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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) MM Docket No. 95-31 ) Reexamination of the Comparative ) Standards for Noncommercial ) Educational Applicants ) FURTHER NOTICE OF PROPOSED RULE MAKING Adopted: October 7, 1998 Released: October 21, 1998 Comment Date: [45 days after publication in the Federal Register] Reply Date: [65 days after publication in the Federal Register] By the Commission: Commissioners Furchtgott-Roth and Tristani issuing a joint statement 1. The Commission issues this Further Notice in an ongoing effort to improve the process of choosing among competing applicants for noncommercial educational ("NCE") broadcast stations. In earlier stages of this proceeding, commenters urged us to modify existing NCE selection procedures, but the comments revealed no apparent consensus on alternatives. Thereafter, Congress specifically retained our authority to conduct lotteries for noncommercial educational broadcast applications, while simultaneously revoking lottery authority in other broadcast services. We issue this Further Notice to solicit comment on the possibility of using lotteries to award NCE spectrum, an option not previously discussed. Based on our review of comments filed in this proceeding, we also propose specific criteria were we to adopt a point system alternative to award NCE spectrum. That alternative would assign points to various characteristics of each applicant's proposal and award the permit to the applicant receiving the highest score. Finally, we discuss several procedures that might be used to award spectrum not specifically reserved for noncommercial educational use but for which NCE entities may apply pursuant to Sections 73.201(radio) and 73.606 (TV) of our rules. I. BACKGROUND 2. Most organizations that want to operate noncommercial educational television, radio, and FM translator stations apply for specific channels that the Commission reserves exclusively for the use of noncommercial educational stations. See 47 C.F.R.  73.501(radio) and 73.606 (TV). A wide variety of entities may be eligible to apply for these channels, including schools, churches, educational divisions of state and local governments, and not-for-profit corporations and foundations. Applicants must demonstrate that they meet basic eligibility requirements, which we do not propose to change. See 47 C.F.R.  73.503 (radio) and  73.621 (television). Alternatively, applicants that are eligible as noncommercial entities can elect to operate on the remainder of the broadcast spectrum which, although not specifically reserved for NCE use, is also available to them. See generally 47 C.F.R.  73.201 and 73.606. We address herein, how the Commission will select one permittee when (1) there are multiple eligible NCE applicants on NCE spectrum, and (2) when NCE entities are among the applicants competing for commercial spectrum. 3. Existing Selection Process. With respect to reserved band NCE spectrum, for the past 30 years, the Commission has convened traditional evidentiary hearings before administrative law judges to select among competing applicants. The criteria used in these hearings were established in 1967, and differ from those applied in choosing among applications for the commercial spectrum. The primary factor considered in traditional NCE hearings is "the extent to which each of the proposed operations will be integrated into the overall educational operations and objectives of the respective applicants." See New York University, 10 RR 2d 215, 217-18 (1967). The judge can also consider whether "other factors" in the record demonstrate that one applicant will provide a superior noncommercial educational broadcast service. Id.; See also Carnegie-Mellon Student Government Corporation, 7 FCC Rcd 3914, 3915-16 (1992). These other factors include areas and population served, hours of operation, and promises to install auxiliary power equipment. The hearing judge has considerable discretion to determine which applicant is best, and explains his conclusions in a written decision. In the event of a tie, the judge may require NCE applicants to share the channel, with each operating part time. See generally 47 C.F.R.  73.1715. Commenters to this proceeding, and even some of our decision makers, have criticized the existing hearing procedures as too costly, too time consuming, and as being based on selection criteria that often focus on trivial distinctions between applicants. 4. The selection criteria applied to noncommercial educational applicants who choose, for whatever reason, to apply to operate on non-reserved spectrum has been different. Because such applicants would be competing with commercial applicants, and would be free to operate commercially if they so wished, the Commission has required all non-reserved band applicants to follow the rules applicable to commercial stations. Prior to our recent establishment of spectrum auctions for commercial applicants, traditional comparative hearings were used to award licenses on commercial spectrum. All applicants in those hearings, commercial and noncommercial, were compared under the "commercial" criteria, which are different from those used on reserved NCE spectrum. See Comparative Selection, MM Docket No. 97-234, FCC 98-194 (August 18, 1998) at para 2, citing Policy Statement on Comparative Broadcast Hearings, 1 FCC 2d 393 (1965). 5. History of This Proceeding. Interest in changing the licensing process on reserved NCE frequencies began in the early 1990's. In 1991, the Commission's Review Board described the existing NCE criteria as "vague" and "meaningless," and indicated that it was often difficult for it to expound a rational choice in noncommercial licensing cases. Real Life Educational Foundation of Baton Rouge, Inc., 6 FCC Rcd 2577, 2580, n.8 (Rev. Bd. 1991). Shortly thereafter, a federal court reached similar conclusions with respect to the core criterion used to evaluate commercial applications, in a line of cases known as the Bechtel decisions. As a result, we initiated a broad inquiry into possible changes for both the commercial and noncommercial broadcast selection processes. The noncommercial and commercial aspects of the inquiry were later separated, so that commenters could focus in greater depth on the noncommercial issues. Notice of Proposed Rulemaking, MM Docket No. 95-31, 10 FCC Rcd 2877 (1995) (Notice). Twenty-one commenters including colleges, religious broadcasters, government entities, and other not-for-profit educational organizations, responded to our request for NCE comments. There is a temporary freeze on the processing of mutually exclusive NCE applications, pending the establishment of new selection criteria. See Notice, 10 FCC Rcd at 2879. 