[Federal Register Volume 80, Number 198 (Wednesday, October 14, 2015)]
[Rules and Regulations]
[Pages 61918-61970]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-25579]
[[Page 61917]]
Vol. 80
Wednesday,
No. 198
October 14, 2015
Part III
Federal Communications Commission
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47 CFR Part 20
Broadcast Incentive Auction Scheduled To Begin on March 29, 2016;
Procedures for Competitive Bidding in Auction 1000; Final Rule
Federal Register / Vol. 80 , No. 198 / Wednesday, October 14, 2015 /
Rules and Regulations
[[Page 61918]]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 20
[GN Docket No. 12-268, MB Docket No. 15-146, WT Docket Nos. 14-252, 12-
269; FCC 15-78]
Broadcast Incentive Auction Scheduled To Begin on March 29, 2016;
Procedures for Competitive Bidding in Auction 1000
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Commission establishes final bidding
procedures and qualifications for participation in Auction 1000, the
Incentive Auction, including the forward and reverse auctions, 1001 and
1002 respectively. This document is intended to familiarize prospective
applicants with the procedures and other requirements for participation
in the Incentive Auction.
DATES: Effective October 14, 2015.
FOR FURTHER INFORMATION CONTACT: Wireless Telecommunications Bureau,
Auctions and Spectrum Access Division: for general auction questions:
Linda Sanderson at (717) 338-2868; for reverse auction legal questions:
Erin Griffith at (202) 418-0660; for forward legal questions: Kathryn
Hinton at (202) 418-0660. Lisa Stover at (717) 338-2868. Media Bureau,
Video Division: for broadcaster questions: Dorann Bunkin at (202) 418-
1636.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's
document, Auction 1000 BIA Bidding Procedures Public Notice, GN Docket
No. 12-268, WT Docket Nos. 14-252 and 12-269, MB Docket No. 15-146, FCC
15-78, adopted on August 6, 2015 and released on August 11, 2015. The
complete text of this document 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 complete text is 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/.
Alternative formats are available to persons with disabilities by
sending an email to [email protected] or by calling the Consumer &
Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432
(TTY).
Regulatory Flexibility Analysis
As required by the Regulatory Flexibility Act of 1980, as amended
(RFA), the Commission has prepared this Supplemental Final Regulatory
Flexibility Analysis (SFRFA) of the possible significant economic
impact on small entities by the procedures and policies contained in
the Auction 1000 Bidding Procedures Public Notice.
Report to Small Business Administration
The Commission's Consumer and Governmental Affairs Bureau,
Reference Information Center, will send a copy of the Auction 1000
Bidding Procedures Public Notice, including this SFRFA, to the Chief
Counsel for Advocacy of the SBA (SBA).
Paperwork Reduction Act
This document does not contain new or modified information
collection requirements subject to the Paperwork Reduction Act of 1995
(PRA), Public Law 104-13.
Congressional Review Act
The Commission will send a copy of the Auction 1000 Bidding
Procedures Public Notice, including the SFRFA, in a report to be sent
to Congress and the Government Accountability Office pursuant to the
Congressional Review Act. A copy of the Auction 1000 Bidding Procedures
Public Notice and SFRFA (or summaries thereof) will also be published
in the Federal Register.
I. Introduction and Executive Summary
1. The Auction 1000 Bidding Procedures Public Notice the Commission
determined the procedures necessary to carry out the incentive auction,
and resolves issues it raised in the Auction 1000 Comment Public Notice
(Auction 1000 Comment PN), 80 FR 4816, January 29, 2015. In particular,
the Commission establishes final procedures for setting the initial
spectrum clearing target, qualifying to bid, and bidding in the reverse
and forward auctions. The Auction 1000 Bidding Procedures Public Notice
is organized from the perspective of potential bidders, with separate
sections for the reverse and forward auctions, each ordered consistent
with the overall sequence of procedures in the incentive auction.
Bidding in the auction will begin on March 29, 2016, which will be the
deadline for reverse auction applicants to commit to an initial bid
option.
2. The incentive auction is composed of a reverse auction (Auction
1001) in which broadcasters will offer to voluntarily relinquish some
or all of their spectrum usage rights and a forward auction (Auction
1002) of new, flexible-use licenses suitable for providing mobile
broadband services. Forward auction proceeds will be used to pay
broadcasters that relinquish rights in the reverse auction. As part of
the auction process, the broadcast television bands will be reorganized
or ``repacked'' so that the television stations that remain on the air
after the incentive auction occupy a smaller portion of the ultra-high
frequency (UHF) band, thereby clearing contiguous spectrum that will be
repurposed as the 600 MHz Band. The Commission's decisions implement
its central objective for the incentive auction: to allow market forces
to determine the highest and best use of spectrum. In response to the
robust public record in this proceeding, its key decisions include the
following: (a) Initial Clearing Target Determination Procedure. The
procedure the Commission adopts for selecting the initial clearing
target will allow market forces to determine the highest and best use
of spectrum on a near-nationwide basis, while permitting a limited
amount of impairments in the repurposed 600 MHz Band to avoid the
``least common denominator problem'': limiting the amount of spectrum
available in most markets to the quantity that is available in the most
constrained markets. To limit impairments, the Commission modifies its
proposal in the Auction 1000 Comment PN by adopting a scaled standard
with a cap that will allow significantly less than the proposed 20
percent at higher clearing targets, consistent with the consensus that
impairments must be minimized, particularly at higher clearing targets.
The Commission's decisions to allow the optimization software to assign
television stations within the 600 MHz Band so as to minimize impaired
weighted-pops, and not to ``discount'' impairments located in the
uplink portion of the Band, also will help the auction to repurpose as
much near-nationwide spectrum as possible while minimizing impairments;
(b) Opening Prices. The Commission adopts its proposal for calculating
opening price offers for each eligible broadcaster based on a
television station's interference and population characteristics. This
methodology, which will yield opening price offers in the reverse
auction of up to $900 million, should attract robust participation in
all areas without undermining other goals of the auction. Opening
prices in the reverse auction will be announced at least 60 days in
[[Page 61919]]
advance of the deadline to file an application to participate in the
reverse auction; (c) For the forward auction, the Commission adopts its
proposal to assign a specific number of bidding units to each spectrum
block that will be available in a Partial Economic Area (PEA) based on
the number of weighted-pops in the PEA, and to use the bidding units to
calculate minimum opening bids, upfront payments, and bidder
eligibility, as well as to measure bidding activity. To facilitate
bidding across license categories, each block available in a PEA will
have the same number of bidding units. The minimum opening bid for each
spectrum block will be equal to the number of bidding units assigned to
the block times $5,000, and upfront payments will be one-half that
amount. Upfront payments will be due after the initial clearing target
has been selected; (d) Reverse Auction Bidding. Having considered the
comments the Commission received on its proposal for a Dynamic Reserve
Price (DRP) mechanism, it has decided not to adopt DRP. This decision
will encourage voluntary participation in the reverse auction by
removing uncertainty among broadcasters, and maximize forward auction
spectrum value by eliminating the possibility of additional impairments
in the 600 MHz Band due to the operation of the DRP mechanism. In order
to make bidding as simple as possible for reverse auction bidders,
bidders will not be able to submit ``intra-round'' bids. The Commission
adopts its proposal to establish a simple proxy bid mechanism to make
it easier for bidders to participate in the auction; (e) The Commission
also adopts several measures to improve transparency for reverse
auction bidders. First, the auction system will inform them, for each
station on which they are bidding, of their bidding status and the new
price offers for available bid options. Second, bidders also will be
provided with ``vacancy'' information regarding the availability of
channels in bands relevant to each of their stations given its bid
options. Vacancy information may help reverse auction bidders assess
the likelihood that the price offers for a bid option will continue to
decrease, as well as how likely any bid option to move to another band
is to be available through the current round. Once reverse auction
bidding stops in any stage, the total dollar amount of provisionally
winning reverse auction bids will be announced publicly; (f) Forward
Auction Bidding. The Commission adopts its proposal to offer two
categories of generic spectrum blocks for bidding in the clock phase of
the forward auction: ``Category 1'' blocks with potential impairments
that affect zero to 15 percent of the weighted population of a PEA; and
``Category 2'' blocks with potential impairments that affect between
greater than 15 percent and up to 50 percent. Prices for frequency-
specific licenses will be adjusted downward at the end of the
assignment phase of the forward auction by one percent of the final
clock phase price for each one percent of impairment to the license;
(g) The Commission adopts several measures to improve transparency for
forward auction bidders. First, the auction system will provide them in
advance of bidding with specific information regarding impairments,
including the actual source and location of the impairment. Second,
during the clock phase, aggregate price information that reflects the
progress of the forward auction towards satisfying the final stage
rule, as well as price and aggregate demand information for blocks in
each PEA that reflects progress towards completion of bidding in the
clock phase, will be publicly available; (h) To implement the
Commission's decision in the Mobile Spectrum Holdings Report and Order
(Mobile Spectrum Holdings R&O), 79 FR 39977, July 11, 2014, to
incorporate a market-based spectrum reserve in the forward auction, the
Commission adopts its proposals to base the maximum number of reserved
spectrum blocks in a given PEA on the total number of Category 1 and 2
blocks offered in that PEA; to limit the actual number to demand for
Category 1 blocks by reserve-eligible bidders when the auction reaches
the spectrum reserve trigger; to reserve only Category 1 blocks; and to
limit the number of reserved blocks in a PEA to two if, when the
trigger is reached, only one reserve-eligible bidder demands such
blocks. The Commission also affirms its decision that the spectrum
reserve will be triggered by satisfaction of the final stage rule; (i)
To implement the final stage rule established in the Incentive Auction
Report and Order (Incentive Auction R&O), 79 FR 48441, August 15, 2014,
the Commission adopts the proposed average price and spectrum
benchmarks of $1.25 and 70 megahertz of licensed spectrum,
respectively. The benchmarks will help to ensure that winning bids for
the licenses in the forward auction reflect competitive prices and
return a portion of the value of the spectrum to taxpayers without
reducing the amount of spectrum repurposed for new, flexible-use
licenses. The Commission also adopts its proposals for triggering an
``extended round'' to give bidders the opportunity to meet the final
stage rule without moving to another stage, except that an extended
round will not be triggered if the shortfall is greater than 20
percent; (j) Assignment Round. The Commission adopts the assignment
round bidding procedures proposed in the Auction 1000 Comment PN, with
a modification: in addition to limiting PEA grouping to PEAs with the
same mix of clock-phase winners and winnings, as proposed, the
Commission will limit PEA grouping to unimpaired PEAs. Winning clock-
phase bidders will have the opportunity to bid for their preferred
combinations of licenses, consistent with their clock-phase winnings,
in a series of single sealed-bid rounds conducted by PEA or, in some
cases, PEA group; (k) The auction system will incorporate certain
intra-market contiguity objectives in determining the frequency-
specific license assignments available in the assignment round. To
assist forward auction bidders in determining whether, and how much, to
bid in each PEA during the assignment phase, all clock-phase winning
bidders across all PEAs will be informed of the extent to which
contiguous blocks feasibly may be assigned to winning bidders from the
clock phase within each PEA. In addition, the auction system will
provide each bidder with bidding options that satisfy the feasible
contiguity objectives for each PEA in which the bidder may bid; (l)
Final TV Channel Assignments. The Commission will use optimization
techniques to determine a final TV channel assignment plan that
satisfies the constraints adopted in the Incentive Auction R&O and
strives for the additional policy goals of maximizing the number of
stations that stay on their pre-auction channels, minimizing aggregate
new interference to individual stations, and avoiding channel
reassignments for stations with high anticipated costs. These goals, in
turn, will help to ensure that the total reimbursement costs associated
with the repacking process remain below the $1.75 billion in the TV
Broadcaster Relocation Fund that Congress made available, speed the
post-auction transition process and minimize disruption for stations
and viewers alike.
3. Consistent with its decision in the Incentive Auction R&O
affirming the Wireless Telecommunications Bureau's (WTB's) delegated
authority regarding auction procedure matters that it typically
handles, at least 60 days before the deadline to file auction
applications WTB will release a separate public
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notice which will address the pre-auction application process,
including detailed instructions and deadlines, as well as post-auction
procedures (Auction 1000 Application Procedures Public Notice or
Application Procedures PN). The Application Procedures PN will announce
the filing window for applications to participate in the reverse and
forward auctions, as well as upfront payments and minimum opening bids
for the forward auction. In addition, the Application Procedures PN
will include technical formulas implementing final decisions regarding
the initial clearing target determination procedure, the final
television channel assignment plan, and the assignment of frequency-
specific licenses to forward auction clock-phase winning bidders, as
well as algorithms for bid processing. The Auction 1000 BIA Procedures
Public Notice, together with the Application Procedures PN, will
provide prospective bidders with a complete guide to participating in
the incentive auction.
II. Background of Proceeding
4. The Commission will conduct Auction 1000 (including Auctions
1001 and 1002) pursuant to Title VI of the Middle Class Tax Relief and
Job Creation Act of 2012 (Spectrum Act), which authorized incentive
auctions to help meet the Nation's accelerating spectrum needs and
required the Commission to conduct a broadcast television spectrum
incentive auction. Since enactment of the Spectrum Act, the Commission
has released a number of decisions in which it has adopted rules and
policies that provide the necessary framework for implementing the
incentive auction. Prospective applicants must be familiar with
additional specific details from these decisions as well as with the
Commission's general competitive bidding rules in Part 1, Subpart Q of
the Code of Federal Regulations and with the procedures, terms, and
conditions contained in the Auction 1000 BIA Bidding Procedures Public
Notice, and all other public notices related to Auction 1000, including
Auctions 1001 and 1002.
5. In the Incentive Auction R&O, the Commission adopted a ``600 MHz
Band Plan'' consisting of an uplink band that will begin at channel 51
(698 MHz), followed by a duplex gap, and then a downlink band.
Consistent with the Incentive Auction R&O, the Commission refers
throughout the Auctions 1000 BIA Bidding Procedures Public Notice to
the UHF band spectrum that is repurposed through the incentive auction
as ``the 600 MHz Band,'' and to the band plan scenarios adopted in the
Incentive Auction R&O as ``the 600 MHz Band Plan.'' Because the
Commission will not know the exact number of licenses or their
frequencies when the incentive auction begins, the 600 MHz Band Plan
includes different band plan scenarios associated with different
spectrum clearing targets.
6. Additionally, in the Incentive Auction R&O, the Commission
recognized the importance of finalizing TVStudy, the computer software
that will be used in the repacking process, well in advance of the
auction. On June 30, 2015, the Office of Engineering and Technology
(OET) finalized TVStudy and released a detailed summary of baseline
coverage area and population served by each station to be protected in
the repacking process, based on then-current information in its
databases regarding the stations' facilities. The Commission directs
OET to release final baseline coverage area and population served data
no later than 60 days before the deadline for auction applications.
III. Initial Clearing Target Determination Procedure
7. The Commission adopts the procedure for selecting an initial
spectrum clearing target for the incentive auction. Examination of the
record reflects consensus on several basic principles: that the goal
should be to allow market forces to determine how much spectrum is
repurposed; that flexibility to allow some degree of impairment is
critical to achieving that goal; and that forward auction licenses
should be as free from impairments as possible. Consistent with these
principles, the procedure the Commission adopts is modified in
important respects from that proposed in the Auction 1000 Comment PN.
In particular, the Commission adopts a one-block-equivalent standard
with a cap for limiting impairments that will allow significantly less
than the proposed 20 percent nationwide impairment level at higher
clearing targets.
8. The following provides a high-level overview of the procedure
and then addresses in detail the elements of the procedure related to
handling impairments. In Appendix A to the Auction 1000 Bidding
Procedures Public Notice, the Commission provides a description of how
its computer software will apply the procedure the Commission adopts on
a step-by-step basis. An updated version of Appendix C to the Auction
1000 Comment PN setting forth the technical details and formulas
associated with the procedure that the Commission adopts will be
included with the appendices to the Application Procedures PN.
A. Overview
9. Based on the array of stations that apply to participate in the
reverse auction and the bidding options to which they initially commit,
the procedure the Commission adopts will use mathematical optimization
techniques to determine a provisional television channel assignment
plan for every possible spectrum clearing target. For each clearing
target, the plan must include a feasible channel assignment in its pre-
auction band for every eligible station that does not participate in
the reverse auction and in the VHF band for every applicant designated
to move to a VHF relinquishment option. Consistent with the constraints
adopted in the Incentive Auction R&O to make all reasonable efforts to
preserve each eligible station's coverage area and population served,
``[a] feasible assignment is one in which: (1) All stations are given a
channel assignment, either to a channel or to go off the air; (2) a
station can only be assigned to one of its allowable channels as
defined in the domain.csv file; (3) stations' channel assignments must
not violate adjacent and co-channel pairwise interference restrictions
as defined in the interference_paired.csv file; (4) all non-
participating stations and stations that have dropped out of bidding in
the reverse auction are assigned a channel in their pre-auction band;
and (5) all participating stations in the reverse auction must be
assigned to a valid relinquishment option, that is, an option
consistent with the relinquishment options the bidder selected during
the application process and with the bidding rules of the reverse
auction.'' Stations currently assigned to channels 50 or 51 will be
provisionally assigned to different UHF channels. Each applicant
station must be designated to a relinquishment option consistent with
its initial bid commitment. If a station initially commits to move to a
High- or Low-VHF channel as its preferred relinquishment option, and
the auction system is unable to accommodate that option, the system
must either designate that station to a fallback relinquishment option
selected by the applicant or, if the system is unable do so, to a
feasible channel in the station's pre-auction band. The optimization
procedure can always accommodate an initial bid commitment to go off-
air, including a commitment to go off-air in order to channel share.
Due to the limited availability of channels in the VHF band and the
technical constraints on repacking established in the Incentive
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Auction R&O, the procedure may not be able to accommodate every station
that commits to move to the Low- or High-VHF band. The procedure will
try to accommodate initial bid commitments according to the priorities
proposed in the Auction 1000 Comment PN. If a station's initial
commitment(s) is not accommodated by the auction system, the applicant
will be informed prior to the start of the clock phase of the reverse
auction that the station will be assigned to a feasible channel in its
pre-auction band. In the event that the procedure determines that
relinquishment of a station's spectrum usage rights will be unnecessary
to achieve a clearing target under any circumstances, the station will
be assigned a feasible channel in its pre-auction band, and the
applicant will be informed prior to the start of the clock rounds of
the reverse auction.
10. Depending on broadcaster participation levels, there may not be
a feasible channel available in the remaining UHF portion of the TV
band for all non-participating UHF stations and all UHF applicant
stations that are not assigned to their initial commitment or fallback
option(s). In such circumstances, as a last resort, the procedure will
assign stations to channels in the 600 MHz Band according to the
primary objective of minimizing the sum of ``weighted-pops''--
population weighted by an index of area-specific prices based on prior
Commission spectrum auctions--impaired for all licenses by the
assignments, and according to the additional objectives. The location
of impairing stations in the 600 MHz Band will not be limited for
purposes of applying the clearing target objectives; impairing stations
may be assigned to the uplink, downlink, and duplex gap portions of the
Band in order to minimize impairments. In addition to the primary
objective of minimizing impairments, the procedure will apply the
secondary objective of maximizing the weighted number of ``Category 1''
licenses (those licenses with zero to 15 percent impairment)
nationwide. In order to avoid any increase in impairment levels, the
secondary objective will be constrained by the primary objective. Thus,
the secondary objective seeks an assignment plan that satisfies the
primary objective, and contains the highest weighted number of Category
1 licenses nationwide.
11. Having determined the provisional TV channel assignment plan
for all clearing targets that best satisfies the objectives, the
clearing target determination procedure, using the 2x2 cell
calculations, will apply the near-nationwide standard for limiting
impairments in order to select the highest possible clearing target
that meets the standard. Under that standard, the amount of impaired
weighted-pops on a percentage basis will be less than the equivalent of
the weighted-pops of one paired 5+5 megahertz spectrum block. For
example, if the provisional TV channel assignment plan is for a 126
megahertz spectrum clearing target, then the forward auction licenses
in the associated 600 MHz Band Plan (120 megahertz, or 10 paired
license blocks) could only be subject to overall impairments on a near-
nationwide basis of up to but not including 10 percent, or less than
one out of 10 blocks. The procedure then will select the highest
possible clearing target that satisfies the standard and the
provisional TV channel assignment plan for that clearing target will be
selected for the initial stage of the auction, along with the
associated 600 MHz Band Plan. Application of this procedure will be
subject to the international agreements the Commission reaches with
Canada and Mexico. Although the Commission acknowledges it could miss
the opportunity to clear more spectrum by skipping a clearing target,
it may be necessary to skip the 144, 138, and/or 108 MHz clearing
targets to better harmonize its band plan with Canada or Mexico. The
Commission expects that this issue will be addressed in its
negotiations with those countries. The Commission expects to reach
timely arrangements with Canada and Mexico that will enable it to carry
out the repacking process in a manner fully consistent with the
requirements of the statute and its goals for the auction.
B. Objectives in Determining a Provisional TV Channel Assignment Plan
1. Primary Objective: Minimizing Impaired Weighted-Pops
12. The primary objective of minimizing impaired weighted-pops
nationwide is consistent with the consensus among both broadcasters and
wireless providers for limiting the impact of impairments overall. In
addition, by using weighted-pops, the optimization tool will disfavor
assigning impairing TV stations in major markets where they would have
the greatest impact on forward auction spectrum prices, consistent with
commenters' concerns. Weighting will discourage assignment of impairing
TV stations to 600 MHz Band frequencies in or near major markets by
increasing the cost of such assignments in the optimization. Its
decisions to allow the optimization software to assign television
stations within the 600 MHz Band so as to minimize impaired weighted-
pops in applying the primary objective, and not to ``discount''
impairments located in the uplink portion of the Band, also will
promote its goal of allowing market forces to determine the highest and
best use of spectrum.
a. Calculation of Weighted-Pops
13. ``Weighted-pops'' will be calculated using the same price index
measure the Commission adopts to calculate forward auction bidding
units. Specifically, to calculate weighted-pops, the index of area-
specific prices from prior auctions is used to weight the population in
each license area based on the relative price of each Economic Area
(EA) and Cellular Market Area (CMA) license (for paired spectrum) in
Auctions 66 (AWS-1), 73 (700 MHz), and 97 (AWS-3). The price per MHz-
pop of each license is divided into the average price per MHz-pop of
the corresponding spectrum block to produce an index value of the
license relative to the spectrum block. For example, if the price per
MHz-pop of the winning bid for an EA license equaled the average price
per MHz-pop for that spectrum block, then the index value for that
license would be 1; if the price per MHz-pop was half the average, then
the index value would be 0.5; if the price per MHz-pop was twice the
average, then the index value would be 2; etc. Because the past prices
are for EA and CMA licenses, the index value for each EA and CMA
license area is broken down to the county level and averaged; the
resulting county-level index values are aggregated to PEAs. The index
values are aggregated to the PEA level by multiplying the county's
index value by the percentage of the PEA's population within the
county, and then summing those results for all of the counties in a
PEA. In the Auction 1000 Comment PN, the Commission stated its
intention to update the price index the Commission provided in Appendix
F to the Auction 1000 Comment PN following Auction 97 to account for
current values. Those results are now being incorporated into the price
index to calculate weighted-pops for the incentive auction. An appendix
providing the final index consistent with these decisions will be
released with the Application Procedures PN. The explanation the
Commission provides here together with the Application Procedures PN
appendix responds to interested parties' requests for additional
information on how weighted-pops is calculated and how it
[[Page 61922]]
will be used during the incentive auction in relation to impairments
and to bidding.
14. Some commenters express concerns with the use of weighted-pops.
The Commission disagrees with AT&T that its approach using weighted-
pops is imprecise and will tend to understate impairment levels because
it ignores major highways, railways and airports where population
levels may be low but spectrum values are high. Indeed, by
incorporating spectrum values from past auctions into the determination
of where to locate impairments, the optimization tool will be able to
account for those areas where spectrum values are high for reasons not
directly related to population, including transportation hubs, and will
avoid locating impairments in those areas, consistent with its goal of
maximizing spectrum value. AT&T's criticism appears to concern how the
ISIX methodology calculates impairments more than the use of weighted-
pops. The former issue should have been raised in the ISIX proceeding.
Moreover, the detailed information the auction system will provide to
forward auction bidders on the locations where it places impairments
will enable bidders to evaluate precisely their potential impact. The
Commission also disagrees with NAB, which argues that the weighted-pops
concept is confusing and overly complex. Although this is the first
time the Commission will apply this measure for purposes of
impairments, it has used weighted-pops in prior auctions to calculate
bidding units. The Commission disagrees that use of weighted-pops adds
undue complexity; rather, it agrees with those commenters that suggest
that using weighted-pops will simplify the auction and avoid locating
impairments where they will unduly harm spectrum values. By evaluating
impairments based on weighted-pops rather than population alone, the
procedure the Commission adopts can better account for the costs
associated with impairing specific areas in order to identify a
provisional TV channel assignment plan that minimizes impairments.
b. Measuring Potential Impairments
15. The Commission adopts its proposed procedure for determining
the extent of potential impairments, with several modifications. The
technical formulas for implementing the modified procedure the
Commission adopts will be set forth in the Application Procedures PN.
Under the measurement procedure the Commission adopts, the impairment
level--the population subject to impairment--of each license that will
be available in the forward auction under each spectrum clearing target
will be pre-calculated for each station on each channel for each
clearing target. More specifically, the ISIX methodology first will be
used to predict potential inter-service interference between TV and
wireless services. The ISIX methodology, which the Commission adopted
for purposes of the incentive auction, predicts potential inter-service
interference based on deployment of a hypothetical wireless network.
The raw data the ISIX methodology produces at a two-by-two kilometer
cell level will be aggregated into county-level data sets for the
uplink and downlink portions of the 600 MHz Band and mapped to specific
forward auction licenses. The ISIX methodology defines each two-by-two
kilometer cell as ``impaired'' or ``unimpaired'' depending on whether
it is subject to any inter-service interference. The percentage of the
population of each county subject to inter-service interference then
will be calculated for each potential channel assignment of a TV
station to a location in the 600 MHz Band. The procedure will avoid
double-counting the population of a county that is subject to potential
inter-service interference from more than one TV station through the
use of overlap tables. For any such assignment in which this percentage
is more than 10 percent in either the uplink or downlink portion, the
entire population of the county will be considered impaired for the
license if the station is assigned to the channel. For a given TV
channel assignment plan, the impairment percentage of a license is
determined by dividing the sum of the populations of impaired counties
by the population of the PEA.
16. The Commission adopts a 10 percent limit on the amount of
impairment allowed in a county before the entire population of the
county is considered impaired for the purposes of the measurement
procedure. The Commission sought comment on setting this threshold
between 10 and 20 percent. In order to avoid under-predicting potential
interference, the Commission chooses a more conservative threshold at
the low end of the proposed range. The Commission emphasized that the
optimization procedure will use the county measurement only to
determine the provisional TV channel assignment plans; the selection of
a specific clearing target will use the more granular 2x2 cell data to
determine the near-nationwide impairments. The Commission notes that
because the initial clearing target is ultimately chosen based on the
2x2 grid cell data, using a 10 percent county threshold to aggregate
the ISIX data up to the county level has very little impact on the
overall result.
17. Rather than ``discounting'' the population for impairments
located in the uplink portion of the 600 MHz Band, as proposed, the
procedure the Commission adopts will consider uplink and downlink
impairments to have equal weight. The Commission proposed to consider a
county that is impaired in the downlink portion of the 600 MHz Band to
also be impaired in the uplink portion, but not the reverse. Thus, only
50 percent of the population of a county with uplink impairments above
the threshold would be considered impaired (i.e., the portion of the
population representing the uplink block); 100 percent of the
population of a county with downlink impairments above the threshold
would be considered impaired (i.e., the population representing both
the downlink and uplink blocks). Commenters generally oppose the
proposal, arguing that it would tend to understate impairment levels.
The Commission agrees and concludes that adopting it would be
inconsistent with the strong record support for minimizing impairments.
Therefore, the percentage of population attributed to uplink
impairments will not be discounted: if the percentage of population
with predicted impairment in the uplink exceeds 10, the optimization
will consider the county wholly impaired, just as it will for
impairments in the downlink portion of the block. The effect of this
approach is that the optimization will not favor impairing the uplink
over impairing the downlink but will focus instead on minimizing
impaired weighted-pops in the 600 MHz Band overall. Further, the result
of this approach is that any population that is not considered impaired
will be usable for two-way communication (i.e., both its uplink and
downlink blocks will be unimpaired).
18. The measurement procedure will be used in applying the
additional objectives as well as the primary objective. In creating the
provisional TV channel assignment plan for each clearing target, data
must be aggregated to the county level, and a percentage threshold must
be applied to determine whether a county is impaired, in order to
reduce the volume of data inputs to a quantity that reasonably can be
utilized. Given all of the possible TV station and channel combinations
under every clearing target, the ISIX methodology produces a quantity
of data that exceeds the current
[[Page 61923]]
capabilities of optimization techniques. When aggregated to a county
level, the ISIX methodology produces approximately 3.7 billion separate
records of data for the roughly 3,000 counties in the United States.
Use of data at the next possible level of granularity--the Census
tract--would result in a 20-fold increase in the number of data
records, and use of data at the cell level would result in a 650-fold
increase. As it stands at the county level, the measurement procedure
the Commission adopts must consider more than 100,000 decision
variables and over two million constraints. At a more granular level
than the county, the number of decision variables and constraints that
must be considered would increase to an unsolvable number. For purposes
of applying the near-nationwide standard to determine whether a plan
satisfies the impairment limit, however, more granular, cell-level data
will be used.
19. Likewise, forward auction licenses will be categorized as
Category 1 (zero to 15 percent impaired) or Category 2 (greater than 15
percent and up to 50 percent impaired) based on cell-level impairment
data, and forward auction bidders will be provided with cell-level data
to inform their bidding strategies. Specifically, ISIX data will be
used to identify the impaired population in both the uplink and
downlink portion in the license. This data will show in which cells a
potential licensee either will be restricted from operating due to
harmful interference to an impairing TV station or may have its
operations infringed upon by harmful interference from a TV station.
The population of impaired cells across the license--whether the
impairment results in the uplink or downlink--will be added together
and divided by the total population of the PEA to calculate the
impairment percentage. If the total population of the impaired cells
within a block is less than or equal to 15 percent of the total
population of the block, the block will be offered as a Category 1
block. If the total population of the impaired cells is more that 15
percent but less than or equal to 50 percent, the block will be offered
as a Category 2 block. The location of an impairment in the 600 MHz
Band will not be determinative for the purposes of calculating the
impairment percentage; the population of a cell will be considered
impaired even if the impairment only affects the uplink or downlink
portion of the paired 5+5 megahertz spectrum block. This conservative
approach avoids both the weighting proposed in the Auction 1000 Comment
PN and double counting. For example, assume a PEA with a population of
100,000 has impairments that affect 10,000 people in the downlink
portion of the A block and 5,000 of the same people in the uplink
portion of the A block. The A block would be considered 10 percent
impaired (10,000 impaired pops divided by 100,000 total pops in the
PEA). Though the impairment affects a population of 5,000 in both the
uplink and the downlink portion of the A block, 5,000 is not added to
the total impaired pops because that would result in double counting--
the population of 5,000 was already included when tallying the downlink
impairments. The effect of this approach is that any population that is
not considered impaired will be fully usable for two-way communication
(i.e., both its uplink and downlink blocks will be unimpaired),
consistent with its prioritization of paired spectrum.
c. Assigning TV Stations to the 600 MHz Band To Accommodate Market
Variation
20. The Commission adopts its proposal to allow the optimization
tool to assign television stations within the 600 MHz Band where
necessary to accommodate market variation in a manner that best
fulfills the clearing target objectives, and not to restrict it to
assignments in specific portions of the 600 MHz Band--downlink, uplink,
or duplex gap. Restricting the optimization tool to certain portions of
the 600 MHz Band would undermine its efficacy in carrying out the
primary objective, likely resulting in more impairment of forward
auction licenses and the selection of a lower spectrum clearing target.
Such an outcome is not justified by the competing policies that some
commenters advocate in support of restrictions.
21. Commenters express conflicting views on where to assign
impairing television stations, arguing for various reasons that
impairments should be restricted to the uplink, downlink, and/or the
duplex gap portion of the 600 MHz Band and identifying problems with
every possible location within the 600 MHz Band. For example, CCA, C
Spire, and T-Mobile assert that stations should be assigned to the
uplink because consumer demand is driving the need for more unimpaired
downlink spectrum than uplink spectrum. T-Mobile and Verizon also
suggest that assigning stations to the uplink is preferable because
carriers can employ mitigation methods, such as base station filters,
to guard against inter-service interference. On the other hand, Sprint
supports assigning TV stations on contiguous channels starting at the
bottom end of the downlink band to facilitate filter design in devices,
reduce the number of filters needed for base stations, and maximize
two-way spectrum. Sennheiser supports assigning stations to channels in
the downlink portion of the band in order to provide greater certainty
for unlicensed users in the duplex gap. In contrast, AT&T and Verizon
oppose assigning TV stations to the downlink band because of
complications to mobile device filter design. Several commenters
caution against assigning stations to channels in the duplex gap.
Conversely, AT&T, CCA, Sprint and T-Mobile support assigning stations
to the duplex gap. AT&T states that it would likely be less harmful as
a technical matter, and therefore preferable to assignment elsewhere in
the 600 MHz Band, and T-Mobile argues that it ``will allow for more
extensive, higher performance 600 MHz broadband transmissions in the
affected geographic area license(s) than would be possible if the
broadcast impairment were co-channel with broadband operations.''
Sprint states ``in the event of less robust broadcaster participation,
in which fewer blocks of competitively critical low-band spectrum can
be repurposed, repacking television stations in the duplex gap may be
the only way to conduct an auction with a modestly successful amount of
auctioned spectrum.'' CCA cautions that protecting the duplex gap will
``reduce the amount of spectrum available in the forward auction.''
Henry A. Waxman advocates for an alternative approach in which the
assignment of TV stations to the duplex gap is dependent upon whether
the clearing target exceeds 84 megahertz. Some commenters oppose
repacking TV stations anywhere in the 600 MHz Band.
22. As an initial matter, the Commission emphasized that the
optimization tool will assign television stations anywhere in the 600
MHz Band ``only where absolutely necessary.'' As the Commission
determined in the Incentive Auction R&O, however, and as many
commenters acknowledge, flexibility to accommodate some level of market
variation--thus requiring some level of impairment to 600 MHz Band
licenses--is critical to avoiding the least common denominator problem.
The procedure the Commission adopts always will favor assigning
television stations to channels in the remaining TV bands if possible,
and, will select a clearing target selection that reflects an
appropriate trade-off between the amount of spectrum cleared and the
overall impairment level. Further, the
[[Page 61924]]
Commission disagrees with AT&T that assigning TV stations to the 600
MHz Band will create problems similar to those in the 700 MHz Lower A
Block caused by TV stations in channel 51. The Commission developed the
ISIX methodology to address this issue specifically by creating a
methodology to predict where inter-service interference is likely to
occur and proposing to restrict licensees' service in these areas where
``impairments'' are created. Moreover, wireless licensees will be aware
of these impairments in advance: The Commission will provide bidders
with detailed information about impairments in the blocks offered prior
to the start of the forward auction, including the facility causing the
impairment, and the resulting areas where they will be restricted from
operating or not be required to operate due to inter-service
interference. As a result, bidders can use the facility information
about the impairing station to determine how their wireless networks
could be deployed around the impairment, or whether they should not bid
on impaired licenses (that is, a license to operate in a geographic
area that is subject to inter-service interference) in that area.
23. The Commission declines to restrict the optimization procedure
from assigning TV stations to the uplink, downlink and/or duplex gap
portions of the 600 MHz Band in order to carry out the clearing target
objectives. The Commission is not persuaded that any of the technical
issues identified by commenters justify restricting the optimization
procedure to create more license impairments and/or a lower initial
clearing target. Despite the lack of consensus on where to locate
impairments, most commenters agree with the principles that impairments
should be minimized to the greatest extent possible, and that the goal
of the auction should be to repurpose as much spectrum as market forces
allow. The procedure the Commission adopts is consistent with this view
because it provides the fullest possible scope for implementing the
primary objective of minimizing the impact of impairments on 600 MHz
licenses.
24. In particular, the Commission disagrees with AT&T and Verizon
that technical issues justify restricting the optimization procedure
from assigning stations to the downlink portion of the 600 MHz Band.
AT&T argues that the Commission underestimates the ``real world''
impact of placing a TV station in the downlink portion of the 600 MHz
Band because the ISIX methodology only measures potential interference
within 5 MHz of a channel's edge and thus does not adequately predict
the effect of placing a TV station in the downlink; and because
wireless user equipment (i.e., mobile and portable devices) cannot
prevent interference into any frequency within the same filter or
``duplexer.'' Duplexers are pairs of filters, one transmit and one
receive, that function together to reduce the potential for
interference between a transmitter and a receiver in the same piece of
equipment. AT&T's criticism of the ISIX methodology is unfounded. The
ISIX methodology is consistent with its rules, which do not offer
interference protection beyond the first adjacent channel. Moreover,
AT&T ignores the fact that wireless user equipment is capable of
attenuating interfering signals at frequencies separated beyond the
first adjacent channel, as required by 3GPP standards. AT&T's criticism
of the ISIX methodology also is untimely. AT&T failed to seek
reconsideration of the final order adopting the ISIX methodology, or to
raise its criticisms of the ISIX methodology before the Commission
adopted that order.
25. AT&T's filter concerns also lack merit. With regard to blocks
co-channel with or first adjacent channel to an impairing TV station,
its approach recognizes that filters may be ineffective in impaired
areas by not requiring wireless user equipment to operate in such
areas. In addition, wireless user equipment is prohibited from
operating where such equipment could interfere with digital television
receivers. Beyond the first adjacent channel, the signal attenuation
required by 3GPP standards will limit interference regardless of
duplexer performance. The likely use of two or more duplexers also
makes it less likely that a TV station assigned to a portion of the
downlink will render the entire downlink unusable by wireless user
equipment. To the extent that an impairing TV station is located in the
non-overlapping part of one duplexer, the non-affected duplexer will be
able to filter out the interfering signals, a fact that even AT&T
appears to concede. For example, for an 84 megahertz clearing target
(encompassing blocks A-G), if a TV station is co-channel with the A
block, using two duplexers (one covering blocks A-D; the other covering
blocks D-G), the duplexer covering blocks D-G at the opposite end of
the downlink band will be able to filter out the interfering TV signal.
