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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** FCC 97-60 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, DC 20554 In the Matter of ) ) Amendment of Part 1 of the ) WT Docket No. 97-82 Commission's Rules -- ) Competitive Bidding Proceeding, ) ORDER, MEMORANDUM OPINION and ORDER and NOTICE OF PROPOSED RULE MAKING Adopted: February 20, 1997 Released: February 28, 1997 Comments Due: March 27, 1997 Reply Comments Due: April 16, 1997 By the Commission: TABLE OF CONTENTS Paragraph I. Introduction 1 II. Executive Summary 3 III. Order and Memorandum Opinion and Order 5 IV. Notice of Proposed Rule Making 17 A. Applicability of General Competitive Bidding Rules 18 B. Rules Governing Designated Entities 19 1. Small Business Size Standards 19 2. Definition of Gross Revenues 22 3. Attribution of Gross Revenues of Investors and Affiliates 25 4. Definition of Rural Telephone Company 30 5. Installment Payments 32 6. Bidding Credits 39 7. Unjust Enrichment 41 C. Application Issues 44 1. Electronic Filing 44 2. Short-form Application Amendments 47 3. Ownership Disclosure Requirements 49 4. Ownership Disclosure Filings 53 5. Audits 55 D. Payment Issues 56 1. Refund of Upfront Payments 56 2. Down Payments 58 a. Levels of Payments 58 b. Late Fee 60 c. Second Down Payments 64 3. Default Payments 66 4. Installment Payments 69 a. Late Payments 69 b. Grace Periods 71 c. Default on Installment Payments 75 E. Competitive Bidding Design, Procedure, and Timing Issues 79 1. "Real Time" Bidding 79 2. Minimum Opening Bids 85 3. Maximum Bid Increments 87 4. Bid Withdrawal Payments 87 5. Misuse of Bid Withdrawals 93 6. Reauction Versus Offering to Second Highest Bidder 94 F. Rules Prohibiting Collusion 98 G. Pre-grant Construction 102 V. Conclusion 104 VI. Procedural Matters 105 APPENDIX A: List of Competitive Bidding Procedures for Specific Services APPENDIX B: Final Rules APPENDIX C: Initial Regulatory Flexibility Analysis I. INTRODUCTION 1. In this Order and Memorandum Opinion and Order (Order) and Notice of Proposed Rule Making (Notice), we undertake a comprehensive examination of our general competitive bidding rules for all auctionable services. In the Second Report and Order in PP Docket No. 93- 253, we stated that we would "issue further Reports and Orders . . . to adopt auction rules for each auctionable service or class of service," and we identified criteria that would govern our choice of service-specific auction rules and procedures, which may be found in Subpart Q of Part 1 of our rules. Since adoption of the Competitive Bidding Second Report and Order, the Commission has completed over ten auctions, adopting service-specific competitive bidding rules for each one. Based on the experience we have gained from the completed auctions and the feedback we have received from bidders, we believe that our general auction rules should be streamlined or amended so as to make our licensing process more efficient. 2. In this Order, we amend Subpart Q of Part 1 of the Commission's rules to reflect procedural changes that we believe will benefit bidders and the auction process generally and, in so doing, address some issues raised in petitions for reconsideration of our Competitive Bidding Fifth Memorandum Opinion and Order. In the Notice, we propose additional changes to our general competitive bidding rules that are intended to simplify our regulations and eliminate unnecessary rules wherever possible, increase the efficiency of the competitive bidding process, and provide more specific guidance to auction participants while also giving them more flexibility. II. EXECUTIVE SUMMARY 3. Many of the rule changes in the Order mirror provisions adopted in certain service- specific rules. It also addresses issues raised in some of the petitions for reconsideration and ex parte communications concerning financial provisions adopted in the Competitive Bidding Fifth Memorandum Opinion and Order. The Order also clarifies the extent of authority delegated to the Chief of the Wireless Telecommunications Bureau to implement regulations pertaining to competitive bidding. In addition, the Order modifies the short-form application (FCC Form 175) to include a certification indicating that an applicant seeking installment payment eligibility is not in default on any payment for Commission licenses or delinquent on any non-tax debt owed to any federal agency. 4. In the past, we have tailored auction procedures for different services as we gained experience with the process. As a result, certain procedures vary across auctionable services. In this proceeding, we seek to establish a uniform set of provisions that would incorporate our experience to date and allow us to conduct future auctions in a more consistent, efficient, and effective manner. More specifically, the Notice seeks comment on the following issues:  Whether to adopt, for all auctions in which special provisions are made for "designated entities" of a certain business size, a definition of "gross revenues" and a uniform approach for financial size attribution, using an affiliate and controlling interest attribution standard; and whether to change our definition of affiliate.  Whether to modify our installment payment rule, Section 1.2110(e), for future auctions in the following respect: (1) establish a maximum interest-only period of two years, while retaining the authority to increase this period on a service specific basis; (2) provide for slightly higher interest rates; (3) set the interest rate for such payment plans on the date that the Public Notice is issued announcing the close of the auction; and (4) make other changes in our rules regarding late payments, default payments, and grace periods.  Whether to adopt "schedules" of installment payment plans and bidding credits for which designated entities qualify (in service-specific rule making proceedings we would continue to establish the appropriate size standards for each auctionable service).  Whether to modify the unjust enrichment rule, Section 1.2111(c), which governs the payment of unpaid principal and accrued interest by licensees utilizing installment payments and seeking to transfer or assign their licenses, to conform with the broadband PCS rules.  Whether to amend Sections 1.2105(a) and 1.2107(c) to require that all short-form and long-form applications be filed electronically beginning January 1, 1998.  Whether to amend Section 1.2105(b)(2) to provide a uniform definition of major amendments to FCC Form 175.  Whether to adopt general ownership disclosure requirements and allow auction applicants to submit ownership information for one auction that would then be stored in a central database and updated as necessary for subsequent auctions rather than requiring resubmission of ownership information on each short-form and long-form application.  Whether to modify the practice of refunding upfront payments before the end of the auction to bidders that lose eligibility to continue in the auction.  Whether to require that winning bidders against whom petitions to deny are filed make their second down payments at the same time as those against whom no petitions are filed.  Whether to amend Section 1.2104(g) to apply uniform default rules to all auctionable services and all auction designs.  Whether to allow for "real time" bidding in simultaneous multiple round auctions.  Whether to amend Section 1.2104 to specify that the Commission may establish minimum opening bids, rather than only suggested minimum opening bids.  Whether to adopt for all auctionable services our broadband PCS rules governing bid withdrawal payments in the event of erroneous bids.  Whether to retain or modify Section 1.2109(b), which concerns the Commission's options in the event a winning bidder defaults on its down payment.  Whether to modify the anti-collusion rules set forth in Section 1.2105(c)(1) to permit an entity that has invested in an applicant that withdraws from an auction to invest in other applicants.  Whether to permit all auction winners to begin construction of their systems, at their own risk, upon issuance of a Public Notice announcing auction winners. III. ORDER and MEMORANDUM OPINION AND ORDER 5. This Order amends Subpart Q of Part 1 of the Commission's rules to reflect certain clarifications and procedural changes that we have found to be warranted based on our experience in conducting auctions. The amendments adopted herein pertain to agency procedure and practice. Consequently, the requirement of notice and comment rule making contained in 5 U.S.C.  553(b) and the effective date provisions of 5 U.S.C.  553(d) do not apply. Authority for the amendments adopted herein is contained in Sections 4(i), 5(b), 5(c)(1), 303(r), 309(j) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 155(b), 155(c)(1), 303(r) and 309(j). These amendments are as follows: 6. Auction designs and procedures. In Section 1.2103(a) of our rules, we list the types of auction designs from which we may choose to award licenses for services or classes of services subject to competitive bidding: (1) single round sealed bid auctions (either sequential or simultaneous); (2) sequential oral auctions; and (3) simultaneous multiple round auctions. Based on our experience in conducting auctions to date, we believe that we should modify the menu of auction design options from which we may choose to better reflect the range of auction design methodologies that are available. Thus, we are amending Section 1.2103(a) of our rules to specify the auction designs more explicitly and to include the methods of submitting bids from which the Commission will generally choose. Specifically, the menu of competitive bidding designs provided in Section 1.2103(a) is revised to include: (1) simultaneous multiple round auctions, using remote and/or on-site electronic bidding; (2) sequential multiple round auctions, using either oral ascending, remote or on-site electronic bidding; and (3) sequential or simultaneous single round auctions, using either remote and/or on-site electronic bidding, or sealed bids. We also note that under Section 309(j) of the Communications Act, as amended, we continue to have the authority to design and test other auction methodologies such as combinatorial bidding. 7. Timing of auctions. We believe that the public interest would be served by establishing regular quarterly auctions for defaulted licenses or unsold licenses that were previously auctioned and for which there are mutually exclusive applications, services with a small number of licenses, and services in which licenses are expected to have low values. Regular quarterly auctions will ensure the timely award of these licenses by holding a number of small separate auctions at the same time, thus reducing preparation time. In addition, quarterly auctions of defaulted or unsold licenses, in particular, will provide potential bidders with clear guidance regarding when such licenses will be available for bidding by providing a more definite timetable for offering them. We therefore will conduct quarterly auctions in the future, while retaining the discretion to decide in any quarter that an auction will not be held. 8. Application procedures. Section 1.2105(a) of our rules is amended to indicate that an applicant's signature on FCC Form 175 or its electronic submission of this form will serve to certify that the applicant is not in default on any payment for Commission licenses (including down payments) and that it is not delinquent on any non-tax debt owed to any federal agency. In the Competitive Bidding Second Report and Order, we decided that we should require sufficient information on the short-form application to make a determination that "the application is not in violation of Commission rules and that applications not meeting those requirements may be dismissed prior to the competitive bidding." Part of this documentation includes certification that the bidder has the legal, technical, financial, and other qualifications to bid in the auction. The certification we henceforth will require regarding defaulted licenses and delinquent debts to federal agencies will afford additional assurance that the applicant will be able to meet its future obligations by indicating whether it may later be subject to a monetary judgment or collection procedures that may impair its ability to provide service. Bidders who cannot make this certification may be ineligible for installment payment plans. 9. Payment procedures. Section 1.2106(b) of our rules addresses the submission of upfront payments by bidders in an auction. Section 1.2107(b) of our rules addresses submission of down payments by high bidders at the end of the auction. Section 1.2110(e)(1) of our rules addresses down payments made by entities eligible for installment payments. These rules currently allow for submission of payments to the Commission by either wire transfer or cashier's check. Our experience has shown that verification of payments remitted to us by cashier's check is difficult for the FCC to track and reconcile rapidly prior to our auction deadlines. With respect to upfront payments, permitting submission of payment by cashier's check requires the dedication of significant processing time prior to the start of an auction. Delays in verification of down payments slows both the ultimate award of licenses and the eventual delivery of service to the public. Thus, we are amending these rules to require that bidders make their upfront payments and down payments to the Commission by wire transfer, thereby eliminating the option of making payments by cashier's check. We believe that this change will benefit bidders by streamlining administration of the auctions and the ultimate award of licenses. A requirement that bidders remit upfront payments and down payments by wire transfer will result in minimal, if any, extra cost to auction applicants, and any such cost will be far outweighed by the benefit of speeding the auction process and the award of licenses through more rapid and accurate verification of payments. We note that wire transfers are already commonly used by most of our bidders and that this service is widely available to businesses and individuals functioning in the marketplace. 