Competitive Bidding Procedures
Federal RegisterMar 21, 1997
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 1
[WT Docket No. 97-82; FCC 97-60]
Competitive Bidding Procedures
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: In this Notice of Proposed Rule Making (``NPRM''), the
Commission proposes changes to its general competitive bidding rules
that are intended to simplify regulations and eliminate unnecessary
rules wherever possible, increase the efficiency of the competitive
bidding process, and provide more specific guidance to auction
participants while also giving them more flexibility.
DATES: Comments must be submitted on or before March 27, 1997, and
reply comments must be submitted on or before April 16, 1997. Written
comments by the public on the proposed and/or modified information
collections are due March 27, 1997. Written comments must be submitted
by the Office of Management and Budget (OMB) on the proposed and/or
modified information collections on or before May 20, 1997.
ADDRESSES: Office of the Secretary, Federal Communications Commission,
Washington, DC 20554. In addition to filing comments with the
Secretary, a copy of any comments on information collections contained
herein should be submitted to Dorothy Conway, Federal Communications
Commission, Room 234, 1919 M Street, NW., Washington DC 20554, or via
the Internet to [email protected].
FOR FURTHER INFORMATION CONTACT: Mark Bollinger, Wireless
Telecommunications Bureau, (202) 416-0660. For additional information
concerning the information collections contained in this NPRM, contact
Dorothy Conway at (202) 418-0217, or via the Internet at
[email protected].
SUPPLEMENTARY INFORMATION: This summarizes the Commission's Notice of
Proposed Rule Making in FCC Number 97-60; WT Docket No. 97-82, adopted
on February 20, 1997, and released on February 28, 1997. The complete
text of this NPRM is available for inspection and copying during normal
business hours in the FCC Reference Center (Room 239), 1919 M Street,
NW., Washington, DC, and also may be purchased from the Commission's
copy contractor, International Transcription Service, (202) 857-3800,
2100 M Street, NW., Suite 140, Washington, DC 20037. The complete NPRM
is also available on the Commission's Internet home page (http://
www.fcc.gov/).
The NPRM contains proposed or modified information collections
subject to the Paperwork Reduction Act of 1995 (PRA). It has been
submitted to the Office of Management and Budget (OMB) for review under
the PRA. The Commission, as part of its continuing effort to reduce
paperwork burdens, invites the general public, the Office of Management
and Budget (OMB), and other Federal agencies to comment on the
information collections contained in this NPRM, as required by the
Paperwork Reduction Act of 1995, Pub. L. 104-13. Public and agency
comments are due at the same time as other comments on this NPRM; OMB
notification of action is due 60 days from date of publication of this
NPRM in the Federal Register. Comments are requested concerning (a)
whether the proposed collection of information is necessary for the
proper performance of the functions of the Commission, including
whether the information shall have practical utility; (b) the accuracy
of the Commission's burden estimate; (c) ways to enhance the quality,
utility, and clarity of the information collected; and (d) ways to
minimize the burden of the collection of information on the
respondents, including the use of automated collection techniques or
other forms of information technology.
OMB Approval Number: N/A.
Title: In the Matter of Amendment of Part 1 of the Commission's
Rules--Competitive Bidding Proceeding, WT Docket No. 97-82, FCC Docket
No. 97-60.
Type of Review: New collection.
Respondents: Businesses or other for-profit entities.
Number of Respondents: 45,000.
Estimated Time for Response: 13 hours.
Total Annual Burden: 585,000 hours.
Estimated Cost to Respondents: 2,848 dollars.
Needs and Uses: The Commission's general competitive bidding rules
require applicants for all auctionable services to submit: (1)
Ownership information, (2) terms of joint bidding agreements, (3) gross
revenue calculations, and (4) evidence of environmental impact.
Furthermore, in case a licensee defaults or loses its license, the
Commission retains the discretion to re-auction such licenses. If
licenses are re-auctioned, the new license winners would be required at
the close of the re-auction to comply with the same disclosure
requirements explained above.
The information collected will be used by the Commission to
determine whether the applicant is legally, technically, and
financially qualified to bid in the spectrum auctions and hold a
license for spectrum based services. Without such information the
Commission could not determine whether to issue the license to the
successful applicant and therefore fulfill its statutory
responsibilities in accordance with the Communications Act of 1934, as
amended.
Synopsis of Notice of Proposed Rule Making
1. The Commission seeks comment on a variety of proposals and
tentative conclusions set forth below. In addition, it seeks comment on
whether competitive bidding provisions that have been adopted in
specific services but not included in the part 1 rules should be
included in part 1 and, if so, whether any amendments to these
provisions are needed in light of the proposal, discussed below, to
apply these general competitive bidding rules to future auctions.
2. As the Commission has gained experience in conducting auctions,
it has found that much of the auction process can be standardized and
that conducting rule makings for each individual service slows down the
delivery of service to the public because it may result in regulatory
delays before the licensing process begins. Thus, the Commission
propose that, to the extent possible, all future auctions be governed
by the general competitive bidding rules adopted in this proceeding. It
envisions that only a limited number of competitive bidding regulations
would need to be adopted on a service-specific basis. The Commission
seeks comment on whether the rules adopted in this proceeding should
supersede all existing, service-specific competitive bidding rules for
future auctions. It proposes that this action would affect all services
that are subject to pending proceedings and any services that have
existing competitive bidding rules that might apply to licenses that
have not yet been auctioned or that must be reauctioned. The Commission
seeks comment on whether, alternatively, it should phase in the
applicability of the revised general competitive bidding rules at a
future date, such that, at a
[[Page 13571]]
minimum, initial auctions may be completed under the existing service-
specific rules. In the event the Commission decides not to apply the
revised part 1 rules to supersede existing service-specific auction
rules, should it nonetheless subject licenses that are reauctioned (due
to defaults or if no winning bidder is otherwise declared) to these
revised part 1 general competitive bidding rules? To the extent that
commenters believe that service-specific rules should be maintained,
they should explain which ones and why.
3. Section 1.2110(b)(1) of the rules states that the Commission
``will establish the definition of a small business on a service-
specific basis, taking into consideration the characteristics and
capital requirements of the particular service.'' The Commission
proposes to continue the practice of soliciting comment in service-
specific rule making proceedings on the appropriate small business size
standard, or tiered standards, for each auctionable service. In such
rule makings, the Commission would, take into consideration the
characteristics and capital requirements of each service. It would in
all cases, however, for purposes of future auctions, express the
definition of small business purely in terms of gross revenues. The
Commission further proposes that, once the small business definition
for any particular service is adopted, the special provisions for which
such businesses qualify would be determined by schedules set forth in
the general competitive bidding rules. The Commission seeks comment on
these proposals.
4. The Commission notes that some of its eligibility requirements
are defined in terms of gross revenues of ``less than'' a certain
amount, rather than ``not exceeding'' a certain amount. It tentatively
concludes that a uniform method of measurement is preferable because it
is more equitable and administratively simpler. The Commission
therefore proposes that when it adopts size standards, those standards
should be expressed so as to require businesses to have gross revenues
``not to exceed'' particular amounts, and that all standards already
adopted be modified to conform to this method of defining size. The
Commission seeks comment on this proposal. It also seeks comment on a
proposal to base all small business size standards on the applicant's
average gross revenues over the preceding three years, consistent with
the Small Business Act, 15 U.S.C. 632(a).
5. Although the general competitive bidding rules do not define
``gross revenues,'' the Commission has adopted definitions in various
services which are generally the same, but contain some distinction
regarding use of audited and unaudited financial statements. In order
to promote uniformity of regulations, the Commission proposes to use
the broadband PCS definition for all size-based determinations for all
auctionable services, with the modification that unaudited financial
statements used as a basis for gross revenue calculations must be
prepared in accordance with Generally Accepted Accounting Principles.
This modification should ensure that all gross revenues calculations,
audited and unaudited, are prepared consistently. It should also
discourage bidders from manipulating unaudited financial statements to
gain a competitive bidding or payment advantage. The Commission seeks
comment on this proposal.
6. The Commission notes that in the D, E, and F Block Report and
Order, 61 FR 33859 (July 1, 1996), it amended the broadband PCS rules
to require that an applicant's determination of average gross revenues
be based on the three most recently completed fiscal or calendar years.
Should it adopt a similar rule for the general auction rules that would
extend the same option of using either fiscal or calendar years to
applicants in all auctionable services? The Commission also notes that
prior to the D, E, and F Block Report and Order, broadband PCS
applicants were required to state their average gross revenues as
supported by audited financial statements or seek a waiver to use
unaudited financial statements. This requirement was simplified in the
D, E, and F Block Report and Order to permit the use of unaudited
financial statements without seeking a waiver. The Commission seeks
comment on whether the general definition of gross revenue should
similarly allow the use of unaudited financial statements.
