Before the
Federal Communications Commission
Washington, D.C.

PP Docket No. 93-253
GN Docket No. 90-314
GN Docket No. 93-252 Regulatory Treatment of Mobile Services

In the matter of:

Implementation of Section 309(j of the Communications Act - Competitive Bidding Amendment of the Commission's Cellular PCS Cross-Ownership Rule Implementation of Sections 3(n and 332 of the Communications Act

FURTHER NOTICE OF PROPOSED RULE MAKING

Adopted: June 23, 1995
Released:
June 23, 1995
Comment Date:
July 7, 1995

By the Commission: Commissioner Barrett issuing a statement later.

2. For purposes of the C block auction only, we propose to eliminate all race- and gender-based provisions contained in our competitive bidding rules applicable to such licenses in order to avoid delay caused by the legal challenges to our existing rules that would likely result from the Supreme Court's ruling in Adarand. It is our belief that such delay will significantly impede the C block auction and the expeditious dissemination of broadband PCS licenses to entrepreneurs,(n7) including businesses owned by minorities and women. In addition, we propose to treat women and minorities similarly in light of the stay granted Telephone Electronics Corp. (TEC), which implicated both gender and minority provisions in our rules. We are concerned that gender-based provisions could similarly result in legal challenges and delays to the C block auction. As described below, we intend to make rule changes that are the least disruptive to bidders who were in an advanced stageof planning to participate in the C block auction at the time the Adarand decision was handed down. We intend to make such changes swiftly, in order to minimize the effect of the modified rules on existing business relationships formed in anticipation of the C block auction.(n8) Moreover, in order to facilitate swift action on our rule changes, comments are due July 7, 1995, and we are not requesting reply comments.

3. Accordingly, we tentatively conclude that our broadband PCS rules for the C block auction should be modified as follows:

Amend Section 24.709 of the Commission's Rules to make the 50.1/49.9 percent "control group" equity structure available to all entrepreneurs' block applicants, and not solely businesses owned by women or minorities.

Amend Section 24.720 of the Commission's Rules to eliminate the exception to the affiliation rules that excludes the gross revenues and total assets of affiliates controlled by minority investors who are members of an applicant's control group.

Amend Section 24.711 of the Commission's Rules to provide for three installment payment plans for entrepreneurs' block applicants that are based solely on financial size. In particular, the small business installment payment plan would reflect the terms previously available to minority- or women-owned small businesses.

Amend Section 24.712 of the Commission's Rules to provide for a 25 percent bidding credit for small businesses only.

Amend Section 24.204 of the Commission's Rules to make the 40 percent cellular attribution threshold applicable only to ownership interests held by small businesses and rural telephone companies, or to ownership interests held by investors in broadband PCS applicants/licensees that are small businesses.

Amend Section 20.6 of the Commission's Rules to make the 40 percent attribution threshold applicable only to ownership interests held by small businesses and ruraltelephone companies.(n9)

5. On March 15, 1995, in response to a request filed by TEC alleging that our rules violated equal protection principles under the Constitution, the U.S. Court of Appeals for theDistrict of Columbia Circuit issued an Order stating that "those portions" of the Commission's Order "establishing minority and gender preferences, the C block auction employing those preferences, and the application process for that auction shall be stayed pending completion of judicial review."(n16) The court explained that TEC had "demonstrated the requisite likelihood of success on the merits."(n17) The stay, however, was subsequently lifted on May 1, 1995, on TEC's motion, after TEC decided to withdraw its lawsuit.(n18) On June 12, 1995, the Supreme Court decided in Adarand to overrule Metro Broadcasting "to the extent that Metro Broadcasting is inconsistent with" Adarand's holding that "all racial classifications . . . must be analyzed by a reviewing court under strict scrutiny."(n19) The Court ruled that any federal program that makes distinctions on the basis of race must serve a compelling governmental interest and must be narrowly tailored to serve that interest.(n20)

6. The holding in Adarand potentially affects four race- or gender-based measures in our C block auction rules.(n21) The purpose of these provisions was to address the lack of access to capital problem that our record showed women and minorities face.(n22) The first such provision enables businesses owned by women or minorities to hold 50.1 percent of an applicant's equity while another investor holds 49.9 percent of the equity.(n23) Second, under an exception to our affiliation rules, the gross revenues and total assets of firms controlled by minority investors in the applicant are not included for purposes of determining eligibility for the C block.(n24) Third, small businesses and companies owned by minorities or women receive the most favorable installment payment options available to entrepreneurs' block applicants.(n25) Finally, businesses owned by minorities or women and small businesses ownedby minorities or women receive larger bidding credits under our rules.(n26) The Adarand holding also potentially affects our commercial mobile radio service (CMRS) spectrum aggregation limit and cellular PCS cross-ownership rules under which ownership interests held by businesses owned by minorities and women, as well as small businesses and rural telephone companies, are subject to a higher attribution threshold.(n27) In addition, under our cellular PCS cross-ownership rule, entities that invest in broadband PCS licensees that are minority- or women-owned can benefit from a higher attribution threshold.

8. While we believe that our current record for the C block auction is strong, we tentatively conclude that additional evidence would be required to meet the strict scrutiny standard. The time required for further fact-finding would necessitate a delay in holding the C block auction. We tentatively conclude that such a delay would put the C block winners at a greater competitive disadvantage vis-a-vis existing wireless carriers such as cellular and enhanced SMR carriers, who have a substantial head start in the market.(n30) Additionally, we believe there is a high likelihood that before the auction, legal challenges would be filed to question whether we have met the strict scrutiny standard. Given the D.C. Circuit'swillingness to stay the auctions under an "intermediate scrutiny standard,"(n31) there is a high likelihood that the court might impose another stay under the strict scrutiny standard of review. A stay would prevent the auction from going forward during litigation and cause lengthy delays in licensing and time to market for the eventual winners. Even if the auction were not stayed beforehand, there is a high likelihood that minority applicants and possibly female applicants who elected the bidding credits and other provisions available to members of those groups, would be subject to petitions to deny their licenses, legal challenges and possible injunctions on the issuance of their licenses. This would again greatly delay their entry into the market, and diminish their ability to compete.

9. Based on the letters we have received from potential bidders, many of whom have made extensive preparations to bid in the C block auction, we conclude that at this time, minority and women bidders, as well as other bidders, will have a better chance of becoming successful PCS providers if we eliminate the race- and gender-based provisions from the C block and adopt provisions based on economic size only. The likely delays in market entry from doing otherwise would thwart Congress's directive to disseminate PCS licenses quickly so competitive service to the public can begin forthwith. Because of the urgent situation posed by the need to auction these licenses in a speedy fashion so the businesses can get to market, we reluctantly conclude that we must drop the race- and gender-based provisions and adopt standards based solely on economic size.

10. We propose to eliminate the race- and gender-based provisions in our rules in a manner that is the least disruptive to bidders preparing to bid in the C block auction. We recognize that many of the C block applicants, including minority- and women-owned businesses, as well as small businesses, have already attracted capital and formed business relationships in anticipation of the C block auction. We further understand that these relationships are more likely to survive if the auction is not significantly delayed, and our rule changes are minimally disruptive to existing business plans. We have received numerous informal comments expressing this point of view.(n32) We believe, therefore, it is in the best interests of furthering competition and ownership diversity in the marketplace, that we eliminate as much legal uncertainty as possible and proceed rapidly to auction the C block licenses.

11. We want to emphasize that our tentative conclusion to eliminate race- and gender-based measures from the C block auction rules does not indicate that we have concluded that race- or gender-based measures are inappropriate for any of the other spectrum auctions we will hold in the future. Moreover, we do not concede that our C block auction rules themselves are unconstitutional in the wake of Adarand. We simply believe that our program must now be evaluated under a stricter constitutional standard than it was before. With regard to the C block auction, we tentatively conclude that we are better served moving forward quickly than by attempting to develop an extensive supplemental record for these rules that could take a significant amount of time.(n33) We seek comment on this tentative conclusion, and in particular, request information on the time needed to develop a study to support race-based measures and the scope of such a supplemental record. We conclude that our proposal to eliminate the race- and gender-based measures from the C block auction rules is consistent with our duty to implement the Budget Act.(n34) We also seek comment on whether there are other ways to modify the rules to comply with the strict scrutiny standard without significantly delaying the C block auction.(n35)

12. Finally, we note that nothing in the TEC stay order or the Adarand decision calls into question the concept of an entrepreneurs' block. The D.C. Circuit singled out "those portions" of the Commission's Orders "establishing minority and gender preferences," not our rules designed to promote participation by small businesses.(n36) Similarly, in Adarand the Court held that a strict scrutiny standard of review applies to preferences based on race, not size.(n37) Thus, attempts to ensure that small businesses have the opportunity to compete with larger businesses are still judged under the deferential rational basis standard. Indeed, the entrepreneurs' block concept is bolstered by Adarand insofar as that decision requires the consideration of race-neutral measures to promote equal opportunity.(n38) Our record in the competitive bidding proceeding suggests that many minority and women bidders will qualifyas small businesses under our rules,(n39) and, hence, be entitled to a small business bidding credit and favorable installment payment terms.(n40) In any event, very few businesses owned by minorities and women are excluded from the entrepreneurs' block under our $125 million gross revenue and $500 million total asset caps.

