Implementation of Section 309(j) of the Communications Act Competitive Bidding

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 22

[PP Docket No. 93-253; CC Docket No. 90-6; FCC 96-361]

Implementation of Section 309(j) of the Communications Act--

Competitive Bidding

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document adopts competitive bidding rules for mutually

exclusive applications for cellular unserved Phase I and Phase II

service areas. These rules result from the Commission's decision to use

competitive bidding to select from among mutually exclusive

applications. The Adoption of these rules will enable the Commission to

complete the licensing of cellular unserved area licenses.

EFFECTIVE DATE: December 16, 1996.

FOR FURTHER INFORMATION CONTACT: Thomas Horan, Wireless

Telecommunications Bureau, (202) 418-0660.

SUPPLEMENTARY INFORMATION: This is a summary of the Ninth Report and

Order in PP Docket No. 93-253; CC Docket No. 90-6; FCC 96-361, adopted

August 23, 1996 and released November 7, 1996. The complete text of the

Ninth Report and Order 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.

Synopsis of the Report and Order

Background

1. Initial cellular systems operators were given a five-year period

during which to expand their systems within the geographic area in

which they are licensees. Cellular unserved areas were created from the

geographic area not covered by the licensee at the close of the five-

year build-out period. We adopted an application processing scheme that

has two phases for all cellular markets in which the five-year build-

out period has expired or will expire in the future. Phase I is a one-

time process that provides an opportunity for eligible parties to file

competing applications for authority to operate a new cellular system

in, or to expand an existing cellular system into, unserved areas as

soon as these areas become available. Phase II is an ongoing process

that allows eligible parties to apply for any unserved areas that may

remain in a market after the Phase I process is complete.

Grouping of Licenses

2. Following adoption of these rules, all Phase I auction

applicants, including those who previously filed FCC Form 464s, shall

file a short-form application (FCC Form 175) prior to the filing

deadline announced by Public Notice. The filing window for Phase I

applications will open on the 31st day after the expiration of a

market's five-year build-out period. For mutually exclusive Phase I

applications that were filed prior to our new FCC Form 175 filing

requirement, only the applicants who have timely-filed FCC Form 464

applications will be eligible to submit an FCC Form 175 and participate

in the auction for these markets. The auction process will repeat

itself approximately every six months until all of the Phase I licenses

for which there are mutually exclusive applications have been

auctioned. Applicants cannot file more than one Phase I initial

application for any cellular market, and Phase I initial applications

must not propose any de minimis or contract service area boundary

extensions. Phase I licensees may file a single major modification

application no later than 90 days after the grant of their Phase I

initial application. This major modification application may propose de

minimis or contract service area boundary extensions, or a non-

contiguous Cellular Geographic Area (``CGSA'') provided that the non-

contiguous CGSA meets the minimum coverage requirement of section

22.951 of the Commission's rules.

3. The start of the Phase II process is dependent on the resolution

of the Phase I short-form filing deadline. If a Phase I initial

application is granted for a market and channel block, Phase II

applications for that market and channel block may be filed on or after

the 121st day after the Phase I application is granted. If no Phase I

initial applications are received, Phase II applications may be filed

on or after the 32nd day after the expiration of the relevant five-year

build-out period. Competing Phase II applications are subject to a 30-

day filing window following a Phase II application's publication in a

Public Notice. Phase II applicants should continue to submit an FCC

Form 464A and an FCC Form 600 during the appropriate filing windows.

For Phase II applications, we will require the FCC Form 600 prior to

the FCC Form 175 in order to determine whether mutual exclusivity

exists among applicants. Mutual exclusivity will be determined by

comparing the technical information contained in each FCC Form 600 to

determine whether any applicants are applying for the same specific

cell sites in any given cellular unserved area. This differs from the

Phase I process, because Phase I applicants are applying for the entire

unserved area. Thus, mutual exclusivity may be determined by reviewing

the FCC Form 464 application for Phase I licenses. If the Commission

determines mutually exclusive Phase II initial applications have been

received, these applicants will be required to file a short-form

application (FCC Form 175) prior to the filing deadline specified in a

Public Notice. The Phase II licenses for which there are mutually

exclusive applications will be auctioned in either a separate Phase II

auction or as part of a Phase I auction. The Wireless

Telecommunications Bureau (``Bureau'') will issue a Public Notice

describing the auction process for Phase II licenses prior to any Phase

II auctions.

Competitive Bidding Design

4. For Cellular Unserved Phase I and Phase II service areas, we are

electing to use a simultaneous multiple round auction, but we reserve

the option to do this auction sequentially.

