Interactive Video and Data Service

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 1 and 95

[PP Docket No. 93-253; FCC 96-330]

Interactive Video and Data Service

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: The Further Notice of Proposed Rule Making (FNPRM) tentatively

concludes that the 25 percent bidding credit available to women- and

minority-owned applicants in IVDS is not supported by the record, and

seeks additional evidence to support the provision of the bidding

credit to women- and minority-owned applicants in light of the Supreme

Court's decision in Adarand. The FNPRM also seeks comment on whether

and how the Commission should extend bidding credits to small

businesses. The FNPRM also requests comment on whether the Commission

should implement a tiered bidding credit scheme to provide varying

bidding credit amounts to small businesses of different sizes and

modify its small business definition. The FNPRM also tentatively

concludes that the Commission should increase the upfront payments from

$2,500 for every five licenses won to $9,000 per Metropolitan

Statistical Area license won, and $2,500 per Rural Statistical Area

license won.

DATES: Comments must be submitted on or before October 3, 1996; reply

comments must be submitted on or before October 10, 1996.

ADDRESSES: Federal Communications Commission, 1919 M Street, N.W.,

Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: Eric Malinen, Wireless

Telecommunications Bureau, (202) 418-0680 or Christina Eads Clearwater,

Wireless Telecommunications Bureau, (202) 418-0660.

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

Further Notice of Proposed Rule Making in PP Docket No. 93-253; FCC 96-

330, adopted August 6, 1996 and released September 10, 1996. The

complete text of the Sixth Memorandum Opinion and Order and Further

Notice of Proposed Rule Making is available for inspection and copying

during normal business hours in the FCC Reference Center (Room 239),

1919 M Street, N.W., Washington, D.C. and also may be purchased from

the Commission's copy contractor, International Transcription Service,

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

Title: In the Matter of Implementation of Section 309(j) of the

Communications Act--Competitive Bidding

I. Further Notice of Proposed Rule Making

A. Treatment of Designated Entities

1. In the Fourth Report and Order, Implementation of Section 309(j)

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

59 FR 24947 (May 13, 1994), 9 FCC Rcd 2330 (Fourth Report and Order),

the Commission established several special provisions to ensure that

designated entities, i.e., small businesses, rural telephone companies,

and businesses owned by members of minority groups and women, are given

the opportunity to participate both in the competitive bidding process

for, and in the provision of, IVDS service. Among other provisions, the

rules provided that on one of the two licenses in each market, a 25

percent bidding credit would be awarded to a winning bidder that was a

business owned by women or minorities. See 47 CFR Sec. 95.816(d)(1).

The standard of review applied to federal programs designed to enhance

opportunities for racial minorities at the time the IVDS rules were

adopted was an intermediate scrutiny standard. In Adarand Constructors,

Inc. v. Pena, ____ U.S. ____, 115 S.Ct. 2097, 132 L.Ed.2d 158 (1995)

(Adarand), the Supreme Court invalidated the intermediate scrutiny

standard for federal race-based programs. The Court held that all

racial classifications, imposed by any federal, state or local

government actor, must be analyzed by a reviewing court under strict

scrutiny. Application of the two-prong strict scrutiny standard of

review to provisions designed to encourage minority participation in

IVDS requires the Commission to show: (1) a compelling governmental

interest exists for taking race into account in licensing allocation

decisions, and (2) the provisions in question are narrowly tailored to

further the compelling governmental interest established by the record

and findings. Adarand offers little guidance regarding the specific

requirements of this test. However, other cases, such as Richmond v.

J.A. Croson Co., 488 U.S. 469 (1989) (Croson) provide some indications

of the type of record necessary to meet the strict scrutiny standard.

