Redesignating the 27.5-29.5 GHz Frequency Band, Reallocating the 29.5-30.0 GHz Frequency Band, and Establishing Rules and Policies for Local Multipoint Distribution Service and for Fixed Satellite Services

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 21 and 25

[CC Docket No. 92-297, FCC 95-287]

Redesignating the 27.5-29.5 GHz Frequency Band, Reallocating the

29.5-30.0 GHz Frequency Band, and Establishing Rules and Policies for

Local Multipoint Distribution Service and for Fixed Satellite Services

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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

SUMMARY: This is the Third Notice of Proposed Rulemaking to establish

Local Multipoint Distribution Service (LMDS) in the 27.5-29.5 GHz (28

GHz) frequency band. In this Notice, the Commission proposes a band

segmentation plan designed to permit both LMDS and Fixed Satellite

Service (FSS) systems to operate in the 28 GHz frequency band. It also

proposes to accommodate feeder links for certain Mobile Satellite

Service (MSS) systems in this band. The proposal ensures the rapid

dissemination of innovative communications services by facilitating the

entry of multiple providers into the market. New providers will offer

facilities-based competition to each other and traditional cable and

telephone carriers--greatly enhancing customer choice. A wealth of

innovative services will include two-way video, teleconferencing,

telemedicine, telecommuting, data services and global networks. The

Commission proposes the use of competitive bidding to choose among

mutually exclusive LMDS and FSS applicants. It also proposes to

reallocate the 29.5-30.0 GHz band in connection with the band

segmentation plan. The Commission is also supplementing its earlier

Tentative Decision on CellularVision's request for a Pioneer

Preference.

DATES: Comments are due on or before August 28, 1995 and replies are

due on or before September 18, 1995.

FOR FURTHER INFORMATION CONTACT:

Susan Magnotti, Private Wireless Division, Wireless Telecommunications

Bureau, (202) 418-0871; Donna Bethea, Satellite and Radiocommunication

Division, International Bureau, (202) 739-0728.

[[Page 43741]]

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

Notice of Proposed Rulemaking in CC Docket 92-297, adopted July 13,

1995, and released July 28, 1995.

The complete text of the Third Notice of Proposed Rulemaking is

available for inspection and copying during normal business hours in

the FCC Reference Center (Room 230), 1919 M Street, NW., Washington,

DC, and also may be purchased from the Commission's copy contractor,

International Transcription Services, at (202) 857-3800, 1919 M Street,

NW., Room 246, Washington, DC 20554.

Synopsis of Third Notice of Proposed Rulemaking and Supplemental

Tentative Decision

In the first NPRM, 58 FR 6400 (January 28, 1993), the Commission

considered three petitions for rulemaking proposing a redesignation of

the 28 GHz band. That band currently is designated for fixed point-to-

point and fixed satellite service use. It found that redesignation of

the point-to-point use of the band to point-to-multipoint use could

stimulate greater use of a band that largely has lain fallow. However,

the Commission asked for comment from satellite entities regarding the

effect of redesignation on any proposed fixed satellite use of the

band. Non-geostationary orbit (NGSO) and Geostationary orbit (GSO) FSS

systems were proposed. In addition, entities planning mobile satellite

services requested spectrum for their uplink feederlinks.

In this Notice, the Commission proposes a band segmentation plan

that it tentatively concludes will permit both LMDS and Fixed Satellite

Service (FSS) systems to operate in the 28 GHz frequency band. It also

proposes to accommodate feeder links for certain Mobile Satellite

Service (MSS) systems in this band.

The proposal ensures the rapid dissemination of innovative

communications services by facilitating the entry of multiple providers

into the market. New providers will offer facilities-based competition

to each other and traditional cable and telephone carriers--greatly

enhancing customer choice. A wealth of innovative services will include

two-way video, teleconferencing, telemedicine, telecommuting, data

services and global networks. Flexible service rules will also promote

the efficient use of scarce spectrum by allowing providers to adjust

and respond to changes in technology and market demand.

The Commission proposes a segmentation scheme for the 28 GHz band

that it believes is equitable, allows licensees to operate viable

systems, promotes competition within the band, allows the public to

receive service as soon as possible, and provides for future growth of

both satellite and terrestrial services. The plan also supports the NII

and GII, creates competition to cable, LECs, cellular, and PCS, and

continues to promote the U.S. as a leader in satellite technology. The

Commission believes this spectrum band plan accommodates the expected

needs of all of the parties, although it does not reflect their exact

requests. The Commission maintains that each proponent can still

develop and operate viable systems within the band, and initiate

competitive services. Moreover, this proposal allows both terrestrial

LMDS and satellite industries to implement services in the near term.

The Commission's proposed plan is depicted graphically as

follows:\1\

\1\ Primary services are listed in capital letters. Lower-case

letters indicate secondary services. Primary services in a

particular frequency band have equal rights to any other services

operating in the same band. Stations operating in primary services

are protected against interference from stations of ``secondary''

services. Moreover, stations operating in a secondary service cannot

claim protection from harmful interference from stations of a

primary service. 47 CFR 2.104(d) and 2.105(c).

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

BILLING CODE 6712-01-M

[GRAPHIC][TIFF OMITTED]TP23AU95.024

BILLING CODE 6712-01-C

The Commission's recommended proposals for the WRC-95 include

proposals designed to eliminate a principle regulatory obstacle to NGSO

service--ITU Radio Regulation 2613 from applying in Ka-Band uplink and

downlink spectrum. The proposals, if adopted at WRC-95, would

facilitate the implementation of the band segmentation plan it

proposes. However, adoption of different provisions at the WRC-95 could

affect the ability to implement the plan. Accordingly, the Commission

requests comment on what, if any, contingency plans may be appropriate

at this stage, and on any other information that develops from the WRC-

95 Preparatory process that may be relevant to implementation of the

proposed plan.

Supplemental Tentative Decision on CellularVision's Pioneer's

Preference Application

In the Tentative Decision on CellularVision's request for a

pioneer's preference, the Commission found that CellularVision is the

innovator of LMDS technology. Accordingly, it tentatively found that

CellularVision should be awarded a pioneer's preference.

CellularVision's specific pioneer's preference request was for the Los

[[Page 43742]]

Angeles MSA--it argued that the service it was providing in New York

was substantially different from the service for which it requested a

pioneer's preference in Los Angeles. The Commission disagreed, however,

and determined not to award a pioneer's preference for LMDS in more

than one service area. Accordingly, the Commission stated that if a

pioneer's preference to CellularVision were to be awarded, that it

would ``modify the authorization to (CellularVision) to meet the

service area, frequency, and other technical rules developed in this

proceeding for the area encompassing (CellularVision's) New York PMSA

authorization.'' However, the Commission further stated that if

CellularVision were to inform the Commission that it prefers Los

Angeles, and if it were to surrender its New York license, the

Commission would grant its pioneer's preference for Los Angeles.

CellularVision filed comments to the Tentative Decision in which it

argued that it was entitled to a pioneer's preference in the Los

Angeles area without its affiliate Hye Crest being forced to surrender

its New York license. Specifically, CellularVision argued that: (a) Hye

Crest was licensed prior to the adoption of the pioneer's preference

rules; (b) the proposed 28 GHz service rules are an outgrowth of the

work commenced by CellularVision after Hye Crest was authorized and the

pioneer's preference rules were adopted; and, (c) the service provided

by Hye Crest is different than the service for which CellularVision

seeks a pioneer's preference.

A number of parties supported CellularVision's pioneer's preference

arguments in comments and reply comments to the Tentative Decision.

However, in this supplemental tentative decision, the Commission notes

that all of those filings were made prior to the Commission being

granted comptetiive bidding authority by Congress in August 1993. Due

to the fact such authority has drastically altered the pioneer's

preference rules by requiring payment from pioneers, and due to the

unique circumstances discussed below, the Commission finds no further

need to consider whether CellularVision is entitled to a preference in

Los Angeles. Rather, it proposes to change its earlier tentative

decision, and grant CellularVision a preference for that portion of the

New York BTA (or other geographic service area utimately adopted) which

includes the New York PMSA. The pioneer's preference, covering the

portion of the BTA lying outside the PMSA, would be for the portion of

the 28 GHz band proposed to be available for LMDS in the Commission's

band splitting plan, infra, i.e., 27.5-28.35 GHz and 29.1-29.25 GHz (or

whatever band plan is ultimately adopted by the Commission). The

Commission notes that if a pioneer's preference is awarded for the

remainder of the BTA, section 309(j)(13)(B) of the Communications Act,

requiring an 85 percent payment of the value of the pioneer's

preference license, would apply only to the portion of the New York BTA

not covered by CellularVision's existing license for the PMSA. The

Commission also clarifies that the rules governing its evaluation of

CellularVision's pioneer's preference request are those that were in

effect when the Tentative Decision was adopted.\2\

\2\ When the Commission adopted amendments to its pioneer's

preference evaluation criteria in 1994, it explicitly held that the

new criteria would not apply to proceedings in which tentative

decisions had been issued, such as this one, see In the Matter of

Review of the Pioneer's Preference Rules, First Report and Order, 59

FR 8413, February 22, 1994 9 FCC Rcd 605, para. 9 (1994).

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

Since the Commission's tentative decision on its pioneer's

preference request in the First NPRM, CellularVision has begun serving

a significant number of customers within its New York license area.

Therefore, the Commission does not beleive it is in the public interest

for it to continue proposing, in the context of a pioneer's preference

award, that CellularVision voluntarily discontinue service in New York

and turn in its license. Moreover, it believes that CellularVision has

made a commitment to providing service in New York, as evidenced by the

fact that it has applied for additional cell sites to cover the

remainder of the PMSA. The Commission has held that the choice of which

geographic area to be awarded as the pioneer's preference license will

be the licensee's. CellularVision's circumstances are unique, however,

in that the original license was granted before the Commission

established an LMDS service category and adopted regulations to govern

the service. Further, the license was granted pursuant to waiver, prior

to the Commission's adoption of the pioneer's preference rules, and for

reasons that are consistent with the underlying objectives of those

rules. These unique circumstances warrant the Commission's tentative

decision to waive its rules on its own motion to the extent they would

afford CellularVision the opportunity to choose the geographic area to

be awarded as the pioneer's preference license. The Commission also

notes that CellularVision would have the opportunity (as would any

interested party) to participate in any competitive bidding procedures

we may establish in this proceeding for purposes of licensing LMDS

service in the Los Angeles area.

It is the Commission's intention to accommodate CellularVision's

operations within the New York PMSA to the maximum extent possible,

while minimizing adverse effects of its operations in the 28.35-28.5

frequency band on eventual GSO licensees. It proposes, if it takes

favorable action on any renewal application CellularVision files

pursuant to its existing license (such a filing would be due in January

1996), to include as a condition of the PMSA license a provision

permitting CellularVision to operate on the contiguous 1 GHz for which

it is presently licensed for a period of time sufficient to accommodate

its operations within the New York PMSA without adversely affecting the

eventual GSO licensee. The Commission tentatively concludes that a

grandfathering period of 36 months following the release date of the

First Report and Order in this proceeding, or until the first GSO

satellite is successfully launched, whichever occurs later, is

appropriate. The Commission tentatively intends to instruct the

Wireless Telecommunications Bureau to condition any such renewed

license with a provision specifying that, after the end of the

grandfathering period it adopts, the CellularVision license would

become subject to the generally applicable rules for the provision of

LMDS service. Thus, if the proposed band segmentation plan is adopted,

at the end of the grandfathering period CellularVision would be

required to cease operation on the 150 MHz allocated for GSO/FSS

operations 36 months after release of the First Report and Order in

this proceeding or until the first GSO satellite is launched, whichever

is later. Simultaneously, CellularVision would be permitted to operate

on a co-primary basis on the 150 MHz at 29.1-29.25 GHz.

