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FCC Waives and Narrows Former Defaulter Rules for Auction 97

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Released: August 29, 2014
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Federal Communications Commission

FCC 14-130

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of

)

)

Petition of DIRECTV Group, Inc. and

)

RM-11395

EchoStar LLC for Expedited Rulemaking to

)

Amend Section 1.2105(a)(2)(xi) and 1.2106(a) of

)

the Commission’s Rules and/or for Interim

)

Conditional Waiver

)

)

Auction of Advanced Wireless Services (AWS-3)

)

AU Docket No. 14-78

Licenses Scheduled for November 13, 2014

)

(Auction 97)

)

ORDER

Adopted: August 29, 2014

Released:

August 29, 2014

By the Commission:

I.

INTRODUCTION

1.

In this Order, we grant a limited blanket waiver of certain Part 1 competitive bidding

rules to applicants for the upcoming auction of AWS-3 licenses (Auction 97) to narrow the circumstances

under which an applicant would be considered a former defaulter and required to submit a larger upfront

payment to qualify to bid in Auction 97.1 Under the Commission’s competitive bidding rules, applicants

that have cured any default on a Commission license or delinquency on any non-tax debt owed to any

Federal agency are considered “former defaulters” and, as such, must provide larger upfront payments to

participate in a Commission spectrum auction.2 Solely with respect to Auction 97, we waive the former

defaulter rules for applicants to exclude any cured default or delinquency for which any of the following

criteria are met: (1) the notice of the final payment deadline or delinquency was received more than seven

years before the Auction 97 short-form application deadline of September 12, 2014; (2) the amount of the

default or delinquency falls below $100,000; (3) the default or delinquency was paid within two quarters

(i.e., 6 months) after receiving the notice of the final payment deadline or delinquency; or (4) the default

or delinquency was the subject of a legal or arbitration proceeding that was cured upon resolution of the

proceeding. Accordingly, only applicants that have a cured default or delinquency that falls outside of

these exclusions must certify to being a “former defaulter” and submit a larger upfront payment in

Auction 97.

1 Auction 97 will offer Advanced Wireless Services licenses in the 1695-1710 MHz, 1755-1780 MHz, and 2155-

2180 MHz bands (collectively, “AWS-3”). Auction of Advanced Wireless Services Licenses Scheduled for

November 13, 2014; Comment Sought on Competitive Bidding Procedures for Auction 97, AU Docket No. 14-78,

Public Notice, 29 FCC Rcd 5217 (2014) (Auction 97 Comment Public Notice); Auction of Advanced Wireless

Services (AWS-3) Licenses Scheduled For November 13, 2014; Notice and Filing Requirements, Reserve Prices,

Minimum Opening Bids, Upfront Payments and Other Procedures for Auction 97, AU Docket No. 14-78, Public

Notice, DA 14-1018 (rel. Jul. 23, 2014) (Auction 97 Procedures Public Notice).

2 See 47 C.F.R. §§ 1.2105(a)(2)(xi), 1.2106(a).

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II.

BACKGROUND

2.

Each potential participant in a Commission auction must certify on its pre-auction “short-

form” application whether or not the applicant has ever been in default on any Commission license or has

ever been delinquent on any non-tax debt owed to any Federal agency.3

An applicant is considered to be

a former defaulter if the applicant, including any of its affiliates, its controlling interests, or any of the

affiliates of its controlling interests, has defaulted on any Commission license or been delinquent on any

non-tax debt owed to any Federal agency, but has since remedied all such defaults and cured all of its

outstanding non-tax delinquencies.4 Former defaulters are eligible to bid in a Commission auction

provided they are otherwise qualified; such applicants, however, are required to pay an upfront payment

that is 50 percent more than the normal upfront payment amount.5

3.

