PUBLIC NOTICE FEDERAL COMMUNICATIONS COMMISSION News Media Information: (202) 418-0500 445 12th Street S.W. Fax-On-Demand: (202) 418-2830 Washington, D.C. 20554 Internet: http://www.fcc.gov ftp.fcc.gov DA 99-2594 November 19, 1999 SUPPLEMENTAL CLOSED BROADCAST AUCTION SCHEDULED FOR MARCH 21, 2000 COMMENT SOUGHT ON RESERVE PRICES OR MINIMUM OPENING BIDS AND OTHER AUCTION PROCEDURAL ISSUES Report No. AUC-99-28-A (Auction No. 28) By this Public Notice, the Mass Media Bureau ("MMB") and the Wireless Telecommunications Bureau ("WTB") (collectively, "Bureaus") announce the auction of certain AM, FM, LPTV and TV broadcast construction permits to commence March 21, 2000. All spectrum to be auctioned is the subject of pending, mutually exclusive applications for referenced broadcast services for which the Commission has not approved settlement agreements obviating the need for an auction. In Auctions No. 25 and No. 27, recently completed, the Commission auctioned similar groups of construction permits. This Supplemental Closed Broadcast Auction shall dispose of the remaining broadcast applications not included in those earlier Auctions. This shall include mutually exclusive applications for full service AM, FM and television applications that were subject to the comparative freeze pending resolution of the issues raised by Bechtel II. In addition, included in the Supplemental Closed Broadcast Auction are certain mutually exclusive LPTV and TV translator displacement relief applications. Pursuant to the Broadcast First Report and Order, participation in the auction will be limited to those applicants identified in this Public Notice and applicants will be eligible to bid only on those construction permits for which they previously filed long form applications (FCC Forms 301 or 349). Construction permits will be auctioned for each of the mutually exclusive applicant groups ("MX Groups") identified on Attachment A. In some, but not all, of the MX Groups listed on Attachment A, a "daisy chain" of mutual exclusivity exists whereby applications are directly mutually exclusive with certain applications in the MX Group but not others ("Daisy Chain MX Groups"). A "daisy chain" occurs when two or more non-table, site-based applications propose service areas that do not directly overlap, but are linked together into a chain by the overlapping proposal(s) of other(s). In such cases, the potential exists to grant more than one application and issue more than one construction permit per MX Group and remain consistent with the Commission's separation requirements relating to site-based services. The identification of "daisy chains"on Attachment A is provisional in nature, since the final configuration of groups cannot be ascertained until after the filing of short-form (FCC Form 175) applications, at which point mutual exclusivity for auction purposes arises. At that time, a final identification and enumeration of "daisy chain" MX Groups will be made and a public notice will be released providing this information ("Status PN"). It is possible that some MX Groups provisionally identified here as constituting a daisy chain may, after the short form filing deadline, become directly mutually exclusive. In such cases(s), the proposal set forth below in this notice pertaining to applications that are directly mutually exclusive with each other ("Direct MX Groups") become applicable. Attachment A lists the MX Groups categorized on a service-by-service basis, accompanied by the respective reserve prices/minimum opening bids and upfront payments. The groups involving provisional daisy chain situations are noted. All MX Groups identified in Attachment A have been subject to competition through the opening and closing of the period for filing competing applications through the two-step cut-off list procedures, or through an application filing window. Pursuant to the Broadcast First Report and Order, in those specific situations where both non-commercial and commercial applicants for full power stations filed mutually exclusive long-form applications for non-reserved band channels, auctions shall not be conducted at this time and these applications are not included on Attachment A. The total number of long form applications being disposed of in this proceeding is 60. These long form applications are grouped together in a total of 14 MX groups, 8 of which are provisional daisy chain groups. I. Reserve Price or Minimum Opening Bid The Balanced Budget Act of 1997 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 or construction permits are subject to auction (i.e., because the applications are mutually exclusive), unless the Commission determines that a reserve price or minimum bid is not in the public interest. Consistent with this mandate, the Commission has directed the Bureaus to seek comment on the use of minimum opening bids and/or reserve prices prior to the start of each broadcast auction. This is consistent with policy applied in earlier spectrum auctions, including the recently completed Closed Broadcast Auctions. The Commission has concluded that either or both of these mechanisms may be employed for auctions and has delegated the requisite authority to make determinations regarding the appropriateness of employing either or both. 