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5. For the cellular unserved auctions, we will use a simultaneous

stopping rule. Bidding will remain open on all licenses until bidding

stops on every license. We intend to close the auction after one round

passes in which no new valid bids or proactive activity rule waivers

are submitted. The Commission, however, retains the discretion to keep

the auction open even if no new valid bids and no proactive waivers are

submitted. The Commission delegates to the Bureau the authority to

exercise such discretion. In the event that the Bureau exercises this

discretion, the effect would be the same as if a bidder had submitted a

proactive waiver. In addition, the Commission will retain the

discretion to declare after a certain number of rounds that the auction

will end after some specified number of additional rounds and delegates

to the Bureau the authority to exercise such discretion. If this option

is used, we will accept bids only on licenses where the high bid had

increased in at least one of the last three rounds.

Bidding Procedures

6. We intend to allow only remote bidding for the cellular unserved

area licenses auction. Bidders will be able to submit bids from remote

locations electronically using special bidding software, or via

telephone. We have established a schedule of fees that participants in

the competitive bidding process will be assessed for certain on-line

computer services, bidding software, and for bidder information

packages. By Public Notice, the Bureau will provide additional

information to prospective bidders to acquaint them with bidding

procedures.

Bid Increments

7. We will establish minimum bid increments for bidding in each

round of the auction at a level of five percent of the high bid in the

previous round. The Commission also retains the discretion to vary the

minimum bid increments for individual licenses or groups of licenses at

any time before or during the course of the auction, based on the

number of bidders, bidding activity, and the aggregate high bid amounts

and delegates to the Bureau the authority to exercise such discretion.

The Bureau will announce by Public Notice prior to the auction the

general guidelines for bid increments. Where a tie bid occurs, we will

determine the high bidder by the order in which the Commission receives

the bids.

Duration of Bidding Rounds

8. We will retain the discretion to establish the duration and

frequency of bidding rounds (e.g., the number of bidding rounds per day

and the length of each bidding round) by Public Notice before each

auction and delegate to the Bureau the authority to exercise such

discretion. The Bureau will announce any changes to the duration of or

intervals between bidding rounds either by Public Notice prior to the

auction, or announcement during the auction.

Activity Rules

9. The Commission will assign a ``bidding unit'' value to each

cellular unserved license for the purpose of measuring bidding activity

and eligibility. For the cellular unserved auction, each cellular

unserved license will be assigned a uniform 5,000 bidding units. This

amount will be equal to the upfront payment associated with each

cellular unserved license. Licenses on which a bidder is the high

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

count against the maximum eligibility bidding limit. To preserve their

maximum eligibility, bidders are required to maintain a certain level

of bidding activity during each round of the auction. The auction is

divided into three stages with increasing levels of bidding activity

required in each stage of the auction. A bidder is considered active on

a license in the current round if the bidder has submitted an

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

bid for that license at the end of the bid withdrawal period in the

previous round, in which case, the bidder does not need to bid on that

license in the current round to be considered active on that license. A

bidder's activity level in a round is the sum of the bidding units

associated with licenses on which the bidder is active.

10. We intend to establish the following minimum required activity

levels for each stage of the auction: In each round of Stage One of the

auction, a bidder who wishes to maintain its current eligibility is

required to be active on licenses encompassing at least 60 percent of

the bidding units for which it is currently eligible. Failure to

maintain the requisite activity level will result in a reduction in the

amount of bidding units upon which a bidder will be eligible to bid in

the next round of bidding. During Stage One, if activity is below the

required minimum level, eligibility in the next round will be

calculated by multiplying the current round activity by five-thirds

(\5/3\). Eligibility for each applicant in the first round of the

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

the licenses identified in its short-form application. In each round of

Stage Two, a bidder who wishes to maintain its current eligibility is

required to be active on 80 percent of the bidding units for which it

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

is below the required minimum level, eligibility in the next round will

be calculated by multiplying the current round activity by five-fourths

(\5/4\). In each round of Stage Three, a bidder who wishes to maintain

its current eligibility is required to be active on licenses

encompassing 95 percent of the bidding units for which it is eligible

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

is below 95 percent of current eligibility, eligibility in the next

round will be calculated by multiplying the current round activity by

twenty-nineteenths (\20/19\). The Commission, however, will retain the

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

vary the required minimum activity levels (and associated eligibility

calculations) for each auction stage, to control the pace of the

auction and delegates to the Bureau the authority to exercise such

discretion.

Stage Transitions

11. Stage transitions will be determined by the auction activity

level. The ``auction activity level'' is the sum of the bidding units

of licenses for which the high bid increased in the current round as a

percentage of the total bidding units of all licenses offered in the

auction. The cellular unserved auction will begin in Stage One and

generally will move from Stage One to Stage Two when the auction

activity level is below ten percent for three consecutive rounds in

Stage One. The auction generally will move from Stage Two to Stage

Three when the auction activity level is below five percent for three

consecutive rounds in Stage Two. In no case can the auction revert to

an earlier stage. The Commission will retain the discretion to

determine and announce during the course of an auction when, and if, to

move from one auction stage to the next, based on a variety of measures

of bidder activity, including, but not limited to, the auction activity

level as defined above, the percentage of licenses (measured in terms

of bidding units) on which there are new bids, the number of new bids,

and the percentage increase in revenue. The Commission delegates to the

Bureau the authority to exercise such discretion.