10. To implement Section 1.2110(e)(3) of our rules, the Wireless Telecommunications Bureau (Bureau) has required winning bidders to execute a promissory note and security agreement to participate in installment payment plans. For example, these procedures were used in licensing the Multipoint Distribution Service ("MDS"), 900 MHz Specialized Mobile Radio ("SMR") service, and broadband PCS C block. Consistent with normal commercial and government lending practices, these lending documents memorialize the terms of the installment payment plan and specify government and licensee rights and remedies under the installment payment plan. Section 1.2110(e)(3) is amended to codify this procedure under which all applicants eligible to utilize installment payments execute a promissory note and security agreement as a condition of participating in any installment payment plan that is offered by the FCC. 11. On a related matter, bidders and financial institutions have indicated that our auction rules may prevent commercial lenders and equipment vendors from adequately protecting the loans they make or the credit they extend to auction winners who avail themselves of the installment payment plans. Specifically, parties have requested that we provide automatic grace periods in the event of default under the installment payment plan; implement installment payment plan terms consisting of interest-only payments for the entire term of the license, with a balloon payment at the end of the license term; enter into intercreditor or collateral sharing agreements with other creditors of licensees and/or make the auction payment to the Commission subordinate to the debt of the licensee's financial lenders; not cancel licenses where the licensees are in default of their installment payments and instead allow the license to remain part of the assets to be sold as a "going concern" in a pre-bankruptcy workout; and ease license transfer restrictions to allow for voluntary transfer of licenses to non-designated entities in cases of financial distress. In the Notice of Proposed Rule Making portion of this document, we seek comment on changes to our Part 1 rules with regard to grace periods (see infra Section IV.D.4.b) and installment payment plan terms (see infra Section IV.B.5), and will incorporate these parties' suggestions into the record generated by the Notice. With regard to the remaining concerns, we believe that our auction rules balance in a reasonable, commercial fashion the government's interest in protecting the public's rights to receive full payment for the spectrum bid upon, while granting qualifying entities the ability to pay for licenses through installment payments more generous in terms than any type of loan otherwise available in the marketplace. Our rules and policies are designed to promote private market solutions to capital problems (i.e., licensees and lenders working together toward a satisfactory resolution), and therefore provide adequate mechanisms for entities to attain sufficient debt financing under general market conditions. To the extent that the petitioning parties seek relief outside of what is already provided by the Commission's rules, these requests are denied for the following reasons. 12. First, under current Commission policy, lenders may not be granted direct security interests in FCC licenses. In the auctions context, the Commission has established a first security interest in licenses being financed by it through installment payment plans. Accordingly, Section 1.2110(e)(4)(iii) of our rules provides for cancellation of a license upon default of installment payment obligations. We understand that it is customary in commercial financing to grant lenders security interests in the proceeds of the sale of FCC licenses and Section 1.2110(e) is not intended to impede or adversely affect a licensee's ability to obtain bank or other financing. Accordingly, debtors may grant to other parties a subordinated security interest in the proceeds of an authorized assignment or transfer of the license to a third party, provided however that any such security interest shall be subordinated to and in no way inconsistent with the Commission's security interest in the license. 13. We note, however, that reclaiming a license pursuant to Section 1.2110(e)(4)(iii) is the Commission's remedy of last resort after conclusion of the regulatory processes set forth in Section 1.2110(e). The Commission firmly believes that "[m]arket-oriented solutions to problems of financial distress will often be preferable to the FCC reclaiming and reauctioning licenses." This is particularly true when reclaiming a license would deprive or interrupt service to ongoing end users. Lenders and licensees are free to agree contractually to their own terms regarding situations where the licensee fails to make timely payments under the Commission's installment payment program. As long as there is no transfer of control, we would not become involved in the particulars of a voluntary workout arrangement between licensees and third-party lenders, including lenders' assumption of the licensee's payments to the Commission. Our policies also provide that in the event an installment payment licensee is in default to a third- party lender such that the lender accelerates its loan, the lender can seek a new buyer to replace the defaulted licensee, subject to Commission approval of the transfer. While certain FCC rules contain restrictions on the transfer of licenses acquired through the use of designated entity provisions for the statutory purposes of assuring license dissemination among a wide variety of applicants including designated entities, licensees may request a waiver of such rules. For example, upon a showing, supported by an affidavit, that the licensee is in financial distress, the Commission will consider granting a waiver of the transfer restrictions provided that such transaction is otherwise in the public interest. Under these circumstances, if a license is transferred to an entity that would not qualify for designated entity provisions, or that would qualify for less favorable designated entity provisions, the unjust enrichment provisions set forth in Section 1.2111 of the Commission's rules or service-specific rules would apply. In summary, commercial lenders and equipment vendors have adequate assurances from the Commission that in most situations of financial distress, licenses can be transferred as a "going concern," subject, of course, to the rights of the Commission to the payments of obligations created under the Commission's rules (including unjust enrichment payments), the license conditions, the promissory note, and the security agreement. 14. Payment Dates. Sections 1.2107(b), 1.2109(a), and 1.2110(e) of our rules identify the dates by which each winning bidder is required to make the down payment and final payment on a license. Under these rules, a winning bidder must make its down payment within five (5) business days after being notified that it is a high bidder on a license, and make payment of the balance of its winning bid within five (5) business days following the award of the license. We amend these rules to change the applicable payment period from five (5) business days to ten (10) business days and, consistent with our SMR rules, to change the event triggering the final payment obligation (or in the case of entities eligible for installment payments, the second down payment obligation) from the award of the license to the issuance of a public notice indicating that the Commission is prepared to award the license or authorization. These changes will facilitate a more orderly licensing process and ensure that successful bidders have adequate time to fulfill their payment obligations. Section 1.2109(b) of our rules, which addresses the circumstances in which a bidder will be deemed to have defaulted on its down payment obligations, is also amended to specify ten (10) business days instead of five (5) business days. 15. Definition of "minority". Section 1.2110(b)(2) of our rules defines the term "minority" as "individuals of African American, Hispanic-surnamed, American Eskimo, Aleut, American Indian and Asian American extraction." In the Competitive Bidding Fifth Memorandum Opinion and Order, we revised this definition, for purposes of the broadband PCS rules, to conform with the definition of "minority" used in other contexts. At that time, we noted that the same definitional correction would be made to Section 1.2110(b)(2). To date, we have not made such a correction. Thus, we now revise the definition of "minority" in Section 1.2110(b)(2) to read as follows: "Blacks, Hispanics, American Indians, Alaskan Natives, Asians, and Pacific Islanders." With regard to the meaning of particular categories in the definition, we shall use the same category descriptions the Commission has relied on in other contexts. 16. Delegated authority. We also clarify that pursuant to Section 0.131 of our rules, the Chief, Wireless Telecommunications Bureau, has delegated authority to implement all of the Commission's rules pertaining to auctions procedures. This includes the authority to choose competitive bidding designs and methodologies, such as simultaneous multiple round auctions or oral outcry auctions and remote electronic bidding or on-site bidding; conduct auctions; administer application, payment, license grant and denial procedures; and determine upfront and down payment amounts. We note that the Bureau should, to the extent possible, carry out its duties under this authority through the use of orders, public notices, bidder packages, notices disseminated through the electronic bidding system, and by other reasonable means and with the benefit of public comment where appropriate. We further note that such Bureau actions are subject to review by the full Commission. IV. NOTICE OF PROPOSED RULE MAKING 17. We seek comment on a variety of proposals and tentative conclusions set forth below. In addition, Attachment A consists of a list of the competitive bidding provisions that have been adopted in specific services but not included in our Part 1 rules. We seek comment on whether these provisions should be included in the Part 1 rules and, if so, whether any amendments to these provisions are needed in light of our proposal, discussed below, to apply these general competitive bidding rules to future auctions. A. Applicability of General Competitive Bidding Rules 18. As we have gained experience in conducting auctions, we have found that much of the auction process can be standardized and that establishing service-specific rules for many aspects of the competitive bidding process is unnecessary. We also find that conducting rule makings for each individual service slows down the delivery of service to the public because it may result in regulatory delays before the licensing process begins. Thus, we propose that, to the extent possible, all future auctions be governed by the general competitive bidding rules adopted in this proceeding. We envision that only a limited number of competitive bidding regulations would need to be adopted on a service-specific basis. We seek comment on whether the rules adopted in this proceeding should supersede all existing, service-specific competitive bidding rules for future auctions. We propose that this action would affect all services that are subject to pending proceedings and any services that have existing competitive bidding rules that might apply to licenses that have not yet been auctioned or that must be reauctioned. We seek comment on whether, alternatively, we should phase in the applicability of the revised general competitive bidding rules at a future date, such that, at a minimum, initial auctions may be completed under the existing service-specific rules. In the event we decide not to apply the revised Part 1 rules to supersede existing service-specific auction rules, should we nonetheless subject licenses that are reauctioned (due to defaults or if no winning bidder is otherwise declared) to these revised Part 1 general competitive bidding rules? To the extent that commenters believe that service-specific rules should be maintained, they should explain which ones and why. B. Rules Governing Designated Entities 1. Small Business Size Standards 19. Background. Section 1.2110(b)(1) of our rules states that the Commission "will establish the definition of a small business on a service-specific basis, taking into consideration the characteristics and capital requirements of the particular service." To date, we have defined five different categories of businesses which qualify for special provisions such as bidding credits and installment payment plans. Thus, in various services we have adopted small business definitions based on gross revenues ceilings of $3 million, $15 million, and $40 million. We also established a $75 million gross revenues standard for determining eligibility for installment payment plans in the broadband PCS C and F block auctions. Finally, we established a $125 million gross revenues threshold for determining entrepreneurs' block eligibility in the broadband PCS C and F block auctions. 20. Discussion. We propose to continue our practice of soliciting comment in service- specific rule making proceedings on the appropriate small business size standard, or tiered standards, for each auctionable service. In such rule makings, we would, as we have done in the past and pursuant to Section 1.2110(b)(1), take into consideration the characteristics and capital requirements of each service. We would in all cases, however, for purposes of future auctions, express the definition of small business purely in terms of gross revenues. We further propose that, once the small business definition for any particular service is adopted, the special provisions for which such businesses qualify would be determined by schedules set forth in the general competitive bidding rules. We seek comment on this proposal. 21. We note that some of our eligibility requirements are defined in terms of gross revenues of "less than" a certain amount, rather than "not exceeding" a certain amount. We tentatively conclude that a uniform method of measurement is preferable because it is more equitable and administratively simpler. We therefore propose that when we adopt size standards, those standards should be expressed so as to require businesses to have gross revenues "not to exceed" particular amounts, and that all standards already adopted be modified to conform to this method of defining size. We seek comment on this proposal. We also propose to base all small business size standards on the applicant's average gross revenues over the preceding three years, consistent with the Small Business Act, 15 U.S.C.  632(a). We seek comment on this proposal. 2. Definition of Gross Revenues 22. Background. In some services, eligibility criteria are based on the size of the entity as measured by its gross revenues. For instance, eligibility for small business provisions such as bidding credits and installment payments has been determined based on average gross revenues. Each of our revenue-based size standards has required applicants to calculate their average gross revenues over a certain number of years. In adopting these standards, we reasoned that a gross revenues test was consistent with the approach taken by the U.S. Small Business Administration ("SBA"). Currently, however, our general competitive bidding rules do not define the terms "gross revenues," nor do they indicate how gross revenues should be calculated for purposes of size standards. 