In 2007, DIRECTV Group, Inc. and EchoStar LLC (collectively, DIRECTV/EchoStar)

filed a petition for rulemaking requesting that the Commission modify its former defaulter rules.6

DIRECTV/EchoStar argue that the rules apply too broadly to effectively advance the Commission’s goal

of ensuring that auction bidders are financially reliable and urge the Commission to amend the rules.7

DIRECTV/EchoStar also sought an interim conditional waiver of the former defaulter rules in advance of

the 700 MHz auction while the Commission considered their petition.8

DIRECTV/EchoStar asked for a

limited waiver that would exclude from consideration any former defaults or delinquencies that (1)

occurred more than three years before the short-form application deadline; (2) related to personal

obligations of an officer/director of an entity that is not the auction applicant; and (3) totaled less than

$100,000 or 0.1 percent of the average annual gross revenues attributable to the auction applicant,

whichever is less.9 The Commission placed the DIRECTV/EchoStar Petition on public notice,10 and one

3 47 C.F.R. § 1.2105(a)(2)(xi) (former defaulter certification). Each applicant must also certify that, as of the short-

form application deadline, it is currently not in default on any Commission license or delinquent on any non-tax debt

owed to any Federal agency; if it is currently in default or delinquent, it cannot participate in the auction.

Amendment of Part 1 of the Commission’s Rules – Competitive Bidding Procedures, WT Docket No. 97-82, Order

on Reconsideration of the Third Report and Order, Fifth Report and Order, and Fourth Further Notice of Proposed

Rule Making, 15 FCC Rcd 15293, 15317 n.142 (2000) (Part 1 Fifth Report and Order) (“If any one of an

applicant’s controlling interests or their affiliates . . . is in default on any Commission licenses or is delinquent on

any non-tax debt owed to any Federal agency at the time the applicant files it[s] Form 175, the applicant will not be

able to make the certification required by Section 1.2105(a)(2)(x) . . . and will not be eligible to participate in

Commission auctions.”). The limited blanket waiver that we are granting in this Order does not apply to such

current defaults and delinquencies.

4 Controlling interests and affiliates are defined at 47 C.F.R. § 1.2110. See also Wireless Telecommunications

Bureau Reminds Prospective Broadband PCS Spectrum Auction Applicants of Default and Delinquency Disclosure

Requirements, Public Notice, 19 FCC Rcd 21920 (2004) (providing auction applicants information regarding the

interplay between defaults, delinquencies, and the Commission’s “red light” rule).

5 47 C.F.R. § 1.2106(a).

6 Petition of DIRECTV Group, Inc. and EchoStar LLC for Expedited Rulemaking to Amend Section 1.2105(a)(2)(xi)

and 1.2106(a) of the Commission’s Rules and/or for Interim Conditional Waiver, filed June 8, 2007, RM-11395

(DIRECTV/EchoStar Petition).

7 DIRECTV/EchoStar Petition at 2, 5-6.

DIRECTV/EchoStar recommend amending the rules in three ways: (i)

excluding former defaults or delinquencies of a de minimis nature; (ii) excluding prior defaults or delinquencies that

are more than a certain number of years old; and (iii) applying the rule only to the applicant and individuals or

entities that are in a position to affect whether such applicants meet their auction-related financial responsibilities.

Id. at 8.

8 Id. at 8–14.

9 Id. at 9–10.

10 Consumer and Governmental Affairs Bureau Reference Information Center Petition for Rulemakings Filed,

Public Notice, Report No. 2829, dated Aug. 22, 2007.

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party filed comments in support of it.11 In 2010, DIRECTV/EchoStar, along with DISH Network, LLC,

further urged the Commission to take action on their pending filing in advance of then-upcoming

auctions.12

4.

In 2014, four industry associations (Four Associations) raised the issue again, asking the

Commission to re-examine the former defaulter rules, and in the interim, grant a limited waiver for

upcoming Commission auctions, including the upcoming Auction 97 for AWS-3 licenses.13 Initially, the

Four Associations urged the Commission to waive the rule as to two categories of debt: (1) debts that

were resolved more than three years prior to the application deadline; and (2) debts that were for less than

the lesser of $100,000 or 0.1 percent of the average annual revenues of the applicant (as computed under

our competitive bidding rules).14 Later, three of the Four Associations (Three Associations) modified

their request to seek waiver of the former defaulter rule with respect to any of the following

circumstances: (1) debts occurring more than five years prior, and resolved more than three years prior, to

the short-form application deadline; (2) debts that were for less than the lesser of $100,000 or 0.1 percent

of the average annual revenues of the applicant or where the applicant can demonstrate that prior defaults

were not material or indicative of any auction payment risk; (3) any applicant (or its parent company) that

has an “investment grade” rating from Moody’s, Standard and Poor’s, or another recognized rating

agency; or (4) any applicant that can provide a letter of credit from an FDIC member institution or an

agricultural credit bank that serves rural utilities and is a member of the U.S. Farm Credit System in an

amount adequate to indicate that the applicant will be able to make final payment, or can otherwise

demonstrate an ability to make final payment, in the event that it wins the licenses for which it has applied

to bid.15

5.