7. In determining whether an applicant meets certain size-based
eligibility requirements, many of the Commission's service-specific
competitive bidding rules require it to consider, inter alia, the gross
revenues of certain investors in the applicant and the affiliates of
attributable investors. ``Affiliate'' is defined by the general auction
rules as an individual or entity that directly or indirectly controls
or has the power to control the applicant; is directly or indirectly
controlled by the applicant; is directly or indirectly controlled by a
third person(s) that also controls or has the power to control the
applicant; or has an ``identity of interest'' with the applicant. Some
service-specific rules have adopted alternative definitions of
``affiliate.''
8. An ``attributable'' investor for purposes of size determinations
has been defined differently in the rules for different services; it
proposes to use a controlling interest threshold to determine whether
an entity qualifies to bid as a small business. Thus, in calculating
gross revenues, the Commission would include the gross revenues of the
controlling principals of the applicants and their affiliates, with the
term ``control'' including both de jure and de facto control of the
applicant. The Commission tentatively concludes that this standard,
which it recently adopted in the IVDS rules, would simplify the size
attribution rules and still enable small businesses to attract adequate
financing. It seeks comment on this proposal. The Commission also seeks
comment on whether it should change its definition of affiliate. Should
the Commission, for example, amend its definition of affiliate to
provide an exception for Indian tribes, Alaska Regional or Village
Corporations, as it did for broadband PCS? Also, the Commission notes
that, earlier this year, the Small Business Administration amended and
simplified its regulations governing the small business size standards
in 13 CFR part 121, including amendment of its definition of
``affiliate''. The Commission seeks comment on whether it should amend
its rules to provide a similar ``affiliate'' definition, which would
include, for example, the following general principles of affiliation:
(1) Concerns are affiliates of each other when one concern controls or
has the power to control the other, or a third party or parties
controls or has power to control both; and (2) factors such as
ownership, management, previous relationships with or ties to another
concern, and contractual relationships, will be considered in
determining whether an affiliation exists.
9. The current part 1 rules define ``rural telephone company'' (or
``rural telco'') as any local exchange carrier, including affiliates,
with 100,000 access lines or fewer. The Commission revised the
definition of rural telephone company contained in the broadband PCS
rules upon which the part 1 rule is based, to conform with that
contained in the Telecommunications Act of 1996 (``1996 Act''). The
Commission tentatively concludes that the definition of rural telco set
forth in the 1996 Act should apply to all auctionable services as the
term is used in section 309(j) of the Communications Act. Thus,
[[Page 13572]]
Sec. 1.2110(b)(3) would be amended so as to define the term ``rural
telephone company'' as a local exchange carrier operating entity to the
extent that such entity--(A) 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; (B) provides telephone exchange
service, including exchange access, to fewer than 50,000 access lines;
(C) provides telephone exchange service to any local exchange carrier
study area with fewer than 100,000 access lines; or (D) 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. The
Commission seeks comment on this tentative conclusion.
10. Since the Commission began conducting spectrum auctions,
installment payments have been utilized as a means of assisting small
entities that are likely to have difficulty obtaining adequate private
financing. Pursuant to the part 1 rules, unless otherwise specified,
such installment payment plans (1) impose interest based on the rate of
U.S. Treasury obligations at the time of licensing, plus a possible
premium (2) allow installment payments for the full license term, (3)
begin with interest-only payments for the first two years, and (4)
amortize principal and interest over the remaining term of the license.
Additionally, winning bidders are required to execute a promissory note
and security agreement as a condition to participate in the installment
payment plan.
11. Changes in the basic framework of the installment payment plans
have been made in specific services as the Commission has gained
experience from implementing the rules. In certain services the
Commission has adopted ``tiered'' installment payment plans, which vary
in terms of interest rate and payment terms, depending on the size of
the licensee. While the Commission seeks to continue to offer these
opportunities to small businesses, and possibly other entities, it
seeks comment on ways to refine the installment payment plans to
streamline without reducing their benefit to small businesses. For
example, it seeks comment on whether the Commission or its designee
should seek non-resource intensive means to screen applicants applying
for installment payment plans to determine their credit worthiness, and
if so, whether all bidders eligible for installment payments should be
screened before the start of an auction, or only auction winners. If
the Commission were to adopt such screening, what information or
standards should serve as criteria for judging a bidder's credit
worthiness? Further, the Commission seeks comment on whether it should
offer higher bidding credits in lieu of installment payments for
winning bidders who qualify. The Commission notes that substituting a
system of larger bidding credits might eliminate the administrative and
market concerns associated with installment payments, while nonetheless
ensuring opportunities for small businesses to participate in auctions.
On the other hand, however, installment payment plans have been a
useful tool for small businesses to access capital.
12. As an alternative to offering higher bidding credits in lieu of
installment payments, the Commission seeks comment on whether it should
require larger down payments, such as 30 or 40 percent, to reduce the
amount of a bidder's high bid that is financed by the federal
government. Increasing the amount of money a bidder has at stake in the
event of a default may reduce the likelihood of default and will reduce
the government's risk in the event of default. The Commission also
seeks comment on whether it could achieve the same goal of reducing the
likelihood of default by adopting a requirement that bidders increase
their upfront payment during the course of the auction once their
cumulative high bids exceed their upfront payment by some multiple. For
example, once a bidder's cumulative bids were more than twenty-five
times its upfront payment, it would be required to deposit additional
funds with the Commission. The Commission seeks comment on this
proposal and how it could be implemented, including the appropriate
multiplier used to trigger the supplemental upfront payment obligation.
13. In addition, the Commission proposes that the general
competitive bidding rules be amended to include a schedule of
installment payment plans for designated entities seeking to
participate in the provision of spectrum-based services. Defining
available installment payment plans in the general competitive bidding
rules would give potential bidders more certainty about the special
provisions available to small businesses and other entities and promote
uniformity of regulation. As discussed above, the Commission believes
that once a small business definition is adopted for a particular
service, or other entities are identified as qualifying for installment
payments, eligible businesses should be able to turn to the part 1
rules to determine the specific terms available to them. The following
schedule of installment payment plans is a possible approach to
implementing this concept.
----------------------------------------------------------------------------------------------------------------
Average gross revenues Interest rate Payment terms
----------------------------------------------------------------------------------------------------------------
Not to exceed $3 million............. T-note rate............................... 2 yrs. interest-only
payments; amortize principal
and interest over remaining
license term.
Not to exceed $15 million............ T-note rate + 1.5%........................ 2 yrs. interest-only
payments; amortize principal
and interest over remaining
license term.
Not to exceed $40 million............ T-note rate + 2.5%........................ 2 yrs. interest-only
payments; amortize principal
and interest over remaining
license term.
Not to exceed $75 million \1\........ T-note rate + 2.5%........................ Amortize principal and
interest over license term.
Not to exceed $125 million \1\....... T-note rate + 3.5%........................ Amortize principal and
interest over license term.
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\1\ These entities have never been defined as small businesses by service-specific rules, but for broadband PCS
they may have been eligible for installment payments as entrepreneurs.
The schedule set forth above is based in general on the plans
adopted for the most recent auctions and, relying on past auction
experience, the Commission believes these plans are appropriate.
However, it recognizes that
[[Page 13573]]
plans with more generous terms were previously adopted for specific
services. The Commission seeks comment on whether it should incorporate
a schedule of installment payments into the general auction rules while
still retaining the authority to modify payment terms on a service-
specific basis. Further, it seeks comment on the appropriate schedule
of payment terms.
14. Section 1.2110(e)(3)(i) of the rules indicates that the
interest rate on installment payments will be the interest rate on
Treasury obligations with maturities closest to the duration of the
license term at the time of licensing. More precisely, the interest
rate is established by using the coupon interest rate for Treasury
notes with similar maturities, at the most recent preceding Treasury
auction. The Commission notes that, in the Competitive Bidding Second
Report and Order, 59 FR 22980 (May 4, 1994), it indicated both that it
agreed with those commenters that suggested that interest on
installments should be charged at a rate no higher than the
government's cost of money and also that the interest rate imposed for
installment payments should be equal to the rate for U.S. Treasury
obligations of maturity equal to the license term. The Commission
recognizes that determining the interest rate for installment payment
plans pursuant to Sec. 1.2110(e)(3)(i) may not always reflect the
government's cost of money but it provides an objective benchmark for
the interest rate determination. The Commission believes that it would
be beneficial to licensees for it to more clearly identify in the rules
how the interest rate would be determined for all installment payment
plans. Therefore, it proposes to codify the existing policy by
specifying that the interest rate for installment payments will be
determined by taking the coupon rate of interest offered in the most
recent Treasury auction preceding the close of the Commission's
auction. The Commission seeks comment on this proposal. Further, it
seeks comment on whether it should adopt some other basis for computing
interest. For example, should the Commission establish more market-
based interest rates with a cost of funds component and a premium for
credit risk? If so, it asks commenters to discuss how it should
determine the appropriate interest premium.
