Implementation of the Commercial Spectrum Enhancement Act and Modernization of the Commission's Competitive Bidding Rules and Procedure

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FCC Declaratory Rulings › Implementation of the Commercial Spectrum Enhancement Act and Modernization of the Commission's Competitive Bidding Rules and Procedure

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Text

Federal Communications Commission

FCC 05-123

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of

)

Implementation of the Commercial Spectrum )

Enhancement Act and Modernization of the )

WT Docket No. 05-211

Commission's Competitive Bidding Rules and )

Procedures

)

DECLARATORY RULING AND NOTICE OF PROPOSED RULE MAKING

Adopted: June 9,2005

Released: June 14,2005

By the Commission:

Comment Date: 30 days after publication in the Federal Register

Reply Comment Date: 45 days after publication in the Federal Register

TABLE OF CONTENTS

Heading

Paragraph #

I. INTRODUCTION AND EXECUTIVE SUMMARY

n. DECLARATORY RULING

m. NOTICE OF PROPOSED RULE MAKING

A. Implementing CSEA

1. Complying with CSEA's Reserve Price Requirement

2. Modifying Tribal Land Bidding Credit Rules

B. Updating Competitive Bidding Rules and Procedures

1. Clarifying the Default Rule

2. Raising the Limit on Withdrawal and Default Payments

a. Background

b. Discussion

3. Apportioning Bid Amoimts

a. Apportionment Among the Licenses in a Package

b. Apportionment Among the Components of a License

4. Conforming Broadcast Construction Permit Payment Procedures with Part 1 Rules

5. Improving Procedures for Using the Consortium Exception to the Designated Entity

and Entrepreneur Aggregation Rule

IV. CONCLUSION

V. PROCEDURAL MATTERS AND ORDERING CLAUSES

A. Ex Parte Rules -

Permit-But-Disclose Proceeding

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ackage

b. Apportionment Among the Components of a License

4. Conforming Broadcast Construction Permit Payment Procedures with Part 1 Rules

5. Improving Procedures for Using the Consortium Exception to the Designated Entity

and Entrepreneur Aggregation Rule

IV. CONCLUSION

V. PROCEDURAL MATTERS AND ORDERING CLAUSES

A. Ex Parte Rules -

Permit-But-Disclose Proceeding

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B. Paperwork Reduction Act

C. Initial Regulatory Flexibility Analysis

D. Comment Filing Procedures

E. Accessible Formats

F. Further Information

G. Ordering Clauses

APPENDICES:

Appendix A -

Proposed Rules

Appendix B -

Initial Regulatory Flexibility Analysis

I. INTRODUCnON AND EXECUTIVE SUMMARY

1. With this Declaratory Ruling and Notice of Proposed Rule Making {^''Declaratory Rulin^^

and "Notice"'), we begin a proceeding to implement rules and procediu-es needed to comply with the

recently enacted Commercial Spectrum Enhwcement Act ("CSEA").' We also propose a number of

changes to our conqietitive bidding rules that are necessary, apart fiom CSEA, to bring them in line with

the current requirements of our auctions program.

2. CSEA establishes a mechanism to use spectrum auction proceeds to reimburse federal

agencies operating on the 216-220 MHz, 1432-1435 MHz, 1710-1755 MHz, and 2385-2390 MHz bands,

and certain other fiequency bands that may be reallocated from federal to non-federal use, for the cost of

relocating operations. In the Declaratory Ruling, we interpret the meaning of the term "total cash

proceeds" as used in CSEA, because we fmd that an interpretation is necessary for us to be able to

inq)lement the statute. We determine that "total cash proce^" for purposes of CSEA means witming

bids net of any applicable bidding credit discoimts. Should we determine that additional provisions of

CSEA must be interpreted in order to comply with the statute, we will make those interpretations in

subsequent actions.

CSEA, because we fmd that an interpretation is necessary for us to be able to

inq)lement the statute. We determine that "total cash proce^" for purposes of CSEA means witming

bids net of any applicable bidding credit discoimts. Should we determine that additional provisions of

CSEA must be interpreted in order to comply with the statute, we will make those interpretations in

subsequent actions.

3. In the Notice, we seek comment on changes to our conq>etitive bidding rules necessary to

inclement CSEA. Specifically, we propose to:

•

Change the Conunission reserve price rule as mandated by CSEA; and

•

Change the Commission tribal land bidding credit rules in auctions subject to CSEA or to a

reserve price requirement unrelated to CSEA in order to determine whether auction results satisfy

any revenue requirement at or near the completion of bidding;

4. We also consider in the Notice a number of other measures to update our competitive bidding

rules and procedures, including steps to (1) ensure that our general auction rules are consistent with the

use of combinatorial (or package) bidding mediodologies, (2) conform the payment rules and procedures

for broadcast construction permits won at auction to our Part 1 general competitive bidding rules and

recent procedures, and (3) determine whether certain existing conqjetitive bidding provisions should be

modified in order to achieve their intended purposes. Spiecifically, we propose to:

Commercial Spectrum Enhancement Act, Pub. L. No. 108-494,118 Stat. 3986, Title II (2004) (codified

in scattered sections of Title 47 of the United States Code)

("CSEA").

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al competitive bidding rules and

recent procedures, and (3) determine whether certain existing conqjetitive bidding provisions should be

modified in order to achieve their intended purposes. Spiecifically, we propose to:

Commercial Spectrum Enhancement Act, Pub. L. No. 108-494,118 Stat. 3986, Title II (2004) (codified

in scattered sections of Title 47 of the United States Code)

("CSEA").

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•

Change the Commission's default payment rule to clarify its application in certain situations;

•

Change the Commission's interim withdrawal and additional default payment rules to replace the

current interim withdrawal and additional default payments of 3 percent of the relevant bid with

an amount up to 20 percent of the relevant bid, with the precise amount for each auction

established in advance of the auction;

• Adopt new Commission rules to establish procedures in advance of each auction for apportioning

bid amounts in the auction among licenses in a package or among components of a license to

determine the amount of an individual bid or a portion of a bid when needed for calculations

pursuant to Commission mles or procedures;

•

Change Commission payment rules and procedures for broadcast constmction permits won at

auction to conform to the payment rules and procedures for non-broadcast licenses won at

auction; and

• Change Commission rules and procedures for consortia of designated entities and entrepreneurs

to in^jrove the licensing process for such entities.

II. DECLARATORY RULING

5. CSEA, signed into law on December 23, 2004, establishes a Spectrum Relocation Fund

("SRF') to reimburse federal agencies operating on certain frequencies that have been reallocated from

federal to non-federal use for the cost of relocating their operations.^ The SRF will be funded from cash

proceeds attributable to "eligible frequencies" in an auction involving such frequencies

CLARATORY RULING

5. CSEA, signed into law on December 23, 2004, establishes a Spectrum Relocation Fund

("SRF') to reimburse federal agencies operating on certain frequencies that have been reallocated from

federal to non-federal use for the cost of relocating their operations.^ The SRF will be funded from cash

proceeds attributable to "eligible frequencies" in an auction involving such frequencies. The statute

identifies four bands (the 216-220 MHz, 1432-1435 MHz, 1710-1755 MHz and 2385-2390 MHz bands)

as eligible frequencies in which SRF fimds will be used to relocate federal entities.' In addition, the

statute designates as "eligible frequencies" any other band of frequencies reallocated from federal use to

non-federal use after January 1, 2003, and assigned by the Commission through competitive bidding.^

6. Pursuant to CSEA, the National Telecommunications and Information Administration

("NTIA") must notify the Commission of estimated relocation costs and timelines for relocation fh>m

eligible frequencies by eligible federal entities at least six months in advance of a scheduled auction of

eligible frequencies.' CSEA further requires that the "total cash proceeds" from any auction of eligible

frequencies must equal at least 110 percent of estimated relocation costs of eligible federal entities.^

CSEA prohibits the Commission from concluding any auction of eligible frequencies that falls short of

this revenue requirement:

CSEA §§ 201-209.

Id. § 202 (codified at 47 U.S.C. § 923(g)(2)(A)).

^ Id. § 202 (codified at 47 U.S.C. § 923(g)(2)(B)). Bands of frequencies previously identified by the

National Telecommunications and Information Administration in the Spectrum Reallocation Final Report, NTIA

Special Publication 95-32 (1995), are excluded. Id. § 202 (codified at 47 U.S.C. § 923(g)(2)(B)).

Id. § 202 (codified at 47 U.S.C. § 923(g)(4)).

'Id.

§ 309a)(16)).

Id. § 203(b) (codified incorrectly at 47 U.S.C. § 309(j)(15); should have been codified at 47 U.S.C.

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dentified by the

National Telecommunications and Information Administration in the Spectrum Reallocation Final Report, NTIA

Special Publication 95-32 (1995), are excluded. Id. § 202 (codified at 47 U.S.C. § 923(g)(2)(B)).

Id. § 202 (codified at 47 U.S.C. § 923(g)(4)).

'Id.

§ 309a)(16)).

Id. § 203(b) (codified incorrectly at 47 U.S.C. § 309(j)(15); should have been codified at 47 U.S.C.

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The Commission shall not conclude any auction of eligible frequencies ... if the total

cash proceeds attributable to such spectrum are less than 110 percent of the total

estimated relocation costs provided to the Commission .... If the Commission is unable

to conclude an auction for the foregoing reason, the Commission shall cancel the auction,

return within 45 days after the auction cancellation date emy deposits from participating

bidders held in escrow, and absolve such bidders from any obligation to the United States

to bid in any subsequent reauction of such spectrum.^

7. As a threshold matter, in order to implement this requirement, we must determine the

meaning of the term "total cash proceeds" as used in the statute. Under our conpetitive bidding rules,

winning bids in an auction do not necessarily translate into amoxmts actually owed by bidders. The

discrepancy between gross and net winning bid amounts arises finm the award of bidding credits.

Pursuant to our statutory authority for designing competitive bidding systems, we have established rules

granting bidding credits -

i.e., discotmts on gross winning bids -

to eligible designated entities and new

entrants into the marketplace.^ We also have established rules providing bidding credits to winning

bidders that undertake to serve previously underserved tribal lands. In this context, the plain language of

the statute appears to refer to an auction's net winning bids rather than gross winning bids

bidding credits -

i.e., discotmts on gross winning bids -

to eligible designated entities and new

entrants into the marketplace.^ We also have established rules providing bidding credits to winning

bidders that undertake to serve previously underserved tribal lands. In this context, the plain language of

the statute appears to refer to an auction's net winning bids rather than gross winning bids. The word

"cash" is defined as "money or its equivalent;"'" or "ready money"" and "proceeds" is defined as "the

money obtained fix)m a commercial or fund-raising venture: yield."*^

8. In addition to the language of the statute, the purpose underlying the revenue requirement of

CSEA supports a determination that "total cash proceeds" is based on winning bids net of bidding credits.

Given that Congress's purpose in establishing the SRF was to provide a mechanism for making sufficient

funds available to relocating federal agencies," it is reasonable to assume that Congress did not intend the

Commission, in determining whether the "total cash proceeds" requirement has been met, to count those

portions of winning bids for which the bidder would receive credit and not have to pay. Accordingly, we

do not read CSEA to equate the amount of the gross winning bids with the total cash proceeds of the

auction.

9. While the statute appears quite clear with respect to gross winning bids, we acknowledge that

there is some degree of ambiguity as to whether an auction would meet the 110 percent requirement once

the net winning bids exceed this percentage of NTIA's estimated relocation costs, in light of the fact that

defaults and disqualifications may also reduce auction revenues, at least in the short-term. In other words.

Id. § 203(b) (codified at 47 U.S.C. § 309(j)(15)(B)).

See A1 C.F.R. § 1.2110(f)(l)-(2) (designated entities); id. § 73.5007 (new entrants). New entrant

bidding credits are available only in auctions of broadcast constmction permits.

^ See id. § 1.2110(f)(3).

Black's Law Dictionary 208 (7th ed.l999)

isqualifications may also reduce auction revenues, at least in the short-term. In other words.

Id. § 203(b) (codified at 47 U.S.C. § 309(j)(15)(B)).

See A1 C.F.R. § 1.2110(f)(l)-(2) (designated entities); id. § 73.5007 (new entrants). New entrant

bidding credits are available only in auctions of broadcast constmction permits.

^ See id. § 1.2110(f)(3).

Black's Law Dictionary 208 (7th ed.l999).

Webster's 11 New College Dictionary 172 (1999).

at 881.

See CSEA § 202 (codified at 47 U.S.C. § 923(g)(1)):

Any Federal entity that operates a Federal Government station assigned to a band of fi^quencies

specified in paragraph (2) and that incurs relocation costs because of the reallocation of

fiaquencies from Federal use to non-Federal use shall receive payment for such costs from the

Spectrum Relocation Fund, in accordance with section 118 of this Act.

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it is possible that the government may not be able to collect the entire net amormt of the winning bids by

the time final payment is due, and that the insolvency of a disqualified or defaulting bidder may prevent

the government fi'om ever collecting this entire amount. Despite these possibilities, however, there are

several reasons to conclude that, under the most reasonable reading of the statute, the Commission is

permitted to equate the net winning bids of an auction with that auction's total cash proceeds.

10. First, to a large extent, the Commission's rules ensure that the public ultimately will be

compensated for at least the net amount of any bids subject to a post-auction default or disqualification.

As we discuss in detail later, section 1.2104(g) of the Commission's mles requires a high bidder that

defaults or is disqualified after the close of an auction to make a default payment equaling the difference

between the amount of the defaulter's bid and the amoimt of the winning bid the next time a license

covering the same spectrum is won in an auction

post-auction default or disqualification.

As we discuss in detail later, section 1.2104(g) of the Commission's mles requires a high bidder that

defaults or is disqualified after the close of an auction to make a default payment equaling the difference

between the amount of the defaulter's bid and the amoimt of the winning bid the next time a license

covering the same spectrum is won in an auction. The defaulter also must make an additional payment

equal to 3 percent (or, in the case of defaults or disqualifications after the close of a package bidding

auction, 25 percent) of the defaulter's bid or of the subsequent winning bid, whichever is less.*^

11. Second, too strict a reading of the phrase "total cash proceeds" would create an uiu-easonable

burden on the administration of the auction in that the Commission would be forced to wait imtil cash

proceeds were received before "concluding" the auction piu-suant to CSEA. Such an approach would

create risk for winning bidders, whose licenses might be cancelled or never granted due to another

winning bidder's default. This lack of certainty could interfere with financing and service roll-out

and would conflict with the Commission's statutory objective of licensing spectrum without

administrative delay piuauant to the public interest.'^ We do not believe that Congress intended such a

result. Consequently, we believe that it is appropriate to calculate net winning bids once bidding has

ended, before payment is required of wiruiing bidders.

12. CSEA requires the Commission to revise its reserve price regulations to prescribe methods by

which CSEA's auction revenue requirement will be met.'® Accordingly, in the Notice below, we propose

a change to our rules to con^ly with this mandate. In addition, in light of our interpretation of "total cash

proceeds," we believe that we need to revise our tribal land bidding credit rules

g bidders.

12. CSEA requires the Commission to revise its reserve price regulations to prescribe methods by

which CSEA's auction revenue requirement will be met.'® Accordingly, in the Notice below, we propose

a change to our rules to con^ly with this mandate. In addition, in light of our interpretation of "total cash

proceeds," we believe that we need to revise our tribal land bidding credit rules. These rules provide for a

discount to be applied to winning bids when the winning bidder makes the required showing that it will

undertake to serve previously underserved tribal lands." However, pursuant to our rules, the process for

determining whether a winning bidder is eligible to receive a tribal land bidding credit may take more

than 180 days after the end of bidding.'® Thus, at the end of bidding, we may not be able to calculate the

potential discount attributable to tribal land bidding credits with any reliability. To prevent the lengthy

process of determining tribal land bidding credits from delaying the determination of whether a reserve

price or prices mandated by CSEA or any other revenue requirement have been met, we propose, in the

Notice below, modifications to our tribal land bidding credit rules.

13. We note that several additional issues involved with implementing reserve prices for auctions

subject to CSEA may arise. One such issue is whether the total cash proceeds attributable to eligible

frequencies can be assessed on a license-by-license basis, so that the auction might be deemed to meet the

CSEA revenue threshold for one license but not another. Another unresolved issue is whether, where an

'Ud. § 1.2104(g)(2)-(3).

See 47 U.S.C. § 309(jX3)(A).

'® CSEA § 203(b) (codified at 47 U.S.C. § 3090)(15)(A)).

'M7C.F.R.§ 1.2110(f)(3).

"id. § 1.2110(f)(3Kii).

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tributable to eligible

frequencies can be assessed on a license-by-license basis, so that the auction might be deemed to meet the

CSEA revenue threshold for one license but not another. Another unresolved issue is whether, where an

'Ud. § 1.2104(g)(2)-(3).

See 47 U.S.C. § 309(jX3)(A).

'® CSEA § 203(b) (codified at 47 U.S.C. § 3090)(15)(A)).

'M7C.F.R.§ 1.2110(f)(3).

"id. § 1.2110(f)(3Kii).