23. Discussion. Although our general competitive bidding rules do not define "gross revenues," we have adopted definitions in various services which are generally the same, but contain some distinction regarding use of audited and unaudited financial statements. For instance, our broadband PCS rules define gross revenues as follows: all income received by an entity, whether earned or passive, before any deductions are made for costs of doing business (e.g., cost of goods sold), as evidenced by audited financial statements for the relevant number of most recently completed calendar years or, if audited financial statements were not prepared on a calendar-year basis, for the most recently completed fiscal years preceding the filing of the applicant's short-form (FCC Form 175). If an entity was not in existence for all or part of the relevant period, gross revenues shall be evidenced by the audited financial statements of the entity's predecessor-in-interest or, if there is no identifiable predecessor-in-interest, unaudited financial statements certified by the applicant as accurate. When an applicant does not otherwise use audited financial statements, its gross revenues may be certified by its chief financial officer or its equivalent. In order to promote uniformity of regulations, we propose to use this definition for all size-based determinations for all auctionable services, with the modification that unaudited financial statements used as a basis for gross revenue calculations must be prepared in accordance with Generally Accepted Accounting Principles. This modification should ensure that all gross revenues calculations, audited and unaudited, are prepared consistently. It should also discourage bidders from manipulating unaudited financial statements to gain a competitive bidding or payment advantage. We seek comment on this proposal. 24. We note that in the D, E, and F Block Report and Order we amended our broadband PCS rules to require that an applicant's determination of average gross revenues be based on the three most recently completed fiscal or calendar years. Should we adopt a similar rule for our general auction rules that would extend the same option of using either fiscal or calendar years to applicants in all auctionable services? We also note that prior to the D, E, and F Block Report and Order, broadband PCS applicants were required to state their average gross revenues as supported by audited financial statements or seek a waiver to use unaudited financial statements. This requirement was simplified in the D, E, and F Block Report and Order to permit the use of unaudited financial statements without seeking a waiver. We seek comment on whether our general definition of gross revenue should similarly allow the use of unaudited financial statements. 3. Attribution of Gross Revenues of Investors and Affiliates 25. Background. In determining whether an applicant meets certain size-based eligibility requirements, many of our service-specific competitive bidding rules require us to consider, inter alia, the gross revenues of certain investors in the applicant and the affiliates of attributable investors. "Affiliate" is defined by our general auction rules as an individual or entity that directly or indirectly controls or has the power to control the applicant; is directly or indirectly controlled by the applicant; is directly or indirectly controlled by a third person(s) that also controls or has the power to control the applicant; or has an "identity of interest" with the applicant. Some service-specific rules have adopted alternative definitions of "affiliate." 26. An "attributable" investor for purposes of size determinations has been defined differently in the rules for different services. In narrowband PCS, for example, a "control group" standard applies. Under this standard, the gross revenues and affiliations of an investor in the applicant are not considered so long as the investor holds 25 percent or less of the applicant's passive equity and is not a member of the applicant's control group, and the control group holds at least 25 percent of the applicant's equity. Size standards in the broadband PCS entrepreneurs' block auctions include a 25 percent equity option and a 49.9 percent equity option. Under the 25 percent equity option, the gross revenues and total assets of a person or entity that holds an interest in the applicant or licensee, and its affiliates, are not considered so long as such person or entity holds only non-attributable equity equaling no more than 25 percent of the applicant's or licensee's total equity and is not a member of the applicant's or licensee's control group, and the applicant or licensee has a control group that complies with certain minimum equity and ownership requirements. Under the 49.9 percent equity option, the gross revenues and total assets of a person or entity that holds an interest in the applicant or licensee, and its affiliates, are not considered so long as such person or entity holds only non-attributable equity equaling no more than 49.9 percent of the applicant's or licensee's total equity and is not a member of the applicant's or licensee's control group, and the applicant or licensee has a control group that complies with certain minimum equity and ownership requirements. 27. In the 900 MHz SMR service, in determining whether an applicant qualifies as a small business, we attribute the revenues of parties holding 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 the applicant in conformance with the spectrum cap attribution standard. Our MDS rules, in contrast, attribute the gross revenues of the applicant and all its affiliates (as defined at 47 C.F.R.  1.2110(b)(4)) to the applicant. Our general competitive bidding rules do not contain size attribution provisions other than affiliation rules. 28. Discussion. We propose to adopt a uniform approach to financial size attribution for all auctionable services. Rather than the "control group" structure used in broadband and narrowband PCS, we propose to use a controlling interest threshold to determine whether an entity qualifies to bid as a small business. Thus, in calculating gross revenues, we would include the gross revenues of the controlling principals of the applicants and their affiliates, with the term "control" including both de jure and de facto control of the applicant. We tentatively conclude that this standard, which we recently adopted in our IVDS rules, would simplify our size attribution rules and still enable small businesses to attract adequate financing. We seek comment on this proposal. 29. We also seek comment on whether we should change our definition of affiliate. Should we, for example, amend our definition of affiliate to provide an exception for Indian tribes, Alaska Regional or Village Corporations, as we did for broadband PCS? Also, we note that, earlier this year, the Small Business Administration amended and simplified its regulations governing the small business size standards in 13 C.F.R. Part 121, including amendment of its definition of "affiliate". We seek comment on whether we should amend our rules to provide a similar "affiliate" definition, which would include, for example, the following general principles of affiliation: (1) concerns are affiliates of each other when one concern controls or has the power to control the other, or a third party or parties controls or has power to control both; and (2) factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, will be considered in determining whether an affiliation exists. 4. Definition of Rural Telephone Company 30. Background. Our current Part 1 rules define "rural telephone company" (or "rural telco") as any local exchange carrier, including affiliates, with 100,000 access lines or fewer. We noted at the time this definition was adopted that it comported with the definition that had been adopted for broadband PCS. More recently, however, the Commission revised the definition of rural telephone company contained in our broadband PCS rules to conform with that contained in the Telecommunications Act of 1996 ("1996 Act"). In taking that action, we stated that using the definition contained in the 1996 Act would likely expedite the delivery of advanced services to rural areas. We also noted that adopting the 1996 Act definition would promote uniformity of regulations and is therefore consistent with the mandate of that legislation to ease regulatory burdens and eliminate unnecessary regulation. 31. Discussion. We tentatively conclude that the definition of rural telco set forth in the 1996 Act should apply to all auctionable services as the term is used in Section 309(j) of the Communications Act. Thus, Section 1.2110(b)(3) would be amended so as to define the term "rural telephone company" as a local exchange carrier operating entity to the extent that such entity -- (A) provides common carrier service to any local exchange carrier study area that does not include either (i) any incorporated place of 10,000 inhabitants or more, or any part thereof, based on the most recently available population statistics of the Bureau of the Census, or (ii) any territory, incorporated or unincorporated, included in an urbanized area, as defined by the Bureau of the Census as of August 10, 1993; (B) provides telephone exchange service, including exchange access, to fewer than 50,000 access lines; (C) provides telephone exchange service to any local exchange carrier study area with fewer than 100,000 access lines; or (D) has less than 15 percent of its access lines in communities of more than 50,000 on the date of enactment of the Telecommunications Act of 1996. As we noted in the D, E, and F Block Report and Order, we believe adopting this definition in our Part 1 general auction rules will promote uniformity of regulations. We seek comment on this tentative conclusion. 5. Installment Payments 32. Background. Since the Commission began conducting spectrum auctions, installment payments have been utilized as a means of assisting small entities that are likely to have difficulty obtaining adequate private financing. Thus, our general competitive bidding rules currently allow small businesses and other entities determined to be eligible on a service- specific basis to pay a substantial amount of their high bids in installments over the term of their licenses. Pursuant to our Part 1 rules, unless otherwise specified, such installment payment plans (1) impose interest based on the rate of U.S. Treasury obligations at the time of licensing, plus a possible premium (2) allow installment payments for the full license term, (3) begin with interest-only payments for the first two years, and (4) amortize principal and interest over the remaining term of the license. Additionally, winning bidders are required to execute a promissory note and security agreement as a condition to participate in the installment payment plan. In the Second Report and Order, we determined that this framework for establishing installment payment plans would be an effective way to promote the participation of small businesses in the provision of spectrum-based telecommunications services and an effective tool for efficiently distributing licenses and services among geographic areas. 33. Changes in the basic framework of our installment payment plans have been made in specific services as we have gained experience from implementing our rules. In certain services the Commission has adopted "tiered" installment payment plans, which vary in terms of interest rate and payment terms, depending on the size of the licensee. For 900 MHz SMR, for example, we adopted a two-tiered installment payment plan structure. Entities with average gross revenues of not more than $3 million over the three preceding years may make interest-only payments for five years, with interest accruing at the Treasury note rate. Entities with average gross revenues of not more than $15 million over the three preceding years may make interest- only payments for the first two years of the license term, with interest accruing at the Treasury note rate plus an additional 2.5 percent. We also adopted a three-tiered installment payment plan structure for the broadband PCS C and F blocks. We determined that the tiered plans would broaden the scope of opportunities for small businesses. 34. Discussion. Small businesses have been successful in the auctions in which installment payments plans were offered. These plans coupled with bidding credits, we believe, have resulted in new opportunities for small businesses to offer spectrum based services. In broadband PCS, installment payment plans were also provided to benefit entities larger than small businesses, entrepreneurs, because of the capital-intensive nature of the service. While we seek to continue to offer these opportunities to small businesses, and possibly other entities, we seek comment on ways that we could refine our installment payment plans to streamline without reducing their benefit to small businesses. For example, we seek comment on whether the Commission or its designee should seek non-resource intensive means to screen applicants applying for installment payment plans to determine their credit worthiness, and if so, whether all bidders eligible for installment payments should be screened before the start of an auction, or only auction winners. If we were to adopt such screening, what information or standards should serve as criteria for judging a bidder's credit worthiness? Further, we seek comment on whether we should offer higher bidding credits in lieu of installment payments for winning bidders who qualify. We note that substituting a system of larger bidding credits might eliminate the administrative and market concerns associated with installment payments, while nonetheless ensuring opportunities for small businesses to participate in auctions. On the other hand, however, installment payment plans have been a useful tool for small businesses to access capital. 35. As an alternative to offering higher bidding credits in lieu of installment payments, we seek comment on whether we should require larger down payments, such as 30 or 40 percent, to reduce the amount of a bidder's high bid that is financed by the federal government. Increasing the amount of money a bidder has at stake in the event of a default may reduce the likelihood of default and will reduce the government's risk in the event of default. We also seek comment on whether we could achieve the same goal of reducing the likelihood of default by adopting a requirement that bidders increase their upfront payment during the course of the auction once their cumulative high bids exceed their upfront payment by some multiple. For example, once a bidder's cumulative bids were more than twenty-five times its upfront payment, it would be required to deposit additional funds with the Commission. We seek comment on this proposal and how it could be implemented, including the appropriate multiplier used to trigger the supplemental upfront payment obligation. 