NOTICE ********************************************************* NOTICE ********************************************************* This document was originally prepared in Word Perfect. If the original document contained-- * Footnotes * Boldface & Italics --this information is missing in this version The document format (spacing, margins, tabs, etc.) is changed too. If you need the complete document, download the Word Perfect version. For information about downloading documents (FTP) see file how2ftp. File how2ftp (.txt & .wp) is in directory \pub\Public_Notices\Miscellaneous. ***************************************************************** ******** $//MO&O,IVDS waivers,FCC 95-367//$ $/95.816(c) Competitive bidding procedures/$ $/1.2107 Submission of down payment and filing of long-form application/$ Before the FEDERAL COMMUNICATIONS COMMISSION FCC 95-367 Washington, D.C. In the Matter of ) ) Requests for Waivers in the First Auction ) of Interactive Video and Data Service ) (IVDS) Licenses ) MEMORANDUM OPINION AND ORDER Adopted: August 18, 1995 Released: September 1, 1995 By the Commission: I. INTRODUCTION AND BACKGROUND 1. On July 28 and 29, 1994, the Commission held an auction to award licenses in the Interactive Video and Data Service (IVDS). Pursuant to the auction rules, on August 8, 1994, winning bidders were required either to submit their total "down payment" amount or, if they claimed "small business" status, to pay an initial down payment equal to one-half of the total down payment amount. Some winning bidders failed to make their down payment(s) by the August 8, 1994, deadline, and filed waiver requests seeking extensions of that payment deadline. By Order adopted October 7, 1994, these waiver requests were denied pursuant to delegated authority. By this Memorandum Opinion and Order, we deny the Application for Review of that Order filed by Commercial Realty St. Pete, Inc. (Commercial Realty), and four Petitions for Reconsideration filed by Interactive America Corporation (Interactive), Louisiana Interactive Broadcasting System, Inc. (Louisiana), Henry L. Mayfield (Mayfield), and Vision TV, Inc. (Vision). 2. Pursuant to our auction rules, all license grants are conditioned on full and timely payment of the license price. Small businesses are eligible under our rules to pay for their licenses in installments over the term of the license. All winning bidders, however, are required to make a down payment on their licenses within five business days after being notified that they are the winning bidder on a license. The requirement of a full and timely down payment is intended to ensure that winning bidders "have the financial capability to attract capital to rapidly deploy their systems and operate them in an efficient manner." The down payment requirement, in other words, ultimately helps deter defaults by discouraging "insincere" bidders from winning licenses solely with the expectation that, post-auction, they can "shop" their winning bid in a late effort to obtain financing. Permitting such actions, we have stated, "would undermine the integrity of the auction itself." II. DISCUSSION Availability of Equipment 3. A primary argument of those requesting a waiver of the IVDS down payment deadline has been that the "build-out" requirement for IVDS, coupled with an alleged lack of multiple providers of IVDS equipment, seriously compromised the winning bidders' ability to retain financing immediately following the auction. Specifically, Commercial Realty and Interactive state that, despite their best efforts to evaluate the IVDS equipment market prior to the auction, they could not determine whether sufficient equipment would later be available with which to meet the build-out deadlines. They state that they were faced with the choice of either not participating in the auction, or participating with incomplete information. They argue that it was reasonable, under these circumstances, to participate in the auction. Finally, they state that they were misled on this issue prior to the auction by both the Commission and EON Corporation, an IVDS equipment manufacturer. 4. The October 7, 1994, Order stated, in response, that the availability of equipment, its cost, and its capabilities were matters having an important bearing on whether and how much to bid for an IVDS license. In addition, the Order stated that "[b]idders who won IVDS licenses without fully understanding these matters should not be able to shift responsibility for their actions onto the government." Finally, it was noted that claims of equipment unavailability were speculative and disputed, and that granting down payment waivers would be unfair to winning bidders that paid on time. 5. We find the petitioners' arguments unpersuasive. The Commission undertook substantial educational outreach efforts prior to the auction. For example, we released the Fourth Report and Order in the auctions proceeding, concerning IVDS, on May 10, 1994, and released Public Notices giving additional procedural details and answering questions on May 23, June 17, and July 5, 1994. We also provided potential applicants, on request, with a "Bidder's Information Package," and held an auction seminar on June 6, 1994, which was also carried on satellite feed. These efforts provided potential applicants adequate and timely information concerning the IVDS build-out requirements and the equipment market at that time. In particular, the above-referenced June 17, 1994, Public Notice contained the following questions and answers, which were consistent with other Commission and contractor answers on this subject: Question 5-2: If [the] FCC has approved only one IVDS equipment manufacturer to date, is the FCC willing to extend its build-out requirements schedule until a sufficient number of equipment suppliers exist? Doing so would allow license holders to gain the price advantages and innovations that competition among IVDS suppliers would create. Answer: At this time, it cannot be determined how many suppliers of IVDS equipment will be available, post-auction, to provide equipment to licensees. While it