Consequently, wireless user equipment operating in those blocks should
not experience harmful interference from the impairing TV station.
Because the optimization tool will prefer TV station assignments that
overlap with the guard bands where possible in order to minimize the
impaired weighted-pops pursuant to the primary objective the Commission
adopts herein, TV stations are more likely to be assigned to the non-
overlapping part of one duplexer than to the central part of the
downlink where the duplexers overlap. Furthermore, technical solutions
and enhanced filter technologies can mitigate the potential for
interference once the 600 MHz Band Plan is finalized following the
auction. As Sprint suggests, enhanced filter technologies will make it
possible to use separate filters for separate frequencies in the
future, further limiting the impact of a TV station in the downlink
portion of the band by the time this band is deployed. The technical
details on the 600 MHz duplexers will not be contemplated by 3GPP until
the band plan and potential market variations are finalized after the
auction. Once they are finalized, technical solutions, such as
Sprint's, can mitigate the potential for interference given the actual
frequencies affected.
26. Further, the Commission cannot conclude that protecting the
duplex gap from any impairment is warranted at the risk of repurposing
less spectrum. Its analysis indicates the duplex gap will not be
subject to any impairment in most markets even if the optimization
procedure tool is not restricted in assigning impairing stations. In
scenarios 1, 2, and 3, the maximum number of TV stations assigned to
channels that impair the duplex gap are 6, 7, and 2, respectively. Thus
the duplex gap will remain free from impairment across most of the
country except for in a relatively small number of markets. Conversely,
protecting the duplex gap in every market is likely to lead to the
selection of a lower clearing target as a result of increased
nationwide impairment levels. In simulation scenarios 1 and 2 (40-50
percent and 50-60 percent broadcaster participation in the reverse
auction, respectively), protecting the duplex gap from the assignment
of TV stations raises the nationwide impairment percentage beyond the
standard for limiting impairment, thereby requiring the optimization
procedure to drop down to a lower clearing target. Protecting the
duplex gap also reduced the number of relatively unimpaired Category 1
licenses in each scenario. By reducing the amount of spectrum available
to generate forward auction proceeds, protecting the duplex gap could
threaten the overall success of the auction, as well as its competition
goals for licensed providers in the 600 MHz
[[Page 61925]]
Band. The Commission notes that the Spectrum Act prioritizes license
600 MHz Band services over services operating in the guard bands. By
contrast, the Commission's decision to authorize guard band use by
wireless microphones and unlicensed devices was wholly within its
discretion. Its policy regarding impairments will also affect
broadcasters and 600 MHz licenses, wireless microphones, and unlicensed
devices in this limited number of markets. In addition, in the limited
number of areas where the duplex gap is subject to impairment, it may
also not be available to protect against interference between licensed
services. In such areas, the methodology proposed in the ISIX Further
Notice, 79 FR 76282, December 22, 2014, will be used to prevent inter-
service interference, rather than the guard band. While commenters have
identified a range of issues associated with assigning stations to the
duplex gap, the goals of repurposing spectrum for mobile broadband use,
minimizing impairments, and ensuring a successful auction militate in
favor of flexibility and outweigh the potential benefits of protecting
the duplex gap from any impairment.
27. The Commission also rejects arguments that impairing stations
should be restricted to the same portion of the 600 MHz Band. For
example, Sprint proposes that impairing TV stations should, to the
extent possible, be assigned to channels side-by-side in any market in
which multiple stations remain and on common frequencies. CCA proposes
an alternative ``channel stacking plan,'' which would create a pattern
for impairing station assignments specific to the 600 MHz Band Plan
associated with the selected clearing target. CTIA also urges
consistency in assignment of TV stations to the 600 MHz Band. The
potential costs of such restrictions--reducing the optimization
procedure's efficacy in minimizing impairments and risking the
selection of a lower clearing target--outweigh the potential benefits
that these commenters identify. The unrestricted approach the
Commission adopts is consistent with the consensus for minimizing
impairments and maximizing potential spectrum recovery.
28. Further, the Commission rejects Sinclair's request to impose
constraints to ensure that no licensee of multiple television stations
is disproportionately affected by channel assignments in the 600 MHz
Band. The Commission disagrees with Sinclair's premise that stations
assigned to the 600 MHz Band will be disadvantaged in comparison to
stations located in the remaining TV bands. Such stations will be
entitled to the same robust protections in the repacking process as all
other eligible TV stations, including preservation of coverage area and
population served pursuant to the constraints established in the
Incentive Auction R&O, reimbursement for reasonable relocation costs,
and protection from inter-service interference. In addition, by
requiring the optimization tool to potentially forego channel
assignments that minimize impaired weighted-pops in light of station
ownership concerns, Sinclair's proposal would risk greater impairments
to 600 MHz Band licenses and recovery of less spectrum through the
incentive auction. Accordingly, the Commission concludes that the
potential benefits of Sinclair's proposal are outweighed by the costs.
29. In determining a provisional TV channel assignment plan, the
optimization tool will not assign impairing stations to channels 50 or
51. Many commenters caution against the assignment of stations to
channel 51 due to potential interference with Lower 700 MHz A Block
operations. Recognizing the existing interference concerns between
television stations on channel 51 and the Lower 700 MHz A Block, the
Commission took action in the Incentive Auction R&O to encourage early,
voluntary relocation of channel 51 stations to further mitigate any
potential interference. Further, its decision to create a 600 MHz Band
Plan in which channels 50 and 51 would be repurposed for the 600 MHz
wireless uplink band under every spectrum recovery scenario was
intended to improve the interference environment for 700 MHz licensees.
Unlike the 700 MHz service, which is already in operation, 600 MHz Band
licensees will be able to account for potential loss in the value of
their licenses as a result of impairments through the mechanism of the
forward auction, and will have full prior knowledge of the areas of
operation that may be affected by inter-service interference. Moreover,
the proposed ISIX methodology would apply only to licenses in the 600
MHz Band and, therefore, no mechanism is available to prevent
interference between impairing TV stations and the 700 MHz service. The
decision to exclude both channels 50 and 51 (each totaling six
megahertz) will ensure interference protection consistent with its use
of technically reasonable guard bands of at least seven megahertz.
2. Additional Objectives
30. The Commission also adopts its proposal to include a secondary
objective: Maximizing the weighted number of Category 1 blocks
available in the forward auction. To calculate the weighted number of
Category 1 blocks, the auction system sums the Category 1 blocks in
each PEA, multiplies the result by the value weighted price index for
the PEA, and adds those results for all PEAs. Commenters raise concerns
that the impact of impairment on the value of spectrum licenses to
forward auction bidders cannot be measured strictly in terms of
nationwide percentages. The Commission agrees that it should strive to
offer as many unimpaired licenses as possible.
31. In order to avoid any increase in impairment levels, the
secondary objective will be constrained by the primary objective.
Specifically, the secondary objective will be constrained by the
nationwide impairment percentage determined by the primary objective,
rounded up to the nearest integer. For example, if after applying the
primary objective, the nationwide impairment percentage is 4.4, the
procedure will maximize the weighted number of Category 1 licenses up
to an impairment percentage of five. Thus, the secondary objective will
function primarily as a tie-breaker in choosing a provisional TV
channel assignment plan: When more than one potential plan exists with
the same minimum level of impairment identified through application of
the primary objective, the secondary objective will cause the
optimization tool to choose the one that maximizes the weighted number
of Category 1 licenses. Constraining the secondary objective in this
manner is consistent with the consensus in favor of minimizing
impairments and maximizing potential spectrum recovery.
32. The provisional TV channel assignment plan determined based on
application of the first two objectives may include licenses that
cannot be offered in the forward auction because greater than 50
percent of the population is subject to impairment. The optimization
procedure will apply a tertiary objective in order to maximize their
potential value in a subsequent spectrum auction. More specifically,
the tertiary objective will seek to minimize impaired weighted-pops
over all licenses, including licenses with greater than 50 percent of
the population subject to impairment. The primary and secondary
objectives will not take account of any license with greater than 50
percent impaired weighted-pops. The tertiary objective will be
constrained by the first two objectives: It will be applied only to the
extent that it neither increases the nationwide impairment
[[Page 61926]]
percentage resulting from application of the primary objective nor
reduces the weighted number of Category 1 licenses resulting from
application of the secondary objective. Further, it will not decrease
the weighted number of Category 2 licenses existing after the
application of the primary and secondary objectives. Solely for
clearing targets where the lower guard band is 11 MHz, the Commission
adopts a quaternary objective of minimizing the number of stations
placed on the lower channel in the lower guard band to the extent it
does not increase the total number of stations assigned to the 600 MHz
Band or to any channel in that Band. This objective will not affect the
results of the other objectives.
C. Standard To Limit Market Variation
33. The Commission adopts a scaled standard that will limit
impairments to a level significantly less than the proposed 20 percent
nationwide level at clearing targets above 72 megahertz, while ensuring
an appropriate tradeoff between spectrum recovery and impairment level.
Instead of a percentage-based standard, the standard the Commission
adopts is equivalent to the weighted-pops of one paired 5+5 megahertz
spectrum block nationwide, which translates into the percentages at
each potential clearing target in the 600 MHz Band Plan. At clearing
targets below 72 megahertz, the standard is capped at 20 percent.
34. This ``one-block-equivalent'' standard responds to concerns
expressed by commenters that the proposed 20 percent standard would
allow excessive impairment, particularly at higher clearing targets. It
also responds to concerns that repurposing more spectrum may not be
justified at the cost of allowing more impairment. Instead, T-Mobile
argues, proportionally less impairment should be allowed at higher
clearing targets, and more at lower clearing targets. Under the
standard the Commission adopts, the percentage of impairment that is
allowed is scaled to the amount of licensed spectrum that would be
repurposed at each clearing target, increasing target by target from
approximately eight percent at the highest clearing target to 20
percent at targets of 72 megahertz and lower. Because the impairment
percentage is scaled to the amount of licensed spectrum that would be
repurposed at each clearing target, the standard the Commission adopts
also responds to criticisms that the proposed 20 percent standard was
arbitrary and overly complex. The Commission notes that the one-block-
equivalent standard is the same number of weighted-pops across all
clearing targets and is based on the total nationwide 2010 census
population multiplied by the index of area-specific prices from prior
auctions based on the relative price of each EA and CMA license (for
paired spectrum) in Auctions 66 (AWS-1), 73 (700 MHz), and 97 (AWS-3).
The standard is capped at 20 percent at clearing targets below 72
megahertz because otherwise the one-block-equivalent approach would
allow more impairment than the proposed 20 percent. Commenters raise
concerns that these impairment levels are still too high overall. Even
if that proves true in a given stage, however, the auction design
includes a self-correcting mechanism: If the blocks offered in a stage
are insufficiently valuable to produce the forward auction revenues
necessary to meet the final stage rule, the auction would transition to
a new stage with a lower clearing target and a lower level of aggregate
impairment. Thus, the auction system relies on market forces to
determine whether blocks offered in the forward auction are too
impaired, even within the limits the Commission adopts. This market-
based approach avoids unduly constraining the flexibility to set
reasonable clearing targets that reflect the level of broadcaster
participation.
35. The standard the Commission adopts also accounts for the
tradeoff between the benefits of repurposing spectrum and the costs of
allowing impairments at different clearing targets. For example, a 126
megahertz clearing target would repurpose 100 megahertz of licensed
spectrum, or 10 paired blocks, so the impairment limit at that clearing
target is the nationwide equivalent of one of the ten blocks. If
aggregate impairments equal or exceed the equivalent of the population
of one spectrum block nationwide at that target, the optimization
procedure will move to the next lower clearing target. An 84 megahertz
clearing target would repurpose 70 megahertz of licensed spectrum, or
seven paired blocks, so the standard will tolerate a higher proportion
of impairment--up to the equivalent of one out of seven blocks
nationwide, or approximately 14 percent--but the optimization procedure
likewise will move to the next lower clearing target if aggregate
impairments equal or exceed that amount. Thus, the standard has the
effect of moving to a lower clearing target with one less spectrum
block to offer if impairments equal or exceed the equivalent of one
block nationwide. The standard tolerates a higher proportion of
impairment at lower clearing targets because the tradeoff is different:
The record reflects that more flexibility to accommodate market
variation is appropriate at lower clearing targets in order to ensure
the auction's overall success. While commenters agree that minimizing
impairments should be a high priority, many commenters also urge the
Commission to balance this goal against the goal of ensuring that
sufficient spectrum is made available in the forward auction. The
Commission agrees with T-Mobile that at higher clearing targets the
balance favors achieving greater uniformity across the band plan (by
tolerating a lower percentage of impairment) and at lower clearing
targets the balance favors repurposing spectrum by tolerating a greater
percentage of impairment.
36. The Commission emphasized that the population in most PEAs will
not be subject to any impairment under the standard it adopts, which
will be applied on a nationwide, aggregate basis. In fact, the
Commission expects that the vast majority of PEAs will have no impaired
blocks, although there may be some PEAs with more than one impaired
block. For example, in the Clearing Target Simulations Public Notice
(CTS PN), 80 FR 30021, May 26, 2015, the simulation resulting in the 84
megahertz initial clearing target shows that in 406 PEAs, all but 62
have only Category 1 licenses. The same is true for all but 53 in the
114 megahertz scenario and all but 47 in the 126 megahertz scenario. In
its analysis, AT&T similarly found that in an 84 megahertz initial
clearing target all but 64 PEAs will have only Category 1 licenses.
AT&T acknowledges that its results ``align closely with the published
FCC results for the top 20 markets'' and that differences may be
attributed to the power and geography differences of stations assigned
to the 600 MHz Band. Staff simulations project that at a range of
clearing targets, the overwhelming majority of spectrum blocks would be
unimpaired or nearly unimpaired. In each of the simulations in the CTS
PN, at least 93.4 percent of licenses are Category 1 licenses, and
Category 2 licenses comprise at most 1.3 percent of total possible
licenses.
37. To promote transparency and provide information about the
potential results of the clearing target determination procedure,
Commission staff released a public notice in May 2015 showing the
results of simulations of the procedure based on certain assumptions
regarding broadcaster participation levels and impairments along the
borders. These simulations project that the procedure, including the
``one-block-equivalent'' standard, would
[[Page 61927]]
result in the selection of a high initial clearing target with the vast
majority of licenses available in Category 1. The Commission notes that
for purposes of the CTS PN impairment analysis, the total number of
licenses analyzed at each clearing target level included only those
licenses that could be offered in the continental United States (i.e.,
in 406 out of the 416 PEAs). When calculating impairments for the
incentive auction, the procedure will include all 416 PEAs. In
particular, these simulations result in an initial clearing target of
84 megahertz assuming 40 to 50 percent of broadcasters participate in
the reverse auction (Scenario 1); an initial clearing target of 114
megahertz assuming 50 to 60 percent participate (Scenario 2); and an
initial clearing target of 126 megahertz assuming 60 to 70 percent
participate (Scenario 3). In Scenario 1, of the 2842 possible licenses,
only 46 are Category 2 licenses. In Scenario 2, of the 3654 possible
licenses, only 50 are Category 2 licenses. And in Scenario 3, of the
4060 possible licenses, only 48 are Category 2 licenses. In all three
scenarios, 88 to 93 percent of the licenses in the high-demand markets
(i.e., PEAs 1-40) are Category 1 licenses and 84 to 88 percent of PEAs
contain only Category 1 licenses. Under Scenario 1, of the 2654
Category 1 licenses, 2535 are entirely free of impairments (i.e., zero
percent of the weighted-pops in the PEA are impaired). In Scenario 2,
of the 3469 Category 1 licenses, 3334 are entirely free of impairments;
and in Scenario 3, of the 3886 Category 1 licenses, 3753 are entirely
free of impairments.
38. While commenters generally support the release of the
simulations to provide greater transparency, some question the staff's
assumptions, request release of all of the underlying data or request
additional simulations based on different assumptions. The Commission
concluded that additional simulations are not necessary. On July 10,
2015 the Incentive Auction Task Force provided additional data for each
of the six scenarios released in the CTS PN, including the assumptions
regarding broadcaster participation, the specific DMAs with impairing
TV stations and with stations in the duplex gap, and the channel to
which each impairing station was assigned. The CTS PN provided
information regarding a range of illustrative participation scenarios
and clearing targets that afforded the public ample opportunity to
understand and comment on the clearing target determination procedure
that the Commission adopts, which procedure is identical to the one
used in the CTS PN. The Commission also declines to release all of the
data underlying the simulations: The CTS PN identified the critical
information necessary to evaluate its clearing target determination
procedure, and it is persuaded that the release of more data is
warranted. With regard to broadcaster participation, rather than
attempt to predict whether thousands of individual stations will choose
to participate based on subjective factors, for purposes of the
simulations certain categories of stations were assumed not to
participate based on objective factors (e.g., major network affiliates,
the major PBS station in an area, etc.). Because the simulations
require some assumptions regarding participation, it was reasonable to
base those assumptions on such objective factors rather than merely a
randomized array of stations. In any event, the purpose of the
scenarios described in the CTS PN was to test the results of the
clearing target determination procedure against a range of potential
broadcast stations in the reverse auction.
39. With regard to impairments along the borders, some commenters
question why the simulations did not include assumptions based on
information about interference from Mexican television stations that
AT&T has placed in the record of this proceeding. Reliable information
about potential interference from Mexican TV stations is not publicly
available at present, and AT&T's filing does not reflect Mexico's plans
to change its television service in the near future. Instead,
Commission staff chose to use the information reflecting current treaty
agreements with Mexico--that is, to protect all Mexican allotments--but
not to consider interference from Mexican stations into the U.S. Thus,
the only potential impairments excluded from the simulations are areas
in which 600 MHz licensees could operate but might experience
interference from Mexican TV stations that may or may not exist. While
that approach may under-predict such interference to a limited extent,
the Commission cannot conclude that it was unreasonable. The Commission
assures forward auction bidders that this information will be made
available before the forward auction to allow bidders to evaluate all
types of potential impairments caused by international TV stations, in
addition to domestic ones. The Commission also does not want to over-
predict Mexican interference into the U.S. given Mexico's suggestions
that it will try to keep all radio and television broadcast below
channel 37. The Commission notes that the Instituto Federal de
Telecomunicaciones (IFT) and the FCC are working on a joint repurposing
of the 600 MHz Band that places Mexican TV stations below channel 37
while providing additional channels for U.S. stations to use in the
reorganized TV band.
40. The Commission rejects arguments by AT&T, Verizon, and others
for a standard that allows no impairment except in border areas. In its
May 1, 2015 Ex Parte Letter, AT&T acknowledges that ``an approach that
permits the Commission absolutely no flexibility'' except in border
areas ``is probably too stringent'' and instead suggests allowing up to
three percent impairment outside border areas plus eight to nine
percent in border areas. The resulting 11-12 percent standard is
similar to the standard the Commission adopts at a number of clearing
targets and indeed, more stringent than what it adopts for higher
clearing targets. Subsequently, in its July 1, 2015 Ex Parte Letter,
AT&T proposed that the Commission allow impairments at the border,
without a set maximum percentage, and a three percent on non-border-
related impairments. Such an approach would not provide the flexibility
that is necessary to account for the unique challenges the incentive
auction presents. Market variation may be caused by a variety of
factors, including varying levels of spectrum congestion and
broadcaster participation in different areas, as well as border-related
constraints. Although AT&T argues that 84 megahertz or more of spectrum
could be repurposed under an approach allowing for impairments only in
border markets, its analysis relies on optimistic assumptions about
reverse auction participation by broadcasters. The Commission fully
expects high levels of participation by broadcasters; indeed, achieving
such participation is a chief goal of its decision. At the same time,
the purpose of the nationwide aggregate approach the Commission adopts
is to provide flexibility in the event of non-participation by
broadcasters in certain areas or other factors that it cannot fully
predict in advance.
41. The Commission also rejects EOBC's proposal to base the
selection of an initial clearing target on the degree of impairment in
Los Angeles or New York in the interest of simplicity. Like AT&T's
proposal, EOBC's simply does not provide sufficient flexibility to
accommodate market variation. Indeed, depending on levels of
broadcaster participation, EOBC's approach could defeat the purpose of
its decision to accommodate market variation in the first place by
constraining the choice of
[[Page 61928]]
an initial clearing target to the two markets with the most highly
congested broadcast spectrum in the nation. Further, EOBC's simulations
showing that the Commission can reallocate at least 126 MHz in New York
and Los Angeles are simply not possible. Even under the most optimistic
assumptions regarding broadcaster participation, the simulations
analyzed in the Clearing Target Simulations PN, did not result in 10
unimpaired pairs in both New York and Los Angeles. EOBC's approach also
would sacrifice the precision of the optimization-based approach the
Commission adopts, focusing exclusively on two important markets, but
which are not necessarily proxies for the rest of the nation.
Accordingly, the Commission concludes that EOBC's approach would risk
its goal of allowing market forces to determine the highest and best
use of spectrum. For example, in Scenario 1 of the simulations run for
the CTS PN, the initial clearing target would have to be lowered from
84 megahertz to 78 megahertz because there are only six unimpaired
blocks available in the New York PEA. For the same reason, the
Commission also rejects AT&T's proposal to allow for only three percent
of the population nationwide to be affected by non-border related
impairments. Given that the top two PEAs each comprise well over three
percent of the U.S. population and the next two PEAs each comprise
approximately three percent, to adopts EOBC's or AT&T's approach would
also undermine the purpose of adopting market variation in the first
place: To prevent the lack of spectrum in one or two markets from
lowering the clearing target. EOBC's and AT&T's approaches also fail to
reflect that different tradeoffs are appropriate between spectrum
recovery and impairment level at different clearing target levels in
order to ensure the auction's overall success.
42. Finally, the Commission declines to establish a separate
standard to limit impairment levels in major markets. The procedure the
Commission adopts protects major markets from impairment by weighting
the population in such markets more heavily. The Commission rejects
arguments that the procedure it adopts might disproportionately impair
top markets. These commenters express concern that the optimization
procedure will impair top markets to allow for fewer impaired markets
nationwide. On the contrary, the procedure will seek to avoid impairing
high-demand markets due to the added cost of such impairments in the
mathematical optimization. The one-block-equivalent standard strictly
limits impairment levels on a nationwide, aggregate basis. Accordingly,
and based on staff simulations reflecting the number of Category 1
licenses that the Commission projects would be available in major
markets under the procedure it adopts, the Commission is not persuaded
that a separate standard to limit impairment levels in major markets is
necessary, particularly at the cost of added complexity and less
flexibility in accommodating market variation.
IV. Qualifying To Bid
A. Qualifying To Bid in the Reverse Auction
43. In order to qualify to bid in the clock phase of Auction 1001,
the reverse auction, an eligible broadcast television licensee
interested in voluntarily relinquishing spectrum usage rights in
exchange for an incentive payment must submit an application in which
it identifies, for each station that it wishes to enter in the clock
phase of the reverse auction, every relinquishment option for which it
would consider bidding for that station. If the broadcaster's
application is timely filed and deemed complete, it must then commit to
at least one relinquishment option per station at the opening price for
that option for that station. Administrative details regarding the
application and initial bid commitment procedures, including the
application deadline, will be addressed in the Application Procedures
PN. The Commission adopts its proposal with respect to an additional
certification by applicants in the reverse auction regarding their
exercise of due diligence. In the Auction 1000 Comment PN, the
Commission sought comment on requiring all applicants in the reverse
auction to certify to the truth of the following statement: ``The
applicant acknowledges and agrees that any information provided by the
Commission's outside contractors who are advising and assisting it with
education and outreach in connection with the reverse auction is for
informational purposes only and that neither the Commission nor any of
its outside contractors makes any representations or warranties with
respect to any such information and shall have no liability to the
applicant in connection therewith.'' The Commission noted that this
certification will help assure that each applicant accepts
responsibility for its bids and will not attempt to place
responsibility for its bids on either the Commission or the information
provided by third parties as part of its outreach. The Commission
received no comments in response. The additional certification serves
the intended purpose and the Commission therefore will require all
applicants in the reverse auction to make the certification. The
Commission describes the available bid options, adopts procedures for
setting the opening prices, and adopts the process by which applicants
that are willing to accept the opening price for one or more
relinquishment options will commit to that option and a fallback
option(s), if they so choose, in order to become qualified to bid in
the clock phase of the reverse auction.
1. Options for Relinquishing Spectrum Usage Rights
44. Reverse auction applicants will be able to select from three
possible bid options to relinquish their spectrum usage rights on their
auction applications. An applicant's ability to select options on its
application will be limited by its pre-auction band and the hierarchy
of relinquishment options. These options correspond to the bid options
that will be available to bidders in the clock phase of the reverse
auction. The three bid options are a bid to go off-air (available to
all stations), a bid to move to a Low-VHF channel (available to UHF or
High-VHF stations), and a bid to move to a High-VHF channel (available
only to UHF stations). A participant that intends to share a channel
with another station post-auction will bid to go off-air. The auction
system will treat the intention to relinquish spectrum usage rights in
order to channel share the same as a bid to go off-air because ``from
the perspective of the auction system, a channel sharing bid is
identical to a license relinquishment bid.'' No parties filed comments
directly addressing the proposed bid types. The Commission concludes
that offering these three bid options is appropriate to implement the
relinquishment options that the Commission adopted in the Incentive
Auction R&O and is consistent with its goal of making reverse auction
participation straightforward for broadcasters.
45. Option Hierarchy. The auction system will treat the three
possible bid options as a one-way hierarchy during the clock phase of
reverse auction bidding. The hierarchy reflects the relative value of
the relinquishment options to the auction system's ability to recover
spectrum and simplifies the bidding process. Of greatest value in the
hierarchy is a bid to go off-air, which is a bid to relinquish all
spectrum usage rights to a particular channel. This option is followed
in order of value by a bid to move to the Low-VHF band, then a bid to
move to the High-VHF
[[Page 61929]]
band. For each station, the final option in the hierarchy is always to
exit the auction in order to remain on the air in its pre-auction band.
The option to which a bidder is designated pursuant to its initial
commitment will represent the most spectrum rights it will be able to
bid to relinquish in the auction. If the bidder subsequently decides to
switch its bid option in accordance with the reverse auction bidding
procedures, the only bid option(s) available to the bidder will be
options that relinquish less spectrum usage rights. The one-directional
nature of the bid options is important for bidders to consider when
filling out their auction applications and committing to an initial
relinquishment option.
46. Some broadcasters support the one-way option hierarchy because
it will ``facilitate the orderly conduct of the reverse auction,''
while others advocate for flexibility to switch between bid options
without restriction. Contrary to concerns that its design will
discourage participation or complicate decision-making, the Commission
concludes that limiting the direction in which bidders may switch bid
options--from greater to lesser relinquishments--will make bidding
easier because it will establish a simple framework for evaluating
options and will improve price predictability. A bidder that wishes to
preserve flexibility to bid for all the options may do so by selecting
all of its options on its auction application and committing to go-off-
air as its preferred initial relinquishment option. Furthermore,
allowing bidders to ``move freely between any relinquishment options''
as Joint Broadcasters suggest would create a significant risk of
harmful strategic bidding. Allowing bidders to switch bids unrestricted
by the hierarchy would create opportunities for them to manipulate
prices in the auction by moving back and forth between off-air and VHF
options. Creating such strategic opportunities would actually make
bidding more complicated for broadcasters because they would have to
consider a broader range of strategies prior to and during the bidding.
47. Joint Broadcasters posit that the one-way hierarchy will create
inefficiencies since a bidder might be willing to bid to go off-air
once the price to move to VHF falls too low, but such a bidder would be
precluded from doing so by the one-way-hierarchy. The Commission
disagrees. The one-way hierarchy, together with the reverse auction bid
processing system the Commission adopts, will provide for a more
efficient repacking than if broadcasters were able to shift among the
options without restriction. Based on the available vacancy in the VHF
band, the reverse auction bid processing system will reduce the price
differential between the off-air and VHF prices, in order to encourage
bidders that can be accommodated in the VHF band to bid to move to VHF
rather than to go off-air. Substantial movement back and forth between
options could reduce the overall efficiency of repacking in the VHF
bands. Additionally, bidders that move to VHF are unlikely to want to
switch to off-air bids, as Joint Broadcasters posit, because generally
the price to go off-air will decline more rapidly than the price to
move to High- or Low-VHF. Accordingly, the Commission is unconvinced
that the one-way hierarchy design will unduly restrict bidders. The
benefits of the one-way hierarchy in terms of added simplicity,
preventing harmful strategic bidding, and repacking efficiency outweigh
any costs in terms of lost bidder flexibility.
2. Opening Price Offers
48. The Commission adopts its proposal for calculating opening
price offers for each station using two factors: (i) A base clock price
of $900, which represents the full per-unit of volume value to the
auction of clearing a channel in the UHF band; and (ii) a station-
specific ``volume'' factor that equally weights a station's
interference-free population and the number of constraints that it
imposes on the auction system's ability to repack other stations. The
Commission will calculate opening price offers for UHF stations to go
off-air by multiplying the base clock price of $900 by their station-
specific volumes. Opening price offers for bid options other than a UHF
station bidding for off-air relinquishment will be calculated by
multiplying fractional portions of the nationwide uniform $900 base
clock price by a station's volume. The Commission will publicly
announce opening price offers for each bid option available to each
station eligible to participate in the reverse auction at least 60 days
in advance of the deadline to file an application to participate in the
reverse auction.
a. Base Clock Price and VHF Clock Prices
49. The Commission adopts a slightly modified version of its
proposal to set a nationwide uniform base clock price, representing the
full per-volume value to the auction of clearing a channel in the UHF
band, from which it will calculate the opening clock prices for each
bid option for stations in each band. The Commission will set the base
clock price at $900 per unit of volume so that the maximum opening
price offer to any particular station is $900 million. The Commission
will calculate a volume for each eligible station based on its
interference and population characteristics. The Commission will then
re-scale this volume calculation so that the highest volume for a UHF
station is one million, in order to yield the maximum opening price for
a UHF station to go off-air of $900 million. If any VHF stations have a
higher calculated volume than the highest volume UHF station, such
stations may have their volume re-scaled to greater than one million.
However, because the opening clock prices for VHF stations are
calculated as fractional portions of the base clock price, the
Commission expects that the opening price offers for VHF stations will
always be lower than $900 million. By scaling based upon the highest
volume UHF station, the Commission can ensure that one station will be
offered an opening price of exactly $900 million. Although the
Commission proposed to scale the volume of other stations based on the
highest volume station, regardless of its pre-auction band, the
Commission concludes that using the highest volume UHF station is more
appropriate because that station's off-air price will reflect the
greatest value to the auction.
50. The Commission concludes that a $900 base clock price strikes
the correct balance between attracting robust broadcaster participation
across multiple markets and conducting an efficient--and ultimately,
successful--auction. The Commission disagrees with broadcasters who
argue that the base clock price should be increased to reflect the
results of Auction 97 (AWS-3). Raising the base clock price would,
according to these commenters, motivate greater broadcaster
participation because stations would be offered higher opening prices,
and this increased participation would ultimately result in more
cleared spectrum. There is no basis to believe, beyond broadcasters'
assertions, that opening prices of up to $900 million will be
insufficient to encourage reverse auction participation. On the other
hand, increasing the base clock price as suggested would raise the cost
of repurposing spectrum and likely reduce the amount of repurposed
spectrum. Increasing the base clock price would raise clearing costs
for a given clearing target, increasing the likelihood of not meeting
the final stage rule, necessitating additional stages at lower spectrum
clearing targets. These risks would be compounded by the absence
[[Page 61930]]
of a dynamic reserve pricing (DRP) mechanism, because the auction
system will not have a mechanism to mitigate the risk that a station
will receive its opening price. Thus, increasing the opening prices in
actuality would likely result in fewer stations having the opportunity
to become winners in the auction. In addition, increasing the base
clock price would risk increasing the length of the auction, making
participation more difficult and costly for both forward and reverse
auction bidders. Accordingly, the Commission adopts the $900 base clock
price to ensure robust broadcaster participation without undermining
its other auction goals.
51. While opening price offers for a UHF station to go off-air will
always equal the base clock price multiplied by the station's volume,
opening price offers for other bid options--for a UHF station to move
to VHF or for VHF stations to move to a lower band or to go off-air--
will equal the station's volume multiplied by a portion of the base
clock price. Because the value to the auction of a cleared channel in
the UHF band is the same whether a UHF station relinquishes its
spectrum by going off-air or the channel is cleared through a series of
intermediate moves involving VHF bids, the Commission will calculate
the per-volume opening prices for intermediate moves to add up to the
per-volume opening price for a UHF station to go off-air. Thus, the
per-volume opening prices for a UHF station to move to High-VHF, a
High-VHF station to move to Low-VHF, and a Low-VHF station to go off-
air will add up to equal the base clock price, since these three moves
are equivalent to a UHF station going off-air in terms of value to the
auction. Likewise, the per-volume opening prices for other intermediate
moves will add to the opening price for an equivalent direct move.
Thus, in per-volume terms, the opening price offer for a direct move
from High-VHF to off-air will equal the sum of the opening price for a
move from High-VHF to Low-VHF and the opening price for a move from
Low-VHF to off-air. During the clock rounds, however, the portion of
the base clock price attributable to each intermediate move will vary
from round-to-round, since price offers to stations during the clock
rounds will also depend upon the availability of channels in the VHF
bands in the station's area. For example, while the per-volume opening
price for a High-VHF station to go off-air will be 40 percent of the
opening base clock price, this percentage will vary in subsequent clock
rounds depending upon congestion in the VHF bands.
52. More specifically, the Commission will apportion the base clock
price for a station to move from the UHF band to off-air among the
equivalent series of intermediate moves using the midpoint of the
ranges the Commission proposed in the Auction 1000 Comment PN. The per-
volume opening price for a UHF station to move to Low-VHF will be 75
percent of the base clock price (or $675), and the per-volume opening
price to move from UHF to High-VHF will be 40 percent of the base clock
price (or $360). The ranges that the Commission proposed represent the
relative value of each band and its related relinquishment options to
the auction, and reflect the scarcity of channels and different
technical characteristics of each VHF band. In response to commenters
that urge the Commission to increase the opening prices for VHF
options, it is persuaded that it should not choose opening prices at
the bottom of the proposed ranges in order to avoid discouraging
broadcasters from choosing these options. At the same time, choosing
opening prices at the top of the ranges proposed would run the risk of
under-incentivizing the option to go off-air or to consider channel
sharing. The Commission concludes that the values it choose strike the
right balance between conducting an efficient auction and encouraging
bidders to consider all bid options, include the VHF options.
53. Because the opening price for a UHF station to move to Low-VHF
will be 75 percent of the base clock price, the opening price for a
move from Low-VHF to off-air must be 25 percent of the base clock price
for these two intermediate moves to add up to the base clock price
(i.e., 100 percent). Similarly, because the opening price for a UHF
station to move to High-VHF will be 40 percent of the base clock price,
the opening price for a move from High-VHF to off-air must be 60
percent of the base clock price. Lastly, since the opening price for a
UHF station to move to High-VHF is 40 percent and for a Low-VHF station
to go off-air is 25 percent, the opening price for a move from High-VHF
to Low-VHF must be 35 percent of the base clock for these intermediate
moves to sum and equal the base clock price. Given a per-volume opening
base clock price of $900, the per-volume opening price for a Low-VHF
station to go off-air will therefore be $225 (25 percent of $900), for
a High-VHF station to go off-air will be $540 (60 percent of $900), and
for a High-VHF station to move to Low-VHF will be $315 (35 percent of
$900).
54. Several broadcasters oppose offering opening prices for the bid
options to move to VHF that are lower than the bid option to go off-
air. As an initial matter, the Commission rejects NAB's unsupported
claim that it lack the statutory authority under the Spectrum Act to
offer different prices for VHF options. Although the statute does not
expressly authorize different price offers for VHF options, it does not
follow that the Commission lacks authority to offer different prices:
Such authority is inherent in its mandate to conduct a reverse
auction--which requires establishing opening price offers--and nothing
in the Spectrum Act's statutory language, context, or legislative
history suggests that in doing so the Commission cannot distinguish
between relinquishment options. The Commission also rejects PBS's
argument that discounting UHF to VHF bid options ``is inconsistent with
the basic purpose of the auction'' to discover prices through market-
based means. Setting opening price offers for bid options that are
proportional to the value of the relinquishment to the auction will
send the appropriate price signals to bidders regarding the relative
value of the options to the auction system and encourage bidders to
initially commit to go off-air, recognizing that as price offers are
reduced, they may request to switch to one of the VHF options.
Moreover, price offers for VHF options and VHF stations in subsequent
rounds will be determined by the actual demand for VHF options and the
availability of channels in the VHF bands. As a result, the relative
values for the various bid options will not remain fixed at the opening
bid offer amounts, and the ultimate prices paid to winning bidders will
reflect market demand for the options in the auction.
55. The Commission disagrees with NAB and the Joint Broadcasters
that the auction system should be indifferent between the
relinquishment options available to UHF stations because each option
will result in clearing a channel in the UHF band. In order to clear a
UHF channel by paying a UHF station to move to the VHF band, the
auction system may first have to pay one or more stations to relinquish
spectrum usage rights in the VHF band. A bid to go off-air also is of
greater value than a bid to change bands because it provides the
auction system with more repacking flexibility: Accepting an off-air
bid by a UHF station clears a UHF channel without first requiring the
system to find a feasible channel in another band. Conversely, a UHF
station that agrees to
[[Page 61931]]
move to one of the VHF bands is less valuable because it must be
assigned a feasible channel in that band, limiting the auction's
ability to assign another station to VHF, and significantly increasing
the complexity of the repacking process. A station that agrees to move
to Low-VHF is of greater value to the auction than one that agrees to
move to High-VHF due to the greater availability of channels in the
Low-VHF band and the greater number of stations for which that bid
option will be available, both of which make repacking easier.