15. Where the Commission uses installment payment plans, it
proposes to set the interest rate for such payment plans on the date
that the Public Notice is issued announcing the close of the auction
and the winning bidders, based on rates established in the most recent
Treasury auction with obligation of the appropriate term. Currently,
Sec. 1.2110(e)(3)(i) of the Commission's general competitive bidding
rules requires that the Commission impose interest based on the rate of
U.S. Treasury obligations at the time of licensing. The Commission
tentatively concludes, however, that establishing the interest rate on
the day that the Public Notice is released announcing the close of the
auction is the most appropriate time for both licensees and the
Commission. The close of the auction represents the most clearly
identifiable time when an obligation to the Commission and the United
States Treasury is established. Establishing the interest rate in this
way also provides a uniform date on which the interest rate for all
prospective licensees within a particular service is established,
regardless of petitions to deny or other delays that may vary among
bidders. In addition, the Commission believes that establishing the
interest rate at a date earlier than the date of licensing would assist
bidders in efforts to obtain financing, as interest expense would be
calculable from a specific known date. Furthermore, the Commission
believes that establishing the interest rate as it proposes would
reduce the interest rate risk to the bidder and mitigate this risk to
the capital investor. Establishing the interest rate earlier than the
point of licensing would also permit the licensee to receive, review,
and return the necessary note and security agreement earlier, which
would also speed the licensing process. This, in turn, should hasten
the development of service to the marketplace. Alternatively, the
Commission could establish the interest rate for the installment
payment plan in the Public Notice announcing the start of the auction,
with the rate based on the most current Treasury rate on that date.
This would enable both bidders and potential capital investors to
better assess a bidder's prospective financial obligations during the
auction. The Commission seeks comment on each of its proposals,
tentative conclusions, and alternatives.
16. Under the current general competitive bidding rules, the
Commission may award bidding credits (i.e., payment discounts) to
eligible designated entities. These general rules also provide that
service-specific rules will specify the designated entities eligible
for bidding credits, the licenses for which bidding credits are
available, the amounts of bidding credits, and other procedures.
Accordingly, the Commission has adopted separate rules governing
bidding credits for various auctionable services.
17. As with installment payments, the Commission believes that the
general competitive bidding rules should be amended so that the levels
of available bidding credits are defined, and are uniform for all
auctionable services. The Commission believes such an approach will be
beneficial because potential bidders will have more information well in
advance of the auction than they currently do about how such levels
will be set. It believes that, once a small business definition is
adopted for a particular service, eligible businesses should be able to
refer to the part 1 rules to determine the level of bidding credit
available to them. The following schedule is a possible approach to
implementing this concept.
------------------------------------------------------------------------
Bidding
Average annual gross revenues credits
(percent)
------------------------------------------------------------------------
Not to exceed $3 million..................................... 25
Not to exceed $15 million.................................... 15
Not to exceed $40 million.................................... 10
------------------------------------------------------------------------
The Commission recognizes that these credits may differ from those
previously adopted for specific services. Based on past auction
experience, however, the Commission believes that the approach taken
here would provide adequate opportunities for small businesses of
varying sizes to participate in spectrum auctions. In addition, the
Commission believes that providing slightly less generous bidding
credits for larger businesses (e.g., those businesses with gross
revenues not exceeding $40 million) would more specifically tailor the
amount of the credit to the needs of the particular applicant. The
Commission seeks comment on this schedule, and it also asks interested
parties to suggest alternatives. For example, does the demand for
capital to implement certain services justify including businesses with
average annual gross revenues exceeding $40 million on this schedule?
The Commission recognizes that it has suggested that it might be
appropriate in some cases to provide larger bidding credits in lieu of
installment payments. The Commission is aware that in developing their
auction strategy, bidders make calculations about the net present value
of their bids and factor in their ability to obtain financing.
Therefore, the same net effect can be achieved by giving either higher
bidding credits or more generous installment payment terms. If the
Commission limited the use of installment payments,
[[Page 13574]]
how should that action affect levels of bidding credits?
18. Under the general competitive bidding rules, a licensee seeking
Commission approval of a transfer of control or an assignment of a
license acquired through the competitive bidding process utilizing
installment payments is required to pay the remaining principal balance
as a condition of the transfer. No payment is required, however, when
the proposed transferee or assignee is qualified to obtain the same
installment financing and assumes the applicant's installment payment
obligations. Many of the service-specific auction rules include similar
provisions. However, some service-specific unjust enrichment provisions
for installment payments contain certain variations from the general
rule set forth in Part 1. The broadband PCS unjust enrichment rule, for
example, specifies that applicants seeking to assign or transfer
control of a license to an entity not meeting the eligibility standards
for installment payments must pay not only unpaid principal as a
condition of Commission approval but also any unpaid interest accrued
through the date of assignment or transfer. This rule also provides
that if a licensee utilizing installment financing seeks to make any
change in its ownership structure that would result in the loss of
eligibility for installment payments, it must pay the unpaid principal
and accrued interest as a condition of Commission approval of the
change. Finally, in recognition of the tiered installment payment plans
offered to broadband PCS licensees, the rule provides that if a
licensee seeks to make any change in ownership that would result in the
licensee qualifying for a less favorable installment plan, it must seek
Commission approval and adjust its payment plan to reflect its new
eligibility status. A licensee, under this rule, may not switch its
payment plan to a more favorable plan.
19. Under the Commission's general competitive bidding rules, a
licensee seeking Commission approval of a transfer of control or an
assignment of a license acquired through the competitive bidding
process utilizing bidding credits, or proposing to take any other
action relating to ownership or control that will result in loss of
eligibility for such bidding credits, is required to pay the sum of the
amount of the bidding credit plus interest as a condition of FCC
approval. Under the broadband PCS rules, if, within the original term,
a licensee applies to assign or transfer control of a license to an
entity that is eligible for a lower bidding credit, the difference
between the bidding credit obtained by the assigning party and the
bidding credit for which the acquiring party would qualify must be paid
to the United States Treasury as a condition of approval of the
assignment or transfer.
20. The Commission proposes to amend the general unjust enrichment
rules to conform them to the broadband PCS rules. It believes that
these rules are preferable to the current general unjust enrichment
rules because they provide greater specificity about funds due at the
time of transfer or assignment and specifically address changes in
ownership that would result in loss of eligibility for installment
payments, which the current general rules do not address. The broadband
PCS rules also address assignments and transfers between entities
qualifying for different tiers of installment payments or bidding
credits, thus supplying clearer guidance for auctions in which tiered
installment payment plans or bidding credits are provided. The
Commission seeks comment on this proposal. Further, it seeks comment on
whether it should adopt an unjust enrichment provision that provides a
scale of decreasing payment liability based on the number of years a
license is held as it has recently done for other services. For
example, should the Commission adopt a rule that provides that a
business that holds a license that it obtained with a bidding credit
must pay back 60 percent of its bidding credit if it transfers the
license after five years; 50 percent after eight years; 40 percent
after nine years; and 20 percent after ten years? The Commission also
solicits comment on unjust enrichment rules as they apply to
partitioning and disaggregation. If it decides to adopt partitioning
and disaggregation for various services, how should the unjust
enrichment rules apply when the partitioner or disaggregator is the
recipient of a bidding credit or is paying on an installment payment
plan? Should the Commission adopt for all auctionable services the same
provisions that it adopted for broadband PCS?
21. In recent auctions, the Commission has allowed applicants to
file their applications either manually or electronically. The
Commission believes that requiring all applications to be filed
electronically is in the best interest of auction participants as well
as members of the public interested in monitoring Commission auctions.
22. The Commission therefore tentatively concludes to amend
Secs. 1.2105(a) and 1.2107(c) of the rules to require that all short-
form and long-form applications be filed electronically beginning
January 1, 1998. The Commission recognizes that there is a need for a
period of time before a comprehensive electronic filing requirement
becomes effective in order for bidders to prepare and be completely
comfortable with this process. It believes that the effective date
proposed here will provide potential bidders with adequate time in
which to adapt to electronic filing requirements. The Commission seeks
comment on this tentative conclusion.
