FCC 94-99 Federal Communications Commission Record 9 FCC Red No. 11
Before the
Federal Communications Commission 
Washington, D.C. 20554
PP Docket No. 93-253
In the Matter of
Implementation of Section 309(j) 
of the Communications Act -- 
Competitive Bidding
FOURTH REPORT AND ORDER
Adopted: April 20, 1994; Released: May 10, 1994
By the Commission:
TABLE OF CONTENTS
Paragraph
I. INTRODUCTION 1
II. BACKGROUND AND AUCTION ELIGIBILITY
III. COMPETITIVE BIDDING DESIGN 
A. General Competitive Bidding Designs 
B. IVDS Competitive Bidding Design 
C. Bidding Procedures
1. Sequencing
2. Bid Increments
IV. PROCEDURAL. PAYMENT AND 
PENALTY ISSUES
A. Pre-Auction Application Procedures 
B. Upfront Payment 
C. Payment for Licenses Awarded by Competitive
Bidding 
D. Default and Disqualification
V. REGULATORY SAFEGUARDS 
A. Unjust Enrichment Provisions 
B. Performance Requirements 
C. Rules Prohibiting Collusion
3
5
6
11
17
17
18
19
19
23
25
27
30
30
31
32
1 Second Report and Order in PP Docket No. 93-253, FCC 
94-61, released April 20, 1994 (Second Report and Order). On 
February 3, 1994, we adopted the First Report and Order in this 
proceeding, which, pursuant to 47 U.S.C. § 309(i)(4)(C), pre 
scribed transfer disclosure requirements with respect to licenses 
or permits awarded by random selection. First Report and 
Order in PP Docket No. 93-253, FCC 94-32 (released February 
4, 1994), petitions for reconsideration pending. 
1 Concurrent with this Fourth Report and Order, we are
VI. TREATMENT OF DESIGNATED ENTITIES 34 
A. Introduction 34 
B. Bidding Credits 39 
C. Tax Certificates 48 
D. Installment Payments 53
VII. CONCLUSION 55
VIII. FINAL REGULATORY FLEXIBILITY
ANALYSIS 56
I.. ORDERING CLAUSES 57 
APPENDIX - FINAL RULES
I. INTRODUCTION
1. On March 8. 1994, the Commission adopted a Second 
Report and Order in this proceeding (Second Report and 
Order) 1 establishing general rules and procedures govern 
ing competitive bidding for radio spectrum (auctions). The 
Second Report and Order identified the types of services 
and licenses that may be subject to auctions, described a 
menu of competitive bidding methods, and adopted generic 
auction procedures. The Commission stated that specific 
competitive bidding rules for licensing individual services 
would be addressed in subsequent Reports and Orders. This 
Fourth Report and Order establishes rules and procedures 
for auctioning licenses in the Interactive Video and Data 
Service (IVDS).2
2. In this Fourth Report and Order, we find that the 
value of IVDS licenses is not expected to be sufficiently 
high to justify the use of simultaneous multiple round 
bidding. We therefore conclude that the auction methods 
most appropriate to the IVDS are oral bidding (open out 
cry) and single round sealed bidding. We also establish 
rules and procedures to deter possible abuses of the bidding 
and licensing procedures. Last, we establish preferences for 
small businesses and businesses owned by minorities or 
women to enhance their participation in the competitive 
bidding process and in the provision of IVDS system 
offerings.
II. BACKGROUND AND AUCTION ELIGIBILITY
3. The IVDS is a point-to-multipoint. multipoint-to- 
point, short distance communications service in which li 
censees may provide information, products, or services to 
individual subscribers located at fixed locations in the ser 
vice area, and subscribers may provide responses.3 The 
rules governing IVDS were adopted in 1992 in Gen. Dock 
et No. 91-2.4 In that proceeding, the Commission decided 
to define specific service areas and license IVDS channels 
in these areas on an exclusive basis. As so defined, the 
IVDS has 734 service areas, with two licenses of 500 
kilohertz each (218.0-218.5 and 218.5-219.0 MHz) available
adopting a Third Report and Order, FCC 94-98. in this docket 
addressing the specific competitive bidding rules and procedures 
for "narrowband" Personal Communications Services (PCS).
3 Service offerings might include subscriber opportunities to 
provide real-time responses to educational and pay-per-view 
programming, commercial data applications such as home bank 
ing, and the downloading of data. See Report and Order in Gen. 
Docket No. 91-2, 7 FCC Red 1630, 1630 H 2, 1637 H 54 (1992).
4 Report and Order, supra note 3; see 47 C.F.R. Part 95, 
Subpart F.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-99
in each area.5 In the event of mutually exclusive applica 
tions6 for license, the Commission decided in that earlier 
proceeding to use the lottery processes specified in our 
rules.7
4. The Omnibus Budget Reconciliation Act of 1993 
(Budget Act)8 added a new Section 309(j) to the Commu 
nications Act of 1934, as amended (Communications Act),9 
to permit the Commission to employ competitive bidding 
procedures to choose from among two or more mutually 
exclusive accepted applications for initial license. In the 
Notice of Proposed Rule Making in this proceeding, we 
stated that "the principal use of IVDS-allocated spectrum is 
reasonably likely to involve the licensee receiving com 
pensation from subscribers for communications services," 
and therefore proposed to subject IVDS to competitive 
bidding.10 Following our subsequent review of comments 
and reply comments, we concluded that IVDS should be 
subject to auctions." In this Fourth Report and Order we 
have attempted to design IVDS auction rules and proce 
dures that meet Congressional objectives. 12 We believe that 
these objectives are embodied in two basic Commission 
policy goals: promoting economic growth, and enhancing 
access to telecommunications service offerings for consum 
ers, producers, and new entrants. 13
III. COMPETITIVE BIDDING DESIGN
5. As noted, we have determined that mutually exclusive 
IVDS applications are subject to auctions. We must, there 
fore, identify the methodology and procedure we will use 
to auction the licenses. We do so in the paragraphs below, 
pursuant to Section 309(j)(3) of the Communications Act 
and based on the record in this proceeding. 14 As described 
below, some further details about specific competitive bid 
ding procedures will be provided later by Public 
Notice(s). 15
A. General Competitive Bidding Designs
6. The Second Report and Order established the criteria 
to be used in selecting the auction design method for each 
auctionable service. Generally, we concluded that awarding 
licenses to those parties that value them most highly will 
foster Congress' policy objectives. In this regard, we noted 
that because a bidder's ability to introduce valuable new 
services and to deploy them quickly, intensively, and effi 
ciently increases the value of the license to that bidder, an 
auction design that awards licenses to those bidders who 
are willing to pay the highest bid tends to promote the 
development and rapid deployment of new services and the 
efficient and intensive use of the spectrum.
7. We concluded that where the licenses to be auctioned 
are interdependent (that is, either substitutes for, or com 
plements to, each other) and their value is expected to be 
high, "simultaneous multiple round" auctions would best 
achieve the Commission's goals for competitive bidding. 16 
We also noted that simultaneous multiple round bidding is 
more complex for bidders and may be administratively 
more expensive than other auction methods we may select, 
and indicated that we would use this design only in in 
stances where the expected value of the licenses to be 
auctioned is high relative to the costs of conducting a 
simultaneous multiple round auction. 1 '
8. In the Second Report and Order we stated our inten 
tion to tailor the auction design to fit the characteristics of 
the licenses to be awarded. We noted that simultaneous 
multiple round auctions may not be appropriate for all 
licenses. 18 The less the interdependence among licenses, the 
less the benefit to auctioning them simultaneously. To the 
extent that simultaneous auctions are more costly and com 
plex to run, we indicated that we may choose a sequential 
auction design, including sequential oral auctions, when 
there is little interdependence among individual licenses.
9. We further explained that when the values of particu 
lar licenses to be auctioned are low relative to the costs of 
conducting a simultaneous multiple round auction, we 
may consider auction designs that are relatively simple.
5 See 47 C.F.R. §§ 95.803. 95.853. IVDS service or market areas 
are defined in terms of the 734 cellular system service areas. See 
Public Notice, Report No. 92-40, released January 24, 1992; 47 
C.F.R. § 22.903 (cellular). Many of these service areas cover 
rural or remote, sparsely populated areas.
6 The Commission, in general, "considers two or more applica 
tions to be mutually exclusive' if their conflicts are such that 
the grant of one application would effectively preclude, by 
reason of harmful electrical interference, the grant of one or 
more of the other applications." Second Report and Order at 1 
12 n.5.
7 See 47 C.F.R. § 1.972 (1992). On September 15, 1993, a 
lottery for nine IVDS markets was conducted. This lottery was 
permitted under the Budget Act described below, the pertinent 
applications having been accepted for filing by the Commission 
prior to July 26, 1993. See Budget Act, infra note 8, § 6002(e). 
6 Pub. L. No. 103-66, Title VI, § 6()02(a), 107 Stat. 312, 387 
(1993)(Budget Act); see H.R. Conf. Rep. No. 213, 103d Cong., 1st 
Sess. 480-89 (1993), reprinted in 1993 U.S. Code Cong. & Admin. 
News 1169-78.
9 47 U.S.C. §§ 151-713. *
10 8 FCC Red 7635, 7659 f 143 (1993); see generally 47 U.S.C. §
309(j)(2).
1 ' Second Report and Order at 1 f 49-53.
12 47 U.S.C. § 309(j)(3).
