[Federal Register Volume 79, Number 220 (Friday, November 14, 2014)]
[Proposed Rules]
[Pages 68172-68202]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26924]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 1 and 27
[RM-11395, GN Docket No. 12-268, WT Docket Nos. 14-170, 05-211; FCC 14-
146]
Updating Competitive Bidding Rules; Expanding the Economic and
Innovation Opportunities of Spectrum Through Incentive Auctions;
Implementation of the Commercial Spectrum Enhancement Act
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: This Notice of Proposed Rulemaking (NPRM) seeks comment on the
revision of certain competitive bidding rules and provides notice of
the Commission's intention to resolve longstanding petitions for
reconsideration.
DATES: Comments are due on or before December 29, 2014 and reply
comments are due on or before January 20, 2015.
ADDRESSES: All filings in response to the NPRM must refer to GN Docket
No. 12-268 and WT Docket Nos. 14-170 and 05-211. The Commission
strongly encourages parties to develop responses to the NPRM that
adhere to the organization and structure of the NPRM. Comments may be
filed using the Commission's Electronic Comment Filing System (ECFS):
[ssquf] Electronic Filers: Comments may be filed electronically
using the Internet by accessing ECFS: http://fjallfoss.fcc.gov/ecfs2.
[ssquf] Paper Filers: Parties who choose to file by paper must file
an original and one copy of each filing. If more than one docket or
rulemaking number appears in the caption of this proceeding, filers
must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial
overnight courier, or by first-class or overnight U.S. Postal Service
mail. All filings must be addressed to the Commission's Secretary,
Office of the Secretary, Federal Communications Commission.
All hand-delivered or messenger-delivered paper filings for the
Commission's Secretary must be delivered to FCC Headquarters at 445
12th Street SW., Room TW-A325, Washington, DC 20554. The filing hours
are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together
with rubber bands or fasteners. Any envelopes and boxes 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 Hampton Drive,
Capitol Heights, MD 20743.
U.S. Postal Service first-class, Express, and Priority mail must be
addressed to 445 12th Street SW., Washington, DC 20554.
People with Disabilities: To request materials in accessible
formats for people with disabilities (braille, large print, electronic
files, or audio format), send an email to [email protected] or call the
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (TTY).
FOR FURTHER INFORMATION CONTACT: Wireless Telecommunications Bureau,
Auctions and Spectrum Access Division: Kathryn Hinton at (202) 418-
0660.
[[Page 68173]]
SUPPLEMENTARY INFORMATION: This is a summary of the Competitive Bidding
NPRM released on October 10, 2014. The complete text of the Competitive
Bidding NPRM is available for public inspection and copying from 8:00
a.m. to 4:30 p.m. Eastern Time (ET) Monday through Thursday or from
8:00 a.m. to 11:30 a.m. ET on Fridays in the FCC Reference Information
Center, 445 12th Street SW., Room CY-A257, Washington, DC 20554. The
Competitive Bidding NPRM may be purchased from the Commission's
duplicating contractor, Best Copy and Printing, Inc. (BCPI), 445 12th
Street SW., Room CY-B402, Washington, DC 20554, telephone 202-488-5300,
facsimile 202-488-5563, or by contacting BCPI on its Web site: http://www.BCPIWEB.com. When ordering documents from BCPI, please provide the
appropriate FCC document number, for example, FCC 14-146. The complete
text is also available on the Commission's Web site at http://wireless.fcc.gov, or by using the search function on the ECFS Web page
at http://www.fcc.gov/cgb/ecfs.
Initial Paperwork Reduction Act of 1995 Analysis
The NPRM contains proposed new or modified information collection
requirements. The Commission, as part of its continuing effort to
reduce paperwork burdens, invites the general public and the Office of
Management and Budget (OMB) to comment on the information collection
requirements contained in this document, as required by the Paperwork
Reduction Act of 1995, Public Law 104-13. In addition, pursuant to the
Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44
U.S.C. 3506(c)(4), the Commission seeks specific comment on how it
might further reduce the information collection burden for small
business concerns with fewer than 25 employees.
I. Introduction
1. The Commission proposes to reform some of its general part 1
rules governing competitive bidding for spectrum licenses to reflect
changes in the marketplace, including the challenges faced by new
entrants. The Commission's proposals also advance the statutory
directive to ensure that small businesses, rural telephone companies,
and businesses owned by members of minority groups and women
(collectively, designated entities or DEs) are given the opportunity to
participate in the provision of spectrum-based services, and fulfill
the commitment the Commission made in the Broadcast Television Spectrum
Incentive Auction Report & Order. Expanding the Economic and Innovation
Opportunities of Spectrum Through Incentive Auctions, 79 FR 48442, Aug.
15, 2014. Together these proposals will assure that the Commission's
part 1 rules continue to promote the Commission's fundamental statutory
objectives. The Commission expects to act on the issues it raises here
soon enough to allow all parties to account for any changes while
planning for the Broadcast Television Spectrum Incentive Auction
(hereinafter, Incentive Auction or BIA).
2. In the Competitive Bidding NPRM, the Commission proposes to: (1)
Provide small businesses greater opportunity to participate in the
provision of a wide range of spectrum-based services by modifying the
Commission's eligibility requirements, updating the standardized
schedule of small business sizes, and eliminating duplicative reporting
requirements, while also seeking comment on whether to strengthen its
rules to prevent the unjust enrichment of ineligible entities; (2)
Amend the Commission's former defaulter rule to balance concerns that
the current rule is overly broad with the Commission's continued need
to ensure that auction bidders are financially reliable; (3) Codify an
established competitive bidding procedure that prohibits the same
individual or entity from becoming qualified to bid on the basis of
more than one short-form (FCC Form 175) application in a specific
auction; (4) Prevent entities that are exclusively controlled by a
single individual or set of individuals from becoming qualified to bid
on overlapping licenses based on more than one short-form application
in a specific auction; and (5) Retain the current rules governing joint
bidding arrangements among non-nationwide providers and prohibit joint
bidding arrangements among nationwide providers.
3. The Commission also provides notice of its intention to resolve
long standing petitions for reconsideration and proposes necessary
clean-up revisions to its part 1 competitive bidding rules.
II. Eligibility for Bidding Credits
4. In establishing the Commission's auction authority, Congress
vested the Commission with broad discretion in balancing a number of
competing objectives. These included, among other things, special
provisions to ensure that DEs, including small businesses, have the
opportunity to participate at auction and in the provision of spectrum-
based services. Section 309(j)(4)(D) of the Communications Act (the
Act) requires that when the Commission prescribes regulations in
designing systems of competitive bidding, it shall ``ensure that small
businesses, rural telephone companies, and businesses owned by members
of minority groups and women are given the opportunity to participate
in the provision of spectrum-based services, and, for such purposes,
consider the use of . . . bidding preferences.'' In addition, the
statute directs that in designing such systems of competitive bidding,
the Commission shall seek to promote ``economic opportunity and
competition . . . by avoiding excessive concentration of licenses and
by disseminating licenses among a wide variety of applicants, including
small businesses, rural telephone companies, and businesses owned by
members of minority groups and women.'' At the same time, the Act
requires the Commission to ``prevent unjust enrichment as a result of
the methods employed to issue licenses. . . .''
5. The Commission's challenge in providing opportunities to small
businesses and entrepreneurs pursuant to these provisions has always
been to find a reasonable balance between the competing goals of
affording such entities reasonable flexibility to obtain the capital
necessary to participate in the provision of spectrum-based services
and effectively preventing the unjust enrichment of ineligible
entities. See Implementation of the Commercial Spectrum Enhancement Act
and Modernization of the Commission's Competitive Bidding Rules and
Procedures, 71 FR 26245, May 4, 2006 (DE Second Report and Order). Over
the two-decade span of the auctions program, the Commission has
periodically modified its rules to achieve the right balance given
changing circumstances in the wireless industry.
6. The Commission takes the opportunity to consider whether its
rules continue to serve their intended purposes and the public interest
in an evolving mobile wireless marketplace. In the past decade, the
rapid adoption of smartphones and tablet computers and the widespread
use of mobile applications, combined with the increasing deployment of
high-speed 3G and now 4G technologies, have driven significantly more
intensive use of mobile networks. This progression from the provision
of mobile voice services to the provision of mobile broadband services
has increased the need for access to spectrum. In addition, in the past
decade, the number of small and regional mobile wireless service
providers has significantly decreased, yet regional and local service
providers continue to offer consumers additional
[[Page 68174]]
choices in the areas they serve. As the costs of spectrum and network
deployment have increased in the last 20 years, especially for small
and new entrants, access to capital for acquiring licenses is critical
for these providers to take advantage of different opportunities to
participate in the provision of spectrum-based services, including
through facilities-based deployment, spectrum leasing, and mobile
virtual network operator arrangements.
7. The Commission addresses the concerns of parties that argue that
its current rules inhibit, rather than foster, the inclusion of small
businesses in the wireless marketplace. The Commission offers proposals
to increase the opportunities for small businesses to become spectrum
licensees. At the same time, the Commission remains mindful of its
responsibility to ensure that benefits are provided only to qualifying
entities and seeks comment on modifying its current unjust enrichment
rules.
8. As a first step in reassessing how the Commission determines
small business eligibility, the Commission proposes to repeal the
attributable material relationship (AMR) rule and to re-examine the
need for the related decade-old policy that has limited small
businesses seeking bidding credits to providing primarily retail,
facilities-based service directly to the public with each of their
licenses. The Commission proposes to instead adopt a more flexible
approach under which it would evaluate small business eligibility on a
license-by-license basis, using a two-pronged test. Under this
proposal, the Commission would apply existing rules requiring
attribution of controlling interests in, and affiliates of, a small
business venture to determine whether the applicant: (1) Meets the
applicable small business size standard, and (2) retains control over
the spectrum associated with the individual licenses for which it seeks
benefits. The Commission further proposes to modify the language of 47
CFR 1.9020 to make clear that DE lessors may fully engage in spectrum
manager leasing under the same de facto control standard as non-DE
lessors. With these proposals, the Commission revisits its statutory
mandate under 47 U.S.C. 309(j)(4)(D) ``to ensure that small businesses,
rural telephone companies, and businesses owned by members of minority
groups and women are given the opportunity to participate in the
provision of spectrum-based services'' in light of today's wireless
marketplace. Alternatively, the Commission also seeks comment on
retaining the policy and/or some variation of the AMR rule. The
Commission also asks whether it should revisit its unjust enrichment
rules to assure that the Commission maintains the right balance
considering its responsibility to safeguard the award of small business
benefits to only eligible entities.
9. The Commission also proposes to modify the generally applicable
schedule of small business size standards and bidding credits, which
has remained unchanged in the 17 years since it was first adopted. The
goal of these proposals is to encourage small business participation in
spectrum license auctions and to ensure that the Commission's gross
revenue definitions accurately reflect what constitutes a ``small
business'' in today's marketplace, taking into consideration the
relative size of the large, national providers. Specifically, the
Commission proposes revisions to its small business definitions and
seeks comment on whether to change the bidding credit percentages that
would apply to those definitions. The Commission also seeks comment on
whether to offer alternative bidding preferences to entities based on
criteria other than business size by revenue.
10. Additionally, the Commission proposes to repeal the DE annual
reporting requirement. The Commission questions whether the value of
the information provided in those reports outweighs the regulatory
burden that the reporting obligation places on small businesses.
11. Collectively, these proposals seek to update the Commission's
rules to reflect that small businesses need greater opportunities to
gain access to capital so that they may have an opportunity to
participate in the provision of spectrum-based services in today's
communications marketplace. The Commission recognizes that high capital
costs associated with building and operating wireless broadband
networks may require small businesses to find alternative revenue
streams, including through secondary markets, so that they have an
opportunity to acquire licenses at auction and participate in the
provision of spectrum-based services. The Commission anticipates that
by revising its rules to allow small businesses to take advantage of
the same opportunities to utilize their spectrum capacity and gain
access to capital as those afforded to larger licensees, the Commission
can better achieve its statutory directives. The Commission nonetheless
remains mindful of its obligation to prevent unjust enrichment of
ineligible entities. The Commission describes and seeks comment on each
of its specific proposals.
A. Attribution Rules and Small Business Policies
12. Background. As its principal means of fulfilling the statutory
goals for DEs, the Commission makes auction bidding credits available
to eligible small businesses. A small business is eligible for bidding
credits if its gross revenues, in combination with those of its
``attributable'' interest holders, fall below applicable service-
specific financial caps. Since 2000, the Commission has applied a
``controlling interest'' standard to all services when making these
attribution determinations in the small business context. Under this
standard, the Commission attributes to an applicant the gross revenues
of the applicant, its controlling interests, its affiliates, and the
affiliates of the applicant's controlling interests. A ``controlling
interest'' includes individuals or entities, or groups of individuals
or entities, that have control of the applicant under the principles of
either de jure or de facto control. Affiliates include entities or
individuals that directly or indirectly control or have the power to
control the applicant, directly or indirectly are controlled by the
applicant, directly or indirectly are controlled by a third party that
also controls the applicant, or have an ``identity of interest'' with
the applicant.
13. In adopting secondary markets rules in the 2004 Secondary
Markets Second Report and Order, the Commission sought to expand and
enhance secondary markets to permit spectrum to flow more freely among
users and uses in response to economic demand, to the extent consistent
with its public interest objectives. Promoting Efficient Use of
Spectrum Through Elimination of Barriers to the Development of
Secondary Markets, Second Report and Order, Order on Reconsideration,
and Second Further Notice of Proposed Rulemaking, 69 FR 77522, Dec. 27,
2004 (Secondary Markets Second Report and Order). The Commission
explained that it intended for its rules to allow more flexible use of
spectrum by licensees and other spectrum users, better define
licensees' and spectrum users' rights and responsibilities, enable the
use of spectrum across various dimensions (frequency, space, and time),
promote the efficient use of spectrum, and provide for continued
technological advances. While the Commission ostensibly extended the
new de facto control standard for spectrum manager leasing to DE
lessors, it nonetheless required that a licensee receiving DE
[[Page 68175]]
benefits be an entity that actually provides service under the license.
The Commission explained that it intended that DEs should remain
primarily providers of facilities-based service directly to the public.
That conclusion was based on an interpretation of the legislative
history underlying the Act's provisions regarding unjust enrichment, as
well as the continued application of the Commission's controlling
interest standard and affiliation rules.
14. In the Secondary Markets Second Report and Order, the
Commission also advised that in examining whether a spectrum lessee
would, under a spectrum manager lease, become a controlling interest or
affiliate of the licensee, the licensee should look to all of the
relevant circumstances, including how large a portion of its total
capacity to provide spectrum-based services would be leased, what
involvement it would have with the spectrum lessee as a result of the
spectrum lease, and what relationship the two parties have with one
another apart from the lease. The Commission concluded that a spectrum
manager lease between a designated entity licensee and a spectrum
lessee with a prior business relationship where substantially all of
the spectrum capacity of the licensee is to be leased would cause the
spectrum lessee to become an attributable affiliate of the licensee.
Such affiliation would render the licensee ineligible for designated
entity or entrepreneur benefits and, therefore, would make such a
spectrum lease impermissible. On the other hand, the Commission
reasoned that a spectrum manager lease involving a small portion of the
designated entity or entrepreneur licensee's spectrum capacity where no
relationship existed between the licensee and spectrum lessee apart
from the lease would likely be permissible. Situations falling
somewhere between these two examples would have to be evaluated
according to the individual circumstances involved.
15. Subsequently in 2006, at the behest of interested parties,
including Council Tree, the Commission released a further notice, which
sought comment on the specific nature of the types of relationships
that should trigger the attribution of revenues to determine
eligibility for designated entity benefits. See Implementation of the
Commercial Spectrum Enhancement Act and Modernization of the
Commission's Competitive Bidding Rules and Procedures, 71 FR 6992, Feb.
10, 2006. For instance, Council Tree initially proposed that the
Commission should restrict a designated entity applicant's ``material
relationships,'' including both financial and operational agreements,
in order to more carefully ensure that designated entity benefits are
awarded only to bona fide eligible entities. In the DE Second Report
and Order, the Commission, to further protect against unjust
enrichment, departed from its case-by-case approach and instead adopted
a bright-line test to require a small business applicant or licensee to
automatically attribute to itself the gross revenues of any entity with
which it had an ``attributable material relationship.'' It reasoned
that an agreement that concerns the actual use of the DE's spectrum
capacity is one that causes the relationship to be ripe for abuse and
creates the potential for the relationship to impede a DE's ability to
become a facilities-based provider, as intended by Congress. The
Commission concluded that an applicant or licensee has an AMR when it
has one or more agreements with any individual entity for the lease
(under either spectrum manager or de facto transfer leasing
arrangements) or resale (including under a wholesale arrangement) of,
on a cumulative basis, more than 25 percent of the spectrum capacity of
any individual license held by the applicant or licensee.
16. Council Tree and others challenged the AMR rule and other
aspects of the Commission's 2006 Order in the United States Court of
Appeals for the Third Circuit on the grounds that they failed to take
into account circumstances regarding small businesses' access to
capital, among other things. In subsequent years, the Office of
Advocacy in the U.S. Small Business Administration (SBA) also expressed
its belief to the Commission that the 2006 changes to the small
business rules had ``inhibited participation by small entities and
minority businesses in recent spectrum auctions,'' and that the changes
were unnecessary in light of the availability of the audit process
included in the Commission's original auction rules. In 2010, although
the court ultimately upheld the AMR rule, it nonetheless questioned
some of the Commission's reasoning, noting what it termed the
Commission's ``inattention'' to the nature of the wireless wholesale
business. Questioning why the Commission chose to attribute certain
relationships to achieve its stated policy of DEs as facilities-based
providers, the court observed that wholesaling includes an extensive
provision of service component. The court said that it was therefore
not obvious that the Commission needed to prohibit DEs from engaging
primarily in a wholesale business in order to prevent them from simply
monetizing their bidding credits with a large carrier, ``so long as
[DEs] do not sell or lease overly large quantities of their capacity to
any single lessee or buyer.'' Remarking that the Commission appeared
not to have acknowledged this issue, the court commended it to the
Commission's attention on remand.
17. Recently, in February 2014, the Minority Media & Telecom
Council (MMTC) filed a white paper with the Commission making nine
recommendations to facilitate the participation of minority- and women-
owned businesses in upcoming auctions. Listed first among these is the
repeal of the AMR rule. MMTC argues that the rule impedes the ability
of small entities to become providers of spectrum-based service,
explaining that wholesaling and leasing arrangements are important
vehicles for small and minority-owned businesses to build and
efficiently use capital.
18. MMTC's White Paper argues that ``over the course of fifty-six
wireless auctions during the past 20 years, the majority of DEs that
currently hold wireless licenses are incumbent rural telephone
companies, very few DEs are new entrants, and even fewer DEs are
(minority-owned business enterprises) MBEs.'' MMTC and its supporters
maintain that DE participation in spectrum auctions dramatically
decreased after the Commission's adoption of its 2006 rule
modifications and claim that the results from Auctions 66 and 73
``showed a precipitous drop in DE participation from the average 70%
value of winning bids over previous years, to only 4.0% and 2.6%
respectively.''
19. Other parties concur with MMTC's concerns about the AMR rule,
arguing that the development of the Commission's rules and policies
over the last decade, including adoption of the AMR rule, have
significantly hindered their ability to access capital and largely
impeded their ability to acquire and use wireless spectrum licenses in
today's wireless marketplace. Parties claim that the AMR rule creates
insurmountable obstacles for new and existing small businesses to gain
access to capital in secondary markets where they argue small
businesses can play important roles in assuring that licensed spectrum
is effectively and efficiently utilized. In a March 2014 request for
clarification or waiver of the AMR rule, Grain Management, LLC
described how the rule could prevent a small, minority-owned, new-
entrant lessor of spectrum capacity on licenses acquired without DE
benefits from being eligible for such benefits in future auctions. See
Grain Management, LLC's Request for
[[Page 68176]]
Clarification or Waiver of 47 CFR 1.2110(b)(3)(iv)(A); Implementation
of the Commercial Spectrum Enhancement Act and Modernization of the
Commission's Competitive Bidding Rules and Procedures; Expanding the
Economic and Innovation Opportunities of Spectrum Through Incentive
Auctions; Amendment of the Commission's Rules with Regard to Commercial
Operations in the 1695-1710 MHz, 1755-1780 MHz, and 2155-2180 MHz
Bands, WT Docket No. 05-211; GN Docket Nos. 12-268 and 13-185, Order,
29 FCC Rcd 9080 (2014).
20. Discussion. The Commission concludes that it is appropriate to
revisit its small business eligibility rules and evaluate whether to
rebalance its competing goals in order to provide small businesses
additional opportunities to gain access to new sources of capital
necessary for participation in the provision of spectrum-based services
in today's marketplace, while guarding against unjust enrichment of
ineligible entities. Chief among the actions that the Commission takes
in the Competitive Bidding NPRM is its proposal to repeal the AMR rule
and to re-examine the related decade-old policy underlying it. In lieu
of the bright-line test of the AMR rule, the Commission proposes a two-
pronged approach to evaluate an entity's eligibility for small business
benefits. This approach would use its existing controlling interest and
affiliation standards to determine what revenues are attributable to an
applicant based upon a rigorous review of all relevant relationships
and agreements, which will ensure that the small business makes
independent decisions about its business operation. Alternatively, the
Commission also seeks comment on whether it should retain the policy
but modify the AMR rule with some other attribution threshold to
determine an applicant's eligibility for small business benefits.