Consequently, of least value to the auction is a station that agrees to
move to High-VHF, since in many markets few channels are available, and
only UHF stations may bid on this option.
56. The Commission also disagrees with NAB that offering the same
price for all three bid options would better serve the public interest
by encouraging stations to move to the VHF band and continue to provide
broadcast television service. NAB's premise is flawed, because a UHF
station moving to VHF may necessitate a VHF station going off-air
first. In any event, in keeping with its goal of allowing market forces
to determine the use of spectrum, the public interest will be best
served by pricing bid options according to their value to the auction
and the repacking process, rather than based on separate broadcast-
related policy goals. The Commission also rejects PBS's suggestion that
if the Commission discounts price offers for VHF options, it should
provide a bidding credit for noncommercial educational (NCE) stations
that successfully bid to move to VHF in order to help pay for their
relocation expenses. Unlike in the traditional auction context, where
bidding credits are intended to help small or disadvantaged businesses
that may lack the financial resources to effectively compete for
licenses with larger ones, winning bidders in the reverse auction will
receive--and not make--payments, and can factor their relocation
expenses into their consideration of whether to accept a price offer.
57. The Commission disagrees with the Joint Broadcasters that its
opening price offers for VHF bid options will fail to account for the
``substantial technical inferiority of VHF channels'' and to ``provide
the proper incentives for broadcasters to accept these limitations.''
Contrary to Joint Broadcasters' argument, its approach does provide an
incentive to accept the less favorable propagation characteristics and
other technical properties of VHF channels--this is precisely the point
of offering higher opening prices to UHF stations to move to Low-VHF
than to move to High-VHF. Nor are the Commission persuaded that
requiring stations moving to VHF to pay relocation expenses will
``greatly reduc[e] the desirability of a UHF-to-VHF move.'' Bidders
can--and, the Commission expects, will--factor their relocation
expenses into their consideration of whether to accept a price offer.
The value inherent in a station retaining the exclusive right to use a
full six megahertz channel will encourage stations to seriously
consider bidding for VHF options.
58. The Commission also disagrees with the Joint Broadcasters'
argument that offering lower opening prices for VHF options will hinder
the efficient use of spectrum by encouraging channel sharing over
moving to VHF, thereby reducing its flexibility to repurpose additional
UHF spectrum in the future. First, the Spectrum Act authorizes only one
broadcast television spectrum incentive auction. Its goal, therefore,
is to ensure the success of this auction. Second, contrary to the Joint
Broadcasters' assumption, the two options are not mutually exclusive:
Two UHF stations may agree to share a channel in VHF (with one agreeing
to go off-air, and the other bidding to move to a VHF channel which
both stations would share) in order to receive greater compensation
than if only one station participated in the auction.
b. Station-Specific Volume
59. The auction system will calculate each participating station's
volume using the following formula: Station Volume = (Interference)0.5
* (Population)0.5. The Commission will set the interference component
to equal the number of co- and adjacent channel constraints a station
would impose on repacking on a pairwise basis, and the population
component to equal the number of people residing within the station's
interference-free service area. The Commission's approach to setting
the interference component along the borders will be subject to the
agreements it reaches with Canada and Mexico. For instance, it may be
necessary to adjust the interference component for the purpose of
determining station-specific volume. Considering population will
``enable[e] the Commission to clear more spectrum in markets where the
forward auction value of relinquished spectrum usage rights is apt to
be higher,'' and it concludes that a volume formula that equally
balances interference and population components will best achieve the
goals of the incentive auction. Once the auction system has calculated
a station's volume, its volume metric will be fixed throughout the
auction. While AT&T encourages the Commission to consider a dynamic
volume adjustment based upon the provisional assignment of stations to
channels, the Commission finds that the approach it adopts for
calculating price reductions will capture similar efficiencies with
less complexity.
60. The Commission rejects arguments by EOBC and other broadcasters
against considering population when calculating each station's volume
metric. As an initial matter, EOBC's argument that considering
population is inconsistent with the policies the Commission adopted in
the Incentive Auction R&O is without merit. The Commission expressly
stated in the Incentive Auction R&O that the factors to be used in
setting prices could ``include the number of stations that a station
would interfere with and block from being assigned channels, the
population the station covers, or a combination of such factors.'' EOBC
points out that the Incentive Auction R&O ``explained that a station's
price would account for objective factors `that affect the availability
of channels in the repacking process and, therefore, the value of a
station's bid to voluntarily relinquish spectrum usage rights.' '' The
Commission's volume formula is wholly consistent with this explanation.
Likewise, its formula is consistent with its statement that ``a station
with a high potential for interference will be offered a price that is
higher than a station with less potential for interference to other
stations'': Between two otherwise identical stations, the one with more
interference constraints will have a greater volume, and thus higher
opening price offers. The Commission did not state that stations with
more interference constraints would receive higher offers than those
with fewer interference constraints regardless of other factors.
Contrary to EOBC's argument that population has nothing to do with a
station's impact on the repacking process, ``population served [is] one
of the major constraints on the availability of channels in the
repacking process'' in light of the Spectrum Act's mandate that during
the repacking process the Commission make all reasonable efforts to
preserve the population served of eligible stations that will remain on
the air.
61. Moreover, considering population alongside interference will
allow the auction system to clear more spectrum in markets where the
value to the forward auction is likely to be highest.
[[Page 61932]]
The purely interference-based approach advocated by EOBC and other
broadcasters would result in larger payments to stations that serve
small populations and smaller payments to stations that serve
particularly large populations--an outcome at odds with both the
typical metric by which spectrum is valued in spectrum auctions (i.e.,
MHz-pops) and with stations' own assessments: As WRNN points out,
``[p]opulation is one of the most, if not the most, important elements
by which the Commission and other broadcasters value its properties,
and distinguish its stations from others. This is critical for the
repacking process because participation of many stations with high
population counts, especially in the major cities, is essential to meet
larger clearing targets.'' The Commission notes that high participation
levels by stations that serve small populations in markets adjacent to
high-demand markets will not make up for low participation levels by
stations in high-demand markets that serve large populations.
Participation by both types of stations is required in order to allow
the auction to repurpose a significant amount of spectrum. While the
Commission affirms its determination in the Incentive Auction R&O not
to set bid prices based upon a station's enterprise value, population
is nevertheless an important metric for assessing spectrum value.
Ignoring this metric would send the wrong price signals and discourage
participation by large stations in major markets, thereby harming its
ability to clear spectrum in such markets. For example, in certain
border markets, a small Class A station may serve only a small
population but there may also be few channels available for repacking
stations. In such markets, the value of clearing and selling this
spectrum in the forward auction may likewise be low. Ignoring or
reducing the weight of population, as proposed by EOBC, could
potentially result in the Class A station being offered an opening
price significantly higher than a full power station in a major market
that serves many more people, regardless of the price at which each
station values itself. Furthermore, the value of clearing and selling
the spectrum in the forward auction in the larger market is likely to
be much higher. Using the balanced volume formula that the Commission
adopts will help to avoid these results and will result in higher price
offers to stations in markets where the spectrum is particularly
valuable. The Commission need not resolve EOBC's argument that it is
not required to consider the statutory goals of recovering a portion of
the spectrum value for the public and avoiding unjust enrichment in the
context of the reverse auction because these statutory provisions apply
only to auctions of licenses. Even if EOBC were correct, nothing in the
statute precludes the Commission from considering these goals in
designing the reverse auction, and the Commission concludes that doing
so will serve the public interest. The Commission also rejects Local
Media TV's proposal to calculate volume based entirely upon the
pairwise interference constraint files.
62. The Commission also disagrees with arguments that, if it
retains a population component, it should reduce its weight in its
volume formula. In particular, EOBC proposes a formula that would
reduce the weight of the population component from 0.5 to 0.25, raising
opening prices for almost all stations and de-emphasizing the impact of
population in price offers. The Commission is not persuaded by the
supposed benefits of this unbalanced weighting. The Commission rejects
broadcasters' assertions that it more closely reflects the pricing
policy the Commission adopted in the Incentive Auction R&O, for much
the same reason it rejected EOBC's consistency argument. The Commission
has no reason to think, and broadcasters have not established, that its
opening price methodology results in prices that are too low to attract
robust participation. However, raising opening prices would raise the
costs of repurposing spectrum, increase the likelihood of repurposing
less spectrum, and could even jeopardize the success of the auction.
Absent Dynamic Reserve Prices (DRP), the Commission no longer has any
mechanism to reduce prices in markets that are particularly constrained
(due to the impact of Canadian or Mexican stations, or non-
participants), further increasing opening prices would decrease the
likelihood of a successful auction. Reducing the weighting of
population would also likely increase clearing costs significantly for
the same amount of cleared spectrum, which could drive the auction to
lower clearing targets because forward auction revenue is insufficient
to close the auction in a given stage. On the other hand, using a
balanced weighting where the sum of the exponents equals one will
result in appropriate price signals for all stations: If a broadcast
station has twice the number of constraints and twice the population of
another, under its approach its opening prices will be twice as much.
Furthermore, a square-root weighted volume score (i.e., using an
exponent of 0.5) can improve the efficiency of algorithms similar to
its pricing and bid processing algorithm.
63. EOBC additionally argues that reducing the weight of population
would be in the public interest because it would result in less loss in
broadcast service, since smaller stations would more often become
winning bidders. In keeping with its goal of allowing market forces to
determine the highest and best use of spectrum, the public interest
will be best served by setting prices according to each station's value
to the auction and the repacking process. While encouraging stations
that serve smaller populations to go off-air might result in loss of
service for fewer over-the-air viewers, it would do so at the risk of
discouraging large stations in high-demand markets from participating
in the auction. In order to fulfill the goals of the Spectrum Act, it
is appropriate to set price signals that encourage broadcasters to
relinquish their spectrum usage rights in the reverse auction, not to
discourage certain stations from participating so that they will remain
on the air. The Commission concludes, therefore, that considering
population and interference, in an equal, balanced weighting, will best
achieve the goals of the incentive auction.
3. Committing to an Initial Relinquishment Option
64. As the second condition for qualifying to bid in the clock
phase of the reverse auction, an applicant that has submitted a timely
and complete application must commit to a preferred relinquishment
option for each station that it intends to bid for in the reverse
auction, and under the circumstances, it may commit to additional
``fallback'' options. An applicant will be able to commit only to
relinquishment option(s) that it identified for a particular station
when initially submitting its auction application. If an applicant did
not identify a particular relinquishment option on its auction
application, that option will not be available to the applicant when it
logs in to the FCC software to commit to an initial relinquishment
option for that station. The commitment(s) will constitute an
irrevocable offer by the applicant to relinquish the relevant spectrum
usage rights in exchange for the opening price offer for that bid
option. A commitment to a fallback relinquishment option is treated as
a binding commitment in the alternative to the preferred option. An
applicant need only commit to a fallback option in the event that its
preferred option is to move either to the Low- or High-VHF band.
Therefore, the auction will
[[Page 61933]]
commence with the submission of initial bid commitments. An applicant
that fails to commit to an initial relinquishment option for a given
station by the applicable deadline will not be qualified to bid in the
clock phase of the auction for that station.
65. As part of determining an initial clearing target, the auction
system will assign or designate each station to a relinquishment option
consistent with its initial bid commitment in order of the priority
rules proposed in the Auction 1000 Comment PN (proposing the following
priority order: (1) Minimize the number of participating UHF stations
that must be repacked in their pre-auction band; (2) minimize the
number of participating VHF stations that must be repacked in their
pre-auction band; (3) maximize the number of participating stations
that will commence bidding on their preferred option; (4) maximize the
number of participating stations that will commence bidding on their
alternative bid option to go off-air; and (5) minimize the sum of
impaired weighted-pops across all licenses), modified by the additional
priority rules the Commission adopts to take account of the secondary
and tertiary objectives in the initial clearing target determination
procedure. The technical details of the modification to take account of
the additional clearing target objectives will be released in an
appendix to the Application Procedures PN. That relinquishment option
will be the starting point for each station to bid in the clock phase
of the reverse auction. Due to the limited availability of VHF channels
and the technical constraints on repacking, the auction system may not
be able to accommodate every station that commits to move to the Low-
or High-VHF band. The auction system can always accommodate going off-
air as a preferred option because going off-air does not require
finding a feasible channel assignment. In order to increase the
likelihood that stations will be able to participate in the auction,
the Commission established procedures to allow applicants that commit
to move to VHF as their preferred option to also commit to a fallback
option(s) if they so choose. Applicants that commit to a preferred
option may decline to commit to fallback options. In order to qualify
to bid in the clock phase of the reverse auction, an applicant that
identified only one relinquishment option on its auction application
must still affirmatively commit to that option as its preferred
option--it will not have any fallback options available to it. The
auction system will attempt to designate a station to the preferred
option for that station. If the auction system is unable to accommodate
a station in its preferred option, the system will attempt to designate
the station to its fallback option(s), if the applicant committed to
any. If an applicant declines to commit to a fallback for a station and
its preferred option for the station cannot be accommodated--or, if
neither its preferred nor fallback options can be accommodated-- the
station will be designated to be repacked in its pre-auction band and
will not participate in the reverse auction bidding.
66. As applicants consider which option to commit to as the
preferred option for a station, they should be mindful that once the
bidding system designates a station to an initial relinquishment
option, future bid options for that station will be limited by the one-
way hierarchy of relinquishment options. For example, if a UHF bidder
identified all three options on its auction application and then
committed to go off-air, it may, in a subsequent bidding round, request
to switch to Low-VHF or High-VHF. However, if that same bidder instead
committed to move to Low-VHF as its preferred option and the auction
system were able to accommodate that option, that bidder would begin
the auction bidding to move to Low-VHF and would be precluded from ever
bidding to go off-air.
4. Final Auction Application Status
67. Once the auction system processes the initial bid commitments
and designates each station that can be accommodated to an initial
relinquishment option, the Commission will send confidential letters to
each reverse auction applicant to inform them of their status with
respect to the clock phase of the reverse auction. The letters will
notify applicants for each of their stations either that (1) the
station is qualified to participate in the clock phase of the reverse
auction; (2) the station is not qualified because no initial commitment
was made, and therefore, that station will be designated to be repacked
in its pre-auction band; (3) the commitment(s) made by the applicant
for the station could not be accommodated, and therefore, that station
is not qualified and will be designated to be repacked in its pre-
auction band, or (4) the auction system determined that the station is
not needed, and therefore, the station is not qualified and will be
designated to be repacked in its pre-auction band. As part of the
process of determining the initial clearing target, the auction system
may determine that certain stations will always have a feasible
assignment in their pre-auction band at the initial and all subsequent
clearing targets. Such stations' spectrum usage rights will never need
to be purchased to meet the clearing target and their participation in
the clock phase of the reverse auction is not needed. Qualified bidders
will begin the first round of the clock phase bidding for each
station's designated initial relinquishment option. Each applicant that
submits an initial commitment is obligated to relinquish at the
relevant opening price the spectrum usage rights associated with its
initial relinquishment option if the auction system selects its station
to relinquish its rights at the opening bid price.
68. Prior to the deadline to apply to participate in the reverse
auction, the Commission intends to provide, in various formats,
detailed educational information to would-be participants, including
among other things an auction tutorial that will be available on the
Auction 1000 Web page for prospective bidders to walk through the
auction process and the application and bidding screens. Once
applicants have qualified to participate in the clock phase of Auction
1001, registration materials will be distributed. Additionally, all
bidders qualified to bid in the clock phase will be able to participate
in a mock reverse auction prior to bidding in the clock phase of
Auction 1001, which will enable bidders to obtain hands-on experience
with the auction system. Further details about the mock auction and the
auction tutorial, including relevant dates and how to access these
tools, will be announced in the Application Procedures PN.
B. Qualifying To Bid in the Forward Auction
69. In order to qualify to bid in Auction 1002, an applicant must
timely submit an auction application that is deemed complete and timely
make a sufficient upfront payment. The amount of the upfront payment
will determine a bidder's initial bidding eligibility in terms of
bidding units, i.e., the maximum number of blocks, as measured by their
associated bidding units, a bidder may demand in the clock phase of the
forward auction. The Application Procedures PN will address the process
of applying to participate in Auction 1002, including descriptions of
the information required to be disclosed, instructions for completing
the form, and specific deadlines for submission. The Commission adopts
procedures for assigning bidding units to each spectrum block that will
be
[[Page 61934]]
available in the forward auction. The Commission also adopts a method
for calculating the upfront payment each applicant must make to obtain
bidding eligibility for forward auction spectrum blocks.
1. Bidding Units
70. The Commission will assign to each spectrum block that will be
available in the forward auction a specific number of bidding units and
will use the bidding units to calculate minimum opening bids, upfront
payments, and bidder eligibility, and for measuring bidding activity.
In particular, as the Commission proposed, it will assign bidding units
to spectrum blocks in each PEA by using a weighted population method
similar to the method it will use for measuring the extent of
impairment in a PEA. The only difference is that, in measuring the
extent of impairment in a PEA, the Commission will use the index value
specific to the PEA--it will not group the price index by deciles and
apply the lowest index value in a decile to all of the PEAs in that
decile, as it does for calculating bidding units.
71. The Application Procedures PN will set forth the updated
indices and number of bidding units that will be assigned to spectrum
blocks in each PEA under its adopted approach. The Commission notes
that some of the bidding unit values that will be announced will differ
from those in Appendix F of the Auction 1000 Comment PN because they
will incorporate the results of Auction 97. The Commission will derive
these values by incorporating auction results from Auction 66, Advanced
Wireless Services (AWS-1); Auction 73, 700 MHz Band; and Auction 97,
Advanced Wireless Services (AWS-3) into an index of area-specific
relative prices from prior auctions. This relative price index is the
same index used for measuring the impaired weighted-pops for a license.
Consistent with the approach used for Auction 96 (H Block) and Auction
97, the Commission will multiply the population of each PEA by the
index value for the PEA. The Commission will incorporate the results
from past auctions for spectrum licensed in Economic Areas (EAs) and
Cellular Market Areas (CMAs) by breaking the data down to the county
level and then aggregating the county-level data up to the PEA level.
For the purpose of assigning bidding units to spectrum blocks in each
PEA, the Commission will group the relative price index by deciles and
apply the lowest index value in each decile to all PEAs in that decile.
Next, the Commission will divide the result of the calculation by 1,000
and round it using the Commission's standard rounding procedures for
auctions. Specifically, the Commission will round numbers greater than
10,000 to the nearest thousand; numbers less than 10,000 and greater
than 1,000 to the nearest hundred; numbers less than 1,000 and more
than 10 to the nearest ten; and numbers less than 10 to the nearest
one. All PEAs will have at least one bidding unit. As a result, the
Commission will calculate bidding units for the spectrum blocks in most
PEAs as (pops * index)/1000, rounded. Because not all of the licenses
covering U.S. territories and protectorates had winning bids in past
auctions, for spectrum blocks in the PEAs for Puerto Rico, Guam-
Northern Mariana Islands, U.S. Virgin Islands, and American Samoa, the
Commission will divide the results of the weighted population
calculation by 2,000 and round the results. Further, the Commission
will assign one bidding unit to spectrum blocks in the Gulf of Mexico
PEA.
72. Each block available in a PEA will have the same number of
bidding units regardless of category. This approach will facilitate
bidding across categories by enabling bidders to switch their demand
for Category 1 blocks to Category 2 blocks and vice versa without
affecting their bidding eligibility. The number of bidding units for
the blocks in a given PEA will be fixed and will not change during the
auction, regardless of price changes.
73. The Commission disagrees with arguments that it should
determine bidding units (and, therefore, upfront payments and minimum
opening bids) based solely on population or without regard for the
final results from Auction 97. By incorporating past prices, its
approach reflects the relative value bidders have assigned to the
different markets in the past better than would a calculation based
solely on population, and hence, is more likely to reflect the relative
prices for markets in this auction. Its approach also helps ensure that
bidders' upfront payments are reasonably proportional to the market
prices of the spectrum blocks they demand. Further, using a price index
rather than a population index ensures that the Commission does not
exclude significant past price differences between similarly-sized
markets in its calculations. At the same time, using the results of
several previous auctions and the decile approach helps to reduce the
impact of any unusual price variation from a single auction. Thus, this
approach addresses concerns about incorporating auction-specific
anomalies from prior auctions.
74. The Commission is not persuaded by CCA's argument that
including pricing data from Auction 97 will prejudice smaller bidders.
Prices from Auction 97 are useful in that they provide the most recent
data on the relative prices bidders were willing to pay for spectrum
licenses in various markets. While prices in Auction 97 generally were
higher than in previous auctions, the Auction 97 information being
incorporated consists of additional data on relative prices across
markets and does not reflect overall price levels. The updates will
have a varying effect on different markets, but it will not result in a
substantial change in the total number of bidding units, upfront
payments, and minimum opening bids.
2. Upfront Payment Due After Initial 600 MHz Band Plan Determined
75. The Commission adopts an upfront payment amount of $2,500 per
bidding unit--half of the amount of the minimum opening bid for each
spectrum block. The upfront payment amounts for generic blocks in every
PEA for Auction 1002 will be announced in the Application Procedures
PN. The Commission will base the upfront payment for each generic block
on the number of bidding units associated with the blocks in a specific
PEA established. The Commission notes that in the Auction 1000 Comment
PN it proposed to multiply the number of bidding units of a spectrum
block by $2,500 and then round the result of that calculation. The
upfront payments the Commission adopts here will use the same
calculation, but the result will not be rounded so as to maintain a two
to one relationship between minimum opening bids and upfront payments.
This approach is consistent with its usual practice and supported by
the record. Thus, to become a qualified bidder, a forward auction
applicant must make an upfront payment sufficient to obtain bidding
eligibility for the quantity of generic blocks in each PEA on which it
may wish to bid in any round.
76. Its experience in past spectrum license auctions indicates that
requiring upfront payments protects against frivolous or insincere
bidding and provides the Commission with a source of funds from which
to collect payments owed at the close of the auction. For these
reasons, the Commission declines to reduce the upfront payment to
$1,000 per bidding unit as suggested by CCA. Contrary to CCA's
assertions, the Commission finds that insincere bidding is a real risk
in any spectrum
[[Page 61935]]
license auction. Moreover, the Commission is not persuaded that setting
an upfront payment amount at half of the minimum opening bid price will
threaten small carrier participation. Even after applying discounts for
license impairments and bidding credits, the final winning bid amount
for a license will exceed the ``cost'' (i.e., upfront payment) to
obtain enough eligibility to bid for the generic block. Thus, it is
reasonable to require that forward auction applicants be willing and
able to make upfront payments in the amount of $2,500 per bidding unit.
77. The Commission finds it unnecessary to discount upfront
payments for Category 2 licenses. The upfront payment is a refundable
deposit meant to help ensure sincere bidding and to establish initial
eligibility levels for use with the activity rules. Basing an upfront
payment on a spectrum block's potential degree of impairment would not
further the purpose of an upfront payment, especially since the number
of spectrum blocks in each category and their respective degrees of
impairment may change from stage to stage of the auction.
78. Upfront payments will be due after the initial clearing target
and associated band plan scenario has been determined. This timing will
enable an applicant to take into account the number of spectrum blocks
in the band plan scenario associated with the initial clearing target
when determining the amount of its upfront payment. In keeping with the
Commission's usual practice in spectrum license auctions, all upfront
payments must be made by wire transfer in U.S. dollars. Specific
instructions for submitting upfront payments, including wiring
instructions, will be set forth in the Application Procedures PN.
79. An applicant's total upfront payment must be enough to
establish eligibility to bid on at least one block in one of the PEAs
selected on its auction application for Auction 1002, or else the
applicant will not be qualified to bid in the auction. An applicant
must select on its auction application one or more PEAs in which it may
place bids during the forward auction. An applicant will not be
required to identify on its auction application the number of blocks
within a PEA it demands because the Commission will not know the
maximum number of spectrum blocks that will be offered in the forward
auction until the initial spectrum clearing target is determined.
Because bidding unit amounts pertain to a single paired 5+5 megahertz
block for each PEA, a bidder that wishes to bid on multiple generic
blocks within a PEA simultaneously will need to ensure that its upfront
payment provides enough eligibility to cover more than one paired 5+5
megahertz generic block in the PEA.
80. An applicant does not have to make an upfront payment to cover
blocks in all of the PEAs the applicant selected on its auction
application, but it should make an upfront payment that covers the
maximum number of bidding units that are associated with the quantity
of blocks in the PEAs on which it wishes to place bids in any given
round. The total upfront payment does not affect the total dollar
amount the bidder may bid for quantities of generic blocks, nor will it
be attributed to specific blocks or PEAs. Rather, the bidder may place
bids for quantities of blocks in any combination of the PEAs it selects
on its auction application, provided that the total number of bidding
units associated with those blocks will not exceed its eligibility when
it places the bid(s). Bidders will not be able to increase their
eligibility during the auction; bidders only will be able to maintain
or decrease their eligibility. Thus, in calculating its upfront payment
and hence its initial bidding eligibility, an applicant must determine
the maximum number of bidding units on which it may wish to bid in any
single round and submit an upfront payment covering that total number
of bidding units.
81. For example, under the approach the Commission adopts, assume
there are 27,000 bidding units associated with each block in the New
York, New York PEA, and 21,000 bidding units associated with each block
in the Los Angeles, California PEA. If a bidder wishes to bid on one
block in both PEAs in a round, it must have selected both PEAs on its
auction application and purchased at least 48,000 bidding units (27,000
+ 21,000) of bidding eligibility. If a bidder only wishes to bid on a
block in one of these PEAs, purchasing 27,000 bidding units would allow
the bidder to bid on a block in either PEA, but not on a block in both
PEAs at the same time. If the bidder purchased only 21,000 bidding
units, it would have enough eligibility to bid on a block in Los
Angeles, but not on a block in New York. If a bidder wishes to bid on
more than one block in a PEA, it must have purchased sufficient
eligibility for that number of blocks. Thus, continuing with its
example, a bidder interested in bidding on three blocks in Los Angeles
must purchase at least 63,000 bidding units (21,000 * 3) of bidding
eligibility.
82. The Commission notes that its rules require that any auction
applicant that certifies it is a former defaulter--i.e., has been in
default on any Commission license or has been delinquent on any non-tax
debt owed to any Federal agency--must submit an upfront payment equal
to 50 percent more than that set for each spectrum block. Recently in
the Updating Part 1 Competitive Bidding Rules 80 FR 56764, September
18, 2015 proceeding, the Commission narrowed the scope of the defaults
and delinquencies considered for purposes of this rule. Under its
amended rules, applicants may exclude from consideration as a former
default any cured default on a Commission license or delinquency on a
non-tax debt owed to a 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
auction 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., six 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. Additional details concerning the
application of the Commission's former defaulter rules to forward
auction applicants, including any required certifications and the
higher upfront payment requirement, will be set forth in the
Application Procedures PN. After the auction, applicants that are not
winning bidders or are winning bidders whose upfront payment exceeded
the total net amount of their winning bids may be entitled to a refund
of some or all of their upfront payment.
3. Final Auction Application Status
83. Consistent with its normal auction procedures, a public notice
will announce all qualified bidders for the forward auction (Qualified
Bidders PN). Qualified bidders are those applicants with submitted
auction applications that are deemed timely-filed and complete,
provided that such applicants have timely submitted an upfront payment
that is sufficient to qualify them to bid. Since the rule prohibiting
certain communications applies to both reverse and forward applicants
and the prohibition commences on the auction application deadline, the
Commission anticipates setting concurrent application filing deadlines
for the reverse and forward applicants.
84. Similar to what will be provided for potential reverse auction
participants, the Commission intends to provide, in various formats,
detailed educational information regarding the forward auction,
including among other
[[Page 61936]]
things an auction tutorial that will be available on the Auction 1000
Web page for prospective bidders to walk through the auction process
and the application and bidding screens. Registration materials will be
distributed to qualified bidders prior to the auction. All qualified
bidders will be eligible to participate in a mock auction prior to
bidding in Auction 1002, which will enable bidders to obtain hands-on
experience with the auction system prior to the auction. Further
details about the mock auction and the auction tutorial, including
relevant dates and how to access these tools, will be announced in the
Application Procedures PN.
V. Reverse Auction Bidding
85. The Commission will use a descending clock auction format in
the reverse auction, in which participants will bid over a series of
rounds by responding to new price offers for one or more relinquishment
options. The Commission establishes reverse auction bidding procedures
and explain how the auction system will both calculate new price offers
during the clock rounds and process bids to determine which bidders
will be selected by the auction, and at what price, to relinquish
spectrum usage rights.
86. The Commission generally adopts the reverse auction bidding
procedures proposed in the Auction 1000 Comment PN, except that the
Commission will not use dynamic reserve prices (DRP), and the
Commission adopts its alternative proposal to simplify the reverse
auction bidding process by not providing an intra-round bidding option.
Notwithstanding the potential benefits of using DRP, the Commission
concludes that not using it will encourage voluntary participation in
the reverse auction by removing uncertainty among broadcasters, and is
consistent with the record consensus in favor of minimizing the
potential for impairments. In addition to the information the
Commission proposed to provide, the auction system will provide
information to each active bidder regarding the available room for
repacking stations at the end of each round of the auction.
A. Availability of Auction-Related Information
87. The Commission will make auction information public as soon as
possible, consistent with its rules, policies, and procedures that help
protect the competitiveness of the auction, as well as with applicable
statutory requirements. As in past Commission auctions, the public will
have access to certain auction information, while auction participants
will have secure access to additional non-public information. Details
of how to access auction information will be provided in the
Application Procedures PN.
88. The Application Procedures PN also will detail the prohibition
on communicating information relating to bids or bidding strategies,
such as the non-public information that bidders may access in the
auction system, to broadcast licensees eligible to participate in the
reverse auction or to forward auction applicants, subject to specified
exceptions. The Commission cautions eligible broadcast licensees that
communicating non-public information that they receive to others,
whether directly or indirectly through third-parties or public
disclosure, could violate that prohibition.
89. In response to the numerous commenters that contend that the
Commission should make as much information available regarding the
reverse auction as possible, either to the public or to the auction
participants, more information will be provided to both the public and
reverse auction participants than was proposed in the Auction 1000
Comment PN. The Commission will make public, before the deadline for
filing applications to participate in the reverse auction, the opening
prices for all stations whose spectrum usage rights are eligible to be
offered in the auction and for each bid option available to each
station. The Commission set forth the formula for these prices in the
Auction 1000 Bidding Procedures Public Notice. Prices for each station
and for each bid option for each station may be calculated using this
formula and publicly available information. Rather than require each
licensee to make these calculations separately, the Commission will
make them public. The Commission does so to encourage participation, to
further the transparency of the auction, and in response to comments
requesting that the Commission do so.
90. Reverse auction bidders will be informed of the initial bidding
round schedule when they are informed that they are qualified to bid in
the clock phase. The schedule will establish the length of time each
round will last. Bidders may respond to price offers for available bid
options in each round. Round results will be released to bidders after
each bidding round.
91. The Commission will make public the initial spectrum clearing
target as soon as possible after completion of the initial clearing
target determination procedure. Many commenters support this approach.
Some suggest that the Commission announce a clearing target before
broadcasters make initial commitments, in order to assist broadcasters
in doing so. The initial commitments, however, are an essential
component for determining the initial clearing target. The Commission
will announce the initial clearing target before any bidding takes
place in the clock phase of the reverse auction.
92. Once the bidding in the clock phase of the reverse auction
begins, the Commission will make publicly available information about
the current stage of the auction and whether or not reverse (or
forward) auction bidding is currently open. Information regarding
amounts necessary to meet the final stage rule will be public, as well
as whether or not the final stage rule has been met. Such information
will include the aggregate amount of provisionally winning reverse
auction bids to relinquish spectrum usage right, which is part of the
second component of the final stage rule. In addition, the auction
system will provide each reverse auction bidder with non-public
information that it can use in determining how it will bid. More
specifically, the auction system will provide to each bidder--but not
to the public--each station's bidding status and price offers for all
options relevant given the station's status.
93. The auction system also will provide each reverse auction
bidder with vacancy index information, indicating the relative
availability of channels in each relevant band, as part of each round's
bidding results for active stations. Providing this information is
consistent with the strong record support for providing reverse auction
participants with as much information as possible to help with bidding.
A broadcaster can use vacancy information to assess the likelihood of
various developments, such as whether a price for a given option may
continue to decline. Given that the auction system incorporates such
information in price computations, and sophisticated bidders might be
able to extract the information in a limited set of cases, the
Commission concludes that providing such information to each bidder
will promote transparency and information parity among all bidders, and
that the auction system can provide such information without unduly
complicating participation or compromising the confidentiality of
participation in the reverse auction.
94. The auction system calculates vacancy information when setting
prices. For a given station, the auction
[[Page 61937]]
system will determine the number of channels available in the station's
``neighborhood'' for the relevant band. A station's neighborhood
consists of all active stations, i.e., all participating stations that
have not exited or become provisional winners including the station
itself, that could interfere directly with the station in the relevant
band and therefore potentially limit assigning the station to an
available channel in that band. The auction system uses each station's
volume to weight the number of channels available to it and then
averages those weighted results for all stations in the station's
neighborhood. The vacancy index information that the auction system
will provide to bidders will indicate whether the average of weighted
channels available to active stations in the neighborhood falls within
one of three ranges, low, medium, or high. The range format should
prevent the information from being used to identify the neighboring
stations consistent with its obligation to protect the confidentiality
of reverse auction participation.
95. More specifically, for each bidder with an active UHF station,
the UHF vacancy index will indicate whether the average of weighted UHF
channels available to the active stations in the neighborhood is: Less
than three (low); greater than or equal to three, but less than or
equal to six (medium); or more than six (high). Given the smaller
number of channels in the VHF band, the ranges will be narrower. For
each bidder with an active VHF station, the vacancy index in the
station's pre-auction band will indicate whether the average of
weighted channels available to the active stations in the neighborhood
for the pre-auction band of the bidder's station is: Less than two
(low); greater than or equal to two, but less than or equal to four
(medium); or more than four (high). With respect to relevant bands
other than a station's pre-auction band (i.e., for UHF stations, High-
VHF and Low-VHF, and for High-VHF stations, Low-VHF), the values used
to define the three ranges will be determined based on the ratio of the
level of vacancy in that band to the level of vacancy in the station's
pre-auction band. This ratio is already used in setting prices for
moving to the same bands. Consequently, bidders with prices for a
station that may move to a new band could infer the information without
the vacancy index. The vacancy index puts it to use in an explicit
report to the bidder. The auction system will report the values that
define the ranges when providing the vacancy index information. The
technical formulas for setting the values will be provided in the
Application Procedures PN.
96. In all cases, a value in the low range for the index will
indicate a higher potential for the relevant band to fill soon; a value
in the medium range will indicate less likelihood; and a value in the
high range will indicate still less likelihood. The Commission
emphasizes that this information will be based on the results of the
prior round and will provide no certainty with respect to developments
in future bidding rounds. Ultimately, the bidding of other reverse
auction participants will determine when any available channels are
filled. Nevertheless, the vacancy index information based on past round
results will help bidders make rough estimates of whether a particular
bid option will continue to be available, as well as provide bidders
with a sense of the relative likelihood that a station's various bid
options will continue to be available. Changes to the vacancy index
from round to round also may provide helpful information regarding
changes in the status of neighboring stations at current clock prices.
The Commission notes, however, that a station's vacancy index may
change if a second neighboring station becomes provisionally winning,
even though that did not change the number of available channels. For
example, if a non-neighboring third station's decision to exit the
auction made it infeasible to repack the neighboring second station,
the neighboring station would become a provisional winner and therefore
would no longer be included in the calculation of the first station's
vacancy index. In that circumstance, the first station's index may
change even though no available channel in its neighborhood was filled.
97. The Commission declines to adopt EOBC's proposed alternative to
the vacancy index, which likewise uses the average of the weighted
number of channels available to all stations in a given station's
neighborhood, but instead of providing station-specific information on
a confidential basis would involve averaging that information across
all stations in each Designated Market Area (DMA) and disclosing the
information publicly. The vacancy index will confidentially provide
each bidder with information targeted to its station(s), which should
better predict how soon a price offered that station is likely to
freeze. The station-specific information provided by the vacancy index
the Commission adopts also will be more uniformly useful to all bidders
than EOBC's alternative. EOBC argues that a publicly disclosed metric
is fairer as it would provide more uniform information, in particular
assuring that the information each bidder possesses is the same
regardless of the number of stations it offers in the auction. The
Commission disagrees. Some bidders might be able to infer information
unavailable to others based on a combination of average DMA vacancy
information and station-specific vacancy information, which is used by
the auction system to calculate prices. The approach the Commission
adopts will provide each bidder with station-specific information
without providing an advantage to some bidders. Further, providing
vacancy index information for each station will avoid putting
participants with fewer stations in the auction at a disadvantage, as
bidders will have the same information relative to each of their
participating stations.
98. Because the vacancy index the Commission adopts will assist
broadcasters seeking to forecast the outcome of the auction, it
addresses requests by commenters for information regarding the reverse
auction that would enable ``outcome discovery'' by broadcasters. The
other information that will be provided satisfies many requests that
commenters make for specific information regarding the reverse auction,
such as the initial spectrum clearing target and opening prices for all
stations. In combination, all of the information will facilitate
efforts by broadcasters to forecast prices in the auction. The
Commission conclude that providing additional information to reverse
auction bidders could unduly complicate participation in the reverse
auction or compromise the confidentiality of such participation.
99. In addition to the bidding information, the Commission will use
the auction system to make auction announcements regarding any other
necessary information to reverse auction participants, such as schedule
changes. Providing auction announcements through the auction system has
been an effective and efficient way to communicate necessary
information to auction participants in past auctions, and the
Commission expects that this will be the case for the reverse auction
as well.
100. The Commission notes that while reverse auction bidders will
have access to far more information than it originally proposed, in
order to serve the interests of broadcasters, it is required to make
less information public regarding the reverse auction than it does
regarding the forward auction. To begin with, the Spectrum Act
expressly requires that the Commission take reasonable steps to
[[Page 61938]]
keep confidential Commission-held data of licensees with respect to
their participation in the reverse auction, including their identities.
