[Federal Register: April 16, 2003 (Volume 68, Number 73)]
[Notices]
[Page 18642-18649]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ap03-72]
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FEDERAL COMMUNICATIONS COMMISSION
[Report No. AUC-03-51-A (Auction No. 51); DA 03-1065]
Auction of Regional Narrowband PCS Licenses Scheduled for
September 24, 2003; Comment Sought on Package Bidding Procedures,
Reserve Prices or Minimum Opening Bids, and Other Auction Procedures
AGENCY: Federal Communications Commission.
ACTION: Notice.
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SUMMARY: This document announces the auction of six regional Personal
Communications Service (PCS) licenses in the 900 MHz band (``narrowband
PCS'' scheduled to commence on September 24, 2003 (Auction No. 51).
This document also seeks comment on package bidding procedures, reserve
prices or minimum opening bids and other auction procedures.
DATES: Comments are due on or before April 17, 2003 and reply comments
are due on or before April 24, 2003.
ADDRESSES: Comments and reply comments must be sent by electronic mail
to the following address: auction51@fcc.gov.
FOR FURTHER INFORMATION CONTACT: Auctions and Industry Analysis
Division: For legal questions: Christopher Shields at (202) 418-0660.
For general auction questions: Lisa Stover at (717) 338-2888. For
questions about package bidding: Martha Stancill at (202) 418-0660 or
Craig Bomberger at (202) 418-0660. Commercial Wireless Division: For
service rule questions: Amal Abdallah at (202) 418-7307, Evan Baranoff
at (202) 418-7142, JoAnn Epps at (202) 418-0620 or Dwain Livingston at
(202) 418-0620.
SUPPLEMENTARY INFORMATION: This is a summary of the Auction No. 51
Comment Public Notice released on April 3, 2003. The complete text of
the Auction No. 51 Comment Public Notice, including the attachments, is
available for public inspection and copying during regular business
hours at the FCC Reference Information Center, Portals II, 445 12th
Street, SW., Room CY-B402, Washington, DC 20554. The Auction No. 51
Comment Public Notice may also be purchased from the Commission's
duplicating contractor, Qualex International, Portals II, 445 12th
Street, SW., Room CY-B402, Washington, DC, 20554, telephone (202) 863-
2893, facsimile (202) 863-2898, or via e-mail qualexint@aol.com.
I. General Information
1. By the Auction No. 51 Comment Public Notice, the Wireless
Telecommunications Bureau (``Bureau'') announces the auction of six
regional Personal Communications Service (PCS) licenses in the 900 MHz
band (``narrowband PCS'') scheduled to commence on September 24, 2003
(``Auction No. 51''). These licenses were previously included as part
of the inventory for Auction No. 50, Auction No. 50 Comment Public
Notice, 67 FR 72417 (December 5, 2002). The one comment that the Bureau
received in response to the Auction No. 50 Comment Public Notice stated
that the regional licenses are uniquely complimentary and proposed a
combinatorial (package bidding) auction, Auction No. 50 Procedures
Public Notice, 68 FR 15174 (March 28, 2003). The commenter noted that
these regional licenses effectively constitute a nationwide license and
suggested that they would be more highly valued as a combined package
by prospective auction participants intending to deploy nationwide
service. After consideration of the issues raised by the comments, the
Bureau determined that it may be appropriate to use package bidding for
the regional licenses. Accordingly, the Bureau removed the six regional
licenses from the Auction No. 50 inventory and announced that they
would be included in Auction No. 51.
2. The following table describes the licenses that will be included
in Auction No. 51:
----------------------------------------------------------------------------------------------------------------
Channel Frequency bands Bandwidth
Region no. Channel description (MHz) (kHz)
----------------------------------------------------------------------------------------------------------------
Northeast.............................. 17 12.5 kHz/50 kHz paired... 901.8250-901.8375, 62.5
930.70-930.75
South.................................. 16 12.5 kHz/50 kHz paired... 901.8125-901.8250, 62.5
930.65-930.70
South.................................. 17 12.5 kHz/50 kHz paired... 901.8250-901.8375, 62.5
930.70-930.75
Midwest................................ 17 12.5 kHz/50 kHz paired... 901.8250-901.8375, 62.5
930.70-930.75
Central................................ 17 12.5 kHz/50 kHz paired... 901.8250-901.8375, 62.5
930.70-930.75
West................................... 17 12.5 kHz/50 kHz paired... 901.8250-901.8375, 62.5
930.70-930.75
----------------------------------------------------------------------------------------------------------------
3. The Balanced Budget Act of 1997 requires the Commission to
``ensure that, in the scheduling of any competitive bidding under this
subsection, an adequate period is allowed * * * before issuance of
bidding rules, to permit notice and comment on proposed auction
procedures * * *.'' Consistent with the provisions of the Balanced
Budget Act and to ensure that potential bidders have adequate time to
familiarize themselves with the specific rules that will govern the
day-to-day conduct of an auction, the Commission directed the Bureau,
under its existing delegated authority, to seek comment on a variety of
auction-specific procedures prior to the start of each auction. The
Bureau therefore seeks comment on the proposed Auction No. 51
procedures as set forth in sections following the ``II. Introduction to
Package Bidding.''
