C Block PCS Spectrum Auction Scheduled for March 23, 1999 Comment Sought on Auction Procedural Issues

FEDERAL COMMUNICATIONS COMMISSION

[DA 98-2318; Report No. AUC-98-23-A (Auction No. 22)]

C Block PCS Spectrum Auction Scheduled for March 23, 1999 Comment

Sought on Auction Procedural Issues

AGENCY: Federal Communications Commission.

ACTION: Notice; seeking comment.

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SUMMARY: This Public Notice announces the auction of C block broadband

personal communications services (``PCS'') licenses set to begin on

March 23, 1999, and seeks comment on procedural issues relating to the

C block broadband PCS auction.

DATES: Comments are due on or before November 30, 1998. Reply comments

are due on or before December 7, 1998.

ADDRESSES: To file formally, parties must submit an original and four

copies to the Office of the Secretary, Federal Communications

Commission, 445 Twelfth Street, S.W., TW-A325, Washington, D.C. 20554.

In addition, parties must submit one copy to Amy Zoslov, Chief,

Auctions and Industry Analysis Division, Wireless Telecommunications

Bureau, Federal Communications Commission, Room 5202, 2025 M Street,

N.W., Washington, D.C. 20554. Comments and reply comments will be

available for public inspection during regular business hours in the

Wireless Telecommunications Bureau Reference Center, Room 5608, 2025 M

Street, N.W., Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: Audrey Bashkin, Bob Reagle, or Jeff

Garretson, Auctions and Industry Analysis Division, Wireless

Telecommunications Bureau, at (202) 418-0660.

[[Page 66173]]

SUPPLEMENTARY INFORMATION: This Public Notice was released on November

12, 1998, and is available in its entirety, including the Attachment,

for inspection and copying during normal business hours in the Wireless

Telecommunications Bureau Reference Center, Room 5608, 2025 M Street

N.W., Washington, D.C., and also may be purchased from the Commission's

copy contractor, International Transcription Services, (202) 857-3800,

fax (202) 857-3805, 1231 20th Street, N.W., Washington, D.C. 20036. It

is also available on the Commission's website at http://www.fcc.gov.

Synopsis of the Public Notice

1. By this Public Notice, the Wireless Telecommunications Bureau

(``Bureau'') announces an auction of C block broadband personal

communications services (``PCS'') licenses set to begin on March 23,

1999 (Auction No. 22). Auction No. 22 will cover licenses for operation

on frequencies that were previously licensed under now-cancelled

licenses, licenses for operation on 30 MHz and 15 MHz spectrum blocks

that were returned to the Commission pursuant to elections, and

licenses for operation on frequencies that had not been previously

licensed. A list of licenses is included at Appendix A. In addition,

future public notices could include information about other Commission

licenses in conjunction with Auction No. 22. Future public notices will

include further details regarding application filing and payment

deadlines, a seminar for potential bidders, and other pertinent

information. In this Public Notice, the Bureau seeks comment on

procedural issues relating to Auction No. 22.

I. Reserve Price or Minimum Opening Bid

2. The Balanced Budget Act of 1997 (``Budget Act'') calls upon the

Commission to prescribe methods by which a reasonable reserve price

will be required or a minimum opening bid established when FCC licenses

are subject to auction (i.e., because the Commission has accepted

mutually exclusive applications for those licenses), unless the

Commission determines that a reserve price or minimum bid is not in the

public interest.

3. Normally, a reserve price is an absolute minimum price below

which an item will not be sold in a given auction. Reserve prices can

be either published or unpublished. A minimum opening bid, on the other

hand, is the minimum bid price set at the beginning of the auction

below which no bids are accepted. It is generally used to accelerate

the competitive bidding process. Also, in a minimum opening bid

scenario, the auctioneer generally has the discretion to lower the

amount later in the auction.