21. Using long standing principles of control and affiliation, the
Commission proposes to safeguard small business benefits by attributing
the revenues of any entity that has the ability to control, or
potentially control, an applicant's business venture. The Commission's
existing attribution rules examine the extent to which a small business
may combine its efforts, property, money, skill and knowledge with
another. Further, where there is an agreement to share profits/losses
proportionate to each party's contribution to the business operation,
the existing rules consider these issues as a factor in whether to
attribute that party to the applicant as its affiliate. Because the
Commission's proposals should allow small businesses greater
flexibility to engage in business ventures that include increased forms
of leasing and other spectrum use arrangements, the Commission
anticipates that the combined effect of the proposals--by allowing a
small business greater flexibility to adopt a more individualized
business model for each license it holds--should increase the potential
sources of revenue for the small business and potentially decrease the
likelihood that it would be subject to undue influence by any
particular user of a single license. The Commission's proposed approach
would also ensure that a licensee retains control of all licenses for
which it seeks bidding credits, while providing greater flexibility in
potential uses for any licenses acquired without such benefits. The
Commission seeks comment on this proposal and asks commenters to
specifically address how and why a small business may be more or less
likely to be subject to undue influence by a user of its spectrum under
this approach. Additionally, the Commission proposes to modify the
language of 47 CFR 1.9020 to make clear how the secondary market rules
apply to DE lessors, which should provide greater flexibility to small
businesses in how they choose to use their spectrum. The Commission
also seeks comment on whether any corresponding changes may be
warranted in its unjust enrichment rules to ensure that small business
bidding credits are extended only to qualifying small businesses.
22. The AMR rule and the policy that spurred its adoption were
intended to prevent unjust enrichment by establishing safeguards to
ensure that entities ineligible for small business incentives could not
circumvent the Commission's rules by obtaining those benefits
indirectly, through their relationships with eligible entities. The
Commission based its decisions, in large measure, on legislative
history suggesting that anti-trafficking restrictions and unjust
enrichment payment obligations were needed to deter participation in
the licensing process by those who have no intention of offering
service to the public. For example, in the Secondary Markets Second
Report and Order, the Commission relied on the legislative history in
rejecting a commenter's argument that ``[t]here [was] no reason to
believe that Congress intended to limit designated entities to only one
form of participation in the spectrum market--construction and
operation of a facilities-based network.'' In adopting the AMR rule,
the Commission reaffirmed that interpretation of the legislative
history, concluding that the adoption of the AMR rule, along with other
modifications, was necessary to strengthen its implementation of
Congress's directives with regard to DEs and to ensure that, in
accordance with the intent of Congress, every recipient of its DE
benefits is an entity that uses its licenses to directly provide
facilities-based telecommunications services for the benefit of the
public.
23. Yet, in the Commission's attempts to safeguard small business
benefits from unjust enrichment, it appears that the Commission's
policy and corresponding rule modifications may have had the unintended
consequence of hindering the Commission's ability to satisfy its
statutory goal of promoting opportunities for wireless entry by small
businesses. Moreover, the Commission notes that the statute does not
specifically state, nor does the House Report make clear, that Congress
intended to require that ``offering service to the public'' be defined
only as DEs directly providing facilities-based telecommunications
services for the benefit of the public. The Commission may have placed
undue weight on language from the House Report, given all of the
various factors that the actual text of 47 CFR 309(j) gives the
Commission the discretion to balance. In interpreting statutes,
analysis of the statutory text, aided by established principles of
interpretation, controls.
24. While the policy of requiring primarily the direct provision of
facilities-based service by a small business seeking bidding credits is
one way to protect against unjust enrichment, the Commission
tentatively concludes that it is not the only way to ensure that
benefits are provided solely to those entities that Congress intended.
The Commission also recognizes that the AMR rule, which was adopted to
further that policy, may inhibit the highest and best use of spectrum
by preventing small businesses that lack access to traditional sources
of capital from being able to acquire alternative revenue streams
through leasing and other spectrum use arrangements, even in
circumstances where they retain control over their business venture.
MMTC argues that there has been a documented decline in DE
participation and success at auction following the adoption of the
Commission's rule changes in 2006, based on the relative value of
licenses won by DEs compared to non-DEs. While the Commission notes
that the relative value of licenses won at auction is only one measure
to gauge success of the small business program and that there are other
[[Page 68177]]
relevant factors to consider in assessing whether the Commission has
met its statutory obligations for small businesses, the Commission
nonetheless concurs that over the last decade small businesses have
faced various increased difficulties in becoming wireless licensees.
25. The Commission contemplates that a different approach may be
more effective in balancing its competing goals of affording small
businesses reasonable flexibility to obtain the capital necessary to
participate in the provision of spectrum-based services and effectively
preventing the unjust enrichment of ineligible entities. Inasmuch as
Congress has granted the Commission the discretion to weigh the varying
objectives of section 309(j), the Commission proposes rule
modifications that, if adopted, could offer a more balanced approach
for achieving its statutory directives. The Commission therefore
proposes to repeal the AMR rule and evaluate small business eligibility
in a manner that could provide DEs with greater opportunities to
participate in the provision of spectrum-based services, including
through secondary market transactions. The Commission anticipates that
this, in turn, will help DEs gain access to capital by enabling leasing
and other spectrum use arrangements. Allowing more DEs and small
businesses to participate in spectrum leases and other spectrum use
agreements will also promote the Commission's goals of promoting more
efficient and dynamic use of the important spectrum resource through
secondary market spectrum transactions.
26. The Commission seeks comment on this proposal to repeal the AMR
rule, and its tentative conclusions regarding its need to re-evaluate
its small business policy. Should the Commission discontinue its policy
requiring small businesses seeking bidding credits to provide primarily
direct, facilities-based service on each individual license? Would this
proposal better promote Congress's intent for small businesses? Would
the proposal to eliminate this policy and to repeal the AMR rule have
the unintended effect of providing ineligible entities with access to
discounted spectrum?
27. In a mature wireless industry where leasing and other spectrum
use arrangements may be important tools to enable wireless providers to
raise capital and participate at auction, is it appropriate to provide
small businesses seeking bidding credits with greater flexibility to
enter into such spectrum use arrangements? Should the Commission
consider an alternative spectrum capacity use limit for a bright-line
attribution test, and if so what is the appropriate percentage and what
spectrum use arrangements should it include? Would eliminating the
policy that small businesses provide primarily facilities-based service
with each individual license increase or decrease the risk of unjust
enrichment to ineligible entities and/or the warehousing of spectrum?
What safeguards should the Commission consider to ensure that bidding
credits are extended only to qualifying small businesses, as Congress
intended? Alternatively, should the Commission retain the AMR rule and
the related policy that small businesses primarily provide facilities-
based service, but stipulate that neither would kick in for a set
number of years? This approach might provide small businesses with an
opportunity to raise capital early in the license term but still
require that they eventually become primarily facilities-based
providers of service when the AMR rule kicks in. Commenters should
address when the AMR rule and the related policy regarding facilities-
based service should kick in and how construction build-out
requirements should be measured. Commenters should also address whether
the Commission's proposed shift in policy would continue to allow
auctions to award licenses to those entities that value the spectrum
most highly, which fosters the Commission's ability to accomplish
Congress's multi-faceted policy objectives. Will rebalancing the
Commission's approach to Congress's goals provide adequate safeguards
against unjust enrichment to ensure that bidding credits are awarded
only to qualifying small businesses?
28. Proposed Standard for Evaluating Small Business Eligibility.
The Commission proposes a more focused approach to evaluate small
business eligibility that looks at who controls, or has the potential
to control, the applicant and any spectrum acquired with the use of
small business benefits. Specifically, the Commission proposes to apply
a two-pronged test using its existing controlling interest and
affiliation rules to determine: (1) Whether an applicant meets the
applicable small business size standard, and (2) whether it retains
control over the spectrum associated with the licenses for which it
seeks small business benefits. This approach will allow the Commission
to separate its review of those who control, or have the power to
control, the small business applicant's business venture, and are
therefore attributable for purposes of determining eligibility, from
those that use (and may control) its spectrum capacity, which would
affect the small business's ability to retain its benefits with respect
to any particular license. Consistent with the Commission's existing
controlling interest and affiliation rules under 47 CFR
1.2110(c)(2)(ii)(H)-(I), it will attribute the revenues of those
entities or individuals that determine or significantly influence the
nature or types of services offered by the small business, the terms
upon which such services are offered, and the prices charged for such
services. The Commission's proposals would expand the types of services
the small business might offer as part of its overall business venture,
but would not alter how the Commission carefully monitors those that
have the ability to control, or potentially control, the applicant or
licensee and its business venture. The Commission seeks comment on
these specific proposals.
29. The first prong would evaluate whether an applicant meets the
applicable small business size standard and is therefore eligible for
benefits. To evaluate small business eligibility, the Commission
proposes to apply its existing controlling interest standard and
affiliation rules to determine whether an entity should be attributable
based on whether that entity has de jure or de facto control of, or is
affiliated with, the applicant's overall business venture. De jure
control is typically evidenced by the holding of greater than 50
percent of the voting stock of a corporation or, in the case of a
partnership, general partnership interests. De facto control is
determined on a case-by-case basis to determine whether the licensee
has actual control over its business venture. Thus, pursuant to 47 CFR
1.2110 and consistent with the Commission's current analysis, under its
proposal, control and affiliation may arise through, among other
things, ownership interests, voting interests, or the terms of any
agreements that create a controlling, or potentially controlling,
relationship over the applicant's business venture. The Commission
therefore notes that its proposal to eliminate the policy that small
businesses seeking benefits primarily provide facilities-based service
does not alter the rules that require it to consider whether
facilities-sharing and other agreements confer control of or create
affiliation with the applicant. The proposal also does not alter the
general standard by which the Commission
[[Page 68178]]
evaluates whether a licensee has ceded de facto control and effected an
unauthorized transfer of control of its spectrum authorization to a
third party.
30. The Commission's continued careful and targeted examination of
these issues will allow it to ensure that a small business applicant
has the independent ability to direct its decision making regarding its
overall business venture and how its licenses are used to offer service
to the public. Moreover, those claiming small business benefits will
continue to be bound by the Commission's existing rules regarding
control and attribution, which should be familiar to all existing and
future Commission licensees. By providing small businesses with greater
opportunities to access revenue streams through leasing and other
spectrum use agreements, the Commission anticipates that they will have
more flexibility to employ business models that suit their individual
needs and therefore will be less likely to be influenced by deep-
pocketed investors or parties with which they have a spectrum use
agreement. Furthermore, this approach recognizes the Commission's
earlier conclusion in the Secondary Markets proceeding that the mere
existence of a spectrum use agreement between a small business and
another party does not, without more, cause the other party to become
an attributable interest holder in the applicant. This approach,
coupled with the Commission's proposed departure from the policy of
requiring small businesses to provide primarily facilities-based
service directly to the public with each of its licenses, should allow
small businesses to gain access to capital and better enable them to
participate in auctions and in the provision of spectrum-based
services, so long as the terms of any spectrum use agreement do not
confer control or create an affiliation that would lead to attribution
of disqualifying revenues. Will this approach promote long-term
investment, market participation and competition in the wireless
industry by small businesses?
31. Once the first prong has been met, the Commission would
evaluate eligibility under the second prong. Under the second prong,
the Commission proposes to determine an entity's eligibility to retain
small business benefits on a license-by-license basis, based on whether
the entity has maintained de jure and de facto control of the license.
Under this proposed license-by-license approach, an entity will not
necessarily lose its eligibility for all current and future small
business benefits solely because of a decision associated with any
particular license. Instead, while a small business might incur unjust
enrichment obligations if it relinquishes de jure or de facto control
of any particular license for which it claimed benefits, so long as the
revenues of its attributable interest holders (i.e., the DE's
affiliates, its controlling interests, and the affiliates of its
controlling interests) continue to qualify under the relevant small
business size standard, it could still retain its eligibility to retain
current and future benefits on existing and future licenses. In other
words, an applicant need not be eligible for small business benefits on
each of the licenses it holds in order to demonstrate its overall
eligibility for such benefits. For instance, if a small business
chooses to permissibly relinquish benefits, incurring any applicable
unjust enrichment obligation, and transfer de facto control of a
license through a de facto transfer lease, that lease will not
necessarily make the lessee an attributable interest holder in the
applicant or cause the applicant to become ineligible for other small
business benefits it might have or want to acquire.
32. The Commission stresses that small businesses, like all its
licensees, remain subject to its rules to prevent unauthorized
transfers of control of their license authorizations pursuant to
section 310(d) of the Act. Accordingly, if a small business seeking
benefits executes a spectrum use agreement that does not comply with
the Commission's relevant standard of de facto control, it will be
subject to unjust enrichment obligations for the benefits associated
with that particular license. If the terms of that spectrum use
agreement go so far as to confer control of, or the potential to
control, the small business's overall business venture, the business
could risk the attribution of revenues, which could render it
ineligible for all current and future small business benefits on all
licenses. Except where the leasing standard of de facto control applies
under the secondary market rules, the criteria of Intermountain
Microwave and Ellis Thompson will continue to apply to any Commission
licensee, including a small business, for purposes of assessing whether
it can demonstrate that it retains de facto control of its business
venture and spectrum authorization. See Applications for Microwave
Transfers to Teleprompter Approved with Warning; Non-broadcast and
General Action Report No. 1142, Public Notice (by the Commission en
banc), 12 FCC 2d 559, 559-60 (1963) (Intermountain Microwave); Ellis
Thompson Corporation, 60 FR 1776, Jan. 5, 1995. Small businesses will,
however, be free under this proposal from the added policy requirement
regarding the extent to which it must use each individual spectrum
license for the provision of facilities-based service in order to
retain eligibility for small business benefits.
33. The Commission seeks comment on its proposed two-pronged
approach to evaluate attribution and establish eligibility for small
business benefits. Will this proposal provide small businesses with the
flexibility necessary to participate in an evolving wireless
marketplace? Does the absence of a bright-line attribution standard
hinder an applicant's ability to assess its eligibility for small
business benefits? Will the Commission's proposed approach allow it to
safeguard the benefits it awards and prevent ineligible entities from
obtaining benefits indirectly, through arrangements with eligible small
businesses? Should the Commission take additional steps to assure that
ineligible entities cannot exercise undue influence over a small
business, or will its proposed approach empower small businesses to
make their own decisions with respect to the highest and best use of
each of their licenses without risking the undue influence of their
investors or spectrum users? For instance, should the Commission, in
considering whether the user's revenues should be attributable to the
small business applicant, consider any limits on the amount of its
spectrum capacity a small business seeking benefits can allow a third
party to use, even where such use is otherwise permissible under
Commission rules and the agreement on its own does not create a
controlling interest or affiliation in the applicant's business
venture?
34. Should the Commission limit the ability of a small business
seeking benefits to lease all of its spectrum capacity or should the
Commission allow it to be primarily engaged in the business of leasing
provided that it complies with small business eligibility rules? Would
allowing a small business seeking benefits to lease 100 percent of its
spectrum capacity on any individual license, and/or on all of its
licenses, increase the potential of the unjust enrichment of ineligible
entities? Commenters should address how that risk increases or
decreases based on the amount of spectrum capacity that may be leased.
Should the Commission be concerned that a small business leasing large
quantities of its spectrum capacity to a single user has allowed
another entity to receive the benefit of its bidding credits?
[[Page 68179]]
35. Should there be a standard by which the Commission should
automatically attribute the gross revenues of an entity with which a
small business seeking benefits has spectrum use agreements if it has
such agreements with a single entity in numerous markets? How should
the Commission view small businesses that have multiple financial and/
or operational arrangements with another licensee or entity where the
agreements do not otherwise create a controlling interest or
affiliation with the small business? Should the existence of such
multiple agreements create a rebuttable presumption of affiliation
similar to the kinship affiliation rule, or does the Commission's
existing rule of ``affiliation through contractual relationships''
already adequately guard against a third party acquiring control, or
the potential to control, the small business through such agreements?
For instance, should the Commission permit a small business seeking
benefits to have a combination of capital investments, loan, marketing,
management and leasing agreements with another Commission licensee
without attributing the gross revenues of that entity to the small
business? Is there a combination of agreements that should cause more
concern in assessing small business benefit eligibility, and should any
combination of agreements with a single party create a rebuttable
presumption of attribution or an ineligibility for small business
benefits? Are there any specific types of agreements that are more
likely to confer control or undue influence of the small business
seeking benefits that should cause the Commission to automatically
attribute the gross revenues of the entity to the small business or
render the small business ineligible for benefits?
36. Do the Commission's proposals provide small business applicants
with sufficient flexibility to access capital, compete in auctions, and
participate in new and innovative ways in the provision of service in
the wireless marketplace while retaining their benefits? Do the
Commission's proposals make it more or less likely that a small
business will be unduly influenced by the entities with which it
engages in spectrum use agreements? Commenters opposing these proposals
should indicate specific concerns. Commenters supporting these
proposals should offer any other suggestions the Commission should
consider to revise its rules and reform its small business policies. To
what extent do the Commission's proposed changes for small business
eligibility positively or negatively affect auction revenues? To what
extent do the Commission's proposals appropriately balance its
competing statutory obligations in section 309(j) of the Act?
37. Proposed Standard for Evaluating DE Leasing. The Commission
also proposes to modify the language of 47 CFR 1.9020 to comport with
the Commission's proposed approach to assessing small business
eligibility. Specifically, the Commission proposes to make clear that
DEs may fully benefit from the same de facto control standard for
spectrum manager leasing in the Commission's secondary market rules as
non-DE lessors.
38. In developing its regulatory scheme for leasing generally, the
Commission determined that section 310(d) of the Act did not require
the continued application of the facilities-based Intermountain
Microwave six-part test that had, since 1963, been applied to determine
whether a licensee was exercising the requisite level of de facto
control over its licensed operations. Instead, the Commission adopted a
revised de facto control standard for leasing arrangements for purposes
of applying the requirements of section 310(d). Under the revised
standard, a spectrum manager lease does not constitute a transfer of de
facto control so long as the licensee (1) maintains an active, ongoing
oversight role in ensuring that the lessee complies with Commission
rules and policies; (2) retains responsibility for all interactions
with the Commission required under the license related to the use of
the leased spectrum; and (3) remains primarily and directly accountable
to the Commission for any lessee violation of these policies and rules.
39. While the Commission nominally applied the new standard to all
licensees, it explained that DEs would be required to retain their
eligibility under the traditional facilities-focused de facto control
standard of 47 CFR 1.2110 and Intermountain Microwave. Thus, the
Commission stated that small businesses could engage in leasing only to
the extent that doing so would not affect their eligibility for
benefits. Further, it required that a licensee receiving DE benefits be
an entity that actually provides service under the license. As
explained above, the Commission expressed concern that unless it
continued to require DEs to remain engaged primarily in the provision
of facilities-based services to the public it would run the risk that
small business incentives, particularly bidding credits, would
indirectly benefit entities that would not qualify for those incentives
in the primary market. To that end, the Commission specified that small
businesses could not retain their benefits if they made spectrum
leasing their primary business.
40. Consistent with the Commission's proposed revisions to
assessing small business eligibility, including the elimination of the
requirement that small businesses primarily provide facilities-based
service on each license they hold, the Commission proposes a
modification to its spectrum manager leasing rule. Specifically, the
Commission proposes to modify the language in 47 CFR 1.9020(d)(4) to
remove the conflicting reference to the control standard of 47 CFR
1.2110 in order to make clear that small business lessors are fully
subject to the same de facto control standard for spectrum manager
leasing that applies to all other licensees. This modification should
clarify that 47 CFR 1.9010 alone defines whether a licensee, including
a small business, retains de facto control of the spectrum that it
leases to a spectrum lessee in the context of spectrum manager leasing.
This proposal does not alter the fact that small businesses must remain
eligible for benefits under 47 CFR 1.2110. Instead, the proposed
modification clarifies that one de facto standard applies to determine
whether the licensee has de facto control of the spectrum in the
context of a spectrum manager lease (i.e., 47 CFR 1.9010), and the
other applies to determine whether a third party has control, or the
potential to control, the licensee and its business venture for the
purposes of attribution of revenues (i.e., 47 CFR 1.2110). In sum, the
Commission's proposal departs from the traditional Intermountain
Microwave facilities-focused de facto control standard with regard to
an individual spectrum lease agreement for a particular license. As
long as the small business: (1) Maintains an active, ongoing oversight
role in ensuring that the lessee complies with Commission rules and
policies; (2) retains responsibility for all interactions with the
Commission required under the license related to the use of the leased
spectrum; and (3) remains primarily and directly accountable to the
Commission for any lessee violation of these policies and rules, it
will be considered to maintain de facto control of its spectrum for the
purposes of that spectrum manager lease. Spectrum manager leasing
applications will continue to be evaluated to determine whether control
of, or affiliation with, the small business applicant and its overall
business venture has arisen through any the terms of the leasing
[[Page 68180]]
agreement that might lead to attribution and result in unjust
enrichment under 47 CFR 1.2110.
