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/ Wednesday, April 08, 1998
[Federal Register: April 8, 1998 (Volume 63, Number 67)]
[Rules and Regulations]
[Page 17111-17123]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08ap98-12]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 1 and 24
[WT Docket No. 97-82; FCC 98-46]
Installment Payment Financing for Personal Communications
Services (PCS) Licensees
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this Order on Reconsideration of the Second Report and
Order, the Commission generally affirms the framework established in
the Second Report and Order but allows elections among the four payment
options--disaggregation, amnesty, prepayment, and resumption of
payments--to be made on a Major Trading Area (MTA) basis and makes
certain other modifications to the options in order to provide C block
licensees greater flexibility in making their elections. The changes
will allow more of the existing licensees to adjust their business
plans and remain in the wireless market to compete against other
providers, while also providing for the return of spectrum to the
Commission so that other entrepreneurs will have opportunities to
obtain broadband PCS licenses in a reauction.
EFFECTIVE DATE: June 8, 1998.
[[Page 17112]]
FOR FURTHER INFORMATION CONTACT: Rachel Kazan or Julie Buchanan at
(202) 418-0660.
SUPPLEMENTARY INFORMATION: This Order on Reconsideration of the Second
Report and Order in WT Docket No. 97-82, adopted on March 23, 1998, and
released on March 24, 1998, is available for inspection and copying
during normal business hours in the FCC Reference Center, Room 239,
1919 M Street, N.W., Washington, D.C. 20554. The complete text may be
purchased from the Commission's copy contractor, International
Transcription Service, Inc., 1231 20th Street, N.W., Washington, D.C.
20036 (202) 857-3800. The complete Order on Reconsideration of the
Second Report and Order also is available on the Commission's Internet
home page (http://www.fcc.gov).
Summary of Action
I. Background
1. On September 25, 1997, the Commission adopted a Second Report
and Order and Further Notice of Proposed Rule Making (Second Report and
Order) and (Further Notice), 62 FR 55348 (October 24, 1997),
establishing March 31, 1998, as the deadline for broadband Personal
Communications Services (PCS) C and F block licensees to resume
installment payments. In addition, the Commission offered C block
licensees a choice of three alternative payment options in lieu of
resuming payments under the terms of the original payment plan. The
three options were intended to provide limited relief to C block
licensees experiencing financial difficulties, while preserving the
fairness and integrity of the auction process.
2. In response to the rulings in the Second Report and Order, the
Commission received 37 petitions for reconsideration, 17 oppositions to
the petitions, 16 replies to the oppositions, and 38 ex parte filings.
After considering the arguments raised in those filings, the Commission
generally affirmed the framework established in the Second Report and
Order but made certain modifications designed to provide C block
licensees greater flexibility in making their elections. These changes
improve upon the Second Report and Order by allowing more of the
existing licensees to adjust their business plans and remain in the
wireless market to compete against other providers, while also
providing for the return of spectrum to the Commission so that other
entrepreneurs will have opportunities to obtain broadband PCS licenses
in a reauction. In a forthcoming Order, the Commission will address
comments filed in response to the Further Notice, which covers rules
for the reauction of returned C block licenses.
3. Consistent with Congress' mandate in section 309(j)(4)(D) of the
Communications Act of 1934, as amended, 47 U.S.C. Sec. 309(j)(4)(D), to
promote the participation of small businesses and other designated
entities in the provision of spectrum-based services, the Commission
limited eligibility in the initial C block auctions to entrepreneurs
and small businesses. The C block auction concluded on May 6, 1996, and
the subsequent reauction of defaulted licenses concluded on July 16,
1996, with a total of 90 bidders winning 493 licenses. The winning
bidders were permitted to pay 90 percent of their net bid price over a
period of ten years, paying only interest for the first six years and
paying both interest and principal for the remaining four years. See 47
CFR 24.711(b)(3). The net bid price is equal to the winning bid less
any bidding credits for which the licensee was eligible. See 47 CFR
24.712.
4. On March 31, 1997, the Wireless Telecommunications Bureau (the
Bureau) suspended the deadline for payment of installment payments for
all C block licensees. The suspension was implemented in response to a
joint request from several C block licensees seeking modification of
their installment payment obligations and because of other debt
collection issues. 62 FR 55348, 55349. On April 28, 1997, the Bureau
extended the suspension to F block licensees. Id. On September 25,
1997, the Commission ended this suspension and established March 31,
1998, as the deadline for C and F block licensees to resume their
installment payments. Id.
5. The Commission decided in the Second Report and Order to allow
each C block licensee to elect one of three options for all of its
licenses in lieu of continuing payments under the licensee's original
installment payment plan. 62 FR 55348. Each of the three options--
disaggregation, amnesty, and prepayment--was intended to provide
limited relief to financially troubled licensees without harming the
integrity of the auction process. Id.
6. The Commission required C block licensees to file a written
election notice on or before January 15, 1998, specifying whether they
would resume payments under the terms of the original installment
payment plan or would proceed under one of the alternative options. Id.
at 55353. On January 7, 1998, the Commission postponed the election
date until February 26, 1998, in order to resolve issues raised on
reconsideration before licensees submitted their elections. 63 FR 2170.
In addition, the Commission announced that the reauction of spectrum
surrendered by C block licensees pursuant to their elections would
begin on September 29, 1998. Id. On February 24, 1998, the Commission
revised both the February 26, 1998, election date and the March 31,
1998, payment resumption date. 63 FR 10153. It changed the election
date to 60 days from publication of this Order in the Federal Register
and the payment resumption date to at least 30 days after the new
election date. Id.
II. Overview
7. In this Order on Reconsideration of the Second Report and Order
(Reconsideration Order), the Commission continues to believe that the
relief provided C block licensees in the Second Report and Order will
speed deployment of service to the public by easing lenders' and
investors' concerns regarding regulatory uncertainty and by potentially
making more capital available for investment and growth. Although the
decision adopted in the Second Report and Order largely should be
maintained, certain aspects of the adopted approach might constrain
many C block licensees from making use of the relief measures offered.
A few adjustments to the adopted approach will better allow the
Commission to effectuate its intent to provide C block licensees a
limited measure of relief under the unique but varied circumstances
presented. The Commission therefore leaves the basic framework intact
while altering it slightly to allow licensees to be more flexible in
making their elections for licenses in different geographic areas, to
use more of the down payments already on deposit, and to be more
flexible in the use of those down payments.
8. The Commission eliminates the requirement that a licensee must
make the same election for all its licenses. Instead, it allows a
licensee to make different elections for the different MTAs in which it
holds licenses. The election made for an MTA will apply to every Basic
Trading Area (BTA) license held by the licensee in that MTA. As under
the Second Report and Order, the possible elections will include
resumption of payments, amnesty, prepayment, or disaggregation. As part
of the modifications to the adopted approach, the Commission will also
permit a combination of disaggregation and prepayment. Resumption of
payments and prepayment of 30 MHz licenses remain essentially the same
as
[[Page 17113]]
in the Second Report and Order. The amnesty and disaggregation options,
however, are modified, as detailed below.
9. In addition, the Commission adopts the following limited
modifications: (1) It extends to 90 days the 60-day non-delinquency
period for payments not made on the payment resumption date, and it
imposes a 5 percent late payment fee for payments made within this 90-
day non-delinquency period; (2) it instructs the Bureau to modify the
payment schedules of all C and F block licensees so that all payments
will be due on the same date; (3) it eliminates as moot the build-out
exception to the amnesty option; and (4) it clarifies that the
affordability exception in context of the prepayment option means that
a licensee electing prepayment that does not have sufficient funds to
prepay all of its BTA licenses within an MTA is required to prepay only
the BTA licenses within the MTA that it is able to prepay using only
the amount of credit available to the licensee for prepayment.
III. MTA-by-MTA Elections
10. Licensees will be better able to take advantage of the options
if they are allowed to make different elections for the different areas
in which they hold licenses. Therefore, the Commission eliminates the
requirement that a licensee must make the same election for all its
licenses. Instead, it establishes the rule that each a licensee is
permitted to make only one election for each MTA in which it holds
licenses. In other words, the same election must be applied to each BTA
license held in a given MTA, but different elections may be selected
for different MTAs.
11. By allowing elections to be made on an MTA-by-MTA basis, the
Commission enables licensees to make election decisions that are based
not solely on the elements of each option, but rather on licensees' own
business plans and financial situation. The Commission believes that
MTA-by-MTA elections will promote rapid deployment of service to the
public. See Communications Act Sec. 309(j)(3)(A), 47 U.S.C.