6. Legislative Initiatives. The Balanced Budget Act of 1997 ("Act") was enacted after our last opportunity to seek comment in the current proceeding. See Balanced Budget Act of 1997, Pub. L. No. 105-33, 11 Stat. 251 (1997) (Balanced Budget Act). Pursuant to explicit direction from Congress in the Balanced Budget Act, the Commission recently adopted auction procedures for mutually exclusive commercial broadcast licenses. Notice of Proposed Rule Making, Competitive Bidding for Commercial Broadcast and ITFS Service Licenses, MM Docket No. 97-234, 12 FCC Rcd 22,363 (1997); First Report and Order, MM Docket No. 97-234, FCC 98-194 (August 18, 1998) (Competitive Bidding). With respect to NCE spectrum, the Act does not grant auction authority, but specifically preserves the Commission's authority to choose NCE licensees by lottery, while simultaneously revoking that authority in commercial broadcast services. See Balanced Budget Act,  3002(a), codified as 47 U.S.C.  309(i)(5)(B). Thus, we believe that it is appropriate to consider the use of lotteries for NCE applications as an option on reserved band frequencies. The language of the Balanced Budget Act requires auctions for commercial licenses but prohibits auctions to resolve mutually exclusive applications for "noncommercial educational broadcast" and "public broadcast stations," as defined by Section 397(6) of the Act. The latter provision, codified as Section 309(j)(2)(C), raises questions as to whether, and under what procedures, noncommercial entities may continue to compete with commercial applicants for commercial spectrum. We discussed this issue briefly in the Competitive Bidding proceeding, and determined that we would benefit from further discussion of this issue in the present proceeding. II. DISCUSSION A. Procedures on Reserved NCE Spectrum 7. First, we address procedures to be used for applications for spectrum in the reserved band, which is the primary focus of the present proceeding. We consider below three options for comparing applicants for NCE spectrum: (1) traditional comparative hearings (the current selection method); (2) lotteries (an option that we are considering based on Congress's preserving our authority to conduct lotteries for NCE applications); and (3) a point system (an option suggested by some of the commenters). We seek comment on our tentative conclusion to select either a lottery or a point system, as described in further detail below. 1. Traditional Comparative Hearings 8. The Balanced Budget Act requires the use of competitive bidding procedures for certain pending, and all future, mutually exclusive commercial broadcast applications, but prohibits the use of competitive bidding procedures to resolve noncommercial proceedings involving stations described in Section 397(6) of the Communications Act. Balanced Budget Act,  3002(a) (1) (A), codified as 47 U.S.C.  309(j)(2)(C). We are also considering whether to continue traditional noncommercial comparative hearings. The majority of comments filed so far in this proceeding favor retaining some form of comparative hearing. A few of these commenters suggest that we keep the current system entirely because, despite that system's shortcomings, it is fair to all applicants. A greater number of commenters, while assuming the continued use of traditional hearings, focus on changing the criteria used in those hearings to make them more meaningful. The primary benefit of traditional hearings, as presented in the comments, is that those hearings afford substantial discretion to Commission decisionmakers. Some commenters believe that such discretion is needed if we are to select the best licensee. However, other commenters maintain that well qualified NCE applicants can be selected by more objective methods that are simpler and less costly. 9. We have considered these views supporting retention of the existing process, but tentatively conclude that we should not continue to use traditional hearings. As we noted in the context of the commercial proceeding, traditional hearings have disadvantages which remain of concern today. Specifically, traditional comparative hearings can be cumbersome, costly, and delay service to the public without substantial offsetting public interest benefits in terms of selecting the "better" applicant, because the selection often turns on minimal distinctions. Due to similar concerns, we question the continued advisability of using traditional hearings to select among noncommercial applicants. Although we recognize differences between commercial and noncommercial broadcasting, we tentatively conclude that elimination of traditional comparative hearings is equally, if not more, important in noncommercial proceedings, where applicants often have limited financial resources and the effects of delays and high costs are therefore amplified. These problems with traditional hearings have particular significance in the noncommercial context, as reflected in a longstanding staff practice giving educational applicants the opportunity first to resolve mutual exclusivity among themselves by making technical changes, and thereby avoid the burdens imposed by traditional hearings. Although a few commenters suggest that we might reduce the burdens of traditional NCE comparative hearings by using "paper" hearings, they do not describe this process or address shortcomings with some types of paper hearings that we have noted in other communications services. For example, in choosing lotteries over paper hearings for multipoint distribution systems, we noted that paper hearings, though not as resource-intensive as full proceedings, are still cumbersome, and have taken up to two years to complete. We believe that procedures which are simpler than traditional hearings could achieve satisfactory results, while placing fewer burdens on noncommercial applicants and conserving Commission resources. Accordingly, we tentatively reject traditional hearings in favor of using a lottery or point system for NCE applications. 2. Lotteries 10. In the Balanced Budget Act of 1997, Congress preserved our authority to use lotteries as a method for resolving competing applications by NCE applicants. Lotteries have both advantages and disadvantages. On the positive side, the Commission can select applicants much more quickly through a lottery process than through a traditional comparative hearing, and even more quickly than through a point system, and therefore ensure service to the public sooner. We also believe that lotteries would be less expensive to administer than traditional hearings or point systems, thereby placing fewer burdens on the financial resources of applicants and the Commission. Such benefits could be especially meaningful because, as noted above, many NCE applicants have limited financial resources. Further, the number of competing applications received in the NCE service is increasing annually, even with the processing freeze that is currently in place. We believe that once this freeze is lifted the numbers of mutually exclusive applications will increase even more. Lotteries could be of significant benefit to us and to applicants in addressing these increased numbers of applications, and also in reducing our current backlog of almost 800 mutually exclusive NCE television and radio applications. Finally, lotteries could reduce the delays in service posed by post-decision appeals because unsuccessful applicants are less likely to appeal the results of random selection than of a more subjective process. 11. Weighing against these potential advantages of lotteries are several unresolved legal and policy questions. For example, a lottery is a method of random selection based on chance. Some commenters, including the Association of America's Public Television Stations and National Public Radio, have previously raised concerns about the quality of public service that would be provided by applicants who had not been compared to other applicants in a more subjective manner. Arguably, however, all qualified NCE applicants, whether chosen by a lottery or by a point system, would have an incentive to offer quality service to the public in order to elicit the financial support of listeners and underwriters. We invite comment on this issue, as well as on the following issues specific to lotteries. 