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 acceptable bid price set at the beginning of a multiple round auction. It too constitutes a minimum amount below which no bids are accepted and 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. In anticipation of these auctions and in light of the Balanced Budget Act, the Bureaus propose to establish minimum opening bids for Direct MX Groups and reserve prices for the Daisy Chain MX Groups. The Bureaus believe that use of minimum opening bids, which have been utilized in other simultaneous, multiple round auctions, is an effective practice for conducting the auction of the Direct MX Groups, since the competitive bidding design we propose for those groups features simultaneous, multiple rounds. For the Daisy Chain MX Groups, on the other hand, where a single round format is proposed, we will utilize published reserve prices, which will function in a single round context much like the minimum opening bids in the multiple round format. Minimum opening bids for the Direct MX Groups will help to regulate the pace of the auction. The proposed minimum opening bids were determined by taking into account various factors related to the efficiency of the auction and the potential value of the spectrum. For the television construction permits, we have based the proposed minimum opening bids upon the type of service that will be offered, market size, industry cash flow data and recent broadcast transactions. For the radio construction permits, we have based the proposed minimum opening bids upon the service and class of facility that will be offered, the population covered by the proposed facilities for which parties intend to bid and recent broadcast transactions. Comment is sought on this proposal. If commenters believe the reserve prices and minimum opening bids proposed in Attachment A will result in a substantial number of unsold construction permits, or, in particular instances, do not constitute reasonable amounts, they should explain why this is so, and comment on the desirability of an alternative approach. Commenters are advised to support their claims with specific valuation analyses and suggested reserve prices or minimum opening bid levels or formulas. Commenters should detail any alternative method they propose for valuing given spectrum, providing examples and citations for each part of their formula. Alternatively, comment is sought on whether, consistent with the Balanced Budget Act, the public interest would be served by having no minimum opening bids or reserve prices. II. Other Auction Procedural Issues The Balanced 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 Balanced 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 Bureaus, under their existing delegated authority, to seek comment on a variety of auction-specific issues prior to the start of each auction. Pursuant to our delegated authority as contained in the Broadcast First Report and Order, we seek comment on the following issues. a. Auction Sequence, License Groupings and Auction Design The Commission proposes two separate auction designs to award these construction permits, one for the Daisy Chain MX Groups and one for Direct MX Groups. For the Daisy Chain MX Groups, the Commission will employ an electronic single round auction to determine the winner(s). We have concluded that the disposition of these construction permits in this manner is most appropriate because of the complexity of the overlapping nature of the permits in these groups. For Direct MX Groups, the Commission will employ an electronic simultaneous multiple round auction format. We have concluded that the disposition of these construction permits in this manner is the most administratively appropriate and allows bidders to utilize the same competitive bidding design option successfully employed in the recently concluded Closed Broadcast Auction. We believe that the use of these designs furthers the public interest by enhancing efficient spectrum usage. We seek comment on these proposals. b. Structure of Bidding Rounds For the Daisy Chain MX Groups, we propose that there will be a single round in which each bidder must place a bid that meets or exceeds the established reserve price. Bidders will enter their bids in whole dollar amounts. The determination of the winning bidder in each of the Daisy Chain MX Groups shall be made by finding the set of bids on non-overlapping coverage areas that accrue to the greatest amount. For example, consider the case of an MX Group consisting of a "daisy chain" of three potential bidders (Bidders 1, 2 and 3) interested in three construction permits in the MX Group (respectively Construction Permits A, B and C) such that A is MX'ed with B and B is MX'ed with C. This means that either A and C can both be assigned or B can be assigned, but not A and B, B and C or A, B and C. In order for Bidder 2 to win construction permit B, its bid would have to exceed the combined bids of Bidders 1 and 3 on construction permits A and C, respectively. All bids will be time-stamped and in the case of tie bids, the first complete combination of bids placed first-in-time shall be considered the winning bid combination. For the Direct MX Groups, we propose a single stage, simultaneous multiple round auction. In order to ensure that the auction closes within a reasonable period, an activity rule requires bidders to bid actively on a percentage of their maximum bidding eligibility during each round of the 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. We propose that, in each round of the auction, a bidder desiring to maintain its current eligibility is required to be active on construction permits encompassing one hundred (100) 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, see Section e.). We seek comments on these proposals. c. Reserve Prices and Minimum Accepted Bids For the Daisy Chain MX Groups, each bidder must place a bid that meets or exceeds the established reserve price as indicated in Attachment A. Bidders will enter their bids in whole dollar amounts. For the Direct MX Groups, the bid level will begin at the established minimum opening bid as indicated in Attachment A. Once there is a standing high bid on a construction permit, a bid increment will be applied to that construction permit to establish a minimum acceptable bid for the following round. We propose to set a minimum 10% increment. This means that a new bid placed by a bidder must be at least 10% greater than the previous bid received on that construction permit. The Bureaus retain the discretion to change