36. In addition, we propose that our general competitive bidding rules be amended to include a schedule of installment payment plans for designated entities seeking to participate in the provision of spectrum-based services. Defining available installment payment plans in our general competitive bidding rules would give potential bidders more certainty about the special provisions available to small businesses and other entities and promote uniformity of regulation. As discussed above, we believe that once a small business definition is adopted for a particular service, or other entities are identified as qualifying for installment payments, eligible businesses should be able to turn to our Part 1 rules to determine the specific terms available to them. The following schedule of installment payment plans is a possible approach to implementing this concept. Average gross revenues Interest Rate Payment Terms Not to exceed $3 million T-note rate 2 yrs. interest-only payments; amortize principal and interest over remaining license term Not to exceed $15 million T-note rate + 1.5% 2 yrs. interest-only payments; amortize principal and interest over remaining license term Not to exceed $40 million T-note rate + 2.5% 2 yrs. interest-only payments; amortize principal and interest over remaining license term *Not to exceed $75 million T-note rate + 2.5% amortize principal and interest over license term *Not to exceed $125 million T-note rate + 3.5% amortize principal and interest over license term *These entities have never been defined as small businesses by our service-specific rules, but for broadband PCS they may have been eligible for installment payments as entrepreneurs. The schedule set forth above is based in general on the plans adopted for our most recent auctions and, relying on our past auction experience, we believe these plans are appropriate. However, we recognize that plans with more generous terms were previously adopted for specific services. We seek comment on whether we should incorporate a schedule of installment payments into our general auction rules while still retaining the authority to modify payment terms on a service-specific basis. Further, we seek comment on the appropriate schedule of payment terms. 37. Section 1.2110(e)(3)(i) of our rules indicates that the interest rate on installment payments will be the interest rate on Treasury obligations with maturities closest to the duration of the license term at the time of licensing. More precisely, the interest rate is established by using the coupon interest rate for Treasury notes with similar maturities, at the most recent preceding Treasury auction. We note that, in the Competitive Bidding Second Report and Order, we indicated both that we agreed with those commenters that suggested that interest on installments should be charged at a rate no higher than the government's cost of money and also that the interest rate imposed for installment payments should be equal to the rate for U.S. Treasury obligations of maturity equal to the license term. We recognize that determining the interest rate for installment payment plans pursuant to Section 1.2110(e)(3)(i) may not always reflect the government's cost of money but it provides an objective benchmark for the interest rate determination. We believe that it would be beneficial to licensees for us to more clearly identify in our rules how the interest rate would be determined for all installment payment plans. We recognize that licensees must prepare business plans in conjunction with seeking capital from investors and lenders, and that a principal component of their total expenses is interest expense. We believe that providing certainty will enhance the ability of licensees to obtain financing by eliminating an investor's concern about fluctuating interest rates. Therefore, we propose to codify our existing policy by specifying that the interest rate for installment payments will be determined by taking the coupon rate of interest offered in the most recent Treasury auction preceding the close of the Commission's auction. We seek comment on this proposal. Further, we seek comment on whether we should adopt some other basis for computing interest. For example, should we establish more market-based interest rates with a cost of funds component and a premium for credit risk? If so, we ask commenters to discuss how we should determine the appropriate interest premium. 38. Where we use installment payment plans, we propose to set the interest rate for such payment plans on the date that the Public Notice is issued announcing the close of the auction and the winning bidders, based on rates established in the most recent Treasury auction with obligation of the appropriate term. Currently, Section 1.2110(e)(3)(i) of the Commission's general competitive bidding rules requires that the Commission impose interest based on the rate of U.S. Treasury obligations at the time of licensing. We tentatively conclude, however, that establishing the interest rate on the day that the Public Notice is released announcing the close of the auction is the most appropriate time for both licensees and the Commission. The close of the auction represents the most clearly identifiable time when an obligation to the Commission and the United States Treasury is established. At that time bidders' financial obligations for the license(s) won are confirmed, and there is no need to defer establishment of the interest rate. Establishing the interest rate in this way also provides a uniform date on which the interest rate for all prospective licensees within a particular service is established, regardless of petitions to deny or other delays that may vary among bidders. In addition, we believe that establishing the interest rate at a date earlier than the date of licensing would assist bidders in efforts to obtain financing, as interest expense would be calculable from a specific known date. Furthermore, we believe that establishing the interest rate as we propose would reduce the interest rate risk to the bidder and mitigate this risk to the capital investor. While our review of the rate patterns for 10- year U.S. Treasury obligations indicates that there is minimal volatility in the 10-year Treasury rate, interest rate fluctuations between the close of an auction and the date of licensing are just as likely to adversely impact the Commission as they are to adversely impact the licensees and/or their capital investors. Establishing the interest rate earlier than the point of licensing would also permit the licensee to receive, review, and return the necessary note and security agreement earlier, which would also speed the licensing process. This, in turn, should hasten the development of service to the marketplace. Alternatively, we could establish the interest rate for the installment payment plan in the Public Notice announcing the start of the auction, with the rate based on the most current Treasury rate on that date. This would enable both bidders and potential capital investors to better assess a bidder's prospective financial obligations during the auction. We seek comment on each of our proposals, tentative conclusions, and alternatives. 6. Bidding Credits 39. Background. Under the current general competitive bidding rules, the Commission may award bidding credits (i.e., payment discounts) to eligible designated entities. These general rules also provide that service-specific rules will specify the designated entities eligible for bidding credits, the licenses for which bidding credits are available, the amounts of bidding credits, and other procedures. Accordingly, the Commission has adopted separate rules governing bidding credits for various auctionable services. 40. Discussion. As with installment payments, we believe that our general competitive bidding rules should be amended so that the levels of available bidding credits are defined, and are uniform for all auctionable services. We believe such an approach will be beneficial because potential bidders will have more information well in advance of the auction than they currently do about how such levels will be set. We believe that, once a small business definition is adopted for a particular service, eligible businesses should be able to refer to our Part 1 rules to determine the level of bidding credit available to them. The following schedule is a possible approach to implementing this concept. Average Annual Gross Revenues Bidding Credits Not to exceed $3 million 25% Not to exceed $15 million 15% Not to exceed $40 million 10% We recognize that these credits may differ from those previously adopted for specific services. Based on our past auction experience, however, we believe that the approach taken here would provide adequate opportunities for small businesses of varying sizes to participate in spectrum auctions. In addition, we believe that providing slightly less generous bidding credits for larger businesses (e.g., those businesses with gross revenues not exceeding $40 million) would more specifically tailor the amount of the credit to the needs of the particular applicant. We seek comment on this schedule, and we also ask interested parties to suggest alternatives. For example, does the demand for capital to implement certain services justify including businesses with average annual gross revenues exceeding $40 million on this schedule? We recognize that we have suggested that it might be appropriate in some cases to provide larger bidding credits in lieu of installment payments. We are aware that in developing their auction strategy, bidders make calculations about the net present value of their bids and factor in their ability to obtain financing. Therefore, the same net effect can be achieved by giving either higher bidding credits or more generous installment payment terms. If we limited the use of installment payments, how should that action affect levels of bidding credits? 7. Unjust Enrichment 41. Background. Under our general competitive bidding rules, a licensee seeking Commission approval of a transfer of control or an assignment of a license acquired through the competitive bidding process utilizing installment payments is required to pay the remaining principal balance as a condition of the transfer. No payment is required, however, when the proposed transferee or assignee is qualified to obtain the same installment financing and assumes the applicant's installment payment obligations. Many of our service-specific auction rules include similar provisions. However, some service-specific unjust enrichment provisions for installment payments contain certain variations from the general rule set forth in Part 1. The broadband PCS unjust enrichment rule, for example, specifies that applicants seeking to assign or transfer control of a license to an entity not meeting the eligibility standards for installment payments must pay not only unpaid principal as a condition of Commission approval but also any unpaid interest accrued through the date of assignment or transfer. This rule also provides that if a licensee utilizing installment financing seeks to make any change in its ownership structure that would result in the loss of eligibility for installment payments, it must pay the unpaid principal and accrued interest as a condition of Commission approval of the change. Finally, in recognition of the tiered installment payment plans offered to broadband PCS licensees, the rule provides that if a licensee seeks to make any change in ownership that would result in the licensee qualifying for a less favorable installment plan, it must seek Commission approval and adjust its payment plan to reflect its new eligibility status. A licensee, under this rule, may not switch its payment plan to a more favorable plan. 42. Under our general competitive bidding rules, a licensee seeking Commission approval of a transfer of control or an assignment of a license acquired through the competitive bidding process utilizing bidding credits, or proposing to take any other action relating to ownership or control that will result in loss of eligibility for such bidding credits, is required to pay the sum of the amount of the bidding credit plus interest as a condition of FCC approval. Under our broadband PCS rules, if, within the original term, a licensee applies to assign or transfer control of a license to an entity that is eligible for a lower bidding credit, the difference between the bidding credit obtained by the assigning party and the bidding credit for which the acquiring party would qualify must be paid to the United States Treasury as a condition of approval of the assignment or transfer. 43. Discussion. We propose to amend our general unjust enrichment rules to conform them to our broadband PCS rules. We believe that these rules are preferable to our current general unjust enrichment rules because they provide greater specificity about funds due at the time of transfer or assignment and specifically address changes in ownership that would result in loss of eligibility for installment payments, which the current general rules do not address. The broadband PCS rules also address assignments and transfers between entities qualifying for different tiers of installment payments or bidding credits, thus supplying clearer guidance for auctions in which tiered installment payment plans or bidding credits are provided. We seek comment on this proposal. Further, we seek comment on whether we should adopt an unjust enrichment provision that provides a scale of decreasing payment liability based on the number of years a license is held as we have recently done for other services. For example, should we adopt a rule that provides that a business that holds a license that it obtained with a bidding credit must pay back 60 percent of its bidding credit if it transfers the license after five years; 50 percent after eight years; 40 percent after nine years; and 20 percent after ten years? We also solicit comment on unjust enrichment rules as they apply to partitioning and disaggregation. If we decide to adopt partitioning and disaggregation for various services, how should the unjust enrichment rules apply when the partitioner or disaggregator is the recipient of a bidding credit or is paying on an installment payment plan? Should we adopt for all auctionable services the same provisions that we adopted for broadband PCS? C. Application Issues 1. Electronic Filing 44. Background. In recent auctions, we have allowed applicants to file their applications either manually or electronically. Required exhibits to short-form and long-form applications that were filed manually must be submitted on a 3.5 inch diskette in ASCII text (.txt) format. Only applicants in these auctions that have filed their short-form applications electronically have been allowed to bid electronically from remote locations. Those filing manually have been permitted to bid only telephonically. 45. Discussion. We believe that requiring all applications to be filed electronically is in the best interest of auction participants as well as members of the public interested in monitoring Commission auctions. The Commission has developed user-friendly electronic filing software and Internet World Wide Web forms to give auction applicants the ability to conveniently file and review applications. This software helps applicants ensure the accuracy of their applications as they are filling them out, and enables them to correct errors and omissions prior to submitting their applications. To assist the public, we provide technical support personnel to answer questions and work with callers installing software and using the electronic auction system. Electronic filing also promotes access to applications by competing bidders as well as the general public by making it possible to review and download applications without travelling to FCC headquarters or arranging with a contractor for photocopying of paper applications. We note that in the recently completed broadband PCS D, E, and F block auction 94 percent (135 of 153) of the qualified bidders filed their short-form applications electronically. 