[Federal Register Volume 61, Number 101 (Thursday, May 23, 1996)]
[Rules and Regulations]
[Pages 25810-25813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12967]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 24 and 90
[FCC 96-203]
Waiver of Bid Withdrawal Payment Provisions
AGENCY: Federal Communications Commission.
ACTION: Final rule; waiver.
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SUMMARY: The Commission has before it requests for waiver of the rules
governing bid withdrawal payments associated with spectrum auctions. On
December 18, 1995, ATA filed a request for waiver of the bid withdrawal
payment applicable to the 900 MHz SMR auction. On January 24, 1996, MAP
filed a request for waiver of the bid withdrawal payment applicable to
the broadband PCS C block auction. This Order reduces ATA's bid
withdrawal payment to two times the minimum bid increment for license
11P in Round 9 of the 900 MHz SMR auction, or $45,594. In addition,
this Order reduces MAP's withdrawal payment to the minimum bid
increment for license B-380 in Round 10 of the broadband PCS C block
auction, or $206,400.
EFFECTIVE DATE: May 3, 1996.
FOR FURTHER INFORMATION CONTACT:
James Hedlund at 202-418-0660.
SUPPLEMENTARY INFORMATION: This Order, adopted May 2, 1996, and
released May 3, 1996, is available for inspection and copying during
normal business hours in the FCC Reference Center, Room 239, 1919 M
Street NW., Washington D.C. The complete text may be purchased from the
Commission's copy contractor, International Transcription Service,
Inc., 2100 M Street, N.W., Suite 140, Washington D.C. 20037 (202) 857-
3800.
ORDER
I. Introduction
1. The Commission has before it Requests for Waiver of its rules
filed by Atlanta Trunking Associates, Inc. (``ATA'') and MAP Wireless,
L.L.C (``MAP''). Specifically, ATA and MAP request waivers of the rules
governing bid withdrawal payments associated with spectrum auctions. By
this Order, we hereby resolve ATA's and MAP's Requests. Specifically,
this Order reduces ATA's bid withdrawal payment to two times the
minimum bid increment for license 11P in Round 9 of the 900 MHz SMR
auction, or $45,594. In addition, this Order reduces MAP's withdrawal
payment to the minimum bid increment for license B-380 in Round 10 of
the broadband PCS C block auction, or $206,400.
II. Background
2. Waiver Requests. On December 18, 1995, ATA filed a request for
waiver of the bid withdrawal payment applicable to the 900 MHz SMR
auction. Under our rules, the amount of the bid withdrawal payment is
equal to the difference between the withdrawn bid amount and the amount
of the subsequent winning bid, if the subsequent winning bid is lower.
No withdrawal payment is assessed if the subsequent winning bid exceeds
the withdrawn bid.
3. In its request, ATA alleges it erroneously submitted a bid of
$125,025,000 for license 11P (Atlanta, GA) in Round 9 of the 900 MHz
SMR auction. Pursuant to our auction procedures, the minimum acceptable
bid for that license in Round 9 was $121,000. According to ATA, it had
intended to submit a bid of $125,025, but inadvertently added three
extra
[[Page 25811]]
zeroes to its bid. ATA immediately reported the error after Round 9 had
closed and withdrew its bid in Round 10. When the SMR auction closed,
the winning bid for license 11P was $531,000. A declaration by L.
Harold Josey, ATA's vice-president and one of its authorized bidders,
describes the events surrounding the erroneous bid submission. ATA
states that it cannot explain how the typographical error occurred, but
suggests that the error may be due to a function of the Commission's
bidding software.
4. ATA claims that the public interest will not be served by strict
enforcement of the bid withdrawal payment rule in this instance. ATA
notes that the error occurred early in the auction and hence there was
no harm to the integrity of the auction or other bidders. Because
imposition of the full bid withdrawal payment would be a significant
burden on ATA, it claims that the ``equities demonstrate that ATA
should be provided relief from the Commission's rules as it relates to
this typographical error.''
