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P7P#FCC 96216 % Before the  FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of) ) Section 257 Proceeding to) Identify and Eliminate)GN Docket No. 96113 Market Entry Barriers ) for Small Businesses  )   : NOTICE OF INQUIRY ă #w PE3XP4# Adopted:  May 10, 1996Released:May 21, 1996 Comments Due: July 24, 1996 Reply Comments Due: August 23, 1996 By the Commission: #Xx&_ x7XX#! TABLE OF CONTENTS ă  Paragraph  I.INTRODUCTION  1 Đ   II.BACKGROUND 4 A.Basis for Inquiry 4 B.Small Business Initiatives 7 C.Related Initiatives 18 III.IDENTIFYING MARKET ENTRY BARRIERS24 A.` ` ` General Market Entry Barriers24 B.Unique Market Entry Barriers28 IV.ELIMINATING MARKET ENTRY BARRIERS   40 Đ A.Small Businesses Generally40 B.Minority or WomenOwned Small Businesses43 1.Constitutional Standards 44  2.Possible Incentives56 C.Furthering Section 257(b) Objectives59  V.PROCEDURAL MATTERS AND ORDERING CLAUSE  60   I.INTRODUCTION #w PE3XP4# On February 8, 1996, President Clinton signed the Telecommunications Act of 1996 (1996 Telecommunications Act),#w PE3XP4#ЍTelecommunications Act of 1996, Pub. L. No. 104104, 110 Stat. 56 (1996). the most significant communications legislation since passage of the Communications Act of 1934 (Act).#w PE3XP4#Ѝ47 U.S.C.  151 et seq. Section 101 of the 1996 Telecommunications Act adds new Section 257 to the Act.m#w PE3XP4#Ѝ47 U.S.C.  257.m Section 257 requires the Commission, within 15 months after enactment, to conduct a proceeding "for the purpose of identifying and eliminating, by regulations pursuant to its authority under this Act . . . market entry barriers for entrepreneurs and other small businesses in the provision and ownership of telecommunications services and information services, or in the provision of parts or services to providers of telecommunications services and information services."|#w PE3 XP4#Ѝ47 U.S.C.  257(a).| In implementing Section 257, the Commission must "promote the policies and purposes of this Act favoring diversity of media voices, vigorous economic competition, technological advancement, and promotion of the public interest, convenience and necessity."p#w PE3 XP4#Ѝ47 U.S.C.  257(b).p Every three years following the completion of the market entry barriers proceeding, the Commission must report to Congress on regulations that have been issued to eliminate barriers and any statutory barriers that the Commission recommends be eliminated.p#w PE3 XP4#Ѝ47 U.S.C.  257(c).p This Notice of Inquiry (Notice or NOI) commences our omnibus Section 257 proceeding. We also will undertake specific initiatives that further the objective of Section 257 to reduce market entry barriers for small businesses. The record developed in connection with these initiatives also will assist us in achieving our mandate under Section 309(j) of the Actp#w PE3 XP4#Ѝ47 U.S.C.  309(j).p to disseminate licenses for auctionable spectrumbased services to small businesses, rural telephone companies, and businesses owned by women and minorities, as well as in fulfilling our general obligation to serve the public interest.#w PE3 XP4#ЍSee, e.g., 47 U.S.C.  214 (Commission must certify that public convenience or necessity requires construction or extension of lines); 47 C.F.R.  303 (Commission must regulate radio as public interest, convenience or necessity requires); 47 U.S.C.  307(a) (Commission must grant radio licenses that serve the public convenience, interest, or necessity).  Part II of the Notice explains the basis for this inquiry. Part III requests information regarding the characteristics of small telecommunications businesses and the market entry barriers they encounter, as well as the obstacles that deter individuals from starting small telecommunications businesses. In addition, Part III asks how to define small businesses for the purpose of implementing Section 257. Part III also inquires whether small businesses owned by minorities or women face unique entry barriers. We explore this area because the legislative history of Section 257 suggests that Congress was concerned about the underrepresentation of minority or womenowned small businesses in the telecommunications market and sought to increase competition by diversifying ownership.g #w PE3XP4#ЍThe Congressional Record provides: ` ` ` [W]hile we should all look forward to the opportunities presented by new, emerging technologies, we cannot disregard the lessons of the past and the hurdles we still face in making certain that everyone in America benefits equally from our country's maiden voyage into cyberspace. I refer to the welldocumented fact that minority and womenowned small businesses continue to be extremely under represented in the telecommunications field. . . . Underlying this amendment [Section 257] is the obvious fact that diversity of ownership remains a key to the competitiveness of the U.S. telecom munications marketplace. 142 Cong. Rec. H1141 at H117677 (daily ed. Feb. 1, 1996) (statement of Rep. Collins).g In addition, Section 309(j) specifically requires that we further opportunities for businesses owned by women and minorities in the provision of spectrumbased services, because a portion of small telecommunications businesses under Section 257 are owned by women and minorities, and because evidence suggests that these entities encounter unique market entry barriers. Part IV of the Notice seeks comment on regulatory incentives for eliminating barriers to entry for small telecommunications businesses. It also seeks information on ways to fulfill our mandate under Section 309(j) to further opportunities for businesses owned by minorities and women consistent with relevant constitutional standards. #X*0 x7X#II.BACKGROUND #w PE3XP4# #X*0 x7X#A.Basis for Inquiry#w PE3XP4#  The primary purpose of this inquiry is to fulfill our mandate under Section 257 to identify and eliminate market entry barriers for small businesses in the provision and ownership of telecommunications and information services, and in the provision of parts or services to providers of telecommunications services and information services.p #w PE3XP4#Ѝ47 U.S.C.  257(a).p We interpret "market entry barriers" to include obstacles that deter individuals from forming small businesses, barriers that impede entry into the telecommunications market by existing small businesses, and obstacles that small telecommunications businesses face in providing service or expanding within the telecommunications industry, e.g., those that inhibit a paging company from expanding into a new geographic area or new service such as cellular. The legislative history of Section 257 essentially parallels the language of the enacted provision. The Conference Report states: "The conference agreement adopts the House provisions with minor modifications as a new Section 257 of the Communications Act." #w PE3XP4#Ѝ142 Cong. Rec. H107803, H111314, Joint Explanatory Statement of the Committee of Conference at 23. There was no provision in the Senate bill and the House amendment stated: "Section 250 [now Section 257] requires the Commission to adopt rules that identify and eliminate market entry barriers for entrepreneurs and small businesses in the provision and ownership of telecommunications and information services. The Commission must review these rules and report to Congress every three years on how it might prescribe or eliminate rules to promote the purposes of this section." #w PE3XP4#Ѝ142 Cong. Rec. H107803 at H1113. In debates preceding passage of the 1996 Telecommunications Act, two members of Congress expressed the view that Section 257 would cover conduct including that precluded by new Section 222(e), 47 U.S.C.  222(e), which prohibits local telephone service providers from charging discriminatory or unreasonable rates, or setting discriminatory or unreasonable terms or conditions, in selling subscriber lists to independent directory publishers. 142 Cong. Rec. H114506 at H1160 (daily ed. Feb. 1, 1996) (statement of Rep. Barton); 142 Cong. Rec. E18403 (daily ed. Feb. 6, 1996) (extension of remarks by Rep. Paxon). Small businesses play a significant role in the U.S. economy. According to the U.S. Small Business Administration (SBA), in 1992 (the last year for which information is available), small businesses constituted the vast majority of all employers, employed 53% of the private work force, and provided 50% of all receipts. #w PE3XP4#ЍU.S. Small Business Administration, SBA Small Business Answer Card, 1995. In this context, the SBA considered small businesses as those employing under 500 employees. Research also has shown that small firms innovate at a per person rate twice that of large firms, spend more money on research and development (R&D), and more efficiently convert R&D efforts to new products than large firms.A#w PE3XP4#Ѝ"Report of the FCC Small Business Advisory Committee to the Federal Communications Commission Regarding Gen Docket 90314," reprinted at 8 FCC Rcd 7820, 7828 (1993) (SBAC PCS Report) (citing Joint Petition for Further Rulemaking of Advanced Mobilecomm Technologies, Inc. and Digital Spread Spectrum Technologies, Inc., in Gen. Docket 90-314, Exhibit # 3, at 1213). See infra  89 (discussion of the Commission's Small Business Advisory Committee).A Furthermore, small businesses are able to serve narrower niche markets that may not be easily or profitably served by large corporations, especially as large telecommunications expand globally.^#w PE3XP4#ЍInterim Report of the Federal Communications Commission Small Business Advisory Committee (April 21, 1994 ed.) at 1415 (SBAC Interim Report) (citing "Communications and Minority Enterprise," Report of the 1990 FCCNTIA Conference (1990) at 1112).^ Despite the role of small businesses in the economy, and the growth of the telecommunications market,;#w PE3XP4#ЍFor example, according to Edge Media, worldwide revenues for Personal Communications Services (PCS) could grow to $31 billion for equipment and services by the year 2000, The Telecommunications Industry A Market Opportunity Analysis, Federal Communications Commission, Office of Communications Business Opportunities (June 1995) (1995 OCBO Analysis) at 17 & n.30 (citing 1995 Telecommunications Market Review and Forecast, North American Telecommunications Association), and PCS is expected to have 13.5 million subscribers by the year 2000, id. at 1. The cellular market itself is growing rapidly: subscribership increased from approximately 5 million in 1990 to over 24 million in 1994. Id. The cable industry generated nearly $23 billion in 1994 and revenues will likely continue to climb, given that over 65% of all households with television sets subscribe to cable for video programming and over 95% of the country is wired for cable. Id. at 3. ; small businesses currently constitute only a small portion of telecommunications companies.#w PE3XP4#ЍFor example, the SBAC noted that SBA sales and employment data for the period 19891991 indicated that while the total number of small telecommunications enterprises had increased, cumulative market share possessed by those businesses decreased significantly. SBAC PCS Report, 8 FCC Rcd at 7826. Stated differently, bigger businesses were commanding larger portions of telecommunications revenues. Of a total of 990 firms in Standard Industrial Code 4812 (radiotelephone industries) in 1989, 971 firms with 249 employees or less possessed a 35.1% cumulative market share in 1991, compared to 927 firms in the same employment size range with a cumulative market share of 52.5% in 1989. Id. In contrast, there were a total of 19 firms with over 249 employees commanding a 64.9% cumulative market share in 1991, compared to 21 firms of the same size range with a cumulative market share of 47.5% in 1989. Id. See also FCC, "Telecommunications Industry Revenue: TRS Fund Worksheet Data" (February 1996) at Table 21 (of all 1,347 local exchange carriers (LEC) filing FCC Form 431 Telecommunications Relay Service (TRS) Fund Worksheets, the top fifth represent 98% of all LEC revenues; of all 97 interexchange carriers (IXC) filing TRS Fund Worksheets, the top fifth represent 99% of all IXC revenues); Implementation of Section 309(j) of the Communications Act Competitive Bidding, Fifth Report and Order, 9 FCC Rcd 5532, 5578 (1994) (Competitive Bidding Fifth Report and Order) (comments of DCR Communications asserting that ten large companies the six RBOCs, AirTouch (formerly owned by Pacific Telesis), McCaw (now owned by AT&T), GTE and Sprint control nearly 86 percent of the cellular industry, and that nine of these ten companies control 95% of the cellular population and licenses in the 50 BTAs that have one million or more people). #X*0 x7X#B.Small Business Initiatives#w PE3XP4# The FCC has undertaken several initiatives to increase opportunities for entry and expansion by small businesses in telecommunications markets.