Sec. 309(j)(3)(A). Licensees will have more opportunity to localize
their business plans by surrendering licenses in markets where success
now seems unlikely due to financial difficulties. As a result, they
will be able to focus on providing service in those markets where they
have retained their licenses. In addition, the surrendered licenses
presumably will be reauctioned to entities better positioned to provide
service in those license areas. The Commission anticipates that MTA-by-
MTA elections will produce a more robust and competitive reauction. It
expects more licenses to be returned for reauction because a licensee
choosing disaggregation or resumption will now be free to surrender
licenses it was reluctant to keep, but was forced to do so under the
previous terms of those elections. Allowing those licenses to be
reauctioned to entities that are more committed, or better able, to
serve those markets will stimulate competition and benefit consumers.
Furthermore, permitting elections on an MTA-by-MTA basis will not
undermine the integrity of the auction process because licensees still
must pay the full amount of their licenses.
IV. Resumption of Payments
12. The Commission denies requests for a longer deferral of the
payment deadline and agrees with parties that urge it to reject any
attempts to extend further the suspension of payments. By the time they
must resume making payments, C and F block licensees will have enjoyed
a respite from their payment obligations substantially longer than one
year. A more extensive deferral would be unfair to unsuccessful bidders
that might not have withdrawn from the auction had they known of
deferral opportunities. As the Commission stated in the Second Report
and Order, a further deferral would be a temporary solution that might
only postpone licensees' financial difficulties and further prolong
uncertainty.
13. Although the Commission will not grant the lengthy postponement
requested by some parties, it will extend to 90 days the automatic 60-
day non-delinquency period applicable to payments due on the payment
resumption date. The Commission's rules allow a 90-day non-delinquency
period for all other installment payments. 47 CFR 1.2110(f)(4)(i).
Although the Commission stated in the Second Report and Order that a
shorter non-delinquency period was justified in light of the one-year
payment suspension, it now believes it preferable to make the length of
the non-delinquency period consistent with its rule for all other
payments. See 62 FR 55348, 55349. The Commission provides this 30-day
extension to assist licensees that are experiencing last-minute delays
in raising capital. By offering this additional time, the Commission
believes that it will help these licensees complete their fund-raising
efforts.
14. Consistent with its rule recently adopted for all other
payments, payments made within this 90-day non-delinquency period will
be assessed a 5 percent late payment fee. See 63 FR 2315, 2327; 47 CFR
1.2110(f)(4)(i). However, in light of the more than one-year suspension
and this expanded non-delinquency period, there will be no subsequent
automatic grace period for licensees that fail to make payment within
the 90-day non-delinquency period. See 63 FR 2315, 2327; 47 CFR
1.2110(f)(4)(ii). Subsequent payments, due after the initial resumption
payment, will be subject to the rules adopted in the Third Report and
Order in the Commission's Competitive Bidding Proceeding. See 63 FR
2315.
15. Under this plan, the Suspension Period, which the Commission
defined in the Second Report and Order as the period beginning with the
date on which each license was conditionally granted through and
including March 31, 1998, will still end on March 31, 1998. See 62 FR
55348, 55349. All interest accrued from the date of license grant
through March 31, 1998, (i.e., Suspension Interest) will continue to be
payable over eight equal payments. Interest accrued from April 1, 1998,
through the payment resumption date will be due on the payment
resumption date, in addition to one-eighth of the Suspension Interest.
The Commission believes that this plan will require licensees
continuing under an installment payment plan, either through resumption
or disaggregation, to demonstrate their financial viability by making a
reasonable payment on the payment resumption date. This payment will
provide evidence of the ability of licensees to gain access to the
capital necessary both to service their government debt obligations and
to provide service to the public. In addition, the Commission instructs
the Bureau to modify the payment schedule so that all C and F block
installment payments will be due on a quarterly basis, beginning on the
payment resumption date.
16. The Commission rejects a suggestion that Suspension Interest be
forgiven, as well as alternative proposals that Suspension Interest be
paid either in a balloon at the end of the ten-year installment payment
period or over six years in conjunction with other interest payments.
Because the Commission already has provided sufficient relief by
granting the one-year suspension, it will neither forgive nor defer
payment of the Suspension Interest. The Commission has accommodated
licensees sufficiently by allowing payment of the Suspension Interest
over eight equal payments.
17. The Commission also rejects requests from parties seeking a
deviation from the payment schedule
[[Page 17114]]
and from amounts established by the licensees' Notes. The Commission is
providing all C block licensees with an array of alternative payment
options, designed to accommodate licensees' various needs. These
options were developed and are now being modified in an effort to
balance complex and competing interests, with the recognition that it
is impossible to devise alternatives that satisfy every entity with an
interest in this proceeding. The record before the Commission does not
provide a sufficient basis for creating additional payment choices;
indeed, there is opposition to the Commission's doing so. Retroactively
changing the payment terms would be unfair to other applicants that
might have bid differently under more relaxed payment terms. Moreover,
the Commission has purposefully adopted an approach that does not
significantly alter the amounts paid for individual licenses.
18. Finally, the Commission will not adopt the proposal made by one
party that the Commission compensate in some way those licensees that
timely made the March 31, 1997, payment and, as a consequence, did not
benefit from a suspension of that payment obligation. Compensating
licensees for complying with Commission rules would establish a
precedent the Commission considers inadvisable. Furthermore, if a
licensee opts to return all its licenses, the Commission will refund
any installment payments previously submitted for those licenses. If a
licensee returns some licenses and retains others, the licensee will be
allowed to apply previously submitted installment payments toward the
prepayment of retained licenses or toward the Suspension Interest for
retained licenses which the licensee does not prepay. For example, if a
licensee elects resumption of payments for an MTA, any installment
payments previously submitted for a BTA license within that MTA will be
applied toward the Suspension Interest owed for that license. The
treatment of installment payments with respect to the disaggregation
and prepayment options is specified below. Therefore, because
installment payments will either be refunded or credited, the
Commission believes that additional compensation is unnecessary.
V. Surrender of Licenses for Reauction (Amnesty)
19. In the Second Report and Order, the Commission adopted an
amnesty option under which a C block licensee would be permitted to
surrender all of its licenses in exchange for relief from its
outstanding debt. 62 FR 55348, 55351. The Commission would waive any
applicable default payments, subject to coordination with the
Department of Justice pursuant to applicable federal claims collections
standards. Id.; see also 4 CFR parts 101-105. Licensees electing this
option would not have their down payments returned; however, neither
would they be deemed in default or delinquent in meeting government
debt obligations. 62 FR 55348, 55351. In addition, they would be
eligible to bid for any and all licenses in the reauction and would not
be restricted in making post-auction acquisitions. See id.
20. Subject to one exception, licensees availing themselves of the
amnesty option would be required to surrender all of their licenses to
the Commission. Id. The sole exception to this ``all-or-nothing'' rule
allowed licensees that met or exceeded the five-year build-out
requirement on September 25, 1997, the date of adoption of the Second
Report and Order, to keep licenses for built-out markets. Id.
Specifically, a licensee utilizing this exception would be allowed to
retain any built-out BTA, on the condition that it also keep any
additional BTAs in the MTA where the built-out BTA is located and that
it pay for all of those retained licenses under the terms of their
original notes. 62 FR 55348, 55351-52.
21. The Commission directed the Bureau to refund any installment
payments licensees had already made (whether due on or before March 31,
1997) on any license surrendered under the amnesty option and announced
that it would forgive payment of any due, but unpaid, installment
payments for any surrendered license. 62 FR 55348, 55352. Licensees
retaining licenses under the build-out exception were to pay over eight
equal payments (beginning with the payment due on March 31, 1998) all
Suspension Interest applicable to the retained licenses. All
installment payments previously made by the licensee on any of its
licenses would be applied to reduce the Suspension Interest applicable
to the retained licenses, and any amounts remaining would be refunded.
Id.
22. In keeping with the Commission's decision on reconsideration to
allow licensees to make elections on an MTA-by-MTA basis, the
Commission modifies the amnesty option to permit licensees to select
that option for as many of their MTAs as they choose. Because amnesty
no longer requires an ``all-or-nothing'' choice, the Commission
eliminates as moot the build-out exception.
23. The Commission originally adopted the ``all-or-nothing''
requirement for the amnesty option in order to prevent licensees from
``cherry-picking'' only the most desirable MTAs. 62 FR 55348, 55351.
The Commission believed that facilitating a ``cherry-picking'' scheme
would limit the potential for licenses to be aggregated, which would
decrease their value to bidders in the reauction. Id. On
reconsideration, the Commission finds persuasive the contention of one
party that requiring licensees to keep or surrender entire MTAs, rather
than BTAs, will sufficiently limit ``cherry-picking.'' The Commission
also agrees with that party that applying the amnesty option on an MTA-
by-MTA basis does not carry a risk of ``cherry-picking'' significantly
different from that connected with the original disaggregation option.