41. When the Commission adopted 47 CFR 1.9010, it noted that a
licensee's continued control over the licensed use of spectrum lies at
the heart of what it means to retain the license and the rights
thereunder and that it could no longer generally assume that the
licensee must perform the non-licensed activities identified in
Intermountain Microwave in order to conclude that the licensee has
retained its license and all rights thereunder. The Commission proposes
that its modification will make clear that this conclusion applies
equally to all licensees. Are there any reasons why the Commission
should retain its existing language in 47 CFR 1.9020(d)(4)? Should the
Commission consider limiting the amount of spectrum a small business
can lease to a single entity under 47 CFR 1.9020, in order to ensure
that the small business retains control over its business venture as
required in 47 CFR 1.2110? Commenters opposing the Commission's
proposal should offer alternative suggestions for how it could allow
small businesses to play a larger role in secondary market
transactions.
B. Unjust Enrichment
42. The integrity of the small business benefit program depends on
ensuring that only entities eligible for benefits receive them. To
safeguard against abuse, the Commission has long relied on unjust
enrichment provisions, which require a small business to pay back the
benefits it accrued where appropriate, and careful vigilance in
approving applications and transactions. With the proposals set forth
in the Competitive Bidding NPRM, the Commission anticipates that these
provisions will be as important as ever and that strong enforcement of
the provisions is critical. The Commission therefore seeks comment on
whether any changes are appropriate to strengthen its unjust enrichment
rules and how best the Commission can continue to scrutinize
applications and proposed transactions to ensure that only eligible
entities receive benefits, while not undermining the Act's directive to
ensure that DEs are given the opportunity to participate in the
provision of spectrum-based services.
43. Pursuant to 47 CFR 1.2111(b), small businesses are obligated to
make unjust enrichment payments if they seek, inter alia, to assign or
transfer control of licenses to a non-eligible party, for a period of
up to five years from the initial issuance of the license. In
rebalancing the Commission's policy objectives to provide small
businesses greater opportunities to participate at auction and in the
provision of spectrum-based services, it remains focused on its
responsibility to ensure that benefits are provided only to qualifying
entities.
44. The Commission therefore invites comment on whether its
existing five year unjust enrichment payment schedule continues to
provide a sufficient safeguard to ensure that benefits are provided
only to qualifying entities. Commenters should be specific about
whether there is a need to adjust its current five year unjust
enrichment repayment schedule, and the appropriate length and
reimbursement percentages for any repayment schedule revisions. If
commenters support a different repayment period or different
percentages for the repayment schedule, they should be specific about
why their suggested approach would better meet its goals and balance
the Commission's statutory objectives.
45. Specifically, the Commission also seeks comment on whether it
should consider adopting a 10 year unjust enrichment repayment schedule
for licenses acquired with bidding credits, including its benefits and
costs. Extending the length of the unjust enrichment repayment schedule
to 10 years may help deter speculation and prevent spectrum
warehousing. At the same time, extending the length of the unjust
enrichment repayment schedule could restrict small businesses' access
to capital, which could limit their ability to participate in the
provision of spectrum-based services, contrary to the Commission's
underlying goals in this proceeding. How does the length of the
repayment schedule affect a small business's capital fundraising and
business planning efforts? Are there lessons the Commission can draw
from based on parties' experience raising capital when the 10 year
unjust enrichment period was in place from 2006 until 2010? If the
Commission repeals the AMR rule as proposed and also modifies the
unjust enrichment rules, what would be the combined effect on the
ability of a small business to raise capital and participate at auction
and in the provision of service, particularly when compared to the
existing rule?
46. Are there other unjust enrichment provisions that the
Commission should consider? For example, should the Commission require
full reimbursement, plus interest, if a small business loses its
eligibility prior to meeting the construction requirements applicable
at the end of the license term? Commenters should discuss how such an
approach would impact the Commission's interest in protecting against
unjust enrichment, while ensuring that small businesses have access to
capital to participate at auction and in the provision of service. Is a
different reimbursement percentage (something less than 100 percent)
preferable? Are other safeguards sufficient to protect the Commission's
interests regarding unjust enrichment?
47. The Commission seeks comment on whether it may grant small
businesses greater flexibility to participate in the provision of
spectrum-based services, as it has proposed, while also ensuring that
only those entities Congress intended have access to benefits. The
Commission asks commenters to address how the unjust enrichment rules
affect their ability to secure and retain capital and whether its rules
require other further modifications to safeguard the award of small
business benefits. By granting small businesses greater regulatory
flexibility to demonstrate eligibility, does the Commission increase or
decrease the likelihood that non-eligible entities can assert undue
influence over a small business's decision making for its business
venture and its utilization of licenses to participate in the provision
of spectrum-based services?
48. The Commission also seeks comment on how other government
programs ensure that only an intended class of recipients receive
benefits that are awarded to eligible entities. Are there other
government programs that have greater safeguards than the Commission
currently employs? How do other government agencies and small business
benefit programs prevent abuse and guard against unjust enrichment of
ineligible entities? Commenters should be specific about any analogies
that can be drawn between the Commission's small business benefits and
similar benefits awarded by other agencies and programs.
49. The Commission's efforts to provide increased flexibility to
small businesses must be balanced with vigilant enforcement to ensure
that only bona fide small businesses receive benefits. The Commission
has a strong interest in ensuring that truthful and accurate
information is available to the Commission and the public for purposes
of implementing and enforcing policies it finds to be in the public
interest. Such information is imperative to the Commission's ability to
safeguard the benefits it awards and to prevent unjust enrichment. To
the extent the Commission modifies rules regarding its small business
benefits, it will remain vigilant in undertaking careful review of
[[Page 68181]]
all applications of those seeking to acquire or retain bidding credits
to ensure that the gross revenues of all parties that control, or have
the potential to control, the applicant are properly attributed in
compliance with its controlling interest and affiliation rules. The
Commission emphasizes that it will remain focused on ensuring that an
applicant's certifications for eligibility comport with the actual
terms of its agreements with relevant parties. In so doing, the
Commission expects that it can properly execute its statutory
responsibility to continue to prevent unjust enrichment of ineligible
entities.
C. Bidding Credits
50. The Commission also takes a fresh look at the primary way that
it facilitates participation by small businesses at auction through its
bidding credit program. The Commission notes that the generally
applicable small business definitions and corresponding bidding
preferences were adopted in 1997 and finds that it is appropriate to
revisit whether these standards have kept pace with an evolving
wireless marketplace. Toward that end, the Commission proposes to
increase the general size standards, measured by gross revenues, for
purposes of determining an entity's eligibility for a bidding
preference. The Commission also proposes to continue its practice of
evaluating which small business definitions will apply on a service-by-
service basis, based upon associated capital requirements for a
particular service. In addition, the Commission seeks comment on
whether to increase the bidding credit percentages applicable to
associated small business categories. Finally, the Commission seeks
comment on its ability to consider bidding preferences for other types
of DEs, entities that serve unserved/underserved areas or areas with
persistent poverty, as well as persons and entities that have overcome
disadvantages. The Commission expects that the questions raised here
will provide a meaningful opportunity to evaluate whether its bidding
credit program continues to achieve its objectives. The Commission
seeks concrete, specific, data-driven feedback by commenters to
facilitate its review. The Commission invites commenters to suggest
other creative ideas that would promote its statutory objectives, but
it emphasizes that for any such proposals it is imperative to provide
ample supporting evidence.
51. An auction applicant may claim eligibility for a bidding credit
when filing a short-form application. The Commission's short-form
application is the first part of its two-phased auction application
process. In the first phase, any party desiring to participate in an
auction must file a streamlined short-form application in which it
certifies under penalty of perjury as to its qualifications to
participate in a Commission auction. In its review of the short-form
applications, Commission staff presume the information and
certifications contained in the short-form applications are true unless
they are incomplete, internally inconsistent or contradicted by
information in the Commission's records. Eligibility to participate in
bidding is based on information in an applicant's short-form
application and its certifications, and on its upfront payment. In the
second phase of the Commission's application process, a winning bidder
files a more comprehensive long-form (FCC Form 601) application. The
long-form application is subject to more extensive review and is the
basis for any determination that a winning bidder is qualified to hold
a Commission license and for the award of any claimed bidding credit.
1. Small Business Bidding Credits
52. Background. Bidding credits operate as a percentage discount on
the winning bid amounts of a qualifying small business. By making the
acquisition of spectrum licenses more affordable for new and existing
small businesses, bidding credits facilitate their access to needed
capital. The Commission establishes eligibility for bidding credits for
each auctionable service, adopting one or more definitions of the small
businesses that will be eligible. The Commission's small business
definitions have been based on an applicant's average annual gross
revenues over a three-year period. In establishing the gross revenues
thresholds for the small business definitions to be applied to a
specific service, the Commission takes into account the capital
requirements and other characteristics of the particular service. In
order to qualify for a small business bidding credit an applicant must
demonstrate that its gross revenues, in combination with those of its
``attributable'' interest holders, fall below the applicable financial
caps.
53. The Commission's rules provide a schedule of small business
definitions and corresponding bidding credits. In adopting bidding
credits for a particular service, the Commission has found that the use
of the small business size standards and credits set forth in the part
1 schedule provides consistency and predictability for small
businesses. Section 1.2110(f) sets forth three tiers of bidding
credits: (1) A 35 percent bidding credit for businesses with average
annual gross revenues for the preceding three years not exceeding $3
million; (2) A 25 percent bidding credit for businesses with average
annual gross revenues for the preceding three years not exceeding $15
million; and (3) A 15 percent bidding credit for businesses with
average annual gross revenues for the preceding three years not
exceeding $40 million.
54. Discussion. The Commission proposes to increase the gross
revenues thresholds defining the three tiers of small businesses in the
part 1 schedule by which the Commission provides the corresponding
available bidding credits and seeks comment on alternatives. The
Commission also proposes to continue its practice of deciding which
small business definitions will apply on a service-by-service basis
depending on the capital requirements of the particular spectrum to be
auctioned. In addition, the Commission seeks comment on whether the
bidding credit percentages that apply to these small business
definitions should be increased.
55. Since the inception of the Commission's DE program, and
particularly in the past decade, the evolution of the mobile wireless
marketplace from mobile voice to mobile broadband has increased the
demands on wireless networks and the need for access to spectrum,
heightening the capital-intensive nature of the industry. Moreover, the
number of small and regional mobile wireless service providers has
significantly decreased, though regional and local service providers
continue to offer consumers additional choices in the areas they serve.
In light of these changes and statutory goals, the Commission seeks
comment on how it should reconsider definitions of what constitutes a
small business in the wireless industry.
56. The Commission proposes to increase the gross revenues
thresholds in its part 1 schedule to reflect the changing nature of the
wireless industry, including the overall increase in the size of
wireless networks and the increase in capital costs to deploy them. The
Commission notes that these changes have resulted in an increase in the
size of the wireless service providers that can be considered to be
``small'' relative to the large nationwide providers. By proposing
adjustments to the Commission's small business size standards, it aims
to promote the effective participation of small businesses in auctions
and in the provision of spectrum-based services.
57. In considering how much to adjust the gross revenues
thresholds, the
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Commission proposes to use the price index for the U.S. Gross Domestic
Product (GDP price index) published by the U.S. Department of Commerce
(Commerce). The Commission notes that the SBA, as part of its size
standards review, recently used the GDP price index to adjust its
receipts-based industry size standards. In particular, the Commission
proposes to adjust the current gross revenues thresholds with the
percentage change in the GDP price index between 1997 and 2013. The
indices are available on Commerce's Bureau of Economic Analysis Web
site, under Tables 1.1.4 and 1.1.15, at http://www.bea.gov/itable.
58. The Commission believes that the GDP price index may reflect
certain industry trends and a relevant range of economic activity
better than the available wireless industry price indices published by
the Bureau of Labor and Statistics (BLS). In barely a decade, the shift
from a voice-centric to a data-centric wireless industry has seen
mobile broadband data services grow from their nascent stage to become
a significant share of the industry's market revenues. However, the
available wireless industry price indices may under represent broadband
data services because the indices are based on voice-centric
definitions of service plans. Moreover, broadband data plans are not
treated as a separate category in the indices, and the BLS description
of the indices is unclear about how the advent of mobile broadband
services has been factored into the voice-centric consumer and producer
prices indices that were introduced in 1997 and 1999, respectively.
Furthermore, the wireless industry consumer and producer price indices
may exclude goods and inputs that are relevant for the range of
economic activity involved in the provision of wireless services.
Therefore, the Commission proposes to use the broader GDP price index.
The GDP price index increased by 36.4 percent from 1997 to 2013. Based
on this 36.4 percent increase, the Commission proposes new gross
revenues thresholds that are obtained by multiplying the current
thresholds by 1.364 and rounding to the nearest million. Specifically,
the Commission proposes to revise the standardized schedule in 47 CFR
1.2110(f) as follows: (1) Businesses with average annual gross revenues
for the preceding three years not exceeding $4 million would be
eligible for a 35 percent bidding credit; (2) Businesses with average
annual gross revenues for the preceding three years not exceeding $20
million would be eligible for a 25 percent bidding credit; and (3)
Businesses with average annual gross revenues for the preceding three
years not exceeding $55 million would be eligible for a 15 percent
bidding credit.
59. The Commission seeks comment on its proposal to adjust the
current gross revenues thresholds in its small business size standards
using the GDP price index. Is there a different price index that better
reflects industry developments and the relevant range of economic
activity? Is there an alternative method for setting new gross revenues
thresholds that does not require adjusting the current gross revenues
thresholds with a price index?
60. The Commission tentatively concludes that its proposed gross
revenues thresholds better reflect the larger size of wireless networks
today, and thus expect that they will preserve the effectiveness of the
Commission's bidding credit program in the current mobile wireless
marketplace. Consumer demand for widely available mobile broadband
services has increased providers' need for additional capital to
acquire spectrum and deploy service. This trend is reflected in the
changing structure of the industry. By increasing the gross revenues
thresholds that define small businesses and thereby making bidding
credits available to a larger number of entities, the Commission seeks
to facilitate a higher rate of participation by entities that might
otherwise find it difficult to obtain the necessary capital to
participate at auction. The Commission seeks comment on whether the
proposed increases in the revenues thresholds are likely to increase
the percentage of entities that will benefit from its small business
bidding credits, by providing better access to capital and enabling
them to seek access to the spectrum necessary to meet consumer demand
for mobile broadband services. At the same time, to further the
statutory objectives of the auction program, the Commission must adopt
revenues thresholds that will avoid including firms that have adequate
access to financing for spectrum based on their revenue levels. The
Commission therefore seeks to avoid setting eligibility for bidding
credits at a level that is over inclusive, which would defeat the
purpose of the bidding credits and undermine the statutory objectives
of the program. Any new thresholds the Commission adopts should provide
economic opportunity to small businesses, while maintaining good
economic incentives for small businesses to seek diverse forms of
financing for spectrum.
61. The Commission seeks comment on this proposal. Specifically,
how have capital costs, construction costs, and administrative costs
faced by wireless providers changed since the mid-1990s? Have the costs
of spectrum usage rights increased significantly since the early stages
of the Commission's auction program such that it is more difficult for
small businesses to acquire wireless spectrum today?
62. Commenters who agree that the industry's evolution warrants new
definitions for small businesses should discuss what gross revenues
thresholds are appropriate for defining small businesses in the
wireless context. Commenters should explain their methodologies for
deriving alternative thresholds and should supply supporting data or
justifications for the Commission's use in evaluating and applying such
methodologies. If commenters do not provide data on wireless providers'
gross revenues, what alternative factors should the Commission consider
in determining what constitutes a ``small business'' in today's
wireless marketplace?
63. The Commission also seeks comment on whether to adopt a small
business size standard based on criteria other than gross revenues. As
the Commission recently noted in the AWS-3 proceeding, in first
adopting gross revenues-based small business size standards for
eligibility for DE benefits, the Commission rejected the SBA's
employee-based business size standard for cellular or other wireless
telecommunications entities as a means to qualify as a DE. The
Commission concluded that such a definition would be too inclusive and
would allow many large telecommunications firms to take advantage of
preferences not intended for them. The Commission notes that according
to census data, if it adopted the SBA's small business employee-based
size standard for cellular or other wireless telecommunications
entities (i.e., 1,500 or fewer employees) more than 96 percent of
wireless companies would be considered small businesses. The Commission
therefore tentatively concludes not to reconsider its conclusion that
the SBA's employee-based definition is too inclusive for the purposes
of establishing DE eligibility.
64. In addition, the Commission asks commenters to consider whether
it should increase the bidding credit percentages (i.e., discount
amounts) currently available to small businesses in 47 CFR 1.2110(f).
Should the Commission use the existing bidding credit percentages, but
apply them to higher gross revenues thresholds? Should the Commission
add additional
[[Page 68183]]
small business definitions and associated tiers of bidding credits
above or below the tiers proposed above? Commenters supporting
additional tiers of bidding credits should propose a corresponding
gross revenues threshold for each additional tier. Commenters
supporting changes to the existing bidding credit percentages in the
Commission's part 1 rules should explain the basis for their proposals
and provide any supporting data for the Commission's use in evaluating
potential changes to the part 1 schedule. Commenters should also
address whether increases in the bidding credit percentages are
necessary if the Commission adopts its proposal to modify the gross
revenues thresholds for its small business definitions since that will
have the effect of increasing the level of bidding credit a substantial
number of small businesses would receive compared to its current rules.
For instance, by increasing the revenues thresholds, entities
previously eligible for small business bidding credits under the
current schedule may become eligible for a higher bidding credit tier
under the proposed amended schedule, and entities that previously
exceeded the highest revenue threshold may become eligible. Similarly,
bidders that previously exceeded the thresholds as a result of
attributable revenues under the AMR rule may fall below the thresholds,
and thus become eligible for small business bidding credits, if the AMR
rule is eliminated as proposed in the Competitive Bidding NPRM.
65. Further, the Commission proposes to continue its practice of
soliciting comment on the appropriate small business size standards in
connection with establishing rules for any particular service. As the
Commission has done in the past and pursuant to 47 CFR 1.2110(c)(1), it
would continue to take into consideration the characteristics and
capital requirements of each service. The Commission seeks comment on
this proposal. Alternatively, should the Commission utilize all three
small business definitions and bidding credit tiers in every service?
Under this approach, the Commission would make bidding credits
available to any business that meets one of the small business
definitions without engaging in an assessment of the likely capital
requirements of the specific service for which licenses are being
offered. What are the advantages and disadvantages of this alternative
approach? If the Commission continues to adopt small business
definitions on a service-by-service basis, are there other factors that
it should consider in determining which small business definition to
apply to a specific service? Alternatively, if the Commission adopts
its proposed modifications to the AMR and small business size
standards, should it consider reducing the level of bidding credits it
awards? Commenters should provide specific suggestions on how the
Commission should weigh its proposals collectively.
66. The Commission also seeks comment on whether any revisions it
adopts in this proceeding to its part 1 schedule of small business size
standards and associated bidding credit percentage levels should apply
to the specific small business definitions and bidding credit
percentages the Commission has previously adopted for specific
services, and, if so, how such revisions would be implemented. In
particular, the Commission proposes that any new rules adopted in this
proceeding would apply to the 600 MHz band spectrum licenses to be
offered in the BIA. In the BIA proceeding, the Commission adopted a 15
percent bidding credit for small businesses (defined as entities with
average annual gross revenues for the preceding three years not
exceeding $40 million) and a 25 percent bidding credit for very small
businesses (defined as entities with average annual gross revenues for
the preceding three years not exceeding $15 million). Consistent with
the increased gross revenues thresholds the Commission proposes for the
standardized schedule in its part 1 competitive bidding rules, the
Commission also proposes to increase the gross revenues thresholds
associated with the 15 and 25 percent bidding credits adopted for the
600 MHz band. That is, for the 600 MHz band, the Commission proposes to
provide a bidding credit of 25 percent for businesses with average
gross revenues for the preceding three years not exceeding $20 million
and a bidding credit of 15 percent for businesses with average gross
revenues for the preceding three years not exceeding $55 million. The
Commission seeks comment on this proposal. In addition, the Commission
seeks comment on whether to adopt a third tier of small business
bidding credits for the 600 MHz band that would provide a 35 percent
bidding credit to businesses with average gross revenues for the
preceding three years not exceeding $4 million. If the Commission re-
auctions licenses for existing services, should the previously adopted
service-specific small business definitions and bidding credit
percentages be revised for those services to reflect any changes to its
part 1 schedule in 47 CFR 1.2110(f)(2)?
2. Other Bidding Preferences
67. The Commission's primary method of fulfilling its statutory
mandate regarding DEs has been to offer auction bidding credits to
small business applicants. Periodically, however, interested parties
have suggested that the Commission offer bidding preferences to
entities based on criteria other than business size. As the Commission
has explained in the past, its ability to implement suggestions to
target bidding credits to other types of entities is constrained by
both its statutory authority and standards of judicial review. The
Commission seeks comment on these suggestions and asks commenters to
specifically address the statutory authority and judicial scrutiny
issues that may limit its ability to entertain recommendations to alter
the focus of its current bidding preferences.
a. Minority- and Women-Owned Businesses and Rural Telephone Companies
68. Section 309(j)(4)(D) of the Act directs the Commission to
consider the use of bidding preferences to ensure that small
businesses, rural telephone companies, and businesses owned by members
of minority groups and women are given the opportunity to participate
in the provision of spectrum-based services. The Commission seeks
comment on whether the current small business provisions are sufficient
to promote participation by businesses owned by minorities and women,
as well as rural telephone companies. To the extent that commenters
propose additional provisions to ensure participation by minority-owned
or women-owned businesses, they should address how such provisions
could be crafted to meet the relevant standards of judicial review. The
Commission asks commenters advocating for the adoption of rural bidding
credits to supply data demonstrating that rural telephone companies
lack access to capital or face barriers to capital formation similar to
those faced by other DEs.
b. Unserved/Underserved Areas and Persistent Poverty Preferences
69. The Commission seeks comment on whether it should extend
bidding credits to winning bidders that deploy facilities and provide
service to unserved or underserved areas. If the Commission adopts
bidding credits for service to unserved or underserved areas what
criteria should it consider to determine if an area is unserved or
underserved? Should any unserved/
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underserved area bidding credits be available in all areas lacking
service, only in rural areas, or only in persistently poor counties? As
required of providers awarded universal service funds through the
Mobility Fund Phase I auctions, should a wireless provider awarded an
unserved/underserved bidding credit be required to provide a certain
level of service (e.g., 3G or 4G) by a certain time frame (e.g., two or
three years) in order to retain the benefit of the bidding credit?