4. The Commission in the Second Report and Order and Further Notice

of Proposed Rule Making (``C Block Further Notice''), 62 FR 55375

(October 24, 1997), sought comment on the use of a minimum opening bid

and/or reserve price for the upcoming C block PCS auction. The

Commission stated that, for the upcoming C block auction, employing a

minimum opening bid, more than a reserve price, would help make certain

that the public is fairly compensated, the auction is expedited, and

the Commission is able to make adjustments based on the competitiveness

of the auction. Accordingly, the Commission proposed to use a minimum

opening bid, rather than a reserve price, for the upcoming C block

auction and requested comment on this proposal, as well as on which

methodology to employ and factors to consider in establishing minimum

opening bids. The Commission proposed minimum opening bids for each

market equal to ten percent of the corresponding net high bid for the

market in the original C block auction. The Commission asked commenters

to explain whether this proposal would be reasonable or would result in

a substantial number of unsold licenses. The Commission asked further

whether the amount of the minimum opening bid should be capped and

whether the Commission should establish a different amount.

5. In the Fourth Report and Order (``C Block Fourth Report and

Order''), 63 FR 50791 (September 23, 1998), which resolved issues

raised in the C Block Further Notice, the Commission decided that it

would be appropriate to establish minimum opening bids for each market

in the upcoming C block auction equal to ten percent of the

corresponding net high bid for the market in the original C block

auction. The Commission stated, however, that the Bureau may exercise

its discretion to set forth minimum opening bids smaller than ten

percent if, based upon further evaluation, the Bureau believes that a

smaller amount is warranted. In considering a reduction of the minimum

opening bid, the Bureau would consider such factors as the amount of

spectrum being auctioned, levels of incumbency, the availability of

technology to provide service, the size of the geographic service

areas, issues of interference with other spectrum bands, and any other

relevant factors that could reasonably affect valuation of the spectrum

being auctioned.

6. The Commission made no adjustment to the minimum opening bid for

those licenses which, in Auction No. 22, will be 15 MHz rather than 30

MHz. The Bureau, however, believes that such an adjustment is

appropriate and, accordingly, proposes to establish as the minimum

opening bid for each 15 MHz license available in Auction No. 22 an

amount equal to five percent of the most recent net high bid for the

corresponding 30 MHz license, but in no event lower than the upfront

payment amount for that license in Auction No. 22 (see discussion of

upfront payments immediately below). For 15 MHz licenses with minimum

opening bids that would otherwise be lower than upfront payment

amounts, the Bureau proposes to establish minimum opening bids that

equal the upfront payment amounts. For each 30 MHz license available in

Auction No. 22, the Bureau plans to establish a minimum opening bid

equal to ten percent of the most recent corresponding net high bid for

the license, but in no event lower than the upfront payment amount for

that license in Auction No. 22. For 30 MHz licenses with minimum

opening bids that would otherwise be lower than upfront payment

amounts, the Bureau plans to establish minimum opening bids that equal

the upfront payment amounts. Minimum opening bid amounts are provided

in Attachment A.

II. Upfront Payments and Initial Maximum Eligibility for Each

Bidder

7. In the C Block Further Notice, the Commission explained that, in

the Second Report and Order, 59 FR 22980 (May 4, 1994), (``Competitive

Bidding Second Report and Order''), it had indicated that the upfront

payment should be set using a formula based upon the amount of spectrum

and population (``pops'') covered by the license(s) for which the

parties intend to bid and that the amount of the upfront payment should

be determined on an auction-by-auction basis. The Commission proposed

in the C Block Further Notice to set an upfront payment for the

upcoming C block auction at $0.06 per MHz per pop. The Commission

determined that this amount was appropriate to further its goal of

allowing only serious, qualified applicants to participate in the

auction. The Commission noted that it had adopted the same upfront

payment for its most recent broadband PCS auction, the D, E, and F

block auction.

