[Federal Register Volume 60, Number 118 (Tuesday, June 20, 1995)] [Rules and Regulations] [Pages 32116-32120] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 95-14945] ======================================================================= ----------------------------------------------------------------------- FEDERAL COMMUNICATIONS COMMISSION 47 CFR Parts 0 and 1 [ET Docket No. 93-266; FCC 95-218] Pioneer's Preference Rules AGENCY: Federal Communications Commission. ACTION: Final rule. ----------------------------------------------------------------------- SUMMARY: By this Third Report and Order, the Commission modifies certain rules regarding its pioneer's preference program. This action is intended to address directives of the General Agreement on Tariffs and Trade (GATT) legislation and make the pioneer's preference rules better comport with the Commission's experience administering them. EFFECTIVE DATE: August 21, 1995. FOR FURTHER INFORMATION CONTACT: Rodney Small, Office of Engineering and Technology, (202) 776-1622. SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Third Report and Order, adopted June 6, 1995, and released June 8, 1995. The full text of this Commission decision is available for inspection and copying during regular business hours in the FCC Reference Center (Room 239), 1919 M Street NW., Washington, DC. The complete text of this decision also may be purchased from the Commission's duplication contractor, International Transportation Service, Inc., (202) 857-3800, 2100 M Street NW., Suite 140, Washington, DC 20037. Summary of Third Report and Order 1. The Third Report and Order (Third R&O) addresses proposals set forth in the Further Notice of Proposed Rule Making (Further Notice) in this proceeding, 60 FR 13396 (March 13, 1995), and modifies certain rules regarding the Commission's pioneer's preference program pursuant to recent legislation. The pioneer's preference program provides preferential treatment in the Commission's licensing processes for parties that make significant contributions to the development of a new service or to the development of a new technology that substantially enhances an existing service. 2. The Further Notice proposed rules in response to the pioneer's preference directives contained in the legislation implementing domestically the GATT, as well as on the Commission's own motion. The GATT legislation requires parties to whom any licenses are awarded pursuant to the pioneer's preference program in services in which competitive bidding is used to pay 85 percent of the average price paid for comparable licenses. This payment may be made in a lump sum or in installment payments over a period of not more than five years. The GATT legislation, including the payment requirement, applies to any license issued on or after August 1, 1994 pursuant to a pioneer's preference award. 3. The legislation also directs the Commission to prescribe regulations specifying the procedures and criteria to ``evaluate applications for preferential treatment in its licensing processes (by precluding the filing of mutually exclusive applications) for persons who make significant contributions to the development of a new service or to the development of new technologies that substantially enhance an existing service.'' The legislation requires the pioneer's preference regulations to include: (1) Procedures and criteria by which the significance of a pioneering contribution will be determined, after an opportunity for review and verification by experts not employed by the Commission; and (2) such other procedures as may be necessary to prevent unjust enrichment by ensuring that the value of a pioneering contribution justifies any reduction in the amounts paid for comparable licenses. The regulations issued pursuant to this legislation must be prescribed not later than 6 months after enactment of the GATT legislation (i.e., by June 8, 1995), shall apply to pioneer's preference applications accepted for filing after September 1, 1994, and must cease to be effective on September 30, 1998, when the pioneer's preference program sunsets. 4. In the Further Notice, the Commission tentatively concluded that, with the exceptions of the two areas specifically addressed by the GATT legislation, the existing pioneer's preference rules, as modified by the Second Report and Order, 60 FR 13636 (March 14, 1995), comply with the GATT legislation's requirement to specify procedures and criteria by which to evaluate pioneer's preference applications. However, the Commission solicited comment regarding any alternatives to any aspects of these rules that might better achieve the objectives of the GATT legislation. 5. With respect to the two areas specifically set forth in the GATT legislation, the Commission noted that the GATT legislation's directive that the Commission establish a procedure for review and verification by outside experts was contemplated as an optional measure by the current pioneer's preference policies, but that such ``peer review'' was not mandatory. It therefore proposed to formalize this policy pursuant to the GATT legislation to provide an opportunity for review of potentially pioneering proposals by experts in the radio sciences who are not Commission employees. It sought comment on whether such review by outside experts should be required in all cases or whether pioneer's preference applicants (or other interested parties) should be given only an opportunity for such review, which may be either accepted or declined by the applicants. It tentatively concluded that it would establish a peer review process on a permanent basis. The Commission therefore proposed to delegate to the Chief of the Office of Engineering and Technology (``Chief, OET'') the authority to select a panel of experts consisting of persons who are knowledgeable about