Commission rules further extend confidential treatment with respect to
non-winning bids and bidders for two years after the close of the
auction, so that broadcasters may participate in the reverse auction
without being compelled to disclose their willingness to relinquish
spectrum usage rights for that longer period.
101. Accordingly, the Commission will not disclose the name of the
licensee, the channel number, call sign, or facility identification
number of its participating station(s), or its network affiliates in
connection with the participation of any licensee in the reverse
auction. The Commission also will keep confidential any other
information that may reasonably be withheld to protect the identity of
the licensee as a reverse auction participant, such as information
regarding the status of licensees as participants or provisional
winners during the auction. To safeguard this confidential information,
the Commission will not make public any information relating to
applications to participate in the reverse auction until after the
auction concludes. Whether similar information was made public in prior
spectrum license auctions, or has been provided on a non-public basis
by the Commission, does not change whether the rule applies. Unlike in
conventional spectrum license auctions, the Commission will not issue
public notices with respect to the status of the reverse auction
applications that are filed. Instead, the Commission will communicate
regarding these applications directly--and confidentially--with the
respective applicants. Finally, because information regarding a
participant's station is integral to determining the bids offered in
the auction, information regarding specific bids during the course of
the auction cannot be made public.
B. Determining New Price Offers in Clock Rounds
102. Under the descending clock auction format that the Commission
adopted for the reverse auction, in every clock round, the auction
system will decrement the per-volume nationwide base clock price. As
with opening price offers, a UHF station will be offered a price to go
off-air in each clock round that will equal the base clock price
multiplied by its station-specific volume factor. The price offer for a
UHF station to go off-air is the base clock price times the station's
volume. Therefore, if the per-volume base clock price is decremented by
five percent, the price offer will decrease by five percent. Unlike
opening price offers, however, the new price offers in clock rounds for
UHF stations to move to the VHF bands, or for VHF stations to move to a
lower band or go off-air, will reflect the relative availability of
channels for each station in the VHF bands. Opening prices for
intermediate moves will in aggregate be equal to the full base clock
price (or, in percentage terms, will sum to 100 percent) for a move
from UHF to off-air since in terms of value to the auction intermediate
moves, when taken together, are equivalent to a move from UHF to off-
air, which is set by the base clock price. The opening prices for
intermediate moves will form the starting point for prices for such
moves in the clock bidding rounds, but as relative vacancy rates
change, these prices will vary. These differences in relative price
changes are intended to encourage moves that promote more efficient
repacking of the VHF bands. For example, if the High-VHF band is
particularly congested in an area, the price offer for a UHF station in
that area to move to High-VHF will decrease more quickly than if the
High-VHF band were less congested. As a result, a UHF station will have
less incentive to request a move to High-VHF than if the High-VHF band
were less congested and price offers decrease more slowly. By setting
price offers in this way, the auction system will encourage moves that
are particularly beneficial to the reverse auction's goal of clearing
spectrum in the UHF band.
103. In each round of the reverse auction, the base clock price
decrement will be the larger of: (i) Five percent of the current base
clock value or (ii) one percent of the $900 opening base clock price.
Consistent with the Commission's standard auction procedures and as
proposed in the Auction 1000 Comment PN (to reduce the base clock price
by between three percent and 10 percent per round) the size of the
decrement may be adjusted in the reverse auction. Although the
Commission does not anticipate that the decrement in the reverse
auction will need to be adjusted, if circumstances warrant, the change
and the new decrement will be announced at least 24 hours in advance to
all bidders. Although several commenters urge the Commission to
decrease prices by no more than one percent in each round, a decrement
of five percent will better balance its interests in completing the
reverse auction bidding within a reasonable amount of time while
avoiding significant losses of efficiency or increases in costs.
Because the forward and reverse auctions run sequentially within a
stage and because there may be multiple stages, it is important to
limit the number of reverse auction rounds. The combination of (i) and
(ii) ensures that the reverse auction will require no more than 52
rounds in any stage. In subsequent stages, the reverse auction may
require even fewer rounds, depending on the level to which the base
clock price must be reset after a new stage transition, and how quickly
newly-active stations either drop out or become provisionally winning.
Using a decrement of one percent would require considerably more
bidding rounds. For example, using just part (ii) of the Commission's
price decrement rule--a price decrement of one percent of the base
clock's opening value--would require 100 rounds, whereas using a price
decrement of one percent of the current base clock value, without part
(ii) or a similar mechanism, could cause the auction to continue for
hundreds of more rounds as the decrement gets increasingly smaller. The
Commission recognizes commenters' concerns that larger decrements could
cause some stations to drop out quickly, but find that with a decrement
of five percent any loss of efficiency or increased costs is likely to
be de minimis. Moreover, a decrement of one percent risks increasing
the cost of repurposing spectrum. In the absence of the proposed DRP
mechanism, the prices offered to stations in some areas may ``freeze''
near opening price levels; in such cases, a one-percent decrement might
require higher payments to individual stations. Higher payments are
likely when stations are able to engage in coordinated behavior to
manipulate the point at which their prices ``freeze.'' The Commission's
rules and procedures are intended to prevent such manipulation, but do
not prevent coordinated behavior by bidders that own multiple stations
within an individual market. In addition, five percent price decrements
would be small enough to allow the system to provide useful information
to participants to guide their bidding.
C. Bidding Mechanics
104. Consistent with its proposed procedures, at the commencement
of the clock phase of the reverse auction, each participating bidder
will begin bidding for each of its stations at the opening price for
that station's ``currently held option,'' which will be the initial
relinquishment option determined by the initial commitment procedures.
So long as the auction system can determine a feasible channel
assignment
[[Page 61939]]
for that station in its pre-auction band--by conducting a ``feasibility
check'' prior to the clock round--the system will continue making new,
reduced price offers to that station. For each station the auction
system must, prior to processing its bid, find a feasible channel
assignment in the station's pre-auction band--that is, an assignment
that does not violate any of the pairwise constraints and is therefore
consistent with the Spectrum Act's preservation mandate. To do this,
the system conducts a ``feasibility check'' using mathematical
satisfiability-solver software to quickly determine whether such a
channel assignment exists. The bid options for which the system will
calculate price offers will be based on the station's pre-auction band,
the options the bidder selected for that station on its application,
the currently held option for that station, and the hierarchy of bid
options. If, however, a feasible channel assignment does not exist for
a station in its pre-auction band in the first round, the station will
be ``frozen'' in its currently held option from the start of the
auction at the opening price offer to which it initially committed. The
system will then ask the bidder to place a bid for that station by
indicating whether it is willing to accept the new price offer for its
currently held option, wishes to switch to a different bid option (if
applicable), or wishes to drop out of bidding. If the system is able to
find a feasible channel assignment for the station in its pre-auction
band during bid processing, it will adjust the station's currently held
option according to its bid (honoring its request to switch options if
feasible) and reduce its current price to the accepted price offer for
that option. Otherwise, the system will ``freeze'' that station's
currently held option without reducing its current price. Once a UHF
station is frozen, it becomes a provisionally winning bidder and will
not be asked to bid for the rest of the reverse auction in that stage.
If a VHF station is frozen, however, it does not necessarily become
provisionally winning if the station may be unfrozen later in the
reverse auction in the same stage. This could occur, for example, if a
UHF station that was bidding to move to VHF chooses to drop out of
bidding, thus freeing up a channel in the VHF band. If this free
channel enables the system to feasibly assign a frozen VHF station to a
channel in its pre-auction band, the system will unfreeze the VHF
station and ask it to bid at its new price offers. The system will
freeze a station in its currently held option without reducing its
current price regardless of whether the station submitted a bid to
accept the new price offer for the option, requested to switch to a
different option, or bid to drop out of the auction. This will provide
strategic simplicity for bidders by ensuring that bidding to accept a
new price offer will never result in a station receiving a lower price
for its option than it could have received if it refused to accept the
offer.
105. A bidder that has or is interested in only a single bid option
will have a simple choice: Whether to accept the lower clock price
offered for its station's currently held option or to rejects that
offer and drop out of the bidding. If a bidder fails to place a bid,
the auction system will treat this bidder as unwilling to accept a
lower offer. A bidder that is considering more than one of the
relinquishment options currently available to its station will
additionally be able to request to switch bid options, consistent with
the hierarchy of options. Since the auction system may not always be
able to find a feasible channel assignment for a station to switch to
one of the VHF bands, the system will prompt a bidder requesting to
switch options to provide a fallback bid in case the system cannot
accommodate its request. A fallback bid allows the bidder to choose
either to accept the lower price offered for its station's currently
held option or to drop out of bidding if the system cannot accommodate
its request to switch bid options. The Commission reminds bidders that
each bid placed is a binding commitment by the bidder to accept a
payment that is no less than the price offered in return for
relinquishing the spectrum usage rights associated with its bid option
should the auction system select the bid as a winning bid.
106. Responding to numerous commenters that urge the Commission to
make reverse auction bidding as simple as possible, the Commission
determines that it can reduce complexity without sacrificing efficiency
by foregoing the use of intra-round bidding. In the Auction 1000
Comment PN, the Commission sought comment on bidding procedures without
intra-round bidding due to its concern that intra-round bidding could
increase the complexity of auction participation for broadcasters.
Absent intra-round bidding, bidders will face a simpler choice to
accept or rejects a new lower price, or to switch bid options at the
lower price, rather than having to indicate precise prices at which
their choices change. In addition, because the number of
computationally complex feasibility checks that the system must solve
during bid processing will be greatly reduced, the auction system will
be able to report round results more quickly. Furthermore, not
providing for intra-round bidding will have minimal effect on the
reverse auction's efficiency and cost given the relatively small price
decrements that the Commission has chosen. For reasonably sized price
decrements (within the three to 10 percent range that the Commission
proposed), the loss in efficiency and cost is of ``second-order'' to
the size of the decrement because the likely number of instances in
which there is any loss at all for any particular bidder and the
magnitude of the loss when it occurs are both proportional to the
percentage bid decrement. Specifically, the likelihood of loss is
proportional to the bid decrement because there is a loss only when two
competing bidders attempt to make incompatible changes to their bids in
exactly the same clock round. The magnitude of the loss is likewise
proportional to the decrement because two competing bidders that try to
change in the same round have the same value to the auction, within one
decrement, in terms of cost and efficiency. The price decrements the
Commission chooses are large enough to ensure a reasonably speedy
reverse auction while at the same time small enough that removing
intra-round bidding will not have a substantial impact on the outcome
of the auction.
107. The Commission adopts a simple proxy bid mechanism to make it
easier for bidders to monitor the auction. EOBC, the only commenter to
address this proposal, urges the Commission to adopt it. Under the
bidding procedures the Commission adopts, a bidder will be able to
submit a proxy bid to continue bidding for its station's currently held
option until the price offer drops below some specified price. A
station that is frozen but not provisionally winning (i.e., that has
the status of either ``frozen--currently infeasible'' or ``frozen--
pending catch up'') may also place a proxy bid notwithstanding the fact
that it is not given a price offer in the round and it is not otherwise
submitting a bid, because the station may become unfrozen in a later
round. Additionally, the Commission will limit the range that a bidder
can set its proxy bid, so that the specified price for a proxy bid may
be no less than 75 percent of a station's price offer in the round.
This limit may be adjusted up or down at any point in the auction. Such
an adjustment will be announced at least one round before the new limit
on proxy bids. Thus, a bidder who wishes to remain active in the
auction may be required to submit a new proxy bid periodically. Bidders
will be able to
[[Page 61940]]
revise or cancel any proxy bid before it is processed or in subsequent
rounds while the proxy bid instructions are still in effect. Proxy bids
will remain confidential from other bidders and from Commission staff
other than those staff authorized during the auction to monitor bidding
and the operation of the bidding system.
D. Processing Between Clock Rounds
108. The Commission establish procedures by which bids will be
processed at the conclusion of each round to determine new provisional
channel assignments and the new bidding status for stations. The
Commission adopts the bid processing procedures detailed in Appendix D
of the Auction 1000 Comment PN, except that the auction system will not
use DRP. As bids are processed, for each station bidding in the current
round, the auction system will either process its bid and reduce its
current price to the accepted price offer or freeze the station,
keeping its current price and currently held option unchanged,
depending on the results of feasibility checking during bid processing.
Once all bids have been processed, the auction system will update the
bidding status of all stations and begin a new round or, if the
stopping rule has been met, the reverse auction will conclude for the
stage.
1. Bid Processing
109. After a clock round closes, the auction system will process
bids using the bid processing algorithm the Commission proposed, except
without intra-round bidding. Under these procedures, the auction system
will first establish an order or ``processing queue'' for processing
the bids of stations that are bidding in the current round. The system
will order all such stations in descending order of the per-volume
difference between the station's current price and its new price offer.
Specifically, this metric is calculated by subtracting the station's
new price offer from its current price and then dividing by its volume.
Since the system cannot change the status of provisionally winning
stations within a stage or of exited stations at any point in the
auction, the system does not consider such stations during bid
processing. The auction system will break any ties between stations
following this calculation by using pseudo-random numbers. The system
will then sequentially conduct feasibility checks for each station in
the queue to find the first station in the queue that can feasibly be
assigned a channel in its pre-auction band given the current
provisional channel assignment. The system will consider the first
feasible station and process its bid, removing it from the queue,
before resuming its search for the next feasible station in the queue.
The auction system will repeat this process of considering bidding
stations until each station remaining in the queue is ``frozen'' in its
currently held option at its current price.
110. Under the procedures that the Commission established, when the
auction system considers a station that bids to accept the new price
offer for the station's currently held option, the auction system will
reduce the station's current price to the new price offer for that
option. When the auction system considers a station that bids to switch
relinquishment options, the system will first perform a feasibility
check to determine whether the station's request can be accommodated:
The system will only switch the station's currently held option if the
station can feasibly be assigned to a channel in the requested VHF
band. In that case, the auction system will update the station's
currently held option and current price to the option and price offer
for the requested bid option. If the station cannot be feasibly
assigned to a channel in the new band, the system will instead process
the station's fallback bid--either to accept the lower price offer for
its currently held option or to drop out of bidding. If a station's
fallback bid is to drop out of bidding, the system will mark the
station as exited. Similarly, when the system considers a station whose
only bid is to drop out of the auction, the system will mark the
station as exited. An exited station will be assigned a provisional
channel in its pre-auction band and will no longer be given price
offers or asked to bid for the remainder of the auction. After bid
processing, the auction system will again perform feasibility checks
for all stations to determine if any stations processed earlier in the
queue that had a feasible assignment are no longer feasible as a result
of later processing. Any such stations will then be frozen in their
currently held option at the already-reduced current price. Because the
system will have already updated the currently held option and reduced
the current price of stations that became infeasible due to later
processing, these stations will be frozen at the lower price offer that
they accepted or in the new bid option that they switched into at the
start of the next round. For all stations that will be active in the
next round, the auction system will then calculate prices for the next
round using the price reduction procedures. The auction system will
calculate prices for stations that are ``frozen--currently infeasible''
so that they may monitor price decreases in case they become unfrozen
and must resume bidding in later rounds, but such stations will not be
asked to submit a bid so long as they remain frozen.
111. Two parties disagree with aspects of the bid processing
procedures and algorithm the Commission proposed, and filed comments
proposing alternatives. AT&T proposes that, after each round, the
auction system recompute the repacking constraint files based upon the
provisional TV channel assignment plan in order to link price
decrements to the difficulty of repacking a station in each round.
Professors Sandholm and Nguyen propose to remove the hierarchical
restriction on bid options and use mathematical optimization to
calculate price offers and process bids. As an initial matter, neither
of these commenters has demonstrated, either in theory or by means of
simulations, that their proposals have significant advantages over the
auction procedures the Commission establishes herein. The pricing
procedures the Commission adopts take into account some measure of
repacking difficulty for VHF options and VHF stations. However, in
comparison to AT&T's proposed approach, the procedures that the
Commission adopts provide the significant advantage of greater price
certainty and predictability for UHF stations bidding to go off-air,
which should speed the auction and encourage bidders to consider this
relinquishment option. The Commission therefore is not persuaded that
AT&T's proposal offers substantial benefits over the procedures it
adopts.
112. The Commission also rejects the alternative approach proposed
by Professors Sandholm and Nguyen. They argue that the sequencing of
bids under the approach the Commission adopts provides an unfair
advantage to stations that are processed first. However, bids must
always be processed sequentially due to the relationship between the
reverse auction and the repacking process, which must guarantee a
feasible assignment: Stations face price competition in the reverse
auction as a result of the number of stations that must be repacked
into a limited number of channels. Thus, stations must always be
repacked one at a time in order to guarantee a feasible assignment. In
any event, some bid sequencing (and thus possible price variation) is
required for any processing algorithm. Indeed, even the optimization-
based approach proposed by Professors Sandholm and Nguyen relies upon
the sequencing of
[[Page 61941]]
bids, they just disagree with how the Commission achieves this
sequencing and instead propose an optimization-based approach that
would optimize to reduce costs. While bids processed earlier may limit
the options available to bidders later in the queue (e.g., if two
otherwise identical stations both request to switch to High-VHF, but
there is only one channel available in the band), this sequencing
provides the best value to the auction, because the stations that have
the largest price decreases will be processed first. Furthermore,
stations processed later in the queue are more likely to be frozen at a
higher price offer. Any price variation due to sequencing will be no
larger than one price decrement for identical bidders, in line with the
price variation found in the Commission's simultaneous multiple round
auctions. The Commission therefore does not regard this outcome to be
problematic.
113. In addition, Professors Sandholm's and Nguyen's alternative
procedures for eliciting information from bidders and for setting clock
prices would add strategic complexity to the reverse auction and might
deter participation. For eliciting bids, they propose that each bidder
indicate a set of acceptable options, rather than a single preferred
option in each round. For determining prices, they suggest
optimization-based procedures to set clock prices in which a bidder's
prices could continue to fall even after it can no longer be assigned a
feasible channel in its pre-auction band. The Professors claim certain
advantages of their proposed algorithm, but offer no comparison of
their proposal to the algorithm described in the Auction 1000 Comment
PN. Their proposed approach would create significant new opportunities
for some bidders to affect final prices for their own bid options,
adding strategic complexity to the auction. Such complexity would make
bidding errors more likely, raise the costs of bidding, and potentially
deter participation, making these procedures unsuitable for the reverse
auction.
2. Dynamic Reserve Prices
114. The Commission elects not to adopt DRP procedures, which would
enable the bidding system to reduce the prices offered to all UHF
stations in the early rounds of the reverse auction, regardless of
whether a station could be feasibly repacked into its pre-auction band.
By providing a ``safety valve'' for stations whose opening prices
otherwise would remain frozen because no feasible channel assignment is
available for them in the remaining television bands (due to
international border constraints or other factors), the Commission
explained that DRP would allow it to set higher opening prices for all
stations, reduce the overall cost of repurposing spectrum, and increase
the likelihood of a successful auction. Based on examination of the
record, however, the Commission concludes that the potential benefits
of DRP are outweighed by its potential costs. Broadcasters unanimously
oppose the use of DRP procedures, arguing that it will ``artificially
reduc[e] prices,'' undermine trust in the fairness of its auction
procedures, increase complexity and uncertainty, and discourage
participation. A broad range of commenters also oppose use of DRP
because it risks increasing the degree of impairment to repurposed
spectrum. Commenters argue that using DRP will inevitably increase the
amount of impairments to or close to the near-nationwide standard and
detract from the value of repurposed spectrum.
115. The Commission agrees with commenters that it should adopt
auction procedures that minimize impairments. By not using DRP
procedures, the Commission eliminates the possibility of creating
additional impairments after the determination of a clearing target. In
addition, based on examination of the record, the Commission is
concerned that using DRP as proposed would discourage voluntary
broadcaster participation in the auction, contrary to its commitment to
encouraging such participation. Accordingly, the Commission will not
use DRP procedures. Instead, price offers will be reduced only in
accordance with the procedures, and any stations with no feasible
channel assignments at the beginning of the reverse auction bidding
will be frozen at their opening prices. Combined with its decisions
regarding the initial clearing target selection procedure and the
information that will be available to bidders, not using DRP will
promote its auction goals by encouraging reverse auction participation,
minimizing impairments, and providing transparency for bidders.
116. The Commission also declines to adopts EOBC's alternative
proposal for a ``round zero reserve'' pricing mechanism which would
offer, before bidding begins, an undefined (but high) take-it-or-leave-
it price to each station that would otherwise begin the reverse auction
bidding process ``frozen'' at its opening price. EOBC and others
support this proposal only as a substitute for DRP, and the Commission
is not persuaded that EOBC's alternative would provide the benefits of
its proposed DRP procedures.
3. Bidding Status
117. Based on the bid processing procedures the auction system will
determine the bidding status of each station prior to each round of the
reverse auction. The auction system will also determine the bidding
status of each bidder prior to the first round of the reverse auction
after bidders commit to an initial relinquishment option, as well as
prior to the first round after transitioning to a new stage. The system
will inform each bidder of the currently held option, the current price
for this option, and the bidding status of each of its stations. The
bidding status of each station will be one of the following: (1)
Bidding in the current round, (2) frozen--provisionally winning, (3)
frozen--currently infeasible, (4) frozen--pending catch up, (5)
exited--voluntary, or (6) exited--not needed.
118. Bidding in the Current Round. If the auction system determines
that a station can be feasibly assigned a channel in its pre-auction
band, its bidding status will be ``bidding in the current round'' and
the system will offer a new reduced price offer for each of the options
currently available to it, consistent with the bid option hierarchy and
price determination procedures. A station will be offered lower prices
and asked to submit a bid in each round so long as its status remains
``bidding in the current round.'' However, if the system determines
that a station can be feasibly assigned a channel in its pre-auction
band but will be not needed for the remainder of the auction, its
status will become ``exited--not needed.''
119. Frozen--Provisionally Winning. If the auction system
determines that a station can never be assigned a feasible channel in
its pre-auction band in the current stage, the station will be declared
``frozen--provisionally winning.'' For the remainder of the stage, the
current price and currently held option of a station with this bidding
status will remain unchanged. If the final stage rule is met during
that stage, such stations will become winning stations. Otherwise, at
the beginning of the next stage, the auction system will again evaluate
the feasibility of assigning the station to a channel in its pre-
auction band, and the station's status may change to ``frozen--pending
catch up,'' ``frozen--currently infeasible,'' ``bidding in the current
round,'' or ``exited--not needed.'' If at any point the system is
unable to find a feasible assignment for a UHF station, its status will
become ``frozen--provisionally winning.''
120. Frozen--Currently Infeasible. If the auction system is
currently unable
[[Page 61942]]
to find a feasible channel assignment for a VHF station in its pre-
auction band, but a feasible channel assignment could become available
in a later round of the current stage, the station's bidding status
will be ``frozen--currently infeasible'' and the system will freeze the
station in its currently held option at its current price. A station
with this status will not be asked to bid and will keep its currently
held option and its current price in each round in which its status
remains ``frozen--currently infeasible.'' However, a station with this
status may become unfrozen and resume bidding in later rounds if the
system is able to find a feasible channel assignment for the station in
its pre-auction band. Such a station will be able to monitor the price
offers for its different options as clock prices are decremented, and
may submit proxy bid instructions that will apply if and when it
becomes unfrozen. Likewise, stations with this status may later become
``frozen--provisionally winning'' if the system determines that, for
all possible future behavior of bidders in the current stage, a
feasible assignment will never be found. This bidding status is only
possible for a VHF station because a feasible channel assignment in the
VHF band may become available in a subsequent round if a UHF station
currently designated to move to this VHF option drops out of the
bidding or switches to a different VHF option.
121. Frozen--Pending Catch Up. If, at the start of a new stage, the
auction system determines that a station that was ``frozen--
provisionally winning'' at the end of the prior stage is no longer
provisionally winning, but the base clock has not caught up to the
station's ``catch up point,'' or the base clock price at the time that
the station became provisionally winning in a previous stage, the
station's bidding status will change to ``frozen--pending catch up''
and its currently held option and current price will remain unchanged.
A station with this status will not be offered lower prices nor asked
to bid in each round so long as the base clock remains above the
station's catch-up point. However, a station with this status may
become unfrozen and resume bidding in later rounds if the base clock
reaches this price. As a result, such a station will be able to submit
proxy bid instructions that will apply in case it becomes unfrozen and
its status changes back to ``bidding in the current round.'' Likewise,
stations with this status may later become ``frozen--provisionally
winning'' if, prior to the base clock reaching the station's catch up
point, the system determines that a feasible assignment will never be
found for all possible future behavior of bidders in this stage.
122. Exited--Voluntary. If a bidder places a bid for its station to
drop out (or the system placed this bid because the bidder failed to
submit a bid for its station that had the status of ``bidding in the
current round'') and the bid is processed, the station's status will
become ``exited--voluntary,'' and that station will no longer bid in
the auction. Stations with this status will no longer be offered prices
nor allowed to place bids in the auction, and will be designated for
repacking in their pre-auction bands.
123. Exited--Not Needed. If the auction system determines at any
point that a feasible channel assignment will always be available for a
station in its pre-auction band, its status will change to ``exited--
not needed,'' and that station will no longer bid in the auction. Since
the auction system will never freeze a station that has a feasible
assignment, such a station will be dropped out of the bidding rather
than forcing it to continue bidding until the price offer decreases to
$0. As with stations that voluntarily drop out, stations with this
status will be designated for repacking in their pre-auction bands, and
will not participate in the remainder of the auction.
E. Stopping Rule
124. Under the procedures the Commission establishes, bidding
rounds in a stage of the reverse auction will continue until no
participating stations are ``active'' and all participating stations
have the status ``frozen--provisionally winning,'' ``exited--
voluntary,'' or ``exited--not needed.'' At that point, each
participating station will either have its currently held option
tentatively accepted or it will be provisionally assigned to a feasible
channel in its pre-auction band. The procedures the Commission adopts
answer EOBC's objection that bidding should stop when it ``does not
need any additional volunteers.'' The Commission will ``not need any
additional volunteers'' when no actively bidding stations remain in the
auction and the reverse auction in that stage will end.
F. Final Winning Bids
125. If the current stage is the final stage of the incentive
auction--that is, if the final stage rule is satisfied in the forward
auction portion of the current stage--stations with ``frozen--
provisionally winning'' status when the reverse auction stops in that
stage will become winning stations, and the system will accept the
currently held relinquishment option of each winning station. Bidders
whose stations won will receive their current prices at the time the
stations became ``frozen--provisionally winning.''
VI. Forward Auction Bidding
A. Bidding in the Clock Phase
126. The forward auction will utilize an ascending clock auction
format under which each qualified bidder will indicate in successive
clock bidding rounds its demands for categories of generic license
blocks in specific geographic areas. After bidding stops in the clock
phase of the forward auction, the forward auction assignment phase will
be conducted to assign frequency-specific 600 MHz Band licenses
consistent with the demands of specific bidders in specific geographic
areas.
127. The initial stage of the forward auction will begin on the
second business day after the close of bidding in the reverse auction,
but no sooner than 15 business days after the release of the Qualified
Bidders PN. The Qualified Bidders PN will announce the list of forward
auction qualified bidders--those applicants with submitted auction
applications that are deemed timely-filed and complete, provided that
such applicants have timely submitted an upfront payment that is
sufficient to qualify them to bid. Forward auction qualified bidders
will have access to the detailed impairment information once they
receive their registration materials, which will be sent after release
of the Qualified Bidders PN. Detailed impairment information will be
available only to forward auction qualified bidders. Forward auction
qualified bidders must use the SecurID[supreg] tokens included with
their registration materials to access the impairment information. All
forward auction qualified bidders will have an opportunity to
participate in a mock auction prior to bidding in the clock phase of
the forward auction. The Commission anticipates that forward auction
qualified bidders will have at least 10 business days after receiving
their registration materials to analyze impairment data before the
first round of bidding begins in the forward auction. In subsequent
stages, if necessary, the forward auction will begin on the next
business day after the close of bidding in that stage of the reverse
auction. Forward auction bidders will be given detailed impairment
information for a subsequent stage prior to the start of the reverse
auction in that stage, which will give them adequate time to analyze
such
[[Page 61943]]
information. Therefore, the Commission declines to provide any
additional time between the conclusion of the reverse auction and start
of the forward auction in any subsequent stage.
1. Availability of Auction-Related Information
a. Impairment Information for Bidders
128. In order to make the forward auction transparent for bidders,
and in response to commenters' concerns regarding the challenges
associated with bidding for impaired licenses, more information
regarding impairments will be available than what the Commission
proposed in the Comment PN. Forward auction qualified bidders will have
access to detailed impairment information, including the actual source
and location of any impairment, upon receipt of their registration
materials. Information regarding the actual source and location of any
impairment, i.e., the facility information of the impairing stations,
will be determined when the clearing target for a stage is set. More
specifically, the auction system will give forward auction qualified
bidders access to the following information about the licenses offered
in all PEAs: (1) Aggregated impairments at the license level (for every
block of every PEA), with impairment level percentages calculated using
population (pops) including the associated license category (i.e.,
Category 1 or Category 2), provided in two formats (CSV [Comma-
separated values (CSV) files provide tabular data in a plain text
format] and PEA maps); (2) uplink and downlink impairments at the
license level (for every block of every PEA), with impairment level
percentages calculated using pops, provided in two formats (CSV and PEA
maps); (3) impairments measured in pops at the 2x2 kilometer cell level
for each impairing station for ISIX Case 1, including the facility ID
(i.e., the specific television station, domestic or international, that
will cause the impairment) of and the channel assigned to the source of
potential interference to the wireless base station as well as the
difference between the interference threshold and the interfering field
strength, provided in CSV format only; (4) impairments measured in pops
at the 2x2 kilometer cell level for each impairing station for ISIX
Case 2, including the facility ID, domestic or international, of and
the channel assigned to the source of potential interference to the
user equipment as well as the difference between the interference
threshold and the interfering field strength, provided in CSV format
only; (5) for ISIX Case 3, impairments measured in pops of counties
containing the hypothetical wireless base station which causes
interference to a 2x2 kilometer cell within a television station's
protected contour, regardless of whether this cell has population
provided in CSV format only (because 600 MHz Band wireless base
stations will not be deployed until after the incentive auction, for
purposes of applying the ISIX methodology during the auction, the
optimization software will assume the location of hypothetical wireless
base stations by applying uniformly spaced sample locations, spaced
every ten kilometers within the boundaries of every wireless license
area that is within 500 kilometers of the television station); (6)
impairments measured in pops at the 2x2 kilometer cell level for ISIX
Case 4, provided in CSV format only; and (7) reference files giving the
location of all 2x2 cells, the location of all hypothetical base
stations, information on stations interfered with by hypothetical base
stations, and information on the spectrum overlap, in megahertz,
between the interfering transmitter channel and the interfered-with
receiver channel. This information will be provided to forward auction
qualified bidders for each stage, and will not become fixed unless and
until the final stage rule is satisfied. The Commission rejects
Sprint's suggestion that it re-optimize the provisional channel
assignment plan at the close of the reverse auction in a stage in order
to further reduce impairments, then release this information to forward
auction bidders who would have two weeks before the forward auction
begins. Because the reverse auction can only increase the number of
stations that must be assigned channels in the UHF band between the
start of a stage and the end of a stage, the potential efficiency gains
of re-optimizing are extremely limited and do not warrant delaying the
auction for two weeks. If the final stage rule is not satisfied at a
particular clearing target, the clearing target will be lowered, and
forward auction bidders will be provided with new impairment
information for the new clearing target. The Commission also plans to
release sample data in advance of the auction for bidders to examine,
which--if desired--would allow bidders to build their own analysis
tools.
129. Providing this detailed information responds to concerns
commenters raised about whether forward auction bidders would have
sufficiently detailed information to make informed bids on impaired
licenses. For example, NAB asserts that providing information about all
potential impairments will aid transparency for bidders in the forward
auction and prevent disputes as to whether or not winning bidders
understood their future obligations with respect to inter-service
interference. Sprint argues that bidders must know precisely how
impairments may affect particular licenses. Similarly, CTIA states that
detailed information regarding the location of impairments ``would
greatly enhance the ability of bidders to develop strategies and make
sound choices.'' Specifically, CTIA suggests that the FCC provide
information regarding the impairing stations, including key operating
parameters--such as station location, antenna height, and power level--
to forward auction bidders on a confidential basis. Bidders will know
for each impaired license the percentage of impairment (by population),
whether the impairment is located in the uplink or downlink portion of
the license, and the geographic location of the impairment. Bidders can
use the facility information about the impairing station to determine
how their wireless networks could be deployed around the impairment.
Further, Verizon recommends Commission outreach in order to ``educate
potential forward auction bidders about how to participate from a
technical and administrative point of view.'' The Commission provides
extensive information prior to the bidding in every auction, including
publicly available seminars and/or tutorials and--for qualified
bidders--mock auctions. The Commission intends that the education and
outreach efforts in advance of Auction 1000 will be even more detailed
and extensive than normal in light of the many new aspects of this
auction and the procedures necessary to conduct it. Several commenters
request that in addition to providing the ISIX data results based on
the F(50,50) statistical measure incorporated into the Commission's
ISIX methodology, the auction system provide data using the F(50,10)
statistical measure. While the Commission declines to provide multiple
sets of ISIX data results to bidders, the impairment information that
will be provided will allow a forward auction bidder to analyze the
potential interference employing any statistical measure it chooses.
The Commission will address Sprint's pending Petition for
Reconsideration of the use of the F(50,50) measure for the ISIX
methodology in the ISIX proceeding.
[[Page 61944]]
130. The Commission finds that providing information to forward
auction bidders about impairing stations is consistent with its
statutory confidentiality obligation because providing this data will
not reveal the identity of licensees that elect to participate in any
stage of the reverse auction. Impairing stations in the 600 MHz Band
could be stations that elected not to participate in the reverse
auction at all, stations that applied but failed to make an initial
commitment and therefore did not become qualified to bid in the clock
phase of the reverse auction, stations that the system could not
accommodate during the initial commitment process, or stations that
dropped out in a prior stage. In any subsequent stage, an impairing
station may also have been a bidder in a prior stage that has dropped
out. Forward auction bidders will not be able to distinguish previously
participating impairing stations from impairing stations that never
participated. Moreover, forward auction bidders will not be able to
infer which licensees elected to participate in the reverse auction
from the impairment information they receive. The vast majority of non-
participating stations will be assigned to channels in the remaining TV
bands, and forward auction bidders will not receive any information
about those stations. Therefore, forward auction bidders will not have
enough information about the full complement of non-participating
stations from which to surmise the identity of participating stations.
This impairment information will be available only to forward auction
qualified bidders. Forward auction participants need this information
to make informed bids, but other parties do not need to know this
information to participate effectively in the auction; in particular,
the Commission declines to provide this information to all auction
participants, because knowing this type of information could lead to
undesirable strategic behavior by reverse auction bidders.
Additionally, the Commission will not provide this information to the
impairing stations. The impairing stations' assignments will remain
provisional only until the final stage rule is satisfied and the final
TV channel assignment plan is determined (the assignments will become
permanent if the auction closes in the current stage, however, so
forward auction bidders will know the actual impairing stations for any
given stage). Thus, although the Commission recognizes that impairing
stations may be interested in this information, it will not provide it
to them. The Commission cautions forward auction participants that
communicating the non-public information that they receive to others,
whether directly or indirectly through third-parties or public
disclosure, could violate the Commission's rule prohibiting
communication of certain auction information.
b. Bidding Information
131. As in past Commission auctions, the public will have access to
certain auction information, while auction participants will have
secure access to additional non-public information. Details of how to
access auction information will be provided in the Application
Procedures PN.
132. The Application Procedures PN also will detail the prohibition
on communicating information relating to bids or bidding strategies,
such as the non-public information that bidders may access in the
auction system, to other forward auction applicants or to broadcast
licensees eligible to participate in the reverse auction, subject to
specified exceptions. As in all recent Commission spectrum license
auctions, it will limit the availability of forward auction information
in order to prevent the identification of forward auction bidders
placing particular bids until after the auction is over. Specifically,
the Commission will not make publicly available until after the auction
concludes: The PEAs that an applicant selects for bidding in its
application, the amount of any upfront payment made by or on behalf of
the applicant, any information on any applicant's bidding eligibility,
including whether an applicant is eligible to bid on reserve spectrum,
and any other bidding-related information that might reveal the
identity of the bidders placing bids and taking other bidding-related
actions. The Commission cautions forward auction participants that
communicating the non-public information regarding bids or bidding
strategies, such as PEAs selected in the auction application, could
violate its rule prohibiting communication of certain auction
information. These procedures have helped safeguard past auctions
against potential anti-competitive behavior, such as retaliatory
bidding, and should do so here as well. As in prior auctions, the
Commission will make available to the public before the bidding begins
the other contents of applications to participate in the forward
auction. The Commission retains the discretion not to limit information
regarding the identities of forward auction bidders pursuant to the
procedures if circumstances indicate that these procedures would not be
an effective tool for deterring anti-competitive behavior. This helps
ensure the competitiveness of the bidding. The Commission reiterates
that auction applicants could violate the prohibition on communicating
certain forward auction information by communicating non-public
information that they receive to others, whether directly or indirectly
through third-parties or public disclosure.
133. The public notice announcing qualified bidders for the forward
auction also will announce the forward auction's initial bidding round
schedule. The schedule will establish the length of time each round
will last. Bidders may respond to prices in each round. Each bidding
round will be followed by the release of round results.
134. Before bidding begins in the forward auction clock phase,
information on the target amount needed to satisfy each component of
the final stage rule will be publicly available, based on the results
of the reverse auction bidding for the current stage. Specifically,
depending on whether or not the clearing target for the stage is above
the spectrum clearing benchmark of 70 megahertz, the target gross
proceeds or average price in relevant PEAs required to satisfy the
first component of the final stage rule and the target estimated
aggregate net proceeds required to satisfy the second component will be
publicly announced.