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auction involves both CSEA-eligible frequencies and other spectrum, the full amount or only a portion of

wiiming bids should be considered when measuring whether auction results satisfy the CSEA revenue

requirement. Whether such issues will actually arise in an auction, and what the best possible resolutions

may be, may depend upon the characteristics of the specific spectrum licenses to be auctioned and the

circumstances under which the auction is conducted. Accordingly, we will leave consideration of such

issues to later actions, including possible auction- or service-specific rule making proceedings, subsequent

declaratory rulings regarding questions of statutory interpretation, or adoption of specific auction

procedures by the Commission.

ra.

NOTICE OF PROPOSED RULE MAKING

A. Implementing CSEA

1. Complying with CSEA's Reserve Price Requirement

14. From the inception of the Commission's auctions program in 1994, Commission rules have

allowed for the use of reserve (or "reservation") prices." The Balanced Budget Act of 1997 added

paragraph 309(jX4)(F) to the Communications Act, requiring the Commission to "prescribe methods by

which a reasonable reserve price will be required, or a minimum bid will be established, to obtain any

license or permit being assigned pursuant to the con:q)etitive bidding, imless the Commission determines

that such a reserve price or minimum bid is not in the public interest."^" Our current reserve price rule for

all auctionable services, section 1.2104(c), states t^t we "may establish a reservation price, either

disclosed or undisclosed, below

r a minimum bid will be established, to obtain any

license or permit being assigned pursuant to the con:q)etitive bidding, imless the Commission determines

that such a reserve price or minimum bid is not in the public interest."^" Our current reserve price rule for

all auctionable services, section 1.2104(c), states t^t we "may establish a reservation price, either

disclosed or undisclosed, below which a license subject to auction will not be awarded."^'

15. As noted above, CSEA requires the total cash proceeds from any auction of eligible

fi^uencies to equal at least 110 percent of the total estimated relocation costs provided to the

Commission by NTIA. To implement this requirement, CSEA directs the Conunission to revise its

reserve price regulations adopted pursuant to Section 309(jX4)(F) of the Communications Act. Thus, in

contrast to our current reserve price rule, the reserve price rule we must adopt for auctions subject to

CSEA cannot be discretionary. We propose, therefore, to modify section 1.2104(c) to add a requirement

that, for any auction of eligible fi^uencies under CSEA, we will establish a reserve price (or prices) that

ensures that the total cash proceeds (as defined in the Declaratory Ruling above) attributable to such

spectrum will equal at least 110 percent of the total estimated relocation costs provided to the

Commission by NTIA. We seek comment on this proposal.

2. Modifying Tribal Land Bidding Credit Rules

16. In an effort to encourage carriers to provide telecommunications services to tribal lands with

historically low telephone service penetration rates, the Commission makes tribal land bidding credits

available to auction winners that serve qualifying tribal lands.^^ The amoimt of a bidding credit is

Iiiq}lementation of Section 309(j) of the Conunimications Act - Conqwtitive Bidding, PP Docket No.

93-253, Second Report and Order, 9 FCC Red 2348,2384 fll 206-07,2387 H 224 (1994) {"Competitive Bidding

Second Report and Ordef"); 47 C.F.R. § 1.2104(c) (1994-present)

s tribal land bidding credits

available to auction winners that serve qualifying tribal lands.^^ The amoimt of a bidding credit is

Iiiq}lementation of Section 309(j) of the Conunimications Act - Conqwtitive Bidding, PP Docket No.

93-253, Second Report and Order, 9 FCC Red 2348,2384 fll 206-07,2387 H 224 (1994) {"Competitive Bidding

Second Report and Ordef"); 47 C.F.R. § 1.2104(c) (1994-present).

Balanced Budget Act of 1997, Pub. L. No. 105-33,88 Stat. 259, § 3002 (codified at 47 U.S.C.

§ 3090)(4)(F)) ("Balanced Budget Act").

47 C.F.R. § 1.2104(c). This provision has been unchanged since its adoption in 1994. See Competitive

Bidding Second Report and Order, 9 FCC Red at 2407; 59 Fed. Reg. 49,938 (Sept. 30, 1994).

47 C.F.R. § 1.2110(f)(3). See Extending Wireless Telecommunications Services to Tribal Lands, WT

Docket No. 99-266, Report ar^ Oi^er and Further Notice of Proposed Rule Making, 15 FCC Red 11,794 (2000).

(continued....)

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determined according to a formula set forth in our rules and is subject to a cap based on a sliding scale

according to the amount of the high bid.^^ To apply for a tribal land bidding credit, an auction winner

must indicate on its long-form application (FCC Form 601) that it intends to serve a qualifying tribal land

within a particular market." TTie applicant must then amend its long-form application by attaching a

certification fix)m the tribal government authorizing the applicant to provide service on its tribal land,

certifying that the area to be served by the winning bidder is indeed qualifying tribal land, and assuring

that it has not and will not enter into an exclusive contract with the applicant and will not unreasonably

discriminate among wireless carriers seeking to provide service on Ae qualifying tribal land.^' The

applicant must also attach its own certification that it will comply with construction requirements for

tribal land and consult with the tribal government regarding the siting of facilities and service

deploy

and will not enter into an exclusive contract with the applicant and will not unreasonably

discriminate among wireless carriers seeking to provide service on Ae qualifying tribal land.^' The

applicant must also attach its own certification that it will comply with construction requirements for

tribal land and consult with the tribal government regarding the siting of facilities and service

deployment."

17. The deadline for submitting these certifications is not imtil 180 days after the filing deadline

for long-form applications.^^ Accordingly, in auctions that include spectrum covering qualif^ng tribal

lands, the Commission may not know for at least 180 days after the long-form deadline how much of a

discoimt on the auction's winning bids it will have to allow for tribal land bidding credits. In auctions

subject to CSEA, this situation could lead to a potentially substantial post-auction delay in calculating

whether "total cash proceeds" meet the 110 percent revenue requirement. Thus, our current tribal land

bidding credit procedtires could prevent the Commission from concluding the auction expeditiously after

the cessation of bidding and might even (should award of the credits reduce the auction's net winning

bids to below the 110 percent revenue requirement) lead to cancellation of the auction long after the

bidding has ended.

18. We, therefore, seek comment on different possible methods of ensuring that the Commission

will be able to promptly calculate "total cash proceeds" while at the same time preserving the availability

of tribal land bidding credits in auctions subject to CSEA. One ix>ssibility in such auctions is to award

tribal land bidding credits on a pro rata basis out of the funds exceeding the reserve price. Under this

option, the amounts that could be discounted by tribal land bidding credits in an auction subject to CSEA

would be limited to net bids in excess of the reserve price or 110 percent of the total estimated relocation

costs

in auctions subject to CSEA. One ix>ssibility in such auctions is to award

tribal land bidding credits on a pro rata basis out of the funds exceeding the reserve price. Under this

option, the amounts that could be discounted by tribal land bidding credits in an auction subject to CSEA

would be limited to net bids in excess of the reserve price or 110 percent of the total estimated relocation

costs. If this amount were insufficient to pay all of the tribal land bidding credits for which auction

winners were eligible, then each eligible tribal land bidding credit recipient would receive a pro rata credit

(...continued from previous page)

"Qualifying tribal land" is "any federally recognized Indian tribe's reservation. Pueblo, or Colony, including

former reservations in Oklahoma, Alaslm Native regions established pursuant to the Alaska Native Claims

Settlement Act... and Indian allotments, that has a wireline telephone subscription rate equal to or less than

eighty-five (85) percent based on the most recently available U.S. Census Data." 47 C.F.R. § 1.2110(fX3)(i). Not

all Commission auctions include licenses covering qualifying tribal lands. See, e.g., "Auction of Lower 700 MHz

Band Licenses Scheduled for July 20,2005," Public Notice, DA 05-737, at 13 (rel. Mar. 22, 2005).

2347C.F.R. § 1.2110(f)(3)(iii)-(iv).

Id. § 1.2107(e). The Commission requires that winning bidders intending to apply for tribal land

bidding credits do so by the filing deadline for long-form applications and does not permit applicants to amend

their applications after the filing deadline to indicate their intention to seek a credit. See, e.g., "Broadband PCS

Spectrum Auction Closes; Winning Bidders Announced for Auction No. 58," Public Notice, 20 FCC Red 3703,

3736-37 (2005).

47 C.F.R. § 1.2110(f)(3)(ii)(A).

Id. § 1.2110(f)(3)(ii)(B).

"W. § 1.21I0(f)(3)(ii)(A)-(B).

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long-form applications and does not permit applicants to amend

their applications after the filing deadline to indicate their intention to seek a credit. See, e.g., "Broadband PCS

Spectrum Auction Closes; Winning Bidders Announced for Auction No. 58," Public Notice, 20 FCC Red 3703,

3736-37 (2005).

47 C.F.R. § 1.2110(f)(3)(ii)(A).

Id. § 1.2110(f)(3)(ii)(B).

"W. § 1.21I0(f)(3)(ii)(A)-(B).

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in proportion to the amount the applicant would have received had the auction not been subject to a

reserve price.

19. A second option on which we seek comment is to award tribal lemd bidding credits on a first-

come, first-served basis in auctions subject to CSEA. Under this alternative, winning bidders would still

have to file the certifications for a tribal land bidding credit no later than 180 days after the filing deadline

for long-form applications. However, bidding credits up to the ftill amount determined by the existing

formula would be awarded to eligible applicants in the order in which they had filed the certifications for

such credits, but only to the extent that funds were available. As with the first alternative, the money

available for tribal land bidding credits would be limited to the net winning bids exceeding 110 percent of

the total estimated relocation costs (or another specified reserve price). This alternative offers the appeal

of encouraging the early filing of tribal land bidding credit certifications but might exclude applicants that

encoimtered delays through no fault of their own in obtaining the required certifications.

20. We also seek comment on a third option pursuant to which we would require applicants to

specify on their short-form applications the licenses, if any, for which they intend to seek a tribal land

bidding credit, should they win

of tribal land bidding credit certifications but might exclude applicants that

encoimtered delays through no fault of their own in obtaining the required certifications.

20. We also seek comment on a third option pursuant to which we would require applicants to

specify on their short-form applications the licenses, if any, for which they intend to seek a tribal land

bidding credit, should they win. Under this option, the Commission would determine whether the CSEA

reserve price had been met, insofar as tribal land bidding credits are concerned, by deducting the

maximum amount of tribal land bidding credits for which winning bidders that had indicated on their

short-form applications an interest in receiving such credits could be eligible. While this alternative

would facilitate prompt determination of whether, taking tribal land bidding credits into account, the

CSEA-required reserve price had been met, it could create an additional burden for short-form applicants.

It could also overstate the potential inqiact of tribal land bidding credits on auction revenues in the event

-that license winners that had indicated an interest in receiving tribal land bidding credits ultimately did

not receive such credits for any reason.^®

21. We also invite commenters to propose other methods to enable the Commission to determine

pronqitly total cash proceeds while preserving the availability of tribal land bidding credits. We

encourage those offering proposals or commenting on the proposals presented here to consider the

practical inqilications of each approach, and we request that commenters discuss, in particular, how a

given approach might best promote the dual purposes of facilitating CSEA compliance and encotiraging

service on tribal lands through the award of tribal land bidding credits

l land bidding credits. We

encourage those offering proposals or commenting on the proposals presented here to consider the

practical inqilications of each approach, and we request that commenters discuss, in particular, how a

given approach might best promote the dual purposes of facilitating CSEA compliance and encotiraging

service on tribal lands through the award of tribal land bidding credits. We also seek comment on

whether we should adopt the same or similar approach for any non-CSEA auctions for which the

Commission, pursuant to section 309(jX4XF) of the Conununications Act, establishes a reserve price

based on winning bids net of all discounts.^

B. Updating Competitive Bidding Rules and Procedures

1. Clarifying the Default Rule

22. Section 1.2104(g) of our mles provides that a bidder that withdraws a high bid during the

course of an auction is subject to a withdrawal payment equal to the difference between the amount of the

withdrawn bid and the amoimt of the winning bid in the same or subsequent auction. In the event that a

1.2110(f)(3).

We note that, in auctions where reserve prices are based on gross winning bid amnnnts, rather than on

winning bids net of discounts, it will not be necessary to follow the procedures for which we seek comment in this

section. See "Auction of Licenses in the 747-762 and 777-792 MHz Bands Scheduled for June 19,2002; Further

Modification of Package Bidding Procedures and Other Procedures for Auction No. 31," Public Notice, 17 FCC

Red 5140,5175-78 (2002) {"Auction No. 31 Procedures Public Notice"), modified by erratum, 17 FCC Red 7049

will not be necessary to follow the procedures for which we seek comment in this

section. See "Auction of Licenses in the 747-762 and 777-792 MHz Bands Scheduled for June 19,2002; Further

Modification of Package Bidding Procedures and Other Procedures for Auction No. 31," Public Notice, 17 FCC

Red 5140,5175-78 (2002) {"Auction No. 31 Procedures Public Notice"), modified by erratum, 17 FCC Red 7049

(2002).

11275

Federal Communications Cominission

FCC 05-123

bidding credit applies to any of the bids, the bid withdrawal payment equals the difference between either

the net withdrawn bid and the subsequent net winning bid or the gross withdrawn bid and the subsequent

gross winning bid, whichever difference is less.^" However, no withdrawal payment is assessed for a

withdrawn bid if either the subsequent wiiming bid or any intervening subsequent withdrawn bid equals

or exceeds the original withdrawn bid.''

23. Under section 1.2104(g), a high bidder that defaults or is disqualified after the close of an

auction is subject to the payment just described for withdrawn bids (foe "deficiency payment" or

"deficiency portion") plus an additional payment equal to 3 percent (or, in the case of defaults or

disqualifications after the close of a package bidding auction, 25 percent) of foe defaulting bidder's bid or

the subsequent winning bid, whichever is less.'^ The 3 (or 25) percent payment must be calculated using

the same bid amounts and basis (i.e., net or gross bids) as used in calculating the deficiency payment."

plus an additional payment equal to 3 percent (or, in the case of defaults or

disqualifications after the close of a package bidding auction, 25 percent) of foe defaulting bidder's bid or

the subsequent winning bid, whichever is less.'^ The 3 (or 25) percent payment must be calculated using

the same bid amounts and basis (i.e., net or gross bids) as used in calculating the deficiency payment."

24. The rule does not, however, anticipate the anomaly that might result fix)m calculating the

additional 3 or 25 percent payment for a bidder that defaults or is disqualified after foe close of an

auction, when, in a subsequent auction, there is a higher withdrawn bid, but no winning bid, for a license

corresponding to foe defaulted license." A literal reading of section 1.2104(g) might seem to dictate that,

while the defaulter's deficiency obligation would be calculated as foe difference between the defaulter's

bid and foe higher withdrawn bid in the subsequent auction (thus resulting in no deficiency payment), the

defaulter's additional 3 or 25 percent payment obligation, which is based upon the lesser of ^

defaulter's

bid or the subsequent winning bid, could not be calculated until foe corresponding license had been won

in a still later auction. Yet such a reading conflicts with the explicit assumption in our default payment

rule that the deficiency payment and the additional payment are calculated using the same bids: "If either

bid amount is subject to a bidding credit, foe 3 percent [payment] will be calculated using the same bid

amoimts and basis (net or gross bids) as in foe calculation of foe [withdrawal] payment. . .

Moreover,

We note that for purposes of calculating the withdrawal payment amount, net bids would not include

any discounts resulting from tribal land bidding credits.

An intervening subsequent withdrawn bid less than the original withdrawn bid may limit the amount of

the withdrawal payment. See 47 C.F.R

imts and basis (net or gross bids) as in foe calculation of foe [withdrawal] payment. . .

Moreover,

We note that for purposes of calculating the withdrawal payment amount, net bids would not include

any discounts resulting from tribal land bidding credits.

An intervening subsequent withdrawn bid less than the original withdrawn bid may limit the amount of

the withdrawal payment. See 47 C.F.R. § 1.2104(g)(1) ("In the case of multiple bid withdrawals on a single

license, the payment for each bid withdrawal will be calculated based on the sequence of bid withdrawals and the

amounts withdrawn in the same or subsequent auction(s)."), particularly, examples 2 and 3. However, it is only

possible to determine the final amount of a withdrawal payment once there is a higher intervening subsequent

withdrawn bid or a subsequent winning bid.

In this Notice and in our rules, bidders that are disqualified after the close of an auction are referred to

as "defaulting bidders," just as are bidders that default after an auction's close. Similarly, the payment owed by a

disqualified bidder is referred to as a "default payment." See id. §§ 1.2104(g)(2)-(3); 1.2109. Currently, the

deficiency payment for a default or disqualification following a package bidding auction is, in most instances,

calculated differently from the way in which the deficiency payment is calculated for a default or disqualification

following a non-package bidding auction. See id. § 1.2104(g)(3).

"/d. § 1.2104(g)(2).

By "corresponding license," we mean a license with the same, or similar, geographic and spectral

components as the defaulted license.

47 C.F.R. § 1.2104(g)(2). See also id. § 1.2104(g)(3)(ii) (calculating the additional 25 percent payment

for defaults and disqualifications after the close of a combinatorial bidding auction)

ackage bidding auction. See id. § 1.2104(g)(3).

