PUBLIC NOTICE FEDERAL COMMUNICATIONS COMMISSION 1919 M STREET, N.W. WASHINGTON, D.C. 20554 News Media Information: (202) 418-0500 Fax-On-Demand: (202) 418-2830 Internet: http://www.fcc.gov ftp.fcc.gov DA 98-2318 November 12, 1998 C BLOCK PCS SPECTRUM AUCTION SCHEDULED FOR MARCH 23, 1999 COMMENT SOUGHT ON AUCTION PROCEDURAL ISSUES Report No. AUC-98-23-A (Auction No. 22) By this Public Notice, the Wireless Telecommunications Bureau ("Bureau") announces an auction of C block broadband personal communications services ("PCS") licenses set to begin on March 23, 1999 (Auction No. 22). Auction No. 22 will cover licenses for operation on frequencies that were previously licensed under now-cancelled licenses, licenses for operation on 30 MHz and 15 MHz spectrum blocks that were returned to the Commission pursuant to elections, and licenses for operation on frequencies that had not been previously licensed. A list of licenses is included at Attachment A. In addition, future public notices could include information about other Commission licenses in conjunction with Auction No. 22. Future public notices will include further details regarding application filing and payment deadlines, a seminar for potential bidders, and other pertinent information. In this Public Notice, we seek comment on procedural issues relating to Auction No. 22. I. Reserve Price or Minimum Opening Bid The Balanced Budget Act of 1997 ("Budget Act") calls upon the Commission to prescribe methods by which a reasonable reserve price will be required or a minimum opening bid established when FCC licenses are subject to auction (i.e., because the Commission has accepted mutually exclusive applications for those licenses), unless the Commission determines that a reserve price or minimum bid is not in the public interest. Normally, a reserve price is an absolute minimum price below which an item will not be sold in a given auction. Reserve prices can be either published or unpublished. A minimum opening bid, on the other hand, is the minimum bid price set at the beginning of the auction below which no bids are accepted. It is generally used to accelerate the competitive bidding process. Also, in a minimum opening bid scenario, the auctioneer generally has the discretion to lower the amount later in the auction. The Commission in the C Block Further Notice sought comment on the use of a minimum opening bid and/or reserve price for the upcoming C block PCS auction. The Commission stated that, for the upcoming C block auction, employing a minimum opening bid, more than a reserve price, would help make certain that the public is fairly compensated, the auction is expedited, and the Commission is able to make adjustments based on the competitiveness of the auction. Accordingly, the Commission proposed to use a minimum opening bid, rather than a reserve price, for the upcoming C block auction and requested comment on this proposal, as well as on which methodology to employ and factors to consider in establishing minimum opening bids. The Commission proposed minimum opening bids for each market equal to ten percent of the corresponding net high bid for the market in the original C block auction. The Commission asked commenters to explain whether this proposal would be reasonable or would result in a substantial number of unsold licenses. The Commission asked further whether the amount of the minimum opening bid should be capped and whether the Commission should establish a different amount. In the C Block Fourth Report and Order, which resolved issues raised in the C Block Further Notice, the Commission decided that it would be appropriate to establish minimum opening bids for each market in the upcoming C block auction equal to ten percent of the corresponding net high bid for the market in the original C block auction. The Commission stated, however, that the Bureau may exercise its discretion to set forth minimum opening bids smaller than ten percent if, based upon further evaluation, the Bureau believes that a smaller amount is warranted. In considering a reduction of the minimum opening bid, the Bureau would consider such factors as the amount of spectrum being auctioned, levels of incumbency, the availability of technology to provide service, the size of the geographic service areas, issues of interference with other spectrum bands, and any other relevant factors that could reasonably affect valuation of the spectrum being auctioned. The Commission made no adjustment to the minimum opening bid for those licenses which, in Auction No. 22, will be 15 MHz rather than 30 MHz. The Bureau, however, believes that such an adjustment is appropriate and, accordingly, proposes to establish as the minimum opening bid for each 15 MHz license available in Auction No. 22 an amount equal to five percent of the most recent net high bid for the corresponding 30 MHz license, but in no event lower than the upfront payment amount for that license in Auction No. 22 (see discussion of upfront payments immediately below). For 15 MHz licenses with minimum opening bids that would otherwise be lower than