13. Background. Our current rules permit broadband PCS applicants for licenses in the C block to utilize one of two equity structures so that the gross revenues and total assets of persons or entities holding non-attributable interests in such applicants will not be considered.(n41) Use of either of these equity structures, however, requires applicants to form a "control group."(n42) Under the first equity structure option, the Control Group Minimum 25 Percent Equity Option (which is available to all applicants), the control group must hold at least 25 percent of the applicant's total equity and members of the control group must have de facto control of the control group and of the applicant, and hold at least 50.1 percent of the voting stock and all general partnership interests within the control group.(n43) Of that 25 percent equity, at least 15 percent must be held by "qualifying investors."(n44) The remaining ten percent may be held by qualifying investors, certain institutional investors, non-controlling existing investors in any preexisting entity that is a member of the controlgroup, or individuals that are members of the applicant's management team.(n45) Outside of the control group, the remaining 75 percent of the applicant's equity may be held by other non-controlling investors; but, no investor in the applicant can hold more than 25 percent of the equity and remain non-attributable.(n46)

14. Under the second equity structure option, the Control Group Minimum 50.1 Percent Equity Option (which is currently available only to minority or women applicants), the control group must own at least 50.1 percent of the applicant's total equity, with members of the control group holding 50.1 percent of the voting stock and all general partnership interests within the control group, and having de facto control of both the control group and the applicant.(n47) Of that 50.1 percent equity, at least 30 percent must be held by qualifying investors who are minority or women.(n48) The remaining 20.1 percent may be held by qualifying investors, certain institutional investors, non-controlling existing investors in any preexisting entity that is a member of the control group, or individuals that are members of the applicant's management team.(n49) Outside of the control group, the remaining 49.9 percent of the applicant's equity may be held by a single non-controlling investor who is considered non-attributable.(n50)

15. Discussion. We propose to modify our rules to permit all C block applicants to avail themselves of the 50.1/49.9 percent equity structure. When we adopted the Control Group Minimum 50.1 Percent Equity Option in the Fifth R&O, we determined that making such a mechanism available to minority- or women-owned businesses would better enable them to attract adequate financing. We have previously noted that the primary impediment to participation by businesses owned by women and minorities in broadband PCS is a lack of access to capital.(n51) In light of the Supreme Court's holding in Adarand, however, we propose to make the Control Group Minimum 50.1 Percent Equity Option available to small businesses(n52) and entrepreneurs rather than limiting it to minority- or women-owned businesses. We tentatively conclude that this proposed rule change would cause the leastdisruption to existing business relationships formed in anticipation of the C block auction that were premised on the use of this particular equity structure. Our proposed rule change enables minority- or women-owned businesses to retain their 50.1/49.9 percent equity structures while extending this control group option to other applicants in the entrepreneurs' block as well. We also expect that this proposed rule change would mitigate the likely legal challenges that could result if we moved forward with this rule in its current form. Consequently, the proposed rule change would facilitate the expeditious dissemination of the licenses. We seek comment on this proposed rule change and on our tentative conclusions.

16. We also recognize that, as a result of the proposed rule change, all C block applicants would be able to take advantage of the 50.1/49.9 percent equity structure, including small businesses and entrepreneurs. Nevertheless, we view this as the best approach to preserve many of the existing business relationships that have been formed, including those of women and minorities. We think this approach would be the least disruptive and would allow many minority or women applicants -- both entrepreneurs and small businesses -- to proceed. We seek comment on this analysis.

17. Although we propose to eliminate the race- and gender-based measures currently provided in our rules for the C block licenses, we, nonetheless, intend to continue to request bidder information on the short-form filings as to minority- or women-owned status. We tentatively conclude that such information will assist us in analyzing the applicant pool and the auction results to determine whether we have accomplished substantial participation by minorities and women through the broad provisions available to small businesses as directed by Congress. This information will assist us in preparing our report to Congress on the participation of designated entities in the auctions and in the provision of spectrum-based services.(n53) In addition, such information will be relevant in developing a supplemental record should we find that special provisions solely for small businesses prove unsuccessful in encouraging dissemination of licenses to a wide variety of applicants, including businesses owned by members of minority groups and women. In this regard, we retain discretion to tailor our approach for future auctions. We seek comment on this monitoring proposal.

B. Affiliation Rules

18. Background. In the Fifth R&O, we adopted specific affiliation rules for identifying all individuals and entities whose gross revenues and assets must be aggregated with those of the applicant in determining whether the applicant exceeds the financial caps for the entrepreneurs blocks or for small business size status.(n54) Our affiliation rules identify which individuals or entities will be found to control or be controlled by the applicant or an attributable investor in the applicant by specifying which ownership interests or other criteria will give rise to a finding of control and consequent affiliation. We have adopted twonarrowly tailored exceptions to our affiliation rules in the broadband PCS context. Under one exception, applicants affiliated with Indian tribes and Alaska Regional or Village Corporations organized pursuant to the Alaska Native Claims Settlement Act, 43 U.S.C. § 1601 et seq., are generally exempted from the affiliation rules for purposes of determining eligibility to participate in bidding on C block licenses and to qualify as a small business with a rebuttable presumption that revenues derived from gaming, pursuant to the Indian Gaming Regulatory Act, 25 U.S.C. § 2701 et seq. will be included in the applicants eligibility determination.(n55) Under the second exception, the gross revenues and assets of affiliates controlled by minority investors who are members of the applicants control group are not attributed to the applicant for purposes of determining compliance with the eligibility standards for entry into the entrepreneurs' block.(n56)

19. Discussion. We propose to eliminate the exception to our affiliation rules pertaining to minority investors. In crafting this exception, we anticipated that it would permit minority investors who control other concerns to be members of an applicants control group and to bring their management skills and financial resources to bear in its operation without the assets and revenues of those other concerns being counted as part of the applicants total assets and revenues.(n57) We further anticipated that such an exception would permit minority applicants to pool their resources with other minority-owned businesses and draw on the expertise of those who have faced similar barriers to raising capital in the past.(n58) Consequently, we tentatively conclude that it would be imprudent to extend such exception to all entrepreneurs because to do so would frustrate the Commission's goals in establishing the entrepreneurs' block -- namely, to ensure that broadband PCS will be disseminated among a wide variety of applicants and to exclude many large telecommunications companies from bidding on such blocks.(n59)

20. Although this proposed rule change may significantly affect certain existing business relationships formed in anticipation of the C block auction, we must balance our concern about minimizing the adverse impact on a limited number of existing business relationships with our desire to mitigate the legal challenges that are likely to result from the Court's Adarand decision in the absence of such rule change. In this context, we tentatively conclude that such rule change will affect a limited number of existing business relationships. By contrast, without such rule change, award of all entrepreneurs' block licenses could potentially be subject to substantial delay as a result of legal challenges to this race-based exception to the affiliation rules (regardless of the fact that such exception is limited inscope). We tentatively conclude that such outcome would be inconsistent with both the spirit and mandate of the Budget Act.(n60) We also tentatively conclude that the proposed rule change not only complies with the Budget Act but also benefits the general public, since it would facilitate rapid deployment of broadband PCS in a manner most likely to avoid judicial delay. We seek comment on this proposed rule change and these tentative conclusions. We also do not propose to eliminate the affiliation exception for Indian tribes and Alaska Regional or Village Corporations. We tentatively conclude that the "Indian Commerce Clause" of the United States Constitution provides an independent basis for this exception that is not questioned by the Adarand decision.(n61)

C. Installment Payments

21. Background. Entrepreneurs' block licensees are eligible for installment payment plans that afford them the opportunity to pay for their licenses over a period of time, and under certain financial terms. Five different installment payment plans are currently available to C block applicants under Section 24.711 of the Commission's Rules.(n62) The first installment payment plan is available to applicants with gross revenues in excess of $75 million. This plan provides for the payment of interest based on the 10-year U.S. Treasury rate, plus 3.5 percent with payment of principal and interest amortized over the term of license.(n63)

22. The second installment payment plan is available to those applicants with gross revenues between $40 and $75 million.(n64) This plan provides for the payment of interest equal to the 10-year U.S. Treasury rate plus 2.5 percent. The applicants eligible for this plan may pay interest only for one year with the principal and interest amortized over the remaining nine years of the license term. The third installment payment plan is available only to applicants that qualify as a small business or consortium of small businesses.(n65) This plan provides for the payment of interest at the rate of the 10-year U.S. Treasury rate plus 2.5 percent; however, the applicants eligible for this plan may pay interest only for two yearswith principal and interest amortized over the remaining eight years of the license term.

