Implementation of Competitive Bidding

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 1

[PP Docket No. 93-253, FCC 94-61]

Implementation of Competitive Bidding

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission has adopted rules establishing general

procedures that will apply whenever it employs a system of competitive

bidding (``auctions'') to choose from among mutually exclusive

applications for certain initial licenses. This action is taken to

implement section 309(j) of the Communications Act of 1934, as amended.

Procedures applicable to specific services will be determined in future

Reports and Orders. The new rules will promote the development and

rapid deployment of new technologies, products, and services for the

benefit of the public, including those residing in rural areas. These

rules also will promote economic opportunity and competition, and

disseminate licenses among a wide variety of applicants, including

small businesses, rural telephone companies, and businesses owned by

members of minority groups and women. This action will provide recovery

for the public of a portion of the value of the public spectrum made

available for commercial use.

EFFECTIVE DATE: June 3, 1994.

FOR FURTHER INFORMATION CONTACT:

Toni Simmons, Office of Plans and Policy, (202) 418-2030.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second

Report and Order, PP Docket No. 93-253, adopted March 8, 1994, and

released April 20, 1994. The full text of this Second Report and Order

is available for inspection and copying during normal business hours in

the FCC Dockets Branch, Room 230, 1919 M Street NW., Washington, DC.

The complete text may be purchased from the Commission's copy

contractor, International Transcription Service, Inc., 2100 M Street

NW., suite 140, Washington, DC 20037, telephone (202) 857-3800.

Paperwork Reduction Act

The Federal Communications Commission has submitted the following

information collection request to OMB for review and clearance under

the Paperwork Reduction Act of 1980, 44 U.S.C. 3507. Persons wishing to

comment on this information collection should contact Timothy Fain,

Office of Management and Budget, Room 3225, New Executive Office

Building, Washington, DC 20503, (202) 395-3561. For further

information, contact Judy Boley, Federal Communications Commission,

(202) 632-7513.

Please note: The Commission has requested emergency review of this

collection by May 6, 1994, under the provisions of 5 CFR 1320.18.

Title: Implementation of Section 309(j) of the Communications Act--

Competitive Bidding, Second Report and Order, PP Docket No. 93-253.

Action: New collections.

Respondents: Individuals, state or local governments, non-profit

organizations, business or other for-profit entities, including small

business.

Frequency of response: On occasion.

Estimated Annual Burden:

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

Estimated

Number of average Estimated

Section/forms respondents hours per annual

response responses

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FCC Form 175......................... 6,400 .50 3,200

Section 1.2105(a)(2) (i)-(ix)........ 6,400 .50 3,200

Section 1.2107....................... 4,700 1.00 4,700

Section 1.2108....................... 2,350 20.00 47,000

Section 1.2111....................... 100 .50 50

FCC Form 175-S....................... 2,700 .25 675

Microfiche Req....................... 6,400 2.00 12,800

Total Annual Burden: 71,625.

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Needs and Uses: In the Second Report and Order in PP Docket No. 93-

253, the Commission has amended 47 CFR part 1 to add a new Subpart Q

which contains the general rules and requirements governing the

competitive bidding process for certain initial licenses. Applicants

are required to file certain information so that the Commission can

determine whether the applicants are legally, technically, and

financially qualified to be licensed. Affected public are any member of

the public who wants to become a licensee. The foregoing estimates

include the time for reviewing instructions, searching existing data

sources, gathering and maintaining the data needed, and completing and

reviewing the burden estimates or any other aspect of the collection of

information including suggestions for reducing the burden to the

Federal Communications Commission Records Management Division,

Paperwork Reduction project, Washington, DC 20554 and to the Office of

the Management and Budget Paperwork reduction project, Washington, DC

20503.

Summary of Second Report and Order

Introduction

1. In this Second Report and Order, we prescribe general rules and

procedures to implement the Commission's new authority under Section

309(j) of the Communications Act of 1934, as amended, to use

competitive bidding to award licenses for use of the radio spectrum. In

the future, in subsequent Reports and Orders, specific rules within the

scope of these general rules will be adopted for each service subject

to competitive bidding.

2. A voluminous number of comments and reply comments were filed by

interested parties in response to the Notice of Proposed Rule Making

(58 FR 53489 (October 15, 1993)) in this docket. These comments address

the many proposals made in the Notice.

Eligibility of License Applications for Competitive Bidding

3. The Commission will use competitive bidding to award licenses

only when the statutory criteria for auctionability set forth in

Section 309(j) of the Communications Act are met. First, there must be

mutually exclusive applications for an initial license or construction

permit. Second, the service applied for must principally involve the

transmission or reception of communications services to subscribers for

compensation. Applying these criteria, the Commission determined that

mutually exclusive licenses in the Interactive Video Data Service

(IVDS), the Personal Communications Services, most of the Public Mobile

Services, the Multipoint Distribution Service, the Multichannel

Multipoint Distribution Service, the Specialized Mobile Radio Service,

Marine Public Coast Stations and for exclusive frequencies above 900

MHz in the Private Carrier Paging Service should be awarded through

competitive bidding.

4. Because licensees in the Broadcast Radio and Broadcast

Television Services, Maritime Operational Fixed Stations, Personal

Radio Services (except IVDS), certain Private Land Mobile Radio

Services and certain other services do not receive compensation from

subscribers, these services are excluded from the competitive bidding

process. The following kinds of applications are not subject to

competitive bidding: Applications for renewal of licenses, most

applications for modification, applications for subsidiary

communications services, and applications for frequencies used as

intermediate links in the provision of service.

Competitive Bidding Design Options

5. We adopt simultaneous multiple round auctions as our primary

auction methodology. However, as the record convinces us that there is

no single competitive bidding design that is optimal for all

auctionable services and because Congress directed us to design and

test multiple alternative methodologies, we have provided alternative

methods from which to choose under appropriate circumstances. The

alternative design options are single round sealed bid auctions (either

sequential or simultaneous) and sequential oral auctions.

6. The two primary characteristics that will determine the choice

of auction design are: (1) The degree to which licenses are

interdependent, and (2) whether the expected license values are high or

low. Because we expect most licenses to be of high value and

interdependent, the simultaneous multiple round auction is our

preferred auction design. The Commission will select the competitive

bidding design to be used in auctioning particular licenses on a

service-specific basis. Combinatorial bidding, which may be used with

any type of auction, is also authorized for use as a competitive

bidding mechanism.

Procedures to Implement the Competitive Bidding Designs

7. To efficiently implement the competitive bidding designs, we

must specify certain auction procedures. We will choose from these

procedures and incorporate them into the service-specific rules that we

will adopt in the future.

8. Sequencing. We will choose the sequence of what is auctioned.

The importance of the choice of sequence increases with the degree of

interdependence among the items auctioned in sequence. We intend to

minimize the importance of the choice of sequence by auctioning

licenses sequentially only when there is not a high degree of value

interdependence across the licenses or groups that are offered in

sequence.

9. Duration of bidding rounds. In simultaneous multiple round

auctions, bids can be submitted continuously with the high bids

announced at the end of each round. With discrete rounds, the

Commission can more readily control the pace at which the auction

proceeds. The duration of bidding rounds and the interval between

rounds in simultaneous multiple round auctions may be varied by

announcement during the course of an auction. We generally intend to

give bidders a single business day to submit bids and intend to conduct

a new bidding round each business day, but we may choose other round

lengths and intervals between rounds.