the methodology for determining the minimum bid increment if they determine the circumstances so dictate. Bidders will enter their bids as multiples of the bid increment (i.e., with a 10% bid increment, a bid of 1 increment will place a bid 10% above the previous high bid, a bid of 2 increments will place a bid 20% above the previous high bid). We seek comment on these proposals. d. Initial Maximum Eligibility for Each Bidder Bidders will be required to submit an upfront payment for each construction permit on which they are qualified for and interested in placing a bid. The Bureaus have delegated authority and discretion to determine an appropriate upfront payment for each construction permit being auctioned, taking into account such factors as efficiency of the auction process and the potential value of the spectrum. Eligibility for participation depends on whether an applicant has timely tendered its upfront payment and has otherwise complied with all of the Commission's rules relating to participation. Bidders will be required to submit an upfront payment for each construction permit on which they are qualified for and interested in placing a bid. With these guidelines in mind, we propose the schedule of upfront payments contained in Attachment A to this Public Notice. We seek comment on this proposal. e. Activity Rule Waivers and Reducing Eligibility For the Daisy Chain MX Groups, because of the single round format, activity rule waivers and reducing eligibility are not applicable. For the Direct MX Groups, 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 construction permit. 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 automated auction system assumes that bidders with insufficient activity at the close of a round 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 round where a bidder's activity level is below the minimum required unless: (1) there are no more activity rule waivers available; or (2) the bidder overrides the automatic application of a waiver by reducing eligibility thereby meeting the minimum requirements. We propose that 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 would be permanently reduced to bring the bidder into compliance with the activity rules as described above. Once eligibility has been reduced, a bidder would not be permitted to regain its lost bidding eligibility. We propose that 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, under the simultaneous stopping rule. The submission of a proactive waiver cannot occur after a bid has been submitted in a round and will preclude a bidder from placing any bids later in that round We propose that each bidder be provided with five activity rule waivers that may be used in any round during the course of the simultaneous multi-round auction as set forth above. We seek comment on these proposals. f. Bid Removal and Bid Withdrawal For the Daisy Chain MX Groups, we propose the following bid removal and bid withdrawal procedures. Before the close of the bidding period, a bidder has the option of removing any bids placed. By using the remove bid function in the software, a bidder may effectively "unsubmit" any of its bids placed in the single round auction. A bidder removing a bid is not subject to withdrawal payments. Bid withdrawals after the close of the bidding round are not applicable to the single round auction. We seek comment on this proposal. For the Direct MX Groups, 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. 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 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 WTB, 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 WTB 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 it finds that a bidder is abusing the Commission's bid withdrawal procedures. Applying this reasoning, we propose to limit each bidder in the auction 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 these proposals. g. Stopping Rule and Waivers For the Daisy Chain MX Groups, the Bureaus propose to conduct a single round of bidding and declare the auction over at the conclusion of this bidding period. The Bureaus propose a single, two hour bidding period. The Bureaus retain the discretion to increase or decrease this time limit by announcement before the auction if circumstances so dictate. We seek comment on this proposal, and, specifically, whether a bidding period of greater or less than two hours should be employed. For the Direct MX Groups, the Bureaus propose to employ a simultaneous stopping approach. The Bureaus have 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 construction permits 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 construction permits. Thus, unless circumstances dictate otherwise, bidding would remain open on all construction permits until bidding stops on every construction permit. The Bureaus seek comment on a modified version of the simultaneous stopping rule. The modified stopping rule would close the auction for all construction permits after the first round in which no bidder submits a proactive waiver, a withdrawal, or a new bid on any constructions on which it is not the standing high bidder. Thus, absent any other bidding activity, a bidder placing a new bid on a construction permit for which it is the standing high bidder would not keep the auction open under this modified stopping rule. The Bureaus further seek comment on whether this modified stopping rule should be utilized. We propose that the Bureaus 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 Bureaus reserve the right to declare that the auction will end after a specified number of additional rounds ("special stopping rule"). If the Bureaus invoke this special stopping rule, it will accept bids in the final round(s) only for construction permits on which the high bid increased in at least one of the preceding specified number of rounds. The Bureaus propose 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 