24. Several parties object to the fact that a licensee does not
receive any refund of its down payment under the amnesty option. As the
Commission explained in the Second Report and Order, its intent in
retaining the down payment was to ensure that licensees electing the
amnesty option and participating in the reauction of their surrendered
licenses do so without the undue advantage of having all of their
original funds available to repurchase the same spectrum they
surrendered. See id. The Commission further explained that licensees
selecting amnesty would benefit substantially by avoiding being
declared in default and thereby being freed from assessments of
delinquencies and other collection costs associated with default
payments. Id.; see also 47 CFR 1.2110(f)(4)(iii), (iv). This rationale
continues to be valid. If the Commission were to allow C block
licensees to return their licenses, receive a refund of their down
payments, and participate in the reauction, it would undermine the
integrity of the auction process by placing amnesty licensees in
virtually the same position they would have occupied had the initial C
block auction never taken place.
25. Nevertheless, the Commission recognizes that because all
elections now are being applied on an MTA-by-MTA basis, licensees are
permitted to return licenses in certain MTAs and retain licenses in
other MTAs, as with the prepayment option under the Second Report and
Order. Thus, licensees electing the amnesty option have the following
choice. For licenses in each MTA returned under the amnesty option, the
licensee may choose either to: (1) receive no credit for its down
payment(s) but remain eligible to bid in the reauction on all its
licenses in the returned MTA (pure amnesty), or (2) obtain credit for
70 percent of its down payment and forgo for a period of
[[Page 17115]]
two years from the start date of the reauction eligibility to reacquire
the licenses it surrendered pursuant to this option through either
reauction or any other secondary market transaction (amnesty/
prepayment).
26. For purposes of this two-year eligibility restriction, a
licensee includes qualifying members of the licensee's control group
and their affiliates. If a licensee opts to return all its licenses,
the Commission will refund any installment payments previously
submitted for those licenses. The 70 percent credit must be applied
toward prepayment of the entire principal owed for a retained MTA with
30 MHz licenses and/or toward prepayment of the entire principal owed
for the retained 15 MHz licenses of an MTA that has been disaggregated.
Providing an additional choice within the amnesty option substantially
increases the level of flexibility available to licensees and enables
them to formulate new business plans that may be more attractive to
lenders and investors.
VI. Prepayment
27. In the Second Report and Order, the Commission offered C block
licensees the option to prepay the outstanding principal debt
obligations for any licenses, on an MTA basis, that they elected to
retain, subject to the restriction described below. The remaining
licenses were required to be surrendered to the Commission for
reauction. 62 FR 55348, 55352. In exchange, the Commission would
forgive the debt on the surrendered licenses, and any associated
payments owed. Id. A licensee electing this option would make its
prepayment by using 70 percent of the total of all down payments made
on the licenses it surrendered to the Commission, plus 100 percent of
any installment payments previously paid for all licenses
(collectively, ``Available Down Payments''), plus any ``new money'' it
was able to raise. Id. The remaining portion of the down payment
applicable to the surrendered licenses would not be refunded or
credited but simply would be retained by the Commission. Id. Licensees
would be prohibited from bidding on their returned spectrum in the
reauction or from reacquiring it in the secondary market for two years
from the start of the reauction. 62 FR 55348, 55353. Licensees could,
however, bid on spectrum or licenses surrendered by other licensees,
provided such licensees were not affiliates.
28. The requirement that a licensee had to prepay all its BTA
licenses within those MTAs that it selected for prepayment prevented
``cherry-picking'' because licensees could not prepay only the most
desirable BTA licenses within a given MTA and then surrender the rest.
Id. The one exception to this rule was that any licensee lacking
sufficient funds to prepay every BTA license within a chosen MTA would
be permitted to prepay only those BTA licenses within that MTA that it
could afford. Id. The licenses for the remaining BTAs within that MTA
which the licensee could not afford to prepay would be surrendered to
the Commission.
29. In the Reconsideration Order, the Commission clarifies that the
term ``Available Down Payments,'' as used in the Second Report and
Order, was intended to include both 70 percent of the down payment made
on surrendered licenses and any installment payments previously
submitted for those licenses. See 62 FR 55348, 55352. The Commission
also explains that under its modified approach, the prepayment option
remains essentially the same as set forth in the Second Report and
Order. For any 30 MHz licenses that are returned to the Commission, the
licensee may continue to apply 70 percent of the down payment made on
those licenses toward the prepayment of the entire outstanding
principal owed in retained MTAs. The licensee may pool any down payment
amounts that have been designated for prepayment, plus installment
payments previously paid on any returned licenses. As described below,
down payment amounts may also come from disaggregated licenses if the
licensee uses the credit for prepayment. The Commission will refer to
this pool of credit as a licensee's ``Prepayment Credit.'' The term
``Prepayment Credit'' is essentially a substitution for the term
``Available Down Payments,'' updated to account for the additional
flexibility provided under the Commission's modified approach.
Prepayment Credit may be used to prepay any retained MTAs with 30 MHz
licenses. As discussed below, it also may be used to prepay the
retained 15 MHz licenses of any MTAs that have been disaggregated.
30. As under the Second Report and Order, any ``new money'' that is
used to make prepayment must be submitted on or before the election
date. Unlike under the Second Report and Order, affiliated licensees
will be allowed to combine their Prepayment Credits. See id. However,
any affiliated licensees that choose to pool their Prepayment Credits
will be considered one licensee for purposes of making elections.
Accordingly, the elections made by those affiliates must be made in
concert and must be made on an MTA-by-MTA basis, as is required of
individual licensees. Therefore, if affiliated licensees decide to pool
their credits, then all BTA licenses held by any of those affiliates
must be surrendered for credit in any MTA where one of their BTA
licenses is surrendered for credit. Similarly, those affiliated
licensees must collectively select MTAs for prepayment, and all BTA
licenses held by any of those affiliates in those selected MTAs must be
prepaid, subject to the affordability exception. Likewise, if those
affiliated licensees choose to disaggregate an MTA, then all BTA
licenses held by any of those affiliates in that MTA must be
disaggregated, and so on.
31. Credit pooling does not require the participation of all of a
licensee's affiliates. Any affiliate that chooses not to pool its
credit along with its other affiliates will be considered an individual
licensee for purposes of making elections. Allowing this flexibility is
consistent with the fact that, for purposes of the reauction, the
Commission considers a licensee and its affiliates to be the same
entity. This rule will also prevent licensees from being precluded from
electing prepayment by virtue of the fact that they transferred BTA
licenses to affiliates.
32. On reconsideration, the Commission clarifies that, for purposes
of its requirement that a licensee prepay all of those BTA licenses
within an MTA ``that it can afford,'' a licensee can ``afford'' to
prepay all of its BTA licenses within that MTA if it can prepay all BTA
licenses using only its Prepayment Credit. See 62 FR 55348, 55352-53.
If this amount is not enough to prepay all its BTA licenses within an
MTA, the licensee must prepay as many BTA licenses in the MTA as this
amount will allow and must surrender for reauction the remaining BTA
licenses that it cannot afford to prepay. Only under these
circumstances may a licensee choose, within the given MTA, which BTA
licenses to prepay and which to surrender. Once a licensee adds any
``new money'' at all to make prepayment, the affordability exception
does not apply, and the licensee must add sufficient ``new money''
that, when added to its Prepayment Credit, is adequate to prepay all
its BTA licenses within its chosen MTAs. A licensee claiming the
affordability exception may choose only one MTA in which it will apply,
and the licensee must prepay all of its BTA licenses within all other
MTAs that it has selected for prepayment. The Commission will not
refund any unspent portion of the Prepayment Credit.
[[Page 17116]]
33. Not receiving a refund of any unspent portion of the Prepayment
Credit is a reasonable price for being relieved of the requirement that
all BTA licenses in all MTAs be prepaid. The affordability exception
also will apply to disaggregated MTAs that the licensee wishes to
prepay. This clarification provides an objective means for licensees to
implement the affordability exception. It eliminates any doubt or
confusion regarding the scope of the term ``afford,'' and it is an
easy, bright-line test to administer. In addition, the restrictions the
Commission imposes on the affordability exception minimize a licensee's
ability to ``cherry-pick'' among BTAs.
34. In the Reconsideration Order, the Commission maintains its rule
that licensees electing the prepayment option will receive no refund or
credit for 30 percent of the down payment made on 30 MHz licenses they
surrender to the Commission. The Commission believes that retention of
this portion of the down payment is necessary to preserve the integrity
of the auction process. See Communications Act Sec. 309(j), 47 U.S.C.