23. The remaining installment payment plans are available only to minorities or women. Specifically, the fourth plan provides interest-only payments for three years and payments of principal and interest over the remaining seven years of the license term and is only available to businesses owned by members of minority groups or women. The final and most favorable installment payment plan provides interest-only payments for six years and payments of principal and interest amortized over the remaining four years of the license term. This plan is only available to small businesses owned by members of minority groups or women. Previously, the Commission has determined that there is a basis for differentiating installment plans by size.(n66)

24. Discussion. We propose to modify this rule to eliminate the special provisions that are tied to an applicant's status as a minority- or women-owned business, and to provide for three installment payment plans that are based solely on financial size. In this regard, we propose to modify only installment payment plans available to small businesses with gross revenues under $40 million.(n67) We propose to extend the most favorable installment payment plan previously available only to small minority- or women-owned firms to all small businesses. Thus, we propose that all small businesses be permitted to pay for their licenses in installments at the rate for ten-year U.S. Treasury obligations applicable on the date the license is granted and that payments include interest only for the first six years with payments of principal and interest amortized over the remaining four years of the license term. In effect, we are proposing the deletion of our current Section 24.711(b)(3) and (4) and the re-numbering of Section 24.711(b)(5) as Section 24.711(b)(3) after the modification.

25. This rule change will grant small businesses the same installment plan available now to minority- or women-owned small businesses. We believe this approach will prove to be the least disruptive to the existing agreements between prospective bidders and the financial community and will provide the most favorable plan to the smallest companies. We seek comment on this proposal which will enable all small business applicants to benefit from the most favorable installment payment plan that was previously only available to minority- or women-owned small businesses.

D. Bidding Credits

26. Background. Our current rules provide for three tiers of bidding credits ranging between 10 percent and 25 percent. The bidding credit acts as a discount on the winning bid amount that a licensee actually has to pay for the license. A small business is granted a 10 percent bidding credit. A business that is owned by members of minority groups or womenis granted a 15 percent bidding credit. A small business owned by members of minority groups or women is allowed to aggregate the bidding credits for a 25 percent bidding credit.

27. Discussion. We propose to increase the bidding credit for small businesses from 10 percent to 25 percent. We further propose to eliminate the remaining bidding credits. This rule change eliminates the race- and gender-based bidding credits and extends the 25 percent bidding credit to all small businesses. We seek comment on this proposal. At the same time, this proposal will enhance the competitiveness of all small businesses which will receive an increase of 15 percent in their bidding credits. The positions of minority- or women-owned small businesses will remain the same because they will be eligible for a 25 percent bidding credit. Consequently, this proposal should be the least disruptive to the current business arrangements and financial agreements.

28. This proposal will allow the Commission and prospective bidders to avoid litigation, allow the auction to proceed as close to its original schedule as possible and permit prospective bidders to maintain previously negotiated business arrangements and financial agreements. Thus, we recommend amending Section 24.712(a) to raise the bidding credit from 10 percent to 25 percent. We further recommend deleting Section 24.712(b) and (c) and re-numbering Section 24.712(d) as Section 24.712(b). We seek comment on this outcome.

E. Cellular PCS Cross-Ownership and CMRS Spectrum Aggregation Limit

29. Background. Our cellular PCS cross-ownership rule currently provides for a higher cellular ownership attribution threshold for small businesses, rural telephone companies and businesses owned by minorities or women than for other entities.(n68) Generally, our rules provide that partnership and other ownership interests, and any stock interest amounting to 20 percent or more of the equity, or outstanding stock, or outstanding voting stock of a cellular licensee shall be attributable for purposes of the cellular PCS cross-ownership restrictions.(n69) If cellular ownership interests are held by small businesses, rural telephone companies or businesses owned by minorities or women, however, such interests are only attributable at the 40 percent or more level. In addition, cellular ownership interests held by entities with non-controlling interests in a broadband PCS applicant licensee are subject to a 40 percent attribution threshold for purposes of Section 24.204. Similarly, our CMRS spectrum aggregation limit provides that partnership and other ownership interests, and any stock interest amounting to 20 percent or more of the equity, or outstanding stock, or outstanding voting stock of a cellular licensee shall be attributable for purposes of the cellular PCS cross-ownership restrictions, except that those interests held by small businesses, rural telephone companies or businesses owned by minorities or women, are onlyattributable at the 40 percent or more level.(n70)

30. Discussion. We propose to modify the cellular PCS cross-ownership and CMRS spectrum aggregation limit rules to remove the provisions which increase the cellular attribution threshold to 40 percent on the basis of the race or gender of the holder of the ownership interest or of the broadband PCS applicant in which such holder is an investor. Accordingly, we propose to modify Section 24.204(d)(2)(ii) of our rules to provide that the 40 percent cellular attribution threshold will continue to apply if the ownership interest is held by a small business or a rural telephone company or if the ownership interest is held by an entity with a non-controlling equity interest in a broadband PCS licensee or applicant that is a small business. Similarly, we propose to modify Section 20.6(d)(2) of our rules to provide that the 40 percent cellular attribution threshold will continue to apply if the ownership interest is held by a small business or a rural telephone company (including those owned by minorities or women). Although this change could result in a lower cellular attribution threshold for businesses owned by minorities and women as well as for non-controlling investors in broadband PCS applicants or licensees that are owned by minorities or women (with respect to our cellular PCS cross-ownership rule), we believe that this modification is necessary to ensure that our rules are insulated from legal challenge. Moreover, the proposed rule change to our cellular PCS cross-ownership rule may result in additional investment in broadband PCS applicants that are small businesses, because this rule change would extend the 40 percent cellular attribution threshold to such investors in broadband PCS applicants that are small businesses. We seek comment on this proposal. In addition, we recognize that both the cellular PCS cross-ownership rule and the CMRS spectrum aggregation limit apply to more than just the C block. We propose to limit our specific rule changes to affect only the C block.

Procedural Matters

A. Regulatory Flexibility Act

As required by Section 603 of the Regulatory Flexibility Act, the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the expected impact on small entities of the proposals suggested in this document. The IRFA is set forth in Appendix B. Written public comments are requested on the IRFA. These comments must be filed in accordance with the same filing deadlines as comments on the rest of the Further Notice of Proposed Rule Making, but they must have a separate and distinct heading designating them as responses to the Initial Regulatory Flexibility Analysis. The Secretary shall send a copy of this Further Notice of Proposed Rule Making, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration in accordance with paragraph 603(a) of the Regulatory Flexibility Act. Pub. L. No. 96-354, 94Stat. 1164, 5 U.S.C. § 601 et seq. (1981).

B. Ex Parte Rules -- Non-Restricted Proceeding

This is a non-restricted notice and comment rule making proceeding. Ex parte presentations are permitted except during the Sunshine Agenda period, provided they are disclosed as provided in Commission rules. See generally 47 CFR §§ 1.1202, 1.1203, and 1.1206(a).

C. Comment Dates

Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commissions Rules, 47 CFR §§ 1.415 and 1.419, interested parties may file comments on or before July 7, 1995. Notwithstanding Section 1.415(c) of the Commission's Rules, 47 CFR § 1.415(c), we are not inviting reply comments. To file formally in this proceeding you must file an original and four copies of all comments and supporting comments. If you want each Commissioner to receive a personal copy of your comments, you must file an original plus nine copies. You should send your comments to Office of the Secretary, Federal Communications Commission, 1919 M Street, N.W., Washington, D.C. 20554. Comments will be available for public inspection during regular business hours in the Reference Center of the Federal Communications Commission, 1919 M Street, N.W., Room 239, Washington, D.C. 20554.

D. Ordering Clause

Authority for issuance of this Further Notice of Proposed Rule Making is contained in Sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), 303(r) and 309(j).

E. Contact Persons

For further information concerning this proceeding, contact Kathleen O'Brien Ham at 418-0660 (Auctions Division, Wireless Telecommunications Bureau), Ramona Melson or D'wana Speight at (202) 418-0620 (Legal Branch, Commercial Wireless Division, Wireless Telecommunications Bureau), or Peter Tenhula at 418-1720 (Office of General Counsel).

FEDERAL COMMUNICATIONS COMMISSION

William F. Caton
Acting Secretary

APPENDIX A

PROPOSED RULES

Parts 20 and 24 of Chapter I of Title 47 of the Code of Federal Regulations are amended as follows:

PART 20 - COMMERCIAL MOBILE RADIO SERVICES

1. The authority citation for Part 20 continues to read as follows:

AUTHORITY: Secs 4, 303, and 332, 48 Stat. 1066, 1082, as amended; 47 U.S.C. §§ 154, 303, and 332, unless otherwise noted.

2. Section 20.6 is amended by revising paragraph (d)(2) to read as follows:

§ 20.6 CMRS spectrum aggregation limit.

* * * * *

(d)* * *
(2) Partnership and other ownership interests and any stock interest amounting to 20 percent or more of the equity, or outstanding stock, or outstanding voting stock of a cellular licensee will be attributable, except that ownership will not be attributed unless the partnership and other ownership interests and any stock interest amount to 40 percent or more of the equity, or outstanding stock, or outstanding voting stock of a cellular licensee if the ownership interest is held by a small business or a rural telephone company or a business owned by minorities or women, as these terms are defined in § 1.2110 of this chapter or other provisions of the Commission's Rules. For purposes of broadband PCS licenses for frequency block C, the 40 percent attribution level shall only apply to interests held by a small business or a rural telephone company.

* * * * *
PART 24 - PERSONAL COMMUNICATIONS SERVICES

1. The authority citation for Part 24 continues to read as follows:

AUTHORITY: Secs. 4, 301, 302, 303, 309 and 332, 48 Stat. 1066, 1082, as amended; 47 U.S.C. §§ 154, 301, 302, 303, 309 and 332, unless otherwise noted.