2. In Croson, the Supreme Court applied strict scrutiny to

invalidate as unconstitutional a municipality's partial set-aside for

minority-owned businesses. The Court held that remedying past

discrimination constitutes a compelling interest, whether the

discrimination was committed by the government or by private actors

within its jurisdiction. Other courts have also held remedial

measures--those intended to compensate for past discrimination--to be

compelling governmental interests. In Croson, however, the Court made

clear that an interest in remedying general societal discrimination

could not be considered compelling because a ``generalized assertion''

of past discrimination ``has no logical stopping point'' and would

support unconstrained uses of racial classifications.

3. The Supreme Court in Croson noted the high standard of evidence

required for the government to establish a compelling interest. It

stated that the government must demonstrate a ``strong basis in

evidence for its conclusion that remedial action was necessary'' and

that such evidence should approach ``a prima facie case of a

constitutional or statutory violation of the rights of minorities.''

Other courts, in cases decided after Croson, have held that

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statistical evidence can be probative of discrimination in the remedial

setting, and that anecdotal evidence can buttress statistical evidence.

4. As indicated above, once a compelling governmental interest is

established, narrow tailoring, the second prong of the strict scrutiny

test, must also be shown. This requirement is intended to ensure ``that

the means chosen `fit' [the] compelling goal so closely that there is

little or no possibility that the motive for the classification was

illegitimate racial prejudice or stereotype.'' The Court in Croson

required that the government's remedial actions be narrowly tailored

``to break down a pattern of deliberate exclusion'' and stated that

broader relief could be justified only on the basis of ``evidence of a

pattern of individual discriminatory acts * * * supported by

appropriate statistical proof * * *''. Different factors have been used

by courts to determine, under a strict scrutiny standard, whether a

program is narrowly tailored. These include the following: (1) Whether

race-neutral measures were considered before adopting race-conscious

measures; (2) the scope of the program, and whether it contains a

waiver mechanism that facilitates narrowing of that scope; (3) the

comparison of any numerical target to the number of qualified

minorities in the relevant sector; (4) the duration of the program, and

whether it is subject to periodic review; (5) the manner in which race

is considered, whether as one factor among several or as determinative;

and (6) the degree and type of burden on non-minorities.

5. An intermediate scrutiny standard of review currently applies to

gender-based measures. Under this standard, a gender-based provision is

constitutional if it serves an important governmental objective and is

substantially related to achievement of that objective. The Supreme

Court has not addressed constitutional challenges to federal gender-

based programs since Adarand. However, the Supreme Court recently

upheld a constitutional challenge to a state gender-based program in

United States v. Commonwealth of Virginia, 1996 WL 345786 (1996) and

reaffirmed the application of an intermediate standard of review to

gender-based measures. In that case, the Court first indicated that

parties defending their gender-based governmental action must

demonstrate an ``exceedingly persuasive justification'' for their

action, then stated that the parties must show at least that the

challenged classification serves important governmental objectives and

that the discriminatory means employed are substantially related to the

achievement of those objectives.

6. The evidence supporting the gender- and race-based provisions

cited in the Fourth Report and Order primarily shows: (1) broad

discrimination against racial groups and women by lenders; and (2)

underrepresentation of these groups as owners and employees in the

communications industry. At present, the Commission believes that the

record is insufficient to demonstrate a compelling interest under the

strict scrutiny standard to support the race-based incentive programs

of IVDS because it reflects primarily generalized assertions of

discrimination. Adarand and Croson make clear that only a record of

discrimination against a particular racial group would support remedial

measures designed to help that group. Therefore, the Commission

believes that a record of discrimination against minorities in general

is not sufficient. Specific evidence of discrimination against

particular racial groups would be required to support a rule for any

group. Although the Commission has general evidence of discrimination

against certain racial groups, none of the evidence appears to satisfy

the strict scrutiny standard.