the specific technology set forth in a pioneer's preference request. In addition, while the Commission sought comment on two possible interpretations of section 309(j)(13(D)(i) of the GATT legislation, which concerns possible conflicts of interest of such experts, it proposed appointing experts who are neither employed by the Commission nor by any applicant seeking a pioneer's preference in the same or similar communications service. Based on its experience with the pioneer's preference program, the Commission tentatively concluded that the outside expertise required to evaluate the claims made in pioneer's preference requests will vary greatly. Accordingly, it proposed that its staff evaluate on a case-by-case basis how much outside assistance is required and that the Chief, OET select experts from all available sources after reviewing the proposed new technology or service. 6. The Commission further proposed that the experts generally be granted a period of up to 180 days to present their findings to the Commission. It sought comment on whether it should generally seek the experts' individual opinions or their consensus (as a Federal Advisory Committee under the Federal Advisory Committee Act). The Commission [[Page 32117]] tentatively concluded that it should not be bound to follow the recommendations of the panel, but that it should evaluate the recommendations in light of all the submissions and comments in the record. However, it solicited comment on whether the views of the panel (especially where consensus is reached) should be entitled to greater, or perhaps controlling, deference. The Commission also sought comment on what restrictions, if any, the panel members should have vis-a-vis contact with the applicants; e.g., whether they should have authority to seek further information pertaining to the preference request or to perform field evaluations. Finally, the Commission sought comment on any additional conflict of interest requirements (e.g., related to financial interests) it should impose upon outside experts. 7. With respect to the second area addressed by the GATT legislation, the Commission stated in the Further Notice that its concerns about unjust enrichment are lessened by the statutorily- mandated payment requirement for prioneer's preference grantees in auctionable services and the formula for calculating per capita bid amounts. Nonetheless, it stated that it remained concerned about the effect of competitive bidding on the pioneer's preference program. It sought comment on a more stringent showing by a preference applicant in a service in which licenses are awarded by competitive bidding. Specifically, the Commission sought comment on whether the applicant should have to demonstrate that our public rulemaking process inhibits it from capturing the economic rewards of its innovation unless it is granted a pioneer's preference license. It also sought comment on whether in its pioneer's preference request each applicant should make a demonstration regarding possible loss of intellectual property protection to ensure that it will retain its eligibility for a preference. 8. With regard to determining which licenses are most reasonably comparable under section 309(j)(13)(B)(i) of the GATT legislation, in the Further Notice the Commission sought comment on any standards for comparing licenses and for excluding anomalous licenses that it might codify into its rules along with the statutory formulas for determining the average per capita bid amount and the payment amount. It also sought comment on the implementation of the installment payment provision in section 309(j)(13)(C). It tentatively concluded that it would not adopt any installment payment scheme that includes royalty payments. The Commission further sought comment on whether eligibility for installment payments should be limited to small businesses or other entities as it has done in its general auction rules. The Commission proposed that, if an entity receiving a pioneer's preference award and license in a particular service would be eligible for installment payments in the auction for that service, that entity would be able to pay for its pioneer's preference license in installments under similar terms and conditions. Finally, the Commission proposed to require a pioneer's preference license that is not eligible for installment payments to pay in one lump sum within a reasonable time (e.g., 30 days) after the auction for comparable licenses has concluded or after the license grant becomes final, whichever is later. 9. In accord with the GATT legislation, the Commission proposed to sunset the pioneer's preference program on September 30, 1998. It requested comment on the utility of the program, particularly in light of its competitive bidding authority. Additionally, it proposed on its own motion to modify the pioneer's preference rules by limiting the award of preferences to services in which a new allocation of spectrum is required. 10. Finally, the Commission proposed to apply the rules adopted in response to the Further Notice to any pioneer's preference requests granted after adoption of those rules, regardless of when the requests were accepted for filing, except in proceedings in which tentative pioneer's preference decisions have been made. 11. Only two parties filed comments on the Further Notice, and no party filed reply comments. Satellite CD Radio, Inc. (CD Radio) states that the Commission should grant pioneer's preferences for regulatory as well as technical innovation, and also grant preferences in services in which no mutually exclusive applications exist. Omnipoint Communications, Inc. (Omnipoint) addresses payment measures for small business pioneers in services in which licenses are awarded by competitive bidding. It argues that the Commission should provide: (1) Payment terms that are more attractive than the terms offered to designated entities or entrepreneur-band applicants, so that small business pioneers have an incentive to take on the risks of innovation; and (2) the use of an installment plan with principal and accrued- interest obligations deferred until the end of a five-year period. 