Auction of Licenses For Fixed Point-to-Point Microwave Services in the 38.6 to 40.0 GHz (39 GHz) Band Scheduled for April 11, 2000

FEDERAL COMMUNICATIONS COMMISSION

[Report No. AUC-99-30-A (Auction No. 30); DA 99-2624]

Auction of Licenses For Fixed Point-to-Point Microwave Services

in the 38.6 to 40.0 GHz (39 GHz) Band Scheduled for April 11, 2000

AGENCY: Federal Communications Commission.

ACTION: Notice; seeking comment.

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SUMMARY: This Public Notice announces the auction of licenses for fixed

point-to-point microwave services in the 38.6 to 40.0 GHz band (``39

GHz Auction''), scheduled to commence on April 11, 2000. As discussed

in greater detail herein, the Bureau proposes that the 39 GHz Auction

be composed of 2,450 licenses in the 38.6-40.0 GHz bands (``39 GHz

band''). Fourteen 100 megahertz licenses (paired 50 megahertz channel

blocks) will be offered in each of 172 Economic Areas (EAs) and 3 EA-

like areas, covering the United States, the Northern Mariana Islands,

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

DATES: Comments are due on or before December 8, 1999 and reply

comments are due on or before December 20, 1999.\1\

\1\ Editorial note: This document was received by the Office of

the Federal Register on December 14, 1999.

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

copies to the Office of the Secretary, Federal Communications

Commission, 445 Twelfth Street, SW, 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, 445 Twelfth Street, SW, Room No. 4-

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A760, Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Kenneth Burnley, Auctions and Industry

Analysis Division, Wireless Telecommunications Bureau, at (202) 418-

0664.

SUPPLEMENTARY INFORMATION: This is a summary of a Public Notice

released November 23, 1999. The complete text, including all

attachments, of the public notice is available for inspection and

copying during normal business hours in the FCC Reference Center (Room

CY-A257), 445 12th Street, SW, Washington, DC. It may also be purchased

from the Commission's copy contractor, International Transcription

Services, Inc., (ITS, Inc.) 1231 20th Street, NW, Washington, DC 20035,

(202) 857-3800. It is also available on the Commission's website at

http://www.fcc.gov/wtb/auctions.

I. Upfront Payments and Initial Maximum Eligibility for Each Bidder

1. The Wireless telecommunications Bureau (``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 following

upfront payments are proposed for the 39 GHz Auction:

For licenses with populations of 1,000,000 or greater:

License population * $0.04 (the result rounded to the nearest

thousand).

For licenses with populations of less than 1,000,000:

License population * $0.02 (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.

Comment is sought on this proposal. It is further proposed 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

[[Page 70709]]

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.

Comment is sought on this proposal.

II. 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 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. More specifically, 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 Budget Act,

the Bureau proposes to establish minimum opening bids for the 39 GHz

Auction.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. 30, the Commission proposes the

following license-by-license formulas for calculating minimum opening

bids, based on the population (``pops'') of the EA:

For licenses with populations of 1,000,000 or greater:

License population * $0.08 (the result rounded to the nearest

thousand).

For licenses with populations of less than 1,000,000:

License population * $0.04 (the result rounded to the nearest

hundred for results less than $10,000 and to the nearest thousand for

results greater than $10,000) with a minimum of no less than $2,500 per

license.

Comment is sought on this proposal. If commenters believe 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, comment is sought

on 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

have an impact on valuation of the 39 GHz band. Alternatively, comment

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

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

price.

III. Other Auction Procedural Issues

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

Determining Reductions in Eligibility

6. The Bureau proposes that the auction be divided 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 approximately

ten percent or below for three consecutive rounds of bidding in Stages

One and Two. However, the Bureau further proposes that it 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. Comment is sought on these

proposals.

7. 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 must use an activity rule waiver (if

any remain).

8. For the 39 GHz Auction, we propose the following activity

requirements:

Stage One: In each round of the first stage of the auction, a

bidder desiring to maintain its current eligibility is required to be

active on licenses representing 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).

Stage Two: In each round of the second stage, a bidder desiring to

maintain its current eligibility is required to be active on 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).

Stage Three: In each round of the third stage, 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-fortyninths (50/49). Comment is sought

on these proposals.

b. Minimum Accepted Bids

9. 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 39 GHz Auction, the Bureau proposes to

use a smoothing methodology to calculate bid

[[Page 70710]]

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. The Bureau will do so by

announcement in the Automated Auction System. Comment is sought on

these proposals.

10. 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.

11. 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) * Ai-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)

a. 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 (the

maximum percentage increment)

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

(I2 from above)

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

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

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

a. 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 (the

maximum percentage increment)

b. Minimum bid increment for round 3 using the percentage increment

(I3 from above)

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

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

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

a. 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)

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

(I4 from above)

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

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

c. Activity Rule Waivers and Reducing Eligibility

12. 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.

13. The 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.

14. 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.

15. A bidder may proactively apply 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. Note: an automatic waiver invoked in a round in

which there are no new valid bids will not keep the auction open.

The Bureau proposes that each bidder in the 39 GHz Auction be

provided with five activity rule waivers that may be used in up to five

separate rounds at the bidder's discretion during the course of the

auction as set forth above. Comment is sought on this proposal.

d. Information Regarding Bid Withdrawal and Bid Removal

16. For the 39 GHz 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, but will affect a bidder's activity for the round in which it

is removed.

17. 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.

[[Page 70711]]

A high bidder that withdraws its standing high bid from a previous

round is subject to the bid withdrawal payment provisions. Comment is

sought on these bid removal and bid withdrawal procedures.

18. In the Part 1 Third Report and Order, 63 FR 2315 (January 15,

1998), 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. The

Bureau, therefore, has discretion, in managing the auction, to limit

the number of withdrawals to prevent any bidding 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.

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

bidder in the 39 GHz 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 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. Comment is sought on

this proposal.

e. Stopping Rule

20. For the 39 GHz Auction, the Bureau proposes to employ a

simultaneous stopping rule 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.

21. 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.

22. The Bureau proposes that it 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.

23. Finally, the Bureau proposes that it 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. Comment is sought on these proposals.

f. Information Relating to Auction Delay, Suspension or Cancellation

24. For the 39 GHz Auction, the Bureau 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, administra- tive 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 Bureau 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. Comment

is sought on this proposal.

Federal Communications Commission.

Louis Sigalos,

Deputy Chief, Auctions & Industry Analysis Division.

[FR Doc. 99-32826 Filed 12-16-99; 8:45 am]

BILLING CODE 6712-01-U