Bureaus are likely to attempt to increase the pace of the auction by, for example, increasing the number of bidding rounds per day, and/or increasing the amount of the minimum bid increments for the limited number of construction permits where there is still a high level of bidding activity. We seek comment on these proposals. h. Information Relating to Auction Delay, Suspension or Cancellation We propose that, by Public Notice or by announcement during the auction, the Bureaus 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 Bureaus, in their sole discretion, may elect to: resume the auction starting from the beginning of the current bidding period; resume the auction starting from some previous bidding period; or cancel the auction in its entirety. Network interruption may cause the Bureaus to delay or suspend the auction. We emphasize that exercise of this authority is solely within the discretion of the Bureaus, 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. III. Conclusion Comments in response to this Public Notice are due on or before December 6, 1999 and Reply Comments are due on or before December 16, 1999. To file formally, parties must submit an original and four copies to the Office of the Secretary, Federal Communications Commission, 445 Twelfth Street, SW, 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, 445 Twelfth Street, SW, Room No. 4-A760, Washington, DC 20554. Comments and reply comments will be available for public inspection during regular business hours in the FCC Public Reference Room in the Commission's headquarters at 445 Twelfth Street, SW, Washington, D.C. 20554. For further information concerning this proceeding, contact Shaun Maher, Video Services Division, Mass Media Bureau at (202) 418-1600, Lisa Scanlan, Audio Services Division, Mass Media Bureau at (202) 418-2700 or Bob Reagle, Auctions and Industry Analysis Division, Wireless Telecommunications Bureau, at (717) 338-2807. - FCC - Public Notice, FCC Freezes Comparative Hearings, 9 FCC Rcd 1055 (1994), modified, 9 FCC Rcd 6680 (1994), further modified, 10 FCC Rcd 12182 (1995). Bechtel v. FCC, 10 F.3d 875, 878 (D.C. Cir. 1993). See Public Notice, Low Power Television and Television Translators: Mutually Exclusive Displacement Applications, Mimeo No. 85299 (rel. Sept. 2, 1998); see also Public Notice, Commission Postpones Initial Date for Filing TV Translator and Low Power TV Applications for Displacement Channels, Mimeo No. 82914 (rel. April 16, 1998). The Commission adopted service and competitive bidding rules for mass media services, including standard broadcast (AM), frequency modulation (FM), full service commercial television (TV) and Instructional Television Fixed Service (ITFS). Also adopted were rules for the secondary services of low power television (LPTV), FM translator and television translator. See Implementation of Section 309(j) of the Communications Act -- Competitive Bidding for Commercial Broadcast and Instructional Television Fixed Service Licenses, First Report and Order in MM Docket No. 97-234, GC Docket No. 92-52 and GEN Docket No. 90-264, 13 FCC Rcd 15920 (1998) ("Broadcast First Report and Order") and Order on Reconsideration of the Matter of the Implementation of Section 309(j) of the Communications Act -- Competitive Bidding for Commercial Broadcast and Instructional Television Fixed Service Licenses, FCC 99-74, rel. April 20, 1999 ("Broadcast Reconsideration Order") . See Broadcast First Report and Order at 81, 105-109. Section 3002(a), Balanced Budget Act of 1997, Pub. L. 105-33, 111 Stat. 251 (1997) ("Balanced Budget Act"); 47 U.S.C.  309(j)(4)(F). The Commission's authority to establish a reserve price or minimum opening bid is set forth in 47 C.F.R.  1.2104(c) and (d). See Amendment of Part 1 of the Commission's Rules -- Competitive Bidding Procedures, Allocation of Spectrum Below 5 GHz Transferred from Federal Government Use, 4660-4685 MHz, WT Docket No. 97-82, ET Docket No. 94-32, FCC 97-413, Third Report and Order and Second Further Notice of Proposed Rule Making, 13 FCC Rcd 374, 454-455, 141 (1998) ("Part 1 Third Report and Order") and Broadcast First Report and Order, 127-128. Auctions No. 25 and No. 27 concluded October 8, 1999, after 35 rounds and 15 rounds, respectively. Broadcast First Report and Order, 13 FCC Rcd at 15967, 127. See, e.g., Auction of 800 MHz SMR Upper 10 MHz Band, Minimum Opening Bids or Reserve Prices, DA 97-2147, Order, 12 FCC Rcd 16354 (1997); see, also, Broadcast Reconsideration Order, 134. Balanced Budget Act,  3002(a)(E)(i). See Amendment of Part 1 of the Commission's Rules-Competitive Bidding Proceeding, WT Docket No. 97-82, FCC 97-60, Order, Memorandum Opinion and Order, and Notice of Proposed Rule Making, 12 FCC Rcd 5686, 5677, 16 (1997) ("Part 1 Order, Memorandum Opinion and Order, and Notice of Proposed Rule Making") ("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.") See also, Broadcast First Report and Order, 134. Part 1 Third Report and Order, 13 FCC Rcd at 448, 124. The Commission directed the Bureau to seek comment on specific mechanisms related to day-to-day auction conduct including, for example, the structure of bidding rounds and stages, establishment of minimum opening bids or reserve prices, minimum accepted bids, initial maximum eligibility for each bidder, activity requirements for each stage of the auction, activity rule waivers, criteria for determining reductions in eligibility, information regarding bid withdrawal and bid removal, stopping rules, and information relating to auction delay, suspension or cancellation. Id. 125. See Part 1 Order, Memorandum Opinion and Order, and Notice of Proposed Rule Making, 12 FCC Rcd at 5697-98, 16 (1997); see also Broadcast First Report and Order, 129-134. See 47 C.F.R.  1.2104(g); 1.2109. Part 1 Third Report and Order, 13 FCC Rcd at 460, 150. 47 C.F.R.  1.2104(e) and 73.5001(b) . See 47 C.F.R.  1.2104(i). ? ?