12. With respect to CD Radio's statements regarding regulatory innovation, the Commission finds that its pioneer's preference rules already incorporate non-technical or regulatory aspects. Accordingly, it finds no need to amend its pioneer's preference rules in this regard. 13. With respect to CD Radio's proposals regarding awarding preferences in services where mutually exclusive situations do not exist and where competitive bidding is not authorized, the Commission finds that a preference, beyond a guaranteed license and a 15 percent discount in auctioned services, would be unnecessary and contrary to the stated purpose of the pioneer's preference program. In adopting the pioneer's preference procedures, the Commission sought to foster the development of new services and to improve existing services by reducing the delays and risks for innovators associated with the Commission's licensing processes as they existed at that time. Applicants facing no mutually exclusive applications run no risk of not receiving licenses, assuming they are qualified, so the Commission did not contemplate that any preferences would be needed to serve the public interest purposes of the pioneer's preference program. Accordingly, the Commission rejects CD Radio's proposal to award preferences in services in which mutually exclusive license applications do not exist. 14. With respect to Omnipoint's proposal for lower payments for small business pioneers than designated entities in services in which licenses are awarded by competitive bidding, the Commission noted that the pioneer's preference and designated entity programs are designed to meet different goals. The pioneer's preference program is designed to reward a particular entity for its innovative contributions to a new or existing service, whereas the designated entity program is designed to promote economic opportunity and competition by dissemininating licenses among a wide variety of applicants and to increase participation in spectrum-based telecommunications services by entities that lack access to substantial amounts of capital and that face economic disadvantages in obtaining licenses in a competitive bidding environment, such as small businesses. Accordingly, the Commission rejects Omnipoint's proposal to guarantee small business pioneers lower payments than other designated entities. 15. With respect to Omnipoint's proposal for a deferred payment plan for small business pioneers in services in which licenses are awarded by [[Page 32118]] competitive bidding, consistent with the above discussion, the Commission finds no need to give such pioneers an advantage over similarly situated small businesses. The Commission notes that in the Further Notice it proposed that if an entity receiving a pioneer's preference would be eligible for installment payments in the auction for that service, the entity could pay for its pioneer's preference license in installments under comparable terms and conditions to similarly situated licenses over a period not to exceed five years. The Commission finds this proposal adequate to address Omnipoint's concerns and adopts it, while rejecting Omnipoint's deferred payment proposal. 16. No comments were filed with respect to the other proposals in the Further Notice. Because they are in the public interest and promote the goals of the pioneer's preference program and the GATT legislation, the Commission adopts them. Specifically, with respect to peer review, it provides an opportunity for review and verification of pioneer's preference requests by experts who are not Commission employees. It delegates to the Chief, OET the authority to select, in appropriate cases on his/her own initiative or upon request by a preference applicant or other interested person, a panel of experts consisting of persons who are knowledgeable about the specific technology set forth in a pioneer's preference request and who are neither employed by the Commission nor by any applicant seeking a pioneer's preference in the same or similar communications service. It concludes that the best interpretation of Section 309(j)(13)(D)(i)'s conflict-of-interest language provides that there must be an opportunity for review and verification by experts who are neither employees of the Commission nor employees of any applicant seeking a pioneer's preference. These panels will generally be granted a period of up to 90 days, but no more than 180 days, to present their findings to the Commission. 17. With respect to implementing the unjust enrichment provisions in section 309(j)(13)(D)(ii), the Commission is requiring that to qualify for a pioneer's preference in services in which licenses are awarded by competitive bidding, an applicant--in addition to meeting the other pioneer's preference requirements--must demonstrate that the Commission's public rulemaking process inhibits it from capturing the economic rewards of its innovation unless it is granted a pioneer's preference license. The applicant must show that it may lose its intellectual property protection because of the Commission's public process; that the damage to its intellectual property is likely to be more significant than in other contexts, such as the patent process; and that the guarantee of a license is a significant factor in its ability to capture the rewards from its innovation. Such a showing must accompany the pioneer's preference request even if the Commission has not yet determined that the particular service for which a preference is sought will be subject to competitive bidding. 