Broadband Personal Communications Services

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 20 and 24

[WT Docket No. 96-59; GN Docket No. 90-314; FCC 96-278]

Broadband Personal Communications Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This Report and Order amends the Commission's broadband

Personal Communications Services (``PCS'') rules. The Commission

concludes that the present record is insufficient to support the race-

based F block rules under the strict scrutiny standard of judicial

review required by the Supreme Court's decision in Adarand

Constructors, Inc. v. Pena, or to support the gender-based rules under

the intermediate scrutiny standard that currently applies to those

rules. Taking account of the need to award the remaining broadband PCS

licenses expeditiously and to promote the rapid deployment of new

services to the public, as well as the statutory objective of

disseminating licenses among a wide variety of applicants, the

Commission makes the F block rules race- and gender-neutral to avoid

the delay that would likely result from legal challenges to the special

provisions for minority- and women-owned businesses. The Commission

also amends its D, E, and F block rules and broadband PCS rules

generally to streamline procedures, reduce administrative burdens, and

minimize the possibility of insincere bidding and bidder default.

Finally, the Commission, in response to Cincinnati Bell Telephone Co.

v. FCC, eliminates the cellular/PCS cross-ownership rule and the PCS

spectrum cap in favor of the 45 MHz cap on Commercial Mobile Radio

Services spectrum.

EFFECTIVE DATE: July 31, 1996.

FOR FURTHER INFORMATION CONTACT: Mark Bollinger, Wireless

Telecommunications Bureau, (202) 418-0660.

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

Report and Order in WT Docket No. 96-59; GN Docket No. 90-314; FCC 96-

278, adopted June 21, 1996, and released June 24, 1996. The complete

text is available for inspection and copying during normal business

hours in the FCC Reference Center (Room 239), 1919 M Street, N.W.,

Washington, DC. The complete text may also be purchased from the

Commission's copy contractor, International Transcription Service,

Inc., (202) 857-3800, 2100 M Street, N.W., Washington, DC 20037.

Synopsis of the Report and Order

I. Introduction

1. In this Report and Order, the Commission modifies the

competitive bidding and ownership rules for broadband Personal

Communications Services (``PCS''). Many of the rule modifications

concern the treatment of ``designated entities,'' i.e., small

businesses, rural telephone companies, and businesses owned by members

of minority groups and women, under the broadband PCS F block rules.

The Commission also amends the D, E, and F block rules and other

broadband PCS rules in order to encourage sincere bidding, streamline

the auction process, and lessen administrative burdens. In addition, in

response to the remand from the U.S. Court of Appeals for the Sixth

Circuit in Cincinnati Bell Telephone Co. v. FCC, 69 F.3d 752 (6th Cir.

1995), the Commission modifies the rules governing cellular licensees'

ownership of broadband PCS licenses in all frequency blocks.

II. Rules Affecting Designated Entities

A. Meeting the Adarand Standard

2. In Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995),

the Supreme Court held that all racial classifications, whether imposed

at the federal, state or local government level, must be analyzed by a

reviewing court under strict scrutiny, which requires such

classifications to be narrowly tailored to further a compelling

governmental interest. An intermediate scrutiny standard of review

(under which a provision is constitutional if it serves an important

governmental objective and is substantially related to achievement of

that objective) applies to gender-based measures. Having evaluated the

record before it, the Commission concludes that this record is

insufficient to support the race- and gender-based F block provisions

and revises the F block rules in this Report and Order to make them

race- and gender-neutral. Overall, the commenters agree that this

approach will best serve the goal of rapidly conducting the F block

auction with the least risk of judicial delay. Moreover, this type of

approach was upheld by the D.C. Circuit Court of Appeals, which held in

Omnipoint v. FCC, 78 F.3d 620 (D.C. Cir. 1996), that the Commission

acted reasonably in concluding that, in light of the additional time it

would take to develop a record to support the race- and gender-based

provisions of the C block rules, it should revise these rules by

providing the most favorable terms to all small businesses. The

Commission concludes that making the F block rules race- and gender-

neutral will serve the public interest by enabling it to auction the

remaining broadband PCS licenses as expeditiously as possible. Because

many minority- and women-owned entities are small businesses and will

therefore qualify for the same special provisions that would have

applied to them under the previous rules, the Commission also believes

that the amended rules will continue to fulfill the mandate under

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

309(j)(3), to provide opportunities for minority- and women-owned

businesses to become providers of spectrum-based services.

1. Control Group Equity Structures

3. The F block auction is limited to applicants that, together with

their affiliates and persons or entities that hold interests in them,

have gross revenues of less than $125 million in each of the last two

years and total assets of less than $500 million. As part of its

decision to make the F block rules race- and gender-neutral, the

Commission concludes that the 50.1/49.9 percent equity option,

previously available to minority- and women-owned applicants only,

should be available to all small businesses and entrepreneurs.

Applicants may use this control group equity structure to establish

eligibility to participate in the F block auction. It requires the

control group to own at least 50.1 percent of the applicant's total

equity; of that 50.1 percent equity, at least 30 percent must be held

by qualifying investors. If these and certain other requirements are

met, the remaining 49.9 percent of the applicant's equity may be held

by non-controlling investors, and the gross revenues and total assets

of any such investor will not be attributed.

4. The Commission adopts this rule modification because it reduces

the likelihood of legal challenges to the F block rules and enhances

the opportunities for a wide variety of applicants to obtain licenses

and rapidly deploy broadband PCS; and because it believes that making

the same equity structures available to both C and F block applicants

is necessary so that C

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block participants will not be required to structure themselves

differently in order to participate in the F block auction. Moreover,

this rule amendment will benefit other entities that did not

participate in the C block auction because it continues equity

structures that are familiar to the industry and the financial

community.

5. The Commission declines to make adjustments to the financial

eligibility thresholds in the F block rules. The Commission believes

that retaining the same thresholds as those used for the C block

auction will allow for participation by entities that used the C block

rules as guidelines for determining their structure in preparation for

the F block auction. Moreover, these thresholds were used by C block

bidders, many of whom will be interested in participating in the F

block auction. The Commission declines to further restrict

participation in the F block (or any of the other 10 MHz blocks) to

small businesses and rural telephone companies. It believes that

setting aside the F block for both entrepreneurs and small businesses

will be sufficient to achieve the objectives of providing opportunities

for small businesses to obtain 10 MHz licenses and ensuring broad

dissemination of 10 MHz licenses.

6. In addition, the Commission declines to treat C block licenses

as assets that could potentially preclude C block winners from F block

eligibility. It believes it would be unfair to disqualify C block

winners on the basis of their success in acquiring capital to

participate in that auction, primarily because the Commission has

indicated previously that the C and F blocks are linked. The Commission

believes that treating C block winners' licenses as an asset for

purposes of eligibility for the F block auction could frustrate

business plans and auction strategies made in reliance on its previous

statements. Applicants should be aware that other licenses (such as

Specialized Mobile Radio (``SMR''), cellular, narrowband PCS, and

broadband PCS A and B block licenses) should be included in their total

asset calculations for F block eligibility.

2. Affiliation Rules

7. The affiliation rules applicable to the F block identify all

individuals and entities whose gross revenues and assets must be

aggregated with those of the applicant to determine whether the

applicant exceeds the financial caps for the entrepreneurs' blocks or

for small business size status. There are two exceptions to these

rules. Under the first exception, Indian tribes and Alaska Regional or

Village Corporations organized pursuant to the Alaska Native Claims

Settlement Act, 43 U.S.C. 1601 et seq., are not considered affiliates

of an applicant owned and controlled by such tribes and corporations.

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

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

control group are not attributed to the applicant.

8. The Commission will eliminate the exception to the affiliation

rules pertaining to minority investors for purposes of the F block

auction. To retain this exception in its present state poses legal

risks that, as discussed above, could delay the award of F block

licenses. Furthermore, the Commission declines to adopt the

modification of this rule that it utilized for the C block, which

allowed all small business applicants to exclude any affiliates who

would otherwise qualify as entrepreneurs by having gross revenues of

$125 million or less and total assets of $500 million or less and whose

total assets and gross revenues, when considered on a cumulative basis

and aggregated with each other, do not exceed these amounts. The

Commission adopted the modified exception for the C block at a time

when a number of minority-owned applicants had relied on the rule and

had structured their business arrangements accordingly. However, the

Commission is not convinced that the C block exception is needed under

current circumstances, and it acknowledges the argument made by certain

commenters that the exception may qualify too many larger entities as

small businesses. For applicants that participated in the C block

auction and relied on the affiliation exception in structuring

themselves, the Commission will consider requests to waive the rules to

allow them to be eligible to participate in the F block auction.