5. On January 24, 1996, MAP filed a request for waiver of the bid
withdrawal payment applicable to the broadband PCS C block auction.
Under our rules, the amount of the bid withdrawal payment is equal to
the difference between the withdrawn bid amount and the amount of the
subsequent winning bid, if the subsequent winning bid is lower. No
withdrawal payment is assessed if the subsequent winning bid exceeds
the withdrawn bid.
6. In its request, MAP alleges that due to a typographical error,
it submitted a bid of $22,680,020 for license B-380 (Rockford, IL) in
Round 10 of the broadband PCS C block auction. Pursuant to our auction
procedures, the minimum accepted bid for that round and license was
$2,267,000. MAP states that it intended to submit a bid of $2,268,002,
slightly higher than the minimum accepted bid. MAP withdrew its
$22,680,020 bid during the bid withdrawal period for Round 10. As of
Round 170, the standing high bid on license B-380 was $14,433,000. A
declaration and statement by Christopher O. Mantle, one of MAP's
authorized bidders, describes the events surrounding the erroneous bid
submission. MAP alleges that the error was attributable to a ``quirk''
in the Commission's bidding software. MAP claims that the error
occurred because the bidding software places a zero on each bid entry
line, which does not disappear when a bid is entered unless it is
manually removed. As a result, MAP's bid for that round and license was
ten times greater than its intended bid. According to MAP, the only
error attributable to it is ``failing to notice and delete the
extraneous zero caused by the bidder's software format.''
7. MAP argues that imposition of the bid withdrawal payment for its
erroneous bid would be inequitable and contrary to the public interest.
It observes that the Auctions Division has granted waiver requests to
other C block applicants which sought to correct clerical or
typographical errors. Finally, MAP argues that Commission precedent and
principles of administrative law require that parties be allowed to
correct typographical errors when dealing with governmental agencies.
8. Public Notice. On February 7, 1996, the Wireless
Telecommunications Bureau (``Bureau'') released a Public Notice seeking
comment on requests for waiver of the Commission's bid withdrawal
payment provisions, including the requests of ATA and MAP. See Public
Notice, DA 96-145, ``Comment Sought on Requests to Waive Bid Withdrawal
Payments and General Enforcement Guidelines'' (rel. February 7, 1996).
The waiver requests were filed by ATA, MAP and PCS 2000, L.P. We note
that we are deferring action on the request filed by PCS 2000 until a
later date. In addition, the Bureau sought comment on proposals to
reduce the bid withdrawal payment requirement in cases of erroneous
bids attributed to inadvertent or typographical mistakes. The Bureau
proposed reducing the bid withdrawal payment in such circumstances to
the greater of the upfront payment amount for the market for which the
bid was submitted, or five percent of that market's winning bid.
Alternatively, the Bureau proposed to treat a mistaken bid that is
withdrawn in the same round as if it were made at the minimum accepted
bid (if there are no other bids for that round), or at the second
highest bit (if there are other bids above the minimum accepted bid).
The required payment would be the difference between this amount and
the subsequent winning bid. Finally, the Bureau sought comment on
whether any circumstances should warrant a complete waiver of the bid
withdrawal payment (e.g., a bidding error clearly attributable to a
mistake by the Commission, its staff or contractors).
9. Comments. In total, 20 parties submitted Comments, and six
parties submitted Reply Comments, concerning the waiver requests and
the Bureau's proposed enforcement guidelines. Six parties, all
participants in the broadband PCS C block auction, submitted comments
urging the Commission to deny the various waiver requests and strictly
adhere to the applicable bid withdrawal payment provisions. Generally,
these commenters argue that a waiver of the bid withdrawal payment
provisions would distort the auction process and prejudice other
bidders. For example, Quantum claims that if the Commission grants any
of these waivers, it would undermine the integrity of the auctions by
announcing to bidders that they may strategically place ``erroneous''
bids and withdraw them with impunity. These commenters also note that
the bidding software contains numerous safeguards which are designed to
encourage bidders to verify their bids prior to submission. PCS One
claims that these safeguards have been effective, as bidders in the
broadband PCS C block auction have reported only three mistaken bids
out of the approximately 11,500 bids submitted as of February 9, 1996.