46. We therefore tentatively conclude to amend Sections 1.2105(a) and 1.2107(c) of our rules to require that all short-form and long-form applications be filed electronically beginning January 1, 1998. We recognize that there is a need for a period of time before a comprehensive electronic filing requirement becomes effective in order for bidders to prepare and be completely comfortable with this process. We believe that the effective date proposed here will provide potential bidders with adequate time in which to adapt to electronic filing requirements. We note that a phase-in period is similar to the approach taken by the Securities and Exchange Commission when it eliminated paper financial filings. We seek comment on this tentative conclusion. 2. Short-form Application Amendments 47. Background. Section 1.2105(b) of our rules addresses modifications and amendments to FCC Form 175. Specifically, Section 1.2105(b)(2) provides that bidders may make minor changes or correct minor errors in the FCC Form 175 application, but major amendments may not be submitted after the initial application deadline. This section further provides that the Commission will classify all amendments as major or minor pursuant to service-specific rules. 48. Discussion. We propose to amend our general auction rules to define major amendments to FCC Form 175 uniformly for all auctionable services. We propose at a minimum to consider any change in ownership that constitutes a change in control to be a major amendment. We also propose to consider application amendments that show a change in an applicant's size which would affect its eligibility for small business provisions to be a major amendment. We also seek comment on which other kinds of changes should be deemed major, and which should be deemed minor. For example, how should we treat changes to the licenses selected in simultaneous multiple round auctions? In previous auctions, applicants have claimed that they made mistakes in their license selection and have requested that the Commission allow them to add or delete license selections during the resubmission period. While the Commission has generally refused to grant these requests in order to prevent collusive conduct or gaming that would reduce the competitiveness of the auction, there may be some circumstances in which the competitiveness of the auction might be enhanced by allowing applicants to add licenses to their FCC Form 175 applications. We therefore ask commenters to consider whether an amendment to add licenses should be permissible as a minor amendment. If so, we also ask whether such an amendment should be permitted only until the deadline for submitting upfront payments, because after that point the risks of gaming in the auction increase due to the availability of information concerning each bidder's eligibility. For example, should an applicant be permitted to add a license designation to its short-form application only if that license already has been designated by two or more applicants? We seek comment on each of these proposals. 3. Ownership Disclosure Requirements 49. Background. Currently, our general competitive bidding rules do not set forth any ownership disclosure requirements for auction applicants on their short-form applications. Our service-specific rules, however, require varying degrees of specific ownership information from applicants. For example, in the 900 MHz SMR auction, applicants claiming small business status were required to disclose on their short-form application the names of each affiliate and a gross revenues calculation. On their long-form application, they were required to disclose an additional gross revenues calculation, any agreements that support small business status, and any investor protection agreements. 50. Both our narrowband PCS and broadband PCS rules require detailed ownership disclosure from all auction applicants that differ from each other and from the 900 MHz SMR requirement. Rules for narrowband and broadband PCS also state additional requirements for applicants claiming designated entity status. On both the short- and long-form applications for narrowband PCS, applicants must submit a list of (1) any business five percent or more whose stock, warrants, options, or debt securities are owned by the applicant, (2) any business which holds a five percent or more interest in the applicant or any business in which a five percent or more interest is held by another company which holds a five percent interest in the applicant, (3) entities holding a five percent or more interest in the applicant, and (4) partners in a partnership. Short-form applicants claiming designated entity status also are required to list all control group members and provide a calculation of gross revenues and personal net worth. Although the broadband PCS requirements are very similar to those for narrowband PCS, we have recently amended the broadband PCS application requirements to make them less burdensome on applicants. Thus, broadband PCS applicants are required to disclose on both short-form and long-form applications a list of (1) any business, holding or applying for CMRS or PMRS licenses, five percent or more of whose stock, warrants, options or debt securities are owned by the applicant, (2) any party which holds a five percent or more interest in the applicant, or any entity holding or applying for CMRS or PMRS licenses in which a five percent or more interest is held by another party which holds a five percent or more interest in the applicant, (3) any person holding five percent or more of each class of stock, warrants, options, or debt securities, and (4) in the case of partnerships, the name and address of each partner. Broadband PCS applicants that claim designated entity status must also identify control group members and provide net asset and gross revenues figures. This information was necessary at the short-form stage for the C and F blocks because participation in these blocks was limited to entities below a net asset and gross revenue threshold. 51. Discussion. We continue to believe that detailed ownership information is necessary to ensure that applicants claiming designated entity status in fact qualify for such status, and to ensure compliance with spectrum caps and other ownership limits. Disclosure of ownership information also aids bidders by providing them with information about their auction competitors and alerting them to entities subject to our anti-collusion rules. A standard disclosure requirement, however, would avoid the variation and possible inconsistency found in our current service-specific ownership disclosure requirement. Thus, we seek comment on whether we should adopt standard ownership disclosure requirements for all auctionable services that are similar to our current rules for broadband PCS. We also seek comment on what ownership information should be required. Finally, we ask commenters to address whether ownership disclosure should vary depending on whether an applicant is applying for special provisions, such as bidding credits or installment payments. 52. In addition, we also propose to adopt a uniform reporting requirement for all applicants claiming designated entity status. Specifically, we propose to adopt a reporting requirement similar to that in the 900 MHz SMR rules. That rule, unlike the broadband PCS rule, focuses on affiliates and their gross revenues rather than more complex control group equity structures. In keeping with our proposal to adopt the simpler controlling principals and affiliates test, we propose an analogous reporting requirement. Therefore, we propose that applicants claiming small business status be required to disclose on their short-form application the names of each controlling principal and affiliate and gross revenues calculations for each. On their long-form applications, they would be required to disclose any additional gross revenues calculations, any agreements that support small business status, and any investor protection agreements. We seek comment on this proposal. 4. Ownership Disclosure Filings 53. Background. Currently, the Commission's ownership disclosure rules require applicants to file specific ownership information, in conjunction with their FCC Form 175, prior to each auction. Similarly, at the close of each auction, winning bidders are required to file ownership information on each long-form application. 54. Discussion. We believe that by requiring these ownership disclosure filings, we ensure that we receive all the information necessary to evaluate an applicant's qualifications. We note, however, that these requirements could result in duplicative filings. For example, where licenses for a service are offered in a series of blocks, as in the case of broadband PCS, an entity may wish to participate in several auctions. Under our rules, such an entity would be required to disclose the same information a number of times. In order to streamline the application procedure at both the short-form and long-form stage, we request comment on whether we should create a central database of licensee and bidder data, which would allow bidders to avoid repeating ownership information in each application in each auction. We tentatively conclude that applicants should be able to file ownership information to apply for the first auction in which they participate and that this information should then be stored in a central database which subsequently would be updated each time applicants participate in another auction. After applying for its first auction, an applicant filing for a subsequent auction would either update the ownership information in the database, or rely on the information in the database and certify that there have been no changes. We believe this approach would benefit auction applicants by reducing the time spent preparing auction applications, and it would benefit the Commission by eliminating the need to review and analyze duplicative filings. We seek comment on this approach to ownership disclosure. 5. Audits 55. Under our broadband PCS rules, we have reserved the right to conduct random audits of applicants and licensees in order to verify information provided regarding their eligibility for certain special provisions. Such entities certify their consent to audits on their short-form applications. We propose to explicitly reserve this right for all auctionable services. We seek comment on this proposal. D. Payment Issues 1. Refund of Upfront Payments 56. Background. Section 309(j)(8)(C) of the Communications Act as amended by the Telecommunications Act of 1996, requires that any deposits the Commission may require for the qualification of any person to bid in an auction shall be deposited into an interest bearing account. The Communications Act further requires that within 45 days of the auction's conclusion, the deposits of successful bidders shall be paid to the Treasury, the deposits of unsuccessful bidders shall be returned, and all accrued interest shall be transferred to the Telecommunications Development Fund. Prior to the enactment of this provision, auction deposits were submitted to a non-interest bearing account with the Department of Treasury. Bidders who completely withdrew prior to the close of the auction could, upon written request, receive a refund of their upfront payments prior to the close of the auction. 57. Discussion. It is unclear whether Congress intended, by enacting this new law, to require the Commission to change its practice of refunding upfront payments to bidders who withdraw during the course of an auction. We believe that our current practice of returning the upfront payments of bidders who have completely withdrawn prior to the conclusion of competitive bidding is in the public interest as it prevents unnecessary encumbrances on the funds of auction bidders, many of whom may be small businesses, after they have withdrawn from the auction. We seek comment on this practice and whether it is consistent with the Communications Act. 2. Down Payments a. Levels of Payments 58. Background. We determined in the Competitive Bidding Second Report and Orderthat, upon the conclusion of the auction, a bidder must tender a significant and non-refundable down payment to the Commission over and above its upfront payment in order to provide further assurance that the winning bidder will be able to pay the full amount of its winning bid. We thus required that, within five business days after being notified that it is a high bidder on a particular license, a high bidder must submit to the Commission additional funds as are necessary to bring its total deposits up to 20 percent of its high bid(s). 59. Discussion. In the Order accompanying this Notice, we modified the due date for down payments to ten business days after the issuance of a Public Notice announcing winning bidders. Also we note that Bureau practice is to mail this Public Notice to winning bidders but that this does not relieve bidders of their obligation to obtain relevant public notices. In this Notice, we propose to retain discretion to determine the down payment amount required for each service and delegate authority to the Bureau to announce this amount in a Public Notice to be issued prior to the start of the auction. In exercising this authority, as discussed above, the Bureau will seek input from the public. We continue to believe that a substantial down payment is needed to ensure that licensees have the financial capability to attract the capital necessary to deploy and operate their systems, and to protect against default. We believe that giving the Bureau the discretion to determine the level of down payments for each auction would be the best way to ensure that such levels remain appropriate for developing and evolving industries. We seek comment on this proposal. We also seek comment on whether the level of down payments which we have used in the past should be raised for some services. b. Late Fee 60. Background. Section 1.2109(a) of the Commission's rules provides that auction winners not eligible for installment payments are generally required to make final payment on their license(s) within a certain time following award of the license(s). Section 1.2110(e) of the Commission's rules provides that all winning bidders eligible for installment payments are required to submit a second down payment within a certain time of the license grant. These payment deadlines are announced by public notice when the Commission has granted or is prepared to grant the license(s). Where a winning bidder fails to make its final auction payment for the balance of its winning bid or fails to make the second down payment in a timely manner, it is considered in default on its license(s) and subject to the applicable default payments. In past auctions, there have been cases where a winning bidder applicant missed the applicable second down payment deadline but subsequently made its down payment and filed a request seeking a waiver of the deadline. In some of these cases, the Bureau granted the waivers, subject to payment of a five percent late fee. In granting the waivers, the Bureau recognized the licensee's good faith and ability to pay as evidenced by it timely remittance of all earlier payments and prompt action to cure the delinquency. 