12. Weighting of Lotteries. The Communications Act, in order to promote the diversification of ownership, requires us to give a significant preference in any broadcast lottery to two types of applicants: (1) those who would increase the diversification of ownership; and (2) those controlled by a member or members of minority groups. 47 U.S.C.  309(i)(3). This statutory mandate is consistent with our own historical commitment to encourage diversity of ownership and minority ownership in commercial broadcasting. See Competitive Bidding, 12 FCC Rcd at 22,398 - 402 (1997) and cases cited therein. However, the U.S. Supreme Court has held that policies granting racial preferences are subject to strict scrutiny. The minority ownership preference required by the statute will have to surmount this constitutional hurdle. Accordingly, we invite comment on how we can develop NCE lottery preferences for minorities consistent with the applicable legal standard and whether the constitutional hurdles should deter us from using lotteries to award NCE licenses. We note that we have ongoing studies on related issues that will be relevant to the resolution of this matter. We seek comment on whether we should postpone a decision to adopt lottery procedures until such studies are completed and we provide a further opportunity for comment on those studies. We also ask, on the other hand, whether the public interest in lifting the current freeze, so that the NCE spectrum can be effectively utilized as soon as possible, militates against postponement. Finally, we urge any commenters advocating lottery preferences for minority ownership to submit empirical evidence supporting such preferences. 13. If these constitutional problems can be overcome, we would expect to weight a lottery 2:1 in favor of applicants controlled both de jure and de facto by members of minority groups. An additional preference would be available to applicants, minority or non-minority, with neither de facto nor de jure control of any other, or few other, media of mass communication. Applicants qualifying for this second preference would receive a 2:1 preference if their owners do not have a majority interest in any other media of mass communication, or a 1.5:1 preference if they have interests in no more than three other outlets, none of which serve the community of the proposed station. No media ownership preference would be granted to an applicant with a majority interest in any other media of mass communication serving the same community as the NCE broadcast station for which it is applying, even if it is the applicant's only other media interest. These are the same weightings that have been used in past Low Power Television lotteries, and are consistent with the statutory requirement for broadcast lotteries and its legislative history. See 47 C.F.R.  1.1622. The formulas for awarding preferences are reproduced as Appendix B for the reader's convenience. We seek comment on this proposal. If commenters would favor a lottery weighted for factors in addition to those specified in the statute, the commenters should identify those factors and identify the statutory basis for such additional factors. For example, if supported by a sufficiently detailed analysis and identification of a source of statutory authority from commenters, we might consider adopting an additional factor that is given less weight than the two statutory factors, and/or whose statistical impact is considered after performing the required steps outlined in Appendix B. 14. We are concerned about whether weighting of lotteries in favor of applicants owning few other stations would affect state-wide educational networks operating pursuant to state education plans. We view the development of these networks as positive. See, e.g. 47 C.F.R.  73.502. However, if these stations are under common control, they might be placed at a disadvantage in a lottery by reducing or eliminating any preference for media diversity. Accordingly, we ask commenters to provide us with information about whether stations that are part of state-wide educational plans are generally under common control. Would the applicants for such stations generally be state-controlled entities, or independently controlled entities that might qualify for a diversity preference in their own right? To the extent that they would be deemed a single entity not entitled to a diversity preference, is this a factor that should deter us from use of a lottery? 15. Other Lottery Considerations. To award lottery diversity preferences for minority controlled entities, and entities who control few other stations, we would have to identify those in control of each NCE applicant. Determining the control of organizations is not always straightforward in the NCE context, where applicants are generally non-profit, non-stock entities without such traditional indicia of control as stock ownership, equity, and rights to receive dividends. See 47 C.F.R.  1.2110(b)(2). Therefore, we seek comment on determining control of NCE applicants for purposes of lottery preferences. In lotteries for Low Power Television (LPTV) stations, which can be licensed to commercial as well as to noncommercial entities, we have based lottery preferences for noncommercial entities on the composition of the station's governing board. Second Report and Order, Selection from Among Certain Competing Applicants Using Random Selection or Lotteries, Gen. Docket No. 81-768, 93 FCC 2d 952 (1983); 47 C.F.R.  1.1621(c). We have clarified, however, that the numerical composition of the Board, standing alone, is insufficient to warrant a lottery preference for minority ownership where nonminorities nevertheless exercise de facto or de jure control of the non-stock corporation. See Trinity Broadcasting of Florida, 8 FCC Rcd 2475, 2477, 2479 (1993) (refusing request for declaratory ruling that applicant was "minority owned" under 47 C.F.R.  73.3555(e) because minority group members occupied majority of directorship of non-stock corporation and holding that usual indicia of de facto control are applicable to non-stock corporation). 16. We seek comment on whether it is appropriate to use board composition in an NCE context, for purposes of determining whether an applicant is entitled to either of the statutory lottery preferences. The current record indicates that some organizations may have charters or by-laws that require outgoing board members to be replaced with others of similar characteristics. Commenters also indicate, however, that participation on other NCE governing boards can be voluntary, honorary, or temporary, and that organizations might invite or not invite the participation of certain board members only after a licensing decision is made. We invite comment on whether we should adopt standards to guard against manipulation of governing board membership in order to obtain a statutory preference and, if so, how. 17. We also note an effect that lotteries could have on reserved band FM translators rebroadcasting a commonly owned NCE primary station within that station's service area. Such translators generally operate to fill in gaps in the main station's service, for example, when there are dead spots caused by an area's topography. If such "fill-in" NCE translators were included in lotteries with "out-of-area" translators proposing to import distant signals, the fill-in applicants could not get a diversity credit due to the existence of the