Filing Procedures in the Multipoint Distribution Service and in the Instructional Television Fixed Service, Including Electronic Filing and Competitive Bidding

SUMMARY: This Report and Order adopts a licensing plan under which we

will allot Multipoint Distribution Service (MDS) authorizations by

geographic areas, through a simultaneous multiple round bidding

process. The Report and Order also adopts a variety of measures to

streamline the application and implementation processes. It authorizes

the voluntary use of electronic filing for new MDS applications, as

well as electronic fee payments. It institutes computerized

interference studies utilizing new data elements to be included in a

revised MDS application form. It also makes clear that interference

disputes are to be resolved, in the first instance, through private

negotiations, with the FCC to serve only as a last resort. These

procedures are designed to expedite processing and facilitate

development of wireless cable, an industry that delivers video

programming to subscribers using MDS and Instructional Television Fixed

Service (ITFS) channels. This proceeding is intended to expedite more

service to the public and enhance opportunities for wireless cable to

reach its potential as a competitor to wired cable.

EFFECTIVE DATE: September 15, 1995.

FOR FURTHER INFORMATION CONTACT: Sharon Bertelsen at (202) 416-0892 or

Jerianne Timmerman at (202) 416-0881, Video Services Division, Mass

Media Bureau.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The following collection of information has been submitted to the

Office of Management and Budget for review under Section 3504(h) of the

Paperwork Reduction Act. Copies of the submission may be purchased from

the Commission's copy contractor, International Transcription Service,

2100 M Street, N.W., Suite 140, Washington, D.C. 20037, (202) 857-3800.

Persons wishing to comment on this information collection should direct

their comments to Timothy Fain, (202) 395-3561, Office of Management

and Budget, Room 10102 NEOB, Washington, D.C. 20503. A copy of any

comments should also be sent to the Federal Communications Commission,

Office of Managing Director, Washington, D.C. 20554. For further

information contact Judy Boley, Federal Communications Commission,

(202) 418-0210.

OMB Numbers: None. This Report and Order adopts a new application

form, FCC Form 304, to be used for new MDS facilities, and several new

rules and amended rules. There is also a new FCC Form 304-A and FCC

Form 175-M.

Titles: Form 304: Application for a Multipoint Distribution Service

Authorization. Form 304-A: Certification of Completion of Construction

for a Multipoint Distribution Service. Form 175-M: Application to

Participate in an FCC MDS Auction. 47 CFR 21.930 (Five-year Build-out

Requirements), 21.931 (Partitioning of BTAs), 21.934 (Assignment or

Transfer of Control of BTA Authorizations), 21.937 (Negotiated

Interference Protections), 21.956 (Filing of Long-form Applications or

Statements of Intention) and 21.960 (Designated Entity Provisions for

MDS).

Action: New Collections.

Respondents: Businesses or other for-profit, small businesses or

organizations.

Frequency of Response: On occasion reporting requirements.

Estimated Annual Response: Form 304: 300 responses, 55 hours per

response; Form 304-A: 100 responses, .5 hours per response; Form 175-M:

1600 responses, .48 hours per response; Section 21.930: These filings

will not occur until FY 2001, 750 responses, 1 hour per response;

Section 21.931: 150 responses, 6 hours per response; Section 21.934:

200 responses, 1 hour per response; Section 21.937: 75 responses, 30

hours per response; Section 21.956: 200 responses, 3 hours per

response; Section 21.960: 550 responses, 2 hours per response.

Needs and Uses: FCC Form 304 will be used to ensure that the

respondent is qualified to become a Commission licensee. FCC Form 304-A

will be used to certify that the facilities as authorized have been

completed and that the station is ready to provide service to the

public. FCC Form 175-M will be used to determine whether the applicant

is legally, technically and otherwise qualified to participate in an

MDS auction. Section 21.930 will be used to determine whether the BTA

holder has met its construction requirements and to ensure that service

is promptly delivered to the public. Sections 21.931 and 21.937 will

ensure that the interference protection rules are complied with.

Section 21.934 is used to determine whether there has been unjust

enrichment to the party selling the station. Section 21.956 will be

used by the staff to determine whether to grant a BTA authorization.

Section 21.960 will prevent abuse of the special measures offered to

MDS auction winners claiming designated entity status.

A summary of the Report and Order follows. The complete text is

available for inspection and copying during normal business hours in

the MDS public reference room, Room 207, at the Federal Communications

Commission, 2033 M Street, N.W., Washington, D.C., and it may be

purchased from the Commission's copy contractor, International

Transcription Service, Inc., 2100 M Street, N.W., Suite 140,

Washington, D.C. 20037, (202) 857-3800. (Action by the Commission:

Chairman Hundt dissenting in part and issuing a statement;

Commissioners Quello and Barrett issuing separate statements; and

Commission Ness dissenting in part and issuing a statement.)

1. By this action, we adopt rules to facilitate the development and

rapid deployment of wireless cable services.\1\ As a result of our

actions in prior proceedings, wireless cable operators that use

spectrum in the Multipoint Distribution Service (MDS), often

supplemented with leased channels from the Instructional Television

Fixed Service (ITFS), have begun to provide a competitive alternative

to wired cable and other multichannel video programming

distributors.\2\ The rules we now adopt will accelerate that process by

setting streamlined measures to distribute unused MDS spectrum through

competitive bidding and by establishing a protected service area for

MDS stations that is large enough to allow operators flexibility they

need to design viable and competitive wireless cable systems. Adoption

of these rules will enable the Commission to lift the

[[Page 36525]]

current freeze on filing new MDS applications.\3\

\1\ Wireless cable programming to subscribers resembles cable

television, but instead of coaxial cable, wireless cable uses

microwave channels. Our use of the term ``wireless cable'' does not

imply that it constitutes cable television for statutory or

regulatory purposes.

\2\ Unless otherwise indicated, ``MDS'' includes single channel

Multipoint Distribution Service (MDS) and Multichannel Multipoint

Distribution Service (MMDS) applications and authorizations

collectively.

\3\ The Commission imposed a freeze on the filing of

applications for new MDS stations in Notice of Proposed Rulemaking

in PR Docket No. 92-80, 7 FCC Rcd 3266 (1992), 57 Fed. Reg. 24,006

(June 5, 1992).

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2. Specifically, we adopt in this order a licensing plan under

which we will allot, through a simultaneous multiple round bidding

process, one MDS authorization for each of the 487 Basic Trading Areas

(BTAs) and six additional BTA-like geographic areas.\4\ A BTA

authorization holder will be able to construct facilities to provide

wireless cable service over any usable MDS channels within the BTA, and

will have preferred rights to the available ITFS frequencies and ITFS

lease agreements within the BTA. A channel is usable if the proposed

station design is in compliance with the Commission's interference

standards.

\4\ Rand McNally defined 487 BTAs in the 1992 Commercial Atlas &

Marketing Guide. Since Rand McNally did not include a few areas, we

will add them to the list as BTA-like geographic areas, bringing the

total to 493 authorizations to be auctioned. See infra at para. 26.

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3. Under the new rules, the signals of a BTA authorization holder

cannot interfere with those of any other BTA authorization holder.

Recognizing, however, that BTA lines do not always track desired

service areas, the rules permit BTA authorization holders to negotiate

interference protection rights. In addition, the rules we adopt require

BTA authorization holders to honor the protected service areas of

incumbent MDS operators within their BTAs. In a companion order, also

adopted today, the Commission expanded the protected service areas of

existing MDS stations.\5\ These various licensees and applicants that

are authorized or proposed on or before the effective date of this

Report and Order, including those stations that are subsequently

modified, renewed or reinstated, are referred to throughout this Report

and Order as ``authorized or previously proposed facilities'' or

``incumbents.'' In order to facilitate the development of successful

wireless cable systems, the rules permit BTA authorization holders to

assign or transfer their entire BTAs, or partitioned portions of it, to

incumbents or other parties. (Unserved areas may be included as long as

the assignment or transfer takes place within the five-year build-out

period that the rules impose.) Because the BTA authorization holder may

be an incumbent, the rules permit the aggregation of existing and new

MDS and ITFS channels within a BTA.

\5\ Second Order on Reconsideration in Gen. Docket Nos. 90-54

and 80-113, FCC 95-231 (released June 21, 1995) (Secord Order on

Reconsideration).

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4. The Report and Order also adopts a variety of measures to

streamline the application and implementation processes. It authorizes,

for example, the voluntary use of electronic filing for new MDS

applications, as well as electronic fee payments. It institutes

computerized interference studies utilizing new data elements to be

included in a revised MDS application form. It also makes clear that

interference disputes are to be resolved, in the first instance,

through private negotiations, with the Commission to serve only as a

last resort.

5. We understand that the wireless cable industry has made

tremendous progress toward the transition to digital transmission.\6\

The rules we adopt today will facilitate that transition.

\6\ See, e.g., The Wireless Cable Association International,

Selected Papers from the First Annual Wireless Cable Technical

Symposium (February 4-6, 1995).

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6. Background. In 1983, to satisfy a growing demand for the

delivery of video entertainment programming to subscribers and to

provide competition to wired cable systems, the Commission reallocated

eight of the then twenty-eight ITFS channels for MDS use, and

authorized ITFS licensees to lease the excess capacity on their systems

to wireless cable operators.\7\ That action created wireless cable as a

multichannel video distribution medium, and in 1991, the Commission

made more channels available for wireless cable services.\8\ Today,

there are a maximum of thirty-three microwave channels used for

wireless cable in each market. These include thirteen MDS channels

(Channels 1, 2 or 2A, E1-E4, F1-F4 and H1-H3) and the excess capacity

on up to twenty ITFS channels (Channels A1-A4, B1-B4, C1-C4, D1-D4 and

G1-G4).\9\

\7\ Report and Order in Gen. Docket No. 80-112 and CC Docket No.

80-116, 94 FCC 2d 1203 (1983), 48 Fed. Reg. 33,873 (July 26, 1983).

Therein, the Commission also grandfathered interference protection

to existing ITFS applicants, permittees or licensees on these eight

E and F channels, resulting in twenty-eight ITFS channels in some

locales.

\8\ The Commission reallocated the H group channels from the

Operational Fixed Service to MDS and made MDS operators eligible for

authorization on vacant ITFS channels with specified restrictions.

Second Report and Order in Gen. Docket No. 90-54, 6 FCC Rcd 6792,

6793-94, 6801-06 (1991), 56 Fed. Reg. 57,808 (Nov. 14, 1991), recon.

denied, 7 FCC Rcd 5648 (1992). Last year, the Commission

consolidated processing of MDS and ITFS applications into one

organization. Amendment of Parts 0 and 1 of the Communication's

Rules to Reflect a Reorganization of Multipoint and Multichannel

Multipoint Distribution Services, 9 FCC Rcd 3661 (1994), 59 Fed.

Reg. 38,374 (July 28, 1994).

\9\ MDS channel 2A is only 4 MHz wide and lacks sufficient

bandwidth to transmit a standard television signal. Grandfathered

ITFS stations on the eight E and F channels also lease excess

capacity to wireless cable operators.

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7. Wireless cable is now similar to wired cable television in the

type of programming it provides, but differs from cable in how the

programming is transmitted to subscribers. Generally, a wireless cable

system may be described as a microwave station transmitting on a

combination of MDS and ITFS channels to numerous receivers with

antennas, such as single family residences, apartment complexes,

hotels, educational institutions, business entities and governmental

offices. The range of the transmission depends upon the transmitter

power, the type of receiving antenna and the existence of a line-of-

sight path between the transmitter or signal booster and the receiving

antenna.

8. Over the past few years, the wireless cable industry has

experienced substantial growth and has emerged as an effective

competitor to wired cable in many locations.\10\ This rapid growth is

due, in part, to program access provisions and changes in other

regulations that have increased access to financing. MDS is a heavily

encumbered service. Most of the thirteen MDS channels have already been

authorized in the largest metropolitan areas, especially for locations

in the eastern half of the country. Thus far, MDS has developed almost

entirely in large and medium-sized cities, though MDS systems also

serve many smaller communities in the western states. In addition to

the approximately 170 operating wireless cable systems, many

conditional licenses have been issued to entities that, presumably, are

in various stages of constructing their systems. Finally, the MDS

landscape includes MDS systems proposed in applications now being

processed at the Commission.

\10\ See Annual Assessment of the Status of Competition in the

Market for the Delivery of Video Programming, 9 FCC Rcd 7442, 7482-

88 (1994), 59 Fed. Reg. 64,657 (Dec. 15, 1994). The Commission is

required to file such reports pursuant to the Cable Television

Consumer Protection and Competition Act of 1992, Pub. L. No. 102-

385, Sec. 628(g), 106 Stat. 1460 (amending the Communications Act of

1934), codified at 47 U.S.C. Sec. 548(g). The Commission recently

adopted a Notice of Inquiry to obtain information needed to prepare

the annual assessment that will be released in 1995, FCC 95-186

(released May 24, 1995), 60 Fed. Reg. 29,533 (June 5, 1995).

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A. Filing Procedures and Service Rules

9. Proposals. On December 1, 1994, the Commission released a Notice

of Proposed Rulemaking in this proceeding which solicited comment on

proposals that would modify our MDS filing procedures and use

competitive bidding to select from among mutually exclusive

[[Page 36526]]

applicants.\11\ In the Notice, the Commission proposed that applicants

file short-form applications for established geographic service areas

to identify mutually exclusive applicants for competitive bidding

purposes and that the successful bidders file long-form applications.

Notice at 7669-71. The Notice suggested the use of predetermined

geographic areas, such as Metropolitan Statistical Areas (MSA) and

Rural Service Areas (RSA) or Areas of Dominant Influence (ADI).\12\

This proposal envisioned that we would release a public notice

announcing auctions by geographic area, specifying the filing period

for short-form applications (FCC Form 175) \13\ and the applicable

bidding procedures. Mutually exclusive applicants would bid for all

usable MDS channels in that area as a package and the auction winner

would be permitted to file long-form applications for conditional

licenses to operate stations anywhere throughout the service area

provided the specific engineering design of their MSD stations meets

the Commission's interference protection standards with respect to all

authorized or previously proposed MDS and ITFS facilities. Long-form

applications accepted for filing would be proposed for grant by a

Commission public notice, announcing that the applications are accepted

for filing and opening a thirty-day period for filing petitions to

deny. See 47 U.S.C. Sec. 309(b); 47 CFR 21.30. The Notice observed that

these filing procedures would enable operators to amass MDS channels,

would avoid the lengthy delay associated with licensing stations site-

by-site and therefore would allow operators to enhance their services

more rapidly. The Notice asked commenters to determine which type of

geographic areas would be most suitable for MDS and to address the

definition of protected service area. In particular, we requested

comment on whether the current definition of an MDS station's protected

service area would be appropriate,\14\ or whether the boundary of the

geographic area designed for auction purposes should become the

protected service area. We also asked commenters to discuss the

interference standards for service to the areas adjacent to the

boundaries between geographic areas. Although the Notice identified

this approach of licensing MDS channels as the preferred approach, we

also invited comment on alternative licensing procedures.

\11\ Notice of Proposed Rulemaking in MM Docket No. 94-131 and

PP Docket No. 93-253, 9 FCC Rcd 7665 (1994), 59 Fed. Reg. 63,743

(Dec. 9, 1994) (Notice). The only aspect of the Notice which applied

to ITFS was the electronic filing proposal. In a separate

proceeding, the Commission recently adopted improvements to the ITFS

licensing process, including a window filing procedure. Report and

Order, Amendment of Part 74 of the Commission's Rules With Regard to

the Instructional Television Fixed Service, MM Docket No. 93-24, 10

FCC Rcd 2907 (1995), 60 Fed. Reg. 20,241 (Apr. 25, 1995).