10. Minimum bid increments. In multiple round auctions, whether

they be sequential or simultaneous, the Commission will generally

specify minimum bid increments. The bid increment is the amount or

percentage by which the bid must be raised above the previous round's

high bid in order to be accepted as a valid bid in the current round.

Imposing a minimum bid increment speeds the progress of the auction

and, along with activity and stopping rules, helps to ensure that the

auction comes to closure within a reasonable period of time. We reserve

the right to specify minimum bid increments in dollar terms as well as

in percentage terms. We also may vary the minimum bid increments with

respect to different licenses being awarded in one auction.

11. Stopping rules for multiple round auctions. Prior to each

multiple round auction, the Commission will announce by Public Notice a

stopping rule for determining when the auction is over. We seek a

stopping rule that will (1) terminate the auction in a reasonable

period of time, (2) be simple and clearly understood by participating

bidders and observers of the auction process, and (3) in the case of

simultaneous auctions, close all markets at approximately the same

time. In simultaneous auctions, the stopping rules must also specify

whether to close markets individually or simultaneously. Hybrid

stopping rules are also possible.

12. The following stopping rules are preferred: (1) When auctioning

licenses one at a time, or simultaneously and closing markets one at a

time bidding on a market will close if a single round passes in which

no new acceptable bids (i.e., no bids that meet any applicable bid

increment rule) are submitted for that license; (2) when auctioning

licenses simultaneously and closing markets simultaneously--bidding on

all markets will close if a single round passes in which no new

acceptable bids are submitted for any license.

13. Activity rules. To ensure that simultaneous auctions with our

preferred simultaneous stopping rule close within a reasonable period

of time, an activity rule is likely to be necessary to prevent bidders

from waiting until the end of the auction before participating. Where

we decide to employ an activity rule, we will seek one that (1) moves

auctions along at an appropriate speed, (2) provides bidders with

sufficient flexibility to pursue a wide range of alternative bidding

strategies, and (3) is simple and clearly understood by participating

bidders.

14. When the Commission employs a simultaneous stopping rule, our

preferred activity rule will be the three stage rule proposed by

Professors Paul Milgrom and Robert Wilson. Under this rule, the minimum

activity level, measured as a fraction of the self declared maximum

eligibility, would increase during the course of the auction. The

auction would be divided into three stages. During the first stage of

the auction, bidders would be required to be active on licenses

encompassing at least one-third of the MHz-pops for which they are

eligible. In the second stage, bidders would be required to be active

on licenses encompassing at least two-thirds of the MHz-pops for which

they are eligible. In the third stage, bidders would be required to be

active on licenses encompassing 100 percent of the MHz-pops for which

they are eligible. Bidders under this rule would be required to meet

these activity levels to retain their desired eligibility. A shortfall

in activity would reduce eligibility levels accordingly.

15. The Commission retains the flexibility to choose among activity

rules, other than the three stage Milgrom-Wilson rule, on a case-by-

case basis. These include: (1) A Milgrom-Wilson rule with one or two

stages, (2) a rule that requires bidders to be active on a single

license, (3) a rule that requires that a bidder's activity level remain

within a single range throughout the action, (4) a rule that replaces

the maximum allowed bidding levels in the Milgrom-Wilson rule with a

bidding premium for exceeding those maximums, or (5) a combination of

the foregoing rules. We conclude that a waiver procedure is necessary

in conjunction with a Milgrom-Wilson activity rule. Under our preferred

option, bidders will be permitted five automatic waivers of the minimum

activity requirement during the course of an auction.

16. Bid withdrawal and default penalties. If a high bid is

withdrawn prior to the close of a simultaneous round auction, the

Commission will impose a penalty equal to the difference between the

withdrawn bid and the amount of the winning bid the next time the

license is offered by the Commission. No withdrawal penalty will be

assessed if the subsequent winning bid exceeds the withdrawn bid. If a

winning bidder defaults after the close of such an auction, the

defaulting bidder will be required to pay the foregoing penalty plus an

additional penalty equal to three percent of the amount of the winning

bid the next time the license is offered by the Commission or three

percent of the amount of the defaulting bidder's bid, whichever is

less.

17. In the case of open outcry auctions, the Commission may choose

not to impose any penalty for bid withdrawal during the course of an

auction and instead rely only on the default penalty to discourage

insincere bidding. The default penalty will be assessed if a bidder

fails to make the down payment on a license, fails to pay for a license

or is disqualified after the close of an auction. In connection with

single round bidding, only the basic penalty (and not the additional

three percent penalty) would generally apply.

18. Release of Bid Information. We will announce bidder

identification numbers and bid amounts during the course of an auction,

but not the identities of bidders, to avoid potential manipulation and

collusion among bidders.

19. Delay, Suspension or Cancellation of Auction. By Public Notice

or by announcement during an auction, the Commission may delay, suspend

or cancel an auction in the event of a natural disaster, technical

obstacle, evidence of auction security breach, unlawful bidding

activity, administrative necessity, or for any other reason that

affects the fair and competitive conduct of the competitive bidding. In

such cases, the Commission may, at its sole discretion, resume the

auction starting from the beginning of the current or some previous

round or may cancel the auction in its entirety.

Pre-Auction Procedures and Bidder and License Qualification

20. To streamline the processing of auction applications and ensure

that bidders and licensees are qualified, we are adopting the following

procedures. Usually, no less than 75 days before each scheduled

auction, the Commission will release a Public Notice announcing the

auction. The initial Public Notice will normally contain information

such as the licenses to be auctioned and the time, place and method of

competitive bidding to be used, including applicable bid withdrawal

procedures and penalties, stopping rules and activity rules.

21. The initial Public Notice will also specify filing windows for

short-form applications (no long form applications are to be filed at

this stage of the competitive bidding application procedure) and bidder

certifications, filing fees, upfront and down payments. Applications

filed before or after the dates specified in the Public Notice will not

be accepted by the Commission. Applications submitted after the

deadline specified will be dismissed with prejudice. An auction

information package will be made available to prospective bidders after

the release of the initial Public Notice. Slightly different procedures

will apply when the rules permit applicants to submit long form

applications after the occurrence or nonoccurrence of certain events

(e.g., passage of time and failure to serve a particular area).

22. The short-form applications and bidder certifications will

normally require applicants to provide the following information: (1)

The license(s) for which the applicant wishes to bid, (2) the

applicant's name, (3) the identity of the person(s) authorized to bid,

(4) certifications that the applicant is legally, technically,

financially, and otherwise qualified, and (5) certification that the

applicant satisfies any financial qualification requirements for the

service in question. Applicants seeking to file as designated entities

eligible for bidding preferences must indicate their status in the

short-form application and must certify that they are qualified to file

as designated entities. Bidders will also be required to identify all

parties with whom they have entered into partnerships, joint ventures,

consortium, or other arrangements or agreements. Bidders will also be

required to certify on their short-form applications that they have not

entered into any explicit or implicit agreements with any parties other

than those identified regarding the amount of their bid, bidding

strategies or the particular properties on which they will or will not

bid.

