First Paging Service Spectrum Auction Scheduled for December 7, 1999; Comment Sought on Reserve Prices or Minimum Opening Bids and Other Auction Procedural Issues

FEDERAL COMMUNICATIONS COMMISSION

[DA 99-1103; Report No. AUC-99-26-A (Auction No. 26)]

First Paging Service Spectrum Auction Scheduled for December 7,

1999; Comment Sought on Reserve Prices or Minimum Opening Bids and

Other Auction Procedural Issues

AGENCY: Communications Commission.

ACTION: Notice; seeking comment.

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SUMMARY: This document seeks comment on establishing reserve prices or

minimum opening bids and other procedures for the first Paging service

auction. The intended effect of this document is to provide the public

with an opportunity to comment on proposed auction procedures for

Auction No. 26.

DATES: Comments are due on or before June 30, 1999.\1\ Reply comments

are due on or before July 13, 1999.

\1\ Note: This document was received by the Office of the

Federal Register on June 28, 1999.

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

copies to the Office of the Secretary, Federal Communications

Commission, Room TW-B204, 445 12th Street SW, Washington, DC 20554.

Parties must also submit one copy to Amy Zoslov, Chief, Auctions and

Industry Analysis Division, Wireless Telecommunications Bureau, Federal

Communications Commission, Room 4-A760, 445 12th Street, SW,

Washington, DC 20554. Comments and reply comments will be available for

public inspection during regular business hours in the FCC Public

Reference Room, Room CY-A257, 445 12th Street SW, Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT:

Auctions Division: Lisa Hartigan, Operations, (202) 418-0660; Anne

Napoli, Legal, (202) 418-0660, or Bob Reagle, Auctions Analysis, (717)

338-2801.

Commercial Wireless Division: Todd Slamowitz or Cyndi Thomas,

Legal, (202) 418-0620.

SUPPLEMENTARY INFORMATION: This is a synopsis of Public Notice DA 99-

1103, released on June 7, 1999. The complete text of this Public

Notice, including Attachment A (Summary of Licenses to be Auctioned,

Upfront Payments, Minimum Opening Bids), which does not appear in this

synopsis, is available for inspection and copying Monday through Friday

from 9 a.m. to 4:30 p.m., in the Commission's Public Reference Room,

located at 445 12th Street, SW, Room CY-A257, Washington, DC 20554. It

can also be downloaded from the Commission's Auctions web site at

http://www.fcc.gov/wtb/auctions. In addition, copies may be purchased

from the Commission's copy contractor, International Transcription

Services, Inc. (ITS), 1231 20th Street, NW, Washington, DC 20036, (202)

857-3800.

Synopsis

1. By this Public Notice, the Wireless Telecommunications Bureau

(``Bureau'') announces the first in a series of auctions of Paging

service licenses, scheduled to commence on December 7, 1999. As

discussed in greater detail herein, the Bureau proposes that the first

Paging auction be composed of 2,499 licenses in the 929 and 931 MHz

bands (the ``Upper Bands Auction''). These licenses, which are

available in 51 geographic areas known as Major Economic Areas (MEAs),

encompass the United States, the Northern Mariana Islands, Guam,

American Samoa, the United States Virgin Islands and Puerto Rico. In

this Public Notice, we seek comment on this and other procedural issues

relating to the Upper Bands Auction (Auction No. 26). Future public

notices will include further details regarding application filing and

payment deadlines, seminars, and other pertinent information for this

auction. We will seek comment separately on procedural issues relating

to the auction of licenses in the 35-36 MHz, 43-44 MHz, 152-159 MHz,

and 454-460 MHz bands (collectively, the ``Lower Bands Auctions'').