#w PE3XP4#ЍAlthough not specifically designed for small businesses, the Commission has adopted a number of initiatives generally to foster new entry and ownership opportunities in mass media and telecommunications services. See, e.g., Policies and Rules Regarding Minority and Female Ownership of Mass Media Facilities, Notice of Proposed Rulemaking, 10 FCC Rcd 2788 (1995) (Minority/Female Mass Media Ownership NPRM) (proposing initiatives to increase minority and female ownership of mass media facilities); Expanded Interconnection with Local Telephone Company Facilities, Second Report and Order and Third Notice of Proposed Rulemaking, 8 FCC Rcd 7374 (1993) (requiring larger LECs to provide expanded interconnection for switched transport service to competitive access providers), vacated in part and remanded in part sub nom. Bell Atlantic Telephone Cos. v. FCC, No. 931743 (D.C. Cir., April 17, 1995); Expanded Interconnection with Local Telephone Company Facilities, Report and Order and Notice of Proposed Rulemaking, 7 FCC Rcd 7369 (1992) (requiring larger LECs to provide expanded interconnection for special access to competitive access providers), rev'd sub nom. Bell Atlantic Telephone Cos. v. FCC, 24 F.3d 1441 (D.C. Cir. 1994) (reversing physical collocation requirement), recon., 8 FCC Rcd 127 (1993), recon., 8 FCC Rcd 7341 (1993); Redevelopment of Spectrum to Encourage Innovation in the Use of New Telecommunications Technologies, Notice of Proposed Rulemaking, 7 FCC Rcd 1542 (1992) (proposing spectrum for new and innovative mobile communications services); Amendment of the Commission's Rules to Establish New Personal Communications Services, Policy Statement and Order, 6 FCC Rcd 6601 (1991) (adopting policies regarding new personal communications services). Small Business Advisory Committee. In 1992, the Commission chartered the Small Business Advisory Committee (SBAC) to provide guidance regarding small and minorityowned telecommunications businesses by reviewing the agency's rules and policies, recommending changes designed to promote opportunities for these entities in the telecommunications sector, and reporting to the Commission on its findings. The SBAC also is charged with reviewing and analyzing the implications of proposed FCC actions in various areas and formulating recommendations to facilitate small and minority business opportunities.  The SBAC's interim report, submitted on April 21, 1994, concluded that the ready availability of credit to small businesses had generally declined in recent years.#w PE3XP4#ЍSBAC Interim Report at 45. Congress expressed a similar concern in adopting the Small Business Credit and Business Opportunity Enhancement Act of 1992, Pub. L. No. 102366,  331(a)(3), 106 Stat. 986 (1992) (1992 Small Business Act) ("small business concerns, which represent higher degrees of risk in financial markets than do large businesses, are experiencing increased difficulties in obtaining credit"). Among the factors cited by the SBAC contributing to the lack of credit were unfavorable loan quality perceptions, a bias against small loan amounts, and the inability to collaterize FCC licenses.z#w PE3XP4#ЍSBAC Interim Report at 45.z Spectrum Auction Incentives. Section 257 embodies Congress' intent to facilitate opportunities for small businesses in telecommunications. This intent is also reflected in Section 309(j) of the Act,p#w PE3 XP4#Ѝ47 U.S.C.  309(j).p incorporated in the Omnibus Budget Reconciliation Act of 1993,#w PE3!XP4#ЍPub. L. No. 10366, Title VI,  6002(a), 107 Stat. 312, 388 (1993). which authorized the FCC to conduct spectrum auctions. In enacting Section 309(j), Congress found that "unless the Commission is sensitive to the need to maintain opportunities for small businesses, competitive bidding could result in a significant increase in concentration in the telecommunications industries"#w PE3"XP4#ЍH.R. Rep. No. 111, 103rd Cong., 1st Sess. 254 (1993). and that small businesses should "continue to have opportunities to become licensees."k#w PE3#XP4#ЍId. at 255.k To this end, Section 309(j) requires the Commission to establish competitive bidding rules and other provisions to ensure that small businesses, businesses owned by minorities or women, and rural telephone companies ("designated entities") have an opportunity to participate in the growing wireless communications industry. Specifically, Section 309(j)(3)(B) requires that in designing systems of competitive bidding, the Commission "promot[e] economic opportunity and competition . . . by disseminating licenses among a wide variety of applicants, including small businesses . . . and businesses owned by members of minority groups and women."w#w PE3$XP4#Ѝ47 U.S.C.  309(j)(3)(B). w In addition, Section 309(j)(4)(C)(ii) requires that in prescribing area designations and bandwidth assignments, the Commission promote "economic opportunity for a wide variety of applicants, including small businesses . . . and businesses owned by members of minority groups and women."z#w PE3%XP4#Ѝ47 U.S.C.  309(j)(4)(C)(ii).z Section 309(j)(4)(D) requires that in prescribing regulations, the Commission "ensure that small businesses . . . and businesses owned by members of minority groups and women are given the opportunity to participate in the provision of spectrumbased services, and, for such purposes, consider the use of tax certificates, bidding preferences, and other procedures."0#w PE3&XP4#ЍId.  309(j)(4)(D). Subsequently, Congress eliminated the Commission's minority tax certificate program. SelfEmployed Health Insurance Act of 1995, Pub. L. No. 1047,  2, 109 Stat. 93 (1995).0 In establishing Section 309(j) competitive bidding rules for small businesses and other entities, the Commission determined that: ` ` ` The record clearly demonstrates that the primary impediment to participation by designated entities is lack of access to capital. This impediment arises for small businesses from the higher costs they face in raising capital and for businesses owned by minorities and women from lending discrimination as well. In this regard, it should be noted that although auctions have many beneficial aspects, they threaten to erect another barrier to participation by small businesses and businesses owned by minorities and women by raising the cost of entry into spectrumbased services.#w PE3'XP4#ЍCompetitive Bidding Fifth Report and Order, 9 FCC Rcd at 5535. Ī The Commission has taken a flexible approach in establishing size standards for qualifying as small businesses in each spectrumbased service, and in certain instances, has established bidding incentives based on business size. When the Commission issued its first general auction rules under Section 309(j), it adopted the SBA's definition of small business: to qualify an applicant had to show that, together with its affiliates, it had no more than $6 million net worth, and after federal income taxes (excluding any carry over losses) it did not have in excess of $2 million in annual profits for each of the previous two years.!#w PE3(XP4#ЍImplementation of Section 309(j) of the Communications Act Competitive Bidding, Second Report and Order, 9 FCC Rcd 2348, 23952396 (1994) (Competitive Bidding Second Report and Order).! The Commission reasoned that in most circumstances the SBA's existing net worth/income size standard would be the appropriate threshold for small businesses to qualify for auction incentives. The Commission recognized, however, that in certain services the SBA standard might not be high enough to encompass parties that needed special incentives to raise the capital to compete in spectrum auctions, but also were financially capable of constructing and operating systems. To accommodate this situation, therefore, on reconsideration the Commission adopted a more flexible approach, allowing the threshold to be adjusted on a servicebyservice basis.#w PE3)XP4#ЍImplementation of Section 309(j) of the Communications Act Competitive Bidding, Second Memorandum Opinion and Order, 9 FCC Rcd 7245, 7269 (1994).֌For example, the Commission adopted the SBA's $6 million/$2 million definition for the Interactive Video Data Service (IVDS).~#w PE3*XP4#ЍImplementation of Section 309(j) of the Communications Act Competitive Bidding, Fourth Report and Order, 9 FCC Rcd 2330, 2336 (1994) (Competitive Bidding Fourth Report and Order); Competitive Bidding Second Report and Order, 9 FCC Rcd at 23952396. In the IVDS MSA auction completed July 29, 1994, small businesses won 25.4% (151) of the 594 available licenses. "Visitor's Auction Guide, FCC Auction, Broadband Personal Communications Services" (December 5, 1994) (1994 FCC Visitor's Auction Guide) at Section IX.~ The Commission adopted a $40 million small business definition for both narrowband and broadband PCS, #w PE3+XP4#ЍImplementation of Section 309(j) of the Communications Act Competitive Bidding, Third Memorandum Opinion and Order and Further Notice of Proposed Rulemaking, 10 FCC Rcd 175, 196 (1995) (Competitive Bidding Third MO&O/FNPRM); Competitive Bidding Fifth Report and Order, 9 FCC Rcd at 55815584. and the Multipoint Distribution Service (MDS).}!#w PE3,XP4#ЍAmendment of Parts 21 and 74 of the Commission's Rules With Regard to Filing Procedures in the Multipoint Distribution Service and in the Instructional Television Fixed Service, Report and Order, 10 FCC Rcd 9589, 967172 (1995) (Multipoint Distribution Service Report and Order).} Under the $40 million threshold, to qualify for the special measures accorded a small business, the applicant together with its affiliates (and for PCS its attributable investors as well) must not have in excess of $40 million in gross revenues for the three preceding years.B"#w PE3-XP4#ЍSee Competitive Bidding Third MO&O/FNPRM, 10 FCC Rcd at 196; Competitive Bidding Fifth Report and Order, 9 FCC Rcd at 5608; Multipoint Distribution Service Report and Order, 10 FCC Rcd at 967172.B For the 900 MHz Specialized Mobile Radio (SMR) Service and the 800 MHz SMR Service, the Commission has adopted a twotiered approach to the definition of small business: "small" businesses (the applicant, together with attributable investors and affiliates, has average gross revenues for the three preceding years are $15 million or less) and "very small" businesses (the applicant, including attributable investors and affiliates, must have average gross revenues for the three preceding years of $3 million or less).##w PE3.XP4#ЍAmendment of Parts 2 and 90 of the Commission's Rules to Provide for the Use of 200 Channels Outside the Designated Filing Areas in the 896901 MHz and 935940 MHz Bands Allotted to the Specialized Mobile Radio Pool, Second Order on Reconsideration and Seventh Report and Order, 11 FCC Rcd 2639, 207577 (1996) (900 MHz Seventh Report and Order); Implementation of Part 90 of the Commission's Rules to Facilitate Future Development of SMR Systems in the 800 MHz Frequency Band, First Report and Order, Eighth Report and Order, and Second Further Notice of Proposed Rulemaking, 11 FCC Rcd 1463, 1574 (1996) (800 MHz Eighth Report and Order). The Commission has designed particular incentives to enhance small business participation in the competitive bidding process for these spectrumbased services. One of these measures is the establishment of "entrepreneurs blocks" in the broadband PCS auctions, in which the Commission limits participants to applicants with $125 million or less in annual gross revenues for the previous two years and total assets of $500 million or less.