[Federal Register Volume 71, Number 28 (Friday, February 10, 2006)]
[Proposed Rules]
[Pages 6992-6999]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-1290]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 1

[WT Docket No. 05-211; FCC 06-8]


Commercial Spectrum Enhancement Act and Modernization of the 
Commission's Competitive Bidding Rules and Procedures

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this Further Notice of Proposed Rule Making the Commission 
considers whether it should modify its general competitive bidding 
rules governing benefits reserved for designated entities (i.e., small 
businesses, rural telephone companies and businesses owned by women and 
minorities). The Commission has reached a tentative conclusion that it 
should modify its part 1 rules to restrict the award of designated 
entity benefits to an otherwise qualified designated entity where it 
has a material relationship with a large in-region incumbent wireless 
service provider,'' and the Commission seeks comment on how it should 
define the elements of such a restriction. The Commission also seeks 
comment on whether it should restrict the award of designated entity 
benefits where an otherwise qualified designated entity has a 
``material relationship'' with a large entity that has a significant 
interest in communications services.

DATES: Comments due February 24, 2006 and Reply Comments due March 3, 
2006. Written comments on the Paperwork Reduction Act proposed 
information collection requirements must be submitted by the public, 
Office of Management and Budget (OMB), and other interested parties on 
or before April 11, 2006.

ADDRESSES: You may submit comments, identified by WT Docket No. 05-211; 
FCC 06-8 by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Federal Communications Commission's Web Site: http://www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
     People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by e-mail: [email protected] or phone: 202-418-
0530 or TTY: 202-418-0432.
    In addition to filing comments with the Secretary, a copy of any 
comments on the Paperwork Reduction Act information collection 
requirements contained herein should be submitted to Judith B. Herman, 
Federal Communications Commission, Room 1-C804, 445 12th Street, SW., 
Washington, DC 20554, or via the Internet to [email protected], and to Kristy 
L. LaLonde, OMB Desk Officer, Room 10234 NEOB, 725 17th Street, NW., 
Washington, DC 20503, via the Internet to Kristy L. 
[email protected], or via fax at 202-395-5167.
    For detailed instructions for submitting comments and additional 
information on the rule making process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Brian Carter or Gary Michaels, 
Auctions and Spectrum Access Division, Wireless Telecommunications 
Bureau, (202) 418-0660. For additional information concerning the 
Paperwork Reduction Act information collection requirements contained 
in this document, contact Judith B. Herman at 202-418-0214, or via the 
Internet at [email protected].

SUPPLEMENTARY INFORMATION: Pursuant to Sec. Sec.  1.415 and 1.419 of 
the Commission's rules, 47 CFR 1.415, 1.419, interested parties may 
file comments and reply comments on or before the dates indicated on 
the first page of this document. All filings related to this Further 
Notice of Proposed Rule Making should refer to WT Docket No. 05-211. 
Comments may be filed using: (1) The Commission's Electronic Comment 
Filing System (ECFS), (2) the Federal Government's eRulemaking Portal, 
or (3) by filing paper copies. See Electronic Filing of Documents in 
Rulemaking Proceedings, 63 FR 24121 (1998). The public may view a full 
copy of this document at

[[Page 6993]]

http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-06-8A1.doc.
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/ 
or the Federal eRulemaking Portal: http://www.regulations.gov. Filers 
should follow the instructions provided on the Web site for submitting 
comments. Filers should follow the instructions provided on the Web 
site for submitting comments.
     For ECFS filers, in completing the transmittal screen, 
filers should include their full name, U.S. Postal Service mailing 
address, and the applicable docket or rulemaking number. Parties may 
also submit an electronic comment by Internet e-mail. To get filing 
instructions, filers should send an e-mail to [email protected], and include 
the following words in the body of the message, ``get form.'' A sample 
form and directions will be sent in response.
     Paper Filers: Parties who choose to file by paper must 
file an original and four copies of each filing. Filings can be sent by 
hand or messenger delivery, by commercial overnight courier, or by 
first-class or overnight U.S. Postal Service mail (although we continue 
to experience delays in receiving U.S. Postal Service mail). All 
filings must be addressed to the Commission's Secretary, Office of the 
Secretary, Federal Communications Commission.
     The Commission's contractor will receive hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary at 236 
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing 
hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be 
held together with rubber bands or fasteners. Any envelopes must be 
disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743.
     U.S. Postal Service first-class, Express, and Priority 
mail should be addressed to 445 12th Street, SW., Washington DC 20554.
     People with Disabilities: Contact the FCC to request 
materials in accessible formats (Braille, large print, electronic 
files, audio format, etc.) by e-mail at [email protected] or call the 
Consumer and Governmental Affairs Bureau at (202) 418-0531 (voice), 
(202) 418-7365 (TTY).