"/d. § 1.2104(g)(2).

By "corresponding license," we mean a license with the same, or similar, geographic and spectral

components as the defaulted license.

47 C.F.R. § 1.2104(g)(2). See also id. § 1.2104(g)(3)(ii) (calculating the additional 25 percent payment

for defaults and disqualifications after the close of a combinatorial bidding auction). We note that the quoted

sentence of section 1.2104(g)(2) actually reads: "If either bid amount is subject to a bidding credit, the 3 percent

credit will be calculated using the same bid amounts and basis (net or gross bids) as in the calculation of the

payment in paragraph (g)(1) of this section." (emphasis added) The use of the word "credit" in this sentence was

in error. Our pressed clarifications of section 1.2104 would eliminate the error.

11276

Federal Communications Commission

FCC 05-123

reading the rule this way would prolong the period before the final amount of the default payment

obligation could be assessed and payment could be collected.

25. To remove any ambiguity associated with this possible occurrence, we believe that a

clarification of the rule is needed. Therefore, we propose that when, in a subsequent auction, there is a

higher withdrawn bid but no winning bid for a license that corresponds to a defaulted license, the

additional default payment be determined as 3 percent (or 25 percent) of the defaulting bidder's bid.^^

The additional payment would, as always, be calculated using the same basis, i.e., net or gross bids, as

used in the calctilation of the deficiency payment.^^ We believe that adopting this proposal would

simplify and accelerate the calculation of final default payments in applicable situations by allowing use

of the same subsequent bid in calculating both the deficiency payment portion and the additional payment

portion of the final default payment and by allowing an earlier determination of the additional payment

amount.

of the deficiency payment.^^ We believe that adopting this proposal would

simplify and accelerate the calculation of final default payments in applicable situations by allowing use

of the same subsequent bid in calculating both the deficiency payment portion and the additional payment

portion of the final default payment and by allowing an earlier determination of the additional payment

amount.

26. Further, we believe that clarification of the additional payment portion of the default payment

rule is needed for certain situations in which no deficiency payment is owed. As noted, normally the

additional payment is a percentage of either the defaulting bidder's bid or the subsequent applicable bid,

whichever is less, using the same basis -

net or gross bids -

as used in calculating the deficiency payment.

However, when the defaulted bid was subject to a bidding credit and the subsequent applicable bid equals

or exceeds the de£iulted bid, regardless of which basis -

net or gross bids -

is used, it is not clear whether

the additional payment should be based on the net defaulted bid or on the gross defaulted bid. We

propose that, in such a situation, the additional payment be 3 (or 25) percent of the net defaulted bid

amount, thus basing the default payment on what the defaulter was obligated to pay at the close of

bidding. We seek comment on these proposals.^^

2. Raising the Limit on Withdrawal and Default Payments

a. Background

27. Withdrawals. As we have discussed, our rules provide that a bidder that withdraws a high bid

during an auction is subject to a withdrawal payment equal to the difference between the amoimt of the

In the event that there are no intervening subsequent withdrawn bids that are higher than the defaulted

bid but there are intervening subsequent withdrawn bids that are higher than the subsequent winning bid, the

highest such intervening subsequent withdrawn bid will be used to calculate both portions of the final default

payment

hdrawal payment equal to the difference between the amoimt of the

In the event that there are no intervening subsequent withdrawn bids that are higher than the defaulted

bid but there are intervening subsequent withdrawn bids that are higher than the subsequent winning bid, the

highest such intervening subsequent withdrawn bid will be used to calculate both portions of the final default

payment. For example, if the defaulted bid were for $100 and the subsequent winning bid were for $80 but there

were an intervening subsequent withdrawn bid for $90, the default payment (both the deficiency portion and the

additional payment) would be calculated using the $100 defaulted bid and the $90 intervening subsequent

withdrawn bid.

As in the calculation of withdrawal payments, net bids for purposes of calculating default deficiency

and additional payments would not include discounts resulting from tribal land bidding credits.

As previously noted, in most instances, we use a different calculation to determine the amount of the

deficiency portion of a default payment in the context of combinatorial bidding. See 47 C.F.R. § 1.2104(g)(3).

However, in a subsequent section of this Notice, we propose changes to our rules that would instead require use of

the "conventional" default rule (i.e., the default rule used where neither the initial nor the subsequent winning bid

is for a license won as part of a package) for combinatorial bidding situations. Accordingly, we further propose to

extend the clarification discussed here to determinations of the amount of default payments in situations where the

initial bid, the subsequent winning bid, or any intervening withdrawn bid is for a license that is part of a package.

Adoption of this further proposal, however, would be contingent upon our concurrent or prior adoption of a rule

change that would allow use of the "conventional" default rale in such situations.

11277

here to determinations of the amount of default payments in situations where the

initial bid, the subsequent winning bid, or any intervening withdrawn bid is for a license that is part of a package.

Adoption of this further proposal, however, would be contingent upon our concurrent or prior adoption of a rule

change that would allow use of the "conventional" default rale in such situations.

11277

Federal Communications Commission

wiAdrawn bid

the amount of the winning bid in the same or subsequent auction(s).'' In the event that

a license for which th^ has been a withdrawn high bid is not subject to a subsequent higher bid or won

withdrawal payment cannot be calculated until a corresponding license is

subsequent auction. In such a case, the bidder responsible for the

with^wn

bid IS assessed an interim bid withdrawal payment equal to 3 percent of the amount of its

<h« is

WAA-

Con^ssion adopted the withdrawal payment rules in 1994 to discourage insincere

the

frivolous or strategic purposes, distorts price information generated by

the auction p^ess and may reduce the efficiency of the auction."' The Commission anticipated tlJ

stra egic withdrawals - such as when a bidder attempts to deter a rival from acquiring a license by bidding

JJP

i licerise and then withdrawing - would be particularly datriflpng to competitive

biddmg ^e Co^ssion added the 3 percent interim bid withdrawal payment to the rules to help

ensure that the withdrawal payment could be collected if one ultimately were assessed."'

29. Defaults andDisqmUfications

gic withdrawals - such as when a bidder attempts to deter a rival from acquiring a license by bidding

JJP

i licerise and then withdrawing - would be particularly datriflpng to competitive

biddmg ^e Co^ssion added the 3 percent interim bid withdrawal payment to the rules to help

ensure that the withdrawal payment could be collected if one ultimately were assessed."'

29. Defaults andDisqmUfications. As discussed above, our rules also provide that if, after the

close of M auction, a hij^ bidder defaults on a down payment or fmal payment obligation or is

MuTTtn^h^'n^f

® default payment."" This payment consists of a deficiency portion,

equal to the difference between the amount of the bidder's bid and the amount of the winning bid the next

time a license covenng the s^e spectrum is won in an auction, plus an additional payment equal to 3

percent (or, m the case of defaults or disqualifications after the close of a package bidding auction, 25

f f

bid or of the subsequent winning bid, whichever is less."' The Commission

^H?v 1

r ?

'.K

Commission extended to all auctionable services a

pohcj^, ^her adored for broadband personal communications services ("PCS"), of assessing initial

default deposits. Pursuant to this policy, the Commission, in instances in which the amount of a default

47 C.F.R. § 1 -2104(g)( 1). The withdrawal payment amount is deducted from any upfiont navments or

down ^jments t^t the wAdrawmg bidder has deposited with the Commission. No withdrawal payment is

a^ssed for a wth^wn hid if either the subsequent winning bid or any of the intervening subsequent withdrawn

bids equals or exceeds that withdrawn bid. /</.

wiuiurnwn

""/d.

41 Competitive Bidding Second Report and Order, 9 FCC Red at 2373-74

146-53.

''Id.

07 B7 n

/l® Commission's Rules - Conqjetitive Bidding Procedures, WT Docket No

97-82, Order on Reconsideration ofthe Third Report and Order

a^ssed for a wth^wn hid if either the subsequent winning bid or any of the intervening subsequent withdrawn

bids equals or exceeds that withdrawn bid. /</.

wiuiurnwn

""/d.

41 Competitive Bidding Second Report and Order, 9 FCC Red at 2373-74

146-53.

''Id.

07 B7 n

/l® Commission's Rules - Conqjetitive Bidding Procedures, WT Docket No

97-82, Order on Reconsideration ofthe Third Report and Order. Fifth Report and Order, and Fourth Further

Notice of Proposed Rule Making, 15 FCC Red 15,293, 15,302 H 15 (2000) ('Tart I Fifth Report and OrdePy

U AA

•2104(g); see also id. § 1.2109. As noted earlier, in this Notice and in our niles,

bidd^ that aie disqualified aft^ the close of an auction are referred to as "defaulting bidders," just as are bidders

that default after an auction s close. Similarly, the payment owed by a disqualified bidder is referred to as a

default payment."

"Id. § 1.2104(g)(2)-(3).

Wo 07 B7 "S

Commission's Rules ~ Conqietitive Bidding Procedures, WT Docket

. R^ort and Order and Second Further Notice of Proposed Rule Making, 13 FCC Red 374 434

1102 (general mitial default deposit policy) (1998) (rel. Dec. 31, 1997) {"Part I Third Report and Order")-'

Implementation of Section 309(j) of the Communications Act -

Conmetitive Biddine PP Docket 93-253 Fifth

Report and Order, 9 FCC Red 5532, 5563 n.51 (1994) ("Competitive Bidding Fifth Report and OrdeP') (initial

^ ^ ^

(continued....)

11278

Notice of Proposed Rule Making, 13 FCC Red 374 434

1102 (general mitial default deposit policy) (1998) (rel. Dec. 31, 1997) {"Part I Third Report and Order")-'

Implementation of Section 309(j) of the Communications Act -

Conmetitive Biddine PP Docket 93-253 Fifth

Report and Order, 9 FCC Red 5532, 5563 n.51 (1994) ("Competitive Bidding Fifth Report and OrdeP') (initial

^ ^ ^

(continued....)

11278

Federal Communications Commission

FCC 05-123

payment cannot yet be determined, assesses an initial default deposit of between 3 percent and 20 percent

of the defaulted bid amoimt.^'

30. Requiring an additional payment in the case of post-auction defaults is intended to provide an

incentive to bidders wishing to withdraw their bids to do so prior to the close of an auction, because a

default or disqualification after an auction is generally more harmful to the auction process than a

withdrawal during the auction.^^ The Commission set the additional payment at 3 percent, estimating that

amount as the transaction cost of selling a license in the "after-market."^' The Commission posited that if

it were to establish a significantly higher additional default payment, most bidders would, rather than

default, sell unwanted licenses individually in the secondary market.^" The Commission determined that

such a result would not only be unfair to entities subject to resale restrictions but also would be a less

efficient mechanism for assigning defaulted licenses than would Commission auctions of such licenses.^'

b. Discussion

31. We have observed a disproportionate number of withdrawals late in our auctions, indicating

that some bidders have been placing and then withdrawing bids primarily to discourage potential or

(...continued fiom previous page)

default deposit policy for broadband PCS); see also Competitive Bidding Second Report and Order, 9 FCC Red at

2382-83 K 197.

See Part 1 Third Report and Order, 13 FCC Red

31. We have observed a disproportionate number of withdrawals late in our auctions, indicating

that some bidders have been placing and then withdrawing bids primarily to discourage potential or

(...continued fiom previous page)

default deposit policy for broadband PCS); see also Competitive Bidding Second Report and Order, 9 FCC Red at

2382-83 K 197.

See Part 1 Third Report and Order, 13 FCC Red. 374,434

102; Competitive Bidding Fifth Report

and Order, 9 FCC Red at 5563 n.51; see also Competitive Bidding Second Report and Order, 9 FCC Red at 2382-

831197. For defaults and disqualifications following combinatorial bidding auctions, the Commission assesses

an initial default deposit of 25 percent. Amendment of Part 1 of the Commission's Rules - Competitive Bidding

Procedures, WT Docket No. 97-82, Second Order on Reconsideration ofthe Third Report and Order and Order

on Reconsideration ofthe Fifth Report and Order, 18 FCC Red 10,180,10,203-204 ^

25-31 (2003) (''Part I

Order on Reconsideration of the Fifth Report and OrdeP^

48 Competitive Bidding Second Report and Order, 9 FCC Red at 2374 T| 154 (citation omitted):

The additional [3 percent] penalty is intended to provide an incentive for bidders wishing

to withdraw their bids to do so prior to the close of the auction. It is appropriate to create such an

incentive because a withdrawal that occurs after an auction closes (default) is likely to be more

harmful than one that occurs before closing. First, default reduces the efficiency of the assignment

process. If withdrawal occurs before the auction closes other bidders will have greater

opportunities to revise their bidding strategies to account for the availability of the withdrawn

license. Once the auction closes, however, only those licenses on which bidders defaulted (plus

any licenses riot sold during the auction) will be put up for re-auction, so other bidders will have

little opportunity to revise their strategies

s before the auction closes other bidders will have greater

opportunities to revise their bidding strategies to account for the availability of the withdrawn

license. Once the auction closes, however, only those licenses on which bidders defaulted (plus

any licenses riot sold during the auction) will be put up for re-auction, so other bidders will have

little opportunity to revise their strategies. Thus, default would reduce the likelihood that licenses

will be assigned to those who value them the most. Second, default imposes extra costs on the

government. If a bidder defaults, the government must generally incur the additional expense of

re-auctioning the license. In contrast, the administrative cost of announcing a bid withdiawal

prior to the close of an auction and accepting additional bids would be minimal.

See also id. at 2382-83 H 197.

*'Mat2374T|I55.

""Id.

Id. See also id. at 2374 H 153.

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Federal Communications Commission

FCC 05-123

existing market competitors from seeking to acquire licenses "

Moreover, bidders continue to default on

their payment obligations "

Withdrawals and defaults weaken the integrity of the auctions process and

impede the deployment of service to the public and could prove particularly troublesome in auctions with

a specific cash proceeds or reserve price requirement, such as auctions subject to CSEA."

32. Based on our experience in administering auctions, we believe that changes to our existing

withdrawal and default payment rules may be necessary in order to more effectively minimize the

occurrence of withdrawals, defaults, and disqualifications. Accordingly, we propose to increase the

current limits on the interim withdrawal payment and the additional default payment. In the case of

defaults on "unwanted" licenses, the Commission's rationale for limiting the additional payment to 3

percent no longer holds the same validity that it did eleven years ago when the payment was established

rrence of withdrawals, defaults, and disqualifications. Accordingly, we propose to increase the

current limits on the interim withdrawal payment and the additional default payment. In the case of

defaults on "unwanted" licenses, the Commission's rationale for limiting the additional payment to 3

percent no longer holds the same validity that it did eleven years ago when the payment was established.

Resale restrictions have since been reduced," and secondary market tools for the redistribution of access

to spectrum have been rapidly developing, due, in part, to Commission iimovation and encouragement."

In cases where defaults result from the failure of bidders realistically to assess in advance their ability to

pay for their bids, a larger payment requirement may provide added incentive for bidders to conduct the

necessary analysis and refrain from placing bids they cannot afford or at least for them to withdraw such

bids rather than defaulting on them.

33. Accordingly, we propose to modify section 1.2104(g) of our rules to raise the current 3

percent limits on the interim withdrawal payment and the additional default payment to 20 percent each.

The Commission would, as part of its determination of conqietitive bidding procedures in advance of each

auction, establish the appropriate level, fix>m 3 percent up to a maximum of 20 percent, at which to set

each of the two payments. This 3 to 20 percent range mirrors the parameters long used for determining

initial default deposit amounts. In light of the potentially greater harm resulting fix)m defaults in

combinatorial bidding auctions, we do not propose to change the size of the 25 percent additional

payment for defaults or disqualifications following combinatorial bidding auctions. We seek comment on

these proposals.

See, e.g., round results for Auctions No. 33 (700 MHz Guard Bands) and No. 37 (FM Broadcast)

ult deposit amounts. In light of the potentially greater harm resulting fix)m defaults in

combinatorial bidding auctions, we do not propose to change the size of the 25 percent additional

payment for defaults or disqualifications following combinatorial bidding auctions. We seek comment on

these proposals.

See, e.g., round results for Auctions No. 33 (700 MHz Guard Bands) and No. 37 (FM Broadcast).

Links to these round results may be fotmd on the Commission's Web site at, respectively,

httD://wireless.fcc.gov/auctions/33/ and httD://wireless.fcc.gov/auctions/37/. Software to assist with viewing round

results may be downloaded from httD://wirele8S.fcc.gov/auctions/data/trackingtools.html.

For example, three bidders defaulted on a total of 13 licenses following Auction No. 40 (Lower and

Upper Paging Bands); three bidders defaulted on a total of 6 licenses following Auction No. 37 (FM Broadcast);

two bidders defaulted on a total of five licenses following Auction. No. 35 (C and F Block Broadband PCS); and a

single bidder defaulted on 10 licenses following Auction No. 34 (800 MHz Specialized Mobile Radio Service).

See 47 U.S.C. § 309(j)(4)(F), (15)(B).