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Activity Waivers

12. We will provide bidders five waivers of the above-described

activity rule that may be used in any round during the course of the

auction. If a bidder's activity level is below the required activity

level, a waiver will be applied automatically.

A waiver will preserve current eligibility in the next round. An

activity rule waiver applies to an entire round of bidding and not to a

particular service area.

13. Bidders will be afforded an opportunity to override the

automatic waiver mechanism when they place a bid if they intentionally

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

waiver to retain their eligibility at its current level. If a bidder

overrides the automatic waiver mechanism, its eligibility will be

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

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

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

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

of entering an activity rule waiver proactively during the bid

submission period. If a bidder submits a proactive waiver in a round in

which no other bidding activity occurs, the auction will remain open.

14. The Commission will retain the discretion to issue additional

waivers during the course of an auction for circumstances beyond a

bidder's control and delegates to the Bureau the authority to exercise

such discretion. The Bureau will also have the flexibility to adjust by

Public Notice prior to an auction the number of waivers permitted, or

to institute a rule that allows one waiver during a specified number of

bidding rounds or during specified stages of the auction.

Pre-Auction Application Procedures

15. Before each scheduled auction for cellular unserved area

licenses, the Bureau will release an initial Public Notice announcing

the auction. This initial Public Notice will specify the license(s) to

be auctioned, the time and place for the auction, and other important

information concerning the procedures, terms, and conditions of the

auctions. The initial Public Notice will also specify the filing

deadline for short-form applications.

16. Potential bidders who currently have long-form applications

(FCC Form 401 or FCC Form 600) on file for the cellular unserved area

licenses being offered in the first auction will be required to submit

a short-form application (FCC Form 175) by a date specified in the

initial Public Notice to participate in the cellular unserved area

auction. Those applicants who filed their applications on the FCC Form

401 will be required to resubmit their applications on an FCC Form 600,

and we will waive the filing fee for the FCC Form 600. Those applicants

will not have to repeat information which is contained on the FCC Form

401.

17. This requirement will provide current applicants with the

opportunity to file their short-form applications electronically. The

Bureau will provide detailed instructions on electronic filing in a

Public Notice prior to the auction. For the first auction for cellular

unserved area licenses, all other potential bidders will also be

required to submit, either electronically or manually, a short-form

application by the date specified in the Public Notice announcing the

auction. If the Commission receives only one application that is

acceptable for filing for a particular frequency block and there is

thus no mutual exclusivity, the Bureau will cancel the auction for this

license. Phase I applicants would then file a long-form application

(FCC Form 600) by a date established by the Bureau. Phase II applicants

would not file another long-form application (FCC Form 600, since one

would already be on file.

Upfront Payments

18. We are establishing a uniform upfront payment amount of $5,000

per license. A bidder may file applications for every license being

auctioned, but its upfront payment should reflect the maximum number of

licenses it seeks to win.

19. Upfront payments will be due by a date specified by Public

Notice, but generally not later than 14 days before a scheduled

auction. To receive a bidder identification number, the applicant or

its representative will be required to deposit with Mellon Bank, by

cashiers' check or wire transfer, at least $5,000. During the auction,

bidders will be required to provide their bidder identification numbers

when submitting bids. The highest bidder for each license will be asked

to sign a bid confirmation form. The upfront money will later be

counted toward the down payment for the license. During the period that

upfront payment deposits are held pending ultimate award of the

license, the interest that accrues will be retained by the Government.

Down Payments

20. Winning bidders will be required to supplement their upfront

payments to bring their total deposit with the Commission up to at

least 20 percent of the final payment due for the license(s) won in

that particular auction. If the upfront payment already tendered

amounts to 20 percent or more of the winning bid, no additional deposit

will be required. If the upfront payment on deposit is greater than 20

percent of the winning bid amount after deducting any bid withdrawal

and default penalties due, the additional monies will be refunded. If a

bidder has withdrawn a bid or defaulted but the amount of the payment

cannot yet be determined, the bidder will be required to make a deposit

of 20 percent of the amount bid on such licenses. When it becomes

possible to calculate and assess the payments, any excess deposit will

be refunded. Upfront payments will be applied to such deposits, and to

bid withdrawal and default assessments due, before being applied toward

the bidder's down payment on licenses the bidder has won.

21. The winning bidders will be required to submit the required

down payment by cashier's check or wire transfer to Mellon bank by a

date to be specified by Public Notice, generally within five business

days following the close of bidding. The Commission will hold the down

payment until the high bidder has been awarded the license and has paid

the remaining balance due on the license.