Initial Paperwork Reduction Act of 1995 Analysis

    This document contains proposed new or modified information 
collection requirements. The Commission, as part of its continuing 
effort to reduce paperwork burdens, invites the general public and the 
Office of Management and Budget (``OMB'') to comment on the information 
collection requirements contained in this document, as required by the 
Paperwork Reduction Act of 1995, Public Law 104-13. Public and agency 
comments are due April 11, 2006. 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. In addition, pursuant to the 
Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(c)(4), the Commission seeks specific comment on how it 
might further reduce the information collection burden for small 
business concerns with fewer than 25 employees.
    OMB Control Number: 3060-0600.
    Title: Application to Participate in an Auction.
    Form No.: FCC Form 175.
    Type of Review: Revision of currently approved collection.
    Respondents: Business or other for-profit, not-for-profit 
institutions and/or state, local or tribal governments.
    Estimated Number of Respondents: 560 (60 respondents for this 
FNPRM; 500 respondents in a previously approved submission to OMB).
    Estimated Time Per Response: .166 hours-1.5 hours.
    Frequency of Response: On occasion reporting requirement.
    Estimated Total Annual Burden: 760 hours (10 hours for this FNPRM 
submission and 750 hours for the previous submission approved by OMB).
    Estimated Total Annual Costs: N/A.
    Privacy Act Impact Assessment: N/A.
    Needs and Uses: Respondents would be required to amend their short 
form applications on or after the effective date of the rule changes 
with a statement declaring, under penalty of perjury, that the 
applicant is qualified as a designated entity pursuant to Sec.  1.2110 
of the Commission's rules effective as of the date of the statement. 
The information collected will be used by the Commission to determine 
if the applicant is legally, technically, and financially qualified to 
participate in an FCC auction and eligible for the status requested. 
The Commission's auction rules and requirements are designed to ensure 
that the competitive bidding process is limited to serious qualified 
applicants; to deter possible abuse of the bidding and licensing 
process; and to enhance the use of competitive bidding to assign 
Commission licenses in furtherance of the public interest.

I. Introduction

    1. With this Further Notice of Proposed Rule Making (``FNPRM''), WT 
Docket No. 05-211, FCC 06-8, released February 3, 2006, the Commission 
considers whether it should modify its general competitive bidding 
rules (``part 1'' rules) governing benefits reserved for designated 
entities (i.e., small businesses, rural telephone companies, and 
businesses owned by women and minorities). See 47 CFR 1.2110. 
Specifically, the Commission seeks comment on the elements of a 
proposal raised by Council Tree Communications, Inc. (``Council Tree'') 
that seeks to prohibit the award of bidding credits or other small 
business benefits to entities that have what Council Tree refers to as 
a ``material relationship'' with a ``large in-region incumbent wireless 
service provider.'' Council Tree maintains that such a prohibition 
should apply to ``otherwise qualified designated entities.'' In 
examining this proposal, the Commission reaches a tentative conclusion 
that it should modify its part 1 rules to restrict the award of 
designated entity benefits to an otherwise qualified designated entity 
where it has a ``material relationship'' with a ``large in-region 
incumbent wireless service provider,'' and the Commission seeks comment 
on how it should define the elements of such a restriction. Moreover, 
as discussed further below, the Commission seeks comment on whether it 
should restrict the award of designated entity benefits where an 
otherwise qualified designated entity has a ``material relationship'' 
with a large entity that has a significant interest in communications 
services. The Commission intends to complete this proceeding in time so 
that any modifications to its rules resulting from this proceeding will 
apply to the upcoming auction of licenses for Advanced Wireless 
Services (``AWS''), which currently is scheduled to begin June 29, 
2006. In light of its upcoming auction schedule, the Commission seeks 
comment on a proposal to require designated entity auction applicants 
to certify their qualifications subject to the changed rules by 
amending any auction

[[Page 6994]]

applications that are pending on the effective date of any rule changes 
adopted in this proceeding.