Finally, the Commission will retain the exception to the affiliation

rules for Indian tribes and Alaska Regional or Village Corporations.

The Commission notes that certain comments support its tentative

conclusion in the Notice of Proposed Rule Making that the Indian

Commerce Clause of the U.S. Constitution provides a basis for this

exception which is not implicated by Adarand.

3. Installment Payments

9. The Commission amends its F block rules concerning installment

payments to provide for three rather than five installment payment

plans and to make all small businesses, rather than only those owned by

minorities and women, eligible for the most favorable installment plan.

The Commission concludes that extending the most favorable payment plan

to all small businesses will give minority- and women-owned businesses

an opportunity to participate in the provision of spectrum-based

services. The Commission also concludes, however, that it should

shorten the period during which F block auction winners eligible for

this plan may make interest-only payments. Thus, the most favorable

plan will have a two-year interest-only payment period, rather than a

six-year interest-only period. The plan will provide for installments

at a rate equal to ten-year U.S. Treasury obligations applicable on the

date the license is granted, with payments of principal and interest

amortized over the remaining eight years of the license term. Principal

will be repaid as part of equal quarterly payments of interest and

principal (as with a standard mortgage amortization schedule).

10. The Commission believes that these terms will provide small

businesses with the appropriate level of U.S. government assisted

financing to overcome the difficulties they face in accessing capital

to compete in the PCS marketplace. It further believes that reducing

the interest-only period to two years will deter speculation; encourage

bidding, business, and financial strategies based upon market forces

rather than the financial terms of installment payment plans; and still

provide small businesses with the ability to obtain the necessary funds

for construction and initial operation of their systems. Finally,

shortening the interest-only period to two years will not foreclose

opportunities for small businesses to compete in PCS. The terms that

the Commission is offering are extremely attractive compared to other

terms small businesses may be able to obtain.

11. Entrepreneurs that are not small businesses will be eligible

for installment payments as provided in Sections 24.716(b)(1) and

24.716(b)(2) of the rules. These rules provide for installments at a

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

the license is granted plus 3.5 percent, with payments of principal and

interest amortized over the license term for eligible licensees with

gross revenues exceeding $75 million in each of the two preceding

years. Eligible licensees with gross revenues not exceeding $75 million

in each of the two preceding years may make installment payments at a

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

the license is granted plus 2.5 percent, with interest-

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only payments for the first year and payments of interest and principal

amortized over the remaining nine years of the license term.

12. The Commission also concludes that it should amend the terms of

the installment payment plans to provide for late payment fees.

Therefore, when licensees are more than fifteen days late in their

scheduled installment payments, the Commission will charge a late

payment fee equal to 5 percent of the amount of the past due payment.

Without this late payment fee, licensees may not have adequate

financial incentives to make installment payments on time. The 5

percent payment adopted here is an approximation of late payment fees

applied in typical commercial lending transactions. Payments will be

applied in the following order: late charges, interest charges,

principal payments.

4. Bidding Credits

13. Consistent with its concerns about avoiding litigation based on

Adarand, the Commission will eliminate the race- and gender-based

aspects of the F block bidding credits. In place of these provisions,

the Commission adopts a two-tiered bidding credit for small businesses.

It believes that this approach will promote dissemination of licenses

to a broader variety of applicants than a 25 percent bidding credit for

all small businesses and will encourage smaller businesses, possibly

businesses that are very well suited to provide 10 MHz niche services,

to participate in the F block auction.

14. The Commission modifies its rules to provide that entities with

average gross revenues greater than $15 million but not more than $40

million for the past three years are eligible for a 15 percent bidding

credit; entities with average gross revenues of not more than $15

million for the past three years are eligible for a 25 percent bidding

credit. The Commission believes that the timing of the modification

here allows it to take a different approach than it took for the C

block. Entities interested in bidding on F block licenses have not had

expectations similar to those of entities that were interested in

bidding on the C block licenses and that formulated business strategies

in reliance on the tiered bidding credits originally adopted.

5. Information Collection

15. The Commission will request information regarding minority- and

women-owned status in the F block short-form applications. The

Commission believes that continuing to collect such information will

assist it in analyzing applicant pools and auction results to determine

whether it has promoted substantial participation in auctions by

minorities and women, as directed by Congress, through the special

provisions it makes available to small businesses.

B. Definitions

1. Small Business

16. Under the current F block rules, a ``small business'' is

defined as an entity that, together with its affiliates and persons or

entities that hold interests in such entity and their affiliates, has

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

three years. The Commission will continue to define small businesses in

this way. Maintaining the $40 million definition of small businesses

avoids disruption to the business plans of potential bidders,

particularly participants in the C block auction. Additionally,

however, the Commission defines a second tier of small businesses,

which it will refer to as ``very small businesses,'' as entities that,

together with their affiliates and persons or entities that hold

interests in such entities and their affiliates, have average gross

revenues of not more than $15 million for the preceding three years.

Creation of this subcategory of small businesses enables the Commission

to tailor its benefits to better meet the needs of bidders likely to

participate in the F block auction. Smaller license size may mean that

smaller businesses are likely to participate in the F block auction.

Thus, as discussed above, the Commission's goals can best be served by

offering varying bidding credits depending on the applicant's size.

17. The Commission declines to make special provisions for small

business winners of C block licenses as requested by some commenters.

As a practical matter, C block small business winners will likely not

have accrued substantial gross revenues by the time the Commission

auctions the D, E, and F blocks. Therefore, most of these winners

should continue to qualify as small businesses. On the other hand, if

they have grown in size beyond the established financial cap, or if

they can no longer avail themselves of the exception to the affiliation

rules, they may no longer qualify as a small business.

2. Rural Telephone Company

18. The Telecommunications Act of 1996 (``1996 Act'') defines

'rural telephone company' to include a larger number of local exchange

carriers than the Commission's F block rules, which define a rural

telephone company as ``a local exchange carrier having 100,000 or fewer

access lines, including all affiliates.'' The Commission adopts the

definition of rural telephone company contained in the 1996 Act. It

finds compelling the argument that this definition will increase the

number of entities eligible for partitioning and expedite the delivery

of advanced services to rural areas. Although this decision may result

in larger rural telephone companies being eligible to partition

licenses, the Commission recognizes that the number of accesslines--

including those provided by rural telephone companies--continues to

grow rapidly as the uses of telecommunications services expand. Thus,

most rural telephone companies will benefit from a definition that

accounts for their growth. Adopting the 1996 Act definition for

purposes of Section 309(j) will also promote uniformity of regulations

and is therefore consistent with the mandate of this legislation of

easing regulatory burdens and eliminating unnecessary regulation.

19. The Commission agrees with commenters who assert that the

definition is one of general applicability and it therefore elects not

to adopt the definition of rural telephone company contained in Section

251(f)(2) of the 1996 Act, as proposed by one commenter. This

definition applies to rural telephone companies only in the context of

suspensions or modifications of the application of certain statutory

requirements to rural carriers. Absent a specific definition of rural

telephone company for purposes of Section 309(j), and reading the

statute as a whole, the Commission is constrained to adopt the more

generalized definition.

C. Extending Small Business Provisions to the D and E Blocks

20. The Commission declines to extend installment payment plans or

any other special provisions to small businesses bidding on the D and E

blocks, believing that the special provisions for small businesses in

the F block rules sufficiently further the objective of encouraging

wide dissemination of broadband PCS licenses. Since the F block is an

entrepreneurs' block, it guarantees that one third of the 10 MHz

broadband PCS licenses will be assigned to entrepreneurs and small

businesses. The Commission believes that it would undermine the

justification for the F block as an entrepreneurs' block if it were to

open the D and E blocks to special provisions for small businesses, and

that departing from the original

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plan to establish two contiguous blocks of broadband PCS spectrum for

the exclusive use of entrepreneurs and small businesses is not

warranted.