See Amendment of the Commission's Rules Regarding Installment Payment Financing for Personal

Communications Services (PCS) Licensees, WT Docket No. 97-82, Sixth Report and Order and Order on

Reconsideration, 15 FCC Red 16,266,16,289-91 1146-51 (2000); 47 C.F.R. § 24.839(aX6).

See, e.g.. Promoting Efficient Use of Spectram Through Elimination of Barriers to the Development of

Secondary Maricets, WT Eiocket No. 00-230, Second Report and Order, Order on Reconsideration, and Second

Further Notice of Proposed Rulemaking, 19 FCC Red 17,503 (2004); id. Report and Order and Further Notice of

Proposed Rulemaking, 18 FCC Red 20,604 (2003).

11280

000); 47 C.F.R. § 24.839(aX6).

See, e.g.. Promoting Efficient Use of Spectram Through Elimination of Barriers to the Development of

Secondary Maricets, WT Eiocket No. 00-230, Second Report and Order, Order on Reconsideration, and Second

Further Notice of Proposed Rulemaking, 19 FCC Red 17,503 (2004); id. Report and Order and Further Notice of

Proposed Rulemaking, 18 FCC Red 20,604 (2003).

11280

Federal Coimnunications Commission

FCC 05-123

3. Apportioning Bid Amounts

a. Apportionment Among the Licenses in a Package

34. Our competitive bidding rules and procedures assume that the amount of each bid on an

individual license is always known. This assun:q>tion makes sense only when licenses are won

individually. However, in combinatorial (or "package") bidding, bidders place single all-or-nothing bids

on groups (or packages) of licenses. Thus, there may be no identifiable bid amounts on the individual

licenses comprising packages of more than one license.

35. The Commission employed package bidding for the first time in Auction No. 51, an auction

of regional narrowband PCS licenses that was held on September 24 and 25, 2003.'^ The Commission

announced in 2000 that a combinatorial bidding system would be used for Auction No. 31, the planned

auction of licenses in the Upper 700 MHz bands.'^ In addition, the Commission recently annoimced its

launch of a new auction bidding software sjretem -

the Integrated Spectrum Auction System or "ISAS" -

which, among other things, will facilitate package bidding.^' We believe that the use of combinatorial

bidding methodology makes it necessary for us modify our rules to allow the apportioiunent of package

bids among the individual licenses con:q)rising a package whenever an individual bid amoimt is needed to

administer a Commission rule or procedure. As we discuss below, there are several situations in which

the need for an individual bid amount could arise.

36. Small Business and New Entrant Bidding Credits

thodology makes it necessary for us modify our rules to allow the apportioiunent of package

bids among the individual licenses con:q)rising a package whenever an individual bid amoimt is needed to

administer a Commission rule or procedure. As we discuss below, there are several situations in which

the need for an individual bid amount could arise.

36. Small Business and New Entrant Bidding Credits. Under our rules, small business and new

entrant bidding credits are awarded as percentage discounts on winning bid amoimts for specific

licenses.^ In the event that an entity entitled to such a bidding credit places a bid on a package of

licenses in an auction with combinatorial bidding, it may be necessary to apportion the bid among the

licenses conq)rising the package. For example, if the entity bids on a package of licenses not all of which

entitle the wiimer to a bidding credit or to the same percentage bidding credit, it will be necessary to

apportion the bid among the individual licenses con^rising the package in order to calculate the amount

of the bidding credits. Moreover, as discussed below, in the case of small business bidding credits, even

if the small business is entitled to a rmiform bidding credit on all licenses in a package, it may be

necessary to apportion the package bid among individual licenses in order to determine the amoimt of an

unjust enrichment payment obligation.

37. Unjust Enrichment Payment Obligations. Under our existing rules, an unjust enrichment

See "Regional Narrtowband PCS Spectrum Auction Closes; Winning Bidder Announced," Public

Notice, 18 FCC Red 19,689 (2003); "Auction of Regional Narrowband PCS Licenses Scheduled for September

24,2003; Notice of Filing Requirements, Minimum Opening Bids, Upfiont Payments, Package Bidding and Other

Auction Procedures," Public Notice, 18 FCC Red 11,974 (2003) ("Auction No. 51 Procedures Public Notice")

e "Regional Narrtowband PCS Spectrum Auction Closes; Winning Bidder Announced," Public

Notice, 18 FCC Red 19,689 (2003); "Auction of Regional Narrowband PCS Licenses Scheduled for September

24,2003; Notice of Filing Requirements, Minimum Opening Bids, Upfiont Payments, Package Bidding and Other

Auction Procedures," Public Notice, 18 FCC Red 11,974 (2003) ("Auction No. 51 Procedures Public Notice").

"Auction of Licenses in the 747-762 and 777-792 MHz Bands Scheduled for September 6, 2000;

Procedures Inqjlementing Package Bidding for Auction No. 31; Bidder Semiiuu- Scheduled for July 24,2000,"

Public Notice, 15 FCC Red 8809, 8813 (2000). Auction No. 31 has been posqmned from its original planned start

date, and a new start date has not yet been annoimced. "Auction of Licenses in the 747-762 and 777-792 MHz

Bands (Auction No. 31) is Rescheduled," Public Notice, 17 FCC Red 14,546 (2002).

™ See 'TCC Aimounces New Integrated Spectrum Auction System," Public Notice, DA 05-454 (rel. Feb.

18,2005). In addition to providing bidding functionality for multiple types of auctions, the new system also

conqirises an FCC Form 175 electrotiic filing system, combining auction application, bidding, and administration

processes into a single software system.

See 47 C.F.R. § 1.2110(0(1 )-(2) (designated entities); id. § 73.5007 (new entrants). New entrant

bidding credits are available only in auctions of broadcast constmction permits. Id.

11281

ality for multiple types of auctions, the new system also

conqirises an FCC Form 175 electrotiic filing system, combining auction application, bidding, and administration

processes into a single software system.

See 47 C.F.R. § 1.2110(0(1 )-(2) (designated entities); id. § 73.5007 (new entrants). New entrant

bidding credits are available only in auctions of broadcast constmction permits. Id.

11281

CommunicationsComnussion

FCC 05-123

foliv

control

n »rft? f

y®^ of the license term to an entity not

quailing for a bidding credit, or for as favorable a bidding credit as the licensee's.*' The amount of an

unjmt ennchment pa)ment, determmed according to a declining schedule, is a percentage of either the

whfch^thlf °f

betwera the bidding credit the licensee received and the bidding credit for

which the transferee or assignee would qualify, up to 100 percent, plus interest." Unjust Lichment

paymen obligations for partitioned license areas are calculated based upon the ratio of tl^e poSS^f

the p^itioned area to the overall population of the original license La." ConS^n^y

ennchment payment obligations for disaggregated spectrum are calculated based upon the ratio of the

disaggregated to the total amount of spectrum of the original license.** In the case of

uZn thfZ^ZS

enrichment payment obligations are calculated based

SLS

"MHz-pops" in the original license, whero

MH^ps IS defin^ M the number of megahertz of spectrum multiplied by the population of the

covered arw. This MHz-pops ratio is a generalization of the ratios used for simple partitions and

disaggregations, tatang mto account both the license area and the bandwidth being assigned. If a bidder

fiZ

of licenses m an auction with combinatorial bidding and subsequently seeks to transfer or

folly or partially assign an mdiyidual license that comprises part of the package, calculating any required

fodhddZh^Zi payment will require a determination of the price and applicable bidding credit for the

Land Bidding Credits

account both the license area and the bandwidth being assigned. If a bidder

fiZ

of licenses m an auction with combinatorial bidding and subsequently seeks to transfer or

folly or partially assign an mdiyidual license that comprises part of the package, calculating any required

fodhddZh^Zi payment will require a determination of the price and applicable bidding credit for the

Land Bidding Credits. As discussed above, the size of a tribal land bidding credit is

subj^t to a lum which is srt using the amount of the high bid on the license in question.** Accordingly

^ tnbal land bidding credit for a license won as part of a package, it will be necessar^

to determine how much of the winmng bid amount for the package to allocate to that license.

H f H

Withdrawal Payments. As we have also discussed, calculating the amount of a

default or withdrawal ^ayr^t involves a comparison between the withdrawing or defaulting bidder's bid

and a subsequent bid. The Commission already has in place a rule for calculating default payment

obh^tiom in connection with combinatorial bidding auctions. Initially adopted as pL of the s^ce-

mh'

biddmg rules m anticipation of package bidding in auctions of the Upper 700

MHz band, the rule later was mcoiporated into the Part 1 rules as section 1.2104(g)(3), applicable to all

*' Id. § 1.2111(d)(1);

47 U.S.C. § 309aX3)(C), (4)(E). In this Notice, we refer only to unjust

emchment payment obligations involving small business bidding credits; however, unjust enrichment payment

obligations can result from other circumstances, as well. See 47 C.F.R. § 1.2111(b), (c), and (e)

*M7 C.F.R.§ 1.2111(d).

*'«. § 1.2111(e)(3).

Id.

T •

Geo^phic Partitioning and Spectrum Disaggregation by Commercial Mobile Radio Services

msT?! S

and Further Notice of Proposed Rulemaking, 11 FCC Red

47 C.F.R.§ 1.2110(f)(3)(iv).

Id. § 1.2104(g).

D 1

«rr

746-764 and 776-794 MHz Bands, and Revisions to Part 27 of the Commission's

c°'

Opinion and Order, 15 FCC Red 21,070, 21,074-79^1111-17

C.F.R.§ 1.2111(d).

*'«. § 1.2111(e)(3).

Id.

T •

Geo^phic Partitioning and Spectrum Disaggregation by Commercial Mobile Radio Services

msT?! S

and Further Notice of Proposed Rulemaking, 11 FCC Red

47 C.F.R.§ 1.2110(f)(3)(iv).

Id. § 1.2104(g).

D 1

«rr

746-764 and 776-794 MHz Bands, and Revisions to Part 27 of the Commission's

c°'

Opinion and Order, 15 FCC Red 21,070, 21,074-79^1111-17

(2000) (

700 MHz Second Memorandum Opinion and OrdeP').

11282

Federal Communications Commission

FCC 05-123

defaults on licenses won in a combinatorial bidding auction.^ In addition to sp>ecifying the method of

Part I Order on Reconsideration ofthe Fifth Report and Order, ISFCCRcdat 10,198-204

25-31;

47 C.F.R. § 1.2104(g)(3). Under the nile, when a winning bidder defaults on paying for a license won in a

combinatorial bidding auction and/or won in a subsequent combinatorial bidding auction, its default payment

obligations are calculated as follows:

(1) Where a defaulting bidder held winning bids on individual licenses (i.e.,. not as part of a package), and

in a subsequent auction the licenses are also won individually, the deficiency portion will be calculated by

subtracting the subsequent winning bid from the defaulted bid. The deficiency portion for such bids will be

calculated on a license-by-license basis (i.e., in the event of defaults on multiple bids, the differences

between the amounts originally bid and the amounts subsequently bid will not be aggregated to determine a

net amount owed). If the subsequent winning bid(s) exceed the defaulted bid(s), no deficiency portion will

be assessed. Even in the absence of a deficiency portion, however, an additional 25% payment will be due.

y-license basis (i.e., in the event of defaults on multiple bids, the differences

between the amounts originally bid and the amounts subsequently bid will not be aggregated to determine a

net amount owed). If the subsequent winning bid(s) exceed the defaulted bid(s), no deficiency portion will

be assessed. Even in the absence of a deficiency portion, however, an additional 25% payment will be due.

(2) Where a defaulting bidder won licenses in package(s), and in a subsequent auction the licenses are won

either (a) in the same package(s), or (b) in smaller packages or as individual licenses that correlate to the

defaulted package(s), the deficiency portion will be determined on a package-by-package basis. In the

event a defrulting bidder defaults on more than one such bid, the differences between the amount originally

bid and the amounts(s) subsequently bid will not be aggregated to determine a net amount owed. Thus, in

this situation, the deficiency portion will be calculated in a manner analogous to where the licenses are sold

individually. However, with regard to each individual package, udiere the licenses are subsequently sold

individually or as part of smaller packages, the amounts received in the subsequent auction will be

aggregated in order to determine any deficiertcy.

(3) Where a defrulting bidder or bidders won licenses either individually or as part of packages, and in a

subsequent auction the licenses are won as larger packages or different packages (not itKluding the

situation described in preceding paragraph), the deficiency portion will be calculated by subtracting the

aggregate amount originally bid for the licenses from the aggregate amount bid in the subsequent auction

for the licenses. Thus, in this situation, the deficiency portion will not be calculated on a bid-by-bid basis.

licenses are won as larger packages or different packages (not itKluding the

situation described in preceding paragraph), the deficiency portion will be calculated by subtracting the

aggregate amount originally bid for the licenses from the aggregate amount bid in the subsequent auction

for the licenses. Thus, in this situation, the deficiency portion will not be calculated on a bid-by-bid basis.

(4) If, in a situation requiring that bids be aggregated in order to determine the deficiency portion of the

default payments for bi^, there are multiple defaulting bidders, the default payment (both Ae deficiency

portion and the additional 25% payment portion) will be allocated to the defaulting bidders in proportion to

their share of the aggregated default bids.

(5) In the event that a bidding credit applies to any applicable bids(s), the deficiency portion of the default

payment will be assessed using the lesser of the difference between gross bids and the difference between

net bids. (In the event that a bidder does not have a bidding credit, the bidder's gross bid and net bid are

the same.) In other words, (i) the sum of the gross defaulted bid(s) minus the gross subsequent winning

bid(s) will be compared to (ii) the sum of the net defaulted bid(s) minus the net subsequent witming bid(s).

The lesser of (i) and (ii) will be used to calculate the deficiency portion of the default payment.

(6) The default payment consists of the deficiency portion and an additional 25% payment. The additional

payment will be 25% of the lesser of the subsequent winning bids(s) and the defaulted bid(s). The

Commission will use the same gross or net bid(s) diat were used to calculate the deficiency portion when

assessing the additional 25% payment. That is, the Commission will conqiare the defaulted and subsequent

bid(s) according to the methods described above for calculation of the deficiency portion of the default

payment udien determining whether the defaulted bid(s) or the subsequent winning bid(s) is the lesser

amount

same gross or net bid(s) diat were used to calculate the deficiency portion when

assessing the additional 25% payment. That is, the Commission will conqiare the defaulted and subsequent

bid(s) according to the methods described above for calculation of the deficiency portion of the default

payment udien determining whether the defaulted bid(s) or the subsequent winning bid(s) is the lesser

amount. Should there be no difference between the gross or net bid(s) for purposes of assessing the

deficiency portion, the Commission will assess the additional 25% payment using the lesser of the gross or

net bid(s).

(7) In the case of combinatorial bidding defaults, the Commission will assess a 25% interim default

payment pending assessment of the final default payment after a subsequent auction. This procedure is

appropriate because even under the most favorable set of circumstances for the defaulting bidder, i.e.,

where the bid price for the package at the subsequent auction exceeds defaulted bid, the final default

(continued....)

11283

Federal Communications Commission

FCC 05-123

deficiracy porton of default payments after package bidding auctions, this rule increases

the additional paymOTtrequir^ of package bidding defaulters from 3 percent to 25 percent. In raising the

amount of the additional default payment, the Commission reasoned that defaults following a

^tcntial to cause greatw disruption to the auction and licensing

process than do defaults following other types of auctions.™ Section 1.2104(g)(3) accommodates

s.tuat.om ,n wUch all

Uc«,«s won in ona or mom snbsoquen. auctiona^^,^Sr^

onginally made available m the same initial auction. However, it does not allow for situations in which

the corresponding licenses are made available m one or more subsequent auctions that include licenses

that were not won m the same imtial auction

aults following other types of auctions.™ Section 1.2104(g)(3) accommodates

s.tuat.om ,n wUch all

Uc«,«s won in ona or mom snbsoquen. auctiona^^,^Sr^

onginally made available m the same initial auction. However, it does not allow for situations in which

the corresponding licenses are made available m one or more subsequent auctions that include licenses

that were not won m the same imtial auction. Consequently, rather than use section 1.2104(g)(3) to

ca culate a default payment obligation when one or both of the involved licenses is part of a pacSge we

believe ttet it would be preferable to use a method to apportion the package bid amount among'the

individual licenses conqinsmg the package.

Procedu^ for the two package bidding auctions announced to date have not permitted

withdrawals, and, ac^rdmgly, the Commission has never adapted its withdrawal payment rule to

pac^ge biddmg situations. Nevertheless, it may happen that, after a withdrawal in a non-package

biddmg auction, the lic^e on which the bid was withdrawn is not won in the same auction but, instead, a

co^spondmg license is won in a subsequent auction as part of a package. Moreover, new package

biddmg desi^s may at some point make it practicable for the Commission to allow withdrawals in

package bidding aiwtions. For these reasons, we believe it necessary to amend section 1.2104(g) to

provide for calculating withdrawal payments in all possible situations involving combinatorial biddirig.

4L Proposal for Apportioning Package Bids. We propose that the Commission specify in

advance of each auction that uses a combinatorial bidding design or includes spectrum previously subject

to a combirMonal auction a method for apportioning the bid on a package among the individual licerises

compnsmg the paclrage

ting withdrawal payments in all possible situations involving combinatorial biddirig.