Sec. 309(j). Furthermore, to return the entire down payment would
undermine the purpose of the down payment--to help ensure performance
on a licensee's debt obligation. See Communications Act
Sec. 309(j)(4)(B), 47 U.S.C. Sec. 309(j)(4)(B); In the Matter of BDPCS,
Inc., Order, 12 FCC Rcd 6606 (WTB 1997), application for review
pending. The Commission disagrees with parties that characterize
retention of a portion of the down payment as punitive, a penalty, or a
forfeiture. Thirty percent of the down payment is the fair and
reasonable price for receiving the benefits of this option. Moreover,
the prepayment option provides licensees with more flexibility in using
their down payments than is permitted under current rules.
35. The Commission disagrees with the claims of some parties that
it should account for the net present value of forgoing installment
payments or that it should otherwise discount the principal amount due
under the installment payment plan. The Commission properly rejected
this argument in the Second Report and Order. In the Second Report and
Order, the Commission stated that a licensee should be required to pay
the face value of its auction bid. 62 FR 55348, 55352. Accounting for
the net present value of forgoing installment payments would rewrite
the auction results because it would have the effect of changing the
amounts bid for licenses. Therefore, to do so would be unfair to those
bidders that withdrew from the auction under the assumption that the
winning bid amounts represented the prices that would be paid for the
licenses. Moreover, if the Commission were to discount the debt at a
licensee's cost of capital it would be impossible to determine
accurately a cost of capital for all licensees. The cost of capital
varies for each licensee because it is based on a licensee's individual
cost of debt and equity and on the ratio of debt to equity. Therefore,
no single discount rate would be appropriate for every licensee.
36. Because the Commission continues to support the policy that
auction bids should be paid at their face value, it will not discount
the principal due. Although the Commission provides favorable terms for
financing the bid price, the cost of an installment payment plan is the
interest that accrues over time. The benefit to a licensee for early
pay-off of its financial obligations is the savings in the amount of
interest that otherwise would be owed. This trade-off provides a
further reason for not discounting the principal.
37. The Commission declines to allow licensees choosing the
prepayment option to use the five-year build-out exception provided
under the amnesty option in the Second Report and Order. A build-out
exception is not needed because, under the Reconsideration Order,
licensees are permitted to retain any MTAs they wish, whether built-out
or not. Moreover, even under the approach adopted in the Second Report
and Order, a build-out exception was unnecessary because licensees had
the discretion to choose which MTAs to prepay and which to surrender,
as opposed to the ``all-or-nothing'' approach under the original
amnesty option. 62 FR 55348, 55353. In addition, the Commission
declines to allow licensees that hold both C and F block licenses to
use their C block down payment to purchase for cash their F block
licenses. Such flexibility is not warranted because the reduction of
debt associated with prepayment will help those licensees address their
capital needs in servicing their F block debt. Finally, the Commission
rejects an argument that the requirement that prepaying licensees must
purchase all BTA licenses held within an MTA is unfair to licensees
that have licenses in only one MTA. The requirement is essential to
prevent ``cherry-picking,'' and a licensee that cannot avail itself of
the prepayment option can either choose another option or limit its
purchases under the affordability exception, if applicable.
VII. Disaggregation of Spectrum for Reauction
38. In the Second Report and Order, the Commission offered C block
licensees the option to disaggregate a portion of their spectrum and
return it to the Commission for reauction. 62 FR 55348, 55350O51.
Licensees electing the disaggregation option would return one-half
(i.e., 15 MHz of 30 MHz) of their spectrum from each of their BTA
licenses within the MTAs in which they chose to disaggregate spectrum.
Id. In other words, licensees would not be required to disaggregate
spectrum for all of the licenses they hold, but they would have to
disaggregate spectrum for all of the licenses they hold in a given MTA
if they disaggregated spectrum for one license in that MTA. The
returned spectrum would have to be at 1895-1902.5 MHz paired with 1975-
1982.5 MHz, which is spectrum contiguous to the F block. 62 FR 55348,
55350.
39. In exchange, the Commission would reduce by 50 percent the
amount of debt that was owed on a 30 MHz license before it was
disaggregated. Id. Fifty percent of the down payment made on the 30 MHz
license would be considered the down payment for the retained 15 MHz of
spectrum, but the Commission would not provide a refund or credit for
the remaining 50 percent of the down payment. Id. Licensees were
required to repay over eight equal payments (beginning with the payment
due on March 31, 1998) all Suspension Interest, adjusted to reflect the
reduction in debt obligation. Id. Any installment payments that were
paid prior to the suspension would be credited in full against those
amounts. Id. Licensees were prohibited from bidding on their returned
spectrum in the reauction or from reacquiring it in the secondary
market for two years from the start of the reauction. 62 FR 55348,
55350-51 Licensees could, however, bid on spectrum or licenses
surrendered by other licensees, provided such licensees were not
affiliates. Id.
40. As provided under the Second Report and Order, when a licensee
disaggregates an MTA, it will receive full credit for the portion of
the down payment applicable to the spectrum retained from a license
(i.e., 50 percent of the down payment made on the original 30 MHz
license). However, on reconsideration, the Commission modifies its
decision that licensees electing the disaggregation option receive no
refund or credit for the portion of the down payment applicable to the
returned spectrum. For each disaggregated license for which the
licensee elects to resume installment
[[Page 17117]]
payments, rather than prepay, the Commission will provide a credit of
40 percent of the down payment applicable to the 15 MHz of spectrum
that is returned to the Commission. The 40 percent credit may only be
used to reduce the amount owed on the 15 MHz of spectrum retained from
the same BTA license that generated the credit. The credit, at the
licensee's option, may be applied either to Suspension Interest and/or
to reduce the principal outstanding. Any installment payments
previously submitted for a disaggregated license for which the licensee
elects to resume installment payments will be credited as described in
the Second Report and Order (i.e., toward Suspension Interest). See 62
FR 55348, 55350.
41. The Commission derived the 40 percent credit because when that
credit is combined with the 100 percent credit associated with the
retained spectrum, the licensee will receive a credit of 70 percent of
the total down payment for the original 30 MHz license. The Commission
has decided to allow this additional credit because it is persuaded by
the argument of several parties that the credit permitted under the
disaggregation option should be consistent with the 70 percent credit
permitted under the prepayment option. The Commission believes that the
disparity that existed under the Second Report and Order was unfair to
licensees that were precluded from electing prepayment. Furthermore,
allowing this additional credit will advance the purposes of the
disaggregation option. Disaggregation benefits both licensees and
consumers because it provides a means for licensees to remain in a
market area at a significantly reduced cost. By having their
outstanding debt decreased by 50 percent, licensees improve their
ability to finance their retained spectrum and build out their
networks. In addition, disaggregation is pro-competitive because it
provides a means for other competitors to enter a market area. It also
gives unsuccessful bidders an opportunity to rebid on spectrum in
market areas in which they were initially outbid. The Commission
believes that the additional 40 percent credit will promote these
benefits of disaggregation and will help licensees that have expressed
an interest in disaggregation to take advantage of this option and
continue their plans to provide service in their license areas.
42. The Commission believes that a 40 percent credit is warranted
when a licensee resumes installment payments on a disaggregated MTA
because the licensee remains in the MTA and continues building out its
network in order to serve those consumers. Accordingly, it will not
provide such a 40 percent credit to licensees that resume installment
payments on a license in a different MTA. In contrast to a licensee
that uses the 40 percent credit to resume installments on the retained
portion of the disaggregated license, a licensee that seeks to apply a
40 percent credit from down payments made on licenses returned under an
amnesty election would have, under those circumstances, abandoned
service to the entire licensed area affected by that election. The
Commission believes that licensees that surrender licenses should not
receive a credit for abandoning those markets unless they use the
credit to prepay retained licenses. As discussed above, a licensee that
selects the amnesty option and chooses to bid on its returned licenses
in the reauction will not receive credit for any of its down payment
made on its returned licenses. In such case, a licensee's opportunity
to bid on its returned licenses is equitable compensation for not
receiving any down payment credit.
43. The Commission also revises the approach adopted in the Second
Report and Order to provide for a combination of disaggregation and
prepayment. As discussed, there are many advantages to both prepayment
and disaggregation. The Commission believes that a combination of the
two should be encouraged because it offers the benefits of both
options. For example, the licensee continues to build out its network
in the market area; the Commission is relieved from its position of
lender; and competing entities have the opportunity to bid on the
returned spectrum. Therefore, if a licensee disaggregates an MTA and
prepays the outstanding principal owed on the retained portion of the
MTA, the Commission will provide the licensee with a higher percentage
of credit as an incentive to choose both disaggregation and prepayment.