II. Introduction to Package Bidding
4. ``Package bidding'' refers to an auction design in which bidders
may place bids on groups, or packages, of licenses. A bid on a package
is an all-or-nothing bid for all of the licenses in that package. This
is a departure from the Bureau's usual simultaneous multiple-round
(SMR) design, in which bidders only have the ability to submit
individual bids for each license. Like the Bureau's existing SMR
design, its
[[Page 18643]]
current implementation of package bidding uses a simultaneous multiple-
round design. In addition to submitting bids on packages, bidders may
also submit bids on individual licenses.
A. License Complementarities
5. Under certain circumstances, package bidding may be desirable
for bidders that wish to aggregate licenses. Bidders have aggregated
licenses under our SMR auction design. However, package bidding may be
appropriate when bidders have strong and divergent complementarities
among licenses, and when package bidding rules do not introduce other
undue difficulties. Complementarities exist when the value of the whole
is greater than the sum of the parts. In the context of spectrum
auctions, complementarities could result in a bidder being willing to
pay more for two licenses together than the sum of the amounts it would
be willing to pay for either license individually. That is, a bidder
willing to pay $1 million for a license covering Washington, DC, or $1
million for a license covering Baltimore, Maryland, would be willing to
pay more than $2 million for both licenses together.
6. Divergent complementarities exist when the patterns of
complementarities are different for different bidders. For example, if
one bidder has complementarities for a geographic aggregation and
another bidder has complementarities for a bandwidth aggregation, then
either of these bidders achieving its desired aggregation would prevent
the other bidder from doing so. That is, if there are two licenses
available in each of two markets, a bidder successfully aggregating
both licenses in one market (bandwidth aggregation) precludes another
bidder from aggregating one license in each market (geographic
aggregation).
B. Exposure Problem
7. The exposure problem is a financial risk that occurs when a
bidder, in hopes of also winning complementary items, bids more for a
single object than the object alone is worth to that bidder. Package
bidding allows bidders to mitigate the exposure problem by placing all-
or-nothing bids on packages of licenses.
8. The following builds upon the previous example of a bidder
willing to pay $1 million for a license covering Washington, DC, or $1
million for a license covering Baltimore, Maryland, but willing to pay
more than $2 million for both licenses together. For purposes of this
explanation, assume that the bidder is willing to pay $3 million for
both licenses together.
9. In an SMR auction in which bids are submitted on individual
licenses, the bidder would clearly be willing to bid $1 million for
each of the Washington and Baltimore licenses, for a total of $2
million. If the auction price of one of those licenses exceeds $1
million, the bidder faces a dilemma. The bidder can stop bidding for a
license when the license price exceeds what the bidder is willing to
pay for that license alone, or the bidder can keep bidding in hopes of
winning both licenses. This exposes the bidder to a financial risk. On
the one hand, if the bidder wins both licenses by bidding $1 million
for Washington and $1.5 million for Baltimore, it will pay a total of
$2.5 million for both licenses, which is less than the $3 million it is
willing to pay for both licenses together. Thus, the bidder would be
satisfied with its decision to bid $1.5 million for the Baltimore
license even though that license alone is only worth $1 million to the
bidder. On the other hand, if the bidder bids $1.5 million for the
Baltimore license (again, in hopes of winning both licenses) but wins
only that license and not the Washington license as well, the bidder
would have to pay more for the Baltimore license than the license is
worth to the bidder.
10. In a package bidding auction, the bidder in the example could
submit package bids to avoid such a risk. The bidder could create a
package of the Washington and Baltimore licenses and submit a bid for
the package. The bidder would either win the package-- i.e., both
licenses--at the amount it bid for the package, or it would not win the
package. By placing a bid on a package, the bidder would not have to
worry about the possibility of only winning part of the package. That
is, the bidder could bid up to $3 million for the package and thereby
express what it is willing to pay not only for the licenses but also
for the complementarity of the licenses.
C. Threshold Problem
11. Allowing package bidding potentially introduces a threshold
problem--the difficulty that multiple bidders for the single licenses
(or smaller packages) that constitute a larger package may have in
outbidding a single bidder on the larger package, even though the
multiple bidders may value the sum of the parts more than the single
bidder values the whole. This may occur because bidders for parts of a
larger package each have an incentive to hold back in the hope that a
bidder for another part will increase its bid sufficiently for the bids
on the pieces collectively to beat the bid on the larger package. The
package bidding procedures that the Bureau proposes are designed to
facilitate the emergence of bids that will overcome this problem.
Specifically, the Bureau proposes to allow bids on licenses and
packages that individually are not high enough to enter immediately
into the provisionally winning set. This allowance is meant to
facilitate price discovery and diminish the threshold problem.
Effectively, bidders can take ``baby steps'' toward getting into the
provisionally winning set. Additionally, under these proposed package
bidding procedures, the auction will close after two consecutive rounds
with no new bids. Thus, after a round with no new bids, bidders will be
notified that if no new bids are placed in the subsequent round, the
auction will close.
D. Other Package Bidding Highlights
12. Implementing package bidding requires changes in some of the
procedures used in the Bureau's SMR auctions. Some of the main
differences are introduced in this section in order to highlight the
differences between the Bureau's proposed package bidding procedures
for Auction No. 51 and the Bureau's SMR auction procedures. Later in
this public notice, in the ``Auction Structure'' and ``Bidding
Procedures'' sections, the Bureau seeks comment on the package bidding
procedures for Auction No. 51.
i. Provisionally Winning Bids
13. In an SMR auction it is a simple matter to determine high bids.
At the end of a bidding round, the high bids are determined based on
the highest gross bid amount received for each license. A high bid from
a previous round is sometimes referred to as a ``standing high bid.'' A
``standing high bid'' remains the high bid until there is a higher bid
on the same license at the close of a subsequent round.