$#w PE3/XP4#Ѝ Competitive Bidding Fifth Report and Order, 9 FCC Rcd at 5586. The Commission reasoned that these restrictions would have the effect of excluding larger companies that could easily outbid designated entities and thus frustrate Congress' goal of disseminating licenses among a diversity of licensees, while at the same time including firms that are likely to have the financial ability to provide sustained competition to other PCS licensees.p%#w PE30XP4#Ѝ Id.p Additional incentives to facilitate small business participation in spectrum auctions include reduced upfront payments,]&#w PE31XP4#ЍSee, e.g., Competitive Bidding Fifth Report and Order, 9 FCC Rcd at 55995600 (25% reduction for all broadband PCS C block bidders); Multipoint Distribution Service Order, 10 FCC Rcd at 9668 (25% reduction in required upfront payment).] bidding credits,i'#w PE32XP4#Ѝ See, e.g., Implementation of Section 309(j) of the Communications Act Competitive Bidding, Sixth Report and Order, 11 FCC Rcd 136, 161 (1996) (Competitive Bidding Sixth Report and Order) (25% bidding credit for small businesses in broadband PCS C block auction); Multipoint Distribution Service Order, 10 FCC Rcd at 9669 (15% bidding credit); 900 MHz Seventh Report and Order, 11 FCC Rcd 270506 (15% bidding credit for very small businesses and 10% bidding credit for small businesses).i installment payment plans with favorable interest rates,(#w PE33XP4#ЍSee, e.g., Competitive Bidding Fourth Report and Order, 9 FCC Rcd at 2340 (for the IVDS MSA auction, after 20% downpayment on net winning bids, small businesses allowed to pay the remaining 80% in installments over the fiveyear term of the license, with interestonly payments for the first two years, principal and interest amortized over the remaining years of the license, and interest charges fixed at a rate equal to that for fiveyear U.S. Treasury notes); Implementation of Section 309(j) of the Communications Act Competitive Bidding, Third Report & Order, 9 FCC Rcd 2941, 297879 (1994) (in regional narrowband PCS auction, small businesses permitted to pay full amount of the bid (less upfront and down payments) in installments, with interestonly payment for the first two years, principal and interest amortized over the remaining years of the license term, and interest charges fixed at the rate for tenyear U.S. Treasury obligations); Competitive Bidding Sixth Report and Order, 11 FCC Rcd at 158 (in broadband PCS C block auction, small businesses permitted to make interestonly payments for six years and payment of interest and principal amortized over the remaining four years of the license term, with interest charged at the tenyear U.S. Treasury obligations rate); Multipoint Distribution Service Order, 10 FCC Rcd at 9667 (winning bids (less upfront and down payments) payable in installments, with interestonly payments for first two years and principal and interest amortized over the remaining years of the license term, and interest charged at the tenyear U.S. Treasury note rate plus 2.5%); 900 MHz Seventh Report and Order, 11 FCC Rcd at 2708 (for very small businesses, payment quarterly over license term, with interestonly payments for the first five years, and interest accruing at the rate for 10year U.S. Treasury obligations; for small businesses, payment quarterly over license term, interestonly payments for first two years, and interest charged at the rate for 10year U.S. Treasury obligations plus 2.5%); 800 MHz Eighth Report and Order, 11 FCC Rcd at 1574 (same as in 900 MHz SMR for upper 10 MHz block).  and reduced down payments on winning bids.)#w PE34XP4#ЍSee, e.g., Competitive Bidding Fifth Report and Order, 9 FCC Rcd at 5593 (for Broadband PCS C block auction, 5% of winning bid due within 5 business days of close of auction, and remaining 5% due within 5 days of grant of the application); Multipoint Distribution Service Order, 10 FCC Rcd at 9701 (10% of winning bid due 5 days after notification of winning bid, and remaining 10% due 5 days after public notice that license is ready for issuance); 900 MHz Seventh Report and Order, 11 FCC Rcd at 2708 (5% of winning bid due five days after close of auction, with remaining 5% due five days after announcement that license is ready for grant). In adopting incentives for designated entities as required by Section 309(j),p*#w PE35XP4#Ѝ47 U.S.C.  309(j).p the Commission also established incentives for businesses owned by minorities and women.+#w PE36XP4#ЍCompetitive Bidding Second Report and Order, 9 FCC Rcd at 23882400. We stated that we would decide whether and how to use these incentives on a servicebyservice basis.o,#w PE37XP4#ЍId. at 238889.o For example, in the regional narrowband PCS auction completed November 8, 1994, a 40% bidding credit was available for minority and womenowned businesses for two of the six licenses in each regional market (five regions).-#w PE38XP4#ЍCompetitive Bidding Third MO&O/FNPRM, 10 FCC Rcd at 201. In the broadband PCS proceeding, we initially established various incentives for businesses owned by minorities or women for the entrepreneurs blocks (C and F)..#w PE39XP4#ЍCompetitive Bidding Fifth Report and Order, 9 FCC Rcd at 557197. After the Supreme Court's decision in Adarand Constructors, Inc. v. Pe9a,/#w PE3:XP4#Ѝ115 S.Ct. 2097 (1995). which held that racial classifications are subject to strict scrutiny, however, we revised the designated entity rules to remove race and genderbased incentives in the broadband C block auction.0#w PE3;XP4#ЍCompetitive Bidding Sixth Report and Order at  1057.  See also infra  4455 (discussion of Adarand). In a Notice of Proposed Rulemaking proposing rules for the broadband PCS D, E & F block auctions, we tentatively concluded that our present record in support of racebased rules is insufficient to demonstrate a compelling interest under the strict scrutiny standard to support racebased provisions of the F block because it reflects generalized assertions of discrimination and that the present record in support of our genderbased F block rules may be insufficient to satisfy intermediate scrutiny. Amendment of Part 20 and 24 of the Commission's Rules Broadband PCS Competitive Bidding and the Commercial Radio Service Spectrum Cap, Notice of Proposed Rulemaking, WT Docket No. 9659, GN Docket No. 90314 (released March 20, 1996) at  2023 (D, E & F Block NPRM).  We requested comment on this tentative conclusion, requested parties to submit statistical and personal evidence of discrimination, and sought comment on nonremedial objectives that could be furthered by minoritybased provisions of our F block rules. Id. at  21. The record developed in the D, E & F Block NPRM will be incorporated into the record in this proceeding. Id. at  24.  The majority of commenters in this proceeding favored the rule changes to avoid delay and the risk of legal challenges to the auction.1#w PE3<XP4#ЍCompetitive Bidding Sixth Report and Order, 11 FCC Rcd at 14243. We generally extended the preAdarand incentives for minority and womenowned small businesses to all small businesses. We found that because many designated entities, including minority and womenowned businesses, would qualify as small businesses and, thus, benefit from the changes, they were consistent with our Section 309(j) mandate.k2#w PE3=XP4#ЍId. at 143.k Although the Commission determined that the revisions were necessary under the circumstances, we also recognized that race and genderbased incentives may be sustainable with further development of the record.o3#w PE3>XP4#ЍId. at 13637. o Telecommunications Development Fund. In Section 707 of the 1996 Telecommunications Act,4#w PE3?XP4#ЍPub. L. No. 104104,  707, 110 Stat. 56, 47 U.S.C.  614. Congress established the Telecommunications Development Fund (the Fund) to promote access to capital for small businesses in the telecommunications industry, stimulate the development of new technology, and support delivery of universal service.p5#w PE3@XP4#Ѝ47 U.S.C.  614(a).p The Fund, a nonprofit corporation, is authorized to make loans to, investments in, or other extensions of credit to small businesses, provide financial advice to small businesses, and conduct research.p6#w PE3AXP4#Ѝ47 U.S.C.  614(e).p Fund accounts will consist of interest on deposits made to qualify for competitive bidding under Section 309(j) of the Act, funds appropriated to the Commission for advances to the Fund, donations, and repayment of credit extended by the Fund.v7#w PE3BXP4#Ѝ47 U.S.C.  309(j)(8)(C).v Section 707 authorizes establishment of a sevenmember Board of Directors (selected by the FCC Chairman), consisting of four representatives from the private sector, and one each from the Commission, the SBA, and the Department of the Treasury.s8#w PE3CXP4#Ѝ47 U.S.C.  614(c)(1).s An Interim Chairperson has been selected and formation of the Board is underway.9#w PE3DXP4#ЍFCC, "Chairman Hundt Announces Appointment of Solomon Trujillo as Interim Chairman of the Telecommunications Development Fund," Public Notice (March 8, 1996). #X*0 xE7X#C.Related Initiatives#w PE3FXP4# The Commission has adopted other polices and rules regarding participation by women and minorities in the telecommunications industry. As described below, these rules generally serve to increase diversity of viewpoints, deter discrimination, and facilitate ownership in communications. Thus, these policies inure to the benefit of small businesses owned by women or minorities, and to individual women or minorities in the telecommunications market.:#w PE3GXP4#ЍFor example, in adopting equal employment opportunity rules for commercial mobile radio services, the Commission found that "EEO rules for CMRS providers are appropriate and necessary to achieve the statutory goal of increased ownership opportunities for minorities and women in spectrumbased services. . . . EEO rules . . . will provide increased communications experience for minorities and women. This experience, will, in turn, enable them more easily to become owners of communications enterprises." Implementation of Section 3(n) and 332 of the Communications Act, Third Report and Order, 9 FCC Rcd 7988, 809798 (1994) (CMRS Third Report and Order).  Following the D.C. Circuit decision in TV 9, Inc. v. FCC,{;#w PE3HXP4#ЍTV 9 Inc., 495 F.2d 929 (D.C. Cir. 1973), cert. denied, 419 U.S. 986 (1974). In TV 9, the court held that "when minority ownership is likely to increase diversity of content, especially on opinion and viewpoint, merit should be awarded" and found that "it is upon ownership that public policy places primary reliance with respect to diversification of content, and that historically has proved to be significantly influential with respect to editorial comment and presentation of news." Id. at 93738. { the Commission adopted a broadcast licensing policy in which the Commission considers a minority applicant's proposed participation in station operation as one of several factors in comparing applicants for mutually exclusive broadcast licenses.<#w PE3IXP4#ЍIn Metro Broadcasting, Inc. v. FCC, 497 U.S. 547, 567 (1990), the Supreme Court upheld our minority policy, however, in Lamprecht v. FCC, 958 F.2d 395, 398 (D.C. Cir. 1992), the D.C. Circuit found the policy for women to be unconstitutional. Thereafter, in Bechtel v. FCC, 10 F.3d 875, 877, 887 (D.C. Cir. 1993), the D.C. Circuit held that the integration credit, upon which the minority/female policy is based, was arbitrary and capricious. Following Bechtel, the Commission suspended comparative hearings altogether. The Commission, however, has sought public comment on the nexus between female ownership and diversity of programming. Policies and Rules Regarding Minority and Female Ownership of Mass Media Facilities, Notice of Proposed Rulemaking, 10 FCC Rcd 2788, 2790 (1995) (Minority/Female Mass Media Ownership NPRM).  In 1978, the Commission adopted the distress sale program, which permits a broadcast licensee whose license has been designated for a revocation hearing to sell its station to a minoritycontrolled entity at 75% or less of the station's fair market value; and the tax certificate program, which permitted parties that sell broadcast licenses to minorities to defer capital gains.=#w PE3JXP4#ЍStatement of Policy on Minority Ownership of Broadcasting Facilities, 68 FCC 2d 979, 983 (1978). See also Commission Policy Regarding the Advancement of Minority Ownership in Broadcasting, 92 FCC 2d 849 (1982). As previously discussed, in 1995 Congress repealed the Commission's tax certificate authority. See supra note 27. In 1982, Congress required the Commission to establish incentives, rules and procedures ensuring a "significant preference" for minoritycontrolled applicants in awarding licensees by lottery.>#w PE3KXP4#Ѝ47 U.S.C.  309(i)(3)(A); 47 C.F.R.  1.1622. Congress found that "the effects of past inequities stemming from racial and ethnic discrimination have resulted in a severe underrepresentation of minorities in the media of mass communications, as it has adversely affected their participation in other sectors of the economy as well,"?#w PE3LXP4#ЍH.R. Conference Report No. 97765, 97th Cong., 2d Sess., 1982 at 43. and stated its intention to "further diversify the ownership of the media of mass communications."c@#w PE3MXP4#ЍId.c Later, in 1985, we adopted multiple ownership rules for broadcast services, which permitted a nonminority owner to exceed the caps on national ownership in the form of noncontrolling interests in minoritycontrolled stations and permitted minority owners to exceed the limits outright.A#w PE3NXP4#ЍAmendment of Section 73.3555 of the Commission's Rules Relating to Multiple Ownership of AM, FM and Television Broadcast Stations, Memorandum Opinion and Order, 100 FCC 2d 74, 94 (1985) (1985 Minority Ownership Memorandum Opinion and Order). In Section 202 of the 1996 Telecommunications Act, Congress removed the national ownership caps for radio stations, and expanded them for television stations. 