2. Section 24.204 is amended by revising paragraph (d)(2)(ii) to read as follows:

§ 24.204 Cellular eligibility.

(ii) Partnership and other ownership interests and any stock interest amounting to 20 percent or more of the equity, or outstanding stock, or outstanding voting stock of a cellular licensee will be attributable, except that ownership will not be attributed unless the partnership and other ownership interests and any stock interest amount to 40 percent or more of the equity, or outstanding stock, or outstanding voting stock of a cellular licensee if the ownership interest is held by a small business, a rural telephone company, or a business owned by minorities and/or women, as these terms are defined in § 1.2110 of this chapter, or if the ownership interest is held by an entity with a non-controlling equity interest in a broadband PCS licensee or applicant that is a small business owned by minorities and/or women as defined in § 24.720. For purposes of broadband PCS licenses for frequency block C, the 40 percent attribution level shall only apply to interests held by a small business or rural telephone company, or if interests are held by an entity with a non-controlling equity interest in a licensee or applicant that is a small business as defined in § 24.720.

*****

3. Section 24.709 is amended by revising the heading and paragraphs (a), (b)(6), (c)(1)(ii)(B), (c)(2), (c)(2)(ii) and (e) to read as follows:

§ 24.709 Eligibility for licenses for frequency Block C.

(a) General Rule.
(1) No application is acceptable for filing and no license shall be granted for frequency block C, unless the applicant, together with its affiliates and persons or entities that hold interests in the applicant and their affiliates, have gross revenues of less than $125 million in each of the last two years and total assets of less than $500 million at the time the applicants short-form application (Form 175) is filed.
(2) The gross revenues and total assets of the applicant (or licensee), and its affiliates, and (except as provided in paragraph (b) of this section) of persons or entities that hold interests in the applicant (or licensee), and their affiliates, shall be attributed to the applicant and considered on a cumulative basis and aggregated for purposes of determining whether the applicant (or licensee) is eligible for a licensee for frequency block C under this section.
(3) Any licensee awarded a license pursuant to this section (or pursuant to § 24.839(d)(2)) shall maintain its eligibility until at least five years from the date of initial license grant, except that a licensees (or other attributable entitys) increased gross revenues or increased total assets due to nonattributable equity investments (i.e., from sources whose gross revenues, and total assets are not considered under paragraph (b) of this section), debt financing, revenue from operations or other investments, business development or expanded service shall not be considered.
(b)* * *
(6) Control Group Minimum 50.1 Percent Equity Requirement. In order to be eligible to exclude gross revenues and total assets of persons or entities identified in paragraph (b)(4) of this section, an applicant (or licensee) must comply with the following requirements:
(i) Except for an applicant (or licensee) whose sole control group member is a preexisting entity, as provided in paragraph (b)(6)(ii) of this section, at the time the applicants short-form application (Form 175) is filed and until at least three years following the date of initial license grant, the applicants (or licensees) control group must own at least 50.1 percent of the applicants (or licensees) total equity as follows:
(A) at least 30 percent of the applicants (or licensees) total equity must be held by qualifying investors, either unconditionally or in the form of options, exercisable at the option of the holder, at any time and at any exercise price equal to or less than the market value at the time the applicant files its short-form application (Form 175);
(B) Such qualifying investors must hold 50.1 percent of the voting stock and all general partnership interests within the control group and must have de facto control of the control group and of the applicant;
(C) The remaining 20.1 percent of the applicants (or licensees) total equity may be owned by qualifying investors, either unconditionally or in the form of stock options not subject to the restrictions of paragraph (b)(6)(i)(A) of this section, or by any of the following entities which may not comply with § 24.720(n)(1):
(1) Institutional investors, either unconditionally or in the form of stock options;
(2) Noncontrolling existing investors in any preexisting entity that is a member of the control group, either unconditionally or in the form of stock options; or
(3) Individuals that are members of the applicants (or licensees) management, either unconditionally or in the form of stock options.
(D) Following termination of the three-year period specified in paragraph (b)(6)(i) of this section, qualifying investors must continue to own at least 20 percent of the applicants (or licensees) total equity, either unconditionally or in the form of stock options subject to the restrictions in paragraph (b)(6)(i)(A) of this section. The restrictions specified in paragraph (b)(6)(i)(C)(1) through (4) of this section no longer apply to the remaining equity after termination of such three-year period.
(ii) At the election of an applicant (or licensee) whose control groups sole member is a preexisting entity, the 50.1 percent minimum equity requirements set forth in paragraph (b)(6)(i) of this section shall apply, except that only 20 percent of the applicants (or licensees) total equity must be held by qualifying investors, and that the remaining 30.1 percent of the applicants (or licensees) total equity may be held by qualifying investors, or noncontrolling existing investors in such control group member or individuals that are members of the applicants (or licensees) management. These restrictions on the identity of the holder(s) of the remaining 30.1 percent of the licensees total equity no longer apply after termination of the three-year period specified in paragraph (b)(6)(i) of this section.

4. Section 24.711 is amended by revising the heading and paragraphs (a) introductory text, (a)(1), (b) introductory text and (b)(3) to read as follows:

§ 24.711 Upfront payments, down payments and installment payments for licenses for frequency Block C.

(a) Upfront Payments and Down Payments.
(1) Each eligible bidder for licenses on frequency Block C subject to auction shall pay an upfront payment of $0.015 per MHz per pop for the maximum number of licenses (in terms of MHz-pops) on which it intends to bid pursuant to § 1.2106 of this Chapter and procedures specified by Public Notice.

§ 24.712 Bidding credits for licenses for frequency Block C.

(a) A wining bidder that qualifies as a small business or a consortium of small businesses may use a bidding credit of twenty-five percent to lower the cost of its winning bid.

* * * * *

6. Section 24.713 is removed and reserved.

7. A new Section 24.715 is added to Subpart H to read as follows:

§ 24.715 Eligibility for licenses for frequency Block F.