[[Page 66174]]

8. In the C Block Fourth Report and Order, the Commission noted

that there was support among commenters for setting the upfront payment

amount at the proposed $0.06 per MHz per pop and expressed its belief

that in the upcoming C block auction the upfront payment should be no

higher than this amount. Accordingly, the Bureau plans to set the

upfront payment amount for each license in Auction No. 22 at $0.06 *

MHz * Pops (rounded up to the next dollar). The Bureau notes, however,

that in the C Block Fourth Report and Order the Commission stated that

the Bureau may establish a lower upfront payment if it deems a lower

amount to be reasonable.

9. As required by the C Block Fourth Report and Order, the upfront

payment amount for ``former defaulters,'' i.e., applicants that have

ever been in default on any Commission licenses or have ever been

delinquent on any non-tax debt owed to any Federal agency, will be

fifty percent more than the normal amount required to be paid.

10. For Auction No. 22, the Commission proposes that the amount of

the upfront payment submitted by a bidder will determine the initial

maximum eligibility (as measured in bidding units) for each bidder.

Upfront payments will not be attributed to specific licenses, but

instead will be translated into bidding units to define a bidder's

initial maximum eligibility, which cannot be increased during the

auction. Thus, in calculating the upfront payment amount, an applicant

must determine the maximum number of bidding units it may wish to bid

on (or hold high bids on) in any single round, and submit an upfront

payment covering that number of bidding units. The Commission seeks

comment on this proposal.

III. Attribution Rules

11. The attribution rules set forth in Section 24.709 of the

Commission's rules will apply to Auction No. 22.

IV. Other Auction Procedural Issues

12. The Budget Act requires the Commission to ``ensure that, in the

scheduling of any competitive bidding under this subsection, an

adequate period is allowed * * * before issuance of bidding rules, to

permit notice and comment on proposed auction procedures * * *''

Consistent with the provisions of the Budget Act and to ensure that

potential bidders have adequate time to familiarize themselves with the

specific provisions that will govern the day-to-day conduct of an

auction, the Commission directed the Bureau, under its existing

delegated authority, to seek comment on a variety of auction-specific

issues prior to the start of each auction. The Bureau therefore seeks

comment on the following issues.

a. Auction Sequence and License Groupings

13. In the C Block Further Notice, the Commission proposed a

simultaneous multiple-round design for the upcoming C block auction,

and it received no comments opposing this proposal. Accordingly, in the

C Block Fourth Report and Order, the Commission stated that the

simultaneous multiple-round design would be appropriate for the

upcoming C block auction. The Commission noted, however, that it

remains within the Bureau's authority to seek comment on, and to

modify, the competitive bidding design of the upcoming C block auction,

if the Bureau determines that another design might be warranted. In

light of this history, and because a simultaneous multiple-round design

allows bidders to take advantage of any synergies that exist among

licenses, the Bureau proposes to award all C block PCS licenses

currently available for auction in a single, simultaneous multiple-

round auction. The Bureau seeks comment on this proposal.

b. Structure of Bidding Rounds, Activity Requirements, and Criteria for

Determining Reductions in Eligibility

14. In the C Block Further Notice, the Commission tentatively

concluded that a C block auction should be conducted in three stages.

The Commission proposed to use high activity requirements, with bidders

required to be more active in each subsequent stage than they had been

in the last. The Commission also proposed requiring the Bureau to use

its delegated authority to schedule bidding rounds aggressively, to

move quickly into the next stage of the auction when bidding activity

falls, and to use higher minimum bid increments for very active

licenses. In the Third Report and Order and Second Further Notice of

Proposed Rule Making, 63 FR 2315 (January 15, 1998), (``Part 1 Third

Report and Order''), the Commission directed the Bureau to seek comment

prior to the start of each auction on activity requirements for each

stage of the auction and activity rule waivers.