70. The Commission also seeks comment on whether the Commission
should offer a bidding credit to winning bidders that will use their
licensed spectrum to deploy service to persistent poverty counties. As
defined by the Department of Agriculture's Economic Research Service
(ERS), a county is persistently poor if 20 percent or more of its
population was living in poverty over the last 30 years. According to
the ERS, ``there are currently 353 persistently poor counties in the
United States (comprising 11.2 percent of all U.S. counties).'' The ERS
further explains that ``[t]he large majority (301 or 85.3 percent) of
the persistent-poverty counties are nonmetro, accounting for 15.2
percent of all nonmetro counties. Persistent poverty also demonstrates
a strong regional pattern, with nearly 84 percent of persistent-poverty
counties in the South, comprising of more than 20 percent of all
counties in the region.'' The ERS information is available on the ERS
Web site under ``Geography of Poverty,'' at http://www.ers.usda.gov/topics/rural-economy-population/rural-poverty-well-being/geography-of-poverty.aspx. If the Commission adopts such a bidding credit, should it
impose strict performance requirements on providers awarded bidding
credits for licenses covering persistent poverty counties similar to
those required of winning bidders awarded Tribal land bidding credits?
Should this type of bidding credit only apply to licenses covering
persistent poverty counties that are only served by two or fewer
wireless service providers?
71. If the Commission adopts unserved/underserved area and/or
persistent poverty county bidding credits, should the bidding credits
be available only to small businesses and/or other DEs, or to any
applicant? How would the Commission calculate the credit amount where
the unserved or underserved area or targeted counties cover a portion
of a license area? Should the bidding credit be applied to the total
amount of the winning bid for a license, or should it be applied to a
portion of the winning bid based on a percentage of population or
square miles of the license area covered by the unserved/underserved
area or identified counties or some other metric? What size bidding
credit would be appropriate for either an unserved/underserved area
bidding credit or a persistent poverty county bidding credit? If an
applicant qualifies for both bidding credits, should the Commission
limit the amount of the combined credit? Similarly, if an applicant
qualifies for one of these credits in addition to a small business
bidding credit, should the credits be cumulative and, if so, should
there be a limit on the amount of the aggregate bidding credit
provided? Should any limit be an amount greater than the maximum small
business bidding credit to allow DEs eligible for the highest bidding
credit tier to receive an increased benefit for also providing service
to an unserved/underserved area and/or persistent poverty county?
Commenters supporting cumulative bidding credits should provide data or
support justifying the need for higher bidding credits in unserved/
underserved and/or persistent poverty areas. Alternatively, are issues
relating to lack of deployment or low levels of deployment of wireless
services in rural and poor areas better addressed through means other
than the Commission's bidding credit program, such as through service-
specific build-out requirements or reliance on incentives through its
Mobility Fund and other universal service programs?
72. The Commission seeks comment on its authority to implement
these types of bidding preferences. The Commission notes that it has
previously implemented bidding credits based on other criteria than
business size in order to facilitate service to Tribal lands. See In
the Matter of Extending Wireless Telecommunications Services to Tribal
Lands, 65 FR 47366, May 2, 2003 (Tribal Lands Report and Order). In
that proceeding, the Commission found that the objectives and
requirements of section 309(j) of the Act, which the Commission must
consider in designing competitive bidding systems, authorized it to
grant bidding credits targeted specifically to entities that commit to
bringing much needed wireless telecommunications services to Tribal
lands. Specifically, in the Tribal Lands Report and Order, the
Commission found that Tribal Land bidding credits further the objective
of section 309(j)(3)(A) to ensure ``the development and rapid
deployment of new technologies, products, and services for the benefit
of the public, including those residing in rural areas. . . .'' and the
objective of section 309(j)(3)(D) of promoting ``efficient and
intensive use of the electromagnetic spectrum.'' The Commission also
found that there is no indication in section 309(j)(4)(D) or in its
legislative history that the Commission's authority to award bidding
preferences is limited to small businesses, rural telephone companies,
and businesses owned by members of minority groups and women. As such,
the Commission tentatively concludes that section 309(j) of the Act
similarly authorizes the Commission to provide bidding credits for
service to unserved/underserved areas and persistent poverty counties.
The Commission seeks comment on its tentative conclusion.
c. Overcoming Disadvantages Preference
73. In view of renewed interest raised in the BIA proceeding, the
Commission also seeks additional comment on the 2010 Recommendation by
the FCC's Advisory Committee on Diversity for Communications in the
Digital Age (2010 Recommendation) to implement a bidding preference for
persons or entities who have overcome substantial disadvantage
(referred to herein as an overcoming disadvantages preference or ODP).
In that 2010 Recommendation, the Committee proposed that the Commission
should provide an auction bidding credit for otherwise qualified
persons or entities that have overcome substantial disadvantages, to
allow them to compete on equal footing with other applicants. The
Committee stated that an ODP would provide a fair opportunity for
highly qualified applicants to compete for spectrum licenses, thereby
expanding the pool of eligible bidders in an auction. The 2010
Recommendation is available at http://www.fcc.gov/DiversityFAC/meeting101410.html. The Media and Wireless Telecommunications Bureaus
subsequently issued a public notice seeking comment on additional
information that would be helpful in evaluating whether and how to
pursue the Committee's proposal: The Overcoming Disadvantage Preference
Public Notice, 75 FR 81274, Dec. 27, 2010.
74. Commenters should specifically address the Commission's
statutory authority to adopt such a preference and how such a
preference could be crafted to meet the relevant standards of judicial
review. Would a preference for those who have overcome a substantial
disadvantage be subject to a ``rational basis'' constitutional
standard, as the 2010 Recommendation indicates? Additionally, the
Commission seeks detailed comment on how the
[[Page 68185]]
preference would provide additional opportunities not available under
the current bidding credit program, particularly if the current program
is amended as proposed in the Competitive Bidding NPRM.
75. The Commission also asks for input on how it might
systematically collect and maintain data in order to implement and
administer an ODP. What legal basis does it have to collect data, and
what precise data would the Commission need to support such a proposal?
76. The Commission asks commenters to address how eligibility for
an ODP could be demonstrated, providing specific information as to what
definitions of disadvantages could qualify individuals or entities for
the preference. How would it measure when any particular disadvantage
had been overcome? The 2010 Recommendation provides a non-exhaustive
list that includes disadvantages such as physical disabilities or
psychological disorders that rendered professional or business
advancement substantially more difficult than for most individuals. How
could the Commission avoid subjective determinations and implement and
apply an ODP on a neutral basis? The Commission asks commenters to
discuss how it could establish eligibility for the preference
objectively. How could the Commission render eligibility determinations
for an ODP without appearing arbitrary? How could it safeguard any such
benefits to ensure they are awarded only to eligible persons or
entities?
77. The Commission also seeks detailed comment on how it could
administer an ODP. Commenters should identify the costs and benefits
associated with such a program, addressing matters such as how reviews
would be conducted, and the nature of the demonstration applicants
seeking a preference would be required to make, as well as how
individualized evaluation for the preference would be incorporated into
a time-sensitive short-form application process or whether alternatives
such as pre-qualification would be necessary.
78. As acknowledged by the Advisory Committee, its ODP proposal
raises a number of issues that need to be refined and resolved in order
to design and implement such a preference, and comment provided to date
has not provided sufficient basis or justification for doing so.
Therefore, commenters that continue to support the adoption of an ODP
are encouraged to provide as detailed and specific suggestions as
possible regarding the Commission's authority to establish the ODP and
its objectives in doing so, as well as eligibility for, and
administration of, the preference, to assist the Commission in
determining a legal, neutral, and efficient way in which it could
implement an ODP. Alternatively, the Commission asks commenters to
consider whether the proposals the Commission has made to amend its
existing DE program would obviate the need for the adoption of such a
preference.
D. DE Reporting Requirements
79. Background. Section 1.2110(n) requires DE licensees to file an
annual report with the Commission that includes, at a minimum, a list
and summaries of all agreements and arrangements, extant or proposed,
that relate to eligibility for DE benefits. The list must include the
parties (including affiliates, controlling interests, and affiliates of
controlling interests) to each agreement or arrangement, as well as the
dates on which the parties entered into each agreement or arrangement.
DEs are required to file a report for each of their licenses no later
than, and up to five business days before, the anniversary of the date
of license grant.
80. Discussion. The Commission proposes to repeal this reporting
requirement. The information DEs are required to include in their
annual reports is duplicative of information that they provide in their
auction and license applications. See 47 CFR 1.2110(j),
1.2112(b)(2)(iii). In addition, before entering into leases or other
agreements that might affect their eligibility, DEs must seek
Commission approval and must list and summarize those agreements,
including the parties to and the dates of the agreements. See 47 CFR
1.2114. Moreover, for licensees with multiple auction licenses, each
having a different grant date, the burden of the annual reporting
requirement is exacerbated by the obligation to file multiple reports
each year. For these reasons, the Commission tentatively concludes that
the value of the information provided in these annual reports may no
longer outweigh the reporting burden that they impose on DEs.
81. The Commission seeks comment on its proposal. In particular,
commenters are invited to address whether there are any benefits to
retaining the annual reporting requirement that the Commission has
failed to consider. Does this reporting requirement in any way help the
Commission identify agreements between parties relating to small
business eligibility that might otherwise escape attention? Commenters
should specifically address how other rules render this reporting
requirement duplicative and how other rules adequately ensure that the
Commission is aware of all agreements between parties relating to small
business eligibility. Will relieving DEs of this annual reporting
requirement reduce their regulatory burdens to any measurable degree?
Without this reporting requirement, will the Commission continue to
have the necessary tools to safeguard DE benefits from unjustly
enriching ineligible entities? If the Commission adopts this proposal
to eliminate this annual reporting requirement, should the Commission
amend the requirement in 47 CFR 1.2114 that a small business list and
summarize all existing agreements to provide context each time it
reports a new eligibility event?
E. MMTC's White Paper Requests
82. Background. In February 2014, MMTC submitted a White Paper
detailing several policy recommendations to advance minority and women
spectrum license ownership. In addition to requesting the elimination
of the AMR, an increase in bidding credits, and a substantive review of
proposed DE rules, the White Paper requests Commission action in the
following areas: (1) Reinstitute select DE-only closed spectrum
auctions; (2) Incorporate diversity and inclusion in the Commission's
public interest analysis of mergers and acquisitions (M&As) and
secondary market spectrum transactions; (3) Conduct ongoing
recordkeeping of DE performance; (4) Complete the Adarand Studies,
updating the section 257 studies released in 2000; (5) Regularize
procedural requirements; and (6) Support increased funding for and
statutory amendments regarding the Telecommunications Development Fund.
The Commission notes that MMTC's above request with respect to
``ongoing recordkeeping of DE performance'' refers to retaining
specific information about minority- and woman-owned business
enterprise bidders, in addition to the small business status.
83. Discussion. The Commission seeks comment on the proposals that
are not otherwise addressed in the NPRM, and to the extent that they
relate to its competitive bidding rules. The Commission observes that
certain proposals appear to be outside the scope of this proceeding and
others may not be needed in light of other changes proposed herein.
Toward that end, the Commission tentatively concludes that the
following MMTC proposals are
[[Page 68186]]
outside the scope of this proceeding, which is focused on its
competitive bidding rules, and thus will not be addressed here: (1)
Incorporating diversity and inclusion in the Commission's public
interest analysis of mergers and acquisitions and secondary market
spectrum transactions; and (2) supporting increased funding for and
statutory amendments regarding the Telecommunications Development Fund.
The Commission seeks comment on MMTC's additional requests, including
discussion regarding the relative costs and benefits of each proposal.
Are the proposals that the Commission describes elsewhere in the NPRM,
including the elimination of the AMR rule, sufficient to address the
concerns identified by MMTC regarding the participation of businesses
owned by members of minority groups and women in the provision of
spectrum-based services?
III. Other Part 1 Considerations
84. In advance of an auction that could hold historic potential for
interested applicants to acquire licenses for below-1-GHz spectrum, the
Commission also explores the need for other revisions to its general
part 1 competitive bidding rules to improve the transparency and
efficiency of the auction and its processes. The Commission proposes
changes to its former defaulter rule that seek to balance commenters'
concerns that the current rules are overly broad with its continued
need to ensure that auction bidders are financially reliable. The
Commission also proposes to codify an existing competitive bidding
procedure that prohibits the same individual or entity from filing more
than one short-form application to participate in an auction and it
proposes a new rule that would prevent entities that are exclusively
controlled by a single individual or set of individuals from becoming
qualified to bid on the basis of more than one short-form application
in a specific auction. Both proposals seek to prevent duplicative
filings and to avert anticompetitive bidding behavior at auction.
Regarding the joint bidding rules, the Commission seeks comment on,
among other issues, its tentative conclusions that it would be in the
public interest to retain the current rules governing joint bidding
arrangements among non-nationwide providers and to prohibit joint
bidding arrangements among nationwide providers. Additionally, the
Commission provides notice of its intention to resolve long standing
petitions for reconsideration and proposes necessary clean-up revisions
to its part 1 competitive bidding rules.
A. Former Defaulter Rule
85. Background. Each potential participant in a Commission auction
must certify on its pre-auction short-form application whether or not
the applicant, its affiliates, its controlling interests, and the
affiliates of its controlling interests have ever been in default on
any Commission license or have ever been delinquent on any non-tax debt
owed to any federal agency. With the exception of the Commission's
upcoming auction for AWS-3 licenses (Auction 97) for which it recently
granted a limited blanket waiver, an applicant is considered to be a
``former defaulter'' if the applicant, including any of its affiliates,
its controlling interests, or any of the affiliates of its controlling
interests, has defaulted on any Commission license or been delinquent
on any non-tax debt owed to any federal agency, but has since remedied
all such defaults and cured all of its outstanding non-tax
delinquencies. Former defaulters are eligible to bid in a Commission
auction provided they are otherwise qualified, but are required to pay
upfront payments that are 50 percent more than the normal upfront
payment amounts.
86. In the Part 1 Fifth Report and Order, the ``former defaulter''
policies were incorporated into the Commission's part 1 general
competitive bidding rules. See Amendment of Part 1 of the Commission's
Rules--Competitive Bidding Procedures, 65 FR 52323, Aug. 29, 2000 (Part
1 Fifth Report and Order). The Commission reasoned that the integrity
of the auctions program and the licensing process dictates requiring a
more stringent financial showing from applicants with a poor federal
financial track record. Thus, while cure of an outstanding federal
default or delinquency enables the former defaulter to participate in
an auction, the rules require the former defaulter to make a larger
upfront payment. Other than in the recent waiver for Auction 97, the
former defaulter rule has been applied without any limitation as to age
or scope of an applicant's prior default or delinquency.
87. On August 29, 2014, in response to unopposed requests from
wireless industry parties, the Commission granted a limited blanket
waiver to narrow the circumstances under which an applicant for Auction
97 would be considered a former defaulter and required to submit a
larger upfront payment to qualify to bid. The Commission concluded that
the underlying purpose of the upfront payment and former defaulter
rules would not be served by their broad application in the AWS-3
auction, and that a limited waiver served the public interest.
Specifically, for Auction 97, the Commission waived the former
defaulter rule for applicants to exclude any cured default or
delinquency for which any of the following criteria were met: (1) The
notice of the final payment deadline or delinquency was received more
than seven years before the Auction 97 short-form application deadline
of September 12, 2014; (2) the amount of the default or delinquency
falls below $100,000; (3) the default or delinquency was paid within
two quarters (i.e., 6 months) after receiving the notice of the final
payment deadline or delinquency; or (4) the default or delinquency was
the subject of a legal or arbitration proceeding that was cured upon
resolution of the proceeding. See Petition of DIRECTV Group, Inc. and
EchoStar LLC (collectively, DIRECTV/EchoStar) for Expedited Rulemaking
to Amend Section 1.2105(a)(2)(xi) and 1.2106(a) of the Commission's
Rules and/or for Interim Condition Waiver; Auction of Advanced Wireless
Services (AWS-3) Licenses Scheduled for November 13, 2014 (Auction 97),
RM-11395; AU Docket No. 14-78, Order, FCC 14-130, para. 1 (rel. Aug.
29, 2014) (Auction 97 Former Defaulter Waiver Order). Pursuant to the
Auction 97 Former Defaulter Waiver Order, only applicants that have had
a cured default or delinquency that falls outside of these exclusions
would have to certify to being a ``former defaulter'' and submit a
larger upfront payment in Auction 97. The Auction 97 Former Defaulter
Waiver Order noted that the Commission's limited grant of the blanket
waiver for Auction 97 was without prejudice to its further examination
and disposition, based on a complete record, of the issues surrounding
the former defaulter rule through a rulemaking proceeding.
88. Discussion. Although the former defaulter rule serves an
important and necessary function to ensure that bidders are capable of
meeting their financial commitments, the Commission tentatively
concludes that the rule may be too far-reaching and impose unnecessary
costs and burdens on auction participants. The Commission proposes a
more tailored approach by balancing concerns that the current
application of the rule is overbroad with its continued need to ensure
that auction bidders are financially reliable. The Commission seeks
comment on revising the rule to narrow the scope of
[[Page 68187]]
the defaults and delinquencies that will be considered in determining
whether or not an auction participant is a former defaulter.
Specifically, the Commission proposes to exclude any cured default on
any Commission license or delinquency on any non-tax debt owed to any
federal agency for which any of the following criteria are met: (1) The
notice of the final payment deadline or delinquency was received more
than seven years before the relevant short-form application deadline;
(2) the default or delinquency amounted to less than $100,000; (3) the
default or delinquency was paid within two quarters (i.e., 6 months)
after receiving the notice of the final payment deadline or
delinquency; or (4) the default or delinquency was the subject of a
legal or arbitration proceeding that was cured upon resolution of the
proceeding. The Commission seeks comment on limiting the individuals
and entities that an applicant must consider when determining its
status as a former defaulter.
89. In offering these proposals to limit the former defaulter rule,
the Commission keeps in mind the underlying purposes of the upfront
payment rule generally, and the increased upfront payment required of
former defaulters. The Commission typically requires auction
participants to provide upfront payments in order to qualify to bid in
an auction. Upfront payments help prevent frivolous or insincere
bidding and provide the Commission with a source of funds from which to
collect payments owed at the close of auction. In adopting an upfront
payment requirement, the Commission also recognized that it was
balancing the goal of encouraging bidders to submit serious, qualified
bids with the desire to simplify the bidding process and minimize
implementation costs that will be imposed on bidders. The original
former defaulter rule appeared in the Commission's part 24 Broadband
PCS rules in the wake of financial difficulties of participants in the
C Block auctions. The Commission subsequently incorporated the part 24
former defaulter policies into the part 1 general competitive bidding
rules, noting that the rule's purpose was to preserve the integrity of
the auction process and ensure that bidders are capable of meeting
their financial commitments to the Commission. As the Commission noted
in the Auction 97 Former Defaulter Waiver Order, in the 14 years since
that Commission action, its auctions program has matured and the mobile
wireless industry has grown into a major segment of the nation's
economy. Accordingly, the Commission considers in the Competitive
Bidding NPRM whether the current broad rule continues to strike the
right balance to promote the goals of its upfront payment and former
defaulter rule.
90. The parties that requested waiver of the former defaulter rule
also suggest that the Commission modify the rule. For instance, in
their petition, DIRECTV/EchoStar argue that, as currently written, the
former defaulter rule applies too broadly to effectively advance the
Commission's goal of ensuring that auction bidders are financially
reliable. In their joint filing, CCA, CEA, CTIA and NTCA (the Four
Associations) mirror that sentiment and suggest that the scope of the
rule is unnecessary to achieve its purpose, particularly when the
former defaults or delinquencies are in a relatively small amount or
were cured years prior. These parties offer a variety of ways to limit
the scope of the former defaulter inquiry, but all consistently contend
that the rule is unnecessarily broad to serve its underlying purpose.
The Commission seeks comment on its specific proposals to narrow the
scope of the defaults and delinquencies that would trigger an auction
applicant's former defaulter status and asks commenters to address
whether, if such proposals are adopted, the Commission can still
promote the important protective functions of its upfront payment and
former defaulter rules.