13 Second Report and Order at f 1 3-7.
14 We received comments or reply comments on auctioning
licenses in the IVDS from the following: American Group 
(American); Quentin L. Breen (Breen): Chase McNulty Group, 
Inc. (Chase); EON Corporation (EON)(e.c pane filings); In 
dependent Cellular Consultants (ICC); Andrea L. Johnson 
(Johnson); Kingswood Associates (Kingswood); NYNEX Corpo 
ration (NYNEX); Radio Telecom and Technology, Inc. (RTT); 
Harry Stevens, Jr. (Stevens); and Richard L. Vega Group 
(RLV). Of these, five -- American (reply comment at 23-25), 
Kingswood (reply comment at 23-25), NYNEX (comment at 11), 
Stevens (reply comment at 1), and RLV (comment at 11-14) -- 
commented in this context only on whether IVDS should be 
subject to auctions, an issue we addressed in the Second Report 
and Order. See f 3, supra.
15 The Public Notice(s) will be issued by either the Commis 
sion or the Private Radio Bureau.
1S See Second Report and Order at U 1 106-111. With this 
method, all licenses or classes of licenses are auctioned at once, 
using multiple rounds, and the bidding continues until bidding 
activity subsides. Thus, bidders may repeatedly "top" the pre 
viously high bids. See id. at 1 11 82, 86.
17 Id. at 1 111.
18 Id. atf 112.
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FCC 94-99 Federal Communications Commission Record 9 FCC Red No. 11
with low administrative costs and minimal costs to the 
auction participants. We noted that as the value of licenses 
decreases, and thus the benefits of simultaneous multiple 
round bidding diminish relative to the cost and complexity 
of such auctions, a less complex auction method may be 
more suitable. For example, with large numbers of low 
value licenses we noted that we may decide that it is 
preferable to implement a low cost auction method such as 
single round sealed bidding to minimize cost and expedite 
the licensing process.
10. Last, in the Second Report and Order we noted that 
Congress directed us to "design and test multiple alter 
native methodologies under appropriate circumstances." 19 
Thus, where appropriate, we intend to choose bidding 
methods other than simultaneous multiple round auctions 
and periodically reevaluate the effectiveness of all methods 
utilized.
B. IVDS Competitive Bidding Design
11. We find that the generally preferred method of si 
multaneous multiple round auctions is not the most appro 
priate for IVDS, and that IVDS also presents a good 
opportunity to test less complex alternative procedures. As 
discussed below, of the auction methods described in the 
Second Report and Order, oral bidding (open outcry) and 
single round sealed bidding appear best suited to the IVDS. 
Both are relatively inexpensive for the Commission to ad 
minister, and the costs of participation by bidders are fairly 
low. Moreover, both have the advantage of being relatively 
simple for bidders to understand and also generally can be 
completed quickly. Thus, these methods are likely to pro 
mote the statutory goal of rapid implementation of service 
to the public.20 We therefore adopt these two methods to 
auction IVDS licenses.21
12. The IVDS offers two 500 kilohertz channels (fre 
quency segments A and B) in each of 734 service areas, 
and the aggregation of both channels in a market is not 
permitted. While there may be some degree of 
interdependency among the IVDS licenses for geographi 
cally contiguous areas,22 we do not believe that it is great 
enough to justify the greater costs and administrative com 
plexities associated with holding a simultaneous multiple 
round auction.23 Last, with large numbers of IVDS licenses 
covering only rural areas.24 we anticipate that the demand 
for, and value of, most markets will not be great enough to 
justify the use of more complex methods such as simulta 
neous multiple round auctions.25
13. For IVDS open outcry auctions, each service area 
(with two licenses each) will be auctioned individually, and 
the two highest bidders in each service area will be award 
ed a license. The highest bidder will get first choice of 
frequency segment A or segment B at the highest bid price. 
The second highest bidder will be awarded the remaining 
segment at the amount it bid.
14. With single round sealed bidding, we will auction the 
two frequency segments separately. Licenses for frequency 
segment will be auctioned first. As soon as practicable 
thereafter, we will announce the high bidders for licenses 
on frequency segment B and announce a deadline date for 
short-form applications for segment A licenses. In the event 
of a tie in single round sealed bidding, we will hold one 
additional round between the parties that tied.
15. Having both oral and sealed bidding methods avail 
able permits us the flexibility to fit the right auction meth 
od to the particular IVDS licenses being auctioned. 
Further, it is consistent with Congress' directive that we 
design and test multiple alternative methodologies under 
different circumstances. ICC comments that, of the two 
methods, sealed (or electronic) bidding is preferable to oral 
bidding because some potential bidders perhaps cannot 
afford to attend an auction in person.26 As noted in the 
Second Report and Order, however, such sealed bidding 
generates no information about license values until after 
the auction closes, tending to decrease bid levels and re 
duce the efficiency of the license assignment.27 We there 
fore believe that oral bidding should be used in the 
potentially higher valued markets, where having license 
value information during the auction is especially impor 
tant, and that sealed bidding should be used for the re 
maining markets. 28
16. We believe that, in general, the greater the popula 
tion in the service area, the greater will be the perceived 
value of. and demand for, the license. The 734 service areas 
for the IVDS are identical to those of cellular radio service 
areas: 306 "Metropolitan Statistical Areas" (MSAs) and 428 
"Rural Service Areas" (RSAs).2" We have concluded that 
we should conduct oral auctions for the IVDS service areas 
corresponding to MSAs, and sealed bid auctions for the 
remaining service areas, or RSAs. We reserve the discretion 
to reconsider this bidding design if. in light of experience 
gained with auctions, a change appears warranted.
tq Id. at H 115. quoting 47 U.S.C. § 309(j)(3); see also ICC 
comment at 9 (supporting IVDS as a candidate for testing 
alternative methodologies).
See 47 U.S.C. § 309(j)(3)(A).20
21 If, as we gain experience, we find that another auction 
design for the IVDS would better achieve the goals of the 
Budget Act, we may revisit this issue.
22 Two commenters, EON and ICC, very briefly address the 
issue of potential interdependence among IVDS licenses. EON 
argues that the sequence of IVDS auctions should track "ADls," 
a proposal we discuss and adopt infra. EON does not state, 
however, that bidders might perceive the aggregation of licenses 
to result in additional efficiencies of IVDS operation. EON ex 
pane filing of Jan.26, 1994, at 4. ICC states that auction proce 
dures favoring license aggregation run counter to policies favor 
ing licensee diversity. ICC Comment at 7.
23 The interdependencies for IVDS are likely to be less than
for services where "roaming" is important. See generally Second 
Report and Order at H 91. The IVDS rules do not permit 
roaming across service areas.
24 See note 5, supra.
25 See Second Report and Order at f f 112-113. 
" ICC comment at 6-7, reply comment at 7-8. Chase would 
prefer that we randomly alternate between oral and sealed 
methodologies. Chase comment at 1-2.
27 Second Report and Order at f 89 n.81.
28 For example, when choosing between the two methods, we'
do not want to hold the more expensive oral bidding auction in
instances where we believe that the operational costs of holding
the auction might outweigh the benefits (efficient allocation and
revenues generated).
2<i See note 5, supra.
30 For instance, sealed bidding might be appropriate if we
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-99
C. Bidding Procedures
17. Sequencing. We must choose the sequence in which 
IVDS licenses will be auctioned. We helieve that, in gen 
eral, the higher valued IVDS licenses should be auctioned 
first: the cost to the public from delaying licensing in 
creases with the value of the license, and, to the limited 
extent that aggregation of licenses is important, auctioning 
the higher valued licenses first facilitates it.31 In determin 
ing the sequence for auctioning IVDS licenses we are per 
suaded by EON's argument that the IVDS is a 
television-driven service and that the licenses should there 
fore be auctioned in a manner consistent with the geo 
graphic areas defined by "Areas of Dominant Influence" 
(ADIs),32 rather than by numerical order of service area. 
EON and ICC also commented generally that licenses for 
the more densely populated IVDS service areas should be 
auctioned prior to the other areas.33 Therefore, we will 
auction licenses in ADI order, starting with the lowest 
numbered ADI (having the highest population) and pro 
ceeding in numerical order.34 Prior to starting the auction 
process, we will issue a Public Notice listing the pertinent 
ADIs, and the order in which licenses for the correspond 
ing service areas will be auctioned (by open outcry) in 
each ADI. We anticipate that we will hold sealed bid 
auctions for licenses in rural areas as soon as practicable 
after auctioning the more populated areas. For the rural 
areas, licenses on frequency segment B will be auctioned 
first, and then a separate sealed bid auction will be held for 
licenses on frequency segment A.
18. Bid Increments. In a multiple round auction, a bid 
increment is the amount or percentage by which a bid 
must be raised above the previous round's high bid in 
order to be accepted as a valid bid in the current round of 
bidding. For IVDS auctions, the Commission, including 
the auctioneer, retains the discretion to impose bid incre 
ments before or during the auction.35
IV. PROCEDURAL, PAYMENT AND 
PENALTY ISSUES
A. Pre-Auction Application Procedures
19. The Second Report and Order established general 
rules and procedures for participating in auctions. Again, 
however, we noted that these might be modified on a
service-specific basis. As described below, we have deter 
mined that we will follow the procedural, payment, and 
penalty rules established in the Second Report and Order, 
with certain minor modifications to fit the IVDS. Certain 
procedural details will be supplied later by Public No- 
tice(s). Our objective has been to design rules and proce 
dures that will reduce administrative burdens and costs on 
bidders and the Commission, ensure that bidders and li 
censees are qualified and able to construct their systems, 
and minimize the potential for delay of service to the 
public.