4L Proposal for Apportioning Package Bids. We propose that the Commission specify in

advance of each auction that uses a combinatorial bidding design or includes spectrum previously subject

to a combirMonal auction a method for apportioning the bid on a package among the individual licerises

compnsmg the paclrage. We propose further that the portion of the total bid attributed to an individual

license pursuant to the selected method - to be known as the "apportioned package bid" or "APB" -

serve

as a stand-in for the bid on that license whenever the individual bid amount is needed for one of our

re^latory calculations, such as calculating the size of a bidding credit, a small business bidding credit

unjust enrichment payment obligation, a tribal land bidding credit limit, or a withdrawal or default

payment obligation.

available methods by which the Commission could apportion package

bids to the individual licenses comprising a package. One possible method is to use a "MHz-pops" ratio

just as IS currently done for unjust enrichment calculations involving partitioning or disaggregation. For

(...continued from previous page)

payment would be 25% of the defaulted bid.

70 700 MHz Second Memorandum Opinion and Order, 15 FCC Red at 21,078-79 17:

effects of a default in a package bidding auction require a strong deterrent against

insincere bidding and strategic default. In an auction without pacl^e bidding, a default on a

license mostly affects only the bidders for that license; if the defaulting bidder had not bid, the

other licenses in the auction likely still would have been won by the same bidders. In an auction

with package bidding, however, a default may reasonably be expected to affect multiple licenses

(and perhaps every license in the auction)... if the defaulting bidder had not bid, the licenses may

well have been sold in different packages

ers for that license; if the defaulting bidder had not bid, the

other licenses in the auction likely still would have been won by the same bidders. In an auction

with package bidding, however, a default may reasonably be expected to affect multiple licenses

(and perhaps every license in the auction)... if the defaulting bidder had not bid, the licenses may

well have been sold in different packages.

Notice, 18 FCC Red at 12,007; Auction of Licenses in the 747-

762 and 777-792 MHz Bands Scheduled for June 19,2002; Auction No. 31 Procedures Public Notice 17 FCC

Red at 5185-86. Auction No. 31 has not yet occurred.

11284

Federal Communications Commission

FCC 05-123

Auction No. 51, the Commission decided that MHz-pops would be used should it be necessary to

calculate the iqiper limit on a tribal land bidding credit for a license won as part of a package.^ Another

possible methc^ is to use current price estimates ("CPEs"), which are estimates of the prices of individual

licenses comprising a package in a combinatorial bidding auction.^^ The Commission developed a

methodology for determining CPEs as part of the combinatorial bidding procedures establish^ for

Auctions No. 31 and-5T. <3*Es WCTO^dculated after every round of Auction No. 51 as pM of the

mathematical optimization process used to determine the winning bids and were also used in determining

the minimum acceptable bid amounts for each subsequent roimd. * The same use of CPEs was announced

for Auction No. 31

43. CPEs determined for the final roimd of an auction ("final price estimates" or "FPEs") can

serve as a valid proxies for the market values of individual licenses won as parts of a package, berause

they take into account the minimum opening bids for the licenses as well as all the bids placed in the

auction and, therefore, reflect all available information about the relative demand for the licenses

. CPEs determined for the final roimd of an auction ("final price estimates" or "FPEs") can

serve as a valid proxies for the market values of individual licenses won as parts of a package, berause

they take into account the minimum opening bids for the licenses as well as all the bids placed in the

auction and, therefore, reflect all available information about the relative demand for the licenses. In

addition, because the sum of all of the FPEs for the component licenses of a package is mathematically

constrained to equal the winning bid for the package,^^ foe ratios of these estimates to foe package bid

amount have a natural role as indicators of foe relative weights of foe different licenses in the market

value of foe package.

44. While we consider the use of either MHz-pops ratios or FPEs to be acceptable for

determining APBs, we do not wish now to limit foe Commission to any given method, including these

two. Instead, we believe that it is in foe best interest of foe auction program and bidders for foe

Commission to have foe flexibility to select foe method best suited to a particular auction, including being

able to take advantage of any developments in auction design that might provide other ways to apportion

package bids among foe individual conq>onent licenses of a package.^^

45. Adoption of otir proposal that APBs be determined for each combinatorial bidding auction

would allow calculation of how much of a total bidding credit to attribute to a license won as part of a

package and determination, according to our existing rules, of foe amount of an unjust enrichment

payment obligation, foe upper limit on a tribal land bidding credit for a license won as part of a package,

or a withdrawal payment obligation

s be determined for each combinatorial bidding auction

would allow calculation of how much of a total bidding credit to attribute to a license won as part of a

package and determination, according to our existing rules, of foe amount of an unjust enrichment

payment obligation, foe upper limit on a tribal land bidding credit for a license won as part of a package,

or a withdrawal payment obligation. Further, substituting an APB for foe unknown amount of a winning

bid on an individual license won as part of a package would allow use of foe "conventional" default rule

(i.e., the default rule used where neither foe initial nor the subsequent winning bid is for a license won as

part of a package) for combinatorial bidding situations, including situations not covered by the existing

"Regional Narrowband PCS Spectrum Auction; 2 Qualified Bidders," Public Notice, 18 FCC Red

18,570, 18,577 (2003).

The mathematical derivation of current price estimates is described in detail in the Auction No. SI

Procedures Public Notice, 18 FCC Red at 12,003-04, 12,029-34, and in the Auction No. 31 Procedures Public

Notice, 17 FCC Red at 5178-81, 5193-99.

See Auction No. 51 Procedures Public Notice, 18FCCRcdat 12,003-04,12,029-34.

Auction No. 31 Procedures Public Notice, 17 FCC Red at 5178-81, 5193-99.

Auction No. 51 Procedures Public Notice, 18 FCC Red at 12,003; Auction No. 31 Procedures Public

Notice, 17 FCC Red at 5198.

Pursuant to our proposal, the method for apportioning bids in combinatorial bid auctions would be

included in the Commission's pre-auction notice and comment process.

11285

CRcdat 12,003-04,12,029-34.

Auction No. 31 Procedures Public Notice, 17 FCC Red at 5178-81, 5193-99.

Auction No. 51 Procedures Public Notice, 18 FCC Red at 12,003; Auction No. 31 Procedures Public

Notice, 17 FCC Red at 5198.

Pursuant to our proposal, the method for apportioning bids in combinatorial bid auctions would be

included in the Commission's pre-auction notice and comment process.

11285

Federal Communications Commission

FCC 05-123

Part 1 combinatorial bidding default rule/* Indeed, using an APB as a substitute for the amount of a bid

on a license won as part of a package would allow us to fairly perform any Commission calculation

requiring the amoimt of the individual bid. Consequently, we seek comment oil these proposals.

b. Apportionment Among the Components of a License

46. Implicit in our rules for determining the amount of a withdrawal or default payment -

determinations that involve a comparison between the withdrawing or defaulting bidder's bid and a

subsequent bid -

is the assumption that the subsequent bid will be for a license with the same geographic

and spectral components as the original license. However, when there have been intervening rule changes

involving the relevant spectrum, the second license may not be identical in geography and spectrum to the

first. For example, such rule changes occurred last year when, in order to provide greater flexibility and a

more functional band plan for licensees, the Commission restmctured the rules governing the Multipoint

Distribution Service and the Instructional Television Fixed Service in the 2495 -

2690 MHz band.'' We

can expect that, as radio technology continues to evolve and services become more sr^histicated, there

will be other instances where our baftd plans are updated

provide greater flexibility and a

more functional band plan for licensees, the Commission restmctured the rules governing the Multipoint

Distribution Service and the Instructional Television Fixed Service in the 2495 -

2690 MHz band.'' We

can expect that, as radio technology continues to evolve and services become more sr^histicated, there

will be other instances where our baftd plans are updated. Therefore, for purposes of calculating a

withdrawal or default payment -

or for any comparison of a bid for one license with a bid for another

license in a subsequent auction when the second license is similar to but not exactly the same as the first

in terms of geography or spectrum - we need a procedure for apportioning the bid placed on the

reconfigured license in the second auction.

47. We accordingly propose that, prior to auctions involving reconfigured licenses, the

Commission specify, as necessary, a method for apportioning the bid on a reconfigured license among the

license's component parts. Using a MHz-pops ratio would be suitable for such an apportionment, as the

Commission has successfully employed the ratio to apportion small business bidding credit amounts in

order to calculate unjust enrichment payments. However, we propose to retain the flexibility to select

another method of apportionment should we identify a method that we believe would better suit the

particular licenses involved. Further, we propose to use methods for package bid apportionment and

individual license bid apportionment in concert when circumstances Warrant. We seek comment on these

proposals.

4. Confomiing Broadcast Construction Permit Payment Procedures with Part 1 Rules

select

another method of apportionment should we identify a method that we believe would better suit the

particular licenses involved. Further, we propose to use methods for package bid apportionment and

individual license bid apportionment in concert when circumstances Warrant. We seek comment on these

proposals.

4. Confomiing Broadcast Construction Permit Payment Procedures with Part 1 Rules

48. Our Part I rules currently provide that, unless otherwise specified by public notice, auction

winners are required to pay the balance of their winning bids in a lun^ sum within ten (10) business days

following the release of a public notice establishing the payment deadline.*® In recent wireless spectrum

'* In returning to our "conventional" default rale, we propose to retain the higher (25 percent) aHHiHnnal

payment amount for combinatorial bidding defaults adopted as part of the existing combinatorial bidding default

payment rale, because the rationale for having the higher payment amount remains valid. See 700 MHz Second

Memorandum Opinion and Order, 15 FCC Red at 21,078-79117. In addition, in the case of combinatorial

bidding defaults, we propose to continue our practice of assessing a 25 percent interim default deposit pending

assessment of the final default payment after a subsequent auction. See Part I Order on Reconsideration of the

Fifth Report and Order, 18 FCC Red at 10,204 ^ 31.

Amendment of Parts 1,21,73,74 and 101 of the Commission's Rules to Facilitate the Provision of

Fixed and Mobile Broadband Access, Educational and Other Advanced Services in the 2150-2162 and 2500-2690

MHz Bands, WT Docket No. 03-66, RM-10586, Report and Order and Further Notice of Proposed Rulemaking, 19

FCC Red 14,165 (2004).

47 C.F.R. § 1.2109(a). The Commission adopted this procedure for establishing final payment

deadlines in the Part 1 Third Report and Order. See Part I Third Report and Order, 13 FCC Red at 428-30 Tfll 92-

(continued....)

11286

ed Services in the 2150-2162 and 2500-2690

MHz Bands, WT Docket No. 03-66, RM-10586, Report and Order and Further Notice of Proposed Rulemaking, 19

FCC Red 14,165 (2004).

47 C.F.R. § 1.2109(a). The Commission adopted this procedure for establishing final payment

deadlines in the Part 1 Third Report and Order. See Part I Third Report and Order, 13 FCC Red at 428-30 Tfll 92-

(continued....)

11286

Federal Communications Commission

FCC 05-123

auctions, the Commission has required each winning bidder to submit the balance of the net amount of its

winning bid(s) within ten (10) business days after the deadline for submitting down payments.*' This

procedural change was necessary to guard against payment defaults that may then lead to bankruptcy

filings and litigation that tie up the availability of the defaulted licenses.*^ Specific Part 73 and 74 rules,

however, provide that winning bidders in broadcast service auctions must render their final payment for

construction permits won through competitive bidding after their long-form applications have heen

processed, any petitions to deny have been dismissed or denied, and the public notice aimouncing that

broadcast construction permits are ready to be granted has been released.*^ Recognizing the discrqjancy

between these auction payment procedures, the Commission, in the Auction No. 37 Procedures Public

Notice, noted that it would consider future changes to the broadcast rules to conform the broadcast final

payment procedures to the analogous Part 1 rules.*^

and the public notice aimouncing that

broadcast construction permits are ready to be granted has been released.*^ Recognizing the discrqjancy

between these auction payment procedures, the Commission, in the Auction No. 37 Procedures Public

Notice, noted that it would consider future changes to the broadcast rules to conform the broadcast final

payment procedures to the analogous Part 1 rules.*^

49. One of the primary objectives of our auction rules is to ensure that only serious, financially

qualified applicants receive licenses and construction permits so that the provision of service to the public

is expedited.*' The Commission has determined that the timely payment of auction obligations is one of

the means by which it can be assured of the financial qualifications, and thus the seriousness, of a winning

bidder.** Moreover, the Commission has consistently stated that those entities that plan to participate in

(...continued from previous page)

96. Prior to that rule change, auction winners were required to pay the balance of their winning bids in a lunq)

sum within five business days following the award of &e license. 47 C.F.R. § 1.2109(a) (1996).

*' See, e.g., "Auction of Licenses in the Multichannel Video Distribution and Data Service Rescheduled

for January 14,2004; Notice and Filing Requirements, Minimum Opening Bids, Upfiront Payments and Other

Auction Procedures," Public Notice, 18 FCC Red 17,553,17,588 (2003). The Commission has also provided for

this payment procedure in Auctions No. 52, No. 55, No. 56, No. 57, No. 58 and No. 59.

*^ See FCC v. Nextwave Personal Communications, Inc., 537 U.S. 293 (2003) {"Nextwave") (holding that

Section 525 of the Banknq>tcy Code, 11 U.S.C. § 525, prohibits the cancellation of a Commission-issued license

held by a licensee in bankruptcy proceedings where the cancellation is based upon the licensee's failure to make

full and timely payment on the license).

*' See, e.g., 47 C.F.R. §§ 73.357l(h)(4)(ii); 73.3573(f)(5)(ii); 73.5006(d); 74.1233(dX5)(ii)

.S. 293 (2003) {"Nextwave") (holding that

Section 525 of the Banknq>tcy Code, 11 U.S.C. § 525, prohibits the cancellation of a Commission-issued license

held by a licensee in bankruptcy proceedings where the cancellation is based upon the licensee's failure to make

full and timely payment on the license).

*' See, e.g., 47 C.F.R. §§ 73.357l(h)(4)(ii); 73.3573(f)(5)(ii); 73.5006(d); 74.1233(dX5)(ii). Broadcast

service auctions include FM radio, AM radio, television, low power television (LPTV), and FM and television

translator stations.

*^ See "Auction of FM Broadcast Construction Permits Scheduled for November 3,2004; Notice and

Filing Requirements, Minimum Opening Bids, Upfrx)nt Payments and Other Auction Procedures," Public Notice,

19 FCC Red 10,570,10,605 (2004) ("Auction No. 37 Procedures Public Notice").

*' Inqilementation of Section 309(j) of the Communications Act - Competitive Bidding, Second Report

and Order, 9 FCC Red 2348,2375 (1994) ("Part I Second Report and Order'")-, Mountain Solutions LTD, Inc., 12

FCC Red 5904, 5907-08 (1997), aff"d, 13 FCC Red 21,983 (1997), review denied in part and dismissed in part.

Mountain Solutions LTD, Inc. v. F.C.C., 197 F.3d 512 (D.C. Cir. 1999) ("Mountain Solutions'").

** See Delta Radio, Inc., 18 FCC Red 16,889 (2003), affd, 387 F.3d 897 (D.C. Cir. 2004) (fmancial

qualifications of winning bidders established by timely auction payments). See also BDPCS, Inc., 15 FCC Red

17,590 (2000) (default payment rules provide strong incentives to ensure the fmancial qualifications of potential

bidders), affd, 351 F. 3d 1177 (D.C. Cir. 2003) (affirming the Commission's imposition of default payments to

winning bidders wdio fail to make required payments post-auction). As the Commission has stated, awarding

licenses to those who value them the most encourages growth while maintaining safeguards against

anticonq)etitive behavior. Competitive Bidding Second Report and Order, 9 FCC Red at 2349-50 H 5. See also

Mountain Solutions, 197 F.3d 512.

11287

the Commission's imposition of default payments to

winning bidders wdio fail to make required payments post-auction). As the Commission has stated, awarding

licenses to those who value them the most encourages growth while maintaining safeguards against

anticonq)etitive behavior. Competitive Bidding Second Report and Order, 9 FCC Red at 2349-50 H 5. See also

Mountain Solutions, 197 F.3d 512.