II. Background

    2. In the Commission's Declaratory Ruling and Notice of Proposed 
Rulemaking, 70 FR 43322 (July 27, 2005), 70 FR 43376 (July 27, 2005) to 
implement rules and procedures needed to comply with the Commercial 
Spectrum Enhancement Act (``CSEA''), the Commission proposed a number 
of changes to its part 1 competitive bidding rules that were necessary, 
apart from CSEA, to bring them in line with the current requirements of 
its auctions program. With this FNPRM, the Commission considers further 
updates to its part 1 competitive bidding rules and procedures.
    3. The questions and tentative conclusion the Commission poses here 
arise out of a proposal made by Council Tree in an ex parte filing that 
in part supplemented its petition for reconsideration of the 
Commission's order establishing service rules for Advanced Wireless 
Services (``AWS'') in the 1710-1755 and 2110-2155 MHz bands. In the 
AWS-1 Service Rules Order, 69 FR 5711, February 6, 2004, the Commission 
adopted rules designed to ensure that designated entities are given the 
opportunity to participate in an auction of AWS spectrum. By 
establishing a range of geographic licensing areas including relatively 
small areas, such as Metropolitan Statistical Areas (MSAs) and Rural 
Service Areas (RSAs), and a range of spectrum block sizes, the 
Commission believed that it would encourage participation by smaller 
and rural entities. Accordingly, it concluded that adopting set-asides 
or eligibility restrictions would not be necessary. The Commission also 
adopted two small business size standards and associated bidding 
credits for small businesses, concluding that small business size 
standards and bidding credit levels that matched those offered in 
auctions of broadband Personal Communications Service (PCS) licenses 
were appropriate because broadband PCS presented service opportunities, 
capital requirements, and entry issues comparable to those presented by 
AWS.
    4. Council Tree's petition for reconsideration of the AWS-1 Service 
Rules Order, urged the Commission to reconsider its position with 
respect to set-asides for designated entities or, in the alternative, 
to add a third small business size standard and offer qualifying 
entities a 35 percent bidding credit. Council Tree's ex parte filing 
sought to supplement its petition for reconsideration and proposed, 
among other things, that the Commission prohibit the award of bidding 
credits or other small business benefits to entities that would 
``otherwise qualify'' for eligibility but have what it refers to as a 
``material relationship'' with a ``large in-region incumbent wireless 
service provider.'' Council Tree's proposal also suggested standards by 
which it sought to define both ``material relationship'' and ``large 
in-region incumbent wireless service provider.''
    5. In its Order on Reconsideration, 70 FR 58061, October 5, 2005, 
the Commission rejected Council Tree's Petition and the ex parte 
proposals it made in the AWS proceeding. The Commission concluded, 
however, that Council Tree's suggestion to restrict the award of 
bidding credits or other small business benefits where an entity 
``otherwise qualified'' for eligibility but has a ``material 
relationship'' with a ``large in-region incumbent wireless service 
provider'' warranted further study. It is this conclusion that forms 
the basis for this FNPRM today. In examining our current rules, the 
Commission tentatively concludes that it should modify its requirements 
regarding designated entity eligibility to restrict the award of 
designated entity benefits to an otherwise qualified designated entity 
where it has a ``material relationship'' with a ``large in-region 