23. After reviewing the short-form applications, the Commission

will issue a Public Notice listing all defective applications and

notify applicants of the specific defect. If the Commission receives

only one application that is acceptable for filing for a particular

license, the Commission will issue a Public Notice cancelling the

auction for this license and establishing a date for the filing of a

long-form application, the acceptance of which would trigger the

relevant procedures permitting petitions to deny. Applicants whose

short-form applications are substantially complete but have minor

errors or defects will be provided an opportunity to correct their

applications prior to the auction. However, applicants will not be

permitted to make any major modifications to their applications,

including ownership changes or changes in the identification of parties

to bidding consortia. Also, applications that are not signed or that

fail to make the requisite certifications will be dismissed as

unacceptable.

24. After reviewing the corrected applications, the Commission will

release another Public Notice announcing the names of all applicants

whose applications have been accepted for filing. Applicants identified

in the Public Notice will then be required to submit the full amount of

their upfront payment to the Commission's lock-box bank by a date to be

specified in that Public Notice which generally will be no later than

14 days before the scheduled auction.

25. Once the Commission has received from the lock-box bank the

names of all applicants who have submitted timely unfront payments, the

Commission will issue a fourth Public Notice announcing the names of

all applicants that have been determined to be qualified to bid. Each

of these applicants will be provided a bidder identification number and

further information and instructions regarding the auction procedures.

Competitive Bidding Payments

26. Upfront Payments. In most cases, some form of upfront payment

is necessary to deter frivolous or insincere bidding. We have

determined that the best approach is to retain flexibility to determine

the amount of upfront payment on an auction-by-auction basis.

Generally, a bidder must submit an upfront payment equal to $0.02 per

pop per MHz for the largest combination of MHz-pops the bidder

anticipates bidding on in any single round of bidding. A bidder may

file applications for every license being auctioned, but its actual

bidding in any round of an auction will be limited by the amount of its

upfront payment.

27. Upfront payments will provide the Commission with a source of

available funds in the event a penalty must be assessed for bid

withdrawal prior to further payments. In future Reports and Orders

establishing service-specific auction rules, we may determine that the

$0.02 per pop per MHz formula is inappropriate because of product

market or license characteristics or auction design choice. In some

circumstances, we may decide that it is more appropriate instead to set

a fixed upfront payment or eliminate the upfront payment. We therefore

reserve the option of revising or waiving the upfront payment. In such

cases, we will adopt an alternative upfront payment in service-specific

auction rules or in the Public Notice announcing the auction.

28. As a general rule, we will not cap upfront payments because we

need to ensure that those bidding on large numbers of licenses have the

financial capability to build out those licenses and are bidding in

good faith. However, we reserve the right to institute caps in specific

services if we are satisfied that an absolute dollar amount will

provide sufficient deterrence against frivolous bidding and pernicious

strategic bidding. Setting a minimum upfront payment may be appropriate

when use of our preferred formula would result in a payment that would

be too small. Although a general minimum upfront payment of $2,500 is

reasonable, we retain the flexibility to modify this amount.

29. As a general matter, to protect the integrity of the auction

process, all applicants should be required to tender their upfront

payments to the Commission prior to bidding. However, given the likely

magnitude of some upfront payments and the fact that there will be a

significant interval between the date that short-form applications are

filed and the auction date, we will not require the filing of upfront

payments with short-form applications. Upfront payments will be

required to be made to the Commission on a date to be announced by

Public Notice, generally no later than 14 days before the scheduled

auction.

30. Down Payment. A 20 percent down payment is appropriate to

ensure that auction winners have the necessary financial capabilities

to complete payment for the license and to pay for the costs of

constructing a system and protect against possible default, while at

the same time not being so onerous as to hinder growth and diminish

access. We therefore will require that winning bidders supplement their

upfront payments with a down payment sufficient to being their total

deposits up to 20 percent of their winning bid(s). The down payment by

cashier's check or wire transfer to our lock-box will generally be

required within five business days after the auction is over.

31. Remainder of License Payment. The Commission will not permit

licensees to satisfy their payment obligations to the Commission

through the payment of royalties. With the exception of certain

designated entities, we are requiring full payment of the remainder of

the winning bid in a lump sum. This will leave financing to the private

sector and eliminate the need for the Commission to conduct detailed

credit checks.

32. Default and Disqualification. It is critically important to the

success of our system of competitive bidding that potential bidders

understand that there will be a substantial penalty assessed if they

withdraw a high bid, are found not to be qualified to hold licenses, or

default on a balance due. We will require any auction winner who

defaults by failing to remit the required down payment within the

prescribed time to reimburse the Commission in the amount of the

difference between its high bid and the amount of the winning bid the

next time the license is offered by the Commission.

33. A defaulting auction winner will also be assessed a penalty of

three percent of the subsequent winning bid. If the subsequent winning

bid exceeds the defaulting bidder's bid amount, the three percent

penalty will be calculated based on the defaulting bid's amount. This

additional penalty will also apply if an auction winner is disqualified

or fails to remit the balance of its winning bid after having made the

required down payment. We will hold deposits made by defaulting or

disqualified auction winners to help ensure that the penalty is paid.

34. If a default or disqualification involves gross misconduct,

misrepresentation, or bad faith by an applicant, the Commission also

may declare the applicant and its principals ineligible to bid in

future auctions, and may take any other action that it may deem

necessary. Where specific instances of collusion in the competitive

bidding process are alleged during the petition to deny process, the

Commission may conduct an investigation or refer such complaints to the

United States Department of Justice for investigation.

35. If the high bidder makes the down payment in a timely manner, a

long-form application will be required to be filed by a specified date,

generally within ten business days after the close of the auction. The

Commission will then review the long-form application to determine if

it is acceptable for filing. Upon acceptance for filing, the Commission

will release a Pubic Notice announcing acceptance for filing of the

long-form application thus triggering the filing window for petitions

to deny.

36. The long-form application must include as an exhibit a detailed

explanation of the terms and conditions and parties involved in any

bidding consortia, joint venture, partnership or other agreement they

have entered into relating to the competitive bidding process prior to

the close of bidding. All such arrangements must have been entered into

prior to the filing of the short-form application. If all petitions to

deny are dismissed or denied, the Commission is satisfied that the

applicant is qualified, the license(s) will be granted to the auction

winner.

37. The Commission need not conduct a hearing before denial if it

determines that an applicant is not qualified and no substantial issue

of fact exists concerning that determination. In the event that the

Commission identifies substantial and material issues of fact in need

of resolution, Sections 309 (j)(5) and (i)(2) of the Communications Act

permit in any hearing the submission of all or part of evidence in

written form and allows employees other than administrative law judges

to preside at the taking of written evidence.

38. As a general rule, when an auction winner defaults on its final

payment or is otherwise disqualified after having made the required

down payment, the best course of action is to re-auction the license.

Nevertheless, if a default occurs within five business days after the

end of bidding, the Commission retains the right to offer the license

to the second highest bidder at its final bid level, or if that bidder

declines the offer, to offer the license to other bidders at their

final bid levels. If a new auction becomes necessary because of a

disqualification or default more than five business days after the end

of bidding, we will afford new parties an opportunity to file

applications to assure that serious interested bidders are in the pool

of qualified bidders at any re-auction.

39. Reservation Prices. We will retain the flexibility to utilize a

reservation price below which a license would not be awarded if we

decide that it is appropriate in a particular auction. The reservation

price could be disclosed, in which case it would effectively constitute

a minimum bid, or it could be undisclosed.