7. Thus, the Commission tentatively concludes that the present

record in support of its race-based IVDS provisions is insufficient to

satisfy strict scrutiny. The Commission seeks comment on this tentative

conclusion. The Commission also requests comment on whether the IVDS

provisions promote a compelling governmental interest and, more

particularly, whether compensating for discrimination in lending

practices and in practices in the communications industry constitutes

such an interest. The Commission also asks interested parties to

comment on nonremedial objectives that could be furthered by the

minority-based provisions of the IVDS rules and whether they could be

considered compelling governmental interests, such as increased

diversity in ownership and employment in the communications industry or

increased industry competition. In commenting, the Commission asks

parties to submit statistical data, personal accounts, studies, or any

other data relevant to the entry of specific racial groups into the

field of telecommunications. Examples of relevant evidence could

include discrimination against minorities trying to obtain FCC licenses

for auctioned or non-auctioned spectrum; discrimination against

minorities seeking positions of ownership or employment in

communications or related businesses; discrimination against minorities

attempting to obtain capital to start up or expand a telecommunications

enterprise, including terms and conditions; and discrimination against

minorities operating telecommunications businesses, including treatment

by vendors, FCC licensees, and suppliers.

8. The Commission also asks those parties who conclude that the

race-based provisions serve a compelling governmental interest to

comment on whether the provisions are narrowly tailored to serve that

interest. Are these provisions sufficiently narrow in scope? Do they

unduly burden non-minorities? Would race-neutral measures further the

same interests and achieve the same objectives as race-conscious

measures?

9. In addition, the Commission also tentatively concludes that the

present record in support of the gender-based IVDS rules may be

insufficient to satisfy intermediate scrutiny. The Commission seeks

comment on its tentative conclusion. The Commission also seeks comment

on whether there are remedial or nonremedial goals that would satisfy

the ``important governmental objective'' requirement of the

intermediate scrutiny standard such as, for example, increased

participation of women in the FCC-licensing process for auctioned

spectrum. Are the gender-based IVDS rules ``substantially related'' to

the achievement of such objectives? Just as the Commission requested

above, in addressing evidence to support IVDS race-based provisions, it

asks parties to submit statistical data, personal accounts, studies, or

any other data relevant to the entry of women into the field of

telecommunications.

10. The Commission also is interested in supplementing the current

record to support race- and gender-based provisions in its other rules.

In this regard, the Commission initiated a comprehensive rule making

proceeding to explore market barriers to women- and minority-owned

businesses, as well as small businesses, pursuant to Section 257 of the

Communications Act. See Section 257 Proceeding to Identify and

Eliminate Market Entry Barriers for Small Businesses, Notice of

Inquiry, GN Docket No. 96-113, 61 FR 33066 (June 26, 1996), FCC 96-216

(released May 21, 1996). The record created in response to this FNPRM

will also be incorporated into that Docket.

11. The Commission undertakes this effort to support its auction

rules because the Commission is committed to fulfilling the

Congressional mandate to provide opportunities for women- and minority-

owned businesses through the competitive bidding process. The

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Commission believes, however, that marshaling sufficient evidence to

satisfy the strict scrutiny standard of review now applicable to

federal race-based programs may be a time-consuming process, and the

Commission is mindful that it may not fulfill its other obligations

under Section 309(j) if the Commission delays the award of IVDS

licenses until that process is complete.

12. The Commission notes that the high number of defaulting bidders

in the initial IVDS auction, combined with the delay in auctioning off

the RSA licenses, has caused a significant delay in awarding IVDS

licenses. This delay has hurt businesses that are interested in

developing competitive IVDS. In addition, where one MSA bidder has

defaulted, the second winning bidder has had a significant head start

over the ultimate winner of the first license in providing service.