14. In a package bidding auction, provisionally winning bids are
similar to standing high bids. Provisionally winning bids are the set
of bids that maximizes revenue at the end of a particular round. The
set of provisionally winning bids cannot include overlapping bids; each
license may be assigned only once. In the event of tied bids or tied
sets of bids, ties are broken randomly. The set of provisionally
winning bids may, of course, include package bids as well as individual
license bids.
15. Unlike in an SMR auction, a provisionally winning bid does not
necessarily remain a provisional winner until there is a higher bid on
the same license or package at the close of a
[[Page 18644]]
subsequent round. That is, a bid on a license that is a provisionally
winning bid at the end of a round might not be a provisionally winning
bid at the end of a subsequent round even if no other bids are received
for that license. Determining the provisionally winning bids in a
package bidding auction is more complex than determining the standing
high bids in an SMR auction. In a package bidding auction, whether a
bid is a provisional winner depends on both the amount of the bid and
the amount of revenue generated in the auction when that bid is
combined with other bids submitted in the auction. With package bidding
it is possible that, because of an increase in the bids submitted by
one or more other bidders, a previous round's provisionally winning bid
may cease to be a provisional winner in a subsequent round even though
no higher bid has been placed on that license or package. In a package
bidding auction, competing bids for a license or package consist of not
only other bids for the same license or package, but also bids on
packages that include any of the same licenses. Moreover, because of
this, a bid that is not a provisionally winning bid at the end of a
given round could become a provisionally winning bid at the end of a
subsequent round. This is explained further in the following section.
ii. All Bids Considered
16. Under the Bureau's proposed package bidding procedures, all
bids placed in an auction are considered throughout the course of the
auction. This is in contrast with the SMR procedures under which, at
the conclusion of a round, only new bids placed in that round and
standing high bids are considered. Bidders in a package bidding auction
must therefore be mindful that even if a bid did not become a
provisional winner when placed, it could become a provisionally winning
bid later in the auction.
17. The following table portrays the six licenses available in
Auction No. 51:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Region
Channel -----------------------------------------------------------------------------------------
West Central Midwest South Northeast
--------------------------------------------------------------------------------------------------------------------------------------------------------
16............................................................ CN-RPC002-16
(South-16)
17............................................................ CN-RPC005-17 CN-RPC004-17 CN-RPC003-17 CN-RPC002-17 CN-RPC001-17
(West-17) (Central-17) (Midwest-17) (South-17) (Northeast-17)
--------------------------------------------------------------------------------------------------------------------------------------------------------
18. For purposes of this example, assume that bidders place the
following bids in a round: $50,000 for each of the six licenses and
$200,000 for the package South-16/South-17/Northeast-17 (the northeast
region license and both licenses in the south region). The resulting
provisionally winning bids following the round would be as follows (the
individual license bids of $50,000 for each of South-16, South-17 and
Northeast-17 are not provisionally winning bids and are not shown):
----------------------------------------------------------------------------------------------------------------
Region
Channel -------------------------------------------------------------------------------
West Central Midwest South Northeast
----------------------------------------------------------------------------------------------------------------
16..............................
--------------------------------------------------------------------------------- ---------------
17.............................. $50,000 $50,000 $50,000 $200,000
----------------------------------------------------------------------------------------------------------------
Total revenue = $350,000
19. Next, assume that a bidder places a bid of $160,000 for the
package South-16/South-17 (both licenses in the south region) in the
next round, and no other new bids are placed.
------------------------------------------------------------------------
Region
Channel ------------------------------------------------------------
West Central Midwest South Northeast
------------------------------------------------------------------------
16
------------------------------------------------ -----------
17 $160,000
------------------------------------------------------------------------
20. Then, the provisionally winning bids following that round would
be as follows:
------------------------------------------------------------------------
Region
Channel ------------------------------------------------------------
West Central Midwest South Northeast
------------------------------------------------------------------------
16
------------------------------------------------- -----------
17 $50,000 $50,000 $50,000 $160,000 $50,000
------------------------------------------------------------------------
[[Page 18645]]
Total revenue = $360,000
21. Note that in this example the bid of $50,000 for the northeast
region license was not a provisionally winning bid after the first
round but became a provisionally winning bid after the next round. The
new bid of $160,000 for package of both licenses in the south region,
when considered with the previous $50,000 bid for the northeast region
license, was able to beat the previous $200,000 bid for the package of
the northeast region license and both licenses in the south region.
22. Considering bids from all rounds allows more potential
combinations of bids, and therefore, potentially greater flexibility
for bidders to submit bids that may become part of the provisionally
winning set. As in the example, it helps ensure that bids on single
licenses or small packages can combine with other bids to become
winners, even when a different combination of bids has comprised the
provisionally winning set for a number of rounds. Considering bids from
all prior rounds also permits the bids of bidders no longer eligible to
participate in the auction to become part of the provisionally winning
set when that is the most economically efficient outcome. Moreover,
considering all bids throughout the auction encourages sincere bidding.
iii. Mutually Exclusive Rounds
23. As explained in the previous section, all bids placed
throughout the course of the auction are considered when determining
the winning bids. However, the proposed procedures restrict how the
bids are considered. Bids placed by a bidder in one round are
considered mutually exclusive of that bidder's bids placed in all other
rounds. If a bidder places a bid for one license in one round and for
another license in another round, one bid or the other could be a
provisionally winning bid, but not both at the same time. Likewise, if
a bidder places several bids in one round and several bids in another
round, any or all of the bids from one round or the other could be
provisionally winning bids, but not bids from both rounds at the same
time.