Instead of receiving a 40 percent credit, a licensee that elects both
disaggregation and prepayment will receive credit for 70 percent of the
down payment applicable to the returned spectrum. (The portion of the
down payment applicable to the returned spectrum is the equivalent of
50 percent of the down payment made on the original 30 MHz license.)
This 70 percent credit will be added to the licensee's Prepayment
Credit which, as explained above, may be used to prepay any retained
MTAs with 30 MHz licenses and/or the retained portions of any MTAs that
have been disaggregated. Allowing this 70 percent credit is consistent
with the Commission's policy of providing a 70 percent credit for 30
MHz licenses that are returned to the Commission. In both cases, the
credit is 70 percent of the down payment associated with the amount of
spectrum that is returned. In addition, any installment payments
previously submitted for the licenses in an MTA that is both
disaggregated and prepaid will be added to the licensee's Prepayment
Credit.
44. If a licensee elects both disaggregation and prepayment for an
MTA, the licensee must prepay the principal owed on the 15 MHz of
spectrum retained from each BTA license in the MTA. However, if a
licensee's Prepayment Credit is insufficient to make full prepayment on
the entire MTA, then the affordability exception will apply. Thus, the
licensee will be required to prepay only what it can afford and must
return the rest of the spectrum to the Commission for reauction. As
with prepayment of full 30 MHz licenses, the exception will not apply
if any ``new money'' is added to make prepayment, and the exception may
be applied to only one MTA.
45. The Commission denies requests by several parties to allow
licensees to receive credit for their entire down payment under the
disaggregation option. The Commission believes that providing full
credit would undermine the integrity of the auction process. See
Communications Act Sec. 309(j), 47 U.S.C. Sec. 309(j). As the
Commission concluded in the Second Report and Order, allowing licensees
to use their entire down payment would be unfair to those C block
licensees electing to continue under the existing installment payment
plan and to bidders that were unsuccessful in the auction. See 62 FR
66348, 55352.
46. Because numerous benefits are conferred under the
disaggregation option, the Commission disagrees with the claims of some
parties that not providing a refund or credit for all of the down
payment constitutes a penalty or forfeiture. Under disaggregation, the
Commission forgives up to half of a licensee's outstanding debt, an
action that will facilitate investment and growth by making more funds
available to licensees for build-out. In addition, the Commission
provides low-cost, long-term financing for the retained spectrum.
Furthermore, the Commission renders a valuable service by providing an
efficient and cost-effective mechanism for transferring spectrum that
licensees otherwise might have been forced to resell in the secondary
market at great risk. In exchange, the
[[Page 17118]]
Commission receives the disaggregated spectrum and retains a portion of
the down payment applicable to that spectrum. Therefore, retention of
part of the down payment is not a penalty; rather, it is the fair and
reasonable price for receiving the benefits of disaggregation.
47. The Commission declines to adopt a suggestion to allow C block
licensees to retain the 15 MHz of spectrum adjacent to the F block if
they also hold the F block license for the same BTA. Allowing certain C
block licensees to disaggregate a different portion of spectrum would
create a patchwork pattern of spectrum blocks in the reauction and
would limit the opportunity for F block licensees to aggregate larger
spectrum blocks by bidding on contiguous spectrum in the reauction. To
promote consistency and simplicity in the reauction, the Commission
also rejects a request that to allow licensees the choice to
disaggregate 10, 15, or 20 MHz of spectrum. Allowing licensees to
disaggregate different pieces of spectrum would create inefficiency in
the market and would limit the potential for aggregation, thereby
decreasing the value of spectrum in the reauction and delaying service
to the public. Finally, the Commission disagrees with the arguments of
two parties that disaggregation should be permitted on a BTA-by-BTA
basis, rather than on an MTA-by-MTA basis. Disaggregation on an MTA-by-
MTA basis will promote participation in the reauction because licensees
are prohibited from selectively retaining 30 MHz of spectrum in only
the most desirable BTAs.
48. The Commission also declines to extend the build-out exception
to licensees selecting the disaggregation option. Under the modified
approach, a build-out exception is unnecessary because licensees have
the flexibility to determine which MTAs to retain and which to
surrender. Moreover, as stated in the Second Report and Order, a build-
out exception was never needed under the disaggregation option because,
unlike the original amnesty option, the disaggregation option was never
an ``all-or-nothing'' proposition. 62 FR 55348, 55350. Under the
original amnesty option, a licensee was required to surrender all
licenses except for those in MTAs in which it satisfied the build-out
requirement. By comparison, disaggregation was permitted on an MTA-by-
MTA basis. Licensees were never compelled to disaggregate spectrum in
all their MTAs.
49. The Commission affirms the statement in the Second Report and
Order that upon acceptance of the election notice, the disaggregated
spectrum will be deemed returned to the Commission. 62 FR 55348, 55353.
Further, after disaggregation, notwithstanding the fact that a
disaggregating licensee will continue to hold in its possession a 30
MHz license, that license will no longer authorize use of the 15 MHz of
spectrum that is surrendered to the Commission. The license will
continue to be valid with respect to the 15 MHz of spectrum that is
retained.
VIII. Election Procedures
50. In the Second Report and Order, the Commission established
January 15, 1998, as the deadline for C block licensees to elect to
continue under the existing installment payment plan or to elect one of
the three alternative options. Id. The Commission also required, inter
alia, C block licensees whose elections would necessitate ongoing
payments to execute any necessary financing documents pursuant to
appropriate requirements and time frames established by the Bureau. The
Commission specified procedures to be followed by licensees electing to
continue under their existing notes or electing disaggregation,
amnesty, or prepayment.
51. On January 7, 1998, the Commission changed the election date to
February 26, 1998, in order to allow licensees to submit their
elections after final disposition of arguments raised on
reconsideration. 63 FR 2170. On February 24, 1998, the Commission
issued an order changing the election date to 60 days after publication
of the Reconsideration Order in the Federal Register. 63 FR 10153.
52. Moving the election date was an appropriate action given the
large number of petitions for reconsideration filed in this proceeding.
The revised deadline has provided sufficient time for the Commission to
respond to arguments raised on reconsideration so that licensees can be
assured of regulatory certainty before making their elections. The
postponement satisfies the requests of several parties that the date be
delayed. The Commission denies other requests for a still longer
postponement. Licensees already have had several months in which to
consider the options under the Second Report and Order, and the
Commission believes that the additional 60 days they will have after
publication in the Federal Register will provide sufficient time for
any reevaluation that may be necessary in light of the modifications
the Commission makes in the Reconsideration Order.
53. In the Second Report and Order, the Commission inadvertently
omitted reference to the requirement that F block licensees execute
fully and deliver timely all necessary financing documents.
Consequently, it clarifies in the Reconsideration Order that F block
licensees, as well as C block licensees, must execute and deliver all
necessary financing documents pursuant to appropriate requirements and
time frames as will be established by the Bureau in a forthcoming
public notice on procedures. The Commission modifies the Second Report
and Order to require both C and F block licensees that fail to execute
fully and deliver timely to the Commission any required financing
documents to pay on the payment resumption date all unpaid simple
interest accruing from the date of license grant through the payment
resumption date. See 62 FR 55348, 55353. The Bureau's forthcoming
public notice also will set forth updated election procedures for C
block licensees, reflecting the Commission's modifications to the
Second Report and Order.
IX. Reauction
54. Timing. On January 7, 1998, the Commission announced that the C
block reauction would begin on September 29, 1998. 63 FR 2170. In light
of the postponement of both the election date and the payment
resumption date, as discussed above, it will be necessary to establish
a new reauction date. The Commission delegates to the Bureau the
authority to establish the reauction date and instructs the Bureau to
issue a public notice announcing the new date at least three months in
advance of the start of the reauction.
55. Eligibility. The Second Report and Order specified that all
entrepreneurs, all entities that had been eligible for and had
participated in the original C block auction, and all current C block
licensees would be eligible to bid in the reauction. 62 FR 55348,
55349; see also 62 FR 55375. The Commission, however, created an
exception for incumbent licensees: for a period of two years from the
start date of the reauction, C block licensees (defined as qualifying
members of the licensee's control group, and their affiliates) that
opted for the disaggregation or prepayment options would be prohibited
from reacquiring, either through the reauction or through any secondary
market transaction, any spectrum or licenses that they surrendered to
the Commission under those options. 62 FR 55348, 55350, 55353. Such
licensees, however, would be permitted to bid on spectrum or
[[Page 17119]]
licenses surrendered by other licensees, provided that such licensees
were not affiliates. 62 FR 55348, 55350; see 62 FR 55348, 55353.
