Race and Gender Based Provisions for Auctioning C Block Broadband Personal Communications Services Licenses

SUMMARY: The Commission adopts this Sixth Report and Order amending its

competitive bidding rules to eliminate race- and gender-based

provisions for the auctioning of C block broadband Personal

Communications Services licenses. The Commission adopts the rule

changes to prevent potential legal delays in conducting the C block

auction, while minimizing disruptions to existing business

relationships that were formed under the current rules.

EFFECTIVE DATE: July 21, 1995.

FOR FURTHER INFORMATION CONTACT:Kathleen O'Brien Ham, (202) 418-0660

(Wireless Telecommunications Bureau), Peter Tenhula, (202) 418-1720

(Office of General Counsel), or Jackie Chorney, (202) 418-0600

(Wireless Telecommunications Bureau).

SUPPLEMENTARY INFORMATION: This is the Commission's Sixth Report and

Order in PP Docket No. 93-253, GN Docket No. 90-314, GN Docket No. 93-

252, adopted July 18, 1995 and released July 18, 1995. The full text of

Commission decisions are available for inspection and copying during

normal business hours in the FCC Docket Branch (Room 230), 1919 M.

Street, N.W., Washington, DC. The complete text of this decision may

also be purchased from the Commission's copy contractor, International

Transcription Service, Inc., (202) 857-3800, 2100 M Street, NW.,

Washington, DC 20037.

Summary of Sixth Report and Order

Introduction

1. In this Sixth Report and Order, we modify our competitive

bidding rules for the ``C block'' of Personal Communications Services

in the 2 GHz band (broadband PCS) to eliminate race- and gender-based

provisions that we believe raise legal uncertainties in the aftermath

of the Supreme Court's decision in Adarand Constructors, Inc. v. Pena,

115 S.Ct. 2097 (1995). We take this action to accomplish three goals:

(1) promotion of rapid delivery of additional competition to the

wireless marketplace by C block licensees; (2) reduction of the risk of

legal challenge; and (3) minimal disruption to the plans of as many

applicants as possible who were in advanced stages of planning to

participate in the C block auction when Adarand was announced. While

taking action to ensure that the auction commences quickly, we also

want the maximum number of existing business relationships formed under

our prior rules and in anticipation of the C block auction--including

those of women and minority applicants--to remain viable. We emphasize

that our action today does not indicate that race- and gender-based

provisions at issue here could not be sustained without further

development of the record. Nor do we believe that such measures

generally are inappropriate for future auctions of spectrum-based

services. We are considering the means we should take to develop a

supplemental record that will support use of such provisions in other

spectrum auctions held post-Adarand.

Background

2. Legislation and Commission Action. In the Omnibus Budget

Reconciliation Act of 1993, Congress authorized the competitive bidding

of spectrum-based services and mandated that small businesses, rural

telephone companies, and businesses owned by members of minority groups

and women (collectively known as ``designated entities'') be ensured

the opportunity to participate in the provision of such services. In

the Fifth Report and Order, in PP Docket No. 93-253, we adopted

competitive bidding rules designed to encourage designated entity

participation in broadband PCS (59 Fed. Reg. 5532). Specifically, we

established ``entrepreneurs' blocks'' (the C and F frequency blocks

allocated for broadband PCS) for which eligibility is limited to

individuals and entities under a certain financial size. We also

adopted special provisions for businesses owned by members of minority

groups or women and we analyzed their constitutionality utilizing the

``intermediate scrutiny'' standard of review articulated in Metro

Broadcasting, Inc. v. FCC, 497 U.S. 547, 564-565 (1990). We made

subsequent changes to the entrepreneurs' block rules and special

provisions for designated entities in the Fifth MO&O (59 Fed. Reg.

53,364).

3. Litigation and Auction Schedule. On March 15, 1995, in response

to a request filed by Telephone Electronic Corp. (TEC) alleging that

our broadband PCS competitive bidding rules violated equal protection

principles under the Constitution, the U.S. Court of Appeals for the

District of Columbia Circuit issued an Order stating that ``those

portions'' of the Commission's Order ``establishing minority and gender

preferences, the C block auction employing those preferences, and the

application process for that auction shall be stayed pending completion

of judicial review.'' As a result, the C block auction, then scheduled

to commence 75 days after the March 13, 1995 close of the A and B block

auction, was postponed. The court's stay was subsequently lifted on May

1, 1995, pursuant to TEC's motion, after TEC decided to withdraw its

appeal. The Commission established August 2, 1995 as the new auction

date.

4. On June 12, 1995, three days before initial short form

applications (FCC Form 175) for the August 2nd C block auction were

due, the Supreme Court decided Adarand. The Supreme Court decided to

overrule Metro Broadcasting ``to the extent that Metro Broadcasting is

inconsistent with'' Adarand's holding that ``all racial classifications

. . . must be analyzed by a reviewing court under strict scrutiny.'' As

a result of the Adarand decision, the constitutionality of any federal

program that makes distinctions on the basis of race must serve a

compelling governmental interest and must be narrowly tailored to serve

that interest. By Public Notice released June 13, 1995, the Commission

postponed the C block auction again in order to give interested bidders

and the Commission time to evaluate the impact of Adarand. We later

established an August 29, 1995 date for the auction.

5. Further Notice of Proposed Rule Making. On June 23, 1995, we

adopted a Further Notice of Proposed Rule Making, in which we

identified four race- and gender-based measures in our C block auction

rules and two similar provisions in our commercial mobile radio service

(CMRS) and broadband PCS rules that were affected by the Court's ruling

in Adarand (60 Fed. Reg. 34200-34201). In the Further Notice, we

proposed to eliminate these race- and gender-based provisions and

instead modify such measures to be race- and gender-neutral (60 Fed.

Reg. 34202-34203). We, at the same time, stated that we remain

committed to the mandates and objectives of the Budget Act.

6. In the Further Notice, we set forth our specific proposals and

our rationale for these C block auction rule changes. While we stressed

our commitment to the goal of ensuring broad participation in PCS by

designated entities, particularly minority- and women-owned businesses,

we indicated that Adarand required us to reevaluate our

[[Page 37787]]

method for accomplishing this Congressional objective (60 Fed. Reg.

34202). Although we stated in the Further Notice that our current

record concerning adoption of the race- and gender-based measures

contained in our C block auction rules is strong, we tentatively

concluded that additional evidence may be necessary to meet the strict

scrutiny standard of review required by Adarand. We cautioned that

development of such a supplemental record would further delay the C

block auction, putting the C block winners at a greater competitive

disadvantage in the CMRS market vis-a-vis existing wireless carriers

such as the A and B block winners, cellular and Specialized Mobile

Radio (SMR) carriers (60 Fed. Reg. 34202).

7. Additionally, we indicated that without changes to our race- and

gender-based rules, there was a substantial likelihood that the C block

auction would be the subject to legal challenge based on the holding in

Adarand. We stated that a stay would delay both the auctioning and

licensing of the C block, and that such a result might harm competition

overall in the CMRS marketplace. Also, we recognized that even if the C

block auction were not stayed beforehand, there is a high likelihood

that minority applicants and possibly female applicants (who utilize

bidding credits and other provisions available solely to members of

those groups) would be subject to license challenges (i.e., in the form

of petitions to deny and judicial appeals). Such challenges could

potentially delay their entry into the market and postpone competition.

8. In addition, we recognized that many of the C block applicants

have already attracted capital and formed business relationships in

anticipation of the C block auction. We observed that these

relationships are more likely to survive if the auction is not

significantly delayed, and our rule changes are minimally disruptive to

existing business plans. We suggested that by eliminating race- and

gender-based provisions from our C block auction rules, we would not

only reduce the legal uncertainty associated with C block licensing,

but we would also further competition and ownership diversity by

adopting provisions based on economic size only. By virtue of such rule

changes, potential C block bidders, including minority and women

bidders, would have a better chance of becoming successful PCS

providers. We also indicated that elimination of the race- and gender-

based measures from the C block auction rules would be consistent with

our duty to implement the Budget Act, since we believe that many

designated entities would qualify as small businesses under our rules.

Furthermore, as small businesses, such entities would be entitled to a

small business bidding credit and favorable installment payment terms.

9. Accordingly, we sought comment on amending six rule provisions

as follows:

Amend Section 24.709 of the Commission's Rules to make the

50.1/49.9 percent ``control group'' equity structure available to all

entrepreneurs' block applicants.

Amend Section 24.720 of the Commission's Rules to

eliminate the exception to the affiliation rules that excludes the

gross revenues and total assets of affiliates controlled by investors

who are members of a minority-owned applicant's control group.

Amend Section 24.711 of the Commission's Rules to provide

for three installment payment plans for entrepreneurs' block applicants

that are based solely on financial size.

Amend Section 24.712 of the Commission's Rules to provide

for a 25 percent bidding credit for small businesses.

Amend Section 24.204 of the Commission's Rules to make the

40 percent cellular attribution threshold applicable to ownership

interests held by small businesses and rural telephone companies, and

to non-controlling ownership interests held by investors in broadband

PCS applicants/licensees that are small businesses.

Amend Section 20.6 of the Commission's Rules to make the

40 percent attribution threshold for the CMRS ``Spectrum Cap''

applicable to ownership interests held by small businesses and rural

telephone companies.

We received 41 timely-filed comments in response to the Further

Notice. In addition, after announcement of the Adarand decision and

prior to release of the Further Notice, we received 42 informal

comments addressing various issues regarding our C block competitive

bidding rules, the impact of Adarand, and the need for the C block

auctions to proceed expeditiously.

Discussion

A. Rationale for Rule Changes

10. The overwhelming majority of commenters support the proposed

rule changes set forth in the Further Notice. A few commenters,

however, generally oppose our proposals on the basis that Adarand does

not require us to change the race- and gender-based provisions

contained in our C block competitive bidding rules. Specifically, BET

contends that Adarand does not wholly invalidate such provisions but

merely requires that their constitutionality be determined utilizing a

strict scrutiny standard of review. BET and NABOB argue that the race-

and gender-based provisions can and should be retained because they

would survive a strict scrutiny standard of review and comply with the

congressional mandate of the Budget Act. Similarly, Giles contends that

the proposed rule changes contravene the spirit and mandate of the

Budget Act. BET also proposes alternative rule changes that it contends

will satisfy the Congressional goals outlines in the Budget Act, flow

from the Commission's record, and comport with the standards pronounced

in Adarand.

11. Upon careful review we remain concerned that our present record

would not adequately support the race- and gender-based provisions in

our C block competitive bidding rules under a strict scrutiny standard

of review. Significantly, the D.C. Circuit previously stayed the C

block auction in response to a constitutional equal protection

challenge against these provisions when a less strict standard of

review was applicable. As a result, we strongly believe that there is a

substantial likelihood of further legal challenge to the C block

auction in the wake of Adarand if such provisions remain unchanged.

None of the commenters have challenged this belief. Furthermore, as we

indicated in the Further Notice, we would need additional evidence to

sufficiently develop our record to support these race- and gender-based

provisions consistent with the dictates of Adarand (60 Fed. Reg.

