NOTICE ********************************************************* NOTICE ********************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file how2ftp. File how2ftp (.txt & .wp) is in directory /pub/Bureaus/Miscellaneous/Public_Notices/ ***************************************************************** ******** $//MO&O,IVDS payment deadlines,DA96-622//$ $/95.816Competitive bidding proceedings/$ Before the DA 96-622 FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Interactive Video and Data Service ) (IVDS) Licenses ) ) Requests to Extend Payment ) Deadline ) MEMORANDUM OPINION AND ORDER Adopted: April 19, 1996 Released: April 29, 1996 By the Acting Chief, Wireless Telecommunications Bureau: I. INTRODUCTION 1. Interactive Partners of America (IPA), Albert D. Ervin (Ervin), and Eagle Interactive Partners, L.P. (Eagle), three winning bidders in the IVDS auction held on July 28-29, 1994, request reconsideration of our Order denying their waiver requests for extension of the IVDS final down payment deadline. Similarly, winning bidder Styles Interactive, Inc. (SII), requests reconsideration of our Letter denying its waiver request. No pleadings -- either in support or opposition -- have been filed in response to these petitions for reconsideration. For the reasons provided below, we conclude that the petitions should be denied. II. BACKGROUND 2. The Wireless Telecommunications Bureau (Bureau) found that petitioners had failed to show good cause for waiver of Section 95.816(c)(4) of the Commission's Rules, 47 C.F.R.  95.816(c)(4). Section 95.816(c)(4) requires that winning bidders who are eligible as "small businesses" to pay their winning bid amount in installments --- and elect to do so -- must submit the remainder of their down payment within five (5) business days of the grant of their license application. The Bureau concluded that difficulties in the procurement of funds -- even if unexpected -- as alleged by Petitioners, do not support waiver of the down payment deadline. The Bureau noted that the Second Report and Order in the competitive bidding docket indicated that the requirement of a full and timely down payment is intended to ensure that winning bidders have the financial capability to attract capital for the rapid deployment and efficient operation of their systems. Requirement of a down payment, the Bureau noted, ultimately helps deter defaults by discouraging insincere bidders from winning licenses solely with the expectation that after the auction they can "shop" their winning bid in a late effort to obtain financing. Finally, the Bureau stated that Petitioners could have taken reasonable precautions, such as securing back-up financing, to ensure that funds were available for a timely down payment in the event of unanticipated difficulties. III. PETITIONS FOR RECONSIDERATION 3. IPA Petition. IPA requests that the Bureau refer its Petition for Reconsideration to the Commission pursuant to 47 C.F.R.  1.104(b), 1.106(a)(1). IPA asserts that the Bureau is rigidly adhering to the payment requirement and -- by doing so -- has effectively decided that no cause will be sufficient to warrant waiver of the payment rules in auction cases. IPA contends that this, in effect, is a policy decision that case precedent and the Commission's own rules prohibit. Given the fact that the Bureau combined all the requests together in denying them, with little specific discussion of each individual case, IPA asserts that the Bureau failed to give IPA's waiver request the "hard look" required by WAIT Radio v. FCC. IPA also submits that its partners were committed to the IVDS venture and that the loss of financial commitment was completely unforeseeable. IPA further argues that it would not have pursued the IVDS venture by participating in the auction if it thought the financial commitments were questionable. IPA notes that it saw no necessity to obtain back-up financing because it did not believe the commitments were questionable. Moreover, asserts IPA, because the auction process was new, and the value of the IVDS licenses had not previously been tested, obtaining back-up financing from a lending institution or elsewhere would have been nearly impossible. 4. To further support its petition for reconsideration, IPA argues that grant of a waiver of the payment rule would pose far less of a delay in delivery of service to the public than would holding another auction. In opposition to the Bureau's assertion that grant of a waiver will undermine the integrity of the auction, IPA asserts that the Commission has already waived an auction rule -- the one-year build out requirement mandated by 47 C.F.R.  95.833(a). The one-year "build out" waiver will result in slower delivery of IVDS services, whereas, states IPA, its waiver request would not undermine the Commission's goal of rapid deployment of IVDS. IPA submits that the special circumstances of its case warrant a deviation from the general rule, and that it is currently prepared to make its final down payment of $100,000 and will do so upon grant of its waiver request. In a supplemental pleading, IPA cites Daniel R. Goodman, Receiver as an additional basis for granting a limited waiver of the IVDS down payment deadline. In that case, the Commission extended by four months the time within which certain Specialized Mobile Radio (SMR) licensees could construct their facilities. The Commission based its decision, in part, on the fact that while the waiver was pending, the construction/operation deadline for all Part 90 licensees was extended from eight to twelve months. 