15. No party opposed the Commission's tentative conclusion to

conduct a C block auction in three stages. Accordingly, in the C Block

Fourth Report and Order, the Commission expressed its continued belief

that this structure would be reasonable for the upcoming C block

auction. The Commission noted, however, that the Bureau normally

determines the structure of the auction and stated that it remains

within the Bureau's discretion to deviate from the proposed three-stage

structure if, after appropriate notice and comment, the Bureau

determines that a different structure would better serve the public

interest.

16. Accordingly, the Bureau proposes to divide the auction into

three stages: Stage One, Stage Two and Stage Three. The auction will

start in Stage One. The Bureau proposes that the auction will generally

advance to the next stage (i.e., from Stage One to Stage Two, and from

Stage Two to Stage Three) when the auction activity level, as measured

by the percentage of bidding units receiving new high bids, is below

ten percent for three consecutive rounds of bidding in each Stage.

However, the Bureau further proposes that the Bureau retain the

discretion to change stages unilaterally by announcement during the

auction. In exercising this discretion, the Bureau will consider a

variety of measures of bidder activity including, but not limited to,

the auction activity level, the percentages of licenses (as measured in

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

the percentage increase in revenue. The Bureau seeks comment on these

proposals.

17. In order to ensure that auctions close within a reasonable

period of time, the Commission imposes an activity rule that requires

bidders to bid actively on a percentage of their maximum bidding

eligibility during each round of an auction rather than waiting until

the end to participate. A bidder that does not satisfy the activity

rule will either lose bidding eligibility in the next round or use an

activity rule waiver.

18. For Auction No. 22, the Bureau proposes that, in each round of

Stage One of the auction, a bidder desiring to maintain its current

eligibility must remain active on licenses encompassing at least 80

percent of its current bidding eligibility. Failure to maintain the

requisite activity level will result in a reduction in the bidder's

bidding eligibility in the next round of bidding (unless an activity

rule waiver is used). During Stage One, reduced eligibility for the

next round will be calculated by multiplying the current round activity

by five-fourths (\5/4\). In each round of the second stage of the

auction, a bidder desiring to maintain its current eligibility is

required to be active on at least 90 percent of its current bidding

eligibility. During Stage Two, reduced eligibility for the next round

will be

[[Page 66175]]

calculated by multiplying the current round activity by ten-ninths

(\10/9\). In each round of Stage Three, a bidder desiring to maintain

its current eligibility is required to be active on 98 percent of its

current bidding eligibility. In this final stage, reduced eligibility

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

activity by fifty forty-ninths (\50/49\). The Bureau seeks comment on

these proposals.

c. Minimum Accepted Bids

19. Once there is a standing high bid on a license, a bid increment

will be applied to that license to establish a minimum acceptable bid

for the following round. For Auction No. 22, the Bureau proposes to use

a smoothing methodology to calculate bid increments. This methodology

will be designed to vary the increment for a given license between a

maximum and minimum value based on the bidding activity on that

license. A similar methodology was used in previous auctions, including

the original LMDS auction and the 220 MHz auction. The Bureau proposes

initial values for the maximum of 0.2 or 20% of the license value, and

a minimum of 0.1 or 10% of the license value. The Bureau seeks comment

on this proposal.

20. The Bureau retains the discretion to change these values if

circumstances so dictate, such as raising the minimum increment toward

the end of the auction to enable bids to reach their final values more

quickly. The Bureau will do so by announcement in the Automated Auction

System. Under its discretion, the Bureau may also implement an absolute

dollar floor for the bid increment to further facilitate a timely close

of the auction. The Bureau further seeks comment on the advantages and

disadvantages of using the discretion to adjust the minimum bid

increment without prior notice. The Bureau additionally seeks comment

on the advantages and disadvantages of, as an alternative approach,

adjusting the minimum bid increment gradually over a number of rounds

as opposed to single large changes in the minimum bid increment. The

Bureau also retains the discretion to use alternate methodologies for

Auction No. 22 if circumstances warrant. The Bureau seeks comment on

these proposals.

d. Activity Rule Waivers and Reducing Eligibility

21. Use of an activity rule waiver preserves the bidder's current

bidding eligibility despite the bidder's activity in the current round

being below the required minimum level. An activity rule waiver applies

to an entire round of bidding and not to a particular license. Activity

waivers are principally a mechanism for auction participants to avoid

the loss of auction eligibility in the event that exigent circumstances

prevent them from placing a bid in a particular round.