Licensees electing the amnesty option would be eligible to bid for any
and all licenses at the reauction, with no restrictions on post-auction
acquisitions. 62 FR 55348, 55351.
56. The only reauction eligibility issues set forth in the Second
Report and Order ripe for reconsideration in this phase of the
proceeding are those related directly to whether and how a licensee's
election of a particular payment option should affect its eligibility
to participate in the reauction of, or reacquire an ownership interest
in, surrendered spectrum. The Commission defers to other phases of WT
Docket No. 97-82 additional eligibility issues, including the
qualifications of entities that have defaulted on payments to
participate in the reauction and the use of a ``controlling interest''
approach rather than ``control group'' structures to determine
financial size in the C block, as well as in all auctionable services.
See 47 CFR 24.709(b)(3)(i), (b)(5)(i)(C); 62 FR 2315. The Commission
notes that, in its comments filed in response to the Further Notice,
one party challenges the Commission's ruling in the Second Report and
Order that participation in the C block reauction is limited to
qualified entrepreneurs. In their petitions for reconsideration, other
parties respond to this argument and urge the Commission not to
reconsider its decision. The Commission addresses this issue here,
notwithstanding the fact that the initial challenge was not filed as a
petition for reconsideration of the Second Report and Order. The
Commission concludes that no party has provided a convincing rationale
for deviating from the public interest goals articulated by the
Commission in the Second Report and Order. See 62 FR 55348, 55349.
Consequently, the Commission affirms its ruling in the Second Report
and Order to limit eligibility for participation in the reauction to
applicants meeting the current definition of ``entrepreneur.'' Id.
57. On reconsideration, the Commission makes a change to the
eligibility requirements, which already has been discussed above, and
also a clarification. As stated, a licensee that elects the amnesty
option for an MTA and opts to receive partial credit for down payments
on its returned licenses in that MTA will not be eligible to reacquire
those licenses through either reauction or any secondary market
transaction for a period of two years from the start date of the
reauction. This restriction also applies to the licensee's affiliates.
Likewise, if a licensee disaggregates an MTA, neither it nor its
affiliates may bid on the returned spectrum in the reauction or
reacquire it through a secondary market transaction for two years after
the start date of the reauction. Licensees that return licenses under
the amnesty option or spectrum under the disaggregation option are not
precluded from bidding in the reauction on licenses or spectrum
returned by other non-affiliated licensees (or from later reacquiring
those licenses or spectrum in post-auction transactions). The
Commission clarifies that the term ``affiliate'' is defined by the
competitive bidding rules in the Part 1 Third Report and Order. 47 CFR
1.2110(b)(4); 63 FR 2315, 2318.
58. Several parties believe that the Commission should revise the
bidding eligibility requirements. One party, for example, agrees with
the Commission's decision to exclude C block licensees that choose
disaggregation or prepayment from bidding on their surrendered spectrum
at reauction, but contends that the Commission undermines the integrity
of the auction process by not similarly limiting the ability of
licensees that select the amnesty option. This party contends that the
lack of such a restriction will unjustly enrich licensees that select
the amnesty option and then bid for the same spectrum at a likely
discount. Other parties, on the other hand, claim that it is
unreasonably discriminatory to preclude entities choosing
disaggregation or prepayment from reacquiring their surrendered
spectrum for two years while allowing entities choosing the amnesty
option to reacquire their spectrum immediately either by reauction or
through secondary markets.
59. The Commission's modified approach addresses both of these
arguments. Licensees electing disaggregation and/or prepayment for one
MTA now can choose to return licenses in other MTAs and bid on those
licenses in the reauction. However, licensees electing amnesty for an
MTA must forgo their entire down payment if they wish to bid on their
returned licenses for that MTA. The Commission believes that this cost
sufficiently mitigates any concern of unjust enrichment.
X. Miscellaneous Matters
60. Cross Defaults. The Second Report and Order provided that if a
licensee defaulted on a C block license, the Commission would not
pursue cross default remedies with regard to the licensee's other
licenses in the C or F blocks. 62 FR 55348, 55353-54. In other words,
if a licensee defaulted on a given C block license but was meeting its
payment obligations on its other C or F block licenses, the Commission
would not declare the licensee to be in default with respect to those
other C or F block licenses. Id. The Commission does not believe that
its decision encourages auction participants to bid speculatively and
then ``cherry-pick'' among the licenses they ultimately decide to keep
by simply defaulting on the ones they no longer desire. The Commission
has implemented numerous procedures, described earlier, to safeguard
against ``cherry-picking.'' Moreover, the Commission believes that by
not imposing cross default remedies, it encourages regional financing.
Even if a licensee's holdings in one region have proven unattractive to
the financial market, the same licensee's holdings in other markets may
be financially sound. Therefore, the Commission will not depart from
the decision in the Second Report and Order. The Commission notes that
licensees that ultimately default will continue to be subject to debt
collection procedures. 47 CFR 1.2110(f)(4)(iv).
61. No Extension of C Block Relief to Other Licensees. The
Commission rejects various requests to grant F block licensees the same
relief provided to C block licensees, because C and F block licensees
do not have the same need for financial relief. After careful review,
the Commission determined in the Second Report and Order that the
nature and extent of any financing difficulties faced by the C block
licensees appeared to be different from any such problems facing
entrepreneurs in the F block. C block prices were higher, on average,
than F block prices. The Commission disagrees with several parties that
argue that the Commission's explanation in the Second Report and Order
fails to justify disparate treatment. The difficulties in financing the
unexpectedly high prices bid in the C block auctions is a sufficiently
distinguishing basis for limiting relief to C block licensees. The
Commission agrees with the analysis of one party that the C block
situation was the result of a unique set of mostly unpredictable
events, including litigation and resulting licensing delays and the
lack of a simultaneous non-entrepreneur auction that could have been
used to ease price pressures.
62. The need for C block relief was due to exceptional and urgent
circumstances, and because it is essential to maintain the integrity of
the auction process, only the most exigent situation would cause the
Commission to offer such relief. Even in addressing
[[Page 17120]]
the C block financing situation, the Commission provided options that
offered only limited relief so as to be fair to bidders that withdrew
from the auction. The Commission therefore is not persuaded by one
party's claim that F block licensees should be granted relief because
A, B, and C block licensees have a competitive advantage given their
earlier licensing date and their larger amounts of spectrum. The
Commission also rejects another party's argument that C block options
should be available to entrepreneurs with D, E, and F block licenses
because C block relief will change the relative values of those
licenses. These arguments do not present sufficiently compelling
reasons to apply the extraordinary procedures we adopted for C block
licensees to D, E, and F block licensees. One party argues that
narrowband PCS entities should receive relief comparable to that
afforded C block licensees because they compete in the same consumer
and financial markets and face similar circumstances. The record in
this reconsideration proceeding is insufficient to adopt global changes
affecting narrowband PCS entities, but the Commission notes that
payment matters for these entities are currently being examined in
another proceeding before the Commission. 62 FR 27563.
63. Issues Addressed in Other Proceedings or Requiring Action by
Congress. A number of parties make requests involving issues either
that will be, or have been, addressed in other proceedings or that
require action by Congress. For example, several petitioners urge the
Commission to reduce the interest rate for C block installment
payments. The Bureau will address this issue in a forthcoming order.
With respect to a request that the Commission allow commercial lenders
to acquire a security interest in licenses, the Commission notes that
it previously resolved the issue in another proceeding. 62 FR 13540,
13542.
64. Other parties encourage the Commission to seek Congressional
authority to award tax certificates to entities that provide investment
capital to C block licensees. Section 309(j)(4)(D) of the
Communications Act mandates that, in seeking to ensure that designated
entities are ``given the opportunity to participate in the provision of
spectrum-based services,'' the Commission shall ``consider the use of
tax certificates.'' 47 U.S.C. Sec. 309(j)(4)(D). By allowing a tax
deferral of the gain realized on an investment, tax certificates
provide a significant means of enhancing the value of an investment in
an enterprise, and the Commission believes that a tax certificate
program for spectrum-based services would be as beneficial to the
wireless industry as the Commission's tax certificate programs were for
the broadcast and cable industries. However, in view of Congress'
repeal in 1995 of Section 1071 of the IRS Code, which granted the
Commission authority to use tax certificates to promote Commission
policies, the Commission believes that legislative action would be
necessary before the Commission could provide such tax relief. See Pub.