upfront payment amounts, the Bureau proposes to establish minimum opening bids that equal the upfront payment amounts. For each 30 MHz license available in Auction No. 22, the Bureau plans to establish a minimum opening bid equal to ten percent of the most recent corresponding net high bid for the license, but in no event lower than the upfront payment amount for that license in Auction No. 22. For 30 MHz licenses with minimum opening bids that would otherwise be lower than upfront payment amounts, the Bureau plans to establish minimum opening bids that equal the upfront payment amounts. Minimum opening bid amounts are provided in Attachment A. II. Upfront Payments and Initial Maximum Eligibility for Each Bidder In the C Block Further Notice, the Commission explained that, in the Competitive Bidding Second Report and Order, it had indicated that the upfront payment should be set using a formula based upon the amount of spectrum and population ("pops") covered by the license(s) for which the parties intend to bid and that the amount of the upfront payment should be determined on an auction-by-auction basis. The Commission proposed in the C Block Further Notice to set an upfront payment for the upcoming C block auction at $0.06 per MHz per pop. The Commission determined that this amount was appropriate to further its goal of allowing only serious, qualified applicants to participate in the auction. The Commission noted that it had adopted the same upfront payment for its most recent broadband PCS auction, the D, E, and F block auction. In the C Block Fourth Report and Order, the Commission noted that there was support among commenters for setting the upfront payment amount at the proposed $0.06 per MHz per pop and expressed its belief that in the upcoming C block auction the upfront payment should be no higher than this amount. Accordingly, the Bureau plans to set the upfront payment amount for each license in Auction No. 22 at $0.06 * MHz * Pops (rounded up to the next dollar). We note, however, that in the C Block Fourth Report and Order the Commission stated that the Bureau may establish a lower upfront payment if it deems a lower amount to be reasonable. As required by the C Block Fourth Report and Order, the upfront payment amount for "former defaulters," i.e., applicants that have ever been in default on any Commission licenses or have ever been delinquent on any non-tax debt owed to any Federal agency, will be fifty percent more than the normal amount required to be paid. For Auction No. 22, we propose that the amount of the upfront payment submitted by a bidder will determine the initial maximum eligibility (as measured in bidding units) for each bidder. Upfront payments will not be attributed to specific licenses, but instead will be translated into bidding units to define a bidder's initial maximum eligibility, which cannot be increased during the auction. Thus, in calculating the upfront payment amount, an applicant must determine the maximum number of bidding units it may wish to bid on (or hold high bids on) in any single round, and submit an upfront payment covering that number of bidding units. We seek comment on this proposal. III. Attribution Rules The attribution rules set forth in Section 24.709 of the Commission's rules will apply to Auction No. 22. IV. Other Auction Procedural Issues The Budget Act requires the Commission to "ensure that, in the scheduling of any competitive bidding under this subsection, an adequate period is allowed. . . before issuance of bidding rules, to permit notice and comment on proposed auction procedures. . ." Consistent with the provisions of the Budget Act and to ensure that potential bidders have adequate time to familiarize themselves with the specific provisions that will govern the day-to-day conduct of an auction, the Commission directed the Bureau, under its existing delegated authority, to seek comment on a variety of auction-specific issues prior to the start of each auction. We therefore seek comment on the following issues. a. Auction Sequence and License Groupings In the C Block Further Notice, the Commission proposed a simultaneous multiple-round design for the upcoming C block auction, and it received no comments opposing this proposal. Accordingly, in the C Block Fourth Report and Order, the Commission stated that the simultaneous multiple-round design would be appropriate for the upcoming C block auction. The Commission noted, however, that it remains within the Bureau's authority to seek comment on, and to modify, the competitive bidding design of the upcoming C block auction, if the Bureau determines that another design might be warranted. In light of this history, and because a simultaneous multiple-round design allows bidders to take advantage of any synergies that exist among licenses, we propose to award all C block PCS licenses currently available for auction in a single, simultaneous multiple-round auction. We seek comment on this proposal. b. Structure of Bidding Rounds, Activity Requirements, and Criteria for Determining Reductions in Eligibility In the C