Implementation of Section 309(j) of the Communications Act Competitive Bidding

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 24

[PP Docket No. 93-253, FCC 94-264]

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

Competitive Bidding

AGENCY: Federal Communications Commission.

ACTION: Final rule; petitions for reconsideration.

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

SUMMARY: In this Fourth Memorandum Opinion and Order the Commission

resolves petitions for reconsideration or clarification of its rules

governing the methodology and procedure for auctions to provide

Personal Communications Services in the 2 GHz band (called ``broadband

PCS'').

The rules and decisions made in this Fourth Memorandum Opinion and

Order are designed to result in auctions that will award licenses to

those who value them most highly. To achieve this goal, the Commission

adopts auction rules that balance the need to allow bidders the

information necessary to express the interdependency of licenses with

the need to minimize complexity of the auctions. The Commission

believes these rules strike a proper balance between these objectives.

EFFECTIVE DATE: October 24, 1994.

FOR FURTHER INFORMATION CONTACT: Kathleen O'Brien Ham at (202) 634-

2443, or Florence Setzer at (202) 418-2038.

SUPPLEMENTARY INFORMATION: This Fourth Memorandum Opinion and Order in

PP Docket No. 93-253, adopted October 19, 1994, and released October

19, 1994, 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.

Specifically, the Commission re-examines aspects of its rules

concerning: simultaneous multiple-round auction design and procedures;

application, payment and penalty procedures; and regulatory safeguards.

In a future Order, the Commission will consider whether the public

interest would be served by changing its entrepreneurs' block rules, as

well as other provisions established to ensure that small businesses,

rural telephone companies and businesses owned by minorities and women

(collectively termed ``designated entities'') have a meaningful

opportunity to participate in the provision of broadband PCS.

Synopsis of the Fourth Memorandum Opinion and Order

1. On August 10, 1993, the Omnibus Budget Reconciliation Act of

1993 (the Budget Act) added Section 309(j) to the Communications Act of

1934, as amended, 47 U.S.C. Sec. 309(j). This section gives the

Commission express authority to employ competitive bidding procedures

to select among mutually exclusive applications for certain initial

licenses. In the Second Report and Order in this docket, the Commission

exercised its authority by determining that broadband PCS licenses

should be awarded through competitive bidding and prescribing general

rules and procedures and a broad menu of competitive bidding methods to

be used for all auctionable services. The Commission re-examined

certain aspects of these general rules and procedures in the Second

Memorandum Opinion and Order, released August 15, 1994.

2. In the Fifth Report and Order, released July 15, 1994, the

Commission established specific competitive bidding rules for broadband

PCS. As described more fully below, these rules, in part, set forth

auction methodology, procedure, payment and safeguard provisions. The

Commission decided to conduct each auction through simultaneous

multiple-round bidding with simultaneous stopping rules. Under that

approach, bidding will remain open on all licenses until the bidding

closes on all licenses in the auction. It also established a variety of

rules governing bid increments and bidding activity to move the

auctions toward completion in a reasonable period of time. In addition,

the Commission retained the ability to use other approaches, including

sequential auctions for the licenses, and to make other adjustments to

the auction process as necessary. Finally, it established pre- and

post-auction application procedures; payment and default penalties; and

other safeguards to prevent collusion among applicants.

Standby Bidding Queues

3. In the Fifth Report and Order, the Commission determined that

the simultaneous multiple-round auction design would be the preferred

methodology for broadband PCS auctions, primarily because there is

significant interdependency among the licenses to be auctioned, and the

simultaneous multiple-round auction design facilitates more efficient

aggregation and imparts to bidders greater amounts of information

regarding license values than the other auction designs. It reserved

the authority, however, to use combinatorial bidding techniques in

conjunction with simultaneous multiple-round auctions to further

facilitate the efficient aggregation of licenses. On reconsideration of

the general auction rules adopted in this proceeding, the Commission

also noted that we would consider the use of a standby queue mechanism

if it elected to use combinatorial bidding techniques. The standby

queue would allow parties seeking individual licenses to coordinate

their bids in order to beat a prevailing bid for a combination of

licenses.

4. The standby queue is a mechanism that is useful only in the

context of combinatorial bidding, and is inapplicable to simultaneous

multiple-round bidding without combinatorial bidding. As the Commission

noted in the Second Memorandum Opinion and Order, it has no current

plans to use combinatorial bidding. If, however, it does adopt such an

auction methodology in the future, the Commission will consider the use

of a standby queue mechanism at the same time.

Activity Rules

5. In the Fifth Report and Order, the Commission adopted an

activity rule to ensure that the auctions will close within a

reasonable period of time and to increase the information conveyed by

bid prices during each auction. The activity rule requires bidders to

maintain certain minimum levels of bidding activity during each round

of the auction to preserve their maximum bidding eligibility. The rule

provides for three stages with increasing levels of activity required

in each stage. The Commission concluded that in simultaneous auctions

without these requirements, bidders may be inclined to hold back,

causing the auction to progress exceedingly slowly or possibly causing

the auction to close prematurely. Furthermore, bidders would not know

whether a low level of bidding on a license means that the license

price is near its final level or, instead, if many serious bidders are

holding back and may bid up the price later in the auction.