(a) General Rule.
(1) No application is acceptable for filing and no license shall be granted for frequency block F, unless the applicant, together with its affiliates and persons or entities that hold interests in the applicant and their affiliates, have gross revenues of less than $125 million in each of the last two years and total assets of less than $500 million at the time the applicant's short-form application (Form 175) is filed.
(2) The gross revenues and total assets of the applicant (or licensee), and its affiliates, and (except as provided in paragraph (b) of this section) of persons or entities that hold interests in the applicant (or licensee), and their affiliates, shall be attributed to the applicant andconsidered on a cumulative basis and aggregated for purposes of determining whether the
applicant (or licensee) is eligible for a license for frequency block F under this section.
(3) Any licensee awarded a license pursuant to this section (or pursuant to § 24.839(d)(2)) shall maintain its eligibility until at least five years from the date of initial license grant, except that a licensee's (or other attributable entity's) increased gross revenues or increased total assets due to nonattributable equity investments (i.e., from sources whose gross revenues, and total assets are not considered under paragraph (b) of this section), debt financing, revenue from operations or other investments, business development or expanded service shall not be considered.
(b) Exceptions to General Rule.
(1) Small Business Consortia. Where an applicant (or licensee) is a consortium of small businesses, the gross revenues and total assets of each small business shall not be aggregated.
(2) Publicly-Traded Corporations. Where an applicant (or licensee) is a publicly traded corporation with widely dispersed voting power, the gross revenues and total assets of a person or entity that holds an interest in the applicant (or licensee), and its affiliates, shall not be considered.
(3) 25 Percent Equity Exception. The gross revenues and total assets of a person or entity that holds an interest in the applicant (or licensee), and its affiliates, shall not be considered so long as:
(i) Such person or entity, together with its affiliates, holds only nonattributable equity equaling no more than 25 percent of the applicant's (or licensee's) total equity;
(ii) Except as provided in paragraph (b)(5) of this section, such person or entity is not a member of the applicant's (or licensee's) control group; and
(iii) The applicant (or licensee) has a control group that complies with the minimum equity requirements of paragraph (b)(5) of this section, and, if the applicant (or licensee) is a corporation, owns at least 50.1 percent of the applicant's (or licensee's) voting interests, and, if the applicant (or licensee) is a partnership, holds all of its general partnership interests.
(4) 49.9 Percent Equity Exception. The gross revenues and total assets of a
person or entity that holds an interest in the applicant (or licensee), and its
affiliates, shall not be considered so long as:
(i) Such person or entity, together with its affiliates, holds only nonattributable equity equaling no more than 49.9 percent of the applicant's (or licensee's) total equity;
(ii) Except as provided in paragraph (b)(6) of this section, such person or entity is not a member of the applicant's (or licensee's) control group; and
(iii) The applicant (or licensee) has a control group that complies with the minimum equity requirements of paragraph (b)(6) of this section and, if the applicant (or licensee) is a corporation, owns at least 50.1 percent of the applicant's (or licensee's) voting interests, and, if the applicant (or licensee) is a partnership, holds all of its general partnership interests.
(5) Control Group Minimum 25 Percent Equity Requirement. In order to be eligible to exclude gross revenues and total assets of persons or entities identified in paragraph (b)(3) of this section, and applicant (or licensee) must comply with the following requirements:
(i) Except for an applicant (or licensee) whose sole control group member is a preexisting entity, as provided in paragraph (b)(5)(ii) of this section, at the time the applicant's short-form application (Form 175) is filed and until at least three years following the date ofinitial license grant, the applicant's (or licensee's) control group must own at least 25 percent of the applicant's (or licensee's) total equity as follows:
(A) At least 15 percent of the applicant's (or licensee's) total equity must be held by qualifying investors, either unconditionally or in the form of options exercisable, at the option of the holder, at any time and at any exercise price equal to or less than the market value at the time the applicant files its short-form application (Form 175);
(B) Such qualifying investors must hold 50.1 percent of the voting stock and all general partnership interests within the control group, and must have de facto control of the control group and of the applicant;
(C) The remaining 10 percent of the applicant's (or licensee's) total equity may be owned by qualifying investors, either unconditionally or in the form of stock options not subject to the restrictions of paragraph (b)(5)(i)(A) of this section, or by any of the following entities, which may not comply with section 24.720(n)(1):
(1) Institutional investors, either unconditionally or in the form of stock options;
(2) Noncontrolling existing investors in any preexisting entity that is a member of the control group, either unconditionally or in the form of stock options; or
(3) Individuals that are members of the applicant's (or licensee's) management, either unconditionally or in the form of stock options.
(D) Following termination of the three-year period specified in paragraph (b)(5)(i) of this section, qualifying investors must continue to own at least 10 percent of the applicant's (or licensee's) total equity, either unconditionally or in the form of stock options subject to the restrictions in paragraph (b)(5)(i)(A) of this section. The restrictions specified in paragraph (b)(5)(i)(C)(1) through (4) of this section no longer apply to the remaining equity after termination of such three-year period.
(ii) At the election of an applicant (or licensee) whose control group's sole member is a preexisting entity, the 25 percent minimum equity requirements set forth in paragraph (b)(5)(i) of this section shall apply, except that only 10 percent of the applicant's (or licensee's) total equity must be held by qualifying investors and that the remaining 15 percent of the applicant's (or licensee's) total equity may be held by qualifying investors or noncontrolling existing investors in such control group member or individuals that are members of the applicant's (or licensee's) management. These restrictions on the identity of the holder(s) of the remaining 15 percent of the licensee's total equity no longer apply after termination of the three-year period specified in paragraph (b)(5)(i) of this section.
(6) Control Group Minimum 50.1 Percent Equity Requirement. In order to be eligible to exclude gross revenues and total assets of persons or entities identified in paragraph (b)(4) of this section, an applicant (or licensee) must comply with the following requirements:
(i) Except for an applicant (or licensee) whose sole control group member is a preexisting entity, as provided in paragraph (b)(6)(ii) of this section, at the time the applicant's short-form application (Form 175) is filed and until at least three years following the date of initial license grant, the applicant's (or licensee's) control group must own at least 50.1 percent of the applicant's (or licensee's) total equity as follows:
(A) at least 30 percent of the applicant's (or licensee's) total equity must be held by qualifying minority and/or women investors, either unconditionally or in the form of options exercisable, at the option of the holder, at any time and at any exercise price equal to or lessthan the market value at the time the applicant files its short-form application (Form 175);
(B) Such qualifying minority and/or women investors must hold 50.1 percent of the voting stock and all general partnership interests within the control group and must have de facto control of the control group and of the applicant;
(C) The remaining 20.1 percent of the applicant's (or licensee's) total equity may be owned by qualifying investors, either unconditionally or in the form of stock options not subject to the restrictions of paragraph (b)(5)(i)(A) of this section, or by any of the following entities, which may not comply with section 24.720(n)(1):
(1) Institutional investors, either unconditionally or in the form of stock options;
(2) Noncontrolling existing investors in any preexisting entity that is a member of the control group, either unconditionally or in the form of stock options; or
(3) Individuals that are members of the applicant's (or licensee's) management, either unconditionally or in the form of stock options.
(D) Following termination of the three-year period specified in paragraph (b)(6)(i) of this section, qualifying minority and/or women investors must continue to own at least 20 percent of the applicant's (or licensee's) total equity, either unconditionally or in the form of stock options subject to the restrictions in paragraph (b)(6)(i)(A) of this section. The restrictions specified in paragraph (b)(6)(i)(C)(1) through (4) of this section no longer apply to the remaining equity after termination of such three-year period.
(ii) At the election of an applicant (or licensee) whose control group's sole member is a preexisting entity, the 50.1 percent minimum equity requirements set forth in paragraph (b)(6)(i) of this section shall apply, except that only 20 percent of the applicant's (or licensee's) total equity must be held by qualifying minority and/or women investors, and that the remaining 30.1 percent of the applicant's (or licensee's) total equity may be held by qualifying minority and/or women investors, or noncontrolling existing investors in such
control group member or individuals that are members of the applicant's (or licensee's) management. These restrictions on the identity of the holder(s) of the remaining 30.1 percent of the licensee's total equity no longer apply after termination of the three-year period specified in paragraph (b)(6)(i) of this section.
(7) Calculation of Certain Interests. Except as provided in paragraphs (b)(5) and (b)(6) of this section, ownership interests shall be calculated on a fully diluted basis; all agreements such as warrants, stock options and convertible debentures will generally be treated as if the rights thereunder already have been fully exercised, except that such agreements may not be used to appear to terminate or divest ownership interests before they actually do so, in order to comply with the nonattributable equity requirements in paragraphs (b)(3)(i) and (b)(4)(i) of this section.
(8) Aggregation of Affiliate Interests. Persons or entities that hold interest in an applicant (or licensee) that are affiliates of each other or have an identify of interests identified in § 24.720(1)(3) will be treated as though they were one person or entity and their ownership interests aggregated for purposes of determining an applicant's (or licensee's) compliance with the nonattributable equity requirements in paragraphs (b)(3)(i) and (b)(4)(i) of this section.
Example 1 for paragraph (b)(8). ABC Corp. is owned by individuals, A, B, and C, each having an equal one-third voting interest in ABC Corp. A and B together, with two-thirds ofthe stock have the power to control ABC Corp. and have an identity of interest. If A & B invest in DE Corp., a broadband PCS applicant for block C, A and B's separate interests in DE Corp. must be aggregated because A and B are to be treated as one person.
Example 2 for paragraph (b)(8). ABC Corp. has subsidiary BC Corp., of which it holds a controlling 51 percent of the stock. If ABC Corp. and BC Corp., both invest in DE Corp., their separate interests in DE Corp. must be aggregated because ABC Corp. and BC Corp. are affiliates of each other.
(c) Short-Form and Long-Form Applications: Certifications and Disclosure.
(1) Short-form Application. In addition to certifications and disclosures required by Part 1, subpart Q of this Chapter and § 24.813, each applicant for a license for frequency Block F shall certify on its short- form application (Form 175) that it is eligible to bid on and obtain such license(s), and (if applicable) that it is eligible for designated entity
status pursuant to this section and § 24.720, and shall append the following information as an exhibit to its Form 175:
(i) For an applicant that is a publicly traded corporation with widely disbursed voting power:
(A) A certified statement that such applicant complies with the requirements of the definition of publicly traded corporation with widely disbursed voting power set forth in § 24.720(m);
(B) The identify of each affiliate of the applicant if not disclosed pursuant to § 24.813; and
(C) The applicant's gross revenues and total assets, computed in accordance with paragraphs (a) and (b) of this section.
(ii) For all other applicants:
(A) The identity of each member of the applicant's control group, regardless of the size of each member's total interest in the applicant, and the percentage and type of interest held;
(B) The citizenship and the gender or minority group classification for each member of the applicant's control group if the applicant is claiming status as a business owned by members of minority groups and/or women;
(C) The status of each control group member that is an institutional investor, an existing investor, and/or a member of the applicant's management;
(D) The identify of each affiliate of the applicant and each affiliate of individuals or entities identified pursuant to paragraphs (c)(1)(ii)(A) and (c)(1)(ii)(C) of this section if not disclosed pursuant to § 24.813;
(E) A certification that the applicant's sole control group member is a preexisting entity, if the applicant makes the election in either paragraph (b)(5)(ii) or (b)(6)(ii) of this section; and
(F) The applicant's gross revenues and total assets, computed in accordance with paragraphs (a) and (b) of this section.
(iii) for each applicant claiming status as a small business consortium, the information specified in paragraph (c)(1)(ii) of this section, for each member of such consortium.
(2) Long-form Application. In addition to the requirements in subpart I of this part and other applicable rules (e.g., § 24.204(f), 20.6(e) of this chapter, 20.9(b) of this chapter), each applicant submitting a long-form application for license(s) for frequency Block F shall, in an exhibit to its long-form application:
(i) Disclose separately and in the aggregate the gross revenues and total assets, computed inaccordance with paragraphs (a) and (b) of this section, for each of the following: the applicant; the applicant's affiliates, the applicant's control group members; the applicant's attributable investors; and affiliates of its attributable investors;
(ii) List and summarize all agreements or other instruments (with appropriate references to specific provisions in the text of such agreements and instruments) that support the applicant's eligibility for a license(s) for frequency Block F and its eligibility under §§ 24.711 through 24.270, including the establishment of de facto and de jure control; such agreements and instruments include articles of incorporation and bylaws, shareholder agreements, voting or other trust agreements, partnership agreements, management agreements, joint marketing agreements, franchise agreements, and any other relevant agreements (including letters of intent), oral or written; and
(iii) List and summarize any investor protection agreements and identify specifically any such provisions in those agreements identified pursuant to paragraph (c)(2)(ii) of this section, including rights of first refusal, supermajority clauses, options, veto rights, and rights to hire and fire employees and to appoint members to boards of directors or management committees.
(3) Records Maintenance. All applicants, including those that are winning bidders, shall maintain at their principal place of business an updated file of ownership, revenue and asset information, including those documents referenced in paragraphs (c)(2)(ii) and (c)(2)(iii) of this section and any other documents necessary to establish eligibility under this section or under the definitions of small business and/or business owned by members of minority groups and/or women. Licensees (and their successors in interest) shall maintain such files for the term of the license. Applicants that do not obtain the license(s) for which they applied shall maintain such files until the grant of such license(s) is final, or one year from the date of the filing of their short-form application (Form 175), whichever is earlier.
(d) Audits.
(1) Applicants and licensees claiming eligibility under this section or §§ 24.711 through 24.720 shall be subject to audits by the Commission, using in- house and contract resources. Selection for audit may be random, on information, or on the basis of other factors.
(2) Consent to such audits is part of the certification included in the short- form application (Form 175). Such consent shall include consent to the audit of the applicant's or licensee's books, documents and other material (including accounting procedures and practices) regardless of form or type, sufficient to confirm that such applicant's or licensee's representations are, and remain, accurate. Such consent shall include inspection at all reasonable times of the facilities, or parts thereof, engaged in providing and transacting business, or keeping records regarding licensed broadband PCS service and shall also include
consent to the interview of principals, employees, customers and suppliers of the applicant or licensee.
(e) Definitions. The terms affiliate, business owned by members of minority
groups and women, consortium of small businesses, control group, existing
investor, gross revenues, institutional investor, members of minority groups,
nonattributable equity, preexisting entity, publicly traded corporation with
widely dispersed voting power, qualifying investor, qualifying minority and/or
woman investor, small business and total assets used in this section are
defined in § 24.720.