Shortly thereafter, the Three Associations modified their request, seeking a blanket,

interim waiver of the former defaulter rule for any Auction 97 applicant with respect to cured debts of less

than $100,000 or for which the applicant received notice more than seven years prior to the short-form

application filing deadline.16 These parties also suggested that, for purposes of the waiver of the former

11 AT&T DIRECTV/EchoStar Petition Comments.

12 See Letter from Barry J. Ohlson to Marlene H. Dortch, Secretary, FCC, RM-11395 (filed Aug. 13, 2010)

(DIRECTV/EchoStar et al. Aug. 13, 2010 Ex Parte Letter); Letter from Christine M. Crowe to Marlene H. Dortch,

Secretary, FCC, RM-11395 (filed Oct. 6, 2010).

13 Letter from Competitive Carriers Association, Consumer Electronics Association, CTIA-The Wireless

Association, and NTCA-The Rural Broadband Association, to Marlene H. Dortch, Secretary, FCC, RM-11395, GN

Docket No. 13-185, AU Docket No. 14-78, GN Docket No. 12-268 (filed May 30, 2014) (Four Associations May

30th Letter).

14 Four Associations May 30th Letter at 3. In addition, AT&T also suggested, as alternatives to the current former

defaulter policies, relying on ratings from independent credit rating agencies, such as Standard & Poor’s or

Moody’s, or accepting a letter of credit from an applicant in lieu of the larger upfront payment. Letter from Joan

Marsh, AT&T, to Marlene H. Dortch, Secretary, FCC, GN Docket No. 13-185 (filed Jul. 24, 2014); but see Letter

from Richard B. Engelman, Sprint Corporation, to Marlene H. Dortch, Secretary, FCC, GN Docket No. 13-185, AU

Docket No. 14-78, RM-11395 (filed Jul. 31, 2014) (asserting that AT&T’s criteria is an expansion over the current

rules and suggesting that the criteria expressed by the Four Associations is “more relevant and appropriate for many

potential auction bidders and in relation to the Commission’s underlying policy”).

15 Letter from Competitive Carriers Association, CTIA-The Wireless Association, and NTCA-The Rural Broadband

Association, to Marlene H. Dortch, Secretary, FCC, GN Docket No. 13-185 (filed August 1, 2014). Consumer

Electronics Association did not join in this filing.

16 Letter from Competitive Carriers Association, CTIA-The Wireless Association, and NTCA-The Rural Broadband

Association, to Marlene H. Dortch, Secretary, FCC, GN Docket No. 13-185, AU Docket No. 14-78 (filed August

14, 2014) (Three Associations August 14th Letter); Letter from Competitive Carriers Association, CTIA-The

Wireless Association, and NTCA-The Rural Broadband Association, to Marlene H. Dortch, Secretary, FCC, GN

Docket No. 13-185, AU Docket No. 14-78 (filed August 20, 2014) (Three Associations August 20th Letter); Letter

from Competitive Carriers Association, CTIA-The Wireless Association, and NTCA-The Rural Broadband

(continued….)

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defaulter rules, an applicant should not be considered to be a former defaulter required to make a larger

upfront payment if the debt in question was paid within two quarters of receiving the notice or is the

subject of a good faith dispute or a pending legal or arbitration proceeding.17

6.

In addition to the DIRECTV/EchoStar Petition and the various requests of the

associations, several parties commenting on the procedures for upcoming Auction 97 have also supported

revision of the former defaulter rules and a limited waiver for the auction.18

III.

DISCUSSION

7.

Under section 1.925 of the Commission’s rules, a waiver of a rule is appropriate if (i) the

underlying purpose of the rule would not be served or would be frustrated by application to the instant

case, and that a grant of waiver would be in the public interest, or (ii) in view of the unique or unusual

factual circumstances of the instant case, application of the rule would be inequitable, unduly burdensome

or contrary to the public interest, or that the applicant has no reasonable alternative to seeking a waiver of

the rule.19

8.

