Phase II 220 MHz Service Spectrum Auction Scheduled for June 8, 1999; Application Filing Deadline Set for May 10, 1999; Comment Sought on Reserve Prices or Minimum Opening Bids and Other Auction Procedures

FEDERAL COMMUNICATIONS COMMISSION

[DA 98-2386; Report No. AUC-99-24-A (Auction No. 24)]

Phase II 220 MHz Service Spectrum Auction Scheduled for June 8,

1999; Application Filing Deadline Set for May 10, 1999; Comment Sought

on Reserve Prices or Minimum Opening Bids and Other Auction Procedures

AGENCY: Federal Communications Commission.

ACTION: Notice; seeking comment.

-----------------------------------------------------------------------

SUMMARY: This Public Notice announces an auction of 225 Phase II 220

MHz Service licenses set to begin on June 8, 1999 and seeks comment on

procedural issues relating to this auction.

DATES: Comments are due on or before December 16, 1998, and reply

comments are due on or before December 23, 1998.

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

copies to the Office of the Secretary, Federal Communications

Commission, 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 FCC Public Reference Room, Room 239, 1919 M

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

FOR FURTHER INFORMATION CONTACT: Christina Clearwater, Ruby Hough, or

Bob Reagle, Auctions and Industry Analysis Division, Wireless

Telecommunications Bureau, at (202) 418-0660.

SUPPLEMENTARY INFORMATION: This Public Notice was released on November

24, 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, 20205 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

1. By this Public Notice, the Wireless Telecommunications Bureau

(``Bureau'') announces an auction of 225 Phase II 220 MHz Service

licenses set to begin on June 8, 1999 (Auction No. 24). A list of

licenses is included as an Attachment. In addition, future public

notices could include additional information about available spectrum

in conjunction with Auction No. 24. 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 Commission seeks comment on procedural issues

relating to Auction No. 24.

Key Dates

Short Form Application (FCC Form 175), May 10, 1999; 5:30

p.m. ET.

Upfront Payments (via wire transfer), May 24, 1999; 6:00

p.m. ET.

Auction Start, June 8, 1999.

[[Page 67686]]

I. Reserve Price or Minimum Opening Bid

2. The Balanced Budget Act of 1997 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 opening bid is not in the public interest.

Consistent with this mandate, the Commission has directed the Bureau to

seek comment on the use of a minimum opening bid and/or reserve price

prior to the start of each auction. The Bureau was directed to seek

comment on the methodology to be employed in establishing each of these

mechanisms. Among other factors the Bureau should consider are 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 reasonably could have an

impact on valuation of the spectrum being auctioned. The Commission

concluded that the Bureau should have the discretion to employ either

or both of these mechanisms for future auctions.

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. It is also possible for the minimum

opening bid and the reserve price to be the same amount.

4. In anticipation of this auction and in light of the Balanced

Budget Act, the Bureau proposes to establish minimum opening bids for

the Phase II 220 MHz Service auction, and retain discretion to lower

the minimum opening bids. The Bureau believes a minimum opening bid,

which has been utilized in other auctions, is an effective bidding

tool. A minimum opening bid, rather than a reserve price, will help to

regulate the pace of the auction and provides flexibility.

5. Specifically, for Auction No. 24, the Commission proposes the

following for minimum opening bids:

1. EAG Licenses, $0.0125 * 0.15 MHz * License Population

(rounded up to the nearest dollar.)

2. EA Licenses, $500 per license.

Comment is sought on this proposal. If commenters believe that the

formula proposed above for minimum opening bids will result in

substantial numbers of unsold licenses, or is not a reasonable amount,

or should instead operate as a reserve price, they should explain why

this is so, and comment on the desirability of an alternative approach.

Commenters are advised to support their claims with valuation analyses

and suggested reserve prices or minimum opening bid levels or formulas.