Finally, the Commission seeks comment on whether it would be

appropriate to place conditions on any pioneer's preference license

issued to CellularVision, similar to those placed on other pioneer's

preference licensees in PCS. For the pioneer's preference licenses

heretofore granted, the Commission placed a condition on the broadband

and narrowband PCS licenses that required that they be held for three

years or until the construction requirements applicable to the five-

year build-out period have been met, whichever is earlier.

[[Page 43743]]

Local Multipoint Distribution Service Licensing Issues

The Commission seeks comment on whether it is advisable, from a

competitive standpoint, to license more than one LMDS operator per

market and on any competitive concerns raised by the grant of a 1000

MHz block to a single LMDS licensee in each market.

While allowing one LMDS provider per market may help ensure the

competitive viability of this fledgling service, and thereby maximize

the ability of LMDS licensees to provide significant competition to

other services, the Commission recognizes that digital LMDS is being

developed that has the potential to greatly increase the capacity of

LMDS systems. Possible schemes include issuing only one license per

market for the entire 1000 MHz; issuing two licenses, one for the 850

MHz contiguous band of spectrum and one for the 150 MHz coprimary

portion; and issuing three licenses, two for 425 MHz and one for the

150 MHz coprimary segment. If the licensing scheme which is ultimately

adopted includes more than one license per market, the Commission seeks

comment on whether to permit aggregation of licenses within the same

geographic service area.

The Commission continues to believe that BTAs are the best

geographic area for licensing LMDS.\3\ It believes that, based on the

record submitted thus far in this proceeding, there is a reasonable

likelihood that services provided through use of the LMDs spectrum will

have a local focus. BTA service areas, it tentatively concludes, will

best approximate the likely scope of the service areas for these

services.

\3\ Rand McNally is the copyright owner of the MTA/BTA Listings,

which list the BTAs contained in each MTA and the counties within

each BTA, as embodied in Rand McNally's Trading Area System MTA/BTA

Diskette, and geographically represented in the map contained in

Rand McNally's Commercial Atlas & Marketing Guide. The conditional

use of Rand McNally's copyrighted material by interested persons is

authorized under a blanket licensee agreement dated February 10,

1994, and covers use by LMDS applicants. This agreement requires

authorized users of the material to include a legend on

reproductions (as specified in the license agreement) indicating

Rand McNally's ownership.

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

The Commission seeks comment on whether the most rapid build-out of

LMDS would occur if it were to permit partitioning of the license

pursuant to eligibility and other rules adopted for this service. It

seeks comment regarding whether geographic partitioning should be

established in the case of LMDS licenses, and on the manner in which

the proposed build-out requirement would be applied to a partitioned

license.

The Commission requests comment on three alternatives for

regulating LMDS licensees. One option is that licensees would be

presumed to be common carriers subject to Title II regulation to the

extent the system is used to provide two-way data, voice, and other

telecommunications services, and in the absence of evidence

demonstrating that they provide only private carriage. The second

option is the same one set forth in the First NPRM, i.e., in their

applications, successful bidders would specify the types of services

they expect to offer and indicate the regulatory status under which

those services would be offered. Licensees would be required to

describe their proposed service in sufficient detail for the Commission

to confirm that their requested status complies with relevant judicial

and/or statutory standards. The Commission would retain oversight of

the parties' compliance with the statutory and judicial standards for

status based on the type of service offered. The third option for LMDS

licensees is to treat them similarly to the way in which MMDS licensees

are treated. MMDS licensees are permitted to provide service as common

carriers or private carriers. Under the MMDS rules, however, licensees

operating as private carriers must comply with common carriage rules,

except for the tariffing requirement.

The Third NPRM seeks comment on the eligibility of telephone

companies, commercial mobile radio service providers, cable television

companies, and multichannel multipoint distribution service providers

to be licensed for LMDS within their service areas.

Since the Commission is proposing the use of competitive bidding to

award LMDS licenses, it withdraws its proposal to limit transfer or

assignment of LMDS licenses, except in the case of licenses awarded to

designated entities. Because of the special consideration accorded

designated entities in the auction process, the Commission proposes

that such licenses be restricted in a manner similar to that proposed

for Specialized Mobile Radio licenses. A designated entity would be

prohibited from voluntarily assigning or transferring control of its

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

In the fourth and fifth years of the license term, the designated

entity would only be able to assign or transfer control of its license

to another qualified designated entity, and no unjust enrichment could

be gained through the transfer.

Although the Commission proposed in the First NPRM to forbear from

regulating rates of LMDS licensees if regulated as common carriers,

subsequent judicial interpretation of the Communications Act forecloses

this approach to the extent that LMDS providers operate as common

carriers. AT&T v. FCC, 978 F.2d (D.C. Cir. 1993), Southwestern Bell

Corp. v. FCC, 43 F.3d 1515 (D.C. Cir. 1995) Accordingly, to the extent

LMDS licensees offer services which are categorized as common carrier

offerings that are not within the definition of Commercial Mobile Radio

Services (CMRS), the Commission has no alternative but to impose all

statutory requirements pertaining to common carriers. In the case of

filings required under Section 214 of the Act, the Commission seeks

comment regarding whether we should consider the development of

streamlined filing provisions in the case of LMDS service providers.

The Commission tentatively concludes that some build-out

requirement is necessary for LMDS, but one which is more moderate than

was proposed in the First NPRM. The Commission proposes to require

licensees to have made service available to a minimum of one-third of

the population of their geographic areas within five years from license

grant. It proposes that licensees will have made service available to a

minimum of two-thirds of the population of their geographic areas

within ten years from license grant.

Satellite Services Licensing

There are existing rules for the GSO/FSS systems in place in part

25 of the Commission's rules. These include technical rules, such as

2 deg. orbital spacing and full frequency reuse, and licensee

qualification rules, for example, a rigorous financial qualification

standard. The Commission proposes to apply these rules to GSO/FSS

systems that will use the 27.5-30.0 GHz band. The Commission requests

comment on whether specific rules, such as the financial qualification

requirement, should be altered and whether any additional rules should

be created. It requests specific comment on any technical standards

that will facilitate sharing under the band segmentation plan.

Following the release of this Notice, the Commission will place the

pending satellite applications on separate Public Notice, and will

establish cut-off periods for both the GSO/FSS and NGSO/FSS

applications to be

[[Page 43744]]

considered concurrently with these.\4\ If all qualified applicants in

the processing group cannot be accommodated, it proposes to use

competitive bidding as the procedure to choose among the mutually

exclusive applications to provide domestic service within the United

States. The Commission is not auctioning access rights to other

countries from either NGSO/FSS or GSO/FSS systems. The Commission is

also auctioning access rights to serve the U.S. market only from

certain orbit locations for specific frequency bands.

\4\ All applicants would have to pay the filing fees set out in

our rules, for applications for authority to construct, launch, and

operate a satellite in the FSS.

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

Competitive Bidding Proposal and Procedures

Following is the verbatim text of that portion of the third NPRM

pertaining to competitive bidding issues:

A. Competitive Bidding

Section 309(j)(1) of the Communications Act, as amended, 47 U.S.C.

309(j)(1), permits auctions only where mutually exclusive applications

for initial licenses or construction permits are accepted for filing by

the Commission and where the principal use of the spectrum will involve

or is reasonably likely to involve the receipt by the licensee of

compensation from subscribers in return for enabling those subscribers

to receive or transmit communications signals.\5\

\5\ As discussed infra, the LMDS services proposed to date all

appear to be subscriber-based services. However, we are aware that

interest in the use of this spectrum has been demonstrated by two

entities interested in manufacturing point-to-point equipment

(Digital Corporation and Harris Corp.--Farinon Div.) which is

unlikely to be subscriber-based.

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

The Commission has previously determined that auctions are

permissible if at least a majority of the use of the spectrum would be

for service to subscribers. In making this determination, we looked to

classes of licenses and permits rather than to individual licenses.\6\

Based on the service proposals in the extensive record developed in

this proceeding to date, we believe that the principal use of the LMDS

spectrum will meet these requirements.

\6\ Second Report and Order, supra, n. 79 at 2354.

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

With respect to the NGSO and GSO FSS applicants, we tentatively

conclude that the principal use of the spectrum will be to provide

subscription based services,\7\ even though certain portions of the

spectrum will be used for large bandwidth applications through gateway

terminals. We request comment on these tentative conclusions, including

information from any potential LMDS or satellite applicants on the type

of service they contemplate offering.

\7\ See First Report and Order and Second Notice of Proposed

Rulemaking in ET Docket No. 94-32, FCC 95-47, 60 FR 13102 (March 10,

1995) at 33.

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

In addition, we tentatively conclude that the use of competitive

bidding to award LMDS and satellite licenses will promote the

objectives described in section 309(j)(3) of the Communications Act.

These objectives are:

(A) The development and rapid deployment of new technologies,

products, and services for the benefit of the public, including those

residing in rural areas, without administrative or judicial delays;

(B) Promoting economic opportunity and competition and ensuring

that new and innovative technologies are readily accessible to the

American people by avoiding excessive concentration of licenses and by

disseminating licenses among a wide variety of applicants, including

small businesses, rural telephone companies, and businesses owned by

members of minority groups and women;

(C) Recovery for the public of a portion of the value of the public

spectrum made available for commercial use and avoidance of unjust

enrichment through the methods employed to award uses of that

resources; and

(D) Efficient and intensive use of the electromagnetic spectrum.

First, based on our experience conducting PCS auctions, we believe

that the use of competitive bidding to award GSO/FSS and NGSO/FSS and

LMDS licenses, as compared with other licensing methods, will speed the

development and deployment of new technologies, products and services

to the public with minimal administrative or judicial delay, and will

encourage efficient use of the spectrum as required by sections

309(j)(3) (A) and (D). Second, use of auctions to assign LMDS and

satellite licenses will clearly advance the goals of section

309(j)(3)(C) by enabling us to recover for the public a portion of the

value of the public spectrum.\8\ By using a licensing methodology which

ensures that licenses are assigned to those who value them most highly,

it follows that such licensees can be expected to make the most

efficient and intensive use of the spectrum. Finally, we believe that

using auctions will meet the objectives of section 309(j)(3)(B) because

we propose to adopt competitive bidding rules that foster economic

opportunity and the distribution of licenses among a wide variety of

applicants including small businesses, rural telephone companies and

businesses owned by women and minorities (collectively referred to as

``designated entities'') who might otherwise face entry barriers.

\8\ Id.

B. Determining Mutual Exclusivity

As noted above, one of the prerequisites for use of the auction

procedures is that applications must be mutually exclusive. The

Communications Act states that ``[n]othing in [Section 309(j)], or in

the use of competitive budding, shall * * * be construed to relieve the

Commission of the obligation in the public interest to continue to use

engineering solutions, negotiation, threshold qualifications, service

regulations, and other means in order to avoid mutual exclusivity in

application and licensing proceedings * * *.'' 47 U.S.C. 309(j)(6)(E).

With respect to LMDS, we propose to use discrete geographic service

areas and spectrum blocks, thus avoiding the possibility of ``daisy

chain'' mutual exclusivity among applications. However, because of the

great interest shown in LMDS in this proceeding to date, we anticipate

that there will be multiple applications filed for each geographic

area. Moreover, we tentatively conclude that it would not serve the

public interest for the Commission to avoid mutual exclusivity

altogether because doing so would greatly circumscribe the geographic

service areas and would defeat the Commission's ability to determine

the applicants who would put the spectrum to its highest valued use.