61. Discussion. We continue to believe that the strict enforcement of payment deadlines preserves the integrity of the auction and licensing process by ensuring that applicants have the necessary financial qualifications. In this connection, we believe that the bona fide ability to pay demonstrated by a timely first down payment is essential to a fair and efficient auction process and, thus, we do not propose to modify our approach of requiring timely submission of first down payments. We nonetheless recognize that applicants may encounter certain difficulties when trying to arrange financing and make substantial payments under strict deadlines. In circumstances which may warrant favorable consideration of a waiver request or an extension of the payment date, we must also evaluate the fairness to other licensees who made their payment in a timely fashion. Accordingly, we propose to allow winning bidders to make their final payments or second down payments within a short period after the applicable deadline, provided that they also pay a late fee. We believe that, by committing substantial capital to their license acquisition in the form of an initial down payment, winning bidders have demonstrated a bona fide interest in becoming a licensee, but have also incurred a substantial debt to the federal government. We, therefore, seek comment on the appropriate time period to allow late second down payments and final payments. We believe that the late payment period should be short (e.g., no longer than 10 business days). We tentatively conclude that, if a winning bidder misses the final payment or second down payment deadline and also fails to remit the required payment (plus the applicable late fee) by the end of the late payment period, it would be declared in default and subject to the applicable default payments. We seek comment on this tentative conclusion. 62. Additionally, we seek comment on the appropriate fee to impose for late payment. Because we believe that the late payment fee should be large enough to deter winning bidders from making late payments and yet small enough so as not to be punitive, we tentatively conclude that a late payment of five percent of the amount due is consistent with general commercial practice and provides some recompense to the federal government for the delay and administrative or other costs incurred. We seek comment on this proposal and ask that commenters proposing alternative late payment fee(s) provide a rationale for the alternative fee amount(s). 63. This proposal to allow late payments is limited to payments owed by winning bidders that have had their licenses conditionally granted or where the license grant is imminent. As indicated above, we do not propose to adopt a late payment period for initial down payments that are due soon after the close of the auction. We believe it is reasonable to expect that winning bidders timely remit their initial down payments, given that is their first opportunity to demonstrate to the Commission their ability to make payments towards the licenses of interest to them. Further, if a winning bidder defaults on its initial down payment on a license, the Commission can take action under Section 1.2109(b) relatively soon after the auction has closed, by, for example, re-auctioning the license or offering it to the other highest bidders (in descending order) at their final bids. Similarly, we do not propose to allow any late submission of upfront payments. Allowing late submission of upfront payments would slow down the licensing process by delaying the start of an auction. c. Second Down Payments 64. Background. Under our current rules, winning bidders that are designated entities are not required to pay their second down payment until petitions to deny filed against them are dismissed or denied. In the interim, designated entity winning bidders for the same auction with no petitions filed against them are required to submit their second down payments earlier because their licenses are ready for grant. 65. Discussion. We seek comment on whether we should require all designated entities that win licenses to make their second down payments at the same time. If so, one way to implement this would be for winning bidders who have petitions to deny pending against them to submit their second down payments to the Commission to be deposited into an escrow account. If the petitions to deny are granted, the bidder would be refunded the amount of the second down payment subject to any default payments owed the Commission. If the petitions to deny are dismissed or denied, the funds would be transferred from the escrow account and applied to the balance owed by the licensee. This procedure would have the effect of ensuring that all designated entities pay their down payments in a uniform fashion, thus, reducing any potential inequities that could result from differing payment dates. It would also avoid requiring a bidder with petitioned and non-petitioned licenses to make several payments to the Commission. We seek comment, however, on whether this procedure would affect the ability of bidders that are subject to petitions to deny to access capital to make their down payments. We also seek comment on whether all non-designated entities should be required to make payment in full at the same time for the same reasons discussed in connection with designated entities. 3. Default Payments 66. Background. Section 1.2104(g) of our rules provides that when a bidder withdraws, defaults, or is otherwise disqualified from a simultaneous multiple round auction, upfront and/or down payment amounts that the bidder has on deposit with the Commission will be applied first to the bid withdrawal and default payments owed the Commission. This rule has been interpreted to encompass upfront and/or down payment funds a bidder has on deposit for licenses won at the same auction. 67. Discussion. We propose to delete the language "simultaneous multiple round" from Section 1.2104(g) of our rules because we believe that it should apply to other auction designs with equal force as it does to a simultaneous multiple round auction. We believe strict rules regarding default payments will discourage insincere bidding, maintain the integrity of the auction and ensure that licenses end up in the hands of those parties that value them the most and have the financial capacity to provide service. We seek comment on this proposal. 68. In the Competitive Bidding Fifth Report and Order, the Commission provided that, where the default payment cannot be determined at the time of default by a broadband PCS licensee (e.g. because the license has not yet been reauctioned), the Commission can obtain a deposit on the default payment to be held on deposit until such time as the final default obligation can be determined. This deposit is held by the Commission until the final default payment can be established and is paid. The purpose of this provision is to maintain the integrity of the auction by discouraging defaults on the part of bidders, encouraging bidders to make secondary or back-up financial arrangements, and ensuring that default payments are made in a timely manner. We propose to modify our rules to provide for a similar default deposit for all auctionable services of at least three percent (3%) of the defaulted bid amount. We seek comment on this proposal. 4. Installment Payments a. Late Payments 69. Background. For the broadband PCS F block auction, we amended the terms of the installment payment plans to provide for late payment fees. Thus, when licensees are late in their scheduled installment payments, the Commission will charge a late payment fee equal to five percent (5%) of the amount of the past due payment. We instituted this fee because we concluded that, without it, licensees may not have adequate financial incentives to make installment payments on time and may attempt to maximize their cash flow at the government's expense by paying late. 70. Discussion. We seek comment on whether we should adopt, for all auctionable services, a late payment fee on any installment payment that is overdue. The late fee could be set, for example, at a rate that is equal to five percent (5%) of the overdue payment. Thus, if a $50,000 payment were due on June 30, an additional $2,500 late payment fee would be due on July 1. Such payment would accrue on the next business day following the payment due date and would be payable with the next quarterly installment payment obligation. This fee would be assessed for each quarterly payment submitted late. Payments would be applied in the following order: late charges, interest charges, principal payments. Thus, a licensee who makes payment after the due date but does not make payment sufficient to pay the late fee, interest, and principal, will be deemed to have failed to make full payment and will be subject to license cancellation pursuant to the Commission's rules. We tentatively conclude that such a late payment provision is necessary to ensure that licensees have an adequate financial incentive to make installment payments on time. We seek comment on this tentative conclusion. We note that licensees would continue to have 90 days before a payment is deemed delinquent but a late payment fee would be assessed during this period. b. Grace Periods 71. Background. Section 1.2110(e)(4)(ii) of the Commission's rules provides that interest that accrues during a grace period will be amortized over the remaining term of the license. Amortizing interest in this way has the effect of changing the amount of all future payments and requiring the Commission, or its designee, to generate a new payment schedule for the license. Changing the amount of the installment payment has, in turn, created uncertainty about the interest schedule, and increased the administrative burden by requiring formulation of a new amortization schedule. 72. Section 1.2110(e)(4)(ii) also states that in considering whether to grant a request for a grace period, the Commission may consider, among other things, the licensee's payment history, including whether the licensee has defaulted before, how far into the license term the default occurs, the reasons for default, whether the licensee has met construction build-out requirements, the licensee's financial condition, and whether the licensee is seeking a buyer under an authorized distress sale policy. Under this rule, licensees are required to come before the Commission with a filing as well as financial information such as an income statement or balance sheet, in the case of financial distress, to provide the necessary information for the Commission to make its ruling. Licensees are then required to wait for a ruling by the Commission before knowing whether a grace period has been granted or denied. This could place licensees in a position of uncertainty if they are seeking to restructure other debt contingent upon the results of the Commission's grace period ruling. 73. Discussion. In order to avoid the potential problems associated with changing the amount of installment payments, we propose to amend Section 1.2110(e)(4)(ii) to require all current licensees who avail themselves of the grace period to pay all fees, all interest accrued during the grace period, and the appropriate scheduled payment with the first payment made following the conclusion of the grace period. We seek comment on this proposal. 74. Further, to simplify the grace period procedures, we propose to revise the method by which grace periods are provided. The Commission or its designee may not have the necessary resources to evaluate a licensee's financial condition, business plans, and capital structure proposals. Therefore, instead of considering grace period requests, we could institute the following system: if a licensee did not make payment on an installment obligation within 90 days of its due date, then the licensee would automatically receive an additional 90 days to make that payment contingent upon receipt of the 5 percent late payment fee proposed above plus an additional late payment fee of 10 percent. The late payment fee that we propose here is greater than the 5 percent late payment fee that we propose for non-grace- period late installment payments because we envision the grace period as an extraordinary remedy and wish to encourage licensee to seek private market solutions to their capital problems before the payment due date or, at a minimum, within 90 days of the due date. Under this proposal licensees would not be required to submit a filing to receive a grace period; however, licensees would be expected to resume payments after the 90 day grace period is over. This approach would also be consistent with the standard commercial practice of establishing late payment fees and developing financial incentives for licensees to resolve capital issues before payment due dates. Payments from the licensee would be applied to late fees, interest, and principal, in that order. Any licensee that did not make full payment of all amounts, including a total late payment fee of 15 percent, within 180 days of the payment due date would have its license automatically cancelled as provided in Section 1.2110(e)(4)(ii). We seek comment on this method of providing for an automatic grace period. c. Default on Installment Payments 75. Background. We also seek comment on whether licensees that default on installment payment obligations should be subject to the default payment provisions outlined in Section 1.2104(g), i.e., the difference between the defaulting winner's bid and the subsequent winning bid plus 3 percent of the lesser of these amounts. Sections 1.2110(e)(1) and 1.2110(e)(2) provide that applicants eligible for installment payments will be liable for such a payment if they fail to remit either their initial or final down payment. Section 1.2110(e)(4)(iii) provides that following the expiration of any grace period without successful resumption of payment, or upon denial of a grace period request, or upon default with no such request submitted, the license of an entity paying on an installment basis will be cancelled automatically. This section does not state, however, that under these circumstances the licensee will be liable for the default payment set forth in Section 1.2104(g). 76. Furthermore, we have been asked to address the issue of cross default in the context of installment payments. A cross-default provision would specify that if a licensee defaults on one installment payment loan, it would also default on any other installment payment loans it holds. These provision are standard in credit-related agreements. 