Block Further Notice, the Commission tentatively concluded that a C block auction should be conducted in three stages. The Commission proposed to use high activity requirements, with bidders required to be more active in each subsequent stage than they had been in the last. The Commission also proposed requiring the Bureau to use its delegated authority to schedule bidding rounds aggressively, to move quickly into the next stage of the auction when bidding activity falls, and to use higher minimum bid increments for very active licenses. In the Part 1 Third Report and Order, the Commission directed the Bureau to seek comment prior to the start of each auction on activity requirements for each stage of the auction and activity rule waivers. No party opposed the Commission's tentative conclusion to conduct a C block auction in three stages. Accordingly, in the C Block Fourth Report and Order, the Commission expressed its continued belief that this structure would be reasonable for the upcoming C block auction. The Commission noted, however, that the Bureau normally determines the structure of the auction and stated that it remains within the Bureau's discretion to deviate from the proposed three-stage structure if, after appropriate notice and comment, the Bureau determines that a different structure would better serve the public interest. Accordingly, we propose to divide the auction into three stages: Stage One, Stage Two and Stage Three. The auction will start in Stage One. We propose that the auction will generally advance to the next stage (i.e., from Stage One to Stage Two, and from Stage Two to Stage Three) when the auction activity level, as measured by the percentage of bidding units receiving new high bids, is below ten percent for three consecutive rounds of bidding in each Stage. However, we further propose that the Bureau retain the discretion to change stages unilaterally by announcement during the auction. In exercising this discretion, we will consider a variety of measures of bidder activity including, but not limited to, the auction activity level, the percentages of licenses (as measured in bidding units) on which there are new bids, the number of new bids, and the percentage increase in revenue. We seek comment on these proposals. In order to ensure that auctions close within a reasonable period of time, the Commission imposes an activity rule that requires bidders to bid actively on a percentage of their maximum bidding eligibility during each round of an auction rather than waiting until the end to participate. A bidder that does not satisfy the activity rule will either lose bidding eligibility in the next round or use an activity rule waiver. For Auction No. 22, we propose that, in each round of Stage One of the auction, a bidder desiring to maintain its current eligibility must remain active on licenses encompassing at least 80 percent of its current bidding eligibility. Failure to maintain the requisite activity level will result in a reduction in the bidder's bidding eligibility in the next round of bidding (unless an activity rule waiver is used). During Stage One, reduced eligibility for the next round will be calculated by multiplying the current round activity by five-fourths (5/4). In each round of the second stage of the auction, a bidder desiring to maintain its current eligibility is required to be active on at least 90 percent of its current bidding eligibility. During Stage Two, reduced eligibility for the next round will be calculated by multiplying the current round activity by ten-ninths (10/9). In each round of Stage Three, a bidder desiring to maintain its current eligibility is required to be active on 98 percent of its current bidding eligibility. In this final stage, reduced eligibility for the next round will be calculated by multiplying the current round activity by fifty forty-ninths (50/49). We seek comment on these proposals. c. Minimum Accepted Bids Once there is a standing high bid on a license, a bid increment will be applied to that license to establish a minimum acceptable bid for the following round. For Auction No. 22, we propose to use a smoothing methodology to calculate bid increments. This methodology will be designed to vary the increment for a given license between a maximum and minimum value based on the bidding activity on that license. A similar methodology was used in previous auctions, including the original LMDS auction and the 220 MHz auction. The Bureau proposes initial values for the maximum of 0.2 or 20% of the license value, and a minimum of 0.1 or 10% of the license value. We seek comment on this proposal. The Bureau retains the discretion to change these values if circumstances so dictate, such as raising the minimum increment toward the end of the auction to enable bids to reach their final values more quickly. The Bureau will do so by announcement in the Automated Auction System. Under its discretion, the Bureau may also implement an absolute dollar floor for the bid increment to further facilitate a timely close of the auction. The Bureau further seeks