We propose to determine mutual exclusivity based on the FCC Form

175 application for LMDS licenses. If more than one application is

filed for the same LMDS frequency in the same geographic area then

mutual exclusivity would be established and the license will be

auctioned. As we indicated in the Second Report and Order in PP Docket

No. 93-253, 9 FCC Rcd 2348 (1994) 59 FR 22980, May 4, 1994, if the

Commission receives only one application that is acceptable for filing

for a particular license, and thus there is no mutual exclusivity, the

Commission by Public Notice will cancel the auction for this license

and establish a date for the filing of a long-form application, the

acceptance of which will trigger the procedures permitting petitions to

deny.\9\ We seek comment on this proposal, particularly whether some

other type of filing method would be more appropriate for

[[Page 43745]]

determining whether initial applications are mutually exclusive.

\9\ See Second Report and Order at para. 165.

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

With respect to GSO/FSS service and NGSO/FSS systems, it is

premature to determine whether mutual exclusivity will occur. We intend

to open a new filing period permitting additional parties to apply for

this spectrum. If additional entities file applications during this

filing period, it is possible, given the limited amount of spectrum

available, that we may not be able to accommodate all of the

applicants' proposals. Under these circumstances the Commission

proposes to award these licenses by auction. We seek comment on this

proposal.

C. Competitive Bidding Issues

1. Competitive Bidding Design

(a) General Competitive Bidding Principles

The Competitive Bidding Second Report and Order,\10\ as modified by

the Competitive Bidding Reconsideration Order,\11\ established the

criteria to be used in selecting which auction design method to use for

each particular auctionable service. Generally, we concluded that

awarding licenses to those parties who value them most highly will

foster the statutory policy objectives. In this regard, we noted that

since a bidder's ability to introduce valuable new services and to

deploy them quickly, intensively, and efficiently increases the value

of a license to that bidder, an auction design that awards licenses to

those bidders with the highest willingness to pay tends to promote the

development and rapid deployment of new services and the efficient and

intensive use of the spectrum.\12\

\10\ Implementation of Section 309(j) of the Communications

Act--Competitive Bidding, Second Report and Order, PP Docket No. 93-

253, 9 FCC Rcd 2348, para. 69 (1994) (Competitive Bidding Second

Report and Order).

\11\ Competitive Bidding Reconsideration Order, 9 FCC Rcd at

7249-50.

\12\ See Competitive Bidding Second Report and Order, 9 FCC Rcd

at 2360-61, para. 70.

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

Based on the foregoing, we concluded that where the licenses to be

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

simultaneous multiple round auctions would best achieve the

Commission's goals for competitive bidding.\13\ We also noted, however,

that simultaneous multiple round auctions may not be appropriate for

all licenses. For example, where there is less interdependence among

licenses, there is less benefit to auctioning them simultaneously.

Similarly, we explained that when the values of particular licenses to

be auctioned are low relative to the costs of conducting a simultaneous

multiple round auction, we may consider auction designs that are

relatively simple, with low administrative costs and minimal costs to

the auction participants.\14\

\13\ See 9 FCC Rcd at 2367, paras. 109-111.

\14\ See id. at 2367, paras. 112-113.

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

(b) Competitive Bidding Methodology for LMDS Licenses

Simultaneous Multiple Round Bidding. We believe that simultaneous

multiple round bidding should be the preferred method for licensing

LMDS spectrum blocks. Based on the record in this proceeding and our

successful experience conducting simultaneous multiple round auctions

for narrowband and broadband PCS licenses, we believe that this auction

design is the most appropriate for auctioning LMDS licenses. First, we

believe that for certain bidders the value of these licenses will be

significantly interdependent because of the desirability of aggregation

across geographic regions and because, if the Commission provides for

more than one license in each geographic service area, licenses within

the same area would likely be close substitutes or strong complements.

As indicated above, under these circumstances, simultaneous multiple

round bidding will generate more information about license values

during the course of the auction and provide bidders with more

flexibility to pursue back-up strategies than if these licenses are

auctioned separately. Simultaneous multiple round bidding is therefore

most likely to award licenses to the bidders who value them the most

highly and to provide bidders with the greatest likelihood of obtaining

the license combinations which best satisfy their service needs.

Finally, we expect the value of these licenses to be sufficiently high

to warrant the use of simultaneous multiple round auctions. Therefore,

we intend to use simultaneous multiple round bidding to award LMDS

licenses. We ask commenters to address this tentative conclusion and

whether any other competitive bidding designs would be more appropriate

for the licensing of this spectrum.

Grouping of Licenses. Assuming we use simultaneous multiple round

auctions for LMDS licenses, we also seek comment on which blocks should

be auctioned together, and the sequencing of each auction. The

importance of the choice of license groupings increases with the degree

of interdependence among the individual licenses or groups of licenses

to be auctioned. Grouping interdependent licenses together and putting

them up for bid at the same time will facilitate awarding licenses to

bidders who value them the most highly by providing bidders with

information about the prices of complementary and substitutable

licenses during the course of the auction. Based on the foregoing, we

propose to auction all LMDS licenses together in one simultaneous

multiple round auction because of the expected value and significant

interdependence of the licenses. We seek comment on this tentative

analysis and on possible alternative license groupings.

Combinatorial Bidding. Another issue for consideration in auction

design is whether to permit combinatorial bidding. In general terms,

combinatorial bidding allows bidders to bid for multiple licenses as

all-or-nothing packages (e.g., all licenses nationwide on a particular

spectrum block, with the licenses awarded as a package if the

combinatorial bid is greater than the sum of the high bids on the

individual licenses in the package).\15\ Combinatorial bidding can be

implemented with either simultaneous or sequential auction designs. At

this time, we do not plan to use combinatorial bidding in LMDS

licensing because although we recognize that there may be significant

benefits associated with combinatorial bidding, especially in terms of

efficient aggregation of licenses, we tentatively conclude that

simultaneous multiple round auctions offer many of the same advantages

without the same degree of administrative and operational complexity

and without biasing auction outcomes in favor of combination bids. We

seek comment on the specific combinatorial bidding procedures that

should be adopted if combinatorial bidding is used.

\15\ In combinatorial bidding, if a bid for a group of licenses

exceeds the sum of the highest bids for the individual licenses that

comprise the package, then the package bid would win. In the Second

Report and Order we also indicated that if we were to utilize

combinatorial bidding we might institute a premium so that the

combinatorial bid would win only if it exceeded the sum of the bids

for individual licenses by a set percentage.

See Second Report and Order at para. 114. NTIA is the main

advocate of combinatorial bidding. See comments of NTIA, and ex

parte submission of NTIA in PP Docket No. 93-253, Feb. 28, 1994.

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

Alternatively, we may consider modifying the auction rules to

directly limit the risk associated with bid withdrawal for those

seeking nationwide aggregations. For example, we might cap the bid

withdrawal payment (discussed below) for nationwide bidders at five

percent of the

[[Page 43746]]

withdrawn bids. To discourage those who do not truly seek nationwide

aggregations of taking advantage of the limitations on bid withdrawal

payments and to speed up the auction, nationwide bidders might be

subject to the requirement that they be active (defined below) on all

license on each nationwide aggregation on which they did. To ensure

adequate competition for licenses which are reoffered after a

nationwide withdrawal we might also modify the activity rules

(discussed below) so that if any bidder withdraws a bid, the

eligibility of all other bidders will be increased by the amount of the

withdrawal bid up to each bidder's initial maximum eligibility. We seek

comment on this alternative method of facilitating efficient nationwide

aggregations.

(c) GSO/FSS Auction Proposals

In the event a competitive bidding approach is adopted to award

GSO/FSS and NGSO/FSS licenses, we emphasize that we would be auctioning

access to the United States only for use of specific frequency bands

within the U.S. Any international access by the satellite users depends

on the rules of that particular country. To afford licensees some

flexibility in designing their systems and to allow for the

uncertainties of the international coordination process, we propose to

allow applicants to bid on the total amount of spectrum designated for

GSO/FSS and NGSO/FSS services, respectively, set out in the band

segmentation plan.

As we discussed earlier, it is premature for us to determine

whether there will be mutually exclusive applications for GSO/FSS

licenses in the band. Applications for GSO/FSS licenses would be

mutually exclusive if we do not have a sufficient number of orbit

locations to accommodate all qualified applicants. We request comment,

with accompanying justification, from applicants and potential

applicants, on how many users, within our two degree spacing rule, they

believe can be supported in the GSO/FSS segments to provide service to

the continental United States (CONUS), without causing harmful

interference. If a mutually exclusive situation should arise, we

propose to auction the GSO/FSS spectrum at each orbit location in two

paired, uplink and downlink, 500 MHz blocks, allowing applicants to bid

for up to two blocks. We believe 500 MHz blocks are the smallest

spectrum blocks feasible to support a viable FSS system at 28 GHz. We

request comment on whether this amount of spectrum is sufficient. If

auctions are used to award GSO/FSS licenses, we propose to use a

simultaneous multiple round bidding, which will enable bidders to

express the value interdependencies between the two blocks. We request

comment on whether simultaneous multiple round bidding procedures are

appropriate for this spectrum or whether other bidding procedures would

better serve the statutory goals.

(d) NGSO/FSS Auction Proposals

The band segmentation plan designates 500 MHz of unrestricted

contiguous spectrum to NGSO/FSS systems. Our preliminary technical

analysis indicates that 500 MHz is the minimum amount of spectrum

required to implement a viable system offering NGSO/FSS services. For

NGSO/FSS systems, a mutually exclusive situation will arise if all

qualified applicant are unable to share the spectum. If mutually

exclusive applications are received, we propose to use competitive

bidding to award a single license. If competitive bidding is used to

award such a license, we propose to conduct a multiple round auction

for the entire 500 MHz block of spectrum. This multiple round auction

may be either oral or electronic. We request comment from NGSO/FSS

applicants and potential applicants on this proposal. Specifically we

ask commenters to address the specific application and auction

procedures that should be used.

(e) MSS Feeder Links

We are not proposing competitive bidding rules for MSS feeder

links. In the Second Report and Order in the Competitive Bidding

Rulemaking Proceeding, the Commission decided not to auction

intermediate links, including feeder links in the Mobile Satellite

Services (MSS).\16\ We reasoned that before employing competitive

bidding, the Commission is required to determine that mutually

exclusive applications are likely to be filed and that such bidding

would promote the objectives of section 309(j)(3)(A) through (D) of the

Communications Act. With regard to mutual exclusivity, we noted that in

those frequency bands most often utilized as intermediate links, mutual

exclusivity is usually avoided by employing a frequency coordination

process for each intermediate link prior to the time an application is

granted. With regard to the objective of section 309(j)(3)(A) through

(D), we concluded that auctioning intermediate links could

significantly delay the development and rapid deployment of new

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

auctions for these links could impose significant administrative costs

on licensees and the Commission, and that it was unclear whether

competitive bidding for intermediate links would recover for the public

a significant portion of the value of the spectrum, prevent unjust

enrichment or promote efficient and intensive use of the spectrum.\17\

\16\ See Implementation of Section 309(j) of the Communications

Act--Competitive Bidding, PP Docket No. 93-253, Second Report and

Order, 9 FCC Rcd. 2348, 2355-56 n. 30 (1994).

\17\ Id at 2355, para. 43.

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

We tentatively conclude that FSS spectrum used for MSS feeder links

should be excluded from competitive bidding. We base this tentative

conclusion on the finding that auctions for MSS feeder links would not

achieve the public interest objectives in Section 309(j)(3). The feeder

links are an integral part of the MSS systems and the systems would be

unable to operate without them. Three MSS systems have also already

been licensed and auctioning the feeder links would only delay

implementation of service to the public.

(f) Bidding Procedures

If we use simultaneous multiple round auctions, we generally

propose to use bidding procedures similar to those use for broadbank

PCS.\18\ We seek comment, however, on whether any variations on these

procedures should be adopted for LMDS or FSS licenses.