incumbent wireless service provider.'' As noted below, the Commission 
seeks comment on the specific elements of Council Tree's proposal. 
Additionally, the Commission seeks comment on whether it should 
restrict the availability of designated entity benefits where an 
otherwise qualified designated entity has a ``material relationship'' 
with a large entity that has a significant interest in the provision of 
communication services, e.g., voice or data providers, content 
providers, equipment manufacturers, other media interests, and/or 
facilities or non-facilities based communications services providers 
(hereinafter collectively referred to as ``entity(ies) with significant 
interests in communications services'').

III. Discussion

    6. Since the inception of the auctions program, the Commission has 
sought to facilitate the participation of small businesses in the 
competitive bidding process. In the Competitive Bidding Second Report 
and Order, 59 FR 22980, May 4, 1994, the Commission established various 
incentives, such as bidding credits and spectrum set-asides, to 
encourage designated entities to participate in future auctions and in 
the provision of service. The Commission also has made substantial 
efforts to ensure that only legitimate small businesses reap the 
benefits of the Commission's designated entity program. Over the last 
decade, the Commission has engaged in numerous rulemakings and 
adjudicatory investigations to prevent companies from circumventing the 
objectives of the designated entity eligibility rules.
    7. The Commission intends its small business provisions to be 
available only to bona fide small businesses. In this FNPRM, the 
Commission tentatively concludes that modifications to its designated 
entity rules are warranted. In determining whether additional 
safeguards are necessary to ensure that bidding credits and other 
benefits are awarded to the appropriate entities, the Commission 
recognizes that it must strike a delicate balance between encouraging 
the participation of small businesses in the provision of spectrum 
based services, and ensuring that those small businesses who do 
participate in competitive bidding have sufficient capital and 
flexibility to structure their businesses to be able to compete at 
auction, fulfill their payment obligations, and ultimately provide 
service to the public.
    8. In its ex parte filing, Council Tree proposes that the 
Commission prohibit the availability of bidding credits or other small 
business benefits where an ``otherwise qualified'' entity seeking such 
eligibility has what Council Tree refers to as a ``material 
relationship'' with a ``large, in-region, incumbent wireless service 
provider.'' Council Tree asserts that if the Commission does not limit 
the availability of bidding credits and other designated entity 
benefits in such instances, spectrum rights will be concentrated in the 
hands of large, incumbent wireless service providers. Council Tree 
states that ``following the consummation of announced mergers, the top-
5 wireless carriers today will control 89 percent of United States 
wireless service subscribers, up from just 50 percent in 1995.'' It 
further asserts that in Auction 58, the Commission's recent broadband 
PCS auction, the five largest wireless carriers won $367 million of 
licenses, or 18 percent of the auction total. Council Tree maintains 
that ``these same carriers also partnered with designated entities in 
Auction 58 to win an additional $1.03 billion of licenses, representing 
another 51 percent of the auction total.'' Council Tree concludes that 
the large carriers structured their relationships with designated 
entities as a means to realize for themselves the benefits and

