Implementation of Section 309(j) of the Communications Act900 MHz SMR

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 90

[PR Docket No. 89-553, GN Docket No. 93-252, PP Docket No. 93-253, FCC

95-159]

Implementation of Section 309(j) of the Communications Act--900

MHz SMR

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: The Commission adopted a Second Further Notice of Proposed

Rule Making seeking comment on proposed licensing and auction rules to

complete the licensing of the 900 MHz Specialized Mobile Radio (SMR)

service. This Order implements the Commission's decision in the Third

Report & Order in GN Docket No. 93-252, 59 FR 59,945 (Nov. 21, 1994)

(CMRS Third Report & Order), to license the 900 MHz band on a Major

Trading Area (MTA) basis, and to use competitive bidding to select from

among mutually exclusive applicants. This Second Further Notice

requests comment on proposed new licensing rules and auction procedures

for the service, including special provisions for small businesses,

minority-owned and women-owned entities, and rural telephone companies.

DATES: Comments must be filed on or before May 24, 1995, and reply

comments must be filed on or before June 1, 1995.

ADDRESSES: Federal Communications Commission, 1919 M Street, N.W.,

Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT:

Amy Zoslov, (202) 418-0620, Wireless Telecommunications Bureau,

Commercial Wireless Division.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's

Second Further Notice of Proposed Rule Making, in PR Docket No. 89-553,

FCC 95-159, adopted April 14, 1995, and released April 17, 1995. The

complete text of this Second Further Notice of Proposed Rule Making is

available for inspection and copying during normal business hours in

the FCC Dockets Branch, Room 239, 1919 M Street, N.W., Washington,

D.C., and also may be purchased from the Commission's copy contractor,

International Transcription Service, at (202) 857-3800, 2100 M Street,

N.W., Suite 140, Washington, D.C. 20037.

Synopsis of the Second Further Notice of Proposed Rule Making

I. Introduction

1. When the Commission established the 900 MHz SMR service in 1986,

it elected to use a two-phase licensing process. In Phase I, licenses

were assigned in 46 ``Designated Filing Areas'' (DFAs) comprised of the

top 50 markets. Phase II licensing, for facilities outside the DFAs,

was frozen after 1986, when the Commission opened its filing window for

the DFAs. In 1989, the Commission adopted a Notice of Proposed Rule

Making in PR Docket 89-553, 55 FR 00744, proposing to begin Phase II

licensing of SMR facilities nationwide. In 1993, the Commission adopted

a First Report & Order & Further Notice of Proposed Rule Making in PR

Docket 89-553, 58 FR 12176 (March 3, 1993) (Phase II First R&O &

Further Notice), modifying its Phase II proposal and seeking comment on

whether to license the 900 MHz SMR band to a combination of nationwide,

regional and local systems. 8 FCC Rcd 1469 (1993). Shortly thereafter,

Congress amended the Communications Act to reclassify most SMR

licensees as Commercial Mobile Radio Service (CMRS) providers and

establish the authority to use competitive bidding to select from among

mutually exclusive applicants for certain services. The Commission

deferred further consideration of Phase II and incorporated the 900 MHz

SMR docket into its CMRS proceeding.

2. In the CMRS Third Report & Order, FR 59,945 (Nov. 21, 1994), the

Commission further revised its Phase II proposals and established the

broad outlines for the completion of licensing in the 900 MHz SMR band.

The Commission left the specific auction rules for the Phase II

proceeding.

3. The Commission seeks comment on the following proposals:

adoption of a single simultaneous multiple round auction; establishment

of upfront payment requirements; adoption of the Milgrom-Wilson

activity rule; adoption of application procedures; adoption of

procedures governing timing and duration of auction rounds, stopping

rules and bid increments; adoption of bid withdrawal and default rules;

adoption of procedures governing down payment and full payment for

winning bidders; adoption of anti-collusion rules for bidders; and

adoption of transfer disclosure and performance requirements for

winning bidders.

4. With respect to rules for designated entities (i.e. small

businesses, women-owned and minority-owned entities, and rural

telephone companies), the Commission seeks comment on the following

proposals: insulating certain spectrum blocks from large bidders;

providing small businesses bidding credits, reduced down payment

requirements, and installment payment options; whether reduced upfront

payments are necessary; adoption of partitioning rule for rural

telephone companies; adoption of eligibility standards for small

business and rural telephone companies; and for small businesses,

adoption of restrictions on transfer or assignment of their licenses.

II. Discussion

A. Competitive Bidding

5. In the CMRS Third Report & Order, 59 FR 59,945 (Nov. 21, 1994),

the Commission determined that it would use competitive bidding to

select from among mutually exclusive applicants in [[Page 22024]] the

900 MHz SMR service. Accordingly, under the Commission's auction

authority, if mutually exclusive applications for an MTA 10-channel

block are accepted for filing, the Commission will award that license

through competitive bidding. The Commission requests comment on

specific bidding procedures, as set forth below.

6. Competitive Bidding Design. In the Second Report & Order, PP

Docket No. 93-253, 59 FR 22980 (May 4, 1994) (Auctions Second Report

and Order), the Commission stated that (1) licenses with strong value

interdependencies should be auctioned simultaneously; and (2) multiple

round auctions generally will yield more efficient allocations of

licenses and higher revenues by providing bidders with information

regarding other bidders' valuations of licenses, especially where there

is substantial uncertainty as to value. Thus, where the licenses to be

auctioned are interdependent and their value is expected to be high,

simultaneous multiple round auctions would best achieve the

Commission's goals for competitive bidding. Based on these factors, the

Commission tentatively concluded that simultaneous multiple round

auctions are appropriate for the 900 MHz SMR service. The expected

value of 900 MHz SMR licenses is high, the licenses are interdependent,

and licensees will likely aggregate across spectrum blocks and

geographic regions. Because, however, the presence of incumbents on

certain channels could affect the relative desirability and value of

otherwise identical MTA licenses, the Commission proposes to delegate

authority to the Wireless Telecommunications Bureau to revisit the

issue of whether another auction design would be more appropriate. The

Commission seeks comments on this tentative conclusion and proposal.

7. License Grouping. The Commission determined in the Auctions

Second Report & Order, 59 FR 22980 (May 4, 1994), that in a multiple

round auction, highly interdependent licenses should be grouped

together and put up for bid at the same time because such grouping

provides bidders with the most information about the prices of

complementary and substitutable licenses during the course of an

auction. The Commission also determined that the greater the degree of

interdependence among the licenses, the greater the benefit of

auctioning a group of licenses together in a simultaneous multiple

round auction. The Commission tentatively concludes that all 51 MTAs in

the 900 MHz band should be auctioned simultaneously. While this may

entail more administrative costs than breaking the licenses into

groups, the added cost will be outweighed by the informational and

bidding flexibility advantages afforded by a single auction. Moreover,

the 1020 MTA licenses to be auctioned are less than half the number of

broadband PCS licenses to be auctioned in Blocks A through F, and all

licenses will be for the same amount of spectrum and use a single

service area definition. The Commission also proposes to reserve the

discretion to inform applicants by Public Notice if the Commission

determines to hold more than one auction, on the basis that a single

auction proves administratively unworkable.

B. Bidding Issues

8. Bid Increments. The bid increment is the amount or percentage by

which a bid must be raised above the previous round's high bid in order

to be accepted as valid in the current bidding round. The Commission

proposes to start the 900 MHz auction with relatively large increments,

and adjust the increments as bidding activity indicates. In Stage I of

the auction, the minimum bid increment would be five percent of the

high bid in the previous round or $.02 per MHz-pop, whichever is

greater. In Stage II, the Commission would reduce the minimum bid

increment to the greater of five percent of $.01 per MHz-pop, and in

Stage III, the greater of five percent of $.01 per MHz-pop. The

Commission also proposes to retain the discretion to vary the minimum

bid increments for individual license or groups of licenses at any time

before or during the course of the auction, based on the number of

bidders, bidding activity, and the aggregate high bid amounts. Finally,

the Commission proposes to retain the discretion to keep an auction

open if there is a round in which no bids are submitted.

9. Stopping Rules. In the CMRS Third Report & Order, 59 Fed. Reg.

59,945 (Nov. 21, 1994), the Commission noted that in multiple round

auctions, a stopping rule must be established for determining when the

auction is over. The Commission proposes to adopt a simultaneous

stopping rule for 900 MHz SMR. Under this approach, bidding remains

open on all licenses until there is no new acceptable bid for any

license. This approach also provides full flexibility to bid for any

license as more information becomes available during the course of the

auction. MTA licenses are expected to have relatively high values

because of the substantial amount of clear spectrum that remains

available, the high valuation of SMR spectrum in secondary market

transactions, the substitutability between licenses within the same MTA

and the ability to pursue back-up strategies. Likewise, the use of

MTAs, rather than BTAs or more numerous service areas, should reduce

complexity of a simultaneous stopping rule. Because the Commission

proposes to impose an activity rule, this approach will not lead to

excessively long auctions while affording bidders flexibility to pursue

back-up strategies.

10. The Commission also proposes to retain the discretion to

announce at any time during the auction that the auction will end after

a specified number of additional rounds. Bids would only be accepted on

licenses where the high bid has increased in the last three rounds.

This would deter bidders from continuing to bid on a few low value

licenses solely to delay the closing of the auction. It would also

enable the Commission to end the auction when it determines that the

benefits of terminating the auction and issuing licenses exceed likely

benefits of continuing to allow bidding. The Commission proposes that

this mechanism be used only in case of extremely dilatory bidding and

that final bidding procedures would be announced by public notice. The

Commission also proposes to retain the discretion to conduct market by

market closings, if circumstances so warrant, to be announced during

the auction. Finally, the Commission proposes to retain discretion to

keep an auction open in a round in which no new acceptable bids are

submitted if the Commission receives a ``proactive'' waiver of the

activity rules, and to retain discretion to keep an auction open even

if no proactive waivers are filed.

11. Duration of Bidding Rounds. The Commission reserves the

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

which bids are accepted (e.g. run more than one round per day) in order

to move the auction toward closure more quickly. The Commission will

announce any changes to the duration of and intervals between bidding

rounds either by public notice prior to the auction or by announcement

during the auction.

12. Activity Rules. The Milgrom-Wilson activity rule encourages

bidders to participate in early rounds by limiting their maximum

participation to some multiple of their minimum participation level.

The Commission tentatively concludes that the Milgrom-Wilson activity

rule should be used in conjunction with the simultaneous stopping rule

to award 900 MHz SMR [[Page 22025]] licenses. Under this approach, the

minimum activity level increases during the course of the auction.

Absent waivers, a bidder's eligibility in the current round is

determined by the bidder's activity level and eligibility in the

previous round; in the first round, however, eligibility is determined

by the bidder's upfront payment and is equal to the upfront payment

divided by $.02 per MHz-pop. Bidders are required to declare their

maximum eligibility in terms of MHz-pops, and made an upfront payment

equal to $0.02 per MHz-pop. In each round, bidders are limited to

bidding on licenses encompassing no more than the number of MHz-pops

covered by their upfront payment, and licenses on which a bidder is the

high bidder from the previous round count toward this bidding limit.

Bidders have flexibility to shift their bids among any license for

which they have applied so long as, within each round, the total MHz-

pops encompassed by those licenses does not exceed the total number of

MHz-pops on which they are eligible to bid. This approach would best

achieve the Commission's goals of affording bidders flexibility to

pursue backup strategies, while at the same time ensuring that

simultaneous auctions are concluded within a reasonable period of time.

The Commission seeks comment on these issues.

13. During Stage I, the Commission tentatively concludes that a

bidder must be active on licenses encompassing one-half of the MHz-pops

for which it is eligible. In Stage II and Stage III, the Commission

tentatively concludes that the bidder must be active on 75 and 95

percent, respectively, of the MHz-pops for which it is eligible. The

penalty for falling below the minimum activity level at any stage would

be a reduction in maximum eligibility to bid in future rounds. The

transition from one stage of the auction to the next would be

determined by the aggregate level of bidding activity, subject to the

Commission's discretion. Once an auction proceeds from one stage to the

next, it could not revert to any previous stage. Moreover, the

Commission proposes to reserve the discretion to increase or decrease

these activity levels as well as to vary the timing of stages and

activity levels for each stage through public notices issued after

applications are filed and before the auction begins, as circumstances

warrant. The Commission seeks comment on these proposals.

14. In the Fourth Memorandum Opinion & Order, PP Docket No. 93-253,

59 FR 53364 (October 24, 1994), the Commission clarified that it

retained the discretion to modify the method and timing of submitting

waivers and to allow for both ``proactive'' and ``automatic'' waivers.

Proactive waivers are submitted by the bidder, while automatic waivers

would be submitted automatically for a bidder whenever its eligibility

would be reduced because of insufficient bidding activity and a waiver

is available unless the bidder specifically chooses not to have the

automatic waiver apply. The Commission proposes to use these waiver

procedures with respect to the 900 SMR auctions.

15. Specifically, the Commission proposes to implement a waiver

procedure permitting each bidder to request and automatically receive a

certain number of waivers of the activity rule during the auction. The

Commission would announce by Public Notice how many waivers bidders

will receive. A waiver would permit a bidder to maintain its

eligibility at the same level as in the round for which the waiver is

submitted; it could not, however, be used to correct an error in the

amount bid. Under this proposal, a bidder may request a waiver either

in the round in which its bidding falls below the minimum required

level or prior to submitting a bid in the next round. If an activity

rule waiver is proactively requested in a round in which no other

bidding activity occurs, the auction would remain open. The Commission

seeks comment on these proposals. Finally, the Commission retains

discretion to use an alternative activity rule for 900 MHz SMR if it

determines that the Milgrom-Wilson rule is too complicated or costly to

administer. Any such change would be announced by public notice before

commencement of the auction.

16. Rules Prohibiting Collusion. Section 1.2105(c) of the

Commission's Rules, 47 CFR 1.2105(c) prohibits collusive conduct in the

context of competitive bidding. This rule prohibits bidders from

communicating with one another after short-form applications have been

filed regarding the substance of their bids or bidding strategies, and

also prohibits bidders from entering into consortium arrangements or

joint bidding agreements after the deadline for short-form applications

has passed. 47 C.F.R. 1.2105(c)(1)-(2). The Commission proposes to

apply Section 1.2105(c) to 900 MHz SMR auctions. Bidders who have not

filed form 175 applications for any of the same MTA licenses would be

permitted enter into such discussions, consortia, or arrangements, or

add equity partners, during the course of an auction. Also,

communications among bidders concerning matters unrelated to the

auctions would be permitted. The Commission seeks comment on this

proposal.

17. Under the collusion rules, bidders would also identify on their

Form 175 applications parties with whom they have entered into any

agreements relating to the competitive bidding process, and certify

that they will not enter into any such agreements with any parties

other than those identified. 47 CFR 1.2105(a)(2). Furthermore, winning

bidders in the 900 MHz SMR auctions would attach as an exhibit to the

Form 600 long-form application a detailed explanation of the terms and

conditions and parties involved in any such agreement entered into

prior to the close of bidding. All such arrangements would have been

entered into prior to filing of short-form applications to comply with

the Commission's rules. 47 CFR 1.2107. Allegations of specific

instances of collusion in violation of these rules would be

investigated by the Commission or referred to the Department of

Justice. The Commission also proposes that bidders found to have

violated the Commission's rules or the antitrust laws may be subject to

forfeiture of their down payment or their full bid amount, revocation

of their licenses, and prohibition from participation in future

auctions. The Commission seeks comment on these proposals.

C. Procedural, Payment and Penalty Issues

18. Pre-Auction Application Procedures. The Commission proposes to

follow generally the processing and procedural rules established in 47

CFR Part 1, Subpart Q with certain modifications designed to address

the particular characteristics of the 900 MHz SMR service. Unlike

incumbent 900 MHz SMR licensees that are essentially confined to the

smaller DFA region, MTA licensees will gain use of a large geographic

area and the freedom to locate base stations anywhere within that

larger geographic region. Thus, the Commission proposes to treat MTA

applicants as initial applicants for public notice, application

processing, and auction purposes, regardless of whether they are

already incumbent operators.

19. The 1993 Budget Act expressly provides the Commission authority

to require that bidders' applications contain all information and

documentation sufficient to demonstrate that the application is not in

violation of Commission rules, and to dismiss applications not meeting

those requirements prior to the competitive [[Page 22026]] bidding. 47

U.S.C. 309(j)(5). See also H. R. Rep. No. 111, 103d Cong., 1st Sess. 28

(1993). In furtherance of this policy, the Commission decided to

require only a short-form application prior to competitive bidding, and

determined that only winning bidders should be required to submit a

long-form license application after the auction. 47 CFR 1.2104, 1.207.

Because this procedure fulfills the statutory requirements and

adequately protects the public interest here, the Commission proposes

to extend application of these rules to the competitive bidding process

for 900 MHz SMR.

20. Under this proposal, the Wireless Telecommunications Bureau

would release an initial Public Notice announcing the auction. The

Public Notice would specify the following: licenses to be auctioned;

time and place of the auction method of competitive bidding to be used;

applicable bid submission procedures; stopping rules; activity rules;

the deadline by which short-form applications must be filed; and the

amounts and deadlines for submitting the unfront payment. Applications

submitted before the release of the Public Notice would be returned as

premature. Likewise, applications submitted after the deadline

specified by Public Notice would be dismissed, with prejudice, as

untimely.

21. All bidders would be required to submit short-form applications

on FCC Form 175 (and FCC Form 175-S, if applicable), by the date

specified in the initial Public Notice. See CFR 1.2105(a)(2).

Applications could be filed manually or electronically. Each applicant

would specify on its applications certain information, including its

status as a designated entity (if applicable), its classification

(i.e., individual, corporation, partnership, trust, or other), the

markets and frequency blocks for which it is applying, and the names of

persons authorized to place or withdraw a bid on its behalf. If there

is no mutual exclusivity for a particular license, and no petitions to

deny are filed, the application would be grantable after 30 days. The

Commission seeks comment on the proposals discussed above.

22. Amendments and Modifications. To encourage maximum bidder

participation, the Commission proposes to provide 900 MHz SMR

applicants with an opportunity to correct minor defects in their short

form applications prior to the auction. The Commission also proposes to

waive the ex parte rules as they apply to submission of amended short-

form applications to maximize applicants' opportunities to seek

Commission staff advice on making such amendments. Also, applicants

would be permitted to modify their applications to reflect formation of

consortia or changes in ownership at any time before or during an

auction, provided that (1) such changes do not result in a change in

control of the applicant, and (2) parties forming consortia or entering

into ownership agreements have not applied for licenses in any of the

same geographic licenses. Applicants would not, however, be permitted

to make major modifications to their applications, including changes in

markets, changes in control of the applicant, or additions of the other

bidders into the bidding consortia, until after the auction.

Applications that are not signed would be dismissed as unacceptable.

The Commission seeks comment on these proposals.

23. Applications with defects, minor or otherwise, would be listed

in a public notice. After reviewing corrected applications, the

Commission would release a second public notice announcing applicants

whose applications have been accepted or filing. This second public

notice would announce the date by which applicants must submit an

upfront payment to the Commission, generally no later than 14 days

before the scheduled auction. The Commission would release a third

public notice announcing the names of all applicants that have been

determined as qualified to bid. An applicant who fails to submit a

sufficient upfront payment to qualified it to bid on any license being

auctioned would not be identified on this Public Notice as a qualified

bidder. The Commission seeks comment on these proposals.

24. Upfront Payments. The Commission tentatively concludes that

applicants that have been determined as qualified to bid should be

required to submit a payment of $0.02 per MHz-pop, based on the number

of 10-channel blocks in each MTA identified by an applicant on its Form

175. This requirement would help ensure that only serious and qualified

bidders participate and that any bid withdrawal or default penalties

are paid. See Auctions Second Report & Order at para.171. This formula

would also afford bidders the flexibility to change their strategy

during an auction and bid on a larger number of smaller licenses or a

smaller number of larger licenses, so long as the total MHz-pops

combination does not exceed that amount covered by the upfront payment.

Population information for each license would be announced in the

initial Public Notice released prior to the auction. The Commission

seeks comment on these proposals.

25. Down payment and Full Payment. The Commission tentatively

concludes that winning bidders in 900 MHz SMR auctions should be

required to supplement their upfront payments with a down payment

sufficient to bring their total deposits up to 20 percent of their

winning bid(s). Under this proposal, if the upfront payment already

tendered by a winning bidder, after deducting any bid withdrawal and

default penalties due, amounts to 20 percent or more of its winning

bids, no additional deposit would be required. If the upfront payment

amount on deposit is greater than 20 percent of the winning bid amount

after deducting any bid withdrawal and default penalties due, the

additional monies would be refunded. If a bidder has withdrawn a bid or

defaulted but the amount of the penalty cannot yet be determined, the

bidder would be required to make a deposit of 20 percent of the amount

bid on such licenses. When it becomes possible to calculate and assess

the penalty, any excess deposit would be refunded. Upfront payments

would be applied to such deposits and to bid withdrawal and default

penalties due before being applied toward the bidder's down payment on

licenses the bidder has won and seeks to acquire. The Commission seeks

comment on these proposals.

26. The Commission proposes to require winning bidders to submit

the required down payment by cashier's check or wire transfer to its

lock-box bank by a date to be specified by Public Notice, generally

within five business days following the close of bidding. The balance

of their winning bids would be made within five business days following

public notice that the Commission is about to award the license, and

grant of the license would be conditioned on this payment. An auction

winner that is eligible to make payments through an installment plan,

however, would be required to submit a deposit up to five percent of

its winning bid, and would submit an additional five percent of its

winning bid after the license granted. This would ensure that auction

winners have the necessary financial capabilities to complete payment

for the license and pay for the costs of constructing a system, without

hindering growth or diminishing access to the auctions. The Commission

seeks comment on this proposal.

27. Bid Withdrawal, Default, and Disqualification. The Commission

proposes that bidders who withdraw a high bid, are found unqualified to

hold licenses, or default on payment of a [[Page 22027]] balance due,

would be assessed a substantial penalty. Any bidder that withdraws a

high bid during an auction before the Commission declares bidding

closed would be required 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, if this

subsequent winning bid is lower than the withdrawn bid. If a license is

re-offered by auction, the ``winning bid'' would refer to the high bid

in the auction in which the license is re-offered. If a license is re-

offered in the same auction, the ``winning bid'' would refer to the

high bid amount, made subsequent to the withdrawal, in that auction. If

the subsequent high bidder also withdraws its bid, that bidder would be

required to pay a penalty equal to the difference between its withdrawn

bid and the amount of the subsequent willing bid the next time the

license is offered by the Commission. If a license which is the subject

of withdrawal or default is not re-auctioned, but is instead offered to

the highest losing bidders in the initial auction, the ``winning bid''

would refer to the bid of the highest bidder who accepts the offer.

Losing bidders would not be required to accept the offer, and therefore

may decline without penalty. The Commission seeks comment on these

proposals.

28. The Commission also proposes that after bidding closes, a

defaulting winner would be assessed an additional penalty of three

percent of the subsequent winning bid or three percent of the amount of

the defaulting bid, whichever is less. See 47 CFR 1.2104(g), 1.2109. If

a default or disqualification involves an applicant's gross misconduct,

misrepresentation, or bad faith, the Commission would be able to

declare the applicant ineligible to bid in future auctions or take

other action. These penalties would adequately discourage default and

ensure that bidders have adequate financing and meet all eligibility

and qualification requirements.

29. Finally, the Commission proposes that if the MTA winner

defaults, is otherwise disqualified after having made the required down

payment, or the license is terminated or revoked, then the Commission

would re-auction the license. If the default occurs within five days

after bidding has closed, the Commission would retain the discretion to

offer the license to the second highest bidder at its final bid level,

and thereafter to other bidders (in descending order of their bid

amounts). If only a small number of relatively low-value licenses were

to be re-auctioned and only a short time has passed since the initial

auction, the Commission would have authority to choose to offer the

license to the highest losing bidders if the cost of running another

auction exceed the benefits. The Commission seeks comment on these

proposals.

30. Long-Form Applications. If the winning bidder makes the down

payment in a timely manner, the Commission proposes the following

procedures: A long-form application filed on FCC Form 600 must be filed

by a date specified by Public Notice, generally within ten business

days after the close of bidding. Designated entities must also submit

evidence to support their claim to any special provision, such as

bidding credits or installment payment options. Once the long-form is

accepted for filing, the Commission will issue a Public Notice

announcing this fact, triggering the filing window for petitions to

deny. If the Commission denies all petitions to deny, and is otherwise

satisfied that the applicant is qualified, the license(s) will be

granted to the auction winner. See generally 47 CFR 90.163-90.166. The

Commission seeks comment on this proposal.

31. Petitions to Deny and Limitations on Settlements. A party

filing a petition to deny will be required to demonstrate standing and

meet all other applicable filing requirements. 47 CFR 90.163. The

Commission also adopted ``greenmail'' restrictions to prevent filing of

speculative applications and pleadings (or threats of the same)

designed to extract money from 900 MHz SMR applicants. 47 CFR 90.162.

Thus, the consideration than an applicant or petitioner is permitted to

receive for agreeing to withdraw an application or petition to deny is

limited to the legitimate and prudent expenses of the withdrawing

party. Finally, the Commission need not conduct a hearing before

denying an application if it determines that an applicant is not

qualified and no substantial issue of fact exists concerning that

determination.

32. Transfer Disclosure Requirements. In the 1993 Budget Act

amendments to the Communications Act, Congress directed the Commission

to ``require such transfer disclosures and anti-trafficking

restrictions and payment schedules as may be necessary to prevent

unjust enrichment as a result of the methods employed to issue licenses

and permits. 47 U.S.C. 309(j)(4)(E)). To ensure that these statutory

requirements are met, the Commission concluded in the Auctions Second

Report & Order, 59 FR 22980 (May 4, 1994), that transfer disclosure

requirements will enable the Commission to accumulate the necessary

data to evaluate auction designs and judge whether licenses have been

issued for bids that fall short of the true market value of the

license. The Commission tentatively concludes to apply these same

requirements to all 900 MHz SMR licenses obtained through the

competitive bidding process. See 47 CFR 1.2111(a). Generally, licensees

transferring their licenses within three years after the initial

license grant would be required to file, together with their transfer

applications, the associated contracts for sale, option agreements,

management agreements, and all other documents disclosing the total

consideration received in return for the transfer of the license. The

Commission would give particular scrutiny to auction winners who have

not yet begun commercial service and who seek approval for a transfer

of control or assignment of their licenses, so it may determine if any

unforeseen problems relating to unjust enrichment have arisen outside

the small business context. The Commission seeks comment on this

proposal.

33. Performance Requirements. The Communications Act requires the

Commission to ``include performance requirements, such as appropriate

deadlines and penalties for performance failures, to ensure prompt

delivery of service to rural areas, to prevent stockpiling or

warehousing of spectrum by licensees or permittees, and to promote

investment in and rapid deployment of new technologies and services. 47

U.S.C. 309(j)(4)(B). The Commission tentatively concludes that

additional performance requirements, beyond those already provided in

the service rules, and that coverage requirements adopted in this Order

will sufficiently prevent warehousing of spectrum. The Commission seeks

comment on this proposal.

D. Treatment of Designated Entities

34. Overview and Objectives. Congress provided that in establishing

eligibility criteria and bidding methodologies, the Commission shall

``promot[e] economic opportunity and competition and ensur[e] that new

and innovative technologies are readily accessible to the American

people by avoiding excessive concentration of licenses and by

disseminating licenses among a wide variety of applicants, including

small businesses, rural telephone companies, and businesses owned by

members of minority groups and women.'' 47 U.S.C. 309(j)(3). Congress

also provided that to promote these objectives, the Commission shall

``consider alternative payment schedules and methods of calculation,

including lump sums or [[Page 22028]] guaranteed installment payments,

with or without royalty payments, or other schedules or methods * * *

and combinations of such schedules and methods.'' 47 U.S.C.

309(j)(3)(B). The statute also requires the Commission to ``ensure that

small businesses rural telephone companies, and businesses owned by

members of minority groups and women are given the opportunity to

participate in the provision of spectrum-based services. Id.

Sec. 309(j)(4)(D). To achieve this goal, the statute indicates that the

Commission should ``consider the use of tax certificates, bidding

preferences, and other procedures.'' Id.

35. Congress was particularly concerned that difficulties in

accessing capital would prevent designated entities from meaningful

participation in auctions and spectrum-based services. See H.R. Rep.

No. 111, 103d Cong., 1st Sess. 254-55 (1993). In other services, the

Commission has employed a wide range of special provisions and

eligibility criteria designed to meet this statutory objective. See,

e.g., Third Report & Order. PP Docket No. 93-253, 59 FR 26741 (May 24,

1994). The Commission states its intention to meet this objective in

the 900 MHz SMR service, and tentatively concludes that it should

provide for bidding credits, installment payments and reduced down

payments to promote opportunities for small businesses, including small

businesses owned by women and minorities--on all channel blocks in each

MTA. These provisions would reduce barriers to accessing capital faced

by all small businesses. In addition, to facilitate the introduction of

service to rural areas, the Commission proposes to allow rural

telephone companies to obtain geographically partitioned 900 MHz SMR

licenses in areas where they provide telephone service.

36. Bidding Credits. Bidding credits allow eligible designated

entities to receive a payment discount (or credit) for their winning

bid in an auction. In the Auctions Second Report & Order, 59 FR 22980

(May 4, 1994), the Commission determined that competitive bidding rules

applicable to individual services would specify the designated entities

eligible for bidding credits and the amounts of the available bidding

credits for that particular service. The Commission has since adopted

bidding credits for narrowband PCS, broadband PCS, and Interactive

Video and Data Service. See Third Memorandum Opinion & Order & Further

Notice of Proposed Rule Making, PP Docket No. 93-253, 59 FR 44058

(August 26, 1994); Fifth Report & Order, PP Docket No. 93-253, 59 FR

37566 (July 22, 1994); Fourth Report & Order, PP Docket No. 93-253, 59

FR 24947 (May 13, 1994). For 900 MHz SMR service, the Commission

proposes to offer a 10 percent bidding credit to small businesses

bidding on any of the ten-channel blocks within each MTA. These bidding

credit designations would help achieve the objectives of the Budget Act

and provide small businesses with a meaningful opportunity to

participate in the 900 MHz SMR auction, while taking into account the

concerns of incumbents within the DFAs. Because of the large number of

licenses available in this service, the Commission states that a higher

bidding credit would be unnecessary.

37. The Commission seeks comment on this proposal. Specifically, is

a 10 percent credit sufficient to enhance bidding opportunities? Also,

how should the presence of incumbents on all channel blocks affect the

availability of bidding credits on all blocks? In previous auctions

where bidding credits for women and minorities have been available,

varying degrees of participation in spectrum-based services has

resulted, and the Commission's auction experience to date has not

included a small business bidding credit available on all blocks. Also,

the Commission proposes to limit eligibility for bidding credits to

small businesses. The Commission seeks comment on whether eligibility

should be expanded to include businesses owned by minorities and/or

women, even if they do not fall within the Commission's small business

size standards for 900 MHz SMRs.

38. In the event that the Commission modifies the bidding credit

eligibility proposal for minority- and women-owned entities, the

Commission also seeks comment on a second bidding credit alternative,

which would entitle small businesses and minority- and women-owned

entities to receive bidding credits on the five least encumbered blocks

in each MTA. In the event the Commission adopts a proposal to limit

bidding credits to small businesses, should it also limit availability

of the credit to the channel blocks with the fewest incumbents, or

would this limitation dilute the effectiveness of a small business

credit as a means of attracting broad designated entity participation

in the 900 MHz SMR service? What bidding credit amounts should apply to

women and minority-owned businesses and small businesses? Should women-

owned and minority-owned businesses that are also small businesses

receive an aggregate bidding credit? The Commission seeks comment on

the ramifications of each proposal for incumbents in each block.

Finally, the Commission seeks comment on any possible alternative

bidding credit schemes.

39. Reduced Down Payments/Installment Payments. The Commission

proposes to adopt an installment payment option for small businesses

that are winning bidders in the 900 MHz SMR auction. Under this

proposal, small businesses that are winning bidders in the 900 MHz SMR

auction would be entitled to pay their bid in installments over the

term of the license, with interest charges to be fixed at the time of

licensing at a rate equal to the rate for ten-year U.S. Treasury

obligations plus 2.5 percent. Under this proposed rule, qualified

licensees would make interest-only payments during the first two years

of the remaining license term. Timely payment of all installments would

be a condition of the license grant and failure to make such timely

payment would be grounds for revocation of the license. Additionally,

the Commission tentatively concludes that small businesses that are

eligible for installment payments also would be allowed to pay a

reduced down payment (five percent of the winning bid) five days after

the auction closes, with the remaining five percent down payment due

five days after Public Notice that the license is ready for grant. This

proposal would mitigate the effect of limited access to capital by

small businesses, especially those owned by minorities and/or women.

40. The Commission seeks comment on these payment procedures. If

the Commission expands its installment payment eligibility proposal for

women- and minority-owned entities, should those entities also receive

reduced down payment and installment payment provisions and, if so, on

what terms? In the event the Commission adopts provisions for minority-

and women-owned applicants, should enhanced installment payments be

made available?

41. Eligibility for Bidding Credits, Installment Payments and

Reduced Down Payments. The Commission proposes to limit eligibility for

bidding credits, installment payments and reduced down payments to

small businesses, including those owned by members of minority groups

and women and those rural telephone companies that meet the small

business size standards. The Commission proposes to define small

businesses as those entities with less than $3 million in average gross

revenues for each of the preceding [[Page 22029]] three years. The

Commission states that it is unnecessary to propose different

eligibility criteria for minority- and women-owned entities that do not

meet the small business size standards in order to achieve the goals of

Section 309(j) in the 900 MHz SMR service. Broadening the scope of

opportunities for very small businesses in all channel blocks still has

the potential to result in substantial participation by women and

minorities in the provision of 900 MHz SMR service. Moreover, the

Commission expects that because capital entry requirements are lower

than PCS, minority- and women-owned businesses will have greater

opportunities to participate.

42. To enhance the Commission's understanding, however, of the

capital requirements the 900 MHz service is likely to entail, the

Commission seeks comment on the projected costs associated with

acquisition, construction and operation of 900 MHz MTA licenses. In

addition, to gain insight into which the degree of small business

participation has resulted in opportunities for women and minority-

owned businesses, the Commission seeks comment on the composition of

existing 900 MHz SMR operators as well as providers in other similar

services such as 800 MHz SMR. For example, what proportion of existing

900 MHz SMR businesses are owned by women or minorities? To what extent

have participants in 900 MHz SMR networks been small businesses owned

by women and minorities? What is the likelihood that management

agreements are likely to serve as a vehicle for participation in the

900 MHz SMR service by minority and women-owned businesses? Finally,

regardless of whether the Commission adopts its proposal for small

businesses, the Commission proposes to request bidder information on

the short-form filings as to minority and/or women-owned status in

order to monitor the applicant pool and monitor participation by women

and minorities. The Commission seeks comment on this monitoring

proposal.

43. Small Business Definition. The Commission defines eligibility

requirements for small businesses on a service-specific basis, taking

into account capital requirements and other characteristics of each

particular service. Second Memorandum Opinion & Order, PP Docket No.

93-253, 59 FR 44272 (August 26, 1994). Because 900 MHz SMR is expected

to be less capital-intensive than PCS, a much lower gross revenue

threshold is warranted. Therefore, the Commission proposes to define a

small business as an entity that, together with affiliates and

attributable investors, has average gross revenues for the three

preceding years of less than $3 million. This standard appropriately

accounts for build-out costs, abundant license supply, and low

acquisition costs. The Commission seeks comment on this proposal. For

example, is it an appropriate threshold? Should it be higher or lower,

based on the types of companies that are likely to benefit from the

special provisions proposed here? The Commission also tentatively

concludes that it will consider the revenues of affiliates and certain

investors and it proposes to apply the 25 percent attribution threshold

and affiliation rules similar to those used in the PCS auction rules.

See 47 CFR 24.320(b)(2)(iv), 24.720(j)(1). The Commission seeks comment

on these issues.

44. Finally, if the Commission adopts separate provisions for

minority-owned and women-owned entities, it also seeks comment on

whether it should adopt the definition of minority-owned and women

owned businesses contained in Section 1.2110(b)(2) of the Commission's

rules, 47 CFR 1.2110(b)(2), i.e., businesses in which minorities and/or

women who control the applicant have at least 50.1 percent equity

ownership and, in the case of a corporate applicant, a 50.1% voting

interest. Every general partner in a partnership either must be a

minority and/or a woman who individually or together own at least 50.1

percent of the partnership equity.

45. Transfer Restrictions and Unjust Enrichment Provisions. In the

Fifth Report & Order, PP Docket No. 93-253, 59 FR 37566 (July 22 1994),

the Commission adopted restrictions on the transfer or assignment of

licenses to ensure that designated entities do not take advantage of

special provisions by immediately assigning or transferring control of

their licenses. The Commission proposes to adopt these restrictions on

transfer and assignment of 900 MHz SMR licenses won by designated

entities. Under this proposal, a designated entity would be prohibited

from voluntarily assigning or transferring control of its license to

any other entity during the three years after license grant. In the

fourth and fifth years of the license term, the designated entity would

only be able to assign or transfer control of its license to another

qualified designated entity, and no unjust enrichment could be gained

through the transfer. Thus, if the entity to which the designated

entity transfers or assigns the license were not eligible for the same

provisions, the difference would have to be paid back to the U.S.

Treasury as a condition of approval of the transfer or assignment. The

Commission seeks comment on these proposals.

46. For the remainder of the license term, the Commission proposes

to continue to impose unjust enrichment rules on designated entities.

These unjust enrichment provisions would deter speculation and

participation in the licensing process by those who do not intend to

offer service to the public, or who intend to use the Commission's

provisions to obtain a license at a lower cost than they otherwise

would have to pay, and later to sell it at the market price. Under this

proposal, 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.

Therefore, if a designated entity making installment payments sells its

license to an entity that does not qualify as a designated entity, the

Commission would require payment of the remaining principal and any

interest accrued through the date of assignment as a condition of the

license assignment or transfer. If a transfer is made to another

eligible designated entity, no penalty would be assessed against the

original designated entity license holder. If bidding credits were

awarded to a licensee, the Commission would require a designated entity

approval for a transfer of control or an assignment of license to a

non-designated entity, 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, to reimburse the government for the

amount for the amount of the bidding credit before transfer of the

license will be permitted. The Commission proposes to apply these

payment requirements for the entire license term. The Commission seeks

comment on this proposal.

47. Rural Telephone Company Partitioning. Congress directed the

Commission to ensure that rural telephone companies have the

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

Rural areas tend to be less profitable to serve than more densely

populated urban areas. Therefore, service to these areas may not be a

priority or feasible for many licensees. Rural telephone companies,

however, are well positioned to serve these areas because of their

existing infrastructure. Therefore, the Commission proposes a

geographic partitioning scheme to encourage participation by rural

telephone companies.

48. Under this proposal, rural telephone companies would be

[[Page 22030]] permitted to acquire partitioned 900 MHz SMR licenses

either by: (1) forming bidding consortia consistent entirely of rural

telephone companies to participate in auctions, and then partition the

licenses won among consortia participants; or (2) acquiring partitioned

900 MHz SMR licenses from other licenses through private negotiation

and agreement either before or after the auction. The Commission would

require that partitioned areas conform to established geopolitical

boundaries and include all portions of the wireline service area of the

rural telephone company applicant that lies within the service area.

This partitioning scheme would prevent rural telephone companies from

having to bid on the entire MTA license to obtain licenses covering

their wireline service areas. In addition, rural telephone companies

would have the flexibility to serve areas in which they already provide

service, while the remainder of the service area could be served by

other providers. The Commission also proposes to use the definition for

rural telephone companies implemented in the Fifth Report & Order, PP

Docket No. 93-253, 59 FR 37566 (July 22, 1994), for broadband PCS.

Rural telephone companies would be defined as local exchange carriers

having 100,000 or fewer access lines, including all affiliates. The

Commission seeks comment on this proposal.

E. Other Provisions

49. Reduced Upfront Payments. The Commission proposes not to adopt

a reduced upfront payment option in the 900 MHz SMR service for

designated entities. The other provisions adopted here render a reduced

upfront payment option unnecessary and, in the absence of an

entrepreneurs' block, may be too costly to administer in the 900 MHz

SMR service. The Commission seeks comment on this proposal. Also, if

the Commission adopts provisions for minority and women-owned entities,

should the Commission apply a reduced upfront payment provision to

those entities only?

50. Set-aside Spectrum. In the Fifth Report & Order, PP Docket No.

93-253, 59 FR 37566 (July 22, 1994), the Commission established

entrepreneurs' blocks on which only qualified entrepreneurs, including

designated entities, could bid. See also 47 CFR 24.709. The Commission

tentatively concludes not to adopt an entrepreneurs' block for the 900

MHz SMR auction. First, the large numbers of licenses available and

relatively small spectrum allocations in the 900 MHz SMR service should

allow for extensive small business participation. Second, the

effectiveness of bidding credits and other provisions will be diluted,

due to the smaller capital outlay anticipated for this service. Third,

it may be impractical to choose particular blocks to set aside for

bidding solely by entrepreneurs due to incumbent 900 MHz SMR operators

in 19 of the 46 DFAs. The Commission seeks comment on this proposal.

Are the capital requirements of this service anticipated to be so

substantial that the Commission should insulate certain blocks from

very large bidders in order to provide meaningful opportunities for

designated entities?

III. Procedural Matters

Initial Regulatory Flexibility Analysis. As required by Section 603

of the Regulatory Flexibility Act, the Commission has prepared an

Initial Regulatory Flexibility Analysis (IRFA) of the expected impact

on small entities of the policies and rules proposed in this Further

Notice of Proposed Rule Making. Written public comments are requested

on the IRFA.

Reason for Action: This rule making proceeding was initiated to

secure comment on proposals for establishing a flexible regulatory

scheme for the 900 MHz Specialized Mobile Radio (SMR) service that

would promote efficient licensing and enhance the service's competitive

potential in the commercial mobile radio marketplace. The proposals

advanced in the Second Further Notice of Proposed Rule Making are also

designed to implement Congress's goal of regulatory symmetry in the

regulation of competing commercial mobile radio services as described

in Sections 3(n) and 332 of the Communications Act, 47 U.S.C. 153(n),

332, as amended by Title VI of the Omnibus Budget Reconciliation Act of

1993 (Budget Act). The Commission also seeks to adopt rules regarding

competitive bidding in the 900 MHz SMR service based on Section 309(j)

of the Communications Act, 47 U.S.C. 309(j), which delegates authority

to the Commission to use auctions to select among mutually exclusive

initial applications in certain services, including 900 MHz SMR.

Objectives: The Commission proposes to adopt rules for the 900 MHz

SMR service that are intended to promote the growth of incumbent 900

MHz SMR systems, and emerging MTA SMR licensees, and to enhance the

ability of all SMR providers to compete in the larger commercial mobile

services market. The Further Notice of Proposed Rule Making seeks to

establish competitive bidding procedures and a new licensing mechanism

for the 900 MHz SMR service that will expedite service to the public

and promote competition in the CMRS marketplace.

Legal Basis: The proposed action is authorized under the Budget

Act, Pub. L. No. 103-66, Title VI, 6002, and Sections 2(a), 3(n), 4(i),

302, 303(g), 303(r), 309(i), 309(j), 332(a), 332(c), and 332(d) of the

Communications Act of 1934, 47 U.S.C. 152(a), 153(n), 154(i), 302,

303(g), 303(r), 309(i), 309(j), 332(a), 332(c) and 332(d), as amended.

Reporting, Recordkeeping, and Other Compliance Requirements: Under

the proposal contained in the Further Notice of Proposed Rule Making,

SMR licensees who obtain MTA-based licenses may be required to report

information regarding location of their facilities and coverage of

their service areas. SMR applicants seeking treatment as ``designated

entities'' may also be subject to reporting and recordkeeping

requirements to demonstrate compliance with the Commission's

competitive bidding rules.

Federal Rules Which Overlap, Duplicate or Conflict With These

Rules: None.

Description, Potential Impact, and Number of Small Entities

Involved: The Further Notice of Proposed Rule Making potentially

affects numerous small entities already operating 900 MHz SMR systems

in Designated Filing Areas that will co-exist with 900 MHz SMR MTA

licensees. The competitive bidding proposals contained in the Further

Notice of Proposed Rule Making also could affect small entities seeking

initial licenses in the 900 MHz SMR service. The Further Notice of

Proposed Rule Making proposes special provisions in the Commission's

auction rules to benefit ``designated entity'' applicants, including

small businesses. After evaluating comments filed in response to the

Further Notice of Proposed Rule Making, the Commission will examine

further the impact of all rule changes on small entities and set forth

its findings in the Final Regulatory Flexibility Analysis.

Significant Alternatives Minimizing the Impact on Small Entities

Consistent with the Stated Objectives: This Further Notice of Proposed

Rule Making solicits comment on a variety of alternatives. Any

additional significant alternatives presented in the comments will also

be considered.

IRFA Comments: The Commission requests written public comment on

the foregoing Initial Regulatory Flexibility Analysis. Comments must

have a separate and distinct heading designating them as responses to

the IRFA and must be filed by the deadlines provided above.

[[Page 22031]]

List of Subjects in 47 CFR Part 90

Radio.

Federal Communications Commission,

William F. Caton,

Acting Secretary.

Amendatory Text

Part 90 of Chapter I of Title 47 of the Code of Federal Regulations

is proposed to be amended as follows:

1. The authority citation for Part 90 continues to read as follows:

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

2. A new Subpart U consisting of Secs. 90.801 through 90.814 is

proposed to be added to Part 90 to read as follows:

PART 90--PRIVATE LAND MOBILE RADIO SERVICES

Subpart U--Competitive Bidding Procedures for 900 MHz Specialized

Mobile Radio

Sec.

90.801 900 MHz SMR subject to competitive bidding.

90.802 Competitive bidding for 900 MHz SMR licensing..

90.803 Competitive bidding mechanisms.

90.804 Aggregation of 900 MHz SMR licenses.

90.805 Withdrawal, default and disqualification payments.

90.806 Bidding application (FCC Form 175 and 175-S Short-form).

90.807 Submission of upfront payments and down payments.

90.808 Long-form applications.

90.809 License grant, denial, default, and disqualification.

90.810 Bidding credits for small businesses.

90.811 Reduced down payment for licenses won by small businesses.

90.812 Installment payments for licenses won by small businesses.

90.813 Procedures for partitioned licenses.

90.814 Definitions.

Sec. 90.801 900 MHz SMR subject to competitive bidding.

Mutually exclusive initial applications to provide 900 MHz SMR

service are subject to competitive bidding procedures. The general

competitive bidding procedures found in 47 CFR Part 1, Subpart Q will

apply unless otherwise provided in this part.

Sec. 90.802 Competitive bidding design for 900 MHz SMR licensing.

The Commission will employ a simultaneous multiple round auction

design when choosing from among mutually exclusive initial applications

to provide 900 MHz SMR service, unless otherwise specified by the

Wireless Telecommunications Bureau before the auction.

Sec. 90.803 Competitive bidding mechanisms.

(a) Sequencing. The Commission will establish and may vary the

sequence in which 900 MHz SMR licenses will be auctioned.

(b) Grouping. All 900 MHz SMR licenses for each of the MTAs will be

auctioned simultaneously, unless the Wireless Telecommunications Bureau

announces, by Public Notice prior to the auction, an alternative

auction scheme.

(c) Minimum Bid Increments. The Commission will, by announcement

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

or percentage terms.

(d) Stopping Rules. The Commission will establish stopping rules

before or during multiple round auctions in order to terminate an

auction within a reasonable time.

(e) 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, each bidder will be entitled to

request and will be automatically granted a certain number of waivers

of such rule during the auction.

Sec. 90.804 Aggregation of 900 MHz SMR licenses.

The Commission will license each 10-channel block in the 900 MHz

SMR spectrum separately. Applicants may aggregate across spectrum

blocks within the limitation specified in Sec. 20.6(b) of this Chapter.

Sec. 90.805 Withdrawal, default and disqualification payments.

(a) During the course of an auction conducted pursuant to

Sec. 90.802, the Commission will impose payments on bidders who

withdraw high bids during the course of an auction, who default on

payments due after an auction closes, or who are disqualified.

(b) 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 payment equal to the difference between the amount bid and the amount

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

Commission. No withdrawal payment would be assessed if the subsequent

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

deducted from any upfront payments or down payments that the

withdrawing bidder has deposited with the Commission.

(c) 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 payment in paragraph (a)

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 payment 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.

Sec. 90.806 Bidding application (FCC Form 175 and 175-S Short-form).

All applicants to participate in competitive bidding for 900 MHz

SMR licenses must submit applications on FCC Forms 175 and 175-S

pursuant to the provisions of Sec. 1.2105 of this Chapter. The Wireless

Telecommunications Bureau will issue a Public Notice announcing the

availability of 900 MHz SMR licenses and, in the event that mutually

exclusive applications are filed, the date of the auction for those

licenses. This Public Notice also will specify the date on or before

which applicants intending to participate in a 900 MHz SMR auction must

file their application in order to be eligible for that auction, and it

will contain information necessary for completion of the application as

well as other important information such as the materials which must

accompany the Forms, any filing fee that must accompany the application

or any upfront payment that will need to be submitted, and the location

where the application must be filed. In addition to identifying its

status as a small business or rural telephone company, each applicant

must indicate whether it is a minority-owned entity, as defined in

Sec. 90.814(g) and/or a women-owned entity.

Sec. 90.807 Submission of upfront payments and down payments.

(a) Bidders in the 900 MHz SMR auction will be required to submit

an upfront payment of $0.02 per pop per MHz, in accordance with

Sec. 1.2106 of this Chapter.

(b) Winning bidders in a 900 MHz SMR auction must submit a down

payment to the Commission in an amount sufficient to bring their total

deposits up to 20 percent of their winnings bids, and in accordance

with Sec. 1.2107(b) of this chapter, except for small businesses that

are winning bidders, which are governed by Sec. 90.811. [[Page 22032]]

Sec. 90.808 Long-form applications.

Each winning bidder will be required to submit a long-form

application on FCC Form 600 within ten (10) business days after being

notified by Public Notice that it is the winning bidder. Applications

on FCC Form 600 shall be submitted pursuant to the procedures set forth

in 90.119 of this Part and any associated Public Notices. Only auction

winners (and rural telephone companies seeking partitioned licenses

pursuant to agreements with auction winners under Sec. 90.813) will be

eligible to file applications on FCC Form 600 for initial 900 MHz SMR

licenses in the event of mutual exclusivity between applicants filing

Form 175.

Sec. 90.809 License grant, denial, default, and disqualification.

(a) Except with respect to entities eligible for installment

payments (see Sec. 90.812) each winning bidder will be required to pay

the balance of its winning bid in a lump sum payment within five (5)

business days following Public Notice that the license is ready for

grant. The Commission will grant the license within ten (10) business

days after receipt of full and timely payment of the winning bid

amount.

(b) A bidder who withdraws its bid subsequent to the close of

bidding, defaults on a payment due, or is disqualified, will be subject

to the payments specified in Sec. 90.805 or Sec. 1.2109 of this

Chapter, as applicable.

(c) MTA licenses pursued through competitive bidding procedures

will be granted pursuant to the requirements specified in Sec. 90.166.

Sec. 90.810 Bidding credits for small businesses.

(a) A winning bidder that qualifies as a small business or a

consortium of small businesses, (as defined in Sec. 90.814) may use a

bidding credit of 10 percent to lower the cost of its winning bid on

any of the blocks identified in Sec. 90.617(d), Table 4B.

(b) Unjust Enrichment. (1) If a licensee that utilizes a bidding

credit under this section seeks to assign or transfer control of its

license to an entity not meeting the eligibility standards for bidding

credits or seeks to make any other change in ownership that would

result in the licensee no longer qualifying for bidding credits under

this section, the licensee must seek Commission approval of such

assignment, transfer or other ownership change.

(2) If a licensee that utilizes a bidding credit under this section

seeks to assign or transfer control of its license to an entity meeting

the eligibility standards for lower bidding credits or seeks to make

any other change in ownership that would result in the licensee

qualifying for a lower bidding credit under this section, the licensee

must seek Commission approval and reimburse the government for the

difference between the amount of the bidding credit obtained by the

licensee and the bidding credit for which the assignee, transferee or

licensee is eligible under this section as a condition of the approval

of such assignment, transfer or other ownership change.

Sec. 90.811 Reduced down payment for licenses won by small businesses.

Each winning bidder that qualifies as a small business shall make a

down payment equal to ten percent of its winning bid (less applicable

bidding credits); a winning bidder shall bring its total amount on

deposit with the Commission (including upfront payment) to five percent

of its net winning bid within five (5) business days after the auction

closes, and the remainder of the down payment (five percent) shall be

paid within five (5) business days following Public Notice that the

license is ready for grant. The Commission will grant the license

within ten (10) business days after receipt of the remainder of the

down payment.

Sec. 90.812 Installment payments for licenses won by small businesses.

(a) Each licensee that qualifies as a small business may pay the

remaining 90 percent of the net auction price for the license in

installment payments pursuant to Sec. 1.210(e) of this chapter.

(b) Interest shall be imposed based on the rate for ten-year U.S.

Treasury obligations applicable on the date the license is granted,

plus 2.5 percent; payments shall include interest only for the first

two years and payments of interest and principal amortized over the

remaining eight years of the license term.

(c) Unjust Enrichment. (1) If a licensee that utilizes installment

financing under this section seeks to assign or transfer control of its

license to an entity not meeting the eligibility standards for

installment payments, the licensee must make full payment of the

remaining unpaid principal and any unpaid interest accrued through the

date of assignment or transfer as a condition of approval.

(2) If a licensee that utilizes installment financing under this

section seeks to make any change in ownership structure that would

result in the licensee losing eligibility for installment payments, the

licensee shall first seek Commission approval and must make full

payment of the remaining unpaid principal and any unpaid interest

accrued through the date of such change as a condition of approval.

Sec. 90.813 Procedures for partitioned licenses.

(a) Notwithstanding Sec. 90.661, an applicant that is rural

telephone company, as defined in Sec. 90.814, may be granted a 900 MHz

SMR license that is geographically partitioned from a separately

licensed MTA, so long as the MTA applicant or licensee has voluntarily

agreed (in writing) to partition a portion of the license to the rural

telephone company.

(b) If partitioned licenses are being applied for in conjunction

with a license(s) to be awarded through competitive bidding

procedures--

(1) The applicable procedures for filing short-form applications

and for submitting upfront payments and down payments contained in this

Part and Part 1 of this Chapter shall be followed by the applicant, who

must disclose as part of its short-form application all parties to

agreement(s) with or among rural telephone companies to partition the

license pursuant to this section, if won at auction (see 47 CFR

Sec. 1.2105(a)(2)(viii) of this Chapter);

(2) Each rural telephone company that is a party to an agreement to

partition the license shall file a long-form application for its

respective, mutually agreed-upon geographic area together with the

application for the remainder of the MTA filed by the auction winner.

(c) If the partitioned license is being applied for as a partial

assignment of the MTA license following grant of the initial license,

request for authorization for partial assignment of a license shall be

made pursuant to Sec. 90.153.

(d) Each application for a partitioned area (long-form initial

application or partial assignment application) shall contain a

partitioning plan that must propose to establish a partitioned area to

be licensed that meets the following criteria:

(1) Conforms to established geopolitical boundaries (such as county

lines);

(2) Includes the wireline service area of the rural telephone

company applicant; and

(3) Is reasonable related to the rural telephone company's wireline

service area.

Note: A partitioned service area will be presumed to be

reasonably related to the rural telephone company's wireline service

area if the partitioned service area contains no more than twice the

population overlap between the rural telephone company's

[[Page 22033]] wireline service area and the partitioned area.

(e) Each licensee in each partitioned area will be responsible for

meeting the construction requirements in its area (see Sec. 90.665).

Sec. 90.814 Definitions.

(a) Scope. The definitions in this section apply to Secs. 90.810

through 90.813, unless otherwise specified in those sections.

(b) Small Business: Consortium of Small Businesses. (1) A small

business is an entity that, together with its affiliates and persons or

entities that hold attributable interests in such entity and their

affiliates, have average gross revenues for the three preceding years

of less than $3 million.

(2) A small business consortium is conglomerate organization formed

as a joint venture between or among mutually-independent business

firms, each of which individually satisfies the definition of a small

business in paragraphs (b)(1) and (b)(2) of this section.

(c) Rural Telephone Company. A rural telephone company is a local

exchange carrier having 100,000 or fewer access lines, including all

affiliates.

(d) Gross Revenues. Gross revenues shall mean all income received

by an entity, whether earned or passive, before any deductions are made

for costs of doing business (e.g., cost of goods sold), as evidenced by

audited financial statements for the relevant number of calendar years

preceding January 1, 1994, or, If audited financial statements were not

prepared on a calendar-year basis, of the most recently completed

fiscal years preceding the filing of the applicant's short-form

application (Form 175). For applications filed after December 31, 1994,

gross revenues shall be evidenced by audited financial statements for

the preceding relevant number of calendar or fiscal years. If an entity

was not in existence for all or part of the relevant period, gross

revenues shall be evidenced by the audited financial statements of the

entity's predecessor-in-interest or, if there is no identifiable

predecessor-in-interest, unaudited financial statements certified by

the applicant as accurate.

(e) Business 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 control the

applicant, have at least 50.1 percent equity ownership and, in the case

of a corporate applicant, a 50.1 percent voting interest. For

applicants that are partnerships, every general partner either must be

a minority and/or woman (or minorities and/or women) who are U.S.

citizens and who individually or together own 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

interest 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.

(f) Members of Minority Groups. Members of minority groups includes

Blacks, Hispanics, American Indians, Alaskan Natives, Asians, and

Pacific Islanders.

(g) Nonattributable Equity. Nonattributable equity shall mean:

(1) For corporations, voting stock or non-voting stock that

includes no more than 25 percent of the total voting equity, including

the right to vote such stock through a voting trust or other

arrangement;

(2) For partnerships, joint ventures and other non-corporate

entities, limited partnership interests and similar interests that do

not afford the power to exercise control of the entity.

(h) Affiliate. (1) Basis for Affiliation. An individual or entity

is an affiliate of an applicant or of a person holding an attributable

interest in an applicant (both referred to herein as ``the applicant'')

if such individual or entity:

(i) Directly or indirectly controls or has the power to control the

applicant, or

(ii) Is directly or indirectly controlled by the applicant, or

(iii) Is directly or indirectly controlled by a third party or

parties that also controls or has the power to control the applicant,

or

(iv) Has an ``identity of interest'' with the applicant.

(2) Nature of control in determining affiliation.

(i) Every business concern is considered to have one or more

parties who directly or indirectly control or have the power to control

it. Control may be affirmative or negative and it is immaterial whether

it is exercised so long as the power to control exists.

Example for paragraph (h)(2)(i). An applicant owning 50 percent

of the voting stock of another concern would have negative power to

control such concern since such party can block any action of the

other stockholders. Also, the bylaws of a corporation may permit a

stockholder with less than 50 percent of the voting to block any

actions taken by the other stockholders in the other entity.

Affiliation exists when the applicant has the power to control a

concern while at the same time another person, or persons, are in

control of the concern at the will of the party or parties with the

power of control.

(ii) Control can arise through stock ownership; occupancy of

director, officer or key employee positions; contractual or other

business relations; or combinations of these and other factors. A key

employee is an employee who, because of his/her position in the

concern, has a critical influence in or substantive control over the

operations or management of the concern.

(iii) Control can arise through management positions where a

concern's voting stock is so widely distributed that no effective

control can be established.

Example for paragraph (h)(2)(iii). In a corporation where the

officers and directors own various size blocks of stock totaling 40

percent of the corporation's voting stock, but no officer or

director has a block sufficient to give him or her control or the

power to control and the remaining 60 percent is widely distributed

with no individual stockholder having a stock interest greater than

10 percent, management has the power to control. If persons with

such management control of the other entity are persons with

attributable interests in the applicant, the other entity will be

deemed an affiliate of the applicant.

(3) Identity of interest between and among persons. Affiliation can

arise between or among two or more persons with an identity of

interest, such as members of the same family or persons with common

investments. In determining if the applicant controls or is controlled

by a concern, persons with an identity of interest will be treated as

though they were one person.

Example 1 for paragraph (h)(3) introductory text. Two

shareholders in Corporation Y each have attributable interests in

the same SMR application. While neither shareholder has enough

shares to individually control Corporation Y, together they have the

power to control Corporation Y. The two shareholders with these

common investments (or identity of interest) are treated as though

they are one person and Corporation Y would be deemed an affiliate

of the applicant.

Example 2 for paragraph (h)(3) introductory text. One

shareholder in [[Page 22034]] Corporation Y, shareholder A, has an

attributable interest in a SMR application. Another shareholder in

Corporation Y, shareholder B, has a nonattributable interest in the

same SMR application. While neither shareholder has enough shares to

individually control Corporation Y, together they have the power to

control Corporation Y. Through the common investment of shareholders

A and B in the SMR application, Corporation Y would still be deemed

an affiliate of the applicant.

(i) Spousal Affiliation. Both spouses are deemed to own or control

or have the power to control interests owned or controlled by either of

them, unless they are subject to a legal separation recognized by a

court of competent jurisdiction in the United States.

(ii) Kinship Affiliation. Immediate family members will be presumed

to own or control or have the power to control interests owned or

controlled by other immediate family members. In this context

``immediate family member'' means father, mother, husband, wife, son,

daughter, brother, sister, father- or mother-in-law, son- or daughter-

in-law, brother- or sister-in-law, step-father, or -mother, step-

brother, or -sister, step-son, or -daughter, half brother or sister.

This presumption may be rebutted by showing that

(A) The family members are estranged,

(B) The family ties are remote, or

(C) The family members are not closely involved with each in

business matters.

Example for paragraph (h)(3)(ii). A owns a controlling interest

in Corporation X. A's sister-in-law, B, has an attributable interest

in an SMR application. Because A and B have a presumptive kinship

affiliation, A's interest in Corporation X is attributable to B, and

thus to the applicant, unless B rebuts the presumption with the

necessary showing.

(4) Affiliation through stock ownership. (i) An applicant is

presumed to control or have the power to control a concern if he or she

owns or controls or has the power to control 50 percent or more of its

voting stock.

(ii) An applicant is presumed to control or have the power to

control a concern even though he or she owns, controls or has the power

to control less than 50 percent of the concern's voting stock, if the

block of stock he or she owns, controls or has the power to control is

large as compared with any other outstanding block of stock.

(iii) If two or more persons each owns, controls or has the power

to control less than 50 percent of the voting stock of a concern, such

minority holdings are equal or approximately equal in size, and the

aggregate of these minority holdings is large as compared with any

other stock holding, the presumption arises that each one of these

persons individually controls or has the power to control the concern;

however, such presumption may be rebutted by a showing that such

control or power to control, in fact, does not exist.

(5) Affiliation arising under stock options, convertible

debentures, and agreements to merge. Stock options, convertible

debentures, and agreements to merge (including agreements in principle)

are generally considered to have a present effect on the power to

control the concern. Therefore, in making a size determination, such

options, debentures, and agreements will generally be treated as though

the rights held thereunder had been exercised. However, neither an

affiliate nor an applicant can use such options and debentures to

appear to terminate its control over another concern before it actually

does so.

Example 1 for paragraph (h)(5). If company B holds an option to

purchase a controlling interest in company A, who holds an

attributable interest in an SMR application, the situation is

treated as though company B had exercised its rights and had become

owner of a controlling interest in company A. The gross revenues of

company B must be taken into account in determining the size of the

applicant.

Example 2 for paragraph (h)(5). If a large company, BigCo, holds

70% (70 of 100 outstanding shares) of the voting stock of company A,

who holds an attributable interest in an SMR application, and gives

a third party, SmallCo, an option to purchase 50 of the 70 shares

owned by BigCo, BigCo will be deemed to be an affiliate of company,

and thus the applicant, until SmallCo actually exercises its options

to purchase such shares. In order to prevent BigCo from

circumventing the intent of the rule which requires such options to

be considered on a fully diluted basis, the option is not considered

to have present effect in this case.

Example 3 for paragraph (h)(5). If company A has entered into an

agreement to merge with company B in the future, the situation is

treated as though the merger has taken place.

(6) Affiliation under voting trusts. (i) Stock interests held in

trust shall be deemed controlled by any person who holds or shares the

power to vote such stock, to any person who has the sole power to sell

such stock, and to any person who has the right to revoke the trust at

will or to replace the trustee at will.

(ii) If a trustee has a familial, personal or extra-trust business

relationship to the grantor or the beneficiary, the stock interests

held in trust will be deemed controlled by the grantor or beneficiary,

as appropriate.

(iii) If the primary purpose of a voting trust, or similar

agreement, is to separate voting power from beneficial ownership of

voting stock for the purpose of shifting control of or the power to

control a concern in order that such concern or another concern may

meet the Commission's size standards, such voting trust shall not be

considered valid for this purpose regardless of whether it is or is not

recognized within the appropriate jurisdiction.

(7) Affiliation through common management. Affiliation generally

arises where officers, directors, or key employees serve as the

majority or otherwise as the controlling element of the board of

directors and/or the management of another entity.

(8) Affiliation through common facilities. Affiliation generally

arises where one concern shares office space and/or employees and/or

other facilities with another concern, particularly where such concerns

are in the same or related industry or field of operations, or where

such concerns were formerly affiliated, and through these sharing

arrangements one concern has control, or potential control, of the

other concern.

(9) Affiliation through contractual relationships. Affiliation

generally arises where one concern is dependent upon another concern

for contracts and business to such a degree that one concern has

control, or potential control, of the other concern.

(10) Affiliation under joint venture arrangements. (i) A joint

venture for size determination purposes is an association of concerns

and/or individuals, with interests in any degree or proportion, formed

by contract, express or implied, to engage in and carry out a single,

specific business venture for joint profit for which purpose they

combine their efforts, property, money, skill and knowledge, but not on

a continuing or permanent basis for conducting business generally. The

determination whether an entity is a joint venture is based upon the

facts of the business operation, regardless of how the business

operation may be designated by the parties involved. An agreement to

share profits/losses proportionate to each party's contribution to the

business operation is a significant factor in determining whether the

business operation is a joint venture.

(ii) The parties to a joint venture are considered to be affiliated

with each other.

[FR Doc. 95-11010 Filed 5-2-95; 12:52 pm]

BILLING CODE 6712-01-M