11287

Federal Communications Commission

FCC 05-123

an auction must have the appropriate financing in place before the start of the auction." Recent judicial

clarifications of the relationship between the Commission's authority under Section 309(j) of the

Communications Act and creditor protections imder the Bankruptcy Code have shifted significant risk to

the government in the event an auction payment defaulter attenqjts to tie up the impaid licenses won at

auction in bankruptcy litigation.*® Accordingly, when establishing the payment schedule for licenses won

at auction, the Commission protects the integrity of the auction program and the availability of licenses by

ensuring timely full payment and minimizing the opportunity to "game" the auction and license

assignment processes.® By harmonizing the broadcast auction payment procedures with our Part 1 rules,

we seek to apply our rules consistently in furtherance of the public interest.®®

50. While the Part 73 and Part 74 broadcast auction mles reference the Part 1 final payment rule,

the more specific parent provisions in the broadcast rules preclude application of the Part 1 final

payment procedures.® To conform the Part 73 and Part 74 broadcast mles and make them consistent with

the existing competitive bidding and payment procedures contained in Part 1 of our mles, we propose to

adopt for broadcast auctions the final payment procedures in our Part 1 mles

final payment rule,

the more specific parent provisions in the broadcast rules preclude application of the Part 1 final

payment procedures.® To conform the Part 73 and Part 74 broadcast mles and make them consistent with

the existing competitive bidding and payment procedures contained in Part 1 of our mles, we propose to

adopt for broadcast auctions the final payment procedures in our Part 1 mles. Specifically, we propose to

incorporate into our Part 73 and Part 74 broadcast auction mles the Part 1 rule requiring ttot, unless

otherwise specified by public notice, winning bidders in a broadcast auction are requir^ to pay the

balance of their winning bids in a lunq) sum within ten (10) business days following the release of a

public notice establishing the payment deadline.®^ We seek comment on this proposal. Under our current

practice, the Commission informs prospective bidders of final payment procedures in a public notice

armouncing the procedures for the auction. As noted above, we believe that amending the final payment

deadline for broadcast auctions to conform to our existing procedures for wireless auctions will provide

consistency throughout our competitive bidding mles and help to achieve our objective that only sincere,

financially qualified applicants participate in competitive bidding. We further believe that providing

greater certainty to all wiruiing bidders regarding when final payment will be due will also benefit them as

they con^)ete with other sincere bidders that have also secured the financing necessary to participate in an

auction and pay for their licenses. In wireless spectrum auctions, winning bidders, including small

businesses, have been able to comply with the Commission's new final payment procedure without

difficulty. We therefore believe that winning bidders in broadcast auctions should be able to conqjly with

this change with similar ease. We seek comment on this proposal.

See 47 C.F.R. § 1.2105(a)(2)(v)

uction and pay for their licenses. In wireless spectrum auctions, winning bidders, including small

businesses, have been able to comply with the Commission's new final payment procedure without

difficulty. We therefore believe that winning bidders in broadcast auctions should be able to conqjly with

this change with similar ease. We seek comment on this proposal.

See 47 C.F.R. § 1.2105(a)(2)(v). See also Requests for Extension of the Commission's Initial Non-

Delinquency Period for C and F Block Installment Payments, Order, 13 FCC Red 22,071,22,072 (1998).

®* See NextWave, 537 U.S. 293.

®' See Competitive Bidding Second Report and Order, 9 FCC Red at 2381-82 TI192.

®® However, should the Commission determine that such post-processing payment procedures are in the

best interests of the potential bidders, it retains the discretion to employ the current payment schedule for

broadcast licenses.

®' See, e.g., 47 C.F.R. §§ 73.3571; 73.3573; 73.5006; 74.1233.

®^ See id. § 1.2109(a). We note that in 2002 the Commission directed Media Bureau staff to issue public

notices announcing that constmction permits are ready for grant promptly after dismissing or denying petitions to

deny. Application of Abundant Life, Inc., Memorandum Opinion and Order, 17 FCC Red 4006,4007 n.5 (2002).

To Ae extent that in future auctions wiiming bidders are required to make their final payments prior to initial

resolution of petitions to deny, a ready-to-grant public notice would not be necessary.

11288

constmction permits are ready for grant promptly after dismissing or denying petitions to

deny. Application of Abundant Life, Inc., Memorandum Opinion and Order, 17 FCC Red 4006,4007 n.5 (2002).

To Ae extent that in future auctions wiiming bidders are required to make their final payments prior to initial

resolution of petitions to deny, a ready-to-grant public notice would not be necessary.

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5. Improving Procedures for Using the Consortium Exception to the Designated Entity

and Entrepreneur Aggregation Rule

51. For purposes of determining whether an applicant or licensee is eligible for small business or

broadband PCS entrepreneur status, the Commission attributes to the applicant the gross revenues (and,

when determining broadband PCS entrepreneur eligibility, the total assets^^) of the applicant's affiliates,

its controlling interests, and the affiliates of its controlling interests, and aggregates these amounts with

the applicant's own gross revenues (and total assets)."^ Calculated in this manner, the applicant's gross

revenues (and total assets) must not exceed the caps established by the Commission for particular

services. However, under an exception to this aggregation rule, where an applicant or licensee is a

consortium conqirised exclusively of members eligible for small business bidding credits or broadband

PCS entrepreneur status, or both, the gross revenues (and total assets) of the consortium members are not

aggregated.^^ In other words, so long as each member of a consortium individually meets the financial

caps for small business bidding credits (or broadband PCS entrqireneur status), the consortium will be

eligible for such credits (or for entrq)reneur-only broadband PCS licenses), regardless of whether the

gross revenues (or total assets) of all consortium members would, if aggregated, exceed the caps

egated.^^ In other words, so long as each member of a consortium individually meets the financial

caps for small business bidding credits (or broadband PCS entrqireneur status), the consortium will be

eligible for such credits (or for entrq)reneur-only broadband PCS licenses), regardless of whether the

gross revenues (or total assets) of all consortium members would, if aggregated, exceed the caps. The

consortium exception, originally adopted on a service-by-service basis where capital costs of auction

participation were high, is intended to enable small businesses or entrepreneurs to pool their resources to

help them overcome this challenge to capital formation.^

52. The Commission has provided some direction as to how the consortium exception should be

implemented by parties wishing to establish such consortia, but we are concerned that there remains

uncertainty about the operation of the exception in certain situations. For example, the Commission has

said that, before or during the auction individual members of a bidding consortium may withdraw from

the consortium with regard to some licenses selected on the consortium's short-form application, while

remaining a part of the consortium for .purposes of bidding on all other licenses specified. If consortium

members agree that any of their members may withdraw in this fashion, such an agreement must be

disclosed on an original or amended short-form application. Should the consortium win licenses, its

members must file, in conjunction with their long-form application, requests to transfer or assign licenses

In the context of this Notice, "entrepreneur" refers to an entity eligible to hold certain broadband PCS C

and F block licenses won in closed bidding. See 47 C.F.R. §§ 1.2110 and 24.709

disclosed on an original or amended short-form application. Should the consortium win licenses, its

members must file, in conjunction with their long-form application, requests to transfer or assign licenses

In the context of this Notice, "entrepreneur" refers to an entity eligible to hold certain broadband PCS C

and F block licenses won in closed bidding. See 47 C.F.R. §§ 1.2110 and 24.709. Generally speaking, an

^iplicant or licensee qualifies as an entrepreneur if it, together with its affiliates, persons or entities that hold

interests in the applicant or licensee, and their affiliates, has combined total assets of less than $500 million and

has had combing gross revenues of less than $125 million in each of the last two years. Id. § 24.709(a)(1).

^Id. § 1.2110(b)(1).

Id. § 1.2110(b)(3)(i).

See, e.g.. Implementation of Section 309(j) of the Communications Act -

Competitive Bidding, PP

Docket No. 93-253, Second Memorandum Opinion and Order, 9 FCC Red 7245, 7276-78 THI81-85 (1994);

lnq)lementation of Section 309(j) of the Communications Act -

Conq)etitive Bidding, PP D^ket 93-253, Fifth

Report and Order, 9 FCC Red 5532, 5591 J 133, 5601 % 158, 5610 H 179 (1994).

^ Amendment of Parts 2 and 90 of the Commission's Rules to Provide for the Use of 200 Channels

Outside the Designated Filing Areas in the 896-901 MHz and the 935-940 MHz Bands Allotted to the Specialized

Mobile Radio Pool, PR Docket No. 89-553, Second Order on Reconsideration and Seventh Report and Order, 11

FCC Red 2639,2679 H 105 (1995); lnq)lementation of Section 309(j) of the Communications Act -

Conq>etitive

Bidding, PP Docket No. 93-253, Ninth Report and Order, 11 FCC Red. 14,769, 14,789-90 H 42 (1996).

11289

ing Areas in the 896-901 MHz and the 935-940 MHz Bands Allotted to the Specialized

Mobile Radio Pool, PR Docket No. 89-553, Second Order on Reconsideration and Seventh Report and Order, 11

FCC Red 2639,2679 H 105 (1995); lnq)lementation of Section 309(j) of the Communications Act -

Conq>etitive

Bidding, PP Docket No. 93-253, Ninth Report and Order, 11 FCC Red. 14,769, 14,789-90 H 42 (1996).

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as necessary to comply with the consortium arrangement

53. Apart from this guidance, the Cormnission has not explained how consortia should proceed

once they have won licenses, nor has it considered the problems that allowing consortia to become

licensees may cause. The consortium exception has been seldom used, and we suspect that one reason for

this infrequent use has been the absence of clear direction from the Commission as to how consortium

members should be formally organized or how (and when) members should allocate and own the licenses

they win. For example, contractual disputes may arise between members of consortia, with a resulting

delay in buildout and the provision of service. Similarly, problems may occur should one or more

members of a licensed consortium file for bankruptcy protection. And if consortium members agree after

the auction to divide their license holdings among themselves without first applying for Commission

approval, they may be held accountable for unauthorized assignments or transfers of control. Not only

would such difficulties impede service to the public and consume Commission resources, they would

prove expensive and time consuming for the small businesses involved.

sortium members agree after

the auction to divide their license holdings among themselves without first applying for Commission

approval, they may be held accountable for unauthorized assignments or transfers of control. Not only

would such difficulties impede service to the public and consume Commission resources, they would

prove expensive and time consuming for the small businesses involved.

54. In order to provide additional guidance to those interested in taking advantage of the

consortium exception and to reduce the likelihood of complications resulting from the exception's use, we

seek comment on possible policy options for in^roving the pre- and post-auction procedures governing

the consortiiun exception to facilitate its use among small businesses facing capital formation constraints.

For example, we seek comment on whether we should adopt a new requirement that each member of the

consortium file an individual long-form application for its respective, mutually agreed-upon license(s),

following an auction in which a consortium has won one or more licenses. To comply with this

requirement, consortium members would, prior to filing their short-form application, have reached an

agreement as to how they would allocate among themselves any licenses (or disaggregated or partitioned

portions of licenses) they might win, and they would have disclosed this agreement on their short-form

application as required by our disclosure rules." We further seek comment on whether, in order for two

or more consortium members to be licensed together for the same license(s) (or disaggregated or

partitioned portions thereof), they should be required to form a legal business entity, such as a

corporation, partnership, or limited liability company, after having disclosed this intention on their short-

form and long-form applications

ure rules." We further seek comment on whether, in order for two

or more consortium members to be licensed together for the same license(s) (or disaggregated or

partitioned portions thereof), they should be required to form a legal business entity, such as a

corporation, partnership, or limited liability company, after having disclosed this intention on their short-

form and long-form applications. In particular, we seek comment on whether such new entities would

have to meet our small biisiness or entrepreneur financial limits and whether allowing these entities to

exceed the limits would be consistent with our existing designated entity and broadband PCS

entrepreneur rules, as well as our obligations under the Communications Act. As commenters address

these issues and any other options proposed by interested parties, we are particularly interested in then-

views about how these approaches might woik in the context of package bidding and to what extent

adopting these proposals might encourage wider use of the consortium exception.

rv. CONCLUSION

55. For the reasons stated, we adopt the interpretation of "total cash proceeds" set forth in the

Declaratory Ruling above and seek comment on the foregoing proposed changes in our competitive

bidding rules set forth in the Notice ofProposed Rule Making.

Amendment of Parts 2 and 90 of the Commission's Rules to Provide for the Use of 200 Channels

Outside the Designated Filing Areas in the 896-901 MHz and the 935-940 MHz Bands Allotted to the Specialized

Mobile Radio Pool, PR Docket No. 89-553, Second Order on Reconsideration and Seventh Report and Order, 11

FCC Red 2639,26791105 (1995); Implementation of Section 309(j) of the Communications Act -

Competitive

Bidding, PP Docket No. 93-253, Ninth Report and Order, 11 FCC Red. 14,769, 14,789-90 ^ 42 (1996).

"5ee47C.F.R. § 1.2105(aX2Xviii).

11290

and the 935-940 MHz Bands Allotted to the Specialized

Mobile Radio Pool, PR Docket No. 89-553, Second Order on Reconsideration and Seventh Report and Order, 11

FCC Red 2639,26791105 (1995); Implementation of Section 309(j) of the Communications Act -

Competitive

Bidding, PP Docket No. 93-253, Ninth Report and Order, 11 FCC Red. 14,769, 14,789-90 ^ 42 (1996).

"5ee47C.F.R. § 1.2105(aX2Xviii).

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V. PROCEDURAL MATTERS AND ORDERING CLAUSES

A. Ex Parte Rules -

Permit-But-Disclose Proceeding

56. For purposes of this permit-but-disclose notice and comment proceeding, members of the

public are advised that ex parte presentations are permitted, except during the sunshine Agenda period,

provided that the presentations are disclosed pru^uant to the Commission's rules.""'

B. Paperwork Reduction Act

57. This document contains proposed new information collection requirements. The

Commission, ^

part of its continuing effort to reduce paperwork burdens, invites the general public and

the Office of Management and Budget ("0MB") to comment on the information collection requirements

contained in this document, as required by the Paperwork Reduction Act of 1995, Public Law 104-13.

Public and agency comments are due 60 days after the date of publication in the Federal Register.

Comments should address: (a) whether the proposed collection of information is necessary for the proper

performance of the functions of the Commission, including whether the information shall have practical

utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility,

and clarity of the information collected; and (d) ways to minimize the burden of the collection of

information on the respondents, including the use of automated collection techniques or other forms of

information technology. In addition, pursuant to the Small Business Paperwork Relief Act of 2002,

Public Law 107-198, see 44 U.S.C

ssion's burden estimates; (c) ways to enhance the quality, utility,

and clarity of the information collected; and (d) ways to minimize the burden of the collection of

information on the respondents, including the use of automated collection techniques or other forms of

information technology. In addition, pursuant to the Small Business Paperwork Relief Act of 2002,

Public Law 107-198, see 44 U.S.C. 3506(cX4), we seek specific comment on how we might "further

reduce the information collection burden for small business concerns with fewer than 25 employees."

C. Initial Regulatory Flexibility Analysis

58. As required by the Regulatory Flexibility Act, see 5 U.S.C. § 603, the Commission has

prepared an Initial Regulatory Flexibility Analysis ("IRFA") of the possible significeuit economic impact

on small entities of the proposals suggested in the Notice. The IRFA is set forth in Appendix B. Written

public comments are requested on the IRFA. These comments must be filed in accordance with the same

filing deadlines as comments filed in response to the Notice, and must have a separate and distinct

heading designating them as responses to the IRFA.

D. Comment Filing Procedures

59. Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R §§ 1.415, 1.419,

interested parties may file comments on or before 30 days after publication in the Federal Register and

may file reply comments on or before 45 days after publication in the Federal Register. All tilings

related to this Declaratory Ruling and Notice of Proposed Rule Making should refer to WT Docket

No. 05-211. Comments may be filed using: (1) the Commission's Electronic Comment Filing System

(ECFS), (2) the Federal Government's eRulemaking Portal, or (3) by filing paper copies. See Electronic

Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).

60. Electronic Filers: Comments may be filed electronically using the Internet by accessing the

ECFS: http://www.fcc.gov/cgb/ecfs/ or the Federal eRulemaking Portal: httD://www.regulations.gov

on's Electronic Comment Filing System

(ECFS), (2) the Federal Government's eRulemaking Portal, or (3) by filing paper copies. See Electronic

Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).

60. Electronic Filers: Comments may be filed electronically using the Internet by accessing the

ECFS: http://www.fcc.gov/cgb/ecfs/ or the Federal eRulemaking Portal: httD://www.regulations.gov.

Filers should follow the instructions provided on the website for submitting comments. For ECFS filers,

if multiple docket or rulemaking numbers appear in the caption of this proceeding, filers must transmit

one electronic copy of the comments for each docket or rulemaking number referenced in the caption. In

completing the transmittal screen, filers should include their full name, U.S. Postal Service mailing

See generally id. §§ 1.1202,1.1203, 1.1206(a).

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FCC 05-123

address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment

by Intemet e-mail. To get filing instmctions, filers should send an e-mail to ecfs@fcc.gov. and include

the following words in the body of the message, "get form." A sample form and directions will be sent in

response.

61. Paper Filers: Parties who choose to file by paper must file an original and four copies of each

filing. Filings can be sent by hand or messenger delivery, by commercial overnight courier, or by first-

class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving U.S.

Postal Service mail). All filings must be addressed to the Commission's Secretary, Office of the

Secretary, Federal Communications Commission.

•

The Commission's contractor will receive hand-delivered or messenger-deliva^

paper filings for the Commission's Secretary at 236 Massachusetts Avenue, NE.,

Suite 110, Washington, DC 20002. The filing hours at this location are 8:00 a.m. to

7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners

n's Secretary, Office of the

Secretary, Federal Communications Commission.

•

The Commission's contractor will receive hand-delivered or messenger-deliva^

paper filings for the Commission's Secretary at 236 Massachusetts Avenue, NE.,

Suite 110, Washington, DC 20002. The filing hours at this location are 8:00 a.m. to

7:00 p.m. All hand deliveries must be held together with rubber bands or fasteners.