6. The issues raised by petitioner GTE concerning the three-stage

activity rule, and the alternative activity rule proposed by GTE, were

considered in the reconsideration of the Second Report and Order. The

Commission concluded at that time that no changes in the existing

procedures were needed. The Commission sees no reason to revise that

conclusion.

7. As discussed in the Second Memorandum Opinion and Order, the

Commission does not believe, despite GTE's assertion, that its

preferred three-stage activity rule will excessively restrict bidders'

flexibility to bid for desired combinations of licenses, or cause

licenses to be awarded to bidders who value them less than other

bidders. The rules were expressly designed to counteract the incentive

to delay serious bidding that may occur in simultaneous auctions,

without unduly limiting bidders' flexibility to pursue backup

strategies and to use new information. The requirement in the first

stage that bidders remain active on one-third of the MHz-pops for which

they wish to remain eligible constitutes only a minor restriction. By

the time the auction enters stage III (if it ever does), bidding

strategies should be well-advanced.

8. The Commission notes that, in the Second Report and Order, it

retained the flexibility to decide on an auction-by-auction basis, and

to announce by Public Notice before each auction, whether to use an

activity rule, and if so, what type of rule. This flexibility was

retained for broadband PCS in the Fifth Report and Order. Thus, if

experience shows that the three-stage rule is unduly difficult to

administer or excessively restricts bidders' flexibility, the

Commission will have the option to shift to some other activity rule,

including the one recommended by GTE requiring only that bidders be

active on a single license in each round.

9. The Commission also makes some minor adjustments in the activity

rules on its own motion. First, the Commission concludes, after its

experience in conducting the nationwide narrowband auction, that it may

be important to move the auctions from one stage to the next at a

different pace than would occur under the current activity rule.

Accordingly, it retains the discretion to determine and announce during

the course of an auction when, and if, to move from one auction stage

to the next, based on a variety of measures of bidder activity (e.g.,

the percentage of licenses on which there are new bids, the number of

new bids, and the percentage increase in revenue). Bidders will be

notified of the Commission's intention to move to another stage at

least one round prior to the commencement of the next stage of an

auction.

10. The Commission also stated in the Fifth Report and Order that

in stage III, a bidder would have to be active on 100 percent of the

MHz-pops for which it wishes to retain eligibility. In order to allow

bidders greater flexibility, the Commission thinks that it may be

beneficial in auctions where high bidding is expected to reduce this

figure slightly, but in no case below 95 percent. It will announce the

required activity levels for stage III by Public Notice in advance of

each auction.

11. Finally, in the Fifth Report and Order the Commission permitted

bidders one waiver from the activity rule during each stage of an

auction. The Commission stated that if an activity rule waiver is

entered in a round in which no other bidding activity occurs, the

auction will remain open, but stated that it might announce that

submission of a waiver would not keep an auction open under any

circumstances. The Commission also stated that a waiver may be

submitted either in the round in which bidding falls below the level

required to maintain current eligibility, or prior to submitting a bid

in the next round. The Commission now clarifies that it retains the

discretion to modify the method and timing of submitting waivers and

allows for two types of waivers--``proactive'' waivers and

``automatic'' waivers. Both types of waivers will retain a bidder's

eligibility even though its bidding activity in the current round falls

below the required level. However, a proactive waiver invoked in a

round in which there are no new valid bids will keep an auction open,

while an automatic waiver submitted in a round in which no other

bidding activity occurs will not keep an auction open. Proactive

waivers must be requested by the bidder, but automatic waivers will be

submitted automatically for a bidder whenever a bidder's eligibility

would be reduced because of insufficient bidding activity and a waiver

is available. Bidders will be afforded an opportunity to override the

automatic waiver mechanism when they place a bid if they intentionally

wish to reduce their bidding eligibility and do not want to use a

waiver to retain their eligibility at its current level. The Commission

also retains the discretion to change the number of waivers that will

be permitted and the frequency with which they may be exercised by

Public Notice prior to each auction. A change in the rule for moving

from one stage to another may result in many more rounds being

completed in one stage, and may make a rule allowing one waiver per

stage inappropriate. Airtouch also recommends allowing bidders more

flexibility in choosing when to use waivers.

Stopping Rule

12. In the Fifth Report and Order, the Commission adopted a

simultaneous stopping rule for all licenses in an auction. The

Commission determined that this approach would provide bidders full

flexibility to modify their bidding strategy as more information became

available. The Commission further concluded that the activity rule

would help establish a reasonable pace and minimize the risk that

bidders would hold back their bidding until the final rounds. However,

the Commission retained the discretion to use a hybrid stopping rule or

to allow bidding to close individually for BTA licenses if it

determines that the present rule is too complex. In addition, the

Commission retained discretion to declare at any point after 40 rounds

in a simultaneous multiple round auction that the auction will end

after some specified number (probably three) of additional rounds.

However, if the Commission exercises this authority it will accept bids

in the final round(s) only for licenses on which the highest bid had

increased in at least one of the preceding three rounds.

13. The Commission reaffirms that it will in most cases use a

simultaneous stopping rule for simultaneous auctions. The rule has

important efficiency advantages in allowing bidders to pursue backup

strategies and to take advantage of new information from earlier bids.

Further, a simultaneous stopping rule will not prevent the

implementation of regional strategies. The Commission believes bidding

activity in early rounds will provide significant information about the

value of licenses to competing bidders. If bidding takes unexpected

turns, it is precisely the fact that bidding on all licenses remains

open to the end that will give bidders the flexibility to adopt a new

strategy if an original one proves less desirable than anticipated.