1996 Telecommunications Act,  202. As a result, minority ownership incentives are no longer incorporated into the broadcast national multiple ownership rules. The Commission has adopted new rules implementing Section 202. Implementation of Section 202(a) and 202(b)(1) of the Telecommunications Act of 1996 (Broadcast Radio Ownership), Order, FCC 9690 (released March 8, 1996). In the FCC's appropriations legislation for fiscal year 1988, Congress prohibited the Commission from spending any appropriated funds to examine or change its minority ownership policiesB#w PE3OXP4#ЍContinuing Appropriations Act for Fiscal Year 1988, Pub. L. No. 100202, 101 Stat. 132931. In addition, the legislation specifically ordered the Commission to close MM Docket No. 86484, in which the Commission was examining whether a nexus exists between minority/female ownership and viewpoint diversity, and whether such ownership is necessary to achieve that goal. Id.  and Congress has enacted similar appropriations measures in subsequent years.C#w PE3PXP4#ЍSee, e.g., H.R.J. Res. 108, 104th Cong., 1st Sess., Section 104 (1995). In the 1992 Cable Act, Congress required the FCC to prescribe rules establishing "reasonable limits on the number of cable subscribers a person is authorized to reach through cable systems owned by such person,"D#w PE3QXP4#ЍCable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102385,  11(c)(2), 106 Stat. 1460 (1992 Cable Act). and in 1993, the Commission adopted horizontal ownership rules for cable television, increasing the ownership allowance for minoritycontrolled stations.:E#w PE3RXP4#ЍImplementation of Sections 11 and 13 of the Cable Television Consumer Protection and Competition Act of 1992, Second Report and Order, 8 FCC Rcd 8565, 8577 (1993) (Cable Second Report and Order). In response to Daniels Cablevision, Inc. v. U.S., 835 F. Supp. 1 (D.D.C. 1993), appeal docketed and pending, Civ. Act. No. 935290 (D.C. Cir. 1993), which held the statute unconstitutional, the Commission stayed its rule in light of the court's ruling. : The Commission also adopted channel occupancy rules for cable television, which include an increased allowance for carriage of channels in which the operator has an attributable interest but that are minoritycontrolled.F#w PE3SXP4#ЍCable Second Report and Order, 8 FCC Rcd at 8596. To promote diversity of program sources and to ensure public access to a wide variety of viewpoints,G#w PE3TXP4#ЍSee S. Rep. No. 10292, 102d Cong., 1st Sess. (1991) at 30; H.R. Rep. No. 102628, 102d Cong., 2d Sess. (1992) at 40 ("[n]ew subsection 612(i) is intended to provide cable operators increased incentives to carry minority programming services and is consistent with FCC and Congressional objectives designed to increase the diversity of viewpoints by encouraging minority ownership of the communications media"). Congress also permitted cable operators to use leased access channel capacity "for the provision of programming from a qualified minority program source . . . whether or not such source is affiliated with the cable operator;"sH#w PE3UXP4#Ѝ47 U.S.C.  532(i)(1).s and the Commission adopted implementing regulations.pI#w PE3VXP4#Ѝ47 C.F.R.  76.977.p In 1994, in the Minority/Female Mass Media Ownership NPRM, the Commission proposed initiatives to increase minority and female ownership of mass media facilities by facilitating their access to capital.J#w PE3WXP4#ЍMinority/Female Mass Media Ownership NPRM, 10 FCC Rcd at 2788. Specifically, we proposed an incubator program whereby existing mass media entities would be encouraged, through ownershipbased incentives, to assist new entrants to the communications industry, including small businesses. We also sought comment on how to modify ownership attribution rules to encourage investment in minoritycontrolled and womencontrolled broadcast properties by deeming noncontrolling interests in such properties nonattributable.oK#w PE3XXP4#ЍId. at 279195.o The Minority/Female Mass Media Ownership NPRM also proposed seeking investment tax credit legislation, streamlining application standards for qualified Specialized Small Business Investment Companies, and relaxing local multiple ownership limits for minorities and women.oL#w PE3YXP4#ЍId. at 279697.o In another 1994 Notice of Proposed Rulemaking proposing new attribution rules regarding treatment of the equity interest of a member in a limited liability company or a registered limited liability partnership, the Commission sought comment on whether to provide an exception to the proposal to facilitate minority ownership of broadcast stations.M#w PE3ZXP4#ЍReview of the Commission's Regulations Governing Attribution of Broadcast Interests, 10 FCC Rcd 3606 (1985). The Commission's equal employment opportunity (EEO) rules also help to promote opportunities for women and minorities. In 1968, we adopted our first minority EEO rules for broadcast services. N#w PE3[XP4#Ѝ Petition for Rulemaking to Require Broadcast Licensees to Show Nondiscrimination in Their Employment Practices, Memorandum Opinion and Order and Notice of Proposed Rulemaking, 13 FCC 2d 766 (1968). Earlier this year, the Commission adopted an Order and Notice of Proposed Rulemaking proposing measures to streamline EEO reporting requirements in certain circumstances, while reaffirming its commitment to maintain an effective EEO program. Streamlining Broadcast EEO Rule and Policies, Vacating the EEO Forfeiture Policy Statement and Amending Section 1.80 of the Commission's Rules to Include Forfeiture Guidelines, MM Docket No. 9616, FCC 9649 (released February 16, 1996) (1996 EEO Order & NPRM). In that Notice, we reiterated the dual purposes of our EEO rule: ` ` ` The Commission's broadcast EEO requirements serve two objectives: to promote programming that reflects the interests of minorities and women in the local community in addition to those of the community at large and to deter discriminatory employment practices. A basic rationale underlying the broadcast EEO Rule has been that a broadcaster can more effectively fulfill its duty to serve the needs of the entire community if it makes a good faith effort to employ qualified women and minorities. . . . as more minorities and women are employed in the broadcast industry, varying perspectives are more likely to be aired. The other underlying rationale for the EEO Rule, deterrence of unlawful discrimination, rests on the belief that a broadcaster that engages in unlawful discrimination cannot, by definition, fulfill the needs of the entire community. We also recognize that employment discrimination in the broadcast industry inhibits our efforts to diversify media ownership by impeding opportunities for minorities and women to learn the operating and management skills necessary to become media owners and entrepreneurs. Id. at  3 (citations omitted). The Commission sought comment on its view that because the EEO program is an effortsbased approach that does not mandate that broadcasters employ any person on the basis of race, it is not implicated by Adarand and need not be evaluated under the strict scrutiny standard. Id. at  15. See infra  4455 (discussion of Adarand). In 1970, the Commission added women to the coverage of its EEO rulesO#w PE3\XP4#ЍPetition For Rulemaking To Require Broadcast Licensees To Show Nondiscrimination in Their Employment Practices, 23 FCC 2d 430 (1970); Amendment of Part VI of FCC Forms 301, 303, 309, 311, 314, 315, 340 and 342, and Adding The Equal Employment Program Filing Requirement To Commission Rules 73.125, 73.301, 73.599, 73.680 and 73.793, 32 FCC 2d 708 (1971). and adopted EEO rules for common carriers.P#w PE3]XP4#ЍRulemaking to Require Communications Common Carriers to Show Nondiscrimination in Their Employment Practices, 24 FCC 2d 725 (1970). In 1972, we adopted EEO rules for cable,?Q#w PE3^XP4#ЍAmendment of the Commission's Rules to Require Operators of Community Antenna Television Systems and Community Antenna Relay Station Licensees to Show Nondiscrimination in Their Employment Practices, Report and Order, 34 FCC 2d 186 (1972), modified, Nondiscrimination in the Employment Policies and Practices of Cable Television Applicants and Certificated Holders and Licensees of Cable Television Relay Stations, Report and Order, 69 FCC 2d 1324 (1978).? and more recently, for commercial mobile radio services.R#w PE3_XP4#ЍCMRS Third Report and Order, 9 FCC Rcd at 80968100. In 1976, the Supreme Court indirectly endorsed our EEO rules.S#w PE3`XP4#ЍNAACP v. Federal Power Commission, 425 U.S. 662, 670 n.7 (1976) (holding that the Commission's EEO rules were justified to ensure diversity of programming). In the "Cable Communications Policy Act of 1984," Congress prohibited cable entities from discriminating on the basis of race, gender, and other protected member status, and required the Commission to annually review cable systems' EEO programs and certify systems' compliance with the Commission's EEO rules.T#w PE3aXP4#ЍCable Communications Policy Act of 1984, Pub. L. No. 98549, 1 et seq., 98 Stat. 2779 (1984). Congress found that EEO requirements were "particularly important in the mass media area where employment is a critical means of assuring that program service will be responsive to a public consisting of a diverse array of population groups," and that a strong EEO policy is necessary to assure that there are sufficient numbers of minorities and women with professional and management experience who will be able to take advantage of ownership opportunities.U#w PE3bXP4#ЍH.R. Rep. No. 934, 98th Cong., 2d Sess. 4723 (1984). Again in 1992, Congress found that minorities and women were not sufficiently represented in managerial positions in broadcast and cable, and that increasing their representation would further the nation's policy favoring diversity in the expression of views in the electronic media.V#w PE3cXP4#ЍH.R. Rep. No. 102628, 102d Cong., 2d Sess. 111 (1992). Congress directed the Commission to bolster broadcast EEO enforcement by conducting midterm review of broadcast television stations, endorsed our EEO rule and forms for television licensees by prohibiting the Commission from amending them, and extended its EEO statutory requirements to cover multichannel video programming distributors.W#w PE3dXP4#Ѝ1992 Cable Act, 47 U.S.C.  334. #X*0 xe7X#III.IDENTIFYING MARKET ENTRY BARRIERS A.General Market Entry Barriers #w PE3fXP4# In this section, we first request commenters to provide profile data about small telecommunications businesses, including financing sources and terms, services provided, markets served, geographic areas of operation, and employee workforce. This information will assist us in identifying market entry barriers and designing appropriate measures to eliminate entry barriers. Commenters may submit individualized or aggregated data. We request commenters to provide the following information in as much detail as possible regarding particular services, including but not limited to PCS, cellular, paging, SMR, satellite, radio, television, wired cable, wireless cable, local exchange, long-distance, access, on-line, messaging, and international services, and resale of any such service, as well as information regarding businesses that provide parts or services to providers of telecommunications services and information services: (1)` ` ` ownership structure, including identity of owner(s) by gender and racial group,X#w PE3gXP4#ЍConsistent with the definition of "minority" in our rules, minority identification should be Black, Hispanic, American Indian, Alaskan Native, Asian, or Pacific Islander, as appropriate. See, e.g., 47 C.F.R.  1.1621(b) and 24.720(i). See also Race and Ethnic Standards for Federal Statistics and Administration Reporting, OMB Statistical Policy Directive, No. 15 (1977). as well as percentage of minority or female control; (2)communications service(s) provided; (3)geographic region(s) served; (4)primary markets (e.g., businesses, residences, government); (5)` ` ` number of employees, job categories (i.e., officials and managers, professionals, technicians, clerical), and employee composition in job categories by race and gender. (6)` ` ` capital requirements for entry or expansion; (7)funding sources and methods of raising capital; (8)` ` ` revenue, income and profit levels.  