\12\ MSAs and RSAs are standard geographic areas used by the

Commission for administrative convenience in licensing cellular

radio systems. The Commission has also used MSAs since 1983 for

making mutually exclusive determinations for MDS applications filed

for the E or F channels under 47 C.F.R. Sec. 21.901(d)(5). ADIs are

standard geographic areas that were developed by Arbitron Ratings

Company. Each county in the United States is placed within one of

209 ADIs, the lowest numbered ADI having the highest population.

\13\ FCC Form 175 contains the applicant's name, the markets in

which the applicant wishes to bid, the persons authorized to make or

withdraw a bid, whether the applicant is qualified as a designated

entity under 47 C.F.R. Sec. 1.2110, certifications that the

applicant is legally, technically, financially and otherwise

qualified, and identification of all parties involved in agreements,

or certification that no agreements exist, relating to the

authorizations being auctioned or the bidding process.

\14\ 47 C.F.R. Sec. 21.902. In another order, also adopted

today, the Commission amends 47 C.F.R. Sec. 21.902, to expand the

protected service area for authorized or previously proposed MDS

facilities. Second Order on Reconsideration at Paras. 2-31.

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10. The Notice suggested an alternative approach that would limit

applications to predetermined sites where there are vacant E, F or H

channels. Notice at 7671-72. Under this approach, the Commission would

identify such sites based upon the location of an already authorized E,

F or H channel. The Commission would issue multiple public notices

specifying the filing period and applicants would file a short-form

application to identify mutually exclusive situations for purposes of

competitive bidding. The auction winner would be required to file a

long-form application containing a complete engineering proposal and

specifying a compatible station design with the Commission's

interference protection standards to all previously proposed or

authorized MDS and ITFS facilities.

11. Under another alternative presented in the Notice, the

Commission would periodically open national filing windows, with no

geographic restrictions on filing for available MDS channels. Notice at

7672-73. Pursuant to this proposal, we would release a public notice

announcing the filing window for available channels. This proposal

would initially require a long-form application, containing the

applicant's complete technical proposal, to determine mutual

exclusivity before competitive bidding procedures are implemented. The

Notice pointed out that this approach would likely result in a larger

number of mutually exclusive applications and increase the possibility

of ``daisy-chains'' (interlinking application proposals at different

locations), which would require a more complicated and time consuming

competitive bidding process, including subsequent rounds of auctions to

resolve all mutual exclusivities in a daisy-chain. We invited

commenters favoring a national window approach to recommend ways to

resolve the daisy-chains that might arise under this proposal.

12. As an option to the national filing window approach, the Notice

discussed limiting eligibility to file in the first window to existing

licensees and system operators who, at the time the application is

filed, are operating with a certain minimum number of channels. Notice

at 7673. In many situations the acquisition of a small number of

additional channels may be essential for launching a whole new wireless

cable system in a given area. This approach would allow existing

wireless cable operators to accumulate the critical mass of channels

necessary to operate competitive wireless cable systems. We asked

commenters favoring this option to suggest eligibility requirements to

govern the filing of applications in this first window.

13. Resolution. After careful consideration of the merits of the

various proposals we raised in the Notice, we continue to prefer a

filing approach where applicants file short-form applications and

auction winners file long-form applications. We have decided that BTAs

are the most appropriate geographic area for MDS. The boundaries of

each geographic area, with the exceptions of channels obtained through

leases with ITFS licensees, will become the protected service area for

the auction winner. The auction winners will be issued authorizations

for specific geographic areas and will be permitted to operate one or

more MDS transmitting stations and signal boosters anywhere inside the

service area, provided the specific engineering design meets the

Commission's interference protection standards to all authorized or

previously proposed MDS and ITFS facilities, and complies with the

limits we establish for signal strength along the perimeter of the

geographic area. See infra at Paras. 38-41. Following the auction,

there would be a five year build-out period in which an authorization

holder can expand service or initiate new service within their area

without competing applications. The authorization holder will also be

permitted to partition its area along established geopolitical

boundaries and enter into contracts with eligible parties, allowing

such parties to

[[Page 36527]]

file long-form applications for usable MDS channels within that

partitioned area. See infra Paras. 34-35. This will permit broad

participation from entities of all sizes. This framework provides the

most efficient system of disseminating MDS licenses because service

areas are easily identified and authorizations are promptly granted

with minimal administrative or judicial delays. This approach will also

provide operators sufficient flexibility to design systems that satisfy

consumer demand.

14. We emphasize that there is no perfect or simple filing approach

to adopt at this time for new MDS authorizations given the history of

the service, the characteristics of the technologies involved, the

implementation of competitive bidding procedures, and our goal to

rapidly enhance wireless cable systems as viable competitors in the

multichannel video marketplace. We also reiterate that MDS is a heavily

encumbered service. Although conditional licenses in some markets for

one or more channels have been forfeited for failure to comply with

express conditions or to timely construct, in a majority of the markets

only small portions are unserved and few channels are available. Of the

thirteen MDS channels, it is possible that no channel remains available

for prospective bidders for as many as 59 of the cities of the top 100

ranked television markets. There are possibly two or less channel

available in as many as 90 percent of these market cities. Moreover,

the fixed 35-mile protected service areas of MDS incumbents, adopted

today in a separate proceeding, will occupy substantial portions of

most BTAs and typically cross BTA boundaries, especially in the eastern

half of the country where BTAs are relatively geographically smaller.

By enabling incumbents to continue providing interference-free service

to subscribers within the expanded 35-mile areas, it is likely that in

a substantial number of BTAs, it may be difficult, if not impossible,

for an auction winner to locate a station anywhere in the BTA to

provide both interference-free service and the necessary interference

protection to protected areas of incumbents; unless either the auction

winner is the incumbent, negotiates an interference agreement with the

incumbent or would acquire the authorization of the incumbent.\15\ We

emphasize that prospective bidders must carefully ascertain the extent

of incumbent operations and authorized but unconstructed facilities in

any BTAs prior to bidding. Further, where there remains outstanding at

the time of auction a pending application, petition for

reconsideration, reinstatement request or application for review

affecting any BTA, winning bidders would acquire any authorization

conditioned upon the outcome of Commission actions on such applications

or pleadings. Prospective bidders must consider the total impact of

incumbents in their valuation of the auction areas for competitive

bidding purposes.

\15\ In assessing MDS channel availability, we assumed that each

authorized or previously proposed MDS station has a protected

service area of 35 miles, i.e., the expanded service area adopted

today in a related order. Second Order on Reconsideration.

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15. With regard to the definition of the service area to be

authorized for MDS, we conclude that issuing authorizations by Basic

Trading Areas (BTA) reflects the best balance of competing

considerations. We considered several service area options including

Metropolitan Statistical Areas (MSA) and Rural Service Areas (RSA),\16\

the television Areas of Dominant Influence (ADI) and the analytically

similar Designated Market Areas (DMA),\17\ Basic Trading Areas (BTA)

and a combination of service areas that vary in size. The record

reflects that because many MSAs are much smaller than actual service

areas existing today, wireless cable stations licensed to different

entities in adjacent MSAs would have great difficulty providing service

to their MSA without causing harmful interference to systems in

adjacent areas. In some cases, operators who designed their systems to

maximize population, are serving subscribers located beyond the MSA in

which the transmission facilities are located. Furthermore, the record

indicates that the use of MSAs and RSAs would result in unnecessary

fragmentation of natural markets and in order to protect the boundaries

of adjacent MSAs and RSAs, in many cases, stations would have to

operate at extremely low levels of power. While simultaneous multiple

round bidding would permit the consolidation of interdependent MSAs and

RSAs, and licensees could acquire additional markets after auctions

through the assignment and transfer process, we believe that these

options may result in unproductive regulatory and transaction costs for

the Commission and applicants. We believe that the use of larger

service areas would alleviate these problems and would reduce the need

for and cost of interference coordination between neighboring

licensees.

\16\ MSAs and RSAs are used by the Commission in licensing

cellular radio systems. All of the 306 MSAs and 428 RSAs and the

counties they comprise are listed in Public Notice, Report No. CL-

92-40, ``Common Carrier Public Mobile Services Information, Cellular

MSA/RSA Markets and Counties,'' 7 FCC Rcd 742 (1992). See also 47

CFR 22.909.

\17\ DMAs are standard geographic areas developed by A.C.

Neilsen Company in which each county in the continental United

States is placed within one of the 211 DMAs, the lowest numbered DMA

having the highest population.

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16. ADIs and DMAs, on the other hand, tend to be much larger than

the area in which reliable MDS service is available using today's

technology. One commenter indicates that ADIs tend to be over seven

times the size of actual wireless cable protected service areas (of 710

square miles) and therefore concludes that ADIs are the least

appropriate service area for MDS. It explains that ADIs are designed

for television advertising measurement purposes and unlike wireless

cable, the signal of television stations and hence the size of ADIs are

attributed to cable carriage of television signals. Furthermore, the

cost of acquiring an ADI authorization through competitive bidding,

building systems and marketing services in the larger ADIs may

unnecessarily restrict entry to a small number of applicants. BTAs

offer a compromise in size that may best approximate MDS service areas.

Although varying in geographic shape and size, BTAs are bigger than

MSAs generally since they often include the MSA and surrounding

counties, thus mitigating harmful interference among adjacent areas.

BTAs offer sufficiently large service areas to allow applicants

flexibility in designing a system to maximize population coverage and

take advantage of economies of scale necessary to support a successful

operation. Yet BTAs are generally smaller than ADIs, making the initial

cost of acquiring the authorization through competitive bidding lower,

and therefore providing greater opportunity for participation by small

businesses, female and minority entrepreneurs and rural telephone

companies. The use of BTAs combined with geographic partitioning will

encourage further participation by a wide variety of applicants. See 47

U.S.C. 307(j)(4)(C). Finally, BTAs provide a manageable number of

discrete filing areas for competitive bidding purposes.

17. We recognize that the majority of the commenting parties

express support for the national filing window approach. We believe,

however, that using national filing windows would most likely result in

more of the very substantial processing and administrative delays that

have long plagued the development of the wireless

[[Page 36528]]

cable service. Given the history of the service, we believe such delays

are inherent in site-specific licensing, which would require analysis

of long-form applications containing the applicant's complete

engineering proposal before the competitive bidding process begins.

Since the national filing window approach would likely result in a

larger number of mutually exclusive applications and daisy-chains,

implementation would likely require significant Commission resources

and a substantial amount of time to conduct the multi-part auctions (to

resolve the daisy-chains) recommended by some commenters or otherwise

complete the competitive bidding process. We acknowledge the concerns

of some commenters that the licensing approach should afford MDS

licensees flexibility to locate systems wherever necessary to maximize

coverage. The record reflects that the success of the wireless cable

industry thus far has been based upon negotiated agreements with

neighboring system operators and strong partnerships with ITFS

licensees. The filing system and procedures we adopt herein are

expected to facilitate such negotiations and afford wireless cable

operators the flexibility to improve existing systems, introduce new

systems and implement digital technologies.

18. Indeed, the record indicates that geographic licensing may be

the most efficient method to these ends in a digital environment,

toward which the wireless cable industry is moving. The nature of

digital transmissions will allow more flexibility to tailor signal

coverage to geographic boundaries using multiple transmitting

facilities. We believe that our rules will facilitate the transition to

digital transmissions. If modification of our rules become necessary,

we will act promptly to ensure that our rules in no way impede the

digital future.

19. In response to the concern about the protected service areas

for MDS (BTAs) and ITFS being different, we must emphasize that the two

services have differing purposes and authorization procedures. One is

intended primarily to provide educational and cultural development to

students enrolled in accredited schools and the authorization is issued

to the best qualified applicant, while the other is commercial in

nature and is subject to competitive bidding. Furthermore, unlike MDS

stations, the protection afforded to ITFS operators is based upon

receive sites and protected service area is defined in 47 CFR 74.903.

Pursuant to this rule, the protected service area associated with the

lease of excess channel capacity will also expand to a circle, 35 miles

in radius, centered about the transmitter site of the ITFS stations. We

note, however, that in a recent proceeding we adopted a 35-mile

protection distance for ITFS receivers, a protection distance that is

compatible with many BTAs,\18\ and with the 35-mile protected service

area for MDS stations which are authorized or previously proposed that

we have separately adopted today. Second Order on Reconsideration.

\18\ Report and Order in MM Docket No. 93-24, 10 FCC Rcd 2907,

2917, 60 Fed. Reg. 20,241 (Apr. 25, 1995).

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20. For the reasons stated above, we believe that licensing by

geographic areas is the best approach for issuing MDS authorizations.

We decide not to adopt the approach presented in the Notice limiting

applications to predetermined sites identified by the Commission based

upon the locations of already authorized E, F or H channels where there

are usable channels. We agree with the commenters that this approach is

inflexible. An approach in which the Commission identifies the specific

site sacrifices the business judgment of the operators when they are in

the best position to consider market forces. Further, where there is

more than one site, the Commission would have to establish criteria for

choosing among the available locations. In addition, where identified

sites are unavailable to the highest bidders, the Commission would have

to process modification applications, which would actually decrease

overall processing efficiency and would delay service to the public.

21. We decline to adopt a preference for existing licensees and

system operators because we believe that, rather than place

restrictions on eligibility to participate based upon an applicant

having access to a minimum number of channels, it is in the public

interest to encourage participation from a wide variety of applicants.

Indeed, a new entrant into the wireless cable industry may place a

higher value on the spectrum than an incumbent licensee or system

operator in a given area. While we recognize that in some areas, the

existing licensee or operator may be in the best position to

immediately introduce competition to wired cable, we further believe

that a new entrant with sufficient resources will be able to accumulate

a sufficient critical mass of channels to launch a system in a market

through the competitive bidding process and through the assignment or

transfer of previously authorized channels. Thus, market forces will

lead to the accumulation of channels into one operating system.

1. Service Areas

22. We therefore will award MDS authorizations for entire BTA

service areas under competitive bidding procedures. BTAs were designed

by Rand McNally to represent the natural flow of commerce, comprising

areas within which consumers have a community of interest. Like the

other types of predetermined geographical areas, BTAs vary in size and

shape. Typically, a BTA includes a population center(s) (city or large

town) and the surrounding rural area. BTA boundaries are based on

country lines because most statistical information relevant to

marketing is published in terms of counties. The specific boundaries

were drawn after a study of several factors, such as physiography,

population distribution, economic activities, newspaper distribution

and transportation facilities.\19\

\19\ See Rand McNally 1992 Commercial Atlas & Marketing Guide at

39.

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23. We note that Rand McNally & Company is the copyright owner of

the Basic Trading Area and Major Trading Area Listings, which list the

counties contained in each BTA, as embodied in Rand McNally's Trading

Area System Diskette and geographically represented in the map

contained in Rand McNally's Commercial Atlas & Marketing Guide. Rand

McNally has licensed the use of its copyrighted MTA/BTA listings and

maps for certain services such as Personal Communications Services

(PCS), 800 MHz Specialized Mobile Radio Services (SMR) and Local

Multipoint Distribution Services (LMDS). Rand McNally had also reached

an agreement in principle with the American Mobile Telecommunications

Association (AMTA) for a blanket copyright license for the conditional

use of the copyrighted material in the 900 MHz SMR service. These

agreements authorize the conditional use of Rand McNally's copyrighted

material in connection with these particular services, require

interested persons using the material to include a legend on

reproductions (as specified in the license agreement) indicating Rand

McNally's ownership, and provide for a payment of a license fee to Rand

McNally.