24. Using the example from the previous section, assume that in the
first round of the example the $50,000 bid for each of the six licenses
was placed by Bidder 1 and the $200,000 bid for the package of the
northeast region license and both licenses in the south region was
placed by Bidder 2. In the next round of the example, the bid of
$160,000 for the package of both licenses in the south region was
placed by Bidder 1. Under these assumptions, the provisionally winning
bids at the end of the second round could include Bidder 1's bids from
one round or the other, but not both--i.e., any or all of Bidder 1's
$50,000 bids for each of the six licenses from the first round, or
Bidder 1's bid of $160,000 for the package of both licenses in the
south region from the second round. Since the choice of Bidder 1's bids
in the first round achieves greater revenue, the provisionally winning
bids after the second round would remain the same as after the first
round:
[GRAPHIC] [TIFF OMITTED] TN16AP03.003
25. This treatment of bids as mutually exclusive across rounds is
done on a per bidder basis. The provisionally winning bids could
include Bidder 1's bids from one round and Bidder 2's bids from a
different round.
26. This mutually exclusive treatment of bids--for each bidder,
allowing its bids from only one round to become provisionally winning
bids--allows bidders to mind budget constraints and to pursue backup
strategies. For example, if a bidder wants the license in the west
region or the license in the central region but not both, the bidder
could place a bid for one of the licenses in one round and a bid for
the other license in the next round. Because the bids are considered
mutually exclusive, only one could become a provisionally winning bid.
iv. Renewing Bids
27. The proposed procedures include bid renewal to provide a
mechanism that bidders can use so that their bids from different rounds
are not considered mutually exclusive. For example, assume a bidder
places a bid for the west region license in one round. In the following
round, the bidder places a bid for the central region license and
renews its bid on the west region license. Then, after that round,
either bid or both could become a provisionally winning bid.
28. This concludes the ``II. Introduction to Package Bidding.'' In
the following ``Auction Structure'' and ``Bidding Procedures,''
sections, the Bureau seeks comment on the specific package bidding
procedures for Auction No. 51.
III. Auction Structure
A. Simultaneous Multiple Round With Package Bidding
29. The Bureau proposes to award all licenses included in Auction
No. 51 in a simultaneous multiple-round with package bidding (SMR-PB)
auction. This methodology offers every license for bid at the same time
with successive bidding rounds in which bidders may place bids. Bidders
will be able to submit bids on individual licenses, as in the Bureau's
simultaneous multiple round auction design, but may also submit all-or-
nothing bids on packages of licenses. The Bureau seeks comment on this
proposal.
B. Upfront Payments and Initial Maximum Eligibility
30. The Bureau has delegated authority and discretion to determine
an appropriate upfront payment for each license being auctioned.
Upfront payments related to the specific spectrum subject to auction
protect against frivolous or insincere bidding and provide the
Commission with a source of funds from which to collect payments owed
at the close of the auction. The total upfront payment does
[[Page 18646]]
not affect the dollar amount a bidder may bid on licenses.
31. For Auction No. 51 the Bureau proposes to calculate upfront
payments on a license-by-license basis using the following formula:
$.00001 * kHz * License Area Population, rounded.
The Bureau seeks comment on this proposal.
32. The amount of the upfront payment submitted by a bidder will
determine the initial maximum eligibility (as measured in bidding
units) for each bidder. Each license is assigned a specific number of
bidding units equal to the upfront payment, on a bidding unit per
dollar basis. This number does not change during the auction. A
bidder's upfront payment is not attributed to specific licenses or
packages. Rather, a bidder may place bids on licenses and packages as
long as the total number of bidding units associated with those
licenses and packages does not exceed the bidder's eligibility. For a
package, the Bureau proposes to calculate the bidding units by adding
together the bidding units of the individual licenses that make up the
package. Eligibility cannot be increased during the auction. Thus, in
calculating its upfront payment amount, an applicant should determine
the maximum number of bidding units (either individually or in a
package) it may wish to bid on in any single round and submit an
upfront payment covering that number of bidding units. The Bureau seeks
comment on this proposal. The Bureau lists the proposed bidding units
and upfront payments for all licenses in Attachment A of the Auction
No. 51 Comment Public Notice.
C. Activity and Eligibility Rules
33. In order to ensure that the auction closes within a reasonable
period of time, an activity rule provides incentives for bidders to
participate throughout the auction. The activity rule requires each
bidder to have active bids in each round that account for a specified
fraction of the bidder's current eligibility, as measured in bidding
units. A bidder that does not satisfy the activity rule will either use
an activity rule waiver (if any remain) or lose bidding eligibility for
the next round. Losing eligibility matters to bidders because a
bidder's bidding activity cannot exceed its current eligibility.
i. Measuring Activity
34. In SMR auctions, a bidder's activity in a round is determined
by adding the bidding units associated with licenses on which the
bidder is active. A bidder is considered active on a license in the
current round of an SMR auction if it is either the high bidder at the
end of the previous bidding round (and did not withdraw the high bid in
the current round), or if it submits a bid in the current round (and
does not subsequently remove the bid). In a package bidding auction,
calculating activity levels in a round is not as simple because a
bidder can submit bids on different packages that contain one or more
of the same licenses. To illustrate this, suppose a bidder submits bids
on the following packages in round t:
------------------------------------------------------------------------
Package/Licenses Bidding units
------------------------------------------------------------------------
Package A:
South-16 (38,000 bu).................. 76,000 bu
South-17 (38,000 bu)..................