D. Adjusting Payment Provisions for 10 MHz Licenses

21. The Commission modifies the upfront payment requirement for the

F block to raise it to the same level as the D and E block requirement

and eliminate the discount previously provided to entrepreneurs. The

Commission originally discounted upfront payments for entrepreneurs

because their down payment requirement was low (5 percent) and it was

concerned that if it required them to pay upfront payments larger than

the required down payment it might discourage their participation. The

Commission's experience to date, however, indicates that it has

underestimated the value of spectrum and that upfront payments have not

created a barrier to entrepreneur participation in auctions. The

Commission is also concerned, based on defaults in the C block auction,

that there is a need to obtain a higher payment up front to guard

against default. The Commission also agrees that requiring a uniform

upfront payment (per bidding unit) of all bidders for D, E, and F block

licenses will greatly simplify the auction process for bidders

interested in bidding on two or more of the blocks. The Commission also

believes that if it conducts a single simultaneous multiple round

auction of the D, E, and F block licenses, it is necessary for

operational reasons to have the same upfront payment and activity

requirements across all three blocks.

22. Further, because the Commission wants the payment terms to more

accurately reflect the value of the licenses, it will raise the upfront

payment requirement for all three blocks. It believes that this action

is consistent with the policy reason for requiring upfront payments--to

deter insincere and speculative bidding and to ensure that bidders have

the financial capability to build out their systems. The formula for

calculating upfront payments was intended to approximate 5 percent of

the estimated license value. Based on the license values established in

the completed PCS auctions, however, the formula of $0.02 per MHz-pop

underestimates actual value. The Commission adopts an upfront payment

of $.06 per MHz-pop for the D, E, and F blocks. Based on its analysis

of the prices paid in the C block auction, the Commission believes that

such an upfront payment is sufficient to ensure sincere bidding and

guard against defaults. The Commission also delegates authority to the

Wireless Telecommunications Bureau to modify the upfront payment

requirement for any C block licenses that are reauctioned in the

future. The Commission notes that it also favors the suggested approach

that would require applicants to supplement their upfront payments

during the auction to ensure that their payment is a certain percentage

of their bids. Operationally the Commission cannot implement this

proposal at this time, but it will look for ways to implement it in

future auctions.

23. For similar reasons, the Commission also modifies the rule

governing down payments for the F block. It finds that a 20 percent

down payment, the same down payment that is required of D and E block

auction winners, should be required of F block winners. Under this

approach, F block entrepreneurs and small businesses will be required

to supplement their upfront payments to bring their total payment to 10

percent of their winning bid within 5 business days of the close of the

auction. Prior to licensing, they will be required to pay an additional

10 percent. The government will then finance the remaining 80 percent

of the purchase price. The Commission believes an increased down

payment will provide it with strong assurance against default and

sufficient funds to cover default payments in the unlikely event of

default. Increasing the amount of the bidder's funds at risk in the

event of default discourages insincere bidding and therefore increases

the likelihood that licenses are awarded to parties who are best able

to serve the public.

E. Rules Regarding the Holding of Licenses

24. The Commission amends the holding requirement for F block

licensees and extends this change to the C block rules. The Commission

amends 47 CFR Sec. 24.839 to permit the transfer of entrepreneurs'

block licenses in the first five years to any entity that either holds

other entrepreneurs' block licenses (and thus at the time of auction

satisfied the entrepreneurs' block criteria) or that satisfies the

criteria at the time of transfer. There will be no restrictions on

transfers after the fifth year. The Commission notes, however, that the

unjust enrichment provisions will continue to apply as before. The

Commission further amends the holding rule to exempt pro forma

transfers and assignments because trafficking concerns do not exist

under such circumstances. The Commission concludes that allowing

transfers and assignments in the first five years--but only to

entrepreneurs--provides a sufficient safeguard. It also has the

experience of the C block auction behind it, and understands that

strict holding requirements may actually be hampering the ability of

entrepreneurs to attract the capital necessary to construct and operate

their systems. In particular, lenders and investors have expressed

concern about the need for more flexibility in the event of financial

distress and default. Because the Commission does not want investors to

shy away from financing C and F block winners due to such concerns, it

modifies the holding rule in a manner that continues to promote small

and entrepreneurial ownership in broadband PCS licenses. The Commission

believes that by not eliminating the transfer restriction entirely, it

continues to have a useful safeguard to ensure that small businesses

and entrepreneurs retain the opportunity to build out and operate

broadband PCS licenses. At the same time, by allowing entrepreneurs to

transfer their licenses to other entrepreneurs, the Commission believes

that it allows market transactions to occur that balance the objectives

of ensuring that entrepreneurs have an opportunity to participate in

PCS and putting spectrum in the hands of those who value it most in the

event the auction fails to accomplish this objective. In addition, the

Commission believes that its amendment to the holding requirement

serves the public interest by helping to ensure rapid and uninterrupted

service to the public. Market-oriented solutions in the event of

financial distress will help avoid PCS license defaults to the

Commission and the accompanying investor and/or service disruption that

such defaults engender.

III. The Cincinnati Bell Remand

A. The Cellular/PCS Cross-ownership Rule

25. In light of the Sixth Circuit's ruling in Cincinnati Bell

Telephone Co. v. FCC, remanding the Commission's rule limiting cellular

operators' eligibility for PCS licenses, the Commission will maintain

the 45 MHz Commercial Mobile Radio Services (``CMRS'') spectrum cap set

forth in 47 CFR 20.6 and eliminate the PCS and cellular/PCS spectrum

cap contained in Sections 24.229 and 24.204, respectively. The

Commission finds that a spectrum cap is necessary to avoid excessive

concentration of licenses and promote and preserve competition in the

CMRS marketplace and therefore declines to eliminate all limitations on

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the amount of CMRS spectrum a single entity (or affiliated entities)

may acquire.

26. The Commission adopted the 45 MHz CMRS spectrum cap to

discourage anticompetitive behavior while at the same time maintaining

incentives for innovation and efficiency. The Commission was concerned

that excessive aggregation of spectrum by any one of several CMRS

licensees could reduce competition by precluding entry by other service

providers and might thus confer excessive market power on incumbents.

The continuation of the 45 MHz spectrum cap will promote competition

and prevent anticompetitive horizontal concentration in the CMRS

business.

27. For determining when concentration reduces competition to an

undesirable level, one accepted tool is the Herfindahl-Hirschman Index

(``HHI''), which is used in the Department of Justice and Federal Trade

Commission Horizontal Merger Guidelines (``DOJ/ FTC Guidelines'') to

measure market concentration. In addition to considering the arguments

presented by commenters in this proceeding and in response to the Sixth

Circuit's concern about the lack of economic support for the cellular/

PCS spectrum cap, the Commission's competitive analysis staff performed

an HHI analysis for various possible structures of a hypothetical

market for mobile two-way voice communications service in the same

geographic area. The Commission staff's HHI analysis indicates that the

45 MHz CMRS spectrum cap is needed to prevent undue market

concentration and the noncompetitive conditions in local markets that

result from such concentration.

28. The 45 MHz spectrum cap is also needed specifically to prevent

cellular licensees from gaining too great a competitive advantage over

new entrants to the wireless telephony market. Cellular companies

already hold licenses for 25 MHz of clear spectrum, and they already

have technical expertise, customer bases, marketing operations, and

antenna and transmitter sites. In short, cellular operators have a

competitive position that is superior to that of any new market

entrant. By limiting current cellular licensees to an additional 20 MHz

of spectrum (i.e., two of the three 10 MHz broadband PCS licenses), the

45 MHz cap will help to level the playing field for all new entrants,

while ensuring that incumbent providers are not placed at any

disadvantage.

29. The 45 MHz spectrum cap also furthers the goal of diversity of

ownership that the Commission is mandated to promote under Section

309(j). Section 309(j) directs the Commission, in specifying

eligibility for licenses and permits, to avoid excessive concentration

of licenses and disseminate licenses among a wide variety of

applicants. The statute further states that in prescribing regulations,

the Commission must, inter alia, prescribe area designations and

bandwidth assignments that promote economic opportunity for a wide

variety of applicants. A spectrum cap is one of the most effective

mechanisms the Commission could employ to achieve these goals.

30. The court in the Cincinnati Bell decision was concerned that

the cellular/PCS spectrum cap would ``have a profound impact on

businesses in an industry enmeshed in this country's telecommunications

culture.'' It stated that ``[t]he continued existence of some wireless

communications businesses rests on their ability to bid on Personal

Communications Service licenses'' and that ``Cellular providers

foreclosed from obtaining Personal Communications Service licenses may

ultimately be left holding the remnants of an obsolete technology.''

