Report No. DC-2621 ACTION IN DOCKET CASE June 29, 1994 COMMISSION ADOPTS COMPETITIVE BIDDING PROCEDURES FOR BROADBAND PCS (PP DOCKET NO. 93-253) The Commission today set the stage for the largest and most important auction of public assets in history. Reaffirming its goal of creating rules for new services that will stimulate vigorous competition, economic growth and diverse business opportunities, the FCC today adopted service-specific rules for competitive bidding on licenses to be awarded for Personal Communications Services in the 2 GHz band (broadband PCS). This decision also creates an unprecedented and historic opportunity for more diversity among the wireless service providers of tomorrow. This decision will spur competition in a booming new industry, generate economic growth and create hundreds of thousands of new jobs. It will also benefit the public by raising money to reduce the federal deficit. FCC Chairman Reed E. Hundt said, "In the long and tragic history of inequality between races and gender in America, today we are creating the greatest single opportunity ever made fairly available to small businesses, women and minorities. For the first time in our nation's history, the federal government is creating opportunities in a new industry in which all Americans will have a fair chance to compete from day one. We are all proud to be associated with this historic step toward a better future for all Americans." Today's decision supports the Commission's June 9, 1994 action that established the spectrum allocation and technical service rules for broadband PCS. The June 9 decision increased the value of all broadband PCS licenses by placing all of these licenses in one contiguous band and by increasing the number of 30 MHz licenses. That decision was designed to increase competition among service providers by allowing for a wide variety of firms to pursue their visions of PCS and respond to consumer demand. (over) - 2 - Today's action sets forth the rules for the broadband PCS auctions. It provides that the broadband PCS licenses will be awarded through a series of simultaneous multiple round auctions. The decision also specifies procedural requirements and rules regarding payment for licenses, and adopts safeguards to prevent collusion in the auctions and unjust enrichment afterwards. In addition, the Commission adopted a "Competitive Opportunity Plan", under which "entrepreneurs' blocks" are established, which is designed to fulfill the statutory mandate to ensure that small businesses, rural telephone companies and businesses owned by minorities and/or women (collectively referred to as "designated entities") have the opportunity to participate in providing broadband PCS. The Commission set forth an installment payment plan for all those eligible for the entrepreneurs' block licenses that is narrowly tailored to meet the specific needs of the various groups that will compete for licenses. The plan also affords bidding credits to small businesses and businesses owned by minorities and women which reflect the evidence in the record regarding difficulties facing these groups in raising capital. "This Competitive Opportunity Plan," said FCC General Counsel William E. Kennard, "employs all the tools suggested by Congress to create meaningful business opportunities. The plan is narrowly tailored to address the historic barriers to entry confronting the designated entities." Attached are summaries of the Commission's decisions concerning auction design and the provisions adopted for designated entities. Action by the Commission June 29, 1994, by Fifth Report and Order (FCC 94-178). Chairman Hundt, Commissioners Quello, Barrett, Ness and Chong, with Commissioners Quello, Barrett, Ness and Chong issuing separate statements. - FCC - News Media contacts: Karen Watson, Susan Lewis Sallet, or Audrey Spivack at (202) 418-0500. Office of General Counsel contacts: Sara Seidman at (202) 418-1700 or Peter Tenhula at (202) 418-1713. Office of Plans and Policy contacts: Jonathan Cohen at (202) 418-2040 or Evan Kwerel at (202) 418-2045. - 3 - AUCTION DESIGN With respect to auction design, the Commission:  Reaffirmed that broadband PCS meets the statutory criteria for competitive bidding;  Decided that broadband PCS licenses should be awarded through a series of simultaneous multiple round auctions. In the March 8th Second Report and Order, the Commission determined that when licenses are of relatively high value and the license values are highly interdependent, simultaneous multiple round bidding conveys the greatest amount of information to bidders during an auction. Thus, simultaneous multiple round auctions will enable the Commission to assign licenses to those who value them most highly and who will make the most efficient use of the scarce spectrum resource and ultimately render the greatest benefits to the American public.  Determined that three separate auctions of broadband PCS licenses will be held. The first auction will be for the 99 available 30 MHz licenses on frequency blocks A and B, which will be awarded for Major Trading Areas (or MTAs) as defined by the Rand McNally 1992 Commercial Atlas. The second auction will be for the 986 30 MHz and 10 MHz Basic Trading Area (or BTA) licenses on blocks C and F, respectively. The 986 BTA licenses on blocks D and E will be auctioned last. This sequence allows the licenses with the greatest interdependence to be in the same auction. Holding a sequence of auctions (rather than auctioning all 2,071 available broadband PCS licenses at the same time) also allows the Commission to start its broadband PCS auction program with an auction of relatively manageable size, and spacing the broadband PCS auctions will facilitate the processing of applications since not all applications will be filed at the same time.  Adopted activity rules requiring bidders to bid on licenses covering a portion of the population they hope to serve in each round of bidding so that these auctions proceed at a reasonable pace. Also, the Commission will apply a simultaneous stopping rule in broadband PCS auctions. This rule provides that bidding on all of the licenses being auctioned at the same time will remain open until no acceptable bids are received on any of the licenses. -4-  Specified bid withdrawal, default and disqualification penalties to ensure that all bids are sincere.  