18. As proposed in the Further Notice, pioneer's preference awards will be limited to services that require a spectrum allocation. However, the Commission notes that an entity that develops a new technology that may be used in an existing service may be able to reap significant financial benefits by patenting that technology or by selling equipment that uses that technology. 19. Pursuant to authority in section 4(i), in conjunction with sections 1, 303(r), 307, and 309 of the Communications Act, the Commission finds that it is in the public interest and in furtherance of its pioneer's preference policy in an auction environment to apply the rules adopted herein to pending pioneer's prference proceedings that have not reached the tentative decision stage. Parties with pending pioneer's preference applications on file with the Commission will have 30 days from the effective date of the rules adopted herein to amend their applications to bring them into conformance with these rules and the rules adopted in the Second Report and Order in this proceeding. Failure to timely amend a pending pioneer's preference request will result in the dismissal of the request. 20. In the Second Report and Order, the Commission stated that while the payment mechanism in the GATT legislation does not apply to pioneer's preference requests accepted for filing on or before September 1, 1994, nevertheless--pursuant to section 4(i) and other provisions of the Communications Act--license charges would be imposed on any pioneer's preference license granted in proceedings in which no tentative decision had yet been made, even if the requests in such proceedings were accepted for filing on or before that date. In addition, prior to enactment of the GATT legislation, the Commission amended the rules (also pursuant to Section 4(i)) to impose charges on any pioneer's preference licenses granted as a result of the three pioneer's preference proceedings in which only tentative decisions had been made prior to the initiation of this pioneer's preference review rulemaking. 21. The Commission now concludes, on further analysis, that the payment requirements in subsections 309(j)(13)(B), (C) and (E) of the Communications Act, which were enacted by the GATT legislation, apply to pioneer's preference requests relatless to any licenses issued on or after August 1, 1994, regardless of when the pioneer's preference requests were accepted for filing. The September 1, 1994 date applies only to the regulations required by subsection 309(j)(13)(D). Accordingly, the Commission determines that, while the new regulations prescribed here (regarding criteria, peer review and unjust enrichment), pursuant to subsection 309(j)(13)(D), will not apply in the proceedings in which tentative decisions have been made, the payment provisions of the GATT legislation will apply to any and all licenses ultimately issued in the future resulting from a pioneer's preference, including any license based on a preference granted in CC Docket No. 92-297 (28 GHz Local Multipoint Distribution Service proceeding). 22. Finally, pursuant to the GATT legislation, the Commission will terminate the pioneer's preference program on September 30, 1998. 23. Accordingly, it is ordered that Parts 0 and 1 of the Commission's Rules are amended as specified below, effective 60 days after publication in the Federal Register. This action is taken pursuant to Sections 4(i), 7(a), 303(c), 303(f), 303(g), 303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. Secs. 154(i), 157(a), 303(c), 303(f), 303(g), 303(r), and 309(j). List of Subjects 47 CFR Part 0 Organization and functions (Government agencies). 47 CFR Part 1 Administrative practice and procedure. Federal Communications Commission William F. Caton, Acting Secretary. Amendatory Text Parts 0 and 1 of chapter I of title 47 of the Code of Federal Regulations are amended as follows: [[Page 32119]] PART 0--COMMISSION ORGANIZATION 1. The authority citation for part 0 continues to read as follows: Authority: Sec. 5, 48 Stat. 1068, as amended; 47 U.S.C. 155, 225, unless otherwise noted. 2. Section 0.241 is amended by adding new paragraph (f) to read as follows: Sec. 0.241 Authority delegated. * * * * * (f) The Chief, Office of Engineering and Technology (OET) is authorized to select, in appropriate cases on his/her own initiative or upon request by a pioneer's preference applicant or other interested person, a panel of experts consisting of persons who are knowledgeable about the specific technology set forth in a pioneer's preference request and who are neither employed by the Commission nor by any applicant seeking a pioneer's preference in the same or similar communications service. In consultation with the General Counsel, the Chief, OET, shall also impose other conflict-of-interest requirements that are necessary in the interest of attaining impartial, expert advice regarding the particular pioneer's preference request or requests. PART 1--PRACTICE AND PROCEDURE 1. The authority citation for part 1 continues to read as follows: Authority: Secs. 4, 303, 48 Stat. 1066, 1082, as amended; 47 U.S.C. 154, 303; Implement, 5 U.S.C. 552 and 21 U.S.C. 853a, unless otherwise noted. 