135. After each round of forward auction clock phase bidding
concludes, whether the final stage rule has been met and detailed
information regarding the progress toward meeting it will be publicly
available. Given the provision of this information regarding whether
the final stage rule may be satisfied, the Commission need not address
U.S. Cellular's argument that, if such information is not provided, the
bidders should have an opportunity to change their bids when the rule
is satisfied. Available detailed information will include the aggregate
gross proceeds and average price in relevant PEAs with respect to the
first component of the final stage rule, and the estimated aggregate
net proceeds, rounded down to the nearest $10 million, with respect to
the second. Rounding will help prevent any attempt to infer information
about applicable bidding credits and the identity of bidders and
rounding down will prevent any confusion that could result from a
rounded amount appearing to meet the target before the actual estimate
does so. In addition, for each category of license in each PEA in the
just completed round, the supply, the aggregate demand, the price at
the end
[[Page 61945]]
of the last completed round, and the price for the next round, will be
publicly announced. This detailed price information will indicate the
progress of the auction, both towards satisfying the final stage rule
and, separately, towards completion of bidding. The Commission
addresses the information that will be provided to forward auction
bidders regarding the assignment phase of the forward auction below.
136. In addition to the bidding information described here, the
Commission will use auction announcements to report any other necessary
information to forward auction participants, such as schedule changes.
Providing auction announcements through the auction system has been an
effective and efficient way to communicate necessary information to
auction participants in past auctions, and the Commission expects that
this will be the case for the forward auction as well.
2. Available Generic Spectrum Blocks
137. In the clock phase of the forward auction, the Commission will
offer generic blocks in two bidding categories based on the extent to
which the blocks may be impaired by broadcast television stations
repacked in the 600 MHz Band. The Commission adopts its proposed
approach to categorizing blocks for bidding, including how it define
generic blocks in two categories. The Commission also addressed
implementation of the spectrum reserve established the Mobile Spectrum
Holdings R&O.
a. Bidding Categories
138. The Commission will offer two categories of generic blocks for
bidding in the clock phase of the forward auction. ``Category 1'' will
include any block with potential impairments that affect zero to 15
percent of the population of a PEA. The impairment percentage will be
calculated based on the population impaired in a PEA as measured at the
two-by-two kilometer cell level. ``Category 2'' will include any block
with potential impairments that affect greater than 15 percent but less
than or equal to 50 percent of the population of a PEA. Any block with
potential impairments that affect more than 50 percent of the
population will not be offered in the forward auction. After the
assignment phase, the auction system will provide a price adjustment to
the final clock phase price equal to one percent for each one percent
of impairment to account for varying degrees of impairment to the
licenses.
139. Category 1. The Commission adopts its proposal to establish a
15 percent threshold for Category 1 blocks. Many commenters agree that
some level of impairment is acceptable in generic blocks, supporting a
range of percentages. Moreover, the record reflects that wireless
operators have the ability to mitigate the impact of impairments within
license areas: Operators normally expect some degree of signal
degradation due to attenuation, scattering, interference, or other
factors, and have various methods of mitigating interference from
impairing TV stations. In choosing a specific threshold, the Commission
must balance the need to ensure fungibility of blocks within Category 1
with its auction design goal of maximizing the number of such licenses
available in the forward auction, which in turn will promote its
competitive goals and the overall success of the auction. The
Commission finds that a 15 percent threshold strikes the appropriate
balance. Its analysis projects that the vast majority of Category 1
blocks will have no impairments. In Scenario 1 (84 megahertz
repurposed), 2535 of the 2654 Category 1 licenses in the continental
United States would have no impairments. In Scenario 2 (114 megahertz),
3334 of the 3469 Category 1 licenses would have no impairments. And in
Scenario 3 (126 megahertz), 3753 of the 3886. The 15 percent threshold
the Commission adopts provides the flexibility to include in this
Category blocks with a limited range of impairments that should be
manageable for wireless operators and are unlikely to affect major
population centers within the PEA. Major population centers in Category
1 blocks are likely to be unimpaired because in most PEAs, such areas
would likely comprise more than 15 percent of the population in the
PEA. The fungibility of such blocks will be enhanced by the discount
that will be available at the end of the assignment phase of the
forward auction, and bidders will be provided with detailed information
in order to prevent uncertainty regarding the inventory of Category 1
blocks available in each PEA. The Commission recognizes that bidders
will judge impairments and their impact on the value of a block
differently. The detailed information the auction system will provide
on the levels, including locations and types, of impairments in a block
will enable bidders to reflect their own assessment of the impairment's
impact on the value of the license with their bids both in the clock
and assignment phase. For these reasons, the Commission declines to
adopt the proposed alternative to limit Category 1 to unimpaired blocks
(and broaden Category 2 to blocks with impairments from one to 50
percent). The Commission also agrees with CCA, T-Mobile and U.S.
Cellular that adopting this alternative would create excessively wide
disparities in the level of impairment in Category 2 licenses,
ultimately harming their fungibility.
140. The 15 percent threshold the Commission adopts also serves its
competition goals. Only Category 1 blocks will be placed in the
spectrum reserve. In addition, Category 1 blocks will be reserved after
all bidders, including non-reserve-eligible bidders, have already
established bidding interests in them. The amount of reserved spectrum
will be based on demand by reserve-eligible bidders at the time the
final stage rule is met, in part so that ``entities that acquire
reserved spectrum would pay their fair share of the cost of the
Incentive Auction.'' The 15 percent threshold maximizes the number of
Category 1 blocks, which will help to ensure that a full complement of
reserved blocks can be made available in each market, while also
allowing an equitable distribution of Category 1 blocks among reserve-
eligible and non-reserve-eligible bidders.
141. Category 2. The Commission also adopts its proposal to
establish an impairment threshold for Category 2 blocks of greater than
15 percent but less than or equal to 50 percent. The record reflects
that impaired spectrum blocks retain significant value and utility for
wireless providers. In the Incentive Auction R&O, the Commission stated
that it will offer paired spectrum blocks and declined to offer
downlink-only blocks. The thresholds for Category 2 blocks are
consistent with this policy, and therefore the Commission declines to
adopt T-Mobile's proposal to revise the Category 2 thresholds. The
Commission concludes that the 15-to-50 percent range that it establish
strikes a reasonable balance between ensuring the fungibility of blocks
within Category 2 and its other goals. So long as Category 2 blocks in
a PEA are economic substitutes, which means that sufficiently raising
the price of one license in a set of Category 2 blocks would cause
demand to switch to a lower priced license in the set, the relative
prices of the Category 2 licenses within a PEA can be determined by
bidding in the assignment phase. The anticipated minimal range of
impairments between Category 2 blocks within individual PEAs, means
that the difference between the most impaired license, to which clock
phase bidders bid, and the other Category 2 blocks will also be minimal
and bidders, and
[[Page 61946]]
therefore likely economic substitutes. Blocks within Category 2 will be
subject to significant impairment levels by definition, and the
Commission projects that there will be very few of them available in
the forward auction. In many cases, only one Category 2 block will be
available in a PEA. Staff simulations demonstrate that from among the
top 20 PEAs, only 2 PEAs had more than one Category 2 block in
Scenarios 1 & 3 and only three PEAs had more than one Category 2 block
in Scenario 2. Further, the variation in impairment levels among
Category 2 blocks in a specific PEA likely will be minimal. Category 2
blocks within a single PEA will likely be affected by the same
impairing station, resulting in similar levels of impairment and
geographic footprints across the Category 2 blocks. Thus, although the
range of impairments in Category 2 is between 15 and 50 percent, the
actual range in any one PEA is likely to be much smaller. Accordingly,
the Commission finds that a wider range of impairments is appropriate
for Category 2 than for Category 1. Given the minimal number of PEAs in
which the Commission expects multiple Category 2 blocks to be
available, and the limited impairment range of Category 2 blocks within
such PEAs, the Commission is not concerned that its decision puts too
much emphasis on bidding in the assignment phase, as some commenters
suggest. As with Category 1 blocks, the fungibility of Category 2
blocks will be enhanced by the discount that will be available at the
end of the assignment phase, and bidders will be provided with detailed
information to prevent uncertainty regarding the available inventory of
Category 2 blocks. The fungibility of Category 2 licenses will be
further enhanced by the Commission's decision not to weight impairments
located in the downlink portion of the 600 MHz Band for purposes of
measuring the extent of potential impairments, as the percentage of
impairment permitted for Category 2 licenses will be lower for uplink
impairments than the Commission proposed initially.
142. The comparatively wide impairment range for Category 2 also
serves its auction design goals by enabling the Commission to limit the
total number of generic blocks categories to two, thereby simplifying
the auction and providing bidders with more flexibility. Limiting the
number of categories to two will enable bidders to more easily switch
their demands from one category to another or from one PEA to another
than if the clock phase included more, but more narrowly defined,
categories, as AT&T suggests. Given the need to assure that the final
stage rule remains satisfied once it is met, the procedures the
Commission adopts herein will limit bidders' ability to reduce demand
for blocks in a category unless there is excess demand in the category.
With fewer categories for bidding, the likelihood that there will be
excess demand in any one category is greater, giving bidders' greater
flexibility to modify their bidding strategies. In addition, limiting
the number of categories to two will simplify the auction interface and
make the bidding process more manageable for forward auction bidders.
143. Clock Phase Price Adjustment for Impaired Blocks. To enhance
the fungibility and offset the variation in value of the generic blocks
within the two categories the Commission adopts, it incorporates a
price adjustment to account for impairment for both Category 1 and
Category 2 blocks. Specifically, for a given frequency-specific
license, the final clock phase price in the assignment round will be
discounted by one percent for each one percent of impairment to the
license. The auction system will calculate the categories of generic
licenses based on the percentage of the population impaired in each
block as measured at the two-by-two kilometer cell level. For example,
if a Category 1 block is ten percent impaired, it will be subject to a
ten percent discount off the final clock phase price. The price
adjustment will be applied at the end of the assignment phase of the
forward auction. While several commenters argue that the impact of
impairments on forward auction license value will not necessarily be
linear, most commenters either support or do not oppose a price
adjustment, and no commenter identifies an alternative that would be
more effective in enhancing fungibility. Consistent with the
Commission's reasoning for adopting its proposed price adjustment, it
declines to adopt T-Mobile's proposal to offer different price
adjustments for foreign-origin impairments. The value that bidders
ascribe to each license is likely to vary based on a variety of factors
in addition to the level of impairment, including the location of the
impairments and the wireless operators' existing coverage area. The
price adjustment the Commission adopts is designed to accommodate a
range in values and enhance fungibility, and is not intended to fully
compensate for that range or resolve all differences in value, however.
Indeed, the price adjustment remains consistent for all bidders,
allowing them to assess each license, its level of impairment (if any),
and its relative value, which they can then express through their
bidding in the assignment round.
144. The Commission also agree with T-Mobile that when the price
adjustment is ``accompanied by more granular information about the
impairments,'' it will provide ``enough commonality among [blocks] to
allow for generic . . . bidding. By providing bidders with detailed
information about impairments, including the impairing station, the
auction system will enable bidders to assess whether they should bid
on, and how much they should bid for, impaired licenses in a particular
PEA. For example, if a bidder considers impairments in a particular
block to be more detrimental to the value of the license than is
accommodated by the discount, it can bid less or shift its preference
to another block in the assignment round. This includes any valuation a
bidder may have on either expanding its service footprint to currently
unserved areas or acquiring more spectrum in its service area. The
Commission notes that U.S. Cellular's assertion that ``areas subject to
inter-service interference could be concentrated in the portions of the
PEA that encompass a carrier's current service area, and thus have the
greatest value to the carrier,'' assumes that all carriers will value
spectrum in their existing service areas more than spectrum in areas
they currently do not serve.
145. Alternative Proposals. The Commission declines to offer in the
forward auction any spectrum blocks that are more than 50 percent
impaired. Specifically, the Commission declines to offer such blocks as
``overlay'' licenses in the assignment phase in conjunction with
frequency-adjacent licenses in the same PEA. The Commission finds that
doing so would unduly complicate the assignment phase of the forward
auction, making bidder strategies more difficult and potentially
interfering with the assignment phase's primary purpose: To optimally
assign licenses to winning bidders consistent with their frequency
preferences and the contiguity goals the Commission adopts.
Specifically, this approach would complicate the assignment phase
priority of assigning contiguous blocks. Consistent with prior
Commission actions with regard to licenses that remained unsold after
an initial auction for a new spectrum band, the Commission could offer
heavily impaired 600 MHz licenses in a subsequent auction.
[[Page 61947]]
146. The Commission rejects commenters' proposals that it offer
only one category of generic blocks in the forward auction or a single
category of wholly-unimpaired licenses outside of border areas.
Although these commenters assert that their proposals would improve
fungibility of the generic licenses, the Commission finds that the
potential benefits in terms of increased fungibility would be
outweighed by the harms to its other auction goals. Limiting available
blocks to a single category of unimpaired or lightly impaired blocks,
whether nationwide or outside of border areas, would limit the amount
of spectrum available in the forward auction, potentially reducing
auction revenues, complicating bidding for forward auction bidders, and
undercutting its competitive goals. With staff simulations
demonstrating that only a small portion of available licenses will be
Category 2, and in light of the demonstrated interest in these
moderately-impaired licenses, the Commission finds good reason to offer
both types of licenses. Further, the Commission projects that its
approach will result in the vast majority of licenses available in the
forward auction being unimpaired or only minimally impaired. The
Commission is persuaded that the categories it adopts strike the
appropriate balance between ensuring fungibility and its other goals.
Conversely, the Commission rejects CCA's suggestion that it offer a
single category of generic blocks with a wider range of impairments
because such an approach would fail to ensure the fungibility of
generic blocks within the one category.
147. The Commission also rejects Sprint's proposal for bidding on
frequency-specific spectrum blocks in the clock phase rather than
generic blocks as inconsistent with the basic auction design the
Commission established in the Incentive Auction R&O. In the Incentive
Auction R&O, the Commission adopted an ascending clock mechanism to
collect bids on generic categories, to be followed by a separate
assignment mechanism to assign frequency-specific licenses. Because
auction speed correlates to costs for both forward and reverse auction
participants, the Commission found that bidding on generic blocks
enhances the speed and efficiency of the auction because bidders will
not need to bid iteratively across rounds on several similar blocks.
Finally, the Commission declines to treat impairments in border regions
differently. Under the approach the Commission adopts, bidders will
know whether an impairing station in a PEA is domestic or foreign, and
can adjust and prioritize their preferences accordingly.
b. Market-Based Spectrum Reserve
148. The Commission starts by addressing issues related to the
market-based spectrum reserve adopted in the Mobile Spectrum Holdings
R&O. First, the Commission denies a petition for reconsideration of the
Mobile Spectrum Holdings R&O insofar as it seeks to change its
determination that the spectrum reserve will be triggered when both
components of the final stage rule are satisfied. The Commission
addresses this specific T-Mobile reconsideration request here, rather
than in the Mobile Spectrum Holdings proceeding along with the other
reconsideration requests filed in that proceeding. Unlike the other
requests in the Mobile Spectrum Holdings proceeding, T-Mobile's request
that the Commission reconsider the spectrum reserve trigger is
interrelated with arguments in this proceeding that the $1.25 benchmark
that it adopts for the average price component of the final stage rule
is not an appropriate benchmark for purposes of triggering the spectrum
reserve. The Commission notes that T-Mobile's Petition for
Reconsideration also requests that the Commission change the size of
the maximum spectrum reserve at initial clearing targets, an issue that
was raised in several of the comments in response to the Auction 1000
Comment PN. The Commission does not address this issue here. Rather,
the Commission affirms in the Mobile Spectrum Holdings Order on
Reconsideration that it will not increase the maximum amount of
reserved spectrum. The Commission finds that this determination
continues to further its underlying goals, particularly in light of its
adoption herein of $1.25 as the average price component of the final
stage rule. Second, the Commission affirms that the maximum spectrum
reserve will be set based on the initial clearing target and will be
reduced in a PEA in the transition to a new stage only if actual demand
by reserve-eligible bidders in the prior stage does not reach the
maximum. Third, the Commission clarifies the criteria determining
whether an applicant will qualify to bid on reserved spectrum in a PEA.
149. Next, the Commission addresses implementation issues raised in
the Auction 1000 Comment PN. In particular, the Commission adopts its
proposals that, for a given PEA in which the Commission offers fewer
Category 1 blocks than the nationwide clearing target, the maximum
number of reserved spectrum blocks, will be based on the total number
of Category 1 blocks and Category 2 blocks (if any) offered in that
PEA. In addition, the spectrum reserve only will include Category 1
blocks, and the demand determining the actual amount of reserve at the
time the spectrum reserve is triggered will be the demand by reserve-
eligible bidders for Category 1 blocks. Further, the Commission adopts
its proposal that the actual spectrum reserve in a PEA with only one
reserve-eligible entity bidding on Category 1 blocks at the time the
spectrum reserve is triggered will be no more than 20 megahertz.
However, the Commission rejects commenters' proposals to adopt a cap of
20 megahertz on the amount of reserved spectrum that any reserve-
eligible bidder may acquire in a PEA if there is more than one reserve
eligible entity bidding at the time the reserve is triggered. Lastly,
the Commission declines to adopt various other proposals offered by
commenters in response to the Auction 1000 Comment PN.
(i) Background
150. In the Mobile Spectrum Holdings R&O, the Commission
established a market-based spectrum reserve. The Commission first
established the maximum amount of licensed spectrum that will be
reserved in each PEA for reserve-eligible entities in the forward
auction for different initial clearing targets. The Commission affirms
these maximum amounts in the Mobile Spectrum Holdings Order on
Reconsideration. The Commission notes that if the available amount of
spectrum (Category 1 and Category 2 licenses) offered in a PEA at the
initial stage is 30 megahertz or less, there will be no spectrum
reserved in that PEA, as the maximum reserve chart in the Mobile
Spectrum Holdings R&O did not provide for a spectrum reserve at those
clearing levels.
151. If the auction does not close, the maximum amount of reserved
spectrum in each PEA in subsequent stages will be the smaller of the
maximum amount of reserved spectrum in the previous stage or the amount
that the reserve-eligible bidders demanded at the end of the previous
stage. For example, if the initial clearing target is 70 megahertz, the
maximum reserve will be 30 megahertz in the next stage, provided that
reserve-eligible bidders continue to demand that amount. If reserve-
eligible bidders demand less than 30 megahertz at the end of the
initial stage, the maximum reserve for the next stage will be that
demand. The same rule holds for any subsequent stages as well. In
addition, the Commission determined
[[Page 61948]]
that the actual amount of reserved spectrum will depend on the demand
by reserve-eligible bidders when the final stage rule is satisfied. To
be reserve-eligible, an entity must not hold an attributable interest
in 45 megahertz or more of below-1-GHz spectrum in a PEA, or must be a
non-nationwide provider. The Commission noted that it would revise the
short-form application to provide for a certification by an applicant
intending to bid on reserved spectrum that it meets the qualification
criteria. If any entity plans to file a pre-auction divestiture
application to come into compliance with the below-1-GHz holdings
threshold, it will have to file in sufficient time to qualify by the
short-form application deadline. Additional details regarding
completing the short-form application will be provided in the
Application Procedures PN.
152. In the Auction 1000 Comment PN, the Commission proposed that
in a given PEA, the maximum number of reserved spectrum blocks would be
based on the total number of Category 1 and Category 2 blocks offered
in that PEA. Further, the Commission proposed that the spectrum reserve
would include only Category 1 blocks. The Commission proposed that the
actual number of reserved blocks would be based on demand for Category
1 blocks by reserve-eligible bidders at the time the auction reaches
the spectrum reserve trigger. As a result, in the Commission's
implementation, if demand for Category 1 blocks in a PEA by reserve-
eligible bidders is less than the maximum reserved spectrum, then fewer
reserved blocks would be available in that PEA. Alternatively, the
Commission sought comment on whether it should include Category 2
blocks in the spectrum reserve in any PEAs with fewer Category 1 blocks
than the maximum spectrum reserve. Further, the Commission proposed
that the amount of reserved spectrum in any PEA be limited to 20
megahertz if there is only one reserve-eligible bidder demanding blocks
when the trigger is reached.
(ii) Spectrum Reserve Trigger
153. The spectrum reserve is designed to provide the opportunity
for multiple service providers to have access to low-band spectrum,
while also ensuring that all bidders bear a fair share of the cost of
the forward auction. To facilitate its underlying goals, the Mobile
Spectrum Holdings R&O tied the actual amount of the spectrum reserve to
the quantity demanded by reserve-eligible bidders in each PEA at the
point the final stage rule is satisfied in the forward auction. The
final stage rule is a reserve price with two components, both of which
must be satisfied. The first component requires that the average price
per MHz-pop for licenses in the forward auction meets or exceeds a
specified price per MHz-pop benchmark (average price component). The
second ``requires that the proceeds of the forward auction be
sufficient to meet mandatory expenses set forth in the Spectrum Act and
any Public Safety Trust Fund amounts needed in connection with
FirstNet'' (cost component). The Commission rejects various requests
that it either eliminate or modify the link between the spectrum
reserve trigger and the final stage rule.
154. First, the Commission rejects T-Mobile's request, in its
petition for reconsideration of the Mobile Spectrum Holdings R&O, that
the Commission eliminate the link between the spectrum reserve trigger
and the average price component of the final stage rule, as well as
more recent requests by commenters to eliminate the link between the
spectrum reserve trigger and the cost component of the final stage rule
or eliminate the link to the final stage rule altogether. In
particular, the Commission disagrees with arguments that linking the
spectrum reserve trigger to one or the other component of the final
stage rule undermines its goals in establishing the spectrum reserve.
Rather, the Commission affirms that linking the spectrum reserve
trigger to the average price component is important to ``fairly
distribute the responsibility for satisfying the costs of the Incentive
Auction among all bidders,'' particularly in light of its decision to
set the average price component at $1.25. Moreover, linking the
spectrum reserve trigger to the cost component ensures that the
existence of the spectrum reserve will not reduce the amount of
spectrum being cleared for mobile broadband use. The Commission found
in the Mobile Spectrum Holdings R&O that satisfaction of both
components of the final stage rule would ensure that reserve-eligible
bidders pay significant prices for spectrum, that they are paying the
same price as other bidders at the time that the final stage rule is
met, and that the final stage rule is met before the spectrum reserve
is implemented. In essence, the Commission concluded that linking the
spectrum reserve with satisfaction of the final stage rule ensured that
reserve-eligible bidders would be contributing ``a fair share'' of the
final stage rule requirements, including ``a portion'' of the value of
the spectrum for the public and the costs of clearing the spectrum.
155. The Commission also disagrees with T-Mobile, Sprint, and CCA
that the link between the spectrum reserve trigger and one or both
components of the final stage rule creates a significant risk of
undesirable strategic bidding by non-reserve-eligible bidders. The
Commission finds that the clock auction format of the forward auction,
together with the auction procedures it adopts in the Auction 1000
Bidding Procedures Public Notice, place significant limitations on the
possibility for such undesirable strategic bidding. First, those
procedures will not allow bidders to switch demand away from a product
except when there is excess demand for the product and its price is
rising, thereby limiting the ability of non-reserve-eligible bidders to
drive up prices prior to the spectrum reserve being triggered without
incurring significant risk. Second, the efficacy of a strategy to drive
up prices will be limited: For instance, since ``jump bidding'' cannot
occur in a clock auction, bidders will be limited in their ability to
strategically bid up particular markets relative to other markets. In
an SMR auction, ``jump bidding'' occurs when an entity bids more than
what is required or necessary to be a currently winning bidder. Jump
bidding is not possible in a clock auction. Moreover, in a clock
auction, prices increase at a steady rate as long as there is any
excess demand; in an SMR auction, prices can increase more quickly the
greater the extent of excess demand.
156. In addition, by limiting the use of extended rounds to
situations where bidding has come close to meeting the final stage rule
during the clock phase, the Commission limit the potential for bidders
to successfully implement an undesirable strategic bidding strategy by
taking advantage of a higher clock increment in the top 40 markets in
an extended round. Further, in response to Sprint's contention that
uncertainty about when the final stage rule will be met will cause
reserve-eligible bidders to inefficiently maintain bidding activity
across multiple PEAs and across bidding categories, the Commission
notes that it will make publicly available during the auction on a
round-by-round basis information showing how close forward auction
revenues are to the final stage rule. This will enable reserve-eligible
bidders to assess how their current bidding activity will affect the
spectrum reserve in each PEA when the final stage rule is met.
Accordingly, the Commission denies T-Mobile's petition for
reconsideration insofar as it requests that the spectrum reserve
trigger should not be linked to the
[[Page 61949]]
average price component of the final stage rule, and it rejects
proposals by commenters to delink the spectrum reserve trigger from the
cost component or both components of the final stage rule.
157. The Commission also rejects recent arguments that tying the
spectrum reserve trigger to the cost component of the final stage rule
increases the risk of foreclosure pricing. Commenters contend that,
because the cost component must be satisfied before the reserve is
triggered, high clearing costs under a high clearing target could allow
non-reserve eligible bidders to intentionally increase prices to
foreclosure levels in key markets in the early rounds of bidding,
forcing reserve-eligible bidders to reduce demand prior to the split
and thereby reducing the amount of reserved spectrum. Moreover, they
argue, because the auction system does not reset prices if the auction
drops to the next lower clearing target, the impact of any such
foreclosure bidding would be carried forward to these later stages,
even if clearing costs drop. To address these possibilities, T-Mobile
proposes a ``safety valve'' of retaining the $1.25 price per MHz-pop
trigger in the top 40 PEAs, but amending the other component of the
trigger to be either (1) an average of $2 per MHz-pop in the top 40
PEAs; or (2) the cost component of the final stage rule, whichever is
met first. Other parties propose a single spectrum reserve trigger of
$2 per MHz-pop for the top 40 markets, either generally or limited to
spectrum clearing targets of more than 84 megahertz. Verizon and AT&T
oppose T-Mobile's ``safety valve'' proposal, arguing that triggering
the reserve before the cost component is met will result in lower
auction revenue and threaten the success of the auction.
158. The Commission affirms its decision to tie the spectrum
reserve trigger to the cost component of the final stage rule as well
as the average price component and decline to adopts T-Mobile's
``safety valve'' or another alternative trigger. The foreclosure
scenarios that T-Mobile and other competitive carriers fear are
extremely unlikely. The clock auction format, as well as the bidding
procedures the Commission adopts, including the no-excess supply rule
and the limitation on the use of an extended round, will limit the
ability of certain bidders to strategically bid up prices in order to
disadvantage others, and impose on any such bidders the risk of being
forced to purchase unwanted spectrum at high prices. Further, T-
Mobile's ``hangover effect'' scenario is premised on an assumption--
that clearing costs will steeply decline in subsequent auction stages--
that is not founded in the record. On the other hand, the Commission
previously found that tying the spectrum reserve trigger to both
components of the final stage rule--the cost component as well as the
average price component--is necessary to ensure that the reserve does
not cause a reduction in the spectrum clearing target and to ensure
that reserve-eligible bidders contribute a fair share of the costs of
meeting the auction's revenue requirements. The Commission is not
persuaded that the benefits of tying the spectrum reserve trigger to
both components of the final stage rule are outweighed by the risk of
foreclosure that T-Mobile and others have identified. Untying the
reserve trigger from the cost component also would place the onus on
the Commission to accurately predict clearing costs--which is difficult
to do, as T-Mobile has argued in its initial advocacy to untie the
reserve trigger from the average price component of the final stage
rule--rather than allowing the market to determine when the reserve is
triggered. Accordingly, the Commission affirms its judgment to tie the
spectrum reserve trigger to the cost component of the final stage rule.
In so affirming, the Commission considered information that T-Mobile
and Sprint filed in support of their arguments along with a request for
confidential treatment. In light of the Commission's decision, it
dismisses as moot Verizon's requests that the Commission strike this
information from the record without consideration or, alternatively,
reject the request for confidential treatment and make the information
public, and the Commission declines to address the merits of Verizon's
arguments in support of these requests.
159. The Commission emphasizes, however, that it takes very
seriously its duty to ensure the integrity of its auctions. To this
end, all auctions are monitored carefully, and appropriate actions will
be taken if undesirable strategic behavior is discovered. The
Commission also adopts additional measures to help it meet this
objective. For instance, the Commission adopts a smaller minimum clock
price increment than it proposed in the Auction 1000 Comment PN and
authorizes clock price increments to be changed on a PEA-by-PEA basis.
This allows a smaller increment to be used in specific PEAs should
clock prices rise too fast in some markets relative to others. Its
auction procedures typically provide for this tool, which has been
available in past Commission auctions and implemented to maintain a
balance of price increases across geographic license areas.
160. The Commission also rejects arguments against tying the
spectrum reserve trigger to the average price benchmark of $1.25 in the
top 40 PEAs proposed in the Auction 1000 Comment PN. T-Mobile contends
that the benchmark price should be set as low as possible and no more
than $1.25 in the top 25 PEAs, while Sprint proposes that the spectrum
reserve be set at the beginning of the clock phase, subject to a
condition subsequent of spectrum being de-reserved if reserve-eligible
bidders do not, in aggregate, demand quantities equivalent to the
supply. They argue that tying the spectrum reserve trigger to the
average price benchmark of $1.25 in the top 40 PEAs will allow
strategic bidding by the two largest providers to foreclose their major
competitors, both on a nationwide and market-specific basis. CCA states
that there should not be a price per MHz-pop reserve trigger; however,
if the Commission chooses to move forward with a price per MHz-pop
reserve trigger, then it should be set at no more than $1.25 per MHz-
pop in the largest 40 PEAs, based on gross bids, which is what the
Commission proposed in the Auction 1000 Comment PN. By contrast, AT&T
and Verizon argue that $1.25 is too low a trigger, and will result in
too much spectrum being allocated to the spectrum reserve and a
windfall for reserve-eligible bidders. They contend that $1.25 is not
an appropriate ``market price'' to ensure that reserve-eligible bidders
pay their fair share, noting that this price is only approximately half
of prices paid in the AWS-3 auction and significantly less than prices
paid in the 700 MHz auction.
161. The Commission rejects the various arguments that the price
benchmark should be increased or decreased for purposes of triggering
the spectrum reserve. Contrary to arguments by AT&T and Verizon,
ensuring that reserve-eligible bidders pay a ``fair share'' does not
require that the Commission determine the ``true competitive market
value of the 600 MHz spectrum'' and set the spectrum reserve trigger
price ``as close as possible'' to that value, or that the Commission
determine and set a price that represents the exact point at which
foreclosure of reserve-eligible bidders could occur. The Commission
previously concluded that satisfaction of both components of the final
stage rule would ensure, among other things, that reserve-eligible
bidders pay significant prices for spectrum, and that they are paying
the same price as other bidders at the time that the final stage
[[Page 61950]]
rule is met. Consistent with that conclusion, the Commission affirms
that tying the spectrum reserve trigger to satisfaction of the cost
component of the final stage rule and an average price component of
$1.25 is sufficient to achieve its goal of ensuring that reserve-
eligible bidders bear a fair share of the costs of the forward auction.
162. Likewise, the Commission rejects arguments that $1.25 is too
high to achieve its pro-competitive goals. The Commission is not
persuaded that a fair distribution of the costs of the incentive
auction would occur if the price for reserved spectrum is determined
solely by competition among reserve-eligible bidders for reserved
spectrum instead of being tied to satisfaction of the final stage rule.
Moreover, the Commission is not convinced that its approach of tying
the spectrum reserve trigger to the final stage rule creates a
significant risk of undesirable strategic behavior by non-reserve-
eligible bidders, including at the $1.25 average price component that
it determine herein represents a portion of the value of the spectrum.
In addition, the maximum amount of spectrum in the reserve is tied to
bidders' demands in order to balance the underlying goals of the
spectrum reserve. If reserve-eligible bidders' demand is insufficient,
then the Commission finds that it is appropriate to set aside less than
the maximum in order to balance the Commission's objectives. The
Commission also rejects T-Mobile's alternate proposal to tie the
spectrum reserve to a $1.25 benchmark across only the top 25 PEAs,
rather than the top 40 PEAs.
(iii) Determination of Maximum Spectrum Reserve for a New Stage
163. As the Commission set out in the Mobile Spectrum Holdings R&O,
the maximum amount of reserve established based on the initial spectrum
clearing target will not be reduced in any later stages of the
incentive auction based on lower clearing targets, although it will be
subject to demand by reserve-eligible bidders. The Commission concluded
in the Mobile Spectrum Holdings R&O that the maximum amount of licensed
spectrum that will be reserved in each market will be identified at the
initial stage. In the Auction 1000 Comment PN, the Commission
reiterated that the maximum reserve will be set according to the
initial clearing target.
164. Accordingly, AT&T's claim is incorrect that its prior decision
established that the maximum spectrum reserve amount would be tied to
the spectrum clearing target in each stage, not just the initial stage.
The Commission finds that this procedure is consistent with its goals
for the spectrum reserve: basing the maximum reserve amount on the
initial spectrum clearing target will ensure the efficacy of the
reserve and will protect its competitive goals by preventing the
reserve from being reduced if the final stage rule is not satisfied in
the initial stage and reserve-eligible bidders continue to demand the
maximum level. By contrast, reducing the maximum reserve amount based
on later clearing targets, regardless of demand by reserve-eligible
bidders, would likely create incentives for non-reserve-eligible
bidders to suppress demand at the initial stage in order to reduce the
amount of the spectrum reserve.
165. Contrary to AT&T's assertions, this procedure is consistent
with its observation that every bidder will have the opportunity to bid
for and win at least half of the 600 MHz Band spectrum in each PEA.
Generally, if non-reserve-eligible bidders bid actively on spectrum in
the initial stage, the bidding either will meet the final stage rule,
or due to insufficient demand by reserve-eligible bidders, the bidding
will not meet the final stage rule (thus reducing the spectrum reserve
for the next stage). In either case, the market-based spectrum reserve
rule would not have prevented non-reserve-eligible bidders from winning
at least half of the 600 MHz Band spectrum in each PEA.
(iv) Attribution for Purposes of Qualifying to Bid on Reserved Spectrum
166. For purposes of qualifying to bid on reserved spectrum as a
non-nationwide provider, the Commission clarifies that an entity is
subject to the attribution criteria set forth in 47 CFR 20.22(b). For
example, all interests of ten percent or more by a nationwide provider
in a non-nationwide provider will eliminate that non-nationwide
provider from being considered reserve-eligible as a non-nationwide
provider, though that provider still could qualify based on low-band
holdings of less than 45 megahertz. An entity can qualify to bid on
reserved spectrum by either: (1) Holding an attributable interest in
less than 45 megahertz, on a population-weighted basis, of below-1-GHz
spectrum in a given PEA; or (2) being a non-nationwide provider.
Attributable holdings include, for example, controlling interests, non-
controlling interests of 10 percent or more, and long-term de facto
transfer leasing arrangements and long-term spectrum manager leasing
arrangements that enable commercial use. In the Mobile Spectrum
Holdings R&O, the Commission adopted criteria to attribute partial
ownership and other interests in spectrum holdings for purposes of
applying a mobile spectrum holding limit to the licensing of spectrum
through competitive bidding (as well as applying the initial spectrum
screen to secondary market transactions).
167. The Mobile Spectrum Holdings R&O stated that ``non-nationwide
providers'' include any provider other than Verizon Wireless, AT&T,
Sprint, and T-Mobile, but that Order also included attribution rules
``for purposes of . . . applying a mobile spectrum holding limit'' in
the auction. Those attribution rules were intended to ensure the
integrity of its underlying rule, by permitting eligibility for the
reserved spectrum only when appropriate to enhance competitive choices
beyond nationwide providers and when eligibility would present a lesser
risk of anti-competitive behaviors due to ``relative lack of
resources.'' Accordingly, the Commission clarifies that the attribution
criteria set forth in 47 CFR 20.22 govern the application of all
aspects of the mobile spectrum holding limit in the incentive auction,
regardless of whether an entity is attempting to qualify to bid on the
spectrum reserve as a holder of less than 45 megahertz of low-band
spectrum in the relevant market or as a non-nationwide provider.
168. CCA has expressed concern about the potential impact that
attribution of long-term leases of spectrum from nationwide providers
to otherwise non-nationwide providers may have on the eligibility of
those non-nationwide providers to bid on reserve spectrum. To address
this concern, although the Commission will attribute long-term transfer
leasing arrangements set forth in 47 CFR 20.22(b)(vii) for purposes of
qualification based on low-band spectrum holdings, the Commission will
not attribute such leasing arrangements to lessees and sublessees for
purposes of qualifying as a non-nationwide provider. Attributing long-
term leasing arrangements in individual PEAs for purpose of
qualification based on low-band spectrum holdings is consistent with
the Commission's intent that entities lacking significant low band
spectrum resources in those PEAs should have an opportunity to bid on
reserved spectrum, and such attribution is consistent with the
Commission's methodology for competitive review of spectrum
acquisition. However, attributing long-term leasing arrangements to
lessees from nationwide providers for purposes of qualifying as a non-
nationwide provider--which would have the effect of disqualifying
providers ``with
[[Page 61951]]
networks that are limited to regional and local areas'' from bidding on
reserved spectrum as a non-nationwide provider--would be inconsistent
with its intent to ``permit bidding on 600 MHz reserve spectrum by
regional and local service providers in all PEAs, including those where
such a provider holds more spectrum than its 45 megahertz holding
threshold of the available low-band spectrum.'' As the Commission
indicated in the Mobile Spectrum Holdings R&O, non-nationwide service
providers enhance competitive choices for consumers in the mobile
wireless marketplace, and help promote deployment in rural areas.
169. CCA has similarly expressed concern that it would be
inconsistent with the intent of the reserve, in certain unique
circumstances involving limited equity interests, to apply an
attribution rule that would prevent non-nationwide providers from
bidding for reserved spectrum or participating in the auction entirely.