\18\ Fifth Report and Order in PP Docket No. 93-253, 59 FR

37566, July 22, 1994 9 FCC Rcd 5532 (1994) (Fifth Report and Order),

recon. granted in part, Fifth Memorandum Opinion and Order, 59 FR

63210, December 7, 1994 10 FCC Rcd 403 (1995) (Fifth Memorandum

Opinion and Order).

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

Bid Increments and Tie Bids. In using simultaneous multiple round

auctions to award licenses it is important to specify minimum bid

increments. The bid increment is the amount or percentage by which the

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

accepted as a valid bid in the current bidding round. The application

of a minimum bid increment speeds the progress of the auction and,

along with activity and stopping rules, helps to ensure that the

auction comes to closure within a reasonable period of time.

Establishing an appropriate minimum bid increment is especially

important in a simultaneous auction with a simultaneous closing rule.

In that case, all markets remain open until there is no bidding on any

license, and a delay in closing one market will delay the closing of

all markets. As we recognized in the Second Report and Order in the

[[Page 43747]]

competitive bidding docket, it is important in establishing the amount

of the minimum bid increment to express such increment as the greater

of a percentage and fixed dollar amount.\19\ This will ensure a timely

completion of the auction even if bidding begins at a very low dollar

amount. Accordingly, we propose to impose a minimum bid increment equal

to some percentage of the high bid from the previous round or a dollar

amount per MHza per pop, whichever is greater where multiple round

bidding is used.

\19\ See Second Report and Order, supra, at para. 126.

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

We propose to announce by public notice prior to auction the

specific bid increment that generally will be used. We anticipate using

large bid increments early in the auction and reducing the increment as

bidding activity falls. We note, however, that the Commission proposes

to retain the discretion to set and, by announcement before or during

the auction, vary the minimum bid increments for individual licenses or

groups of licenses over the course of an auction.\20\

\20\ In oral or electronic sequential auctions the auctioneer

may within his or her sole discretion establish and vary the amount

of the minimum bid increment in each round of bidding.

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

Where a tie bid occurs, we propose that the high bidder be

determined by the order in which the bids were received by the

Commission.\21\

\21\ See Second Report and Order at 2369.

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

Stopping Rules. When simultaneous multiple round auctions are used,

a stopping rule must be established for determining when the auction is

over. In simultaneous multiple round auctions, bidding may close

separately on individual licenses, simultaneously on all licenses, or a

hybrid approach may be used. Under an individual, license-by-license

approach, bidding closes on each license after one round passes in

which no new acceptable bids are submitted for that particular license.

With a simultaneous stopping rule, bidding generally remains open on

all licenses until there is no new acceptable bid on any license. This

approach has the advantage of providing bidders full flexibility to bid

for any license as more information becomes available during the course

of the auction, but it may lead to very long auctions, unless an

activity rule (see discussion infra, paras. 157 ff) is imposed. A

hybrid approach combines the first two stopping rules. For example, we

may use a simultaneous stopping rule (along with an activity rule

designed to expedite closure for licenses subject to the simultaneous

stopping rule) for the higher value licenses. For lower value licenses,

where the loss from eliminating some back-up strategies is less, we may

use simpler license-by-license closings. In the Competitive Bidding

Second Report and Order we recognized that such a hybrid approach might

simplify and speed up the auction process without significantly

sacrificing efficiency or expected revenue.\22\

\22\ Id.

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

For LMDS and FSS auctions, we propose to use a simultaneous

stopping rule. Under this proposal, bidding will remain open on all

licenses in an auction until bidding stops on every license. We propose

that the auction will close after one round passes in which no new

valid bids or proactive activity rule waivers (as defined below in the

section on activity rules) are submitted. The Commission proposes to

retain the discretion, however, to keep the auction open even if no new

valid bids and no proactive waivers are submitted. In the event that

the Commission exercises this discretion, the effect would be the same

as if a bidder had submitted a proactive waiver.\23\ Since we intend to

impose an activity rule (as discussed below), we believe that allowing

simultaneous closing for all licenses will afford bidders flexibility

to pursue back-up strategies without running the risk that bidders will

hold back their bidding until the final rounds.

\23\ This will help ensure that the auction is completed within

a reasonable period of time, because it will enable the Commission

to utilize larger bid increments, which speed the pace of the

auction, without risking premature closing of the auction. See

Memorandum Opinion and Order in PP Docket No. 93-253, 59 FR 64159,

December 13, 1994 9 FCC Rcd 7684-7685 (1994).

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

In addition, we propose to retain the discretion to declare after

forty rounds that the auction will end after some specified number of

additional rounds. If this option were used, we propose to only accept

bids on licenses where the high bid had increased in at least one of

the last three rounds. We seek comment on our proposed use of a

simultaneous stopping rule and ask commenters to indicate whether an

alternative stopping rule would be more appropriate.

Duration of Bidding Rounds. In simultaneous multiple round

auctions, bidders may need a significant amount of time to evaluate

back-up strategies and develop their bidding plans. We seeks comment on

the appropriate duration of the bidding rounds as well as the interval

between bidding rounds. We propose to retain the discretion to

establish the duration and frequency of bidding rounds by public notice

before each auction. We also propose to announce any changes to the

duration of or intervals between bidding rounds either by public notice

prior to the auction, or announcement during the auction. We request

comment on this proposal.

Bid Withdrawals. We propose to permit a high bidder to withdraw one

or more of its high bids during the bid withdrawal period in each round

subject to the bid withdrawal payments specified below. If a high bid

is withdrawn, we propose that the license be offered in the next round

at the second highest bid price. The Commission may at its discretion

adjust the offer price in subsequent rounds until a valid bid is

received on the license. In addition, to prevent a bidder from

strategically delaying the close of the auction, we propose that the

FCC retain the discretion to limit the number of times that a bidder

may re-bid on a license from which it has withdrawn a high bid.

Activity Rules. In the Second Report and Order, we adopted the

Milgrom-Wilson activity rule as our preferred activity rule where a

simultaneous stopping rule is used. See Second Report and Order at

paras. 144-145. The Milgrom-Wilson approach encourages bidders to

participate in early rounds by limiting their maximum participation to

some multiple of their minimum participation level. Bidders are

required to declare their maximum eligibility in terms of MHz-pops, and

make an upfront payment proportional to that eligibility level.\24\

(See discussion of upfront payments infra, para. 167.) That is, in each

round, bidders will be limited to bidding on licenses encompassing no

more than the number of MHz-pops covered by their upfront payment.

Licenses on which a bidder is the high bidder at the end of the bid

withdrawal period in the previous round count against this bidding

limit. Under this approach, bidders have the flexibility to shift their

bids among any licenses for which they have applied so long as, within

each round, the total MHz-pops encompassed by those licenses does not

exceed the total number of MHz-pops on which they are eligible to bid.

Under this approach, to preserve their maximum eligibility, bidders are

required to maintain a certain level of bidding activity during each

round of the auction. The auction is divided into three stages with

increasing levels of bidding activity required in each stage of the

auction. A bidder is considered active on a license

[[Page 43748]]

in the current round if the bidder has submitted an acceptable bid for

that license in the current round, or has the high bid for that license

at the end of the bid withdrawal period in the previous round in which

case, the bidder does not need to bid on that license in the current

round to be considered active on that license. A bidder's activity

level in a round is the sum of the MHz-pops associated with licenses on

which the bidder is active.

\24\ The number of ``MHz-pops'' is calculated by multiplying the

population of the license service area by the amount of spectrum

authorized by the license. We use the terms ``per MHz-pop'' and

``per MHz per pop'' interchangeably.

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

We tentatively conclude that the Milgrom-Wilson activity rule

should be used in conjunction with the proposed simultaneous stopping

rule for LMDS and FSS auctions. We believe that the Milgrom-Wilson

approach will best achieve the Commission's goals of affording bidders

flexibility to pursue backup strategies, while at the same time

ensuring that simultaneous auctions are concluded within a reasonable

period of time.

Under the Milgrom-Wilson proposal, the minimum activity level,

measured as a fraction of the bidder's eligibility in the current

round, will increase during the course of the auction. Milgrom-Wilson

divide the auction into three stages. We propose to establish the

following minimum required activity levels for each stage of the

auction: In each round of Stage One of the auction, a bidder who wishes

to maintain its current eligibility is required to be active on

licenses encompassing at least 60% of the MHz-pops for which it is

currently eligible. Failure to maintain the requisite activity level

will result in a reduction in the amount of MHz-pops upon which a

bidder will be eligible to bid in the next round of bidding (unless an

activity rule waiver, as defined below, is used). During Stage One, if

activity is below the required minimum level, eligibility in the next

round will be calculated by multiplying the current round activity by

five-thirds (\5/3\). Eligibility for each applicant in the first round

of the auction is determined by the amount of the upfront payment

received and the licenses identified in its auction application. In

each round of the Stage Two, a bidder who wishes to maintain its

current eligibility is required to be active on 80% on the MHz-pops for

which it is eligible in the current round. During the second stage, if

activity is below the required minimum level, eligibility in the next

round will be calculated by multiplying the current round activity by

five-fourths (\5/4\). In each round of Stage Three, a bidder who wishes

to maintain its current eligibility is required to be active on

licenses encompassing 95 percent of the MHz-pops for which it is

eligible in the current round. In Stage Three, if activity in the

current round is below 95 percent of current eligibility, eligibility

in the next round will be calculated by multiplying the current round

activity by twenty-nineteenths (\20/19\). We note, however, that the

Commission proposes to retain the discretion to set and, by

announcement before or during the auction, vary the required minimum

activity levels (and associated eligibility calculations) for each

auction stage. Retaining this flexibility will improve the Commission's

ability to control the pace of the auction and help ensure that the

auction is completed within a reasonable period of time.

In the PCS auctions, we specified transition guidelines for

deciding when the auction would move from Stage One to Stage Two to

Stage Three. Those guidelines are based on the ``auction activity

level,'' the sum of the MHz-pops of PCS licenses for which the high bid

increased in the current round as a percentage of the total MHz-pops of

all licenses offered in the auction.\25\ However, we also retained the

discretion to move the PCS auctions from one stage to another at a rate

different from that set out in the guidelines.\26\

\25\ See, e.g., Fifth Report and Order at 5555.

\26\ See Fourth Memorandum Opinion and Order in PP Docket No.

93-253, 9 FCC Rcd 6858, 6860 (1994), 59 FR 53364, October 24, 1994.

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

For the LMDS and FSS auctions, we propose to use the following

transition guidelines: The auction will begin in Stage One and move

from Stage One to Stage Two when the auction activity level is below

ten percent for three consecutive rounds in Stage One. The auction will

move from Stage Two to Stage Three when the auction activity level is

below five percent for three consecutive rounds in Stage Two. In no

case can the auction revert to an earlier stage. We propose, however,

that the Commission retain the discretion to determine and announce

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

stage to the next, based on a variety of measures of bidder activity,

including, but not limited to, the auction activity level as defined

above, the percentage of licenses (measured in terms of MHz-pops) on

which there are new bids, the number of new bids, and the percentage

increase in revenue.

To avoid the consequences of clerical errors and to compensate for

unusual circumstances that might delay a bidder's bid preparation or

submission in a particular round, we proposed to provide bidders with a

limited number of waivers of the above-described activity rule. We

believe that some waiver procedure is needed because the Commission

does not wish to reduce a bidder's eligibility due to an accidental act

or circumstances not under the bidder's control.\27\

\27\ See Second Report and Order at 2372.

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

We propose to provide bidders five activity rule waivers that may

be used in any round during the course of the auction.\28\ If a

bidder's activity level is below the required activity level, a waiver

will automatically be applied. That is, if a bidder fails to submit a

bid in a round, and its activity level from any standing high bids

(high bids at the end of the bid withdrawal period in the previous

round) falls below its required activity level, a waiver will be

automatically applied. A waiver will preserve current eligibility in

the next round.\29\ An activity rule waiver applies to an entire round

of bidding and not to a particular BTA service area.