23. Section 1.2105(b) of the Commission's rules addresses
modifications and amendments to FCC Form 175. Specifically,
Sec. 1.2105(b)(2) provides that bidders may make minor changes or
correct minor errors in the FCC Form 175 application, but major
amendments may not be submitted after the initial application deadline.
This section further provides that the Commission will classify all
amendments as major or minor pursuant to service-specific rules. The
Commission proposes to amend the general auction rules to define major
amendments to FCC Form 175 uniformly for all auctionable services. It
proposes at a minimum to consider any change in ownership that
constitutes a change in control to be a major amendment. It also
proposes to consider application amendments that show a change in an
applicant's size which would affect its eligibility for small business
provisions to be a major amendment. The Commission also seeks comment
on which other kinds of changes should be deemed major, and which
should be deemed minor. For example, how should it treat changes to the
licenses selected in simultaneous multiple round auctions? In previous
auctions, applicants have claimed that they made mistakes in their
license selection and have requested that the Commission allow them to
add or delete license selections during the resubmission period. While
the Commission has generally refused to grant these requests in order
to prevent collusive conduct or gaming that would reduce the
competitiveness of the auction, there may be some circumstances in
which the competitiveness of the auction might be enhanced by allowing
applicants to add licenses to their FCC Form 175 applications. The
Commission therefore ask commenters to consider whether an amendment to
add licenses should be permissible as a minor amendment. If so, it also
asks whether such an amendment should be permitted only until the
deadline for submitting upfront payments, because after that point the
risks of gaming in the auction
[[Page 13575]]
increase due to the availability of information concerning each
bidder's eligibility. For example, should an applicant be permitted to
add a license designation to its short-form application only if that
license already has been designated by two or more applicants? The
Commission seeks comment on each of these proposals.
24. Currently, the general competitive bidding rules do not set
forth any ownership disclosure requirements for auction applicants on
their short-form applications. Service-specific rules, however, require
varying degrees of specific ownership information from applicants. For
example, both the narrowband PCS and broadband PCS rules require
detailed ownership disclosure from all auction applicants. These rules
also state additional requirements for applicants claiming designated
entity status. On both the short-and long-form applications for
narrowband PCS, applicants must submit a list of (1) any business five
percent or more whose stock, warrants, options, or debt securities are
owned by the applicant, (2) any business which holds a five percent or
more interest in the applicant or any business in which a five percent
or more interest is held by another company which holds a five percent
interest in the applicant, (3) entities holding a five percent or more
interest in the applicant, and (4) partners in a partnership. Short-
form applicants claiming designated entity status also are required to
list all control group members and provide a calculation of gross
revenues and personal net worth. Although the broadband PCS
requirements are very similar to those for narrowband PCS, the
Commission has recently amended the broadband PCS application
requirements to make them less burdensome on applicants. Thus,
broadband PCS applicants are required to disclose on both short-form
and long-form applications a list of (1) 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,
(2) any party which holds a five percent or more interest in the
applicant, or any entity holding or applying for CMRS or PMRS licenses
in which a five percent or more interest is held by another party which
holds a five percent or more interest in the applicant, (3) any person
holding five percent or more of each class of stock, warrants, options,
or debt securities, and (4) in the case of partnerships, the name and
address of each partner. Broadband PCS applicants that claim designated
entity status must also identify control group members and provide net
asset and gross revenues figures. This information was necessary at the
short-form stage for the C and F blocks because participation in these
blocks was limited to entities below a net asset and gross revenue
threshold.
25. The Commission continues to believe that detailed ownership
information is necessary to ensure that applicants claiming designated
entity status in fact qualify for such status, and to ensure compliance
with spectrum caps and other ownership limits. Disclosure of ownership
information also aids bidders by providing them with information about
their auction competitors and alerting them to entities subject to the
anti-collusion rules. A standard disclosure requirement, however, would
avoid the variation and possible inconsistency found in the current
service-specific ownership disclosure requirement. Thus, the Commission
seeks comment on whether it should adopt standard ownership disclosure
requirements for all auctionable services that are similar to the
current rules for broadband PCS. It also seeks comment on what
ownership information should be required. Finally, the Commission asks
commenters to address whether ownership disclosure should vary
depending on whether an applicant is applying for special provisions,
such as bidding credits or installment payments.
26. In addition, the Commission also proposes to adopt a uniform
reporting requirement for all applicants claiming designated entity
status. Specifically, it proposes to adopt a reporting requirement
similar to that in the 900 MHz SMR rules. That rule, unlike the
broadband PCS rule, focuses on affiliates and their gross revenues
rather than more complex control group equity structures. In keeping
with its proposal to adopt the simpler controlling principals and
affiliates test, the Commission proposes an analogous reporting
requirement. Therefore, it proposes that applicants claiming small
business status be required to disclose on their short-form application
the names of each controlling principal and affiliate and gross
revenues calculations for each. On their long-form applications, they
would be required to disclose any additional gross revenues
calculations, any agreements that support small business status, and
any investor protection agreements. The Commission seeks comment on
this proposal.
27. Currently, the Commission's ownership disclosure rules require
applicants to file specific ownership information, in conjunction with
their FCC Form 175, prior to each auction. Similarly, at the close of
each auction, winning bidders are required to file ownership
information on each long-form application.
28. The Commission believes that by requiring these ownership
disclosure filings, it ensures that it receives all the information
necessary to evaluate an applicant's qualifications. The Commission
notes, however, that these requirements could result in duplicative
filings. In order to streamline the application procedure at both the
short-form and long-form stage, the Commission requests comment on
whether it should create a central database of licensee and bidder
data, which would allow bidders to avoid repeating ownership
information in each application in each auction. The Commission
tentatively concludes that applicants should be able to file ownership
information to apply for the first auction in which they participate
and that this information should then be stored in a central database
which subsequently would be updated each time applicants participate in
another auction. After applying for its first auction, an applicant
filing for a subsequent auction would either update the ownership
information in the database, or rely on the information in the database
and certify that there have been no changes. The Commission believes
this approach would benefit auction applicants by reducing the time
spent preparing auction applications, and it would benefit the
Commission by eliminating the need to review and analyze duplicative
filings. The Commission seeks comment on this approach to ownership
disclosure.
29. Under the broadband PCS rules, the Commission has reserved the
right to conduct random audits of applicants and licensees in order to
verify information provided regarding their eligibility for certain
special provisions. Such entities certify their consent to audits on
their short-form applications. The Commission proposes to explicitly
reserve this right for all auctionable services and seeks comment on
this proposal.
30. Section 309(j)(8)(C) of the Communications Act as amended by
the Telecommunications Act of 1996, requires that any deposits the
Commission may require for the qualification of any person to bid in an
auction shall be deposited into an interest bearing account. The
Communications Act further requires that within 45 days of the
auction's conclusion, the deposits of successful bidders shall be paid
to the Treasury,
[[Page 13576]]
the deposits of unsuccessful bidders shall be returned, and all accrued
interest shall be transferred to the Telecommunications Development
Fund. Prior to the enactment of this provision, auction deposits were
submitted to a non-interest bearing account with the Department of
Treasury. Bidders who completely withdrew prior to the close of the
auction could, upon written request, receive a refund of their upfront
payments prior to the close of the auction.
31. It is unclear whether Congress intended, by enacting this new
law, to require the Commission to change its practice of refunding
upfront payments to bidders who withdraw during the course of an
auction. The Commission believes that its current practice of returning
the upfront payments of bidders who have completely withdrawn prior to
the conclusion of competitive bidding is in the public interest as it
prevents unnecessary encumbrances on the funds of auction bidders, many
of whom may be small businesses, after they have withdrawn from the
auction. The Commission seeks comment on this practice and whether it
is consistent with the Communications Act.
32. The Commission determined in the Competitive Bidding Second
Report and Order that, upon the conclusion of the auction, a bidder
must tender a significant and non-refundable down payment to the
Commission over and above its upfront payment in order to provide
further assurance that the winning bidder will be able to pay the full
amount of its winning bid. The Commission thus required that, within
five business days after being notified that it is a high bidder on a
particular license, a high bidder must submit to the Commission
additional funds as are necessary to bring its total deposits up to 20
percent of its high bid(s).