24. Currently, MDS is not covered by any blanket copyright license

agreement. While current and prospective MDS licensees and other

parties interested in using the copyrighted materials may negotiate

[[Page 36529]]

their own licensing arrangement with Rand McNally, as in other

services, we encourage interested parties and Rand McNally to explore

the possibility of entering into blanket license agreements similar to

those noted above to cover MDS. In any event, we note further that an

MDS BTA authorization grantee who does not obtain a copyright license

(either through a blanket license agreement or some other arrangement)

from Rand McNally for use of the copyrighted material may not rely on

grant of a BTA-based authorization from the Commission as a defense to

any claim of copyright infringement brought by Rand McNally against

such grantee. The MTA/BTA Listings, the MTA/BTA Map and the license

agreements noted above are available for public inspection at the MDS

public reference room, Room 207, 2033 M Street, N.W., Washington, D.C.

25. The Commission will consider awarding the 487 BTA

authorizations in the United States, with the following additions to be

authorized as BTA-like areas: American Samoa, Guam, Northern Mariana

Islands, San Juan, Puerto Rico, Mayaguez/Aguadilla-Ponce, Puerto Rico,

and the United States Virgin Islands. Thus, a total of 493

authorizations will encompass all land areas within the United States

and related territory. We reiterate that, based on its geographic size,

and the extent of encumbrances, it may not be possible in a particular

BTA to design and select a station site for any MDS station without

negotiating an agreement with one or more affected, previously

authorized or proposed, cochannel or adjacent channel MDS or ITFS

stations. However, we are going to hold auctions initially for all BTAs

for which mutually exclusive, short-form applications are filed. The

Commission will announce the time and place of the auction and the

applicable bidding procedures by a future public notice. Applicants

wishing to participate in the auction process will file a short-form

application indicating each BTA service area for which they desire to

bid. To determine eligibility to apply for a BTA service area, we will

apply the same general eligibility requirements for an MDS

authorization.\20\ There is no restriction on the number of BTA service

areas for which any entity may apply or on the number of BTA

authorizations awarded to one entity. Incumbent MDS licensees,

conditional licensees and applicants and new entrants will be eligible.

Accordingly, prospective bidders will be able to aggregate adjacent

BTAs to utilize economies of scale that currently benefit wired cable

competitors. Selection from among the mutually exclusive applicants

will be determined through a simultaneous multiple round bidding

process. The auction winner for each BTA service area, if qualified,

will be awarded a BTA authorization. The protected service area lies

within the geographic boundary of that BTA, except as excluded by any

35-mile circle protected service areas of previously authorized or

proposed MDS stations and except for channels related to ITFS lease

agreements.

\20\ See 47 CFR 21.4, 21.17, 21.900, 21.912. Because we are

amending our rules to implement competitive bidding, our rules

regarding random selection and comparative consideration would not

apply to applications for new stations filed after the lifting of

the freeze. See 47 CFR 21.31, 21.914.

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2. Rights and Responsibilities of BTA Authorization Holder

26. The following paragraphs describe the service rules regarding

the rights and responsibilities of the holder of a BTA authorization,

the duration of those rights and how an event will alter the boundaries

of a protected MDS service area. For purposes of clarity, the

chronology of the events would occur as follows: (1) the 35-mile

protected service areas of incumbents will become fixed in place upon

the effective date of the Second Order on Reconsideration; (2) issuance

of public notices announcing auctions by geographic area, and

specifying the filing periods for short-form applications and upfront

payments; (3) issuance of a public notice identifying all applicants

determined to be qualified to bid (i.e., submitted acceptable short-

form applications and sufficient upfront payments); (4) competitive

bidding rounds; (5) after bidding has ended, the Commission would

declare bidding closed and would notify the auction winners, who would

then have five business days to make down payments and thirty business

days to file at least one long-form application; \21\ (6) following

review of the long-form applications, the Commission would issue a

public notice identifying those accepted and opening a thirty-day

period for filing petitions to deny; and (7) if no petitions to deny

are filed or if they are dismissed or denied, the Commission would

issue a public notice stating that the BTA authorization and the MDS

station license are ready to be issued Assuming that the auction winner

made full payment of its winning bid within five business days of this

public notice, the Commission would grant one or more conditional

station licenses for individual stations within the auction winner's

BTA service area and issue the BTA authorization for the entire BTA

service area.

\21\ If the BTA is so heavily encumbered that the winning bidder

is unable to file a long-form application for a station within the

BTA while protecting incumbents from harmful interference, the

winning bidder must file a statement of intention of use of the BTA,

accompanied by a current License Qualification Report (FCC Form

430), before the Commission issues the BTA authorization. See infra

at Paras. 118-120.

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27. Description of Authorization. The holder of a BTA authorization

may file one or more long-form applications seeking authority to

construct stations anywhere inside their BTA on usable MDS channels,

provided the specific engineering design meets the Commission's

interference protection standards to all authorized or previously

proposed MDS and ITFS facilities, and complies with the prescribed

signal strength limits at the BTA boundary, i.e., at all points along

the perimeter of the BTA. A separate conditional station license will

be awarded for each single channel or channel group at each site

location.\22\ For example, separate licenses will be issued for the E

Group, F Group and each of the three H Channels. In this Report and

Order, the initial license for the BTA service area will be referred to

as a ``BTA authorization'' and individual channels will be separately

licensed. Thus, we will distinguish between three different types of

authorizations for MDS facilities: (1) a ``BTA authorization'' awarded

to an auction winner of a particular BTA following the requisite long-

form application or statement of intention and requisite payment, (2) a

``station license for each individual station within the BTA'' service

area held by an auction winner, and (3) a ``station license'' for an

MDS facility authorized or previously proposed under the rules

predating the effective date of this Report and Order. Accordingly,

under the Commission's rules, as amended herein, the holder of a BTA

authorization would file a long-form application for each usable single

channel or channel group at each transmitter site within the auction

winner's BTA service area, and will have a later opportunity to file

amendments to correct any defects in the application. The construction

period specified in each conditional station license granted for the

individual

[[Page 36530]]

stations within the auction winner's BTA service area will be the five

year build-out date which runs from the grant date of the first

conditional license within the auction winner's BTA (granted the same

date as the BTA authorization). When the portion of the system

represented by a particular long-form application is constructed and

ready to begin operation, the holder of the BTA authorization will file

a corresponding certification of completion of construction. The

license term for those stations will be the same ten-year term as MDS

stations licensed prior to the adoption of this Report and Order. See

47 CFR 21.45. The ten-year term for the new licenses will commence on

the date the Commission declares bidding in the MDS auction to be

closed. The holder of a BTA authorization has a protected service area

that is coterminous with the boundaries of their BTA service area,

subject to exclusion of the protected service areas and/or locations of

authorized or previously proposed MDS and ITFS facilities, as further

discussed infra in para. 42. Individual station licenses that are a

part of a BTA service area will not have a uniquely associated

protected service area. The common protected service area of all

individual stations within the BTA authorization will be the boundary

of that BTA.

\22\ This in no way should be interpreted to reflect on other

services where we are eliminating site licensing. See Further Notice

of Proposed Rule Making in PR Docket No. 93-144 and PP Docket No.

93-253, FCC 94-271 (released Nov. 4, 1994), 59 FR 60111 (Nov. 22,

1994); Second Report and Order and Second Further Notice of Proposed

Rule Making in PR Docket No. 89-553, PP Docket No. 93-253, and GN

Docket No. 93-252, FCC 95-159 (released April 17, 1995), 60 FR 21987

(May 4, 1995).

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28. We emphasize that the actual service areas can be tailored

through voluntary agreements among the affected parties. Although our

rules indicate that the holders of BTA authorizations must locate all

transmitter sites within the boundaries of the BTA and may not cause

interference in adjacent BTAs, the interference rights may be modified

through negotiation and written agreements. The MDS station facilities

within the auction winner's BTA may be expanded or modified throughout

the BTA service area so long as the system continues to be in

compliance with our technical rules and protects incumbent MDS and ITFS

facilities. The facilities may be expanded beyond the BTA or into the

protected service area of an incumbent with an agreement from the

entity that controls the adjacent BTA or the incumbent protected 35-

mile circular area.

29. Consistent with our goal of establishing filing procedures and

policies that will encourage the accumulation of a full complement of

channels necessary for a viable MDS system, only the BTA authorization

holder will be qualified to submit any new application for MDS use of

available ITFS frequencies within the BTA in accordance with 47 CFR

74.990(a), and the ITFS application procedures of Sec. 74.991. ITFS

station licensees and prospective ITFS applicants that seek to

construct and operate new ITFS facilities located within a BTA and that

choose to lease excess channel capacity will be free to negotiate with

any potential lessee, including the holder of the BTA. In furtherance

of our goal of accumulating a full complement of channels, however, the

holder of the BTA will be afforded the right to match the final offer

of any proposed lessee. Should the holder of the BTA decline to

exercise such right, then the ITFS applicant can enter into a lease

arrangement with any operator it so chooses. This is not intended to

interfere with present contractual rights that are in effect or renewal

of those rights. In the case where a BTA authorization holder is the

licensee of ITFS channels, the associated protected service area will

be the entire BTA, and interference protection will be governed in the

manner for protecting BTA service on MDS channels. However, in the case

where a BTA authorization holder leases excess channel capacity from an

ITFS licensee, the protected area will be a 35-mile circle centered

around the particular ITFS station in the BTA that leases the channels.

We will afford this area the same protection generally afforded under

our ITFS rules. BTA authorization holders in adjacent BTAs must protect

points on the 35-mile circle using cochannel and adjacent channel

desired-to-undesired signal strength rations of 45 dB and 0 dB,

respectively. A special case will occur whenever BTA authorization

holders in adjacent BTAs both lease the same ITFS channel group, such

that the 35-mile protected circle of each extends into the BTA of the

other. In this regard, we will expect the respective ITFS entities and

BTA holders to reach an agreement concerning interference protection

near their common boundary. Moreover, a BTA authorization holder will

not be required to protect that portion of the 35-mile circle

associated with the other authorization holder that falls on his or her

side of the boundary. We believe that this approach will promote our

policy objectives for this service and will similarly have only a

positive effect on the continued successful development of ITFS with

the ever expanding financial support for that service provided by

wireless cable operators.

30. The available MDS spectrum within a BTA authorization will

increase if the unconstructed facilities or unused channels held by an

MDS incumbent with transmitter site locations within a particular BTA

are forfeited or if previously proposed conditional licenses or

modifications are not granted. The holders of the BTA authorizations

obtain contingent rights to this spectrum when they receive their

authorizations, so that the forfeited channels will revert and become

part of the BTA authorization up to the boundary of the BTA. The holder

of the BTA authorization may subsequently file long-form applications

for the forfeited channels, provided the specific station design meets

the Commission's interference protection standards. Such a policy

provides an incentive for the holders of BTA authorizations to find and

document such warehousing violations, resulting in efficient use of

fallow spectrum. In addition, authorization rights may be revoked or

terminated because of gross misconduct, misrepresentation or bad faith

by an applicant. Other events may also change the protected service

area, such as the end of the five year build-out period, an assignment

or transfer or partitioning of the BTA. These events are discussed in

detail below.

31. Five Year Build-out Period. The build-out period in which the

holder of a BTA authorization is permitted to expand service or

initiate new service within their BTA service area will be five years.

Specifically, we will provide the BTA authorization holder five years

from the grant date of the initial BTA authorization to construct and

operate the system. The purpose of this requirement is to ensure that

service is promptly delivered to the public. See 47 U.S.C.

309(j)(4)(B). This five year build-out period is not extended by the

grant of subsequent authorizations, such as the grant of a long-form or

modification application for an individual station within the BTA

service area. We will require the holder of a BTA authorization to

submit a showing to the Commission five years after the BTA

authorization was issued demonstrating that it is providing a signal

level sufficient to provide adequate service to approximately two-

thirds of the population of the area within its control in the licensed

BTA. The holder of the BTA authorization must submit maps and other

supporting documents showing compliance with this construction

requirement. The Commission, in evaluating the showing, may consider

line-of-sight obstructions and the ability to provide service without

causing harmful interference to other MDS or ITFS facilities. If the

holder of the BTA fails to cover any of the BTA, it will forfeit the

authorization

[[Page 36531]]

and it will be ineligible to regain it. If the Commission determines

that there are usable channels in an unserved or underserved area of

the BTA, the Commission would partition the area along geopolitical

boundaries and issue a public notice establishing the reauction of the

partitioned area. This public notice would announce the auction or

auctions by geographic area, specifying the filing period for short-

form applications and the applicable bidding procedures. The holder of

the BTA will forfeit the partitioned service area and will be

ineligible to bid on it. We believe that this coverage policy is

reasonable and will result in the channels being made available to

applicants who will provide service to the public. We further believe

that this will deter the warehousing of channels and ensure that the

spectrum is being effectively utilized for MDS.

32. Assignment or Transfer of Control. The holders of BTA

authorizations and MDS incumbents may negotiate mergers, buyouts,

channel swaps, channel splits or make similar arrangements on a

voluntary basis, pursuant to the general assignment and transfer

provisions of 47 CFR 21.38. Both parties are generally permitted to buy

from and sell authorizations to each other and to third parties, with

few limitations.

33. Additional spectrum may be acquired by the holder of a BTA

authorization through buyouts of incumbent licensees within their

authorized BTA service area. As is the case with ITFS licensees,

wireless cable operators may also acquire spectrum through leasing

agreements with incumbents. In this case, the protected service area of

the acquired station will extend to the BTA boundary or the existing

35-mile protected circular area (from the incumbent), whichever is

larger. The holder of the BTA authorization may assign or transfer

control of its entire BTA, which will include all authorized stations,

subject to the unjust enrichment provisions for designated entities.

See infra at Paras. 147.152. Such an assignment or transfer of an

entire BTA may also include unserved areas so long as the five year

build-out period has not expired. If a BTA authorization is assigned or

transferred, the new holder of the BTA authorization is held to the

original build-out period. The holder of the BTA authorization may also

partition portions of the BTA along geopolitical boundaries under our

partitioning rules, discussed below, and contract with eligible

parties, allowing such parties to file long-form applications for the

usable MDS channels within that area. We believe that allowing the

partitioning of portions of the BTA service area will encourage

provision of service to rural areas, which will promote the most

efficient use of the spectrum. See 47 U.S.C. 309(j)(3)(A) (instructing

the Commission to promote the development and rapid deployment of new

technologies, products, and services for the benefit of the public,

including those residing in rural areas).

34. Partitioning. During the five year build-out period, we will

permit the holder of a BTA authorization to partition portions of its

BTA authorization and enter into contracts with eligible parties, allow

such parties to file long-form applications for the usable MDS channels

within that partitioned area. The BTA may be partitioned along

geopolitical boundaries, and the Commission may grant such

applications, provided they are in compliance with the rules. Also, a

holder of a BTA authorization will be permitted to add to its service

area by acquiring a partitioned service area from the holder of an

adjacent BTA. Following grant of such an application, the authorization

will be referred to as ``partitioned service area.'' The holder of a

partitioned service area would, in effect, then hold something similar

to a BTA authorization for the partitioned area. The protected service

area will become or expand to the boundaries partitioned along the

designated geopolitical boundaries and the same technical rules will

apply, including the limiting signal strength at the boundaries of the

partitioned area. Accordingly, the construction period for the

partitioned service area will be the remaining portion of the five year

build-out and at the end of this five year period, the holder of the

partitioned service area must demonstrate that it is providing

substantial service to the partitioned area. Once construction is

complete, the license term will run ten years from the date the

Commission declared bidding in the MDS auction to be closed.

