Before the Federal Communications Commission Washington, D.C. 20554 ) In re Applications of ) ) AirGate Wireless, L.L.C., Assignor, and ) FCC File No. 0000002035 Cricket Holdings, Inc., Assignee) DA 98-2319 ) For Consent to Assign Broadband PCS F Block) Licenses KNLF882, KNLG279, KNLG280) and KNLG281 ) ) And ) ) Application of Leap Wireless International, Inc.) FCC File No. 0000012974 For Authorization to Construct and Operate 36) DA 99-990 Broadband PCS C Block Licenses ) MEMORANDUM OPINION AND ORDER Adopted: July 22, 1999 Released: July 22, 1999 By the Chief, Commercial Wireless Division, Wireless Telecommunications Bureau: TABLE OF CONTENTS Paragraph I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . .1 II. BACKGROUND . . . . . . . . . . . . . . . . . . . . . 2 III. DISCUSSION . . . . . . . . . . . . . . . . . . . . . 16 IV. CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . 44 V. ORDERING CLAUSES. . . . . . . . . . . . . . . . . . . . . 45 I. INTRODUCTION 1. In this Order, we address Personal Communications Services ("PCS") license applications that have been filed in two proceedings. First, we address an application to assign four PCS F Block licenses from AirGate Wireless, L.L.C. ("AirGate") to Cricket Holdings, Inc. ("Cricket"), a wholly-owned subsidiary of Leap Wireless International, Inc. ("Leap"). Second, we address Leap's application for 36 C Block licenses for which Leap was the net high bidder in Auction No. 22. Comments and petitions to deny have been filed in both proceedings. For the reasons discussed below, we conditionally grant these license applications. II. BACKGROUND A. Procedural Background 2. On October 5, 1998, AirGate and Leap filed an application for assignment of four PCS F Block licenses from AirGate to Cricket ("Assignment Application"). On November 13, 1998, the Commercial Wireless Division ("CWD") of the Wireless Telecommunications Bureau ("Bureau") released a Public Notice accepting the Assignment Application for filing. Petitions to Deny were filed on December 14, 1998 by the United States Small Business Administration ("SBA") and Carolina PCS I Limited Partnership ("Carolina PCS"). Comments were filed by DiGiPH PCS, Inc. ("DiGiPH"), Cook Inlet Region, Inc. ("Cook Inlet") and Western Wireless Corporation ("Western Wireless"). Petitioners generally contend that Leap is not eligible to hold C or F block licenses because (1) Leap's former parent company, QUALCOMM Incorporated ("QUALCOMM"), should be considered an affiliate of Leap, which would preclude Leap from qualifying as a "designated entity" under the Commission's rules, and (2) Leap does not meet the criteria of the eligibility exception in the PCS rules for publicly-traded corporations ("PTC") with widely dispersed voting power ("PTC Exception"). 3. On February 12, 1999, Leap filed a short form application (FCC Form 175) to participate as a very small business in the auction of C, D, E and F Block Broadband PCS licenses that began on March 23, 1999 ("Auction No. 22"). Because Leap's qualifications to hold C or F block PCS licenses had not been resolved prior to the commencement of Auction No. 22, Leap was permitted to participate in the auction and was the net high bidder for 36 C block licenses. On May 5, 1999, Leap filed a FCC Form 601 long-form application ("Long Form Application") for authorization to construct and operate these facilities. On June 3, 1999, Petitions to Deny Leap's Long Form Application were filed by Carolina PCS and Mountain Solutions Ltd., Inc. ("Mountain Solutions"), and a Petition to Defer or, in the Alternative, to Condition Grant, was filed by Pacific Eagle Investments, Ltd. ("Pacific Eagle"). B. The Leap Spin-Off Transaction 4. According to the Petitioners, Leap's relationship with its former parent company, QUALCOMM, has raised an issue as to whether Leap is qualified to hold C or F Block PCS licenses. On September 23, 1998, QUALCOMM, a large manufacturer of telecommunications equipment and infrastructure based on CDMA technology, divested its worldwide carrier operating assets by spinning off these assets to its then wholly-owned subsidiary, Leap ("Spin-Off Transaction"). According to Leap, the purposes of the Spin-Off Transaction were to relieve QUALCOMM of the burden of negative earnings from these operations, to remove the tension presented by QUALCOMM's competing with its equipment customers, and to permit the value of the interests involved to be fully realized under accounting rules. 5. To effect the separation, QUALCOMM transferred business assets, cash, and payment rights to Leap. The primary business assets transferred to Leap were QUALCOMM's carrier operations, which included a small interest in a domestic PCS operator and substantial interests in approximately seven foreign operators. Leap and QUALCOMM entered into several agreements that are relevant to our analysis of Leap's qualifications: (1) Separation and Distribution Agreement (the master agreement for the Spin-Off Transaction), (2) Credit Agreement, (3) Master Agreement Regarding Equipment Procurement ("Procurement Agreement"), (4) Interim Services Agreement, and (5) a warrant for QUALCOMM's purchase of Leap common shares ("Warrant"). In addition to these contracts, Leap and QUALCOMM had indirect ties through equipment and infrastructure supply contracts between QUALCOMM and the operating companies in which Leap now holds QUALCOMM's former equity interest. 6. Relevant for our purposes, the Separation and Distribution Agreement provides that, until January 1, 2004, Leap will, subject to limited exceptions, deploy only systems using QUALCOMM's proprietary cdmaOne technology. In addition, the agreement provides that, until January 1, 2004, Leap may invest in companies that use only cdmaOne technology in connection with terrestrial wireless activities. 