33. In the Order accompanying this NPRM, the Commission modified
the due date for down payments to ten business days after the issuance
of a Public Notice announcing winning bidders. In this NPRM, the
Commission proposes to retain discretion to determine the down payment
amount required for each service and delegate authority to the Bureau
to announce this amount in a Public Notice to be issued prior to the
start of the auction. In exercising this authority, as discussed above,
the Bureau will seek input from the public. The Commission continues to
believe that a substantial down payment is needed to ensure that
licensees have the financial capability to attract the capital
necessary to deploy and operate their systems, and to protect against
default. The Commission believes that giving the Bureau the discretion
to determine the level of down payments for each auction would be the
best way to ensure that such levels remain appropriate for developing
and evolving industries. The Commission seeks comment on this proposal.
It also seeks comment on whether the level of down payments which it
has used in the past should be raised for some services.
34. Section 1.2109(a) of the Commission's rules provides that
auction winners not eligible for installment payments are generally
required to make final payment on their license(s) within a certain
time following award of the license(s). Section 1.2110(e) of the
Commission's rules provides that all winning bidders eligible for
installment payments are required to submit a second down payment
within a certain time of the license grant. These payment deadlines are
announced by public notice when the Commission has granted or is
prepared to grant the license(s). Where a winning bidder fails to make
its final auction payment for the balance of its winning bid or fails
to make the second down payment in a timely manner, it is considered in
default on its license(s) and subject to the applicable default
payments.
35. The Commission continues to believe that the strict enforcement
of payment deadlines preserves the integrity of the auction and
licensing process by ensuring that applicants have the necessary
financial qualifications. In this connection, the Commission believes
that the bona fide ability to pay demonstrated by a timely first down
payment is essential to a fair and efficient auction process and, thus,
it does not propose to modify the approach of requiring timely
submission of first down payments. The Commission nonetheless
recognizes that applicants may encounter certain difficulties when
trying to arrange financing and make substantial payments under strict
deadlines. In circumstances which may warrant favorable consideration
of a waiver request or an extension of the payment date, it must also
evaluate the fairness to other licensees who made their payment in a
timely fashion. Accordingly, the Commission proposes to allow winning
bidders to make their final payments or second down payments within a
short period after the applicable deadline, provided that they also pay
a late fee. The Commission believes that, by committing substantial
capital to their license acquisition in the form of an initial down
payment, winning bidders have demonstrated a bona fide interest in
becoming a licensee, but have also incurred a substantial debt to the
federal government. The Commission, therefore, seeks comment on the
appropriate time period to allow late second down payments and final
payments. It believes that the late payment period should be short
(e.g., no longer than 10 business days). The Commission tentatively
concludes that, if a winning bidder misses the final payment or second
down payment deadline and also fails to remit the required payment
(plus the applicable late fee) by the end of the late payment period,
it would be declared in default and subject to the applicable default
payments. The Commission seeks comment on this tentative conclusion.
36. Additionally, the Commission seeks comment on the appropriate
fee to impose for late payment. Because it believes that the late
payment fee should be large enough to deter winning bidders from making
late payments and yet small enough so as not to be punitive, it
tentatively concludes that a late payment of five percent of the amount
due is consistent with general commercial practice and provides some
recompense to the federal government for the delay and administrative
or other costs incurred. The Commission seeks comment on this proposal
and asks that commenters proposing alternative late payment fee(s)
provide a rationale for the alternative fee amount(s).
37. This proposal to allow late payments is limited to payments
owed by winning bidders that have had their licenses conditionally
granted or where the license grant is imminent. As indicated above, the
Commission does not propose to adopt a late payment period for initial
down payments that are due soon after the close of the auction. It
believes it is reasonable to expect that winning bidders timely remit
their initial down payments, given that is their first opportunity to
demonstrate to the Commission their ability to make payments towards
the licenses of interest to them. Further, if a winning bidder defaults
on its initial down payment on a license, the Commission can take
action under Sec. 1.2109(b) relatively soon after the auction has
closed, by, for example, re-auctioning the license or offering it to
the other highest bidders (in descending order) at their final bids.
Similarly, the Commission does not propose to allow any late submission
of upfront payments. Allowing late submission of upfront payments would
slow down the
[[Page 13577]]
licensing process by delaying the start of an auction.
38. Under the current rules, winning bidders that are designated
entities are not required to pay their second down payment until
petitions to deny filed against them are dismissed or denied. In the
interim, designated entity winning bidders for the same auction with no
petitions filed against them are required to submit their second down
payments earlier because their licenses are ready for grant.
39. The Commission seeks comment on whether it should require all
designated entities that win licenses to make their second down
payments at the same time. If so, one way to implement this would be
for winning bidders who have petitions to deny pending against them to
submit their second down payments to the Commission to be deposited
into an escrow account. If the petitions to deny are granted, the
bidder would be refunded the amount of the second down payment subject
to any default payments owed the Commission. If the petitions to deny
are dismissed or denied, the funds would be transferred from the escrow
account and applied to the balance owed by the licensee. This procedure
would have the effect of ensuring that all designated entities pay
their down payments in a uniform fashion, thus, reducing any potential
inequities that could result from differing payment dates. It would
also avoid requiring a bidder with petitioned and non-petitioned
licenses to make several payments to the Commission. The Commission
seeks comment, however, on whether this procedure would affect the
ability of bidders that are subject to petitions to deny to access
capital to make their down payments. The Commission also seeks comment
on whether all non-designated entities should be required to make
payment in full at the same time for the same reasons discussed in
connection with designated entities.
40. Section 1.2104(g) of the rules provides that when a bidder
withdraws, defaults, or is otherwise disqualified from a simultaneous
multiple round auction, upfront and/or down payment amounts that the
bidder has on deposit with the Commission will be applied first to the
bid withdrawal and default payments owed the Commission. This rule has
been interpreted to encompass upfront and/or down payment funds a
bidder has on deposit for licenses won at the same auction. The
Commission proposes to delete the language ``simultaneous multiple
round'' from Sec. 1.2104(g) because it believes that it should apply to
other auction designs with equal force as it does to a simultaneous
multiple round auction. The Commission believes strict rules regarding
default payments will discourage insincere bidding, maintain the
integrity of the auction and ensure that licenses end up in the hands
of those parties that value them the most and have the financial
capacity to provide service. It seeks comment on this proposal.
41. In the Competitive Bidding Fifth Report and Order, 59 FR 43062
(August 22, 1994), the Commission provided that, where the default
payment cannot be determined at the time of default by a broadband PCS
licensee (e.g. because the license has not yet been reauctioned), the
Commission can obtain a deposit on the default payment to be held on
deposit until such time as the final default obligation can be
determined. This deposit is held by the Commission until the final
default payment can be established and is paid. The purpose of this
provision is to maintain the integrity of the auction by discouraging
defaults on the part of bidders, encouraging bidders to make secondary
or back-up financial arrangements, and ensuring that default payments
are made in a timely manner. The Commission seeks comment on a proposal
to modify the rules to provide for a similar default deposit for all
auctionable services of at least three percent (3%) of the defaulted
bid amount.
42. For the broadband PCS F block auction, the Commission amended
the terms of the installment payment plans to provide for late payment
fees. Thus, when licensees are late in their scheduled installment
payments, the Commission will charge a late payment fee equal to five
percent (5%) of the amount of the past due payment. The Commission
instituted this fee because it concluded that, without it, licensees
may not have adequate financial incentives to make installment payments
on time and may attempt to maximize their cash flow at the government's
expense by paying late.
43. The Commission seeks comment on whether it should adopt, for
all auctionable services, a late payment fee on any installment payment
that is overdue. The late fee could be set, for example, at a rate that
is equal to five percent (5%) of the overdue payment. Such payment
would accrue on the next business day following the payment due date
and would be payable with the next quarterly installment payment
obligation. This fee would be assessed for each quarterly payment
submitted late. Payments would be applied in the following order: late
charges, interest charges, principal payments. Thus, a licensee who
makes payment after the due date but does not make payment sufficient
to pay the late fee, interest, and principal, will be deemed to have
failed to make full payment and will be subject to license cancellation
pursuant to the Commission's rules. The Commission tentatively
concludes that such a late payment provision is necessary to ensure
that licensees have an adequate financial incentive to make installment
payments on time. It seeks comment on this tentative conclusion and
notes that licensees would continue to have 90 days before a payment is
deemed delinquent but a late payment fee would be assessed during this
period.
44. Section 1.2110(e)(4)(ii) of the Commission's rules provides
that interest that accrues during a grace period will be amortized over
the remaining term of the license. Amortizing interest in this way has
the effect of changing the amount of all future payments and requiring
the Commission, or its designee, to generate a new payment schedule for
the license. Changing the amount of the installment payment has, in
turn, created uncertainty about the interest schedule, and increased
the administrative burden by requiring formulation of a new
amortization schedule.