They further note that the Commission staff clearly explained the bid
withdrawal provisions as well as the safeguards built in to the bidding
software prior to the commencement of the auction.
10. Eight parties, including participants in the broadband PCS C
block auction and the 900 MHz SMR auction, urge the Commission to grant
the waiver requests and impose no bid withdrawal payment requirement
when it is clear that an erroneous bid is the result of an honest
typographical or clerical mistake. Some of these commenters note that
the Commission adopted the bid withdrawal payment provisions to deter
insincere bidding. They further note that in adopting these provisions,
the Commission did not contemplate the possibility that bidders might
submit erroneous bids, resulting from typographical or clerical errors.
Several commenters also argue that alleged problems with the
Commission's bidding software necessitate granting the waiver requests
at issue. For example, MAP claims that its erroneous bid resulted from
an ``irregularity'' in the ``Go to Market'' function of its competitive
bidding software. MAP notes that after it filed its request for waiver,
the Wireless Telecommunications Bureau released a Public Notice which
stated that ``when a bidder begins keying in a bid amount, the zero
remains in the bid column as the bid amount's final digit.'' Wilderness
claims that the fact that ``several diligent bidders'' have submitted
erroneous bids with an extra zero four times indicates that the
Commission's software is ``far from fool proof.''
11. Antigone suggests that there is an established body of case law
governing mistaken bids that result from clerical or
[[Page 25812]]
arithmetic errors. According to Antigone, these cases hold that when a
bidder demonstrates that its bid was the result of clerical or
arithmetic errors, the government agency holding the auction cannot
require a forfeiture. Antigone relies particularly on Ruggiero v.
United States for the proposition that once a factual determination is
made that a bidder made a clerical error, equitable principles compel
the remission of any bid withdrawal penalty. Similarly, PCS 2000 relies
on the practice under certain provisions of the Federal Acquisition
Regulation (FAR) for the proposition that bidders who submit erroneous
bids may be permitted to withdraw without paying any forfeiture.
12. In addition, several parties submitted comments on our proposed
alternatives to the enforcement of the bid withdrawal payment
provisions in cases of erroneous bids caused by inadvertent,
typographical mistakes. One commenter, Auction Strategy Inc. (ASI),
favors the Commission's second proposal, but with some modification.
ASI describes how a bidder can ``game'' the second proposal so as to
find out critical information concerning a competitor's bidding
strategy without being subject to any bid withdrawal payment. ASI
proposes modifications which it claims would reduce the bid withdrawal
payment for erroneous bids without encouraging bidders to make
strategic ``mistakes.''
III. Discussion
13. The Commission established a bid withdrawal payment requirement
in order to discourage insincere bidding. Insincere bidding, whether
purely frivolous or strategic, distorts the price information generated
by the auction process and reduces efficiency.
14. The bid withdrawal payment provisions are silent on how to
address erroneous bids which result from typographical or clerical
errors. In cases in which the erroneous bid exceeds the intended bid by
factors of 10 or more, full application of the bid withdrawal payment
provisions could impose an extreme and unnecessary hardship on most
bidders. We believe, however, that it may be extremely difficult for
the Commission to distinguish between ``innocent'' erroneous bids and
``strategic'' erroneous bids. Furthermore, we are mindful of the
negative impact that erroneous bids may have on the integrity of the
auction. In particular, an erroneous bid distort the price information
generated by the auction process and reduce efficiency. Such distortion
and inefficiency may result regardless of whether the bid was the
result of an innocent error or was strategically placed. Consequently,
we have strongly urged bidders to exercise great caution when
submitting their bids.