[[Page 6995]]

opportunities that the Commission had intended for small businesses.
    9. CTIA--The Wireless Association (``CTIA'') opposes Council Tree's 
ex parte asserting, among other things, that Council Tree's proposed 
constraint on relationships between large wireless carriers and those 
seeking eligibility for small business and entrepreneur provisions is 
contrary to the Commission's goal of providing legitimate small 
businesses maximum flexibility in attracting passive financing. CTIA 
further states that such a limitation on a small business' ability to 
raise capital would undermine the Commission's intention of promoting 
small business participation in the highly competitive 
telecommunications marketplace.
    10. In its continued effort to preserve for small businesses and 
entrepreneurs the benefits reserved for designated entities, the 
Commission seeks comment generally on whether the Commission's existing 
rules should be modified as suggested by our tentative conclusion and 
Council Tree's proposal to address any concerns that our designated 
entity program may be subject to potential abuse from larger corporate 
entities. The Commission also seeks comment below on the particular 
elements of Council Tree's proposal. Additionally, the Commission seeks 
comment on whether it should restrict the availability of designated 
entity benefits where an otherwise qualified designated entity has a 
``material relationship'' with an ``entity with significant interests 
in communications services.''
    11. The Commission's existing part 1 rules include generally 
applicable provisions regarding the attribution of gross revenues of an 
entity and its controlling interests and affiliates to determine 
whether that entity meets service-specific eligibility standards for 
designated entity benefits, such as bidding credits. Council Tree 
proposes that even where an entity qualifies for designated entity 
benefits under the Commission's existing rules, such benefits should 
not be available to that entity if it has a ``material relationship'' 
with a ``large, in-region, incumbent wireless provider.'' The 
Commission tentatively concludes that it should modify its rules to 
restrict the award of designated entity benefits where such a 
relationship exists. The Commission seeks comment on Council Tree's 
proposal for defining ``material relationship'' and on the two elements 
Council Tree proposes to use in defining a ``large, in-region, 
incumbent wireless service provider''--the geographic overlap between 
the incumbent and the designated entity applicant, as well as the 
incumbent's wireless gross revenues. The Commission also seeks comment 
on the factual assertions upon which Council Tree's proposals are based 
and the impact, if any, that the adoption of the proposed restriction 
would have on the ability of small businesses to provide spectrum-based 
services. In addition, the Commission seeks comment on whether it 
should extend any rule modifications it adopts to restrict the 
availability of designated entity benefits where an otherwise qualified 
designated entity has a ``material relationship'' with an ``entity with 
significant interests in communications services.''
    12. Material Relationship. As noted above, the Commission currently 
applies a gross revenues test as its general standard for measuring the 
size of an entity for the purposes of awarding small business benefits, 
in part because such a standard provides ``an accurate, equitable, and 
easily ascertainable measure of business size.'' Under this standard, 
the Commission attributes to an applicant the gross revenues of its 
``controlling interests'' and its ``affiliates'' in assessing whether 
the applicant is qualified to take advantage of our small business 
provisions, such as bidding credits. 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 and under a totality of the circumstances 
analysis. Council Tree suggests, however, that the Commission's current 
rules do not adequately prevent large corporations from structuring 
relationships in a manner that allows them to gain access to benefits 
reserved for small businesses.
    13. According to Council Tree, the Commission should determine that 
a ``material relationship'' exists if a ``large, in-region, incumbent 
wireless service provider'' has provided a material portion of the 
total capitalization of the applicant (i.e., equity plus debt), or has 
any material operational arrangement with the applicant (such as 
management, joint marketing, trademark, or other arrangements) or other 
material financial arrangement relating to the overlap markets. In the 
event that there is such a ``material relationship,'' Council Tree 
advocates that designated entity benefits should be withheld even if 
the entity would otherwise qualify for designated entity eligibility 
under our existing rules. As noted above, the Commission tentatively 
concludes that a relationship between a ``large, in-region incumbent 
wireless service provider'' and an otherwise qualified designated 
entity applicant should trigger a restriction on the availability of 
designated entity benefits. The Commission therefore seeks comment on 
the specific nature of the relationship that should trigger such a 
restriction. Additionally, the Commission seeks comment on whether 
other ``material'' relationships, such as those between an otherwise 
qualified designated entity and an ``entity with significant interests 
in communications services,'' should trigger a restriction on the award 
of designated entity benefits.
    14. With respect to determining what may constitute a ``material 
financial'' or ``material operational'' relationship, the Commission 
also seeks comment on whether our existing ``controlling interest 
standard'' and affiliation rules appropriately measure and take into 
consideration the existence of those factors raised by Council Tree. 
For instance, Council Tree proposes that the material operational 
arrangements that should trigger any proposed restriction should 
include management, joint marketing, and trademark arrangements. 
Insofar as the Commission already attributes the gross revenues of 
those that have management or marketing agreements with an applicant 
where such agreements grant authority over key aspects of the 
applicant's business, the Commission seeks comment on whether a 
different standard should be used where the relationship in question is 
with a ``large, in-region incumbent wireless service provider'' or with 
an ``entity with significant interests in communications services.'' If 
so, how should that standard differ from the factors that the 
Commission currently considers for determining indicia of control? If 
commenters believe that the Commission's rules do not already address 
these types of arrangements, they should specify how it should define 
these arrangements.
    15. The Commission also seeks comment on whether a prohibition 
based on certain relationships, such as the one proposed by Council 
Tree, would be too harsh or limit a designated entity's ability to gain 
access to capital or industry expertise. The Commission seeks comment 
on whether there may be instances where the existence of either a 
``material financial agreement'' or a ``material operational 
agreement,'' in and of itself, may be appropriate between a designated 
entity and a ``large incumbent wireless service provider'' or an 
``entity with significant interests in communications services,'' and 
may not raise issues of undue control. Should the Commission allow 
designated entities to obtain a bidding credit if they have only a 
``material financial