20. We will require applicants to follow the application 
filing and processing rules outlined in the Second Report 
and Order.36 Before each scheduled IVDS auction the 
Commission, or, pursuant to delegated authority, the Pri 
vate Radio Bureau, will release Public Notices concerning 
the auction. The Public Notices will specify the license(s) 
to be auctioned and the time, place, and method of com 
petitive bidding to be used, as well as applicable bid sub 
mission and payment procedures. A Public Notice will also 
specify the filing deadline date for short-form applications.
21. Bidders will be required to submit short-form ap 
plications on FCC form 175 by the date specified in the 
Public Notice.3 ' If the Commission receives only one ap 
plication that is acceptable for filing for a particular fre 
quency segment, and there is thus no mutual exclusivity.38 
the Commission will by Public Notice cancel the auction 
for this license and establish a date for the filing of a 
long-form application (FCC Form 574). In order to en 
courage maximum bidder participation, we will provide 
applicants whose short-form applications are substantially 
complete, but which contain minor errors or defects, with 
an opportunity to correct their applications prior to the 
auction. However, applicants will not be permitted to make 
any major modifications to their applications, including 
ownership changes or changes in the identification of par 
ties to bidding consortia.M In addition, applications that are 
not signed or that fail to make the required certifications 
will be dismissed and may not be resubmitted.
22. The Commission will issue a subsequent Public No 
tice listing all applications containing minor defects, and 
applicants will be given an opportunity to cure and 
resubmit defective applications. After reviewing the cor 
rected applications, the Commission will release another 
Public Notice announcing the names of all applicants 
whose applications have been accepted for filing.
re-auction a small number of MSAs, or postpone initially the 
auctioning of MSAs located near international borders while 
agreements are negotiated.
" Second Report and Order at 1 f 117-120. We have noted. 
"Knowing who has won |the| large markets is likely to be more 
important for bidding decisions about small markets than the 
converse." Id. at 1 119.
32 This standard market definition, developed tay Arbitron 
Ratings Company, places each county in the continental U.S. 
within one of 210 ADIs.
33 EON ex pane filing of Jan.26, 1994. at 2. 4; ICC comment at 
7.
34 The majority of ADIs comprise a number of MSAs. See 
generally note 5. supra. We will auction the lowest numbered 
service area in the ADI first, then go in numerical order until 
all MSAs in that ADI are auctioned. We will also auction the 
remaining service areas (MSAs) that make up the ADIs for the 
9 markets that were lotteried. See id.
35 See generally id. at f 126.
36 Second Report and Order at f 160-188. In its comments,
RTT sets forth a waiver request and asks that we rule on it in 
advance of the IVDS auctions. RTT comment at 1-5. Specifi 
cally, RTT requests that the Commission, by declaratory ruling, 
rule that any IVDS licensee using "T-NET" technology, with a 
power level greater than that permitted in our rules, will be 
granted a rule waiver to permit the power level. We will not 
make the requested ruling at this time. All requests for waiver 
must be evaluated in the context of a specific system design for 
avoidance of interference to television reception. This informa 
tion can be provided when the applicant files a long-form 
application for license in a particular market. See generally 
Second Memorandum Opinion and Order in Gen. Docket No. 
91-2, 8 FCC Red 2787. 2788 f 8 (1993).
 *' Applicants should note whether they intend to bid for one 
or both frequency segments. Applicants need not submit 
microfiche originals or copies.
38 As noted previously, absent mutually exclusive applications, 
the Commission is prohibited from auctioning the license. 47 
U.S.C. § 309(j)(l).
•w See Second Report and Order at 11 167.
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FCC 94-99 Federal Communications Commission Record 9 FCC Red No. 11
B. Upfront Payment
23. In the Second Report and Order, we described three 
types of payments: upfront payments, down payments, and 
final payments. Chase favors upfront payments, while ICC 
believes that such a requirement would constitute a hard 
ship on small entrepreneurs.40 We believe an upfront pay 
ment is needed for oral outcry IVDS auctions. Requiring 
this payment provides some degree of assurance that only 
serious, qualified bidders will participate and serves as a 
deterrent to the filing of speculative applications which 
tend to slow down the provision of service to the public. It 
also provides the Commission with a source of funds to 
satisfy any penalties assessed. Therefore, we will require the 
upfront payment and retain the flexibility to determine the 
payment amount on an auction-by-auction basis. We will 
not, however, require an upfront payment for applicants in 
sealed bid IVDS auctions.
24. A bidder may file applications for every IVDS license 
being auctioned, but. for open outcry auctions, its upfront 
payment should reflect the maximum number of licenses it 
desires to win. Once a bidder is a "winning" bidder for the 
maximum number of licenses reflected by its upfront pay 
ment, it will be precluded from bidding further. We will 
use the following procedure for collecting this payment for 
oral bidding IVDS auctions. The applicant or its repre 
sentative will be required to show the Commission, imme 
diately prior to the auction, a cashier's check for at least 
S2.5004 ' in order to get a bidding number and enter the 
designated area in the room where the bidding will take 
place. Bidders will be required to have $2,500 upfront 
money for every five licenses they win.42 The $2,500 
upfront payment will be collected immediately after the 
first license is won by an applicant.43 The highest bidder 
will be asked to sign a bid confirmation form. The upfront 
money will later be counted toward the down payment. We 
believe these procedures will keep the auction process 
simple, keep costs down for small businesses who wish to 
bid on only a few licenses, and eliminate Commission 
expenses due to issuing refunds.
C. Payment for Licenses Awarded by Competitive Bidding
25. To provide further assurance that winning bidders 
will be able to pay the full amount of their bids, we 
decided generally in the Second Report and Order that 
each winning bidder must tender a down payment suffi 
cient to bring the total deposit up to 20 percent of the 
winning bid. We believe a down payment is appropriate for 
IVDS. Therefore, winning bidders will be required to sup 
plement their upfront payments to bring their total deposit 
with the Commission up to at least 20 percent,44 of the 
final payment due for the license(s) won in that particular 
auction.45 The down payment will be due within five busi 
ness days after the close of bidding.46 The down payment 
will be held by the Commission until the high bidder has 
been awarded the license and has paid the remaining bal 
ance due on the license, or until the winning bidder is 
found unqualified to be a licensee or has defaulted, in 
which case it will be returned, less applicable penalties. 
During the period that deposits are held pending ultimate 
award of the license, the interest that accrues, if any. will 
be retained by the Government.
26. Long-form applications (FCC Form 574) will be due 
from successful bidders within 10 business days after they 
have been notified of their winning bidder status. 47 Once 
we have reviewed the application and made a determina 
tion that the applicant is qualified, we will grant the li 
cense, conditioned on the timely payment of all monies 
due. In the Second Report and Order, we decided to 
require auction winners to make full payment of the bal 
ance of their winning bids within 5 business days of the 
grant of their license, except for small businesses using the 
preference of installment payments. 48 This time frame ap 
pears to be appropriate for IVDS, and we will therefore use 
it.
D. Default and Disqualification
27. In the Second Report and Order, we concluded that 
strong incentives are needed to ensure that potential bid 
ders are financially and otherwise qualified to participate in
40 Chase comment at 2; ICC comment at 8. reply comment at 
7.
41 In establishing procedures for auctioning IVDS licenses, we 
have tried to reduce the complexities of the auction process for 
both the Commission and potential applicants. To this end. we 
have established a standard, reasonable upfront payment 
amount in lieu of an amount based on a formula (e.g., 
$0.02/pop/MHz). Such a formula, when used in the context of 
more populated areas, can result in a very substantial upfront 
payment. In the context of IVDS, we believe $2,500 strikes a 
good balance between ensuring that only serious, qualified bid 
ders participate and not placing an unreasonable financial bur 
den on small businesses. This amount was established in the 
Second Report and Order, see id. at H 180, as the general 
minimum upfront payment, consistent with comments submit 
ted.
42 For example, if a bidder brings only one check for $2,500 
and wins five licenses, he or she will not be allowed to bid on 
another license. If a bidder brings two $2,500 checks, he or she 
may bid until 10 licenses are won. Therefore, if a bidder antici 
pates winning 16 licenses, he or she must bring four $2,500 
cashier's checks.
4-' The upfront money will be collected immediately after the 
first license is won in each group of five licenses (1, 6, 11. etc.). 
Bidders should bring a $2,500 cashier's check for each five 
licenses they desire to purchase. The Commission will not 
refund money to those bringing a single check to cover the total
upfront payment required, rather than multiple $2,500 checks, 
if the single check is for an amount ultimately greater than the 
upfront payment required. On request we will, however, apply 
such balance to any further monies owed in the context of 
IVDS auctions.
44 Small businesses using the preference of installment pay 
ments, see Section VI below, need only bring their deposits up 
to 10 percent within 5 business days, with the remaining 10 
percent due within five days of the license grant. See Second 
Report and Order at 11 192 n.145. 238.
45 If the upfront payment already tendered amounts to 20 
percent or more of the winning bid. no additional deposit will 
be required.
411 Second Report and Order at 1 192. For single round sealed 
bidding, we will notify the high bidders soon after the auction. 
The down payment will then be due within five business days. 