Full Payment

22. Long-form applications (FCC Form 600) will be due from

successful Phase I bidders within ten (10) business days after they

have been notified of their winning bidder status, including those

applicants who have an FCC Form 401 currently on file who are required

to refile on FCC Form 600. Thus, FCC Form 600 applications will be due

from all successful Phase I bidders on the same date. If a filing fee

is required, the general rules governing the submission of fees will

apply except for applicants who currently have FCC Form 401

applications on file. Once we have reviewed a long-form application and

have made an initial determination that the applicant is qualified, we

will release a Public Notice that the long-form applications have been

accepted. This Public Notice will trigger the filing window for

petitions to deny. After resolution of petitions to deny, the

Commission will later release a Public Notice announcing that the

Commission is prepared to award licenses. Applicants will be required

to submit full payment for the license(s) within five days of the

release of this Public Notice. If the Commission denies all

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petitions to deny, and is otherwise satisfied that the applicant is

qualified, the Commission will grant the license generally within ten

(10) business days after receiving full payment.

23. Phase I or Phase II applicants with long-form applications (FCC

Form 401 or FCC Form 600) currently on file will be permitted to make

both minor and major modifications to their FCC Form 600 applications,

including ownership changes or changes in the identification of parties

to bidding consortia on or before the date of the auction. Other

applicants will not be permitted to make any major modifications to

their applications, including ownership changes or changes in the

identification of parties to bidding consortia. Prospective bidders in

a Phase I auction should be aware that their single major modification

application permits them to bid for a license to cover all unserved

areas in that particular market. Phase II applicants are limited to

bidding for the ability to serve only the areas described in the

technical parameters shown in their FCC Form 600 application and do not

hold any rights to any unserved area not covered in this application.

Bid Withdrawal, Default, and Disqualification

24. Any bidder who withdraws a high bid during an auction before

the Commission declares bidding closed, or defaults by failing to remit

the required down payment within the prescribed time, would be required

to reimburse the Commission in the amount of the difference between its

high bid and the amount of the winning bid the next time the license is

offered by the Commission, if the subsequent winning bid is lower.

After bidding closes, we will apply Sec. 1.2104(g)(2) of the

Commission's rules to assess a defaulting auction winner an additional

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

of the amount of the defaulting bid, whichever is less. The additional

three percent payment is designed to encourage bidders who wish to

withdraw their bids to do so before bidding ceases. We will hold

deposits made by defaulting or disqualified auction winners until full

payment is made. Entities that obtain their licenses through the

auction process will forfeit all monies paid to the Commission if their

licenses are revoked or canceled.

25. In the event an auction winner defaults or is otherwise

disqualified after an auction is closed, the Commission must exercise

our discretion to decide whether to hold a new auction or offer the

license to the second highest bidder. In the unlikely event that there

is more than one bid withdrawal on the same license, we will hold each

withdrawing bidder responsible for the difference between its withdrawn

bid and the amount of the winning bid the next time the license is

offered by the Commission.

Transfer Disclosure Provisions

26. We conclude that the transfer disclosure requirements of

Sec. 1.2111(a) should apply to all cellular radiotelephone licenses for

unserved areas obtained through the competitive bidding process.

Licensees transferring their licenses within three years after the

initial unserved area license grant will be required to file, together

with their transfer applications, the associated contracts for sale,

option agreements, management agreements, and all other documents

disclosing the total consideration received in return for the transfer

of their licenses.

Performance Requirements

27. We will not adopt additional performance requirements for the

cellular unserved area licenses beyond those already provided in the

service rules for all auctionable services.

Rules Prohibiting Collusion

28. We will subject cellular unserved area licensees to the rules

prohibiting collusion embodied in Secs. 1.2107(d) and 1.2105(c) of the

Commission's rules. Bidders will be required by Sec. 1.2105(a)(2) to

identify on their short-form applications all parties with whom they

have entered into any consortium arrangements, joint ventures,

partnerships, or other agreements or understandings that relate to the

competitive bidding process. Bidders will be required to certify that

they have not entered and will not enter into any explicit or implicit

agreements, arrangements or understandings with any parties, other than

those identified, regarding the amount of their bid, bidding

strategies, or the particular properties on which they will or will not

bid. In light of our decision to apply Sec. 1.2105 to mutually

exclusive cellular radiotelephone applicants for unserved areas, we are

modifying Sec. 22.949(c) which currently provides that settlements

among all applicants with mutually exclusive applications (full

settlements) for unserved areas must be filed no later than fifteen

(15) days before the competitive bidding procedure is scheduled to take

place. To provide consistency with auction rules for other services,

Sec. 22.949(c) will now reflect that full settlements must be filed no

later than the deadline for the short-form application (FCC Form 175).

29. Although applicants may not make major modifications to their

short-form applications, a single member of a bidding consortium may

withdraw from a consortium only in a particular RSA or MSA(s), but

otherwise remain in the consortium for purposes of bidding on all other

markets specified on the short-form application. However, such

arrangements to assign the member's interests in particular licenses to

other consortium members after the auction must be disclosed on an

original or amended short-form application, and a request to transfer

or assign the license also must be filed in conjunction with the long-

form application.