5. Ervin Petition. Ervin also alleges that he has been denied due process because the Bureau failed to accord his waiver request the required "hard look." In this connection, Ervin asserts that the Bureau treated his waiver contentions perfunctorily and, thereby, in effect, adopted a "no waiver" policy regarding payment rules. As the Commission never intended to apply the inflexible policy adopted by the Bureau, asserts Ervin, the Bureau's action is an abuse of discretion. Petitioner asserts that the Bureau failed to consider the unique facts and circumstances of his case, i.e., that his source of partial financing -- a private individual -- reneged on a firm pre-auction commitment of finances. Ervin submits that, although he was unable to meet the down payment deadline of March 7, 1995, he informed the Bureau that he was willing and able to satisfy his obligation on April 7, 1995. The fact that he was able to obtain alternative financing in fewer than thirty (30) days, asserts Ervin, indicates his diligence, good faith, and commitment to deploy an IVDS system in the market. Ervin submits that he in no way was post-auction "bid-shopping" and that a grant, rather than a denial, of his waiver request would ensure rapid deployment of IVDS systems. 6. In support of his waiver request, Ervin also cites the Goodman decision, contending that the objectives of the down payment rule applicable to IVDS licensees are virtually identical to those underlying the SMR construction/operation deadline rule waived by the Commission in Goodman. These objectives, states Ervin, are to ensure that spectrum is used efficiently and to promote the rapid deployment of services to the public. Ervin submits that the limited relief he seeks would not undermine or compromise the purpose of the down payment rule. Further, Ervin notes that grant of his request would eliminate the need to re-auction his license and the delays that such a procedure would engender. Finally, he asserts that he has established his bona fides and seeks, unlike the Goodman licensees, to deploy service rather than to dispose of his license. 7. Eagle Petition. Eagle requests a waiver and leave to cure defects in the filing of its down payment for two of the fifteen licenses for which it was the winning bidder in the IVDS auction. Eagle alleges that Dennis Henry, the President, Treasurer and a 51 percent shareholder of Eagle, failed to use the funds made available to him for timely payment of the two down payments and, without authority, petitioned the Commission for a twelve-day extension of time within which to make these payments. Eagle further states that, in view of these developments, negotiations have commenced to remove Mr. Henry from his positions at Eagle. Thus, Eagle argues that under the circumstances it has acted with great care and diligence, warranting a waiver of the down payment deadline. In this -- its first opportunity to explain the circumstances to the Commission -- Eagle stresses that failure to submit timely payments was not due to any voluntary decision by the partnership management, but rather was the result of an officer breaching his fiduciary duty. Eagle asserts that as long as it pays any reasonable interest and penalties, no other parties -- whether they were involved in the IVDS auction or not -- will be prejudiced. Finally, Eagle contends that grant of its request for reconsideration will save scarce resources and help speed service to the public. 8. SII Petition. SII requests a waiver for the single license that it won, and has placed funds in escrow sufficient to pay its second down payment and initial installment payment amount. SII states that the "deceit and fraud" of some bidders "caused the party supplying SII's needed financing to reassess whether this was a prudent investment because of doubts as to the viability of this new service." Like IPA and Ervin, SII argues that the Bureau failed to give its request a "hard look," and asserts that a waiver grant would result in quicker service to the public than would holding another auction. Like Ervin, SII states that it did not intend to engage in "bid shopping." SII also argues that the Goodman case provides precedent for granting its request, and supplements Goodman with four additional precedents: the "build out" waivers of Section  95.833(a), supra; the pre-auction waivers that permitted auction applicants to claim small business status after the FCC Form 175 ("short form") application deadline had passed; the waivers that permitted additional time to submit engineering studies, post-auction; and what SII characterizes as a "deferral" of the IVDS