Cincinnati Bell, 69 F.3d at 764. The Commission's amendment of its

rules provides cellular licensees additional flexibility to expand into

or migrate to PCS technology. Under the old rule, they were limited to

one 10 MHz channel until the year 2000. The shift to a single 45 MHz

spectrum cap will allow incumbent cellular operators to acquire up to

two of the 10 MHz broadband PCS licenses (20 MHz) in the upcoming

auction for the D, E, and F blocks. As many commenters point out, an

additional 20 MHz of spectrum will be sufficient to develop and provide

new digital services. The Commission also notes that cellular carriers

have been rapidly implementing digital and other new technologies with

their current 25 MHz of spectrum.

31. While the Commission's analysis of the CMRS market under the

DOJ/FTC Guidelines indicates that the 45 MHz spectrum cap is needed to

ensure competition, it also shows that this cap adequately addresses

the Commission's concerns about anticompetitive behavior. Indeed, the

Commission's HHI analysis indicates that the concentration levels under

the single 45 MHz spectrum cap would not be higher than the level that

would be possible under all three of the existing caps. Thus, the

Commission concludes that the PCS and cellular/PCS spectrum caps are

unnecessary.

32. The Commission also believes that elimination of the cellular/

PCS cross-ownership rule and the PCS spectrum cap in favor of the

single 45 MHz CMRS spectrum cap has important advantages. Applying the

single 45 MHz CMRS cap will give both cellular and PCS providers more

flexibility to participate in a more competitive marketplace. The

elimination of the cellular/PCS and PCS limits will give PCS providers

greater flexibility to own interests in other providers and provide

additional services and, hence, enhanced opportunities to compete. In

addition, PCS providers will no longer be restricted to less than a 5

percent ownership interest in cellular and other PCS licensees in order

to avoid attribution. Instead, they will be subject to the more liberal

20 percent attribution level for all CMRS.

33. The Commission also notes that the 1996 Act requires it to

determine in every even-numbered year (beginning with 1998) ``whether

any regulation is no longer necessary in the public interest as the

result of meaningful economic competition between providers of such

service'' and to modify or repeal such regulation. 47 CFR 161(a)(2). In

an effort to streamline regulations consistent with the spirit of the

1996 Act, and in light of the findings set forth above, the Commission

believes that simplifying the rules to include a single 45 MHz CMRS cap

in place of the three separate spectrum caps is warranted. In addition,

at the next biennial review of the Commission's regulations under the

1996 Act and in annual reports on the state of competition in the CMRS

market, the Commission will continue to evaluate the need for the 45

MHz spectrum cap in its present form.

34. The Commission declines to alter the 10 percent overlap

restriction for the CMRS cap as some commenters suggest. It continues

to believe that an overlap of less than 10 percent of the population is

sufficiently small that the potential for exercise of undue market

power by the cellular operator is slight. Given its decision to

eliminate the cellular/PCS and PCS ownership limitations, the

Commission is concerned that greater overlap might lead to

anticompetitive practices. It will, however, expand the post-auction

divestiture provisions of 47 CFR Sec. 20.6 to conform with the

divestiture provisions that previously applied in the cellular/PCS

cross-ownership rule, including the relaxed rule applicable to

situations where the overlap exceeds 10 percent, but is less than 20

percent. Thus, any party holding an attributable ownership interest in

a CMRS licensee may be a party to a broadband PCS application if it

certifies that, if necessary, it will come

[[Page 33864]]

into compliance with the CMRS spectrum cap through post-auction

divestiture procedures.

B. The 20 Percent Attribution Standard

35. The Commission's decision to eliminate the 35 MHz cellular/PCS

spectrum cap renders the issue of whether to modify the attribution

standard of 47 CFR 24.204(d) moot. The Commission reaffirms, however,

the 20 percent attribution standard for the purpose of determining

whether an entity is subject to the 45 MHz CMRS spectrum aggregation

limit. The Commission also concludes that the attribution standard for

the 45 MHz spectrum cap should be made race- and gender-neutral such

that a 40 percent attribution standard applies to all small businesses

and rural telephone companies. The Commission believes that extending

the 40 percent threshold to noncontrolling investors in small

businesses as it did for the C block licenses will promote additional

investment in small business applicants and ensure broad participation

in PCS by designated entities.

36. The Commission believes that a 20 percent interest held by a

single entity would create a possibility of de facto control. Such an

interest (whether 20 percent or less) that conveys to its holder actual

working control (including investor control) is already attributable

under the rules. The Commission believes generally, however, that even

an entity that does not have de facto or de jure control but owns a 20

percent or more interest in a licensee would have sufficient influence

to reduce competition and should be subject to the CMRS spectrum

aggregation limit. The Commission notes that attribution rules for

other services typically apply much lower ownership benchmarks of 5 to

10 percent. Both cable and broadcast use a 5 to 10 percent attribution

level. The Commission further notes, as do some commenters, that the

1996 Act defines ``affiliate'' as a ``person that * * * owns or

controls, is owned or controlled by, or is under common ownership or

control with, another person * * *. [The] term `own' means to own an

equity interest (or the equivalent thereof) of more than 10 percent.''

47 U.S.C. 153 (1).

37. The Commission continues to believe that a higher benchmark of

20 percent should apply for purposes of the CMRS spectrum cap to

encourage capital investment and business opportunities in CMRS. Given

the changing technology and the variety of competing services that will

be subject to this limitation, it believes that increased flexibility

in the rules will enable CMRS providers to adapt their services to meet

customer demand. Furthermore, the Commission originally adopted a 20

percent attribution level in the cellular/PCS cross-ownership rules to

allow partial owners of cellular licensees to participate in PCS, in

light of several partial and often passive ownership interests that may

have resulted from early settlements during the initial phase of

cellular licensing. The Commission believes that maintaining a 20

percent attribution level for the CMRS cap will allow a wide variety of

players (i.e., PCS, cellular and SMR providers) to enter the

marketplace while still preventing anticompetitive practices that would

have harmful effects on consumers.

38. The Commission disagrees with suggestions that only controlling

interests should be attributable. Establishing a control test would

require the Commission to conduct frequent case-by-case determinations

of control, which are time-consuming, fact specific, and subjective.

The bright line 20 percent attribution rule avoids these problems.

Also, for the reasons discussed below, a single majority shareholder

exception to the rule is not appropriate for all situations involving

CMRS licensees and their owners, and so adoption of such an exception

is not a suitable bright line substitute for 20 percent attribution.

However, the Commission adopts a less restrictive alternative and

allows licensees with non-controlling minority investors with

potentially conflicting CMRS ownership interests to seek waivers of the

spectrum cap rule where the licensee is controlled by a single majority

shareholder or controlling general partner.

39. The Commission rejects a control-based attribution test because

significant, but non-controlling, investments have sufficient potential

to affect the level of competition in the CMRS market. The CMRS

spectrum cap ownership attribution rule, just as all other ownership

attribution rules and similar statutory provisions, must take such

interests into account. Economic theory predicts that where a CMRS

licensee owns a substantial portion of one of its competitors, neither

company has as strong an incentive to compete vigorously against its

partner as it does with respect to an unrelated competitor. Theoretical

analysis has demonstrated that partial ownership interests can create

the very non-competitive markets that the Commission wants to avoid.

Indeed, as noted above, Congress was also apparently concerned about

competitive incentives when it defined ownership in the 1996 Act to

mean an interest of ten percent. The Communications Act also limits

foreign ownership interests in CMRS licenses to 20 percent. Although

these statutory ownership attribution criteria do not directly apply to

the CMRS ownership attribution rules, they indicate that Congress

believed that even non-controlling, minority ownership interests can

convey significant influence to their holders.

40. The Commission recognizes that small businesses and rural

telephone companies, as well as non-controlling investors in small

businesses, may have non-attributable ownership of up to 40 percent

under the rules. But these relaxed attribution rules present a

situation entirely different from the 20 percent attribution rule. The

Commission has been charged expressly by Congress to ensure that small

businesses, including businesses owned by women and minorities, and

rural telephone companies are given meaningful opportunities to

participate in the provision of wireless services. The rules must also

promote the development and rapid deployment of new technologies,

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

residing in rural areas. One of the most formidable barriers to such

participation is the difficulty such businesses face in raising

sufficient capital to compete in the highly capital-intensive wireless

communications businesses. By increasing the attribution threshold for

such designated entities and their investors, the Commission's goal was

to make capital more readily available by reducing the number of

investors such businesses must seek out. The Commission also concluded

that smaller entities that have some interests in cellular operations

may be especially effective PCS competitors because of their cellular

experience. This will help ensure that service is brought quickly to

underserved areas and that designated entities become viable

competitors. In particular, rural telephone companies and some small

cellular companies, due to their existing infrastructure, are uniquely

positioned rapidly to introduce PCS services into their service areas

or adjacent areas.