nearby co-owned station. We do not believe that this would be a desirable result, given that the co-owned station is unable to serve all areas within its predicted contours without the translator. Under our current rules, when we are faced with such applications, "fill-in" translators are given preference over those that import distant signals, and if all applicants are equal in terms of the "fill-in" issue, then other secondary considerations are applied. See 47 C.F.R.  74.1233(d) - (g). In the event that we elect to proceed by lottery, should we adopt two-track eligibility rules for fill-in and non-fill-in translators? Specifically, we anticipate that only fill-in translator proposals would be eligible to compete with other fill-in proposals in a lottery. Non-fill-in facilities would be eligible to compete in a lottery only if no conflicting fill-in proposals were received. We invite comment on this issue. Also, if commenters believe that lotteries have a potential adverse impact on any other particular type of applicant, we ask them to describe that impact and to suggest ways to minimize it. 18. Finally, we ask whether commenters foresee any potential for abuse or speculation in NCE lotteries. In 1989, we expressed concern that lotteries for commercial broadcast stations might generate speculative applications. Do commenters believe that the potential for such abuse exists in the noncommercial educational service? If so, would the holding period proposed below minimize any such concerns? See paras. 30 -31 infra. Would a limit on the number of lotteries in which applicants can participate within a given time period, discourage the mass filing of NCE applications subject to lottery? Id. For example, in the LPTV service, in which applicants have also been selected by lottery, each applicant is limited to filing five applications within a particular filing window. Will the opening of specific time "windows" in which NCE applications will be accepted, limit abuse by making it less likely that applicants will file only as a response to earlier proposals, copying or relying upon the work of the first applicant who files? 19. Lottery Procedures. For NCE lotteries, we would expect to generally use the same procedures that have been used in the past to award permits by lottery in the Low Power Television service. 47 C.F.R.  1.1604 - 1.1623. For example, in the LPTV service we open filing windows at periodic intervals. During those windows applicants are limited to five applications for new stations, and an unlimited number of applications for major changes to existing stations. If applications filed within a window are mutually exclusive with others so filed, we use a computer program to calculate selection probabilities for each mutually exclusive applicant based on the preferences which the applicant has claimed. Based on these calculations, every applicant is given the equivalent of one "chance" in the lottery, with additional proportional numbers of "chances" given to applicants who appear to be entitled to preferences. See Appendix B. This is accomplished by assigning each applicant a number block corresponding proportionately to their number of chances of winning (e.g., in a lottery comprised of two applicants with equal preferences, each with a 1 in 2 chance of selection, one applicant would be assigned number block 000 to 499 and the other would be assigned number block 500 to 999). Applicants are given the opportunity to correct incorrect information prior to the lottery and are required to update their applications to reflect any changes that would affect lottery weighting. A drawing is then held using numbered ping-pong balls to choose a winning number. For example, an applicant with the number block 000 to 499, would be our tentative selectee if any number within that range, such as 435, were selected. Only after selection of one tentative permittee by lottery, do we examine that proposed permittee's qualifications for grant, invite petitions to deny that proposed permittee's application, and examine issues raised in any such petition. Sometimes, without prior consideration of such matters, a lottery winner may be found unqualified or not to have been entitled to a preference which that applicant received. In such case, a second lottery is conducted. We invite comment on whether, in the event that we decide to use lotteries to award NCE construction permits, we should employ all existing LPTV lottery procedures or whether those procedures should be modified in certain ways to make them more appropriate to the NCE service. We also encourage commenters to raise any new ideas they may have about lottery procedures. 3. Point Systems 20. We also request comment on the use of a point system, as specifically described below. Under such a system, the Commission would assign points to various characteristics, evaluate applications for those characteristics, and award a permit to the applicant with the highest score. Such a system has been used with success in the Instructional Television Fixed Service (ITFS), but the specific factors used in ITFS would not be applicable to NCE broadcasting, due to the differing goals of these two services. As with lotteries, discussed above, point systems are less costly, easier to administer, and faster than traditional comparative hearings. A point system would utilize more objective selection criteria than those we have used in traditional comparative hearings. But, unlike lotteries, a point system would be designed to select the best qualified applicant, rather than leaving that selection to chance. The key to the success or failure of a point system would be the factors used for comparison. If, for example, we were to choose a point system that relies on inherently subjective factors, much of the benefit of moving away from traditional comparative hearings could be eliminated. The elements of a point system would be entirely within the discretion of the Commission, unlike lotteries which must include certain statutorily mandated preferences. This might afford us greater flexibility although, as indicated below, we would likely include factors similar to the statutory lottery factors in a point system as well. Several commenters expressed support for the use of a point system. The commenters did not, however, generally agree on the factors that they would consider, on the number of points they would assign to each factor, or on what to do in the event of a tie. See Appendix A. 21. If we use a point system, we propose to award points as follows: (A) Local Diversity (2 points): the principal community contour of the proposed NCE station does not overlap the principal community contour of any commonly controlled broadcast station. This factor would foster broadcast diversity by enabling the public to be served by different NCE licensees. Unlike the broader diversity preference required in lotteries, a point system could limit the preference to local diversity. We believe that state networks generally would not be disadvantaged under such an analysis. As in lotteries, however, when considering what media outlets are commonly controlled, we are presented with an issue that presents special difficulties in a noncommercial context. See para. 15 supra. (B) Fair Distribution of Service: Section 307(b) of the Communications Act, 47 U.S.C.  307(b), provides for the fair, efficient, and equitable distribution of service among communities. The Commission has found three factors especially relevant to assessing the relative needs of various communities for broadcast service. See Faye & Richard Tuck, Inc., 3 FCC Rcd 5374, 5376 (1988). We propose to incorporate these three factors into a point system by awarding points to proposals that are either: (1) the first full-time NCE aural or first full-time NCE video service received in the community (2 points); (2) the second full-time NCE aural or second full-time NCE video service received in the community (1 point); or (3) the first local service licensed to the community. (1 point) (C) Technical Parameters (generally 1 point, but see note 24): the station would more broadly serve the public because there is a 10 percent or greater difference in the area and population to be served in this proposal than in a competing proposal. (D) Other Factors: We also invite comment on whether other factors should be included in a point system, as discussed further in paragraphs 23 and 24 infra. 