91. Parties urge first that prior delinquencies and defaults more
than a certain number of years old should be excluded from the scope of
the former defaulter rule. In the Auction 97 Former Defaulter Waiver
Order, the Commission excluded from consideration under the former
defaulter rule any cured default or delinquency for which the notice of
the final payment deadline or delinquency was received more than seven
years before the Auction 97 short-form application deadline of
September 12, 2014. The Commission concluded that the rule's current
unlimited time period may capture former defaults and delinquencies
that have lost their relevance to a bidder's current capability to meet
its financial commitments to the Commission, and thus may no longer
warrant a larger upfront payment for Auction 97. Initially, advocates
seeking a more limited time frame for the rule's application argued
that a three year period would correspond to certain Federal tax
statute of limitations. In seeking a waiver for Auction 97, CCA, CTIA
and NTCA (the Three Associations) suggested that the Commission should
define former defaulters to include only those applicants who have
received notice of defaults or delinquencies within seven years before
the Auction 97 short-form application deadline. In the Auction 97
Former Defaulter Waiver Order, the Commission noted that while federal
tax laws have a three-year statute of limitations to determine if
certain forms of additional tax are owed, the period of limitations to
determine whether income was under-reported is six years and the
Internal Revenue Service has a seven-year period to review a claim for
a loss from worthless securities or a bad debt deduction. Likewise, the
Commission acknowledged that the Fair Credit Reporting Act limits many
types of reporting by consumer credit agencies for a period of seven
years. In light of these longer federal limitations periods, the
Commission tentatively concludes that the purposes of the upfront
payment and former defaulter rules may be furthered more precisely if
the Commission excludes any cured default on a Commission license or a
delinquency on a non-tax debt owed to a federal agency where the notice
of the final payment deadline or delinquency was received more than
seven years before the short-form application deadline. In doing so,
the Commission notes that the determination of a notice of a final
payment deadline or delinquency depends on the origin of the federal
non-tax debt giving rise to a default or delinquency and such notice
may be express or implied. To the extent that the rules providing for
payment of a specific federal debt permit payment after an original
payment deadline accompanied by late fee(s), such debts would not be in
default or delinquent for purposes of applying the former defaulter
rules until after the late payment deadline. For the purposes of the
certifications required on a short-form auction application, notice
provided by Commission staff assessing a default payment arising out of
a default on a winning bid constitutes notice of the final payment
deadline with respect to a default on a Commission license. The
Commission seeks comment on all aspects of this proposal--the number of
years specified (seven), the triggering event (upon receipt of the
notice of the final payment deadline or delinquency), and the point at
which the counting of the age of the triggering event is cut off (the
short-form application deadline). To the extent commenters advocate a
different length of time, an alternate triggering event, or another way
of calculating how long ago the triggering event
[[Page 68188]]
occurred, the Commission urges them to be specific as to why their
proposal is more appropriate given the policies behind its rule. Should
the length of time it took the defaulter to cure the debt, or how
recently the cure occurred, be a factor?
92. Those favoring modification of the rule also suggest excluding
former defaults or delinquencies that fall below a certain amount. The
Auction 97 Former Defaulter Waiver Order excluded from consideration
under the former defaulter rule for Auction 97 any former default or
delinquency for which the amount of the resolved debt or delinquency
fell below $100,000. Parties initially suggested excluding defaults or
delinquencies of what they defined as de minimis in nature, and
specifically suggested that the Commission should ignore any former
default or delinquency totaling less than the lesser of $100,000 or 0.1
percent of the average annual revenues of the applicant, as computed by
its competitive bidding rules. The Three Associations later suggested
that the Commission exclude from the definition of former defaulter any
cured defaults on a Commission license or delinquencies on a non-tax
debt owed to a federal agency in an amount of less than $100,000. In
the Auction 97 Former Defaulter Waiver Order, the Commission noted the
$100,000 amount is used in other contexts to distinguish between less
significant or material issues and more significant ones and the
Commission concluded that for the purposes of Auction 97, requiring a
larger upfront payment based on any cured default or delinquency that
is less than $100,000 could discourage participation in Auction 97
without appreciably ameliorating the risk of bidder defaults, and
thereby undermine the underlying purposes of its upfront payment and
former defaulter rules.
93. For clarity and efficiency of the administration of the former
defaulter rule from both the Commission's and applicants' perspectives,
the Commission now proposes to adopt for future auctions generally the
same bright-line standard established in the Auction 97 Former
Defaulter Waiver Order that would exclude from the rule any former
default on a Commission license or delinquency on a non-tax debt owed
to a federal agency where the amount of the resolved debt falls below
$100,000. The Commission tentatively concludes that such an exclusion
will simplify the application process and minimize implementation costs
imposed on applicants by excluding former defaults and delinquencies
for which consideration is no longer necessary to ensure bidders in a
more mature wireless industry submit serious, qualified bids. The
$100,000 threshold aligns with Commission precedent and is used in
other contexts to determine the materiality or significance of various
issues. See Auction 97 Former Defaulter Waiver Order at para. 18. If
commenters disagree with the amount proposed, the Commission encourages
them to provide specific examples of how former defaults or
delinquencies of a different amount would better reflect an auction
applicant's financial reliability. The Commission also seeks comment on
whether its proposal adequately weighs its need to consider debts of a
serious nature that are indicative of a bidder's poor federal track
record with the burdens faced by many applicants in complying with the
current rule, which might be considered open-ended in scope.
94. To address situations where, due to incorrect addresses,
delivery problems, or internal issues, applicants may not timely pay
obligations, but cure such debts when discovered, the Three
Associations also contend that the Commission should for the purposes
of the former defaulter rule exclude certain additional resolved debts.
For Auction 97 applicants, the Commission waived the former defaulter
rule to exclude any cured default or delinquency where the debt was
paid within two quarters (i.e., 6 months) after receiving the notice of
final payment deadline or delinquency. There, the Commission concluded
that the prompt cure of such a default or delinquency sufficiently
demonstrated an applicant's financial wherewithal, that therefore it
was unnecessary to require a larger upfront payment from the applicant,
and that a waiver under such circumstances served the public interest
by encouraging prompt payment of debts owed to the government. The
Commission now proposes to modify the former defaulter rule generally
to exclude a default or delinquency that was paid within two quarters
(i.e., 6 months) after receiving the notice of the final payment
deadline or delinquency for the same reasons articulated in the Auction
97 Former Defaulter Waiver Order. The Commission seeks comment on
whether this exclusion will allow it to appropriately balance the
practicalities that may affect the applicants' ability to timely
resolve their debts with the need to ensure that bidders are capable of
meeting their financial commitments to the Commission. The Commission
also invites commenters to address whether payment within some other
time period might better strike that balance, and whether receipt of
the notice of the final payment deadline or delinquency is the
appropriate triggering event for this exclusion.
95. Similarly, the Three Associations also suggest for the purposes
of modifying the former defaulter rule that an applicant should not be
considered to be in default if any debt is the subject of a good faith
dispute or a pending legal or arbitration proceeding. In the Auction 97
Former Defaulter Waiver Order, the Commission included this suggestion
in part, and concluded that where the default or delinquency was the
subject of a legal or arbitration proceeding and was cured upon
resolution of the proceeding, an applicant has demonstrated sufficient
financial credibility so that it was not necessary to require a larger
upfront payment from it in Auction 97. The Commission determined that
waiver under such circumstances served the public interest by
encouraging prompt resolution of debts associated with legal or
arbitration proceedings. The Commission declined, however, to waive the
larger upfront payment requirement for debts that are subject to a
``good faith dispute'' because it reasoned that such a provision, even
for cured debts, would be too ambiguous to be efficiently applied
during the auction short-form application process. The Commission
proposes to modify the former defaulter rule generally to exclude a
default or delinquency that was the subject of a legal or arbitration
proceeding and was cured upon resolution of the proceeding. As in the
Auction 97 Former Defaulter Waiver Order, the Commission does not
intend to include within the scope of this exclusion any proceedings
based on requests for waiver of a rule requiring payment of a debt or
delinquency. The Commission seeks comment on whether its proposed
exclusion addresses parties' concerns that debts such as these are not
indicative of an applicant's financial credibility such that they
should require an applicant to submit a larger upfront payment. Should
the Commission also exclude debts cured after resolution of a ``good
faith dispute,'' and if so, how could such ``good faith disputes'' be
verified during the short-form application process, if necessary? Is
the proposed general exclusion for debts cured upon resolution of a
legal or arbitration proceeding necessary? In the alternative, should
the Commission expect financially reliable applicants to pay
outstanding defaults on Commission licenses, or delinquencies on any
non-
[[Page 68189]]
tax debt owed to any federal agency, while legal or arbitration
proceedings are pending, even if the applicant's liability or the
amount of the debt is in dispute?
96. In their petition, DIRECTV/EchoStar also maintain that the
former defaulter rule should apply only to auction participants and
those individuals or entities that are in a position to affect whether
such applicants meet their auction-related financial responsibilities
and urge the exclusion of debts/delinquencies relating to personal
obligations of officers or directors of entities that are not the
auction applicant, e.g., excluding personal obligations of officers and
directors of the applicant's parent companies. More recent requests to
amend the former defaulter rule do not include any suggestion to limit
the scope of individuals and entities that an applicant needs to
consider in evaluating its former defaulter status.
97. In implementing the former defaulter provisions, the Commission
has included the applicant's affiliates, its controlling interests, and
affiliates of its controlling interests in determining if an applicant
is a former defaulter. The Commission recognizes, however, that some of
the individuals and entities that fall within these definitions may
play no role in the applicant's general financial responsibilities and
may not affect an applicant's ability to meet its financial obligations
arising from an auction. Therefore, the Commission seeks comment on
possible ways to amend the former defaulter provisions to apply only to
individuals and entities that play a role in the applicant's financial
responsibilities. If the Commission were to adopt DIRECTV/EchoStar's
proposal to include only individuals or entities that are in a position
to affect whether such applicants meet their auction-related financial
responsibilities, how could it verify who would fit within such a
category? In their request for waiver, DIRECTV/EchoStar suggest
specifically not applying the rule to officers and directors of parent
entities. Under such an option, however, what would prevent applicants
from evading the rule by simply creating a shell company to be the
auction applicant?
98. Another option would be to limit the former defaulter inquiry
to those individuals or entities that an applicant must disclose on its
short-form application pursuant to 47 CFR 1.2112. For non-DEs, this
would limit the inquiry to the applicant and disclosable interest
holders under 47 CFR 1.2112(a). For DEs, the Commission could, under
this option, continue to include those individuals and entities that
are attributable to the applicant under 47 CFR 1.2112(b)(iv) in any
consideration of an applicant's form defaulter status. As such, the
Commission recognizes that, while such an option may exclude some
individuals and entities not directly related to an applicant's auction
finances, it could also expand the scope of individuals or entities
that must be considered in some respects. The Commission could limit
the inquiry to, for example, the real party or parties in interest in
the applicant or application, which must be disclosed pursuant to 47
CFR 1.2112(a)(1). Would this option capture the individuals and
entities that are in a position to affect whether an applicant meets
its auction-related financial responsibilities? Would excluding
officers and directors not otherwise covered by 47 CFR1.2112(a)(1) be
inconsistent with the Commission's policy to attribute them for
purposes of evaluating eligibility for designated entity bidding
credits in light of their potential ability to influence the management
or operation of the applicant?
99. Finally, the Commission seeks comment as to other possible ways
to limit the scope of the former defaulter rule. For example, the
Commission could define the rules to include only defaults or
delinquencies related to its auction payments, or defaults or
delinquencies on debt owed only to the Commission as opposed to those
owed on other government non-tax debt, such as student loans. The
Commission notes, however, that such further limitations may not be
necessary given the other limitations that it proposes.
B. Commonly Controlled Entities
100. The Commission proposes to codify an established competitive
bidding procedure that prohibits the same individual or entity from
filing more than one short-form application. Additionally, the
Commission proposes a new rule that would prevent entities that are
exclusively controlled by a single individual or set of individuals
from qualifying to bid on licenses in the same or overlapping
geographic areas in a specific auction on more than one short-form
application.
101. Background. The Commission's competitive bidding procedures
have long prohibited the same individual or entity from submitting
multiple short-form applications in any auction. This restriction
prevents duplicative filings and may avert anticompetitive bidding
behavior.
102. There is currently no similar procedure for commonly
controlled entities. The competitive bidding rules and procedures
currently contain no explicit prohibition on commonly controlled
entities participating in the same auction and bidding on the same
licenses. Several years ago, the Commission declined to set aside the
results of an auction based on allegations relating to the
participation of separate applicants that were commonly controlled. In
that decision, the Commission acknowledged that auction participation
by commonly controlled applicants could serve legitimate business
purposes if such entities have different business plans, financing
requirements, or marketing needs; however, it noted that there could be
risks inherent in allowing commonly controlled bidders to participate
in an auction. See Petition for Reconsideration and Motion for Stay of
Paging Systems, Inc., Memorandum Opinion and Order, 25 FCC Rcd 4036
(2010).
103. Discussion. The Commission proposes to amend its competitive
bidding rules to codify its restriction on the filing of multiple
auction applications by the same individual or entity and to adopt a
new rule that would prevent entities that are controlled exclusively by
the same single individual or set of individuals from qualifying to bid
based on multiple auction applications for the same or overlapping
geographic license areas. By proposing these amendments to its Part 1
competitive bidding rules, the Commission seeks to improve the
transparency and efficiency of the auction process, by making clearer
who the qualified bidders actually are and ensuring against the
potential for anticompetitive auction behavior.
104. Duplicate auction applications. The Commission proposes to
amend 47 CFR 1.2105 to prohibit the same individual or entity from
filing more than one short-form application for an auction. The
Commission observes that in contexts other than competitive bidding,
its rules already limit repetitious or conflicting applications.
Prohibiting the same individual or entity from filing multiple
applications to participate in an auction protects the Commission
against the burden of duplicative, repetitious or conflicting
applications. Moreover, in this context, such applications raise
potential concerns that duplicate filers may be able to manipulate the
auction process--using, for example, identical bids or multiple
activity waivers--to pursue potentially anticompetitive ends. The
Commission seeks comment on this proposal. Are there any specific
reasons the Commission should allow for the filing of more than a
single short-form
[[Page 68190]]
application from the same individual or entity? Commenters should
describe any public interest benefits to support their positions.
105. Applications by entities exclusively controlled by the same
individual or set of individuals. The Commission also proposes to adopt
a new rule to provide that where entities are under the common,
exclusive control of a single individual or set of individuals (i.e., a
single individual or same set of individuals is the exclusive
controlling interest of more than one entity) only one short-form
application from such entities could become qualified to participate
with respect to any particular geographic license area or overlapping
areas. In defining the entities that would be subject to this rule, the
Commission proposes to use the concepts of ``control'' or ``controlling
interest'' from 47 CFR 1.2110, which also applies by its terms to DEs.
Even when applicants are not identical, if more than one applicant is
under the exclusive control of a single individual or set of
individuals, such common control may allow the controlling individual
or set of individuals to attempt to gain advantages in the bidding
process based on certain coordinated bidding actions (e.g., tied bids,
activity waivers). While such entities may have different business
plans, financing, accounting, non-controlling interest holders or
minority investors, if they are under exclusive control of a single
individual or set of individuals, under the Commission's proposal those
entities could not become qualified to bid in an auction with respect
to the same or overlapping geographic license areas. The Commission
seeks comment on this proposal and on specific alternatives to address
its concerns.
106. Multiple applicants under the common control of a single
individual or set of individuals may coordinate their bidding actions
in ways not available to a single bidder, and may, in some cases,
derive some advantage from doing so. For example, such multiple
applicants would have more activity waivers to use to ensure that the
auction remains open, or would be able to submit identical bids on a
license in ways intended to exploit auction bidding procedures. In
addition, such multiple applicants could potentially coordinate their
bidding to gain some advantage in the context of random tie-breakers or
through increasing the bidding activity on a single license in order to
raise minimum acceptable bids more quickly through application of the
exponential smoothing formula.
107. Further, the mere presence of commonly controlled applicants
making identical bids in a single auction may damage the transparency
of the auction process. For example, the placing of multiple identical
bids by commonly controlled applicants may mislead other bidders about
the extent of bidding competition, especially in an anonymous bidding
auction where competitors are unable to discern whether bids are placed
by commonly controlled applicants or independent competitors. The
Commission anticipates that these and other potentially problematic
behaviors could be curbed by requiring such applicants to participate
as a single applicant with respect to any particular geographic license
area or overlapping areas.
108. Do commenters share the Commission's concern that the
participation of commonly controlled applicants in an auction
potentially undermines evenhandedness and transparency in the auction
process? Commenters opposing the Commission's proposals should indicate
how codifying its existing auction procedure and/or adopting its new
proposed rule would harm the efficiency or undermine the
competitiveness of the Commission's current auction process. The
Commission notes that to the extent that the commonly controlled
entities have an interest in holding licenses won at auction
separately, such entities might consider assigning the licenses to
related entities in the secondary market. Are there legitimate business
reasons for filing these types of applications that the Commission has
failed to consider that could be undermined by its proposal?
C. Joint Bidding
109. The Commission initiates a review of its rules and policies
governing joint bidding and other arrangements in order to ensure that
they fulfill its statutory objectives, given the changes in the mobile
wireless marketplace since the Commission's initial adoption of its
bidding rules two decades ago, and the increasing importance of
spectrum for service providers to meet consumer demand for mobile
wireless services. The Commission's goal in reviewing these rules and
policies is to ensure that they preserve and promote competition in the
mobile wireless marketplace and facilitate competition among bidders at
auction, while providing potential bidders with greater clarity
regarding the types of joint bidding arrangements that would be
permissible.
110. Consistent with the Commission's commitment in the Mobile
Spectrum Holdings Report and Order, it seeks to develop a record on how
joint bidding and other arrangements affect competition in the mobile
wireless marketplace, and the appropriate policies and procedures for
substantive competitive review of joint bidding. Policies Regarding
Mobile Spectrum Holdings; Expanding the Economic and Innovation
Opportunities of Spectrum Through Incentive Auctions, 79 FR 39977, Jul.
11, 2014 (Mobile Spectrum Holdings Report and Order). In that regard,
the Commission notes that the scope of its inquiry here--unlike its
other proposals in the NPRM applies only to joint bidding and other
arrangements in auctions of licenses likely to be used for mobile
telephony/mobile broadband services.
111. To best serve the public interest and preserve and promote
robust competition, the Commission also proposes to adopt policies
tailored to the characteristics of joint bidding and other arrangements
and the likely competitive effects on the mobile wireless marketplace.
Specifically, the Commission tentatively concludes that it would best
serve the public interest to retain the current rules governing joint
bidding arrangements among non-nationwide providers and to prohibit
joint bidding arrangements among nationwide providers. In addition, the
Commission seeks comment on whether it should revise any of its current
rules as applied to arrangements between nationwide providers and other
entities, including its rules governing short-form applications.
Further, the Commission seeks comment on whether any revisions to its
rules governing long-form applications are necessary in light of its
consideration of the potential harms and benefits of joint bidding and
other arrangements.
112. Background. Rules and Policies Governing Joint Bidding. In
1994, the Commission adopted rules to serve the objectives of the Act
by preventing parties, especially the largest firms, from agreeing in
advance to bidding strategies that divide the market according to their
strategic interests and disadvantage other bidders. See Implementation
of Section 309(j) of the Communications Act--Competitive Bidding, 59 FR
22980, May 4, 1994 (Competitive Bidding Second Report and Order). The
Commission also sought to help ensure that the government receives a
fair market price for the use of the spectrum. In the Competitive
Bidding Second Report and Order, the Commission further concluded that
adopting safeguards to prevent collusive behavior
[[Page 68191]]
among bidders would help ensure prompt delivery of services (including
to rural areas), rapid deployment of new services and technologies,
development of competitive markets, and wide access to a variety of
services. Moreover, the Commission observed that collusive conduct
among bidders could prevent the formation of a competitive post-auction
market structure. At the same time, the Commission recognized that if
anticollusion rules are too strict or are not sufficiently clear, they
could prevent the formation of efficiency enhancing bidding consortia
that pool capital and expertise and reduce entry barriers for small
firms and other entities that might not otherwise be able to compete in
the auction process.
113. The Commission concluded that, in most cases, the number of
bidders likely to participate in the auction, auction design
safeguards, and existing antitrust law would effectively deter
collusion. However, the Commission also adopted certain measures to
help ensure collusion would not jeopardize the competitiveness of the
auction process. Importantly, the Commission found these safeguards
sufficient in the context of other competition-related determinations
it had made regarding the initial licensing of Broadband PCS licenses
through competitive bidding. Specifically, the Commission had set a
limit on the amount of broadband PCS spectrum that the incumbent
cellular licensees in each market could acquire at the upcoming PCS
auctions as well as a separate limit on the amount of such spectrum
that any bidder could acquire at the upcoming Broadband PCS auctions.
In 1991, the Commission had adopted a cellular cross-interest rule that
substantially limited any affiliation between the two cellular
licensees in an area.
114. With relatively minor changes adopted since 1994, the
Commission's current rules allow potential participants in a Commission
auction, prior to the short-form application deadline, to enter into
various kinds of agreements related to the licenses being auctioned as
long as the applicants disclose on the short-form application on both
the existence (but not the terms and conditions) of any joint bidding
arrangements and the real-parties-in-interest to the application. After
the short-form application deadline, applicants may not enter into any
additional arrangements regarding the amount of bids, bidding
strategies or particular licenses on which they will or will not bid,
subject to certain limited exceptions, and may not communicate bidding
information to other applicants for licenses in any of the same
geographic areas unless those other applicant(s) were identified on the
short-form application. Post-auction, winning bidders must disclose on
the long-form application the specific terms, conditions, and parties
involved in any agreement into which the applicant has entered, and the
winning bidder must be the same entity that files the long-form
application.