Any envelopes must be disposed of before entering the building

• Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority

Mail) must be sent to 9300 East Hanqjton Drive, Capitol Heights, MD 20743.

•

U.S. Postal Service first-class. Express, and Priority mail should be addressed to 445

12* Street, SW, Washington DC 20554.

E. Accessible Formats

62. To request copies of this Declaratory Ruling and Notice of Proposed Rule Making in

accessible formats (Braille, large print, electronic files, audio format) for people with disabilities, send an

e-mail to fcc504@fcc.gov or call the Consumer and Governmental Affairs Bureau at (202) 418-0531 or

(202) 418-7365 (TTY).

F. Further Information

63. For further information concerning this Declaratory Ruling and Notice of Proposed Rule

Making, contact Audrey Bashkin, Auctions and Spectrum Access Division, (202) 418-0660, Wireless

Telecommunications Bureau, Federal Communications Commission, Washington, E>C 20554.

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G. Ordering Clauses

64. Accordingly, IT IS ORDERED THAT, pursuant to Sections 4(i), 303(r), and 309(j) of the

Communications Act of 1934, as amended, 47 U.S.C. Sections 154(i), 303(r), and 309(j), this Declaratory

Ruling and Notice of Proposed Rule Making is hereby ADOPTED.

65. IT IS FURTHER ORDERED that the Commission's Consumer and Governmental Affairs

Btireau, Reference Information Center, SHALL SEND a copy of this Notice of Proposed Rule Making,

including the Initial Regulatory Flexibility Certification, to the Chief Coiuisel for Advocacy of the Small

Business Administration

and 309(j), this Declaratory

Ruling and Notice of Proposed Rule Making is hereby ADOPTED.

65. IT IS FURTHER ORDERED that the Commission's Consumer and Governmental Affairs

Btireau, Reference Information Center, SHALL SEND a copy of this Notice of Proposed Rule Making,

including the Initial Regulatory Flexibility Certification, to the Chief Coiuisel for Advocacy of the Small

Business Administration.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

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APPENDIX A

Proposed Rules

PART 1 -

PRACTICE AND PROCEDURE

Part 1 of Title 47 of the Code of Federal Regulations is revised to read as follows:

The authority citation for Part 1 continues to read as follows:

Authority: 47 U.S.C. 151, 154(i), 1540), 155, 225, 303(r), 309 and 325(e).

Amend § 1.2103 to add new paragraphs (b)(1) and (b)(2) to read as follows:

6 1.2103 Competitive bidding design options.

* « * * *

(Jo)***

(1) Apportioned package bid. The apportioned package bid on a license is an estimate of the price of an

individual license included in a package of licenses in an auction with combinatorial (package) bidding.

Apportioned package bids shall be determined by the Commission according to a methodology it

establishes in advance of each auction with combinatorial bidding.

(2) Substitute for bid amount. The apportioned package bid on a license included in a package shall be

used in place of the amoimt of an individual bid on that license when the bid amount is needed to

determine the size of a designated entity bidding credit (see § 1.2110(f)(l)-(2)), a new entrant bidding

credit (see § 73.5007), a bid withdrawal or default payment obligation (see § 1.2104(g)), a tribal land

bidding credit limit (see § 1.2110(f)(3Xiv)), or a size-based bidding credit unjust enrichment payment

obligation (see § 1.211 l(d),(e)(2)-(3)), or for any other determination required by the Commission's rules

or procedures.

11294

y bidding credit (see § 1.2110(f)(l)-(2)), a new entrant bidding

credit (see § 73.5007), a bid withdrawal or default payment obligation (see § 1.2104(g)), a tribal land

bidding credit limit (see § 1.2110(f)(3Xiv)), or a size-based bidding credit unjust enrichment payment

obligation (see § 1.211 l(d),(e)(2)-(3)), or for any other determination required by the Commission's rules

or procedures.

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Amend § 1.2104 by revising paragraphs (c), (g)(1), and (g)(2); removing paragraph (g)(3); and

adding paragraph (j) to read as follows:

S 1.2104 Competitive bidding mechanisms.

<1 *

* *

xmdisclosed, below which a license or licenses subject to auction will not be awarded. For any auction of

eligible frequencies described in section 113(gX2) of the National Telecommunications and Information

Administration Organization Act (47 U.S.C. 923(g)(2)), the Commission will establish a reserve price or

prices pursuant to which the total cash proceeds from any auction of eligible frequencies shall equal at

least 110 percent of the total estimated relocation costs provided to the Commission by the National

Telecommunications and Information Administration pursuant to section 113(g)(4) of such Act (47

U.S.C. § 923(g)(4)).

4> * *

* *

(g) * * *

(1) Bid withdrawal prior to close of auction. A bidder that withdraws a high bid during the course of an

auction is subject to a withdrawal payment equal to the difference between the amount of the withdrawn

bid and the amount of the winning bid in the same or subsequent auction(s). In the event that a bidding

credit applies to any of the bids, the bid withdrawal payment is either the difference between the net

withdrawn bid and the subsequent net winning bid, or the difference between the gross withdrawn bid and

the subsequent gross winning bid, whichever is less

e between the amount of the withdrawn

bid and the amount of the winning bid in the same or subsequent auction(s). In the event that a bidding

credit applies to any of the bids, the bid withdrawal payment is either the difference between the net

withdrawn bid and the subsequent net winning bid, or the difference between the gross withdrawn bid and

the subsequent gross winning bid, whichever is less. No withdrawal payment will be assessed for a

withdrawn bid if either the subsequent winning bid or any of the intervening subsequent withdrawn bids

equals or exceeds that withdrawn bid. The withdrawal payment amount is deducted from any upfront

payments or down payments that the withdrawing bidder has deposited with the Commission. In the case

of multiple bid withdrawals on a single license, the payment for each bid withdrawal will be calculated

based on the sequence of bid withdrawals and the amoimts withdrawn in the same or subsequent

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FCC 05-123

auction(s). In the event that a license for which there have been withdrawn bids is not won in the same

auction, those bidders for which a final withdrawal payment cannot be calculated will be assessed an

interim bid withdrawal payment of between 3 and 20 percent of their withdrawn bids, according to a

percentage (or percentages) established by the Commission in advance of the auction. The interim bid

withdrawal payment will be applied toward any final bid withdrawal payment that will be assessed at the

close of a subsequent auction of the corresponding license.

Example 1 to paragraph (g)(1). Bidder A withdraws a bid of $100. Subsequently, Bidder B places a bid

of $90 and withdraws. In that same auction. Bidder C wins the license at a bid of $95. Withdrawal

payments are assessed as follows: Bidder A owes $5 ($100-$9S). Bidder B owes nothing

Example 2 to paragraph (g)(1). Bidder A withdraws a bid of $100. Subsequently, Bidder B places a bid

of $95 and withdraws. In that same auction. Bidder C wins the license at a bid of $90

quently, Bidder B places a bid

of $90 and withdraws. In that same auction. Bidder C wins the license at a bid of $95. Withdrawal

payments are assessed as follows: Bidder A owes $5 ($100-$9S). Bidder B owes nothing

Example 2 to paragraph (g)(1). Bidder A withdraws a bid of $100. Subsequently, Bidder B places a bid

of $95 and withdraws. In that same auction. Bidder C wins the license at a bid of $90. Withdrawal

payments are assessed as follows: Bidder A owes $5 ($100-$95). Bidder B owes $5 ($95-$90).

Example 3 to paragraph (g)(1). Bidder A withdraws a bid of $100. Subsequently, in that same auction.

Bidder B places a bid of $90 and withdraws. In a subsequent auction, Bidder C places a bid of $95 and

withdraws. Bidder D wins the license in that auction at a bid of $80. Assuming that the Commission

established an interim bid withdrawal payment of 3 percent in advance of the auction, withdrawal

payments are assessed as follows: At the end of the first auction. Bidder A and Bidder B are each assessed

an interim withdrawal payment equal to 3 percent of their withdrawn bids pending Commission

assessment of a final withdrawal payment (Bidder A would owe 3% of $100, or $3, and Bidder B would

owe 3% of $90, or $2.70). At the end of the second auction. Bidder A would owe $5 ($100-$95) less the

$3 interim withdrawal payment for a total of $2. Because Bidder C placed a subsequent bid that was

higher than Bidder B's $90 bid. Bidder B would owe nothing. Bidder C would owe $15 ($95-$80).

ission

assessment of a final withdrawal payment (Bidder A would owe 3% of $100, or $3, and Bidder B would

owe 3% of $90, or $2.70). At the end of the second auction. Bidder A would owe $5 ($100-$95) less the

$3 interim withdrawal payment for a total of $2. Because Bidder C placed a subsequent bid that was

higher than Bidder B's $90 bid. Bidder B would owe nothing. Bidder C would owe $15 ($95-$80).

(2) Default or disqualification after close of auction. A bidder assumes a binding obligation to pay its full

bid amount upon acceptance of the high bid at the close of an auction. If a high bidder defaults or is

disqualified after the close of such an auction, the defaulting bidder will be subject to a default payment

consisting'of a deficiency payment, described in § 1.2104(g)(2)(i), and an additional payment, described

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Federal Communications Coitimission

FCC 05-123

in § 1.2104(gX2)(ii)-(iii). The default payment will be deducted from any upfrx)nt payments or down

payments that the defaulting bidder has deix)sited with the Commission.

(i) Deficiency payment. The deficiency payment will equal the difference between the amount of the

defaulted bid and the amount of the winning bid in a subsequent auction, so long as there have been no

intervening withdrawn bids that equal or exceed the defaulted bid or the subsequent winning bid. If the

subsequent winning bid or any intervening subsequent withdrawn bid equals or exceeds the defaulted bid,

no deficiency payment will be assessed. If there have been intervening subsequent withdrawn bids that

are lower than the defaulted bid and higher than the subsequent winning bid, but no intervening

withdrawn bids that equal or exceed the defaulted bud, the deficiency payment will equal the difference

between the amount of the defaulted bid and the amount of the highest intervening subsequent withdrawn

bid

iency payment will be assessed. If there have been intervening subsequent withdrawn bids that

are lower than the defaulted bid and higher than the subsequent winning bid, but no intervening

withdrawn bids that equal or exceed the defaulted bud, the deficiency payment will equal the difference

between the amount of the defaulted bid and the amount of the highest intervening subsequent withdrawn

bid. In the event that a bidding credit applies to any of the rqyplicable bids, the deficiency payment will be

based solely on net bids or solely on gross bids, whichever results in a lower payment.

(ii) Additional payment -

applicable percentage. When the default or disqualification follows an auction

without combinatorial bidding, the additional payment will equal between 3 and 20 percent of the

applicable bid, according to a percentage (or percentages) estabUshed by the Commission in advance of

the auction. When the default or disqualification follows an auction with combinatorial bidding, the

additional payment will equal 25 percent of the applicable bid.

(iii) Additional payment -

applicable bid. When no deficiency payment is assessed, the applicable bid

will be the net amount of the defaulted bid. When a deficiency payment is assessed, the applicable bid

will be the subsequent winning bid, using the same basis — i.e., net or gross - as was used in calculating

the deficiency payment.

* * * *

(j) Bid apportionment. Prior to each auction of reconfigured licenses (i.e., licenses having similar, but

not identical, geographic and spectral components as licenses made available in one or more prior

auctions), the Commission will specify, as necessary, a method for apportioning a bid on a reconfigured

license among the license's component parts. The Commission may use such an apportionment for

11297

apportionment. Prior to each auction of reconfigured licenses (i.e., licenses having similar, but

not identical, geographic and spectral components as licenses made available in one or more prior

auctions), the Commission will specify, as necessary, a method for apportioning a bid on a reconfigured

license among the license's component parts. The Commission may use such an apportionment for

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purposes of comparing a bid on the original license with a bid on a reconfigured license.

PART 73 -

RADIO BROADCAST SERVICES

Part 73 of Title 47 of the Code of Federal Regulations is revised to read as follows:

The authority citation for Part 73 continues to read as follows:

Authority: 47 U.S.C. 154, 303, 334 and 336.

Amend § 73.3571 by revising paragraph (h)(4)(ii) to read as follows:

S 73 J571 Processing AM broadcast station aPDlications

« * *

* *

(h)(4) * * *

* * * 4>

(ii) Winning bidders are required to pay the balance of their wiiming bids in a lump sum prior to the

deadline established by the Commission pursuant to §1.2109(a).

Long-form construction permit

applications will be processed and the FCC will periodically release a Public Notice listing such applications

that have been accepted for filing and annoimcing a date by which petitions to deny must be filed in

accordance with the provisions of §§73.5006 and 73.3584. Construction permits will be granted by the

Commission only after full and timely payment of winning bids and any applicable late fees, and if the

applicant is duly qualified, and upon examination, the FCC finds that the public interest, convenience and

necessity will be served.

Amend § 73.3573 by revising paragraph (fX5)(ii) to read as follows:

S 73

J573 Processing FM broadcast station applications.

* *

4< *

will be granted by the

Commission only after full and timely payment of winning bids and any applicable late fees, and if the

applicant is duly qualified, and upon examination, the FCC finds that the public interest, convenience and

necessity will be served.

Amend § 73.3573 by revising paragraph (fX5)(ii) to read as follows:

S 73

J573 Processing FM broadcast station applications.

* *

4< *

(f)

(5)

(ii) Winning bidders are required to pay the balance of their winning bids in a lunq) sum prior to the

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FCC 05-123

deadline established by the Commission pursuant to §1.2109(a).

Long-form construction permit

applications will be processed and the FCC will periodically release a Public Notice listing such applications

that have been accepted for filing and annoimcing a date by which petitions to deny must be filed in

accordance with the provisions of §§73.5006 and 73.3584. Construction permits will be granted by the

Commission only after fiill and timely payment of winning bids and any applicable late fees, and if the

applicant is duly qualified, and upon examination, the FCC finds that the public interest, convenience and

necessity will be served.

Amend § 73.5003 by revising this section to read as follows:

S 73.5003 Siihmission of full payments..

Winning bidders are required to pay the balance of their winning bids in a lump sum prior to the deadline

established by the Commission pursuant to §1.2109(a). If a winning bidder fails to pay the balance of its

winning bid in a lump sum by the applicable deadline as specified by the Commission, it will be allowed

to make payment within ten (10) business days after the payment deadline, provided that it also pays a

late fee equal to five (5) percent of the amount due in accordance with §1.2109(a). Broadcast

construction permits will be granted by the Commission only after full and timely payment of winning

bids and any applicable late fees and in accordance with the provisions of this subsection.

allowed

to make payment within ten (10) business days after the payment deadline, provided that it also pays a

late fee equal to five (5) percent of the amount due in accordance with §1.2109(a). Broadcast

construction permits will be granted by the Commission only after full and timely payment of winning

bids and any applicable late fees and in accordance with the provisions of this subsection.

Amend § 73.5006 by revising paragraph (d) to read as follows:

S 73.5006 Filing of petitions against long-form applications.

**<•>* 4>

(d) Broadcast construction permits will be granted by the Commission only if the Commission denies or

dismisses all petitions to deny, if any are filed, and is otherwise satisfied that an applicant is qualified, and

after full and timely payment of winning bids and any applicable late fees. See 47 CFR 73.5003.

Construction of broadcast stations shall not commence until the grant of such permit or license to the

winning bidder and only after full and timely payment of winning bids and any applicable late fees.

Amend § 74.1233 by revising paragraph (dX5)(ii) to read as follows:

S 74.1233 Processing FM translator and booster station applications.

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Federal Communications Commission

(d) ♦ ♦ ♦

(5)

(ii) Winning bidders are required to pay the balance of their winning bids in a lump sum prior to the

deadline established by the Commission pursuant to § 1.2109(a). Long-form constmction permit

applications will be processed and the FCC will periodically release a Public Notice listing such

applications that have been accepted for filing and announcing a date by which petitions to deny must be

filed in accordance with the provisions of §§73.5006 and 73.3584. Constmction pennits will be granted

by the Commission only after full and timely payment of winning bids and any applicable late fees, and

if the applicant is duly qualified, and upon examination, the FCC finds that the public interest,

convemence and necessity will be served

and announcing a date by which petitions to deny must be

filed in accordance with the provisions of §§73.5006 and 73.3584. Constmction pennits will be granted

by the Commission only after full and timely payment of winning bids and any applicable late fees, and

if the applicant is duly qualified, and upon examination, the FCC finds that the public interest,

convemence and necessity will be served. If a winning bidder fails to pay the balance of its winning bid

in a lump sum by the applicable deadline as specified by the Commission, it will be allowed to make

payment within ten (10) business days after the payment deadline, provided that it also pays a late fee

equal to five (5) percent of the amount due in accordance with Section 1.2109(a). Constmction of the

FM translator station shall not commence until the grant of such permit to the winning bidder and only

after full and timely payment of winning bids and any applicable late fees.