As explained below, we conclude that a limited blanket waiver of the former defaulter

rules to exclude certain cured defaults or delinquencies for Auction 97 is warranted because the

underlying purpose of the upfront payment and former defaulter rules would not be served by their broad

application in this auction, and a limited waiver serves the public interest. As noted above, this waiver

extends only to Auction 97, for which short-form applications are due to be filed by September 12, 2014.

Our action in this regard is without prejudice to the Commission’s further examination and disposition,

based on a complete record, of the issues surrounding the former defaulter rules identified in a rulemaking

proceeding.

9.

Since the initial implementation of our auctions program, the Commission has required

auction participants to provide an upfront payment in order to qualify to bid in an auction.20 In adopting

this requirement in 1994, the Commission explained that upfront payments would help prevent frivolous

or insincere bidding and provide it with a source of funds from which to collect payments owed at the

close of an auction.21 The Commission also recognized that, in establishing an upfront payment

requirement it was “balancing the goal of encouraging bidders to submit serious, qualified bids with the

desire to simplify the bidding process and minimize implementation costs that will be imposed on

bidders.”22

The Commission further explained that such “balancing may yield different results depending

(Continued from previous page)

Association, to Marlene H. Dortch, Secretary, FCC, GN Docket No. 13-185, AU Docket No. 14-78 (filed August

28, 2014).

17 Three Associations August 14th Letter at 2; Three Associations August 20th Letter at 4-5.

18 See, e.g., Verizon Wireless Auction 97 Comment Public Notice Comments at 3–4 (stating that a waiver of the

former defaulter rule “entails no risk to the Commission of license payment defaults, because all applicants must pay

for their licenses in full before they will be granted”); Competitive Carriers Association Auction 97 Comment Public

Notice Comments at 5–6; Dish Network Corporation Auction 97 Comment Public Notice Comments at 19–20;

AT&T, Inc. Auction 97 Comment Public Notice Reply at 17–18 (requesting waiver of the former defaulter rule

entirely, or in the alternative, limiting the time and amount of the defaults or delinquencies considered). No party

has opposed the grant of a limited blanket waiver for Auction 97.

19 47 C.F.R. § 1.925(b)(3). See also 47 C.F.R. § 1.3; WAIT Radio v. FCC, 418 F.2d 1153 (D.C. Cir. 1969), appeal

after remand, 459 F.2d 1203 (D.C. Cir. 1972), cert. denied, 409 U.S. 1027; Northeast Cellular Tel. Co. v. FCC, 897

F.2d 1164 (D.C. Cir. 1990).

20 47 C.F.R. § 1.2106.

21 See Implementation of Section 309(j) of the Communications Act – Competitive Bidding, PP Docket No. 93-253,

Second Report and Order, 9 FCC Rcd 2348, 2377–78 ¶¶ 169–71(1994) (Competitive Bidding Second Report and

Order).

22 Id. at 2378 ¶ 171.

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on the particular licenses being auctioned” and concluded that the best approach was to retain the

flexibility to determine the amount of the upfront payment on an auction-by-auction basis.23 The

Commission reasoned that in so doing it would “be able to tailor the upfront payment requirement to the

auction design [selected] and to the characteristics of the licenses being auctioned.”24 Thus, in adopting

the upfront payment rule, the Commission was careful to retain the flexibility to tailor the upfront

payment requirement when circumstances warrant.25

10.

In 1998, after a large number of winning bidders from the Commission’s first auction of

Personal Communications Services C Block licenses (Auction 5) defaulted on their payment obligations,

the Commission decided that it would allow bidders that had previously defaulted in Commission

auctions to participate in C Block re-auctions as former defaulters, but reasoned that “the integrity of the

auctions program and the licensing process dictate[d] requiring a more stringent financial showing from

applicants with a poor Federal financial track record.”26 The Commission therefore amended its rules for

those auctions to require that a former defaulter pay an upfront payment of 50 percent more than the

normal amount set by the Wireless Telecommunications Bureau for any given license in a C Block re-

auction.27

11.