To help fulfill our responsibilities under Sections 257 and 309(j), we request comment on the following questions regarding market entry barriers. Comments should be as specific as possible and identify with particularity the types of services and geographic regions covered. (1)What obstacles do small businesses face in accessing capital and credit? (2)` ` ` Do small businesses obtain capital and credit under terms and conditions less favorable than those provided large businesses? If so, why? (3)` ` ` What difficulties do small businesses face in their dealings with suppliers, vendors, contractors, or FCC licensees? (4)` ` ` What obstacles do small businesses face in their abilities to resell, interconnect, or benefit from economies of scale? (5)` ` ` Do high deposit requirements deter small business entry into resale? (6)` ` ` Do small businesses have difficulty attracting or retaining clients? (7)` ` ` Do small businesses have difficulty dealing with trade associations and other private entities? (8)` ` ` Do small businesses have particular difficulties in obtaining government contracts, licenses, franchises, or other government benefits? Have small businesses faced any such problems regarding FCC policies or rules? (9)` ` ` Do contracts for a single bidder to serve a large volume and diversity of companies through one contract disadvantage small businesses? (10)` ` ` Do small businesses encounter difficulties attracting strategic partners? (11)` ` ` In forming alliances with other entities, are small businesses required to do so under unfavorable terms and conditions for the small business? (12)` ` ` Are there unique obstacles that small businesses face in entering, providing service, or expanding in the telecommunications field that are not faced by small businesses in other sectors (for example, in the retail or service sectors)? (13)` ` ` Do small businesses experience difficulties identifying and obtaining access to spectrum?We request comment on how these impediments vary depending on the particular service provided. What particular types of businesses have difficulty getting started, operating, and expanding? Does the cost of capital differ for small broadcast stations versus small wireless providers? Does the cost of capital vary depending on the particular type of wireless (paging, SMR, PCS, etc.) or broadcast (television or radio) service offered? Do any other market entry barriers exist? For what services? Parties should comment on the geographic scope of any identified barrier, i.e., does the barrier exist nationwide, or in particular regions or locales? For any barrier, commenters also should identify whether it is a statutory requirement,Y#w PE3hXP4#ЍSection 257 requires that we report to Congress any statutory barriers that the Commission recommends be eliminated. 47 U.S.C.  257(c). government regulation, or external factor, e.g., difficulty obtaining loans. We also request comment on how these difficulties are influenced by size. Are impediments to entry or expansion, or to providing service greater for very small businesses? For example, does the cost of capital increase as the size of a small business decreases? Do very small businesses encounter greater difficulties in dealings with suppliers, vendors, or contractors than larger small businesses?  B.` ` ` Unique Market Entry Barriers In this section, we seek information to help us identify any unique obstacles that small telecommunications businesses owned by women or minorities encounter in forming firms, providing service, or expanding in the telecommunications market. We explore this area because first, the legislative history of Section 257 suggests Congress was concerned about the underrepresentation of minority and womenowned small businesses in the telecommunications market and sought to increase competition by diversifying ownership.Z#w PE3iXP4#ЍSee supra note 9 citing 142 Cong. Rec. H1141 at H117677 (daily ed. Feb. 1, 1996) (statement of Rep. Collins). Second, Section 309(j) specifically requires that we further opportunities for businesses owned by women and minorities in the provision of spectrumbased services. Third, based on our licensing information and other statistical data, we know that a portion of small communications businesses are owned by women and minorities and there is evidence that these entities encounter unique market barriers. Evidence demonstrates that a principal barrier is difficulty accessing capital because of minority or female status, rather than race or genderneutral factors, and that this barrier contributes directly to low participation rates. For example, in the 1992 Small Business Act, Congress found that businesses owned by minorities or women have particular difficulties in obtaining capital.[#w PE3jXP4#Ѝ1992 Small Business Act,  112(4) and 33(a)(4). In the Women's Business Ownership Act of 1988,u\#w PE3kXP4#ЍPub. L. No. 100533 (1988).u Congress found that women as a group are subject to discrimination that adversely affects their ability to raise or secure capital. In 1993, the National Foundation for Women Business Owners found that womenowned firms are 22% more likely to report difficulties with banks than are businesses at large, and that removal of financial barriers would encourage stronger growth among womenowned businesses, resulting in much greater growth throughout the economy.]#w PE3lXP4#Ѝ"Financing the Business, A Report on Financial Issues from the 1992 Biennial Membership Survey of Women Business Owners," The National Foundation for Women Business Owners (October 1993). Further, in a 1992 Report to the President and Congress, the National Women's Business Council cited lack of access to capital as the most pervasive barrier to success for women business owners.^#w PE3mXP4#Ѝ"Annual Report to the President and Congress," National Women's Business Council (1992) at 11. As to communications businesses specifically, the American Women in Radio and Television, Inc. asserts that "[b]ased on their gender, women today confront significant barriers in raising the amount of capital necessary to seize the ownership opportunity. This lack of access to capital has contributed directly to the low level of female ownership of mass media facilities.";_#w PE3nXP4#Ѝ"Written Remarks of Shelley Spencer on Behalf of American Women in Radio and Television, Inc." for the FCC's En Banc Hearing on Spectrum Policy (comments dated February 20, 1996; hearing held March 5, 1996) at 12.; The Commission has recognized that "considerable evidence has been presented showing that the primary impediment to minorities seeking to enter the communications industry or to increase their mass media holdings has been lack of access to capital."`#w PE3oXP4#ЍMinority/Female Mass Media Ownership NPRM, 10 FCC Rcd at 2791. In April 1995, the National Telecommunications and Information Administration (NTIA) found that "there are real barriers to minority participation in telecommunications, and that minorities often lack access to the types and amount of capital required to form and expand telecommunications businesses."a#w PE3pXP4#Ѝ"Capital Formation and Investment in Minority Business Enterprises in the Telecommunications Industries," (NTIA) (April 1995) at iii. Congressional testimony regarding minority discrimination in telecommunications shows that controlling for education, work experience, age, gender, and other factors, bank loan dollars, per dollar of owner equity investment, are 160% higher for white firms ($1.85) than black firms ($1.16).b#w PE3qXP4#Ѝ"Access to Credit and Capital Among MinorityOwned Businesses," testimony of Dr. Timothy Bates, Visiting Fellow, The Woodrow Wilson Center (May 20, 1994) (Bates Testimony) at 1. Dr. Bates also found that minorities are most likely to be foreclosed from capital intensive industries. Id. at 6. The relatively low representation of women or minorityowned communications businesses also suggests that these types of businesses encounter unique obstacles in entering the telecommunications industry. According to the U.S. Census Bureau, in 1987 women owned and controlled 1.9% (27) of 1,342 commercial television stations and 3.8% (394) of 10,244 commercial radio stations in the United States.c#w PE3rXP4#ЍSee Comments of American Women in Radio and Television, Inc. in MM Docket No. 94149 and MM Docket No. 91140, at 4 n.4 (filed May 17, 1995), citing 1987 Economic Censuses,"WomenOwned Business," WB871, U.S. Department of Commerce, Bureau of the Census, August 1990 (based on 1987 Census). After the 1987 Census report, the Census Bureau did not provide data by particular communications services (fourdigit Standard Industrial Classification (SIC) Code), but rather by the general twodigit SIC Code for communications (#48). Consequently, since 1987, the U.S. Census Bureau has not updated data on ownership of broadcast facilities by women, nor does the FCC collect such data. However, we sought comment on whether the Annual Ownership Report Form 323 should be amended to include information on the gender and race of broadcast license owners. Minority/Female Mass Media Ownership NPRM, 10 FCC Rcd at 2797. In 1994, minorities owned and controlled 2.7% of the commercial television stations and 2.9% of the commercial radio stations in the United States.d#w PE3sXP4#Ѝ"Analysis and Compilation of MinorityOwned Commercial Broadcast Stations in the United States," Department of Commerce, National Telecommunications and Information Administration, The Minority Telecommunications Development Program (MTDP) (September 1994). These percentages are based on reported ownership of 1,155 commercial television stations and 9,973 commercial radio stations. MTDP considers "minority ownership" as ownership of more than 50% of a broadcast corporation's stock, or have voting control in a broadcast partnership." Id. Of the 11,128 combined radio and television stations nationwide, minorities owned 2.9% (323). Id. According to the Census Bureau, in 1992, Blacks owned 3.5% of the entities characterized generally as communications firmse#w PE3tXP4#Ѝ"Communications" firms are a subcategory in a larger grouping called "transportation and public utilities." and women owned 31%; and most of these businesses were solelyowned.f#w PE3uXP4#Ѝ"1992 Survey of BlackOwned Businesses," U.S. Department of Commerce, Economics and Statistics Administration, Bureau of the Census ("1992 BlackOwned Businesses"); "1992 Survey of WomenOwned Businesses," U.S. Department of Commerce, Economics and Statistics Administration, Bureau of the Census (1992 WomenOwned Businesses"). These figures represent firms classified by the Census Bureau as Standard Industrial Classification Code (SIC) #48 and 1,517 Blackowned firms out of 43,666 total communications firms and 13,592 womenowned firms out of 43,665 total communications firms.  Finally, the participation level of minority or womenowned businesses in the Commission's spectrum auctions so far suggests that these entities may face unique obstacles. Because auctions will continue and various factors influence participation,g#w PE3vXP4#ЍFactors that may influence participation, include for example, the type of service, presence of incumbents, projected cost of a successful bid, capital requirements for offering service, access to capital, license coverage area, availability of Commission bidding incentives, and the extent of Commission outreach to small minority or womenowned businesses and new entrants.  we are not able to fully assess participation by women and minorities. Figures preliminarily indicate, however, that participation in auctions without bidding incentives for minorities and women is lower than participation in auctions with incentives. For example, in the broadband PCS auction for A and B blocks, which concluded in March 1995, no minorityowned businesses won a broadband PCS license and only one license (for one of the lowerpriced markets) was won by a womanowned business. In the MDS auction, which concluded on March 28, 1996, 7.7% of the eligible bidders claimed womanowned status; 8.4% of the eligible bidders claimed minorityowned status. Of the 67 winners, 5.9% indicated they were womenowned; 7.5% indicated they were minorityowned.h#w PE3wXP4#Ѝ"Multipoint Distribution Service Questions and Answers," FCC Auctions, Press Information (released March 29, 1996) at 3. In the 900 MHz SMR auction, which concluded on April 15, 1996, 7.8% of the eligible bidders claimed womanowned status and 3.9% claimed minorityowned status. Of the 80 successful bidders, 6.3% indicated they were womenowned; 5% indicated they were minorityowned. Statistics for the PCS C block auction, which ended May 6, 1996, were higher, even though no competitive bidding incentives were available for businesses owned by minorities or women:i#w PE3xXP4#ЍIn the Competitive Bidding Sixth Report and Order, the Commission noted that many minorityowned and womenowned applicants prepared to bid in the C Block auction in reliance on race and genderbased incentives. Thus, their rate of participation is likely higher than it would have been in the absence of any preauction incentives. See D, E & F Block NPRM at  27. 