7. The Credit Agreement enables Leap to borrow up to $35.2 million from QUALCOMM to meet the normal working capital and operating expenses of Leap, and $229.8 million from QUALCOMM for strategic capital investments. QUALCOMM will have a first priority security interest in substantially all of the assets of Leap for so long as any amounts are outstanding under the agreement. The agreement restricts Leap's ability to incur additional indebtedness, merge with other companies, and consolidate or transfer licenses. It also restricts certain uses of the funds. There is no indication that debt held by QUALCOMM pursuant to the Credit Agreement is convertible to equity. 8. The Procurement Agreement provides that (1) Leap will purchase from QUALCOMM, for a five-year period, not less than 50 percent of Leap's own direct requirements for infrastructure and subscriber equipment; (2) Leap may not invest in any U.S. operator for a four-year period unless that operator agrees to purchase not less than 50 percent of its equipment from QUALCOMM; and (3) after the four-year period is over, Leap will use commercially reasonable efforts to obtain similar agreements from U.S. operators in which it invests. The obligations under the Procurement Agreement are imposed on Leap as long as QUALCOMM submits a bid to Leap that is not more than 10 percent above the lowest acceptable competing bid. In formulating its bid, QUALCOMM is given a "last look" opportunity to review the competing bids before submitting its bid, virtually assuring that QUALCOMM could submit a winning bid if it so chooses. After Leap has purchased $250 million worth of infrastructure equipment and related services or subscriber equipment, Leap would not be required to award QUALCOMM a contract unless QUALCOMM's bid is no higher than the lowest acceptable competing bid. 9. Leap and QUALCOMM also executed a stock warrant giving QUALCOMM the right to purchase up to 4,500,000 shares of Leap common stock, which constitutes approximately 14.61 percent of Leap's equity. QUALCOMM has not yet exercised any of its rights under the Warrant and, therefore, currently does not hold shares in Leap. The Warrant, which expires on September 23, 2008, is exercisable at the option of the holder and is transferable. To the extent that the Warrant has not been exercised prior to its expiration, and the share price at the time is greater than the exercise price, exercise of the remaining share rights under the Warrant occurs automatically. 10. QUALCOMM's officers and directors hold approximately nine percent of Leap's equity. Therefore, if the Leap shares held by QUALCOMM and by QUALCOMM's officers and directors are combined, the combined holding would equal approximately 23.61 percent of Leap's equity. In determining QUALCOMM's holdings in Leap, the Warrant provides that QUALCOMM will calculate the amount of its interest in aggregate with the interests held in Leap by its officers and directors. Notwithstanding any other provision of the Warrant, the Warrant precludes QUALCOMM, for the life of the Warrant, from exercising the Warrant in a manner that would preclude Leap from qualifying as a PTC with widely disbursed voting power under the Commission's rules or cause any change in Leap's status as a "very small business" designated entity under the Commission's rules. Any such exercise is void ab initio. Because Leap seeks to qualify under the PTC Exception, QUALCOMM may exercise the Warrant only to the extent that the combined holdings will not exceed 15 percent of Leap's equity. 11. In addition to the aggregation requirement in the Warrant, Leap and QUALCOMM have entered into an Agreement Concerning Share Ownership that reiterates QUALCOMM's commitment to calculate its ownership in Leap on an aggregated basis with the QUALCOMM officers and inside directors. QUALCOMM also has committed to implement an internal compliance program to monitor the amount of shares held by its officers and inside directors so that the aggregated total of equity held at any given time will not exceed 15 percent. 12. During the pendency of the applications, Leap informed the Commission that the additional ties between Leap and QUALCOMM with respect to QUALCOMM's provision of equipment and infrastructure to Leap's foreign operating companies would be severed when QUALCOMM sold much of its infrastructure business to Telefonaktiebolaget LM Ericsson ("Ericsson"). In March 1999, QUALCOMM and Ericsson announced that they had settled longstanding patent litigation. As part of the settlement, Ericsson agreed to purchase QUALCOMM's domestic and international wireless infrastructure business. The effect of this transaction on Leap is that a number of its contractual ties with QUALCOMM with respect to the provision of infrastructure to Leap's operating companies will be severed when Ericsson assumes QUALCOMM's obligations under those contracts. Specifically, Ericsson will assume, pay, perform and discharge all of QUALCOMM's obligations under agreements relating to supply of infrastructure equipment to Leap. Ericsson will assume and be responsible for all obligations of QUALCOMM under all provisions of the Procurement Agreement that relate to infrastructure equipment and the various existing agreements between QUALCOMM and the operating companies that Leap acquired in the Spin-Off Transaction. Further, the agreement provides that QUALCOMM will phase out its vendor financing to Leap and the operating companies. C. Legal Standard 13. To be eligible to acquire C or F block PCS licenses, an applicant must demonstrate that it, together with its affiliates and persons or entities that hold interests in the applicant and their affiliates, have gross revenues for each of the past two years of less than $125 million and total assets of less than $500 million. The gross revenues and total assets of the applicant and its affiliates, and of persons or entities that hold interests in the applicant and their affiliates, shall be attributed to the applicant and considered on a cumulative basis and aggregated for purposes of determining whether the applicant is eligible for a license for frequency blocks C or F. To qualify as a "very small business," an applicant must demonstrate that it, together with its affiliates or entities that hold interests in the applicant and their affiliates, has average gross revenues that are not more than $15 million for the preceding three years. 