Moreover, bidders have the option of withdrawing high bids during an

auction, subject to the applicable penalties, if they find they have

bid too high on one license in the expectation of getting a

complementary license at a low price.

14. The Commission's experience in the nationwide narrowband

auctions bears out this conclusion. Individual licenses often had no

new bids for several rounds, followed by active bidding and steep

increases in bids. Allowing bidding to close on licenses individually,

while bidding remains active on others, creates a risk of closing on

some licenses before the final value has been reached, decreasing the

likelihood that the license will be awarded to the bidder that values

it most and reducing the revenues generated. In addition, individual

closing might encourage strategic bidding that would reduce the

efficiency of the auction. Hence, the Commission declines to adopt

Metrex's recommendation that the Commission adopt and immediately

announce an individual stopping rule. However, the Commission retains

the discretion to use a hybrid or individual stopping rule for BTA

licenses if a simultaneous stopping rule proved too complex to

administer for large numbers of licenses. The Commission will announce

the specific stopping rule to be used for BTA licenses by Public Notice

prior to each auction.

15. As for the option of declaring that the auction will end after

some specified number of additional rounds, the Commission agrees with

GTE that this procedure would likely result in less efficient

allocation of licenses, and lower revenues, than allowing the auction

to remain open as long as new bids are received. Other methods are

available to hasten the end of an auction, including shortening the

bidding rounds, raising the minimum bid increments, and proceeding to a

later auction stage. The Commission retains the option of declaring the

imminent end of the auction, however, as a fallback in case of

extremely dilatory bidding. The Commission does not expect to use this

option except in the unlikely case that other methods fail to bring

about the close of an excessively long auction.

Duration of Bidding Rounds

16. In the Fifth Report and Order, the Commission decided that

bidders would be provided a single business day to submit bids and that

one round of bidding would be conducted each business day. However, the

Commission retained discretion to vary, by Public Notice or

announcement, the duration of bidding rounds or the interval at which

bids are accepted, in order to move the auction toward closure more

quickly.

17. In the Fifth Report and Order, the Commission discussed its

discretion to vary the duration of bidding rounds or the interval at

which bids are accepted as a tool for moving auctions toward closure

more quickly. The Commission anticipated that holding one round of

bidding per day might allow bidders more time than necessary to

formulate their bids and might result in excessively long auctions. The

Commission still believes that its planned one-day bidding rounds are

more likely to be too long than too short, particularly since much of

the work of estimating the values of licenses, developing business

plans, and arranging financing can be done in advance of the auction.

18. The Commission retains the discretion to lengthen as well as

shorten the duration of bidding rounds or the interval at which bids

are accepted, and will lengthen the time allowed for bidding if it sees

evidence during the auctions that bidders are prevented by the bidding

schedule from developing rational, well-informed bids. Nevertheless, it

is more likely that the Commission will shorten bidding rounds because

doing so will expedite provision of PCS service to the public without

reducing the efficiency of the auction. The Commission believes it is

extremely unlikely that it will hold more than two rounds per day,

though it may start with one round per day and move to two rounds per

day after the first week if it appears that this schedule will allow

bidders enough time to formulate their bids.

19. The Commission agrees with Pacific Bell that prospective

bidders may find it important to know the time parameters of bidding

rounds as early as possible. However, the Commission doesn't have

enough information at present to set an appropriate minimum duration

for bidding rounds. The Commission will continue to consider this issue

as the broadband PCS auctions approach in light of the experience

gained in the regional narrowband auctions.

Timing for Auctioning Specific Spectrum Blocks

20. In the Fifth Report and Order, the Commission decided to

auction the broadband PCS spectrum at three separate auctions. The 99

available PCS licenses MTA blocks A and B will be auctioned first,

followed by the 986 PCS licenses in BTA blocks C and F (the

entrepreneurs' blocks). In the last auction, the remaining 986 licenses

in BTA blocks D and E will be put up for bid. The Commission reasoned

that this grouping strikes a proper balance among the competing

concerns of awarding licenses to the parties who value them most

highly, keeping the auction process simple and manageable, minimizing

administrative delay, and fostering designated entity participation.

21. With respect to arguments that we should auction BTA licenses

(or at least entrepreneurs' block licenses) before MTA licenses to

prevent larger firms from getting a head start over designated entities

than the current auction sequence and might reduce the efficiency of

the auctions. Because the large firms that are potential partners for

designated entities probably would prefer to own outright any licenses

they might obtain in an auction, it is less likely, rather than more

likely, that these large firms would form partnership agreements with

designated entities if auctions in the restricted blocks were held

before the MTA auctions. In addition, the information about license

values conveyed in the MTA auctions will reduce the risk of BTA

financing and partnering and so will be valuable to bidders in the

entrepreneurs' block auctions. In addition, it appears that a rational

strategy for bidders in many cases might be to bid on the largest

licenses first and only after the outcome of those auctions is known to

attempt to acquire smaller, complementary licenses or, if unsuccessful

in the auction for larger licenses, to attempt to aggregate smaller

licenses as a backup strategy. In addition, if winners of MTA licenses

were willing to bid more than other applicants for complementary BTA

licenses, that willingness would almost certainly represent true

efficiencies of joint operation and ought to be allowed to affect the

assignment of licenses.

