[Federal Register Volume 71, Number 86 (Thursday, May 4, 2006)]
[Rules and Regulations]
[Pages 26245-26254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-4257]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 1

[WT Docket No. 05-211; FCC 06-52]


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

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document adopts a number of modifications to the 
Commission's competitive bidding rules and procedures. The Commission 
believes the rule modifications it adopts will allow it to achieve its 
statutory mandates to ensure that designated entities are given the 
opportunity to participate in spectrum-based services and that in 
providing such opportunity it prevents the unjust enrichment of 
ineligible entities.

DATES: Effective June 5, 2006.

FOR FURTHER INFORMATION CONTACT: Brian Carter at (202) 418-0660.

SUPPLEMENTARY INFORMATION: This is a summary of the Second Report and 
Order released on April 25, 2006. The complete text of the Second 
Report and Order including attachments and related Commission documents 
is available for public inspection and copying from 8 a.m. to 4:30 p.m. 
Monday through Thursday or from 8 a.m. to 11:30 a.m. on Friday at the 
FCC Reference Information Center, Portals II, 445 12th Street, SW., 
Room CY-A257, Washington, DC 20554. The Second Report and Order and 
related Commission documents may also be purchased from the 
Commission's duplicating contractor, Best Copy and Printing, Inc. 
(BCPI), Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 
20554, telephone 202-488-5300, facsimile 202-488-5563, or you may 
contact BCPI at its Web site: http://www.BCPIWEB.com. When ordering 
documents from BCPI please provide the appropriate FCC document number, 
for example, FCC 06-52. The Second Report and Order and related 
documents are also available on the Internet at the Commission's Web 
site: http://wireless.fcc.gov/auctions.

Synopsis of the Second Report and Order

    1. In the Second Report and Order (Second R&O), the Commission 
addresses its rules concerning the eligibility of applicants and 
licensees for designated entity benefits. In the Second R&O, the 
Commission modifies its rules in order to increase its ability to 
ensure that the recipients of designated entity benefits are limited to 
those entities and for those purposes Congress intended.
    2. The Commission revises its general competitive bidding rules 
(Part 1 rules) governing benefits reserved for designated entities to 
include certain material relationships as factors in determining 
designated entity eligibility. Specifically, the Commission adopts 
rules to limit the award of designated entity benefits to any applicant 
or licensee that has impermissible material relationships or an 
attributable material relationship created by certain agreements with 
one or more other entities for the lease or resale of its spectrum 
capacity. These definitions of material relationships are necessary to 
strengthen the Commission's implementation of Congress's directives 
with regard to designated entities and to ensure that, in accordance 
with the intent of Congress, every recipient of the Commission's 
designated entity benefits is an entity that uses its licenses to 
directly provide facilities-based telecommunications services for the 
benefit of the public.
    3. The Commission also adopts rule modifications to strengthen its 
unjust enrichment rules so as to better deter entities from attempting 
to circumvent the Commission's designated entity eligibility 
requirements and to recapture designated entity benefits when 
ineligible entities control designated entity licenses or exert 
impermissible influence over a designated entity. To ensure the 
Commission's continued ability to safeguard the award of designated 
entity benefits, the Commission provides clarification regarding how it 
will implement its rules concerning audits and refines its rules with 
respect to the reporting obligations of designated entities.
    4. The rules the Commission adopts will apply to all determinations 
of eligibility for all designated entity benefits, including bidding 
credits and, as applicable, set-asides, and installment payments, 
unless excepted by the grandfathering provisions. These rules will be 
applied to any application filed to participate in auctions and to all 
long-form applications filed by winning bidders, as well as to all 
applications for an authorization, an assignment or transfer of 
control, a lease, or reports of events affecting a designated entity's 
ongoing eligibility, including impermissible material relationships or 
attributable material relationships, filed on or after release of the 
Second R&O. However, the rules will not apply to the upcoming auction 
of 800 MHz Air-Ground Radiotelephone Service licenses, scheduled to 
begin on May 10, 2006, nor to the Form 601 applications to be filed 
subsequent to the close of that auction by the winning bidders.

I. Background

    5. Throughout the history of the auctions program, the Commission 
has endeavored to carry out its Congressional directive to promote the 
involvement of designated entities in the provision of spectrum-based 
services. The challenge for the Commission in carrying out Congress's 
plan has always been to find a reasonable balance between the competing 
goals of, first, providing designated entities with reasonable 
flexibility in being able to obtain needed financing from investors 
and, second, ensuring that the rules effectively prevent entities 
ineligible for designated entity benefits from circumventing the intent 
of the rules by obtaining those benefits indirectly, through their 
investments in qualified businesses.
    6. The Commission's primary method of promoting the participation 
of designated entities in competitive bidding has been to award bidding 
credits--percentage discounts on winning bid amounts--to small business 
applicants. The Commission also has utilized other incentives, such as 
installment payments and, in broadband Personal Communications 
Services, a license set-aside to encourage designated entities to 
participate in spectrum auctions and in the provision of service.

[[Page 26246]]

    7. In the FNPRM, 71 FR 6992 (February 10, 2006), the Commission 
tentatively concluded that it should restrict the award of designated 
entity benefits to an otherwise qualified applicant where it has a 
material relationship with a large in-region incumbent wireless service 
provider. The Commission sought comment on how to define the specific 
elements of such restriction. Further, the Commission sought comment on 
whether such a restriction on the award of designated entity benefits 
should apply where a designated entity applicant has a material 
relationship with a large entity that has a significant interest in 
communication services, and whether the Commission should include in 
such a definition a broad category of communications-related businesses 
or instead exclude or include certain types of entities. In addition, 
the Commission sought comment on whether it should adopt unjust 
enrichment provisions that would require reimbursement of designated 
entity benefits in the event that a designated entity makes a change in 
its material relationships or makes any other changes that would result 
in the loss of or change in its eligibility subsequent to acquiring a 
license with a designated entity benefit. Finally, in the FNPRM, the 
Commission sought comment on changes to its auction application rules 
to facilitate the application of any rule modifications to upcoming 
auctions.

A. Material Relationship

    8. In order to define material relationship the FNPRM sought 
comment on the specific nature of the types of additional relationships 
that should trigger a restriction on the availability of designated 
entity benefits. The FNPRM also sought comment on whether restricting 
certain agreements as a material relationship would be too harsh or 
unnecessarily limit a designated entity applicant's ability to gain 
access to capital or industry expertise. Additionally, the FNPRM sought 
comment on whether there might be instances where the existence of 
either a material financial agreement or a material operational 
agreement might be appropriate and might not raise issues of undue 
influence. In this regard, the FNPRM asked whether the Commission 
should allow designated entity applicants to obtain a bidding credit or 
other benefits if they had only a material financial agreement or only 
a material operational agreement but not both, and what factors should 
the Commission consider in determining the types of relationships that 
might not adversely affect an applicant's designated entity 
eligibility. Finally, the Commission sought comment on whether a 
spectrum leasing arrangement should be defined as a material 
relationship, and whether it should consider any other arrangements for 
the purposes of such a definition.
    9. In considering how to define material relationships the 
Commission seeks to balance the designated entity applicant's needs for 
flexibility to structure its business relationships against its 
statutory obligation to award these small business benefits only to 
entities intended by statute to be eligible. In the Commission's 
experience in administering the designated entity program over the last 
several years, it has witnessed a growing number of complex agreements 
between designated entities and those with whom they choose to enter 
into financial and operational relationships. Although some of these 
agreements may have contributed to the wireless industry becoming a 
thriving sector of the nation's economy, the relationships underpinning 
such contracts underscore the need for stricter regulatory parameters 
to ensure, as Congress intended, that: (1) Benefits are awarded to 
provide opportunities for designated entities to become robust 
independent facilities-based service providers with the ability to 
provide new and innovative services to the public; and (2) the 
Commission employs methods to prevent unjust enrichment.
    10. In considering how to evaluate which specific relationships 
should trigger additional eligibility restrictions, the Commission 
concludes that certain agreements, by their very nature, are generally 
inconsistent with an applicant's or licensee's ability to achieve or 
maintain designated entity eligibility because they are inconsistent 
with Congress's legislative intent. In this regard, where an agreement 
concerns the actual use of the designated entity's spectrum capacity, 
it is the agreement, as opposed to the party with whom it is entered 
into, that causes the relationship to be ripe for abuse and creates the 
potential for the relationship to impede a designated entity's ability 
to become a facilities-based provider, as intended by Congress.
    11. As the Commission indicated in the Secondary Markets Second 
Report and Order, 69 FR 77522 (December 27, 2004), Congress 
specifically intended that, in order to prevent unjust enrichment, the 
licensee receiving designated entity benefits must actually provide 
facilities-based services as authorized by its license. In that 
proceeding, the Commission stated that leasing by a designated entity 
licensee of substantially all of the spectrum capacity of the licensee 
would cause attribution that would likely lead to a loss of 
eligibility, and that the leasing of a small portion of such capacity 
where there was no other relationship between the parties likely would 
not result in a finding of attribution.
    12. The Commission modifies its rules regarding eligibility for 
designated entity benefits for applicants or licensees that have 
agreements that create material relationships. Specifically, except as 
grandfathered, the Commission concludes that an applicant or licensee 
has impermissible material relationships when it has agreements with 
one or more other entities for the lease or resale of, on a cumulative 
basis, more than 50 percent of its spectrum capacity of any individual 
license. Such impermissible material relationships render the applicant 
or licensee (i) ineligible for the award of designated entity benefits, 
and (ii) subject to unjust enrichment on a license-by-license basis. 
Except as grandfathered, the Commission finds that an applicant or 
licensee has an attributable material relationship when it has one or 
more agreements with any individual entity, including entities and 
individuals attributable to that entity, for the lease or resale of, on 
a cumulative basis, more than 25 percent of the spectrum capacity of 
any individual license that is held by the applicant or licensee. The 
attributable material relationship with that entity will be attributed 
to the applicant or licensee for the purposes of determining the 
applicant's or licensee's (i) eligibility for designated entity 
benefits, and (ii) liability for unjust enrichment on a license-by-
license basis.
    13. The Commission concludes that these definitions of material 
relationship are necessary to ensure that the recipient of the 
Commission's designated entity benefits is an entity that uses its 
licenses to directly provide facilities-based telecommunications 
services for the benefit of the public; that the Commission employs 
methods to prevent unjust enrichment; and that its statutory-based 
benefits are awarded only to those that Congress intended to receive 
them.
    14. Spectrum manager and de facto transfer leasing agreements and 
resale agreements with a single entity for 25 percent and less of the 
designated entity licensee's total spectrum capacity on a license-by-
license basis, or cumulative agreements with multiple entities for 50 
percent or less of a designated entity licensee's total spectrum 
capacity on a license-by-license basis will continue to

[[Page 26247]]

be reviewed under the Commission's existing designated entity 
eligibility rules, and pursuant to existing rules and policies may 
result in unjust enrichment obligations.
    15. Recognizing that there are numerous agreements in existence 
that might fall within the Commission's newly defined impermissible 
material relationships and attributable material relationship, the 
Commission will apply these eligibility restrictions on a prospective 
basis. The Commission will grandfather the existence of impermissible 
and attributable material relationships that were in existence before 
the release date of the Second R&O for the purposes of assessing unjust 
enrichment payments on benefits previously awarded or pending award. In 
assessing the imposition of unjust enrichment for future events, if 
any, the Commission will consider unjust enrichment implications on a 
license-by-license basis.
    16. Except as limited by the Commission's grandfathering 
provisions, the rules that the Commission adopts will apply to all 
determinations of eligibility for all designated entity benefits with 
regard to any application filed to participate in auctions in which 
bidding begins after the effective date of the rules, as well as to all 
applications for an authorization, an assignment or transfer of 
control, a spectrum lease, or reports of events affecting a designated 
entity's ongoing eligibility. Grandfathering the eligibility of all 
prior designated entity structures that involve impermissible and/or 
attributable material relationships would allow these designated 
entities to continue to acquire additional licenses and designated 
entity benefits using a structure that the Commission has determined 
would permit a third party to leverage improper influence over a 
designated entity in a manner that is inconsistent with the 
Congressional purposes for the designated entity program. Applying the 
Commission's rules in this manner is consistent with how the Commission 
currently determines an applicant's eligibility for designated entity 
benefits and how it applies its unjust enrichment obligations.
    17. To address concerns of several commenters, the Commission will, 
however, grandfather certain relationships that were in existence 
before the release date of the Second R&O in the context of eligibility 
for future benefits. Specifically, an applicant will not be considered 
to be ineligible for benefits based solely on an attributable material 
relationship or impermissible material relationships of certain of its 
affiliates provided that the agreement that forms the basis of the 
affiliate's attributable material relationship or impermissible 
material relationship is otherwise in compliance with the Commission's 
designated entity eligibility rules, was entered into prior to the 
release date of the Second R&O and is subject to a contractual 
prohibition that prevents the affiliate from contributing to the 
designated entity's total financing. In taking this action, the 
Commission seeks to ensure that the additional eligibility requirements 
it adopted does not unnecessarily restrict applicants seeking 
designated entity benefits for relationships that were previously 
permissible under the Commission's rules.

B. Unjust Enrichment

    18. The Commission also made changes to its unjust enrichment rules 
to provide additional safeguards designed to better ensure that 
designated entity benefits go to their intended beneficiaries. One of 
the Commission's primary objectives in administering its designated 
entity program is to prevent unjust enrichment. Accordingly, in 
conjunction with the eligibility restrictions the Commission adopted, 
the Commission also modifies its rules and strengthens its unjust 
enrichment schedule for licenses acquired with bidding credits.
    19. In the FNPRM, the Commission sought comment on whether it 
should adopt revisions to its unjust enrichment rules, or whether the 
Commission should adopt other revisions to its unjust enrichment rules. 
Additionally, the Commission sought comment on whether 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.
    20. Commenters discussing proposed changes to the unjust enrichment 
policies, contend that the Commission should continue to apply the 
current unjust enrichment standard. These entities argue that the 
current unjust enrichment rules are sufficient and provide adequate 
protection. Thus, they conclude that no increased regulation is needed 
or appropriate. Other commenters argue for the implementation of 
stricter unjust enrichment rules.
    21. The Commission agrees with commenters that adoption of stricter 
unjust enrichment rules, applicable to all designated entities, will 
promote the objectives of the designated entity program. The designated 
entity and unjust enrichment rules were adopted to ensure the creation 
of new telecommunications businesses owned by small businesses that 
will continue to provide spectrum-based services. In addition, the 
unjust enrichment rules provide a deterrent to speculation and 
participation in the licensing process by those who do not intend to 
offer service to the public, or who intend to use bidding credits to 
obtain a license at a discount and later to sell it at the full market 
price for a windfall profit. By extending the unjust enrichment period 
to ten years, the Commission increased the probability that the 
designated entity will develop to be a competitive facilities-based 
service provider.
    22. In addition to revising the unjust enrichment payment schedule, 
the Commission will impose a requirement that the Commission must be 
reimbursed for the entire bidding credit amount owed, plus interest, if 
a designated entity loses its eligibility for a bidding credit for any 
reason, including but not limited to, entering into an impermissible 
material relationship or an attributable material relationship, seeking 
to assign or transfer control of a license, or entering into a de facto 
transfer lease with an entity that is not eligible for bidding credits 
prior to the filing of the notification informing the Commission that 
the construction requirements applicable at the end of the license term 
have been met.
    23. The Commission imposes the above-mentioned reimbursement 
obligations on any licensee that acquires licenses with bidding credits 
and subsequently loses its eligibility for a bidding credit for any 
reason because the implementation of such a policy is consistent with 
the policies underlying the Commission's designated entity and unjust 
enrichment requirements. By expanding the unjust enrichment period and 
requiring full payment of the bidding credit until a license has been 
constructed, the Commission is fulfilling Congress's mandate that 
designated entities are given the opportunity to participate in the 
provision of spectrum-based services, while ensuring that entities that 
are not eligible for designated entity benefits cannot benefit from the 
designated entity program by acquiring the licenses or entering into 
impermissible or attributable material relationships with a designated 
entity after it acquires a license at auction or in the secondary 
market.
    24. The Commission agrees with a commenter's proposal that unjust 
enrichment payments should not be required for licenses held by the 
designated entity in the case of natural

[[Page 26248]]

or permissible growth of the gross revenues of either a designated 
entity or an investor in a designated entity. Currently, there are no 
permissible growth provisions associated with bidding credits. However, 
Commission practice has been that a designated entity will not owe 
unjust enrichment for its licenses if the designated entity's increased 
gross revenues, or the increased gross revenues of any controlling 
interest or affiliate, are due to nonattributable equity investments, 
debt financing, revenue from operations or other investments, business 
development, or expanded service. Under the policies adopted in the 
Second Report and Order, the Commission similarly would evaluate an 
applicant's or licensee's eligibility for designated entity benefit at 
the time it files an application regarding a reportable eligibility 
event, as required in the new Sec.  1.2114 that the Commission adopted. 
Thus, if the designated entity seeks to acquire licenses on the 
secondary market or in future auctions, all of the designated entity's 
gross revenues, along with the gross revenues of its controlling 
interests and affiliates, will be attributed to the designated entity.

C. Implementation

    25. To prevent abuse of the designed entity program, the Commission 
will use the following combination of existing and new measures to 
ensure that designated entity incentives benefit solely those parties 
intended to receive them under both its rules and section 309(j) of the 
Communications Act of 1934. First, the Commission will review the 
agreements to which designated entity applicants and licensees are 
parties. Second, the Commission will require that applicants and 
licensees seek advance Commission approval for all events that might 
affect their ongoing eligibility for designated entity benefits. Third, 
the Commission will impose periodic reporting requirements on 
designated entities. Fourth, the Commission will conduct audits, 
including random audits, of those claiming designated entity benefits.
    26. In light of the steps the Commission is taking in the Second 
R&O to aid its ability to ensure that only eligible entities obtain 
designated entity benefits, the Commission will undertake a thorough 
review of the long-form application (FCC Form 601) filed by every 
winning bidder claiming designated entity benefits and will carefully 
review all relevant contracts, agreements, letters of intent, and other 
such documents affecting that applicant. This review remains essential 
to the Commission's assessment of designated entity eligibility under 
the controlling interest standard and will be even more critical in 
ensuring that the rules and policies adopted in the Second R&O are 
fully effectuated. In order to implement this rule, the Commission 
delegated to the Bureau the authority to determine the method for 
designated entities to submit the appropriate and relevant documents.
    27. Further, the Commission will also thoroughly review all 
relevant contracts, agreements, letters of intent, and other such 
documents affecting an applicant, which claims designated entity 
eligibility, seeking to acquire licenses with designated entity 
benefits in the secondary market.
    28. In light of the changes that the Commission is making to the 
designated entity rules, the Commission will require additional 
information from applicants and licensees in order to ensure compliance 
with the policies and adopted rules. The Commission also adopted rules 
authorizing modifications to be made, as necessary, to and the 
creation, if necessary, of FCC forms to implement the rule changes.
    29. The Commission will revise Sec.  1.2110 of its rule to require 
designated entity licensees to file an annual report with the 
Commission, which will, at a minimum, include a list and summaries of 
all agreements and arrangements that relate to eligibility for 
designated entity benefits.
    30. The Commission considers adoption of these reporting 
requirements to be a foreseeable component of the designated entity 
eligibility rules the Commission adopted, and the Commission believes 
them to be necessary to the successful implementation of these rules. 
The Commission delegates to the Bureau the authority to implement the 
necessary modifications to FCC forms and the Universal Licensing System 
to implement these rule changes and to determine the content of, and 
filing procedures for, the new annual filing requirement.
    31. Pursuant to the Commission's existing rules, the Commission has 
broad power to conduct audits at any time and for any reason, including 
at random, of applicants and licensees claiming designated entity 
benefits. A commenter urges the Commission to employ its existing audit 
power and regularly conduct random audits to uncover manipulation of 
the program. The commenter recommends that these audits incorporate 
site visits to offices and physical plants, interviews with staff and 
meaningful inquiries into the management of the licenses. Another 
commenter suggested the imposition of periodic reporting requirements 
might dissuade some abuse of the Commission's rules.
    32. The Commission agrees that its audit authority is an effective 
method by which to ascertain the initial and ongoing eligibility of the 
claimants of designated entity benefits. Applicants and licensees 
should therefore understand that the Commission can and will audit 
their continued designated entity eligibility as circumstances may 
necessitate or at will. Moreover, based on the significance of the 
upcoming AWS auction, the Commission commits to audit the eligibility 
of every designated entity that wins a license in that auction at least 
once during the initial license term. In order to effectively conduct 
these audits, the Commission delegates to the Bureau the authority to 
implement and create procedures to perform such audits.
    33. In the FNPRM, the Commission intends any changes adopted to 
apply to AWS licenses currently scheduled to be offered in an auction 
beginning June 29, 2006. The Commission noted that in light of the 
current auction schedule, any changes that it adopts may become 
effective after the deadline for filing applications to participate in 
that auction. The Commission sought comment on its proposal to require 
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. The Commission also notes that 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.
    34. The vast majority of commenters did not address this issue. 
Under Commission rules, applicants asserting designated entity 
eligibility 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. After reviewing the 
record and considering the public interest benefits associated with the 
Commission's proposal, the Commission will require entities applying as 
designated entities to amend their applications for the AWS auction 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

[[Page 26249]]

the Commission's rules effective as of the date of the statement.

II. Conclusion

    35. The Commission modifies its rules for determining the 
eligibility of applicants for size-based benefits in the context of 
competitive bidding.

III. Procedural Matters

    36. As required by the Regulatory Flexibility Act, 5 U.S.C. 604, 
the Commission has prepared a Final Regulatory Flexibility Analysis.

IV. Final Regulatory Flexability Analysis

    37. As required by the Regulatory Flexibility Act (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated into the FNPRM 
of proposed Rule Making (FNPRM) in WT Docket No. 05-211. The Commission 
sought written public comment in the FNPRM on possible changes to its 
competitive bidding rules, as well as on the IRFA. One commenter 
addressed the IRFA. This Final Regulatory Flexibility Analysis conforms 
to the IRFA.

A. Need for, and Objectives of, the Second Report and Order

    38. The Second Report and Order adopts modifications to the 
Commission's rules for determining the eligibility of applicants for 
size-based benefits in the context of competitive bidding. 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.
    39. Consequently, the rules as modified by the Second Report and 
Order provide that certain material relationships of an applicant for 
designated entity benefits will be a factor in determining the 
applicant's eligibility. The Second Report and Order provides that if 
an applicant or licensee has agreements that together enable it to 
lease or resell more than 50 percent of the spectrum capacity of any 
individual licenses, the applicant or licensee will be ineligible for 
designated entity benefits. Further, the Second Report and Order also 
provides that if an applicant or licensee has agreements with any other 
entity, including entities or individuals attributable to that other 
entity that enable the applicant or licensee to lease or resell more 
than 25 percent of the spectrum capacity of any individual licenses, 
the other entity will be attributed to the applicant or licensee when 
determining the applicant's or licensee's eligibility for designated 
entity benefits. Finally, the modifications of the Second Report and 
Order strengthen the Commission's unjust enrichment rules to better 
deter attempts at circumvention and to recapture designated entity 
benefits when there has been a change in eligibility on a license-by-
license basis. Similarly, to ensure its continued ability to safeguard 
the award of designated entity benefits, the Commission provides 
clarification regarding how it will implement its rules concerning 
audits and refines its rules with respect to the reporting obligations 
of designated entities.
    40. These rule modifications will enhance the Commission's ability 
to carry out Congress's statutory plan in accordance with the intent of 
Congress that every recipient of designated entity benefits uses its 
licenses directly to provide facilities-based telecommunications 
services for the benefit of the public. In making these changes to the 
rules, the Commission takes another important step in fulfilling its 
statutory mandate to facilitate the participation of small businesses 
in the provision of spectrum based services.

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

    41. The National Telecommunications Cooperative Association filed 
comments in response to the IRFA stating, among other things, that the 
Commission must take steps to minimize the economic impact of its 
proposed rules on small entities. NTCA asserts that the Commission must 
tailor its rules narrowly enough to target only real abuse, rather than 
capturing all rural telephone companies with any ties to a large in-
region wireless provider, or it should exempt rural telephone companies 
from the rules' provision.

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

    42. 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: (1) Is independently owned and operated; (2) is not dominant in 
its field of operation; and (3) satisfies any additional criteria 
established by the SBA.
    43. 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 generally as governments of cities, towns, townships, villages, 
school districts, or special districts, with a population of less than 
fifty thousand. Census Bureau data for 2002 indicate that there were 
87,525 local governmental jurisdictions in the United States. The 
Commission estimates that, of this total, 84,377 entities were small 
governmental jurisdictions. Thus, the Commission estimates that most 
governmental jurisdictions are small. Nationwide, there are a total of 
approximately 22.4 million small businesses, according to SBA data.
    44. The changes and additions to the Commission's rules adopted in 
the Second Report and Order are of general applicability to all 
services, applying to all entities of any size that seek eligibility to 
participate in Commission auctions as a designated entity and/or that 
hold licenses won through competitive bidding that are subject to 
designated entity benefits. Accordingly, this FRFA 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 our auctions held to date, 1,975 out of a total of 3,545 
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

[[Page 26250]]

small businesses currently in service. Also, the Commission does not 
generally track subsequent business size unless, in the context of 
changes in control, changes in material relationships or assignments or 
transfers, unjust enrichment issues are implicated.

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

    45. The Commission will require additional information from 
applicants in order to ensure compliance with the policies and rules 
adopted by the Second Report and Order. For example, designated entity 
applicants that have filed applications to participate in an auction 
for which bidding will begin on or after the effective date of the 
rules, will 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. In addition, the Commission adopts rules to make 
modifications, as necessary, to FCC forms related to auction, 
licensing, and leasing applications. Specifically, the modifications 
will require that designated entities report any relevant material 
relationship(s), as defined in newly adopted sections of 1.2110, 
reached after the date the rules are published in the Federal Register, 
even if the material relationship between the designated entity and the 
other entity would not have triggered a reporting requirement under the 
rules prior to the Second Report and Order.

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

    46. 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): (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance rather than design standards; and (4) an 
exemption from coverage of the rule or any part thereof for small 
entities.
    47. The FNPRM sought comment on several options for modifying its 
designated entity eligibility rules and specifically sought comment 
from small entities. The options included various ways to consider 
whether the Commission should award designated entity benefits where an 
applicant for such benefits also had financial or operational 
agreements with a larger entity. In considering these options, for the 
purposes of determining designated entity eligibility, the Commission 
defined the effect of entering certain agreements. By adopting the 
rules in the Second Report and Order, the Commission will enhance its 
ability to carry out Congress's statutory plan that every recipient of 
designated entity benefits uses their licenses directly to provide 
facilities-based telecommunications services, for the benefit of the 
public.

F. Report to Congress

    48. The Commission will send a copy of the Second Report and Order, 
including this FRFA, in a report to be sent to Congress pursuant to the 
SBREFA. In addition, the Commission will send a copy of the Second 
Report and Order, including the FRFA, to the Chief Counsel for Advocacy 
of the SBA. A copy of the Second Report and Order and the FRFA (or 
summaries thereof) will also be published in the Federal Register.

V. Paperwork Reduction Analysis

    49. The Second Report and Order contains new or modified 
information collection requirements subject to the Paperwork Reduction 
Act Of 1995 (PRA), Public Law 104-13. It has been submitted to the 
Office of Management and Budget (OMB) for review under section 3507(D) 
of the PRA. OMB, the general public, and other federal agencies are 
invited to comment on the new or modified information collection 
requirements contained in this proceeding. In addition, the Commission 
notes that pursuant to the Small Business Paperwork Relief Act of 2002, 
Public Law 107-198, 44 U.S.C. 3506(C)(4), the Commission previously 
sought specific comment on how it might further reduce the information 
collection burden for small business concerns with fewer than 25 
employees.
    50. In the Second Report and Order, the Commission has assessed the 
effects of its new restriction on the award of designated entity 
benefits where an applicant or licensee has agreements that create a 
material relationship with one or more other entities for the lease 
(under either spectrum manager or de facto transfer leasing 
arrangements) or resale (including under a wholesale arrangement) of a 
portion of its spectrum capacity. The Commission finds that the rule it 
adopts will best ensure that it can continue to award designated entity 
benefits to entities that Congress intended. While the new rule may 
impose a new information collection on small businesses, including 
those with fewer than 25 employees, the Commission concludes that this 
information collection is necessary to ensure that the benefits of its 
designated entity program are reserved only for legitimate small 
businesses.

VI. Congressional Review Act

    51. The Commission will include a copy of the Second Report and 
Order and Second Further Notice of Proposed Rule Making in a report it 
will send to Congress and the Government Accountability Office pursuant 
to the Congressional Review Act, 5 U.S.C. 801(a)(1(A).

VII. Ordering Clauses

    52. 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. sections 154(i), 303(r), and 309(j), the Second Report and Order 
is hereby adopted and part 1, subpart Q of the Commission's rules, 47 
CFR Part 1, is amended as set forth in Appendix B of the Second Report 
and Order, effective 30 days after publication in the Federal Register, 
except for the grandfathering provisions which are effective upon 
release.
    53. It is further ordered that, pursuant to 47 U.S.C. 155(c) and 47 
CFR 0.131(c) and 0.331, the Chief of the Wireless Telecommunications 
Bureau is granted delegated authority to prescribe and set forth 
procedures for the implementation of the provisions adopted herein.
    54. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of the Second Report and Order and Second Further Notice, 
including the Final Regulatory Flexibility Analysis to the Chief 
Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 1

    Administrative practice and procedures, Auctions, Licensing, 
Telecommunications.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR part 1 as follows:

[[Page 26251]]

PART 1--PRACTICE AND PROCEDURE

0
1. The authority citation for part 1 is revised to read as follows:

    Authority: 15 U.S.C. 79 et seq.; 47 U.S.C. 151, 154(i), 154(j), 
155, 157, 225, 303(r), and 309.

0
2. In Sec.  1.913, paragraph (a) introductory text and the first 
sentence of paragraph (b) introductory text are revised and paragraph 
(a)(6) is added to read as follows:


Sec.  1.913  Application and notification forms; electronic and manual 
filing.

    (a) Application and notification forms. Applicants, licensees, and 
spectrum lessees (see Sec.  1.9003) shall use the following forms and 
associated schedules for all applications and notifications:
* * * * *
    (6) FCC Form 609, Application to Report Eligibility Event. FCC Form 
609 is used by licensees to apply for Commission approval of reportable 
eligibility events, as defined in Sec.  1.2114.
    (b) Electronic filing. Except as specified in paragraph (d) of this 
section or elsewhere in this chapter, all applications and other 
filings using the application and notification forms listed in this 
section or associated schedules must be filed electronically in 
accordance with the electronic filing instructions provided by ULS. * * 
*
* * * * *
0
3. In Sec.  1.919 revise paragraph (b) introductory text and add 
paragraph (b)(5) to read as follows:


Sec.  1.919  Ownership information.

* * * * *
    (b) Any applicant or licensee that is subject to the reporting 
requirements of Sec.  1.2112 or Sec.  1.2114 shall file an FCC Form 
602, or file an updated form if the ownership information on a 
previously filed FCC Form 602 is not current, at the time it submits:
* * * * *
    (5) An application reporting any reportable eligibility event, as 
defined in Sec.  1.2114.
* * * * *
0
4. Revise paragraph (a)(2)(ii)(B) of Sec.  1.2105 to read as follows:


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

    (a) * * *
    (2) * * *
    (ii) * * *
    (B) Applicant ownership and other information, as set forth in 
Sec.  1.2112.
* * * * *

0
5. In Sec.  1.2110, paragraphs (b)(1)(i), (b) (1)(ii), and (j) are 
revised, paragraphs (n) and (o) are redesignated as paragraphs (o) and 
(p), and paragraphs (b)(3)(iv) and (n) are added to read as follows:


Sec.  1.2110  Designated entities.

* * * * *
    (b) * * *
    (1) * * *
    (i) The gross revenues of the applicant (or licensee), its 
affiliates, its controlling interests, the affiliates of its 
controlling interests, and the entities with which it has an 
attributable material relationship shall be attributed to the applicant 
(or licensee) and considered on a cumulative basis and aggregated for 
purposes of determining whether the applicant (or licensee) is eligible 
for status as a small business, very small business, or entrepreneur, 
as those terms are defined in the service-specific rules. An applicant 
seeking status as a small business, very small business, or 
entrepreneur, as those terms are defined in the service-specific rules, 
must disclose on its short- and long-form applications, separately and 
in the aggregate, the gross revenues for each of the previous three 
years of the applicant (or licensee), its affiliates, its controlling 
interests, the affiliates of its controlling interests, and the 
entities with which it has an attributable material relationship.
    (ii) If applicable, pursuant to Sec.  24.709 of this chapter, the 
total assets of the applicant (or licensee), its affiliates, its 
controlling interests, the affiliates of its controlling interests, and 
the entities with which it has an attributable material relationship 
shall be attributed to the applicant (or licensee) and considered on a 
cumulative basis and aggregated for purposes of determining whether the 
applicant (or licensee) is eligible for status as an entrepreneur. An 
applicant seeking status as an entrepreneur must disclose on its short- 
and long-form applications, separately and in the aggregate, the gross 
revenues for each of the previous two years of the applicant (or 
licensee), its affiliates, its controlling interests, the affiliates of 
its controlling interests, and the entities with which it has an 
attributable material relationship.
* * * * *
    (3) * * *
    (iv) Applicants or licensees with material relationships--(A) 
Impermissible material relationships. An applicant or licensee that 
would otherwise be eligible for designated entity benefits under this 
section and applicable service-specific rules shall be ineligible for 
such benefits if the applicant or licensee has an impermissible 
material relationship. An applicant or licensee has an impermissible 
material relationship when it has arrangements with one or more 
entities for the lease or resale (including under a wholesale 
agreement) of, on a cumulative basis, more than 50 percent of the 
spectrum capacity of any one of the applicant's or licensee's licenses.
    (B) Attributable material relationships. An applicant or licensee 
must attribute the gross revenues (and, if applicable, the total 
assets) of any entity, (including the controlling interests, 
affiliates, and affiliates of the controlling interests of that entity) 
with which the applicant or licensee has an attributable material 
relationship. An applicant or licensee has an attributable material 
relationship when it has one or more arrangements with any individual 
entity for the lease or resale (including under a wholesale agreement) 
of, on a cumulative basis, more than 25 percent of the spectrum 
capacity of any one of the applicant's or licensee's licenses.
    (C) Grandfathering--(1) Licensees. An impermissible or attributable 
material relationship shall not disqualify a licensee for previously 
awarded benefits with respect to a license awarded before April 25, 
2006, based on spectrum lease or resale (including wholesale) 
arrangements entered into before April 25, 2006.
    (2) Applicants. An impermissible or attributable material 
relationship shall not disqualify an applicant seeking eligibility in 
an application for a license, authorization, assignment, or transfer of 
control or for partitioning or disaggregation filed before April 25, 
2006, based on spectrum lease or resale (including wholesale) 
arrangements entered into before April 25, 2006. Any applicant seeking 
eligibility in an application for a license, authorization, assignment, 
or transfer of control or for partitioning or disaggregation filed 
after April 25, 2006, or in an application to participate in an auction 
in which bidding begins on or after June 5, 2006, need not attribute 
the material relationship(s) of those entities that are its affiliates 
based solely on Sec.  1.2110(c)(5)(i)(C) if those affiliates entered 
into such material relationship(s) before April 25, 2006, and are 
subject to a contractual prohibition preventing them from contributing 
to the applicant's total financing.

    Example to paragraph (b)(3)(iv)(C)(2): Newco is an applicant 
seeking designated entity status in an auction in which bidding 
begins after the effective date of the rules. Investor is a 
controlling interest of Newco. Investor also is a controlling 
interest of Existing DE. Existing DE previously was

[[Page 26252]]

awarded designated entity benefits and has impermissible material 
relationships based on leasing agreements entered into before April 
25, 2006, with a third party, Lessee, that were in compliance with 
the Commission's designated eligibility standards prior to April 25, 
2006. In this example, Newco would not be prohibited from acquiring 
designated entity benefits solely because of the existing 
impermissible material relationships of its affiliate, Existing DE. 
Newco, Investor, and Existing DE, however, would need to enter into 
a contractual prohibition that prevents Existing DE from 
contributing to the total financing of Newco.
* * * * *

    (j) Designated entities must describe on their long-form 
applications how they satisfy the requirements for eligibility for 
designated entity status, and must list and summarize on their long-
form applications all agreements that affect designated entity status 
such as partnership agreements, shareholder agreements, management 
agreements, spectrum leasing arrangements, spectrum resale (including 
wholesale) arrangements, and all other agreements, including oral 
agreements, establishing, as applicable, de facto or de jure control of 
the entity or the presence or absence of impermissible and attributable 
material relationships. Designated entities also must provide the 
date(s) on which they entered into each of the agreements listed. In 
addition, designated entities must file with their long-form 
applications a copy of each such agreement. In order to enable the 
Commission to audit designated entity eligibility on an ongoing basis, 
designated entities that are awarded eligibility must, for the term of 
the license, maintain at their facilities or with their designated 
agents the lists, summaries, dates, and copies of agreements required 
to be identified and provided to the Commission pursuant to this 
paragraph and to Sec.  1.2114.
* * * * *
    (n) Annual reports. Each designated entity licensee must file with 
the Commission an annual report within five business days before the 
anniversary date of the designated entity's license grant. The annual 
report shall include, at a minimum, a list and summaries of all 
agreements and arrangements (including proposed agreements and 
arrangements) that relate to eligibility for designated entity 
benefits. In addition to a summary of each agreement or arrangement, 
this list must include the parties (including affiliates, controlling 
interests, and affiliates of controlling interests) to each agreement 
or arrangement, as well as the dates on which the parties entered into 
each agreement or arrangement. Annual reports will be filed no later 
than, and up to five business days before, the anniversary of the 
designated entity's license grant.
* * * * *

0
6. Revise paragraphs (a), (b) introductory text, the first sentence of 
paragraph (c)(2), the first sentence of paragraph (c)(3), and 
paragraphs (d)(1) and (d)(2) of Sec.  1.2111 to read as follows:


Sec.  1.2111  Assignment or transfer of control: unjust enrichment.

    (a) Reporting requirement. An applicant seeking approval for a 
transfer of control or assignment (otherwise permitted under the 
Commission's Rules) of a license within three years of receiving a new 
license through a competitive bidding procedure must, together with its 
application for transfer of control or assignment, file with the 
Commission's statement indicating that its license was obtained through 
competitive bidding. Such applicant must also file with the Commission 
the associated contracts for sale, option agreements, management 
agreements, or other documents disclosing the local consideration that 
the applicant would receive in return for the transfer or assignment of 
its license (see Sec.  1.948). This information should include not only 
a monetary purchase price, but also any future, contingent, in-kind, or 
other consideration (e.g., management or consulting contracts either 
with or without an option to purchase; below market financing).
    (b) Unjust enrichment payment: set-aside. As specified in this 
paragraph an applicant seeking approval for a transfer of control or 
assignment (otherwise permitted under the Commission's Rules) of, or 
for entry into a material relationship (see Sec. Sec.  1.2110, 1.2114) 
(otherwise permitted under the Commission's rules) involving, a license 
acquired by the applicant pursuant to a set-aside for eligible 
designated entities under Sec.  1.2110(c), or which proposes to take 
any other action relating to ownership or control that will result in 
loss of eligibility as a designated entity, must seek Commission 
approval and may be required to make an unjust enrichment payment 
(Payment) to the Commission by cashier's check or wire transfer before 
consent will be granted. The Payment will be based upon a schedule that 
will take account of the term of the license, any applicable 
construction benchmarks, and the estimated value of the set-aside 
benefit, which will be calculated as the difference between the amount 
paid by the designated entity for the license and the value of 
comparable non-set-aside license in the free market at the time of the 
auction. The Commission will establish the amount of the Payment and 
the burden will be on the applicants to disprove this amount. No 
payment will be required if:
* * * * *
    (c) * * *
    (2) If a licensee that utilizes installment financing under this 
section seeks to make any change in ownership structure or to enter 
into a material relationship (see Sec.  1.2110) that would result in 
the licensee losing eligibility for installment payments, the licensee 
shall first seek Commission approval and must make full payment of the 
remaining unpaid principal and any unpaid interest accrued through the 
date of such change as a condition of approval. * * *
    (3) If a licensee seeks to make any change in ownership or to enter 
into a material relationship (see Sec.  1.2110) that would result in 
the licensee qualifying for a less favorable installment plan under 
this section, the licensee shall seek Commission approval and must 
adjust its payment plan to reflect its new eligibility status. * * *
    (d) * * *
    (1) A licensee that utilizes a bidding credit, and that during the 
initial term seeks to assign or transfer control of a license to an 
entity that does not meet the eligibility criteria for a bidding 
credit, will be required to reimburse the U.S. Government for the 
amount of the bidding credit, plus interest based on the rate for ten 
year U.S. Treasury obligations applicable on the date the license was 
granted, as a condition of Commission approval of the assignment or 
transfer. If, within the initial term of the license, a licensee that 
utilizes a bidding credit seeks to assign or transfer control of a 
license to an entity that is eligible for a lower bidding credit, the 
difference between the bidding credit obtained by the assigning party 
and the bidding credit for which the acquiring party would qualify, 
plus interest based on the rate for ten year U.S. treasury obligations 
applicable on the date the license is granted, must be paid to the U.S. 
Government as a condition of Commission approval of the assignment or 
transfer. If, within the initial term of the license, a licensee that 
utilizes a bidding credit seeks to make any ownership change or to 
enter into a material relationship (see Sec.  1.2110) that would result 
in the licensee losing eligibility for a bidding credit (or qualifying 
for a lower bidding credit), the amount of the bidding credit (or the 
difference between the bidding credit originally obtained and the 
bidding

[[Page 26253]]

credit for which the licensee would qualify after restructuring or 
entry into a material relationship), plus interest based on the rate 
for ten year U.S. treasury obligations applicable on the date the 
license is granted, must be paid to the U.S. Government as a condition 
of Commission approval of the assignment or transfer or of a reportable 
eligibility event (see Sec.  1.2114).
    (2) Payment schedule. (i) The amount of payments made pursuant to 
paragraph (d)(1) of this section will be 100 percent of the value of 
the bidding credit prior to the filing of the notification informing 
the Commission that the construction requirements applicable at the end 
of the initial license term have been met. If the notification 
informing the Commission that the construction requirements applicable 
at the end of the initial license term have been met, the amount of the 
payments will be reduced over time as follows:
    (A) A loss of eligibility in the first five years of the license 
term will result in a forfeiture of 100 percent of the value of the 
bidding credit (or in the case of eligibility changing to qualify for a 
lower bidding credit, 100 percent of the difference between the bidding 
credit received and the bidding credit for which it is eligible);
    (B) A loss of eligibility in years 6 and 7 of the license term will 
result in a forfeiture of 75 percent of the value of the bidding credit 
(or in the case of eligibility changing to qualify for a lower bidding 
credit, 75 percent of the difference between the bidding credit 
received and the bidding credit for which it is eligible);
    (C) A loss of eligibility in years 8 and 9 of the license term will 
result in a forfeiture of 50 percent of the value of the bidding credit 
(or in the case of eligibility changing to qualify for a lower bidding 
credit, 50 percent of the difference between the bidding credit 
received and the bidding credit for which it is eligible); and
    (D) A loss of eligibility in year 10 of the license term will 
result in a forfeiture of 25 percent of the value of the bidding credit 
(or in the case of eligibility changing to qualify for a lower bidding 
credit, 25 percent of the difference between the bidding credit 
received and the bidding credit for which it is eligible).
    (ii) These payments will have to be paid to the United States 
Treasury as a condition of approval of the assignment, transfer, 
ownership change, or reportable eligibility event (see Sec.  1.2114).
* * * * *

0
7. In Sec.  1.2112, redesignate paragraph (b)(1)(iii) as (b)(1)(iv), 
add new paragraphs (b)(1)(iii) and (b)(2)(iv), and revise newly 
designated paragraphs (b)(1)(iv), (b)(2)(iii), and (b)(2)(v) to read as 
follows:


Sec.  1.2112  Ownership disclosure requirements for applications.

* * * * *
    (b) * * *
    (1) * * *
    (iii) List all parties with which the applicant has entered into 
arrangements for the spectrum lease or resale (including wholesale 
agreements) of any of the capacity of any of the applicant's spectrum.
    (iv) List separately and in the aggregate the gross revenues, 
computed in accordance with Sec.  1.2110, for each of the following: 
The applicant, its affiliates, its controlling interests, the 
affiliates of its controlling interests, and the entities with which it 
has an attributable material relationship; and if a consortium of small 
businesses, the members comprising the consortium.
* * * * *
    (2) * * *
    (iii) List and summarize all agreements or instruments (with 
appropriate references to specific provisions in the text of such 
agreements and instruments) that support the applicant's eligibility as 
a small business under the applicable designated entity provisions, 
including the establishment of de facto or de jure control or the 
presence or absence of impermissible and attributable material 
relationships. Such agreements and instruments include articles of 
incorporation and bylaws, partnership agreements, shareholder 
agreements, voting or other trust agreements, management agreements, 
franchise agreements, spectrum leasing arrangements, spectrum resale 
(including wholesale) arrangements, and any other relevant agreements 
(including letters of intent), oral or written;
* * * * *
    (v) List separately and in the aggregate the gross revenues, 
computed in accordance with Sec.  1.2110, for each of the following: 
the applicant, its affiliates, its controlling interests, affiliates of 
its controlling interests, and parties with which it has attributable 
material relationships; and if a consortium of small businesses, the 
members comprising the consortium; and
* * * * *
    (vii) List and summarize any agreements in which the applicant has 
entered into arrangements for the lease or resale (including wholesale 
agreements) of any of the spectrum capacity of the license that is the 
subject of the application.

0
8. Add new Sec.  1.2114 to read as follows:


Sec.  1.2114  Reporting of eligibility event.

    (a) A designated entity must seek Commission approval for all 
reportable eligibility events. A reportable eligibility event is:
    (1) Any spectrum lease (as defined in Sec.  1.9003) or resale 
arrangement (including wholesale agreements) with one entity or on a 
cumulative basis that would cause a licensee to lose eligibility for 
installment payments, a set-aside license, or a bidding credit (or for 
a particular level of bidding credit) under Sec.  1.2110 and applicable 
service-specific rules.
    (2) Any other event that would lead to a change in the eligibility 
of a licensee for designated entity benefits.
    (b) Documents listed on and filed with application. A designated 
entity filing an application pursuant to this section must--
    (1) List and summarize on the application all agreements and 
arrangements (including proposed agreements and arrangements) that give 
rise to or otherwise relate to a reportable eligibility event. In 
addition to a summary of each agreement or arrangement, this list must 
include the parties (including each party's affiliates, its controlling 
interests, the affiliates of its controlling interests, its spectrum 
lessees, and its spectrum resellers and wholesalers) to each agreement 
or arrangement, as well as the dates on which the parties entered into 
each agreement or arrangement.
    (2) File with the application a copy of each agreement and 
arrangement listed pursuant to this paragraph.
    (3) Maintain at its facilities or with its designated agents, for 
the term of the license, the lists, summaries, dates, and copies of 
agreements and arrangements required to be provided to the Commission 
pursuant to this section.
    (c) Application fees. The application reporting the eligibility 
event will be treated as a transfer of control for purposes of 
determining the applicable application fees as set forth in Sec.  
1.1102.
    (d) Streamlined approval procedures. (1) The eligibility event 
application will be placed on public notice once the application is 
sufficiently complete and accepted for filing (see Sec.  1.933).
    (2) Petitions to deny filed in accordance with section 309(d) of 
the Communications Act must comply with the provisions of Sec.  1.939, 
except that

[[Page 26254]]

such petitions must be filed no later than 14 days following the date 
of the Public Notice listing the application as accepted for filing.
    (3) No later than 21 days following the date of the Public Notice 
listing an application as accepted for filing, the Wireless 
Telecommunications Bureau (Bureau) will grant the application, deny the 
application, or remove the application from streamlined processing for 
further review.
    (4) Grant of the application will be reflected in a Public Notice 
(see Sec.  1.933(a)(2)) promptly issued after the grant.
    (5) If the Bureau determines to remove an application from 
streamlined processing, it will issue a Public Notice indicating that 
the application has been removed from streamlined processing. Within 90 
days of that Public Notice, the Bureau will either take action upon the 
application or provide public notice that an additional 90-day period 
for review is needed.
    (e) Public notice of application. Applications under this subpart 
will be placed on an informational public notice on a weekly basis (see 
Sec.  1.933(a)).
    (f) Contents of the application. The application must contain all 
information requested on the applicable form, any additional 
information and certifications required by the rules in this chapter, 
and any rules pertaining to the specific service for which the 
application is filed.
    (g) The designated entity is required to update any change in a 
relationship that gave rise to a reportable eligibility event.

[FR Doc. 06-4257 Filed 5-3-06; 8:45 am]
BILLING CODE 6712-01-P