14. Section 24.709(b)(2) of the Commission's rules provides an exception to the general eligibility requirement described above, whereby the Commission will not attribute to the applicant the assets and revenues of entities that hold interests in the applicant, and its affiliates, if the applicant qualifies under the PTC Exception. For the purposes of this exception, a PTC is defined as a business entity organized under the laws of the United States: (1) whose shares, debt, or other ownership interests are traded on an organized securities exchange within the United States; (2) in which no person owns more than 15 percent of the equity or possesses, directly or indirectly, through the ownership of voting securities, by contract or otherwise, the power to control the election of more than 15 percent of the members of the board of directors or other governing body of such PTC; and (3) over which no person other than the management and members of the board of directors or other governing body, has de facto control. For purposes of this section of the rules, the term "person" includes investors that are commonly controlled under the indicia of control set forth in the definition of "affiliate." If an applicant satisfies these requirements, only the gross revenues and total assets of the applicant and its affiliates are considered for the purposes of section 24.709(a). 15. Section 24.839(d)(2) of the Commission's rules provides that applicants seeking to acquire C and F block PCS licenses through assignment must be qualified at the time that they file their application. This section, therefore, applies to the Assignment Application and the four licenses that Leap seeks to acquire from AirGate. Similarly, pursuant to section 24.709(a)(1) of the Commission's rules, Leap's qualification to bid in Auction No. 22 must be viewed as of the time it filed its FCC Form 175 ("Short Form") to participate in the Auction. III. DISCUSSION 16. We find that Leap is qualified to hold C and F Block PCS licenses under the PTC Exception, provided that it meets certain conditions. Accordingly, as explained below, we conditionally grant (1) the 36 C Block licenses for which Leap was the net high bidder in Auction No. 22 and (2) consent to the assignment of four F Block licenses from AirGate to Leap. 17. SBA and Carolina PCS argue that sections 24.839(d)(2) and 24.709(a)(1) of the Commission's rules prevent grant of the Assignment Application and the Long Form Application, respectively, because Leap was not qualified as a designated entity at the time these applications were filed. Similarly, Western Wireless argues that two letter rulings released by the Auctions and Industry Analysis Division prior to Auction No. 22 prevent grant of the Long Form Application, because Leap was not qualified at the time it filed its Long Form Application. We disagree. Although sections 24.839(d)(2) and 24.709(a)(1) require us to find that an applicant is qualified as of the time the application is filed, they do not preclude us from imposing conditions as part of the requisite finding. The conditions that we impose on the grant of Leap's licenses are fully consistent with Leap's assurances, from the time it filed its application and onward, that it will not be controlled by, or otherwise be an affiliate of, QUALCOMM. The conditions serve, by addressing collateral aspects of the relationship between Leap and QUALCOMM, to forestall any question that Leap will be able to effectuate its assurances. By seeking to avoid any possible doubts as to this matter, we are not condoning an application by an unqualified applicant. Rather, we are using our discretion to make a grant in the manner that best serves the public interest. A. PTC Exception 1. Shares Traded on a Securities Exchange 18. The first criterion of the PTC Exception provides that a PTC must be an entity organized under the laws of the United States whose shares, debt, or other ownership interests are traded on an organized securities exchange within the United States. Leap satisfies this criterion because it is a Delaware corporation, and its shares are publicly traded on the Nasdaq National Market. 2. 15 Percent Equity 19. The second criterion of the PTC Exception provides, in part, that no person may own more than 15 percent of the equity of the applicant. Leap satisfies the second criterion of the PTC Exception, because we find that no party holds more than 15 percent of Leap's equity. Because Leap is a publicly traded company, the great majority of its shares are held in relatively small percentages by public investors. The only interest that approaches 15 percent is QUALCOMM's interest under the Warrant. 20. Under the Fifth MO&O, ownership interests, such as warrants and options, are calculated on a fully diluted basis. Dilution is required to ensure that such future interests "do not threaten the composition of designated entities" and, where "[a]t the end of the five-year [designated entity holding] period, it will still be the designated entity's decision as to whether to sell the business, which ensures that the designated entity controls the decision whether to sell." Because the Commission's PCS rules require that interests such as warrants be treated as fully diluted, QUALCOMM must be considered to hold now the maximum amount of shares permissible under the Warrant. 