115. The Commission notes that it has always made clear with
respect to its rules and policies governing joint bidding that conduct
that is permissible under the Commission's Rules may be prohibited by
the antitrust laws, review under which is subject to other and
differing standards under the Sherman and Clayton Acts. Specifically,
joint bidding arrangements under section 1 of the Sherman Act are
prohibited if they constitute a ``contract, combination . . ., or
conspiracy, in restraint of trade,'' whereas joint bidding arrangements
subject to section 7 of the Clayton Act are prohibited if their effect
``may be substantially to lessen competition, or to tend to create a
monopoly.'' The Commission's auction procedures public notices for
specific auctions caution that compliance with the disclosure
requirements of 47 CFR 1.2105(c) will not insulate a party from
enforcement of the antitrust laws. Bidders who are found to have
violated the antitrust laws or the Commission's rules in connection
with their participation in the competitive bidding process may be
subject to forfeiture, prohibition from auction participation, and
other sanctions.
116. Evolution of the Mobile Wireless Marketplace. The Commission
adopted these joint bidding rules 20 years ago when the mobile wireless
industry was at a nascent stage: For example, at the end of 1994, the
nationwide penetration rate for mobile wireless service was
approximately 9 percent, compared to 106 percent at the end of 2011.
Moreover, when the Commission adopted its joint bidding rules in 1994,
it had yet to hold even the first of the numerous auctions it has
conducted in its history of licenses likely to be used for mobile
telephony/mobile broadband services.
117. The Commission's competitive bidding rules, as adopted in
1994, reflected the developing nature of the mobile wireless industry,
as the Commission sought to promote economic growth in the ``new
wireless services'' and to enhance access to telecommunication services
by encouraging broad participation in the provision of spectrum-based
services and ensuring that spectrum-based services are available to a
wide range of consumers. In 1998, the Commission observed again that
much of the mobile telephone market was still in its infancy.
118. Since 1994, and particularly in the past decade, the
marketplace has changed significantly. It is no longer nascent.
Consumer demand for wireless services has exploded, with the industry
focus changing from the provision of mobile voice services to the
provision of mobile broadband services. The adoption of smartphones and
tablet computers, and the widespread use of mobile applications,
combined with the increasing deployment of high-speed 3G and now 4G
technologies, is driving significantly more intensive use of mobile
networks and increasing providers' need for spectrum. In addition,
during the past decade, the wireless marketplace has undergone
significant consolidation, with a reduction from six to four nationwide
providers, an increase in the market share of the major providers, and
a smaller number of regional and local providers. Indeed, by December
2013, the top four facilities-based nationwide providers had combined
market share of approximately 97 percent of subscribers. See UBS
Investment Research, US Wireless 411: Version 51, Mar. 18, 2014, Figure
21 at 14.
119. Consistent with the evolution of the mobile wireless
marketplace and the Commission's statutory directives and policy goals,
it continues to strive to adopt policies to preserve and promote
consumer choice and competition among multiple service providers,
promote the efficient and intensive use of spectrum, maximize economic
opportunity, and foster the deployment of innovative technologies. For
instance, the Commission recently concluded in the Mobile Spectrum
Holdings Report and Order that any mobile spectrum limit on the initial
licensing of a spectrum band through competitive bidding should be
articulated and applied prior to the start of the auction in order to
provide bidders greater certainty regarding how many licenses they
would be permitted to acquire.
120. In the Mobile Spectrum Holdings Report and Order, the
Commission established a market-based spectrum reserve for the
Incentive Auction of up to 30 megahertz in each license area,
recognizing that the Incentive Auction represents a once-in-a-
generation opportunity to auction significant amounts of greenfield
low-band spectrum. The Commission limited nationwide providers from
bidding on reserved spectrum in Partial Economic Areas (PEAs) where
they hold 45 megahertz or more of suitable and
[[Page 68192]]
available below-1-GHz spectrum. By contrast, the Commission permitted
regional and local service providers to bid on reserved spectrum in all
PEAs, observing that non-nationwide service providers present a
significantly lower risk of effectively denying their rivals access to
low band spectrum to foreclose competition or to raise rivals' costs
because of their relative lack of resources. At the same time, in the
Mobile Spectrum Holdings Report and Order, the Commission placed no
limitation on the amount of spectrum that bidders could acquire in the
AWS-3 auction.
121. In the Mobile Spectrum Holdings Report and Order, the
Commission also stated it would consider in a further notice of
proposed rulemaking possible changes to certain auction rules relating
to joint bidding arrangements and strategies in the Incentive Auction.
The Commission here undertakes a reexamination of its auction rules on
these issues, including but not limited to their application in the
Incentive Auction.
122. Discussion. In light of the changes in the mobile wireless
marketplace since the Commission adopted the current joint bidding
rules 20 years ago, the Commission reviews its rules on joint bidding
and other arrangements to ensure that the potential competitive harms
that may arise out of such arrangements do not outweigh any public
interest benefits. To best serve the public interest and preserve and
promote robust competition into the foreseeable future, the Commission
seeks to further its statutory objectives by adopting policies tailored
to the type of arrangement and its likely competitive effect on the
conduct of the auction and on the mobile wireless marketplace.
Specifically, the Commission tentatively concludes that it would serve
the public interest to retain the current rules governing joint bidding
and other arrangements among non-nationwide providers, but to prohibit
certain joint bidding and other arrangements among nationwide
providers. In addition, the Commission seeks comment on whether the
Commission should revise any of its current rules as applied to
arrangements between nationwide providers and other entities, including
its rules governing short-form applications. Further, the Commission
seeks comment on whether any revisions to its rules governing long-form
applications are necessary in light of its consideration of the
potential harms and benefits of joint bidding and other arrangements.
123. For purposes of this proceeding, the Commission defines
``joint bidding and other arrangements'' to include any bidding
consortia, joint venture, partnership, or agreement, understanding, or
other arrangement entered into relating to the competitive bidding
process, including any agreement relating to post-auction market
structure or operation. In light of the Commission's focus on promoting
and preserving competition, it considers this definition to include not
only arrangements among entities that apply to bid in an auction, but
also arrangements between entities that apply to bid in an auction and
those entities that do not, insofar as such arrangements have the
potential to affect competition in the mobile wireless telephony/mobile
broadband marketplace.
124. Competitive Effects of Joint Bidding and Other Arrangements.
When assessing the competitive effects of joint bidding and other
arrangements, the Commission must ensure that its policies and rules
facilitate access to spectrum in a manner that promotes competition to
the benefit of consumers. As the Commission has found in the Mobile
Spectrum Holdings Report and Order, in order for there to be robust
competition, multiple competing service providers must have access to
or hold sufficient spectrum to be able to enter the marketplace or
expand output rapidly in response to any price increase, reduction in
quality, or other competitive change that would harm consumer welfare.
125. Joint conduct or competitor collaboration that is more limited
in scope and does not result in a full integration of economic activity
does not end all competition between participants post bidding and is
analyzed differently from joint ventures that fully integrate the
participants downstream competition. The latter, in certain
circumstances, may be properly analyzed as a merger. Either type of
competitor collaboration however may result in procompetitive benefits
and/or anticompetitive effects.
126. Because some joint bidding and other competitor collaborations
contemplate competition among participants post auction, they raise the
risk that the spectrum acquired through a winning bid will be allocated
among the joint venture participants in a manner that could harm the
public interest. Because the joint venture may be comprised of same
market competitors, the arrangement may require proper safeguards to
prevent the exchange of competitively sensitive price and output
information, ensure independent decision making or otherwise avoid
lessening competition among the participants in the downstream mobile
wireless marketplace.
127. Joint bidding and other arrangements, however, also have the
potential to result in procompetitive benefits if they enable
participation in auctions by those otherwise without sufficient
financial resources to bid, or otherwise reduce entry costs into a
geographic area or enable the joint bidders to compete more robustly
against other competitors in the marketplace. For example, the pooling
of capital resources could allow smaller providers to better exploit
financial economies of scale and enter into bidding for geographic
areas that otherwise would not have been accessible, which may be
particularly important given the high capital costs of network
deployment and spectrum acquisition.
128. The Commission seeks comment on the foregoing analysis. The
Commission's public interest review of applications for assignment of
licenses through competitive bidding generally encompasses a review of
the competitive effects of such assignments. In light of the changing
marketplace and consistent with the Commission's recent emphasis in the
Mobile Spectrum Holdings proceeding on the need for clearly-defined
rules prior to the auction on the licenses a bidder would be permitted
to acquire, the Commission seeks comment on how best to conduct its
competitive review of joint bidding arrangements going forward.
129. Given the potential benefits and harms of different types of
arrangements, the Commission seeks comment on the rules and procedures
that should govern its review of joint bidding and other arrangements
entered into relating to the competitive bidding process, including any
agreement relating to post-auction market structure or operation. In
addition, the Commission seeks comment on whether the distinctions as
to arrangements among non-nationwide providers, among nationwide
providers, and between nationwide providers and other entities--provide
an effective framework for addressing the relative harms and benefits
of joint bidding arrangements in light of its goal of providing
clearly-defined rules for potential bidders in auctions. Further, the
Commission seeks comment on whether these rules or procedures should
differ in instances in which it has adopted a mobile spectrum holding
limit for the initial licensing of a particular spectrum band through
competitive bidding and, if so, how the type of mobile spectrum holding
limit
[[Page 68193]]
and the statutory goals applicable to the particular auction should
affect these rules and procedures.
130. For purposes of the joint bidding rules, the Commission
proposes to define ``nationwide'' providers to include the providers in
the U.S. with networks that cover a majority of the population and land
area of the country--currently, Verizon Wireless, AT&T, Sprint and T-
Mobile--with other providers being considered ``non-nationwide''
providers. The Commission seeks comment on how this definition of
nationwide providers should take into account entities partially owned
by Verizon Wireless, AT&T, Sprint and T-Mobile. Should the definition
include entities that are ``affiliates'' (as that term is defined in
its rules for attributing revenues to small businesses) of the four
providers, entities with spectrum holdings that would be attributable
to these four providers (as defined by its mobile spectrum holdings
rules), or a category of entities defined in some other manner?
131. Arrangements among Non-Nationwide Providers. Considering the
current competitive landscape and the need for access to spectrum by
non-nationwide providers, the Commission tentatively concludes that its
current rules are sufficient to prevent any potential competitive harm
from outweighing the likely public interest benefits associated with
allowing joint bidding and other arrangements among non-nationwide
providers. For example, joint bidding and other arrangements among non-
nationwide providers can better overcome the challenging capital costs
of license acquisition to maintain or increase their competitive
presence to the benefit of American consumers. In light of the
relatively small size and scope of non-nationwide providers following
substantial consolidation since the Commission's current rules were
adopted, and the increased costs of spectrum and other capital
expenditures necessary to provide mobile broadband service over large
license areas, the Commission believes it is highly unlikely in most
circumstances that such arrangements would lead to competitive harm or
otherwise harm the public interest. Moreover, in the Mobile Spectrum
Holdings Report and Order, the Commission observed that non-nationwide
service providers presented a significantly lower risk of effectively
denying their rivals access to spectrum in order to foreclose
downstream competition or to raise rivals' costs because of their
relative lack of resources. The Commission seeks comment on these views
in connection with the competitive impact of joint bidding and other
arrangements.
132. Commenters proposing any changes to the Commission's joint
bidding rules for arrangements among non-nationwide providers should
discuss why such changes are necessary to address particular
competitive concerns and whether, on balance, such changes would ensure
that the procompetitive benefits and bidding flexibility arising out of
its current rules remain in place. In addition, the Commission seeks
comment on whether any types of arrangements between non-nationwide
service providers and potential new entrants would warrant closer
examination of the competitive effects and, if so, whether any changes
to its joint bidding rules are necessary to address any such scenarios.
133. Arrangements among Nationwide Providers. In contrast, the
Commission tentatively concludes that joint bidding arrangements
between or among nationwide providers likely would raise competitive
concerns, as these arrangements would have the potential to serve as a
vehicle for anticompetitive conduct by altering post auction incentives
to compete, and thus, would outweigh any public interest benefits from
such arrangements such as the attainment of scale or scope economies.
As the Commission noted in the Mobile Spectrum Holdings Report and
Order, the mobile wireless marketplace today is characterized by
factors--such as high market concentration, high margins and high
barriers to entry--that increase the potential for anticompetitive
conduct. In particular, by year end 2013, the top four facilities-based
nationwide providers had a combined market share, as measured by the
number of subscribers or mobile wireless service revenues, of at least
97 percent.
134. Moreover, in light of these factors, joint bidding
arrangements among nationwide providers would reduce the participants'
ability or incentive to compete independently, which would lessen
competition in the downstream mobile wireless marketplace and could
harm American consumers by increasing the price or reducing the quality
of mobile wireless services. Because of these greater risks of public
interest harms, the Commission believes it is unlikely that the
potential benefits of joint bidding arrangements among nationwide
providers would outweigh these risks. The Commission seeks comment on
this analysis.
135. Further, as the Commission has emphasized recently, it is
important to provide bidders with certainty and clarity in advance of
the start of an auction regarding whether any limitations on their
ability to acquire licenses would apply. In that regard, the Commission
observes that post-auction enforcement of antitrust law--envisioned as
a safeguard by the Commission in 1994--may not be as well suited to
preventing anti-competitive joint bidding arrangements as the bright-
line prohibition the Commission proposes herein. In addition, the
Commission notes that, while in 1994 bright-line prohibitions on
certain types of bidding arrangements might not have been ideally
suited for an industry at a nascent stage, the mobile wireless industry
today is much more mature than it was in 1994. Moreover, the limit set
by the Commission at that time on the amount of broadband PCS spectrum
that the two incumbent cellular licensees in each market could acquire
at the auctions effectively eliminated the incentives of those
providers to enter into joint bidding arrangements, which would have
raised significant competitive concerns.
136. Accordingly, the Commission tentatively concludes that it
would best serve the public interest at this time to have a bright-line
rule that would prohibit joint bidding and other arrangements among
nationwide providers, including agreements to participate in an auction
through a newly formed joint entity, given that such arrangements have
a greater potential to harm the public interest by negatively affecting
the competitive bidding process and downstream competition in the
provision of mobile wireless services. The Commission seeks comment on
the costs and benefits of prohibiting applications to participate in an
auction that involve joint bidding and other arrangements, such as a
new joint venture, between two or more nationwide providers. The
Commission notes that its tentative conclusion to prohibit joint
bidding and other arrangements between two nationwide providers would
also include prohibiting arrangements among two nationwide providers,
together with other entities.
137. Arrangements between a Nationwide Provider and Other Entities.
The Commission seeks comment on what policies and procedures should
apply to bidding arrangements between a single nationwide provider and
other entities, either non-nationwide providers or potential new
entrants, in order to promote competition. Under what circumstances
would these arrangements raise competitive concerns? Under what
circumstances
[[Page 68194]]
would these arrangements likely result in public interest benefits,
such as the expansion of mobile wireless services in additional
geographic areas and increasing access to capital by more applicants to
acquire spectrum? Should any limits apply to these types of
arrangements, or should the Commission continue to review these types
of arrangements on a case-by-case basis?
138. If the Commission reviews these types of arrangements on a
case-by-case basis, what process and factors should it use in assessing
the competitive implications? The Commission's current approach for
reviewing joint ventures in the context of assignment or transfer of
licenses involves the determination of the appropriate market
definitions and the likelihood of public interest harm from the
incentive and ability of the joint venture to act anticompetitively,
either unilaterally or in concert with other service providers. Should
a similar approach apply to its competitive review of joint bidding
arrangements? How should a case-by-case approach to review joint
bidding arrangements be designed to provide clarity to potential
bidders? What are the costs and benefits of Commission review of joint
bidding arrangements on a case-by-case basis, including the
administrative cost and burden to make such a case-by-case
determination prior to the start of an auction?
139. To make case-by-case determinations regarding arrangements
between nationwide providers and other entities, should the Commission
modify any of its current rules that apply to the pre-auction review
process? In particular, should the terms and conditions of such joint
bidding arrangements be disclosed prior to the auction, in the short-
form application, or even prior to the filing of that application? If
so, are there changes to its rules or procedures that would be
necessary to protect any confidential information? If the deadline for
disclosure of terms and conditions is in advance of the short-form
application deadline, how would this process be affected by the rules
prohibiting certain types of communications? Commenters on this issue
should include any costs or benefits to changing the rules and
procedures regarding the disclosure of a joint bidding requirement.
140. If the Commission were to make a determination that the
potential harms associated with a particular joint bidding arrangement
outweigh the potential benefits, what remedies should it impose either
at the short-form application stage or the long-form application stage?
For example, should the Commission find that a short-form application
is unacceptable or incomplete and bar the applicant from bidding in the
auction? Should it find that an applicant at the long-form stage is
unqualified to hold the license and deemed in default? Commenters
proposing particular remedies should discuss the costs and benefits of
such remedies.
141. Other Issues. The Commission's current rules require the
entity that filed the short-form application to be the same entity that
files the long-form application seeking consent to acquire a new
license. The Commission's public interest review of long-form
applications generally encompasses a review of the competitive effects
of such assignments, as would its review of a secondary market
transaction to disseminate licenses from a joint entity to its
individual members. The Commission seeks comment on whether it is
necessary to modify its current joint bidding rules, standards, and
procedures that apply to the post-auction review of long-form
applications or review of a secondary market transaction to disseminate
licenses from a joint entity to its individual members, in order to
promote competition in the mobile wireless marketplace.
142. Further, the Commission proposes to clarify a provision under
47 CFR 1.2107(g) which permits DEs to participate in an auction as a
non-legally-recognizable consortium, with a requirement that each
member of the consortium file separate applications for licenses
covered by the winning bids of the consortium. This provision is
applicable only in the DE context, where there are special provisions
regarding the attribution of revenues for purposes of qualifying for
bidding credits. The Commission seeks comment on this clarification.
D. Miscellaneous Part 1 Revisions
143. Background. Part 1, Subpart Q, of the Commission's rules
generally governs competitive bidding proceedings to assign spectrum
licenses. The Commission proposes changes to two of its part 1, Subpart
Q, rules, 47 CFR 1.2111 and 1.2112. The Commission also intends, when
it resolves the issues raised in the Competitive Bidding NPRM, to
resolve long standing petitions for reconsideration to its part 1
competitive bidding rules.
144. Discussion. 47 CFR 1.2111. The Commission proposes to repeal
the first two paragraphs of 47 CFR 1.2111. It proposes to repeal 47 CFR
1.2111(a), under which applicants for assignments or transfers during
the first three years of a license term must provide the Commission
with detailed contract and marketing information. The Commission
believes that this requirement places a burden on licensees without a
corresponding benefit to the Commission or the public. The Commission
also proposes to repeal 47 CFR 1.2111(b), a never-used unjust
enrichment payment requirement for broadband PCS C and F block set-
aside licenses.
145. 47 CFR 1.2112. The Commission's proposed changes to this rule
would clarify the auction application requirements for reporting an
entity's percentage ownership in the applicant and in FCC-regulated
entities. The Commission proposes further changes to specify
application requirements for bidding consortia. Finally, the Commission
proposes to correct two errors in the rule caused by the inadvertent
substitution of an incorrect paragraph in the Code of Federal
Regulations publication of the rule for the correct one published in
the Federal Register summary of the DE Second Report and Order. Compare
71 FR 26245, 26253, May 4, 2006, with 47 CFR 1.2112, Oct. 1, 2006. The
first error was the addition of a requirement that DE short-form
applicants list and summarize all their agreements that support their
DE eligibility, a requirement that the Commission intended to apply
only to long-form applicants. The Commission proposes to delete the
requirement with respect to the short form. The second error was the
deletion of a requirement that DE short-form applicants list the
parties with which they have lease or resale arrangements for any of
the DE applicants' spectrum licenses. The Commission proposes to
reinstate this requirement.
146. The Commission seeks comment on these proposals.
E. Initial Regulatory Flexibility Analysis
147. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Commission has prepared this Initial Regulatory
Flexibility Analysis (IRFA) concerning the possible significant
economic impact on small entities by the policies and rules proposed in
the Competitive Bidding NPRM. Written public comments are requested for
this IRFA. Comments to the IRFA must be identified as responses to the
IRFA and filed by the deadlines for comments on the Competitive Bidding
NPRM in the Dates section. The Commission will send a copy of the
Competitive Bidding NPRM, including the IRFA, to the Chief
[[Page 68195]]
Counsel for Advocacy of the Small Business Administration.
1. Need for, and Objectives of, the Proposed Rules
148. The NPRM proposes to: (1) Provide small businesses greater
opportunity to participate in the provision of a wide range of
spectrum-based services by modifying the Commission's eligibility
requirements, updating the standardized schedule of small business
sizes, and eliminating duplicative reporting requirements, while also
seeking comment on strengthening the Commission's rules to prevent the
unjust enrichment of ineligible entities; (2) Amend the Commission's
former defaulter rule to balance concerns that the current rule is
overly broad with the Commission's continued need to ensure that
auction bidders are financially reliable; (3) Codify an established
competitive bidding procedure that prohibits the same individual or
entity from becoming qualified to bid on the basis of more than one
short-form application in a specific auction; (4) Prevent entities that
are exclusively controlled by a single individual or set of individuals
from becoming qualified to bid on overlapping licenses based on more
than one short-form application in a specific auction; and, (5) Retain
the current rules governing joint bidding arrangements among non-
nationwide providers and prohibit joint bidding arrangements among
nationwide providers. The NPRM also provides notice of the Commission's
intention to resolve long standing petitions for reconsideration and
proposes necessary clean-up revisions to the Commission's part 1
competitive bidding rules.