\28\ See Second Report and Order at 2373.

\29\ An activity rule waiver cannot be used to correct an error

in the amount bid.

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

Bidders will be afforded an opportunity to override the automatic

waiver mechanism when they place a bid if they intentionally wish to

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

retain their eligibility at its current level.\30\ If a bidder

overrides the automatic waiver mechanism, its eligibility will be

permanently reduced (according to the formulas specified above), and it

will not be permitted to regain its bidding eligibility from a previous

round. An automatic waiver invoked in a round in which there are no new

valid bids will not keep the auction open. Bidders will have the option

of proactively entering an activity rule waiver during the bid

submission period.\31\ If a bidder submits a proactive waiver in a

round in which no other bidding activity occurs, the auction will

remain open.

\30\ See Fourth Memorandum Opinion and Order in PP Docket No.

93-253, 9 FCC Rcd 6858, 6861 (1994).

\31\ Thus, a ``proactive'' waiver, as distinguished from the

automatic waiver described above, is one requested by the bidder.

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

The Commission proposes to retain the discretion to issue

additional waivers during the course of an auction for circumstances

beyond a bidder's control. We also propose to retain the flexibility to

adjust by public notice prior to an auction the number of waivers

permitted, or to institute a rule that allows one waiver during a

specified number of bidding rounds or during specified stages of the

auction.\32\

[[Page 43749]]

We request comment on these proposals.

\32\ See Second Report and Order at 2373.

2. Procedural and Payment Issues

In the Competitive Bidding Second Report and Order, as modified by

the Competitive Bidding Reconsideration Order in PP Docket No. 93-253,

9 FCC Rcd 7245 (1944), the Commission established general procedural

and payment rules for auctions, but also stated that such rules may be

modified on a service-specific basis.\33\ As discussed below, we

generally propose to follow the procedural and payment rules

established in subpart Q of part 1 of the Commission's rules, but seek

comment on whether any service-specific modifications of these rules

are needed based on the particular characteristics of LMDS services.

\33\ 9 FCC Rcd at 7249-50, paras. 23-26.

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

(a) Upfront Payments

As in the case of other auctionable services, we propose to require

participants in the LMDS and FSS auctions to tender to the Commission

in advance of the auction, a substantial upfront payment. We have

previously determined that a substantial upfront payment requirement is

necessary to ensure that only serious, qualified bidders participate in

auctions and to ensure that sufficient funds are available to satisfy

any bid withdrawal or default payments (discussed infra) that may be

incurred. We seek comment on the appropriate amount of such upfront

payments for LMDS and satellite auctions. In the PCS auctions the

upfront payments was established based on a formula of $0.02 per pop

per MHz for the largest combination of MHz-pops a bidder anticipates

being active in any single round of bidding. This upfront payment was

designed to require an upfront payment representing approximately 5

percent of the expected value of such licenses. We seek comment on what

the appropriate upfront payment price per MHz-pop should be for LMDS

and satellite licenses. We also seek comment on whether we should

establish a minimum upfront payment for applications and if so what the

amount of that minimum upfront should be. In the Competitive Bidding

Second Report and Order, we established a minimum upfront payment of

$2,500, but we also indicated that the minimum amount could be modified

on a service-specific basis.\34\ With respect FSS auctions, we seek

comment on whether a fixed upfront payment would be more appropriate,

and if so, what the amount of that upfront should be.

\34\ 9 FCC Rcd at 2379, para. 180.

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

(b) Down Payment and Full Payment for Licenses Awarded by Competitive

Bidding

The Competitive Bidding Second Report and Order generally

established a 20 percent down payment requirement for winning bidders

to discourage default between the auction and licensing and to ensure

payment if such default occurs. We concluded that a 20 percent down

payment was appropriate to ensure that auction winners have the

necessary financial capabilities to complete payment for the license

and to pay for the costs of constructing a system, while at the same

time not being so onerous as to hinder growth or diminish access.

We similarly propose to require all winning bidders in LMDS, GSO/

FSS and NGSO/FSS auctions to supplement their upfront payments with a

down payment sufficient to bring their total deposits up to 20 percent

of their winning bid(s).\35\ Under this approach, winning bidders would

be required to submit the required down payment by cashier's check or

wire transfer to our lock-box bank by a date to be specified by Public

Notice, generally within five (5) business days following the close of

bidding. All auction winners would generally be required to make full

payment of the balance of their winning bids within five (5) business

days following notification by the Commission that it was prepared to

award the license. The license would then be granted after this payment

was received. We seek comment on whether this is an appropriate

requirement for licensing of these services, and whether 20 percent

represents an appropriate level of payment. In addition, as discussed

more fully below, we ask commenters to address whether any special

payment provisions, for example a reduced down payment, should be

adopted for designated entities, and if so, for which specific

categories of designated entities and why.

\35\ If the upfront payment already tendered by a winning

bidder, after deducting any bid withdrawal and default payments due,

amounts to 20 percent or more of its winning bids, no additional

deposit will be required. If the upfront payment amount on deposit

is greater than 20 percent of the winning bid amount after deducting

any bid withdrawal and default payments due, the additional monies

will be refunded. If a bidder has withdrawn a bid or defaulted but

the amount of the payment cannot yet be determined, the bidder will

be required to make a deposit of 20 percent of the amount bid on

such licenses. When it becomes possible to calculate and assess the

additional payment, any excess deposit will be refunded. Upfront

payments will be applied to such deposits and to bid withdrawal and

default payments due before being applied toward the bidder's down

payment on licenses the bidder has won and seeks to acquire.

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

(c) Bid Withdrawal, Default, and Disqualification

As we discussed in the Second Report and Order, it is important to

the success of our system of competitive bidding that potential bidders

understand that there will be a substantial payment assessed if they

withdraw a high bid, are found not to be qualified to hold licenses or

default on payment of a balance due. Accordingly, we propose to use the

bid withdrawal, default and disqualification rules contained

Secs. 1.2104(g) and 1.2109 of the Commission's rules for LMDS, GSO/FSS

and NGSO/FSS auctions. Pursuant to these rules, any bidder who

withdraws a high bid during an auction before the Commission declares

bidding closed will be required to reimburse the Commission in the

amount of the difference between its high bid and the amount of the

winning bid the next time the license is offered by the Commission, if

this subsequent winning bid is lower than the withdrawn bid.\36\ No

withdrawal payment will be assessed if the subsequent winning bid

exceeds the withdrawn bid. After bidding closes, a defaulting auction

winner (i.e., a winner who fails to remit the required down payment

within the prescribed time, fails to pay for a license, or is otherwise

disqualified) will be assessed an additional payment of three percent

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

defaulting bid, whichever is less.\37\ The additional three percent

payment is designed to encourage bidders who wish to withdraw their

bids to do so before bidding ceases. We propose to hold deposits made

by defaulting or disqualified auction winners until full payment of the

[[Page 43750]]

additional amount.\38\ We believe that these additional payments will

adequately discourage default and ensure that bidders have adequate

financing and that they meet all eligibility and qualification

requirements. In the case of defaults, we also propose to retain

discretion to offer a license to the next highest bidder at its final

bid price if the default occurs within five business days after the

close of bidding. We seek comment on these propose procedures.

\36\ If a license is re-offered by auction, the ``winning bid''

refers to the high bid in the auction in which the license is re-

offered. If a license is re-offered in the same auction, the winning

bid refers to the high bid amount, made subsequent to the

withdrawal, in that auction. If the subsequent high bidder also

withdraws its bid, that bidder will be required to pay an amount

equal to the difference between its withdrawn bid and the amount of

the subsequent winning bid the next time the license is offered by

the Commission. If a license which is the subject of withdrawal or

default is not re-auctioned, but is instead offered to the highest

losing bidders in the initial auction, the ``winning bid'' refers to

the bid of the highest bidder who accepts the offer. Losing bidders

would not be required to accept the offer, i.e., they may decline

without additional payment. We wish to encourage losing bidders in

simultaneous multiple round auctions to bid on other licenses, and

therefore we will not hold them to their losing bids on a license

for which a bidder has withdrawn a bid or on which a bidder has

defaulted.

\37\ See 47 CFR Secs. 1.2104(g) and 1.2109.

\38\ In rare cases in which it would be inequitable to retain a

down payment, we will entertain requests for waiver of this

provision.

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

In addition, if a default or disqualification involves gross

misconduct, misrepresentation or bad faith by an applicant, we propose

to retain the option to declare the applicant and its principals

ineligible to bid in future auctions, or take any other action we deem

necessary, including institution of proceedings to revoke any existing

licenses held by the applicant.\39\

\39\ See Second Report and Order at para. 198.

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

3. Regulatory Safeguards

(a) Unjust Enrichment Provisions

The Budget Act directs the Commission to ``require such transfer

disclosures and anti-trafficking restrictions and payment schedules as

may be necessary to prevent unjust enrichment and as a result of the

methods employed to issue licenses and permits.'' We therefore propose

to adopt the transfer disclosure requirements contained in

Sec. 1.2111(a) of our rules for all LMDS,GSO/FSS and NGSO/FSS licenses

obtained through the competitive bidding process. In addition, we

propose specific rules governing unjust enrichment by designated

entities, which are discussed below. Generally, applicants transferring

their licenses within three years after the initial license grant will

be required to file, together with their transfer application, the

associated contracts for sale, option agreements, management

agreements, and all other documents disclosing the total consideration

received in return for the transfer of their licenses. We seek comment

on these proposals.

(b) Performance Requirements

The Budget Act requires the Commission to ``include performance

requirements, such as appropriate deadlines and penalties for

performance failures, to ensure prompt delivery of service to rural

areas, to prevent stockpiling or warehousing of spectrum by licensees

or permittees, and to promote investment in and rapid deployment of new

technologies and services.'' 47 U.S.C. 309(j)(4)(B). In the Competitive

Bidding Second Report and Order, we determined that it was unnecessary

and undesirable to impose additional performance requirements, beyond

those already provided in the service rules, for all auctionable

services. Our proposed LMDS service rules (and GSO/FSS and NGSO/FSS

service rules) contain specific performance requirements, such as the

requirement to construct and provide service within a specific period

of time. Thus, we do not propose to adopt any additional performance

requirements for competitive bidding purposes. We seek comment on this

tentative conclusion.

(c) Rules Prohibiting Collusion

In the Competitive Bidding docket, we adopted special rules

prohibiting collusive conduct in the context of competitive bidding. We

indicated that such rules would serve the objectives of the Budget Act

by preventing parties, especially the largest firms, from agreeing in

advance to bidding strategies that divide the market according to their

strategic interests and that disadvantage other bidders. We propose to

apply these rules to LMDS, GSO/FSS and NGSO/FSS auctions. Pursuant to

these rules, from the time the short-form applications are filed until

a winning bidder has made its required down payment, all bidders will

be prohibited from cooperating, collaborating, discussing or disclosing

in any manner the substance of their bids or bidding strategies with

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

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

form application. In addition, bidders are required by

Sec. 1.2105(a)(2) of the Commission's Rules to identify on their Form

175 applications all parties with whom they have entered into any

consortium arrangements, joint ventures, partnerships or other

agreements or understandings which relate to the competitive bidding

process. Bidders will also be required to certify that they have not

entered and will not enter into any explicit or implicit agreements,

arrangements or understandings with any parties, other than those

identified, regarding the amount of their bid, bidding strategies or

the particular properties on which they will or will not bid.