21. Based on the structure created by the Warrant and the Agreement Concerning Share Ownership, we find that the maximum number of shares that QUALCOMM may hold under the Warrant will not exceed 15 percent of Leap's equity. The current Warrant permits QUALCOMM to purchase up to 4,500,000 shares of Leap's common stock, which constitutes approximately 14.61 percent of Leap's total equity. The Warrant, however, also obligates QUALCOMM to aggregate its shares with the shares and options of its officers and directors and limits the amount of shares that QUALCOMM may purchase such that the aggregated amount of shares owned by QUALCOMM and shares and options owned by its officers and directors will not exceed 15 percent of Leap's equity. 22. These two obligations are also contained in the Agreement Concerning Share Ownership. QUALCOMM further commits in the Agreement Concerning Share Ownership to implement a monitoring program to ensure compliance with the 15 percent aggregate limit. Accordingly, as we view this structure, QUALCOMM may not exercise its rights under the Warrant in a manner that would cause the aggregate of its shares and those of its officers and directors to exceed 15 percent of Leap's equity. Because QUALCOMM's officer and directors currently hold approximately nine percent of Leap's equity, QUALCOMM may purchase shares under the Warrant in an amount that equals no more than approximately six percent of Leap's equity. If the number of shares and options held by QUALCOMM's officer and directors changes, or if the structure of Leap's equity changes, QUALCOMM would be able to purchase additional shares, as long as the aggregate amount of its interest and that of its officers and directors does not exceed 15 percent of Leap's equity. 23. We do not agree with Petitioners that the obligations imposed upon QUALCOMM in the Warrant and the Agreement Concerning Share Ownership constitute either an impermissible savings clause or a time-restricted call option under the Fifth MO&O such that QUALCOMM's interest must be viewed as 23.61 percent. We do not believe that the combined interest of QUALCOMM and its officers and directors threatens Leap's status as a designated entity or puts Leap in a position where, at the end of the designated entity holding period applicable to its licenses, it will not have complete control of decisions involving whether to sell equity, as is required by the Fifth MO&O. QUALCOMM's obligation under the Warrant to aggregate its shares with the shares and options held by its officers and directors and the overall 15 percent aggregate limit do not expire until September 23, 2008. The designated entity holding period for AirGate's licenses will expire on April 28, 2002. The designated entity holding period for the licenses that Leap will acquire pursuant to Auction No. 22 will expire in 2004. Thus, the obligations in the Warrant and the Agreement Concerning Share Ownership exceed not only the five-year designated entity holding period for both the C and F Block licenses it seeks to acquire but also the license term of the F Block licenses that Leap seeks to acquire from AirGate. In addition, the obligations will last nine of the ten years of the license term for the licenses granted pursuant to Auction No. 22. We conclude, therefore, that the structure does not afford QUALCOMM the ability to change Leap's status as a designated entity by purchasing shares under the Warrant, and we do not consider the provisions creating these obligations to constitute an impermissible savings clause or time restriction. 24. Accordingly, QUALCOMM does not hold more than 15 percent of Leap's equity. Because we find that no party holds more than 15 percent of Leap's equity, Leap satisfies this criterion of the PTC Exception. 3. 15 Percent of the Board of Directors 25. The second criterion of the PTC Exception also provides that no person may control the election of more than 15 percent of the board of directors. Western Wireless argues that, if QUALCOMM is considered to hold 18 percent of Leap, as was permitted by the original Warrant, then QUALCOMM would be entitled to elect two board members, which exceeds the 15 percent limit, and would allow QUALCOMM to control Leap. Leap argues that QUALCOMM has no right to elect any members of the board of directors of Leap. Because cumulative voting is not provided for in Leap's corporate documents, it is highly unlikely that QUALCOMM, acting alone or in combination with its officer and directors, would be able to control the election of particular directors. We conclude, therefore, that QUALCOMM cannot control the election of more than 15 percent of Leap's board of directors. 4. De Facto Control 26. The final requirement for the PTC Exception is that no person, other than the management and members of the board of directors or other governing body of such publicly traded corporation, in their capacities as such, has de facto control over the corporation. The determination of the existence of de facto control is inherently factual and must, therefore, be determined on a case-by- case basis. Because there is no exact formula to ascertain de facto control, we must look at the totality of the circumstances and all relevant factors. The six factors upon which we have traditionally relied, established in Intermountain Microwave, represent the normal incidents of responsibility for the operation and control of a company providing wireless services, such as Leap, and therefore may be used as guidelines. The factors are: (1) who determines and carries out the policy decisions, including preparing and filing applications with the Commission; (2) who is in charge of the payment of financing obligations, including operating expenses; (3) who controls daily operations; (4) who is in charge of employment, supervision, and dismissal of personnel; (5) does the licensee have unfettered use of all facilities and equipment; and (6) who receives monies and profits from the operation of the facilities. 