15. A waiver of the bid withdrawal payment provisions applicable to
the 900 MHz SMR auction and to the broadband PCS C block auction is
appropriate when a petitioner demonstrates that special circumstances
warrant a deviation from the rule and such deviation will serve the
public interest. Northeast Cellular Telephone Company v. FCC, 897 F.2d
1164, 1166 (D.C. Cir., 1990), citing Wait Radio v. FCC, 418 F.2d 1153
(D.C. Cir. 1969). On the facts before us, we believe that ATA and MAP
have demonstrated that waivers of the applicable bid withdrawal payment
provisions are appropriate. ATA and MAP have shown that they submitted
erroneous bids which exceeded their intended bids by factors of ten or
more. Under these circumstances, full imposition of the bid withdrawal
payment provisions would impose an extreme and unnecessary financial
hardship. As noted above, these provisions were adopted to discourage
insincere bidding. They were not adopted to impose financial hardship
on bidders who submit mistaken bids. Full enforcement of the bid
withdrawal payment provisions would not serve the underlying purpose of
these provisions, nor would it serve the public interest. For these
reasons, we believe that ATA and MAP are entitled to a partial waiver
of the applicable bid withdrawal payment provisions.
16. In cases of erroneous bids, some relief from the bid withdrawal
payment requirement appears necessary. We are concerned, however, that
a complete waiver of these provisions could threaten the economic
efficiency of the auction process. Such a precedent would encourage
future bidders who are uncertain about how much more to bid on a
particular license to submit ``mistaken'' bids intentionally so as to
gain insight into competitors' valuation of licenses. As ASI points
out, accurate bids are essential to the integrity of the auction
process. In this regard, we believe that the cases and the practice
under certain provisions of the Federal Acquisition Regulation (FAR)
cited by Antigone and PCS 2000 are inapposite because of the unique
auction methodology employed here (e.g., simultaneous multiple round
bidding). We also disagree with MAP's contention that because the
Auctions Division has previously granted waivers allowing applicants to
correct typographical or clerical errors in their short-form
applications (FCC Form 175s), MAP should be entitled to correct the
typographical or clerical error which resulted in its erroneous bid.
The waivers MAP cites allowed for changes to be made to the applicant's
FCC Form 175s. These waivers were granted prior to the commencement of
the auction where concerns about strategic manipulation of the bidding
process were non-existent. Furthermore, Commission precedent allowed
for changes to short-form applications to be made, whereas the
Commission has never allowed a bidder to change its bids without being
subject to the bid withdrawal payment provisions.
17. Therefore, we intend to partially waive these provisions in a
manner which is fair to bidders and which preserves the economic
efficiency of the auction process. For those instances in which bidders
submit an erroneous bid, we generally agree that the approach proposed
by ASI, which is a modification of our second proposal contained in the
Public Notice, is most appropriate. In determining an appropriate bid
withdrawal payment, we will take into consideration the round and stage
in which a mistaken bid is withdrawn. In general, the approach
described below follows the guidelines suggested by ASI and is designed
to eliminate the strategic benefit of purposely submitting mistaken
bids.
18. Specifically, if at any point during an auction a mistaken bid
is withdrawn in the same round in which it was submitted, the bid
withdrawal payment should be the greater of (a) the minimum bid
increment for that license and round, or (b) the standard bid
withdrawal payment calculated as if the bidder had made a bid at the
minimum accepted bid. If a mistaken bid is withdrawn in the round
immediately following the round in which it was submitted, and the
auction is in Stage I or Stage II, the withdrawal payment should be the
greater of (a) two times the minimum bid increment during the round in
which the mistaken bid was submitted or (b) the standard withdrawal
payment calculated as if the bidder had made a bid at one bid increment
above the minimum accepted bid. If the mistaken bid is withdrawn two or
more rounds following the round in which it was submitted, the bidder
should not be eligible for any reduction in the bid withdrawal payment.
Similarly, during Stage III of an auction, if a mistaken bid is not
withdrawn during the round it was submitted, the bidder should not be
eligible for any reduction in the bid withdrawal payment.