4 ' If a filing fee is required, the general rules governing the 
submission of fees will apply. See 47 C.F.R. § 1.1101 et scq. 
These rules provide for dismissal of an application if the ap 
plication fee is not paid, is insufficient, is in improper form, is 
returned for insufficient funds, or is otherwise not in compli 
ance with our fee rules. See also Second Report and Order at 1 
167 n.127. 
48 Id. at 1 194.
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9FCCRcdNo. 11 Federal Communications Commission Record FCC 94-99
auction proceedings, so as to avoid delays in the deploy 
ment of new services to the public.4Q We stated that, for 
open outcry auctions, we will assess a default penalty if a 
bidder fails to make the down payment on a license, fails 
to pay for a license, or is disqualified after the close of an 
auction. In the case of single round bidding, we stated that 
we will impose a penalty in instances where the default 
occurs after the high bidder has been notified by the 
Commission that it has submitted the high bid.50
28. In an oral auction, a winning bidder that withdraws 
its bid after signing a bid confirmation form or fails to 
remit the required down payment or balance of its winning 
bid in the time frame specified, will be deemed to have 
defaulted. In a sealed bid auction, a winning bidder is 
deemed to have defaulted if it withdraws its bid after 
publication of the initial public notice notifying auction 
winners or fails to remit the required down payment or 
balance of its winning bid in the time frame specified. In 
such instances, we may re-auction the license or offer it to 
the next highest bidder(s). In cases where disqualification 
or default occurs after the full down payment has been 
made, we will hold a new auction for the license. Further, 
"if a default or disqualification involves gross misconduct, 
misrepresentation or bad faith by an applicant, the Com 
mission also may declare the applicant and its principals 
ineligible to bid in future auctions, and may take any other 
action that it may deem necessary, including institution of 
proceedings to revoke any existing licenses held by the 
applicant." 51 Entities who obtain their licenses through the 
auction process are put on notice that if their licenses are 
revoked or canceled they will forfeit all monies paid to the 
Commission regarding those licenses.52
29. We believe it is important to adopt default penalties 
for IVDS auctions. If a bidder in an oral auction defaults 
or is disqualified, a default penalty will be imposed equal 
to the difference between the bidder's high "winning" bid 
and the amount of the winning bid the next time the 
license is offered by the Commission, if this latter amount 
is lower. In addition, with open outcry auctions, the de 
faulting auction winner will be assessed a penalty of three 
(3) percent of the subsequent winning bid or three percent 
of its own (the defaulting bidder's) bid. whichever is less.53 
The additional three percent penalty is designed to discour 
age insincere bidding and to compensate the government 
for the cost of reauctioning a license. In single round 
sealed bid auctions, if a high bidder defaults prior to 
making the required down payment, we will impose a 
default penalty equal to the difference between the high bid 
and the next highest bid. If a high bidder defaults after 
having made the down payment, the additional three 
percent penalty will be applied.54
V. REGULATORY SAFEGUARDS
A. Unjust Enrichment Provisions
30. Congress directed that we take steps to prevent unjust 
enrichment due to trafficking in licenses that were ob 
tained through competitive bidding. 47 U.S.C. § 
309(j)(4)(E). In Section VI, below, we adopt specific rules 
governing unjust enrichment by designated entities.55 The 
IVDS rules already contain provisions to reduce 
trafficking,56 and ICC argues that these rules are 
sufficient.57 Consistent with the Second Report and Order, 
however, the IVDS-specific anti-trafficking provisions will 
not apply to licenses obtained through competitive bidding, 
although we will enforce the new transfer disclosure re 
quirements contained in Section 1.2111 of our rules.58 
Generally, applicants seeking to transfer their licenses with 
in five years of the initial license grant will be required to 
file, together with their transfer application, the associated 
contracts for sale, option agreements, management agree 
ments, and all other documents disclosing the total consid 
eration received in return for the transfer of the license. 
We will give particular scrutiny to auction winners who 
have not yet begun commercial service and who seek ap 
proval for an assignment or transfer of control of their 
licenses, in order to determine whether any unforeseen 
problems relating to unjust enrichment have arisen outside 
of the designated entity context.
B. Performance Requirements
31. Congress has directed that the Commission, in im 
plementing auction procedures, "include performance re 
quirements, such as appropriate deadlines and penalties for 
performance failures, to ensure prompt delivery of service 
to rural areas, to prevent stockpiling or warehousing of 
spectrum by licensees or permittees, and to promote invest 
ment in and rapid deployment of: new technologies and 
services." 5" In the Second Report and Order, we decided 
that it was unnecessary and undesirable to impose addi 
tional performance requirements for auctionable services 
beyond those already provided in service rules.60 The IVDS 
rules already contain specific performance requirements, 
such as the requirement to build-out the system within a 
specified period of time. See, e.g., 47 C.F.R. § 95.833. 
Entities that obtain, by transfer or assignment, an IVDS 
license that was awarded by competitive bidding, take such 
license subject to the existing performance requirements.
C. Rules Prohibiting Collusion
32. In the Second Report and Order we adopted special 
rules prohibiting collusive conduct in the context of com 
petitive bidding. See 47 C.F.R. § 1.2105(c). We indicated 
that such rules would serve the objectives of the Budget
49 Id. at HI 195-197.
50 Id. atf f 156-157.
51 Id. at 1 198.
52 This includes licensees who fail to meet the construction 
benchmarks contained in 47 C.F.R. § 95.833.
53 Second Report and Order at 1 1 154-157.
54 See id. at 1 157.
55 See H H 47, 52, 54 & n.90, infra. We have amended 47 C.F.R. 
§ 95.819 to clarify the procedures for the transfer or assignment 
of IVDS licenses.
56 For example, current IVDS licenses must meet the five-year
construction benchmark before they may transfer, sell, assign, 
or give an IVDS license to another entity. See 47 C.F.R. § 
95.819.
57 ICC comment at 7.
58 See 47 C.F.R. § 1.2111; Second Report and Order at H f 
263-265.
59 47 U.S.C. § 309(j)(4)(B).
60 Second Report and Order at 1 219.
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FCC 94-99 Federal Communications Commission Record 9 FCC Red No. 11
Act by preventing parties, especially larger firms, from 
agreeing in advance to bidding strategies that might divide 
the market according to their strategic interests and to the 
disadvantage of other bidders. These rules apply to all 
auctionable services, including the IVDS. Bidders are re 
quired to identify on their FCC Form 175 applications any 
parties with whom they have entered into any consortium 
arrangements, joint ventures, partnerships or other agree 
ments or understandings which relate to the competitive 
bidding process. Bidders are also required to certify that 
they have not entered into any explicit or implicit agree 
ments, arrangements or understandings with any parties, 
other than those identified, regarding the amount of their 
bid, bidding strategies or the particular properties on which 
they will or will not bid. After the short-form applications 
are filed and prior to the time that the winning bidder has 
made its required down payment, all bidders are prohibited 
from cooperating, collaborating, discussing or disclosing in 
any manner the substance of their bids or bidding strategies 
with other bidders, unless such bidders are members of a 
bidding consortium or other joint bidding arrangement 
identified on the bidder's short-form application.
33. Concerning bidding consortia, joint venture, partner 
ship or other such agreements or arrangements, all such 
arrangements must have been entered into prior to the 
filing of short-form applications. Where specific instances 
of collusion in the competitive bidding process are alleged, 
the Commission may conduct an investigation or refer 
such complaints to the United States Department of Justice 
for investigation. Bidders who are found to have violated 
the antitrust laws or the Commission's rules in connection 
with participation in the auction process may be subject to 
forfeiture of their down payment or their full bid amount, 
revocation of their license(s), and may be prohibited from 
participating in future auctions.
VI. TREATMENT OF DESIGNATED ENTITIES
A. Introduction
34. As discussed in the Second Report and Order, Con 
gress mandated that the Commission "ensure that small 
businesses, rural telephone companies, and businesses 
owned by members of minority groups and women are 
given the opportunity to participate in the provision of 
spectrum-based services." 47 U.S.C. § 309(j)(4)(D). The 
statute requires the Commission to "consider the use of tax 
certificates, bidding preferences, and other procedures" in 
order to achieve this congressional goal. In addition, Sec 
tion 309(j)(3)(B) provides that in establishing eligibility 
criteria and bidding methodologies the Commission shall 
promote "economic opportunity and competition ... by 
avoiding excessive concentration of licenses and by dissemi 
nating licenses among a wide variety of applicants, includ 
ing small businesses, rural telephone companies, and 
businesses owned by members of minority groups and 
women." 47 U.S.C. § 309(j)(3)(B). Finally, Section
309(j)(4)(A) provides that to promote these objectives, the 
Commission shall consider alternative payment schedules, 
including lump sums or guaranteed installment payments.
35. In the Second Report and Order we established the 
eligibility criteria and general rules that would govern the 
award of preferences for designated entities, We also estab 
lished a menu of preferences, including installment pay 
ments and bidding preferences, that we could choose from 
in selecting the preferences that will be applicable to a 
particular service, and specified the circumstances under 
which a tax certificate program would be established. In 
addition, we set forth rules to prevent unjust enrichment 
by designated entities seeking to transfer licenses obtained 
through use of one of the preferences.