27. Control of Policy Decisions. Of the six Intermountain Microwave factors, we are the most concerned about the first factor, the control over Leap's policy decisions. We are specifically concerned about Leap's relationship with QUALCOMM prior to the Spin-Off Transaction and the impact that this relationship has on Leap's major policy decisions. Leap contends that all of its policy decisions have been made by the officers and directors of Leap. While we believe that this is the case on a going- forward basis, a number of major initial decisions affecting Leap were made by QUALCOMM prior to the Spin-Off Transaction. Pursuant to the Separation and Distribution Agreement, for example, Leap is prohibited from deploying or investing in technology other than QUALCOMM's proprietary cdmaOne. In addition, the Procurement Agreement requires Leap to purchase from QUALCOMM, for a five-year period, not less than 50 percent of Leap's own direct requirements for infrastructure and subscriber equipment, up to a total of $250 million, provided that QUALCOMM's bid is no more than ten percent above the lowest acceptable bid. QUALCOMM also has the opportunity to review the bids of other parties and reform its own bid before the vendor is selected. Further, the Procurement Agreement prohibits Leap from investing in any U.S. Operator, for a four-year period, unless that operator agrees to purchase not less than 50 percent of its equipment from QUALCOMM. Finally, all of Leap's debt financing is provided by QUALCOMM (over $250 million). 28. These agreements, all of which were executed before the Spin-Off Transaction, raise concerns regarding Leap's ongoing relationship with its former parent. To address these concerns, we grant the licenses at issue in this proceeding on the condition that Leap comply with the requirements outlined below. We find that satisfaction of the following requirements will eliminate any concerns that there has not been a "clear fracture" between Leap and QUALCOMM and that Leap's policy decisions are exercised independently of QUALCOMM's influence. First, prior to consummation of the transaction with AirGate, Leap must eliminate the restriction in Section 5.2 of the Separation and Distribution Agreement that requires Leap's U.S. operations to use only cdmaOne technology and to refrain from supporting GSM, TDMA or any other digital technologies in competition with cdmaOne. Second, prior to consummation of the transaction with AirGate, Leap must eliminate the restriction in section 5.1 of the Separation and Distribution Agreement that requires Leap's U.S. operations to invest in companies that use only cdmaOne technology and agree to procure infrastructure and subscriber equipment from QUALCOMM in accordance with the Procurement Agreement. Third, Leap must amend the Procurement Agreement to eliminate QUALCOMM's right to review bids submitted by other equipment vendors prior to submitting its own bid to Leap. Fourth, for the duration of the designated entity holding period, Leap is required to ensure that individuals who are now, or were previously, officers or directors of QUALCOMM do not comprise a majority of Leap's Board of Directors or a majority of Leap's officers. Fifth, within 180 days of the release of this Order, the QUALCOMM/Ericsson settlement must be consummated on substantially the same terms as Leap has represented in the Thornley Declaration. Finally, within 18 months of the release of this Order, Leap must take steps so that QUALCOMM, or any QUALCOMM affiliate, holds no more than 50 percent of Leap's outstanding debt obligations. 29. Control of Daily Operations. The only other Intermountain Microwave factor raised by a Petitioner pertains to control over Leap's daily operations. Carolina PCS argues that the services offered to Leap by QUALCOMM pursuant to the Interim Services Agreement, namely accounting, financial management, tax, payroll, shareholder and public relations, legal, human resources, procurement, real estate management and "other" administrative functions, give QUALCOMM the ability to control Leap. We disagree with Carolina PCS's conclusion. That QUALCOMM offered Leap these services does not provide evidence that QUALCOMM controls Leap's daily operations. In fact, the record reveals that Leap does not use any of the above-referenced services offered by QUALCOMM. Rather, Leap is providing these services either through its own staffing or outside resources other than QUALCOMM. There also is no evidence that Leap has ceded either management or administrative functions to QUALCOMM. B. Affiliation 30. In addition to analyzing Leap's qualification for the PTC Exception, we must analyze whether QUALCOMM is an affiliate of Leap. Section 24.720(l)(1) of the Commission's rules defines "affiliate" as any individual or entity that: (1) directly or indirectly controls or has the power to control the applicant; (2) is directly or indirectly controlled by the applicant; (3) is directly or indirectly controlled by a third party or parties that also controls or has the power to control the applicant; or (4) has an "identity of interest" with the applicant. In the previous section, we determine that Leap is a publicly traded corporation with widely dispersed voting power and that QUALCOMM does not exercise de facto control over Leap. In light of our finding above that there is a clear separation between Leap and QUALCOMM, we find that QUALCOMM does not have the power to control Leap directly or indirectly. 31. Petitioners argue that QUALCOMM and Leap have common investments that create an "identity of interests" because QUALCOMM has equipment contracts with Leap and other operating companies in which Leap holds an interest. We disagree. That QUALCOMM supplies equipment to Leap and other operating companies in which Leap has an interest does not provide a basis for a finding that the companies are affiliates. Further, as explained above, we are granting these licenses on the condition that Leap and QUALCOMM make substantial changes to their contracts. These changes help eliminate any concerns we may have had that there is a substantial or material question as to whether Leap is qualified to hold C or F Block PCS licenses. 