Package B:
Northeast-17 (34,000 bu)..............
South-17 (38,000 bu).................. 108,000 bu
Central-17 (36,000 bu)................
------------------------------------------------------------------------
35. For Auction No. 51, the Bureau proposes to measure a bidder's
bidding activity in a round as the maximum number of bidding units the
bidder can win considering new bids placed and provisionally winning
bids renewed in that round. Thus, when a bidder submits bids in a round
the FCC Automated Auction System will determine the set of bids, among
the bidder's new bids and renewed provisionally winning bids, that
contains the most bidding units and has no overlap among the licenses.
For instance, in the example, the two bids contain four distinct
licenses. The sum of the bidding units associated with these four
licenses is 146,000. However, since both packages contain license
South-17, this bidder cannot win both packages at the same time. Under
the Bureau's proposal the maximum number of bidding units that the
bidder can win is the 108,000 associated with Package B, so the
bidder's bidding activity is 108,000 bidding units. The Bureau seeks
comment on this proposal.
36. A bidder is also considered to be active if the bidder has
provisionally winning bids from the previous round. A bidder's bids
made in different rounds will be considered mutually exclusive, so the
bidding units associated with provisionally winning bids must be viewed
independently from the bidding units associated with current round
bids. The Bureau proposes to define a bidder's eligibility activity in
a round as the greater of (i) its bidding activity in the round and
(ii) the bidding units associated with the bidder's provisionally
winning bids from the prior round. To illustrate how eligibility
activity will be calculated in a round the Bureau continues with its
example. Suppose this bidder has provisionally winning bids on the
following licenses from round t-1:
------------------------------------------------------------------------
License Bidding units
------------------------------------------------------------------------
South-16.................................. 38,000 bu
South-17.................................. 38,000 bu
------------------------------------------------------------------------
37. The number of bidding units associated with this bidder's
provisionally winning bids is 76,000. Recall that the bidder's bidding
activity for the round is 108,000 bidding units. The eligibility
activity for this bidder in round t is therefore 108,000, the greater
of its bidding activity (108,000 bidding units) and the bidding units
associated with its bids in the provisionally winning set (76,000
bidding units).
ii. Auction Requirement
38. For Auction No. 51, the Bureau proposes that, in each round of
the auction, a bidder desiring to maintain its current eligibility
would be required to have eligibility activity equal to sixty percent
(three-fifths) of its current eligibility. For a bidder that failed to
meet the activity requirement in a given round, the Automated Auction
System would reduce the bidder's eligibility for the next round to
five-thirds times its eligibility activity in the current round. Thus,
a bidder's eligibility in the current round is equal to either its
eligibility in the previous round (bidder met the activity requirement)
or five-thirds of its eligibility activity in the previous round
(bidder did not meet the activity requirement), whichever is less:
Eligibility (t) = Min (Eligibility (t-1), 5/3*Eligibility Activity
(t-1))
39. Activity rule waivers provide an exception to this rule and are
discussed in the next section, ``Activity Rule Waivers and Reducing
Eligibility.''
40. In addition, the Bureau proposes to retain the discretion to
increase to eighty percent (four-fifths) the proportion of bidding
units on which bidders must be active to retain their current
eligibility. Any such change will be announced to bidders prior to the
beginning of the round in which the change takes effect. The Bureau
seeks comment on these proposals. Commenters that believe these
activity rules should be modified should explain their reasoning and
comment on the desirability of an alternative approach. Commenters are
advised to support their claims with analyses and suggested alternative
activity rules.
[[Page 18647]]
iii. Activity Rule Waivers and Reducing Eligibility
41. For Auction No. 51, the Bureau proposes that each bidder be
provided with five activity rule waivers that may be used at the
bidder's discretion during the course of the auction as set forth. Use
of an activity rule waiver preserves the bidder's current bidding
eligibility despite the bidder's eligibility activity in the current
round being below the required minimum level. An activity rule waiver
applies to an entire round of bidding and not to a particular license
or package. Activity rule waivers are principally a mechanism for
auction participants to avoid the loss of auction eligibility in the
event that exigent circumstances prevent them from placing a bid in a
particular round.
42. The Automated Auction System assumes that bidders with
insufficient eligibility activity would prefer to use an activity rule
waiver (if available) rather than lose bidding eligibility. Therefore,
the system will automatically apply a waiver (known as an ``automatic
waiver'') at the end of any bidding round in which a bidder's
eligibility activity is below the activity requirement unless: (i) The
bidder has no activity rule waivers remaining; or (ii) the bidder
overrides the automatic application of a waiver by reducing
eligibility, thereby meeting the minimum requirements. Note: If a
bidder has no waivers remaining and does not satisfy the activity
requirement, its current eligibility will be permanently reduced,
possibly eliminating the bidder from further bidding in the auction.
43. A bidder with insufficient eligibility activity may wish to
reduce its bidding eligibility rather than use an activity rule waiver.