22. As for auctioning MTA and BTA licenses together in markets with

Pioneer's Preference licenses, the Commission continues to believe that

substituting two 10 MHz BTA licenses for a 30 MHz MTA license is not

likely to be a widely used strategy, so that little loss of efficiency

would result from auctioning MTA and BTA licenses separately. Further,

it believes that bidders will have enough information to make informed

bids in all MTA markets. The Commission sees no reason to believe that

auctioning MTA and BTA licenses separately would have a greater effect

on efficiency in markets where Pioneer's Preference licenses have been

removed from the auction than in other markets, since the same total

amount of spectrum is available for PCS in all markets, and there is

nothing to prevent bidders from negotiating with winners of Pioneer's

Preference licenses. Commenters apparently have no objection to the

plan to separate MTA and BTA auctions in other markets. In addition,

auctioning MTA and BTA licenses together in Pioneer's Preference

markets would remove those BTAs from the BTA auctions and thus may

impede efficient geographic aggregation of licenses. As Omnipoint

points out, the plan would also make it more difficult for

entrepreneurs' block winners in those markets to aggregate their

licenses with other BTA licenses. The auctions might also become

unnecessarily administratively complex and confusing to bidders if BTAs

were auctioned with MTAs in a few but not all markets. Further,

changing the grouping of licenses at this stage in the planning process

might cause the first auctions to be delayed. Consequently the

Commission is unconvinced that any efficiency advantages would accrue

from this strategy, and will continue to auction MTAs separately from

BTAs in all markets.

23. The Commission agrees, however, that auctioning the MTA blocks

far ahead of other blocks would give a head start to the winners in the

MTA blocks that would likely afford them some competitive advantage

over winners in later auctions. Consequently, the Commission intends to

hold the three broadband auctions as close together in time as possible

given its administrative resources. The Commission declines to delay

finalizing the award of A and B block licenses, however, because of an

overriding interest in rapid introduction of PCS to the public.

Authority To Adopt Filing and Processing Rules

24. In the Notice of Proposed Rule Making (Notice) in this

proceeding, the Commission stated:

In order to avoid needless duplication, we propose that the

following general filing and processing rule apply to all PCS:

Sections 22.3-22.45, 22.917(f), and 22.918-22.945. For those PCS

applicants who file on Form 574, we believe that Sections 90.113-

90.159 of our rules, 47 CFR 90.113-90.159, could be used to process

those applications with appropriate modifications.

25. The Commission disagrees with AIDE and will not issue a

supplemental Notice on the PCS application processing rules. Indeed, it

has addressed AIDE's argument that there was inadequate notice of these

rules before in the Fifth Report and Order and on reconsideration of

the Second Report and Order on auctions. The Commission's response,

once again, is that the Notice sought comment on specific rule sections

contained in Parts 22 and 90 of our Rules, and asked commenters to

indicate what modifications should be made to those rules to adapt them

for PCS services. In addition, the Notice specifically requested

comment on the general procedural, processing and petition-to-deny

procedures that should be used for auctionable services. The Notice's

proposal to adopt processing rules based on Parts 22 and 90 of the

Commission's Rules, with any appropriate modifications for PCS

services, clearly indicated to commenters the terms of the proposed

rules, as is required by the Administrative Procedures Act and the

Commission's Rules (see 5 U.S.C. Sec. 553 and 47 CFR 1.413(c)). Thus,

the Commission believes its original description of the proposed rule

was sufficiently specific to alert interested parties to the substance

of our proposal and to provide an adequate opportunity for comment on

those proposals. Several commenters did, in fact, address the proposed

application and processing rules set forth in our Notice, a further

indication that sufficient notice was provided. The Commission also

believes that these issues were within the scope of this proceeding

because as a means of assigning licenses, the competitive bidding

process is integrally related to rules and procedures for processing of

license applications.

26. The broadband PCS rules established in the Fifth Report and

Order, and modified here today, adopt several of the procedures set

forth in Parts 22 and 90 of the Commission's Rules and discussed in the

Notice. The minor modifications to the proposed rules were needed to

reflect specific concerns related to auctioning broadband PCS licenses

and address comments raised by the public. The adopted rules are a

logical outgrowth of the rules proposed in the Notice, applied in the

context of the use of competitive bidding to assign broadband PCS

licenses. Rules adopted as a logical outgrowth comply with all

Administrative Procedure Act requirements.

Disclosure of Bidding Information

27. In the Second Memorandum Opinion and Order in this proceeding,

the Commission announced that it would generally release the identities

of bidders before each auction. The Commission concluded that

disclosure was appropriate because of the advantages of providing more

information to bidders and the difficulties involved in ensuring that

bidder identities remain confidential. The Commission reserved the

option, however, to withhold bidder identities on an auction-by-auction

basis. Bidders will be informed by Public Notice prior to each auction

whether the identities of bidders will be made public in that auction.

28. As noted in the Public Notice announcing the first broadband

PCS auction, Report No. AUC-94-04 (released Sept. 19, 1994), the

Commission has decided to apply the bidder disclosure policy adopted in

the Second Memorandum Opinion and Order to the first broadband PCS

auction. As indicated in the Second Memorandum Opinion and Order, the

Commission will generally identify bidders before each auction. It

reserves the authority, however, to conceal bidder identities if

further experience demonstrates it is desirable to do so. The

Commission will announce its decision of whether to release bidder

identities in a Public Notice released before each auction.