32. Petitioners also argue that the current composition of Leap's management evidences "a unity of interest and control" with QUALCOMM. Though some of QUALCOMM's former officers and directors are now officers and directors of Leap, this does not create identity of interest. None of Leap's officers and directors currently have a position with QUALCOMM, and they now have a fiduciary duty to serve Leap's shareholders. Further, as explained above, we are granting these licenses on the condition that Leap assures that individuals who are now or were previously officers or directors of QUALCOMM do not comprise the majority of Leap's officers and directors. Accordingly, the record does not support an argument that the composition of Leap's officers and directors creates an affiliate relationship between the companies. 33. We also disagree with Petitioners' arguments that QUALCOMM and Leap have affiliation through stock ownership. QUALCOMM's shareholders also became Leap's shareholders on the Distribution Date. Leap's shareholders and QUALCOMM's shareholders were, therefore, identical on that day. Public trading in the shares of each company began immediately, however, and, since that time, the composition of the shareholders of each company has changed. Because each company has thousands of individual shareholders, we cannot fairly find that the close identity between the two groups of shareholders that existed at the moment that the Spin-Off Transaction closed supports a finding of affiliation here. 34. Finally, the second and third affiliation criteria are not issues in this proceeding because (1) there is no evidence that a third party controls or has the power to control Leap and QUALCOMM, and (2) Leap does not, of course, control or have the power to control, QUALCOMM. C. Standing to File Petitions to Deny Leap's Long Form Application 35. Section 309(d)(1) of the Communications Act, as amended, permits any "party in interest" to file a petition to deny any application. To establish standing, a petitioner must allege sufficient facts to demonstrate that a grant of the subject application would cause the petitioner to suffer a direct injury and further demonstrate a causal link between the injury and the challenged action. In the competitive bidding context, as Leap argues in its opposition, the Bureau has previously decided that a petitioner has standing to challenge licenses won at auction only if the petitioner was qualified to bid in those markets. 36. Carolina PCS. Pursuant to Nextel License Acquisition Corp., Carolina PCS lacks standing to challenge Leap's Long Form Application because Carolina PCS was not qualified to bid in the relevant markets. In its petition to deny, Carolina PCS argues that, because it has standing in the Assignment Application proceeding, it has standing to petition Leap's Long Form Application. Carolina PCS argues that, if we were to grant Leap's Long Form Application before acting on its Assignment Application, that grant would effectively decide that Leap was eligible for grant of the Assignment Application, thereby rendering Carolina PCS's challenge to the assignment application moot. We need not decide whether Carolina PCS's theory of standing has merit, because we are acting on both Leap's Assignment Application and Long Form Application in this Order and, thus, have fully considered all of the arguments raised by Carolina PCS in both proceedings. Carolina PCS's argument, therefore, is moot. 37. Mountain Solutions. Leap was the net high bidder for two licenses in Auction No. 22 for which Mountain Solutions had been the net high bidder in an earlier auction. Mountain Solutions, however, failed to make its second down payment for these licenses as required by section 24.711(a)(2) of the Commission's rules. On October 1, 1998, the Commission denied Mountain Solutions' Application for Review of the Bureau's denial of Mountain Solutions' Emergency Petition for Waiver of the Commission's down payment deadline rule. Following the release of the October 1998 Order, Mountain Solutions filed a Notice of Appeal with the U.S. Court of Appeals for the District of Columbia Circuit, which is currently pending. Pursuant to section 1.2104(g)(2) of the Commission's rules, based on Leap's winning bids for these licenses, Mountain Solutions' default penalty amounts to $6.4 million. Mountain Solutions argues that, by bidding on licenses formerly held by Mountain Solutions, Leap has triggered this substantial default penalty that would not attach if Leap's Long Form Application is not granted. Therefore, Mountain Solutions argues that, because grant of Leap's Long Form Application will trigger the default penalty, it will suffer direct economic harm and, therefore, has standing to file its petition. 38. In its Opposition, Leap argues that Mountain Solutions has failed to demonstrate injury sufficient to confer standing. Leap argues that Mountain Solutions' alleged "injury" is not one that is traceable or causally linked to a grant or denial of Leap's Long Form Application; it is merely an application of the Commission's default penalty rules. Leap contends that any penalty imposed upon Mountain Solutions would have been incurred regardless of the identity or qualifications of the winning bidder for the licenses in question. 