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APPENDIX B

Initial Regulatory Flexibility Analysis

As required by the Regulatory Flexibility Act (RFA),' the Commission has prepared this Initial

Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small entities by the

policies and rules proposed in this Notice of Proposed Rule Making {"Notice"). Writtai pubUc comments

are requested on this IRFA. Comments must be identified as responses to the IRFA and must be filed by the

deadlines for comments provided in paragraph 56 of this NPRM. The Commission will send a copy of this

Notice, iiK;luding this IRFA, to the Qiief Counsel for Advocacy of the Small Business Administration

(SBA).^ In addition, the Notice and the IRFA (or summaries thereof) will be published in the Federal

IRFA. Comments must be identified as responses to the IRFA and must be filed by the

deadlines for comments provided in paragraph 56 of this NPRM. The Commission will send a copy of this

Notice, iiK;luding this IRFA, to the Qiief Counsel for Advocacy of the Small Business Administration

(SBA).^ In addition, the Notice and the IRFA (or summaries thereof) will be published in the Federal

Need for, and Objectives of, the Proposed Rules

This Notice proposes modifications to existing Commission rules for the purposes of

implementing the recently enacted Commercial Spectmm Enhancement Act ("CSEA").* CSEA

establishes a mechanism to use spectrum auction proceeds to reimburse federal agencies operating on

certain fi^uencies that have been reallocated from federal to non-federal use for the cost of relocating

their operations. The Notice also proposes a number of changes to the Commission's conqietitive

bidding rules that are necessary, apart from CSEA, to bring the rules in line with the current

requirements of the Commission's auctions program.

Reserve price rule. CSEA requires the total cash proceeds from any auction of eligible

fi^uencies to equal at least 110 percent of the total estimated relocation costs provided to the

Commission by National Telecommunications and Information Administration ("NTIA").' To

irr^lement this requirement, CSEA directs the Commission to revise its reserve price regulations

adopted pursuant to Section 309(jX4)(F) of the Corrununications Act. The Commission proposes,

therefore, to modify its existing reserve price rule (section 1.2104(c))® to add a requirement that, for any

auction of eligible firequencies under CSEA, the Commission will establish a reserve price (or prices)

See 5 U.S.C. § 603. The RFA see 5 U.S.C. § 601 - 612, has been amended by the Small Business

Regulatory Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, Title n, 110 Stat. 857 (1996).

'5ge 5 U.S.C. § 603(a).

See id.

* Commercial Spectrum Enhancement Act, Pub. L. No. 108-494,118 Stat

of eligible firequencies under CSEA, the Commission will establish a reserve price (or prices)

See 5 U.S.C. § 603. The RFA see 5 U.S.C. § 601 - 612, has been amended by the Small Business

Regulatory Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, Title n, 110 Stat. 857 (1996).

'5ge 5 U.S.C. § 603(a).

See id.

* Commercial Spectrum Enhancement Act, Pub. L. No. 108-494,118 Stat. 3986, Title II (2004) (codified

in scattered sections of Title 47 of the United States Code) ("CSEA").

The statute identifies four bands (the 216-220 MHz, 1432-1435 MHz, 1710-1755 MHz and 2385-2390

MHz bands) as "eligible ficquencies." See CSEA § 202 (codified at 47 U.S.C. § 923(g)(2)(A)). In addition, the

statute designates as "eligible ficquencies" any other band of ficquencies reallocated fi-om federal use to non-

federal use after January 1,2003, and assigned by the Commission through competitive bidding. See id. § 202

(codified at 47 U.S.C. § 923(g)(2)(B)). Bands of ficquencies previously identified by the National

Telecommunications and Information Administration in the Spectrum Reallocation Final Report, NTIA Special

Publication 95-32 (1995), are excluded. Id. § 202 (codified at 47 U.S.C. § 923(g)(2)(B)).

®47C.F.R. § 1.2104(c).

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FCC 05-123

that ensures that the "total cash proceeds" attributable to such spectrum will equal at least 110 percent of

the total estimated relocation costs provided to the Commission by NTIA.

Tribal land bidding credit rule

Report, NTIA Special

Publication 95-32 (1995), are excluded. Id. § 202 (codified at 47 U.S.C. § 923(g)(2)(B)).

®47C.F.R. § 1.2104(c).

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FCC 05-123

that ensures that the "total cash proceeds" attributable to such spectrum will equal at least 110 percent of

the total estimated relocation costs provided to the Commission by NTIA.

Tribal land bidding credit rule. In an effort to encourage carriers to provide telecommunications

services to tribal lands with historically low telephone service penetration rates, the Commission makes

tribal land bidding credits available to auction wiimers that serve qualifying tribal lands.' Under the

Commission's current rules, in auctions that include spectrum covering qualifying tribal lands, the

Commission may not know for at least 180 days after the long-form application deadline how much of a

discount on the auction's winning bids it will have to allow for tribal land bidding credits. In auctions

subject to CSEA, this timing could lead to substantial post-auction delay in calculating whether total

cash proceeds meet the 110 percent revenue requirement. Accordingly the Commission seeks comment

on possible methods of ensuring that the Commission will be able to promptly calculate total cagh

proceeds while at the same time preserving the availability of tribal land bid(hng credits in auctions

subject to CSEA. Specifically, in the Notice, the Commission seeks conunent on (1) awarding tribal

land bidding credits on a pro rata basis out of the funds exceeding 110 percent of the total estimated

relocation costs, (2) awarding tribal land bidding credits on a first-come, first-served basis out of the

funds exceeding 110 percent of the total estimated relocation costs, and (3) requiring applicants to

specify on their short-form applications any licenses for which they intend to seek a tribal land bidding

credit, should they win, so that the Commission can calculate the amount necessary to satisfy CSEA's

reserve price requirement if winning bidders rec

a first-come, first-served basis out of the

funds exceeding 110 percent of the total estimated relocation costs, and (3) requiring applicants to

specify on their short-form applications any licenses for which they intend to seek a tribal land bidding

credit, should they win, so that the Commission can calculate the amount necessary to satisfy CSEA's

reserve price requirement if winning bidders receive the maximum tribal land bidding credits for which

they indicate an interest on their short-form applications. The Notice also invites commenters to propose

other methods and seeks comment on adopting the same method as that used for auctions subject to

CSEA, or a similar approach, for other, non-CSEA auctions for which the Commission establishes a

reserve price based on winning bids net of all bidding credits.

Default payment rule clarification. Under section 1.2104(g), a high bidder that defaults or is

disqualified after the close of an auction is subject to a default payment consisting of two parts -

"deficiency payment" and an "additional payment."* The deficiency payment is equal to the payment

required for a withdrawn high bid, i.e., the difference between the amount of the defaulted (or

withdrawn) bid and the amount of a lower winning bid in the same or a subsequent auction. In the event

that a bidding credit applies to any of the bids, the deficiency payment equals the difference between

either the net defaulted bid and the subsequent net winning bid or the gross defaulted bid and the

subsequent gross winning bid, whichever difference is less. The additional payment is equal to 3 percent

(or, in the case of defaults or disqualifications after the close of a package bidding auction, 25 percent) of

the defaulting bidder's bid or the subsequent winning bid, whichever is less.'

Id. § 1.2110(f)(3). See Extending Wireless Teleconununications Services to Tribal Lands, WT Docket

No. 99-266, Report and Order and Further Notice of Proposed Rule Making, 15 FCC Red 11,794 (2000)

3 percent

(or, in the case of defaults or disqualifications after the close of a package bidding auction, 25 percent) of

the defaulting bidder's bid or the subsequent winning bid, whichever is less.'

Id. § 1.2110(f)(3). See Extending Wireless Teleconununications Services to Tribal Lands, WT Docket

No. 99-266, Report and Order and Further Notice of Proposed Rule Making, 15 FCC Red 11,794 (2000).

"Qualifying tribal land" is "any federally recognized Indian tribe's reservation. Pueblo, or Colony, including

former reservations in Oklahoma, Alaslm Native regions established pursuant to the Alaska Native Claims

Settlement Act... and Indian allotments, that has a wireline telephone subscription rate equal to or less than

eighty-five (85) percent based on the most recently available U.S. Census Data." 47 C.F.R. § 1.2110(f)(3)(i). Not

all Commission auctions include licenses covering qualifying tribal lands. See, e.g., "Auction of Lower 700 MHz

Band Licenses Scheduled for July 20, 2005," Public Notice, DA 05-737, at 13 (rel. Mar. 22, 2005).

'47 C.F.R. § 1.2104(g).

In this Notice and in our rules, bidders that are disqualified after the close of an auction are referred to

as "defaulting bidders," just as are bidders that default after an auction's close. Similarly, the payment owed by a

disqualified bidder is referred to as a "default payment." See id. §§ 1.2104(g)(2)-(3); 1.2109. Currently, the

deficiency payment for a default or disqualification following a package bidding auction is, in most inatnnrj>a

(continued....)

11302

he close of an auction are referred to

as "defaulting bidders," just as are bidders that default after an auction's close. Similarly, the payment owed by a

disqualified bidder is referred to as a "default payment." See id. §§ 1.2104(g)(2)-(3); 1.2109. Currently, the

deficiency payment for a default or disqualification following a package bidding auction is, in most inatnnrj>a

(continued....)

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No deficiency payment is assessed when either the subsequent winning bid or any intervening

subsequent withdrawn bid equals or exceeds the original defaulted bid. It is unclear from the existing

rule whether, in such a situation, the additional payment should be a percentage of the higher intervening

subsequent withdrawn bid or of the subsequent winning bid. To clarify the rule, the Commission

proposes that when, in a subsequent auction, there is a higher withdrawn bid but no winning bid for a

license that corresponds to a defaulted license, the additional default payment will be determined as 3

percent (or 25 percent) of the defaulting bidder's bid. The Commission also proposes a further

clarification of the additional payment rule for certain situations in which no deficiency payment is

owed, because, under the current rule, it is imclear iinder the current rule whether the additional payment

should be based on the net defaulted bid or on the gross defaulted bid. Pursuant to the Commission's

proposal, the additional payment in such a situation would be 3 (or 25) percent of the net defaulted bid

amount.

Interim withdrawaLand additional default payment rules. When a license for which there has

been a withdrawn high bid is neither subject to a subsequent higher bid nor won in the same auction, the

final withdrawal payment cannot be calculated mitil a corresponding license is either subject to a higher

bid or won in a subsequent auction

ion would be 3 (or 25) percent of the net defaulted bid

amount.

Interim withdrawaLand additional default payment rules. When a license for which there has

been a withdrawn high bid is neither subject to a subsequent higher bid nor won in the same auction, the

final withdrawal payment cannot be calculated mitil a corresponding license is either subject to a higher

bid or won in a subsequent auction. In such a case, under the Commission's existing rule, the bidder

responsible for the wiAdrawn high bid is assessed an interim bid withdrawal payment equal to 3 percent

of the amount of its withdrawn bid, and this interim pajrment is applied toward any final bid withdrawal

payment that is ultimately assessed. As noted in the previous paragraph, a high bidder that defaults or is

disqualified after the close of an auction is subject to a default payment consisting of a deficiency

payment and an additional payment. Currently, the additional payment is calculated as 3 percent (or, in

the case of defaults or disqualifications after the close of a package bidding auction, 25 percent) of the

defaulting bidder's bid or the subsequent winning bid, whichever is less, except that no deficiency

payment is assessed when either the subsequent winning bid or any intervening subsequent withdrawn

bid equals or exceeds the original defaulted bid. In an effort to discourage withdrawals and defaults,

both of which pose an ongoing threat to the integrity of the auctions process, the Commission proposes

to increase the current limits on the interim withdrawal payment and the additional default payment from

3 percent to 20 percent each, with the specific percentage to be set by the Commission in advance of

each auction.

Package bid and license apportionment. In combinatorial (package) bidding, bidders place

single all-or-nothing bids on groups (or packages) of licenses. Thus, there are no identifiable bid

amounts on the individual licenses composing packages of more than one license

ault payment from

3 percent to 20 percent each, with the specific percentage to be set by the Commission in advance of

each auction.

Package bid and license apportionment. In combinatorial (package) bidding, bidders place

single all-or-nothing bids on groups (or packages) of licenses. Thus, there are no identifiable bid

amounts on the individual licenses composing packages of more than one license. Similarly, when the

Commission reconfigures licenses, with respect to either geographic or spectral dimensions, following

an initial auction, there may not be identifiable bid amounts on licenses comparable to those offered in

the initial auction. However, there are several situations in which an individual bid amoimt is needed for

one of the Commission's regulatory calculations, such as calculating a small business bidding credit, an

unjust enrichment payment obligation related to such a credit, a tribal land bidding credit limit, or a

withdrawal or default payment obligation. Accordingly, the Commission proposes to specify a method

for apportioning bids either among the individual licenses composing a package and/or among a

license's component parts in advance of each auction that (a) uses a combinatorial bidding design,

(b) includes spectrum previously subject to a combinatorial auction, or (c) includes licenses that have

been reconfigured following an initial auction.

(...continued from previous page)

calculated differently frnm die way in \^ich the deficiency payment is calculated for a default or disqualification

following a non-package bidding auction. See id. § 1.2104(g)(3).

11303

mbinatorial bidding design,

(b) includes spectrum previously subject to a combinatorial auction, or (c) includes licenses that have

been reconfigured following an initial auction.

(...continued from previous page)

calculated differently frnm die way in \^ich the deficiency payment is calculated for a default or disqualification

following a non-package bidding auction. See id. § 1.2104(g)(3).

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Broadcast construction permit rules. The Commission's Part 1 competitive bidding rules

provide that, unless otherwise specified by public notice, auction wiimers are required to pay the balance

of their winning bids in a lunq) sum within ten business days following the release of a public notice

establishing the payment deadline. In recent wireless spectrum auctions, winning bidders have been

required to submit the balance of the net amount of their winning bids within ten business days after the

deadline for submitting down payments. This procedure is necessary to guard against payment defaiilts

that may then lead to bankruptcy filings and litigation that tie up the availability of the defaulted

licenses. Specific Part 73 and 74 rules, however, provide that winning bidders in broadcast service

auctions must render their final payment for construction permits won through competitive bidding only

after their long-form applications have been processed, any petitions to deny have been dismissed or

denied, and the public notice announcing that broadcast construction permits are ready to be granted has

been released. In order to provide consistency throughout the Commission's competitive bidding rules

and help to ensure that only sincere, financially qualified applicants participate in competitive bidding,

the Commission proix)ses to adopt for broadcast auctions the final payment procedures in its Part 1

competitive bidding rules.

Consortium exception to the designated entity and entrepreneur agff-egation rule

In order to provide consistency throughout the Commission's competitive bidding rules

and help to ensure that only sincere, financially qualified applicants participate in competitive bidding,

the Commission proix)ses to adopt for broadcast auctions the final payment procedures in its Part 1

competitive bidding rules.

Consortium exception to the designated entity and entrepreneur agff-egation rule. For purposes

of determining whether an applicant or licensee is eligible for small business or broadband persoiud

communications services ("PCS") entrepreneur status, the Commission attributes to the applicant the

gross revenues (and, when determining entrepreneur eligibility, the total assets) of the applicant's

affiliates, its controlling interests, and the afilliates of its controlling interests, and aggregates these

amounts with the applicant's own gross revenues (and total assets). However, under an exception to this

aggregation rule, when an applicant or licensee is a consortium comprised exclusively of members

eligible for small business bidding credits or broadband PCS entrepreneur status, or both, the gross

revenues (and total assets) of the consortium members are not aggregated. The consortium exception has

been seldom used, perhaps because of the absence of clear direction fi-om the Commission as to how

consortium members should be formally organized and how (and when) members should allocate and

own the licenses they win. In order to provide additional guidance to those interested in taking

advantage of the consortium exception and to reduce the likelihood of conqilications resulting fiiom the

exception's use, the Commission seeks comment on possible policy options for improving the pre- and

post-auction procedures governing the exception

zed and how (and when) members should allocate and

own the licenses they win. In order to provide additional guidance to those interested in taking

advantage of the consortium exception and to reduce the likelihood of conqilications resulting fiiom the

exception's use, the Commission seeks comment on possible policy options for improving the pre- and

post-auction procedures governing the exception. These options include requiring each member of a

consortium to file an individual long-form application for its respective, mutually agreed-upon license(s)

and requiring two or more consortium members seeking to be licensed together to form a legal business

entity, such as a corporation, partnership, or limited liability company.

Legal Basis

The proposed actions are authorized under Sections 4(i), 303(r), and 309(j) of the

Communications Act of 1934, as amended, 47 U.S.C. Sections 154(i), 303(r), and 309(j).

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Description and Estimate of the Number of Small Entities to Which the Proposed Rules

WiU Apply

The RFA directs agencies to provide a description of and, where feasible, an estimate of the

number of small entities that may be affected by the proposed rules, if adopted.'® The RFA generally

defines the term "small entity" as having the same meaning as the terms "small organization," "small

business," and "small governmental jurisdiction."'' The term "small business" has the same meaning as the

term "small business concern" under the Small Business Act.'^ A small business concem is one which;

of small entities that may be affected by the proposed rules, if adopted.'® The RFA generally

defines the term "small entity" as having the same meaning as the terms "small organization," "small

business," and "small governmental jurisdiction."'' The term "small business" has the same meaning as the

term "small business concern" under the Small Business Act.'^ A small business concem is one which;

(1) is independently owned and opiated; (2) is not dominant in its field of operation; and (3) satisfies any

additional critraia established by the SEA.

A small organization is generally "any not-for-p

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