comment on the advantages and disadvantages of using the discretion to adjust the minimum bid increment without prior notice. The Bureau additionally seeks comment on the advantages and disadvantages of, as an alternative approach, adjusting the minimum bid increment gradually over a number of rounds as opposed to single large changes in the minimum bid increment. The Bureau also retains the discretion to use alternate methodologies for Auction No. 22 if circumstances warrant. We seek comment on these proposals. d. Activity Rule Waivers and Reducing Eligibility Use of an activity rule waiver preserves the bidder's current bidding eligibility despite the bidder's activity in the current round being below the required minimum level. An activity rule waiver applies to an entire round of bidding and not to a particular license. Activity waivers are principally a mechanism for auction participants to avoid the loss of auction eligibility in the event that exigent circumstances prevent them from placing a bid in a particular round. The FCC auction system assumes that bidders with insufficient activity would prefer to use an activity rule waiver (if available) rather than lose bidding eligibility. Therefore, the system will automatically apply a waiver (known as an "automatic waiver") at the end of any bidding period where a bidder's activity level is below the minimum required unless: (1) there are no activity rule waivers available; or (2) the bidder overrides the automatic application of a waiver by reducing eligibility thereby meeting the minimum requirements. A bidder with insufficient activity that wants to reduce its bidding eligibility rather than use an activity rule waiver must affirmatively override the automatic waiver mechanism during the bidding period by using the reduce eligibility function in the software. In this case, the bidder's eligibility is permanently reduced to bring the bidder into compliance with the activity rules as described above. Once eligibility has been reduced, a bidder will not be permitted to regain its lost bidding eligibility. A bidder may proactively use an activity rule waiver as a means to keep the auction open without placing a bid. If a bidder submits a proactive waiver (using the proactive waiver function in the bidding software) during a bidding period in which no bids are submitted, the auction will remain open and the bidder's eligibility will be preserved. An automatic waiver invoked in a round in which there are no new valid bids will not keep the auction open. We propose that each bidder in Auction No. 22 be provided with five activity rule waivers that may be used in any round during the course of the auction as set forth above. We seek comment on this proposal. e. Information Regarding Bid Withdrawal and Bid Removal In the C Block Fourth Report and Order, the Commission directed the Bureau, in conducting the upcoming C block auction, to follow the Part 1 rule on bid withdrawal, Section 1.2104(g), to the extent applicable. Accordingly, for Auction No. 22, we propose the following bid removal and bid withdrawal procedures. Before the close of a bidding period, a bidder has the option of removing any bids placed in that round. By using the remove bid function in the software, a bidder may effectively "unsubmit" any bid placed within that round. A bidder removing a bid placed in the same round is not subject to withdrawal payments. Once a round closes, a bidder may no longer remove a bid. However, in the next round, a bidder may withdraw standing high bids from previous rounds using the withdraw bid function. A high bidder that withdraws its standing high bid from a previous round is subject to the bid withdrawal payment provisions. We seek comment on these bid removal and bid withdrawal procedures. In the Part 1 Third Report and Order, the Commission recently explained that allowing bid withdrawals facilitates efficient aggregation of licenses and the pursuit of efficient backup strategies as information becomes available during the course of an auction. The Commission noted, however, that in some instances bidders may seek to withdraw bids for improper reasons, including to delay the close of the auction for strategic purposes. The Bureau, therefore, has discretion, in managing the auction, to limit the number of withdrawals to prevent strategic delay of the close of the auction or other abuses. The Commission stated that the Bureau should assertively exercise its discretion, consider limiting the number of rounds in which bidders may withdraw bids, and prevent bidders from bidding on a particular market if the Bureau finds that a bidder is abusing the Commission's bid withdrawal procedures. Applying this reasoning, we propose to limit each bidder in Auction No. 22 to withdrawals in no more than two rounds during the course of the auction. To permit a bidder to withdraw bids in more than two rounds would likely encourage insincere bidding or the use of withdrawals for anti-competitive strategic purposes. The two rounds in which withdrawals are utilized will be at the bidder's discretion; withdrawals otherwise must be in accordance with the Commission's rules. There is no limit on the number of standing high bids that may be withdrawn in either of the rounds in which withdrawals are utilized. Withdrawals will remain subject to the bid withdrawal payment provisions specified in the Commission's rules. We seek comment on this proposal. f. Stopping Rule For Auction No. 22, the Bureau proposes to employ a simultaneous stopping approach. The Bureau has discretion "to establish stopping rules before or during multiple round auctions in order to terminate the auction within a reasonable time." A simultaneous stopping rule means that all licenses remain open until the first round in which no new acceptable bids, proactive waivers, or withdrawals are received. After the first such round, bidding closes simultaneously on all licenses. Thus, unless circumstances dictate otherwise, bidding would remain open on all licenses until bidding stops on every license. The Bureau seeks comment on a modified version of the simultaneous stopping rule. The modified stopping rule would close the auction for all licenses after the first round in which no bidder submits a proactive waiver, a withdrawal, or a new bid on any license on which it is not the standing high bidder. Thus, absent any other bidding activity, a bidder placing a new bid on a license for which it is the standing high bidder would not keep the auction open under this modified stopping rule. The Bureau further seeks comment on whether this modified stopping rule should be used unilaterally or only in stage three of the auction. We propose that the Bureau retain the discretion to keep an auction open even if no new acceptable bids or proactive waivers are submitted and no previous high bids are withdrawn. In this event, the effect will be the same as if a bidder had submitted a proactive waiver. The activity rule, therefore, will apply as usual; and a bidder with insufficient activity will either lose bidding eligibility or use a remaining activity rule waiver. Finally, we propose that the Bureau reserve the right to declare that the auction will end after a specified number of additional rounds ("special stopping rule"). If the Bureau invokes this special stopping rule, it will accept bids in the final round(s) only for licenses on which the high bid increased in at least one of the preceding specified number of rounds. The Bureau proposes to exercise this option only in certain circumstances, such as, for example, where the auction is proceeding very slowly, there is minimal overall bidding activity, or it appears likely that the auction will not close within a reasonable period of time. Before exercising this option, the Bureau is likely to attempt to increase the pace of the auction by, for example, moving the auction into the next stage (where bidders would be required to maintain a higher level of bidding activity), increasing the number of bidding rounds per day, and/or increasing the amount of the minimum bid increments for the limited number of licenses where there is still a high level of bidding activity. We seek comment on these proposals. g. Information Relating to Auction Delay, Suspension or Cancellation For Auction No. 22, we propose that, by public notice or by announcement during the auction, the Bureau may delay, suspend or cancel the auction in the event of natural disaster, technical obstacle, evidence of an auction security breach, unlawful bidding activity, administrative or weather necessity, or for any other reason that affects the fair and competitive conduct of competitive bidding. In such cases, the Bureau, in its sole discretion, may elect to: resume the auction starting from the beginning of the current round; resume the auction starting from some previous round; or cancel the auction in its entirety. Network interruption may cause the Bureau to delay or suspend the auction. We emphasize that exercise of this authority is solely within the discretion of the Bureau, and its use is not intended to be a substitute for situations in which bidders may wish to apply their activity rule waivers. We seek comment on this proposal. V. Conclusion Comments are due on or before November 30, 1998, and reply comments are due on or before December 7, 1998. To file formally, parties must submit an original and four copies to the Office of the Secretary, Federal Communications Commission, Room 222, 1919 M Street N.W., Washington, D.C. 20554. In addition, parties must submit one copy to Amy Zoslov, Chief, Auctions and Industry Analysis Division, Wireless Telecommunications Bureau, Federal Communications Commission, Room 5202, 2025 M Street N.W., Washington, D.C. 20554. Comments and reply comments will be available for public inspection during regular business hours in the FCC Public Reference Room, Room 239, 1919 M Street N.W., Washington, D.C. 20554. For further information concerning this proceeding, contact Audrey Bashkin, Bob Reagle, or Jeff Garretson, Auctions and Industry Analysis Division, Wireless Telecommunications Bureau, at (202) 418-0660. - FCC -