13.3% of the eligible bidders claimed womanowned status, 18.0% claimed minorityowned status;kj#w PE3yXP4#ЍId. k and of the 89 successful bidders, 16.9% indicated they were womanowned; 28.1% indicated they were minorityowned.k#w PE3zXP4#Ѝ"Distribution of Licenses in PCS CBlock Auction," FCC Auctions, Press Information (released May 6, 1996). By comparison, auctions that offered incentives for women and minorityowned businesses yielded higher participation by those entities (both as bidders and winners). For example, in the July 1994 IVDS auction, 22.5% of the registered bidders claimed status as minorityowned, and 33.2% as womenowned; of the auctioned licenses, 23.6% were awarded to bidders claiming minorityowned status, and 38.2% to bidders claiming womenowned status.l#w PE3{XP4#Ѝ1994 FCC Visitor's Auction Guide at Section IX. In the nationwide narrowband PCS auction, also held in July 1994, of the 29 qualified bidders, 20.1% claimed minorityowned status and 10.3% claimed womenowned status.tm#w PE3|XP4#ЍId. at Section VIII.t None of the winners were minority or womenowned businesses. In the Fall 1994 regional narrowband PCS auction, which offered a larger bidding credit than was available in the nationwide narrowband PCS auction, of the 28 qualified bidders, 35.7% claimed minorityowned status, and 28.6 % claimed womenowned status.sn#w PE3}XP4#ЍId. at Section VII.s Of the nine winners, 22.2% claimed minorityowned status, and 33.3% claimed womenowned status.co#w PE3~XP4#ЍId.c We seek a broad and comprehensive record from which to determine whether the experiences of women and particular minority groups in entering and participating in the telecommunications market warrant adopting more significant gender or racebased incentives for minority or womenowned small businesses. Parties may submit personal accounts of individual experiences, studies, reports, statistical data, or any other relevant information. Commenters should address whether there are particular barriers to entry and expansion based on a small business owner's race or gender. If so, for which services? Do barriers differ by service, e.g., radio, television, advanced television, DBS, PCS, equipment manufacturing? What specific obstacles do women and minorities encounter in trying to start small communications businesses? Are there problems endemic to small women and minorityowned telecommunications businesses but not to small businesses owned by women and minorities in other industries (e.g., retail, real estate), and if so, why? Are any such difficulties the result of race/gender neutral factors such as economic status, geographic location, level of experience? Are differences in capital requirements determinative? What other factors play a role? Commenters should address to what extent any impediments are unique to small businesses owned by women or minorities, rather than small businesses generally. Discrimination can be a market entry barrier. Parties may submit evidence of past or current discrimination based on race or gender. Judicial findings of discrimination are not required.p#w PE3XP4#Ѝ Parties should be mindful, however, that to the extent it is applicable to federal action, Croson requires that the government have a "strong basis in evidence for its conclusion that remedial action was necessary." City of Richmond v. J.A. Croson, 488 U.S. 469, 500 (1989) (quoting Wygant, 476 U.S. at 277); see also Memorandum Regarding Adarand to General Counsels from Walter Dellinger, Assistant Attorney General, Office of Legal Counsel, United States Department of Justice (dated June 28, 1995) (DOJ Memorandum) at 11. Evidence of discrimination can be derived from a variety of sources, including academic research studies, adjudications, legislative findings, statistical data, and personal accounts. To the extent possible, evidence should relate to a particular racial, ethnic, or gender group. Women and minority owned businesses may have experienced discrimination or difficulty in obtaining government licenses. These experiences may have impeded the ability of such entities to enter the communications market, and consequently, impeded subsequent opportunities. We seek evidence of discrimination or unfavorable treatment by any governmental or public entity with respect to communicationsrelated licenses, contracts or other benefits. It has been argued to the Commission that as a result of our system of awarding broadcast licenses in the 1940s and 1950s, no minority held a broadcast license until 1956 or won a comparative hearing until 1975,q#w PE3XP4#ЍSee "Statement of David Honig, Executive Director, Minority Media and Telecommunications Council," En Banc Advanced Television Hearing, MM Docket No. 87268 (December 12, 1995) at 23 & n.2. , and that special incentives for minority businesses "are needed in order to compensate for a very long history of official actions which deprived minorities of meaningful access to the radiofrequency spectrum."r#w PE3XP4#ЍId. at n.2 citing Southland Television Co., 10 RR 699, 750, recon. denied, 20 FCC 159 (1955) (awarding a Shreveport VHF license to the owner of a segregated movie theaters because such segregation 'would be legal under the laws of [Louisiana]')." Ě We solicit comment on this particular argument. Race or gender discrimination in employment may impede participation and advancement in the communications industry. Employment provides business knowledge, judgment, technical expertise, and entrepreneurial acumen, and other experience that is valuable in attaining ownership positions. For example, the Commission has found that employment in the broadcast industry is a valuable stepping stone to broadcast ownership.:s#w PE3XP4#Ѝ See 1996 EEO Order and NPRM at  4 ("employment discrimination in the broadcast industry . . . imped[es] opportunities for minorities and women to learn the operating and management skills necessary to become media owners and entrepreneurs"). See also Policy Statement, Standards for Assessing Forfeitures for Violations of the Broadcast EEO Rules, 9 FCC Rcd 929, 930 (1994) (EEO Forfeiture Policy Statement), vacated on other grounds, 1996 EEO Order and NPRM ("increased employment opportunities are the foundation for increasing opportunities for minorities and women in all facets of the communications industry, including participation in ownership").: We seek any evidence that employment discrimination in the communications industry has been a barrier to entry in the telecommunications market by small businesses owned by minorities or women. Submissions should be detailed and should explain why the commenter believes the conduct at issue (e.g., failure to hire or promote) was based on race or gender discrimination, rather than the result of a race or genderneutral factor (e.g., no job vacancy, job applicant not qualified for the position). #X*0 x7X#IV.ELIMINATING MARKET ENTRY BARRIERS #w PE3XP4#  #X*0 x7X#A. Small Businesses Generally #w PE3XP4# Section 257 requires that after identifying market entry barriers, we prescribe regulations to eliminate those barriers. In implementing this mandate, first, how should we define small businesses under Section 257? By number of employees, gross revenue, net revenue, assets, or any other factor? Should we adopt a general size standard or specific standards for particular services (e.g., broadcast, PCS)? For example, the Commission's current Section 309(j) definitions are based on gross revenues and assets. Are there other factors the Commission should consider in defining what constitutes a small business? Should the Commission explore minimum capital requirements, debt/equity ratios, cash flow, net worth or other indicia of a business' ability to enter and compete in the marketplace?t#w PE3XP4#ЍThe Commission considered different indicia for defining small businesses in the context of the Broadband PCS proceeding, before opting for the $40 million gross revenue standard. See Competitive Bidding Fifth Report & Order, 9 FCC Rcd at 5607 nn.147, 148 (annual operating cash flow, net worth, annual revenues, number of employees). To formulate a policy using such indicia, the Commission would need specific financial information for small businesses generally, and requests that commenters recommending new approaches indicate the type of information needed by the Commission. Second, we seek comments and proposals regarding ways to eliminate market entry barriers and enhance opportunities for small businesses in telecommunications services, including, e.g., wireline, wireless, mass media, cable, satellite. What types of incentives or requirements would be most effective in eliminating market entry barriers? Commenters may propose new initiatives or suggest changes to existing rules or make any other recommendation. Proposals may address, for example, sale of subscriber lists to independent directory publishers as recognized by Congress in enacting Section 257,u#w PE3XP4#ЍSee supra note 12 (legislative history of Section 257). or any other area. Commenters should provide data to support their proposals. Because Section 257 states that in prescribing rules to eliminate barriers we must rely on our rulemaking authority under provisions of the Act other than Section 257, we also request that commenters identify specific rulemaking provisions in the Act, e.g., Section 4(i)pv#w PE3XP4#Ѝ47 U.S.C.  154(i).p that would support any such proposals. Our Section 309(j) competitive bidding incentives for small businesses are examples of the types of mechanisms we could adopt in furtherance of our Section 257 mandate. Have bidding credits, installment payments, and reduced upfront payments enhanced opportunities for small business participation? Did the Commission's outreach efforts in providing information to prospective bidders enhance small business participation in each auction? If commenters believe the Commission's existing mechanisms could be modified to enhance opportunities for small businesses, please explain how, or suggest new approaches. In addition, we seek preliminary views on how the Section 309(j) incentives have operated in the five completed auctions employing small business incentives.6w#w PE3XP4#ЍBidding ended in the IVDS MSA auction on July 29, 1994, regional narrowband PCS auction on November 8, 1994, MDS auction on March 28, 1996, 900 MHz SMR auction on April 15, 1996, and the C Block auction on May 6, 1996. 6 For example, we are aware of concerns that due to the high level of bidding in the PCS C Block auction successful bidders may find it difficult later on to secure the necessary financial resources to build out their systems, and may ultimately encounter problems in the market against established competitors like incumbent cellular providers and the generally large, wellfinanced winners of PCS A and B block licenses.x#w PE3XP4#Ѝ"$6 Billion Bid so Far in Latest F.C.C. Auction For Airwaves," N.Y. Times, February 14, 1996, at D1 Column 6 (noting concerns of one industry consultant that the C Block auction was overvaluing the wireless market by 20%); "Billions Pledged at Wireless License Auction," Washington Post, February 17, 1996 at B1 Column 1 (noting that even with the Commission's liberal payment terms for small businesses, which some analysts figure amounts to a 4060% discount, small businesses may find difficulty surviving if the market proves soft or glutted with competitors). How do we balance the desire to do more with the need to ensure that larger businesses do not usurp measures designed to aid small businesses? Do we need to do more to make sure that small businesses have meaningful opportunities to participate in the provision of spectrumbased services? #X*0 x7X#B.