34,200). Any efforts to obtain this additional evidence would require

additional time and, therefore, further delay the commencement of the C

block auction. The legal uncertainty associated with the race- and

gender-based provisions, combined with the views of potential C block

bidders that the auction not be subject to any further delay, prompt us

to modify our rules in a fashion which would be minimally disruptive to

as many of the interested parties, potential bidders as well as members

of the financial and investment communities as possible. We also

disagree with the assertion by BET and Giles that today's rule changes

are inconsistent with the Budget Act. As we concluded in the Further

Notice, today's rule changes would allow small businesses to benefit

from the most

[[Page 37788]]

favorable bidding credits and installment payment plans contained in

our rules (60 Fed. Reg. 34200). As a result, because we have evidence

which supports a conclusion that many designated entities, including

minority and women-owned businesses, would qualify as small businesses

and, thus, benefit from such provisions, we believe that our action is

fully consistent with the Budget Act. We further conclude that the

proposals we adopt today are necessary under the circumstances and

indeed will best serve the public interest.

12. With respect to alternative rule change proposals presented by

the commenters, we conclude, as discussed more fully below, that

because they draw distinctions based upon race, most of these proposals

would engender the same danger of constitutional infirmity and would

result in the same legal uncertainties that we week to mitigate by

these decisions. To the extent that the commenters have presented race-

and gender-neutral rule changes, we conclude, as discussed herein, that

the proposals set forth in the Further Notice, which are broadly

supported by numerous commenters, constitute the more prudent and

expedient course of action for proceeding with the auctioning of the C

block licenses post-Adarand.

B. Control Group Equity Structures

13. Background. Our current rules permit broadband PCS applicants

for licenses in the C block to utilize one of two equity ``control

group'' structures, so that the gross revenues and total assets of

persons or entities holding interests in such applicants will not be

considered. These two equity structures are the Control Group Minimum

25 Percent Equity Option (which is available to all applicants) and the

Control Group Minimum 50.1 Percent Equity Option (which is currently

available only to minority or women applicants). In the Further Notice,

we proposed to modify our rules to permit all C block applicants,

including small businesses and entrepreneurs, to avail themselves of

the Control Group Minimum 50.1 Percent Equity Option. When we adopted

the Control Group Minimum 50.1 Percent Equity Option in the Fifth R&O,

we determined that making such a mechanism available to minority- or

women-owned businesses would better enable them to attract adequate

financing (59 Fed. Reg. 5532). We have previously noted that the

primary impediment to participation by businesses owned by women and

minorities in broadband PCS is a lack of access to capital. We

tentatively concluded that such a rule change would cause the least

disruption and open up additional financing options for other

applicants in the C block auction. The Further Notice sought comment on

this proposed rule change and tentative conclusion (60 Fed. Reg.

34,200).

14. Comments. Most commenters agree that the Control Group Minimum

50.1 Percent Equity Option should be made available to all C block

applicants. Several commenters express concerns about further delay of

the auctioning and licensing of the C block and agree that this minimal

rule change would not unduly disrupt existing business relationships.

Other commenters support the proposed rule change on the basis that it

would substantially reduce, if not eliminate, the possibility of legal

challenges to the C block auction based on the Adarand decision. DCR

Communications and Small Business PCS argue that elimination of

minority- and gender-based provisions would provide meaningful

opportunity for small businesses, as well as minority- and women-owned

businesses, to participate in the C block auction.

15. Other commenters, however, oppose extending availability of the

Control Group Minimum 50.1 Percent Equity Option to all entrepreneurs.

K&M proposes that this equity structure only be available to ``very

small businesses,'' defined as businesses with revenues up to $20

million. Omnipoint argues that because the Control Group Minimum 50.1

Percent Equity Option was created to address the problems experienced

by women- and minority-owned companies in accessing capital, the

Commission should either justify the measure under the strict scrutiny

standard of review or eliminate is completely. Omnipoint expresses

concern that extension of the Control Group Minimum 50.1 Percent Equity

Option equity structure to all C block applicants would increase the

number of ``shams'' financed by big companies. Similarly, Silverman and

Century oppose allowing large companies, whether minority- or women-

owned, as a general matter, to own more than 25 percent of a C block

applicant's equity.

16. Decision. We have decided to amend our rules to permit all C

block applicants to avail themselves of the Control Group Minimum 50.1

Percent Equity Option. This amendment enables minority- or women-owned

applicants structured under our prior rule to retain the Control Group

Minimum 50.1 Percent Equity Option, while extending this option to

other applicants in the entrepreneurs' block as well. We recognize that

we originally established the Control Group Minimum 50.1 Percent Equity

Option as a race- and gender-based measure aimed at addressing the

unique financing problems experienced by women- and minority-owned

businesses. All C block applicants, as well as the public, will be

better served if we proceed expeditiously in a manner which both

reduces the likelihood of legal challenges and enhances the

opportunities for a wide variety of applicants, including designated

entities, to obtain licenses and rapidly deploy broadband PCS service.

Thus, we conclude that use of this equity structure should now be

dependent upon economic size, a factor not implicated by the Court's

decision in Adarand. Moreover, retaining the Control Group Minimum 50.1

Percent Equity Option should help to preserve existing business

relationships formed in reliance on our prior rules and encourage

participation in the C block auction.

17. We disagree with Omnipoint's position on the Control Group

Minimum 50.1 Percent Equity Option rule change. In the Fifth R&O and

the Fifth MO&O, we indicated that the equity structure options provided

under our rules are designed to provide qualified bidders with a

reasonable amount of flexibility in attracting needed financing from

other entities, while ensuring that such entities do not acquire

controlling interests in the qualified bidders (59 Fed. Reg. 5532, 59

Fed. Reg. 53,364). With respect to the Control Group Minimum 50.1

Percent Equity Option, we previously explained that in order to guard

against abuses, the control group of applicants choosing this option

must own at least 50.1 percent of the applicant's equity, as well as

retain control and hold at least 50.1 percent of the voting stock. We

have previously concluded that this requirement reduces substantially

the danger that a well-capitalized investor with substantial ownership

stake will be able to assume de facto control of the applicant. In

addition, we previously clarified our rules so that persons or entities

that are affiliates of one another, or that have an ``identity of

interests,'' as well as their other investors pursuant to Sections

24.709(c) and 24.813 will be treated as though they are one person or

entity and their ownership interests aggregated for purposes of

determining compliance with our nonattributable equity limits. This

clarification was aimed at discouraging large investors from

circumventing our equity limitations for nonattributable investors. We

believe that these measures will be effective in deterring the type of

``sham'' deals

[[Page 37789]]

described by Omnipoint. Moreover, we will have the opportunity to

review these structures through the application process when bidders

who elect to utilize such equity structures are required to identify

the members of their control groups. Consequently, we believe that our

rules adequately protect against ``sham'' deals.

18. Accordingly, under Section 24.709 of the rules, all applicants

in the C block auction selecting a ``control group'' structure in order

to exclude the total assets and gross revenues of certain investors

will have two options for raising capital through the distribution of

equity among ``qualifying investors,'' other eligible investors in the

control group (e.g., management and institutional investors) and other

non-attributable ``strategic'' investors. In light of the fact that we

have eliminated the eligibility dichotomy in the two control group

equity options, we specify and clarify here how both options apply to C

block applicants.

19. First, we note that under both options the following control

and voting requirements continue to apply: (1) the control group must

own at least 50.1 percent of the applicant's voting stock, if a

corporation, or all of the applicant's general partnership interests,

if a partnership; (2) qualifying investors, as defined in the rules,

must hold at least 50.1 percent of the voting stock and all general

partnership interests within the control group, and must have de facto

control of the control group and the applicant; and (3) the investor(s)

holding ``nonattributable equity'' (up to 25 percent or 49.9 percent)

are limited to 25 percent of a corporate applicant's voting equity

(including the right to vote such interests through a voting trust or

other arrangement) and may hold only limited partnership interests, if

the applicant is a partnership.

20. Control Group Minimum 25 Percent Equity Option. This equity

structure option requires the control group to hold at least 25 percent

of the applicant's total equity. Of this 25 percent equity, at least 15

percent must be held by ``qualifying investors.'' A ``qualifying

investor'' is generally defined as a member of, or a holder of an

interest in a member of, the applicant's or licensee's control group

whose gross revenues and total assets, when aggregated with those of

all other attributable investors and affiliates, do not exceed the

gross revenues and total assets restrictions specified in our rules

with regard to eligibility for entrepreneurs' block licenses or status

as a small business. With regard to the remaining 10 percent of the

control group's equity, this may be held by four types of

noncontrolling investors without these investors' assets and revenues

being attributed to the applicant, as is the case with other control

group members. These are (1) qualifying investors (small businesses or

entrepreneurs); (2) individuals who are members of the applicant's

management team; (3) existing investors in a preexisting entity that is

a member of the control group; and (4) institutional investors. The

minimum equity amounts within the control group vary slightly three

years after the license is received and for applicants whose sole

control group member is a preexisting entity. As for the remaining 75

percent of the applicant's equity (assuming the control group holds no

more than the minimum 25 percent), the gross revenues and total assets

(and other affiliations) of an investor holding a portion of this

remaining equity are not considered so long as such investor (together

with its affiliates) holds no more than 25 percent of the applicant's

total equity.

21. Control Group Minimum 50.1 Percent Equity Option. This equity

structure option requires the control group to hold at least 50.1

percent of the applicant's total equity. Of this 50.1 percent equity,

at least 30 percent must be held by ``qualifying investors.'' The

remaining 20.1 percent of the control group's equity may be held by the

same four types of investors specified above. As with the Control Group

Minimum 25 Percent Equity Option, the minimum equity amounts within the

control group vary slightly three years after the license is received

and for applicants whose sole control group member is a preexisting

entity. As for the remaining non-control group equity, the gross

revenues and total assets (and affiliates) of the investor(s) holding

this remaining equity is not considered so long as such investor(s)

(together with its affiliates) holds no more than 49.9 percent of the

applicant's total equity. The reasoning behind these two options and

their advantages to applicants for purposes of raising capital are set

forth in our Fifth R&O and Fifth MO&O (59 Fed. Reg. 5532, 59 Fed. Reg.

53,364). We affirm here that this reasoning and the advantages for

maintaining both options remain applicable. We note that, under our

prior rules, businesses owned by minorities and women had the option to

use either equity structure. It is our understanding that such

businesses, depending on their particular circumstances, were forming

applicants based on the option that best met their needs for outside

investment and what the capital markets were seeking from them in the

form of equity interests. We now provide both options to all C block

applicants and we anticipate that each applicant will pursue (or switch

to) the option that best suits its particular capital needs and equity

ownership situation.

22. Qualifying Investors. The modification in the Fifth MO&O and

here of the control group minimum equity requirements to allow certain

other investors to own ``control group equity''--and not have their

assets and revenues attributed to the applicant--may not be clear in

light of the definition of ``qualifying investor'' in section 24.702(n)

of the Commission's rules. Specifically, in the Fifth MO&O, we modified

the rules to allow certain noncontrolling investors who do not qualify

for the entrepreneurs' block or as a small business to be investors in

an applicant's control group (59 Fed. Reg. 53,364). In making these

limited changes to the control group equity requirements, we said that

this added, but limited, flexibility will (1) promote investment in

designated entities generally; (2) attract and promote skilled

management for applicants; and (3) encourage involvement by existing

firms that have valuable management skills and resources to contribute

to the success of applicants.