Regulatory Safeguards

40. We will impose a transfer disclosure requirement on licenses

obtained through the competitive bidding process, whether by a

designated entity or not. We will give particular scrutiny to action

winners who have not yet begun commercial service and who seek approval

for a transfer of control or assignment of their licenses within three

years after the initial license grant, in order to determine if any

unforeseen problems relating to unjust enrichment have arisen outside

the designated entity context. The applicant will be required to file,

together with its application, the associated contracts for sale,

option agreements and all other documents disclosing the total

consideration received in return for the transfer of its license

41. We believe that it is unnecessary and undesirable to impose

performance requirements on all auctionable services in excess of those

set forth in service rules for most existing services. We do not

believe that additional, general requirements are needed to address

concerns over ``warehousing'' of spectrum. With respect to those

services where no performance requirements currently exist, however, we

will prescribe such performance rules as are necessary at the same time

we promulgate competitive bidding rules for each of those services.

Designated Entities

42. Definitions. We are adopting a menu of preferences from which

we will choose in service-specific auction rules. These preferences are

designed to ensure that small businesses, rural telephone companies,

and businesses owned by members of minority groups and women

(collectively ``designated entities'') are given the opportunity to

participate in both the competitive bidding process and in the

provision of spectrum-based services. To qualify as a ``small

business'' for the purposes of competitive bidding, an entity must be

an independently-owned business with a net worth not exceeding $6

million dollars and an average net income after Federal income taxes

for two preceding years not in excess of $2 million. In order to be

eligible for preferences, businesses owned by women or minorities will

be required to have at least 50.1 percent equity ownership and a 50.1

percent controlling interest owned by women or minorities. Rural

telephone companies will be eligible for preferences if they are

independently owned, have 50,000 access lines or fewer and serve

communities with no more than 10,000 inhabitants.

43. Installment payments. We may allow small businesses (including

rural telephone companies and businesses owned by women and minorities

and rural telephone companies) that are winning bidders for certain

blocks of spectrum to pay in installments over the term of their

licenses. As a general matter, we will only allow installment payments

for licenses in those smaller spectrum blocks that are most likely to

match the business objectives of bona fide small businesses. The down

payment for such designated entities will be 10 percent of the winning

bid instead of 20 percent. Once the license is granted we will require

that the remaining 10 percent of the down payment be made within five

business days of grant, thereby commencing the eligible entity's

installment payment plan, which will extend over the period of the

license.

44. We will impose interest of installment payments equal to the

rate for U.S. Treasury obligations of maturity equal to the license

term. The schedule of installment payments will begin with interest-

only payments for the first two years. After that, principal and

interest will be amortized over the remaining term of the license. An

eligible designated entity that elects installment payments will have

its license conditioned upon the full and timely performance of its

payment obligations under the installment plan. However, we will

consider (on a case-by-case basis) a grace period before a delinquent

payor's license cancels.

45. Bidding credits. Bidding credits (payment discounts) may be

available to designated entities on certain frequency blocks.

Competitive bidding rules applicable to individual services will

specify the designated entities eligible for bidding credits, the

licenses for which bidding credits are available, the amounts of

bidding credits and other procedures. We reserve the option to

determine, on a service-specific basis, whether certain auctionable

services should allow other bidding credits to a consortium of

companies organized to bid for auctionable services.

46. To further promote the investment and rapid deployment of new

technologies and services in rural areas, we will also institute a

system of bidding credits for rural telephone companies for licenses in

their rural service areas. The amount of the bidding credit for rural

telephone companies will be tied to their commitments to achieve

certain telecommunications infrastructure build-out milestones in their

rural service areas. The amount of the bidding credit will be

proportionately linked to the amount by which the rural telephone

company agrees to expand its built-out commitment. Failure to meet a

build-out commitment will result in liability for a penalty in the

amount of the bidding credit, plus interest. Grant of licenses to rural

telephone companies utilizing bidding credits will be conditioned upon

payment of this penalty, if and when it becomes applicable.

47. Set-aside spectrum. We may establish set-aside spectrum in

certain services in which eligibility to bid may be limited to some or

all designated entities. For any auctions of set-aside spectrum, we

anticipate that we will establish lower upfront payments. This lower

payment would serve to encourage participation by all eligible

designated entities in the auction.

48. Tax certificates, distress sales and royalties. We will not at

this time adopt a general tax certificate program for services subject

to competitive bidding because other available measures will generally

provide sufficient incentive to attract investors in designated entity

enterprises. We will examine the feasibility of utilizing tax

certificates in subsequent competitive bidding rules for particular

services, especially where the record demonstrates a need to further

stimulate designated entity participation in spectrum auctions and in

the after-market for auctioned services. Before we determine whether

distress sales to designated entities should be authorized, we will

evaluate the success of our other measures. We do not adopt royalties

as an alternative payment method for designated entities. Such a

procedure would prove extremely intrusive and difficult to implement.

49. Preventing unjust enrichment. If we employ set-asides to

benefit some or all of the designated entities, we will impose a

recapture provision, applicable in the event of a sale to a non-

designated entity, that would be designed to recoup for the government

a portion of the value of the benefit received by the designated entity

in the bidding. Such a recapture provision would require that licensees

seeking to transfer their licenses for profit must within a specified

time remit to the government a penalty equal to a portion of the total

value of the benefit conferred by the government. We will generally

reduce the penalty as time passes or construction benchmarks are met.

50. Any specific recapture provisions will be set forth in

competitive bidding rules applicable to any services in which we decide

to set aside licenses. In no event will recapture provisions apply to

the transfer or assignment of a license that has been held for more

than five years. If the transfer is made to another eligible designated

entity, there would be no penalty.

51. If a small business making installment payments sells its

license to an entity that does not qualify under the standards we have

set for small businesses, we will require payment of the full amount of

the remaining principal balance as a condition of the license transfer.

Also, where bidding credits are used, transfer of a license to a non-

designated entity or any action relating to ownership or control that

will result in loss of status as an eligible designated entity, will

require the designated entity to reimburse the government for the

amount of the bidding credit, plus interest.

Final Regulatory Flexibility Analysis

Need for and purpose of this action:

52. This rulemaking proceeding was initiated to implement Section

309(j) of the Communications Act, as amended. The rules adopted herein

will carry out Congress's intent to establish a system of competitive

bidding for choosing from among mutually exclusive applications for

initial licenses to use the electromagnetic spectrum principally for

the transmission or reception of communications signals to or from

subscribers for compensation. The rules adopted herein also will carry

out Congress's intent to ensure that small businesses, rural telephone

companies, and businesses owned by women and minorities are afforded an

opportunity to participate in the provision of spectrum-based services.

Issues raised in response to the Initial Regulatory Flexibility

Analysis:

53. The IRFA noted that the proposals under consideration in the

NPRM included the possibility of new reporting and recordkeeping

requirements for a number of small business entities. No commenters

responded specifically to the issues raised to the IFRA. We have made

some modifications to the proposed requirements as appropriate.

Significant alternatives considered and rejected:

54. All significant alternatives have been addressed in the Second

Report and Order.

List of Subjects in 47 CFR Part 1

Administrative practice and procedure, Reporting and recordkeeping

requirements, Telecommunications.

Amendatory Text

47 CFR part 1 is amended as follows:

PART 1--[AMENDED]

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

Authority: 47 U.S.C. 151, 154, 303, and 309(j) unless otherwise

noted.

2. A new subpart (Q), consisting of Secs. 1.2101-1.2111, is added

to read as follows:

Subpart Q--Competitive Bidding Proceedings

General Procedures

Sec.