30. Section 1.2107(d) provides that, as an exhibit to the long-form

application, the applicant must provide a detailed explanation of the

terms and conditions and parties involved in any bidding consortia,

joint venture, partnership or other agreement or arrangement it had

entered into relating to the competitive bidding process prior to the

time the bidding was completed. The rule provides that such agreements

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

application. Section 1.2105(c), however, provides an exception to that

prohibition for bidders who have not filed short-form applications for

licenses in any of the same geographic license areas because of the low

risk of anticompetitive conduct among those bidders. Those bidders may

enter into such discussions, consortia, or arrangements, or add equity

partners, during the course of an auction provided that such changes do

not result in a change of control of the applicant. We will also permit

communications among bidders concerning matters unrelated to the

license auctions, except for communications resulting in a transfer of

control of the applicant.

Designated Entities

31. We believe it is unnecessary to create special provisions for

designated entities in the auctions for cellular unserved area

radiotelephone licenses. Unlike broadband PCS, which is a new service

that attracts many entrepreneurs to the wireless telecommunications

arena, unserved area licenses in the cellular radiotelephone service

are highly specialized licenses that are valued mainly by a discrete

group of entrepreneurs. In addition, because cellular unserved area

radiotelephone service, characterized by small geographic areas that

were not covered by the initial cellular licensee during the five-year

build-out period, is not a capital-intensive service, we expect that

designated entities who are interested in

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participating in provision of the service will more easily access the

capital needed to participate in the auction.

Procedural Matters

32. Pursuant to the Regulatory Flexibility Act of 1980, 5 U.S.C.

604, the Commission's final analysis for the Ninth Report and Order is

as follows:

33. Need for and purpose of the action. As a result of new

statutory authority, the Commission may utilize competitive bidding

mechanisms in the grant of certain initial licenses. The Commission

published an Initial Regulatory Flexibility Analysis (IRFA) within the

Notice of Proposed Rule Making, Implementation of Section 309(j) of the

Communications Act--Competitive Bidding, PP Docket No. 93-253, 58 FR

53489 (Oct. 15, 1993), 8 FCC Rcd 7635 (1993) (Auctions NPRM) and

published a Final Regulatory Flexibility Analysis within the

Competitive Bidding 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) (Competitive

Bidding Second Report and Order). As noted in that previous final

analysis, this proceeding will establish a system of competitive

bidding for choosing among certain applications for initial licenses.

34. Issues raised in response to the IRFA. The IRFA in PP Docket

No. 93-253 noted that the proposals under consideration in the Auctions

NPRM included the possibility of new reporting and recordkeeping

requirements for a number of small business entities. No commenters

responded specifically to the issues raised in the IRFA. We have made

some modifications to the proposed requirements as appropriate.

35. Significant alternatives considered and rejected. All

significant alternatives have been addressed in the Competitive Bidding

Second Report and Order.

36. With respect to the Ninth Report and Order, a Final Regulatory

Flexibility Analysis (FRFA), in compliance with 5 U.S.C. 801, is

provided as follows:

Final Regulatory Flexibility Analysis

37. As required by Section 603 of the Regulatory Flexibility Act, 5

U.S.C. 603 (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was

incorporated in the Auctions NPRM. The Commission sought written public

comments on the proposals in the Auctions NPRM including on the IRFA.

The Commission's Final Regulatory Flexibility Analysis (FRFA) in this

Order conforms to the RFA, as amended by the Contract with America

Advancement Act of 1996 (CWAAA), Public Law 104-131, 110 Stat. 847

(1996).

A. Need for and Objective of the Rules

38. This Report and Order adopts final auction rules that will

enable the Commission to complete the licensing of unserved areas in

the cellular radiotelephonic service. Initial cellular operators were

given a five-year period during which to expand their systems within

Metropolitan Service Areas (MSAs) and Rural Statistical Areas (RSAs) in

which they are licensees. The Commission adopted an application

processing approach that has two phases for all cellular markets in

which the five-year period has expired or will expire in the future.

The Commission now adopts competitive bidding as the appropriate method

to award licenses from among mutually exclusive applications for

unserved areas filed after July 26, 1993, in light of the competitive

bidding authority contained in the Omnibus Budget Reconciliation Act of

1993. In adopting these rules for the provision of cellular service in

unserved areas, the Commission's objectives are to: (1) foster the

creation of a seamless and integrated nationwide cellular service, so

that subscribers can receive high quality cellular service throughout

the nation, and (2) make cellular service available to the public as

expeditiously as possible.

