Closed Broadcast Auctions Scheduled for September 28, 1999; Comment Sought on Reserve Prices or Minimum Opening Bids and Other Auction Procedural Issues

FEDERAL COMMUNICATIONS COMMISSION

[DA 99-940; Report No. AUC-99-25-A (Auction No. 25)]

Closed Broadcast Auctions Scheduled for September 28, 1999;

Comment Sought on Reserve Prices or Minimum Opening Bids and Other

Auction Procedural Issues

AGENCY: Federal Communications Commission.

ACTION: Notice; seeking comment.

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SUMMARY: This Public Notice announces the auction of certain AM, FM,

TV, LPTV, and FM and TV translator construction permits, to commence on

September 28, 1998, and seeks comment on procedural issues relating to

the auction.

DATES: Comments are due on or before June 1, 1999. Reply comments are

due on or before June 14, 1999.

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 in the Commission's

headquarters at 445 Twelfth Street, S.W., Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: Lisa Scanlan, Audio Services Division,

Mass Media Bureau at (202) 418-2700 or Shaun Maher, Video Services

Division, Mass Media Bureau at (202) 418-1600 or Bob Allen, Auctions

and Industry Analysis Division, Wireless Telecommunications Bureau, at

(202) 418-0660.

SUPPLEMENTARY INFORMATION: This Public Notice was released on May 17,

1999, and is available in its entirety, including Attachment A, for

inspection and copying during normal business hours in the FCC Public

Reference Room in the Commission's headquarters at 445 Twelfth Street,

S.W., Washington, D.C. 20554., 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 Mass Media Bureau (``MMB'') and the

Wireless Telecommunications Bureau (``WTB'') (collectively,

``Bureaus'') announce the auction of certain AM, FM, TV, LPTV, and FM

and TV translator construction permits to commence September 28, 1999.

Specifically, all spectrum to be auctioned is the subject of pending,

mutually exclusive applications for construction permits for the

referenced broadcast services, for which the Commission has not

approved a settlement agreement that obviates the need for an auction.

This includes mutually exclusive applications for full service FM, AM

and television stations that were subject to the comparative freeze

instituted after the decision of the U.S. Court of Appeals for the

District of Columbia in Bechtel v. FCC, 10 F.3d 875, 878 (D.C. Cir.

1993). The auction will also include pending mutually exclusive

applications for LPTV, FM translator and television translator, as well

as certain mutually exclusive LPTV and television translator DTV

displacement relief applications. Pursuant to Implementation of Section

309(j) of the Communications Act--Competitive Bidding for Commercial

Broadcast and Instructional Television Fixed Service Licenses, First

Report and Order in MM Docket No. 97-234, GC Docket No. 92-52 and GEN

Docket No. 90-264, 63 FR 48615 (``Broadcast First Report and Order'')

and Memorandum Opinion and Order, FCC 99-74, 64 FR 24523 (``Broadcast

Reconsideration Order''), participation in the auction will be limited

to those applicants identified in the Public Notice and applicants will

be eligible to bid on only those construction permits for which they

filed an appropriate long-form application (FCC Forms 301, 346 or 349).

2. Attachment A to the Public Notice sets forth all mutually

exclusive applicant groups (``MX groups'') categorized on a service-by-

service basis, accompanied by their respective minimum opening bids and

upfront payments. All MX groups identified in Attachment A have been

subject to competition through the opening and closing of the relevant

period for filing competing applications, either through the two-step

cut-off list procedures or through an application filing window.

Pursuant to the Broadcast First Report and Order, those specific

situations where both noncommercial and commercial applicants have

filed mutually exclusive applications for nonreserved channels are not

proceeding to auction at this time, and therefore, these application

groups have not been included in Attachment A. In addition, those AM,

FM translator, LPTV and television translator applications in ``daisy

chain'' MX groups (where applications are directly mutually exclusive

with certain applications in their group but not with others) are not

included in this auction. A separate auction for daisy chain MX groups

will be announced shortly.

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3. Construction permits will be auctioned for each of the MX groups

identified in Attachment A. All applications within an MX group are

directly mutually exclusive with one another and a single construction

permit will be issued for each of those MX groups. The applicants

listed in Attachment A are categorized by service as follows: Primary

Service Television (full service facilities as set forth in the

Commission's television Table of Allotments); Secondary Service

Television (secondary service non-Table-based facilities, specifically,

television translator and LPTV); FM Radio; FM translator; and AM Radio.