` ` ` Minority or WomenOwned Small Businesses #w PE3XP4# In Part III.B. above, we request data to identify whether small businesses owned by minorities or women experience unique market barriers. In this section, we explore whether there is sufficient evidence of market barriers to justify special incentives to eliminate those barriers. We do so because governmental action that takes race or gender into account is subject to particular constitutional standards: strict scrutiny for racebased incentives; intermediate scrutiny for genderbased incentives. We discuss these standards below and then seek comment on possible incentives that would satisfy the standards while at the same time furthering the mandate of Section 257. #X*0 x7X#1. Constitutional Standards#w PE3XP4# The Constitution limits the power of government to classify individuals based on race or gender. Thus, federal incentive programs that take race or gender into account must satisfy constitutional standards. Courts reviewing government programs have applied different standards of review and reached various results depending on whether the classification covers race or gender and whether the classification burdens or benefits its subjects. Racebased programs must be narrowly tailored to further a compelling governmental interest. Genderbased programs must be substantially related to serve an important governmental interest. In Adarand Constructors, Inc. v. Pe9a,py#w PE3XP4#Ѝ115 S.Ct. 2097 (1995).p the Supreme Court held that the federal government's use of race-based criteria for decisionmaking must satisfy the requirements of strict scrutiny.xz#w PE3XP4#ЍPrior to Adarand, the standard differed for federal and state programs. Compare Fullilove v. Klutznick, 448 U.S. 448 (1980) (federal program evaluated under intermediate scrutiny) with Croson 488 U.S. 469 (state program evaluated under strict scrutiny). x The Court wrote: ` ` ` [W]e hold today that all racial classifications, imposed by whatever federal, state, or local governmental actor, must be analyzed by a reviewing court under strict scrutiny. In other words, such classifications are constitutional only if they are narrowly tailored measures that further compelling governmental interests.l{#w PE3XP4#ЍId. at 2113.l By this decision, the Court rejected its earlier legal analysis in Metro Broadcasting, Inc. v. FCC,n|#w PE3XP4#Ѝ497 U.S. 547 (1990).n which had applied the intermediate scrutiny standard of judicial review to the Commission's broadcasting distress sale and comparative preference policies for minorities.C}#w PE3XP4#ЍIn Metro Broadcasting, the Court held: ` ` ` [B]enign race-conscious measures mandated by Congress -- even if those measures are not "remedial" in the sense of being designed to compensate victims of past governmental or societal discrimination -- are constitutionally permissible to the extent that they serve important governmental objectives within the power of Congress and are substantially related to achievement of those objectives. Id. at 56465.C Overruling this aspect of Metro Broadcasting, the Court in Adarand clarified the permissible scope of affirmative action. First, the Court rejected the notion that the characterization of a racial classification as "benign" should entitle it a lower level of judicial review. Second, the Court applied to federal minority preference programs the strict scrutiny standard it had applied to a local contracting set-aside program in City of Richmond v. J.A. Croson Co.n~#w PE3XP4#Ѝ488 U.S. 469 (1989).n Yet in doing so, the Court emphasized its intention not to impinge upon the federal government's ability to actively combat both the practice and the continuing effects of discrimination. A majority of the Court rejected any notion that strict scrutiny review is "strict in theory, but fatal in fact." As Justice O'Connor stated in Adarand, "[t]he unhappy persistence of both the practice and the lingering effects of racial discrimination against minority groups in this country is an unfortunate reality, and government is not disqualified from acting in response to it."|#w PE3XP4#ЍAdarand, 115 S. Ct. at 2117.| In rejecting the Metro Broadcasting standard, the Court nonetheless reasoned that because the Constitution protects individuals rather than groups, any governmental action based upon a racial group classification should be subject to "detailed judicial inquiry."n#w PE3XP4#ЍId. at 2113. n Thus, Adarand established a new strict scrutiny standard for federal minority programs, based upon the two prong analysis of Croson: (1) the governmental interest underlying the affirmative action measure be "compelling;" and (2) the measure adopted must be "narrowly tailored" to serve that interest. Because a federal minority program has not yet been subjected to strict scrutiny pursuant to Adarand, judicial guidance regarding the strict scrutiny standard thus far is limited to Croson and lower court decisions applying strict scrutiny to state and local programs.##w PE3XP4#ЍSee Hopwood v. Texas, 78 F.3d 932 (5th Cir. 1996), petition for cert. filed (holding that the University of Texas School of Law may not use race as a factor in law school admissions).# Under these cases, the most clearly permissible compelling governmental interest is remedying the effects of present or past discrimination. Thus, federal minority incentive programs that serve a remedial interest are likely to satisfy the compelling governmental interest prong. Discrimination can be that committed by the government itself, or by private actors within the government's jurisdiction (such that the government was a "passive participant" or facilitated the perpetuation of a system of exclusion). The government must identify with some precision the discrimination to be redressed,#w PE3XP4#ЍCroson requires that a government "identif[y] discrimination with the particularity required by the Fourteenth Amendment." Croson, 488 U.S at 492, 499, 509. including evidence of discrimination against particular minority groups.#w PE3XP4#ЍId. at 506 ("The random inclusion of racial groups that, as a practical matter, may never have suffered from discrimination in the construction industry in Richmond suggests that perhaps the city's purpose was not in fact to remedy past discrimination."); see also DOJ Memorandum at 22. General, historical discrimination is an insufficient predicate. "[A]n amorphous claim that there has been past discrimination in a particular industry cannot justify the use of an unyielding racial quota."x#w PE3XP4#ЍCroson, 488 U.S. at 499.x In addition, the government should have a "strong basis," approaching a "prima facie case of constitutional or statutory violation"q#w PE3XP4#ЍId. at 500.q of the rights of minorities. Croson permits remedial relief on the basis of "evidence of a pattern of individual discriminatory acts . . . supported by appropriate statistical proof."k#w PE3XP4#ЍId. at 509.k PostCroson cases have held that statistical evidence can be probative of discrimination in the remedial setting,%#w PE3XP4#ЍSee, e.g., Peightal v. Metropolitan Dade County, 26 F.3d 1548, 1556 (11th Cir. 1994) (statistical evidence constitutes "requisite 'strong basis in evidence' mandated by Croson").% and that anecdotal evidence can buttress statistical evidence. #w PE3XP4#ЍSee, e.g., Coral Construction Co., 941 F.2d at 919 (convincing anecdotal and statistical evidence can be "potent"); see also DOJ Memorandum at 1213.  Courts generally give more deference to Congressional racebased remedial action than to state action because of Congress' special remedial powers under the Fourteenth Amendment. Thus, it is possible that the Croson standards for remedial action, e.g., the degree of discrimination required to justify remedial action,#w PE3XP4#Ѝ  Croson, however, involved a race preference program adopted at the local, rather than federal, level. might be lower where Congressional findings are involved.#w PE3XP4#ЍIn the DOJ Memorandum, Justice states that Adarand "hinted" that where a federal preference program is congressionally mandated, the Croson standards may apply more loosely. DOJ Memorandum at 30. The Adarand majority confronted the issue of congressional versus state remedial power, noting that various Members of the Court have taken different views of the authority that Section 5 of the Fourteenth Amendment confers upon Congress power not delegated to the states and the extent to which courts should defer to congressional exercise of that authority. Adarand, 115 S. Ct. at 2114. The Court concluded it did not need to resolve those differences in Adarand, and rejecting Justice Stevens' assertion to the contrary, stated that none of the Justices in Adarand repudiated previously expressed views on this subject. Croson suggested that Congress has broader authority than the states -- a positive grant of legislative power -- and rejected the City of Richmond's finding that it was remedying the present effects of past discrimination. Croson, 488 U.S. at 498.  A government may adopt race or gender based programs for reasons other than to remedy discrimination. Such objectives are nonremedial. For example, in Regents of the University of California v. Bakke,#w PE3XP4#Ѝ438 U.S. 265 (1978) (plurality). the purpose of the state of California's college admissions program was to diversify the student body. No majority opinion of the Court has addressed the sufficiency of nonremedial objectives. Because Croson addressed the authority of a local government to engage in remedial action, it did not decide the sufficiency of nonremedial objectives as a compelling interest. In Croson, Justice O'Connor stated that affirmative action must be "strictly reserved for the remedial setting."x#w PE3XP4#ЍCroson, 488 U.S. at 493.x In Justice Stevens' dissent in Adarand, however, he stated that Adarand does not expressly adopt the view that past discrimination is the only valid compelling governmental interest; nor does it prohibit nonremedial objectives.#w PE3XP4#ЍAdarand, 115 S. Ct. at 212728 (Stevens, J., dissenting). In Bakke, Justice Powell found that a university has a compelling interest in taking the race of applicants into account in its admission process in order to foster greater diversity among the student body to enhance the exchange of ideas on campus,m#w PE3XP4#Ѝ438 U.S. at 31114.m and in Wygant v. Jackson Board of Education,n#w PE3XP4#Ѝ476 U.S. 267 (1986).n Justice O'Connor expressed approval of that view.#w PE3XP4#ЍId. at 286. In Hopwood, a panel of the Fifth Circuit held that the University of Texas "law school has presented no compelling justification, under the Fourteenth Amendment or Supreme Court precedent, that allows it to continue to elevate some races over others, even for the wholesome purpose of correcting perceived racial imbalance in the student body." Hopwood, 78 F.3d at 934. A majority of the Hopwood panel specifically rejected Justice Powell's opinion in Bakke that diversity can be a compelling interest as "not binding precedent" and concluded that "any consideration of race or ethnicity by the law school for the purpose of achieving a diverse student body is not a compelling interest under the Fourteenth Amendment." Id. at 944. In a concurring opinion, Judge Wiener disagreed with the panel's opinion that diversity can never be a compelling governmental interest, but concluded that the program in question was not narrowly tailored because it singled out only two minority groups Blacks and Mexican Americans. Id. at 96268. The second prong of strict scrutiny analysis requires that the use of any racial classification be "narrowly tailored," to ensure that "the means chosen 'fit' [the] compelling goal so closely that there is little or no possibility that the motive for the classification was illegitimate racial prejudice or stereotype."z#w PE3XP4#ЍCroson, 488 U.S. at 493. z In Adarand, the Court identified two factors in determining whether the use of a racial classification is narrowly-tailored: (1) whether race-neutral alternatives were considered, and (2) whether the measure is appropriately limited in duration so that it will not continue longer than purposes for which it was adopted. Additional factors, identified in post-Croson cases, are: (3) the flexibility of the program, e.g., whether it contains a waiver provision that may narrow its scope; (4) the manner in which race is used, whether as a determinant, or as one of several factors; (5) whether any numerical target is compared to the relevant number of qualified minorities or to the population of minorities as a whole; (6) the extent of the burden on nonminorities. Since Adarand, the Supreme Court has not ruled on the standard of review for federal genderbased programs, although the issue is before it in a pending case.#w PE3XP4#ЍUnited States v. Commonwealth of Virginia, 44 F.3d 1229 (1995), cert. granted, 116 S. Ct. 281 (1995) (No. 941941) (argued Jan. 17, 1996). The case presents the question whether the Equal Protection Clause permits a state to maintain singlesex militarystyle educational programs.  Prior to Adarand, the Court applied intermediate scrutiny; that standard currently applies.