41. However, the Commission did not exempt small businesses and

rural telephone companies entirely from the cellular eligibility rules

because such an exemption could foreclose competition from a new PCS

entrant. In maintaining the 45 MHz spectrum cap, the Commission remains

concerned that there is potential for some of these parties to compete

less vigorously in the nascent PCS industry. While it recognizes that

its relaxation of the rules

[[Page 33865]]

for the CMRS spectrum cap presents a risk of lower than optimal

competition, the Commission must balance competing public policies and

believes that this is the proper balance to fulfill the various

statutory mandates under Section 309(j) of the Communications Act.

42. Further, the Commission declines to adopt a single majority

shareholder exception for the CMRS spectrum cap rule. As discussed

above, economic theory indicates that an entity holding less than a

majority interest may influence the CMRS market in an anticompetitive

manner. In those circumstances, it makes no difference whether there is

another shareholder that exercises control since significant minority

ownership that does not convey control still poses a serious danger of

hindering competition in a concentrated market such as CMRS. In

addition, the Commission notes that, although the single majority

shareholder exception currently applies in the broadcast context, it

believes that the broadcast and CMRS markets are sufficiently different

to warrant different treatment (and even in the broadcast arena the

Commission has recently sought comment on whether to restrict the

single majority shareholder rule). Mass media entities subject to the

broadcast ownership rules with the single majority shareholder

exception--including AM and FM radio licensees, UHF and VHF television

licensees, cable television operators and newspaper publishers--offer

the audience with numerous competing ``voices'' from which to choose.

There are as many as 30 or more broadcast stations in some areas. In

contrast, as the Commission envisions CMRS (particularly in the short

term), consumers will be able to choose from only about 5 or 6

competing service providers at most--as noted above, a fairly

concentrated market. The concerns the Commission has expressed above

about the potential of common ownership to influence the entire market

may be far less serious in a less concentrated market such as that for

mass media services. That is because the participants in a non-

oligopoly market are less likely to act jointly in order to preserve

high prices. In addition, the type of ``product'' on which competition

in broadcasting is based is different from the product offered by CMRS

providers. Broadcasters compete for advertising dollars (by attracting

audience share) on the basis of non-quantifiable programming choices,

while CMRS providers are expected to offer commodity-type services that

compete in terms of prices charged directly to consumers. The

Commission believes that it is more important to preserve vigorous

competition in a commodity-based market than in a market like

broadcasting. CMRS prices will be lowered only where competitors must

vie to survive, whereas it is not so clear that programming will

improve or become more diverse as the result of competition in free

over-the-air television and radio. Indeed, some economists suggest that

less competitive markets may actually offer more diverse programming.

Thus, even if the single majority shareholder rule is appropriate for

the mass media industry, that sector is sufficiently different from the

CMRS market to justify somewhat different regulation.

43. Hence, the Commission believes that, as a general matter,

minority stock interests and limited partnership interests should be

deemed attributable CMRS ownership interests even if a single holder

(or group of affiliated holders) that owns more than 50 percent of the

outstanding stock or partnership equity or has voting control of the

CMRS licensee. Nevertheless, the Commission believes that there may be

limited circumstances where the existence of a single majority

shareholder (or a single, controlling general partner) may mitigate the

competitive impact of common ownership and the ability of the non-

controlling interest holder to influence the licensee. Accordingly, the

Commission will implement two less restrictive measures as an

alternative to attributing ownership in such cases.

44. First, as was previously done with the cellular/PCS cross-

ownership rule, the Commission will allow parties with non-controlling,

attributable interests in CMRS licensees to have an attributable (or

controlling) interest in another CMRS application that would exceed the

45 MHz cap so long as certain post-licensing divestiture procedures are

followed. A ``non-controlling attributable interest'' is one where the

holder has less than a 50 percent voting interest and there is an

unaffiliated single holder of a 50 percent or greater voting interest.

This will allow interest holders in licensees with a single majority

shareholder to obtain another CMRS license (or attributable interest

therein) through an auction or other means, subject to the interest

holder coming into compliance with the divestiture provisions within 90

days of grant of the conflicting license.

45. Second, the Commission will consider requests for waivers of

the CMRS spectrum cap that make an affirmative showing that an

otherwise attributable ownership interest should not be attributed to

its holder because: the interest holder has less than a 50 percent

voting interest and there is an unaffiliated single holder of a 50

percent or greater voting interest; the interest holder is not likely

to affect the local market in an anticompetitive manner because the

market is highly competitive; the interest holder is not involved in

operations of the licensee and does not have the ability to influence

the licensee on a regular basis; and grant of a waiver is in the public

interest because the benefits of such common ownership to the public

outweigh any potential for anticompetitive harm to the market.

46. Finally, the Commission believes that retroactive application

of any cross-ownership or spectrum cap rule changes would be contrary

to the public interest. PCS licensees that participated in the A, B,

and C block auctions have already incurred enormous expenses to, inter

alia, design their systems, relocate incumbent users of the spectrum,

acquire cell sites, and establish marketing plans. Retroactive

application of the rules would disrupt this burgeoning industry and

delay service to the public. Furthermore, entities that may have been

precluded from participating in past auctions for CMRS spectrum based

on the prior rules may now acquire additional spectrum through future

auctions, assignments of licenses, transfers of control or investments.

Thus, the Commission concludes that any changes to the spectrum cap and

cross-ownership rules will apply prospectively.

IV. Ownership Disclosure Provisions

47. The Commission amends Section 24.813(a)(1) and Section

24.813(a)(2) of the rules, 47 CFR Secs. 24.813 (a)(1) and (a)(2), to

limit the information disclosure requirement with respect to outside

ownership interests of applicants' attributable stockholders, and will

require only the disclosure of attributable stockholders' direct,

attributable ownership in other businesses holding or applying for CMRS

or PMRS licenses. The Commission believes that the more extensive

ownership disclosure requirements are burdensome and difficult to

administer, and that the more limited requirements will continue to

ensure participation of only eligible bidders. The Commission also

amends 47 CFR 24.813(a)(4) to delete the requirement that partnerships

file a signed and dated copy of their partnership agreement with their

short-form and long-form applications. The Commission has found this

requirement

[[Page 33866]]

to be overly burdensome and is concerned that confidential or strategic

bidding information could be unnecessarily disclosed through

submissions of such agreements.

48. The Commission also amends Sections 24.720(f) and 24.720(g) of

the rules, to allow each applicant that does not otherwise use audited

financial statements to provide a certification from its chief

financial officer that the gross revenue and total asset figures

indicated in its short-form and long-form applications are true, full,

and accurate and, that it does not have the audited financial

statements that are otherwise required under the rules. The Commission

believes the requirement of using audited financial statements to be

unnecessarily burdensome, especially for small businesses that do not

normally rely on such statements.

49. Finally, the Commission amends its rules to require that an

applicant's determination of average gross revenues be based on the

three most recently completed fiscal or calendar years. With regard to

concerns about inadvertent release of confidential data, the Commission

will require that confidential data be filed separately on paper.

Similarly, any requests that information be treated as confidential

will not be accepted electronically and must otherwise comply with the

rules governing confidential treatment of documents.

V. Auction Schedule

50. The Commission concludes that it should auction the D, E, and F

blocks at the same time. It also intends to auction the D, E, and F

blocks in a single auction. The Commission believes that auctioning the

three blocks in one simultaneous multiple round auction will benefit

bidders by reducing administrative inefficiencies and by providing

maximum flexibility for bidders to choose between similar licenses. The

Commission believes that if it uses uniform upfront payments, which it

adopts for the three blocks in this Report and Order, it will reduce

the complexity of a single auction. The Commission also believes that

this method will expedite service to the public. Although the

Commission believes that a single auction is the best option, it

delegates authority to the Wireless Telecommunications Bureau to

conduct one auction for the D and E blocks and one for the F block

concurrently if such an approach is operationally necessary or

otherwise furthers the public interest.

VI. Other Issues

A. Limit on Licenses Acquired at Auction

51. Several commenters suggested modifying the limitation on the

number of licenses that a single entity may acquire at auction to

ensure wide distribution of entrepreneurs' block licenses. Commission

rules provide that a single entity may win no more than 10 percent of

the licenses available in the entrepreneurs' blocks; these licenses may

be all C block licenses or F block licenses or some combination of the

two. Several commenters proposed that the Commission change this

limitation to one based on population rather than on the number of

licenses. The Commission declines to modify the rule as requested.