22. The FCC auction system assumes that bidders with insufficient

activity would prefer to use an activity rule waiver (if available)

rather than lose bidding eligibility. Therefore, the system will

automatically apply a waiver (known as an ``automatic waiver'') at the

end of any bidding period where a bidder's activity level is below the

minimum required unless: (1) There are no activity rule waivers

available; or (2) the bidder overrides the automatic application of a

waiver by reducing eligibility thereby meeting the minimum

requirements.

23. A bidder with insufficient activity that wants to reduce its

bidding eligibility rather than use an activity rule waiver must

affirmatively override the automatic waiver mechanism during the

bidding period by using the reduce eligibility function in the

software. In this case, the bidder's eligibility is permanently reduced

to bring the bidder into compliance with the activity rules as

described above. Once eligibility has been reduced, a bidder will not

be permitted to regain its lost bidding eligibility.

24. A bidder may proactively use an activity rule waiver as a means

to keep the auction open without placing a bid. If a bidder submits a

proactive waiver (using the proactive waiver function in the bidding

software) during a bidding period in which no bids are submitted, the

auction will remain open and the bidder's eligibility will be

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

new valid bids will not keep the auction open.

25. The Bureau proposes that each bidder in Auction No. 22 be

provided with five activity rule waivers that may be used in any round

during the course of the auction as set forth above. The Bureau seeks

comment on this proposal.

e. Information Regarding Bid Withdrawal and Bid Removal

26. In the C Block Fourth Report and Order, the Commission directed

the Bureau, in conducting the upcoming C block auction, to follow the

Part 1 rule on bid withdrawal, Section 1.2104(g), to the extent

applicable. Accordingly, for Auction No. 22, the Bureau proposes the

following bid removal and bid withdrawal procedures. Before the close

of a bidding period, a bidder has the option of removing any bids

placed in that round. By using the remove bid function in the software,

a bidder may effectively ``unsubmit'' any bid placed within that round.

A bidder removing a bid placed in the same round is not subject to

withdrawal payments.

27. Once a round closes, a bidder may no longer remove a bid.

However, in the next round, a bidder may withdraw standing high bids

from previous rounds using the withdraw bid function. A high bidder

that withdraws its standing high bid from a previous round is subject

to the bid withdrawal payment provisions. The Bureau seeks comment on

these bid removal and bid withdrawal procedures.

28. In the Part 1 Third Report and Order, the Commission recently

explained that allowing bid withdrawals facilitates efficient

aggregation of licenses and the pursuit of efficient backup strategies

as information becomes available during the course of an auction. The

Commission noted, however, that in some instances bidders may seek to

withdraw bids for improper reasons, including to delay the close of the

auction for strategic purposes. The Bureau, therefore, has discretion,

in managing the auction, to limit the number of withdrawals to prevent

strategic delay of the close of the auction or other abuses. The

Commission stated that the Bureau should assertively exercise its

discretion, consider limiting the number of rounds in which bidders may

withdraw bids, and prevent bidders from bidding on a particular market

if the Bureau finds that a bidder is abusing the Commission's bid

withdrawal procedures.