8. A new Section 24.716 is added to Subpart H to read as follows:

§ 24.716 Upfront payments, down payments, and installment payments for licenses for frequency Block F.

(a) Upfront Payments and Down Payments.
(1) Each eligible bidder for licenses on frequency Block F subject to auction shall pay an upfront payment of $0.015 per MHz per pop for the maximum number of licenses (in terms of MHz-pops) on which it intends to bid pursuant to § 1.2106 of this Chapter and procedures specified by Public Notice.
(2) Each winning bidder shall make a down payment equal to ten percent of its winning bid (less applicable bidding credits); a winning bidder shall bring its total amount on deposit with the Commission (including upfront payment) to five percent of its net winning bid within five business days after the auction closes, and the remainder of the down payment (five percent)
shall be paid within five business days after the application required by § 24.809(b) is granted.
(b) Installment Payments. Each eligible licensee of frequency Block F may pay the remaining 90 percent of the net auction price for the license in installment payments pursuant to § 1.2110(e) of this Chapter and under the following terms:
(1) For an eligible licensee with gross revenues exceeding $75 million (calculated in accordance with § 24.709(a)(2) and (b)) in each of the two preceding years (calculated in accordance with 24.720(f)), interest shall be imposed based on the rate for ten-year U.S. Treasury obligations applicable on the date the license is granted, plus 3.5 percent; payments shall include both principal and interest amortized over the term of the license.
(2) For an eligible licensee with gross revenues not exceeding $75 million (calculated in accordance with § 24.709(a)(2) and (b)) in each of the two preceding years, interest shall be imposed based on the rate for ten-year U.S. Treasury obligations applicable on the date the license is granted, plus 2.5 percent; payments shall include interest only for the first year and payments of interest and principal amortized over the remaining nine years of the license term.
(3) For an eligible licensee that qualifies as a Small business or as a consortium of small businesses, interest shall be imposed based on the rate for ten-year U.S. Treasury obligations applicable on the date the license is granted, plus 2.5 percent; payments shall include interest only for the first two years and payments of interest and principal amortized over
the remaining eight years of the license term.
(4) For an eligible licensee that qualifies as a business owned by members of minority groups and/or women, interest shall be imposed based on the rate for ten-year U.S. Treasury obligations applicable on the date the license is granted; payments shall include interest only for the first three years and payments of interest and principal amortized over the remaining
seven years of the license term.
(5) For an eligible licensee that qualifies as a small business owned by members of minority groups and/or women or as a consortium of small business owned by members ofminority groups and/or women, interest shall be imposed based on the rate for ten-year U.S. Treasury obligations applicable on the date the license is granted; payments shall include interest only for the first six years and payments of interest and principal amortized over the
remaining four years of the license term.
(c) Unjust Enrichment.
(1) If a licensee that utilizes installment financing under this section seeks to assign or transfer control of its license to an entity not meeting the eligibility standards for installment payments, the licensee must make full payment of the remaining unpaid principal and any unpaid interest accrued through the date of assignment or transfer as a condition of approval.
(2) If a licensee that utilizes installment financing under this section seeks to make any change in ownership structure that would result in the licensee losing eligibility for installment payments, the licensee shall first seek Commission approval and must make full payment of the remaining unpaid principal and any unpaid interest accrued through the date of such change as a condition of approval. A licensee's (or other attributable entity's) increased gross revenues or increased total assets due to nonattributable equity investments (i.e., from sources whose gross revenues and total assets are not considered under § 24.709(b)), debt financing, revenue from operations or other investments, business development or expanded service shall not be considered to result in the licensee losing eligibility for installment payments.
(3) If a licensee seeks to make any change in ownership that would result in the licensee qualifying for a less favorable installment plan under this section, the licensee shall seek Commission approval and must adjust its payment plan to reflect its new eligibility status. A licensee may not switch its payment plan to a more favorable plan.

9. A new Section 24.717 is added to Subpart H to read as follows:

§ 24.717 Bidding credits for licenses for frequency Block F.

(a) A winning bidder that qualifies as a small business or a consortium of small businesses may use a bidding credit of ten percent to lower the cost of its winning bid.
(b) A winning bidder that qualifies as a business owned by members of minority groups and/or women may use a bidding credit of fifteen percent to lower the cost of its winning bid.
(c) A winning bidder that qualifies as a small business owned by members of minority groups and/or women or a consortium of small business owned by members of minority groups and/or women may use a bidding credit of twenty-five percent to lower the cost of its winning bid.
(d) Unjust Enrichment.
(1) If during the term of the initial license grant (see § 24.15), a licensee that utilizes a bidding credit under this section seeks to assign or transfer control of its license to an entity not meeting the eligibility standards for bidding credits or seeks to make any other change in ownership that would result in the licensee no longer qualifying for bidding credits under this section, the licensee must seek Commission approval and reimburse the government for the amount of the bidding credit as a condition of the approval of such assignment, transfer orother ownership change.
(2) If during the term of the initial license grant (see § 24.15), a licensee that utilizes a bidding credit under this section seeks to assign or transfer control of its license to an entity meeting the eligibility standards for lower bidding credits or seeks to make any other change in ownership that would result in the licensee qualifying for a lower bidding credit under this section, the licensee must seek Commission approval and reimburse the government for the difference between the amount of the bidding credit obtained by the licensee and the bidding credit for which the assignee, transferee or licensee is eligible under this section as a condition of the approval of such assignment, transfer or other ownership change.

10. Section 24.720 is amended by revising paragraphs (1)(11)(ii) and (n)(3) and adding paragraph (n)(4) to read as follows:

§ 24.720 Definitions.

(ii) For purposes of § 24.715(a)(2) and paragraph (b)(2) of this section, an entity controlled by members of minority groups is not considered an affiliate of an applicant (or licensee) that qualify as a business owned by members of minority groups and/or women if affiliation would arise solely from control of such entity by members of the applicant's (or licensee's) control group who are members of minority groups. For purposes of this subparagraph, the term minority-controlled entity shall mean, in the case of a corporation, an entity in which 50.1 percent of the voting interests is owned by members of minority groups or, in the case of a partnership, all of the general partners are members of minority groups or entities controlled by members of minority groups; and, in all cases, one in which members of minority groups have both de jure and de facto control of the entity.

(3) For purposes of assessing compliance with the minimum equity requirements of § 24.709(b)(5) and (6), where such equity interests are not held directly in the applicant, interests held by qualifying investors shall be determined by successive multiplication of the ownership percentages for each link in the vertical ownership chain.
(4) For purposes of assessing compliance with the minimum equity requirements of § 24.715(b)(5) and (6), where such equity interests are not held directly in the applicant, interests held by qualifying investors and qualifying minority and/or woman investors shall be determined by successive multiplication of the ownership percentages for each link in thevertical ownership chain.
* * * * *

APPENDIX B

Regulatory Flexibility Act
As require by Section 603 of the Regulatory Flexibility Act, the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the expected impact on small entities of the policies and rules proposed in this Further Notice of Proposed Rule Making. Written public comments are requested on the IRFA. Comments must have a separate and distinct heading designating them as responses to the IRFA and must be filed by the comment deadlines provided above.