I. Auction Sequence and License Groupings for the Paging Service

Auctions

2. In Revision of Parts 22 and 90 of the Commission's Rules to

Facilitate Future Development of Paging Systems, Memorandum Opinion and

Order on Reconsideration and Third Report and Order, FCC 99-98, 64 FR

33762, June 24, 1999 (``Reconsideration Order''), the Commission

concluded that the upper bands licenses should be awarded in each of 51

Major Economic Areas (MEAs), and the lower bands licenses should be

awarded in each of 175 Economic Areas (EAs). There are 12 channels in

the 929 MHz band and 37 channels in the 931 MHz band, resulting in a

total of 2,499 upper bands paging licenses. There is a significantly

larger number of lower bands licenses (approaching 14,000); therefore,

the Commission proposes to auction the upper bands licenses first and

will seek comment on procedures and license groupings for the lower

bands licenses at a later time. We seek comment on this proposal.

II. Reserve Price or Minimum Opening Bid for the Upper Bands Auction

(Auction No. 26)

3. 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 received mutually exclusive

applications for them), 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 Bureau to seek comment on

the use of a minimum opening bid and/or reserve

[[Page 36010]]

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 is 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.

4. 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 Bureau generally has the discretion to lower the amount

later in the auction. In the event that a license is not sold in an

auction, the Bureau also may lower the minimum opening bid or reserve

price for that license in subsequent auctions. In anticipation of the

first Paging service auction and in light of the Balanced Budget Act,

the Bureau proposes to establish minimum opening bids for the Upper

Bands Auction, and retain discretion to lower the minimum opening bids.

The Bureau believes that the use of minimum opening bids is an

effective auctions practice which has been used successfully in prior

Commission auctions. A minimum opening bid, rather than a reserve

price, will help to regulate the pace of the auction. Specifically, the

Bureau proposes the following formula for calculating minimum opening

bids on a license-by-license basis in the Upper Bands Auction (Auction

No. 26): $.001 x Pops (the result rounded to the nearest hundred for

levels below $10,000, and rounded to the nearest thousand for levels

above $10,000), with a minimum of no less than $2,500 per license.

5. This formula is intended to apply to all geographic paging

licenses in the 929 and 931 bands, and was determined based upon the

considerations explained above. The specific proposed minimum opening

bids for each license are set forth in Attachment A of the complete

Public Notice. 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, we particularly seek 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 Paging 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.

III. Other Auction Procedural Issues

6. The Balanced Budget Act of 1997 requires the Commission to

``ensure that, in the scheduling of any competitive bidding * * * 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 of a variety of auction-specific

issues prior to the start of each auction. We therefore seek comment on

the following issues relating to the Upper Bands Auction (Auction No.

26).

a. Information Available to Bidders During the Course of the Auction

7. In Revision of Part 22 and Part 90 of the Commission's Rules to

Facilitate Future Development of Paging Systems, Second Report and

Order and Further Notice of Proposed Rulemaking, FCC 97-59, 62 FR

11616, March 12, 1997 (``Second Report and Order'') the Commission

concluded that, due to the large number of licenses to be auctioned,

the advantages of limiting the disclosure of information available to

bidders during the course of the Paging auctions (e.g., revealing only

high bids and total number of bids on each license and withholding

bidder identities) may help to speed the pace of the auctions. In the

Reconsideration Order, 64 FR 33762, June 24, 1999, the Commission

directed the Bureau to seek further comment on this issue. The Bureau

tentatively concludes that it will be unnecessary to withhold bidder

identities if the Paging licenses are auctioned in groups of

approximately 2,500 or fewer licenses, as we have proposed to do with

the Upper Band licenses. We seek comment on this tentative conclusion.

In addition, we propose to disclose all information relating to the

bids, including revealing all bids and withdrawals placed in each

round, the identity of the bidder placing each bid or withdrawal, and

the net and gross amounts of each bid or withdrawal during the Upper

Bands Auction (Auction No. 26). We seek comment on this proposal.