The naming conventions employed in Attachment A to identify each MX

Group are set forth below:

Primary Service TV: PST

Secondary Service TV: SST

FM Radio: FM

FM Translator: FMT

AM Radio: AM

The total number of long form applications being disposed of in

this proceeding is 968. These long form applications are grouped

together in a total of 265 MX groups.

4. 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 or construction

permits are subject to auction (i.e., because the applications are

mutually exclusive), unless the Commission determines that a reserve

price or minimum bid is not in the public interest. Consistent with

this mandate, the Commission has directed the Bureaus to seek comment

on the use of minimum opening bids and/or reserve prices prior to the

start of each broadcast auction. This is consistent with the policy

applied in earlier spectrum auctions and is pursuant to the

Commission's rules. The Commission has concluded that either or both of

these mechanisms may be employed for auctions and has delegated the

requisite authority to the Bureaus to make determinations regarding the

appropriateness of employing either or both.

5. 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.

6. In anticipation of these auctions and in light of the Balanced

Budget Act, the Bureaus propose to establish minimum opening bids. The

Bureaus believe a minimum opening bid, which has been utilized in other

auctions, is an effective tool in conducting an auction. A minimum

opening bid, rather than a reserve price, will help to regulate the

pace of the auction. The minimum opening bids will be calculated

according to the factors set forth below. A listing of the proposed

minimum opening bids for the MX groups can be found in Attachment A of

the Public Notice.

7. For full service television construction permits, the Bureaus

have based the proposed minimum opening bids upon the type of service

that will be offered, market size, industry cash flow data and recent

broadcast transactions. For radio construction permits, the Bureaus

have based the proposed minimum opening bids upon the service and class

of facility that will be offered, the population covered by the

proposed facilities for which parties intend to bid and recent

broadcast transactions. Comment is sought on this proposal. If

commenters believe that the minimum opening bids proposed in Attachment

A will result in substantial numbers of unsold construction permits,

or, in particular instances, do not constitute reasonable amounts, or

that they 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. Commenters should detail any alternative method

they propose for valuing given spectrum, providing examples and

citations for each part of their formula. Alternatively, comment is

sought on whether, consistent with the Balanced Budget Act, the public

interest would be served by having no minimum opening bids or reserve

prices.

II. Other Auction Procedural Issues

8. The Balanced 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 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

Bureaus, under their existing delegated authority, to seek comment on a

variety of auction-specific issues prior to the start of each auction.

The Bureaus seek comment on the following issues.

a. Auction Sequence, License Groupings and Auction Design

9. Because the grouping together of construction permit

applications by MX groups, as described above, is appropriate for the

broadcast services that are the subject of this auction, the Bureaus

seek comment on the use of MX groups, as represented in Attachment A,

for the awarding of construction permits. Further, because it is most

administratively appropriate and allows bidders to take advantage of

any synergies that exist among licenses, the Bureaus propose to award

the construction permits in a single simultaneous multiple-round

auction. The Bureaus seek comment on this proposal.

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

Determining Reductions in Eligibility

10. The Bureaus propose a single stage auction. In order to ensure

that auctions close 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. The Bureaus propose that, in each round of the auction a bidder

desiring to maintain its current eligibility is required to be active

on construction permits encompassing one hundred (100) 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). In

each round of the auction a bidder's current eligibility will therefore

be equal to their activity level in the previous round. The Bureaus

seek comment on these proposals.

c. Minimum Accepted Bids

12. Once there is a standing high bid on a construction permit, a

bid increment will be applied to that construction permit to establish

a minimum acceptable bid for the following round. The Bureaus propose

to initially set the bid increment at 10% per bid per construction

permit. The

[[Page 29314]]

Bureaus retain the discretion to change the methodology for determining

the minimum bid increment if they determine that circumstances so

dictate. The Bureaus seek comment on this proposal.

d. Initial Maximum Eligibility for Each Bidder

13. The Bureaus have delegated authority and discretion to

determine an appropriate upfront payment for each construction permit

being auctioned, taking into account such factors as efficiency of the

auction process and the potential value of the spectrum. With these

guidelines in mind, the Bureaus propose the schedule of upfront

payments contained in Attachment A to the Public Notice. The Bureaus

seek comment on this proposal.

14. The Bureaus further propose 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 construction permits, but

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

initial 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. In this auction, most bidders

shall be potentially eligible to bid in relatively few MX groups, or,

in some cases, potential eligibility may be limited to one MX group.