1. Reason for Action: This rule making proceeding was initiated to secure comment on proposals to eliminate all race- and gender-based provisions in our competitive bidding rules for our C block auction only. The proposals advanced in the Further Notice of Proposed Rule Making are also designed to implement Congress's goal of giving small businesses, rural telephone companies, and businesses owned by members of minority groups and women the opportunity to participate in the provision of spectrum-based services in accordance with 47 U.S.C. § 309(j)(4)(D).

2. Objectives: The Commission proposes changes to its rules for the C block that are intended to be the least disruptive to bidders who were in an advanced stage of planning to participate in the C block auction. Specifically, the Commission seeks to ensure competition and ownership diversity by avoiding a lengthy delay in the conduct of the auction caused by probable legal challenges to our rules. The Commission proposes to amend its rules to offer favorable bidding credits and installment payment terms to small businesses. The Commission also proposes to permit all C block applicants to avail themselves of the 50.1/49.9 percent equity structure. The Commission proposes to eliminate the minority investor exception to the affiliation rules. Finally, the Commission proposes to make revisions to the PCS-Cellular Cross-Ownership rule and the Commercial Mobile Radio Services (CMRS) Spectrum Cap for purposes of the C block auction only.

3. Legal Basis: The proposed action is authorized under Sections 4(i), 303(r) and 309(j) of the Communications Act of 1934, 47 U.S.C. §§ 154(i), 303(r) and 309(j), as amended.

4. Reporting, Recordkeeping, and Other Compliance Requirements: The proposals under consideration in this Further Notice of Proposed Rule Making do not include the possibility of new reporting and recordkeeping requirements for small business entities.

5. Federal Rules Which Overlap, Duplicate or Conflict With These Rules:
None.

6. Description, Potential Impact, and Number of Small Entities Involved:
The rule changes proposed in this proceeding will affect all small businesses regardless of whether each small business avails itself of the favorable rule changes.

7. Any Significant Alternative Minimizing the Impact on Small Entities Consistent with the Stated Objectives: This Further Notice of Proposed Rule Making proposes certain mechanisms of preferential treatment for small businesses, among other
entities, to ensure economic opportunity, such as favorable financing and bidding credits.a)

This Erratum corrects the Notice of Proposed Rule Making in the above-captioned proceeding, FCC 95-263 (rel. June 23, 1995), by adding the Initial Regulatory Flexibility Act (IRFA) analysis as Appendix B. The IRFA analysis, contained in Appendix B, was inadvertently omitted from the final released document. This correction was made before publication in the FCC Record and Federal Register and thus will be incorporated into the published document.

FEDERAL COMMUNICATIONS COMMISSION

William F. Caton
Acting Secretary

APPENDIX B

Regulatory Flexibility Act
As require by Section 603 of the Regulatory Flexibility Act, the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the expected impact on small entities of the policies and rules proposed in this Further Notice of Proposed Rule Making. Written public comments are requested on the IRFA. Comments must have a separate and distinct heading designating them as responses to the IRFA and must be filed by the comment deadlines provided above.

1. Reason for Action: This rule making proceeding was initiated to secure comment on proposals to eliminate all race- and gender-based provisions in our competitive bidding rules for our C block auction only. The proposals advanced in the Further Notice of Proposed Rule Making are also designed to implement Congress's goal of giving small businesses, rural telephone companies, and businesses owned by members of minority groups and women the opportunity to participate in the provision of spectrum-based services in accordance with 47 U.S.C. § 309(j)(4)(D).

2. Objectives: The Commission proposes changes to its rules for the C block that are intended to be the least disruptive to bidders who were in an advanced stage of planning to participate in the C block auction. Specifically, the Commission seeks to ensure competition and ownership diversity by avoiding a lengthy delay in the conduct of the auction caused by probable legal challenges to our rules. The Commission proposes to amend its rules to offer favorable bidding credits and installment payment terms to small businesses. The Commission also proposes to permit all C block applicants to avail themselves of the 50.1/49.9 percent equity structure. The Commission proposes to eliminate the minority investor exception to the affiliation rules. Finally, the Commission proposes to make revisions to the PCS-Cellular Cross-Ownership rule and the Commercial Mobile Radio Services (CMRS) Spectrum Cap for purposes of the C block auction only.

3. Legal Basis: The proposed action is authorized under Sections 4(i), 303(r) and 309(j) of the Communications Act of 1934, 47 U.S.C. §§ 154(i), 303(r) and 309(j), as amended.

4. Reporting, Recordkeeping, and Other Compliance Requirements: The proposals under consideration in this Further Notice of Proposed Rule Making do not include the possibility of new reporting and recordkeeping requirements for small business entities.

5. Federal Rules Which Overlap, Duplicate or Conflict With These Rules:
None.

6. Description, Potential Impact, and Number of Small Entities Involved:
The rule changes proposed in this proceeding will affect all small businesses regardless of whether each small business avails itself of the favorable rule changes.

7. Any Significant Alternative Minimizing the Impact on Small EntitiesConsistent with the Stated Objectives: This Further Notice of Proposed Rule Making proposes certain mechanisms of preferential treatment for small businesses, among other entities, to ensure economic opportunity, such as favorable financing and bidding credits.

   A. Control Group Equity Structures . . . . . . . . . . . . . . . . . . .  13
   B. Affiliation Rules . . . . . . . . . . . . . . . . . . . . . . . . . .  18
   C. Installment Payments. . . . . . . . . . . . . . . . . . . . . . . . .  21
   D. Bidding Credits . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
   E. Cellular PCS Cross-Ownership and CMRS Spectrum Aggregation
     Limit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29
   A. Regulatory Flexibility Act
   B. Ex Parte Rules -- Non-Restricted Proceeding
   C. Comment Dates
   D. Ordering Clause
   E. Contact Persons
APPENDIX A
APPENDIX B
APPENDIX B

Footnote 1 63 U.S.L.W. 4523 (U.S. June 12, 1995).

Footnote 2 The term "designated entities," as used herein refers to small business, rural telephone companies, and businesses owned by minorities or women. Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, Title VI, § 6002(a), 107 Stat. 312, 388 (1993) (Budget Act).

Footnote 3 The Commission allocated six broadband PCS frequency blocks for auctioning. Specifically, these are designated as the A and B blocks (consisting of 102 30 MHz Major Trading Area (MTA) licenses); the C and F blocks (consisting of 493 30 MHz Basic Trading Area (BTA) licenses and 493 10 MHz BTA licenses); and the D and E blocks (consisting of 986 10 MHz BTA licenses). The Commission recently completed its auction of the 99 A and B block licenses. See Public Notice, "Announcing the Winning Bidders in the FCC's Auction of 99 Licenses to Provide Broadband PCS in Major Trading Areas; Down Payments Due March 20, 1995," March 13, 1995. The auctioning of the 493 C block licenses as announced in a public notice released in tandem with this Further Notice of Proposed Rule Making is scheduled to begin August 29, 1995. See Public Notice, "FCC Sets August 29th Auction Date for 493 BTA Licenses Located in the C Block for Personal Communications Services in the 2 GHz Band, June 23, 1995."

Footnote 4 Notably, the Adarand decision was announced on June 12, 1995, three days before the filing deadline for short-form applications (Form 175) for the C block auctions.

Footnote 5 Under our C block competitive bidding rules, the term "minorities" includes Blacks, Hispanics, American Indians, Alaskan Natives, Asians, and Pacific Islanders. See 47 CFR 24.720(i).

Footnote 6 Aside from the C block auction, we anticipate that parties interested in other spectrum auctions will have additional opportunities to comment at a future date.

Footnote 7 The term "entrepreneurs," as used herein, refers to applicants in the C block that have gross revenues of less than $125 million in each of the last two years and total assets of less than $500 million at the time the FCC Form 175 is filed. See 47 CFR 24.709(a).

Footnote 8 The Commission has received numerous letters urging it to go forward with the C block auction as expeditiously as possible. See, e.g., Letter from Sandra Goeken Martis, Wireless Works, Inc., to Cathy Sandoval, Office of Communications Business Opportunities, Federal Communications Commission (FCC) (June 16, 1995); Letter from Michael Walker, Executive Director, National Paging and Personal Communications Association, to Reed Hundt, Chairman, FCC (June 16, 1995); Letter from Jonathan Chambers, Director, Public Policy, Sprint Telecommunications Venture, to Reed E. Hundt, Chairman, FCC (June 19, 1995); Letter from Roy M. Huhndorf, President, Cook Inlet Region, Inc. to Reed E. Hundt, Chairman, FCC (June 14, 1995); Letter from Eliot J. Greenwald and Howard C. Griboff, attorneys with Fisher, Wayland, Cooper, Leader & Zaragoza L.L.P, representing Central Alabama Partnership L.P. 132 and Mobile Tri-States L.P. 130, to William F. Caton, Acting Secretary, FCC (June 16, 1995).

Footnote 9 The proposed rule changes are attached as Appendix A.