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

Determining Reductions in Eligibility

8. We propose to divide the Upper Bands Auction into three stages:

Stage One, Stage Two and Stage Three, each characterized by increased

activity requirements. The auction will start in Stage One. We propose

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, we further propose 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. We seek comment on these proposals.

9. 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 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.

10. For the Uppers Bands Auction (Auction No. 26), we propose 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

[[Page 36011]]

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 to required to be active on 98 percent

of its current bidding eligibility. In this final stage, reduced

eligibility for the net round will be calculated by multiplying the

current round activity by fifty forty-ninths (\50/49\). We seek comment

on these proposals.

c. Minimum Accepted Bids

11. Once there is a standing high bid on a license, there will be a

bid increment associated with that bid indicating the minimum amount by

which the bid on that license can be raised. For the Upper Bands

Auction (Auction No. 26), we will use a standard exponential smoothing

methodology to calculate minimum bid increments, as we have done in

several other auctions. The Bureau retains the discretion to change the

minimum bid increment if it determines that circumstances so dictate.

We seek comment on this proposal.

12. The exponential smoothing formula calculates the bid increment

for each license based on a weighted average of the activity received

on each license in all previous rounds. This methodology will tailor

the bid increment for each license based on activity, rather than

setting a global increment for all licenses. For every license that

receives a bid, the bid increment for the next round for that license

will be established using the exponential smoothing formula.

13. The calculation of the percentage bid increment for each

license in a given round is made at the end of the previous round. The

computation is based on an activity index, which is calculated as the

weighted average of the activity in that round and the activity index

from the prior round. The activity index at the start of the auction

(round 0) will be set at 0. The current activity index is equal to a

weighting factor times the number of new bids received on the license

in the most recent bidding round plus one minus the weighting factor

times the activity index from the prior round. The activity index is

then used to calculate a percentage increment by multiplying a minimum

percentage increment by one plus the activity index with that result

being subject to a maximum percentage increment. The Commission will

initially set the weighting factor at 0.5, the minimum percentage

increment at 0.1, and the maximum percentage increment at 0.2.

Equations

Ai=(C*Bi)+((1-C)*A-1)

Ii+1=smaller of ((1+Ai)*N) and M

Where,

Ai=activity index for the current round (round i)

C=activity weight factor

Bi=number of bids in the current round (round i)

Ai-1=activity index from previous round (round i-1),

A0 is 0

Ii+1=percentage bid increment for the next round (round i+1)

N=minimum percentage increment or bid increment floor

M=maximum percentage increment or bid increment ceiling

Under the exponential smoothing methodology, once a bid has been

received on a license, the minimum acceptable bid for that license in

the following round will be the new high bid plus the dollar amount

associated with the percentage increment (variable Ii+1 from

above times the high bid). This result will be rounded to the nearest

thousand if it is over ten thousand or to the nearest hundred if it is

under ten thousand.

Examples

License 1

C=0.5, N=0.1, M=0.2

Round 1 (2 new bids, high bid=$1,000,000)

1. Calculation of percentage increment for round 2 using exponential

smoothing:

A1=(0.5*2)+(0.5*0)=1

The smaller of I2=(1+1)*0.1=0.2 or 0.2 (maximum

percentage increment)

2. Minimum bid increment for round 2 using the percentage increment

(I2 from above)

0.2*$1,000,000=$200,000

3. Minimum acceptable bid for round 2=1,200,000

Round 2 (3 new bids, high bid=2,000,000)

1. Calculation of percentage increment for round 3 using exponential

smoothing:

A2=(0.5*3)+(0.5*1)=2

The smaller of I3=(1+2)*0.1=0.3 or 0.2 (maximum

percentage increment)

Minimum bid in increment for round 3 using the percentage increment

(I3 from above)

0.2*$2,000,000=$400,000

3. Minimum acceptable bid for round 3=2,400,000

Round 3 (1 new bid, high bid=2,400,000)

1. Calculation of percentage increment for round 4 using exponential

smoothing:

A3=(0.5*1)+(0.5*2)=1.5

The smaller of I4=(1+1.5)*0.1=0.25 or 0.2 (the maximum

percentage increment)

2. Minimum bid increment for round 4 using the percentage increment

(I4 from above)

0.2* $2,400,000 = $480,000

3. Minimum acceptable bid for round 4 = 2,880,000

d. Initial Maximum Eligibility for Each Bidder

14. The Bureau has delegated authority and discretion to determine

an appropriate upfront payment for each license begin 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,

we propose to calculate upfront payments for the Upper Bands Auction on

a license-by-license basis, using the following formula: $.0008 * Pops

(the result rounded to the nearest hundred for levels below $10,000 and

to the nearest thousand for levels above $10,000) with a minimum of no

less than $2,500 per license.

15. This formula is intended to apply to all geographic paging

licenses in the 929 and 931 bands, and was determined based upon the

considerations explained above. We seek comment on this proposal.

16. We 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 licenses, but instead will be translated

into bidding units to define a bidder's initial maximum eligibility,

which will define licenses on which bids may be placed. Eligibility

cannot be increased during the auction. It is important that in

calculating the upfront payment amount, an applicant determine the

maximum number of bidding units it may wish to bid on (and/or hold high

bids on) in any single round, and submit an upfront payment covering

that number of bidding units. We seek comment on this proposal.

[[Page 36012]]

e. Activity Rule Waivers and Reducing Eligibility

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

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

begin 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.

18. 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.

19. 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.

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

to keep an 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.

21. We propose that each bidder in the Upper Bands Auction (Auction

No. 26) will be provided with five activity rule waivers that may be

used in any round during the course of an auction as set forth above.

We seek comment on this proposal.

f. Information Regarding Bid Withdrawal and Bid Removed

22. For the Upper Bands Auction (Auction No. 26), we 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

submitted 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.

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

However, in any subsequent round, a high bidder may withdraw its

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. We

seek comment on these bid removal and bid withdrawal procedures.

24. In Amendment of Part 1 of the Commission's Rules--Competitive

Bidding Procedures, Third Report and Order and Second Further Notice of

Proposed Rulemaking, FCC 97-413, 63 FR 2315, January 15, 1998 (``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 an 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.

25. Applying this reasoning, we propose to limit each bidder in the

Upper Bands Auction (Auction No. 26) to withdrawals in no more than two

rounds during the course of each 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.

We seek comment on this proposal.

g. Stopping Rule

26. In the Reconsideration Order, 64 FR 33762, June 24, 1999, the

Commission upheld the hybrid simultaneous/license-by-license stopping

rule that had been adopted for the paging auctions in the Second Report

and Order, 62 FR 11616, March 12, 1997, but retained discretion for the

Bureau to use another stopping rule after seeking further comment on

this issue in the pre-auction process. The Bureau concludes that our

proposal to conduct a series of auctions may eliminate the risk of

unnecessarily protracted auctions, and likewise, the need for a hybrid

stopping rule.

27. Therefore, for the Upper Bands Auction (Auction No. 26), 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 close simultaneously on all licenses. Thus, unless

circumstances dictate otherwise, bidding would remain open on all

licenses until bidding stops on every license.

28. We also seek comment on a modified version of the simultaneous

stopping rule. The modified version of the 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 of the auction.

29. In addition, we propose 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

[[Page 36013]]

bidder with insufficient activity will either lose bidding eligibility

or use a remaining activity rule waiver. We seek comment on this

proposal.

30. Finally, we propose 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 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. We seek comment on these proposals.

h. Information Relating to Auction Delay, Suspension or Cancellation

31. For the Upper Bands Auction (Auction No. 26), we propose that,

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

delay, suspend or cancel any 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 an auction. We emphasize 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. We seek comment on hits

proposal.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

[FR Doc. 99-16762 Filed 7-1-99; 8:45 am]

BILLING CODE 6712-01-M