Given that, the Commission authorized two licenses per service area in

an attempt to have both licensees make service available in the near

future, such an advantage was not contemplated when the Commission

established the rules authorizing reauctioning of licenses. The

Commission also believes that both Congress and consumers expect us to

promote the rapid development of IVDS. Balancing its obligation to

provide opportunities for women- and minority-owned businesses to

participate in spectrum-based services against its statutory duties to

facilitate the rapid delivery of new services to the American consumer

and promote efficient use of the spectrum, the Commission tentatively

concludes that it should not contribute any further delays to the IVDS

auction by postponing the auction to adduce sufficient evidence to

support the race- and gender-based IVDS provisions. While the

Commission could proceed with the IVDS auction under the current rules,

the Commission tentatively concludes that this course of action would

not serve the public interest because it may result in litigation that

would delay the auction, the dissemination of additional IVDS licenses,

and, ultimately, the introduction of competition. As a result, the

Commission tentatively concludes that it will adopt race and gender

neutral provisions, but continue to maintain the provisions for small

businesses which it believes adequately benefit most of the businesses

owned by minorities and/or women. The Commission believes these

proposed changes will enable it to meet its Congressional-mandate and

proceed as expeditiously as possible to auction the remaining IVDS

licenses. The Commission seeks comment on these tentative conclusions.

13. In the Second Report and Order, Implementation of Section

309(j) of the Communications Act--Competitive Bidding, PP Docket No.

93-253, 59 FR 22980 (May 4, 1994), 9 FCC Rcd 2348 (1994) (Second Report

and Order), the Commission adopted a definition of small business for

the generic auction rules. This definition requires the entity to

demonstrate that, together with its affiliates, its net worth is no

more than $6 million, and its annual profits are no more than $2

million for the previous two years. In the Fourth Report and Order, the

Commission determined that these definitions should apply to applicants

for IVDS auctions. See 47 CFR Sec. 95.816(d). Since that time, however,

the Commission has defined small business for other services based on

the gross revenues on the applicant and its affiliates for the

preceding three years. See 47 CFR Sec. 24.720 (broadband PCS); 47 CFR

Sec. 24.320 (narrowband PCS); 47 CFR Sec. 90.814(b)(1) (900 MHz SMR);

47 CFR Sec. 90.912(b) (800 MHz SMR).

14. The Commission proposes to define small businesses based on

gross revenues for the preceding three years. Specifically, it proposes

to define a small business as an entity whose average gross revenues

for each of the preceding three (3) years do not exceed $15 million.

Additionally, the Commission proposes to define a very small business

(as discussed later in connection with the tiered bidding credits) as

an entity with less than an average of $3 million in gross revenues in

each of the last three (3) years. The Commission believes that a

company's gross revenues is a more accurate indicator of its size than

is its net worth or annual profits. A gross revenues test is a clear

measure for determining the size of a business and is an established

method of determining size eligibility for various types of federal

programs that aid small businesses. See, e.g., 13 CFR Sec. 121.902.

Moreover, the Commission observes that this approach is consistent with

its approach in 900 MHz SMR. See Implementation of Section 309(j) of

the Communications Act--Competitive Bidding, Second Order on

Reconsideration and Seventh Report and Order, PR Docket No. 89-553, PP

Docket No. 93-253, GN Docket No. 93-252, FCC 95-395, 60 FR 48913

(September 21, 1995) (Second Order on Reconsideration and Seventh

Report and Order). Commenters are invited to address whether the

Commission should modify its small business definition and calculate

small business eligibility based on gross revenues, rather than net

worth and annual profits. Commenters should discuss what gross revenues

threshold is appropriate for defining small business in the IVDS

context.

15. The Commission also proposes a five percent attribution

threshold for purposes of determining eligibility as a small business.

Under such a standard, the gross revenues and affiliations of any

investor in the applicant would not be considered so long as the

investor holds less than a five percent interest in the applicant.

Alternatively, the Commission seeks comment on whether it should count

the gross revenues of controlling principals in the applicant and its

affiliates for purposes of determining small business status. In

determining attribution when IVDS licensees are held indirectly through

intervening corporate entities, the Commission proposes to use the

multiplier adopted in the CMRS Third Report and Order for the spectrum

aggregation cap. See CMRS Third Report and Order, GN Docket No. 93-252,

59 FR 9945 (November 12, 1994), 9 FCC Rcd 7988 (1994). The Commission

seeks comment on these tentative conclusions.