45. Section 1.2110(e)(4)(ii) also states that in considering
whether to grant a request for a grace period, the Commission may
consider, among other things, the licensee's payment history, including
whether the licensee has defaulted before, how far into the license
term the default occurs, the reasons for default, whether the licensee
has met construction build-out requirements, the licensee's financial
condition, and whether the licensee is seeking a buyer under an
authorized distress sale policy. Under this rule, licensees are
required to come before the Commission with a filing as well as
financial information such as an income statement or balance sheet, in
the case of financial distress, to provide the necessary information
for the Commission to make its ruling. Licensees are then required to
wait for a ruling by the Commission before knowing whether a grace
period has been granted or denied. This could place licensees in a
position of uncertainty if they are seeking to restructure other debt
contingent upon the results of the Commission's grace period ruling.
46. In order to avoid the potential problems associated with
changing the amount of installment payments, the Commission proposes to
amend
[[Page 13578]]
Sec. 1.2110(e)(4)(ii) to require all current licensees who avail
themselves of the grace period to pay all fees, all interest accrued
during the grace period, and the appropriate scheduled payment with the
first payment made following the conclusion of the grace period. It
seeks comment on this proposal.
47. Further, to simplify the grace period procedures, the
Commission proposes to revise the method by which grace periods are
provided. The Commission or its designee may not have the necessary
resources to evaluate a licensee's financial condition, business plans,
and capital structure proposals. Therefore, instead of considering
grace period requests, the Commission could institute the following
system: If a licensee did not make payment on an installment obligation
within 90 days of its due date, then the licensee would automatically
receive an additional 90 days to make that payment contingent upon
receipt of the 5 percent late payment fee proposed above plus an
additional late payment fee of 10 percent. The late payment fee that
the Commission proposes here is greater than the 5 percent late payment
fee that it proposes for non-grace-period late installment payments
because it envisions the grace period as an extraordinary remedy and
wish to encourage licensee to seek private market solutions to their
capital problems before the payment due date or, at a minimum, within
90 days of the due date. Under this proposal licensees would not be
required to submit a filing to receive a grace period; however,
licensees would be expected to resume payments after the 90 day grace
period is over. This approach would also be consistent with the
standard commercial practice of establishing late payment fees and
developing financial incentives for licensees to resolve capital issues
before payment due dates. Payments from the licensee would be applied
to late fees, interest, and principal, in that order. Any licensee that
did not make full payment of all amounts, including a total late
payment fee of 15 percent, within 180 days of the payment due date
would have its license automatically canceled as provided in
Sec. 1.2110(e)(4)(ii). The Commission seeks comment on this method of
providing for an automatic grace period.
48. The Commission also seeks comment on whether licensees that
default on installment payment obligations should be subject to the
default payment provisions outlined in Sec. 1.2104(g), i.e., the
difference between the defaulting winner's bid and the subsequent
winning bid plus 3 percent of the lesser of these amounts. Sections
1.2110(e)(1) and 1.2110(e)(2) provide that applicants eligible for
installment payments will be liable for such a payment if they fail to
remit either their initial or final down payment. Section
1.2110(e)(4)(iii) provides that following the expiration of any grace
period without successful resumption of payment, or upon denial of a
grace period request, or upon default with no such request submitted,
the license of an entity paying on an installment basis will be
canceled automatically. This section does not state, however, that
under these circumstances the licensee will be liable for the default
payment set forth in Sec. 1.2104(g). Furthermore, the Commission has
been asked to address the issue of cross default in the context of
installment payments. A cross-default provision would specify that if a
licensee defaults on one installment payment loan, it would also
default on any other installment payment loans it holds. These
provisions are standard in credit-related agreements.
49. The Commission tentatively concludes that a licensee that makes
the necessary down payments but defaults on installment payments should
not be exempt from the default payment provisions of Sec. 1.2104(g).
Licensees that default at any point in the auction process, either
before licenses are issued or during the installment payment period,
reduce the efficiency of the licensing process. A default, regardless
of when it occurs, makes it necessary for the Commission to incur the
costs of reauctioning the license, and the default delays the
deployment or continuation of service in the affected market. The
Commission believes that imposing the default payment of Sec. 1.2104(g)
on all defaulting licensees would serve to discourage defaults and
encourage licensees to find private market solutions for default
situations in addition to covering the cost the government must incur
to reauction the license. The Commission seeks comment on this
tentative conclusion and on the appropriate method for calculating
default payments when defaults occur during the license term.
50. The Commission seeks comment on whether it should cross default
its installment payment plan loans with other installment payment plan
loans to the same licensee. If adopted, should a cross default
provision apply across services? For example, if a licensee, with both
SMR and broadband PCS licenses, defaults on one of its PCS licenses,
should the Commission consider pursuing default remedies against all
PCS and SMR licenses? Instead, should the Commission pursue default
remedies against the single license only? What factors should influence
its decision to pursue cross-defaults? Should cross-defaults be applied
automatically or on a case-by-case basis? The Commission also seeks
comment, in general, on what remedies are appropriate when licensees
default.
51. Congress has directed the Commission to ``design and test
multiple alternative methodologies for auction designs.'' The
Commission is interested in reducing the length of the auctions without
sacrificing the economic efficiency of the assignment process. It seeks
comment, in general, on how it can speed the auctions (and in
particular the simultaneous multiple round auctions). For example, how
could the current procedural rules for simultaneous multiple round
auctions be modified to meet this objective, or what new designs might
be used to efficiently allocate numerous licenses?
52. The Commission believes that one way complex auctions of
multiple licenses could proceed more quickly would be to modify the
current simultaneous multiple round auction to allow bidding on a
continuous basis within a combined bid submission/bid withdrawal
period. This would give bidders immediate feedback on new high bids,
withdrawn high bids and minimum accepted bids, and provide them with
the opportunity to move the auction along more quickly. Under the
current simultaneous multiple round auction rules, each round of
bidding contains a discrete bid submission period and a bid withdrawal
period. The rules permit bidders to place bids once within the
submission period of the round on licenses that they are eligible to
bid on, and they may withdraw high bids only during the bid withdrawal
period. This requires bidders to wait until the end of the round to
determine their status. An open, continuous bidding round--in which
bidders would know when their bid has been exceeded and would be free
to bid again--could reduce the delay inherent in the current design.
Therefore, the Commission proposes to amend the general rules to
provide for such ``real time'' bidding as another design feature for
electronic multiple round auctions.
53. The Commission recognizes, however, that it may be difficult
for bidders to react quickly enough to ensure that in each bidding
round they make new high bids on the necessary percentage of their
bidding eligibility to meet their activity requirement. Therefore, it
proposes that after each fixed period of real time bidding (when
[[Page 13579]]
only standing high bids from the previous round and new high bids from
the current round count in determining the bidder's activity level) the
Commission would open a discrete closed bidding period, when bidders
would be able to submit valid bids (bids that meet or exceed the
minimum accepted bid) at the end of the ``real time'' bidding to ensure
that they have the opportunity to meet their activity requirements for
the round. Following the discrete closed bidding period, the Commission
would post the final round results for the period and make all bids
available to the public. By allowing a discrete period of time for
bidders to make valid bids at the end of the round, the Commission
would reduce the risks associated with real time electronic bidding.
54. Because ``real time'' auctions are a variation of the
simultaneous multiple round auction design established in the rules,
the Commission tentatively concludes that many of the same procedures
should apply. These include: Upfront payments to determine eligibility,
activity requirements that apply to each round, minimum bid increments,
and a stopping rule. However, the Commission believes that separate
rules would be required on certain issues. The Commission seeks comment
on issues that arise when the bid submission and bid withdrawal periods
are combined, such as how withdrawn bids should be treated when
calculating current activity. For example, whether a bid that is placed
and withdrawn in one round should count as activity, and whether a
withdrawn bid will negate the status of that bid as activity in the
current round as well as the status as standing high bid.
55. In addition, the Commission seeks comment on the appropriate
length for the real time bidding rounds. It seeks comment on what
measures it can take to assure bidders that they will have enough time
to determine their bidding strategies with ``real time'' bidding. In
particular, the Commission seeks comment on the impact of ``real time''
bidding on small businesses, generally, and particularly on their
ability to process bid information during the course of a single round.