36. In this Fourth Report and Order we adopt specific 
preferences for the IVDS designed to ensure that designated 
entities are given the opportunity to participate both in the 
competitive bidding process and in the provision of the 
service. In particular, we adopt the following preferences:
(1) A 25 percent bidding credit will be available for 
one license in each service area (for either frequency 
segment A or B), for businesses owned by minorities 
and/or women;
(2) Tax certificates will be available to initial inves 
tors in minority and women-owned enterprises upon 
divestiture of their non-controlling interests, and to 
licensees who transfer their authorizations to minor 
ity or women-owned businesses; and
(3) Installment payments will be made available to 
small businesses.
We also incorporate and adopt the unjust enrichment pro 
visions adopted in the Second Report and Order applicable 
to each of the preferences we adopt here, and adopt the 
designated entities eligibility requirements of the Second 
Report and Order." 1
37. We received IVDS-specific comments favoring the 
preferences of spectrum set-asides62 and royalty payments.63 
As we noted in the Second Report and Order, however, the 
appropriateness of preferences is best determined in light 
of the characteristics of the particular service and the na 
ture of its expected pool of bidders, and we find that these 
preferences are not appropriate for the IVDS. Concerning 
set-asides, we note that the total spectrum available in the 
service is small: two 500 kilohertz channels available in 
each service area. Thus for the IVDS, with its licensing 
scheme of two licenses per market, the use of set-asides 
would result in one of every two licenses being reserved for 
designated entities. We decline to reserve so great a propor 
tion of the service's spectrum. Furthermore, in the Second 
Report and Order we decided, for all services, not to use 
the preference of royalty payments.64 While we will con 
tinue to assess the feasibility of these preferences as we gain 
experience with auctions in the context of this and other 
services, we are not persuaded to change our decision for 
the IVDS.
61 See 47 C.F.R. § 1.2111; Second Report and Order at 1 1 
267-278.
62 Breen and ICC favor set-asides as a means to encourage 
applications from small businesses. Comments of Breen 9; ICC 
at 4-6. ICC also argues that, without set-asides, large telecom 
munications providers might attempt to stifle IVDS technology
or permit it only as an adjunct to existing offerings. ICC com 
ments at 5-6.
63 Breen and ICC state that this option will encourage partici 
pation by designated entities. Breen at 7; ICC comment at 7, 
reply comment at 8.
64 I d. at fH 252-253.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-99
38. We note that the IVDS, with its expected relatively 
low capital entry requirements, is well suited for ownership 
by designated entities and other potential bidders that 
might otherwise lack the financial resources to compete by 
auction for a license. This, combined with the variety of 
uses possible with the service, makes it likely that the 
IVDS will promote economic growth and enhance the 
access of consumers to new and innovative service 
offerings. As we gain experience with IVDS auctions, we 
intend continually to assess the effectiveness of our mea 
sures, and will apply the knowledge gained to subsequent 
auctions for other services.
B. Bidding Credits
39. In the Second Report and Order we stated that we 
would consider using bidding credits to encourage partici 
pation by designated entities in auctions. Upon consider 
ation and review of the record on this subject, we believe 
that affording businesses owned by minorities and women a 
substantial bidding credit for certain specified IVDS li 
censes is the most cost-effective and efficient means of 
achieving Congress' objective of "ensuring" the opportu 
nity of these designated entities to participate in the provi 
sion of IVDS offerings. Bidding credits will provide 
minority and women-owned firms with a significant advan 
tage, which we believe is necessary to achieve this congres 
sional goal, while preserving the advantages of open 
bidding competition. In effect, the bidding credit will func 
tion as a discount on the bid price a minority or women- 
owned firm will actually have to pay to obtain a license 
and, thus, will address directly the financing obstacles en 
countered by these entities. We believe that a bidding 
credit in the amount of twenty-five (25) percent is neces 
sary to provide these designated entities with a significant 
enough advantage to ensure their ability to compete suc 
cessfully for some IVDS licenses. Thus, in each market, a 
single 25 percent bidding credit will be awarded to a 
business owned by minorities and/or women if it is a 
winning bidder.65
40. As discussed in the Second Report and Order, Con 
gress mandated that the Commission "ensure" the opportu 
nity for participation in spectrum-based services by each 
category of designated entity, including businesses owned 
by minorities and women. This plain language leads us to 
conclude that adequate measures must be taken to assure 
that minority and women-owned businesses have the ability 
to participate in the provision of services subject to com 
petitive bidding. Moreover, in enacting this legislation, it is 
clear that Congress was concerned about disseminating li 
censes to a wide variety of applicants and wanted the 
Commission to take meaningful steps to accomplish this 
goal.66 Indeed, Congress included a requirement in the 
statute that the Commission report to it in 1997 about, 
among other things, whether competitive bidding facilitated 
the introduction of new companies into the telecommuni 
cations market and whether designated entities "were able 
to participate successfully in the competitive bidding pro 
cess." 47 U.S.C. § 309(j)(12)(iv).
41. Apart from Congress' directive, we think that ensur 
ing opportunities for women and minorities to participate 
in the IVDS is important for the telecommunications in 
dustry. These companies can play a vital role in serving 
inner city areas and other niche markets that may be 
overlooked by other companies, thus promoting our goal 
of universal access to telecommunications services. Not 
only will the industry become more diverse through the 
adoption of meaningful preferences, but we believe that a 
much wider customer base will obtain access to innovative 
technologies. Moreover, studies show that even when mi 
nority-owned firms do not locate within urban minority 
communities, they employ more minorities relative to oth 
er companies, thereby promoting our goals of equal em 
ployment opportunity and economic growth.67
42. The general record in this proceeding68 reflects a 
severe underrepresentation of minorities and women in 
telecommunications. Indeed, the Commission's Small Busi 
ness Advisory Committee (SBAC) found only 11 minority 
firms engaged in the delivery of cellular, specialized mobile 
radio, radio paging, or messaging services.69 Likewise, 
American Women in Radio and Television (AWRT) found 
that only 24 percent of small communications businesses 
are owned by women (when companies without paid em 
ployees are excluded, women own less than 15 percent of 
small communications firms).'0 Many commenters observe 
that the factors that preclude minorities and women from 
effective participation concern access to financing. With 
regard to women, they note that no existing FCC policy 
provides an incentive for women to enter the communica 
tions business, and that access to capital remains the biggest 
obstacle women business owners must face. Similarly, the 
SBAC states that minorities frequently do not or cannot 
use traditional sources of financing. Citing the U.S. Senate 
amicus brief in Metro Broadcasting, Inc. v. FCC, 110 S. Ct. 
2997 (1990), the SBAC asserts that "spectrum for radio 
facilities was first allocated at a time when undisguised
65 Only one bidding credit is available in each market. If it 
happens that the two highest bidders are both designated en 
tities eligible for a bidding credit, the second highest bidder will 
be given the option of accepting the remaining license without 
the credit, or declining the remaining license.
66 We have decided not to provide bidding credits (or other 
separate preferences) to rural telephone companies bidding on 
IVDS spectrum because we conclude that, given the relatively 
modest build-out costs for systems in this service, such pref 
erences are unnecessary to ensure the participation of rural 
telephone companies in the provision of IVDS offerings to rural 
areas. The preferences are also, therefore, unnecessary in this 
context to meet Congress' intent to ensure that rural consumers 
receive the benefit of new technologies such as IVDS. Rural 
telephone companies will, however, be eligible for bidding cred 
its if they are owned by minorities or women. They may also 
qualify for installment payments if they satisfy the eligibility 
criteria for small businesses.
67 See, e.g., 47 C.F.R. § 21.307, 22.307 (equal employment 
opportunity rules for common carriers); Implementation of the 
Commission's Equal Employment Opportunity Rules (Notice of 
Inquiry), FCC 94-103 (released April 21, 1994) ("|O|ur EEO 
rules enhance access by minorities and women to increased 
employment opportunities which are the foundation for in 
creasing opportunities for minorities and women in all facets of 
the communications industry, including participation in owner 
ship. Thus the rules ... promote the further development of the 
broader communications infrastructure.") See also Banking on 
Black Enterprise at 3.
68 For a list of all commenters in this proceeding, see Appen 
dix A, Second Report and Order. Footnote 14, supra, lists those 
commenters that made IVDS-specific comments. 
6Q Report of the FCC Small Business Advisory Committee to 
the FCC Regarding Gen. Docket No. 90-314 (Sept. 15, 1993), 
reprinted at 8 FCC Red 7820, 7827 (1993). 
70 See Comments of AWRT at 5.
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FCC 94-99 Federal Communications Commission Record 9 FCC Red No. 11
discrimination in education, employment opportunities, 
and access to capital excluded minorities from all but 
token participation." The SBAC concludes that minorities 
were impeded from successfully competing for licenses 
when they were first awarded and, due to systematic bar 
riers to technical training and employment opportunities, 
this situation has continued over time.
43. Given this history of underrepresentation of minor 
ities and women in telecommunications and the inability 
of these groups to access financing, we find that the best 
way we can accomplish these statutory mandates is to 
provide bidding credits exclusively to minority and women- 
owned businesses. The record demonstrates that women 
and minorities face barriers to entry not encountered by 
other firms, including other designated entities, and it is, 
therefore, appropriate and necessary that we provide them 
with a substantial bidding advantage.71 In other contexts. 