Short and Long Form Applications

29. The Commission adopted a two-part application procedure in the

Fifth Report and Order consistent of short- and long-form application

obligations. The Commission will initiate the application process by

Public Notice, announcing when it will accept short-form applications

to participate in an auction for specific broadband PCS licenses. The

notice, in part, will specify the licenses that will be available,

identify the time and place of an auction in the event that mutually

exclusive applications are filed, and announce a deadline by which

short-form applications must be filed. After an auction, winning

bidders will be required to file a long-form application. The long-form

applications must be submitted by a date specified by Public Notice,

generally within ten business days after the close of bidding. Upon

acceptance for filing of the long-form application, the Commission will

issue a Public Notice, which will open the filing window for petitions

to deny.

30. The Commission will specify by Public Notice prior to each

broadband auction the filing date for short-form applications and the

accepted applications for each auction. Similarly, it plans to specify

by Public Notice after each auction is conducted the long-form filing

dates and accepted long- form applications. The Commission's experience

with the nationwide narrowband PCS auctions to date shows that these

procedures work well to facilitate efficient operation of the

competitive bidding process. It reserves the right, however, to alter

these procedures if there is a need to do so in the future.

Upfront Payments

31. In establishing its auction methodology for PCS, the Commission

set forth several provisions to ensure that winning bidders will have

the resources needed to obtain their licenses and construct their

systems and to discourage insincere bidding. For example, short-form

applicants must certify that they are financially qualified pursuant to

Section 308(b) of the Communications Act, and must disclose certain

information concerning the real party or parties in interest (e.g.,

major stockholders, partners, joint ventures). Additionally, the

Commission requires accepted short-form applicants to make a

substantial upfront payment, and has established significant bid

withdrawal and default penalties.

32. With respect to the concerns raised by Hernandez, the

Commission believes that the existing requirements provide an adequate

measure of a party's ability to pay. As indicated above, short-form

applicants must make a substantial upfront payment and subject

themselves to significant bid withdrawal and default penalties in order

to participate in the auctions. Thus far, the Commission's experience

with the narrowband PCS nationwide license auction suggests that the

requirements are sufficiently stringent to ensure that auction

participants have the financial resources to purchase the spectrum for

which they intent to bid. The Commission will address Hernandez's

concern about the ability of designated entities to make their

installment payments in a separate reconsideration order on designated

entity issues.

33. The Commission has considered GTE's request that applicants

earn interest on their upfront payments in the Second Memorandum

Opinion and Order on auctions. The Commission rejects such a proposal

for now because of the administrative difficulties that are posed by

the need to track and transfer applicant funds, and because it lacks

the legal authority to engage in such financial activity. The

Commission has sought legislative authority in the 1994 House and

Senate FCC authorization bills to establish interest-bearing accounts

so that auction applicants may accrue interest on upfront payments. If

such authority is granted, the Commission may choose to pay interest.

Collusion and Settlement Restrictions

34. In the Fifth Report and Order the Commission prohibited bidders

from discussing the substance of their bids or bidding strategies with

other bidders, unless such bidders are members of a bidding consortium

or other joint bidding arrangement identified on the bidder's (short-

form) application. The Commission further required bidders to identify

on their Form 175 short-form applications all parties with whom they

have entered into any consortium arrangements, joint ventures,

partnerships or other agreements relating to the competitive bidding

process. The Commission also determined that auction applicants would

not be permitted to make any ownership changes or changes in the

identification of parties to bidding consortia once a short-form

application is filed. The Commission recently modified these rules on

reconsideration of the general competitive bidding rules to permit

bidders who have not applied for any of the same licenses to enter into

bidding agreements during the course of an auction. It also decided to

allow applicants to amend their Form 175 applications to make ownership

changes after the filing deadline has passed, provided such changes do

not result in a change of control of the applicant.

35. The Commission declines to liberalize its collusion and

settlement restrictions in the manner requested by either McCaw or

AIDE. The Commission continues to believe that a prohibition against

agreements and alliances concerning bidding between applicants bidding

for the same licenses is a prudent deterrent to collusion that should

have only a minimal and temporary effect on bidders' flexibility. As

stated in the Second Report and Order, rules prohibiting collusion

serve the objectives of the Budget Act by preventing applicants,

especially the largest companies, from entering into agreements to use

bidding strategies that divide the market to the disadvantage of other

bidders. In addition the rules avoid the problem of entities filing

applications solely for the purpose of demanding payment from other

bidders in exchange for settlement or withdrawal. Overall, the

Commission believes that auctions are likely to result in more

efficient assignments than settlements because they reduce the

transaction cost of putting a license in the hands of the applicant

that values it most highly.

36. With regard to McCaw's proposal, the fact that one bidder has

withdrawn its application before entering into a consortium with

another bidder does not reduce the importance of the collusion rules,

even if the Commission forbids bidders from communicating with other

bidders competing for the same license until after a formal withdrawal

has taken place. The Commission is concerned that if such consortium

arrangements were permissible, particularly in an environment where

bidder identities are known, undue pressure may be brought to bear on

smaller bidders to withdraw in exchange for teaming up with other

larger bidders, or sham applications would be filed to demand payment

from other applicants. In general, The Commission is concerned that

McCaw's proposal would create incentives for parties to collude and

behave in an anti-competitive manner. While the Commission recognizes

that allowing consortia to occur could enable many smaller applicants

to pool their resources to win licenses, it believes the risks of

allowing such arrangements between applicants for the same license

(even when one applicant has withdrawn) outweigh the benefits at this

time.