Footnote 10 Budget Act, Pub. L. No. 103-66, Title VI, § 6002(b), 107 Stat. 312 (1993).

Footnote 11 Budget Act, Pub. L. 103-66, Title VI, § 6002(a), 107 Stat. at 388.

Footnote 12 47 U.S.C. § 309(j)(4)(D).

Footnote 13 See Fifth Report and Order, PP Docket 93-253, 9 FCC Rcd 5532 (1994) (Fifth R&O), recon. Fifth Memorandum Opinion and Order, 10 FCC Rcd 403 (1994) (Fifth MO&O).

Footnote 14 See Fifth R&O, 9 FCC Rcd 5532, 5537 at ¶ 9. In Metro Broadcasting, the Supreme Court ruled that the Commission's minority preference program for mutually exclusive applications for licenses for new radio or television broadcast stations and its distress sale program did not violate the equal protection component of the Fifth Amendment. The Court held that Congressionally mandated minority programs (even if 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." Metro Broadcasting v. FCC, 497 U.S. at 565.

Footnote 15 47 CFR § 24.709(a).

Footnote 16 Telephone Electronics Corp. v. FCC, No. 95-1015 (D.C. Cir. Mar. 15, 1995) (order granting stay).

Footnote 17 Id. at 2.

Footnote 18 Telephone Electronics Corp. v. FCC, No. 95-1015 (D.C. Cir. May 1, 1995) (order granting dismissal of petition for review).

Footnote 19 Adarand, 63 U.S.L.W. at 4530.

Footnote 20 Id. at 4533.

Footnote 21 In the Fifth R&O, we also adopted a tax certificate program for minority and women-owned businesses under 26 U.S.C. § 1071. 9 FCC Rcd at 5580, ¶ 113. Congress subsequently repealed Section 1071. H.R. 831, 104th Cong. 1st Sess. § 2. As a result of this action by Congress, we are compelled to eliminate the specific tax certificate provision in our broadband PCS rules, 47 CFR § 24.713, as indicated in Appendix A.

Footnote 22 See Fifth R&O, 9 FCC Rcd at 5537-5538, 5580, ¶¶ 10-13, 113.

Footnote 23 47 CFR § 24.709(b)(6).

Footnote 24 47 CFR § 24.720(l)(11)(ii).

Footnote 25 47 CFR § 24.711.

Footnote 26 47 CFR § 24.712.

Footnote 27 47 CFR §§ 20.6 and 24.204.

Footnote 28 Adarand, 63 U.S.L.W. at 4530.

Footnote 29 Id.

Footnote 30 Cellular operators, for example, have been in the wireless market for over a decade, and after a very slow rise through the 1980's and into the 1990's, sales have risen very quickly and cellular operators are currently enrolling about 28,000 new customers per day. See United States Department of Commerce, National Telecommunications and Information Administration, May 30, 1995 at 2.

Footnote 31 Telephone Electronics Corp. v. FCC, No. 95-1015 (order granting stay).

Footnote 32 See, e.g., Letter from Eliot J. Greenwald and Howard C. Griboff, attorneys with Fisher, Wayland, Cooper, Leader & Zaragoza L.L.P, representing Central Alabama Partnership L.P. 132 and Mobile Tri-States L.P. 130, to William F. Caton, Acting Secretary, FCC (June 16, 1995); Letter from Michael Walker, Executive Director, National Paging and Personal Communications Association, to Reed Hundt, Chairman, FCC (June 16, 1995); Letter from Sandra Goeken Martis, Wireless Works, Inc., to Cathy Sandoval, Office of Communications Business Opportunities, FCC (June 16, 1995); Letter from Jonathan Chambers, Director, Public Policy, Sprint Telecommunications Venture, to Reed E. Hundt, Chairman, FCC (June 19, 1995); Letter from Roy M. Huhndorf, President, Cook Inlet Region, Inc. to Reed E. Hundt, Chairman, FCC (June 14, 1995).

Footnote 33 With respect to other auctions, however, we may develop a supplemental record as part of our evaluation to meet the strict scrutiny standard of Adarand.

Footnote 34 See, e.g., Second Report and Order and Second Further Notice of Proposed Rule Making, PR Docket No. 89-553, 60 Fed. Reg. 21987 (1995) (900 MHz SMR Second R&O/Second FNPRM).

Footnote 35 See eg., Letter from Thomas A. Hart, Jr. National Paging and Personal Communications Assoc., et. al. to William E. Kennard, General Counsel, FCC (June 22, 1995); Letter from David Honig, Executive Director, Minority Media and Telecommunications Council to William E. Kennard, General Counsel, FCC (June 21, 1995); Letter from James L. Winston, Executive Director and General Counsel, National Association of Black Owned Broadcasters, and Lois E. Wright, Vice President and Corporate Counsel Inner City Broadcasting Corp., to Reed E. Hundt, Chairman, FCC (June 15, 1995).

Footnote 36 Telephone Electronics Corp. v. FCC, No. 95-1015 (order granting stay).

Footnote 37 Adarand, 63 U.S.L.W. at 4526.

Footnote 38 See Adarand, Id. at 4533, quoting Croson, 488 U.S. at 507 (under strict scrutiny, courts ask "whether there was `any consideration of the use of race-neutral means to increase minority business participation.'")

Footnote 39 See, e.g., 900 MHz SMR Second R&O/Second FNPRM, 60 Fed. Reg. 21987 (indicating that "U.S. Census Data shows that approximately 99% of all women-owned businesses and 99% of all minority-owned businesses generated net receipts of $1 million or less", citing Women-Owned Business, WB 87-1, 1987 Economic Census, p. 144, Table8; Survey of Minority-Owned Business Enterprises, MB 87-4, 1987 Economic Census, pp. 81-82, Table 8).

Footnote 40 47 CFR §§ 24.712 and 24.711.

Footnote 41 See 47 CFR § 24.709(b)(5) and (b)(6).

Footnote 42 Under the control group mechanism, the gross revenues and total assets of certain investors are not attributed provided the applicant has a control group consisting of one or more individuals or entities that are in de jure and de facto control of the applicant. The gross revenues and total assets of each member of the control group are counted toward the financial caps applicable to the entrepreneurs' block licenses. See 47 CFR § 24.720(k).

Footnote 43 47 CFR §24.709(b)(5)(i).

Footnote 44 Id. Under our rules, "qualifying investors" are defined as members of or holders of an interest in members of the applicant's or licensee's control group whose gross revenues and total assets, when aggregated with those of all other attributable investors and affiliates, do not exceed the gross revenues and total assets restrictions specified in our rules with regard to eligibility for entrepreneurs' block licenses. 47 CFR § 24.720(n)(1).

Footnote 45 47 CFR § 24.709(b)(5)(i)(C).

Footnote 46 47 CFR § 24.709(b)(3).

Footnote 47 47 CFR § 24.709(b)(6)(i).

Footnote 48 47 CFR § 24.709(b)(6)(i)(A).

Footnote 49 47 CFR § 24.709(b)(6)(i)(C).

Footnote 50 47 CFR § 24.709(b)(4).

Footnote 51 Fifth R&O, 9 FCC Rcd at 5537, ¶ 10.

Footnote 52 Under our rules, a "small business" is defined as an entity that, together with its affiliates and persons or entities that hold interest in such entity and their affiliates, has average gross revenues that are not more than $40 million for the preceding three years. 47 CFR § 24.720(b)(1).

Footnote 53 See 47 U.S.C. § 309(j)(12)(D).

Footnote 54 Fifth R&O, 9 FCC Rcd at 5620, 5625.

Footnote 55 47 CFR § 24.720(l)(11)(i).

Footnote 56 47 CFR § 24.720(l)(11)(ii).

Footnote 57 Fifth MO&O, 10 FCC Rcd at 425-426, ¶ 41.

Footnote 58 Id.

Footnote 59 See Fifth R&O, 9 FCC Rcd at 5538, ¶ 12.

Footnote 60 The Budget Act instructs the Commission to provide for the "rapid deployment of new technologies . . . without administrative or judicial delays." 47 U.S.C. 309(j)(3)(A).

Footnote 61 Order on Reconsideration, FCC 94-217 (released Aug. 15, 1994); Fifth MO&O, 9 FCC Rcd at 5548-4449, ¶¶ 42-43. See also Oklahoma Tax Commission v. Chickasaw Nation, 63 U.S.L.W. 4594, 4596 (Supreme Court upheld applicability of a categorical immunity from certain State taxation to Indian tribes and their members and not to "non-Indians.")

Footnote 62 47 CFR § 24.711.

Footnote 63 47 CFR § 24.711(b)(1).

Footnote 64 47 CFR § 711(b)(2).

Footnote 65 47 CFR § 24.711(b)(3).

Footnote 66 See Fifth R&O, 9 FCC Rcd at 5593, ¶¶ 139-140; Fifth MO&O, 10 FCC Rcd at 458, ¶ 101.

Footnote 67 The first and second payment plans for eligible bidders with gross revenues exceeding $75 million and with gross revenues between $40 and $75 million will remain the same. 47 CFR § 24.711(b)(1) and (2).

Footnote 68 47 CFR 24.204(d)(2)(ii).

Footnote 69 Id.

Footnote 70 47 CFR § 20.6(d)(2).