16. A bidding credit acts as a discount on the winning bid amount

that a bidder actually has to pay for the license. The current IVDS

rules provide for a bidding credit of 25 percent to businesses owned by

members of minority groups or women. 47 CFR Section 95.816(d)(1).

17. The Commission seeks comment on whether it should extend a

single bidding credit to all small businesses as it did for the C block

PCS auction. If the Commission chooses to adopt a single small business

bidding credit for IVDS, how big should the credit be? Should the

Commission retain the 25 percent bidding credits currently provided and

make it available to all small businesses bidding in the IVDS auction?

If it extends a bidding credit to small businesses, the Commission

expects that a significant number of women and minority-owned

businesses will continue to qualify for bidding credits under the

rules. See, e.g., Second Report and Order and Second Further Notice of

Proposed Rule Making, PR Docket No. 89-553, 60 FR 50583 (September 29,

1995), 10 FCC Rcd 6884 (1995). The Commission believes that this may be

the most effective way to amend the rules and proceed with the auction.

The Commission also believes that this proposal will meet the statutory

objectives of promoting economic opportunity and competition, avoiding

excessive concentration of licenses, and ensuring access to new and

innovative

[[Page 49106]]

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. Moreover, as

the Commission observed in the Fourth Report and Order, the Commission

expects that the capital requirements for IVDS will be relatively low,

particularly with respect to the smaller RSA licenses. The Commission

therefore anticipates that women- and minority-owned firms, as well as

other potential bidders that might lack access to capital, will be able

to compete effectively for IVDS licenses. The Commission also points

out that the overwhelming majority of IVDS applicants in the past have

been small businesses.

18. In the alternative, should the Commission offer tiered bidding

credits, such as 15 percent for small businesses with aggregate gross

revenues under $3 million and 10 percent for businesses with gross

revenues between $3 million and $15 million? The Commission tentatively

concludes that given the relatively low bids that IVDS licenses

garnered in the July 1994 auction, IVDS may attract smaller businesses,

thus justifying a tiered bidding credit. The Commission seeks comments

on this tentative conclusion. Commenters are asked to address whether

this approach would better reflect the difficulties that small

businesses of varying size face in accessing capital. Commenters also

should discuss what size definitions and bidding credit amounts are

appropriate if the Commission adopts a tiered bidding credit scheme.

19. Commenters are also asked to address whether the Commission

should completely eliminate the bidding credit. Commenters should

address whether a bidding credit is needed to permit small businesses

to compete effectively for IVDS spectrum. As noted above, IVDS, with

its relatively low capital entry requirements, is well suited for small

business investment and a bidding credit may not be needed to foster

participation by these entities. See Fourth Report and Order. Given the

success of small businesses in the MSA auction, commenters are invited

to address whether the Commission should revisit that conclusion.

B. Upfront Payments

20. In the Fourth Report and Order, the Commission determined that

the appropriate upfront payment for IVDS auctions would be based on the

maximum number of licenses a bidder desired to win. Bidders were

required to present a cashier's check for $2,500 in order to bid on the

IVDS licenses, and would be required to have $2,500 upfront money for

every five licenses they won, effectively constituting an upfront

payment of $500 per license won. Following the initial IVDS auction,

certain high bidders requested waivers to permit them to delay payment

of their required down payments. Further, a substantial number of

bidders defaulted on their winning bids, requiring us to reauction

those licenses.

21. The Commission tentatively concludes that the upfront payment

required under the Fourth Report and Order is inadequate. In several ex

parte filings, parties indicated their support for increased upfront

payment amounts. The requests for waiver to delay making down payments,

coupled with the significant number of defaulting winning bidders, lead

the Commission to believe that the initial upfront payment was too low

to deter insincere, speculative bidding. The Commission proposes that

more appropriate upfront payments would be $9,000 per MSA license and

$2,500 per license for RSA markets, for the maximum number of licenses

on which the applicant wishes to bid. The Commission reaches these

proposed amounts by calculating values for each license of $.02 per MHz

per pop, which is the standard methodology for determining upfront

payment amounts. See Second Report and Order; see also Fourth Report

and Order. This calculation yielded average upfront payments of

approximately $9,011 per license for MSA markets (not counting the 9

markets previously awarded by lottery), and approximately $2,742 per

license for RSA markets. The Commission's proposed upfront payments

round these figures. The Commission believes that revised upfront

payments in these amounts would attract as many qualified bidders as

possible, while providing an adequate deterrent against frivolous

bidding. The Commission seeks comment on this tentative conclusion and

the proposal to increase the upfront payment amounts, as described.

II. Procedural Matters

Initial Regulatory Flexibility Analysis

22. As required by Section 603 of the Regulatory Flexibility Act,

the Commission has prepared an Initial Regulatory Flexibility Analysis

(IRFA) of the expected impact on small entities of the policies and

rules proposed in this FNPRM regarding the interactive video and data

service (IVDS). Written public comments are requested on the IRFA.

Comments must have a separate and distinct heading designating them as

responses to the IRFA and must be filed by the comment deadlines

provided above.

A. Reason for Action:

23. The further notice in this rule making proceeding was initiated

to secure comment on proposals to eliminate all race- and gender-based

provisions in the competitive bidding rules for the IVDS auction only.

The proposals advanced in the Further Notice of Proposed Rule Making

also are designed to implement Congress's goal of giving small

businesses, rural telephone companies, and businesses owned by members

of minority groups and women the opportunity to participate in the

provision of spectrum-based services in accordance with 47 U.S.C.

Sec. 309(j)(4)(D). The Commission also seeks to modify its rule

concerning the amount it requires for upfront payments from applicants

to participate in the auction in accordance with 47 U.S.C.

Sec. 309(j)(3).

B. Objectives

24. The Commission proposes changes to its rules for IVDS to

address legal uncertainties raised by the Supreme Court's decision in

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

Specifically, the Commission seeks to ensure competition and ownership

diversity by avoiding a lengthy delay in the conduct of the auction

caused by probable legal challenges to the rules. The Commission also

proposes to increase the upfront payment amounts for IVDS licenses

because it believes the current upfront payment amount was insufficient

to ensure against a significant number of defaulting winning bidders

and to ensure payment of applicable penalties arising from defaults.

C. Legal Basis

25. The proposed action is authorized under Sections 4(i), 303(r)

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

303(r) and 309(j), as amended.

D. Description and Estimate of Small Entities Subject to the Rules

26. The proposed changes in the regulations would affect a number

of entities both large and small. The Commission was directed by the

Communications Act, 47 U.S.C. Sec. 309(j) to make provisions to ensure

that smaller businesses, and other designated entities, have an

opportunity to participate in the auction process. To fulfill this

statutory mandate, these proposed rules are designed to attract

participation by the small entities. The small businesses who will be

subject to

[[Page 49107]]

the rules would be those which choose to operate interactive video and

data services, a class of wireless communications services with a wide

variety of uses. The services will generally be offered to consumers

who wish to subscribe to those services.

27. IVDS is a communications based service subject to regulation as

a wirelsss provider of pay television services under Standard

Industrial Classification 4841 (SIC 4841), which covers subscription

television services. The Small Business Administration (SBA) defines

small businesses in SIC 4841 as businesses with annual gross revenues

of $11 million or less. 13 CFR Sec. 121.201. In this Further Notice of

Proposed Rule Making, the Commission proposes to extend special

provisions to small businesses with annual gross revenues for each of

the preceding years three years that do not exceed $15 million, and

additional benefits to very small businesses who have less than an

average of $3 million in gross revenues in each of the last three

years. The Commission observes that this proposal is consistent with

its approach in other wireless services, see e.g., the 900 MHz

specialized mobile radio service, and is narrowly tailored to address

the capital requirements for IVDS. The Commission is soliciting SBA

approval for the small business definitions for this and other

auctionable services.

28. The Commission estimate of the number of small business

entities subject to the rules begins with the Bureau of Census report

on businesses listed under SIC 4841, subscription television services.

The total number of entities under this category is 1,788. There are

1,463 companies in the 1992 Census Bureau report which are categorized

as small businesses providing cable and pay TV services. The Commission

knows that many of these businesses are cable and television service

businesses, rather than IVDS licensees. Therefore, the number of small

entities currently in this business which will be subject to the rules

will be less than 1,463.

29. The first IVDS auction resulted in 170 entities winning

licenses for 594 MSA licenses. Of the 594 licenses, 557 were won by

entities qualifying as a small business. For that auction, the

Commission defined a small business as an entity with a net worth not

in excess of $6 million and average net income after Federal income

taxes for the two preceding years not in excess of $2 million. In the

upcoming IVDS reauction of approximately 100 licenses in metropolitan

service area (MSA) markets and auction of 856 licenses in rural service

area (RSA) markets (two licenses per market), the Commission has

proposed bidding credits and installment payments to encourage

participation by small and very small businesses. The Commission cannot

estimate, however, the number of licenses that will be won by entities

qualifying as small or very small businesses under the proposed rules.

Given the success of small businesses in past IVDS auctions, and that

small businesses make up over 80 percent of firms in the subscription

television services industry, the Commission assumes for purposes of

this IRFA that all of the licenses may be awarded to small businesses,

which would be affected by the proposed rules. The Commission estimates

that some companies will win more than one license, as happened in the

earlier IVDS auction.

30. Applicants seeking to participate in the auction also will be

subject to these proposed rules. It is impossible to accurately predict

how many small businesses will apply to participate in the auction. In

the last IVDS auction, there were 289 qualified applicants. The

Commission does not anticipate that there will be significantly more

participants in the subsequent IVDS auction.

E. Reporting, Recordkeeping and Other Compliance Requirements

31. All small businesses which choose to participate in these

services will be required to demonstrate that they meet the criteria

set forth to qualify as small businesses, as was required under part 1,

subpart Q of the FCC's Rules, 47 CFR part 1, subpart Q. Any small

business applicant wishing to avail itself of those provisions will

need to make the general financial disclosures necessary to establish

that the small business is in fact small. The proposed rule changes

will eliminate the requirements that small businesses owned by

minorities and/or women demonstrate that their owners are minorities

and/or women. There are no additional reporting or recordkeeping

requirements proposed by these rules.

32. Each small business applicant will be required to submit an FCC

Form 175, OMB Clearance Number 3060-0600. The estimated time for

filling out an FCC Form 175 is 45 minutes. In addition to filing an FCC

Form 175, each applicant must submit information regarding the

ownership of the applicant, any joint venture arrangements or bidding

consortia that the applicant has entered into, and financial

information which demonstrates that a small business wishing to qualify

for installment payments and bidding credits is a small business.

Applicants which do not have audited financial statements available

will be permitted to certify to the validity of their financial

showings. While many small businesses have chosen to employ attorneys

prior to filing an application to participate in an auction, the rules

are proposed so that a small business working with the information in a

bidder information package can file an application on its own. When an

applicant wins a license, it will be required to submit an FCC Form

600, which will require technical information regarding the applicant's

proposals for providing service. This application will require

information provided by an engineer who will have knowledge of the

system's design.

F. Federal Rules Which May Overlap, Duplicate or Conflict With These

Rules

33. None.

G. Significant Alternative Minimizing the Impact on Small Entities

Consistent with the Stated Objectives

34. In the Further Notice of Proposed Rule Making, the Commission

tentatively concludes that the possibility of legal challenges to the

rules could cause lengthy delays in issuing licenses in this service.