56. Currently, Sec. 1.2104(d) of the rules states that the
Commission may establish suggested minimum opening bids. In the
Competitive Bidding Second Report and Order, the Commission noted that
if only two or three applicants applied to bid for a valuable license,
it might set a reservation price. A reservation price is a price below
which a license subject to auction will not be awarded. The Commission
provided the option of setting a reservation price in order to prevent
a license from being awarded under circumstances where there would be
little competition among bidders and significant incentives to collude.
57. The Commission proposes to amend Sec. 1.2104 to specify that it
may establish minimum opening bids, rather than suggested minimum
opening bids. Such a rule has been adopted in service-specific rules.
The Commission proposes to amend the general competitive bidding rules
to allow it to establish a minimum opening bid because it believes that
a minimum opening bid can serve some of the same purposes as a
reservation price. A minimum opening bid increases the likelihood that
the public receives fair market value for the spectrum being auctioned
and can also help an auction move more swiftly. The Commission seeks
comment on this proposal.
58. A bid increment is the amount or percentage by which a bid must
be raised above the previous round's high bid in order to be accepted
as a valid bid in the current round. The Commission determined in the
Competitive Bidding Second Report and Order that it would reserve the
right to specify minimum bid increments in dollar terms as well as in
percentage terms. The Commission reasoned that imposing a minimum bid
increment speeds the progress of the auction and, along with activity
and stopping rules, helps to ensure that the auction comes to closure
within a reasonable period of time. It did not reserve the discretion
to specify maximum bid increments.
59. Whereas the minimum bid increment speeds the auction process, a
maximum bid increment could prevent bidders from placing bids that are
significantly higher than the minimum acceptable bid. This type of
bidding is known as ``jump bidding.'' Some theoretical literature
suggests that bidders could use jump bidding to manipulate the auction
process and potentially reduce efficiency of the auction. Jump bidding
complicates bidding strategy and denies bidders information about the
number of bidders who would be willing to pay prices between the
minimum acceptable bid and the jump bid. In the absence of information
about the bidders who would be willing to participate at intermediate
bids, other bidders might feel compelled to shade their bids more than
they otherwise would. This behavior is an attempt to avoid the
``winner's curse,''--the phenomenon of a bidder winning only because he
or she has overestimated the value of the license. A general principle
of auction theory has it that the auction mechanisms which perform the
best are those which are able to induce bidders to reveal the most
information. To the extent that jump bids enable bidders to conceal
information, the phenomenon moves the process away from the
informational advantages of an ascending bid (multiple round) auction
in the direction of a first-price sealed bid (single round) auction.
The Commission seeks comment on whether it should retain the discretion
to employ a maximum bid increment if it finds that jump bidding is
impairing the auction process.
60. Under the current rules, if a high bid is withdrawn prior to
the close of a simultaneous multiple round auction, the Commission will
impose a payment equal to the difference between the withdrawn bid and
the amount of the winning bid the next time the license is offered by
the Commission. No withdrawal payment is assessed if the subsequent
winning bid exceeds the withdrawn bid. If a winning bidder defaults
after the close of an auction, the defaulting bidder will be required
to pay the foregoing payment plus an additional payment of 3 percent of
the subsequent winning bid or its own withdrawn bid, whichever is
lower.
61. To help bidders avoid mistaken bids that could expose them to
liability for bid withdrawal payments, the Commission has enhanced its
electronic bidding software. The software now displays a warning screen
to bidders when they try to place a bid that is far in excess of the
minimum accepted bid. Bidders must affirmatively override this mistaken
bid warning if they wish to place the bid. For example, if the minimum
accepted bid for a license is $10,000, an excessive bid warning will
appear if a bidder attempts to place a bid of $100,000 or more.
62. The Commission has also recently addressed the issue of how the
bid withdrawal payment rules apply to bids that are mistakenly placed
and subsequently withdrawn. In Atlanta Trunking, the Commission stated
that, while it believes that in some cases full application of the bid
withdrawal payment provisions could impose an extreme and unnecessary
hardship on bidders, it may be extremely difficult for the Commission
to distinguish between ``honest'' erroneous bids and ``strategic''
erroneous bids. The Commission held that in cases of erroneous bids,
some relief from the bid withdrawal payment requirement appears
necessary. Thus, it waived the bid withdrawal rules as they apply to
900 MHz SMR and broadband PCS and applied the following
[[Page 13580]]
guidelines: If at any point during an auction a mistaken bid is
withdrawn in the same round in which it was submitted, the bid
withdrawal payment should be the greater of (a) the minimum bid
increment for that license and round, or (b) the standard bid
withdrawal payment calculated as if the bidder had made a bid at the
minimum accepted bid. 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.
63. In response to a commenter's request, the Commission recently
modified the broadband PCS rules for the D, E, and F blocks to
establish provisions governing the withdrawal of erroneous bids. It
thus incorporated the guidelines fashioned in Atlanta Trunking into
these rules. The Commission now proposes to change Secs. 1.2104 and
1.2109 of the rules such that similar provisions adopted for the
broadband PCS D, E, and F block auction will apply to all auctions. The
Commission seeks comment on this proposal.
64. The current auction rules allow a high bidder on a license to
withdraw its bid at any point during the auction, subject to a bid
withdrawal payment. The Commission has recognized that allowing bid
withdrawals facilitates efficient aggregation of licenses and pursuit
of efficient backup strategies as information becomes available during
the course of an auction. It also is cognizant that allowing
withdrawals also risks encouraging insincere bidding and allowing the
use of withdrawals for anti-competitive strategic purposes, such as
signaling other bidders. To guard against such abuses, the Commission
put in place a withdrawal payment equal to the difference between the
withdrawn bid and the amount of the winning bid the next time the
license is offered by the Commission. The Commission seeks comment on
whether it should exercise its authority to limit withdrawals, and if
so, under what circumstances. Should the Commission consider limiting
the number of withdrawals that a bidder is permitted to make in an
auction, the number of rounds in which withdrawals can be made, or the
number of withdrawals permitted with respect to a particular license?
Are there other ways to address concern about strategic withdrawals
without unduly affecting bidders' ability to efficiently aggregate
licenses? For example, should the Commission consider increasing the
withdrawal payment or changing its structure?
65. Under Sec. 1.2109(b) of the rules, if a winning bidder
withdraws its bid after the auction has closed or fails to remit the
required down payment within the requisite period after the Commission
has announced high bidders, the bidder will be deemed to have
defaulted. This rule also provides that, in such event, the Commission
may either re-auction the license to existing or new applicants or
offer it to the other highest bidders (in descending order) at their
final bids. In the Order accompanying this NPRM, the Commission
modified the down payment due date to ten business days after the
Commission has issued a Public Notice announcing winning bidders, and
accordingly adjusted the period within which the Commission has
discretion to offer the defaulted license to bidders in the original
auction to the same ten-day period.
66. When the Commission first adopted rules governing the licensing
of defaulted licenses, it stated that ``[i]n the event that a winning
bidder in a simultaneous multiple round auction defaults on its down
payment obligations, the Commission will generally re-auction the
license either to existing or new applicants.'' Noting that in some
circumstances the costs of conducting a re-auction may not always be
justified, the Commission reserved the discretion in cases in which the
winning bidder defaults on its down payment obligation to offer a
defaulted license to the highest losing bidders (in descending order of
their bids) at their final bids if ``only a small number of relatively
low value licenses are to be re-auctioned * * *.''
67. Having now developed a computerized auction system and
conducted numerous auctions, the Commission believes that the costs of
a re-auction, even for a small number of relatively low value licenses,
would be minimal. Use of regularly scheduled quarterly auctions will
also ensure rapid reauction. Further, re-offering a defaulted license
to the next highest bidder (in descending order) at their final bids
may not ensure that the license will be awarded to the bidder that
values it the most highly. When more than one license is being
auctioned, aggregation strategies may shift during the course of the
auction, affecting interest of individual bidders.
68. The Commission asks commenters to address whether the
Commission should (1) retain Sec. 1.2109(b) in its current form, (2)
modify the rule so that the Commission retains the discretion
regardless of when a default occurs to offer the license only to the
second highest bidder at its bid price (3) modify the rule so that the
Commission retains discretion to offer a license on which the winning
bidder has defaulted on its down payment obligation only to the second
highest bidder, (4) modify the rule so that the Commission retains
discretion to offer a defaulted license to the highest losing bidders
(in descending order of their bids), but only at the final bid level of
the second highest bidder, (5) modify the rule to require re-auction of
defaulted licenses regardless of when a default occurs. Moreover, it
seeks comment on whether it should modify the rule to codify the
statement in the Competitive Bidding Fifth Report and Order that where
there are a relatively small number of low value licenses, and only a
short time has passed since the initial auction, the Commission may
choose to offer the license to the highest losing bidder because the
cost of conducting another auction may exceed the benefits. Commenters
favoring this should indicate the parameters that the Commission should
employ in determining which licenses might be re-offered to bidders in
the original auction.