77. Discussion. We tentatively conclude that a licensee that makes the necessary down payments but defaults on installment payments should not be exempt from the default payment provisions of Section 1.2104(g). Licensees that default at any point in the auction process, either before licenses are issued or during the installment payment period, reduce the efficiency of the licensing process. A default, regardless of when it occurs, makes it necessary for the Commission to incur the costs of reauctioning the license, and the default delays the deployment or continuation of service in the affected market. We believe that imposing the default payment of Section 1.2104(g) on all defaulting licensees would serve to discourage defaults and encourage licensees to find private market solutions for default situations in addition to covering the cost the government must incur to reauction the license. We seek comment on this tentative conclusion and on the appropriate method for calculating default payments when defaults occur during the license term. 78. We seek comment on whether the Commission should cross default its installment payment plan loans with other installment payment plan loans to the same licensee. If adopted, should a cross default provision apply across services? For example, if a licensee, with both SMR and broadband PCS licenses, defaults on one of its PCS licenses, should the Commission consider pursuing default remedies against all PCS and SMR licenses? Instead, should we pursue default remedies against the single license only? What factors should influence our decision to pursue cross-defaults? Should cross-defaults be applied automatically or on a case- by-case basis? We also seek comment, in general, on what remedies are appropriate when licensees default. E. Competitive Bidding Design, Procedure, and Timing Issues 1. "Real time" Bidding 79. Background. Congress has directed the Commission to "design and test multiple alternative methodologies for auction designs." In the Order accompanying this Notice, we amend our general auction rules to specify a menu of auction designs that we can choose from. These designs include: (1) simultaneous multiple round auctions, using remote and/or on-site electronic bidding; (2) sequential multiple round auctions, using either oral ascending or remote or on-site electronic bidding; and (3) sequential or simultaneous single round auctions, using either remote or on-site electronic bidding, or sealed bids. The simultaneous multiple round auction methodology with discrete rounds has been used in most auctions thus far because it provides bidders with valuable information regarding the value others place on licenses and allows bidders to pursue backup strategies as more information becomes available during the auction. The Commission is interested in reducing the length of the auction without sacrificing the economic efficiency of the assignment process. 80. Discussion. We seek comment, in general, on how we can speed our auctions (and in particular our simultaneous multiple round auctions). For example, how could our current procedural rules for simultaneous multiple round auctions be modified to meet this objective, or what new designs might be used to efficiently allocate numerous licenses? 81. We believe that one way complex auctions of multiple licenses could proceed more quickly would be to modify our current simultaneous multiple round auction to allow bidding on a continuous basis within a combined bid submission/bid withdrawal period. This would give bidders immediate feedback on new high bids, withdrawn high bids and minimum accepted bids, and provide them with the opportunity to move the auction along more quickly. Under the current simultaneous multiple round auction rules, each round of bidding contains a discrete bid submission period and a bid withdrawal period. The rules permit bidders to place bids once within the submission period of the round on licenses that they are eligible to bid on, and they may withdraw high bids only during the bid withdrawal period. This requires bidders to wait until the end of the round to determine their status. An open, continuous bidding round -- in which bidders would know when their bid has been exceeded and would be free to bid again -- could reduce the delay inherent in our current design. Therefore, we propose to amend our general rules to provide for such "real time" bidding as another design feature for electronic multiple round auctions. 82. We recognize, however, that it may be difficult for bidders to react quickly enough to ensure that in each bidding round they make new high bids on the necessary percentage of their bidding eligibility to meet their activity requirement. Therefore, we propose that after each fixed period of real time bidding (when only standing high bids from the previous round and new high bids from the current round count in determining the bidder's activity level) we would open a discrete closed bidding period, when bidders would be able to submit valid bids (bids that meet or exceed the minimum accepted bid) at the end of the "real time" bidding to ensure that they have the opportunity to meet their activity requirements for the round. Following the discrete closed bidding period, the Commission would post the final round results for the period and make all bids available to the public. By allowing a discrete period of time for bidders to make valid bids at the end of the round, we would reduce the risks associated with real time electronic bidding. 83. Because "real time" auctions are a variation of the simultaneous multiple round auction design established in our rules, we tentatively conclude that many of the same procedures should apply. These include: upfront payments to determine eligibility, activity requirements that apply to each round, minimum bid increments, and a stopping rule. However, we believe that separate rules would be required on certain issues. We seek comment on issues that arise when the bid submission and bid withdrawal periods are combined, such as how withdrawn bids should be treated when calculating current activity. For example, whether a bid that is placed and withdrawn in one round should count as activity, and whether a withdrawn bid will negate the status of that bid as activity in the current round as well as the status as standing high bid. 84. In addition, we seek comment on the appropriate length for the real time bidding rounds. We seek comment on what measures we can take to assure bidders that they will have enough time to determine their bidding strategies with "real time" bidding. In particular, we seek comment on the impact of "real time" bidding on small businesses, generally, and particularly on their ability to process bid information during the course of a single round. 2. Minimum Opening Bids 85. Background. Currently, Section 1.2104(d) of our rules states that the Commission may establish suggested minimum opening bids. In the Competitive Bidding Second Report and Order, we noted that if only two or three applicants applied to bid for a valuable license, the Commission might set a reservation price. A reservation price is a price below which a license subject to auction will not be awarded. We provided the option of setting a reservation price in order to prevent a license from being awarded under circumstances where there would be little competition among bidders and significant incentives to collude. 86. Discussion. We propose to amend Section 1.2104 to specify that the Commission may establish minimum opening bids, rather than suggested minimum opening bids. Such a rule has been adopted in service-specific rules. We propose to amend our general competitive bidding rules to allow us to establish a minimum opening bid because we believe that a minimum opening bid can serve some of the same purposes as a reservation price. A minimum opening bid increases the likelihood that the public receives fair market value for the spectrum being auctioned and can also help an auction move more swiftly. We seek comment on this proposal. 3. Maximum Bid Increments 87. Background. A bid increment is the amount or percentage by which a bid must be raised above the previous round's high bid in order to be accepted as a valid bid in the current round. We determined in the Competitive Bidding Second Report and Order that the Commission would reserve the right to specify minimum bid increments in dollar terms as well as in percentage terms. We reasoned that imposing a minimum bid increment speeds the progress of the auction and, along with activity and stopping rules, helps to ensure that the auction comes to closure within a reasonable period of time. We did not reserve the discretion to specify maximum bid increments. 88. Discussion. Whereas the minimum bid increment speeds the auction process, a maximum bid increment could prevent bidders from placing bids that are significantly higher than the minimum acceptable bid. This type of bidding is known as "jump bidding." Some theoretical literature suggests that bidders could use jump bidding to manipulate the auction process and potentially reduce efficiency of the auction. Jump bidding complicates bidding strategy and denies bidders information about the number of bidders who would be willing to pay prices between the minimum acceptable bid and the jump bid. In the absence of information about the bidders who would be willing to participate at intermediate bids, other bidders might feel compelled to shade their bids more than they otherwise would. This behavior is an attempt to avoid the "winner's curse," -- the phenomenon of a bidder winning only because he or she has overestimated the value of the license. A general principle of auction theory has it that the auction mechanisms which perform the best are those which are able to induce bidders to reveal the most information. To the extent that jump bids enable bidders to conceal information, the phenomenon moves us away from the informational advantages of an ascending bid (multiple round) auction in the direction of a first-price sealed bid (single round) auction. We seek comment on whether the Commission should retain the discretion to employ a maximum bid increment if it finds that jump bidding is impairing the auction process. 4. Bid Withdrawal Payments 89. Background. Under our current rules, if a high bid is withdrawn prior to the close of a simultaneous multiple round auction, the Commission will impose a payment equal to the difference between the withdrawn bid and the amount of the winning bid the next time the license is offered by the Commission. No withdrawal payment is assessed if the subsequent winning bid exceeds the withdrawn bid. If a winning bidder defaults after the close of an auction, the defaulting bidder will be required to pay the foregoing payment plus an additional payment of 3 percent of the subsequent winning bid or its own withdrawn bid, whichever is lower. 90. To help bidders avoid mistaken bids that could expose them to liability for bid withdrawal payments, the Commission has enhanced its electronic bidding software. The software now displays a warning screen to bidders when they try to place a bid that is far in excess of the minimum accepted bid. Bidders must affirmatively override this mistaken bid warning if they wish to place the bid. For example, if the minimum accepted bid for a license is $10,000, an excessive bid warning will appear if a bidder attempts to place a bid of $100,000 or more. 91. Discussion. When we adopted our provisions governing bid withdrawals, we determined that these rules would discourage insincere bidding without causing bidders to be too cautious in attempting to aggregate licenses. We have also recently addressed the issue of how our bid withdrawal payment rules apply to bids that are mistakenly placed and subsequently withdrawn. In Atlanta Trunking, we stated that, while we believe that in some cases full application of the bid withdrawal payment provisions could impose an extreme and unnecessary hardship on bidders, it may be extremely difficult for the Commission to distinguish between "honest" erroneous bids and "strategic" erroneous bids. We held that in cases of erroneous bids, some relief from the bid withdrawal payment requirement appears necessary. Thus, we waived our bid withdrawal rules as they apply to 900 MHz SMR and broadband PCS and applied the following guidelines: If at any point during an auction a mistaken bid is withdrawn in the same round in which it was submitted, the bid withdrawal payment should be the greater of (a) the minimum bid increment for that license and round, or (b) the standard bid withdrawal payment calculated as if the bidder had made a bid at the minimum accepted bid. If a mistaken bid is withdrawn in the round immediately following the round in which it was submitted, and the auction is in Stage I or Stage II, the withdrawal payment should be the greater of (a) two times the minimum bid increment during the round in which the mistaken bid was submitted or (b) the standard withdrawal payment calculated as if the bidder had made a bid at one bid increment above the minimum accepted bid. If the mistaken bid is withdrawn two or more rounds following the round in which it was submitted, the bidder should not be eligible for any reduction in the bid withdrawal payment. Similarly, during Stage III of an auction, if a mistaken bid is not withdrawn during the round in which it was submitted, the bidder should not be eligible for any reduction in the bid withdrawal payment. 92. In response to a commenter's request, we recently modified the broadband PCS rules for the D, E, and F blocks to establish provisions governing the withdrawal of erroneous bids. We thus incorporated the guidelines fashioned in Atlanta Trunking into these rules. We determined that under this approach, the required bid withdrawal payment would be substantial enough to discourage strategic placement of erroneous bids without being disproportionately punitive. We now propose to change Sections 1.2104 and 1.2109 of our rules such that similar provisions adopted for the broadband PCS D, E, and F block auction will apply to all auctions. We seek comment on this proposal. 5. Misuse of Bid Withdrawals 93. The current auction rules allow a high bidder on a license to withdraw its bid at any point during the auction, subject to a bid withdrawal payment. We have recognized that allowing bid withdrawals facilitates efficient aggregation of licenses and pursuit of efficient backup strategies as information becomes available during the course of an auction. We also are cognizant that allowing withdrawals also risks encouraging insincere bidding and allowing the use of withdrawals for anti-competitive strategic purposes, such as signaling other bidders. To guard against such abuses, the Commission put in place a withdrawal payment equal to the difference between the withdrawn bid and the amount of the winning bid the next time the license is offered by the Commission. We seek comment on whether we should exercise our authority to limit withdrawals, and if so, under what circumstances. Should we consider limiting the number of withdrawals that a bidder is permitted to make in an auction, the number of rounds in which withdrawals can be made, or the number of withdrawals permitted with respect to a particular license? Are there other ways to address our concern about strategic withdrawals without unduly affecting bidders' ability to efficiently aggregate licenses? For example, should we consider increasing the withdrawal payment or changing its structure? 