L. 104-7, Sec. 2, 109 Stat. 93, 93-94 (1995). Accordingly, the
Commission urges Congress to review the positive impact of the
Commission's previous tax certificate programs and to grant the
Commission the authority to establish a similar program for wireless
enterprises, which the Commission believes would promote competition in
the telecommunications industry by encouraging investment in new
services.
XII. Supplemental Final Regulatory Flexibility Analysis
65. As required by the Regulatory Flexibility Act (RFA), 5 U.S.C.
Sec. 604, an Initial Regulatory Flexibility Analysis (IRFA) was
incorporated into the Order, Memorandum Opinion and Order and Notice of
Proposed Rulemaking (Notice) in WT Docket No. 97-82. Amendment of Part
1 of the Commission's Rules--Competitive Bidding Proceeding, WT Docket
No. 97-82, Order, Memorandum Opinion and Order and Notice of Proposed
Rulemaking, FCC 97-60 (released February 28, 1997). The Commission
sought written public comment on the proposals in the Notice, including
comment on the IRFA. A Final Regulatory Flexibility Analysis (FRFA) was
incorporated into the Second Report and Order. The Commission received
37 petitions for reconsideration in response to the Second Report and
Order. This FRFA analyzes the modifications adopted in response to
those petitions for reconsideration.
A. Need for, and Objectives of, this Reconsideration Order
66. This Reconsideration Order is designed to assist C block
broadband PCS licensees to meet their financial obligations to the
Commission while at the same time helping the Commission meet its goal
of ensuring rapid provision of PCS service to the public. The
Reconsideration Order provides a variety of relief mechanisms to assist
C block licensees that are experiencing difficulties in meeting the
financial obligations under the installment payment plan. The relief
provided to C block licensees will speed deployment of service to the
public by easing lenders' concerns regarding regulatory uncertainty and
by potentially making more capital available for investment and growth.
By facilitating the provision of service to consumers, the Commission
advances Congress' objective to promote ``the development and rapid
deployment of new technologies, products, and services for the benefit
of the public.'' Communications Act Sec. 309(j)(3)(A), 47 U.S.C.
Sec. 309(j)(3)(A).
B. Summary of Significant Issues Raised by Public Comments in Response
to the IRFA
67. There were no comments filed in response to the IRFA; however,
in this proceeding the Commission has considered the economic impact on
small businesses of the modifications the Commission has adopted. See
Section E of this Supplemental FRFA, infra.
C. Description and Estimate of the Number of Small Entities to Which
Rules Will Apply
68. The RFA directs agencies to provide a description of and, where
feasible, an estimate of the number of small entities that will be
affected by our rules. 5 U.S.C. Secs. 603(b)(3), 604(a)(3). The RFA
generally defines the term ``small entity'' as having the same meaning
as the terms ``small business,'' ``small organization,'' and ``small
governmental jurisdiction.'' 5 U.S.C. Sec. 601(6). In addition, the
term ``small business'' has the same meaning as the term ``small
business concern'' under Section 3 of the Small Business Act. 5 U.S.C.
Sec. 601(3) (incorporating by reference the definition of ``small
business concern'' in 15 U.S.C. Sec. 632). Under the Small Business
Act, a ``small business concern'' is one which: (1) is independently
owned and operated; (2) is not dominant in its field of operation; and
(3) meets any additional criteria established by the Small Business
Administration (SBA). 15 U.S.C. Sec. 632.
69. This Reconsideration Order applies to broadband PCS C and F
block licensees. The Commission, with respect to broadband PCS, defines
small entities to mean those having gross revenues of not more than $40
million in each of the preceding three calendar years. See 47 CFR
24.720(b)(1). This definition has been approved by the SBA. See
Implementation of Section 309(j) of the Communications Act--Competitive
Bidding, Third Memorandum Opinion and Order and Further Notice of
Proposed Rulemaking, 59 FR 44058 (1994); Implementation of Section
309(j) of the Communications
[[Page 17121]]
Act--Competitive Bidding, Fifth Report and Order, 59 FR 37566 (1994);
47 CFR 24.320(b), 24.720(b). On May 6, 1996, the Commission concluded
the broadband PCS C block auction. The broadband PCS D, E, and F block
auction closed on January 14, 1997. Ninety bidders (including the C
block reauction winners, prior to any defaults by winning bidders) won
493 C block licenses and 88 bidders won 491 F block licenses. Small
businesses placing high bids in the C and F block auctions were
eligible for bidding credits and installment payment plans. For
purposes of the evaluations and conclusion in this FRFA, the Commission
assumes that all of the 90 C block broadband PCS licensees and 88 F
block broadband PCS licensees, a total of 178 licensees potentially
affected by this Reconsideration Order, are small entities.
D. Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements
70. C block licensees must file notice of their elections with the
Wireless Telecommunications Bureau no later than the election date. The
election date will be 60 days after publication of the Reconsideration
Order in the Federal Register. The Reconsideration Order increases the
reporting requirements of the Second Report and Order to the extent
that elections now may be made for each MTA. See Second Report and
Order, supra. Formerly, licensees were required to make the same
election for all their licenses.
E. Steps Taken to Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
71. As noted in the FRFA of the Second Report and Order, the
Commission analyzed the significant economic impact on small entities
and considered significant alternatives. Id. The modifications adopted
on reconsideration will further reduce the burden on C block licensees,
which are small businesses. These modifications include:
(1) Elections on an MTA-by-MTA basis. Licensees now will have the
flexibility to make elections on an MTA-by-MTA basis, and so are not
compelled to make the same election for all their licenses. This
modification will afford C block licensees greater flexibility in
fashioning a restructuring plan.
(2) Additional flexibility for licensees. The Commission added
flexibility to the amnesty option by offering licensees the choice
between receiving a credit for their returned licenses or having the
opportunity to bid on their return licenses in the reauction. The
Commission also provided additional flexibility by allowing licensees
to combine disaggregation with prepayment.
(3) Higher percentage of down payment credit. By crediting a higher
percentage of the down payment under disaggregation, the Commission
better enables these small businesses to remain in the wireless market.
The Commission provides even more credit to licensees choosing a
combination of disaggregation and prepayment in order to encourage
licensees to take advantage of the benefits of both these options.
(4) Thirty-day extension of the non-delinquency period for payments
not made on the resumption date. The Commission's 30-day extension is
intended to help licensees that are experiencing last-minute delays in
raising capital by providing them additional time to complete their
fund-raising efforts.
(5) Clarification of the Affordability Exception. The Commission's
clarification of the affordability exception provides an objective
means for licensees to implement the exception. It eliminates any doubt
or confusion regarding the scope of the term ``afford,'' and it is an
easy, bright-line test to administer.
72. The Commission believes that it is in the public interest to
adopt the above modifications in order to facilitate rapid introduction
of service to the public without further regulatory or marketplace
delay. The Commission's decision minimizes the potential significant
economic impact on small entities by permitting C block licensees to
choose among a variety of alternative solutions to reduce their debt to
the Commission. The intent of this Reconsideration Order is to
alleviate to some extent the financial difficulties faced by these
small entities by providing options that: (1) achieve a degree of
fairness to all parties, including losing bidders in the C block
auction; (2) continue to promote competition and participation by
smaller businesses in providing broadband PCS service; and (3) avoid
solutions that merely prolong uncertainty.
73. The Commission rejected proposals for a further deferral of the
payment resumption deadline because licensees already have had a
sufficient deferral period. In addition, the Commission does not wish
to adopt temporary solutions that might only postpone the difficulties
faced by the C block licensees and further prolong uncertainty. There
is no guarantee that an extended deferral period would improve the long
term financial outlook facing many licensees. The Commission also
rejected arguments that licensees should receive full credit for down
payments made on licenses or spectrum returned to the Commission for
reauction. The Commission already provides substantial use of a
licensee's down payment. Moreover, providing full credit would be
unfair to unsuccessful bidders that withdrew from the C block auction.
F. Report to Congress
74. The Commission shall send a copy of the Reconsideration Order,
including this Supplemental FRFA, in a report to Congress pursuant to
the Small Business Regulatory Enforcement Fairness Act of 1996. See 5
U.S.C. Sec. 801(a)(1)(A). A copy of the Reconsideration Order and this
FRFA (or summary thereof) will be published in the Federal Register.
See 5 U.S.C. Sec. 604(b). A copy of the Reconsideration Order and this
FRFA will also be sent to the Chief Counsel for Advocacy of the Small
Business Administration.
XIII. Ordering Clauses
75. Accordingly, it is ordered that, pursuant to the authority
granted in Sections 4(i), 303(r), and 309(j) of the Communications Act
of 1934, as amended, 47 U.S.C. Secs. 154(i), 303(r), and 309(j), the
petitions for reconsideration filed in response to the Second Report
and Order are granted in part and denied in part, as provided herein.