23. We stated that the first category for inclusion in this 10

percent or 20.1 percent portion of the control group is ``investors in

the control group that are women, minorities, small businesses or

entrepreneurs.'' The text of the rules adopted in the Fifth MO&O and

the erratum to the Fifth MO&O capsulized this category as ``qualifying

investors,'' but the definition of ``qualifying investors'' in the

rules failed to reflect the broader nature and purpose for allowing

``women, minorities, small businesses or entrepreneurs'' hold shares or

options in the 10 percent or 20.1 percent portion of the control group

even though they--like the other categories--``if attributed, would

cause the applicant to exceed the small business or entrepreneurs'

block financial caps * * *.'' (59 Fed. Reg. 53,364) Consistent with our

intent in the Fifth MO&O, we clarify that, so long as the minimum

equity requirements for ``qualifying investors'' (15 percent or 30

percent) under our new rules are met, the remaining control group

equity (10 percent or 20.1 percent) may be held by investors that meet

either the small business or entrepreneur eligibility requirements. We

continue to believe that such entities, if they wish to provide

financial support to C block applicants, should not be precluded from

doing so because their financial

[[Page 37790]]

status would, if considered with other control group members, make the

applicant ineligible for the C block or small business status.

Accordingly, we clarify our definition of ``qualifying investor'' for

purposes of Section 24.709(b) (5)(i)(C) and (6)(i)(C).

C. Affiliation Rules

24. Background. We adopted affiliation rules for purposes of

identifying all individuals and entities whose gross revenues and

assets must be aggregated with those of the applicant in determining

whether the applicant exceeds the financial caps for the entrepreneurs'

blocks or for small business size status. There are two exceptions to

our broadband PCS affiliation rules. Under one exception, applicants

affiliated with Indian tribes and Alaska Regional or Village

Corporations organized pursuant to the Alaska Native Claims Settlement

Act, 43 U.S.C. 1601 et seq., are generally exempt from the affiliation

rules for purposes of determining eligibility to participate in bidding

on C block licenses. These applicants additionally qualify as a small

business with a rebuttable presumption that revenues derived from

gaming, pursuant to the Indian Gaming Regulatory Act, 25 U.S.C. 2701 et

seq. will be included in the applicant's eligibility determination.

Under the second exception, the gross revenues and assets of affiliates

controlled by minority investors who are members of the applicant's

control group are not attributed to the applicant for purposes of

determining compliance with the eligibility standards for entry into

the entrepreneurs' block.

25. In the Further Notice, we proposed to eliminate the exception

pertaining to minority investors (59 Fed. Reg. 34,204). In crafting

this exception, we anticipated that it would permit minority investors

that control other business entities to be members of an applicant's

control group and to bring their management skills and financial

resources to bear in its operation without the assets and revenues of

those other concerns being counted as part of the applicant's total

assets and revenues. We further anticipated that such an exception

would permit minority applicants to pool their resources with other

minority-owned businesses and draw on the expertise of those who have

faced similar barriers to raising capital in the past. In the Further

Notice, we tentatively concluded that it would be imprudent to respond

to Adarand by extending this exception to all entrepreneurs because to

do so would frustrate the Commission's goals in establishing the

entrepreneurs' block--namely, to ensure that broadband PCS will be

disseminated among a wide variety of applicants including small

businesses and rural telephone companies (60 Fed. Reg. 34,200).

26. The Further Notice proposed to retain the affiliation exception

for Indian tribes and Alaska Regional or Village Corporations (60 Fed.

Reg. 34,204). We tentatively concluded that the ``Indian Commerce

Clause'' of the United States Constitution provides an independent

basis for this exception that is not implicated by the Adarand

decision.

27. Comments. The commenters overwhelmingly support elimination of

the exception to our affiliation rules that excludes the gross revenues

and total assets of affiliates controlled by minority investors who are

members of an applicant's control group. Some commenters agree that

this rule change would reduce the likelihood of a further delay to the

C block auction resulting from legal challenges premised on the Adarand

decision. Other commenters argue that the Court's ruling in Adarand

requires elimination of the affiliation rule exception applicable

solely to investors who are members of minority groups. With respect to

the effect of such rule change, Central Alabama & Mobile Tri-States

argue that by virtue of the current rule, well-financed entities who

might otherwise not qualify as an entrepreneur or as small businesses

are allowed to participate in the C block which is ultimately to the

detriment of those C block applicants who actually experience

difficulties in accessing capital. DCR Communications contends that the

proposed rule change would not deprive women and minority-owned

businesses of investment from other minorities whose affiliates would

exceed the financial size limitations imposed under our rules; rather,

it would limit such investment to 25 percent before it becomes

attributable.

28. BET, NABOB, and O.N.E. oppose elimination of the affiliation

rule exception pertaining to investors who are members of minority

groups. NABOB argues that such elimination will prevent many bidders

from including experienced, successful minority entrepreneurs in their

control groups, which, in turn, may cause them to lose financing

dependent upon such alliances, and, thus, prevent them from

participating in the C block auctions. Similarly, BET argues that this

rule change would not only exclude several minority entrepreneurs, but,

because the A and B blocks already have been licensed, such minorities

would be precluded from any meaningful participation in broadband PCS.

BET further argues that elimination of the affiliation rule exception

would be inconsistent with the congressional mandate given in the

Budget Act and the record established by the Commission regarding those

problems experienced by minority-owned businesses that the exception

was specifically designed to address. Also, BET contends that Adarand

does not require such a rule change.

29. Some commenters generally propose alternative modifications to

the affiliation rule exception for minority investors. NABOB proposes

that the exception be modified so that an entity controlled by a member

of the control group of a small business applicant or licensee would

not be considered an affiliate of the applicant if the entity would

qualify as an entrepreneur. Spectrum Resources proposes that investors

who have affiliates with gross revenues and total assets sufficiently

large to disqualify a small business applicant would still be allowed

to invest in the application if their investment was capped at a

relatively low level, such as $100,000. Spectrum Resources argues that

this modification would increase the pool of investors for small

businesses while ensuring that the applicant remains a small business.

30. BET suggests four alternative affiliation rule exceptions.

Under BET's first alternative exception, it proposes that the exception

be made available only when the revenues and assets of each of the

affiliates of minorities in a control group separately qualify as

entrepreneurs under our rules. If, however, any of the affiliates

exceeded the financial limitations for the C block, then the minority-

owned applicant would not be allowed to participate in the C block

auction. BET argues that this proposal is analogous to the Commission's

treatment of small business consortia in the C Block. Under BET's

second proposal, the revenues and assets of affiliates of minority

members of an applicant's control group would be excluded if the

average revenues of the affiliates over the past two years are less

than the C block financial limits. BET argues that without such

modification, Native Americans are being singled out for special

treatment in violation of the Equal Protection Clause. Under these

proposals, BET suggests that aggregation of the gross revenues and

total assets of these affiliates would not be required in determining

whether the applicant qualifies as an entrepreneur or a small business.

BET's other affiliation rule exception proposals consist of making the

first two proposals described above

[[Page 37791]]

applicable to all members of a control group regardless of race. BET

argues that these proposals would exclude large telecommunications

companies, allow otherwise excluded minority applicants to participate

in the C block auction, and provide for the limited growth of small

companies.

31. With regard to the affiliation rule exception pertaining to

Native Americans, CIRI, the Oneida Tribe, and Prairie Island agree that

such exception should be retained. These commenters also agree that

this exception is authorized by the Indian Commerce Clause of the

Constitution. Furthermore, CIRI and Prairie Island contend that the

affiliation rule exception is not a race-based measure implicated by

Adarand. Prairie Island argues that the exception is an outgrowth of an

accommodation by the federal government of several Indian tribes as

sovereign political entities in a trust relationship with the United

States. CIRI and Prairie Island also argue that this exception is part

of federal Indian law and policy. CIRI also argues that elimination of

the affiliation rule exception pertaining to Indian tribes would be:

(1) inconsistent with the Small Business Administration's treatment of

tribal entities; and (2) without record support since the record

supports the exception's underlying purpose and the essential

circumstances justifying such exception have not changed.

32. Decision. Although we proposed to eliminate the exception to

our affiliation rules pertaining to minority-controlled affiliates, we

now decide to modify it in a manner similar to BET's proposal. When we

originally crafted this exception for minority-owned applicants, we

anticipated that it would permit minority investors who control other

concerns to be members of a minority-owned applicant's control group

and to bring their management skills and financial resources to bear in

its operation without the assets and revenues of those other concerns

being counted as part of the applicant's total assets and revenues. We

further anticipated that such an exception would permit minority-owned

applicants to pool their resources with other minority-owned businesses

and draw on the expertise of those who have faced similar barriers to

raising capital in the past. However, as we recognized in allowing

small business consortia to apply in the C block and in granting small

businesses special measures, all small businesses, including those

owned by minorities and women, should not be precluded from pooling

their resources in this capital intensive service. We believe that to

some extent, these firms face barriers to raising capital not faced by

the larger firms. In addition, small businesses experienced in managing

smaller businesses should not be penalized because they own or are

otherwise affiliated with other businesses whose assets and revenues

must be considered on a cumulative basis and aggregated for purposes of

qualifying for the C block auction.

33. Our modification will benefit small business applicants only

where the financial position of their affiliates or their qualifying

control group member's affiliates, when considered individually and on

a cumulative basis, would not present an unfair competitive advantage

in the auction. Thus, to achieve the objectives outlined above--

including minimizing the adverse impact on existing business

relationships, mitigating the risk of legal challenges, and ensuring

that the auctions are fair and do not present any bidder with an unfair

competitive advantage--we modify this exclusion from affiliation

coverage as follows:

For purposes of the affiliation rules, a small business

applicant can exclude from coverage of the affiliation rules any

affiliate of the small business applicant if the following conditions

are met:

(1) the affiliate would otherwise qualify as an entrepreneur

pursuant to section 24.709(a)(1) ($125 million in gross revenues and

$500 million in total assets); and

(2) the total assets and gross revenues of all such affiliates,

when considered on a cumulative basis and aggregated with each other,

do not exceed these amounts.

This exemption will apply for purposes of qualifying for both the C

block auction and small business status.

34. We will also retain the affiliation exception for Indian tribes

and Alaska Regional or Village Corporations. In the Fifth MO&O, we

stated that our decision to exempt Indian tribes generally from our

affiliation rules was premised on the fact that Congress has imposed

unique legal constraints on the way they can utilize their revenues and

assets (59 Fed. Reg. 53,364). We recognized that as a result of such

constraints imposed by the Alaska Native Claims Settlement Act, 43

U.S.C. Sec. 1601 et seq., Native American corporations are precluded

from utilizing two important means of raising capital: (1) the ability

to pledge the stock of the company against ordinary borrowings, and (2)

the ability to issue new stock or debt securities. We further

recognized that Congress has mandated that the Small Business

Administration determine the size of a business concern owned by a

tribe without regard to the concern's affiliation with the Indian tribe

and determined that the affiliation exception contained in our C block

affiliation rules mirrored this congressional mandate. Although Indian

tribes are minorities under our C block auction rules, we conclude that

their affiliation rule exception is different from the exception

applicable only to minority investors in that it is premised on their

unique legal status as recognized in the ``Indian Commerce Clause'' of

the United States Constitution.