149. With respect to small businesses, the Commission's proposals
seek to update its rules to reflect that small businesses need greater
opportunities to gain access to capital so that they may have an
opportunity to participate in the provision of spectrum-based services
in today's communications marketplace. In the past decade, the rapid
adoption of smartphones and tablet computers and the widespread use of
mobile applications, combined with the increasing deployment of high-
speed 3G and now 4G technologies, have driven significantly more
intensive use of mobile networks. This progression from the provision
of mobile voice services to the provision of mobile broadband services
has increased the need for access to spectrum. In addition, in the past
decade, the number of small and regional mobile wireless service
providers has significantly decreased, yet regional and local service
providers continue to offer consumers additional choices in the areas
they serve. The Commission anticipates that by revising its rules to
allow small businesses to take advantage of the same opportunities to
utilize their spectrum capacity and gain access to capital as those
afforded to larger licensees, the Commission can better achieve its
statutory directives. Nonetheless, the Commission remains mindful of
its obligation to prevent unjust enrichment of ineligible entities.
2. Description and Estimate of the Number of Small Entities To Which
the Proposed Rules Will Apply
150. The RFA directs the Commission to provide a description of
and, where feasible, an estimate of the number of small entities that
will 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 business,'' ``small organization,'' and ``small
government jurisdiction.'' In addition, the term ``small business'' has
the same meaning as the term ``small business concern'' under the Small
Business Act. A small business concern is one which: (1) Is
independently owned and operated; (2) is not dominant in its field of
operation; and (3) satisfies any additional criteria established by the
SBA.
151. Small Businesses, Small Organizations, and Small Governmental
Jurisdictions. If adopted, the NPRM's proposals may, over time, affect
small entities that are not easily categorized at present. The
Commission therefore describes three comprehensive, statutory small
entity size standards under 5 U.S.C. 601(4). First, nationwide, there
are a total of approximately 27.5 million small businesses, according
to the SBA. In addition, a ``small organization'' is generally ``any
not-for-profit enterprise which is independently owned and operated and
is not dominant in its field.'' Nationwide, as of 2007, there were
approximately 1,621,315 small organizations. Finally, the term ``small
governmental jurisdiction'' is defined generally as ``governments of
cities, towns, townships, villages, school districts, or special
districts, with a population of less than fifty thousand.'' U.S. Census
Bureau (hereinafter, Census Bureau or Census) data for 2011 indicate
that there were 89,476 local governmental jurisdictions in the United
States. The Commission estimates that, of this total, as many as 88,506
entities may qualify as ``small governmental jurisdictions.'' Thus, the
Commission estimates that most governmental jurisdictions are small.
152. Licenses Assigned by Auction. The changes and additions to the
Commission's rules proposed in the NPRM are of general applicability to
all auctionable services. Accordingly, the IRFA provides a general
analysis of the impact of the proposals on small businesses rather than
a service-by-service analysis. The number of entities that may apply to
participate in future Commission spectrum auctions is unknown.
Moreover, the number of small businesses that have participated in
prior spectrum auctions has varied. As a general matter, the number of
winning bidders that qualify as small businesses at the close of an
auction does not necessarily represent the number of small businesses
currently in service. Also, the Commission does not generally track
subsequent business size unless, in the context of changes in control,
changes in material relationships or assignments or transfers, unjust
enrichment issues are implicated.
153. Wireless Telecommunications Carriers (except satellite). The
Census Bureau defines this category to include establishments engaged
in operating and maintaining switching and transmission facilities to
provide communications via the airwaves. Establishments in this
industry have spectrum licenses and provide services using that
spectrum, such as cellular phone services, paging services, wireless
Internet access, and wireless video services. The SBA has developed a
small business size standard for Wireless Telecommunications Carriers
(except satellite). Under the SBA's standard, a business is small if it
has 1,500 or fewer employees. For this category, Census data for 2007
show that there were 1,383 firms that operated for the entire year. Of
this total, 1,368 firms (approximately 99%) had employment of 999 or
fewer employees and only 15 (approximately 1%) had employment of 1,000
employees or more. Thus under this category and the associated small
business size standard, the Commission estimates that the majority of
wireless telecommunications carriers (except satellite) are small
entities that may be affected by the NPRM's proposed actions.
154. Broadband Radio Service and Educational Broadband Service.
Broadband Radio Service systems, previously referred to as Multipoint
Distribution Service (MDS) and Multichannel Multipoint Distribution
Service (MMDS) systems, and ``wireless cable,'' transmit video
programming to subscribers and provide two-way high speed data
operations using the microwave frequencies of the
[[Page 68196]]
Broadband Radio Service (BRS) and Educational Broadband Service (EBS)
(previously referred to as the Instructional Television Fixed Service
(ITFS)). In connection with the 1996 BRS auction, the Commission
established a small business size standard as an entity that had annual
average gross revenues of no more than $40 million in the previous
three calendar years. The BRS auction resulted in 67 successful bidders
obtaining licensing opportunities for 493 Basic Trading Areas (BTAs).
Of the 67 auction winners, 61 met the definition of a small business.
BRS also includes licensees of stations authorized prior to the
auction. At this time, based on the Commission's review of licensing
records, it estimates that of the 61 small business BRS auction
winners, 48 remain small business licensees. In addition to the 48
small businesses that hold BTA authorizations, there are approximately
86 incumbent BRS licensees that are considered small entities (18
incumbent BRS licensees do not meet the small business size standard).
After adding the number of small business auction licensees to the
number of incumbent licensees not already counted, there are currently
approximately 133 BRS licensees that are defined as small businesses
under either the SBA or the Commission's rules. In 2009, the Commission
conducted Auction 86, the sale of 78 licenses in the BRS areas. The
Commission established three small business size standards that were
used in Auction 86: (i) An entity with attributed average annual gross
revenues that exceeded $15 million and do not exceed $40 million for
the preceding three years was considered a small business; (ii) an
entity with attributed average annual gross revenues that exceeded $3
million and did not exceed $15 million for the preceding three years
was considered a very small business; and (iii) an entity with
attributed average annual gross revenues that did not exceed $3 million
for the preceding three years was considered an entrepreneur. Auction
86 concluded in 2009 with the sale of 61 licenses. Of the 10 winning
bidders, two bidders that claimed small business status won four
licenses; one bidder that claimed very small business status won three
licenses; and two bidders that claimed entrepreneur status won six
licenses. The Commission notes that, as a general matter, the number of
winning bidders that qualify as small businesses at the close of an
auction does not necessarily represent the number of small businesses
currently in service.
155. In addition, the SBA's placement of Cable Television
Distribution Services in the category of Wired Telecommunications
Carriers is applicable to cable-based educational broadcasting
services. Since 2007, the Census Bureau has defined Wired
Telecommunications Carriers as follows: ``This industry comprises [of]
establishments primarily engaged in operating and/or providing access
to transmission facilities and infrastructure that they own and/or
lease for the transmission of voice, data, text, sound, and video using
wired telecommunications networks. Transmission facilities may be based
on a single technology or a combination of technologies.''
Establishments in this industry use the wired telecommunications
network facilities that they operate to provide a variety of services,
such as wired telephony services, including VoIP services; wired
(cable) audio and video programming distribution; and wired broadband
Internet services. By exception, establishments providing satellite
television distribution services using facilities and infrastructure
that they operate are included in this industry. The SBA has developed
a small business size standard for this category, which is: All such
firms having 1,500 or fewer employees. Census data for 2007 shows that
there were 3,188 firms that operated for the duration of that year. Of
those, 3,144 had fewer than 1,000 employees, and 44 firms had more than
1,000 employees. Thus under this category and the associated small
business size standard, the majority of such firms can be considered
small. In addition to Census data, the Commission's Universal Licensing
System indicates that as of July 2014, there are 2,006 active EBS
licenses. The Commission estimates that of these 2,006 licenses, the
majority are held by non-profit educational institutions and school
districts, which are by statute defined as small businesses.
156. Television Broadcasting. As defined by the Census Bureau, this
category ``comprises [of] establishments primarily engaged in
broadcasting images together with sound. These establishments operate
television broadcasting studios and facilities for the programming and
transmission of programs to the public.'' The SBA has created the
following small business size standard for Television Broadcasting
firms: those having $38.5 million or less in annual receipts. The
Commission has estimated the number of licensed commercial television
stations to be 1,387. In addition, according to Commission staff review
of the BIA/Kelsey, LLC's Media Access Pro Television Database on July
30, 2014, about 1,276 of an estimated 1,387 commercial television
stations (or approximately 92 percent) had revenues of $38.5 million or
less. The Commission therefore estimates that the majority of
commercial television broadcasters are small entities.
157. The Commission notes, however, that in assessing whether a
business concern qualifies as small, business (control) affiliations
must be included. The Commission's estimates, therefore, likely
overstates the number of small entities that might be affected by the
NPRM's proposals because the revenue figure on which it is based does
not include or aggregate revenues from affiliated companies. In
addition, an element of the definition of ``small business'' is that
the entity not be dominant in its field of operation. The Commission is
unable at this time to define or quantify the criteria that would
establish whether a specific television station is dominant in its
field of operation. Accordingly, the estimate of small businesses to
which rules may apply does not exclude any television station from the
definition of a small business on this basis and is therefore possibly
over-inclusive to that extent.
158. In addition, the Commission has estimated the number of
licensed noncommercial educational (NCE) television stations to be 395.
These stations are non-profit, and therefore considered to be small
entities.
159. There are also 2,460 LPTV stations, including Class A
stations, and 3,838 TV translator stations. Given the nature of these
services, the Commission will presume that all of these entities
qualify as small entities under the above SBA small business size
standard.
160. Radio Broadcasting. The SBA defines a radio broadcast station
as a small business if such station has no more than $38.5 million in
annual receipts. As defined by the Census Bureau, business concerns in
this industry are those ``primarily engaged in broadcasting aural
programs by radio to the public.'' According to review of the BIA/
Kelsey, LLC's Media Access Pro Radio Database as of July 30, 2014,
about 11,332 (or about 99.9 percent) of 11,343 commercial radio
stations have revenues of $38.5 million or less and thus qualify as
small entities under the SBA definition. The Commission notes, however,
that, in assessing whether a business concern qualifies as small,
business (control) affiliations must be included. This estimate,
therefore, likely overstates the number of small entities
[[Page 68197]]
that might be affected, because the revenue figure on which it is based
does not include or aggregate revenues from affiliated companies.
161. In addition, an element of the definition of ``small
business'' is that the entity not be dominant in its field of
operation. The Commission is unable at this time to define or quantify
the criteria that would establish whether a specific radio station is
dominant in its field of operation. Accordingly, the estimate of small
businesses to which rules may apply does not exclude any radio station
from the definition of a small business on this basis and therefore may
be over-inclusive to that extent. Also, as noted, an additional element
of the definition of ``small business'' is that the entity must be
independently owned and operated. The Commission notes that it is
difficult at times to assess these criteria in the context of media
entities and the estimates of small businesses to which they apply may
be over-inclusive to this extent.
3. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities
162. Eligibility for Bidding Credits. The NPRM proposes changes to
the Commission's process for evaluating small business eligibility for
bidding credits. In particular, the NPRM proposes to repeal the AMR
rule and tentatively concludes that the Commission should re-examine
the need for the related decade-old policy that has limited small
businesses seeking bidding credits to providing primarily retail,
facilities-based service directly to the public with each of their
licenses. Under the AMR, a small business applicant or licensee must
automatically attribute to itself the gross revenues of any entity with
which it has an ``attributable material relationship.'' An applicant or
licensee has an AMR when it has one or more agreements with any
individual entity for the lease (under either spectrum manager or de
facto transfer leasing arrangements) or resale (including under a
wholesale arrangement) of, on a cumulative basis, more than 25 percent
of the spectrum capacity of any individual license held by the
applicant or licensee. The NPRM seeks comment on the proposal to repeal
the AMR rule, and the Commission's tentative conclusions regarding its
need to re-evaluate its small business policy. Alternatively, the NPRM
also seeks comment on retaining the Commission's small business policy
and/or some variation of the AMR rule. For instance, the NPRM seeks
comment on whether the Commission should adopt a rule with some other
spectrum capacity use limit that would render an applicant ineligible
for all current and future benefits.
163. The NPRM also proposes to adopt a more flexible approach under
which the Commission would evaluate small business eligibility on a
license-by-license basis, using a two-pronged test. The first prong
would evaluate whether an applicant meets the applicable small business
size standard and is therefore eligible for benefits. To evaluate small
business eligibility, the NPRM proposes to apply the Commission's
existing controlling interest standard and affiliation rules to
determine whether, an entity should be attributable based on whether
that entity has de jure or de facto control of, or is affiliated with,
the applicant's overall business venture. Once the first prong has been
met, the Commission would evaluate eligibility under the second prong.
Under the second prong, the NPRM proposes to determine an entity's
eligibility to retain small business benefits on a license-by-license
basis, based on whether it has maintained de jure and de facto control
of the license. Under this proposed license-by-license approach, an
entity will not necessarily lose its eligibility for all current and
future small business benefits solely because of a decision associated
with any particular license. Instead, while a small business might
incur unjust enrichment obligations if it relinquishes de jure or de
facto control of any particular license for which it claimed benefits,
so long as the revenues of its attributable interest holders (i.e., the
DE's affiliates, its controlling interests, and the affiliates of its
controlling interests) continue to qualify under the relevant small
business size standard, it could still retain its eligibility to retain
current and future benefits on existing and future licenses. The NPRM
seeks comment on the proposed two-pronged approach to evaluate
attribution and establish eligibility for small business benefits.
164. The NPRM also proposes to modify the Commission's secondary
market rules to comport with the Commission's proposed approach to
assessing small business eligibility. Specifically, the NPRM proposes
to modify the language in 47 CFR 1.9020(d)(4) to remove the conflicting
reference to the control standard of 47 CFR 1.2110 in order to make
clear that small business lessors are fully subject to the same de
facto control standard for spectrum manager leasing that applies to all
other licensees. This modification should clarify that 47 CFR 1.9010
alone defines whether a licensee, including a small business, retains
de facto control of the spectrum that it leases to a spectrum lessee in
the context of spectrum manager leasing.
165. The NPRM seeks comment on whether any changes are appropriate
to the Commission's unjust enrichment rules that provide additional
safeguards by requiring repayment of small business benefits where an
applicant loses eligibility for any reason. Specifically, the NPRM
invites comment on, among other things, whether to adjust the
Commission's current five year unjust enrichment schedule either in
terms of the duration of the requirements or the percentages of the
repayment schedule. The NPRM also seeks comment on how best the
Commission can continue to scrutinize applications and proposed
transactions to ensure that only eligible entities receive benefits,
while not undermining the Act's directive to ensure that DEs are given
the opportunity to participate in the provision of spectrum-based
services. Specifically, the NPRM seeks comment on adopting a 10 year
unjust enrichment repayment schedule similar to the one it adopted in
2006, but vacated by the Third Circuit for lack of notice.
166. Bidding Credits. The NPRM examines the primary way that the
Commission facilitates participation by small businesses at auction
through its bidding credit program. Bidding credits operate as a
percentage discount on the winning bid amounts of a qualifying small
business. By making the acquisition of spectrum licenses more
affordable for new and existing small businesses, bidding credits
facilitate their access to needed capital. The Commission establishes
eligibility for bidding credits for each auctionable service, adopting
one or more definitions of the small businesses that will be eligible.
The Commission's small business definitions have been based on an
applicant's average annual gross revenues over a three-year period. The
NPRM proposes to increase the general schedule of size standards in its
part 1 rules, measured by gross revenues, for purposes of determining
an entity's eligibility for a bidding preference. Specifically, the
NPRM proposes to revise the standardized schedule in 47 CFR 1.2110(f)
as follows: (1) Businesses with average annual gross revenues for the
preceding three years not exceeding $4 million would be eligible for a
35 percent bidding credit; (2) Businesses with average annual gross
revenues for the preceding three years not exceeding $20 million would
be eligible for a 25 percent bidding credit; and (3) Businesses with
average annual gross
[[Page 68198]]
revenues for the preceding three years not exceeding $55 million would
be eligible for a 15 percent bidding credit. The NPRM also asks about
alternative methods for setting new gross revenues thresholds.
167. The NPRM seeks comment on whether to adopt a small business
size standard based on criteria other than gross revenues, and proposes
to continue the Commission's practice of evaluating which small
business definitions will apply on a service-by-service basis, based
upon associated capital requirements for a particular service. In
addition, the NPRM seeks comment on whether to increase the bidding
credit percentages (i.e., discount amounts) applicable to associated
small business categories. The NPRM also seeks comment on whether any
revisions the Commission adopts in this proceeding to its part 1
schedule of small business size standards and associated bidding credit
percentage levels should apply to the specific small business
definitions and bidding credit percentages the Commission previously
adopted for specific services, and, if so, how such revisions would be
implemented. The NPRM proposes that any new rules adopted in this
proceeding would apply to the 600 MHz band spectrum licenses to be
offered in the BIA. In the BIA proceeding, the Commission adopted a 15
percent bidding credit for small businesses (defined as entities with
average annual gross revenues for the preceding three years not
exceeding $40 million) and a 25 percent bidding credit for very small
businesses (defined as entities with average annual gross revenues for
the preceding three years not exceeding $15 million). Accordingly, the
NPRM proposes to adopt, for the 600 MHz band, increases in the gross
revenues thresholds associated with the 25 percent and 15 percent
bidding credits that are consistent with the increased gross revenues
thresholds proposed in the NPRM for the standardized schedule in the
Commission's part 1 competitive bidding rules. The NPRM also seeks
comment on whether the Commission should adopt a third small business
bidding credit tier for the 600 MHz band that would provide a 35
percent bidding credit to businesses with average gross revenues for
the preceding three years not exceeding $4 million.
168. Further, the NPRM seeks comment on the Commission's ability to
consider bidding preferences for other types of DEs, entities that
serve unserved/underserved areas or areas with persistent poverty, as
well as persons or entities that have overcome disadvantages. The NPRM
asks commenters to specifically address the statutory authority and
judicial scrutiny issues that may limit the Commission's ability to
entertain recommendations to alter the focus of its current bidding
preferences by offering bidding preferences to entities based on other
criteria than business size.
169. The Commission expects that the questions raised in the NPRM
will provide a meaningful opportunity to evaluate whether its bidding
credit program continues to achieve the Commission's objectives. To
facilitate the Commission's review, the NPRM seeks concrete, specific,
data-driven feedback by commenters. In addition, the NPRM invites
commenters to suggest other creative ideas that would promote the
Commission's statutory objectives, but emphasizes that for any such
proposals it is imperative to provide ample supporting evidence.
170. DE Reporting Requirements. The NPRM proposes to eliminate the
DE annual reporting requirement in 47 CFR 1.2110(n) and questions
whether the value of the information provided in those reports
outweighs the regulatory burden that the reporting obligation places on
small businesses. The NPRM seeks comment on this proposal. Among other
things, the NPRM asks if the Commission adopts the proposal to
eliminate this annual reporting requirement, whether it should amend
its rule for reporting eligibility events to require that a small
business must list and summarize all existing agreements to provide
context each time it reports a new eligibility event.
171. MMTC White Paper Requests. In February 2014, MMTC submitted a
White Paper detailing several policy recommendations to advance
licensing of spectrum to minority- and women-owned businesses. The NPRM
raises and addresses several of these issues and seeks comments on the
other proposals that are not otherwise addressed in the NPRM, and to
the extent that they relate to the Commission's competitive bidding
rules. The NPRM observes that certain proposals appear to be outside
the scope of this proceeding and others may not be needed in light of
other changes proposed in the NPRM. Toward that end, the NPRM
tentatively concludes that the following MMTC proposals are outside the
scope of this proceeding, which is focused on the Commission's
competitive bidding rules, and thus will not be addressed in the NPRM:
(1) Incorporating diversity and inclusion in the Commission's public
interest analysis of mergers and acquisitions and secondary market
spectrum transactions; and (2) supporting increased funding for and
statutory amendments regarding the Telecommunications Development Fund.
172. Former Defaulter Rule. The NPRM proposes changes to the
Commission's former defaulter rule to balance concerns that the current
rule is overly broad with the Commission's continued need to ensure
that auction bidders are financially reliable. The NPRM seeks comment
on revising the rule to narrow the scope of the defaults and
delinquencies that will be considered in determining whether or not an
auction participant is a former defaulter. Specifically, the NPRM
proposes to exclude any cured default on any Commission license or
delinquency on any non-tax debt owed to any federal agency for which
any of the following criteria are met: (1) The notice of the final
payment deadline or delinquency was received more than seven years
before the relevant short-form application deadline; (2) the default or
delinquency amounted to less than $100,000; (3) the default or
delinquency was paid within two quarters (i.e., 6 months) after
receiving the notice of the final payment deadline or delinquency; or
(4) the default or delinquency was the subject of a legal or
arbitration proceeding that was cured upon resolution of the
proceeding. Additionally, the NPRM seeks comment on limiting the
individuals and entities that an applicant must consider when
determining its status as a former defaulter.