[[Page 6996]]

agreement'' or only a ``material operational agreement'' with a ``large 
incumbent wireless service provider,'' or an ``entity with significant 
interests in communications services,'' but not both? What factors 
should the Commission consider in determining whether either type of 
agreement may be permissible? Would this approach be sufficient to 
address any concerns that the Commission's designated entity program 
may be subject to potential abuse from larger corporate entities? 
Commenters should address the appropriate level of financial or 
operational participation of a ``large incumbent wireless service 
provider'' or an ``entity with significant interests in communications 
services'' that should trigger any proposed prohibition of the award of 
designated entity benefits to entities that are otherwise qualified. As 
a general matter, should the definition of ``material relationship'' 
differ if the Commission adopts its tentative conclusion or if the 
Commission expands the restriction to include relationships with 
``entities with significant interests in communications services?''
    16. In its Secondary Markets proceeding, the Commission concluded 
that certain spectrum manager leases between a designated entity 
licensee and a non-designated entity lessee would cause the spectrum 
lessee to become an attributable affiliate of the licensee, thus 
rendering the licensee ineligible for designated entity benefits and 
making such a spectrum lease impermissible. The Commission seeks 
comment on what, if any, standard should be used to determine whether a 
spectrum leasing arrangement is a ``material relationship'' for the 
purpose of any additional restriction on the availability of designated 
entity benefits that it might adopt. The Commission also seeks comment 
on whether other arrangements should be taken into account. If so, what 
arrangements should it consider?
    17. Wireless Gross Revenues. Council Tree suggests that ``large, 
in-region, incumbent wireless providers'' should be defined, in part, 
as those having what Council Tree refers to as ``average gross wireless 
revenues'' for the preceding three years exceeding $5 billion. The 
Commission seeks comment on this proposed benchmark and whether it is a 
useful element for consideration if it adopts its tentative conclusion 
to modify the Commission's part 1 rules to include additional 
restrictions on the availability of designated entity benefits. Is $5 
billion an appropriate level at which to set the benchmark to define 
``large, in-region incumbent wireless provider?'' In contemplating this 
proposal, the Commission also seeks comment on whether it should 
evaluate the service provider's ``gross wireless revenues'' as 
suggested by Council Tree or instead if it should generally consider 
``gross revenues'' as defined in Sec.  1.2110(n) of the Commission's 
rules. Should the Commission consider an alternative benchmark? What 
would be the appropriate benchmark if it extends the restriction on 
designated entity benefits to designated entities that have material 
relationships with ``entities with significant interests in 
communications services?'' Commenters supporting an alternative 
benchmark should provide specific data to support any such alternative. 
What standard should the Commission use to attribute revenues, wireless 
or otherwise, to the incumbent wireless provider or to an ``entity with 
significant interests in communications services'', if any? Should the 
Commission use the same ``controlling interest'' standard and 
affiliation rules currently used to attribute to an applicant the gross 
revenues of its investors and affiliates in determining whether the 
applicant qualifies for small business benefits?
    18. Significant Geographic Overlap. In addition to a gross revenues 
benchmark, Council Tree proposes that the Commission define a ``large, 
in-region, incumbent wireless service provider'' as an entity 
(including all parties under common control) that is, or has an 
attributable interest in, a CMRS or AWS licensee whose licensed service 
area has significant overlap in the geographic area to be licensed to 
the designated entity applicant. As a general matter, the Commission 
seeks comment on whether geographic overlap should be an element in 
establishing any additional restriction on the availability of 
designated entity benefits. Council Tree proposes that for purposes of 
determining significant geographic overlap in defining an in-region 
incumbent wireless service provider, the Commission should apply the 
standard set forth in Sec.  20.6(c) of the Commission's rules. Although 
the CMRS spectrum aggregation limit sunset on January 1, 2003, Sec.  
20.6 defined significant overlap of geographic service areas for the 
purpose of that limit, and provides that significant overlap occurs 
when there is an overlap of at least 10 percent of the population 
within the impacted service areas. The further seeks comment on whether 
it should apply the standard set forth in Sec.  20.6(c) of the 
Commission's rules as proposed by Council Tree. If so, what factors 
should the Commission consider in applying this standard to all 
wireless services? Should it apply a different, or any, geographic 
standard if it extends the restriction on designated entity benefits to 
designated entities that have material relationships with ``entities 
with significant interests in communications services?'' If the 
Commission determines that a significant geographic overlap does exist, 
how should the Commission implement such a restriction? Should an 
incumbent be allowed to divest its interest in the subject service area 
to allow a designated entity applicant to maintain eligibility for a 
bidding credit? If so, within what time period should the Commission 
require the divestiture? The Commission seeks comment on whether the 
application of the standard set forth in Sec.  20.6(c) of the 
Commission's rules or any other geographic overlap restriction would 
place an undue administrative burden on the Commission, making it 
difficult to monitor an applicant's compliance with any adopted 
geographic overlap restriction. Should the Commission consider adopting 
any other geographic overlap standards? In addressing these issues, 
commenters should state with specificity what factors the Commission 
should consider and what mechanisms it should adopt to ensure an 
applicant's continued compliance with any geographic overlap 
restriction.
    19. Entities with Significant Interests in Communications Services. 
As noted above, the Commission seeks comment on whether we should 
prohibit the award of designated entity benefits where an otherwise 
qualified designated entity applicant has a ``material relationship'' 
with an ``entity with significant interests in communications 
services.'' If the Commission extends the restriction in this manner, 
should the Commission define ``entities with significant interests in 
communications services'' to include a broad category of businesses 
such as voice or data providers, content providers, equipment 
manufacturers, other media interests, and/or facilities or non-
facilities based communications services providers? The Commission 
seeks comment on whether all of these entities should be included as 
part of its definition of ``entities with significant interests in 
communications services.'' Should the Commission consider excluding 
some of these entities from its proposed definition? If so, which 
entities should the Commission exclude and why? Are there additional 
entities that it should consider including as part of its proposed 
definition? If so, which entities should the Commission include,

[[Page 6997]]