Congress has recognized that the use of preferences in the 
licensing process can be necessary to remedy 
underrepresentation by minorities. For example, in 1982, 
Congress mandated the grant of a "significant preference" 
to minority applicants participating in lotteries for spec 
trum-based services. 47 U.S.C. § 309(i)(3)(A). And, in 
1988, Congress attached a provision to the FCC appropri 
ations legislation that precluded the Commission from 
spending any appropriated funds to examine or change its 
minority broadcast preference policies.72 Absent such mea 
sures targeted specifically to women and minorities, it 
would be virtually impossible to assure that these groups 
achieve any meaningful measure of opportunity for actual 
participation in the provision of the services in question.73
44. We also agree with Call-Her that even comparatively 
large businesses owned by women and minorities face dis 
criminatory lending practices and other discriminatory bar 
riers to entry and, therefore, eligibility for bidding credits 
should not be limited to small firms. The IVDS auctions 
present a unique licensing opportunity for these histori 
cally disadvantaged groups to gain a foot-hold in the com 
munications industry.74 Our goal is to encourage businesses 
owned by minorities and women to provide viable, sus 
tained competition to larger businesses. Therefore, we have 
accorded preferences to minority and women-owned firms 
regardless of their size. This approach is consistent with 
our auction rules and will further the statutory mandate to 
ensure participation by designated entities.75
45. Further. Congress clearly intended that businesses 
owned by minorities and women must be given the op 
portunity to participate in the provision of spectrum-based 
services independent of their status as small businesses. The 
plain language of Section 309(j)(4)(D) states that the Com 
mission "shall ... ensure" the opportunity for participation 
by "small businesses ... and businesses owned by members 
of minority groups and women ...." (emphasis added). If 
Congress had intended to limit the directive of Section 
309(j)(4)(D) only to small businesses, no need would have 
existed to mention separately minorities and women. More 
over, Section 309(j)(4)(D) was added at Conference, and 
the Conference Report does not offer any suggestion that, 
to come within the section's purview, businesses owned by 
minorities or women must be small businesses. In contrast, 
and as we discussed more fully in the Second Report and 
Order, the legislative history of Section 309(j)(4)(A), relat 
ing to installment payments, expressly indicates that the 
provision was intended only to promote financial assistance 
for small businesses. 76 Accordingly, we shall interpret Sec 
tion 309(j)(4)(D) in accordance with its plain language and 
will not limit its application to small businesses. 7 '
46. In determining the appropriate amount of the bid 
ding credit we considered several factors. First, we agree 
with those commenters that support a bidding credit of 25 
percent or more78 because we think that a substantial credit 
is necessary to ensure meaningful participation by minority 
and women-owned businesses. In the broadcast context, we 
have noted that licensees can transfer their stations to 
minorities in distress sales provided that the price is no 
more than 75 percent of market value." This policy is
71 See, e.g., Comments of AWRT at 4-7; Call-Her at 5; Cook 
Inlet at 38-39.
'2 Continuing Appropriations Act for Fiscal Year 1988. Pub. L. 
No. 100-102. 101 Stat. 1329-31.
' 3 In the Second Report and Order, we addressed the constitu 
tionality of race and gender-based preferences and concluded 
that the proper standard of scrutiny to be employed in this 
context is the "intermediate scrutiny" standard used in the 
Metro case. Second Report and Order at H f 289-297; see 1 10 S. 
Ct at 2997. We further concluded that under such a standard, 
preferences for minority and women-owned businesses are con 
stitutionally permissible. We recognize that Metro 's standard of 
review applies to measures approved by Congress. 110 S. Ct. at 
3008-09. As noted above, the bidding credits in question here 
were expressly approved and. indeed, are required to achieve 
the statutory goals. See 47 U.S.C. § 3(W(j)(4)(D) (The Commis 
sion must "consider the use of tax certificates, bidding pref 
erences, and other procedures" to ensure the participation of 
"small businesses, rural telephone companies, and businesses 
owned by members of minority groups and women."). More 
over, an argument might be made that IVDS licensees will be 
able to control the content of the transmissions carried on their 
facilities and that the service can therefore be analogized (at 
least) to mass communications media. See, e.g., Johnson com 
ment at 1-4, 8 (like other emerging subscription-based services, 
IVDS will, in practice, increasingly converge with broadcast and 
cable services). To the extent that this control exists or is later 
developed with regard to the IVDS, the preferences we adopt for
minorities and women would be consistent with the important 
governmental interest identified in Metro: increasing minority 
ownership to encourage diversity in the provision of content. 
"* Because of the discrimination suffered by minorities and 
women as contractors and subcontractors in the telecommuni 
cations industry, see MBELDEF Study, this unique chance to 
enter the field as primary telecommunications providers, com 
peting with, rather than dependent upon, other providers, is 
especially important.
' 5 See Banking on Black Enterprise at 13 (government assis 
tance should accrue to more capable black entrepreneurs, who 
are most likely to contribute to the goal of economic develop 
ment).
I* See Second Report and Order at 1 f 234-236. 
' Even though small businesses are also mentioned in Section 
30Q(j)(4)(D), we do not believe bidding preferences for small 
businesses are appropriate for IVDS auctions. We believe the 
installment payments preference, as outlined below, will be 
sufficient to ensure their participation.
78 See comments of AIDE at 7, Devsha at 5. NABOB at 10-11, 
and ex pane filing of Personal Communications Network Ser 
vices of New York at 2-3, each suggesting a bidding credit of 25 
percent. Rocky Mountain Telephone proposes a 50 percent bid 
ding credit. Comments of Rocky Mountain Telephone at 16. 
And Richard Vega proposes a 100 percent bidding credit for 
certain designated entities. Comments of Richard Vega at 7. 
7Q See Lee Broadcasting Corp., 76 FCC 2d 462 (1980).
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-99
based upon our finding that 25 percent is an appropriate 
discount to eliminate financial entry barriers for minority- 
owned companies seeking to become broadcast licensees. 
Likewise, we believe that a bidding credit of 25 percent 
will adequately ensure participation by a wide variety of 
minority and women-owned firms in IVDS auctions and 
service provision. The amount is not so substantial, how 
ever, as to foster participation by firms that are not other 
wise financially capable of building-out an IVDS system. 
We will monitor carefully the effectiveness of the 25 
percent bidding credit in the IVDS context and continually 
assess whether it is achieving the goal of ensuring that 
minority and women-owned firms participate successfully 
in auctions for this service.
47. To prevent any unjust enrichment by minorities or 
women trafficking in licenses acquired through the use of 
bidding credits, we will impose a forfeiture requirement on 
transfers or assignments of such licenses to entities that are 
not owned by minorities or women.80 Minority and wom 
en-owned businesses seeking to transfer or assign a license 
to an entity that is not owned by minorities or women will 
be required to reimburse the government for the amount 
of the bidding credit, plus interest at the rate imposed for 
installment financing at the time the license was awarded, 
before transfer or assignment will be permitted. The 
amount of the penalty will be reduced over time: a transfer 
or assignment in the first two years of the license term will 
result in a forfeiture of 100 percent of the value of the 
bidding credit: during year three, of 75 percent of the 
bidding credit: in year four, of 50 percent: in year five, of 
25 percent; and thereafter, no penalty.8 ' Furthermore, as 
noted earlier, we will use the eligibility criteria from the 
Second Report and Order to ensure that only legitimate 
minority and women-owned firms are able to take advan 
tage of bidding credits. In addition, to further ensure that 
our rules are as narrowly tailored as possible, while still 
fulfilling the statutory goal, we are prohibiting publicly- 
traded companies from taking advantage of the bidding 
credits and we are providing bidding credits for only one 
license in each market for businesses owned by minorities 
or women.
C. Tax Certificates
48. Congress instructed the Commission to consider the 
use of tax certificates to ensure designated entity participa 
tion in spectrum-based services. See 47 U.S.C. § 
309(j)(4)(D). In the Second Report and Order we observed 
that tax certificates could be useful as a means of attracting 
investors to designated entity enterprises and to encourage 
licensees to assign or transfer control of licenses to des 
ignated entities in post-auction transactions. We stated fur 
ther that we would examine the feasibility of using this 
measure in subsequent service-specific auction rules.82 After 
further consideration of this matter, we believe that tax 
certificates would be an appropriate tool to assist minority 
and women-owned businesses to attract start-up capital 
from non-controlling investors. In addition, we believe that 
tax certificates will give licensees the incentive to assign or 
transfer their authorizations to such entities in post-auction
sales, thereby providing added assurance that minority and 
women-owned entities will have the opportunity to partici 
pate in the provision of IVDS offerings. Accordingly, we 
will issue tax certificates to initial investors in minority and 
women-owned IVDS applicants upon the sale of their non- 
controlling interests. We will also issue tax certificates to 
IVDS licensees who assign or transfer control of their 
licenses to minority and/or women owned entities.
49. As stated previously, the record reveals that women 
and minorities face barriers to entry not encountered by 
other designated entities.83 In particular, they have an espe 
cially difficult time accessing capital and. as a result, are 
severely under-represented in the telecommunications in 
dustry. Together with the other preferences we adopt today, 
tax certificates should help to ensure the participation of 
minority and women-owned businesses in this service. This 
measure will make it easier for these designated entities to 
attract start-up capital because investors will know that 
they can defer taxes on any gains made when their interests 
are sold. In addition, tax certificates will provide incentives 
to licensees to seek out minority and female buyers in 
after-market sales because the licensees will be able to defer 
taxes on profits made in the sale.