First, C block licenses were disseminated to a large number of auction

winners. Second, bidding strategies in the C block auction and the

business plans of many firms may have been formulated in reliance on

this rule. The Commission finds no basis for modifying it here.

B. Partitioning and Disaggregation

52. Numerous commenters argue that the Commission's geographic

partitioning provisions, which currently apply only to rural telephone

companies, should be expanded to include broadband PCS licensees and

spectrum disaggregation should be permitted in the near term. Under the

current rules, broadband PCS licensees may disaggregate licensed

broadband PCS spectrum after January 1, 2000, if they have met the

five-year construction requirement. Because the issues of partitioning

and disaggregation exceed the scope of this proceeding, the Commission

will consider these issues in a separate proceeding.

C. Bid Withdrawal

53. One commenter suggested that the bid submission software should

be enhanced to warn bidders whenever a bid is entered that exceeds the

minimum bid by more than 10 bid increments. For the D, E, and F block

auction, the Wireless Telecommunications Bureau will employ a procedure

in addition to those in place that will warn bidders of the possibility

of a mistaken bid.

54. The same commenter also states that since the Commission cannot

distinguish honest mistakes from strategic mistakes, it should impose a

penalty for mistaken bids. The rules provide for a bid withdrawal

payment that is equal to the difference between the withdrawn bid

amount and the subsequent winning bid, if the subsequent winning bid is

lower. No withdrawal payment is assessed if the subsequent winning bid

exceeds the withdrawn bid.

55. For the D, E, and F block auction, the Commission adopts the

approach of Atlanta Trunking, where it held that in cases of erroneous

bids, some relief from the bid withdrawal payment requirement appears

necessary. (Atlanta Trunking Associates, Inc. and MAP Wireless L.L.C.

Requests to Waive Bid Withdrawal Payment Provisions, Order, FCC 96-203,

61 FR 25807 (May 23, 1996)). In Atlanta Trunking, the Commission

fashioned the following guidelines to be followed when addressing

individual requests for waiver of withdrawal payments: If a mistaken

bid is withdrawn in the round immediately following the round in which

it was submitted, and the auction is in Stage I or Stage II, the

withdrawal payment should be the greater of (a) two times the minimum

bid increment during the round in which the mistaken bid was submitted

or (b) the standard withdrawal payment calculated as if the bidder had

made a bid at one bid increment above the minimum accepted bid. If the

mistaken bid is withdrawn two or more rounds following the round in

which it was submitted, the bidder should not be eligible for any

reduction in the bid withdrawal payment. Similarly, during Stage III of

an auction, if a mistaken bid is not withdrawn during the round in

which it was submitted, the bidder should not be eligible for any

reduction in the bid withdrawal payment. The Commission believes that

under this approach, the required bid withdrawal payment would be

substantial enough to discourage strategic placement of erroneous bids

without being so severe as to impose an untenable burden on bidders.

VII. Conclusion

In this Order, the Commission concludes that making the F block

rules race- and gender-neutral will avoid the uncertainty and delay

that could result from legal challenges to the special provisions for

minority- and women-owned businesses in the broadband PCS F block

rules. The Commission also takes steps to streamline procedures and

minimize the possibility of insincere bidding and bidder default. The

Commission also responds to the Cincinnati Bell remand issues. Finally,

to expedite the delivery of broadband PCS services to the public, the

Commission plans to offer the D, E, and F block licenses together in

one simultaneous multiple round auction and delegates authority to the

Wireless

[[Page 33867]]

Telecommunications Bureau to conduct two concurrent auctions if

circumstances warrant.

VIII. Procedural Matters and Ordering Clauses

57. The Final Regulatory Flexibility Analysis, as required by

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

C of the Report and Order. Public Law No. 96-354, 94 Stat. 1164, 5

U.S.C. 601 et seq. (1981).

58. It is ordered, That the rule changes specified below are

adopted and are effective July 31, 1996.

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

309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i),

303(r) and 309(j).

List of Subjects in 47 CFR Parts 20 and 24

Commercial Mobile Radio Service, Personal Communications Services.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

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

Regulations are amended as follows:

PART 20--COMMERCIAL MOBILE RADIO SERVICES

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

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

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

2. Section 20.6 is amended by revising paragraphs (d)(2), (e), and

Note 1 to Sec. 20.6 to read as follows:

Sec. 20.6 CMRS spectrum aggregation limit.

* * * * *

(d) * * *

(2) Partnership and other ownership interests and any stock

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

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

licensee shall be attributed, except that ownership will not be

attributed unless the partnership and other ownership interests and any

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

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

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

business or a rural telephone company, as these terms are defined in

Sec. 1.2110 of this chapter or other related provisions of the

Commission's rules, or if the ownership interest is held by an entity

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

applicant that is a small business.

* * * * *

(e) Divestiture. (1) Any party holding controlling or attributable

ownership interests in broadband PCS, cellular, and/or SMR licensees

regulated as CMRS providers that would exceed the spectrum aggregation

limitation defined in paragraph (a) of this section, if granted

additional licenses, may be a party to a broadband PCS, cellular, or

SMR application (i.e., have a controlling or attributable interest in

the applicant), and such applicant will be eligible for licenses

amounting to more than 45 MHz of broadband PCS, cellular, and/or SMR

spectrum regulated as CMRS in a geographical area, pursuant to the

divestiture procedures set forth in paragraphs (e)(2) through (e)(4) of

this section; provided, however, that in the case of parties holding

controlling or attributable ownership interests in broadband PCS,

cellular, and/or SMR licensees, these divestiture procedures shall be

available only to:

(i) Parties with controlling or attributable ownership interests in

broadband PCS, cellular, and/or SMR licenses where the geographic

license areas cover 20 percent or less of the applicant's service area

population;

(ii) Parties with attributable interests in broadband PCS,

cellular, and/or SMR licenses solely due to management agreements or

joint marketing agreements; and

(iii) Parties with non-controlling attributable interests in

broadband PCS, cellular, and/or SMR licenses, regardless of the degree

to which the geographic license areas cover the applicant's service

area population. For purposes of this paragraph, a ``non-controlling

attributable interest'' is one in which the holder has less than a

fifty (50) percent voting interest and there is an unaffiliated single

holder of a fifty (50) percent or greater voting interest.

(2) The applicant for a license that, if granted, would exceed the

45 MHz limitation shall certify on its application that it and all

parties to the application will come into compliance with this

limitation.

(3) If such an applicant is a successful bidder in an auction, it

must submit with its long-form application a signed statement

describing its efforts to date and future plans to come into compliance

with the 45 MHz spectrum limitation. A similar statement must also be

included with any application for assignment of licenses or transfer of

control that, if granted, would exceed the spectrum aggregation limit.

(4) If such an applicant is otherwise qualified, its application

will be granted subject to a condition that the licensee shall come

into compliance with the 45 MHz spectrum limitation within ninety (90)

days of final grant.

(i) Parties holding controlling interests in broadband PCS,

cellular, and/or SMR licensees that conflict with the attribution

threshold or geographic overlap limitations set forth in this section

will be considered to have come into compliance if they have submitted

to the Commission an application for assignment of license or transfer

of control of the conflicting licensee (see Secs. 24.839 of this

chapter (PCS), 22.39 of this chapter (cellular), 90.158 of this chapter

(SMR)) by which, if granted, such parties no longer would have an

attributable interest in the conflicting license. If no such assignment

or transfer application is tendered to the Commission within ninety

(90) days of final grant of the initial license, the Commission may

consider the certification and the divestiture statement to be

material, bad faith misrepresentations and shall invoke the condition

on the initial license or the assignment or transfer, cancelling or

rescinding it automatically, shall retain all monies paid to the

Commission, and, based on the facts presented, shall take any other

action it may deem appropriate. Divestiture may be to an interim

trustee if a buyer has not been secured in the required period of time,

as long as the applicant has no interest in or control of the trustee,

and the trustee may dispose of the license as it sees fit.

(ii) Where parties to broadband PCS, cellular, or SMR applications

hold less than controlling (but still attributable) interests in

broadband PCS, cellular, or SMR licensee(s), they shall submit, within

ninety (90) days of final grant, a certification that the applicant and

all parties to the application have come into compliance with the

limitations on spectrum aggregation set forth in this section.