35. We believe that allowing holders of the BTA authorizations to

partition will facilitate the provision of service to small markets and

rural areas, some of which currently have no source of multichannel

video programming. Partitioning will also promote the most efficient

use of the spectrum and encourage participation by a wide variety of

entities, including small businesses, rural telephone companies, and

businesses owned by members of minority groups and women. See 47 U.S.C.

309(j) (3)(B), (3)(D) and (4)(C).

36. Technical Rights and Responsibilities. In determining

interference protection standards and other technical provisions under

this new approach to MDS authorization of service, our objectives are

two-fold: (1) to provide maximum flexibility to allow both new BTA

authorization holders and current MDS licensees, conditional licensees,

and applicants to develop and expand service in the most rapid and

economically feasible manner, and (2) to assure that the introduction

of new MDS service will not result in objectionable interference to the

services of incumbent stations and will minimize insofar as possible

the extent of potential interference within BTA service areas. These

objectives and the provisions herein take into account the extent to

which the current service has been built around successful negotiations

among neighboring operators and/or licensees, as well as prospective

operators and licensees. We fully expect this spirit of cooperation and

accommodation to continue and, while we will adopt interference

protection provisions for BTA and incumbent service, we will allow and

indeed encourage the holders of BTA authorizations and incumbents to

work out mutually agreeable interference concerns with other

potentially affected parties whenever possible.

37. As a result of this Report and Order and a separate MDS order

we are adopting today, protected service areas for BTA authorization

holders and MDS incumbents will be defined differently. Second Order on

Reconsideration at Paras. 2-31. We believe this approach will best

facilitate the full development of incumbent wireless cable systems,

many of which already have secured the desired transmitting site, and

serve subscribers within a metropolitan area from a single site. In

addition, this approach may allow the rapid expansion of new MDS

service into other unserved portions of BTAs. We adopt an idea

contemplated in the Notice, that the perimeter of a predetermined

geographic area (BTA) generally defines its protected area. The holders

of BTA authorizations will not be permitted to cause interference

within the boundaries of an adjacent BTA, without the consent of the

affected authorization holder. When such interference occurs, an

offending party will be expected to act promptly to eliminate any

unwanted interference in another operator's BTA.

38. Interference among adjacent BTA operators will be partially

controlled by establishing an allowable limit for a station's predicted

signal strength at all points along a BTA boundary. The same

[[Page 36532]]

limiting signal strength will apply at the boundaries of every BTA,

regardless of its size or shape. An exception to this limit would be

justified where a single entity obtains authorization for adjacent

BTAs. While we recognize that several commenting parties are concerned

that an MDS signal simply does not stop at the area boundary, we

believe the level of limiting signal strength given below, together

with the multitude of available interferences abatement techniques,

will facilitate control of interference between BTA authorization

holders in adjoining BTAs. Interference levels to BTA holders from MDS

incumbent stations will be partially governed by establishing the same

maximum allowable signal strength along the boundary of incumbents' 35-

mile circular areas, the expanded area provided in the Second Order on

Reconsideration.

39. At first glance, it would appear that the approach to

interference control between adjacent BTAs would be ineffective, given

that the levels of desired (D) and undesired (U) could be the same at

the common boundary between BTAs. The resulting desired-to-undesired

signal strength ratio (D/U) of 0 dB falls well below the 45 dB standard

now governing interference between MDS stations operating on the same

channel. However, taking the signal suppressing effects of receiving

antennas into account and further assuming that the desired and

undesired signals are coming from opposite sides of the BTA boundary,

the D/U ratio improves to as much as 25 dB. If we further expect that,

in most cases, stations on opposite sides of the boundary would operate

with different antenna polarizations, then the D/U ratio further

improves to 45 dB. These numbers are based on the characteristics of

the standard MDS receiving antenna found in 47 CFR 21.902(f).

Alternatively, station operators on opposite sides of a BTA boundary

may design their facilities with agreements between affected parties to

operate on a frequency offset basis, with a less restrictive D/U ratio

of 28 dB necessary to prevent cochannel interference in this situation.

Indeed, a host of interference abatement techniques could be employed

to prevent interference near BTA boundaries. Admittedly, this approach

relies more on operator interference agreements and the honoring of

another's interference rights than it does on applying rigid

interference standards in the processing of applications. However, if

we were to mandate strict compliance with the 45 dB cochannel and 0 dB

adjacent channel D/U signal strength ratios (the current MDS

interference standards) to protect BTA service at the BTA boundary, we

believe there would be populated areas within a substantial number of

BTAs that may never be served due to the irregular sizes and shapes of

BTAs. Moreover, as we have indicated, given the nature and history of

the service, as well as the likelihood that auction participants will

be experienced in conducting negotiations, we believe that we can

prevent unwanted interference by relying primarily on negotiated

agreements and voluntary compliance with our interference right-of-

ways, which we will enforce as necessary. Thus, we consider our

limitation of signal strength at the BTA boundaries and incumbent

service areas as a secondary means of interference protection.

40. Inasmuch as incumbent stations lie within BTAs and authorized

BTA stations will not have their own protected service areas,

interference from incumbent stations can only be governed by agreements

between affected parties, and indirectly, by placing a limiting value

on the strength of the signal at the boundary of incumbent MDS

stations. A signal strength, regardless of its numerical value, will

not by itself eliminate the potential for interference from incumbent

stations. Terrain shielding and other abatement techniques will also be

helpful in this regard; however, the most effective means of

controlling interference will be the agreements between BTA

authorization holders and incumbent MDS licensees, which, for example,

may stipulate that an incumbent utilize a directional antenna pointed

away from the affected BTA.

41. We have selected as the limiting signal strength a power flux

density value of -73 dBw/m2. This value corresponds to a received

power level of approximately -83 dBw (decibels above 1 watt) or -53 dBm

(decibels above 1 milliwatt), given a receiver antenna with a maximum

gain of 20 dBi. A power flux density value is used because ``free

space'' propagation is the model long used in the MDS service. This

variable depends only on the level of power radiated from a

transmitting antenna and the distance between the transmitting and

receiving locations. The value of -73 dBw/m2 was selected because

it is the ``free space'' value of power flux density achieved with an

equivalent isotropically radiated power (EIRP) of 2,000 watts (the

maximum allowable EIRP in the MDS service where omni-directional

antennas are used) at a distance separation of 35 miles. This numerical

value is stronger than the power flux density achieved under standards

used in the MDS service for many years, i.e., a value of -75.6 dBw/

m2 is achieved with 200 watts of EIRP at a distance of 15 miles.

Moreover, based on the record in the Second Order on Reconsideration,

it is clear that many wireless cable systems serve a substantial

subscriber base at distances of 35 miles or even greater. Thus, we

conclude that the selection of this value of limiting signal strength

will generally enable service over unobstructed signal propagation

paths at the 35-mile boundary of an incumbent's transmitting

facilities. The ability to achieve this signal level at a BTA boundary

will vary considerably, depending on the size of the BTA and the

placement of a transmitting facility. Clearly, because of their large

size, service of many BTAs will require multiple transmitting

facilities.

42. In the Notice we stated our intention not to change the

interference protection standards applied ``at points along the service

contours of protected facilities.'' Notice at 7674. Accordingly, BTA

authorization holders will be required to design their transmitting

facilities to protect points along the 35-mile circles and points

within the protected service areas of incumbents' licensed stations,

conditionally licensed stations, or previously proposed applications.

Specifically, stations proposed in BTA long-form applications must meet

the 45 dB and 0 dB cochannel and adjacent channel desired-to-undesired

signal strength ratios at the boundary of each protected 35-mile

circle. We will also continue to use these stricter protection

standards within incumbents' protected service areas. Unlike BTA

service, which does not yet exist, incumbent stations have an

established subscriber base in many cities and rural areas throughout

the country. Wireless cable systems were carefully crafted, both

through engineering design, site location and negotiation among

affected parties, and in partial reliance on the Commission's

protection standards. To a considerable extent, these systems provide

interference-free reception to subscribers, many out to distances

beyond 35 miles. Because many wireless cable systems have been serving

subscribers well beyond their current 710 square mile protected service

area, we do not wish to disrupt existing service patterns which compete

with wired cable systems.

43. The holders of BTA authorizations within 80 kilometers (50

miles) of the Canadian or Mexican borders, may only operate on MDS

channels pursuant to the restrictions in international

[[Page 36533]]

agreements. Thus, applicants considering authorizations for these BTAs

should consider the impact of the additional border requirements in

their valuation of the service areas for competitive bidding purposes.

3. Treatment of Incumbents

44. As we have stated, a principal objective in this proceeding is

to allow incumbents to continue existing operations without

objectionable interference from new MDS operations and to allow them

sufficient flexibility to modify their facilities to respond to market

forces. Expansion of the protected service boundary to 35 miles will

increase an incumbents' service area from 710 square miles to 3848

square miles, which will allow for the future orderly development of

wireless cable systems, particularly as digital technology is

introduced. Second Order on Reconsideration at Paras. 2-31.

45. Incumbents, unless they also control the adjacent BTA territory

(either as BTA authorization holders or through interference

agreements) will not be free to expand further their service area into

the adjacent BTA. The manner we choose to prevent such occurrences is

to define a limiting power flux density of -73 dBw/m2, which may

not be exceeded at points along the 35-mile protected service area.

Subject only to this limitation, incumbents will be free to file long-

form applications at any time to modify their facilities or add

facilities such as signal boosters. In a small number of cases

involving directional antennas, an incumbent's power flux density may

already exceed -73 dBw/m2, for signal paths in some directions at

a distance of 35 miles. In such cases, we would not force the incumbent

to reduce the signal strength to the allowable limit, nor would we

allow the signal level to increase. Incumbents who propose to modify

their stations must continue to seek prior Commission approval pursuant

to 47 C.F.R. Secs. 21.40 through 21.42, and include any agreements with

the holder(s) of a BTA authorization(s). All other current rules

continue to apply to MDS incumbents unless specifically amended.

46. Finally, since the incumbents' 35-mile protected circles will

be embedded within one or more BTAs, to prevent additional encroachment

into a BTA we must at some point fix the 35-mile circles around a

permanent reference point, absent an interference agreement with a BTA

authorization holder. Accordingly, on the effective date of the rules

adopted in the Second Order on Reconsideration, we will permanently fix

the location of the protected 35-mile circles in the following manner.

For incumbent licensees with no conditional licenses or pending

applications, the ``protected reference coordinates'' will be those of

the current site. Subsequent changes in site location would be

permitted; however, the 35-mile circle would remain centered about the

previous site coordinates. For incumbents having only a conditional

license or a new station application pending before the effective date,

the site coordinates specified for the conditional license or pending

application will become the reference coordinates. In cases where an

incumbent has two or more authorizations and/or pending applications on

the effective date, the reference coordinates in each authorization

and/or application will be provisionally treated as the permanent

reference coordinates of the protected circle. Eventually, pending

applications will be disposed of and conditional licenses will either

become licenses or be forfeited for failure to construct.

4. Alternative Uses of MDS Frequencies

47. The principal use of MDS frequencies is wireless cable service.

Under Section 21.903(a) of the Commission's rules, 47 C.F.R.

Sec. 21.903(a), MDS stations are ``generally intended to provide one-

way radio transmission (usually in an omnidirectional pattern) from a

stationary transmitter to multiple receiving facilities located at

fixed points.'' At the same time, our rules permit use of MDS

frequencies for other kinds of services. Section 21.903(b), 47 C.F.R.

Sec. 21.903(b), states that ``[u]nless otherwise directed or

conditioned in the applicable instrument of authorization, Multipoint

Distribution Service stations may render any kind of communications

service consistent with the Commission's rules on a common carrier or

on a non-common carrier basis * * *.'' We wish to emphasize that

nothing in this Report and Order precludes either new licensees or

incumbents from using MDS frequencies for other kinds of services

pursuant to 47 C.F.R. Sec. 21.903(b). We note, however, that such

applicants may need to apply for waivers of certain MDS technical

rules, such as 47 C.F.R. Secs. 21.903(a) and 21.906.

B. Interference Criteria and Data Elements

48. Proposals. As a complement to the filing proposals and

electronic procedures, the Notice proposed to adopt a technical

equation as the basis for the ``free space'' interference protection

calculations. The Commission's MDS engineers currently utilize this

formula and it is recognized by engineering consulting firms in the

wireless cable industry:

The received signal power level (RSL)dBW at the output of the

FCC reference receiving antenna is obtained from the following:\23\

\23\ Leon W. Couch II, Digital and Analog Communication Systems,

p. 384 (3rd ed. 1990).

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(RSL)dBW=(EIRP)dBW-(LFS)dB+(GAR)dB

where the free space loss (LFS)dB is (LFS)dB=20 log

(4d/) dB

In these equations, (RSL)dBW is received power in decibels

referenced to one watt, (EIRP)dBW is equivalent isotropically

radiated power in decibels above one watt, d is the distance of the

signal path in meters, is the wavelength of the signal in

meters, and GAR is the gain of the reference receiving antenna, as

obtained in 47 C.F.R. Sec. 21.902(f)(3), Figure 1. The Notice proposed

to formalize the above equations by adopting them as a rule provision

as part of a plan to implement computerized interference studies.

Additionally, the Notice stated that we will require proposed

facilities to meet the 45 dB and 0 dB cochannel and adjacent channel

desired-to-undesired signal strength ratios at points along the service

contours of protected facilities which were authorized under the

current interference standards. With regard to long-form applications,

we proposed to retain the requirement in 47 C.F.R. Sec. 21.902, that an

applicant perform analyses of the potential for harmful interference

and serve such interference studies upon the authorized or previously

proposed station applicants, conditional licensees or licensees

required to be studied, but we would not require the submission of a

list of those served at the time the long-form application was filed.

We explained that, on the revised long-form application form, the

applicant would supply certain crucial data elements describing the

station parameters, such as antenna polarization and the station EIRP,

while the Commission staff would perform interference analyses using a

computer program. The Notice stated that, although the submission of

interference or other engineering analyses would not be required with

the long-form application, we would require the applicant to make the

records available for Commission inspection upon request. We also

questioned in the Notice whether we should eliminate signal contour

maps as a required part of the interference studies.