CCA notes as examples various insignificant passive equity interests
that nationwide providers have in certain long-standing rural
partnerships and argues that the FCC should consider certain limiting
factors so as not to foreclose those partnerships from bidding on
reserve spectrum. The Commission agrees. In particular, where the
nationwide provider is not the managing partner of the rural
partnership, has not and will not provide funding for the purchase of
the licenses in spectrum auctions by the rural partnership, including
the incentive auction, the rural partnership is of long standing, the
nationwide provider's interest in the rural partnership is non-
controlling and is less than 33 percent, and the partnership's retail
service is not branded under the name of the nationwide provider, non-
attribution may enhance competitive choices for consumers by giving the
partnerships an opportunity to gain access to low-band spectrum through
the spectrum reserve, and without creating an undue risk of anti-
competitive behaviors due to the rural partnership's relative lack of
resources. The Commission will specify in the Application Procedures PN
how such rural partnerships can secure status as non-nationwide
providers for purposes of qualifying to bid on the spectrum reserve.
(v) Applying the Spectrum Reserve in PEAs With Category 1 and Category
2 Blocks
170. The Commission adopts its proposal that, for a given PEA in
which the Commission offers fewer Category 1 blocks than the nationwide
clearing target, the maximum number of reserved blocks will be
determined by the total number of Category 1 blocks and Category 2
blocks (if any) offered in that PEA. This approach will help facilitate
the availability of more reserved spectrum in the limited number of
PEAs in which the Commission offers fewer Category 1 blocks than the
nationwide clearing target, relative to an approach based solely on
Category 1 blocks. The Commission notes that in a limited number of
PEAs, it will offer fewer licenses (either Category 1 or Category 2)
than the nationwide clearing target because blocks with greater than 50
percent impairment will not be made available for acquisition. In these
instances, the Commission's balancing of goals to facilitate post-
auction competition and to provide opportunities for all bidders to
acquire 600 MHz spectrum does not support setting the maximum spectrum
reserve based on the nationwide clearing target, rather than based on
the total number of Category 1 and Category 2 licenses. Thus, if there
are 50 megahertz of Category 1 blocks and 10 megahertz of Category 2
blocks made available in a PEA at the initial stage, the available
amount of spectrum offered in that PEA will be 60 megahertz, with a
corresponding maximum reserve of 20 megahertz. That, in turn, will
promote its competitive goals for the reserve by providing an
opportunity for reserve-eligible bidders, who likely will be more
reliant than non-reserve eligible bidders in particular PEAs on 600 MHz
Band spectrum, to utilize the market-based reserve to expand coverage
and enter new geographic areas. As the Commission has noted, this
auction will be the last offering of a significant amount of nationwide
``greenfield'' low-band spectrum for the foreseeable future and access
to this spectrum by smaller bidders is particularly important to
increasing competition and choice in the wireless marketplace. If a
particular stage of the auction is not the final stage, the maximum
amount of reserved spectrum in each PEA in subsequent stages will be
the smaller of the maximum amount of reserved spectrum in the previous
stage or the amount that the reserve-eligible bidders demanded at the
end of the previous stage. Similarly, the Commission notes here that,
in PEAs in which it offers fewer Category 1 blocks than the nationwide
clearing target, the maximum amount of reserve established in the
initial stage in a PEA will not be reduced in any subsequent stages of
the incentive auction so long as there are a sufficient number of
Category 1 blocks being offered in that PEA that are demanded by
reserve-eligible bidders. For example, if there are 50 megahertz of
Category 1 blocks and 10 megahertz of Category 2 blocks made available
in a PEA at the initial stage, with a maximum reserve of 20 megahertz,
the maximum reserve will remain 20 megahertz at each subsequent stage,
provided that 20 megahertz of Category 1 blocks continue to be offered
in that stage and reserve-eligible bidders demanded that amount in the
prior stage.
171. In addition, the Commission adopts its proposal that the
spectrum reserve will include only Category 1 blocks. That is, in the
limited number of PEAs in which there are both Category 1 and Category
2 blocks, Category 1 blocks will be allocated to the spectrum reserve
up to the maximum number of reserved spectrum blocks, assuming that
reserve-eligible bidders demand up to that maximum. The Commission
notes that any remaining Category 1 blocks, as well as all Category 2
blocks, will be unreserved, and both reserve-eligible and non-reserve-
eligible bidders will be able to bid on these blocks. This also will
help ensure the efficacy of the pro-competitive policies that the
Commission adopted in the Mobile Spectrum Holdings R&O by ensuring that
reserve-eligible bidders, who by definition currently hold little or no
low-band spectrum, have access through the spectrum reserve to
unimpaired or minimally-impaired spectrum blocks in areas with
impairments. Limiting the spectrum reserve to Category 1 blocks also
will simplify the forward auction for bidders by limiting the number of
license categories that must be ``split'' at the time the spectrum
reserve is triggered.
172. The Commission declines to adopt AT&T's alternative proposal
to fill the reserve first with Category 2 blocks in the PEA, followed
by any Category 1 blocks necessary to meet the reserve allocation. AT&T
and Verizon assert that the approach the Commission adopts will
undermine its incentive auction goals by preventing them from acquiring
the spectrum they need to effectively serve their customers, and will
result in lower spectrum clearing targets and auction revenues. The
Commission disagrees. First, the Commission notes that AT&T and Verizon
themselves are eligible to acquire reserved 600 MHz spectrum in those
PEAs where they have the most need, that is, in those PEAs where they
hold less than one-third of currently suitable and available low-band
spectrum. Indeed, AT&T and Verizon will be eligible to bid on reserved
spectrum in PEAs that cover
[[Page 61952]]
approximately 40 percent of the total population of the United States.
And, of course, they can bid on substantial amounts of non-reserved
spectrum nationwide.
173. According to the simulations conducted by staff, approximately
84 to 88 percent of PEAs (and 88 to 93 percent of high-demand PEAs)
will contain only Category 1 blocks, and even in PEAs with Category 2
blocks the vast majority of blocks offered in the forward auction will
fall into Category 1. And the record reflects that Category 2 blocks
are of substantial value and will provide utility to wireless service
providers for future advanced broadband deployment. Accordingly, the
Commission is not persuaded that the approach it adopts to implementing
the spectrum reserve will have a significant impact on either the
amount of spectrum that is repurposed through the auction or on auction
revenues. Moreover, as stated above, in the limited number of areas
with Category 2 blocks for sale, its approach is critical to realizing
the pro-competitive goals of the Mobile Spectrum Holdings R&O by
ensuring that service providers that lack a sufficient mix of low-band
and high-band spectrum to compete robustly have the opportunity to gain
access to low-band spectrum.
174. Likewise, the Commission rejects Mobile Future's argument that
its approach will harm consumers by ``skew[ing]'' access to 600 MHz
Band spectrum. Rather, its approach will benefit consumers by promoting
competition and reducing the potential for competitive harm. Contrary
to Mobile Future's suggestion, its decisions to allocate Category 1
blocks to the reserve up to the maximum number (subject to demand by
reserve-eligible bidders), while counting both Category 1 and Category
2 blocks towards the maximum number, are not inconsistent. The two
decisions involve separate issues. The Commission first needs to decide
how much licensed spectrum is in the maximum spectrum reserve. In the
Mobile Spectrum Holdings R&O, the Commission determined that the
maximum spectrum reserve is to be based on the ``Licensed Spectrum in
the Initial Clearing Target.'' Its decision here implements that
determination: Both Category 1 and Category 2 licenses are going to be
auctioned and are included in the initial clearing target. And placing
only Category 1 blocks in the reserve makes sense to provide reserve-
eligible bidders with the best opportunity to increase competition and
choice in the wireless marketplace.
175. The Commission also rejects AT&T's claim that its approach to
implementing the spectrum reserve in PEAs with impairments violates the
Spectrum Act as an auction-specific restriction that would dramatically
increase the barriers to AT&T's ``participation'' in this ``system of
competitive bidding.'' AT&T has not demonstrated that its approach,
which will apply in a limited number of markets and is necessary to
carry out its goals in establishing the spectrum reserve, undermines
its reasoning in the Mobile Spectrum Holdings R&O that the reservation
of spectrum in the incentive auction is fully consistent with its
authority under Title III and the Spectrum Act. More specifically, AT&T
has not demonstrated that its approach transforms an otherwise
permissible application of the spectrum reserve into an approach that
is no longer a rule of ``general applicability'' or a provision that
would ``prevent'' any entity ``from participating'' in a ``system of
competitive bidding.''
176. The Commission also rejects proposals from prospective
reserve-eligible bidders to reserve the least impaired Category 2
blocks in any PEAs with fewer Category 1 blocks than the maximum
spectrum reserve. As the Commission explained in the Auction 1000
Comment PN, to implement separate reserved categories for both Category
1 and Category 2 blocks in individual PEAs where they exist would
significantly complicate the design of the auction by necessitating an
additional bidding category, potentially extending the length of the
auction and requiring additional procedures for dividing bidder demands
at the time the spectrum reserve is triggered. Reserving only Category
1 blocks will simplify the auction design and promote its goal of a
successful auction. Indeed, T-Mobile recognizes that dividing both
Category 1 and Category 2 blocks into reserved and unreserved
categories would create significant complications of managing four
simultaneous auction clocks--two in the reserved and two in the non-
reserved blocks--across the large number of licenses expected to be
offered in the incentive auction. The Commission also concludes that
filling out the reserve with Category 2 blocks would create an
imbalance between its pro-competitive goals and ensuring that all
bidders, including non-reserve-eligible bidders, have an opportunity to
acquire a significant amount of 600 MHz Band spectrum in the incentive
auction.
177. Finally, the Commission adopts its proposal that the actual
number of reserved blocks will be based on demand for Category 1 blocks
by reserve-eligible bidders at the time the forward auction reaches the
spectrum reserve trigger, i.e., when the final stage rule is satisfied.
The Commission rejects arguments that the actual number should be based
on reserve-eligible bidders' demand for Category 1 and Category 2
blocks. Given its decision to limit reserve blocks to Category 1
blocks, the most logical measure for determining demand at the reserve
trigger are the Category 1 blocks.
(vi) Other Proposals Related to Bidding by Reserve-Eligible Entities
178. As the Commission indicated in the Mobile Spectrum Holdings
R&O, and after opportunity for comment in the Auction 1000 Comment PN,
in order to balance the needs of all bidders and to promote competition
within the forward auction, the Commission adopts its proposal to limit
the maximum amount of reserved spectrum in a PEA to 20 megahertz if
there is only one reserve-eligible bidder demanding Category 1 blocks
when the spectrum reserve trigger is reached. The Commission notes that
DISH supports this proposal; no commenter has opposed it. The
Commission does not believe the public interest benefits of a maximum
of 30 megahertz of reserved spectrum would be realized without more
than one reserve-eligible bidder in a PEA.
179. CCA, T-Mobile, and U.S. Cellular argue that, regardless of the
number of reserve-eligible bidders in a PEA, no reserve-eligible bidder
should be permitted to purchase more than 20 megahertz of reserved
spectrum in any PEA in order to protect license diversity among
reserve-eligible bidders. The Commission finds that giving more than
one reserve-eligible bidder an opportunity to acquire reserve spectrum
in smaller, more rural PEAs where 30 megahertz of reserve spectrum is
available will further its goal of facilitating post-auction
competition in those areas. Competition in these areas is generally
less robust than in larger, more urban areas. As the Commission has
observed, ``92 percent of non-rural consumers, but only 37 percent of
rural consumers are covered by at least four 3G or 4G mobile wireless
providers' networks and more than 1.3 million people in rural areas
have no mobile broadband access.'' The Commission has frequently
stressed the importance of competition and consumer choice in rural as
well as in urban areas. The policies in the Mobile Spectrum Holdings
R&O were intended to ``ensure that all Americans, regardless of whether
they live in an urban, suburban, or rural area, can enjoy the benefits
that competition provides.'' The Commission found there that regional
[[Page 61953]]
and local service providers enhance competitive choices for consumers
in the mobile wireless marketplace, and are ``important sources of
competition in rural areas, where multiple nationwide service providers
may have less incentive to offer high quality services.'' Accordingly,
the Commission adopts a cap of 20 megahertz for smaller PEAs where 30
megahertz of reserve spectrum is available. The Commission defines
smaller PEAs as those with a population of 500,000 or less, which
corresponds to PEAs 118-416, excluding PEA 412 (Puerto Rico). The
population density of PEAs with population of 500,000 or less
correlates more closely with that of rural areas as previously defined
by the Commission. The average population density of PEAs with a
population greater than 500,000 is 333 pops/square mile, whereas the
average population density for the smaller PEAs is 76 pops/square mile.
The Commission observes that 76 pops/square mile roughly corresponds
with the 100 pops/square mile approach it takes in defining rural
areas. Geographic area and population data can be found on the
Commission's Web site. In addition, the Commission notes that this
threshold provides an objective and easily administrable delineation
between larger urban and smaller rural PEAs and one that provides
consistency with the definition it already will be applying in this
auction for other purposes. This threshold also identifies ``where
rural service providers are most likely to offer service''. By adopting
the cap of 20 megahertz on reserve spectrum in the smaller PEAs, the
Commission promotes the dissemination of licenses among a wide variety
of applicants, and avoid the excessive concentration of licenses. In
addition, the cap prevents any single reserve-eligible bidder from
foreclosing other reserve-eligible bidders from obtaining reserve
spectrum in the significant number of smaller PEAs where this is a
potential risk. Thus, the Commission finds that the cap of 20 megahertz
on reserve spectrum will help ensure that multiple service providers
have access to low-band spectrum, and promote ``the rapid deployment of
new wireless broadband technologies to all Americans, including those
residing in rural areas.''
180. In response to concerns raised by AT&T and DISH that adopting
a cap could decrease competition in the bidding for reserved spectrum,
the Commission first notes that it is adopting a cap of 20 megahertz in
the smaller PEAs only, and thus, to the extent those concerns are
valid, there will be no decrease in competition in the bidding for
reserved spectrum in the larger, more urban PEAs. The Commission finds
that in smaller PEAs, any such concerns are outweighed by the benefits
to post-auction competition of facilitating access by multiple bidders
to reserved spectrum. In balancing the competing factors identified in
Section 309(j), the Commission believes it is important to take account
of concerns about the degree of competitive mobile voice and broadband
service in rural areas, as well as the important contributions that
rural service providers can offer in promoting such competitive service
and incentives for increased deployment in these more rural areas. In
addition, the Commission disagrees with DISH's assertion that
restricting reserve-eligible bidders to acquiring a maximum of 20
megahertz of spectrum within a single PEA could unnecessarily limit the
network and business strategies of reserve-eligible participants. While
the Commission caps the amount of reserved spectrum that any entity can
acquire in order to extend the benefits of the reserve to multiple
providers in smaller PEAs, a reserve-eligible bidder has an opportunity
to acquire more than 20 megahertz of 600 MHz spectrum by bidding on
unreserved licenses. Accordingly, the Commission adopts a 20 megahertz
cap in the smaller PEAs nationwide on the amount of reserved spectrum
that an individual bidder can win in the forward auction in those PEAs
where the spectrum reserve is set at 30 megahertz when the final stage
rule is satisfied.
181. The Commission also declines to adopt U.S. Cellular's proposal
of a special round after the spectrum reserve trigger is met that would
provide reserve-eligible bidders prior notice and the opportunity to
shift their demand for reserved blocks to compensate for any difference
between actual demand on the maximum spectrum reserve. U.S. Cellular
has not demonstrated how this special round could be implemented
without undercutting its auction design goals by adding undue
complexity and reducing the speed of the auction. In addition, the
Commission is making significantly more information available to
forward auction bidders, including information indicating how close
forward auction revenues are to satisfying the final stage rule.
182. Finally, the Commission rejects AT&T's contention that a
change to its bidding procedures is necessary to avoid strategic
behavior by reserve-eligible bidders. In particular, AT&T contends
that, once the spectrum reserve is triggered, reserve-eligible bidders'
demand for spectrum in a given PEA should be assigned to the lowest-
price spectrum available between the reserved and unreserved
categories. The Commission disagrees with AT&T's assertion that
implementation of this proposed change is necessary to avoid an
opportunity for manipulative bidding by reserve-eligible bidders
because those bidders could bid for unreserved blocks instead of
reserved blocks even when the reserved price is lower. In rejecting
claims by certain bidders that AT&T could engage in strategic bidding
behavior, the Commission adopts procedures that will not allow bidders
to switch demand away from a category in a PEA except when there is
excess demand and the price is rising. These procedures limit the
ability of reserve-eligible bidders to shift from reserved to
unreserved blocks in a given PEA and thereby narrow the circumstances
under which the bidding strategies suggested by AT&T would be possible.
They also discourage these strategies by limiting the ability of a
reserve-eligible bidder to return to reserved blocks without driving up
the prices of those blocks. Moreover, AT&T's approach could reduce
competition for non-reserved spectrum by reserve-eligible bidders,
contrary to its goal of encouraging competitive bidding for non-
reserved blocks as well as reserved blocks. The Commission is not
persuaded that additional safeguards are necessary to prevent strategic
behavior by reserve-eligible bidders once the spectrum reserve is
triggered.
3. Acceptable Bid Amounts
a. Opening Bids
183. The Commission will set minimum opening bids at $5,000 per
bidding unit for all spectrum blocks offered in the forward auction,
regardless of category. At the beginning of the clock phase of the
forward auction in the initial stage, a bidder will indicate how many
blocks in a generic license category in a PEA it demands at the minimum
opening bid price. The Application Procedures PN will set forth the
minimum opening bid amount for the 5+5 megahertz generic blocks for
each PEA in the forward auction, calculated according to these
procedures.
184. The Commission finds there is no need to discount minimum
opening bids for blocks in Category 2. Because its minimum opening bids
serve primarily as a starting point for bidding, not as estimates of
final prices, there is no need to base them upon the extent to which a
spectrum block may be impaired (i.e., which category a block
[[Page 61954]]
falls into--Category 1 or 2). Further, winning bidders will receive an
impairment-based discount off the final clock phase price for licenses
that are subject to impairments, regardless of whether they are
Category 1 or Category 2 licenses.
185. A minimum opening bid amount of $5,000 per bidding unit
should, as intended, help to accelerate the competitive bidding
process. Basing minimum opening prices on the number of bidding units
associated with blocks in a particular PEA serves to incorporate past
pricing information into the calculation of minimum opening prices. By
setting higher minimum opening prices in markets that have historically
commanded relatively higher prices, the Commission expects to reduce
the number of rounds it will take for demand to equal supply in those
markets. Moreover, incorporating the results from Auction 97 will
ensure that minimum opening prices reflect relative value differences
that bidders have placed on different geographic areas most recently.
Its experience in past spectrum license auctions indicates that this
will be an effective tool for accelerating the competitive bidding
process, a particularly important goal for the incentive auction given
the interdependency between the reverse and forward auctions.
186. Its approach is consistent with Section 309(j) of the
Communications Act, as amended, which calls for prescribed methods of
establishing minimum opening bid amounts when FCC licenses are subject
to auction, unless the Commission determines that a minimum opening bid
amount is not in the public interest. This approach is also consistent
with the precedent of its AWS-3 auction procedures, where the
Commission set the minimum opening bid amount at twice the upfront
payment for each license.
b. Clock Increments
187. The Commission adopts its proposal to set clock prices for a
subsequent bidding round by adding a fixed percentage to the previous
round's price, but modify the range to be broader than the range of
five to 15 percent the Commission proposed. The Commission will use an
increment of between one percent and 15 percent to provide additional
flexibility to offer appropriate prices to bidders. Further, the
Commission sets the initial increment at five percent. This initial
increment is consistent with AT&T's suggestion to use increments at the
bottom of the proposed increment range. While the Commission
anticipates applying the same percentage increment to all categories in
all PEAs, increments may be changed during the auction on a PEA-by-PEA
or category-by-category basis as stages and rounds continue. This
discretion provides a tool to ensure that price increases over a broad
range of markets remain relatively balanced. The Commission finds that
setting the increment in a round in the range of one to 15 percent,
beginning with five percent, will allow the auction system to manage
the auction at a reasonable pace, offering appropriate price choices to
bidders.
188. After each round, the system will announce a clock price for
the next round, which will be the highest price to which a bidder can
respond during the round. In this clock auction, a bidder will be
required to confirm its demands in every round, although it will not
need to bid at a higher price. Unlike in an SMR auction, there are no
provisional winners in the forward auction. For each category in each
PEA, the clock price will be higher than the previous round's price by
the fixed percentage increment. For example, if the price for the first
round is $10, and the price increment is 20 percent, the clock price
for second round will be $12. As long as total demand for blocks in a
category exceeds the supply of blocks, the percentage increment will be
added to the clock price from the prior round. If demand drops to equal
supply in a round, then the clock price for the next round will be set
by adding the percentage increment to the price (potentially an intra-
round bid price) at which demand became equal to supply. If demand is
equal to or less than supply at the minimum opening price, the
increment will be added to the minimum opening price. Further, if at
the beginning of a round supply exceeds demand and during the round
demand increases to equal supply, then the increment will be added to
the beginning of round price, which may be the minimum opening price.
c. Intra-Round Bids
189. The Commission adopts its proposed procedures to permit a
bidder to make intra-round bids by indicating a point between the
previous round's price and the new clock price at which its demand for
blocks in a category changes. The previous round's price may be the
clock price for the previous round or, if there was not excess demand,
the minimum opening bid or the price at which demand equaled supply. In
placing an intra-round bid, a bidder will indicate a specific price,
and a quantity of blocks it demands if the price for blocks in the
category should increase beyond that price. The auction system will not
permit a bidder to place inconsistent bids for blocks in a category in
a PEA during a round. For example, a bidder cannot indicate that it
wishes to decrease its demand at a low intra-round price and then, in
the same round, indicate that it wishes to increase its demand for
blocks in the same category in a PEA at a higher intra-round price.
190. Intra-round bids will be optional; a bidder may choose to
express its demands only at the clock prices. The decision to permit
intra-round bidding will allow the auction system to use relatively
large clock increments, thereby speeding the forward auction, without
running the risk that a jump in the clock price will overshoot the
market clearing price--the point at which demand for blocks equals the
available supply. The more complicated bid processing in the reverse
auction, involving multiple bidding options and feasibility checking,
means that allowing intra-round bidding would unduly slow the progress
of the reverse auction, as well as making participation more
complicated for reverse auction bidders.
4. Reducing Demand, Bid Types, and Bid Processing
191. A forward auction participant will bid by indicating a
quantity of blocks in a PEA it demands at a price, indicating that it
is willing to pay that price for the specified quantity. A bidder
cannot demand more blocks in a category than the supply of available
blocks. A bidder can express its demands at the clock price or at an
intra-round price, and bid quantities can represent an increase or a
decrease over the bidder's previous demands for blocks in a category.
Under the procedures the Commission adopts, the auction system will
treat bids as requests; the bid processing procedures it adopts,
however, will ensure that a bidder will never win a block at a price
higher than it indicates it is willing to pay. Bids generally must be
consistent with rules on bidding eligibility. Accordingly, bids to
increase demand will be applied subject to the bidder having sufficient
bidding eligibility as measured by the number of bidding units
associated with the blocks a bidder demands. If a bid would reduce the
quantity of blocks a bidder demands in a category in a PEA, the auction
system will apply the reduction only if the reduction will not result
in aggregate demand falling below the available supply of licenses.
This restriction ensures that the final stage rule, once met, will
continue to be satisfied. Absent such a restriction, blocks with
[[Page 61955]]
bids that were counted toward meeting the reserve price could later
become unsold, leaving revenue below the necessary minimum. For this
reason, and because the Commission agrees with T-Mobile that the
restriction provides ``a meaningful safeguard against anticompetitive
or predatory auction behavior,'' the Commission finds that the benefits
of the restriction outweigh concerns, expressed by AT&T, about a
potential exposure risk to bidders. Moreover, the Commission agrees
with T-Mobile that AT&T overstates the significance of an exposure
problem. Further in this regard, the Commission declines AT&T's
recommendation to allow bidders a limited number of withdrawals to
mitigate an exposure problem.
192. The Commission also adopts its proposal to process bids in
order of price point after a round ends, where the price point
represents the percentage of the bidding interval for the round. For
example, if the price for the previous round is $5,000 and the new
clock price is $6,000, a price of $5,100 will correspond to the 10
percent price point, since it is 10 percent of the bidding interval
between $5,000 and $6,000. Considering bids in increasing order of
price point allows the auction system to determine an ascending
processing order when prices in different PEAs may be at very different
absolute levels. Once a round ends, the auction system will process
bids in ascending order of price point, considering first intra-round
bids in order of price point and then bids at the clock price. The
system will consider bids at the lowest price point for all categories
in all PEAs, then look at bids at the next price point in all areas,
and so on. Importantly, for a given category in a given PEA, the
uniform price for all of the blocks in the category will stop
increasing when aggregate demand no longer exceeds the available
supply. If no further bids are placed, the final clock phase price for
the category will be the stopped price.
193. In order to give bidders more flexibility in managing their
demands in certain situations, the Commission adopts its proposal to
allow bidders to make two additional types of bids in addition to the
``simple'' bids mentioned below: ``all-or-nothing'' bids and ``switch''
bids. These additional bid types will enable bidders to indicate that
they want a bid to be implemented fully or not at all or that they wish
to switch demand from one license category to another at a certain
price. In a given round, a bidder may place at most one of the three
bid types for a given category in a PEA. Because all-or-nothing and
switch bids are optional, a bidder can choose not to submit such bids.
The Commission finds that the bid types and associated processing
procedures it adopts will provide bidders with the flexibility they
need to modify their demands as the bidding progresses while ensuring
that the reserve price conditions, once satisfied, will continue to be
satisfied.
a. Simple Bids
194. A simple bid indicates a desired quantity of a product at a
price. If it is not possible for the auction system to apply the simple
bid in its entirety, a simple bid may be applied partially. A simple
bid requesting a reduction in demand will be applied in full if there
is sufficient excess demand for blocks in the category. That is, the
auction system will apply the reduction provided that there is
sufficient aggregate demand at the bid price to allow the reduction to
be applied without the total demands of all bidders falling below
available supply in the category. If there is some excess demand, but
not enough to grant the full requested reduction, the auction system
will partially apply the reduction, thereby reducing the bidder's
demand by fewer than the requested number of blocks. A simple bid
requesting an increase in demand will be applied in full as long as the
bidder has sufficient bidding eligibility, measured by the total number
of bidding units associated with the blocks the bidder demands in that
round, at the time the bid is processed. If the bidder does not have
sufficient eligibility, the auction system will apply the increase to
the extent possible given the bidder's available bidding eligibility.
195. Formally, to the auction system, a simple bid to reduce demand
at an intra-round price indicates that a bidder is willing to pay up to
the intra-round bid price for a quantity of blocks that is unchanged
from its previously demanded quantity. At the intra-round bid price,
the bidder is willing to accept the unchanged quantity, the changed
quantity, or any quantity in-between. At a price above the intra-round
bid up to the clock price for the round, the bidder is willing to
accept the changed quantity indicated by the intra-round bid.
196. Because the auction system will process bids in increasing
order of price point and the uniform price for blocks in a category
stops increasing when demand falls to equal supply, a bidder placing a
simple bid for a reduction that is partially applied will not pay a
price above its bid price for its unreduced quantity. If a requested
reduction cannot be applied at all, it must be the case that demand
fell to equal supply at a previous, lower price. Alternatively, demand
could fall to equal supply at the same price point, in the case of
ties, which are broken pseudo-randomly. Further, in the case where
fewer blocks are demanded than are available at the minimum opening bid
price, the price will remain at the minimum opening bid. In that case,
the bidder that placed the simple bid will still demand its unreduced
quantity at a price it indicated it would accept. In sum, a simple bid
requesting a reduction will either be fully applied, partially applied
with the price stopping at the bid price, or not applied but with the
stopped price below the bid price.
197. In the event that a bid is not applied, or not fully applied,
the auction system will maintain the unapplied demands in a queue,
prioritized by price point, should subsequent changes in aggregate
demand or a bidder's eligibility later make it possible to apply the
bid. Bids are only held in the queue during the processing of bids for
a single round. For example, if a bidder's reduction request is only
partially applied because aggregate demand is insufficient, but another
bidder requests an increase in demand at a higher price point, it may
then be possible to fully apply the bid reduction request that was only
partially applied earlier in the bid processing for the round and held
in the queue. And if a bidder's request to increase demand is not
applied or not fully applied because the bidder has insufficient
bidding eligibility at that price point, and its request to reduce
demand in another category is later applied at a higher price point,
freeing bidding eligibility, the system may then be able to fully apply
the increase.
b. All-or-Nothing Bids
198. An all-or-nothing bid also indicates a desired quantity of
blocks at a price but differs from a simple bid in that it will not be
applied partially. Hence, an all-or-nothing bid is useful if the bidder
wants the bid to be implemented fully or not at all. An all-or-nothing
bid requesting a reduction in demand will be applied only if there is
sufficient excess demand at that price point to apply the full
reduction. If not, the auction system will not apply the bid, and will
move on to consider bids at higher price points. The uniform price for
the category may continue to increase as long as there is excess
demand. The bidder will still demand its unreduced quantity, at a price
which may increase up to the round's clock price. This is in contrast
to a simple bid that may be partially applied, and
[[Page 61956]]
which, hence, stops the price from increasing if it cannot be fully
applied. Thus, in making an all-or-nothing bid that requests a
reduction, the bidder affirmatively indicates that it will accept the
round's clock price for its unreduced demand if the bid cannot be fully
applied at the bid price.
199. A bidder making an all-or-nothing bid that requests a
reduction may add a ``backstop'' to the bid that would allow the bid to
be applied partially at a higher price, as long as the bidder makes
only a single all-or-nothing bid for the category in the PEA in the
round. The auction system will allow a backstop bid only if a bidder
submits a single all-or-nothing bid for the category because bid
processing could become excessively complex if bidders submit multiple
all-or-nothing bids with backstops. The backstop will ensure that the
price for the category cannot go higher than the specified higher price
if the all-or-nothing bid is not applied. The backstop is essentially a
simple bid that may be applied partially, thereby stopping the price
from increasing further.
200. An all-or-nothing bid that requests an increase in demand will
be applied only if the bidder has sufficient bidding eligibility for
the full increase at the price point of the bid. If an all-or-nothing
bid requesting an increase or decrease in demand is not applied, it
will be held in the processing queue in case it should later become
possible to apply it.
c. Switch Bids
201. To place a switch bid, the bidder will indicate a desired
quantity of blocks in the category in which it wishes to reduce its
demand at a given price point, and will identify another category in
the same PEA that it wishes to switch into at the price point. While
processing the bid, the auction system will apply as much of the
requested reduction as possible considering excess demand, and then
will apply an increase in the bidder's demand in the other category by
the same number of blocks. Because all blocks in a PEA, regardless of
category, will have the same number of associated bidding units, the
eligibility freed up by the reduction portion of a switch bid will
always cover the corresponding increase in demand. The unapplied
portion of a switch bid will be held in the processing queue in case it
can be applied later in the round's bid processing.
5. No Bidding Aggregation
202. The Commission will not incorporate package bidding procedures
into the forward auction because of the additional complexity such
procedures would introduce into the auction. Further, consistent with
its proposal in the Auction 1000 Comment PN, the Commission declines to
adopt an alternative to package bidding under which it would create an
aggregation of the largest PEAs in advance of the auction. The
Commission is not persuaded that creating a bidding aggregation will
serve its goal of encouraging entry by a broad range of potential
wireless service providers. In particular, several commenters share its
concern that the alternative aggregation approach the Commission sought
comment on would discourage small or regional entities with an interest
in only a subset of the PEAs in the aggregation from participating in
the forward auction. Further, larger carriers may have interests in
only some of the largest PEAs, or may wish to acquire a different
number of licenses in different large PEAs, thus making an FCC defined
bidding aggregation undesirable for them, also. Therefore, the
Commission declines to adopt a bidding aggregation and will instead
permit bidders to bid for blocks in any or all of the individual PEAs.
6. Bidding Eligibility and Activity Rule
203. In order to ensure that the auction moves quickly and to
promote a sound price discovery process, bidders will be required to
maintain a minimum, high level of activity in each round of the auction
in order to maintain bidding eligibility. The Commission will use
upfront payments to determine initial (maximum) eligibility, the
maximum number of blocks as measured by their associated bidding units
a bidder demands at the start of the auction. Bidding eligibility will
be reduced as the auction progresses if a bidder does not meet the
activity requirement.
204. Specifically, bidders must be active on at least 95 percent of
their bidding eligibility in all regular clock rounds to maintain their
bidding eligibility. An activity rule requires bidders to bid actively
throughout the auction to maintain bidding eligibility, rather than
wait until late in the auction before participating. In the forward
auction, the activity rule will provide an incentive for bidders to
participate in each round of the auction. However, the activity
requirement may be further altered (by, for example, establishing a 98
or 100 percent threshold) before and/or during the auction as
circumstances warrant. Any changes to the activity requirement will be
announced via the auction system.
205. The activity rule will be satisfied when a bidder has bidding
activity on blocks with bidding units that total at least 95 percent of
its current eligibility in the round. If the activity rule is met, then
the bidder's eligibility will not change in the next round. Failure to
maintain the requisite activity level will result in a reduction in the
bidder's eligibility, possibly curtailing or eliminating the bidder's
ability to place additional bids in the auction. A bidder's activity
level will reflect its demands as applied by the auction system during
bid processing. Thus, if a bidder requests a reduction in the quantity
of blocks it demands in a category, but the auction system does not
apply the requested reduction because demand for the category would
fall below the available supply, the bidder's activity will reflect its
unreduced demand.
206. While the record supports an activity rule that requires
significant bidder participation, some commenters argue that the
proposed 92-98 percent threshold is too aggressive, will disadvantage
smaller carriers, and may limit a bidder's ability to move its bids
between markets. Commenters propose setting the threshold at 80 percent
and only increasing it during later stages of the auction. The
Commission finds that the 95 percent threshold it adopts is appropriate
for the clock phase of the forward auction. Although the Commission has
sometimes used an 80 percent activity requirement in simultaneous
multiple round (SMR) auctions, having an activity requirement
significantly below 100 percent in the clock phase of the forward
auction would create uncertainty with respect to the exact level of
bidder demand, interfering with the basic clock price-setting and
winner determination mechanism, providing less helpful price-discovery
information to bidders, and unduly prolonging the bidding process. As
bidders plan their bidding strategies, they need accurate information
about relative prices and the level of excess demand in different
markets, and if significant bidding eligibility is held back, the
available price and demand information will be less reliable. At the
same time, the Commission recognizes that some flexibility will be
helpful for bidders choosing between two categories of generic licenses
across as many as 416 PEAs. The Commission finds that the 95 percent
threshold it adopts will satisfy the requirements of the clock auction
format and ensure that accurate price discovery information is
available for bidders, while also providing bidders
[[Page 61957]]
with adequate flexibility. Further, based on its experience with prior
spectrum license auctions, the Commission expects that the activity
rule it adopts will foster an appropriate bidding pace and ensure that
each stage of the forward auction closes within a reasonable period of
time.
207. For these same reasons, the Commission does not provide for
activity rule waivers to preserve a bidder's eligibility in the forward
auction. In previous FCC SMR auctions, when a bidder's eligibility in
the current round was below a required minimum level, the bidder was
able to preserve its current level of eligibility with a limited number
of activity rule waivers. Several commenters support the use of such
waivers in the forward auction. Allowing such waivers, however, would
cause the same problems that the Commission is concerned about with
respect to the activity requirement. Thus, the auction system will
require bidders to reconfirm their bids in every round and will not
provide bidders with activity rule waivers.
208. While acknowledging that a clock auction format weighs against
activity rule waivers, U.S. Cellular is concerned that, in their
absence, bidders will need more time to adjust their bidding strategies
in order to maintain their bidding eligibility before the first round
following an increase to the activity requirement and after that round,
if bidding surges ensue. CTIA is concerned that bidders may never have
time to establish a comfort level with the auction system, and asks the
Commission to ensure bidders are comfortable before moving to higher
activity levels. As is typical in its spectrum license auctions, these
concerns will be considered in setting the bidding schedule and
determining whether to move to higher activity levels as the clock
phase portion of the forward auction progresses.
7. Final Stage Rule
209. The Commission adopts procedures to implement the final stage
rule, which establishes reserve price conditions that, when met, will
determine that bidding in the incentive auction will end with the
current stage and clearing target. The Commission recently reaffirmed
the adoption of the first component as a part of the final stage rule.
Accordingly, to the extent commenters repeat prior challenges to that
component, those arguments have been answered. To the extent they seek
reconsideration of the rule's adoption on other grounds, those
arguments should have been made in a petition for reconsideration and
need not be addressed in the Auction 1000 BIA Procedures Public Notice.
The Commission addressed elsewhere challenges to the use of the final
stage rule in connection with establishing the spectrum reserve.
Specifically, the Commission adopts the proposed $1.25 average price
and 70 megahertz licensed spectrum clearing benchmarks, as well as the
proposed method to evaluate whether the final stage rule criteria have
been satisfied. The Commission adopts a modified version of the
procedures it proposed for triggering an extended round in order to
limit the size of the shortfall that an extended round will attempt to
close.
a. First Component
210. The Commission adopts a $1.25 average price and 70 megahertz
licensed spectrum benchmark, as well as its proposed procedures for
evaluating whether the first component of the final stage rule has been
satisfied. The forward auction spectrum benchmark of 70 megahertz of
licenses corresponds to a spectrum clearing target of 84 megahertz.
Hence, the first component, which aims to ensure that winning bids for
forward auction licenses reflect competitive prices, will be satisfied
if, for a given stage of the auction: (1) The clearing target is at or
below 70 megahertz and the benchmark average price per MHz-pop for
Category 1 blocks in high-demand PEAs in the forward auction is at
least $1.25 per MHz-pop; or (2) The clearing target is above 70
megahertz and the total proceeds associated with all licenses in the
forward auction exceed the product of the price benchmark of $1.25 per
MHz-pop, the forward auction spectrum benchmark of 70 megahertz, and
the total number of pops associated with the Category 1 blocks in high-
demand PEAs.