37. The Commission also rejects AIDE's contention that the

Commission lacks the authority under the Communications Act to preclude

settlements between mutually exclusive applicants for auctionable

licenses. While the Commission has an established policy of favoring

settlements in some contexts, it is entirely within our authority to

restrict or prohibit settlements if we find such agreements would not

be in the public interest. At this time, the Commission finds that

post-filing settlements between applicants for the same license in the

broadband PCS competitive bidding process would not serve the public

interest for reasons stated above. The Commission believes that nothing

in the language or legislative history of Section 309(j) contradicts

this view. Consequently, the Commission is amending its rules to

eliminate Section 24.829(b), which is inconsistent with the collusion

rules contained in Section 1.2105 of the Rules.

38. In order to provide bidders sufficient time and greater

flexibility to attract capital, however, the Commission makes several

modifications to its collusion rules and policies adopted in the Fifth

Report and Order and in its reconsideration of the generic auction

rules. First, the Commission recognizes that an entity may hold non-

controlling ownership interests in two or more bidders, and that those

bidders may aggregate more PCS spectrum cumulatively than a single

entity is entitled to hold. In such cases, the Commission will permit

divestiture of non-controlling interests to bring the entities into

compliance with the PCS spectrum aggregation limits provided such

divestiture is completed within 90 days of grant of the license. Such

post-auction divestiture will enable investors to finance more than one

bidder without risking default penalties if both bidders, for example,

win licenses which in combination exceed our aggregation limits.

39. Procedurally, if entities with a common non-controlling

ownership interest aggregate more PCS spectrum among them than a single

entity is entitled to hold, the Commission will require that the long-

form applications for broadband PCS licensing be accompanied by a

signed statement from the applicant that sufficient properties will be

divested within 90 days of the license grant to bring the broadband PCS

licenses held within the permitted aggregation limits. If the applicant

is otherwise qualified, the applications will be granted subject to a

condition that the licensee come into compliance with the PCS spectrum

aggregation limits within 90 days of grant. Within 90 days of license

grant, the licensee must certify to the Commission that the applicant

and all parties to the application have come into compliance with our

PCS spectrum aggregation limits. If the PCS licensee fails to submit

this certification within 90 days, the Commission will invoke the

condition on all broadband PCS licenses won by the applicant in the

auction, cancelling them immediately and imposing the default penalty.

In addition, the Commission may investigate whether the certifications

on divestiture are evidence of misrepresentations that call into

question the party's qualification to hold any PCS licenses. If a buyer

has not been secured in the required period of time, the PCS licensee

may divest the prohibited interest to an interim independent trustee,

as long as the applicant has no interest in or control of the trustee.

The trustee may dispose of the interest as it sees fit. In no event,

however, may the trustee retain the property for longer than six

months.

40. Also, as indicated supra, the Commission's auction collusion

rules have been revised to permit bidders who have not filed Form 175

applications for any of the same licenses to engage in discussions and

enter into bidding consortia or joint bidding arrangements during the

course of an auction. The Commission stated in the Third Memorandum

Opinion and Order on narrowband PCS auctions that where bidders have

not applied for any of the same licenses there is little risk of anti-

competitive conduct with respect to a single license. The Commission

reaches the same conclusion with respect to broadband PCS. The relaxed

collusion rules, which the Commission will apply in the broadband PCS

context, will permit bidders to have greater flexibility to compete in

the auction by combining their resources, provided that no change of

control of any applicant takes place. The Commission wishes to clarify

that it intended these provisions to apply to applicants that have not

applied for licenses in any of the same geographic license areas, i.e.,

the same MTAs for A and B block licenses or the same BTAs for other

broadband PCS licenses.

41. As noted above, the Commission also modified our generic

auction rules to permit applicants to amend their FCC Form 175

applications to reflect ownership changes that do not result in a

change in control of the applicant. The Commission now modifies Section

24.822 (b) to clarify the applicability of this provision to broadband

PCS. Such changes shall not be regarded as major amendments to an

application, provided they do not result in a transfer of control of

the applicant. Amendments to FCC Form 175 must be filed with the

Commission within two business days of any such change. The

Commission's experience in the nationwide narrowband PCS auction

demonstrated that it is necessary to allow applicants to amend their

FCC Form 175 applications to make ownership changes after the filing

deadline has passed, provided such changes do not result in a change of

control or discussions that violate the Commission's anti-collusion

rules. Permitting such amendments will provide bidders with flexibility

to seek additional capital after applications have been filed, while

ensuring that the real party in interest does not change. Again, the

Commission clarifies that this change applies only to applicants that

have not applied for licenses in any of the same geographic license

areas. Of course, formation of consortia, bidding agreements and new

ownership arrangements remains subject to Commission review under the

public interest standard, and we would expect that entities entering

into such agreements would comply with all relevant Commission policies

and other applicable laws, e.g., the antitrust laws.