D. Installment Payments

35. Background. Five different installment payment plans are

available to C block applicants under Section 24.711 of the

Commission's Rules. In the Further Notice, we sought comment on our

proposal to allow all small businesses, regardless of racial or gender

classification, the opportunity to use the most favorable installment

payment plan to pay for their licenses (60 Fed. Reg. 34,200). This

proposal provides for interest-only payments for six years and payments

of principal and interest amortized over the remaining four years of

the license term. We indicated that this approach would allow many

prospective bidders to maintain their pre-Adarand business

arrangements.

36. Comments. A majority of the comments support the elimination of

installment payment plans that are tied to an applicant's status as a

minority- or women-owned business, and to provide for three installment

payment plans that are based solely on financial size. Several

commenters note that our proposal will result in the least amount of

delay to the auction and grant of C block licenses. GO Communications

asserts that delays and threats of delay to the C block auction will

irrevocably damage all entrepreneurs. Airlink expresses a similar

opinion when it notes that there is a direct link between auction

delays, market competitiveness and investor confidence. Airlink further

maintains that auction delays inhibit the ability of applicants to keep

and find sources of investment. Small Business PCS was even more

adamant that any other alternative would result in further delay and no

viable licenses for any small businesses. Although the majority of

commenters favor our proposal, Minority Media et al. also suggests

allowing any applicant who can demonstrate ``good cause'' to request a

waiver under Sections 1.3 and 24.819(a) of our rules to be eligible for

small business preferences and the bidding credit under our proposed

rule. Under Minority Media et al.'s proposed alternative, any waiver

requests by women and minorities would receive a

[[Page 37792]]

``plus'' factor since there is record evidence in this proceeding and

in congressional legislation that establishes compelling governmental

interests in diversity of ownership.

37. Several commenters oppose our proposal to modify our

installment payment plan. InTouch asserts that we are raising barriers

to accessing capital by minority-owned businesses. By eliminating the

race and gender preference, BET argues that we are not assisting

minority-owned small businesses in overcoming obstacles to entry into

the PCS marketplace. BET further maintains that the Further Notice must

still satisfy Congress' directive to disseminate licenses among a wide

variety of applicants and to ensure that minorities are not excluded

from the auction process. O.N.E. charges that we are wrong to eliminate

all race- and gender-based preferences without proposing a race- and

gender-neutral solution. Specifically, O.N.E. argues that our proposals

do not create a size standard that is race and gender neutral yet small

enough to ensure that businesses owned by members of minority groups

and women are given the opportunity to participate in the provision of

PCS. As a result, they assert that our proposals have the effect of

restricting opportunities to only an elite handful of minorities and

women.

38. RTC disagrees with our installment plans as set forth in the

Further Notice and suggests two proposals of its own. First, RTC would

make the same installment payment terms available to all small

businesses that qualify to participate in the C block auction.

Alternatively, RTC would maintain the existing differentials available

to small businesses that meet the $40 million gross revenues test vis-

a-vis other small businesses that qualify as ``entrepreneurs.'' RTC

asserts that the effect of the proposals creates a massive gulf between

small businesses whose control groups can meet the $40 million gross

revenues test versus those whose control group cannot meet that test.

39. Decision. We will amend our rules concerning installment

payments as set forth in the Further Notice (60 Fed. Reg. 34,200). We

have concluded that revision of our installment payment program in this

manner, is minimally disruptive to the established business

arrangements of the applicants. All small businesses, including

minority- or women-owned small businesses, will continue to be eligible

for the most favorable installment plan.

40. We further conclude that our installment payment plan designed

solely for small businesses will give designated entities an

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

By allowing all small businesses to pay for their licenses in this

manner (i.e., using installments, at a rate equal to ten-year U.S.

Treasury obligations applicable on the date the license is granted and

requiring that payments include interest only for the first six years

with payments of principal and interest amortized over the remaining

four years of the license term), we will provide the most favorable

plan to the smallest companies. We are not, as O.N.E. suggests,

restricting opportunities to a handful of minorities and women. We are

complying with our statutory obligations in a manner that we believe is

necessary under the circumstances. We reject RTC's alternatives to make

the same installment plan available to all applicants. Our record shows

that smaller companies need more assistance accessing capital for

broadband licenses and, therefore, the Commission decided these

businesses should receive more favorable treatment than the medium to

large companies participating in the C block auction.

41. Based on our experience, we conclude that Minority Media et

al.'s waiver proposal as described in its comments is administratively

burdensome, and potentially has its own legal risks since it is based

in part on an applicant's status as a woman or minority. A major

purpose of our proposals is to avert further delays in the auction and

grant of C block licenses. The waivers would give losing applicants a

built-in reason to challenge the auction results with petitions to deny

if a winning applicant utilized the bidding credit solely as a result

of a waiver for ``good cause.'' Therefore, for purposes of the C block

auction, we will not adopt such a waiver proposal.

42. Although the revised rules do not specifically target

minorities and women, we realize that because a large number of

minority- or women-owned businesses are small businesses, our new rules

will nonetheless, afford designated entities opportunities to

participate in the C block auction. We recognize that this amendment to

the installment payment plan will not allow some minority- and women-

owned businesses to elect the most favorable installment payment plan

because these businesses exceed our small business threshold. We

further recognize that these businesses may have to restructure

agreements to obtain additional capital to participate in the C block

auction.

43. We weighed the risks of litigation to the Commission and to

winning bidders, the need to preserve competition, and our commitment

to providing service to the public as expeditiously as possible against

the additional financial burden this rule change will have on minority-

and women-owned businesses that do not qualify as small businesses

under our rules. After carefully considering these issues, we

determined that the need to mitigate litigation risks, enhance market

competition, and encourage prompt service to the public far out-weigh

the additional financial burden this rule change would create for

potential bidders.

E. Bidding Credits

44. Background. Our current rules provide three tiers of bidding

credits ranging between 10 percent and 25 percent. Small businesses are

eligible for a 10 percent bidding credit. Businesses owned by women or

minorities are eligible for a 15 percent bidding credit and small

businesses owned by women or minorities are eligible for a 25 percent

total bidding credit. The bidding credit acts as a discount on the

winning bid amount that a licensee actually pays for the license. In

the Further Notice, we proposed increasing the bidding credit for small

businesses from 10 percent to 25 percent and eliminating the remaining

bidding credits (60 Fed. Reg. 34,200). We recognized that this proposal

would enhance the competitiveness of all small businesses which will

receive a 15 percent increase in their bidding credits. The positions

of minority- or women-owned businesses will remain the same because

they are already eligible for a 25 percent bidding credit.

45. Comments. Commenters generally advocate increasing the small

business bidding credit to 25 percent and the elimination of bidding

credits based upon an applicant's race or gender. Some commenters

supported our proposal to differentiate between applicants on the basis

of size in order to avert any Adarand or TEC legal challenges to our

rules. Minority Media et al. repeated its ``good cause'' waiver

argument under Sections 1.3 and 24.819(a) of our rules.

46. Two commenters oppose the proposed bidding credit modification.

Both BET and InTouch argue that race neutral alternatives serve only to

reinforce the barriers to capital that many minority-owned businesses

face. BET specifically states that the bidding credit is meant to

``address directly the financing obstacles encountered by minorities.''

Two commenters presented alternative proposals for consideration. RTC

wants to either (1) make the same bid credits available to all small

[[Page 37793]]

businesses that qualify to participate in the C block auction or (2)

maintain the existing differentials available to small businesses that

meet the $40 million gross revenues test vis-a-vis other small

businesses that qualify as ``entrepreneurs.'' O.N.E. proposes

increasing the bidding credit for small businesses to 40 percent.

47. Decision. We amend our rules to provide for a 25 percent small

business bidding credit only. Restructuring our biding credits in this

manner is consistent with our post-Adarand concerns about the C block

auction. While small businesses, in general, will benefit with a higher

credit (i.e., from 10 to 25 percent), their rule change will allow the

Commission and prospective bidders to avoid litigation, allow the

auction to proceed as close to its original schedule as possible and

permit prospective bidders to maintain previously negotiated business

arrangements and financial agreements.

48. We understand BET's and InTouch's concerns, but believe our

proposals do not contradict our statutory obligations. Many commenters

have noted that the elimination of minority- and gender-based

preferences is necessary in light of recent court challenges to race-

based statutes if the C block auction is to proceed without significant

delay. Specifically, GO Communications comments that our bidding credit

proposal strikes an appropriate balance by leveling benefits upward in

a manner that mitigates potential harm to all affected parties.

Spectrum Resources contends that the proposal is reasonable and viable

although a slight negative effect will result because of the additional

competition into the bidding process and a diminishing number of

successful minority and women bidders. DCR Communications argues that

the proposal is the most sensible and is necessary to ensure

participation by designated entities in the auction for, and offering

of, PCS. We agree that we are striking an appropriate balance between

varied interests to retain our statutory mandate to provide

opportunities for designated entities.

F. Cellular PCS Cross-Ownership and CMRS Spectrum Aggregation Limit

49. Background. Our cellular-PCS cross-ownership rule prohibits

entities with attributable interests in cellular licenses from holding

more than 10 MHz of PCS spectrum in an overlapping PCS service area.

For purposes of this rule, a 20 percent or greater interest in a

cellular license is considered to be attributable, except in the case

of cellular interests held by designated entities. In the latter case,

we permit small businesses, rural telephone companies, and businesses

owned by minorities or women to hold up to a 40 percent noncontrolling

interest in a cellular licensee without being subject to the cellular-

PCS cross-ownership restriction. We also apply a 40 percent cellular

attribution threshold to any entity with a non-controlling interest in

a PCS license controlled by minorities or women. The same attribution

rules apply to our 45 MHz spectrum cap, which restricts any entities

from holding interests in more than 45 MHz of broadband PCS, cellular,

and SMR spectrum in the same geographic area. Thus, while interests of

20 percent or more in a broadband PCS, cellular, or SMR license are

generally attributable for purposes of the spectrum cap, small

businesses, rural telephone companies, and businesses owned by

minorities or woman are subject to a 40 percent attribution threshold.

50. In the Further Notice, we proposed to modify both the cellular-

PCS cross-ownership and the PCS/cellular/SMR spectrum cap rule with

respect to the C block by eliminating the use of the 40 percent

attribution threshold on the basis of race or gender (60 Fed. Reg.

34,200). Thus, in the cellular-PCS context, we proposed to apply the 40

percent attribution threshold only to cellular interests held by small

businesses and rural telephone companies, but to apply the 20 percent

threshold to all other cellular interests, including those held by

minority and women-controlled entities that are not small business or

rural telephone companies. We further proposed to eliminate the rule

allowing 40 percent cellular attribution for non-controlling investors

in minority- or women-controlled PCS applicants or licensees and

instead proposed to apply the 40 percent threshold to non-controlling

investors in PCS applicants or licensees controlled by small

businesses. In this regard, we noted that the extension of the 40

percent threshold to non-controlling investors in small businesses

might result in additional investment in small business PCS applicants.

Similarly, with respect to the PCS/cellular/SMR spectrum cap, we

proposed to use the 40 percent attribution threshold where PCS/

cellular/SMR interests are held by small businesses and rural telephone

companies, but to use the 20 percent threshold in all other cases.

Although we noted that the cellular-PCS and spectrum cap rules applied

to more than just the C block, we proposed to change the rules with

respect to the C block only.