211. Based on its review of the record and past auction experience,
the Commission finds that the proposed $1.25 average per MHz-pop
benchmark price balances the statutory objective of seeking to recover
``a portion'' of the value of the spectrum for the public with the goal
of a successful incentive auction that allows market forces to
determine the highest and best use of spectrum. A number of commenters
supported a benchmark price of $1.25. The Commission disagrees with
commenters who argue that $1.25 is either too low or too high. While
recent auction results may suggest that final forward auction prices
ultimately will be higher, the benchmark price is not a predictor of
final auction prices, but rather a reserve price or ``floor,''
consistent with the Commission's obligation to protect the public
interest in its spectrum resources. Although final prices from Auction
97 (AWS-3) were not yet available at the time the Auction 1000 Comment
PN was released, the general price level in that auction was already
apparent and the Commission considered it in proposing the $1.25
benchmark.
212. The auction system will determine whether the price benchmark
is satisfied based on the average prices for Category 1 spectrum blocks
in the 40 high-demand markets. The high-demand markets include PEAs 1-
40. PEAs are numbered in decreasing order of population, except that
PEAs in the states are ranked before those in the territories and
protectorates. Accordingly, PEAs 1-40 are the 40 most populous PEAs
within the 50 states. Had territories not been ranked after the states,
Puerto Rico would have been included in the most populous group.
Commenters agree that it is unnecessary to evaluate the final stage
rule based on all of the PEAs, although some commenters propose
focusing instead on the top 25 largest markets. Since the purpose of
the average price benchmark is to establish a reserve price that
appropriately balances the Commission's goals, not to predict ultimate
spectrum values, it declined to broaden its focus to all markets
because that would fail to promote a faster auction. While reducing the
number of markets evaluated for purposes of the final stage rule might
``promote an even faster auction,'' the Commission is not persuaded
that the clock prices for the top 25 largest markets would ``serve as a
`good leading indicator of final auction revenues' to the same extent
as the prices in the top 40 PEAs.'' In addition, limiting consideration
of bids to Category 1 blocks will be more consistent with the price
benchmark derived from past auctions, which did not include licenses
impaired in a manner comparable to Category 2 licenses. Moreover, in
evaluating whether the price benchmark is satisfied, the auction system
will rely on gross bids, rather than bids net of individual bidders'
bidding credits or any adjustments for impairments.
213. The 70 megahertz licensed spectrum benchmark the Commission
adopts corresponds with the spectrum recovery scenario in which an 84
megahertz clearing target is selected and licenses for 70 megahertz of
spectrum are offered in the forward auction. Incorporating a spectrum
benchmark into the final stage rule's first component ``recognizes that
if the incentive auction repurposes a relatively large amount of
spectrum for flexible uses, per-unit market prices
[[Page 61958]]
may be expected to decline consistent with the increase in available
supply.'' In proposing this threshold for the spectrum benchmark, the
Commission explained that a 70 megahertz spectrum benchmark would
repurpose the UHF spectrum between television channel 37 and the 700
MHz Band and would enable multiple bidders to obtain low-band spectrum,
thereby promoting its competitive goals for the incentive auction. No
commenters disagreed with its proposal. The Commission is adopting the
70 MHz benchmark for the specific purpose of establishing the final
stage rule. It should not be construed as a target or projection for
the amount of spectrum the Commission anticipates clearing in the
incentive auction.
214. For clearing targets higher than 84 megahertz, the auction
system will consider current auction proceeds for all licenses in
evaluating whether the first component of the final stage rule is
satisfied. Accordingly, for forward auction stages in which more than
70 megahertz of licensed spectrum is available in the forward auction,
the first component will be satisfied if current auction proceeds for
all blocks--Category 1 and Category 2, in all PEAs--exceed the proceeds
generated by the Category 1 blocks in the 40 high-demand PEAs at the
benchmark price of $1.25 per MHz-pop and benchmark clearing target of
70 megahertz. On balance, when the clearing target is relatively high,
the Commission finds that the simplicity of comparing total auction
proceeds for all blocks to the benchmark proceeds, which is based only
on the high-demand PEAs, outweighs any concern for consistency in
including only some markets in both sides of this metric. Total auction
proceeds information will be available to the public after each round,
and the proceeds benchmark is a fixed number for each clearing target,
making it very easy to evaluate whether this component of the final
stage rule is satisfied. Moreover, in stages with higher clearing
targets, the $1.25 benchmark price is relaxed as long as overall
revenues are sufficient; hence the tie to the high-demand PEAs is less
important in this context.
b. Second Component--Cost Elements
215. The Commission adopts its proposed procedures for implementing
the second component of the final stage rule. Bidding in the reverse
auction will determine the first cost element--winning bidder payments
required for broadcasters. With respect to the second element, the
Commission's relevant administrative costs, it estimates these costs at
$226 million. The Commission intends to update these costs no later
than the commencement of bidding in the clock phase of the forward
auction. For the third element, the Commission proposed that
broadcaster relocation costs be estimated at $1.75 billion, the maximum
amount that the Spectrum Act permits it to deposit in the TV
Broadcaster Relocation Fund. To be prudent, the Commission will use
that estimate when calculating expenses for the purposes of evaluating
the costs component of the final stage rule. The actual amount that
will be needed to reimburse broadcasters from the TV Broadcaster
Relocation Fund will not be known until sometime after the auction. The
Spectrum Act provides that the forward auction must generate proceeds
sufficient to meet the Commission's estimate of the total expenses, as
opposed to the actual amount. While the Commission concluded in the
Incentive Auction R&O that the forward auction proceeds also must cover
any Public Safety Trust Fund amounts still needed to provide the funds
for FirstNet specified in the Spectrum Act, proceeds from the recent H
Block and AWS-3 spectrum auctions are sufficient to fully fund the $7
billion provided to FirstNet. Therefore, the procedures the Commission
adopts need not include any amounts to cover FirstNet expenses.
216. The Commission adopts its proposed approach to bidding credits
and other discounts from clock phase prices for purposes of applying
the second component of the final stage rule. The auction system will
consider current total proceeds (for all PEAs and both categories of
blocks), net of any discounts based on impairments and small business
bidding credits claimed by particular bidders on their short-form
applications for Auction 1002. The auction system will presume that the
bidder with the largest bidding credit will win the quantity of blocks
on which it is bidding and then proceed to the bidder with the next
largest bidding credit and so on, until there are no more blocks left.
Moreover, since bidders will be bidding on generic blocks rather than
specific licenses at the time the final stage rule is evaluated, the
auction system will presume that bidders with larger bidding credits
will win blocks that are less impaired and thus, subject to less
adjustment based on the extent of impairment. If the supply of blocks
in a category exceeds the aggregate demand in that category, the system
will presume that any unsold blocks will be those that are least
impaired. While this approach will likely underestimate net proceeds,
it will not be possible to know more exact amounts at the time of the
evaluation, and the Commission finds that it is appropriate to adopt a
conservative approach when ensuring that statutory requirements are
met.
217. The Commission will not make adjustments for any Tribal lands
bidding credits in evaluating the second component of the final stage
rule. Instead, consistent with previous spectrum auctions, any
subsequent Tribal lands awards will be limited to available funds that
exceed the relevant reserve price. This rule is applicable in, among
others, ``any auction with reserve price(s) in which the Commission
specifies that the provision shall apply.''
c. Evaluation Each Round
218. As long as the final stage rule has not yet been met, the
auction system will evaluate after each round of forward auction
bidding whether forward auction proceeds are sufficient to satisfy the
two components of the final stage rule. In a new stage, the final stage
rule will be evaluated after bidding in the first clock round of the
forward auction is complete. The auction system will make the needed
calculations as part of the round results processing in order to
establish as soon as possible whether the incentive auction will
conclude after forward auction bidding ends at the current clearing
target. Data indicating the progress of the auction in meeting the
various components of the final stage rule will be made public after
each round of the forward auction.
d. Allocating Demand for Purposes of the Spectrum Reserve
219. The Commission adopts its proposed procedure to allocate
demand in order to initiate bidding for the spectrum reserve. At the
time the final stage rule is met, Category 1 blocks in each PEA will be
split into separate reserved and unreserved categories, with a separate
price clock for each new category. In the first round following the
round in which the final stage rule is met, the clock price will be the
same for reserved and unreserved Category 1 blocks, but prices for the
two categories may diverge in later rounds depending upon the extent of
excess demand in the separate categories going forward. To allocate the
pre-``split'' demands of bidders for Category 1 blocks into the
reserved and unreserved categories, the auction system first will
assign all demand by non-reserve-eligible bidders to the unreserved
category, and then will assign demand by reserve-eligible bidders to
the reserved category up to the point where demand for reserved blocks
is equal to supply.
[[Page 61959]]
220. Specifically, the auction system will first allocate demand
for one block to the reserved category for each reserve-eligible bidder
in turn, then demand for a second block, and so on until the total
demands allocated to the reserved category equal the supply of reserved
blocks. The order of reserve-eligible bidders will be chosen pseudo-
randomly. Thus, any excess demand will be for unreserved Category 1
blocks. The auction system will apply the remaining demand of reserve-
eligible bidders to unreserved Category 1. The Commission adopts this
approach because allocating demands in this way--as opposed to
assigning all demand by reserve-eligible bidders to the reserved
category--avoids the possibility of excess supply of unreserved
Category 1 blocks after the split, which could result in unsold
licenses and lower revenues than when the final stage rule was deemed
to have been met. As noted in the Auction 1000 Comment PN, this could
occur if the demands for Category 1 prior to the split came
disproportionately from reserve-eligible bidders. If all those demands
were transferred to the reserved category after the split, demand for
unreserved Category 1 blocks could be less than the supply, even if
demand exceeds supply in the pre-split Category 1. Excess supply cannot
occur in the reserved category because the actual number of blocks that
will be reserved in a PEA will not be greater than the number of
Category 1 licenses demanded by reserve-eligible bidders at the time
the auction reaches the spectrum reserve trigger. Avoiding such an
outcome is an important principle in designing the forward auction. In
the bidding rounds that follow the implementation of the spectrum
reserve, bidders will be able to switch their bids between the separate
categories of reserved Category 1, unreserved Category 1, and Category
2 blocks, consistent with its adopted bidding procedures. In this
regard, contrary to AT&T's suggestion, the procedure the Commission
adopts for allocating demand at the time of the split will not prevent
reserved spectrum prices from rising. In rounds after the split,
reserve-eligible bidders may switch to bidding for reserved blocks if
the price for unreserved blocks is rising more quickly than the price
of reserved blocks. The bidding procedures the Commission adopts for
the forward auction will mitigate the risk that reserve-eligible
bidders can engage in strategic bidding for non-reserved blocks.
221. The Commission clarifies that no bidder's demand for blocks in
a category will be allowed to exceed the total available supply in the
category in the PEA after the split. This is consistent with the
general rule that no bidder's demand for blocks in a category may
exceed the total available supply in a category. Thus, if the pre-split
demand of a non-reserve-eligible bidder exceeds the supply of blocks in
the unreserved category, the bidder's demand for the unreserved blocks
will be reduced to the available supply. If, after the system allocates
the reserve-eligible bidders' demands to the reserved category, a
reserve-eligible bidder's remaining pre-split demand exceeds the total
number of blocks available in the unreserved category, the bidder's
demand for the unreserved blocks will be reduced to the available
supply. Non-reserve-eligible and reserve-eligible bidders will maintain
the bidding eligibility associated with any demand that cannot be
assigned to a category, and will be able to use such bidding
eligibility in other PEAs or in other categories in the next round. For
example, assume the supply of Category 1 blocks in a PEA is seven.
Prior to the split, reserve-eligible bidder 1 (RE1) and non-reserve-
eligible bidder 1 (NRE1) each demand seven blocks, and two other
reserve-eligible bidders each demand one Category 1 block. At the
split, three Category 1 blocks are reserved, leaving four unreserved
blocks. NRE1's demand for Category 1 blocks in the PEA will be reduced
to four, and NRE1 will have three blocks' worth of excess eligibility
to use in another PEA. Pursuant to the allocation method the Commission
adopts, one block worth of RE1's demand will be assigned to one
reserved block, and the other two reserve-eligible bidders' demand will
be assigned to the other two reserved blocks, so that demand in the
reserved category equals supply. Four blocks' worth of RE1's remaining
six blocks of demand will be assigned to the unreserved category, and
RE1 will have two blocks' worth of excess eligibility to use in another
PEA. A reserve-eligible bidder that has its demands reduced can use the
eligibility to bid in the reserved category, if it wishes.
8. Extended Round Procedures
a. Triggering an Extended Round
222. The Commission adopts the procedures it proposed for
triggering an extended round, with one modification. An extended round
will be implemented if the final stage rule is not satisfied but
bidding activity has stopped--that is, if demand does not exceed the
available supply--for Category 1 blocks in the 40 high-demand markets.
High-demand markets are PEAs 1-40. Since bidding in these markets
generally serves as a leading indicator of final auction proceeds, the
Commission finds that basing the trigger on bidding for Category 1
blocks in the high-demand markets will be a reliable predictor of
whether the final stage rule can be satisfied in the current stage. The
auction system will not implement an extended round, however, if
bidding activity has stopped for Category 1 blocks in the high-demand
markets but the gap between current forward auction proceeds (from all
blocks in all PEAs) and the amount needed to meet the final stage rule
exceeds 20 percent of current auction proceeds. Information on progress
toward meeting the final stage rule, including the shortfall, will be
made public during the auction. Instead, the auction will move to a new
stage without an extended round. This modification of its proposed
procedures addresses concerns that bidding dynamics and price discovery
may be distorted if the auction system attempts to raise a large
portion of auction proceeds in a single round on only a subset of the
available blocks.
223. The Commission decline to accept AT&T's suggestion that an
extended round not be triggered until bidding has ended in all or
almost all of the PEAs. AT&T's suggested approach would undercut the
purpose of the extended round, which is to avoid running what may be a
very large number of bidding rounds before ascertaining that the final
stage rule cannot be met in the current stage.
b. Extended Round Bidding Procedures
224. The Commission adopts its proposed extended round bidding and
bid processing procedures, which are described in detail in Appendix G
of the Auction 1000 Comment PN. Under these procedures, extended round
bidding will be conducted only for Category 1 blocks in high-demand
markets, the same set of licenses considered in triggering the extended
round and applying the first component of the final stage rule. Because
bidding will have stopped on these blocks, the currently winning
bidders are very likely to become the winning bidders when the clock
phase ends and, hence, they will have a strong incentive to try to
ensure that the final stage rule can be met. Bidders in less settled
markets may be less inclined to accept their allocated share of an
extended round increment, which may in turn reduce the chances that the
extended round will meet the final stage rule. Moreover, asking
participants that are bidding for the most valuable licenses to accept
an
[[Page 61960]]
extended round increment will not pose an unreasonable burden, since
proceeds for comparable licenses typically account for a very large
fraction of revenues in other spectrum auctions. This is especially so
given the Commission's decision to limit the circumstances in which the
extended round will be implemented to ensure that the shortfall in
proceeds is not too large. Therefore, the Commission declines to adopt
AT&T's suggestion to include all available licenses in the extended
round bidding.
225. Under the procedures the Commission adopts, the auction system
will set an extended round clock price increment for Category 1 blocks
in each high-demand PEA that is 33 percent larger than the increment
required to satisfy the final stage rule. The same percentage increment
will be applied to Category 1 blocks in each high-demand PEA, such that
the additional proceeds over all the areas would equal 133 percent of
the amount needed to meet the shortfall. High-demand PEAs where there
is excess supply will not be included in extended round bidding. This
required amount will be the amount needed to meet the first or second
components of the rule, whichever is greater. Setting the clock price
33 percent higher than the minimum amount necessary to meet the reserve
price will enable the extended round to satisfy the rule even if a
market clearing price in some PEAs is less than proportional to the
full gap in proceeds, by permitting bidders in markets with higher
market clearing prices to make up for the difference in needed
proceeds.
226. A bidder in the extended round will be permitted to accept the
clock price for the blocks it demands or to submit an intra-round bid
that requests a reduction of one block at a price lower than the clock
price. Only bidders that demanded blocks in the previous round in the
category may bid in the extended round. A bidder will not be able to
request an increase in demand in the extended round. The auction system
will consider bids in all PEAs for which there is extended round
bidding in increasing order of price point (and random number in the
case of ties). A quasi-random number will be associated with each bid
as it is submitted. At the lowest price point at which the auction
system encounters an intra-round bid in a given PEA, the uniform price
applying to Category 1 blocks in that PEA will stop increasing. The
auction system will stop processing bids if it reaches a point where
the total additional proceeds associated with the extended round prices
in the high-demand PEAs together are sufficient to meet the final stage
rule. This point may not necessarily correspond to a price-point at
which an intra-round bid is submitted. Hence, prices in high-demand
PEAs where there is an intra-round bid will stop increasing when bid
processing reaches the price point of the first requested reduction if
the final stage rule has not yet been met. In high-demand PEAs without
a reduction request, prices will stop at the price point at which the
final stage rule is met.
227. If the final stage rule is met in the extended round, the
uniform price applying to all Category 1 blocks in each high-demand
market will increase only as much as needed to meet the final stage
rule. Regular clock rounds will resume with the spectrum reserve in
place, and clock rounds will continue as long as there is excess demand
in any category in any PEA. In PEAs where there was extended round
bidding, clock prices for Category 1 blocks in the first new clock
round will be based on the extended round stopped price. Where there
was no extended round bidding--that is, for Category 2 blocks and
Category 1 blocks in non-high-demand PEAs--clock prices in the next
clock round will be based on prices from the last regular clock round.
However, even if in the extended round the price stopped in a PEA at an
intra-round price point at which a bidder requested a reduction, the
reduction will not be applied to the bidder's demands, since applying
the reduction would result in excess supply. The bidder will still
demand the quantity it demanded going into the extended round, but at
the stopped price.
228. If the final stage rule cannot be met in the extended round,
the current stage of the auction will end and a new stage will begin.
In PEAs where there was extended round bidding, clock prices for the
first round of the forward auction in a new stage will be based on the
extended round stopped price in PEAs where a reduction was requested,
and on the extended round clock price if no reduction was requested. If
there was no extended round bidding, i.e., for Category 2 blocks and
Category 1 blocks in non-high-demand PEAs, clock prices in the new
stage will be based on the last regular clock round. In contrast to the
case where the final stage rule is met, if a bidder requested a
reduction that stopped the price in the extended round, the auction
system will apply that reduction to the bidder's demands going into the
next stage. Since a bidder can request a reduction of at most one block
in the extended round, and the stage transition procedures the
Commission adopts generally will reduce the supply of blocks in a PEA
by one block, the Commission finds that allowing a single extended
round reduction to be applied will not unduly risk creating unsold
licenses.
9. Stopping Procedures
229. The auction system will employ a simultaneous stopping rule
for the clock phase of the forward auction in the final stage.
Specifically, if the final stage rule has been met (with or without an
extended round), the clock phase of bidding will end for all categories
of licenses following the first round in which there is no excess
demand in any category in any PEA. Forward auction bidders that are
still expressing demand for a category of a PEA at the time the
stopping rule is met will become the winning bidders, and will be
assigned specific frequencies in the assignment phase.
B. Assignment Phase
230. The assignment phase will determine which frequency-specific
licenses will be won by the winning bidders of generic blocks during
the clock phase. In the assignment phase, winning bidders will have the
opportunity to bid for preferred combinations of frequency-specific
licenses. A bidder can assign a price using a sealed bid to one or more
possible frequency assignments for which it wishes to express a
preference, consistent with its winning bids for generic blocks in the
clock phase. For instance, if a bidder won two Category 1 blocks and
one Category 2 block in the clock phase, then it will only be offered
the option of bidding for frequency assignments with exactly two
Category 1 licenses and one Category 2 license. The bid prices will
represent a maximum payment that the bidder is willing to pay for the
frequency-specific license assignment, in addition to the final price
established in the clock phase for the generic blocks, which may be
subject to an impairment discount. The procedures the Commission
establishes will determine the optimal assignment of licenses within
each PEA by first considering a series of spectral contiguity
objectives and then, if there are multiple arrangements that meet the
contiguity objectives, determine assignments based on bid amount in the
assignment phase. As a simple example, assume four identical blocks are
available in a PEA, and two bidders won two blocks each in the clock
phase, and each was presented with bidding options for contiguous
blocks AB and CD. One bidder bid 10 for AB and 0 for CD, the other
bidder bid 12 for AB and
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0 for CD in the assignment phase. The auction system will assign AB to
the second bidder, and CD to the first bidder.
231. The Commission generally adopts the assignment round
procedures proposed in the Auction 1000 Comment PN, except that in
response to concerns expressed by commenters the Commission will not
group PEAs when any of the licenses are at all impaired. This modified
approach to grouping PEAs will ensure that bidders can express
divergent frequency preferences for impaired licenses across geographic
areas.
1. Availability of Auction-Related Information to Bidders
232. Prior to commencement of bidding in the assignment phase, the
auction system will inform all winning bidders from the clock phase of
the extent to which contiguous blocks feasibly may be assigned in every
PEA. This applies to all blocks in the PEA irrespective of whether they
are in Category 1 or Category 2, reserved or unreserved, or are
impaired to varying extents. More specifically, the auction system will
provide information with respect to each PEA on whether, consistent
with the contiguity objectives: (1) It is possible to assign contiguous
blocks to all winning bidders in the clock phase, or, if not, (2a) that
it is possible to assign at least two contiguous blocks to all winning
bidders of two or more blocks in the clock phase, or (2b) that it is
not possible to assign at least two contiguous blocks to all winning
bidders of two or more blocks in the clock phase. The auction system
will determine the potential for contiguous frequency assignments, as
well as the assignment phase bidding options provided to each bidder,
based on the availability of frequency-specific licenses corresponding
to Category 1 and Category 2 blocks in the PEA (or group of PEAs), and
the contiguity objectives that are possible given the particular mix of
bidders and the categories of their clock phase winning. This
information will enable a bidder to assess the likelihood of being
assigned contiguous blocks, and the extent to which contiguity may be
possible across PEAs. Providing such information about all PEAs to all
winning bidders, rather than only to winners in each specific PEA,
averts the risk that winning bidders in a large number of PEAs will
gain an undue advantage over others.
233. In addition to the foregoing information, the auction system
will provide to each assignment phase bidder a menu of bidding options
consisting of possible configurations of frequency-specific licenses on
which it can bid in each PEA in which it holds winning clock phase
bids, as U.S. Cellular proposed. These bidding options will be
consistent with the bidder's clock phase winnings and information. The
auction system may, in some cases, offer a bidder assignment bidding
options that include combinations that are not possible for the bidder
to win, given the winnings of other bidders, in order to avoid
disclosing too much information about the winning bids of other
bidders. In other cases, if there is only one possible assignment in a
PEA given a bidder's winnings (for example, if a bidder won the only
available Category 2 block and no Category 1 blocks), the bidder may
not be offered a bidding option but will be assigned to that option by
the auction system. Providing such information will facilitate
participation in the assignment phase, particularly for smaller bidders
with fewer resources to expend on analysis, by limiting the number of
frequency configurations on which they need to consider for the
assignment phase.
234. The auction system will provide clock phase winning bidders
with the information as soon as possible and announce a schedule of
assignment phase rounds that will commence beginning no less than five
business days later. While CTIA advocates at least 10 days between the
provision of detailed information and the commencement of the
assignment phase, the Commission finds that five days will be
sufficient for bidders to prepare given the information that will be
made available to facilitate bidding in the assignment phase.
235. When an assignment round concludes, the auction system also
will advise the bidders in each PEA of their own payments and
assignments.
2. Structure of the Assignment Phase
a. Grouping of PEAs
236. The Commission adopts its proposed requirements for grouping
PEAs for assignment phase bidding purposes, with an additional
requirement in response to concerns expressed by commenters regarding
bidding for licenses with impairments. Specifically, the auction system
will group together PEAs in a single assignment round only if all of
the following three conditions are met: (1) The PEAs are one of the
following: (a) All high-demand (PEAs 1-40), regardless of Regional
Economic Area Grouping (REAG); (b) All in the same REAG and not subject
to the small market bidding credit cap (i.e., those PEAs with a
population of 500,000 or less, which corresponds to PEAs 118-416,
excluding PEA 412); or (c) All in the same REAG and are subject to the
small market bidding credit cap; (2) Each PEA in the group has the
exact same number of blocks, all of which are Category 1 blocks and are
zero percent impaired; and (3) Each PEA in the group has the same mix
of clock phase winners and winnings. For example, in all PEAs in the
group there are five Category 1 blocks with zero percent impairment.
Bidder A won one block in each of the PEAs in the group. Bidder B won
one block in each of the PEAs, and Bidder C won three blocks in each of
the PEAs
237. These requirements will assure that in any grouping,
assignment round bidders will be presented with a set of PEAs with
blocks with the same characteristics, which should reduce uncertainty
and simplify bidding for all bidders. No PEAs will be grouped in the
assignment phase if any of the blocks are considered impaired. That is,
all blocks will be considered 0 percent impaired. The Commission's
modified approach addresses concerns raised by commenters, including
Sprint, U.S. Cellular, and others, that the approach the Commission
proposed might not give bidders sufficient flexibility to express
preferences for assignments in cases where PEAs with licenses in the
same category are impaired differently but are grouped together for
bidding.
b. Intra-PEA Contiguity Objectives
238. The auction system will use an optimization process to
determine for each PEA or PEA group various possible configurations of
frequency-specific licenses consistent with the pattern of winning
bidders and block categories from the clock phase. More specifically,
the auction system will apply the following contiguity objectives,
taking into account both Category 1 and Category 2 blocks: (1) For
bidders that win multiple blocks, maximize the number of bidders that
are assigned at least two contiguous blocks; (2) for bidders that win
multiple blocks, minimize the number of blocks that are non-contiguous
to any of the bidder's other blocks; (3) maximize the number of bidders
that are assigned only contiguous blocks; and (4) maximize the number
of pairs of unsold blocks that are contiguous as long as the impairment
of blocks to winning bidders does not increase. These objectives are
consistent with comments indicating that carriers place significant
value on spectrally contiguous spectrum, as well as some commenters'
[[Page 61962]]
arguments that prioritizing inter-PEA contiguity, as opposed to
contiguity within PEAs, could disadvantage certain carriers and create
opportunities for discriminatory conduct.
239. The contiguity objectives will be applied in the order
specified, so that the second objective will only be applied to
possible assignments that fully satisfy the first objective, the third
objective will only apply to assignments that fully satisfy the first
two objectives, and so on. As a result, the fourth objective regarding
unsold blocks will not adversely affect the assignment of contiguous
blocks as determined by the first three objectives. The Commission
adopts the fourth objective, in addition to the three objectives it
proposed in the Auction 1000 Comment PN, in order to ensure that, if
the auction system must choose between an assignment in which any
unsold blocks are contiguous or separated, the system will choose the
contiguous assignment, thus maximizing the value of blocks retained by
the FCC.
240. The Commission declines to adopt CCA's proposal for the
auction system to assign the winning bidder of a single license in a
PEA the least impaired license block before assigning any others. The
Commission disagrees with the premise of CCA's proposal that the first
three objectives uniformly favor multi-license or multi-market winning
bidders and harm carriers that purchase only one license in a PEA. The
contiguity objectives will be applied without regard to the level of
impairment and therefore will not favor any bidder or type of bidder.
The Commission also declines to adopt U.S. Cellular's proposal for an
additional objective which minimizes the difference in the average
level of impairment of the same-category license(s) assigned to any two
bidders. Since bidders may value impairments differently, the
Commission prefers to allow bidders to indicate their own frequency
preferences through their bidding in the assignment phase.
c. Sequencing of Assignment Phase Bidding
241. The Commission adopts its proposal to sequence bidding on PEAs
or PEA groups in the assignment phase based on total weighted-pops,
beginning with the high-demand PEAs and then moving to non-high- demand
PEAs by REAG. For assignment phase bidding, assignment rounds for the
PEAs in the six smaller REAGs will be sequenced with one of the six
continental REAGs. Under this approach, clock phase winning bidders of
blocks in the high-demand PEAs will first bid on the PEA or PEA group
with the greatest number of weighted-pops. Bidding will continue in
descending order of weighted-pops until specific frequencies have been
assigned in all the high-demand PEAs. Once frequencies have been
assigned for the high-demand PEAs, the auction system will conduct a
series of assignment rounds for the non-high-demand PEAs within each of
the six REAGs, again in descending order of weighted-pops. The
Commission expect that the auction system will run the assignment
rounds for non-high-demand PEAs associated with different REAGs in
parallel. However, an alternative schedule for the REAG rounds, of
which bidders will be given ample notice, may be necessary in the event
that running multiple rounds in parallel is deemed too complicated for
bidders, the auction managers, or the auction system. Within each REAG,
the assignment rounds would be conducted one PEA or PEA group at a
time, sequentially.
242. The Commission is not persuaded by arguments that larger
bidders would derive a significant advantage from being able to
participate in assignment rounds that are sequenced earlier in the
assignment phase process, and hence, the Commission declines to adopt
the commenters' proposal to randomly sequence the assignment rounds to
avoid any timing advantage. The Commission finds that the information
it will provide--on bidders' own bidding options and on the potential
for contiguous assignments in each PEA--will minimize any ``early
mover'' informational advantage. In addition, the second-pricing
procedures will simplify bidding strategy for bidders, mitigating any
potential advantage from bidding ``experience'' in the assignment
phase.
243. The Commission also rejects the assumption that earlier
bidding for frequency assignments in the high-demand markets will
enable winners of blocks in those markets to establish consistent
frequency ``footprints'' that they will later pay a premium to extend,
thereby disadvantaging bidders with fewer resources to spend in the
assignment phase. The intra-area contiguity objectives will limit
bidders' abilities to establish consistent frequency footprints across
PEAs. Because the auction system will only allow bids for license
combinations that satisfy those contiguity objectives, it is unlikely
that a single bidder will have the opportunity to bid for and win a
consistent footprint in all areas in which it won blocks. Consequently,
the Commission is not persuaded that the sequencing procedures it
adopts will lead to a lack of interoperability as a result of larger
carriers establishing consistent footprints in one section of the 600
MHz Band, leading equipment manufacturers to tailor equipment only to
those frequencies, and note moreover that its rules require
interoperability throughout the 600 MHz Band. The Incentive Auction R&O
adopted a strong interoperability rule that requires that any user
equipment certified to operate in any portion of the 600 MHz Band must
be capable of operating, using the same technology that the licensee
has elected to use, throughout the entire 600 MHz Band.
d. Bidding and Bid Processing
244. Once bids have been submitted, the auction system will perform
an optimization to select as the winning license assignment that
configuration, consistent with the continuity objectives and the
options provided to bidders in advance, for which bidders indicate the
greatest willingness to pay. Ties, if any, will be broken by including
pseudo-random numbers in the optimization. Bidding in an assignment
round is voluntary. If a bidder chooses not to bid in an assignment
round, the auction system will assign a zero bid to each of the
bidder's available options, or to any option for which the bidder does
not submit a bid. Bidders that choose not to bid in an assignment round
will be assigned licenses consistent with their winnings in the clock
phase of the auction and the contiguity objectives. The Commission
declines to implement the suggestion that the auction system process
assignment round bids by looking separately at the high bids on various
licenses, since bids will be used to select a single configuration of
license assignments and the licenses with the highest bids may not be
in the same configuration.
245. Under the assignment phase bidding procedures the Commission
adopts, winners of either reserved or unreserved Category 1 blocks will
be able to bid for the available frequencies in Category 1, and the
auction system will assign specific frequencies without regard to the
reserve-eligible status of the bidder. In other words, the auction
system will not differentiate in the assignment rounds between reserved
and unreserved spectrum blocks. Subsequent to making frequency
assignments in the assignment phase, in order to determine final
license prices, the auction system will determine which license or
licenses are deemed as reserved, if a bidder wins both reserved and
unreserved Category 1 blocks in a single PEA or PEA group. Consistent
[[Page 61963]]
with the record, the procedures the Commission adopts will prioritize
the assignment of contiguous blocks within PEAs in order to promote
efficient utilization of the 600 MHz Band. Differentiating between
reserved and unreserved blocks would undermine this objective by making
it more difficult to assign frequency-contiguous spectrum blocks to
winners of blocks in an area, particularly if a bidder wins both
reserved and unreserved blocks. Further, the Commission is not
persuaded that differentiating is necessary to ensure fulfillment of
its competitive goals for the auction, especially since all reserved
blocks will be Category 1, and therefore relatively substitutable.
Accordingly, the Commission declines to assign reserved and non-
reserved licenses separately during the assignment rounds.
246. The Commission declines to adopt an assignment approach that
would rely on random or quasi-random distribution of licenses, or other
non-monetary bidding for frequency preferences, as some commenters
suggest. The Commission also declines to adopt the alternative approach
advocated by U.S. Cellular and others, under which the auction system
would take into account preferences for contiguous blocks within an
area and then randomly determine the remaining frequency assignment.
The Commission determined in the Incentive Auction R&O that the use of
competitive bidding procedures would promote the efficiency of the
assignment process, and allow more confident bidding for generic
licenses in the clock phase of the forward auction, by facilitating the
assignment of specific frequencies to the highest-valuing users.
Accordingly, the Commission rejected an administrative, random or
quasi-random process. Nevertheless, these commenters assert that using
competitive bidding will give an advantage to nationwide carriers in
obtaining the least impaired blocks in a category, leaving less
desirable blocks for the smaller and regional carriers. They argue
further that bidding in the assignment phase is likely to depress
revenue in the clock phase. The Commission reaffirms that giving
bidders the opportunity to bid monetary amounts for specific frequency
preferences in the assignment phase, which they will not be able to
express in the bidding for generic blocks in the clock phase, will
allow the auction system to take bidder interests into account in
assigning frequency-specific licenses. Moreover, the Commission agrees
that a monetary bidding-based assignment round will allow bidders to
express the intensity of preferences for particular licenses, which the
points-based approaches generally do not. This will lead to potentially
more effective use of the spectrum than would a random assignment
mechanism.
247. In addition, the Commission finds that competitive bidding
will provide a greater incentive for sincere bidding--since real
resources will be at stake--than would a system of ``draft pick''
preferences or points based bidding, as also suggested by commenters.
The Commission further rejects arguments that the competitive bidding-
based approach it adopts to the assignment phase will depress revenues
in the clock phase, potentially causing the auction to move to a lower
clearing target because the final stage rule cannot be met. In other
spectrum auctions around the world in which similar assignment phase
designs have been used, the revenues in the assignment phase have
averaged less than 0.5 percent of the total auction revenues. For
example, assignment phase revenues were 1.15 percent of total auction
revenues in the 2013 UK 4G Auction. In the 2013 Australian Digital
Dividend Auction, while the auction data was not released in full, an
upper bound of 0.19 percent can be calculated using available public
data for assignment phase revenues as a percentage of total auction
revenues. Assignment phase revenues were less than 0.01 percent of
total auction revenues in the Canadian 700 MHz Auction. On the
contrary, bidders may bid more aggressively in the clock phase because
they know that they will later have an opportunity to bid for a
strongly-held frequency preference in the assignment phase. In
addition, given its projections that the initial clearing target
procedure will result in a very high proportion of Category 1 blocks
with minimal or no impairment, and its decision to make detailed
impairment information available to bidders prior to the commencement
of bidding in the clock phase of the forward auction, bidders generally
are unlikely to hold back their clock phase bids in order to be able to
secure the least impaired licenses in the assignment phase. In most
PEAs, the Commission expects that there will be insufficient impairment
or variety in the degree to which licenses are impaired to warrant such
action. The discount on clock phase prices for any license impairments
also will help account for variation in value due to impairment,
minimizing the incentive to limit clock phase bids to the value of the
most impaired generic block in a category. Accordingly, the Commission
is not persuaded that clock phase revenues will be significantly
suppressed by the use of competitive bidding procedures in the
assignment phase.
248. The Commission also disagrees with arguments that a
competitive bidding-based approach to the assignment phase will
disadvantage smaller carriers. First, the assignment phase structure
will level the competitive playing field: The auction system will
prioritize assigning contiguous frequency blocks within each PEA before
taking bids, without regard to whether potential bidders (the winning
bidders in the clock phase) are nationwide carriers or regional
entities, reserve-eligible or not, and without taking into account the
extent of impairment within a bidding category. By prioritizing intra-
area contiguity of licenses, the assignment phase structure will
protect all bidders equally from discontiguous frequency assignments,
even if a bidder does not submit an assignment round bid. Second,
smaller carriers are as likely as larger ones to be able to benefit
from expressing assignment phase preferences. Indeed, because the
networks of smaller carriers may be less flexible than those of the
nationwide carriers, the ability to bid for frequency-specific
preferences may be all the more important for smaller carriers.
Moreover, because the contiguity objectives will seek to assign two
contiguous blocks to each winner before trying to assign any winner
three or more contiguous blocks, they are likely to benefit carriers
that win fewer than three blocks within a PEA over carriers that win
more. Third, designated entity bidding credits will apply to assignment
phase payments, giving smaller carriers that qualify as designated
entities a price advantage over larger carriers in assignment phase
bidding.
249. Moreover, under the competitive bidding-based procedure the
Commission adopts, bidding strategies will be easier than more complex
and unfamiliar procedures advocated by some commenters. For example,
the ``serial priority-assessment algorithm'' approach advocated by T-
Mobile and U.S. Cellular would require a bidder to understand a new
bidding mechanism in which the optimal bidding strategy is not clear
and depends on what strategy it expects others to play. Choosing
selection order randomly and enforcing rotations among bidders, as
advocated by T-Mobile and U.S. Cellular, would result in a less
efficient assignment than if bidders can express preferences using
monetary bids, which also allow for varying intensity of preferences.
In
[[Page 61964]]
combination with the ``second-pricing'' approach, the procedures the
Commission adopts will allow bidders to follow a clear and familiar
strategy: Bid the incremental value of a specific assignment option,
knowing that the payment will be equal to or less than that bid amount.
For example, assume a bidder's three possible assignments are AB, BC,
and CD. All that the bidder needs to do is determine a valuation for
AB, BC, and CD. Assume these valuations are $120 million, $110 million,
and $100 million, respectively, and the final clock phase price for A,
B, and C was $100 million. The bidder would assign a value of $0 to its
lowest priority assignment, CD, and submit a bid of $10 million for BC
and $20 million for AB. The bidder's valuation would not depend on
guesses about others' bids.
e. Assignment Phase Payment Calculations
250. The Commission adopts the procedures it proposed to calculate
the assignment phase payment (above the discounted final clock phase
price) a bidder will pay for a frequency-specific license using a
generalized ``second price'' approach. The final clock phase price of
an impaired license will be discounted by an amount proportional to the
extent of impairment. Under this approach, the auction system will
calculate a payment amount that, if the winning bidder had bid that
amount, would have been just sufficient to result in the bidder
receiving the same winning frequency-specific license assignment. This
pricing approach is a version of a Vickrey-Clarke-Groves mechanism.