B. Summary of Issues Raised by Public Comment on the Initial Regulatory

Flexibility Analysis

39. The Commission included an Initial Regulatory Flexibility

Analysis (IRFA) within the Auctions NPRM and published a Final

Regulatory Flexibility Analysis (FRFA) in the Competitive Bidding

Second Report and Order, the initiating document for this item. There

were no specific comments in response to the IRFA or the FRFA. With

respect to comments received in response to the Auctions NPRM from the

initiating proceeding, the majority of comments that related to

cellular unserved areas focused on whether auctions should be used for

pending applications or whether the Commission should use lotteries to

award those licenses. This issue was resolved in the Competitive

Bidding Second Report and Order in which the Commission determined that

unless specifically excluded, licenses for the Public Mobile Radio

Service, including unserved area licenses, should be awarded through

competitive bidding. The Competitive Bidding Second Report and Order

also prescribed general rules and procedures, including a broad menu of

competitive bidding methods, to be used for all auctionable services.

C. Projected Reporting, Recordkeeping and Other Compliance Requirements

of the Rules

40. Authorizing use of simultaneous multiple round auctions.

The Commission is adopting a rule which will permit cellular

unserved areas to be auctioned using a simultaneous multiple round

auction. This type of auction has the advantage of providing bidders

full flexibility to bid for any license as more information becomes

available during the course of the auction. A simultaneous multiple

round auction will allow remote access to bidding software, auction

information, bid submission and results. This will make it easier for

small business operators to participate in an auction without leaving

their places of business. Also, it will make information concerning the

status of the auction easier to access, which will reduce the

administrative burden on participants in the auction.

Short Form Applications Required

41. Applicants for Phase I licenses were required to file an FCC

Form 464 within 31 days after the expiration of the five-year build-out

period of the authorized system(s) on the channel block requested in

the market containing the unserved area. The adopted auction rules

require all Phase I auction applicants to file a short-form application

(FCC Form 175) prior to the filing deadline announced by Public Notice.

The short-form applications require applicants to provide information

required by Sec. 1.2105(a)(2) of the Commission's Rules. The short-form

applications are used to determine if there is mutual exclusivity for a

license.

42. Also, potential bidders who currently have long-form

applications (FCC Form 401 or FCC Form 600) on file for the cellular

unserved area licenses will be required to submit a short-form

application (FCC Form 175) by a date specified in the initial Public

Notice to participate in the cellular unserved auction.

43. The Commission does not believe requiring all applicants to

file a short-form application is burdensome because the information

requirement is not substantial. Submitting a short-form application may

be beneficial by providing the applicants with the opportunity to file

their short-forms electronically. Those applicants who file their

applications electronically will have the option of bidding in the

auction either electronically or

[[Page 58338]]

telephonically. The Commission is moving toward electronic filing of

short-forms applications to streamline the administrative process for

auction participants.

Upfront Payment

44. The Commission is adopting a rule requiring each auction

participant to make an upfront payment in the amount of $5,000 per

license prior to the beginning of an auction. An upfront payment

provides some degree of assurance that only serious, qualified bidders

will participate in the auction and serves as a deterrent to the filing

of speculative applications which would delay the provision of cellular

service to the public. Upfront payments will be due by a date specified

by Public Notice. The upfront money will later be counted toward the

down payment for the license. Bidders who do not make the winning bid

will be refunded their upfront payment minus any applicable bid

withdrawal or default payments. The upfront payment procedures should

keep the auction process simple and keep the costs down for

entrepreneurs who wish to bid on only a few licenses.

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

45. The Commission has not developed a definition of small entities

applicable to cellular licensees. Therefore, the applicable definition

of small entity is the definition under the Small Business

Administration (SBA) rules applicable to radiotelephone companies. This

definition provides that a small entity is a radiotelephone company

employing fewer than 1,500 persons. Since the Regulatory Flexibility

Act amendments were not enacted until after the record in this

proceeding was closed, the Commission was unable to request information

regarding the number of small cellular businesses and is unable at this

time to determine the precise number of cellular firms which are small

businesses.

46. The size data provided by the SBA does not enable the

Commission to make a meaningful estimate of the number of cellular

providers which are small entities because it combines all

radiotelephone companies with 500 or more employees. We therefore used

the 1992 Census of Transportation, Communications, and Utilities,

conducted by the Bureau of the Census, which is the most recent

information available. This document shows that only 12 radiotelephone

firms out of a total of 1,178 such firms which operated during 1992 had

1,000 or more employees. Therefore, even if all 12 of these firms were

cellular telephone companies, nearly all cellular carriers were small

businesses under the SBA's definition. We assume, for purposes of our

evaluations and conclusions in this FRFA, that all of the current

cellular licensees are small entities, as that term is defined by the

SBA. Although there are 1,758 cellular licenses, we do not know the

exact number of cellular licensees, because a cellular licensee may own

several licenses.