If so, the biddermust affirmatively override the automatic waiver
mechanism during the bidding period by using the ``reduce eligibility''
function in the bidding system. In this case, the bidder's eligibility
is permanently reduced to bring the bidder into compliance with the
activity rules as described in the previous section. Once eligibility
has been reduced, a bidder will not be permitted to regain its lost
bidding eligibility.
44. The activity rule waivers described are automatic waivers.
Under the Bureau's SMR auction design, bidders can submit automatic or
proactive waivers. Unlike automatic waivers, proactive waivers keep the
auction open absent other bidding activity. The Bureau proposes not to
allow bidders to submit proactive waivers in the context of package
bidding for Auction No. 51. As part of the package bidding design for
Auction No. 51 the Bureau is proposing a two-round simultaneous
stopping rule, in which the bidding on all licenses remains open until
the second consecutive round in which no new bids are placed. After the
second consecutive such round, bidding closes simultaneously on all
licenses. The two-round stopping rule affords bidders some additional
time to consider their current status, and eliminates the need for
bidders to use a proactive activity rule waiver to prevent the auction
from closing in the current round. The Bureau seeks comment on this
proposal.
D. Information Relating to Auction Delay, Suspension, or Cancellation
45. For Auction No. 51, the Bureau proposes that, by public notice
or by announcement during the auction, it may delay, suspend, or cancel
the auction in the event of natural disaster, technical obstacle,
evidence of an auction security breach, unlawful bidding activity,
administrative or weather necessity, or for any other reason that
affects the fair and efficient conduct of competitive bidding. In such
cases, the Bureau, in its sole discretion, may elect to resume the
auction starting from the beginning of the current round, resume the
auction starting from some previous round, or cancel the auction in its
entirety. Network interruption may cause the Bureau to delay or suspend
the auction. The Bureau emphasizes that exercise of this authority is
solely within its discretion, and its use is not intended to be a
substitute for situations in which bidders may wish to apply their
activity rule waivers. The Bureau seeks comment on this proposal.
IV. Bidding Procedures
A. Round Structure
46. The Commission will conduct this auction over the Internet.
Telephonic Bidding will also be available, and the FCC Wide Area
Network will be available as well.
47. The initial bidding schedule will be announced in a public
notice listing the qualified bidders, which is released approximately
10 days before the start of the auction. The package bidding format
will consist of sequential bidding rounds, each followed by the release
of round results. Details regarding the location and format of round
results will also be included in a subsequent public notice.
48. The Bureau has discretion to change the bidding schedule in
order to foster an auction pace that reasonably balances speed with the
bidders' need to study round results and adjust their bidding
strategies. The Bureau may increase or decrease the amount of time for
the bidding rounds and review periods, or the number of rounds per day,
depending upon the bidding activity level and other factors. The Bureau
seeks comment on this proposal.
B. Reserve Price or Minimum Opening Bid
49. The Balanced Budget Act calls upon the Commission to prescribe
methods for establishing a reasonable reserve price or a minimum
opening bid when FCC licenses are subject to auction, unless the
Commission determines that a reserve price or minimum opening bid is
not in the public interest. Consistent with this mandate, the
Commission has directed the Bureau to seek comment on the use of a
minimum opening bid and/or reserve price prior to the start of each
auction.
50. Normally, a reserve price is an absolute minimum price below
which an item will not be sold in a given auction. Reserve prices can
be either published or unpublished. A minimum opening bid, on the other
hand, is the minimum bid price set at the beginning of the auction
below which no bids are accepted. It is generally used to accelerate
the competitive bidding process. Also, the auctioneer often has the
discretion to lower the minimum opening bid amount later in the
auction. It is also possible for the minimum opening bid and the
reserve price to be the same amount.
51. In light of the Balanced Budget Act's requirements, the Bureau
proposes to establish minimum opening bids for Auction No. 51. The
Bureau believes a minimum opening bid, which has been used in other
auctions, is an effective bidding tool.
52. Specifically, for Auction No. 51, the Commission proposes the
following license-by-license formula for calculating minimum opening
bids:
$.00001 * kHz * License Area Population, rounded.
53. For a package, the Bureau proposes to calculate the minimum
opening bid by adding together the minimum opening bids of the
individual licenses that make up the package. The Bureau lists the
proposed minimum opening bids for all licenses in Attachment A of the
Auction No. 51 Comment Public Notice. The Bureau seeks comment on this
proposal.
C. Packages
54. The Bureau proposes that, in addition to bidding on individual
[[Page 18648]]
licenses, bidders be permitted to create and bid on up to twelve
different packages of their own choosing during the course of the
auction. Bidders will not be required to identify or create their
packages before the start of the auction, but may create their packages
as the auction progresses. A bidder may modify or delete a package it
has created up until the point where it has bid on the package and the
round has closed. If the bidder submits a bid on a package and
subsequently removes the bid during the same round, the bidder has the
option of also deleting or modifying the package. However, once a
bidder bids on a package and the round closes, the package may not be
modified or deleted and counts as one of the bidder's twelve allowable
packages. A bid on an individual license does not count as a bid on a
package; packages consist of two or more licenses. The Bureau seeks
comment on this proposal.
D. Winning and Provisionally Winning Bids
55. Winning bids in a package bidding auction are the set of
``consistent'' bids (non-overlapping, and for each winning bidder, only
bids made or renewed in the same round) on individual licenses and
packages that maximizes total revenue when the auction closes.