39. We agree. Pursuant to sections 1.2109 and 24.711(a)(2) of the Commission's rules, Mountain Solutions was in default after it failed to make its second down payment. As a result, it is subject to the Commission's default payment provisions in section 1.2104(g)(2). The injury Mountain Solutions incurred resulted from its default, not from the grant of Leap's licenses. Moreover, Mountain Solutions has not demonstrated that the amount of the penalty to be assessed will be greater because Leap's applications were granted in lieu of some other applicant's. Accordingly, because Mountain Solutions is not directly injured by the grant of the Leap's Long Form Application, we dismiss its petition for lack of standing. D. Pacific Eagle's Petition Against Leap's Long Form Application 40. On June 3, 1999, Pacific Eagle Investments, Ltd. ("Pacific Eagle") filed a Petition to Defer or, in the Alternative, to Condition Grant of Leap's Long Form Application for three markets, arguing that the three licenses are part of the pending bankruptcy estate of the former licensee, DCR PCS, Inc., of which Pacific Eagle and several of its affiliates are secured creditors. 41. On November 4, 1996, the Commission conditionally granted 43 C block PCS licenses to DCR PCS. On March 31, 1997, DCR PCS, and its parent company, Pocket Communications Inc. ("Pocket") (collectively, "Debtors"), filed Chapter 11 petitions in the Bankruptcy Court for the Northern District of Maryland ("Bankruptcy Court"). Pacific Eagle, as a secured creditor of the Debtors, is a participant in the Chapter 11 proceedings. In an effort to provide limited relief for C block licensees having difficulty meeting their financial obligations to the Commission, on October 16, 1997, the Commission released the Election Report and Order. Pursuant to the Election Report and Order, the Debtors elected to retain all or part of twelve of DCR PCS's C block licenses and relinquish its authorization to use the remaining spectrum. The Bankruptcy Court approved the Debtors' conditional election on June 4, 1998, over the objections of Pacific Eagle. On October 16, 1998, the Debtors filed an emergency motion for authority to make their conditional election effective, which the Bankruptcy Court granted on October 29, 1998 ("Election Order"). On November 6, 1998, Pacific Eagle filed with the Bankruptcy Court a motion for reconsideration of the Election Order. On March 3, 1999, the Bankruptcy Court released an order denying Pacific Eagle's motion for reconsideration, which Pacific Eagle appealed to the United States District Court for the District of Maryland, on March 11, 1999. On March 12, 1999, the Bankruptcy Court stayed its order denying the motion for reconsideration pending appeal. Pacific Eagle's appeal of the Election Order is still pending. 42. On June 3, 1999, Pacific Eagle filed its Petition against Leap's acquisition of these licenses pursuant to Auction No. 22. Because Pacific Eagle's appeal of the Election Order is pending, Pacific Eagle argues that the Bureau should defer grant of the three licenses, or, at a minimum, conditionally grant the license applications subject to the possible return of the licenses to the Debtors' Chapter 11 estate, or as otherwise may be directed by the courts as a result of Pacific Eagle's pending Election Order appeal. 43. In the Bureau's December 23 Public Notice, the Bureau stated that in situations in which auctioned licenses are involved in a pending proceeding, such licenses will be granted at the close of the auction in order to serve the public interest in prompt implementation of PCS service, and that the grant of such license will be conditioned on the outcome of pending proceedings. In a further February 24 Public Notice, the Bureau advised auction participants that, in formulating their business strategies, they must take into account the risk that a pending proceeding might ultimately displace a winning bidder. Therefore, the public was on notice that the grant of certain licenses would be conditioned upon the outcome of pending proceedings. As a result, Pacific Eagle's Petition requests action that the Bureau has already taken in its December 23 Public Notice and February 24 Public Notice. Therefore, Pacific Eagle's request that we condition the grant of the licenses is moot. Moreover, because applicants were aware of the consequences of the outstanding proceedings, we will not defer grant of the above- captioned licenses and deny Pacific Eagle's Petition. V. CONCLUSION 44. We conditionally grant the 36 licenses that Leap won in Auction No. 22 and the assignment of four F block licenses from AirGate to Leap. By making the changes required above, Leap qualifies to hold C and F Block licenses under the PTC Exception. Accordingly, only the gross revenues and total assets of Leap and its affiliates are considered for the purposes of determining whether Leap qualifies to hold the C and F block licenses in question. Because the gross revenues and total assets of Leap and its affiliates meet the thresholds set forth in the Commission's rules, Leap is eligible to hold C and F Block licenses as a "very small business." VI. ORDERING CLAUSES 45. Accordingly, IT IS ORDERED that, pursuant to sections 4(i) and 309(d)(2) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 309(d)(2), and section 0.331 of the Commission's rules, 47 C.F.R.  0.331, the Petition to Deny and supporting pleadings filed by Carolina PCS I Limited Partnership on December 14, 1998 IS HEREBY DENIED. 46. IT IS FURTHER ORDERED that, pursuant to sections 4(i) and 309(d)(2) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 309(d)(2), and section 0.331 of the Commission's rules, 47 C.F.R.  0.331, the Petition to Deny and supporting pleadings filed by the United States Small Business Administration on December 14, 1998 IS HEREBY DENIED. 47. IT IS FURTHER ORDERED that, pursuant to sections 4(i) and 309(d)(1) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 309(d)(1) and sections 0.331, 1.2108 and 24.830 of the Commission's rules, 47 C.F.R.  0.331, 1.2108 and 24.830, the Petition to Deny Leap's Long Form application filed by Mountain Solutions Ltd., Inc. on June 3, 1999, IS HEREBY DISMISSED. 