Set forth payment and procedural rules for applicants in broadband PCS auctions. These include: (1) Upfront payment requirement: to qualify to bid in a broadband PCS auction, applicants will be required to make an upfront payment of two cents per MHz for the maximum population coverage for which they wish to bid in any single round in the auction. (2) Down payment requirement: except for winning bidders that are eligible for installment payments, winning bidders must make a down payment equal to 20 percent of their winning bids. (Winning bidders that are eligible for installment payments will only be required to make down payments equalling 5 percent of their winning bids.) (3) Full payment requirement: if the Commission finds an applicant qualified and grants it a license, the applicant must make full payment of its bid within five business days of the license grant. Again, an applicant that is eligible for installment payments will receive preferential treatment, paying only an additional 5 percent of the winning bid, with the remaining 90 percent of the bid amount becoming the principal in the licensee's installment obligation to the government. The grant of all licenses will be conditioned on timely payment of all amounts due.  Adopted safeguards to prevent collusion in the auctions and unjust enrichment afterwards. -5- PROVISIONS FOR DESIGNATED ENTITIES Today's action will generate significant opportunities for a new generation of telecommunications providers. Among its actions with respect to designated entities, the Commission:  Designated frequency blocks C and F as "entrepreneurs' blocks," in which eligibility to bid will be limited to businesses whose (1) gross revenues in each of the last two years did not exceed $125 million, and (2) total assets are not in excess of $500 million. The entrepreneurs' blocks will permit smaller businesses to participate in auctions without facing head-to-head competition from very large companies, thereby carrying out Congress's objective that the Commission disseminate licenses to a wide variety of applicants.  Established a range of provisions within the entrepreneurs' blocks to enable the winners of these licenses to compete effectively with the winners of other PCS licenses and with other wireless service providers. In addition, these provisions are designed to directly address the largest obstacle facing designated entities in general and businesses owned by women and minorities in particular -- access to capital. The provisions include: (1) Bidding credits of 10 percent for small businesses, 15 percent for businesses owned and controlled by minorities and/or women, and 25 percent for small businesses owned and controlled by minorities and/or women; (2) Installment payment plans that will be available to all winning bidders for the entrepreneurs' blocks in the 50 largest BTAs. In the remaining BTAs, installment payment plans will be available to businesses owned and controlled by minorities and/or women and to winning bidders whose gross revenues in each of the last two years did not exceed $75 million. The installment payment plan generally provides for payment of interest only for the first year of the license term with interest and principal amortized over the remaining 9 years. The interest charges will be set at a rate equal to the 10 year Treasury note rate plus 2.5%. The FCC will provide "enhanced" -6- installment payment plans for small businesses and businesses owned and controlled by women and minorities, as follows: Small businesses (those with attributable gross revenues not greater than $40 million): Interest rate equal to 10 year Treasury note rate +2.5%; payment of interest only for two years from license grant. Businesses owned and controlled by minorities and/or women: Interest rate equal to 10 year Treasury note rate; payment of interest only for three years from license grant. Small businesses that are owned and controlled by minorities and/or women: Interest rate equal to 10 year Treasury note rate; payment of interest only for five years from license grant. (3) A relaxed attribution standard for businesses owned and controlled by minorities and/or women to enable them to overcome historic difficulties they have faced in raising capital. In general, the gross revenues and assets of an investor in an applicant for the entrepreneurs' blocks will be attributed to that applicant if the investor holds more than 25 percent of the applicant's equity or more than 5 percent of the voting interests. In addition, investors in businesses owned by minorities and/or women will be permitted to own up to 49.9 percent of the applicant's equity and 5 percent of the voting interests without their gross revenues and assets being attributed to the applicant, if the minorities and/or women maintain ownership of at least 50.1 percent of the equity and 50.1 percent of the voting interests. This provision should enable businesses owned and controlled by minorities and women to more easily attract investment.  Adopted a tax certificate program that would grant tax certificates to investors in minority- and woman-owned business and to PCS licensees who assign or transfer control of their authorization to women- or minority-owned business in post auction sales. Tax certificates will also be granted to cellular companies who sell their cellular interests to women- or minority-owned business to come into compliance with cellular/PCS overlap rules. -7-  Provided for geographic partitioning of PCS licenses by rural telephone companies to encourage the provision of PCS service in rural areas.  Limited the number of licenses within the entrepreneurs' blocks that a single entity may win at the auction to ten percent of the available licenses in these blocks. This will help ensure the Commission meets the Congressional objective to avoid undue concentration and to disseminate licenses widely.