Subsequently, when the Commission on its own motion incorporated the former defaulter

provisions into the Part 1 general competitive bidding rules in 2000, the Commission found that, while it

was “necessary to limit participation in Commission auctions to entities that can certify that they are not

in default on certain debts, . . . past business misfortunes do not inevitably preclude an entity from being

able to meet its present and future responsibilities as a Commission licensee.”28 As a result, the

Commission reiterated its earlier reasoning in the C Block context and concluded that it would allow

entities that have defaulted or been delinquent in the past but have remedied their issues to participate in

Commission auctions, but would require such applicants to provide a larger upfront payment, for the

reasons it had identified earlier in connection with the C Block reauction.29 Since then, the former

defaulter rules have applied without any limitation as to age or scope of an applicant’s prior default or

delinquency.

12.

Several parties have submitted requests to modify the former defaulter rules or, in the

alternative, to waive the provisions on a limited basis. DIRECTV/EchoStar argue that, as currently

written, the former defaulter rules “apply too broadly to effectively advance the Commission’s goal of

ensuring that auction bidders are financially reliable.”30 The Four Associations mirror that sentiment and

suggest that the scope of the rule is unnecessary to achieve its purpose, particularly when the former

defaults or delinquencies are in a relatively small amount or were cured years prior.31 These parties have

23 Id.

24 Id.

25 Id. at 2378 ¶ 171 & n.132.

26 Amendment of the Commission’s Rules Regarding Installment Payment Financing for Personal Communications

Services (PCS) Licensees, WT Docket No. 97-82, Fourth Report and Order, 13 FCC Rcd 15743, 15761-62 ¶ 34

(1998) (C Block Fourth Report and Order).

27

Id.

28 Part 1 Fifth Report and Order, 15 FCC Rcd at 15316 ¶ 41, citing C Block Fourth Report and Order, 13 FCC Rcd

at 15753–54 ¶ 18.

29 Part 1 Fifth Report and Order, 15 FCC Rcd at 15316-17 ¶¶ 41-42, citing C Block Fourth Report and Order, 13

FCC Rcd at 15761-62 ¶ 34.

30 DIRECTV/EchoStar Petition at 2.

31 Four Associations May 30th Letter at 2.

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offered a variety of ways to limit the scope of the former defaulter inquiry, but all consistently contend

that the rules are unnecessarily broad to serve the underlying purpose of the rule.32

13.

DIRECTV/EchoStar further argue that a limited waiver of the former defaulter rules

would serve the public interest “by relieving auction applicants whose auction bona fides could not be

seriously questioned from incurring the financial costs associated with the upfront payment premium.”33

The Four Associations note that, while the Commission should re-examine the former defaulter rules in

the context of a rulemaking, there is “insufficient time to begin and complete such a proceeding before

AWS-3 applications will be due”34 and they therefore argue that a limited waiver “will serve the public

interest, by relieving bidders from incurring unnecessary financial costs that could discourage robust

participation in the auction and reduce the substantial revenues that must be raised for FirstNet and other

purposes.”35

14.

We conclude that grant of a limited waiver of the former defaulter rules for applicants in

Auction 97 is warranted because the underlying purposes of the upfront payment and former defaulter

rules would not be served by their broad application to the instant case and grant of a waiver would be in

the public interest. At the time of the adoption of these rules in 1998, the Commission had been assigning

licenses by auction for just four years, and had very recently experienced a large number of payment

defaults on C Block licenses for which eligibility was limited to small business “entrepreneurs.”36 Two

years later, in continuing to standardize and streamline its general competitive bidding rules, the

Commission incorporated these rules to apply to all future auctions.37 Thus, the former defaulter rules

were adopted during the nascent stage of both the Commission’s auctions program and the mobile

wireless industry generally. Moreover, many auction applicants were at that time relatively new entrants

into an emerging industry and their financial track records were still unproven.

15.