42. The Commission will also permit ownership changes in which

consortium investors drop out of bidding consortia, even if control of

the consortium changes as a result. The Commission does not wish to

restrict some members of consortia from continuing to bid even though

other members of the consortia wish to drop out of the bidding. The

Commission emphasizes that members that are removed from a consortium

may not subsequently become involved with another bidder in bidding on

any license for which the consortium had applied. Bidders must submit a

revised Form 175 to reflect the change in ownership.

43. The Commission also wishes to clarify an aspect of its rules

dealing with the information that applicants must provide to the

Commission with their Form 175 and Form 401 applications. Section

24.813(a)(1) of the Commission's Rules, 47 CFR 24.813(a)(1), states

among other things that applicants must provide ``a list of any

business five percent or more of whose stock, warrants, options or debt

securities are owned by the applicant or an officer, director,

stockholder or key management personnel of the applicant.'' (Emphasis

added.) Read literally, this provision would require applicants to

ascertain the holdings in other concerns of every one of their

stockholders, regardless of how small that stockholder's stake in the

applicant may be. This was not the Commission's intent, and it takes

this opportunity to amend this rule to clarify that only holdings in

other concerns that are held by attributable shareholders in the

applicant need be disclosed.

44. Finally, the Commission notes that in the Second Memorandum

Opinion and Order, it clarified the applicability of the collusion

rules to cases where an applicant has a common ownership interest with

another applicant. The Commission stated that, unless the second

applicant is expressly identified as an entity with whom the first

applicant has an agreement concerning bidding, the Commission will

prohibit these parties from communicating concerning their bidding

strategies. As the Commission stated in the Second Memorandum Opinion

and Order, this prohibition will hold even if the other bidder is

identified on the applicant's short-form application as having a common

ownership interest with the applicant. Communication among bidders

concerning matters unrelated to license auctions, however, will be

permitted.

45. Accordingly, to ensure that the bidding process is competitive

and to encourage formation of a competitive post-auction market

structure, the Commission is retaining the collusion rules in the

broadband PCS context with the modifications set forth in the Second

Memorandum Opinion and Order.

Antenna Height Restrictions

46. The Commission established antenna height restrictions in the

Fifth Report and Order which provide, in part, that no antenna

structure, including radiating elements, tower, supports and all

appurtenances, may be higher than 61 meters above ground level unless

prior Commission approval is obtained.

47. The Commission believes that issues relating to antenna height

are best resolved in another proceeding, to afford a greater

opportunity for industry comment. The Commission's primary concern when

it adopted this rule section was to promote the safe location and

identification of PCS antennas, particularly in areas around airports.

There may be less administratively burdensome methods, however, of

obtaining the same result. Moreover, Section 24.816, may be duplicative

since Part 17 of the Commission's rules already provides for similar

antenna height and use safeguards. The Commission therefore rescinds

the antenna height restrictions adopted in the Fifth Report and Order,

but will examine the issue in a future proceeding on revisions to Part

24 of our rules.

Restrictions on Cellular Participation

48. In the Fifth Report and Order, the Commission reserved specific

spectrum blocks in broadband PCS for bidding exclusively by entities

that, together with their affiliates and certain investors, have gross

revenues of less than $125 million in each of the last two years and

total assets of less than $500 million. The Commission determined that

designation of these ``entrepreneurs' blocks'' was needed to ensure

that small entities have a meaningful opportunity to participate in the

acquisition and provision of broadband PCS services.

49. The Commission rejects GTE's proposal to eliminate certain

cellular restrictions, as its request is outside the scope of this

proceeding. Rather, those restrictions were appropriately addressed in

our broadband PCS service rules proceeding, GN Docket No. 90-314. As

Pacific Bell points out in its Opposition, the Commission considered

arguments identical or similar to the ones raised by GTE in that

proceeding and concluded that our restrictions strike an appropriate

balance between fostering broad participation in PCS and ensuring that

cellular operators do not exert undue market power. Accordingly, the

Commission will retain its present restrictions on cellular

participation in the provision of PCS. The Commission will address the

merits of GTE's claim that they will be unfairly disadvantaged by the

creation of entrepreneurs' blocks in our reconsideration order on

designated entity concerns.

Final Regulatory Flexibility Analysis

50. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.

Sec. 604, the Commission's final analysis for the Fourth Memorandum

Opinion and Order is as follows:

Need for, the Purpose of, this Action. As a result of new statutory

authority, the Commission may utilize competitive bidding mechanisms in

the granting of certain initial licenses. The Commission published an

Initial Regulatory Flexibility Analysis, see generally 5 U.S.C.

Sec. 603, within the Notice of Proposed Rule Making in this proceeding

and published Final Regulatory Flexibility Analyses within the Second

Report and Order (at 299-302) and the Fifth Report and Order (at

219-222). As noted in these previous final analyses, this proceeding

will establish a system of competitive bidding for choosing among

certain applications for initial licenses, and will carry out statutory

mandates that certain designated entities, including small entities, be

afforded an opportunity to participate in the competitive bidding

process and in the provision of spectrum-based services.

51. Summary of the Issues Raised by the Public Comments. No

commenters responded specifically to the issues raised by the Fifth

Report and Order. The Commission has made some modifications to the

proposed requirements as appropriate.

52. Significant Alternatives Considered and Rejected. All

significant alternatives have been addressed in the Fifth Report and

Order and in this Fourth Memorandum Opinion and Order.