29. Applying this reasoning, the Bureau proposes to limit each

bidder in Auction No. 22 to withdrawals in no more than two rounds

during the course of the auction. To permit a bidder to withdraw bids

in more than two rounds would likely encourage insincere bidding or the

use of withdrawals for anti-competitive strategic purposes. The two

rounds in which withdrawals are utilized will be at the bidder's

discretion; withdrawals otherwise must be in accordance with the

Commission's rules. There is no limit on the number of standing high

bids that may be withdrawn in either of the rounds in which withdrawals

are utilized. Withdrawals will remain subject to the bid withdrawal

payment provisions specified in the Commission's rules. The Bureau

seeks comment on this proposal.

f. Stopping Rule

30. For Auction No. 22, the Bureau proposes to employ a

simultaneous stopping approach. The Bureau has

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discretion ``to establish stopping rules before or during multiple

round auctions in order to terminate the auction within a reasonable

time.'' See, Section 1.2104 of the Commission's Rules, 47 CFR

1.2104(c). A simultaneous stopping rule means that all licenses remain

open until the first round in which no new acceptable bids, proactive

waivers, or withdrawals are received. After the first such round,

bidding closes simultaneously on all licenses. Thus, unless

circumstances dictate otherwise, bidding would remain open on all

licenses until bidding stops on every license.

31. The Bureau seeks comment on a modified version of the

simultaneous stopping rule. The modified stopping rule would close the

auction for all licenses after the first round in which no bidder

submits a proactive waiver, a withdrawal, or a new bid on any license

on which it is not the standing high bidder. Thus, absent any other

bidding activity, a bidder placing a new bid on a license for which it

is the standing high bidder would not keep the auction open under this

modified stopping rule. The Bureau further seeks comment on whether

this modified stopping rule should be used unilaterally or only in

stage three of the auction.

32. The Commission proposes that the Bureau retain the discretion

to keep an auction open even if no new acceptable bids or proactive

waivers are submitted and no previous high bids are withdrawn. In this

event, the effect will be the same as if a bidder had submitted a

proactive waiver. The activity rule, therefore, will apply as usual;

and a bidder with insufficient activity will either lose bidding

eligibility or use a remaining activity rule waiver.

33. Finally, the Commission proposes that the Bureau reserve the

right to declare that the auction will end after a specified number of

additional rounds (``special stopping rule''). If the Bureau invokes

this special stopping rule, it will accept bids in the final round(s)

only for licenses on which the high bid increased in at least one of

the preceding specified number of rounds. The Bureau proposes to

exercise this option only in certain circumstances, such as, for

example, where the auction is proceeding very slowly, there is minimal

overall bidding activity, or it appears likely that the auction will

not close within a reasonable period of time. Before exercising this

option, the Bureau is likely to attempt to increase the pace of the

auction by, for example, moving the auction into the next stage (where

bidders would be required to maintain a higher level of bidding

activity), increasing the number of bidding rounds per day, and/or

increasing the amount of the minimum bid increments for the limited

number of licenses where there is still a high level of bidding

activity. The Bureau seeks comment on these proposals.

g. Information Relating to Auction Delay, Suspension or Cancellation

34. For Auction No. 22, the Commission proposes that, by public

notice or by announcement during the auction, the Bureau may delay,

suspend or cancel the auction in the event of natural disaster,

technical obstacle, evidence of an auction security breach, unlawful

bidding activity, administrative or weather necessity, or for any other

reason that affects the fair and competitive conduct of competitive

bidding. In such cases, the Bureau, in its sole discretion, may elect

to: resume the auction starting from the beginning of the current

round; resume the auction starting from some previous round; or cancel

the auction in its entirety. Network interruption may cause the Bureau

to delay or suspend the auction. The Commission emphasizes that

exercise of this authority is solely within its discretion, and its use

is not intended to be a substitute for situations in which bidders may

wish to apply their activity rule waivers. The Bureau seeks comment on

this proposal.

Federal Communications Commission.

Daniel B. Phythyon,

Chief, Wireless Telecommunications Bureau.

[FR Doc. 98-32015 Filed 11-27-98; 11:51 am]

BILLING CODE 6712-01-P