69. The Commission adopted rules to prohibit collusion in the
Competitive Bidding Second Report and Order because it was concerned
that collusive conduct by bidders prior to or during an auction could
undermine the competitiveness of the bidding process and prevent the
formation of a competitive post-auction market structure. In general,
bidders are required to identify on their short-form applications any
parties with whom they have entered into any consortium arrangements,
joint ventures, partnerships or other agreements or understandings
which relate to the competitive bidding process. With certain
exceptions, all such arrangements must have been entered into prior to
the filing of short-form applications. After such applications are
filed and prior to the time that the winning bidder has made its
required
[[Page 13581]]
down payment, all bidders are prohibited from cooperating,
collaborating, discussing or disclosing in any manner the substance of
their bids or bidding strategies with other bidders, unless such
bidders are members of a bidding consortium or other joint bidding
arrangement identified on the bidder's short-form application.
70. As the Commission's auction process has evolved, it has
clarified the rules prohibiting collusion. Early on in the auction
process, for example, the Commission established exceptions to the
anti-collusion rules in an attempt to allow applicants greater
flexibility to form agreements with other applicants and thereby
acquire the capital necessary to bid successfully for licenses.
Specifically, it amended the anti-collusion rules to permit a holder of
a non-controlling attributable interest in an applicant to obtain an
ownership interest in or enter into a consortium arrangement with
another applicant for a license in the same geographic area, provided
that the attributable interest holder certifies to the Commission that
it has not communicated and will not communicate with the applicant or
any one else information concerning the bids or bidding strategies
(including which licenses an applicant will or will not bid on) of more
than one applicant for licenses in the same geographic area in which it
holds an ownership interest or with which it has a consortium
arrangement. Additionally, Commission staff has issued public notices
and letters that seek to interpret and clarify these rules.
71. The exception outlined above was adopted in order to facilitate
the flow of capital to applicants by enabling parties to make
investments in multiple applicants for licenses in the same geographic
license areas. Having gained experience with implementing its anti-
collusion rules, the Commission now believes that this exception is
difficult to apply in a business setting. Entities are reluctant to
invest in multiple applicants if they cannot obtain information about
business plans and strategies, which often necessarily reflect bidding
strategies or bids.
72. The Commission therefore proposes to modify this provision of
the anti-collusion rule to permit entities to invest in multiple
applicants if the original applicant withdraws from the auction. Under
this proposal, a holder of a non-controlling attributable interest in
an applicant would be permitted to obtain an ownership interest in or
enter into a consortium arrangement with another applicant for a
license in the same geographic area, provided that the original
applicant has dropped out of the auction and is no longer placing bids,
and the attributable interest holder certifies to the Commission that
it did not communicate with the new applicant prior to the date that
the original applicant withdrew from the auction. The Commission
believes that this proposal will encourage entities to invest in
bidders if their original applicant fails to complete the auction and
will give such entities the flexibility needed to do so. Furthermore,
it believes that prohibiting any communication with other applicants
prior to when the original applicant withdraws from the auction will
prevent investors from exerting pressure on smaller bidders to withdraw
in exchange for teaming up with other larger bidders. The Commission
seeks comment on this proposal.
73. In the proceeding involving service-specific auction rules for
paging services, several commenters requested that the Commission
establish rules that do not have a chilling effect on ongoing business
acquisitions and transactions. Under the current rules, they contended,
discussions between bidders for the same license area regarding a
business merger or acquisition may be construed as discussions of
bidding or bidding strategy--thus violating the anti-collusion rules.
They proposed that the Commission grant a ``safe harbor'' for certain
situations, such as in services where there are incumbent operators,
permitting ongoing discussions among bidders concerning mergers,
acquisitions or intercarrier arrangements to proceed during the period
in which the anti-collusion rules are applicable. Some suggested a
system in which respective bidder personnel certify that persons
involved in such discussions are not discussing bidding strategy or
otherwise divulging bidder information to each other in violation of
the anti-collusion rules. Absent a showing that a certification is
false, necessary discussions in the ordinary course of business would
be permitted during the course of the auction. The Commission seeks
comment on this proposal concerning a safe harbor for discussions of
certain non-auction business matters and it seeks comment on any other
changes to the rules prohibiting collusion they believe are warranted.
Finally, it seeks comment on the public notices and letters issued by
Commission staff seeking to interpret and clarify these rules.
74. In 1989, the Commission adopted rules permitting certain
license applicants, under prescribed conditions, to construct their
facilities prior to license grant. It subsequently determined that part
22 and part 90 commercial mobile radio service applicants should be
subject to the same rules governing the construction of facilities
prior to the grant of pending applications. The Commission later
clarified that such rules would extend to successful broadband PCS
bidders that had filed a long-form application. Thus, 35 days after the
date of the Public Notice announcing the broadband PCS A and B Block
Form 600 applications accepted for filing, the parties has filed those
applications were permitted, at their own risk, to commence
construction of facilities, provided that (1) no petitions to deny the
application had been filed; (2) the application did not contain a
request for a rule waiver; (3) the applicant complied fully with the
antenna structure provisions of Secs. 24.416 and 24.816 of the
Commission's rules, including FAA notification, and Commission filing
requirements; (4) the application indicated that the facilities would
not have a significant environmental effect (see 47 CFR 24.413(f) and
24.813(f)); and (5) international coordination of the facilities was
not required.
75. The Commission proposes to extend the pre-grant construction
rules set forth in 47 CFR 22.143 to all auction winners, regardless of
whether petitions to deny have been filed against their long-form
applications. It further proposes to permit each auction winner to
begin construction of its system, at its own risk, upon release of a
Public Notice announcing the acceptance for filing of post-auction
long-form applications. The Commission tentatively concludes that to do
so would further the public interest by expediting, in most cases, the
initiation of service to the public. It believes that allowing pre-
grant construction furthers the statutory objective expressed in the
Communications Act in section 309(j)(3)(A) of the rapid deployment of
new technologies, products, and services for the benefit of the public.
Pre-grant construction would be subject to any service-related
restrictions, including but not limited to antenna restrictions,
environmental requirements, and international restrictions. Finally,
the Commission emphasizes that any applicant engaging in pre-grant
construction activity would do so entirely at its own risk, and the
Commission would not take such activity into account in ruling on any
petition to deny although it acknowledges that this could result in
significant economic loss to applicants. The Commission seeks comment
on this proposal.
[[Page 13582]]
Procedural Matters and Ordering Clauses
76. The Initial Regulatory Flexibility Analysis (IRFA), as required
by section 604 of the Regulatory Flexibility Act, is set forth in
Appendix C of the NPRM. Pub. L. 96-354, 94 Stat. 1164, 5 U.S.C. 601 et
seq. (1981). Written public comments are request on the IRFA. These
comments must be filed in accordance with the same filing deadlines as
comments on the rest of the NPRM, but they must have a separate and
distinct heading designating them as responses to the IRFA. The
Secretary shall send a copy of this NPRM, including the IRFA, to the
Chief counsel for Advocacy of the Small Business Administration in
accordance with the paragraph 603(a) of the Regulatory Flexibility Act.
77. Ex Parte Presentations. This is a non-restricted notice and
comment rule making proceeding. Ex parte presentations are permitted,
provided they are disclosed as provided in Commission rules. See
generally 47 CFR 1.1202, 1.1203, and 1.1206(a).
78. Authority. This action is taken pursuant to sections 4(i),
5(b), 5(c)(1), 303(r), and 309 (j) of the Communications Act of 1934,
as amended, 47 U.S.C. 154(i), 155(b), 156(c)(1), 303(r), and 309(j).
79. Comment. This NPRM contains either new or modified information
collections. The Federal Communications Commission, as part of its
continuing effort to reduce paperwork burden, invites the general
public and other Federal agencies to take this opportunity to comment
on the following revised information collection, as required by the
Paperwork Reduction Act of 1995, Pub. L. 104-13. In addition to filing
comments on the new or modified collection with the Secretary, a copy
of any comments on the information collections contained herein should
be submitted to Dorothy Conway, Federal Communications Commission, Room
234, 1919 M St., NW., Washington, DC 20554 or via the Internet to
[email protected].
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 97-7233 Filed 3-20-97; 8:45 am]
BILLING CODE 6712-01-P
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