We also propose to require winning bidders, pursuant to Sec. 1.2107

of the Commission's Rules, to attach as an exhibit to their license

application a detailed explanation of the terms and conditions and

parties involved in any bidding consortium, joint venture, partnership,

or other agreement or arrangement they had entered into relating to the

competitive bidding process prior to the close of bidding. All such

arrangements must have been entered into prior to the filing of short-

form applications. In addition, where specific instances of collusion

in the competitive bidding process are alleged during the petition to

deny process, the Commission may conduct an investigation or refer such

complaints to the United States Department of Justice for

investigation. Bidders who are found to have violated the antitrust

laws or the Commission's rules in connection with participation in the

auction process may be subject to forfeiture of their down payment or

their full bid amount and revocation of their license(s), and they may

be prohibited from participating in future auctions. We seek comment on

these proposals.

4. Treatment of Designated Entities

(a) Introduction

In authorizing the Commission to use competitive bidding, Congress

mandated that the Commission ``ensure that small business, rural

telephone companies, and businesses owned by members of minority groups

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

spectrum-based services.'' 47 U.S.C. 309(j)(4)(D). The statute requires

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

preferences, and other procedures'' in order to achieve this

Congressional goal. In addition, section 309(j)(3)(B) provides that in

establishing eligibility criteria and bidding methodologies the

Commission shall promote ``economic opportunity and competition . . .

by avoiding excessive concentration of licenses and by disseminating

licenses among a wide variety of applicants, including small

businesses, rural telephone companies, and businesses owned by members

of minority groups and women.'' Finally, section 309(j)(4)(A) provides

that to promote these objectives, the Commission shall consider

alternative payment schedules including installment payments.

In instructing the Commission to ensure the opportunity for

designated entities to participate in auctions and spectrum-based

services, Congress was well aware of the problems that designated

entities would have in competing against large, well-capitalized

companies in auctions and the difficulties they encounter in accessing

capital. For example, the legislative history accompanying our

[[Page 43751]]

grant of auction authority states generally that the Commission's

regulations ``must promote economic opportunity and competition,'' and

``(t)he Commission will realize these goals by avoiding excessive

concentration of licenses and by disseminating licenses among a wide

variety of applicants, including small businesses and businesses owned

by members of minority groups and women.'' \40\ The House Report states

that the House Committee was concerned that, ``unless the Commission is

sensitive to the need to maintain opportunities for small business,

competitive bidding could result in a significant increase in

concentration in the telecommunications industries.'' \41\ More

specifically, the House Committee was concerned that adoption of

competitive bidding should not have the effect of ``excluding'' small

businesses from the Commission's licensing procedures, and anticipated

that the Commission would adopt regulations to ensure that small

businesses would ``continue to have opportunities to become

licensees.'' \42\ On the other hand, the House Report also states that

``the characteristics of some services are inherently national in

scope, and are therefore ill-suited for small businesses.'' \43\

\40\ H.R. Rep. No. 111, 103d Cong., 1st Sess. 254 (1993).

\41\ Id.

\42\ Id. at 255.

\43\ Id. at 254.

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

Consistent with Congress's concern that auctions not operate to

exclude small businesses, the provisions relating to installation

payments were intended to assist small businesses. The House Report

states that these related provisions were drafted to ``ensure that all

small businesses will be covered by the Commission's regulations,

including those owned by members of minority groups and women.'' \44\

It also states that the provisions in section 309(j)(4)(A) relating to

installment payments were intended to promote economic opportunity by

ensuring that competitive bidding does not inadvertently favor

incumbents with ``deep pockets'' ``over new companies or start-ups.''

\45\

\44\ Id.

\45\ Id.

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

In addition, with regard to access to capital, Congress had made

specific findings in the Small Business Credit and Business Opportunity

Enhancement Act of 1992, that ``small business concerns, which

represent higher degrees of risk in financial markets than do large

businesses, are experiencing increased difficulties in obtaining

credit.'' \46\ As a result of these difficulties. Congress resolved to

consider carefully legislation and regulations ``to ensure that small

business concerns are not negatively impacted'' and to give priority to

passage of ``legislation and regulations that enhance the viability of

small business concerns.'' \47\ In the Competitive Bidding Second

Report and Order, we also indicated that special measures may not be

appropriate in all circumstances.

\46\ Small Business Credit and Business Opportunity Enhancement

Act of 1992, section 331(a)(3), Pub. L. 102-366, Sept. 4, 1992.

\47\ Id. section 331(b)(2)-(3).

We have employed a wide range of special provisions and eligibility

criteria designed to meet the statutory objectives of providing

opportunities to designated entities in other spectrum-based services.

For instance, we determined that minority-owned and women-owned

businesses in the nationwide narrowband PCS auction would receive a 25

percent bidding credit on certain channels; \48\ in the regional

narrowband PCS auction women-owned and minority-owned businesses would

receive a 40 percent bidding credit on certain channels and small

businesses would be eligible for installment payments on all channels;

\49\ in the broadband PCS auction, on separate entrepreneurs' blocks,

the bidding credits would vary according to the type of qualifying

designated entity that applied,\50\ and all entrepreneurs' block

licensees would be eligible for installment payments.\51\ For the

Multipoint Distribution Service (``MDS'') we adopted a 15 percent

bidding credit, reduced upfront payments and installment payments for

small businesses, including those owned by members of minority groups

and women.\52\ In satellite services, we have not proposed or adopted

specific measures for designated entitles.\53\

\48\ Auctions Third Report and Order at para. 72.

\49\ Id. at para. 87. See implementation of Section 309(j) of

the Communications Act--Competitive Bidding, PP Docket No. 93-253,

Third Memorandum Opinion and Order and Further Notice of Proposed

Rulemaking, 10 FCC Rcd 175, para. 58 (1994), 5Q FR 44058, August 26,

1994.

\50\ Auctions Fifth Report & Order at para. 133; Auctions Fifth

Memorandum Opinion & Order at para. 99; See also Further Notice of

Proposed Rulemaking, FCC 95-263 (released June 23, 1995), 60 FR

34201, June 30, 1995.

\51\ Auctions Fifth Memorandum Opinion & Order at para. 103.

\52\ Report and Order, MM Docket No. 94-131 and PP Docket 93-

253, FCC 95-230 (adopted June 15, 1995), 60 FR 36524, July 17, 1995.

\53\ See Rules and Policies Pertaining to a Mobile Satellite

Service in the 1610-1626.5/2483-2500 MHz Frequency Bands, Report and

Order, CC Docket No. 92-166, 9 FCC Rcd 5936, 5969-70 (1994);

Establishment of Rules and Policies for the Digital Audio Radio

Satellite Service in the 2310-2360 MHz Frequency Band, Notice of

Proposed Rulemaking, IB Docket No. 95-91, paras. 107-108, FCC 95-229

(released June 15, 1995) 60 FR 35166, July 6 1995.

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

The measures considered thus far for each service were established

after closely examining the specific characteristics of the service and

determining whether any particular barriers to accessing capital stood

in the way of designated entity opportunities. After examining the

record in the competitive bidding proceeding in PP Docket 93-253, we

established provisions necessary to enable designated entities to

overcome the barriers to accessing capital in each particular service.

Moreover, the measures we adopted also were designed to increase the

likelihood that designated entities who win licenses in the auctions

become strong competitors in the provision of wireless services.

As in other auctionable services, we fully intend in services using

the 28 GHz band to meet the statutory objectives of promoting economic

opportunity and competition, of avoiding excessive concentration of

licenses, and of ensuring access to new and innovative technologies by

disseminating licenses among a wide variety of applicants, including

small businesses, rural telephone companies, and businesses owned by

members of minority groups and women. At the same time, we must be

cautious and deliberative in our selected approach in light of the

auction statute's directive to avoid judicial delays \54\ and the

substantial legal risks involved with providing preferential treatment

on the basis of race or gender. In this regard, on June 12, 1995, the

Supreme Court ruled in Adarand Constructors v. Pena \55\ that measures

adopted by the federal government awarding preferential treatment on

the basis of race are subject to strict scrutiny.\56\ To pass muster

under that standard, such measures must be narrowly tailored to further

compelling government interests.\57\

\54\ 47U.S.C. 309(j)(3)(A).

\55\ 63 U.S.L.W. 4523 (U.S. June 12, 1995).

\56\ Id., 63 U.S.L.W. at 4530.

\57\ Id.

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

Adarand thus introduces an additional level of complexity in

implementing Congress' mandate to ensure that businesses owned by

minorities and women are provided ``the opportunity to participate in

the provision of spectrum-based services.'' \58\ Although Adarand did

not address gender-based preferences, we

[[Page 43752]]

have included them here in an effort to seek the broadest possible

comment. We welcome comment as to the appropriateness of our approach.

Accordingly, we seek comment on how we can best promote opportunities

for businesses owned by minorities and women in the provision of LMDS

and satellite services in light of Adarand. We seek the broadest

possible comments including, but not limited to, responses to the

following questions:

\58\ 47 U.S.C. 309(j)(4)(D).

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

(1) Does the Commission have a compelling interest in establishing

opportunity-enhancing measures in the provision of LMDS and satellite

services specifically for minority-and women-owned businesses? If so,

what is that compelling interest? Would the goal of assuring a

``diversity of voices'' in the provision of LMDS and satellite

services? suffice as a compelling interest? \59\

\59\ We suggest ``diversity of voices'' as a possible compelling

interest because LMDS is likely to be used as a ``medium of mass

communication'' similar to other multipoint distribution services.

See 47 U.S.C. 309(i)(3)(C)(i). In Metro Broadcasting v. F.C.C., the

Supreme Court upheld the Commission's minority preference programs

in the awarding of broadcast licenses because they served the

``important'' governmental interest of promoting diversity in

broadcast programming. Metro Broadcasting v. F.C.C., 497 U.S. 547,

566-68 (1990). While Adarand overrules Metro, to the extent that

Metro applied ``Intermediate scrutiny,'' Adarand did not reject the

diversity interest; rather, it simply held that the diversity

interest must be ``compelling.''

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

(2) What evidence (statistical, documentary, anecdotal or

otherwise) can be marshalled to support the proposed compelling

interest?

(3) What techniques could the Commission employ that would be

narrowly tailored to further the proposed compelling interest? Would

such techniques include bidding credits and installment payments? Are

race-conscious or gender-conscious measures necessary, or are there

race-or gender-neutral measures that would be effective?

Commenters are encouraged to provide the Commission as much evidence as

possible with regard to past discrimination, continuing discrimination,

discrimination in access to capital, underrepresentation and other

significant barriers facing businesses owned by minorities and women in

satellite services, services similar to LMDS, and in licensed

communications services generally.

In the Competitive Bidding docket, we established eligibility

criteria and general rules that would govern the award of special

provisions for small businesses, rural telephone companies, and

minority-and women-owned businesses (collectively, ``designated

entities''). We also established a menu of possible special provisions

that could be awarded to designated entities in particular services,

including installment payments, spectrum set-asides, bidding credits,

and tax certificates.\60\ In addition, we set forth rules to prevent

unjust enrichment by designated entities seeking to transfer licenses

obtained through use of one of these special provisions.

\60\ Congress has now repealed the tax credit program in the

Communications Act, except with respect to fixed microwave licenses

not at issue here. 109 Stat. 93 (195), Pub. L. 104-7, April 11,

1995.

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

In keeping with the general parameters set forth in the Competitive

Bidding docket, we propose specific measures and eligibility criteria

for designated entities who seek to obtain spectrum to provide LMDS and

satellite services, designed to ensure that such entities are given the

opportunity to participate both in the competitive bidding process and

in the provision of these services. We seek comment on these proposals,

and specifically on identifying special provisions that are tailored to

the unique characteristics of the LMDS and satellite services and that

will create meaningful incentives and opportunities for designated

entities.