22. We note that technical parameters, which have been considered in traditional noncommercial educational hearings, have traditionally been examined in a subjective manner, that does not provide the quantification needed in a point system. We propose to quantify as follows and request comments on our proposal. To get any points at all, a proposal would need to cover both 10% more area and 10% more people. We have tentatively decided not to base the preference on coverage of either 10% more area or 10% more people. We are concerned that, otherwise, we would not easily be able to make meaningful distinctions between stations and the relative needs of the populations they would serve. For example, we are not convinced that we should always consider as equal (1) service focussing on the large population of a city with many existing broadcast choices, but not reaching people in outlying areas who have fewer options and (2) service to people with fewer existing broadcast choices who, although living in a very large geographic area, are fewer in number due to the presence of lakes, mountains, or deserts in proposed coverage area. A judge in a traditional hearing, after considering all of the evidence presented, might more readily determine whether such applicants were technically equal, or whether one was superior to the other. In a point system, however, we believe that it would be best to award points only to applicants who demonstrate superiority both in terms of population and area, and thereby base our decision on factors more readily compared. Proposed service to a large population within a large geographic area, would generally be superior to service to either one of these, standing alone. 23. We recognize that in some NCE proceedings, no applicant will vary by 10% in technical parameters or propose a first or second service. In such cases, our proposed point system would turn on solely the issue of local diversity. Do commenters consider this a sufficient basis on which to select among NCE applicants? If not, do they have other carefully supported suggestions of additional criteria? Any suggested criteria should be easy to document, difficult to feign, and directly and verifiably connected to furthering a public interest goal. To support any particular suggestion, we would recommend that commenters explain the direct link between that suggestion and a public interest goal, such as why an applicant with one particular characteristic would provide a service superior to that of an applicant using another readily available method. We would especially welcome the submission of studies or other empirical evidence supporting such comments. 24. Keeping the above goals in mind, we seek comment on each of the following factors as possible additional bases for award of points. (1) Minority Control Credit: for applicants controlled both de jure and de facto by minorities in order to further diversify the NCE mass media service. We invite comment on whether we should include this factor in light of current constitutional concerns where, unlike lotteries, we are not required to include this factor by statute. If so, how might we implement this factor consistent with Adarand v. Pena? In addition, are there racially neutral alternatives that might indirectly further our diversification goals? This factor also involves consideration of control, which as discussed in para. 15 supra, presents special difficulties in a noncommercial context; (2) Local Educational Presence Credit: giving an established local organization a credit over new or distant organizations, upon a showing that obtaining a license to operate a local station is important to achieving the established local organization's educational goals. How long should the organization need to be present in the local community to be considered eligible for such a credit? (3) State-Wide Plan Credit: for stations that would be part of an existing education plan of a state or municipality; or (4) Representativeness Credit: giving NCE television applicants, who must currently demonstrate that their leadership is broadly representative of the community, an extra credit if their leaders are significantly more representative than those of other applicants. See FCC Form 340, Section II, Question 3. To the extent that commenters support any of these factors, we ask them to suggest the number of points that should be awarded. 25. Tie-Breakers. Whatever factors might be considered in a point system, we would need to determine what to do if two or more applicants receive the same number of points. Several commenters suggest that, in the event of a tie, we should award a "finder's preference" to the applicant who filed its application first. This suggestion raised concerns among other commenters, such as National Public Radio, that any award of a license based on filing date, could result in a "land rush" for noncommercial frequencies. We agree that a reward for the first to file could result in a rush to apply for all vacant NCE channels. Such an outcome would be undesirable because it could create an artificial demand to apply for such frequencies prematurely and prevent future upgrades by existing licensees. Accordingly, we tentatively reject the idea of a finder's preference for noncommercial FM and TV stations, and focus instead on other possible tie-breaker mechanisms. 26. One tie-breaker possibility would be to require the tied applicants to share the channel. A number of commenters dislike mandatory share-time arrangements, finding them confusing to audiences, and potentially inefficient for licensees. If more than two applicants tie, there is some merit to these arguments. However, in our experience, we would expect that most ties would involve only two applicants. In such cases, should we give two equally qualified applicants an equal opportunity to use the channel, with the understanding that they might reach another mutually acceptable arrangement between themselves at a later date? For example, if equal sharing of time was unacceptable to the applicants, they could negotiate with each other to reach a different arrangement that would meet their own individual needs, up to and including one applicant's relinquishing all of its time to the other. See 47 C.F.R  73.561; Nassau Community College, 12 FCC Rcd 12,234 (1997) (licensees permitted to modify time sharing arrangements at their discretion upon notification to FCC, even if the result is voluntary elimination of one station). If we adopt this option, we propose that the applicant would not be permitted to receive consideration greater than its reasonable and prudent expenses in return for any such relinquishment of time, unless the applicant had been operating on-air for a minimum holding period, as discussed in paras. 30-31 below. 27. A second option would be to use a tie-breaker lottery, weighted in accordance with statutory requirements. Although, as discussed above, we are seeking comment on concerns that we have about lotteries as a primary selection system, we have fewer concerns about using lotteries as tie- breakers. This is because a narrower class of applicants would be eligible to participate in tie- breaker lotteries, i.e. those who had already been found equally qualified under a point system. Nevertheless a few of our original concerns remain, especially those related to the statutory requirement that broadcast lotteries be weighted to favor applicant diversity and minority ownership. Would commenters consider a tie-breaker lottery preferable to mandatory time sharing? Should a tie breaker lottery be held only if the tie is between three or more applicants (with another method, such as timesharing, used for two-way ties)? 28. A third possibility would be to use another secondary factor to break a tie. In the ITFS service, for example, we have considered, as a tie breaker, which station would serve the largest number of students. Third Report and Order, Instructional Television Fixed Service, MM Docket No. 83-523, 4 FCC Rcd 4830 (1989). This particular tie-breaker would not be equally applicable to NCE stations, which potentially have much broader goals than ITFS stations, and might not be limited to serving a student population. Might there, however, be some other factor that could serve as an NCE tie-breaker, such as one of the factors that we have mentioned in paragraph 24 above (i.e., credits for local presence, state-wide plans, or representativeness of leadership)? What further tie-breaking measures might we use if there is still a tie after consideration of this secondary factor? We request comment on all three of these tie-breaker proposals or any others a commenting party may wish to suggest. 4. Holding Period 29. Congress encourages us to devise measures to ensure that any preferences embedded in our application selection processes and the purposes such preferences are intended to serve, are not undermined by the rapid re-assignment or transfer of stations. See Communications Amendments Act of 1982, S. Rep. No. 97-191, 97th Cong., 2d Sess. (1982), reprinted in 1982 U.S.C.C.A.N. 2237 at 2289 ("1982 Lottery Guidelines"). Six commenters addressed the possibility of a "holding period" for NCE stations granted on a comparative basis, as a means of protecting the integrity of these grants. Most of these commenters agree that NCE licensees should be required to hold stations for some minimum period of time. They say, for example, that our new selection criteria might become meaningless if the prevailing applicant could immediately transfer the station to another entity. Commenters, such as the National Federation of Community Broadcasters, also state that a holding period would address the Bechtel court's concerns (raised in a commercial context) by requiring licensees to remain true to their comparative promises. American Family Radio further states that a holding period is needed to limit speculation. The commenters differ on the amount of time that they believe is an adequate holding period, with suggestions ranging from one year to seven years. The University of Arizona would support a holding period only if exceptions can be made, such as when funding requires restructuring. 30. We tentatively conclude that there should be a holding period for NCE licenses awarded on the basis of a lottery preference or point system. We do not propose a holding period for licensees receiving no such preference (such as single applicants, licenses awarded through settlement, or licenses awarded to an applicant that received no preferential weighting in a lottery). This tentative conclusion is based on our belief that if applicants are to be selected on the basis of their different characteristics, those characteristics should be maintained for a minimum period of public service to be meaningful. We also believe that a holding period has the ability to limit any speculation that might accompany a new selection system, especially one that is faster, simpler, and less costly for applicants. To further deter speculation, we would also require the prevailing applicant to certify that they have not entered into any agreement or option, explicit or implicit, to transfer to another party any station construction permit or license awarded. See generally 1982 Lottery Guidelines, 1982 U.S.C.C.A.N. at 2290. During the holding period, prevailing applicants would be required to certify annually their continued eligibility for the preferences and points they received. As Congress has indicated in its discussion of lotteries, if those eligible for preferences were simply applying for licenses for the purpose of obtaining a quick profit on the sale of the station once the license is awarded or the holding period ends, the entire preference mechanism would be undermined. Id. 31. We do not at present propose a specific length for the holding period, because we would like to receive comment from NCE organizations on several possibilities. One option would be to establish a holding period of five years of on-air operations. This is similar to a provision in the commercial Competitive Bidding proceeding, that applicants who receive monetary bidding credits in an auction would be required to repay the amount of those credits plus interest, as prescribed in the Commission's Part I auction rules, as a condition of Commission approval of the assignment or transfer within five years to an entity not meeting the eligibility criteria for the bidding credit. See Competitive Bidding at para. 194. Should we require that an NCE organization that assigns or transfers control of its broadcast station prior to five years of operations be allowed to recoup no more than its legitimate and prudent expenses? If commenters do not believe that a five year period would be appropriate for noncommercial entities, they should thoroughly explain their reasoning and propose an alternate time period. For example, would they favor a holding period of three years, similar to the three year holding period that existed prior to elimination of our anti-trafficking policy? See Elimination of Three Year Rule and Underlying Anti-Trafficking Policy, 52 RR 2d 1081 (1982), reconsidered in part, 99 FCC 2d 971 (1985). Commenters, in considering various holding periods, should be aware that the Bechtel court, in the commercial context, indicated that a one-year holding period for applicants chosen in traditional comparative hearings was too short to bring about its perceived goals. See 47 C.F.R.  73.3597(a). 32. If applicants need to transfer a station prior to the holding period selected, and such station was awarded pursuant to a comparative preference, we would expect that the licensee would be limited to recoupment of its reasonable and prudent expenses. Currently we have such a requirement for applicants seeking to transfer the permits for unconstructed broadcast stations, both commercial and noncommercial. In the context of an unconstructed station, we consider as reimbursable the permittee's reasonable expenses of obtaining the permit and the cost of any partial construction efforts. Extending this concept to NCE stations that have been built and are operating raises a question of how to define reasonable and prudent expenses in a new context. Which, for example, among the following expenses should be included: costs of preparing and prosecuting the application for construction permit; costs of station construction; all costs of station operation; costs of station operation only to the extent that the costs are not offset by the station or organization's income? Should salaries paid to the board of directors of an operating station be excluded? Given our goals of decreasing the potential for speculation, and of retaining the public benefit of selection criteria for a reasonable time, what other costs should be either included or excluded? 33. Finally, how should we address changes in a station's board of directors in the context of a holding period? While we can address potential assignment of a station's license by limiting a station's sales price during a holding period, we cannot address the possible resignation of board members in this same way. Nevertheless, it would be problematic to us to select a particular organization based on the diversity of its governing board, only to have the de facto or de jure control of that organization change shortly thereafter. We seek comment on how to address this issue. Should we, for example, award diversity preferences only to organizations whose own governing documents specify board diversity (e.g. if the organization itself addresses whether existing and incoming board members can have other media interests)? What other measures might the Commission adopt to ensure that a lottery or point preference awarded to promote diversification is a meaningful licensing criterion? B. Noncommercial Educational Applicants on "Commercial" Frequencies 34. In the past, the Commission has permitted noncommercial educational entities also to apply for spectrum not specifically reserved for noncommercial use, i.e., for "unreserved" or "commercial" frequencies. All applicants competing for commercial broadcast spectrum, including any NCE applicants seeking such channels, are required to compete under the rules applicable to commercial applicants. In the commercial Competitive Bidding proceeding, the Commission therefore initially proposed that NCE applicants could continue to apply for commercial spectrum in the new auction environment by participating in spectrum auctions, along with commercial applicants. Competitive Bidding, 12 FCC Rcd at 22,383. Some commenters in the commercial proceeding, however, argued that such action would place NCE applicants at a financial disadvantage and would be inconsistent with language in the Balanced Budget Act exempting noncommercial stations from auctions. We did not receive sufficiently focused comment to resolve this difficult issue in the commercial proceeding. Therefore, in Competitive Bidding, we postponed resolution of this question and stated that we would seek additional comment in this rulemaking proceeding. See FCC 98-194, at para. 25. Statutory Construction 35. At issue is the language of Section 309(j)(2)(C) of the statute, which provides that competitive bidding "shall not apply to licenses or construction permits issued by the Commission ... for stations described in section 397(6)" of the Communications Act. Section 397(6) defines the terms "noncommercial educational broadcast station" and "public broadcast station." Some parties to the commercial proceeding read this language to mean that auctions cannot be used any time there is the potential that a license may be awarded to an NCE station. Under this view, mutually exclusive applications filed by NCE entities are exempt from competitive bidding, regardless of whether the frequency applied for is also available to competing commercial applicants. See Competitive Bidding, FCC 98-194, at para. 22. Other participants in the commercial proceeding, however, read the statute as prohibiting auctions only when the Commission knows in advance with a certainty that the ultimate licensee will be an NCE entity. Id. at para. 23. Under this interpretation, auctions are prohibited only if a reserved frequency is involved or if NCE entities are the only applicants for a particular commercial frequency. We seek additional comment on these or other possible interpretations of the statutory language, in relation to our authority to develop procedures for selecting among mutually exclusive applications on commercial channels. The universe of options available to us will necessarily depend upon how we resolve this issue. Auction Options 1. Current or Modified Auction Procedures 36. If the statute permits NCE applicants to participate in auctions for commercial channels, one option would be to proceed as originally proposed, i.e. commercial and NCE applicants would compete for commercial frequencies under the same general procedures recently adopted in the Competitive Bidding proceeding. Alternatively, we could modify those procedures somewhat when an NCE entity was involved. For example, there are certain bidding credits available to all applicants for commercial channels. Should there also be a specific bidding credit for NCE entities? If so, what should that credit be? Would the credit be available to all NCE applicants or only to certain categories, e.g., those below a certain funding level? Should we consider any other special procedures to enhance fair competition in auctions between NCE and non-NCE entities, if such auctions are consistent with the statute? 2. Reserving Additional Spectrum for NCE Use 37. Another possibility would be to auction commercial spectrum using the current or modified procedures described above, but to counterbalance any perceived competitive disadvantage NCE applicants might face by making it easier for an NCE entity to request reallocation of a commercially available channel to one available only to NCE applicants. We note that a significant portion of the spectrum is already reserved for NCE use. However, we are sensitive to the fact that some noncommercial educational radio and television stations may, for technical reasons, have no choice but to operate on unreserved frequencies. Currently, we allow NCE entities to reallocate spectrum from non-reserved to reserved through a rulemaking process in only two limited circumstances. Specifically, we permit reallocation when reserved band frequencies are unavailable due to potential interference to either: (1) foreign allocations (Canadian or Mexican) or (2) operations on VHF television Channel 6. Should we also consider recognizing a third circumstance in which commercial spectrum might be reallocated for NCE use and, therefore, exempt from the auction process, based on a showing of strong public need? One such possibility would be to grant specific reallotments if (a) the NCE entities would be precluded from serving their proposed communities of license using the reserved band by existing reserved band stations or pending applications, and (b) the proposed allotment would provide the first or second NCE aural or video service received in the community. What is the extent of relief that would be obtained through this proposal? Are there any other circumstances under which we should consider reallocating commercial channels for noncommercial use? If commenters would support a reallocation option, how can we minimize the impact of studying these presumably detailed NCE submissions and related pleadings on the staff, on other applicants, and on the auction process in general? How would this option potentially impact the development of digital television? Should the option, if adopted, be limited to the AM and FM broadcast services because of any such potential impact? Should any frequencies in the commercial band, that we might reallocate for noncommercial use pursuant to this option, always remain reserved? Alternatively, should such frequencies return to the commercial band if the NCE licensee seeks to transfer the station to a commercial operator? What procedures should the Commission implement to ensure the integrity of the allotment process and promote the noncommercial service? Non-Auction Options 38. We also present several other options for discussion. If, for example, we conclude that the statute precludes participation of NCE entities in auctions for commercial channels, would commenters support any of the options below, or suggest other non-auction approaches? 1. Ineligibility 39. One option would be to find NCE entities ineligible for non-reserved channels altogether. Such an option would be a departure from current policy, but could be a simple way to resolve the conflict in a statute that might both require auctions of commercial spectrum and preclude NCE applicants from participating in such auctions. We invite comment on the impact of such a decision on NCE applicants. For example, are there some NCE entities who might prefer participating in spectrum auctions with commercial entities to being foreclosed from applying for commercial spectrum? What options would be available to them if NCE entities were ineligible to participate in auctions? Should we expand their opportunities to reallocate some commercial channels for NCE use as described in para. 37 above? What are the views of NCE stations already operating on commercial channels? We tentatively conclude that there would be no significant impact on such stations because the existing operations of those stations would be grandfathered and our existing rules, allowing one-step upgrades by existing licensees on commercial channels, would generally allow them to upgrade without competing with other applicants. 2. Special NCE Processing Track 40. The Association of America's Public Television Stations suggested, in the commercial proceeding, that we should establish a separate processing track for NCE applications for commercial spectrum. According to that plan, once a technically acceptable application is filed for a commercial channel by a noncommercial applicant, the channel would be deemed reserved for noncommercial educational use and only other noncommercial applicants would be permitted to file. The prevailing NCE applicant would then be selected using whatever procedure we decide to use when NCE entities file mutually exclusive applications for a reserved channel. 41. A consequence of this suggested approach might be the reallocation of commercial channels to noncommercial use, whether or not alternative noncommercial channels are available. We seek comment on the impact of this approach on current and future commercial uses. Do commenters project the filing of increased numbers of NCE applications for unreserved channels? Would it be consistent with Congressional intent to remove commercial spectrum from the auction block without regard to the level of public need? 42. We also note that noncommercial permittees and licensees on commercial frequencies can convert to commercial stations simply by modifying their permit or license. 47 C.F.R.  73.1690(c)(9). Thus, it might be possible for an NCE applicant to obtain commercial spectrum at no cost, build, and then sell privately to a commercial entity that would otherwise have been subject to an auction. Could holding periods or some other mechanism address this issue? Should we make it more difficult for stations operating on commercial channels to convert from NCE to commercial operations, if their licenses were first awarded after the effective date of our auction authority? 3. Hybrid Approach 43. Yet another option would be to adopt some form of hybrid procedure. For example, when both NCE and commercial entities are competing for a commercial frequency, we might first hold a lottery, with statutory diversification and minority preferences. If a noncommercial educational entity wins the lottery, it would get the license, assuming that it is otherwise qualified. If, however, a commercial entity (which is precluded by statute from receiving a license awarded by lottery) "wins," this would be grounds for dismissal of the NCE applications and would trigger an auction in which all remaining commercial applicants would be eligible to participate. Alternatively, commercial and NCE applicants might first be compared using a point system, and proceed to auction if an NCE applicant was not selected on that basis. If an NCE station is not selected in the non-auction phase of a particular proceeding, and there is only one commercial applicant, we propose that that applicant would be awarded the license as a singleton. 44. We note that the lottery/auction hybrid raises the same minority and diversity issues discussed above in our consideration of lotteries on reserved spectrum. The point system/auction hybrid would require us to undertake the difficult task of devising a point system equally appropriate to commercial and noncommercial applicants. A few of the criteria discussed above for NCE point systems (such as local diversity and technical parameters) might equally apply to commercial applicants, but other factors (such as local educational presence and state-wide plans) are clearly inapplicable to commercial stations. The same is true for some criteria proposed by National Public Radio in the commercial proceeding. We invite comment. Finally, we ask commenters who support a hybrid approach to suggest ways to prevent speculation. See para. 42 supra. Pending Applications 45. There are currently approximately 40 pending proceedings, in which commercial and noncommercial applicants are competing on non-reserved channels. Should the procedures used to resolve these proceedings be the same or different from those applied to future applicants? For example, were the Commission to decide that NCE entities will no longer be eligible to apply for commercial spectrum, what procedures would apply to cases where such applications have already been filed? III. PROCEDURAL MATTERS Comments and Reply Comments 46. Pursuant to Sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R.  1.415, 1.419, interested parties may file comments on before [45 days after publication in the Federal Register], and reply comments on or before [65 days after publication in the Federal Register]. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings, 63 Fed. Reg. 24,121 (1998). 47. Comments filed through the ECFS can be sent as an electronic file via the Internet to . Generally, only one copy of an electronic submission must be filed. If multiple docket or rulemaking numbers appear in the caption of this proceeding, however, commenters must transmit one electronic copy of the comments to each docket or rulemaking number referenced in the caption. In completing the transmittal screen, commenters should include their full name, Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions for e-mail comments, commenters should send an e-mail to ecfs@fcc.gov, and should include the following words in the body of the message, "get form