6. Reauction Versus Offering to Second Highest Bidder 94. Background. Under Section 1.2109(b) of our rules, if a winning bidder withdraws its bid after the auction has closed or fails to remit the required down payment within the requisite period after the Commission has announced high bidders, the bidder will be deemed to have defaulted. This rule also provides that, in such event, the Commission may either re-auction the license to existing or new applicants or offer it to the other highest bidders (in descending order) at their final bids. In the Order accompanying this Notice, we modified the down payment due date to ten business days after the Commission has issued a Public Notice announcing winning bidders, and accordingly adjusted the period within which the Commission has discretion to offer the defaulted license to bidders in the original auction to the same ten-day period. 95. Discussion. When we first adopted rules governing the licensing of defaulted licenses, we stated that "[i]n the event that a winning bidder in a simultaneous multiple round auction defaults on its down payment obligations, the Commission will generally re-auction the license either to existing or new applicants." Noting that in some circumstances the costs of conducting a re-auction may not always be justified, we reserved the discretion in cases in which the winning bidder defaults on its down payment obligation to offer a defaulted license to the highest losing bidders (in descending order of their bids) at their final bids if "only a small number of relatively low value licenses are to be re-auctioned . . . ." 96. Having now developed a computerized auction system and conducted numerous auctions, we believe that the costs of a re-auction, even for a small number of relatively low value licenses, would be minimal. Use of regularly scheduled quarterly auctions will also ensure rapid reauction. Further, re-offering a defaulted license to the next highest bidder (in descending order) at their final bids may not ensure that the license will be awarded to the bidder that values it the most highly. When more than one license is being auctioned, aggregation strategies may shift during the course of the auction, affecting interest of individual bidders. 97. We ask commenters to address whether the Commission should (1) retain Section 1.2109(b) in its current form, (2) modify the rule so that the Commission retains the discretion regardless of when a default occurs to offer the license only to the second highest bidder at its bid price (3) modify the rule so that the Commission retains discretion to offer a license on which the winning bidder has defaulted on its down payment obligation only to the second highest bidder, (4) modify the rule so that the Commission retains discretion to offer a defaulted license to the highest losing bidders (in descending order of their bids), but only at the final bid level of the second highest bidder, (5) modify the rule to require re-auction of defaulted licenses regardless of when a default occurs. Moreover, we seek comment on whether we should modify the rule to codify our statement in the Competitive Bidding Fifth Report and Order that where there are a relatively small number of low value licenses, and only a short time has passed since the initial auction, the Commission may choose to offer the license to the highest losing bidder because the cost of conducting another auction may exceed the benefits. Commenters favoring this should indicate the parameters that the Commission should employ in determining which licenses might be re-offered to bidders in the original auction. F. Rules Prohibiting Collusion 98. Background. We adopted rules to prohibit collusion in the Competitive Bidding Second Report and Order because we were concerned that collusive conduct by bidders prior to or during an auction could undermine the competitiveness of the bidding process and prevent the formation of a competitive post-auction market structure. In general, bidders are required to identify on their short-form applications any parties with whom they have entered into any consortium arrangements, joint ventures, partnerships or other agreements or understandings which relate to the competitive bidding process. With certain exceptions, all such arrangements must have been entered into prior to the filing of short-form applications. After such applications are filed and prior to the time that the winning bidder has made its required down payment, all bidders are prohibited from cooperating, collaborating, discussing or disclosing in any manner the substance of their bids or bidding strategies with other bidders, unless such bidders are members of a bidding consortium or other joint bidding arrangement identified on the bidder's short-form application. 99. As our auction process has evolved, we have clarified the rules prohibiting collusion. Early on in the auction process, for example, we established exceptions to the anti-collusion rules in an attempt to allow applicants greater flexibility to form agreements with other applicants and thereby acquire the capital necessary to bid successfully for licenses. Specifically, we amended the anti-collusion rules to permit a holder of a non-controlling attributable interest in an applicant to obtain an ownership interest in or enter into a consortium arrangement with another applicant for a license in the same geographic area, provided that the attributable interest holder certifies to the Commission that it has not communicated and will not communicate with the applicant or any one else information concerning the bids or bidding strategies (including which licenses an applicant will or will not bid on) of more than one applicant for licenses in the same geographic area in which it holds an ownership interest or with which it has a consortium arrangement. Additionally, Commission staff has issued public notices and letters that seek to interpret and clarify these rules. 100. Discussion. The exception outlined above was adopted in order to facilitate the flow of capital to applicants by enabling parties to make investments in multiple applicants for licenses in the same geographic license areas. Having gained experience with implementing our anti-collusion rules, we now believe that this exception is difficult to apply in a business setting. Entities are reluctant to invest in multiple applicants if they cannot obtain information about business plans and strategies, which often necessarily reflect bidding strategies or bids. 101. We therefore propose to modify this provision of the anti-collusion rule to permit entities to invest in multiple applicants if the original applicant withdraws from the auction. Under our proposal, a holder of a non-controlling attributable interest in an applicant would be permitted to obtain an ownership interest in or enter into a consortium arrangement with another applicant for a license in the same geographic area, provided that the original applicant has dropped out of the auction and is no longer placing bids, and the attributable interest holder certifies to the Commission that it did not communicate with the new applicant prior to the date that the original applicant withdrew from the auction. We believe that this proposal will encourage entities to invest in bidders if their original applicant fails to complete the auction and will give such entities the flexibility needed to do so. Furthermore, we believe that prohibiting any communication with other applicants prior to when the original applicant withdraws from the auction will prevent investors from exerting pressure on smaller bidders to withdraw in exchange for teaming up with other larger bidders. We seek comment on this proposal. 102. In the proceeding involving service-specific auction rules for paging services, several commenters requested that we establish rules that do not have a chilling effect on ongoing business acquisitions and transactions. Under the current rules, they contended, discussions between bidders for the same license area regarding a business merger or acquisition may be construed as discussions of bidding or bidding strategy -- thus violating the anti-collusion rules. They proposed that we grant a "safe harbor" for certain situations, such as in services where there are incumbent operators, permitting ongoing discussions among bidders concerning mergers, acquisitions or intercarrier arrangements to proceed during the period in which the anti- collusion rules are applicable. Some suggested a system in which respective bidder personnel certify that persons involved in such discussions are not discussing bidding strategy or otherwise divulging bidder information to each other in violation of the anti-collusion rules. Absent a showing that a certification is false, necessary discussions in the ordinary course of business would be permitted during the course of the auction. We seek comment on this proposal concerning a safe harbor for discussions of certain non-auction business matters and we seek comment on any other changes to our rules prohibiting collusion they believe are warranted. Finally, we seek comment on the public notices and letters issued by Commission staff seeking to interpret and clarify these rules. G. Pre-grant Construction 103. Background. In 1989, we adopted rules permitting certain license applicants, under prescribed conditions, to construct their facilities prior to license grant. We subsequently determined that Part 22 and Part 90 commercial mobile radio service applicants should be subject to the same rules governing the construction of facilities prior to the grant of pending applications. We later clarified that such rules would extend to successful broadband PCS bidders that had filed a long-form application. Thus, 35 days after the date of the Public Notice announcing the broadband PCS A and B Block Form 600 applications accepted for filing, the parties has filed those applications were permitted, at their own risk, to commence construction of facilities, provided that (1) no petitions to deny the application had been filed; (2) the application did not contain a request for a rule waiver; (3) the applicant complied fully with the antenna structure provisions of Sections 24.416 and 24.816 of the Commission's rules, including FAA notification, and Commission filing requirements; (4) the application indicated that the facilities would not have a significant environmental effect (see 47 C.F.R.  24.413(f) and 24.813(f)); and (5) international coordination of the facilities was not required. 104. Discussion. We propose to extend the pre-grant construction rules set forth in 47 C.F.R.  22.143 to all auction winners, regardless of whether petitions to deny have been filed against their long-form applications. We further propose to permit each auction winner to begin construction of its system, at its own risk, upon release of a Public Notice announcing the acceptance for filing of post-auction long-form applications. We tentatively conclude that to do so would further the public interest by expediting, in most cases, the initiation of service to the public. We believe that allowing pre-grant construction furthers the statutory objective expressed in the Communications Act in Section 309(j)(3)(A) of the rapid deployment of new technologies, products, and services for the benefit of the public. Pre-grant construction would be subject to any service-related restrictions, including but not limited to antenna restrictions, environmental requirements, and international restrictions. Finally, we emphasize that any applicant engaging in pre-grant construction activity would do so entirely at its own risk, and the Commission would not take such activity into account in ruling on any petition to deny although we acknowledge that this could result in significant economic loss to applicants. We seek comment on this proposal. IV. CONCLUSION 105. Based on the experience we have gained from our completed auctions, we believe the time has come to streamline our competitive bidding rules in order to make our licensing process more efficient. In the past, we have adjusted our auction procedures for different services as we gained experience with the process, and the result is that we have different procedures for different auctionable services. We believe that these rules should be simplified and made uniform wherever possible. Moreover, we do not believe that it is necessary to continue the time-consuming process of conducting rule making proceedings prior to each auction. The Order amends Subpart Q of Part 1 of the Commission's rules to reflect procedural changes, including some that have already been made in certain service-specific rules, that we believe would benefit bidders and the auction process generally. In the Notice of Proposed Rule Making, we propose changes to our general competitive bidding rules that are intended to simplify our regulations and eliminate unnecessary rules wherever possible. At the same time, we believe these rules will be beneficial in providing more specific guidance on a number of issues to auction participants, while also giving them more flexibility, and increase the effectiveness of our auctions. V. PROCEDURAL MATTERS AND ORDERING CLAUSES 106. The Initial Regulatory Flexibility Analysis, as required by Section 604 of the Regulatory Flexibility Act, is set forth in Appendix C. Pub. L. No. 96-354, 94 Stat. 1164, 5 U.S.C.  601 et seq. (1981). 107. IT IS ORDERED that the rule changes specified in Appendix B ARE ADOPTED and are EFFECTIVE 30 days after publication in the Federal Register. 108. IT IS FURTHER ORDERED that the petitions for reconsideration of the Competitive Bidding Fifth Memorandum Opinion and Order, to the extent that they are addressed herein, ARE DENIED. 109. Ex Parte Presentations. This is a non-restricted notice and comment rule making proceeding. Ex parte presentations are permitted, provided they are disclosed as provided in Commission rules. See generally 47 C.F.R. Sections 1.1202, 1.1203, and 1.1206(a). 110. Authority. This action is taken pursuant to Sections 4(i), 5(b), 5(c)(1), 303(r), and 309 (j) of the Communications Act of 1934, as amended, 47 U.S.C. Sections 154(i), 155(b), 156(c)(1), 303(r), and 309(j). 111. Comment. Pursuant to applicable procedures set forth in Sections 1.415 and 1.419 of the Commission's Rules, interested parties may file comments on or before March 27, 1997, and reply comments on or before April 16, 1997. All relevant and timely comments will be considered by the Commission before final action is taken in this proceeding. To file formally in this proceeding, participants must file an original and five copies of all comments, reply comments, and supporting comments. If participants want each Commissioner to receive a personal copy of their comments, an original plus ten comments must be filed. Comments and reply comments should be sent to Office of the Secretary, Federal Communications Commission, Washington, DC 20554. Comments and reply 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, DC 20554. 112. Additional Information. For further information concerning this rule making proceeding contact Mark Bollinger at