Pioneer's Preference Rules

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 0 and 1

[ET Docket No. 93-266; FCC 95-218]

Pioneer's Preference Rules

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: By this Third Report and Order, the Commission modifies

certain rules regarding its pioneer's preference program. This action

is intended to address directives of the General Agreement on Tariffs

and Trade (GATT) legislation and make the pioneer's preference rules

better comport with the Commission's experience administering them.

EFFECTIVE DATE: August 21, 1995.

FOR FURTHER INFORMATION CONTACT:

Rodney Small, Office of Engineering and Technology, (202) 776-1622.

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

Report and Order, adopted June 6, 1995, and released June 8, 1995. The

full text of this Commission decision is available for inspection and

copying during regular business hours in the FCC Reference Center (Room

239), 1919 M Street NW., Washington, DC. The complete text of this

decision also may be purchased from the Commission's duplication

contractor, International Transportation Service, Inc., (202) 857-3800,

2100 M Street NW., Suite 140, Washington, DC 20037.

Summary of Third Report and Order

1. The Third Report and Order (Third R&O) addresses proposals set

forth in the Further Notice of Proposed Rule Making (Further Notice) in

this proceeding, 60 FR 13396 (March 13, 1995), and modifies certain

rules regarding the Commission's pioneer's preference program pursuant

to recent legislation. The pioneer's preference program provides

preferential treatment in the Commission's licensing processes for

parties that make significant contributions to the development of a new

service or to the development of a new technology that substantially

enhances an existing service.

2. The Further Notice proposed rules in response to the pioneer's

preference directives contained in the legislation implementing

domestically the GATT, as well as on the Commission's own motion. The

GATT legislation requires parties to whom any licenses are awarded

pursuant to the pioneer's preference program in services in which

competitive bidding is used to pay 85 percent of the average price paid

for comparable licenses. This payment may be made in a lump sum or in

installment payments over a period of not more than five years. The

GATT legislation, including the payment requirement, applies to any

license issued on or after August 1, 1994 pursuant to a pioneer's

preference award.

3. The legislation also directs the Commission to prescribe

regulations specifying the procedures and criteria to ``evaluate

applications for preferential treatment in its licensing processes (by

precluding the filing of mutually exclusive applications) for persons

who make significant contributions to the development of a new service

or to the development of new technologies that substantially enhance an

existing service.'' The legislation requires the pioneer's preference

regulations to include: (1) Procedures and criteria by which the

significance of a pioneering contribution will be determined, after an

opportunity for review and verification by experts not employed by the

Commission; and (2) such other procedures as may be necessary to

prevent unjust enrichment by ensuring that the value of a pioneering

contribution justifies any reduction in the amounts paid for comparable

licenses. The regulations issued pursuant to this legislation must be

prescribed not later than 6 months after enactment of the GATT

legislation (i.e., by June 8, 1995), shall apply to pioneer's

preference applications accepted for filing after September 1, 1994,

and must cease to be effective on September 30, 1998, when the

pioneer's preference program sunsets.

4. In the Further Notice, the Commission tentatively concluded

that, with the exceptions of the two areas specifically addressed by

the GATT legislation, the existing pioneer's preference rules, as

modified by the Second Report and Order, 60 FR 13636 (March 14, 1995),

comply with the GATT legislation's requirement to specify procedures

and criteria by which to evaluate pioneer's preference applications.

However, the Commission solicited comment regarding any alternatives to

any aspects of these rules that might better achieve the objectives of

the GATT legislation.

5. With respect to the two areas specifically set forth in the GATT

legislation, the Commission noted that the GATT legislation's directive

that the Commission establish a procedure for review and verification

by outside experts was contemplated as an optional measure by the

current pioneer's preference policies, but that such ``peer review''

was not mandatory. It therefore proposed to formalize this policy

pursuant to the GATT legislation to provide an opportunity for review

of potentially pioneering proposals by experts in the radio sciences

who are not Commission employees. It sought comment on whether such

review by outside experts should be required in all cases or whether

pioneer's preference applicants (or other interested parties) should be

given only an opportunity for such review, which may be either accepted

or declined by the applicants. It tentatively concluded that it would

establish a peer review process on a permanent basis. The Commission

therefore proposed to delegate to the Chief of the Office of

Engineering and Technology (``Chief, OET'') the authority to select a

panel of experts consisting of persons who are knowledgeable about the

specific technology set forth in a pioneer's preference request. In

addition, while the Commission sought comment on two possible

interpretations of section 309(j)(13(D)(i) of the GATT legislation,

which concerns possible conflicts of interest of such experts, it

proposed appointing experts who are neither employed by the Commission

nor by any applicant seeking a pioneer's preference in the same or

similar communications service. Based on its experience with the

pioneer's preference program, the Commission tentatively concluded that

the outside expertise required to evaluate the claims made in pioneer's

preference requests will vary greatly. Accordingly, it proposed that

its staff evaluate on a case-by-case basis how much outside assistance

is required and that the Chief, OET select experts from all available

sources after reviewing the proposed new technology or service.

6. The Commission further proposed that the experts generally be

granted a period of up to 180 days to present their findings to the

Commission. It sought comment on whether it should generally seek the

experts' individual opinions or their consensus (as a Federal Advisory

Committee under the Federal Advisory Committee Act). The Commission

[[Page 32117]] tentatively concluded that it should not be bound to

follow the recommendations of the panel, but that it should evaluate

the recommendations in light of all the submissions and comments in the

record. However, it solicited comment on whether the views of the panel

(especially where consensus is reached) should be entitled to greater,

or perhaps controlling, deference. The Commission also sought comment

on what restrictions, if any, the panel members should have vis-a-vis

contact with the applicants; e.g., whether they should have authority

to seek further information pertaining to the preference request or to

perform field evaluations. Finally, the Commission sought comment on

any additional conflict of interest requirements (e.g., related to

financial interests) it should impose upon outside experts.

7. With respect to the second area addressed by the GATT

legislation, the Commission stated in the Further Notice that its

concerns about unjust enrichment are lessened by the statutorily-

mandated payment requirement for prioneer's preference grantees in

auctionable services and the formula for calculating per capita bid

amounts. Nonetheless, it stated that it remained concerned about the

effect of competitive bidding on the pioneer's preference program. It

sought comment on a more stringent showing by a preference applicant in

a service in which licenses are awarded by competitive bidding.

Specifically, the Commission sought comment on whether the applicant

should have to demonstrate that our public rulemaking process inhibits

it from capturing the economic rewards of its innovation unless it is

granted a pioneer's preference license. It also sought comment on

whether in its pioneer's preference request each applicant should make

a demonstration regarding possible loss of intellectual property

protection to ensure that it will retain its eligibility for a

preference.

8. With regard to determining which licenses are most reasonably

comparable under section 309(j)(13)(B)(i) of the GATT legislation, in

the Further Notice the Commission sought comment on any standards for

comparing licenses and for excluding anomalous licenses that it might

codify into its rules along with the statutory formulas for determining

the average per capita bid amount and the payment amount. It also

sought comment on the implementation of the installment payment

provision in section 309(j)(13)(C). It tentatively concluded that it

would not adopt any installment payment scheme that includes royalty

payments. The Commission further sought comment on whether eligibility

for installment payments should be limited to small businesses or other

entities as it has done in its general auction rules. The Commission

proposed that, if an entity receiving a pioneer's preference award and

license in a particular service would be eligible for installment

payments in the auction for that service, that entity would be able to

pay for its pioneer's preference license in installments under similar

terms and conditions. Finally, the Commission proposed to require a

pioneer's preference license that is not eligible for installment

payments to pay in one lump sum within a reasonable time (e.g., 30

days) after the auction for comparable licenses has concluded or after

the license grant becomes final, whichever is later.

9. In accord with the GATT legislation, the Commission proposed to

sunset the pioneer's preference program on September 30, 1998. It

requested comment on the utility of the program, particularly in light

of its competitive bidding authority. Additionally, it proposed on its

own motion to modify the pioneer's preference rules by limiting the

award of preferences to services in which a new allocation of spectrum

is required.

10. Finally, the Commission proposed to apply the rules adopted in

response to the Further Notice to any pioneer's preference requests

granted after adoption of those rules, regardless of when the requests

were accepted for filing, except in proceedings in which tentative

pioneer's preference decisions have been made.

11. Only two parties filed comments on the Further Notice, and no

party filed reply comments. Satellite CD Radio, Inc. (CD Radio) states

that the Commission should grant pioneer's preferences for regulatory

as well as technical innovation, and also grant preferences in services

in which no mutually exclusive applications exist. Omnipoint

Communications, Inc. (Omnipoint) addresses payment measures for small

business pioneers in services in which licenses are awarded by

competitive bidding. It argues that the Commission should provide: (1)

Payment terms that are more attractive than the terms offered to

designated entities or entrepreneur-band applicants, so that small

business pioneers have an incentive to take on the risks of innovation;

and (2) the use of an installment plan with principal and accrued-

interest obligations deferred until the end of a five-year period.

12. With respect to CD Radio's statements regarding regulatory

innovation, the Commission finds that its pioneer's preference rules

already incorporate non-technical or regulatory aspects. Accordingly,

it finds no need to amend its pioneer's preference rules in this

regard.

13. With respect to CD Radio's proposals regarding awarding

preferences in services where mutually exclusive situations do not

exist and where competitive bidding is not authorized, the Commission

finds that a preference, beyond a guaranteed license and a 15 percent

discount in auctioned services, would be unnecessary and contrary to

the stated purpose of the pioneer's preference program. In adopting the

pioneer's preference procedures, the Commission sought to foster the

development of new services and to improve existing services by

reducing the delays and risks for innovators associated with the

Commission's licensing processes as they existed at that time.

Applicants facing no mutually exclusive applications run no risk of not

receiving licenses, assuming they are qualified, so the Commission did

not contemplate that any preferences would be needed to serve the

public interest purposes of the pioneer's preference program.

Accordingly, the Commission rejects CD Radio's proposal to award

preferences in services in which mutually exclusive license

applications do not exist.

14. With respect to Omnipoint's proposal for lower payments for

small business pioneers than designated entities in services in which

licenses are awarded by competitive bidding, the Commission noted that

the pioneer's preference and designated entity programs are designed to

meet different goals. The pioneer's preference program is designed to

reward a particular entity for its innovative contributions to a new or

existing service, whereas the designated entity program is designed to

promote economic opportunity and competition by dissemininating

licenses among a wide variety of applicants and to increase

participation in spectrum-based telecommunications services by entities

that lack access to substantial amounts of capital and that face

economic disadvantages in obtaining licenses in a competitive bidding

environment, such as small businesses. Accordingly, the Commission

rejects Omnipoint's proposal to guarantee small business pioneers lower

payments than other designated entities.

15. With respect to Omnipoint's proposal for a deferred payment

plan for small business pioneers in services in which licenses are

awarded by [[Page 32118]] competitive bidding, consistent with the

above discussion, the Commission finds no need to give such pioneers an

advantage over similarly situated small businesses. The Commission

notes that in the Further Notice it proposed that if an entity

receiving a pioneer's preference would be eligible for installment

payments in the auction for that service, the entity could pay for its

pioneer's preference license in installments under comparable terms and

conditions to similarly situated licenses over a period not to exceed

five years. The Commission finds this proposal adequate to address

Omnipoint's concerns and adopts it, while rejecting Omnipoint's

deferred payment proposal.

16. No comments were filed with respect to the other proposals in

the Further Notice. Because they are in the public interest and promote

the goals of the pioneer's preference program and the GATT legislation,

the Commission adopts them. Specifically, with respect to peer review,

it provides an opportunity for review and verification of pioneer's

preference requests by experts who are not Commission employees. It

delegates to the Chief, OET the authority to select, in appropriate

cases on his/her own initiative or upon request by a preference

applicant or other interested person, a panel of experts consisting of

persons who are knowledgeable about the specific technology set forth

in a pioneer's preference request and who are neither employed by the

Commission nor by any applicant seeking a pioneer's preference in the

same or similar communications service. It concludes that the best

interpretation of Section 309(j)(13)(D)(i)'s conflict-of-interest

language provides that there must be an opportunity for review and

verification by experts who are neither employees of the Commission nor

employees of any applicant seeking a pioneer's preference. These panels

will generally be granted a period of up to 90 days, but no more than

180 days, to present their findings to the Commission.

17. With respect to implementing the unjust enrichment provisions

in section 309(j)(13)(D)(ii), the Commission is requiring that to

qualify for a pioneer's preference in services in which licenses are

awarded by competitive bidding, an applicant--in addition to meeting

the other pioneer's preference requirements--must demonstrate that the

Commission's public rulemaking process inhibits it from capturing the

economic rewards of its innovation unless it is granted a pioneer's

preference license. The applicant must show that it may lose its

intellectual property protection because of the Commission's public

process; that the damage to its intellectual property is likely to be

more significant than in other contexts, such as the patent process;

and that the guarantee of a license is a significant factor in its

ability to capture the rewards from its innovation. Such a showing must

accompany the pioneer's preference request even if the Commission has

not yet determined that the particular service for which a preference

is sought will be subject to competitive bidding.

18. As proposed in the Further Notice, pioneer's preference awards

will be limited to services that require a spectrum allocation.

However, the Commission notes that an entity that develops a new

technology that may be used in an existing service may be able to reap

significant financial benefits by patenting that technology or by

selling equipment that uses that technology.