is true that currently only one company has received Commission "type acceptance" for its IVDS equipment, this may change once the auctions are concluded and potential suppliers assess the sales potential for such equipment. If it later appears that there is a problem because licensees cannot obtain equipment, the FCC will consider granting waivers on a case-by-case basis. Licensees are reminded, however, that the Commission addressed this issue in the Report and Order concerning IVDS in Gen Docket No. 91-2 (at paragraph 66). There, the Commission stated that it did not intend to relieve any IVDS licensee of the construction requirements on the basis that development or deployment took longer than anticipated. Question 5-3: At this time, have any other manufacturers (other than Eon Corp.) applied for type-acceptance for IVDS? Answer: As of this date, no company other than EON Corporation has been granted type acceptance for equipment to operate in the IVDS. At least one other entity, however, has expressed an interest in providing IVDS equipment. For additional information in this area, you may want to review the comments filed in Gen. Docket No. 91-2, the proceeding that established the IVDS. The state of the IVDS equipment market was a matter of public record prior to the auction, and all applicants had adequate time to analyze this information and adjust their bids accordingly. As noted in the October 7th Order, even if petitioners believed that sufficient equipment would not be available to meet the build-out deadline, the appropriate recourse would have been to request a waiver of that build-out deadline, not to withhold their down payment. In light of Question and Answer 5-2, above, applicants were on notice that such build-out waivers would be considered by the Commission, if they later became necessary. 6. Petitioners have submitted no evidence that EON Corporation deliberately misled them prior to the auction. Further, we do not agree with petitioners' argument that EON Corporation had an affirmative obligation to join in a significant working or educational relationship with petitioners prior to the auction. Again, petitioners' concerns regarding equipment availability should have been reflected in their bid amounts. While some bidders might have proceeded very cautiously at auction, others might have assumed that the IVDS equipment market would change once the auctions were concluded and potential suppliers had assessed the sales potential for such equipment. This development in equipment manufacturing has, in fact, come to pass, with five manufacturers having received type acceptance for IVDS equipment, as of this date. Waiver Standard 7. Louisiana and Vision state that, prior to the auction, they held firm financial commitments to support their bidding, and that shortly after the auction these commitments were unexpectedly withdrawn. They argue that, on the specific facts they describe, they were serious, qualified bidders at the time of the auction, despite having subsequently missed the down payment deadline. In particular, they state that a facsimile letter they received between the time of the auction and the time of the initial down payment deadline (five days) motivated their investors to withdraw necessary financing. The letter, sent by one winning bidder to others, stated that, because IVDS equipment was purportedly unavailable, winning bidders should jointly petition the FCC to defer the August 8, 1994, deadline for initial down payments. The letter, petitioners note, cast doubt on the ability of the IVDS industry in general to meet the one-year build-out deadline, and generated additional adverse publicity for the industry. Petitioners argue that this development was unforeseen, and their subsequent loss of financing was unavoidable. In addition, they state that the October 7th Order, which addressed this issue, should have discussed the specific facts that they described in their waiver filings. 8. The Order stated, "If a single letter sent after the auction ... can derail financial commitments amounting to many thousands or even millions of dollars, we are concerned whether the bidder was ever a serious, qualified bidder." We affirm this view. As noted above, the state of the IVDS equipment market was a matter of public record prior to the auction. In addition, winning bidders should have known that they would be required to pay their initial down payment only five days after the auction, and should have bid accordingly. As was also stated, "[t]he Commission ... cannot be responsible for the private business arrangements that an applicant has made to finance its successful bid." The Commission has taken precautions, including those of requiring financial certifications and down payments, to discourage defaults in the auction process; the Commission, however, generally should not delve into the sufficiency or strength of the underlying, private contractual arrangements of bidders, nor the efforts of bidders to overcome unexpected contractual difficulties. Here, as in other auction contexts, petitioners could have taken reasonable precautions, such as securing back-up financing, to ensure timely payment in the event of unanticipated difficulties. 9. The Commission may enforce a strict standard in this context, if it is in the public interest to do so. The petitioners' unanticipated lack of financing is not a special circumstance warranting a deviation from the general rule requiring a full and timely down payment, nor do we think that granting the requested waivers would serve the public interest. As noted above, the down payment deadline is essential to ensure the integrity of our auctions process by preventing insincere bidding. We find that petitioners assumed the risk that unexpected financial circumstances, of the type described, might later occur. In addition, we find that the October 7th Order described sufficient supporting facts to reach its conclusions. 