[Federal Register Volume 61, Number 127 (Monday, July 1, 1996)]
[Rules and Regulations]
[Pages 33859-33870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16665]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 20 and 24
[WT Docket No. 96-59; GN Docket No. 90-314; FCC 96-278]
Broadband Personal Communications Services
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: This Report and Order amends the Commission's broadband
Personal Communications Services (``PCS'') rules. The Commission
concludes that the present record is insufficient to support the race-
based F block rules under the strict scrutiny standard of judicial
review required by the Supreme Court's decision in Adarand
Constructors, Inc. v. Pena, or to support the gender-based rules under
the intermediate scrutiny standard that currently applies to those
rules. Taking account of the need to award the remaining broadband PCS
licenses expeditiously and to promote the rapid deployment of new
services to the public, as well as the statutory objective of
disseminating licenses among a wide variety of applicants, the
Commission makes the F block rules race- and gender-neutral to avoid
the delay that would likely result from legal challenges to the special
provisions for minority- and women-owned businesses. The Commission
also amends its D, E, and F block rules and broadband PCS rules
generally to streamline procedures, reduce administrative burdens, and
minimize the possibility of insincere bidding and bidder default.
Finally, the Commission, in response to Cincinnati Bell Telephone Co.
v. FCC, eliminates the cellular/PCS cross-ownership rule and the PCS
spectrum cap in favor of the 45 MHz cap on Commercial Mobile Radio
Services spectrum.
EFFECTIVE DATE: July 31, 1996.
FOR FURTHER INFORMATION CONTACT: Mark Bollinger, Wireless
Telecommunications Bureau, (202) 418-0660.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Report and Order in WT Docket No. 96-59; GN Docket No. 90-314; FCC 96-
278, adopted June 21, 1996, and released June 24, 1996. The complete
text is available for inspection and copying during normal business
hours in the FCC Reference Center (Room 239), 1919 M Street, N.W.,
Washington, DC. The complete text may also be purchased from the
Commission's copy contractor, International Transcription Service,
Inc., (202) 857-3800, 2100 M Street, N.W., Washington, DC 20037.
Synopsis of the Report and Order
I. Introduction
1. In this Report and Order, the Commission modifies the
competitive bidding and ownership rules for broadband Personal
Communications Services (``PCS''). Many of the rule modifications
concern the treatment of ``designated entities,'' i.e., small
businesses, rural telephone companies, and businesses owned by members
of minority groups and women, under the broadband PCS F block rules.
The Commission also amends the D, E, and F block rules and other
broadband PCS rules in order to encourage sincere bidding, streamline
the auction process, and lessen administrative burdens. In addition, in
response to the remand from the U.S. Court of Appeals for the Sixth
Circuit in Cincinnati Bell Telephone Co. v. FCC, 69 F.3d 752 (6th Cir.
1995), the Commission modifies the rules governing cellular licensees'
ownership of broadband PCS licenses in all frequency blocks.
II. Rules Affecting Designated Entities
A. Meeting the Adarand Standard
2. In Adarand Constructors, Inc. v. Pena, 115 S. Ct. 2097 (1995),
the Supreme Court held that all racial classifications, whether imposed
at the federal, state or local government level, must be analyzed by a
reviewing court under strict scrutiny, which requires such
classifications to be narrowly tailored to further a compelling
governmental interest. An intermediate scrutiny standard of review
(under which a provision is constitutional if it serves an important
governmental objective and is substantially related to achievement of
that objective) applies to gender-based measures. Having evaluated the
record before it, the Commission concludes that this record is
insufficient to support the race- and gender-based F block provisions
and revises the F block rules in this Report and Order to make them
race- and gender-neutral. Overall, the commenters agree that this
approach will best serve the goal of rapidly conducting the F block
auction with the least risk of judicial delay. Moreover, this type of
approach was upheld by the D.C. Circuit Court of Appeals, which held in
Omnipoint v. FCC, 78 F.3d 620 (D.C. Cir. 1996), that the Commission
acted reasonably in concluding that, in light of the additional time it
would take to develop a record to support the race- and gender-based
provisions of the C block rules, it should revise these rules by
providing the most favorable terms to all small businesses. The
Commission concludes that making the F block rules race- and gender-
neutral will serve the public interest by enabling it to auction the
remaining broadband PCS licenses as expeditiously as possible. Because
many minority- and women-owned entities are small businesses and will
therefore qualify for the same special provisions that would have
applied to them under the previous rules, the Commission also believes
that the amended rules will continue to fulfill the mandate under
Section 309(j) of the Communications Act, as amended, 47 U.S.C.
309(j)(3), to provide opportunities for minority- and women-owned
businesses to become providers of spectrum-based services.
1. Control Group Equity Structures
3. The F block auction is limited to applicants that, together with
their affiliates and persons or entities that hold interests in them,
have gross revenues of less than $125 million in each of the last two
years and total assets of less than $500 million. As part of its
decision to make the F block rules race- and gender-neutral, the
Commission concludes that the 50.1/49.9 percent equity option,
previously available to minority- and women-owned applicants only,
should be available to all small businesses and entrepreneurs.
Applicants may use this control group equity structure to establish
eligibility to participate in the F block auction. It requires the
control group to own at least 50.1 percent of the applicant's total
equity; of that 50.1 percent equity, at least 30 percent must be held
by qualifying investors. If these and certain other requirements are
met, the remaining 49.9 percent of the applicant's equity may be held
by non-controlling investors, and the gross revenues and total assets
of any such investor will not be attributed.
4. The Commission adopts this rule modification because it reduces
the likelihood of legal challenges to the F block rules and enhances
the opportunities for a wide variety of applicants to obtain licenses
and rapidly deploy broadband PCS; and because it believes that making
the same equity structures available to both C and F block applicants
is necessary so that C
[[Page 33860]]
block participants will not be required to structure themselves
differently in order to participate in the F block auction. Moreover,
this rule amendment will benefit other entities that did not
participate in the C block auction because it continues equity
structures that are familiar to the industry and the financial
community.
5. The Commission declines to make adjustments to the financial
eligibility thresholds in the F block rules. The Commission believes
that retaining the same thresholds as those used for the C block
auction will allow for participation by entities that used the C block
rules as guidelines for determining their structure in preparation for
the F block auction. Moreover, these thresholds were used by C block
bidders, many of whom will be interested in participating in the F
block auction. The Commission declines to further restrict
participation in the F block (or any of the other 10 MHz blocks) to
small businesses and rural telephone companies. It believes that
setting aside the F block for both entrepreneurs and small businesses
will be sufficient to achieve the objectives of providing opportunities
for small businesses to obtain 10 MHz licenses and ensuring broad
dissemination of 10 MHz licenses.
6. In addition, the Commission declines to treat C block licenses
as assets that could potentially preclude C block winners from F block
eligibility. It believes it would be unfair to disqualify C block
winners on the basis of their success in acquiring capital to
participate in that auction, primarily because the Commission has
indicated previously that the C and F blocks are linked. The Commission
believes that treating C block winners' licenses as an asset for
purposes of eligibility for the F block auction could frustrate
business plans and auction strategies made in reliance on its previous
statements. Applicants should be aware that other licenses (such as
Specialized Mobile Radio (``SMR''), cellular, narrowband PCS, and
broadband PCS A and B block licenses) should be included in their total
asset calculations for F block eligibility.
2. Affiliation Rules
7. The affiliation rules applicable to the F block identify all
individuals and entities whose gross revenues and assets must be
aggregated with those of the applicant to determine whether the
applicant exceeds the financial caps for the entrepreneurs' blocks or
for small business size status. There are two exceptions to these
rules. Under the first exception, Indian tribes and Alaska Regional or
Village Corporations organized pursuant to the Alaska Native Claims
Settlement Act, 43 U.S.C. 1601 et seq., are not considered affiliates
of an applicant owned and controlled by such tribes and corporations.
Under the second exception, the gross revenues and assets of affiliates
controlled by minority investors who are members of the applicant's
control group are not attributed to the applicant.
8. The Commission will eliminate the exception to the affiliation
rules pertaining to minority investors for purposes of the F block
auction. To retain this exception in its present state poses legal
risks that, as discussed above, could delay the award of F block
licenses. Furthermore, the Commission declines to adopt the
modification of this rule that it utilized for the C block, which
allowed all small business applicants to exclude any affiliates who
would otherwise qualify as entrepreneurs by having gross revenues of
$125 million or less and total assets of $500 million or less and whose
total assets and gross revenues, when considered on a cumulative basis
and aggregated with each other, do not exceed these amounts. The
Commission adopted the modified exception for the C block at a time
when a number of minority-owned applicants had relied on the rule and
had structured their business arrangements accordingly. However, the
Commission is not convinced that the C block exception is needed under
current circumstances, and it acknowledges the argument made by certain
commenters that the exception may qualify too many larger entities as
small businesses. For applicants that participated in the C block
auction and relied on the affiliation exception in structuring
themselves, the Commission will consider requests to waive the rules to
allow them to be eligible to participate in the F block auction.
Finally, the Commission will retain the exception to the affiliation
rules for Indian tribes and Alaska Regional or Village Corporations.
The Commission notes that certain comments support its tentative
conclusion in the Notice of Proposed Rule Making that the Indian
Commerce Clause of the U.S. Constitution provides a basis for this
exception which is not implicated by Adarand.
3. Installment Payments
9. The Commission amends its F block rules concerning installment
payments to provide for three rather than five installment payment
plans and to make all small businesses, rather than only those owned by
minorities and women, eligible for the most favorable installment plan.
The Commission concludes that extending the most favorable payment plan
to all small businesses will give minority- and women-owned businesses
an opportunity to participate in the provision of spectrum-based
services. The Commission also concludes, however, that it should
shorten the period during which F block auction winners eligible for
this plan may make interest-only payments. Thus, the most favorable
plan will have a two-year interest-only payment period, rather than a
six-year interest-only period. The plan will provide for installments
at a rate equal to ten-year U.S. Treasury obligations applicable on the
date the license is granted, with payments of principal and interest
amortized over the remaining eight years of the license term. Principal
will be repaid as part of equal quarterly payments of interest and
principal (as with a standard mortgage amortization schedule).
10. The Commission believes that these terms will provide small
businesses with the appropriate level of U.S. government assisted
financing to overcome the difficulties they face in accessing capital
to compete in the PCS marketplace. It further believes that reducing
the interest-only period to two years will deter speculation; encourage
bidding, business, and financial strategies based upon market forces
rather than the financial terms of installment payment plans; and still
provide small businesses with the ability to obtain the necessary funds
for construction and initial operation of their systems. Finally,
shortening the interest-only period to two years will not foreclose
opportunities for small businesses to compete in PCS. The terms that
the Commission is offering are extremely attractive compared to other
terms small businesses may be able to obtain.
11. Entrepreneurs that are not small businesses will be eligible
for installment payments as provided in Sections 24.716(b)(1) and
24.716(b)(2) of the rules. These rules provide for installments at a
rate equal to ten-year U.S. Treasury obligations applicable on the date
the license is granted plus 3.5 percent, with payments of principal and
interest amortized over the license term for eligible licensees with
gross revenues exceeding $75 million in each of the two preceding
years. Eligible licensees with gross revenues not exceeding $75 million
in each of the two preceding years may make installment payments at a
rate equal to ten-year U.S. Treasury obligations applicable on the date
the license is granted plus 2.5 percent, with interest-
[[Page 33861]]
only payments for the first year and payments of interest and principal
amortized over the remaining nine years of the license term.
12. The Commission also concludes that it should amend the terms of
the installment payment plans to provide for late payment fees.
Therefore, when licensees are more than fifteen days late in their
scheduled installment payments, the Commission will charge a late
payment fee equal to 5 percent of the amount of the past due payment.
Without this late payment fee, licensees may not have adequate
financial incentives to make installment payments on time. The 5
percent payment adopted here is an approximation of late payment fees
applied in typical commercial lending transactions. Payments will be
applied in the following order: late charges, interest charges,
principal payments.
4. Bidding Credits
13. Consistent with its concerns about avoiding litigation based on
Adarand, the Commission will eliminate the race- and gender-based
aspects of the F block bidding credits. In place of these provisions,
the Commission adopts a two-tiered bidding credit for small businesses.
It believes that this approach will promote dissemination of licenses
to a broader variety of applicants than a 25 percent bidding credit for
all small businesses and will encourage smaller businesses, possibly
businesses that are very well suited to provide 10 MHz niche services,
to participate in the F block auction.
14. The Commission modifies its rules to provide that entities with
average gross revenues greater than $15 million but not more than $40
million for the past three years are eligible for a 15 percent bidding
credit; entities with average gross revenues of not more than $15
million for the past three years are eligible for a 25 percent bidding
credit. The Commission believes that the timing of the modification
here allows it to take a different approach than it took for the C
block. Entities interested in bidding on F block licenses have not had
expectations similar to those of entities that were interested in
bidding on the C block licenses and that formulated business strategies
in reliance on the tiered bidding credits originally adopted.
5. Information Collection
15. The Commission will request information regarding minority- and
women-owned status in the F block short-form applications. The
Commission believes that continuing to collect such information will
assist it in analyzing applicant pools and auction results to determine
whether it has promoted substantial participation in auctions by
minorities and women, as directed by Congress, through the special
provisions it makes available to small businesses.
B. Definitions
1. Small Business
16. Under the current F block rules, a ``small business'' is
defined as an entity that, together with its affiliates and persons or
entities that hold interests in such entity and their affiliates, has
average gross revenues of not more than $40 million for the preceding
three years. The Commission will continue to define small businesses in
this way. Maintaining the $40 million definition of small businesses
avoids disruption to the business plans of potential bidders,
particularly participants in the C block auction. Additionally,
however, the Commission defines a second tier of small businesses,
which it will refer to as ``very small businesses,'' as entities that,
together with their affiliates and persons or entities that hold
interests in such entities and their affiliates, have average gross
revenues of not more than $15 million for the preceding three years.
Creation of this subcategory of small businesses enables the Commission
to tailor its benefits to better meet the needs of bidders likely to
participate in the F block auction. Smaller license size may mean that
smaller businesses are likely to participate in the F block auction.
Thus, as discussed above, the Commission's goals can best be served by
offering varying bidding credits depending on the applicant's size.
17. The Commission declines to make special provisions for small
business winners of C block licenses as requested by some commenters.
As a practical matter, C block small business winners will likely not
have accrued substantial gross revenues by the time the Commission
auctions the D, E, and F blocks. Therefore, most of these winners
should continue to qualify as small businesses. On the other hand, if
they have grown in size beyond the established financial cap, or if
they can no longer avail themselves of the exception to the affiliation
rules, they may no longer qualify as a small business.
2. Rural Telephone Company
18. The Telecommunications Act of 1996 (``1996 Act'') defines
'rural telephone company' to include a larger number of local exchange
carriers than the Commission's F block rules, which define a rural
telephone company as ``a local exchange carrier having 100,000 or fewer
access lines, including all affiliates.'' The Commission adopts the
definition of rural telephone company contained in the 1996 Act. It
finds compelling the argument that this definition will increase the
number of entities eligible for partitioning and expedite the delivery
of advanced services to rural areas. Although this decision may result
in larger rural telephone companies being eligible to partition
licenses, the Commission recognizes that the number of accesslines--
including those provided by rural telephone companies--continues to
grow rapidly as the uses of telecommunications services expand. Thus,
most rural telephone companies will benefit from a definition that
accounts for their growth. Adopting the 1996 Act definition for
purposes of Section 309(j) will also promote uniformity of regulations
and is therefore consistent with the mandate of this legislation of
easing regulatory burdens and eliminating unnecessary regulation.
19. The Commission agrees with commenters who assert that the
definition is one of general applicability and it therefore elects not
to adopt the definition of rural telephone company contained in Section
251(f)(2) of the 1996 Act, as proposed by one commenter. This
definition applies to rural telephone companies only in the context of
suspensions or modifications of the application of certain statutory
requirements to rural carriers. Absent a specific definition of rural
telephone company for purposes of Section 309(j), and reading the
statute as a whole, the Commission is constrained to adopt the more
generalized definition.
C. Extending Small Business Provisions to the D and E Blocks
20. The Commission declines to extend installment payment plans or
any other special provisions to small businesses bidding on the D and E
blocks, believing that the special provisions for small businesses in
the F block rules sufficiently further the objective of encouraging
wide dissemination of broadband PCS licenses. Since the F block is an
entrepreneurs' block, it guarantees that one third of the 10 MHz
broadband PCS licenses will be assigned to entrepreneurs and small
businesses. The Commission believes that it would undermine the
justification for the F block as an entrepreneurs' block if it were to
open the D and E blocks to special provisions for small businesses, and
that departing from the original
[[Page 33862]]
plan to establish two contiguous blocks of broadband PCS spectrum for
the exclusive use of entrepreneurs and small businesses is not
warranted.
D. Adjusting Payment Provisions for 10 MHz Licenses
21. The Commission modifies the upfront payment requirement for the
F block to raise it to the same level as the D and E block requirement
and eliminate the discount previously provided to entrepreneurs. The
Commission originally discounted upfront payments for entrepreneurs
because their down payment requirement was low (5 percent) and it was
concerned that if it required them to pay upfront payments larger than
the required down payment it might discourage their participation. The
Commission's experience to date, however, indicates that it has
underestimated the value of spectrum and that upfront payments have not
created a barrier to entrepreneur participation in auctions. The
Commission is also concerned, based on defaults in the C block auction,
that there is a need to obtain a higher payment up front to guard
against default. The Commission also agrees that requiring a uniform
upfront payment (per bidding unit) of all bidders for D, E, and F block
licenses will greatly simplify the auction process for bidders
interested in bidding on two or more of the blocks. The Commission also
believes that if it conducts a single simultaneous multiple round
auction of the D, E, and F block licenses, it is necessary for
operational reasons to have the same upfront payment and activity
requirements across all three blocks.
22. Further, because the Commission wants the payment terms to more
accurately reflect the value of the licenses, it will raise the upfront
payment requirement for all three blocks. It believes that this action
is consistent with the policy reason for requiring upfront payments--to
deter insincere and speculative bidding and to ensure that bidders have
the financial capability to build out their systems. The formula for
calculating upfront payments was intended to approximate 5 percent of
the estimated license value. Based on the license values established in
the completed PCS auctions, however, the formula of $0.02 per MHz-pop
underestimates actual value. The Commission adopts an upfront payment
of $.06 per MHz-pop for the D, E, and F blocks. Based on its analysis
of the prices paid in the C block auction, the Commission believes that
such an upfront payment is sufficient to ensure sincere bidding and
guard against defaults. The Commission also delegates authority to the
Wireless Telecommunications Bureau to modify the upfront payment
requirement for any C block licenses that are reauctioned in the
future. The Commission notes that it also favors the suggested approach
that would require applicants to supplement their upfront payments
during the auction to ensure that their payment is a certain percentage
of their bids. Operationally the Commission cannot implement this
proposal at this time, but it will look for ways to implement it in
future auctions.
23. For similar reasons, the Commission also modifies the rule
governing down payments for the F block. It finds that a 20 percent
down payment, the same down payment that is required of D and E block
auction winners, should be required of F block winners. Under this
approach, F block entrepreneurs and small businesses will be required
to supplement their upfront payments to bring their total payment to 10
percent of their winning bid within 5 business days of the close of the
auction. Prior to licensing, they will be required to pay an additional
10 percent. The government will then finance the remaining 80 percent
of the purchase price. The Commission believes an increased down
payment will provide it with strong assurance against default and
sufficient funds to cover default payments in the unlikely event of
default. Increasing the amount of the bidder's funds at risk in the
event of default discourages insincere bidding and therefore increases
the likelihood that licenses are awarded to parties who are best able
to serve the public.
E. Rules Regarding the Holding of Licenses
24. The Commission amends the holding requirement for F block
licensees and extends this change to the C block rules. The Commission
amends 47 CFR Sec. 24.839 to permit the transfer of entrepreneurs'
block licenses in the first five years to any entity that either holds
other entrepreneurs' block licenses (and thus at the time of auction
satisfied the entrepreneurs' block criteria) or that satisfies the
criteria at the time of transfer. There will be no restrictions on
transfers after the fifth year. The Commission notes, however, that the
unjust enrichment provisions will continue to apply as before. The
Commission further amends the holding rule to exempt pro forma
transfers and assignments because trafficking concerns do not exist
under such circumstances. The Commission concludes that allowing
transfers and assignments in the first five years--but only to
entrepreneurs--provides a sufficient safeguard. It also has the
experience of the C block auction behind it, and understands that
strict holding requirements may actually be hampering the ability of
entrepreneurs to attract the capital necessary to construct and operate
their systems. In particular, lenders and investors have expressed
concern about the need for more flexibility in the event of financial
distress and default. Because the Commission does not want investors to
shy away from financing C and F block winners due to such concerns, it
modifies the holding rule in a manner that continues to promote small
and entrepreneurial ownership in broadband PCS licenses. The Commission
believes that by not eliminating the transfer restriction entirely, it
continues to have a useful safeguard to ensure that small businesses
and entrepreneurs retain the opportunity to build out and operate
broadband PCS licenses. At the same time, by allowing entrepreneurs to
transfer their licenses to other entrepreneurs, the Commission believes
that it allows market transactions to occur that balance the objectives
of ensuring that entrepreneurs have an opportunity to participate in
PCS and putting spectrum in the hands of those who value it most in the
event the auction fails to accomplish this objective. In addition, the
Commission believes that its amendment to the holding requirement
serves the public interest by helping to ensure rapid and uninterrupted
service to the public. Market-oriented solutions in the event of
financial distress will help avoid PCS license defaults to the
Commission and the accompanying investor and/or service disruption that
such defaults engender.
III. The Cincinnati Bell Remand
A. The Cellular/PCS Cross-ownership Rule
25. In light of the Sixth Circuit's ruling in Cincinnati Bell
Telephone Co. v. FCC, remanding the Commission's rule limiting cellular
operators' eligibility for PCS licenses, the Commission will maintain
the 45 MHz Commercial Mobile Radio Services (``CMRS'') spectrum cap set
forth in 47 CFR 20.6 and eliminate the PCS and cellular/PCS spectrum
cap contained in Sections 24.229 and 24.204, respectively. The
Commission finds that a spectrum cap is necessary to avoid excessive
concentration of licenses and promote and preserve competition in the
CMRS marketplace and therefore declines to eliminate all limitations on
[[Page 33863]]
the amount of CMRS spectrum a single entity (or affiliated entities)
may acquire.
26. The Commission adopted the 45 MHz CMRS spectrum cap to
discourage anticompetitive behavior while at the same time maintaining
incentives for innovation and efficiency. The Commission was concerned
that excessive aggregation of spectrum by any one of several CMRS
licensees could reduce competition by precluding entry by other service
providers and might thus confer excessive market power on incumbents.
The continuation of the 45 MHz spectrum cap will promote competition
and prevent anticompetitive horizontal concentration in the CMRS
business.
27. For determining when concentration reduces competition to an
undesirable level, one accepted tool is the Herfindahl-Hirschman Index
(``HHI''), which is used in the Department of Justice and Federal Trade
Commission Horizontal Merger Guidelines (``DOJ/ FTC Guidelines'') to
measure market concentration. In addition to considering the arguments
presented by commenters in this proceeding and in response to the Sixth
Circuit's concern about the lack of economic support for the cellular/
PCS spectrum cap, the Commission's competitive analysis staff performed
an HHI analysis for various possible structures of a hypothetical
market for mobile two-way voice communications service in the same
geographic area. The Commission staff's HHI analysis indicates that the
45 MHz CMRS spectrum cap is needed to prevent undue market
concentration and the noncompetitive conditions in local markets that
result from such concentration.
28. The 45 MHz spectrum cap is also needed specifically to prevent
cellular licensees from gaining too great a competitive advantage over
new entrants to the wireless telephony market. Cellular companies
already hold licenses for 25 MHz of clear spectrum, and they already
have technical expertise, customer bases, marketing operations, and
antenna and transmitter sites. In short, cellular operators have a
competitive position that is superior to that of any new market
entrant. By limiting current cellular licensees to an additional 20 MHz
of spectrum (i.e., two of the three 10 MHz broadband PCS licenses), the
45 MHz cap will help to level the playing field for all new entrants,
while ensuring that incumbent providers are not placed at any
disadvantage.
29. The 45 MHz spectrum cap also furthers the goal of diversity of
ownership that the Commission is mandated to promote under Section
309(j). Section 309(j) directs the Commission, in specifying
eligibility for licenses and permits, to avoid excessive concentration
of licenses and disseminate licenses among a wide variety of
applicants. The statute further states that in prescribing regulations,
the Commission must, inter alia, prescribe area designations and
bandwidth assignments that promote economic opportunity for a wide
variety of applicants. A spectrum cap is one of the most effective
mechanisms the Commission could employ to achieve these goals.
30. The court in the Cincinnati Bell decision was concerned that
the cellular/PCS spectrum cap would ``have a profound impact on
businesses in an industry enmeshed in this country's telecommunications
culture.'' It stated that ``[t]he continued existence of some wireless
communications businesses rests on their ability to bid on Personal
Communications Service licenses'' and that ``Cellular providers
foreclosed from obtaining Personal Communications Service licenses may
ultimately be left holding the remnants of an obsolete technology.''
Cincinnati Bell, 69 F.3d at 764. The Commission's amendment of its
rules provides cellular licensees additional flexibility to expand into
or migrate to PCS technology. Under the old rule, they were limited to
one 10 MHz channel until the year 2000. The shift to a single 45 MHz
spectrum cap will allow incumbent cellular operators to acquire up to
two of the 10 MHz broadband PCS licenses (20 MHz) in the upcoming
auction for the D, E, and F blocks. As many commenters point out, an
additional 20 MHz of spectrum will be sufficient to develop and provide
new digital services. The Commission also notes that cellular carriers
have been rapidly implementing digital and other new technologies with
their current 25 MHz of spectrum.
31. While the Commission's analysis of the CMRS market under the
DOJ/FTC Guidelines indicates that the 45 MHz spectrum cap is needed to
ensure competition, it also shows that this cap adequately addresses
the Commission's concerns about anticompetitive behavior. Indeed, the
Commission's HHI analysis indicates that the concentration levels under
the single 45 MHz spectrum cap would not be higher than the level that
would be possible under all three of the existing caps. Thus, the
Commission concludes that the PCS and cellular/PCS spectrum caps are
unnecessary.
32. The Commission also believes that elimination of the cellular/
PCS cross-ownership rule and the PCS spectrum cap in favor of the
single 45 MHz CMRS spectrum cap has important advantages. Applying the
single 45 MHz CMRS cap will give both cellular and PCS providers more
flexibility to participate in a more competitive marketplace. The
elimination of the cellular/PCS and PCS limits will give PCS providers
greater flexibility to own interests in other providers and provide
additional services and, hence, enhanced opportunities to compete. In
addition, PCS providers will no longer be restricted to less than a 5
percent ownership interest in cellular and other PCS licensees in order
to avoid attribution. Instead, they will be subject to the more liberal
20 percent attribution level for all CMRS.
33. The Commission also notes that the 1996 Act requires it to
determine in every even-numbered year (beginning with 1998) ``whether
any regulation is no longer necessary in the public interest as the
result of meaningful economic competition between providers of such
service'' and to modify or repeal such regulation. 47 CFR 161(a)(2). In
an effort to streamline regulations consistent with the spirit of the
1996 Act, and in light of the findings set forth above, the Commission
believes that simplifying the rules to include a single 45 MHz CMRS cap
in place of the three separate spectrum caps is warranted. In addition,
at the next biennial review of the Commission's regulations under the
1996 Act and in annual reports on the state of competition in the CMRS
market, the Commission will continue to evaluate the need for the 45
MHz spectrum cap in its present form.
34. The Commission declines to alter the 10 percent overlap
restriction for the CMRS cap as some commenters suggest. It continues
to believe that an overlap of less than 10 percent of the population is
sufficiently small that the potential for exercise of undue market
power by the cellular operator is slight. Given its decision to
eliminate the cellular/PCS and PCS ownership limitations, the
Commission is concerned that greater overlap might lead to
anticompetitive practices. It will, however, expand the post-auction
divestiture provisions of 47 CFR Sec. 20.6 to conform with the
divestiture provisions that previously applied in the cellular/PCS
cross-ownership rule, including the relaxed rule applicable to
situations where the overlap exceeds 10 percent, but is less than 20
percent. Thus, any party holding an attributable ownership interest in
a CMRS licensee may be a party to a broadband PCS application if it
certifies that, if necessary, it will come
[[Page 33864]]
into compliance with the CMRS spectrum cap through post-auction
divestiture procedures.
B. The 20 Percent Attribution Standard
35. The Commission's decision to eliminate the 35 MHz cellular/PCS
spectrum cap renders the issue of whether to modify the attribution
standard of 47 CFR 24.204(d) moot. The Commission reaffirms, however,
the 20 percent attribution standard for the purpose of determining
whether an entity is subject to the 45 MHz CMRS spectrum aggregation
limit. The Commission also concludes that the attribution standard for
the 45 MHz spectrum cap should be made race- and gender-neutral such
that a 40 percent attribution standard applies to all small businesses
and rural telephone companies. The Commission believes that extending
the 40 percent threshold to noncontrolling investors in small
businesses as it did for the C block licenses will promote additional
investment in small business applicants and ensure broad participation
in PCS by designated entities.
36. The Commission believes that a 20 percent interest held by a
single entity would create a possibility of de facto control. Such an
interest (whether 20 percent or less) that conveys to its holder actual
working control (including investor control) is already attributable
under the rules. The Commission believes generally, however, that even
an entity that does not have de facto or de jure control but owns a 20
percent or more interest in a licensee would have sufficient influence
to reduce competition and should be subject to the CMRS spectrum
aggregation limit. The Commission notes that attribution rules for
other services typically apply much lower ownership benchmarks of 5 to
10 percent. Both cable and broadcast use a 5 to 10 percent attribution
level. The Commission further notes, as do some commenters, that the
1996 Act defines ``affiliate'' as a ``person that * * * owns or
controls, is owned or controlled by, or is under common ownership or
control with, another person * * *. [The] term `own' means to own an
equity interest (or the equivalent thereof) of more than 10 percent.''
47 U.S.C. 153 (1).
37. The Commission continues to believe that a higher benchmark of
20 percent should apply for purposes of the CMRS spectrum cap to
encourage capital investment and business opportunities in CMRS. Given
the changing technology and the variety of competing services that will
be subject to this limitation, it believes that increased flexibility
in the rules will enable CMRS providers to adapt their services to meet
customer demand. Furthermore, the Commission originally adopted a 20
percent attribution level in the cellular/PCS cross-ownership rules to
allow partial owners of cellular licensees to participate in PCS, in
light of several partial and often passive ownership interests that may
have resulted from early settlements during the initial phase of
cellular licensing. The Commission believes that maintaining a 20
percent attribution level for the CMRS cap will allow a wide variety of
players (i.e., PCS, cellular and SMR providers) to enter the
marketplace while still preventing anticompetitive practices that would
have harmful effects on consumers.
38. The Commission disagrees with suggestions that only controlling
interests should be attributable. Establishing a control test would
require the Commission to conduct frequent case-by-case determinations
of control, which are time-consuming, fact specific, and subjective.
The bright line 20 percent attribution rule avoids these problems.
Also, for the reasons discussed below, a single majority shareholder
exception to the rule is not appropriate for all situations involving
CMRS licensees and their owners, and so adoption of such an exception
is not a suitable bright line substitute for 20 percent attribution.
However, the Commission adopts a less restrictive alternative and
allows licensees with non-controlling minority investors with
potentially conflicting CMRS ownership interests to seek waivers of the
spectrum cap rule where the licensee is controlled by a single majority
shareholder or controlling general partner.
39. The Commission rejects a control-based attribution test because
significant, but non-controlling, investments have sufficient potential
to affect the level of competition in the CMRS market. The CMRS
spectrum cap ownership attribution rule, just as all other ownership
attribution rules and similar statutory provisions, must take such
interests into account. Economic theory predicts that where a CMRS
licensee owns a substantial portion of one of its competitors, neither
company has as strong an incentive to compete vigorously against its
partner as it does with respect to an unrelated competitor. Theoretical
analysis has demonstrated that partial ownership interests can create
the very non-competitive markets that the Commission wants to avoid.
Indeed, as noted above, Congress was also apparently concerned about
competitive incentives when it defined ownership in the 1996 Act to
mean an interest of ten percent. The Communications Act also limits
foreign ownership interests in CMRS licenses to 20 percent. Although
these statutory ownership attribution criteria do not directly apply to
the CMRS ownership attribution rules, they indicate that Congress
believed that even non-controlling, minority ownership interests can
convey significant influence to their holders.
40. The Commission recognizes that small businesses and rural
telephone companies, as well as non-controlling investors in small
businesses, may have non-attributable ownership of up to 40 percent
under the rules. But these relaxed attribution rules present a
situation entirely different from the 20 percent attribution rule. The
Commission has been charged expressly by Congress to ensure that small
businesses, including businesses owned by women and minorities, and
rural telephone companies are given meaningful opportunities to
participate in the provision of wireless services. The rules must also
promote the development and rapid deployment of new technologies,
products, and services for the benefit of the public, including those
residing in rural areas. One of the most formidable barriers to such
participation is the difficulty such businesses face in raising
sufficient capital to compete in the highly capital-intensive wireless
communications businesses. By increasing the attribution threshold for
such designated entities and their investors, the Commission's goal was
to make capital more readily available by reducing the number of
investors such businesses must seek out. The Commission also concluded
that smaller entities that have some interests in cellular operations
may be especially effective PCS competitors because of their cellular
experience. This will help ensure that service is brought quickly to
underserved areas and that designated entities become viable
competitors. In particular, rural telephone companies and some small
cellular companies, due to their existing infrastructure, are uniquely
positioned rapidly to introduce PCS services into their service areas
or adjacent areas.
41. However, the Commission did not exempt small businesses and
rural telephone companies entirely from the cellular eligibility rules
because such an exemption could foreclose competition from a new PCS
entrant. In maintaining the 45 MHz spectrum cap, the Commission remains
concerned that there is potential for some of these parties to compete
less vigorously in the nascent PCS industry. While it recognizes that
its relaxation of the rules
[[Page 33865]]
for the CMRS spectrum cap presents a risk of lower than optimal
competition, the Commission must balance competing public policies and
believes that this is the proper balance to fulfill the various
statutory mandates under Section 309(j) of the Communications Act.
42. Further, the Commission declines to adopt a single majority
shareholder exception for the CMRS spectrum cap rule. As discussed
above, economic theory indicates that an entity holding less than a
majority interest may influence the CMRS market in an anticompetitive
manner. In those circumstances, it makes no difference whether there is
another shareholder that exercises control since significant minority
ownership that does not convey control still poses a serious danger of
hindering competition in a concentrated market such as CMRS. In
addition, the Commission notes that, although the single majority
shareholder exception currently applies in the broadcast context, it
believes that the broadcast and CMRS markets are sufficiently different
to warrant different treatment (and even in the broadcast arena the
Commission has recently sought comment on whether to restrict the
single majority shareholder rule). Mass media entities subject to the
broadcast ownership rules with the single majority shareholder
exception--including AM and FM radio licensees, UHF and VHF television
licensees, cable television operators and newspaper publishers--offer
the audience with numerous competing ``voices'' from which to choose.
There are as many as 30 or more broadcast stations in some areas. In
contrast, as the Commission envisions CMRS (particularly in the short
term), consumers will be able to choose from only about 5 or 6
competing service providers at most--as noted above, a fairly
concentrated market. The concerns the Commission has expressed above
about the potential of common ownership to influence the entire market
may be far less serious in a less concentrated market such as that for
mass media services. That is because the participants in a non-
oligopoly market are less likely to act jointly in order to preserve
high prices. In addition, the type of ``product'' on which competition
in broadcasting is based is different from the product offered by CMRS
providers. Broadcasters compete for advertising dollars (by attracting
audience share) on the basis of non-quantifiable programming choices,
while CMRS providers are expected to offer commodity-type services that
compete in terms of prices charged directly to consumers. The
Commission believes that it is more important to preserve vigorous
competition in a commodity-based market than in a market like
broadcasting. CMRS prices will be lowered only where competitors must
vie to survive, whereas it is not so clear that programming will
improve or become more diverse as the result of competition in free
over-the-air television and radio. Indeed, some economists suggest that
less competitive markets may actually offer more diverse programming.
Thus, even if the single majority shareholder rule is appropriate for
the mass media industry, that sector is sufficiently different from the
CMRS market to justify somewhat different regulation.
43. Hence, the Commission believes that, as a general matter,
minority stock interests and limited partnership interests should be
deemed attributable CMRS ownership interests even if a single holder
(or group of affiliated holders) that owns more than 50 percent of the
outstanding stock or partnership equity or has voting control of the
CMRS licensee. Nevertheless, the Commission believes that there may be
limited circumstances where the existence of a single majority
shareholder (or a single, controlling general partner) may mitigate the
competitive impact of common ownership and the ability of the non-
controlling interest holder to influence the licensee. Accordingly, the
Commission will implement two less restrictive measures as an
alternative to attributing ownership in such cases.
44. First, as was previously done with the cellular/PCS cross-
ownership rule, the Commission will allow parties with non-controlling,
attributable interests in CMRS licensees to have an attributable (or
controlling) interest in another CMRS application that would exceed the
45 MHz cap so long as certain post-licensing divestiture procedures are
followed. A ``non-controlling attributable interest'' is one where the
holder has less than a 50 percent voting interest and there is an
unaffiliated single holder of a 50 percent or greater voting interest.
This will allow interest holders in licensees with a single majority
shareholder to obtain another CMRS license (or attributable interest
therein) through an auction or other means, subject to the interest
holder coming into compliance with the divestiture provisions within 90
days of grant of the conflicting license.
45. Second, the Commission will consider requests for waivers of
the CMRS spectrum cap that make an affirmative showing that an
otherwise attributable ownership interest should not be attributed to
its holder because: the interest holder has less than a 50 percent
voting interest and there is an unaffiliated single holder of a 50
percent or greater voting interest; the interest holder is not likely
to affect the local market in an anticompetitive manner because the
market is highly competitive; the interest holder is not involved in
operations of the licensee and does not have the ability to influence
the licensee on a regular basis; and grant of a waiver is in the public
interest because the benefits of such common ownership to the public
outweigh any potential for anticompetitive harm to the market.
46. Finally, the Commission believes that retroactive application
of any cross-ownership or spectrum cap rule changes would be contrary
to the public interest. PCS licensees that participated in the A, B,
and C block auctions have already incurred enormous expenses to, inter
alia, design their systems, relocate incumbent users of the spectrum,
acquire cell sites, and establish marketing plans. Retroactive
application of the rules would disrupt this burgeoning industry and
delay service to the public. Furthermore, entities that may have been
precluded from participating in past auctions for CMRS spectrum based
on the prior rules may now acquire additional spectrum through future
auctions, assignments of licenses, transfers of control or investments.
Thus, the Commission concludes that any changes to the spectrum cap and
cross-ownership rules will apply prospectively.
IV. Ownership Disclosure Provisions
47. The Commission amends Section 24.813(a)(1) and Section
24.813(a)(2) of the rules, 47 CFR Secs. 24.813 (a)(1) and (a)(2), to
limit the information disclosure requirement with respect to outside
ownership interests of applicants' attributable stockholders, and will
require only the disclosure of attributable stockholders' direct,
attributable ownership in other businesses holding or applying for CMRS
or PMRS licenses. The Commission believes that the more extensive
ownership disclosure requirements are burdensome and difficult to
administer, and that the more limited requirements will continue to
ensure participation of only eligible bidders. The Commission also
amends 47 CFR 24.813(a)(4) to delete the requirement that partnerships
file a signed and dated copy of their partnership agreement with their
short-form and long-form applications. The Commission has found this
requirement
[[Page 33866]]
to be overly burdensome and is concerned that confidential or strategic
bidding information could be unnecessarily disclosed through
submissions of such agreements.
48. The Commission also amends Sections 24.720(f) and 24.720(g) of
the rules, to allow each applicant that does not otherwise use audited
financial statements to provide a certification from its chief
financial officer that the gross revenue and total asset figures
indicated in its short-form and long-form applications are true, full,
and accurate and, that it does not have the audited financial
statements that are otherwise required under the rules. The Commission
believes the requirement of using audited financial statements to be
unnecessarily burdensome, especially for small businesses that do not
normally rely on such statements.
49. Finally, the Commission amends its rules to require that an
applicant's determination of average gross revenues be based on the
three most recently completed fiscal or calendar years. With regard to
concerns about inadvertent release of confidential data, the Commission
will require that confidential data be filed separately on paper.
Similarly, any requests that information be treated as confidential
will not be accepted electronically and must otherwise comply with the
rules governing confidential treatment of documents.
V. Auction Schedule
50. The Commission concludes that it should auction the D, E, and F
blocks at the same time. It also intends to auction the D, E, and F
blocks in a single auction. The Commission believes that auctioning the
three blocks in one simultaneous multiple round auction will benefit
bidders by reducing administrative inefficiencies and by providing
maximum flexibility for bidders to choose between similar licenses. The
Commission believes that if it uses uniform upfront payments, which it
adopts for the three blocks in this Report and Order, it will reduce
the complexity of a single auction. The Commission also believes that
this method will expedite service to the public. Although the
Commission believes that a single auction is the best option, it
delegates authority to the Wireless Telecommunications Bureau to
conduct one auction for the D and E blocks and one for the F block
concurrently if such an approach is operationally necessary or
otherwise furthers the public interest.
VI. Other Issues
A. Limit on Licenses Acquired at Auction
51. Several commenters suggested modifying the limitation on the
number of licenses that a single entity may acquire at auction to
ensure wide distribution of entrepreneurs' block licenses. Commission
rules provide that a single entity may win no more than 10 percent of
the licenses available in the entrepreneurs' blocks; these licenses may
be all C block licenses or F block licenses or some combination of the
two. Several commenters proposed that the Commission change this
limitation to one based on population rather than on the number of
licenses. The Commission declines to modify the rule as requested.
First, C block licenses were disseminated to a large number of auction
winners. Second, bidding strategies in the C block auction and the
business plans of many firms may have been formulated in reliance on
this rule. The Commission finds no basis for modifying it here.
B. Partitioning and Disaggregation
52. Numerous commenters argue that the Commission's geographic
partitioning provisions, which currently apply only to rural telephone
companies, should be expanded to include broadband PCS licensees and
spectrum disaggregation should be permitted in the near term. Under the
current rules, broadband PCS licensees may disaggregate licensed
broadband PCS spectrum after January 1, 2000, if they have met the
five-year construction requirement. Because the issues of partitioning
and disaggregation exceed the scope of this proceeding, the Commission
will consider these issues in a separate proceeding.
C. Bid Withdrawal
53. One commenter suggested that the bid submission software should
be enhanced to warn bidders whenever a bid is entered that exceeds the
minimum bid by more than 10 bid increments. For the D, E, and F block
auction, the Wireless Telecommunications Bureau will employ a procedure
in addition to those in place that will warn bidders of the possibility
of a mistaken bid.
54. The same commenter also states that since the Commission cannot
distinguish honest mistakes from strategic mistakes, it should impose a
penalty for mistaken bids. The rules provide for a bid withdrawal
payment that is equal to the difference between the withdrawn bid
amount and 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.
55. For the D, E, and F block auction, the Commission adopts the
approach of Atlanta Trunking, where it held that in cases of erroneous
bids, some relief from the bid withdrawal payment requirement appears
necessary. (Atlanta Trunking Associates, Inc. and MAP Wireless L.L.C.
Requests to Waive Bid Withdrawal Payment Provisions, Order, FCC 96-203,
61 FR 25807 (May 23, 1996)). In Atlanta Trunking, the Commission
fashioned the following guidelines to be followed when addressing
individual requests for waiver of withdrawal payments: 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 in
which it was submitted, the bidder should not be eligible for any
reduction in the bid withdrawal payment. The Commission believes that
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.
VII. Conclusion
In this Order, the Commission concludes that making the F block
rules race- and gender-neutral will avoid the uncertainty and delay
that could result from legal challenges to the special provisions for
minority- and women-owned businesses in the broadband PCS F block
rules. The Commission also takes steps to streamline procedures and
minimize the possibility of insincere bidding and bidder default. The
Commission also responds to the Cincinnati Bell remand issues. Finally,
to expedite the delivery of broadband PCS services to the public, the
Commission plans to offer the D, E, and F block licenses together in
one simultaneous multiple round auction and delegates authority to the
Wireless
[[Page 33867]]
Telecommunications Bureau to conduct two concurrent auctions if
circumstances warrant.
VIII. Procedural Matters and Ordering Clauses
57. The Final Regulatory Flexibility Analysis, as required by
Section 604 of the Regulatory Flexibility Act, is set forth in Appendix
C of the Report and Order. Public Law No. 96-354, 94 Stat. 1164, 5
U.S.C. 601 et seq. (1981).
58. It is ordered, That the rule changes specified below are
adopted and are effective July 31, 1996.
59. This action is taken pursuant to Sections 4(i), 303(r), and
309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i),
303(r) and 309(j).
List of Subjects in 47 CFR Parts 20 and 24
Commercial Mobile Radio Service, Personal Communications Services.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Rule Changes
Parts 20 and 24 of Chapter I of Title 47 of the Code of Federal
Regulations are amended as follows:
PART 20--COMMERCIAL MOBILE RADIO SERVICES
1. The authority citation for Part 20 continues to read as follows:
Authority: Secs. 4, 303, and 332, 48 Stat. 1066, 1082, as
amended; 47 U.S.C. 154, 303, and 332, unless otherwise noted.
2. Section 20.6 is amended by revising paragraphs (d)(2), (e), and
Note 1 to Sec. 20.6 to read as follows:
Sec. 20.6 CMRS spectrum aggregation limit.
* * * * *
(d) * * *
(2) Partnership and other ownership interests and any stock
interest amounting to 20 percent or more of the equity, or outstanding
stock, or outstanding voting stock of a broadband PCS, cellular or SMR
licensee shall be attributed, except that ownership will not be
attributed unless the partnership and other ownership interests and any
stock interest amount to at least 40 percent of the equity, or
outstanding stock, or outstanding voting stock of a broadband PCS,
cellular or SMR licensee if the ownership interest is held by a small
business or a rural telephone company, as these terms are defined in
Sec. 1.2110 of this chapter or other related provisions of the
Commission's rules, or if the ownership interest is held by an entity
with a non-controlling equity interest in a broadband PCS licensee or
applicant that is a small business.
* * * * *
(e) Divestiture. (1) Any party holding controlling or attributable
ownership interests in broadband PCS, cellular, and/or SMR licensees
regulated as CMRS providers that would exceed the spectrum aggregation
limitation defined in paragraph (a) of this section, if granted
additional licenses, may be a party to a broadband PCS, cellular, or
SMR application (i.e., have a controlling or attributable interest in
the applicant), and such applicant will be eligible for licenses
amounting to more than 45 MHz of broadband PCS, cellular, and/or SMR
spectrum regulated as CMRS in a geographical area, pursuant to the
divestiture procedures set forth in paragraphs (e)(2) through (e)(4) of
this section; provided, however, that in the case of parties holding
controlling or attributable ownership interests in broadband PCS,
cellular, and/or SMR licensees, these divestiture procedures shall be
available only to:
(i) Parties with controlling or attributable ownership interests in
broadband PCS, cellular, and/or SMR licenses where the geographic
license areas cover 20 percent or less of the applicant's service area
population;
(ii) Parties with attributable interests in broadband PCS,
cellular, and/or SMR licenses solely due to management agreements or
joint marketing agreements; and
(iii) Parties with non-controlling attributable interests in
broadband PCS, cellular, and/or SMR licenses, regardless of the degree
to which the geographic license areas cover the applicant's service
area population. For purposes of this paragraph, a ``non-controlling
attributable interest'' is one in which the holder has less than a
fifty (50) percent voting interest and there is an unaffiliated single
holder of a fifty (50) percent or greater voting interest.
(2) The applicant for a license that, if granted, would exceed the
45 MHz limitation shall certify on its application that it and all
parties to the application will come into compliance with this
limitation.
(3) If such an applicant is a successful bidder in an auction, it
must submit with its long-form application a signed statement
describing its efforts to date and future plans to come into compliance
with the 45 MHz spectrum limitation. A similar statement must also be
included with any application for assignment of licenses or transfer of
control that, if granted, would exceed the spectrum aggregation limit.
(4) If such an applicant is otherwise qualified, its application
will be granted subject to a condition that the licensee shall come
into compliance with the 45 MHz spectrum limitation within ninety (90)
days of final grant.
(i) Parties holding controlling interests in broadband PCS,
cellular, and/or SMR licensees that conflict with the attribution
threshold or geographic overlap limitations set forth in this section
will be considered to have come into compliance if they have submitted
to the Commission an application for assignment of license or transfer
of control of the conflicting licensee (see Secs. 24.839 of this
chapter (PCS), 22.39 of this chapter (cellular), 90.158 of this chapter
(SMR)) by which, if granted, such parties no longer would have an
attributable interest in the conflicting license. If no such assignment
or transfer application is tendered to the Commission within ninety
(90) days of final grant of the initial license, the Commission may
consider the certification and the divestiture statement to be
material, bad faith misrepresentations and shall invoke the condition
on the initial license or the assignment or transfer, cancelling or
rescinding it automatically, shall retain all monies paid to the
Commission, and, based on the facts presented, shall take any other
action it may deem appropriate. Divestiture may be to an interim
trustee if a buyer has not been secured in the required period of time,
as long as the applicant has no interest in or control of the trustee,
and the trustee may dispose of the license as it sees fit.
(ii) Where parties to broadband PCS, cellular, or SMR applications
hold less than controlling (but still attributable) interests in
broadband PCS, cellular, or SMR licensee(s), they shall submit, within
ninety (90) days of final grant, a certification that the applicant and
all parties to the application have come into compliance with the
limitations on spectrum aggregation set forth in this section.
Note 1 to Sec. 20.6: Waivers of Sec. 20.6(d) may be granted upon
an affirmative showing:
(1) That the interest holder has less than a 50 percent voting
interest in the licensee and there is an unaffiliated single holder
of a 50 percent or greater voting interest;
(2) That the interest holder is not likely to affect the local
market in an anticompetitive manner;
(3) That the interest holder is not involved in the operations
of the licensee and does not have the ability to influence the
licensee on a regular basis; and
(4) That grant of a waiver is in the public interest because the
benefits to the public of common ownership outweigh any potential
anticompetitive harm to the market.
* * * * *
[[Page 33868]]
PART 24--PERSONAL COMMUNICATIONS SERVICES
3. The authority citation for Part 24 continues to read as follows:
Authority: Secs. 4, 301, 302, 303, 309 and 332, 48 Stat. 1066,
1082, as amended; 47 U.S.C. Secs. 154, 301, 302, 303, 309 and 332,
unless otherwise noted.
Sec. 24.204 [Removed]
4. Section 24.204 is removed.
5. Section 24.229 is amended by removing paragraph (c) and
redesignating paragraph (d) as paragraph (c) and revising it to read as
follows.
Sec. 24.229 Frequencies.
* * * * *
(c) After January 1, 2000, licensees that have met the 5-year
construction requirement may assign portions of licensed PCS spectrum.
6. Section 24.704 is amended by adding paragraph (a)(3) to read as
follows:
Sec. 24.704 Withdrawal, default and disqualification penalties.
(a) * * *
(3) Erroneous Bids. If at any point during an auction an erroneous
bid is withdrawn in the same round in which it was submitted, the bid
withdrawal payment will be the greater of
(i) The minimum bid increment for that license and round; and
(ii) The standard bid withdrawal payment, as defined in paragraph
(a)(1) of this section, calculated as if the bidder had made the
minimum accepted bid. If an erroneous 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 will be the
greater of
(A) Two times the minimum bid increment during the round in which
the erroneous bid was submitted, and
(B) The standard withdrawal payment, as defined in paragraph (a)(1)
of this section, calculated as if the bidder had made a bid one bid
increment above the minimum accepted bid. If an erroneous bid is
withdrawn two or more rounds following the round in which it was
submitted, the bidder will not be eligible for any reduction in the bid
withdrawal payment as defined in paragraph (a)(1) of this section.
During Stage III of an auction, if an erroneous bid is not withdrawn
during the round in which it was submitted, the bidder will not be
eligible for any reduction in the bid withdrawal payment as defined in
paragraph (a)(1) of this section.
* * * * *
7. Section 24.706 is revised to read as follows:
Sec. 24.706 Submission of upfront payments and down payments.
(a) Where the Commission uses simultaneous multiple round auctions
or oral sequential auctions, bidders will be required to submit an
upfront payment in accordance with Sec. 1.2106 of this chapter,
paragraph (c) of this section, and Secs. 24.711(a)(1) and 24.716(a)(1).
(b) Winning bidders in an auction must submit a down payment to the
Commission in accordance with Sec. 1.2107(b) of this chapter and
Secs. 24.711(a)(2) and 24.716(a)(2).
(c) Each eligible bidder for licenses on frequency Blocks D and E
subject to auction shall pay an upfront payment of $0.06 per MHz per
pop for the maximum number of licenses (in terms of MHz-pops) on which
it intends to bid pursuant to Sec. 1.2106 of this chapter and
procedures specified by Public Notice.
8. Section 24.709 is amended by revising the section heading,
paragraphs (a)(1), (a)(2), (c)(1) introductory text, (c)(2)
introductory text, and (c)(2)(ii) to read as follows:
Sec. 24.709 Eligibility for licenses for frequency Blocks C and F.
(a) * * *
(1) No application is acceptable for filing and no license shall be
granted for frequency block C or frequency block F, unless the
applicant, together with its affiliates and persons or entities that
hold interests in the applicant and their affiliates, have gross
revenues of less than $125 million in each of the last two years and
total assets of less than $500 million at the time the applicant's
short-form application (Form 175) is filed.
(2) The gross revenues and total assets of the applicant (or
licensee), and its affiliates, and (except as provided in paragraph (b)
of this section) of persons or entities that hold interests in the
applicant (or licensee), and their affiliates, shall be attributed to
the applicant and considered on a cumulative basis and aggregated for
purposes of determining whether the applicant (or licensee) is eligible
for a license for frequency block C or frequency block F under this
section.
* * * * *
(c) * * *
(1) Short-form Application. In addition to certifications and
disclosures required by Part 1, subpart Q of this chapter and
Sec. 24.813, each applicant for a license for frequency block C or
frequency block F shall certify on its short-form application (Form
175) that it is eligible to bid on and obtain such license(s), and (if
applicable) that it is eligible for designated entity status pursuant
to this section and Sec. 24.720, and shall append the following
information as an exhibit to its Form 175:
* * * * *
(2) Long-form Application. In addition to the requirements in
subpart I of this part and other applicable rules (e.g., Secs. 20.6(e)
and 20.9(b) of this chapter), each applicant submitting a long-form
application for a license(s) for frequency block C or frequency block F
shall, in an exhibit to its long-form application:
* * * * *
(ii) List and summarize all agreements or other instruments (with
appropriate references to specific provisions in the text of such
agreements and instruments) that support the applicant's eligibility
for a license(s) for frequency block C or frequency block F and its
eligibility under Secs. 24.711, 24.712, 24.714 and 24.720, including
the establishment of de facto and de jure control; such agreements and
instruments include articles of incorporation and bylaws, shareholder
agreements, voting or other trust agreements, partnership agreements,
management agreements, joint marketing agreements, franchise
agreements, and any other relevant agreements (including letters of
intent), oral or written; and
* * * * *
Sec. 24.715 [Removed]
9. Section 24.715 is removed.
10. Section 24.716 is amended by revising paragraphs (a)(1),
(a)(2), (b), redesignating paragraph (c) as paragraph (d); revising
newly-redesignated paragraph (d)(2); and adding a new paragraph (c) to
read as follows:
Sec. 24.716 Upfront payments, down payments, and installment payments
for licenses for frequency Block F.
(a) * * *
(1) Each eligible bidder for licenses on frequency Block F subject
to auction shall pay an upfront payment of $0.06 per MHz per pop for
the maximum number of licenses (in terms of MHz-pops) on which it
intends to bid pursuant to Sec. 1.2106 of this chapter and procedures
specified by Public Notice;
(2) Each winning bidder shall make a down payment equal to 20
percent of its winning bid (less applicable bidding credits); a winning
bidder shall bring its total amount on deposit with the Commission
(including upfront payment) to 10 percent of its net winning bid within
five business days after the auction closes, and the remainder of the
down payment (10
[[Page 33869]]
percent) shall be paid within five business days after the application
required by Sec. 24.809(b) is granted; and
(b) Installment Payments. Each eligible licensee of frequency Block
F may pay the remaining 80 percent of the net auction price for the
license in installment payments pursuant to Sec. 1.2110(e) of this
chapter and under the following terms:
(1) For an eligible licensee with gross revenues exceeding $75
million (calculated in accordance with Sec. 24.709 (a)(2) and (b)) in
each of the two preceding years (calculated in accordance with
Sec. 24.720(f)), interest shall be imposed based on the rate for ten-
year U.S. Treasury obligations applicable on the date the license is
granted, plus 3.5 percent; payments shall include both principal and
interest amortized over the term of the license;
(2) For an eligible licensee with gross revenues not exceeding $75
million (calculated in accordance with Sec. 24.709 (a)(2) and (b)) in
each of the two preceding years (calculated in accordance with
Sec. 24.720(f)), interest shall be imposed based on the rate for ten-
year U.S. Treasury obligations applicable on the date the license is
granted, plus 2.5 percent; payments shall include interest only for the
first year and payments of interest and principal amortized over the
remaining nine years of the license term; or
(3) For an eligible licensee that qualifies as a small business or
as a consortium of small businesses, interest shall be imposed based on
the rate for ten-year U.S. Treasury obligations applicable on the date
the license is granted; payments shall include interest only for the
first two years and payments of interest and principal amortized over
the remaining eight years of the license term.
(c) Late Installment Payments. Any licensee that submits a
scheduled installment payment more than 15 days late will be charged a
late payment fee equal to 5 percent of the amount of the past due
payment. Payments will be applied in the following order: late charges,
interest charges, principal payments.
(d) * * *
(2) If a licensee that utilizes installment financing under this
section seeks to make any change in ownership structure that would
result in the licensee losing eligibility for installment payments, the
licensee shall first seek Commission approval and must make full
payment of the remaining unpaid principal and any unpaid interest
accrued through the date of such change as a condition of approval. A
licensee's (or other attributable entity's) increased gross revenues or
increased total assets due to nonattributable equity investments (i.e.,
from sources whose gross revenues and total assets are not considered
under Sec. 24.709(b)), debt financing, revenue from operations or other
investments, business development or expanded service shall not be
considered to result in the licensee losing eligibility for installment
payments.
* * * * *
11. Section 24.717 is amended by revising paragraphs (a) and (b),
removing paragraph (c), and redesignating paragraph (d) as paragraph
(c) to read as follows:
Sec. 24.717 Bidding credits for licenses for frequency Block F.
(a) A winning bidder that qualifies as a small business or a
consortium of small businesses may use a bidding credit of 15 percent
to lower the cost of its winning bid.
(b) A winning bidder that qualifies as a very small business or a
consortium of very small businesses may use a bidding credit of 25
percent to lower the cost of its winning bid.
* * * * *
12. Section 24.720 is amended by revising the heading of paragraph
(b) redesignating paragraphs (b)(2) and (b)(3) as paragraphs (b)(3) and
(b)(4) and revising them; adding new paragraphs (b)(2) and (b)(5); and
revising paragraphs (c)(2), (e), (f), (g), (j)(2), (l)(11)(i), (n)(1),
(n)(3) and (n)(4) to read as follows:
Sec. 24.720 Definitions.
* * * * *
(b) Small business; very small business; consortia. * * *
(2) A very small business is an entity that, together with its
affiliates and persons or entities that hold interests in such entity
and their affiliates, has average annual gross revenues that are not
more than $15 million for the preceding three years.
(3) For purposes of determining whether an entity meets the $40
million average annual gross revenues size standard set forth in
paragraph (b)(1) of this section or the $15 million average annual
gross revenues size standard set forth in paragraph (b)(2) of this
section, the gross revenues of the entity, its affiliates, persons or
entities holding interests in the entity and their affiliates shall be
considered on a cumulative basis and aggregated subject to the
exceptions set forth in Sec. 24.709(b).
(4) A small business consortium is a conglomerate organization
formed as a joint venture between or among mutually independent
business firms, each of which individually satisfies the definition of
a small business in paragraphs (b)(1) and (b)(3) of this section.
(5) A very small business consortium is a conglomerate organization
formed as a joint venture between or among mutually independent
business firms, each of which individually satisfies the definition of
a very small business in paragraphs (b)(2) and (b)(3) of this section.
(c) * * *
(2) That complies with the requirements of Sec. 24.709(b)(3) and
(b)(5) or Sec. 24.709(b)(4) and (b)(6).
* * * * *
(e) Rural Telephone Company. A rural telephone company is a local
exchange carrier operating entity to the extent that such entity:
(1) Provides common carrier service to any local exchange carrier
study area that does not include either;
(i) Any incorporated place of 10,000 inhabitants or more, or any
part thereof, based on the most recently available population
statistics of the Bureau of the Census; or
(ii) Any territory, incorporated or unincorporated, included in an
urbanized area, as defined by the Bureau of the Census as of August 10,
1993;
(2) Provides telephone exchange service, including exchange access,
to fewer than 50,000 access lines;
(3) Provides telephone exchange service to any local exchange
carrier study area with fewer than 100,000 access lines; or
(4) Has less than 15 percent of its access lines in communities of
more than 50,000 on the date of enactment of the Telecommunications Act
of 1996.
(f) Gross Revenues. Gross revenues shall mean all income received
by an entity, whether earned or passive, before any deductions are made
for costs of doing business (e.g., cost of goods sold), as evidenced by
audited financial statements for the relevant number of most recently
completed calendar years, or, if audited financial statements were not
prepared on a calendar-year basis, for the most recently completed
fiscal years preceding the filing of the applicant's short-form
application (Form 175). If an entity was not in existence for all or
part of the relevant period, gross revenues shall be evidenced by the
audited financial statements of the entity's predecessor-in-interest
or, if there is no identifiable predecessor-in-interest, unaudited
financial statements certified by the applicant as accurate. When an
applicant does not otherwise use
[[Page 33870]]
audited financial statements, its gross revenues may be certified by
its chief financial officer or its equivalent.
(g) Total Assets. Total assets shall mean the book value (except
where generally accepted accounting principles (GAAP) require market
valuation) of all property owned by an entity, whether real or
personal, tangible or intangible, as evidenced by the most recent
audited financial statements or certified by the applicant's chief
financial officer or its equivalent if the applicant does not otherwise
use audited financial statements.
* * * * *
(j) * * *
(2) For purposes of assessing compliance with the equity limits in
Sec. 24.709 (b)(3)(i) and (b)(4)(i), where such interests are not held
directly in the applicant, the total equity held by a person or entity
shall be determined by successive multiplication of the ownership
percentages for each link in the vertical ownership chain.
* * * * *
(l) * * *
(11) * * *
(i) For purposes of Secs. 24.709(a)(2) and paragraphs (b)(2) and
(d) of this section, Indian tribes or Alaska Regional or Village
Corporations organized pursuant to the Alaska Native Claims Settlement
Act (43 U.S.C. 1601 et seq.), or entities owned and controlled by such
tribes or corporations, are not considered affiliates of an applicant
(or licensee) that is owned and controlled by such tribes, corporations
or entities, and that otherwise complies with the requirements of
Sec. 24.709 (b)(3) and (b)(5) or Sec. 24.709 (b)(4) and (b)(6), except
that gross revenues derived from gaming activities conducted by
affiliated entities pursuant to the Indian Gaming Regulatory Act (25
U.S.C. 2701 et seq.) will be counted in determining such applicant's
(or licensee's) compliance with the financial requirements of
Sec. 24.709(a) and paragraphs (b) and (d) of this section, unless such
applicant establishes that it will not receive a substantial unfair
competitive advantage because significant legal constraints restrict
the applicant's ability to access such gross revenues.
* * * * *
(n) * * *
(1) A qualifying investor is a person who is (or holds an interest
in) a member of the applicant's (or licensee's) control group and whose
gross revenues and total assets, when aggregated with those of all
other attributable investors and affiliates, do not exceed the gross
revenues and total assets limits specified in Sec. 24.709(a), or, in
the case of an applicant (or licensee) that is a small business, do not
exceed the gross revenues limit specified in paragraph (b) of this
section.
* * * * *
(3) For purposes of assessing compliance with the minimum equity
requirements of Sec. 24.709(b) (5) and (6), where such equity interests
are not held directly in the applicant, interests held by qualifying
investors or qualifying minority and/or woman investors shall be
determined by successive multiplication of the ownership percentages
for each link in the vertical ownership chain.
(4) For purposes of Sec. 24.709 (b)(5)(i)(C) and (b)(6)(i)(C), a
qualifying investor is a person who is (or holds an interest in) a
member of the applicant's (or licensee's) control group and whose gross
revenues and total assets do not exceed the gross revenues and total
assets limits specified in Sec. 24.709(a).
* * * * *
13. Section 24.813 is amended by revising paragraphs (a)(1), (a)(2)
and (a)(4) to read as follows:
Sec. 24.813 General application requirements.
(a) * * *
(1) A list of any business, holding or applying for CMRS or PMRS
licenses, five percent or more of whose stock, warrants, options or
debt securities are owned by the applicant or an officer, director,
attributable stockholder or key management personnel of the applicant.
This list must include a description of each such business' principal
business and a description of each such business' relationship to the
applicant.
(2) A list of any party which holds a five percent or more interest
(or a ten percent or more interest for institutional investors as
defined in Sec. 24.720(h)) in the applicant, or any entity holding or
applying for CMRS or PMRS licenses in which a five percent or more
interest (or a ten percent or more interest for institutional investors
as defined in Sec. 24.720(h)) is held by another party which holds a
five percent or more interest (or a ten percent or more interest for
institutional investors as defined in Sec. 24.720(h)) in the applicant
(e.g. If Company A owns 5% of Company B (the applicant) and 5% of
Company C, a company holding or applying for CMRS or PMRS licenses,
then Companies A and C must be listed on Company B's applications.)
* * * * *
(4) In the case of partnerships, the name and address of each
partner, each partner's citizenship and the share or interest
participation in the partnership. This information must be provided for
all partners, regardless of their respective ownership interest in the
partnership.
* * * * *
14. Section 24.839 is amended by revising paragraphs (a), (d)(1),
and (d)(2) and adding paragraphs (d)(3), (d)(4), and (d)(5) to read as
follows:
Sec. 24.839 Transfer of control or assignment of license.
(a) Approval required. Authorization shall be transferred or
assigned to another party, voluntarily (for example, by contract) or
involuntarily (for example, by death, bankruptcy or legal disability),
directly or indirectly or by transfer of control of any corporation
holding such authorization, only upon application and approval by the
Commission. A transfer of control or assignment of station
authorization in the broadband Personal Communications Service is also
subject to Secs. 24.711(e), 24.712(d), 24.713(b), 24.717(c) (unjust
enrichment) and 1.2111(a) (reporting requirement).
* * * * *
(d) * * *
(1) The application for assignment or transfer of control is filed
after five years from the date of the initial license grant; or
(2) The proposed assignee or transferee meets the eligibility
criteria set forth in Sec. 24.709 at the time the application for
assignment or transfer of control is filed, or the proposed assignee or
transferee holds other license(s) for frequency blocks C and F and, at
the time of receipt of such license(s), met the eligibility criteria
set forth in Sec. 24.709;
(3) The application is for partial assignment of a partitioned
service area to a rural telephone company pursuant to Sec. 24.714 and
the proposed assignee meets the eligibility criteria set forth in
Sec. 24.709;
(4) The application is for an involuntary assignment or transfer of
control to a bankruptcy trustee appointed under involuntary bankruptcy,
an independent receiver appointed by a court of competent jurisdiction
in a foreclosure action, or, in the event of death or disability, to a
person or entity legally qualified to succeed the deceased or disabled
person under the laws of the place having jurisdiction over the estate
involved; provided that, the applicant requests a waiver pursuant to
this paragraph; or
(5) The assignment or transfer of control is pro forma.
* * * * *
[FR Doc. 96-16665 Filed 6-28-96; 8:45 am]
BILLING CODE 6712-01-P