19. Pursuant to authority in section 4(i), in conjunction with

sections 1, 303(r), 307, and 309 of the Communications Act, the

Commission finds that it is in the public interest and in furtherance

of its pioneer's preference policy in an auction environment to apply

the rules adopted herein to pending pioneer's prference proceedings

that have not reached the tentative decision stage. Parties with

pending pioneer's preference applications on file with the Commission

will have 30 days from the effective date of the rules adopted herein

to amend their applications to bring them into conformance with these

rules and the rules adopted in the Second Report and Order in this

proceeding. Failure to timely amend a pending pioneer's preference

request will result in the dismissal of the request.

20. In the Second Report and Order, the Commission stated that

while the payment mechanism in the GATT legislation does not apply to

pioneer's preference requests accepted for filing on or before

September 1, 1994, nevertheless--pursuant to section 4(i) and other

provisions of the Communications Act--license charges would be imposed

on any pioneer's preference license granted in proceedings in which no

tentative decision had yet been made, even if the requests in such

proceedings were accepted for filing on or before that date. In

addition, prior to enactment of the GATT legislation, the Commission

amended the rules (also pursuant to Section 4(i)) to impose charges on

any pioneer's preference licenses granted as a result of the three

pioneer's preference proceedings in which only tentative decisions had

been made prior to the initiation of this pioneer's preference review

rulemaking.

21. The Commission now concludes, on further analysis, that the

payment requirements in subsections 309(j)(13)(B), (C) and (E) of the

Communications Act, which were enacted by the GATT legislation, apply

to pioneer's preference requests relatless to any licenses issued on or

after August 1, 1994, regardless of when the pioneer's preference

requests were accepted for filing. The September 1, 1994 date applies

only to the regulations required by subsection 309(j)(13)(D).

Accordingly, the Commission determines that, while the new regulations

prescribed here (regarding criteria, peer review and unjust

enrichment), pursuant to subsection 309(j)(13)(D), will not apply in

the proceedings in which tentative decisions have been made, the

payment provisions of the GATT legislation will apply to any and all

licenses ultimately issued in the future resulting from a pioneer's

preference, including any license based on a preference granted in CC

Docket No. 92-297 (28 GHz Local Multipoint Distribution Service

proceeding).

22. Finally, pursuant to the GATT legislation, the Commission will

terminate the pioneer's preference program on September 30, 1998.

23. Accordingly, it is ordered that Parts 0 and 1 of the

Commission's Rules are amended as specified below, effective 60 days

after publication in the Federal Register. This action is taken

pursuant to Sections 4(i), 7(a), 303(c), 303(f), 303(g), 303(r), and

309(j) of the Communications Act of 1934, as amended, 47 U.S.C.

Secs. 154(i), 157(a), 303(c), 303(f), 303(g), 303(r), and 309(j).

List of Subjects

47 CFR Part 0

Organization and functions (Government agencies).

47 CFR Part 1

Administrative practice and procedure.

Federal Communications Commission

William F. Caton,

Acting Secretary.

Amendatory Text

Parts 0 and 1 of chapter I of title 47 of the Code of Federal

Regulations are amended as follows: [[Page 32119]]

PART 0--COMMISSION ORGANIZATION

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

Authority: Sec. 5, 48 Stat. 1068, as amended; 47 U.S.C. 155,

225, unless otherwise noted.

2. Section 0.241 is amended by adding new paragraph (f) to read as

follows:

Sec. 0.241 Authority delegated.

* * * * *

(f) The Chief, Office of Engineering and Technology (OET) is

authorized to select, in appropriate cases on his/her own initiative or

upon request by a pioneer's preference applicant or other interested

person, a panel of experts consisting of persons who are knowledgeable

about the specific technology set forth in a pioneer's preference

request and who are neither employed by the Commission nor by any

applicant seeking a pioneer's preference in the same or similar

communications service. In consultation with the General Counsel, the

Chief, OET, shall also impose other conflict-of-interest requirements

that are necessary in the interest of attaining impartial, expert

advice regarding the particular pioneer's preference request or

requests.

PART 1--PRACTICE AND PROCEDURE

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

Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47

U.S.C. 154, 303; Implement, 5 U.S.C. 552 and 21 U.S.C. 853a, unless

otherwise noted.

2. Section 1.402 is amended by revising the first sentence of

paragraph (a); removing paragraph (b); redesignating paragraphs (c),

(e), (f), and (h) as new paragraphs (b), (d), (e), and (j)

respectively; redesignating paragraphs (d) and (g) as new paragraphs

(c) and (f), respectively, and revising them; and adding new paragraphs

(g), (h), (i), and (k) to read as follows:

Sec. 1.402 Pioneer's preference.