[[Page 25813]]
Example: Bidder X wishes to place the minimum accepted bid for
Market 1. The standing high bid for this market after Round 19 of
the auction is $1 million. The minimum bid increment is set at ten
percent. Thus, the minimum accepted bid for Market 1 in Round 20
would be $1.1 million. In Round 20, Bidder X erroneously submits a
bid of $110 million. If Bidder X withdraws it erroneous bid during
the bid withdrawal period for Round 20, it would be subject to a bid
withdrawal payment of the minimum bid increment for Round 20,
$100,000, or the difference between $1.1 million and the subsequent
winning bid, whichever is greater. If Bidder X does not withdraw its
bid until Round 21, and the auction is in Stage I or Stage II, it
would be subject to a bid withdrawal payment of two times the
minimum bid increment, $200,000, or the difference between $1.2
million and the subsequent winning bid, whichever is greater. If
Bidder X waits until Round 22 or later to withdraw its erroneous
bid, it would be subject to the standard bid withdrawal payment.
Similarly, if the auction is in Stage III, and Bidder X fails to
withdraw its erroneous bid in Round 20, it would be subject to the
standard bid withdrawal payment.
19. Under this approach, the required bid withdrawal payment would
be substantial enough to discourage strategic placement of erroneous
bids without being so severe as to impose an untenable burden on
bidders. In addition, the payment is tailored to the size of the
license and the point in the auction when the mistaken bid was
submitted. For example, if a mistaken bid is submitted early in a
simultaneous, multiple round auction, the potential damage to the
economic efficiency of the auction is lower than if it were submitted
during the later stages of the auction, and the required bid withdrawal
payment would be correspondingly lower. As an auction progresses,
however, the potential gain from a strategically-placed erroneous bid
is higher, and the potential damage to the efficiency of the auction
process is higher. In other words, erroneous bids cause greater damage
to the economic efficiency of the auction process as market prices
approach their final valuation. Thus, the cost of submitting an
erroneous bid during the later stages of an auction is higher than it
would be if it were submitted earlier in an auction.
20. We have decided to grant ATA and MAP relief from full
enforcement of the bid withdrawal payment rules. Specifically, we will
utilize the approach described above to reduce ATA's bid withdrawal
payment to two times the minimum bid increment for license 11P in Round
9, or $45,594. Similarly, we will utilize the approach described above
to reduce MAP's bid withdrawal payment to the minimum bid increment for
license B-380 in Round 10 of the broadband PCS C block auction, or
$206,400.
21. We delegate to the Wireless Telecommunications Bureau (the
``Bureau'') the authority to resolve similar requests for waiver of the
Commission's bid withdrawal provisions. In order for a party to be
eligible for such a waiver, it must submit a request for waiver
accompanied by a sworn declaration attesting to the veracity of the
factual circumstances surrounding the erroneous bid submission. We will
continue to evaluate these requests on a case-by-case basis. We caution
that relief will not be available to bidders if there is evidence that
they have engaged in insincere or frivolous bidding or have otherwise
acted in bad faith. We consider all allegations of bidder misconduct
very seriously.
IV. Ordering Clauses
22. Accordingly, it is ordered That the waiver request submitted by
Atlanta Trunking Associates, Inc. is granted to the extent indicated
above.
23. It is further ordered That Atlanta Trunking Associates, Inc. is
subject to a bid withdrawal payment requirement of $45,594.
24. It is further ordered That the waiver request submitted by MAP
Wireless, L.L.C. is granted to the extent indicated above.
25. It is further ordered That MAP Wireless, L.L.C. is subject to a
bid withdrawal payment requirement of $206,400.
26. It is further ordered That we delegate to the Wireless
Telecommunications Bureau the authority to resolve bid withdrawal
payment waiver requests involving factual circumstances similar to
those presented here.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 96-12967 Filed 5-22-95; 8:45 am]
BILLING CODE 6712-01-M