50. We have used tax certificates over the years to en 
courage broadcast licensees and cable television operators 
to transfer their stations and systems to minority buyers.84 
We also have granted tax certificates to shareholders in 
minority-controlled broadcast or cable entities who sell 
their shares, when such interests were acquired to assist in 
the financing of the acquisition of the facility.85 These 
broadcast and cable tax certificates are issued pursuant to 
the Internal Revenue Code, 26 U.S.C. § 1071. While Con 
gress' goal in authorizing tax certificates under Section 
309(j)(4)(D) of the Act is somewhat different, and focuses 
on ensuring the opportunity for designated entities to par 
ticipate in auctions and spectrum-based services, we think 
that it will be an equally valuable program. Issuance of tax 
certificates to investors and licensees that sell to minorities 
and women will augment the bidding credits preference, 
and together the measures should increase the ability of 
these entities to access financing, thus ensuring their op 
portunity to participate in IVDS auctions and services.
51. In implementing this program, we will borrow from 
our existing tax certificate program and grant tax certif 
icates, upon request, that will enable the licensees and 
investors meeting the criteria outlined here to defer the 
gain realized upon a sale either by: (1) treating it as an 
involuntary conversion under 26 U.S.C. § 1033. with the 
recognition of gain avoided by the acquisition of qualified 
replacement property; or (2) electing to reduce the basis of 
certain depreciable property; or both. Tax certificates will 
be available to initial investors in minority and women- 
owned businesses who provide "start-up" financing, which 
allows these businesses to acquire licenses at auction or in 
the aftermarket. and those investors who purchase interests 
within the first year after license issuance, which allows for 
the stabilization of the designated entities' capital base. 
Also, in accordance with our existing policy, to be eligible 
for a tax certificate, such investor transactions must not
80 See Second Report and Order at f 264.
81 Interest will also be charged according to the total number 
of years the license was held.
82 Second Report and Order at H 251.
83 See H f 42-44. supra.
84 See Commission Policy Regarding me Advancement of Mi 
nority Ownership in Broadcasting, 42 FCC 2d 844 (1482) ("/982 
Policy Statement"); see also Statement of Policy on Minority 
Ownership of Broadcasting Facilities. 68 FCC 2d 979 (1978)..
85 1982 Policy Statement, 42 FCC 2d at 855-58.
2339
FCC 94-99 Federal Communications Commission Record 9 FCC Red No. 11
reduce minority or female ownership or control in the 
entity below 50.1 percent. The definition of a minority or 
female-owned entity is set forth in the Second Report and 
Order and, with regard to our investor tax certificate poli 
cy, the entity in which the investment is made must satisfy 
that definition at the time of the original investment as 
well as after the investor's shares are sold. For after-market 
sales, tax certificates will only be issued to licensees who 
sell to entities that meet that definition. Tax certificates will 
be granted only upon completion of the sale, although 
parties can request a declaratory ruling from the Commis 
sion regarding the tax consequences of prospective transac 
tions.
52. As with our other tax certificate policies, we wish to 
deter "sham" arrangements to obtain tax certificates and, 
pursuant to Section 309(j)(4)(E), therefore adopt measures 
to prevent unjust enrichment. First, we intend to enforce 
strictly the definitions adopted in the Second Report and 
Order and will carefully review investment and purchase 
arrangements to ensure that 50.1 percent control and eq 
uity by minorities and women was, and will be. main 
tained. Second, like our existing tax certificate program,86 
we will impose a one-year holding requirement on the 
transfer or assignment of IVDS licenses obtained through 
the benefit of tax certificates. We believe that the rapid 
resale of such licenses to non-minorities or women at a 
profit would subvert our goal of ensuring the opportunity 
to participate by minority and women-owned businesses. 
The well-established one-year holding period would pre 
vent this type of unjust enrichment. While this restriction 
will not be applied to assignments or transfers to qualified 
minority and female-owned businesses, assignees and trans 
ferees obtaining licenses pursuant to this exception will be 
subject to the one-year holding requirement.
D. Installment Payments
53. In this Fourth Report and Order, we adopt the 
preference of installment payments and limit its use to 
small businesses. Permitting a winning bidder to pay by 
installment payments is the equivalent of having the gov 
ernment extend credit to the bidder. Using this option, a 
prospective licensee may not need to rely as heavily on 
private financing either before or after an auction. As a 
result, this method is an effective way to promote the 
participation of designated entities in the provision of spec 
trum-based services, and is an effective means to distribute 
licenses and services among geographic areas.8 ' In the Sec 
ond Report and Order, we decided that the option of 
installment payments should be extended only to small 
businesses (including those held by minorities and wom 
en), and then only in instances where smaller spectrum 
blocks are being auctioned and the use of the blocks is 
very likely to match the business objectives of bona fide 
small businesses.88 With the IVDS. the spectrum blocks are
relatively small and the potential difficulties associated with 
permitting this option in the context of larger spectrum 
blocks (e.g., undercapitalization) are not present. We also 
find that, because of the expected relatively low capital 
entry requirements for the IVDS and the potential variety 
of offerings89 that might result from the service, the IVDS 
will offer a bona fide business opportunity to small 
businesses.
54. Therefore, we will permit the use of installment 
plans for all IVDS auctions, and follow the general proce 
dures given in the Second Report and Order for the use of 
this preference.90 The installment payment option will en 
able all small businesses to pay the full amount of their 
winning bid in installments (less the upfront payment, 
which must be paid in full, and the down payment, half of 
which is due five days after the auction closes and the 
other half five days after the application is granted). Timely 
payments of all installments will be a condition of the 
license grant, and failure to make such timely payments on 
or before the date due may be grounds for revocation.91
VII. CONCLUSION
55. In summary, the rules and procedures we adopt in 
this Fourth Report and Order for auctioning licenses in 
the IVDS are designed to minimize the regulatory burdens 
on both applicants and the Commission, reduce the poten 
tial for delay of service to the public, and maintain safe 
guards to preserve the integrity of the bidding process. The 
rules also seek to meet Congressional objectives and serve 
two basic goals: promoting economic growth, and enhanc 
ing access to telecommunications service offerings for con 
sumers, producers, and new entrants. We also take account 
of Congress' desire that designated entities previously 
underrepresented in the provision of telecommunications 
services be afforded preferences to encourage their partici 
pation. We expect that these procedures will lead to the 
development and rapid deployment of IVDS offerings 
across the country.
VIII. FINAL REGULATORY FLEXIBILITY ANALYSIS
56. Pursuant to the Regulatory Flexibility Act of 1980, 5 
U.S.C. § 604, the Commission's final analysis is as follows:
A. Need for, and purpose of, this action
As a result of the Budget Act referenced above, the 
Commission may utilize competitive bidding mechanisms 
in the granting of certain initial licenses. The Commission 
published an Initial Regulatory Flexibility Analysis, see 
generally 5 U.S.C. § 603, within the Notice of Proposed 
Rule Making in this proceeding, and published a Final 
Regulatory Flexibility Analysis within the Second Report
86 See Amendment of Section 73.3597 of the Commission's 
Rules, Memorandum Opinion and Order, QQ FCC 2d 071, 974 
(1985).
87 Second Report and Order at f f 231-233.
88 Id. at f f 234-237. We noted that the legislative history of 
the Budget Act indicates that large entities with established 
revenue streams are not intended beneficiaries of the install 
ment payments preference. Id. at f 236.
89 See note 3, supra.
90 Under these general procedures, for example, only interest 
payments will be due for the first two years, with principal and
interest both being amortized over the remaining years of the 
license. Also, interest charges will be fixed at the time of 
licensing at a rate equal to that of five-year U.S. Treasury notes, 
to track the IVDS license term of five years. See Second Report 
and Order at H 239. If a small business making installment 
payments seeks to transfer a license to a non-small business 
entity during the term of the license, we will require payment 
of the remaining principal balance as a condition of the license 
transfer. Id. at H 263.
91 Limited grace periods for defaulting licensees may be con 
sidered on a case-by-case basis. Id. at f 240.
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9 FCC Red No. 11 Federal Communications Commission Record FCC 94-99
and Order (at U f 299-302). As noted in that previous final 
analysis, this proceeding will establish a system of competi 
tive bidding for choosing among certain applications for 
initial licenses, and will carry out Congressional mandates 
that certain designated entities be afforded an opportunity 
to participate in the competitive bidding process and the 
provision of spectrum-based services.
B. Summary of the issues raised by the public comments 
in response to the Initial Regulatory Flexibility Analysis
In regard to the specific IVDS issues addressed by this 
Fourth Report and Order, no comments were submitted in 
response to our Initial Regulatory Flexibility Analysis.
C. Significant alternatives considered
Although, as described in (B) above, no comments were 
received pertaining to IVDS, the Second Report and Order 
addressed at length the general policy considerations raised 
as a result of the new legislation.
IX. ORDERING CLAUSES
57. Accordingly, IT IS ORDERED that, pursuant to the 
authority of Sections 4(i), 303(r), and 3l)9(j) of the Com 
munications Act of 1934, as amended. 47 U.S.C. §§ 154(i), 
303(r), and 309(j). this Fourth Report and Order is adopt 
ed, and Parts 0, 1, and 95 of the Commission's Rules ARE 
AMENDED as set forth in the attached Appendix.
58. IT IS FURTHER ORDERED that the rule amend 
ments set forth in the Appendix WILL BECOME EFFEC 
TIVE 30 days after their publication in the Federal 
Register.