initial installment payment amount. Last, SII argues that obtaining back-up financing prior to auction is difficult in an "untested" service such as IVDS, and to expect such additional financing runs counter to statutory mandates to provide opportunities for minority and women-owned businesses to participate in the auctions process and provide IVDS services. IV. DISCUSSION 9. Contrary to the allegations of IPA, Ervin, and SII, the Bureau evaluated the facts of each waiver request and, on an individual basis, concluded that each of the Petitioners had not shown good cause for waiver of the down payment deadline. To obtain a waiver of the Commission's Rules -- payment or otherwise -- a petitioner must demonstrate that its circumstances are unique and that good cause exists to justify the requested relief. However, in none of these three cases are the circumstances unusual. The IPA, Ervin, and SII waiver requests arise out of circumstances that are a result of the licensees' own business decisions. The failure of a financial backer to fulfill its commitment cannot be considered an unforeseen event. This occurs in a myriad of situations and the cautious investor seeks back- up financing for what is, in effect, an insurance policy. These petitioners sought and chose the source of their funds to meet their financial obligations in regard to the award of their IVDS license. Certain of IPA's partners reneged on their commitment and the single sources upon which Ervin and SII relied failed to meet their financial commitments. Choosing the source(s) for financing a business enterprise is an individual business judgment for which each applicant is responsible. 10. Generally speaking, failure to comply with Commission rules because of independent business judgments made by the licensee does not warrant grant of rule waivers. This standard has been applied in a number of different circumstances, such as those involving zoning difficulties, interference from adjacent buildings, equipment delivery problems, and alleged fraudulent behavior. The Robert A. Baker, Receiver (Baker) case is an example of the last set of circumstances. In Baker, the Commission affirmed the Common Carrier Bureau's denial of a request for waiver of a cellular application deadline. The Common Carrier Bureau concluded in that case that the individual applicants were responsible for the consequences of their decision to use a mass application preparer, and that compelling circumstances that would justify waiver of the filing deadline had not been presented to the Commission. 11. Eagle also has failed to substantiate its request for relief. Its rationale for waiver is based on the alleged misdeeds of the partnership's president. Whether Mr. Henry acted appropriately, and within the partnership agreement, is not a matter to be resolved in the context of this proceeding. Eagle has recourse to other legal remedies to provide redress for Mr. Henry's alleged improprieties. As was stated in the Baker decision, if applicants have been defrauded, the appropriate remedy is to seek indemnification from the party that has committed the fraud, not belated insertion of the issue into a Commission licensing procedure. The Commission's mandate is not to provide relief for business associates, but to allocate and assign radio spectrum to serve the public interest. Nor would Goodman warrant granting Eagle's waiver request. In Goodman, we specifically stated that the subject waivers were not being granted to afford relief to unwitting victims, but to place the petitioners in the same posture as other Part 90 Commercial Mobile Radio Service (CMRS) providers. Here, we also note that Mr. Henry holds 51 percent of the voting stock of the partnership and would likely be one of the beneficiaries of a waiver grant. In the context of Eagle's request, we are not inclined to waive the Commission's rules to mitigate the impact of any alleged improper business decisions. And in any event, we affirm that Eagle has not demonstrated a special circumstance warranting a deviation from the general payment rule, and that granting the requested waiver would not serve the public interest. 12. IPA submits that because the value of the IVDS licenses had not previously been tested, obtaining back-up financing from a lending institution would have been nearly impossible. SII concurs that acquiring alternate sources for financing would have been difficult. The decision whether or not to seek back-up financing belonged to IPA and SII, and it appears that no effort was made in this regard. IPA and SII are in the same posture as the other IVDS applicants who participated in the July 1994 IVDS auction. They too bid by auction procedures for licenses for spectrum allocated for use in an emerging technology. The very nature of the auction process is to determine the value of a license. IPA and SII had the option to continue bidding or not during the course of the auction. As to Ervin's assertion that he secured the equivalent of back-up financing from a local bank in record time (less than thirty days), unfortunately, the financing was not provided within the required time under the Commission's rules. In regard to IPA, Ervin, and SII's assertion that permitting an extension of time within which to make a down payment will provide service more quickly than re-auctioning an IVDS license, while this may be true in an individual case, the overall effect of permitting late payments will be a delay in service to the public-at-large. 