1.2101 Purpose.

1.2102 Eligibility of applications for competitive bidding.

1.2103 Competitive bidding design options.

1.2104 Competitive bidding mechanisms.

1.2105 Bidding application and certification procedures;

prohibition of collusion.

1.2106 Submission of upfront payments.

1.2107 Submission of down payment and filing of long-form

applications.

1.2108 Procedures for filing petitions to deny against long-form

applications.

1.2109 License grant, denial, default, and disqualification.

1.2110 Designated entities.

1.2111 Assignment or transfer of control: Unjust enrichment.

Subpart Q--Competitive Bidding Proceedings

General Procedures

Sec. 1.2101 Purpose.

The provisions of this subpart implement section 309(j) of the

Communications Act of 1934, as added by the Omnibus Budget

Reconciliation Act of 1993 (Pub. L. 103-66), authorizing the Commission

to employ competitive bidding procedures to choose from among two or

more mutually exclusive applications for certain initial licenses.

Sec. 1.2102 Eligibility of applications for competitive bidding.

(a) Mutually exclusive initial applications in the following

services or classes of services are subject to competitive bidding:

(1) Interactive Video Data Service (see 47 CFR part 95, subpart F);

(2) Marine Public Coast Stations (see 47 CFR part 80, subpart J);

(3) Multipoint Distribution Service and Multichannel Multipoint

Distribution Service (see 47 CFR part 21, subpart K). This subsection

does not apply to applications in these services that were filed prior

to July 26, 1993;

(4) Exclusive Private Carrier Paging above 900 MHz (see 47 CFR part

90, subpart P and the Private Carrier Paging Exclusivity Report and

Order, 8 FCC Rcd 8318 (1993));

(5) Public Mobile Services (see 47 CFR part 22), except in the 800

MHz Air-Ground Radiotelephone Service, and in the Rural Radio Service.

Paragraph (a)(g) of this section does not apply to certain applications

in the cellular radio service that were filed prior to July 26, 1993;

(6) Specialized Mobile Radio Service (SMR) (see 47 CFR part 90,

subpart S) including finder's preference requests for frequencies

allocated to the SMR service (see 47 CFR 90.173); and

(7) Personal Communications Services (PCS) (see 47 CFR part 24).

Note: To determine the rules that apply to competitive bidding

in the foregoing services, specific service rules should also be

consulted.

(b) The following types of license applications are not subject to

competitive bidding procedures:

(1) Applications for renewal of licenses;

(2) Applications for modification of license; provided, however,

that the Commission may determine in particular instances that

applications for modification that are mutually exclusive with other

applications should be subject to competitive bidding;

(3) Applications for subsidiary communications services. A

``subsidiary communications service'' is a class of service where the

signal for that service is indivisible from that of the main channel

signal and that main channel signal is exempt from competitive bidding

under other provisions of these rules. See, e.g., Sec. 1.2102(c)

(exempting broadcast services). Examples of such subsidiary

communications services are those transmitted on subcarriers within the

FM baseband signal (see 47 CFR 73.295), and signals transmitted within

the Vertical Blanking Interval of a broadcast television signal; and

(4) Applications for frequencies used as an intermediate link or

links in the provision of a continuous, end-to-end service were no

service is provided directly to subscribers over the frequencies.

Examples of such intermediate links are

(i) Point-to-point microwave facilities used to connect a cellular

radio telephone base station with a cellular radio telephone mobile

telephone switching office; and

(ii) Point-to-point microwave facilities used as part of the

service offering in the provision of telephone exchange or

interexchange service.

(c) Applications in the following services or classes of services

are not subject to competitive bidding:

(1) Alaska-Private Fixed Stations (see 47 CFR part 80, subpart O);

(2) Broadcast radio (AM and FM) and broadcast television (VHF, UHF,

LPTV) under 47 CFR part 73;

(3) Broadcast Auxiliary and Cable Television Relay Services (see 47

CFR part 74, subparts D, E, F, G, H and L and part 78, subpart B);

(4) Instructional Television Fixed Service (see 47 CFR part 74,

subpart I);

(5) Maritime Support Stations (see 47 CFR part 80, subpart N);

(6) Marine Operational Fixed Stations (see 47 CFR part 80, subpart

L);

(7) Marine Radiodetermination Stations (see 47 CFR part 80, Subpart

M);

(8) Personal Radio Services (see 47 CFR part 95), except

applications filed after July 26, 1993, in the Interactive Video Data

Service (see 47 CFR part 95, subpart F);

(9) Public Safety, Industrial/Land Transportation, General and

Business Radio categories above 800 MHz, including finder's preference

requests for frequencies not allocated to the SMR service (see 47 CFR

90.173), and including, until further notice of the Commission, the

Automated Vehicle Monitoring Service (see 47 CFR 90.239);

(10) Private Land Mobile Radio Services between 470-512 MHz (see 47

CFR part 90, subparts B through F) including finder's preference

requests, see 47 CFR 90.173;

(11) Private Land Mobile Radio Services below 470 MHz (see 47 CFR

part 90, subparts B through F) except in the 220 MHz band (see 47 CFR

part 90, subpart T), including finder's preference requests (see 47 CFR

90.173); and

(12) Private Operational Fixed Services (see 47 CFR part 94).

Sec. 1.2103 Competitive bidding design options.

(a) The Commission will select the competitive bidding design(s) to

be used in auctioning particular licenses or classes of licenses on a

service-specific basis. The Commission will choose from one or more of

the following types of auction designs for services or classes of

services subject to competitive bidding:

(1) Single round sealed bid auctions (either sequential or

simultaneous);

(2) Sequential oral auctions; or

(3) Simultaneous multiple round auctions.

(b) The Commission may use combinatorial bidding, which would allow

bidders to submit all or nothing bids on combinations of licenses, in

addition to bids on individual licenses. The Commission may require

that to be declared the high bid, a combinatorial bid must exceed the

sum of the individual bids by a specified amount. Combinatorial bidding

may be used with any type of auction.

(c) The Commission may use single combined auctions, which combine

bidding for two or more substitutable licenses and award licenses to

the highest bidders until the available licenses are exhausted. This

technique may be used in conjunction with any type of auction.

Sec. 1.2104 Competitive bidding mechanisms.

(a) Sequencing. The Commission will establish the sequence in which

multiple licenses will be auctioned.

(b) Grouping. In the event the Commission uses either a

simultaneous multiple round competitive bidding design or combinatorial

bidding, the Commission will determine which licenses will be auctioned

simultaneously or in combination.

(c) Reservation price. The Commission may establish a reservation

price, either disclosed or undisclosed, below which a license subject

to auction will not be awarded.

(d) Minimum bid increments. The Commission may, by announcement

before or during an auction, require minimum bid increments in dollar

or percentage terms.

(e) Stopping rules. The Commission may establish stopping rules

before or during multiple round auctions in order to terminate the

auctions within a reasonable time.

(f) Activities rules. The Commission may establish activity rules

which require a minimum amount of bidding activity.

(g) Withdrawal, default and disqualification penalties. As

specified below, when the Commission conducts a simultaneous multiple

round auction pursuant to Sec. 1.2103, the Commission will impose

penalties on bidders who withdraw high bids during the course of an

auction, or who default on payments due after an auction closes or who

are disqualified.