and why? Moreover, the Commission seeks comment on how it should 
specifically define ``significant interests in communications 
services?'' Does the Commission's consideration of the category 
``communications services'' provide additional safeguards to ensure the 
award of its designated entity benefits only to legitimate small 
businesses or does it create too many obstacles for designated entities 
to obtain access to capital?
    20. Unjust Enrichment. The Commission's existing rules require the 
payment of unjust enrichment when an entity that acquires its license 
with small business benefits loses its eligibility for such benefits or 
transfers a license to another entity that is not eligible for the same 
level of benefits. Council Tree suggests that the Commission should 
also impose a reimbursement obligation on a licensee that, in the first 
five years of its license term, acquires a license with a bidding 
credit and subsequently makes a change in its ``material 
relationships'' or seeks to assign or transfer control of the license 
to an entity that would result in its loss of eligibility for the 
bidding credit pursuant to any eligibility restriction that the 
Commission adopt. Council Tree asserts that such a requirement is 
necessary to fulfill the Commission's statutory obligation to prevent 
unjust enrichment and to ensure that the new eligibility requirement 
for bidding credits has the intended effect of helping eligible small 
businesses to acquire spectrum licenses. Council Tree also proposes, 
however, that an unjust enrichment payment should not be required in 
the case of ``natural growth'' of the revenues attributed to an 
incumbent carrier above the established benchmark. Instead, it suggests 
that the reimbursement obligation should apply only where the licensee 
takes on new investment, or enters into any operational agreement, that 
would have disqualified the licensee for the bidding credit at the time 
of the licensee's initial application. The Commission seeks comment on 
whether, if it adopts a new restriction on the award of bidding credits 
to designated entities, the Commission should adopt revisions to its 
unjust enrichment rules such as those proposed by Council Tree, or in 
some other manner. Should any reimbursement obligation the Commission 
adopts apply where the licensee takes on new investment, or also where 
it enters into any new ``material financial relationship'' or 
``material operational relationship'' that would have rendered the 
licensee ineligible for a bidding credit? If the Commission requires 
reimbursement by licensees that, either through a change of ``material 
relationships'' or assignment or transfer of control of the license, 
lose their eligibility for a bidding credit pursuant to any eligibility 
restriction that it might adopt, over what portion of the license term 
should such unjust enrichment provisions apply?
    21. Pending Auction Provisions. As stated at the outset, the 
Commission intends any changes adopted in this proceeding to apply to 
AWS licenses currently scheduled to be offered in an auction beginning 
June 29, 2006. In light of the current auction schedule, any changes 
that the Commission adopts in this proceeding may become effective 
after the deadline for filing applications to participate in that 
auction. Under Commission rules, applicants asserting designated entity 
status in a Commission auction are required to declare, under penalty 
of perjury, that they are qualified as a designated entity under Sec.  
1.2110 of the Commission's rules. In the event that any designated 
entity applicants have filed an application to participate in an 
auction prior to the effective date of any designated entity rule 
changes adopted in this proceeding, the Commission proposes to require 
such applicants to amend their applications on or after the effective 
date of the rule changes with a statement declaring, under penalty of 
perjury, that the applicant is qualified as a designated entity 
pursuant to Sec.  1.2110 of the Commission's rules effective as of the 
date of the statement. In the event applicants fail to file such a 
statement pursuant to procedures announced by public notice, they will 
be ineligible to qualify as a designated entity, e.g., receive small 
business bidding credits, either generally or with respect to specific 
licenses. The Commission seeks comment on this proposal.

IV. Conclusion

    22. For the reasons stated above, the Commission seeks comment on 
its competitive bidding rules, on the elements of the specific proposal 
raised by Council Tree, and on its tentative conclusion to modify its 
part 1 rules to prohibit the award of designated entity benefits where 
an otherwise qualified designated entity has a ``material 
relationship'' with a ``large, in-region wireless service provider.''

V. Procedural Matters

A. Ex Parte Rules--Permit-But-Disclose Proceeding

    23. For purposes of this permit-but-disclose notice and comment 
proceeding, members of the public are advised that ex parte 
presentations are permitted, except during the sunshine Agenda period, 
provided that the presentations are disclosed pursuant to the 
Commission's rules.

B. Initial Regulatory Flexibility Analysis

    24. As required by the Regulatory Flexibility Act, see 5 U.S.C. 
603, the Commission has prepared an Initial Regulatory Flexibility 
Analysis (IRFA) of the possible significant economic impact on small 
entities of the proposals suggested in this Further Notice of Proposed 
Rulemaking. Written public comments are requested on the IRFA. These 
comments must be filed in accordance with the same filing deadlines as 
comments filed in response to this FNPRM, and must have a separate and 
distinct heading designating them as responses to the IRFA. The 
Commission will send a copy of this FNPRM, including this IRFA, to the 
Chief Counsel for Advocacy of the Small Business Administration (SBA). 
In addition, this FNPRM and the IRFA (or summaries thereof) will be 
published in the Federal Register.
i. Need for, and Objectives of, the Proposed Rules
    25. This FNPRM tentatively concludes that the Commission should 
modify its general competitive bidding rules governing benefits 
reserved for designated entities (i.e., small businesses, rural 
telephone companies, and businesses owned by women and minorities). 
Specifically, the Commission seeks comment on the specific elements of 
a proposal raised by Council Tree Communications, Inc. (``Council 
Tree'') that seeks to prohibit the award of bidding credits or other 
small business benefits to entities that have what Council Tree refers 
to as a ``material relationship'' with a ``large in-region incumbent 
wireless service provider.'' Additionally, the Commission seeks comment 
on whether there are other entities that might have a significant 
interest in the provision of communication services, e.g., voice or 
data providers, content providers, equipment manufacturers, other media 
interests, and/or facilities or non-facilities based communications 
services providers (hereinafter collectively referred to as 
``entity(ies) with significant interests in communications services,'') 
whose