However, in the 14 years since the Commission last considered the underlying purpose of

the former defaulter rules, our auctions program has matured and the mobile wireless industry has grown

into a major segment of the nation’s economy. As we approach the short-form application deadline for

Auction 97, which is the first auction offering multiple blocks of spectrum licenses nationwide since

Auction 73 nearly eight years ago, we are mindful that more time has passed since Auction 73 than had

passed between our first spectrum license auction in 1994 and the incorporation in 2000 of the former

defaulter rule into our Part 1 competitive bidding rules. Accordingly, even a new entrant applicant that

may have participated in Auction 73 would now have a longer track record in the industry than many of

the applicants to which the rule applied when it was adopted in 1998 and 2000. Moreover, other potential

applicants for this auction include entities with wireless industry and auction experience that date back to

the earliest days of our auctions program. Thus, the pool of potential Auction 97 applicants – including

those that fall within the scope of the former defaulter rules – appears less likely to produce bidders who

lack the experience that can lead to unrealistic bids and bidding defaults that could threaten the integrity

32 See, e.g., DIRECTV/EchoStar Petition at 5-7; Four Associations May 30th Letter at 3.

33 DIRECTV/EchoStar Petition at 11.

See also DIRECTV/EchoStar et al. Aug. 13, 2010 Ex Parte Letter at 7-9

(asserting that Auction 66 applicants deemed former defaulters paid over $8 million in lost interest, and Auction 73

applicants deemed former defaulters paid $7.3 million in lost interest).

34 Four Associations May 30th Letter at 3.

35 Id. at 3-4.

36 In order to qualify as an “entrepreneur,” an applicant, together with its affiliates and persons or entities that hold

interests in the applicant and their affiliates, must have had gross revenues of less than $125 million in each of the last two

years and must have less than $500 million in total assets. See 47 C.F.R. § 24.709. See also Broadband PCS Spectrum

Auction Scheduled for January 12, 2005, Notice and Filing Requirements, Minimum Opening Bids, Upfront Payments and

Other Procedures for Auction No. 58, Public Notice, 19 FCC Rcd 18190, 18194-5 (2004) (background information on

entrepreneur and C Block eligibility).

37 Part 1 Fifth Report and Order, 15 FCC Rcd at 15316-17 ¶¶ 41-42.

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of the auction. In addition, the application of the former defaulter rules as originally adopted could

require applicants that are now well-established in a mature industry to make larger upfront payments

based on very old or relatively small defaults or delinquencies by today’s standards. Such larger upfront

payments could dampen participation by bidders based on debts that are not indicative of their current

ability to meet their financial obligations.

16.

A limited blanket waiver to narrow the scope of the former defaults or delinquencies that

require submission of a larger upfront payment balances our goal of encouraging bidders to submit

serious, qualified bids with our need to simplify the bidding process and minimize implementation costs

for bidders, while also providing reasonable assurance that bidders are financially reliable, consistent with

the underlying purposes of our upfront payment and former defaulter rules.

Appropriately balancing our

goals under the upfront payment and former defaulter rules is particularly important here to serve the

public interest because it will help promote broad, robust participation in Auction 97, one of the auctions

authorized by the Spectrum Act, which will provide the sole source of federal funding for the Public

Safety Trust Fund (PSTF) for FirstNet and other priorities.38

17.

Therefore, we waive the former defaulter rules for Auction 97 applicants to exclude

certain former defaults or delinquencies from consideration for purposes of requiring larger upfront

payments in Auction 97 from former defaulters.

First, we exclude any cured default or delinquency for

which the notice of the final payment deadline or delinquency was received more than seven years before

the Auction 97 short-form application deadline (i.e., September 12, 2014).39 Various interested parties

previously suggested that the former defaulter upfront payment requirement should apply only to prior

defaults or delinquencies that occurred within a three-year window prior to an auction application.40

One

such party notes that a three-year period corresponds to certain federal tax statute of limitations.41 Most

recently, the Three Associations suggest that we should define former defaulters to include only those

applicants who have received notice of defaults or delinquencies within seven years before the Auction 97

short-form application deadline.42 Based on the limited record we have received relating to a waiver for

38 See Middle Class Tax Relief and Job Creation Act of 2012, Pub. L. No. 112-96, 126 Stat. 156 (2012) (“Spectrum

Act”), codified at 47 U.S.C. § 1401 et seq.

39 Depending on the origin of any federal non-tax debt giving rise to a default or delinquency, notice to a debtor may

include notice of a final payment deadline or notice of delinquency and may be express or implied. Consistent with

guidance previously provided with respect to applicability of the former defaulter rules, see, e.g., Letter to Cheryl A.