Note 1 to Sec. 20.6: Waivers of Sec. 20.6(d) may be granted upon

an affirmative showing:

(1) That the interest holder has less than a 50 percent voting

interest in the licensee and there is an unaffiliated single holder

of a 50 percent or greater voting interest;

(2) That the interest holder is not likely to affect the local

market in an anticompetitive manner;

(3) That the interest holder is not involved in the operations

of the licensee and does not have the ability to influence the

licensee on a regular basis; and

(4) That grant of a waiver is in the public interest because the

benefits to the public of common ownership outweigh any potential

anticompetitive harm to the market.

* * * * *

[[Page 33868]]

PART 24--PERSONAL COMMUNICATIONS SERVICES

3. The authority citation for Part 24 continues to read as follows:

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

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

unless otherwise noted.

Sec. 24.204 [Removed]

4. Section 24.204 is removed.

5. Section 24.229 is amended by removing paragraph (c) and

redesignating paragraph (d) as paragraph (c) and revising it to read as

follows.

Sec. 24.229 Frequencies.

* * * * *

(c) After January 1, 2000, licensees that have met the 5-year

construction requirement may assign portions of licensed PCS spectrum.

6. Section 24.704 is amended by adding paragraph (a)(3) to read as

follows:

Sec. 24.704 Withdrawal, default and disqualification penalties.

(a) * * *

(3) Erroneous Bids. If at any point during an auction an erroneous

bid is withdrawn in the same round in which it was submitted, the bid

withdrawal payment will be the greater of

(i) The minimum bid increment for that license and round; and

(ii) The standard bid withdrawal payment, as defined in paragraph

(a)(1) of this section, calculated as if the bidder had made the

minimum accepted bid. If an erroneous bid is withdrawn in the round

immediately following the round in which it was submitted, and the

auction is in Stage I or Stage II, the withdrawal payment will be the

greater of

(A) Two times the minimum bid increment during the round in which

the erroneous bid was submitted, and

(B) The standard withdrawal payment, as defined in paragraph (a)(1)

of this section, calculated as if the bidder had made a bid one bid

increment above the minimum accepted bid. If an erroneous bid is

withdrawn two or more rounds following the round in which it was

submitted, the bidder will not be eligible for any reduction in the bid

withdrawal payment as defined in paragraph (a)(1) of this section.

During Stage III of an auction, if an erroneous bid is not withdrawn

during the round in which it was submitted, the bidder will not be

eligible for any reduction in the bid withdrawal payment as defined in

paragraph (a)(1) of this section.

* * * * *

7. Section 24.706 is revised to read as follows:

Sec. 24.706 Submission of upfront payments and down payments.

(a) Where the Commission uses simultaneous multiple round auctions

or oral sequential auctions, bidders will be required to submit an

upfront payment in accordance with Sec. 1.2106 of this chapter,

paragraph (c) of this section, and Secs. 24.711(a)(1) and 24.716(a)(1).

(b) Winning bidders in an auction must submit a down payment to the

Commission in accordance with Sec. 1.2107(b) of this chapter and

Secs. 24.711(a)(2) and 24.716(a)(2).

(c) Each eligible bidder for licenses on frequency Blocks D and E

subject to auction shall pay an upfront payment of $0.06 per MHz per

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

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

procedures specified by Public Notice.

8. Section 24.709 is amended by revising the section heading,

paragraphs (a)(1), (a)(2), (c)(1) introductory text, (c)(2)

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

Sec. 24.709 Eligibility for licenses for frequency Blocks C and F.

(a) * * *

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

granted for frequency block C or frequency block F, unless the

applicant, together with its affiliates and persons or entities that

hold interests in the applicant and their affiliates, have gross

revenues of less than $125 million in each of the last two years and

total assets of less than $500 million at the time the applicant's

short-form application (Form 175) is filed.

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

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

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

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

the applicant and considered on a cumulative basis and aggregated for

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

for a license for frequency block C or frequency block F under this

section.

* * * * *

(c) * * *

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

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

Sec. 24.813, each applicant for a license for frequency block C or

frequency block F shall certify on its short-form application (Form

175) that it is eligible to bid on and obtain such license(s), and (if

applicable) that it is eligible for designated entity status pursuant

to this section and Sec. 24.720, and shall append the following

information as an exhibit to its Form 175:

* * * * *

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

subpart I of this part and other applicable rules (e.g., Secs. 20.6(e)

and 20.9(b) of this chapter), each applicant submitting a long-form

application for a license(s) for frequency block C or frequency block F

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

* * * * *

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

appropriate references to specific provisions in the text of such

agreements and instruments) that support the applicant's eligibility

for a license(s) for frequency block C or frequency block F and its

eligibility under Secs. 24.711, 24.712, 24.714 and 24.720, including

the establishment of de facto and de jure control; such agreements and

instruments include articles of incorporation and bylaws, shareholder

agreements, voting or other trust agreements, partnership agreements,

management agreements, joint marketing agreements, franchise

agreements, and any other relevant agreements (including letters of

intent), oral or written; and

* * * * *

Sec. 24.715 [Removed]

9. Section 24.715 is removed.

10. Section 24.716 is amended by revising paragraphs (a)(1),

(a)(2), (b), redesignating paragraph (c) as paragraph (d); revising

newly-redesignated paragraph (d)(2); and adding a new paragraph (c) to

read as follows:

Sec. 24.716 Upfront payments, down payments, and installment payments

for licenses for frequency Block F.

(a) * * *

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

to auction shall pay an upfront payment of $0.06 per MHz per pop for

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

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

specified by Public Notice;

(2) Each winning bidder shall make a down payment equal to 20

percent of its winning bid (less applicable bidding credits); a winning

bidder shall bring its total amount on deposit with the Commission

(including upfront payment) to 10 percent of its net winning bid within

five business days after the auction closes, and the remainder of the

down payment (10

[[Page 33869]]

percent) shall be paid within five business days after the application

required by Sec. 24.809(b) is granted; and

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

F may pay the remaining 80 percent of the net auction price for the

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

chapter and under the following terms:

(1) For an eligible licensee with gross revenues exceeding $75

million (calculated in accordance with Sec. 24.709 (a)(2) and (b)) in

each of the two preceding years (calculated in accordance with

Sec. 24.720(f)), interest shall be imposed based on the rate for ten-

year U.S. Treasury obligations applicable on the date the license is

granted, plus 3.5 percent; payments shall include both principal and

interest amortized over the term of the license;

(2) For an eligible licensee with gross revenues not exceeding $75

million (calculated in accordance with Sec. 24.709 (a)(2) and (b)) in

each of the two preceding years (calculated in accordance with

Sec. 24.720(f)), interest shall be imposed based on the rate for ten-

year U.S. Treasury obligations applicable on the date the license is

granted, plus 2.5 percent; payments shall include interest only for the

first year and payments of interest and principal amortized over the

remaining nine years of the license term; or

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

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

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

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

first two years and payments of interest and principal amortized over

the remaining eight years of the license term.

(c) Late Installment Payments. Any licensee that submits a

scheduled installment payment more than 15 days late will be charged a

late payment fee equal to 5 percent of the amount of the past due

payment. Payments will be applied in the following order: late charges,

interest charges, principal payments.

(d) * * *

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

section seeks to make any change in ownership structure that would

result in the licensee losing eligibility for installment payments, the

licensee shall first seek Commission approval and must make full

payment of the remaining unpaid principal and any unpaid interest

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

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

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

from sources whose gross revenues and total assets are not considered

under Sec. 24.709(b)), debt financing, revenue from operations or other

investments, business development or expanded service shall not be

considered to result in the licensee losing eligibility for installment

payments.

* * * * *

11. Section 24.717 is amended by revising paragraphs (a) and (b),

removing paragraph (c), and redesignating paragraph (d) as paragraph

(c) to read as follows:

Sec. 24.717 Bidding credits for licenses for frequency Block F.

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

consortium of small businesses may use a bidding credit of 15 percent

to lower the cost of its winning bid.

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

consortium of very small businesses may use a bidding credit of 25

percent to lower the cost of its winning bid.

* * * * *

12. Section 24.720 is amended by revising the heading of paragraph

(b) redesignating paragraphs (b)(2) and (b)(3) as paragraphs (b)(3) and

(b)(4) and revising them; adding new paragraphs (b)(2) and (b)(5); and

revising paragraphs (c)(2), (e), (f), (g), (j)(2), (l)(11)(i), (n)(1),

(n)(3) and (n)(4) to read as follows:

Sec. 24.720 Definitions.