(1) Bid withdrawal prior to close of auction. A bidder who

withdraws a high bid during the course of an auction will be subject to

a penalty equal to the difference between the amount bid and the amount

of the winning bid the next time the license is offered by the

Commission. No withdrawal penalty would be assessed if the subsequent

winning bid exceeds the withdrawn bid. This penalty amount will be

deducted from any upfront payments or down payments that the

withdrawing bidder has deposited with the Commission.

(2) Default or disqualification after close of auction. If a high

bidder defaults or is disqualified after the close of such an auction,

the defaulting bidder will be subject to the penalty in paragraph

(g)(1) of this section plus an additional penalty equal to three (3)

percent of the subsequent winning bid. If the subsequent winning bid

exceeds the defaulting bidder's bid amount, the 3 percent penalty will

be calculated based on the defaulting bidder's bid amount. These

amounts will be deducted from any upfront payments or down payments

that the defaulting or disqualified bidder has deposited with the

Commission.

When the Commission conducts single round sealed bid auctions or

sequential oral auctions, the Commission may modify the penalties to be

paid in the event of bid withdrawal, default or disqualification;

provided, however, that such penalties shall not exceed the penalties

specified above.

(h) Bidder identification during auctions. During any auction, the

Commission may identify bidders and the bids only by bid numbers.

(i) The Commission may delay, suspend, or cancel an auction in the

event of a natural disaster, technical obstacle, evidence of security

breach, unlawful bidding activity, administrative necessity, or for any

other reason that affects the fair and efficient conduct of the

competitive bidding. The Commission also has the authority, at its sole

discretion, to resume the competitive bidding starting from the

beginning of the current or some previous round or cancel the

competitive bidding in its entirety.

Sec. 1.2105 Bidding application and certification procedures;

prohibition of collusion.

(a) Submission of Short Form Application (FCC Form 175). In order

to be eligible to bid, an applicant must timely submit a short-form

application (FCC Form 175), together with any appropriate filing fee

set forth in public notice. Unless otherwise provided by Public Notice,

the Form 175 need not be accompanied by an upfront payment (see

Sec. 1.2106).

(1) All Form 175s will be due:

(i) On the date(s) specified by public notice; or

(ii) In the case of application filing dates which occur

automatically by operation of law (see e.g., 47 CFR 22.902), on a date

specified by public notice after the Commission has reviewed the

applications that have been filed on those dates and determined that

mutual exclusivity exists.

(2) The Form 175 must contain the following information:

(i) Identification of each license on which the applicant wishes to

bid;

(ii) The applicant's name, if the applicant is an individual. If

the applicant is a corporation, then the short-form application will

require the name and address of the corporate office and the name and

title of an officer or director. If the applicant is a partnership,

then the application will require the name, citizenship and address of

all partners, and, if a partner is not a natural person, then the name

and title of a responsible person should be included as well. If the

applicant is a trust, then the name and address of the trustee will be

required. If the applicant is none of the above, then it must identify

and describe itself and its principles or other responsible persons;

(iii) The identity of the person(s) authorized to make or withdraw

a bid;

(iv) If the applicant applies as a designated entity pursuant to

Sec. 1.2110, a statement to that effect and a declaration, under

penalty of perjury, that the applicant is qualified as a designated

entity under Sec. 1.2110;

(v) Certification that the applicant is legally, technically,

financially and otherwise qualified pursuant to section 308(b) of the

Communications Act of 1934, as amended;

(vi) Certification that the applicant is in compliance with the

foreign ownership provisions of section 310 of the Communications Act

of 1934; as amended;

(vii) Certification that the applicant is and will, during the

pendency of its application(s), remain in compliance with any service-

specific qualifications applicable to the licenses on which the

applicant intends to bid including, but not limited to, financial

qualifications. The Commission may require certification in certain

services that the applicant will, following grant of a license, come

into compliance with certain service-specific rules, including, but not

limited to, ownership eligibility limitations;

(viii) An exhibit, certified as truthful under penalty of perjury,

identifying all parties with whom the applicant has entered into

partnerships, joint ventures, consortia or other agreements,

arrangements or understandings of any kind relating to the licenses

being auctioned, including any such agreements relating to the post-

auction market structure. All such arrangements must have been entered

into prior to the filing of Form 175 and no such arrangements may be

entered into after the filing of Form 175 until after the winning

bidder has made the required down payment;

(ix) Certification under penalty of perjury that is has not entered

and will not enter into any explicit or implicit agreements,

arrangements or understandings of any kind with any parties other than

those identified pursuant to paragraph (a)(2)(viii) of this section

regarding the amount of their bids, bidding strategies or the

particular licenses on which they will or will not bid;

Note: The Commission may also request applicants to submit

additional information for informational purposes to aid in its

preparation of required reports to Congress.

(b) Modification and Dismissal of Form 175. (1) Any Form 175 that

is not signed or otherwise does not contain all of the certifications

required pursuant to this section is unacceptable for filing and cannot

be corrected subsequent to any applicable filing deadline. The

application will be dismissed with prejudice and the upfront payment,

if paid, will be returned.

(2) The Commission will provide bidders a limited opportunity to

cure defects specified herein (except for failure to sign the

application and to make certifications) and to resubmit a corrected

application. Form 175 may be amended or modified to make minor changes

or correct minor errors in the application (such as typographical

errors). The Commission will classify all amendments as major or minor,

pursuant to rules applicable to specific services. An application will

be considered to be a newly filed application if it is amended by a

major amendment and may not be resubmitted after applicable filing

deadlines.

(3) Applicant who fail to correct defects in their applications in

a timely manner as specified by public notice will have their

applications dismissed with no opportunity for resubmission.

(c) Prohibition of Collusion. After the filing of short-form

applications, all bidders are prohibited from cooperating,

collaborating, discussing or disclosing in any manner the substance of

their bids or bidding strategies with other bidders until after the

high bidder makes the required down payment, unless such bidders are

members of a bidding consortium or other joint bidding arrangement

identified on the bidder's short-form application.

Sec. 1.2106 Submission of upfront payments.

(a) The Commission may require applicants for licenses subject to

competitive bidding to submit an upfront payment. In that event, the

amount of the upfront payment and the procedures for submitting it will

be set forth in a Public Notice. No interest will be paid on upfront

payments. In auctions for licenses set aside pursuant to

Sec. 1.2110(c), the Commission may establish lower upfront payments for

eligible designated entities.

(b) Upfront payments must be made either by wire transfer or by

cashier's check drawn in U.S. dollars from a financial institution

whose deposits are insured by the Federal Deposit Insurance Corporation

and must be made payable to the Federal Communications Commission.

(c) If an upfront payment is not in compliance with the

Commission's Rules, or if insufficient funds are tendered to constitute

a valid upfront payment, the applicant shall have a limited opportunity

to correct its submission to bring it up to the minimum valid upfront

payment prior to the auction. If the applicant does not submit at least

the minimum upfront payment, it will be ineligible to bid, its

application will be dismissed and any upfront payment it has made will

be returned.

(d) The upfront payment(s) of a bidder will be credited toward any

down payment required for licenses on which the bidder is the high

bidder.

(e) Notwithstanding the provisions of paragraph (d) of this

section, in the event a penalty is assessed pursuant to Sec. 1.2104 for

bid withdrawal or default, upfront payments or down payments on deposit

with the Commission will be used to satisfy the bid withdrawal or

default penalty before being applied toward any additional payment

obligations that the high bidder may have.