[[Page 6998]]

relationship with an otherwise qualified designated entity applicant 
should trigger a restriction on the availability of designated entity 
benefits.
    26. Over the last decade, the Commission has engaged in numerous 
rulemakings and adjudicatory investigations to prevent companies from 
circumventing the objectives of the designated entity eligibility 
rules. To that end, in determining whether to award designated entity 
benefits, the Commission adopted a strict eligibility standard that 
focused on whether the applicant maintained control of the corporate 
entity. The Commission's objective in employing such a standard was 
``to deter the establishment of sham companies in a manner that permits 
easy resolution of eligibility issues without the delay of 
administrative hearings.'' The Commission intends its small business 
provisions to be available only to bona fide small businesses.
    27. By this FNPRM, the Commission tentatively concludes that 
modifications to its designated entity rules are warranted. In 
determining what additional safeguards are necessary to ensure that 
bidding credits and other benefits are awarded to the appropriate 
entities, the Commission recognizes that it must strike a delicate 
balance between encouraging the participation of small businesses in 
the provision of spectrum based services, and ensuring that those small 
businesses who do participate in competitive bidding, have sufficient 
capital to be able to compete at auction, fulfill their payment 
obligations, and ultimately provide service to the public. In its 
continued effort to reserve for small businesses and entrepreneurs the 
designated entity benefits that the Commission offers, this FNPRM seeks 
comment on the elements of Council Tree's proposal and the Commission's 
tentative conclusion that its existing rules should be modified.
ii. Legal Basis
    28. The proposed actions are authorized under 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).
iii. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply
    29. The RFA directs agencies 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 organization,'' ``small business,'' and ``small governmental 
jurisdiction.'' The term ``small business'' has the same meaning as the 
term ``small business concern'' under the Small Business Act. A small 
business concern is one which: (a) Is independently owned and operated; 
(b) is not dominant in its field of operation; and (c) satisfies any 
additional criteria established by the SBA.
    30. 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 2002, there were 
approximately 1.6 million small organizations. The term ``small 
governmental jurisdiction'' is defined as ``governments of cities, 
towns, townships, villages, school districts, or special districts, 
with a population of less than fifty thousand.'' As of 1997, there were 
approximately 87,453 governmental jurisdictions in the United States. 
This number includes 39,044 county governments, municipalities, and 
townships, of which 37,546 (approximately 96.2%) have populations of 
fewer than 50,000, and of which 1,498 have populations of 50,000 or 
more. Thus, the Commission estimates the number of small governmental 
jurisdictions overall to be 84,098 or fewer. Nationwide, there are a 
total of approximately 22.4 million small businesses, according to SBA 
data.
    31. Any proposed changes or additions to the Commission's part 1 
rules that may be made as a result of this FNPRM would be of general 
applicability to all services, applying to all entities of any size 
that apply to participate in Commission auctions. Accordingly, this 
IRFA provides a general analysis of the impact of the proposals on 
small businesses rather than a service by service analysis. The number 
of entities that may apply to participate in future Commission auctions 
is unknown. The number of small businesses that have participated in 
prior auctions has varied. In all of the Commission's auctions held to 
date, 1,973 out of a total of 3,303 qualified bidders either have 
claimed eligibility for small business bidding credits or have self-
reported their status as small businesses as that term has been defined 
under rules adopted by the Commission for specific services. In 
addition, the Commission notes that, as a general matter, the number of 
winning bidders that qualify as small businesses at the close of an 
auction does not necessarily represent the number of small businesses 
currently in service. Also, the Commission does not generally track 
subsequent business size unless, in the context of assignments or 
transfers, unjust enrichment issues are implicated.
iv. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    32. In the event that the Commission changes its designated entity 
rules in this proceeding, designated entity applicants that have filed 
applications to participate in an auction before the effective date of 
any changes may be required to amend their applications on or after the 
effective date of the rule changes with a statement declaring, under 
penalty of perjury, that the applicant is qualified as a designated 
entity pursuant to the Commission's rules effective as of the date of 
the statement.
v. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    33. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (a) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (b) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(c) the use of performance, rather than design, standards; and (d) an 
exemption from coverage of the rule or any part thereof for small 
entities.
    34. This FNPRM tentatively concludes that the Commission should 
modify its general competitive bidding rules regarding designated 
entity eligibility. The Commission seeks comment on the specific 
elements described in a proposal raised by Council Tree Communications, 
Inc., which seeks to prohibit the award of bidding credits or other 
small business benefits to entities that have what Council Tree refers 
to as a ``material relationship'' with a ``large in-region incumbent 
wireless service provider.'' The Commission also seeks comment on 
whether such a restriction should apply to ``entities with significant 
interests in communications services.'' The Commission seeks guidance 
from the industry on how it should define the elements of any 
restrictions it might adopt regarding the award of designated entity 
benefits. Small entity comments are specifically requested.

[[Page 6999]]

vi. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rule
    35. None.

C. Ordering Clauses

    36. Accordingly, it is ordered that, pursuant to 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), this Further Notice of Proposed Rule 
Making is hereby adopted.
    37. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Further Notice of Proposed Rule Making, including the 
Initial Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 06-1290 Filed 2-9-06; 8:45 am]
BILLING CODE 6712-01-P