2. Section 1.402 is amended by revising the first sentence of paragraph (a); removing paragraph (b); redesignating paragraphs (c), (e), (f), and (h) as new paragraphs (b), (d), (e), and (j) respectively; redesignating paragraphs (d) and (g) as new paragraphs (c) and (f), respectively, and revising them; and adding new paragraphs (g), (h), (i), and (k) to read as follows: Sec. 1.402 Pioneer's preference. (a) When filing a petition for rule making pursuant to Sec. 1.401 that seeks an allocation of spectrum for a new service or that, by use of innovative technology in a new spectrum allocation, will substantially enhance an existing service, the petitioner may also submit a separate request that it be awarded a pioneer's preference in the licensing process for the service. * * * * * * * * (c) Pioneer's preference requests complying with the requirements and procedures in paragraphs (a) and (b) of this section will be accepted for filing and listed by file number in a notice of proposed rule making addressing the new service or technology proposed in the request, if such a notice of proposed rulemaking is adopted. A final determination on a request for pioneer's preference and its scope will normally be made in a report and order adopting new rules for the service or technology proposed in the request, if such rules are adopted. If awarded, the pioneer's preference will provide that the preference applicant's application for a construction permit or license will not be subject to mutually exclusive applications. If granted, the construction permit or license will be subject to the conditions in paragraphs (e) and (f) of this section. * * * * * (f) In services in which licenses are assigned by competitive bidding, any parties receiving pioneer's preferences will be required to pay for their licenses in accord with the payment formula specified in the General Agreement on Tariffs and Trade legislation, Pub. L. 103- 465. This formula requires that pioneers pay in a lump sum or in installment payments over a period of not more than five years 85 percent of the average price paid for comparable licenses. Comparable licenses will be determined by the Commission on a case-by-case basis. For licenses issued on or after August 1, 1994, the Commission shall recover for the public a portion of the value of the public spectrum resource made available to a pioneer's preference recipient by requiring such person, as a condition for receipt of the license, to agree to pay a sum determined by-- (1) Identifying the winning bids for the licenses that the Commission determines are most reasonably comparable in terms of bandwidth, scope of service area, usage restrictions, and other technical characteristics to the license awarded to such person, and excluding licenses that the Commission determines are subject to bidding anomalies due to the award of preferential treatment; (2) Dividing each such winning bid by the population of its service area (hereinafter referred to as the per capita bid amount); (3) Computing the average of the per capita bid amounts for the licenses identified under paragraph (f)(1) of this section; (4) Reducing such average amount by 15 percent; and (5) Multiplying the amount determined under paragraph (f)(4) of this section by the population of the service area of the license obtained by such person. (g) In services in which licenses are awarded by competitive bidding, a pioneer that qualifies as a designated entity will be eligible for installment payments under the same terms and conditions as other designated entities in that service, except that in all services the pioneer's payments must be completed within a five year period that will begin 30 days after the auction for comparable licenses has concluded or 30 days after the pioneer's license grant becomes final, whichever is later. A pioneer, like other applicants, will be required in its license application to certify and make the requisite demonstration that it is eligible for installments. Pioneers that are not eligible for installment payments must make the 85 percent payment specified in Sec. 1.402(f) within 30 days after the auction for comparable licenses has concluded or within 30 days after the license grant become final, whichever is later. (h) An opportunity for review and verification of pioneer's preference requests by experts who are not Commission employees will be provided by the Commission. The Chief, Office of Engineering and Technology (OET) may select a panel of experts consisting of persons who are knowledgeable about these specific technology set forth in a pioneer's preference request and who are neither employed by the Commission nor by any applicant seeking a pioneer's preference in the same or similar communications service. The panel of experts will generally be granted a period of up to 90 days, but no more than 180 days, to present their findings to the Commission. The Commission will generally establish, conduct, and seek the consensus of the panel pursuant to the Federal Advisory Committee Act, and will evaluate its recommendations in light of all the submissions and comments in the record. Panelists will have the authority to seek further information pertaining to preference requests and to perform field evaluations, as deemed appropriate by the Chief, OET. (i) In order to qualify for a pioneer's preference in services in which licenses are awarded by competitive bidding, an applicant must demonstrate that the Commission's public rulemaking process inhibits it from capturing the economic rewards of its innovation unless it is granted a pioneer's preference license. The applicant must [[Page 32120]] show that it may lose its intellectual property protection because of the Commission's public process; that the damage to its intellectual property is likely to be more significant than in other contexts, such as the patent process; and that the guarantee of a license is a significant factor in its ability to capture the rewards from its innovation. This demonstration will be required even if the Commission has not determined at the time a pioneer's preference request is filed whether assignments in the proposed service will be made by competitive bidding. * * * * * (k) This section, along with the other pioneer's preference rules specified in Sec. Sec. 0.241(f) and 5.207 of this chapter, will cease to be effective on September 30, 1998. [FR Doc. 95-14945 Filed 6-19-95; 8:45 am] BILLING CODE 6712-01-M