10. Petitioners make two additional, associated arguments: that the October 7th Order should have discussed petitioners' willingness to pay monetary penalties in the event the Commission granted the waiver requests, and that granting the requests would not prejudice winning bidders that paid on time, because licensing on behalf of such bidders could still proceed on schedule. In the Order, the Bureau noted that it was irrelevant that certain petitioners were "now assertedly willing and able to make their initial deposits if only the FCC [would] absolve them from any possible penalties for late payment." We find that any current offer to make penalty payments does not alter our finding that petitioners have demonstrated no special circumstance justifying a waiver of the down payment rule. In addition, we find that winning bidders that paid on time might be prejudiced by waiver grants that delay the licensing of others, because financial and equipment markets take notice of such agency actions and may alter their own actions as a result, adversely affecting prospective and existing licensees. Expectations that the rules perhaps need not be followed can, as the Bureau noted, "further encourage ... undesirable conduct and lessen the likelihood that in the future only serious, qualified bidders will participate in Commission-sponsored auctions." In any event, whether other winning bidders can be timely licensed despite the granting of waivers does not alter our determination that petitioners have stated no special circumstance warranting a deviation from the general payment rule. Rules Prohibiting Collusion 11. Mayfield argues that the IVDS auction rules unduly restricted his ability to solicit financing after the filing of his FCC Form 175 ("short form") application. At the time of the July 28-29, 1994, auction, Section 1.2105(c) of the Commission's Rules, 47 C.F.R.  1.2105(c), stated: Prohibition of Collusion. After the filing of short-form applications, all bidders are prohibited from cooperating, collaborating, discussing or disclosing in any manner the substance of their bids or bidding strategies with other bidders until after the high bidder makes the required down payment, unless such bidders are members of a bidding consortium or other joint bidding arrangement identified on the bidder's short-form application. Section 1.2105(c) is intended to deter anticompetitive behavior during the auction. While, as Mayfield notes, this section was amended following the IVDS auction, Mayfield and all other prospective bidders were subject to the Commission's rules as they existed at the time of the auction. Potential applicants such as Mayfield had ample opportunity to factor such anti-collusion rules into their financing arrangements and bidding strategies prior to the auction. Moreover, our anti-collusion rules in effect during the IVDS auction permitted bidders to continue to seek financing from other entities who were not applicants in the auction. We decline to give retroactive effect to the amended rule, and deny Mayfield's request. Speed of Service to the Public 12. Louisiana, Mayfield, and Vision argue that IVDS service will reach the public faster if we grant the requested waivers, rather than re-auction the subject licenses. This asserted result is speculative and, even if true, is outweighed by the public interest in maintaining the integrity of the auction process and its payment rules. Provisions for Designated Entities 13. Mayfield argues that his waiver request is bolstered by his status as a minority-owned small business. As required by Congress, we have adopted provisions to ensure that designated entities are afforded an opportunity to participate in IVDS auctions and in the provision of IVDS services. We do not believe, however, that Mayfield's status as a designated entity warrants a waiver of the down payment requirements. Modification to Short Form Application 14. Mayfield seeks reconsideration of the denial of his request to amend his FCC Form 175 ("short form") application from individual applicant to partnership status. Mayfield submits no argument to support this request, however, and we see no reason to alter the previous decision. The requested amendment would constitute a major modification to the application, and such modifications are not permitted pursuant to auction rules. We therefore deny the request. Delegated Authority 15. Interactive and Vision argue that the October 7th Order is invalid because the Deputy Chief of the Common Carrier Bureau lacked authority to adopt the Order. We disagree. While the IVDS is a wireless telecommunications service (at that time, a service within the former Private Radio Bureau), the Deputy Chief had, at that time, been authorized to determine auction matters. In addition, by October 7th the Deputy Chief had formally been re-assigned to the Private Radio Bureau. The Order, therefore, incorrectly reflected his job title, yet was adopted pursuant to an effective grant of delegated authority. Pursuant to the present de novo review, we affirm the Deputy Chief's determinations. Conflict of Interest 16. Interactive argues that the Commission, as the entity both ruling on the subject waiver requests and administering the spectrum auctions, "has an inherent conflict with respect to any request that would impede its immediate production of revenue from auctions." We reject this argument. Pursuant to Congressional directive, we have attempted to recover a portion of the value of the public spectrum made available through auctions, yet this goal has been balanced by other goals such as the rapid deployment of service and the efficient use of the spectrum. Further, we are content that judicial oversight is a sufficient deterrent to any improper Commission decisions in this context. III. ORDERING CLAUSE 17. Accordingly, IT IS ORDERED that the Application for Review filed by Commercial Realty St. Pete, Inc., IS DENIED. IT IS FURTHER ORDERED that the Petitions for Reconsideration filed by Interactive America Corporation, Louisiana Interactive Broadcasting System, Inc., Henry L. Mayfield, and Vision TV, Inc., ARE DENIED. IT IS FURTHER ORDERED that this action IS EFFECTIVE UPON RELEASE. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary