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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of ) File Nos. 00105CWL97 ) 00878CWL97 through 00889CWL97 Magnacom Wireless, L.L.C. ) Request for Waiver of ) Section 24.716(a)(2)of the ) Commission's Rules ) ORDER Adopted: January 14, 1998 Released: January 14, 1998 By the Chief, Wireless Telecommunications Bureau: 1. By this Order, we partially grant a request for waiver of section 24.716(a)(2) of the Commission's rules filed by Magnacom Wireless, L.L.C. (Magnacom), the winning bidder for F Block licenses in thirteen Basic Trading Area (BTA) markets in the broadband Personal Communications Services (PCS) D, E and F Block auction. On April 28, 1997, the Wireless Telecommunications Bureau released a Public Notice conditionally granting various applications for BTA licenses in the D, E and F Blocks, including the F Block applications filed by Magnacom. In that Public Notice, which the Commission forwarded by overnight mail delivery to Magnacom on April 29, 1997, applicants were notified that the grant of each F Block license was expressly conditioned on payment of the second down payment, amounting to ten percent of the net winning bid, within ten business days of the date of the notice. Accordingly, Magnacom's second down payment was due on May 12, 1997. 2. The down payment amount owed by Magnacom as of May 12, 1997, was $1,387,125.00. Magnacom, however, missed this deadline and did not submit its second down payment to the Commission until May 22, 1997, eight business days after the due date. 3. The procedure for the submission of winning bid down payments for F Block licenses is set forth in section 24.716(a)(2) of the Commission's rules: Each winning bidder shall make a down payment equal to 20 percent of its winning bid (less applicable bidding credits); a winning bidder shall bring its total amount on deposit with the Commission (including upfront payment) to 10 percent of its net winning bid within five business days after the auction closes, and the remainder of the down payment (10 percent) shall be paid within five business days after the application required by  24.809(b) is granted. Absent a waiver of the deadline, a winning bidder who fails to make its down payment on time is deemed to have defaulted and is subject to a default payment equal to the difference between its bid and the amount of the winning bid the next time the license is offered for auction plus three percent of its bid or the subsequent winning bid, whichever is less. 4. Magnacom states that its payment was delinquent because of an accounting error by GST Telecommunications, Inc. (GST), a company that was to provide funds to meet Magnacom's down payment obligations. Specifically, John Warta, President and CEO of both Magnacom and GST, states that on May 12, 1997, a Magnacom staff member was preparing to submit funds to the Commission, by wire transfer, to cover the second ten percent down payment. Magnacom sought confirmation from GST that it would have funds available to support Magnacom's down payment obligations. Magnacom staff was instead advised by GST that, because of an accounting error, certain funds advanced in relation to another PCS transaction had not been recorded, and therefore funds for the second down payment would not be immediately available. Mr. Warta states that he was traveling on behalf of GST for the two weeks prior to the May 12, 1997, payment deadline and believed that the second down payment could be handled by his staff. Accordingly, he did not learn of the accounting error until after the May 12, 1997, payment deadline had passed. Mr. Warta asserts that he made personal and borrowed funds available for the second down payment within eight business days of the deadline, which is consistent with the Commission's proposal in the Part 1 proceeding to permit down payments to be paid up to 10 business days late, subject to a five percent late fee. Mr. Warta emphasizes that Magnacom's late payment was due not to a lack of funds, but rather to accounting errors and miscommunication. He states that if these errors had not been made, Magnacom would have been able to meet its second down payment deadline. 5. To receive a waiver of the down payment rule, an applicant must demonstrate either "that the underlying purpose of the rule will not be served, or would be frustrated, by its application in a particular case, and that the grant of the waiver is otherwise in the public interest"; or, "that the unique facts and circumstances of a particular case render application of the rule inequitable, unduly burdensome or otherwise contrary to the public interest." As we have previously noted, the continued integrity and efficient functioning of the auction process is dependent on winning bidders meeting their down payment obligations promptly. Timeliness of such payments is a necessary indication to the Commission that the winning bidder is financially able to meet its obligations on the license and intends to use the license for the provision of services to the public. In the Competitive Bidding Second Report and Order, the Commission noted that the timeliness requirement would also deter defaults by discouraging insincere or financially unqualified bidders from "shopping" a winning bid in order to obtain financing for a down payment. 6. We believe that Magnacom has presented sufficient facts to meet the standard for a partial waiver of the down payment rule. The record indicates that prior to the second down payment, Magnacom made all required auction payments on time and in full. In fact, the record reveals that Magnacom overpaid the upfront bid payment by $1,582,875.00. We note further that Magnacom submitted the second down payment on May 22, 1997, eight business days after the payment due date. Magnacom's pleadings and actions demonstrate that, but for an accounting error, it would have been able to meet its payment obligations on time. 7. Under the circumstances presented by Magnacom, we conclude that the public interest would not be served by rigid enforcement of the second down payment deadline, which would result in the cancellation of Magnacom's conditional licenses and the imposition of a substantial default payment. In reaching this conclusion, we give considerable weight to the applicant's prior record of compliance, its good faith efforts to make payment on time, and its prompt action to remedy the delinquency. These facts indicate that Magnacom was a financially qualified applicant and was not attempting to "shop" its licenses to investors. There is nothing in the record to suggest that Magnacom's delinquency was part of a deliberate effort to delay payment. 8. We do not believe, however, that Magnacom is entitled to a complete waiver of the default rules. The default rules exist in part to provide licensees with the incentive to maintain adequate systems for transferring payments to the Commission. Magnacom admits that the delinquency that occurred here was the result of GST's accounting error in calculating the amount of funds available to Magnacom on May 12, 1997. Such an error is the applicant's responsibility and we note that it might have been avoided had Magnacom inquired as to the amount of funds available to it prior to the actual payment deadline. We also note that Mr. Warta was President and CEO of both companies, a circumstance which should have further reduced the possibility of a misunderstanding between the companies. Under the circumstances, we conclude that Magnacom should be subject to a late fee of five percent of the $1,387,125.00 that was not timely paid. This amount is commercially reasonable and serves to underscore the importance of receiving timely payment of all auction payments. It is also consistent with prior waivers granted by this Bureau under similar circumstances, and with the Commission's recent decision to permit auction winners to pay second down payments up to ten business days late so long as they submit a late fee of five percent. 9. For the reasons stated above, pursuant to section 4(i) of the Communications Act, as amended, 47 U.S.C.  154(i), and section 24.819(a) of the Commission's Rules, 47 C.F.R.  24.819(a), the request for waiver filed by Magnacom Wireless, L.L.C., IS GRANTED IN PART, subject to a five percent late fee, as specified above. Such late fee of $69,356.25 must be paid within ten business days after the release of this order. Magnacom is also reminded that the grant of F Block licenses is expressly conditioned on timely execution and return by the licensee of all original copies of the notes and security agreements in accordance with the instructions provided by the United States Department of Treasury's Birmingham Financial Center. Failure to comply with this condition will result in the automatic cancellation of the licenses in question. This action is taken under delegated authority pursuant to section 0.331 of the Commission's rules, 47 C.F.R.  0.331. FEDERAL COMMUNICATIONS COMMISSION Daniel B. Phythyon Chief, Wireless Telecommunications Bureau