structure

    46. The Commission will conduct this auction over the Internet. 
Telephonic Bidding will also be available, and the FCC Wide Area 
Network will be available as well.
    47. The initial bidding schedule will be announced in a public 
notice listing the qualified bidders, which is released approximately 
10 days before the start of the auction. The package bidding format 
will consist of sequential bidding rounds, each followed by the release 
of round results. Details regarding the location and format of round 
results will also be included in a subsequent public notice.
    48. The Bureau has discretion to change the bidding schedule in 
order to foster an auction pace that reasonably balances speed with the 
bidders' need to study round results and adjust their bidding 
strategies. The Bureau may increase or decrease the amount of time for 
the bidding rounds and review periods, or the number of rounds per day, 
depending upon the bidding activity level and other factors. The Bureau 
seeks comment on this proposal.

B. Reserve Price or Minimum Opening Bid

    49. The Balanced Budget Act calls upon the Commission to prescribe 
methods for establishing a reasonable reserve price or a minimum 
opening bid when FCC licenses are subject to auction, unless the 
Commission determines that a reserve price or minimum opening bid is 
not in the public interest. Consistent with this mandate, the 
Commission has directed the Bureau to seek comment on the use of a 
minimum opening bid and/or reserve price prior to the start of each 
auction.
    50. Normally, a reserve price is an absolute minimum price below 
which an item will not be sold in a given auction. Reserve prices can 
be either published or unpublished. A minimum opening bid, on the other 
hand, is the minimum bid price set at the beginning of the auction 
below which no bids are accepted. It is generally used to accelerate 
the competitive bidding process. Also, the auctioneer often has the 
discretion to lower the minimum opening bid amount later in the 
auction. It is also possible for the minimum opening bid and the 
reserve price to be the same amount.
    51. In light of the Balanced Budget Act's requirements, the Bureau 
proposes to establish minimum opening bids for Auction No. 51. The 
Bureau believes a minimum opening bid, which has been used in other 
auctions, is an effective bidding tool.
    52. Specifically, for Auction No. 51, the Commission proposes the 
following license-by-license formula for calculating minimum opening 
bids:

    $.00001 * kHz * License Area Population, rounded.

    53. For a package, the Bureau proposes to calculate the minimum 
opening bid by adding together the minimum opening bids of the 
individual licenses that make up the package. The Bureau lists the 
proposed minimum opening bids for all licenses in Attachment A of the 
Auction No. 51 Comment Public Notice. The Bureau seeks comment on this 
proposal.

C. Packages

    54. The Bureau proposes that, in addition to bidding on individual

[[Page 18648]]

licenses, bidders be permitted to create and bid on up to twelve 
different packages of their own choosing during the course of the 
auction. Bidders will not be required to identify or create their 
packages before the start of the auction, but may create their packages 
as the auction progresses. A bidder may modify or delete a package it 
has created up until the point where it has bid on the package and the 
round has closed. If the bidder submits a bid on a package and 
subsequently removes the bid during the same round, the bidder has the 
option of also deleting or modifying the package. However, once a 
bidder bids on a package and the round closes, the package may not be 
modified or deleted and counts as one of the bidder's twelve allowable 
packages. A bid on an individual license does not count as a bid on a 
package; packages consist of two or more licenses. The Bureau seeks 
comment on this proposal.

D. Winning and Provisionally Winning Bids

    55. Winning bids in a package bidding auction are the set of 
``consistent'' bids (non-overlapping, and for each winning bidder, only 
bids made or renewed in the same round) on individual licenses and 
packages that maximizes total revenue when the auction closes. 
Provisionally winning bids are the set of consistent bids that 
maximizes total revenue in a particular round (they would win if the 
auction were to close in that round), assigning each license to either 
a bidder or the FCC. When determining winning and provisionally winning 
bids, all bids made in every round throughout the course of the auction 
(except for bids that are placed and subsequently removed during the 
same round) will be considered. In addition, each license is treated as 
having a bid placed by the FCC at $1000 less than the minimum opening 
bid. This procedure will ensure that a bid on a license or package at 
the minimum opening bid always beats the FCC bid.
    56. Since there can be more than one set of consistent bids that 
produces the maximum revenue, the Bureau proposes to use a procedure 
that randomly selects among these tied sets when determining the 
provisionally winning bids. This tie breaking procedure involves two 
steps: (i) The assignment of a selection number to each bid, and (ii) 
the determination of, among all tied bid sets, the set that produces 
the maximum sum of selection numbers. The Bureau seeks comment on this 
proposal.
    57. A bid's selection number is the sum of n pseudo-random numbers 
where n is the number of licenses comprising the bid's package. A bid's 
selection number will be included in the publicly-available round 
results released after each round.
    58. Once the selection numbers have been generated for each bid, 
the second step of the tie breaking procedure will decide the 
provisionally winning bids. Computer software is used to determine, 
among all tied bid sets, the set that produces the maximum sum of 
selection numbers. Thus, the set of provisionally winning bids is the 
set of consistent bids that maximizes revenue and maximizes the sum of 
selection numbers. Each bid will be assigned a new selection number in 
every round. Consequently, if there are ties, the set of provisionally 
winning bids may change even after a round in which there are no new 
bids. The solver will not be run after the last round of the auction, 
so that the winning set is the same as the set of provisional winners 
generated after the next-to-the-last round (i.e., there won't be any 
surprise winners).
    59. Please note that it is possible that a provisionally winning 
bid might not be the highest bid on the particular license or package. 
This possibility is primarily due to each bidder's bids being 
considered mutually exclusive across rounds. For example, if one bidder 
has placed the highest bid on each of two different licenses in two 
different rounds (and did not renew the earlier of the two bids), then 
those two bids are considered as mutually exclusive and only one of 
them can be a provisionally-winning bid.

E. Minimum Acceptable Bids and Bid Increments

    60. The Bureau proposes that in each round, eligible bidders will 
be able to place bids on a given license or package in any of nine 
different amounts. The Automated Auction System interface will list the 
nine acceptable bid amounts for each license and package. In the first 
round of the auction, the minimum acceptable bid for a license or 
package will be equal to its minimum opening bid. The Bureau proposes 
that in all subsequent rounds, the minimum acceptable bid for a license 
or package will be the greatest of: (i) The minimum opening bid; (ii) 
the bidder's own previous high bid on a license or package plus x%, 
where the Bureau will specify the value of x in each round; and (iii) 
the current price estimate of the license plus z%, or for a package, 
the sum of the current price estimates for the licenses in the package 
plus z%, where the Bureau will specify the value of z in each round.
    61. Current price estimates are estimates of the prices of the 
individual licenses being auctioned. The estimates take into account 
the minimum opening bids for the licenses as well as all the bids 
placed in the auction and, therefore, reflect all available information 
that has been revealed in the auction about the relative demands for 
the licenses. Current price estimates for the component licenses of a 
package that is provisionally winning are constrained to sum to the 
provisionally winning bid for the package. These estimates are 
generated during round results following every round of the auction as 
part of the mathematical optimization process used by the Bureau to 
determine the provisionally winning bids. The precise methodology used 
to calculate current price estimates is described in Attachment B of 
the Auction No. 51 Comment Public Notice. Until a bid is placed on a 
license or on a package containing that license, by any bidder in any 
round, the current price estimate is the FCC bid amount.
    62. The Bureau proposes to retain an exception to part (iii) for 
calculating the minimum acceptable bid for a ``global'' package--a 
package consisting of all six of the licenses available in the auction. 
After the first round of the auction, part (iii) of the minimum 
acceptable bid rule for a global package will always be the revenue 
generated by the provisionally winning bid set in the previous round 
plus w%. The Bureau makes this distinction in order to retain the 
ability to ensure that bids for the global package will continue to 
increase even if it employs a percentage z that does not guarantee that 
outcome.
    63. The result of the minimum acceptable bid calculation will be 
rounded using the Bureau's standard rounding procedure. Initially, the 
Bureau proposes to set x at ten, z at five and w at five, but retains 
the discretion to adjust these variables during the course of the 
auction.
    64. For bids higher than the minimum acceptable bid--i.e., multi-
increment bids--the Bureau proposes to define the amount of the 
additional bid increments as v% of the minimum acceptable bid, where 
the minimum acceptable bid is determined as discussed. Initially, the 
Bureau proposed to set v at ten, but proposes to retain the discretion 
to adjust the amount during the course of the auction. Thus, when v 
equals ten, a bidder will be able to place multi-increment bids of the 
minimum acceptable bid plus approximately 10%, 20%, etc. with the 
maximum bid being approximately equal to the minimum acceptable bid 
plus 80%.
    65. The Bureau retains the discretion to change minimum acceptable 
bids, and to do so on a license-by-license and package-by-package 
basis, if

[[Page 18649]]

circumstances so dictate. The Bureau will do so by announcement in the 
Automated Auction System. The Bureau seeks comment on these proposals.

F. Last and Best Bids

    66. The Bureau proposes to allow bidders that wish to drop out of 
the auction or that believe they are about to lose their bidding 
eligibility to have an opportunity before they drop out to place up to 
two mutually exclusive sets of ``last and best'' bids on any licenses 
or packages for which they remain eligible. This is a limited exception 
to minimum acceptable bids and to click-box bidding. Such bids may be 
of any amount (in thousand dollar increments) between the bidder's 
previous high bid on the license or package and the amount of the 
highest acceptable bid for the license or package in the current round 
(the eighth increment above the minimum acceptable bid). If a bidder 
chooses this option, it will not be permitted to make any further bids 
during the auction. The Bureau seeks comment on this proposal.

G. Renewed Bids

    67. Without regard to the minimum acceptable bid requirement, the 
Bureau proposes to allow a bidder to ``renew'' in the current round the 
highest previous bid it made on any license or package; that is, it may 
resubmit the bid without increasing the amount bid. No eligibility 
activity or bidding activity is conferred for renewing a non-
provisionally winning bid. Renewed provisionally winning bids confer 
bidding activity (non-renewed provisionally winning bids count toward 
eligibility activity). Renewed bids will be treated as being made in 
the current round.
    68. Renewals provide bidders a means to ensure that bids from 
previous rounds are considered in addition to the bids placed in the 
current round. Otherwise, bids made in different rounds are treated as 
mutually exclusive, so that the bidder may win some or all of the bids 
from the current round, or a previous round, but not both. The Bureau 
seeks comment on this proposal.

H. Information Regarding Bid Removal and Bid Withdrawal

    69. For Auction No. 51, the Bureau proposes the following bid 
removal procedures. Before the close of a bidding period, a bidder has 
the option of removing any bid placed in that round. By removing 
selected bids in the bidding system, a bidder may effectively 
``unsubmit'' any bid placed within that round. A bidder removing a bid 
placed in the same round is not subject to a withdrawal payment. Once a 
round closes, a bidder may no longer remove a bid.
    70. The Bureau proposes for Auction No. 51 that bidders not be 
permitted, in any round, to withdraw bids made in previous rounds. With 
the implementation of package bidding, bidders should not face exposure 
risks as they might in a simultaneous multiple round auction design. 
Bid withdrawal was designed to allow bidders to back out of failed 
aggregations--to avoid winning some licenses that are worth little to 
them without the others they need to implement their business plan. 
Therefore, to the extent that bids are allowed on all packages of 
licenses with significant complementarities, the use of withdrawals to 
mitigate such risk is no longer necessary. The Bureau seeks comment on 
this proposal.

I. Stopping Rule

    71. The Bureau has discretion ``to establish stopping rules before 
or during multiple round auctions in order to terminate the auction 
within a reasonable time.'' For Auction No. 51 the Bureau proposes to 
employ a two-round simultaneous stopping rule. A two-round simultaneous 
stopping rule means that all licenses remain open until two consecutive 
rounds have occurred in which no new bids are received. After the 
second consecutive such round, bidding closes simultaneously on all 
licenses. Thus, unless circumstances dictate otherwise, bidding would 
remain open on all licenses until bidding stops on every license. 
Renewed bids are not considered new bids for purposes of the stopping 
rule; in other words, a round in which the only bids that are placed 
are renewed bids is considered a round with no new bids for purposes of 
the stopping rule. Last and best bids are considered new bids for 
purposes of the stopping rule. The Bureau seeks comment on this 
proposal.
    72. The Bureau proposes to reserve the right to declare that the 
auction will end after a specified number of additional rounds 
(``special stopping rule''). The Bureau proposes to exercise this 
option only in certain circumstances, such as, for example, where the 
auction is proceeding very slowly, there is minimal overall bidding 
activity, or it appears likely that the auction will not close within a 
reasonable period of time. Before exercising this option, the Bureau is 
likely to attempt to increase the pace of the auction by, for example, 
increasing the number of bidding rounds per day, and/or increasing the 
minimum acceptable bids. The Bureau seeks comment on these proposals.

V. Conclusion

    73. Comments are due on or before April 17, 2003, and reply 
comments are due on or before April 24, 2003. Because of the disruption 
of regular mail and other deliveries in Washington, DC, the Bureau 
requires that all comments and reply comments be filed electronically. 
Comments and reply comments must be sent by electronic mail to the 
following address: [email protected]. The electronic mail containing 
the comments or reply comments must include a subject or caption 
referring to Auction No. 51 Comments. The Bureaus request that parties 
format any attachments to electronic mail as Adobe[reg] Acrobat[reg] 
(pdf) or Microsoft[reg] Word documents. Copies of comments and reply 
comments will be available for public inspection during regular 
business hours in the FCC Public Reference Room, Room CY-A257, 445 12th 
Street, SW., Washington, DC 20554. Copies of comments and reply 
comments will also be available from the Commission's copy contractor: 
Qualex International, 445 12th Street, SW., Room CY-B402, Washington, 
DC 20554; phone (202) 863-2893; fax (202) 863-2898; e-mail 
[email protected].
    74. In addition, the Bureau requests that commenters fax a courtesy 
copy of their comments and reply comments to the attention of Kathryn 
Garland at (717) 338-2850.
    75. This proceeding has been designated as a ``permit-but-
disclose'' proceeding in accordance with the Commission's ex parte 
rules. Persons making oral ex parte presentations are reminded that 
memoranda summarizing the presentations must contain summaries of the 
substance of the presentations and not merely a listing of the subjects 
discussed. More than a one or two sentence description of the views and 
arguments presented is generally required. Other rules pertaining to 
oral and written ex parte presentations in permit-but-disclose 
proceedings are set forth in Sec.  1.1206(b) of the Commission's rules.

Federal Communications Commission.
Margaret Wiener,
Chief, Auctions and Industry Analysis Division, WTB.
[FR Doc. 03-9389 Filed 4-15-03; 8:45 am]
BILLING CODE 6712-01-P