* * * * *

(b) Small business; very small business; consortia. * * *

(2) A very small business is an entity that, together with its

affiliates and persons or entities that hold interests in such entity

and their affiliates, has average annual gross revenues that are not

more than $15 million for the preceding three years.

(3) For purposes of determining whether an entity meets the $40

million average annual gross revenues size standard set forth in

paragraph (b)(1) of this section or the $15 million average annual

gross revenues size standard set forth in paragraph (b)(2) of this

section, the gross revenues of the entity, its affiliates, persons or

entities holding interests in the entity and their affiliates shall be

considered on a cumulative basis and aggregated subject to the

exceptions set forth in Sec. 24.709(b).

(4) A small business consortium is a conglomerate organization

formed as a joint venture between or among mutually independent

business firms, each of which individually satisfies the definition of

a small business in paragraphs (b)(1) and (b)(3) of this section.

(5) A very small business consortium is a conglomerate organization

formed as a joint venture between or among mutually independent

business firms, each of which individually satisfies the definition of

a very small business in paragraphs (b)(2) and (b)(3) of this section.

(c) * * *

(2) That complies with the requirements of Sec. 24.709(b)(3) and

(b)(5) or Sec. 24.709(b)(4) and (b)(6).

* * * * *

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

exchange carrier operating entity to the extent that such entity:

(1) Provides common carrier service to any local exchange carrier

study area that does not include either;

(i) Any incorporated place of 10,000 inhabitants or more, or any

part thereof, based on the most recently available population

statistics of the Bureau of the Census; or

(ii) Any territory, incorporated or unincorporated, included in an

urbanized area, as defined by the Bureau of the Census as of August 10,

1993;

(2) Provides telephone exchange service, including exchange access,

to fewer than 50,000 access lines;

(3) Provides telephone exchange service to any local exchange

carrier study area with fewer than 100,000 access lines; or

(4) Has less than 15 percent of its access lines in communities of

more than 50,000 on the date of enactment of the Telecommunications Act

of 1996.

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

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

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

audited financial statements for the relevant number of most recently

completed calendar years, or, if audited financial statements were not

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

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

application (Form 175). If an entity was not in existence for all or

part of the relevant period, gross revenues shall be evidenced by the

audited financial statements of the entity's predecessor-in-interest

or, if there is no identifiable predecessor-in-interest, unaudited

financial statements certified by the applicant as accurate. When an

applicant does not otherwise use

[[Page 33870]]

audited financial statements, its gross revenues may be certified by

its chief financial officer or its equivalent.

(g) Total Assets. Total assets shall mean the book value (except

where generally accepted accounting principles (GAAP) require market

valuation) of all property owned by an entity, whether real or

personal, tangible or intangible, as evidenced by the most recent

audited financial statements or certified by the applicant's chief

financial officer or its equivalent if the applicant does not otherwise

use audited financial statements.

* * * * *

(j) * * *

(2) For purposes of assessing compliance with the equity limits in

Sec. 24.709 (b)(3)(i) and (b)(4)(i), where such interests are not held

directly in the applicant, the total equity held by a person or entity

shall be determined by successive multiplication of the ownership

percentages for each link in the vertical ownership chain.

* * * * *

(l) * * *

(11) * * *

(i) For purposes of Secs. 24.709(a)(2) and paragraphs (b)(2) and

(d) of this section, Indian tribes or Alaska Regional or Village

Corporations organized pursuant to the Alaska Native Claims Settlement

Act (43 U.S.C. 1601 et seq.), or entities owned and controlled by such

tribes or corporations, are not considered affiliates of an applicant

(or licensee) that is owned and controlled by such tribes, corporations

or entities, and that otherwise complies with the requirements of

Sec. 24.709 (b)(3) and (b)(5) or Sec. 24.709 (b)(4) and (b)(6), except

that gross revenues derived from gaming activities conducted by

affiliated entities pursuant to the Indian Gaming Regulatory Act (25

U.S.C. 2701 et seq.) will be counted in determining such applicant's

(or licensee's) compliance with the financial requirements of

Sec. 24.709(a) and paragraphs (b) and (d) of this section, unless such

applicant establishes that it will not receive a substantial unfair

competitive advantage because significant legal constraints restrict

the applicant's ability to access such gross revenues.

* * * * *

(n) * * *

(1) A qualifying investor is a person who is (or holds an interest

in) a member of the applicant's (or licensee's) control group and whose

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

other attributable investors and affiliates, do not exceed the gross

revenues and total assets limits specified in Sec. 24.709(a), or, in

the case of an applicant (or licensee) that is a small business, do not

exceed the gross revenues limit specified in paragraph (b) of this

section.

* * * * *

(3) For purposes of assessing compliance with the minimum equity

requirements of Sec. 24.709(b) (5) and (6), where such equity interests

are not held directly in the applicant, interests held by qualifying

investors or qualifying minority and/or woman investors shall be

determined by successive multiplication of the ownership percentages

for each link in the vertical ownership chain.

(4) For purposes of Sec. 24.709 (b)(5)(i)(C) and (b)(6)(i)(C), a

qualifying investor is a person who is (or holds an interest in) a

member of the applicant's (or licensee's) control group and whose gross

revenues and total assets do not exceed the gross revenues and total

assets limits specified in Sec. 24.709(a).

* * * * *

13. Section 24.813 is amended by revising paragraphs (a)(1), (a)(2)

and (a)(4) to read as follows:

Sec. 24.813 General application requirements.

(a) * * *

(1) A list of any business, holding or applying for CMRS or PMRS

licenses, five percent or more of whose stock, warrants, options or

debt securities are owned by the applicant or an officer, director,

attributable stockholder or key management personnel of the applicant.

This list must include a description of each such business' principal

business and a description of each such business' relationship to the

applicant.

(2) A list of any party which holds a five percent or more interest

(or a ten percent or more interest for institutional investors as

defined in Sec. 24.720(h)) in the applicant, or any entity holding or

applying for CMRS or PMRS licenses in which a five percent or more

interest (or a ten percent or more interest for institutional investors

as defined in Sec. 24.720(h)) is held by another party which holds a

five percent or more interest (or a ten percent or more interest for

institutional investors as defined in Sec. 24.720(h)) in the applicant

(e.g. If Company A owns 5% of Company B (the applicant) and 5% of

Company C, a company holding or applying for CMRS or PMRS licenses,

then Companies A and C must be listed on Company B's applications.)

* * * * *

(4) In the case of partnerships, the name and address of each

partner, each partner's citizenship and the share or interest

participation in the partnership. This information must be provided for

all partners, regardless of their respective ownership interest in the

partnership.

* * * * *

14. Section 24.839 is amended by revising paragraphs (a), (d)(1),

and (d)(2) and adding paragraphs (d)(3), (d)(4), and (d)(5) to read as

follows:

Sec. 24.839 Transfer of control or assignment of license.

(a) Approval required. Authorization shall be transferred or

assigned to another party, voluntarily (for example, by contract) or

involuntarily (for example, by death, bankruptcy or legal disability),

directly or indirectly or by transfer of control of any corporation

holding such authorization, only upon application and approval by the

Commission. A transfer of control or assignment of station

authorization in the broadband Personal Communications Service is also

subject to Secs. 24.711(e), 24.712(d), 24.713(b), 24.717(c) (unjust

enrichment) and 1.2111(a) (reporting requirement).

* * * * *

(d) * * *

(1) The application for assignment or transfer of control is filed

after five years from the date of the initial license grant; or

(2) The proposed assignee or transferee meets the eligibility

criteria set forth in Sec. 24.709 at the time the application for

assignment or transfer of control is filed, or the proposed assignee or

transferee holds other license(s) for frequency blocks C and F and, at

the time of receipt of such license(s), met the eligibility criteria

set forth in Sec. 24.709;

(3) The application is for partial assignment of a partitioned

service area to a rural telephone company pursuant to Sec. 24.714 and

the proposed assignee meets the eligibility criteria set forth in

Sec. 24.709;

(4) The application is for an involuntary assignment or transfer of

control to a bankruptcy trustee appointed under involuntary bankruptcy,

an independent receiver appointed by a court of competent jurisdiction

in a foreclosure action, or, in the event of death or disability, to a

person or entity legally qualified to succeed the deceased or disabled

person under the laws of the place having jurisdiction over the estate

involved; provided that, the applicant requests a waiver pursuant to

this paragraph; or

(5) The assignment or transfer of control is pro forma.

* * * * *

[FR Doc. 96-16665 Filed 6-28-96; 8:45 am]

BILLING CODE 6712-01-P