#w PE3XP4#ЍCraig v. Boren, 429 U.S. 190, 197 (1976). Thus far, the Court has not decided whether gender is a suspect category. See, e.g., J.E.B. v. Alabama ex rel. T.B., 114 S. Ct. at 1419, 1425 n.6 (1992) (concluding that genderbased peremptory challenges are not substantially related to an important governmental objective and finding "once again" that the Court need not decide whether gender classifications are inherently suspect"); Mississippi University for Women v. Hogan, 458 U.S. 718, 724 n.9 (1982) (finding it "unnecessary" to decide whether classifications based upon gender are inherently suspect). Under the intermediate scrutiny standard, "[t]o withstand constitutional challenge . . . classifications by gender must serve important governmental objectives and must be substantially related to those objectives.">#w PE3XP4#ЍBoren, 429 U.S. at 197. See also J.E.B. v. Alabama ex rel. T.B., 114 S. Ct. 1419, 1425 (1994) ("our Nation has had a long and unfortunate history of sex discrimination, a history which warrants the heightened scrutiny we afford all genderbased classifications today"); City of Cleburne v. Cleburne Living Center, 473 U.S. 432, 440 (1985) ("[l]egislative classifications based on gender . . . call for a heightened standard of review"). > In applying intermediate scrutiny to invidious genderbased classifications, the Court has expressed concern that such classifications are, in fact "reflective of archaic and overbroad' generalizations about gender" or are "based on outdated misconceptions concerning the role of females in the home rather than in the marketplace and world of ideas.'"#w PE3XP4#ЍJ.E.B., 114 S. Ct. at 142425 (citations omitted). The Court has rejected attempts to exclude or protect one gender based on presumptions. See Hogan, 458 U.S. at 725.  It is unclear what standard would apply to benign gender classifications. In Adarand, the Court refused to apply a less strict standard to benign racebased classifications than the standard applied to "invidious" racebased classifications. Although Adarand did not address gender, its rejection of a lower standard for benign action in the race context suggests that the same standard applied to invidious gender classifications should apply to benign gender classifications. This conclusion is supported by the Court's analysis in Mississippi University for Woman v. Hogan,n#w PE3XP4#Ѝ458 U.S. 718 (1982).n which held that a state university's exclusion of men from its nursing program violated the Equal Protection Clause under a test of intermediate scrutiny. Rejecting the state's assertion that the allfemale program was a form of affirmative action, the Court explained: ` ` ` In limited circumstances, a genderbased classification favoring one sex can be justified if it intentionally and directly assists members of the sex that is disproportionately burdened.#w PE3XP4#ЍId. at 728. The Court found that the purpose of requiring a close relationship between the objective and the means is "to assure that the validity of a classification is determined through reasoned analysis rather than through the mechanical application of traditional, often inaccurate, assumptions about the proper roles of men and women." Id. at 72526.  In evaluating the second prong of the intermediate scrutiny test whether a gender classification is substantially related to the government's objective courts consider several factors, including the correlation between gender and the actual activity the government seeks to regulate and the practical effect of the program.#w PE3XP4#ЍSee, e.g., Boren, 429 U.S. at 20004 (finding that the low disparity between drunk driving statistics for men and women "exemplifies the ultimate unpersuasiveness of this evidentiary record"); Hogan, 458 U.S. at 73032 (finding that presence of men in nursing school would not have negative effect on women students, and that the record is "flatly inconsistent" with the claim that excluding men is necessary to reach the state's educational goals and falls "far short" of the "'exceedingly persuasive justification'" needed to sustain a genderbased classification).  #X*0 x7X#2. Possible Incentives#w PE3XP4# As described above, a record of discrimination against a particular group is necessary to support remedial measures to remedy such discrimination. We seek comment on whether under the compelling governmental interest prong, there is sufficient evidence of discrimination in the communications industry against any particular minority group to support racebased incentives to eliminate market entry barriers for such group. As discussed above, minority groups include African Americans, Hispanics, American Indians, Alaskan Natives, Asians, and Pacific Islanders.Z#w PE3XP4#ЍSee supra note 88 (definition of minority). When considering incentives for Native Americans, the Commission looks for guidance to the Indian Commerce clause, which recognizes the status of tribes as sovereign nations. See Competitive Bidding Sixth Report and Order, 11 FCC Rcd at 15556.  See also DOJ Memorandum at 8 ("Adarand does not require strict scrutiny review for programs benefitting Native Americans as members of federally recognized Indian tribes").Z We also ask whether there is sufficient evidence of discrimination against women in telecommunications to justify remedialbased mechanisms to eliminate market entry barriers for women, under either the compelling governmental interest prong (strict scrutiny) or important governmental interest (intermediate scrutiny). Parties may use any data submitted in response to Part III above to support their comments. We also seek comment on any nonremedial objectives that would justify the use of race and genderbased incentives and also serve the Section 257 mandate of decreasing market entry barriers for small telecommunications firms owned by minorities and women. Nonremedial objectives could be in addition to the objective of remedying past discrimination; thus, they may provide a separate basis for governmental action that takes race and gender into account. For example, the Commission has sought to fulfill the nonremedial objective of increasing diversity of voices and viewpoints over the airwaves through various minority and womenbased programs.#w PE3XP4#ЍSee supra  1823. Those programs also decrease market entry barriers by providing new opportunities for women and minorities and by increasing incentives for other firms to do business with those entities. Other nonremedial objectives that could justify taking race or gender into account in Commission programs and also help eliminate market barriers might include favoring diversity of media voices as required by Section 257(b),p#w PE3XP4#Ѝ47 U.S.C.  257(b).p promoting economic opportunity and competition as encouraged in the legislative history of Section 257#w PE3XP4#ЍSee supra  3 and note 9. and Section 257(b),(#w PE3XP4#ЍSection 257(b) provides: "In carrying out subsection (a), the Commission shall seek to promote the policies and purposes of this Act favoring . . . vigorous economic competition." 47 U.S.C.  257(b).( and as required by Section 309(j),p#w PE3XP4#Ѝ47 U.S.C.  309(j).p or promoting the public interest.g#w PE3XP4#ЍSee, e.g., 47 U.S.C.  201 (public interest regulation of common carriers); 47 U.S.C.  257(b) (promotion of public interest, convenience and necessity in carrying out Section 257(a)); 47 U.S.C.  303 (public interest regulation of radio services).g We seek comment on these nonremedial objectives]#w PE3XP4#ЍDepending on the record of discrimination developed, any such nonremedial objectives could be remedial in nature. For example, if there were a strong record of discrimination against womenowned small businesses in the telecommunications market (which itself would be an entry barrier), we could adopt a mechanism intended to increase ownership opportunities for those businesses. The immediate objective increasing ownership would be a means of achieving the ultimate objective remedying discrimination.] and request commenters to suggest other nonremedial objectives that would satisfy the governmental interest prong under strict (race) or intermediate (gender) scrutiny. We also request that parties propose incentives to meet these remedial or nonremedial objectives. Commenters may address incentives that the Commission has adopted in the past that eliminated or reduced barriers to market entry, e.g., designated entity rules for Section 309(j) services, as well as propose new incentives. We also seek comment on whether incentives that foster ownership or employment of women or minorities in telecommunications would further these objectives.#w PE3XP4#Ѝ The legislative history of Section 257 indicates that Congress recognized a nexus between ownership and competition: "[M]inority and womenowned small businesses continue to be extremely under represented in the telecommunications field. . . . Underlying [Section 257] is the obvious fact that diversity of ownership remains a key to the competitiveness of the U.S. communications marketplace." 142 Cong. Rec. H1141 at H117677 (daily ed. Feb. 1, 1996) (statement of Rep. Collins). We note that communications is among a handful of industries with the highest expected growth between the year 1990 and 2005, and is predicted to provide women opportunities for advancement into management and decisionmaking positions. A Solid Investment: Making Full Use of the Nation's Human Capital, Recommendations of the Federal Glass Ceiling Commission (November 1995) (Glass Ceiling Report), Special Supplement at S9. In addition, facilitating employment could serve the public interest by enhancing productivity: the Glass Ceiling Commission found that "[o]rganizations that excel at leveraging diversity (including hiring and promoting minorities and women into senior positions) can experience better financial performance in the long run than those which are not effective in managing diversity." Glass Ceiling Report, Special Supplement at S8.  Parties should explain what objective an incentive is intended to achieve and explain how it is either narrowly tailored (to meet strict scrutiny) or substantially related (to meet intermediate scrutiny) to achieve that objective. Parties should support their proposals with data and should identify specific provisions of the Act that would authorize us to implement those proposals. #X*0 x7X#C. Furthering Section 257(b) Objectives#w PE3XP4# As described in the Introduction to this NOI, in Section 257(b), Congress required that in implementing our market entry barriers initiatives, the Commission must "promote the policies and purposes of this Act favoring diversity of media voices, vigorous economic competition, technological advancement, and promotion of the public interest, convenience, and necessity."p#w PE3XP4#Ѝ47 U.S.C.  257(b).p We ask for comment on how the Commission should foster these objectives in its efforts to eliminate market barriers for entrepreneurs and small businesses. #X*0 x7X#V.PROCEDURAL MATTERS AND ORDERING CLAUSE#w PE3XP4# This proceeding is exempt from ex parte restraints or disclosure requirements, as provided in Section 1.1204 (a)(4) of our rules. Interested parties must file initial comments on or before July 24, 1996 and reply comments on or before August 23, 1996. To file formally in this proceeding, interested parties must file an original and six copies of all comments. If interested parties want each Commissioner to receive a personal copy of their comments, they must file an original plus ten copies. Interested parties should send comments to: Office of the Secretary, Federal Communications Commission, Washington, D.C. 20554. Parties also should send one copy of any documents filed in this docket with the Commission's copy contractor, International Transcription Services, Room 246, 1919 M Street, N.W., Washington, D.C. 20554. Comments will be available for public inspection during regular business hours in the FCC Reference Center (Room 239) of the Federal Communications Commission, 1919 M Street, N.W., Washington, D.C. 20554. For further information, contact Linda L. Haller in the Office of General Counsel at (202) 418-1720 or S. Jenell Trigg in the Office of Communications Business Opportunities (202) 4180990.  We also ask parties to submit comments and reply comments on diskette in addition to and not as a substitute for the formal filing requirements stated above. Parties submitting diskettes should submit them to S. Jenell Trigg, Office of Communications Business Opportunities, Federal Communications Commission, Suite 644, 1919 M Street, N.W., Washington D.C. 20554. Submissions should be on a 3.5 inch diskette formatted in an IBM compatible form using WordPerfect 5.1 for Windows software. The diskette should be submitted in "read only" mode. The diskette should be accompanied by a cover letter and clearly labelled with the party's name, proceeding, type of pleading (comment or reply comment) and date of submission. Accordingly, IT IS ORDERED that, pursuant to our authority under the Communications Act of 1934, 47 U.S.C.  4(i) and 403, an inquiry IS COMMENCED to identify and eliminate market entry barriers for small businesses in the provision and ownership of telecommunications and information services in the telecommunications market. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary