Report No. DC-2590 ACTION IN DOCKET CASEApril 20, 1994 FCC ADOPTS COMPETITIVE BIDDING RULES TO AWARD NARROWBAND PCS LICENSES (PP DOCKET NO. 93-253 ) Today the Commission is taking the next important step in implementing its auction authority to rapidly deploy personal communications services. This rapid deployment will add to our nation's information infrastructure by creating a more competitive wireless communications marketplace. The Commission adopted a Third Report and Order in the competitive bidding proceeding prescribing general competitive bidding rules to award licenses for Personal Communications Services in the 900 MHz band commonly referred to as "narrowband PCS." The narrowband PCS service encompasses mobile and portable radio communications which can be used to provide a wide variety of paging and messaging services to individuals and businesses. The Commission announced that it will use competitive bidding to award all mutually exclusive applications for initial narrowband PCS licenses. The Commission concluded that narrowband PCS satisfies the statutory criteria that the principal use of the spectrum must be reasonably likely to involve the transmission of communications signals to subscribers for compensation. Auction Design The Commission determined that most narrowband PCS licenses would be awarded in a sequential series of simultaneous multiple round auctions. The Commission established simultaneous multiple round bidding as its basic auction design method for awarding narrowband PCS licenses because it expects the value of most narrowband PCS licenses to be high relative to the costs of conducting simultaneous auctions and interdependence among such licenses to be significant. The Commission indicated that where these criteria are present simultaneous multiple round bidding would best achieve the statutory goals by generating information regarding license values during the course of the auction and providing bidders with flexibility to pursue efficiency-enhancing back up strategies. (over) - 2 - The Commission recognized, however, that simultaneous multiple round auctions may involve increased administrative costs and may be more operationally complex than other auction design methods. Thus, the Commission indicated that if, as it gains experience with auctions, it determines that simultaneous auctions are too costly and complex to run, it may alternatively select either oral sequential or single round sealed bid auctions to award narrowband PCS licenses. In addition, the Commission indicated that it may select one of these alternative auction methods to award narrowband licenses where the expected value of the licenses is low relative to the cost of conducting a simultaneous auction or where the interdependence among license values is less significant. Auction Sequence The Commission determined that the first narrowband PCS auction would include the ten available nationwide narrowband PCS licenses. There are a total of eleven nationwide narrowband PCS licenses. However, the Commission previously awarded a pioneer's preference for one of the 50 kHz unpaired nationwide licenses to Mtel. Subsequently, the Commission will conduct a simultaneous multiple round auction to award the 30 regional narrowband PCS licenses. The Commission will then conduct a series of simultaneous multiple round auctions to award the 50 kHz MTA licenses (360 licenses) and the 50 kHz BTA licenses (984 licenses). The Commission indicated that it would use single round sealed bidding to award licenses for the 12.5 kHz MTA and BTA response channels (1,968 licenses) because the value of these licenses is expected to be low relative to the cost of conducting a simultaneous auction and because eligibility for these licenses is limited to incumbent paging licensees. Procedural and Payment Requirements The Commission concluded that, in order to limit bidding to serious, qualified bidders and minimize the probability that licenses will have to be reauctioned, the Commission will require all bidders to tender in advance to the Commission an upfront payment equal to $0.02 per pop per MHz for the largest combination of MHz-pops the bidder anticipates bidding on in any single round of bidding. The Commission established a minimum upfront payment of $1,000 for narrowband PCS auctions. In addition, in order to provide further assurance that the winning bidder will pay the full amount of the winning bid and complete timely construction of the narrowband PCS system, the Commission required that winning bidders (except for small businesses) supplement their upfront payments with a down payment sufficient to bring their total deposits with the government up to at least 20 percent of their winning bid(s). Small businesses will be permitted to pay ten percent of their winning bid shortly after the auction and the remaining ten percent within five business days after the license is granted. - 3 - All auction winners, except for qualified small businesses, will be required to make full payment of the remaining 80 percent of their winning bids within five business days following award of the license. All licenses will be conditioned on timely payment in full of the bid price. The Commission determined that in simultaneous auctions, if a bidder decides to withdraw its bid during the course of the auction, a penalty will be imposed equal to the difference between the amount of the withdrawn bid and the amount of the subsequent winning bid. No penalty will be imposed if the subsequent winning bid is higher than the amount of the withdrawn bid. If a winning bidder defaults or is disqualified after bidding has closed in a simultaneous auction, the Commission provided that an additional penalty equal to three percent of the amount the government receives for the license will be added to the foregoing penalty. The Commission noted that these penalties will vary where other auction designs are employed, but in no case will the amount of the above described penalties be exceeded. Participation by Small Businesses and Businesses Owned by Women and Minorities In order to enhance access by increasing the availability of the spectrum resource to groups which have historically been under-represented in the management and control of telecommunications services, the Commission adopted specific preferences that will be available to satisfy the statutory requirement that small businesses and businesses owned by women and minorities are given an opportunity to participate in the competitive bidding process and in the provision of narrowband PCS services. In this regard, the Commission indicated that all small businesses will be afforded the opportunity to pay for any BTA, MTA or regional narrowband license in installments over the term of the license. The Commission noted that the installment payment plan will permit small businesses to pay interest only for the first two years with the remaining payments of interest and principal amortized over the remainder of the license term. The Commission further determined that it will institute a system of bidding credits for businesses owned by women and members of minority groups bidding on certain narrowband PCS licenses. The bidding credits will operate as a discount on the amount of a winning bid that will actually have to be paid to obtain a license. In addition, the Commission indicated that licensees may use tax certificates to attract start-up capital to their ventures and to encourage licensees to transfer narrowband PCS licenses to firms owned by women and minorities in the aftermarket for such licenses. The Commission did not adopt any separate preferences for rural telephone companies bidding on narrowband PCS licenses . (over) - 4 - To prevent unjust enrichment by designated entities who have obtained licenses at less than full market value as a result of preferences provided by the government, the Commission adopted payment provisions designed to recoup for the government the value of the preference provided. Action by the Commission April 20, 1994, by Third Report and Order (FCC 94-98). Chairman Hundt, Commissioners Quello and Barrett, with Commissioner Barrett issuing a statement. - FCC - News Media contact: Susan Sallet at (202) 632-5050. Office of Plans and Policy contact: Jackie Chorney at (202) 653-6809.