(b) Installment Payments

We propose to adopt installment payments for small businesses

bidding for LMDS licenses. The record in the Competitive Bidding

proceeding suggests that the most significant barrier for small

business participation in the auctioning of LMDS spectrum will be

access to adequate private financing to ensure their ability to compete

against larger firms in the competitive bidding process. In the

competitive Bidding Second Report and Order, we concluded that a

reduced down payment requirement coupled with installment payments is

an effective means to address the inability of small businesses bidding

for PCS licenses. We seek comment on our proposal to use this same

approach in the LMDS auctions, and on whether any additional or

alternative special provisions should be provided for small businesses

bidding on LMDS spectrum. We also seek comment on whether installment

payments are appropriate to encourage small businesses participation in

the provision of satellite services.

To ensure that large businesses do not become the unintended

beneficiaries of installment payment provisions meant for small

businesses, we also propose to make the unjust enrichment provisions

adopted in the Competitive Bidding Second Report and Order applicable

to installment payments by small business applicants. Specifically, if

a small business making installment payments seeks to transfer a

license to a non-small business entity during the term of the license,

we propose to require payment of the remaining principle balance and

accrued interest as a condition of the license transfer. We seek

comment on this proposal including whether additional unjust enrichment

provisions are necessary for LMDS licensing. We also see comment on

whether these unjust enrichments would be appropriate if installment

payments are also adopted for small businesses participating in

satellite auctions.

Eligibility Criteria. We propose to define a small business as an

entity that, together with affiliates and attributable investors, has

average gross revenues for the three preceding years of less than $40

million. We believe this standard is appropriate for LMDS service

because build-out costs are likely to be significant. Additionally, the

cost of acquiring a license is likely to be higher than for other

services. We also seek comment on whether this definition is

appropriate for small businesses in the context of satellite auctions.

Commenters should address whether this is an appropriate threshold

given the expected cost associated with the provision of LMDS and

satellite services. Should it be higher or lower, based on the types of

companies that are likely to benefit from the special provisions

proposed here? We also propose not to attribute the gross revenues of

investors that hold less than 25 percent interest in the applicant, but

we will include the gross revenues of the applicant's affiliates and

investors with ownership interests of 25 percent or more in the

applicant in determining whether an applicant qualifies as a small

business. Is a different attribution threshold warranted for LMDS or

for satellite services? We seek comment on these issues.

(c) Bidding Credits

Specific Special Provisions. Based on the list of special

provisions for designated entities established in the Competitive

Bidding Second Report and Order, we propose to utilize bidding credits

for small businesses participating in LMDS or FSS auctions. We

tentatively conclude that affording such businesses bidding credits and

installment payments is the most cost-effective and efficient means of

achieving Congress' objective of ensuring an opportunity for these

designated entities to participate in the provision of LMDS service,

while preserving the advantages of

[[Page 43753]]

competitive open bidding. We seek comment on this proposal.

We request comment on how we should determine the appropriate

amount of the bidding credit. Our analysis of the telecommunications

industry suggests the possibility that incumbent telecommunications

providers may be able to utilize existing infrastructure and thus enjoy

economies of scope in the provision of many of the services that may

develop in LMDS. Therefore, these incumbents may have the ability to

bid more than first-time operators.

We propose a bidding credit of 25 percent that would be available

on one of the proposed spectrum blocks. We seek comment on the

appropriateness of the proposed bidding credits for LMDS and FSS

auctions.

To prevent unjust enrichment by small businesses trafficking in

licenses acquired through the use of bidding credits, we propose

imposition of a payment requirement on transfers of such licenses to

entities that are not owned by small businesses. Small businesses

seeking to transfer a license to an entity that does not meet the

eligibility criteria for a small business would be required to

reimburse the Government for the amount of the bidding credit, plus

interest at the rate imposed for installment financing at the time the

license was awarded, before the transfer will be permitted. The amount

of the penalty would be reduced over time so that a transfer in the

first two years of the license term would result in a payment of 100

percent of the value of the bidding credit; in year three of the

license term the payment would be 75 percent; in year four the penalty

would be 50 percent and in year five the payment would be 25 percent,

after which there would be no payment. We seek comment on these

proposals.

(d) Rural Telephone Companies

We seek comment on whether we should provide bidding credits or

other special provisions for rural telephone companies. In addition,

the vast majority of rural telephone companies will qualify as small

businesses and thus will receive installment payment options. Because

many of the specific uses proposed for LMDS, including wireless cable

and video telecommunications, may be of interest to rural telephone

companies, such entities may be interested in bidding for LMDS

spectrum. However, we are unable to determine with any certainty the

potential prices these services may bring in rural areas. If service

prices in such areas are low, acquiring a license should not present

significant barriers to rural telephone companies. Also, under one

possible approach, the degree of flexibility we would afford in the use

of this spectrum, including provisions for partitioning or leasing

spectrum, should assist in satisfying the spectrum needs of rural

telephone companies at low cost. Finally, as with other incumbent

providers of telecommunications services, rural telephone companies may

be able to benefit from the use of their existing infrastructure in the

provision of some services. Such economies of scale would give rural

telephone companies an advantage in the bidding for such licenses. For

these reasons, we do not believe that special preferences are needed to

ensure adequate participation by rural telephone companies in the

provision of services in this spectrum. However, comments on this

analysis are requested.

(e) Additional Special Provisions

In addition to the special provisions proposed above for the

various classes of designated entities, we seek comment on whether

additional special provisions should be adopted that would enhance our

goal of ensuring their participation in the competitive bidding process

for LMDS and satellite licenses. We request that commenters give

particular attention to the alternatives described below.

Reduced Upfront Payments. In the Competitive Bidding Second Report

and Order, we concluded that upfront payment requirements would ensure

that bidders are qualified and serious and would provide the Commission

with a source of funds in the event of default or bid withdrawal. 9 FCC

Rcd at 2377, 2379, paras. 169, 176. We also noted that reduced upfront

payments may be particularly appropriate for auctions of spectrum

specifically set aside for designated entities as a means of

encouraging participation in the auctions, particularly by all eligible

designated entities.\61\ We seek comment on whether there should be a

similar reduction in upfront payments for small businesses or any other

designated entities applying for LMDS or satellite licenses. In

addition, we ask commenters to address the costs and benefits with

respect to auction administration and designated entity participation

associated with a reduced upfront payment for licenses in LMDS or

satellite services in the absence of a spectrum set-aside.

\61\ Competitive Bidding Fifth Report and Order, 9 FCC Rcd at

5599-5600, para. 154.

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

Comment Dates

Pursuant to applicable procedures set forth in Secs. 1.415 and

1.419 of the Commission's rules, 47 CFR 1.415 and 1.419, interested

parties may file comments on or before August 28, 1995, and reply

comments on or before September 18, 1995. To file formally in this

proceeding, you must file an original and five copies of all comments,

reply comments, and supporting comments. If you want each Commissioner

to receive a personal copy of your comments, you must file an original

plus nine copies. You should send comments and reply comments to the

Office of the Secretary, Federal Communications Commission, Washington,

DC 20554. Comments and reply comments will be available for public

inspection during regular business hours in the Dockets Reference Room

of the Federal Communications Commission, 1919 M Street, NW.,

Washington, DC 20554.

Initial Regulatory Flexibility Analysis

Reason for action. The purposes of this NPRM are four-fold; first,

to obtain comment on the Commission's designation proposal for the

27.5-29.5 GHz frequency band; second, to obtain comment on the

Commission's proposal for a reallocation pertaining to the 29.5-30.0

GHz frequency band; third, to obtain comment on proposed service rules

for LMDS and FSS; and fourth, to obtain comment on the Commission's

supplemental tentative decision to grant CellularVision a Pioneer's

Preference.

Objectives. The objective of this Notice is to request public

comment on the proposals made herein for the efficient licensing of

services in the 27.5-30.0 GHz band, for the development and

implementation of a new technology to provide innovative

telecommunications services to the public.

Legal basis. The authority for this action is the Administrative

Procedure Act, 5 U.S.C. 553; and sections 4(i), 4(j), 301, 303(r) of

the Communications Act of 1934 as amended, 47 U.S.C. 145, 301, and

303(r).

Reporting, recordkeeping and other compliance requirements.

Reporting requirements are proposed to ensure that the spectrum, if

redesignated for these new uses, is used to serve the public's need for

communications services.

Federal rules which overlap, duplicate or conflict with these

rules. None.

Description, potential impact and number of small entities

involved. Any rule changes in this proceeding could

[[Page 43754]]

affect MMDS licensees, the majority of which are small businesses.

These entities may have some additional competition from video

programming service which could be provided by Suite 12's multicell

technology. In addition, rule changes could affect rural telephone

companies, to the extent that any are considered small businesses.

These entities may have competition to their local exchange service;

alternatively, these entities may be considered designated entities and

given bidding and other benefits. After evaluating the comments in this

proceeding, the Commission will further examine the impact of any rule

changes on small entities and set forth our findings in the Final

Regulatory Flexibility Analysis.

Significant Alternatives. While there are alternative methods to

provide the services proposed by LMDS and FSS parties, we find that the

services proposed will provide significant competition to existing

service providers, thus bringing the benefits of competition to the

public.

Ordering Clauses

According, it is ordered that the Notice of Proposed Rulemaking is

hereby adopted with proposed rules below.

It is further ordered that the Petition for Rulemaking filed by

Harris Corporation-Farinon Division and Digital Equipment Company is

denied.

It is further ordered that CellularVision, the successor-in-

interest to Suite 12 Group, is tentatively granted a pioneer's

preference in accordance with the discussion in paragraphs 68-73 of

this Supplemental Tentative Decision.

It is further ordered that the Acting Secretary shall mail a copy

of this document to the Chief Counsel for Advocacy, Small Business

Administration.

List of Subjects

47 CFR Part 21

Communications common carriers, Radio.

47 CFR Part 25

Satellites.

Federal Communications Commission.

LaVera F. Marshall,

Acting Secretary.

Proposed Amendatory Text

47 CFR Parts 21 and 25 are proposed to be amended as follows:

PART 21--DOMESTIC PUBLIC FIXED RADIO SERVICES

1. The authority citation for part 21 continues to read as follows:

Authority: Secs. 1, 2, 4, 201-205, 208, 215, 218, 303, 307, 313,

403, 404, 410, 602, 48 Stat. as amended, 1064, 1066, 1070-1073,

1077, 1080, 1082, 1083, 1087, 1094, 1098, 1102; 47 U.S.C. 151, 154,

201-205, 208, 215, 218, 303, 307, 313, 314, 403, 404, 602,: 47

U.S.C. 552,554.

2. Section 21.2 is proposed to be amended by adding the following

definitions, in alphabetical order, to read as follows:

* * * * *

Sec. 21.2 Definitions.

* * * * *

Local Multipoint Distribution Service Hub Station. A fixed point-

to-multipoint radio station in a Local Multipoint Distribution Service

System that provides one-way or two-way communication with Local

Multipoint Distribution Service Subscriber Stations.

* * * * *

Local Multipoint Distribution Service System. A fixed point-to-

multipoint radio system consisting of Local Multipoint Distribution

Service Hub Stations and their associated Local Multipoint Distribution

Service Subscriber Stations.

* * * * *

Local Multipoint Distribution Service Subscriber Station. Any one

of the fixed microwave radio stations located at users' premises, lying

within the coverage area of a Local Multipoint Distribution Service Hub

Station, capable of receiving one-way communications from or providing

two-way communications with the Local Multipoint Distribution Service

Hub Station.

* * * * *

Local Multipoint Distribution Service Backbone Link. A point-to-

point radio service link in a Local Multipoint Distribution Service

System that is used to interconnect Local Multipoint Distribution

Service Hub Stations with each other or with the public switched

telephone network.

* * * * *

3. Section 21.107(b) is amended by removing the entry for the

frequency band 27,500 MHz to 29,500 MHz, and adding new entires 27,500

MHz to 28,350 MHz and 29,100 MHz to 29,250 MHz to read as follows:

Sec. 21.107 Transmitter power.