This payment will be less than or equal to the amount the bidder
indicates in its bid that it is willing to pay for the assignment. The
Commission find that this approach will simplify bidding strategies for
bidders by giving them an incentive to bid what they consider to be
full value for the assignment: If the assignment is selected, they will
pay no more than would have been necessary to ensure that the
assignment won. While U.S. Cellular indicates that inexperience with a
second-pricing approach may still lead bidders to ``overbid,'' the
Commission is confident that as bidders consider seriously their
bidding strategies, this incentive will become apparent to them.
Appendix H from the Auction 1000 Comment PN includes a detailed
explanation of the procedures the Commission will use to determine the
assignment round payment.
C. Final Winning Bid Amounts
251. The Commission adopts the procedures proposed in the Auction
1000 Comment PN for determining final forward auction prices, on which
it received no feedback from commenters. The final price that a winning
bidder must pay for a license it wins in the assignment phase will be
the final clock phase price for the category of license it won within a
given PEA, adjusted by the percentage of any impairment to the
frequency block, plus any assignment phase payment, all reduced by any
designated entity bidding credit.
252. The Commission clarifies that, in the event a bidder wins both
Category 1 reserved and unreserved blocks in the same PEA in the clock
phase, in determining final payments, the auction system will deem as
reserved that block or blocks that will yield the bidder the lowest
price, taking into account the final clock phase price for the category
and the impairment discount. The blocks that are deemed reserved will
carry the restrictions on transferability, consistent with the
conditions on reserved spectrum established in the Mobile Spectrum
Holdings R&O. This approach will maximize the impairment discount. For
example, assume that in the clock phase a bidder won one unreserved
Category 1 block and one reserved Category 1 block in a PEA. The
assignment phase procedures determined that the bidder would be
assigned blocks E and F, where block E is two percent impaired and
block F is zero percent impaired. The assignment phase payment is
determined to be $100. If the final clock phase prices were $1,000 for
reserved blocks and $1,200 for unreserved blocks, then the E block
would be deemed unreserved and the F block would be deemed reserved.
Conversely, if the final clock phase prices were $1,200 for reserved
blocks and $1,000 for unreserved blocks, then the E block would be
deemed reserved and the F block would be deemed unreserved. In either
event, the bidder's final payment amount for blocks EF, assuming it has
no designated entity bidding credit, will be calculated as follows:
{1,000 + 1,200*0.98{time} + {100{time} = $2,276. If, for example, the
bidder is eligible for a designated entity bidding credit, its total
payment will be reduced by the amount of the bidding credit, subject to
any cap. In the event that the reserved and unreserved blocks have the
same final clock phase prices or the blocks are equally impaired,
blocks will be designated as reserved in descending order of frequency.
While ties in FCC auctions are traditionally broken pseudo-randomly,
the Commission finds that this rule is clear and simple to implement,
and will result in assigning contiguous reserved licenses in cases
where a bidder wins multiple reserved blocks as well as unreserved
blocks, which a random assignment mechanism will not necessarily do.
VII. Transition, if Necessary, to Any Subsequent Stage
253. If a stage of the auction ends without satisfying the final
stage rule, the auction system will begin a new stage of the auction
using a lower clearing target. The reverse auction will be conducted
for the applicable clearing target followed by the forward auction. The
auction system will announce the new clearing target to bidders, as
well as a bidding schedule for the reverse auction. A new stage of the
reverse auction will begin not sooner than five business days after the
conclusion of the prior stage of the forward auction. CTIA requests
that the Commission allow at least two weeks between auction stages.
The Commission concludes that five business days will provide the
auction system with adequate time to conduct a clearing target
optimization and provide forward auction bidders with impairment
information for the new stage of the auction. While forward auction
bidders need time to analyze new impairment data, the Commission notes
that such bidders will have that information for the entirety of the
stage of the reverse auction. Additionally, at a lower clearing target,
there generally will be fewer impairing stations for forward auction
bidders to consider. The Commission concludes that bidders will have
sufficient time to process new impairment information and commenters
have not provided it with a compelling reason to delay the start of a
subsequent stage of the reverse auction by an additional week. Reverse
and forward auction bidding in subsequent stages will carry-over from
the prior stage--the prices will continue to descend in the reverse
auction and continue to rise in the forward.
A. Selecting a New Clearing Target
254. The clearing target for any subsequent stage of the auction
generally will be the next lowest clearing target in the 600 MHz Band
Plan. As with the initial clearing target, prior to bidding in a new
stage, the auction system will make public the new clearing target. In
the Auction 1000 Comment PN, the Commission also sought comment on the
alternative of skipping clearing targets when moving to a new stage.
CTIA and EOBC both argue against skipping any clearing targets as the
auction advances to
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subsequent stages. CTIA is concerned that if the Commission skips a
clearing target it could unknowingly bypass an opportunity to clear
additional spectrum. The Commission generally agrees. Therefore, in any
subsequent stage, the clearing target determination procedure will be
applied for the next lowest clearing target. It may be necessary to
skip the 108 MHz clearing target to better harmonize our band plan with
Canada or Mexico. Under this procedure, the current assignment of
participating stations to relinquishment options from the reverse
auction will not change. The optimization tool will determine a new
provisional television assignment plan for the UHF band using the same
objectives as in the initial clearing target optimization, taking into
account the additional channel in the TV band and any participating
stations that have dropped out of the auction in the previous stage. As
part of this process, the optimization procedure may modify the
provisional assignment of stations to the 600 MHz Band from the prior
stage in order to minimize impaired weighted-pops and carry out the
other objectives the Commission adopts. Prior to the start of the
reverse auction in a new stage, the auction system will provide forward
auction bidders with the same impairment and other information as will
be provided to bidders in the initial stage. Based on the new
provisional television channel assignment plan, the nationwide impaired
weighted-pops will be calculated on a 2x2 cell level. The one-block-
equivalent nationwide standard for impairments will then be applied. In
the event that the new plan does not meet the standard, the process
will be repeated at the next lowest clearing target until a plan is
identified that meets the one-block-equivalent impairment standard. The
Commission anticipates that only in rare situations would the process
result in moving down more than one clearing target.
255. In Attachment A to the Auction 1000 Bidding Procedures Public
Notice, the Commission provides a description of how its computer model
will apply the between-stages clearing target determination procedure
the Commission adopts on a step-by-step basis. An updated version of
Appendix C to the Auction 1000 Comment PN setting forth the technical
details and formulas associated with this procedure will be included
with the appendices to the Application Procedures PN.
B. Reverse Auction Bidding
256. The Commission adopts its proposals for resuming bidding and
setting clock prices in the reverse auction in any subsequent stages.
In the beginning of a new stage, the auction system will re-evaluate
the bidding status of each station that was ``frozen--provisionally
winning'' in the prior stage of the reverse auction in light of the
reduced clearing target, notifying every such station of its new
status, and resetting the base clock price.
257. The auction system will reset the base clock price to the
highest ``catch up point'' of all newly-active stations. Active
stations are all participating stations that have not exited or become
provisional winners. At the start of the new stage, each provisional
winner from the prior stage will have its status reevaluated to take
account of the new clearing target. In a subsequent stage, the auction
system will inform newly-active stations that they will be returned to
the active status of ``bidding in current round,'' ``frozen--currently
infeasible,'' or ``frozen--pending catch up,'' whichever the case may
be, at the beginning of the reverse auction in the new stage. For each
newly-active station, its catch up point will be the base clock price
at the time that the station became provisionally winning in a previous
stage. In the first round of the new stage, the newly-active station(s)
with the highest catch up point will become either ``bidding in the
current round'' (applicable to UHF or VHF stations) or ``frozen--
currently infeasible'' (applicable only to VHF stations), while all
newly-active stations with lower catch up points will become ``frozen--
pending catch up.'' The auction system will inform reverse auction
bidders of their bidding status after each round of the auction and at
the start of a new stage. Bidders that have a station that is
``frozen--pending catch up'' or ``frozen--currently infeasible'' may
place proxy bid instructions, if they so choose, in accordance with the
reverse auction bidding procedures.
258. The base clock price will descend from the reset price (i.e.,
the highest catch up point of newly-active stations). The auction
system will calculate new price offers for bidding stations using the
descending clock pricing procedures. Bidders with a newly-active
station that is ``frozen--pending catch up'' will not resume bidding in
the current round until the base clock price falls below the station's
catch up point and its status changes. In order to avoid rounds in
which no bidders are able to submit bids, if in any round there would
be no stations that have the status ``bidding in the current round''
but there are stations that remain ``frozen--pending catch up,'' the
auction system will temporarily adjust the price decrement.
Specifically, the auction system will increase the price decrement only
for the next round so as to meet the highest catch up point of a
station that is pending catch up. This change will be announced to
bidders immediately prior to adjusting the decrement. Once the base
clock price descends to that point, such bidders will see their
station's bidding status change to ``bidding in the current round'' if
the station has a feasible channel assignment, or ``frozen--currently
infeasible'' if the station is a VHF station and does not currently
have a feasible channel assignment. Bidders who are asked to bid in a
new stage will be able to bid using the bidding procedures including
requesting to switch to another bid option if their station is eligible
to do so. Any stations that exited in a prior stage will retain that
status and will not resume bidding.
C. Forward Auction Bidding
1. License Inventory by Category and PEA
259. In the forward auction in a subsequent stage, the number of
spectrum blocks available in each PEA will generally be reduced by one.
The number of Category 1 and Category 2 licenses available in a given
PEA may increase or decrease, however, because the clearing target
determination procedure between stages may change the assignment of
television stations to the 600 MHz Band, altering the extent and
location of impairments in the available blocks. Prior to the start of
the forward auction in a new stage, the auction system will inform
forward auction bidders of the new band plan, including the number of
blocks that will be available in each category in each PEA, and the
same types of impairment information provided prior to the initial
stage of the auction. The auction system will not evaluate whether the
final stage rule has been satisfied until after bidding in the first
clock round of the forward auction in a subsequent stage is complete.
a. Bidder Demands and Bidding Eligibility
260. The auction system will initiate bidding in the forward
auction in any subsequent stage based on bidder demands and bidder
eligibility from the end of the previous stage. If a new stage does not
follow an extended round because the shortfall to meet the final stage
rule was too large, bidder demands and eligibility at the start of the
first round of the forward auction in the new stage will be equal to
those accepted by the auction system at the end of the last
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regular clock round in the previous stage.
261. If the forward auction in a new stage follows an extended
round in which the final stage rule was not met, bidder demands will be
based on bidding in the extended round for license categories in PEAs
that participated in the extended round, and on demands from the last
regular clock round for license categories and PEAs that did not
participate. More specifically, for categories of blocks for which all
bidders indicate that they are willing to accept the full extended
round price increment, bidder demands will carry over from the extended
round. For categories for which a reduction was accepted, bidder
demands from the start of the extended round will carry over to the new
stage for all but the bidder whose requested reduction was accepted.
Under the procedures the Commission adopts for processing extended
round bids when the final stage rule is not met, the auction system
will process a demand reduction of up to one block per ``high-demand''
PEA. In some cases the supply of Category 1 blocks in a PEA may not
decrease in a subsequent stage in spite of the lower clearing target
because the clearing target selection procedure could reduce
impairments to licenses in a PEA sufficiently that one or more blocks
previously considered Category 2 will be considered Category 1 in the
new stage, so that even with a lower total number of blocks, the number
of Category 1 blocks will not decrease. The Commission anticipates
that, in such cases, bidders previously demanding a Category 2 block,
the supply of which will be reduced disproportionately, are likely to
shift to bid on the Category 1 blocks, so that demand for the Category
1 blocks will at least equal supply. That bidder's demand will reflect
the reduction, consistent with its extended round bid processing
procedures. For blocks that are not included in bidding in the extended
round, bidder demands that were accepted at the end of the last regular
clock round of the previous stage will carry over to the beginning of
the next stage. If supply exceeds demand in a category because a bidder
on a Category 2 block chose to reduce its demand, taking advantage of
the exception to the rule that reductions will not be applied if
aggregate demand will fall below supply, the clock price for the second
round of the new stage will be also based on the price from the last
round in the previous stage (when supply did not exceed demand).
262. In recognition that bidder demand for Category 2 blocks in a
PEA may be reduced based on changes to the extent of impairments, the
auction system will accept requests to reduce demand for Category 2
blocks in the first round of the forward auction in a subsequent stage,
even if the reduction will result in demand falling below supply for
that category. Bidder eligibility in a subsequent stage will be based
on the bidder's bidding activity at the end of the previous stage. A
bidder will begin the first round of the forward auction in the new
stage with its eligibility reset based on bidding in the extended round
for licenses for which there was bidding in the extended round, and for
other licenses on bidding in the last regular clock round.
b. Clock Price
263. The auction system will initiate forward auction bidding in
any subsequent stage based on prices from the end of the previous
stage. The price increment in the first round of the forward auction in
the next stage will be added to the last clock price from the previous
stage, or to the intra-round price at which a reduction that brought
demand down to equal supply was processed. If an extended round was
held, for blocks not subject to extended round bidding (i.e., Category
2 blocks and blocks in non-high-demand PEAs) clock prices for the first
round in the new stage will be based on prices from the round preceding
the extended round. For categories subject to extended round bidding,
the increment will be added to the extended round clock price if no
reduction was requested in the category, or the lowest price at which a
reduction was requested. If the new stage is triggered without an
extended round because the shortfall in proceeds was sufficiently
large, these procedures are equivalent to setting clock prices for the
first round of the new stage as if it were a new round in the previous
stage.
264. The Commission disagrees with T-Mobile's assertion that
forward auction clock prices in a subsequent stage should reflect the
reduction in payments to provisionally winning reverse auction bidders
and relocation expenses resulting from a lower clearing target. Nor is
the Commission persuaded to set clock prices in a new stage that are
just sufficient to satisfy the final stage rule for the reduced
spectrum clearing target. The Commission agrees with AT&T that rolling
back prices between stages may provide an incentive for undesirable
bidding behavior because bidders may hold back on bidding, knowing
``that prices could be lower in the next round if they allow the
auction to fail at the current clearing targets,'' which would reduce
the amount of spectrum cleared in the incentive auction. Moreover, the
procedures the Commission adopts to prevent an extended round if the
needed shortfall to satisfy the final stage rule is too large will
limit the extent to which clock prices can increase from stage to
stage, mitigating T-Mobile's concern that a failed extended round will
set ``an artificially inflated price floor for subsequent stages'' of
the auction, potentially leading to reduced bidder demands and fewer
blocks in the spectrum reserve. The pricing procedures the Commission
adopts will provide a smooth transition between stages and sound
incentives for straightforward bidding in the forward auction in any
subsequent stages.
VIII. Final Television Channel Assignment Plan Selection Procedure
265. Once the forward auction satisfies the final stage rule, no
additional stages will be required: At that time it will be possible to
finalize the provisional television channel assignment plan for the
remaining television bands using the optimization procedures. The
satisfaction of the final stage rule will be publicly announced. The
final television channel assignment plan will not be released until
after the close of the forward auction. The mathematical formulas for
implementing the final television channel assignment selection
procedure will be set forth in an appendix to the Application
Procedures PN. The results of the final television channel assignment
plan selection procedure will be announced by the Media and Wireless
Telecommunications Bureaus in the Channel Reassignment Public Notice
after the completion of the reverse and forward auctions.
266. The final television channel assignment plan will include a
channel assignment for each eligible full power and Class A television
station that will remain on the air post-auction; i.e., those that did
not participate in the reverse auction, those that participated but
exited the bidding, and those that successfully bid to voluntarily
relocate to a different TV band. With the exception of any stations
that were assigned to channels in the 600 MHz Band in the final stage
of the auction, all provisional television channel assignments will be
subject to change in the final television channel assignment plan. The
channel assignments of stations provisionally assigned to the 600 MHz
Band in the final stage of the auction will not change in the final
television channel assignment plan. This approach provides needed
certainty for the auction outcome by
[[Page 61967]]
ensuring that impairments to forward auction licenses will not change
as a result of the final television channel assignment optimization
procedure. Every final channel assignment will be required to satisfy
the constraints adopted in the Incentive Auction R&O to fulfill the
statutory mandate that the Commission make all reasonable efforts to
preserve each station's coverage area and population served.
267. The auction system will use optimization techniques to
determine a final television channel assignment plan. In addition to
satisfying the constraints adopted in the Incentive Auction R&O, the
final television channel assignment plan selection procedure will take
into account the following objectives, listed in order of priority: (1)
Maximizing the number of channel ``stays,'' or stations assigned to
their pre-auction channels instead of being assigned to new channels;
(2) minimizing the maximum aggregate new interference experienced by
any station; (3) avoiding reassignment of stations with high
anticipated relocation costs; and (4) prioritizing assignments to
channel 5 in the Low-VHF band and off of channel 14 in the UHF band.
The procedure will first optimize for the first objective. It will then
optimize for the second objective, which will be constrained by the
results of the optimization for the first objective. The procedure will
then optimize for the third objective, which will be constrained by the
results for the first and second objectives. Finally, the procedure
will optimize for the fourth objective, which will be constrained by
the results for the first three objectives. The procedure will select a
final television channel assignment plan that satisfies the constraints
adopted in the Incentive Auction R&O and best fulfills the objectives.
The final television channel assignment plan will be subject to
international coordination with Canada and Mexico.
268. The first objective of maximizing the number of stations
assigned to their pre-auction channels will promote a number of
important goals. First, it will help to reduce the total cost of
reimbursing broadcasters and others for the reasonable costs associated
with repacking. Several commenters have expressed concerns regarding
the sufficiency of the $1.75 billion in the TV Broadcaster Relocation
Fund that Congress made available for reimbursing the reasonable
relocation expenses of broadcasters and MVPDs. By minimizing the number
of stations that will be required to move off their pre-auction
channels and, therefore, minimizing the number of stations that incur
relocation expenses eligible for reimbursement from the Fund, the first
objective will help to ensure the Fund's sufficiency. Additionally, by
reducing the number of stations that must change channels, the first
objective will speed the post-auction transition process for other
stations and minimize disruption for stations and viewers alike.
Finally, the first objective will avoid terrain losses (and potentially
viewer losses) that could result from channel changes due to signal
propagation differences on different frequencies, consistent with its
statutory mandate to make all reasonable efforts to preserve the
coverage area and population served of eligible broadcast television
licensees.
269. The first objective will constrain the additional objectives;
however, the Commission adopts its proposal to allow the optimization
procedure to choose a final television channel assignment plan in which
the number of stations that are assigned to their pre-auction channels
is within 95 percent of the number found in the first objective. The
Commission adopts this percentage in order to allow some flexibility to
achieve greater benefit in the second and third objectives while still
capturing the benefits of the first objective by mostly restricting the
assignments to maintain the maximum number of stays. However, the
fourth objective will constrain the number of stations that are
assigned to their pre-auction channel to be at least as many as found
in the third optimization.
270. The second objective of minimizing the maximum aggregate new
interference that any station will incur furthers its statutory
obligation to make all reasonable efforts to preserve eligible
stations' population served, and fulfills its commitment in the ISIX
Order, 79 FR 76903, December 23, 2014, to take aggregate new
interference into account when establishing the final channel
assignments. In the Incentive Auction R&O, the Commission determined
that it would permit channel assignments that would not increase
pairwise interference--interference from any one station to another
station--by more than 0.5 percent. In response to concerns that this
approach could result in stations experiencing new interference of more
than 0.5 percent on an aggregate basis, in the ISIX Order the
Commission explained that, based on staff analysis, few stations were
likely to experience new interference above one percent and that any
such interference was unlikely to exceed two percent. In order to
address the exceptional cases, the Commission stated that it would
include an optimization objective in the final television channel
assignment plan optimization that would seek to minimize this issue.
271. In order to implement the second objective, the final
television channel assignment plan selection procedure will minimize
the maximum amount of aggregate new interference that any single
station could receive. In the Auction 1000 Comment PN the Commission
proposed the alternative of minimizing the number of stations that
receive aggregate new interference above one percent; however, using
that procedure could possibly result in significantly higher
interference levels for some stations with minimal benefit. In order to
minimize the maximum amount of aggregate new interference that any
single station could receive, the procedure will determine each
station's predicted aggregate new interference. The optimization
procedure will use pairwise constraints to calculate aggregate new
interference, which will result in some double counting of
interference. This provides a conservative approach to calculating
aggregate new interference, making it possible that the amount of
interference will be less than predicted. It will then determine an
assignment plan that minimizes the maximum aggregate new interference
that any station will receive. This approach to minimizing aggregate
new interference will help to ensure that no station will receive a
disproportionately high amount of new interference. To the extent that
any stations are predicted to receive new interference greater than one
percent in the final TV channel assignment plan despite the application
of the secondary objective, the Commission noted in the ISIX Order that
stations may seek a remedy through the post-auction facilities
modification processes. The Commission received only one comment
directly addressing this objective, and it concluded that the approach
it adopts to implementing it will best meet its commitment to minimize
aggregate new interference while being the most fair to stations
overall.
272. The third objective of avoiding reassignment of stations with
high anticipated relocation costs will further its efforts to minimize
total relocation costs. This objective is consistent with its goals of
ensuring the sufficiency of the $1.75 billion TV Broadcaster Relocation
Fund and disbursing the Fund as fairly and efficiently as possible.
273. In determining how to estimate relocation costs for purposes
of applying the third objective, the Commission adopts a categorical
approach, rather
[[Page 61968]]
than a station-by-station approach. Such an approach better serves the
public interest by simplifying the determination and minimizing
administration burdens. In the Auction 1000 Comment PN, the Commission
proposed to determine costs for purposes of applying this objective by
using publicly available data, such as the data compiled for the Media
Bureau by Widelity, Inc. or the data provided by broadcasters in the
Form 381 Pre-Auction Technical Certification. More specifically, the
Commission adopts an approach under which each station will be assigned
a weight based on a number of characteristics that generally make a
station more costly to relocate to a different channel. A higher number
will indicate that a station's channel change is more difficult to
implement, and therefore, generally more costly. Also, generally, these
more difficult and costly moves will take the greatest amount of time.
Minimizing them will help speed the post-auction transition process,
thus further minimizing the potential for service disruptions. The
optimization software will use the categorical weights to choose a
final television channel assignment plan that minimizes relocation
costs by avoiding highly-weighted reassignments.
274. A channel change for a full power station will generally be
more costly than for a Class A station, and channel changes for
stations in the top 30 DMAs will generally be more costly than stations
in the remaining DMAs. Accordingly, the Commission will use the
following categorical or ``base'' weights: a weight of five for full
power stations in the top 30 DMAs; a weight of three for full power
stations in all other DMAs; and a weight of one for Class A stations.
The Commission used the Widelity Report Case Studies as a basis for
these relative values. The Commission used Case Study 1 for Full Power
Top 30 DMAs: cost is approximately $2.5 million, Case Study 2 for Full
Power not Top 30: cost is approximately $1.5 million, Case Study 3 for
Class A stations: cost is approximately $0.5 million. In order to take
account of considerations that will likely add significant costs to
relocation, the Commission will also add one to a station's base weight
for each of the following factors: (1) An antenna on a tower taller
than 1000 feet, because work on such a tower requires a specialized
crew; (2) a tower in areas with significant ice and wind threat,
because such towers may need improvements to satisfy ``Rev. G''
structural standards; (3) collocation on a tower with four or more
other television or radio entities; and (4) a station will encounter
known extraordinary circumstances if they need to change channels.
Examples of some of the more complicated station sites are described in
the Widelity report. These weights are meant to reflect relative
difficulty when comparing two stations and are not intended to capture
all of the unique circumstances potentially encountered by each
station; however, they provide a simple and non-burdensome means of
estimating relocation costs accurately enough to avoid the most costly
and difficult relocations. Should Commission staff determine based on
additional information that consideration of additional factors could
result in cost savings in keeping with its overall goals of minimizing
the expense and disruption to broadcasters during the repacking
process, the Commission delegates authority to the Media Bureau to
modify the approach it adopts to take into account such factors and
direct the Media Bureau to publicly announce the final approach that
will be used by the final television channel assignment optimization
procedure to minimize relocation expenses.
275. Finally, the fourth objective will seek to assign as many
stations as possible that voluntarily move to the Low-VHF band--or that
must be reassigned to new channels in that band to accommodate such
moves--to channel 5. The Commission adopts this objective in response
to the suggestions of several commenters that interest in bidding to
move to the Low-VHF band would be increased if winning bidders could be
assigned to as high a channel in that band as possible. These
commenters assert that the technical characteristics of higher VHF
channels are generally better than those of lower VHF channels. The
Commission concluded that their suggestion has merit. Additionally, the
fourth objective will seek to assign stations in the UHF band to a
channel other than channel 14 in order to avoid coordination challenges
with private land mobile radio systems (PLMRS). Because the Commission
concludes that this objective should not be applied at the expense of
the objectives, the fourth objective will be constrained by the second
and third objectives and fully constrain the number of stations
assigned to their pre-auction band to be at least as many as found
after the third objective.
IX. Supplemental Final Regulatory Flexibility Act Analysis
276. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Commission has prepared this Supplemental Final
Regulatory Flexibility Analysis (SFRFA) of the possible significant
economic impact on small entities by the procedures and policies
contained in the Auction 1000 Bidding Procedures Public Notice and the
SFRFA.
A. Need for, and Objectives of, Public Notice
277. The Auction 1000 Bidding Procedures Public Notice determines
procedures necessary to carry out the broadcast television spectrum
incentive auction and resolves issues raised in the Auction 1000
Comment PN released December 17, 2014. In the Auction 1000 Comment PN,
the Commission sought comment on the proposals for conducting the
broadcast television incentive auction, including proposed procedures
for the forward auction, the reverse auction, and integration of the
reverse and forward auctions, that would implement rules previously
proposed in the Incentive Auction Notice of Proposed Rulemaking
(Incentive Auction NPRM), 77 FR 69933, November 21, 2012, and adopted
in the Incentive Auction R&O. In part, the Auction 1000 Bidding
Procedures Public Notice also resolves pending petitions for
reconsideration of the Mobile Spectrum Holdings R&O.
278. Previously, as required by the RFA, the Commission prepared an
Initial Regulatory Flexibility Analysis (IRFA) in connection with the
Incentive Auction NPRM and a Final Regulatory Flexibility Analysis
(FRFA) in connection with the Incentive Auction R&O. Likewise, the
Commission's Mobile Spectrum Holdings NPRM, 77 FR 61330, October 9,
2012, included an Initial Regulatory Flexibility Analysis (MSH IRFA)
and its Mobile Spectrum Holdings R&O included a Final Regulatory
Flexibility Analysis (MSH FRFA).
279. Following the release of the Auction 1000 Comment PN, a
Supplemental Public Notice, 80 FR 4816, Jan. 29, 2015, sought comment
on how the proposals in the Auction 1000 Comment PN could affect either
the IRFA or the FRFA. This SFRFA, addresses the effect, to the extent
there is any, of the Auction 1000 Bidding Procedures Public Notice
determinations have on the IRFA and FRFA.
280. As noted in the Supplemental Public Notice, the proposals in
the Auction 1000 Comment PN did not change any of the matters described
in the IRFA or FRFA. More specifically, the IRFA and FRFA set forth the
need for and objective of the Commission's rules for the broadcast
spectrum
[[Page 61969]]
incentive auction; the legal basis for those rules; a description and
estimate of the number of small entities to which the rules apply; a
description of the projected reporting, recordkeeping, and other
compliance requirements with small entities and significant alternative
considered; and a statement that there are no federal rules that may
duplicate, overlap, or conflict with the rules. As further noted in the
Supplemental Public Notice, the request for comment focused on how the
proposals in the Auction 1000 Comment PN might affect ether the IRFA or
the FRFA.
281. One comment responded specifically to the Supplemental Public
Notice, filed by the Competitive Carriers Association (CCA). CCA does
not assert that any of the matters already described in the IRFA or the
FRFA need to be changed in light of the proposals in the Auction 1000
Comment PN. Accordingly, the descriptions provided in the IRFA and the
FRFA are incorporated herein without change. To the extent there is any
variance and it is necessary due to the use of the average price
component of the final stage rule as part of the trigger for the
spectrum reserve, the MSH IRFA and MSH FRFA likewise are incorporated
herein without change.
282. CCA contends, however, that three of its proposals require a
``more fulsome factual, policy, and legal analysis [than was provided
in the FRFA] for these proposals for the agency to meet its
requirements under the Regulatory Flexibility Act.'' The three
proposals to which CCA refers are ``(1) the price per MHz-pop benchmark
for determining whether the final stage rule has been satisfied; (2)
the upfront payment amounts for the [forward] auction; and (3) the
minimum opening bid amounts for the [forward] auction.''
283. As a preliminary matter, the factual, policy and legal
analyses supporting these proposals, as well as its related decisions,
have been the subject of discussion in the Incentive Auction NPRM and
the Incentive Auction R&O. These topics also have been discussed in the
Auction 1000 Comment PN. Finally, after CCA filed its comment in
response to the Supplemental Public Notice, the Commission also
addressed the reasons for the final stage rule proposal and decision in
the Second Order on Reconsideration and for all three subjects in the
Auction 1000 Bidding Procedures Public Notice. More than once, these
discussions have addressed comments by CCA, often making the same
substantive points that CCA makes in response to the Supplemental
Public Notice.
284. Nonetheless, in response to CCA's submission of its arguments
in response to the Supplemental Public Notice, this SFRFA summarizes
those reasons to assure that the Commission has accounted properly for
any particular impact on small businesses of those decisions.
B. Summary of Significant Issues Raised by Public Comments in Response
to the Supplemental Notice
285. The Average Price Component of the Final Stage Rule. CCA
contends that the average price component of the final stage rule is
``unnecessary, contrary to the Commission's stated purpose of the
spectrum reserve, and will negatively affect smaller auction
participants.'' Reversing the order in which the two components are
presented and discussed by the Commission, CCA refers to the component
of the final stage rule that is based on license prices in the forward
auction as the second component of the final stage. The Commission
maintains consistency with its prior discussions and refers to this
instead as the first component. CCA argues that this component is
unnecessary because the cost component of the final stage rule is
sufficient to assure that forward auction bidders will pay competitive
prices, that it is contrary to the Commission's purpose because it
creates a risk that the auction will not close, that it is contrary to
the purpose of the spectrum reserve because it may result in a lower
spectrum amount of reserve spectrum, and that it harms small businesses
because they are unable to influence whether it is met.
286. Bidding Units Based on Price Weighted Population To Determine
Forward Auction Upfront Payment Amounts and Minimum Opening Bids.
Although CCA describes the Commission's proposal to use population of
license areas weighted by past auction prices as ``an elegant means of
accounting for the historical differences in prices between markets,''
CCA ``remains concerned, however, by certain outliers . . . resulting
from the Commission's methodology.'' CCA asks for additional
information regarding the creation of the price index, specifically
``how results from past auctions for spectrum licensed in Economic
Areas and Cellular Market Areas were adapted for use with licenses to
be offered based on PEAs.'' Finally, ``CCA objects to the Commission's
proposal to incorporate the final results from Auction 97 into the
price index for determining bidding units (and, therefore, upfront
payments and minimum opening bids), because this exercise could
prejudice smaller bidders.'' The Commission finds the arguments raised
by CCA to be without merit.
C. Steps Taken To Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
287. The Average Price Component of the Final Stage Rule. The
Commission adopted the average price component of the final stage rule
in order to assure that forward auction bidders pay competitive prices
for licenses, in compliance with the Commission's statutory mandate to
recover for the public a portion of the value of the public spectrum
resource. The cost component of the final stage rule does not fulfill
this mandate because the costs covered are not set in relation to the
value of the public spectrum resource. Rather, the cost of paying
existing licensees to relinquish spectrum usage rights based on
existing broadcasting licenses to make spectrum available for new
flexible use licenses, is determined by other factors, such as the
value of the existing usage rights. Moreover, there is not a one-to-one
relationship between the spectrum subject to the relinquished rights
and the spectrum covered by new licenses, either on an individual
license basis or collectively. Accordingly, despite CCA's contrary
contention, the average price component serves a significant purpose
not satisfied by the cost component. The effects of the average price
component accordingly must be assessed against the public interest in
achieving that purpose.
288. The average price component furthers the public interest in
recovering a portion of the value of the public spectrum resource. The
attendant risk that the average price component might preclude
achieving a given spectrum clearing target is consistent with serving
the public interest. All participants in the forward auction,
regardless of size, bear that risk. Alternatives that would grant new
licenses without recovering the value pursuant to the Commission's
decision would be contrary to this purpose.
289. The link between the average price component of the final
stage rule and the establishment of the spectrum reserve is similar.
Satisfying the final stage rule before establishing the reserve ensures
that reserve-eligible bidders pay significant prices for spectrum, that
they are paying the same price as other bidders at the time that the
final stage rule is met, and that the final stage rule is met before
the spectrum reserve is implemented. Fundamentally, linking the reserve
with satisfaction of the final
[[Page 61970]]
stage rule ensures that reserve-eligible bidders contribute ``a fair
share'' of the final stage rule requirements, including ``a portion''
of the value of the spectrum for the public, given the average price
component. Any alternative to using the final stage rule as a trigger
for the reserve would conflict with these goals.
290. The Commission's use of the average price in the top 40 by
population Partial Economic Areas (PEAs) is supported by the stated
purpose of the procedure, specifically to facilitate a speedy auction
by focusing on PEAs more likely to sooner reach their final prices. An
alternative that would consider the average price in more areas would
risk slowing down the auction and would require assessing an average
price over areas for which past price data may not be as reliable as
data in the top 40 PEAs. CCA contends that smaller bidders may be less
likely to bid in the top 40 PEAs, and therefore less likely to directly
influence whether the average price component is met. Presuming, for
the sake of argument, that this is true, that also means that such
bidders may win licenses despite lower average prices in other PEAs.
Smaller bidders that may have relatively less influence over whether
the average price component is met therefore benefit from the use of
the top 40 PEAs to the extent it enables them to win licenses with
lower average prices.
291. At clearing targets that license more than 70 megahertz in the
600 MHz, the gross bids of all licenses will be considered in
determining whether the average price component is met, rather than the
average price in the top 40 PEAs. In that case, bidders for areas other
than the top 40 PEAs will influence whether the average price component
is satisfied. Moreover, the effective average price of licenses in such
circumstances will be lower than that set for the top 40 PEAs, thereby
retaining the benefit of meeting lower average prices in areas outside
the top 40 PEAs.
292. Bidding Units Based on Price Weighted Population To Determine
Forward Auction Upfront Payment Amounts and Minimum Opening Bids. The
Commission uses bidding units to determine forward auction upfront
payment amounts and minimum opening bids for each PEA. More
specifically, the upfront payments and the minimum opening bids are set
on a dollar per bidding unit basis. The bidding units reflect the
population of the respective PEA, weighted by a price index set based
on data from prior spectrum license auctions. The procedure for
determining the bidding units, i.e., for weighting the relevant
population based on price data from past auctions, is detailed in the
Auction 1000 Bidding Procedures Public Notice.
293. The price index attempts to capture the information about
relative demand and value reflected in those prices. Any change in the
relative index for particular PEAs is the intended effect. Using price
data from recently completed Auction 97 furthers the Commission's
purpose of weighting population based on the demand from bidders for
licenses in past auctions. There is no basis for an alternative that
would be consistent with this purpose. ``Outliers'' in the data or
differences in relative prices in different auctions, whether Auction
97 or any other auction, are reasons to incorporate the data, not
reasons to selectively rejects some of it.
294. Using population weighted by a price index to set upfront
payments and minimum opening bids establishes the relative amounts
involved without determining the final amounts. CCA does not offer any
support for its contention that the amounts set by the Commission's
decision are too high. Furthermore, contrary to CCA's suggestion that
upfront payments must be made without knowledge of the amount of
spectrum to be offered in the forward auction, the Commission's
decision provides that forward auction bidders will make upfront
payments only after the determination of the initial clearing target.
D. Response to Comments by the Chief Counsel for Advocacy of the Small
Business Administration
295. Pursuant to the Small Business Jobs Act of 2010, the
Commission is required to respond to any comments filed by the Chief
Counsel for Advocacy of the Small Business Administration (SBA), and to
provide a detailed statement of any change made to the proposed rules
as a result of those comments. The Chief Counsel did not file any
comments in response to the Auction 1000 Comment PN released December
17, 2014.
List of Subjects in 47 CFR Part 20
Commercial mobile services.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Final Rules
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR part 20 as follows:
PART 20--COMMERCIAL MOBILE SERVICES
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1. The authority citation for part 20 continues to read as follows:
Authority: 47 U.S.C. 151, 152(a), 154(i), 157, 160, 201, 214,
222, 251(e), 301, 302, 303, 303(b), 303(r), 307, 307(a), 309,
309(j)(3), 316, 316(a), 332, 615, 615a, 615b, 615c.
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2. Section 20.22 is amended by removing paragraph (b)(4)(vii) and
adding paragraph (b)(5) to read as follows:
Sec. 20.22 Rules governing mobile spectrum holdings.
* * * * *
(b) * * *
(5) The following interests shall be attributable to holders,
except to lessees and sublessees for the purpose of qualifying to bid
on reserved licenses offered in the Incentive Auction, discussed in
paragraph (c) of this section, on the basis of status as a non-
nationwide provider:
(i) Long-term de facto transfer leasing arrangements as defined in
Sec. 1.9003 of this chapter and long-term spectrum manager leasing
arrangements as identified in Sec. 1.9020(e)(1)(ii) that enable
commercial use shall be attributable to lessees, lessors, sublessees,
and sublessors for purposes of this section.
(ii) [Reserved]
* * * * *
[FR Doc. 2015-25579 Filed 10-13-15; 8:45 am]
BILLING CODE 6712-01-P