Tritt, Esq., from Margaret Wiener, Chief, Auctions and Spectrum Access Division, Wireless Telecommunications

Bureau, 19 FCC Rcd 22907 (2004) (Cheryl Tritt Letter), for purposes of the certifications required on a short-form

auction application, a debt will not be deemed to be in default or delinquent until after the expiration of a final

payment deadline.

Thus, to the extent that the rules providing for payment of a specific federal debt permit payment

after an original payment deadline accompanied by late fee(s), such debts would not be in default or delinquent for

purposes of applying the former defaulter rules until after the late payment deadline. In addition, we provide the

following clarification with regard to defaults on Commission licenses. Any winning bidder that fails timely to pay

its post-auction down payment or the balance of its bid payment or is disqualified for any reason after the close of an

auction will be in default and subject to a default payment.

See 47 C.F.R § 1.2109(c).

See also, e.g., Auction 97

Procedures Public Notice at para. 239.

Commission staff provide individual notice of the amount of such a default

payment as well as procedures and information required by the Debt Collection Improvement Act of 1996, including

the payment due date and any charges, interest, and/or penalties that accrue in the event of delinquency.

See, e.g.,

31 U.S.C. §§ 3716, 3717; see also 47 C.F.R. §§ 1.1911, 1.1912, 1.1940.

See also Auction of Lower and Upper

Paging Bands Licenses Closes; Winning Bidders Announced For Auction 95, Public Notice, 28 FCC Rcd 11848

(2013). For purposes of the certifications required on a short-form auction application, such notice provided by

Commission staff assessing a default payment arising out of a default on a winning bid, constitutes notice of the

final payment deadline with respect to a default on a Commission license.

40 See, e.g., DIRECTV/EchoStar Petition at 9.

41 See, e.g., DIRECTV/EchoStar Petition at 10-11.

42 Three Associations August 14th Letter at 2; Three Associations August 20th Letter at 4.

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Auction 97, we conclude that a three-year period may be insufficient to account for debts that could be

relevant to the ability of an auction applicant to meet its financial obligations. We note that while federal

tax laws have a three-year statute of limitations to determine if certain forms of additional tax are owed,

the period of limitations to determine whether income was under-reported is six years and the Internal

Revenue Service has a seven-year period to review a claim for a loss from worthless securities or a bad

debt deduction.43 Likewise, the Fair Credit Reporting Act limits many types of reporting by consumer

credit agencies for a period of seven years.44 Moreover, the most recent proposals favor a seven-year

period.45 We conclude that applying the former defaulter rule to any former default or delinquency for

which the notice of the final payment deadline or delinquency was received more than seven years before

the Auction 97 short-form application deadline would not serve the underlying purposes of the rules

under the circumstances of Auction 97, and waiver would serve the public interest.

18.

Second, we exclude any former default or delinquency for which the amount of the

resolved debt or delinquency falls below $100,000. Parties initially suggested excluding defaults or

delinquencies of what they define as a “de minimis nature” and suggest that we should ignore any former

default or delinquency totaling less than the lesser of $100,000 or 0.1 percent of the average annual

revenues of the applicant, as computed by our competitive bidding rules.46 Most recently, the Three

Associations suggest that we exclude from the definition of former defaulter any cured defaults on a

Commission license or delinquencies on a non-tax debt owed to a Federal agency in an amount of less

than $100,000.47

In the interest of achieving transparency, fairness, and efficiency in our auction

processes, we will apply a bright-line exclusion for debts less than $100,000 as suggested most recently

by the Three Associations. We note that $100,000 is the amount that the Commission and other agencies

have used for various purposes to distinguish between less significant or material issues and more

significant ones.48 Requiring a larger upfront payment based on any cured default or delinquency that is

less than $100,000 could discourage participation in Auction 97 without appreciably ameliorating the risk

of bidder defaults, and thereby undermine the underlying purposes of our upfront payment and former

defaulter rules. Accordingly, we conclude that a waiver of the former defaulter rules under these

circumstances would serve the public interest.

19.