* * * * *

(b) * * *

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

Maximum allowable transmitter Maximum allowable EIRP

power -------------------------------

Frequency band (MHz) --------------------------------

Fixed (W) Mobile (W) Fixed (dBW) Mobile (dBW)

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

* * * * * *

*

27,500 MHz to 28,350 MHz........................ .............. .............. -52 dBW/Hz ..............

29,100 MHz to 29,250 MHz........................ .............. .............. (5) ..............

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

\5\ This value is based on the value in Secs. 21.1018-21.1021.

* * * * *

4. Section 21.1002 (proposed at 58 FR 6378, Jan. 28, 1993), is

amended by adding new paragraph (c) to read as follows:

Sec. 21.1002 Frequencies.

* * * * *

(c) Special requirements for operations in the band 29.1-29.25 GHz.

(1)(i) LMDS receive stations operating on frequencies in the 29.1-

29.25 GHz band within a radius of 75 nautical miles of the geographic

coordinates provided by a non-GSO MSS licensee pursuant to paragraphs

(c)(2) or (c)(3)(i) of this section (the ``feeder link earth station

complex protection zone'') shall accept any interference caused to them

by such earth station complexes and shall not claim protection from

such earth station complexes.

(ii) LMDS licensees operating on frequencies in the 29.1-29.25 GHz

band outside a feeder link earth station complex protection zone shall

cooperate fully and make reasonable efforts to resolve technical

problems with the non-GSO MSS licensee to the extent that transmissions

from the non-GSO MSS operator's feeder link earth station complex

interfere with an LMDS receive station.

(2) At least 45 days prior to the commencement of LMDS auctions,

feeder link earth station complexes shall

[[Page 43755]]

be specified by a set of geographic coordinates in accordance with the

following requirements: No feeder link earth station complex may be

located in the top eight (8) metropolitan statistical areas (``MSAs''),

ranked by population, as defined by the Office of Management and Budget

as of June 1993, using estimated populations as of December 1992; two

(2) complexes may be located in MSAs 9 through 25, one of which must be

Phoenix, AZ (for a complex at Chandler, AZ); one (1) complex may be

located in MSAs 26 to 50; three (3) complexes may be located in MSAs 51

to 100, one of which must be Honolulu, Hawaii (for a complex at

Waimea); and the two (2) remaining complexes must be located at least

75 nautical miles from the borders of the 100 largest MSAs or in any

MSA not included in the 100 largest MSAs. Any location allotted for one

range of MSAs may be taken from an MSA below that range.

(3)(i) Any non-GSO MSS licensee may at any time specify sets of

geographic coordinates for feeder link earth station complexes with

each earth station contained therein to be located at least 75 nautical

miles from the borders of the 100 largest MSAs.

(ii) For purposes of paragraph (c)(3)(i) of this section, non-GSO

MSS feeder link earth station complexes shall be entitled to

accommodation only if the affected non-GSO MSS licensee reapplies to

the Commission for a feeder link earth station complex or certifies to

the Commission within sixty days of receiving a copy of an LMDS

application that it intends to file an application for a feeder link

earth station complex within six months of the date of receipt of the

LMDS application.

(iii) If said non-GSO MSS licensee application is filed later than

six months after certification to the Commission, the LMDS and non-GSO

MSS entities shall still cooperate fully and make reasonable efforts to

resolve technical problems, but the LMDS licensee shall not be

obligated to re-engineer its proposal or make changes to its system.

(4) LMDS licensees or applicants proposing to operate hub stations

on frequencies in the 29.1-29.25 GHz band at locations outside of the

100 largest MSAs or within a distance of 150 nautical miles from a set

of geographic coordinates specified under paragraphs (c)(2) or

(c)(3)(i) of this section shall serve copies of their applications on

all non-GSO MSS applicants, permittees or licensees meeting the

criteria specified in Sec. 25.257(a). Non-GSO MSS licensees or

applicants shall serve copies of their feeder link earth station

applications on any LMDS applicant or licensee within a distance of 150

nautical miles from the geographic coordinates that it specified under

paragraphs (c)(2) or (c)(3)(i) of this section. Any necessary

coordination shall commence upon notification by the party receiving an

application to the party who filed the application. The results of any

such coordination shall be reported to the Commission within sixty

days. The non-GSO MSS earth station licensee shall also provide all

such LMDS licensees with a copy of its channel plan.

5. A new Sec. 21.1018 is proposed to be added to read as follows:

Sec. 21.1018 LMDS single station EIRP limit.

Point-to-point stations in the 29.1-29.5 GHz band for the LMDS

backbone between LMDS hubs shall be limited to a maximum allowable EIRP

density per carrier of 23 dBW/MHz in any one megahertz in clear air,

and may exceed this limit by employment of adaptive power control in

cases where link propagation attenuation exceeds the clear air value

due to precipitation and only to the extent that the link is impaired.

6. A new Sec. 21.1019 is proposed to be added to read as follows:

Sec. 21.1019 LMDS subscriber transmissions.

LMDS licensees shall not operate transmitters from subscriber

locations in the 29.1-29.25 GHz band.

7. A new Sec. 21.1020 is proposed to be added to read as follows:

Sec. 21.1020 Hub transmitter EIRP spectral area density limit.

(a) LMDS applicants shall demonstrate that, under clear air

operating conditions, the maximum aggregate of LMDS transmitting hub

stations in a Basic Trading Area in the 29.1-29.25 GHz band will not

transmit a co-frequency hub-to-subscriber EIRP spectral area density in

any azimuthal direction in excess of X dBW/(MHz-km2) when averaged

over any 4.375 MHz band, where X is defined in Table 1. Individual hub

stations may exceed their clear air EIRPs by employment of adaptive

power control in cases where link propagation attenuation exceeds the

clear air value and only to the extent that the link is impaired.

(b) The EIRP aggregate spectral area density is calculated as

follows:

[GRAPHIC][TIFF OMITTED]TP23AU95.022

Where:

N=number of co-frequency hubs in BTA

A=Area of BTA in km2

pi=spectral power density into antenna of i-th hub (in W/MHz)

gi=gain of i-th hub antenna at zero degree elevation angle

Each pi and gi are in the same 1 MHz

(c) The climate zones in Table 1 are defined for different

geographic locations within the US as shown in Appendix 28 of the ITU

Radio Regulations and Sec. 25.254 of this chapter.

Table 1*

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

EIRP

spectral

density

Climate zone (clear

air) (dbW/

MHz-

km\2\)**

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

1............................................................ -23

2............................................................ -25

3,4,5........................................................ -26

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

*LMDS system licensees in two or more BTAs may individually or

collectively deviate from the spectral area density computed above by

averaging the power over any 200 km by 400 km area, provided that the

aggregate interference to the satellite receiver is no greater than if

the spectral area density were as specified in Table 1. A showing to

the Commission comparing both methods of computation is required and

copies shall be served on any affected non-GSO MSS providers.

**See Sec. 21.1007(c)(i) for the population density of the BTA.

8. A new Sec. 21.1021 is proposed to be added to read as follows:

Sec. 21.1021 Hub transmitter EIRP spectral area density limit at

elevation angles above the horizon.

(a) LMDS applicants shall demonstrate that, under clear air

operating conditions, the maximum aggregate of LMDS transmitting hub

stations in a Basic Trading Area in the 29.1-29.25 GHz band will not

transmit a co-frequency hub-to-subscriber EIRP spectral area density in

any azimuthal direction in excess of X dBW/(MHz-km\2\) when averaged

over any 5.375 MHz band where X is defined in Table 2. Individual hub

stations may exceed their clear air EIRPs by employment of adaptive

power control in cases where link propagation attenuation exceeds the

clear air value and only to the extent that the link is impaired.

(b) The EIRP aggregate spectral area density is calculated as

follows:

[GRAPHIC][TIFF OMITTED]TP23AU95.023

Where:

N=number of co-frequency hubs in BTA

A=Area of BTA in km\2\

EIRP(a1)=equivalent isoptropic radiated spectral power density of

the i-th hub (in W/MHz) at elevation angle a

[[Page 43756]]

Table 2*

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

Elevation

angle (a) Relative EIRP density (dBW/MHz-km\2\)

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

0 deg.x)(1/x)

-a4.0*.

Where x=(a+1)/7.5 deg.

4.07.7 deg.... EIRP(a)=EIRP(0 deg.)-22

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

* LMDS system licensees in two or more BTAs may individually or

collectively deviate from the spectral area density computed above by

averaging the power over any 200 km by 400 km area, provided that the

aggregate interference to the satellite receiver is no greater than if

the spectral area density were as specified in Table 1. A showing to

the Commission comparing both methods of computation is required and

copies shall be served on any affected non-GSO MSS providers.

Note: Where a is the angle in degrees of elevation above horizon. EIRP(0

deg.) is the hub EIRP area density at the horizon used in Section

21.1020. The nominal antenna pattern will be used for elevation angles

between 0 deg. and 8 deg., and average levels will be used for angles

beyond 8 deg., where average levels will be calculated by sampling the

antenna patterns in each 1 deg. interval between 8 deg. and 90 deg.,

dividing by 83.

9. A new Sec. 21.1022 is proposed to be added to read as follows:

Sec. 21.1022 Power reduction techniques.

LMDS hub transmitters shall employ methods to reduce average power

levels received by non-GSO MSS satellite receivers, to the extent

necessary to comply with Secs. 21.1020 and 21.1021, by employing the

methods set forth below:

(a) Alternate Polarizations. LMDS hub transmitters in the LMDS

service area may employ both vertical and horizontal linear

polarizations such that 50 percent (plus or minus 10 percent) of the

hub transmitters shall employ vertical polarization and 50 percent

(plus or minus 10 percent) shall employ horizontal polarization.

(b) Frequency Interleaving. LMDS hub transmitters in the LMDS

service area may employ frequency interleaving such that 50 percent

(plus or minus 10 percent) of the hub transmitters shall employ channel

center frequencies which are different by one-half the channel

bandwidth of the other 50 percent (plus or minus 10 percent) of the hub

transmitters.

(c) Alternative Methods. As alternatives to paragraphs (a) and (b)

of this section, LMDS operators may employ such other methods as may be

shown to achieve equivalent reductions in average power density

received by non-GSO MSS satellite receivers.

PART 25--SATELLITE COMMUNICATIONS

1. The authority citation for part 25 continues to read as follows:

Authority: Secs. 25.101 to 25.601 issued under sec. 4, 48 Stat.

1066, as amended; 47 U.S.C. 154. Interpret or apply secs. 101-104,

76 stat. 419-427; 47 U.S.C. 701-744; 47 U.S.C. 554.

2. A new Sec. 25.257 is proposed to be added to read as follows:

Sec. 25.257 Special requirements for operations in the band 29.1-29.25

GHz

(a) Special requirements for operations in the band 29.1-29.25 GHz.

(1) Non-geostationary mobile satellite service (non-GSO MSS)

operators shall use the 29.1-29.25 GHz band for Earth-to-space

transmissions from feeder link earth station complexes. For purposes of

this subsection, a ``feeder link earth station complex'' may include up

to three (3) earth station groups, with each earth station group having

up to four (4) antennas, located within a radius of 75 nautical miles

of a given set of geographic coordinates provided by a non-GSO MSS

operator pursuant to paragraphs (c)(5) or (c)(6)(i) of this section.

(2) A maximum of eight (8) feeder link earth station complexes in

the contiguous United States, Alaska, and Hawaii may be operated

concurrently in the band 29.1-29.25 GHz.

(b) Coordination of LMDS systems and geostationary fixed satellite

systems in the band 29.1-29.25 must be done in accordance with the

technical standards of Secs. 21.1018-21.1024 of this chapter.

[FR Doc. 95-20731 Filed 8-22-95; 8:45 am]

BILLING CODE 6712-01-M