(a) When filing a petition for rule making pursuant to Sec. 1.401

that seeks an allocation of spectrum for a new service or that, by use

of innovative technology in a new spectrum allocation, will

substantially enhance an existing service, the petitioner may also

submit a separate request that it be awarded a pioneer's preference in

the licensing process for the service. * * *

* * * * *

(c) Pioneer's preference requests complying with the requirements

and procedures in paragraphs (a) and (b) of this section will be

accepted for filing and listed by file number in a notice of proposed

rule making addressing the new service or technology proposed in the

request, if such a notice of proposed rulemaking is adopted. A final

determination on a request for pioneer's preference and its scope will

normally be made in a report and order adopting new rules for the

service or technology proposed in the request, if such rules are

adopted. If awarded, the pioneer's preference will provide that the

preference applicant's application for a construction permit or license

will not be subject to mutually exclusive applications. If granted, the

construction permit or license will be subject to the conditions in

paragraphs (e) and (f) of this section.

* * * * *

(f) In services in which licenses are assigned by competitive

bidding, any parties receiving pioneer's preferences will be required

to pay for their licenses in accord with the payment formula specified

in the General Agreement on Tariffs and Trade legislation, Pub. L. 103-

465. This formula requires that pioneers pay in a lump sum or in

installment payments over a period of not more than five years 85

percent of the average price paid for comparable licenses. Comparable

licenses will be determined by the Commission on a case-by-case basis.

For licenses issued on or after August 1, 1994, the Commission shall

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

resource made available to a pioneer's preference recipient by

requiring such person, as a condition for receipt of the license, to

agree to pay a sum determined by--

(1) Identifying the winning bids for the licenses that the

Commission determines are most reasonably comparable in terms of

bandwidth, scope of service area, usage restrictions, and other

technical characteristics to the license awarded to such person, and

excluding licenses that the Commission determines are subject to

bidding anomalies due to the award of preferential treatment;

(2) Dividing each such winning bid by the population of its service

area (hereinafter referred to as the per capita bid amount);

(3) Computing the average of the per capita bid amounts for the

licenses identified under paragraph (f)(1) of this section;

(4) Reducing such average amount by 15 percent; and

(5) Multiplying the amount determined under paragraph (f)(4) of

this section by the population of the service area of the license

obtained by such person.

(g) In services in which licenses are awarded by competitive

bidding, a pioneer that qualifies as a designated entity will be

eligible for installment payments under the same terms and conditions

as other designated entities in that service, except that in all

services the pioneer's payments must be completed within a five year

period that will begin 30 days after the auction for comparable

licenses has concluded or 30 days after the pioneer's license grant

becomes final, whichever is later. A pioneer, like other applicants,

will be required in its license application to certify and make the

requisite demonstration that it is eligible for installments. Pioneers

that are not eligible for installment payments must make the 85 percent

payment specified in Sec. 1.402(f) within 30 days after the auction for

comparable licenses has concluded or within 30 days after the license

grant become final, whichever is later.

(h) An opportunity for review and verification of pioneer's

preference requests by experts who are not Commission employees will be

provided by the Commission. The Chief, Office of Engineering and

Technology (OET) may select a panel of experts consisting of persons

who are knowledgeable about these specific technology set forth in a

pioneer's preference request and who are neither employed by the

Commission nor by any applicant seeking a pioneer's preference in the

same or similar communications service. The panel of experts will

generally be granted a period of up to 90 days, but no more than 180

days, to present their findings to the Commission. The Commission will

generally establish, conduct, and seek the consensus of the panel

pursuant to the Federal Advisory Committee Act, and will evaluate its

recommendations in light of all the submissions and comments in the

record. Panelists will have the authority to seek further information

pertaining to preference requests and to perform field evaluations, as

deemed appropriate by the Chief, OET.

(i) In order to qualify for a pioneer's preference in services in

which licenses are awarded by competitive bidding, an applicant must

demonstrate that the Commission's public rulemaking process inhibits it

from capturing the economic rewards of its innovation unless it is

granted a pioneer's preference license. The applicant must

[[Page 32120]] show that it may lose its intellectual property

protection because of the Commission's public process; that the damage

to its intellectual property is likely to be more significant than in

other contexts, such as the patent process; and that the guarantee of a

license is a significant factor in its ability to capture the rewards

from its innovation. This demonstration will be required even if the

Commission has not determined at the time a pioneer's preference

request is filed whether assignments in the proposed service will be

made by competitive bidding.

* * * * *

(k) This section, along with the other pioneer's preference rules

specified in Sec. Sec. 0.241(f) and 5.207 of this chapter, will cease

to be effective on September 30, 1998.

[FR Doc. 95-14945 Filed 6-19-95; 8:45 am]

BILLING CODE 6712-01-M