49. Pursuant to our streamlining effort, the Notice proposed to

improve the current application form used for

[[Page 36534]]

new MDS stations, FCC Form 494,\24\ by excluding certain data elements

which have yielded information that is no longer necessary or of only

marginal utility. Specifically, we proposed to eliminate queries

regarding the antenna vertical sketch and the narrative description of

why grant of the application would be in the public interest. We

further proposed to exclude the following parameters of the

transmission system: transmitter manufacturer and model number,

transmitter output power, transmitting antenna gain and the

specification of transmission line and other transmission losses. We

observed that with regard to transmitters, we are only concerned that

MDS licensees operate transmitters that are ``type-accepted'' by the

Commission for use in this service. Accordingly, we proposed to

eliminate the requirement that the applicant identify the transmitter

make and model, and simply require that the conditional licensee

certify that its transmitter is ``type-accepted'' in its certification

of completion of construction, currently FCC Form 494A. The MDS rules

now provide for a maximum EIRP, rather than a maximum value for

transmitter output power. See 47 CFR 21.904. Thus, the Notice stated,

so long as the EIRP remains within the limits of Section 21.904, it is

not necessary to require applicants to specify the equipment parameters

used to calculate EIRP. The Notice also proposed to allow changes to

these transmission parameters without notification to the Commission,

provided the resulting EIRP would not change. The station power to be

specified on the application form would be the maximum EIRP in the

horizontal plane, i.e., the EIRP at an angle of zero degrees in the

vertical plane. We proposed to permit electrical beam tilting of

antennas; however, in all cases, applicants would be required to

specify the EIRP in the zero degree vertical (horizontal) plane. Where

beam tilting is employed, the EIRP at the zero degree vertical angle

will be less than the maximum EIRP at the tilt angle, due to the

vertical suppression characteristic of the transmitting antenna. In

most instances, this value of EIRP closely approximates the power

radiated to the radio horizon which is most relevant to interference

analysis. By proceeding in this manner, we would not need to collect

data on antenna vertical radiation patterns.

\24\ Since Form 494 is a multi-purpose form that is used for

other services, to the extent that we are proposing changes, we

intend to create a different form to be used for MDS.

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50. The Notice proposed to further modify the long-form application

in an effort to make the form compatible with an electronic filing

system. At the present time, we propose to use a new long-form

application together with the current FCC Form 430, the Licensee

Qualification Report. An appendix to the Notice listed data elements

and other informational items for our proposed new electronic

application form, including general, engineering and legal elements.

For example, we proposed to retain engineering data elements necessary

for analysis of interference or possible air safety hazards, such as

transmitting antenna site coordinates, EIRP, antenna polarization, site

elevation and antenna structure height above ground. Other data would

be used to verify an applicant's compliance with a particular

Commission rule, such as when antenna beam width is used to calculate

the maximum allowable EIRP of a station using a directional

transmitting antenna. We also proposed to retain applicant responses

which demonstrate compliance with a particular statutory requirement,

such as an environmental assessment.

51. In reference to applicants locating stations in areas where

notification or coordination with Canada or Mexico is required by

international agreement, the Notice indicated that these applicants

would be required to submit the following additional technical data,

which were not proposed as standard data elements in the electronic

long-form application: transmitter output power, transmitting antenna

gain and transmission line loss. In addition to the EIRP at a vertical

angle of zero degrees, applicants in the border areas will be required

to specify the maximum EIRP at the vertical angle corresponding to the

beam tilt. The Notice explained that the additional data requirements

could be submitted in a textual exhibit to the electronic application

or a paper supplement.

52. Resolution. With some additional clarification, we will adopt

the proposals raised in the Notice, including the free space equation

and the proposed data elements for the long-form application. A draft

long-form application, FCC Form 304, is attached to the Report and

Order.\25\ We will develop computer programs that will help to

streamline the processing of the long-form and modification

applications of MDS incumbents and BTA authorization holders. A program

is being designed that will perform cochannel and adjacent channel

interference analysis at one degree intervals along the protected 35-

mile circle of incumbents' authorized stations or protected station

proposals. This program, as envisioned, will use the Commission's

three-second terrain data base to check for unobstructed signal paths

between the site of the station being studied and points along the

incumbent's protected contour. For those radials on which line-of-sight

conditions do not exist, either due to a terrain obstruction or the

earth's curvature, the program will conclude that interference would

not occur at that point. We note, following long-standing Commission

practice, that all line-of-sight determinations will assume a receiver

height of 30 feet and a standard 4/3 earth radius for determining the

electrical horizon. Where line-of-sight conditions exist, the program

would first determine the proposed station's EIRP in the pertinent

direction, based on the EIRP and horizontal relative field strength

tabulation given in the application. The received signal power level of

the proposed station, the ``undesired signal'' (U), will then be

calculated using the free space equation. The value of the receiver

antenna gain in this calculation will depend on the angular

relationship between the radial azimuth and the orientation of the

receiving antenna. We will assume that the latter is pointed toward the

station being received. The gain will also depend on whether the

proposed station is cross polarized or co-polarized with respect to the

protected station. The receiving antenna gain will be that of the

reference receiving antenna found in Section 21.902(f)(3), Figure 1 of

the Commission's rules. We here establish a fixed value for the

``desired signal'' level at the 35-mile boundary. Assuming a receiver

antenna gain of 20 dB above an isotropic antenna, an EIRP of 2000 watts

(33 dBw) and a frequency of 2638 MHz, the midpoint frequency between

channels E1 and H3, the free space propagation equation gives a value

of -82.9 dBw. Our computer program will therefore use a received power

level (``D'') of -83 dBw as the value of the desired signal strength.

Finally, the program will compute the value of the desired-to-undesired

signal strength ratio (``D/U''), which is logarithmic units is

expressed as D - U. This value will be tested against the minimum

standard of 45 dB.

\25\ The Office of Management and Budget has not yet approved

the FCC Form 304 pursuant to the Paperwork Reduction Act. A public

notice will be issued when the new form has been approved and is

available for use.

[[Page 36535]]

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53. Another program is being designed that will analyze the impact

of incumbents' modification applications. This program will analyze 360

radials spaced by one degree, first checking for unobstructed line-of-

sight paths to the 35-mile boundary and, for clear paths, calculating

the free space signal strength that would result from the modification

and comparing it to the maximum allowable limit; that is, a power flux

density value of -73 dBw/m \2\. To the extent that we are not

constrained by licensing agreements with third parties and to the

extent resources are available, we will make our computer programs

available to the public. This will be announced in a subsequent public

notice.

54. We emphasize that we will use computer models as application

processing tools. Similar processing tools have been successfully used

for Low Power Television Service with very few reported cases of

interference to television reception, none of which occurred inside of

a station's protected contour. The MDS interference standards should

not be confused with the processing methods, which can only approximate

the standard. For example, under the interference standards, incuments'

35-mile areas are to be protected not only at points along the

boundary, but also within the boundary.

55. Although, as applicable, we will require MDS applicants to

prepare interference analyses or notification of application filings,

and serve these on potentially affected parties, we will generally not

require that such studies or a list of the parties served be included

with applications. However, since electronic filing will be implemented

in this service on a voluntary basis, we will allow applicants to

submit interference studies with their applications on a voluntary

basis. Applicants may also submit negotiated agreements of tailored

interference protection or operation on the basis of frequency offset.

Applicants may submit terrain shielding studies based on methods of

their own choosing, including shadow maps. There are no universally

accepted methods for terrain shielding studies given the widely varying

characteristics of terrain features. Therefore, we believe it is

appropriate to afford applicants the flexibility to select a terrain

model suitable to the terrain being analyzed. Additionally, we are

persuaded by the comments that interference studies should no longer be

required to include contour maps. As Marshall points out, contour lines

can be used in several ways and are most useful when drawn on a terrain

shadow map, which is not a required element in the application process.

Applicants may continue to prepare interference studies with D/U

contour lines at their discretion. Given the structure and processing

tools associated with our new licensing approach for the MDS service,

we will not prescribe how applicants' interference studies are to be

conducted. Further, potentially affected parties who are served a study

and disagree with its conclusions may file a petition to deny an

application.

56. As contemplated in our Notice, we intended to streamline our

application forms in accordance with our actions herein. We are,

therefore, directing the staff to incorporate as appropriate those data

elements previously listed in the Notice into a revised and reformatted

long-form application for use in the future by MDS applicants seeking

to construct new stations or to make changes in their authorized

facilities.

C. Electronic Filing and Electronic Fee Payments

57. Proposals. In the Notice we invited comment on the feasibility

of utilizing mandatory electronic filing for new MDS applications, on

whether ITFS applicants should be required to file applications for new

stations electronically on a combined application form,\26\ and on

whether there should be a paper exception for those educators that are

not financially supported by a wireless cable operator. Notice at 7676-

77. The Notice suggested that communication links could be used to

exchange application date between applicants and the Commission, thus

minimizing the filing of paper with the Commission and allowing the

Commission to process MDS and ITFS applications more efficiently.

Pursuant to the proposal, an electronic form would be designed for

personal computers using a Windows based environment, and consisting of

a series of computer screens. One possible approach identified in the

Notice involves the use of electronic mailboxes such as that of a Value

Added Network (VAN). Applicants would transmit relevant data from their

personal computer to a VAN electronic mailbox. The VAN would, in turn,

convert the data into a format compatible with Commission files and

download the information to an electronic mailbox at the Commission. In

the Notice, we recognized the possible limitations of this approach

with respect to maps and other graphic representations. We envisioned

that the public would have on-line viewing access to our data bases,

perhaps through a third-party vendor in addition to access at the

Commission's public reference room.

\1\ In 1992, Congress amended the Communications Act of 1934 to

permit the electronic filing of license and construction permit

applications. See Telecommunications Authorization Act of 1992, Pub.

L. No. 102-538, Sec. 204, 106 Stat. 3533, 3543, codified at 47

U.S.C. Secs. 308(b) and 319(a). Such applications may be signed ``in

any manner or form, including by electronic means, as the Commission

may prescribed by regulation.'' Id.

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58. In the Notice, we also proposed expanding the acceptable

methods of payment for application fee to include electronic payment

under 47 C.F.R. Sec. 1.1109.\27\ We stated our intention of announcing

the procedures for the electronic payment of fees in a public notice,

pursuant to Section 1.1109(a)(1). We sought comment regarding a fee

system where applicants use a unique fee payor number together with an

appropriate service code and a suffix in cases where applicants file

multiple applications, in order to link the fee payment with the

electronically filed application.

\27\ The Commission recently amended 47 C.F.R. Secs. 1.1108 and

1.1109 to permit the electronic filing of fee payments, initially on

an experimental basis. Implementation of Section 9 of the

Communications Act, Report and Order in MD Docket No. 94-19, FCC No.

94-140 (released June 8, 1994). 59 Fed. Reg. 30,984 (June 16, 1994)

at Paras. 50-51.

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59. Resolution. We will authorize voluntary electronic filing for

new MDS applications. Use of an electronic filing system is not as

essential under the filing approach we adopt today because we

anticipate that fewer long-form applications will be filed. We also

considered the burden on educators and determined that applications for

new ITFS stations will not be included at this time. We appreciate the

concerns expressed by commenters, including the cost to applicants of

implementing and using electronic filing, data security and system

reliability issues. We will take these concerns into account in

deciding upon the software which will be used and the access method for

electronic filing. We agree with commenters who encourage the

Commission to evaluate carefully alternative electronic filing

approaches and who suggest a transition period from paper filing to

electronic filing. At the present time, we decline to accept the

proposal put forth by Pepper regarding the establishment of a committee

to recommend Commission-wide standards and procedures for all services,

noting that the merits associated with the formation of such a

committee would be outweighed by factors such as delayed decision

making and implementation of electronic filing. Through subsequent

public notices we will provide specific details concerning

[[Page 36536]]

the method for electronically filing MDS applications. We will also

authorize electronic fee payment for MDS applications. Current methods

of payment available under 47 CFR 1.1109 will continue to be accepted.

As our resources permit, we will work toward improved viewing access to

the data bases.

D. Competitive Bidding Procedures

1. Competitive Bidding Background

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

1993 (Budget Act) added a new section 309(j) to the Communications Act

of 1934, as amended, 47 U.S.C. 151-611 (Communications Act). This

amendment to the Communications Act gave the Commission express

authority to employ competitive bidding procedures to choose from among

mutually exclusive applications for certain initial licenses. The

Commission adopted a Notice of Proposed Rule Making in the competitive

bidding proceeding on September 23, 1993.\28\ In it March 8, 1994

Second Report and Order,\29\ the Commission established general rules

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

used for all auctionable services, including MDS. We indicated in the

Second Report and Order that in subsequent Reports and Orders we would

set forth specific competitive bidding rules that would be applicable

to individual services. To date, the Commission has established

competitive bidding rules specifically applicable to, and has conducted

auctions for, narrowband Personal Communications Services (PCS),\30\

the Interactive Video and Data Service (IVDS),\31\ and broadband

PCS.\32\ This Report and Order establishes competitive bidding rules

and procedures for MDS.

\28\ Notice of Proposed Rule Making in PP Docket No. 93-253, 8

FCC Rcd 7635 (1993), 58 Fed. Reg. 5389 (Oct. 15, 1993) (Competitive

Bidding Notice).

\29\ Second Report and Order in PP Docket No. 93-253, 9 FCC Rcd

2348 (1944), 59 Fed. Reg. 22980 (May 4, 1994) (Second Report and

Order), recon. granted in part, Second Memorandum Opinion and Order,

9 FCC Rcd 7245 (1994), 59 Fed. Reg. 44272 (Aug. 26, 1994) (Second

Memorandum Opinion and Order).

\30\ Third Report and Order in PP Docket No. 93-253, 9 FCC Rcd

2941 (1994), 59 Fed. Reg. 26741 (May 24, 1994) (Third Report and

Order), recon. granted in part, Third Memorandum Opinion and Order

and Further Notice of Proposed Rule Making, 10 FCC Rcd 175 (1995),

59 Fed. Reg. 44059 (Aug. 26, 1994) (Third Memorandum Opinion and

Order).

\31\ Fourth Report and Order in PP Docket No. 93-253, 9 FCC Rcd

2330 (1994), 59 Fed. Reg. 24947 (May 13, 1994) (Fourth Report and

Order), petition for recon. pending.

\32\ Fifth Report and Order in PP Docket No. 93-253, 9 FCC Rcd

5532 (1994), 59 Fed. Reg. 37566 (July 22, 1994) (Fifth Report and

Order), recon. granted in part, Fifth Memorandum Opinion and Order,

10 FCC Rcd 403 (1995), 59 Fed. Reg. 63210 (Dec. 7, 1994) (Fifth

Memorandum Opinion and Order).

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61. Given the interdependencies we believe exist between

authorizations for certain BTA service areas and the declining cost of

conducting simultaneous multiple round bidding, we choose this auction

method for use in MDS. We also adapt the general procedures set forth

in the Second Report and Order so as to be compatible with the

application procedures established for MDS in this Report and Order.

Finally, we set forth rules to deter possible abuses of the bidding and

application procedures, and establish special provisions for small

businesses, including those owned by minorities and women, to encourage

their participation in the competitive bidding process and in the

provision of MDS system offerings.

2. Auction Eligibility

62. The Commission has in the past employed a random selection

process (i.e., a lottery) to select from among mutually exclusive MDS

initial applications. See 47 CFR 1.824. However, Section 309(j) of the

Communications Act, as amended, permits auctions were (1) mutually

exclusive applications for initial licenses or construction permits are

accepted for filing by the Commission; (2) the principal use of the

spectrum will involve or is reasonably likely to involve the receipt by

the licensee of compensation from subscribers in return for enabling

those subscribers to receive or transmit communications signals; and

(3) the objectives set forth in Section 309(j) would be promoted. In

the Second Report and Order, we concluded that single and multichannel

MDS as classes of services would satisfy the Section 309(j) criteria

for auction ability, and, thus, new initial applications in MDS would

be eligible for competitive bidding. Id. at 2359. The Second Report and

Order did not, however, expressly resolve the question of the auction

ability of mutually exclusive MDS station applications filed prior to

July 26, 1993, the date specified in the Commission's auction authority

in the 1993 Budget Act. Id. For the reasons set forth in Section 3

below, we now determine to lottery these previously filed MDS

applications.

3. Disposition of Previously Filed MDS Applications

63. Before the Commission conducts competitive bidding for the BTA

service areas applied for under the revised procedures set forth

herein, we must first process the remaining acceptable, mutually

exclusive applications for MDS station licenses that were filed prior

to July 26, 1993.\33\ Under the procedures in effect prior to the

enactment of competitive bidding authority in the 1993 Budget Act,

these mutually exclusive MDS applications were to have been lotteried.

In September 1993, the Commission tentatively concluded to lottery

rather than auction pre-July 26, 1993 MDS applications. See Competitive

Bidding Notice at 7661. In reaching this decision, the Commission first

noted that these applications has already incurred substantial delays.

The Commission then tentatively decided to eschew auctions in favor of

lotteries for pending MDS applications to avoid ``further delay'' in

granting MDS station licenses and providing service to the public

during the time it would take for the Commission to promulgate

competitive bidding rules. Id. Subsequently, in the Second Report and

Order, the Commission concluded that new initial applications in MDS

would be eligible for competitive bidding, but did not resolve the

question of whether to employ lotteries or auctions to dispose of the

previously filed MDS applications. Second Report and Order at 2359.

Thus, due to processing delays and further delays resulting from the

consideration of issues raised in the Budget Act regarding competitive

bidding, this group of previously filed MDS applications, through no

fault of the applicants themselves, has never been lotteried.

\33\ Once we complete our processing, we expect that this group

of previously filed, acceptable MDS station applications will likely

be quite small, consisting of approximately 100 mutually exclusive

applications for five rural locations. The applications for these

five locations have been pending since 1991.

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64. The 1993 Budget Act empowers the Commission to either auction

or lottery these previously filed MDS applications.\34\ Consistent with

the statute, our tentative conclusion in the Competitive Bidding

Notice, and Commission precedent,\35\ we now exercise our discretion to

lottery this group of remaining previously filed, mutually exclusive

MDS applications. By employing lotteries for pre-July 26, 1993 MDS

applications, and by holding auctions for initial applications accepted

for filing after that date, we adopt a straightforward approach that is

[[Page 36537]]

easy to apply, fair to the applicants and serves the public interest.

\34\ See 47 U.S.C. Secs. 309 (i) & (j); Budget Act, Pub. L. No.

103-66, Sec. 6002(e) (Special Rule), 107 Stat. 312, 397 (1993).

\35\ See Memorandum Opinion and Order in PP Docket No. 93-253, 9

FCC Rcd 7387 (1994), 59 FR. 37 163 (July 21, 1994) (Cellular

Unserved Order) (determining to lottery previously filed

applications for cellular unserved areas).

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4. Competitive Bidding Design

65. In this Report and Order, we have attempted to design auction

rules and procedures that are compatible with the unique

characteristics of MDS and that meet the congressional objectives set

forth in the Communications Act. See 47 U.S.C. 309(j)(3). We believe

that these objectives are embodied in two basic Commission policy

goals: promoting economic growth and enhancing access to

telecommunications service offerings for consumers, producers and new

entrants. Second Report and Order at 2349-2350. In the paragraphs

below, we implement competitive bidding for MDS, pursuant to Section

309(j) of the Communication Act and based on the record in this

proceeding. The methodology and procedures we will utilize in

conducting MDS auctions are identified below, and additional details

about specific competitive bidding procedures will be provided by

public notice prior to the MDS auction.

66. General Competitive Bidding Designs. The Second Report and

Order established the criteria to be considered in selecting the

auction methodology for each auctionable service. We generally

concluded that awarding licenses to those parties that value them most

highly will best advance congressional policy goals. Id. at 2360. We

also indicated that, because a bidder's ability to introduce valuable

new services and to deploy them rapidly, intensively and efficiently

increases the value of the license to that bidder, an auction design

that awards licenses to those bidders who are willing to pay the

highest bid tends to promote the development and deployment of new

services and the efficient and intensive use of the spectrum. Id. at

2349-2350.

67. With regard to auction methodologies specifically, the

Commission previously determined that: (1) licenses with strong

interdependencies should be auctioned simultaneously; \36\ (2) multiple

round auctions, by providing bidders with information regarding other

bidders' valuations of licenses, generally will yield more efficient

allocations of licenses and higher revenues, especially where there is

substantial uncertainly as to value; and (3) because they are

relatively expensive to implement and time-consuming, simultaneous and/

or multiple round auctions become less cost-effective as the value of

licenses decreases. Second Report and Order at 2360. We also found that

simultaneous multiple round bidding facilitates the efficient

aggregation of licenses across spectrum bands and geographic areas, and

because of the superior information and flexibility this bidding

methodology provides, is likely to yield greater revenues than other

auction designs. Thus, we concluded in the Second Report and Order that

the use of simultaneous multiple round bidding would generally be

preferred. Id. at 2366.

\36\ Licenses are interdependent when the value of a license to

the bidder depends on the other licenses that the bidder acquires.

Second Report and Order at 2361. Licenses may be interdependent

because they are substitutes or because they are complements. Id. at

2364.

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68. We also recognized in the Second Report and Order that

simultaneous multiple round bidding may appear more complex to bidders

and could be more difficult and expensive to implement than other

auction methods. Id. at 2364. We have, however, in the past year gained

considerable experience in conducting simultaneous multiple round

bidding. This competitive bidding method has been utilized in several

narrowband and broadband PCS auctions,\37\ and has proved to be an

efficient and effective way to conduct spectrum auctions. In addition,

the cost to the Commission of conducting simultaneous multiple round

bidding has decreased considerably since the initial simultaneous

auctions because the computer software used in these auctions has now

been developed. We have also recently initiated procedures permitting

remote bidding from personal computers throughout the country.

Consequently, bidders may now participate in simultaneous multiple

round auctions in a variety of ways--on site, by personal computer

using remote bidding software, or via telephone.

\37\ The Commission has also recently proposed to utilize

simultaneous multiple round bidding for both the 800 and 900 MHz

Specialized Mobile Radio services. Further Notice of Proposed Rule

Making in PR Docket No. 93-144 and PP Docket No. 93-253, FCC 94-271

(released Nov. 4, 1994), 59 FR. 60111 (Nov. 22, 1994); Second Report

and Order and Second Further Notice of Proposed Rulemaking in PR

Docket No. 89-553, PP Docket No. 93-253, and GN Docket No. 93-252,

FCC 95-159 (released April 17, 1995), 60 FR. 21987 (May 4, 1995).

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69. MDS Competitive Bidding Design. Given our growing and

successful experience with this auction design, we conclude that the

generally favored method of simultaneous multiple round bidding is

appropriate for MDS. We accordingly adopt this method to auction the

BTA service areas.

70. In the Notice, we had tentatively concluded that simultaneous

multiple round bidding was less appropriate for MDS than other auction

methods primarily because the ``value of and interdependence between''

the geographic service areas might not be ``sufficiently high to

justify the use'' of the generally preferred auction method. Notice at

7678. After further consideration, and based upon our continuing

successful experience with simultaneous multiple round bidding, we now

conclude that simultaneous multiple round bidding is in fact

appropriate for MDS.

71. With regard to the expected value of the BTA service areas at

auction, we realize that some areas--particularly those with sparse

populations--may be auctioned for relatively modest amounts. The value

of any BTA service area at auction will, however, vary, depending in

large part upon the population of and the amount of usable spectrum in

that area. Heavily populated BTA service areas may therefore attract

more substantial sums, depending on the availability of spectrum within

such areas. Given the substantially decreased costs associated with

implementing simultaneous multiple round bidding, we believe that BTA

service area values are sufficient to justify the use of this auction

method.

72. With regard to the question of interdependence, we believe that

the BTA service area authorizations to be auctioned possess a degree of

interdependence. As explained in the Notice, ``[t]here appears to be

some geographic interdependence due to coordination of interference at

the borders.'' Id. at 7678. Indeed, because we have selected a filing

approach based on predetermined geographic areas, rather than a

national filing window, we emphasize that authorizations for adjacent

BTA service areas will be interdependent, as common ownership of such

areas will reduce problems of controlling interference at the borders

of the BTAs. See Second Report and Order at 2364. Interdependence

between the BTA authorization may also arise from economies of scale

achieved by wireless cable operators spreading of fixed costs over more

units of output. See Second Report and Order at 2364. We accordingly

conclude that there is some degree of interdependence between BTA

authorizations and that this interdependence may be significant for

geographically contiguous BTAs. Thus, the adoption of simultaneous

multiple round bidding should result in the most efficient award of

these BTA authorizations. See Second Report and Order at 2363. In

particular, we believe that potential bidders that operate (or are

planning to operate) MDS systems in

[[Page 36538]]

geographically adjacent BTAs and/or in several regions of the country

will be able to make more informed bidding decisions in a simultaneous

auction where all BTA service areas may be bid upon at the same time.

73. In addition to issues of cost and interdependence, other

considerations support the use of simultaneous multiple round bidding

for MDS. Compared with other bidding mechanisms, including open outcry

and sealed bidding, simultaneous multiple round bidding will generate

the most information about the value of BTA service areas during the

course of the auction. Thus, it is the most likely auction method to

award BTA authorizations to the bidders who value them most highly. We

also note that an auction method awarding BTA authorizations to the

parties who value them most highly should result in the award of

authorizations to bona fide wireless cable operators, rather than to

speculators, because bona fide operators will likely value

authorizations more highly than, and will therefore outbid,

speculators, who may be reluctant to pay up front the amounts necessary

to obtain authorizations through competitive bidding.\38\ Moreover,

given the uncertainty as to the value of the MDS spectrum, the

information generated by simultaneous multiple round bidding should

prove particularly valuable by giving bidders more flexibility to

pursue back-up strategies. Because of the superior information and

flexibility it provides, this auction method should also yield more

revenue for the MDS spectrum than other auction designs, including open

outcry.\39\ Although the raising of revenue is not our dominant

concern, we note that Congress directed the Commission, in designing

auction methodologies, to promote ``recovery for the public of a

portion of the value of the public spectrum resource.'' 47 U.S.C.

309(j)(3)(C). Finally, the employment of simultaneous multiple round

bidding for MDS, rather than open outcry, will eliminate the need for

the Commission to select the order in which the BTA service areas will

be auctioned. See Second Report and Order at 2360, 2363, 2366.

\38\ Sealed bidding is not supported by the Commission for MDS,

because this bidding method will generate no information about the

value of the BTA service areas during the course of an auction, and

thus may not award BTA authorizations to the parties who value them

the most. See Second Report and Order at 2362.

\39\ A simultaneous auction for MDS will tend to raise more

revenue than a sequential oral auction for two reasons. First, it

will increase the value of the BTA service areas by facilitating

efficient aggregation. Second, because it will provide more

information about the value of the BTA service areas, it will reduce

the propensity of sophisticated bidders to bid cautiously to avoid

the ``winner's curse''--the tendency for the winner to be the bidder

who most overestimates the value of the item up for bid.

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74. The simultaneous multiple round auction design adopted herein

also includes several features that should reduce the possible burdens

on bidders. We expect, for example, to have bidding rounds of shorter

duration than in other simultaneous multiple round auctions, such as

broadband PCS. This measure should shorten the MDS auction

substantially so that the length of the auction should not prove

burdensome to bidders. In addition, the burden on bidders will be

reduced by the variety of methods through which they may participate in

the MDS simultaneous multiple round auction. Bidders will be able to

submit bids on site, via personal computers using remote bidding

software, or via telephone; \40\ however, given the space limitations

for on site bidding and the uncertainty as to the exact number of

prospective bidders, the Commission reserves the right to have only

remote bidding--by personal computer and by telephone--for the MDS

auction. Thus, the expense to the bidders of participating in a

simultaneous multiple round auction should be less than in an open

outcry auction, where bidders (and/or their representative(s)) would

need to travel to and remain in Washington, DC for the duration of the

auction. Finally, the Commission will hold a seminar for prospective

bidders to acquaint them with this bidding design and all alternative

bid submission methods.

\40\ Telephonic bidding should, in particular, be a simple and

inexpensive method for bidders to submit bids. If submitting bids by

telephone, bidders may utilize the Internet to learn of the round-

by-round results of the auction; on-line services such as Compuserve

provide Internet access at low cost. Bidders may also, at negligible

cost, utilize a bulletin board service, accessible by long distance

telephone, from which auction results can be downloaded to a

personal computer.

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75. Given the numerous advantages of the generally preferred

auction method of simultaneous multiple round bidding, we believe that

this methodology will best serve for conducting MDS auctions. We note,

however, that the presence of incumbents in the BTA service areas could

affect the relative desirability and value of BTA authorizations in

ways we do not anticipate. In the event that the filings of short-form

applications indicate that the BTA authorizations have relatively

little interdependence and lower than expected value, we delegate

authority to the Mass Media Bureau and the Wireless Telecommunications

Bureau to reconsider the issue of whether another auction design would

be more appropriate.

76. MDS Bidding Procedures. There will be one authorization offered

in each BTA and the BTA authorizations will be awarded by simultaneous

multiple round bidding. All BTA service areas will be auctioned at the

same time. Bids will be accepted at the same time on all BTA service

areas in each round of the auction. High bid amounts will be posted

after the end of the bid submission period in each round of bidding.

With modifications to take account of the unique characteristics of MDS

and to reduce length, MDS auctions will follow the general bidding

procedures we have used to date to conduct the narrowband and broadband

PCS auctions.

77. In using simultaneous multiple round bidding to award the BTA

authorizations, it is important to specify minimum bid increments. The

bid increment is the amount or percentage by which the bid must be

raised above the previous round's high bid in order to be accepted as a

valid bid in the current bidding round. The application of a minimum

bid increment speeds the progress of the auction and, along with

activity and stopping rules, helps to ensure that the auction comes to

closure within a reasonable period of time. Establishing an appropriate

minimum bid increment is especially important in a simultaneous auction

with a simultaneous stopping rule. In that case, all markets will

remain open until there is no bidding on any market, and a delay in

closing the bidding on one market will delay the closing of all

markets. Second Report and Order at 2369.

78. Because we plan to use simultaneous multiple round bidding with

a simultaneous stopping rule to award BTA authorizations, we believe

that it is necessary to impose a minimum bid increment to ensure that

the MDS auction conclude within a reasonable period of time. As we

recognized in the Second Report and Order, it is important to establish

the amount of the minimum bid increment as the greater of a percentage

and fixed dollar amount. This will ensure a timely completion of the

auction even if bidding begins at a very low dollar amount. Id. at

2369. Accordingly, we will impose a minimum bid increment of some

percentage of the high bid from the previous round or a fixed dollar

amount, whichever is greater, in MDS auctions where simultaneous

multiple round bidding is used. We will announce by public notice prior

to the

[[Page 36539]]

MDS auction the specific bid increment that generally will be utilized.

79. The Commission will also retain the flexibility to vary the

minimum bid increment during the course of the MDS auction by

announcement. We may, for example, begin the MDS auction with a sizable

minimum bid increment and reduce the bid increment as the auction

progresses. Starting with a sizable minimum bid increment will move the

auction quickly at the beginning, when prices have limited

informational content and there is little benefit to either bidders or

the Commission of refined price movements, while allowing bidders to

express small differences in valuation as the auction nears a close,

increasing both efficiency and auction revenues. Small bid increments

also reduce the chances of ties. Where a tie occurs, the high bidder

will be determined by the order in which the bids were received by the

Commission. See Second Report and Order at 2369. Adjustments in the bid

increment may be based in part on the level of bidding activity.