E. Steps Taken to Minimize the Burdens on Small Entities

47. The rules adopted in the Ninth Report and Order are designed to

minimize burdens on small businesses who may participate in the

competitive bidding process. By adopting a simultaneous multiple round

design for cellular unserved area auctions, but reserving discretion to

use an alternative competitive bidding design, the Commission adds

flexibility to its process for awarding licenses. The Commission

intends to allow only remote bidding. Bidders will be able to submit

bids from remote locations electronically using special bidding

software, or via telephone. One advantage of simultaneous multiple

round auctions is that they can make it possible for bidders to

participate from their own places of business.

F. Significant Alternatives Considered and Rejected

48. In 1994, the Commission established procedures to ensure that

licenses awarded by auction were disseminated to a wide variety of

applicants, including small businesses, but left the decision whether

and how to use special provisions to the subsequent Reports and Orders

designating specific competitive bidding rules for a particular

service. For cellular unserved area radiotelephone licenses, the

Commission considered and rejected creating special provisions for

designated entities such as small businesses. The Commission believed

that creating special provisions was unnecessary. Unlike licenses for

new wireless telecommunications services such as PCS which attract

numerous entrepreneurs and existing licensees from other services,

cellular unserved area licenses are highly specialized licenses within

limited geographic boundaries that are valued mainly by a discrete

group of entities (most of whom are already providing cellular service

in adjacent areas). In addition, the Commission anticipates that few

markets will attract significant bids. Cellular unserved areas

typically are small geographic areas, which most likely would entail

smaller build-out costs as compared to other wireless

telecommunications services. As a result, the Commission expects that

small businesses who are interested in participating in provision of

this service may more easily access the capital needed to participate

in the auction.

G. Commission's Outreach Efforts to Learn of and Respond to the Views

of Small Entities Pursuant to 5 U.S.C. 609

49. Because the petitions and comments were filed in this

proceeding prior to the enactment of the 1996 Regulatory Flexibility

Act amendments, the Commission did not seek specific comments regarding

small entities' views of these rules being adopted. In the overall

proceeding in which this item was adopted, however, the Commission

sought comment on how the Commission could achieve the objectives of

the Omnibus Budget Reconciliation Act of 1993 related to designated

entities such as small businesses.

H. Report to Congress

50. The Commission shall send a copy of this Final Regulatory

Flexibility Analysis, along with this Report and Order, in a report to

Congress pursuant to the Small Business Regulatory Enforcement Fairness

Act of 1996, 4 U.S.C. 801(a)(1)(A). A copy of this FRFA will also be

published in the Federal Register.

51. Accordingly, it is ordered that, pursuant to the authority of

Sections 4(I), 303(r), 309(j), and 332 of the Communications Act of

1934, as amended, 47 U.S.C. 154(I), 303(r), 309(j), and 332, this Ninth

Report and Order is adopted and Part 22 of the Commission's Rules IS

AMENDED as set forth below.

52. It is further ordered that the rule amendments set forth below

will become effective December 16, 1996.

List of Subjects in 47 CFR Part 22

Communications common carriers, Reporting and recordkeeping

requirements.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

Rule Changes

Part 22 of title 47 of the Code of Federal Regulations is amended

as follows:

PART 22--PUBLIC MOBILE SERVICES

1. The authority citation for Part 22 is revised to read as

follows:

[[Page 58339]]

Authority: Sections 4, 303, 309 and 332, 48 Stat. 1066, 1082, as

amended; 47 U.S.C. 154, 303, 309 and 332, unless otherwise noted.

2. Section 22.943 is amended by adding paragraph (b)(3) to read as

follows:

Sec. 22.943 Limitations on assignments and transfers of cellular

authorizations.

* * * * *

(b) * * *

(3) An applicant seeking approval for a transfer of control or

assignment (otherwise permitted under the Commission's Rules, 47 CFR

chapter I) of a license within three years of receiving a new license

through a competitive bidding procedure must, together with its

application for transfer of control or assignment, file with the

Commission a statement indicating that its license was obtained through

competitive bidding. Such applicant must also file with the Commission

the other documents and information set forth in Sec. 1.2111 of this

chapter.

* * * * *

3. Section 22.949 is amended by revising paragraph (c) to read as

follows:

Sec. 22.949 Unserved area licensing process.

* * * * *

(c) Settlements among some, but not all, applicants with mutually

exclusive applications for unserved areas (partial settlements) are

prohibited. Settlements among all applicants with mutually exclusive

applications (full settlements) are allowed and must be filed no later

than the date that the FCC Form 175 (short-form) is filed.

* * * * *

4. New Secs. 22.960 through 22.967 are added to Part 22, Subpart H,

to read as follows:

Sec. 22.960 Cellular unserved area radiotelephone licenses subject to

competitive bidding.

Mutually exclusive initial applications for cellular unserved area

Phase I and Phase II licenses filed after July 26, 1993, are subject to

competitive bidding procedures. The general competitive bidding

procedures found in part 1, subpart Q, of this chapter will apply

unless otherwise provided in this part.

Sec. 22.961 Competitive bidding design for cellular unserved area

radiotelephone licensing.

The Commission will employ a simultaneous multiple round auction

design when choosing from among mutually exclusive initial applications

to provide cellular unserved area radiotelephone service, unless

otherwise specified by the Wireless Telecommunications Bureau before

the auction.

Sec. 22.962 Competitive bidding mechanisms.

(a) Grouping. All cellular unserved area Phase I and Phase II

licenses will be auctioned simultaneously, unless the Wireless

Telecommunications Bureau announces, by Public Notice prior to the

auction, an alternative auction scheme.

(b) Minimum bid increments. The Wireless Telecommunications Bureau

will, by announcement before or during an auction, require minimum bid

increments in dollar or percentage terms.

(c) Stopping rules. The Wireless Telecommunications Bureau will

establish stopping rules before or during multiple round auctions in

order to terminate an auction within a reasonable time.

(d) Activity rules. The Wireless Telecommunications Bureau will

establish activity rules which require a minimum amount of bidding

activity. In the event that the Wireless Telecommunications Bureau

establishes an activity rule in connection with a simultaneous multiple

round auction, each bidder will be entitled to request and will be

automatically granted a certain number of waivers of such rule during

the auction.

Sec. 22.963 Withdrawal, default and disqualification payments.

(a) During the course of an auction conducted pursuant to

Sec. 22.961, the Commission will impose payments on bidders who

withdraw high bids during the course of an auction, who default on

payments due after an auction closes, or who are disqualified.

(b) Bid withdrawal prior to close of auction. A bidder who

withdraws a high bid during the course of an auction will be subject to

a payment equal to the difference between the amount bid and the amount

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

Commission. No withdrawal payment would be assessed if the subsequent

winning bid exceeds the withdrawn bid. This payment amount will be

deducted from any upfront payments or down payments that the

withdrawing bidder has deposited with the Commission.

(c) Default or disqualification after close of auction. If a high

bidder defaults or is disqualified after the close of such an auction,

the defaulting bidder will be subject to the payment in paragraph (a)

of this section plus an additional penalty equal to three (3) percent

of the subsequent winning bid. If the subsequent winning bid exceeds

the defaulting bidder's bid amount, the 3 percent payment will be

calculated based on the defaulting bidder's bid amount. These amounts

will be deducted from any upfront payments or down payments that the

defaulting or disqualified bidder has deposited with the Commission.

Sec. 22.964 Bidding application (FCC Form 175).

All applicants who wish to participate in competitive bidding for

cellular unserved area radiotelephone licenses must submit applications

on FCC Form 175 pursuant to Sec. 1.2105 of this chapter. The Wireless

Telecommunications Bureau will issue a Public Notice announcing the

availability of cellular unserved area Phase I and Phase II licenses

and, in the event that mutually exclusive applications are filed, the

date of the auction for those licenses. This Public Notice will specify

the date on or before which applicants intending to participate in a

cellular unserved area radiotelephone service auction must file their

applications in order to be eligible for that auction, and it will

contain information necessary for completion of the application as well

as other important information such as the materials which must

accompany the short form, any upfront payment that will need to be

submitted, and the location where the application must be filed.

Sec. 22.965 Submission of upfront payments and down payments.

(a) Each bidder in the cellular unserved radiotelephone service

auction(s) will be required to pay the Commission, immediately prior to

the auction, by cashier's check or by wire, at least $5,000 in order to

get a bidder identification number. The upfront money will later be

counted toward the full payment of the license.

(b) Each winning bidder in the cellular unserved radiotelephone

service auction(s) will be required to make a down payment to the

Commission's lock-box bank in an amount sufficient to bring its total

deposits up to 20 percent of its winning bid within five business days

after the close of the auction, or by a date specified by Public

Notice. The remainder of the full payment for the license shall be paid

within 5 days following the release of a Public Notice that will

indicate that the Commission is prepared to award the license(s). The

Commission will grant the license generally within ten (10) business

days after receiving full payment.

Sec. 22.966 Long-form applications.

Each winning bidder will be required to submit a long-form

application on

[[Page 58340]]

FCC Form 600 within ten (10) business days after being notified by

Public Notice that it is the winning bidder. Applications on FCC Form

600 shall be submitted pursuant to the procedures set forth in

Sec. 1.2107 of this chapter and any associated Public Notices.

Sec. 22.967 License grant, denial, default, and disqualification.

(a) Each winning bidder will be required to pay the balance of its

winning bid in a lump sum payment within five (5) business days

following Public Notice that the Commission is prepared to award the

license. The Commission will grant the license generally within ten

(10) business days after receipt of full and timely payment of the

winning bid amount.

(b) A bidder who withdraws its bid subsequent to the close of

bidding, defaults on a payment due, or is disqualified, will be subject

to the payments specified in Sec. 22.963 or Secs. 1.2104(g) and 1.2109

of this chapter, as applicable.

[FR Doc. 96-29054 Filed 11-13-96; 8:45 am]

BILLING CODE 6712-01-P