48. IT FURTHER IS ORDERED that, pursuant to sections 4(i) and 309(d)(1) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 309(d)(1) and sections 0.331, 1.2108 and 24.830 of the Commission's rules, 47 C.F.R.  0.331, 1.2108 and 24.830, the Petition to Deny Leap's Long Form application filed by Carolina PCS I Limited Partnership on June 3, 1999, IS HEREBY DISMISSED. 49. IT FURTHER IS ORDERED that, pursuant to section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), and sections 0.331, 1.2108 and 24.830 of the Commission's rules, 47 C.F.R.  0.331, 1.2108 and 24.830, the Petition to Defer or, in the Alternative, to Condition Grant of Leap's Long Form Application filed by Pacific Eagle Investments, Ltd., Pacific Eagle Investment (L) Limited and Masa Telecom, Inc. on June 3, 1999 IS HEREBY DENIED in part and DISMISSED in part. 50. IT FURTHER IS ORDERED that, pursuant to section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), grant of the Assignment Application and the Long Form Application are subject to the condition that, within 180 days of the release of this Order, the settlement between QUALCOMM and Ericsson must close on substantially the same terms and conditions as detailed in the Thornley Declaration. 51. IT IS FURTHER ORDERED that, pursuant to section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), grant of the Assignment Application and the Long Form Application are subject to the condition that Leap ensure that individuals who are now or were previously officers or directors of QUALCOMM do not comprise a majority on Leap's Board of Directors or a majority of Leap's officers through the designated-entity holding period applicable to these licenses. 52. IT IS FURTHER ORDERED that, pursuant to section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), grant of the Assignment Application and the Long Form Application are subject to the condition that, before consummation of the assignment, sections 5.1 and 5.2 of the Separation and Distribution Agreement be amended to eliminate the requirement that Leap's U.S. operations are restricted from deploying, or investing in companies that deploy, only QUALCOMM's proprietary cdmaOne technology. 53. IT IS FURTHER ORDERED that, pursuant to section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), grant of the Assignment Application and the Long Form Application are subject to the condition that the Master Agreement Regarding Equipment Procurement be amended, before consummation of the assignment, to eliminate QUALCOMM's preferential treatment in the equipment vendor selection process, specifically, those provisions that provide QUALCOMM the right to notification of the bids of others and an opportunity to reduce its bid to assure its right to supply equipment to Leap's U.S. operations. 54. IT IS FURTHER ORDERED that, pursuant to section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), grant of the Assignment Application and the Long Form Application are subject to the condition that the Credit Agreement be amended to give effect to the conditions stated above in Paragraphs 52 and 53. 55. IT IS FURTHER ORDERED that, pursuant to section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), grant of the Assignment Application and the Long Form Application are subject to the condition that, within 18 months of the grant of the subject applications, Leap must reduce the percentage of its debt that is held by QUALCOMM or any QUALCOMM affiliate to no more than 50 percent. 56. IT IS FURTHER ORDERED that, pursuant to section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), grant of the Assignment Application and the Long Form Application are subject to the condition that the Agreement Concerning Share Ownership be amended in all respects necessary for that agreement to comport with this Order and that the compliance monitoring program described in that Agreement be implemented prior to consummation of the assignment transaction. 57. IT IS FURTHER ORDERED that, pursuant to section 4(i) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), the approval of the assignment of AirGate's licenses to Leap is conditioned upon the execution by Leap, AirGate and the Commission of all Commission loan documents, unless the licenses being assigned have been paid in full. Unless the licenses that AirGate will assign to Leap have been paid in full, this approval is conditioned upon Leap's execution of the applicable financing statements (i.e. the UCC-1 Forms) and payment, on or before the consummation date, of all costs associated with the preparation and recordation of the financing statements. In addition, all installment payments must be current on the consummation date. To be current, the installment payment may not be in the non-delinquency period or grace period. In addition, there must be no outstanding fees, including late fees, due to the Commission. No licenses will be issued to the assignee until the Commission receives notification pursuant to section 24.839(b)(4) of the Commission's rules, 47 C.F.R.  24.839(b)(4), that all conditions that must be met at or before consummation have been satisfied, including execution of the appropriate financing documents. Failure of the parties to comply with any of the financial obligations described above will result in automatic cancellation of the Commission's approval hereunder and in dismissal of the Assignment Application. 58. IT IS FURTHER ORDERED that, pursuant to sections 4(i) and 309(d)(2) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 309(d)(2), and sections 0.331, 24.830,and 24.839 of the Commission's rules, 47 C.F.R.  0.331, 24.830, and 24.839, the assignment application filed by Cricket Holdings, Inc. and AirGate Wireless, L.L.C. on October 5, 1998, in the above-captioned proceeding IS HEREBY GRANTED, subject to the above conditions. FEDERAL COMMUNICATIONS COMMISSION Steven Weingarten Chief, Commercial Wireless Division Wireless Telecommunications Bureau