173. Commonly Controlled Entities. The NPRM proposes to codify an
established competitive bidding procedure that prohibits the same
individual or entity from filing more than one short-form application
to participate in an auction. The NPRM also proposes a new rule that
would prevent entities that are exclusively controlled by a single
individual or set of individuals from qualifying to bid on licenses in
the same or overlapping geographic areas in a specific auction on more
than one short-form application. These proposals seek to improve the
transparency and efficiency of the auction process, by making clearer
who the qualified bidders actually are and ensuring against the
potential for anticompetitive auction behavior. The NPRM seeks comment
on these proposals and on specific alternatives to address the
Commission's concern that common control may allow the controlling
individual or set of individuals to attempt to gain advantages in the
bidding process based
[[Page 68199]]
on certain coordinated bidding actions (e.g., tied bids, activity
waivers).
174. Joint Bidding. The NPRM initiates a review of the Commission's
rules and policies governing joint bidding and other arrangements in
order to ensure that they fulfill the Commission's statutory
objectives, given the changes in the mobile wireless marketplace since
the initial adoption of the bidding rules two decades ago, and the
increasing importance of spectrum for service providers to meet
consumer demand for mobile wireless services. The NPRM seeks comment on
the Commission's tentative conclusions that it would be in the public
interest to retain the current rules governing joint bidding
arrangements among non-nationwide providers and to prohibit joint
bidding arrangements among nationwide providers. Additionally, the NPRM
seeks comment on whether the Commission should revise any of its
current rules as applied to arrangements between nationwide providers
and other entities, including its rules governing short-form
applications. Further, the NPRM seeks comment on whether any revisions
to the Commission's rules governing long-form applications are
necessary in light of the Commission's consideration of the potential
harms and benefits of joint bidding and other arrangements.
175. Miscellaneous Part 1 Revisions. In addition to changes that
would implement the foregoing proposals, the NPRM proposes changes to
two of the Commission's part 1, Subpart Q, rules, 47 CFR 1.2111 and
1.2112. 47 CFR 1.2111--The NPRM proposes to eliminate two provisions of
this rule: (1) 47 CFR 1.2111(a), under which applicants for assignments
or transfers during the first three years of a license term must
provide the Commission with detailed contract and marketing
information, and (2) 47 CFR 1.2111(b), a never-used unjust enrichment
payment requirement for broadband PCS C and F block set-aside licenses.
47 CFR 1.2112--The NPRM's proposed changes to this rule clarify the
auction application requirements for reporting an entity's percentage
ownership in the applicant and in FCC-regulated entities. The NPRM
proposes further changes to specify application requirements for
bidding consortia. The NPRM also proposes to correct two errors in the
rule caused by the inadvertent substitution of an incorrect paragraph
in the Code of Federal Regulations publication of the rule for the
correct one published in the Federal Register summary of the DE Second
Report and Order. The first error was the addition of a requirement
that DE short-form applicants list and summarize all their agreements
that support their DE eligibility, a requirement that the Commission
intended to apply only to long-form applicants. The NPRM proposes to
delete the requirement with respect to the short-form. The second error
was the deletion of a requirement that DE short-form applicants list
the parties with which they have lease or resale arrangements for any
of the DE applicants' spectrum. The NPRM proposes to reinstate this
requirement.
176. The NPRM seeks comments on these proposals. In addition, the
NPRM notes that the Commission intends, when it resolves the issues
raised in the NPRM, to resolve long standing petitions for
reconsideration to the Commission's part 1 competitive bidding rules.
4. Steps Taken To Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
177. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its proposed approach,
which may include the following four alternatives (among others): (1)
The establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or any part thereof, for small
entities.
178. If adopted, the NPRM's proposed approach to evaluating
attribution and establishing small business eligibility could provide
small businesses with greater opportunities to participate in the
provision of spectrum-based services. Moreover, insofar as the NPRM's
proposals should allow small businesses greater flexibility to engage
in business ventures that include increased forms of leasing and other
spectrum use arrangements, the Commission anticipates that the combined
intent of the proposals should increase the potential sources of
revenue for the small business and decrease the likelihood that it
would be subject to undue influence by any particular user of a single
license. The NPRM's proposed two-pronged approach to establishing small
business eligibility would also ensure that a licensee retains control
of all licenses for which it seeks bidding credits, while providing
greater flexibility for any acquired without such benefits. Further,
the proposal to eliminate the AMR rule and to clarify how spectrum
manager leasing rules apply to DEs should allow small businesses
greater certainty to participate in secondary markets transactions.
179. The NPRM's proposed increases in the gross revenues thresholds
that define the three tiers of small businesses in the part 1 schedule
by which the Commission provides the corresponding available bidding
credits would encourage small business participation in spectrum
license auctions. The proposed gross revenues thresholds are intended
to more accurately reflect what constitutes a ``small business'' in
today's marketplace, taking into consideration the relative size of the
large, national providers. This proposal will provide an economic
benefit to small entities by making it easier to acquire spectrum
licenses. Moreover, the NPRM's proposal to repeal the DE reporting
requirement would eliminate the burden on DEs to submit annual reports.
180. The proposed changes to the part 1 rules will apply to all
entities in the same manner the Commission will apply these changes
uniformly to all entities that choose to participate in spectrum
license auctions. The Commission believes that applying the same rules
equally to all entities in these contexts promotes fairness. The
Commission does not believe that the limited costs and/or
administrative burdens associated with the rule revisions will unduly
burden small entities. In fact, many of the proposed rule revisions
clarify the Commission's competitive bidding rules, including short-
form application requirements, as well as reduce reporting
requirements.
181. Finally, the NPRM's joint bidding proposals are intended to
preserve and promote robust competition in the mobile wireless
marketplace and facilitate competition among bidders at auction,
including small entities. These proposals provide potential bidders
with greater clarity regarding the types of joint bidding arrangements
that would be permissible. In addition, the NPRM's proposal to retain
its current rules for joint bidding arrangements among non-nationwide
providers would maintain flexibility for small businesses to enter into
such arrangements.
List of Subjects
47 CFR Part 1
Administrative practice and procedure.
47 CFR Part 27
Communications common carriers, Radio.
[[Page 68200]]
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Proposed Rules
For the reasons discussed in the preamble, the Federal
Communications Commission proposes to amend 47 CFR Parts 1 and 27 as
follows:
PART 1--PRACTICE AND PROCEDURE
0
1. The authority citation for part 1 continues to read as follows:
Authority: 15 U.S.C. 79 et seq.; 47 U.S.C. 151, 154(i), 154(j),
155, 157, 225, 227, 303(r), 309, 1403, 1404, 1451, and 1452.
0
2. Section 1.2105 is amended by revising paragraphs (a)(2)(xi) and
(b)(1) to read as follows:
Sec. 1.2105 Bidding application and certification procedures;
prohibition of certain communications.
* * * * *
(a) * * *
(2) * * *
(xi) An attached statement made under penalty of perjury indicating
whether or not the applicant has been in default on any Commission
license or has been delinquent on any non-tax debt owed to any Federal
agency. For purposes of this certification, an applicant may exclude
from consideration as a former default any default on a Commission
license or delinquency on non-tax debt to any Federal agency that has
been resolved and meets any of the following criteria:
(A) The notice of the final payment deadline or delinquency was
received more than seven years before the short-form application
deadline;
(B) The default or delinquency amounted to less than $100,000;
(C) The default or delinquency was paid within two quarters (i.e.,
6 months) after receiving the notice of the final payment deadline or
delinquency; or
(D) The default or delinquency was the subject of a legal or
arbitration proceeding that was cured upon resolution of the
proceeding.
* * * * *
(b) Modification and Dismissal of Short-Form Application (FCC Form
175).
(1)(i) Any short-form application (FCC Form 175) that does not
contain all of the certifications required pursuant to this section is
unacceptable for filing and cannot be corrected subsequent to the
applicable filing deadline. The application will be deemed incomplete,
the applicant will not be found qualified to bid, and the upfront
payment, if paid, will be returned.
(ii) If (A) An individual or entity submits multiple applications
in a single auction; or
(B) Entities commonly controlled by the same individual or same set
of individuals submit applications for any set of licenses in the same
or overlapping geographic areas in a single auction; then only one of
such applications may be deemed complete, and the other such
application(s) will be deemed incomplete, such applicants will not be
found qualified to bid, and the associated upfront payment(s), if paid,
will be returned.
* * * * *
0
3. Section 1.2106 is amended by revising paragraph (a) to read as
follows:
Sec. 1.2106 Submission of upfront payments.
(a) The Commission may require applicants for licenses subject to
competitive bidding to submit an upfront payment. In that event, the
amount of the upfront payment and the procedures for submitting it will
be set forth in a Public Notice. Any auction applicant that, pursuant
to Sec. 1.2105(a)(2)(xi), certifies that it is a former defaulter must
submit an upfront payment equal to 50 percent more than that set for
each particular license. No interest will be paid on upfront payments.
* * * * *
0
4. Amend Sec. 1.2110 as follows:
0
A. Revise paragraph (b)(1)(i) and (ii);
0
B. Remove paragraph (b)(3)(iv);
0
C. Revise paragraphs (f)(2) and (j);
0
D. Remove paragraph (n);
0
E. Redesignate paragraphs (o) and (p) as paragraphs (n) and (o)
The additions and revisions read as follows:
Sec. 1.2110 Designated entities.
* * * * *
(b) * * *
(1) * * *
(i) The gross revenues of the applicant (or licensee), its
affiliates, its controlling interests, and the affiliates of its
controlling interests shall be attributed to the applicant (or
licensee) and considered on a cumulative basis and aggregated for
purposes of determining whether the applicant (or licensee) is eligible
for status as a small business, very small business, or entrepreneur,
as those terms are defined in the service-specific rules. An applicant
seeking status as a small business, very small business, or
entrepreneur, as those terms are defined in the service-specific rules,
must disclose on its short- and long-form applications, separately and
in the aggregate, the gross revenues for each of the previous three
years of the applicant (or licensee), its affiliates, its controlling
interests, and the affiliates of its controlling interests.
(ii) If applicable, pursuant to Sec. 24.709 of this chapter, the
total assets of the applicant (or licensee), its affiliates, its
controlling interests, and the affiliates of its controlling interests
shall be attributed to the applicant (or licensee) and considered on a
cumulative basis and aggregated for purposes of determining whether the
applicant (or licensee) is eligible for status as an entrepreneur. An
applicant seeking status as an entrepreneur must disclose on its short-
and long-form applications, separately and in the aggregate, the gross
revenues for each of the previous two years of the applicant (or
licensee), its affiliates, its controlling interests, and the
affiliates of its controlling interests.
* * * * *
(f) * * *
(2) Size of bidding credits. A winning bidder that qualifies as a
small business may use the following bidding credits corresponding to
its respective average gross revenues for the preceding 3 years:
(i) Businesses with average gross revenues for the preceding 3
years not exceeding $4 million are eligible for bidding credits of 35
percent;
(ii) Businesses with average gross revenues for the preceding 3
years not exceeding $20 million are eligible for bidding credits of 25
percent; and
(iii) Businesses with average gross revenues for the preceding 3
years not exceeding $55 million are eligible for bidding credits of 15
percent.
* * * * *
(j) Designated entities must describe on their long-form
applications how they satisfy the requirements for eligibility for
designated entity status, and must list and summarize on their long
form applications all agreements that affect designated entity status
such as partnership agreements, shareholder agreements, management
agreements, spectrum leasing arrangements, spectrum resale (including
wholesale) arrangements, and all other agreements including oral
agreements, establishing as applicable, de facto or de jure control of
the entity. Designated entities also must provide the date(s) on which
they entered into of the agreements listed. In addition, designated
entities must file with their long-form applications a copy of each
such agreement. In order to enable the Commission to audit designated
entity eligibility on an ongoing basis, designated entities that are
awarded eligibility must, for the term of the license, maintain at
their facilities or with their designated agents the lists, summaries,
dates and copies of
[[Page 68201]]
agreements required to be identified and provided to the Commission
pursuant to this paragraph and to Sec. 1.2114.
* * * * *
0
5. Section 1.2111 is revised to read as follows:
Sec. 1.2111 Assignment or transfer of control: unnjust enrichment.
(a) Unjust enrichment payment: installment financing.
(1) If a licensee that utilizes installment financing under this
section seeks to assign or transfer control of its license to an entity
not meeting the eligibility standards for installment payments, the
licensee must make full payment of the remaining unpaid principal and
any unpaid interest accrued through the date of assignment or transfer
as a condition of approval.
(2) If a licensee that utilizes installment financing under this
section seeks to make any change in ownership structure that would
result in the licensee's losing eligibility for installment payments,
the licensee shall first seek Commission approval and must make full
payment of the remaining unpaid principal and any unpaid interest
accrued through the date of such change as a condition of approval. A
licensee's (or other attributable entity's) increased gross revenues or
increased total assets due to nonattributable equity investments, debt
financing, revenue from operations or other investments, business
development or expanded service shall not be considered to result in
the licensee losing eligibility for installment payments.
(3) If a licensee seeks to make any change in ownership that would
result in the licensee's qualifying for a less favorable installment
plan under this section, the licensee shall seek Commission approval
and must adjust its payment plan to reflect its new eligibility status.
A licensee may not switch its payment plan to a more favorable plan.
(b) Unjust enrichment payment: bidding credits.
(1) A licensee that utilizes a bidding credit, and that during the
initial term seeks to assign or transfer control of a license to an
entity that does not meet the eligibility criteria for a bidding
credit, will be required to reimburse the U.S. Government for the
amount of the bidding credit, plus interest based on the rate for ten
year U.S. Treasury obligations applicable on the date the license was
granted, as a condition of Commission approval of the assignment or
transfer. If, within the initial term of the license, a licensee that
utilizes a bidding credit seeks to assign or transfer control of a
license to an entity that is eligible for a lower bidding credit, the
difference between the bidding credit obtained by the assigning party
and the bidding credit for which the acquiring party would qualify,
plus interest based on the rate for ten year U.S. treasury obligations
applicable on the date the license is granted, must be paid to the U.S.
Government as a condition of Commission approval of the assignment or
transfer. If, within the initial term of the license, a licensee that
utilizes a bidding credit makes any ownership change or enters into any
agreement that would result in the licensee's losing eligibility for a
bidding credit (or qualifying for a lower bidding credit), the amount
of the bidding credit (or the difference between the bidding credit
originally obtained and the bidding credit for which the licensee would
qualify after restructuring or under the agreement), plus interest
based on the rate for ten year U.S. treasury obligations applicable on
the date the license is granted, must be paid to the U.S. Government as
a condition of Commission approval of the assignment or transfer or of
a reportable eligibility event (see Sec. 1.2114).
(2) Payment schedule.
(i) The amount of payments made pursuant to paragraph (b)(1) of
this section will be reduced over time as follows:
(A) A loss of eligibility in the first two years of the license
term will result in a forfeiture of 100 percent of the value of the
bidding credit (or in the case of very small businesses transferring to
small businesses, 100 percent of the difference between the bidding
credit received by the former and the bidding credit for which the
latter is eligible);
(B) A loss of eligibility in year 3 of the license term will result
in a forfeiture of 75 percent of the value of the bidding credit (or in
the case of eligibility changing to qualify for a lower bidding credit,
75 percent of the difference between the bidding credit received and
the bidding credit for which it is eligible);
(C) A loss of eligibility in year 4 of the license term will result
in a forfeiture of 50 percent of the value of the bidding credit (or in
the case of eligibility changing to qualify for a lower bidding credit,
50 percent of the difference between the bidding credit received and
the bidding credit for which it is eligible);
(D) A loss of eligibility in year 5 of the license term will result
in a forfeiture of 25 percent of the value of the bidding credit (or in
the case of eligibility changing to qualify for a lower bidding credit,
25 percent of the difference between the bidding credit received and
the bidding credit for which it is eligible); and
(E) For a loss of eligibility in year 6 or thereafter, there will
be no payment.
(ii) These payments will have to be paid to the United States
Treasury as a condition of approval of the assignment, transfer,
ownership change or reportable eligibility event (see Sec. 1.2114).
(c) Unjust enrichment: partitioning and disaggregation--
(1) Installment payments. Licensees making installment payments,
that partition their licenses or disaggregate their spectrum to
entities not meeting the eligibility standards for installment
payments, will be subject to the provisions concerning unjust
enrichment as set forth in this section.
(2) Bidding credits. Licensees that received a bidding credit that
partition their licenses or disaggregate their spectrum to entities not
meeting the eligibility standards for such a bidding credit, will be
subject to the provisions concerning unjust enrichment as set forth in
this section.
(3) Apportioning unjust enrichment payments. Unjust enrichment
payments for partitioned license areas shall be calculated based upon
the ratio of the population of the partitioned license area to the
overall population of the license area and by utilizing the most recent
Census data. Unjust enrichment payments for disaggregated spectrum
shall be calculated based upon the ratio of the amount of spectrum
disaggregated to the amount of spectrum held by the licensee.
0
6. Section 1.2112 is amended by revising paragraphs (a)(7), (b)(1)(iii)
and (iv); adding paragraph (b)(1)(v); and revising paragraph
(b)(2)(ii), (iii) and (v) to read as follows:
Sec. 1.2112 Ownership disclosure requirements for applications.
(a) * * *
(7) List any FCC-regulated entity or applicant for an FCC license,
in which the applicant or any of the parties identified in paragraphs
(a)(1) through (a)(5) of this section holds a 10 percent or greater
ownership interest, regardless of the type of business entity,
including both active and passive interests. This list must include a
description of each such entity's principal business and a description
of each such entity's relationship to the applicant (e.g., Company A
owns 10 percent of Company B (the applicant) and 10 percent of Company
C, then Companies A and C must be listed on Company B's application,
where C is an FCC licensee and/or license applicant).
(b) * * *
[[Page 68202]]
(1) * * *
(iii) List all parties with which the applicant has entered into
arrangements for the spectrum lease or resale (including wholesale
arrangements) of any of the capacity of any of the applicant's
spectrum.
(iv) List separately and in the aggregate the gross revenues,
computed in accordance with Sec. 1.2110, for each of the following:
The applicant, its affiliates, its controlling interests, and the
affiliates of its controlling interests; and if a consortium of small
businesses, the members comprising the consortium.
(v) If applying as a consortium under Sec. 1.2110(b)(3)(i),
provide the information in paragraphs (b)(1)(i) through (iv) separately
for each member of the consortium.
(2) * * *
(ii) List any FCC-regulated entity or applicant for an FCC license,
in which any controlling interest of the applicant owns a 10 percent or
greater interest or a total of 10 percent or more of any class of
stock, warrants, options or debt securities. This list must include a
description of each such entity's principal business and a description
of each such entity's relationship to the applicant;
(iii) List and summarize all agreements or instruments (with
appropriate references to specific provisions in the text of such
agreements and instruments) that support the applicant's eligibility as
a small business under the applicable designated entity provisions,
including the establishment of de facto or de jure control. Such
agreements and instruments include articles of incorporation and by-
laws, partnership agreements, shareholder agreements, voting or other
trust agreements, management agreements, franchise agreements, spectrum
leasing arrangements, spectrum resale (including wholesale)
arrangements, and any other relevant agreements (including letters of
intent), oral or written;
* * * * *
(v) List separately and in the aggregate the gross revenues,
computed in accordance with Sec. 1.2110, for each of the following:
The applicant, its affiliates, its controlling interests, and
affiliates of its controlling interests; and if a consortium of small
businesses, the members comprising the consortium; and
* * * * *
0
7. Section 1.9020 is amended by revising paragraph (d)(4) to read as
follows:
Sec. 1.9020 Spectrum manager leasing arrangements.
* * * * *
(d) * * *
(4) Designated entity/entrepreneur rules. A licensee that holds a
license pursuant to small business and/or entrepreneur provisions (see
Sec. 1.2110 and Sec. 24.709 of this chapter) and continues to be
subject to unjust enrichment requirements (see Sec. 1.2111 and Sec.
24.714 of this chapter) and/or transfer restrictions (see Sec. 24.839
of this chapter) may enter into a spectrum manager leasing arrangement
with a spectrum lessee, regardless of whether the spectrum lessee meets
the Commission's designated entity eligibility requirements (see Sec.
1.2110) or its entrepreneur eligibility requirements to hold certain C
and F block licenses in the broadband personal communications services
(see Sec. 1.2110 and Sec. 24.709 of this chapter), so long as the
spectrum manager leasing arrangement does not result in the spectrum
lessee's becoming a ``controlling interest'' or ``affiliate'' (see
Sec. 1.2110) of the licensee such that the licensee would lose its
eligibility as a designated entity or entrepreneur.
* * * * *
PART 27--MISCELLANEOUS WIRELESS COMMUNICATIONS SERVICES
0
8. The authority citation for part 27 continues to read as follows:
Authority: 47 U.S.C. 154, 301, 302a, 303, 307, 309, 332, 336,
337, 1403, 1404, 1451, and 1452, unless otherwise noted.
0
9. Section 27.1301 is amended by removing the undesignated introductory
text and revising paragraph (a) to read as follows:
Sec. 27.1301 Designated entities in the 600 MHz band.
(a) Eligibility for small business provisions.
(1) A small business is an entity that, together with its
affiliates, its controlling interests, the affiliates of its
controlling interests, and the entities with which it has an
attributable material relationship, has average gross revenues not
exceeding $55 million for the preceding three (3) years.
(2) A very small business is an entity that, together with its
affiliates, its controlling interests, the affiliates of its
controlling interests, and the entities with which it has an
attributable material relationship, has average gross revenues not
exceeding $20 million for the preceding three (3) years.
* * * * *
[FR Doc. 2014-26924 Filed 11-13-14; 8:45 am]
BILLING CODE 6712-01-P