Ordering Clauses

53. Accordingly, it is ordered that the petitions for

reconsideration are granted to the extent described above, deferred

with respect to designated entity issues and denied in all other

respects.

54. It is further ordered that Part 24 of the Commission's Rules is

amended.

55. It is further ordered that the rule amendments made herein will

become effective upon publication in the Federal Register.\1\ This

action is taken pursuant to Section 4(i), 303(r) and 309(j) of the

Communication Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 303(r)

and 309(j).

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

\1\Pursuant to 5 U.S.C. Sec. 553(d)(3), we conclude that ``good

cause'' exists to have the rule changes take effect October 24,

1994, because a delay would not provide applicants with sufficient

time to finalize their bidding strategies and business plans for the

upcoming broadband PCS auctions. Immediate implementation of the

rule changes set forth herein also provides applicants with the

required certainty to proceed with their bidding and business

strategies, alleviating concerns that last-minute modifications to

our Rules would impede the success of their auction plan. See 5

U.S.C. Sec. 553(d)(1).

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

List of Subjects in 47 CFR Part 24

Personal Communications Services.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Amendatory Text

Part 24 of Chapter I of Title 47 of the Code of Federal Regulations

is amended as follows:

PART 24--PERSONAL COMMUNICATIONS SERVICES

1. The authority citation for Part 24 continues to read as follows:

Authority: 47 U.S.C. 154, 301, 302, 303, 309, and 332, unless

otherwise noted.

2. Section 24.703 is amended by revising paragraph (f) and adding

paragraph (h) to read as follows:

Sec. 24.703 Competitive bidding mechanisms.

* * * * *

(f) Activity Rules. The Commission will establish activity rules

which require a minimum amount of bidding activity. In the event that

the Commission establishes an activity rule in connection with a

simultaneous multiple-round auction, bidders will be entitled to

request and be granted waivers of such rule. The Commission will

specify the number of waivers permitted in an auction, the frequency

with which they may be exercised, and the method of operation of

waivers by Public Notice prior to each auction.

* * * * *

(h) Bidder Identification During Auctions. The Commission may

choose, on an auction-by-auction basis, to release the identity of the

bidders associated with bidder identification numbers. The Commission

will announce by Public Notice before each auction whether bidder

identities will be revealed.

3. Section 24.813(a)(1) is revised to read as follows:

Sec. 24.813 General application requirements.

(a) * * *

(1) A list of any business five percent or more of whose stock,

warrants, options or debt securities are owned by the applicant or an

officer, director, attributable stockholder or key management personnel

of the applicant. This list must include a description of each such

business's principal business and a description of each such business's

relationship to the applicant.

* * * * *

Sec. 24.816 [Removed and Reserved]

4. Section 24.816 is removed and reserved.

5. Section 24.822(b) is revised to read as follows:

Sec. 24.822 Amendment of application to participate in auction for

licenses in the broadband Personal Communications Services filed on FCC

Form 175.

* * * * *

(b) In broadband PCS, applicants will be permitted to amend their

Form 175 applications to make minor amendments to correct minor errors

or defects such as typographical errors. Applicants will also be

permitted to amend FCC Form 175 to make changes to the information

required by Sec. 24.813(a) (such as ownership changes or changes in the

identification of parties to bidding consortia), provided such changes

do not result in a change in control of the applicant and do not

involve another applicant (or parties in interest to an applicant) who

has applied for licenses in any of the same geographic license areas as

the applicant. Amendments which change control of the applicant will be

considered major amendments. An FCC Form 175 which is amended by a

major amendment will be considered to be newly filed and cannot be

resubmitted after applicable filing deadlines. See also Sec. 1.2105 of

this chapter.

Sec. 24.829 [Amended]

6. Section 24.829 is amended by removing paragraph (b), and

redesignating paragraph (c) as paragraph (b).

7. Section 24.833 is added to read as follows:

Sec. 24.833 Post-auction divestitures.

Any parties sharing a common non-controlling ownership interest who

aggregate more PCS spectrum among them than a single entity is entitled

to hold (See Secs. 20.6(e), 24.710, 24.204, 24.229(c) of this chapter)

will be permitted to divest sufficient properties within 90 days of the

license grant to come into compliance with the spectrum aggregation

limits as follows:

(a) The broadband PCS applicant shall submit a signed statement

with its long-form application stating that sufficient properties will

be divested within 90 days of the license grant. If the licensee is

otherwise qualified, the Commission will grant the applications subject

to a condition that the licensee come into compliance with the PCS

spectrum aggregation limits within 90 days of grant.

(b) Within 90 days of license grant, the licensee must certify that

the applicant and all parties to the application have come into

compliance with the PCS spectrum aggregation limits. If the licensee

fails to submit the certification within 90 days, the Commission will

immediately cancel all broadband PCS licenses won by the applicant,

impose the default penalty and, based on the facts presented, take any

other action it may deem appropriate. Divestiture may be to an interim

trustee if a buyer has not been secured in the required time frame, as

long as the applicant has no interest in or control of the trustee, and

the trustee may dispose of the property as it sees fit. In no event may

the trustee retain the property for longer than six months from grant

of license.

[FR Doc. 94-26437 Filed 10-21-94; 8:45 am]

BILLING CODE 6712-01-M