51. Comments. The comments generally support our proposals for

modifying the cellular-PCS cross-ownership and CMRS spectrum

aggregation limit rules. Most of the comments mirror earlier comments

concerning the commenter's desire to avoid delay; to avoid Adarand and

TEC type legal challenges; and to minimize disruption. DCR

Communications notes that our proposal will promote investment. Only

two commenters object to our proposal. O.N.E. reasserts its argument

that we should not eliminate all race- and gender-based preferences

without proposing a race- and gender-neutral solution. Radiofone

challenges both the 40 percent cellular-PCS cross-ownership rule and

our proposed amendment as unlawful and discriminatory.

52. Decision. We will amend our cellular PCS cross-ownership and

PCS/cellular/SMR spectrum aggregation limit rules with respect to C

block as proposed in the Further Notice (50 Fed. Reg. 34,200). These

changes will help to avoid further delay or legal challenges to the C

block auction and are strongly supported by the comments. We reject

Radiofone's argument that the cellular-PCS cross-ownership rule should

be eliminated. This argument has been fully addressed previously in the

PCS docket and is not an issue raised in this proceeding. Specifically,

we modify Section 24.204(d)(2)(ii) with respect to the C block to

eliminate the provision in the cellular-PCS cross-ownership rule that

increases the attribution threshold to 40 percent on the basis of the

race or gender of the holder of the ownership interest, but we will

continue to apply the 40 percent threshold to cellular interests held

by small businesses and rural telephone companies. We also modify

Section 24.204(d)(2)(ii) to provide that non-controlling investors in C

block PCS applicants or licensees controlled by small businesses may

hold up to a 40 percent interest in a cellular licensee without being

subject to the cellular-PCS cross-ownership restrictions. Finally, we

make the same modification to the attribution provisions in our

spectrum cap rule in Section 20.6(d)(2) that we have made to our

cellular-PCS rule. Thus, small businesses or rural telephone companies

may hold up to a 40 percent interest in broadband PCS, cellular, or SMR

licenses without such interests being attributable under the 45 MHz

spectrum cap, but minority- and women-controlled interest holders who

are not small businesses or rural telephone companies will be subject

to the 20

[[Page 37794]]

percent attribution rule for purposes of determining C block

eligibility under the spectrum cap. To avoid any apparent

inconsistency, Section 206(d)(2) will also reflect the modification

with respect to non-controlling investors in C block PCS applicants and

licensees that are small businesses.

G. Miscellaneous Issues

53. Information Collection. With respect to our proposal to

continue requesting information on the short-form applications (FCC

Form 175) regarding minority- or women-owned status, both Spectrum

Resources and Central Alabama & Mobile Tri-States agree that we should

continue to collect such information. Central Alabama & Mobile Tri-

States believe that collection of the status data will enable the

Commission to analyze the applicant pool and auction results to

determine if small business provisions alone were sufficient to achieve

the participation of all designated entities, including businesses

owned by minorities or women. Central Alabama & Mobile Tri-States

further state that in the event that such participation is not

obtained, then the collected information would be helpful in

establishing a record supporting race- and gender-based preferences for

future auctions. Similarly, Spectrum Resources believes that such

information could prove valuable in supporting the Commission's actions

in any ensuing litigation.

54. We agree that continuing to request information on the short-

form applications (FCC Form 175) concerning the minority- or women-

owned status of applicants will assist us in analyzing the applicant

pool and the auction results to determine whether we have accomplished

substantial participation by minorities and women through provisions

available to small businesses as required by the Budget Act. We

conclude that such information will be helpful and probative in two

respects: (1) our preparation of a report to Congress on the

participation of designated entities in the auctions and in the

provision of spectrum-based services; and, (2) our development of a

supplemental record should we find that special provisions for small

businesses in the C block PCS auctions prove unsuccessful in ensuring

participation by businesses owned by members of minority groups and

women in broadband PCS. In this connection, we emphasize that those

applicants who indicate that they are minority- or women-owned must

meet the applicable definitions as set forth in Section 24.720(c) of

our rules.

55. Other. Several commenters addressed issues regarding the

auctioning and licensing of the C block other than the specific rule

changes proposed in the Further Notice (60 Fed. Reg. 34,200). These

issues included the following: (a) scheduled commencement of the C

block auction; (b) proposals of special provisions for entrepreneurs

with gross revenues between $40 and $75 million; (c) proposals of

circumstances under which upfront payments and down payments can earn

interest and be withdrawn; (d) definition of small businesses; (e)

criteria for determining C block eligibility; (f) the rebuttable

presumption concerning Indian gaming revenues; and (g) effect of

business growth and development on C block small business status. We

have adequately considered these issues previously and we find no basis

to revisit them here in this narrowly-focused rule making. Therefore,

we will not make the rule changes proposed by commenters pertaining to

such issues.

56. On our own motion, however, we clarify the measurement of gross

revenues. Section 24.720 (f) specifies that gross revenues shall be

measured ``for the relevant number of calendar years preceding January

1, 1994, or if audited financial statements were not prepared on a

calendar-year basis, for the most recently completed fiscal years

preceding the filing of the applicant's short-form application (Form

175).'' For purposes of qualifying for the C block, an entity, together

with its affiliates and persons or entities that hold an attributable

interest in such entity and their affiliates, must have gross revenues

of less than $125 million in each of the last two years. Therefore,

such an entity would measure its annual gross revenues for the calendar

years 1992 and 1993, or for its two most recently completed fiscal

years. For purposes of qualifying as a small business, an entity,

together with its affiliates and persons or entities that hold an

attributable interest in such entity and their affiliates, must have

average annual gross revenues of not more than $40 million for the

preceding three years. Therefore, such an entity would calculate its

average annual gross revenues for the years 1991, 1992, and 1993, or

for its three most recently completed fiscal years.

57. We note that this definition of gross revenues was adopted when

the C block applications were to be filed in early 1995, when audited

calendar year 1994 financial statements for most firms were not yet

available and when it was unlikely that there would be a substantial

difference between calendar and fiscal years for accounting purposes.

If our rule's distinction between calendar years and fiscal years

results in undue hardship due to a company's particular accounting

practices, we will entertain waiver requests to use either a calendar-

year or a fiscal-year measurment of gross revenues to determine

compliance with the financial caps. We did not intend to discriminate

based upon a company's particular accounting practices. We delegate

authority to the Wireless Telecommunications Bureau to decide such

waivers on a case-by-case basis and to grant such upon an affirmative

showing pursuant to Section 24.419 of the Commission's rules.

IV. Procedural Matters and Ordering Clauses

58. The Final Regulatory Flexibility Analysis, as required by

Section 604 of the Regulatory Flexibility Act, is set forth in the

Appendix.

59. It is ordered that the rule changes specified below are

adopted.

60. It is further ordered that the rule changes set forth below

will become effective upon publication in the Federal Register.

Pursuant to 5 U.S.C. Sec. 553(d)(3) we find ``good cause'' exists to

have the rule amendments set forth herein take effect immediately upon

publication in the Federal Register. The C block auction for broadband

PCS is scheduled to commence on August 29, 1995, and initial short-form

applications are due July 28, 1995. Our revised rules need to be

effective prior to receipt of the short-form applications in order to

avoid the delays and litigation risks associated with prior rules.

61. It is further ordered that the Wireless Telecommunications

Bureau has delegated authority to decide waiver requests pertaining to

our C block competitive bidding rules as specified in paragraph 57 of

this Sixth Report and Order.

62. This action is taken pursuant to Sections 4(i), 303(r), and

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

Secs. 154(i), 303(r) and 309(j).

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Final Rules

Parts 20 and 24 of Chapter I of Title 47 of the Code of Federal

Regulations are amended as follows:

[[Page 37795]]

PART 20--COMMERCIAL MOBILE RADIO SERVICES

1. The authority citation for part 20 continues to read as follows:

Authority: Secs. 4, 303, and 332, 48 Stat. 1066, 1082, as

amended; 47 U.S.C. Secs. 154, 303, and 332, unless otherwise noted.

2. Section 20.6 is amended by revising paragraph (d)(2) to read as

follows:

Sec. 20.6 CMRS spectrum aggregation limit.

* * * * *

(d) * * *

(2) Partnership and other ownership interests and any stock

interest amounting to 20 percent or more of the equity, or outstanding

stock, or outstanding voting stock of a broadband PCS, cellular or SMR

licensee shall be attributed, except that ownership will not be

attributed unless the partnership and other ownership interests and any

stock interest amount to at least 40 percent of the equity, or

outstanding stock, or outstanding voting stock of a broadband PCS,

cellular or SMR licensee if the ownership interest is held by a small

business, a rural telephone company or a business owned by minorities

and/or women, as these terms are defined in Sec. 1.2110 of this chapter

or other related provisions of the Commission's rules, or if the

ownership interest is held by an entity with a non-controlling equity

interest in a broadband PCS licensee or applicant that is a business

owned by minorities and/or women. For purposes of broadband PCS

licenses for frequency block C, the 40 percent attribution levels shall

only apply to interests held by a small business or a rural telephone

company and interests held by an entity with a non-controlling equity

interest in a licensee or applicant that is a small business.

* * * * *

PART 24--PERSONAL COMMUNICATIONS SERVICES

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

Authority: Secs. 4, 301, 302, 303, 309 and 332, 48 Stat. 1066,

1082, as amended; 47 U.S.C. Secs. 154, 301, 302, 303, 309 and 332,

unless otherwise noted.

2. Section 24.204 is amended by revising paragraph (d)(2)(ii) to

read as follows:

* * * * *

Sec. 24.204 Cellular eligibility.

* * * * *

(d) * * *

(2) * * *

(ii) Partnership and other ownership interests and any stock

interest amounting to 20 percent or more of the equity, or outstanding

stock, or outstanding voting stock of a cellular licensee will be

attributable, except that ownership will not be attributed unless the

partnership and other ownership interests and any stock interest amount

to 40 percent or more of the equity, or outstanding stock, or

outstanding voting stock of a cellular licensee if the ownership

interest is held by a small business, a rural telephone company, or a

business owned by minorities and/or women, as these terms are defined

in Sec. 24.720, or if the ownership interest is held by an entity with

a non-controlling equity interest in a broadband PCS licensee or

applicant that is a business owned by minorities and/or women. For

purposes of broadband PCS licenses for frequency block C, the 40

percent attribution levels shall only apply to interests held by a

small business or rural telephone company and interests held by an

entity with a non-controlling equity interest in a licensee or

applicant that is a small business.

* * * * *

3. Section 24.709 is amended by revising the heading and paragraphs

(a), (b)(5)(i)(C), (b)(6, (c)(1) introductory text, (c)(2) introductory

text, (c)(2)(ii) and (e) to read as follows:

Sec. 24.709 Eligibility for licenses for frequency Block C.

(a) General Rule.

(1) No application is acceptable for filing and no license shall be

granted for frequency block C, unless the applicant, together with its

affiliates and persons or entities that hold interests in the applicant

and their affiliates, have gross revenues of less than $125 million in

each of the last two years and total assets of less than $500 million

at the time the applicant's short-form application (Form 175) is filed.

(2) The gross revenues and total assets of the applicant (or

licensee), and its affiliates, and (except as provided in paragraph (b)

of this section) of persons or entities that hold interests in the

applicant (or licensee), and their affiliates, shall be attributed to

the applicant and considered on a cumulative basis and aggregated for

purposes of determining whether the applicant (or licensee) is eligible

for a license for frequency block C under this section.

(3) Any licensee awarded a license pursuant to this section (or

pursuant to Sec. 24.839(d)(2)) shall maintain its eligibility until at

least five years from the date of initial license grant, except that a

licensee's (or other attributable entity's) increased gross revenues or

increased total assets due to nonattributable equity investments (i.e.,

from sources whose gross revenues and total assets are not considered

under paragraph (b) of this section), debt financing, revenue from

operations or other investments, business development or expanded

service shall not be considered.

(b) * * *

(5) * * *

(i) * * *

(C) The remaining 10 percent of the applicant's (or licensee's)

total equity may be owned, either unconditionally or in the form of

stock options, by any of the following entities, which may not comply

with Sec. 24.720(n)(1):

(1) Institutional Investors;

(2) Noncontrolling existing investors in any preexisting entity

that is a member of the control group;

(3) Individuals that are members of the applicant's (or licensee's)

management; or

(4) Qualifying investors, as specified in Sec. 24.720(n)(4).

(6) Control Group Minimum 50.1 Percent Equity Requirement. In order

to be eligible to exclude gross revenues and total assets of persons or

entities identified in paragraph (b)(4) of this section, an applicant

(or licensee) must comply with the following requirements:

(i) Except for an applicant (or licensee) whose sole control group

member is a preexisting entity, as provided in paragraph (b)(6)(ii) of

this section, at the time the applicant's short-form application (Form

175) is filed and until at least three years following the date of

initial license grant, the applicant's (or licensee's) control group

must own at least 50.1 percent of the applicant's (or licensee's) total

equity as follows:

(A) at least 30 percent of the applicant's (or licensee's)total

equity must be held by qualifying investors, either unconditionally or

in the form of options, exercisable at the option of the holder, at any

time and at any exercise price equal to or less than the market value

at the time the applicant files its short-form application (Form 175);

(B) Such qualifying investors must hold 50.1 percent of the voting

stock and all general partnership interests within the control group

and must have de facto control of the control group and of the

applicant;

(C) The remaining 20.1 percent of the applicant's (or licensee's)

total equity may be owned by qualifying investors, either

unconditionally or in the form of stock options not subject to the

restrictions of paragraph (b)(6)(i)(A) of this section, or by any of

the following

[[Page 37796]]

entities which may not comply with Sec. 24.720(n)(1):

(1) Institutional investors, either unconditionally or in the form

of stock options;

(2) Noncontrolling existing investors in any preexisting entity

that is a member of the control group, either unconditionally or in the

form of stock options;

(3) Individuals that are members of the applicant's (or licensee's)

management, either unconditionally or in the form of stock options; or

(4) Qualifying investors, as specified in 24.720(n)(4).

(D) Following termination of the three-year period specified in

paragraph (b)(6)(i) of this section, qualifying investors must continue

to own at least 20 percent of the applicant's (or licensee's) total

equity unconditionally or in the form of stock options subject to the

restrictions in paragraph (b)(6)(i)(A) of this section. The

restrictions specified in paragraph (b)(6)(i)(C)(1) through (4) of this

section no longer apply to the remaining equity after termination of

such three-year period.

(ii) At the election of an applicant (or licensee) whose control

group's sole member is a preexisting entity, the 50.1 percent minimum

equity requirements set forth in paragraph (b)(6)(i) of this section

shall apply, except that only 20 percent of the applicant's (or

licensee's) total equity must be held by qualifying investors, and that

the remaining 30.1 percent of the applicant's (or licensee's) total

equity may be held by qualifying investors, or noncontrolling existing

investors in such control group member or individuals that are members

of the applicant's (or licensee's) management. These restrictions on

the identity of the holder(s) of the remaining 30.1 percent of the

licensee's total equity no longer apply after termination of the three-

year period specified in paragraph (b)(6)(i) of this section.

* * * * *

(c) * * *

(1) Short-form Application. In addition to certifications and

disclosures required by Part 1, subpart Q of this Chapter and

Sec. 24.813, each applicant for a license for frequency Block C shall

certify on its short-form application (Form 175) that it is eligible to

bid on and obtain such license(s), and (if applicable) that it is

eligible for designated entity status pursuant to this section and

Sec. 24.720, and shall append the following information as an exhibit

to its Form 175:

* * * * *

(2) Long-form Application. In addition to the requirements in

subpart I of this part and other applicable rules (e.g.,

Secs. 24.204(f), 20.6(e) and 20.9(b) of this chapter), each applicant

submitting a long-form application for a license(s) for frequency block

C shall, in an exhibit to its long-form application:

* * * * *

(ii) List and summarize all agreements or other instruments (with

appropriate references to specific provisions in the text of such

agreements and instruments) that support the applicant's eligibility

for a license(s) for frequency Block C and its eligibility under

Secs. 24.711, 24.712, 24.714 and 24.720, including the establishment of

de facto and de jure control; such agreements and instruments include

articles of incorporation and bylaws, shareholder agreements, voting or

other trust agreements, partnership agreements, management agreements,

joint marketing agreements, franchise agreements, and any other

relevant agreements (including letters of intent), oral or written; and

* * * * *

(e) Definitions. The terms affiliate, business owned by members of

minority groups and women, consortium of small businesses, control

group, existing investor, gross revenues, institutional investor,

members of minority groups, nonattributable equity, preexisting entity,

publicly traded corporation with widely dispersed voting power,

qualifying investor, small business and total assets used in this

section are defined in Sec. 24.720.

4. Section 24.711 is amended by revising the heading and paragraphs

(a)(1), (b) introductory text and (b)(3), and removing paragraphs

(b)(4) and (b)(5) to read as follows:

Sec. 24.711 Upfront payments, down payments and installment payments

for licenses for frequency Block C.

(a) * * *

(1) Each eligible bidder for licenses on frequency Block C subject

to auction shall pay an upfront payment of $0.015 per MHz per pop for

the maximum number of licenses (in terms of MHz-pops) on which it

intends to bid pursuant to Sec. 1.2106 of this chapter and procedures

specified by Public Notice.

* * * * *

(b) Installment Payments. Each eligible licensee of frequency Block

C may pay the remaining 90 percent of the net auction price for the

license in installment payments pursuant to Sec. 1.2110(e) of this

chapter and under the following terms:

* * * * *

(3) For an eligible licensee that qualifies as a small business or

as a consortium of small businesses, interest shall be imposed based on

the rate for ten-year U.S. Treasury obligations applicable on the date

the license is granted; payments shall include interest only for the

first six years and payments of interest and principal amortized over

the remaining four years of the license term.

* * * * *

5. Section 24.712 is amended by revising the heading and paragraph

(a) to read as set forth below, removing paragraphs (b) and (c), and

redesignating paragraph (d) as paragraph (b):

Sec. 24.712 Bidding credits for licenses for frequency Block C.

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

consortium of small businesses may use a bidding credit of twenty-five

percent to lower the cost of its winning bid.

* * * * *

6. Section 24.713 is removed and reserved.

7. A new Section 24.715 is added to Subpart H to read as follows:

Sec. 24.715 Eligibility for licenses for frequency Block F.

(a) General Rule.

(1) No application is acceptable for filing and no license shall be

granted for frequency block F, unless the applicant, together with its

affiliates and persons or entities that hold interests in the applicant

and their affiliates, have gross revenues of less than $125 million in

each of the last two years and total assets of less than $500 million

at the time the applicant's short-form application (Form 175) is filed.

(2) The gross revenues and total assets of the applicant (or

licensee), and its affiliates, and (except as provided in paragraph (b)

of this section) of persons or entities that hold interests in the

applicant (or licensee), and their affiliates, shall be attributed to

the applicant and considered on a cumulative basis and aggregated for

purposes of determining whether the applicant (or licensee) is eligible

for a license for frequency block F under this section.

(3) Any licensee awarded a license pursuant to this section (or

pursuant to Sec. 24.839(d)(2)) shall maintain its eligibility until at

least five years from the date of initial license grant, except that a

licensee's (or other attributable entity's ) increased gross revenues

or increased total assets due to nonattributable equity investments

(i.e., from sources whose gross revenues, and total assets are not

considered under paragraph (b) of this section), debt

[[Page 37797]]

financing, revenue from operations or other investments, business

development or expanded service shall not be considered.

(b) Exceptions to General Rule.

(1) Small Business Consortia. Where an applicant (or licensee) is a

consortium of small businesses, the gross revenues and total assets of

each small business shall not be aggregated.

(2) Publicly-Traded Corporations. Where an applicant (or licensee)

is a publicly traded corporation with widely dispersed voting power,

the gross revenues and total assets of a person or entity that holds an

interest in the applicant (or licensee), and its affiliates, shall not

be considered.

(3) 25 Percent Equity Exception. The gross revenues and total

assets of a person or entity that holds an interest in the applicant

(or licensee), and its affiliates, shall not be considered so long as:

(i) Such person or entity, together with its affiliates, holds only

nonattributable equity equaling no more than 25 percent of the

applicant's (or licensee's) total equity;

(ii) Except as provided in paragraph (b)(5) of this section, such

person or entity is not a member of the applicant's (or licensee's)

control group; and

(iii) The applicant (or licensee) has a control group that complies

with the minimum equity requirements of paragraph (b)(5) of this

section, and, if the applicant (or licensee) is a corporation, owns at

least 50.1 percent of the applicant's (or licensee's) voting interests,

and, if the applicant (or licensee) is a partnership, holds all of its

general partnership interests.

(4) 49.9 Percent Equity Exception. The gross revenues and total

assets of a person or entity that holds an interest in the applicant

(or licensee), and its affiliates, shall not be considered so long as:

(i) Such person or entity, together with its affiliates, holds only

nonattributable equity equaling no more than 49.9 percent of the

applicant's (or licensee's) total equity;

(ii) Except as provided in paragraph (b)(6) of this section, such

person or entity is not a member of the applicant's (or licensee's)

control group; and

(iii) The applicant (or licensee) has a control group that complies

with the minimum equity requirements of paragraph (b)(6) of this

section and, if the applicant (or licensee) is a corporation, owns at

least 50.1 percent of the applicant's (or licensee's) voting interests,

and, if the applicant (or licensee) is a partnership, holds all of its

general partnership interests.

(5) Control Group Minimum 25 Percent Equity Requirement. In order

to be eligible to exclude gross revenues and total assets of persons or

entities identified in paragraph (b)(3) of this section, an applicant

(or licensee) must comply with the following requirements:

(i) Except for an applicant (or licensee) whose sole control group

member is a preexisting entity, as provided in paragraph (b)(5)(ii) of

this section, at the time the applicant's short-form application (Form

175) is filed and until at least three years following the date of

initial license grant, the applicant's (or licensee's) control group

must own at least 25 percent of the applicant's (or licensee's) total

equity as follows:

(A) At least 15 percent of the applicant's (or licensee's) total

equity must be held by qualifying investors, either unconditionally or

in the form of options exercisable, at the option of the holder, at any

time and at any exercise price equal to or less than the market value

at the time the applicant files its short-form application (Form 175);

(B) Such qualifying investors must hold 50.1 percent of the voting

stock and all general partnership interests within the control group,

and must have de facto control of the control group and of the

applicant;

(C) The remaining 10 percent of the applicant's (or licensee's)

total equity may be owned by qualifying investors, either

unconditionally or in the form of stock options not subject to the

restrictions of paragraph (b)(5)(i)(A) of this section, or by any of

the following entities, which may not comply with section 24.720(n)(1):

(1) Institutional investors, either unconditionally or in the form

of stock options;

(2) Noncontrolling existing investors in any preexisting entity

that is a member of the control group, either unconditionally or in the

form of stock options;

(3) Individuals that are members of the applicant's (or licensee's)

management, either unconditionally or in the form of stock options; or

(4) Qualifying investors, as specified in Sec. 24.720(n)(4).

(D) Following termination of the three-year period specified in

paragraph (b)(5)(i) of this section, qualifying investors must continue

to own at least 10 percent of the applicant's (or licensee's) total

equity, either unconditionally or in the form of stock options subject

to the restrictions in paragraph (b)(5)(i)(A) of this section. The

restrictions specified in paragraph (b)(5)(i)(C)(1) through (4) of this

section no longer apply to the remaining equity after termination of

such three-year period.

(ii) At the election of an applicant (or licensee) whose control

group's sole member is a preexisting entity, the 25 percent minimum

equity requirements set forth in paragraph (b)(5)(i) of this section

shall apply, except that only 10 percent of the applicant's (or

licensee's) total equity must be held by qualifying investors and that

the remaining 15 percent of the applicant's (or licensee's) total

equity may be held by qualifying investors or noncontrolling existing

investors in such control group member or individuals that are members

of the applicant's (or licensee's) management. These restrictions on

the identity of the holder(s) of the remaining 15 percent of the

licensee's total equity no longer apply after termination of the three-

year period specified in paragraph (b)(5)(i) of this section.

(6) Control Group Minimum 50.1 Percent Equity Requirement. In order

to be eligible to exclude gross revenues and total assets of persons or

entities identified in paragraph (b)(4) of this section, an applicant

(or licensee) must comply with the following requirements:

(i) Except for an applicant (or licensee) whose sole control group

member is a preexisting entity, as provided in paragraph (b)(6)(ii) of

this section, at the time the applicant's short-form application (Form

175) is filed and until at least three years following the date of

initial license grant, the applicant's (or licensee's) control group

must own at least 50.1 percent of the applicant's (or licensee's) total

equity as follows:

(A) At least 30 percent of the applicant's (or licensee's) total

equity must be held by qualifying minority and/or women investors,

either unconditionally or in the form of options exercisable, at the

option of the holder, at any time and at any exercise price equal to or

less than the market value at the time the applicant files its short-

form application (Form 175);

(B) Such qualifying minority and/or women investors must hold 50.1

percent of the voting stock and all general partnership interests

within the control group and must have de facto control of the control

group and of the applicant;

(C) The remaining 20.1 percent of the applicant's (or licensee's)

total equity may be owned by qualifying investors, either

unconditionally or in the form of stock options not subject to the

restrictions of paragraph (b)(5)(i)(A) of this section, or by any of

the following entities, which may not comply with section 24.720(n)(1):

[[Page 37798]]

(1) Institutional investors, either unconditionally or in the form

of stock options;

(2) Noncontrolling existing investors in any preexisting entity

that is a member of the control group, either unconditionally or in the

form of stock options;

(3) Individuals that are members of the applicant's (or licensee's)

management, either unconditionally or in the form of stock options; or

(4) Qualifying investors, as specified in Sec. 24.720(n)(4).

(D) Following termination of the three-year period specified in

paragraph (b)(6)(i) of this section, qualifying minority and/or women

investors must continue to own at least 20 percent of the applicant's

(or licensee's) total equity, either unconditionally or in the form of

stock options subject to the restrictions in paragraph (b)(6)(i)(A) of

this section. The restrictions specified in paragraph (b)(6)(i)(C)(1)

through (4) of this section no longer apply to the remaining equity

after termination of such three-year period.

(ii) At the election of an applicant (or licensee) whose control

group's sole member is a preexisting entity, the 50.1 percent minimum

equity requirements set forth in paragraph (b)(6)(i) of this section

shall apply, except that only 20 percent of the applicant's (or

licensee's) total equity must be held by qualifying minority and/or

women investors, and that the remaining 30.1 percent of the applicant's

(or licensee's) total equity may be held by qualifying minority and/or

women investors, or noncontrolling existing investors in such control

group member or individuals that are members of the applicant's (or

licensee's) management. These restrictions on the identity of the

holder(s) of the remaining 30.1 percent of the licensee's total equity

no longer apply after termination of the three-year period specified in

paragraph (b)(6)(i) of this section.

(7) Calculation of Certain Interests. Except as provided in

paragraphs (b)(5) and (b)(6) of this section, ownership interests shall

be calculated on a fully diluted basis; all agreements such as

warrants, stock options and convertible debentures will generally be

treated as if the rights thereunder already have been fully exercised,

except that such agreements may not be used to appear to terminate or

divest ownership interests before they actually do so, in order to

comply with the nonattributable equity requirements in paragraphs

(b)(3)(i) and (b)(4)(i) of this section.

(8) Aggregation of Affiliate Interests. Persons or entities that

hold interest in an applicant (or licensee) that are affiliates of each

other or have an identity of interests identified in Sec. 24.720(1),

(3) will be treated as though they were one person or entity and their

ownership interests aggregated for purposes of determining an

applicant's (or licensee's) compliance with the nonattributable equity

requirements in paragraphs (b)(3)(i) and (b)(4)(i) of this section.

Example 1 for paragraph (b)(8). ABC Corp. is owned by

individuals, A, B, and C, each having an equal one-third voting

interest in ABC Corp. A and B together, with two-thirds of the stock

have the power to control ABC Corp. and have an identity of

interest. If A & B invest in DE Corp., a broadband PCS applicant for

block C, A and B's separate interests in DE Corp. must be aggregated

because A and B are to be treated as one person.

Example 2 for paragraph (b)(8). ABC Corp. has subsidiary BC

Corp., of which it holds a controlling 51 percent of the stock. If

ABC Corp. and BC Corp., both invest in DE Corp., their separate

interests in DE Corp. must be aggregated because ABC Corp. and BC

Corp. are affiliates of each other.

(c) Short-Form and Long-Form Applications: Certifications and

Disclosure.

(1) Short-form Application. In addition to certifications and

disclosures required by Part 1, subpart Q of this chapter and

Sec. 24.813, each applicant for a license for frequency Block F shall

certify on its short-form application (Form 175) that it is eligible to

bid on and obtain such license(s), and (if applicable) that it is

eligible for designated entity status pursuant to this section and

Sec. 24.720, and shall append the following information as an exhibit

to its Form 175:

(i) For an applicant that is a publicly traded corporation with

widely disbursed voting power:

(A) A certified statement that such applicant complies with the

requirements of the definition of publicly traded corporation with

widely disbursed voting power set forth in Sec. 24.720(m);

(B) The identity of each affiliate of the applicant if not

disclosed pursuant to Sec. 24.813; and

(C) The applicant's gross revenues and total assets, computed in

accordance with paragraphs (a) and (b) of this section.

(ii) For all other applicants;

(A) The identity of each member of the applicant's control group,

regardless of the size of each member's total interest in the

applicant, and the percentage and type of interest held;

(B) The citizenship and the gender or minority group classification

for each member of the applicant's control group if the applicant is

claiming status as a business owned by members of minority groups and/

or women;

(C) The status of each control group member that is an

institutional investor, an existing investor, and/or a member of the

applicant's management;

(D) The identity of each affiliate of the applicant and each

affiliate of individuals or entities identified pursuant to paragraphs

(c)(1)(ii)(A) and (c)(1)(ii)(C) of this section if not disclosed

pursuant to Sec. 24.813;

(E) A certification that the applicant's sole control group member

is a preexiting entity, if the applicant makes the election in either

paragraph (b)(5)(ii) or (b)(6)(ii) of this section; and

(F) The applicant's gross revenues and total assets, computed in

accordance with paragraphs (a) and (b) of this section.

(iii) for each applicant claiming status as a small business

consortium, the information specified in paragraph (c)(1)(ii) of this

section, for each member of such consortium.

(2) Long-form Application. In addition to the requirements in

subpart I of this part and other applicable rules (e.g.,

Secs. 24.204(f), 20.6(e) and 20.9(b) of this chapter), each applicant

submitting a long-form application for license(s) for frequency Block F

shall, in an exhibit to its long-form application:

(i) Disclose separately and in the aggregate the gross revenues and

total assets, computed in accordance with paragraphs (a) and (b) of

this section, for each of the following: the applicant; the applicant's

affiliates, the applicant's control group members; the applicant's

attributable investors; and affiliates of its attributable investors;

(ii) List and summarize all agreements or other instruments (with

appropriate references to specific provisions in the text of such

agreements and instruments) that support the applicant's eligibility

for a license(s) for frequency Block F and its eligibility under

Secs. 24.711 through 24.270, including the establishment of de facto

and de jure control; such agreements and instruments include articles

of incorporation and bylaws, shareholder agreements, voting or other

trust agreements, partnership agreements, management agreements, joint

marketing agreements, franchise agreements, and any other relevant

agreements (including letters of intent), oral or written; and

(iii) List and summarize any investor protection agreements and

identify specifically any such provisions in those agreements

identified pursuant to paragraph (c)(2)(ii) of this section, including

rights of first refusal,

[[Page 37799]]

supermajority clauses, options, veto rights, and rights to hire and

fire employees and to appoint members to boards of directors or

management committees.

(3) Records Maintenance. All applicants, including those that are

winning bidders, shall maintain at their principal place of business an

updated file of ownership, revenue and asset information, including

those documents referenced in paragraphs (c)(2)(ii) and (c)(2)(ii) of

this section and any other documents necessary to establish eligibility

under this section or under the definitions of small business and/or

business owned by members of minority groups and/or women. Licensees

(and their successors in interest) shall maintain such files for the

term of the license. Applicants that do not obtain the license(s) for

which they applied shall maintain such files until the grant of such

license(s) is final, or one year from the date of the filing of their

short-form application (Form 175), whichever is earlier.

(d) Audits.

(1) Applicants and licensees claiming eligibility under this

section or Secs. 24.711 through 24.720 shall be subject to audits by

the Commission, using in-house and contract resources. Selection for

audit may be random, or information, or on the basis of other factors.

(2) Consent to such audits is part of the certification included in

the short-form application (Form 175). Such consent shall include

consent to the audit of the applicant's or licensee's books, documents

and other material (including accounting procedures and practices)

regardless of form or type, sufficient to confirm that such applicant's

or licensee's representations are, and remain, accurate. Such consent

shall include inspection at all reasonable times of the facilities, or

parts thereof, engaged in providing and transacting business, or

keeping records regarding licensed broadband PCS service and shall also

include consent to interview of principals, employees, customers and

suppliers of the applicant or licensee.

(e) Definitions. The terms affiliate, business owned by members of

minority groups and women, consortium of small businesses, control

group, existing investor, gross revenues, institutional investor,

members of minority groups, nonattributable equity, preexisting entity,

publicly traded corporation with widely dispersed voting power,

qualifying investor, qualifying minority and/or woman investor, small

business and total assets used in this section are defined in

Sec. 24.720.