Third, we waive the former defaulter rules for Auction 97 applicants to exclude any cured

default or delinquency where the debt was paid within two quarters (i.e., 6 months) after receiving the

notice of final payment deadline or delinquency. The Three Associations most recently urge this limit on

the application of the former defaulter provisions in order to address situations where, due to incorrect

addresses, delivery problems or internal issues, applicants may not timely pay USAC or other agency

obligations, but cure such debts when discovered.49 We note that such an approach is consistent with the

grace period provided in the installment payment context.50 We conclude that the timely cure of such a

default or delinquency sufficiently demonstrates an applicant’s financial wherewithal and therefore it is

unnecessary to require a larger upfront payment from the applicant in Auction 97. Moreover, a waiver

43 See, e.g., 26 U.S.C. § 6511(d)(1).

44 15 U.S.C. § 1681c.

45 Three Associations August 14th Letter at 2.

46 DIRECTV/EchoStar Petition at 8–9. See also Four Associations May 30th Letter at 3.

47 Three Associations August 14th Letter at 2; Three Associations August 20th Letter at 3-4.

48 Three Associations August 20th Letter at 3-4 (noting that $100,000 is the threshold for forfeiture orders that can

be issued on delegated authority, establishing “material noncompliance” with the Commission’s rules according to

the Universal Service Administrative Company, and determining materiality in certain arbitration contexts).

49 Three Associations August 20th Letter at 4-5.

50 See 47 C.F.R.§ 1.2110(g)(4) (allowing two additional quarter grace periods). See also Cheryl Tritt Letter.

8

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Federal Communications Commission

FCC 14-130

under these circumstances serves the public interest by encouraging prompt payment of debts owed to the

government.

20.

Finally, we waive the former defaulter rules for Auction 97 to exclude any default or

delinquency that was the subject of a legal or arbitration proceeding and was cured upon resolution of the

proceeding.51 The Three Associations most recently suggested that for purposes of the waiver an

applicant should not be considered to be “in default if any debt . . . is the subject of a good faith dispute or

a pending legal or arbitration proceeding.”52 We include this suggestion in part. Specifically, we

conclude in these circumstances, as we do for the six month period discussed above, that the applicant has

demonstrated sufficient financial credibility so that we do not need to require a larger upfront payment

from the applicant in Auction 97. Similarly, a waiver under such circumstances serves the public interest

by encouraging prompt resolution of debts associated with legal or arbitration proceedings. We decline,

however, to waive the larger upfront payment requirement for debts that are subject to a “good faith

dispute.” A “good faith dispute” provision, even for cured debts, would be too ambiguous to be

efficiently applied during the auction short-form application process. While an applicant could verify that

a debt was paid after litigation or arbitration, it would be difficult to verify—in short order during the

short-form application process—that a debt was paid after a “good faith dispute.”

21.

We conclude that grant of this limited blanket waiver will best balance the underlying

purposes of the upfront payment rules and former defaulter rules by encouraging broad, robust

participation in Auction 97, while continuing to ensure that auction bidders are financially reliable. If an

Auction 97 applicant has been in default on a Commission license or has been delinquent on any non-tax

debt owed to any Federal agency, and the relevant default or delinquency falls outside the exclusions set

forth in this Order, it must certify to being a former defaulter and submit a larger upfront payment. If an

applicant has been in default on a Commission license or has been delinquent on any non-tax debt owed

to any Federal agency, it nevertheless may certify that it has not been in default or been delinquent so

long as the only relevant defaults or delinquencies fall within the exclusions described in this Order.53

IV.

ORDERING CLAUSES

22.

Accordingly, IT IS ORDERED that, pursuant to the authority contained in sections 4(i),

4(j), and 303(r) of the Communications Act, 47 U.S.C. §§ 154(i), 154(j), 303(r), and sections 1.3 and

1.925 of the Commission’s rules, 47 C.F.R. §§ 1.3 and 1.925, we waive application of 47 C.F.R.

§§ 1.2105(a)(2)(xi), and 1.2106(a) to the extent described herein.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

51 Regarding debts that were the subject of legal proceedings or arbitration, we specifically exclude proceedings

based on requests for waiver of a rule requiring payment of a debt or delinquency. See Cheryl Tritt Letter at n.2.

52 Three Associations August 20th Letter at 2.

53 When submitting a short-form application to participate in a Commission auction, applicants must certify that the

applicant, its affiliates, its controlling interests, and the affiliates of its controlling interests have never been in

default on any Commission license and have never been delinquent on any non-tax debt owed to any Federal

agency, or otherwise must agree to submit a larger upfront payment.

9

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