Sec. 1.2107 Submission of Down Payment and Filing of Long-Form

Applications

(a) After bidding has ended, the Commission will identify and

notify the high bidder and declare the bidding closed.

(b) Within five (5) business days after being notified that it is a

high bidder on a particular license(s), a high bidder must submit to

the Commission's lockbox bank such additional funds (the ``down

payment'') as are necessary to bring its total deposits (not including

upfront payments applied to satisfy penalties) up to twenty (20)

percent of its high bid(s). (In single round sealed bid auctions

conducted under Sec. 1.2103, however, bidders may be required to submit

their down payments with their bids.) This down payment must be made by

wire transfer or cashier's check drawn in U.S. dollars from a financial

institution whose deposits are insured by the Federal Deposit Insurance

Corporation and must be made payable to the Federal Communications

Commission. Winning bidders who are qualified designated entities

eligible for installment payments under Sec. 1.2110(d) are only

required to bring their total deposits up to ten (10) percent of their

winning bid(s). Such designated entities must pay the remainder of the

twenty (20) percent down payment within five (5) business days of grant

of their application. See Sec. 1.2110(e) (1) and (2). Down payments

will be held by the Commission until the high bidder has been awarded

the license and has paid the remaining balance due on the license, in

which case it will not be returned, or until the winning bidder is

found unqualified to be a licensee or has defaulted, in which case it

will be returned, less applicable penalties. No interest will be paid

on any down payment.

(c) A high bidder that meets its down payment obligations in a

timely manner must, within ten (10) business days after being notified

that it is a high bidder, submit an additional application (the ``long-

form application'') pursuant to the rules governing the service in

which the applicant is the high bidder (unless it has already submitted

such an application, as contemplated by Sec. 1.2105(a)(1)(b). For

example, if the applicant is a high bidder for a license in the

Interactive Video Data Service (see 47 CFR part 95, subpart F), the

long form application will be submitted on FCC Form 574 in accordance

with Section 95.815 of the Rules. Notwithstanding any other provision

in title 47 of the Code of Federal Regulations to the contrary, high

bidders need not submit an additional application filing fee with their

long-form applications. Notwithstanding any other provision in title 47

of the Code of Federal Regulations to the contrary, the high bidder's

long-form application must be mailed or otherwise delivered to: Office

of the Secretary, Federal Communications Commission, 1919 M Street NW.,

room 222, Washington, DC 20554, Attention: Auction Application

Processing Section.

An applicant that fails to submit the required long-form

application as required under this subsection, and fails to establish

good cause for any late-filed submission, shall be deemed to have

defaulted and will be subject to the penalties set forth in

Sec. 1.2104.

(d) As an exhibit to its long-form application, the applicant must

provide a detailed explanation of the terms and conditions and parties

involved in any bidding consortia, joint venture, partnership or other

agreement or arrangement it had entered into relating to the

competitive bidding process prior to the time bidding was completed.

Such agreements must have been entered into prior to the filing of

short-form applications pursuant to Sec. 1.2105.

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

applications.

(a) Where petitions to deny are otherwise provided for under the

Act or the Commission's Rules, and unless other service-specific

procedures for the filing of such petitions are provided for elsewhere

in the Commission's Rules, the procedures in this section shall apply

to the filing of petitions to deny the long-form applications of

winning bidders.

(b) Within thirty (30) days after the Commission gives public

notice that a long-form application has been accepted for filing,

petitions to deny that application may be filed. Any such petitions

must contain allegations of fact supported by affidavit of a person or

persons with personal knowledge thereof.

(c) An applicant may file an opposition to any petition to deny,

and the petitioner a reply to such opposition. Allegations of fact or

denials thereof must be supported by affidavit of a person or persons

with personal knowledge thereof. The times for filing such opposition

and replies will be those provided in Sec. 1.45.

(d) If the Commission determines that:

(1) An applicant is qualified and there is no substantial and

material issue of fact concerning that determination, it will grant the

application.

(2) An applicant is not qualified and that there is no substantial

issue of fact concerning that determination, the Commission need not

hold an evidentiary hearing and will deny the application.

(3) Substantial and material issues of fact require a hearing, it

will conduct a hearing. The Commission may permit all or part of the

evidence to be submitted in written form and may permit employees other

than administrative law judges to preside at the taking of written

evidence. Such hearing will be conducted on an expedited basis.

Sec. 1.2109 License grant, denial, default, and disqualification.

(a) Unless otherwise specified in these rules, auction winners are

required to pay the balance of their winning bids in a lump sum within

five (5) business days following award of the license. Grant of the

license will be conditioned on full and timely payment of the winning

bid.

(b) If a winning bidder withdraws its bid after the Commission has

declared competitive bidding closed or fails to remit the required down

payment within five (5) business days after the Commission has declared

competitive bidding closed, the bidder will be deemed to have

defaulted, its application will be dismissed, and it will be liable for

the default penalty specified in Sec. 1.2104(g)(2). In such event, the

Commission may either re-auction the license to existing or new

applicants or offer it to the other highest bidders (in descending

order) at their final bids. The down payment obligations set forth in

Sec. 1.2107(b) will apply.

(c) A winning bidder who is found unqualified to be a licensee,

fails to remit the balance of its winning bid in a timely manner, or

defaults or is disqualified for any reason after having made the

required down payment, will be deemed to have defaulted and will be

liable for the penalty set forth in Sec. 1.2104(g)(2). In such event,

the Commission will conduct another auction for the license, affording

new parties an opportunity to file applications for the license.

(d) Bidders who are found to have violated the antitrust laws or

the Commission's rules in connection with their participation in the

competitive bidding process may be subject, in addition to any other

applicable sanctions, to forfeiture of their upfront payment, down

payment or full bid amount, and may be prohibited from participating in

future auctions.

Sec. 1.2110 Designated entities.

(a) Designated entities are small businesses, businesses owned by

members of minority groups and/or women, and rural telephone companies.

(b) Definitions.

(1) Small businesses. Unless otherwise provided in rules governing

specific services, a small business is an entity that, together with

its affiliates, has no more than a $6 million net worth and, after

federal income taxes (excluding any carry over losses), has no more

than $2 million in annual profits each year for the previous two years.

(2) Businesses owned by members of minority groups and/or women. A

business owned by members of minority groups and/or women is one in

which minorities and/or women who are U.S. citizens have at least 50.1

percent equity ownership and 50.1 percent controlling interest in the

applicant. For applicants that are limited partnerships, the general

partner either must be a minority and/or woman (or minorities and/or

women) who is a U.S. citizen and owns at least 50.1 percent of the

partnership equity, or an entity that is 100 percent owned and

controlled by minorities and/or women who are U.S. citizens. The

interests of minorities and women are to be calculated on a fully-

diluted basis; agreements such as stock options and convertible

debentures shall be considered to have a present effect on the power to

control an entity and shall be treated as if the rights thereunder

already have been fully exercised. However, upon a demonstration that

options or conversion rights held by non-controlling principals will

not deprive the minority and female principals of a substantial

financial stake in the venture or impair their rights to control the

designated entity, a designated entity may seek a waiver of the

requirement that the equity of the minority and female principals must

be calculated on a fully-diluted basis. The term minority includes

individuals of African American, Hispanic-surnamed, American Eskimo,

Aleut, American Indian and Asian American extraction.

(3) Rural telephone companies. A rural telephone company is an

independently owned and operated local exchange carrier with 50,000

access lines or fewer, and serving communities with 10,000 or fewer

inhabitants.

(c) The Commission may set aside specific licenses for which only

eligible designated entities, as specified by the Commission, may bid.

(d) The Commission may permit small businesses, including small

businesses owned by women and minorities and rural telephone companies

that qualify as small businesses, that are high bidders for licenses

specified by the Commission, to pay the full amount of their high bids

in installments over the term of their licenses pursuant to the

following:

(1) Unless otherwise specified, each eligible applicant paying for

its license(s) on an installment basis must deposit by wire transfer or

cashier's check in the manner specified in Sec. 1.2107(b) sufficient

additional funds as are necessary to bring its total deposits to ten

(10) percent of its winning bid(s) within five (5) business days after

the Commission has declared it the winning bidder and closed the

bidding. Failure to remit the required payment will make the bidder

liable to pay penalties pursuant to Sec. 1.2104(g)(2).

(2) Within five (5) business days of the grant of the license

application of a winning bidder eligible for installment payments, the

licensee shall pay another ten (10) percent of the high bid, thereby

commencing the eligible licensee's installment payment plan. Failure to

remit the required payment will make the bidder liable to pay penalties

pursuant to Sec. 1.2104(g)(2).

(3) Upon grant of the license, the Commission will notify each

eligible licensee of the terms of its installment payment plan. Such

plans will:

(i) Impose interest based on the rate of U.S. Treasury obligations

(with maturities closest to the duration of the license term) at the

time of licensing;

(ii) Allow installment payments for the full license term;

(iii) Begin with interest-only payments for the first two years;

and

(iv) Amortize principal and interest over the remaining term of the

license.

(4) A license granted to an eligible entity that elects installment

payments shall be conditioned upon the full and timely performance of

the licensee's payment obligations under the installment plan.

(i) If an eligible entity making installment payments is more than

ninety (90) days delinquent in any payment, it shall be in default.

(ii) Upon default or in anticipation of default of one or more

installment payments, a licensee may request that the Commission permit

a three to six month grace period, during which no installment payments

need be made. In considering whether to grant a request for a grace

period, the Commission may consider, among other things, the licensee's

payment history, including whether the licensee has defaulted before,

how far into the license term the default occurs, the reasons for

default, whether the licensee has met construction build-out

requirements, the licensee's financial condition, and whether the

licensee is seeking a buyer under an authorized distress sale policy.

If the Commission grants a request for a grace period, or otherwise

approves a restructured payment schedule, interest will continue to

accrue and will be amortized over the remaining term of the license.

(iii) Following expiration of any grace period without successful

resumption of payment or upon denial of a grace period request, or upon

default with no such request submitted, the license will automatically

cancel and the Commission will initiate debt collection procedures

pursuant to subpart O of this part.

(e) The Commission may award bidding credits (i.e., payment

discounts) to eligible designated entities.

(1) Competitive bidding rules applicable to individual services

will specify the designated entities eligible for bidding credits, the

licenses for which bidding credits are available, the amounts of

bidding credits and other procedures.

(2) Any bidding credit for rural telephone companies will be

available only for licenses in rural telephone company service areas

and only if eligible rural telephone companies make an infrastructure

build-out commitment beyond any standard performance requirement. The

amount of the bidding credit for rural telephone companies will be

based on the amount by which eligible applicants agree to expand or

accelerate the build-out commitment. If a rural telephone company fails

to meet an accelerated or expanded build-out commitment, it must make

payment to the Commission within ninety (90) days of a penalty equal to

the amount of the bidding credit. Grant of the license will be

conditioned upon payment of this penalty if and when it becomes

applicable.

(f) The Commission may offer designated entities a combination of

the available preferences or additional preferences.

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 a 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 total consideration that

the applicant would receive in return for the transfer or assignment of

its license. 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-asides. As specified in this

paragraph (b), an applicant seeking approval for a transfer of control

or assignment (otherwise permitted under the Commission's Rules) of a

license acquired by the transferor or assignor pursuant to a set-aside

for eligible designated entities under Sec. 1.2110(c), or who proposes

to take any other action relating to ownership or control that will

result in loss of status as an eligible 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 a

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:

(1) The license is transferred or assigned more than five years

after its initial issuance; or

(2) The proposed transferee or assignee is an eligible designated

entity under Sec. 1.2110(c), and so certifies.

(c) Unjust enrichment payment: installment financing. An applicant

seeking approval for a transfer of control or assignment (otherwise

permitted under the Commission's Rules) of a license acquired by the

transferor or assignor through a competitive bidding procedure

utilizing installment financing available to designated entities under

Sec. 1.2110(d) will be required to pay the full amount of the remaining

principal balance as a condition of the license transfer. No payment

will be required if the proposed transferee or assignee assumes the

installment payment obligations of the transferor or assignor, and if

the proposed transferee or assignee is itself qualified to obtain

installment financing under Sec. 1.2110(d), and so certifies.

(d) Unjust enrichment payment: bidding credits. An applicant

seeking approval for a transfer of control or assignment (otherwise

permitted under the Commission's Rules) of a license acquired by the

transferor or assignor through a competitive bidding procedure

utilizing bidding credits available to eligible designated entities

under Sec. 1.2110(e), or who proposes to take any other action relating

to ownership or control that will result in loss of status as an

eligible designated entity, must seek Commission approval and will be

required to make an unjust enrichment payment (Payment) to the

Government by wire transfer or cashier's check before consent will be

granted. The Payment will be the sum of the amount of the bidding

credit plus interest at the rate applicable for installment financing

in effect at the time the license was awarded. See Sec. 1.2110(e). No

payment will be required if:

(1) The proposed transferee or assignee is an eligible designated

entity under Sec. 1.2110(e), and so certifies; or

(2) The proposed transferor or assignor is a rural telephone

company as defined in Sec. 1.2110(b)(3), and the proposed transferee or

assignee is also a rural telephone company and agrees to meet the same

construction requirements as the transferor or assignor.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Editorial Note: This appendix will not appear in the Code of

Federal Regulations.

BILLING CODE 6712-01-M

Appendix--FCC Form 175

TR04MY94.000

TR04MY94.001

TR04MY94.002

TR04MY94.003

BILLING CODE 6712-01-C

Notice: The solicitation of personal information requested in this

form is authorized by the Communications Act of 1934, as amended. The

Commission will use the information provided in this form to determine

whether grant of this application is in the public interest. In

researching that determination, or for law enforcement purposes, it may

become necessary to refer personal information contained in this form

to another government agency. In addition, all information provided in

this form will be available for public inspection. If information

requested on the form is not provided, processing of the application

may be delayed or the application may be returned without action

pursuant to the Commission rules. Your response is required to obtain

the requested authority.

Public reporting burden for this collection of information is

estimated to average 15 minutes per response including the time for

reviewing instruction, searching existing data needed, and completing

and reviewing the collection. Send comments regarding this burden, to

the Federal Communications Commission, Office of Managing Director,

Washington, DC 20554, and to the Office of Management and Budget,

Office of Information and Regulatory Affairs, Washington, DC 20554.

The Notice is required by the Privacy Act of 1974, Public Law 93-

579, December 31, 1974, 5 U.S.C. 552a(e)(3) and the Paperwork Reduction

Act of 1980, Public Law 96-511, December 11, 1980.

[FR Doc. 94-10638 Filed 4-29-94; 4:43 pm]

BILLING CODE 6712-01-M