Provisionally winning bids are the set of consistent bids that
maximizes total revenue in a particular round (they would win if the
auction were to close in that round), assigning each license to either
a bidder or the FCC. When determining winning and provisionally winning
bids, all bids made in every round throughout the course of the auction
(except for bids that are placed and subsequently removed during the
same round) will be considered. In addition, each license is treated as
having a bid placed by the FCC at $1000 less than the minimum opening
bid. This procedure will ensure that a bid on a license or package at
the minimum opening bid always beats the FCC bid.
56. Since there can be more than one set of consistent bids that
produces the maximum revenue, the Bureau proposes to use a procedure
that randomly selects among these tied sets when determining the
provisionally winning bids. This tie breaking procedure involves two
steps: (i) The assignment of a selection number to each bid, and (ii)
the determination of, among all tied bid sets, the set that produces
the maximum sum of selection numbers. The Bureau seeks comment on this
proposal.
57. A bid's selection number is the sum of n pseudo-random numbers
where n is the number of licenses comprising the bid's package. A bid's
selection number will be included in the publicly-available round
results released after each round.
58. Once the selection numbers have been generated for each bid,
the second step of the tie breaking procedure will decide the
provisionally winning bids. Computer software is used to determine,
among all tied bid sets, the set that produces the maximum sum of
selection numbers. Thus, the set of provisionally winning bids is the
set of consistent bids that maximizes revenue and maximizes the sum of
selection numbers. Each bid will be assigned a new selection number in
every round. Consequently, if there are ties, the set of provisionally
winning bids may change even after a round in which there are no new
bids. The solver will not be run after the last round of the auction,
so that the winning set is the same as the set of provisional winners
generated after the next-to-the-last round (i.e., there won't be any
surprise winners).
59. Please note that it is possible that a provisionally winning
bid might not be the highest bid on the particular license or package.
This possibility is primarily due to each bidder's bids being
considered mutually exclusive across rounds. For example, if one bidder
has placed the highest bid on each of two different licenses in two
different rounds (and did not renew the earlier of the two bids), then
those two bids are considered as mutually exclusive and only one of
them can be a provisionally-winning bid.
E. Minimum Acceptable Bids and Bid Increments
60. The Bureau proposes that in each round, eligible bidders will
be able to place bids on a given license or package in any of nine
different amounts. The Automated Auction System interface will list the
nine acceptable bid amounts for each license and package. In the first
round of the auction, the minimum acceptable bid for a license or
package will be equal to its minimum opening bid. The Bureau proposes
that in all subsequent rounds, the minimum acceptable bid for a license
or package will be the greatest of: (i) The minimum opening bid; (ii)
the bidder's own previous high bid on a license or package plus x%,
where the Bureau will specify the value of x in each round; and (iii)
the current price estimate of the license plus z%, or for a package,
the sum of the current price estimates for the licenses in the package
plus z%, where the Bureau will specify the value of z in each round.
61. Current price estimates are estimates of the prices of the
individual licenses being auctioned. The estimates take into account
the minimum opening bids for the licenses as well as all the bids
placed in the auction and, therefore, reflect all available information
that has been revealed in the auction about the relative demands for
the licenses. Current price estimates for the component licenses of a
package that is provisionally winning are constrained to sum to the
provisionally winning bid for the package. These estimates are
generated during round results following every round of the auction as
part of the mathematical optimization process used by the Bureau to
determine the provisionally winning bids. The precise methodology used
to calculate current price estimates is described in Attachment B of
the Auction No. 51 Comment Public Notice. Until a bid is placed on a
license or on a package containing that license, by any bidder in any
round, the current price estimate is the FCC bid amount.
62. The Bureau proposes to retain an exception to part (iii) for
calculating the minimum acceptable bid for a ``global'' package--a
package consisting of all six of the licenses available in the auction.
After the first round of the auction, part (iii) of the minimum
acceptable bid rule for a global package will always be the revenue
generated by the provisionally winning bid set in the previous round
plus w%. The Bureau makes this distinction in order to retain the
ability to ensure that bids for the global package will continue to
increase even if it employs a percentage z that does not guarantee that
outcome.
63. The result of the minimum acceptable bid calculation will be
rounded using the Bureau's standard rounding procedure. Initially, the
Bureau proposes to set x at ten, z at five and w at five, but retains
the discretion to adjust these variables during the course of the
auction.
64. For bids higher than the minimum acceptable bid--i.e., multi-
increment bids--the Bureau proposes to define the amount of the
additional bid increments as v% of the minimum acceptable bid, where
the minimum acceptable bid is determined as discussed. Initially, the
Bureau proposed to set v at ten, but proposes to retain the discretion
to adjust the amount during the course of the auction. Thus, when v
equals ten, a bidder will be able to place multi-increment bids of the
minimum acceptable bid plus approximately 10%, 20%, etc. with the
maximum bid being approximately equal to the minimum acceptable bid
plus 80%.
65. The Bureau retains the discretion to change minimum acceptable
bids, and to do so on a license-by-license and package-by-package
basis, if
[[Page 18649]]
circumstances so dictate. The Bureau will do so by announcement in the
Automated Auction System. The Bureau seeks comment on these proposals.
F. Last and Best Bids
66. The Bureau proposes to allow bidders that wish to drop out of
the auction or that believe they are about to lose their bidding
eligibility to have an opportunity before they drop out to place up to
two mutually exclusive sets of ``last and best'' bids on any licenses
or packages for which they remain eligible. This is a limited exception
to minimum acceptable bids and to click-box bidding. Such bids may be
of any amount (in thousand dollar increments) between the bidder's
previous high bid on the license or package and the amount of the
highest acceptable bid for the license or package in the current round
(the eighth increment above the minimum acceptable bid). If a bidder
chooses this option, it will not be permitted to make any further bids
during the auction. The Bureau seeks comment on this proposal.