76. It is further ordered that, pursuant to the authority granted
in Sections 4(i), 303(r), and 309(j) of the Communications Act of 1934,
as amended, 47 U.S.C. Secs. 154(i), 303(r), and 309(j), the
modifications to the Commission's rules, as described herein and in
Appendix B, are hereby adopted. These modifications shall become
effective 60 days after publication of this Order on Reconsideration of
the Second Report and Order in the Federal Register.
77. It is further ordered that, pursuant to 47 U.S.C. Sec. 155(c)
and 47 CFR 0.331, the Chief of the Wireless Telecommunications Bureau
is granted delegated authority to prescribe and set forth procedures
for the implementation of the provisions adopted herein.
78. It is further ordered that the Commission's Office of Public
Affairs, Reference Operations Division, shall send a copy of this Order
on Reconsideration of the Second Report and Order, including the
Supplemental Final Regulatory Flexibility Analysis, to
[[Page 17122]]
the Chief Counsel for Advocacy of the Small Business Administration.
Paperwork Reduction Act
Notice of Public Information Collections Submitted to the Office of
Management and Budget for Emergency Review and Approval
Summary
The Federal Communications, as part of its continuing effort to
reduce paperwork burden invites the general public and other Federal
agencies to take this opportunity to comment on the following proposed
and/or continuing information collections, as required by the Paperwork
Reduction Act of 1995, Public Law 104-13. An agency may not conduct or
sponsor a collection of information unless it displays a currently
valid control number. No person shall be subject to any penalty for
failing to comply with a collection of information subject to the
Paperwork Reduction Act (PRA) that does not display a valid control
number. Comments are requested concerning (a) whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information
shall have practical utility; (b) the accuracy of the Commission's
burden estimates; (c) ways to enhance the quality, utility, and clarity
of the information collected; and (d) ways to minimize the burden of
the collection of information on the respondents, including the use of
automated collection techniques or other forms of information
technology. Please Note: The Commission is seeking emergency approval
for these information collections by April 30, 1998, under the
provisions of 5 CFR 1320.13.
Dates: Written comments should be submitted on or before April 27,
1998. If you anticipate that you will be submitting comments, but find
it difficult to do so within the period of time allowed by this notice,
you should advise the contact listed below as soon as possible.
Addresses: Direct all comments to Judy Boley, Federal
Communications Commission, Room 234, 1919 M St., N.W., Washington, DC
20554 or via internet to jboley@fcc.gov and Timothy Fain, OMB Desk
Officer, 10236 NEOB 725 17th Street, N.W., Washington, DC 20503 or
fain__t@a1.eop.gov.
For Further Information Contact: For additional information or
copies of the information collections, contact Judy Boley at 202-418-
0214 or via internet at jboley@fcc.gov.
Supplementary Information:
OMB Control Number: 3060-0801.
Title: Amendment of the Commission's Rules Regarding Installment
Payment Financing for Personal Communications Services (PCS) Licensees.
Type of Review: Emergency Revision.
Respondents: Businesses or other for-profit entities.
Number of Respondents: 345.
Estimated Time for Response: 0.5-4.89 hours.
Total Annual Burden: 1,687.50 hours.
Total Cost to Respondents: $69,592.
Needs and Uses: This information collection allows the Federal
Communications Commission to offer C block PCS licensees various
options regarding their existing installment payment obligations. The
information is necessary in order to enable the licensees to meet their
financial obligations and to ensure rapid provision of PCS to the
public.
List of Subjects
47 CFR Part 1
Practice and Procedure.
47 CFR Part 24
Personal Communications Services.
Federal Communications Commission.
Magalie Roman Salas,
Secretary.
Rule Changes
Parts 1 and 24 of Chapter I of Title 47 of the Code of Federal
Regulations are amended as follows:
PART 1--PRACTICE AND PROCEDURE
1. The authority citation for part 1 continues to read as follows:
Authority: 15 U.S.C. 79 et seq.; 47 U.S.C. 151, 154(i), 154(j),
155, 225, and 303(r), unless otherwise noted.
2. Section 1.2110 is amended by revising paragraphs (f)(4)(ii),
(iii), (iv) to read as follows:
Sec. 1.2110 Designated entities.
* * * * *
(f) * * *
(4) * * *
(ii) If any licensee fails to make the required payment at the
close of the 90-day period set forth in paragraph (i) of this section,
the licensee will automatically be provided with a subsequent 90-day
grace period, except that no subsequent automatic grace period will be
provided for payments from C or F block licensees that are not made
within 90 days of the payment resumption date for those licensees, as
explained in Amendment of the Commission's Rules Regarding Installment
Payment Financing for Personal Communications Services (PCS) Licensees,
Order on Reconsideration of the Second Report and Order, WT Docket No.
97-82, FCC 98-46 (rel. Mar. 24, 1998). Any licensee making a required
payment during this subsequent period will be assessed a late payment
fee equal to ten percent (10%) of the amount of the past due payment.
Licensees shall not be required to submit any form of request in order
to take advantage of the initial 90-day non-delinquency period and
subsequent automatic 90-day grace period. All licensees that avail
themselves of the automatic grace period must pay the required late
fee(s), all interest accrued during the non-delinquency and grace
periods, and the appropriate scheduled payment with the first payment
made following the conclusion of the grace period.
(iii) If an eligible entity making installment payments is more
than one hundred and eighty (180) days delinquent in any payment, it
shall be in default, except that C and F block licensees shall be in
default if their payment due on the payment resumption date, referenced
in paragraph (f)(4)(ii) of this section, is more than ninety (90) days
delinquent.
(iv) Any eligible entity that submits an installment payment after
the due date but fails to pay any late fee, interest or principal at
the close of the 90-day non-delinquency period and subsequent automatic
grace period, if such a grace period is available, will be declared in
default, its license will automatically cancel, and will be subject to
debt collection procedures.
* * * * *
PART 24--PERSONAL COMMUNICATIONS SERVICES
3. The authority citation for part 24 continues to read as follows:
Authority: 47 U.S.C. 154, 301, 302, 303, 309 and 332, unless
otherwise noted.
4. Section 24.709 is amended by revising paragraph (b)(9) to read
as follows:
Sec. 24.709 Eligibility for licenses for frequency Blocks C and F.
* * * * *
(b) * * *
(9) Special rule for licensees disaggregating or returning certain
spectrum in frequency block C. (i) In addition to entities qualifying
under this section, any entity that was eligible for and participated
in the auctions for frequency block C, which began on December 18,
1995, and July 3, 1996, will be eligible to bid in a reauction of
[[Page 17123]]
block C spectrum surrendered pursuant to Amendment of the Commission's
Rules Regarding Installment Payment Financing for Personal
Communications Services (PCS) Licensees, Second Report and Order and
Further Notice of Proposed Rule Making, WT Docket No. 97-82, 12 FCC Rcd
16,436 (1997), as modified by the Order on Reconsideration of the
Second Report and Order, WT Docket No. 97-82, FCC 98-46 (rel. Mar. 24,
1998).
(ii) The following restrictions will apply for any reauction of
frequency block C spectrum conducted after March 24, 1998:
(A) Applicants that elected to disaggregate and surrender to the
Commission 15 MHz of spectrum from any or all of their frequency block
C licenses, as provided in Amendment of the Commission's Rules
Regarding Installment Payment Financing for Personal Communications
Services (PCS) Licensees, Second Report and Order and Further Notice of
Proposed Rule Making, WT Docket No. 97-82, 12 FCC Rcd 16,436 (1997), as
modified by the Order on Reconsideration of the Second Report and
Order, WT Docket No. 97-82, FCC 98-46 (rel. Mar. 24, 1998), will not be
eligible to apply for such disaggregated spectrum until 2 years from
the start of the reauction of that spectrum.
(B) Applicants that surrendered to the Commission any of their
frequency block C licenses, as provided in Amendment of the
Commission's Rules Regarding Installment Payment Financing for Personal
Communications Services (PCS) Licensees, Second Report and Order and
Further Notice of Proposed Rule Making, WT Docket No. 97-82, 12 FCC Rcd
16,436 (1997), as modified by the Order on Reconsideration of the
Second Report and Order, WT Docket No. 97-82, FCC 98-46 (rel. Mar. 24,
1998), will not be eligible to apply for the licenses that they
surrendered to the Commission until 2 years from the start of the
reauction of those licenses if they elected to apply a credit of 70% of
the down payment they made on those licenses toward the prepayment of
licenses they did not surrender.
* * * * *
[FR Doc. 98-9352 Filed 4-7-98; 8:45 am]
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