This is because bidding in any MX group is potentially open only to

those applicants that have previously filed a long form application.

Nonetheless, in those cases where an applicant has filed qualifying

long form applications for more than one MX group, the total of upfront

payments tendered will be translated into bidding units to define that

bidder's initial maximum eligibility, as explained above.

15. Failure to submit an upfront payment of sufficient size to

provide bidding eligibility for every MX group in which an applicant

has a pending long form application, will limit the bidding eligibility

of that applicant. For example, where a bidder has submitted

applications for three construction permits (``A,'' ``B'' and ``C'')

and the upfront payment requirements are: ``A'': $1,000; ``B'': $500;

and ``C'': $250, once the auction commences, eligibility to bid on

construction permit ``A'' will require 1000 bidding units; with

construction permits ``B'' and ``C'' requiring 500 units and 250 units,

respectively. If the bidder submits an upfront payment of $1,000, it

may bid on construction permit ``A'' or on construction permits ``B''

and ``C'' in the same round, but not on all three. In this example, the

bidder would, however, be eligible to bid on construction permit ``A''

in the first round of the auction and on ``B'' and ``C'' in a later

round, so long as the bidder does not have a standing high bid on

``A.'' In the case of this hypothetical bidder submitting an upfront

payment of $500, it could not bid on construction permit ``A,'' (since

it would have insufficient bidding units) but would be potentially

eligible to pursue construction permits ``B'' and ``C,'' though not

both in the same round (since it would lack sufficient bidding

credits). To have unrestricted bidding eligibility in the situation

posed by this example, the bidder would have to submit an upfront

payment of $1,750, or enough to acquire sufficient bidding units to bid

on or hold high bids on all three construction permits concurrently.

The Bureaus seek comment on this proposal.

e. Activity Rule Waivers and Reducing Eligibility

16. 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 construction

permit. 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.

17. 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.

18. 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.

19. 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, under the simultaneous

stopping rule. The Bureaus propose that each bidder be provided with

five activity rule waivers that may be used in any round during the

course of the auction. The Bureaus seek comment on this proposal.

f. Information Regarding Bid Withdrawal and Bid Removal

20. The Bureaus propose 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.

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

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

submitted in a 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 Bureaus seek

comment on these bid removal and bid withdrawal procedures.

22. In the Part 1 Third Report and Order, the Commission 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

[[Page 29315]]

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.

23. Applying this reasoning, the Bureaus propose to limit each

bidder in the 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 Bureaus seek

comment on this proposal.

g. Stopping Rule

24. The Bureaus propose to employ a simultaneous stopping approach.

The Bureaus have 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

construction permits 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 construction

permits. Thus, unless circumstances dictate otherwise, bidding would

remain open on all construction permits until bidding stops on every

construction permit.

25. The Bureaus seek 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 construction permit

for which it is the standing high bidder would not keep the auction

open under this modified stopping rule. The Bureaus further seek

comment on whether this modified stopping rule should be used.

26. We propose that the Bureaus 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.

27. The Bureaus propose to reserve the right to declare that the

auction will end after a specified number of additional rounds

(``special stopping rule''). If the Bureaus invoke this special

stopping rule, it will accept bids in the final round(s) only for

construction permits on which the high bid increased in at least one of

the preceding specified number of rounds. The Bureaus propose 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 Bureaus are likely to attempt to increase the pace of the

auction by, for example, increasing the number of bidding rounds per

day, and/or increasing the amount of the minimum bid increments for the

limited number of construction permits where there is still a high

level of bidding activity. The Bureaus seek comment on these proposals.

h. Information Relating to Auction Delay, Suspension or Cancellation

28. The Bureaus propose that, by Public Notice or by announcement

during the auction, they 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 Bureaus,

in their 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 Bureaus to delay or suspend the

auction. The Bureaus emphasize that exercise of this authority is

solely within the discretion of the Bureaus, and its use is not

intended to be a substitute for situations in which bidders may wish to

apply their activity rule waivers. The Bureaus seek comment on this

proposal.

i. Information Pertaining to Further Auction Details

29. Future public notices will include further details regarding

short form (FCC Form 175) application filing and payment deadlines, a

bidder seminar, and other pertinent information.

Federal Communications Commission.

Gerald P. Vaughan,

Deputy Bureau Chief, Wireless Telecommunications Bureau.

[FR Doc. 99-13768 Filed 5-28-99; 8:45 am]

BILLING CODE 6712-01-P