In establishing the formula for minimum opening bids, the Commission

particularly seeks comment on such factors as, among other things, 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 have an

impact on valuation of the Phase II 220 MHz Service spectrum.

Alternatively, comment is sought on whether, consistent with the

Balanced Budget Act, the public interest would be served by having no

minimum opening bid or reserve price.

II. Other Auction Procedures

6. The Balanced Budget Act of 1997 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 Balanced 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 procedures prior to the start of each

auction. The Bureau therefore seeks comment on the following issues.

a. Auction Sequence and License Groupings

7. Because it is most administratively appropriate, and allows

bidders to take advantage of any synergies that exist among licenses,

the Commission proposes to award these 225 Phase II 220 MHz Service

licenses in a single, simultaneous multiple-round auction. The Bureau

seeks comment on this proposal.

b. Upfront Payments and Initial Maximum Eligibility for Each Bidder

8. The Bureau has delegated authority and discretion to determine

an appropriate upfront payment for each license being auctioned, taking

into account such factors as the population in each geographic license

area, and the value of similar spectrum. With these guidelines in mind,

the Bureau proposes for the Phase II 220 MHz Service auction the

following upfront payments:

1. EAG Licenses, $0.01 * 0.15 MHz * License Population (rounded

up to the nearest dollar.)

2. EA Licenses, $500 per license.

The Bureau seeks comment on this proposal. For the Phase II 220 MHz

Service auction, the Bureau further 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.

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

Determining Reductions in Eligibility

9. The Commission proposes to divide the auction into three stages:

Stage One, Stage Two and Stage Three. The auction will start in Stage

One. The Commission 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 Commission 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 on which there are new

bids, the number of new bids, and the percentage increase in revenue.

The Commission seeks comment on these proposals.

[[Page 67687]]

10. In order to ensure that the auction closes within a reasonable

period of time, an activity rule requires bidders to bid actively on a

percentage of their maximum bidding eligibility during each round of

the 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.

11. For the Phase II 220 MHz Service auction, the Commission

proposes that, in each round of Stage One of the auction, a bidder

desiring to maintain its current eligibility is required to be 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 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 Commission seeks comment on these proposals.

d. Minimum Accepted Bids

12. 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 the Phase II 220 MHz Service auction, the

Commission 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 Phase II 220 MHz Service

auction and LMDS 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.

13. 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. As an alternative approach, the Bureau

seeks comment on the advantages and disadvantages of 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 the Phase II

220 MHz Service auction if circumstances warrant. The Commission seeks

comment on these proposals.

e. Activity Rule Waivers and Reducing Eligibility

14. 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.

15. 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.

16. 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.

17. 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.

18. The Bureau proposes that each bidder in the Phase II 220 MHz

Service auction 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 Commission seeks comment on this proposal.

f. Information Regarding Bid Withdrawal and Bid Removal

19. For the Phase II 220 MHz Service auction, 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.

20. 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 Commission seeks comment

on these bid removal and bid withdrawal procedures.

21. 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 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

[[Page 67688]]

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.

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

bidder in the Phase II 220 MHz Service auction 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 Commission seeks comment on this proposal.

g. Stopping Rule

23. For the Phase II 220 MHz Service auction, the Bureau proposes

to employ a simultaneous stopping approach. The Bureau has discretion

``to establish stopping rules before or during multiple round auctions

in order to terminate the auction within a reasonable time.'' 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.

24. 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.

25. 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.

26. 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 Commission seeks comment on these proposals.

h. Information Relating to Auction Delay, Suspension or Cancellation

27. For the Phase II 220 MHz Service auction, 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

the discretion of the Bureau, and its use is not intended to be a

substitute for situations in which bidders may wish to apply their

activity rule waivers. The Commission seeks comment on this proposal.

Federal Communications Commission.

Daniel B. Phythyon,

Chief, Wireless Telecommunications Bureau.

[FR Doc. 98-32641 Filed 12-7-98; 8:45 am]

BILLING CODE 6712-01-P