80. To gain the full benefit of the information generated by a

simultaneous multiple round auction, bidders will need some time

between bidding rounds to evaluate back-up strategies and consult with

their principals. Prior to the MDS auction, we will announce by public

notice the duration of bidding rounds for the auction. We also reserve

the discretion during the course of the auction to vary, by public

notice or announcement, the duration of bidding rounds or the interval

at which bids are accepted. We expect to allow more time for the

initial rounds in the MDS auction, while bidders familiarize themselves

with the bidding process, and then increase the frequency of rounds as

the auction progresses. Thus, we should be able to move the auction

toward closure in a reasonable period of time.\41\

\41\ Given our estimates of the value of the BTA service areas

and the likely number of bidders, we expect to hold more frequent

bidding rounds in the MDS auction than we have in certain other

simultaneous multiple round actions, particularly broadband PCS. See

Second Report and Order at 2368.

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81. To ensure that a simultaneous MDS auction with a simultaneous

stopping rule closes within a reasonable period of time and to increase

the information conveyed by bid prices during the auction, we believe

that it is necessary to impose an activity rule to prevent bidders from

waiting until the end of the auction before participating. Because

simultaneous stopping rules generally keep all markets open for bidding

as long as anyone wishes to bid, they also create an incentive for

bidders to hold back until prices approach equilibrium before making a

bid. As noted in the Second Report and Order, this could lead to very

long auctions. See id. at 2371. Delaying serious bidding until late in

an auction also reduces the information content of prices during the

course of the auction. Without an activity rule, bidders cannot know

whether a low level of bidding on a particular market means that the

market's price is near its final level or if instead many serious

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

When bidding closes on a market-by-market basis, an activity rule is

less important. This is because failure to bid on a given market in any

round may result in loss of the opportunity to bid on that market, if

that round turns out to be the last one for that market.

82. In the Second Report and Order, we adopted the three-stage

Milgrom-Wilson activity rule as our preferred activity rule when a

simultaneous stopping rule is used. Id. at 2372. See also Fifth Report

and Order at 5553-5556. We plan to employ this activity rule in the MDS

auction as well. Under the Milgrom-Wilson activity rule, bidders are

required to declare their maximum eligibility in advance of the auction

and make an upfront payment proportional to that eligibility level. In

the PCS auctions, activity and eligibility are defined in terms of

``MHz-pops.'' See, e.g., Fifth Report and Order at 5553-5554.

Specifically, the number of MHz-pops associated with a PCS license is

calculated by multiplying the population of the license service area by

the amount of spectrum authorized by the license. We chose MHz-pops

because we anticipated that PCS license values would be closely related

to the number of MHz-pops in the license service areas. This choice

ensures that the measure of bidding activity used in the activity rule

is highly correlated with license values. In the MDS auction, bidding

activity and eligibility will be defined in terms of dollar values. The

Commission will assign an ``activity unit'' value to each BTA service

area for the purpose of measuring bidding activity and eligibility.

Specifically, the activity unit value for a BTA service area will be

equal to the upfront payment associated with that BTA service area. A

bidder's maximum eligibility (which is also the bidder's eligibility

for the first round of the auction) will be equal to its total upfront

payments.\42\ Because the upfront payments will be related to the value

of the BTA service areas (see infra para. 103), activity units will

fulfill the same function that MHz-pops have fulfilled in the previous

PCS auctions.

\42\ As explained in para. 105, however, a small business bidder

eligible for a reduction in its upfront payment requirement will not

have the number of its activity units decreased as a result of

submitting a reduced upfront payment.

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83. The Milgrom-Wilson activity rule provides a bidder's minimum

activity level, measured as a fraction of eligibility in the current

round, will increase during the auction. A bidder will be considered

``active'' on a BTA service area in the current round if it is either

the higher bidder at the end of the bid withdrawal period in the

previous round, or if it submits a bid in the current round which meets

or exceeds the minimum valid bid (i.e., a bid that exceeds the high bid

in the previous round by at least the minimum bid increment). A

bidder's activity level in a round is the sum of the activity units

associated with the BTA service areas on which the bidder is active.

84. The minimum required bidding activity levels for each stage of

the MDS auction are as follows. In each round of Stage One of the

auction, a bidder who wishes to maintain its current eligibly is

required to be active on BTA service areas encompassing at least fifty

percent of the activity units for which it is currently eligible.

Failure to maintain the requisite activity level will result in a

reduction in the amount of activity units associated with BTAs upon

which a bidder will be eligible to be active in the next round of

bidding (unless an activity rule waiver, as described below, is used).

During the first stage, if activity is below the required minimum

level, eligibility in the next round will be calculated by multiplying

the current round activity by two (2/1). Eligibility for each applicant

in the first round of Stage One is determined by the amount of the

unfront payment received and the BTAs identified in the applicant's

short-form application. In each round of Stage Two, a bidder who wishes

to maintain its current eligibility is required to be active on BTA

service areas encompassing at least eighty percent of the activity

units for which it is eligible in that particular round. During the

second stage, if activity is below the required minimum level,

eligibility in the next round will be calculated by multiplying the

current round activity by five-fourths (5/4). In each round of Stage

Three, a bidder who wishes to maintain its current eligibility is

required to be active on BTA service areas encompassing ninety-five

percent of the activity units for which it is eligible in that

particular round. In the

[[Page 36540]]

final stage, if activity in the current round is below ninety-five

percent of current eligibility, eligibility in the next round will be

calculated by multiplying the current round activity by twenty-

nineteenths (20/19).

85. In the PCS auction, we specified transition guidelines for

deciding when the auction would move from Stage One to Stage Two to

Stage Three. Those guidelines are based on the ``auction activity

level,'' the sum of the MHz-pops of PCS licenses for which the high bid

increased in the current round as a percentage of the total MHz-pops of

all licenses offered in the auction. See, e.g., Fifth Report and Order

at 5555. However, we also retained the discretion to move the PCS

auctions from one stage to another at a rate different from that set

out in the guidelines. See Fourth Memorandum Opinion and Order in PP

Docket No. 93-253, 9 FCC Rcd 6858, 6860 (1994), 59 Fed. Reg. 53364

(Oct. 24, 1994).

86. For the MDS auction, we shall employ an analogous procedure.

The ``auction activity level'' for a given round of the MDS auction

will be defined as the sum of the activity units associated with the

BTA service areas for which the high bid increases in that round,

divided by the sum of activity units associated with all of the BTAs

being auctioned. The following transition guidelines apply. The MDS

auction will begin in Stage One and move from Stage One to Stage Two

when the auction activity level is below ten percent for three

consecutive rounds in Stage One. The auction will move from Stage Two

to Stage Three when the auction activity level is below five percent

for three consecutive rounds in Stage Two. In no case can the auction

revert to an earlier stage. The Commission retains the discretion to

determine and announce during the course of an MDS auction when, and

if, to move from one auction stage to the next, based on a variety of

measures of bidder activity, including, but not limited to, the auction

activity level as defined above, the percentage of BTA service areas on

which there are new bids, the percentage of activity units on which

there are new bids, the number of new bids, and the percentage increase

in revenue.

87. To avoid the consequences of clerical errors and to compensate

for unusual circumstances that might delay a bidder's bid preparation

or submission in a particular round, we will provide bidders with a

limited number of waivers of the above-described activity rule. We

believe that some waiver procedure is needed because the Commission

does not wish to reduce a bidder's eligibility due to an accidental act

or circumstances not under the bidder's control. See Second Report and

Order at 2372.

88. In MDS auctions, bidders will be provided five activity rule

waivers that may be used in any round during the course of the auction.

See Second Report and Order at 2373. If a bidder's activity level is

below the required activity level, a waiver will automatically be

applied. That is, if a bidder fails to submit a bid in a round, and its

activity level from any standing high bids (high bids at the end of the

bid withdrawal period in the previous round) falls below its required

activity level, a waiver will be automatically applied. A waiver will

preserve current eligibility in the next round. An activity rule waiver

applies to an entire round of bidding and not to a particular BTA

service area. Bidders will be afforded an opportunity to override the

automatic waiver mechanism when they place a bid if they intentionally

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

waiver to retain their eligibility at its current level. See Fourth

Memorandum Opinion and Order in PP Docket No. 93-253, 9 FCC Rcd 6858,

6861 (1994), 59 Fed. Reg. 53364 (Oct. 24, 1994). If a bidder overrides

the automatic waiver mechanism, its eligibility will be permanently

reduced (according to the formulas specified in para.84), and it will

not be permitted to regain its bidding eligibility from a previous

round. An automatic waiver invoked in a round in which there are no new

valid bids will not keep the auction open. Bidders will have the option

of pro-actively entering an activity rule waiver during the bid

submission period.\43\ If a bidder submits a proactive waiver in a

round in which no other bidding activity occurs, the auction will

remain open.

\43\ Thus, a ``proactive'' waiver, as distinguished from the

automatic waiver described above, is one requested by the bidder.

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89. The Commission retains the discretion to issue additional

waivers during the course of an auction for circumstances beyond a

bidder's control. We also retain the flexibility to adjust prior to an

auction the number of waivers permitted, or to institute a rule that

allows one waiver during a specified number of bidding rounds or during

specified stages of the auction. See Second Report and Order at 2373.

We will announce by public notice before the MDS auction the number of

waivers that will be allowed in that particular auction.

90. As with other auctions, we reserve the right to impose for the

MDS auction an activity rule less complex than the Milgrom-Wilson rule.

See Second Report and Order at 2372; Fifth Report and Order at 5556. We

will announce by public notice before the MDS auction the activity rule

that will be employed in that particular auction.

91. We noted in the Second Report and Order that, with multiple

round auctions, a stopping rule must be established for determining

when the auction is over. Id. at 2369. In an MDS simultaneous multiple

round auction, bidding could close separately on individual BTA service

areas, simultaneously on all BTA service areas, or a hybrid approach

could be used. Under an individual approach, bidding would close on

each BTA service area after one round passed in which no new acceptable

bids were submitted for that particular service area. With a

simultaneous stopping rule, bidding would remain open on all BTA

service areas until there was no new acceptable bid on any service

area. This approach would have the advantage of providing bidders full

flexibility to bid for any BTA service area as more information became

available during the course of the MDS auction, but it could lead to a

very long auction, unless an activity rule were imposed. See id. at

2370. A hybrid approach would combine the individual and the

simultaneous approaches.\44\

\44\ For example, in a hybrid approach, we could use a

simultaneous stopping rule (along with an activity rule designed to

expedite closure) for higher valued BTA service areas. For lower

valued BTA service areas, where the loss from eliminating some back-

up strategies would be less, bidding on BTAs could be allowed to

close individually. See Second Report and Order at 2370.

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92. For MDS auctions, we intend to utilize a simultaneous stopping

rule, as we have successfully used in previous simultaneous multiple

round auctions. Bidding will accordingly remain open on all BTA service

areas until bidding stops on every BTA service area. The auction will

close after one round passes in which no new valid bids or proactive

waivers are submitted. The Commission retains the discretion, however,

to keep the MDS auction open even if no new valid bids and no proactive

waivers are submitted. In the event that the Commission exercises this

discretion, the effect will be the same as if a bidder had submitted a

proactive waiver.\45\ Since we are also imposing an activity rule (as

discussed

[[Page 36541]]

above), we believe allowing simultaneous closing for all BTA service

areas will afford bidders flexibility to purse back-up strategies

without running the risk that bidders will refrain from bidding until

the final rounds. We also believe that a simultaneous stopping rule

will best enable bidders to take account of any interdependencies that

exit between BTA authorizations (especially authorizations for adjacent

areas) and will allow bidders to make the most informed bidding

decisions. Thus, simultaneously closing bidding on BTA service areas

will most likely award licenses to the bidders who value them most

highly. See Second Report and Order at 2370.

\45\ This will help ensure that the MDS auction is completed

within a reasonable period of time, because it will enable the

Commission to utilize larger bid increments, which speed the pace of

the auction, without risking premature closing of the auction. See

Memorandum Opinion and Order in PP Docket No. 93-253, 9 FCC Rcd

7684, 7685 (1994), 59 Fed. Reg. 64159 (Dec. 13, 1994).

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93. Additionally, the Commission may also declare at any time after

forty rounds that the MDS auction will end after a specified number of

additional rounds. If the Commission invokes this stopping rule, it

will accept bids in the final round(s) only for BTA service areas on

which the high bid increased in at least one of the proceeding three

rounds. See Second Report and Order at 2370 n.106. Stopping the MDS

auction after a specified number of additional rounds will ensure

ultimate Commission control over the duration of the action. See id.

Thus, the Commission will have the means to prevent bidders from

continuing to bid on a few BTA service areas (or even a single service

area) solely to delay the closing of bidding for all BTA service areas

in an MDS auction with a simultaneous stopping rule. This will also

ensure that the Commission can end the MDS auction if it determines

that the benefits from ending the auction, and hence granting BTA

authorizations more rapidly, exceed the possible efficiency loss from

cutting off bidding on a few BTA service areas. If we exercise this

option, we favor the use of three final rounds. Allowing more than one

additional round provides some opportunity for counter-offers, thus

reducing the risk that a BTA authorization will not be awarded to the

party that values it most highly.

94. If this fail-safe mechanism is used in an MDS auction, there

are two reasons not to take bids on BTA service areas on which there

has been no recent bidding. First, the fact that bidding on an

individual BTA service area may close will provide an additional

incentive to bid actively and thus speed the conclusion of the MDS

auction. If bids are accepted on all BTA service areas in the final

round(s) there is less risk to a bidder in holding back. Second,

closing bidding on BTA service areas for which activity has ceased

ensures high bidders for those service areas that they will not lose a

BTA authorization without having an opportunity to make a counter-

offer.\46\ This reduces the uncertainty associated with aggregating BTA

authorizations (such as those for adjacent BTAs) that may be worth more

as a group than individually. If final bids are accepted on all BTA

service areas, a high bidder on an aggregation of BTA service areas may

unexpectedly lose a significant part of the aggregation and have no

chance to regain it except in the post-auction market, where bargaining

or other transaction costs may be high.

\46\ Either the MDS auction will close only when bidding ceases

on all BTA service areas, so the high bidder will have an

opportunity to respond to any new bids, or the Commission will call

for final bids but not accept new bids on BTA service areas on which

there have been no new bids in the previous three rounds, so no

other bidder will have the opportunity to outbid the high bidder in

a final round.

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95. The Commission does not intend to exercise this option except

in extreme circumstances, such as where the MDS auction is proceeding

very slowly, there is minimal overall bidding activity, and it appears

unlikely that the auction will close within a reasonable period of

time. Before exercising this option, however, the Commission would

first attempt to increase the pace of the auction by announcing that

the auction will more into the next stage, where bidders would be

required to maintain a higher level of bidding activity. Under these

circumstances, the Commission may also first increase the number of

bidding rounds per day an increase the amount of the minimum bid

increments for those limited number of BTA service areas where there is

still a high level of bidding activity.

96. Additionally, because of the large number of BTA service areas

to be auctioned at once, we will retain the discretion either to use a

hybrid stopping rule to allow bidding to close individually for these

service areas if, as we gain more experience with auctions, we

determine that simultaneous stopping rules are too complex to implement

for very large numbers of service areas. The specific stopping rule for

ending bidding on the BTA service areas will be announced by public

notice prior to the MDS auction.

5. Procedural and Payment Issues

97. Pre-Auction Application Procedures. The Second Report and Order

established general rules and procedures for participating in auctions.

Again, however, we noted that these might be modified on a service-

specific basis. As described below, we have determined that we will

follow for new MDS initial applications the procedural and payment

rules established in the Second and Report and Order and set forth at

47 CFR Chapter I, Part 1, Subpart Q, with modifications to fit MDS.

Certain procedural details will be supplied later by public notices.

Our objective has been to design rules and procedures that will reduce

administrative burdens and costs on bidders and the Commission, ensure

that bidders and licensees are qualified and able to construct their

systems, and minimize the potential for delay of service to the public.

See 47 U.S.C. 309(j)(3)(A) (in designing auction rules, Commission

should seek to promote development and rapid deployment of products and

services for public benefit, without administrative or judicial

delays).

98. Before an MDS auction, the Commission, or, pursuant to

delegated authority, the Mass Media Bureau, in conjunction with the

Wireless Telecommunications Bureau, will release public notices

concerning the auction. The public notices will specify the BTA service

areas to be auctioned, the filing deadline for short-form applications,

and the time, place and method of competitive bidding to be used, as

well as applicable bid submission and payment procedures.

99. Applicants will be required to submit short-form applications

by the date specified by public notice. Applicants should file a short-

form application identifying all BTA service areas specified by the

public notice in which they are interested in bidding.\47\ If the

Commission receives only one application that is acceptable for filing

for the same BTA service area and thus there is no mutual

exclusivity,\48\ the Commission will by public notice cancel the

auction for this BTA service area and establish a date for the filing

of either an initial long-form application for an MDS station license

or, for a heavily encumbered BTA, a statement of intention with regard

to the BTA.\49\

\47\ As described in detail below, the short-form applications

must also include an exhibit identifying any bidding consortia or

other arrangements relating to the BTA service areas being

auctioned. See infra para. 129.

\48\ Absent mutually exclusive applications, the Commission is

prohibited from conducting an auction. See 47 U.S.C. Sec. 309(j)(1).

\49\ See infra Paras. 116-120, for the procedures for filing

either a long-form application for a station license or a statement

of intention with regard to the BTA.

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100. To encourage maximum bidder participation, we will provide

applicants whose short-form applications are substantially complete,

but which contain minor errors or defects, with an opportunity to

correct

[[Page 36542]]

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

be permitted to make any major modifications to their applications; for

MDS, we classify all amendments to short-forms as major, except those

to correct minor errors or defects, such as typographical errors, or

those to reflect ownership changes or formation of bidding consortia

specifically permitted under the anti-collusion rules set forth below.

See infra para. 130. We note in particular that a change in control of

an applicant or a change in the BTAs upon which an applicant wishes to

bid will be regarded as a major amendment to the short-form

application. In addition, applications that are not signed in any

manner or form, including by electronic means, or that fail to make the

requisite certifications will be dismissed and may not be resubmitted.

See Second Report and Order at 2377; 47 CFR 1.2105(b).

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

will issue another public notice listing all applications containing

minor defects, and applicants will be given an opportunity to cure and

resubmit defective applications. On the date set for submission of

corrected applications, applicants who on their own discover minor

errors in their applications, such as typographical errors, also will

be permitted to file corrected applications. Following a review of the

corrected applications, the Commission will release another public

notice announcing the names of all applicants whose applications have

been accepted for filing. Applicants identified in this public notice

will then be required to submit the full amount of their upfront

payment. See Second Report and Order at 2377.

102. Upfront Payments. In the generic auction rules, we described

five types of payments: upfront payments, down payments, final

payments, bid withdrawal payments, and default and disqualification

payments. Given the history of speculators filing MDS applications, we

believe a substantial upfront payment is needed for MDS auctions to

discourage speculative bidding and increase the likelihood of

applicants who intend to provide service to the public obtaining the

remaining available MDS channels. Requiring a substantial upfront

payment provides some degree of assurance that only serious, qualified

bidders will participate and serves as a deterrent to the filing of

speculative applications, which may delay the provision of service to

the public. The upfront payments will also provide the Commission with

a source of funds to satisfy any bid withdrawal or default and

disqualification payments assessed. See Second Report and Order at

2378-2379. Therefore, we will require an upfront payment for the MDS

auction.

103. We believe the upfront payment should bear a relation to the

value of the BTA authorizations that a bidder hopes to be awarded. We

accordingly delegate to the Mass Media Bureau and the Wireless

Telecommunications Bureau the authority to determine an appropriate

upfront payment for each BTA service area being auctioned, taking into

account, at the Bureaus' discretion, such factors as the population and

the approximate amount of usable spectrum in each BTA. Bearing in mind

the uncertainties associated with valuing the BTA authorizations, we

expect that the Bureaus will follow the guidelines laid out in the

Second Report and Order and establish upfront payments equal to around

five percent of the expected amounts of winning bids for the various

BTA service areas. See id. at 2378-2379. In no event will the upfront

payment for any BTA service area be less than $2500, the minimum

suggested in the Second Report and Order, and we retain the flexibility

for the Bureaus to modify this minimum if we find that a higher amount

would better deter speculative filings. Id. at 2379.

104. Prior to the MDS auction, the Mass Media Bureau, in

conjunction with the Wireless Telecommunications Bureau, will public a

public notice listing the upfront payment amounts corresponding to each

BTA service area to be auctioned. The number of activity units

associated with a BTA service area (see para. 82) equals the amount of

the upfront payment for the BTA. A prospective bidder must submit an

upfront payment equal to the largest combination of activity units on

which the bidder anticipates being active in any single round. The

combination of activity units on which a bidder is active in a round

equals the sum of the activity units associated with the BTAs on which

the bidder has submitted a bid, or on which the bidder is the standing

high bidder. Although a bidder may file applications for every BTA

service area being auctioned, the total upfront payment submitted by

each applicant will determine the combinations of BTA service areas on

which the applicant will actually be permitted to be active in any

single round of bidding.\50\

\50\ Consider, for example, an applicant that submits a $100,000

total upfront payment. As explained above at para. 82, the maximum

number of activity units for that applicant is 100,000. In any

single round, the applicant could be active on two BTA service areas

with 50,000 activity units each, on five BTAs with 20,000 activity

units each, on ten BTAs with 10,000 activity units each, or on any

combination of BTA service areas for which the sum of associated

activity units totals 100,000 or less. As set forth above, a bidder

is ``active'' on a BTA service area if it is either the high bidder

on that BTA from the previous round (at the end of the bid

withdrawal period), or if it submits a bid on that BTA in the

current round which exceeds the previous round's high bid by at

least the minimum bid increment. See supra para. 83. Thus, a bidder

who begins the auction eligible to bid (based on the magnitude of

its upfront payment) on BTA service areas associated with 100,000

activity units and who, in the first round, is the high bidder on a

BTA service area associated with 50,000 activity units, may only, in

the second round, submit new bids on a combination of BTAs

associated with 50,000 or fewer activity units.

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105. A prospective bidder in the MDS auction that claims status as

a small business, as defined in para. 153, will be eligible for a

twenty-five percent reduction in its upfront payment requirements. See

infra Paras. 148-149 for a discussion of the reduced upfront payments

measure. A small business eligible for this reduction in its upfront

payment will not have the number of its activity units decreased as a

result of submitting a reduced upfront payment.\51\

\51\ For example, if a small business applicant is interested in

bidding on a BTA with an upfront payment of $100,000, it would be

required, under the reduced upfront payment measure, to submit only

$75,000 to qualify to bid on that BTA. This applicant would still,

however, receive 100,000 activity units--the number of activity

units equivalent to the full upfront payment amount associated with

that BTA.

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106. Applicants identified by public notice as those whose

applications have been accepted for filing will be required to submit

their upfront payments to the Commission's lock-box bank by the date

specified in the public notice, which generally will be no later than

fourteen days before the scheduled auction. Upfront payments may be

made by wire transfer or by cashier's check drawn in U.S. dollars from

a financial institution whose deposits are insured by the Federal

Deposit Insurance Corporation and must be made payable to the Federal

Communications Commission. All payments, including upfront, down and

final payments, should be accompanied by FCC Form 159 (remittance

advice form). After the Commission receives from its lock-box bank the

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

Commission will issue a public notice announcing the names of all

applicants that have been determined to be qualified to bid in the MDS

auction. Any applicant who fails to submit a sufficient upfront payment

to qualify it to bid on any BTA service area being auctioned will not

be identified on this public notice as a qualified bidder, will be

prohibited from

[[Page 36543]]

bidding in the MDS auction, and its application will be dismissed. See

Second Report and Order at 2377; 47 CFR 1.2106.

107. The upfront payments submitted by prospective bidders will

later be counted toward the down payments that winning bidders must

make. The upfront payments of bidders who are not the high bidder on

any BTA service area will be refunded as soon as possible after the MDS

auction. Prior to refunding the upfront payments of non-winning

bidders, however, we will determine whether they are subject to

withdrawal or default payments. In some circumstances, it may be

appropriate to retain upfront payments until after the winning bidders

have tendered their down payments because further rounds of competitive

bidding may be held if down payments are not made. No interest will be

paid on upfront payments. See Second Report and Order at 2380.

108. Down Payments and Full Payments. To provide further assurance

that winning bidders will be able to pay the full amount of their bids,

we decided generally in the Second Report and Order that each winning

bidder must tender a down payment sufficient to bring the total deposit

up to twenty percent of the winning bid. We believe a down payment

requirement is appropriate for MDS. Accordingly, winning bidders will

be required to supplement their upfront payments to bring their total

deposit with the Commission up to at least twenty percent of the final

payment due for the BTA authorization(s) won in the MDS auction. If the

upfront payment already tendered amounts to twenty percent or more of

the winning bid, no additional deposit will be required. To the extent

that any upfront payment not only covers, but exceeds, the required

down payment, the Commission will refund any excess amount after

determining that no bid withdrawal payments are owed by the bidder. To

simplify this process administratively, the Commission will not honor

requests that this excess amount be retained and applied toward later

payments or obligations. The down payment will be due within five

business days after the winning bidders have been notified by the

Commission, and may be made by cashier's check or by wire transfer to

the Commission's lock-box bank. The down payment will be held by the

Commission until the winning bidder has been issued its BTA

authorization and has paid the remaining balance of its winning bid, or

until the winning bidder is found unqualified to be a station license

or has defaulted, in which case it will be returned, less applicable

default payments. During the period that deposits are held pending

ultimate award of the BTA authorization, the interest that accrues, if

any, will be retained by the government. See Second Report and Order at

2381-2382; 47 CFR 1.2107(b).

109. Based upon our experience in conducting spectrum auctions, we

will require winning bidders to make full payment of the balance of

their winning bids prior to the issuance of their BTA authorizations.

Specifically, the Commission will, when a BTA authorization is ready to

be issued, release a public notice stating that fact. The auction

winner for that BTA will be required to make full payment of the

balance of its winning bid within five business days following this

public notice. The Commission will issue the BTA authorization to the

auction winner within ten business days following notification of

receipt of full payment. See Second Report and Order and Second Further

Notice of Proposed Rulemaking in PR Docket No. 89-553, PP Docket No.

93-253, and GN Docket No. 93-252, FCC 95-159 (released April 17, 1995),

60 Fed. Reg. 21987 (May 4, 1995), at para. 109.

110. Auction winners that are small businesses eligible for

installment financing will be subject to differing payment

requirements, however. See infra Paras. 153-154 for discussion of small

business eligibility. Specifically, a small business will be required

to bring its total deposit with the Commission up to ten percent of its

winning bid within five business days after having been notified by the

Commission of its winning bidder status. An additional ten percent will

be due within five business days following the public notice that its

BTA authorization is ready to be issued. The Commission will then issue

the BTA authorization to the small business within ten business days

following notification of receipt of this additional ten percent

payment.

111. Bid Withdrawal, Default and Disqualification Payments. In the

Second Report and Order, we concluded that strong incentives are needed

to ensure that potential bidders are financially and otherwise

qualified to participate in auction proceedings, so as to avoid delays

in the deployment of new services to the public. Id. at 2382. We

accordingly stated that we will, in simultaneous multiple round

auctions, impose a bid withdrawal payment requirement in instances

where a high bid is withdrawn during the course of the auction and an

additional default payment if a winning bid is withdrawn after the

auction has closed. Id. at 2373-2374.

112. In an MDS simultaneous multiple round auction, any bidder who

withdraws a high bid during an auction before the Commission declares

bidding closed will 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 BTA service area is offered by the

Commission, if this subsequent winning bid is lower than the withdrawn

bid.\52\ No withdrawal payment will be assessed if the subsequent

winning bid exceeds the withdrawn bid. After bidding closes, a

defaulting auction winner (i.e., a winner who fails to remit the

required down payment within the prescribed time, fails to submit a

long-form application or statement of intention, fails to make full

payment, or is otherwise disqualified) will be subject to an additional

payment 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) and 1.2109; Second Report and Order at 2373-2374. The

additional three percent payment is designed to encourage bidders who

wish to withdraw their bids to do so before bidding ceases. We will

hold deposits made by defaulting or disqualified auction winners until

full payment of these amounts. In rare cases in which it would be

inequitable to retain a down payment, we will entertain requests for

waiver of this provision. We believe that these payment requirements

will discourage insincere bidding and default and ensure that bidders

have adequate financing and that they meet all eligibility and

qualification requirements.

\52\ If a BTA service area is re-offered by auction, the

``winning bid'' refers to the high bid in the auction in which the

service area is re-offered. If a BTA service area is re-offered in

the same auction, the winning bid refers to the high bid amount,

made subsequent to the withdrawal, in that auction. If the

subsequent high bidder also withdraws its bid, that bidder will be

required to pay an amount equal to the difference between its

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

time the BTA service area is offered by the Commission. If a BTA

service area 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'' refers to the bid of the

highest bidder who accepts the offer. Losing bidders will not be

required to accept the offer. We wish to encourage losing bidders in

MDS simultaneous multiple round auctions to bid on other BTA service

areas, and therefore we will not hold them to their losing bids on a

service area for which a bidder has withdrawn a bid or on which a

bidder has defaulted.

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113. In addition, ``if a default or disqualification involves gross

misconduct, misrepresentation or bad

[[Page 36544]]

faith by an applicant, the Commission also may declare the applicant

and its principals ineligible to bid in future auctions, and may take

any other action that it may deem necessary, including institution of

proceedings to revoke any existing licenses held by the applicant.''

Second Report and Order at 2383. Parties who obtain their BTA

authorizations through the auction process are put on notice that if

their BTA authorizations are cancelled for any reason they will lose

all monies paid to the Commission regarding those authorizations. This

loss of monies paid is not intended as an exclusive remedy. Where such

BTA holder's conduct so warrants, additional sanctions, including

monetary fines and station license revocation, may be imposed.

114. In the event that an MDS auction winner defaults or is

otherwise disqualified, the Commission must determine whether to hold a

new auction or simply offer the BTA service area to the second-highest

bidder. As we stated in the Second Report and Order, we believe that,

as a general rule, when an auction winner defaults or is otherwise

disqualified after having made the required down payment, the best

course of action is to re-auction the BTA service area. Id. at 2383.

Although we recognize that this may cause a brief delay in the

initiation of service to the public, circumstances may change so

significantly during the time between the original auction and the

disqualification as to alter the value of the BTA service area to

auction participants, as well as to parties who did not participate. In

this situation, awarding BTA authorizations to the parties that value

them most highly can best be assured through a re-auction. If, however,

the default occurs within five business days after the bidding has

closed, the Commission retains the discretion to offer the BTA service

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

bidder declines the offer, to offer the BTA service area to other

bidders (in descending order of their bid amo

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