FEDERAL COMMUNICATIONS COMMISSION
(k) Develops, in coordination with the Office of Plans 
and Policy, policies for selection of licensees from mutually 
exclusive applicants in the Private Radio Services subject to 
competitive bidding; issues Public Notices announcing auc 
tions of Private Radio Services licenses; specifies the li 
censes to be auctioned, the time, place and method of 
competitive bidding, including applicable bid submission 
procedures, bid withdrawal procedures, stopping rules and 
activity rules; specifies the filing windows for short-form 
applications, bidder certifications, and the deadlines for 
submitting filing fees, upfront payments and down pay 
ments.
Part 1 - Practice and Procedure
3. The authority citation for Part 1 continues to read as 
follows:
Authority: Sees. 4, 303, 48 Stat. 1066, 1082, as amended; 
47 C.F.R. 154, 303: Implement, 5 U.S.C. 552 and 21 U.S.C. 
853a, unless otherwise noted.
4. Section 1.912 is amended by redesignating paragraph 
(e) as paragraph (f) and adding new paragraph (e) to read 
as follows:
§ 1.912 Where applications are to be filed.
(e) Applicants submitting long-form applications pursu 
ant to competitive bidding procedures (see §1.2107(c)) 
must mail or otherwise deliver their application to: Office 
of the Secretary, Federal Communications Commission. 
1919 M Street, N.W.. Room 222. Washington, D.C. 20554, 
Attention: Auction Application Processing Section.
William F. Caton 
Acting Secretary
APPENDIX
5. Section 1.922 is amended by adding two entries at the 
beginning of the table to read as follows:
§ 1.922 Forms to be used.
Final Rules
Parts 0, 1. and 95 of Chapter 1 of Title 47 of the Code of 
Federal Regulations are amended as follows:
Part 0 - Commission Organization
1. The authority citation for Part 0 continues to read as 
follows:
Authority: Sec. 5, 48 Stat. 1068, as amended; 47 U.S.C. 
155.
2. Section 0.131 is amended by adding new paragraph (k) 
to read as follows:
§ 0.131 Functions of the Bureau
FCC
Form
175 
175-S
Title
Application to Participate in 
an FCC Auction Supplemental 
Application to Participate in 
an FCC Auction.
6. In Section 1.972, paragraph (a)(l) is amended by 
removing the words "Part 95-Subpart F-Personal Radio 
Services" and paragraph (c) is amended by removing the 
words "or part 95-subpart F" and adding the word "or" 
after "part 90" in the first sentence.
Part 95 - Personal Radio Services
7. The authority citation for Part 95 continues to read as 
follows:
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FCC 94-99 Federal Communications Commission Record 9 FCC Red No. 11
Authority: Sees. 4, 303, 48 Stat. 1066, 1082, as amended; 
47 U.S.C. 154, 303.
8. New Section 95.816 is added to read as follows: 
§ 95.816 Competitive bidding proceedings.
(a) Mutually exclusive IVDS initial applications are sub 
ject to competitive bidding.
(b) The General Procedures set forth in 47 C.F.R. Part 1, 
Subpart Q are applicable to competitive bidding proceed 
ings used to select among mutually exclusive applicants for 
initial IVDS licenses.
(c) The specific procedures applicable to auctioning par 
ticular IVDS licenses will be set forth by Public Notice. 
Generally, the following competitive bidding procedures 
will be used to auction mutually exclusive IVDS licenses. 
The Commission, however, may design and test alternative 
procedures.
(1) Competitive bidding design. Sequential oral (open 
outcry) auctions will be used to assign licenses in and 
around large urban areas and single-round sealed 
bidding will be used for rural areas unless otherwise 
specified by the Commission. See 47 C.F.R. §§ 
1.2103 and 1.2104.
(2) Forms.
(i) Applicants must submit short-form 
applications (FCC Form 175) as specified 
in Commission Public Notices. Minor 
deficiencies may be corrected prior to 
the auction. Major modifications such as 
changes in ownership, failure to sign an 
application or failure to submit required 
certifications will result in the dismissal 
of the application. See 47 C.F.R. § 
1.2105(a) and (b).
(ii) Applicants must submit a long-form 
application (FCC Form 574) within ten 
(10) business days after being notified 
that it is the winning bidder for a license. 
See 47 C.F.R. § 1.2107(c) and (d).
(3) Upfront payments. For open outcry bidding, ap 
plicants will be required to show the Commission or 
its representative, immediately prior to the auction, a 
cashiers check for at least $2500 in order to get a 
bidding number and secure a place in the room 
where the bidding will take place. Bidders will be 
required to have $2500 upfront money for every five 
licenses they win. No upfront payment will be re 
quired from applicants in single round sealed bid 
auctions. See 47 C.F.R. § 1.2106.
(4) Down payments. Within five (5) business days 
after an open outcry auction is over, or within five
(5) business days after being notified that it is the 
high bidder in a single round sealed bid auction, a 
high bidder on a particular license(s) must submit to 
the Commission's lockbox bank such additional 
funds as are necessary to bring total deposits (upfront 
payment plus down payment) up to twenty (20) 
percent of the high bid(s). Small businesses eligible 
and electing to use installment payments pursuant to
§ 95.816(d)(3) are required to bring their total depos 
its up to ten (10) percent of their winning bid. The 
remainder of the twenty (20) percent down payment 
must be submitted within five (5) business days of 
the grant of their license(s). See 47 C.F.R. § 
1.2107(b)
(5) Full payment. Auction winners, except for small 
businesses eligible for installment payments, must pay 
the balance of their winning bids in a lump sum 
within five (5) business days following the grant of 
their license(s). The grant of a license(s) to an auc 
tion winner(s) will be conditioned on the timely 
payment of all monies due the Commission. See 47 
C.F.R. § 1.2109(a).
(6) Default or disqualification, see 47 C.F.R. § 
1.2104(g). (i) Sequential oral auctions. If a high bid 
der, after signing a bid confirmation form, fails to 
make the required down payment, fails to pay for a 
license, or is otherwise disqualified, it will be assessed 
a penalty equal to the difference between the its 
winning bid and the winning bid the next time the 
license is auctioned by the Commission, plus three 
(3) percent of the lower of these two amounts.
(ii) Single round sealed bid auctions. If a 
high bidder withdraws its bid prior to 
making the required down payment, it 
will be assessed a penalty equal to the 
difference between its bid and the next 
highest bid. If a high bidder, after having 
made the required down payment for a 
license, fails to pay the remaining 
amount for the license, or is otherwise 
disqualified, it will be assessed a penalty 
equal to the difference between its win 
ning bid and the winning bid the next 
time the license is auctioned by the 
Commission plus three (3) percent of the 
lower of these two amounts.
(d) Designated entities. Designated entities are small 
businesses, and businesses owned by members of minority 
groups and/or women, as defined in 47 C.F.R. § 1.2llO(b).
(1) Bidding credits. A winning bidder that qualifies as 
a business owned by women and/or minorities may 
use a bidding credit of twenty five (25) percent to 
lower the cost of its winning bid. A bidding credit is 
available for a license for either frequency segment A 
or frequency segment B in each service area. A bid 
ding credit, however, may be applied to only one of 
the two licenses available in each service area.
(2) Tax certificates. Any initial investor in a business 
owned by minorities and/or women and who pro 
vides "start-up" financing, which allows such busi 
ness to acquire a IVDS license(s), and any investor 
who purchases ownership in an interest in a IVDS 
license owned by minorities and/or women within 
the first year after license issuance, which allows for 
the stabilization of the entity's capital base, may, 
upon the sale of such investment or interest, request 
from the Commission a tax certificate, so long as 
such investor transaction does not reduce minority or 
female ownership or control in the entity below 50.1 
percent. Any IVDS licensee who assigns or transfers 
control of its license to a business owned by minor 
ities and/or women may request that the Commission 
issue it a tax certificate.
2342
9 FCC Red NO. ii Federal Communications Commission Record FCC 94-99
(3) Installment payments. Small businesses, including 
small businesses owned by women and/or minorities 
may elect to pay the full amount of their bid in 
installments over the term of their licenses. See 47 
C.F.R. § L.2110(d).
(e) Unjust enrichment. Any business owned by minor 
ities and/or women that obtains a IVDS license through the 
benefit of tax certificates shall not assign or transfer control 
of its license within one year of its license grant date. If the 
assignee or transferee is a business owned by minorities 
and/or women, this paragraph shall not apply, provided, 
however, that the assignee or transferee shall not assign or 
transfer control of the license within one year of the grant 
date of the assignment or transfer.
9. Section 95.819 is revised to read as follows: 
§ 95.819 License transferability.
(a) IVDS system licenses acquired through competitive 
bidding procedures may be transferred, assigned, sold, or 
given away only in accordance with the provisions and 
procedures set forth in 47 C.F.R. § 1.2111.
(b) Except for licenses acquired through competitive bid 
ding procedures, the licensees may not transfer, assign, sell, 
or give the IVDS system licenses or any component CIS 
licenses to any other entity until the five year construction 
benchmark (50 percent coverage) has been met.
(c) Once the five year construction benchmark has been 
met, licensees of IVDS systems that were not acquired 
through competitive bidding may transfer, sell, assign, or 
give the IVDS system licenses together with all of its com 
ponent CTS licenses to any other entity in accordance with 
the provisions of § 95.821. If the licensee sells or gives 
away the apparatus the new owner must obtain a new 
IVDS system license and CTS licenses before placing it in 
operation.
2343