8. A new Section 24.716 is added to Subpart H to read as follows:

Sec. 24.716 Upfront payments, down payments, and installment payments

for licenses for frequency Block F.

(a) Upfront Payments and Down Payments.

(1) Each eligible bidder for licenses on frequency Block F subject

to auction shall pay an upfront payment of $0.015 per MHz per pop for

the maximum number of licenses (in terms of MHz-pops) on which it

intends to bid pursuant to Sec. 1.2106 of this Chapter and procedures

specified by Public Notice.

(2) Each winning bidder shall make a down payment equal to ten

percent of its winning bid (less applicable bidding credits); a winning

bidder shall bring its total amount on deposit with the Commission

(including upfront payment) to five percent of its net winning bid

within five business days after the auction closes, and the remainder

of the down payment (five percent) shall be paid within five business

days after the application required by Sec. 24.809(b) is granted.

(b) Installment Payments. Each eligible licensee of frequency Block

F may pay the remaining 90 percent of the net auction price for the

license in installment payments pursuant to Sec. 1.2110(e) of this

Chapter and under the following terms:

(1) For an eligible licensee with gross revenues exceeding $75

million (calculated in accordance with Sec. 24.715(a)(2) and (b)) in

each of the two preceding years (calculated in accordance with

24.720(f)), interest shall be imposed based on the rate for ten-year

U.S. Treasury obligations applicable on the date the license is

granted, plus 3.5 percent; payments shall include both principal and

interest amortized over the term of the license.

(2) For an eligible licensee with gross revenues not exceeding $75

million (calculated in accordance with Sec. 24.715(a)(2) and (b)) in

each of the two preceding years, interest shall be imposed based on the

rate for ten-year U.S. Treasury obligations applicable on the date the

license is granted, plus 2.5 percent; payments shall include interest

only for the first year and payments of interest and principal

amortized over the remaining nine years of the license term.

(3) For an eligible licensee that qualifies as a Small business or

as a consortium of small businesses, interest shall be imposed based on

the rate for ten-year U.S. Treasury obligations applicable on the date

the license is granted, plus 2.5 percent; payments shall include

interest only for the first two years and payments of interest and

principal amortized over the remaining eight years of the license term.

(4) For an eligible licensee that qualifies as a business owned by

members of minority groups and/or women, interest shall be imposed

based on the rate for ten-year U.S. Treasury obligations applicable on

the date the license is granted; payments shall include interest only

for the first three years and payments of interest and principal

amortized over the remaining seven years of the license term.

(5) For an eligible licensee that qualifies as a small business

owned by members of minority groups and/or women or as a consortium of

small business owned by members of minority groups and/or women,

interest shall be imposed based on the rate for ten-year U.S. Treasury

obligations applicable on the date the license is granted; payments

shall include interest only for the first six years and payments of

interest and principal amortized over the remaining four years of the

license term.

(c) Unjust Enrichment.

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

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

not meeting the eligibility standards for installment payments, the

licensee must make full payment of the remaining unpaid principal and

any unpaid interest accrued through the date of assignment or transfer

as a condition of approval.

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

section seeks to make any change in ownership structure that would

result in the licensee losing eligibility for installment payments, the

licensee shall first seek Commission approval and must make full

payment of the remaining unpaid principal and any unpaid interest

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

licensee's (or other attributable entity's) increased gross revenues or

increased total assets due to nonattributable equity investments (i.e.,

from sources whose gross revenues and total assets are not considered

under Sec. 24.715(b)), debt financing, revenue from operations or other

investments, business development or expanded service shall not be

considered to result in the licensee losing edigility for installment

payments.

(3) If a licensee seeks to make any change in ownership that would

result in the licensee qualifying for a less favorable installment plan

under this section, the licensee shall seek Commission approval and

must adjust its payment plan to reflect its new eligibility status. A

licensee may not

[[Page 37800]]

switch its payment plan to a more favorable plan.

9. A new Section 24.717 is added to Subpart H to read as follows:

Sec. 24.717 Bidding credits for licenses for frequency Block F.

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

consortium of small businesses may use a bidding credit of ten percent

to lower the cost of its winning bid.

(b) A winning bidder that qualifies as a business owned by members

of minority groups and/or women may use a bidding credit of fifteen

percent to lower the cost of its winning bid.

(c) A winning bidder that qualifies as a small business owned by

members of minority groups and/or women or a consortium of small

business owned by members of minority groups and/or women may use a

bidding credit of twenty-five percent to lower the cost of its winning

bid.

(d) Unjust Enrichment.

(1) If during the term of the initial license grant (see

Sec. 24.15), a licensee that utilizes a bidding credit under this

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

not meeting the eligibility standards for bidding credits or seeks to

make any other change in ownership that would result in the licensee no

longer qualifying for bidding credits under this section, the licensee

must seek Commission approval and reimburse the government for the

amount of the bidding credit as a condition of the approval of such

assignment, transfer or other ownership change.

(2) If during the term of the initial license grant (see

Sec. 24.15), a licensee that utilizes a bidding credit under this

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

meeting the eligibility standards for lower bidding credits or seeks to

make any other change in ownership that would result in the licensee

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

must seek Commission approval and reimburse the government for the

difference between the amount of the bidding credit obtained by the

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

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

of such assignment, transfer or other ownership change.

10. Section 24.720 is amended by revising paragraphs (a), (b)(2),

(c)(2), (j)(2), (l)(11)(i), (l)(11)(ii), (n)(1), (n)(3) and adding

paragraph (n)(4) to read as follows:

Sec. 24.720 Definitions.

(a) Scope. The definitions in this section apply to Secs. 24.709

through 24.717, unless otherwise specified in those sections.

(b) * * *

(2) For purposes of determining whether an entity meets the $40

million average annual gross revenues size standard set forth in

paragraph (b)(1) of this section, the gross revenues of the entity, its

affiliates, persons or entities holding interests in the entity and

their affiliates shall be considered on a cumulative basis and

aggregated, subject to the exceptions set forth Secs. 24.709(b) or

24.715(b).

* * * * *

(c) * * *

(2) That complies with the requirements of Sec. 24.715 (b)(3) and

(b)(5) or Sec. 24.715 (b)(4) and (b)(6).

* * * * *

(j) * * *

(2) For purposes of assessing compliance with the equity limits in

Sec. 24.709 (b)(3)(i) and (b)(4)(i) or Sec. 24.715 (b)(3)(i) and

(b)(4)(i), where such interests are not held directly in the applicant,

the total equity held by a person or entity shall be determined by

successive multiplication of the ownership percentages for each link in

the vertical ownership chain.

(1) * * *

(11) * * *

(i) For purposes of Secs. 24.709(a)(2), 24.715(a)(2) and paragraphs

(b)(2) and (d) of this section, Indian tribes or Alaska Regional or

Village Corporations organized pursuant to the Alaska Native Claims

Settlement Act (43 U.S.C. 1601 et seq.), or entities owned and

controlled by such tribes or corporations, are not considered

affiliates of an applicant (or licensee) that is owned and controlled

by such tribes, corporations or entities, and that otherwise complies

with the requirements of Sec. 24.709 (b)(3) and (b)(5) or Sec. 24.709

(b)(4) and (b)(6) or Sec. 24.715 (b)(3) and (b)(5) or Sec. 24.715

(b)(4) and (b)(6), except that gross revenues derived from gaming

activities conducted by affiliated entities pursuant to the Indian

Gaming Regulatory Act (25 U.S.C. 2701 et seq.) will be counted in

determining such applicant's (or licensee's) compliance with the

financial requirements of Sec. 24.709(a) or Sec. 24.715(a) and

paragraphs (b) and (d) of this section, unless such applicant

establishes that it will not receive a substantial unfair competitive

advantage because significant legal constraints restrict the

applicant's ability to access such gross revenues.

(ii) For the C block, for purposes of Sec. 24.709(a)(2) and

paragraph (b)(2) of this section, an affiliate with gross revenues of

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

of less than $500 million at the time the applicant's short-form

application (Form 175) is filed will not be considered an affiliate of

an applicant (or licensee) that qualifies as a small business under

Sec. 24.720(b)(2) (small business definition) provided the gross

revenues and total assets of all such affiliates, when considered on a

cumulative basis and aggregated with each other do not exceed the

amounts specified in section 24.709(a)(1) (entrepreneurs' block caps).

* * * * *

(n) * * *

(1) A qualifying investor is a person who is (or holds an interest

in) a member of the applicant's (or licensee's) control group and whose

gross revenues and total assets, when aggregated with those of all

other attributable investors and affiliates, do not exceed the gross

revenues and total assets limits specified in Sec. 24.709(a) or

Sec. 24.715(a), or, in the case of an applicant (or licensee) that is a

small business, do not exceed the gross revenues limit specified in

paragraph (b) of this section.

* * * * *

(3) For purposes of assessing compliance with the minimum equity

requirements of Sec. 24.709(b) (5) and (6) or Sec. 24.715(b) (5) and

(6), where such equity interests are not held directly in the

applicant, interests held by qualifying investors or qualifying

minority and/or woman investors shall be determined by successive

multiplication of the ownership percentages for each link in the

vertical ownership chain.

(4) For purposes of Sec. 24.709 (b)(5)(C) and (b)(6)(C) or

Sec. 24.715 (b)(5)(C) and (b)(6)(C), a qualifying investor is a person

who is (or holds an interest in) a member of the applicant's (or

licensee's) control group and whose gross revenues and total assets do

not exceed the gross revenues and total assets limits specified in

Sec. 24.709(a) or Sec. 24.715(a).

* * * * *

Appendix--Final Regulatory Flexibility Analysis

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

Regulations.

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

603, the Commission incorporated an Initial Regulatory Flexibility

Analysis (IRFA) into the Further Notice of Proposed Rule Making.

Written public comments on the IRFA were requested. The Commission's

final regulatory flexibility

[[Page 37801]]

analysis for this Sixth Report and Order in GN Docket No. 93-253 is

as follows:

A. Need for and Purpose of Rules

1. This rule making proceeding was initiated to secure comment

on proposals to eliminate all race- and gender-based provisions in

our competitive bidding rules for our C block auction only. The

proposals adopted herein are also designed to implement Congress'

goal of giving small businesses, rural telephone companies, and

businesses owned by members of minority groups and women the

opportunity to participate in the provision of spectrum-based

services in accordance with 47 U.S.C. 309(j)(4)(D).

B. Issues Raised by the Public in Response to the Initial Analysis

2. No comments were submitted specifically in response to the

Initial Regulatory Flexibility Analysis.

C. Significant Alternatives Considered

3. The Further Notice of Proposed Rule Making in this proceeding

offered numerous proposals. All significant alternatives have been

addressed in the Sixth Report and Order. The majority of the

commenters supported the major tenets of the proposed changes and

some commenters suggested changes to some of the Commission's

proposals. The regulatory burdens we have retained for C block

applicants, including small entities, are necessary to carry out our

duties under the Communications Act of 1934, as amended, and the

Omnibus Budget Reconciliation Act of 1993. For example, although we

developed race- and gender-neutral rules, we retained the

requirement for applicants claiming status as a business owned by

members of minority groups and/or women. This requirement will allow

the Commission to submit its report to Congress concerning the

participation of minorities and women in the provision of spectrum.

[FR Doc. 95-18116 Filed 7-20-95; 8:45 am]

BILLING CODE 6712-01-M