13. IPA, Ervin, and SII cite the Goodman case in support of their waiver requests. However, Goodman is inapposite because the underlying service rule for which the Goodman petitioners sought waiver had been changed during the pendency of their waiver requests -- not the situation in the instant cases. The Goodman petitioners were given four additional months -- twelve months in all -- to construct their stations because we adopted a uniform twelve-month construction period for SMRs licensed in the General Category and all CMRS providers licensed under Part 90 of our Rules. In the interest of fairness, we granted petitioners the relief necessary to place them in the same posture as other SMR licensees subject to the twelve-month rule. In the situation here, we have not modified the requirement for timely completion of the down payment. Entities and individuals interested in bidding at IVDS auctions were clearly informed in the Fourth Report and Order in the competitive bidding docket that timely payments of down payments were expected. The Commission also indicated that IVDS licenses would be conditioned on the timely payment of all monies due. Petitioners continue to be reasonably classified with all other IVDS winning bidders and, therefore, required to make their down payments five (5) days after license grant. In fact, fairness requires that these waiver requests not be granted as there is nothing unique in the facts and circumstances proffered in support of the requested waivers. 14. The Bureau's actions waiving 47 C.F.R.  95.833(a) were also cited by IPA, Ervin, and SII in support of their requests. Prior to its recent amendment, this regulation required, in part, that each IVDS system licensee make service available to at least 10 percent of the service area population or geographic service area within one year of the grant of the license. Contrary to IPA's assertion, however, the build-out waivers did not result in delays in service to the public because the affected licensees were still required to satisfy the three-year and five-year construction benchmarks. Furthermore, this rule was waived not for auction licensees, but for certain IVDS lottery licensees because of uncertainty concerning the subject licenses (that is, administrative appeals challenging the lottery process) and the lack of evidence of either speculation or warehousing of IVDS spectrum (the underlying bases for the rule). This concern of uncertainty caused by license challenges, especially, is absent in the context of the instant waiver requests. 15. SII's other cited precedents are inapposite. The few pre-auction waivers that permitted auction applicants to claim small business status subsequent to the FCC Form 175 ("short form") application deadline were premised on Commission error in printing the application forms; no similar misunderstanding is present here. The waivers that permitted additional time to submit engineering studies, post-auction, were premised on the late notice given of this requirement; again, no such potential unfairness is present here. And the "deferral" of the IVDS initial installment payment amount was actually an administrative action by the Office of Managing Director. Far from being analogous to a waiver, this action merely set a uniform date for affected IVDS licensees to begin installment payments. 16. SII also argues that to expect auction participants to arrange backup financing or other financial safeguards, pre-auction, runs counter to statutory mandates. As required by Congress, the Commission has adopted special provisions to ensure that entities designated by statute are afforded an opportunity to participate in IVDS auctions and in the provision of IVDS services. We do not believe, however, that these statutory mandates are inconsistent with our expectation that auction participants should exercise financial prudence. 17. Finally, while noting a previous denial of requests to extend the IVDS initial down payment deadline, the Bureau at no time enunciated a "no waiver" policy regarding IVDS payments. It merely explained the rationale for requiring full and timely down payments, i.e., to ensure that winning bidders have the financial capability to attract capital to rapidly deploy their systems and operate them in an efficient manner. V. ORDERING CLAUSE 18. Accordingly, IT IS ORDERED that, under the authority of Section 1.106 of the Commission's Rules, 47 C.F.R.  1.106, the Petitions for Reconsideration filed by Interactive Partners of America, Eagle Interactive Partners, L.P., Albert D. Ervin, and Styles, Interactive, Inc., ARE DENIED. FEDERAL COMMUNICATIONS COMMISSION Michele C. Farquhar Acting Chief, Wireless Telecommunications Bureau