G. Renewed Bids
67. Without regard to the minimum acceptable bid requirement, the
Bureau proposes to allow a bidder to ``renew'' in the current round the
highest previous bid it made on any license or package; that is, it may
resubmit the bid without increasing the amount bid. No eligibility
activity or bidding activity is conferred for renewing a non-
provisionally winning bid. Renewed provisionally winning bids confer
bidding activity (non-renewed provisionally winning bids count toward
eligibility activity). Renewed bids will be treated as being made in
the current round.
68. Renewals provide bidders a means to ensure that bids from
previous rounds are considered in addition to the bids placed in the
current round. Otherwise, bids made in different rounds are treated as
mutually exclusive, so that the bidder may win some or all of the bids
from the current round, or a previous round, but not both. The Bureau
seeks comment on this proposal.
H. Information Regarding Bid Removal and Bid Withdrawal
69. For Auction No. 51, the Bureau proposes the following bid
removal procedures. Before the close of a bidding period, a bidder has
the option of removing any bid placed in that round. By removing
selected bids in the bidding system, a bidder may effectively
``unsubmit'' any bid placed within that round. A bidder removing a bid
placed in the same round is not subject to a withdrawal payment. Once a
round closes, a bidder may no longer remove a bid.
70. The Bureau proposes for Auction No. 51 that bidders not be
permitted, in any round, to withdraw bids made in previous rounds. With
the implementation of package bidding, bidders should not face exposure
risks as they might in a simultaneous multiple round auction design.
Bid withdrawal was designed to allow bidders to back out of failed
aggregations--to avoid winning some licenses that are worth little to
them without the others they need to implement their business plan.
Therefore, to the extent that bids are allowed on all packages of
licenses with significant complementarities, the use of withdrawals to
mitigate such risk is no longer necessary. The Bureau seeks comment on
this proposal.
I. Stopping Rule
71. The Bureau has discretion ``to establish stopping rules before
or during multiple round auctions in order to terminate the auction
within a reasonable time.'' For Auction No. 51 the Bureau proposes to
employ a two-round simultaneous stopping rule. A two-round simultaneous
stopping rule means that all licenses remain open until two consecutive
rounds have occurred in which no new bids are received. After the
second consecutive such round, bidding closes simultaneously on all
licenses. Thus, unless circumstances dictate otherwise, bidding would
remain open on all licenses until bidding stops on every license.
Renewed bids are not considered new bids for purposes of the stopping
rule; in other words, a round in which the only bids that are placed
are renewed bids is considered a round with no new bids for purposes of
the stopping rule. Last and best bids are considered new bids for
purposes of the stopping rule. The Bureau seeks comment on this
proposal.
72. The Bureau proposes to reserve the right to declare that the
auction will end after a specified number of additional rounds
(``special stopping rule''). The Bureau proposes to exercise this
option only in certain circumstances, such as, for example, where the
auction is proceeding very slowly, there is minimal overall bidding
activity, or it appears likely that the auction will not close within a
reasonable period of time. Before exercising this option, the Bureau is
likely to attempt to increase the pace of the auction by, for example,
increasing the number of bidding rounds per day, and/or increasing the
minimum acceptable bids. The Bureau seeks comment on these proposals.
V. Conclusion
73. Comments are due on or before April 17, 2003, and reply
comments are due on or before April 24, 2003. Because of the disruption
of regular mail and other deliveries in Washington, DC, the Bureau
requires that all comments and reply comments be filed electronically.
Comments and reply comments must be sent by electronic mail to the
following address: auction51@fcc.gov. The electronic mail containing
the comments or reply comments must include a subject or caption
referring to Auction No. 51 Comments. The Bureaus request that parties
format any attachments to electronic mail as Adobe[reg] Acrobat[reg]
(pdf) or Microsoft[reg] Word documents. Copies of comments and reply
comments will be available for public inspection during regular
business hours in the FCC Public Reference Room, Room CY-A257, 445 12th
Street, SW., Washington, DC 20554. Copies of comments and reply
comments will also be available from the Commission's copy contractor:
Qualex International, 445 12th Street, SW., Room CY-B402, Washington,
DC 20554; phone (202) 863-2893; fax (202) 863-2898; e-mail
qualexint@aol.com. 74. In addition, the Bureau requests that commenters fax a courtesy
copy of their comments and reply comments to the attention of Kathryn
Garland at (717) 338-2850.
75. This proceeding has been designated as a ``permit-but-
disclose'' proceeding in accordance with the Commission's ex parte
rules. Persons making oral ex parte presentations are reminded that
memoranda summarizing the presentations must contain summaries of the
substance of the presentations and not merely a listing of the subjects
discussed. More than a one or two sentence description of the views and
arguments presented is generally required. Other rules pertaining to
oral and written ex parte presentations in permit-but-disclose
proceedings are set forth in Sec. 1.1206(b) of the Commission's rules.
Federal Communications Commission.
Margaret Wiener,
Chief, Auctions and Industry Analysis Division, WTB.
[FR Doc. 03-9389 Filed 4-15-03; 8:45 am]
BILLING CODE 6712-01-P