Since the first IVDS auction, the Supreme Court in Adarand v. Pena, 115

S. Ct. 2097 (1995) raised the legal standard for assessing the

constitutionality of federal programs which take race into account.

Such programs are now subject to a strict scrutiny standard of review.

Although programs which take gender into account are reviewed under

intermediate scrutiny, United States v. Commonwealth of Virginia, 1996

WL 345786 (United States Supreme Court, June 26, 1996), the Commission

believes there is a significant risk, under either standard, that the

auction would be subject to delay through litigation over the

constitutionality of the program. The Commission is currently gathering

evidence, through a Notice of Inquiry proceeding pursuant to Section

257 of the Telecommunications Act of 1996 on barriers to market entry

for small businesses, including those owned by women and minorities.

The Commission realizes that this change may impose a burden on small

businesses owned by women or minorities. It seeks comment on whether

there are alternatives which will enable it to avoid the delays of

litigation, which adversely affect all small businesses and still make

provision for these designated entities.

35. The Further Notice of Proposed Rule Making solicits comment on

a

[[Page 49108]]

variety of alternatives set forth herein. Any significant alternatives

presented in the comments will be considered. The Further Notice of

Proposed Rule Making proposes setting new standards for the measurement

of small businesses. The earlier standard defined a small business in

IVDS as a business, together with its affiliates, that has no more than

a $6 million net worth and, after federal income taxes (excluding any

carry over losses), has no more than $2 million in annual profits each

year for the previous two years. 47 CFR Sec. 1.2110. The Commission is

proposing to define a small business as a business with average gross

revenues for each of the preceding three (3) years that do not exceed

$15 million, and define a very small business as one which has less

than an average of $3 million in gross revenues in each of the last

three years. The Commission seeks comment on the classes of small

entities and how many total entities, existing and potential, would be

affected by the proposed rules in the Further Notice of Proposed Rule

Making. These changes would be consistent with the definitions used in

other auctionable mobile radio services such as 900 MHz specialized

mobile radio services. The Commission requests each commenter to

identify whether it is a ``small business'' under this definition.

36. The Further Notice of Proposed Rule Making proposes providing a

bidding credit to small businesses. The Commission seeks comment on

whether a 25 percent bidding credit is appropriate for all small

businesses or whether a tiered bidding credit, 10 percent for small

businesses and 15 percent for very small businesses, is appropriate.

The Commission seeks comment on the impact of the creation of a larger

pool of small businesses--defining as small all businesses with gross

revenues of $15 million or less. The Commission proposes businesses

with average gross revenues of $15 million or less in each of the last

three (3) years be eligible for bidding credits, as opposed to the

previous standard of an entity, together with its affiliates, that has

no more than a $6 million net worth and, after federal income taxes

(excluding any carry over losses), has no more than $2 million in

annual profits each year for the previous two years. It requests

comment on how this larger pool of small businesses will affect the

smaller businesses which choose to participate in the auction.

Additionally, the Commission is particularly interested in learning

whether tiered bidding credits will offset any potential competitive

disadvantage to those smaller businesses.

37. The Commission proposes to raise the upfront payment to $9000

per MSA and $2500 per RSA for businesses participating in IVDS

auctions. This rule change is designed minimize the adverse impact on

the IVDS service of participation in the auction by speculators and

other frivolous bidders. The Commission realizes that a higher upfront

payment may pose a greater obstacle to participation by smaller

businesses. It seeks comment on its tentative conclusion that the

previous upfront payment was too low. The Commission also requests

commenters to address the question of whether there are other means to

deter speculative or frivolous bidders who do not meet the commitments

they make in bidding in IVDS auctions.

List of Subjects

47 CFR Part 1

Administrative practice and procedure, Reporting and recordkeeping

requirements, Telecommunications.

47 CFR Part 95

Communications equipment, Radio.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 96-23940 Filed 9-17-96; 8:45 am]

BILLING CODE 6712-01-P